No Reservations

ANC POLICY: Attempt to limit conspicuous consumption will backfire

YOU WONDER IF ANC Youth League President Julius Malema has read the party’s latest economic policy discussion document, prepared for its 2010 National General Council. He should, as it would make Malema think twice about wearing those Armani jeans and drinking that Moët Champagne.

The reason is that the document more than once makes reference to the need to discourage “conspicuous consumption”. It says in its introduction that addressing inequality requires programmes that will, among others: “Encourage more equitable income distribution overall, including by limiting executive incomes and the conspicuous consumption of luxuries.” Later – in the section entitled “Toward a growth path for sustainable work” – the document notes a few things, then adds: “...the discouragement of conspicuous consumption by the rich”.

You wonder how this ANC policy proposal will translate into reality. Do you slap a tax on Mercedes-Benzes? Do you put up import tariffs on Armani clothes? Ban Moët from South Africa’s shores?

The mind boggles, but you hope this is just one of those “wish list” elements in the discussion document. The fact is that, when people have money, they like to live well. It’s one of the tenets of the capitalist system: the consumers will strive for maximum utility and companies will strive for maximum profitability.

The ANC has been lauded for acknowledging in its discussion document the importance of promoting a profitable business sector. It says: “For a capitalist economy to succeed, the State has to keep business sufficiently profitable.” It also talks of reducing the cost of doing business in SA. That may seem obvious, but to some commentators it was cause for cheer. Trouble is, it doesn’t chime with discouraging conspicuous consumption and limiting executive incomes.

You wonder how the “limitation of executive incomes” will work. This would require an excessive intervention in the market; it’s difficult to see that happening without some buy-in from executives. Finance Minister Pravin Gordhan and Reserve Bank Governor Gill Marcus have both spoken out against high earnings by top executives but haven’t suggested any intervention to stop it from happening.

High executive incomes are a by-product of a capitalist society. It’s up to shareholders to ensure executives don’t earn too much. A recent cover story in Finweek looking at executive remuneration as a proportion of headline earnings found it wasn’t excessive. The fact is that, if the ANC wants profitable business as it says it does, it will have to accept highly paid executives, because high skills demand high rewards.

However, for many that’s morally repugnant in a society with such high levels of inequality. As the discussion document says: “Despite reasonable growth, the economy remained deeply inequitable, with the highest unemployment rate of any middle-income country. The richest 10% of households received more than 40% of the national income, compared to just over 30% in most other upper-middle income countries and the rapidly growing economies of Asia. SA is still one of the most inequitable countries in the world.”

The ANC can’t limit executive incomes without creating havoc. But what it can do is put moral pressure on executives to make them more aware of the realities of the country in which they live. Nobody is saying they should take big pay cuts, however, some gesture from business on that score may help SA’s strained labour relations. Still, inequality will remain a fact of life for a long time to come in SA until more people have the skills to justify higher pay.

Unfortunately, one of the themes of the document is the need for “decent jobs”. In an economy where more than 800 000 jobs were lost last year – and where jobs are still declining despite the end of the recession – being picky about the “quality” of jobs is irrational.