These are my speaking notes from an event organised by The Star newspaper on xenophobia in South Africa held in June 2008. Unfortunately, five years later the same argument applies. All data in the article is correct for 2008, and I have not updated it. (Hat tip – My notes were based on an article I co-wrote with Stephen Gelb).
South Africa transition to democracy carried with it a promise, that no longer will life opportunities be dictated by initial conditions of race, gender and class. The xenophobic attacks tell us that that promise remains unfulfilled. It remains unfulfilled because whilst the violent mobs that carried out the xenophobic attacks, represent a significant section of our society that have access to very limited set of opportunities. Young unemployed South Africans have neither a strong prospect of getting that elusive first job, nor are they provided relief through government’s social security system, even though this system is very extensive. How then do we create a society with opportunities for the poor? Let us first explore the problem a little more deeply, before moving on to solutions.
Let us take a household called ‘Mzansi’. This household has young adults that cannot find that elusive first jobs. Statistically, they represent 76% of all unemployed people who have never worked, being between 15 and 30 years. This household has received both a child support grant, as well as housing, water and electricity. In other words, they have benefited from governments service delivery programme. Yet, these transfers have mattered little as this household attempts to access job opportunities, possibly start a micro enterprise, save for a rainy day. Should this household get into a small business – let us say baking bread – they will find large cartels that set prices, control distribution channels, and have sown up the distribution channel. Even if this household somehow manages to enter the market, they will find that there is a lack of demand in their area, or rather that incomes in the areas where they live might be insignificant to running a business profitably. In other words, this households is unable to break out of its current path of dependence, into a path which provides hopes for a better future.
This household is part of a system of distribution, that is unequal, and that this inequality is structural. Some reminders of these significant disparities are:
• Over 60% of those employed earn less than R 2500-00 per month, whilst the highest paid CEOs earn in access of R 10 million.
• In shorthand this translates to workers earning around R 1-00 for every R 333 rands that a CEO earns.
• Since democracy the distribution of income has remained more a less constant, with the bottom 10% receiving less that 1% of total national income, and the top 10% in access of 50% of national income.
• In 2004, the Minister of Trade and Industry provided data that 70% of BEE deals went to four companies – the so-called ‘usual suspects’. Despite some widening in the beneficiaries of BEE deal – it is vital to remember that they do not result in the creation of new jobs in the economy.
Let us know turn to solutions.
South Africa thus needs to continue and expand its poverty alleviation measures, but must focus much more strongly on inequality. This means focussing on the entire distribution of income and assets, not just on those at the bottom. Whilst this does not imply confiscating assets from the top to transfer to the bottom, it does entail significant changes in government policies. First, it is not merely for government to reprioritise its spending allocations in the national budget. Lack of money is not the only problem. Far more important in many ways is the need for government to shift its allocation of its own human and organisational resources. Putting its best people to addressing the problems in our school system, our health care, our housing and community infrastructure delivery would be a strong signal as to where government’s priorities lie and would surely lead to performance improvements.
At a household level policy must create conditions for the poor to build assets. Moreover, for inequality to decrease and poor households to make the huge transition out of poverty, their asset base must grow faster than the assets of those at the top end of the wealth distribution,. The consequences of such a strategy would be improved social cohesion, participation in the economy, and longer run economic growth.
Reducing inequality makes economic sense. Economic policy has focussed on macroeconomic stability and increased business competitiveness. The assumption has been that ramping up economic growth will bolster employment and in turn reduce poverty. The blind spot in economic policy making is that the quality of economic growth matters, not only the rate of growth. In South Africa, too much of our recent growth has been in sectors where the labour force is small and high-skill – finance, communications, metals processing. This reinforces inequality and exclusion of the poor. In fact, international evidence indicates that more equal societies have better prospects for economic growth that makes a difference to job creation and lower poverty, but also for sustaining growth, from which everybody will benefit.
The sort of re-thinking of policy and growth priorities which is needed will not happen easily. In countries where inequality has been successfully lowered, it has often been because the poor were part of a political alliance with the middle class. With support from the latter, lower inequality and poverty were pushed to the top of the policy agenda. Is this likely or possible in South Africa today? It may seem remote but there are rays of hope. The recent whistle-blowing on bread price-fixing by a small Cape Town bakery is one. The bread cartel is a good example of how inequality can become a self-reinforcing process in society. Though perhaps acting from self-interest to increase its own sales, the whistle-blower also positively affected the lives of the poor. If such examples of common interest between the middle classes, especially small business, and the poor could proliferate, South Africa would be well on the way to lower inequality.
However, the solution also lies with us as individuals. We must ask a question what can we do in our capacities as individuals. A key message must be that as a minimum we must transfer resources and time. At its basic level I would like to propose the creation of and ‘opportunity fund’ – that would focus on providing small-scale venture capital to micro enterprises. It would be build up on the small debit orders by individuals, and larger ones by companies. The fund would focus not on charitable functions but rather on providing risk capital into our economy. Simply stated, it would provide a means for households to break out of current paths.
For the household that we described it might entail the following:
• Access to employment through an expanded national youth service programme
• Government and private households creating systems for venture capital for small businesses
• A significant change in the quality of schooling through educational reform programme
In doing this, the assets of the poor will be enhanced, their participation in the economy would improve, and with it we may finally move a little closer to realise a central goal: a nation of opportunity. Unless we do that, we can expect a reoccurrence of xenophobic attacks, and also higher levels of violent service delivery protest.