Money is siphoning so fast and furiously upwards from the working poor to the echelons of the rich that a redistribution would have a major effect at the bottom. This concentration of wealth is a universal and inevitable effect of the unfettered free market in capital. Because capital and its owners are internationally mobile, they can, and do, demand rapidly increasing proportions of the world’s purchasing power.
In the past month we learnt that AngloGold’s directors received an extra R1-million each last year, bringing the salary bill for the four of them to R11,17-million. Small beer compared to Datatec’s directors, who pocketed R10-million each. And Liberty Group’s chief executive who got a bonus of R3-million, increasing his pay by 86% to R8,4-million last year. Three other executives shared an extra R7,1-million, some of it described as ”retention pay” even though, according to the human resources manager, ”no individual had threatened to leave”.
None of this is untypical. The Duke of Westminster’s worth rose from £4,4-billion to £4,7-billion last year; Bernie Ecclestone’s car racing has brought him £2,9-billion nothing compared to Wal-Mart’s Robson Walton, who owns $73-billion, and Bill Gates’s $37-billion.
Why does this matter? Margaret Thatcher and her successors in Tony Blair’s ”new left” tell us this envy-based puritanical disapproval is not the point: we should be accepting the rich as role models and concentrating on lifting the poor out of their poverty. They are profoundly wrong. Both theory and practice tell us that this volcanic gushing of wealth to the top is actually impoverishing the rest of us. It is not only about equity.
First, the size of these annual incomes means that purchasing power is being removed from the world of goods and services where most of us earn a living. Incomes that size cannot be spent. They go into investment portfolios that circle the globe in search of speculative gains from buying and selling currencies and shares.
An average of 95% of all currency transactions is speculative. They might as well put it under their mattresses for all the good it does to the rest of us who need money to keep the wheels of enterprise turning.
The result is falling employment and, combined with the effect of technology, jobless growth. Official statistics for South Africa show employment falling by about 3% in the last quarter, while the national income rose. And labour productivity steadily rose from 1995 by nearly 5% a year, while average pay is about half that. Guess who is getting the fruits of that difference.
Effective demand in South Africa is diminished also by the loss of our own capital via overseas listing. Non-resident shareholders got nearly R31-billion from local firms last year – 76% increase over 2000 – while we received only R10,7-billion. Moreover, our own government is hoarding about R250-billion in our various pension funds. Not to mention the allocated tax take that some departments are unable to spend for lack of capacity.
Second, the idea that inflation is caused by wage increases should surely be laid to rest. Last year directors’ earnings rose four times the rate of inflation, 12 times faster than the growth rate and three times that of the average unskilled worker.
Our inflation is also caused by the price of oil and the falling rand. Because we export maize our farmers can demand dollar-denominated prices. So our people have even less to spend after paying for food.
That being so, how can we possibly justify a rise in interest rates – apparently being seriously considered. That would shut down more businesses, end more jobs and reduce purchasing power for most people. It will also increase poverty, not alleviate it.
The truth is that the world’s major economic problem is poor distribution of wealth, hence declining demand. South Africa is an extreme example. Only effective demand by the poor will begin to produce real growth. Once we see that, we will ensure wages make up a larger proportion of the fruits of enterprise.
And we will immediately make plans to introduce a basic income grant to put buying power into the hands of the poor. It will show we are serious about poverty alleviation. And it will attract investment capital.