Why we still believe exports for jobs will lead to shared growth: a response to Fine's "Harvard Group Shores up Shoddy Governance"

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Ricardo Hausmann; Matt Andrews (2009). Why we still believe exports for jobs will lead to shared growth: a response to Fine's "Harvard Group Shores up Shoddy Governance". Transformation: Critical Perspectives on Southern Africa, Number 69 (Debate). Transformation.

Type	journal article
Scope	Post-1994 South African economy
Method	mixed
Period studied	1960–2008
Regions	South Africa, Southern African Customs Union (SACU)
Themes	transition post apartheid, inequality poverty unemployment, labour markets wages, macro fiscal finance debt, manufacturing industrial policy, business and state, mining migrant labour, education human capital
Citation key	hausmann2009

Argument

Responding to Ben Fine's critique of the Harvard International Growth Advisory Panel (IGAP) papers for ASGISA, the authors set out the panel's storyline. The post-2004 growth spurt was a debt-financed domestic spending boom concentrated in non-tradables and consumer durables, so it is unsustainable. Behind it lies a decades-long decline in per capita exports and in tradable-sector employment (mining, manufacturing, agriculture), and tradables are the most intensive in unskilled labour, so the shift worsens unemployment, inequality and the skills shortage. They therefore propose an 'exports for jobs' strategy: countercyclical fiscal policy, a competitive real exchange rate, tariff simplification, tougher competition policy, a rethink of BEE, wage subsidies for young workers, and industrial policy aimed at information and coordination failures. They defend this against Fine's charges that they ignored conglomerate structures, public spending and industrial history.

Evidence and method

IGAP working papers (Harvard CID series) and national time-series charts: per capita GDP, exports, mining and manufacturing output, employment shares by sector, current account, labour force survey data on participation and unemployment by education, race and age, HSRC Gini coefficients, TIPS mark-up data, and tariff schedules. Cross-country comparisons with Malaysia, Australia, Canada, Argentina and Latin America. Also firm samples and BEE scorecard reviews, cited from the underlying papers.

Findings

• Post-apartheid unemployment and inequality rose despite macro stability. (p. 3)

  In the first post-Apartheid decade, unemployment almost doubled while before-transfer inequality increased significantly across all racial groups and between them.

• The post-2004 growth acceleration was a foreign-financed boom in domestic spending, hence temporary. (p. 7)

  The acceleration of growth was based on a boom in domestic spending financed by foreign borrowing.

• Real per capita export purchasing power fell from the 1980s, and the recent rise is a mineral price effect. (p. 8)

  the real per capita purchasing power of exports has decreased since the 1980s to levels last seen three decades ago.

• South Africa's export growth is exceptionally weak by international standards. (p. 9)

  South Africa is in the 90th percentile of export growth since 1960 out of all countries we could find data for.

• Employment losses are concentrated in tradables, beginning in the 1980s. (p. 12)

  The decline in employment in these sectors began in the 1980s and has continued unabated since then

• Tradables are more intensive in low-skilled labour, so the shift to non-tradables raises unskilled unemployment and the skills constraint. (p. 13)

  South Africa's growth has shifted away from the tradable sectors that employ predominantly unskilled workers and into the non-tradable sectors than are intensive in skilled workers.

• Unemployment is sharply stratified by education. (p. 14)

  Only a third of those without a matric are working, while only half of those with just a matric are. Unemployment is close to 30 percent for both groups

• Estimated employment shortfall relative to 'normal' countries. (p. 15)

  over 6.6 million more South Africans would be working today, which represents a 48 percent larger level of employment.

• Tariffs on inputs impose very high costs per job saved. (p. 20)

  South African consumers spend almost R 2,000,000 per year for each job that tariffs save.

• South African mark-ups are high relative to world industries and depress productivity growth. (p. 22)

  a ten percent reduction in South African mark-ups (or price-cost margins) would increase productivity growth in South Africa by 2 to 2.5 per cent per year.

• The union wage premium widened between 1995 and 2004. (p. 26)

  This increased from 21 and 15 percent for unskilled and semi-skilled workers in 1995 to 37 and 33 percent respectively in 2004.

• BEE is not changing economic structures. (p. 24)

  We conclude that BEE is not changing structures, but accommodating only minimal entry of new blacks into the economy and reinforcing the power of incumbent firms