Bell, Trevor : Unemployment in South Africa

it is argued that for a small open economy like ours, the export
demand for South African traded goods is perfectly elastic at world
prices. Thus if production costs are brought down even fractionally
relative to other countries we could increase our export sales in
foreign marketa to an almost limitless extent. Because our exports
are small relative to the imports of, say, the United States,
producers in the CIS would not attempt to block importation of our
goods Consequently tough anti-inflationary monetary and fiscal
policies, devaluations, and wage restraint are called for and must.
work. While this may be true in buoyant world economic conditions,
under present conditions, which have prevailed for some years now,
even quite small countries in effect become big countries". In
a world with considerable excess production capacity in
manufacturing, any increase in South African exports is likely to
provoke a sharp reaction from both United States business firms and
from the US authorities, and indeed such a reaction has been
forthcoming over several South African exports, notably, but by no
means only, steel. Furthermore, it is obviously not possible for all
countries to increase their exports and employment levels by cutting
their wage ratea and prices or by devaluing their currencies. Thus,
in these circumstances, even a one-off shock may give rise to
persistently high levels of unemployment.
Furthermore, it is clear that an economy may be subjected to repeated
shocks all moving the economy in the same downward direction. Thus
it may be unable to adjust to any of these unfavourable events before
the arrival of the next, even with a system of prices which by
historical standards is as flexible and competitive as can be
expected. This is what appears to have happened in the OECD
countries and in South Africa over the past decade. In this case any
conclusions regarding the possibility of long-term rising,
involuntary unemployment, based on comparative static analysis, or
analysis aaauming short-run cyclical movements only is inadequate.
In view of this and a decade of rising unemployment rates, it is
1) See Streeten (1982).