Towards social justice to end economic apartheid

THE PURSUIT OF SOCIAL JUSTICE

TO END POVERTY AND TO ENSURE THE FAIR REDISTIBUTION OF WEALTH IN SOUTH AFRICA

Mohamed Adam

The Pursuit of Social Justice to end Economic Apartheid in South Africa.

Mohamed Adam

Overcoming apartheid's legacy: the ascendancy of neoliberalism in South Africa's anti‐poverty strategy. Fantu Cheru.

Neoliberalism and the Political Economy of the "New" South Africa.

Paul Williams and Ian Taylor

Alternatives to Neoliberal Governmentality in South Africa.

S. Narish Neoliberalism and Economic Justice in South Africa: Revisiting the Debate on Economic Apartheid.

Geoffrey E. Schneider

Wealth: Having it all and Wanting More.

OXFAM Research

Even it up.

Time to end Extreme Inequality.

OXFAM

The Fair Society Chapter 1 Peter Corning

Â

The Pursuit of Social Justice to end Economic Apartheid in South Africa.

Mohamed Adam

Â

THE PURSUIT OF SOCIAL JUSTICE

TO END POVERTY AND TO ENSURE THE FAIR REDISTIBUTION OF WEALTH IN SOUTH AFRICA

Mohamed Adam

CHAPTER 1

Introduction ______________________________________________________ A Blueprint & Call to Action to end Poverty and to ensure a more equitable distribution of wealth in South Africa to all its Citizens by means of the Concept of Community Economic Empowerment.

“Massive poverty and obscene inequality are such terrible scourges of our times - times in which the world boasts breathtaking advances in science, technology, industry and wealth accumulation - that they have to rank alongside slavery and apartheid as social evils.”

Overcoming poverty is not a gesture of charity. It is an act of justice. It is the protection of a fundamental human right, the right to dignity and a decent life. While poverty persists, there is no true freedom.”

“Through your will and passion, you assisted in consigning that evil system (of apartheid) forever to history.

But in this new century, millions of people in the world’s poorest countries remain imprisoned, enslaved, and in chains. They are trapped in the prison of poverty. It is time to set them free.”

– Nelson Mandela 1

THE PURSUIT OF SOCIAL JUSTICE

Excerpts from a speech Mandela gave in London’s Trafalgar Square in 2005 for the campaign to end poverty in the developing world.

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Allocation of CEE Shares ______________________________________________________

All the forces in the world are not as powerful as an idea whose time has come. – Victor Hugo a) Every Citizen of South Africa will be allocated 25 CEE shares. b) Every Citizen who is poor will get an additional 25 CEE shares. c) Every Citizen who suffers a disability will get an additional 25 CEE shares. d) Every Citizen who suffered from Apartheid will get an additional 50 CEE shares.

Thus a poor White person would qualify for 50 CEE shares, in accordance with the above criteria and which will be fully paid up and worth R 303 000 in 20 years. This applies to each member of the family. See Table A on page 8 and Table B on page 9. Thus a poor White family with 4 members will 3

THE PURSUIT OF SOCIAL JUSTICE

have a CEE share portfolio worth R 1.2 million in 20 years in today’s money terms. In 25 years the “poor” White family portfolio of CEE shares will be worth R 2 million and in 30 years the “poor” White families portfolio will be worth over R 3 million.

A poor Black person will qualify for 100 CEE shares in accordance with the above criteria and which will be fully paid up and worth R 607 960 in 20 years, R 987 292 in 25 years and R 1.56 million in 30 years after adjustment for inflation. This applies to every member in a family. Thus an average poor Black family with 5 people will have a CEE Share portfolio in 20 years which will be fully paid up and worth say R 3 million in today’s money. In 25 years the poor Black families CEE Portfolio will be worth R 4.9 million and in 30 years the poor Black families CEE Portfolio will be worth R 7.79 million in 2015 money terms.

1. COMMUNITY ECONOMIC EMPOWERMENT (CEE) A CEEC is a co-operative in which all citizens irrespective of race and political or other patronage participate as shareholders. We believe that this is the best model to allocate substantial economic benefits to all the citizens of our country. The Institute for Economic and Social Upliftment (IESU) has developed the concept of CEE (Community Economic Empowerment) and a CEEC (Community Economic Empowerment Cooperative) as a means towards the meaningful and fair distribution of the enormous economic resources of our country.

South Africa is blessed with the highest concentration of mineral wealth in the world which is valued at over R 36 Trillion. In addition the value of the JSE is about R 12 Trillion. If the principles of CEE and CEEC as proposed in this paper are adopted then each citizen will benefit by an amount as indicated in Table A and Table B on pages 4 - 5 after adjusting for the effect of inflation (i.e. in today’s mon4

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ey terms) over a period of 30 years through the acquisition of income producing assets which will be funded against the security of those assets.

The debt incurred for the acquisition of the assets is expected to be amortised within a period of 15 years from the income earned from the assets as detailed later in this paper. This is the basis on which BEE transactions create wealth for their elite Black shareholders except that the main difference here is that in a CEE it is proposed that the entire community or all the citizens of South Africa benefit from the wealth created by the Economic Empowerment (“EE”) transaction.

In a National Community Empowerment Co-operative (CEEC) we will have the following shareholders or beneficiaries: a) Every citizen will be allocated 25 CEE Shares irrespective of race or political affiliation or class. In existing BEE deals you have to be chosen by the Elite to join the “Elite Club”. Unfortunately there are no objective published criteria on how you get chosen to be the new Black member to join the Elite club which can make you a millionaire or a multi-millionaire and even a billionaire. In CEE every citizen of the country gets 25 CEE shares for being a citizen of South Africa. We will for purposes of this article set the unit value of 1 CEE share to be R 1 000 (One thousand Rand) in 2015. Table A and B on pages 4 - 5 demonstrates how CEE contributes towards wealth creation for all the citizens of South Africa. If we had implemented the concept of CEE and implemented a CEEC at the beginning of our democracy we would all have been much wealthier today and the nation as a whole would have been much more prosperous than we are today and poverty would have been eliminated or would have been substantially less than what it is today. However it is not too late to start and if you join us in building the move5

THE PURSUIT OF SOCIAL JUSTICE

ment for PEAC we will be able to achieve our objective of ending Poverty and ensuring that there is more equitable distribution of wealth in South Africa. b) Every poor person will be entitled to an additional 25 or more CEE shares based on the degree of poverty. c) Every person who is disabled will be entitled to 25 or more additional CEE shares based on the degree of disability. d) Every person who has contributed to society e.g. being a Mother Theresa type or other role model will get additional CEE shares for his or her contribution to society. e) Lastly every person who suffered from apartheid will get 50 or more CEE shares as a form of Reparations for Apartheid depending on the extent of that persons suffering under the system of Apartheid and the current system of Economic Apartheid to partially compensate for the economic harm caused by Apartheid. Note that I used the word “partially� compensate since we will never be able to fully compensate for the effects of apartheid. f) The relative weighting to be applied to the above criteria ( and any others which may be needed ) will need to be determined through extensive economic analysis of the criteria and their relative weighting to ensure that it is as fair as possible. No matter what system is eventually agreed upon it will never be perceived to be fair to all persons. However it will be degrees of magnitude better than the current BEE system of non-transparent and arbitrary awarding of the benefits of BEE. It is standard practice in any democratic and just society that any awards especially for compensation for past injustice are supposed to be objectively and fairly applied and that any criteria for the just allocation of compensation in the form of BEE benefits should be transparent and made public.

However it is clear that our current BEE system which is being implemented by government, banks, and business and reported on by the media is far removed from being 6

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a transparent or just or fair system. In fact it is grossly unjust.

It is our opinion that in the CEE Concept as described above we have the foundation for a much more just and equitable model for the economic redistribution of wealth than the current BEE model which is arbitrary and non-transparent. The next issue of our newsletter will be on the theme of Reparations and will also be at www. iesu.com In terms of the application of BEE currently and based on the track record of “BEE” over the past 20 years in South Africa it is a safe bet that neither the poor White nor the poor Black person will have any benefit from existing BEE Policies in the next 20 to 30 years.

Ask yourself the question what have you benefited from BEE over the past 20 years? The chances are that 99% of people who answer this question will say it is ZERO. In fact it is less than Zero since each BEE deal is at the expense of society as a whole and the rest of us actually indirectly pay in one way or another for each so called “BEE deal” which increases economic inequality and creates more instability for our democracy. This will be considered further in a future paper on this aspect of BEE. What is proposed herein is far better than anything even being remotely contemplated in existing government policy and its practical implementation regarding existing BEE Policy.

“What is proposed herein is far better than anything even being remotely contemplated in existing government policy and its practical implementation regarding existing “BEE” Policy. Each “BEE deal” is at the expense of the rest of society.”

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Table A – CEE Wealth Creation per person for various groups of people

CEE WEALTH BENEFIT PER WHITE PERSON

YEARS

CEE WEALTH BENEFIT PER BLACK PERSON

75,936 187,659

355,578

455,970

56,952 140,744 266,683

CEE WEALTH BENEFIT PER POOR WHITE PERSON WITH A DISABILITY

607,950

740,469

740,469

56,952 140,744 266,683

CEE WEALTH BENEFIT PER POOR WHITE PERSON

GROUP CEE Wealth benefit per White Person CEE Wealth benefit per poor White Person CEE Wealth benefit per poor White person with a disability CEE Wealth benefit per Black Person CEE Wealth benefit per poor Black Person CEE Wealth benefit per poor Black person with a disability

455,970

493,646

37,968 93,829 177,789 303,980

18,984 46,915 88,894 151,990 246,823 389,357

778,714

CEE WEALTH CREATION OVER 30 YEARS ADJUSTED FOR INFLATION 5 10 15 20 25 30

CEE WEALTH BENEFIT PER POOR BLACK PERSON

5 18,984

10 46,915

15 20 88,894 151,990

25 246,823

30 389,357

37,968

93,829 177,789 303,980

493,646

778,714

56,852 140,744 266,683 455,970

740,469 1,168,072

56,852 140,744 266,683 455,970

740,469 1,168,072

75,936 187,659 355,578 607,960

987,292 1,557,429

94,921 234,573 444,472 759,950 1,234,115 1,946,786

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Table A – CEE Wealth Creation per Family in different groups

CEE WEALTH BENEFIT PER WHITE FAMILY

CEE WEALTH BENEFIT PER POOR WHITE FAMILY

GROUP CEE Wealth benefit per White family CEE Wealth benefit per poor White family CEE Wealth benefit per poor White family with 1 disabled person CEE Wealth benefit per Black family CEE Wealth benefit per poor Black family CEE Wealth benefit per poor Black family with 1 disabled person

CEE WEALTH BENEFIT PER POOR WHITE FAMILY WITH 1 DISABLED PERSON

YEARS

5,676,929 3,495,771

4,936,460 379,762 938,294 1,777,888

436.635 1,079,038 2,044,571

3,039,801

3,702,345 284,762 703,702 1,333,416 2,279,851

3,504,215 170,857 422,232 800.060 1,367,910 2,221,407

151,873 375,317 711,155 1,215,920 1,974,584

75,936 187,659 355,578 600,560 937,292 1,557,419

3,114,858

5,840,359

7,787,145

8,955,216

CEE WEALTH CREATION OVER 30 YEARS ADJUSTED FOR INFLATION 5 10 15 20 25 30

CEE WEALTH BENEFIT PER BLACK FAMILY

CEE WEALTH BENEFIT PER POOR BLACK FAMILY

5 75,936

10 187,659

15 355,578

151,873

375,317

711,155 1,215,920 1,974,584 3,114,858

170,857

422,232

800,050 1,367,910 2,221,407 3,504,215

284,762

703.720

1.333.416 2.279.851 3.702.345 5.840.359

379.682

938.294

1.777.888 3.039.801 4.936.460 7.787.145

436.635 1.079.038

2.044.571 3.495.771 5.676.929 8.955.216

9

20 607,960

CEE WEALTH BENEFIT PER POOR BLACK FAMILY WITH 1 DISABLED PERSON

25 30 987,292 1,557,429

THE PURSUIT OF SOCIAL JUSTICE

2. THE MECHANISM OF WEALTH DISTRIBUTION

BY CEE? OR SIMPLY PUT, HOW WILL CEE WORK? A CEE will have 55 million members i.e all the citizens of the country Each member will have one vote. Each member will be allocated a number of CEE Shares or benefits according to the criteria to be determined after taking into account detailed and scientific and economic and actuarial analysis of all relevant factors.

The members of the CEE will elect the governing bodies of the CEE at National, Provincial and Local regions.

Each asset acquired by the CEE will be managed by a governing body for a specific asset or a portfolio of assets which shall not have a value of less than R 1 billion and an optimal value of not higher than say R 5 Billion. Where a single asset is much larger than say R 5 billion then the shares of that asset will be allocated to more than one portfolio of assets.

3. HOW WILL THE CEEC BE FUNDED? The CEEC will need to be supported financially by government to purchase say 50% or more of the shares of selected Blue Chip companies on the JSE which meet certain strict investment criteria and who voluntarily agree to sell 30% or preferably much more of their issued share capital to the CEEC’s ( It is expected that the CEEC at the top will have 1000’s of subsidiaries each of which will have a portfolio of assets or will target the acquisition of a specific prime income producing asset valued at R 1 billion or more ). I predict that there will be a scramble by companies to want to either sell 30% or more of their existing shares or issue new shares of 30% or more to attract fresh injection of capital. This could lead to a stimulus for the economy as a whole and I predict that instead of reluctance on the part of companies to participate I think there will actually be a 10

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scramble by companies who will want to be selected as the “chosen Blue Chip companies� who will be chosen for participation in CEE deals.

Currently about 50% of the shares of the JSE are held by international investors. If there is a massive campaign explaining the benefits to South Africans at large for the success of the CEE acquisitions then one would hope and expect that many of the listed companies will dispose of their shares at fair market value for cash and reinvest the proceeds in other assets or investments which will in all probability have substantially better long term profit potential than in South Africa where our democracy has questionable sustainability due to the current high level of economic inequality.

Assuming that 50% of the JSE is acquired by the CEEC and its subsidiaries. This will mean that a total of R 5.5 trillion of assets will have been acquired by the CEEC for the benefit of their 55 Million members. The initial unit value per CEE Share will be set at R 1 000 per CEE Share.

Taking the above into account we see that the CEEC will have debt of R 1000 per CEE Share and assets of R 1000 per CEE Share. The total assets in the CEE will thus be R 5.5 trillion in year 1 which we shall assume is 2015. The total debt will also be R 5.5 trillion in 2015.

We will further assume that an attractive rate could be secured for funding these acquisitions if the funding is procured from international banks and there may be some form of underwriting from government in the form of legislation to underwrite a portion of the funding to facilitate the CEE transactions. Local banks will in any event only be able to fund a portion of the acquisitions. I have used the following assumptions for the purposes of the 30 year projections which led to the projections in Table A and Table B on pages 4 and 5. a) Capital growth of CEE Share portfolio per annum: 15%.

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This is based on historical records over the past 25 years. b) Dividend yield for the CEE Share portfolio per annum: 4.6%. This is based on historical records over the past 25 years. c) Cost of finance to fund the transaction in the international market for a size of this transaction and a prime portfolio of income producing listed assets to be funded with possible government underwriting of the debt: I assumed a rate of 6% for the cost of finance although a better rate could be obtained.

What will be the value of a CEE Share in 5, 10, 15, 20, 25 and 30 years time?

See Table A and B on pages 4 - 5 for the graphs indicating the growth in the net value of the CEE Share Portfolio over the next 30 years based on the assumptions above.

One can predict that if the CEE Shares have capital growth of 15% per annum then they will double in value every 5 years. The all share index of the JSE has achieved a capital growth rate of 15% over the past 30 years. “The CEE shares are to be allocated in accordance with objective and transparent criteria to be scientifically determined to be fair and just.�

4. IF WE HAVE CEE WHO NEEDS BEE? Good question. CEE will only create passive wealth for all the citizens to eliminate poverty. As a consequence of the elimination of poverty and the growth in the CEE Portfolio of assets of each person to say an average of R 500 000 over 20 years we will find that a lack of capital will not be a barrier to procuring education or having access to the capital or equity required to start a small business. However Reparations by government can provide 12

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benefits to victims of apartheid over a much shorter timeframe.

5. WHAT IS WRONG WITH BEE CURRENTLY? Economic Inequality in South Africa has become progressively worse over the past 20 years. The objective measure of economic inequality is the Gini Co-efficient. Over 20 years ago South Africa was rated behind Brazil as the most unequal society in the world. Today 20 years after achieving our “Freedom” we find that we are the most unequal society in the World.

We were promised that BEE was supposed to reduce the economic inequality for all the people of our country but in fact the BEE as a policy as designed and implemented so far has failed to equitably redistribute the economic resources of the country and in fact has perpetuated and worsened what we can only refer to as an Economic Apartheid caused by a perpetuation of the Legacy of Apartheid.

On the one hand ordinary White South Africans perceive BEE to be a form of reverse discrimination. On the other hand ordinary Black South Africans also do not get any benefit at all from BEE and they are also just as effectively discriminated against from participating in BEE than in the days of apartheid. We can justifiably argue that we have Economic Apartheid in South Africa.

Thus more than 99% of the population of South Africa comprising ordinary Black and White citizens feel that BEE is only for the elite Whites and the elite Blacks.

If one looks at the facts that one will realise that in fact it is true. The current policy of BEE is designed to benefit only the Black and the White elites (called the “Elites”) who comprise less than 1% of the population of South Africa.

It is clear that fine tuning the policy of BEE will not lead 13

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to any economic benefits for the population at large. What is proposed is a fundamental change in the way that future Economic Empowerment (“EE”) transactions get done.

“The current BEE Policy and Practice has perpetuated and worsened the Economic Inequality caused by Colonialism and the Legacy of Apartheid.

It is not transparent or fair and allocates economic benefits under the guise of a form of “Reparations” or “Compensation” for Apartheid but discriminates just as effectively as Apartheid. It leads to an Economic Apartheid.”

6. FACT: THE TYPICAL BEE DEAL CREATES MORE WEALTH FOR ITS WHITE SHAREHOLDERS (THE “WHITE ELITE”) THAN FOR ITS BLACK SHAREHOLDERS (THE “BLACK ELITE”) BEE or “Black Economic Empowerment” or more recently BBBEE as a recent improvement in BEE to make BEE more broad based has thus far failed to achieve its original objectives.

The fact is that BEE (which I will use to refer to BEE and BBBEE) has had the following results: a) BEE transactions have only lead to wealth creation for the Black and White elites who participate in these transactions and which does not benefit the 99% of ordinary Black and White citizens. b) In fact a typical BEE deal creates 4 x to 10x more wealth for its White Elite shareholders than the Black elite shareholders. The reason for this is simple.

Take a Billion Rand company. a. The company sells say 10% to a Black consortium (the “Black Elite”) 14

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b. After the sale or a few years later the company eventually becomes a R 2 billion company thanks to its politically or otherwise connected Black Elite. c. How much wealth is created in this so called BEE deal for the White elite and how much for the Black elite? d. The Black elite makes R 100 million and the White elite makes R 900 million out of the R 1 billion in value created in this BEE deal. e. This applies to all transactions in which Black shareholders are in the minority. Only in transactions where the Black shareholders are in the majority e.g. say 51% and preferably closer to 75% can we say that it is “Black Empowerment” In all other cases the correct classification of the deal is “White Empowerment” f. Due to the above factors we find over the past 20 years as a result of all the so called “Black Empowerment” deals that we actually had more “White Empowerment” for their White Elites than “Black Empowerment” for the Black Elites.

“A Typical “BEE deal” is designed by White Elites to create 500% to 1000% more wealth for its White Elites than its Black elites.”

7. CAN BEE BE FIXED? What can be done to BEE to ensure that it is of benefit to all Black and South Africans? We need to remember that bad BEE deals such as are occurring now do not only deny the vast majority of the Black population a fair share of the wealth of our country but also pose a serious threat to the sustainability of our democracy. This affects all of us both Black and White.

The answer to improving the policy does not require rocket science. All it needs is a policy maker who cares for 15

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the interests of all South Africans rather than caring for the interests of the elite. The following policy changes are needed to existing policy to improve the situation: a) First we need to call a spade a spade. You can only regard a deal as “True Economic Empowerment” or TEE if the Black shareholding is 51%. The closer the percentage of ownership represents the demographics of our country the higher the points it should get on the Revised BEE Scorecards. So for example 51% should have a scorecard of 5 and 90% should have an overall scorecard of 9. b) Second we need to track all BEE deals. Once a person benefited by say R 10 million from a BEE deal then he must be regarded as “Empowered” or “Advantaged” and can no longer be regarded as “Historically disadvantaged”. The next person on the queue who is an HDI must then be in line for a “BEE Deal” c) All future BEE deals should limit the maximum benefit to a single HDI to no more than R 5 million per deal with a maximum of say R 10 million. The current situation where the same person gets repeated doses of empowerment and the rest of the population is left disempowered is simply unfair and unjust.

8. WHAT POLICY HAS THE GOVERNMENT IMPLEMENTED TO ADDRESS ANY OF THE FOLLOWING QUESTIONS? a) The question of Reparations? There appears to be very little if any discussion or debate on this issue. The blame can be put on the White controlled media. But surely the government had 20 years to ensure that the White controlled media does not remain White Controlled? It appears not. The next issue of our newsletter will be dedicated to Reparations. b) The question of Reparations for the crime of Apartheid.

Apparently someone in government decided that it was 16

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“too expensive” so they decided to abandon the idea completely. In fact the situation is so bad that not only did our government refused to address the issue of Reparations for apartheid but at one stage it also indicated that it was not in support of a case which was brought before the United States Supreme Court to address this very issue. c) The policy which government implemented to address the issue of economic inequality has been the concept of “Black Economic Empowerment” or so called “BEE” and more recently the slightly improved concept of “Broad Based Black Economic Empowerment” or BBBEE. 9. A CRITICAL EVALUATION OF THE SUCCESS OF BEE AND BBBEE IN REDUCING ECONOMIC INEQUALITY AND THE IMPACT ON SOCIETY OF THESE POLICIES. The Myth of BEE – That BEE is designed to reduce economic inequality is a sham.

In fact the opposite it true. Only a handful of the Black elite who are generally politically or otherwise connected benefit from a BEE deal. The average White or Black citizen does not benefit from BEE. It is the White elite and the Black elite who get richer at the expense of the rest of society. This in my opinion is a travesty of justice.

It is a myth that BEE is supposed to reduce economic inequality The typical BEE transaction creates more wealth for its White Shareholders than its Black Shareholders. In fact that ratio is approximately 4:1 to 10:1 or even as high as 20:1 So the past 20 years of “Black” Economic Empowerment in the Post Apartheid South Africa has actually been 20 years of White Economic Empowerment for the benefit of White elites at the expense of the rest of society both Black 17

THE PURSUIT OF SOCIAL JUSTICE

and White. In absolute and on a per capita basis BEE has created more wealth for White Shareholders as explained previously in this paper.

“Over the past 20 years as a result of all the so-called “Black Empowerment Deals” designed by White elites which should actually be called “White Empowerment Deals” based on their benefit to White elites relative to the Black elites in the deal. They are indirectly funded by the rest of us both Black and White who are excluded from and who pay for these deals in the long run.”

10. WHAT IS THE SOLUTION AND THE WAY FORWARD The ideal solution is to call for a halt of BEE in its current form as it is grossly unfair. However the practical problem is that there are so many in the elite who have benefited and who continue to benefit from BEE that if one attempts to stop all BEE transactions than there will be massive resistance by the Black and White elites who benefit from BEE. “IT is fraudulent to call a BEE Deal “BEE” if the Black share ownership is less than 51% and if control is not in Black hands in the “BEE Deal”.”

11. A PROPOSED SOLUTION IS THE FOLLOWING: a) BEE should be reformed to maximize the benefit for society. b) CEE which is the natural successor to BEE should become the preferred model and that CEE transactions should have a much higher score on EE Scorecards than pure BEE deals. c) There needs to be implementation of Hybrid BEE and 18

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CEE deals as will be explained in a future article. d) Each EE deal (i.e. BEE or CEE) should have a transparent and objective economic analysis and should provide the following information in its summary page: a. How many new persons benefited from the EE deal b. What was the economic benefit to each person and what objective criteria was used c. What is the net benefit to society d. How did the transaction reduce economic inequality and for whom. e. What percentage of the deal is BEE and what percentage is CEE. f. What is the long term outcome on progressive improvement of Black ownership in the deal for society. “BEE needs to be true BEE and any transaction which does not meet the criteria as true BEE should be exposed.�

12. TEN THINGS YOU CAN DO TO HELP TO END POVERTY AND TO ENSURE THE FUTURE EQUITABLE ECONOMIC DISTRIBUTION OF WEALTH. The following 10 steps and actions can change your life.

They only take a few minutes of your time every day and once you make it a habit not only will it be fun but you will make new friends and build a sense of comradeship as we all work together in the common goal of building a better future for us all.

Discuss the concepts and ideas in this paper with friends and family and social media. Share the iesu.com link with friends and family. Debate critically what can and cannot work. We need this topic to be on the top of your agenda until it becomes reality. The benefits are enormous but it 19

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cannot become a reality if we just sign a petition in support of the plan and forget about it.

Step 1 Discuss and share the ideas with friends and family and share on social media (Facebook and Twitter) Step 2 Give a copy of this newsletter to as many politicians and members of government you know and ask them what their plans are to end poverty and how they can justify the high level of poverty in South Africa when the problem can be solved by the implementation of the correct policy.

Step 3 Read the articles and books reviewed on the website of www.iesu.com Share the articles you like and discuss with friends and family. Become knowledgeable on the subject so you make meaningful input on this topic.

Step 4 Ask the politicians why they deserve your vote for another 5 year term of office after failing to end Poverty and implanting policies which actually have increased economic inequality in South Africa.

Step 5 Form a discussion group to discuss the various solutions to end poverty and to address the problems of economic inequality and unemployment. Remember there is no single solution.

Step 6 Lets read and debate and consider all the available options to end poverty. It is only if this topic becomes a matter of national priority and debate can we as a nation find the solutions to end poverty. The proposal in this paper is but one alternative. There may be much better options.

Step 7 With the benefit of your input we can improve the current proposal or find better alternatives.

Please send us your submissions.

Step 8 Discussion and debate is good for us to get a good 20

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understanding of the issues. However all the discussion and debate will not lead to a change in policy unless it leads to some form of action. The following are our goals in all the actions which we take: Step 9 Become a member of PEAC – People Engaged in Action for Change. Once you become a member then encourage your friends and family to join PEAC for real Peace in South Africa based on an end to Poverty and a fair and equitable economic distribution of wealth in our great nation.

Step 10 Sign the Petition in support of the Economic Manifesto of IESU referred to as the EMI and to achieve the goals of the EMI. The goals of EMI are simple: Goal 1 To end poverty.

Goal 2 To ensure equitable economic distribution of wealth by means of the concept of Community Economic Empowerment ( CEE ) as explained in this paper. The current economic inequality which originates from the Legacy of Apartheid and its effect on society is nothing but Economic Apartheid. An Economic Apartheid whose effects on the poor are no less then Apartheid.

How? By using the power of mass mobilization to achieve our goals. See www.iesu.com for more details and what you can do to help to end Poverty.

Discuss share and debate these issues. Make it a priority if you want to make a change.

Share the iesu.com link with friends and family.

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The right to reparations in situations of poverty ______________________________________________________ The existing Paradigm of Reparative Justice By: Ruben Carranza, ICTJ September 2009 Reparations, as a component of the transitional justice process, are meant to serve two goals.

The first is to recognize the loss and pain suffered by victims and, in doing so, help them become rights-holders entitled to redress. The second goal is more problematic in situations of massive poverty: to provide actual benefits to victims, whether in symbolic or material forms, or ideally a combination of both. The political will, technical capacity, and financial resources needed to design, implement and sustain reparations programs are invariably absent in post-conflict developing countries.

The Basic Principles and Guidelines on the Right to a Remedy and Reparation1 adopted by the UN General Assembly in 2005 explicitly recognizes reparations as a right. The Guidelines, while not prescriptive, identify five forms of reparations.

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These are restitution, compensation, rehabilitation, satisfaction, and guarantees of non-repetition. The first three are directly reparative measures; the last two are usually accomplished through criminal justice and institutional reforms that can have reparative effects. The iconic reparations programs carried out in post-authoritarian Chile, Argentina, and Brazil, as well as programs implemented after World War II by Germany, by the United States (with respect to detained Japanese Americans), and more controversially, offered by Japan (for victims of female sexual slavery) consisted of compensation and varying measures of restitution and rehabilitation. These countries could afford the cost of reparations.

They all had the administrative and technical capacity to implement and maintain the different programs offered to victims.

The Guidelines are a composite reflection of the historical and ideological paradigms that guided earlier reparations programs. Thus, the Guidelines seem focused on political repression and armed conflict while equating human rights violations with gross violations of civil and political rights.

But for many victims in developing countries, the acknowledgment of gross violations of their economic, social, and cultural rights is just as important. Surveys taken among victims in Uganda and Cambodia indicate expectations of measures that will acknowledge and address their poverty. Restitution in the Guidelines means “restoring the victim to the original situation financing Reparations in situations of scarcity Of the 26 countries in the lowest bracket of the UN Development Programme’s 2008 Human Development Index, six have large victim communities expecting reparations as 23

THE PURSUIT OF SOCIAL JUSTICE

a result of truth- seeking and criminal justice measures.

The truth commissions in Timor-Leste, Sierra Leone, and Liberia recommended the establishment of reparations programs. Uganda, the Central African Republic, and the Democratic Republic of Congo (DRC) have cases at the International Crimi- nal Court (ICC). While the Court’s Trust Fund for Victims may provide reparations to a small number of victims participating in these cases, the larger number of non-participating victims will also expect reparations from their governments.

How then can these developing countries provide reparations for victims who are poor while ad- dressing the problem of widespread poverty itself?

Sometimes, the answers lie in the same truth commission reports that recommended reparations. South Africa’s Truth and Reconciliation Commission (TRC) recommended the collection of one-time ‘wealth taxes’ on affluent South Africans and corporations that did business under apartheid.2 The Sierra Leone TRC called for a War Victims Fund3 consisting of mining revenues, debt relief, a peace tax, and the assets of convicted perpetrators. In Timor-Leste, CAVR proposed that a trust fund for reparations be jointly funded by the Timorese and Indonesian governments and from contributions by governments “who provided military assistance …to the Indonesian Government during the occupation.”4 None of these proposals have been pursued.

The problem then isn’t a lack of ideas; to some, the problem is a lack of political will com- pounded by misplaced priorities. South Africa acquired submarines for its navy while refusing to implement the TRC’s reparations scheme. The governments in Sierra Leone and Nepal recently announced their intentions to acquire expensive military equipment even while financing for reparations in both countries remains uncertain.

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Even in countries like Morocco and Peru, where reparations programs are relatively on track, there is still debate over how to balance reparations with the government’s obligation to encourage development. One approach has been the concept of collective or community reparations.

Morocco has chosen to prioritize the provision of economic opportunities and social services in regions that were deliberately neglected in the past under authoritarian rule because the people in those areas opposed the ruling regime. In Peru, collective reparations that include social services and funding for community projects are targeting provinces that, according to the truth commission, disproportionately bore the brunt of violations during the conflict with Sendero Luminoso.

Collective reparations programs certainly cannot take the place of development activities intended for all citizens; but in developing countries that do not have enough to finance both obligations, poor citizens may find it meaningful that their most basic needs can be met without having to disregard the experiences of those who suffered more because of human rights viola- tions. In Peru, a conditional cash transfer program called Juntos relied partly on the truth com- mission’s mapping of the regions most affected by human rights violations. The cash payments made to families on the condition that they would send their children to school were seen by some victims in the region as acknowledgment of the harm they suffered from political violence.

Two other kinds of experiences are worth mentioning.

First, assets recovered from corrupt ex- dictators and highlevel perpetrators have been applied to reparations in Peru and in the Philip- pines. A special law in Peru allocated assets confiscated from former president Alberto Fujimori to finance some reparations measures. A pending law in the Philippines would apply part of the assets recovered from 25

THE PURSUIT OF SOCIAL JUSTICE

the Marcos family for compensation payments.

Second, post-transition developing countries should maximize the political capital that their transitional justice initiatives generate by proposing debt-for-reparations schemes. Since the World Bank and International Monetary Fund recognize Ghana as a Heavily-Indebted Poor Country (HIPC), it used its HIPC status to divert some of its foreign debt repayments to a compensation program for victims.

The lesson here isn’t only that debt relief is a source of financing; the greater lesson is that credi- tor countries and international financial institutions have a decisive role in pursuing reparative justice. They can enable reparations, but they can also frustrate their implementation or diminish their reparative impact. The Marcos dictatorship borrowed $2 billion from foreign creditors to build a nuclear plant. The Marcoses earned $18 million in construction bribes while the flawed plant was never used. For 30 years, Filipinos paid $150,000 a day in interest for that single loan instead of using the money as reparations for more than 10,000 victims of the dictatorship. The World Bank has established a $50 million Emergency Peace Support Fund for Nepal. Half of it funds payments to families of those killed during the conflict with the Maoists; the other half was given to Maoist combatants confined in their camps. This grant, however, is not founded on a rights-based approach to reparations; victims of torture, disappearances, and sexual violence aren’t covered or acknowledged. Rather, the goal is to ensure that combatants do not resort to what World Bank economists call “unlawful rent-seeking” and that victims’ families themselves do not end up as combatants.

Editors note: The above article has been shortened and key abstracts provided above. The full text of the article can be available at the website of ICTJ at www.ictj.org .

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ENDNOTES 1 UN General Assembly, Basic Principles and Guidelines on the Right to a Remedy and Reparation for Victims of Gross Violations of International Human Rights Law and Serious Violations of International Humanitarian Law : resolution / adopted by the General Assembly, 21 March 2006, A/RES/60/147, available at: http:// www.unhcr.org/refworld/docid/4721cb942.html [accessed 18 August 2009] 2 See Truth and Reconciliation Commission, Report of the Truth and Reconciliation Commission of South Africa, vol. 5, chap. 8 (Cape Town: TRC, 1998).

3 See the Report of the Sierra Leone Truth and Reconciliation Commission, vol. 2, chap. 4, available at http://trcsierraleone.org/ drwebsite/publish/v2c4.shtml.

4 Chega! The Report of the Commission for Reception, Truth, and Reconciliation Timor-Leste, Executive Summary, Comissao de Acolhimento, Verdade e Reconciliacao de Timor Leste (CAVR) 5 Chapter V, Asset Recovery, UN General Assembly, United Nations Convention Against Corruption, 31 October 2003, A/58/422, available at: http://www.unhcr.org/refworld/docid/4374b9524.html [accessed 18 August 2009] 6 Rule 23 paragraph 11, Extraordinary Chambers in the Courts of Cambodia, Internal Rules, 12 June 2007, available at http://www. eccc.gov.kh/english/cabinet/fileUpload/121/IRv3-EN.pdf [accessed 18 August 2009]

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Open letter ______________________________________________________ His Excellency, The President of South Africa, Jacob Zuma His Excellency, the Deputy President of South Africa, Cyril Ramaphosa The Honourable Cabinet Members of South Africa The Honourable Members of Parliament of South AfricaHis Excellency, King Dalindebo of the AbaTembu People His Excellency, King Zwelithini of the Zulu People His Excellency, King Khoebaha Cornelius of the Khoisan People Other Excellency’s in South AfricaTheir Excellency’s, the Various Tribal Leaders in South Africa The Chairperson and SG of COSATU and other trade unions The Chairperson and Leadership of the all the Political Parties in South Africa The Chairman of the Human Rights Commission The Chairpersons and Board of Directors of Listed and unlisted Companies in South Africa

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The Chairpersons and Boards of Trade Unions and NGOs and Civil Society Organisations The Leadership structures of various Civil Society Organisation The Leaders of the International Community and United NationsThe Citizens of South Africa Open Letter to all Citizens of our Beloved South Africa Dear Respected and Beloved Leaders and Citizens of South Africa A Call for Reparations and the Implementation of Measures to ensure the Equitable Distribution ofWealth and to take measures to ensure the end of Poverty and to ensure the implementation ofthe Principles contained in the Economic Manifesto of IESU. The Institute for Economic and Social Upliftment (IESU) and People Engaged in Action for Change (“PEAC�) and the organisations listed in Annexure C calls upon the Parliament of the Republic ofSouth Africa to establish a Policy on Reparations for all those who suffered under Apartheid and to ensure that existing Policies are amended to ensure the equitable distribution of the Wealth of ourNation and to end Poverty as detailed further in this letter.

We respectfully make the following submissions in this regard for your attention: 1 It is common cause that Apartheid is a Crime Against Humanity.

29

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2 It is common cause that we are still suffering from the enduring Legacy of Apartheid. For reference and background kindly refer to the articles which can be downloaded from http://www.iesu.com/references (Attached as Annexure A comprising Volumes 1 to 3 comprising a total of 600 pages.).

3 The majority of the Poor are Black and the majority of the Rich are White. It is clear that we have Economic Apartheid in South Africa.

4 We quote below from a speech given by our Beloved Former President Nelson Mandela in London’s Trafalgar Square in 2005 for the Campaign to end Poverty in the Developing World: “Massive Poverty and obscene inequality are such terrible scourges of our times– times in which the world boasts breathtaking advances in science, technology, industry and wealth accumulation – that they have to rank alongside slavery and apartheid as social evils.”

“Overcoming poverty is not a gesture of charity. It is an act of justice. It is the protection of a fundamental human right, the right to dignity and a decent life.

While poverty persists, there is no true freedom.”

“Through your will and passion, you consigned that evil system ( of apartheid )forever to history. But in this new century, millions of people in the worldspoorest countries remain imprisoned, enslaved and in chains. They are trapped inthe prison of poverty. It is time to set them free.”

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“As long as Poverty, Injustice and Inequality persist in our world, none of us cantruly rest.”

“Like Slavery and Apartheid, Poverty is not natural. It is man made and it can be overcome by the actions of human beings. Sometimes it falls upon a generationto be great. You can be that great generation. Let your greatness blossom.

Of course the task will not be easy. But not to do this would be a Crime Against Humanity, against which I ask all Humanity now to rise up.

Make Poverty history. Then we can all stand with our heads held up high.”

5 We can deduce from 3 and 4 above that “Economic Apartheid is a Crime Against Humanity”. It is accordingly obligatory upon all of us to ensure that we take action toensure the end of Poverty and Extreme Inequality and to ensure that Social Justice is implemented and that immediate measures are put in place to ensure the Equitable Economic Distribution of Wealth in South Africa.

6 In regard to point 5 above The Institute for Economic and Social Upliftment has developed a Blueprint to end Poverty and to ensure the equitable distribution of Wealthin South Africa. This is found in Annexure B. 7 The waves of social unrest we are seeing in South Africa over the past 2 years and whichhas increased recently to new high levels are but a tip of the iceberg of the high level ofdiscontent among the Peoples of South Africa – 31

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the very People who elected you to office and whom you are supposed to Serve and Protect. Unless Urgent Action is taken it is clear that our Democracy will not be sustainable if the status quo prevails much longer.

We can no longer afford to bury our heads in the sand while “Rome is Burning”.

8 IESU and PEAC (“People Engaged in Action for Change”) and those organisations whosenames are annexed to this letter (Annexure C) and who will from time to time annex their names hereby call for the Parliament of South Africa to hold a Referendum on theEconomic Manifesto of IESU (“EMI”) as an Economic Policy Framework for South Africa. The Draft EMI for adoption at the Economic Manifesto for Social Justice Conference (“EMSJ”) is contained in Annexure D to this Letter.

9 We call for an urgent meeting for the implementation of measures to address thisserious problem and for the holding of a Referendum on the EMI as a new PolicyFramework for South Africa based on the Principles of Economic Justice. We will sendyou the approved Economic Manifesto adopted by the EMSJ Conference to be held within 60 days on a date and venue to be announced in due course.

10We look forward to constructive engagement with the relevant structures of Government to ensure a framework for engagement is established to ensure that theabove matter is addressed as expeditiously as possible.

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Yours Sincerely

For The Institute of Economic and Social Upliftment (IESU) and People Engaged in Action for Change (PEAC) and the Organisations whose names are annexed in Annexure C to this letter

33

“As long as poverty, injustice and gross inequality persist in our world, none of us can truly rest.”

“Like Slavery and Apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the actions of human beings.

Sometimes it falls on a generation to be great.

You can be that great generation. Let your greatness blossom.

Of course the task will not be easy. But not to do this would be a crime against humanity, against which I ask all humanity now to rise up.

Make Poverty history. Then we can all stand with our heads held up high.”

– Nelson Mandela “Economic Apartheid is a crime against humanity.”

– Institute for Economic and Social Upliftment

Overcoming apartheid's legacy: the ascendancy of neoliberalism in South Africa's anti‐poverty strategy.

Fantu Cheru.

Â

Third World Quarterly, Vol V 22, No 4, pp 505–527, 2001

Overcoming apartheid’s legacy: g y the ascendancyy of neoliberalism in South Africa’s anti-poverty strategy FANTU CHERU A BSTRACT Poverty in South Africa is intertwined with a host of social and economic issues. The burden of poverty is exacerbated by limited access to basic services, poor housing, limited employment opportunities and inadequate infrastructure, which are an outcome of the terrible legacies of apartheid. During its first year in office, the ANC-dominated government officially endorsed a policy of ‘growth from redistribution’, whereby a strong state and a strong market were expected to serve as vehicles for generating growth and reducing poverty and q inequality.

By 1996, however, the government had embraced a standard neoliberal strategy as a central piece of o its anti-poverty strategy. This article examines the potential contradictions between what appears to be on the surface progressive social policy on the one hand, and on the other, r the implementation of aggressive neoliberal strategies of privatisation, liberalisation and deficit reduction to stimulate the economy m and create jobs. This heavy reliance on market-led solutions is a high risk strategy, since there exists no example internationally l where neoliberal adjustment of the sort championed by President Thabo Mbeki and Finance Minister Trevor Manual has produced a socially progressive outcome, especially in a country like South Africa, which is marked by extreme disparity and poverty. society, ‘first South Africa is a veryy unequal q y consistingg of a highly g y developed, p world’ sector on the one hand and an underdeveloped, p ‘third-world’ sector on the other. Racial and class differences g generally y coincide; most members of the wealthyy minority y are white, and most members of the p poor majority j y are black.. A closer examination of the South African Human Development p Index (HDI ) shows While the overall score for the country the depth p of these inequalities. q y is 0.63, whites score 0.878 while blacks score 0.462. Whites’ score on the HDI is roughly g y equivalent q p j y is similar to that of to that of Spain, while that of the black majority Congo-Brazzaville g (Friedman, 1998: 3–4). If I ‘white’ South Africa were a country, separate p y it would rank 24th out of 180 countries, while ‘black’ South A g to its Gini-coefficient, of 0.58 (which Africa would rank 123rd. According g q y South Africa is onlyy second to Brazil, which measures the degree of inequality), at 0.63 has the worst inequality among similar middle-income countries Fantu Cheru is at the School of International Service, American University, 4400 Massachusetts Avenue, NW, Washington, DC 20016, USA. Email: MalkomC@aol.com.

ISSN 0143-6597 9 print/ISSN / 1360-2241 online/01/ online/01/040505-23 / /040505-23 q 2001 Third World Quarterly DOI: 10.1080/01436590120071768 10.1080/01436590 / 120071768

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(Whiteford & McGrath, 1994; UNDP , 1997). This, said President Mbeki, ‘reprep sents a scale of human sufferingg and wretchedness which, byy anyy standard, is impermissible’.

(Mbeki, 1998: 143). This inequality, p q y historicallyy determined byy the apartheid p policies of the previous government, continues to be the source of p poverty today.

The scale and depth of poverty in South Africa Estimates of the incidence and depth p of p poverty y in South Africa vary. y Figures g have ranged to just g from over 56% of the p population p j over 36% living g in p poverty. y Roughly were livingg in poverty g y 53% of the South African population p p p y and earned less than R301 (or $50) a month in 1995 according g to the Reconstruction and Development Plan Office (Government of South Africa, 1995). Based on consumption expenditure levels consistent with the minimum level of food intake, which usuallyy defines the ‘absolute poverty’ p y level, it is estimated that about 40% p p may y be considered poor. p r This translates into 3 of the South African population p y line.

126 000 households or more than 18 million citizens living below the poverty g p but it is heavily y concentrated Povertyy is not confined to anyy one racial group, among black people: 61% of ‘Africans’ and 38% of ‘Coloureds’ are poor, compared with 5% of ‘Indians’ and 1% of Whites. In the 1990s ‘Africans’ still earned only 20% of what Whites earned. Looking at the expenditure shares, the lowest 40% of households account for only 11% of consumption, while the richest 10% of households account for over 40% of consumption. p Besides race, poverty in South Africa also has a gender dimension. dimension me n. Overall, the poverty rate among female-headed households is 60% compared with 31% p for male-headed households—underliningg the need to target g especially p y African women in welfare, job j creation, and trainingg and small business development p 1 programs. p g Of the eight to nine million regarded as completely destitute, the majority are women.

While roughly of South Africa is rural, the rural areas g y 50% of the ppopulation p who are poor.

These are contain 72% of those members of the total population p p p mostly y women with children. In addition, poverty p y is distributed unevenlyy amongg the pprovinces. Provincial p poverty y rates are high g for the Eastern Cape p (71%), Free State (63%), Northwest (62%), Northern Province (59%) and Mpumalanga p g (57%), and lowest for Gautengg (17%). Accordingg to the Povertyy and Inequality q y in South Africa f report p (1998), it would require q R28 billion merely y to increase the income of those South Africans living g below the p poverty y line to R353 p per month.

Fullyy 76% of this money would have to be spent in rural areas (Government of South Africa, 1998).

Following g the first democratic elections in 1994, the new African National Congress g ( ANC ) g government has p placed the need to address poverty and inequality firmly at the centre of its transformation agenda. This is reflected in the poverty audits that have been undertaken, as well as in the range of policy documents and strategies developed in the first five years of its administration.

President Mbeki has further reinforced this with his challenge to the nation to create ‘a caringg societyy without regard to race, color or disability.’ g y (Mbeki, 1999).

How the government is facing up to this challenge is the subject we now turn to.

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From RDP to GEAR: the ascendancy of neoliberalism Since 1994, the ANC g government has instituted numerous measures to rectifyy the legacies of apartheid.

The White Paper g p p on Reconstruction and Development p formed the overarchingg strategy to redress the economic legacies gy of government g g (Government of South Africa, 1996a). The major stated goals of the of apartheid p RDP were to: c eliminate poverty and inequalities generated by decades of apartheid; c raise living standards and develop human resource capacity; c address imbalances and structural problems in the economy and labour markets; c end discrimination in business; c establish a living wage; c address economic imbalances in southern Africa and develop a prosperous and balanced regional economy.

