SA Running Short Of Job-Creating Tools - Rational Standard

13 November 2020 - You cannot store your cake and eat it, too. Some version of that phrase has existed in the English language for the last 500 years – and across language groups worldwide for centuries – to express the fact that there are mutually incompatible choices. South Africa faces just such a choice in 2020. It can choose to allow expropriation without compensation (EWC), or it can grow jobs. Not both.

Gabriel Crouse

You cannot store your cake and eat it, too. Some version of that phrase has existed in the English language for the last 500 years – and across language groups worldwide for centuries – to express the fact that there are mutually incompatible choices. South Africa faces just such a choice in 2020. It can choose to allow expropriation without compensation (EWC), or it can grow jobs. Not both.

The jobs challenge in South Africa is terrific. According to Stats SA’s latest data for the 3rd quarter, only 51.5% of South Africans between 35 and 64 are employed, and only 57% between 15 and 34 are employed or in education or training. Only 2 in every 5 South Africans between 25 and 34 are employed.

Every worker needs tools. Journalists need tools to write, construction workers need concrete mixers to build, miners need shafts and dynamite to extract minerals. We all need a safe space to work. If there are not enough tools (called “capital” by economists) there will not be enough jobs. Since South Africa is so badly short of jobs, it is worth asking if we are running short of tools, too?

In short, the answer is yes. But it was not always so. Gross fixed capital formation, the building of new tools, increased from $17.5 billion in 2002 to almost $80 billion in 2008, the national peak in South Africa. (Dollar terms are used to account against the Rand’s weakening and inflation). Since then the rate of building new tools declined by 20%, including a drop after President Cyril Ramaphosa came to office (when EWC was announced, but before the pandemic).

Not only have we been failing to build new tools (capital), by 2020, but the total amount has reduced drastically. According to the consultancy, New World Wealth, the total wealth in South Africa dropped by $84 billion (R1.3 trillion) from 2019 to 2020.

So, we have been losing the tools workers need to add value and losing workers too. This has already put the country in a negative spiral. This did not begin with lockdown.

Over 1.3 million people worked in manufacturing in 2008, down to 1.2 million by 2019. After the announcement of EWC, construction jobs fell significantly. In the wake of the state seizing “custodianship” over mineral rights, mining jobs came down by 70 000.

Every time a tool-builder loses a job, all the other workers who might have worked with those tools downstream are exposed to hazard. But none of the government’s past failures will be as devastating as allowing EWC. Just as a worker needs tools, an owner needs property rights to stay in business.

Private business is the biggest employer in South Africa, accounting for 72.9% of the working population in 2019. It is also the biggest source of potential jobs growth. When private business is protected, owners make profits, which they reinvest (including gross fixed capital formation), which then allows hopefuls to become workers with the newly available tools (capital).

From 2002 to 2008, South Africa’s GDP per capita went from $2 500 to $5 700, and unemployment came down from 33% to 22.4%. Since then the freedom to make profits was slowly undermined, and the ability to find work was harshly crimped too.

The Heritage Foundation, a think tank, rates property rights systems worldwide on how much they protect people who own tools from predation. 0 is a free for all, 100 means total protection for owners. South Africa’s property rights are rated at 58.4, while Mauritius and Rwanda are rated 75.8 and 76.5, respectively.

The Heritage Foundation’s global data shows a very tight correlation between GDP per capita growth, which translates into jobs, and strong property rights. With South Africa’s protection of owners already ranked so low, we will indubitably enter an “economically repressed” scenario if we allow EWC.

This means not only a failure to build new tools to make new jobs in the private sector, but actual job losses from our already devastatingly high unemployment rate.

In 2018, economists Dr Roelof Botha and Dr Ilse Botha looked at the expected impact of a decline in gross fixed capital formation in two scenarios; one where it declines by 5%, and another where it declines by 10%. In their models, the former precipitated a R270 billion decline in GDP, “induced by EWC”, and in the latter a R450 billion decline.

This translates directly into lost jobs.

If the world were all we wished it to be, EWC and new jobs could fit hand in glove. But in the harsh reality we face, the former will rob the latter hand over fist. This is not something that any of us can afford.

It may be unfashionable to voice resistance to EWC, but take heart. The Institute of Race Relations’ field surveys show that it is a priority to barely 2% of respondents, while “land reform” does not fall in the top twelve priorities of people, according to the ANC’s own polls.

Common-sense South Africans know we need tools to build jobs, and we know that a tool only works if it is yours to keep. Let us keep what we earn and halt EWC.

Gabriel Crouse is a writer and analyst at the Institute of Race Relations

https://rationalstandard.com/sa-running-short-of-job-creating-tools/

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