JOHANNESBURG — South Africa has the most enduring high unemployment rate in the world and if the situation isn’t tackled seriously enough, the country could be saddle with protests and disorder like never seen before. This is an argument by Leon Louw. He first wrote this piece in October last year, but it takes on new meaning now with a changed political scene and with Ramaphosa waiting in the wings. Will Ramaphosa (when he finally assumes power) be in a position to start fixing this mess? – Gareth van Zyl
By Leon Louw*
SA’s unemployment rate is so catastrophic that a state of emergency should be declared. Things are worse than anyone realises. During the state of emergency every employment disincentive should be suspended. The unemployed should be free to be employed or self-employed on whatever terms they wish. A low wage is better than no wage, for the unemployed and for everyone.
Most unemployed people receive no welfare in SA. Their levels of privation are too ghastly to contemplate. I visit and work with such communities. I will gladly take armchair advocates of interventionism from their plush homes and offices to see the fate their polices condemn their victims to. They will step with children returning from school over open sewers, walk among piles of rotting garbage, squelch through mind-numbing squalor and meet entire families living in a single tin or cardboard room without toilets, taps or lights.
Apart from observing the economic cost of unemployment, they will appreciate its traumatising social, health and human cost, including depression, emasculation, disease, violence, infant mortality and suicide.
Anyone depraved enough to oppose the right to work by proposing such cost-raising measures as a national minimum wage should be castigated and ostracised. People who promote policies that raise the cost, risk and difficulty of employment and self-employment should be openly vilified.
Global unemployment averages 6%; SA averages nearly 40% (officially 36.4%) — that’s more than 9-million people with families. At that level, SA is rated among the world’s worst reprobates, which usually are war zones and countries with demented despots.
Unemployment in the worst province, Northern Cape, is at 44%. Most youths aged 20-24 are unemployed. Young women endure 55% unemployment. Most unemployed youths have never had a job. Without a state of emergency, they may never be employed.
Labour and related policies are so cataclysmic that perpetuating them is unconscionable. It is also criminally racial. Despite intensifying antiwhite policies, white unemployment is close to the world average, with coloureds and Asians close behind. Victims of the government’s anti-employment policies are overwhelmingly black.
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.
This article was first published in Business Day on 18 October 2017.
- Leon Louw is a well known South African personality who, for over a generation, has been active in diverse aspects of public life. He is credited with having had a significant impact on the course of events in South Africa, especially regarding the extensive economic reforms that took place during the last two decades of apartheid, and the inclusion of the property rights clause in the constitution. With his wife, Frances Kendall, he was nominated for the Nobel Peace Prize for proposals made in their book South Africa: The Solution. Leon is the Executive Director of the Free Market Foundation.