“Employ People As They Are”: Towards People-Centred Development

by Oct 15, 2014Amandla Issue 35, Magazine

On June 4th, PowerFM 98.7 radio host Eusebius McKaiser interviewed AIDC Senior Researcher Dick Forslund regarding South Africa’s current economic prospects and policy trajectory. Following is a partial transcript.

PowerFM: Welcome, Dick. When we spoke yesterday, it became clear to me how complicated this conversation is. The very first thing you said to me was, “What do we even mean by ‘economic growth’?” Why did you problematise the very question I put to you?

Forslund: In South Africa, and in the world, we are facing a very serious problem of climate change and resource depletion. The present capitalist system, which is driven by large corporations trying to maximize their profits, is built on everlasting compound growth and expansion: always trying to increase the output – of cars or gadgets or raw materials – where the ultimate aim is private accumulation of money. And we can’t go on like this. If we don’t break with it, then even in the middle term – twenty, thirty years – the consequences will be very costly. Unmitigated climate change will impose costs on our society that will choke us because more and more resources will have to be diverted to save people from floods and food shortages. We have to find an alternative path.

PowerFM: I want to come back to that – to climate change – but before we do that: we’ve seen during the election cycle, especially from the opposition party, the number “eight percent” as the magic number at which we need to grow the economy in order to unlock job opportunities. Do you share that view?

Forslund: No, not at all – I think it’s completely unfounded, really a pipe dream. Firstly, we are standing before a global crisis. Even yesterday, the newspapers spoke about the slowing economy in Europe, and Europe takes about 30 percent of South African exports. So to believe this economy that has been so turned outwards towards exporting raw materials could grow, when we face such a crisis, it simply doesn’t work.

Secondly, this programme of the Democratic Alliance assumes that people will continue to endure wages of three, four, five thousand rands per month. Half of the employed work force today in South Africa – formal and informal – earns R3300 or less per month. That isn’t sustainable. It’s obvious now with the mining strike and the new strikes that are coming up – people don’t accept it.

Third, if you put an economy that is so heavily tilted to extracting raw materials on a growth path of eight percent – just imagine the consequences for agriculture. There really should be a shift from digging up the land, and instead we have to start growing food on the land.

PowerFM: As an economist, do you have a viewpoint on what level of growth would be required for us to make serious dents [in] some of our social challenges – not only unemployment but also inequality and poverty?

Forslund: As you know, we measure growth [by] gross domestic product, and there’s a problem with that. If you prioritise more for non-profit activities, more public sector jobs, this will register in GDP as a slowing down. But even without prioritising for non-profit, non-capitalist activities, I don’t think it’s possible any longer to have long-standing growth in this global economic situation above three percent, three and a half percent. You simply can’t do it.

So then you have to think about what you should do to employ people. And I think you have to restore public sector jobs and “employ people as they are” – in local communities, in the rural areas – to do things that they want: to build housing, to repair and build roads, to build clinics and so on. You can’t really do that as “profit maximizing” projects.

PowerFM: Many of your fellow economists think that the private sector is the silver bullet. Do you think the private sector is where the opportunities lie in terms of unlocking potential for this economy?

Forslund: No, I don’t think so, but my opinion isn’t important – I think it’s empirically proven. There has been an effort to boost the private sector since 1994 – a lowering of corporate income tax, relaxation of capital controls, the so-called “youth wage subsidy”, the “special economic zones” – but nothing is happening. So, independent of my views, those economists must realise that their proposal has already been tested, and it doesn’t work.

The problem is illustrated in what is happening right now in the Rustenburg area, while seventy thousand mineworkers are on strike: the local economy collapses because there’s no money circulating to support local businesses. That illustrates strongly the problem [over] the last fifteen or twenty years: wages in the economy are too low, and profit rates are too high. And a lot of those profits are siphoned off out of the country, legally or illegally, and not used for development in South Africa.

If you want a local industry, you have to make it possible for ordinary workers to save money so they can buy a stove, a radio, or a bicycle. Without that basis for mass consumption, you can’t have a thriving local industry. Instead, you have big mining companies dominating the economy. And the National Development Plan, unfortunately, paves the way for more expansion of mining.

We see time and time again these mega-projects being pushed through on communities that don’t want them – like the High Way Toll Road projects of Sanral. We have the two giant coal power station projects of Eskom. When they go wrong, [it has] an immense effect on the whole economy. If instead you make many small projects and employ people as they are, then you have room to fail, without everything going wrong.

PowerFM: If you’re saying that since 1994, empirical evidence shows that, despite the fact that the environment has become easier to do business, the private sector has not exactly resulted in massive jobs being unleashed, and at the same time we don’t need these huge state projects either, surely the state still has a role to play in creating the conditions for small businesses to succeed. Do you think this current state can do this?

Forslund: I think it’s necessary to increase tax pressure on the rich, and on large corporations, but this is undermined if you have rampant corruption. It would be very useful if community organisations stepped in to oversee local government to root out corruption where the state is failing to do so. You have a tradition of strong community structures in this country, which could serve a sort of alternative state function – a kind of “independent eye” to look into the squandering of money, nepotism and so on, in local government.

I have said elsewhere, and published research reports about this: the tax pressure on corporations and high income earners has been lowered, starting from 1999 or 2000. It’s much, much easier to be rich in South Africa today than it was twelve or thirteen years ago, and I think that has to be stopped.

But also, corruption almost by definition takes place where the private meets the public. If the public sector withdraws from responsibility for housing, sanitation, water, whatever, and the private sector steps in and everything goes out to tender, this becomes a source of corruption. So establishing municipality-driven building companies that take care of infrastructure is also needed. And then small businesses can be “crowded in” around that.

PowerFM: To return to the question of the environment: Can we really afford to prioritize “green” policies, or is that a luxury? How much economic sense does it makes for a country with our economic profile to put that at the heart of our economic interventions?

Forslund: In a country where you have millions of people who go to bed every night hungry, I think you have to put food at the heart of economic development. Food is the basis of any economy – and that raises the issue of land, and land use. After that comes shelter, and then transport, and access to hospitals in the rural areas.

You want to make rural areas and agriculture a “pole of attraction” to come to grips with the problem of growing informal settlements and townships around the big cities. You should really try to have a stream of people going back to the countryside to grow food, instead of people going to the urban areas to find jobs, where unemployment is 30, 40, 50 percent. But if you do that, then you will have a conflict with the big mining companies.

We all have to face this conflict: economists, government, the labour movement, the social movements. We see it playing out now in the strike. And as you know, the strike is about much more than wages – it’s about getting a life for mineworkers.

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