Companies are the most sustainable projects for creating mass employment, and the only way to help them prosper is to foster a climate in which entrepreneurs are willing to take risks in anticipation of reasonable rewards, writes Ann Bernstein.
South Africa may have a public holiday dedicated to honouring young people and their contribution to our country, but in most of the ways that matter, this is no country for young people.
There are more than 20 million South Africans between the ages of 15 and 34, 41% of whom are not in employment, education or training. And, of those in education and training, many attend schools that will provide them with only the most limited of educations, while post-school education is a terrain rich mainly in failing institutions.
Little wonder, then, that young people are so defined by their economic inactivity; by the fact that so many are doing nothing and going nowhere. And the problem is getting worse: between 2008 and 2019 the population of young people increased by more than 2 million, but the number of young people who had jobs fell by almost 500 000.
Youth Day or no Youth Day, South Africa is a country that is failing its young people.
The main reason for this is not hard to see: whatever the protestations of politicians, South Africa’s economy is almost custom-built to inhibit employment growth for young people. The economy grows slowly; it is dominated by high-skilled, capital-intensive firms; it has high minimum wages that discourage employers from taking on young workers who need more supervision and training than older people who already know the job.
In the face of this, South Africa’s policymakers sometimes talk a good game, proposing numerous projects and interventions such as training programmes, work-readiness schemes and internships. Unfortunately only one of these – the employment tax incentive (ETI) – is likely ever to achieve any kind of scale.
Each of the other projects might help a small group of beneficiaries, but none addresses the structural causes of mass youth unemployment. For that reason, a realistic strategy for dealing with this crisis begins with a plausible growth strategy that addresses poor leadership, deep corruption, and wrong-headed policy choices.
Key, in this regard, is the failure of policymakers to understand that economic growth is driven by a dynamic private sector. An effective growth strategy has to be built on a crucial principle: companies are the best, most sustainable projects for creating mass employment, and the only way to help them prosper is to foster a business climate in which entrepreneurs are willing to take risks in anticipation of reasonable rewards.
By far the most useful approach would be for government to rethink the model of policy-making that generates ever more regulations and increasing costs of doing business without ever providing what is actually needed: high quality infrastructure, affordable energy, efficient administrative procedures, quality education, etc.
Instead of this, government has resorted to ad hoc interventions that are very much second best. Among these, only the ETI is premised on a recognition that the cost of employing a young person matters for how many will find jobs. Although there is some uncertainty about its impact in a flat economy, this is a step in the right direction. And its impact would likely be enhanced if it were coupled with a relaxation of the protections workers enjoy from dismissal: if firms felt more confident that they could easily dismiss young workers who turned out to be unsuited to their needs, they might be more willing to take the risk of employing them rather than more experienced workers.
Nor is it just a better deal for young work-seekers that South Africa might want to try: we should also look to help young entrepreneurs.
The only concrete incentives and support for young entrepreneurs currently on offer consist of training opportunities (none of which appears to have any meaningful impact on subsequent success), grants and soft loans from various spheres of government (which are generally used as forms of patronage, and seldom do more than temporarily prop up commercially unviable firms), and set-asides in government tenders (which do little more than create opportunities for rent-seeking middlemen).
In light of this, why not consider something completely different, and allow young employers to hire other young people at whatever wage the prospective employee is willing to accept?
Such an approach would, at a stroke, grant firms owned by young people a competitive advantage, allowing them to provide goods and services to industry, households and government on price-competitive terms. To be sure, this would not by itself create the hundreds of thousands of jobs we need, but it would be a start and it might grow.
Youth Day is a moment to commemorate the horrors of the past and recommit ourselves to the vision of the Constitution. But a Youth Day that looks only backwards is a disservice to those who have their lives ahead of them. Young people are, after all, much more interested in the future than the past.
– Ann Bernstein is head of the Centre for Development and Enterprise. See CDE’s Agenda 2019, “Tackling Youth Unemployment”.