Upliftment requires increasing the productivity of workers who are serving markets with substantial discretionary income
Our political economy has evolved with little regard for 21st-century economic development basics. We must begin to turn the corner by recognising that while universal basic income grants can efficiently mitigate the hardships of extreme poverty, they can’t reduce unemployment.
The average lifetime customer value to a company of young doctors and lawyers is vastly higher than with low-skilled workers. For similar financial reasons, many more people in a low-income community can be uplifted if they add value to high-margin products consumed by 1,000 high-income households than if they contribute to selling low-margin products to 10,000 low-income households.
The phenomenal rise of Asia wasn’t predicated on marketing to domestic farmworkers. Rather, affluent Westerners were targeted, and this led to hundreds of millions of peasants becoming factory workers. This was possible as transport and communication costs plunged alongside sharply declining tariffs.
Upliftment requires increasing the productivity of workers who are serving markets with substantial discretionary income. Our policymakers have sought to refute such basics with localisation policies reminiscent of the import-substitution policies that failed so many countries a half-century ago.
Economic growth now is driven by rapid innovations being amplified by hyper-globalisation. Conversely, SA’s purchasing power has long been inadequate to achieve full employment. Ignoring this has led to our purchasing power declining and, consequently, unemployment soaring.
Our political economy reflects a governing party of a resource-endowed country seeking ongoing electoral hegemony by creating an enormous patronage network. Universal basic income grants would have the vicious cycle effect of expanding dependencies and patronage.
If R1bn is spent monthly by giving a R1,000 to 1-million people living at a subsistence level, life will be considerably less harsh for them. However, it is unrealistic to presume this will increase growth or jobs. Some jobs will be directly created, but the trajectory of total jobs being created will decline.
Huge programmes require huge funding. The money would be borrowed at high rates or diverted from other programmes, such as infrastructure investments. Such diverting eventually becomes extremely counterproductive.
Virtuous cycles refer to favourable outcomes provoking more favourable outcomes. In economics this requires balancing consumption with savings and making prudent investment decisions.
Patronage-focused political regimes benefit from having many voters dependent on them. Yet while it might be politically prudent to increase assistance to the poor, the economic imperative must be to increase their productivity. The ANC overindulged dependency-inducing policies to the extent that it induced the world’s worst unemployment crisis.
The party’s public pronouncements show it thinks attracting investment flows is the solution, yet people running troubled companies who fixate on borrowing more money do not impress lenders.
It is worthwhile for an SA delegation to travel to high-income countries to seek investment. However, given that our new political dispensation has arrived amid entrenched economic stagnation, what we most desperately need from those countries is a path to tap into their enormous consumer spending power.
Our political economy is inward focused and prioritises patronage and commodity exports. High-growth economies carve out niches in global supply chains and then focus on increasing their global integration through increasing productivity and competitiveness. This is an extraordinarily powerful model.
If SA’s commodity export revenues quickly doubled, and then gradually meandered higher indefinitely, growth would initially surge but ongoing contributions to GDP would be meagre, while total employment gains would be surprisingly modest.
The achievable goal of economic development is broad prosperity, and it has always required moving up value chains from growing food and extracting primary materials. It was always harder to do this in isolation, and due to globalisation and rapid innovations it is vastly harder now.
Given SA’s enormous unemployment and entrenched stagnation, our only path to sustain rapid job creation is through global integration.
Being sincerely compassionate towards the poor requires acknowledgment that our unemployment crisis traces to localisation-focused policies.