SHAWN HAGEDORN: Boosting growth is no panacea for joblessness
Workable solutions require that we embrace uncertainty while purging outdated or otherwise costly biases
11 December 2023 - 05:00
byShawn Hagedorn
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We need to acknowledge that we are well past the point of being able to adequately reduce unemployment through spurring domestic growth. Picture: REUTERS/SIPHIWE SIBEKO
Various commentators maintain we know how to fix the economy and just need to elect a competent, noncorrupt national government. But are they fixating on what they know while downplaying deeper challenges?
Which is more critical: fixing the commercial economy or slashing unemployment? It is tempting to answer that we must grow the economy to create jobs. Such narrow thinking has long been compounding our burdens. We need to acknowledge that we are well past the point of being able to adequately reduce unemployment through spurring domestic growth.
It has often been asserted that to fix something start by measuring it. Whereas capital market participants populate a busy dashboard of commercial metrics, we airbrush data depicting the deteriorating centre of our political economy. The portion of our unemployed young adults who are unlikely to ever be meaningfully employed is deep into the danger zone.
Proposed solution paths presume that if the economy starts growing sufficiently to service debt and fund grants while gradually reducing unemployment, this will constitute a fix. Yet the trajectory of our twentysomethings on track to never being meaningfully employed is such a stark global anomaly because it is a recipe for political mayhem.
Most black South Africans “born free” in the mid-1990s are unemployed. Their odds of ever developing their potential has tumbled from an already low base. Prospects are worse for their younger cousins. There are no plausible scenarios in which the domestic economy provokes minimally normal youth unemployment this decade. Nor is optimism regarding the next decade warranted.
Defusing this ticking time bomb requires a national dialogue revamp. What is perceived as the way forward reflects a constricted focus on commercial economics alongside misperceptions about globally determined economic development requirements and possibilities.
Fixing SOEs
Prioritising investment-led growth should have provoked pro-growth policies, but it hasn’t. As government borrowing needs are so high, and we have so few households with significant and rising discretionary income — versus so many that are overwhelmed by debt — investment-led growth can unleash significant growth only if there is a formidable export strategy. Instead, Transnet is clogged and Eskom flickers while localisation policies are trumpeted.
Yet while many governments are capable of fixing our state-owned enterprises (SOEs) and ill-conceived economic policies, none would want to take on our youth unemployment crisis. Functioning governments go to great lengths to avoid high youth unemployment becoming as entrenched as ours.
Credit analysts rightfully question the fiscal sustainability of most young adults relying on grants. But the opportunity costs and risks of compounding political chaos are higher still. The July 2021 rioting and lack of prosecutions foretold a cautionary tale of lawlessness.
We must abandon the pretence that if we fix our infrastructure and clamp down on corruption it will lead to an expanding middle class. The damage, as expressed by perilously elevated youth unemployment and overindebtedness by the government and households, is just too great. Neither expanding investment flows nor a surge in commodity exports can deliver what has always eluded us: a healthy political economy.
Before 1994, SA exploited vast resource wealth while developing the productive capacity of a meagre-sized white workforce. Skills development and access to markets were stifled for the majority black population. Our post-1994 government focused on developing an enormous patronage network, with little concern for worker productivity or access to the world’s affluent consumer markets.
Subsistence existences
Meanwhile, the global economy has been downgrading the importance of mining and manufacturing while accelerating broad upliftment through global integration amid continuous technological disruptions. Mining and manufacturing jobs are peaking. The global economy relies on services-led growth, with much of it being digitally dependent. Skills and knowledge are diffused among developed and developing economies on an extraordinary scale while being constantly updated. The transmission mechanism is global supply chains. Classrooms are still important, but less so.
Whereas national economic trajectories are now determined by the portion of young workers adding value within international supply chains, most of our school leavers are destined for subsistence existences amid sporadic informal employment. This is not viable politically, economically or socially.
There are no feasible options for achieving a semblance of normal youth absorption into the economy without prioritising the creation of jobs that add value to exports.
There are no feasible options for achieving a semblance of normal youth absorption into the economy without prioritising the creation of jobs that add value to exports. Integrating within global supply chains is as essential as it is incompatible with localisation policies. Yet such considerations receive scant attention among those who proclaim to “know what to do”.
Why do we ignore insights central to the policies and practices of high-growth emerging economies? The explanations span geography, geology and our political history. We were among the last and most isolated countries to discard colonial-styled rule, and our more legitimately elected political elites chose to prioritise — and exploit — racial transformation of the economy. The need to transition from relative isolation and overreliance on commodity exporting has received short shrift.
Replicating the pre-1994 model for the benefit of all South Africans is appealing, and people can imagine that happening. Yet it was never a viable option, and the global economy has only become more integrated and hypercompetitive. Conversely, we can replicate the proven growth blueprints of high-growth emerging economies, but it is difficult to imagine how our school leavers will add value to exports. But that’s the point: high-growth emerging economies succeed by confronting and overcoming such quandaries.
We want solutions that are simple and predictable and validate our biases. Conversely, workable solutions require that we embrace uncertainty while purging outdated or otherwise costly biases. For starters, our school leavers are our most valuable asset. While it is disturbing that most of them are so poorly educated, it does not negate strengths such as youth and English proficiency. There is a shortage of young workers in many countries, including many of the most affluent. Meanwhile, most new jobs are services based and many of them are linked digitally.
Most of our bright and motivated school leavers need to be integrated into global supply chains. This challenge is separate from, and more critical than, fixing the economy. Yet if managed prudently the two become mutually reinforcing.
