/ 3 August 2012

Rich get richer through unfettered capitalism, not own devices

In South Africa
In South Africa

The rich and the poor are two sides of the same systemic coin. Nothing explains this better than the situation in South Africa in the first 70 years of the 20th century when whites constituted 20% of the total population, yet received more than 70% of the total income. Africans constituted almost 70% of the population, but received less than 20% of the total income. This can be ascribed to the politico-economic system of white political dominance and racial capitalism-corporatism in South Africa in that period. The system enriched whites and impoverished blacks undeservedly.

In neoliberal countries where the capitalist-corporatist sector is dominant, this close relationship between the rich and the poor is particularly evident. In all neoliberal capitalist countries the poor have got poorer since the early 1980s and the rich have got richer. When social-democratic capitalism was in place in Western countries in the third quarter of the 20th century, democratic governments were powerful enough to tame the capitalist-corporatist sector and bring about an equalisation of income. But when social democracy was replaced by neoliberal capitalism in the early 1980s, income became much more unequally distributed in all Western countries.

In South Africa, before and after 1994, the capitalist-corporatist sector has always dominated the political sector. Such systems were in place from 1894 until 1994, institutionalised by the British empire and supported by Western governments and corporations on behalf of the two white settler groups. The elite compromise – or the elite conspiracy – reached between the corporate sector and a leadership core of the ANC before 1994 exonerated white corporations and citizens from the part they played in the exploitation and deprivation of blacks. It also enabled whites to transfer almost all their accumulated wealth almost intact to the new South Africa.

After agreement was reached on the elite compromise, the ANC leadership core was, admittedly, able to implement a policy of black elite formation, but it was deprived of the power to hold white corporations and citizens accountable for the systemic exploitation and deprivation of black people during the "century of injustice" (1894-1994).

The ANC government has used the power allotted to it to create a black elite by implementing black empowerment and affirmative action in rather doubtful and myopic ways  and plundering the budget recklessly. The perpetuation of white elitism and white corporatism after 1994 and the creation of black elitism over the past 18 years, to the detriment of the poor and unemployed, is the main reason why income has become increasingly unequal since 1994. The richest 10-million South Africans received almost 75% of total income in 2008, whereas the poorest 25-million received less than 8%.

Neoliberal transition
South Africa has never had a politico-economic system in which the political side was powerful enough to tame the capitalist side.

Instead of social democracy and an equalisation of income since 1994, South Africa has, over the past 18 years, experienced a United States-led neoliberal transition that has enabled the capitalist-corporatist side to orchestrate even greater inequality in domestic income.

Indian economist Amyarta Sen argues that market prices and the distribution of income always depend on the enabling conditions – social, economic and political. The enabling conditions of capitalism are always such that the prices of goods in factor markets can easily be twisted in favour of those in power, those with large amounts of marketable assets and those with access to the instruments of political power and propaganda.

Sen's argument is that income always becomes less equally distributed if capitalism is left to its own devices. Capitalists can exploit the asymmetric property and power relations for their own enrichment: it is thus always necessary for ­governments to implement comprehensive redistribution policies in capitalist countries.

When government policy is friendly towards the capitalist elite, income becomes more unequally distributed. When government policy pursues the welfare of society at large, income becomes more equally distributed.

According to British journalist George Monbiot, writing in The Guardian, the rich are always inclined towards the self-attribution fallacy. That is, they are always inclined to credit themselves with outcomes for which they were not responsible: "Many of those that are rich today got there because they were able to capture certain jobs. This capture owes less to talent and intelligence than to a combination of the ruthless exploitation of others and accidents of birth, as such jobs are taken disproportionally by people born in certain places and into certain classes."

In the South African case, both rich whites and rich blacks are guilty of the self-attribution fallacy. Perhaps we need a justice and reconciliation commission to examine power relations over the past 120 years to infuse the necessary degree of humility among both the old white elite and the new black elite. It is important that the rich in South Africa should be informed about the central role that skewed political and corporate power played in creating their opulence.

Solomon Johannes (Sampie) ­Terreblanche is emeritus ­professor of economics at Stellenbosch ­University and the author of The History of Inequality in South Africa, 1652- 2002. This is an edited extract from Lost in ­Transformation: South ­Africa's Search for a New Future since 1986, published by the KMM Review Publishing Company