On the back of a high-profile media gabfest last week, everyone seemed to be talking about unemployment. Most were wrong.
The news in the last week was dominated by the News24 On The Record Summit, which took place under the slogan of creating five million jobs in 10 years.
Didn’t pay attention? Yeah, me neither. These chinwags about jobs happen all the time, and we always hear about promises to create 250,000 jobs a year, or three million job in five years, or some such number that is based on nothing but a thumbsuck.
President Cyril Ramaphosa delivered a keynote address, in which he reportedly said that the Sector Education and Training Authorities, of which there are 21, should be shuttered and replaced with a “fit for service” alternative. He gestured at Germany and Switzerland, which have a dual system that combined academic and practical skills, whatever that means.
Well, yes, they should be overhauled. They’re not working, and like most government programmes, are magnets for graft. But that’s hardly striking at the root causes of South Africa’s persistent structural unemployment.
Left-wing solutions
Left-wing economist Duma Gqubule and left-wing policy analyst Neil Coleman, took to the Daily Maverick to pre-empt News24’s talkshop. They made a very pertinent point: wanting to create five million jobs in a decade is far too unambitious, and will make hardly any difference to the unemployment rate, since it will not even absorb the annual new entrants to the job market, let alone start hacking away at the 12.2 million people that are either officially unemployed (i.e. actively looking for work) or are potential labour force participants.
Being left-wingers, though, they want the government to harvest the magic money tree to fund policies that would “increase the employment intensity of growth, massively diversify the economy, expand public employment programmes, and create a universal social protection floor”.
They think the government should do much more of what it has been doing for thirty years, to no effect.
I wrote a column five years ago to challenge the modern monetary theory (MMT) that latter-day left-wingers like Gqubule use to disguise their socialism. I wrote another column illustrating what happened to Sri Lanka when it implemented modern monetary theory (and organic farming). I’ve written similar pieces about Zimbabwe and other socialist paradises that thought printing money would make them rich.
What I called “magic money tree theory” then has not become any more coherent since. MMT essentially argues that because government prints money, it is free to print as much as it wants to stimulate the economy, fund public works, and pay for social income grants, since, should inflation rise, it can always pull money back out of the economy by taxing the rich.
Fundamentally wrong
This conception of how economies work is so fundamentally wrong as to be laughable. Economies are all about how to use scarce resources to produce the goods and services that people want or need.
Wealth is created by people who not only produce things, but produce what other people need. A hammer is just a waste of steel and wood, unless someone, somewhere, needs it. A loaf of bread has value only inasmuch someone, somewhere, wants to eat it.
These items do not have value because of the cost of the materials required to produce them. They do not have value because they cost time and effort to make. They have value only when they successfully match supply to demand, and that value – as expressed in price – lies in the subjective judgment of the people who need or want what is being produced.
Governments, by their very nature, are not producers. All they can do is to take resources from private individuals (tax), and use those resources to create goods or services other than what those individuals would have used them for.
Now there are some good reasons for governments to do this, in order to produce things that individuals cannot conveniently do for themselves, such as orchestrate common defence, protect property rights, or provide roads and sewerage. (In theory, even these “technical public goods” can be produced privately, but let’s try to hew close to reality, for now.)
Printing money
When governments print money, as a medium of exchange, it does not create value. When it increases the amount of currency at a rate higher than the natural increase in the amount of goods and services produced by the economy, all it can do is create price inflation.
Printing money devalues debt, which is great for the government, as well as for rich people with mortgages, loans and credit cards. It nominally increases the price of assets, which is great for rich people who have assets like stocks or property. It devalues savings, which is bad for prudent people who spend less than they earn, and catastrophic for retired people living on the nest egg they worked hard to save up. And it increases the price of products and services, which is especially bad for the poor.
In fact, printing money (which is roughly equivalent to “quantitative easing”, “easy money”, or “lower interest rates”) is the most insidious transfer of wealth from the poor and the prudent to the rich and the profligate.
Cautious and responsible
South Africa has been blessed with a succession of Reserve Bank governors (and sometimes Treasury Ministers) who have been cautious and responsible with South Africa’s monetary policy. If South Africa has any credibility in global markets, and any macro-economic stability, we have people like Trevor Manual, Tito Mboweni and Lesetja Kganyago to thank.
Yet G&C (Gqubule and Coleman) think they are “the usual suspects who have largely promoted the economic orthodoxies that have landed us in our current quagmire”.
They’re half-right, of course, except that their own proposed solutions simply double down on the exact socialist “orthodoxies that have landed us in our current quagmire”.
Expanded public employment is how Gqubule and Coleman want to gin up employment. In their world, we could just employ more people to wave flags at construction sites, and pay them with newly minted buffalos, and all would be well.
