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#TheFutureByDesign: A crisis of inequality

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The gap between South Africa’s poor and its most wealthy is one of the highest in the world, and today SA’s Gini Coefficient is higher than it was during apartheid. That data device measuring the chasm between rich and poor stands at 0.77. Although democracy and deracialisation have changed the demographics of our wealthy elite, just over 20% of South Africans can’t afford to buy enough food to cater for their minimum nutritional requirements each day. So why is this is a problem for SA’s future?

Inequality

A major concern for me, and what is a concern for economists across the world, is inequality, which has been rising in SA. The economy has been growing; it is bigger than it ever was and brought a lot of prosperity to people, but at the same time it has left a lot of people behind. Much of the growth has multiplied wealth for those people who are the richest, and the growing gap between rich and poor is impacting our labour relations.

Many economists don’t want to admit that it is not a sustainable model and it is one that is going to keep us at a disadvantage for quite some time. We can’t work with the model that we have always had, which used cheap labour to work for us in terms of production, and thereby be able to export cheaply, and for the owners of the means of production to become richer through higher profits. This is not just a SA issue; it is a global issue.

The tough part is what to do about this, and everyone talks about ‘the economic CODESA’. How do we sit down and agree on a way to go forward?

There has been mention about this kind of discussion in the National Development Plan, which talks about finding each other in the distribution of wealth – not the redistribution of wealth, but the distribution of wealth going forward in terms of profits and bonuses and shared prosperity generally.

I think that this conversation is going to be critical and a key focus for the next two years. Our greatest concern is going to be how labour relations pan out during the next couple of years as workers, or those at the bottom fight for a better share of the pie.

During the recent budget speech the minister said that he would allow for a maximum of 6% increase in salaries. If labour unions reject this and push for 10% (there has also been talk of 15%), it could lead to a ratings downgrade [which is a measure of risk about South Africa and broadly reflects external perceptions about SA].

This would have a significant impact on the economy in terms of debt and sustainability of government finance. This needs serious attention and leadership from all sectors of society, not just business or government. Everyone, including civil society, needs to sit down and discuss a way forward.

The South African economy is capable of immense wealth creation, but this won’t happen unless we all agree on how to share the benefits. If we don’t come to an agreement on this then this wealth cannot be created in a sustainable manner.

About Xhanti Payi

Xhanti Payi is lead researcher and economist at Nascence Research Insights.

Follow him on Twitter: @xhantipayi 

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