High-quality public education, a wealth tax, a national minimum wage and involving workers in the decision-making of companies will help South Africa successfully tackle inequality and poverty.
Addressing the 13th Nelson Mandela Annual Lecture at the University of Johannesburg’s Soweto campus today, 3 October 2015, French economist Professor Thomas Piketty said available data confirmed South Africa was one of the most unequal countries in the world and that this could not only be explained by high unemployment, which stands at 25.2%.
He said while apartheid had played a part in entrenching inequality and poverty in South Africa, the poor quality of public education was not helping.
“It is fair to say the quality of education in this country is not satisfactory and should be a national priority, and a lot of progress needs to be made in this direction … There is no other option than to try to improve the quality of education. There is no other strategy – privatising education will not work as well in order to have sustainable and reputable growth; a well-functioning education and health system will do so,” he said.
Piketty, considered the most influential economist in the world, also said a tax on South Africa’s wealthy would help shift inequality and poverty, which was not only persisting despite government's and civil society’s efforts, but deepening.
He said because broad-based economic empowerment was based on voluntary market transactions, it had not been as successful as hoped in shifting the ownership of wealth. Piketty argued that South Africa would “benefit from increased transparency about wealth and who owns what”.
He said it was “very difficult” to assess the levels of wealth as there was “very little data” on it.
He called for an “annual net individual wealth tax rate”, saying: “Even a relatively small tax rate, an annual tax on wealth, will introduce more transparency on wealth and how this is changing over time,” he argued.
Piketty said it was vital South Africa gather as much data as it could on the distribution of wealth. “It is very important for a country to look at year after year how different social groups are doing. Without this information, it makes it very difficult to come up with reasonable and peaceful solutions [to the problems]. It is in the interest of the business community to promote transparency in wealth,” he said.
He also called for the introduction of a national minimum wage – which had helped tackle inequality in countries such as Brazil – to help promote the right to decent work.
“It is extremely important. South Africa could and should introduce the national minimum wage. Finding the right level [to set the national wage] is a way to avoid situations of extreme exploitation,” he said.
Piketty said involving workers in the “strategy of the company” was also a “way to promote long-term growth”.
Piketty pointed out that South Africa was “at the top of the class, way out of the experience” when it came to inequality. He said available data – the little there was – showed that the top 10% of Brazil's rich shared between 50% and 55% of that country’s total income, compared with 45% to 50% in the UK and 30% to 35% in Europe. In South Africa, the top 10% shared between 60% and 65% of the country’s total income.
He said while South Africa needed to put into place measures to effectively deal with inequality and poverty, “northern countries” also had a responsibility.
He said it was clear Europe and North America were benefiting from the current unbalanced financial system, and that “what Africa needs is not foreign aid; what Africa needs is to make multinational companies and world citizens pay their fair tax”.
Piketty said the West could help by ensuring there was “transparency” in how much tax multinationals paid in Africa. He said there was currently “not sufficient information disclosure and information was very hard to access”.
He also called on Europe and North America to implement a “world financial register on financial assets so we know who owns what”.
He said such registers already existed but were the property of private institutions, “who are offering services to financial companies so they can keep track of who owns what and keep this information ... Governments in Europe and North America should take control of these private institutions and create a public world register of financial assets.
“It is very important to find tax havens. The fraction of money in tax havens is much bigger for African countries and the Middle East [than Europe and North America].
“I don’t think what Africa needs is foreign aid. Aid flows going to Africa are less than the official outgoings of profit from Africa. These are official flows. Unofficial flows are estimated at at least twice as much as the official flows ... What we need to do is change the international legal system so African governments can go and tax without resistance.
“I understand that people who have a lot of money would like to decide how much they want to contribute … We need a legal system that allows African companies to develop a fair tax system that taxes people at the top as much as people at the bottom.”
Opening his lecture, Piketty said it was “very moving” to be invited to address the lecture having grown up reading about apartheid South Africa. He said Nelson Mandela’s release in 1990 and the fall of the Berlin Wall in 1989 had been among the seminal moments of his young life.
But he said it was puzzling that 25 years after the fall of apartheid, poverty was still very high and rising.
“It is extremely puzzling. It is something we want to better understand. The extreme inequality that we observe in South Africa is not good for development and growth. If not addressed through peaceful means, it will be a source of violence.”
However, Piketty said there were some positives to take from South Africa and Africa.
He said while it was difficult to keep up with population growth, which was a characteristic of South Africa and Africa, “in the long term it is an asset”.
“Positive population growth is better than negative population growth [in Europe]. South Africa and Africa are not going to disappear; if these challenges are addressed differently, South Africa and Africa are the future of the world.”