SHAWN HAGEDORN: How our central bank can reduce unemployment

Never mind changing its mandate, let’s just have the governor of the Reserve Bank provide an annually updated forecast of the unemployment trajectory and an assessment of the ramifications. 

The Bank’s credibility reflects its independence from our cronyism-ravaged government. Yet our economic debates are still framed by a governing party overwhelmed by rampant patronage pressures. If the Bank’s credibility is not levered to redress this, it will wither along with our political and economic stability. 

Economic debate in SA tends to lack a technocratically robust foundation. No-one is better positioned to rectify this than the Bank governor. Whereas the sophistication of our financial services industry conditions us to use capital market metrics, it is made inappropriate by our ruling party prioritising redistribution ahead of growth.

Relying on measures such as debt-to-GDP trends presumes political and economic stability. While countries go to great lengths to avoid our obscene level of youth unemployment because it is so broadly destabilising, our national discourse has accepted the ANC’s proposed remedy — perpetual subsistence payments. 

If a group at the Bank had been regularly updating the trajectory of our unemployment they would appreciate that our economic discourse is strewn with magical thinking mixed with heaps of delusions. For instance, as business leaders have a duty of care to shareholders this encourages them to support the government’s calls for investor-led growth. 

Making a solution to our unemployment crisis conditional upon attracting investment flows is a recipe for disaster — which is what our current trajectory will deliver. It is not difficult to model why this is true. Conversely, there are people in SA working for overseas companies whose jobs require modest capital mobilisation in SA. 

In many such cases the customers who provide the spending power to pay their salaries are also overseas. While following such paths has led to the creation of many hundreds of millions of jobs in other countries over the past three decades, our governing party categorically rejects it. This is central to why we have an unemployment crisis.

While the ANC presumes subsistence payments will buttress its patronage-focused electoral strategy, many private sector taxpayers are quick to write off young workers as their scholastic accomplishments are often meagre. Yet each year we could be integrating at least 100,000 school leavers into global supply chains, with tremendously positive spillover effects.

Loud public voices call for beneficiation of our natural resources while our government’s policies and practices preclude beneficiation of our school leavers into global supply chains. We focus on rewarding capital, not labour. Yet long-term global trends do not endorse our high reliance on commodity exporting. 

The Bank should do the modelling work to show the extent to which we grossly underappreciate how neglecting to develop our workforce capabilities invites brutal consequences. For starters, it could predict when our unemployment bulge will peak and when our absorption of school leavers will resemble that of a normal country. It seems doubtful that these key objectives will be reached within a generation. 

The Bank should also assess the potential of various initiatives to spur, individually and collectively, meaningful employment gains. For instance, improving the performance of state-owned enterprises is important, but it can only marginally reduce our bulging ranks of unemployed. Ditto for domestically directed entrepreneurial verve. 

The overwhelming limitation is that our economy doesn’t do virtuous cycles. The portion of consumer goods purchased with exceedingly expensive credit stunts the much-needed growth in purchasing power across lower-income households and communities. This punishes entrepreneurs while spawning criminals.

Many prominent voices sing in harmony about the importance of investment-led growth, yet our banking system is not community-based. Debt service is not only excessive in lower-income areas, but high credit losses are absorbed in those communities while the profits siphon desperately needed capital to wealthier locals. Our top banks flourish while various communities — and the nation — fade.

If it remains above the fray, the Reserve Bank’s reputation will be on a trajectory as perilous as our economy.

• Hagedorn (@shawnhagedorn) is an independent strategy adviser.