But paying people to do things that are not necessary is not a benefit to South Africa’s citizens; it is a cost. We might as well pay people to create potholes, so we can pay other people to fill them back up, and that would make the country better off, by G&C’s logic.
It doesn’t. It costs money, both to dig the potholes and to fill them, and at the end we have nothing more than what we started with.
Resource intensity and industrial policy
Businesses succeed by virtue of being more efficient at producing what people need than their rivals are. That means they act to reduce the resource-intensity of production.
“Growth” is just increased production, so when G&C seek to “increase the employment intensity of growth”, they actually want to make production less efficient. Increasing resource intensity destroys wealth.
They want to diversify the economy, through “aggressive industrial policy”. Yet every industry in which the government interferes with “aggressive industrial policy” (also known as “master plans”, becomes ossified and inefficient, and incapable both of creating value for South African consumers and of creating jobs for South African workers. Every single one of them.
And they want to implement a basic income grant, which I also addressed five years ago, in the wake of my magic money tree column. That, too, isn’t a solution to an insufficiently productive economy.
Real unemployment
G&C give short shrift to an argument made last year by Capitec’s CEO, Gerrit Fourie, that calls into question the validity of South Africa’s official unemployment statistics. In his view, it is unlikely that more than 10% of South Africans are actually out of work, assuming you define work as “making a living”, rather than the very formal definition that Stats SA uses.
He, in turn, cites GG Alcock, who grew up among, and like, rural Zulus, and wrote the books KasiNomics Revolution and KasiNomics Unleashed. Alcock’s own estimate of actual unemployment is 12%.
Fourie also quotes Mamapudi Nkgadima of Africa Response Survey, who wrote: “Among the respondents who classified themselves as unemployed and looking for work, 41% are earning up to R15 000 a month through income-generating activities such as baking, building and hairdressing. What this shows is that many of our young people are resilient and inventive about making ends meet.”
The informal, or “kasi”, economy is likely far larger than official estimates can detect. If 40-odd percent of South Africa’s labour force really earned nothing other than their R350 social relief of distress grant, we’d be seeing mass starvation. Yet we don’t. We see people hustling in an entirely cash-based underground economy that is unregulated, unrecorded and invisible even in most surveys.
Special Economic Zone
Even if this weren’t so, however, the true solution to unemployment isn’t to do more of the state-led intervention that has failed in the past, only with less regard for responsible monetary policy, as G&C would have us believe.
It is to do the exact opposite.
I could go into detail, but it’s not so much about the details as about the macro approach, so let me propose the following: turn the entire South Africa into a “Special Economic Zone”.
Slash tax rates, and substantially ease regulations. Remove licensing requirements entirely wherever possible, and reduce licence costs and obligations where not.
Refocus government on its core missions, and jettison all the programmes and initiatives that are just patronage dressed up as economic do-goodery. Replace inefficient state-owned monopolies with competitive private industries.
Small businesses don’t need a small business ministry and a small business agency and a small business development office. Neither do large businesses. Trade and industry do not need a trade and industry ministry to tell them what they can and can’t do, and to tax successful businesses in order to prop up unsuccessful businesses.
Let unsuccessful businesses fail, so the capital and labour tied up in those dead ends can be redeployed somewhere more productive. Use government resources to improve basic education, and let private business take care of the vocational training and education that they need for their workforce.
Choose private
Whenever there’s a choice between having the government do something, and leaving it to the private sector, leave it to the private sector. Intervene only as a last resort.
South Africans are, for the most part, hard-working and motivated. Make it easy for them to start and grow their businesses, without fear of running into regulatory or tax barriers.
Read reports on global competitiveness and on economic freedom, and use them as practical guides for what to do (and what not to do). Focus on the basics.
Gut employment laws; slash minimum wage laws; abolish black economic empowerment and onerous licence obligations.
Those are all luxuries that we can reconsider once business is thriving and GDP per capita is rising by five or 10 percent a year.
Business, or “the market”, or “the private sector” is not a monolithic entity, like the public sector or the government is. It consists of millions of individual actors, all of whom are continually striving to improve their own productivity and living conditions.
State-led growth
It takes a left-wing economist to come up with reasons why the government should not let people strive to improve their own lives, but should instead take the lead and do it for them.
All the data shows that the less constrained the private sector is, the more vigorously an economy can grow, and the higher growth is, the more jobs get created. A healthy economy depends in the first instance on a vibrant private sector, and secondarily on efficient institutions to limit crime, protect private property and enforce contracts.
State-led growth has rarely worked, and then only under circumstances that are very favourable to private sector competition. A state-centric economy fuelled by printing money, which is what G&C advocate, has never produced anything other than inflation and stagnation.
[Image: Unemployment.webp]
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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