It was expected that the RDP would provide the impetus required for transforming public service activities and to direct expenditure towards the government’s development ppriorities. It set out an unequivocal set of targets 1). And q g (see Figure g indeed, in its two y years of existence, the RDP office, which was located at the major office of the Deputy p y President, registered g j accomplishments before the were ggovernment decided to terminate the programme p g in 1996. Most impressive p the connection of electricityy to 1.3 million homes and one million new water supply pp y connections (in both cases on strict commercial terms). The housingg department p claimed (in 1997) that some 193 000 houses were built, compared p with the 40 000 built in 1996. A p primary y school feeding g scheme to combat malnutrition amongg children was operating p g in 12 3000 schools, free medical care was available to p pregnant g women and children younger y g than six y years, and 297 new pprimaryy health care clinics were built in rural areas. Almost 500 p public for 30 000 works pprogrammes g were launched, providing p g temporary p y employment p y ppeople p while several hundred municipal upgrading projects were started in townships. p The RDP experiment p in demand-side stimulation, however, was soon replaced p with a supply-side pp y approach pp when the economic climate became unfavorable to sustain such an ambitious initiative. The RDP was therefore subsequently q y rearticulated in the form of the Growth, Employment and Redistribution Strategy p y (GEAR —Department p of Finance, 1996) and various sectoral White Papers. p Part of the reason given byy government was that the RDP functioned not as a developg g p designed to alleviate ment framework, but as an aggregation gg g of social policies p g poverty p y without affecting g the complex of economic policies and practices that reproduce poverty and inequality. y the ANC in For outside observers, the premature abandonment of the RDP by favour of GEAR mayy appear pp a sudden break from the past. p In reality, y however, the downshiftingg actually ideological g y dates back to the p pre-election p period (1990–94), – when the ANC leadershipp made a strategic g surrender on the economic Although political power was handed to blacks, economic policy followed front. A 507

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FIGURE 1 targets

RDP

c c c c c c c c

Creating 2.5 million jobs in 10 years; Building one million low-cost houses by the year 2000; Providing electricity to 2.5 million homes by the year 2000; Providing potable water and sewage systems to one million households; Redistributing 30% of arable agricultural land to black farmers within five years; Shifting the health system from curative services to primary health care, with free medical services at state facilities for children under six years and pregnant mothers; Providing 10 years of compulsory, free education, as well as revising the curriculum, reducing class sizes and instituting adult basic education and training programmes; Democratising and restructuring state institutions to reflect the racial class and gender composition of society.

the same neoliberal restructuring that began in the mid-1980s under the National Party of FW De Klerk. The prevailing view in government circles was that economic growth should be translated into redistribution of incomes and opportunities through appropriate social development programmes, economic emp y powerment and deliberate promotion of employment creation (Government of g the government g p to replicate p South Africa, 1998: 53). In so doing, hoped the successful experiences p g countries (NICs) of East Asia of the newlyy industrialising which had managed to reduce poverty and inequality drastically in a few short years.

Promoting economic development: macroeconomic stability A key step forward in establishing the macroeconomic framework was taken p g with the publication of the GEAR in June 1996. The GEAR , which the government has tried to present p policy y side of RDP, has largely g y focused as the macroeconomic p on attacking g structural inequalities q and eradicating g p poverty y through g market-led economic g growth and reprioritisation of government budget in favour of disadvantaged communities. The strategy emphasises the need for improved growth performance to sustain the government’s social and developmental programmes through fiscal discipline, monetary policy and the restructuring of state assets, in order to increase the competitiveness of the economy (Department of Finance, 1996).

The GEAR also emphasises the importance of redistribution in government expenditure priorities and the role of sectoral policies in meeting basic needs and improving services to previously disadvantaged people and the poor. It is widely believed in official circles that public spending channelled to employmentintensive activities can contribute to job creation, although this cannot address the entire shortfall in the labour market. Policies aimed at strengthening job creation in the private sector take time to bear fruit, but such market-related p y g of beingg self-sustaining. g employment has the advantage p permit a detailed critique q of GEAR (for this, see Bond, Time and space do not p 2000). Despite p attempts p byy its architects to p present it as a strategy gy more in line with the NICs model than with the much discredited ‘Washington g Consensus’, GEAR bears little resemblance to the state-led mixed-economy approach widely 508

OVERCOMING APARTHEID’S LEGACY

practiced in Taiwan, Singapore and South Korea. The government’s obsession with deficit reduction, containing inflation, restructuring state assets and tax reform has no direct bearing g on the achievement of GEAR ’s growth g and employp y ment targets. g Over the three-year p period 1996–98, virtuallyy all GEAR ’s targets g 2 were missed. For example, p GEAR p projected j that 650 000 jjobs would be created were lost. Its much between 1996–98, when in reality y about 300 000 jobs j massive increase in private investment has not materialised, and anticipated p p productivity p y increases have been hampered p byy the shortage of skilled people in both the p public and p private sectors (ANC, 1998b).

The Asian NICs, on the other hand, succeeded in reducingg poverty p y in the earlyy phase of their industrialisation, not byy relying p y g on market-led solutions alone, but byy putting on land reform, reducingg income inequalities, and investingg p g emphasis p q heavily y in education, and byy establishingg linkages between the rural and the urban economyy to redress unmet basic needs. In addition, the Asian NICs also pprotected their infant industries until they y had developed p a competitive p niche in exports. p p Wholesale privatisati on of state assets was avoided, and workers affected byy p privatisation were retrained instead of beingg retrenched, as is the case now in South Africa. Furthermore, exchange g controls were p put in p place. The effort in the initial y years had been on developing p g the ‘basic needs’ economyy before these countries embarked on production p for the export p market. In so doing, g they y achieved rapid economic growth without incurring high debts and high human costs. g g the cataclysmic y The above observation regarding failure of GEAR as the basis for South Africa’s ‘transformation’ strategy gy should be kept p in mind when examining g the viability y of the g government’s national anti-poverty p y strategy. gy It is safe to sayy from the outset that, in cases where clear social g gains have been of water supply registered g since 1994, (egg provision p pp y and education), these are the results of direct and concerted government g intervention (in the face of budget reductions) rather than an outcome of the magic of the market place.

Expansion of public sector investment spending in economic and social infrastructure y the government’s g In addition to liberalisation of the economy, macroeconomic framework provided for a marked acceleration in investment spending. This partly reflects the need for transport, energy and communications infrastructure y In addition, social infraassociated with increased trade and industrial activity. structure development—specifically p p y in housing, g water supply, pp y health and education—forms part p of the government’s g p g basic services commitment to providing and meeting the basic needs of the majority of the poor (Department of Finance, 1999).

On close examination, however, social infrastructure development has largely g been achieved not through the significant commitment of new resources in the g but rather through g the re-prioritisation p of the existingg budget allocations budget, and by relying more on market-driven delivery mechanisms. The expansion of public sector investment spending in economic and social infrastructure has focused on the following.

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Water supply and sanitation. Inadequate water supply and sanitation is seen by W the government as one of the major symptoms of poverty and underdevelopment While white areas have access to first-world standards of service, severely crowded townships p and rural areas lack basic essential services such as water and sanitation. According g to the Census, 55% of South Africans do not access water via an inside tap; the majority of these are in rural areas. Also, 12% of South Africans, mostly in rural areas, have no formal toilet facilities, with only half of households using flush toilets (Department of Statistics, 1998). Use of electricity for various purposes is very limited among black Africans and to some extent among Coloureds.

To address the backlog, a new Department of Water Affairs and Forestry was established in March 1994, assuming responsibility for providing water to communities. In the first five years of democratic government, the programme has brought basic water supplies to over four and a half million people. Projects are underway to increase this to seven million (out of an estimated initial backlog of 12 million). Pilot sanitation programmes, while not making nearly as large a dent on the similarly large sanitation backlog, have nevertheless produced a concrete strategy through the experiences of 250 local projects.3 Critically, these activities are conceived and executed as a local government support programme rather than as an independent central government intervention. This reflects the policy as well as the constitutional imperative, which recognises that responsibility for the provision of such service is best located at the local level (Department of Water Affairs, 1994; 1996). At the same time, the debate on the privatisation of water services has raised doubts about the sincerity of government commitment towards the poor.

A good example of the problem of water privatisation is the recent cholera outbreak in KwaZulu-Natal. Water supply cuts to people who were too poor to pay their accounts had resulted in the deaths of 32 people by 25 October 2000.

The number of cholera cases reported in the area has risen to 3711 and the number is rising daily at the time of this writing. Water was available free of charge in the Mpendle area in KwaZulu-Natal from the early 1980s after tap water supplies were laid on by the apartheid government following a severe drought. The free water supply was, however, terminated recently as a result of cost recovery systems implemented by the local water board in the area in accordance with the government’s GEAR strategy. The poor who could not afford to pay had to resort to polluted river water to meet their needs and this, according to the Ministry of Water Affairs and Forestry, contributed to the cholera outbreak.

In the wake of local government elections promised by the ANC , the Inkhatha Freedom Party and the Democratic Alliance Party have promised free access to basic services (van der Westhuizen, 2000). Whether this is pure political opportunism or a real commitment to provide basic services to the poor remains to be seen.

Housing. Accelerating the delivery of housing has been a major government priority since 1994. The White Paper on Housing provides a long-term framework for institutional arrangements, funding and delivery. The aim is to entice banks and developers into providing low-cost housing through subsidies and 510

OVERCOMING APARTHEID’S LEGACY

mortgage guarantees. The main state actor in this sector is the Department of Housing. Other actors include the Development Bank of Southern Africa (DBSA), the National Housing Finance Corporation, NGO s specialising in low-income housing projects, and commercial financial institutions. Implementation is largely concentrated in the private sector, with the Department of Housing playing a more limited overseeingg and monitoringg role.

However, large-scale deliveryy of housingg has not occurred because the policy g is market-driven, not people-driven, and is co-ordinated by bankers. The World Bank and the Urban Foundation—a corporate sponsored think-tank that went out y p y influential in the evolution of a of business recently—have been particularly market-driven housing strategy in South Africa (Bond, 2000). Since 1994 some 600 000 cheap houses eligible for government subsidy have either been built or are under construction, and about 25 000 have been completed. A further 250 000 housing subsidies had been granted for projected housing schemes by May 1998. This is a far cry from the one million low-cost houses that were envisaged under the RDP. On the whole, however, what passes now as housing policy is simply ‘toilets-in-the-bush’’part of a site-and-services pprogramme, in g addition to ggovernment subsidy y and loan gguarantee schemes. About 2.6 million houses are still needed for the roughly g seven million South Africans living in shanty settlements (Cheru, 1997: 229). profound failure of transition politics p It is not ppossible here to delve into the p in the housing g field, which can be traced back to the veryy hard ideological g p positions taken byy late apartheid p state agencies g and liberal capitalists, p and was exacerbated byy inadequate q and inconsisten t ANC staff attention, cemented through g the ‘coerced harmony’ y of the kind of bogus g social contract formation in the p period preceding p g democratic rule (Bond, 2000: ch 4). The social contract ruled out social housing g to ‘kick-start’ the economyy as an alternative, and instead focused on sites-and-services schemes and making credit available to the poor using market-based criteria. In some respects, the policy represented p a continuation of y in housingg that began g under the de Klerk era and the ‘deracialisation’ ppolicy whose aim was to evolve apartheid p racial segregation g g into class-based segregag g tion. The p policy y was largely g y drawn from the work done byy the Urban Foundation and the Independent p Development p Trust, which experimented p with site-andservices and low-income housingg credit schemes mediated by y the p private sector.

This strategy, gy however, did little to change g the geography g g p y of urban apartheid or the structural causes of poverty and homelessness in South Africa. T The ppost-1994 g ppolicy y has simply p y followed the same lines. And with the ascendancy of housing neoliberal strategy, gy the role of community yg groups p has been reduced.

Considering g the limits of the current market-driven housing gp policy, y the g government needs to invest directly y in a p public-sector housing gp programme, focusing on the poor without having g to rely on financial institutions. This can be achieved y if the g government enters the lower end of the market as a developer p and only provides rental stock for the marginalised sector for a specified period of time.

This would involve provision of rental stock with an option to take ownership by repayment of a loan portion; loans directly through the housing budget and/or indirectly through the National Housing Finance Corporation; or by increasing the amounts available for people in lower income brackets and decreasing the 511

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allowances for those in the higher income brackets.

The missed opportunities of an alternative development model based on a housing ‘kick-start’ become obvious when one examines estimates of the job j creation ability y of the low-income housingg pprocess. The most optimistic p scenario Commission has stated that for everyy R1 million done byy the National Manpower p are created. On the invested in the buildingg industry, y 186 new job j opportunities pp byy the Gautengg Provincial more conservative side, the scenario produced p Government assumes that, for one house built, 22 direct person-days p y and 21 indirect p person-days y are created.4 For example, p duringg 1996, 164 055 houses which resulted in 3.77 million direct person-days were built or completed, p p y and 3.45 million indirect p person-days. y If both totals are divided byy 254 workingg days, y this results in 13 671 direct jobs and 13 050 indirect jobs (Department of Housing, 1999).

Improving access to and q qualityy off education. The South African education system comprises 12 million students, and almost half a million staff. Education expenditure absorbs 26% of the total ggovernment budget, p g but inequalities q in were such that in 1993 the spending spending p g under apartheid p p g on whites was over three times that on Africans. Since 1994, however, South Africa has introduced free and compulsory p y education for 10 y years for all children. It is placing p emphasis on non-formal education and early childhood development. Other cornerstones of the education strategy include dismantling racial and geographical disparities in service provision (Department of Education, 1995). The re-prioritisation between government departments and functions is one way in which the government is addressing the legacy of under-investment in people and past discrimination (Financial and Fiscal Commission, 1998).

Table 1 demonstrates that overall the level of public spending on education is higher than that of other middle-income countries in terms of its percentage of total government expenditure and percentage of GDP . This has remained on average 22.6% (Department of Finance, 1999). About 46% of the total education budget is spent on basic education. In real terms, the increase in expenditure on basic education between 1995 and 1996 was 12.8% (Financial and Fiscal Commission, 1998: 42). At the same time, there are serious challenges related to the quality of education. Much of the school system suffers from poor management, high repetition and absenteeism, inadequate work effort and considerable deficits in basic infrastructure and support materials. This is despite the fact that a disproportionate share of public funds is being channelled to poorer schools. A related critical issue in the context of high unemployment, particularly among youth, is the critical need for training in vocational areas, which is not being urgently addressed.

Improving access to health services. Expenditure on health comprises about 8% of GDP, with 60% of funding from the private sector. The bulk of spending is on tertiary health care, with 20% of the total population on medical aid schemes.

Only about 12% of public sector health spending accounts for primary health care. The immunisation rate is also slow to increase. The quality of and access to health care facilities and provisions also differ by provinces (Department of 512

OVERCOMING APARTHEID’S LEGACY

TABLE 1 Consolidated national and provincial spending by function, 1998/99 to 1999/00 1998/99 (R millions)

As % of total

1999/00 (R millions)

As % of total

206 996

100.0

219 602

100.0

Social services

98 814

47.7

103 708

47.7

Education Health Welfare Housing and community development Other social services

46 347 23 220 19 262

22.4 11.2 9.3

48 532 24 036 19 817

22.3 11.7 8.9

8534 1431

4.1 0.7

9855 1469

4.1 0.7

Consolidated expenditure

Sources: Department of Finance, Budget Review 1999, calculated from Table 5.8, p 132.

Welfare, 1997a: 5).

The most important policy goal of the government has been to shift resources from tertiary and secondary to primary health care, resulting in greater proportional expenditure on primary health care clinics and less on provincial and academic hospitals. The District Health System is viewed as the key to the transformatio n of the health sector and for expanding services to rural areas.

Provinces are, therefore, instructed to make this shift in their budgets (Department of Health, 1997). The most notable achievement has been free health care services for expectant mothers and children under six years of age.

Similarly, the government’s HIV/AIDS initiatives, particularly those focused on poor communities have placed an emphasis on reaching women both for prevenpp dimensions of the programmes. p g tive, treatment and support One should not minimise the achievements made in the social sector since 1994. At the same time, however, a lot more could have been done in the initial y pp y to generate g years since there existed a ‘window of opportunity’ new revenues from the white middle class and the domestic private sector. Regrettably, p g y the ANC ggovernment was reluctant to levy y new taxes on the well-off segments g of societyy sector to finance massive social infrastructure projects for fear of and the private p T alienating these powerful forces. This would have been possible in the first three years following democratic rule, since most white South Africans were prepared to pay a one time ‘reparation/reconciliation tax’ for their past crime had the ANC government asked for it. It was a missed opportunity given the political climate of the time.

Indeed, in the initial years, a 5% RDP levy was imposed aimed at reducing the budget deficit and freeing funds for the RDP. In addition, a 1% payroll levy was imposed to fund skill development and training as part of an overall human development strategy (Department of Labour, 1997). But these were miniscule in comparison with what the government would have been able to collect had it g p g of time, however, and with the gone after the pprivate sector. With the passage f social forces (which now include the new black recomposition of powerful 513

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elites), the government g has bent over backwards to grant g tax and other incentives forces who benefited from the apartheid system.

This to the veryy capitalist p p y that the private sector should be the strategy gy is based on the flawed assumption p p engine for growth and for eradicating mass poverty in South Africa.

Employment creation Employment status is a key in South p y y determinant of ppoverty. y Unemployment p y Africa is veryy high g and is of a structural nature, mainly because of misallocation of resources in the apartheid economy. y The T unemployment rate is estimated at 30%, but goes up to 55% for black South Africans (Government of South Africa, 1998). Even though job creation is a priority in South Africa, the rate at which jobs can be generated is limited by overall economic considerations, a shortage of skilled workers and high unemployment among the unskilled. New entrants to the labour market have increased to around 450 000 per year, and will rise to 600 000 per year over the next decade (Department of Finance, 1999). This is where social development in welfare has to play a major role, combined with the provision of social security as a safety net.

Government and the constituencies of civil society represented in the National Economic Development Labor Council (NEDLAC ) reached an agreement during the Presidential Job Summit held in October 1998 to act in concert to create jobs and stable employment, as part of the broader strategy for providing a better life for all South Africans.5 The central objective of the government’s employment strategy is to increase the labour absorptive capacity of the economy. Under the auspices of the Department of Labour, a co-ordinated approach to the unemployment problem has been developed, focusing mainly on skill development, removing structural impediments to job creation and identifying key employment generating opportunities. Employment creation is, therefore, the aim of a range of industrial support policies, tourism promotion, small business development and agriculture support (see above).

Support for the small and medium business sector (SMME) The government is aggressively diversifying the economy by promoting rapid industrial development, tourism and small business development. The latter sector was suppressed in the apartheid era because the regime did not want this sector to develop and absorb labour in competition with the large mining industry. However, since 1990 the sector has started to evolve on its own as a result of economic decline in the formal sector and the dismantling of restrictive apartheid laws. As early as 1995 there were more than 800 000 small, medium and micro enterprises in South Africa, providing jobs for about 3.8 million people. Beyond this figure, other micro enterprises provide jobs for 3.5 million p (UNDP , 1996: 2). people The democratic g government has p put into p place measures to support pp the sector in a more formal way. y In 1996 it issued The White Paper p on National Strategy for Africa.. The the Development and Promotion of o Small Business in South Africa A Department of Trade and Industry ( DTI ) is responsible for promoting small 514

OVERCOMING APARTHEID’S LEGACY

business in the country. Two agencies—Khula and Ntsika—have been established to provide financial and expert support. Khula is an agency designed to assist small business through advice and mobilisation of resources. In its three years of existence, Khula has assisted 35 000 small, micro and medium enterprises through its micro finance programme. Its Credit Guarantee scheme assisted about 1000 small to medium businesses, creating 15 000 jobs. 6 The Small Business Development Corporation, one of several parastatals, also pprovides loans and equity q y investment to small business initiatives. These institutions have become vehicles for the p poor to access economic opportunities (Department of Trade and Industry, y 1995).

Land reform South Africa’s apartheid p past has left the country p y with a skewed land distribution ppattern, with far-reaching g social and economic consequences. q Therefore land reform constitutes a keyy component p g p strategy. gy of the government’s development p At the same time, it has proven to be a sensitive and difficult area to address given that most of the stolen land has since been reinhabited and developed. p The ggovernment’s land ppolicy y is based on three initiatives: land redistribution to poor p and disadvantaged g p people, p land restitution to p people p who were deprived p after 1913 because of racially discriminatory laws, and tenure reform (Department of Land Affairs, 1997).

The land redistribution programme is aimed at the poor, labour tenants, farm workers, women and emergent farmers. Applicants can obtain a Settlement/Land Acquisition Grant to buy and develop land, and the Department of Land Affairs provides planning funds of up to 9% of the grant. After a slow start, the programme has redistributed half a million hectares of land to some 200 000 beneficiaries. 7 The National Land Committee (NLC) says y that less than 1% of South Africa’s farmland has been redistributed to poor, black households. The target set by the ANC in 1994 was 30%.

Land restitution has turned out to be much more complex than was originally p g y realised (Department of Land Affairs, 1998: 17). The purpose of land restitution p p p is to compensate or restore land to people byy raciallyy discriminatoryy p p p dispossessed p legislation or practices after 19 Julyy 1913. The Restitution of Land Rights Act g p g (1994) ggave content to the cconstitutional right g to restitution. Of the 4000 land claims lodged g with the Land Claims Court, 27 have been settled in favour of claimants, involvingg 168 000 ha of land and about 70 000 people (Department of Land Affairs, 1998).

The third legg of the land policy, p y tenure reform, aims to p provide people p p with secure tenure where they live and to prevent arbitrary or unfair evictions. The major impact of the tenure policy has been on privately owned land, where some six million people are affected. These include farm workers, their families, and other people p livingg on land with the consent of the owner.

The Land Reform Act of 1996 provides secure tenure to one of the most p vulnerable rural groups—people g p —p p who are employed p y on the basis that their main remuneration is the right of land. As a result, the g to occupy py and farm a piece p unfair or unlawful evictions of labour tenants have virtually been halted, with u 515

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major j benefits to an estimated 250 000 people (Department of Land Affairs, Furthermore, the Interim Protection of Informal Land Rights Act of 1998: 16). F 1996 ensures that holders of informal land rights, mainly in the former homeland areas, are recognised as stakeholders in land transactions and development projects on the land theyy occupy. py Finally, secure tenure y the Extension of Securityy of Tenure Act (1997) provides p for people land in rural and p p p livingg on other people’s p p peri-urban areas, and applies human rights standards to the relationship between owner and occupier. Work has now been finalised on developing a national Land Rights Monitoring System to determine the impact of legislation, and the related support systems on the tenure security of farm workers and labour tenants.

Needless to say, in land redistribution has been far below than what y progress p g was envisaged g under the RDP. S Subject j to the creeping p g influence of the World Bank (through its policy advice since the early 1990s), the ANC -dominated ggovernment has pprogressively g y brought g its land policy p y in line with the marketdriven approach pp long g advocated byy the Bank. This is a strategic g mistake, since similar attempts p byy the World Bank in neighbouring g g Zimbabwe, Kenya y and other developing p g countries have done little to alleviate rural miseryy and mass disRural poverty location of peasants. p p y in South Africa is beingg accentuated further by a clear lack of a comprehensive rural development strategy. The overemphasis by the government and its multilateral supporters to transform South Africa in the image of the NICs of East Asia has resulted in the neglect of the potential contribution of rural development. p The ppicture that emerges g from the foregoing g g analysis y is that the ANC g government’s ppre-election social transformation agenda g has been severelyy compromised p because of the influence of powerful local elites closely tied to transnational capital. Rhetorically, attempts were made by the government to align GEAR with the socially progressive objectives of the RDP . In reality, however, a tightly controlled macroeconomic balance—deficit reduction, keepingg inflation low, pprivatisation, tax cuts and phasingg out exchange g controls—has taken precedence p over redistribution. This has resulted in serious internal contradictions. The social infrastructure was to be expanded while public sector spending was drastically reduced. Job creation was presented as a significant objective while deficit reduction would require the shedding of hundreds and thousands of public sector jobs.

Despite p these contradictory y tendencies and p persistent criticism from organised labour, the government has vowed to stay the course. In a three-day consultation convened in Pretoria by President Thabo Mbeki in early November 2000, where World Bank President James Wolfenson and the Deputy p y Director of the IMF pparticipated, p both the Bank and the IMF g gave a ‘thumbs-up’ p to the government’s g macroeconomic policy and advised it to intensify the pace of the reform. The government was further encouraged to repeal the labour law to make the y competitive p g investment into the economy in world markets and to attract foreign y The argument g was that South Africa’s competitiveness p p by y country. is hampered high g labour costs. When implemented, p policy y is likelyy to result in the the p dismissal of thousands of workers while lowering wage rates and accentuating the problem of poverty in the country.

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Welfare, social security and pro-poor social expenditure Since 1994 the new democratic government has devoted large sums of money to the social sector, mainly through the re-prioritisation of the budget. However, this still needs to be monitored closely to ensure that programmes are well designed and well targeted to make a difference to the lives of the beneficiaries. Large expenditures on social programmes through increased taxes on the wealthy and through This is because g other means did not happen pp as initiallyy anticipated. p concern for inflation and fiscal pprudence have taken p precedence over any frontal poverty attack on mass unemployment, p y p y and homelessness.

The national anti-poverty for the p y strategy gy includes a broad range g of support pp provides a policy framework within ppoor. The White Paper p on Social Welfare W f which this commitment is being realised. Welfare services comprise a wide range of developmental and community-based functions (comprehensive systems of social services, facilities, programmes and social security), including support for the non-governmental welfare sector (Department of Welfare, 1997b). Welfare financing at present is based on a subsidy system in which the government is considered to be a funder of services and not a purchaser of services. p Targeting people programmes occurs in a varietyy of ways. g g poor p p p for government g p g y Three types and socioeconomic yp of criteria are utilised: location, population p p characteristics. Povertyy relief programmes tend to target p g g rural and urban areas that have a high of p g prevalence p poverty y (eg g the Co-ordinated Municipal p Infrastructure Programme, Communityy Rural Water Supply Clinic g pp y Programme, g Building Programme, etc) (Department of Finance, 1999: 123–124) 123–124). The programmes focus on women, children, youth and the aged—groups considered vulnerable to poverty. Some programmes are based on means tests such as social grants and the housingg subsidyy (Department of Welfare, 1998: 24). p In some instances, the government has opted for universal coverage g p g over targeted coverage, g g ie of those where social returns from providing p g a particular p service are high.

This is true for basic education, primary g p y nutrition and health care, maternal and child health care, and immunisation. Anyy individual in the public school system where the programmes exist can access them. Similarly, p y p g y where there are significant spillover effects from a benefit, universal coverage g p has been opted for, eg old-age pensions.

In addition to government institutions, the welfare sector in South Africa has a g large institutional infrastructure rooted in civil society. It is estimated that there are up to 10 000 organisations of civil society with a welfare and development focus. The government recognises the need to broaden the scope of partnership with the non-governmental welfare sector, particularly the current ‘unfunded’ welfare sector where historical imbalances still exist. The National Development Agency, which will assume the work of the Transitional National Development Trust, will channel government funds to organisations for programmes aimed at meeting the development needs of the poor and to strengthen their organisational and institution-building capacity (Department of Finance, 1998: 55).

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Special employment programmes The government has put in place labour-intensive infrastructural and special employment programmes intended to enable quick job creation, particularly for people who are at the low end of the labour market. These include ongoing capital projects and maintenance expenditure by government and public corporations on roads, telecommunications, regional water networks and electrification (Department of Finance, 1998: 46). The bulk of the funding goes for housing (R3.2 billion) and the Consolidated Municipal Infrastructrue Program ( CMIP) (about $700 million). Labour-intensive programmes include: c The CMIP, which provided grants to local authorities for bulk infrastructure works in low-income neighbourhoods and housing projects; c The Community Based Public Works Programme (CBPWP) of the Department of Public Works, which provided mainly rural road maintenance and other local infrastructure needs; c The Working for Water programme of the Department of Water Affairs and Forestry, which clears alien vegetation in water catchment areas; c Rural Water Supply and Sanitation, which provides water services to formerly under-served communities; c Support for social development and income-generating projects of nongovernmental organisations and community-based organisations through the Transitional Development Trust and the National Development Agency.

Through its Flagship Programme, the Department of Welfare provides economic development support to unemployed women and their young children living in rural areas. In 1998, 15 pilot projects were under the implementation phase in eight provinces. Participants earn two to three times more than they would have received in social security grants (Department of Welfare, 1998: 24).

According to the 1998 Medium-Term Budget Policy Statement, special employment programmes accounted for 300 000 jobs and were expected to add another 100 000 jobs over the period ending 2001. These programmes together created 50 000 temporary jobs, largely in poor communities. The 1999 Budget included R3 billion linked directly to job creation programmes (Department of Finance, 1998: 47). Much of the government’s employment creation projects have explicit training components, and are aimed at strengthening small businesses and community organisations and will make lasting contributions to local infrastructure. It will take several more years to assess the actual impact of these programmes on the gground. g The ggovernment believes that p public spending p g channelled to employmentp y intensive activities alone cannot address the entire shortfall in the labour market.

Policies aimed at strengthening g g jjob creation in the private p sector, although g takingg longer g to bear fruit, have the advantage g of being g self-sustaining. g Put simply, py liberalisation and deregulation of the economy should be carried out further with greater intensity.

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Social grants Social assistance in the form of grants g remains one of the most extensive forms of redistribution in South Africa. The Department of Welfare has ended legal disparities by race, changed access to grants and established a unified administrative system at the provincial level. Social grants are provided to over three million beneficiaries, representing of poor p g income support pp to a large g proportion p p p households. Social securityy absorbs 90% of the total welfare budget.

Social g safetyy net for the poorest households particularly ggrants pprovided an important p p p y in can be used as collateral, infuse cash in rural the rural areas. Social pensions p sensitive. Overall, social grants have been found to be well areas and are gender g g targeted and decrease poverty and inequality (Department of Welfare, 1997a: 7).

The government is presently reorientating programmes and resources to support developmental income-generating programmes, promotion of familycentred and community-based programmes for children, youth and people with disabilities. The goal of the budget and programme re-prioritisation exercise is to use resources efficiently in order to reach out to as many poor people as possible.

Poverty Relief Fund The main source of funding for the anti-poverty plan is through the budget, broadly as indicated in the public expenditure review above. There is, however, funding which is earmarked for specific poverty relief programmes above and beyond broad programmes targeted at meeting basic needs. In the 1994/1995 FY the government allocated funding through the RDP fund. This funding was earmarked for targeted spending on the most pressing poverty-related problems.

An important component of this funding was the R250 million allocated for community-based public works programmes.

In 1997 the Minister of Finance allocated R300 million for special anti-poverty programmes. A further R203m has been allocated for the 1999–2003 budget years. Of this fund, R50 million was allocated to the Department of Welfare to support community-based social development projects. As a result of the success of this initiative, the Department of Finance allocated R800 million toward a multi-year Poverty Relief Fund (Department of Finance, 1998). This is over and above the money allocated to other sectors of the social services in the welfare budget.

Table 2 indicates round figures of funds which were allo cated by the Department of Finance to poverty relief in different financial years. The purpose TABLE 2 Poverty Relief Fund Programme Poverty relief

1997/98

1998/99

1999/00

R300 million

R500 million

R1 billion

Sources: Compiled from Annual Report of Social Welfare and the 1999 Budget Review, Department of Finance.

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of the fund is to allocate money to local projects on the recommendation of provincial welfare departments, and to national projects in collaboration with national departments and NGO s in the welfare sector. In addition to funding in these areas, a certain component of the fund will be utilised for building the capacity of NGO s and community-based organisations involved in preventative and early intervention services, eg, HIV /AIDS counselling services for young people in rural villages and towns, which do not have adequate access to welfare services (Department of Finance, 1998).

Housing subsidies The ggovernment allocates housingg subsidies to poor households with an income p less than R1500–R3000 – a month. The maximum amount of the subsidyy is R16 000 and decreases as the level of income increases. The subsidyy can be utilised to achieve single g home ownership. p In reality, y however, most people p p receivingg this subsidy y are not able to access bank loans to topp upp the R16 000 because of high qualification criteria of the banks, such as g interest rates and the stringent g having secure regular employment.

Subsidies are also available to builders in projects controlled by provincial committees. This is designed to entice builders into social housing projects, which they are unlikely to otherwise undertake.8 Yet fewer than 20% of houses built under the subsidy scheme were linked to the R16 000 subsidy scheme for individuals (Department of Housing, 1996). Given the cost of administering a large portfolio of small loans, it should not be surprising that the banks do not favour low-income mortgages. As profit-orientated companies, their rate of return is much higher when they service fewer, larger loans. In light of this, a mechanism such as a Community Reinvestment Act is needed to compel banks to make available loans to low-income customers (Bond, 2000: ch 4).

The Child Support Grant The Welfare Laws Amendment Act, which was passed in December 1997, ushered in the new Child Support Grant over a five-year period. This grant replaced the State Maintenance Grant, which exclusively targeted White, Coloured and Indian households during the apartheid years. The Child Support Grant programme, which became effective on 1 April 1998, is a cash transfer to poor families to care for young children under seven years of age. It is intended to supplement the cost of rearing young children, particularly in rural areas. The grant is targeted at three million children and is means tested in order to reach the poorest children. The objective for FY1999/2000 is to reach 500 000 children with payments. Co-operation with NGO s such as the South African National Civics Organisation (SANCO ) has borne fruit in increasing the uptake of the grant (Department of Welfare, 1999: 3). The Child Support Grant must be viewed within the wider context of the government’s efforts to reduce poverty in the country.

In summary, the central theme of South Africa’s welfare policy is social development—a process through which members of society can increase their 520

OVERCOMING APARTHEID’S LEGACY

individual and institutional capacities to mobilise and manage resources as well as produce sustainable improvements in their quality of life, consistent with their aspirations. Central to this approach is the recognition that, while there is a need to address the symptoms of poverty through material relief/grants, sustainable development strategies are those that focus on building institutional capacity to address structural conditions. While the focus on economic growth is commendable and inevitable, the heavy reliance on market forces to redress the legacies of apartheid is misguided and unsustainable in a society marked by extreme inequality and poverty. The gulf between the government’s macroeconomic policy and its social policy is glaringly apparent.

The financing of the national anti-poverty plan The bulk of the funding for the national anti-poverty strategy occurs through the regular budget, while added support comes through the Poverty Relief Fund. The government’s approach is that the needs of poor people must be met through the re-prioritisation of the budget towards the provision of basic needs, support for job creation strategies that encourage labour-intensive employment and SMMEs, and measures that enhance the competitiveness of the economy.

A primary tool used by the government is the re-prioritising of state expenditure, thus moving the budget towards reconstruction and development. One of the core elements of the GEAR strategy is a renewed focus on budget reform to strengthen the redistributive thrust of government expenditure. To give effect to this, the government embarked on a significant budget reform process, which was to assume a central role in its development plans; it introduced a three-year rolling expenditure plan known as the Medium Term Expenditure Framework (MTEF). The policy statement tabled in parliament in November 1998 outlined the division between national, provincial and local government for the next three years, and set out broad medium-term expenditure projects.

Aiming to assess how reconstruction and development could be addressed through the budget and the re-prioritisation of expenditure, a comprehensive review of six spending functions was undertaken: education, health, welfare and social security, infrastructure investment, the integrated justice sector and personnel spending. The reviews also sought to ensure greater effectiveness of donor support in strategic areas. These included: job creation against the background of a broad range of policy commitments; strengthened infrastructure investment in areas such as electrification, transport, water, telecommunications, etc; improving performance in the integrated justice system—Justice, Police and Correctional Services; enhancing the quality of education, reforming provincial education spending, with particular emphasis on increasing capital expenditure, and skills development; improving health services; and strengthening welfare and social security.

Institutional arrangements for implementation of the National Anti-Poverty Plan All government functional departments are responsible for implementing the 521

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national anti-poverty programme. The Co-ordination Implementation Unit (CIU) located in the Office of the President is responsible for programme co-ordination.

It does this through the Chief Directorate of Intergovernmental Co-ordination.

The CIU , which is coordinated by the Minister of Welfare, chairs the Interdepartmental Committee on Poverty.9 The Minister of Welfare also chairs the Cabinet Committee on poverty reduction. The committees are supported by technical task teams, which comprise the top management of the various ministries.

Cross-departmental co-ordination is facilitated through inter-departmental committees, which are structured along clusters, eg social sector, economic sector, and intergovernmental relations (Presidential Review Commission, 1998).

In addition to the policies and programmes implemented by the line function departments, some are the responsibility of the provincial and local spheres of government as set out in the 1994 Constitution.

A major challenge for the national anti-poverty plan is co-ordination across departments and among the three spheres of government through effective intergovernmental relations, institutions and mechanisms. Where concurrent power exists, national government sets norms and standards in consultation with the provincial sphere of government. The National Council of Provinces (NCP) is the institutional mechanism through which provincial government participation is effected in the legislative process. Through its proximity to grassroots linkages, infrastructure investment projects, local economic development strategies, partnerships with the private sector and integrated development plans, local government is believed to be the public service agency best able to have a direct and enduring impact on the lives of citizens.

Intergovernmental co-ordination A system of intergovernmental fiscal relations exists to ensure that all spheres of government are allocated sufficient funds from the central government to carry out their mandates. Revenues collected at the national level are then allocated to p g grants g other spheres of ggovernment through allocated on the basis of a formula.

The pprovinces g generate only y 5% of their revenue needs and receive the other 95% in the form of unconditional and conditional transfers from national g government (Department p of Finance, 1999). The Constitution requires that several factors should be taken into account. These factors include the level of development of the province and extent of need for basic services. Expenditure allocation among the three spheres of government attempts to carry through the logic of the anti-poverty plan.

Local governments and municipalities are seen as having an important role to play in the implementation of the Anti-Poverty Plan. The 1994 Constitution grants extensive legislative power to the provinces, ranging from key service delivery functions such as education, health and welfare, to more facilitative function such as town, regional and district development planning. They are expected to play both a planning and developmental role (Ministry of Provincial Affairs and Constitutional Development, 1998). The White Paper on Local Government (1998) established the basis for a new integrated and developmental local government system, which is committed to working with citizens, groups 522

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and communities to more effectively meet their social and economic needs.

Despite the devolution of power to local governments, however, many provincial and municipal structures have struggled to find their feet. Severe capacity constraints are one reason, exacerbated by conventional executive–legislature relations and dynamics. This situation has allowed corrupt local politicians to siphon off taxpayers’ money for their private ends. In the Eastern Cape, for example, 10 out of 14 provincial departments, responsible for 97% of the budget, failed to submit proper accounts for 1998–99 to the auditor-general. 10 Strengthening the capacity of local governments for poverty reduction, therefore, remains the Achilles hill of transformation. This is particularly true in the case of the poorest provinces—Eastern Cape and Northern province—where such capacity is woefully lacking because of the integration of former ‘homeland’ civil servants in the new local government structures.

Scope for civil society participation in poverty reduction At the community level, depending on the nature of the programme, efforts have been made to incorporate mechanisms which enable poor people to play an active role in deciding how the benefits from programmes are distributed. For example, in the community-based public works programmes, communities often set up committees to manage the programme. The committee, in conjunction with other structures, determines what infrastructure should be built and where, what the employment criteria should be, what wages should be paid, and how many days/hours different people should work in order to spread the benefits of the programme to as many households as possible. Similarly, with the Community Water and Sanitation programmes, communities could through their Water Committees influence the location of taps and methods for determining payments and managing the water supply.

At the level of macro-policy, however, the influence of the most disadvantaged segments of the population is often limited. The one exception was the National Speak Out on Poverty Hearings (March to June 1998) convened by the Commission for Gender Equality, the South African Human Rights Commission g and the South African NGO Coalition. The Povertyy Hearings g provided p ap platform for ppoor ppeople p in South Africa to share their perspectives p p on what economic and social rights g p in meant for them, the obstacles and difficulties theyy experienced gaining access to these rights, their suggestions for overcomingg these obstacles, 11 and the role of government in promoting g p g their rights. g Generally, y however, isolation from the limited access to media, low education levels and g geographic g p centres of g government, not to mention constraints of time and money, preclude meaningful participation among much of society in policy decisions.

Risks and threats to the national anti-poverty strategy The success of the national anti-poverty strategy will depend on the capacity of the government to manage the following threats effectively.

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Unsustainable economic policy The sustainabilityy of a market-led strategy gy for fighting g g structural poverty p y and economy inequality q y in the context of a volatile global g y is widely questioned, not of the world. The GEAR strategy onlyy in South Africa, but also in other parts p gy of rapid p liberalisation of the domestic economyy and the abandonment of financial controls effectively y rendered GEAR hostage g to the vagaries g of finance capital. p Byy allowing g uncontrolled p penetration of domestic financial markets by y foreign g capital p and encouraging g g the migration g of local capital, p patterns of investment are p swept p out of the ambit of government g p y The lessons of the East Asian crisis policy. and the effect of financial contagion g y g are excellent on South Africa four years ago reminders of the importance p of financial control and the need to avoid indiscriminate liberalisation of the domestic market. The South African stock market crashed by 40% between April and September 1998; the currency dropped 30% over a few weeks in between. To avert the slide, the Reserve Bank raised the interest rates by 61%, the highest real level in South Africa’s modern history (Bond, 1999: 7). Moreover, as South Africa is heavily integrated into the global economy, slower world growth will have a serious impact on the economy through both weaker export prices and volumes and a more cautious investment environment (ANC, 1998a).

HIV V/AIDS

The high prevalence of HIV among large segments of the South African population presents a new challenge to the government’s anti-poverty strategy. Its effects on the human development prospects of South African citizens are already massive, and if not seriously addressed, will be traumatic (UNDP , 1998). In the absence of anyy major j breakthrough g in counteringg HIV infection or curingg the disease, AIDS will significantly g y affect future mortality, y familyy structures, labour market participation and demands on health and welfare services. Unless the disease is checked, one in every four citizens is expected to be HIV-positive by the year 2010 (UNDP , 1998).

Crime A third threat eroding g the ability y of the poor to utilise all their assets in an efficient and productive manner is crime. South Africa has a high incidence of all forms of violent crime, pparticularly y ggender violence, which affects women of all races. Although g it affects both rich and poor, black women in poor communities are most at risk of gender violence. The incidence of reported rapes has increased steadily since 1994.12 The high levels of violence also affect children, both directly, y as victims of crime and abuse, and in terms of psychosocial trauma. The risingg p y level of crime is severely y testing g the g government’s capacity p y to p provide its citizens pressure on welfare, health and with a sufficientlyy secure environment and puts p p education systems while threatening the integrity of family and community structures. In 1996, the National Crime Prevention Strategy was introduced to strengthen public and international confidence in the government’s capacity to deal 524

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with the levels of crime. As long as unemployment and poverty remain high, however, the crime situation is likely to get worse before it gets better.

Concluding observations The efforts of the South African government to generate economic growth and reduce poverty through market-led solutions are commendable, and even desirable in the context of globalisation.

However, in a South Africa marked byy g and poverty, strategy extreme inequalities q p y the most appropriate pp p gy to follow would in order to establish the basic foundations have been a mixed economy y approach pp for long-term development through of basic services and the g p g the provision p redistribution of income. The Asian NICs succeeded in reducingg p poverty y in the earlyy pphase of their industrialisation not by y relying y g on market-led solutions alone, and but byy pplacing g emphasis p on land reform, reducing g income inequalities q investingg heavily y in education, and by y establishing linkages between the rural and the urban economy to redress unmet basic needs.

Unlike South Africa, the Asian NICs also p protected their infant industries until Wholesale privatisation theyy had developed p a competitive p niche in exports. p p of state assets and indiscrim inate liberalisatio n of the domestic market were avoided, and workers affected by yp privatisation were retrained instead of beingg retrenched, as is the case now in South Africa. The effort in the initial years y was on developing p g the ‘basic needs’ economyy before these countries embarked on pproduction for export p markets. In so doing, g they y achieved rapid p economic growth g without incurringg high g debts and high g human costs. The NICs’ past p development p experience, p and their sudden trouble in 1997, should be instructive for policy p makers in South Africa as they try to navigate the cold currents of globalisation.

Second, given the myriad policies, programmes and initiatives on poverty p y that p g are under implementation byy the South African government, it is essential to establish an effective mechanism for assessing g overall impact p and to ensure that pprogrammes g are well designed g and well targeted g to make a difference on the gground. However, no system y exists to provide p p and integrated g a comprehensive ppicture of what the impact p of the various initiatives is on the overall reduction of poverty and inequality. Some government departments may have internal monitoring and evaluation mechanisms, designed to inform them how well they are meeting they their g the targets g y have set for themselves. But how well the is not clear. individual success and failures compare p to those of other departments p Finally, y it is off p paramount importance p that g government and civil society y institutions involved in the implementation p of p poverty y strategies have robust internal systems for managing and evaluating performance. Equally important is the calibre of human resources deployed to co-ordinate programmes and interface with stakeholders at both local and national levels. This is especially p y true in the case of the poorest provinces—Eastern Province—where —Eastern Cape and Northern Province— such capacity is lacking because the integration of former ‘homeland’ civil servants into the new local government structures. The central government must g g the pperformance of p invest heavilyy to improve p public institutions in these two pprovinces, if the delivery of services to the poor is to be handled efficiently and in a timely fashion.

525

FANTU CHERU

References African National Congress (1998a) The global economic crisis and its implications for South Africa, Discussion Document, Alliance Summit, Johannesburg, 24 October.

African National Congress (1998b) The state, property relations and social transforma tion, ANC Discussion Document reprinted in African Communist, 4th quarter.

Bond, P (1999) The ‘Washington Consensus’ : winning or waning?, Southern Africa Report, March.

Bond, P (2000) Elite Transitions: From Apartheid to Neo-liberalism in South Africa (London: Pluto Press).

Cheru, F (1997) Civil society and political economy in South and southern Africa, in: S Gill (ed), Globalisation, Democratisation and Multilateralism (Basingstoke: Macmillan and United Nations University Press).

Commission for Gender Equality, the South African Human Rights Commission and the South African NGO Coalition (SANGOCO), Poverty and Human rights, National Speak Out on Poverty Hearings, March to June 1998.

Declaration of the Presidential Job Summit (1998) convened by President Nelson Mandela, 30 October 1998.

Department of Education (1995) White Paper on Education and Training (Pretoria: Government of South Africa).

Department of Finance (1996) Growth, Employment and Redistribution Strategy (Pretoria: Government of South Africa).

Department of Finance (1998) Medium Term Budget Policy Statement 1998 (Pretoria: Government of South Africa).

