Workers conduct repair work on an electrical substation. The writer says the income gap between executives and low-level workers continues to grow. Photo: Reuters

JOHANNESBURG – One of the criticisms that are often directed at the economics of free markets is that benefits accrued from the economy do not cascade to an ordinary person in the street. And that it has a huge bias towards the richest few individuals.

Subsequently, a number of studies have been conducted in the past to prove this rather very obvious point. Although everybody appears to concur that this is not supposed to be the case, the problem persists in all countries. The income gap between executives and low-level workers continues to grow. The wealth disparities within and between countries are too visible to ignore and are also on a steep rise.

Without any understandable logic, economic literature and political speak have been adapted accordingly to bring sweet music to the ears of those who care to listen. Moving away from the old language of becoming rich at all cost, the new catchphrase is “inclusive growth”.

My simple interpretation is that the idea of “inclusive growth”, which has become a household name in political arena worldwide, is still based on the old half-truths by neoliberal economists that capitalism results in a trickle down to empower the poor. So, the new language seeks to dress up a dangerous criminal without forcing him to change his ways.

Shall people share?

Trickle down theory is mainly based on the economic theory which purports that by “reducing taxes on businesses and the wealthy in society as a means to stimulate business, investment in the short term will eventually benefit society at large in the long term”. It basically assumes that when the wealthy are rich such wealth will be automatically be distributed to the middle classes, and then to the less fortunate or the poor.

But nobody says how this “sharing” should happen in a world where the rich hide their wealth, avoid paying taxes and also engage in criminal acts to increase their net worth. Also, we know that the shortcomings of capitalism as it is applied is that it has widened the gap between the rich and the poor.

Oxfam International in its 2017 Report suggested that the gap between rich and poor is far greater than had been feared. The report also dealt with “how big business and the super-rich are fuelling the inequality crisis by dodging taxes, driving down wages and using their power to influence politics”. In the South African context influencing politics is called state capture, but it is likely the Zondo Commission will have time to deal with this broad phenomenon, let alone removing it from the political system.

Nine billionaires owned the same wealth as the poorest half of the planet. Winnie Byanyima, executive director of Oxfam, said: “It is obscene for so much wealth to be held in the hands of so few when one in 10 people survive on less than $2 (about R29) a day. Inequality is trapping hundreds of millions in poverty; it is fracturing our societies and undermining democracy.”

UNDP’s chief economist, Thangavel Palanivel says: “Growth is inclusive when it takes place in the sectors in which the poor work (e.g. agriculture); occurs in places where the poor live (e.g. undeveloped areas with few resources); uses the factors of production that the poor possess (e.g. unskilled labour); and reduces the prices of consumption items that the poor consume (e.g. food, fuel and clothing).”

Trying to follow Palanivel’s line of thought, it is indisputable that global supply chains take advantage of poor countries. Companies also pay deplorable wages in these countries. There is no way that growth can be inclusive in the current regime unless his reasoning suggests that this inclusivity should take place in poverty.

This unacceptable situation implies, as suggested by Oxfam among others, that it would cost $2.2 billion a year “to increase the wages of all 2.5 million Vietnamese garment workers to a living wage. This is about a third of the amount paid out to wealthy shareholders by the top five companies in the garment sector in 2016”.

One of the failures of trickle-down economics is that it cannot explain the most obvious: widening equality gap and deepening poverty within and between states.

Consider this…

Oxfam estimates a global tax of 1.5 percent on billionaires’ wealth could easily pay for every child to go to school. This can never happen in our lifetime due to the horrendous malpractices of tax evasion, trade mis-invoicing and transfer pricing; criminal activities which are rife not only in South Africa but also in Africa and the world at large.

Weakileaks has done what is possible to expose these problems. But we all know that its efforts are not welcomed in many countries and its founder Julian Assange is persona non grata in many developed countries and continues to be trapped inside the Ecuadorian embassy in central London to suppress the truth.

Also, the little we have seen of the Panama Papers and Paradise Papers suggests that South African rich and businesses, for example, are deeply involved in criminal activities that deprive the country billions of dollars in taxes and royalties. To avoid sharing, they stash their money in tax-heavens and thus depriving countries incomes that could be used for development.

The likes of Investec, Standard Bank, Shanduka, etc. were implicated in Paradise Papers but nothing tangible from prosecution authorities has come out this, as an illustration. Media and governments across the continent also prefer to stay mum and have never really pulled out all stops to demand justice. To this day these large companies and individuals continue with their business and probably with fraud because they could be above the law and society.

Therefore, inclusive growth seeks to pull wool over our eyes by claiming that the general populace benefits from schemes designed by the wealthy to become even richer. The argument is that if they are taxed less, they will be gracious enough to re-invest their profits in the economy to create jobs and other positive things.

As far as it is reported, Corporate South Africa Inc. has been previously accused of its anti-development stance, as well as continuously blocks efforts to transform the South African economy. A Davis Report on tax reform once indicated that mining companies barely pay any taxes or they pay much less than the current corporate tax rate, and some do not even pay at all. Many companies are said to be involved in a practice called “cash hoarding”, when they stash money in the bank and refuse to plough it to new investment projects.

Based on this, it appears that inclusive growth is a pipe-dream, it will never happen because it is not possible. The underpinnings of inclusive growth that “equitable opportunities for economic participants during economic growth with benefits incurred by every section of society,” are a fallacy. Free markets distaste regulation and government involvement in directing them on what to do.

Where will economic growth come from when large businesses and the wealthy are not prepared to share? Also, what are exactly the sources of economic growth in most African countries when they are still treated as only good for producing only raw materials? Africa’s peripheral status in global economics prevents it from development as our countries are always expected to adapt themselves to the needs of developed powers.

There is little or no development of petroleum and minerals taking place. It is therefore impossible to imagine what growth is referred to, and let alone an inclusive one for that matter.

Again, Oxfam describes capitalism as a “crime against humanity”. Sound familiar, right? The United Nations once described apartheid in South Africa in the same manner – so it means we have barely moved in eradicating economic apartheid not only in South Africa but also in the world.

Inclusive growth has replaced other equally disingenuous “fads” like globalisation and structural adjustments programmes – both the International Monetary Fund and the World Bank are now leading pioneers of inclusive growth as if social matters ever mattered to them. All these years, they have advanced ideas that undermined people-centred policies from Chile to Burkina Faso.

State intervention in stimulating economic growth through its unquestioned participation in the economy is necessary. China and some social democracies in Europe prove that state-led growth is possible. State-owned enterprises (SOEs) and public sector as a whole can play a prominent role in short and long terms to direct economic outcomes.

Peaceful co-existence between SOEs and private enterprise is possible – the argument that state participation in the economy “crowds out” private investment is an imaginary concept. Thatcherists and modern neoliberal economists do not favour any form of responsible behaviour by economic players and goodwill in order to end ongoing ‘economic apartheid’ in many countries. Hence, the mounting problems of unemployment, poverty, violence and inequalities.

The global marginalisation of the traditional Third World countries by developed countries and development finance institutions such as the International Monetary Fund (IMF) leaves these states with no option but to seek help from elsewhere. And China has duly stepped in with loans and energy to stimulate infrastructure development.

Without changing their ways, Europe and the United States criticise what Asia-based analyst Eric Olander calls “China’s debt-fueled development agenda” in Africa and elsewhere. Olander adds that African leaders, for example, are asking a very basic question: “What other option do we have?” For the old powers, Africa is a place for pillaging and they have never really cared about its development.

The trips by the UK Prime Minister Theresa May and German Chancellor Angela Merkel to the continent this week are nothing but an attempt to re-mark the territory in the same way European countries divided and shared Africa in Berlin towards the of the 19th century. The scramble to retake Africa one more time by European powers is in full swing, and there is no guarantee that locals will benefit from this renewed interest.

President Uhuru Kenyatta is correct to point out that the UK neglected Kenya for almost four decades since Margaret Thatcher visited in 1988. After the two countries signed an agreement on the return of stolen monies like it recently did with Switzerland, it remains to be seen if Britain will honour its part. The conduct of the developed nations and lip service on matters of corruption and stealing are abhorrable.

Ours is a world full criminals and dishonest people who have no reason to believe that peace and prosperity in all countries is only possible when everybody enjoys equal share of economic opportunities and progress. However, this cannot happen in the present setting. A new paradigm shift in thought and conduct is needed in order to see a prosperous world wherein countries and individuals can realise some progress and also see less half-hearted economic policies being sold to them while they continue to suffer in poverty and hunger.

The problem in the world is that there are no fresh and new ideas from politicians, social scientists, sociologists and economists on how to manage the increasingly complex of society at this point in time. The Economist magazine argues that “economists are prone to fads”. And politicians cling on what could be considered stale ideas from the likes of Karl Marx and Adam Smith. These ideas lived and defined societies of their time.

With this intellectual void, societies are becoming violent and aggressive as seen in the election of populists and emergence of empty-headed governments in different parts of the world that believe in isolationism and pariah-like positions. Inclusive growth with all its nobility dismally fails to provide comfort that economic opportunities will ever be equitably shared.

Inclusive growth is nothing but a new 419-scam letter in an official letterhead bearing an authentic address in Washington, the headquarters of the World Bank and its neighbour the IMF.

Siyabonga Hadebe is executive manager at South Africa’s Department of Labour responsible for the management of international relations portfolio for the Department. His views do not represent his employer.

The views expressed here are not necessarily those of Independent Media.

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