SOUTH AFRICA’S UNITY GOVERNMENT WON’T DENT POVERTY AND INEQUALITY IF IT FOLLOWS THE SAME OLD POLICIES

Mon 04 November 2024:

A recent poll by the Social Research Foundation, a think thank, found that 60% of South Africans thought the government of national unity was working well. It also reported that support for the unity government’s anchor political parties, the African National Congress (ANC) and the Democratic Alliance (DA), had risen since 29 May 2024 when elections were held.

The poll results came out at the same time as the business press was reporting increased collaboration between business and government, fostered by the unity government. Corporations have reportedly pledged up to R250 million (about US$14.3 million to assist the state to address various logistics crises and help the National Prosecuting Authority prosecute corruption.

Although we should be cautious about taking such news at face value, it is worth noting that the arrival of the unity government has been accompanied by other good news. For example:

take-home pay for those in employment has begun to rise
retail sales and household assets have begun to increase
inflation has fallen, allowing the Reserve Bank to cut interest rates
the Johannesburg Stock Exchange is trading at record highs.

This adds up to new shoots which suggest a better harvest to come.

Still, it is wise not to get too excited unless any upturn in the economy benefits the majority of South Africans. As Frans Cronje, director of the Social Research Foundation, has observed, while the unity government may be good for the middle class, there is no sign yet that it is addressing the needs of the poor and the people on the periphery of the economy.

Unless its benefits become socially inclusive, it might well collapse. We need to take Cronje’s reservations seriously. Note, however, that although the unity government is a coalition, it is led by the African National Congress. And, while all parties agree that they need to put the economy back on track and promote growth, there is little evidence yet that the government is pursuing distinctively new policies.

__________________________________________________________________________

https://whatsapp.com/channel/0029VaAtNxX8fewmiFmN7N22

__________________________________________________________________________

Beware complacency

We are often told that “a rising tide lifts all boats”.

But this claim owes more to ideology than careful analysis of economic data. In any case, it is a catchphrase which condones inequality. It suggests that as long as living standards increase for the poor, it does not matter if the wealthy gain even more. Indeed, one version is that the more the well-off benefit, the more likely they are to spend and invest their money – that is, to create wealth for others.

Such complacency is dangerous. Apart from being contentious economically, it poses risks to both democracy and political stability. This is particularly the case in South Africa, which is widely recognised as the most unequal country in the world.

High rates of inequality erode social cohesion and trust in democracy. In the May general election, the lowest level of voter turnout since 1994 reflected a worrying decline in support for democracy: from 72% in 2011 to just 43% by 2023.
Extremes of inequality are unlikely to lead to the formation of governing coalitions committed to pursuing developmental strategies of benefit to all. As a result, populist parties that tout simplistic solutions may find it easier to win support. As suggested by the unheralded performance of Jacob Zuma’s umKhonto we Sizwe Party in the 2024 election, this is a particular danger in South Africa. Here, the poorer black majority possess potential political power in an economy which remains largely controlled and owned by a richer, white minority. The French economist Thomas Piketty in his latest blockbuster, Capital and Ideology, warns that in such situations, the dangers of a lurch towards authoritarianism are much increased.
As shown by calls by Julius Malema’s Economic Freedom Fighters for nationalisation of the South African Reserve Bank and for the constitution to allow expropriation of land without compensation, extremes of inequality encourage challenges to property rights. These are likely to discourage investment. Highly unequal economies typically display lower rates of growth than those that are less unequal.
Highly unequal countries typically suffer higher levels of stress, crime and violence, often resulting in violent responses by the state against marginalised communities to quell protests.

Little prospect of reduction of inequality

The issue is not whether the unity government is blind to these dangers, but whether the policies it is pursuing are likely to make a dent in the staggering level of inequality.

If investment and growth do occur, there will be good news down the line – possibly the creation of some 2 million jobs and more financial room for the government to fund social benefits for the poor. But it’s unlikely to have a marked effect on the level of inequality.

First, the unity government is not promising any great change from policies that have been pursued since 1994, only more efficient implementation. Those policies have somewhat decreased racial disparities, notably by promoting a black middle class, but they have not reduced the overall level of inequality. Indeed, as Piketty shows, this has increased, not decreased, since 1994.

Second, the unity government’s policies may continue to focus on the reduction of poverty. But this is unlikely to shift the proportions of income between the different classes. As Cronje has hinted, the new government is underpinned by a middle-class coalition, and for this to hang together, the middle class will want to reap its reward.

Third, history doesn’t offer much hope. Former settler colonies stand out for their exceptionally high levels of inequality. In South Africa, white people always dominated the top earners before 1994. Now they have been joined by high-earning black people, many of them public officials. The top decile’s share of total earning has increased since the end of apartheid. Today it is close to 70%, compared with around 35% in Europe.

Fourth, we live in an age which Piketty describes as “hyper-capitalism”, in which money and ultra-rich elites are highly mobile. This makes it hard for national governments to tax the rich more. They can leave, or threaten to withdraw their investments to earn higher returns elsewhere. South Africa has already been leaking its millionaires. The unity government will not want to scare any more of them away. So, it’s unlikely to adopt aggressive tax policies in the cause of narrowing inequality.

The unity government may well promote high growth and if successful, may ameliorate poverty, but it seems unlikely that it will either attempt or succeed in reducing inequality. It may be good for the elite and middle class, but not necessarily for the health of democracy.

The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of Independent Press.

Author: