Why Government-Led Job Creation Won’t Fix Unemployment
The private sector, not the government alone, is the solution to unemployment
The SONA (State of the Nation Address) emphasised government-led job creation and promised further progress. However, this may give the public a misleading impression of the government’s role. While the government can facilitate employment, most jobs are created by individuals through private sector activity.
The President of South Africa stated in his SONA that the presidential job stimulus programme had created over two million jobs. This programme was launched by the President in 2020, following his cabinet’s decision to shut down the economy and impose a lockdown on citizens, a move that many considered unjust.
This stimulus programme is just one of many employment initiatives implemented by the state. Using it as an example, and accepting its claims at face value, the problem becomes clearer. The programme created two million jobs, yet millions of South Africans remain unemployed.
Despite all its programmes and claims of success, the state still has over 30% of its working population unemployed. Those who appear to view the private sector as some kind of bogeyman propose to simply throw more tax revenue at the problem as a solution.
Some suggest increasing funding to enable the government to provide ‘social employment’ to more people. While the rationale for such employment is understandable, given the responsibilities the state has assumed, it cannot serve as the primary solution.
Rather than the government alone, the private sector is key to addressing unemployment. While the government should support this by creating an enabling environment, investing in infrastructure, and upholding the rule of law, sustainable job creation and prosperity in South Africa ultimately depend on a dynamic private sector.
This brings us to another fundamental reason why a government-led job creation strategy is doomed to fail: taxation. The government does not generate its own revenue; instead, it depends on the taxes paid by its citizens to fund initiatives such as the Presidential Job Stimulus Programme.
The implication of any government programme is that it is funded by taxpayers. Paying tax indicates that an individual is already generating income and creating capital, which is subsequently taxed. This suggests that the state, which requires taxation, is not essential for the creation and accumulation of capital.
Jobs can and are created without a government jobs programme. The largest employer in any healthy economy should be the private sector. If the state wishes to maintain a sufficiently funded public sector, it must ensure that the private sector performs at its best. A growing private sector leads to an expanding tax base and increased tax revenue for the state.
The president’s announcement of his jobs programme still reveals a lack of understanding of what is required to eradicate the scourge of unemployment. The state cannot employ everyone who is unemployed, as it is discovering with the so-called ‘success’ of this jobs programme amid persistently high global unemployment figures.
Rather than using tax revenue to employ citizens for various reasons, the primary focus of the state should be to ensure that its citizens can serve one another by freely exchanging their labour, goods, and services. A freer society, with more open markets – from labour to goods and services – is the most effective way to eliminate unemployment.
The Fraser Institute’s Economic Freedom of the World Index consistently demonstrates that countries with greater economic freedom – characterised by freer markets and stronger enforcement of property rights – enjoy higher living standards and an improved quality of life. South Africa currently ranks 83rd out of 165 countries.
The state should primarily focus on creating the environment necessary for South Africans to eliminate unemployment themselves. State employment programmes should be ancillary to this primary focus, if required at all.
The key factor identified in multiple studies of the South African labour market is its lack of dynamism. Given the country’s well-established labour legal framework, there is limited freedom for potential employers and employees to contract freely. Elements such as sectoral collective bargaining and the stringent hiring and firing regulations found in various laws, including the Labour Relations Act and the Basic Conditions of Employment Act, are constraining our labour market.
This lack of freedom to contract is inherently restrictive, given the general nature of legislation and the dynamic, ever-changing character of the market. Entrepreneurs in South Africa are bound by static labour law provisions, as is typical, yet are expected to operate in an environment – the market – that demands constant adaptability.
Every economy has laws designed to regulate businesses, so the idealised version of a free market – which many would accurately say does not exist – need not be a cause for concern. By using empirical indices such as the Economic Freedom of the World, we can still strive for less regulation and greater freedom to reap the associated benefits.
The state should primarily focus on ensuring that South African entrepreneurs have greater freedom to contract and trade in the market, with the assurance that these contracts will be enforced in the event of a dispute and that their property will be protected from harm.
There is no grand master plan or programme that will magically resolve the unemployment crisis in our country. The only long-term viable solution is liberty. As reductionist as this may seem, the freedom to trade and contract is fundamental to what drives economic growth.
Adopting policies such as the Job Seekers Exemption Certificate, which aims to address the structural issue of an inhibitive labour market caused by legislation, is just one of the many solutions presented in the Free Market Foundation’s Liberty First initiative.
When entrepreneurs have greater freedom to address society’s problems by serving the market, the result is the prosperity of that society. This prosperity ranges from citizens having the income and capital necessary for their livelihoods to the state itself generating the revenue required to operate effectively.
An open society – one that treats all individuals equally before the law, protects justly acquired private property, and enforces voluntarily agreed contracts – is more than just an ideological ideal.
It is, in fact, the most effective method human beings have discovered to create prosperity for themselves. Until we, as South Africans, embrace such a society as part of our national consciousness, it is highly likely that we will continue on this march towards serfdom as a nation.
Zakhele Mthembu, BA Law LLB (Wits), is a Policy Officer at the Free Market Foundation.
They will never learn, labour laws are the biggest problem this country faces. They are a human rights issue as my old friends at the Langeberg Unemployment Forum had correctly pointed out, it is interesting that the human rights commission would rather focus on the issues affecting elite segments of society like e.g hair policies at expensive former model c schools instead of an issue that affects probably every poor person in this country in some form.
We know what the reality of these make-work programs is like, they are used as a political mobilisation tool or to reward certain NGO's that the government likes. They are never really about giving unemployed people jobs. If you are poor, you are the last priority of the government, including the so-called pro-poor parties, which are actually just pro-poverty parties.