South Africa must flatten the inequality curve

In his national address on April 27, President Cyril Ramaphosa said: “This Freedom Day, we find ourselves engaged in a struggle that has thrown into sharp focus the poverty and inequality that defines our society. This pandemic forces us to confront this reality.”

This dark coronavirus tragedy is a watershed moment for all South Africans to rethink the future. We cannot revert to the calamitous practices of the past that have polluted Earth and caused widespread poverty and unemployment. 

But there are concrete proposals as to how to reimagine the future to save Earth and create a society that is compassionate, just and egalitarian.

The countless acts of compassion and generosity to assist the poor, homeless and unemployed during the lockdown have been both heart wrenching and heart-warming. It has also led to deep reflection and analysis as to how to balance the lockdown protecting the population against the morbidity and mortality inflicted by Covid-19 and the economic necessities for daily sustenance. 

One such proposal is the institution of a basic income grant to alleviate the grinding poverty in our country. This idea has received support among the measures announced by the president in his address on April 21 — the R350 grant for the unemployed for the next six months. 

Aroop Chatterjee, Amory Gethin and Leo Czajka in their article “Coronavirus: Why South Africa needs a wealth tax now” (The Conversation, April 28 2020) point out the extreme inequality: that 10% of South Africans own 86% of the wealth, 18-million were either in debt or had near zero savings and the richest 3 500 owned more wealth than 32-million poorest South Africans. They propose a wealth tax that is calculated to raise R143-billion a year. This is in line with the recent recommendations of the International Monetary Fund to equitably attain fiscal sustainability and better position the economy for post-Covid recovery.

Moletsi Mbeki in Architects of Poverty (2009, 2016) pointed out that the object of black economic empowerment (BEE) was to benefit 90% of previously disadvantaged individuals, but only a handful of elites benefitted. BEE and its offshoots, affirmative action and affirmative procurement, have become the core ideology of enrichment of the black political elite — and through high-paying jobs. The black upper middle class dominates the country’s political life but has no role in the control of the economic development of bloated middle and senior levels of management who are vastly overpaid. 

The bloated civil service with its high salaries and the obscenely high salaries in the private sector need to be brought under control. The president sent an important signal when he and the ministers gave one third of their salaries for three months to the Covid-19 Solidarity Fund. 

As an example of the bloated salaries referred to by Mbeki, the salaries of universities’ vice-chancellors during the 1990s were pegged to that of a director general, which, when translated into 2020 salaries, would amount to just over R2-million a year. But most vice-chancellors earn between R3-million and R4-million (if not more) a year. In the process the income gap between the highest and the lowest paid employees on campuses has widened appreciably.

 It was recently reported that the chief executive in the National Housing Finance Corporation was paid more than R9-million in the 2018-2019 financial year. By what yardstick and who decided on this outrageous salary when his minister earns about R2.5million a year? This outrage has been perpetrated throughout the state-owned entities and in parts of the civil service.

In the private sector, the chief executive of Kumba Iron Ore, a subsidiary of Anglo American, was paid R42.4-million (salary and incentives) in 2019. The chief financial officer earned R15.21-million. 

Rising inequality is a global trend. Research by the High Pay Centre, UK (2014, 2015) found a weak relationship between pay and company performance. The report concludes that modern management remuneration seriously damages the economy, shareholders receive no benefit from massive rises in pay of senior executives and the high proportion of their total remuneration comes from options and bonuses. Sweden’s executives are rewarded far less than those in the rest of Europe and the United States and appear to perform just as well or better for shareholders. In 2007 the average Swedish manager’s pay was 20% lower than their British counterparts. At the same time Sweden is ranked among the highest in global competitive surveys.

French economist Thomas Piketty, the author of Capital in the Twenty-First Century, has demonstrated through an analysis of historical data that rising inequality is part of the systemic nature of capitalism. He shows that the fundamental cause of this inequality is that the rate of return on capital exceeds the growth rate. With capitalism facing an obscene intensification of inequality, Picketty hopes for a return of the political will necessary to impose progressive taxes, an ideal compromise between social justice and individual freedom.

Recommendations

The salary levels of public servants across the sector must be controlled as a moral and social justice imperative to reduce the gross income inequality in South Africa. The president’s salary of just over R3-million should be the upper limit throughout the civil service from the ministers and the judiciary to the universities and the state-owned entities. Why should the salary of any public servant exceed that of the most responsible, most complex and important job in South Africa, namely, the president? The salary of any new appointee in the public sector should be guided by this notion.

A progressive reduction is proposed for those already earning excessive salaries. As the incumbents have contracts it would not be possible to legally enforce this, but in the light of developments in the coronavirus crisis and the unacceptable levels of inequality in the country it would be a compelling moral and just imperative for incumbents to accept the following reductions in salary levels:

• Salaries of R3-million and above: a 30% reduction;
• Salaries of R2-million to R3-million: a 20% reduction;
• Salaries of R 1-million to R2-million: a 10% reduction; 
• Salaries of R500 000 to R1-million: no reduction; an increase in line with inflation should be considered; and
• Salaries under R500 000: an increase of several percent above inflation to be considered.

Other proposals

• The size of the Cabinet should be trimmed by at least a third;
• Luxury perks in the ministerial handbook, such as BMWs and Mercedes-Benzes, should be scrapped. Modest vehicles such as Toyotas, Hyundais and Kias to be purchased instead and a car pool organised so that vehicles are shared to reduce costs; 
• Travel by public servants, especially overseas, should be strictly limited;
• A systematic review of all state-owned entities; unless these are of strategic importance they should be disbanded or sold off; and
• Cadre employment must end and within a culture of transparency, responsibility and accountability, competent civil servants are hired – leading to a capable state with the capacity to deliver services to its people, in particular the municipalities

The trade unions, in advancing annual wage increases, must not only consider high wage earners in the public and private sectors but also the 30% of the population who are unemployed and have no income. 

The private sector salaries should be dealt with through a wealth tax and taxation as suggested by Picketty, because it is unlikely that the rich would voluntarily surrender their wealth. As a moral and egalitarian imperative civil society, the government and shareholders should bring intense pressure to bear on companies to reduce obscene salaries in the private sector 

Unless high wage earners are willing to reduce their salaries meaningfully over a period of time, we will not be able to reduce inequality in this country. It means the very rich and the upper middle classes would have to adjust to a lower standard of living so that the poor and the unemployed can at least afford the basics that include food, shelter and schooling.

Jairam Reddy is the former vice-chancellor of the University of Durban-Westville; chair of the National Commission on Higher Education; and former director of the United Nations International Leadership Institute, Amman, Jordan. He writes in his personal capacity