Unemployment-Entrepreneurship Complex

Abridged Version

Global Unemployment reached 225 million (7% of International Labour Force) in 2011 [ILO] and domestic Unemployment stubbornly basks on its 6.6 million (40%) resistance level. It is little wonder then that most Governments, including our own, fear to be befallen by their well earned ‘Tunisia day’ and are seen scrambling, at dire straits, for solutions, anything really, so long as it is quick and sellable!

Other than a few forgettable murmurings here and there about small businesses and entrepreneurship, no one seems to have figured out, to within a comforting degree of reason, a path towards lower unemployment. The suggestion that small businesses are a dependable solution for our joblessness woes seems to have caught on but failed to capture the imaginations of many, least of all our Politico.

Between the SONA, SOPAs and 2012 Budget, little was said about the role entrepreneurs could play in this process. Whereas there are some pundits, CEOs and politicians that have dabbled with this notion, none have laid down clear concrete steps or a plan of any sort that we can begin to consider. So far we have spoken a good talk but not much has been said.

There is good reason for this; it’s complicated! You cannot plagiarise an economic model unless the socioeconomic variables are exactly alike. In the US, for example, 45 million people are employed in Micro businesses that each employ less than 10 people (there are about 7 million of these businesses) [SBA, 2009]. However, the US economy is more than 50 times our size in real GDP terms, 7 times in population and more than 5 times in real per capita GDP adjusted for Purchasing Power Parity. These are critical factors that influence the nature, scale and dynamism of entrepreneurship.

Consider this for a second; all things being equal, were South Africa to copy the US model on Micro Entrepreneurship, 1.3 million new micro businesses would have to be established to each employ at-least 6 people within the next 5 years. Our economy is simply not built for this. Who would train these entrepreneurs? What would these businesses do? How would they be funded? Where would the institutional capacity to support them come from? These are pertinent questions not to be ignored in policy debates and wish-lists of many a pundit.

The microeconomics are also not supportive to this. Household savings are low, which means there are no surplus funds to fuel the demand side of the domestic economy. This means existing businesses are not keen to employ more people or prompt up the supply side. With inflation already testing the patience of SARB, interest rates are not going down to support higher disposable incomes. Fiscal policy also cannot come to our rescue with lower taxes, otherwise how will we support our expanding social net, national debt and a budget deficit already not palatable for many? So where to look?

If entrepreneurship is to be appointed the preferred solution to joblessness then we must have a meticulous strategy to achieve this. It cannot be left to a hope and prayer or cut to a one dimensional undertaking, it necessarily must be multifaceted. We must consider a sequential plan with several integrated phases that affect demand, skills, capital and enterprise support.

Entrepreneurship is not an end in itself and we cannot, therefore, continue to speak of it as if it were some magic wand that even when left to its own volitions, could miraculously direct itself towards the job intensive activities for which it is required. We must intervene, with the correct incentives, to direct entrepreneurship towards areas through which we could derive the highest value.