Opinionista Khulekani Mathe 30 April 2013

National Development Plan: Rational, pragmatic, and rooted in the realities of SA

Neil Coleman’s critique of the National Development Plan focuses on an important aspect of the NDP – the economic policy proposals. His comments are a welcome contribution to an important public debate, and are also among the more detailed responses we have. This doesn’t mean, however, that he’s come to the right conclusion.

Cosatu’s Coleman has three main criticisms of the economic sections of the NDP. They are that the jobs plan is problematic in that it projects many more jobs to be created by small business and in the services sector; that the NDP ignores the New Growth Path and the Industrial Policy Action Plan; and that the NDP calls for job creation through reducing the rights of existing workers. These criticisms need a response because they misrepresent the NDP. They are, also, based on questionable assumptions about the economy, and the nature of poverty and inequality in our country.

The NDP argues that the key challenge facing South Arica is to significantly reduce the level of poverty and inequality. In order to do this, we must raise employment significantly. Several complementary areas of public policy must work in harmony – including a constantly improving education and training system; expanded and better functioning infrastructure; higher rates of fixed investment; more integrated cities and rural spaces, increased productivity, and higher exports. Integrated cities will lower the cost of commuting for workers and increase their welfare while better education will enable more people especially the poor to get jobs in higher productivity sectors and earn higher wages.

Two key points stand out in the economic analysis done by the Commission. The first is that given our low savings rate, South Africa needs higher exports to finance higher investment. A key difference between South Africa and other major emerging economies (Brazil, Korea and Malaysia) is the lack of dynamism in our export sectors. South Africa’s lack of export dynamism inhibits economic growth generally, and labour-absorbing growth in particular. Export sectors are generally more labour absorbing than domestically focused sectors, and they possess greater potential to create stable jobs with rising earnings because productivity rates are higher in these sectors.

Promoting exports requires higher competitiveness, better infrastructure and better skills. Stimulating domestic demand is important but has its limitations because of our low savings rate, and our lack of resources to invest in new capital and infrastructure. As a small, open economy with a low savings rate, we need to simultaneously raise exports and engineer a switch from domestic consumption towards investment. The evidence shows that this is a long and slow process.

It is true that during a period of slow global growth promoting exports as a means of driving growth will not show immediate results. However, global demand is not the only major constraint to higher exports. South Africa represents 0.6% of world GDP, a third of which is made up of exports. With better infrastructure, closer regional integration in southern Africa and an improving our skills base, we can raise exports by at least 10% a year to grow the economy faster. This is not an unrealistic expectation. There are new, emerging economies (including on our continent) that are growing rapidly, and that present new markets for our exporters.

Brazil has been more successful than South Africa in reducing inequality and poverty. It achieved this by among others using its agricultural and mining export sectors to generate the resources for domestic demand to grow. Related to this, Brazil’s social security system that has contributed to its success is only possible if the country can sustain export earnings.

The second major point in the NDP is that while a more dynamic export drive is needed, most jobs are created in small, domestically oriented firms. This is not a contradiction. The link between a growing export sector and dynamic job creation in small firms is true in countries as diverse as Brazil and China on the one extreme to Ireland and the US on the other.

Are these jobs decent jobs? South Africa needs a dual strategy of raising the skills profile of the population while creating new jobs. The vast majority of unemployed people have limited marketable skills. To create millions of jobs we have to expand sectors that are intensive in relatively low skilled workers. These sectors include mining, agriculture, manufacturing and services. The NDP outlines plans to grow each of these sectors in order to absorb unemployed people. It also calls for a growing public works suite of programmes. As a nation, surely, our immediate priorities should be to get millions of people into jobs, and provide the infrastructure and incentives to raise productivity so that workers can improve their earnings and living standards over time.

A broader social wage, combined with policies to lower the cost of living for the poor, is part of the package to raise living standards for all South Africans. Better health care, improved public transport and high quality education for the poor are important social policies to support employment creation and the transition of workers into better paying jobs.

