Poverty and inequality in South Africa: critical reflections

ABSTRACT

South Africa is a paradox; on the one hand, it is one of the most unequal countries in the world. Half of all South Africans continue to live in poverty, economic growth has stagnated and inflation remains high, while the unemployment rate continues to climb towards 30%. On the other hand, it has one of the most progressive constitutions in the world, with a bill of rights that foregrounds expanded socioeconomic rights. We provide an overview of the latest statistics on poverty and inequality in light of overarching economic policies, and the socioeconomic guarantees of the Constitution. We argue that South Africa’s inability to meaningfully address the high levels of inequality is due to insufficient attention to the way power reproduces inequality. We present a definition of power that includes social and market power, and emphasise the importance of a theory of power in understanding the reproduction of inequality.     

China’s evolving inequality

China’s inequality is evolving. This paper brings the story up to date, drawing on recent research, much of it by the author. It begins with a brief account of rising inequality, and its causes, over the period of economic reform. It then examines the fall in the inequality of income in recent years and the reasons for this reversal of trend. Inequality of wealth, by contrast, has risen over the twenty-first century: its dimensions, components and causes are analysed. The final substantive section considers the evaluation of inequality in more depth and detail than is conventional, and provides pointers as to how value judgements about inequality might be made.     

Analysing legal mobilisation’s potential to secure equal access to socioeconomic justice in South Africa

ABSTRACT

From the moment South Africa became a liberal democracy, the Government promised to deliver on social security for the poor. However, South African NGOs have reported that several barriers prevent poor South Africans, and black women in particular, from accessing the country’s social assistance system. Government inaction has compelled NGOs to approach the Courts. As reflected in a series of court judgements, many problems faced by the system relate to the administration of payments by South African and multinational corporations. But is this the complete story?

Applying a critical, analytical lens of legal mobilisation to explain the potential of legal mobilisation to secure progressive structural change, this article will assess the extent to which civic-based, legal advocacy aimed at securing access to social grants, and challenging the manner in which these grants have been administered, has the potential to more strategically advance socioeconomic justice and inequality for South Africa’s poor.     

Taxation and tax reform in LDCs: Lessons for South Africa

Taxation in South Africa will increasingly have to focus on political and economic developmental demands. Two important lessons from the experience of developing countries with taxation and tax reform are that the tax system should aim at not taxing the poor (rather than trying to level down the income of the rich) and that tax policy has a special role to play in generating revenue for development, a role which it should endeavour fill in a neutral way. With these lessons in mind taxation and tax reform are analysed in South Africa. It is concluded that the tax system is relatively efficient but that there has been retrogression in attaining equity objectives.     

Inequality in South Africa: The distribution of income,expenditure and earnings

This article empirically analyses the state of inequality in South Africa. International comparisons show South Africa to be among the most unequal countries in the world. The levels of income inequality and earnings inequality are analysed with a range of measures and methods. The results quantify the extremely high level of inequality in South Africa. Earnings inequality appears to be falling in recent years, with relative losses in the upper-middle parts of the earnings distribution. Decomposing income inequality by factor source reveals the importance of earnings in accounting for overall income inequality. The article concludes by observing that, internationally, significant sustained decreases in inequality rarely come about without policies aimed at achieving that, and suggests that strong policy interventions would be needed to reduce inequality in South Africa to levels that are in the range typically found internationally.     

KwaZulu-Natal Income Dynamics Study (KIDS) 1993–98: A longitudinal household database for South African policy analysis

An important adjunct of apartheid has been the absence of credible and comprehensive data on which policies, such as poverty reduction strategies, can be grounded. The 1993 Project for Statistics on Living Standards and Development (PSLSD) provided the first comprehensive household database for South Africa. Despite its usefulness, however, the one round PSLSD cannot provide answers to many questions important to policy researchers and practitioners, particularly questions about dynamic processes. The primary objective in this article is to introduce a new longitudinal household database, based on the PSLSD, which begins to fill this gap. Households surveyed by the PSLSD in KwaZulu-Natal province were re-surveyed in 1998 by the KwaZulu-Natal Income Dynamics Survey (KIDS). As a research endeavour, the KIDS project addresses one of the most vexing and important problems confronting contemporary South Africa: understanding the forces and mechanisms which contribute to the perpetuation of apartheid's legacy of poverty and inequality.     

