Business Day LIVE

INEQUALITY is among our greatest problems. More than 52% of South Africans live below the poverty line of R577 a month and about 13% live in inordinate poverty. Have we reached a situation in SA where wealth buys rights? Is SA for sale to the rich? Are we losing our democracy to the elites?

Business Day brings together three experts to discuss the state of affairs around inequality.

• Eusebius McKaiser is a political analyst

• Leon Louw is an executive director of the Free Market Foundation

• Jessie Duarte is the ANC deputy secretary-general

Dear Leon and Jessie

I hope you share my excitement that this public debate explicitly focuses on inequality and not on poverty nor on unemployment. We have, for too long now, used these three terms — inequality, poverty and unemployment — glibly, one after the other, without carefully distinguishing them.

So let me start with what I hope will be common ground. Inequality is a huge driver of social discontent and antisocial behaviour in our society. More to the point, inequality correlates more reliably than poverty does with our high levels of violent crime. In other words, the reason why many countries in the region are poorer than us but experience less violent crime is (in part) because of the relatively bigger levels of inequality we have, which is seen only in far-flung corners like Brazil. It is long overdue, therefore, that we specifically isolate inequality from poverty and stop conflating these two beasts. They have different effects on our society and so require separate (though related) intellectual and social attention.

Is our democracy up for sale, and being bought by the rich? Well, I guess not deliberately, no. When we crafted a constitutional order in the early 1990s it was aimed at transforming our unequal, unjust past into a future in which substantive equality is achieved, a future in which all have chances at flourishing.

Yet, because we have collectively failed — the state, the private sector, civil society and ordinary citizens — to reduce the inequality gap in our society significantly since democracy’s dawn, the consequence of this failure, I’m afraid, is brutal.

It is this: if you are on the wealthy side of the inequality gap then indeed you enjoy both political freedom and human flourishing. But for a majority of mostly poor black South Africans, democracy just means political freedom, but not yet genuine human flourishing.

Eusebius

Dear Eusebius and Jessie

I too am excited about debating inequality, not because it matters, but because it doesn’t. It should be laid to rest so that we can address poverty and unemployment. The effect of conflating all three is to sacrifice jobs and prosperity on the altar of equality, to place equal misery above unequal prosperity.

We do not help the poor by destroying the rich. Not only is there more inequality in poor countries, but being "poor" in poor countries means starving; being poor in rich means not having an iPad. When formerly backward places such as China, India and Ghana prosper, the "income gap" grows, not because "the rich get richer and the poor poorer", but because not everyone prospers equally.

So, we have not started with common ground. I have no idea why people obsess about inequality instead of poverty and unemployment. What matters is not how rich the rich are, but letting the poor rise from poverty.

You say inequality promotes antisocial behaviour. My understanding is that there is no meaningful correlation; some crimes occur more and some less commonly with greater inequality. Crime and inequality are lower in advanced economies.

Inequality is necessary for progress, because without it no one benefits from effort. If races and games end with everyone having the same score, no one would participate, let alone train. People are motivated by the prospect of improvement. That enables half of all youth to rise above the income bracket of their parents.

Our government may have failed to reduce inequality, but living standards have risen dramatically under it.

Unfortunately wealth does buy privilege at the expense of democracy, the main reason being that elites are better able to cope with our deluge of controls and taxes, on the one hand, and feed shamelessly at the teat of state, on the other.

Leon

Dear Leon and Eusebius

It is important to focus on inequality, and we must remain mindful of the interconnected and often mutually reinforcing relationship between inequality, unemployment and poverty. Eusebius is partly right that these terms are often used to portray similar states, but as these are often intertwined states one should be mindful of the valid reasons for linking the concepts in South Africa and not insist on an artificial delink.

Addressing poverty, unemployment and inequality does not suggest an attack on the wealthy, but it does mean there has to be a conscious effort to deal with poverty and eradicate it.

It means addressing access to services and the ability for all to participate in the economy.

The central tenet of this piece is that yes; inequality is a driver of social discontent. But this inequality does not arise in a vacuum. It is directly linked to poverty and often to unemployment.

It is a sad reality that if you are unemployed and poor you have less access to opportunities and services. The solution should therefore be holistic and focus on creating employment, lifting people out of poverty and bringing about a more equal society.

