Beyond jobs summits: Can SA grow jobs and investments long-term?

The Jobs Summit of 2018 is over. There have been some useful agreements between the social partners, government, organised labour and business (essentially, big business).

This is the fourth jobs summit in 20 years.

In 1998, in the bitter post-GEAR atmosphere, amidst a developing country debt crisis, the first Jobs Summit achieved very little.

The 2003 Growth and Development Summit achieved significant agreements, but it was poorly monitored and poorly implemented. In February 2009, after frantic negotiations, the social partners in what was called the Presidential Economic Joint Working Group agreed on a Framework to respond to the global financial crisis.

During 2009, despite the measures introduced by the Framework Agreement, South Africa lost nearly a million jobs.

South Africa’s customary form of summits could be criticised as elitist because they are the strongest organised workers who meet with the most powerful business leaders and top representatives of government. But we cannot avoid the fact that these powerful forces must agree on economic policy in South Africa for it to be credible.

Undoubtedly the outcome of the recent summit is positive. There are job-saving elements of the 2009 agreement which have been revived. There are forward-looking commitments such as finance for the black industrialist scheme and a focus on the export of manufactured products. There are initiatives for small business support, technical training and a mechanism for the absorption of graduates into the economy.

Perhaps the most important of the summit outcomes is that a Presidential Jobs Council will be established that will monitor progress regularly. This means that there will be a regular conversation on the economy and job growth convened by the President, which is a valuable substitute for a weakened Nedlac.

Fundamental concerns

Welcome as the 2018 Jobs Summit agreement is, it doesn’t explicitly acknowledge that there might be some fundamental issues of concern in the approach to development and job creation in South Africa. In a paper just published by the University of Manchester, Brian Levy and I argue that the implicit social compact of the 1990s laid a poor foundation for job creating growth in South Africa.

An elite bargain over its economic framework formed an essential part of the foundation for a democratic South Africa. The context of the bargaining process included the capitulation of the communist bloc, economic stagnation in most African countries, and a relentless campaign by the white South African business community not to intervene radically in the economic framework.

The implicit, and sometimes explicit threat was the flight of capital and the flight of whites who were virtually monopoly owners of wealth and key economic skills and networks.

What emerged was an apparently strong commitment to market-based reforms, especially market-opening reforms as we call them in our paper. (Hirsch, Levy; p12)

The result is well known. The resulting economic policies were strong on what was then called "getting the prices right" and what we call "disciplining reforms": trade and financial liberalisation, fiscal restraint, tougher competition laws and a conservative mandate for the central bank.

Conversely, it was weak on the more interventionist kinds of market support policies that were effective in some of the more successful developing countries of the era, such as support for industrial innovation, cluster development and industrial policy.

While the latter policies would have encouraged domestic investment in job creating growth, the focus of corporations was on narrowing their South African operations and spreading their activities and assets abroad, a process described by some as "unbundling, rebundling". While they cast off some non-core assets, the corporations remain extraordinarily powerful. (Aghion, P., Braun, M. and Fedderke, J. W., 2008. 'Competition and productivity growth in South Africa', Economics of Transition 16(4): 741-768)

In addition, little unbundling for the key state-owned enterprises occurred, and even less liberalisation of markets. In a rare example of privatisation, Telkom, a public monopoly, was privatised without the state creating an environment for competition in the fixed line telecoms sector.

One thing worse than a public monopoly is a private one. This did not help the case for privatisation.

At the same time, the trade unions used their bargaining power with government to strengthen worker rights. All labour laws had to go through NEDLAC and could not go through until all parties were happy.

Big business, which always dominated the business delegation, agreed to labour laws that they could manage with their sophisticated human resource departments and because of the choices they could exercise.

However, these laws were not all easy to implement by small and medium companies.

In addition, the outcome of the reform of the industrial training system was a disastrously bad design, which set back industrial training for many years.

The market opening reforms, combined with the labour reforms, achieved very little in the way of supporting dynamic investment and innovation. So, the elite pact was less a coherent package derived from carefully thought out trade-offs than it was an acceptance of what powerful stakeholders would agree to.

Compared with outcomes of more successful social pacts like Mauritius in the late 1960s and Ireland in the late 1980s, our social compact failed. And commitment to the elements of the compact waned.

Key questions

In a different world, perhaps, had we had a clear developmental model in mind and had we strived for suitable strategies, the outcome might have been very different. There would have been a much stronger emphasis on the more interventionist kinds of industrial policies, such as those recommended by the Industrial Strategy Project, a Cosatu-supported research programme, very little of which carried over into government, and even less of which was sustained beyond 1999.

In the late 1990s I was involved in an effort between the ANC, the SA Communist Party and COSATU to agree on an approach to industrial policy. After months of work, we prepared a reasonably coherent concept note, but it seemed to fall on deaf ears.

Yet, more recently, industrial policy has formed part of the approach of government. There have been major initiative in several sectors. Indeed, there is a 14-page section on industrial policies in the Jobs Summit Framework Agreement coyly called "sectoral interventions".

Are we in the kind of crisis, like Mauritius in 1968 and Ireland in 1988, where key social forces can review the implicit social compact and work together towards a coherent developmental model that can drive productive investments? And are the social partners well enough led to arrive at suitable agreements? These are the questions excitingly raised by the Jobs Summit outcome.

Professor Alan Hirsch is director of the Nelson Mandela School of Public Governance at UCT.

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