TERRIBLE triplets haunt South Africa: poverty, inequality and unemployment. They are used like a mindless mantra as if inherently conjoined and unconscionable. It is as if the elimination of one would eliminate the other two. Seldom asked, let alone answered, is whether there is a rational connection between them.
These three human conditions differ profoundly. Policies designed to redress one usually aggravate the others. In healthcare, the word for this outcome is "iatrogenic" — when someone says "the operation was a success but the patient died". For example, treatment of, say, heart disease might aggravate another, such as cancer.
Iatrogenisis is the norm in economic policy. All benefits have costs, hence the famous refrain, "there ain’t no such thing as a free lunch".
All policies that are designed to achieve one objective impose costs on another.
Iatrogenic effects are popularly and deceivingly called "unintended consequences". Often the negative effects are known and predictable. The iatrogenic effect of labour-pacifying laws that raise the cost of employing people is increased unemployment. Unemployment is, therefore, not an unintended, but an intended consequence of addressing one condition at the expense of another.
The triplets are more poltergeist than ghost because each of them inspires widely divergent meanings that are used loosely and misleadingly.
"Poverty" can be defined as destitution; one’s wealth being less than another’s; the gap between rich and poor; and the average difference between different groups.
"Unemployment" can refer to an employed person who seeks a better job; someone with no job; someone whose job is "informal"; or a self-employed "survivalist".
"Inequality" arouses knee-jerk confusion about terms such as "rich" and "poor", and the "income gap", which insinuates that a bigger "gap" means that while "the rich get richer, the poor get poorer".
"Rich" and "poor" are statistical concepts like "young" and "old"; categories that are static but in which people are transient.
Most people in the bottom 20% (quintile) are, for obvious reasons, youth, who will move, as their parents might have done, into upper quintiles as they acquire skills and experience.
Like a magic trick that is not immediately obvious, the so-called income gap usually "grows" when poor people get richer.
Why the income gap grows when the poor get richer is really kindergarten arithmetic.
If a poor person has R10 and a rich person has R1,000, the gap is R990. If their money grows 10%, the poor person will have R11 and the rich person R1,100, with a gap of R1,089.
The gap grows even when the poor person gets richer twice as fast as the rich one — the poor person’s R12 against the rich one’s R1,100.
The gap will still increase if the poor person’s growth is a spectacular 50% and the rich person’s a paltry 1% (R15/R1010 = R995 gap). For the gap not to grow, the poor person’s growth would have to be 1,000%, which is an obvious impossibility for all "the poor" in the real world.
By this definition of inequality, the iatrogenic effect is that the "income gap" will contract only if everyone gets poorer.
Rather than absolutely, everyone is relatively "rich" or "poor". Everyone with a job is rich compared with a destitute homeless job-seeker. Someone with R2,000 is poor compared with someone who has R10,000. Even South African billionaires are poor when compared with US billionaires.
Politicians, union leaders and charitably disposed people need to stop worrying about the "income gap" because when it grows, the rich get richer, but the poor usually get richer faster.
Our policies need to be exorcised in order to lay the terrible triplets to rest so that people can be employed, grow richer and enjoy equal rights instead of equal poverty.
• Louw is executive director of the Free Market Foundation.