Subsequent to deliberations at a pre-Budget Roundtable meeting held by REGENT BUSINESS SCHOOL about a few weeks ago in Johannesburg, the authors, the moderator, Fatima Vawda and the panellists which included Professor Somadoda Fikeni, Dr Ralph Mathekga, Dr Emile du Plessis and Nadir Thokan had a debriefing session to review and identify the key issues that we opined should be addressed by Minister Tito Mboweni in his Budget speech the following day. Amongst the many issues identified, the question of the Private Sector’s role and responsibility in South Africa’s economic ‘recovery’’ stood out as a challenge that was worthy of further critical discussion and elucidation.
South Africa is now regarded as the most unequal society in the world with a fractured and polarised social order characterised by poverty and unemployment. According to some analysts economic transformation has barely touched the surface of a deeply divided society.
According to former Deputy Finance Minister, Mcebisi Jonas “Twenty two years after democracy, South Africa remains with obscene levels of inequality where the wealthiest 10 percent of the population own more than 90 percent of all wealth and more than 55 percent of income and the poorest 50 percent who earn about the 10 percent of all income own little or no measurable wealth.
Any serious attempt to rectify this sad malady will involve a strategy to do deal fundamentally with the triad of inequality, poverty and unemployment and a bold effort to simultaneously create conditions for sustainable economic growth and inclusive development.
There are some economists such as Simon Kuznets who hypothesise that with economic growth, inequality will automatically stabilise and subsequently erode. They erroneously assume that by addressing poverty, a country will automatically reduce inequality. As much as these are important considerations will grow an economy, increase employment opportunities and address poverty, they will not address inequality in any substantive way.
Thomas Piketty, in Capital in the Twenty-First Century, explicitly demonstrates that inequality will continue to grow across the world unless there is a clear political attempt to counter the structural dynamics that facilitate it.
Unfortunately, South Africa’s improved economic outlook is not sufficient to reduce inequality, poverty massive unemployment in any fundamental way. National Treasury is of the opinion that the country needs a gross domestic product growth rate of at least 5 percent not only to meet the National Development Plan goals, but also to substantively deal with the scourge of inequality.
Of recent, the International Monetary Fund is in agreement that inequality is bad for growth. Researchers such as Jonathan Ostry argue that inequality undermines growth, and that countries that have been able to achieve sustained levels of high growth generally have lower levels of inequality.
Equally, there are also clear moral and political reasons why inequality is bad. Martin Wolf, the chief economics commentator of the Financial Times notes that rising inequality is “Incompatible with true equality as citizens” which is a central tenet of democracy.
More recently Michael Spence and his colleagues in a paper Restarting the Global Economy argue that there is a strong trend of rising income inequality and this will be detrimental to both the demand and supply sides of economic growth and this may imply that new directions in the political economy of individual countries will have to be charted.
Even Mike Fucci, Deloitte Global Chairman claims that “businesses are increasingly driven by a sense of purpose to promote more socially inclusive growth and ultimately create greater opportunities for all people. The idea that businesses can operate in siloes with little input or influence over societal issues is now becoming outdated. This purpose-driven focus is redefining the active role businesses should play in a globalised world”. This sense of purpose is further underpinned by the belief that business is an essential part of creating economic opportunities that can reduce inequality.
Lately Michael Porter and Mark Kramer, two renowned academics from Harvard Business School and champions of the ‘free market system’ argued for a ‘reinvention of capitalism’ by companies taking the lead on bringing business and society back together through ‘shared value’. They defined shared value as ‘creating economic value in a way that also creates value for society by addressing its needs and challenges’. It is a business strategy focused on companies creating measurable economic benefit by identifying and addressing social problems that intersect with their business.
According to these academics ‘shared value’ is a business strategy focused on companies creating measurable economic benefit by identifying and addressing social problems that intersect with their business. They suggest that “business investing in the community is not new. The Industrial Revolution saw many companies provide health clinics, schools and subsidised groceries for its workers. In 1888, the Lever Brothers (now Unilever) built a town to accommodate workers in its soap factory in the north of England, called Port Sunlight after its soap product. Cadbury did the same in 1893”.
Another economic model referred to as the ‘Social Model’ or the ‘Third Sector’ which derives from the French économie sociale, first recorded about 1900 is gaining momentum especially in its aim to develop new solutions for issues such as social, economic or environmental problems and to satisfy needs which have been ignored or inadequately fulfilled by the private sector.
By using solutions to achieve not-for-profit aims, a social economy has a unique role in creating a strong, sustainable, prosperous and inclusive society.
Even the World Economic Forum (WEF) Meeting 2019 discussed a radical idea – how to use the trillions of dollars locked in Pension Funds and Insurance Groups to support Sustainable Development Goals (SDGs) covering socio-economic issues like poverty, hunger, health, education and global warming. They agreed that private funding is unquestionably needed to make up the difference between national budgets and societal needs.
Quite obviously there are no quick and easy solutions to South Africa’s inequality problem. Without substantive improvements in the human capital of the poor, income inequality will remain unacceptably wide. This will have to happen only with far greater political will and focus than is currently apparent from all sectors of society and especially the business sector. Inclusive growth has become a South Africa’s priority as a means toward building a socially just and stronger society.
The business sector has to come to the proverbial table to collaboratively assist in find a meaningful solution to South Africa’s perennial problem of inequality. The time is opportune, especially given the popular demands for ‘radical economic transformation’.
The authors hail from REGENT BUSINESS SCHOOL. Ahmed Shaikh is Senior Academic and Managing Director, Ridwaan Asvat is Senior Academic and Director of Operations, Nadeem Cassim is a Researcher and Associate Director for Academic Operations and Dhiru Soni is Director for Research and Innovation.