The race between education and technology

The Korean peninsula has become ever-more dangerous as the dictatorship on the northern side of the border ups the stakes with bigger nuclear tests.  At night, though, it is abundantly clear which side of that border you’d rather be on.  The South.

As the sun goes down, South Korea is lit up by the phosphorous glow of electric lights and the hurly-burly of a population at play.  South Korea is one of the most Internet-connected and technologically-savvy countries in the world.  Their cousins across the border are amongst the least.  North Koreans are physically smaller, have shorter life-expectancies and are almost entirely illiterate.  Forget making their first phone calls, many don’t even know that such things exist.

One day that border will come down and then the two nations will attempt to integrate. 

Germany will be celebrating 20 years of their reunification in October this year.  If their lessons are anything to go by, integration is slow and expensive.  The historical East is still poorer, less educated and with lower life-expectancy and employment levels than the historical West.  And this despite the heavy industrialisation of East Germany by the Soviets prior to 1989.

Clearly, North and South Korea are likely to have an even greater problem. 

South Africa’s reunification process began in 1994.  After a shaky start, economic growth began in earnest in 2002, seeing the economy almost triple in size by 2008.  After the credit crisis and reports that the economy shrank 6.4% for the year, economists and analysts are generating the usual tizz by arguing over whether or not we’re actually in a recession.

These are semantics.  The real question is whether, with the global economic wind in our sales, South Africa has anything to show for the boom.

The tax-base grew from 3.5 million in 2002 to 5 million in 2007, an increase in employment of 44%.  Over the same period, the economy went from $ 111 billion to $ 283 billion, an increase of 138%.

If efficiency was linear, an economy that doubled in size would also double the number of jobs.  South Africa achieved its growth while creating only a third of the number of jobs.

Rather than investing in more people, employers invested in faster and more productive ways of doing the same thing.  South Africa’s large untapped labour pool remains just that and is now concentrated around major urban centres.

Where Germany focused on economic integration, with training support and dedicated education programs for East Germans as well as tax incentives to invest in the East, South Africa focused on social integration.  Unlike despotic China, South Africa cannot impose influx control and keep unskilled migrants locked into rural areas.

Economic integration has still to happen.  Yet it is also going to get harder and more expensive.  The race is on between employers who are investing in new technologies in order to gain efficiency and scale, and the skills and educational support available to the unemployed.

Without investment in economic integration, and in assuring people’s value through high-quality education, social integration can only happen through legislation.

Economic patterns are signals.  If large numbers of people are unemployed it is because, for what they are capable of doing, they are too expensive to employ.  Robert Allen, Professor of Economic History at Oxford, declares that the UK was the centre of the industrial revolution for two reasons:  cheap coal and expensive labour.  South Africa is undergoing similar technology investment for the same reason; it is cheaper than hiring people.

The only way to solve this problem is by making the cost to companies of employment cheaper. If the costs of technology or of imports are raised instead it will simply drive investment elsewhere.

Government incentivises companies to export from- or invest into South Africa through tax policy.  It is time to create similar incentives for investment into our poorest areas.