Wage gap threatens political stability

Scandinavian countries have the lowest rates of income inequality. (Flickr)

Scandinavian countries have the lowest rates of income inequality. (Flickr)

An IMF policy paper on income inequality describes rising public support for income redistribution as the gap between top and bottom earners grows.

Economic orthodoxy used to ignore the wage gap on the assumption that markets tend to price jobs accurately – but as of this year that is rapidly changing. In January the International Monetary Fund, the guardian of pro-growth – but not always pro-poor – economic policy released a policy paper on income inequality.

It described rising public support for income redistribution around the world while the gap between top and bottom earners continued to grow nearly everywhere – and recommended that property and energy taxes should be used to reverse the trend in the interests of stability and growth.

Other traditionally conservative groups have raised warnings about different levels of dire consequences, but at the very least agree that ­political stability is at risk unless ­inequality is addressed and that political instability serves neither the rich nor the poor.

But solutions have been hard to find. The Scandinavian countries, with the lowest rates of income inequality, have small populations, are well developed and have a long history of socialist tinkering. Countries that have experienced the highest rates of poverty reduction have seen a concurrent increase in inequality, thanks to booms in low-paid work and increased labour flexibility.

Countries that have attempted to cap high-end salaries have seen wavering capital commitment or reduced company performance, or both, with arguably a greater negative effect on the likes of pension funds than the positive effect on the income curve.

In the unique South African context there may be a different way of approaching the problem, though.

“We don’t need more resources to spread around; we need better management of those resources,” says Iraj Abedian, chief executive of Pan African Capital and an economist who has provided advice to the ANC government over the years. “We know we need to provide education and healthcare to reduce inequality, and we know that BEE has problems.

“What if we establish a national BEE fund, managed outside of politics, and say, okay, the mandate of this fund is to upgrade infrastructure in schools and clinics? If you do that the resources are going to the disempowered but you are not creating an asset for the politically connected. You can expect business would welcome it, the people it will benefit will welcome it and the politicians should love what it can do.”

Such a structure is merely a thought exercise, Abedian says, at least until a reinvigorated and activist Parliament starts grappling with the failures of BEE and its intended redistribution of assets and income.

It suffers, politically, from not being a quick fix and would require a 10 to 15-year horizon before the effects are tangible. But it should be palatable to parties across the spectrum and could achieve more, faster, than hiking up progressive taxes or penalising property ownership.

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