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Income Inequality in South Africa

Posted by on Monday, September 9, 2013 in Tsotsi.

Income Inequality in South Africa

As of March 2013, according to the World Bank, there are 145 developing or less developed nations around the world. Development is a highly complex issue that has been studied and interpreted in many ways. This paper will look at it through the lens of equality. Developed countries are able to afford its constituents equality in terms of the law, on the basis of race, economic opportunity, and more. While a strict definition of what constitutes a developing country does not exist between institutions such as the UN or World Bank, several factors that are used in classification: GDP/GNI, life expectancy, access to education, level of infrastructure, gender equality, income inequality, and more (World Bank). Of these factors GDP or GNI per capita is used most heavily. While significant, things like GNP only look at total sum or averages. They don’t always provide the entire picture of an economy, and are unable to capture many concerns. For example, income inequality, one of the largest issues facing development in many countries, would be undetectable through solely GDP. Income inequality has a huge impact on development. In places where it is rampant, such as South Africa, it enforces existing separations between marginalized groups of people, perpetuates the cycle of poverty, and causes general disruption to the development of a country and its economy.

Income inequality is defined by Investopedia as the “The unequal distribution of household or individual income across the various participants in an economy.” It is essentially a measure of how much wealth the upper class of a country controls versus the percent of wealth the lower class does. Countries with large income inequality often suffer from oligarchic business structures, distrust of government, and higher crime levels.  When such a large gap forms between the wealthy and less fortunate, political unrest often occurs due to things such as revolts and factions that form out of desperation. Inequality limits economic upward mobility, as those children in the lower income brackets are forced to work rather than go to school (World Bank). It is impossible for further development to occur in such bifurcated societies.

In addition to lowering the standard of life, inequality is also economically inefficient. According to Nancy Birdsall (2007), the president of the Center for Global Development, income inequality prevents markets from functioning to their best capacity due to the unused resources of labor and a diminished demand. It breeds a society that goes against rational decision making as well as limits the regulatory effect of government, creating an unstable market. This directly decreases consumption, driving down the GDP and economic progress of a country. By hindering growth, this inequality is also stopping the opportunity to create a more developed country with the potential influx in capital. Although all of this is true, many countries today cannot seem to break the cycle of inequality.

Perhaps one of the most striking and interesting examples of income inequality is found in South Africa. In terms of development and progression South Africa has been driven down a fairly unique road. In the late 1980’s due to global resistance to Apartheid such as international trade sanctions and embargos, South Africa was forced to advance. Rather than solely relying on foreign trade, internal markets were developed and oil shock forced infrastructure to be built, as it was difficult to travel large distances (Elliott 2008). In that time great strides were made on the economic front but not necessarily from a humanitarian standpoint. Today, as part of the Southern African Customs Union, South Africa is considered a developed country according to international trade statistics due to its $384.31 billion GDP, thriving resource based market, and $935 million food trade surplus. However, the UN still maintains South Africa as a developing region due to problems such as the low life expectancy and inequality (World Bank).

As measured by the Gini index, a widely accepted measurement of income inequality ranging from 0 as perfect equality to 100 as perfect inequality, South Africa stands at 63.1 (World Bank). Due to issues with accuracy of statistics this number has not been updated since 2009, however 63.1 is still the highest index in the world. Furthermore, the gap in society is not just a monetary one, but a racial one.  For example, in 2000 according to Van der Berg and Louw, total per capita income was 14, 716 Rands with the black’s and white’s per capita income standing at 7,283 and 62,360 Rands respectively (Nix 2007). This stark separation also manifests itself in indicators such as the unemployment rate. The official unemployment rate currently stands at 25.6 percent, however the Economist (2013) believes that the unemployment rate for young blacks could be upwards of 55%. In terms of development, unemployment is inherently unequal. It creates a divide of people who can and cannot provide for themselves. Despite the many political moves to bridge the gap, in many ways it is actually growing larger due to worldwide economic issues as well as unforeseen reactions to policy (Nix 2007).

Inequality has historically been an issue in South Africa, beginning with Dutch colonization in the mid 1600s until the 1990s when Apartheid was officially disbanded. Apartheid, a legal and economic separation based on race lasted for 50 years and is a huge source of the problems that South Africans -particularly blacks- continue to face. During the time period of The National Party rule blacks and whites were confined to different areas of the country and forced to use different facilities. Blacks were removed from their homes and relegated to the Bantustans while the whites were sold the fertile land at discounted prices. Cleanliness, infrastructure, and overall quality of life differed greatly between the two parts of the country (May 1998).

