The world of work: The cracks widen

2014-05-04 15:00

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Statistics on executive remuneration should inspire more concerted action by business and other sectors of society, writes Pravin Gordhan

As South Africa, we have done much since 1994 to dismantle the structural barriers of the past and extend public services to all South Africans, but there remains much to be done to deal with the triple challenges of unemployment, poverty and inequality.

Since the 2008 recession, these social and economic fault lines have become global, and most societies are engaged in debates and initiatives aimed at overcoming these maladies.

Around the world there are markers of discontent as the global financial crisis and the subsequent recession have exposed vulnerabilities and structural imbalances.

In many countries, income inequality has widened, sparking social mobilisation in societies that have repressed dialogue and political participation for a generation. The pursuit of austerity in developed countries has placed increased pressure on citizens.

And given that banks in some of the major developed countries had to be bailed out by taxpayers, the continued payment of bonuses to bankers has in effect resulted in a situation where losses have been socialised and profits privatised.

When the global financial crisis hit, South Africa had her own legacy of inadequate infrastructure, widespread poverty and inequality, structural unemployment and a slow pace of transformation.

Entrenched in a long history of unbalanced development, these challenges require a clear change of direction and new momentum. So more effective levers of change are required to accelerate development and increase participation by all South Africans in the economy.

To achieve an inclusive and equitable economic future, rapid progress is needed on several fronts: the dignity of a job, decent living and working conditions, and a better future for our children.

Faster economic growth must go hand in hand with job creation and generate the tax revenue that enables the government to pursue progressive developmental policies.

But development is not just the pursuit of faster growth; it is also about creating a more equitable future. In one sense, there is an ethical argument for more inclusive growth, but there is also a core economic argument.

Concentrating all endowments and the returns to such endowments among a smaller cohort of households undermines the growth process as the economy’s productivity levels decline, economic dynamism and entrepreneurship are stifled and the potential for social unrest increases.

Against this background, this book is timely and it is a useful contribution to the narrow debate about executive remuneration and to the broader discussion that we as a nation should be engaged in about inequality.

The authors make a valid point when they point out that the ideal solution to excessive executive remuneration “should come from the actions of a critical mass of ethical and accountable South African executives who demonstrate good leadership, responsibility and fairness”.

The authors also point out that companies play a critical role in society, providing not only goods and services to society but also income to employees and investors.

Economic growth also depends on what firms do. Given this long shadow that companies cast over the lives of citizens, companies and their executives must therefore be accountable to multiple stakeholders.

“Business leaders are responsible for avoiding as far as possible, and for mitigating, the negative social, economic and environmental impacts that their decisions and policies may have.

This includes taking responsibility for the impact that their remuneration policies may have on South Africa’s income inequality problem, in the absence of which regulatory intervention should be expected.

Business leaders need to demonstrate that they understand the extent of the problem, and that they are committed to the struggle against inequality. As matters currently stand, however, business leaders appear more often to be part of the problem rather than the solution.”

What the authors are calling for is a new business culture. Such a culture is not incompatible with businesses that are globally competitive and whose success is rooted in the success and challenges that face South Africa.

Such a culture will be rooted in empathy and be driven by businesses that go that extra mile to enhance the lives of the poor and contribute to the transformation of our economy and society.

And by transformation, we mean the creation of opportunities as well as the transfer of skills to those who remain on the fringes of our economy. For the struggle against income inequality to succeed, we need business leaders to become Homo empathicus.

The National Development Plan (NDP) reminds us that the fragility of our economy lies in the distorted pattern of ownership and economic exclusion created by apartheid policies.

Though access to opportunity in South Africa is no longer cast as rigidly along racial lines as it was under apartheid, barriers to progress remain, and for the poor these barriers seem insurmountable.

The NDP adds that the effects of decades of racial exclusion remain evident in both employment levels and income differentials, and that the fault lines of these differentials are principally racially defined but also include skill levels, gender and location.

Consequently, South Africa has developed into one of the most unequal societies in the world, with very high levels of poverty, carrying all the attendant risks.

In addition, the country has failed to reap a demographic dividend by harnessing the potential of a proportionately large cohort of working-age youth.

If we are to reduce inequality in South Africa, we must therefore shift the balance of opportunity towards those for whom work, regular income, decent shelter and adequate nutrition are still aspirations.

In this rebalancing of access to opportunities, the private sector has a big role to play. Rather than rely on economic rent and endeavouring to accumulate the bulk of the rewards of improved productivity and general economic performance, the private sector should embrace entrepreneurship, innovation and an equitable sharing of the fruits of prosperity.

As Nelson Mandela reminded us in his state of the nation speech in 1997: “We can neither heal nor build, if on the one hand, the rich in our society see the poor as hordes of irritants; or if, on the other hand, the poor sit back, expecting charity.

All of us must take responsibility for the upliftment of our conditions, prepared to give our best for the benefit of all.”

I trust that the data, values and issues raised by this book will inspire more concerted action by business and other sectors of society.

This is the foreword by Finance Minister Pravin Gordhan for the book Executive Salaries in South Africa

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