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There’s been a binge of employment terminations lately. It started off in the private sector and contagion has caught on to the public sector. It has been said that these events are necessary.
Supposedly, state enterprises especially, had to let go of excess labour. In some quarters, the terminations are the right steps towards fixing the economy.
To a certain extent and only in specific contexts, these statements are true.
I can quote myself having said in an article last October, “To reduce the debt within our economy, we must allow highly indebted and insolvent companies to scale or shut down. I do have sentiments to the social effects of job losses, but those concerns may be exaggerated.
“I trust in the ascent, of more competitive companies, specifically SMEs operating at sustainable capitalisation.”
I highlight this quote to re-emphasise my belief that it is necessary to trim the labour force, particularly within the context of a deleveraging economy.
However, as my suggestion has become reality and the aforementioned social effects become visible, I want to stress that job losses are never a welcome thing; regardless of economic pragmatism.
The economics fraternity has the sole existential purpose of finding ways to create opportunities for gainful, sustainable livelihoods.
Unemployment is the anti-thesis of why we do economy!
Thus, I think it has been sufficiently said that job cuts are necessary, let us not prolong that argument because it is understood.
We must now engage our minds into finding out how best to cushion the economic effects of these terminations. Unfortunately, I worry that in this regard, we retain three treacherous misinterpretations that may hinder such contingency planning.
Firstly, we often say “the Government should cut its huge wage bill – it is taking up too much of the budget.”
This is a wrong interpretation of fiscal financing.
Government budgets do not work the same way that household budgets do!
It seems common thought that much like we do with our own household budgets, cutting spending on one thing leaves more to spend on others. That is not how fiscal management works at all.
Through cutting spending on recurrent expenditures, a government is not gaining more finances to spend on capital projects. Such a premise is absolutely false!
The two are not mutually exclusive.
The benefits derived from recurrent expenditures have a direct correlation to the spending that is then needed for capital expenditures.
When Government effectively spends on recurrent expenditures, there is a benefit to the economy which satisfies similar need for capital spending.
Conversely, when Government spending on recurrent expenditures is ineffective or less than satisfactory,the need for increased capital spending is exacerbated.
Hence, what the Finance Ministry believes it is saving on recurrent expenditures to reallocate to capital projects is not an absolute figure.
For instance, saving US$100 million in recurrent bills does not mean US$100 million available for capital projects.
The US$100 million taken out of the economy has a coefficient from a lost multiplier effect.
That coefficient is extremely difficult to calculate.
Likewise, those who have lost their jobs represent economic loss of households which will have less income.
This is all money being pulled out of the economy.
Therefore, for us to cushion the economic loss from the decision to cut recurrent expenditures, we must start to comprehend that we need capital expenditure that supersedes the nominal amount that is being saved.
It is not a match for match.
Secondly, presently in Zimbabwe, donor funding is responsible for the greatest share of publicly available social services. In fact, Parliament has conceded to the need to work on increased donor programmes for social services.
To understand how deficient spending on recurrent expenditures is, we can assess who we are spending it on.
Grade D1 civil servants earn an average of US$420 every month.
These are supposedly highly skilled labour such as teachers, nurses and uniformed forces.
B1 workers average a lower US$296 per month.
These salaries do not offer opportunity for economic advancement, let alone stimulate growth in any economy.
The living standards offered by these remunerations are meagre at best, and are contributory to the demand deficiency affecting business.
Our civil servant salaries are already reflective of an economy in decline.
A benchmark for a stable economy is one where D1 salaries suffice for mortgage payments on a middle income home for a household of at least three children, with enough savings to dedicate into a pension fund that provides for subsistent retirement at an average age of 65, and still leave enough for disposable income.
Evidently, US$420 is far from enough. Our Government spending to the civil service is grossly beneath such stable reference, by all measures!
Finally, I have not heard any justifiable stance to cutting on the wage bill; except that it is too high. To say that an allocation is “too high” is irresponsibly relative.
Neither Minister Chinamasa nor any proponents to the notion have given economic clarity to such open ended presumption.
Thus, I can only assume that they are loyal to quantitative models that guide fiscal allocations. If that is the case, then I can only interrogate these models on what realities they are extrapolated from.
The reality is that we are dealing with a budget of around US$4 billion with a possibility of declining revenues, and zero capacity for incurring a deficit.
In simple terms, the whole pie is too small to give credence to the presumption that any share taken up by recurrent expenditures at the moment is too high.
If we remain naïve to these three misinterpretations,we risk being ill-prepared for the severe economic effects in the short term which will be felt from these public sector terminations. To sustain or potentially overcome the accompanying economic glut, we must be prepared to have adequate stimulus as soon as possible.
That could be through national financing or a sudden increase in productivity in key sectors that drive the overall economy.
More precisely, if enterprises like the National Railways of Zimbabwe, Grain Marketing Board and Zimbabwe Electricity Supply Authority are going to retrench large numbers, then there is immediate need for a spike in productivity!
Online Reporter