Jobs: Creation or retention?

We will lose the unemployment battle without serious emphasis on job retention.

We have had some sobering, if not frightening statistics again on South Africa’s most critical problem – unemployment.

According to Stats SA, the economy shed a net 75 000 jobs in the first quarter. This was despite growth in the agricultural sector, which gained 26 000 jobs, and in private households, which created 33 000 jobs in the first quarter of 2012. In the last quarter of 2011, the formal sector shed 107 000 jobs.

Paul Joubert, economics researcher at the Solidarity Research Institute has calculated that there are about 421 000 fewer jobs in South Africa compared with the start of the recession three years ago, while the number of South Africans of working age (15-64 years) has grown by about 500 000 every year. The formal unemployment rate has risen from 23.9% to 25.2%, while the broadly defined rate has gone up from 35.4% to 36.6%.

We clearly need some real innovative if not revolutionary thinking on tackling the problem. One idea that could halve unemployment overnight and at the same time add many tons of maize to our food supplies, is to irrigate the 300 000 square kilometres of the Kalahari desert with millions of people lined up from the Orange river and passing buckets of water to each other. Then a few million more with umbrellas would have to be used to shield the crops from the scorching sun.

The absurdity of the idea is only one of degree, albeit massive, from some of the solutions that one hears today. One such is Cosatu’s favouring large scale job creation in manufacturing. By its very nature, manufacturing mostly requires huge capital investment, which could mean paying anything from R250 000 to R500 000, to create one job, according to IDC numbers. It is also obstructed by the skills shortage.

Ultimately, jobs cannot be “created” in a vacuum. They are born out of people needing and wanting things and by people responding to those needs and wants in the provision of goods and services -- which on the surface appears to support the popular labour argument for more pay, lower interest rates and easier credit to promote consumption. But this too, has to be tempered with the realities of global demand, recession, international competitiveness, inflation, pressure on resources and environmental issues.

It is indeed unfortunate that seeking solutions is stuck in oversimplified political rhetoric, firmly entrenched vested interests and out-dated ideological posturing. A good example has been the internet debate on labour productivity that you can access at this link.

What this debate shows is that we are firmly committed to the concept of an inherent conflict between labour and capital in which labour is viewed as a cost and the purpose of capital is the pursuit of maximum profit. Labour clearly cannot win this conflict unless it is with the help of government and laws which in turn often lose touch with economic realities of the times.

Why, we need to ask, do we put so much emphasis on job creation when our failure at the much easier route of job retention more than wipes out the number of new jobs created? And if we cannot keep people employed in their current jobs, what makes us believe that we will be successful in keeping them in new jobs? We clearly have to do a thorough appraisal of what causes job losses and what can be done about it before spending vast amounts of time, effort and money on creating new jobs.

The most obvious reason is that in their “legitimate” pursuit of maximum profitability, companies will always be cutting staff wherever possible. This explains why company profits’ share of national income has risen from less than 40% in 1995 to more than 47% in 2011. At the same time, the share of wages and salaries has fallen from about 56% to just over 50%. This is total wages and salaries, and does not reflect growing pay disparities in individual companies.

So in the “battle” for income between labour and capital, capital is clearly winning, despite salary and wage increases, and all of the Union efforts in enforcing “decent work”. But the cost of this conflict is growing numbers of people on the streets without wages and other benefits.

At one point something has to give, and capital cannot remain aloof in pursuing its traditional motives. For one thing, the singular focus on profit is rapidly becoming out-dated and more and more people are expecting business to take a broader stakeholder view, including the introduction of governance and other laws to ensure greater alignment with society’s needs.

Another serious concern about profit maximisation is one raised by Bobby Godsell of Business Leadership who I quoted recently: “As we moved to fund-manager capitalism and a focus on short-term returns, companies that cut costs dramatically were seen as winners. Often the easiest way to cut costs was to reduce employment.” Short-termism has not only been a major force behind the financial collapse this decade, but it is a serious threat to employment and ultimately social harmony. It thoroughly discredits the argument that profit maximisation encourages employment and customer care.

Another obvious anomaly which is a global one challenges one of the basic tenets of profit maximisation – that most of the profit gets allocated to reserves which are used to expand and invest in new ventures thereby creating more employment. Sitting on a pot of cash has become a global phenomenon for companies and in South Africa it is estimated that company savings currently amount to just under R500bn.

Job retention is a far greater priority than job creation in dealing with unemployment. Employers have to revisit their emphasis on short term profit maximisation, and labour has to consider the advantages of flexibility in income and employment conditions in exchange for greater employment security and job retention. A fortune sharing system can address both issues.

Otherwise, we really are on a road to social Armageddon.