Inequality caused by macro-economic policies during overaccumulation crisis

ABSTRACT

The tendency of capital to ‘overaccumulate’ has on occasion been severe in post-apartheid South Africa, but has taken different forms. The neoliberal era since the early 1990s has witnessed overaccumulation-crisis displacement in a manner that exacerbates inequality. Such displacement includes financialisation (i.e. higher relative debt and share-portfolio ratios, as well as illicit financial flows), worsening uneven spatial development (within cities and between rural and urban livelihoods), and an amplification of environmentally-damaging extraction systems. Public policy accommodated, accentuated and displaced the crisis, rather than ameliorated, reversed or resolved these symptoms of overaccumulation, to the detriment of the poorest South Africans. Although government has made efforts to address social distress through fiscal policy (e.g. social grants and education), most macro-economic policies – especially in the monetary, financial and international spheres – are amplifiers of inequality. But the most important constraint is a deeper problem than public policy typically admits: capital's tendency to overaccumulation.     

LIBERALISING TRADE IN SOUTH AFRICA: A SURVEY OF COMPUTABLE GENERAL EQUILIBRIUM STUDIES

This paper reviews applications of computable general equilibrium models to trade liberalisation in South Africa. It focuses on economic structure, data, macroeconomic closure and results of the models. The models project that trade liberalisation has had small positive impacts on growth. Poverty and inequality outcomes are less clear cut and depend on the model used. Models with fully integrated micro data find that poverty has worsened slightly while inequality has risen. Aggregated models predict that poverty has been reduced by small amounts. Dynamic models report rising inequality but falling poverty incidence. The paper identifies areas for future research.     

What Drove Housing Wealth Inequality in China?

Although China is experiencing a deterioration in wealth distribution where housing is playing a dominant role, this issue has received scant research attention despite its importance. Combining four rounds of the China Household Finance Survey (CHFS) data, this paper measures and discusses wealth inequality in China, with a special emphasis on the contribution of housing. Our analysis reveals that housing is the largest contributor to wealth inequality, responsible for around 70 percent of total wealth inequality, and its contribution has been increasing over time. Our research efforts have focused on the housing wealth disparity, exploring its composition from alternative perspectives. The results show that housing wealth inequality has also been rising over time and an absolute majority of housing wealth inequality is due to within‐group gaps. Finally, we employ Wan's (2004) regression‐based decomposition methodology to quantify the contributions of different determinants to housing wealth disparity in China, and to demonstrate serious biases in the conventional approach that is often used to analyze housing wealth inequality.     

IMPACT ON ECONOMIC GROWTH OF DIFFERENTIAL POPULATION GROWTH IN AN ECONOMY WITH HIGH INEQUALITY

The economic growth of South Africa has been disappointing over the last quarter century. This note addresses a conceptual problem that arises because of composition effects. Two important features of the South African economy are, first, its extreme inequality (primarily between the white population and the African population). Additionally, the African population has been growing rapidly, while the white population has experienced a declining share. This note derives an explicit equation for the impact of inequality and population-growth differences on the growth of per capita GDP. It shows that the combination of divergent population growth and high inequality can lead to an apparent drag on measured economic growth even though the components, and a more adequate measure of economic welfare, are growing at a healthy rate.     

