The public sector should be leading the charge to reduce youth unemployment through supporting value-added exporting rather than debating subsistence payments for young adults
What advice should a retirement-aged development economist give to the graduating class of a typical SA high school? Should the focus be on pursuing a virtuous life or countering our leaders’ inability to remedy SA’s unemployment crisis?
Contemporary societies must frame their key challenges by balancing values and ideals with pragmatic assessments of what is both possible and required in today’s swiftly evolving world. Conversely, our youth unemployment emergency has been framed as a trade-off between the moral responsibility to extend subsistence payments versus being fiscally responsible. This suits our governing elites. As elections near, while feigning fiscal concerns they can justify such payments as a compassionate necessity to redress racial inequality, thus further expanding the number of voters dependent on the state.
This framing is fundamentally wrong because it undermines the life prospects of most school leavers. Expanding such grants is not just too expensive. Extensive unemployment and economic stagnation become mutually reinforcing in the absence of an export-led growth strategy. However, the recent swelling in commodity demand has again demonstrated that exporting raw materials offers little potential to noticeably increase jobs. Rather, it inspires images of (nonexistent) fiscal space, thus postponing the policy pivots that would spur sustained growth and high volume job creation through value-added exporting.
Assessing how damaged our economy will become is different from appraising how difficult it will be to fix it. Mending many years of ultra-elevated youth unemployment is vastly harder than repairing rampant corruption or Eskom. Extremely expensive sovereign debt funding subsistence payments for young adults compounds the challenges.
Enduring high youth unemployment for more than a few years provokes irreversible damage. Whereas many poorly educated 20-year-olds can quickly develop commercially-valued skills, remaining unemployed soon blunts their youthful adaptability. Their life prospects and the country’s economic vitality suffer accordingly. Meanwhile, the supply of young workers in most successful economies is constricting.
The legs of the ANC’s patronage-reliant electoral strategy are wobbling, but not excessively. The party is likely to dominate a post 2024 national coalition government despite its policies and practices hobbling the economy — while making the country increasingly ungovernable. Rather than uniting the country, the party uses patronage to favour unions, communists, cadres and tenderpreneurs.
While the need for reforms becomes ever more urgent, these groups are prepared to block required changes through strikes, sabotage and rioting. By 2029 the effects of sustaining ultra-elevated youth unemployment will have crippled our economy.
To seriously downsize the ANC in 2024 the poor and unemployed would need to come to the polls inspired by a powerful plan to address our being short about 12-million jobs. Rapidly creating millions of jobs requires a swift increase in value-added exports. Yet not one of our prominent voices is articulating such a plan.
Central to our governing party’s political hegemony is its superficially virtuous pursuit of racial equality. This political figleaf justifies the redistribution focused policy agenda that blocks growth while funding enormous patronage. By easing fiscal pressures, the recent surge in commodity prices has temporarily prolonged this nonviable state of affairs while fanning the false notion that entrenching a huge increase in subsistence payments might be viable. But politically such an expansion of dependence on the state would lead to ANC election campaigns stoking fears that opposition parties would curtail such patronage.
The ANC loudly deplores racially inequitable concentrations of wealth while its critics howl about rampant corruption. Both groups use valid concerns to appeal to emotionally entrenched ideals. Whereas our national dialogue is a chorus of critics crooning about values and virtues, a focus on solutions should be informed by learning from the dozens of countries whose policies have crushed unemployment and poverty. This doesn’t happen.
Instead, our indulging of virtues crowds out reality-grounded planning. It is frequently claimed that expanding subsistence grants will help grow the economy. This ignores the importance of labour productivity. As such grants are not contingent upon any labour output, despite many of recipients being healthy young adults, economic damage is ensured.
Our business community has long been constrained by government policies disdaining economic fundamentals. High capital costs alongside anticompetitive labour and BEE regulations choke SA’s value-added exporting potential. Otherwise, our economy could be about twice its current size. Instead, nearly half our labour force has been sidelined.
Apartheid laws preventing blacks from providing high-skilled services to whites were no less integral to suppressing their development than constricting their education options. The ANC’s patronage-inspired redistribution focus has similarly undermined upliftment prospects by perpetuating similar education outcomes while blocking access to affluent international consumers.
As policies emphasising localisation and redistribution undermine competitiveness, our value-added exports are to target regional markets — where insufficient purchasing power is even more acute than here. And deporting immigrants from such countries will not enhance the SA’s brand equity in such markets.
Our 1990s transition corresponded with tens of countries embarking on sustained high growth through exploiting market access to wealthy nations. Their policies were the opposite of prioritising localisation and redistribution. Unsurprisingly, they produced opposite results.
The global economy is again rapidly transitioning. The fuel-fed industrial-led model is surrendering to services-led growth powered by digitalisation and creative innovations. This has profound implications for SA’s growth and employment possibilities. Internet access has become synonymous with market access for both up-to-date education resources and jobs.
This path doesn’t advance the ANC’s patronage focused electoral strategy. But why aren’t our leading business people responding to these tectonic global shifts? The answer is not market failure.
Unlike their counterparts in countries whose policies successfully promote high growth, few of our business executives focus on adding value within global supply chains — the 21st century’s principal economic development driver. SA’s impressive international expansions, such as Discovery, Investec and Nandos, involve recreating business formulas they have developed here. This traces to our sanctions era having morphed into today’s localisation era, which is defined by anticompetitive BEE and labour regulations.
Also, employing our surplus labour through global integration would, initially, reward labour far more than capital. Thus, the public sector should be leading the charge to reduce youth unemployment through supporting value-added exporting rather than debating subsistence payments for young adults.
Another odd economic effect of the emerging global economic era is that digital workers need not rely on their governments or domestic employers. Our school leavers should rather listen to their peers who exploit internet access to develop skills, qualifications and jobs. This is happening on a modest scale, which can be dramatically expanded.
While our school leavers should pursue a virtuous life, the virtue they must emphatically embrace is self-reliance.