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Government creates the conditions in which businesses grow jobs

23rd February 2022

President Ramaphosa’s comment in the SONA has sparked an irritating debate in South Africa about whether the private sector or government create jobs. That’s like arguing about whether it’s the doctor or the medicine that heals. Both have roles. To oversimplify, the government creates conditions in which businesses grow jobs.

Those who love big government say the private sector has been losing jobs and can’t be trusted to look after people. Those who love small government say the government has failed to manage its existing state-owned enterprises and cannot be trusted to look after anything.

Both have a point – but reflect mistaken views on the role of each.

Government can create some jobs directly. We need more nurses, teachers, police and people skilled in pro-poor projects, tax receipts permitting. That’s government’s job, and proponents of small government should spend more time with the poor to understand it better. Competent government can also initiate projects too big, risky, or unprofitable for private companies on their own – like railways. But at best that can only grow employment modestly.

We have seen in many countries that government is generally bad at running businesses and really should not try. Furthermore, the public sector ethos of service is horribly compromised when public servants try to run businesses themselves. We don’t need an entrepreneurial state, we need a caring and honest state built on an ethos of serving the people. Part of this service is providing the physical, legislative and administrative infrastructure required by those who are entrepreneurs. That does not mean leaving the field for private companies to do as they please; government also has the role of regulating for safety, fair labour practices, equity and ecology.

A significant point often ignored is that whereas government is an agent that can be held accountable for what government does as a sector, the private sector is not. It is a class of independent actors who have to be held accountable independently.

Deciding whether or not to invest is something many thousands of entrepreneurs and management teams do regularly and independently in the light of the information at their disposal. They won’t and should not invest if the return from investing would be less than the return from keeping the money in the bank or giving it back to shareholders to use elsewhere; or if the risks exceed the potential return. That’s their job.

Businesspeople don’t set out to lose jobs – downsizing is a very painful and costly admission that a growth dream has failed. So it makes no sense to blame the average businessperson for destroying jobs or failing to invest; rather blame the conditions that led to this sad situation.

That is where government comes in. Of course government creates jobs. It can create a few directly, but it can create many, many more by enabling businesses to thrive. I do not create the vegetables that grow in my garden. but I do plant the seeds in good soil with compost and fertilizer, and I do water them regularly and remove the weeds. If they do not grow, I blame my stewardship, not the plants.

Similarly, it is the job of government to provide the good soil and regular watering and weeding that businesses need to flourish. If businesses die or migrate to better climates, government should blame its own policies and administration rather than blame the people trying to earn a living.

So for long term, sustainable employment at scale, the president was clearly right that the bulk of job growth comes in the private sector. But the responsibility for this happening is government’s. Both do need each other.

Is it government or business that creates jobs? Yes! Now in heaven’s name let’s stop squabbling and do it.

Jonathan Cook is chair of the African Management Institute

 

 


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