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Tuesday, May 3, 2011
TREATISE: Part I
This is an excerpt from Chapter 1 of my Treatise (August 2010):
"Building an Entrepreneurial Ecosystem for Southern Africa"
Current Context
Job creation and poverty alleviation remain the basis for incessant discussions along the corridors of economic debate. Meanwhile the economy continues to shed jobs at a rate faster than they can be created (1.2 million job losses since 2009) with no end in sight, causing unspeakable damage to families, communities and the nation. This is the proverbial paradox of ‘pursuing macroeconomic prudence’ at, what some may argue, the expense of the domestic economy.
Let me state outright that there is no single definitive solution to achieving sustained job-intensive economic development. The challenges are many and they are profoundly complex. Anything professed to be an epiphanic solution is likely to fall short as idealistic at best and an oversimplification at worst. What is needed now is critical unconventional thinking and resolute implementation; fully cognisant of both the nature and scale of the challenges, yet dealing with them in self-contained silos.
Job creation is the pivot on which the success or failure of an economy can both be attributed and measured. Suffice to say with jobs people can feed their families, pay medical bills, live longer, lessen their susceptibility to diseases, pay taxes for developmental needs, cause less crime and create an upward vortex of perpetual growth – creating more jobs. Put differently, if we can create jobs, we will reduce poverty, crime, HIV/AIDS and the dependence on social welfare while improving education, infrastructure development and service delivery.
Notwithstanding our knowledge of this economic hypothesis we remain completely emboweled in the industrial age wisdom of job creation. It is irrational to me to think of a new growth path in which five million jobs can be created without radically changing the much lauded economic policies of our yesteryears, which by the way have failed to create the runaway job intensive economic growth conspicuous among our peers and much needed by our country. I dare say that all our alternatives represent hard choices and necessarily demand the courage to venture into unpopular economic policy terrain in pursuit of lasting solutions.
Conveniently, the global credit crisis has been sold by many as an acceptable pretext for our pitiable wasted labour force capacity. However, narrow unemployment has been basking in the twenties well before the bubble-burst of 2007 – 2009 fame. Instead we have managed to build a “pretentiously” fiscally prudent economy, which would have 14 million living off social grants to the cost of R90bn per annum and expanding rapidly. Yet, there’re increasing calls, rightly or not, to expand the social net more comprehensively to include the national health insurance, a basic income grant and guaranteed state employment, all at the expense of the arguably, already overtaxed population.
COSATU posits the suggestion that the state has to play a key role as employer of last resort (ELR) for full employment to be achieved. This proposition sells the notion that everyone of working age, willing and able to work will be employed under the ELR scenario. This employment will be based predominantly in the maintenance of social and economic infrastructure and in return, workers receive a minimum real wage set by the state based on individual dexterity and skill. Problem solved.
The major protestation to this suggestion resides in cost implications, for which they argue that the programme will cost less than 3% of GDP based on their modelling; and will in effect be self-funding since the multiplier effect will be set in motion creating more demand and higher tax collections, accordingly paying for itself. They further argue that the state has abdicated to tender administrator as the delivery of public goods has increasingly vested with the private sector. Consequently, Public Infrastructure Expenditure, which could have been used for employment creation purposes, has fallen into the hands of “capitalists” who have exploited labour, failed to deliver and maximised profits at the expense of job creation.
While I find plausibility in many of COSATU’s policy proposals, I must confess that this idea makes my stomach churn ceaselessly as I consider the absurdity of an economy in which a barely functioning state takes on the challenge of such mega proportion. 95% of all unemployed people scarcely have post Grade 12 education, 75% of them are below 35 yrs in age and at-least 60% of them have no labour mar-ket experience. The most pragmatic way out of this, according to many pundits, is through a cohort of improved education, higher skills development, entrepreneurship and international competitiveness.
Perhaps the question doesn’t end with how to create jobs but also, what types of jobs to create, where to create these jobs and in what quantities? This is clearly as much a qualitative as it is a quantitative question – broadening the quantum and complexity of possible alternatives. These are all very daunting questions which require the skilful command of political, macroeconomic and social expertise for our political leaders and captains of industries alike.
Almost all recent economic growth in South Africa has been rooted on strong commodity prices and short-term capital inflows. This is an incredibly porous situation, which may rapidly require intervention lest capital takes flight again led by a strengthening dollar and falling precious metal prices. Such has been the character of South Africa’s economic growth where her stability has not been underpinned by growing production capacity, increasing productivity levels and strong domestic de-mand by a rapidly expanding middle class but rather such capital that lusts after her high interest rates and shiny metals.
