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Growth and inclusive development must be prioritised to move SA forward

- Adam Habib

South Africa’s young democracy has emerged intact, albeit severely battered, from Jacob Zuma's tempestuous era.

Cyril Ramaphosa is the new leader at the helm, and has to chart a strategic course that is beneficial to all South Africans. We have survived a multifaceted political and socioeconomic crisis in which trust has eroded between much of the citizenry, the political elite and the now departed President. 

Our society is ravaged by extreme levels of inequality, with the gap having increased exponentially in the post-apartheid era, resulting in a fractured, polarised populace. 

Ramaphosa has to develop an innovative strategic agenda that addresses both this trust deficit and the inequality challenge. This has to involve a focus on growth, attracting investment, and rebuilding the economy, while simultaneously addressing the fundamental challenge of inequality, coupled with poverty and unemployment. We need a pioneering plan that both creates an environment conducive to growth and enables inclusive development, thereby strengthening the foundations of democracy. 

South Africa achieved some economic growth in the last two decades, even if it is at a level far lower than we would have preferred. However, growth is a necessary, but not sufficient condition for inclusive development. While it is true that much has been delivered – electricity, water, sanitation and social support grants – and that poverty rates have declined in certain years of the post-apartheid era, our society simultaneously has been ravaged by the scourge of inequality in the last two decades. We overtook Brazil to become the most unequal society in the world. Since 1994, inclusive of the period of the Zuma presidency, inequality has grown every single year. 

A new agenda requires a recognition that regulation is also essential in order to channel resources to education, healthcare, infrastructure and small business development. None of this is going to happen without a reconsideration of tax rates, remuneration caps, more measured profitability and longer term investment horizons – measures that mainstream business has opposed for so long. 

It is also incumbent upon all social actors – the private and public sectors, civil society, active citizens and the fourth estate, among others – to confront power and transform society towards the inclusive vision that we collectively share. It is my view that two powerful sets of stakeholders – corporate leaders and the political elite – are not sufficiently appreciative of the extent of the challenge of inequality. 

Some executives in the corporate sector, and in particular the private sector economists who serve them, assume that with economic growth, inequality will automatically stabilise and subsequently erode. 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. 

The political elite, on the other hand, recognise the threat that inequality poses, but cannot muster the political will to do anything about it. Some erroneously assume that by addressing poverty, we will automatically reduce inequality, a view that is expressed in the economic chapter of the National Development Plan (NDP). The NDP therefore proposes to expand livelihood opportunities at the lower end of society through a series of reforms: a new industrialisation plan targeting employment, expanding educational opportunities, and financing new entrepreneurs. These are important recommendations that will grow the economy, increase employment opportunities and address poverty. But they will not address inequality. 

The essential problem is that even if we get livelihoods growing at the bottom end of society through employment and financial support for new entrepreneurs and the like, the income of those at the upper end of society is likely to grow even faster. This is because the rich have assets – property, stocks, bonds – and it is these assets which will ensure that the incomes of the rich will grow faster. The net effect is that even if poverty erodes, inequality will grow faster. This is essentially what happened in South Africa, Russia, India and China in the last 20 years. 

The only way in which economic inequalities can be addressed is if the expansion of livelihood opportunities at the base of society is coupled with either containing the enrichment at the top of society, or ensuring that the bottom grows faster than the top. 

The struggle for social justice in South Africa is a struggle for structural reforms. What this means is that when there is growth, it must be accompanied by redistribution and social upliftment. For example, if we allow for the development of private housing estates, then it must include mandatory housing for low income households. 

As we institute minimum wages, we should consider caps on executive remuneration and stakeholder dividends. Tax must be structured in a manner that promotes long-term investments rather than treating short-term capital flows on an equivalent level. If we focus on tax incentives and subsidies for youth training, this must be accompanied by protecting the existing employment of workers in the enterprise. We may need to consider export zones and industries that are granted exemption from some existing labour regulations, but this has to be accompanied by concomitant investments in surrounding communities or downstream social projects. 

There should be BBBEE mechanisms that allow for new entrants into industry who do not cater just for the politically connected and the economic elite. Procurement opportunities for businesses, both foreign and local, could be tied to simultaneous investments in universities and schools. Similarly, private hospitals should be obliged to, in some way, allocate a percentage of their resources to providing services for poor people. 

Essentially, our development strategy and regulations should be focused on establishing an appropriate balance between growing our economy and stewarding it in an inclusive direction. This should be one of the considerations at the top of the agenda of Ramaphosa’s next Cabinet meeting. The President has the opportunity to rebuild the state but it requires imaginative political leadership that has been missing from South Africa for over a decade. It is important for him and the new Cabinet to establish collaborative channels within government and with other societal actors to develop a new roadmap for South Africa. 

This week has demonstrated that even though our democracy is in its infancy, it has proven to be resilient and robust enough to self-correct, unlike many other countries around the world. This may be due to our active citizenry, strong civil society, an independent fourth estate, trade union movements and pressure from the private sector. However, these are the same social actors that will have to work together to develop a social pact; a pact that will require compromises of all of us so that South Africa stays on its democratic and developmental course in the long-term. 

The fundamental lesson is that if we are truly committed to social inclusion and addressing inequality, then there is a need to change not only our leaders, but our politics itself. There has to be a new politics of accountability that is principled yet pragmatic, peaceful yet robust, infused with integrity, yet responsive to the real needs of our citizenry, and in particular to the poor in our society. Only then can the promise and hopes of the last few days for a peaceful, democratic and inclusive South Africa truly be realised. 

Professor Adam Habib is the Vice-Chancellor and Principal of the University of the Witwatersrand