A REPORT ON THE PRESIDENTIAL JOB SUMMIT
BY THE GOVERNMENT DELIVERED BY MINISTER ALEC ERWIN

30 OCTOBER 1998.

We have succeeded in developing a real and substantial collective response to the need to create jobs. These jobs will be created over time and there is a great deal more that awaits to be done. The real achievements of the preparation for the Job Summit lies in the focus on many areas of detailed attention to the questions that are real for people in employment.

There has been the beginning of an institutional response to the employment concerns of the very poor, the rural people, youth, women, disabled persons and the marginal. It has not been a matter of finding money for make-work type activities. We have probed deep into the workings of this economy and asked questions of how it creates employment and found that it has a scant regard for the weak and marginalised. We have laid bear the fact that we are not utilising the full potential of all of the human energy and intellect of our people. We are squandering our labour power. This can be changed and this Job Summit has opened our eyes to the many practical ways in which this can be done.

On behalf of my colleagues who have worked so hard in these last weeks and the mass of suggestions that have come from ordinary people I would recommend that we do not look for the outcome of this Summit in the lofty heights of policy but in the potential to change the institutional workings of employment creation- in the excitement and challenge of work for disabled persons and youth in building a new economy in the Eastern Cape.

In the preparation for this Job Summit there has been extensive consultation and between the parties within the National, Economic, Development and Labour Council (NEDLAC) there has been negotiation and consultation on many of the agreements contained in this Document.

The government representatives wish to report on this process in order to provide a better understanding on the part of the wider public as to the issues that have been raised and the approaches taken. The various positions taken by the different social partners are contained in the documents that they submitted at the outset.

The primary objective of economic policy is to create jobs and sustain employment for our people. In doing this the further objective is to provide a better life, with improvement over time, for all our people. In pursuing this primary objective we have to develop and implement a wide range of economic and social programmes. The success of this process depends on an analysis of what can be achieved in the context of the constraints and possibilities of the time within which we pursue our objectives.

There is agreement that the circumstances warrant that we unite all the forces in our society in a concerted and renewed effort to increase the level of job creation in the economy. We do this in the light of the economy’s ability to increase total employment at this stage of transition and in the context of changing international circumstances as the world economy goes through a financial crisis. This crisis is leading to slower growth in the world economy and to severe economic collapse in many of our current and potential trade and investment partners. This will have effects on our own attempts to achieve growth and development.

At the outset of our new democracy the challenges that faced the South African economy were well understood and the enormity of the task of bringing about a socioeconomic transformation was not underestimated. The fundamental approach to addressing this challenge was and is the Reconstruction and Development Programme (RDP). This is a coherent policy programme that links growth, development and social upliftment into an integrated programme. The basic programmes of the RDP are to meet basic needs; develop our human resources; restructure the economy; increase the level of participation and democracy in the economy; ensure that we retain a coordinated approach and to finance the transformation in ways that retain a macro economic balance.

This strategic approach is based on our own socioeconomic realities. We have never held to an analysis that sees simple and purportedly universal policies as being the template for development in the context of a globalising world economy.

Within this framework we are carrying out major reform processes in many socioeconomic areas. There are reforms in education, health, welfare, justice, safety and security, land affairs, water, forestry, the environment and the constitutional dispensation. These will have an impact on the quality of life for our people. However, it is the performance of the economy and it’s ability to generate employment that underpins this improvement in the quality of life.

In 1996 the government introduced the Growth, Employment and Redistribution(GEAR) programme it did not replace the RDP but fell within it’s policy framework. The GEAR is a programme designed to ensure a stable macro-economic balance in a manner that will allow us to pursue our other objectives. The essential structural objectives of the GEAR are to stabilise the macro position and then to create sustainable conditions for macro-economic balance. This is to be achieved in the following ways.

Government’s thrust is a restructuring the fiscal position to halt rising debt and the increased debt servicing requirement. This requires that there is an improvement in the efficacy of public expenditure through removal of wasteful expenditure and a reprioritisation of the remaining expenditure so as to meet the objectives of the RDP and to eliminate the racial distortions of the past. A system of multi-year budgeting has been introduced to facilitate greater fiscal certainty.

A major achievement is to virtually eliminate open ended subsidisation and it’s associated risk exposure in the fiscal system and thus improve it’s overall systemic risk profile. In combination with further reforms in the operations of the capital and money markets and the activities of the public sector in these markets, the above steps are designed to stabilise and reduce interest rates through greater transparency, certainty and a reduction of risk in the financial and monetary sector. This in turn will create the base conditions for a more stable exchange rate.

