Since no one seems to have quantified the cost of SA’s unemployment, I asked experts how much poorer it makes SA. Unemployed people produce little or no wealth and consume public or private welfare. How much richer would jobs for the jobless make us?
Their answers are so startling that it is criminal to allow such unemployment to continue. The deluge of new anti-employment, anti-investment measures is doubly criminal, since wealth foregone cannot be recovered and the degree of loss compounds exponentially over time. Compounded at 7%, it doubles every decade. The effect of compounding is astounding. An extra 15% employment (with growth that doubles GDP in 30 years) would multiply the 15% 42-fold and the GDP sixfold. Without employment, each generation foregoes six times SA’s current GDP. The most rigorous analysis suggests that the GDP is between 8.7% (R356bn) and 25% (R1-trillion) smaller due to unemployment, depending on what the unemployed might earn. The lowest estimate, R112bn, could build 1-million RDP houses, nearly enough to replace all 1.4-million shacks in a single year. In a few years, infrastructure backlogs could be eliminated, student fees abolished, the police force doubled, or first-world clinics built in all communities.
Most estimates were between R200bn and R600bn. The highest was R2-trillion (50% of GDP). It is hard to imagine how much better off SA would be socially and economically with an extra R2-trillion. Annually. Compounded.
Instead of being overtaken by backward countries, SA could overtake superior countries. Virtually everyone could have modest homes with piped water, flush toilets, electricity, appliances and decent clothes.
Frightening though these estimates might be, reality is worse. Okun’s Law, based on Arthur Okun’s 1962 research, suggests that for every 1% unemployment, there is 2% less wealth. In 2005, the celebrated economist appointed by presidents George Bush and Barack Obama to chair the US Federal Reserve, Ben Bernanke, confirmed the "law" in research with Andrew Abel. They found 2% less output for every 1% unemployment. They and others give compelling explanations for this counterintuitive result.
Okun’s Law suggests that SA would be 80% wealthier with full employment. SA has the world’s worst enduring unemployment. Some countries fall beneath us, but none stay there. One day daily service delivery protests along with hysterical demands for "radical" transformation, dispossession and redistribution could seem like quaint interludes en route to nonracial peace and prosperity.
The unquantifiable humanitarian cost of unemployment exceeds the quantifiable economic cost. SA has nearly as many unemployed as employed people.
Noneconomic effects of high unemployment include, according to Kent Olson and others in their book, Economics and Contemporary Issues, deteriorating mental and physical health, destruction of family life, rising alcoholism, drug abuse, soaring crime and suicide rates, erosion of skills, counterproductive protectionism and beneficiation, xenophobia and a "negative multiplier effect".
For purely selfish reasons, the government should suspend anti-employment policies. By doing so, it could double tax revenue and return wealth-consuming welfare to wealth-producing investment. It could reverse political instability and its own decline. It could learn from and avoid the fate of Nazi Germany and other countries devastated by high unemployment. It could even perpetuate such failed follies as South African Airways.
President Jacob Zuma wants "jobs, jobs and more jobs". He is tired of doomed policies suggested by pseudo-intellectuals. What a state of emergency could do is empower him to emulate the world’s winners. The proven formula derived from the world’s experience is conveniently explained and summarised in the current Economic Freedom of the World report. All SA has to do is raise its score for each of the about 40 policies listed on the South African page. The government can prove that it cares about its destitute millions by getting SA as near as possible to a perfect 10, especially on labour and investment policies. It can use a state of emergency to turn the economy into the world’s freest and our unemployed compatriots into the world’s most glorious example of poverty alleviation.
• Louw is executive director of the Free Market Foundation. Copies of the Economic Freedom of the World, Jobs for the Jobless, and Jobs, Jobs, Jobs documents can be ordered or freely downloaded from Free Market Foundation.
This article was first published in Business Day on 18 October 2017