Focus on inequality distracts ANC from tackling the real issues
While apartheid is dead the outdated feudal system keeps the country’s poor dependent on the governing party
Discovering it could defang critics with one word, the ANC institutionalised the term “inequality”, and most people now emphasise it when describing SA’s economy.
Whereas the top policy objective of the past 25 years needed to be growth sufficient to defeat poverty, the national dialogue has failed to challenge the political expediency of overprioritising redistribution and transformation.
Chanting “inequality” muzzles critics through referencing apartheid’s legacy, thus rendering transformation policies unimpeachable — despite their entrenching poverty through undermining growth. Tying economic debates to moral issues ranging from decades of oppression to today’s seemingly irrepressible corruption precludes a builder’s mentality.
While pre-1994 SA produced skilled professionals who could run Eskom and create successful private sector companies, it did not produce commercially minded experts in economic development who could adequately integrate SA into the global economy. Such expertise is necessary to constructively counter the ANC demonising inequality as if it were apartheid reincarnated. Rather than overwhelming such self-defeating contentions with evidence-based objections and a potent plan, they reverberate in an empty echo chamber.
The inequality issues of prosperous nations are irrelevant here. Inequality amid broad prosperity is a different economic species than inequality reflecting the majority being perpetually poor. Consider how today’s rich and poor communities both confront daunting nutrition issues, yet their causes and cures are worlds apart.
Objectively appreciating how humanity has advanced astonishingly over the past two centuries is a prerequisite for policy success
To fully understand what is wrong with SA’s political economy — and to then fix it — a skill set is required that appreciates this country’s prospects given 21st century commercial dynamics. Instead, the ANC prioritises creating black industrialists-oligarchs while ignoring how inward looking and backward facing this country is amid a highly integrated global economy that is reinventing itself at an ever faster pace. Such reality rebuking is preconditioned by an inequality trance that condemns a growing majority of South Africans to chronic poverty.
Objectively appreciating how humanity has advanced astonishingly over the past two centuries is a prerequisite for policy success. Governing party hypnotists depict this period as a struggle against colonial oppression. While fighting colonial oppression was certainly admirable, progress mostly reflects builders embracing innovations — such as cross-border dispute mechanisms that have rendered obsolete colonial-styled exploitation.
Depicting history as an oppression narrative seeks to entrench political elites, yet it devastates growth prospects while substituting dependency for upliftment. The world became a much better place not because humans suddenly became kinder. Rather, superior alternatives were invented to counter the might-is-right rule of the jungle that had always prevailed.
Future scholars will look back at today’s SA and recognise a well-known pattern. The ANC’s instincts are no more democratic than they are capitalistic. Despite adopting Marxist-Leninist buzzwords, they aren’t communists either. The ANC’s instincts are distinctly feudal.
Feudalism, in various forms, was the prevailing social structure for thousands of years until democracy and commercial dynamism offered political and economic freedoms. Elections imprudently legitimised the ANC’s counterproductive political-economic blueprint, which subjugates the business sector while condemning poor families to being perpetual wards of the state.
Humans are the dominant species because we create large yet adaptable societies. But this requires shared beliefs. The European feudal system hijacked Christianity’s “original sin” and then helped develop the “divine rights of kings”. The formula co-opted a belief system to exploit guilt and demand submission.
The ANC depicts apartheid as white South Africans’ “original sin” and therefore transformation must be accepted, just as Christians were persuaded to accept the “divine right of kings”. Substituting “inequality” for “apartheid” has been remarkably effective. Whereas apartheid is dead, SA’s rising inequality is among the world’s highest.
Redistribution, transformation, patronage, unions and consumer indebtedness all rely on the state to keep inflation-adjusted cash packets flowing. Such feudal-style dependencies have inspired electoral loyalty. However, this political-economic structure was always destined to exhaust the fiscus and the broader economy.
Where the wheels come off is at the intersection of politics and economics. The objective always needed to be political and economic freedom for all. This requires a vibrant political system that rejects feudal-styled dependencies in favour of focusing on competitiveness and global integration. This formula has nearly eradicated chronic poverty in all other regions. For us to get there our political discourse must dissuade the ANC from exploiting — and worsening — the nation’s inequality. As this isn’t happening, there are no workable growth plans under consideration. Such deficiencies are mutually reinforcing.
Nations with high poverty have high inequality, which can be overcome by reducing poverty using proven tools. Conversely, inequality in prosperous countries is a mesmerising topic as remedies are so elusive. This largely reflects the pace at which the global economy is being fundamentally reconceived. Rapid changes tend to provoke unequal outcomes, at least initially.
Inequality is a plus when it fuels high volume upliftment from poverty. Asian economies could not possibly have achieved the region’s world-changing growth of recent decades without being able to sell to far wealthier westerners. Consequently, East-West income gaps have plunged.
SA’s excessive emphasis on transformation undermines competitiveness, thus precluding Asian-styled growth through surging exports. Instead, government policies create significant dependencies on redistribution. Over half our population gets by on less than R50 a day, despite this group’s average income having been doubled through social grants.
SA cannot construct a compelling investment thesis for lack of access to sufficient consumer purchasing capacity. This traces to a political dispensation that has sought to replace oppression with state dependency. While an inequality narcosis makes this possible politically, the economics will remain insurmountable.
If the Treasury borrows R1bn for 10 years, it should be able to generate an additional R100m in growth each year to cover interest payments while also being able to pay the principal back at maturity. Instead, our government borrows to sustain an unsustainable welfare state. Conversely, if 1-million affluent foreigners emigrated to SA, the country's inequality and job prospects would both spike as the key impediment, market access to affluent consumer, would erode.
Inequality is not unfair when a few get rich from creating immense value that benefits millions. Movie stars and sports heroes entertain and inspire. Most business overachievers add much value.
The greatest good for the greatest number concept must be combined with the knowledge that the correlation between income and happiness is high between poverty and middle class, but then it drops sharply. Rich people aren’t much happier than those that enjoy stable middle income lifestyles. Those who have to worry about food are far less happy.
It is not just the global economy that is undergoing profound changes. Attitudes towards women, same-sex marriage and the environment have advanced rapidly in recent years. If a comparable shift rejects materialism, SA prioritising income inequality — at the expense of condemning most South Africans to chronic poverty — will look as morally indefensible as apartheid.
If societies become much less materialistic being excessively rich will be socially ostracised, akin to being extremely overweight. Competing and rewarding superior outcomes, however, runs deeper than cultural preferences. In military cultures, medals encouraged bravery. That income now denominates the scorecard represents a welcome shift from fighting foreigners to building with them.
SA’s political economy will remain dangerously dysfunctional until the political exploiting of inequality gives way to sustained high growth through much greater global integration. We must embrace a builder’s mentality.
• Hagedorn is a strategy consultant with a background in accounting, banking and investment analysis in New York and London. He has a graduate degree in international business and qualified as a CPA and CFA.