Labour unions and wage inequality among African men in South Africa

One Achilles' heel of post-Apartheid South Africa is the growing intra-racial income inequality, particularly among Africans. This paper examines the role of labour unions in explaining this phenomenon among African men given that labour markets are at the core of income inequality in South Africa. Using cross-sectional data drawn from Labour Force Surveys for 2001–10, we find a monotonically declining union wage premium. Further, our results indicate that unions have both compressionary and disequalising effects on wages. The disequalising effect dominates the compressionary effect, suggesting that unions have a net effect of increasing wage inequality among African men in South Africa. This finding implies that there is scope for unions to reduce inequality through initiatives that promote wage compression.     

Describing and decomposing post-apartheid income inequality in South Africa

This paper describes the changes in inequality in South Africa over the post-apartheid period, using income data from 1993 and 2008. Having shown that the data are comparable over time, it then profiles aggregate changes in income inequality, showing that inequality has increased over the post-apartheid period because an increased share of income has gone to the top decile. Social grants have become much more important as sources of income in the lower deciles. However, income source decomposition shows that the labour market has been and remains the main driver of aggregate inequality. Inequality within each racial group has increased and both standard and new methodologies show that the contribution of between-race inequality has decreased. Both aggregate and within-group inequality are responding to rising unemployment and rising earnings inequality. Those who have neither access to social grants nor the education levels necessary to integrate successfully into a harsh labour market are especially vulnerable.     

Wages and Wage Inequality in South Africa 1994–2011: Part 2 – Inequality Measurement and Trends

We analyse the long‐term trends in wage inequality in South Africa, using household survey data. We show that the trends in household income inequality are largely driven by changes in wage inequality. Given the detailed nature of our series we show that measurement issues and breaks in the series need to be dealt with in order to draw robust conclusions from the data. Most standard inequality measures show that wage inequality has increased over the period. Nevertheless the choice of measure matters, because there are different trends in different parts of the distribution. It appears that the distribution below the median has become more compressed, while the top of the wage distribution has moved away from the median. The inequality in the labour market translates into even higher inequality in society given that high earners tend to live together with other high earners while low wage individuals often end up sharing their incomes with the unemployed. Furthermore there are many South Africans with access to no wage income. Given the trends analysed here it is not surprising that overall inequality in South Africa has not come down or has even increased since the end of apartheid.     

Introduction to income inequalities and redistribution in china

This special section presents the main findings about long-run trends in inequality in China and its driving factors as they emerge from a country case study carried out under a UNU-WIDER supported project.¹ Special focus in the umbrella project were on three issues: (i) the role of earnings inequality and its determinants; (ii) the role of top incomes when administrative records or other sources can be combined with household surveys; and (iii) the redistributive impact of public policies. Main findings of the project including those for China results were presented in a special panel during the UNU-WIDER Think Development – Think WIDER development conference held in Helsinki in September 2018.²

1. Motivation

Inequality has once again emerged as a major issue in economic development across the developed and developing world, and addressing this challenge is key in the UN Sustainable Development Agenda. The UNU-WIDER conference on Mapping the Future of Development Economics held in Helsinki in September 2016³ led to the formulation of a project to study inequality in five major developing countries accounting for more than 40 per cent of the world’s population. UNU-WIDER implemented these studies under its Inequality in the Giants project,⁴ designed as part of a broader international effort to shed light on a set of new questions on between-country and within-country inequalities, by generating integrated datasets and applying a consistent methodology to investigate the determinants of inequality dynamics in some of the world’s largest economies. China was included among the five case countries, and the effort included both a series of papers on China, produced under the coordination of Professor Shi Li and various workshops and meetings. Coming to grips with inequality in China is an obvious priority for anyone interested in trends in global inequality; and the present special section contains five key papers produced in the context of the UNU-WIDER project and subsequently accepted for publication by the China Economic Review.

