SA inequality: Whatever happened to the future?

2015-02-22 15:00

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Once upon a time there was nothing silly about thinking that massive global levels of under- or unemployment would be a good thing.

Freeing people from the need to spend their entire lives working, mostly just to avoid starvation, was seen as the logical end point – the light at the end of the tunnel of capitalism.

Since the 2008 economic crisis, a lot of people have dusted off John Maynard Keynes’ essay from 1930, The Economic Possibilities for our Grandchildren.

In it, the man who shaped the dominant economic ideas of the middle-20th century speculates that by 2030 or so, we – or at least the West – might “solve the economic problem”.

That “economic problem” is the struggle for subsistence. Keynes predicts the (then distant) “green revolution” in commercial agriculture along with yet more spectacular technological improvements in manufacturing.

He warns readers that someday soon they will learn about a thing called technological unemployment.

“Our discovery of means of economising the use of labour [is] outrunning the pace at which we can find new uses for labour,” he said 85 years ago.

Well, here we are.

Fast-forward almost a century and the salvation of the human race (productivity through technology) is now being evoked as the reason we’re all screwed.

Mechanisation’s final frontier is approaching in the form of 3-D printing while even the world of white collar intellectual labour is starting to worry about redundancy when artificial intelligence comes of age.

The working day in 2030 can be reduced to three hours just to keep people from going mad with boredom, joked Keynes.

Marxists shared basically the same view.

In 1947, the American Trotskyite CLR James talked about halving the American working day to four hours.

Those utopian visions just assumed that the distribution of resources could and would be more or less equitable. Technology would make people freer, not redundant.

Then came the 1980s and the sudden reversal of the trend towards income equality that had been visible all over the world.

Call it neoliberalism or financialisation, the fact is that something changed and it is making the rich much, much richer.

Analysing this global trend has become a major preoccupation for activists and economists. The different ways they talk about it draws clear political lines in the sand.

Ultimately, the way you define inequality is inherently tied to how – or even if – you consider inequality to be a problem and what the solution is.

The most common approach in defining inequality is to use the Gini coefficient.

People like the Gini. It reduces the fundamental problems of society to a single number that looks good in ranking tables and development reports.

A coefficient of 1 means a single person earns all a country’s income and 0 means everyone earns the same amount, so the lower the Gini the better.

Unfortunately, the Gini hides as much as it reveals. Two vastly different situations can give you the same Gini coefficient. The same situation can also give you different Ginis.

The increasing activism around the notion of the top “1%” of income earners also has consequences.

It absolves the middle classes and makes the problem mostly one of the superrich and their corporations versus everyone else – dissolving old-fashioned notions of class.

It stands in stark contrast to arguments like those in South Africa that the “real” problem is that unionised workers are keeping the unemployed workers out with their negotiated minimum wages.

Activist charity Oxfam is producing the most popular kind of inequality statistics. It goes beyond focusing on the “1%” and says that the top 85 billionaires in the world have the same wealth as the bottom 50% of the human race.

There are a lot of problems with the statistics behind such a catchy analysis, but the point is pretty clear.

Measuring inequality this way almost automatically leads to new kinds of international wealth taxation being offered as the answer, as Nobel laureate Christopher Pissarides pointed out at the recent annual meeting of the World Economic Forum (WEF).

Oxfam’s number relies on the accuracy of the Forbes rich lists – and Citibank’s annual Global Wealth Report.

Technically, it reflects not so much the fact that the top 85 are ridiculously rich, but that most humans have zero – or less – net worth.

By using the same sources, you can conclude that any single relatively debt-free South African who owns a house has more wealth than the bottom 30% of Danish households.

As in most countries, these Danes have mortgages, car loans and credit cards, which you’d have to weigh up against their pensions and other savings to calculate their wealth.

At the WEF meeting last month, the rise and rise of inequality inevitably came up a number of times.

The problem, said one billionaire, was “skills-biased growth”. This, he said, was the underlying reason for the staggering escalation in inequality that could be seen practically everywhere in the world where such things were measurable.

Looking at it that way, the implicit solution is skills development for the presumably endless number of jobs in new high-tech sectors that must arise.

The other reason inequality is rising, and the rich are just getting richer, almost despite themselves, is the ongoing boom in the value of various kinds of investments that only the rich own.

There’s nothing much you can do about that.

When you talk about that kind of ridiculous wealth, you’re really talking about dysfunctional capitalism.

The idea of “illicit financial flows” and the massive role secrecy jurisdictions and tax havens play in the world becomes inseparable from inequality when it is couched in these global terms.

The latest salvo in this global campaign comes from the African Union and its report on illicit financial flows.

The basic analysis is that poorer countries get saddled with capitalism without the benefits, because the profits for reinvestment, the magical machine at the heart of the system, simply disappear.

The WEF, which counts the world’s 1?000 or so largest multinational companies as members, is being proactive.

It is devising a new index for ranking countries according to their inclusive growth potential. Like its longstanding competitiveness reports, the new index will almost inevitably become fodder for journalists, politicians and businesspeople when they have to talk or think about inequality.

The stated objective is to shift the debate far away from the talk about global taxes to things that are “less vaguely aspirational”.

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