By JP Landman
In a time of intense contestation on the correct economic policy for South Africa, economists from the left, right and centre all agree on one thing: productivity matters. As left of centre and self-proclaimed progressive Paul Krugman put it: ‘Productivity is not everything, but in the long run it is almost everything.’ (He won the Nobel prize for economics.)
The different sides in South Africa also agree on how productivity should be improved: more infrastructure, more human capital development (skills, education and training), more technology and innovation, and less corruption, both in the private sector (Steinhoff, Tongaat, VBS) and in the public sector (blatant theft and ‘tenderpreneurship’).
The widely used measure of productivity is gross domestic product (GDP) per hour worked. The South African Reserve Bank (SARB) keeps an updated database on it and that is what we use here.
What is South Africa’s record on this all-important matter?
SOUTH AFRICA’S HISTORY OF PRODUCTIVITY
The SARB graph below depicts South Africa’s labour productivity trends from 1970 to 2019 – a nice long view of 49 years.
Between 1970 and the early 1990s productivity in South Africa was not a pretty sight. It declined in 16 of the 24 years. From 1994 productivity improved strongly. It then flattened out from 2017 and turned negative in 2019. So, first more than two decades of decline, then more than two decades of strong improvement, followed by a levelling off and decline.
These trends fit like a hand in a glove with per capita income trends. We had a long two-decade decline in incomes from 1975 to 1993, then a strong upswing for two decades to 2014, followed by five years of stagnation. As productivity goes, so does income. Krugman is right – in the long run productivity is almost everything.
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