Gini in a Bottle – how the ANC’s Ingenuous Coefficient Impoverishes and Misleads

2014-11-25 08:26

Commentators who like to give national government and the ruling party the benefit of the doubt point out that South Africa’s Gini Coefficient has declined since the ANC came into office in 1994. The ruling party is proud of that.

But is it necessarily good news? Yes of course, according to many because “inequality” is considered bad and “equality” good because we are hardwired to believe it. “Equality” has a nice ring to it like mothers’ milk, brown bread, apple pie and singing the national anthem. “Equality” suggests a cozy, egalitarian and just world and a falling Gini Coefficient serves as its harbinger. The ruling party loves this statistic because it makes for good electioneering.

But is it not a ruse?

It seems to me that in the context of South Africa’s past two decades the pursuit of a falling Gini Coefficient has been akin to stealing the family silver and legitimised running the nation’s economy into the ground.

I shall explain my reasoning, but first, let’s start at the beginning - what is a Gini Coefficient?

Answer – on a scale of “0” to “1” it measures how equally or unequally income is spread in a nation or an economy. So in the highly theoretical instance of everyone earning an identical income the coefficient would be “0”. And if all the income earned was in the hands of only one person and everyone else earned nothing, the coefficient would be “1”.

It can equally be expressed as a percentage, such that a 0% Gini Coefficient would suggest that everyone earns equally and that a number approaching 100% reflects all the wealth in the hands of one or very few.

If we examine Gini Coefficient rankings world-wide we discover some interesting readings, many of which undermine a falling Gini Coefficient as a measure of social progress. Amongst the highest Gini Coefficients in the world (i.e. high inequality) one finds the likes of Seychelles (65,77), Comores (64,30), Namibia (63,90) and South Africa (63,14).

But without their high earners these nations would have a smaller – ostensibly more “respectable” - Gini Coefficients but more, rather than less, poverty. So one needs to ask: is it more important for all to be equally poor than it is to have economic success accessible to some?

Following on this train of thought, there are some interesting lessons to be learned at the other end of the Gini scale. Amongst the lowest (i.e. nations of high equality) are many developed nations including Denmark (24,70), Sweden (25,00) and Japan (24,85) - which sounds great but ignores the fact that low Gini Coefficients also characterize Ukraine (26,44), Afghanistan (27,82), Pakistan (30,02), Bangladesh (32,12) and others widely accepted as being either dysfunctional or dirt poor or both.

And so we need to ask ourselves - what is the Gini Coefficient all about? In answering this, you have a choice. You could ask the ANC and governing alliance for the pat answers that sounds good and buys votes from unsuspecting and ignorant voters – or search your own conscience and intellect.

If you do the latter, you might conclude that it is OK as a guideline in advanced nations that can afford to uplift the stragglers but a lemon when economic growth and full employment better serve the general good. That is exacerbated in South Africa where a diminishing number of taxpayers and growing numbers of unemployed make it inconceivable that the poorest can continue to receive handouts that bring down the Gini reading. The ultimate reason for that is that an ever increasing number of grant recipients, dependants and lame ducks simply can’t find work because government has destroyed jobs through legislation and abdicating responsibility to the trade union movement.

What our government has not learned yet is that money does not grow on trees despite the lessons of the 20th century. So in our instance the Gini is being abused for political gain and becomes a measure of incompetence.

And so - we might well ask - what could have promoted the greater good more effectively than a falling Gini? The answer is unfashionable because it kills a government sacred cow by condoning increasing inequality through rapid economic growth.

This is how it would work.

Had our pedestrian average economic growth rate per annum have been double or three times what it actually was over the past 20 years – pegging it at maybe 8 percent, our GDP would have compounded to more than two and a half times its current value (prove it to yourself by compounding a 3% rate and an 8% rate in adjacent columns over twenty periods to reach a comparative weighting at the end of the twenty periods of 2,6).

Logic suggests that more than double the number of jobs would be on offer and that far more tax revenue would be available for social upliftment. But people would be more unequal because the demand for scarce smart people at the top end of the labour ladder would push up their salaries whilst the hordes of unemployed would get absorbed at the bottom end at modest wage levels - and the venerated Gini would go haywire!

But – what the politicians fail to ask themselves is - why should anybody care?

In  truth, no one would because more people would be able to take care of themselves, jobs would be plentiful and the economy would work for a change.

Is that not more attractive than enslavement to a contrived “equality” index that – like the nation’s labour and business model - thinks in terms of “classes”; aggregates groups of people; ignores them as individuals and dictates what they have to earn, the conditions under which they might find work and be employed in key industries - and results in soaring unemployment?

Had common sense and basic economic nous prevailed from the beginning, I think it even likely that we could still have a functioning postal system; a reliable electricity utility; a sustainable national airline; and a leaner, more efficient civil service and government.

But hey – instead we got “transformation”.

But it was not what we were led to believe.

Our transformation has been from a nation that less than 40 years ago knocked on the door of “First World” status but is today characterized by a palace that its president paid for with funds stolen from taxpayers on the pretext of his security.

It is easily recognizable from the road: litter lines its perimeter and there are holes in the new security fence.

So much for security, so much for transformation, and so much for South African Democracy and the role of red herrings such as the Gini Coefficient.

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