Department of Finance (1999) Budget Review 1999 (Pretoria: Government of South Africa).

Department of Health (1997) White Paper for the Transformation of the Health System in South Africa (Pretoria: Government of South Africa).

Department of Housing (1996) Housing Facts (Pretoria: Government of South Africa).

Department of Housing (1999) Job Creation in the Building Industry: Establishment of a Calculation Method, draft report.

Department of Labour (1997) Green Paper on Skills Development Strategy for Economic Growth in South Africa (Pretoria: Government of South Africa).

Department of Land Affairs (1997) White Paper on South African Land Policy (Pretoria: Government of South Africa).

Department of Land Affairs (1998) Annual Report 1998 (‘Director General’ s Report’) (Pretoria: Government of South Africa).

Department of Statistics, Statistics South Africa 1998 (Pretoria: Government of South Africa).

Department of Trade and Industry (1995) White Paper on National Strategy for the Development and Promotion of Small Business in South Africa (Pretoria: Government of South Africa).

Department of Water Affairs and Forestry (1994) Water and Sanitation Policy White Paper (Pretoria: Government of South Africa).

Department of Water Affairs and Forestry (1996) White Paper on Water Supply and Sanitation Policy (Pretoria: Government of South Africa).

Department of Welfare (1997a) Social Welfare Services in South Africa, Annual Statistical Report 1996/1997 (Pretoria: Government of South Africa).

Department of Welfare (1997b) White Paper on Social Welfare (Pretoria: Government of South Africa).

Department of Welfare (1998) Annual Report 1997/8 (Pretoria: Government of South Africa).

Department of Welfare (1999) Parliamentary Briefing by the Minister of Welfare and Population Development (Pretoria: Government of South Africa).

Financial and Fiscal Commission (1998) Public Expenditure on Basic Social Services in South Africa (Pretoria: Government of South Africa).

Friedman, S (1998) Addressing the knowledge gap—donor assistance and poverty alleviation in South Africa, analysis prepared for Department for International Development, July.

Government of South Africa (1995) Key Indicators of Poverty in South Africa (Pretoria) Government of South Africa (1996) White Paper on Reconstruction and Development (Pretoria).

Government of South Africa (1998) Poverty and Inequality in South Africa, Office of the Deputy Vice President, Pretoria.

Mbeki, T (1998) Africa—The Time Has Come (Cape Town: Mafube/Tafelberg).

Mbeki, T (1999) State of the Nation address to Parliament, 25 June.

Ministry of Provincial Affairs and Constitutional Development (1998) The White Paper on Local Government (Pretoria: Government of South Africa).

Presidential Review Commission (1998) Developing a Culture of Good Governance: Report of the Presidential Review Commission on the Reform and Transformation of the Public Service in South Africa (Cape Town: Government Printer).

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OVERCOMING APARTHEID’S LEGACY (1997) Human Development Report 1997 (New York: Oxford University Press).

(1996) Program Support Document for the National Strategy for the Development and Promotion of the Small, Medium and Micro Enterprises (SMME) Sector (Pretoria: undp).

UNDP (1998) HIV/AIDS & Human Development in South Africa, 1998 (Pretoria: undp). van der Westhuizen, C (2000) Supply cuts caused cholera, Beeld, 25 October.

Whiteford, A & McGrath, M (1994) Inequality and the Size Distribution of Income in South Africa, Stellenbosch Economic Project, Occasional Paper No10.

UNDP UNDP

Notes A longer version of this article was submitted to UNDP as a background paper to the global report on poverty, Overcoming Extreme Poverty (UNDP, New York: 2000).

1 Statistics South Africa figures, using the 1995 Income and Expenditure Survey; and Government of South Africa (1998).

2 Annual GDP growth fell from 3.2% to 1.7% to 0.1% percent in 1996, 1997 and 1998, instead of the strategy’s projection of 3.5%, 2.9% and 3.8% growth. The rate of increase in private sector investment fell from 6.1% to 3.1% to a negative –0.7% in 1996, 1997 and 1998, instead of rising by 9.3%, 9.1% and 9.3%, respectively. Of private investment, virtually all foreign direct investment was related to the purchase of existing assets through privatisation as opposed to new plant and equipment.

Exports of South African products (other than gold) rose slowly in 1997– 98 (5.3% and 2.1%, respectively), confounding GEAR projections of 8% and 7%. Interest rates remained in double digits from 1996–98 (instead of falling from 7% to 5% to 4%, as GEAR hoped) and the value of the rand collapsed. National Institute for Economic Policy, NGQO! An Economic Bulletin, 1 (1), http:\\ www.niep.org.za\, pp 1–3 3 Interview with Mr Mike Muller, Director General, Department of Water Affairs and Forestry, Pretoria, 6 September 1999.

4 The number of direct and indirect jobs created per year is calculated by dividing the number of direct and indirect person-days created by 264 working days per year.

5 Declaration of the Presidential Job Summit (1998).

6 Personal communica tion with Dr Patrick Kohlo, Chief Director, Centre for Small Business , Department of Trade and Industry, and with Dr Thami Madinane, Khula Enterprise, Mid Rand, 26 August 1999.

7 Interview with Dr Geoff Budlender, Director General, Department of Land Affairs, Pretoria, 6 September 1999.

8 Interviews with Dr Denis Barnard, Director General and Mr Karsen, Deputy Director General, Department of Housing, Pretoria, 9 September 1999.

9 Interview with Mr Pundy Pillay, Deputy Director General, Office of the President, (Pretoria , 26 August 1999; and interview with Ms Julia De Brun, Focal Point for the Poverty Programme, Office of the President, Pretoria, 30 August 1999.

10 The problem of growing corruption was the subject of an article in the 28 April 2001 issue of The Economist, ‘South Africa, trouble, trouble’, pp 45–46.

11 Commission for Gender Equality et al (1998).

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Â

Neoliberalism and the Political Economy of the "New" South Africa.

Paul Williams and Ian Taylor

New Political Economy, Vol. 5, No. 1, 2000

Neoliberalism and the Political Economy of the ‘New’ South Africa PAUL WILLIAMS & IAN TAYLOR

South Africa’s relatively smooth transition from the institutionalise d racism of apartheid to a universally franchised democracy was, from any perspective, remarkable. Even the most astute political pundits would have struggled to predict the process which would see Nelson Mandela and the African National Congress (ANC) dominate a Government of National Unity (GNU) less than a decade after the traumas of the states of emergency of the 1980s.1 In this sense, g in the ‘new’ South Africa. However, this article is more much has changed concerned with what has stayed the same and why.

We believe that the economic continuitie s evident in so-called post-apartheid South Africa are just as interesting, and perhaps even more fundamental, than the more celebrated and obvious constitutiona l changes.

The article examines g one signi cant g part of the p p process that altered the economic trajectory j y of the ANC from being g broadly y social democratic,, to the conservative, neoliberal position it advances today. p y In pparticular, our interest lies in understandin g how the ANC’s de nition of what constituted ‘good’ g economic p policy y underwent a articulated during the liberation dramatic transformation from the promises p struggle, to the policies pursued via the GNU. We believe that the international discourse of neoliberalism has played a crucial, and often underestimated, role in this pprocess. After outlining g what we mean byy neoliberalism , the article charts of how the major j shifts in the ANC’s economic p policy y and offers an explanation p these shifts occurred, with p particular reference to the role that the neoliberal discourse played in delegitimisin g alternatives and sti ing debate during the transition.

De ning neoliberalism Neoliberalism as an ideology gy did not emerge g from a historical or p political vacuum. The neoliberal p point of view had to be activelyy disseminated byy an array y of social forces, institution s and intellectual agents. g Byy the early y 1980s, as Roger g Tooze has argued, g neoliberalism had achieved ‘a special p status in society: y [ it was] taken to represent p the reality y of the global economy, against which other views … [were] judged and evaluated’.2 But this had not always been the case.

Paul Williams & Ian Taylor, c/o Department of International Politics, University of Wales, Aberystwyth, Ceredigion SY23 3DA, Wales, UK. ISSN 1356-3467/00/010021-2 0 Ó 2000 Taylor & Francis Ltd

21

Paul Williams & Ian Taylor After the devastation wrought by World War II, ‘embedded liberalism’ represented the orthodox stance in Western economic debates. 3 Indeed, during the late 1960s, proponents of neoliberalism were still derided as ‘stupid’ and in danger p g 4 g society y down the ‘road to reaction’. In short, neoliberalism as a of leading project p j had to be actively y p promoted by y an array y of actors in speci c p historical contexts. In this sense, its rise to dominance was neither natural nor inevitable.

We label this discourse neoliberal to emphasise p how the contemporary p y articulation of this orthodoxy y shows a blatant disregard g for the traumatic social consequences q which arise from the imposition p of unfettered market-logic g to the international realm. By y contrast, the classical liberal theorists such as Adam Smith exhibited a concern for the well-being g of society as a whole which is lacking from the chief exponents of neoliberalism . Today’s disciples of this p discourse seem happy ppy to live in what J.K. Galbraith called a ‘culture of contentment’ in which those at the topp of the social ladder ignore those at the g bottom and spend and p their leisure-time jjustifying y g the growing g g inequalities q 5 demonising the poor as ignorant, lazy and criminally y motivated. The wider objective of the neoliberal pproject is to engineer j j g a stable environment in which and which signi cantly constrains internationall y mobile capital p can reproduce p g the possibilitie s of collective action in the global political economy. In the South African context, neoliberalism became increasingly in uential in ANC pronouncements, such as the 1990 Discussion Document on Economic Policy; the 1992 draft policy guidelines; and both the 1994 Reconstruction and Development (RDP) and the 1996 Growth, Employment and Redistributio n (GEAR) programmes. Part of this article will chart the shifts in ANC economic policy, broadly from the Freedom Charter to the RDP and GEAR. The con guration of neoliberalism currently dominating the theory and much of the practice of the global political economy is based on a number of assumptions, many of which have their origins in liberal political economy and have been transposed to the international realm. Since the end of the Cold War these assumptions have come to de ne the rules of what is now often perceived to be ‘the only game in town’ as far as paths to economic ggrowth and p development are concerned. Although p g alternatives have been p proposed, p such as UNICEF’s notion of ‘adjustment j with t a human face’ or, in the African context, the African Alternative to Structural Adjustment Programmes, they have failed to materialise in any signi cant form. The central questions for this discussion are how and why neoliberal interests and practices have prevailed in South Africa and particularly within the ANC. So what assumptions underpin the neoliberal pposition?

First, neoliberal p political economy y ‘demands nothing g less than the institutiona l separation of society into an economic and p political sphere’.6 This forms ppart of what Karl Pola´nyi y called the ‘economistic fallacy’ y whereby y this separation p of spheres p is assumed to be common to all societies regardless of their historical context. Crucially, this separation is not neutral: economic activity is viewed as conforming to an inherent rationality which distinguishe s it from the (inherently irrational ) political sphere.

From this pperspective, liberals can claim that probp p p lems de ned as ‘economic’ can be solved by ‘experts’ through the application of a socially-neutral , technical rationality. This leads quickly to the assumption 22

Neoliberalism in South African Political Economy that economic motivation is the dominant driving force behind all human activity.

Secondly, economics, with its supposedly inherent rationality, should govern the irrational processes of political decision making. This normative claim rests on the liberal belief that a long-term harmony of interests is implicit in economic p activity ‘policy y within the framework of a free market. Anyy subsequent q p y prescripp p tions’ will therefore inevitably y emphasise p market solutions to relieve the headache of (re)distribution problems. Witness the ‘one-size- ts-all’ approach to adjustment programmes: reduce public investment and current expenditur e (includingg wages g ), devalue the currency and curtail in ationary tendencies. For liberals, the market (if left free from unnecessaryy state/political/irrational interp ) p primaryy mechanism to resolve policy problems at both vention represents the p the domestic and international level. However, the ppolitical consequence of such q prescriptions is to p p p privilege g the desire for maintaining g the smooth and ef cient running of the status quo over claims for redistributiv e justice. In practice, this often goes hand in hand with policies designed to maintain a system of law and p g y order based on the protection of the rights of the property-owning individual .

As is implicit above, neoliberal political economy also proposes that ‘a natural community of interests would be brought about by the operation of free markets’.7 This allows for the reconciliation (de ned as ‘natural’ and noncoercive ) of the individual to the nation and the nation to mankind. As David Ricardo famously declared: Under a system of perfectly free commerce, each country naturally devotes its capital and labour to such employment as are most bene cial to each. This pursuit of individual advantage is admirably connected with the universal good of the whole.8 Thus, byy p pursuing g one’s own advantage g everyone, y given g time, would bene t absolutely—although y g the bene ts would not be distributed equally q y throughout g society. y In addition, in the international realm such a ‘harmony y of interests’ a necessary represents p y element for long-term g peace between nations. p Finally, y neoliberalism , with its focus on ‘economic man’, a rational egoist g constantly y seekingg to optimise p his p position, ultimately y stresses that the natural size for an ef cient economic community is the global market. National governments have their uses, but should not be allowed to impose rigid boundaries around economic activity. Within the framework of a free market, government should play the crucial but limited functions of providing security from external threats and ensuring law and order at home. Nevertheless, the irrationalitie s of government intervention constitute the main source of anxiety for liberals. John Gray’s comments are typical of this view: Every y governmental g intervention has real costs, and there is that the vagaries of governmental strong g evidence to suggest gg g g policy p y constitute the chief source of economic disturbance in of recent decades. It is a g general truth … that the imperfections p 9 the market are never suf cient to justify intervention.

23

Paul Williams & Ian Taylor In short, the larger the sphere of market relations and the less state/political interference, the better.

Our claim is that this neoliberal ideology of course byy considerable gy (supported pp material interests) has played p y a necessaryy but not suf cient role in the dramatic about-face in the ANC’s de nition of what constitutes ‘good’ economic policy. g p y The ANC’s acceptance of neoliberalism , we believe, re ects not only p y a highly g y selective readingg of the empirical evidence concerningg the ‘success’ of numerous p neoliberal-inspire projects emanatingg from the international p d development p p j nancial institution s (IFIs), in particular the World Bank, but also a failure to p acknowledge the amount of ‘theory’ implicit in their own position. The result is a deeply political policy, portrayed as solely ‘economic’, which has enormous repercussions for the whole of South African society but most notably the richest and poorest elements. It is to how the ANC’s economic thinking came to embody neoliberal principles and how this has been translated into policy objectives that we now turn.

The early phase of ANC economic policy At the time of the ANC’s unbanning g in 1990, the organisation g had no clearlyy formulated political and economic policies.

Instead, the organisation had relied p p g on an emotional attachment to the principles of the 1955 Freedom Charter with p p its vague but prominent redistributionis t slogans: The People shall share in the country’s wealth!

The national wealth of our country, the heritage of all South Africans, shall be restored to the people; The mineral wealth beneath the soil, the banks and monopoly industry shall be transferred to the ownership of the people as a whole; All other industries and trade shall be controlled to assist the well-being of the people; All people shall have equal rights to trade where they choose, to manufacture and to enter all trades, crafts and professions.10 On paper, p p at least for most of the struggle, gg the ANC (encouraged g byy its strategic g ally, y the South African Communist Party y (SACP)) was committed to a mixture of dirigisme and socialist reform of the economy via nationalisatio n of the g mines, banks and monopoly industries. However, the exact manner and ppolicies by which the ANC was to pursue this were never formally enunciated. The reasons behind this lay primarily in the diverse membership pro le of the movement. As Murray suggested: Its purposefully anti-capitalist rhetoric gave the ANC p p y vague g p g leadership p considerable ideological g leeway y successfully y to stitch together a looselyy de ned coalition of interest g g groups p that included workers and aspirant entrepreneurs, Christians and Comp p munists, and the unemployed p y and middle class, around a shared objective of dismantling apartheid.111 24

Neoliberalism in South African Political Economy Getting ready to govern g p in ANC policy p y came at the Harare The rst concerted effort to ll this gap p y 1990. This was followed byy a draft f ANC Economic Conference in April–May ( p p p by y the 1991 National Conference) and Manifesto prepared for but not adopted the ANC’s Ready dy to Govern document of Mayy 1992. Central to this was a basic commitment to the restructuring g of society y and a dynamic y role for the state in the economy. y However, the document continued the ANC’s track-record of vague statements on economics, to the extent that its readers could infer g ‘anything y g from extensive state intervention to conventional market-driven structural adjustment’. adjustment’ 12 Nevertheless, the document did call for the unbundlin g of the four massive corporations that dominated the South African economy and a rejection of capital’s familiar demands for low labour costs. Simultaneously, labour y was accorded a pivotal role in the planning and execution of industrial ppolicy.

In a rejection of economic ‘trickle-down’ thinking, j g the document’s central message was that growth g was ‘growth g through g redistribution ’. The assumption p g would be p promoted byy meeting g ‘the basic needs of the majority j y through g a redistributio n of income which would increase employment, demand and prop y p 113 duction’. Such a strategy gy clearly y demonstrated the residual in uence of socialist ideas within the alliance at this juncture. This was partly because the document appeared early on in the transition process before the ideological onslaught from neoliberal intellectuals began signi cantly g g y to in uence the decision-makin g elite within the ANC. However, this breathing space for ideas outside of neoliberal strictures would not last long. g of the document, in particular its ‘growth through Indeed, the prescriptions p p p g g array redistribution ’ agenda, g were immediately y attacked byy a disparate p y of pro-business elements in the media and various ‘independent’ p p policy p y think-tanks and economists. These attacks ‘ranged g from consternation about the “socialist” d set of objections to its undertones of the document to a more sophisticate p j 14 1 alleged g overtones of macro-economic p populism’. p At the same time, the p probusiness media ran a string g of hysterical y articles warning g about the ‘foolishness’ of redistributin g wealth from the massively privileged to the chronically disadvantaged. The Financial Mail, for example, warned: There will be a massive loss of jjobs, shops p will empty p y of g goods, housing g will fall into ruin, disease and misery y will p predominate— Comrade Nelson, like Comrade Nyerere y of Tanzania, will say: y ‘Sorry, we made a mistake. We’ve redistributed all we have’.115 However, such criticism g generally y lacked detailed analysis y of what ‘growth g through g redistribution ’ could mean and instead simply p y dismissed alternatives to neoliberalism as nonsensical. These scare-mongering g g tactics coincided with t a remarkable project to ‘educate’ the ANC elite and the public about the foolishp j p ness of non-neoliberal approaches to the economy. pp y As the Financial Mail put p it, ‘the ANC is muddled and confused. It needs to be g guided and educated—taught g to face harsh economic reality y and the need to modify y the expectations p of its cadres’.116 Under the weight g of this intellectual onslaught, g the ANC’s economic thinking increasingly came to bear the hallmarks of neoliberalism . In particular, 25

Paul Williams & Ian Taylor promotion p of macro-economic stability y (through g scal and monetaryy stringency, g y ) deregulation, g privatisatio n and export-led growth strategies was pushed closer to p the top of its agenda.17 Preventing an alternative?

A number of factors militated against g the introductio n of a viable non-neoliberal approach. pp First, the collapse p of the Soviet economies threw manyy socialist and practical disarrayy and strengthened the intellectuals into a state of conceptual p p g that there was ‘no alternative’ to neoliberal capitalism. hand of those who argued g p Second, there was the more p pragmatic g question of resources. In the face of a q well-funded array y of p pro-neoliberal groups g p in civil society, y the ANC’s economic strategists were swamped by this ideological tidal wave. As Karl von Holdt remarked: Very, How bigg is the ANC Economics Department? p y veryy small and veryy new in a lot of ways. y And y yet y you’ve g got the captains p of industry, y with t their think tanks that have g got a whole lot of policy studies coming out. That can be quite seductive.18 At the same time, the representatives p of big g business continued their educational and Mandela in particular, to ‘charm offensive’ on the ANC elite in general, g p ‘correct’ any y remaining g heresy. y This p process was helped p by y Mandela’s eagerness g to mix with the privileged p g elite, in particular p the so-called Brenthurst g group, p an informal association of monopoly p y capitalists p meeting g under the aegis g of Anglo– g This was a re ection, p American magnate, g Harry y Oppenheimer. pp perhaps, of the petit bourgeois aspirations that many ANC leaders have long held. As Waldmeir observed: [Mandela] constantly y sought g the views of international businessmen and bankers on South Africa’s future and he cultivated close relationship p s with t top p local businessmen—he spent p holidays y with the head of one of the country’s y leading g mining g families [and] entertained at the home of one of Johannesburgg ’s most ostentatious businessmen … where g guests were met in the driveway y with champagne p g on silver salvers. [He also] dined regularly with Anglo patriarch Harry Oppenheimer.119 Dinner apparently pp yg got results, as a satis ed Oppenheimer pp explained: p ‘when y you talked [to Mandela] about the future of the country, y p particularly y on the economic manyy things side, he said a great g g that seemed to me veryy silly, y but he says y manyy 220 of them less now’. Such sentiments were echoed by y another analysis: y ‘the close-knit circle of associates together g with their coterie of supporters pp in the media and academia now p pride themselves on having g “weaned off” f the ANC of its p past economic fantasies … and generally “saved the country” from becoming another Bosnia’.221 Tactically, y this offensive was designed g to bolster the hegemony of neoliberal ideas in South Africa through consensual means. However, coercion was not 26

Neoliberalism in South African Political Economy ruled out by the establishment . For example, the then Finance Minster Derek Keys g gave ANC economics head Trevor Manuel a brie ngg on the economy, y and Manuel repeated p it to Mandela. ‘And I g got frightg ened’, Mandela recalls. ‘Before Trevor nished, I said to him, “Now what does this mean as far as negotiations g are concerned? to me that if we allow the situation to continue Because it appears pp … the economy is going to be destroyed” ’.222 Such assertions were given added credibility in light of the dramatic increase in South Africa’s budget de cit under the stewardship of the National Party (NP).23 Not only had the 1980s witnessed massive spending in the defence and ‘sanctions-busting ’ industries, but corruption had become endemic.24 The national debt was further aggravated between 1990 and 1994 with the NP’s indulgence in reckless spending and practices of personal enrichment, particularly through in ated contribution s to civil servants’ pension funds. In addition, the scramble for state funds by various homeland bureaucrats during this period only compounded the situation. Whatever motives lay behind the de cit, the deteriorating situation severely circumscribed any future ANC government’s room for manoeuvre as further spending, in order to redistribute wealth for example, would have led to in ation and unacceptable debt. Moreover, byy p p maintaining g most of the old apartheid p bureaucrats, not onlyy did the GNU continually y receive ‘economic [advice] almost exactly y the same as under the 225 National Party y regime’, g but upon p leaving the public service, these individual s received substantial golden handshakes.

The ANC and its partners were also constrained by the scal and monetary prescriptions of the IFIs. Throughout this period, a deluge of high-pro le studies and conferences funded by y the World Bank and IMF ppromoted the neoliberal message. about what was ‘reasong While the IMF delivered sharp p prescriptions p p able’ and ‘realistic’, the World Bank began g discussion s with the ANC and its liberation p partners. The Bank enjoyed j y considerable access to the ANC elite and, in South Africa during ‘even byy World Bank standards’, its presence p g this p period 26 2 represented p ‘an unusually y large g … effort’. Consequently q y , ‘bigg business, the IMF and the World Bank [became] increasingly g y in uential in the topp ranks of the ANC leadership’. p 227 Indeed, one World Bank representative p later boasted that ‘this is the only country in the world where we speak to the opposition ’.228 Such activity only con rms the assertion of two Bank of cials that one of the organisation ’s main tactics was to ‘win access to the most senior policy-makers, thereby permitting the Bank staff to accelerate reform and to in uence its character [by y securing] g a pplace at the policy p y table’.29 The Bank’s Reducing g Poverty ty report p became the p public symbol y of this p process of coercion and consent—pressurising p g and ‘trust-buildingg ’—with the ANC elite The Report of Pretoria’s and its liberation partners. p p combined elaborate probes p economic situation ‘with somewhat restrained neoliberal directives that were often offset byy incorporating p g aspects p of p progressive g thinking’. g 330 Incredibly, y the Bank adopted p a more p progressive g perspective p p than many y of the South African ‘captains of industry’, arguing that ‘South Africa’s unequal legacy cannot be 27

Paul Williams & Ian Taylor reversed solelyy byy market reforms because those disenfranchised byy apartheid p will be unable to obtain the resources necessary to exploit market opportunities’.331 But even this relatively moderate position was unacceptable for some of the South African elite. For example, the National Manpower Commission’s chair, Frans Baker, demanded that ‘employers and unions negotiate wages g g in the 32 face of the cold winds of international competition’. p Little concern was devoted to the structural inequalities that labour had historically faced in South Africa.

Manufacturing the future: corporate scenarios The assault on any y lingering g g socialist tendencies within the ANC continued through g a p plethora of corporate p scenario p planning g exercises aggressively gg y p promoted after 1990.33 The role of such scenarios in mouldingg future options p was quite explicit: q p to ‘signi cantly g y alter the mindsets or paradigms through which world’.34 decision makers see the world’ The rst was Nedcor/Old Mutual’s Prospects p for f a Successful f Transition, launched in 1990. Between January y 1991 and June 1992 over 45,000 handpicked South Africans, invariably p y from the decision-making g levels of societyy and 35 3 the ANC, attended the p presentation of the Prospects. p This scenario was q quicklyy for followed byy Sanlam’s Platform f f Investment and the more eclectic Mont Fleur Scenarios. Simultaneously y , other documents, such as the South African Chamber of Business’ Economic Options p ffor South Africa, f were aggressively gg y advertised as offering g ‘realistic’ blueprints p of South Africa’s future. These supposedly pp y ‘diverse’ scenarios—which in p practice differed only y super cially—were p y coordinated by a close-knit circle of managers and corporate strategists. As Robin Lee observed, ‘Wack and Newland were both part of the Sunter exercise, while Wack was also a member of the Nedcor/Old Mutual team—and the present scenario pplanner at Shell, Adam Kahane, was the facilitator of Mont Fleur’.36 The multiple p linkages g between the organisers g supports pp the assertion that ‘debates’ over the terms of South Africa’s economic strategy were (and remain) carefully concocted by selected representatives. As Susan George explains: There has been a concerted effort, an extremely y well-funded effort, to make [neoliberalism ] and all that goes with ideological g g it seem bene cent and necessary. y You fund p people p to create an ideological g climate which becomes the life f support pp system y for the doctrine…. You create the colloquia q and the symposia, y p open p to that the p press that y you sponsor. p And they y all write [in] journals j you also fund, and from there they y yg get on the editorial p pages g and on the air. Pretty y soon y you have those three-man … p pseudo debates on television between the raving g radical right, g the extreme who thinks differently … right g and the right g of centre…. Anyone y must make apologies for his or her beliefs.337 This ideological g bombardment from neoliberal management g gurus g was also replicated p byy the business press p which continued its savaging of any nonneoliberal messages from the ANC. 28

Neoliberalism in South African Political Economy Despite such pressures it would be incorrect to describe every element of the ANC as passive observers in this process of deradicalisation . For example, any progressive economic policies were increasingly quali ed with strong caveats (such as the need to protect property rights and privatisatio n) designed to reassure big business. Furthermore, as the negotiation process wore on, such caveats were put in place with only the barest level of consultatio n between the ANC elite, its membershipp and political allies. 38 Capital p p had long g demanded such guarantees as a foundation for ppost-apartheid g p South Africa and this was re ected in the appeal pp made byy the South African Chamber of Business for a constitutional bill of rights, g described as ‘a way y of p protecting g the minority’s y p privileges g 39 3 rather than enlarging g g the freedom of the majority’. j y In his studyy of South Africa’s transition to democracy, y Adam Habib agrees, g arguing that one of the outcomes of the transition had been to bring about: the ANC’s commitment to manage, g and to locate its p programme g of economic reconstruction within the framework of, a market in a range economy. y This commitment was captured p g of clauses in the Bill of Rights, g which recognised g the rights g of individual s to and to dispense with these own property p p y and accumulate capital, p p of as they yp please. The settlement thus established the parameters p the GNU’s economic p programme and conditioned its evolution in a neo-liberal direction.440 Indeed, the ANC’s draft policy guidelines of April 1992 made no reference to higher taxation thresholds for the massive corporations, suggested privatising elements of the public sector and ditched calls for a restructuring of the nancial sector.

Forging a consensus or manufacturing consent?

Although elements from the left, and the Congress of South African Trade Unions (COSATU) in particular, attempted to stem the drift rightwards, by p g y the time of the 1994 election the Financial Mail could triumphantly p y claim that macroeconomic p policy y was tilting g ‘in the right g direction’,, with the ANC adopting p g 41 4 ‘a steadily y more realistic approach pp y Symbolically, y y,, the new to the economy’.

ANC ggovernment retained Derek Keys y (an ex-chief executive of Gencor) as By Finance Minister. B y doing g so, Mandela ‘delighted g investors, businessmen and White South Africans … Nothing g else would have p persuaded the outside South Africans—of his commitment to freeworld—not to mention sceptical p market economies and p political moderation’.442 Keys’ appointment was certainly interesting for a number of reasons. As a report in the corporate mouthpiece, Business Day, commented approvingly : We can look with some hope p to the evolution in economic ago thinking g in the ANC since the occasion nearlyy three years y g when Nelson Mandela stepped pp out of p prison and p promptly p y reaf rmed his belief in the nationalisatio n of the heights g of the economy. By contrast … Mandela [has gone] out of his way to 29

Paul Williams & Ian Taylor that the assure a large g g group p of foreign g (and local ) journalists j ANC was now as business-friendl y as anyy potential foreign p g investor could reasonably y ask. He indicated further that ANC economic thinkingg was now beingg in uenced in n uenced as much byy Finance Minister Derek Keys and by organised business as anyone else. 43 When Keys y resigned g a few months later, Mandela replaced p him with t another white, conservative banker, Chris Liebenberg, g whose 1995 budget g spoke p ‘volumes about the new-found conservatism of the … government of national unity’. y 444 Whilst byy this stage g the ANC had not entirelyy surrendered to the demands of capital, p its economic p proposals p had taken a de nite neoliberal slant. Thus the new government accepted the compulsions g p p of nancial and monetary y ‘discipline’, defended the reorganisation of South African trade policies to foster an p g p export-led p growth p g plan and envisaged g a reduced role for the state. Economic regeneration was p via a surge g predicated on sustainable growth g g of foreign g investment (which never materialised), whilst domestic capital was supposed to p pp intensify y its investment, not indulge g in off-shore relocation as frequently q y occurred. Ironically, y this had been facilitated—at the demand of capital—by the removal of exchange controls. At the same time, the GNU was bombarded with ‘advice’ that it ‘should act decisively to reassure the nancial markets rather than 45 concentrate on ful lling of its supporters’. g the expectations p pp As Marais highlights, g g an important p factor in shifting g ANC p policy y was the p ) of the terms of the debate from the alteration (at the behest of capital ideological, where the ANC was at best in a state of confusion, to the technical, g where the organisation was most certainly g y disadvantaged g . 446 As indicated above, ANC efforts to p produce a coherent macroeconomic framework were hampered p not least byy the lack of attention afforded to bodies such as its Economic Department. p Moreover, concentrating g on the intricacies of an economic p policyy was a luxury y that an organisation g which had been banned and persecuted until very recently could ill afford. This subtle alteration turned out to be crucial in deciding how the economic debate unfolded. The fact is that the ANC and its liberation partners were severely constrained in their technical ability to combat the rush of neoliberal ideas that engulfed the movement in the transition period. The situation was not helped by ‘patent abuse of technically rigorous economists at the helm of the ANC’s DEP [Department of Economic Planning]’.47 Consequently: In terms of the economic debate, the ANC was … clearly y on the defensive at the beginning g g of the negotiation g process. It simply p py did not have a set of new p progressive g ideas and strategies g to counter those neo-liberal ideas so p powerfully y p proposed p byy the Washington g institutions , western governments, g local business interests, and the De Klerk regime.448 This factor considerably y strengthened g the hand of capital p and its intellectuals who embarked on a concentrated p political struggle to promote the neoliberal principles to which they subscribed. Moreover, it allowed them to dismiss 30

Neoliberalism in South African Political Economy alternative policies on relatively basic, technical grounds. This not only emasculated the progressive wing of the liberation movement, but it also encouraged conservative elements within the ANC who, in tandem with erstwhile ideological partners in the business community, rapidlyy moved to direct the ANC’s economic ppolicy y down more ‘realistic’ ppaths.49 As Nicholas Oppenheimer pp later asserted, ‘in a remarkably y short time [the ANC] matured into a government marketplace’.50 Prior to this, which understands and accepts the disciplines of the marketplace’ a holding action centred around the RDP had temporarily placated many left-wing critics and postponed a wholesale swing to neoliberalism . This temporary alternative re ected the ambiguities and tensions in the ANC’s stance as it struggled to reconcile disagreements within the alliance.

The Reconstruction and Development Programme: neoliberalism in waiting?

Although it represented the socioeconomic platform upon which the ANC fought the elections, a White Paper on the RDP indicating how the government would translate these vague proposals into policy only appeared on 23 November 1994.

However, previous drafts of the White Paper had emerged—and were heavily g y criticised byy COSATU—from August onwards. The RDP was largely g g y the brainchild of social democratic forces within COSATU, particularly p y the National Union of Metalworkers, which became increasingly g y disgruntled g as more and more of the progressive content of the document was watered down with each new draft.551 Eventually, those alienated elements agreed to publish the seventh draft as the White Paper in the (vain) hope that publication would prevent any further dilution of the document.52 This formative process clearly re ected the ongoing tensions within the GNU exacerbated by the pressures of capital. The Base Document (February 1994) had been widely interpreted as a compromise p COSATU and the SACP onboard duringg the immediate by the ANC elite to keep pre-election p pperiod. Indeed, the South African labour movement had ‘made its entry y into the Tripartite p Alliance contingent g upon p the ANC and SACP adopting development policy’. p g [the RDP] as the basis of all subsequent q p p y 553 Yet, after the elections, the ANC was constitutionall y obliged g to share of ce of f ce with the NP and absorb pressure from both domestic and international capital to was made easier byy its vagueness dilute the RDP. Acceptance of the programme p g g and lack of concrete proposals.

The result was a compromised document p p p administration , desperate to reconcile the multiple from a compromised p p p voices in South Africa’s domestic polity with t the mantras of globally- orientated capital. p compromise to the Hence the RDP has been seen as a ‘veryy signi cant g p 54 5 neo-liberal “trickle down” policy preferences of the old regime’. For example, eliminating calls for nationalisation , even as a policy option, whilst pushing for privatisatio n and ‘ scal discipline’, was just one way the White Paper had changed from the initial Base Document. Whereas the Base Document had viewed scal discipline as a means to achieve development, the White Paper saw scal discipline as an objective in its own right, irrespective of its effect on development. The White Paper also differed from the Base Document over the state’s role in the economy. In accordance with the dictates of neoliberalism , the 31

Paul Williams & Ian Taylor White Paper reduced the state’s role to a ‘neutral’ source of management. The business community predictably welcomed the programme (while expressing concern at the cost) as a great deal of its enthusiasm was based on ‘expectations of major new business opportunities ’ in the various expansion schemes promised by the RDP.55 However, a more sophisticate d interpretation might see capital’s support for the programme arising from its perception that the RDP was based ‘on the balance of evidence’ that would ‘guide the decision for or against economic policy measures’.56 The keyy question q thus became: who decides what constitutes the balance of evidence? It was quite apparent that capital’s intellecq pp p tuals had lost no time in persuading p g the g government which factors counted as ‘evidence’ and which should be dismissed as mere anomalies.

The RDP’s weaknesses were increasingly evident in ‘the disjunctio n between the RDP as an economic programme and other aspects of economic policy’.57 In particular, the contradiction s that the RDP engendered made its place within the wider economic framework ‘unclear [and] at worst … potentially antithetical’.58 The fact that the RDP could be seen as arguing for the creation of an ‘enabling environment’ through macroeconomic balance and ‘sound scal policy’ compounded this ‘cocktail of confusion’.59 Moreover, the palpable lack of delivery on the ground proved a major embarrassment to the government and it became a relatively simple exercise for critics (from both left and right) to point to such failures as evidence of the inherent ‘unworkability y ’ of the RDP. Indeed, the business community y increasingly g y bemoaned the g government’s lack of a clear macroeconomic blueprint and continued its campaign p g for an all-out This was symbolised byy the South Africa Foundation’s neoliberal programme. p g y (SAF) publication p of a rabidly y orthodox economic strategy gy entitled Growth for f All, to which Mandela was treated to a private p presentation p p prior to its release. 660 Representing p g a consortium of 50 of South Africa’s most powerful p corporations, p the document endorsed capital’s p call for a wholesale embrace of neoliberalism y byy the GNU. The p pro-business media saw the SAF document as an opportunit pp into embracingg the neoliberal p to blackmail the government g position of the SAF, asserting g that, ‘if g government reacts negatively, g y it will draw attention to its quali ed endorsement of market-oriented economics. That in turn will discourage investment, undermine the Rand and lock this economy into a low-growth trap’.61 Coincidentally , the document was released at a time when the South African economy was in a state of ux. The Rand was in free-fall (losing 25 per cent between February and July); interest rates remained high; whilst the trade account of the balance of payments moved in a highly erratic fashion. At the same time, the foreign exchange reserves were being steadily depleted until, by mid 1996, they were equivalent to only 5 weeks’ import cover. As Michie and Padayachee remarked, ‘these factors and pressures all served to focus attention on the appropriateness or otherwise of the government’s macro-economic policy’ and further undermined the RDP.62 Indeed, the Financial Mail claimed that such failings in the economy were due to the failure of the RDP.63 Not surprisingly , the programme was hastily abandoned in ‘a panic response to the … exchange rate instabilit y and a lame succumbing to the policy dictates and ideological pressures of the international nancial institutions ’.64 32

Neoliberalism in South African Political Economy The Growth, Employment and Redistribution Programme: neoliberalism triumphant In February 1996 Thabo Mbeki, then Mandela’s deputy-president , announced a new strategy for the nation’s economic development. Although the government continued to pay lip-service to the RDP, its of ce was closed (28 March 1996 ) and its nominal head—Jay Naidoo—was reassigned. This was rapidly followed in June by the government’s hasty release of its new macroeconomic strategy, the GEAR programme.65 This document ambitiously claimed it would increase annual growth by an average of 4.2 per cent, create 1.35 million jobs by 2000, boost exports by an average 8.4 per cent per annum and improve social structure. To date, it has failed even on its own terms.66 The new policy’s adoption derived from a coalescence of factors which has been summarised as follows: economists The ANC, p pressured by y advisers from the old regime, g from the World Bank and IMF [and] experts p from the business community y … stepped pp back from the RDP’s emphasis p on social spending p g … and instead adopted p a neo-liberal economic export p strategy gy which emphasised p free markets, scal discipline p and building g business con dence, even if that meant ‘downsizing’ to be competitive in the global economy.667 In an attempt p at sti ing g g genuine debate, the g government’s Finance Minister, ’ in its broad Trevor Manuel, immediately y declared GEAR A ‘non-negotiable g outline—a move applauded pp byy investors, both local and foreign, g but which 68 6 those on the left f saw as ‘utter arrogance’. g Indeed, contraryy to p previous assurances and continuing g its tendency y to eschew g genuine consultation , the for prior consideration byy NEDLAC government did not submit the programme g p g p (the business/labour/government g national economic and labour council). Incredibly, y as Mandela later admitted, even senior ANC leaders were not informed of its contents.669 770 ‘Produced in great g secrecyy byy a small team of technical experts’, p GEAR was modelled on a South African Reserve Bank econometric model (used byy the Bank during ) and was ostensiblyy ‘cong the late apartheid p y years g models of the Development p sistent with the results obtained using Bank of Southern Africa, the Bureau for Economic Research and the World Bank’.771 This alone invited criticism, but was further exacerbated byy the fact that ‘the main model used … [w]as never … made public p and thus [w]as never … j of an independent and rigorous debate by professional econothe subject mists’.772 The document did, however, exhibit a ‘commitment to conservative scal policies, trade liberalisatio n and a shift from consumption p to investment spending’. p g 73 GEAR thus tted neatly y into the so-called international consensus around ‘good’ g economic p policy y elucidated byy such neoliberal g gurus as Standard Bank’s Conrad Strauss.774 Whilst the new framework stunned many y on the left f within the ANC alliance, it offered conclusive proof p that the neoliberal path to development was nally entrenched in government thinking. 775 33

Paul Williams & Ian Taylor Although the government had appeared sensitive to accusations that its policies constituted neoliberal monetarism, a 1996 document openly admitted 76 that ‘certain measures in GEAR are similar to many y neoliberal ppackages’. g According g to one analysis, y ‘to all intents and purposes, p p the p policy y that almost [ the sacred Freedom Charter i.e. the RDP] in its vision of a more equal replaced p q and p progressive g order has now been shelved [and a] Thatcherite discourse of scal discipline p and market forces has taken over’.777 Mandela himself later admitted that p people p ‘can say y [our p policy] y is Thatcherite, but for this country, privatisatio n is the fundamental policy of our government’.778 Although GEAR was justi ed as a continuation of the RDP by other means, the RDP is onlyy referred to in the GEAR ppolicyy document on four occasions. 79 Furthermore, in contrast to the RDP, GEAR explicitly p yp posited ‘redistributio n as a by product of growth instead of an integral g part p of its economic strategy’. gy 880 It was not surprising p g therefore that, upon p re ection, GEAR was denounced as ‘a 881 regime’, recourse to the p policy y g goals and instruments of the past p apartheid p g which shared many of the ideological commitments of the SAF document.882 Such criticism stemmed primarily from the economic methods chosen to deliver GEAR’s ambitious promises. GEAR privileged the position of mobile capital (both foreign and domestic) within South Africa and relied on it to empower the disadvantaged through increased private investment. This dynamism was to be achieved by cutting state spending in an attempt to lower the budget de cit to 3 per cent by 2000; maintaining a low in ation rate; reducing corporate taxes; phasing out the remaining exchange controls; promoting wage demand restraints by labour; creating a more ‘ exible’ labour market; and pushing for the privatisatio n of state assets. The model was based on ‘a set of orthodox, outward-oriented, investor-friendl y stabilisatio n and adjustment policies’, which re ected the concerns and aspirations of the neoliberal elite within South Africa.83 In so doing, GEAR adopted ‘market reaction (for example, in the foreign exchange market) and notions of business con dence’ as the yardstick ‘to assess government’s performance’, further strengthenin g the hand of the outwardly-linke d classes in the country. y y 84 This fraction of capital p and its allies fell over itself in praising p g GEAR y and ‘responding p g to manyy of the concerns expressed p as ‘investor friendly’ byy business’. 885 As a Financial Times writer asserted, with GEAR ‘the ANC emerged a commitment to budgetary g with as powerful p g y discipline and scal conservatism as White South Africa could have wished’.886 Such a situation was due in large part to the international discourse of neoliberalism which helped create a climate wherein, if the ANC ‘come out and say: p y “Our rst there [would] be some very obligation g is to our people”, p p y heavyy choking’ g byy 887 capital. p Hence, an ostensible liberation movement that had struggled gg under the banner of socialism now saw as its p priority y the soothing g of international capital’s demands as the only, and for some the best, way forward. Moreover, with the NP’s departure from the GNU in June 1996, the argument that conservative, non-ANC elements were responsible for the organisation ’s econp g omic direction proved false: GEAR was ultimatelyy a product of the ANC elite. p p The scrapping pp of the RDP and the adoption of GEAR nally saw neoliberalism triumphant.

34

Neoliberalism in South African Political Economy Explaining the shift Why the ANC changed its macroeconomic stance during the transition has often been reduced to the simplistic view that the movement simply ‘woke up’ to q p economic ‘realities’ and subsequentl y ditched its socialist pretensions in favour of neoliberalism. Obviously, y the ANC was faced with the appalling pp g socioeconomic legacies g of apartheid which undoubtedl y deepened during the last years of NP rule. Chronic unemployment, low levels of investment, high public debt, a low human capital base situated within a brutalised society and an unstable currency all acted to restrict the ANC’s room for manoeuvre. As noted above, the ANC’s predicament was further compounded by inheriting an inef cient and often intransigent civil service whose aspirations were in the main unsympatheti c to the new dispensation ’s political project.

Nevertheless, whilst acting as powerful constraints on any redistributionis t proposals, such factors alone cannot account for the ANC’s ‘ideological quantum leap’. As Terreblanche suggested: In an attempt to solve this riddle one can either blame it on the imperatives of the South African situation after decades of apartheid, or we can blame it as the outcome of an intense ideological ‘power struggle’ behind the scenes in which pressure groups on the right of the ideological spectrum emerged as ideological conquerors in June 1996 … the quantum leap [was] the outcome of the ideological ‘power struggle’, although the hard reality of the South African situation also played a minor role.88 Undoubtedly, y the ANC’s ideological g incoherence over ‘economic’ policy p y did not help p in this struggle. gg However, for an organisation g ‘whose raison d’eˆtre before 1990 was liberation from apartheid, it was perhaps p p p not surprising p g that formulatingg [an] economic strategy gy was not a priority’. p y 889 In the face of a well-funded and co-ordinated onslaught g from neoliberal intellectuals and institutions , the ANC’s pro-redistributio n cadres were marginalised. p g In sum, the ANC’s ideological quantum leap resulted from a number of contributory factors. We will focus on: the ANC’s relationship with the IFIs, on the one hand, and the old apartheid structures, on the other; and the process of dispute within the Tripartite alliance itself.

Undoubtedly, the structural context within which any economic restructuring would necessarily have to take place weighed heavily upon p the ANC’s shoulders, with the IFIs pushing p g a rigidly g y neoliberal line. For example, p Mandela’s attempts p to address the issue of social transformation in his p presidential address were derided as ‘antiquated q Marxist g gibberish’ by y one set of respected p international observers.990 The IFIs have provided p what Michel Camdessus, Managing g g pushing Director of the IMF, has referred to as a ‘permanent p discipline’, p p g states in the direction of economic liberalisation . In addition, two members of the 15-person p technical committee that compiled p the GEAR document were from the World Bank and were in a strategic g p position to convince the other team members of the virtues of the so-called Washington consensus. 91 That said, and as noted 35

Paul Williams & Ian Taylor above, some internal voices in South Africa’s debate were often more fanatically neoliberal than representatives of the IFIs themselves.

The fact is that, despite this process of structural conditioning , a number of prominent ANC intellectuals, in particular Thabo Mbeki, Trevor Manuel and Tito Mboweni, pplayed role in shaping y an important p p g the terrain of debate. In short, speci c p decisions were taken which could have been made differently. y For instance, these individual s could have been more sympathetic y p to the p proposals p of COSATU and the SACP as outlined in the p preliminary y drafts of the RDP; or paid closer attention to the recent observation of the senior vice-president of the p p World Bank, Joseph Stiglitz, that the policies of the Washington consensus were too anti-state. This is not to say that following these suggestion s would have been free from costs or would have offered an ideal solution to the grievances of South Africa’s impoverished majority; rather it highlight s that neoliberal prescriptions were but one imperfect option among many.