2. Content of the special section

The five papers on inequality in China presented in this special section cover different topics and jointly illustrate a key set of important themes in the recent evolution of China’s income distribution.The opening study by Luo, Li, and Sicular (LLS) provides an overview and analysis of the long-term evolution of inequality in China, while the next three papers — on urban wage inequality, public transfers, and top incomes — each illustrates and delves more deeply into important aspects of the broader trends in inequality.What are the main findings of these papers? The core finding is that inequality in China rose markedly from the 1980s through the early 2000s; only since 2008 has the upward trend stopped or reversed. LLS report and examine the underpinnings of this core finding, using the five waves of the China Household Income Project surveys conducted during 1988-2013. This paper also finds a considerable, ongoing reduction in rural poverty, and a poverty decomposition analysis indicates that this poverty reduction was mostly due to income growth rather than redistribution in rural areas.The second paper by Gustafsson and Wan (GW) is on urban wage inequality from 1988 to 2013 and it sheds further light on the changes in the distribution of wage earnings. The authors highlight that average wages have grown rapidly and that wage inequality increased until 2007. Moreover, age has become weaker and education stronger related with wage. Importantly, the gender wage gap once small widened rapidly between 1995 and 2007, and workers in foreign owned firm and the state sector enjoy a wage premium.While wages are the most important component of income, it is only part of the inequality story. One important additional question is the role of government taxes and transfers. Since the early 2000s, China has embarked on a major effort to put in place a universal social safety net. The study by Cai and Yue (CY), which is the third paper, assess the consequences of these efforts. Their key conclusions include that the same public policy may produce different redistributive implications. Moreover, if the government keeps increasing the social security transfer scale without changing its distribution, then inequality will increase in China. In addition, formal-sector pension takes up the biggest share and is the most un-equalizing sub-item of all social security transfers; and related to the first paper in the special section they argue that the government should spend more on Dibao and rural residents pension to reduce inequality.Arguably, income inequality measured using household survey data understates actual inequality because surveys have difficulty in capturing top incomes. In the Chinese case, concerns about such bias have increased in the past ten years due to the expansion of private wealth and growing numbers of super-rich. The fourth paper by Li, Li, and Wan (LLW) is on top incomes in China and it attempts to correct for this bias using income information for the Chinese super-rich from various sources. They conclude that the Gini coefficient of income inequality increases substantially when samples of top incomes are incorporated.Finally, Gradín and Wu (GW) analyse in the fifth and final study the distribution of income and expenditure in China in a telling comparative perspective with India. Both countries represent two extreme cases in the relationship of inequality using both wellbeing indicators. It emerges that the joint distribution of income and expenditure differs between China and India because there is a higher prevalence of people with a large mismatch between their ranks in income and consumption in India, especially in rural areas, and particularly amongst those reporting low income and high expenditure. The main compositional effects identified are the different demographic and geographical composition of the countries’ populations, mostly the smaller households (especially in rural areas) and the higher level of urbanization in China than in India. The lack of consistency of cross-country comparisons based on income or expenditure calls for the use of hybrid inequality measures combining data on both provided they are available in the same survey.

3. Concluding remarks

The studies brought together in this special section provide telling insights about the trends in inequality in China from which scholars and policy makers can learn a great deal. In a global perspective, further increases in China’s mean income and wealth, both now above the global means, will begin to raise global between-country inequality. This is important in and of itself. Moreover, while we cannot expect that all the world’s poorest countries will follow the same path as China considering that the initial conditions and the international context they face will be very different, the experiences from China do reinforce the observation that much can be done by policy to influence inequality outcomes. In particular, and as argued by Gradin, Leibbrandt, & Tarp, 2020 (forthcoming):“well-functioning labour markets that promote job-creation, decent pay and social inclusion, removing any legal or de facto discrimination based on gender, race, ethnicity or place of origin, providing equal access to human and physical capital, and empowering the most disadvantaged population groups, are a key driver of increased equality”.These insights also emerge clearly from the five China studies in this special section.     

