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Reducing Social and Economic Inequality in South Africa

Introduction

Extreme socio-economic inequality in South Africa remains obstinate, despite decades of transitioning to democratic rule. By contrast, poverty levels have decreased due to deliberate redistributive policies put in place such as progressive tax system and enhanced cash transfer programs (Sulla & Zikhali, 2018). Also, South Africa recorded relatively stable economic growth in terms of rising levels of real gross domestic product since commencement of democracy in 1994 up to mid-2008 when growth began to stagnate (Stats.SA, 2019) as a result of the country’s vulnerability to shocks in the global market.

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However, the freedoms associated with democracy have not quite translated into comparable economic and social shifts. The legacy of apartheid continues to be a determining factor of life opportunities for many South Africans. National income is unevenly distributed as depicted by a gini index of 0.63 (WorldBank, 2018) which depicts one of the highest levels of income inequality globally. In addition, the wealthiest 1% of the population own more than half of the nation’s wealth (Stats.SA, 2019). Nevertheless, these data has limitations and masks the extent of disparities that exists among the different groups on the income distribution scale, in terms of available opportunities.

Economic inequality measurements tend to focus on average outcomes that may not be representative of the majority of a population size, thus leaving out the most vulnerable. This unidimensional approach is also unable to detect social exclusions faced by disadvantaged individuals and groups which have resulted in intergenerational inequality traps. Therefore, it is imperative to assess and monitor inequality using a more comprehensive approach to reveal the various ways inequalities manifest and interact, the underlying drivers that create and reinforce them, the impact on society at large and most importantly, appropriate policies to tackle inequality from the root. This paper therefore seeks to explore the inequality trends in South Africa post-democracy (1994 to date), with a view to highlighting the multi-dimensional nature of existing inequalities in the country, the extent to which social and economic inequalities impact the scope of economic development and proffer possible policy recommendations.

Concept of Inequality

There are varied interpretations of what inequality means. For the purpose of this paper, inequality connotes unequal status, rights, and opportunities that exist at both global and national levels (UN-DESA, 2015). This definition aligns with Sustainable Development Goal (SDG) 10 which seeks to reduce inequalities connected to economic and social issues within and between countries. Global inequality also involves disparities not just in terms of comparing average living standards between countries, but analysing the gap in absolute terms between all citizens of the world (Milanovic, 2016).

Most discussions and measurement of inequality relate to vertical inequality i.e. inequality among individuals as described by (Collier & Hoeffler, 2004), and is generally confined to a few economic variables, such as income, wealth and consumption. In this arena, the Gini coefficient and Lorenz curves have been extensively applied. Beyond vertical inequality, (Stewart, et al., 2005) explains other circumstances that depict economic and social disparity, discrimination, and disproportionate treatment between groups in a society in the form of horizontal inequalities. These group-based disadvantages cannot be ignored because the groups in question cut across the different social stratifications that make up the vertical model.

The social identities are often socially ascribed from birth, and hence harder to shed e.g. race and gender. In addition to economic disadvantages, horizontal model captures the social dimension such as access to education, healthcare, housing, political voice, property rights and also outcomes in the form of human indicators (for example, life expectancy or literacy). The link between vertical and horizontal inequalities can be further explained by the theories of opportunity and outcome (Bourguignon, et al., 2007) , which generally consider inequalities in terms of differences in personal/social circumstances and standard of living respectively. More importantly, it is the intersection between these multidimensional inequalities, i.e. the interplay between economic deprivation and social discrimination that serves to define the most severe and often the reinforce exclusion in societies (Crenshaw, 1989; Kabeer, 2010).

Relationship between Inequality and Economic Growth

Extensive literature and empirical studies conducted by researchers indicate an intricate link between inequality and economic growth . Some scholars argue that inequality is a necessary outcome of the rewards to innovation and risk-taking and will eventually decline through the process of market driven economic growth (Kuznets, 1955). This position has however been disputed, with evidence that inequality of both wealth and income has been continuously increasing over the last three centuries (Pickett & Wilkinson, 2009). (Bourguignon, 2003) posited that an increasing level of economic growth could lead to rising levels of inequality in the society if the driving force for growth is not inclusive, while (Ravallion, 1997; DeJanvry & Kanbur, 2005) suggests income inequality can only be reduced through significantly high levels of economic growth.

Another school of thought posits that excessive income inequality hinders the full realisation of human potential and depresses investment in physical capital, two key proponents for long-term sustainable growth. Comparisons of developed and developing countries by (Berg, et al., 2018) showed that lower inequality is highly correlated with faster growth in for countries irrespective of developmental stage, meaning more equal economies grow faster while extreme inequality causes stagnant economic growth (Stiglitz, 2012). Also, extreme inequality is associated with an upsurge in crime rate and violent conflicts (Stewart, 2008; Shaw & Kriegler, 2016) which have the potential to undermine development. (Pickett & Wilkinson, 2009) also highlight how inequality can be associated with diverse social vices.