In relation to the old apartheid structures, we have already noted how the NP’s recklessness contributed to a huge increase in the national debt prior to the GNU assuming of ce. Clearly, this unwelcome inheritance severely circumscribed the new government’s ability g y to ful l numerous ppromises made during g the struggle. gg Indeed, even if the ANC had vigorously g y embarked upon p a programme p g of g genuine socioeconomic transformation, they y would have found themselves in command of a state which lacked the resources and capacity to implement such a process. However, this is only half the story. y Another crucial, but often neglected, of thee old apartheid structure g , component p p ( ) was the white both English and Afrikaner business sector. South Africa’s major g j corporations, p which had undergone g only y super cial p alteration during g the transition, and the associated business press were also veryy effective in pressurising p p g socialist elements within the ANC to conform to neoliberal principles.

In p p addition, the business sector played role in facilitating p y an important p g and funding g the negotiation g process itself and was keen to ensure that a break with apartheid p p did not threaten its ability y to ppro t from a severely y exploitativ p e labour system. y In relation to ‘economic’ p policy, y therefore, South Africa’s major j corporations were (and largely remain) forces for continuity rather than change.

The process of dispute within South Africa, and within the Tripartite alliance in particular, was perhaps most notable for the way in which appeals to neoliberalism were assumed to trump all other considerations and perspectives.

The disputes occurred in an intellectual climate where neoliberalism was taken to represent the ‘gold standard’ against which rival perspectives were judged. In short, the agents of neoliberalism successfully managed to conceal the (considerable) ideological content of their position, portraying it instead as the only sensible and socially-neutra l policy option. This process stymied genuine debate g ( ) byy delegitimisin g and often ridiculingg alternative positions.

Manuel’s preseng p p tation of GEAR as ‘non-negotiable g ’ is a case in p point. However, the ideological g struggle about winningg gg that took place p within South Africa was never just j a con ict of interests in which the intellectual arguments; g rather it represented p powerful social, p p political and corporate p proponents p p of neoliberalism effectivelyy steamrollered a somewhat confused and incoherent opposition . Compromise, it appeared, was out of the question.

36

Neoliberalism in South African Political Economy Finally, y although g very y much implicit p in our analysis, y there is a need brie y y to ask what the costs of neoliberalism are for South Africa. First and foremost, adoption p of neoliberal p principles p has exacerbated inequality q y and increased the concentration of wealth in the hands of the privileged p g few.992 Apart p from the ) ( ethically y odious and increasingly g y dangerous g prospect p p of living g in one of the world’s most unequal q economies, such a p polarised environment is fertile g ground for social and p political instabilit y which will ultimately repel the very ‘investors’ GEAR was designed g to attract. for its tradition of Second, byy p pursuing g a neoliberal agenda g with t scant regard g democratic consultation , the ANC is in danger g of alienatingg its traditional constituencie s of COSATU and SACP members. While a ‘workerist’ alternative to the ANC remains unlikely, y the p potentially y damaging g g effects of a fractured alliance should not be dismissed out of hand. In addition, South Africans of all p persuasions should look to the horrendous tearingg of the social fabric that has occurred elsewhere, not onlyy in Africa but also in Latin America and eastern Europe, p where neoliberal p prescriptions p have undoubtedly y aggravated gg contradiction s within these societies. In South Africa, evidence is alreadyy apparent pp that the GNU’s scal p policies have constructed ‘an economyy which g goes nowhere in terms of conditions of life for the greater majority of people’.993 Conclusion The shift in the ANC’s macroeconomic policy p y clearlyy demonstrates that debates from politics.

‘Economics’ is not an about economics can never be separated p p inherently y rational, technical pprocess: it is a social activity y in which various interests compete to determine who gets what, when and how on a global scale.

In our opinion, such attempts to remove the ‘politics’ from political economy should be viewed with profound distrust. p Backed byy a daunting g array y of material and nancial interests both inside and outside South Africa, successive g groups p of intellectuals (some of whom held the ANC elite of neoliberalism ’s ANC membership p) successfully y persuaded p merits. In p particular, neoliberalism was p portrayed y as ‘the only y g game in town’, discrediting g alternatives before theyy even reached the negotiating g g table. The result has been a dramatic about-face in the ANC’s economic thinking, g wherebyy the redistributio n of apartheid’s p considerable inequities q is no longer g the p primaryy goal. Instead, ‘good’ g g economic p policy y fetishises transnational capital p in an effort to make South Africa ‘competitive’ p in the g global market-place. p In p practice, this has meant competing p g with other destitute regions to provide the cheapest and most ‘ exible’ labour-force.

In sum, there is considerable cause to regret the current shape g p of South Africa’s transition. As always, who have suffered the most. y it is the poorest p GEAR has done little to address the chronic unemployment p y that p plagues g black South Africans and even less to redistribute the p pro ts of apartheid. p In this sense, GEAR has failed even on its own terms. Onlyy when the ANC is able to concentrate its efforts on the eradication of p poverty y and confront the question of redistributio n head-on will a genuine transition occur. While the ANC may be 37

Paul Williams & Ian Taylor all geared up for the journey ahead, unfortunately it is heading in the wrong g direction.

Notes The authors would like to thank Anthony Payne, Philip Nel, Peter Vale and the anonymous reviewers for their constructive advice.

1. As late as July 1989 some prominent academics remained convinced that ‘it is unlikely that the ANC will gain (any form of ) power by 1992 or 2000. However, by 2010 and 2020 the ANC might share some power as a coalition partner’. W. J. Breytenbach , The ANC: Future Prognosis (University of Stellenbosch: Institute for Futures Research, 1989) , p. vi.

2. Roger Tooze, ‘Conceptualizin g the global economy’, in: Anthony McGrew, Paul Lewis et al., Global Politics: Globalization and the Nation-State (Polity Press, 1993) , p. 235.

3. John Gerard Ruggie, ‘International Regimes, Transactions and Change: Embedded Liberalism in the Postwar Economic Order’, International Organization, Vol. 36, No. 2 (1982 ), pp. 379–415.

4. See Herman Finer, Road to Reaction (Quadrangle Books, 1963) , p. 67.

5. J.K. Galbraith, The Culture of Contentment (Sinclair-Stevenson, 1992) .

6. Karl Pola´nyi, The Great Transformation: The Political and Economic Origins of Our Time (Beacon Press, 1957 ) , p. 71.

7. James Mayall, ‘The liberal economy’, in: James Mayall (Ed. ), The Community of States: A Study in International Political Theory (George Allen & Unwin, 1982), p. 97.

8. Cited in ibid., p. 98. Emphasis added.

9. John Gray, Liberalism (Open University Press, 1986), p. 71. Emphasis added.

10. Cited in ‘The Freedom Charter’, Third World Quarterly, Vol. 9, No. 2 (1987 ) , p. 673.

11. Martin Murray, Revolution Deferred: The Painful Birth of Post-aparthei d South Africa (Verso, 1994 ) , p. 18.

12. Nicoli Nattrass, ‘Politics and Economics in ANC Economic Policy’, African Affairs, Vol. 93, No. 372 (1994 ), p. 6.

13. Matthew Kentridge, Turning the Tanker: The Economic Debate in South Africa (Johannesburg : Centre for Policy Studies, 1993) , p. 6.

14. Hein Marais, South Africa: Limits to Change—The Political Economy of Transformation (Zed, 1998 ) , p. 148.

15. Financial Mail (Johannesburg), 18 October 1991.

16. Financial Mail (Johannesburg), cited in Patrick Bond, Commanding Heights and Community Control: New Economics for a New South Africa (Ravan Press, 1991), p. 60.

17. Marais, South Africa: Limits to Change, pp. 149–50.

18. Karl von Holdt, quoted in ‘Strategy and Tactics: Karl von Holdt and Devan Pillay’, in: Alex Callinocos (Ed.), Between Apartheid and Capitalism: Conversation s with South African Socialists (Bookmarks, 1992) , p. 57.

19. Patti Waldmeir, Anatomy of a Miracle (Penguin, 1997), p. 256.

20. Ibid.

21. Heribert Adam, Frederik van Zyl Slabbert & Kogila Moodley, Comrades in Business: Post-Liberation Politics in South Africa (Tafelberg, 1997) , p. 171.

22. Waldmeir, Anatomy of a Miracle, p. 213.

23. The budget de cit rose from 0.9 per cent of GDP in 1989–90 to 10.8 per cent in 1993–94. This directly contributed to the stock of governmen t debt rising from approximatel y R100 billion to R250 billion. See Gavan Duffy, cited in ‘On Macro-economi c Policy’ at http://www.aidc.org.za/themba/on_macro_ eco_pol.html. Interestingly, this increase in debt of R150 billion could have covered expenditure for essential services in South Africa for nearly twenty years. Business Day (Johannesburg) estimated it would require R90 billion for ten years. 15 September 1998.

24. Most of this paragraph is based on the authors’ interview with Professor Sampie Terreblanche, 15 July 1999, Stellenbosch, South Africa.

25. Philip Dexter, ‘The RDP’, South African Labour Bulletin (September 1995), p. 58.

26. Economic Trends, internal memorandum (1991 ) , cited in Vishnu Padayachee , ‘The evolution of South

38

Neoliberalism in South African Political Economy

27.

28.

29.

30.

31.

32.

33.

34.

35.

36.

37.

38.

39.

40.

41.

42.

43.

44.

45.

46.

47.

48.

49.

50.

51.

52.

53.

54.

55.

56.

57.

58.

59.

60.

61.

62.

Africa’s international financial relations and policy: 1985–1995’, in: Jonathan Michie & Vishnu Padayachee (Eds), The Political Economy of South Africa’s Transition (Dryden Press, 1997) , p. 30.

Karl von Holdt, ‘What is the Future for Labour?’, Southern African Labour Bulletin, Vol. 16, No. 8 (1992 ), p. 34.

Isaac Sam, Business Day (Johannesburg), 15 August 1994.

E. Berg & A. Batchelder , Structural Adjustment—Lending a Critical View (World Bank Country Policy Department , 1985) .

Marais, South Africa: Limits to Change, p. 152.

Business Day (Johannesburg) , 15 August 1994.

Sunday Times (Johannesburg), 17 July 1994.

See Patrick Bond, ‘The making of South Africa’s macro-economi c compromise’, in: Ernest Maganya (Ed.), Development Strategies in South Africa (IFAA, 1996 ).

Robin Lee, ‘Choosing Our Future’, Leadership, Vol. 12, No. 3 (1993 ) , p. 72.

‘Foreword’, Nedcor—Old Mutual Scenarios, South Africa: Prospects for Successful Transition (Juta, 1992 ) .

Lee, ‘Choosing Our Future’, p. 73.

Susan George, The Debt Boomerang: How Third World Debt Harms Us All (Pluto, 1992 ), p. 109.

See Marais, South Africa: Limits to Change, p. 154; and Tom Lodge, ‘Policy Processes within the African National Congress and the Tripartite Alliance’, Politikon, Vol. 26, No. 1 (1999 ) , pp. 5–32.

Sammy Adelman, ‘Capitalising on a New Constitution’, Work in Progress, No. 68 (August 1990 ) , p. 34.

Adam Habib, ‘Defeat in Victory: A Macro-study of the Transition to Democracy in South Africa’ (PhD dissertation in progress, City University of New York, 1996), p. 101. Cited in Michie & Padayachee , The Political Economy of South Africa’s Transition, p. 230. Emphasis added.

Financial Mail (Johannesburg), 4 November 1994.

Financial Times (London ) , 7 May 1994.

Business Day (Johannesburg) , 13 January 1993. Emphasis added.

Weekly Mail and Guardian (Johannesburg) , 17 March 1995.

Financial Mail (Johannesburg), 9 September 1994.

Marais, South Africa: Limits to Change, p. 158.

Ibid., p. 158.

Jonathan Michie & Vishnu Padayachee, ‘The South African policy debate resumes’, in: Michie & Padayachee, The Political Economy of South Africa’s Transition, p. 228.

Marais, South Africa: Limits to Change, p. 158.

Nicholas Oppenheimer , deputy chairman of Anglo-American Corporation and De Beers, London, 10 December 1996, cited on South Africa Foundation web page at http://www.safoundation.org.za /psaecon.html.

The Labour Left Collective, COSATU, the SACP and the ANC: The Parting of the Ways? (Read, Act & Struggle Series, No. 1, August 1998), p. 11.

For a more detailed discussion of the RDP’s genesis, see Lodge, ‘Policy Processes within the African National Congress and the Tripartite Alliance’.

David Ginsburg, ‘The Democratisation of South Africa: Transition Theory Tested’, Transformation, No. 29 (1996 ), p. 87.

Ashgar Adelzadeh & Vishnu Padayachee , ‘The RDP White Paper: The Reconstruction of a Developmen t Vision?’, Transformation, No. 25 (1994 ).

Jesmond Blumenfeld, ‘From Icon to Scapegoat : The Experience of South Africa’s Reconstruction and Developmen t Programme’, Developmen t Policy Review, Vol. 15, No. 1 (March 1997 ) , p. 76.

White Paper on Reconstruction and Development : Government’s Strategy for Fundamental Transformation (Government of the Republic of South Africa, 1994).

Blumenfeld, ‘From Icon to Scapegoat ’, p. 69.

Ibid.

Nicoli Nattrass, ‘The RDP White Paper: A Cocktail of Confusion’, Indicator SA, Vol. 12, No. 1 (1994 ), p. 36.

See South Africa Foundation, Growth for All: An Economic Strategy for South Africa (South Africa Foundation, 1996).

Financial Mail (Johannesburg), 8 March 1996.

Michie & Padayachee , ‘The South African policy debate resumes’, in: Michie & Padayachee, The Political Economy of South Africa’s Transition, p. 224.

39

Paul Williams & Ian Taylor 63. Financial Mail (Johannesburg), 6 October 1995.

64. Ashgar Adelzadeh, ‘From the RDP to GEAR: The Gradual Embracing of Neo-liberalism in Economic Policy’, Transformation, No. 31 (1996 ), p. 67.

65. ‘Growth, Employment and Redistribution: A Macro-economi c Strategy’, unpublished , 1996. For the rather limited of cial debate that greeted GEAR’s arrival, see Debates of the National Assembly, 14 June 1996, Cols. 3041–3099.

66. For a discussion, see Jesmond Blumenfeld, Assessing South Africa’s Growth Strategy (Brie ng No. 49: RIIA, 1998 ).

67. Nancy Murray, ‘Somewhere Over The Rainbow: A Journey to the New South Africa’, Race and Class, Vol. 38, No. 3 (1997 ), p. 5.

68. First vice-president of COSATU, Connie September, cited in Umsebenzi (July 1998 ) , p. 2.

69. SouthScan , Vol. 12, No. 34 (19 September 1997) .

70. Jeremy Cronin, ‘Why the SACP Rejects GEAR’, Weekly Mail and Guardian (Johannesburg) , 10–16 July 1998.

71. Growth, Employment and Redistribution: A Macro-economi c Strategy (1996 ), appendix, p. 10.

72. Adelzadeh, ‘From the RDP to GEAR’, p. 68.

73. Business Day (Johannesburg) , 30 October 1998.

74. See Conrad Strauss, chairman of Standard Bank, London, 10 December 1996, cited on South Africa Foundation web page at http://www.safoundation.org.za /psaecon.html.

75. See Anthony Leysens & Lisa Thompson, ‘A Paper Tiger? Political Implications of an Export-Led Growth Strategy for South Africa’, South African Journal of International Affairs, Vol. 1, No. 2 (1994 ) , p. 56.

76. Quoted in Rob Davies, ‘Engaging with Gear’, mimeo, 1997, p. 3, cited in Marais, South Africa: Limits to Change, p. 161.

77. Heribert et al., Comrades in Business, p. 161.

78. Nelson Mandela interview with John Pilger, cited in John Pilger, Hidden Agendas (Vintage, 1998) , p. 606.

79. For such a justi cation, see Thabo Mbeki’s statement to the National Assembly in Debates of the National Assembly, 14 June 1996, Cols. 3041–3045.

80. James Heintz, National Labour and Economic Developmen t Institute, ‘GEAR: A Labour Perspective’ at http://www.und.ac.za/und/indic/archives/indicator/spring97/HEINZ5.html.

81. National Institute for Economic Policy, From the RDP to GEAR: The Gradual Embracing of Neo-liberalism in Economic Policy (NIEP, 1996 ), p. 2.

82. Nicoli Nattrass, ‘Gambling on Investment : Competing Economic Strategies in South Africa’, Transformation, No. 31 (1996 ) , p. 26.

83. Nattrass, ‘Gambling on Investment’, p. 29.

84. Simon Roberts, ‘Monetary Policy within Macro-economi c Policy: An Appraisal in the Context of Reconstruction and Development ’, Transformation, No. 32 (1997 ), p. 68.

85. Business Times (Johannesburg) , 16 June 1996.

86. Waldmeir, Anatomy of a Miracle, pp. 257–8.

87. Nico Czypionka, economi c consultant , in Cape Times (Cape Town ), 30 October 1998.

88. S.J. Terreblanche, ‘The Ideological Journey of South Africa: From the RDP to the GEAR Macro-economi c Plan’, paper for the conference Transforming Public Life: Religion in the Making of Cultural Values and Public Policy, Cape Town, 16 February 1999, p. 10.

89. Alan Ward, ‘Changes in the political economy of the new South Africa’, in: Francis Toase & Edmund Yorke (Eds), The New South Africa: Prospects for International and Domestic Security (Macmillan, 1998) , p. 38.

90. The Independen t (London ) , 18 December 1997, cited in Lodge, ‘Policy Processes within the African National Congress and the Tripartite Alliance’, p. 27.

91. Of the other committee members, three were from the Developmen t Bank of South Africa, two from South Africa’s Reserve Bank and one from each of the Departments of Trade and Industry and Finance. See Terreblanche, ‘The Ideological Journey’, p. 16.

92. See the results from the latest ‘Gini co-ef cients’ from Wharton Economic Forecasting Associates, Sunday Times (Johannesburg) , 11 July 1999, p. 7.

93. Vella Pillay, The Natal Mercury (Durban ) , 6 March 1996.

40

Alternatives to Neoliberal Governmentality in South Africa.

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Neoliberalism and Economic Justice in South Africa: Revisiting the Debate on Economic Apartheid.

Geoffrey E. Schneider

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REVIEW OF SOCIAL ECONOMY, VOL. LXI, NO. 1, MARCH 2003

Neoliberalism and Economic Justice in South Africa: Revisiting g the Debate on Economic Apartheid Geoffrey E. Schneider Bucknell University gschnedr@bucknell.edu

Abstract Although the political environment in South Africa is vastly improved, economic apartheid still exists: the economic divisions along racial lines created by apartheid are still in place today. Despite these divisions, neoliberal economists continue to press for a largely unregulated market system, which is unlikely to improve the lives of most black South Africans. This paper documents the role neoliberal economic theory has played and is continuing to play in frustrating and opposing fundamental change in the distribution of land, income and assets in South Africa. Neoliberal policies stem from an ideological attachment to free markets, rather than a substantive analysis of how market forces play out in an unequal society like that in South Africa. By choosing to focus on narrowly defined economic criteria such as GDP growth and allocative efficiency, neoliberal economists marginalize the vast problems created by inequality and poverty and thus overlook the potential benefits of a redistributive strategy. Neoliberal economic policies have been installed in South Africa by the ANC via GEAR and other policy initiatives, but these policies have made little progress in solving South Africa’s economic problems.

Keywords:

Apartheid, neoliberalism, economic theory, South Africa

INTRODUCTION How many times has the liberation movement worked together with workers and at the moment of victory betrayed the workers? There are many examples of that in the world. It is only if workers strengthen their organization before and after liberation that you can win. If you relax your vigilance you will find that your sacrifices have

Review of Social Economy ISSN 0034 6764 print/ISSN 1470–1162 online © 2003 The Association for Social Economics http://www.tandf.co.uk/journals DOI: 10.1080/0034676032000050257

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been in vain. You just support the ANC only as far as it delivers the goods. If the ANC government does not deliver the goods, you must do to it what you have done to the apartheid regime.

(Nelson Mandela, address to the Congress of South African Trade Unions 1993)

A debate raged in the 1970s about the relationship between capitalism, racial inequality, and apartheid.1 One of the most provocative salvos in that debate came from Kantor and Kenny, in their 1976 article “The Poverty of Neo-Marxism.” In this article, Kantor and Kenny (1976: 39) argued that “industrialization has certain inevitable consequences. … There will have to be increased physical and social mobility for blacks, employment will to an increasing extent have to be based on achievement and not inherited status, and so on.” In other words, market pressures will inevitably erode the racial inequalities that exist in South Africa. With the advent of neoliberal economic policies in South Africa, courtesy of the African National Congress (ANC), it is a particularly important time to assess neoliberal theories and policies.

Despite recent political improvements, South Africa is still in danger off widespread unrest brought on by the continued presence of economic inequality along racial lines. This inequality was created under apartheid, which amounted to a system of racial capitalism under which black economic activity was severely restricted and black wages were kept artificially low while white workers and white businesses prospered. Although apartheid-era laws limiting black mobility and black voting rights have been removed, “economic” apartheid is being perpetuated in part through neoliberal economic policies. The ideology of apartheid, which kept the races separate and unequal, is being replaced by the ideology of the market, which is helping to preserve that inequality. South African neoliberal economists are using abstract economic theory to justify the preservation off economic apartheid. Neoliberals dismiss suggestions for the redistribution of land, income and assets as a “dangerous fantasy,” and Africans are being told over and over again that South Africa is not rich enough to support widespread redistribution and an expansion of basic services to all citizens.2 Yet Y et black South Africans, who have so far been admirably patient as they waitt for substantive economic changes, have legitimate claims for redistribution, restitution and reparations. This paper will documentt the role neoliberal economic theory has played and is continuing to play in opposing the redistribution of land, income and assets in South Africa. I argue thatt this stance is based fundamentally

1 For a comprehensive study of the debate over the relationship capitalism and apartheid, see Schneider (1997).

2 See, for instance, Moll (1991).

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NEOLIBERALISM AND ECONOMIC JUSTICE IN SOUTH AFRICA

on ideology and not on substantive analysis, stemming in particular from neoliberal economists’ penchant to ignore the problems created by inequality and their pursuit of narrowly defined economic goals and criteria. By ignoring the social costs of inequality, in particular the instability created by an economy which does not effectively serve the majority of the population, neoliberal economists abstract from reality and ignore the economic benefits that could stem from developing an economy from the bottom up.

In the first part of this paper I document early (neo)liberalism in South Africa and its somewhat ambiguous attitudes towards redistribution and affirmative action. Subsequently, I survey current neoliberal attitudes in South Africa, analyzing the role neoliberal economic theory is playing in opposing the substantial redistribution of land, assets and income in contemporary South Africa. The ANC has successfully brought comprehensive neoliberal economic policy to South Africa, something generations of neoliberal economists were unable to do underr apartheid, bbutt so far these policies have failed to benefit most black South Africans.

EARLY LIBERALISM IN SOUTH AFRICA Prior to 1970, South African liberals generally opposed apartheid but had somewhat ambiguous attitudes towards racial segregation. In the 1930s and 1940s, many South African liberals, including R. F. A. Hoernlé, the director of the South African Institute of Race Relations and a leading liberal philosopher, viewed racial separation as a possible solution to South Africa’s racial problems.3 Many also advocated gradually phasing in voting and economic rights as blacks became detribalized, instead of supporting full rights for blacks. Martin Legassick (1976: 237) concludes that “liberals acted to reproduce the particular racially differentiated structures of South African capitalism.” Hence the neo-Marxist criticism that liberals generally supported the status quo in South Africa, whereas “it was the Communist Party and African nationalist organizations which were the most articulate exponents of democratization” (Legassick 1976: 239). Thus from its early foundations, South African liberalism was paternalistic, segregationist, and somewhat ambiguous towards expanding rights to Africans.

W. H. HUTT AND THE INDUSTRIALIZATION THESIS W. H. Hutt, an influential and polemical South African liberal, was quite critical of apartheid. As an economic libertarian with absolute faith in the powers of the free market, Hutt’s solutions to apartheid evolved along lines that were unacceptable to 3 See Rich (1984) for a detailed discussion of liberal views on segregationism.

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most blacks in South Africa.4 For example, Hutt viewed apartheid as inefficient and anti-capitalist.5 The discrimination inherent in apartheid was an attempt on the part of white labor to preserve economic privileges; the fact that discrimination occurred along racial lines was incidental to the South African case. “The chieff source of color discrimination is, I suggest, to be found in the natural determination to defend economic privilege, non-Whites simply happening to be the essentially underprivileged groups in South Africa” (Hutt 1964: 27). To Hutt, capitalists must have generally opposed apartheid because legally enforced discrimination created a shortage of black skilled labor and increased the costs off production. This belief was not based on empirical observation (and has been contradicted by both liberal and non-liberal scholarship), but instead was a productt of his ideological views about the functioning of markets.

Hutt’s faith in the redistributive powers of the free market led him to conclude that no redistribution of any kind was necessary in South Africa: all that was necessary was the elimination of apartheid restrictions and the free market would tend to equalize incomes. Eliminating minimum wages and freeing up labor markets (to allow blacks to enter reserved professions) would cause privileged, white workers’ wages to fall, while Africans who previously were excluded from work would now find work and see higher incomes (Hutt 1986a).

Hutt’s belief in consumer sovereignty, where consumers buy a product for the best value, regardless of who produces it, and producer sovereignty, where rivalrous competition prevents racism because firms must produce at least cost, allows him to conclude that “competition is essentially an equalitarian force” because it hinders discrimination (Hutt 1964: 175). Hutt thought that the elimination of apartheid restrictions would benefit black South Africans more than other groups since, as the cheapest laborers, they should be the first hired after the restrictive apartheid labor laws were repealed.6 4 There are two strains of liberalism in South Africa. A conservative, libertarian strain is prevalent in parts of the business community and in certain academic circles. A moderate, reformist strain of liberalism also exists in many universities, basing its intellectual foundations on the work of Rawls and Sen instead of Hutt and Friedman.

5 In much of the pre-1980 literature on South Africa there is a tendency to lump all capitalists into one or a few groups. While this is an oversimplification, to convey a sense of the kind of scholarship that South African economists engaged in I have used the term capital as it was used by South African authors.

6 In order for this analysis to hold, Hutt must be assuming that no significant human capital differences exist between races or that human capital differences will be eliminated rapidly. Given the vast differences in access to education, this seems unrealistic in anything but the extremely long run. Data from South Africa suggest that the black share of income has increased somewhat since 1970, but also that wage gaps within the black community have increased (see Sherer 2000). This implies that some blacks indeed benefited from the relaxation of apartheid, but others have not yet profited and may not for some time. Further, it implies that Hutt’s analysis is incorrect, or at best incomplete, in that the blacks with the most human capital have benefited most, while those at the very bottom have benefited least.

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Since competition was an equalitarian force to Hutt, he opposed any restrictions to competition, including labor unions. Instead of improving the lot of blacks, Hutt believed labor unions increased wages for the few but hurt blacks as a group due to higher business costs and decreased hiring. “Virtually the only legislative provisions which have facilitated the rise of the Africans in the economic sphere have been those which have prohibited or otherwise hindered their right to strike” (Hutt 1964: 108).7 This view was particularly unattractive to black Africans who thought organization along union lines was their only hope to wring concessions from the government. Many liberals also found Hutt’s views too extreme.8 Yet views very similar to Hutt’s on the functioning of markets and discrimination, state instrumentalism, and capitalism and apartheid pervade much of the libertarian camp of modern South African neoliberalism.

Hutt’s nearly complete absolution of business owners’ responsibility forr apartheid and his opposition to the redistribution of assets caused a good deal off criticism from many groups, including the Black Consciousness Movement and the neo-Marxists. N Neo-Marxists were especially effective in criticizing Hutt and other liberals as apologists for the status quo, and in the process they struck a chord with black nationalist movements seeking to eliminate apartheid.9 The effectiveness of the neo-Marxist critique caused significant changes in liberal thought in South Africa. “Liberal scholars, responding to the neo-Marxist critique, have slowly begun to refurbish their traditional conceptual tools, making, in the process, significant acknowledgments of the usefulness of class perspectives” (Welsh 1987: 185). One of the most obvious results has been that neoliberals admit the culpability of some capitalists in apartheid’s exploitation and recognize the benefits that affirmative action and limited redistribution might have on a polarized society like that in South Africa. Nevertheless, contemporary neoliberals in South Africa still believe fundamentally in the free functioning of markets as the key to economic development and to helping black South Africans.

MERLE LIPTON’S NEOLIBERAL VIEW OF APARTHEID Merle Lipton, a contemporary neoliberal economist, attempted the same kind of comprehensive analysis of apartheid that Hutt undertook, and she corroborated many of Hutt’s findings. Yet she explicitly acknowledged the hand that mine 7 There is a long tradition in the literature on apartheid of using the word “African” when referring to black South Africans. This stems from the apartheid-era government’s racial classifications and not from any bias on the part of the authors.

8 For instance, see Nieuwenhuysen (1965), Lipton (1985) and Butler and Schreuder (1987).

9 The neo-Marxist critique began around 1970. See especially Johnstone (1970), Wolpe (1970) and Legassick (1975). On the connection between neo-Marxists and black nationalism, see van den Berghe (1979: 2).

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owners and white farmers had in establishing apartheid and the benefits which these groups received as a result of apartheid.

According to Lipton, apartheid was functional for white agriculture and mining because it created large supplies of cheap, unskilled labor. The abundance of unskilled labor was beneficial for many businesses until rapid growth in the South African economy in the 1960s and 1970s resulted in the increasing prominence of manufacturing and services, sectors more dependent on skilled labor. Technological advances in mining and agriculture increased the need for skilled labor in these sectors as well. As the importance of skilled labor grew, apartheid restrictions which prevented blacks from working in skilled jobs became increasingly costly to businesses. Thus Lipton confirmed Hutt’s thesis that apartheid was costly to virtually all businesses, while admitting that apartheid was once beneficial for some of them.

Lipton also agreed with Hutt’s contention that economic growth was the primary factor contributing to the erosion of apartheid. Hutt (1964: 82) argued thatt economic growth helped to undermine apartheid by expanding opportunities for blacks and forcing businesses to circumvent apartheid labor restrictions in orderr to increase output. Lipton (1985: 310) concurred, adding that growth strengthened black workers as well as capital-intensive employers who needed skilled labor, two groups that were pressing for change. It is certainly reasonable to argue that economic growth undermined certain apartheid policies, including pass laws and influx control, as blacks flocked to the cities and employers circumvented labor restrictions.10 However, it is quite another matter to argue that apartheid was inefficient and uneconomic. When the path of erosion of apartheid from 1970 is compared with GDP growth rates, a different picture emerges. As Table 1 below indicates, South Africa’s economic growth rates were high in the 1950s and 1960s under severe repression, while growth rates slipped in the late 1970s and 1980s when apartheid was being eroded. Furthermore, the fact that economic growth was high in South Africa throughout the 1960s and early 1970s despite apartheid restrictions demonstrates that apartheid could not have been too costly and restrictive for businesses. In addition, the relaxation of specific apartheid policies is different from the destruction of economic apartheid. If the goal of whites was to preserve their high standard of living, then allowing some apartheid policies to lapse in order to preserve economic growth while allocating greater rights to blacks to quell unrest are rational actions taken in an effort to preserve the economic status of whites. Thus, the move away from apartheid and toward a free market philosophy can be seen as an effort to preserve economic apartheid instead of as part of the elimination of apartheid.

10 This fact is acknowledged by F. W. de Klerk (1999: 73).

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29

3.8 4.8 4.2 3.5 – 4.5

1950–1960 4.1 5.3 5.3 5.2 – 6.5

1960–1965 4.7 6.3 4.8 4.8 5.3 5.8

3.8 6.0 3.2 4.4 3.6 4.1

4.3 4.8 3.3 3.2 3.6 2.9

5.8 1.6 2.4 1.1 2.4 1.1

5.9 2.0 3.4 2.5 3.4 1.8

7.4 0.9 1.9 2.1 2.2 1.2

1965–1970 1970–1975 1975–1980 1980–1985 1985–1990 1990–1996

Sources: World Bank (1998) and Reserve Bank of South Africa. South Africa also is included in the middle-income group.

Low income Middle income High income (OECD) Sub-Saharan Africa World South Africa

Year

Table 1: Annual Growth in Real GDP, South Africa and the rest of the world (%)

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Lipton also discounted the role played by the black resistance and international sanctions in the collapse of apartheid. While market forces no doubt played some role in undermining certain apartheid restrictions, Lipton’s exaggeration of the role of markets in eroding apartheid demonstrates the ideological character of her work. F. W. de Klerk (1999) acknowledged that slow growth and mounting unrest reinforced pressures for reform coming from within the Afrikaner community.

Such reform pressures were muted when the apartheid economy was performing well. De Klerk himself admits his support for grand apartheid “until I finally concluded … that, if pursued, it would bring disaster to all the peoples of our country—including my own” (de Klerk 1999: xviii–ix). The militant struggle off anti-apartheid activists, including strikes and boycotts, clearly was one of the factors contributing to the erosion of apartheid. f Similarly, sanctions had a substantial economic effect on South Africa which contributed to reform efforts. It is estimated that sanctions reduced the South African economy’s economic growth by about 1.5 percent per year in the 1980s and early 1990s (de Klerk 1999: 70). Financial sanctions and reductions in direct foreign investment (due to sanctions and domestic unrest) were particularly costly (Carim et al. 1999). A more balanced assessment of the factors behind the erosion of apartheid would include sanctions, external pressures, fissures within the Afrikaner community, intractable economic problems, civil unrest, and the end off the cold war.11 Nevertheless, by acknowledging the benefits of apartheid for some businesses, most notably the advantages of access to cheap, unskilled labor, trade protection and security, Lipton improved on Hutt’s analysis. These benefits were countered by thee shortage of skilled labor and the cost of maintaining the elaborate apartheid apparatus (Lipton 1985: 7). Thus businesses were not affected uniformly by apartheid. Labor-intensive industries tended to support apartheid while capitalintensive and skilled-labor-intensive industries tended to oppose it. Hutt (1964) along with Horwitz (1967) ignored the former in their efforts to paint all capitalists as anti-apartheid reformers. To Hutt, capital opposed apartheid because of its costs; to Lipton (1985: 119–120), business owners supported government efforts to maintain order and lower costs but opposed measures that increased their costs.

In order to show that business owners and managers generally came to oppose apartheid, Lipton (1985: 179) argued that “the influence of [political stability] declined as the political costs of apartheid rose and it became a source of tension imperiling the stability it was supposed to protect.” Since apartheid’s costs 11 See Crawford and Klotz (1999) for a comprehensive review of the factors that contributed to the fall of apartheid, especially Neta Crawford’s chapter “Trump Card or Theater?”

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increased due to the skilled labor shortage and political unrest, there was little reason for any businessperson to continue their support for the apartheid government. “The rising political costs of apartheid were to be seen in the radicalization of young blacks, who were turning to Marxism and particularly black consciousness, and in the alienation of the black middle class and elite, whom capitalists regarded as their potential allies” (Lipton 1985: 231). Here Lipton implies that violence on the part of black militants was successful since it raised the political stakes and increased the cost to businesses of supporting the government, although Lipton prefers to credit economic growth with the demise of apartheid.

Lipton (1985: 365) then combined elements of Hutt’s analysis with class analysis to conclude that apartheid’s origins can be found in the complex interaction between class interests and racism, reinforced by security factors. It is only when ethnic and class elements combined that discrimination occurred in South Africa. When class and ethnic interests diverged, apartheid was eroded. “[E]conomic growth and “Afrikaners First” policies gradually transformed white labor into a bureaucracy and created a group of Afrikaans urban and mining capitalists, who came to share the interest of other employers in eroding apartheid.

These diverging class interests eventually tore apart the nationalist alliance” (Lipton 1985: 281).12 Thus economic factors dominated ethnic factors when the two conflicted.13 This conclusion is strikingly similar to that off Hutt, who believed that economic ffactors are the sole reason for discrimination. B But Lipton’s analysis is both more complex and less dogmatic, allowing for a small but independent role for ethnic factors in her analysis. Nevertheless, once again we are left with a neoliberal scholar who concludes that apartheid was inefficient and antithetical to economic growth, despite some inconsistencies with available evidence. This allows Lipton to propose that free markets created by the removal of apartheid restrictions are a viable solution to South Africa’s economic crisis, as opposed to fundamental redistribution of income and assets.

12 Lipton overlooks D. O’Meara’s (1983) cogent analysis of the economic roots of the apartheid movement within the Afrikaner community. O’Meara demonstrates conclusively that apartheid was orchestrated by Afrikaner business and financial interests, but the economic interests behind apartheid were masked by the religious and ideological components of the apartheid platform.

13 If white Afrikaners did indeed change classes under apartheid, becoming bureaucrats and capitalists, then white resistance to the 1994 elections in South Africa must have come from the few remaining white laborers and white bureaucrats who feared they would lose their jobs under the postapartheid government. Another possibility is that whites feared the appropriation of land and assets under the new government. Either way, economic factors prompted some whites to oppose the elimination of apartheid and the elections. This contradicts Lipton’s argument that economic factors caused whites to oppose apartheid. Such blanket generalizations are not warranted.

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AN OVERVIEW OF NEOLIBERAL ATTITUDES EXISTING PRIOR TO MANDELA’S RELEASE Neoliberals such as Lipton preserved many of the basic tenets of the libertarianism espoused by Hutt. Some liberals such as U.S. economist Walter Williams (1982, 1989) echoed virtually all of Hutt’s arguments.14 Most South African liberals preserved some of Hutt’s analysis and discarded the most polemical. The aspects of Hutt’s analysis almost universally present in neoliberalism include the following: 11) the free market is efficient; 2) free markets inhibit racism and help blacks in South Africa; 33) the state is an instrument used to benefit the groups who control it; 4) growth undermines racial discrimination; 5) economic factors outweigh other factors like security and racism; 6) some of apartheid’s measures may have been based upon good intentions; and 7) most business people did not support apartheid and they were not primarily responsible for its installation.

These tenets are given fuller discussion in what follows below.

1) The most consistent principle present in all neoliberal work is the notion that thee ffree market is efficient. For example,, Archer (1987: 348) argued that the fear off ffailure and of individual material and moral loss is necessary for efficiency. Even those neoliberals who admit that a democratic socialist government might be good for South Africa want to preserve some aspects of a market system due to its efficiency.15 “Markets are integral to a redistributive strategy, on grounds of their efficiency and consistency with ends broadly socialist. Market instruments do not imply embodiment in market-driven private-property systems” (Archer 1987: 348).

However, a frequently cited corollary to the neoliberal argument that markets are efficient is that the removal of market restrictions will generate growth and improve equality, making government redistribution less essential (Simkins 1987: 235).

2) Neoliberals also believe that, via competition, free markets inhibit racism and help blacks in South Africa. Like Hutt, neoliberals believe the “discipline of the market” limits discrimination (Bromberger and Hughes 1987: 213). According to this line of argument, blacks have benefited tremendously from capitalism in South Africa (as evidenced by the higher standard of living for South African blacks when compared with other blacks in southern Africa), and now that apartheid restrictions have been eliminated they will benefit even more. However, by focusing on income alone, this argument obscures the fact that blacks in South

14 Williams even agrees with some of Hutt’s more radical ideas, such as the notion that minimum wage laws in South Africa hurt Africans the most. Representatives of the IMF recently echoed this argument.

15 Efficiency in the South African neoliberal context refers to allocative efficiency, not other measures of efficiency such as Keynesian and Schumpeterian.

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Africa fare very poorly when other factors, such as life expectancy, rates of adultt literacy, and infant mortality, are considered, as Table 2 below demonstrates.

3) In keeping with neoliberal interest group theory, the state is viewed as an instrument used to benefit the groups that control it. For example, Jill Nattrass (1987: 354) argued that “It is virtually certain that people who find they have political power but lack economic muscle will use the former to seek to gain the latter.” Neoliberals accused the National Party of catering to white labor, white agriculture and Afrikaners during the apartheid era. Similarly, the ANC is criticized for acquiescing to the demands of organized black labor and various tribal interests.

According to liberals from Hutt to the present, the only way to prevent such abuses is to limit the power of the state.16 Furthermore, running a country efficiently is difficult, especially given the vast state apparatus that exists in South Africa. Since “the technical problems of coordinating an economy are … formidable,” Archer (1987: 344) agued that the ANC should choose a decentralization of authority, devolution of decision-making, legitimation of enterprising activity, and equilibration of social need with availability through the market mechanism. In other words, the ANC-led government should abandon any notion of nationalization, redistribution and the expansion of the state for the wonders off the market. As we will see below, this is exactly what the ANC did.

4) Like Lipton and Hutt, neoliberals contended that it was the pressures created by economic growth that destroyed apartheid, and that growth tends to undermine racial discrimination by increasing the demand for black labor and providing more opportunities for blacks.17 5) Similarly, although neoliberals are not as preoccupied with economic factors as Hutt, they generally conclude that economic factors outweigh other Table 2: Selected Social Indicators in South Africa in the 1980s

Life expectancy at birth (years) Rates of adult literacy (percent) Infant mortality (Deaths per 1,000 live births)

White

Colored

Asian

Black

69.5 99.3 13.2

58.6 84.5 57.5

65.5 92.4 17.4

58.5 67.0 57.4

Source: Lachman (1992).

16 Evidently working on ways to insure an effective state apparatus is inconceivable or impossible.

17 See T. Moll (1991) and Louw and Kendall (1986) for examples of the argument that growth will help end racial disparities better than attempts at redistribution.

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(racial/ethnic) factors. In order to argue that whites discarded apartheid willingly, neoliberals must prove apartheid lowered prosperity, and that prosperity and an uncertain future was more acceptable to whites than the racism and security provided by apartheid.

Hutt and Lipton devoted many pages to the argument that apartheid reduced prosperity due to labor market restrictions, despite the extraordinary growth South Africa experienced from 1950 to 1975 under apartheid. Correspondingly, Bromberger (1974: 104) argued that whites would “trade security for increased prosperity on the margin.” And Lipton and Hutt both argued that racism was an attempt to preserve economic privilege. By placing prosperity above other interests, neoliberals were able to conclude that whites must have discarded the apartheid system because it reduced affluence below the level that a free market system would produce. W Whilee the argument that apartheid eventually became inefficient has some merit, it is difficult to disentangle this effect from other factors responsible forr declining white affluence in the latter stages of apartheid, including black militancy and international sanctions (see p. 30 above).18 6) Neoliberals also claimed that some of apartheid’s measures might have been based on good intentions. Not all of apartheid’s policies were intentionally racist.

Bromberger and Hughes (1987: 209) argued that if seizures of land, pass laws and influx controls are ignored, African reserves (Bantustans) could be justified as a device to slow the transition to a modern economy. Such views are similar to the paternalistic attitudes of early South African liberals. However, Burawoy (1981) counters that the transition to a modern economy had already occurred by the 1940s, making the creation of the reserves under apartheid an act of repression instead of a paternalistic attempt to preserve native culture.

Along similar lines, Michael O’Dowd (1974: 34) believed that South Africa was not particularly unequal or unjust for its level of development: “Injustice of the kind which exists in South Africa is not merely normal in a developing economy, it is absolutely universal and if not inevitable has certainly never yet been avoided.” O’Dowd’s argument is unconvincing, however, given that in 1975 the Gini coefficient for South Africa was measured at 0.68, which was higher than the Gini coefficient for any economy for which household income data was available.19 Under apartheid, South Africa was the most unequal society on earth.

18 In most neoliberal theory on this topic, black militancy and sanctions are viewed as factors that prolonged apartheid by reducing economic growth, thereby mitigating certain pressures for change (such as urbanization and increasing black incomes). However, if unrest and sanctions are viewed as additional inefficiencies created by apartheid, neoliberal theory would be better able to explain the demise of apartheid during the slump from 1975–1994 when the South African economy shrank by 0.6 percent.

19 Typically, western economies have Gini coefficients ranging from 0.31 to 0.40.

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7) Generally, liberals place most of the blame for apartheid on Afrikaners, especially those Afrikaners making up white labor, white agriculture and the National Party.20 According to neoliberals, most business owners did not support apartheid, and they were not primarily responsible for its installation. Yet Johnstone (1976) and O’Meara (1983) clearly document the connections between racist government policies and segments of the English and Afrikaner business community, especially mining magnates. This then leads to the neo-Marxistt argument that the redistribution of wealth accumulated under apartheid is a moral imperative necessary to restore South African wealth to the once-oppressed part off the population.

While neoliberals did preserve many of Hutt’s ideas, they also adapted their position in response to the neo-Marxist critique. Allegations of the mutually supportive roles of white domination and capitalism were first enunciated by neoMarxists around 1970, after the strong economic growth of the 1960s (Bromberger and Hughes 1987: 222–223). Neo-Marxists argued that the system of racial capitalism in South Africa actually generated prosperity for whites and poverty for blacks. The underdevelopment of the African reserves was a key condition of the development of mining and agriculture in South Africa, and all sectors of the economy depended on the exploitation and cheap labor provided by apartheid (Wolpe 1972). Under apartheid, the market directly and indirectly biased economic processes towards whites, and because of biased processes, inequality in South Africa increased over time. The goal of apartheid was white economic supremacy, and growth simply reinforced inequality by generating more wealth and power for whites (Johnstone 1976: 136).

Neoliberals dismissed these arguments, preferring the standard liberal claims that growth eroded apartheid and that the state and white labor promoted apartheid while most business people did not. Terence Moll (1990) even attempted to prove that South Africa’s spectacular economic growth under apartheid was not particularly unusual by comparing South Africa to other developing countries.21 Other neoliberals such as Bromberger (1974, 1977) and Lipton (1985) argued that South Africa’s growth would have been even higher without apartheid, although

20 It is interesting to note here that most of the liberals and neoliberals have been of English background. Instead of blaming English capitalists for apartheid, as the Marxists do, they blame Afrikaners for almost all of apartheid’s ills. Neoliberals like Lipton are less likely to place all of the blame on Afrikaners, but still generally conclude that Afrikaner labor and agriculture were the sectors primarily responsible for apartheid.

21 It is clear from table one that South Africa’s economic growth was extremely strong during the implementation of apartheid in the 1950s and 1960s, so it is difficult to maintain that apartheid slowed economic growth under all circumstances.

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this argument is impossible to substantiate and is based entirely on the ideological assumption that unregulated market forces invariably generate greater growth than regulated markets.

In spite of their disagreement over the relationship between apartheid and growth, the neo-Marxists influenced other neoliberal views. Most notably, the solutions that neoliberals propose to the problems created by apartheid take into account black aspirations more than ever before.

