Capital market economists’ preferred metrics cannot reveal solutions to unemployment crisis
Just as Olympic medal counts don’t reflect the athleticism of their countries’ typical citizens, so GDP statistics can’t accurately portray the health of our economy.
The US won the most medals at the summer Olympics despite most Americans being overweight. SA’s GDP trajectory is tilting higher, yet without astute structural shifts a healthy economy will elude us.
SA’s proficient capital market economists work within teams whose core function is pricing securities. Their preferred macro metrics, such as GDP growth and debt to GDP, can’t reveal solutions to the world’s worst unemployment crisis. To remedy what went wrong, we need to consider the perspectives of both development and political economists.
SA’s post-1994 political-economic challenge was to balance economic growth with sufficient redistribution to reasonably redress historical injustices. Various plans were debated and some were tested, yet there was scant public acknowledgment that among the main reasons that commodity exporting stunts development is that it entrenches patronage.
The pre-1994 regime also exploited patronage, but it needed to win far fewer votes. Also, the advantages of inherently volatile commodity exporting peaked in the 1970s and 1980s but now keep ratcheting lower.
The commodity boom that began gathering momentum in late 2001 swiftly provoked a doubling in the value of the rand relative to the dollar. SA’s average annual GDP growth of nearly 5% for the five years ending in 2008 made it far easier for then president Jacob Zuma to institutionalise rampant patronage during his “nine lost years”.
Our new era of coalition politics must now confront a majority of our 20-somethings being condemned to lifelong poverty amid a rapidly evolving global economy. Whereas commodity dependence today routinely entrenches poverty, creating a predominantly middle- class society through carving out value-adding niches in the global economy is difficult but doable. Taming patronage and its travelling companion — incompetence — is necessary but insufficient.
In a sense, the pre-1994 regime created a Dubai in an isolated, Eden-like land. Among the key differences, most South Africans were blocked from integrating into the well-compensated parts of SA’s economy, thus stunting their productivity. SA has never meaningfully integrated into the global economy beyond exporting commodities.
Such independence-inducing isolation was externally reinforced by World War 2 and then sanctions in the 1980s. Conversely, our continuing to miss out on the extreme upliftment capabilities of the post-1990 globalisation era has been an own goal.
Since 1994, most countries have benefited greatly from strong growth spurred by global integration mixing with continuous innovation. Services now drive global growth and job creation. Commodity-exporting nations underperform, reflecting their declining relevance. Manufacturing’s upliftment potential is checked by robots making robots.
Government and business leaders working together in pursuit of investment-led growth is sensible. Yet neither investment flows nor GDP growth can tame our unemployment crisis.
Our wild ride has delivered a coalition-styled government that mixes long-ruling Marxists, who favour subsistence grants over competing internationally, with its long-serving official opposition party, which supports open markets and global integration. A major political accommodation is required to structurally align SA’s economy with success determinants dictated by a hyper-competitive, continuously evolving global economy.
In today’s winning nations, entrepreneurism carves out niches by adding value within global supply chains. Conversely, SA’s economy is structured around commodity exporting and localisation policies, which support much patronage. The biases of unions and the SACP are accommodated at the expense of people who suffer obscene levels of unemployment.
As long as very few of our young adults add value to exports, we will have ultra-elevated unemployment. We need regulatory relief through non-geographically defined special economic zones for initiatives seeking to carve out value-added exporting niches. This costs little, if anything, while opening pathways for high-volume employment gains.
As elsewhere, our value-added exporting opportunities will mostly be identified by small or micro enterprises. They must be freed from anticompetitive, anti-growth policies. The Olympics are exciting because individual aspirants and national teams don’t know what they are capable of until they compete on a global stage.