Rebuilding middle class key growth strategy

19 Jul, 2019 - 00:07 0 Views

eBusiness Weekly

Recently, Government announced plans to increase the salaries and wages for public service employees.

This is an important step by the Government, which realises that wages across the length and breadth of the economy, have been seriously eroded by inflation. This includes wages in the private sector as well.

The civil service wage earners, comprises the bulk of the middle class. It is important to protect and even grow this class of economic players.

The Zimbabwean middle class has virtually been wiped off the economy over the last few decades. Signs of decline of the middle class have been all around us for a while now — anaemic economic growth, rising poverty and income inequality, chronic structural unemployment, severe underemployment and, not so coincidentally, the steady and deliberate erosion of workers’ fundamental freedom to strengthen their unions and be able to bargain for fairer wages and benefits. The result has been the rapid rise in low wage jobs of very poor quality.

At the same time, Zimbabwean businesses have been shutting down in the face of rising costs of doing business, while household incomes have receded in value and living costs have far outpaced stagnant wages. The obvious result is that millions of Zimbabweans are stuck in informal sector jobs, and micro enterprises that can hardly support a standard family, while a select small elite enjoy the benefits of abundant inequality.

Incomes for the majority of the people have stagnated if not receded. The costs of living basics like health-care, housing, and primary and higher education have sky-rocketed. Household debt has risen sharply in recent years and income inequality has widened with the rich, especially the very rich, having pulled far away from everyone else.

However, Government has seized the opportunity to change this state of affairs in the face of the wake of the new economic dispensation that is pushing an agenda to re-engage and lure businesses and investment capital back to Zimbabwe.

This strategy should it be sustained means that we can and should seize the opportunity to rebuild the Zimbabwean middle class, which for all intents and purposes has been depleted.

It is the middle class that powers consumption, investment and growth in the economy.

As a new economic era dawns for Zimbabwe, we must address the structural dislocations in the economy that have resulted in a skewed concentration of wealth and opportunities coupled with a deluge of poor quality low-wage jobs across the economy.

Our elected representatives should come together quickly to enact solutions to address the structurally imbalanced economy.

In particular, the Government must be able to advance strategies that create quality middle-class jobs, while easing the cost of doing business in the country. How can this be achieved?

Rebuilding infrastructure is a key opportunity.

We must move beyond rhetoric, mantras and speeches about the need to create jobs and rebuild the middle class and start advancing programmes based on off the shelf solutions that have worked for economies elsewhere.

Rebuilding the country’s infrastructure and empowering the workforce to bargain for fair living wages is the only sure way of rebuilding the middle class.

Only then we will be witness to an era of Zimbabwean economic renewal and expansion defined by an inclusive economy where spending power rises for everyone and families and communities can thrive. Entrepreneurship and opportunity will knock on everyone’s doorstep.

The link between infrastructure and quality jobs is simple. A strong unionised labour force is the one that will do the work needed to rebuild, operate and maintain our country’s roads, rail, urban transit, and aviation systems, rehabilitate drinking water systems, and man our schools, hospitals and universities. A strong well remunerated labour force is a key and direct pathway to the creation of a strong middle class.

Infrastructure is also about creating sustainable and high quality jobs. Rebuilding the country’s infrastructure, especially if we commit to strict, local supply chain requirements, we will produce millions of high-quality jobs along the entire supply chain.

Infrastructure projects are also known for connecting more workers in disadvantaged communities to opportunities. For example a major highway can pass through a previously disadvantaged community, changing lives in the process.

In conclusion, stagnant incomes, rising debt, and record levels of income inequality all impact economic growth in a bad way and therefore cannot be ignored.

High levels of household debt have the effect of reducing consumer demand; while the lack of assets among the middle class (the little that has remained of it) hinders entrepreneurship as people cannot access collateral based finance to start businesses.

Meanwhile in that mix, the rise of a super-rich class, whose wealth is far above everyone else contributes to weakened social relations and a more polarised society.

Government must lead in correcting the issues that have undermined trust. It is therefore good economic policy and good politics for the Government to continue to focus its energies on making the economy work for everyone.

This is in line with the broader economic agenda, which has seen the Government of Zimbabwe embark on a journey to steer the economy to upper middle income status by the year 2030.

Pursuant to this development aspiration, the GoZ has already come up the Transitional Stabilisation Programme 2018-2020.

This programme, which began in earnest started in October 2018 and will run until December 2019. The TSP will be followed on by Two Five-Year Development Strategies; the first one running from FY2021 to 2025, and the second phase covering FY2026-2030.

The success of the economic reform programmes, therefore, should presuppose and recognise the need for civil service reforms. There is now strong recognition that empowerment of civil servants, which brings to the fore, key issues that are aimed improving the long term welfare of Government employees, who historically, retire from Government service into abject poverty, is key in achieving some if not all of the economic objectives laid out in both the TSP and then follow on five-year plans that form the bedrock of Vision 2030.

In the broader economy there have been calls for the liberalisation of the labour markets to make them more flexible and competitive. These calls have become very dominant among policy makers, employers including the Government and academics.

A key element in labour market liberalisation is the wage variable since wages play a central role in that they facilitate the allocation of labour resources to  their most productive and efficient use. Wage and remuneration pattern developments can therefore have an impact on employment levels, prices and competitiveness of an economy.

The general explanation often given as a cause of inadequate employment growth is that excessive labour costs discouraging businesses and Government from hiring more workers. It is argued that excessive labour costs arise when total workforce compensation is out of line with productivity.

These excessive labour costs can also arise as a result of structural rigidities in the legal and institutional environment which prevent compensation and productivity from matching each other.

On the other hand, wages play a fundamental role in the re distribution of income and the reduction of long term poverty and driving sustainable economic growth. The recent falls in real labour earnings introduce a host of problems for the economy in the form of:

Rising inequality

Social exclusion

Rising crime levels which are also translating into social and political tension unrest.

Thus the central role of a national wages policy in the economy makes them an important economic policy tool. The knowledge of past remuneration developments is therefore invaluable or successfully selecting, designing and implementing wage polices in the economy that ultimately target the objective of raising national income, achieving its equitable distribution and reducing poverty.

The knowledge of forces behind wage developments, wage trends, or wage differences, for example, is pivotal in assessing which policies to target towards particular worker groups.

Wage structure are also one channel through which major internal and external economic stimuli and shocks are transmitted between the economy and the population. This is especially important in an economy such as ours where at present, Government is one of the biggest employers in the economy.

While a lot of debate and study on remuneration has primarily focused around public-private sector wage differentials, it is the differences in institutions and wage setting processes within the public and private sectors that have given rise to these wage differentials.

For sustainable economic development, there is urgent need to craft policy that restores the middle class.


The writer is an economist. The views expressed in this article are his personal opinions and should in no way be interpreted to represent the views of any organisations that the writer is associated with.



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