South Africa’s challenge: Defusing the inequality-institutions time bomb

defusing a time bombIn March, 2018,  I published in Project Syndicate the first of a series of articles on a ‘New Deal’ for South Africa. This is the initial,  more detailed  version of the Project Syndicate piece. I include at the end links to two subsequent pieces. 

At a time when populism, creeping authoritarianism and corruption seem to be ascendant globally, South Africa has taken a remarkable turn in the opposite direction. Within three months of displacing Jacob Zuma as leader of the ruling African National Congress (ANC), Cyril Ramaphosa has become the country’s president. In a measured, understated, yet cumulatively decisive way, Ramaphosa has signaled that competence,  principled commitment, rules, due process, and openness – not under-handed deal-making in the dark –  will be the basis for decision-making and action.  Evidently, South Africa has new lessons to offer; but what are they?  The answer varies depending whether the focus is on the short-, medium-, or long-term.

The epic character of the South African drama invites interpretation as a morality play, with Jacob Zuma cast as  villain, and Cyril Ramaphosa as hero.  Such a narrative misleads.  Deeper structural forces are at work – both in what has gone right and what has gone wrong.

What has gone right are the country’s institutions. South Africa illustrates how, with time and patience, robust checks and balances  can trump self-dealing  concealed by populist smokescreens. US Ambassador Patrick Gaspard  has highlighted how a strong civil society, carefully researched journalism, robust political opposition and an independent justice system underpinned South Africa’s turnaround

What has gone wrong has, to be sure, had more than a little to do with the person of Jacob Zuma, whose  influence was unusually venal. But Zuma’s exit does nothing to address the core challenge.

A difficult lesson from the recent global wave of democratic reversal is that these reversals do not spring from nowhere; they arise from unaddressed imbalances within societies. In South Africa, as elsewhere, the roots of this reversal can be traced to what I term the ‘inequality-institutions time bomb’ – the pernicious ways in which high and/or rising inequality can corrode the institutions that provide the foundations of sustainable democracy. Unless this time bomb can be defused, optimism is premature.

South Africa is a country where poverty, inequality and ethnicity continue to collide in especially pernicious ways.  Its per capita income ( $12,000 in PPP) puts it  in the middle-income country (MIC) range –  similar to Brazil, Mexico and Thailand; four times low-income Kenya;  but only one-fifth the USA.   As I explored in a paper co-authored with Alan Hirsch and Ingrid Woolard, when compared with other MICs,   inequality  is stark:

  • The most affluent 10 percent accounted in 2010 for 53% of total spending; The equivalent proportion was 47%  in 2000 Brazil (at the time  the poster child of MIC inequality).   White South Africans, who make up less than 9% of the country’s total population,  comprised 56% of this top 10%..
  • In the middle of the distribution is a stark cliff. South Africans are either affluent or poor, with little in-between. 2010 per capita expenditure in the  seventh ventile (ie 31st-35th percentile from the top) was only 29% of the third ventile (11th-15th percentile). For other MICs, the equivalent proportions were 45% (Brazil); 51% (Mexico)  and 57% (Thailand).
  • The bottom 40% of South Africans accounted for only 6.9% of 2010 expenditure (versus 8.1% in 2000 Brazil). As of 2011, 15 million people (30 percent of the country’s population) survive through social grants.

This starkly unequal distribution has both a corrosive effect on institutions and adds to political volatility.

The corrosive effect plays out differently across the distribution.  At the top,  in the immediate post-apartheid years, black South Africans pathways to affluence came via the elimination of discriminatory practices, the incorporation of  some ANC leaders into management positions in the corporate sector (plus some equity-sharing arrangements), and the implementation of new rule-based codes for black economic empowerment. But these opportunities soon were exhausted. In the absence of a thriving, entrepreneurial economy, the focus shifted to less governance-friendly approaches —  patronage employment; factionalized contestation for elected and other relatively high-paying political positions; and personalized (and often corrupt) procurement practices.

In the mid-range, with a ladder of opportunity largely missing, the focus has been on using all means necessary to cling to the upper edges of the distributional cliff: cultivating an exclusionary labor aristocracy,  patronage appointments into mid- and lower-level positions in the public sector, and corrupt small-scale public procurement. At the bottom,  with government so central in the economic lives of the poor,  opportunities have been rife for building clientelistic networks –  increasingly with politically-affiliated traditional leaders as the fulcrum.

If the heartening recent reversal of state capture is to be sustainable over the longer-term, the inequality-institutions time bomb detailed above needs to be defused – no small task in this era of automation and jobless growth which is squeezing middle- and high-income countries alike.

In seeking  hope, I find it useful to shift focus from the long- to the medium-term.   Reflecting on the changing tolerance for inequality and the  rise of authoritarianism in 1970s  Latin America, the late, great development economist, Albert Hirschman captured both the challenge and opportunity in a way which has particular relevance for contemporary South Africa:

“Suppose I run into a serious traffic jam in a two-lane tunnel. After a while the cars in the other lane begin to move…. Even though I still sit still, I feel much better off  because of the expectation that I shall soon be on the move…. As long as the tunnel effect lasts, everybody feels better off, both those who have become richer and those who have not… Tolerance for inequality is like a credit that falls due at a certain date. It is extended in the expectation that eventually the disparities will narrow again. If this does not occur, there is bound to be trouble and, perhaps, disaster…”

Hirschman’s ‘tunnel effect’ cautions that inequality is neglected at a country’s peril. It also points to a  crucial and hopeful  insight – namely that finding a way forward depends less on an immediate and far-reaching reversal of inequality than on ongoing cultivation of a sense of possibility that  a better future lies ahead.  In a follow-up piece, Hirschman put it this way:

“Growth creates imbalances. In time pressures will arise to correct some of these imbalances.  Two principal functions must be accomplished  – an unbalancing, entrepreneurial function, and an ‘equilibrating’, distributive or reform function.”

Nelson Mandela’s ‘democratic miracle’; Archbishop Desmond Tutu’s ‘rainbow nation’; the ANC’s promise of ‘a better life for all’ – all of these can be seen, in retrospect, as strategies for evoking the tunnel effect in the wake of apartheid.  But by the latter 2000s, these strategies had lost momentum. Viewed through the lens of Hirschman’s framework, the Zuma era can be interpreted as  a manifestation of unresolved imbalances.   Ramaphosa’s task is to renew the entrepreneurial-imbalance-reform cycle through a skillful enactment of the reform function.

What  South Africa needs now is a 21st century ‘New Deal’ – a  new economic agenda  that is inclusive, inspires renewed hope and  can serve as a platform for  economic dynamism.   Given the need to address pervasive inequities, such an agenda  is sure to make established elites (and purveyors of easy truths about governance, markets and development)  deeply uncomfortable. Crafting the agenda is a challenge of the first order.

But South Africa hardly is alone in facing this challenge (although the challenge is far more daunting there than in, say, the USA which has five times the per capita income). Rising inequality and jobless growth are squeezing middle- and high-income democracies the world over.   Indeed,  I have come to see the country as something of a ‘canary in the coal mine’ for many middle- and high-income countries.

In putting a brake on its downward spiral, South Africa illustrates the power of robust institutions. But for constitutional democracy to thrive over the longer-term, ways will need to be found to defuse the inequality-institutions time bomb.  We – all of us committed to finding ways forward that can support thriving, inclusive democratic societies, in South Africa and elsewhere – indeed, we have work to do.

For follow-up pieces which explore this ‘new deal’ further, see:

A thriving, inclusive South Africa – from vision to action

Ladder of skills – where is South Africa under-investing?



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