Initially, neoliberals attempted to identify exactly why blacks and Afrikaners had rejected liberalism in South Africa. Dickie-Clark (1979: 50) proposed four main reasons: 1) exploitation was too easy and too profitable for whites to be interested in liberalism; 2) the non-violent emphasis of liberals did not attract blacks; 3) the liberal abhorrence of communism prevented ties with the ANC because the ANC welcomed communists; and 4) liberalism’s support of qualified franchise as a transitional step towards full democracy and lack of support for boycotts and passive resistance further alienated blacks.

In order to become more relevant in the debate on South Africa’s future, neoliberals began to address black demands more directly. For example, the neoliberal response to black demands for redistribution and justice was a concentrated effort to lower black expectations and to promote the market system as an alternative to socialism under which blacks would be better off. Archer (1987), Nattrass (1987) and Simkins (1987) all argued that South Africa could not possibly afford all of the things the ANC wanted in the Freedom Charter. “Extensive recourse to the tax-transfer mechanism is not possible unless there is fat in the system. To be more egalitarian under capitalism, you must be rich first” (Archer 1987: 338). While rich by African standards, neoliberals did not believe South Africa was rich enough to consider extensive transfers.

Meanwhile, neoliberals promoted the efficiency of capitalism and decentralization while denigrating socialism and central planning. But just in case the postapartheid government eventually chose a socialist system, neoliberals argued that the preservation of some market mechanisms was necessary to make a democratic economy viable. “One does not have to buy the ideological baggage of idealized markets, private property, and adherence to individualist goals: … a price system and some market institutions are necessary for efficient allocation” (Archer 1987: 345). The key is making a distinction between the allocative and distributive functions of the market system (Archer 1987: 348).

Neoliberal support of market socialism should in no way be confused with wholehearted advocacy of such a system. Neoliberals still favor capitalism and private ownership because they tend to “foster the liberal values of freedom, equality, prosperity and justice” (Butler et al. 1987: 7). But while capitalism is viewed as the best means to achieve the wealth necessary for a just society, 36

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laissez-faire capitalism is not the central neoliberal value, nor is the rule of law designed to perpetuate the status quo (Butler et al. 1987: 13).

One of the most striking results of the neo-Marxist critique is the increasing emphasis on distributive justice found in reformist neoliberalism. Cooper (1991a) argues that welfare economics and libertarianism is dominated by a Paretian dogma which ignores distributive justice.22 Neoliberals who accept social justice as an important goal acknowledge the usefulness of affirmative action and the redistribution of land and assets in improving distributive justice.

Cooper (1991a: 67) maintains that conservative politics is responsible forr the “ideology of the market being developed to take the place of apartheid ideology.” The libertarianism of Hutt has been co-opted by Afrikaners and business interests, causing problems for reformist neoliberals in the process.

Expressing his disagreement with libertarianism in the South African context, Cooper (1991a: 64) argues that “acceptance of Paretianism and the free market philosophy implies support for the distributional status quo. This inherent conservatism is incompatible with liberal principles… .”

However, some neoliberals who acknowledge the importance of distributive jjustice ustice assert that economic growth is more important. F For Archer (1987: 349) the key strategic question for the ANC is “What economic arrangements will bestt allow the pursuit of equity without jeopardizing long-term growth?” Growth and efficiency take priority over distributive justice.

Another trend in neoliberalism is the shift away from individualism toward a more explicit recognition of group rights. Dickie-Clark (1979: 52) argued that neoliberals tend to overemphasize individualism to such an extent that “liberalism has come to regard as universal certain human needs and characteristics which, in fact, are displayed only by the ‘detribalized’.” The movement away from individualism is especially apparent in several proposals that called for a decentralized government as the only governmental structure that adequately addresses group rights. Decentralized governments were advocated by libertarians such as Louw and Kendall (1986) as well as Afrikaner and Zulu leaders who wanted autonomy from the central government during the negotiations preceding the 1994 elections.

Meanwhile, other neoliberals advocated quite different types of governmental arrangements. Political conservatives, following Hutt’s proposals, wanted unregulated markets and property rights. Political liberals making up the reformist wing

22 Melck (1991) responds that welfare economics is static and theoretically neutral. The free market approach relies on growth to make everyone better off. Cooper (1991b) replies that we should not put efficiency and growth above equity, and that the distribution of the gains from growth will be unequal.

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of neoliberalism in South Africa instead emphasized limited redistribution, moderate affirmative action, and a regulated market system. The only common aspects of the neoliberal proposals for post-apartheid South Africa seem to be the advocacy of freedom, democracy, and market mechanisms.

These characteristics of neoliberal thought in South Africa have carried over into current debates over redistribution. The more dogmatic libertarians argue againstt extensive redistribution and emphasize the growth and efficiency of market-based solutions. Other neoliberals want to see redistribution, but only in such a way that does not fundamentally alter property rights and private enterprise. Thus neoliberal economic theorists continue to oppose distributive justice on the grounds of economic efficiency.

NEOLIBERALISM SINCE MANDELA’S RELEASE FROM PRISON Since Nelson Mandela’s release from prison in 1990, neoliberal South African economists have been addressing the concepts of redistribution and affirmative action with increasing urgency. Consistent with previous views, they stress efficiency, stability and incentives, which they argue are necessary for economic growth. Throughout the recent neoliberal literature on South Africa is the call for more investment, and measures to restore investor confidence through the stabilization of property rights, the enforcement of contracts, and the removal of uncertainties (Lipton and Simkins 1993: 29). The role that redistribution plays within the context of these traditional liberal aims varies from individual to individual.

One of the most contentious debates in contemporary South Africa surrounds the issue off land reform. Under apartheid, blacks were forcibly removed from theirr land under the various land acts that pushed blacks onto the 14 percent of South Africa defined as black homelands.23 Some black lands were seized as recently as 1984. Due to the legalistic nature of apartheid, in many cases immaculate records were kept detailing which blacks owned land before these removals. Thus substantial restitution of land is possible, but for liberals Baber and Nieuwoudt (1992: 217), “restitution should neither destroy the productive potential of the agricultural sector, nor the ability of the economy to grow. This places a definite limit on the number of possible claims for restitution which could be justly met.”

Similarly, resettlement efforts should be targeted at those who have the most potential, based on “their commitment to agriculture, farming ability, potential

23 These land acts include the Natives Land Act of 1913, the Natives Trust and Land Act of 1936, and the Group Areas Act of 1966.

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productivity, and the provision of capital” (Baber and Nieuwoudt 1992: 216). Thus land reform is an explicit goal of South African neoliberals, but it must nott compromise food production, and it should be based on efficiency rather than equity. As Hughes (1993: 70) argued, “In South Africa making non-skilled persons into owners will do little damage if they become mere passive shareholders, but not if they are powerful proprietors.”

Given their unabashed support for market-based solutions, the neoliberal argument against the restitution of land to its rightful owners is conspicuously inconsistent. If markets work so wonderfully, it should not matter who owns the land. T The owner will either use the land productively or she/he will sell it or rent it to someone who will, given the incentives provided by a free market in land and agricultural goods. Thus arguing against restitution is implicitly arguing against a market-based solution given the nature of African society, where traditional tenure arrangements and affection for the possession of land might dictate less than optimal land use.

Ironically, while neoliberals argue that land should not be redistributed to blacks because it would compromise agricultural efficiency, Lipton (1993: 364) notes that labor-intensive smallholder African agriculture is an efficient and low cost method of providing jobs. Since African smallholders use significantly more labor on smaller plots of land, their yields are often just as efficient as larger, more capital-intensive farms, especially given the large pool of unemployed laborers.

Yet in the same article Lipton (1993: 401) advocated redistribution to those who Y wish to farm over restitution to those who were thrown off their land. In order to maintain the legitimacy of property rights and current production levels, Lipton prefers the costs of land redistribution to be borne by the state, and not by those who abided by apartheid laws and benefited from the apartheid system.224 Thus an explicit repudiation of the effectiveness of traditional economic incentives leaves neoliberals to conclude that redistribution will damage efficiency in South Africa and must be done in a way that puts efficiency ahead of justice!

The lack of an agricultural tradition within the black community in which surplus food is produced for the market points to a larger flaw in neoliberal analysis. Since black market institutions were suppressed under apartheid, there is

24 In fact, the ANC’s Reconstruction and Development Program (RDP) adopted just such a program. “The RDP committed the ANC to aiming at the transfer of 30 percent of farmland to black smallholders by 1999; principally existing state land at first, and then secondly land repossessed from indebted white farmers … rather than through land expropriation” (Porter and Phillips-Howard 1997: 192). But “It is now clear that the national land reform program will take considerable time to implement and that land redistribution across South Africa will be far more restricted than many originally hoped” (Porter and Phillips-Howard 1997: 192).

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little entrepreneurial tradition in much of the black community. To argue that market-based solutions will operate efficiently and effectively in South Africa completely ignores the historical-institutional characteristics of much of the South African economy.

Even modest proposals for state-led redistribution are significantly more generous than those proposed by market aficionados, who prefer simply to eliminate subsidies for white agriculture and let blacks freely purchase land from whites in formerly reserved areas. Under this free market approach, the redistribution of land will occur naturally in the absence of restrictive apartheid regulations. The intellectual heirs to W. H. Hutt, businessmen and libertarians argue that state-led redistribution runs the danger of being politically co-opted in addition to compromising agricultural efficiency. But it is unlikely that there will be significant market-based redistribution given existing inequalities of income, opportunity and education, so it is difficult to imagine any significant change in ownership under such a plan any time soon.

In the Reconstruction and Development Program (RDP), the ANC (1991, 1992) argued that restitution was necessary in order to establish the legitimacy of property rights and that 30 percent of decent agricultural land should be redistributed within five years of free elections. Meanwhile, other groups such as the Pan Africanist Congress (PAC) and the South African Communist Party (SACP) wanted to go even further, calling for radical redistribution or even expropriation without compensation (Lipton 1993: 364). It is difficult to reconcile the meager white offerings with the opinions of black leaders, and since blacks continue to question the legitimacy of existing property rights, this could be a significant source of future problems for the government and for neoliberal economists.25 Nevertheless, the ANC redistributed less than 1 percent of decent agricultural land in its first term in office, demonstrating the extent to which they have backed off their call for significant redistribution.

Similar debates exist over the minimum wage. As part of their redistribution r with growth philosophy, the ANC pushed for a higher minimum wage, hoping that “a new larger market would be created for food, clothes, cars and many otherr consumer goods” (P. Moll 1991: 81). P Peter Moll (1991: 81) counters that this approach “ignores the problem of enforcement and the problem of the slack labor market.” Because of enforcement difficulties, the minimum wage can only be applied to large, formal sector workers, who are already unionized and better off than informal sector workers and rural residents. In addition, Peter Moll 25 Indeed, a poll conducted in 2000 in black South African townships by the Sunday Independent newspaper indicated that 54 percent of residents supported Zimbabwe war veterans’ invasion of white land (Nevin 2000).

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(1991: 81–82) argues that in the long run such wage increases will result in less job creation and more capital-intensive production. On the opposite side, trade unions like COSATU argue for a high minimum wage on the grounds of justice and demand-led economic growth in a nation in which black demand has been systematically undermined, something Hutt alluded to in 1964.

COSATU also is concerned about certain provisions in the constitution allowing firms to hire replacement workers in place of strikers. In 1996 they went on strike to protest this provision and lobbied for its removal from the constitution that was being negotiated at the time. As COSATU’s deputy secretary Zwelinzima Vavi noted, conservatives and businesses want to “entrench inequality, to entrench the consequences of colonialism” (Maykuth 1996). While critics cite the highly organized nature of South African labor and their relatively high wage rates, it is also important to recognize the “extreme concentration of ownership and the monopolistic and oligopolistic structure of much of the South African economy” (Lipton and Simkins 1993: 29). In fact, the top five conglomerates in South Africa control 80 percent of the companies on the Johannesburg Stock Exchange. This is the byproduct of years of exchange controls which kept money in South Africa, as well as international divestment policies which allowed South African companies to snap up foreign interests (Gerson 1993: 164). Thus in South Africa, the countervailing power of the unions seems essential in promoting the interests of black workers. South Africa’s extreme level of industrial concentration also may warrant significant anti-trust efforts, but the ANC has yet to address this issue substantively.

The affirmative action debate centers on the perceived problems with affirmative action in the U.S. and elsewhere. Here again, the arguments are ideological in nature and most neoliberal theorists side with market advocates who say that affirmative action creates inefficiency. Again, as is unique in South Africa, market proponents acknowledge the need for limited affirmative action in the face of black demands, whereas their counterparts in the U.S. want affirmative action abolished completely. For example, Kenneth Hughes (1993: 69) argued that South Africa should use a more moderate form of affirmative action than has been tried in the U.S., using racial criteria only as a tie breaker and making job offers based on individual achievement and potential, not simply racial criteria. He hoped that adding “potential” to the job criteria would correct problems created by poorer black education and opportunity. Regardless, it seems unlikely that neoliberal proposals for very limited affirmative action would alter the opportunities available to blacks significantly.

Privatization debates evolve along similar lines. Members of the ANC considered nationalization to be a viable redistributive option until as late as 1991, while market proponents wanted to privatize existing parastatals, although often in 41

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a way that would benefit blacks.26 Blacks could be given shares of the companies, which could then be sold to private investors (Reekie 1993: 130).

The ANC also argued originally for a “growth through redistribution” approach which sought to expand the demand side of the economy and to cater to the needs T of the poor. Terence Moll (1991, 1993) responded that this approach was built upon the assumption that spare capacity in the economy can be utilized in response to the increase in demand; thus in the South African case, redistribution might actually increase efficiency. Moll disagreed with this argument, worrying that this approach would lead to unsustainable macroeconomic policies. Instead, he preferred a supply-centered approach that would shift resources, assets and income directly to the poor without increasing government expenditure. In fact, Moll opposed virtually all policies which could stifle the market, with the exception of restrictions on capital flows, which he felt were necessary to stabilize capital markets. Moll’s defense of his stance rested on the performance of similar programs in Latin America, which generated temporary booms but long-term macroeconomic problems. Whether or not a more effective approach could be designed for South Africa remains in question. A redistributive approach that also targeted supply considerations through the promotion of small businesses and the provision of extension services and education could have significant positive effects on the poor and on the development of black-owned business. Furthermore, given the high unemployment rate and recent production cutbacks, it also seems that spare capacity currently does exist in the South African economy. And such reliance on economic growth to end the disparities created by apartheid seems misplaced given that internationally, “Higher rates of economic growth do not correspond neatly with reduced intergroup disparity…” (Darity and Nembhard 2000: 308).

THE ANC’S GEAR STRATEGY AND THE WORLD BANK The Government of National Unity’s (GNU) attempts to implement the RDP were opposed from the beginning by neoliberal forces both internationally and within South Africa.27 As Adams (1997: 241) notes, Even before the ANC assumed governmental office, South African business had set about the process of diluting the RDP, while overseas agencies such as the

26 The ANC officially moved away from their advocacy of nationalization in 1990. This occurred after the Johannesburg Stock Exchange plummeted in response to a statement by Nelson Mandela that he still considered the nationalization of the mines, banks and monopoly industries a possibility. In 1991, Joe Slovo and the SACP followed suit.

27 The Government of National Unity includes three political groups that worked together to overthrow apartheid: the ANC, the SACP and COSATU.

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International Monetary Fund and the World Bank adopted a “carrot and stick” approach, hinting that if too radical a social policy was adopted by the GNU this would be frowned upon internationally (meaning no loans). As a result, in a unipolar world of seemingly all-powerful market forces, even by the time of the ANCled government’s first post-apartheid budget there was a subtle, but nonetheless discernible, shift away from state intervention and towards an RDP driven by private-sector growth.

Despite some rumblings of dissent, the ANC’s partners in the GNU, COSATU and the SACP, initially went along with the movement towards neoliberalism in an effort to promote national unity and to advance the idea that government could work with businesses for the betterment of all. The connection between the GNU and various business interests has grown even closer of late, as evidenced by the ANC’s adoption of GEAR. In June of 1996, the ANC developed the “Growth, Employment and Redistribution” (GEAR) strategy, its first macroeconomic policy paper, to address This move was prompted the South African economy’s macroeconomic problems. T by an alarming collapse in the value of the rand and a decline in investor confidence. According to Gevisser (1997: 24), GEAR “has embraced the market economy as the National Party never did, and the ANC is privatizing the assets that its predecessors so jealously guarded.” GEAR is based on standard neoliberal economic principles, with the key policies being deficit reduction, low inflation, trade liberalization, privatization, tax cuts, and deregulation.

Part of the alliance between the GNU and business interests stems, ironically, from an affirmative action program that awards state contracts to companies that either are run by blacks or are in partnership with black entrepreneurs. Gevisser (1997: 25) notes that this program has created a black bourgeoisie that contains many of the leaders of the GNU: Almost every COSATU-affiliated union, and even the Communist Party itself, has set up an investment company. It has been, without a doubt, one of the quietest and most profound revolutions of post-apartheid South Africa: not just that former militants … have become captains of industry, but that the ideology of this transformation is so radical a departure from traditional labor values.

This “labor capitalism” has created some bizarre contradictions. For example, the National Union of Mineworkers was forced to negotiate retrenchments with a mining house that it controlled on behalf of its workers (Gevisser 1997: 26).

The recent neoliberalism of the GNU has wormed its way into South Africa through what Patrick Bond (1997) terms a “back-door Structural Adjustment Program.” Before the election of 1994, the ANC was openly hostile to the 43

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neoliberal policies of the IMF and the World Bank. But GEAR was developed with the help of World Bank economists, and the World Bank has been extremely influential in directing the GNU’s macroeconomic policies: Indeed in both urban and rural South Africa, two major Bank research reports – regarding municipal infrastructure in 1994–5 and economic strategy in 1996 – have generated as much chaos and misery as do Bank loans and formal Structural Adjustment Programs elsewhere in the Third World. This is also true in most areas of South African social policy advice (land reform, housing, education, health, welfare), wheree the Bank has dogmatically recommended market-oriented solutions to problems created both by apartheid and South African capitalism’s extraordinary inequality.

(Bond 1997)

For example, with regard to electricity and water projects, the World Bank has advocated the provision of these services only to those who can afford to pay, without regard for “the positive effect of uniform water and electricity standards upon public health, labor productivity, employment or geographical (racial and class) integration. … Since poor people often can’t pay—at free market rates— the Bank’s solution was to deny people access to water-borne sanitation and give them pit latrines instead” (Bond 1997).

Rioting broke out in July of 1997 in the black townships near Johannesburg over power and water cuts. Because the poor residents of these townships could not pay their bills, access to electricity and water was reduced. “The catalyst for the first South African “IMF riots”—as they are termed elsewhere—was a combination of two policies, urban and macroeconomic, drawn up by Bank advisors…” (Bond 1997). The two policies that led to these riots were 1) the movement to market-based allocation of water and electricity, and 2) the overall contraction of government and tight monetary policy promoted by the World Along with the rioters, various members of the ANC, SACP Bank through GEAR. A and COSATU are increasingly disillusioned with GEAR. COSATU was so upset with GEAR’s effects that they staged a general strike on May 10, 2000 to protest jjob ob losses and rising poverty.

Despite the promises of neoliberal economists, GEAR and other neoliberal policies have done little to improve the performance of the South African economy, especially as far as blacks are concerned. The currency stabilized temporarily and investor confidence initially was restored. But interest rates did not fall as predicted, and the Rand faced a renewed exchange crisis in 1998, devaluing 25 percent in less than a month. Although black income as a share of GDP rose from 30% to 36% from 1991 to 1996, “almost all of this increase occurred among the top 10 percent of black earners, while poorer blacks actually experienced

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a decline in income” (Barrell 2000).28 In fact, the poorest 40 percent of blackk households experienced a decline in income of 20 percent during this period, and inequality is increasing in South Africa. Budlender (2000) reports that the Gini coefficient for pay in South Africa increased from 0.73 in 1995 to 0.80 in 1998. In 2000, black average disposable income per person was only 14.9 percent of that of whites (van Wyk 2001). Similarly, in 2000 the official black unemployment rate was 31.6 percent, 4.6 times greater than the white unemployment rate of 6.8 percent.29 Studies indicate that the South African economy shed at least 500,000 jobs from 1994 to 1999 (Saul 2001: 21).

A recent paper by Sherer (2000) demonstrates that racial discrimination, which was declining until 1994, has increased since 1995. So neoliberal policies have not eroded discrimination as neoliberals predicted. Meanwhile, government efforts to improve black housing and education, to provide greater access to clean water and health, and to redistribute land have improved the lives of black South Africans, but these programs have been very limited in scope and vast disparities still exist. In 1996, only 27% of blacks had access to clean water compared with 95% of whites (Central Statistical Service of South Africa, 1998), and the ANC’s emphasis on fiscal conservatism has limited the extent to which such services can be expanded.

In general, neoliberal policies promoted by the World Bank and adopted by the ANC have helped black elites but have done little for the black majority while largely preserving the status quo. As Patrick Bond (2000: 183–184) observed, “ “Aside perhaps from … Democratic Party politicians, there were probably no more effective advocates for the interests of rich white South Africans in postB apartheid South Africa than the quiet, smooth bureaucrats of the World Bank.” But much of the blame must be placed on the ANC, which (1) stuck firmly with GEAR despite its failure to meet almost all of its targets (most notably growth off GDP, investment, exports, and the protection of the value of the Rand), (2) engaged in draconian fiscal conservatism and cut social programs, thereby hurting the poor, while bending over backwards to repay apartheid-era debt, (3)) maintained a regressive Value Added Tax on basic goods while giving tax breaks to the (4 facilitated capital flight and exchange rate instability through financial rich, (4) market liberalization, (5) allowed the Reserve Bank to keep interest rates high to safe-guard financial markets, without regard to the effects on employment, and

28 When white emigration is factored in the increase in the black share of national income is less impressive. The Economist (2001) reported that 234,000 (mostly white) people emigrated from South Africa from 1989–1997.

29 An expanded unemployment rate that includes anyone who has taken active steps to look for work in the last month stands at 41.2 percent for blacks and 10.1 percent for whites.

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(6) reduced tariffs rapidly, resulting in massive deindustrialization and job loss (Bond 2000: 217–218). A whole host of groups, many that were allied with the ANC during the liberation struggle, are now openly critical of the pace off redistribution and reform. Despite its successes in recent elections, the ANC may be in danger of erosion in its political base if it maintains neoliberal economic policies and continues the slow pace of redistribution.

CONCLUSION As this brief survey of liberal and neoliberal economic theory indicates, South African neoliberal economists continue to extol the virtues of the free market, even in the face of the failure of existing market-based policies, based on the supposed efficiency of the market. What is different in South Africa is that, with the ANC in power, free marketeers must address the needs of blacks, something which rarely happens in the United States. The result has been a moderation off neoliberal views that attempts to preserve economic efficiency while proposing limited redistribution. Ironically, the ANC has been able to bring a moderate version of neoliberalism to South Africa where business leaders and neoliberal economists failed for decades.30 The neoliberal approach conveniently places efficiency ahead of justice while simultaneously resting on unconvincing economic theory. The lack of legitimacy reflected in the current distribution of income and assets in South Africa is a real danger to the market in South Africa. True legitimacy comes from the support off all citizens. Until recently, the ANC-led government had legitimacy due to the U reverence and widespread support for Nelson Mandela. It is difficult to imagine that support remaining behind Thabo Mbeki if he continues to promote neoliberal economic policies and if these policies continue to leave most Africans behind.

Mbeki himself seems to realize this, referring to a “mounting rage” in the blackk community in response to the slow pace of change in a 1998 speech (Time T International 1998). As Nelson Mandela himself observed, if the ANC does not International “deliver the goods” and eliminate economic apartheid, the people who elected them may eventually abandon them.

ACKNOWLEDGEMENTS An earlier draft of this paper was presented at the annual meetings of the Association For Evolutionary Economics in Chicago, Illinois on January 3, 1998.

I would like to thank Sandy Darity for his valuable comments on earlier drafts of 30 The transition to neoliberal economic policy began in the 1970s under the National Party, but the ANC has embraced neoliberalism to a much greater degree.

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this paper. In addition, I would like to thank an anonymous referee for providing extremely helpful suggestions.

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Lachman, D. (1992) “Economic Challenges Facing South Africa,” Finance and Development 29(2): 6–9.

Legassick, M. (1975) “South Africa: Forced Labor, Industrialization, and Racial Differentiation,” in R. Harris (ed.) The Political Economy of Africa, Cambridge, MA: Schenkman: 229–270.

Legassick, M. (1976) “Race, Industrialization and Social Change in South Africa: The Case of R. F. A. Hoernlé,” African Affairs 75(299): 224–239.

Legassick, M. and Wolpe, H. (1976) “The Bantustans and Capital Accumulation in South Africa,” Review of African Political Economy 7: 87–107.

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Lewis, S. R. (1990) The Economics of Apartheid, New York: Council on Foreign Relations Press.

Lipton, M. (1979) “The Debate About South Africa: Neo-Marxists and Neo-Liberals,” African Affairs 78: 57–80.

Lipton, M. (1985) Capitalism and Apartheid, South Africa, 1910–84, Totawa: Rowman & Allanheld.

Lipton, M. (1993) “Restructuring South African Agriculture,” in M. Lipton and C. Simkins (eds) State and Market in Post-Apartheid South Africa, Boulder, CO: Westview Press: 359–408.

Lipton, M. and Simkins, C. (1993) “Introduction,” in M. Lipton and C. Simkins (eds) State and Market in Post-Apartheid South Africa, Boulder, CO: Westview Press: 1–34.

Louw, L. and Kendall, F. (1986) South Africa: The Solution, Bisho, Ciskei: Amagi Publications.

Maykuth, A. (1996) “South Africa hit by one day strike,” Philadelphia Inquirer, May 1: A2.

McGrath, M. (1990) “Economic Growth, Income Distribution, and Social Change,” in N. Nattrass and E. Ardington (eds) The Political Economy of South Africa, Cape Town: Oxford University Press: 88–106.

Melck, A. (1991) “Distributive Justice, Welfare Economics and Liberalism: Comment,” South African Journal of Economics 59(2): 187–190.

Moll, P. G. (1991) The Great Economic Debate, Johannesburg: Skotaville.

Moll, T. (1990) “From Booster to Brake? Apartheid and Economic Growth in Comparative Perspective,” in N. Nattrass and E. Ardington (eds) The Political Economy of South Africa, Cape Town: Oxford University Press: 73–87.

Moll, T. (1991) “Growth Through Redistribution: A Dangerous Fantasy?” South African Journal of Economics 59(3): 313–330.

Moll, T. (1993) “Macroeconomic Policy in Turbulent Times,” in M. Lipton and C. Simkins (eds) State and Market in Post-Apartheid South Africa, Boulder, CO: Westview Press: 235–270.

Nattrass, J. (1987) “Political Change and Capitalism in South Africa,” in J. Butler, R. Elphick, and D. Welsh (eds) Democratic Liberalism in South Africa, Middletown: Wesleyan University Press: 353–362.

Nevin, T. (2000) “The Zimbabwe Factor,” African Business June 2000: 10–14.

Nieuwenhuysen, J. P. (1965) “Review of The Economics of the Colour Bar,” South African Journal of Economics 33: 164–165.

O’Dowd, M. (1974) “South Africa in the Light of the Stages of Economic Growth,” in A. Leftwich (ed.) South Africa: Economic Growth and Political Change, New York: St. Martin’s Press: 29–43.

O’Meara, D. (1983) Volkskapitalisme: Class, capital and ideology in the development of Afrikaner nationalism, 1934–1948, London: Cambridge University Press.

Porter, G. and Phillips-Howard, K. (1997) “Agricultural Issues in the Former Homelands of South Africa: the Transkei,” Review of African Political Economy 72: 185–202.

Reekie, W. D. (1993) “Should South African Parastatals be Privatised?” in M. Lipton and C. Simkins (eds) State and Market in Post-Apartheid South Africa, Boulder, CO: Westview Press: 129–160.

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Rich, P. B. (1984) White Power and the liberal conscience, Manchester, UK: Manchester University Press.

Saul, J. S. (2001) “Cry for the Beloved Country: The Post-Apartheid Denouement,” Monthly Review 52(8): 1–51.

Schneider, G. (1997) “Economists and the Problem of South Africa: the Evolution of Liberal and Marxist Thought on Capitalism and Apartheid,” unpublished Ph.D. thesis, University of North Carolina.

Sherer, G. (2000) “Intergroup Economic Inequality in South Africa: The Post-Apartheid Era,” American Economic Review 90(2): 317–321.

Simkins, C. (1986) Reconstructing South African Liberalism, Johannesburg: South African Institute of Race Relations.

Simkins, C. (1987) “Democratic Liberalism and the Dilemmas of Equality,” in J. Butler, R. Elphick, and D. Welsh (eds) Democratic Liberalism in South Africa, Middletown: Wesleyan University Press: 224–235.

Simkins, C. (1991) “The Great South African Economic Debate – A Brief Survey of Some Major Themes,” South Africa International 21(3): 132–142.

Simkins, C. (1992) “A More Sophisticated Notion of Power: Some Themes From the Economic Debate,” in Pierre Hugo (ed.) Redistribution and Affirmative Action, Halfway House, SA: Southern Book Publishers: 120–142.

Smith, K. (1989) The Changing Past: Trends in South African Historical Writing, Athens: Ohio University Press.

Time International (1998) “Africa Moves Forward,” Time International 150(43): 44. van den Berghe, P. L. (1979) “Introduction,” in Pierre L. van den Berghe (ed.) The Liberal Dilemma in South Africa, New York: St. Martin’s Press: 1–16. van Wyk, H de J. (2001) “Personal Disposable Income in South Africa by Population Group, Income Group and District,” Research Report no. 279, Bureau of Market Research, University of South Africa.

Welsh, D. (1987) “Democratic Liberalism and Theories of Racial Stratification,” in J. Butler, R. Elphick, and D. Welsh (eds) Democratic Liberalism in South Africa, Middletown: Wesleyan University Press: 185–202.

Williams, W. (1982) The State Against Blacks, New York: McGraw-Hill.

Williams, W. (1989) South Africa’s War Against Capitalism, New York: Praeger.

Wolpe, H. (1970) “Industrialism and Race in South Africa,” in S. Zubaida (ed.) Race and Racialism, London: Tavistock: 151–179.

Wolpe, H. (1972) “Capitalism and Cheap Labor-power in South Africa: From Segregation to Apartheid,” Economy and Society 1(4): 425–456.

Wolpe, H. (1988) Race, Class & the Apartheid State, London: James Currey.

World Bank (1998) World Development Indicators 1998 CD-Rom, Washington: World Bank.

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Neoliberalism and Economic Justice in South Africa: Revisiting the Debate on Economic Apartheid.

Geoffrey E. Schneider

REVIEW OF SOCIAL ECONOMY, VOL. LXI, NO. 1, MARCH 2003

Neoliberalism and Economic Justice in South Africa: Revisiting g the Debate on Economic Apartheid Geoffrey E. Schneider Bucknell University gschnedr@bucknell.edu

Abstract Although the political environment in South Africa is vastly improved, economic apartheid still exists: the economic divisions along racial lines created by apartheid are still in place today. Despite these divisions, neoliberal economists continue to press for a largely unregulated market system, which is unlikely to improve the lives of most black South Africans. This paper documents the role neoliberal economic theory has played and is continuing to play in frustrating and opposing fundamental change in the distribution of land, income and assets in South Africa. Neoliberal policies stem from an ideological attachment to free markets, rather than a substantive analysis of how market forces play out in an unequal society like that in South Africa. By choosing to focus on narrowly defined economic criteria such as GDP growth and allocative efficiency, neoliberal economists marginalize the vast problems created by inequality and poverty and thus overlook the potential benefits of a redistributive strategy. Neoliberal economic policies have been installed in South Africa by the ANC via GEAR and other policy initiatives, but these policies have made little progress in solving South Africa’s economic problems.

Keywords:

Apartheid, neoliberalism, economic theory, South Africa

INTRODUCTION How many times has the liberation movement worked together with workers and at the moment of victory betrayed the workers? There are many examples of that in the world. It is only if workers strengthen their organization before and after liberation that you can win. If you relax your vigilance you will find that your sacrifices have

Review of Social Economy ISSN 0034 6764 print/ISSN 1470–1162 online © 2003 The Association for Social Economics http://www.tandf.co.uk/journals DOI: 10.1080/0034676032000050257

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been in vain. You just support the ANC only as far as it delivers the goods. If the ANC government does not deliver the goods, you must do to it what you have done to the apartheid regime.

(Nelson Mandela, address to the Congress of South African Trade Unions 1993)

A debate raged in the 1970s about the relationship between capitalism, racial inequality, and apartheid.1 One of the most provocative salvos in that debate came from Kantor and Kenny, in their 1976 article “The Poverty of Neo-Marxism.” In this article, Kantor and Kenny (1976: 39) argued that “industrialization has certain inevitable consequences. … There will have to be increased physical and social mobility for blacks, employment will to an increasing extent have to be based on achievement and not inherited status, and so on.” In other words, market pressures will inevitably erode the racial inequalities that exist in South Africa. With the advent of neoliberal economic policies in South Africa, courtesy of the African National Congress (ANC), it is a particularly important time to assess neoliberal theories and policies.

Despite recent political improvements, South Africa is still in danger off widespread unrest brought on by the continued presence of economic inequality along racial lines. This inequality was created under apartheid, which amounted to a system of racial capitalism under which black economic activity was severely restricted and black wages were kept artificially low while white workers and white businesses prospered. Although apartheid-era laws limiting black mobility and black voting rights have been removed, “economic” apartheid is being perpetuated in part through neoliberal economic policies. The ideology of apartheid, which kept the races separate and unequal, is being replaced by the ideology of the market, which is helping to preserve that inequality. South African neoliberal economists are using abstract economic theory to justify the preservation off economic apartheid. Neoliberals dismiss suggestions for the redistribution of land, income and assets as a “dangerous fantasy,” and Africans are being told over and over again that South Africa is not rich enough to support widespread redistribution and an expansion of basic services to all citizens.2 Yet Y et black South Africans, who have so far been admirably patient as they waitt for substantive economic changes, have legitimate claims for redistribution, restitution and reparations. This paper will documentt the role neoliberal economic theory has played and is continuing to play in opposing the redistribution of land, income and assets in South Africa. I argue thatt this stance is based fundamentally

1 For a comprehensive study of the debate over the relationship capitalism and apartheid, see Schneider (1997).

2 See, for instance, Moll (1991).

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on ideology and not on substantive analysis, stemming in particular from neoliberal economists’ penchant to ignore the problems created by inequality and their pursuit of narrowly defined economic goals and criteria. By ignoring the social costs of inequality, in particular the instability created by an economy which does not effectively serve the majority of the population, neoliberal economists abstract from reality and ignore the economic benefits that could stem from developing an economy from the bottom up.

In the first part of this paper I document early (neo)liberalism in South Africa and its somewhat ambiguous attitudes towards redistribution and affirmative action. Subsequently, I survey current neoliberal attitudes in South Africa, analyzing the role neoliberal economic theory is playing in opposing the substantial redistribution of land, assets and income in contemporary South Africa. The ANC has successfully brought comprehensive neoliberal economic policy to South Africa, something generations of neoliberal economists were unable to do underr apartheid, bbutt so far these policies have failed to benefit most black South Africans.

EARLY LIBERALISM IN SOUTH AFRICA Prior to 1970, South African liberals generally opposed apartheid but had somewhat ambiguous attitudes towards racial segregation. In the 1930s and 1940s, many South African liberals, including R. F. A. Hoernlé, the director of the South African Institute of Race Relations and a leading liberal philosopher, viewed racial separation as a possible solution to South Africa’s racial problems.3 Many also advocated gradually phasing in voting and economic rights as blacks became detribalized, instead of supporting full rights for blacks. Martin Legassick (1976: 237) concludes that “liberals acted to reproduce the particular racially differentiated structures of South African capitalism.” Hence the neo-Marxist criticism that liberals generally supported the status quo in South Africa, whereas “it was the Communist Party and African nationalist organizations which were the most articulate exponents of democratization” (Legassick 1976: 239). Thus from its early foundations, South African liberalism was paternalistic, segregationist, and somewhat ambiguous towards expanding rights to Africans.

W. H. HUTT AND THE INDUSTRIALIZATION THESIS W. H. Hutt, an influential and polemical South African liberal, was quite critical of apartheid. As an economic libertarian with absolute faith in the powers of the free market, Hutt’s solutions to apartheid evolved along lines that were unacceptable to 3 See Rich (1984) for a detailed discussion of liberal views on segregationism.

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most blacks in South Africa.4 For example, Hutt viewed apartheid as inefficient and anti-capitalist.5 The discrimination inherent in apartheid was an attempt on the part of white labor to preserve economic privileges; the fact that discrimination occurred along racial lines was incidental to the South African case. “The chieff source of color discrimination is, I suggest, to be found in the natural determination to defend economic privilege, non-Whites simply happening to be the essentially underprivileged groups in South Africa” (Hutt 1964: 27). To Hutt, capitalists must have generally opposed apartheid because legally enforced discrimination created a shortage of black skilled labor and increased the costs off production. This belief was not based on empirical observation (and has been contradicted by both liberal and non-liberal scholarship), but instead was a productt of his ideological views about the functioning of markets.

Hutt’s faith in the redistributive powers of the free market led him to conclude that no redistribution of any kind was necessary in South Africa: all that was necessary was the elimination of apartheid restrictions and the free market would tend to equalize incomes. Eliminating minimum wages and freeing up labor markets (to allow blacks to enter reserved professions) would cause privileged, white workers’ wages to fall, while Africans who previously were excluded from work would now find work and see higher incomes (Hutt 1986a).

Hutt’s belief in consumer sovereignty, where consumers buy a product for the best value, regardless of who produces it, and producer sovereignty, where rivalrous competition prevents racism because firms must produce at least cost, allows him to conclude that “competition is essentially an equalitarian force” because it hinders discrimination (Hutt 1964: 175). Hutt thought that the elimination of apartheid restrictions would benefit black South Africans more than other groups since, as the cheapest laborers, they should be the first hired after the restrictive apartheid labor laws were repealed.6 4 There are two strains of liberalism in South Africa. A conservative, libertarian strain is prevalent in parts of the business community and in certain academic circles. A moderate, reformist strain of liberalism also exists in many universities, basing its intellectual foundations on the work of Rawls and Sen instead of Hutt and Friedman.

5 In much of the pre-1980 literature on South Africa there is a tendency to lump all capitalists into one or a few groups. While this is an oversimplification, to convey a sense of the kind of scholarship that South African economists engaged in I have used the term capital as it was used by South African authors.

6 In order for this analysis to hold, Hutt must be assuming that no significant human capital differences exist between races or that human capital differences will be eliminated rapidly. Given the vast differences in access to education, this seems unrealistic in anything but the extremely long run. Data from South Africa suggest that the black share of income has increased somewhat since 1970, but also that wage gaps within the black community have increased (see Sherer 2000). This implies that some blacks indeed benefited from the relaxation of apartheid, but others have not yet profited and may not for some time. Further, it implies that Hutt’s analysis is incorrect, or at best incomplete, in that the blacks with the most human capital have benefited most, while those at the very bottom have benefited least.

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Since competition was an equalitarian force to Hutt, he opposed any restrictions to competition, including labor unions. Instead of improving the lot of blacks, Hutt believed labor unions increased wages for the few but hurt blacks as a group due to higher business costs and decreased hiring. “Virtually the only legislative provisions which have facilitated the rise of the Africans in the economic sphere have been those which have prohibited or otherwise hindered their right to strike” (Hutt 1964: 108).7 This view was particularly unattractive to black Africans who thought organization along union lines was their only hope to wring concessions from the government. Many liberals also found Hutt’s views too extreme.8 Yet views very similar to Hutt’s on the functioning of markets and discrimination, state instrumentalism, and capitalism and apartheid pervade much of the libertarian camp of modern South African neoliberalism.

Hutt’s nearly complete absolution of business owners’ responsibility forr apartheid and his opposition to the redistribution of assets caused a good deal off criticism from many groups, including the Black Consciousness Movement and the neo-Marxists. N Neo-Marxists were especially effective in criticizing Hutt and other liberals as apologists for the status quo, and in the process they struck a chord with black nationalist movements seeking to eliminate apartheid.9 The effectiveness of the neo-Marxist critique caused significant changes in liberal thought in South Africa. “Liberal scholars, responding to the neo-Marxist critique, have slowly begun to refurbish their traditional conceptual tools, making, in the process, significant acknowledgments of the usefulness of class perspectives” (Welsh 1987: 185). One of the most obvious results has been that neoliberals admit the culpability of some capitalists in apartheid’s exploitation and recognize the benefits that affirmative action and limited redistribution might have on a polarized society like that in South Africa. Nevertheless, contemporary neoliberals in South Africa still believe fundamentally in the free functioning of markets as the key to economic development and to helping black South Africans.

MERLE LIPTON’S NEOLIBERAL VIEW OF APARTHEID Merle Lipton, a contemporary neoliberal economist, attempted the same kind of comprehensive analysis of apartheid that Hutt undertook, and she corroborated many of Hutt’s findings. Yet she explicitly acknowledged the hand that mine 7 There is a long tradition in the literature on apartheid of using the word “African” when referring to black South Africans. This stems from the apartheid-era government’s racial classifications and not from any bias on the part of the authors.

8 For instance, see Nieuwenhuysen (1965), Lipton (1985) and Butler and Schreuder (1987).

9 The neo-Marxist critique began around 1970. See especially Johnstone (1970), Wolpe (1970) and Legassick (1975). On the connection between neo-Marxists and black nationalism, see van den Berghe (1979: 2).

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owners and white farmers had in establishing apartheid and the benefits which these groups received as a result of apartheid.

According to Lipton, apartheid was functional for white agriculture and mining because it created large supplies of cheap, unskilled labor. The abundance of unskilled labor was beneficial for many businesses until rapid growth in the South African economy in the 1960s and 1970s resulted in the increasing prominence of manufacturing and services, sectors more dependent on skilled labor. Technological advances in mining and agriculture increased the need for skilled labor in these sectors as well. As the importance of skilled labor grew, apartheid restrictions which prevented blacks from working in skilled jobs became increasingly costly to businesses. Thus Lipton confirmed Hutt’s thesis that apartheid was costly to virtually all businesses, while admitting that apartheid was once beneficial for some of them.

Lipton also agreed with Hutt’s contention that economic growth was the primary factor contributing to the erosion of apartheid. Hutt (1964: 82) argued thatt economic growth helped to undermine apartheid by expanding opportunities for blacks and forcing businesses to circumvent apartheid labor restrictions in orderr to increase output. Lipton (1985: 310) concurred, adding that growth strengthened black workers as well as capital-intensive employers who needed skilled labor, two groups that were pressing for change. It is certainly reasonable to argue that economic growth undermined certain apartheid policies, including pass laws and influx control, as blacks flocked to the cities and employers circumvented labor restrictions.10 However, it is quite another matter to argue that apartheid was inefficient and uneconomic. When the path of erosion of apartheid from 1970 is compared with GDP growth rates, a different picture emerges. As Table 1 below indicates, South Africa’s economic growth rates were high in the 1950s and 1960s under severe repression, while growth rates slipped in the late 1970s and 1980s when apartheid was being eroded. Furthermore, the fact that economic growth was high in South Africa throughout the 1960s and early 1970s despite apartheid restrictions demonstrates that apartheid could not have been too costly and restrictive for businesses. In addition, the relaxation of specific apartheid policies is different from the destruction of economic apartheid. If the goal of whites was to preserve their high standard of living, then allowing some apartheid policies to lapse in order to preserve economic growth while allocating greater rights to blacks to quell unrest are rational actions taken in an effort to preserve the economic status of whites. Thus, the move away from apartheid and toward a free market philosophy can be seen as an effort to preserve economic apartheid instead of as part of the elimination of apartheid.

10 This fact is acknowledged by F. W. de Klerk (1999: 73).

28

29

3.8 4.8 4.2 3.5 – 4.5

1950–1960 4.1 5.3 5.3 5.2 – 6.5

1960–1965 4.7 6.3 4.8 4.8 5.3 5.8

3.8 6.0 3.2 4.4 3.6 4.1

4.3 4.8 3.3 3.2 3.6 2.9

5.8 1.6 2.4 1.1 2.4 1.1

5.9 2.0 3.4 2.5 3.4 1.8

7.4 0.9 1.9 2.1 2.2 1.2

1965–1970 1970–1975 1975–1980 1980–1985 1985–1990 1990–1996

Sources: World Bank (1998) and Reserve Bank of South Africa. South Africa also is included in the middle-income group.

Low income Middle income High income (OECD) Sub-Saharan Africa World South Africa

Year

Table 1: Annual Growth in Real GDP, South Africa and the rest of the world (%)

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Lipton also discounted the role played by the black resistance and international sanctions in the collapse of apartheid. While market forces no doubt played some role in undermining certain apartheid restrictions, Lipton’s exaggeration of the role of markets in eroding apartheid demonstrates the ideological character of her work. F. W. de Klerk (1999) acknowledged that slow growth and mounting unrest reinforced pressures for reform coming from within the Afrikaner community.

Such reform pressures were muted when the apartheid economy was performing well. De Klerk himself admits his support for grand apartheid “until I finally concluded … that, if pursued, it would bring disaster to all the peoples of our country—including my own” (de Klerk 1999: xviii–ix). The militant struggle off anti-apartheid activists, including strikes and boycotts, clearly was one of the factors contributing to the erosion of apartheid. f Similarly, sanctions had a substantial economic effect on South Africa which contributed to reform efforts. It is estimated that sanctions reduced the South African economy’s economic growth by about 1.5 percent per year in the 1980s and early 1990s (de Klerk 1999: 70). Financial sanctions and reductions in direct foreign investment (due to sanctions and domestic unrest) were particularly costly (Carim et al. 1999). A more balanced assessment of the factors behind the erosion of apartheid would include sanctions, external pressures, fissures within the Afrikaner community, intractable economic problems, civil unrest, and the end off the cold war.11 Nevertheless, by acknowledging the benefits of apartheid for some businesses, most notably the advantages of access to cheap, unskilled labor, trade protection and security, Lipton improved on Hutt’s analysis. These benefits were countered by thee shortage of skilled labor and the cost of maintaining the elaborate apartheid apparatus (Lipton 1985: 7). Thus businesses were not affected uniformly by apartheid. Labor-intensive industries tended to support apartheid while capitalintensive and skilled-labor-intensive industries tended to oppose it. Hutt (1964) along with Horwitz (1967) ignored the former in their efforts to paint all capitalists as anti-apartheid reformers. To Hutt, capital opposed apartheid because of its costs; to Lipton (1985: 119–120), business owners supported government efforts to maintain order and lower costs but opposed measures that increased their costs.

