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Wealth gap presents challenge for policy makers
October 12, 2009
By Donwald Pressly
South Africa is reducing poverty in real terms but it is doing so at a price: the gap between the rich and poor - particularly among Africans - is widening quite strongly and the white minority has continued to grow richer at a faster rate than the black rich.
The data released by Haroon Bhorat, UCT's development policy research director, has opened up a hornet's nest in governing party circles, with Ben Turok - a left-leaning MP who was on Thursday put in charge of political education in Parliament - questioning whether South Africa could continue on the road of former finance minister and now Planning Minister Trevor Manuel's free market "orthodoxy".
He was joined by ID finance spokesman Lance Greyling, who argued that high income growth among wealthy people had actually distorted - and constrained - growth.
The figures emerged at a discussion at Parliament - hosted by Economic Development Minister Ebrahim Patel - on poverty inequality and the nature of economic growth. The figures show that white household income grew by 13 percent a year while wealthy Africans' income grew at a maximum of 9.5 percent.
Some good news was that incomes among the poorest grew an annual 20 percent between 1995 and 2005 while the richest 10 percent had seen their income grow by 10 percent a year.
To counterbalance the economic distortions, Patel stressed that decent work - for which Cosatu has been campaigning - needed to be at "the absolute centre" of policy. The notion of decent work - and antagonism to labour broking - has grown since the 2007 ANC Polokwane conference.
Patel was responding to Bhorat's report that, while income had increased for all groups and there were fewer very poor families, inequality between rich and poor had exploded. This inequality was described as being the worst in the world.
Turok, in a direct stab at Manuel, said "Manuel is renowned both in South Africa and abroad for having followed a pretty orthodox package. That package stabilised our financial fundamentals... but it did not overcome the legacy of poverty, unemployment and inequality.
"New thinking is required on how that orthodoxy can be modified and even rejected in order to tackle the basic issue."
Turok indicated that it was too simplistic merely to dwell on the Cosatu-Manuel clash over policy planning.
Cosatu has long questioned what it regards as an overemphasis on fiscal prudence and inflation targeting.
Greyling said: "What the research reveals is the failure of the economic policy over the last 15 years to grapple with the structural problem in our economy.
"A lot of people talk about the growth under (former) president (Thabo) Mbeki and (former finance) minister Manuel but that growth was not particularly spectacular when compared to other emerging economies. That growth was largely exogenous forces such as high resource prices."
Between 1995 and 2005 South Africa failed to build depth into the economy, said Greyling.
Bhorat said social grants - which now go to more than 13 million South Africans - were an effective poverty alleviation instrument, but Moazam Mahmood, an International Labour Organisation specialist, noted that they did not contribute to economic growth.
Adding to the country's woes, Mahmood said that the dramatic growth in the Gini coefficient - which measures the gap between the rich and the poor - from about 0.64 to 0.69 was normally only related to an "explosive" event. Bhorat said this could be attributed to the 1994 political settlement.
Mahmood argued that the widening wealth gap could result in social instability.
Greyling said one of the reasons for the global crisis was growing inequality. "People are not able to keep up the aggregate demand in terms of purchasing goods," he said.
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