Monday, April 18, 2011

The myth of job creation.

In the current political campaigning in South Africa the unemployment has become one of the issues that are being used to gain the support of the electorate. There are clear differences in the way the main contestants in this election would address this problem. The different positions are also representative of the way the antagonists view the world and specifically economic development.
The views are not unique to South Africa. They are the same as the ones that divide political parties the world over.

On the one side there is the view that a government can make society into what it should be in their philosophy. A more equal, balanced and compassionate society then it was in the past, or indeed the present. The view starts by the premise that a the government should re-distribute the wealth through taxation, provide a stable income for the people by giving them work and all the other things needed in a modern functioning society.

On the other side the view is that the government should only provide the services that are needed to provide an environment for people to feel at home in and to minimize the taxation to provide for those services needed for society to function. The jobs and other things that mentioned in the first view will have to be provided by the society at large. In this view the government will only see to it that the equal, balanced and compassionate society is being created through a partnership between government, business and communities as stakeholders, where each has an equally important role to play. Government would create the environment for this and even a little push in the right direction, but not attempt to go it alone.

Both views have their positives and negatives. One could argue that the goals are the same, just the way to get there is radically different. But that would be a fallacy, as both views will eventually end up creating totally different societies as experience and history has shown us.

The first view so far has always ended up with an enormous state apparatus, with near total control over the economy and public life. The second view can end up with just increasing the inequality and an enormous income gap between the poorest and the richest. The operative word in the last sentence was CAN.

It will come as no surprise to those that know me or my ramblings online, that I support the second path. The state that is being created by following the first view inevitably leads to a state that can not generate enough income through the taxation system to foot the bills for its needs. In the end, be it long or short lived, the state apparatus will decline in both quality and in the capability to provide the jobs for the people it is meant to serve. I am yet to see any state that follows this system to become a success. In fact the ones that had this system have now all but abandoned this economic model, and have traded it in for one that allows more functions of society to be fulfilled by the previously demonised 'free market'.

The second view has its failures and impending failures as well, but it also has its success stories, unlike the first. The key to success seems to be moderation in the application of the principle.

After this lengthy introduction to my musings I come to the bones of it. The myth of job creation. Both views claim that their path will lead to more jobs, more income and hence more wealth for the people, especially the currently unemployed. Now this is a powerful lure for those who seek gainful employment. Surely the one who can guarantee that they will have a job deserves their vote the most? Funnily the answer is, in my view, no. Why you may ask. Let me try to explain my reasoning before you run away and declare me a complete fool.

In my view only the ones that hold the first idea of a society that can be made into their ideal will have the capability to deliver on the jobs promise in the short term. They can simply hire all and the job has been delivered as promised. The ones supporting the second idea will simply have to wait and see if they are capable of creating an environment conducive to an increase in business and if those businesses are willing and able to employ all those who seek employment.

Yet the second one is more likely to succeed in the long run. You see, government cannot create jobs. It can employ people, but that is not the same. A job is created by the need for a service or product desired by society. A job will only be sustainable over a longer period of time if it actually adds to the economic activity and the GDP of a nation. Employment by the government is only useful as so far as it meets the needs of a service to be provided by the government.

Anybody hired to do a job by government will need to realize that it is only in the fulfilling of a need of the society that it actually adds to the society. If the job does not fulfill such a need it is nothing but hidden unemployment. A social security cheque with the added demand of having to be somewhere at some time.

Government does not create wealth or income for the nation. Government is there to make it possible for a society to grow and exist in as much freedom as possible, whilst ensuring that the law of the land is upheld. I do not propose a "Night Watchman State", one where the state only provides security in the form of a defense against threats from abroad or domestic origin. No, that has proven to be an open invitation to gross misuse and abuse by the haves of the have-nots. It is an outdated and unworkable concept in this modern day and age and has no place in this world. Government has the duty to provide security to its people and that includes security from the ravages of poverty. This is where the moderation of the second world view comes into play.

So the government will have to employ people to provide the basic services to its people. Those are real jobs, meeting a very real demand. And government will need to make sure that those jobs are being done in the most cost efficient way without skimping on the quality thereof. By doing this the taxation can be as moderate as possible. Mind you, it will never be low cost or cheap, government is not there to compete on cost but only on quality. Services that can be done cheaper or more cost efficient should be outsourced, but only if the quality remains of the same high standard. The outsourcing should also be a totally transparent matter for the people to keep an eye out for their own interest. We all know of examples where this has not been the case. In this case the jobs are still very real jobs, meeting a demand in society.

In short one can conclude that the only jobs being created are the ones that society creates by its own demands. There are examples where a demand was not in existence (or better not commonly realized) before a product was created.

Think of everyday products and services we use. The telephone, internet, computers, cars, banking, etc. All are products or services conceived by a few very smart people that identified a need in society and made a product or service to meet that need. And hardly ever was this done by a government. So government should get out of the way of the ones that will actually create real jobs and stick to its core-business: providing the basic needs for a society to function and thrive. As soon as the state starts to interfere in the free flow of ideas and development of new concepts outside of its mandate it inevitably leads to a grinding halt of the economy and the development of society.

A government that provides the framework of laws that protect the people, enforces those laws and seeks to remedy excesses that are unwanted is usually the most successful one. Laws that protect people are also things as government grants, they provide security; medical assistance through state hospitals also provide security: against illness or its effects. Those are some examples that I do not think about a narrow field when I speak of government limitations. But government has no business in operating companies that run better without their interference. In South Africa things like mines and banks come to mind.

But job creation is the most prevalent in an open, vibrant and economically free society where government limits itself. Hence the support for this view may not be the short term solution for many, but the only solution for all in the long term.

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