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The politics of redistribution

What does it mean to govern effectively in a highly unequal society? The African National Congress answer to this question is that governing is about “advancing the national democratic revolution”.

At its essence, the NDR is about changing social and economic conditions created under apartheid, through tackling structural nature of poverty, inequality and unemployment. There has been progress, evidenced in significant improvements in access to services and a significant increase in social grants. Underlying these improvements has been a moderately expansionary fiscal stance since 2000.

However, our official development indicators suggest that poverty traps remain resilient, and progress in these indicators is modest and fragile. The official government statistics indicate that 43,2% of South Africans lived in poverty in 2006. Importantly, this statistic represents a decline in the poverty rate, which increased from 1993 to 1999, due to excessively tight fiscal policy. As fiscal policy has become more expansionary, South Africa has experienced a decline in its poverty rate. There are disputes about whether the extent of poverty reduction since 2000 has been as quick as the government suggests, but there is broad agreement that poverty has been reduced since 2000.

These reductions in poverty are, however, fragile. The fragility of these gains are associated with the inability of poor households to withstand shocks, whether household shock (for example death and unemployment) or national (such as a decline in commodity prices, or a sudden revaluation of the currency). Being unable to withstand these shocks, these households would sink below the poverty line. The policy implication is that if these households are unable to withstand shocks, South Africa could experience a large increase in its official poverty rate. This is especially true as about 5% of the population live on slightly above the poverty line. These households might not be classified as poor in the official data, but survive on slightly more than the most used poverty line of R250 per person.

Reinforcing the picture of fragile and moderate gains is that income inequality has risen in South Africa. The government, to its credit, recognises that expansion of social grants and job creation has not been sufficient to reduce inequality. This is reflected in the bottom 10% of South Africans receiving only 0,6% of total income in 2006, the exact percentage they received in 1993! The richest 10% received 55,9% of income in 2006; slightly up from 1993. The resilience of inequality to government policy has important policy implications.

First, any economic growth strategy must change this distribution pattern if poverty reduction and employment creation are to be sustainable. Second, involving the poor in the economy requires the government to craft strategies for inclusion and redistribution. This is not a novel conclusion, as these foundational elements of development strategy had been central to the Reconstruction and Development Programme. In fact, the need for redistribution finds expression in government policy that is focused on the “second economy”, which despite its conceptual ambiguities recognises that without interventions, large sections of our society will be excluded from economic growth.

South Africa has, however, been very modest in its interventions. Other countries — both developed and developing — have crafted and are experimenting with strategies for redistribution that are significantly more ambitious than our own. India is experimenting with a large-scale employment guarantee scheme. Unlike our public works programmes, these schemes provide for longer-term employment and certainty of income. Several Latin-American countries have attempted to link social assistance programmes to build capabilities. For instance, children must attend school for households to qualify for grants.

While there is some debate, the value of the grants in Latin America is considered to be in line with the poverty line. In South Africa, the commendable expansion of the child-support grant provides a grant that is lower than the proposed official poverty lines and that is not linked to building capabilities.

Across the globe, governments are using state money to fund programmes aimed at addressing youth unemployment, a worrying problem internationally. Our combined youth unemployment programmes, compared with international experience — and more importantly with the exceptional high youth unemployment we experience — will not tackle this challenge. These international experiences provide important lessons for how we tackle poverty, and indicate clearly that even under current conditions more redistributive policies are feasible and effective.

The argument for more direct state redistribution — primarily through the fiscus — is reinforced by the absence of market-based opportunities for the poor. Black economic empowerment provides an example of the closure of opportunities for the poor. There are several BEE companies that are venturing into productive activities, which means that they are actually employing people. However, the vast majority of BEE deals provide for significant changes in share ownership, without any material impact on job creation.

In fact, it would not be unsurprising to find that BEE deals create the least number of jobs by R1-million invested. Yet, the government has effectively run a programme to make BEE compliance one of “rules of the game” for doing business. There are, of course, important motivations for BEE; however, as we learn from the Asian Tigers — and India and China more recently — governments provide opportunities for capitalists but ask for something in return. The quid pro quo is that these capitalists promise mass employment and sustained investment. Instead, in the government’s engagements with the private sector — white and black — it has failed to establish job creation as a “rule of the game”.

The South African challenge is finding the right mix of policies that would lead to a more aggressive stance of reducing poverty, inequality and creating jobs. In our context, it is only the ANC by virtue of its political dominance that can implement a more aggressive redistribution strategy. Political dominance is one requirement; another is utilising this dominance to lead a redistributive programme. There is, for instance, ample empirical evidence to show that more equal societies experience longer and higher sustained economic growth. Political leadership is, however, required to build support across classes. Economic growth remains important, but tackling inequality is a complementary goal.

Most importantly, a more aggressive redistributive stance is not a one-way bet: ill-designed redistributive programmes could backfire, or the redistributive outcomes could benefit not the poor, but the elite. Again, political leadership is vital to maintain an ethical stance towards the poor, and ensure the balance between economic growth and redistribution.

The ANC thus must provide leadership on how South Africa will tackle poverty and inequality traps. Governing in this environment is a tough process, requiring the government to navigate a complex set of power arrangements. South Africa, for instance, is one of few countries that have a strong trade-union movement, and a powerful big business sector. There are new forms of power emerging in the protests around HIV/Aids and service delivery. At the same time, black business is emerging as a strong political force. There are thus multiple centres of power, with different proposals on how to reach our developmental targets.

This not only reflects the nature of democracy in South Africa, but also is the terrain in which a consensus on a developmental strategy must be crafted and implemented. It is in this area of consensus building around developmental strategy that the ANC has failed. The absence of a pragmatic consensus on a developmental strategy hinders more redistributive efforts, and fails to mobilise society around a common programme.

A more inclusive governance style obviously has a touchy-feely quality to it. However, in a society as unequal as ours, the bringing together of different actors to craft a development strategy is tougher than, for instance, the government insulating itself and implementing.

Moreover, it is a necessary condition to maintain investment levels in order to ensure a sustainable poverty-eradication effort. For our country to meet its targets, the ANC must tackle the politics of redistribution, and the process towards developing a comprehensive development strategy. It needs to do that if the fragile gains of our democracy are to be sustained, and so that we tackle the structural nature of poverty in our society. In the run-up to Polokwane, hopefully ANC delegates do more than wear competing T-shirts and go through the process of finalising nominations. They need to focus on what programme the elected leadership of the ANC will be implementing.

This article in an edited form appeared in the print edition of the Mail & Guardian.

This article first appeared on the Thought Leader group blog hosted by the Mail and Guardian.