Apartheid continues to have huge legacies on the social structure and contributes to existing inequality. Bloomberg’s Mike Cohen’s (2013) findings discuss the continued lack of access to education that exists in predominantly black areas. This education gap perpetuates poverty in the black community, as people are unable to qualify for high paying jobs. The physical separation can still be seen, as a third of all economic activity is concentrated in the historically white province of Gauteng. However, Apartheid is not the only culprit in modern day South Africa. The initial post-Apartheid rule of ANC and mindset of freedom led to an economy governed mainly by Neoliberal ideas (Mckaiser 2012). This lack of regulation didn’t properly assist blacks and the other disenfranchised groups of people in reaching equality, but rather concentrated on limited government involvement and a laissez faire mindset. Without government help, it was very difficult for blacks to move up the social ladder and break through a system that had defined the economy for almost 50 years.

Today, although there is certainly a correlation, income inequality is not solely defined by races in South Africa. Some policies that were put in place to counteract racist institutions actually ended up causing interracial inequality. An unexpected example of this is the desegregation of unions. Once interracial unions were legally allowed, the union participation rate increased dramatically. In the mid 90’s there began to be a shift as the unemployment of unaffiliated men began to rise whilst the unemployment of union affiliated men began to shrink. The decrease in labor market segregation and discrimination caused an increase in the supply of workers and a move toward cheaper labor, which most often were blacks. This, to an extent, decreased the racial divide but put many whites out of work, which caused an uptick in interracial inequality. According to Nix (2007), many unions and other desegregation policies actually inadvertently contributed to the income gap.

Despite these numbers, South Africa has come a long way since the height of Apartheid. The African National Congress has tried to be as helpful to the black and colored community as possible. They have created several institutions such as the Black Economic Empowerment program as well as many other affirmative action programs. While there are great debates to the broad based efficacy of many of these programs, there is no doubt that they have made some gains (May 1998). Attempts to bridge the income gap can be seen by the increase in government expenditure going towards welfare. As of 2010 15% of total government spending, the second largest component, goes towards welfare spending. Despite the fact that more and more blacks enter the work force and join greater income brackets the Gini index has remained fairly consistent from 1990 Apartheid South Africa to modern day. For example, according to the International Herald Tribune (Mckaiser 2012), South Africa is the only country that has a greater number of citizens receiving welfare than the number of employed. South Africa has a long way to go, as all increases in racial equality seem to produce a regression in income equality.

With one of the highest, if not the highest, incidences of income inequality, South Africa is having a difficult time making strides.  Income inequality is an issue that must be addressed before the country can move into the developed world. With over 47% of South Africans falling below the poverty line and the largest GDP in all of Sub Saharan Africa, there is a clear disconnect. Many of South Africa’s problems, including its low literacy rates and high crime incidences can somehow be related to the issues formed or perpetrated by income inequality. The legacy of Apartheid still continues to shadow the economic growth of the country as a whole and inefficiencies due to inequality threaten the long-term success of the economy.  A growing black middle class has given some hope to the situation however statistics have yet to show numeric improvement for the country over all. Income inequality is a damper on economic and social growth, as it just continues to breed other forms of inequality and hinder development.

 

Bibliography

Birdsall, Nancy. 2007. “Income Distribution: Effects on Growth and Development” Center for

Global Development.

http://www.cgdev.org/sites/default/files/13505_file_Income_Distribution_Birdsall.pdf

(Accessed September 9, 2013)

Cohen, Mike. “South Africa’s Racial Income Inequality Persists, Census Shows.” Bloomberg.

http://www.bloomberg.com/news/2012-10-30/south-africa-s-racial-income-inequality

persists-census-shows.html (Accessed September 8, 2013)

Elliott, Kimberly, Hufbaur, Gary and Oegg, Barbara. 2008. “Sanctions.” The Concise

Encyclopedia of Economics. Second edition. Liberty Fund inc.

http://www.econlib.org/library/Enc/Sanctions.html (accessed September 9, 2013)

May, Julien. 1998. “Poverty and Inequality in South Africa.” Centre for Social and Development

Studies, University of Natal. http://www.info.gov.za/otherdocs/1998/poverty/presentation.pdf

(Accessed September 9, 2013)

Mckaiser, Eusebius. 2012. “Welfare for Wealth.” International Herald Tribune. February 29

http://latitude.blogs.nytimes.com/2012/02/29/changing-south-africas-welfare-programs-can

help-economy/ (Accessed September 9, 2013)

Nix, Emily. 2007. “Income inequality in South Africa: The possible negative effects of

decreasing discrimination.” Presented at The Union for African Population Studies Fifth

African Population Conference. Arusha, Tanzania

World Bank. “Income Inequality.”  Beyond Economic Growth.

http://www.worldbank.org/depweb/beyond/beyondco/beg_05.pdf (Accessed September 9,

2013)

The Economist. Youth unemployment: Generation jobless. The Economist, 27 April 2013.

 

 


One Comment on “Income Inequality in South Africa”

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