South Africa’s unemployment has reached crisis proportions. Labour laws that were intended to make life better for the poorest South Africans are making their lives worse. Instead of having secure jobs, with decent wages, 7.5 million people have no jobs at all.
Given SA’s history, it was to be expected that post-1994 labour laws would give greater rights to workers and less rights to employers. The intention was to ensure that apartheid-style exploitation of black workers would never happen again. But this approach does not take into account the realities of economics and of doing business.
The reasons for (and solutions to) our unemployment crisis are encapsulated in indices such as the Economic Freedom of the World (EFW)* and Global Competitiveness (GC) reports.
SA’s ratings (out of 10) on labour and business in EFW are:
Hiring regulations and minimum wage (4.43)
Hiring and firing regulations (2.46)
Centralised collective bargaining (3.39)
Bureaucracy costs (2.88)
SA’s rankings in the 2012 GC report show the following results (out of 144 countries measured):
Co-operation in labour employer relations (144)
Flexibility of wage determinations (140)
Hiring and firing practices (143)
Pay and productivity (134)
Business costs of crime and violence (134)
Burden of government regulation (123)
Labour laws have gone too far and aspects need to be reconsidered. Urgently! The laws and regulations that have become a barrier to employment must be removed. Equality before the law, as required by the Constitution, has to be applied in the labour field. The law must give the unemployed as much of a right to get a job as the employed have to keep their jobs.
We are told that a two tier labour market is unhealthy, but we have the worst possible two tier market. Our first tier consists of people who have jobs and earn wages. Our second tier consists of people who have no jobs and earn no wages. Surely it is possible to give unemployed people access to jobs without endangering the job security of people who have jobs? I am convinced that the jobless would be happy to accept less job security, lower wages, and safe but not wonderful working conditions, rather than be permanently unemployed. Their human rights demand that they have the right to make their own choices on a matter that is so critical to their survival and the well-being of their families.
There appears to be less initiative and less risk-taking by small firms than there was prior to 1994. How can this be when we are now free of the burden of apartheid? In other countries, especially in the EU, small firms employ the majority of the people. This should be the same in SA.
One of the problems for small firms is centralised bargaining and the ability of bargaining councils to impose their decisions on all firms in an industry. The system has had negative consequences for small firms and their employees. For instance, despite the protests of factory workers who wanted their employers to be left alone, small Newcastle clothing factories had to close down because they could not afford to pay the minimum wage set by the bargaining council. The result was that thousands lost their jobs. Instead of getting less than the minimum wage, they now get no wage at all. The minimum wage, which is in theory intended to protect workers from exploitation by employers, actually exploits the unemployed. It prevents them from getting jobs that pay them “something”, which is a whole lot better than “nothing”.
Stimulating small firms does not require subsidies. What is absolutely essential is to set them free to supply goods and services to their customers, and to reduce their legislative and tax burdens.
Small firms have the potential, not only to increase economic growth, but to provide the jobs SA so badly needs. What is more, small firms are the ones that train the young and teach them skills, employ the otherwise unemployable, and bind together the entire economy. Instead of giving them subsidies, government should exempt them from the most onerous laws.
Another problem compromising the future of SA’s youth is a lack of proper basic education. Tragically, a large percentage of our young people, instead of facing an optimistic future full of promise, face a bleak future of unemployment and poverty. Lack of money for education is not the problem. Taxpayers are providing R207 billion (20% of the total budget) for spending on education in 2012/13. A Stellenbosch University researcher recently reported that South Africa has a dual schooling system, “a dysfunctional system which operates at the bottom end of African countries, and a functional system which operates at the bottom end of developed countries.” So schooling is another crisis, and management of schools and quality of teaching appear to be the source of the problem.
SA’s economic policies need to change if we want to see the economy grow, reduce unemployment, reduce poverty, reduce crime and violence, and improve the quality of life of all the country’s people. Some people are proposing that there should be more government spending, the hiring of more government officials, and a bigger role for government in the economy. These proposals would all come at the cost of the private sector of the economy and lower economic growth. The accent should rather be on a freer economy and more reliance on the private sector. All the evidence shows that free economies do better, in all respects, than centrally controlled economies. When we were fighting to end apartheid, I thought it was freedom we wanted. Not freedom from want, but freedom to do our peaceful business without constant interference that borders on oppression.
SA can eliminate mass unemployment and improve the lives of all our people by:
Removing the fear of taking on staff.
Removing minimum wages that make people unemployable.
Adopting pro-growth policies.
Applying the rule of law.
I truly hope and pray, for the future of our country and our children, that all our leaders – political, business, civil society – realise and arrest this danger before it is too late. We have no reason or justification whatsoever to say to the unemployed that we saw what was happening and did nothing.
*EFW 2012 ranks SA 85 out of 144 countries measured on its level of economic freedom, down from 41 in 2000. SA has dropped 44 places in a decade. Freer economies outperform less free economies and do better on all measures, including the incomes of their poorest citizens. In highest-ranked countries, the average income of the poorest 10 per cent is $11,382, compared to $1,209 for economically unfree countries. The poorest 10 per cent in the freest countries are twice as rich as the average population of the least free countries.
This article is extracted from Herman Mashaba’s presentation to SACCI’s Annual Convention, 5 October 2012.