Defend Truth


The hidden overemployment crisis

Ivo Vegter is a columnist and the author of Extreme Environment, a book on environmental exaggeration and how it harms emerging economies. He writes on this and many other matters, from the perspective of individual liberty and free markets.

The incessant flag-waving along our highways is a symptom of a dark South African truth, and an official policy of our government. The unemployment rate, which is much higher than we had thought, is made worse by the fact that many of those who are employed do nothing useful at all.

When Coca-Cola called on the Somali-born artist K’Naan to use his song, Wavin’ Flag, as its official advertising soundtrack for the FIFA World Cup 2010, it had a problem.

Billboard Magazine records that “Coca-Cola loved the song but noted that lyrical references to ‘a violent prone, poor people zone’ and people ‘struggling, fighting to eat’ didn’t fit the campaign’s themes.”

The solution? Pay K’Naan a million dollars and ask him to change the lyrics. According to the singer, the deal did not compromise his integrity. Right.

Such crass dishonesty seems trivial in the context of the utterly shallow world of pop entertainment. However, the image of waving flags invokes another, far darker bit of dishonesty, glaringly visible along South Africa’s long highways.

All over, one encounters contractors employed at government expense. Whether it involves major roadworks or minor grass-cutting along the verges, the workers are always preceded by a vanguard of flag-wavers.

Of course, the cheap and efficient way to warn motorists of temporary hazards along the road is to erect a warning sign. Perhaps, if the situation warrants the added visibility, a flashing orange light might be employed to arrest the attention of the dozy long-distance traveller.

Not in South Africa. Here, we employ entire battalions of people for the menial task of listlessly waving a tattered red flag at oncoming traffic. The reason? Alleviating unemployment.

The Census 2011 discovered that South Africa’s true unemployment level is far higher than the quarterly labour force surveys suggest.

By the narrow definition, unemployment is 31.8% higher than anyone thought. The rate according to the census is 29.8%, compared to 23.9% in the quarterly surveys. The difference involves more than 1.3 million people. The expanded definition takes into account people who didn’t bother to look for work. Here, too, the quarterly surveys appear not to count 1.3 million people, which results in a rate of 35.4%, compared to the alarming 40.0% rate that the census discovered.

So, the usual shorthand of 24% for narrow unemployment and 35% for expanded unemployment, needs to be raised to 30% and 40% respectively. After all, the census, for all its faults, uses a broader sample than the quarterly surveys.

As if this news isn’t bad enough, however, one also needs to count the people who consider themselves employed, in the sense that they receive a pay cheque, but who in reality lounge about doing something utterly useless that adds nothing to the country’s aggregate economic wealth.

Flagmen and flagwomen are the red-banner-wielding vanguard of this phantom labour force. On top of the 40% of South Africans who are unemployed and not even looking for work, add an uncounted number who are “employed” at jobs that are unnecessary, or could more efficiently be done at lesser expense.

You might think that this is an innocent bit of well-intended job creation, and for those employed at waving flags, no doubt it is. But good intentions pave… sorry, the puns are irresistible.

Here’s the problem with unproductive labour. One often hears the notion of “digging holes only to fill them back up again”. It is usually a sarcastic reductio ad absurdum argument against unproductive public works. Why is it, then, that this notion is official government policy?

The concept has a serious foundation in the bible of bad economics, The General Theory of Employment, Interest and Money, by John Maynard Keynes. He wrote: “If the Treasury were to fill old bottles with banknotes, bury them at suitable depths in disused coalmines which are then filled up to the surface with town rubbish, and leave it to private enterprise on well-tried principles of laissez-faire to dig the notes up again (the right to do so being obtained, of course, by tendering for leases of the note-bearing territory), there need be no more unemployment and, with the help of the repercussions, the real income of the community, and its capital wealth also, would probably become a good deal greater than it actually is. It would, indeed, be more sensible to build houses and the like; but if there are political and practical difficulties in the way of this, the above would be better than nothing.”

To be fair to Keynes, he is often misunderstood and sometimes unfairly maligned. In this case, he was trying to use his own reductio ad absurdum argument to make gold mining sound like a wasteful effort that contributes nothing to the productive economy. In the context of a discussion about the gold standard, his observation is entirely valid.

As with any currency, merely increasing the amount of currency in circulation does not contribute to the wealth of society. It merely inflates prices denominated in that currency, and redistributes wealth from those who own currency-denominated assets to those who obtain the newly issued (or mined) currency. This is as true for “quantitative easing” – the monetary policy that is often associated with Keynesian economics – as it is for gold.

