Political Economy

Income gap needs to be tackled at both ends

RICH-VS-POOR.jpg

Calls for economic restructuring to save democracy and maintain social stability are mounting, with an ever-widening income gap one of the core concerns.

In March of last year we wrote: “Globally capitalism is doing well – for those who have the capital – but the way it has been functioning in recent years, perpetuating low growth in many economies, might be driving democracy towards a crisis.”

In a column for News24 on 29 October, well-known commentator and analyst Clem Sunter wrote about the “red flag that (is) changing the game of politics and economics the most: the anti-establishment flag. Everywhere in the world ordinary people are fed up with the political establishment whether it resides in Washington, Whitehall or Canberra.”

In that context he also noted: “We are back to the same level of inequality that existed in 1910 as the super-rich add more and more to their immense wealth while the middle and working classes struggle to survive.”

As the Sunter reference to the “game of politics and economics” suggests, the problem of income inequality is not unique to South Africa, neither is it all that new in the aftermath of the 2008 financial crisis.

A United Nations Conference on Trade and Development (UNCTAD) 2012 ‘Policy brief’ (Policy brief number 5, June 2012) found, among other things, that the financial sector’s share of national income has grown almost everywhere, channelling larger profits and ever-more generous compensation packages to the wealthy”.

However, as we also state in our article on ‘Society in Crisis’ this week, South Africa offers an excellent and, for us, important case study.

Indeed, that very same UNCTAD document reveals that the share of income going to the top 1% of the population in South Africa has increased from about 9% in 1996 to some 16.5% in 2011.

As the head of the School of Economic and Business Sciences at Wits University, Jannie Rossouw, in an opinion piece for Mail and Guardian in June rightly stated: “In a society with a very skew income distribution, evidenced by a large Gini coefficient such as in South Africa, this … is simply unacceptable.”

Perspective

From various sides, much of the blame for this situation is often laid at the door of government. Activists, in attempts to put pressure on government for their own narrow ideological reasons, and political role players, in attempts to score opportunistic points, highlight the income of members of the executive.

And indeed, the collective annual pay package of the president, his cabinet and the speaker of parliament adds up to R152.64 million. The president’s annual salary is R2.75 million, his deputy and the speaker get R2.6 million each, the 35 ministers R2.21 million and the 37 deputy ministers R1.82 million each for an average income of R2.06 million.

But that this is a much wider problem, and especially an explosive one in the midst of the present nationwide student revolt, is illustrated by the fact that the principals of South Africa’s nine largest universities had an average annual pay package of R3.1 million in the previous financial year. The highest package was R4.2 million (R1.45 million more than the president) and the lowest R2.2 million (just R100 00 less than a minister).

A look at the private sector, and especially listed companies, reveals an even starker picture of the growing income gap. South Africa sits with the 5th biggest pay gap in the world, where CEOs get paid on average 140 times more than the average salary of their employees. In some instances the gap is as high as 725 times.

How the ‘value’ of executives in the private sector is determined, is often also a mystery. For instance, on Moneyweb Ryk van Niekerk reported how the four directors of a property group paid themselves R16 million for the company’s financial year ending February 2015, despite an operating loss of nearly R50 million.

Even more mystifying, and where the government as shareholder can or should be held to account, is what is happening in the state enterprises sector.

Despite most of them being in trouble, the CEO of Eskom in the previous financial year received a compensation package of R23.8 million, Telkom’s CEO R11.7 million and at a time when it was falling into dire straits, the SABC’s CEO had his salary increased from R2.8 million to R3.7 million.

In his opinion piece, Jannie Rossouw, commenting on reports that government has embarked on a research initiative into the advisability of introducing a national minimum wage, stated: “Although the merits of an investigation to close the wage gap from the bottom are clearly understandable, it might be misdirected and looking in only one place to fix the problem of South Africa’s large wage gap. An investigation into a minimum wage ignores the problem of South African executives earning exorbitant salaries and bonuses that place an unnecessary burden on civil society, shareholders and stakeholders.”

Time has come to look at both ends of the gap, and, he argued, debate should commence “on remuneration levels at the upper end of the wage curve and about the stark choices facing South Africa”.

That is at least one of the debates that should start – and soon. In June last year, under the heading ‘Urgent dialogue needed if revolution is to be avoided’, we wrote: “An urgent national dialogue, involving all sectors of the South African national household, is needed if the country for the second time in about 30 years is to manage its way out of a seemingly unavoidable revolution.”

At least on this score we and Clem Sunter seemed to be on the same page when he wrote that we need “…the leaders in all fields in South Africa – and we have plenty of talented men and women capable of doing this – to emerge from their silos and start constructing the second miracle together. Some precious stones only sparkle when polished by completely different stones. Synergy is the key. The first miracle amazed the world in the early 1990s. The second one beckons. Otherwise we will all drown.”

by Intelligence Bulletin team

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