How short-term profit-seeking affects job creation

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Andrew Layman, CEO of the Durban Chamber of Commerce and Industry.

The International Finance Corporation, which is a division of the World Bank, has reported recently on its study into private-sector job creation. The overriding tenor of this, according to Terence Creamer, who has made reference to this report in an article in Engineering News, is that jobs could and should be created much faster in developing countries by the elimination of four obstacles.

I suppose most people who know about business would identify at least three of them: red tape and its cost; inaccessibility of finance; and shortages of skills.

The fourth, which was also raised as highly significant by companies that responded to some research I did two years ago, relates to the unreliability of energy supply.

To this last, we could add the cost of energy, especially in the context of South Africa where in the next five years many businesses will fail as a result of tariff increases, even if they are reduced to a more reasonable level below 16 percent.

While our problems are more acute than most in terms of unemployment, this is a pretty widespread global phenomenon. The demands of competitiveness, which is the essence of business after all, are such that wages and salaries need to be earned and not just received as part of an employment deal. As I understand it, Europe, in particular, went soft, with conditions of service way more liberal than the expectations of our labour legislation.

For example, does a person on paternity leave for a year earn his salary? In some countries it is a matter of choice that the father takes the leave while the mother returns to work after a due time, but in others, it is a right for both parents to be on leave for this reason. If these employees are critical within a company’s production programme, they need to be replaced by others, costing the company two salaries for each job.

If they do not require replacement, one wonders why they are employed in the first place. The fact is, however, that some of these highly developed countries, where knowledge is at the cornerstone of the economy, can afford this regimen.

Some other countries have gone soft without being able to afford to do so and in the crunch of our decade are finding it difficult, if not impossible, to recover productivity.

Meanwhile, in the Far East, workers are dedicated to productivity and more people, each earning less, have jobs. For them, half a loaf is better than no bread. And the economies are not only sustainable, but growing. In time, workers will earn more as they share in the national prosperity.

Here, the aspiration is a loaf and a half and there is little sustainability and more people on the streets without employment. This opportunism is matched, sadly, by employers, as was pointed out to me by Justin Barnes in a conversation recently. Investors desire quick yields, perhaps to satisfy insatiable and impatient shareholders. The effect of this is the exploitation of circumstances in the short term, without sufficient concern for the longer term.

When the yield begins to dissipate, liquidation, closure and retrenchment are the options. And, like some divorces, can be undertaken without too much challenge to the conscience. Regrettably, the same symptoms of “short termism” characterise the political landscape, where respect for continuity has been lost.

We are becoming increasingly accustomed to five-year spells of frenzy followed by radical changes and renewed vigour to establish legacies recognisable after just one term. (What chance does education have when it requires a decade at least before its progress can be measured?)

In the private sector, the shelf life of executives has diminished markedly, almost putting chief executives on a par with national sports coaches who must win soon, or go.

Successful job creation is not about sudden bursts of employment when times are better followed|by a purge when they get worse again.

The world needs to create 600 million jobs by 2020, according to the IFC report, if it is to keep pace with the growth in population.

The majority of these will have to be in developing countries where, regrettably, successful formulas for doing so have not been found, despite the high visibility of the obstacles.

* Andrew Layman is the CEO of the Durban Chamber of Commerce and Industry.