There is an idea from government that the South African economy should grow at 7% a year. There seems to be a belief that growing that fast will help solve our unemployment problems.
The link between economic growth and employment crea- tion seems obvious, but we have to remember that we recently experienced a few years of economic growth of 5% with very poor employment growth. Further, we lost productive capacity during that period of 5% yearly economic growth. We then proceeded to lose close to a million jobs during the global economic crisis. Therefore, there is very little reason to believe that eco- nomic growth of 7% a year will help reduce unemployment significantly.
The big question we have to ask is: How do we achieve the correct kind of growth that will help us create the right kind of employment in a sustainable manner? We do not need 7% yearly growth, but we do have to get the correct kind of steady industry-led growth, investment and job creation.
The US and many other countries, including South Africa, have had the wrong kind of economic growth. There was economic growth but a decline in productive capacity. There was very little employment growth during this period and many countries had declining employ- ment in industry during those years. Economic growth in those countries occurred because their financial sectors grew. Further, the level of indebtedness in those countries grew tremendously. The growth experienced in those countries were a result of rapid growth in debt-driven consumption and financial speculation. As their productive sectors stagnated or declined, these countries increased their imports. In order to sustain this type of economic growth, households in these countries took on ever higher levels of debt.
Therefore, while policy- makers may be uncritical of economic growth, it is important to examine the nature of economic growth. Economic growth driven by financial speculation and increased levels of household debt and characterised by neglect of the productive sector is the wrong kind of economic growth. It is just not sustainable. It is the kind of growth that destroys the possibility of future growth because it destroys productive capacity and leaves the people with production skills idle and deskilled over time. Those economies would be better off if they did not have debt-driven consumption and speculation-led economic growth. In fact, we may have been saved the pain of a global financial crisis had the US not become involved in the business of promoting financial speculation at the expense of building produc- tive capacity.
Our Finance Minister, Pravin Gordhan, told us in his Medium-Term Budget Policy Statement that the State should not take on too much debt and create a burden for future generations. But he did not announce any significant changes to the macroeconomic frame- work. Therefore, in spite of discussions about a new economic growth path, we are in a position where our macro- economic policies favour the wrong kind of growth, which does not support industrial policy and industrial develop- ment. We face further destruction of our productive sectors and we will continue to be a specu- lators’ paradise. Government had a chance to protect our economy from the damage of uncontrolled speculation by foreigners, but chose not to do so. Instead, government made it easier for South Africans to become part of the global specu- lative game by further relaxing exchange controls. It is exacerbating a bad situation, where industrial investment is not supported and capital that should go for investment can reap higher rewards in global financial speculative activities. Unfortunately, government has learnt little from the global financial crisis and is still allowing the needs of a profligate financial sector to decide on our country’s economic framework.
South Africa and other countries can continue to squeeze out a few years of economic growth on the cur- rent finance-led growth path, but, in so doing, we dig ourselves into a deeper hole. We will continue to lose productive capacity and skills. The real problem is not a government debt. Continuing on this current unsustainable finance-led economic growth path will create a burden for future generations.