Coleman asserts that the NDP is inconsistent with the New Growth Path. This is untrue. The NDP complements the New Growth Path, strengthens its analysis and provides recommendations on how its implementation can be enhanced. The challenge of all our plans, including the New Growth Path, lies in implementation – the precise focus of the NDP.

The NDP envisages a strong role for the industrial sector that is able to grow exports and create jobs. Here, too, the NDP complements the Industrial Policy Action Plan. In relation to industrial policy the NDP suggests different approaches to growing the industrial base of the economy so that the outcomes sought by the Industrial Policy Action Plan can be realised. In this regard, the NDP promotes a greater focus on significant infrastructure investment, research and innovation, leveraging public and private procurement to promote localisation and industrial diversification, deepening linkages between mining and other sectors of the economy and a clear role for direct intervention in specific sectors to support investment and job creation.

An overly defensive industrial policy that focuses too much on protecting existing industries from foreign competition through tariffs will have limited success. Industrial policy needs to be offensive, in that it needs to support specific sectors to grow its share of exports. More recent iterations of industrial policy are more balanced in their use of industrial policy incentives to support firms to grow exports.

The NDP does not call for a weakening of workers’ rights. The NDP makes several recommendations to improve the functioning of labour market institutions, reduce tension and improve the entrance of new and younger workers into the labour market. The NDP is very specific that this should be done without reducing the rights of existing workers.

The NDP accepts the broad architecture of our labour relations environment. It does, however, point out that if we are to grow labour intensive sectors, we have to find ways to reduce the level of tension in labour disputes through earlier intervention and better functioning of labour market institutions. The number of workdays lost through strike action, and billions of rand in lost capital stock through destruction of property which accompanies many strikes in recent years benefit neither the workers nor the employers.

A major feature of the South African economy is its insider-outsider divide. This is true for both firms and workers. Many sectors are uncompetitive because they are dominated by a few large firms that are able to keep prices and profit margins high without needing to compete, innovate or invest. This inhibits job creation and must be dealt with through a range of policy instruments, including competition law and the tax regime.

Similarly, a situation where over two-thirds of black school leavers each year cannot get a job, with over half of them not getting a job within five years, is unacceptable. Without compromising rights and jobs of existing workers, it is possible to make it easier for young people to access the labour market. This can be achieved through a range of policies including learnerships and apprenticeships, tax incentives to hire young people, support for job seekers (such as training or transport vouchers) and better quality vocational training.

Coleman’s remaining criticism mainly relates to the way in which income inequality is tackled in the plan. His argument is that the plan is not radical enough. The NDP puts the issue of inequality squarely on the policy agenda and sets firm targets to reduce the level of inequality. Inequality in South Africa is mainly driven by a legacy of unequal opportunities and decades of social and financial capital accumulation amongst whites. Understanding that these drivers of inequality are stubborn and will take time to address completely; the plan sets a more modest but achievable target.

If one were to be cynical, the easy way of reducing inequality would be to get rid of the top 5% of income earners. I have no doubt that everyone will agree that this would be disastrous for our country. The long, but most effective way of reducing income inequality is to raise employment, and to provide high quality education that enables the poor to access high paying jobs. A strong social security system combined with efficient public services for the poor would also go a long way to improve living standards of the poor. Critically, we have to get most adults in the bottom half of the income spectrum into work and much of the economic aspect of the NDP goes into this one goal.

Coleman’s contribution to this important national debate is welcome and we invite all South Africans to join the debate. The NDP is not gospel; it is a broad framework that sets targets and a path to achieve those targets. It is rational, pragmatic, evidence-based and rooted in the realities of South Africa. Let’s implement the NDP and refine our approaches as we proceed rather than wait for a perfect solution. DM

Khulekani Mathe is the Acting Head of the National Planning Commission Secretariat. He writes in his personal capacity.


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