Sam van Coller in this piece digs deeper into the causes and possible solutions for South Africa’s bulging inequality problem.
JOHANNESBURG — In the second part of a series focusing on inequality, Sam van Coller in this piece digs deeper into the causes and possible solutions for South Africa’s bulging inequality problem. Here, van Coller looks at three critical factors: wealth, income and opportunity. – Gareth van Zyl
By Sam van Coller*
In thinking about a strategy that could start to change the status quo, it is necessary to unpack the main areas of inequality. In this paper Wealth, Income and Opportunity have been chosen as the main areas of focus. Health care, town planning, public transport, sport, access to justice, urban versus rural development and other areas are also important – space does not permit of addressing them all.
In most societies the ingredients of wealth are home ownership, shares in public and private companies, ownership of government stock, ownership of developed farmland, pension fund contributions and intellectual property. This wealth has been acquired by
- personal saving from employment and other income
- obtaining income returns on borrowed capital at a higher rate than the interest paid – positive gearing such as buying a house on mortgage
- obtaining capital gains on assets sold
- making risk taking investments with personal savings
All of these are derived from participation in a growing free enterprise economy. The historical exclusion of Black South Africans from the economy combined with the close to zero real per capita income growth rate over the past ten years account for the continuing extreme inequality of wealth.
While good progress has been made in providing subsidized accommodation – too many shack settlements still remain – this has helped alleviate poverty but limited the impact on reducing inequality. This is because the process of transferring ownership tends to be slow.
Despite the millions of citizens dependent on a social grant for a pension, progress has been made in expanding membership of pension funds but very limited spreading of share ownership at the lower end of the income spectrum has taken place.
The land restitution that has taken place has contributed little to reduction of inequality because, in most cases, the land is not owned by the beneficiaries and is also not generating income for them.
Barriers of exclusion are difficult to break down.
The main source of income in any economy is remuneration from employment. Pay differentials through the skill spectrum in broad terms are determined by
- The balance in supply of and demand for appropriate skills
- Within that overall context, by the relative power of employers and trade unions through collective bargaining
- The State setting minimum wage levels by industry – in South Africa at 1.5percent more than inflation – and now as a National Minimum Wage
- Accessibility to marketable skills
- Size of the organization. There is a rough correlation between size of the entity and executive remuneration
Given the international trend towards bigger corporations, the weight of large numbers of unemployed, undereducated and relatively unskilled citizens hanging over the market and the rapidly changing technological world, there are powerful forces in South Africa increasing income inequality. Income distribution patterns are unlikely to change unless the skills profile of workers changes
Fundamental to inequality of opportunity is what seems to be the elephant in the room, unequal education – in terms of both allocation of annual expenditure and physical resources on a per child basis. The difference in quality of education experienced as between the child of illiterate farm-worker parents attending a farm primary school and the child of professional parents attending an elite independent or former Model C school is beyond comprehension. Equally, the difference between the student experience at one of the former White universities and a student attending a TVET College is as great.
The challenge in many ways seems too great to be tackled. But the country cannot afford this situation both economically and socially. It is at the core of the ticking South African time-bomb.
- Sam van Coller is Former Executive Director of SEIFSA and CEO of The Urban Foundation. He currently owns and runs a hospitality business in Limpopo that employs 28 previously disadvantaged and severely undereducated South Africans.