A question about inequality: Who’s to blame?
PRETORIA – Every day there are reports that a number of economic indicators are worsening across the globe. As to be expected, South Africa is among those countries that never disappoint.
Of course, former World Bank economist and Nobel laureate Josep Stiglitz thinks that these numbers including the gross domestic product (GDP) are as useful to “provide us with the guidance we need to address the inequality crisis.” With all their flaws, the metrics are still widely used to capture the essence of what is really going on in countries, and the world at large.
On the subject of the GDP, Stiglitz once asked an important question: “So what if GDP goes up, if most citizens are worse off? Well, in South Africa’s case growth has been perpetually unimpressive for the longest time to date. The only period the economy showed growth above 4 percent was in the early 2000s which was mainly a function of commodity exports. But, as Stiglitz observed, this growth was characterized by joblessness and a poorly managed surplus. That growth was a complete utter waste of time and energy.
In spite of all this, the economy has experienced low growth rates and rapidly falling social indices. This article interrogates what could be the fundamental reasons for high inequalities and poverty in South Africa. Trapped in an unenviable position of having to contend with a brash political system and triumphant, unrelenting owners of (apartheid) capital, the black population is still to reap the fruits of their freedom. Thus, a case is made that there’s no hope that inequality and poverty, as they manifest in different forms including unemployment and lack of access to health and education, will never be overcome for as long as South Africa retains the apartheid DNA in its political and economic systems.
South Africa’s economic apartheid
Political apartheid may be said to have ended but economic apartheid is still rife in South Africa. It is not only the Gaza Strip that has problem, freedom for the black majority doesn’t exist. The so-called new South Africa is a democracy born in chains, and it will take some serious doing to free millions from the shackles of ruthless capital and political indifference. Thus, high poverty and inequality levels indicate that insufficient work has been done to bury apartheid.
Even if it is not said openly, the country remains divided. Black continue to live under extreme conditions in Sjwetla (Johannesburg) and Khayamnandi (Stellenbosch). One would even be confused that these neighbourhoods are in Haiti, Malawi or Afghanistan, which are some of the heavily indebted poor countries as per the World Bank categorisation. On the other side, a tiny minority has living standards comparable to those of Switzerland, Scandinavia and California. This group has a stranglehold over the means of production and boasts unfettered access to such things as quality medical care, private education, high skills, very high incomes, digital services, etc.
This group arguably includes the middle classes as well although they are not quite as wealthy as some of their top-ranked countrymen. Also, a sizable number of whites still enjoy better standards of living compared to the black population, which lives on less than USD 1 day. The class divisions are almost visible to the naked eye, and it seems nobody is bothered in a world where survivalism is norm. Inequalities separate siblings and neighbours.
South Africa indeed has two economies and they’re diverging at a faster pace than it is publicly admitted. Increasingly, it is becoming apparent that these communities with stark contrasting lives see the world differently. Yet politicians have a nerve to talk about such things as social cohesion and a single national identity. There is no better Iron Curtain than the existing “winner-take-most” economy, which separates the highly privileged and those who are destitute and hungry.
The South African economy is the home of big monopolies and oligopolies that cover every space in all sectors, under the guardianship of a large financial sector that is at least five times bigger than the real economy. Banks as credit issuers have more power than political authority in as far as resource distribution is concerned. These are gatekeepers that decide the direction the country should take in terms of the financing decisions or investments, and some lack thereof.
The powerful financial sector would rather invest in non-social infrastructure such as shopping malls and disregards human resource development and training. There is no effort to include as many people as possible in the economy. The majority has no assets or wealth and this automatically disqualifies them from accessing credit, yet the SARB uses its liquidity management instruments to pump billions into banks. Nobody cares who gets to consume that credit at the end of the day.
The controversy with many of these malls, for example, they are financed through people’s pensions and retirement savings which workers can’t even access. Black poverty wouldn’t be as high if they are paid their money, or if pension laws were revised to allow them to ‘borrow’ money against their pensions to build homes or send their children to school. Instead this money is wasted on the large companies such as Edcon and Steinhoff, which have since gone bankrupt.
What’s even concerning is that monies owed to former black local and foreign miners (or R8 billion) are held by the pension-fund companies. Some of the very big financial services companies are led by black individuals. Many South Africans don’t even realise that the likes of Liberty, Old Mutual and Sanlam thrive on the sweat of unsuspecting black workers.
Understanding the problem of inequality in South Africa
Inequality exceeds 0.6 point in terms of the Gini co-efficient, which makes South Africa one of the most unequal societies in the world. Open Secrets estimated that 44 percent of South Africans over sixty five years of age live in abject poverty. When unemployment reaches a whopping 50 percent it is blamed on exogenous factors rather than on internal failures.
Today, the coronavirus virus is blamed for the current state of affairs. That is disingenuous to say the least, South Africa has never really put up a solid effort to create as single country since the end of apartheid. All it does is to advance one excuse after the other but nothing is being done to deal with the legacy of apartheid. There has never been a serious compact between capital and politics to end gross inequalities in South Africa besides putrid lip service and undelivered promises.
South Africa has not really re-arranged value chains to facilitate inclusion of black economic actors to become suppliers to some of the large companies, both local and international. Car manufacturers, for example, rank among the most integrated companies in world with no space for South African players to compete or insert in their value chains. And the competition authorities see nothing wrong with Nissan owning its input supplies and selling cars directly to clients. Some companies like BMW and Mercedes are their own financiers.
