We saw tension in South Africa the past weeks with protests and looting taking place in two economic powerhouses of the country as measured by GDP per capita; Gauteng and KwaZulu Natal. This led to distraction of lives, property, businesses and critical trade channels. One of the major responses by the government has been the deployment of the army which is expected to cost the taxpayer approximately R615 million. It’s no secret that in as much as South Africa has a crime problem, it has a poverty and inequality problem which tends to be positively correlated with crime. The question then is, is South Africa using militant solutions to address a socio-economic problem?
Some have likened the criminal activities to a revolution by the masses. The difference however between what we saw and some of the revolutions in time past, is the falling away of organized groups who provide a mechanism to channel protest into action and are the vanguards of the struggle. As Wendell Phillips said, revolutions are not made; they come. Political leaders only exploit an already existing crisis given the purposes of humanity, especially in a revolution are so numerous, so varied, and so contradictory that their complex interaction produces results that no one intended or could even foresee[1].
While this might have started as a call to free the former President of South Africa, Jacob Zuma, what then perpetuated the crisis is relative deprivation which occurs when there is a gap between the valued things and opportunities the people feel entitled to and the things and opportunities they actually get[1]. These nuggets of dissatisfaction and discontent create an enabling environment for violence. No wonder appealing to people’s consciences by highlighting the detrimental effects looting and distraction would have on the economy is not effective given the over 40 percent broad unemployment rate which has left a vast number of people dependent on social grants. Not forgetting that approximately 50 percent of the adult population lives below the upper-bound poverty line of R1 227[2].
Per the World Population Review 2021 estimates of income inequality as measured by the Gini coefficient, South Africa is the most unequal country in the world at 0.63. This inequality stems from among other reasons a dual economy deeply entrenched by the apartheid regime, a poor education system, a mismatch of skills and failure to implement economic policy. The democratic government of South Africa has instituted policies such as the B-BBEE and anti-discrimination laws to ensure wage equality across racial groups and gender, but the income inequality gap has worsened since the end of apartheid[3]. While the South African economy on average experienced growth in the first decade of democracy, the past few years have been characterised by slowed economic growth and per the National Development Plan (NDP), South Africa is in a middle income trap.
Why should the government care about poverty and inequality?
Inequality leads to slowed economic growth due to a situation similar to reverse causality in that while increased or reduced growth can alter the income distribution of a country either widening or reducing income inequality, inequality also affects aggregate output and therefore the long run growth rate. This is through savings which affect long run per capita income, as well as investment in human and physical capital which are imperative for economic growth. South Africa’s Lorenz curve shows that 80% of the population accounts for just over 30% of incomes suggesting low levels of income which do not provide an incentive to save. Even if South Africa were to experience substantial economic growth, research shows that the impact of that growth on poverty would be diluted by the high level of inequality[4].
The South African government needs to deliberately address racial disparities in income given the damage caused by labour market segregation during apartheid wherein white people were insulated from competition resulting in high salaries while black people were precluded from entering the modern economy and exploited. Gender equality should also be at the centre of transformation policies as research shows that when men and women are equally qualified in terms of educational attainments, men still earn more[5].
Investment should be made in improving the quality of our education systems and ensuring that everyone has access to that quality education given human capital is pivotal for growth as the Solow model augmented with technology and human capital shows that far more than physical capital, technology and human capital are the engines for economic growth in so far as they foster innovation with developmental application in the economy.
There is a causal relationship between income inequality and education inequality. Students in high density and rural areas should therefore not be left behind as they can seldom afford quality education, at times being subjected to schools without proper infrastructure and learning materials which can be an obstacle in their ability to competitively perform and qualify for bursaries to further their education. Although education does not guarantee employment or one's ability to become an entrepreneur, these disparities affect their job prospects and future earnings. Not only that, the dual economy makes it difficult for those in rural areas to grow and develop meaningful structural social capital which would allow them to draw on their networks for opportunities.
Per the first quarter labour force survey (QLFS) 2021, the youth make up approximately 60 percent of the unemployed in the labour force. This can be attributed to structural reasons including a mismatch of skills and low levels of education with approximately 50 percent of the youth having not completed their matric. Assuming that one’s level of education equates their skills, this means South Africa has less skilled labour to advance technological progress which is critical for economic growth. Skills training is thus imperative given technical progress is biased towards unskilled workers wherein it drives downwards the wage of the unskilled worker.
With income security at a great risk in South Africa and rates and taxes expected to increase due to Moody's downgrade of South Africa's largest metropolitan municipalities, we need to start looking at intensifying redistributive policies such as land reform to address poverty and inequality. The large number of people out of employment necessitates the need for entrepreneurship, more so, creative destruction which gives profits higher than the subsistence wage. Due to the way credit markets are structured, requiring collateral in order for one to borrow to invest in their business venture or to upscale their enterprise, land reform would enable people to have collateral to access credit markets and breakaway from poverty or marginal returns and also employ other people who would have otherwise been out of work.
While the government has been taking steps to end poverty and inequality there is greater need to be proactive rather than reactive. We know the problems, we know the solutions we can potentially explore to deal with the problems. There are low hanging fruits such as improving the education system, enhanced support for SMMEs, zero tolerance to corruption and proper systems management to curb wasteful expenditure as well as feasible policies to address gender and racial inequalities amongst many other practical steps . Before the crisis which then necessitated the deployment of the army, that R615 million rand could have supported government programs to end poverty and inequality but here we are, a democratic country with soldiers on the streets. One could argue that the conditions for internal war are present given the economic situation faced by many in South Africa, the question is will the government put a bandaid on the problem and pretend it doesn’t exist, perhaps even upgrade our intelligence systems or will they deal with the root causes of the problems which are by no way limited to just poverty and inequality?
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Yours in Thoughtful Learning
References
[1] Skocpol, T., 1979. Explaining Social Revolutions: Alternatives to Existing Theories. In: States and Social Revolutions. New York: Cambridge University Press, pp. 3-43.
[2] http://www.statssa.gov.za/?p=12075
[3] Grün, C. (2003). Racial and gender wage differentials in South Africa: What can cohort data tell? (No. 2003-21). Munich Discussion Paper.
[4] Bhorat, H. and van der Westhuizen, C., (2011). “Pro-Poor Growth and Social Protection in South Africa: Exploring the Interactions”. Unpublished paper, DPRU, School of Economics, University of Cape Town. May.
[5] Kwenda P., and Ntuli M., 2015. A Detailed Decomposition Analysis of the Public-Private Sector Wage Gap in South Africa