SA IS now on the low road of stagnating growth, high unemployment and weak investment. In an atmosphere of policy confusion and gridlock, rising social tension and uncertainty about the future, confidence in our leadership and institutions is weak and falling. Our “good story” of democratisation and greater inclusion is still a cause for pride, but now sounds increasingly hollow to the unemployed and poor, who remain excluded from what in truth has always been an insider story.
Even those, black and white, who have done well out of SA’s transformation from racial tyranny have reason to be concerned about the future as we get poorer and slide into a zero-sum contest for the fruits of a deteriorating economy.
SA needs much faster economic growth and millions of new jobs. However, this will not happen without clear recognition of what is not working today. High growth and mass employment will require tough choices, but they are not as tough as the choices we will meet if we continue down the low road. Even allowing for the malign legacies of apartheid and the difficulties of navigating in a rapidly changing global economy, much of the responsibility for our multiple crises today lies with the government’s poor policy choices in a number of critical areas.
Among many others, these are a hopelessly inappropriate approach to governing and managing state-owned enterprises, cadre deployment in the public service and overregulation of business.
These are set against a background of transformation policies whose goals are essential for sustainable and inclusive growth, social cohesion, political stability and justice. However, the methods of reaching them have too often slid into schemes of elite enrichment. The result has been much slower economic growth, increased corruption and — ironically and tragically — much less transformation.
The measure of how far we have strayed off course lies in the indices for, and toxic relationships between, poverty, unemployment and inequality. Depending on how one calculates poverty rates, between 18-million and 27-million South Africans, 34%-55% of the population, are poor. Even at the lower measure, there is considerably more poverty in SA than the norm for upper middle-income developing countries. The World Bank’s estimate that 34% of South Africans are poor compares with about 17% in other countries at a similar development level.
SA’s uncommonly high level of poverty drives our exceptionally high level of inequality. While the average income of people in the richest 10% of the population in countries such as Turkey and Argentina is 15-20 times greater than the average income of people in the poorest 10%, in SA the ratio is 55:1. Even in notoriously unequal Brazil, the richest 10% earn “only” 43 times what the poorest do.
The key factor linking poverty and inequality is unemployment. In substantial measure, the problem of the “working poor” is a by-product of unemployment, itself the result of poor policy choices in education, skills formation, management of the economy, small business promotion and, especially, the labour market.
Thus, the single most important reason SA has so much more poverty and higher inequality than any other upper middle-income country is because so many people have no work. SA has the world’s largest, most persistent rate of unemployment: if “discouraged workers” are included, at least 7.6-million people (35% of the workforce) are unemployed.
A key to understanding the nature of the crisis of unemployment is the link between education and employment. Only 34% of the 22-million adults who have not completed high school have jobs. Only 11% of adults have tertiary education, but they account for almost 21% of those in employment. This lopsided situation is the result of conscious policy choices by the government that favour a high-skill, high-wage growth path and make it impossible for low-skilled industries to emerge (or existing ones to survive). This precludes the best hope of absorbing the millions of low-skilled workers who have been disadvantaged by apartheid and the failures of post-apartheid education.
SA’s choice of growth path is underpinned by lack of realism about our incapacity to produce skills, along with a stubborn lack of appreciation about what it takes to produce jobs for unskilled and inexperienced work-seekers. The predictable result has been continuing unemployment and millions of people without work or adequate education. SA has erected one of the developing world’s most redistributive states. We manage poverty and unemployment through social grants and other subsidies to the poor, and through the state as employer of last resort, by expansion of public sector employment and of temporary “employment opportunities” in public works schemes.
Redistribution is a legitimate, indeed essential, function of democratic government, especially in a country whose economy has been shaped by centuries of discrimination. If done well, it can contribute to individual and national growth prospects. Nonetheless, redistribution is significantly less empowering than wage employment and is increasingly unsustainable.
This is not the only area in which challenges have to be acknowledged. SA’s weak growth performance can also be attributed to a lack of coherent economic policy: at present we have three different government growth plans and since the mid-1990s, we have adopted and abandoned three more. Policy uncertainty over such investment fundamentals as property rights is another factor. A third is a state apparatus that has been put at the centre of growth plans, but fails to fulfil some of its most basic functions. Even those it does well, such as management of public finances, are under strain and threat of takeover by special interests.
Lastly, a dysfunctional relationship between business and government that manifests failings on both sides, but has its roots in deep suspicion about business and markets, flourishes in and around the governing party. SA cannot hope to achieve growth while simultaneously being anti-business. The slide into crony capitalism makes matters considerably worse. A new democracy with serious challenges of unemployment and poverty cannot afford to stand still. Continuing with the current policy framework will not result in the much higher growth, employment and optimism about individual prospects that SA needs.
We have been here before. The government’s half-hearted adoption of market reform in the first decade after 1994 led to opposition and retreat into a failed model of state-centred development. At the time, the commodities boom cushioned the effects of this error. There is no such margin of safety today. The case for a new growth agenda is urgent and compelling.
- Ann Bernstein is executive director of the Centre for Development and Enterprise and author of the award-winning book, The Case for Business in Developing Economies.