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If ever you’d wondered what the hard facts are behind South Africa having the largest income gap between the rich and the poor in the entire world, then reading the piece below has the potential to re-calibrate your views on the matter entirely.
It’s a data-based argument for bold steps to redress the wealth disparities inherited from our colonial and apartheid eras, mostly through boosting education, which has been scientifically proven to be one of the greatest contributors to increased income levels.
Here’s an encouraging teaser; from 1993 to 2012, the black middle class grew by 1300% to an estimated 4.2 million adults, but while the wealth base of black South Africans has increased in leaps and bounds, most of the black population is still trapped well below the middle-class income definitions, very often living in extreme poverty.
Bridging the inequality gap is still the single most effective thing we can do to secure our political and economic future. – Chris Bateman
By William Pulles*
We are all very aware of the huge inequality gaps in South Africa.
For a good overview on the major contributing factors and profile of inequality in South Africa, read the StatsSA 2014 Report titled: “Poverty Trends in South Africa – An examination of Absolute Poverty between 2006 and 2011”.
This article is an effort to simplify some of these complex issues so that South Africans can better understand the real causes of the problems of poverty, unemployment and inequality bandied about so often.
History of inequality
The issue of poverty and inequality in South Africa is a very complex issue with many roots that go back centuries to the colonial system first implemented by the British.
This system was aimed at disempowering and destroying existing stable black communities in order to provide cheap labour for South Africa’s mines and industries. This system was continued during the apartheid era and the effects thereof continue to be felt today and will still be with us for decades to come.
This history of inequality in South Africa is very comprehensively addressed and discussed in Sampie Terreblanches book titled “A History of Inequality in South Africa 1652 – 2002, most recently reprinted in 2016.
This very detailed book is recommended reading for all South Africans as it clearly documents the systemic exploitation of South Africa’s black population by the colonial powers and later by the apartheid regime, destroying the value system and wealth base of the black population.
People that claim that because apartheid died 22 years ago that the legacies thereof are a figment of the imagination and that the ANC government is simply making excuses for its poor performance by referring to apartheid legacies, need to educate themselves on the real story and Sampie’s book will do this.
Unequal wealth
The poverty picture in South Africa has many facets which are too complicated to deal with in a short article, but two important ones are generational wealth and income.
The discrepancies in generational wealth in South Africa are primarily linked to race and stem from the systemic exploitation of black people over the last 300 years.
While most white people do not enjoy significant wealth in the true sense of the word, and there are relatively few white South Africans that can be considered to be truly wealthy, the average white wealth is still significantly higher than the average black wealth.
Whereas the average white family lives in a brick house, owns a car and is able to eat reasonably well and at least provide for good basic education of their children, this is not the case with the average black family.
This difference in wealth can still today be largely ascribed to the legacies of colonialism and apartheid, especially with regard to land where very few black people have title to their own piece of land, even if it is only a small urban plot with a humble house.
The policies of BEE and transformation are intended to address this legacy, although the success thereof is hampered by the practice of apportioning these opportunities to a small politically-connected elite. However, these policies have been successful and this success is measurable through the very significant increase in the black middle class since the demise of apartheid.
Read also: South African GDP hides growing levels of poverty: StatsSA expert
While there are different definitions of middle class, Credit Suisse (Business Tech, 13 October 2015: This is what the middle class in South Africa looks like) defines it as people that have a wealth of between R700 000 and R7m with the upper class having wealth above this value.
In 1993, the black middle class was estimated to consist of around 350,000 adults. By 2012, the black middle class had grown by 1300% to an estimated 4.2 million adults.
The middle class in 2012 was estimated to be 51% black, 34% white and 15% for the other race groups. In 2015, the South African middle class had grown to represent 13.7% of the population.
This compares very well with the middle class in BRICS countries – Brazil at 8.1%, Russia at 4.1% and India at 3%. The wealth base of black South Africans has therefore increased tremendously since 1993 but the inescapable problem remains that the majority of South Africa’s black population is still trapped below the middle class and very often in extreme poverty.
