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The faltering middle class

And the rise of the precariat class.

SWELLENDAM – It may be one of the more disturbing research findings in a very long time. In a report just released, the Institute of Race Relations not only questions the assumed size of the South Africa middle class, but its potential growth.

The middle class is the backbone of our economy and a faltering in its growth could see the crumbling of an important pillar of economic prospects. It has been a significant force behind the growth of many emerging markets, setting them apart from developed economies until the decline of commodity prices partly blemished these prospects for many countries.

There are many activities that rely on middle class prospects – from an increase in asset values such as shares and property, to prospects for manufacturing, retailing, agriculture and many others. Without a sustained growth in the middle class, the outlook for economic growth generally and employment in particular will be severely dimmed. It will make a complete mockery of any ambitious plans to create jobs or stimulate economic growth.

Assumptions about the size and robustness of the South African middle class are now questioned by the IRR research. There have been estimates that this class could make up some 30% of the South Africa population, but the research paper notes: “Perhaps just 1 in 10 South Africans has a solid claim to a middle class standard of living.” And regarding prospects it says “of concern is that South Africa’s weak economic performance is likely to put the brakes on any significant further middle class expansion.”

There has been an increase of about 13% in the last ten years in households spending R10 000 per month or more, but the report cautions that this has not been adjusted for inflation. Even if one accepts that the spending benchmark qualifies for middle class status, and not adjusting for inflation, the size of the South African middle class cannot be more than 20%. The Institute uses a number of other measurements to conclude that this figure is probably 10% or even less. What is also relevant is that there has been a notable shift in the changing balance of income between black and white people. Black South Africans earned just under 122% of the total disposable income earned by whites in 1996. By 2013 this had grown to just under 170%.

In the last 20 years, the growth of the middle class has been strongly supported by public sector employment. More than three out of ten employed South Africans work for the public sector. Between 2006 and 2013, public sector employment rose by nearly 25%, while private sector employment was virtually unchanged. Last year alone public sector employment grew by more than 4%, while private sector employment declined by 1%.

In its comment on the 2015 budget, accounting firm Deloitte noted: “One is twice as likely to be employed in the public sector today, as 40 years ago – with little perceived improvement in service delivery, law and order and administration. Our BRICS partners spend on average 25% of their total government expenditure on salaries, by contrast South Africa spends approximately 40% of its budget on salaries, or R450 billion annually. Over the next three years government will spend R4.4 trillion, and approximately R1.8 trillion representing 40%, will be spent on the Public Sector wage bill.”

It’s an orgy that simply has to end and as the IRR report notes: “Government finances are under pressure, meaning the civil service cannot be extended further as a black middle class incubator.”

There’s a far more ominous dimension to a faltering middle class. It is an essential rung in individual progress. It is largely made up of relatively skilled, experienced and educated individuals and is an important catalyst for self-improvement, nurturing aspirations and encouraging the attainment of skills and qualifications. It gives hope of a better tomorrow for the youth, for young adults wanting to start and support a family in the comfort of their own home. There’s an absolute limit to which this rung can be reached through simply demanding increased wages, especially at a time when blue collar (and red overall) work is under siege.

The middle class globally is on the decline, leaving the world with widening income disparities and a polarised society between haves and have-nots. It has given rise to what international labour economist, Guy Standing has termed the “precariat”.

He says: “It is a class in the making, approaching a consciousness of common vulnerability. It consists not just of everybody in insecure jobs – though many are temps, part-timers, in call centres or in outsourced arrangements. The precariat consists of those who feel their lives and identities are made up of disjointed bits, in which they cannot construct a desirable narrative or build a career, combining forms of work and labour, play and leisure in a sustainable way.”

Standing believes the protests spreading across the world are manifestations of the precariat taking shape.

We clearly already have a substantial precariat class in South Africa.

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The destruction of the middle class is the result of the destruction of money. After the hyperinflation in the Weimar Germany, trust between citizens were destroyed along with the destruction of money. This lack of trust and the low self-esteem caused by poverty, created fertile ground for Hitler and led to the persecution of a minority group.