South Africa is a good example of a country where economic growth achieved is enjoyed by a declining share of the population, making poverty reduction gains harder to realize. Simply put, although the incomes of the poor has increased relative to the poverty line, the incomes of the rich keep growing faster than the incomes of the poor. (Leibbrandt, et al., 2011; Ndou & Mokoena, 2019) provide empirical evidence to suggest that increased inequality has slowed down growth in South Africa. The importance of inequality reduction as a developmental goal is therefore important, with a need to prioritise policy actions for the most excluded and disadvantaged groups.

Economic Inequality in South Africa

Various studies conducted on South Africa using economic inequality measurement tools, depict a staggering gap between the rich and the poor for a prolonged period. The income inequality trend has not changed much since 1994. At 0.63, the gini index (which is a fallout of the concept of the lorenz curve) suggests an uneven income distribution with most of the income skewed towards a few citizens. In comparison with other upper-middle income countries, South Africa’s inequality is extremely high and unusual. Similarly, the palma ratio, reveals that income of the top 10% is 7 times more than the income of the bottom 40% of the population. This position is clearly an outlier across the globe.

South Africa’s incessant inequalities are inherent in its apartheid legacy (Reich, 2017), a pre-democratic era which created a divide between groups within the country, based on social stratification majorly along the line of race and ethnicity. These social differences formed the basis for uneven allocation of resources, rights and opportunities within the society. Patterns of poverty and inequality continue to be racialized. Black African households, which make up more than three-quarters of the national population, account for less than half of the country’s total annual household income (Philip, et al., 2014). In 2015, 47% of black households were living below the poverty line while less than 1% of white households experienced poverty (Sulla & Zikhali, 2018).

Other economic inequalities persist in South Africa. For instance, emphasis on wealth accumulation could be used to explain inequality of outcomes as a result of disadvantaged starting point of the poor who are unable to build wealth as quickly as those who come from a wealthy background (Chatterjee, 2019) leading to increasing wealth inequality. The disproportionate share of the country’s wealth with the gap increasing significantly over the years. Therefore, we can conclude that disproportionately limited opportunities have become intergenerational, with children of poor households less likely to move out of poverty to the middle class.

Multidimensional aApproach in Tackling Inequality

The uncompromising nature of inequalities faced by deprived groups in South Africa even after decades of democratic rule, suggest that these groups have become trapped in an inequality web or cycle, passed down from generations. As explained by (Stewart, 2009), inequality traps faced by groups are more ingrained and harder to shake off, and the reasons for such persistence is the interaction between their limited capabilities and capital/assets which tend to reinforce their situations over time. Analysing the multi dimensions of inequality relating to these traps provides a better understanding and reveals undetected disadvantages faced by individuals and groups.

Unequal opportunities restricting access to productive labour markets, post-secondary education, financial services, healthcare, etc. can become potential drivers for income inequality, thereby reducing the possibility of integrating the lower income spectrum from contributing towards larger sustainable economic growth. Ultimately limiting individual and group outcomes as well as the aggregate performance of the economy (Finn, et al., 2016; Kerr & Wittenberg, 2017). Uneven opportunities contribute significantly to South Africa’s inequality dilemma, constituting 45% of the total inequality experienced (Sulla & Zikhali, 2018). Conceptualising existing unequal opportunities is therefore key to revealing reinforced discriminations, and enable more effective progress monitoring.

The SDG 10 country progress reports lists unfavourable labour market outcomes as the major direct cause of income inequality in South Africa. Some of the determinants of employment outcomes is uneven distribution of jobs and wage disparities (Hundenborn, et al., 2018). In 2017, unemployment rate faced by white citizens was 6.7% while unemployment amongst black population stood at 31%., with females more affected than males. This has resulted in overdependence on social grants by vulnerable groups and less on income from the labour market.

The economy has undergone structural transformation with a decline in primary sectors (consisting of large numbers of unskilled or semi-skilled labour) and expansion of tertiary sectors (comprise skilled labour). Growth has been driven by the services sector which accounted for 70% of gross domestic product (GDP) in 2016, up from 60% in 1994 (Stats.SA, 2019). Labour demand has therefore shifted away from unskilled to more opportunities for the skilled. The dominant poverty trap amongst historically disadvantaged groups in the country limits mobility of the unskilled group of these populations from upscaling their skills creating a shortage of skilled labour thereby increasing the premium for skilled labour often occupied by the privileged groups. In addition to experiencing disproportionate employment outcomes, black citizens are at the lowest band of wage earnings when they are employed.

Whites, in contrast, earn substantially higher wages than all the other population groups. From a gender perspective, female workers earn approximately a third less than male workers who tend to have better paying jobs (Philip, et al., 2014). The average monthly real earnings across race, and exposes the level of wage disparity with blacks earning a third of their white earnings. Findings published by the United Nations Development Programme explains that the financialization of the South African economy has become a constraint to job creation. Private investment has been flowing into the financial markets instead of productive investment, causing heavy reliance on public investment to stimulate growth and by extension jobs.