In order to show that business owners and managers generally came to oppose apartheid, Lipton (1985: 179) argued that “the influence of [political stability] declined as the political costs of apartheid rose and it became a source of tension imperiling the stability it was supposed to protect.” Since apartheid’s costs 11 See Crawford and Klotz (1999) for a comprehensive review of the factors that contributed to the fall of apartheid, especially Neta Crawford’s chapter “Trump Card or Theater?”

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increased due to the skilled labor shortage and political unrest, there was little reason for any businessperson to continue their support for the apartheid government. “The rising political costs of apartheid were to be seen in the radicalization of young blacks, who were turning to Marxism and particularly black consciousness, and in the alienation of the black middle class and elite, whom capitalists regarded as their potential allies” (Lipton 1985: 231). Here Lipton implies that violence on the part of black militants was successful since it raised the political stakes and increased the cost to businesses of supporting the government, although Lipton prefers to credit economic growth with the demise of apartheid.

Lipton (1985: 365) then combined elements of Hutt’s analysis with class analysis to conclude that apartheid’s origins can be found in the complex interaction between class interests and racism, reinforced by security factors. It is only when ethnic and class elements combined that discrimination occurred in South Africa. When class and ethnic interests diverged, apartheid was eroded. “[E]conomic growth and “Afrikaners First” policies gradually transformed white labor into a bureaucracy and created a group of Afrikaans urban and mining capitalists, who came to share the interest of other employers in eroding apartheid.

These diverging class interests eventually tore apart the nationalist alliance” (Lipton 1985: 281).12 Thus economic factors dominated ethnic factors when the two conflicted.13 This conclusion is strikingly similar to that off Hutt, who believed that economic ffactors are the sole reason for discrimination. B But Lipton’s analysis is both more complex and less dogmatic, allowing for a small but independent role for ethnic factors in her analysis. Nevertheless, once again we are left with a neoliberal scholar who concludes that apartheid was inefficient and antithetical to economic growth, despite some inconsistencies with available evidence. This allows Lipton to propose that free markets created by the removal of apartheid restrictions are a viable solution to South Africa’s economic crisis, as opposed to fundamental redistribution of income and assets.

12 Lipton overlooks D. O’Meara’s (1983) cogent analysis of the economic roots of the apartheid movement within the Afrikaner community. O’Meara demonstrates conclusively that apartheid was orchestrated by Afrikaner business and financial interests, but the economic interests behind apartheid were masked by the religious and ideological components of the apartheid platform.

13 If white Afrikaners did indeed change classes under apartheid, becoming bureaucrats and capitalists, then white resistance to the 1994 elections in South Africa must have come from the few remaining white laborers and white bureaucrats who feared they would lose their jobs under the postapartheid government. Another possibility is that whites feared the appropriation of land and assets under the new government. Either way, economic factors prompted some whites to oppose the elimination of apartheid and the elections. This contradicts Lipton’s argument that economic factors caused whites to oppose apartheid. Such blanket generalizations are not warranted.

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AN OVERVIEW OF NEOLIBERAL ATTITUDES EXISTING PRIOR TO MANDELA’S RELEASE Neoliberals such as Lipton preserved many of the basic tenets of the libertarianism espoused by Hutt. Some liberals such as U.S. economist Walter Williams (1982, 1989) echoed virtually all of Hutt’s arguments.14 Most South African liberals preserved some of Hutt’s analysis and discarded the most polemical. The aspects of Hutt’s analysis almost universally present in neoliberalism include the following: 11) the free market is efficient; 2) free markets inhibit racism and help blacks in South Africa; 33) the state is an instrument used to benefit the groups who control it; 4) growth undermines racial discrimination; 5) economic factors outweigh other factors like security and racism; 6) some of apartheid’s measures may have been based upon good intentions; and 7) most business people did not support apartheid and they were not primarily responsible for its installation.

These tenets are given fuller discussion in what follows below.

1) The most consistent principle present in all neoliberal work is the notion that thee free f market is efficient. For example,, Archer (1987: 348) argued that the fear off ffailure and of individual material and moral loss is necessary for efficiency. Even those neoliberals who admit that a democratic socialist government might be good for South Africa want to preserve some aspects of a market system due to its efficiency.15 “Markets are integral to a redistributive strategy, on grounds of their efficiency and consistency with ends broadly socialist. Market instruments do not imply embodiment in market-driven private-property systems” (Archer 1987: 348).

However, a frequently cited corollary to the neoliberal argument that markets are efficient is that the removal of market restrictions will generate growth and improve equality, making government redistribution less essential (Simkins 1987: 235).

2) Neoliberals also believe that, via competition, free markets inhibit racism and help blacks in South Africa. Like Hutt, neoliberals believe the “discipline of the market” limits discrimination (Bromberger and Hughes 1987: 213). According to this line of argument, blacks have benefited tremendously from capitalism in South Africa (as evidenced by the higher standard of living for South African blacks when compared with other blacks in southern Africa), and now that apartheid restrictions have been eliminated they will benefit even more. However, by focusing on income alone, this argument obscures the fact that blacks in South

14 Williams even agrees with some of Hutt’s more radical ideas, such as the notion that minimum wage laws in South Africa hurt Africans the most. Representatives of the IMF recently echoed this argument.

15 Efficiency in the South African neoliberal context refers to allocative efficiency, not other measures of efficiency such as Keynesian and Schumpeterian.

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Africa fare very poorly when other factors, such as life expectancy, rates of adultt literacy, and infant mortality, are considered, as Table 2 below demonstrates.

3) In keeping with neoliberal interest group theory, the state is viewed as an instrument used to benefit the groups that control it. For example, Jill Nattrass (1987: 354) argued that “It is virtually certain that people who find they have political power but lack economic muscle will use the former to seek to gain the latter.” Neoliberals accused the National Party of catering to white labor, white agriculture and Afrikaners during the apartheid era. Similarly, the ANC is criticized for acquiescing to the demands of organized black labor and various tribal interests.

According to liberals from Hutt to the present, the only way to prevent such abuses is to limit the power of the state.16 Furthermore, running a country efficiently is difficult, especially given the vast state apparatus that exists in South Africa. Since “the technical problems of coordinating an economy are … formidable,” Archer (1987: 344) agued that the ANC should choose a decentralization of authority, devolution of decision-making, legitimation of enterprising activity, and equilibration of social need with availability through the market mechanism. In other words, the ANC-led government should abandon any notion of nationalization, redistribution and the expansion of the state for the wonders off the market. As we will see below, this is exactly what the ANC did.

4) Like Lipton and Hutt, neoliberals contended that it was the pressures created by economic growth that destroyed apartheid, and that growth tends to undermine racial discrimination by increasing the demand for black labor and providing more opportunities for blacks.17 5) Similarly, although neoliberals are not as preoccupied with economic factors as Hutt, they generally conclude that economic factors outweigh other Table 2: Selected Social Indicators in South Africa in the 1980s

Life expectancy at birth (years) Rates of adult literacy (percent) Infant mortality (Deaths per 1,000 live births)

White

Colored

Asian

Black

69.5 99.3 13.2

58.6 84.5 57.5

65.5 92.4 17.4

58.5 67.0 57.4

Source: Lachman (1992).

16 Evidently working on ways to insure an effective state apparatus is inconceivable or impossible.

17 See T. Moll (1991) and Louw and Kendall (1986) for examples of the argument that growth will help end racial disparities better than attempts at redistribution.

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(racial/ethnic) factors. In order to argue that whites discarded apartheid willingly, neoliberals must prove apartheid lowered prosperity, and that prosperity and an uncertain future was more acceptable to whites than the racism and security provided by apartheid.

Hutt and Lipton devoted many pages to the argument that apartheid reduced prosperity due to labor market restrictions, despite the extraordinary growth South Africa experienced from 1950 to 1975 under apartheid. Correspondingly, Bromberger (1974: 104) argued that whites would “trade security for increased prosperity on the margin.” And Lipton and Hutt both argued that racism was an attempt to preserve economic privilege. By placing prosperity above other interests, neoliberals were able to conclude that whites must have discarded the apartheid system because it reduced affluence below the level that a free market system would Whilee the argument that apartheid eventually became inefficient has some produce. W merit, it is difficult to disentangle this effect from other factors responsible forr declining white affluence in the latter stages of apartheid, including black militancy and international sanctions (see p. 30 above).18 6) Neoliberals also claimed that some of apartheid’s measures might have been based on good intentions. Not all of apartheid’s policies were intentionally racist.

Bromberger and Hughes (1987: 209) argued that if seizures of land, pass laws and influx controls are ignored, African reserves (Bantustans) could be justified as a device to slow the transition to a modern economy. Such views are similar to the paternalistic attitudes of early South African liberals. However, Burawoy (1981) counters that the transition to a modern economy had already occurred by the 1940s, making the creation of the reserves under apartheid an act of repression instead of a paternalistic attempt to preserve native culture.

Along similar lines, Michael O’Dowd (1974: 34) believed that South Africa was not particularly unequal or unjust for its level of development: “Injustice of the kind which exists in South Africa is not merely normal in a developing economy, it is absolutely universal and if not inevitable has certainly never yet been avoided.” O’Dowd’s argument is unconvincing, however, given that in 1975 the Gini coefficient for South Africa was measured at 0.68, which was higher than the Gini coefficient for any economy for which household income data was available.19 Under apartheid, South Africa was the most unequal society on earth.

18 In most neoliberal theory on this topic, black militancy and sanctions are viewed as factors that prolonged apartheid by reducing economic growth, thereby mitigating certain pressures for change (such as urbanization and increasing black incomes). However, if unrest and sanctions are viewed as additional inefficiencies created by apartheid, neoliberal theory would be better able to explain the demise of apartheid during the slump from 1975–1994 when the South African economy shrank by 0.6 percent.

19 Typically, western economies have Gini coefficients ranging from 0.31 to 0.40.

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7) Generally, liberals place most of the blame for apartheid on Afrikaners, especially those Afrikaners making up white labor, white agriculture and the National Party.20 According to neoliberals, most business owners did not support apartheid, and they were not primarily responsible for its installation. Yet Johnstone (1976) and O’Meara (1983) clearly document the connections between racist government policies and segments of the English and Afrikaner business community, especially mining magnates. This then leads to the neo-Marxistt argument that the redistribution of wealth accumulated under apartheid is a moral imperative necessary to restore South African wealth to the once-oppressed part off the population.

While neoliberals did preserve many of Hutt’s ideas, they also adapted their position in response to the neo-Marxist critique. Allegations of the mutually supportive roles of white domination and capitalism were first enunciated by neoMarxists around 1970, after the strong economic growth of the 1960s (Bromberger and Hughes 1987: 222–223). Neo-Marxists argued that the system of racial capitalism in South Africa actually generated prosperity for whites and poverty for blacks. The underdevelopment of the African reserves was a key condition of the development of mining and agriculture in South Africa, and all sectors of the economy depended on the exploitation and cheap labor provided by apartheid (Wolpe 1972). Under apartheid, the market directly and indirectly biased economic processes towards whites, and because of biased processes, inequality in South Africa increased over time. The goal of apartheid was white economic supremacy, and growth simply reinforced inequality by generating more wealth and power for whites (Johnstone 1976: 136).

Neoliberals dismissed these arguments, preferring the standard liberal claims that growth eroded apartheid and that the state and white labor promoted apartheid while most business people did not. Terence Moll (1990) even attempted to prove that South Africa’s spectacular economic growth under apartheid was not particularly unusual by comparing South Africa to other developing countries.21 Other neoliberals such as Bromberger (1974, 1977) and Lipton (1985) argued that South Africa’s growth would have been even higher without apartheid, although

20 It is interesting to note here that most of the liberals and neoliberals have been of English background. Instead of blaming English capitalists for apartheid, as the Marxists do, they blame Afrikaners for almost all of apartheid’s ills. Neoliberals like Lipton are less likely to place all of the blame on Afrikaners, but still generally conclude that Afrikaner labor and agriculture were the sectors primarily responsible for apartheid.

21 It is clear from table one that South Africa’s economic growth was extremely strong during the implementation of apartheid in the 1950s and 1960s, so it is difficult to maintain that apartheid slowed economic growth under all circumstances.

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this argument is impossible to substantiate and is based entirely on the ideological assumption that unregulated market forces invariably generate greater growth than regulated markets.

In spite of their disagreement over the relationship between apartheid and growth, the neo-Marxists influenced other neoliberal views. Most notably, the solutions that neoliberals propose to the problems created by apartheid take into account black aspirations more than ever before.

Initially, neoliberals attempted to identify exactly why blacks and Afrikaners had rejected liberalism in South Africa. Dickie-Clark (1979: 50) proposed four main reasons: 1) exploitation was too easy and too profitable for whites to be interested in liberalism; 2) the non-violent emphasis of liberals did not attract blacks; 3) the liberal abhorrence of communism prevented ties with the ANC because the ANC welcomed communists; and 4) liberalism’s support of qualified franchise as a transitional step towards full democracy and lack of support for boycotts and passive resistance further alienated blacks.

In order to become more relevant in the debate on South Africa’s future, neoliberals began to address black demands more directly. For example, the neoliberal response to black demands for redistribution and justice was a concentrated effort to lower black expectations and to promote the market system as an alternative to socialism under which blacks would be better off. Archer (1987), Nattrass (1987) and Simkins (1987) all argued that South Africa could not possibly afford all of the things the ANC wanted in the Freedom Charter. “Extensive recourse to the tax-transfer mechanism is not possible unless there is fat in the system. To be more egalitarian under capitalism, you must be rich first” (Archer 1987: 338). While rich by African standards, neoliberals did not believe South Africa was rich enough to consider extensive transfers.

Meanwhile, neoliberals promoted the efficiency of capitalism and decentralization while denigrating socialism and central planning. But just in case the postapartheid government eventually chose a socialist system, neoliberals argued that the preservation of some market mechanisms was necessary to make a democratic economy viable. “One does not have to buy the ideological baggage of idealized markets, private property, and adherence to individualist goals: … a price system and some market institutions are necessary for efficient allocation” (Archer 1987: 345). The key is making a distinction between the allocative and distributive functions of the market system (Archer 1987: 348).

Neoliberal support of market socialism should in no way be confused with wholehearted advocacy of such a system. Neoliberals still favor capitalism and private ownership because they tend to “foster the liberal values of freedom, equality, prosperity and justice” (Butler et al. 1987: 7). But while capitalism is viewed as the best means to achieve the wealth necessary for a just society, 36

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laissez-faire capitalism is not the central neoliberal value, nor is the rule of law designed to perpetuate the status quo (Butler et al. 1987: 13).

One of the most striking results of the neo-Marxist critique is the increasing emphasis on distributive justice found in reformist neoliberalism. Cooper (1991a) argues that welfare economics and libertarianism is dominated by a Paretian dogma which ignores distributive justice.22 Neoliberals who accept social justice as an important goal acknowledge the usefulness of affirmative action and the redistribution of land and assets in improving distributive justice.

Cooper (1991a: 67) maintains that conservative politics is responsible forr the “ideology of the market being developed to take the place of apartheid ideology.” The libertarianism of Hutt has been co-opted by Afrikaners and business interests, causing problems for reformist neoliberals in the process.

Expressing his disagreement with libertarianism in the South African context, Cooper (1991a: 64) argues that “acceptance of Paretianism and the free market philosophy implies support for the distributional status quo. This inherent conservatism is incompatible with liberal principles… .”

However, some neoliberals who acknowledge the importance of distributive jjustice ustice assert that economic growth is more important. F For Archer (1987: 349) the key strategic question for the ANC is “What economic arrangements will bestt allow the pursuit of equity without jeopardizing long-term growth?” Growth and efficiency take priority over distributive justice.

Another trend in neoliberalism is the shift away from individualism toward a more explicit recognition of group rights. Dickie-Clark (1979: 52) argued that neoliberals tend to overemphasize individualism to such an extent that “liberalism has come to regard as universal certain human needs and characteristics which, in fact, are displayed only by the ‘detribalized’.” The movement away from individualism is especially apparent in several proposals that called for a decentralized government as the only governmental structure that adequately addresses group rights. Decentralized governments were advocated by libertarians such as Louw and Kendall (1986) as well as Afrikaner and Zulu leaders who wanted autonomy from the central government during the negotiations preceding the 1994 elections.

Meanwhile, other neoliberals advocated quite different types of governmental arrangements. Political conservatives, following Hutt’s proposals, wanted unregulated markets and property rights. Political liberals making up the reformist wing

22 Melck (1991) responds that welfare economics is static and theoretically neutral. The free market approach relies on growth to make everyone better off. Cooper (1991b) replies that we should not put efficiency and growth above equity, and that the distribution of the gains from growth will be unequal.

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of neoliberalism in South Africa instead emphasized limited redistribution, moderate affirmative action, and a regulated market system. The only common aspects of the neoliberal proposals for post-apartheid South Africa seem to be the advocacy of freedom, democracy, and market mechanisms.

These characteristics of neoliberal thought in South Africa have carried over into current debates over redistribution. The more dogmatic libertarians argue againstt extensive redistribution and emphasize the growth and efficiency of market-based solutions. Other neoliberals want to see redistribution, but only in such a way that does not fundamentally alter property rights and private enterprise. Thus neoliberal economic theorists continue to oppose distributive justice on the grounds of economic efficiency.

NEOLIBERALISM SINCE MANDELA’S RELEASE FROM PRISON Since Nelson Mandela’s release from prison in 1990, neoliberal South African economists have been addressing the concepts of redistribution and affirmative action with increasing urgency. Consistent with previous views, they stress efficiency, stability and incentives, which they argue are necessary for economic growth. Throughout the recent neoliberal literature on South Africa is the call for more investment, and measures to restore investor confidence through the stabilization of property rights, the enforcement of contracts, and the removal of uncertainties (Lipton and Simkins 1993: 29). The role that redistribution plays within the context of these traditional liberal aims varies from individual to individual.

One of the most contentious debates in contemporary South Africa surrounds the issue off land reform. Under apartheid, blacks were forcibly removed from theirr land under the various land acts that pushed blacks onto the 14 percent of South Africa defined as black homelands.23 Some black lands were seized as recently as 1984. Due to the legalistic nature of apartheid, in many cases immaculate records were kept detailing which blacks owned land before these removals. Thus substantial restitution of land is possible, but for liberals Baber and Nieuwoudt (1992: 217), “restitution should neither destroy the productive potential of the agricultural sector, nor the ability of the economy to grow. This places a definite limit on the number of possible claims for restitution which could be justly met.”

Similarly, resettlement efforts should be targeted at those who have the most potential, based on “their commitment to agriculture, farming ability, potential

23 These land acts include the Natives Land Act of 1913, the Natives Trust and Land Act of 1936, and the Group Areas Act of 1966.

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productivity, and the provision of capital” (Baber and Nieuwoudt 1992: 216). Thus land reform is an explicit goal of South African neoliberals, but it must nott compromise food production, and it should be based on efficiency rather than equity. As Hughes (1993: 70) argued, “In South Africa making non-skilled persons into owners will do little damage if they become mere passive shareholders, but not if they are powerful proprietors.”

Given their unabashed support for market-based solutions, the neoliberal argument against the restitution of land to its rightful owners is conspicuously inconsistent. If markets work so wonderfully, it should not matter who owns the The owner will either use the land productively or she/he will sell it or rent land. T it to someone who will, given the incentives provided by a free market in land and agricultural goods. Thus arguing against restitution is implicitly arguing against a market-based solution given the nature of African society, where traditional tenure arrangements and affection for the possession of land might dictate less than optimal land use.

Ironically, while neoliberals argue that land should not be redistributed to blacks because it would compromise agricultural efficiency, Lipton (1993: 364) notes that labor-intensive smallholder African agriculture is an efficient and low cost method of providing jobs. Since African smallholders use significantly more labor on smaller plots of land, their yields are often just as efficient as larger, more capital-intensive farms, especially given the large pool of unemployed laborers.

Yet in the same article Lipton (1993: 401) advocated redistribution to those who Y wish to farm over restitution to those who were thrown off their land. In order to maintain the legitimacy of property rights and current production levels, Lipton prefers the costs of land redistribution to be borne by the state, and not by those who abided by apartheid laws and benefited from the apartheid system.224 Thus an explicit repudiation of the effectiveness of traditional economic incentives leaves neoliberals to conclude that redistribution will damage efficiency in South Africa and must be done in a way that puts efficiency ahead of justice!

The lack of an agricultural tradition within the black community in which surplus food is produced for the market points to a larger flaw in neoliberal analysis. Since black market institutions were suppressed under apartheid, there is

24 In fact, the ANC’s Reconstruction and Development Program (RDP) adopted just such a program. “The RDP committed the ANC to aiming at the transfer of 30 percent of farmland to black smallholders by 1999; principally existing state land at first, and then secondly land repossessed from indebted white farmers … rather than through land expropriation” (Porter and Phillips-Howard 1997: 192). But “It is now clear that the national land reform program will take considerable time to implement and that land redistribution across South Africa will be far more restricted than many originally hoped” (Porter and Phillips-Howard 1997: 192).

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little entrepreneurial tradition in much of the black community. To argue that market-based solutions will operate efficiently and effectively in South Africa completely ignores the historical-institutional characteristics of much of the South African economy.

Even modest proposals for state-led redistribution are significantly more generous than those proposed by market aficionados, who prefer simply to eliminate subsidies for white agriculture and let blacks freely purchase land from whites in formerly reserved areas. Under this free market approach, the redistribution of land will occur naturally in the absence of restrictive apartheid regulations. The intellectual heirs to W. H. Hutt, businessmen and libertarians argue that state-led redistribution runs the danger of being politically co-opted in addition to compromising agricultural efficiency. But it is unlikely that there will be significant market-based redistribution given existing inequalities of income, opportunity and education, so it is difficult to imagine any significant change in ownership under such a plan any time soon.

In the Reconstruction and Development Program (RDP), the ANC (1991, 1992) argued that restitution was necessary in order to establish the legitimacy of property rights and that 30 percent of decent agricultural land should be redistributed within five years of free elections. Meanwhile, other groups such as the Pan Africanist Congress (PAC) and the South African Communist Party (SACP) wanted to go even further, calling for radical redistribution or even expropriation without compensation (Lipton 1993: 364). It is difficult to reconcile the meager white offerings with the opinions of black leaders, and since blacks continue to question the legitimacy of existing property rights, this could be a significant source of future problems for the government and for neoliberal economists.25 Nevertheless, the ANC redistributed less than 1 percent of decent agricultural land in its first term in office, demonstrating the extent to which they have backed off their call for significant redistribution. r Similar debates exist over the minimum wage. As part of their redistribution with growth philosophy, the ANC pushed for a higher minimum wage, hoping that “a new larger market would be created for food, clothes, cars and many otherr consumer goods” (P. Moll 1991: 81). P Peter Moll (1991: 81) counters that this approach “ignores the problem of enforcement and the problem of the slack labor market.” Because of enforcement difficulties, the minimum wage can only be applied to large, formal sector workers, who are already unionized and better off than informal sector workers and rural residents. In addition, Peter Moll 25 Indeed, a poll conducted in 2000 in black South African townships by the Sunday Independent newspaper indicated that 54 percent of residents supported Zimbabwe war veterans’ invasion of white land (Nevin 2000).

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(1991: 81–82) argues that in the long run such wage increases will result in less job creation and more capital-intensive production. On the opposite side, trade unions like COSATU argue for a high minimum wage on the grounds of justice and demand-led economic growth in a nation in which black demand has been systematically undermined, something Hutt alluded to in 1964.

COSATU also is concerned about certain provisions in the constitution allowing firms to hire replacement workers in place of strikers. In 1996 they went on strike to protest this provision and lobbied for its removal from the constitution that was being negotiated at the time. As COSATU’s deputy secretary Zwelinzima Vavi noted, conservatives and businesses want to “entrench inequality, to entrench the consequences of colonialism” (Maykuth 1996). While critics cite the highly organized nature of South African labor and their relatively high wage rates, it is also important to recognize the “extreme concentration of ownership and the monopolistic and oligopolistic structure of much of the South African economy” (Lipton and Simkins 1993: 29). In fact, the top five conglomerates in South Africa control 80 percent of the companies on the Johannesburg Stock Exchange. This is the byproduct of years of exchange controls which kept money in South Africa, as well as international divestment policies which allowed South African companies to snap up foreign interests (Gerson 1993: 164). Thus in South Africa, the countervailing power of the unions seems essential in promoting the interests of black workers. South Africa’s extreme level of industrial concentration also may warrant significant anti-trust efforts, but the ANC has yet to address this issue substantively.

The affirmative action debate centers on the perceived problems with affirmative action in the U.S. and elsewhere. Here again, the arguments are ideological in nature and most neoliberal theorists side with market advocates who say that affirmative action creates inefficiency. Again, as is unique in South Africa, market proponents acknowledge the need for limited affirmative action in the face of black demands, whereas their counterparts in the U.S. want affirmative action abolished completely. For example, Kenneth Hughes (1993: 69) argued that South Africa should use a more moderate form of affirmative action than has been tried in the U.S., using racial criteria only as a tie breaker and making job offers based on individual achievement and potential, not simply racial criteria. He hoped that adding “potential” to the job criteria would correct problems created by poorer black education and opportunity. Regardless, it seems unlikely that neoliberal proposals for very limited affirmative action would alter the opportunities available to blacks significantly.

Privatization debates evolve along similar lines. Members of the ANC considered nationalization to be a viable redistributive option until as late as 1991, while market proponents wanted to privatize existing parastatals, although often in 41

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a way that would benefit blacks.26 Blacks could be given shares of the companies, which could then be sold to private investors (Reekie 1993: 130).

The ANC also argued originally for a “growth through redistribution” approach which sought to expand the demand side of the economy and to cater to the needs T of the poor. Terence Moll (1991, 1993) responded that this approach was built upon the assumption that spare capacity in the economy can be utilized in response to the increase in demand; thus in the South African case, redistribution might actually increase efficiency. Moll disagreed with this argument, worrying that this approach would lead to unsustainable macroeconomic policies. Instead, he preferred a supply-centered approach that would shift resources, assets and income directly to the poor without increasing government expenditure. In fact, Moll opposed virtually all policies which could stifle the market, with the exception of restrictions on capital flows, which he felt were necessary to stabilize capital markets. Moll’s defense of his stance rested on the performance of similar programs in Latin America, which generated temporary booms but long-term macroeconomic problems. Whether or not a more effective approach could be designed for South Africa remains in question. A redistributive approach that also targeted supply considerations through the promotion of small businesses and the provision of extension services and education could have significant positive effects on the poor and on the development of black-owned business. Furthermore, given the high unemployment rate and recent production cutbacks, it also seems that spare capacity currently does exist in the South African economy. And such reliance on economic growth to end the disparities created by apartheid seems misplaced given that internationally, “Higher rates of economic growth do not correspond neatly with reduced intergroup disparity…” (Darity and Nembhard 2000: 308).

THE ANC’S GEAR STRATEGY AND THE WORLD BANK The Government of National Unity’s (GNU) attempts to implement the RDP were opposed from the beginning by neoliberal forces both internationally and within South Africa.27 As Adams (1997: 241) notes, Even before the ANC assumed governmental office, South African business had set about the process of diluting the RDP, while overseas agencies such as the

26 The ANC officially moved away from their advocacy of nationalization in 1990. This occurred after the Johannesburg Stock Exchange plummeted in response to a statement by Nelson Mandela that he still considered the nationalization of the mines, banks and monopoly industries a possibility. In 1991, Joe Slovo and the SACP followed suit.

27 The Government of National Unity includes three political groups that worked together to overthrow apartheid: the ANC, the SACP and COSATU.

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International Monetary Fund and the World Bank adopted a “carrot and stick” approach, hinting that if too radical a social policy was adopted by the GNU this would be frowned upon internationally (meaning no loans). As a result, in a unipolar world of seemingly all-powerful market forces, even by the time of the ANCled government’s first post-apartheid budget there was a subtle, but nonetheless discernible, shift away from state intervention and towards an RDP driven by private-sector growth.

Despite some rumblings of dissent, the ANC’s partners in the GNU, COSATU and the SACP, initially went along with the movement towards neoliberalism in an effort to promote national unity and to advance the idea that government could work with businesses for the betterment of all. The connection between the GNU and various business interests has grown even closer of late, as evidenced by the ANC’s adoption of GEAR. In June of 1996, the ANC developed the “Growth, Employment and Redistribution” (GEAR) strategy, its first macroeconomic policy paper, to address the South African economy’s macroeconomic problems. T This move was prompted by an alarming collapse in the value of the rand and a decline in investor confidence. According to Gevisser (1997: 24), GEAR “has embraced the market economy as the National Party never did, and the ANC is privatizing the assets that its predecessors so jealously guarded.” GEAR is based on standard neoliberal economic principles, with the key policies being deficit reduction, low inflation, trade liberalization, privatization, tax cuts, and deregulation.

Part of the alliance between the GNU and business interests stems, ironically, from an affirmative action program that awards state contracts to companies that either are run by blacks or are in partnership with black entrepreneurs. Gevisser (1997: 25) notes that this program has created a black bourgeoisie that contains many of the leaders of the GNU: Almost every COSATU-affiliated union, and even the Communist Party itself, has set up an investment company. It has been, without a doubt, one of the quietest and most profound revolutions of post-apartheid South Africa: not just that former militants … have become captains of industry, but that the ideology of this transformation is so radical a departure from traditional labor values.

This “labor capitalism” has created some bizarre contradictions. For example, the National Union of Mineworkers was forced to negotiate retrenchments with a mining house that it controlled on behalf of its workers (Gevisser 1997: 26).

The recent neoliberalism of the GNU has wormed its way into South Africa through what Patrick Bond (1997) terms a “back-door Structural Adjustment Program.” Before the election of 1994, the ANC was openly hostile to the 43

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neoliberal policies of the IMF and the World Bank. But GEAR was developed with the help of World Bank economists, and the World Bank has been extremely influential in directing the GNU’s macroeconomic policies: Indeed in both urban and rural South Africa, two major Bank research reports – regarding municipal infrastructure in 1994–5 and economic strategy in 1996 – have generated as much chaos and misery as do Bank loans and formal Structural Adjustment Programs elsewhere in the Third World. This is also true in most areas of South African social policy advice (land reform, housing, education, health, welfare), wheree the Bank has dogmatically recommended market-oriented solutions to problems created both by apartheid and South African capitalism’s extraordinary inequality.

(Bond 1997)

For example, with regard to electricity and water projects, the World Bank has advocated the provision of these services only to those who can afford to pay, without regard for “the positive effect of uniform water and electricity standards upon public health, labor productivity, employment or geographical (racial and class) integration. … Since poor people often can’t pay—at free market rates— the Bank’s solution was to deny people access to water-borne sanitation and give them pit latrines instead” (Bond 1997).

Rioting broke out in July of 1997 in the black townships near Johannesburg over power and water cuts. Because the poor residents of these townships could not pay their bills, access to electricity and water was reduced. “The catalyst for the first South African “IMF riots”—as they are termed elsewhere—was a combination of two policies, urban and macroeconomic, drawn up by Bank advisors…” (Bond 1997). The two policies that led to these riots were 1) the movement to market-based allocation of water and electricity, and 2) the overall contraction of government and tight monetary policy promoted by the World Bank through GEAR. A Along with the rioters, various members of the ANC, SACP and COSATU are increasingly disillusioned with GEAR. COSATU was so upset with GEAR’s effects that they staged a general strike on May 10, 2000 to protest jjob ob losses and rising poverty.

Despite the promises of neoliberal economists, GEAR and other neoliberal policies have done little to improve the performance of the South African economy, especially as far as blacks are concerned. The currency stabilized temporarily and investor confidence initially was restored. But interest rates did not fall as predicted, and the Rand faced a renewed exchange crisis in 1998, devaluing 25 percent in less than a month. Although black income as a share of GDP rose from 30% to 36% from 1991 to 1996, “almost all of this increase occurred among the top 10 percent of black earners, while poorer blacks actually experienced

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a decline in income” (Barrell 2000).28 In fact, the poorest 40 percent of blackk households experienced a decline in income of 20 percent during this period, and inequality is increasing in South Africa. Budlender (2000) reports that the Gini coefficient for pay in South Africa increased from 0.73 in 1995 to 0.80 in 1998. In 2000, black average disposable income per person was only 14.9 percent of that of whites (van Wyk 2001). Similarly, in 2000 the official black unemployment rate was 31.6 percent, 4.6 times greater than the white unemployment rate of 6.8 percent.29 Studies indicate that the South African economy shed at least 500,000 jobs from 1994 to 1999 (Saul 2001: 21).

A recent paper by Sherer (2000) demonstrates that racial discrimination, which was declining until 1994, has increased since 1995. So neoliberal policies have not eroded discrimination as neoliberals predicted. Meanwhile, government efforts to improve black housing and education, to provide greater access to clean water and health, and to redistribute land have improved the lives of black South Africans, but these programs have been very limited in scope and vast disparities still exist. In 1996, only 27% of blacks had access to clean water compared with 95% of whites (Central Statistical Service of South Africa, 1998), and the ANC’s emphasis on fiscal conservatism has limited the extent to which such services can be expanded.

In general, neoliberal policies promoted by the World Bank and adopted by the ANC have helped black elites but have done little for the black majority while largely preserving the status quo. As Patrick Bond (2000: 183–184) observed, “ “Aside perhaps from … Democratic Party politicians, there were probably no more effective advocates for the interests of rich white South Africans in postB apartheid South Africa than the quiet, smooth bureaucrats of the World Bank.” But much of the blame must be placed on the ANC, which (1) stuck firmly with GEAR despite its failure to meet almost all of its targets (most notably growth off GDP, investment, exports, and the protection of the value of the Rand), (2) engaged in draconian fiscal conservatism and cut social programs, thereby hurting the poor, while bending over backwards to repay apartheid-era debt, (3)) maintained a regressive Value Added Tax on basic goods while giving tax breaks to the (4 facilitated capital flight and exchange rate instability through financial rich, (4) market liberalization, (5) allowed the Reserve Bank to keep interest rates high to safe-guard financial markets, without regard to the effects on employment, and

28 When white emigration is factored in the increase in the black share of national income is less impressive. The Economist (2001) reported that 234,000 (mostly white) people emigrated from South Africa from 1989–1997.

29 An expanded unemployment rate that includes anyone who has taken active steps to look for work in the last month stands at 41.2 percent for blacks and 10.1 percent for whites.

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(6) reduced tariffs rapidly, resulting in massive deindustrialization and job loss (Bond 2000: 217–218). A whole host of groups, many that were allied with the ANC during the liberation struggle, are now openly critical of the pace off redistribution and reform. Despite its successes in recent elections, the ANC may be in danger of erosion in its political base if it maintains neoliberal economic policies and continues the slow pace of redistribution.

CONCLUSION As this brief survey of liberal and neoliberal economic theory indicates, South African neoliberal economists continue to extol the virtues of the free market, even in the face of the failure of existing market-based policies, based on the supposed efficiency of the market. What is different in South Africa is that, with the ANC in power, free marketeers must address the needs of blacks, something which rarely happens in the United States. The result has been a moderation off neoliberal views that attempts to preserve economic efficiency while proposing limited redistribution. Ironically, the ANC has been able to bring a moderate version of neoliberalism to South Africa where business leaders and neoliberal economists failed for decades.30 The neoliberal approach conveniently places efficiency ahead of justice while simultaneously resting on unconvincing economic theory. The lack of legitimacy reflected in the current distribution of income and assets in South Africa is a real danger to the market in South Africa. True legitimacy comes from the support off all citizens. Until recently, the ANC-led government had legitimacy due to the U reverence and widespread support for Nelson Mandela. It is difficult to imagine that support remaining behind Thabo Mbeki if he continues to promote neoliberal economic policies and if these policies continue to leave most Africans behind.

Mbeki himself seems to realize this, referring to a “mounting rage” in the blackk T community in response to the slow pace of change in a 1998 speech (Time International 1998). As Nelson Mandela himself observed, if the ANC does not International “deliver the goods” and eliminate economic apartheid, the people who elected them may eventually abandon them.

ACKNOWLEDGEMENTS An earlier draft of this paper was presented at the annual meetings of the Association For Evolutionary Economics in Chicago, Illinois on January 3, 1998.

I would like to thank Sandy Darity for his valuable comments on earlier drafts of 30 The transition to neoliberal economic policy began in the 1970s under the National Party, but the ANC has embraced neoliberalism to a much greater degree.

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this paper. In addition, I would like to thank an anonymous referee for providing extremely helpful suggestions.

REFERENCES Adams, S. (1997) “What’s Left?: The South African Communist Party After Apartheid,” Review of African Political Economy 72: 237–248.

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50

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Even it up. Time to end Extreme Inequality.

OXFAM

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Even it up TIME TO END EXTREME INEQUALITY

ENDORSEMENTS KOFI ANNAN

NAWAL EL SAADAWI

Chair of the Africa Progress Panel, former SecretaryGeneral of the United Nations and Nobel Laureate

Egyptian writer and activist

The widening gap between rich and poor is at a tipping point. It can either take deeper root, jeopardizing our efforts to reduce poverty, or we can make concrete changes now to reverse it. This valuable report by Oxfam is an exploration of the problems caused by extreme inequality and the policy options governments can take to build a fairer world, with equal opportunities for us all. This report is a call to action for a common good. We must answer that call.

PROFESSOR JOSEPH STIGLITZ Columbia University, winner of the Nobel Prize for Economics The extreme inequalities in incomes and assets we see in much of the world today harm our economies, our societies, and undermines our politics. While we should all worry about this it is of course the poorest who suffer most, experiencing not just vastly unequal outcomes in their lives, but vastly unequal opportunities too. Oxfam’s report is a timely reminder that any real effort to end poverty has to confront the public policy choices that create and sustain inequality.

Oxfam’s report reveals a new challenge to the capitalist patriarchal world and its so-called free market. We need to fight together, globally and locally, to build a new world based on real equality between people regardless of gender, class, religion, race, nationality or identity.

ANDREW HALDANE Chief Economist, Bank of England When Oxfam told us in January 2014 that the world’s 85 richest people have the same wealth as the poorest half of humanity, they touched a moral nerve among many. Now this comprehensive report goes beyond the statistics to explore the fundamental relationship between inequality and enduring poverty. It also presents some solutions.

In highlighting the problem of inequality Oxfam not only speaks to the interests of the poorest people but in our collective interest: there is rising evidence that extreme inequality harms, durably and significantly, the stability of the financial system and growth in the economy. It retards development of the human, social and physical capital necessary for raising living standards and improving well-being. That penny is starting to drop among policy makers and politicians. There is an imperative – moral, economic and social – to develop public policy measures to tackle growing inequality. Oxfam’s report is a valuable stepping stone towards that objective.

JEFFREY SACHS

ROSA PAVANELLI

Director of the Earth Institute at Columbia University

Secretary General, Public Services International

Oxfam has done it again: a powerful call to action against the rising trend of inequality across the world. And the report comes just in time, as the world’s governments are about to adopt Sustainable Development Goals (SDGs) in 2015. Sustainable development means economic prosperity that is inclusive and environmentally sustainable. Yet too much of today’s growth is neither inclusive nor sustainable. The rich get richer while the poor and the planet pay the price. Oxfam spells out how we can and must change course: fairer taxation, ending tax and secrecy havens, equal access of the rich and poor to vital services including health and education; and breaking the vicious spiral of wealth and power by which the rich manipulate our politics to enrich themselves even further. Oxfam charts a clear course forward. We should all rally to the cause of inclusive, sustainable growth at the core of next year’s SDGs.

The answers Oxfam provides are simple, smart and entirely achievable. All that stands between them and real change is a lack of political will. Our job is to make the cry heard.

To give action to the urgency. To ceaselessly expose the injustice and demand its resolution. The time to act is now.

JAY NAIDOO

HA-JOON CHANG

Chair of the Board of Directors and Chair of the Partnership Council, Global Alliance for Improved Nutrition

Economist at the University of Cambridge

All those who care about our common future should read this report. Rising inequality has become the greatest threat to world peace, and indeed to the survival of the human species. The increasing concentration of wealth in the hands of very few has deepened both ecological and economic crises, which in turn has led to an escalation of violence in every corner of our burning planet.

KATE PICKETT AND RICHARD WILKINSON Co-authors of The Spirit Level: Why Equality is Better for Everyone This report is the first step in changing the policies which have enriched the few at the expense of the many. It is essential reading for all governments, for policy makers and everyone who has had enough of sacrificing public wellbeing to the one percent.

Even It Up is the best summary yet of why tackling inequality is crucial to global development. The gulf between haves and have-nots is both wrong in itself, and a source of needless human and economic waste.

I urge you to read it, and join the global campaign for a fairer world.

EVEN IT UP TIME TO END EXTREME INEQUALITY

ACKNOWLEDGEMENTS The paper was written and coordinated by Emma Seery and Ana Caistor Arendar, with chapters and contributions from Ceri Averill, Nick Galasso, Caroline Green, Duncan Green, Max Lawson, Catherine Olier, Susana Ruiz and Rachel Wilshaw.

Many colleagues gave written inputs and support to the final draft of this report. Special mention should be made to Gregory Adams, Ed Cairns, Rosa Maria Cañete, Teresa Cavero, Katharina Down, Sarah Dransfield, Kate Geary, Jessica Hamer, Deborah Hardoon, Mohga Kamal-Yanni, Didier Jacobs, Roberto Machado, Katie Malouf, Araddhya Mehtta, Pooven Moodley, Jessica Moore, Robbie Silverman, Katherine Trebeck, Daria Ukhova, Katy Wright and Andrew Yarrow.

Oxfam was grateful for the opportunity to consult the following on an early draft of this report, and for their valuable comments and assistance: Andrew Berg (IMF), Laurence Chandy (The Brookings Institution), Professor Diane Elson, Chris Giles (Financial Times), Professor Kathleen Lahey, Professor Kate Pickett, Michael Sandel (author of What Money Can’t Buy: The Moral Limits of Market, Harvard), Olivier de Schutter (Honorary Advisor to Oxfam), Mark Thomas (PA Consulting Services), Kevin Watkins (Overseas Development Institute).

Production of the report was managed by Jonathan Mazliah. The text was edited by Mark Fried and Jane Garton. The report was designed by Soapbox.

Cover: A man pushes his bicycle, loaded with melons, past a billboard advertisement for Oman Air’s first class service (2013).

Photo: Panos/GMB AKASH

CONTENTS

FOREWORD FROM GRAÇA MACHEL

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FOREWORD FROM WINNIE BYANYIMA

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EXECUTIVE SUMMARY

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INTRODUCTION

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EXTREME INEQUALITY A STORY THAT NEEDS A NEW ENDING

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1.1 The reality of today’s haves and have-nots

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1.2 Extreme inequality hurts us all

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1.3 What has caused the inequality explosion?

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WHAT CAN BE DONE TO END EXTREME INEQUALITY

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2.1 A tale of two futures

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2.2 Working our way to a more equal world

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2.3 Taxing and investing to level the playing field

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2.4 Health and education: Strong weapons in the fight against inequality

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2.5 Freedom from fear

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2.6 Achieving economic equality for women

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2.7 People power: Taking on the one percent

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TIME TO ACT AND END EXTREME INEQUALITY

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FOREWORD

FOREWORD The last decades have seen incredible human progress across Africa and the world. But this progress is under threat from the scourge of rapidly rising inequality.

This report from Oxfam is a stark and timely portrait of the growing inequality which characterizes much of Africa and the world today. Seven out of 10 people live in countries where inequality is growing fast, and those at the top of society are leaving the rest behind.

Addressing the gap between the richest people and the poorest, and the impact this gap has on other pervasive inequalities, between men and women and between races, which make life for those at the bottom unbearable, is an imperative of our times. Too many children born today have their future held hostage by the low income of their parents, their gender and their race.

The good news is that this growing inequality is not inevitable. It can be resolved. This report contains many examples of success to give us inspiration.

I hope that many people from government officials, business and civil society leaders, and bilateral and multilateral institutions will examine this report, reflect on its recommendations and take sustained actions that will tackle the inequality explosion.

GRAĂ&#x2021;A MACHEL Founder, Graça Machel Trust

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FOREWORD I have been fighting inequality my whole life. Where I grew up in Uganda, my family did not have much, but we were among the better-off in our village. My best friend and I went to school together every day. I had one pair of shoes, she walked barefoot. I did not understand why then, and I still donâ&#x20AC;&#x2122;t now. Inequality must be fought, every step of the way.

Many of the poorest countries have made great progress in the struggle against poverty; progress that I have seen with my own eyes when visiting some of the toughest places in the world. But this progress is being threatened by rising inequality. Money, power and opportunities are concentrated in the hands of the few, at the expense of the majority.

A child born to a rich family, even in the poorest of countries, will go to the best school and will receive the highest quality care if they are sick. At the same time, poor families will see their children taken from them, struck down by easily preventable diseases because they do not have the money to pay for treatment. The reality is that across the world, the richest people are able to live longer, happier and healthier lives, and are able to use their wealth to see that their children do the same.

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Persistent inequalities between men and women only exacerbate these discrepancies. Everywhere I travel with Oxfam, and whenever I return home to Uganda, I see evidence of this. Half of all women in sub-Saharan Africa give birth alone and in unsafe conditions. None of these women are wealthy.

Womenâ&#x20AC;&#x2122;s low status in society means that the issue of maternal health is neglected in budget allocations, leaving public hospitals and clinics poorly resourced and under-staffed. At the same time the wives, sisters and daughters of the most rich and powerful families in these countries give birth in private hospitals attended by trained doctors and midwives.

This cannot go on. But our ability to raise our voices and have a say over how the societies we live in are run is being threatened by the concentration of wealth in the hands of the few. The wealthiest can use their financial power and the influence that comes with it to bend laws and policy choices in their favour, further reinforcing their positions. In rich and poor countries alike, money yields power and privilege, at the expense of the rights of the majority.

The people have been left behind for too long, a fact that has already sparked popular protests and outrage around the world. Outrage that elected governments are representing the interests of the powerful few, and neglecting their responsibility to ensure a decent future for everyone. Outrage that the banks and bankers, whose recklessness led to the financial crisis, were bailed out, while the poorest in society were left to front the costs. Outrage that corporate giants are able to dodge their taxes and get away with paying poverty wages.

Many of you will wonder whether there is anything we can do to change this?

The answer is very firmly yes. Inequality is not inevitable. It is the result of policy choices. This report is concerned with exploring the policy choices and actions that can reverse it: free public health and education services that help everyone, while ensuring the poor are not left behind; to decent wages that end working poverty; progressive taxation so that the rich pay their fair share; and protected spaces where people can have their voices heard and where they can have a say over the societies they live in.

Oxfam is standing in solidarity with people everywhere who are demanding a more equal world, and an end to extreme inequality.