Another reality we cannot forget is the racial dimension to inequality (and the other two), which is directly attributable to our past.

It is a dangerous, ahistorical fallacy to say: "We must forget apartheid as it has been 20 years" — the legacy of this horrible system will be felt for years. Rural underdevelopment is only being addressed now, and it will take time to deal with the years of underdevelopment that colonialism and apartheid created.

Is there a collective failure by all of us to reduce the inequality gap? This may be an overly dramatic assertion — but that we all should have done more to create employment, lift our people out of poverty and thereby address inequality is without question.

The African National Congress (ANC) acknowledges that political freedom without economic emancipation is not enough to liberate our people.

It is precisely for this reason that we adopted the second phase of the transition, which focuses on the radical economic liberation of our people. We shall make sure that we empower more rural people, women, young people and black people to become economically active citizens. Our aim is also to ensure that we create more entrepreneurs and owners of the means of production from historically excluded groups. Leon apportions blame to the government, but in reality the only programmes to address poverty and inequality have been government driven. Let’s talk more.

Jessie

Dear Jessie and Leon

I’m not surprised by Leon’s libertarian indifference to the seriousness of inequality, though I do find it shocking and intellectually uncogent. To suggest that inequality "doesn’t matter" because equal misery is less desirable than "unequal prosperity" is hasty.

Here’s why: equal misery can be less unjust than deep inequality. Many poor people support each other in the township because there’s less resentment when you’re in the same boat. And equal misery, though undesirable, avoids certain social consequences uniquely flowing from inequality. That’s why we have violent crime in volumes not experienced in less prosperous African countries. The reference to developed countries being wealthier and more equal therefore misses the point.

What does surprise me is Jessie’s insistence that we knit poverty, inequality and economic growth together. Of course economic growth conduces to job creation and poverty alleviation. I agree. That’s trite at a high level of the political economy.

The detail is trickier.

A bigger pie doesn’t guarantee less wage inequality, let alone substantive equality envisioned by the constitution.

So I insist on the analytic demand that we, as a country, focus properly on equality. It cannot be assumed that if we grew the economy at say 8% for a few years and put more people in jobs we’d land up in an economically just — that is, substantively equal — society. Your faith in the market to deal with nonmarket issue, Jessie, is music to Leon’s right-wing ears.

As the liberal in this debate I’m pleasantly surprised to see a liberal punting a deliberate focus on equality and not trusting "growth" to guarantee it. Is the ANC secretly cut from the same cloth as our friend Leon?

The nexus question, Jessie, is this: will focusing on job creation and economic growth exhaust the project of building a substantively equal society?

Hint: think Marikana. Think seasonal wage negotiations.

Eusebius

Dear Jessie and Eusebius

Your indifference, Eusebius, to "equal misery" shocks me as mine to inequality shocks you. Far from libertarianism being "indifferent", what distinguishes it from other paradigms is insistence on equal liberty, and delight that more liberty coincides with less misery. "Right-wing" better fits your fascism than my libertarianism.

Why is inequality "unjust"? What is unjust about A prospering by offering cheaper bread to the poor than B, or energy producers being allowed to offer cheaper electricity than Eskom? Who says the poor prefer "equal misery" and live in "resentment"? They flee from countries closer to your paradigm to ones closer to mine.

Jessie and the ANC are not demeaned by being tarred with my brush. They have always, unlike their alliance partners, been pro-market. Nelson Mandela explained in 1955 that the Freedom Charter, properly understood, envisages blacks prospering in private enterprise.

I agree, Jessie, that we must not forget apartheid and that redressing it is not attacking the wealthy.

Yes, I do blame the government — for underestimating what has been accomplished under its watch. It needs me as its propagandist.

And I encourage it to get more right — by far the most important being to stop adding barriers to black advancement and remove those it inherited.

Leon

Dear Eusebius and Leon

Rampant market forces determining everything is definitely not what the ANC advocates nor has advocated. The notion of a mixed economy with the government playing a role and the private sector having a role is what is intended. What we cannot escape is that our economy is still racially segregated with the ownership of the means of production vested in the hands of mainly white South Africans.

