Suz

ette

Siu

Form

al e

mpl

oym

ent i

n m

anuf

actu

ring

has

decl

ined

from

1.6

milli

on in

199

0 to

1.2

m

illion

in 2

004.

S

emi-

and

unsk

illed

empl

oym

ent a

lso

decr

ease

d fro

m 1

.0 m

illion

to 0

.7 m

illion

.W

hat i

s th

e re

ason

for s

uch

high

un

empl

oym

ent?

Wha

t is

behi

nd S

outh

Afr

ica’

s ec

onom

ic

unde

r per

form

ance

?

polit

ical

dem

ocra

tic tr

ansi

tion

Mal

aysi

a co

mpa

rison

Issu

es w

ith g

row

thP

atte

rns

of e

mpl

oym

ent a

nd s

truct

ural

ch

ange

Sou

th A

frica

und

erw

ent a

dem

ocra

tic

trans

form

atio

n in

199

4 w

ith th

e en

d of

the

Apa

rthei

d re

gim

e.P

rior t

o 19

94, t

he S

outh

Afri

can

econ

omy

and

polit

y w

ere

dom

inat

ed b

y w

hite

min

ority

.Th

e de

moc

ratic

tran

sitio

n he

lped

redi

strib

ute

inco

me

thro

ugh

out t

he e

cono

my.

Is it

pos

sibl

e th

at th

e pr

ior r

egim

e de

laye

d th

e cr

eatio

n of

soc

ial a

nd o

ther

net

wor

ks n

eede

d to

m

aint

ain

larg

e-sc

ale

info

rmal

ity?

Why

com

pare

Sou

th A

frica

to M

alay

sia?

W

ell,

both

sha

re m

any

sim

ilar e

cono

mic

feat

ures

in th

e 19

80s:

1.) B

oth

med

ium

siz

ed e

cono

mie

s, w

ith d

eep

raci

al c

leav

ages

.2.

) Eth

nic

maj

ority

con

trols

the

polit

y bu

t eco

nom

ic p

ower

lies

w

ith e

thni

c m

inor

ity.

3.) S

imila

r eco

nom

ic s

truct

ures

.4.

) Out

put p

er h

ead

and

TFP

wer

e al

mos

t ide

ntic

al a

t som

e po

int.

5.) H

uman

cap

ital l

evel

s cl

ose.

6.) B

oth

econ

omie

s ha

ve s

imila

r dep

ende

ncie

s on

min

ing.

The

mai

n di

ffere

nces

bet

wee

n th

ese

two

coun

tries

ar

e:a.

) Mal

aysi

a w

as a

ble

to p

ull a

n in

crea

sing

sha

re o

f its

wor

kfor

ce in

to m

anuf

actu

ring

(the

sect

or w

ith th

e hi

ghes

t lab

or p

rodu

ctiv

ity in

the

econ

omy)

, in

the

proc

ess

of b

ecom

ing

an e

cono

mic

“tig

er, "

whi

le in

S

.A.

man

ufac

turin

g ha

s lo

st g

roun

d to

the

terti

ary

sect

or.

b.) S

.A. n

on-m

iner

al tr

adab

le (i

nclu

ding

m

anuf

actu

ring)

are

inte

nsiv

e in

low

-ski

lled

labo

r co

mpa

red

to s

ervi

ces.

How

ever

, the

big

gest

diff

eren

ce b

etw

een

thes

e tw

o co

untri

es is

that

Mal

aysi

a be

gan

expe

rienc

ing

indu

stria

lizat

ion,

whi

le S

.A

begu

n to

de-

indu

stria

lize.

W

hy d

id S

outh

Afri

ca d

e-in

dust

rializ

e pr

emat

urel

y?

Mal

aysi

a ha

s a

mor

e ad

vant

ageo

us

geog

raph

ical

loca

tion.

M

alay

sia

gove

rnm

ent

activ

ely

prom

oted

m

anuf

actu

ring.

The

ir go

al w

as to

exp

and

and

dive

rsify

the

indu

stria

l bas

e of

the

econ

omy.

Sou

th A

frica

had

to c

onte

nd w

ith h

eavy

de

fens

e sp

endi

ng a

nd th

e de

vast

atin

g ef

fect

s of

trad

e em

barg

o.

A d

ecre

asin

g no

n-m

iner

al tr

adab

le s

ecto

r.W

eak

expo

rt-or

ient

ed m

anuf

actu

ring

sect

or.

