Social spending is now a permanent temporary job substitute - Business Day, 18th March 2013.

In his fortnightly column in Business Day, the Institute's CEO, John Kane-Berman, writes that despite the Government's warning that "social spending is not a substitute for job creation" the Government's policies are not conducive to growth or job creation.

Finance Minister Pravin Gordhan is not the first minister to warn that "social spending is not a substitute for job creation", but an interim measure. Former president Thabo Mbeki, President Jacob Zuma and former finance minister Trevor Manuel have expressed similar sentiments.

Yet "social protection" spending has risen substantially. It now constitutes almost 16% of the budget, compared with 9% when the African National Congress (ANC) came to power. Although it is widely believed that growing "service delivery protest" shows that the ANC has failed to fulfil its promises of "a better life for all", the increase in social grants, along with such things as free schooling, water, electricity and housing, suggest that the story of failure is a half-truth.

It is failure on the jobs front that is staggering. Since the ANC came to power, unemployment (including "discouraged" worker-seekers) has doubled from 3.7-million to 7.6-million, yielding a rate of 36%. No doubt reflecting a view also widely held, Manuel recently told the Daily Maverick that "if we don’t at least double the size of our economy, then there won’t be labour absorption and then the big risk is that tens of millions of unemployed and frustrated young people will burn the country down".

But unless they actually do burn it down, social spending is likely to remain a substitute for jobs, irrespective of what Gordhan says.

Even as unemployment has risen, projections about what rate of economic growth is needed to reduce it have themselves been reduced.

When he was president, Mbeki suggested that 6%-9% average annual growth was needed. Now we’re down to the 5% mentioned in Gordhan’s recent budget speech and which is targeted by the National Development Plan (NDP). Gordhan said the NDP had highlighted the need "to reduce the cost of doing business for small and emerging enterprises". This has been a theme of innumerable previous budget and state of the nation speeches. A "blueprint" for encouraging small business was in fact announced by the Department of Trade and Industry six months after the ANC came to power.

In 1998, the department appointed an advisory board and eight task teams to address restrictive legislation constraining small business. Two years later, it announced a new regulatory unit to provide a "more scientific approach" in assessing the effects of regulations on small business.

In 2004, Mbeki promised a comprehensive review of the regulatory framework, to be followed by necessary changes. In 2009, Zuma reiterated the government’s commitment to reducing regulations that small business said were "stifling".

Yet a few days before Gordhan’s budget speech last month, the Small Business Project said small and medium enterprises found the regulatory environment more challenging than before. Gordhan did lift the tax threshold from R14m to R20m, but 18 years of mostly empty (and now farcical) promises suggest the ANC has no serious intention of reducing the regulatory burden on small business.

Whether big business is in a better position is also doubtful. Gordhan said he wished to encourage businesses "to keep investing in our economy and seize the opportunities around us".

A day or two later he challenged business to "come to the party".

But the government itself is not actually at this "party". If it was, it would not be contemplating tighter labour law and punitive black economic empowerment proposals, or imposing 52% minimum-wage increases on farms, or threatening to inflict "strategic state ownership" on mining, or planning to compel commercial farmers to hand over some of their land to the state.

Gordhan said: "We recognise the key role that private companies play in our economy."

The Treasury observed that job creation would depend largely on the private sector, which accounted for 77% of formal employment.

These are encouraging remarks, but until their implications for policy actually sink into the Cabinet and the ANC, social spending will remain the government’s answer to poverty and inequality for a long time to come — or at least until the money runs out.

First published in Business Day on 18th March 2013.

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