FIFI PETERS: Out of 164 countries in the world South Africa ranks at number one for being the most unequal society in the world. That is according to the latest World Bank report. I’m sure you’ll agree with me that this is not a position that we should be proud of and it does emphasise the need to grow our economy, but to grow it inconclusively.
We have Pierella Paci, the practice manager for Poverty and Equity Group at the World Bank to discuss the report for the detail. Pierella, thanks so much your time. First of all, how does the World Bank measure inequality?
PIERELLA PACI: Well, thanks. First of all, thanks very much for inviting us and for your interest in this topic. The World Bank report measures inequality…..0:57 forward on the monetary aspect of inequality itself. This is something we usually do when I refer to inequality and poverty; we have other ways to, but that’s the most common. What that means is we are actually looking at different aspects of income and we look at how that is distributed across different parts of the population.
Because income is often difficult to measure, we also use the definition of consumption, which is basically what the houses consume with the income that they……1:33
FIFI PETERS: Because I think that South Africa has occupied the top spot or has been among the countries with the largest inequality rates in the world for some time now, I would like to know your view as why you think that is, why you think that initiatives that this government tried to put in place previously to close the inequality gap have not worked.
PIERELLA PACI: That’s a very, very basic question ……2:05 to answer. I think there is a sort of …… absolutely easy way you address inequality. I think the reason why it hasn’t worked, as I said, I think it’s mostly because there are two major factors.
The first one is that inequality is still inequality of ……2:23 and that is very difficult to actually address. And the …… point out the government has tried to address it in different ways, but the only way you actually remove the stickiness attached to different levels of inequality is by using very comprehensive ……2:41 interventions. And that’s probably what is not being done. There is a way inequality is being addressed, mostly through what we economists define basically as redistribution through the tax system, and the benefit system has been the main way emerging inequality has been addressed and this happily has been working reasonably well.
The problem we’re doing so is that, first of all, it’s really very difficult to sustain, both from the fiscal point of view, but that’s not a social point of view, because ……3:17 sharp distinction and in a way a little bit of a prioritisation between the people that are actually working, earning and taking part in society, and those that are much less likely to do so.
As you pointed out, you need inclusive growth, and it is the inclusiveness of that that hasn’t actually happened. What’s been happening is that growth, economic growth, has been there, but very highly concentrated in almost one group of the population, the better off. And that is [that] the state has intervened and is redistributing some of this riches towards the……3:53 but it has really not addressed the …… of who causes inequality, which are really the difference in opportunities at birth, and also really substantial differences within the labour market, both in terms of opportunity to work and therefore unemployment, and in terms of wage …..4:13.
FIFI PETERS: So if we had to now embark on a path of trying to do things differently and trying to address the root cause of inequality in our country, as you did mention, it’s got to do with birth, the kind of family you were born into – I wonder to what degree gender plays in there. But if we had to address the root causes, what would the point of departure be?
PIERELLA PACI: Again, an extremely good question. I think really, as I was trying to point out before, it’s difficult to do it by addressing only one of the inequalities, and one direction of the inequality, especially one inequality ……5:00
So what we argue is that you really need a combination of different policies, starting off very much from levelling the playing field at birth. It’s really striking, the amount of inequality that South African children face at birth. It’s incredibly striking, it’s even much higher than the income inequality. That really is a problem, not just in terms of fairness; most people sort of globally think that if you are treated unequally because of conditions you are born with, this is just not fair.
But it is the most important thing; it’s just that it’s really not good for development of the country, it’s not good for growth either, because what happens that there is a large proportion of the population, but because of the inequality of their place of birth [they] are not actually able to develop their talent, their productivity in the labour force and so on. And therefore basically the whole country is crippled, pushed down in terms of the potential of what they could actually achieve. But the fact that their own individuals, their own workers cannot achieve as much as they could. So to me that’s the most important part; ……6:21 come out to be the biggest contributor to inequality, the inequality opportunities.
The second biggest is inequality of earnings, more generally within the labour market. So not only [do] you have unequal treatment when you’re born, and then when you join the labour market you basically face a second type of barrier, which basically combines with the original one. And that really, as I was saying initially, is in terms of accessing the labour market……6:56 in terms of inequalities.
You mentioned gender as one of them, and equalities …… mentioned, for example, across men and women is particularly high.
So I think what is needed is just basically removing some of the big barriers that exist to ……7:13, and by …… employment, I mean wage employment. especially in urban areas, but also productivity in agriculture, which is actually particularly low in rural areas. How do you do that? As I said, I think more inclusive service delivery is going to be really important to address inequality opportunities and more competitive labour markets, and a more competitive African ……7:42 markets is going to be very important for…… equality of earnings.
FIFI PETERS: One of the latest interventions that we have seen this side, the minimum wage has been put into place; in fact there [were] inflation- related increases to the minimum wage as an attempt to try and level the playing field. We also have talks of a basic income grant, and the efficacy that could have in levelling inequality. What’s your view on those interventions?
PIERELLA PACI: The normal wage ……8:25 the type of policy that could help to at least address the issue of low wages at the bottom end and the distribution. It’s still quite effective ……8:36 the minimum wage in South Africa ……before. That’s actually been a useful instrument that way.
The issue is that there is a potential trade-off between minimum wage and job opportunity. By all means I think it’s a good way of addressing, looking after the bottom end of the grant distribution, but let’s not forget that there is a part of the population that doesn’t even have the opportunity to get to ……9:10 and that is high unemployment rates, and unemployment rates are huge, you know much better that I do. I mean, that’s staggering; it’s still roughly 50% of the population.
FIFI PETERS: Terrible rate.
PIERELLA PACI: I’m talking about youth, 50% of youth. So in a way the minimum wage addresses ……9:27 insiders, the people who are already working. It doesn’t address the 50% that are not among the youth.
The basic income grant, that’s an interesting question. I know it’s politically a very important issue at the moment in South Africa. I think, again, it clearly does provide a minimum safety net income. I think the problem we find in this study is that overall the social assistance and social protection in South Africa is actually very effective in reducing inequality, but comes at a very high cost because it tends to be very fragmented and not particularly well targeted. So the issue I can see with the basic income grant is that, unless it is targeted somehow, it’s just going to increase even more the lack of targeting in a way that is currently initial.
We actually argue that, if anything, the social assistance system should actually become more targeted towards the ……10:29 most, and also in a way it needs to be more adaptive because we’ve seen everywhere globally but in South Africa it’s been very evident too. Daily type of shocks like Covid has been one of them, droughts another …..10:47. ……is possibly high. And the current social protection and social assistance systems are not particularly good at addressing shocks. They’re pretty good at supporting the people that permanently …… in shock, but not quite so much in terms of the dynamic changes and the terms of addressing the risks ……11:13 increasing climate shocks and economic shocks.
FIFI PETERS: Sure. Pierella, thanks so much for those insights, ma’am. We’ll leave it there. Pierella Paci, the practice manager for Poverty and Equity Group at the World Bank.