The rudimental precept upon which most economic theory is based postulates that sustained economic growth is preceded by value adding in labour absorptive economic activities. It is little wonder then that South Africa, a commodity driven economy with little primary sector activity – relative to the labour force – is severely hamstrung by this dichotomy of low growth and high joblessness. This is further evidenced by the fact that Trade and Finance employ more than 35% of the employed, whereas Mining, Manufacturing and Agriculture account only for 15% of all jobs, a sharp contrast to similar economies, particularly BRIC nations.
BUSA, in their discussion document on an inclusive higher job-rich growth path for SA by 2025, are on the mark when they assert that “... it is not useful to make grand assumptions about the number of jobs that will be created in future sectors or industries...” this without considering that we function in a rapidly changing global economy where the nature of jobs is changing as fast as technology and business models are evolving. King Louis XV said it best when he said “après moi, le deluge” indeed it is the next generation who will bear the brunt of the folly of today’s politicking.
Further to that, BUSA compares South Africa to five similar economies, likened primarily by their policies on macroeconomic stability. In this contrast, BUSA suggests that perhaps we should look to the Malaysian Growth Path for emulation which advocates building a strong knowledge base and infrastructure, strengthening the Public Sector and creating an internationally competitive domestic economy among other things. Where most experts agree, including BUSA and COSATU, is that education remains a cornerstone for our employment growth aspirations, this is especially true in South Africa where vacancies are abounded but incumbents are amiss, no thanks to poor education levels prevalent throughout the country.
Although much wherewithal has been waged in the quest to find illusive solutions to South Africa’s job creation and growth related problems, there’s been very little respite in this regard. Instead, abject poverty and youth unemployment have continued to rubbish Extended Public Works Programmes intended to contain the effects of joblessness. Having said that, it would be disingenuous not to concede that these mitigating programmes have had somewhat of an alleviation element, albeit un-measurable and negligible.
Understandably, concerned economists point to precedence in their proposals, moulded by fear of tinkering with historically successful formulae, lest people continue losing their livelihood at an accelerating rate. However, it was John Maynard Keynes who wisely said: “the difficulty lays not so much in developing new ideas as in escaping from old ones”. Alas, the path to complete Armageddon is paved with good intentions and rosy ideologies.
To that end, I must register my disdain with the nature and course of the discourse thus far. To me, it is irrational to try and expand industrialised jobs in obsolescent or uncompetitive sectors, rather, and without adding to confounding philosophies, I would contend that it is sager to invest more of our efforts in the creation of an entrepreneurial society. Somebody must accentuate the scarcely mooted scenario of an entrepreneurial economy predicated primarily on self-employment rather than employment seeking.
"Building an Entrepreneurial Ecosystem for Southern Africa"
Current Context
Job creation and poverty alleviation remain the basis for incessant discussions along the corridors of economic debate. Meanwhile the economy continues to shed jobs at a rate faster than they can be created (1.2 million job losses since 2009) with no end in sight, causing unspeakable damage to families, communities and the nation. This is the proverbial paradox of ‘pursuing macroeconomic prudence’ at, what some may argue, the expense of the domestic economy.
Let me state outright that there is no single definitive solution to achieving sustained job-intensive economic development. The challenges are many and they are profoundly complex. Anything professed to be an epiphanic solution is likely to fall short as idealistic at best and an oversimplification at worst. What is needed now is critical unconventional thinking and resolute implementation; fully cognisant of both the nature and scale of the challenges, yet dealing with them in self-contained silos.
Job creation is the pivot on which the success or failure of an economy can both be attributed and measured. Suffice to say with jobs people can feed their families, pay medical bills, live longer, lessen their susceptibility to diseases, pay taxes for developmental needs, cause less crime and create an upward vortex of perpetual growth – creating more jobs. Put differently, if we can create jobs, we will reduce poverty, crime, HIV/AIDS and the dependence on social welfare while improving education, infrastructure development and service delivery.
Notwithstanding our knowledge of this economic hypothesis we remain completely emboweled in the industrial age wisdom of job creation. It is irrational to me to think of a new growth path in which five million jobs can be created without radically changing the much lauded economic policies of our yesteryears, which by the way have failed to create the runaway job intensive economic growth conspicuous among our peers and much needed by our country. I dare say that all our alternatives represent hard choices and necessarily demand the courage to venture into unpopular economic policy terrain in pursuit of lasting solutions.
Conveniently, the global credit crisis has been sold by many as an acceptable pretext for our pitiable wasted labour force capacity. However, narrow unemployment has been basking in the twenties well before the bubble-burst of 2007 – 2009 fame. Instead we have managed to build a “pretentiously” fiscally prudent economy, which would have 14 million living off social grants to the cost of R90bn per annum and expanding rapidly. Yet, there’re increasing calls, rightly or not, to expand the social net more comprehensively to include the national health insurance, a basic income grant and guaranteed state employment, all at the expense of the arguably, already overtaxed population.
