No simple solution to SA’s inequality problem

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SOUTH Africa is one of the most unequal societies in the world. The richest 10% of the population earns 58% and the poorest 10% just 0.5% of national income. The poorest 50% of the population earns 8% of income.

Inequality is reduced only slightly by the social grants (pensions, foster care and child support) now paid to about 16-million people. The poorest 20% of the population derives more than 70% of its income from grants. Yet, even after such grants, this group contributes just 4% of consumption spending.

Extreme inequality is indefensible. It also hampers the very policies needed to reduce inequality and poverty. This is because it provides misleadingly simple "solutions" to what are complex, structural problems. It allows populist leaders to create the illusion that poverty can be ended simply by redistributing existing income. This enables them to ignore the much less appealing truths that inequality can be reduced by only by addressing its complex causes and that increasing prosperity requires sacrificing short-term consumption and investing those savings for improved wellbeing over the long term.

The causes of extreme inequality in South Africa are analysed in a recent World Bank report. The report notes that 70% of the poorest 20% of South Africans are unemployed. This means that the poorest section of the population has been bypassed by the more than 30% increase in gross domestic product per capita since the late 1990s. Without the substantial increase in social grants, the real income of the poorest 40% of South Africans would have declined since the end of apartheid.

This centrality of unemployment as a cause of inequality has important policy implications. No matter how desirable the reduction of extreme wage inequalities, this cannot benefit the poorest in South Africa because they are unemployed. The incomes of the poorest will rise only if employment or welfare transfers increase.

Inequality is not caused only by unemployment. Another structural cause of inequality examined by the World Bank is the differential access to essential services by children in different social groups. Health, education and welfare services improve children’s quality of life and provide human capital growth, enhancing their future access to jobs and income prospects.

The results of the study are very sobering. The World Bank finds that access to primary education is nearly universal in South Africa and is high when compared with similar developing countries. But access to other services, such as clean water and sanitation, electricity and healthy living conditions, is much lower and much more unequal. Moreover, quality of education outcomes is highly unequal, despite high enrolment.

The World Bank states that barring the two exceptions noted above, access in South Africa to other essential services is poor. Progress in improving access to these services has also been relatively slow.

Inequality in access to services is perpetuated with regard to employment. With limited job access by the poor, inequality is transmitted across generations in a "vicious, self-perpetuating cycle".

The World Bank notes that inequality in the opportunity of securing employment has grown, with education attained becoming an even more important determinant in recent years of the likelihood of finding a job. Gender, ethnicity and location are also important, but have fallen in significance.

In South Africa, age is an unusually important determinant of the chances of finding a job. The World Bank finds that age is more than twice as important an obstacle determining inequality in the job market in South Africa than in 17 other middle-income countries. For young job seekers, age matters more than education in finding formal employment.

The World Bank warns that "there are no simple, elegant policy solutions in the quest for equity". Increasing the number of available jobs through economic growth is only part of the solution. People must be equipped, too, with the skills needed to take advantage of such job opportunities. This requires significant improvement in the quality of services delivered to the poor, in particular the quality of education received.

The World Bank report suggests the government should be more open to policy experimentation, including incentives for employing and training young people, incentive-based delivery of public services and rigorous monitoring and evaluation of public service delivery to the poor. Drawing communities into service delivery in constructive ways would be a welcome alternative to the angry protests to which so many poor communities seem forced to resort.

With the right policies, it is possible to bring about improvements in service delivery and to reduce inequality quite rapidly. Most of the Latin American countries to which South Africa was compared provide proof of this.

Brazil not long ago ranked alongside South Africa as one of the world’s most unequal societies. Brazil’s success could provide many valuable lessons for policy makers in South Africa.

• Keeton is with the economics department at Rhodes University.