Is our unemployment crisis too severe to be remedied through growing the economy? Yes. Do our leaders acknowledge this? No.
Being morbidly obese for decades can cause arterial blockages that require bypass surgery. A cardiologist is likely to encourage a healthy diet and regular exercise while cautioning that this will be insufficient to avoid heart failure.
Once arteries are clogged they can no longer provide sufficient oxygen. This makes exercising difficult and dangerous. Similarly, the choke point restricting employment growth in our economy is access to sufficient discretionary spending power. Economists would call this the binding constraint.
By reducing public sector corruption and incompetence we could achieve higher economic growth through increasing commodity exports. This would benefit investors and the political elites who sit atop a widespread patronage network. That is, it would temporarily sustain SA’s status quo — which, ultimately, is not viable politically or economically.
Most poor countries rely on commodity exporting and, as this creates few higher-skilled jobs, they remain poor. While high workforce participation is crucial, growing a country’s discretionary spending power also requires an expanding skill base. This can happen at school or on the job.
In today’s highly integrated and rapidly evolving global economy, productivity-enhancing skills tend to be learnt at work. Competitive pressures make this more likely when workers are adding value to goods or services to be consumed by affluent consumers.
Someone with badly clogged arteries will look healthier after losing 20kg, but the risk of heart failure tends to remain perilously elevated. Higher GDP growth through increasing commodity export volumes will improve a national government’s capacity to service debt and fund patronage, but secondary growth effects across the economy will be meagre.
Growing our nation’s highly deficient discretionary income is also greatly limited by so many households being overly reliant on expensive debt. Many low-income borrowers believe that if a bank approves their loan application this means they can afford it. Others believe that if the banks profitably lend to such borrowers this must be good for the economy. Both beliefs wilt under scrutiny.
If doubts about a country’s ability to service its debts trigger a debt crisis leading to an IMF-styled solution path, domestic consumption capacity could be increased by restructuring government and household debts. The need to recapitalise the banks and attract fresh debt funding would then provide incentives for political elites to agree to sweeping policy reforms.
But in SA’s case unless such reforms lead to a sustained surge in value-added exporting, growth will not trigger adequate workforce participation. Broad economic upliftment requires steady increases in productivity while saving and investing prudently. Increasing GDP through expanding commodity exports will do little, if anything, to mitigate our having the world’s most severe youth unemployment crisis.
Heavy reliance on commodity exporting correlates with low per capita income largely because it encourages patronage while muting the competitive pressures that spur rising productivity in rapidly developing countries. Today’s high-performing nations create substantial employment by competing to add value to exports. Conversely, as the ANC’s electoral strategy relies heavily on patronage, it is wedded to the BEE and localisation policies that entrench such high unemployment.
Perhaps voters will express sufficient dissatisfaction in 2029 that such policies will be abandoned. In the meantime, it would be in the interests of the ANC and all South Africans for the coalition government to provide special dispensations from BEE and localisation policies for value-added exporters. Otherwise, ultra-elevated unemployment will continue to erode our political and economic stability.
After two decades of cardiovascular decline a point is reached where patients can no longer control their own destiny. While it’s never easy to commit to major surgery or sweeping economic reforms, we are well past the point where improved public sector competence alone would suffice. We need policy reforms to bypass excessive reliance on SA’s economically weak consumers.
• Hagedorn (@shawnhagedorn) is an independent strategy adviser.
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