WINNIE BYANYIMA Executive Director, Oxfam

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A cleaner passing an image of a luxury apartment displayed on the ground floor of a residential complex in Chaoyang district, China (2013).

Photo: Panos/Mark Henley

EXECUTIVE SUMMARY

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Nthabiseng was born to a poor black family in Limpopo, a rural area in South Africa. On the same day, Pieter was born nearby in a rich suburb of Cape Town. Nthabiseng’s mother had no formal schooling and her father is unemployed, whereas Pieter’s parents both completed university education at Stellenbosch University and have well-paid jobs.

As a result, Nthabiseng and Pieter’s life chances are vastly different.

Nthabiseng is almost one and a half times as likely to die in the first year of her life as Pieter.1 He is likely to live more than 15 years longer than Nthabiseng.2 Pieter will complete on average 12 years of schooling and will most probably go to university, whereas Nthabiseng will be lucky if she gets one year.3 Such basics as clean toilets, clean water or decent healthcare4 will be out of her reach. If Nthabiseng has children there is a very high chance they will also grow up equally poor.5 While Nthabiseng and Pieter do not have any choice about where they are born, their gender, or the wealth and education of their parents, governments do have a choice to intervene to even up people’s life chances. Without deliberate action though, this injustice will be repeated in countries across the world.

This thought experiment is taken from the World Development Report 2006.

Oxfam has updated the facts on life chances in South Africa.6

From Ghana to Germany, South Africa to Spain, the gap between rich and poor is rapidly increasing, and economic inequality* has reached extreme levels.

In South Africa, inequality is greater today than at the end of Apartheid.7 The consequences are corrosive for everyone. Extreme inequality corrupts politics, hinders economic growth and stifles social mobility. It fuels crime and even violent conflict. It squanders talent, thwarts potential and undermines the foundations of society.

Crucially, the rapid rise of extreme economic inequality is standing in the way of eliminating global poverty. Today, hundreds of millions of people are living without access to clean drinking water and without enough food to feed their families; many are working themselves into the ground just to get by. We can only improve life for the majority if we tackle the extreme concentration of wealth and power in the hands of elites.

Oxfam’s decades of experience in the world’s poorest communities have taught us that poverty and inequality are not inevitable or accidental, but the result of deliberate policy choices. Inequality can be reversed. The world needs

* Inequality has many different dimensions, including race, gender, geography and economy, which rarely work in isolation. This report is primarily concerned with the concentration of financial resources and wealth in the hands of the few, which can affect political, social and cultural processes to the detriment of the most vulnerable.

As such, in this report we use the term ‘inequality’ to refer to extreme economic (wealth and income) inequality. When referring to the various dimensions of inequality we make these distinctions.

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concerted action to build a fairer economic and political system that values everyone. The rules and systems that have led to today’s inequality explosion must change. Urgent action is needed to level the playing field by implementing policies that redistribute money and power from wealthy elites to the majority.

Using new research and examples, this report shows the scale of the problem of extreme economic inequality, and reveals the multiple dangers it poses to people everywhere. It identifies the two powerful driving forces that have led to the rapid rise in inequality in so many countries: market fundamentalism and the capture of politics by elites. The report then highlights some of the concrete steps that can be taken to tackle this threat, and presents evidence that change can happen.

Extreme economic inequality has exploded across the world in the last 30 years, making it one of the biggest economic, social and political challenges of our time. Age-old inequalities on the basis of gender, caste, race and religion – injustices in themselves – are exacerbated by the growing gap between the haves and the have-nots.

As Oxfam launches the Even It Up campaign worldwide, we join a diverse groundswell of voices, including billionaires, faith leaders and the heads of institutions, such as the International Monetary Fund (IMF) and the World Bank, as well as trade unions, social movements, women’s organizations and millions of ordinary people across the globe. Together we are demanding that leaders around the world take action to tackle extreme inequality before it is too late.

THE GROWING GAP BETWEEN RICH AND POOR Trends in income and wealth tell a clear story: the gap between the rich and poor has reached new extremes and is still growing, while power increasingly lies in the hands of elites.

Between 1980 and 2002, inequality between countries rose rapidly reaching a very high level.8 It has since fallen slightly due to growth in emerging countries, particularly China. But it is inequality within countries that matters most to people, as the poorest struggle to get by while their neighbours prosper, and this is rising rapidly in the majority of countries. Seven out of 10 people live in countries where the gap between rich and poor is greater than it was 30 years ago.9 In countries around the world, a wealthy minority are taking an ever-increasing share of their nation’s income.10 Worldwide, inequality of individual wealth is even more extreme. At the start of 2014, Oxfam calculated that the richest 85 people on the planet owned as much as the poorest half of humanity.12 Between March 2013 and March 2014, these 85 people grew $668m richer each day.13 If Bill Gates were to cash in all of his wealth, and spend $1m every single day, it would take him 218 years to spend it all.14 In reality though, he would never run out of money: even a modest return of just under two percent would make him $4.2 million each day in interest alone.

Since the financial crisis, the ranks of the world’s billionaires has more than doubled, swelling to 1,645 people.15 And extreme wealth is not just a richcountry story. The world’s richest man is Mexico’s Carlos Slim, who knocked

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There’s been class warfare going on for the last 20 years and my class has won.

WARREN BUFFET THE FOURTH WEALTHIEST PERSON IN THE WORLD11

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Bill Gates off the top spot in July 2014. Today, there are 16 billionaires in subSaharan Africa, alongside the 358 million people living in extreme poverty.16 Absurd levels of wealth exist alongside desperate poverty around the world.

The potential benefit of curbing runaway wealth by even a tiny amount also tells a compelling story. Oxfam has calculated that a tax of just 1.5 percent on the wealth of the world’s billionaires, if implemented directly after the financial crisis, could have saved 23 million lives in the poorest 49 countries by providing them with money to invest in healthcare.17 The number of billionaires and their combined wealth has increased so rapidly that in 2014 a tax of 1.5 percent could fill the annual gaps in funding needed to get every child into school and deliver health services in those poorest countries.18 Some inequality is necessary to reward talent, skills and a willingness to innovate and take entrepreneurial risk. However, today’s extremes of economic inequality undermine growth and progress, and fail to invest in the potential of hundreds of millions of people.

EXTREME INEQUALITY HURTS US ALL Extreme inequality: A barrier to poverty reduction The rapid rise of extreme economic inequality is significantly hindering the fight against poverty. New research from Oxfam has shown that in Kenya, Indonesia and India, millions more people could be lifted out of poverty if income inequality were reduced.19 If India stops inequality from rising, it could end extreme poverty for 90 million people by 2019. If it goes further and reduces inequality by 36 percent, it could virtually eliminate extreme poverty.20 The Brookings Institution has also developed scenarios that demonstrate how inequality is preventing poverty eradication at the global level. In a scenario where inequality is reduced, 463 million more people are lifted out of poverty compared with a scenario where inequality increases.21 Income distribution within a country has a significant impact on the life chances of its people. Bangladesh and Nigeria, for instance, have similar average incomes. Nigeria is only slightly richer, but it is far less equal. The result is that a child born in Nigeria is three times more likely to die before their fifth birthday than a child born in Bangladesh.23

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Extreme disparities in income are slowing the pace of poverty reduction and hampering the development of broad-based economic growth.

KOFI ANNAN AFRICA PROGRESS PANEL, 201222

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Leaders around the world are debating new global goals to end extreme poverty by 2030. But unless they set a goal to tackle economic inequality they cannot succeed – and countless lives will be lost.

Extreme inequality undermines economic growth that helps the many There is a commonly held assumption that tackling inequality will damage economic growth. In fact, a strong body of recent evidence shows extremes of inequality are bad for growth.24 In countries with extreme economic inequality, growth does not last as long and future growth is undermined.25 IMF economists have recently documented how economic inequality helped to cause the global financial crisis.26 The ‘growth’ case against tackling economic inequality clearly no longer holds water.

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Extreme inequality also diminishes the poverty-reducing impact of growth.27 In many countries, economic growth already amounts to a ‘winner takes all’ windfall for the wealthiest in society. For example, in Zambia, GDP per capita growth averaged three percent every year between 2004 and 2013, pushing Zambia into the World Bank’s lower-middle income category. Despite this growth, the number of people living below the $1.25 poverty line grew from 65 percent in 2003 to 74 percent in 2010.28 Research by Oxfam29 and the World Bank30 suggests that inequality is the missing link explaining how the same rate of growth can lead to different rates of poverty reduction.

Economic inequality compounds inequalities between women and men One of the most pervasive – and oldest – forms of inequality is that between men and women. There is a very strong link between gender inequality and economic inequality.

Men are over-represented at the top of the income ladder and hold more positions of power as ministers and business leaders. Only 23 chief executives of Fortune 500 companies and only three of the 30 richest people in the world are women. Meanwhile, women make up the vast majority of the lowest-paid workers and those in the most precarious jobs. In Bangladesh, for instance, women account for almost 85 percent of workers in the garment industry.

These jobs, while often better for women than subsistence farming, offer minimal job security or physical safety: most of those killed by the collapse of the Rana Plaza garment factory in April 2013 were women.

Studies show that in more economically unequal societies, fewer women complete higher education, fewer women are represented in the legislature, and the pay gap between women and men is wider.32 The recent rapid rise in economic inequality in most countries is, therefore, a serious blow to efforts to achieve gender equality.

Economic inequality drives inequalities in health, education and life chances Gender, caste, race, religion, ethnicity and a range of the other identities that are ascribed to people from birth also play a significant role in creating the division between the haves and the have-nots. In Mexico, the maternal mortality rate for indigenous women is six times the national average and is as high as many countries in Africa.33 In Australia, Aboriginal and Torres Strait Islander Peoples are disproportionately affected by poverty, unemployment, chronic illness and disability; they are more likely to die young and to spend time in prison.

Economic inequality also leads to huge differences in life chances: the poorest people have the odds stacked against them in terms of education and life expectancy. The latest national Demographic and Health Surveys34 demonstrate how poverty interacts with economic and other inequalities to create ‘traps of disadvantage’ that push the poorest and most marginalized people to the bottom – and keep them there.

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The power of growth to reduce poverty… tends to decline both with the initial level of inequality, and with increases in inequality during the growth process.

F. FERREIRA AND M. RAVALLION31

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The poorest 20 percent of Ethiopians are three times more likely to miss out on school than the wealthiest 20 percent. When we consider the impact of gender inequality alongside urban/rural economic inequality, a much greater wedge is driven between the haves and the have-nots. The poorest rural women are almost six times more likely than the richest urban men to never attend school.35 Without a deliberate effort to address this injustice, the same will be true for their daughters and granddaughters.

Condemned to stay poor for generations

‘My parents were not educated. My mother did not go to school. My father attended a government primary school up to Grade 5 and understood the importance of education. He encouraged me to work extra hard in class. I was the first person in either my family or my clan to attend a government secondary school. Later, I went to university and did a teacher training course before attending specialized NGO sector training and got the opportunity to do development studies overseas.

I understand that today nearly 75 percent of the intake at the university is from private schools. University is beyond the reach of the ordinary Malawian. I cannot be sure, but I fear that if I were born today into the same circumstances, I would have remained a poor farmer in the village.’

John Makina, Country Director for Oxfam in Malawi

Many feel that some economic inequality is acceptable as long as those who study and work hard are able to succeed and become richer. This idea is deeply entrenched in popular narratives and reinforced through dozens of Hollywood films, whose rags-to-riches stories continue to feed the myth of the American Dream around the world. However, in countries with extreme inequality, the reality is that the children of the rich will largely replace their parents in the economic hierarchy, as will the children of those living in poverty – regardless of their potential or how hard they work.

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If Americans want to live the American dream, they should go to Denmark.

RICHARD WILKINSON CO-AUTHOR OF THE SPIRIT LEVEL36

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Researchers have shown that, across the 21 countries for which there is data, there is a strong correlation between extreme inequality and low social mobility.37 If you are born poor in a highly unequal country you will most probably die poor, and your children and grandchildren will be poor too. In Pakistan, for instance, a boy born in a rural area to a father from the poorest 20 percent of the population has only a 1.9 percent chance of ever moving to the richest 20 percent.38 In the USA, nearly half of all children born to low-income parents will become low-income adults.39 Around the world, inequality is making a mockery of the hopes and ambitions of billions of the poorest people. Without policy interventions in the interests of the many, this cascade of privilege and disadvantage will continue for generations.

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Inequality threatens society For the third year running, the World Economic Forum’s Global Risks survey has found ‘severe income disparity’ to be one of the top global risks for the coming decade.40 A growing body of evidence has also demonstrated that economic inequality is associated with a range of health and social problems, including mental illness and violent crime.41 This is true across rich and poor countries alike, and has negative consequences for the richest as well as the poorest people.42 Inequality hurts everyone.

Homicide rates are almost four times higher in countries with extreme economic inequality than in more equal nations.44 Latin America – the most unequal and insecure region in the world45 – starkly illustrates this trend.46 It has 41 of the world’s 50 most dangerous cities,47 and saw a million murders take place between 2000 and 2010.48 Unequal countries are dangerous places to live in.

Many of the most unequal countries are also affected by conflict or instability.

Alongside a host of political factors, Syria’s hidden instability before 2011 was, in part, driven by rising inequality, as falling government subsidies and reduced public sector employment affected some groups more than others.49 While living in an unequal country is clearly bad for everyone, the poorest people suffer most. They receive little protection from the police or legal systems, often live in vulnerable housing, and cannot afford to pay for private security measures. When disasters strike, those who lack wealth and power are worst affected and find it most difficult to recover.

The equality instinct Evidence shows that, when tested, people instinctively feel that there is something wrong with high levels of inequality.

Experimental research has shown just how important fairness is to most individuals, contrary to the prevailing assumption that people have an inherent tendency to pursue self-interest.50 A 2013 survey in six countries (Spain, Brazil, India, South Africa, the UK and the USA) showed that a majority of people believe the gap between the wealthiest people and the rest of society is too large. In the USA, 92 percent of people surveyed indicated a preference for greater economic equality, by choosing an ideal income distribution the same as Sweden’s and rejecting one that represented the reality in the USA.51 Across the world, religion, literature, folklore and philosophy show remarkable confluence in their concern that an extreme gap between rich and poor is inherently unfair and morally wrong. This concern is prevalent across different cultures and societies, suggesting a fundamental human preference for fairness and equality.

What has caused the inequality explosion?

Many believe that inequality is somehow inevitable, or is a necessary consequence of globalization and technological progress. But the experiences of different countries throughout history have shown that, in fact, deliberate political and economic choices can lead to greater inequality. There are two

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No society can sustain this kind of rising inequality.

In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out.

NICK HANAUER US BILLIONAIRE AND ENTREPRENEUR43

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To be wealthy and honoured in an unjust society is a disgrace.

MAHATMA GANDHI

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powerful economic and political drivers of inequality, which go a long way to explaining the extremes seen today: market fundamentalism and the capture of power by economic elites.

Market fundamentalism: A recipe for today’s inequality Over the last three hundred years, the market economy has brought prosperity and a dignified life to hundreds of millions of people across Europe, North America and East Asia. However, as economist Thomas Piketty demonstrated in Capital in the Twenty-First Century, without government intervention, the market economy tends to concentrate wealth in the hands of a small minority, causing inequality to rise.52 Despite this, in recent years economic thinking has been dominated by a ‘market fundamentalist’ approach, that insists that sustained economic growth only comes from reducing government interventions and leaving markets to their own devices. However, this undermines the regulation and taxation that are needed to keep inequality in check.

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One of the flaws of market fundamentalism is that it paid no attention to distribution of incomes or the notion of a good or fair society.

JOSEPH STIGLITZ53

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There are clear lessons to be learned from recent history. In the 1980s and 1990s, debt crises saw countries in Latin America, Africa, Asia and the former Eastern bloc subjected to a cold shower of deregulation, rapid reductions in public spending, privatization, financial and trade liberalization, generous tax cuts for corporations and the wealthy, and a ‘race to the bottom’ to weaken labour rights. Inequality rose as a result. By 2000, inequality in Latin America had reached an all-time high, with most countries in the region registering an increase in income inequality over the previous two decades.54 It is estimated that half of the increase in poverty over this period was due to redistribution of wealth in favour of the richest.55 In Russia, income inequality almost doubled in the 20 years from 1991, after economic reforms focused on liberalization and deregulation.56 Women are worst affected by market fundamentalist policies. They lose out most when labour regulations are watered down – for instance through the removal of paid maternity leave and holiday entitlements – or when state services are eroded, adding to their already higher burden of unpaid care.

And, because women and children disproportionately benefit from public services like healthcare or free education, they are hit hardest when these are cut back.

Despite the fact that market fundamentalism played a strong role in causing the recent global economic crisis, it remains the dominant ideological world view and continues to drive inequality. It has been central to the conditions imposed on indebted European countries, forcing them to deregulate, privatize and cut their welfare provision for the poorest, while reducing taxes on the rich. There will be no cure for inequality while countries are forced to swallow this medicine.

Capture of power and politics by elites has fuelled inequality The influence and interests of economic and political elites has long reinforced inequality. Money buys political clout, which the richest and most powerful use to further entrench their unfair advantages. Access to justice is also often for sale, legally or illegally, with court costs and access to the best lawyers

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Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself.

MARK CARNEY GOVERNOR OF THE BANK OF ENGLAND57

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ensuring impunity for the powerful. The results are evident in today’s lopsided tax policies and lax regulatory regimes, which rob countries of vital revenue for public services, encourage corrupt practices and weaken the capacity of governments to fight poverty and inequality.58 Elites, in rich and poor countries alike, use their heightened political influence to curry government favours – including tax exemptions, sweetheart contracts, land concessions and subsidies – while blocking policies that strengthen the rights of the many. In Pakistan, the average net-worth of parliamentarians is $900,000, yet few of them pay any taxes.59 This undermines investment in sectors, such as education, healthcare and small-scale agriculture, which can play a vital role in reducing inequality and poverty.

The massive lobbying power of rich corporations to bend the rules in their favour has increased the concentration of power and money in the hands of the few. Financial institutions spend more than €120m per year on armies of lobbyists to influence EU policies in their interests.60

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We can have democracy in this country, or we can have great wealth concentrated in the hands of a few, but we can’t have both.

LOUIS D. BRANDEIS FORMER SUPREME COURT JUSTICE, USA

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Many of the richest people made their fortunes thanks to the exclusive government concessions and privatization that come with market fundamentalism. Privatization in Russia and Ukraine after the fall of communism turned political insiders into billionaires overnight. Carlos Slim made his many billions by securing exclusive rights over Mexico’s telecom sector when it was privatized in the 1990s.61 Market fundamentalism and political capture have worsened economic inequality, and undermined the rules and regulations that give the poorest, the most marginalized and women and girls, a fair chance.

WHAT CAN BE DONE TO END EXTREME INEQUALITY? The continued rise of economic inequality around the world today is not inevitable – it is the result of deliberate policy choices. Governments can start to reduce inequality by rejecting market fundamentalism, opposing the special interests of powerful elites, changing the rules and systems that have led to today’s inequality explosion, and taking action to level the playing field by implementing policies that redistribute money and power.

Working our way to a more equal world

Maria lives in Malawi and works picking tea. Her wage is below the extreme poverty line of $1.25 per day at household level and she struggles to feed her two children, who are chronically malnourished.

But things are starting to change. In January 2014, the Malawian government raised the minimum wage by approximately 24 percent.

A coalition, led by Ethical Tea Partnership and Oxfam, is seeking new ways to make decent work sustainable in the longer term.63

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Without deliberate policy interventions, high levels of inequality tend to be selfperpetuating. They lead to the development of political and economic institutions that work to maintain the political, economic and social privileges of the elite.

UN RESEARCH INSTITUTE FOR SOCIAL DEVELOPMENT62

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The low road: Working to stand still Income from work determines most people’s economic status and their future chances.64 But the vast majority of the world’s poorest people cannot escape poverty, no matter how hard they work, and far too many suffer the indignity of poverty wages. Meanwhile, the richest people have high and rapidly rising salaries and bonuses, as well as significant income from their accumulated wealth and capital. This is a recipe for accelerating economic inequality.

Since 1990, income from labour has made up a declining share of GDP across low-, middle- and high-income countries alike. Around the world, ordinary workers are taking home an ever-dwindling slice of the pie, while those at the top take more and more.65 In 2014, the UK top 100 executives took home 131 times as much as their average employee,66 yet only 15 of these companies have committed to pay their employees a living wage.67 In South Africa, a platinum miner would need to work for 93 years just to earn the average CEO’s annual bonus.68 Meanwhile, the International Trade Union Confederation estimates that 40 percent of workers are trapped in the informal sector, where there are no minimum wages and workers’ rights are ignored.69 Oxfam research found evidence of poverty wages and insecure jobs in middleincome Vietnam, Kenya and India, and below the extreme poverty line in Malawi, despite being within national laws.70 Living wages are a dream for the vast majority of workers in developing countries. And women are on an even lower road than male workers; at the current rate of decline in the gender pay gap, it will take 75 years to make the principle of equal pay for equal work a reality.71 Unions give workers a better chance of earning a fair wage. Collective bargaining by unions typically raises members’ wages by 20 percent and drives up market wages for everyone.72 However, many developing countries have never had strong unions and, in some, workers are facing a crackdown on their right to organize.

The high road: Another way is possible Some countries are bucking the trend on wages, decent work and labour rights. Brazil’s minimum wage rose by nearly 50 percent in real terms between 1995 and 2011, contributing to a parallel decline in poverty and inequality.73 Countries such as Ecuador74 and China75 have also deliberately increased wages.

Forward-looking companies and cooperatives are also taking action to limit executive pay. For instance, Brazil’s SEMCO SA employs more than 3,000 workers across a range of industries, and adheres to a wage ratio of 10 to 1.76 Germany’s Corporate Governance Commission proposed capping executive pay for all German publicly traded companies, admitting that public outrage against excessive executive pay had influenced its proposal.

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Taxing and investing to level the playing field

Bernarda Paniagua lives in Villa Eloisa de las Cañitas, one of the poorest and most under-served areas of the Dominican Republic, where she sells cheese to make a living.

Victor Rojas lives in one of the wealthiest areas of the country and is the manager of a prestigious company. Yet Bernarda pays a greater proportion of her income in indirect taxes than Victor.

Parents in Victor’s neighbourhood can pay for the best education for their children so they can expect good jobs and a prosperous future.

For Bernarda’s children, the outlook isn’t so bright. Her oldest daughter, Karynely, is unable to continue studying or to find a good job as she lacks the necessary IT skills because there weren’t any computers at her school.

The tax system is one of the most important tools a government has at its disposal to address inequality. Data from 40 countries shows the potential of redistributive taxing and investing by governments to reduce income inequality driven by market conditions.77

The low road: The great tax failure Tax systems in developing countries, where public spending and redistribution is particularly crucial, unfortunately tend to be the most regressive78 and the furthest from meeting their revenue-raising potential. Oxfam estimates that if low- and middle-income countries – excluding China – closed half of their tax revenue gap they would gain almost $1tn.79 But due to the disproportionate influence of rich corporations and individuals, and an intentional lack of global coordination and transparency in tax matters, tax systems are failing to tackle poverty and inequality.

The race to the bottom on corporate tax collection is a large part of the problem. Multilateral agencies and finance institutions have encouraged developing countries to offer tax incentives – tax holidays, tax exemptions and free trade zones – to attract foreign direct investment. Such incentives have soared, undermining the tax base in some of the poorest countries. In 2008/09, for instance, the Rwandan government authorized tax exemptions that, if collected, could have doubled health and education spending.81 Well-meaning governments around the world are often hamstrung by rigged international tax rules and a lack of coordination. No government alone can prevent corporate giants from taking advantage of the lack of global tax cooperation. Large corporations can employ armies of specialist accountants to minimize their taxes and give them an unfair advantage over small businesses. Multinational corporations (MNCs), like Apple82 and Starbucks,83 have been exposed for dodging billions in taxes, leading to unprecedented public pressure for reform.

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There are no politicians who speak for us. This is not just about bus fares any more.

We pay high taxes and we are a rich country, but we can’t see this in our schools, hospitals and roads.

JAMAIME SCHMITT BRAZILIAN PROTESTOR80

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The richest individuals are also able to take advantage of the same tax loopholes and secrecy. In 2013, Oxfam estimated that the world was losing $156bn in tax revenue as a result of wealthy individuals hiding their assets in offshore tax havens.84 Warren Buffet has famously commented on the unfairness of a system that allowed him to pay less tax than his secretary.

Ordinary people in rich and poor countries alike, lose out as a result of tax dodging. Yet tax havens are intentionally structured to facilitate this practice, offering secrecy, low tax rates and requiring no actual business activity to register a company or a bank account. A prime example of this blatant tax dodge is Ugland House in the Cayman Islands. Home to 18,857 companies, it famously prompted President Obama to call it ‘either the biggest building or the biggest tax scam on record’.85 Tax havens allow many scams that affect developing countries, such as transfer mispricing, which causes Bangladesh to lose $310m in corporate taxes each year. This is enough to pay for almost 20 percent of the primary education budget in a country that has only one teacher for every 75 primary school-aged children.86

The high road: Hope for a fairer future Some countries are taking the high road and adopting tax policies that tackle inequality. Following the election of a new president in Senegal in 2012, the country adopted a new tax code to raise money from rich individuals and companies to pay for public services.87 International consensus is also shifting. Despite the limitations of the ongoing Base Erosion and Profit Shifting process,88 the fact that the G8, G20 and OECD took up this agenda in 2013 demonstrates a clear consensus that the tax system is in need of radical reform. The IMF is reconsidering how MNCs are taxed, and, in a recent report, has recognized the need to shift the tax base towards developing countries.89 It is also considering ‘worldwide unitary taxation’ as an alternative to ensure that companies pay tax where economic activity takes place.90 OECD, G20, US and EU processes are making progress on transparency and global automatic exchange of tax information between countries, which will help lift the veil of secrecy that facilitates tax dodging.

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How people are taxed, who is taxed and what is taxed tell more about a society than anything else.

CHARLES ADAMS91

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Ten EU countries have also agreed to work together to put a Financial Transaction Tax in place, which could raise up to €37bn per year.92 Wealth taxes are under discussion in some countries, and the debate about a global wealth tax has been given new life through Thomas Piketty’s recommendations in Capital in the Twenty-First Century, which gained widespread public and political attention.

Oxfam has calculated that a tax of 1.5 percent on the wealth of the world’s billionaires today could raise $74bn. This would be enough to fill the annual gaps in funding needed to get every child into school and deliver health services in the poorest 49 countries.93 Nevertheless, the vested interests opposing reform are very powerful. There is a real risk that the gaps in global tax governance will not be closed, leaving the richest companies and individuals free to continue exploiting loopholes to avoid paying their fair share.

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Health and education: Strong weapons in the fight against inequality

Babena Bawa was a farmer from Wa East district in Ghana, a region without hospitals or qualified medical doctors, and with only one nurse for every 10,000 people. In May 2014, Babena died of a snake bite because local health centres did not stock the anti-venom that could have saved his life. In stark contrast, the previous year Ghanaian presidential candidate Nana Akufo-Addo was able to fly to London for specialist treatment when faced with heart problems.

Providing clinics and classrooms, medics and medicines, can help to close the gap in life chances and give people the tools to challenge the rules that perpetuate economic inequality. Free public healthcare and education are not only human rights; they also mitigate the worst impacts of today’s skewed income and wealth distribution.

Between 2000 and 2007, the ‘virtual income’ provided by public services reduced income inequality by an average of 20 percent across OECD countries.94 In five Latin American countries (Argentina, Bolivia, Brazil, Mexico and Uruguay), virtual income from healthcare and education alone have reduced inequality by between 10 and 20 percent.95 Education has played a key role in reducing inequality in Brazil,96 and has helped maintain low levels of income inequality in the Republic of Korea (from here on in referred to as South Korea).97

The low road: Fees, privatization and medicines for the few The domination of special interests and bad policy choices – especially user fees for healthcare and education, and the privatization of public services – can increase inequality. Unfortunately, too many countries are suffering as a result of these ‘low road’ policies.

When public services are not free at the point of use, millions of ordinary women and men are excluded from accessing healthcare and education.

User fees were encouraged for many years by the World Bank, a mistake their president now says was ideologically driven. Yet, despite the damage they do, user fees persist. Every year, 100 million people worldwide are pushed into poverty because they have to pay out-of-pocket for healthcare.98 In Ghana, the poorest families will use 40 percent of their household income sending just one of their children to an Omega low-fee school.99 Women and girls suffer most when fees are charged for public services.

Significant amounts of money that could be invested in service provision that tackles inequality are being diverted by tax breaks and public-private partnerships (PPPs). In India, numerous private hospitals have been given tax incentives to provide free treatment to poor patients, but have failed to honour their side of the bargain.100 Lesotho’s Queen Mamohato Memorial Hospital in the capital city Maseru operates under a PPP that currently costs half of the total government health budget, with costs projected to increase. This is starving the budgets of health services in rural areas that are used by the poorest people, further widening the gap between rich and poor.101

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I went for a cataract operation. They told me it costs 7,000 Egyptian pounds.

All I had was seven so I decided to go blind.

A 60-YEAR-OLD WOMAN IN A REMOTE VILLAGE IN EGYPT

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Despite the evidence that it increases inequality, rich-country governments and donor agencies, such as the UK, the USA and the World Bank, are pushing for greater private sector involvement in service delivery.102 The private sector is out of reach and irrelevant to the poorest people, and can also undermine wealthy people’s support for public services by creating a two-tier system, in which they can opt out of public services and therefore are reluctant to fund these through taxation. In three Asian countries that have achieved or are close to achieving Universal Health Coverage (UHC) – Sri Lanka, Malaysia and Hong Kong – the poorest people make almost no use of private health services.103 Private services benefit the richest rather than those most in need, thus increasing economic inequality.

International rules also undermine domestic policy. Intellectual property clauses in current international trade and investment agreements are driving up the cost of medicines so that only the richest can afford treatment. The 180 million people infected with Hepatitis C are suffering the consequences, as neither patients nor governments in developing countries can afford the $1,000 per day bill for medicine that these rules result in.104

The high road: Reclaiming the public interest There are, however, good examples from around the world of how expanding public services are helping to reduce inequality.

The growing momentum around UHC has the potential to improve access to healthcare and drive down inequality. World Bank president Jim Yong Kim has been unequivocal that UHC is critical to fighting inequality, saying it is ‘central to reaching the [World Bank] global goals to end extreme poverty by 2030 and boost shared prosperity’.105 Emerging economies, such as China, Thailand, South Africa and Mexico, are rapidly scaling-up public investment in healthcare, and many low-income countries have driven down inequality by introducing free healthcare policies and financing them from general taxation. Thailand’s universal coverage scheme halved the amount of money that the poorest people spent on healthcare costs within the first year, as well as cutting infant and maternal mortality rates.106

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We used to see just four or five women each month for deliveries and we now see more than twenty. It used to be very expensive to come to the clinic but now women can deliver here safely for free and they do not have to wait for their husbands to give them the money.

MIDWIFE, SURKHET, NEPAL

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There have also been victories over moves by major pharmaceutical companies to block access to affordable medicines. Leukaemia patients can now take generic versions of cancer treatment Glivec®/Gleevec® for only $175 per month – nearly 15 times less than the $2,600 charged by Novartis – thanks to the Indian Supreme Court’s rejection of an application to patent the drug.107 Since the Education For All movement and the adoption of the Millennium Development Goals in 2000, the world has seen impressive progress in primary education, with tens of millions of poor children going school for the first time.

In Uganda, enrolment rose by 73 percent in just one year – from 3.1 million to 5.3 million – following the abolition of school fees.108 Improving the quality of education through adequate investment in trained teachers, facilities and materials is now critical to capitalize on these promising moves, as are policies to reach the most marginalized children who risk missing out. While there is much more to be done, there are some examples of progress. For example, Brazil has championed reforms that increase access to quality education and allocate more spending to poor children, often in

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indigenous and black communities, which has helped to reduce inequality of access since the mid-1990s.109 As a result, the average number of years spent in school by the poorest 20 percent of children has doubled from four years to eight years.110 Taxation and long-term predictable aid are crucial to enable the poorest countries to scale-up investment in inequality-busting healthcare and education services. They can also help to tackle political capture that concentrates wealth in the hands of elites. In Rwanda, for example, budget support has enabled the government to remove education fees and treat more people with HIV and AIDS.111 The USA is seeking to target aid to district councils in poor areas of Ghana and to support farmers to hold policy makers accountable.

Freedom from fear

Tiziwenji Tembo is 75, and lives in the Katete district of Zambia. Until recently she had no regular income, and she and her grandchildren often went without food. Tiziwenji’s life was transformed when new social protection measures meant she began to receive a regular pension worth $12 per month.112

Social protection provides money or in-kind benefits, such as child benefits, old-age pensions and unemployment protection, which allow people to live dignified lives, free from fear even in the worst times. Such safety nets are the mark of a caring society that is willing to come together to support the most vulnerable. Like healthcare and education, social protection puts income into the pockets of those who need it most, counteracting today’s skewed income distribution and mitigating the effects of inequality.

However, recent figures show that more than 70 percent of the world population is at risk of falling through the cracks because they are not adequately covered by social protection.113 Even in the poorest countries, the evidence suggests that basic levels of social protection are affordable.114 Countries like Brazil and China have per-capita incomes similar to Europe after the Second World War, when their universal welfare systems were created.

Universal social protection is needed to ensure that nobody is left behind or penalized because they have not climbed high enough up the economic ladder.

Achieving economic equality for women The wrong economic choices can hit women hardest, and failure to consider women and girls in policy making can lead governments to inadvertently reinforce gender inequality.

In China, for instance, successful efforts to create new jobs for women were undermined by cutbacks in state and employer support for child care and elderly care, which increased the burden of women’s unpaid work.115 According to research conducted on the impact of austerity in Europe,116 mothers of young children were less likely to be employed after the financial crisis,

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and more likely to attribute their lack of employment to cuts to care services.117 A recent study in Ghana also found that indirect taxes on kerosene, which is used for cooking in low-income households, are paid mostly by women.118

Good policies can promote women’s economic equality Many of the policies that reduce economic inequality, such as free public services or a minimum wage, also reduce gender inequality. In South Africa, a new child-support grant for the primary caregivers of young children from poor households is better than previous measures at reaching poor, black, and rural women because the government gave careful consideration to the policy’s impact on women and men.119 In Quebec, increased state subsidies for child care have helped an estimated 70,000 more mothers to get into work, with the resulting increased tax revenue more than covering the cost of the programme.120 Governments must implement economic policies aimed at closing the gap between women and men, as well as between rich and poor.

People power: Taking on the one percent To successfully combat runaway economic inequality, governments must be forced to listen to the people, not the plutocrats. As history has shown, this requires mass public mobilization. The good news is that despite the dominance of political influence by wealthy elites and the repression of citizens in many countries, people around the world are demanding change.

The majority of the hundreds of thousands who took to the streets in recent protests were frustrated by a lack of services and a lack of voice,122 and opinion polls confirm this feeling of discontent around the world.123

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People are not tolerating the way a small number of economic groups benefit from the system. Having a market economy is really different from having a market society. What we are asking for, via education reform, is that the state takes on a different role.

CAMILA VALLEJO VICE-PRESIDENT OF THE STUDENT FEDERATION OF THE UNIVERSITY OF CHILE121

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In Chile, the most unequal country in the OECD,124 mass demonstrations in 2011 were initially sparked by discontent over the cost of education, and grew to encompass concerns about deep divisions of wealth and the influence of big business.125 A coalition of students and trade unions mobilized 600,000 people in a two-day strike demanding reform. Elections at the end of 2013 brought in a new government that included key members of the protest movement committed to reducing inequality and reforming public education.126 In early 2010, a series of popular protests against the proposed mass bailout of Iceland’s three main commercial banks forced the newly elected government – who had pledged to shield low- and middle-income groups from the worst effects of the financial crisis – to hold a referendum on the decision. Ninety three percent of Icelanders rejected a proposal that the people, rather than the banks, should pay for the bankruptcy. This led to crowd-sourcing of a new constitution that was approved in 2012, with new provisions on equality, freedom of information, the right to hold a referendum, the environment and public ownership of land.127 History shows that the stranglehold of elites can be broken by the actions of ordinary people and the widespread demand for progressive policies.

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TIME TO ACT TO END EXTREME INEQUALITY Today’s extremes of inequality are bad for everyone. For the poorest people in society, whether they live in sub-Saharan Africa or the richest country in the world, the opportunity to emerge from poverty and live a dignified life is fundamentally blocked by extreme inequality.

Oxfam is calling for concerted action to build a fairer economic and political system that values every citizen. Governments, institutions and corporations have a responsibility to tackle extreme inequality. They must address the factors that have led to today’s inequality explosion, and implement policies that redistribute money and power from the few to the many.

1) Make governments work for citizens and tackle extreme inequality Public interest and tackling extreme inequality should be the guiding principle of all global agreements and national policies and strategies. It must go hand in hand with effective governance that represents the will of the people rather than the interests of big business.

Specific commitments must include: agreement of a post-2015 goal to eradicate extreme inequality by 2030; national inequality commissions; public disclosure of lobbying activities; freedom of expression and a free press.

2) Promote women’s economic equality and women’s rights Economic policy must tackle economic inequality and gender discrimination together.

Specific commitments must include: compensation for unpaid care; an end to the gender pay gap; equal inheritance and land rights for women; data collection to assess how women and girls are affected by economic policy.

3) Pay workers a living wage and close the gap with skyrocketing executive reward Corporations are earning record profits worldwide and executive rewards are skyrocketing, whilst too many people lack a living wage and decent working conditions. This must change.

Specific commitments must include: increasing minimum wages towards living wages; moving towards a highest-to-median pay ratio of 20:1; transparency on pay ratios; protection of worker’s rights to unionise and strike.

4) Share the tax burden fairly to level the playing field Too much wealth is concentrated in the hands of the few. The tax burden is falling on ordinary people, while the richest companies and individuals pay too little. Governments must act together to correct this imbalance.

Specific commitments must include: shifting the tax burden away from labour and consumption and towards wealth, capital and income from these assets; transparency on tax incentives; national wealth taxes and exploration of a global wealth tax.

5) Close international tax loopholes and fill holes in tax governance Today’s economic system is set up to facilitate tax dodging by multinationals and wealthy individuals. Until the rules are changed and there is a fairer global

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governance of tax matters, tax dodging will continue to drain public budgets and undermine the ability of governments to tackle inequality.

Specific commitments must include: a reform process where developing countries participate on an equal footing, and a new global governance body for tax matters; public country-by-country reporting; public registries of beneficial ownership; multilateral automatic exchange of tax information including with developing countries that canâ&#x20AC;&#x2122;t reciprocate; stopping the use of tax havens, including through a black list and sanctions; making companies pay based on their real economic activity.

6) Achieve universal free public services by 2020 Health and education can help to close the gap between the haves and have nots, but under spending, privatisation and user fees as well as international rules are standing in the way of this progress and must be tackled.

Specific commitments must include: removal of user fees; meeting spending commitments; stopping new and reviewing existing public subsidies for health and education provision by private for-profit companies; excluding public services and medicines from trade and investment agreements.

7) Change the global system for research and development (R&D) and pricing of medicines so everyone has access to appropriate and affordable medicines Relying on intellectual property as the only stimulus for R&D gives big pharmaceutical companies a monopoly on making and pricing of medicines.

This increases the gap between rich and poor and puts lives on the line.

The rules must change.

Specific commitments must include: a new global R&D treaty; increased investment in medicines, including in affordable generics; excluding intellectual property rules from trade agreements.

8) Implement a universal social protection floor Social protection reduces inequality and ensures that there is a safety net for the poorest and most vulnerable people. Such safety nets must be universal and permanent.

Specific commitments must include: universal child and elderly care services; basic income security through universal child benefits, unemployment benefits and pensions.

9) Target development finance at reducing inequality and poverty, and strengthening the compact between citizens and their government Development finance can help reduce inequality when it is targeted to support government spending on public goods, and can also improve the accountability of governments to their citizens.

Specific commitments must include: increased investment from donors in free public services and domestic resources mobilisation; assessing the effectiveness of programmes in terms of how they support citizens to challenge inequality and promote democratic participation.

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Salena and Sahera walk through Shanti Busti with bottles of water on their way to the wasteland that they use as a toilet, India (2008).

Photo: Tom Pietrasik/Oxfam

INTRODUCTION

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Nthabiseng was born to a poor black family in Limpopo, a rural area in South Africa. On the same day, Pieter was born nearby in a rich suburb of Cape Town. Nthabiseng’s mother had no formal schooling and her father is unemployed, whereas Pieter’s parents both completed university education at Stellenbosch University and have well-paid jobs.

As a result, Nthabiseng and Pieter’s life chances are vastly different.

Nthabiseng is almost one and a half times as likely to die in the first year of her life as Pieter.128 He is likely to live more than 15 years longer than Nthabiseng.129 Pieter will complete on average 12 years of schooling and will most probably go to university, whereas Nthabiseng will be lucky if she gets one year.130 Such basics as clean toilets, clean water or decent healthcare131 will be out of her reach. If Nthabiseng has children there is a very high chance they will also grow up equally poor.132 While Nthabiseng and Pieter do not have any choice about where they are born, their gender, or the wealth and education of their parents, governments do have a choice to intervene to even up people’s life chances. Without deliberate action though, this injustice will be repeated in countries across the world.

This thought experiment is taken from the World Development Report 2006.

Oxfam has updated the facts on life chances in South Africa.133

Economic inequality** – the skewed distribution of income and wealth – has reached extreme levels and continues to rise. Seven out of 10 people on the planet now live in a country where economic inequality is worse today than it was 30 years ago.136 South Africa, for example, is now significantly more unequal than it was at the end of Apartheid 20 years ago.137 This inequality undermines global efforts to reduce poverty and hurts us all. This report is focused on the pernicious effects of inequality, and the possible solutions to it.

INTRODUCTION

“

Extreme disparities in income are slowing the pace of poverty reduction and hampering the development of broad-based economic growth.

KOFI ANNAN134

“ “

There’s been class warfare going on for the last 20 years and my class has won.

WARREN BUFFET THE FOURTH WEALTHIEST PERSON IN THE WORLD135

“

Even It Up: Time to End Extreme Inequality starts by showing that the gap between rich and poor is already very wide and is growing in the majority of countries. It then demonstrates why extreme economic inequality is bad for all of us. In more unequal societies, rich and poor alike have shorter lives, and live with a greater threat of violence and insecurity. Inequality hinders economic growth and stifles social mobility. It creates conditions in which crime and corruption thrive. It underlies many of the world’s violent conflicts and is a barrier in the fight against climate change.

Critically, this report will demonstrate that unless we close the gap between the haves and the have-nots, we will not win the battle against extreme

** Inequality has many different dimensions, including race, gender, geography and economy, which rarely work in isolation. This report is primarily concerned with the concentration of financial resources and wealth in the hands of the few, which can affect political, social and cultural processes to the detriment of the most vulnerable.

As such, in this report we use the term ‘inequality‘ to refer to extreme economic (wealth and income) inequality. When referring to the various dimensions of inequality we make these distinctions.

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poverty, and the injustice of millions of families living in extreme poverty alongside great wealth and prosperity will continue. Today, the rich can buy longer, safer lives and better education, and can secure jobs for their children, while those without money and influence are much more likely to be denied even their basic rights. When disasters strike or food prices spike, those who lack wealth and power suffer the most, and find it most difficult to recover.

The report then looks at what is driving this rapid increase in extreme economic inequality, focusing on two major causes: market fundamentalism and the capture of power and politics by economic elites. Many, including billionaire George Soros and Nobel-laureate Joseph Stiglitz, believe that market fundamentalism is to blame for the rapid concentration of wealth over the last four decades. When politics and policy making are influenced by elites and corporations, they serve their economic interests instead of those of society as a whole. This is as true in the USA as it is in Pakistan and Mexico, and has led to government policies and actions that benefit the few at the expense of the many, further widening the inequality gap.

Oxfam’s decades of experience working with the world’s poorest communities have taught us that poverty, inequality and these traps of disadvantage are not accidental, but the result of deliberate policy choices made by governments and international organizations. The world needs concerted action to build a fairer economic and political system that values the many. The rules and systems that have led to today’s inequality explosion must change. Urgent action is needed to level the playing field by implementing policies that redistribute money and power from the few to the many.

The second half of the report explores some of the deliberate policy choices that will be crucial to reducing inequality. Governments and companies can take steps to ensure decent working conditions, the right for workers to organize, the right to a living wage, and to curb skyrocketing executive pay.

Companies must become more transparent, and policies must be enacted to ensure that both they and rich individuals pay their fair share of taxes. Ensuring universal access to healthcare, education and social protection will mitigate the extremes of today’s skewed income distribution and will guarantee that the most vulnerable are not left behind.

While there has been progress, real change will only come about if we break the stranglehold that special interests now have over governments and institutions, and if citizens demand their governments pursue policies that are about redistribution and fairness.

Extreme economic inequality, the focus of this report, has exploded in the last 30 years, making it one of the biggest economic, social and political challenges of our time. Age-old inequalities, such as gender, caste, race and religion, are injustices in themselves, and are also worsened by the growing gap between the haves and the have-nots.

As Oxfam launches the Even it Up campaign worldwide, we join a groundswell of voices, such as billionaires like Warren Buffet, faith leaders like Pope Francis, the heads of institutions, like Christine Lagarde of the IMF, as well as the World Bank, trade unions, social movements, women’s organizations, academics and millions of ordinary people, to demand that leaders tackle extreme inequality before it is too late.

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INTRODUCTION

A view across Santa Marta favela and central Rio de Janeiro (2006).

Photo: John Spaull

1 EXTREME INEQUALITY A story that needs a new ending

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Leonard Kufekeeta, 39, selling brushes in Johannesburg (2014).

Photo: Zed Nelson

1.1 THE REALITY OF TODAYâ&#x20AC;&#x2122;S HAVES AND HAVE-NOTS Trends in income and wealth tell a clear story: the gap between the rich and poor is wider now than ever before and is still growing, with power increasingly in the hands of an elite few.

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MEASURING INEQUALITY: GINI, PALMA AND THE WORLD TOP INCOMES DATABASE Accurately and regularly measuring inequality is politically difficult and often neglected, especially in developing countries. A reliance on household surveys and tax records systematically under-reports the incomes and wealth of the richest in society, as they often have the resources to avoid tax and are rarely captured by surveys. The reliance on household surveys also means that gender inequalities are not adequately measured.

Inequality of income, wealth and other assets, such as land, have been historically measured by the Gini coefficient, named after the Italian statistician Corrado Gini. This is a measure of inequality where a rating of 0 represents total equality, with everyone taking an equal share, and a rating of 1 (or sometimes 100) would mean that one person has everything. Throughout this paper we rely heavily on comparisons using Gini coefficients, as this tends to be most prevalent in the research and evidence available on economic inequality.

