OPINION: In South Africa, income inequality is not driven by unemployment as one might think, but by the huge wage gap between executive pay and everybody else.
By Isobel Frye
“The history of the distribution of wealth has always been deeply political, and it cannot be reduced to purely economic mechanisms” - Thomas Picketty, Capital in the 21st Century.
Twelve years post-independence, Malaysia exploded with the 1969 Sino- Malay Race Riots. The majority of indigenous Bumiputera were aggrieved by the inequality of wealth and income, controlled by the Chinese and Indian ethnic minorities. Two years later, the state introduced the 20-year New Economic Policy. Poverty fell to an annual rate of 9,9% from 50% to 0,04%. Ownership of the means of production was changed by an aggressive policy of affirmative action. Deliberate and committed state action led to a high level of economic growth for all and the elimination of poverty.
In 2020, nine months before South Africa’s riots of July 2021, Neva Makgetla wrote of the dangers of inequality in South Africa. Contestations around resources are a global constant, but Makgetla cautioned of the added incendiary when the privileged are a demographic minority.
In South Africa, the contest is between an elite rich who control key economic decisions and a poor majority who are overwhelmingly black, whose strength lies only in their numbers. South Africa needs the political elite to break ranks with the economic elite and commit to a package of reforms like the NEP.
What should this reform package be?
Economic inequality is a factor of both income and wealth inequality. In South Africa, income inequality is not driven by unemployment as one might think, but by the huge wage gap between executive pay and everybody else. This, in itself, is an extraordinary fact in a country where unemployment is nudging 50%.
According to Makgetla, the extremely high level of executive pay in South Africa is an historic legacy of apartheid pathology. Top white management had to be paid “European” wage levels, and this could only come at the cost of black labour. White pay levels had no rational link to productivity but were based on pure racism.
These pay levels then segued post-Apartheid with the global move that saw top executives begin to determine their own pay and share of wealth. As the global Oxfam 2018 report Reward Work, not wealth calls out, when the economic elite compact with the political elite, democracy and decency are put to flight.
The true level of South Africa’s wealth inequality is only just emerging. This is because it is difficult to get information about wealth. Unlike poverty, which seems to be everybody’s business, wealth is usually locked behind secure walls and opaque schemes designed to hide, if not deceive. However, a 2020 World Inequality Database report managed to piece together all available data. The report reveals that the richest 10%– 3,5 million people – in South Africa own 86 % of South Africa’s wealth.
The richest 0.1 % (35 400 people) own 30% of the wealth and the richest 0,01% (3, 540 people) own 15% of the total wealth of the country. Their paper also confirmed that wealth inequality has, in fact, increased since the dawn of democracy. Inverted redistribution.
Are there steps that we can take to correct these inequalities and stabilise our democratic project?
Yes, if we want to.
Makgetla identifies five necessary reforms. Empowering communities, access to appropriate for micro and small businesses, greater accountability of big business for their wage gaps and executive pay, education for employment rather than university entrance and the provision of adequate infrastructure, to which we would include access to digital infrastructure.
But these reforms will take a few years to have an effect. From our research, the missing ingredient to this list is the immediate and unconditional rollout of guaranteed decent income support. Today’s hunger must be fed today.
In our schema, today’s hunger is fed by a community baker whose customers have enough money to pay her so she can buy tomorrow’s ingredients. Soon she can employ another person, then another. And this is replicated across the country in each community that is currently hungry and inactive. And these reforms can be funded through a combination of redistributive methods that reduce inequality.
It is not feasible given the crippling levels of poverty for South Africa to proceed with a successful reform agenda without the implementation of a decent universal basic income. Why are these things not being done? Is it because the economic and political elites see no compelling reason to share the pie?
Last week, the World Bank released a report on inequality in SACU member countries. What made it strange reading was that the report paid no attention to wealth inequality in the most unequal region in the world. In fact, rather than talking about expanding the size of the available national fiscus in a neighbouring country, such as a wealth tax, the authors suggest reducing the amount of the old-age pension to allocate more money to the children’s grants. From the grannies to the children, not from the mine owners. Inverted redistribution.
On 21 March, we commemorate the lives of 69 people shot by Apartheid police while protesting for freedom in Sharpeville in 1960. This incident ignited outraged protests across the country and led to global repulsion and the introduction of sanctions against the Apartheid state.
It is often said that politics pre-1994 was a simpler matter when who the enemy was, was black and white. On the eve of our national Human Rights Day, we must pause and ask: what happens when the enemy to equality is actually within?
* Isobel Frye is Director of the Social Policy Institute.
** The views expressed here may not necessarily be that of IOL.