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)
Creamer Media Senior Deputy Editor
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
Water 2015: A review of South Africa's water sector (PDF Report)
Creamer Media’s Water 2015 Report considers the aforementioned issues, not only in the South African context but also in the African and global context in terms of supply and demand, water stress and insecurity, and access to water and sanitation, besides others.
Input Sector Review: Pumps 2015 (PDF Report)
Creamer Media’s 2015 Input Sector Review on Pumps provides an overview of South Africa’s pumps industry with particular focus on pump manufacture and supply, aftermarket services, marketing strategies, local and export demand, imports, sector support, investment...
Liquid Fuels 2015: A review of South Africa's liquid fuels sector (PDF Report)
Creamer Media’s Liquid Fuels 2015 Report examines these issues in the context of South Africa’s business environment; oil and gas exploration; fuel pricing; the development of the country’s biofuels industry; the logistics of transporting liquid fuels; and...
Road and Rail 2015: A review of South Africa's road and rail sectors (PDF Report)
Creamer Media’s Road and Rail 2015 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail infrastructure and network, the funding and maintenance of these respective networks, and...
Defence 2015: A review of South Africa's defence sector (PDF Report)
Creamer Media’s Coal 2015 report examines South Africa’s coal industry with regards to the business environment, the key participants in the sector, local demand, export sales and coal logistics, projects being undertaken by the large and smaller participants in the...
Real Economy Year Book 2015 (PDF Report)
There are very few beacons of hope on South Africa’s economic horizon. Economic growth is weak, unemployment is rising, electricity supply is insufficient to meet demand and/or spur growth, with poor prospects for many of the commodities mined and exported. However,...
This Week's Magazine
Additive manufacturing, better known as 3D printing, has the potential to completely change the relationships between individual consumers, professional designers and manufacturers. So argued Loughborough University Reader in Computer Aided Product Design Dr Ian...
Airbus Defence and Space: Military Aircraft has highlighted that its A330 Multirole Tanker Transport (MRTT) has significant commonalities with the Airbus A330-200 commercial airliner, upon which it is based. The South African Air Force (SAAF) once operated a fleet of...
Financial services provider Nedbank launched the second edition of its Carbon Footprinting Guide earlier this month, which is aimed at demystifying carbon footprint approaches and help readers grasp the main concepts of carbon measuring, monitoring, reporting and...
This year marks the thirtieth anniversary of Caterpillar’s first backhoe loader. This also coincides with the worldwide release of its latest-generation F2 series backhoe loader, which was launched at supply chain services company Barloworld Logistics’ Big Dig Day in...
A shortage of software engineers is leading to fewer information technology (IT) projects in private and public sector organisations. This also places a dampener on the economy, as IT is an integral part of business and civil service, says University of Witwatersrand...
Next ArticleCurrency wars and other myths