Open Economy: Understanding de-industrialisation and unemployment

21 Feb, 2016 - 00:02 0 Views
Open Economy: Understanding de-industrialisation and unemployment The majority of the supply of labour today is excluded from industrial value chains, and that stunt in economic mobility can partly be explained by the de-industrialisation of what was a minority-owned industrial base.

The Sunday Mail

“By contrast, Einstein seemed to invent general relativity simply because he wanted to — because he saw questions where others didn’t…”

This is a quote from an article by Phillip Ballas.

He lamented how modern environments do not foster enough scientific curiosity.

In my agreement with his sentiments, I would further suggest that the little scientific curiosity that does exist in our particular environment is mostly confined within the rigidities of predominant discourse.

Our scientists keep their inquisitions as close as possible to popular assertions.

As I believe that economics is a social science, examples abound in the research that our economists undertake to explain economic occurrences.

For instance, when business agents gather to the consultancies of economists, research presentations focus on assertions on exchange rates, trade terms, infrastructure, and other themes of what I will call the “hard economics”.

However, as economics is a social science, I can lament that our scientific curiosity hardly ventures into “soft economics” that is socio-economic interaction.

Our research into hard economics would be more effective, and perhaps more precise, if it were merged with questions on our socio-economic interaction.

For instance, conventional discourse in Zimbabwe over the last two decades has emphasised that the economy has supposedly gone through severe de-industrialisation, hence we should miss the hey-days.

Our industrialists stand by this assertion based on hard metrics such as capacity utilisation which stands at 36 percent and annual current account deficits.

This is the context they emphasise.

However, other hard economic numbers may not so easily corroborate these claims.

When looking over a 20-year graphic time horizon of annual GDP change, steep troughs appear mostly between 1996 where GDP change was a positive 10,4 percent, down to -17 percent in 2003.

That is about a 27 percent decline within seven years.

Interestingly, GDP change between 2008 shot from -17,7 percent to a relatively impressive 11,9 percent in 2011.

That is roughly a 29 percent increment in GDP change within only three years.

According to GDP change, perhaps our level of national output should have at least been recovered in the last decade.

This is further affirmed by Zimbabwe’s GDP in 2014 being US$14 billion, US$3 billion over what it was in 1996.

Thus, from a national output perspective, Zimbabwe can be seen to have recovered output from whatever de-industrialisation it had experienced.

So, there are no hey-days to be missed, let’s put that talk aside for good!

Assuming agreement with my assertion, perhaps then, conventional discourse today should be that whatever our present level of national output, it is inadequate for the utility of our capital equipment, and more importantly, our supply of labour force.

That is a more accurate contextualisation of the challenge that must be emphasised in our economic talk.

In doing so, we would also be creating a more relevant perspective of evaluating the relationship between our industrial output potential and the use of supply of labour working with capital equipment to produce that output.

This is progressive problem-solving that focuses on what we can do with what we currently have at our disposal, and not a miscontextualisation of de-industrialisation.

Furthermore, national output per capita in 1996 was US$722, but in 2014, it was US$931.

Whilst this can be seen as a marked improvement from the so-called hey-days, it is better perceived as indicative of greater opportunity ahead!

Within this progressive context, over the last two decades, significant shifts in industrial processes and labour force dynamics occurred to cause presently existing distortions between demand for, and supply of labour in the Zimbabwean economy.

The majority of the supply of labour today is excluded from industrial value chains, and that stunt in economic mobility can partly be explained by the de-industrialisation of what was a minority-owned industrial base.

It is only sincere to acknowledge historic value chain disparities that had the majority within low value activities whilst a minority was at the higher end.

Nevertheless, as the Zimbabwean economy lost out on these minority dominated value chains, a larger informal sector has grown.

This informal sector is still involved in economic activity that underutilises its competencies, and for many, they are kept within a vicious poverty trap because of minimal value added in its respective economic activities.

Hence, the US$931 output per capita can be greatly increased if the underutilised supply of labour can be absorbed into a new construction of indigenous high value industrial value chains!

More importantly, if this informal sector can be absorbed into formal value chains, their incomes can then be captured as savings and manageable capital accumulation.

So, how do we solve these distortions between demand for, and supply of labour in our value chains?

Well, Zimbabwe should do value chain assessments which identify points where supply of labour is not being fully utilised or is simply being put to waste.

The intention is not to retrench or remove units of labour as per predominant business thinking.

Instead, value chain assessments evaluate how supply of labour can be used more effectively in value chains!

In modern Zimbabwe’s case, new value chains that intentionally narrow down past disparities of income gains must be identified, otherwise empowerment policies may be rendered futile!

For reference, the International Labour Organisation uses a Value Chain Development Framework approach which focuses on identifying value chains that are most relevant for job quality improvement.

The ILO believes that conventional policymakers superficially look to create employment, but smart policy-makers are looking to integrate labour into competitive value chains!

If Zimbabwe focuses on organising and improving our value chains, increased productivity along these value chains mean demand will rise to a competitive equilibrium with our current surplus supply of labour.

Accordingly, if we are to increase employment, it is inherently incumbent that we put in place practical interventions within industrial value chains in order to add productive capacity to absorb redundant and under-utilised labour currently functioning in the informal sector.

Hopefully, it is clearer that Zimbabwe has no issues to dwell on an old economy; rather all that happened was that during shocks of hyper-inflation, capital flight and economic sanctions, our previous value chains became distorted.

Regrettably, these distortions have not been fixed because culturally, indigenous business agents who now dominate industrial value chains retain socio-economic impulses that seek out arbitrage and opportunistic profiteering from broken value chains.

Our soft economics are, in fact, detrimental to value chain creation.

All that Zimbabwe needs to do is work to align new industrial value chains; however, indigenous socio-economic interactions have proven to be the significant obstacle to overcome!

So, instead of narrowly focusing on the hard economics of capacity utilisation, exchange rates, terms of trade and such: indigenous industrialists in correspondence with Governmental institutions must put their minds towards solving how best value chains can become more productive, whilst being truthful to the undesirable soft economics that have caused sustained underutilisation of capital equipment and unemployed surplus supply of labour.

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