Job creation debate: Cronin vs Leon

2009-07-30 08:10
Die Burger is currently running a series called Big Ideas in which keen minds debate the important issues of our time.

Jeremy Cronin, the deputy minister of transport, and Tony Leon, former DA-leader, tackle the question of how to create jobs from opposing viewpoints.

Jeremy Cronin – deputy minister of transport:

Our unemployment crisis lies at the heart of virtually every other challenge we face – poverty, inequality, youth alienation, dysfunctional communities.

For the last 15 years, the dominant assumption has been that economic growth is the key to creating jobs. With growth, it was said (notably by government’s 1996 GEAR macro-economic programme), a million new jobs would be created in five years.  The seeming obviousness of this assumption swayed public opinion.

But, in real life, something paradoxical happened. From 1996 growth was, indeed, restored to an economy in decline for most of the final apartheid period. At first, post-apartheid growth averaged a modest 3%, but with a global commodity boom our economy began to grow at around 5%. That commodity boom has ended. We are back in the doldrums of negative growth and mass retrenchments. .

But even during the decade of positive growth, our job creation record was poor. In the first years after 1996 there was actually a net loss of one million formal sector jobs. By the early 2000s, unemployment had passed the 40% mark. In the latter years of growth there was some net job creation. By 2006 we were able to return unemployment to its 1994 levels (around 25%). Why, with a decade growth and an unprecedented global commodity boom, did we perform so poorly with jobs?

The answer, in brief, is we focused too much on growth without asking what KIND of growth. South Africa’s post-1994 growth path simply defaulted back into its old century-long habits. It was excessively primary commodity export-dependent; excessively import-dependent for luxury goods and machinery; it was capital-, not labour-intensive; and it had extremely high-levels of concentration in the mining, financial, agro-processing, retail and energy sectors. These levels of concentration suffocated labour intensive family farms and light manufacturing.

To create jobs we must transform the character of our growth path. But how? The current activism of our Competitions Commission is critical. A recent academic study found, for instance, that SASOL, the near monopoly supplier of PVC to our domestic market, was charging local plastic goods manufacturers a 40% premium.

We are often told it is the private not public sector that creates jobs. “The state is not an employment agency”.  But the state and parastatal sectors have a very central role to play in job creation.

First, the public sector is (needs to be) a major employer in its own right. We are now belatedly playing employment and training catch-up in key areas like education, health-care, municipal services and policing. Many current challenges in these sectors have been caused by a neo-liberal denigration of public sector work and mid-1990s “right-” (i.e. “down-”) sizing exercises.

It is not just as a direct employer that the public sector has a major employment role. Take our R787-billion state-led infrastructure programme. Planned before the global crisis, it has now become our major counter-cyclical stimulus package. Even in conditions of global recession, it has helped sustain construction sector employment growth.

But we could be doing better. For the moment, we have been less successful in ensuring a dynamic connection between infrastructure spending and stimulation of local manufacturing. Far too many inputs are being imported – Gautrain coaches, BRT buses, and even some very basic nuts and bolts. Driving a much more aggressive industrial policy is a third dimension of the state’s job creation responsibilities.

I have stressed the key strategic role of the public sector in job creation, but, of course, the state will not succeed without the participation, creativity and democratic engagement of all sectors of our society. 15 years into democracy, together we can (and must) do much better.

Tony Leon – former DA-leader:

The unemployment crisis in South Africa is deep and profound. Even before our economy moved into recession, more than eight million people within the expanded definition of unemployment were without jobs. Most were young and black and under-educated and unskilled, and they account for an alarming 40% of the potential workforce.

When the National Treasury engaged the Harvard Center for International Development to advise government, they found that if job-creation in South Africa had simply attained the levels achieved in countries  such as Thailand, Brazil and Mexico, employment here would have been 50% higher.

We now face a further massacre on the jobs front: 170 000 workers lost their jobs in the first quarter of 2009, a figure which economists reckon could balloon to nearly 400 000 by the year end.

The government has made the creation of “decent work” the centrepiece of its strategy to halve unemployment by 2015, and sees the state as the chief driver of this ambitious target. However, shortly after his final budget speech to Parliament, Trevor Manuel sounded a necessary warning: “In a time of crisis, all jobs are hard to come by, and the more adjectives you add the harder they will be.”

