Advice for the ANC and their replacement in Government

A broadcast item on the SABC led to an understanding of why South Africa is in the crisis it now is. The item concerned the fact that 35 000 domestic workers lost their jobs in the first quarter of 2017, coincidentally the period in which the Government announced that a National Minimum Wage of R20 per hour will be applied. The reason is simple. The people running the country do not have even a basic understanding of the rules of economics. To clarify: these rules are universal, applying everywhere, regardless of nationality, race or ideology. Although they were identified, codified and clarified by ‘dead White men’, they were never imposed by those White men, or by the ‘colonial regimes’ that are so hated by the unthinking Black African regimes. They are imposed by Nature, and disregard of them is punished by Nature.

In order to avoid the necessity of sending a bunch of ‘leaders’ to university to gain the wisdom and understanding they need to run the country (so probably depriving them of the fat pickings of a government position), here are some basic rules to observe when formulating policies. 

1. Any job is better than no job. There are exceptions of course, but these are taken care of by acceptable legislation on worker health and safety. The simple fact is that a starving man or woman would much rather work for a small wage than have no wage at all. The cut-off point is reached where the wage offered is so low that the worker sees no economic benefit in undertaking that employment, when he or she will either simply stay at home or take steps to upgrade his or her utility to the employer by doing more work for the same wage or by up-skilling to undertake more valuable work.
2. A work contract is a voluntary arrangement between the worker and the employer. If the worker is not satisfied with the wage he or she is paid, and the employer is unwilling or unable to pay more, the worker is free to terminate the arrangement and seek work elsewhere.
3. The inability of the employer to terminate the voluntary arrangement without extensive and expensive repercussions is a strong incentive to the employer to find a way to have the work done without the need for labour, or, in most cases, with a need for less labour, which is generally more highly qualified. (If you doubt that this rule is valid, look at the mine labour statistics.)
4. The inability of the worker to find better-paying work elsewhere is a direct result of two major factors:
1. There are too many workers for the available jobs, which means that employers have the ability to employ another worker at a cost that he is willing or able to pay. This, in turn, is a direct result of the implications of rule 3. Economic activity is the main determinant of the number of jobs available: too little economic activity results in too few jobs, high competition for the few jobs available and consequently low wages being offered.
2. There are too many workers offering the same or a higher level of qualification than the particular employee. This tends to be the result of a high birthrate, coupled with improved medical care resulting in a population growth higher than the rate of economic growth,
5. In turn, the high cost of labour resulting from interference with the market mechanisms, by governments or by Trade Unions, is a disincentive to a potential employer who would otherwise establish the industry or business that would generate the jobs to employ the present or potential unemployed. To put it simply, an investor does a calculation based on the expected size of the market, which generates the income necessary to cover the costs, and the expected costs, which consist of raw materials and components, labour (quantity (at the required level of qualification) and cost per labour unit, other costs (such as fees, levies, compulsory costs) and other cost inputs (such as electricity, transport) compulsory transfer of profit share (such as BEE share participation, income and other taxes), and then compares the net return to him or her with the expected risks of undertaking that activity. If the calculation produces a less-than-acceptable result, the investor finds an alternative use for the available capital, or simply accepts no return rather than running the risk of a loss. There is no element of racism, political favour or humanitarianism in this calculation. It is the responsibility of the person making the investment (to himself or to the people he represents) to earn an adequate profit on the money invested. Where a profit is not expected, as is the case in the agreement between an individual and a domestic worker, the calculation is even easier. The question is asked: how much can I (or am I willing to) afford paying for the services of a domestic worker? If the wage (including all ancillary costs, such as food, accommodation, transport, UIF contribution, pension contributions, costs of termination (including possible litigation or conciliation)) is too high, the employment arrangement will not be entered into, or, if it already exists, will be terminated. The result will be that the potential takers for such employment will be left with fewer offers of employment, and will either remain employed, accept employment at a lower than desired wage, or find a means to upscale the employment offering by improving skills or reducing hours worked. This calculation is done at many times, but, most often, when the income of the employer is reduced or under threat of reduction, as it now is, with the result that 35 000 domestic workers have lost their jobs in the first quarter of 2017.

The final rule is that no-one has any reason to question the results of government and union activism: any action that increases costs of employment will result in either a shift from less productive forms of employment, either to more productive forms (generally with a reduced number of employed) or a lower level of economic activity. There are no exceptions. The rules apply at all times, although their workings may be disguised (and usually are by employers who do not wish to attract the ire of government, the unions or the public by making an unambiguous announcement) or delayed (it often takes a long time for the realisation that a particular element of activity is no longer profitable, to translate into a replacement or termination of that activity). However, the come-uppences will take place. What will not happen, as history so painfully shows, is that the workers will understand why they have lost their jobs, that governments will accept their part in the blame, or that unions will moderate their demands.

Any government that wishes to increase employment, and so economic activity, and so wage levels, and so tax revenue, must understand rules 1 through 5. It is no great mental challenge to understand that these rules are immutable, and that no amount of legislation or strikes can revoke these rules. The hardest part of Government’s task is to apply them.