Economy: Slow growth, ‘extreme inequality’ mutually reinforcing

Improved business confidence following Cyril Ramaphosa’s inauguration as President may not necessarily spark an acceleration in investment, according to the World Bank’s Sebastien Dessus (Engineering News). Briefing media representatives on the bank’s latest economic update – and noting that slow growth and high inequality have been found to ‘reinforce each other’ – he warned that not only are ‘strong political demands’ for wealth redistribution deepening policy uncertainty and discouraging investors. Worse still, as the only way to immediately provide some redress for racially skewed inequality levels, ‘fiscal redistribution’ by way of increased government expenditure on the social wage has come to be perceived as a ‘political right’. In the absence of appropriate interventions, SA will continue along its ‘low-growth path’ – which the World Bank has forecast will not even achieve the modest levels estimated by National Treasury. Against that backdrop, the report emphasises the importance of government interventions to accelerate the supply of skilled labour, the scarcity of which is ‘driving wage inequality’.

Pam Saxby, for Legalbrief Policy Watch, notes the report identifies education as the ‘biggest factor’ influencing this trend, even ‘surpassing race’. Nevertheless, in Dessus’ view ongoing investment in improving education levels among the poor should eventually ‘pay off’, since even a ‘business-as-usual scenario’ points to ‘an increasing share of skilled labour income’ for poor families. However, change will be ‘slow’, with inequality only ‘recovering’ to 1994 levels ‘by 2030’. Endorsing government policy on financial support for tertiary education students from poor households, Dessus believes this and other labour supply-side measures could further reduce inequality. Nevertheless, their effectiveness will be determined by labour demand – in turn driven by economic growth. With that in mind, growth-supportive reforms mooted in the report include: improved ‘product-market competition’; relaxed immigration regulations to address the mismatch between skilled labour demand and supply in the short-to-medium term; upscaled investment in public transport and social housing; and improved ‘teacher capacity and accountability’.