Picture: THE TIMES
Picture: THE TIMES

If the Covid crisis downgrades our devotion to materialistic pursuits, expect political resistance towards practical solutions to crumble. The ANC’s success at framing economic issues within an inequality context would collapse. Fighting poverty through creating private sector jobs could then become a unifying priority.

Being locked down amid a global pandemic rattles perspectives. Time slows while life seems shorter. Fewer discretionary purchases seems discreet. Googling “father of capitalism” returns Adam Smith. But the 18th century professor of moral philosophy didn’t use the term “capitalism”. When interpreting industrialisation’s effect on consumers and business people he depicted an emerging “commercial society”. Are we living through a comparable, though more sudden, shift?

Industrialisation spiked worker productivity while mass production caused consumer prices to plunge. Upward mobility and materialism became mutually reinforcing. More recently, the industrial model has given way to continuous innovation and globalisation driving productivity gains. The two eras reduced the world’s extreme poverty from more than 90% to less than 10%. 

The lockdowns and virus fears have been catastrophic for some sectors, such as hospitality. Yet the largest differentiation has been between middle class families, whose economic circumstances have on average been substantially diminished, and low-income households, where severe hardships remain routine.

Our policymakers reflexively view this pain distribution through an inequality prism corrupted by excessively materialistic values. Inequality metrics appropriate for wealthy nations are then exploited here to advance narrow interests.

A high income country could have low poverty and unemployment, along with a healthy growth trajectory, yet it’s income inequality score could match SA’s. To consider such inequalities comparable would be disparaging towards tens of millions of downtrodden South Africans.

Food insecurity crushes happiness while provoking desperation-inspired habits. Coping denies aspirations. Downgrading from wealthy to middle class is nothing compared to descending from middle class to poverty. Hippy types are not wrong to see two income classes: poor and not poor.

Industrialisation didn’t just offer upward mobility, it required it. Peasants couldn’t flock to factory jobs and just work a few hours a week to maintain their subsistence level incomes. Consistently high output was required to justify the investment in factories. Henry Ford even paid his workers aggressively so that they could afford to buy his cars. He didn’t question whether they needed to own cars.

“Virtue is its own reward”, but can the same claim be made of materialism? Whereas Smith personifies classical economics, it was the neoclassical economists who endorsed materialism by asserting that consumers seek to maximise their “marginal utility” while companies seek to balance marginal costs with marginal revenues.

However, we now benefit hugely from digital products, where the marginal costs of production and transport are often zero. Yet it is the secondary effects that are truly disruptive. Consider how combining phone apps with self-driving algorithms will curb the pursuit of status through car ownership.

Unlike poverty prevalence measurements, marginal utility and inequality metrics reflect materialistic values. But today’s ultra rich don’t go to work to expand their buying power. Rather, many are hands-on innovators whose wealth reflects their wealth creation prowess and passion for building. Conversely, many employees are cash-poor by month’s end even after many years of above-inflation wage increases.

An overdeveloped redistribution reflex by politicians is economically toxic. It discourages innovation and risk-taking. Instead, unfair impediments must be removed while directing resources to maximise inclusive growth. Subsequent variations in income and wealth will then reflect personal choices and attributes.

If those struggling financially believe time is on their side, political pressures for more equitable outcomes can be channelled productively. Most nations have sustained high growth by making their current citizens far better off than their ancestors. Before Covid, our ruling elites framed economic issues within an inequality context to the point of blocking growth, thus expanding unemployment and poverty.

As the pace of change increases at an increasing rate, maximising employment requires having innovative business leaders managing much of a nation’s savings — as is commonplace in high growth countries. A regulatory environment encouraging job-creating investments is also required. Having substantial wealth concentrated among business builders who create wealth also increases a country’s resilience during downturns. This becomes even more desirable when high government and household debts compound vulnerabilities.

China’s four decades of nearly 10% annual growth was launched by it rejecting equality focused policies to embrace growth through global integration. The creed “let some people get rich first” empowered them. Similarly, the “American dream”, and its counterpart in other prosperous nations curbed the political expediency of taking from the rich to give to the poor.

None of our leaders can offer a workable growth plan so long as our economic issues are framed by politicians exploiting injustices. The pandemic could correct this by outing materialism’s shallowness, thus shifting the focus to reducing unemployment and poverty by increasing competitiveness and exports.

Hagedorn is an independent strategy adviser.

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