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The Perishable Pundit Visits South Africa
Dispatch VII: Roadblocks To
South Africa’s Future

Jim Prevor’s Perishable Pundit, September 6, 2006

As I spend more time in South Africa, I confess to starting to feel that the South African government and the broader culture, heavily influenced by European ideas about social welfare, are going to prevent this country from realizing its potential.

Although South Africa is partially an advanced western country that produces world-class products and world-class lifestyles for certain residents and tourists, it also is a country filled with poverty. Shanty towns spring up everywhere as desperate people from rural areas — where there are no jobs — flee to urban areas — where there are few jobs.

Yet, policy and thought-leadership in the government are focused not on economic growth or making jobs available, but on redistributing the pie from white to black and Fabian ideals, long since discredited, for maintaining expensive regulations on employment.

I was horrified at the allFresh conference to hear a top person with the ear of the government propose a quota and require that 30% of the market agents (basically the equivalent of our terminal markets) be black.

The problem with redistribution as a route to prosperity is obvious: Whites account for about 10% of the population. If you took everything they have and redistributed equally to the rest of the population, they would all have very little. Then add in the obvious: The white population contributes to the economy substantially, and that value would disappear if the whites did redistribute everything. Quite obviously, redistribution won’t achieve anything from the economic point of view.

In fact, just talking about these kinds of proposals is harmful. It means the writing is on the wall, and bright young white people who could contribute a lot to the country will look to leave. This is called ‘brain drain’, and it has destroyed much of Africa.

All these smart people worrying about redistribution need to be turned around and focused on growth. There is a limited white population, and it is virtually fully employed. If there is economic growth, the disadvantaged will benefit. If not, it is like rearranging the chairs on the deck of the Titanic; it may occupy you for awhile, but it doesn’t change the end of the story.

UNINTENDED CONSEQUENCES

But it goes beyond issues of redistribution. In China, if you are at one of those hotels where the rooms are in little bungalows spread out across the property and it starts to rain, all the sudden 20 people appear with umbrellas to escort you to your room so you won’t get wet.

In South Africa, I was in just such a hotel — a beautiful hotel, but they had no extra staff hanging around to escort the guests to their bungalows when it rains. Why? Because although unemployment is a very big problem, the minimum wage is set high for local conditions. It is also difficult to terminate people. All this corresponds to a desire on the part of businesses not to take on workers.

In agriculture, it was traditional that many growers provided housing for workers. Laws have been passed that impute tenancy rights to people who lived on a farm for 10 years. So even if they were terminated, they have the right to stay. Surprise, surprise… many growers have stopped offering housing.

The most important thing is that South Africa gets its people into the labor force. People have to get used to going to work. They have to get used to showing up even when they don’t want to. They have to get exposed to greater opportunities. They have to understand that working is part of their lives.

This is the first step in establishing a culture of hard work that will lead to the productivity necessary to compete with India, China and other countries.

There should be no minimum wage in a country like South Africa. Employment must be “at will” so that any employer knows he can hire, and if it doesn’t work out he can fire at any time with no consequences.

This will dramatically increase employment, make the country more competitive internationally and set the stage for the cultural changes necessary to compete in this century.

PROTECTIONISM

The culture at the worker level isn’t the entire problem. The papers today are filled with the news that the South African government has proposed to put quotas on the import of clothes and bedding from China, since the local industry can’t compete.

Most of the arguments in the papers focus on the fact that even if Chinese clothing were banned, the business still won’t come to South Africa, because other nations, such a Bangladesh, Vietnam and the nations of eastern Europe, are all more competitive than South Africa.

This is probably true but the issue raises two more interesting questions:

  1. Why is it that in a country with such unemployment, South Africa is not competitive, and what can be done to make South Africa more competitive?
  2. What kind of government thinks it is helping poor people by raising the price they have to pay for clothing?

Racial redistribution, social welfare schemes, protectionism — all these things cost advanced economies plenty — but these are rich countries that can afford to pay the price. South Africa doesn’t have that luxury.

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