ON AUGUST 16 2012, the South African police intervened in a labour conflict between workers at the Marikana platinum mine near Rustenburg and the mine owners — the stockholders of Lonmin Inc based in London. Police fired on the strikers with live ammunition. Thirty-five miners were killed …. This episode reminds us that the question of what share of output should go to wages and what share to profits — in other words, how should the income from production be divided between labour and capital? — has always been at the heart of distributional conflict."
Who wrote these words? Julius Malema? Zwelinzima Vavi? Judge Ian Farlam?
It was actually French economist Thomas Piketty, in the opening sentences of his now famous 2014 book on inequality, Capital in the Twenty-First Century. Among economies with high inequality levels, SA remains an outlier, with multiple socioeconomic challenges to social cohesion. But with the country’s firm commitment to reduce unemployment, poverty and inequality, there is now an excellent opportunity to engage with one of the world’s leading thinkers on these issues, as Piketty is visiting SA this week to deliver the 13th Nelson Mandela Annual Lecture.
The publication of Piketty’s book, in which he focuses on what he sees as inevitable trends in the "global capitalist system" towards greater inequality, has been hugely influential internationally.
Piketty has become an academic and a public celebrity, because he claims to have thrown new light on an old story — the gap between the "haves" and the "have-nots". His timing has been propitious, as concern about trends in inequality has greatly intensified since the 2008 financial crisis.
Piketty gives inequality new conceptual and historical twists. Based on in-depth research, especially of tax records over several centuries’ trends in selected countries, Piketty’s thesis is that the advanced world has gone back to 19th-century levels of inequality, in terms of income and assets. Piketty believes if "capitalist economies" are left to their own devices, on present trends, they will experience ever-greater inequality. "The rich get richer", reinforced by inheritance and globalisation, is his mantra.
Piketty argues that the growth rate of developed countries has been declining, but that the return on capital is relatively unchanged. As capital is concentrated in the hands of the wealthy, the persistence of a long period in which returns on capital exceed the economic growth rate leads to widening inequality. His view is that this can be modified only by much higher global and national taxation. "I don’t hate capitalism," says Piketty, "I just want to fix it."
Piketty’s book offers a controversial but game-changing narrative to supporters and critics alike on perspectives about inequality. Although his explanation of the causes of "endless inequality" has generated considerable theoretical dissent, the potential policy implications remain stubborn. Closer to home, it is a matter of time before Piketty’s work influences debate about wealth and redistribution in SA, given the high levels of unemployment and wage inequality.
So how does SA get a better combination of ladders and safety nets in its economy?
Piketty focused mainly on inequality trends in developed countries such as the US, the UK and France, and not on emerging markets. In his model, developing economies such as SA are in a position to play "catch up" over time by growing more rapidly than developed economies — by 6% or more. Inclusive growth at these levels therefore implies that high and sustained economic growth can eventually become a more equalising process, if supported by the right policies and effective institutions.
The extent to which several of Piketty’s points for reducing inequality resonate with the overall thrust of the National Development Plan is striking. For example, when economic growth is high and when real wages rise, it is easier for the younger generation to accumulate wealth and "level the playing field with their elders".
Another key derivative from Piketty is the importance of a well-functioning and supportive labour market. Piketty emphasises education and other investment in human capital as corrective measures.
Piketty may also agree that to combat poverty and inequality, SA needs much more efficiently to translate public funds into effective delivery and social upliftment. This ties in with the NDP’s emphasis on creating "a capable state".
If coherently and practically implemented, therefore, the NDP gives SA an opportunity to "catch up", in the Piketty sense, and reduce imbalances by 2030.
On tax changes, the work of the Davis tax committee, including on questions of wealth and inheritance taxes, is highly relevant.
Indeed, Piketty is already visible in the First Interim Report on Estate Duty that was released early this year by the committee. Although only a discussion document, it draws on a Piketty framework in outlining possible tax policy tools that might be considered in SA’s context. A 2014 World Bank report outlined the progress SA has made in reducing poverty and inequality through fiscal policy, but concluded that there was now minimum scope for further redistribution through the budget.
Another important reason for decision makers to tackle the inequality gap is to get it out of the way. For as long as income distribution in SA is seen as too far from what is "socially desirable", necessary policies for allocative efficiency are constantly suspect, such as the appropriate role of user charges, the need for fiscal discipline or making SA more globally competitive. Inequality has too often also become a way to hide policy or political failure.
There is no instant escape from high inequality. Piketty’s model offers a higher job-rich growth option to SA, in which to embed remedies around inequality, provided there is broad acceptance of the need for inclusive growth.
The lesson for SA is the slower the economy grows, the longer the problems persist and the more intractable they become. Nelson Mandela gave us his definitive narrative of the country’s "long walk to freedom" but Piketty reminds us that SA is still engaged in its "long walk to shared prosperity".
• Parsons is a professor at North-West University Business School and has written widely on Piketty