Open Economy: Who should get the 2 million jobs?

25 Oct, 2015 - 00:10 0 Views
Open Economy: Who should get the 2 million jobs? Sunday Mail

The Sunday Mail

For over a century, mass job-creation has been the byproduct of a certain kind of industrialisation.
Countries that looked to create employment in large numbers exploited the opportunity offered by what I will call “heavy industry”.
Consider heavy industry in the form of the billowing smoke and screeching noise synonymous with huge manufacturing plants, public works, mining and construction projects.
As this heavy industry functioned primarily towards increasing output productivity, it also facilitated the employment of a lot of people through its multi-stage work processes.
Referencing this historic impact of heavy industry as a job creator, many governments today are looking to rely yet again on heavy industry to solve chronic unemployment in most of the world.
Two years ago, Government promised two million jobs with a key aspect of its job-creation strategy being to revive heavy industry.
It would be prudent then that for a country pinning high hopes on heavy industry as a means of job-creation, attention has to focus on the trends within industrial processes as they relate to labour market dynamics.
The notion that more heavy industry leads to more job opportunities can easily influence a rather casual presumption of a fixed structural parity between industrialisation and labour market competence.
That is not the case; with changing industrial processes comes differing labour competence requirements.
By tracing changes of industrial processes, competent economic planners can somewhat project the necessary labour market competences that will match the requirements of emerging industrial processes in the future.
Industrial processes themselves are primarily targeted towards increasing productivity, whilst being cost efficient.
So, decisions on the application of factors of production, particularly labour and capital, are essentially based on their ability to improve productivity in a cost efficient manner.
Labour and capital can be perceived as rival alternatives to this end, and as industrial processes have become intertwined globally, competitive cost efficiency means that the race to reach the lowest possible costs is getting much more brutal.
This is expounded by the popularity of free trade agreements of lower customs and tariffs, complemented by investments in interconnectivity infrastructure that greatly reduces transportation costs.
Consider, for instance, there is mutual consideration between Africa and the US to engage in more trade.
In the US, however, labour intensity of manufacturing output (1997-2013) for US$1 of output now costs USc11 less to produce.
In this same period, US manufacturing nominal output shot up 54 percent.
This means productivity output is significantly increasing at the same time industrial processes are finding technical alternatives to labour in manufacturing, basically becoming more capital intensive.
Perhaps surprisingly, the US is frequently not even ranked amongst the top dozen nations leading the global technology index, implying that many other countries, especially in Europe and South East Asia, are bound to be more capital intensive in their industries.
Hence, there exist very competitive capital intensive benchmarks for industrial productivity globally.
As financing costs seem likely to stay cheap for some time to come, savvy industrialists lagging behind in technology are hurried to invest in modern capital equipment.
Evidence already shows in new industrial parks sprouting around developing countries like Ethiopia, Kenya, and South Africa. Industrial facilities look more like enlarged science laboratories, with automated equipment completing most of the industrial processes.
The image of industry is changing from that smoke puffing, screeching noise site, which employed a manual labour force of thousands dressed in blue work suits.
So, what does this all mean for labour markets, particularly our Zimbabwean pursuit to create two million jobs?
Firstly, heavy industry is fast becoming very technical and demanding a higher skilled workforce.
Traditional assembly plants, for instance, are increasingly automated as production processes follow conveyor belts from start to finish.
Labour will only play an operational or supervisory role.
Job opening postings for mining companies are already showing a trend of requiring higher levels of education for what were traditionally lower level jobs.
This has two direct implications: Wages for labour under a certain skill level will keep falling and so will bargaining power.
It is no coincidence that low skill level labour unions are getting weaker.
Second, with heavy industry becoming more capital intensive and productivity output increasing, competition will focus on value addition.
In the aforementioned period (1997-2013), US manufacturing output (value added) went up 45 percent.
Such productivity efficiency explains why for Western manufacturers, interest in value chain integration with Africa was slow to excite.
Likewise, this is why African output has never been a competitive threat.
China on a year-by-year basis has overtaken the US in manufacturing value added. With an opening global economy, however, Africa is a target market for these two and other competing manufacturing giants.
So, if Zimbabwe truly wants to compete in value-addition, protect its own market, and potentially secure export markets, we must take heed.
Huge spending on capital equipment and increased capital intensity has to take place! In our well-versed need for value-addition, we have omitted the inevitable reality that value-addition is not labour intensive. We may have overstated its opportunities as a job creator.
My propositions here are not meant to belittle our hopes of creating job opportunities in Zimbabwe.
Instead, I hope to offer a competing narrative to how we perceive heavy industry within the strategy of job-creation.
What politicians cannot say in public is that as long as the marginal revenue product from labour falls relative to that of capital – an inevitable situation to arise from open markets and integrated value chains – companies will increasingly choose capital over labour.
For our economy, this is good.
It increases industrial competitiveness and productivity. However, this occurrence will come with a sacrifice of labour intensity in our industrial processes, especially towards lower skilled labour.
Again, this is good!
Unfortunately, politicians will not pivot from predominant populist rhetoric to be so forthright with economic truth.
We saw that difficulty with this year’s retrenchments.
Such political inertia in Zimbabwe exists because politicians have not identified the potential for economic progression that is actually offered by the transitioning of heavy industry from labour to capital intensity.
This inertia, clutching onto populist appeal, is also why poverty eradication in Zimbabwe will be difficult to achieve with present mindsets.
By preserving or prolonging low skilled industrial jobs that can be substituted by capital, Zimbabwe would be perpetuating a poverty trap.
Heavy industry should be capital intensive for productivity and competitiveness.
Revenues generated from won markets can then be focused towards investment into educating a higher skilled local workforce.
This is really the simple sequence of how a country becomes a developed economy. Consider the structural design of a develop economy.
In a developed economy, primary and secondary industries (often heavy industry) are not high employers.
For instance, South East Asian and Scandinavian countries have ferociously competitive industries that are capital intensive. Whilst being low employers, these industries contribute over 20 percent to their GDP.
Most of their local workforce is, instead, concentrated in healthcare, education, finance, tourism, entertainment, telecommunications, etcetera.
These are all sectors of higher wages and better living standards.
Conclusively, in a few years to come, we should not be looking for how many factory jobs were created. That would not be economic advancement.
Heavy industry must focus on productivity and competitiveness through enhanced capital intensity.
As it is particularly the youth demographic applying pressure for job-creation, I would advise them to demand opportunities for higher quality of jobs; assuming, of course, that in the meantime, they are developing adequate competency for themselves to rightfully claim such jobs!

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