Support our award-winning journalism. The Premium package (digital only) is R30 for the first month and thereafter you pay R129 p/m now ad-free for all subscribers.
SHAWN HAGEDORN: Boosting growth is no panacea for joblessness
Workable solutions require that we embrace uncertainty while purging outdated or otherwise costly biases
Various commentators maintain we know how to fix the economy and just need to elect a competent, noncorrupt national government. But are they fixating on what they know while downplaying deeper challenges?
Which is more critical: fixing the commercial economy or slashing unemployment? It is tempting to answer that we must grow the economy to create jobs. Such narrow thinking has long been compounding our burdens. We need to acknowledge that we are well past the point of being able to adequately reduce unemployment through spurring domestic growth.
It has often been asserted that to fix something start by measuring it. Whereas capital market participants populate a busy dashboard of commercial metrics, we airbrush data depicting the deteriorating centre of our political economy. The portion of our unemployed young adults who are unlikely to ever be meaningfully employed is deep into the danger zone.
Proposed solution paths presume that if the economy starts growing sufficiently to service debt and fund grants while gradually reducing unemployment, this will constitute a fix. Yet the trajectory of our twentysomethings on track to never being meaningfully employed is such a stark global anomaly because it is a recipe for political mayhem.
Most black South Africans “born free” in the mid-1990s are unemployed. Their odds of ever developing their potential has tumbled from an already low base. Prospects are worse for their younger cousins. There are no plausible scenarios in which the domestic economy provokes minimally normal youth unemployment this decade. Nor is optimism regarding the next decade warranted.
Defusing this ticking time bomb requires a national dialogue revamp. What is perceived as the way forward reflects a constricted focus on commercial economics alongside misperceptions about globally determined economic development requirements and possibilities.
Fixing SOEs
Prioritising investment-led growth should have provoked pro-growth policies, but it hasn’t. As government borrowing needs are so high, and we have so few households with significant and rising discretionary income — versus so many that are overwhelmed by debt — investment-led growth can unleash significant growth only if there is a formidable export strategy. Instead, Transnet is clogged and Eskom flickers while localisation policies are trumpeted.
Yet while many governments are capable of fixing our state-owned enterprises (SOEs) and ill-conceived economic policies, none would want to take on our youth unemployment crisis. Functioning governments go to great lengths to avoid high youth unemployment becoming as entrenched as ours.
Credit analysts rightfully question the fiscal sustainability of most young adults relying on grants. But the opportunity costs and risks of compounding political chaos are higher still. The July 2021 rioting and lack of prosecutions foretold a cautionary tale of lawlessness.
We must abandon the pretence that if we fix our infrastructure and clamp down on corruption it will lead to an expanding middle class. The damage, as expressed by perilously elevated youth unemployment and overindebtedness by the government and households, is just too great. Neither expanding investment flows nor a surge in commodity exports can deliver what has always eluded us: a healthy political economy.
Before 1994, SA exploited vast resource wealth while developing the productive capacity of a meagre-sized white workforce. Skills development and access to markets were stifled for the majority black population. Our post-1994 government focused on developing an enormous patronage network, with little concern for worker productivity or access to the world’s affluent consumer markets.
Subsistence existences
Meanwhile, the global economy has been downgrading the importance of mining and manufacturing while accelerating broad upliftment through global integration amid continuous technological disruptions. Mining and manufacturing jobs are peaking. The global economy relies on services-led growth, with much of it being digitally dependent. Skills and knowledge are diffused among developed and developing economies on an extraordinary scale while being constantly updated. The transmission mechanism is global supply chains. Classrooms are still important, but less so.
Whereas national economic trajectories are now determined by the portion of young workers adding value within international supply chains, most of our school leavers are destined for subsistence existences amid sporadic informal employment. This is not viable politically, economically or socially.
There are no feasible options for achieving a semblance of normal youth absorption into the economy without prioritising the creation of jobs that add value to exports. Integrating within global supply chains is as essential as it is incompatible with localisation policies. Yet such considerations receive scant attention among those who proclaim to “know what to do”.
Why do we ignore insights central to the policies and practices of high-growth emerging economies? The explanations span geography, geology and our political history. We were among the last and most isolated countries to discard colonial-styled rule, and our more legitimately elected political elites chose to prioritise — and exploit — racial transformation of the economy. The need to transition from relative isolation and overreliance on commodity exporting has received short shrift.
Replicating the pre-1994 model for the benefit of all South Africans is appealing, and people can imagine that happening. Yet it was never a viable option, and the global economy has only become more integrated and hypercompetitive. Conversely, we can replicate the proven growth blueprints of high-growth emerging economies, but it is difficult to imagine how our school leavers will add value to exports. But that’s the point: high-growth emerging economies succeed by confronting and overcoming such quandaries.
We want solutions that are simple and predictable and validate our biases. Conversely, workable solutions require that we embrace uncertainty while purging outdated or otherwise costly biases. For starters, our school leavers are our most valuable asset. While it is disturbing that most of them are so poorly educated, it does not negate strengths such as youth and English proficiency. There is a shortage of young workers in many countries, including many of the most affluent. Meanwhile, most new jobs are services based and many of them are linked digitally.
Most of our bright and motivated school leavers need to be integrated into global supply chains. This challenge is separate from, and more critical than, fixing the economy. Yet if managed prudently the two become mutually reinforcing.
• Hagedorn is an independent strategy adviser.
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