Unemployment blight can be alleviated with the correct remedy
Stats SA recently announced South Africa’s unemployment rate has increased to 27.6%. The expanded rate increased to 38%, which translates to 9,994,000 unemployed people. It’s a wonder that SA’s unemployment rate isn’t above 45% at this point - SA’s jobless rate has not fallen below 20% since at least 2000. On top of that, GDP has not expanded by more than 2% per year since 2013. This was the first full quarter where the National Minimum Wage (NMW) has been applicable. With the huge public sector wage bill and the continued growth of government control and spending, we can expect the GDP to continue stagnating, and the unemployment numbers to continue rising.
There is much hope after the latest elections that President Ramaphosa will introduce sweeping, tough economic reforms which will boost economic growth. The optimists amongst us hope that he will streamline his cabinet and appoint new ministers to key departments. Such change will be only superficial - without questioning the role of government in general, it will not matter who is appointment to which position. For as long as those in government consider that government is best equipped to decide how people should live their lives, it will matter little who is actually in charge.
Pledges of rapid economic growth are self-defeating without moves to actually cut bureaucratic red tape. Freezing the NMW, as one example, would remove a large burden on the shoulders of employers. Laws should only exist insofar as they protect individual rights - the NMW both dictates to employers how they ought to act and distorts the price of labour, making it yet more difficult for employers and employees to contract with each other.
Whenever government acts, unintended consequences follow. We cannot focus exclusively on rhetoric which paints a wonderful picture based on the ‘good’ intentions behind regulations and laws - the consequences must also be used in the discussion around policies and regulations moving forward. Often when we encounter problems in our own lives we try our utmost to solve them, and in so doing, we end up causing more harm - the opposite of what we intended. This is now the situation facing the President and the government - they must step back and allow South Africans to live their own lives. They need not try to control us around every corner.
Any notable economic growth requires freedom as an essential ingredient. Poverty is the natural state of things - it is only through work, and trade, and investment, that people can improve their situation in life. Government can only provide assistance for so long - eventually its coffers, full of taxpayer money, will run dry. To have any hope of real, long-term economic growth, SA must become a place where starting and running a business is as easy as possible, where people can take agency of their lives and agree to enter contracts on their own terms, and where their property will be secure from arbitrary seizure by the state. To continue on the same state-controlled path is suicide.
Perhaps jettisoning labour laws such as the NMW is unpalatable for government because of the push-back they will receive from the vested interests of the unions. In that case, government can do something as simple as freeing up spectrum so that more companies can compete on the data market - this will result in a drop in price of data. We cannot think in terms of traditional office work anymore. People in rural parts of SA cannot travel to the cities because transport costs skyrocket, another result of government control and intervention, but with cheaper data people could work from anywhere and make a living. Were people to have access to cheaper data, they would also have access to more education resources, and the better people can educate themselves and not rely on the state the easier it’ll be for them to find and retain employment.
SA’s unemployment figures tell a grim story. The more difficult the government makes it for people to enter the job market, through barriers to employment, the quicker they’ll stop searching for work. At the same time, the more difficult and expensive government makes it for people to start and run businesses, the fewer people they’ll be able to employ, adding to the ranks of the unemployed. The basic principle is there for government to use to allow South Africans to grow the economy, for their own benefit: increase individual freedom.
Chris Hattingh is a Researcher at the Free Market Foundation
Chris Hattingh is Deputy Director at the Free Market Foundation. He sits on the Foundation's Executive Committee and Health Policy Unit. He is a member of the advisory council of the Initiative for African Trade and Prosperity, as well as a Senior Fellow at African Liberty.
Publish date: 15 May 2019
The views expressed in the article are the author’s and are not necessarily shared by the members of the Foundation.