Analysis of the New Growth Path

Hunger job creation economic growth
Monday, 5 March, 2012 - 15:36

In this article, the author argues whether government should “increase economic freedom as one of the best methods of reducing unemployment” instead of getting more involved in job creation as suggested in the New Growth Path

The New Growth Path’s (NGP) principal objective is ‘employment creation’. This is a good start, but what is most conspicuously absent is an international scan of the characteristics of countries that have succeeded at achieving high rates of economic growth and creating ‘millions of new jobs’.

The single most important lesson from the world’s experience is that countries with high or rising scores on the most important policy indices tend to outperform countries with low or falling scores.

Worldwide, prosperity and freedom tend to coincide.

As far as labour is concerned, countries with higher and rising policy index scores generally have fuller employment, higher wages and better working conditions.

The NGP envisages a greater role for government. Paradoxically, ‘the poor’ only flee in either one direction, from less to more free economies or to ones with a greater role for government to the ones with less, and, therefore, with more growth and opportunity.

Africa, like South Africa, stagnated for thirty years. Africa was the only region where the average person got poorer. Now, unlike South Africa, it is enjoying the world’s highest sustained regional growth rate in keeping with rising economic freedom, civil liberties, rule of law and democracy.

What South Africa needs is recognition of the fact that all the evidence suggests that the government can do more for the people by doing less, that more government is not the solution – it is the problem.

Given the substantial costs of unemployment and the enormous number of jobless people in South Africa, the government should increase economic freedom as one of the best methods of reducing unemployment, particularly in the wake of the global recession.

A lament by growth denialists is that when there is growth, it tends to increase the ‘income gap’. People who really care about the plight of the poor should rejoice in and celebrate the fact that hundreds of millions of people in liberalising economies do benefit from growth. What creates the illusion of ‘the rich getting richer and the poor getting poorer’ is that not everyone’s standards improve at the same rate.

Increased demand for labour, namely, conditions that promote capital formation, skills, and the desire for hiring more employees, is the only sustainable means of achieving two otherwise irreconcilable objectives: more jobs and improved working conditions. In a static or low growth economy, one of these can be achieved only at the expense of the other. Both can be achieved only under conditions of economic prosperity.

- Leon Louw is the Executive Director of the Free Market Foundation (FMF). This article is an excerpt from the book ‘Jobs Jobs Jobs’. It is republished here with the permission of FMF.

 

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