Dec

reas

ing

rela

tive

pric

e an

d pr

ofita

bilit

y in

th

e m

anuf

actu

ring

sect

or.

Wea

k co

mpo

sitio

n of

exp

ort b

aske

t. In

gen

eral

, hig

her w

ages

.A

n in

crea

sing

wag

e in

(inf

orm

al s

ecto

r).

Thre

e im

porta

nt tr

ends

in th

e ec

onom

y im

ply:

1.) t

here

has

bee

n si

gnifi

cant

sub

stitu

tion

tow

ard

skille

d w

orke

rs w

ithin

eac

h ec

onom

ic

activ

ity.

2.) s

igni

fican

t stru

ctur

al c

hang

e aw

ay fr

om m

ost

low

-ski

ll in

tens

ive

parts

of e

cono

my.

3.) N

ow, w

ithin

thos

e tra

dabl

e go

ods,

pro

duct

ion

is m

ore

capi

tal i

nten

sive

.A

ll of

thes

e sh

ifts

in d

eman

d, h

elp

expl

ain

why

un

empl

oym

ent l

evel

s ha

ve in

crea

sed.

1.) D

eclin

e in

the

rela

tive

dem

and

for l

ow s

kill

labo

r.2.

) The

re h

ave

been

acr

oss-

the

boar

d sk

ill up

grad

ing.

3.) T

he tr

adab

le s

ecto

r stil

l rem

ains

the

mos

t lo

w-s

kill

inte

nsiv

e pa

rt of

the

econ

omy.

Form

al e

mpl

oym

ent i

n S

outh

Afri

ca s

tagn

ated

in 1

990s

.S

emi-a

nd lo

w-s

kille

d w

orke

rs o

nly

cont

ribut

e ar

ound

42%

of

thos

e em

ploy

ed.

S.A

. une

mpl

oym

ent r

ate

toda

y is

at 4

0% if

you

incl

ude

disc

oura

ged

wor

kers

, and

30%

with

out.

The

end

of th

e A

parth

eid

era

in 1

994

help

ed p

ick-

up

econ

omic

gro

wth

to a

cer

tain

ext

ent.

With

the

impl

emen

tatio

n of

out

war

d-or

ient

ed G

EA

R (G

row

th,

Em

ploy

men

t and

Red

istri

butio

n) s

trate

gy, h

as s

hift

S.A

. to

war

d gr

eate

r int

egra

tion

into

the

glob

al e

cono

my.

Agr

icul

ture

and

min

ing

jobs

hav

e de

clin

ed a

nd it

has

not

be

en c

ompe

nsat

ed fo

r by

an in

crea

se in

man

ufac

turin

g em

ploy

men

t.

Ther

e ha

s be

en a

dra

mat

ic in

crea

se in

the

empl

oym

ent

shar

e of

priv

ate

non-

trada

bles

at t

he e

xpen

se o

f tra

dabl

e.

Am

ong

expa

ndin

g se

ctor

s: fi

nanc

ial i

nter

med

iatio

n,

insu

ranc

e, re

al e

stat

e an

d bu

sine

ss s

ervi

ces.

In th

e tra

dabl

es s

ecto

r, em

ploy

men

t has

dec

reas

ed b

y 10

per

cent

. S

outh

Afri

ca p

uts

a pr

emiu

m o

n sk

ills

and

hum

an

capi

tal.

How

ever

to a

chie

ve h

ighe

r lev

els

of g

row

th, a

n ex

pans

ion

of lo

w-s

kill

inte

nsiv

e m

anuf

actu

re a

t the

ex

pens

e of

ski

ll-in

tens

ive

non-

trada

bles

is n

eede

d.

Man

ufac

ture

-led

grow

th w

ould

on

bala

nce

redu

ce th

e re

lativ

e de

man

d fo

r ski

lled

wor

kers

.

Edu

catio

n po

licy

Tech

nolo

gy p

olic

yE

mpl

oym

ent p

olic

yS

ocia

l Sec

urity

pol

icy

Labo

r Mar

ket p

olic

yW

hat d

o yo

u gu

ys th

ink?

So

far,

how

do

you

thin

k th

is re

late

s to

Sou

th

Afri

ca’s

und

erpe

rform

ance

?W

hy d

id re

lativ

e pr

ofita

bilit

y in

man

ufac

turin

g de

clin

e in

the

1990

s?W

hat d

o yo

u th

ink?

