The biggest challenge facing the South African economy is not inequality

“The biggest challenges facing the South African economy [are] poverty and inequality.” So says the writers of this article.

The biggest challenges (for the sake of this discussion exclude political, educational, etc) are low/zero growth, unemployment and poverty. Compared to these, inequality is not a “real” problem although it’s made out to be. I don’t know why people conflate inequality with those indicators. I don’t expect politicians and journalists to know the distinction but academics and experts ought to know better before making such a reductive statement.

Inequality is the disparity of wealth and income in a society, and while it’s an indicator of the success or failure of the egalitarian social democratic and economic ideal, it’s not the same in terms of bare bones social impact as poverty and unemployment. All societies have inequality but provided a people’s basic needs are met – food, shelter, security and so on – they can cope. A poor person will not obsess about CEOs R25 million salaries. Protests around South Africa today like in Lakeside yesterday that prevented hundreds of people from going about their business is about basic needs and unmet or misunderstood government promises.

That’s their first mistake, although a minor one and dealing with definitions. More significantly is why they omitted poor to negative real growth and unemployment as being among the “biggest challenges”. In fact, SA’s economic and developmental problems are almost entirely due the lack of adequate growth, which in turn are due to structural political, industrial and economic problems and a national lack of vision and imagination.

I agree about the country’s relative lack of innovation. But linking the service sector’s R&D and innovation to its “potential to fix the country’s biggest challenges of poverty and inequality” is very tenuous. Innovation in one private sector domain is one important link in a long and complex, multifaceted macroeconomic chain. Recently I looked at Ireland as an economic success story South Africa could have emulated post-apartheid. From 1994 to 2016 its GDP went from $57bn to $304bn. In that time SA’s only went from $140bn to $295bn. This article gives an idea how they did it: innovation on a national scale – economic and industrial and those sectors like skills and education that help it develop.

The lessons are known but from the late 90s, after a short period of adjustment, the ANC government’s economic and industrial policies went haywire. Lacking economic nous and proud of their ignorance, they kept to outdated and backward-looking socialist and nationalist ideologies and apartheid’s protected, concentrated, high-cost and high-profit industrial economy (see ANC economics). It’s this model we still have today that limits innovation and visionary thinking. It’s a way of life that elevates the mediocre and mundane where highly qualified people like PhDs and masters graduates are not valued because they’re allegedly “over-qualified”. SA does not lack skills, another false trope, but how those skills are applied – a skills mismatch.

I wrote: “SA corporations’ relative success and alleged world-class status is based on a captive market, exploitation of employees and consumers, high prices, excessive profits, anti-competitive behaviour and exploitation of a rigid and inefficient economy where small, new entrants, the job creators and true innovators, struggle to enter and compete”.

I explored what innovation means and its formal criteria. In 2015 Bloomberg ranked South Africa 49 out of 50. Bloomberg said “government regulation, which can either accelerate or impede the adoption of new ideas” is the “hard-to-quantify” measure for innovation.

So while there are things that could be done to improve innovation, it’s a long (but not really that long as Ireland showed – less than 20 years) and difficult road to reduce poverty, unemployment and inequality and grow the economy. While one can say any positive intervention can help – a genuine measure that can be immediately implemented is drastically reduced executive and government salaries, the latter already among the highest in the world in relative and real terms – it’s misleading to claim as you do innovation in one sector will. It requires much more than that – an urgent, fundamental mindset shift the country lacks.