Bell, Trevor : Unemployment in South Africa

autonomous and largely independent of changes in relative factor
prices1 )
To see why slow growth and low real interest rates have been
associated, it is important to consider why real interest ratee have
become negative in the first place and turned dam sharply after
1973. Some take it that the real interest rate fell simply because
the rate of inflation rose rose sharply. However, it is arguable
that real interest rates fell, right round the world, due largely to
an autonomous fall in the profitability investment and hence in the
demand for investment funds; and this decline in profitability was
largely connected with rising primary product prices, relative to
manufactures in the late 1960s. and from 1973 on especially with
rising energy prices2). This would clearly have reduced the use
of energy, but also, by reducing the marginal productivity of other
inputs, the demand for capital and labour as well. Thus rather than
slow employment growth being caused by high inflation rates and low
real interest rates, these are likely to have been the consequence,
together with slow economic growth, of a number of exogenous shocks
such as the massive increases in energy prices. This explanation of
the fall in real interest rates suggests that even if the decline in
interest rates did contribute in some measure to the rising rate of
growth of K h there was little the authorities would have been able
to do to prevent them from falling.
iii) The upshot of our argument ia aections (i) and (ii) is that the
predominant cause of rising Black and non-Black unemployment rates
has been a decline in the rate of growth of the demand for labour and
that this has been due primarily to a fall in the rate of economic
1) In some measure, too, it is possible that regional policy, especially
direct controls on the use of Black labour in terns of Section 3 of
the Physical Planning Act may be responsible for the increasing rate
of growth of the K/L ratio.
2) See Wilcox (1983).