This

cou

ld e

xpla

in S

.A. c

once

rn w

ith “s

kill

shor

tage

.”C

ould

als

o ex

plai

n w

hy S

.A. h

as u

nder

perfo

rmed

in

trada

ble

sect

or, m

anuf

actu

ring

in p

artic

ular

. La

ck o

f job

cre

atio

n be

caus

e la

bor c

osts

are

too

high

. U

nit l

abor

cos

ts in

man

ufac

turin

g (la

bor c

ost p

er u

nit

of o

utpu

t) ca

ptur

e a

key

unde

rlyin

g de

term

inan

t of

co

mpe

titiv

enes

s in

an

impo

rtant

sub

set o

f tra

ded

good

s. L

abor

cos

ts a

re le

ss s

ubje

ct to

exc

hang

e-ra

te

effe

cts

than

trad

ed-g

oods

pric

es (S

teph

en G

olub

’s

“Sou

th A

frica

n R

eal E

xcha

nge

Rat

es a

nd

Man

ufac

turin

g C

ompe

titiv

enes

s,”p

. 17)

S.A

. cou

ld a

void

hig

h ra

tes

of u

nem

ploy

men

t if u

tiliz

es y

oung

, un

skill

ed jo

b se

eker

s an

d di

rect

them

into

the

info

rmal

sec

tor.

It se

ems

they

are

tryi

ng th

is m

etho

d bu

t stil

l rem

ain

way

bel

ow

Afri

ca, L

atin

Am

eric

a, a

nd A

sia.

W

hy?

May

be th

e so

cial

gra

nts

have

wor

ked

in th

e op

posi

te d

irect

ion-

decr

easi

ng in

cent

ives

to w

ork

and

setti

ng h

ighe

r res

erva

tion

wag

e le

vels

In a

dditi

on, m

any

hous

ehol

ds v

iew

ed p

aid

empl

oym

ent a

nd s

ocia

l gr

ants

issu

ed b

y ne

w d

emoc

ratic

gov

ernm

ent,

as c

lose

su

bstit

utes

. O

r per

haps

the

hist

ory

of th

e A

parth

eid

regi

me

has

left

its

lega

cy…

The

lega

cy o

f the

Apa

rthei

d re

gim

e w

as to

co

nfin

e bl

acks

who

did

not

alre

ady

have

a

job

to s

epar

ate

tow

nshi

ps a

nd p

reve

nt

unem

ploy

men

t to

mig

rate

into

the

urba

n ar

eas.

C

ould

it b

e po

ssib

le th

at th

is h

isto

ry d

elay

ed

the

crea

tion

of s

ocia

l and

oth

er n

etw

orks

ne

eded

to m

aint

ain

larg

e-sc

ale

info

rmal

ity.

Labo

r Uni

ons

mem

bers

hips

am

ong

Afri

can

mal

e w

orke

rs in

199

3 ar

e 14

5 pe

rcen

t hig

her

than

com

para

ble

nonu

nion

wor

kers

.In

equa

lity

in w

age

rate

s is

am

ong

the

high

est

in th

e w

orld

for S

outh

Afri

ca, w

ith A

frica

n an

d w

hite

wor

kers

rece

ivin

g w

ages

that

diff

er b

y a

fact

or o

f fiv

e.

Sou

th A

frica

’s e

cono

my

is n

ow m

ore

open

to

inte

rnat

iona

l tra

de, a

nd th

us th

e m

anuf

actu

ring

sect

or fa

ces

high

er

com

petit

ion

in im

ports

.R

odrik

(200

6) b

elie

ves

incr

ease

s in

impo

rt co

mpe

titio

n is

one

of t

he re

ason

s be

hind

the

decl

ine

in m

anuf

actu

ring’

s re

lativ

e pr

ices

.W

hat d

o yo

u th

ink?

Cap

ital d

eepe

ning

. The

sub

stitu

tion

of c

apita

l fo

r lab

or h

as b

een

parti

cula

rly m

arke

d in

tra

dabl

e ac

tiviti

es (i

nclu

ding

man

ufac

turin

g).

Now

eac

h w

orke

r has

hig

her l

evel

s of

tota

l fa

ctor

pro

duct

ivity

.

Trad

able

act

iviti

es h

ave

cons

ider

ably

hig

her

capi

tal p

er w

orke

r tha

n no

n-tra

dabl

e ac

tiviti

es.

1.) A

ppar

ent f

all i

n re

lativ

e pr

ice

of th

e m

anuf

actu

ring

sect

or.

2.) I

nter

natio

nal t

rade

ope

nnes

s ha

s in

crea

sed

impo

rt co

mpe

titio

n an

d ex

port-

orie

nted

co

mpe

titio

n.

