Thomas Piketty. Picture: SUPPLIED
Thomas Piketty. Picture: SUPPLIED

CELEBRITY economist Thomas Piketty’s most important finding, he told a 2000-strong audience at the Nelson Mandela Lecture at the weekend, is that countries cannot rely on market forces and "trickle-down" mechanisms to deliver the right level of inequality.

It is an insight that, arguably, SA’s policy makers have long been aware of. Fiscal policy in the democratic era has had a strongly redistributive thrust, particularly since the late 1990s, when the government began to expand the system of social grants and upped social spending on poor households. Other policies, on black economic empowerment (BEE) and land reform, have focused on redistributing wealth ownership.

All of which might make the puzzle Piketty points to — that, 25 years after the fall of apartheid, inequality is not only still very high in SA, but has been rising — even more perplexing. It is a puzzle that has concerned local economists and policy makers for a while now, given that poverty levels have fallen, thanks to social grants.

It is not clear that Piketty has offered any new insight into why that might be, other than to say it is a legacy of apartheid and in part a result of global factors. Rather strangely, he described SA’s high unemployment rate as more a symptom than a cause of inequality.

One useful piece of the puzzle to come out of Piketty’s musings on SA, however, is a distinction between the distribution of income — on which we have quite good data — and the distribution of wealth, on which, Piketty laments, we have almost none.

Piketty drew attention to the unusually high share of income that goes to the top 10% of earners in SA: based on tax data, 60%-65% in SA compared with 50%-55% in Brazil and closer to 35% in Europe. So even those who do earn incomes are highly unequal, raising questions that Piketty didn’t entirely address: arguably, the extreme shortage of skills in SA might bump up the returns to those who do have them, and the apartheid legacy is clearly crucial too.

What we do know, though, from a World Bank study last year, is that 87% of personal income taxes and 60% of value added tax comes from that top 10%. And though both progressive income taxes and a progressive wealth tax are central to the Piketty programme for addressing inequality, the World Bank study argued that you have to look at both the taxing and the spending sides of government policy — and, on that basis, SA can claim to have one of the world’s most redistributive public purses. Fiscal policy in SA reduces the Gini coefficient — the globally accepted measure of income inequality — by almost a quarter, the multilateral institution found.

Even if the government had the money, there’s a big question about how much more it is worth doing in the way of taxing for redistribution and whether that would do any more to cut inequality. The numbers put the focus back on the basics of the quality of education and health spending and on the need to improve poor people’s life chances and their ability to access jobs and income and assets. They surely also put the focus back on the need for policies to enable growth and employment so that there are simply more income earners, helping to create slices of a larger pie.

The Gini coefficient measures income inequality and the official data show inequality within the African population has increased — as we would expect given that many more black people have moved into senior positions and that some have also been the beneficiaries of BEE deals.

But the Gini only measures income distribution. Piketty’s best-selling book, Capital in the Twenty-First Century, also looks at wealth distribution over the centuries and his frustration with SA is that there is no transparent estate tax or other data to measure changes in the pattern of wealth. That would seem to be a particularly important question to ask given that so much effort and funding have gone into transactions that were designed to redress the profound racial inequality in the ownership of wealth.

Piketty’s proposed solution is to introduce a wealth tax at a low level, which would enable the collection of that data. If ever there were an economist’s view of the world, this is it — data are good but are surely not a justification for a tax that would collect little revenue for a fiscal system that is already highly redistributive.

But his prescriptions are broader. He wants the right to labour, but at a decent wage, so an appropriate national minimum wage. He wants high-quality education. And he wants economic democracy, with an emphasis on worker-participation on company boards. All of which is more likely to resonate with the trade union left than the policy centre. How far any of it can go to cut inequality in an economy growing at little more than 1% with an unemployment rate of 25% is a question the fans can ask now that the Piketty road show has moved on.

• Joffe is editor at large