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Entering South Africa this week, stage left, is the celebrated economist Thomas Piketty, whose ideas are already much used and abused. Indeed at the initial University of Cape Town event on September 30, his talk (broadcast on a malfunctioning video feed anyhow) was disrupted by #RhodesMustFall activists with powerful class and race analysis of the host institution.
Piketty’s visit also reminds us of the need to reconsider South African inequality-fibbery, for the World Bank’s Pretoria staff claim the Gini is reduced from 0.77 to 0.59 once all manner of state social spending (social grants, education and health) is included in the calculation. For example, there are more than 15 million recipients of a child support grant, although at $0.75/day, it’s puny; World Bank president Jim Kim last week revised his institution’s poverty line from $1.25 to $1.88/day. But in this research, the vast state-funded benefits enjoyed by corporations and the rich (crony capitalism) magically evaporate, a point I discuss in the current issue of the International Journal of Health Services.
No matter how biased the rejigged Gini, like the proverbial dog whistle, the Bank’s optimism triggered a landslide of echo-box commentators, economists and politicians heralding how well redistribution was going. The logic of the cacophony culminated on Budget Day 2015 with economist Iraj Abedian’s prominent call for social grants to be cut “way below inflation.” This may have been in Finance Minister Nhlanhla Nene’s ear when he reduced the already tokenistic survival funds given to South Africa’s poorest by 3 percent. survival funds given to South Africa’s poorest by 3 percent. He simultaneously deregulated exchange controls, allowing rich South Africans to increase their annual offshore expatriation from $285,000 to $710,000.
Piketty, a genuine social democrat, would be aghast at this interim outcome of our recent inequality debate. Yet there are those whose political philosophy we can term ‘neoliberal,’ trying to co-opt his message. The most extreme purveyor of Piketty for the sake of status quo policy must be Raymond Parsons, who for more than forty years has been South Africa’s highest-profile white business spokesperson, and who now teaches at Potchefstroom Business School.
In 1986, a New York Times correspondent was grateful that Parsons divulged “correspondence dating to 1960 between [the SA Chamber of Business, which he ran] and Hendrik F. Verwoerd, at that time the Prime Minister.” Parsons communicated to the Times reporter how “business in South Africa responds more to crisis in its quest for reform than to the years of economic growth and of black quiescence.” Furthermore, hinted Parsons, “By embracing the ANC, the idea seems to be, its radicalism might be diluted.”
Within eight years, the ‘Faustian Pact’ dilution of the ANC’s commitment to its radical 1955 Freedom Charter was conclusively accomplished. But when Jacob Zuma took power thanks partly to manoeuvers by the SA Communist Party and trade unions in 2009, Parsons again turned to co-optation, this time in his edited collection Zumanomics, which pronounced “the unavoidable reality that narrowed options will have been dictated by world-wide economic events.” After budget deficits of 2008-09, the government “will need to return to its normal fiscal flight path.”
Fast forward to a Business Day column this week in which Parsons revealed a similar agenda. But instead of Mandela or Zuma, today’s fear is renewed talk of redistribution. Parsons’ tactic, once again, is to embrace and enthusiastically co-opt the French economist: “The extent to which several of Piketty’s points for reducing inequality resonate with the overall thrust of the National Development Plan (NDP) is striking.”
In reality, the state’s 2012-2030 NDP is severely wanting for ambition when it comes to inequality, projecting that its strategies will reduce the Gini only from 0.69 (in 2012 measured slightly differently from the Bank) to 0.60, i.e., that the income share earned by the poorest 40 percent will rize from 6 to just 10 percent. As Cosatu official Neil Coleman argued in the strongest NDP critique to date, “0.6 would still make our levels of inequality higher than any other major country in the world! This long-term target (which Brazil has surpassed by far in less than 10 years) is an embarrassment for a country claiming to be serious about combating inequality.”
Parsons’ desired full-on neoliberal onslaught has faced resistance from a working class that the World Economic Forum considers to be the most militant on earth since 2012. So, he says, an “important reason for decision makers to tackle the inequality gap is to get it out of the way. For as long as income distribution in SA is seen as too far from what is ‘socially desirable’, necessary policies for allocative efficiency are constantly suspect, such as the appropriate role of user charges, the need for fiscal discipline or making SA more globally competitive.”
The latter three goals represent Parsons’ genuine agenda. To make the case for fiscal discipline (budget cuts), he predictably intones, “A 2014 World Bank report outlined the progress SA has made in reducing poverty and inequality through fiscal policy, but concluded that there was now minimum scope for further redistribution through the budget.” In reality, there is enormous scope for domestic borrowing to pay for higher levels of immediate social spending: South Africa ranks a pathetic fifth from the bottom of 40 major countries in this category (as a share of GDP), and the last public debt and deficit analysis I’ve seen from Barclays Capital considers South Africa substantially under-borrowed (in local terms not foreign debt) compared to peers.
A classical Keynesian policy of growth-through-redistribution is certainly desirable in this terribly unequal society, and that’s why I’m very sympathetic to my Wits colleagues Imraan Valodia and Vishnu Padayachee who believe Piketty’s influence can revive this tradition. Valodia concludes, “the question the country needs to answer is: what political forces are needed to generate more equality in the opportunities available to South Africans?”
We apparently require many more revolutionary political impulses in society if even the Keynesian project is to advance. Setting aside Parsons’ co-optation threat, at an intellectual level I’m worried about a different danger of Pikettian posturing: delegitimization of perhaps the strongest tradition(s) within South African political economy, namely, Marxism.
According to Piketty’s Capital in the 21st Century, “Modern economic growth and the diffusion of knowledge have made it possible to avoid the Marxist apocalypse… Marx totally neglected the possibility of durable technological progress and steadily increasing productivity.” This flippancy is what you expect from someone who brags openly about his ignorance about the Marxian intellectual framework: “I never managed really to read it… Das Kapital, I think, is very difficult to read and for me it was not very influential.”
For those interested, there are various well-read Marxist rebuttals to Piketty, e.g. by David Harvey, Esteban Maito, Adam David Morton and Michael Roberts. Some reflect on his unfamiliarity with the idea of the ‘rising organic composition of capital’ – higher capital intensity in production, causing falling profitability over time – which is the core process behind overproduction crises in Marx’s schema.
And without analysing long waves of accumulation crisis culminating in speculative financial bubbling, he doesn’t give sufficient weight to Quantitative Easing (printing money) and similar bail-outs of private debt through monetary and public debt mechanisms. Marxists like Harvey have long predicted these would displace (not resolve) the contradictions.
Piketty’s central thesis is that “When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.” Aside from the terribly stilted measure of growth (GDP – expertly demolished by the University of Pretoria’s Lorenzo Fioramonti), the central problem with this, as has been pointed out by his rightwing critics, too, is its mishandling of residential capital.
As Roberts remarks, “if we take out housing and real estate wealth from the measure of capital, Piketty’s forecast of a stable return on ‘capital’, which is higher than the long-term trend growth rate does not stand… it is Marx’s law of the tendency of the rate of profit to fall over time that is confirmed by the evidence, not Piketty’s stable return on capital.”
The Piketty inequality critique is vital, yet in sum, assuming that on this visit he can withstand the Parsons embrace, and assuming local Keynesians can amplify his arguments against the Treasury and Reserve Bank neoliberals, nevertheless there are obvious intellectual reasons to be suspicious of Piketty. But all this matters little; it is instead the challenge of shifting the political balance of forces that far transcends our ideological bantering, isn’t it.