A French lesson

France’s 35-hour working week is coming under increasingly heavy fire for undermining economic growth and discouraging job creation. The reasoning of the politicians who pushed for the shorter week had a surface appeal — high unemployment will fall if people in jobs work fewer hours. Employers will hire more workers. 

If only the world worked that way. The fundamental flaw is that French consumers also like low prices — if workers elsewhere can produce goods and services more cheaply by working beyond 4pm, the domestic economy will shed jobs. Even if France did not trade with other nations the policy would be counterproductive — because the 35-hour working week reduces the benefits to employers without reducing costs. Fewer people are hired, not more.

The South African version of the 35-hour work week is black economic empowerment (BEE), which the politicians believe will redress economic inequities. But, as in France, it is becoming increasingly clear that economic fundamentals are not amenable to political persuasion.

Of course, leaving market forces to set the working week historically did, and still could, carry unacceptable social costs. Some BEE legislation is also desirable. But in implementing such market interventions, more thought should be given to sequencing and proportion. 

Turning many anti-apartheid activists into prosperous business people was — rightly — one of the first things to happen under the African National Congress government. But what is achieved by making a few people filthy rich? The beneficiaries of BEE policy now include those who never stood up to the old regime, and even some who were too young to vote in the 1994 election.

So much money is involved in BEE deals that they have dominated high-end business focus. Meanwhile, the unemployed remain just that — unemployed.

South Africa has a dearth of skilled labour and capital, and maximising economic growth and opportunity requires matching what capital there is to a mix of skilled and unskilled labour. The more capital and skilled labour are joined in the mix, the more demand will increase for the hiring and training of the less skilled. 

The number of jobless is so large relative to the economy’s productive capacity that racially-based business practices quickly become counter-productive.

One can argue that the strain BEE puts on economic growth is justified — but only to a degree. The aspects of the legislation that seek to redistribute ownership clearly work against the chronically unemployed. 

More equal wealth distribution is an important objective, but it will inevitably take many years. Trying now to make a modest number of people much richer should be a lower priority than creating jobs in a country with the world’s highest unemployment rate.

Only when the blight of joblessness is meaningfully addressed will it be time to accelerate the rebalancing of ownership — and then it can be done more broadly.

BEE ownership policies have laudable socio-political aims, but are neither positive nor even neutral for the economy. Unemployment can only be meaningfully reduced by substantially boosting economic growth, while South Africa’s low savings rate heightens the challenge and sharpens the need for policies to make domestic firms more competitive and encourage inward foreign investment. 

Most French people are relatively wealthy, or at least feel reasonably hopeful about the future — it would take a lot of badly designed legislation over a long period to change this.

But while millions of South Africans have no hope of escaping extreme poverty, the country’s future can be neither stable nor secure.

Policies that promote accelerated economic growth and skills development should be much higher up the government’s agenda than ownership redistribution.

The South African economy is atypical — the currency is susceptible to severe speculative swings, as are the prices of commodities that dominate export flows, and there is an extreme imbalance between ethnic groups that control wealth, on the one hand, and political power, on the other. 

Global growth is currently fuelling South Africa’s expansion through demand for commodities, but even with this windfall, high consumer confidence and low inflation, unemployment is scarcely budging. Capital is largely flowing to areas that are not employment-intensive, such as imported vehicles, higher-priced homes and empowerment deals. When the commodity cycle reverses, the pain will be correspondingly acute.

Like the French, we should not shy away from realigning policy priorities to fit economic constraints. 

Shawn Hagedorn is an independent business strategy adviser who writes on macroeconomic policy