'Black economic empowerment has failed': Piketty on South African inequality

http://www.theguardian.com/world/2015/oct/06/piketty-south-africa-inequality-nelson-mandela-lecture

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Thomas Piketty is puzzled. To a near-capacity crowd in Soweto, he confesses that South Africa presents him and his fellow economists with a conundrum.

“Of course now we are 25 years after the fall of apartheid … [but] inequality is not only still very high in South Africa, but has been rising and in some ways income inequality is even higher today than 20 years ago. This is something we want to better understand,” he told the audience at the University of Johannesburg campus.

Related: Thomas Piketty to investigate inequality in new role at LSE

Piketty has made it his life’s work to solve exactly these kinds of puzzles. His bestselling book, Capital in the 21st Century, addresses this problem on a global scale.

He argues that capitalism today is fundamentally flawed because wealth will always grow faster than economic output. In other words the rich get richer and the poor get poorer.

This is the ideological foundation for the Occupy protests around, who say that the top 1% profit while 99% suffer, and it’s this thesis has made Piketty a celebrity.

Delivering the prestigious annual Nelson Mandela lecture last weekend, Piketty outlined why he thinks South Africa is still so dramatically unequal – and suggests a few things that can be done about it.

‘A violent shock’

Piketty began with the jarring claim that Europe’s success in reducing inequality has more to do with violence than market forces.

“It is due, to a large extent to the very violent shocks of world war one, the Great Depression, world war two and, most importantly, to the new social policies, welfare state policies, new fiscal policies [and] progressive taxation that were finally accepted by the elites after these violent shocks [...] which put strong pressures on the elite in western countries to accept reforms, which until 1914 and world war one were refused,” he said.

Piketty offered the example of his native France, arguing it was the first European country to introduce political equality but among the last to introduce policies that reduced economic inequality. In fact, in the century after the French Revolution, the concentration of wealth amongst the elites actually increased, he said, until the first world war forced the elites to accept serious fiscal and social reforms.

While not exact, the parallels with modern South Africa are ominous. “In a way, the inequality regime that existed under apartheid was much more oppressive and violent than the ancien regime in France. The group that had more rights than the rest of the population, namely the whites, was much bigger. It was not 1% of the population; it was 10%-15%, so it’s more difficult to deal with a situation like this than if it’s 1%.”

Just like post-revolutionary France, in post-apartheid South Africa this economic inequality has continued. “Everything we know suggests an unusually high level of inequality, higher than what we observed pretty much anywhere else in the world.”

Piketty’s key statistic is that 60%-65% of South Africa’s wealth is concentrated in the hands of just 10% of the population (compared to 50%-55% in Brazil, and 40%-45% in the US).

“Of course, this group historically has been predominantly, almost exclusively, white. Even today if you look at the data, especially within the top 1%-5%, it will be up to 80% white, so things have changed a little bit, but we are still are very much with this same structure of racial inequality that we used to have. So now how can we make progress?”

While he refrained from saying so explicitly, the implication seemed to be that South Africa – like France – needs its own violent shock to force the issue.

What can be done?

While acknowledging that international factors play an important role, Piketty says there are a few main areas where South Africa is failing – and which could, if addressed, turn the country around.

Most interestingly, he supports calls for a national minimum wage; argues for worker participation at board level in companies; and says South Africa desperately needs proper land reform.

“If we take a broad international historical perspective, we see in many countries, in history, much more ambitious land reforms than what we have seen in South Africa since the end of apartheid.

“I think it’s fair to say that black economic empowerment strategies, which were mostly based on voluntary market transactions […] were not that successful in spreading wealth. So I think we need to think again about more ambitious land reform,” he said.

Piketty’s radical suggestions sat uncomfortably with the event’s corporate sponsorship, which included AngloGoldAshanti, Audi, Coca-Cola South Africa, Vodacom, and Rupert & Rothschild Vignerons (a winery founded by the late billionaire Anton Rupert), amongst others.

Their logos told the audience that even capitalism’s critics have been embraced by the very companies and multinationals they rail against. Whether he likes it or not, Piketty is part of the system – and the system is unlikely to change any time soon.

Perhaps South Africa’s former finance minister Trevor Manuel, in a post-lecture interview, put his finger on the problem: while we all know Piketty is right, no one – not the South African government, not big business, not the economic elites – is in a hurry to implement his ideas.

“We’ve got the framework in place but I think the problems are not in the economics; it’s not even in the tax law. Our problems are in the leadership and how we convene society to understand that we’re in this together,” said Manuel.

In Soweto, Piketty’s ideas earned him two standing ovations. But will this be the extent of their impact on South Africa?

A version of this article first appeared on the Daily Maverick