SA needs low-wage, labour-intensive growth strategy to boost economy

Faced with an economy that has been in decline for more than a decade and given the slowing demand from our trading partners, the State of the Nation address should have pointed in an emphatic way, to a radical and fundamental policy shift in strategies that are aimed at economic regeneration and the way we need to engage with business in order to develop a shared strategic vision.

The National Development Plan (NDP) is frequently being punted, by government and some private-sector business leaders, as the magical instrument that will provide the “radical” economic transformation required to propel South Africa on an accelerated and labour-intensive growth trajectory. The fundamental question we have to deal with is whether the current menu of growth policy documents: Reconstruction and Development Programme (1994), Growth, Employment, and Redistribution (1996), Accelerated and Shared Growth Initiative-South Africa (2006), the New Growth Path (NGP of 2010) and the NDP, will indeed deliver the desired outcomes.

The reality we must face and acknowledge is that our economy has been shedding jobs consistently in all major formal sectors for more than 20 years as the key drivers of production gradually shifted from labour to capital. The mining sector has been shedding jobs for a long while and more job shedding is planned in the short and medium term. The result is that we now sit with millions of unskilled workers without jobs. They are typically uneducated, black and mainly women. We need jobs that are suitable for this category of job seekers.

But we must first have a specific diagnosis about the type of problem we must deal with in order to make appropriate choices about the remedy we need to apply. What I see is that there is gravitation towards fudging the issues in order to avoid the truth in front of us, because in doing so, we might dilute the ideological obsession within the ruling alliance about this undefined concept of “decent work”. In my view, this obsession is behind the ideological gridlock and confusion that explains the incoherence around the appropriate menu of policies that can deliver the high, labour-intensive growth that we need. In such a situation the result will always be lethargy and stagnation.

Different types of growth strategies will always have different types of impact and outcomes on employment. To ensure success, we must choose the growth strategy that targets the type of unemployment challenge we need to resolve. It follows therefore that the starting place must indeed be a debate about the characteristics of our employment problem; what types of people constitute the unemployed? For example, the decision by the leadership of China to implement a vigorous low-wage, mass-employment strategy over two decades ago was a response to a real threat of social instability because of widespread unskilled unemployment and entrenched poverty. The result was massive growth in the low-wage manufacturing sector that had a positive impact on employment and poverty. Incomes improved and this had a definite impact on demand and the sustained economic growth that followed.

Consider the following observations.

The Medium-Term Strategic Framework (MTSF) 2014-2019 has recently been made public and is intended to give effect to the NDP and to “accelerate growth, create decent work and promote investment in a competitive economy”. But the following key issues raise serious questions on the credibility of the strategy:

All the key drivers for growth in the MTSF are constructed around an increase in the GDP growth rate from 2.5% in 2012 to 5% in 2019 and yet, nowhere in the document has the rationale and basis for this assumption been articulated. These rates of growth can only be possible if the pattern of growth is driven by massive, low-skills employment creation.
The adopted growth plan has placed disproportionately more emphasis on a high-skills and capital-intensive trajectory that will have little impact on the large unskilled and unemployed population currently living in poverty. And therefore, the assumed “decrease in the unemployment rate from 25% in the first quarter of 2013 to 14% in 2020” is highly unrealistic. Evidence points to about 20% by 2020.
The fact of the matter is that the labour absorption rate in the formal sector has been low and declining for decades. This is normal as industry moves to more mechanisation and improved productivity.
The decision to go for the high skills and capital-intensive economic growth strategy requires for its success, an education system that can deliver quality education and the required skills. It fails dismally on both requirements. The radical transformation that is needed to deliver quality education requires an urgent investment in quality teachers, infrastructure and a rigorous implementation of accountability and performance contracts for executive management and teachers in all public schools. There will be no immediate outcome for such an intervention.

Clearly there is need for more debate on the NDP and what it can achieve. All of the current growth strategies skirt the issue of a low-wage, labour-intensive growth strategy. The central theme is growth but what comes through is that there is a definite bias towards a decent job paradigm. And this ideological fixation is pushed by Cosatu and the SACP and the main beneficiaries will be their white-collar member workers.

What then must be done?

I think there is broad agreement, across ideological persuasions that growth is central to our ability to deal with and resolve our socio-economic challenges. The question that remains is what type of growth strategy?

A critical success factor for successful strategy execution depends on the need to identify constraints to its execution and to develop remedies to mitigate them. This is one factor that is often deliberately avoided because most constraints are uncomfortable to deal with. A key theme in the NDP is the achievement of a capable state machinery to deliver on the NDP objectives. But the time it will take to achieve the required turn-around at local-government level casts serious doubt on the targets set in the MTSF. A major challenge is the irrational deployment of party cadres in leadership positions for which they are not qualified. A sad outcome of this practice is that accountability is severely compromised.

This collapse in corporate governance is best manifested in the state of local government and municipalities. A number of initiatives and interventions were launched in the past 15 years to improve operational efficiency at this level. The last one was Operation Clean Audit 2014 launched in 2009. Its objective was that all 283 municipalities (now 278) and provincial departments should achieve a clean audit on their financial statements by 2014.

A report by researchers at the Multi-Level Government Initiative — Operation Clean Audit 2014: Why it Failed and What Can be Learned — examined the impact of the national government’s intended objectives with this undertaking and identified the risks that arise when policy is not based on statistical analysis.

Its conclusion was that by setting a fixed target for achieving clean audits in all municipalities that bucked actual trends, and not adjusting them to the annual audit trends, the intervention had no realistic prospect of success and merely measured failure. And the underlying reason, as the Auditor General has pronounced, is that people employed as accountants in these entities have no competence to prepare financial statements. They rely on consultants at the time of the audits. This is very scary. And it is a direct result of patronage and corrupt, cadre-deployment practices.

The reality is that South Africa is trapped in a low-growth scenario and finding solutions to create employment opportunities for the unskilled workforce cannot be deflected by ideological fixation on a decent job to the exclusion of other options. Having a low-wage job brings dignity and an opportunity to improve skills. We should rather look to introduce a targeted wage-subsidy policy to improve income levels. Breaking into the high-skills economy takes time given the constraints identified above. The rationale for the latest downgrades is largely based on pedestrian growth prospects. Another downgrade is on the horizon.