Opinionista Ivo Vegter 8 October 2018

Even the meagre promises of the Jobs Summit are empty

The talking heads at last week’s Jobs Summit among government, business and labour have decreed that they will create 275,000 jobs per year. If it was that easy, why didn’t they promise a million jobs a year? After all, they can always fudge the numbers, as they usually do.

Jobs can, apparently, be conjured up by agreement. And for some reason, the correct number to agree to conjure up is 275,000 per year.

There are 9.6 million people who are unemployed, says Ann Bernstein, director of the Centre for Enterprise and Development, writing in Business Day.

So if the 275,000-per-year promise holds true, and all of them are permanent jobs, and nobody new enters the labour market, our unemployed people will all be employed 35 years from now, in 2053. But of course, those conditions don’t hold.

According to Bernstein, 3.2 million young people came of age to join the adult unemployment queues since 2008. That works out to 320,000 per year.

So promising 275,000 jobs per year does not even cater for the number of new job seekers in the market, let alone making a dent in the catastrophic overall unemployment number. It is a drop in the ocean.

If all it took was an agreement between government, business and labour, why not promise to create a million jobs? In January 2018, Saint Cyril actually did so. He promised to create one million new jobs for South African youth over the next three years. He got rousing applause, apparently. So, far from coming up with anything new, this grand summit actually back-pedalled on previous promises.

The highlight of the 23-page Framework Agreement hashed out at the Jobs Summit is an undertaking to “boost domestic demand”, which means increasing local procurement by both government and business.

At first glance, this sounds like a splendid idea. Why not buy things from local suppliers instead of importing them? That would surely boost domestic production, and with it, domestic employment, right?

But think about it. What the ANC asked the international community to do during the liberation struggle was to stop selling stuff to the apartheid government. In response, the National Party began a campaign to encourage consumers and businesses to buy local, in the hope of establishing a largely self-sufficient economy. It failed, and the apartheid government eventually buckled under the economic strain.

Saint Cyril’s campaign to “buy local” in the hope of creating jobs is just like imposing trade sanctions on the country. It’s insane and self-defeating.

The idea of making a closed economy self-sufficient is called autarky. Autarky was practised by European countries during the mercantilist period of the 16th to 18th centuries. In part, their motive was to increase state power and perpetuate crony aristocracies. Once they opened up their closed, protectionist economies to free trade in the 19th century, European countries became a great deal more prosperous, and the share of their population living in poverty began to dwindle fast.

According to Encyclopædia Britannica, autarky was practised more recently by Nazi Germany, and North Korea’s juche system is also an example of autarky. Nice models for Saint Cyril to follow, to be sure.

That buy local campaigns are good for an economy is a fallacy I’ve addressed before. They actually impose costs on an economy, raises consumer prices, reduces choice and quality, and only benefits special interests.

It’s a regressive policy that will make the country poorer, not richer. And poorer countries employ fewer people, not more, unless you press your unemployed masses into peasant work as slave wages. Which, come to think of it, is exactly what the government seems to want, with its dreams of millions of low-skilled construction workers and visions of an unlikely agricultural revival.

The bulk of the Jobs Summit agreement merely rehashes existing policies that have been failing or limping along for years. Various industry sectors, such as clothing, automotive and mining, are singled out to be subjected to the government’s tender mercies, as they have been for decades. This time, the intervention will surely work brilliantly, cause vigorous economic growth, create jobs hand over fist, and make South Africa a world leader in pig iron, budget jalopes and discount T-shirts.

A wide variety of other projects are listed, all of which have been tried, tested, and proven to be underwhelming. It’s as if jobs can be created by merely saying what five-year plans and petty bureaucracies government is already throwing taxpayer money at.

Fashionable nonsense like the “waste economy” got a mention, even though the last time they tried that, they birthed the short-lived abomination called Redisa. As mentioned in a recent column, this vehicle tyre recycling scheme was established in 2013, collected billions through a mandatory levy on new tyres, collapsed into scandal by 2015, and was liquidated in 2017. Those billions simply vanished.

Redisa creatively boosted its job creation numbers. Of the more than 3,000 people it claims to have employed, only a few dozen were actively working by 2015. What it did was to record everyone that had ever had a job there, however short-lived, so the 3,000 was a cumulative total of long-vanished jobs. It was a litany of failure, not a record of success.

Those people, although supposedly paid per tyre they collected, were capped at a miserly monthly income of R1,500, so it’s not surprising the vast majority left for greener – if you’ll excuse the pun – pastures. Meanwhile, the directors lived it up at luxurious offices in a R26-million Saxonwold mansion.

There’s a section in the jobs summit agreement about reporting executive pay gaps and gender pay gaps, although what exactly that has to do with job creation is hard to see. Perhaps it creates work opportunities for all those unemployable humanities and social sciences graduates that got funded with money that had been earmarked for training artisans, which South African industry desperately needs in order to be more productive and create more jobs.

The government also committed to not cutting public sector employment. But that’s a naked electioneering ploy before the 2019 national elections. “Vote for us, and we promise you government jobs.”

The problem is that public sector jobs are a cost to the economy. There are far too many, most are unproductive, and on average they are overpaid. The average public sector employee earns almost 50% more than their private sector counterpart. The productive private sector must pay for them through tax revenue, which means that less capital can be devoted to the creation of jobs which objectively produce more value than they cost.

