How employers work to create and perpetuate inequality

Inequality is discussed often and at length, and few would dispute that it is both undesirable and socially risky. But it is easier to discuss the symptoms than the causes. One of the causes that needs to be discussed more is the role of the private sector in perpetuating inequality – and how this can be changed, says Ralph Hamann.

AT THE 2018 World Economic Forum in Davos, Oxfam made world headlines with its call to action to close the growing gap between the world’s rich and poor. Its newest report, which revealed that just 42 people worldwide hold as much wealth as the 3.7 billion who make up the poorest half of the globe, caused an international stir.

A further shock: billionaires have been created at an eye-watering rate of one every other day for the past year. In parallel, the bottom 50% of the world’s poorest saw zero increase in wealth. Moreover, Oxfam added, over 80% of the wealth generated in 2017 landed in the pockets of the wealthiest 1%.

It called this both “unacceptable” and “unsustainable”. And certainly it is widely acknowledged that inequality poses wide social risks. But what, in practice, can be done to stem the growth of inequality? Oxfam had its own suggestions, calling on governments internationally to take a harder policy line.

However, government on its own is unlikely to be able to bring about the required changes. The private sector too has a significant role to play, as recent research from the UCT Graduate School of Business suggests. In fact, the agency of employers in establishing and maintaining unequal systems remains underexplored. While social grants and caps on executive remuneration go some distance to remedying the problem, they alone are not enough. The GSB study suggests four points to consider in the employment sector.

Firstly, it must be understood that inequality is perpetuated by institutions. In its analysis of the Oxfam report, the Guardian noted: “Booming global stock markets have been the main reason for the increase in wealth of those holding financial assets during 2017. [Amazon founder] Jeff Bezos, saw his wealth rise by $6bn (£4.3bn) in the first 10 days of 2017 as a result of a bull market on Wall Street, making him the world’s richest man.”

We must give more attention to the institutions - that is, the “rules of the game” - that maintain inequality. Jean-Jacques Rousseau argued that the privileges of the elite were attained by “the first person to fence in a piece of land and to say, ‘this is mine,’ and to find people gullible enough to believe him.”

Institutions are crucial to propping up inequality, and one of these is the employment relationship. Sociologists have long explained how employers elicit effort from workers, either using threats or incremental benefits; economists, meanwhile, explain how “labour-repressive” or “extractive” institutions may be perpetuated even in the wake of political transitions that ostensibly favour the exploited. This may involve an “elite pact” between old and new elites. If we are to address inequality, employment relationships must begin on a more equal footing.

Secondly - and this is related - we must recognise that elites actively shape institutions to perpetuate their own advantage. Social and economic privilege allows elites to write the rules of the game governing markets and employment relations, a clear example of which can be seen in the establishment of the South African diamond and gold mining industries.

These industries profited from ready access to cheap labour, assisted by the Chamber of Mines, which helped prevent employers competing for workers. Workers were further disadvantaged by the imposition of special taxes on black Africans, with employers lobbying government to increase the supply of cheap black labour. The most prominent example is Cecil John Rhodes, one of whose legislative accomplishments was to introduce, in 1895, a tax to force Africans into cheap wage labour.

In answer to liberal criticism of these measures, Rhodes declared facetiously that the tax was “not slavery but a gentle stimulus.”

The third point is that efforts by elites to shape institutions to their advantage are not always obvious, and neither are the consequences; so, we must be vigilant. This is particularly true in times of political transition.

South Africa’s transition to a democratic government in the 1990s, for example, was marked by similar, though less blatant, efforts by elites to retain their position of advantage. In the late 1980s, employers in the South African mining industry became aware of deepening political conflict as well as growing power within the National Union of Mineworkers.

This was followed by significant changes to the migrant labour system, which included the payment of a living-out allowance that enabled workers to live outside the compounds.

These shifts can be seen not as altruistic moves but rather as being motivated by intrinsic economic and strategic objectives, in the context of a fundamentally changed labour market. Labour shortages had been replaced by an over-supply of labour, which meant it was convenient for employers to dismantle the compounds. Yet housing around the mines remained dismal.

Lastly, there are real and unintended consequences to concealment by employers. Our South African case study revealed that where employers concealed their primary interests in affecting institutional changes, this deflected attention away from important issues.

Despite their strategic and financial motives, employers generally spun a narrative that highlighted the enhancement of human rights and efforts to “free” workers from the previously controlling and paternalistic approach of mining companies as a response to demands for change.

But this helped focus attention on one shared problem (the symptom), that is, the single-sex compounds, and away from the underlying social system (the cause), in which employees were becoming increasingly dependent on diminishing employment opportunities. Long-term, the result is the perpetuation of inequality.

This is not to say that employers intended for their workers to suffer enormously; rather, their primary intention was to advance their own interests by reducing their responsibilities. But these go hand-in-hand, and to forget that is to be blinded by what Robert Merton called the “imperious immediacy of interest,” when “the actor’s paramount concern with the foreseen immediate consequences excludes the consideration of further or other consequences of the same act.”

Employers, workers, activists, regulators and scholars must remember that inequality is no accident. We have the power to create it; we have the power to dismantle it. Policy changes can be hugely beneficial. But the world of employment must not be overlooked.

• Ralph Hamann is a professor and research director at the University of Cape Town Graduate School of Business. This article draws on research he co-authored with Stephanie Bertels and published in the Journal of Management Studies. Entitled The Institutional Work of Exploitation: Employers’ Work to Create and Perpetuate Inequality.