I was born in and when I was a teenager, South Africa was, of course, one of the very important countries that I was always hearing about. When I became an adult in in Paris, we were commemorating the th anniversary of the French revolution.
Monday, 3 November, - It is often said to be the most unequal, but that is incorrect. A number of countries, for example Namibia and Seychelles, have higher gini coefficients the measure most often used to measure income distribution than does South Africa1.
There are a number of other countries that are clearly very unequal - some major oil producers for example - but, for obvious reasons, choose not to measure the extent of their inequality.
It should be noted that published gini coefficients measure distribution of income not distribution of wealth. This is because household wealth is notoriously difficult to measure. Other than the value of property, and possibly share ownership on the stock market, it is hard to know how wealthy individuals are.
Even property and shares may be held in trusts that are not easily linked to individuals. Prices of assets, including shares, may fluctuate considerably and the values of, say, paintings or jewellery cannot be determined until they are sold.
Wealth is also not the same as income. There are many examples of wealthy individuals living in homes that have over time appreciated hugely in value, but whose incomes are dramatically lower than their wealth suggests. Many individuals with high incomes consume all they earn and may even borrow heavily to support lavish lifestyles.
Their wealth may actually be very low. Despite these problems, many commentators switch between talking about income and wealth inequality as if the two terms are synonymous. The importance of distinguishing between the two will become obvious later. Inequality Matters Why does inequality matter?
For decades following the work of Kuznets2 many economists argued that inequality was an inevitable part of economic development.
Kuznets argued that in developing countries economic growth initially leads to increasing levels of inequality. Rich people save more than poor, so inequality aids the process of capital accumulation in poor countries.
But as economies develop, larger portions of their populations move from agriculture into other sectors of the economy and their skills bases expand.
Therefore a point is reached where inequality falls. Rich countries, according to Kuznets, should be more equal than poor countries. In the s and s this observation was supported by the empirical evidence. But more recently inequality has clearly been increasing in developed countries.
A number of developing countries, such as Brazil and indeed most of Latin America, have substantially reduced their levels of inequality. Processes other than those identified by Kuznets have clearly been at work.
There are also clear moral and political reasons why inequality is bad.
A World Bank report on South Africa4 traced the differences in life opportunities for South African children and unsurprisingly found large differences based on race, gender, location and household income.
Whether a person is born a boy or a girl, black or white, in a township or leafy suburb, to an educated and well-off parent or otherwise should not be relevant to reaching his or her full potential: This is at the core of the equality of opportunity principle, which provides a powerful platform for the formulation of social and economic policy - one of the rare policy goals on which a political consensus is easier to achieve.
Such differences of opportunity are morally reprehensible. A further reason why inequality is bad, especially when the inequality is easily identifiable along racial lines as in South Africa, is that it enables politicians to dodge difficult economic questions and promote seemingly simple solutions to what are very complex problems.
Poverty, lack of job creation, lack of public service delivery can all be blamed on inequality rather than policy or political failure.
If inequality is the cause of all problems, then the solution to all problems must be to take from the rich and give to the poor.
It can then be argued that it is the selfish unwillingness of the rich to share what they have gained at the expense of the poor that holds back economic salvation.
Chang et al 6have shown that nationalisation of mines occurs most often in economies that are unequal. In South Africa the former President of the African National Congress Youth League ANCYLfor example, was able to promise university students that all education in South Africa would be free if the mines were nationalised7, even though the arithmetic shows that this clearly would not be possible.
So high levels of inequality mean that necessary, but difficult, policy decisions are avoided.
Economic performance and welfare suffer as a consequence. Exposure of the enormous bonuses and salaries earned by the financiers whose excessive risk taking had plunged the developed world into crisis provoked public outrage.
This was compounded when the costs of rescuing the financial system from implosion were absorbed by taxpayers, but the risk takers who had caused the problem almost immediately started earning large bonuses again.In order to solve this problem and develop the South Africa's social capital, numerous NGOs have called for the introduction of the Basic Income Grant (known as BIG) that they have been promoting since as a very inexpensive (if not low-cost) and easily implementable policy against poverty in South Africa.
Such a strategy would reduce poverty, but work by van der Berg 16 shows that its impact on income inequality would actually be quite modest.
This is because of the high degree of income inequality within the workplace. The largest cause of income inequality in South Africa lies within the workplace. inequality in South Africa, general taxes that have been found to reduce inequality hold great promise for ensuring an equitable health care financing system and addressing income inequality.
Despite significant poverty reduction in South Africa between the end of apartheid in and , at least million more South Africans have fallen into poverty since , the report found.
A successful strategy of poverty reduction must have at its core measures to promote policy mirrored elsewhere in South Asia and Africa. Initial levels of income inequality are important in determining how powerful an effect growth has in reducing poverty.
For example, it . Key messages. On average—and taking into account population size—income inequality increased by 11 percent in developing countries between and