On economic independence, unemployment, inflation

Zero-deficit is one of the most controversial topics in Malawi at present, yet some people who make statements about it seem vague about its main role in or impact on the economy.

It is not correct to refer to zero-deficit as economic independence. It is a balanced budget, living on what has been legally collected through taxation or State-user fees. The term economic independence is equated with autarky which is economic self-sufficiency.

Zero-deficit is not economic but budgetary self-sufficiency. Historically, some countries have tried to be economically self-sufficient. Mussolini the Duce (leader) of Italy from the early 1920s to the end of World War II tried to establish autarky but failed. The People’s Republic of China under chairperson Mao Zedong tried to have as little contact with the non-communist world as possible. He succeeded only in keeping China poor.

The zero-deficit budget is self-reliant in financing services that are stipulated in the budget. It demands frugality from most sectors of society. If not handled carefully, it may give rise to two undesirable macroeconomic phenomena—unemployment and inflation. We should discuss these occurrences to keep us alert in case we think shortages of oil, forex and the zero-deficit are the only bugbears facing the nation. The action we take regarding the zero-deficit may lead to unemployment or if we depart from zero-deficit, we may find ourselves provoking inflation of the devastating type.

1. Unemployment

Unemployment is a serious economic and social problem anywhere, but especially where most people no longer obtain their livelihood directly from the land. In these countries, such as the United States and Britain, political parties and leaders win or lose elections depending on the state of employment.

In certain countries, governments keep records of employed and unemployed people. They begin by defining what they mean by the employed and the unemployed among people aged between 16 and 65 years.

Employed people are those who perform any paid work, including those who have jobs but are absent from work because of illness, strikes or vacation. Unemployed people are those who do not have jobs and are looking for jobs. Some people may have no jobs, but may not be looking for jobs because they have independent sources of livelihood.

2. Impact of unemployment

No government, even during colonial days, has produced comprehensive lists of unemployed people. In Malawi, visits to labour offices in towns give a clue to how many people are desperately looking for jobs.

Because some of those who call at labour offices have hectares to return to, it is difficult to give a precise figure of those who are voluntarily unemployed. The impacts of unemployment are not difficult to see.

Economically, unemployed people are not contributing to the production of goods and services. When we learn that a certain company has laid-off some of its workers, we may safely conclude that it will be producing less goods and services.

In a situation where many companies are laying off their employees, the economy is producing fewer goods than its potential and, therefore, little or no economic growth is taking place.

Unemployment has social consequences. Burglaries and robberies are indulged in by unemployed people facing starvation.

In Malawi, demonstrations dating back to the years 1992 and 1993—the dawn of the multiparty system—have often been accompanied by looting and shootings. Those who engage in looting are the unemployed. They try to take advantage of the fact that the police force is preoccupied with genuine demonstrators.

At the personal level, to have no job is to have not only no means of living, but no source of self-esteem. Whenever we meet someone for the first time, we try to find out what sort of work he or she does. Those who say they have no job create suspicion in us when they say ‘ndi kungokhala’ (I am just staying idle).

Types of unemployment

Unemployment is broadly divided into equilibrium unemployment and disequilibrium unemployment. Equilibrium employment arises when people voluntarily quit one job to look for another, maybe a better one. Until they find this one, they are unemployed. This kind of unemployment is also called frictional unemployment. A pregnant woman may quit her job to go and have her baby and not start looking for another job till the baby has reached a certain age.

Disequilibrium unemployment occurs where those who are looking for jobs do not have the qualifications for existing vacancies. There may be plenty of vacancies for nurses in hospitals, but those looking for jobs may not be qualified as nurses. Those people are unemployed and yet the vacancies for nurses remain unfilled.

Cyclical unemployment occurs when the overall demand for labour has fallen drastically. This happens when firms see no prospects of making profits. The financial meltdown which occurred in North America and Europe from 2007 to 2009 is a case in point.

Zero-deficits contribute to unemployment by the manner they act on taxes and expenditures. If the government raises corporate taxes to the extent that they act as disincentives to investment, then there will be less investment taking place in the economy which means no new jobs are being created for college and school-leavers.

Zero-deficit creates unemployment when, in order to operate within the means to cut the cost according to the cloth, the government does not fill up the vacancies it created, cancels certain projects it had programmed to undertake such as repairing teachers’ houses and covering up potholes on the roads.