On my flight to India to attend the third Brics competition conference last week, I was struck by how our respective countries – Brazil, India, China, Russia and South Africa – have to grapple with the challenge of inequality.
The growth stories of Brazil, India and China in particular have captured investor imagination. However, the impressive rise of these economies has been accompanied by a rise in inequality. In Russia, the post-communism privatisation wave created oligarchs, who now face backlash and negative public sentiment. Though progressive policies have lifted many households out of poverty, large segments of Brazil’s population remain trapped in the favelas.
The lower castes and the rural poor in India have not shared in the outsourced services boom that has powered that economy. China suffers from a similar dynamic where large segments of the population have been excluded from export-led growth. South Africa remains one of the most unequal societies in the world, with racial and increasingly class tensions dominating economic policy discussions.
Inequality threatens the sustainability of economic growth because it generates tensions that may upset an already fragile political economy. Countries experiencing rapid but uneven growth face the risk of being stuck in a “middle-income trap” – where popular protest rises, production is threatened and private investment slows.
Policymakers struggle to justify to the poor and marginalised the market-oriented policies that led to the initial growth spurt. Demands for more state-led and redistributive policies follow. Profits and executive salaries become easy targets for politicians striving to maintain their legitimacy.
Investors have become wary of the fraught political climate and seek market-friendly reassurances that policymakers find increasingly difficult to make in the face of popular discontent.
In the real world, skewed access to opportunity cripples individuals’ ability to function effectively. All our economic policies have to contend with this challenge if they are to be relevant.
Fortunately competition policy lends itself towards expanding opportunity because breaking up cartels, preventing anti-competitive mergers and challenging exclusionary behaviour create the conditions for greater participation in the economy.
As Prime Minister Manmohan Singh of India emphasised in his speech at the conference, developing countries need to develop credible institutions for sustained and equitable growth.
In South Africa, competition legislation addresses inequality directly. The Competition Act aims to ensure that markets are fair and efficient. Not only that, but the law states as its objectives the promotion of small businesses and also those owned by historically disadvantaged individuals. The preservation of employment is also a strong theme throughout the legislation. This is important as it has been shown that lack of access to job opportunities is one of the drivers of inequality in South Africa.
Singh touched on the sort of inequality perpetuated by governments in the way they treat state-owned enterprises that compete with private companies. Preferential treatment of such entities is often seen as a way to facilitate development. However, the prime minister supported the concept of “competitive neutrality”.
As Brics countries face the challenges of economic growth and inequality, competition law and policy will play an important role in levelling the playing field.
* Trudi Makhaya is an economist in the public service.