The manner in which the economy is organised and operates exacerbates the problem of inequality in South Africa. The purpose of the economy is not just about creating jobs but it should also transform society. Large companies behave like goddesses because they “create jobs” but the damage they create to society is ignored. Their anti-competitive behaviour and ill-preparedness to contribute to socio-economic development outcomes are therefore uninspiring.
A company like BMW which has been in the country for around fifty years would still complain about shortage of skills and quality suppliers to justify a large presence of German providers in Rosslyn. And to this day, the talk of ‘critical skills’ refuses to go away. One wonders if this is a permanent problem or it can be addressed through massive human resource development interventions. While this concern remains unanswered, the exclusion of blacks in general from certain skilled jobs or professions is an accepted norm.
Can equality be minimised and or eradicated under the free-market conditions?
The inequality problem is also troubling many countries as well. Among others, France, Italy and the US have their challenges too, which is now receiving attention. For the first time, neo-classical economists and recently reformed individuals including Paul Krugman, Stiglitz and Thomas Picketty have started to talk more about the problem of inequality in the world.
The question however is: Can equality be minimised and or eradicated under the free-market conditions?
In his recent book ‘Capital and Ideology’ (2019), Piketty demonstrates that capitalism, when left to itself, “generates deepening inequality.” It appears that mainstream economic theory finally wakes up to socialist movements sad about inequality in as far back as the late 19th and early 20th centuries. Nonetheless, the failures of Reaganomics, like it is currently happening in South Africa, resulted in unpalatable situations of a widening gap between the haves and have-nots, falling wages, destruction of trade unions, rapidly declining living standards, etc.
Piketty for some reason seems to think that it is possible to address inequality under a system that never really concern itself with creating some form of parity. His position is that inequality increases when wealth grows faster than income. His treatise is that the world needs a new and fairer economic system. It is unclear how this can be achieved in an addictive game of capitalism, where everyone is basically on his or her own.
It is discouraging to imagine a new economic system where the rich and companies hog wealth and avoid paying tax in their quest to accumulate more and more, especially under the harsh circumstances of growing inequality, legalised criminality and greed. Unfortunately, the downtrodden have no where to go since the political systems don’t offer solutions that can offer them some reprieve. “Huge disparities in income and wealth translate into comparable disparities in political influence,” argues Krugman.
A New York Times report titled ‘Small Pool of Rich Donors Dominates Election Giving’ (2015) uncovered that not more than four hundred families in the US were “responsible for almost half the money raised in the 2016 presidential campaign, a concentration of political donors that is unprecedented in the modern era.” Although similar information is not publicly available in South Africa, it is mostly likely a small number donate to political parties.
These funders are only interested in protecting that wealth via policy and otherwise. Krugman concurs, “Outright bribery probably isn’t much of a factor, but there are nonetheless major personal financial rewards for political figures who support the interests of the wealthy.” At the end of the day, the political system is under the firm control of a very small wealthy minority. South Africa holds no hope that the economy will ever be overhauled since the white wealth has its tentacles all over.
An argument can thus be made that poverty, inequality and unemployment will never ever go down. The political system and political parties do not see these as an urgent problem; they would rather appease their funders instead of upsetting them. Even when the large retailers such as Shoprite and Pick ‘n Pay use their market dominance to outplay spazashops, no one is prepared to call them to order. These retailers make vetkoeks to displace informal traders.
Is there such thing as the post-Covid-19 economy?
Poverty and inequality will continue to grow as smaller players are eliminated in the economy. Many commentators and economists talk about a post-Covid-19 economy but avoid the worsening behaviour and attitudes of large businesses and their wealthy owners. The present conditions indicate that the South African economy will go down the route of concentration - the closures of many businesses mean that only the strongest will remain standing. Besides, the envisioned economy appears to exclude blacks.
Any talk of a post-Covid-19 economy should not only focus on the business side of the economy but it must entail social elements that will enable South Africa to overcome inequality and poverty. Some of the solutions don’t need clueless Harvard economists but require home-grown remedies. South Africa is not a European country, so it requires practical interventions that are compatible with its population. One such example concerns tax and social security policies that need to be re-arranged to suit the South African environment.
The majority of economists, including Piketty and Gabriel Zucman, tend to obsess about taxing the wealthy to deal with inequality and other social ills. While this is sound, more needs to be done to support families to fight poverty. It is known that the rich and companies steal trillions of US dollars from the African continent each year. That money needs to be returned to its rightful owners in order to reduce poverty and improve their lives. At practical level, some easier solutions are quickly needed to achieve the same.
Historically, in black families poverty has always been managed through the welcomed interventions by those with better incomes. These days is called ‘black tax’, educated and or high-earners are expected to spend money on family and others with needs. In this instance, a family is much more different to a European family: one person is directly connected to an average of fifteen others including his or her immediate family. Tax on income rather than expenditure is not suitable for South Africa.
If indeed South Africa is an African country with its unique social circumstances, it should adapt its tax system to provide support to families by providing tax breaks or subsidies to lower black tax. In fact, the Chinese social security administration recognizes remittances and financial support from family members as part of social security net. Most literature on social security comes from Europe and North America, which means it is not correctly adapted to African conditions.
The proposal is therefore that the monetary support individuals provide to family becomes a tax deductible expense to boost incomes, and to address growing unemployment‘ and other social ills including the ‘absent fathers’ phenomenon.At this point, SARS would rather give tax benefits to the wealthy but the real need is in the general population whose members struggle to make ends meet. Inequality and poverty can be overcome.
Based in Pretoria, Siyabonga Hadebe is an independent commentator on socio-economics, politics and global matters.