3.) W

age

pres

sure

s ha

ve in

crea

sed

sinc

e 19

90s.

The

big

ques

tion

is, w

hat a

re p

ossi

ble

way

s to

add

ress

the

unem

ploy

men

t iss

ue?

Bot

h M

acro

and

Mic

ro p

olic

ies

are

clea

rly n

eede

d.

Mac

ro le

vel:

a co

mbi

natio

n of

mon

etar

y an

d fis

cal p

olic

y th

at

will

allo

w S

.A. R

eser

ve B

ank

to w

ork

on im

prov

ing

equi

libriu

m e

xcha

nge

rate

.Th

e su

cces

s of

Sou

th A

frica

’s e

xpor

t-led

gro

wth

stra

tegy

an

d sh

ift to

war

ds m

anuf

actu

ring

expo

rts a

way

from

prim

ary

prod

ucts

is d

epen

dent

on

mai

ntai

ning

a c

ompe

titiv

e re

al

exch

ange

rate

as

wel

l as

on th

e gr

owth

of t

he w

orld

ec

onom

y.

Man

ufac

ture

d ex

ports

and

impo

rts a

re s

trong

ly in

fluen

ced

by c

ost c

ompe

titiv

enes

s, th

eref

ore

wor

king

to

impr

ove

the

leve

rs p

rice,

cos

t and

pro

duct

ivity

will

boo

st g

row

th.

Enc

oura

ge p

rivat

e in

vest

men

t and

ent

repr

eneu

rshi

p in

new

are

as w

here

Sou

th A

frica

can

dev

elop

co

mpa

rativ

e ad

vant

age.

M

icro

fron

t: S

.A. n

eed

mor

e co

here

nt a

nd b

ette

r co

ordi

nate

d in

dust

rial p

olic

ies.

To e

nsur

e th

e ab

ove

stra

tegy

will

beco

me

a su

cces

s:

(1) g

reat

er d

isci

plin

e in

targ

etin

g po

licy

inte

rven

tion

on p

roba

ble

(2) i

mpr

ove

inst

itutio

nal s

truct

ure

to e

nsur

e (a

.) po

litic

al le

ader

ship

and

coo

rdin

atio

n at

the

top,

and

(b

) stra

tegi

c co

llabo

ratio

n at

the

botto

m w

ith

busi

ness

es a

nd s

take

hold

ers.

Ris

ing

high

em

ploy

men

t cou

ld h

ave

been

av

oide

d by

a s

ubse

quen

t dec

line

in re

al

wag

es fo

r low

-ski

lled

wor

kers

.H

owev

er, t

he a

bove

resp

onse

wou

ld h

ave

been

pol

itica

lly im

poss

ible

giv

en th

at S

outh

A

frica

was

und

ergo

ing

a de

moc

ratic

tra

nsfo

rmat

ion.

The

num

ber o

f peo

ple

in p

over

ty in

Sou

th A

frica

is

roug

hly

23.8

milli

on. O

f whi

ch, 1

1.8

live

in

hous

ehol

ds th

at re

ceiv

e no

soc

ial a

ssis

tanc

e (2

002

data

).Th

is tr

ansl

ates

to o

ver h

alf o

f the

pop

ulat

ion

in

Sou

th A

frica

live

in p

over

ty. A

n av

erag

e of

R14

4 pe

r per

son

per m

onth

. (P

over

ty b

ench

mar

k is

$1

a d

ay.)

Pov

erty

hea

vily

con

cent

rate

d am

ong

its e

thni

c gr

oup

with

61%

Afri

can,

38%

of m

ixed

race

, 5%

of

Indi

ans

and

1% w

hite

s.

Con

sequ

ently

, pov

erty

and

inco

me

ineq

ualit

y po

se th

e bi

gges

t thr

eat t

o S

outh

Afri

ca’s

yo

ung

dem

ocra

cy.

Sou

th A

frica

has

a la

rge

perc

enta

ge o

f its

pop

ulat

ion

infe

cted

with

AID

S:

31%

of p

regn

ant w

omen

are

HIV

pos

itive

20%

of a

dults

1.1

milli

on o

rpha

ns fr

om A

IDS

The

impa

ct o

f AID

’s a

nd H

IV o

n th

e po

pula

tion

are

impo

rtant

fac

tors

to c

onsi

der w

hen

addr

essi

ng S

.A.

econ

omic

gro

wth

.

(sou

rce:

Sou

th A

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