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:

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'!

Back to previous

© South African New Economics Network 2006. Page generated at 17:22; 24 September 2006