Why the Jobs Summit was doomed to fail

Daniel du Plessis writes on the basic structural flaw at the heart of the initiative

Why the Jobs Summit was doomed to fail from the start

As it turns out, solving unemployment is far easier than you would expect. The issue had stumped South African policy makers for years and years but was resolved without much further ado following an intense round of speeches on the 4th and 5th of October by the participants of Jobs Summit 2018.

Cynics would, perhaps, point out that unemployment is a systemic problem decades in the making. They would continue by pointing out that it would be unlikely to be resolved without seriously reconsidering government policy – and not without some measure of sacrifice. Smirking, they would pronounce their firm belief that 2 days’ worth of work (in the luxurious Gallagher Estate, mind you) would never be able to replace a competent and honest government. Luckily for us, they have been proven conclusively wrong. Wrong, that is, if you believe the President.

Having long since been hounded to take action on a crisis which directly affects at least 26% of labour market, Ramaphosa has, at the very least, gotten the optics down pat. He triumphantly announced the creation of 275 000 additional jobs over the next five years in the closing address and promised many more to come.

Yet what did the summit mean for the average unemployed South African? Far from rosy, the picture actually seems bleak. It’s bleak because at its very core the summit was ill-conceived and ill-constituted. For that reason, it will fail to address the real needs of the most vulnerable in South Africa. Here’s why:

Wrong people

The private sector, despite being the final engine of job creation, was largely ignored, both in the consultative process preceding the summit, and at the summit itself. In light of this lamentable fact, it is particularly disheartening to note the disproportionate focus on the interests and needs of large corporates – and, more particularly, those with political connections – as opposed to small to medium enterprises (SMEs).

The needs of SMEs and larger firms are not necessarily aligned. It is, for instance, trite that large corporates are better able to accept and absorb regulatory and labour costs, having access to the dual advantages of economy of scale and in-house legal facilities to smooth transaction costs.

SMEs, on the other hand, are most vulnerable to regulatory interference. If large corporates have an interest in keeping newcomers out of the market (which, naturally, they do), it is a simple matter to lobby for regulatory measures which disproportionately disadvantage small companies. By lobbying for regulation, some less than scrupulous large corporates could, potentially, insulate themselves from free competition. If certain politically connected and unscrupulous companies were to take this route, it could, potentially, pose a threat to their more ethical competition and SME’s. This, ultimately, harms the consumer and exacerbates the unemployment crisis.

What, then, of those summit programs allegedly undertaken in the interest of these small and emerging players? Many of the key undertakings and agreements reached with Business during the summit, I think, might be seen in the light of many large firms covertly regarding SMEs and market newcomers as a threat to their regulatory advantages. Would such firms support deregulation of their markets? Would their customers be willing, for instance, to accept their pricing if more alternatives existed and their markets were freer? And what about their service?

If this seems a less than charitable assessment of the situation, one need not go much further than the Private Sector’s alleged representatives’ approach at the summit itself. In his address, Business Unity South Africa’s president, Sipho Pityana makes little to mention of the real causes of the crisis. After several paragraphs of praise for Cyril Ramaphosa, he makes only oblique reference to the lattice of policies which keep South Africans from participating in the economy – and at no point calls for their abolishment.

It is unthinkable, after having had the opportunity to witness the aftermath of government policy, that BUSA would not only look favourably upon greater state spending – but even go as far as to actively endorse even more extensive regulation, such as the National Minimum Wage. And yet, they did.

Using government to impose or maintain higher barriers to entry through convoluted regulatory frameworks and the like represents a clear winning strategy for many large firms – especially companies with political connections. If attending summits and praising the president is the price they need to pay to maintain regulatory advantages (and, not to mention, boost their public image), they will do so gladly. All while, of course, doing next to nothing to actually solve unemployment.

The prominent role of unions and their representatives at the summit is similarly troubling. While, given the wide-ranging influence and power of unions in South Africa, it makes (pragmatic) sense for the president to court their buy-in with regards to policy initiatives. It cannot, however, be lost from sight that the unions’ primary function is, in principle, to protect their members, and for some unions, often by any means possible. This includes, of course, their members’ wages, which may be threatened by an increase in the supply of labour.

The conflict of interest is immediately obvious, as the unemployed are the very competition against which they are mandated to protect their wages. Bad-faith unions have every reason in the world, therefore, to lobby for high barriers to entry in the job-market as a whole and in their related sectors. Why should government and business, then, ask their advice for reducing labour regulation?

Yet, it is also against their own members’ interest, as such behaviour is ultimately short sighted and self-defeating. A smaller market for labour means lower productivity, a slower economy and, ultimately, lower wages. If these unions truly acted in the best interests of their members, they would have been working towards improving the health of the South African economy as a whole – which would mean more options for workers, higher standards of living and a host of other advantages.

Wrong questions

The failures of the summit (and its preceding discussions) are more fundamental, however. It is common cause, even in the President’s own speeches, that significant change is necessary in the face of a crisis which threatens to paralyse the South African economy for many years.

It is, surprising then, that the jobs summit holds no real concrete hope for change. Faith in the summit’s ability to create jobs, accordingly, seems to more ritualistic and shamanistic – which also explains why government has promised many more to follow.

This begs the question as to why Government should seek agreements and undertakings from business in the first place? Underlying this assumption is, somehow, the strange and unarticulated belief that the private sector is, for some reason or other, refusing to employ more. This, quite simply, cannot be the case.

While some may criticise the profit-centric philosophy inherent to the free market, it is undeniably a powerful engine for the creation of jobs and resources. The main consideration in employing a worker (or, conversely, in failing to do so), is whether or not it is likely that more profits would result from said appointment. If, on consideration, a worker is likely to cost a firm more than it is likely to recoup out of his productivity, it cannot (and, in fact, should not) appoint him.

This equation is what government should be considering, first and foremost. In what ways (and with which policies) is it increasing the cost of employing workers? And in which ways can the expected value of that worker’s labour be improved?

Asking these questions, however, leaves government in an uncomfortable position – as the truth often does. The costs inherent in its convoluted regulatory structure, the barriers it imposes by overly strict labour legislation – all these should be eliminated (or minimised, at the very least) in order to make a decent dent in unemployment.

By shifting the focus to the likes of summits and small-scale undertakings by government and business, the Presidency effectively draws attention away from the large-scale and systemic government interferences with the free market which lie at the heart of the unemployment crisis.

What happens now?

While the summit might have been successful in soothing public opinion, it is likely that, in the long run, it will not really mean much at all. Soothing opinion, of course, is more than enough for Ramaphosa, beleaguered by a multitude of crises – many of which of his Party’s own making.

The summit’s kabuki theatre may have relieved some of the pressure on government, who may now claim to do be doing something (anything!) about unemployment, but in no way does it seem likely to actually begin to solve the problem – and we are justified in expecting more.

Daniel du Plessis is Legal analyst at Sakeliga.