Feb 26, 2012

How Nelson Mandela helped create South Africa's unemployment crisis

In case you didn't know, unemployment in South Africa is spectacularly high: about 24 percent at last measure. This is no fluke, either; it's been at least that high pretty much since the end of apartheid:

Obviously I'm no economist, but I've been trying to come up with a lay story about why this is. Here are my picks for proximate explanations:
1. The education system is atrocious in many places. And I mean atrocious, as in teachers don't set foot in the classroom and Grade 12 kids can neither read nor write nor multiply simple numbers in their heads. Though there are many top-notch schools in South Africa, mostly in the cities, in rural areas there are a lot more awful ones. This is surely behind the persistent demand for high-skilled people in government and business while millions sit idle—the unemployment rate is highly correlated with educational attainment. This raises the question, though, of why nobody sets up China-style sweatshops to take advantage of all that cheap labor. 
2. Minimum wage laws set rates too high and are too strict. Turns out unskilled labor isn't that cheap in South Africa. Take a look at this NYT piece to see how this could work. Basically, if workers can't generate enough revenue for a company to justify their wages, then they won't have jobs. Set the minimum wage too high, and this effect will start to bite.
I should note that I agree with Jared Bernstein that this argument doesn't hold at all for the US situation. Econ 101 says that a tiny increase in the minimum wage should result in immediate unemployment, which does not seem to be true. But the principle does make some sense: if we jacked up the minimum wage to an absurd rate, say $20-$30 per hour, we would surely see a lot more unemployment. (Also, there are some enormous loopholes in the US minimum wage laws in the form of internships and food service exemptions.)
3. Labor unions are too strong. This is strongly related to both the previous factors. In South Africa, increased wage demands are so common there is a "strike season." I hadn't been paying attention to this for some time, but sure enough, I consult Google, there's a violent mine worker strike going on right now near Rustenburg. Wages have been increasing far faster than productivity for years. In addition to pricing people out of jobs, that's a recipe for inflation, and it looks like a serious wage-price spiral in 2008 (with an inflation spike to nearly 14 percent) was halted only by the financial crisis.
When I lived in South Africa, I was often struck by a strong current of naked, corrosive greediness in society. During a public sector strike, teacher would describe their interests in utterly self-serving terms. The interests of the students, who were in this case put out of school for five weeks, did not enter into the conversation.*
These factors** raise the ultimate question: why doesn't someone in government change these things? The simple answer is the African National Congress (ANC), which has won every election since 1994 with over 60 percent of the vote, doesn't want to. Labor unions, especially the public sector ones, are a key base of support for the ANC, and are obviously behind the incessant strikes and high wages. From the 2010 Times piece:
Eight months ago, Mr. Zuma proposed a wage subsidy to encourage the hiring of young, inexperienced workers. But it ran into vociferous opposition from Cosatu, the two-million-member trade union federation that is part of the governing alliance, which contended that it would displace established workers. The plan has stalled.
Teacher's unions also fight accountability and standards hammer and tong, which partially accounts for the rot described in #1.

In other words, the unemployment problem is essentially political.

Mandela is responsible for this in that he governed as, and remains, an ANC partisan. He thereby lent his enormous (and, to be sure, well earned) moral credibility to the ANC and thus guaranteed them smashing electoral success. Something similar to this happened in most African countries as they shook off the colonialist yoke, and there were similar, though much more severe, problems. Outside of East Asia at least, single-party states are doomed to failure and stagnation. As this more recent piece on crime in South African slums put it:
The frail, 92-year-old Mandela may remain the most beloved and respected man on the planet, but during its years in power, the organization he championed, the African National Congress, has become, in the words of the historian Martin Meredith, “just another grubby political party on the make.”
None of the above, of course, should diminish Mandela's stunning accomplishments in the struggle against apartheid. He is a great man, and one of the great moral leaders of our time. But even he was not enough to inoculate South Africa against pervasive political dysfunction.

UPDATE: I should clarify that this explanation is about the lowest-hanging fruit. If South Africa managed to take care of my pet problems, undoubtedly unemployment would fall some and then hit a probably much more intractable barrier caused by lingering damage from Apartheid and hysteresis.

*It would be easy to look at this argument and conclude I'm some kind of right-winger, which is not the case. I believe good economic outcomes, other things equal, come about when power is more-or-less equally distributed throughout the economy, when neither labor nor capital is running roughshod over the other. Give one group free reign, and bad things happen, as we see in the US with the plutocrats trampling everyone.

**Here are some explanations I don't find convincing.

1. Too much government support in the form of pensions, child credits, etc. These may have some other effects, but there are lots of people willing to work who can't find jobs. The pool of unemployed would have to be vastly smaller before this would be a primary cause.

2. Too much inequality. This one doesn't make sense to me either. Brazil is hugely unequal and hit less than 5 percent unemployment recently.


  1. Zing! As usual, you get to the roots of the issue with an unbiased point of view, sprinkled with some humor and original thoughts. I <3 your brain

  2. Interesting post. 2 brief points:

    1. I wonder (in that I have no idea) whether SA measures unemployment in a developed-country kind of way, while most developing countries measure unemployment in a much cruder way (e.g. workers in cities looking for formal employment - which is the case in Vietnam). This may make SA look worse in international comparisons (although I'm sure the situation is very bad).

    2. (this may be an explanation you find unconvincing) Security - SA suffers from significant levels of violent crime. In Papua New Guinea unions are not as strong as in SA but the risk from lawlessness facing any investment seems to contribute to high unemployment.