South Africa

South Africa

Brainstorm: The state of income inequality in South Africa

Brainstorm: The state of income inequality in South Africa

As a developing country, South Africa looks to the developed world for ideas of how to grow. It’s important, then, that when the developed world realises and admits it’s made mistakes, we adjust what we do. That was economic development minister Ebrahim Patel’s reasoning in convening a panel on income equality.

A pleased-looking Ebrahim Patel sits in Parliament’s media room on a frosty Thursday night flanked by the star-studded panel his ministry has brought together to discuss income equality. To his right is Zwelinzima Vavi, general secretary of trade union federation Cosatu. To his far left sits Bobby Godsell, chairman of Business Leadership SA.

Patel, the minister of economic development, has done this deliberately to balance the terms of engagement on what has proved a contentious topic.

The crowd of mostly economic leftists is particularly impatient to hear from Deborah Hargreaves, a diminutive figure sandwiched between Patel and Godsell. Hargreaves is the head of the United Kingdom’s High Pay Commission. Set up in 2010 to investigate the exorbitantly high levels of pay commanded by UK executives and boards, the commission has recently published its findings.

But by the end of the night, the panellist who’d stir the audience’s emotions most would prove to be Nazmeera Moola, head of macro strategy at Macquarie First SA.

Patel has been engaged in a low-intensity battle for control of South Africa’s economic reigns. His department’s flagship policy, the New Growth Path, competes against a litany of other, at times, contradictory government and reserve bank policies. Thursday night’s discussion, a partnership with the SA New Economics Network and the Cape Times, is part of the department’s strategy to achieve what it calls “policy coherence”.

Part of how Patel aims to achieve this coherence is to gain support for the NGP by drawing on international support. The minister recently brought in the respected economist Joseph Stiglitz, who threw his weight behind the NGP’s view that, to grow the domestic market, the rand needed to be weakened.

After a brief introduction, Patel kicks off the evening by setting out the current state of income equality in South Africa. In short: there is hardly any.

“The 2010 household survey has a range of statistics. I could select any one of them to illustrate the challenge we face. I selected a statistic that indicates that the top 10% of earners in South Africa take away 101 times the earnings of the bottom 10% of the population,” Patel says. Vavi nods vigorously.

Patel says if that is an indicator that shows the extent of inequality in the country, it is replicated across a range of other indicators: education, assets, jobs, economic opportunities. This is situation is not sustainable and is a threat to social cohesion.

While government has in place measures like a progressive tax system, a social security net for the most vulnerable and free or subsidised basic services, government alone cannot be expected to manage the triple threat of inequality, poverty and unemployment faced by South Africa today. Patel says we need partnership because government cannot go at it alone.

“If partnership can do what it did to the Japanese economy after the end of the Second World War, or the German economy, or to a number of other successful economies, partnership needs a sense of being in something together,” the minister adds.

“The essential question I’d like to put to the panel and the keynote speaker (Hargreaves) is: what can we do to address the challenges of income inequality.”

Like South Africa, the UK has been dogged by public anger over the high levels of executive pay. But unlike South Africa, the anger has come from labour, civil society and conservatives alike, leading to lobby group Compass’s letter compelling the UK government to set up the commission which Hargreaves heads.

Hargreaves says between 1997 and 2008, pay for the top 0.1% increased by 64% while the income of a person in the middle grew only by 7%, so there was a huge pulling away from the people at the top. The top 0.1% was made up of mostly company directors and bankers, who, because of their outsize resources, have an influence that far surpasses their 36,000-strong numbers.

“For example in 1979, corporate leaders were generally earning 13 to 14 times average wages. Since then, they have seen their total packages rise by 30 to 40 times and now they are on multiples of 145 times average earnings,” she says.

“I can hear you’re genuinely shocked in the audience. It’s very shocking to a British audience too, believe me.”

Contrary to popular belief, she says, these exorbitant increases in executive pay have not been linked to a proportionate increase in productivity. Company performance and share prices have not increased accordingly. At the same time as it was used to justify keeping wages low at the bottom end of the scale, competing in a global economy was used to justify pushing up earnings at the top.

“Top executives say they are in a global talent pool. They could leave at any moment and be poached by a company overseas. This tends not to happen as much as they say it does. The further up the corporate ladder you go, you actually become less mobile, not more,” she says.

According to Hargreaves, greater support for income reform came as a result of the financial crisis, which saw the middle classes slipping down the net-earnings scale and for the first time experienced what it has always been like for those at the bottom.

After conducting its work, the commission put together a 12-point-plan that includes recommendations such as putting employees on remuneration committees, forcing companies to publish a pay ratio between the highest-paid executive and the company median, and establishing a new national body to monitor high pay.

A visibly impressed Vavi says he feels like he can add no more to what Hargreaves has said. Still, he tries.

When talking about income equality in South Africa, we are talking about justice and fairness, he says. To the approval of the crowd, he repeats: justice and fairness.

“The most disturbing part of it is that there are people who are justifying it as a norm, as something that must be accepted, and thus the irony. They are those who marched on workers who earn 1,728 times less than the top 20 JSE executives,” he says, alluding to the Democratic Alliance’s march to Cosatu house.

From his perspective, free-market capitalism follows a brutal winner-takes-all mentality that says those who have won have deserved it when often that has not been the case.

Getting to why unions have not been prepared to compromise on wages, Vavi says: “If the unions were to signal that we are indeed prepared to talk wage moderation at a level between R3,000 and R22,000, we fear that the employers will enforce that through the collective bargaining processes.”

There exists no similar mechanism by which salaries at the top might be controlled.

Recognising this, Business Leadership SA, the organisation Godsell chairs, recently released its response to the national planning commission. In it the body proposed  creating a code of conduct on remuneration and labour that would include wage moderation at all levels, including “some sacrifices by management”.

Godsell goes further than this proposal. He tells Patel that not only does South Africa need a UK-style independent high-pay commission, we also need a low-pay commission.

“What does a household in South Africa need in monthly income to sustain the kind of minimum decent existence that you and I as citizens would want? I do know this number is not R1,800 a month. I do know it’s not R3,000 a month,” he says.

“The number might be aspirational, but unless we know it, we can’t do anything about it, nor can we build a decent work agenda.”

“The bulk of South Africa’s inequality is not the difference between somebody earning R70,000 per annum and someone earning R7-million per annum. Rather, the inequality stems from people with formal sector jobs and the people that survive on social welfare grants,” Moola says to a grumbling audience.

Hargreaves suggests that perhaps the definition of inequality needs to be re-examined because the top 10% earners in South Africa goes down to people earning R350,000 per annum.

In the face of increasingly vocal disagreement, Moola goes on to say that people should be prepared to work for even below minimum wages because that beats not having a job at all.

As was always likely the case, participants disperse with no definite consensus. Before they do, Godsell reiterates a similar point to that of Mapungubwe Institute executive director Joel Netshitenzhe: there is a fundamental lack of trust between business, government, labour and society. DM

Read more:

  • The challenge of youth unemployment and youth wage subsidy, on MoneyWeb.
  • Shareholder spring is offering even more sport than usual, in the Guardian.

Photo: Children play at an informal settlement in Soweto August 25, 2011. REUTERS/Siphiwe Sibeko.


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