Can we really change the state of inequality in South Africa?

LOUIS Chauke, 47, a tailor, makes R50 on a good day.

No country knows inequality better than South Africa. South Africans are born into the epicentre of inequality, at either side of the spectrum. With a Gini coefficient of 0.65, South Africa is the most unequal country in the world! (A Gini coefficient is a measure of inequality, with one (1) being 100% inequality and zero (0) being 100% inequality)

The bottom 50% South Africans account for only 8% of household income, 5% of household asset value and 4% of net wealth. The top 10% of households account for 55% of household income, 69% of total household asset value and 71% of net wealth. These statistics show no signs of improving. Government will not be able to achieve its 2030 National Development Plan goals of reducing poverty and inequality.        

Half of South Africans are considered chronically poor or having average consumption below the upper boundary poverty line, with some researchers putting this at 65%. The unemployment rate among the youth is at 50%.

President Thabo Mbeki once said South Africa is a country of two economies, perpetuating both inequality and exclusion. There is no better illustration of this than looking at Sandton and Alexandra, the two close neighbours who desperately need each other to survive, but one houses the richest square mile in Africa, and the other one is the poster child of poverty. What this means also is that our inequality is not caused by the lack of resources. South Africa is the second biggest economy in Africa, just after Nigeria, but our per capita income dwarfs Nigeria’s by far.

But how did we get here? South Africa’s transition from apartheid to constitutional democracy was billed as one of the smoothest of such transitions in recent history. Our constitution is said to be the most progressive constitution in the world. Our judiciary is respected worldwide for its independence, against all odds. But since the end of apartheid, inequality has increased. How do such an abundance of wealth and all these constitutional institutions fail to address inequality?

The rich continue to find ways to accumulate wealth, at times using illegal means. The Price Water Coopers economic crime report of 2018 rated the Johannesburg-Cape Town-Stellenbosch corporate sector as the world leader in money laundering, bribery and corruption. Many old school economists have argued, based on the work of the economist Kuznets, that inequality is an inevitable part of economic development. They argue that in developing countries, economic growth initially leads to increasing levels of inequality. Rich people save more than the poor, and so inequality helps the process of capital accumulation in developing countries.

The argument continues that as economies grow, larger portions of society move to modernised sectors of the economy, and their skills base expand, until to a point where inequality falls. As a result, richer countries should be more equal than poor countries. In the 1960’s and the 1970’s this assertion was supported by empirical evidence, but more recently, inequality is increasing even in more developed countries. In South Africa inequality is clearly along racial lines. Keeton, senior lecturer at Rhodes University, continues to state that one of the reasons equality is bad is that it enables politicians to dodge difficult economic questions and promote simplistic solutions to complex problems. It enables politicians to avoid finding ways of addressing the root causes of inequality.

French economist Thomas Piketty (who presented the 2015 Mandela lecturer) presents a view in the extreme opposite that of Kuznets. He argues that inequality is the inevitable outcome of capitalism. To combat increasing inequality, Piketty calls for a wealth tax. This, he argues, is the solution because wealthy people have, over the years, accumulated the skill of hiding their true income. He further argues that this wealth tax must be global to avoid people moving their wealth to tax havens. However, globalising the wealth tax is the weakness of Piketty’s arguments as well because individual countries have total authority of their affairs, and some countries might decide to scrap this tax, rendering themselves tax havens.

Inequality in South Africa has remains high despite the increase in social transfers. Can government reduce inequality by raising taxes for high-end tax payers? This is a tempting view, but the estimates made on this do not yield much of a difference. The tax base of high-end payers is simply too small. Raising taxes significantly would not bring the needed income, but would rather result in honest taxpaying citizens being over burdened, and this may even result in them finding ways of dodging taxes.

The largest cause of inequality lies within the workplace itself. The promising solution is that the economy must generate many more jobs, even if the salaries are low. This would reduce poverty to a certain extent. But this would only make a modest difference in current inequality levels. With time, the unemployed would also need higher paying jobs so that inequality can be reduced.

Having said all this, it should be noted for most South Africans, these academic theories and discussions do not mean much if they cannot be converted into solutions that will take them out of poverty. People are poor, yet they see wealth all around them. Eventually, if things don’t change, the poor will have nothing to eat but the rich.

Phiwayinkosi Tambo is a Masters student at the Wits School of Governance based in Gauteng.