Inequality in SA and beyond - a peek behind the curtain

02 October 2020
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Just over a year ago CNN wrote, "South Africa remains the most economically unequal country in the world, according to the World Bank. If anything, the rainbow nation is even more divided now than it was in 1994." That sounds bad.

At the same time the Department of Statistics South Africa reported the number of hungry South Africans "has dropped from 13,5 million in 2002" to 6.8 million in 2017. They rightly crowed South Africa "has made significant progress towards reducing the number of South Africans and the proportion of households who experienced hunger in 2002."

In addition the government has said the percentage of South Africans in formal dwellings has increased. "According to Statistics South Africa's (Stats SA) General Household Survey (GHS) of 2018, about 81,1% of all households resided in formal dwellings in 2018." This sounds like conflicting claims to many. Housing and food security have improved yet South Africa is the most "unequal" nation in the world. How is this possible?

Perhaps the real matter is economic prosperity and economic equality have far less to do with one another than some imagine.

Consider the poverty of America. If you listen to advocates of economic equality, the U.S. is doing quite poorly. Yet, Pew Research, using World Bank data, finds that by global standards only 5% of Americans qualify as poor or low income, while a majority of 56% are high income, meaning "more than half of Americans who are poor by U.S. government standards would be middle income when compared with the rest of the world."

Even with most Americans being rich by world standards it doesn't stop the advocates of economic sameness, who find all differences problematic; save one, they never worry about the inequality of production, just how it's distributed. Consider a recent column by Robert Samuelson in the Washington Post.
Samuelson looked at data showing the percentage of lower-income people has declined and the average American moved up the economic ladder, even after adjusting for inflation. From 1967 until 2016 the percentage of poor or near poor  -  by U.S. standards  - declined from 16% to 13% of the population. Those falling in the lower middle-class income group declined from 31% to just 16%. 

The percentage of middle-class income earners declined from 47% to 36%. Notice all three of the lowest income categories declined as a percentage of the population. This means there was a lot of economic movement - in an upward direction. 

In 1967 only 6% of Americans were considered either upper-middle class or rich, but 35% of the population enjoyed this economic abundance by 2016.
Over the last 50 years fewer and fewer Americans were poor or near-poor, while the percentage of those well-off increased six fold! Income for all economic levels increased making virtually all Americans better off. 

This is all great news, but Samuelson thinks otherwise. His column's opening comment said, "We all know that economic inequality has increased in recent decades, but just who has won and who has lost are harder questions to answer."

What bothers Samuelson is, while all income groups saw an improvement, some saw a bigger improvement than others.

Imagine a charity dedicated to stamping out regional famine. After several years of effort they report all families in the region are now able to have a healthy daily meal sufficient for life. It would be great cause for celebration, but then someone complains because they can't afford dessert. The problem evolves from feeding everyone to providing desserts for everyone! This injustice  - if you can call it that  -  of a world where all are fed but some have ice cream, is miniscule at best. 

Samuelson shows income levels improved, but not all improved at the same rate. He referred to some of the beneficiaries of this improvement as winners and some as losers. I think them all winners. 

When you get economics mostly right the material existence of all tends to improve. To define winning, not on actual prosperity, but on how you compare to someone else, isn’t economics  - it's envy. 

If your income improved 10% in real terms you are better off, even if Bill Gates saw his income improve more. Your well-being isn't dependent on others being made worse off. 

The former slave, Booker T. Washington warned, "Whenever people act upon the idea that the disadvantage of one man is the good of another, there slavery exists." Another former slave and abolitionist Frederick Douglass put it succinctly, "I have no sympathy for the narrow, selfish notion of economy which assumes that every crumb of bread which goes in the mouth of one class is so much taken from the mouths of another class."

Wealth isn't a fixed sum, but something that can be created with the right policies, or destroyed with the wrong ones. Oddly, in practice throughout history, those systems promising equality of distribution tended to actually take food from the mouths of all  -  in Communist China, the Soviet Union, or Venezuela today, for instance.

The increased wealth of others doesn't make you worse off. That idea is a toxic one and has repeatedly led to political policies that are authoritarian, destructive and deadly. I am not better fed if you take the bread away from another. I am not better clothed if you burn someone else's closet. My well-being depends on improvements in my economic conditions, not on others suffering losses. The same is true for you.

In depoliticised markets, where buyers and sellers are free to make their own choices without third-party interference, they only act when each believes they will come out ahead. 

There is another obvious aspect to the complaint not all wealth is equally distributed, one so obvious you'd wonder why it is rarely discussed. 
There is unequal distribution because there is unequal production. Some workers are very productive; others not so much. Some companies are very productive, others on the cusp of bankruptcy. Some nations are highly productive, others barely so.

The real question is what makes some players in the marketplace more productive than others. Once we know the answers we can work to raise the productivity of the less productive workers, companies and nations. 

The problem is the implied solution of those focusing on inequality tears down the most productive. More equality economically can be a good thing, or a bad thing, depending on how it is achieved. If you work to raise the productivity of those worse off, you'll succeed. If all you do is tear down the better-off, you make everyone poorer. 

The dockworker philosopher, Eric Hoffer put it this way:
The real "haves" are they who can acquire freedom, self-confidence, and even riches without depriving others of them. They acquire all of these by developing and applying their potentialities. On the other hand, the real "have nots" are they who cannot have aught except by depriving others of it. They can feel free only by diminishing the freedom of others, self-confident by spreading fear and dependence among others, and rich by making others poor.

This article was first published on City Press on 24 September 2020

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