Voices

Freer markets generate prosperity, especially for the poor

2019-08-08 19:27

Amid rising unemployment, the Congress of South African Trade Unions has called on the government to amend the Labour Relations Act to make it more difficult for employers to retrench workers.

Such a move will have a devastating consequence in that fewer jobs will be created.

What South Africa needs immediately is liberalisation of its labour law regime to make it easier for the already unemployed to find work.

South Africa has a most unattractive labour environment because of how difficult it is to comply with statutory and regulatory requirements, and because of the almost state-like powers of militant trade unions to enforce their will – often violently – without repercussions.

An acquaintance of mine who works closely with the Commission for Conciliation, Mediation and Arbitration in the world of human resources often relates how their clients – employers – have stopped hiring new people because it has become so burdensome to deal with the labour department and unreasonable trade union demands.

They’d rather make do with a small number of trusted and loyal employees despite the resultant inefficiency, or, if they are able, totally mechanise or computerise.

But the real tragedy of South Africa’s already-burdensome labour regime is not the deleterious effect it is having on would-be job creators.

The real problem is the consequences it has for the people who do not have jobs.

The more than 10 million jobless people in South Africa find themselves in an impossible situation: many of them are willing, indeed desperate, to find any work, whatever the pay.

They have mouths to feed and experience and skills to gain.

Without experience, however, they cannot find work because of the very high price of labour entrenched by government’s labour laws and policies.

In a free labour market, the unemployed would be able to find low-paying jobs that require little to no experience, and in so doing scale up their skills and find better work.

Indeed, the Economic Freedom of the World index is revealing in this regard.

It shows that in the world’s freest markets (the first quartile of economic freedom), the poorest 10% of the population make about eight times more money than the poorest 10% in the world’s most-regulated markets (the fourth quartile).

South Africa finds itself in the third quartile, with a declining economic freedom ranking.

The more we regulate – in general, but particularly in labour – invariably, the less money the poor have.

In our overregulated market, because employers must jump through multiple bureaucratic and political hoops (like managing delicate relationships with trade unions and regulators, and ensuring that they comply with a host of laws and regulations), and because of the new national minimum wage, employers insist that workers already have experience to make the hassle of employing someone worthwhile.

The unemployed, if unskilled, are condemned to perpetual destitution because government seeks only to keep the trade union lobby satisfied.

Amending the Act to make retrenchments more difficult than they already are, will cause would-be job creators to opt out of employing people.

It’s yet another death-knell not only for the unemployed but also for aspirant entrepreneurs keen on breaking into the market with fresh and innovative business ideas that would benefit consumers.

This course of action would also amount to a complete misidentification of the problem South Africa faces.

It is not because our labour laws are too lax that unemployment is spiralling out of control, but because they are too rigid and coercive.

The government must look very seriously at making the labour environment in South Africa more attractive for local and foreign investors.

Only liberalisation of the labour market can achieve this. Ill-considered measures like the national minimum wage must be immediately repealed, and well-meaning and thoroughly considered measures that work in the first world must be adapted to our de-developing context.

This might mean that employees should be allowed to voluntarily opt out of the so-called protections offered to them by existing labour law and enter into whatever arrangement they deem beneficial.

Liberalisation is a bitter pill to swallow for many, and one can often sympathise with their reasoning. Nobody wants the most vulnerable people in society to be exploited by powerful business interests.

The situation in South Africa, however, is dire. High net worth individuals, invariably job-creators, are leaving our shores in droves and taking their capital with them.

They have lost interest in South Africa because the government and its trade union allies have made it impossible for them to operate.

If the jobless could afford to leave South Africa, they would, for the same reason.

History has shown us how the poor flee from regulated economic environments like North Korea, East Germany, and Cuba to comparatively free economic environments like South Korea, West Germany, and the United States.

Unfortunately for South Africa’s poor, there is no free market mecca on the other side of our borders that would be able to absorb millions of economic migrants.

We are presented with hard choices that nobody wants to make, but which are unavoidable.

If we follow Cosatu’s lead, it might be emotionally satisfactory to some, but it will lead to long-term ruin.

Instead, South Africa must look at what has worked without exception abroad: Freer markets, with fewer government obstacles, generate prosperity, especially for the poor.

Martin van Staden is head: legal policy and research at the Free Market Foundation, and is pursuing a master of laws degree at the University of Pretoria. He is author of The Constitution and the Rule of Law (2019)

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August 18 2019