Fix inequality with a maximum wage

'Toilets, washbasins and geysers last maintained by apartheid.' Protester in Durban, December 2011. Pic copyright David Le Page.
‘Toilets, washbasins and geysers last maintained by apartheid.’ Protester in Durban, December 2011. ©David Le Page.

Published 18 November 2012 by the Sunday Times (in print, but not online)

Since the tragic massacre at Marikana, there’s been increasing discussion of the problem of South Africa’s terrifying inequality. But commentators and government representatives get rather shy when it comes to talking about real solutions. They take refuge in calls for ‘solidarity’, ‘symbolic steps’, ‘dialogue’ and, as ever, ‘poverty reduction’.

These calls are at best timid and ignorant of the real nature of inequality, and at worst, evasive.

Eight thousand kilometres from Nkandla, the Uruguayan president, Jose Mujica, eschews his official residence for his wife’s shabby old farmhouse, and gives a large portion of his salary to the poor. That’s real solidarity.

But since we’re not yet seeing that kind of solidarity here, let’s talk frankly about two things: Firstly, the ways in which the very existence of excessive wealth actually creates poverty, and secondly, what some real solutions might look like.

Extreme wealth can and often does destroy the prosperity of others. People are rarely if ever ‘naturally’ poor. They are mostly poor because they have been shoved aside by the powerful: by apartheid, by war, by ruthless developers and heedless big business, by the climate change effects of the carbon emissions of the wealthy, by having their
health trashed by pollution.

Majority rule has not yet given South African blacks real political power. Political influence demands access to information, communications, transport and real social networks. Uniting people for a purpose, whether it is starting a business or a union or an NGO
requires resources. Without money, your political rights are a pale shadow of the power held by the wealthy. The white South African middle class still has influence that remains out of reach for most blacks, hence the widespread ‘service delivery protests’ that our
elites prefer to ignore.

Inequality is still etched into our social geography. In Johannesburg’s northern suburbs, homeowners cover sidewalks with gardens, forcing pedestrians into the street. You don’t have a car? Screw you.

The best recent example of the destructive power of excessive wealth is the global financial crisis caused by greed and criminality. A British study calculated that the highest paid London City bankers destroy £7 of social value for every pound in financial value they
generate.

How do we start fixing inequality?

The first, obvious step is higher tax rates to finance better public services, particularly the improved education and healthcare we so badly need. In countries with superb health and educational services like Denmark and Sweden, people happily pay tax rates closer to 60%.
Even the US and UK have had tax rates far higher than 50% in the past. Under Eisenhower, a Republican, the top income tax rate was over 70%.

Our current tax-to-GDP ratio of 23% is appallingly low. Compare that to the EU (39%) or our developing country peer, Brazil (38%). The wealthy whine that there are far too few tax payers – but refuse to invest in building a bigger middle class.

But South Africa does have the money to pay teachers and nurses and policemen decent wages, to start building a real middle class. We prefer to spend it on 4x4s, golf estates, huge TVs and palatial homes. We provide massive subsidies for the likes of BHP Billiton. It’s well known business is currently sitting on a huge unused cash pile of R520
billion.

President Zuma’s proposal of an executive pay freeze in response to labour ‘unrest’ was scorned, but it was a good idea. Between 2006 and 2009, executive pay in South Africa rose 200%, while average workers gained just 15,4%. The problem was that our president does not have the moral authority to call for self-restraint, and our elites, like most elites, fight against any slowing of the bling machine. We should go further than a freeze, though, and set a maximum wage level above which personal income tax increases massively.

There are many other ways of addressing inequality. One is to limit the ratio between average pay and top pay in organisations. In Venezuela, no public official can earn more than 12 times the minimum wage. One hundred years ago at the dark heart of capitalism, the investment banker JP Morgan insisted he should earn no more than 20 times the wage of the lowest paid. The American supermarket chain Whole Foods has a 1:19 maximum pay ratio.

Compare that restraint to the excess of chief executivess who gave us the global financial crisis while earning many hundreds times more than their least fortunate employees – and then retrenched them when things turned bad.

In Japan, managers just earn less, and when hard times come, often have the decency to take pay cuts rather than laying off workers.

John Lewis founded the successful British department stores that bear his name. The company is 100% owned by its 70,000 employees. Everyone gets a share of profits. Everyone has a voice in management. Employee benefits are excellent. Compare that to the miserable and exploitative model the super-rich Christo Wiese offers South Africa at Shoprite.

Employee ownership and cooperative ownership and benefit corporations are successful and stable business models – more stable than shareholder-owned enterprises. We need more of them, driven by tax incentives.

In Alaska, every citizen gets a cheque every year –  $1100 in 2011 – their share of royalties on oil and other revenues. As MP Ben Turok points out, our minerals act says all mineral and petroleum resources belong to the nation. We should benefit equally from their extraction – so let’s institute mining industry royalties to every South African.

Cap and share is a system that would force fossil fuel companies to buy the rights to pollute from every adult citizen – cutting climate destroying emissions and boosting equality at a stroke.

In the US and Europe, many millionaires say, ‘tax us  more!’ Yet in South Africa, amidst far greater inequality and historical injustice, the rich remain silent. I think it’s time we heard them saying, ‘There is such a thing as too much money and too much power, and we have enough. We are committed to this country and to everyone in it – tax
us more.’

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Published by

David

I am an environmental writer, journalist and speaker living in Cape Town, South Africa.

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