Special Focus: Critique by Cosatu of “Towards a ten year review”

The main weakness is the absence of a consistent analysis of how the structure of the economy contributed to shortcomings. As a result, the proposals, far from proposing ‘a new trail’, provide little in the way of a strong reform package. Acceptance of existing economic policies means the review does not propose a comprehensive, co-ordinated strategy that can ensure large-scale employment creation. It essentially calls only for expanded public works programmes and sector strategies aimed, not at employment creation, but at rising competitiveness. The review does, however, call for a ‘social compact’ both to ensure more consistent prioritisation of employment creation within government, and to mobilise business and civil society around that aim. The weaknesses presumably reflect the schism in government between those who see rising unemployment and poverty as the key challenge and those who argue we must continue with economic policies geared narrowly to increasing the competitiveness of the formal sector and attracting foreign investment.

Explaining unemployment

Reading the review casually, one could easily miss the central admission that unemployment is now the key challenge facing the country. True, the overall impact analysis and final proposals point to the seriousness of the unemployment crisis. But the official overview of the employment situation takes up a single page and emphasises net job creation since 1994 and the skills shortage as much as the unemployment crisis. The review’s basic argument is that employment as a whole rose by 1,6 million between 1995 and 2002, so the problem is not job losses. The number of people employed or seeking work – that is, the economically active population – rose faster than the labour force, which is all people aged over 15 years old. The economically active population reportedly expanded 4% a year between 1995 and 2002. The review also ignores the fact that incomes from work fell in the past nine years, in part because many of the new jobs are informal. Thus, the share of workers earning under R1 000 a month stabilised at around 40% between 1995 and 2002, while the purchasing power of R1 000 declined by almost half. The consequences of this argument emerge in the review’s economic proposals, which are contradictory and disorganised. By explaining rising unemployment narrowly in terms of the rapid increase in the number of work seekers, the review ends up without a consistent basis for defining appropriate strategies to grow the economy. It does not provide clear answers on how to restructure production and access to assets in order to create employment on a mass scale. Moreover, it makes no attempt to identify where existing policies have contributed to the current malaise.

Income distribution

The review makes a strong argument that, in economic terms, household equality has improved substantially, especially as a result of government programmes. The policy implications of this conclusion remain unclear, except to comfort people in government that they have succeeded in addressing poverty. Still, the statistical basis of this finding is extremely weak. Firstly, the review argues that inequality in terms of earned incomes dropped sharply between 1997 and 2000. But Stats SA found that income distribution worsened slightly between 1995 and 2000. Intuitively, the drop in income inequality shown in the review is unbelievably large, with a decline in the Gini co-efficient, which seeks to measure inequality, from 0.68 to 0.59. Even the latter figure represents an extraordinarily high level of inequality by world standards. The World Bank’s World Development Indicators for 2003 report only around five countries with equal or high inequality most of them in Southern Africa ( Swaziland and Namibia ) and Latin America. In any case, it does not make sense to use 1997 to 2000 when data is available for 1995 to 2000 and indeed from 1995 to 2002 if the Labour Force Survey is used. Secondly, the review calculates the impact on inequality if the benefits of government programmes for different income groups are taken into account. It argues that government programmes relieve 41% of the inequality in incomes, both through social grants and in kind (for instance, through housing and education). But this finding seems based entirely on a projection from 1997, with no attempt to research the impact of current government spending. The improving trend from 1997 to 2000, then, arises only because of the purported improvement in income equality in this period – which, as noted above, is highly dubious. More fundamentally, we have to ask whether this is a useful way to understand the redistributive function of the state. After all, in almost every country, government plays a s significant redistributive function. But that is not the same, in social or economic terms, as improving income distribution. The income distribution figures in the review appear to underplay the extent of inequality and overplay improvements. Most studies show that income distribution has probably worsened, as unemployment has risen and wages have fallen.

Growth in the economically active population

As noted above, the data on the rapid growth in the economically active population is central to the review’s understanding of unemployment. It argues that the increased number of work seekers mostly reflects the migration to towns from the former homelands, especially by women. As a result, while employment grew 12% overall, despite the shrinkage in key formal industries, the labour force grew 35%. The data underlying this argument is very dubious. In particular, the October Household Survey (OHS) – which were replaced by the Labour Force Survey in 2000 – report unbelievable fluctuations in key data. For instance, they show a 15% decline in non-Africans of working age in 1995 – 1997, followed by a 9% increase through 2002. If we think the OHS data is at all reliable, then it does show that workers and those seeking work (called the economically active population) rose as a share of the working age population from 46% in 1995 to 59% in 2000. These figures use the narrow definition of employment that excludes those too discouraged to seek work. If the economically active population had stayed at only 46% of the labour force, unemployment would have fallen below 10% by 2000. But these trends reversed in 2000, as both job creation and the rapid increase in the economically active population reportedly ended. Despite some strong (and not very believable) fluctuations, the statistics show that the economy lost some 300 000 jobs all told between February 2000 and March 2003. In addition, the economically active population fell back from 59% in 2000 to 57% in 2003. But because of the decline in employment, unemployment continued to rise. Finally, the data simply does not support the argument that more people sought work as they left the rural areas. In sum, while the review repeatedly points to the need for vigorous government intervention to ensure job creation and equity, its proposals do not measure up to the task. The economic proposals seriously misinterpret the GDS approach to sectoral strategies, in ways that could undermine the proposed redirection of government policy.

(This critique initially appeared in the South African Labour Bulletin, Volume 27 Number 6, December 2003)