Time to rethink our approach to job creation

Jan 01, 2005 Daily Nation, Life & Society

What comes first: jobs or economic growth? Put another way, should we create jobs directly, so as to inject purchasing power into the economy and stimulate growth? Or should we put the right conditions in place to enable the economy to grow, and let more jobs be a desirable by-product?

It was lack of clarity on this issue that led to the populist “half-a-million-jobs-per-year” promise made by Narc during the run-up to the 2002 general election, and which has been used as a stick for the government’s back ever since it took power. We would do well to look logically and systematically at the whole issue of jobs now.

For a job to have meaning, it must have three characteristics: it must be real (where true value-adding work is done); it must be sustained (not just short-lived); and it must be proper (conducted in a good working environment and with dignity). Jobs that fulfil these three characteristics are the ones that promote our economic future. For too long, we have played the numbers game and had jobs that are unproductive by international standards (much of the public sector); transient, with no proper contracts and benefits (casual labour); and exploitative (in sweatshop conditions and toxic environments). Half a million jobs with these characteristics would provide new purchasing power, yes; but they would not allow us to build a modern, mature and productive economy.

90 per cent of jobs in the developing world are generated by the private sector. Big government is a thing of the past for most countries. The era of tens of thousands of jobs in ministries and state corporations must be consigned to history. These are joke jobs, empty shells with a pay check attached. They create the illusion of employment – but little value is being added to the economy. Often we are merely adding layers of bureaucracy, and therefore obstacles, to the true job-creating process. By keeping jobs in an inefficient arena – government – we are crowding out employment. And their ill effect is seen in productivity figures: Telkom Kenya, for example, has in recent years employed 65 staff per 1,000 lines, where the international average is 4. The cost is borne by the consumer (and the economy), because Telkom’s charges become cripplingly high as a result.

If government has any role in job creation, it is in encouraging self-perpetuating investment in productive capacity. It is in doing all the things that create a good investment climate in the country. These include: a stable macroeconomic environment, where key indicators such as interest and exchange rates are not subject to sudden shocks; stable politics, so that long-term investment is protected; supportive infrastructure, so that business transactions can be conducted smoothly and at reasonable cost; a clean system where corruption is kept at a minimum, and honest endeavour is rewarded; security of person and property; and an intelligent set of tax incentives that direct investment to productive uses.

Government’s role, in short, is to work on incentives and on regulation. Security, stability and good governance reduce the risks of doing business; good infrastructure reduces the costs. People have the incentive to invest and innovate, and job-creation naturally follows.

As things stand, we have a fairly peculiar structure of employment in this country. The majority of our people still depend on small-scale rural agriculture or pastoralism. Of our 33 million people, fewer than 8 million are in ‘recorded’ employment, and of those, close to 6 million are in the informal sector. That leaves fewer then 2 million wage jobs in ‘modern’ establishments – the ones who receive proper pay checks and pay taxes. And more than 90 per cent of the government’s proclaimed new jobs since 2003 have come from the informal sector.

That tells us many things. For one, we have a lot more to do before we can create the types of jobs we actually need. At the top level, we need many more successful companies that act as efficient engines in the economy. Their own direct employment base is modest, but they provide stable incomes for many thousands more: suppliers, resellers, distributors and retailers. Not to mention the vast contribution to the national purse. We also need to provide incentives for companies that take up thousands of low-skilled workers: manufacturers, service companies, agro-processors and the like.

Equally, we must take another look at that very successful employment engine, the jua kali sector. That is where most new jobs are coming from these days, and it is high time the sector was brought in out of the hot sun. Jua kali’s major winning feature is that its businesses spring up spontaneously in response to consumer demand. They are close to the customer, and will not survive if they fail to provide acceptable quality at affordable prices. The problems lie in their informality: they are low-tech, unstable and subject to sudden shutdown, and operate outside the tax net.

Is it not high time we rethought our approach to jua kali? This sector has never received encouragement, only suspicion and hindrance. Government appears asleep to the possibilities. Tax and legal reform would allow these businesspeople to lay claim to their assets, raise capital against them and enter the formal business system. An intelligent and comprehensive look at the issue of business parks would give them licensed, organised and hygienic premises. What stops us? Just the lack of vision.

Lastly, the rural sector where most people earn their daily crust. We cannot continue being a nation of subsistence farmers and nomadic herders for too much longer. It keeps us at a low economic base, detached from the modern knowledge economy and prone to famine. The answer is to provide alternative opportunity to the people out there. Here, it is a simple question of basics. There can be no alternative sources of income if rural people are not connected to the modern economy. Access roads, electrification, clean water, modern telecommunications: these are the things that bring people to market. We can no longer shirk the responsibility of providing these things to our country cousins – for everyone’s sake.

Regulation and incentives – that is the heart of the government’s role in job creation. Employment is both an economic and a moral issue. By leaving our human capital unutilised, we are throwing away potential national income. By leaving our young people imprisoned in a futile and unproductive existence, we are giving them a life sentence of frustration. It need not be this way.