Since the introduction of the Labour Relations Act in 1995 we have created rigidities and obstacles in the path of both employers and job-seekers. The fact that our unemployment levels are at heights experienced in the United States at the time of the Great Depression is proof enough . Further evidence of the unsuitability of our current legislative framework was unveiled by the World Bank which placed our rigidities in the labour market near the bottom of the global survey, with South Africa ranking 123rd out of the 134 countries surveyed.

The first response to this crisis should be to think “outside the box.” The recently unveiled “5 Million Jobs initiative” of the Centre for Development and Enterprise/Business Leadership SA is a good place to start. They realize it is futile to demand of COSATU and government a wholesale rewriting of our labour laws, although that would be a first prize, but instead suggest that first-time job-seekers be exempted from some of the more onerous provisions of the legislation. Next, they propose they we experiment with different models in different areas, targeting rural, high unemployment zones to begin with.

Minister of Economic Development Ebrahim Patel  made an important admission recently when he conceded that the government’s own initiative for 4 million new jobs would “not exclude the creation of temporary, low paid jobs in the short term.” This seems to be at variance with the insistence by COSATU, for example, that labour brokers, whom the Minister of Labour has labelled as “human traffickers”, be banned outright. Yet it is precisely this informal, casualised sector, and the brokers themselves, who have been the mainspring of much of the creation of work in recent times. They are the principal entry-point into the labour market for unemployed African youth-and contract and part-time employment has been created for 3,5 million job-seekers since 2000, according to Adcorp, South Africa’s largest  private employment agency.

Professor Ricardo Hausmann of the Harvard Group spelt out the position to our government very clearly: “You have to create jobs for the workers you have, not the workers you wished you had.”

Our country’s  unskilled and unemployed young millions are not just competing against each other, they are competing against the world. An unskilled worker in South Africa averages a salary approximately 300% more than his or her Chinese counterpart . That is one of the reasons that South Africa’s manufacturing sector has fallen off a cliff. It is uncompetitive, and our labour is too expensive. We need, first off to open the factory gates to those who want to work, at prices which are affordable to those who wish to engage them.

Thereafter, we can upscale and up skill the workforce. There is, in my mind, something perverse in government doling out taxpayers’ money to 13 million welfare recipient who average no more than R750 each month, but refusing to countenance, or subsidise, entry level wages at approximately the same level.

We must, decisively, break the cycle of unemployment and create hope on the jobs’ front.

Cronin responds to Leon:

Yes, unemployment is THE critical challenge. But, Tony, you assume our economy, as presently structured, has an insatiable appetite for waged labour – and the appetite is only blunted by a single factor: the cost of labour.

You must be wearing “oogklappies”.

Drop entry level wages? Workers won’t be fooled by that. They’ve learnt from recent mass casualisation that labour market liberalisation erodes overall wage-levels and job security, without spurring any major employment creation.

The relative cost of South African (compared to, say, Chinese) labour is affected by many factors beyond labour market regulation – our food and public transport costs, for instance.

Your narrow labour market fixation also obscures many other things. The poor don’t survive as market-place individuals. Social grants and meagre wages are typically not alternative choices, but part of a household’s shared pool of survival strategies.

Remove the “oogklappies”, Tony. Follow your own advice – think out of the box.

Leon responds to Cronin:

If the state could create jobs, then South Africa would have zero unemployment, not the one-quarter of the potential workforce without work, or much hope of its attainment. The truth is that the private sector is the mainspring of job creation-and the obstacles which we place in the path of offering competitive work at affordable wages is the key to resolving unemployment.

But the state does have a big role: it needs to critically examine the legislation and practices which inhibit job creation. Mining and agriculture would be two good places to start. Jeremy claims that the state pursued the wrong growth strategy. I agree. If you look at the effect labour legislation had on job-destruction in agriculture, and the Minerals and Petroleum Resources Development Act had on disinvestment and job-losses in mining during the boom years, it is clear that the ANC government never placed job creation at the heart of it programme. Ideology first, job-creation somewhere at the back of the queue has been the reality of the past fifteen years.

To create jobs, there will have to be a mind-shift on this front as well, particularly since both the state-with a huge fiscal deficit-and the private sector-with record bankruptcies- have much less room for maneuver  and expansion.

  • Next week Cronin and Leon will tackle the issue of service delivery protests. The Afrikaans translation will appear in Die Burger on Wednesday August 5th, while the English original will be available on News24 from Thursday August 6th.

News24 encourages freedom of speech and the expression of diverse views. The views of those published on News24 are therefore their own and do not necessarily represent the views of News24.

Read more on:    jeremy cronin  |  tony leon

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