The original meaning of Keynes’s metaphor has been stripped of its context in popular usage by time, and the fact that very few people have actually read him. However, as an example of wasteful effort that creates employment only for its own sake, the metaphor stuck. 

How ironic, then, that this is exactly how the South African government, in its Expanded Public Works Programme (EPWP), proposes to reduce unemployment, by a million souls or more.

To quote the government’s official guidelines: “In the infrastructure sector the emphasis is on creating additional work opportunities through the introduction of labour-intensive construction methods [which] involve the use of an appropriate mix of labour and machines, with a preference for labour where technically and economically feasible, without compromising the quality of the product.”

Paying flag-wavers a minimum hourly wage to wave red flags admittedly does not compromise the quality of the product. Some of the red banners I recently saw en route were waved with true revolutionary vigour, and a few enthusiastic vanguardiers even caused me to slam on anchors with some alacrity, startling passengers and tail-gaters alike. However, and though I have little first-hand knowledge of the arcana of road building, I cannot imagine them to be more “economically feasible” than erecting a stationary flag animated solely by the wind, a reflective warning sign of some arresting design, or even an urgently flashing warning light.

Now, you might object that it is cruel of me to begrudge the vigorous vanguard their vexillological vocation. After all, sans red flags, they’d once again be counted among the jobless.

But in my defence, allow me to invoke a maxim of Frédéric Bastiat, a vaunted French economist and contemporary of Karl Marx: “In the economic sphere an act, a habit, an institution, a law produces not only one effect, but a series of effects. Of these effects, the first alone is immediate; it appears simultaneously with its cause; it is seen. The other effects emerge only subsequently; they are not seen; we are fortunate if we forsee them.”

He continues: “There is only one difference between a bad economist and a good one: the bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be forseen.” Given that the seen effects of employing standard-bearers in the vanguard of the road working class are wages paid to the flag-wavers and higher official employment statistics, what are the unseen effects?

The extent to which their wage is more expensive than an alternative warning device is an entirely unnecessary cost. It has to be drawn from the profits of productive activity elsewhere in the economy. In the case of private industry, this is money not available for other potentially productive business, or to satisfy alternative needs, so it reduces the general prosperity. In the case of workers on public projects, this transfer of wealth is conducted by means of tax, which indirectly (and, like theft, coercively) reduces the general prosperity too. Either way, it enriches a few at the expense of the many.

This would be problematic even if only the rich paid tax, since it destroys wealth that otherwise might have increased, and could not have decreased, the size of the economy. However, the poor also pay a myriad of taxes, both directly in cases such as value-added sales tax or the fuel levy, and indirectly, such as the rates and taxes that serve to raise their monthly rent or reduce their weekly wages.

So, in robbing Peter to pay Paul, it is important to understand that this theft isn’t just a supposedly noble Robin Hood operation. The poor Peter pays Paul too.

Bastiat himself makes the argument about automation and employment in reverse: “The immediate effect of an ingenious machine is to make a certain quantity of manual labour superfluous for the attainment of a given result. But its action does not stop there. Precisely because this result is obtained with less effort, its product is made available to the public at a lower price; and the total savings thus realised by all purchasers enables them to satisfy other wants, that is, to encourage manual labour in general to exactly the same extent that it was saved in the particular branch of industry that was recently mechanised. The result is that the level of employment does not fall, even though the quantity of consumers’ goods has increased.”

If it was really that easy to create employment, a government programme could simply issue everyone with flags, and instruct us to wave them in return for a nominal hourly reward set at some arbitrary level declared to be a decent living wage.

The father of modern economy, Adam Smith, in 1776 wrote: “What is prudence in the conduct of every private family can scarce be folly in that of a great kingdom.”

If waving flags as a national employment is folly in a great kingdom, on what grounds would it be prudent for only a million or so people? And why stop at a million? Why not just write a law to require companies to employ at minimum wage all of the 8,799,621 people whom the census found to be unemployed?

“The EPWP will continue to exist until these medium-to-long term programmes are successful in reducing unemployment,” the guidelines say. Well, fine. We’ve established that it is capable of creating unnecessary jobs, at a concomitant cost to the productive economy. If that is what our government calls “reducing unemployment”, it is succeeding. But ultimately, all this make-work benevolence makes everyone poorer.

As with the spin-doctored K’Naan lyrics, the optimistic flag waving papers over a darker reality the public relations people don’t want you to see. 

The red flags on our highways are also red flags on our economic roadmap. DM


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