Inequality of opportunity in education is particularly evident in accessing tertiary education in South Africa. In 1995, those with post-secondary education were 34% more likely to participate in the labour market than those without, this probability increased to 48% in 2015 (Sulla & Zikhali, 2018). Living in a household where the head has attained some tertiary education reduces the average risk of poverty by about 30%. This therefore raises concerns regarding low-income families that lack easy access to education grants or credit facilities markets, and incur relatively high costs of sending a child to college. This serves as a major barrier to getting sufficient levels of education to participate actively in the semi-skilled and skilled labour market.

Based on government policies, there are public institutions that provide primary and secondary education at no fee and this has been instrumental in a surge in early school enrolment. However, it was not until 2017 that the government put in place a scheme to provide extremely poor households free tertiary education. This scheme was a fall out of a nationwide protest tagged #FeesMustFall in 2015, with disadvantaged students demanding free higher education. Inspite of the positive steps taken by government, there is still a large proportion of the population who do not meet the criteria for financial aid, yet do not have sufficient funds to access premium higher education.

Social and economic discriminations took a spatial form and remains difficult to overcome because they are structurally entrenched. Opportunities relating to access to infrastructure are often affected by geographical location. These include access to health care facilities and medical aid, clean water, sanitation, energy, etc. Children who grow up in informal settlements and rural communities face a distinct disadvantage (Philip, et al., 2014). During apartheid, socially excluded groups were concentrated in the most disadvantaged locations called homelands, characterised by remote and challenging rural terrains or overcrowded slum neighbourhoods.

Today the country’s poorest municipalities are within the provinces where the largest densities of these homelands were located (Aiyar & Ebeke, 2018). This demonstrates that spatial patterns of poverty have not necessarily shifted over time, as inequalities are most startling in the very spaces where apartheid was most evident. Regional disparities within the market system also occurs because regions because better infrastructure tends to attract private investment and pull savings, thereby making the developed regions even more attractive for future investment. Where all of these multiple disadvantages intersect, the extent of inequality further deepens.

Policy Recommendations and Conclusion

Determining the nature and drivers of inequality is critical in formulating effective policy measures to reverse the inequality trend. Revolutionary reform and policies are required to ensure inclusion of marginalized and most vulnerable groups that suffer social and economic exclusion. The prolonged inequality traps experienced by deprived groups in South Africa, suggest that the market mechanism alone is incapable of turning the tide. State intervention is therefore necessary in reducing the capabilities and capital traps through improvement in the quality of services government provides to ensure adequate access and equal positive outcomes across the population. This may require increased budgetary allocations to higher education and skills acquisition schemes, medical aid, housing facilities, small businesses loans for business expansion and job creation, etc., targeted at disadvantaged groups.

Future interventions that simultaneously stimulate growth and reduce inequalities are likely to be much more effective than interventions that only stimulate growth or reduce inequalities. Creating good jobs for the poor and expanding opportunities through acquisition of skills is an inclusive growth plan that would strengthen the social compact, build a vibrant middle class with a likely positive impact on investment. This is a vital pillar towards achieving the country’s long-term objectives around improving citizen’s welfare. Reduction of income inequality should not be limited to redistribution through the fiscal policy or tax-transfer system alone, but should also include a rebalancing or realignment of the supply-side policies. An optimal monetary response is required to consider the influence of financial globalisation and trade openness channels in order to have a desirable effect.

In summary, this paper describes how the multi-dimensions of inequality interact to reproduce and entrench South Africa’s high levels of inequality, impacting in turn on long-term national development and the scope for inclusive growth, concluding with reflections on the implications of this analysis for a focus on policy. Inclusive growth strategies are essential in order to unlock both growth and equally address inequality. Such strategies include both social and economic policies, aimed at changing patterns of access to opportunity and to the distribution of incomes. It is imperative that all forms of inequalities, both vertical and horizontal, and the structures that entrench them are properly assessed to achieve tangible success in reducing inequality and other related goals.

This is not to negate the value of the existing processes for measuring and analysing inequalities; rather, it is a call to broaden the scope of analysis and bring in the diverse components, bearing in mind that human nature itself is diverse. Besides, recent social mobilisation against other non-economic or social inequalities indicates increased need to pursue social justice. These social inequalities are embedded in social structures and the categorisations form the basis for disproportionate allocation of resources and rights within a society. From the foregoing, it is apparent that interventions to eliminate inequalities in its entirety would be most meaningful where they address the social stratifications that have become so ingrained in society.

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Reducing Social and Economic Inequality in South Africa
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Artscolumbia
Introduction Extreme socio-economic inequality in South Africa remains obstinate, despite decades of transitioning to democratic rule. By contrast, poverty levels have decreased due to deliberate redistributive policies put in place such as progressive tax system and enhanced cash transfer programs (Sulla & Zikhali, 2018). Also, South Africa recorded relatively stable economic growth in terms of rising levels of real gross domestic product since commencement of democracy in 1994 up
2022-02-15 04:02:33
Reducing Social and Economic Inequality in South Africa
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