COSATU posits the suggestion that the state has to play a key role as employer of last resort (ELR) for full employment to be achieved. This proposition sells the notion that everyone of working age, willing and able to work will be employed under the ELR scenario. This employment will be based predominantly in the maintenance of social and economic infrastructure and in return, workers receive a minimum real wage set by the state based on individual dexterity and skill. Problem solved.
The major protestation to this suggestion resides in cost implications, for which they argue that the programme will cost less than 3% of GDP based on their modelling; and will in effect be self-funding since the multiplier effect will be set in motion creating more demand and higher tax collections, accordingly paying for itself. They further argue that the state has abdicated to tender administrator as the delivery of public goods has increasingly vested with the private sector. Consequently, Public Infrastructure Expenditure, which could have been used for employment creation purposes, has fallen into the hands of “capitalists” who have exploited labour, failed to deliver and maximised profits at the expense of job creation.
While I find plausibility in many of COSATU’s policy proposals, I must confess that this idea makes my stomach churn ceaselessly as I consider the absurdity of an economy in which a barely functioning state takes on the challenge of such mega proportion. 95% of all unemployed people scarcely have post Grade 12 education, 75% of them are below 35 yrs in age and at-least 60% of them have no labour mar-ket experience. The most pragmatic way out of this, according to many pundits, is through a cohort of improved education, higher skills development, entrepreneurship and international competitiveness.
Perhaps the question doesn’t end with how to create jobs but also, what types of jobs to create, where to create these jobs and in what quantities? This is clearly as much a qualitative as it is a quantitative question – broadening the quantum and complexity of possible alternatives. These are all very daunting questions which require the skilful command of political, macroeconomic and social expertise for our political leaders and captains of industries alike.
Almost all recent economic growth in South Africa has been rooted on strong commodity prices and short-term capital inflows. This is an incredibly porous situation, which may rapidly require intervention lest capital takes flight again led by a strengthening dollar and falling precious metal prices. Such has been the character of South Africa’s economic growth where her stability has not been underpinned by growing production capacity, increasing productivity levels and strong domestic de-mand by a rapidly expanding middle class but rather such capital that lusts after her high interest rates and shiny metals.
The rudimental precept upon which most economic theory is based postulates that sustained economic growth is preceded by value adding in labour absorptive economic activities. It is little wonder then that South Africa, a commodity driven economy with little primary sector activity – relative to the labour force – is severely hamstrung by this dichotomy of low growth and high joblessness. This is further evidenced by the fact that Trade and Finance employ more than 35% of the employed, whereas Mining, Manufacturing and Agriculture account only for 15% of all jobs, a sharp contrast to similar economies, particularly BRIC nations.
BUSA, in their discussion document on an inclusive higher job-rich growth path for SA by 2025, are on the mark when they assert that “... it is not useful to make grand assumptions about the number of jobs that will be created in future sectors or industries...” this without considering that we function in a rapidly changing global economy where the nature of jobs is changing as fast as technology and business models are evolving. King Louis XV said it best when he said “après moi, le deluge” indeed it is the next generation who will bear the brunt of the folly of today’s politicking.
Further to that, BUSA compares South Africa to five similar economies, likened primarily by their policies on macroeconomic stability. In this contrast, BUSA suggests that perhaps we should look to the Malaysian Growth Path for emulation which advocates building a strong knowledge base and infrastructure, strengthening the Public Sector and creating an internationally competitive domestic economy among other things. Where most experts agree, including BUSA and COSATU, is that education remains a cornerstone for our employment growth aspirations, this is especially true in South Africa where vacancies are abounded but incumbents are amiss, no thanks to poor education levels prevalent throughout the country.
Although much wherewithal has been waged in the quest to find illusive solutions to South Africa’s job creation and growth related problems, there’s been very little respite in this regard. Instead, abject poverty and youth unemployment have continued to rubbish Extended Public Works Programmes intended to contain the effects of joblessness. Having said that, it would be disingenuous not to concede that these mitigating programmes have had somewhat of an alleviation element, albeit un-measurable and negligible.
Understandably, concerned economists point to precedence in their proposals, moulded by fear of tinkering with historically successful formulae, lest people continue losing their livelihood at an accelerating rate. However, it was John Maynard Keynes who wisely said: “the difficulty lays not so much in developing new ideas as in escaping from old ones”. Alas, the path to complete Armageddon is paved with good intentions and rosy ideologies.
To that end, I must register my disdain with the nature and course of the discourse thus far. To me, it is irrational to try and expand industrialised jobs in obsolescent or uncompetitive sectors, rather, and without adding to confounding philosophies, I would contend that it is sager to invest more of our efforts in the creation of an entrepreneurial society. Somebody must accentuate the scarcely mooted scenario of an entrepreneurial economy predicated primarily on self-employment rather than employment seeking.
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