Inequality is the predictable outcome of capitalism says highly rated French economist Thomas Piketty. In his latest book “Capital in the Twenty-First Century” he contends that the main driver of inequality is the “tendency of returns on capital to exceed the rate of economic growth”. This is happening in many parts of the world right now and is a major cause of the extreme inequalities that are fomenting discontent and dramatic political upheavals. Inherited wealth will always outstrip the rate of growth. Those who come from poor backgrounds have no chance of catching up.
Piketty accepts that the fruits of economic maturity such as skills training and education of the workforce do promote greater equality. But they can be offset by a more fundamental tendency toward inequality.
This has become a world-wide issue. Millions of people in the less well-off countries of the EU like Greece, Spain, Portugal and all over Latin America are marching and protesting their financial predicaments. The wealth-gap of so many capitalist nations is in stark relief. Consider the embarrassing protests happening in football-loving Brazil, right in the middle of the world cup because the people are desperate and don’t care what is at risk when they are impoverished and cannot feed themselves.
While the issues of land claims in South Africa and the prospect of farmland ownership being halved for the benefit of the workers are being discussed we should also take note of how wealth is distributed in our own capitalist society. It is clearly one of the most controversial issues facing the country and the fact that wealth appears to be concentrating in fewer hands is a compounding problem. This is what Karl Marx predicted when he advocated for the means of production to be with the state and not with acquisitive private individuals.
But capitalism has become the dominant social system in much of the Western world and increasingly now, if somewhat covertly, in Eastern countries like China. Capitalist democracies are what the world admires and tries to emulate. Communism has fallen off the table and truly Socialist societies are rare.
But if capitalism is feeding inequality and is having these major negative effects what are our alternatives? If we had greater confidence in the state’s control of things we may have been more attracted to Scandinavian-type socialism. That would have required a more homogenous and better educated population and a more effectively working society. This regrettably is an unlikely scenario for us and is probably not to be.
Not finding an immediate solution does not absolve us from the responsibility of devising a more equitable distribution of wealth. The massive labour unrest and the devastating consequences of the platinum miner’s strikes are the clearest examples of how inequality and poor wealth distribution can play out in a society. The conclusion of the strikes is welcome but the tenets of the final agreements don’t offer a sound long-term method of a more equitable wealth distribution in the future
What we want are some of the benefits of capitalism, like competitiveness, individual responsibility, the drive for entrepreneurship and higher rates of tax. What we don’t want are uneven opportunities, exploitation of people or resources and a concentration of wealth in the hands of small elites.
Knowledgeable commentators like Clem Sunter have suggested that shared ownership of the land and its farming operations should have been instituted a long time ago. “Stakeholder Capitalism” is a new catchphrase. Wait for “Comrade Capitalism”. This would have avoided some of the anger and sense of exclusion experienced by farm workers over many years. Others like Piketty believe that a radical revision of the tax regime, taxing the wealthy much more, might even things out.
Whatever social system we adopt there is a sense that the more resourceful people will always cleverly avoid any inconvenient elements of it and will make it work by hook or by crook for their own benefit. When tax rates were increased in Britain wealthy people simply took their assets to more forgiving countries like Switzerland. Right now the rich in China and the Middle East are not buying property in their own countries where they feel insecure, they are decamping to more stable places like the UK, Canada, the US, Australia and New Zealand. Wealthy people always find a way. What drives such moves? It has to be the old capitalist DNA that knows how to look after one’s assets. It is that hallmark of capitalism, private capital accumulation
In the world’s striving for equality we sometimes lose track of the fact that we mean economic equality. What about the inequality of ability: the fact that the richest people are usually the most talented and smartest? Those less well-off are not. Implicit in capitalist democracies is the notion of meritocracy. The people of the greatest merit deserve the greatest rewards. This works in company leadership, in sport, in art, in music and in much of life generally.
But there seems to be a subliminal longing by us for a big middle class of ability and income where everyone has a reasonable slice of life. It is unfortunate that the opposite is happening in so many countries. There is a gravitational pull away from the middle and toward the outlier extremes with huge resulting disparities, especially of wealth.
And then what about the great inequalities of freedom? Open democratic societies, on the face of it, have the most freedom. We all think the USA and Europe are examples of justice and freedom. Places like North Korea and Myanmar are at the other end, with many countries bouncing up and down in the middle areas. There is outrage and disbelief now that in Egypt journalists are jailed for their opinions. Does inequality of freedom also challenge us as much?
Back to capitalism and its inadequacies. It has to be adapted if it is to survive. Capitalism in the raw is clearly not working anymore. There was a time, maybe in the fifties and sixties when the world had recovered from the war and the skies were seemingly blue everywhere; but no more. Fixing the symptoms of inequality with government subsidies and ground-breaking strike agreements will only do part of the job. We have to fix and recast capitalism when it is the cause of the problem. It must not be the driver of inequality.
Capitalism has become a convenient and accepted value system for those at the top of the pile. The movers and shakers who are the decision makers and leaders that can influence the world are already, and have for the longest time been card-carrying capitalists. Why would they change the system that works for them? DM
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Johann Redelinghuys is a partner at Heidrick & Struggles the international leadership consulting business, which bought the firm Redelinghuys & Partners of which he was the founder. He has been deeply involved in career management and executive search all his life. He is the chairman of the South African company and now heads up its board practice working with chairmen and CEOs focussed on CEO succession, strategic leadership review and board evaluation.