National Development Plan: The devil is in the economic detail
- Neil Coleman
- 03 Apr 2013 11:56 (South Africa)
I was involved in discussions at Mangaung when the ANC proposed to endorse the “broad vision of the NDP”, and engage with the detail later.The failure of the conference to interrogate the document, and address its serious inconsistencies with the policies of the movement, however, could prove to be a very costly decision. The delegates could not have intended to limit themselves to the Vision Statement of the NDP, which is really a 10-page poem, talking in very lyrical terms about the future South Africa.
Unfortunately there was no time in Mangaung for any substantive discussion of the document (certainly in the economic transformation commission, where I was present), but if delegates had engaged with the detail, a cursory examination of the NDP’s economic vision, would have revealed serious problems which bedevil the entire plan.
The vision of economic transformation outlined in the NDP is expressed in a key table on employment targets, which sets out the goals the plan is striving for by 2030. At first glance, these targets for 2030 seem positive, and ambitious. But closer scrutiny reveals that aspects of this economic vision are quite problematic:
The dramatic, positive, headline is the plan proposes to create nearly 11 million jobs by 2030, and reduce the unemployment rate to 6%. Further, it proposes a reduction of inequality and elimination of poverty by 2030. On the face of it this picture looks very good. However, when we subject this vision to further scrutiny, serious problems emerge. As songwriter Tom Waits sang: “the large print giveth but the small print taketh away”…
1. The NDP’s jobs plan is problematic and unsustainable: Its success hinges on the creation of mostly low quality and precarious jobs based outside the core productive sectors of the economy. The target of 11 million jobs by 2030 is based on a plan which is unsustainable, relying disproportionately on SMME jobs, as well as jobs in the service sector. The NDP makes the startling proposal that 90% of the jobs will be created in SMMEs, drawing on faulty analysis of recent SMME performance, and contrary to statistical evidence that SMMEs have shown little increase in the share of employment over the last decade. A recent study of a large sample of firms performance from 2005-11, by two UCT economists, and a Stats SA deputy director-general, concludes that far from being major net job creators, job destruction was far higher in small firms, and that large firms have a higher rate of net job creation. Furthermore, the NDP expectation that 9,9 million jobs will come from SMME’s is highly unrealistic. If the plan is followed, it is highly likely that many of these jobs won’t materialise, and those that do materialise, will mostly be of low quality. The plan concedes that it is based on the creation, particularly in the first 10 years of low-paying jobs, as opposed to decent work.
2. The NDP fails to pursue the National Growth Plan (NGP)/Industrial Policy Action Plan (IPAP) vision of reindustrialising the economy, with manufacturing at the centre. The plan ignores recent consensus which has emerged around the need for a state-led industrial strategy, a strategy which has been successfully pursued by a number of our Brics partners. In 486 pages the NDP doesn’t mention the Industrial Policy Action Plan once! The plan envisages the share of manufacturing in total jobs shrinking from around 12% in 2010, to 9.6% in 2030. On the other extreme, employment in all services increases by five million jobs, or up from 30% as a percentage of employment to a whopping 40% in 2030. Of the 11 million new jobs envisaged in the NDP, nearly two thirds will come from services, domestic work and the informal sector. Hardly an industrialisation or diversification strategy!
3. The NDP is premised on undermining worker rights, and a low-wage strategy: The key to the NDP’s “employment strategy” which was in significant part driven by Treasury-aligned technocrats, lies in the old Treasury agenda of deregulating labour markets. The plan proposes a series of measures which, through legislation or social coercion, would have the effect of undermining existing worker rights, and promoting a new stratum of ultra-low paid first-time workers, earning even less than low-paid workers are currently earning. This would be achieved inter alia through legislative measures aimed at making dismissals easier, allowing free reign to labour brokers up to six months of employment, reducing worker rights in SMMEs, and broadening the definition of essential services to prevent strikes in large parts of the public sector. This is combined with proposals to drive through agreements, and a social compact, providing for lower wages for first-time entrants to the labour market.