The only credit ratings agency that still keeps South African debt at investment grade, Moody’s, has warned that the public sector wage bill is the biggest threat to the country’s economic growth and fiscal consolidation targets.

It would benefit economic growth, and therefore job creation, to cut the public sector wage bill significantly. But that would cost the ANC the 2019 election, so Moody’s can go hang.

The other apparently meaty part of the agreement is a commitment by the financial sector to invest R100-billion into black enterprises and firms with BEE level six or higher.

According to the agreement, banks will work in concert with government to develop a single set of guidelines for the disbursement of these funds, and to provide a “single point of entry for enterprises needing to access industrial finance”. The financial sector and government also “commit to work towards a single due diligence standard, which is accepted by multiple financiers”.

This is a clear and gross breach of chapter two of the Competition Act. It is nothing other than explicit collusion. If the private sector had proposed this without the instigation of government, it would have been punished mercilessly by the competition authorities.

Under this agreement, banks will no longer compete with each other based on the risk they’re willing to accept, how they manage that risk, or what financial solutions they offer to clients. No doubt, the number of jobs a new venture proposes to create will weigh heavily in the new guidelines, even though jobs are a fixed overhead expense that any new enterprise ought to minimise.

But it gets better. You’d think that if the enterprises to be funded were worth funding, the private sector would be doing so already. So why did they need this agreement? The reason the financial sector is so happy to stump up R100-billion in finance is because it’s a bet they can’t lose.

The government has offered an “interest make-up” facility, which pays banks to offer lower interest rates. It also committed to “develop interventions to ‘de-risk’ catalytic industrial projects”, whatever that means, and to implement a guarantee facility to industrial project financing. So banks aren’t taking a whole lot of risk here. And what losses they do take, they can make back by selling the delinquent books to debt collectors. For the banks, this agreement is money for jam.

Remember how well government guarantees of bank credit worked during the global financial crisis of 2007? We’re going to have some more of that ol’ black magic. When bankers do not assume the full risk of their lending decisions because loans are in part guaranteed by government, or interest rates are subsidised, they have every incentive to over-extend themselves to extract extra profit from government policy.

The financial crisis reminded us that banks will vigorously exploit government mandates, subsidies and guarantees for their own benefit. Why would anyone expect them not to? After all, the taxpayer is on the hook in the end.

Of the 77 banks that failed as a result of the financial crisis, only seven were liquidated or shut down. Fully 34 ended up being owned by governments; that is, by taxpayers.

When it all shakes out, any jobs created by this government-protected financial cartel will either displace other jobs that would have been created if banks operated freely in competition with each other, or they’ll evaporate altogether. And the bankers will be laughing all the way to the, ahem, bank.

Since Saint Cyril’s million-job promise in January, total non-agriculture jobs have declined by 34,000 according to the Quarterly Employment Statistics. Between the first and second quarters of 2018, agricultural jobs also declined marginally, according to the Quarterly Labour Force Survey, and the unemployment rate rose from 26.7% to 27.2%, not counting discouraged work-seekers.

Clearly, job promises are just political lies peddled to win votes. But it doesn’t end there. It is easy for politicians and their tenderpreneurial cronies to fudge the numbers to make it look like they made good on their promises.

In 2009, former president Jacob Zuma told the country: “The second phase of the [Expanded Public Works Programme] aims to create about four million job opportunities by 2014.”

According to Africa Check, it did, creating just over four million work opportunities. On the face of it, it seems that government kept its promises. But that is only because “job opportunities” is not the same as “jobs”.

Remeber what Redisa did? The same happens with public works. Africa Check wrote: “It is important to remember though that work opportunities are not permanent jobs and in most cases only last a few months. The Department of Public Works notes that ‘the same individual can be employed on different projects and each period of employment will be counted as a work opportunity’. So while 4,071,292 work opportunities were created, this does not mean that the same number of people benefited from the programme.”

So, there’s a whole lotta cheating going on. It is possible to hire workers on a month-to-month basis, and count every year worked as 12 new “job opportunities”. It is possible to employ a worker for one month out of every six, over a five-year period, and call it 10 new “job opportunities”, while the poor worker and their family starves.

This explains why, while the government supposedly created four million jobs, the unemployment rate did not go down. On the contrary, it went up from 22% to 25% between 2009 and 2014. The government’s job-creation statistics are all smoke and mirrors. They mean nothing.

In 2014, as former president Jacob Zuma gave the ANC “top marks for its performance”, its election manifesto promised to deliver an additional six million jobs through state programmes in the ensuing 10 years. That’s more than twice what the Jobs Summit promises now.

Together with the original four million, this should employ every single unemployed person in the country by 2024. But it won’t, of course. It will not make an iota of difference to the unemployment rate or the number of unemployed people over the long term. Our non-state economy is simply not growing enough to sustain long-term job creation.

The Jobs Summit Framework Agreement will enrich government’s big business cronies with all sorts of incentives and guarantees, while burdening the broader economy and taxpayers with extra costs and red tape. It contains nothing new or innovative, and it will do nothing more than drag the South African economy further into the socialist mire. DM

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However, it would be an offensive oversight not to acknowledge that right there on the front lines, alongside whistleblowers and civil society, stand the journalists. Armed with only their determination to inform society and defend the truth, caught in the crossfire of shots fired from both sides.

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