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High Productivity Now: a critical review of South Africa's growth strategy

Year: 2001
Author: Nattrass, Nicoli
Unit: ASRU
Journal: Transformation
Volume: 45
Pages: 1-24

In order to make any dent on unemployment, South Africa's growth path needs to become significantly more labour-demanding. But what is the best way of achieving that end? On the face of it, the problem is simple: job creation depends crucially on investment growth, hence appropriate strategies are those which encourage capital accumulation and ensure that as many jobs as possible are created per unit of investment. But this apparently focussed answer raises two further fundamental questions: what drives investment; and what kind of investment is best suited to sustainable, labour-demanding growth?

The first part of the paper considers some of the macroeconomic determinants of investment, and asks whether South Africa's macroeconomic growth strategy i s ' investor-friendly'. Although the jury is still out, it seems that the architects of the government's Growth, Employment and Redistribution (GEAR) framework underestimated the negative impact of constraining demand on private investment. But the determinants of growth extend beyond the macroeconomic policy stance and into the arena of the growth path itself. Part Two considers the question of what broader growth strategies are good for growth. In doing so, it considers some of the 'lessons' from international experience for growth. The South African experience is referred to where relevant.

Part Three considers the narrower question as to what kind of investment is appropriate for a labour-demanding growth path. Is it better to go for maximising the number of jobs created now - in which case labour intensive investment is preferable - or is there an argument in favour of capital- and skill-intensive investment as a catalyst for more dynamic andlabour-demanding growth later? 'High productivity now' (HPN) strategies (which appear to inform South Africa's industrial and labour policies) opt for the latter. 'Hard HPN' strategies seek to discourage (or even eliminate) low-wage, low-productivity activities, whereas 'Soft HPN' strategies seek merely to encourage greater productivity growth. It is argued that South Africa's industrial policy stance is consistent with Soft HPN, but that labour market policy towards wage-setting is more in line with Hard HPN thinking.