SHAWN HAGEDORN: What a bus stuck in mud says about our economy

SA has the world’s highest youth unemployment, and it is routinely presumed that economic growth is the necessary remedy. Rather, innovative thinking is required.

It seems reasonable to expect that if an economy swiftly expanded — say 30% — employment should increase somewhat proportionately. Yet deep structural rigidities preclude such a direct relationship in our economy.

Growth averaged nearly 5% per year between 2002 and 2007, while the unemployment rate barely budged. More young people entering the workforce than seniors withdrawing should fuel a demographic dividend. Instead, we have been growing grants. Policy pivots beyond those endorsed by political parties and public commentators are necessary. 

If the prices of commodity exports doubled while everything else remained the same, SA’s GDP growth would spike, but the pace of job creation would remain lacklustre. Multiplier effects are smothered by government and household borrowers having triggered a debt trap.

If the economy spurred positive feedback loops, per capita income would not have peaked 15 years ago. Economic and employment growth requires that companies have access to an expanding consumer market. Instead, with corruption and incompetence undermining the reliable supply of electricity and transport, the economy is stuck in a loop. 

For living standards to rise, productivity must rise. A rising share of the population must be meaningfully employed or the average productivity of workers must steadily improve, preferably both. 

The economy does neither. This core problem is compounded by government policies that prioritise localisation in a world where disruptive innovations fuel productivity gains in high-growth countries. 

We are caught in a vicious cycle. To expand consumption we need to grow employment and productivity, yet anticompetitive regulations with infrastructure malfunctions preclude large-scale employment gains from adding value to exports destined for deep consumer markets.

Policymakers prioritise localisation policies despite most SA adults being poor, unemployed or both. Those who are neither are likely, with the national government, to be overly burdened by expensive debt service.

Pummelled poverty

Imagine an overcrowded school bus, the chassis of which has sunk and become encased in deep mud as the sun begins to set. The more the wheels spin, the less traction it gets. It is not impossible to dig the vehicle out, but that would take a long time and threats lurk in the night. Being swiftly pulled out by a larger vehicle with solid traction is the far better option.

Over the past three decades dozens of countries have pummelled poverty through creating millions of jobs that add value to exports destined for affluent markets. Distant consumers have provided the pulling power that has plunged global poverty from nearly half the global population to less than 10% in less than half a century.

The school bus symbolises the economy and the students the country’s future. While we must not leave either behind, that doesn’t mean the pupils must wait for the bus to be rescued. The bus driver avoids the nearby superhighway — signifying a robust global economy very much not stuck in the mud — to earn extra income illicitly. That is, on-ramps are routinely ignored. 

Teenage pupils who abandon the bus and scamper up the highway embankment mimic the hundreds of millions of peasants who have flocked from fields to factories in recent decades. Such scampering is becoming common as many affluent economies lack sufficient young workers while most new jobs are in services — and many of those are digital. 

Artificial intelligence (AI) promises to leverage other digital platforms to reinvent education. The school bus becomes redundant as it becomes quicker and easier to sidestep ineffective high schools than to fix them.

Our debates focus on fixing the world’s most entrenched youth unemployment by first fixing our politics and then fixing our economy. This is as quick and clever as digging out a stuck vehicle rather than having it pulled out. By reframing our challenges we can identify innovative, workable solutions.

• Hagedorn is an independent strategy adviser.