Viable solutions are lacking because our economic debates fixate on criticising ANC policies, while sidestepping the underlying tradeoffs.
We aren’t close to answering: How could SA become a broadly prosperous economy? Investment-led growth is a good option to boost GDP, and thus help to pay the country’s bills, but it has meagre potential to reduce unemployment.
When countries face economic failure, a credit crisis often triggers IMF-directed restructuring. Reducing unemployment is prioritised over the interests of investors who hold government bonds and shares in banks. Contrast that with how, in response to ANC policies entrenching the world’s most severe youth unemployment crisis − and for lack of a robust growth plan − many of our diverse leaders overstate the job-creation potential of investment-led growth.
During each of the last ten years, on average about 300,000 South Africans who hadn’t become meaningfully employed by their mid to late twenties, accepted a dim fate. Economists would say that they became permanently marginalised.
Employers prefer recent school leavers, leaving older jobseekers far back in a seemingly endless queue. Then, every year, almost a million school leavers jump to the front, with less than half finding jobs. The less fortunate recent school leavers will remain at the front, until the following year.
Downgraded
The oldest “born free” black South Africans left school around 2010. Many have never been formally employed while nearly half are currently in the back of a five-million-person youth unemployment queue. Their hopes for on-the-job skill building have been downgraded, repeatedly. Humans are highly adaptable and that includes adopting subsistence-defined expectations. There will be impressive individual exceptions but the group’s overall potential has been irrefutably − and permanently − degraded
Much evidence indicates this pace of aspiration destruction will continue indefinitely. Roughly a third of our young adults being permanently marginalised is the foremost characteristic of our economy. As SA is such an extreme outlier regarding such a fundamental factor, many comparative analysis tools commonly employed to diagnose the causes of underperforming economies aren’t applicable.
Rather than considering ratios like the levels of debt or fixed investment to GDP, we should consider SA’s median households relative to those of the US and China. After ten generations of rising worker productivity, healthy household savings, and solid returns on investments, US households spend sufficiently to achieve full employment. Despite China having compounded annual growth of nearly 10% for four decades, its households still lack sufficient domestic spending power for that country to grow without relying heavily on expanding exports.
The key takeaway is that our stagnating purchasing power and ultra-elevated unemployment have become ever more mutually reinforcing. SA’s median households are poor yet frequently over indebted and we mostly export commodities, which creates relatively few high-skilled, well-paid jobs. Conversely, China and other economically overachieving countries rely on value-added exporting as this avoids insufficient domestic demand curbing their growth. Value-added exporting is also much more labour intensive and supportive of widespread skill building than extraction-based exporting which is extremely capital intensive.
Patronage
The 1990s transition created a political imperative to redress historical injustices that was always going to clash with adopting sound economic fundamentals, such as policies supporting merit-based employment and commercial logic. While corruption must be opposed, legal patronage, approved through Parliament’s budgetary process, and now requiring coalition support, demands a nuanced response.
Surveys consistently show jobs are voters’ top priority. If ANC policies were uplifting the vast majority of poor South Africans, that could justify delaying the adoption of policies necessary to achieve broad prosperity. Yet, instead of seeking to astutely transition toward non-racial, jobs-supporting policies, BEE-styled regulations led to massive, and unsustainable, unemployment alongside widespread patronage and corruption.
Much of the ANC’s electoral support relies on forms of patronage, like a bloated civil service, which are unsustainable but legal − if approved by Parliament. Criticising such patronage can, however, backfire in the absence of a credible plan for high-volume job creation. The ANC gains electoral support by spinning opposition to such unaffordable patronage as opposition to transformation. Therefore, those opposed to ANC policies must address voters’ top priority, job creation, and stop conflating legal patronage with corruption.
TINA
Had annual growth after the Mbeki years been at least 2% higher, our economy would now be 40% larger. As we will soon have five million permanently marginalised young adults, achieving high growth in domestic consumption will continue to elude us. While we must mobilise capital to spur commodity exports, this can’t noticeably mitigate our unemployment crisis.
Whereas adding value to exports is the common theme among high-growth nations, remarkably few of our young adults do this and many of those jobs are now at risk. There is no alternative to increasing value-added exports but this will require anti-competitive regulations, such as BEE, to be rescinded or at least value-added exporters to be given special dispensations. The cost of such exemptions would be nearly nothing as so few domestic or international companies see SA as a competitive jurisdiction for increasing export production.
In the absence of our surging value-added exports, we will continue to marginalise unconscionable numbers of young South Africans. Like so many countries before us, we must accept the necessity of much greater global integration without yet knowing which niche markets we should target. ANC leaders, unsurprisingly, prefer to continue targeting investment-led growth through commodity exporting as this path offers fewer challenges and unknowns alongside many opportunities to direct patronage.
ANC policies increase the party’s electoral vulnerability by blocking meaningful job creation. But that doesn’t mean we have the luxury of criticising without developing broad support for a powerful employment plan.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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