With the release of Oxfam’s latest report on inequality, the term has been thrown around but not quite understood. We all know SA is one of the most unequal societies in the world, but why? And how do we lose that title? Economist AYANDA HLATSHWAYO breaks it down.
1. What the heck is inequality?
Inequality is the uneven distribution of resources across an economy. This means that a large share of resources in an economy lie with a small group of wealthy individuals e.g. having 90% of the resources in a country lie with 10% of the richest people in the country.
2. Is inequality only about money?
It’s definitely not. Inequality is about more than just money, although we normally focus on income inequality. Inequality exists in education, healthcare, land ownership (including affordability of housing), resources and opportunities.
3. What does it mean to talk about inequality in South Africa?
South Africa’s inequality is set against the backdrop of apartheid which contributed to the creation of an unequal economy which distributed wealth disproportionately across races. In particular, one cannot speak about inequality in South Africa without considering the high levels of unemployment and the underlying wage inequality – which also results from South Africa’s history.
4. If inequality affects those “who don’t have”, why should those “who have” care about the rest?
Inequality hinders economic growth and growth is critical for any economy that seeks to increase its productive capacity. High inequality coupled with low employment and low wages puts pressure on the poor in the economy and this can lead to instability, violence, strikes and high levels of crime, which affect all of us – rich or poor.
5. So equality = communism?
Not necessarily. I would have to say in today’s context what we mean by equality doesn’t necessarily equate to communism. Given where South Africa is, the key objective is to reduce inequality to a level where even the poorest in the economy have access to quality basic services, for example healthcare, education, sanitation, and decent job opportunities.
6. How bad is inequality in South Africa? And who do we compare to/with?
South Africa is one of the most unequal countries in the world. Other countries with high levels of inequality include Namibia and Botswana and examples from South America include Colombia and Brazil.
7. Is there any country in the world where “life is equal”?
No. Although Scandinavian countries like Denmark, Norway and Sweden are among some of the countries with the lowest levels of inequality.
8. So how do we get there?
If you look at the Scandinavian countries, they have managed to balance the socialist and capitalist economic ideologies by having very high taxes and generous social welfare services but still having low levels of government interference in markets and regulation. We also need a way of redistributing resources in our economy that can work our context and there are various channels that can be used.
9. That’s it? Surely it must be harder?
It sounds simple when we say redistribution is the solution but actually achieving it in a meaningful way has proven to be quite challenging. In South Africa, the main factors that need to be addressed are;
- job creation;
- reducing tax evasion by multinational corporations – by improving our policies on transfer pricing, specifically concerning base erosion and profit shifting (BEPS);
- sharing the tax burden fairly – by shifting taxation from labour and consumption toward capital and wealth;
- increasing minimum wages; and
- providing quality education and health care.
10. So what are we waiting for?
Changing tax policy is challenging but it is not impossible. We need to get to a point where companies and wealthy individuals do not get away with paying minimal tax. In South Africa, we need to create more jobs, but more importantly, we need to address the wage inequality in our economy. Even if you create jobs whilst people are earning low wages, inequality will continue to increase, and that is why you need to improve your human capital by investing in quality education so the majority of your labour force has some form of skill.
The Daily Vox, in partnership with Oxfam South Africa, will be highlighting the challenges of socio-economic inequality in a special project this month.