Business Day Dialogues

So BusinessDay has started a series of Dialogues aimed mainly at influencing the South African discourse on employment and policy creation. I watched the first instalment of videos as well as read through the short transcript available on their website from the first Dialogue hosted on Friday 28/01/2011.

I must confess, I found the discussion quite intriguing and was able to validate a common notion I came across as an economics student back in 2001; that economics is not a perfect science and economists get it wrong more times than they get it right.

The debate, although it touched on numerous things, deservedly centred around employment creation and how a redistributive tax system as well as higher levels of quality education could contribute towards this discourse. For the most part I agreed with most of what was said, particularly with Chris Malikane, Edward Kieswetter and Jean-Francois Mercier on the soundness and pragmatism of their views. I must say however, that the conspicuous neglect of the role that entrepreneurship could play in the creation of jobs was frighteningly worrying, it just goes to prove that the South African society, economists alike, remains trapped in Keynesian and neo-liberal economics of the 1930s. Furthermore, I find it interesting that in most (if not all) economic debate, the youth who represent the unemployed and who are likely to inherit the country in whatever form or nature are blatantly excluded.

In the South African context, 6 million are unemployed – expended definition, 75% are 34 years old or younger, as many as 60% - 70% have no labour market experience and 95% are effectively uneducated. In this backdrop, there is just no pragmatic way in which all of these people can be absorbed by the labour market. The construct of our economy is biased towards non-primary sector activities with most available jobs requiring skills that are far beyond those offered by the market. Even the Keynesians should understand that oversupply of labour will dampen short-term wages, which in turn will cause long-run structural problems of weak domestic demand, lower real GDP, higher/wider taxes, and all sorts of delivery constraints.

The only real remedies are the promotion, support and incentivisation of self-employment and Great Depression type Government induced domestic demand. This will mean higher short-term fiscal deficits, higher sovereign debts and long-run inflation. However, as seen in the example of post World War II America, this can mean more meaningful higher per capita incomes (reducing inequality), full employment and sustained domestic demand. Both taxes and inflation may be muted as Government expenditure recedes making way for domestic demand and the tax base widens reducing per capital tax obligations to reduce Public Sector debt. Better have fixed capital formation driven Government debt than a growing Social Security obligation as this will increase real long-run taxes.

Overall, the reality is that the private sector has so far been embarrassingly inefficient in job creation, which necessitates that future Government expenditure should be directed towards labour absorptive activities, even if this means allocative inefficiency. Macroeconomic prudence becomes a fallacy and a big fuss in a society in which 5 million tax payers are expected to subsidies a inflatable social grant system (R90bn), which may soon include a Basic Income Grant, National Health Insurance and a Wage Subsidy.

In my opinion, you need to deemphasise the role of big business in the economy and provide overarching support in the promotion and empowerment of small businesses. After all in the industrial world Small businesses employ, on average, more than 80% of the labour force whereas in South Africa this is well below 50%. Trying to solve youth unemployment without involving the youth in charting a growth path for their own generation is tantamount to having a Men only debate about comfortable corsets!