Since 1994, we have seen the emergence of black billionaires and a black middle class and we have also seen inequality in terms of income deepen. We cannot deny that we have seen basic services improve and we are beginning to see the improvement of infrastructure, but the mind-set of those who are middle-income earners and wealthier emulate the free market ethos of developed western countries.

No Eusebius, access to jobs and basic services on its own is not the only answer. A radical transformation in our economy is needed. I do not prescribe to the notion that poor people deserve cheaper anything — this is insulting.

I think we need to tackle the price-fixing cartels that fix prices, collude and provide shoddy services.

We cannot accept the notion of bashing the unions for the sake of manipulating workers into believing that profit margins will decrease and they can demand a one-off pay increase that may never see the light of day again. The Lonmins of the world are not interested in eradicating poverty, they are interested in a higher profit. Why pretend?

Eusebius, transformation of a society and the objectives of the National Democratic Revolution do not sit well with liberals. The ANC is a disciplined force of the left. On Marikana, I will have plenty to say after the commission makes a finding, for now all I will say to the unionised workforce in our country: beware of false prophets and false promises.

Jessie

Dear Leon and Jessie

Phew! I’m relieved Jessie. I thought you were committing to unchecked free-marketeering rather than justified fiddling with unfair social conditions. "Equal opportunities"-talk is not the correct conception of equality for a society like ours. Neither you as a socialist, nor me as a liberal egalitarian, should accept it. Please disabuse yourselves in the tripartite alliance of the idea that no liberal can share your commitment to substantive equality. Liberal egalitarians do.

Can we now address the crux of the issue? It’s this: what interventions will get us to a more egalitarian society? Measures might include the following: a cap on executive pay; revising minimum wage levels; a super wealth/profit tax; corporates investing more effectively in communities in which they operate, etc.

But the poor, too, could be incentivised to unlock their economic agency so the measures listed above do not remain permanent. Why not consider social welfare grants that are conditional on getting vaccinations when the state needs the poor to be compliant. The poor get the grant, and society benefits.

Leon’s minimalist or non-existing state cannot deliver these outcomes, I’m afraid. And Leon’s subtext of socialism is just "rooi gevaar". My views stem from a justice-oriented critique, rooted in liberalism, of our present society. Socialism is long dead (sorry, Jessie).

Eusebius

Dear Jessie and Eusebius

Yes, Jessie, the ANC is for a mixed economy, but that is not a paradigm. All economies are mixed. Which mix? There is no room for informed debate; the poor have higher and faster-rising incomes where governments do more by doing less. I never said the ANC was libertarian. My point is that its mix has always been pro-market, which is clear from many sources on your website and the Freedom Charter:

"All people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions". Ownership "by the people" means, as Mandela explained, "in their own name". Waning adherence to its tradition explains such contradictions as the New Growth Path versus the National Development Plan, or the pro-competition energy white paper versus perpetuation of apartheid’s Eskom monopoly. I assume you would be concerned about collusion regardless of poverty and inequality.

What you want, Eusebius, as opposed to Jessie and me, is equal incomes at the expense of equal rights and better conditions for the poor. You suggest policies that have failed repeatedly. All minimum wages, for instance, impose a minimum of zero on destitute job-seekers. Limits by people like you (who do not pay) on what people like shareholders (who do) may pay executives are as irrational and counterproductive for the poor as limits on what fans pay Oprah Winfrey or Tiger Woods.

Leon

Dear Eusebius and Leon

The ANC-led alliance agreed that unless we make progress addressing the challenges of poverty, inequality and unemployment, the democratic constitutional gains of the first phase of our transition will themselves be eroded. So let’s get real!

Eusebius, you suggest that senior executives’ pay be cut — good idea, but let’s not overlook the real problem of a serious lack of beneficiation of our mineral resources, or money hoarding by companies instead of expanding the economic base and investing in smaller companies that will create a local manufacturing base, improve skills and the economy. The government is leading with a state-led infrastructure plan and success with industrialisation efforts, including growth in the level of infrastructure spending — doubling over the past five years. This has boosted construction levels, created jobs and helped to moderate the impact of the global economic slowdown on SA’s economy. Children in rural areas can cross a bridge to school, not walk through rivers.