The government remains of the view that the structural purpose of the GEAR is correct. However, we have been able to have a frank dialogue and to acknowledge that the development of the GEAR and it’s implementation have been the cause of disagreement between labour and government in particular. Business has generally been supportive which has often only served to confirm the disquiet felt by labour. However, in it’s support of the GEAR the business community have often been insensitive to the entirely legitimate fears of workers and deprived communities who worry that GEAR will reduce expenditure on their needs or will result in even further job loss. Community groups were concerned that fiscal discipline would prevent social reforms. Since it was, and is, legitimate for ordinary people to expect that the task of the new democracy was to address poverty- particularly that associated with racial oppression- a policy that was said to go against this would rapidly generate resentment. Government must implement structural reform but it must do it in a socially sustainable way. It is no good treating a serious attack of flu with a remedy that kills the patient.

In preparing for the Summit we have grappled with this area of disagreement and sought to narrow the differences as far as possible, certainly to understand the underlying reasons for differences and finally to identify common ground for action and agree processes that will continue the dialogue at the level of detail and engagement required in assessing complex economic policy.

This process has proved to be extremely positive as it has been oriented toward concrete outcomes. Labour, in particular, have made a wide range of proposals that were prompted by their concern that aspects of GEAR were inappropriate policy for the circumstances. The bulk of these proposals have been addressed in detail and they underlie much of the agreements reached. As with the proposals of all parties they have been modified by the deliberations.

Business acknowledge that in regard to job creation the situation is serious and it cannot be a case of "business as usual " in regard to policy and action. Business have taken the path breaking step of unifying across the wide spectrum of business interests and organisations, including remaining racial differences, in order to take a unified approach to the challenge of job creation. Business has also engaged actively on the proposals but forward by others.

Government itself had proposed policy adjustments whilst insisting that the structural integrity of policy be retained as it holds the view that no structural change is possible if this structural integrity is frequently changed. The government proposals are set out in the Employment Strategy Framework but these have been enriched and amended by our deliberations.

The government has had a further chance to provide detail on the analysis and the facts behind the implementation of GEAR. In this dialogue it is clear that there is general agreement that macro policy must have the objectives of creating stability; it must generate the resources to bring about the socioeconomic transformation required in South Africa and it must have as it’s objective the creation of stable employment. However, the policy of macro balance is not the sole policy instrument to achieve these objectives. Government has stated it’s view that it is the overall package of policies that is crucial. The government have explained it’s own criticisms of the so-called Washington Consensus which places too much emphasis on macro, fiscal and monetary policy and too little on the socioeconomic impact of policy and the importance of sharing the burden of adjustment.

Labour and the community have stressed their concern that there will not be enough resources available for key social expenditure. They argue that this social expenditure will also have employment creating effects. Both constituencies are not advocating that government go on a irresponsible spending spree but express the view that government is not utilising all the available resources and avenues open to it. This prompted labour to make a number of suggestions as to how government could raise further resources. These suggestions included a pay as you go pension system in the public service; prescribed assets for housing construction, an increased training levy and a solidarity levy. There has been intense discussion on these matters and a greater understanding on the part of all parties as to what was intended by the proposals. As with all economic policy proposals they have other effects and a careful assessment is necessary to decide the best overall balance.

Government has argued that there are certain structural policy principles that should not be overturned but that within these parameters we should act on the best available balance of evidence. A key principle, most particularly in the present circumstances, is that all money borrowed must be expended with the maximum efficiency toward social service provision, human capital development or investment. If this is done then the expenditure has positive effects on the growth and development path. However, if money is borrowed or raised in taxes or levies of any kind and then it is not efficiently spent then there is a serious negative macro effect as it will raise interest rates and crowd out more efficient expenditure. Accordingly, all proposals must be tested against the capacity to deliver.

Secondly, the financing mechanism proposed must not generate open-ended risk exposures, excessive rigidities or excessive barriers to investment that will impact adversely on the structural transformation of the economy that is our objective.

In using these two basic structural principles we have not removed all the areas of disagreement.

In regard to housing we have developed a very important common approach supported by all parties that is intended to increase the rate of delivery and to introduce rental stock. In the case of the pay as you go pension proposal we have defined the concerns precisely and agreed how the matter will be taken forward in a concrete way that accommodates the government insistence that there be no increase in the fiscal liabilities and addresses the concerns of labour that the current system places the burden on reducing necessary social expenditure.

These reforms only have meaning in the wider context of the RDP and more specifically in the context of industry and trade strategies; labour market policies; restructuring of state assets and other policy programmes that have an immediate impact on the achievement of macroeconomic balance.

