Published in City Press, 2 October 2010
Growing inequality is one of the awkward truths of South Africa’s new democracy.
According to local researcher Kate Philip, at a recent Organisation for Economic Co-operation and Development (OECD) conference on the subject, South African attendants looked “contrite” as their international colleagues expressed amazement that income inequality in South Africa has actually grown since the end of apartheid.
Yet it appears vital that South Africans cease to talk only about poverty and start being honest about our world-leading inequality.
According to University of the Western Cape Professor Andries du Toit: “The proper study for poverty research is inequality.”
The South African trend of growing income inequality is arguably in part the curse of being so influenced by economic trends in English-speaking democracies such as the US, Ireland and the UK. Democratic South Africa has followed economic policies approved in spirit by the World Bank. Our approach to poverty reduction, Du Toit argues, has so far been largely shaped by “official American policy knowledge”.
Recently, Cosatu’s Zwelinzima Vavi called for a tax on the “super-rich” as part of measures to reduce poverty.
To some ears this may sound like a call to class warfare, yet Vavi’s suggestion is firmly backed by international research.
British academics Richard Wilkinson and Kate Pickett, authors of The Spirit Level, argue that efforts to deal with poverty that ignore the need to cap high-level pay have failed.
The Spirit Level’s breakthrough argument is that it’s never enough for any country to end poverty, but that if we are serious about dealing with social ills, we must contain inequality.
Looking at the OECD countries and others, Wilkinson and Pickett find strong correlations between inequality and social ills ranging from mental illness, drug abuse, obesity and teenage births; to imprisonment, poor education, deteriorating community life, and, perhaps most importantly for South Africa, violence.
The link between inequality and violence has been established in dozens of studies. South African efforts, then, to reduce violence by focusing only on the criminal justice system are doomed to fail.
Wilkinson and Pickett go on to argue that countries like the US and the UK are “rich enough” to cease pursuing economic growth and focus developmental efforts on ending inequality.
Their argument is based on the observation that in developed countries “economic growth no longer produces increases in happiness, life expectancy or levels of wellbeing”.
South Africa may not have reached the stage where we should be talking about capping growth, but if Wilkinson and Pickett are correct, we must end our blindness to the need to cap high-level incomes.
This would not be an attack on the rich. They too would benefit through increases in physical security and environmental quality, and quite likely, greater investment stability. A recent study in the US by Princeton economist Angus Deaton and psychologist Daniel Kahneman shows that there is an optimum income for “day-to-day contentment”, $75 000 (about R522,000) yearly, after which increases in income contribute only to making people feel more important than others.
If the super-rich really value the lives of their children and grandchildren, they should also be lobbying for greater income equality.
Some German millionaires have set a precedent here, as has Bill Gates’ wealthy father, arguing that they should be taxed more.
Increases in progressive taxes are indeed among the remedies we need; along with more employee ownership, more co-operatively owned companies (an often extremely successful model) and increases in the minimum wage.
Minimum wage increases are often opposed on the grounds that they reduce employment.
Yet, according to Philip, international experience now suggests that it’s not “employment levels per se that make the difference to either poverty or inequality, rather it’s the quality of employment that matters and the quality of social protection where employment fails”.
Correction: In the version of this story published by City Press, I mentioned that Bill Gates has argued that the rich in the US should be taxed more; it is in fact his father, Bill Gates Snr, who has made this argument.
For more information on poverty and inequality in South Africa, visit the Institute for Studies in Poverty and Inequality and the Institute for Poverty, Land and Agrarian Studies (PLAAS). PLAAS also has a WordPress.com blog, Another Countryside.