The NDP is based on the false assumption that by reducing wages employers will be more prepared to employ workers, particularly first-time workers. However, stats show that while real median wages of low-skilled workers have fallen since the 1990’s, jobs for the low-skilled have shrunk by nearly a million. So, low wages don’t create employment. On the other hand 2.5 million jobs have been created for higher paid higher-skilled workers over the same period. The NDP further bases its proposal for a social accord on an equal myth, which assumes that if workers receive wage increases below the level of productivity growth (which in any event has been happening for many years), because this raises the level of profit, employers in return will deliver greater investment in job creation. However the NDP then shatters its own assumption, citing a study by economists that “profit margins are already very high in South Africa... low profits may not actually be the reason for low levels of investment… Given deep inequalities, workers do not see why they should accept wage restraint”! Nevertheless it insists that labour “has to recognise that some wage moderation is required...”
4. The NDP vision is based on the acceptance that high levels of inequality will persist until 2030, contrary to the policies of the movement that redistribution must form a critical basis of the new growth path. The plan proposes that the Gini coefficient, which measures income inequality, will only decrease slightly from its current world-beating level of 69% (or 0.69) to an excessively high 60% (or 0,6) by 2030. In terms of current measurements, 60% would still make our levels of inequality higher than any other major country in the world! This long-term target (which Brazil has surpassed by far in less than 10 years) is an embarrassment for a country claiming to be serious about combating inequality. The average Gini for OECD countries, which by no means have low levels of inequality, is less than half of this – between 25 to 35% after taxes and transfers. Given that the plan is premised on a massive increase in low-wage jobs, and increased profits for employers, it stands to reason that levels of inequality between the top and the bottom will continue at very high levels, and possibly even increase.
Linked to this, the NDP accepts that massively high levels of concentration of wealth and poverty will still be in place by 2030. It proposes to increase the share of income going to the bottom 40% of income earners from the current 6% to a mere 10%. The ambition of the NDP is therefore that nearly half of our people should receive 10% of the wealth after 18 years of implementation of the national plan!
5. The NDP uses a very low poverty measure of R418 a person, a month (2009 prices), suggesting that only those households with an income of less than R2,000 a month are living in poverty. It argues that 39% of South Africans in 2009 fell below this level, and that by 2030 no-one will fall below this level. But this is a false target to set, as there is no basis for this poverty measure. The Household Subsistence Level and Supplemented Living Level calculate the minimum income a family of five needed to afford basic necessities, as around R3,500 a month in 2009, against the NPC figure of about R2,000. In December 2012, in looking at minimum wages for farm workers, the Bureau for Food and Agricultural Production, found that farmworkers wouldn’t even be able to afford enough food to feed their families adequately, if they earned R2,000 a month, let alone afford other basic necessities – therefore the R2,000 figure was way below what could be regarded as a basic minimum income level. And roughly 50% of South Africans lived below the R3,500 level in 2009. There is therefore no scientific basis for the NDP measure, beyond the well-known drive of Treasury to keep poverty line calculations as low as possible. A more realistic calculation of poverty levels would require NDP projections to be adjusted in a way which would reveal the persistence of unacceptably high levels of poverty, even by 2030. This is clearly a result which the NDP authors realised would be unpalatable.
6. The 6% target for unemployment is totally unrealistic: the NDP uses the official or limited definition of unemployment which excludes all discouraged workseekers (over three million unemployed workers are excluded from this definition). Its figure for unemployment is 25% for 2010, as opposed to the more realistic rate of over 36%. The 6% target therefore lacks all credibility, and would need to be recalculated to include all the unemployed excluded by the National Planning Commission definition. Again, the NDP authors didn’t like the result this would have given them, and tortured the statistics into making a false confession!
Therefore the big picture vision of the plan is based on dubious assumptions, and problematic strategies, which leave the highly unequal structure of our economy and economic marginalisation of the majority essentially intact, with some tinkering around the edges. Contrary to the NDP marketing PR, the economic dimension of the plan is not coherent or evidence-based, but highly ideological. It is based on faulty statistics, dubious economic assumptions and incoherent analysis. It certainly does not address the injunction of the ANC conference to advance a radical economic shift to address the challenges of this phase of our democratic transition.This is not a vision therefore which can be embraced with any enthusiasm. DM
Disclaimer: Cosatu has not finalised its view on the NDP, and will do so at its May meeting of the central executive committee. A summary of the draft critique of the NDP, and references used in this article, is available at www.cosatu.org.za
Neil Coleman is strategies co-ordinator in the Cosatu secretariat