We must transform our mineral sector with beneficiation programmes as a critical priority. And invest in agro-industry and create secure jobs in farming areas.

Increasing wages does assist in eradicating poverty, but equality and justice are achieved through equal access to all the services that the government provides to its citizens. Wage improvements are hard-won gains by the progressive trade union movement and not through any avuncular figure handing out gifts. The census shows we still have a race-based income gap.

Leon, you are too apologetic about the real issues. Our country has done well with providing housing, electricity, sanitation, access to healthcare and we have finally caught up with an equal amount spent for each child on basic education. We have more to do. The National Development Plan begins to address the way forward. This country needs everyone to work together.

Jessie

Dear Leon and Jessie

Leon, a critique of inequality is not a call for "equal incomes at the expense of equal rights". You are in danger of rehashing for readers what a straw man fallacy looks like. Libertarianism’s defence does not have to involve mischaracterising what liberals imagine as an alternative society. It is not a socialist one with an inefficient, command economy.

Let me conclude in relation to Jessie’s material where the most overlapping consensus between two of us have formed. Jessie, we do not disagree deeply about what outcomes are desirable, nor about a strong role for the state being required. But let me signal a warning. Your grocery list of state-led initiatives, including the huge infrastructure investment programme, rests on a shaky premise. It assumes the state is in a healthy state. It is not. It is undercapacitated and hamstrung by poor political leadership and reckless cadre deployment. The state must get its dilapidated house in order before insisting on this role in the path towards substantive equality. We have work to do, but reason not to despair.

Eusebius

Dear Eusebius and Jessie

I expect readers, Eusebius, to see through your "free lunch" fantasy that material equality, as opposed to legal equality, can be cost-free. In the real world, material equality is impossible to define or achieve, and pursuing it coercively comes at a high price, including more discrimination, poverty and unemployment. And less liberty.

Eusebius is right, Jessie, to warn against Santa Claus government, but is wrong about it being okay in a "healthy state". Governments can do A only by diverting resources from B. Every cent spent on your "grocery list" is diverted from somewhere. A cent for agriculture is a cent from education; a cent taxed is a cent uninvested, and so on.

You’re right to emphasise infrastructure because prosperity is more probable where governments divert spending from elsewhere to infrastructure.

The "beneficiation" fad is part of the "resource curse". Where resources come from is unrelated to where they should be "beneficiated". Resource-poor countries outperform resource-rich ones because they are not seduced by resource xenophobia. Anyway, we’re destroying our mining sector so fast, there won’t be anything to beneficiate.

The bottom line is that market-friendly countries are wealthier, with jobs and equality as a bonus. The world’s poor always flee from market-unfriendly places that prioritise equality because, in practice, they have more inequality, poverty and unemployment.

Leon

Dear Eusebius and Leon

SA has done well despite the global economic crisis, yet we remain vulnerable to external shocks. Perhaps we need to get to the point of working together to boost domestic savings, expand exports through greater regional trade and shift greater levels of public spending to investment in infrastructure and skills.

Leon, the infrastructure build programme is focused on energy, water, railways and roads, and it is creating jobs. Part of what is affecting the mining sector is a slowing global demand for mining commodities, and declines in a range of commodity prices and input costs. It is not one single factor, but we remain committed to ensuring that our mining sector does recover, and this requires more than anger and labelling.

We need more investment that creates jobs and enables the multiple layers of inequality in SA to be conquered. Local procurement of rail rolling stock, power pylons, bus bodies, canned/processed vegetables, pharmaceuticals, set-box boxes for digital migration. More bold inward investment such as has happened in the automotive industry and the procurement for 1,064 locomotives, for example. It’s not just a simplistic book-keeping approach that will eradicate inequality. It is measures articulated in the National Development Plan, reindustrialisation of our economy and transforming SA to ensure that we are able to ensure that the youth have jobs, that we create new jobs.

I don’t think your Santa Claus remark deserves comment.

Eusebius, the ANC does not deploy people recklessly. Ministers of state are elected, they drive these programmes. We have a lot of work to do to ensure that we provide more basic services and renew our efforts to build national unity. The effective implementation of the National Development Plan is a good start.

Jessie