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Africa is not France, Mr Piketty

Oct 08 2015 07:36
Leopold Scholtz
French economist Thomas Piketty delivered the 13th

French economist Thomas Piketty delivered the 13th Nelson Mandela annual lecture at the Nelson Mandela Foundation in Johannesburg. (Gianluigi Guercia, AFP)

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The 21st century plague

 

FRENCH economist Thomas Piketty’s visit to South Africa last week engendered huge media interest. Not without reason: Piketty, after all, is the author of a controversial book, Capital in the 21st Century, which has sold like hot cakes over the counter – astonishingly so, seeing that it is very academic and not a good read.

But Piketty also delivered the 13th Nelson Mandela Memorial Lecture to a hall filled to capacity – about 2 000 people – at the University of Johannesburg. His left-wing message was lapped up by most of those present, and will no doubt be received most thankfully by radical groups like the Economic Freedom Fighters, #RhodesMustFall and #OpenStellenbosch.

Piketty’s claim to fame is his conclusion that social and economic inequality in the world has been rising again after the 1980s, that the incomes of those at the top grow faster than those of the poor, and that the gap is growing. In his lecture, he went even further and stated that the end of apartheid, contrary to expectations, did not narrow the gap but that it in fact became even wider.

READ: Rock star economist Piketty: BEE not that successful in spreading wealth

His statistics told a worrying tale: in South Africa, the top 10% earn 60% to 65% of the (pre-taxed) income. In other very unequal parts of the world, things look somewhat different – the figure for Brazil, for instance, is 50% to 55%, 45% to 50% in the USA and 30% to 35% in Europe.

Rich people often do not like to hear it, but as far as his factual analysis goes, Piketty does have a point. There has been criticism of the way he does his sums, but his main thesis - the existence of great inequality - stands.

Inequality undermines social and political stability

What also stands is his conclusion that too much inequality is dangerous. It undermines social and political stability, and enhances the support of radical groups with simplistic “solutions”.

In fact, studies have shown that it is bad for economic growth. Which means, ironically, that less inequality is also good for the rich.

So far, so good. But Piketty’s solutions were questionable. For instance, he seemed to be in favour of radical land redistribution (which would make the EFF very happy). He also seemed to be saying that if the landowners did not accede to redistribution, their land would be taken, as happened in Zimbabwe.

To analyse this properly, there is a very good comparison to make: China and Taiwan.

In 1949, when the Communists took over mainland China and chased the ruling Guomindang party to Taiwan, the socio-economic situation in both territories was very similar – extreme inequality. The rich landowners often lived elsewhere and leased pieces of land to peasants, who had to pay through the nose to eke out a miserable existence.

Mao Zedong’s new Communist dictatorship made short shrift of the rich landowners. They were simply rounded up and shot. Their land was then redistributed, according to Communist ideology, to those who tilled it.

This was followed by the so-called Great Leap Forward, in which Mao tried to industrialise the country in one fell swoop. People were encouraged to abandon agriculture and start small iron smelting ovens in their backyards.

The result was catastrophic. The biggest famine in all of Chinese history ensued, in which a staggering 20 to 30 million people died of hunger.

Things followed an entirely different course in Taiwan, where the Guomindang faced a similar situation. With money borrowed from the West, the Taiwan government bought out the landowners and encouraged them to invest that money in starting industries.

The land was then redistributed, but only after the peasants were educated in modern agricultural techniques. This resulted in Taiwan becoming a food-exporting country, while the new industries led to a very fast-growing, modern economy.

The contrast was stark. Taiwan was a hugely successful country decades before mainland China, finally freed from the shackles of Maoist policies, started to catch up.

The interesting thing about the Taiwanese experience is this: the Taiwanese redistribution was, as Piketty preaches, a radical state intervention. This did not happen in a free market, as the market at the time was drastically skewed.

But the purpose of the Taiwanese intervention was exactly to create a real free market. The purpose was to bring about a situation where capitalism could create jobs and income for all.

I am not sure that Piketty’s encouragement of state intervention in enforcing either a minimum income or land distribution would go as smoothly as in Taiwan. I am not suggesting that the ANC is actively considering going Mao’s way, but that they would, rather, consider the way Robert Mugabe went in Zimbabwe.

What Piketty apparently understands, only dimly, is that Africa is not France, just as China and Taiwan are different from Africa and the West. Piketty is absolutely right in warning about economic inequality, especially in an explosive society like that of South Africa.

But his socialist solutions, which did not even work in Europe, are of little use to us in South Africa. We need to find our own way.

* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.

thomas piketty  |  leopold scholtz  |  inequality
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