Nov 05, 2010
Forget 7% yearly growth; just support the right kind of growthBack
© Reuse this
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.
Edited by: Martin Zhuwakinyu© Reuse this Comment Guidelines (150 word limit)
Other Seeraj Mohamed News
The Corporate Strategy and Industrial Development Research Programme (CSID) - the University of the Witwatersrand's (Wits') economics policy research unit of which I am director – hosted a launch of the Department of Trade and Industry’s (DTI's) capacity building...
We enter 2011 with much global economic uncertainty. South Africans should consider the country's economic policies and activities within the context of an uncertain and volatile global economy.
Recent Research Reports
Projects in Progress 2015 - First Edition (PDF Report)
In fact, this edition of Creamer Media’s Projects in Progress 2015 supplement tracks developments taking place under the Renewable Energy Independent Power Producer Procurement Programme, which has had four bidding rounds. It appears to remain a shining light on the...
Electricity 2015: A review of South Africa's electricity sector (PDF Report)
Creamer Media’s Electricity 2015 report provides an overview of State-owned power utility Eskom and independent power producers, as well as electricity planning, transmission, distribution and the theft thereof, besides other issues.
Construction 2015: A review of South Africa’s construction sector (PDF Report)
Creamer Media’s Construction 2015 Report examines South Africa’s construction industry over the past 12 months. The report provides insight into the business environment; the key participants in the sector; local construction demand; geographic diversification;...
Liquid Fuels 2014 - A review of South Africa's Liquid Fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2014 Report examines these issues, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing, competition in the sector, the...
Water 2014: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2014 report considers the aforementioned issues, not only in the South African context, but also in the African and global context, and examines the issues of water and sanitation, water quality and the demand for water, among others.
Defence 2014: A review of South Africa's defence industry (PDF Report)
Creamer Media’s Defence 2014 report examines South Africa’s defence industry, with particular focus on the key participants in the sector, the innovations that have come out of the sector, local and export demand, South Africa’s controversial multibillion-rand...
This Week's Magazine
Projected capital expenditure (capex) in the South African automotive assembly industry should reach a record R7.48-billion this year, says the National Association of Automobile Manufacturers of South Africa (Naamsa) in its 2014 fourth quarter business review. Capex...
After several years of navigating project-threatening red tape and currency fluctuations, the 4.4 MW Bronkhorstspruit biogas power plant, which will supply clean energy to a leading automotive manufacturer in Gauteng, is expected to enter production before June....
South African paper and pulp producer Sappi reported earlier this month that it would build a pilot plant for the production of low-cost Cellulose NanoFibrils, or CNF (nanocellulose) at the Brightlands Chemelot Campus in Sittard-Geleen in the Netherlands.
The long-term outlook for Nigeria is a country that has the potential to be very strong. So affirmed International Monetary Fund (IMF) Nigeria Mission Chief and Senior Resident Representative Dr Gene Leon on recently. "But we are starting from a point of huge...
Poor infrastructure planning and inadequate maintenance are becoming increasingly problematic for new developments and the associated infrastructure required to support such developments. In many urban and rural municipalities, the state of infrastructure has been...
Next ArticleCurrency wars and other myths