Rising unemployment testament to the free market’s inability to self-correct

With the South African economy growing at a pedestrian pace, coupled with ongoing retrenchments, financially strapped State Owned Entities (SOEs), it came as no surprise when Statistics South Africa (StatsSA) announced that the country’s unemployment rate had risen to 29%, the highest since 2018. As if this was not alarming enough, the tone-deaf response by government failed to reassure South Africans that it does, in fact, have a proportional response to the crisis at hand. 

A glance into the racial breakdown of the unemployment figures reveals a rather shocking, yet unsurprising trend: the vast majority of the unemployed, by percentage, are black Africans. While this might be attributed in part to present day factors – including, but not limited to, skills shortages and poor education outcomes – there is irrefutable evidence pointing to a more inherent and structural legacy. While there have been notable failures by the current government, the race denominated unemployment can be traced back to pre-1994 anti-black policies where the majority were systemically disenfranchised with respect to key economic enablers such as land and quality education – requisite resources which are vital to economic prosperity. Now this is a well-documented fact, and for that reason, there is no need to further expand on it than is necessary. Examining what has gone wrong and finding lasting solutions is what matters the most. That being said, the historical context matters. After all, the wealth that is in the hands of the white minority is inter-generational, dating back to the colonial era. On the other hand, black Africans – twenty five years into democracy – still have to contend with starting from a zero base. It is partly for that reason that the racially denominated inequality gap has widened further post liberation. 

South Africa, like many countries around the world, is a free market economy – with a degree of State intervention (i.e minimum wage, working hours, preferential procurement, carbon taxes, etc). Although others might strongly argue, no economic system has delivered better development outcomes than the free market, neo-liberal system. Its mainstay is how it induces competitiveness, which in turn leads to ground-breaking product development and innovation. The system creates a financial incentive for creativity, and this stimulates the innate character of humans, who are, by nature, competitive beings. Some of the greatest inventions in engineering, science, and other fields have been possible because capitalism promotes competitiveness, while rewarding innovation and solution-driven inventions.  Think about it, if all Grade 12 students were guaranteed a matric certificate – with distinction, regardless of the work they put in – not a single one of them would be willing to put in the extra hours of study needed to get better grades. This is because reward is the ultimate catalyst for unlocking talent, and when removed, even the brightest of minds fall into a state of staleness. Point here is that creating a competitive and rewarding environment is a requisite to human ingenuity, and it is for that reason why capitalism has induced unlimited and previously unrealised potential upon the human race.

But then again, context matters. In a country with the highest levels of structural inequality, the responsibility to narrow the gap cannot be placed on the shoulders of the free market. This is because the system is not founded on social justice nor equality for all principle, but on wealth accumulation – and by extension, exploitation. It is the same reason why big corporates are more than happy to do business – for as long as it is profitable – in countries where there are reported (and proven) incidents of massacres, human rights violations, inhumane working conditions, child labour, anti-government and terrorist rebel groups, illicit trade, to mention but a few. Morally significant values such as social well-being, racial justice, gender equality are nowhere close to the apex priorities of big capital. Not unless there is a legal obligation to do so, accompanied by punitive measures for non-compliance. In South Africa, for example, mining companies do not make social development contributions out of their own will; they are legally bound to do so. Without a legal obligation placed on them, no single mining company (most likely) would have voluntarily offered to build houses and roads for communities where they operate. Lesson here is that private capital has little interest in community development imperatives; they are mainly fixated with the bottom line, no matter the cost. 

Time has come for the country’s policy makers to realise that big business does not have the willingness to self-correct for the greater public good – because, quite frankly, that is the subservient to their priorities. It is therefore incumbent on government to introduce policy measures (coupled with action, please) that (1) protect the national interest and (2) curtail the noxious power of big corporates. In doing so, encourage investments that have in them – at the very least, as a prerequisite – locally embedded value chains and skills empowerment programmes for local actors. The Government does not seem to fully comprehend the power it possesses to influence the form and location of private investments. This can be achieved in part by disproportionately investing in previously under serviced areas. To make a practical example, the relocation of the then Durban International Airport to the north – to what is now King Shaka International Airport – had a profound spatial effect in that it redirected the greater Durban development trajectory to the north. Today the region is one of the fastest growing in the country. Similarly, the Gautrain project led to multi-million rand investments in and around the Midrand, Rosebank, Sandton, and Hartfield nodes. The proposed expansion to Soweto, Cosmo City, Mamelodi, and Pretoria East will likely yield similar outcomes. To expand further, the upgrading of the Vilakazi precinct in Orlando West led to new investment in and around the precinct. A decision to invest billions in the lower Umkhomazi bulk water supply scheme will likely ignite economic growth in the south coast of KwaZulu Natal. While some of these investments have invariably attracted elitist developments and subsequent displacement of the working class, valuable lessons can be drawn on the ability of the State to influence the development agenda without interfering with the free market system.

Government must take bold steps, even if it means enduring short term pains in return for long term gains. It must direct infrastructure investments to poorer areas through fiscal allocations and cross-subsidisation (that is, taking from well-established areas and investing same in poorer areas). Local industries must be protected from malicious competition by increasing taxes on imports, even if it results in diplomatic fallouts. South Africa is making far too many concessions in the international trade arena, much to the detriment of the domestic market. To appease international trade partners at the expense of national interest is not only counter-intuitive, but unpatriotic. Foreign Direct Investment (FDI) may be key to the country’s economic prospects, but it must take place within a set of prescribed terms and in a manner that promotes redress and social justice. Ultimately, the economic model must be reconfigured to work for the majority of South Africans. A developmental state like South Africa can ill afford to have a free market system that is given free rein to operate with the same vein of callousness as has been the case up to now. Urgent structural reforms are needed, without which the status quo will remain.