Inequality’s dark night

2012-08-18 14:07

Last weekend I went to see the new Batman film, The Dark Knight Rises. To my irritation the projector broke down.

After half an hour of engaging with the manager outside, I was offered a free ticket to watch the film in Ster-Kinekor’s luxurious prestige cinema, where it was about to begin.

Once inside, I was struck by the sight of oversized leather armchairs, replete with wooden side tables. A cinema built for 180 people was now holding only 48.

The 132 people who might have wanted to, and would have been able to see the movie at the normal price of R55 now could not. To compensate for this, a prestige ticket costs R85 and snack platters are sold for R60-R90.

Professor Moshe Adler of Columbia University shows that considerable inequality encourages firms to exclude large sections of consumers from their business. Because there are big differences in what people can afford to pay, it makes it more profitable for firms to sell to the wealthier few at a higher price.

Historically, price controls – used to limit the price of goods or services – were imposed when poorer consumers were agitated that the free market allocated to them less than their fair share.

However, economists argue that price controls on things like rent, bread, and even cinema tickets are inefficient.

The irony of watching a Batman film in such a lavish cinema was not lost on me. Gotham is a sick city. Crime, corruption and lawlessness have taken hold. The reason? Inequality. It is precisely the opulence of the rich, who have little regard for the welfare of the majority, which led to Gotham’s degeneration.

And it seems comic books know best. Research by the International Monetary Fund (IMF) and the UN argues that the economy only stands to lose in the long run from inequality.

The forces which generate wealth, if left unrestrained, lead to mounting instability and crisis, as we saw in the recent global financial meltdown.
Inequality hurts society in three important ways, according to Nobel Prize winner Joseph Stiglitz:

» Firstly, without a state capable of redistributing income through tax spending, the market will only serve the needs of those with property and money.

According to the Bank for International Settlements, this leads to an unhealthy proportion of resources being devoted to these needs, often to the detriment of the rest of society. For example, too many of the brightest in South Africa, expecting astronomical returns, flock to
finance, potentially hampering the development of other sectors;

» Secondly, widening inequality goes hand in hand with shrinking opportunity. Today South Africa’s most important assets, its people, are severely restricted from contributing to society by mere circumstances of birth, ac­cor­ding to the World Bank; and

» Lastly, in a society divided by wealth, the rich are more reluctant to contribute to improving vital “public goods”, such as healthcare, transport and education because they already have the means to purchase these ­privately.

South Africa is now one of the most unequal countries in the world. In 2008, the top 10% of income earners, still mostly white, received 58% of all income; while the bottom 60% received just 11%. And the divide keeps on growing. Why?

Globalisation has played a significant part, accelerating labour-saving technological change and making competition for low-skilled jobs fiercer. The story, however, begins with apartheid and the market system.

As apartheid evolved, Jeremy Seekings and Nicoli Nattrass write that “white people were able to maintain their economic privileges by using the advantages which they inherited and ceased to depend on active racial discrimination”.

Post-apartheid, the market system has continued to serve privileged owners of property and skills, reinforcing the divide between the haves and have-nots.

Meanwhile, a new, politically connected, black elite has emerged. They have hastened to climb onto the wagon of privilege, using business and state connections to enrich themselves.

Inequality has also increased because we have allowed it to, much to the benefit of those at the top.

The DA’s latest economic manifesto attempts to deal with inequality – and everything else – by focusing on achieving an 8% growth rate.

And not just any type of growth, but one centred on a competitive “race to the bottom”, based on the dismantling of trade unions and workers’ rights.

This will diminish the workers’ share, and the share of the general public, in the wealth produced. It is a recipe for exacerbating inequality which should not be sanctioned by law, let alone policy.

Instead, we must promote a competitive raising of skills, efficiency and technique which can end up benefiting everyone.

Reducing inequality is a sine qua non for ensuring the survival and prosperity of South Africa. Market forces alone will not make this possible. We need to.

» Strauss is a ­researcher in the School of Economic and Business Sciences at Wits 

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