Unequal income & income redistribution
The second component of inequality and poverty relates to income which obviously has the potential to also slowly address the wealth disparity. The income inequality has proved to be a very tough nut to crack as income is primarily linked to employment which is again directly linked to level of education and the state of the economy and on this front the ANC government has failed miserably.
While government’s tax regime and spending patterns do make a very significant impact on alleviating poverty, the only long-term sustainable solution must be based on improved education and a growing economy.
The redistributive nature of South Africa’s tax and spending programmes is very thoroughly discussed in a 2015 paper (Woolard et al, October 2015, How much is inequality reduced by progressive taxation and government spending?).
The information discussed in this paper is based on 2010 data and it showed that while the wealthiest 10% of the population earned 63.7% of the income, they actually paid 86.9% of the personal income tax.
So 10% of the population pays 86.9% of the personal income tax while 50% of the population pays no personal income tax at all. In fact, the wealthiest 20% of the population pays 97.5% of the personal income tax. This indicates that the South African taxation system is mildly progressive insofar as the wealthiest pay a higher proportion of taxes than their share of the income.
Read also: Shawn Hagedorn: Escaping SA’s poverty trap requires global integration
Even more important though, is the government spending pattern which is highly progressive with practically all social spending (housing, health care, education, water, electricity, social grants) going to the poorest segments of the population.
In fact, the combination of progressive taxation and progressive spending, changes the situation from one where the richest 10% has a combined market income of over a 1000 times more than the poorest 10% to one where after taxation and social spending, the final income of the richest 10% is down to 66 times that of the poorest 10%.
In terms of Gini Coefficient, the pre-tax and social spending Gini of 0.77 is reduced to a post tax and social spending Gini of 0.59.
The reality therefore is that there is a massive redistribution of income from the wealthiest sector of South Africa’s population to the poorest sector and there is a limited ability to increase this redistribution without a major increase in the economy of the country and a corresponding increase in the tax base
The primacy of education
There is a strong correlation between income and education and the StatsSA report on Poverty referenced in the first paragraph states the following: “The relationship between education and poverty appears strong – as the poverty measures reflect, the lower the level of education attained, the more likely adults were to be poor and experience more intense levels of poverty”.
In fact, the correlation is exceptionally strong, especially when the type of tertiary education (i.e. short course, diploma, degree, post-graduate degree) is taken into account.
For example, based purely on level of education attained and assuming that all people with the same level of education are paid the same salary regardless of race and factoring in the age and experience effect (average age of a black person in SA is 21 and a white person is 38), education differences alone would result in the average white person earning around 8 times more than the average black person.
The fact that the difference is only between 5 and 6 times is due to the effects of employment equity and the fact that 40% of black professionals are employed in the public sector versus only 13% of white professionals (a total of 77% of public sector workers are black).
According to a UCT research paper (Business Tech, 24 February 2016, Government vs private sector salaries in South Africa), the average salary in the public sector is 49% higher than in the private sector, therefore disproportionally pushing up the average black income.
The key message here though, is that education (coupled to a growing economy to absorb the educated people) is the most effective and sustainable route out of poverty.
For this reason, it is critical that government and the private sector find a funding model that ensures that no qualifying student is denied access to appropriate education because of a background of poverty.
This applies to education at trade schools, colleges and universities and to be sustainable the problem needs to start receiving attention at the pre-school level. There is also a strong argument to make that those students who come from families in the lower middle classes and below should receive a once-off opportunity for completely free education (i.e. no need to pay back the cost of education).
This benefit will not be passed onto their children as it will be expected of educated people to plan better for the future of themselves and their children, to invest in developing their own wealth and to have less children in order to not propagate poverty onto the future generations.
A bold step needs to be made to redress the wealth disparities, legacies and inequality inherited from the colonial and apartheid eras and an educational boost may well be the best way to make these amends in a manner that is sustainable into future generations.
- William Pulles is an environmental scientist, entrepreneur, farmer, student of current affairs and a South African who believes education is the way out of the poverty and inequality traps.
* For more in-depth business news, visit biznews.com or simply sign up for the daily newsletter.
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