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Income inequality the ‘most divisive’

Economy

Donwald Pressly

The South African political economy simply wasn’t cracking it, with perceptions of inequality actually widening in the last four years as jobless economic growth matched a severe loss of jobs because of the recession with few signals that this pattern would change, the Institute for Justice and Reconciliation’s annual transformation audit found.

Part of the annual report on transformation is the Reconciliation Barometer Survey – carried out by independent pollster Ipsos among 3 500 South Africans – shows that the gap between the rich and the poor is repeatedly identified as the country’s major fault line.

Jan Hofmeyr, the head of the institute’s policy and analysis division, noted that since the survey was first conducted in 2003 it had asked South Africans what they regarded as the main source of division in the country. Although the issue of race has featured prominently in all rounds of the survey since then, income inequality has come out tops in all but one year between 2003 and 2011. Only in 2004 were political parties blamed for being the main divisive elements in the country. Race tends to be in third place behind income inequality and political parties, Hofmeyr and researcher Lucia Tisconia reported.

The researchers note that South Africa’s recession in 2009 was brief, but its impact disproportionally severe. Employment haemorrhaged at the time “and has not returned to levels prior to the downturn”.

Patrick Bond, a professor of development studies and the head of the Centre for Civil Society at the University of KwaZulu-Natal, put the job loss figure at 1.3 million since the recession in 2009, next to which the 365 000 jobs President Jacob Zuma said had been created in the last year paled in comparison.

Bond argued that a sustainable development model needed new thinking. Noting that after former president Thabo Mbeki’s younger brother Moeletsi had predicted a Tunisia Day – the beginning of a social revolt – in 2020, he had gone on to cast blame big companies taking their capital out of the country as a major threat to economic freedom.

But Bond said capital flight was not an accurate assessment because local financial markets were “as speculative and liquid as ever”. More pervasive problems that prevented entrepreneurship and job creation included constrained consumer buying power, the market dominance of monopoly capital and excessive trade liberalisation.

Economic Development Minister Ebrahim Patel this week also identified monopoly capital as being an impediment to current economic growth. Referring to the need for big businesses to sign “integrity pacts” where they would agree to stop price fixing, collusion and other forms of monopolistic behaviour, Patel believed a significant – if not dominant – role for the state in producing the 5 million jobs targeted by 2020 could be secured.

Bond noted that consumption was stagnant owing largely to over indebtedness. “The banks’ impaired credit list now has 8.5 million victims representing nearly half of all South African borrowers,” he said.

There was also very little scope for local entrepreneurs to open up manufacturing facilities, which – Zuma unhappily observed last August – were virtually all in white hands, Bond added.

The $100 billion (R779bn) foreign debt was “in reality a very high proportion of gross domestic product”, and which, economists had observed, was approaching mid-1980s crisis levels. Bond said: “The increase in foreign reserves from $40bn to $50bn over 18 months offsets only half of the rise in the foreign debt over the same period.”

He also questioned the state’s infrastructure-driven jobs drive. He pointed out that there was a ruling party interest in the Medupi and Kusile power stations, while Eskom had hiked electricity prices by 127 percent between 2008 and 2011.

Bond argued that it remained to be seen if the trade unions and community groups guided the revolution or whether “right-wing” populist currents would continue to prevail and retain the status quo, which favoured foreign and local capital at the expense of the poor.

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