SANE Views

Vol.5 No.14, 17 June 2005

Solving our Huge Unemployment Problem will Require Some Key Institutional Changes

Johan van Zyl and Norman Reynolds

Much emphasis has been placed on small business development as a major factor in fighting unemployment. After all, this is the much vaunted 'free market way'!

Yet despite some successes this key approach has had distinctly limited overall impact. Why is this so ?

A major reason lies in the basic assumption underlying SMME development viz. that small businesses will generally be able to sell whatever they produce provided that they did their market research properly. In other words, there will usually be an effective demand for their products. Hence, the problems to be resolved lie predominantly on the supply side and most attention should be focused on these problems.

In our country this is a fallacy. Almost all small businesses starting up in the townships and in the (black) rural areas face a basic situation of very limited 'free' or 'discretionary' demand in their local markets. Whatever purchasing power is generated in the above areas quickly flows out to pay for all the goods and services traditionally 'imported' from the modern sector of the economy. It is this considerable historical external dependency factor that is often the death knell of local small business in our 'second economy'.

Small wonder that the successes of SMME development have mostly occurred in the modern developed sector of our economy.

If the above analysis is at all close to reality, a major shift in relying on small business initiatives to resolve our unemployment problem is called for. Much more attention will have to be paid to the demand side rather than focusing predominantly on supply problems.

An innovative approach should devise solutions that will stimulate both the demand and the supply side especially in the historically marginalised local (black) communities. But this will require some key institutional reforms especially in terms of decision-making powers to be granted to citizens locally.

Indeed, the basic elements of institutional reform that could contribute greatly to resolving our unemployment problem, both from the demand and the supply side, needs to be seriously investigated. Meanwhile, the basic essentials of our own transformation approach can briefly be stated as follows:

The focal point must be the large number of often geographically separate urban and rural 'township-style' communities in our country. In practice, these areas contain the bulk of the unemployed in South Africa.
These communities should be entrusted with a new responsibility for devising much of their own economic destiny - including substantial employment creation. However, to do this their considerable historical dependence on the modern sector (especially for jobs) needs to be substantially transformed. The key new objective would be to pursue 'greater economic self-reliance and sustainability at local levels'. Such an approach implies inter alia a considerable challenge thus far never attempted in our history viz. the effective economic mobilisation of the millions of ordinary (black) township citizens in our large marginalised sector.
A cornerstone measure would be to recognise officially various specific economic rights fundamentally guaranteed in the Constitution. In turn, a range of practical 'economic rights programmes' need to be put on offer to local community groupings (properly registered) for their consideration. A key example would be a 'community investment rights programme' (CIP). Such an offer would contain the basic and operational guidelines to follow in order to obtain funding for community investment by government on a continuing basis. The locals would then decide which particular economic activities they regard as priorities to invest in and to manage themselves - but in clear and genuine partnership with the state.

These initiatives would greatly extend the usual approach of SMME's as employment creation activities to be undertaken only by private individuals/shareholders, to the broader idea of 'private community as business'. All still very much 'market oriented'!

A further important example would be to look after children locally and more effectively. Instead of the current wasteful 'consumption' grants paid to individuals at high overhead cost and which leave marginalised areas almost immediately, the Child Support and the Child Nutrition Scheme grants could be passed on to organised community bodies as 'Child Rights'. These must first be spent to feed all children under 18 with locally grown food. Part of that payment stream can be directed to paying school fees. Thus all parents can act upon the Ubuntu injunction of "All children are my children" as they circulate state grants three to four times locally to care for their children, educate them and produce the food for a third of the population locally.
The centre of local decision-making power would be a new kind of Democratic Community Trust (essentially a co-operative) with full voting rights for all members, including women. The aim is to create a representative democratic body of local citizens that would (a) collectively own some key property rights especially those that were in earlier times appropriately communally owned (e.g. grazing rights in rural communities) and (b) manage work rights i.e. the right to allocate local labour resources, under previously agreed rules, to local projects undertaken under its jurisdiction.

Such an approach officially devolves considerable decision-making power plus responsibility and accountability to citizens (not just to local government as such). In fact, it begins to approach a real participative economic democracy. At present, we have very little of this.

In its latest ANC Today newsletter (June 3) the ANC indicated clearly that it realises that the 'second economy' needs to be dramatically transformed. However, it did not indicate the hard practicalities of HOW this process is to be implemented. The suggestions above respectfully attempt to fill part of this gap.