FW de Klerk speaks about the Wealth Gap
F W DE KLERK SPEAKS ABOUT THE WEALTH GAP
In a speech today in Switzerland FW de Klerk addressed the critical problem of the continuing gap between rich and poor in South Africa.
De Klerk said that South Africa had a long and unhappy history of inequality. For the whole period between 1925 and 1960 the black share of personal income accounted for only 20% of the total. Then in 1970 - in the wake of high economic growth during the 60s and increasing demand for labour, things began to change. Between 1970 and 1995 the black share of personal income increased from 22% to 38% - and the white share declined from 67% to under 50%. This meant that for the whole of this period the wealth gap closed at a rate of almost 2% a year.
Nevertheless, in 1995 the average incomes of black South Africans were still only 12.5% of those of their white compatriots. South Africa had a GINI coefficient (which measures inequality) of .67 - one of the highest in the world.
South Africa had made some progress in achieving the vision of justice and equality since 1994. The Government had built more than 3 million houses - enough to house almost a quarter of the total population. It had also extended access to water, sanitation and electricity to more than 75% of households.
However, South Africa had done very badly in promoting equality. Mr De Klerk ascribed this failure to continuing high levels of black unemployment; very poor black education performance; and the manner in which government had tried to deal with inequality.
Only 41% of South Africans were involved in the economy - compared with more than 60% in most economies. 36% of the potential work force and more than 40% of black South Africans were unemployed. Unemployment was the main cause of the poverty and was one of the main reasons why South Africa had made no progress at all in combating inequality since 1994. “Most seriously, it means that our new constitutional democracy is not working for a substantial section of our society - including 70% of our youth.”
De Klerk said that the main cause of unemployment was trade union insistence on what it called “decent jobs” - which had locked millions of people out of the labour market by setting labour costs far above the point where the labour supply curve crossed the demand curve. Unemployment levels were also affected by labour regulations - particularly among small and medium size businesses that created 60% to 70% of the jobs in most economies. In addition aggressive unions, speculation about nationalisation and the burden of complying with BBBEE regulations discouraged foreign investment, resulting in fewer jobs.
The second cause of continuing inequality was the failure of the education system - especially for black South Africans. Poor education widened the wealth gap because inequality was caused not only by high unemployment levels but also by the low wages paid to unskilled workers.
Since 1994 - and with the very best of motives – government had consistently made the wrong decisions in virtually every sphere of education. South African pupils at all ages fared badly in comparative studies of school performance in most other countries. “In fact, we do worse than many other much poorer African countries. According to a recent survey in Newsweek South Africa holds the 97th place in the area of education out of the 100 countries that were considered.”
Finally, in De Klerk’s opinion, the government had taken the wrong steps to close the wealth gap. It had concentrated excessively on affirmative action and black economic empowerment – which had greatly benefited the emerging black middle class – but had done virtually nothing for the bottom 60% of the population.
A small number of black economic empowerment beneficiaries had become spectacularly rich. South Africa also had one of the fastest growing middle classes in the world. However, there had been virtually no progress in the bottom quintiles of the population. “It is like playing musical chairs in the first class salon of an ocean liner – while those in the economy and steerage classes are strictly confined to the lower decks.”
In some respects government policy might even have aggravated inequality. Unbalanced affirmative action had played a major role in the collapse of service delivery in half South Africa’s municipalities and some key government departments. It had accordingly had a detrimental effect on the delivery of services to the broader public – and may thus have diminished the level of equality in our society.
De Klerk said that affirmative action and black economic empowerment, when fairly applied, might play a role in helping to promote greater equality within the top 20% of income earners. “However, it is becoming increasingly clear that they are not the most appropriate ‘legislative and other measures’ ‘to promote the achievement of equality’ in the broader population”.
In De Klerk’s view the government should instead be concentrating on measures that would provide all citizens with much greater access to decent education, effective services – and above all employment.
De Klerk said that there were signs that government was rising to the challenge. “Under the leadership of Trevor Manuel, South Africa’s widely respected former Minister of Finance, the National Planning Commission has developed a practical and sensible national development plan.” The Plan’s two most important goals were job-creation and improving the quality of education. The overarching goal would, however, be to realise the vision in the Constitution of human dignity and equality.
South Africa’s experience in dealing with the wealth gap had shown that there were no easy solutions. Perhaps the most important lesson was that if one wanted to promote equality, one should concentrate on the basics
• by providing decent education;
• by ensuring flexible labour markets; and
• by creating an environment for sustained economic growth.
Published in: FW de Klerk Foundation