Economists have been raising their forecasts for SA’s GDP growth, yet few see it averaging more than 3% a year without major policy shifts. Meanwhile, excessive household debt, combined with localisation policies, entrenches our extreme unemployment.
At the core of our unemployment crisis are those who left school several years ago and, having never been meaningfully employed, are now permanently marginalised. This group of millions of young adults is growing by about 250,000 a year. Cutting this annual increase in half by averaging 3% GDP growth would take many years.
Economic development is mostly about increasing workforce productivity while saving adequately and investing prudently. Our productivity is extremely low, as neither the ANC nor its predecessors prioritised workforce productivity.
Governing elites can ignore economic development basics if they can fund imports and government programmes by exporting commodities. Countries such as Saudi Arabia can maintain political and economic stability because they have substantial commodity wealth and a modest-sized, generally homogeneous population.
Governing parties in resource-endowed democracies can choose to steadily upgrade workforce productivity, as Australia has done, or they can create a sufficiently large patronage network to secure substantial electoral support.
By denying suffrage to the majority population, our pre-1994 dispensation embraced an extreme form of racially defined patronage while investing substantially in the skills of the politically dominant minority population. Our geographic isolation was then amplified by sanctions.
Our 1990s transition went surprisingly well politically, and for several years there was an impressive effort to balance redistribution and growth. However, the post-1994 political imperative for redistribution smothered efforts to increase workforce productivity.
The stakes were compounded by the end of the Cold War, which triggered intense international integration and led to a phenomenal global upliftment surge. Instead of participating, our governing party steered us from externally imposed sanctions to the domestic equivalent: localisation policies. This has devastated employment prospects.
Patronage politics takes many forms. A bulging civil service and ubiquitous grants are legal but growth-inhibiting, particularly when combined with localisation regulations. The electoral support of economically desperate people can be more easily induced financially. Most working-age South Africans are poor, unemployed, or both. For those who are a rung higher, overindebtedness routinely retards economic progress.
We debated what kinds of jobs are decent while sidestepping the importance of improving productivity through increasing employment. The way our political economy is structured, if the prices of our commodity exports were to double, those least well off would benefit through higher grant payments.
Export gains should trigger multiplier effects boosting job growth. However, such prospective benefits would likely be overwhelmed by abundant patronage, rampant household over-indebtedness, and the insidious effects of localisation policies. Only such a highly misconstrued economy could entrench the world’s highest youth unemployment.
Analogies to our economic situation are elusive, but we should consider Japan’s long-running “balance sheet recession”. It took many years to realise that ultra-low interest rates weren’t spurring growth in Japan because companies were focused on paying down debt. This relates to our debate on how much money workers should be able to withdraw from pension funds to pay down debt.
Japan’s core problem followed decades of extraordinary success as the world’s top value-adding exporter, which led to excesses that needed to be managed through astute structural adjustments — not through modest tweaks or prudent monetary policies. SA’s long run as a stellar commodity exporter has been winding down, and like Japan we resist bold policy pivots.
But Japan is wealthy, with low unemployment and exceptional education outcomes so it has the luxury — at least for now — of resisting broad shifts. Conversely, we have little choice but to reduce our overreliance on commodity exports; such transitioning requires a very different set of policies.
Our 1990s political transition should have provoked a profound shift in how our economy is structured. Our new coalition-style government can rapidly reduce unemployment, but this requires bold policy pivots.