Our politics and economics will remain unaligned until we objectively assess how inequality and unemployment interact. The national dialogue can be meaningfully upgraded by developing a version of the Phillips Curve.
In 1958 William Phillips published his research showing that, over the prior century, when inflation went up in the UK, unemployment went down. This settled nothing. Rather, it stimulated valuable debates that haven’t stopped.
Our national dialogue routinely treats many of the policy positions common to successful countries as foreign and therefore inapplicable. Conversely, assertions that inequality can only be evil are imported uncontested.
With today’s top central bankers seeking to stoke inflation in pursuit of employment growth, inequality is now this era’s bogeyman. Although inflation is assessed in the context of economics and mathematics, inequality which is identified as today’s nemesis, helps position social justice as a religion-like set of faith-based beliefs. This is politically potent but economically debilitating for South Africa.
Despite our anti-inequality policies entrenching poverty and thus cementing inequality, to speak of the advantages of inequality’s feels like heresy. Yet none of our various leaders can offer a workable growth plan, because focussing on inequality favours patronage, while it blocks growth and blurs accountability. A robust debate around the trade-offs between employment and inequality is now essential.
If a country can adopt policies which increase inequality while rapidly reducing poverty, should it?
Today, China, like South Africa, is among the world’s most unequal countries. Forty years ago China’s inequality was far lower but 88% of its people were extremely poor versus less than 1% today.
The meteoric rise of China and so much of Asia is among humanity’s greatest accomplishments. South Africa could be the role model for unlocking Africa’s immense potential, yet neither our European nor African brethren are embracing the pragmatism which informed Asia’s ascent.
Over-prioritising inequality promotes poverty and sacrifices productive employment prospects. The decade of stagnating per capita income that preceded the pandemic is set to be repeated, despite the fact that about 60% of South Africans get by on less than R60 per day. Broad-minded debates are needed to scrutinise the actual effects of social justice pursuits – particularly given our government’s dwindling capacity to ease hardships.
Both good and bad
China’s leaders appreciate that, like inflation, inequality is both good and bad. Efforts to extinguish inflation have been so successful in most regions that many central banks are now embracing extraordinary measures to spur modest inflation. The last century’s grand experiments in pursuit of equality ended decisively as symbolised by the fall of the Berlin Wall. Today’s Covid threat has demonstrated the importance of transcending social tensions to objectively embrace science.
We aren’t going to remedy our dysfunctional politics without grounding our national dialogue in logic and evidence. Inequality rising in many nations while sharply declining globally will be seen as a hallmark of this era: South Africa is likely to be the country most adversely impacted from misunderstanding the pros, cons and quirks of inequality.
The politically opportunistic have benefited through framing our policy debates within an inequality context. Yet rapid poverty alleviation is only possible through aligning the interests of the poor and the affluent through synchronising commercial and development objectives.
The 1990s transition presumed unity through substantial redistribution. Political freedom was expected to pummel inequality. The reality is that policies focussed on inequality could never have delivered broad prosperity even by mid-century. Our current path points ominously to a situation in which most black South Africans remain poor a generation from now.
Which of our leaders has been thoroughly educated in both 21st-century economic success drivers, and commercial economics? As successful countries can attest, the two align as naturally as opposites attracting and families forming. Accommodating such pragmatism is not restrictive; quite the opposite – freedom flourishes.
Undermined by ideologies
We are born free but everywhere we see people chained to poverty because our institutions are undermined by ideologies – enthused by grudges – which obstruct possibilities. Human history both chronicles progress and catalogues injustices. We must upgrade our economic debates by appreciating why excessively focusing on inequality is antithetical to today’s foremost growth drivers: innovation and global integration.
Broad prosperity requires that our economy be vastly larger. The global economy is very supportive. But, to sustain high growth, our policies must resemble those of high-growth countries.
Over-prioritising equality is self-defeating. Our wilful blindness to the benefits of inequality is politically conditioned. To achieve the benefits which our policies have side-lined, we must banish our obsession with inequality to focus on achieving broad prosperity. Reducing inequality is not high on the United Nation’s list of sustainable development goals, because other priorities have much greater potential to benefit those least well-off.
By tracking the historical relationship between inflation and unemployment Phillips provoked a focused debate. I will follow up with examples of how inequality can be harnessed to swiftly reduce unemployment and poverty. South Africa’s progress requires a robust national dialogue which is more results-focused and less politically contorted.