Because of the destruction of the purchasing power of the Rand, the same fertile ground is being created in SA currently.
A Hitler-like figure will rise under these circumstances and again we will see the persecution of a minority group. In SA we are aware of xenophobia, but BEE, affirmative action, nationalization of private property and price controls for agricultural land are all factors of persecution of a minority group.

The squeezing of the middle class is coming from vested wealthy interests effectively controlling governments.

The widening income disparity and squeezing of the middle class is a result of the influence of wealthy vested interests over governments.

The mantra of socialism (from each according his ability; to each according to his needs) produces an inept indigent society- it doesn’t get much simpler than that as state doctrine does not change fundamental human nature. It is interesting that you note that the middle class is declining globally. Maybe true, this is however, a gross simplification. Countries that produce wealth such as China, S Korea and Singapore have a burgeoning middle class- despite the gross mis-allocation of wealth in the case of China (e.g. empty cities). The absence or decline of a middle class is an indication of a classic failed state. There are many such states and they have one thing in common- the don’t produce wealth.

Taking by force from the productive and rewarding the indolent is akin to consuming the nation’s seed corn. This has many forms which include minimum wages, compulsory contributions, workers “rights”, the dole, baby grants etc. The sword is double edged: wealth is consumed and production is lost. Democracy will always flirt with socialism as human ability to create wealth is skewed. There are few that can produce greatly and many that would be content to be parasites. The many will always vote themselves this largess- as they do. However, the milch cows must remain intact as far as possible to feed the habit. This balance is the basis of the modern western socialist state from which fascist China is romping away. Minimal political freedom and maximum economic freedom- an interesting mix for growth. Methinks AMCU would not feature much in China.

The whole sorry situation is compounded by fiat money and central banking. The Federal Reserve system has given the financial services industry and their connected insiders the ability to accumulate enormous wealth without producing a product of equivalent value for society. Interest rate manipulation, currency debasement, exchange rate manipulation, irredeemable debt and government borrowing to fund socialist vote purchases constitute a cozy cabal of mutual self interest. The gravy train is out of control and the deflationary collapse runs amok. Irredeemable debt compounds in the same way that interest does.

Whence commeth the wealth of the financial services industry? I would say the wealth commeth from the people and industrial capital destruction. A large amount of tax is spent servicing debt. Paying the Federal Reserve interest on the bonds it holds. The Fed then pays its secret shareholders dividends they obtain from monetizing debt.

Q: do you think the fsi cabal would benefit from stabilization of interest rates, stabilization of exchange rates and a redeemable government debt? of course not – with manipulation and speculation removed form the equation, they would have to get real jobs that produce real wealth for society. That would be hard. This is why there is a disinformation war on gold.

Speaking of gold, the ANC have what is known as the “shidas touch”. Everything they touch turns to dog faeces. They have debased the currency and instituted a socialist redistributionist state where capital and the profit motive is the anathema, and voracious consumption is the norm. Hyper stratal crime, rampant corruption, capital and skills exodus, racist employment polices, regulatory burdens, high taxation without delivery, risk elevation, jobs and wealth annihilation, and rabid trade unionism are all contributing to the demise of the industrial capability of the country.

This will continue until the cake has shrunk to the extent that the ANC minions become restive and break down the gate.

Thanks for the post!
In a socialist system one also finds entrepreneurs, but interestingly, they have the complete opposite attitude from entrepreneurs in a capitalist system. Since socialism is based on “from each according his ability; to each according to his needs”, the entrepreneur that is bred in a socialist system escalates his needs and live with a sense of entitlement, while abolishing education and decreasing his ability.

This is what is bred by a socialist system – a citizen that finds many excuses and reasons for the terrible position he finds himself in, while he expects others to provide food, clothing, housing, electricity and Jack Daniels.
Generations of South Africans are entrepreneurs bred in a socialist environment. That is why they blame Jan van Riebeeck while demanding service delivery. The socialist revolution is eating its own children now.

End of comments.

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