Wages and Wage Inequality in South Africa 1994–2011: Part 1 – Wage Measurement and Trends

We analyse the long‐term trends in wage inequality in South Africa, using household survey data. We show that the trends in household income inequality are largely driven by changes in wage inequality. Given the detailed nature of our series we show that measurement issues and breaks in the series need to be dealt with in order to draw robust conclusions from the data. Most standard inequality measures show that wage inequality has increased over the period. Nevertheless the choice of measure matters, because there are different trends in different parts of the distribution. It appears that the distribution below the median has become more compressed, while the top of the wage distribution has moved away from the median. The inequality in the labour market translates into even higher inequality in society given that high earners tend to live together with other high earners while low wage individuals often end up sharing their incomes with the unemployed. Furthermore there are many South Africans with access to no wage income. Given the trends analysed here it is not surprising that overall inequality in South Africa has not come down or has even increased since the end of apartheid.     

Discounted Agricultural Growth in South Africa

This paper examines impacts of appropriate resource allocation on subsistence level output. This study uses a stylized Coase Bargaining model and data from the South African Reserve bank to support the second welfare theorem. Back of the envelope calculations indicate the opportunity cost of manufacturing output has been the 20% discount in agricultural output in South Africa since 1968. This paper offers an exercise that can be implemented in developing nations having institutions resulting in two-sector economies. Moreover, the methods used here will help policy makers to estimate an appropriate value for wealth transfers.     

Wealth data quality in the National Income Dynamics Study Wave 2

This paper examines the quality of data on household assets, liabilities and net worth in the South African National Income Dynamics Study (NIDS) Wave 2. The NIDS is the first nationally representative survey on household wealth in South Africa. The cross-sectionally weighted data are found to be fit for use in terms of the univariate distributions of net worth, assets and liabilities, but population totals are probably underestimated due to the presence of missing wealth data in Phase 2 of Wave 2 that is not taken into account in the weights. When compared with national accounts estimates of household net worth, there is an apparent inversion of the estimated totals of financial assets versus non-financial assets. Further research is required into why this is so. We find that the NIDS wealth module is a suitable instrument for the analysis of household wealth.     

Engaging with homelessness in the City of Tshwane: Ethical and practical considerations

ABSTRACT

Policies and practices aimed at developing more engaged universities that are responsive to the needs of society have become key features of the higher education landscape of most countries. Visions of universities ‘engaged’ in matters of local importance increasingly require academics to reframe their scholarship as some form of ‘engagement’. This requirement has been addressed in many different disciplines and has been met with ambivalence. Academics who see engagement as a new form of ‘public good’ find it enhancing of their teaching and research activities, while others view engaged work as unnecessary and problematic ‘third mission’ activities that impede on ‘normal’ academic work. This article aims to contribute to these debates by interrogating the paradoxes of action and inaction. Drawing on recent experiences in reviewing a policy on homelessness for a municipality in South Africa, the article seeks to bring the ambiguities and challenges of engagement into greater visibility.     

Domestic tourist spending and economic development: The case of the North West Province

Globally, tourism is the largest and fastest growing industry, outpacing all other industries. In South Africa, tourism is widely regarded as a growth catalyst, able to generate much-needed income and employment opportunities. The market potential of domestic tourism has, however, been downplayed in favour of international tourism. This research argues that tourism – especially domestic tourism – can contribute significantly to regional growth and development in South Africa. A survey was carried out among domestic tourists in the North West Province, one of the poorest provinces in South Africa. This survey was used to draw up a demographic and spending profile of the average domestic tourist in the province, and to determine the possible implications of this spending on different macroeconomic variables in the province.     

Education and the ability to export manufactures: The relevance to South Africa of the Wood model

According to Wood there is a strong causal relation between education of the population and exports of manufactures. Also, a country that is rich in natural resources will tend to have low manufactured exports, which will be exacerbated by low investment in education. Wood's model is applied to South Africa. Increasing the education of the population will be crucial for expanding higher‐value‐added manufactured exports, increasing per capita incomes and reducing earnings inequality in South Africa.