FMF: The collateral damage of lockdown continues to unfold

When economic freedom is restricted, people's lives are directly negatively affected. If the restriction is deep and long enough, lives are sometimes irrevocably changed, and damaged, forever. The economy is not a simple mechanism to be turned off and on a whim without serious repercussions. Contrary to what many politicians and bureaucrats believe, combating a global pandemic does not mean people's health must be protected at the cost of their livelihoods. The measures to be implemented can be flexible and recognise the South African context without fundamentally undermining people's ability to make a living. But this is not the path that the government chose in March 2020 - and the devastation thereof continues to unfold.

Research from Finfind indicates that 42.7% of businesses closed due to the COVID-19 pandemic and lockdown. Any unforeseen natural event (such as a new illness) can affect people's lives and ability to work. But when they enjoy some measure of economic freedom, they are better able to adapt to any given situation. South Africa's hard lockdown gave businesses no such chance. Any time the government restricts freedom, people cannot think and act as they normally would - this in turn hobbles their creativity, their ability to change how their businesses can operate, and the wider community's flexibility to bring various resources to bear to tackle a problem.

The harms from lockdowns has been unequally distributed. Once the state deems that it can decide which jobs are 'essential' and which are not, the potential for damage becomes even greater. People in the middle- and upper-classes could - if the business they own or work for, survives - continue working from home; however, countless lower-income South Africans were unable to travel to work. If things had continued as 'normal,' many more people would have caught COVID-19 - and there is a chance that some would have died. But the risk should have been theirs to assess and, if they chose, to manage. Businesses should have been allowed to adapt and stay open – instead of shutting everything down. Now, many more people have been forced into grinding poverty and hunger.

Of those businesses surveyed by Finfind, "81.5% had one or more owners who were previously disadvantaged individuals (i.e. Black, Coloured, Indian) with 59.9% having at least one Black owner." It is remarkable that the number is so high; it should give us reason to believe in the progress made since the end of Apartheid and just how capable South Africans are of being successful once they have some measure of economic freedom and their civil liberties are secure. There can be no doubt that the lockdown affected non-white South Africans more negatively, on average. When governments restrict economic freedom, it always affects certain groups of people more than others - and entrenches artificial inequality.

Larger businesses and corporations may have some kind of financial airbag when subjected to external strains, such as lockdown. However, for most small businesses - for whom every month is a fight to remain afloat amid the jungle of government red-tape, taxes, and regulations - a lockdown is the kiss of death.

There are currently more than 11 million people unemployed in South Africa. The Finfind research details that, "There was a loss of 60% of full-time jobs across all SMMEs. 68% of these came from businesses that closed during lockdown, and the remaining 32% from businesses that survived lockdown" (italics mine). Many articles and analysts have explained that the third quarter 'recovery' is only such because the damage caused during the second quarter was so deep. There has to be a realisation that businesses are not just going to start popping up on every street corner - and those that managed to survive, will not be hiring all that quickly, especially not in a country where every rumour of an upcoming government or presidential announcement induces panic. There can be no serious dent in the unemployment numbers in an anti-business, anti-certainty, anti-growth environment.

Finfind notes that, "A high percentage of the businesses had taken on debt prior to lockdown. ... only 34% had cash reserves available." When lockdown came, they had nothing on which to fall back. Further, "The majority of the businesses that closed generated little profit, had debt and few or no cash reserves. This left them unable to weather the negative financial impact of the lockdown." Running a business is by no means a cakewalk - and we take for granted just how important businesses are, the jobs they enable and the value they create; a unilateral, sudden lockdown was, in effect, a hammer blow for many that were doing their best in an exceedingly difficult policy environment in the first place.

The picture would not be complete without mentioning that government did attempt to provide some measure of stimulus and support during the lockdown. Thanks to its perilous finances (approaching a 100% debt-to-GDP ratio in 2023), this support was not as much as it might have been. Nonetheless, Finfind says, "Fewer than 50% of all the SMMEs applied for relief funding during lockdown." The report indicates that, "One of the biggest frustrations that business owners have to deal with, is the culture of no response." The South African state, with all its operational and fiscal flaws, should never have implemented a hard lockdown and placed small businesses in the position where they had to try and wade through government bureaucracy to attain aid.

It is heartening to read that, "Owners prioritised paying staff over paying themselves. 53.1% received no salary during lockdown." South Africans are not always fighting with each other, as some politicians would try to portray them as. But they require the economic freedom to build more, and to care for themselves and their families. More economic freedom will engender more growth, in turn improving relationships among people. When freedom is restricted, interest groups arise, and increased friction between them for state contacts and contracts will only increase.

The destructive effects of policies such as lockdowns are not felt by the politicians and bureaucrats who impose such measures. Every single day, millions of people interact in many different ways that any inhibition thereof results in negative effects. The Finfind report points out that, "According to the National Income Dynamics Study (Coronavirus Rapid Mobile Survey), a consumer study, South Africa has lost a decade's worth of jobs in less than half a year of lockdown." After the devastation caused by their policies both before and during the pandemic, will the South African government change tack and implement those policies that are necessary for the radical, positive economic transformation South Africa needs?

NFA Ad (Banner).jpg