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Sep 28, 2012

Obvious questions, no obvious answers

Africa|Education|Efficiency|Innovation|Africa|South Africa
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In the post-Marikana era, new questions are being asked about inequality, with a particular spotlight being thrown on to the issue of executive remuneration and the size of the gap between the highest and lowest paid employees within a company.

It’s not a new theme and it is most definitely not an uncom-plicated theme. But there is a definite sense of unease, even revulsion, about current executive-pay levels and the method-ologies used to inform these packages. There is particular anger that most bonus schemes seem to be entirely immune to poor performance.

Without doubt, this is not a uniquely South African dilemma. Serious questions are being asked globally about the impact inequality is having on economic performance and on social cohesion.

For instance, the ‘Trade and Development Report, 2012’, which was published by the United Nations Conference on Trade and Development (Unctad) earlier this month, dedicates a great deal of attention to the issue of inequality, its impact on growth and possible remedies.

The analysis shows that, over the past 30 years, income inequality has increased within countries and that in several instances, the richest one per cent of the population now accounts for 10% to 20% of national wealth.

One of Unctad’s key messages is that “there is nothing natural about rising inequality that requires society to allow or accept it, nor does it improve the efficiency of market outcomes”.

In fact, the authors assert that the current weak global economic performance has its roots in faltering demand, which, in turn, can be attributed to issues such as wage compression, deleveraging and unemployment.

There will be no significant recovery, Unctad avers, until low- and middle-income groups achieve sufficient earnings to spend on consumption, which will create the demand required to drive modern economies.

In other words, it argues that dealing with inequality through more even income distribution will be critical to future economic performance.

This argument is premised on a view that high inequality deprives people of access to education and credit, and prevents the expansion of domestic markets. “Thus, a better income distribution pattern would help stimulate and sustain economic growth in the short run and would provide stronger incentives for investment, innovation and job creation in the long run.”

Given the extreme nature of South Africa’s wealth–poverty divide, it is only natural that this issue should receive greater attention and should be a top-of-mind priority for government, business and labour.

But there is also a need to grapple with issues of remuneration and inequality within the highly contradictory context of skills shortages amid chronic unemployment. In other words, we should not expect the answers to be easy to come by, nor that the remedies will be straight- forward to formulate and implement.

Edited by: Terence Creamer
Creamer Media Editor
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