In industry and trade policy the programmes are based on an analysis of the substantial changes in the world economy and the implications of this for the operation of our own economy and it’s location in that world economy. Production processes have been substantially altered by technology and more particularly information driven technology. Other areas such as material sciences have also had a significant impact on the types of raw materials used and the production processes used for their conversion. This is a complex and wide ranging area. However, the main analytical conclusion that stands out is the increased rapidity of change in production processes. This in turn leads to more frequent product changes, stress on quality and greater competition in technologically based production.

The challenge facing economies is to improve their systemic adaptability so that they can respond to - and even lead - changes. This is a challenge now facing all economies.

The basic strategic approach adopted in the current industry and trade strategies is to ensure that by engaging with the world economy we maintain an expansion of economic activity and employment creation. This is based on a managed tariff reform designed to induce previously protected enterprises to become more efficient and to reduce our domestic cost levels so that they are closer to general world cost levels. This both establishes the basis for sustainable employment and for a programme of trade expansion which in turn will facilitate investment and employment creation.

An integral component of this tariff reform is the underlying supportive industrial policy. Since our objective is an adaptable and competitive economy within the context of the world economy our focus is on altering production process -ie. supply side measures. There are a range of these measures available to support structural change in the private sector. In the main the role of the State is facilitative, analytical and coordinating (eg. clusters and Spatial Development Initiatives). However, it also intervenes directly through it’s parastatal corporations.

A major focus is on SMME's to create new economic activity that is essential for improved wealth distribution, sustained growth and employment creation. Industrial policies are essentially aimed at promoting efficient investment located in sustainable activity, spread across the enterprise size spectrum and geographically.

Underpinning the above policies and more recent in implementation are reforms in the supervisory and regulatory framework of commercial activity. At the centre of this reform are a body of legislative acts that deal with the competitive and corporate legislation in our country. The Competition Bill has been passed by Parliament . We are embarking upon a reform of our tax legislation, corporate law, liquidation law, securities law and dealing with consumer protection and various other ownership forms. The objectives of these reforms is to improve accessibility to economic activity , to enhance consumer rights and to promote investment through the certainty, transparency, legality and ethics of our economic activity

Much of the debt and inefficiency existed in the public sector. Accordingly as the economy opened these corporations were exposed as being structurally unsound financially and therefore the investment potential of these corporations was virtually non-existent. The objective in the restructuring of state assets is to increase strategic investment and delivery rather than to raise revenue. The main means of interacting with the Labour movement on the restructuring of state assets has been the National Framework Agreement (NFA). This complex process is nearing a position were our basic infra structural corporations are poised to make major new investments. By being able to do this we can enhance our basic competitive advantages.

For the operation of the overall economy and more particularly for the stability of the basic basket of wage goods the structure of agriculture is central. This is true even when the contribution of agriculture to the GDP is relatively small. Very profound reforms have been achieved in agriculture. We have built the potential for a highly successful platform for agricultural production. Major reforms have been effected in land accessibility, marketing, tariff protection and in financial support for the sector. These reforms could introduce additional stability that into the economy. This is done by the fact that agricultural prices are no longer dependent on a rigid regulation, high protective barriers and subsidies. We are moving to a position where we seek to price our basic food products on the basis of our agricultural capacity. This removes rigidities in the system which are linked to open ended subsidies. Under pressure these rigidities can collapse with disastrous consequences for food prices. The next real challenge is to expand our trade with our SADC partners whose agricultural potential could further stabilise the food supply and it’s price. However, this needs us to complete the trade agreement with SADC and in the case of some of our fellow member states there is a need for them to undertake reform steps.

It is clear that the continual underlying thrust of all the policy programmes is designed to develop our economy in a redistributive dynamic. This is the underlying drive to empowerment. However, the process cannot be left at this broad level. More precise interventions are needed. The Employment Equity Act , the National Empowerment Fund and policy in the Public Service are all specific programmes.

In this preparation for the Job Summit we have had intense discussions on many aspects of the Labour Market. I do not want to go into a great deal of detail. I can only say that I am confident that one of the lasting gains made in this process will be a greater level of common ground in this area. I have made a suggestion to the Deputy President in this regard in my report back to him which my great team believe could take us all a step further.

I am privileged to be the Minister of Trade and Industry in South Africa in South Africa’s first democratic government. It is a challenging task. This Job Summit has changed the way that I see employment in our economy. I see so much new potential so much humanity eager to develop. I more than most am acutely aware of the pains taking pace of economic change. But I have learnt that we can do things differently. May I thank those of you that I have interacted with- particularly in the community organisations - that have taught me this lesson. You will find that I will put it to good use.

There is no time now for all the thanks that are deserved. The capacity for work and negotiation of our people is truly awesome and will be rewarded by a better life for all. Mr. Deputy President it is my honour to open the way for a few proposals that will keep us all at work for a long time.