However, one critique of the Gini is that it is overly sensitive to the middle 50 percent.138 The Palma ratio, named after the Chilean economist Gabriel Palma, seeks to overcome this by measuring the ratio of the income share between the top 10 percent and the bottom 40 percent.

This measure is gaining traction, for instance it has been proposed

by Joseph Stiglitz as the basis for a target in a post-2015 global goal to reduce income inequality. The Palma ratio is crucial for gauging increases in income and wealth concentration at the very top, making it a useful tool for future research.

Tax records have also recently been used very successfully to get a more accurate record of top incomes. The World Top Incomes Database, co-founded by Thomas Piketty, covers 26 countries, with information on the share of pre-tax income going to the richest one percent since the 1980s.

There is no doubt that governments and institutions like the World Bank must greatly increase and improve the measurement of inequality as a fundamental foundation to tackle extreme inequality.

IN THE HANDS OF THE FEW: INCOME AND WEALTH Global inequality – the inequality between countries – rose rapidly between 1980 and 2002,139 but has fallen slightly since due to growth in emerging countries, particularly China.

The bottom billion have increased their share of world income by 0.2 percent since 1990, to just short of one percent, but to increase their share to 10 percent at the same rate would take more than eight centuries.140 We have reproduced UNICEF’s analysis in Figure 1 – dubbed the ‘Champagne Glass’ – showing how much global income is concentrated at the very top, while the vast majority of people take a comparatively meagre share of global income that forms the ‘stem’ of the glass.141

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FIGURE 1: Global income distribution by percentile of population ($)

Q5

Population (in quintiles)

Q4

Each horizontal band represents an equal fifth of the world’s population

Q3

Persons below $2/day (40 percent)

Q2

Q1

Persons below $1.25/day (22 percent)

Income ($)

But it is national inequality that matters most to people’s lives, and this is rising rapidly almost everywhere. Seven out of ten people on the planet now live in countries where economic inequality is worse than it was 30 years ago.142 Today, the rich are earning more, both in absolute terms and relative to the rest of the population. According to the World Top Incomes Database, in all but one of the 29 countries measured (Colombia), the share of income going to the richest one percent increased, while in Colombia it held steady at around 20 percent.143 India, China and Nigeria are three of the world’s fastest growing, and most populous, developing economies. Figure 2 demonstrates how their national income is shared between the richest 10 percent and poorest 40 percent.

They show that the benefits of growth have increasingly accrued to the richest members of society, pushing income inequality ever higher. In just these three countries, more than 1.1 billion people – 16 percent of the world – are getting an increasingly smaller share.144

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FIGURE 2: Increasing inequality in three middle-income countries145

Income share held by wealthiest 10% Income share held by poorest 40%

China

Share of national income (%)

40 35 30 25 20 15 10 5 0 1980

1985

1990

1995

2000

2005

2010

1980

1985

1990

1995

2000

2005

2010

1980

1985

1990

1995

2000

2005

2010

Share of national income (%)

India 40 35 30 25 20 15 10 5 0

Nigeria

Share of national income (%)

40 35 30 25 20 15 10 5 0

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THE BILLIONAIRE BOOM Inequality of wealth is even more extreme than the inequality of income.

The number of dollar millionaires – known as High Net Worth Individuals – rose from 10 million in 2009 to 13.7 million in 2013.146 Since the financial crisis, the ranks of the world’s billionaires has more than doubled, swelling to 1,645 people.147 The billionaire boom is not just a rich country story: the number of India’s billionaires increased from just two in the 1990s,148 to 65 in early 2014.149 And today there are 16 billionaires in sub-Saharan Africa,150 alongside the 358 million people living in extreme poverty.151 Oxfam’s research in early 2014 found that the 85 richest individuals in the world have as much wealth as the poorest half of the global population.152 This figure was based on the wealth of the 85 billionaires at the time of the annual Forbes report in March 2013. In the period of a year from March 2013 to March 2014 their wealth rose again by a further 14 percent, or $244bn.153 This equates to a $668m-a-day increase.

Once accumulated, the wealth of the world’s billionaires takes on a momentum of its own, growing much faster than the broader economy in many cases. If Bill Gates were to cash in all his wealth and spend $1m every single day, it would take him 218 years to spend all of his money.155 But in reality, the interest on his wealth, even in a modest savings account (with interest at 1.95 percent) would make him $4.2m each day. The average return on wealth for billionaires is approximately 5.3 percent,156 and between March 2013 and March 2014, Bill Gates’ wealth increased by 13 percent – from $67bn to $76bn.157 This is an increase of $24m a day, or $1m every hour.

“

No society can sustain this kind of rising inequality.

In fact, there is no example in human history where wealth accumulated like this and the pitchforks didn’t eventually come out. You show me a highly unequal society, and I will show you a police state.

Or an uprising. There are no counterexamples.

NICK HANAUER154

”

The richest ten people in the world would face a similarly absurd challenge in spending their wealth, as the following calculations show.

there are 16 billionaires in sub-saharan africa living alongside the 358 million people living in extreme poverty 32

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TABLE 1: The number of years it would take for the richest 10 people to spend their wealth, and earnings on modest and average interest158

Wealth ($bn)

Years to spend all money, at $1m/day

Earnings per day at ordinary rate of 1.95% Interest ($m)

Earnings per day at average billionaire rate of return (5.3%) ($m)

Carlos Slim Helu and family (Mexico)

80

220

4.3

11.6

Bill Gates (USA)

79

218

4.2

11.5

Amancio Ortega (Spain)

63

172

3.3

9.1

Warren Buffett (USA)

62

169

3.3

8.9

Larry Ellison (USA)

50

137

2.7

7.2

Charles Koch (USA)

41

112

2.2

5.9

David Koch (USA)

41

112

2.2

5.9

Liliane Bettencourt and family (France)

37

102

2.0

5.4

Christy Walton and family (USA)

37

101

2.0

5.3

Sheldon Adelson (USA)

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100

1.9

5.3

Name

The decision of Bill Gates and Warren Buffet to give away their fortunes is an example to the rest of the world’s billionaires. In fact, many billionaires and millionaires have been vocal in their agreement that extreme wealth is a problem that threatens us all. In the USA, a group called the Patriotic Millionaires is actively lobbying congress to remove tax breaks for the wealthy, writing: ‘for the fiscal health of our nation and the well-being of our fellow citizens, we ask that you increase taxes on incomes over $1,000,000’.159 The aggregate wealth of today’s billionaires has increased by 124 percent in the last four years and is now approximately $5.4tn. This is twice the size of France’s GDP in 2012.160

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Oxfam has calculated that a tax of just 1.5 percent on the wealth of the world’s billionaires, if implemented directly after the financial crisis, could have saved 23 million lives across the world’s poorest 49 countries, by providing them with money to invest in healthcare.161 The number of billionaires and their combined wealth has increased so rapidly that in 2014 a tax of 1.5 percent could fill the annual gaps in funding needed to get every child into school and to deliver health services in those poorest countries.162

LAND: THE OLDEST FORM OF WEALTH INEQUALITY In the history of rich nations, wealth was originally made up of land, and in developing countries this remains the case. Farmland is particularly vital to poor people’s livelihoods in developing countries.163 But too many people in rural populations struggle to make a living from small plots.

Many more lack secure tenure rights, especially women, meaning they can be driven off their land, leaving them without a source of income.

In a forthcoming Oxfam study with women’s organizations across three continents, women’s lack of access to land was identified as one of the top threats to community resilience.164 Most countries in Latin America score a Gini coefficient on land inequality of over 0.8; in Asia, many score higher than 0.5. In Angola and Zambia, small farms comprise 80 percent of all farms, but make up only around two percent of agricultural land.165 Large-scale redistribution of land in East Asian countries like South Korea, Japan and China played a key role in their reducing inequality and making growth more pro-poor.

In some countries, such as Brunei, Saudi Arabia, Kuwait and Swaziland, heads of state are the biggest landowners. In Russia, the sugar company Prodimex owns 20 percent of all private land.166 Inequality of land ownership is not isolated to the developing world although in rich countries, where alternative employment exists, landlessness is less of a social problem. According to recent research in the EU, large farms167 comprise just three percent of the total number of farms, but control 50 percent of all farmland.168

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A woman walks past two heavily armed policemen on guard outside a department store in Manhattan (2008).

Photo: Panos/Martin Roemers

EXTREME INEQUALITY HURTS US ALL The rapid rise of economic inequality is a significant barrier to eliminating poverty and to sharing prosperity where it does exist so that the poorest benefit from it. Extreme inequality both undermines economic growth and the ability of growth to reduce poverty. It damages our ability to live within the planetâ&#x20AC;&#x2122;s resources and succeed in the fight against climate change. It makes the struggle for equality between the sexes far harder.

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If a person is born poor in a very unequal country, their children are far more likely to be poor as well. More unequal societies suffer more from a range of social ills, including crime and violence, that hurt both rich and poor. Fundamentally, inequality goes against strongly held moral beliefs and a widely shared understanding of fairness, with people’s preferred distribution of wealth and income being far more equal than it actually is.

EXTREME INEQUALITY IS A BARRIER TO POVERTY REDUCTION Over the last two decades the world has seen huge progress in the fight to end extreme poverty; millions more people now have access to healthcare and education, and approximately 150 million fewer men and women are going hungry.169 Yet inequality threatens to undermine, and in some cases reverse, this progress. The fruits of economic growth in recent years have often failed to benefit the poorest, with the biggest beneficiaries being those at the top of the income ladder.

New research by Oxfam has projected potential poverty levels in a number of middle-income countries over the next five years, considering the implications when inequality remains the same, reduces or increases at a constant rate.170 In all cases, the results present compelling evidence that inequality stands in the way of poverty reduction.

Three examples: • In Kenya, if inequality remains at the same level for the next five years, three million more people could be living in extreme poverty than if they reduced their Gini coefficient by just five points, the equivalent of a 12 percent reduction.

• If Indonesia reduced its Gini coefficient by just 10 points, the equivalent of a 28 percent reduction, they could reduce the number of people living in extreme poverty to 1.7 million. If inequality remains at recent levels though, there will be 13 million more Indonesian people below the extreme poverty line in five years’ time.

• India has, in recent years, become more unequal. If India were to stop its rising inequality, and instead hold inequality levels static, by 2019 they could lift 90 million people out of extreme poverty. Reducing inequality by 10 points, the equivalent of a 36 percent reduction, could almost eliminate extreme poverty altogether, by lifting up a further 83 million people.

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FIGURE 3: Poverty projections to 2019 for different inequality scenarios in three countries (millions in poverty)

Decline in people living in poverty

Kenya

Population living in poverty in 2019 (millions)

12

Population living in poverty in 2011 10

700,000

1.3 million

8

4.2 million

6.8 million

6 4 2 0 1 point Gini increase (0.43)

No Gini change (0.42)

5 points Gini decrease (0.37)

10 points Gini decrease (0.32)

Population living in poverty in 2019 (millions)

Indonesia 35

Population living in poverty in 2011

30 25

16 million

18.1 million

26.6 million

31.2 million

20 15 10 5 0 1 point Gini increase (0.35)

No Gini change (0.34)

5 points Gini decrease (0.29)

10 points Gini decrease (0.24)

Population living in poverty in 2019 (millions)

India 200

Population living in poverty in 2011

180 160 140

76.8 million

90.1 million

144.6 million

173.2 million

120 100 80 60 40 20 0 1 point Gini increase (0.35)

No Gini change (0.34)

5 points Gini decrease (0.29)

10 points Gini decrease (0.24)

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The Brookings Institution has developed scenarios that demonstrate the same problem at a global level; that inequality is holding back poverty eradication.

They found that 463 million more people worldwide were lifted out of poverty in a scenario where inequality was reduced, compared to a scenario where inequality was increased.171 The challenge of eradicating extreme poverty is greatest in Africa, with forecasts projecting its share of the world’s extreme poor rising to 80 percent or above by 2030. If African countries continue on their current growth trajectory with no change in levels of income inequality, then the continent’s poverty rate won’t fall below three percent – the World Bank’s definition of ending poverty – until 2075.172

CASE STUDY

REDUCING INEQUALITY: A CRUCIAL INGREDIENT FOR TACKLING POVERTY IN SOUTH AFRICA

A boy jumping over a drainage canal.

Masiphumelele township, near Cape Town (2014).

Photo: Zed Nelson

In 2010, South Africa had a Gini coefficient of 0.66, making it one of the most unequal societies in the world. The two richest people in South Africa have the same wealth as the bottom half of the population.173 South Africa is significantly more unequal than it was at the end of Apartheid.

Between 1995 and 2006, the proportion of the population living in extreme poverty fell slightly to 17 percent. However, increases in population over the same period meant that the total number of South Africans living in extreme poverty fell by just 102,000. Although real growth in GDP per capita was just under two percent, further progress on reducing poverty was hampered by South Africa’s extremely high, and growing, level of inequality.174 Oxfam projections show that even on the very conservative assumption that inequality remains static, just 300,000 fewer South Africans will be living in absolute poverty by 2019, leaving almost eight million people living below the poverty line. Conversely, if the Gini continues to increase even by one point, this will lead to 300,000 more people living in poverty in five years.175

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There is also strong evidence that the national distribution of income has a significant impact on other poverty outcomes. Measured on the scale of average income, both Bangladesh and Nigeria are low-income countries.

Bangladesh is the poorer of the two,176 but the distribution of income is far more equal than in Nigeria. The difference in development outcomes speak for themselves: • Child mortality rates in Nigeria are nearly three times higher than those in Bangladesh.177 • While Bangladesh has achieved universal primary education and eliminated gender gaps in school attendance up to lower-secondary school levels, over one-third of Nigeria’s primary school-age children are out of school.178 In many countries progress on development outcomes has been much quicker for the wealthier sections of society, and averages have obscured the widening gap between the rich and poor. In Uganda, for instance, under-five mortality among the top 20 percent has halved, but for the bottom 20 percent it has only fallen by a fifth over the same period. In other countries, such as Niger, progress has been more even, showing that different paths to progress are possible.179

FIGURE 4: Under-five mortality rate (per 1000 live births) in Uganda (2000-2011)180

Under-5 mortality rate (per 1000 live births)

180 160

159.5

147.8

140

124

120 100 80

71.1

60 40 20 0 2011

2000 Richest 20%

Poorest 20%

EXTREME INEQUALITY UNDERMINES GROWTH For decades the majority of development economists and policy makers maintained that inequality had little or no impact on a country’s growth prospects. This was based on the understanding that inequality inevitably accompanies the early stages of economic growth, but that it would be short-lived, as growth would gradually ‘trickle down’ through the layers of society, from the richest to the poorest.181 A mass of more recent evidence has overwhelmingly refuted this assumption and shown that extremes of inequality are, in fact, bad for growth.182

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A multi-decade cross-country analysis by IMF economists, for instance, strongly suggests that not only does inequality hinder growth’s poverty reducing function it also diminishes the robustness of growth itself.183 The IMF has documented how greater equality can extend periods of domestic growth184 and that inequality was a contributing factor to the 2008 financial crisis.185 Growth is still possible in countries with high levels of inequality, but inequality reduces the chances of such growth spells being robust and long lasting.

Moreover, detailed analysis of developed and developing countries from the mid-1990s onwards shows that a high level of inequality constitutes a barrier to future economic growth186 because it obstructs productive investment, limits the productive and consumptive capacity of the economy, and undermines the institutions necessary for fair societies.187 If national governments care about strong and sustained growth, then they should prioritize reducing inequality. This is especially true for developing countries, where inequality is on average higher than in rich countries. The Asian Development Bank (ADB) has gone so far as to suggest that growth and equality can ‘be seen as part of a virtuous circle.’188

INEQUALITY HINDERS THE POVERTY-REDUCING POTENTIAL OF GROWTH If inequality is reduced, poverty reduction happens faster and growth is more robust. Conversely, if inequality becomes worse poverty reduction slows and growth becomes more fragile.189 It is the distribution of economic growth that matters for poverty reduction rather than the pursuit of growth for its own sake. For example, in Zambia, GDP per capita growth averaged three percent every year between 2004 and 2010, pushing Zambia into the World Bank’s lower-middle income category. Despite this growth, the number of people living below the $1.25 poverty line grew from 65 percent in 2003 to 74 percent in 2010.190 Nigeria had a similar experience between 2003 and 2009; poverty increased more than anticipated, and the richest 10 percent experienced a six percent increase in the share of national consumption while everyone else’s share fell.191 Research by Oxfam suggests that inequality is the missing link that explains how the same rate of growth can lead to different rates of poverty reduction.193 The World Bank has similarly found that in countries with very low income inequality, such as several in Eastern Europe, every one percent of economic growth reduced poverty by four percent.194 In countries with high inequality, such as Angola or Namibia, growth had essentially no impact on poverty.195 Even in medium-income countries, the level of inequality can have a huge impact on the poverty reducing impact of growth.196 The World Bank’s researchers concluded that ‘the power of growth to reduce poverty depends on inequality,’ both its initial level and its evolution.197

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The power of growth to reduce poverty… tends to decline both with the initial level of inequality, and with increases in inequality during the growth process.

F. FERREIRA AND M. RAVALLION192

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EXTREMES OF WEALTH AND INEQUALITY ARE ENVIRONMENTALLY DESTRUCTIVE The world is approaching a number of ‘planetary boundaries’, where humanity is using the maximum possible amount of natural resources, such as carbon or safe drinking water. The closer we get to reaching these limits, the more the hugely unequal distribution of natural resources matters.198 Often it is the poorest that are hit first and hardest by environmental destruction and the impacts of climate change.199 Yet it is the wealthiest who most impact on our planet’s fragile and finite resources.

Narinder Kakar, Permanent Observer to the UN from the International Union for Conservation of Nature, has declared that environmental decline can be attributed to less than 30 percent of the world’s population.200 The richest seven percent of world’s population (equal to half a billion people) are responsible for 50 percent of global CO2 emissions; whereas the poorest 50 percent emit only seven percent of worldwide emissions.201 Key to this are the consumption patterns of the richest. The majority of emissions from wealthier households in rich countries are indirect, such as through the consumption of food, consumer goods and services, much of which is produced beyond their nations’ shoreline.202 It is the ‘population with the highest consumption levels [that] is likely to account for more than 80 percent of all human-induced greenhouse gas emissions’.203 Such inequalities in emissions have a parallel in the disproportionate use of the world’s resources. Just 12 percent of the world’s people use 85 percent of the world’s water.204

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ECONOMIC INEQUALITY COMPOUNDS GENDER INEQUALITY One of the most pervasive â&#x20AC;&#x201C; and oldest â&#x20AC;&#x201C; forms of inequality is that between men and women, and there is a very strong link between gender and economic inequality. Gender discrimination is an important factor in terms of access to, and control over, income and wealth. While the reasons behind inequality between women and men are about more than money, there is no doubt that the overlap between economic inequality and gender inequality is significant.

Men are overwhelmingly represented at the top of the income ladder, and women are overwhelmingly represented at the bottom. Of the 2,500 people that attended the World Economic Forum in 2014, just 15 percent were women.205 Only 23 chief executives of Fortune 500 companies are women. Of the top 30 richest people in the world, only three are women. The richest in society are very often disproportionately represented in other positions of power; be they presidents, members of parliament, judges or senior civil servants. Women are largely absent from these corridors of power.

At the same time, around the world, the lowest paid workers and those in the most precarious jobs are almost always women. The global wage gap between men and women remains stubbornly high: on average women are paid 10 to 30 percent less than men for comparable work, across all regions and sectors.206 The gap is closing, but at the current rate of decline it will take 75 years to make the principle of equal pay for equal work a reality.207

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Female construction workers work to build offices for IT companies in a new technology park, Bangalore, India (2004).

Photo: Panos/Fernando Moleres

< Only

23

Fortune 500 chief executives are women

>

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2089 EQUAL PAY FOR EQUAL WORK

AT THE CURRENT RATE, IT WILL TAKE 75 YEARS FOR WOMEN TO EARN THE SAME AS MEN FOR DOING THE SAME WORK

The wage gap is higher in more economically unequal societies. Women are significantly more likely to be employed in the informal sector, with far less job security than men. Some 600 million women, 53 percent of the world’s working women, work in jobs that are insecure and typically not protected by labour laws.208 In Bangladesh, women account for almost 85 percent of workers in the garment industry. These jobs, while often better for women than subsistence farming, have minimal job security or even physical safety. The majority of those killed by the collapse of the Rana Plaza garment factory in April 2013 were women.

In Brazil, 42 percent of women are in insecure and precarious jobs, compared to 26 percent of men.209 Country-level studies have also demonstrated that the gender distribution of wealth, including land and access to credit, is far more unequal than income.210

< Just

3

of the 30 richest people are women

>

The majority of unpaid care work is also shouldered by women and is one of the main contributors to women’s concentration in low-paid, precarious and unprotected employment. In many countries, women effectively subsidize the economy with an average of 2–5 hours more unpaid work than men per day.211 Even when women are employed, their burden of work at home rarely shrinks.

In Brazil, women’s share of household income generation rose from 38 percent in 1995 to 45 percent in 2009, but their share of household care responsibility

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fell only by two percent in the second half of that period – from 92 percent in 2003 to 90 percent in 2009.212 The same trend is true for many other countries.

The concentration of income and wealth in the hands of men gives them more decision-making power at the national level, where women usually have little voice or representation. National laws often take a piecemeal and incoherent approach to addressing gender inequality; for instance, implementing policies that increase job opportunities for women, but without policies to prevent low wages, or to promote adequate working conditions and high-quality childcare.

Discriminatory laws and practices around asset ownership and inheritance rights prevent women from escaping the bottom of the economic ladder. This creates a vicious cycle, as women living in poverty are more likely to lack the legal entitlements, time and political power that they need to increase their income. Gender discriminatory legislation and the requirements of lending institutions are additional barriers which exclude women from access to credit.

In its World Development Report 2012, the World Bank noted that women are more vulnerable to income shocks, such as unemployment or increased poverty, precisely because they have less economic power. Women tend to have fewer assets than men, less access to economic opportunities to deal with sudden changes, and less support through compensation from government.214 The recent rapid rise in economic inequality in the majority of countries therefore represents a serious barrier in the drive to achieve equality between women and men.

ECONOMIC INEQUALITY DRIVES INEQUALITIES IN HEALTH, EDUCATION AND LIFE CHANCES

“ “

The stark reality is that economic status dictates life chances; poorer people have shorter lives. This is a problem in rich countries and poor countries alike.

In the UK, for instance, men born in the richest part of the country can expect to live nine years longer than men from the most deprived areas.215 The rapidly growing gap between rich and poor in the majority of countries is worrying not just on its own terms, but because of the way it interacts with other inequalities and discrimination to hold some people back more than others.

Things are changing in South Africa for the worst.

The public schools are no good. Those in the government, they are very rich, the rest of us are poor.

Economic inequality adds new dimensions to old disparities, such as gender, geography and indigenous rights. In every country, average rates of child survival, education and access to safe water are significantly higher for men than women. Women in poor households are far less likely to have prenatal and antenatal care when they are pregnant and give birth than their wealthier neighbours. Their children are more likely to be malnourished and many will not live past the age of five. If they do, they are far less likely to complete primary education. If they can find employment as adults, they will likely have much lower incomes than those from higher income groups. This cycle of poverty and inequality is then transmitted across generations.

“

Using the latest national Demographic and Health Surveys, Oxfam has calculated how poverty interacts with economic and other inequalities

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In India, the average daily wage of a male worker is about two and a half times that of his female counterpart.213

LEONARD KUFEKETA, 39

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in Ethiopia to create ‘traps of disadvantage’, pushing the poorest and most marginalized to the bottom.

Over 50 percent of Ethiopian women have never been to school, compared to just over a third of men. However, as Figure 5 shows, when we consider gender and economic inequality together, a much greater wedge is driven between the haves and the have-nots. Nearly 70 percent of the poorest women don’t attend school, compared to just 14 percent of the richest men.216

FIGURE 5: Gender and economic inequalities: Percentage of Ethiopians who have not attended school

TOTAL PERCENTAGE OF POPULATION NOT ATTENDING SCHOOL

45.2% WOMEN

MEN

52.1%

38.3%

LEAST WEALTHY WOMEN

WEALTHIEST WOMEN

LEAST WEALTHY MEN

WEALTHIEST MEN

69.2%

26.6%

54.1%

14%

Those living in rural areas are also consistently worse off. As Figure 6 shows, the richest and poorest Ethiopians living in urban areas have a greater chance of going to school than those of comparable incomes living in rural areas.

Taking gender into account, a girl born into one of the richest urban families is still only half as likely to go to school as a boy born to a similar family.

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FIGURE 6: Multiple Inequalities: Percentage of Ethiopians who have not attended school

TOTAL PERCENTAGE OF POPULATION NOT ATTENDING SCHOOL

45.2%

46

POOREST 20%

RICHEST 20%

62.1%

20.7%

POOREST 20% RURAL

POOREST 20% URBAN

RICHEST 20% RURAL

RICHEST 20% URBAN

62.4%

45.7%

26.7%

19.2%

POOREST RURAL WOMEN

POOREST RURAL MEN

POOREST URBAN WOMEN

POOREST URBAN MEN

RICHEST RURAL WOMEN

RICHEST RURAL MEN

RICHEST URBAN WOMEN

RICHEST URBAN MEN

69.6%

54.6%

48.7%

42.8%

32.6%

20.9%

25.1%

12.2%

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Caste, race, location, religion, ethnicity, as well as a range of other identities that are ascribed to people from birth, play a significant role in creating divisions between haves and have-nots. In Mexico, maternal mortality rates for indigenous women are six times the national average and are as high as many countries in Africa.217 In Australia, Aboriginal and Torres Strait Islander Peoples remain the country’s most significantly disadvantaged group, disproportionately affected by poverty, unemployment, chronic illness, disability, lower life expectancy and higher levels of incarceration.

Around the world, these different inequalities come together to define people’s opportunities, income, wealth and asset ownership, and even their life spans.

CONDEMNED TO STAY POOR FOR GENERATIONS Beyond the impact that rising economic inequality has on poverty reduction and growth, it is becoming increasingly clear that the growing divide between rich and poor is setting in motion a number of negative social consequences that affect us all.

It would be hard to find anyone to disagree with the idea that everyone should be given an equal chance to succeed in life, and that a child born into poverty should not have to face the same economic destiny as their parents.

There should be equality of opportunity so that people can move up the socioeconomic ladder; in other words, there should be the possibility of social mobility. This is an idea that is deeply entrenched in popular narratives and reinforced through dozens of Hollywood films, whose rags to riches stories continue to feed the myth of the American Dream in the USA and around the world.

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That’s why they call it the American Dream, because you have to be asleep to believe it.

GEORGE CARLIN COMEDIAN

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However, in both rich and poor countries, high inequality has led to diminished social mobility.218 In these countries the children of the rich will largely replace their parents in the economic hierarchy, as will the children of those living in poverty.

‘My parents were not educated. My mother did not go to school. My father attended a government primary school up to Grade 5 and understood the importance of education. He encouraged me to work extra hard in class. I was the first person in either my family or my clan to attend a government secondary school. Later, I went to university and did a teacher training course before attending specialized NGO sector training and got the opportunity to do development studies overseas.

I understand today that nearly 75 percent of the intake at the university is from private schools. University is beyond the reach of the ordinary Malawian. I cannot be sure, but I fear that if I were born today into the same circumstances, I would have remained a poor farmer in the village.’

John Makina, Country Director for Oxfam in Malawi

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In countries with higher levels of inequality it is easier for parents to pass on their advantages to their children; advantages that less wealthy parents cannot afford.219 The clearest example of this is expenditure on education.

Wealthier parents often pay for their children to attend costly private schools that then facilitate their entry into elite universities, which in turn help them secure higher paid jobs. This is reinforced by other advantages, such as the resources and social networks that richer parents share with their children, which further facilitate employment and education opportunities. In this way, the richest capture opportunities, which then become closed off from those who do not have the means to pay.220 Figure 7 demonstrates the negative relationship between rising inequality and diminishing social mobility across 21 countries. In Denmark, a country with a low Gini coefficient, only 15 percent of a young adult’s income is determined by their parent’s income. In Peru, which has one of the highest Gini coefficients in the world, this rises to two-thirds. In the USA, nearly half of all children born to low-income parents will become low-income adults.222

FIGURE 7: The Great Gatsby Curve: The extent to which parents’ earnings determine the income of their children223

Intergenerational earnings elasticity

0.8 0.7

Peru

0.6

Brazil

0.5

Argentina USA Singapore New Zealand

Pakistan Switzerland France

0.4 Japan

0.2

Norway

Spain

Germany Sweden

0.3

Finland Denmark

Chile

Australia Canada

Italy

0.1 China

United Kingdom

0 20

25

30

35

40

45

50

55

60

65

Gini coefficient

In Pakistan, social mobility is a distant dream. A boy born to a father224 from the poorest 20 percent of the population has a 6.5 percent chance of moving up to the wealthiest 20 percent of the population.225 In many countries, social mobility for women and marginalized ethnic groups is a virtual impossibility due to entrenched discriminatory practices, such as the caste system in India, which are compounded by economic inequality.226 Policies designed to reduce inequality can provide opportunities to poor children that were denied to their parents. Education, for example, is widely considered to be the main engine of social mobility,227 as those with more

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If Americans want to live the American dream, they should go to Denmark.

RICHARD WILKINSON CO-AUTHOR OF THE SPIRIT LEVEL221

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education often secure higher paid jobs. Countries that spend more on highquality public education give poorer students the means to compete more fairly in the job market, while simultaneously reducing the incentive for richer parents to privately educate their children.

EXTREME INEQUALITY HURTS US ALL AND THREATENS SOCIETY A growing body of evidence indicates that inequality negatively affects social well-being and social cohesion. In their book, The Spirit Level: Why More Equal Societies Almost Always Do Better, Kate Pickett and Richard Wilkinson demonstrate that countries with higher levels of income inequality experience higher rates of a range of health and social problems compared to more equal countries.228 Inequality is linked to shorter, unhealthier and unhappier lives, and higher rates of obesity, teenage pregnancy, crime (particularly violent crime), mental illness, imprisonment and addiction.229

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Inequality is the root of social evil.

POPE FRANCIS

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Inequality is so toxic, Wilkinson and Pickett explain, because of ‘social status differentiation’: the higher the levels of inequality, the greater the power and importance of social hierarchy, class and status, and the greater people’s urge to compare themselves to the rest of society. Perceiving large disparities between themselves and others, people experience feelings of subordination and inferiority. Such emotions spark anxiety, distrust and social segregation, which set in motion a number of social ills. Although the impacts tend to be felt most severely lower down the social ladder, the better-off suffer too.230 Crucially, inequality, not the overall wealth of a country, appears to be the most influential factor. Highly unequal rich countries are just as prone to these ills as highly unequal poor countries.231 Such ills are from two to 10 times as common in unequal countries than in more egalitarian ones.232 As Figure 8 demonstrates, the USA pays a high price for having such high income inequality.

FIGURE 8: Health and social problems are worse in more unequal countries233 Worse Index of health and social problems

USA

Better

Portugal United Kingdom Greece New Zealand Ireland France Australia Austria Canada Italy Denmark Germany Spain Finland Belgium Switzerland Netherlands Norway Sweden Japan Low

High Income inequality (Gini)

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The social divisions reinforced by higher levels of economic inequality become self-perpetuating, as the rich increasingly share fewer interests with those who are less well-off.234 When those at the top buy their education and health services individually and privately, they have less of a stake in the public provision of these services to the wider population. This in turn threatens the sustainability of these services, as people have fewer incentives to make tax contributions if they are not making use of the services provided; further damaging the social contract.235 When the wealthy physically separate themselves from the less well-off, fear and distrust tend to grow, something consistently demonstrated in global opinion surveys. The World Values Survey asks random samples of the population in numerous countries whether or not they agree with the statement: ‘Most people can be trusted’.236 The differences between countries are large, with a clear correlation between lack of trust and high levels of economic inequality.

INEQUALITY FUELS VIOLENCE

CASE STUDY

HONDURAS: UNEQUAL AND DANGEROUS

The Colonia Flor del Campo neighbourhood in Tegucigalpa, Honduras (2014).

Photo: Oxfam

Honduras is widely considered to be the most dangerous country in the world, with a homicide rate of 79 per 100,000237 (compared to less than 1 per 100,000 in Spain).238 Insecurity has been increasing since the political coup in 2009,239 as has inequality.240 Extremely high rates of violence against women and girls have been recorded, including many killings.

Regina, 26, lives in a high-security residential gated community in the Honduran capital, Tegucigalpa, which is home to 150 people.

‘My parents are always fearing for my sister and my security. It’s okay to go out in a car at night, but it would be a problem if we had to take public transport. I wouldn’t walk around at night. [...] You always have to be on the lookout. To protect yourself you have to live in gated houses with private security and if you can’t afford that then you’ve got to just be on the lookout.’

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(CASE STUDY CONTINUED) Carmen, 34, lives in another neighbourhood in Tegucigalpa, which has no running water, no street lights, and no tarmac roads to permit access to cars. A number of her friends and family have been murdered; two were killed inside her house.

‘I feel completely unprotected by the state, mostly because the state is not concerned with us [residents of her neighbourhood]. Quite the opposite, they stigmatize us by labelling our neighbourhoods as “hotneighbourhoods”, meaning that they know the difficult situation we live in here and choose to do nothing about it. I’ve tried to denounce acts of violence against women that occur in my community, but every time I have been stopped by gangs who have told me that I have to ask their permission before reporting an abuse.’

Quotes taken from Oxfam interviews (2014).

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The persistence of inequality could trigger social and political tensions, and lead to conflict as is currently happening in parts of Asia.

ASIAN DEVELOPMENT BANK241

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Evidence has clearly linked greater inequality to higher rates of violence – including domestic violence – and crime, particularly homicides and assaults.242 Compared to more equal countries, those with extreme economic inequality experience nearly four times the number of homicides.243 While all in society are affected, violence and crime have a disproportionate impact on those living in poverty, who receive little protection from the police or legal systems, often live in vulnerable housing, and cannot afford to pay for private security.

Countries in Latin America starkly illustrate this trend.244 Despite the social and economic advances of the last two decades, Latin America remains the most unequal and the most insecure region in the world,245 with 41 of the world’s 50 most dangerous cities, and one woman murdered every 18 hours.246 A staggering one million people were murdered in Latin America between 2000 an 2010.247 Greater inequality has frequently been linked to the onset and risk of violent conflict.249 Many of the most unequal countries in the world are affected by conflict or fragility. Alongside a host of political factors, Syria’s hidden fragility before 2011 was, in part, driven by rising inequality, as falling government subsidies and a fall in public sector employment affected some groups more than others.250 Inequality does not crudely ‘cause conflict’ more than any other single factor, but it has become increasingly clear that inequality is part of the combustible mix of factors making conflict or substantial violence more likely.251

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No society can surely be flourishing and happy, of which the far greater part of the members are poor and miserable. It is but equity, besides, that they who feed, clothe and lodge the whole body of the people, should have such a share of the produce of their own labour as to be themselves tolerably well fed, clothed and lodged.

ADAM SMITH248

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LIVING IN FEAR In cities around the world people live in fear of walking alone; they are afraid to stop their cars at traffic lights and can no longer enjoy family outings to parks or beaches; all due to the fear that they may be attacked.252 These are important infringements of basic human freedoms and have a large impact

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on the quality of life of individuals and communities, especially for women and marginalized groups.

Violence, and equally the fear of violence, often leads to people cutting themselves off from the rest of society, something that is most starkly illustrated by people living in gated communities. As Joan Clos, the Director of UN-Habitat puts it: ‘The gated community represents the segregation of the population. Those who are gated are choosing to gate, to differentiate, to protect themselves from the rest of the city.’253

INEQUALITY PUTS THE LIVES OF THE POOREST AT RISK IN CRISES AND DISASTERS Risk is not shared equally across society; the most vulnerable and marginalized are more affected by crises, pushing them further into poverty. Those who are hit hardest in times of crisis are always the poorest, because they spend a much higher proportion of their income on food and do not have access to welfare or social protection schemes, insurance, or savings to help them withstand an emergency.

Extreme inequality of wealth and power also drives national and international policies that shelter the rich from risk, passing this on to the poor and powerless. Countries with higher levels of economic inequality have more vulnerable populations.254 Inequality between countries explains why 81 percent of disaster deaths are in low-income and lower-middle income countries, even though they account for only 33 percent of disasters.255

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Our approach has been to look to reduce inequalities.

That is at the centre of our policies on Disaster Risk Reduction, because inequality just increases vulnerability.

MARÍA CECILIA RODRIGUÉZ MINISTER OF SECURITY, ARGENTINA256

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THE EQUALITY INSTINCT Across the world, religion, literature, folklore and philosophy show remarkable confluence in their concern that the gap between rich and poor is inherently unfair and morally wrong. That this concern with distribution is so prevalent across different cultures and societies suggests a fundamental preference for fairness and equitable societies.

One of the most influential modern political philosophers, John Rawls, asks us to imagine that we are under a ‘veil of ignorance’ and know nothing about the various advantages, social or natural, that we are born into. What principles of a good society would we then agree on? One of the most convincing principles that emerges from this thought experiment, states that, ‘Social and economic inequalities are to be arranged so that they [societies] are both (a) to the greatest expected benefit of the least advantaged and (b) attached to offices and positions open to all under conditions of fair equality of opportunity.’257 Our preference for fairness and equality are further demonstrated by surveys from around the world, which consistently show a desire for more equitable societies.258 An Oxfam survey across six countries (Spain, Brazil, India, South Africa, the UK and the USA) found that a majority of people believe that the distance between the wealthiest in society and the rest is too great.

In Brazil, 80 percent agreed with that statement.

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To be wealthy and honoured in an unjust society is a disgrace.

MAHATMA GANDHI

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Similarly, a majority of people agreed with the statement, ‘Reducing inequality will result in a strong society/economy’.

In research that compared people’s views of what an ideal distribution of wealth would be, the overwhelming majority selected a preference for a more egalitarian society. In the USA, when respondents were asked to chose their preference between two distributions, they overwhelmingly selected the one that reflected distribution in Sweden over the USA (92 percent to eight percent).259 Today’s disparities of income and wealth are in opposition to people’s visions and desires for a fair and just society.

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Luxury yachts moored in Puerto Adriano, Spain (2013).

Photo: Panos/Samuel Aranda

1.3 WHAT HAS CAUSED THE INEQUALITY EXPLOSION? It is clear that economic inequality is extreme and rising, and that this has huge implications in many areas of life.

But what has caused todayâ&#x20AC;&#x2122;s levels of inequality?

Many believe that inequality is an unfortunate but necessary by-product of globalization and technological progress. However, the different paths taken by individual nations belie this view. Brazil has reduced inequality despite being part of a globalized world, while, over the same period, India has seen a rapid increase. Rising economic inequality is not the unavoidable impact of supposedly elemental economic forces â&#x20AC;&#x201C; it is the product of deliberate economic and political policies.

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This chapter looks at two economic and political drivers of inequality, which go a long way towards explaining the extremes we see today. The first is the rise of an extreme variant of capitalism, known as ‘market fundamentalism’.

The second is the capture of power and influence by economic elites, including companies, which in turn drives further inequality, as political policies and public debate are shaped to suit the richest in society instead of benefiting the majority. Together these two drivers form a dangerous mix that greatly increases economic inequality.

MARKET FUNDAMENTALISM: A RECIPE FOR TODAY’S INEQUALITY ‘Just as any revolution eats its children, unchecked market fundamentalism can devour the social capital essential for the long-term dynamism of capitalism itself. All ideologies are prone to extremes. Capitalism loses its sense of moderation when the belief in the power of the market enters the realm of faith. Market fundamentalism – in the form of light-touch regulation, the belief that bubbles cannot be identified and that markets always clear – contributed directly to the financial crisis and the associated erosion of social capital.’

Mark Carney, Governor of the Bank of England260 With regulation, capitalism can be a very successful force for equality and prosperity. Over the last three hundred years, governments have used the market economy to help bring a dignified life to hundreds of millions of people, first in Europe and North America, then in Japan, South Korea and other East Asian countries.

However, left to its own devices, capitalism can be the cause of high levels of economic inequality. As Thomas Piketty demonstrated in his recent influential book, Capital in the Twenty-First Century, the market economy tends to concentrate wealth in the hands of a small minority, causing inequality to rise.

But governments can act to correct this flaw, by placing boundaries on markets through regulation and taxation.261 In wealthy societies, for much of the 20th century, effective mobilization by working people convinced elites to act on this evident truth, conceding the need for taxation, regulation and government social spending to keep inequality within acceptable bounds.

In recent decades however, economic thinking has been dominated by, what George Soros was the first to call, a ‘market fundamentalist’ approach, which insists on the opposite: that sustained economic growth comes from leaving markets to their own devices. A belief in this approach has significantly driven the rapid rise in income and wealth inequality since 1980.

“

One of the flaws of market fundamentalism is that it paid no attention to distribution of incomes or the notion of a good or fair society.

JOSEPH STIGLITZ262

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When good markets go bad: Liberalization and deregulation Market fundamentalism increases inequality in two ways: it changes existing markets to make them more unregulated, driving wealth concentration; and it extends market mechanisms to ever more areas of human activity, meaning that disparities of wealth are reflected in increasing areas of human life.

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The same economic medicine worldwide In countries around the world, during the 1980s and 1990s, increases in government debt led creditors (principally the IMF and the World Bank) to impose a cold shower of deregulation, privatization, and financial and trade liberalization, alongside rapid reductions in public spending, an end to price stabilization and other public support measures to the rural sector. Generous tax cuts were provided for corporations and the wealthy, and a ‘race to the bottom’ to weaken labour rights began, while regulations to protect employees, such as maternity leave and the right to organize, as well as anti-competition laws to stop monopolies and financial rules to protected consumers, were abolished.

In East Asia, the shift to liberalization started in the early 1990s and was accelerated following the 1997 financial crisis that paved the way for IMFimposed public sector reforms, known as ‘structural adjustment programmes’.

These programmes were implemented in many countries, such as Thailand, South Korea and Indonesia, which subsequently experienced an increase in levels of economic inequality. In Indonesia, the number of people living on less than $2 a day rose from 100 million in 1996 to 135 million in 1999;263 since 1999 inequality has risen by almost a quarter.264 Across Africa, rapid market liberalization, under structural adjustment programmes, increased poverty, hunger and inequality in many countries. Between 1996 and 2001, the number of Zambians living below the poverty line rose from 69 to 86 percent; in Malawi, this number increased from 60 to 65 percent over the same period.265 In Tanzania, inequality rose by 28 percent.266 By 2013, across the continent an extra 50 million people were undernourished compared to 1990–92.267 In the countries of the former Eastern bloc, market fundamentalism after the fall of communism in 1989–91 led to economic reforms which focused on liberalization and deregulation, and resulted in a significant increase in poverty and inequality. In Russia, the Gini coefficient almost doubled in the 20 years from 1991, and the incomes of the richest 10 percent of the population are now over 17 times that of the poorest 10 percent, an increase from four times in the 1980s. Meanwhile the wealthiest one percent of Russians – who greatly benefitted from the opaque process of privatization during the 1990s – now hold 71 percent of the national wealth.268 Increases in poverty and inequality were lower in the countries of East Central Europe, such as Hungary and the Czech Republic, where the governments played a key role in regulating the market and responded to soaring levels of poverty.269

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CASE STUDY

EXTREME INEQUALITY

INEQUALITY IN RUSSIA

Vasily outside the derelict Vyshnevolotsky textile factory in Vyshny Volochek, where he and his wife once worked (2007).

Photo: Geoff Sayer/Oxfam

Vasily and his wife once both worked at the Vyshnevolotsky textile factory in the Russian town of Vyshny Volochek, but in 2002 it was shut down and the building now lies derelict. Vasily’s family lives within sight of the factory, which provided employment for thousands of workers from the surrounding community, until it failed to survive privatization.

‘About 3,000 people lost their jobs. My wife worked there, on the third floor. It was a miserable time. Everyone here lost their jobs. We were victims of these changes. We thought someone would care about our situation, but no one did, no-one helped us. In Moscow, they were getting rich, but the government didn’t care what was happening here. Everyone had to look to set up their own business. There were no jobs to find.

‘At the time the factory closed, my wife was eighth on the list for an apartment. She had waited for years. All that was swept away. There was not even a payment. In fact, they were given something, 100 Rubles each. It was an insult.’

In Latin America, historically a region where extreme wealth has sat alongside extreme poverty, inequality worsened considerably in the 1980s, when debt relief was made contingent on the adoption of wide-ranging structural adjustment programmes. These slashed public spending to what became the world’s lowest levels, at around 20 percent of GDP,270 while also decimating labour rights, real wages and public services.

By 2000, inequality in Latin America had reached an all-time high, with most countries registering an increase in income inequality over the previous two decades.271 In every country in the region except Uruguay, the income share of the richest 10 percent increased while the share of the poorest 40 percent either decreased or stagnated. This had a considerable impact on living standards, causing a significant increase in the number of men and women living in poverty.272 It is estimated that half of the increase in poverty during this period was due to redistribution in favour of the richest.273

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Although Latin America remains the most unequal region in the world, over the past decade inequality in most countries has begun to decrease.274 This is the result of a concerted shift in government policy away from those policies favoured by the economic model of structural adjustment (discussed in the Busting the Inequality Myths box which follows).

Women are hit hardest by market fundamentalism Structural adjustment programmes and market-oriented reforms have been strongly associated with a deterioration of women’s relative position in the labour market, due to their concentration in a few sectors of economic activity, their limited mobility and their roles in the unpaid care economy.275 A combination of gender discrimination and the limited regulation favoured by market fundamentalism have meant that the potential for women – especially poor women – to share in the fruits of growth and prosperity and to prosper economically have been severely limited. Women remain concentrated in precarious work, earn less than men and shoulder the majority of unpaid care work.

Liberalization of the agricultural sector, including the removal of subsidized inputs, like credit and fertilizer, has impacted on all poor farmers, but in many poor countries, the majority of farming is done by poor women. Many of the labour regulations that market fundamentalism has reduced or removed, like paid maternity and holiday entitlements, are disproportionately beneficial to women. Removing these regulations hits women hardest.

Women, along with children, also benefit most from public services such as healthcare and education. In education, when fees are imposed, girls are often the first to be held back from school. When health services are cut, women have had to bear the burden of providing healthcare services to their family members that were previously provided by public clinics and hospitals.

Equally, women are often the majority of teachers, nurses and other public servants and, as a result, any cuts to state provision of these roles means more unemployment for women than for men.

A tenacious worldview Despite, in fact, being an extreme version of capitalism, market fundamentalism today permeates the architecture of the world’s social, political and economic institutions. For many the global financial crisis and the recession that followed highlighted the failures of excessive market fundamentalism. However, the push towards liberalization, deregulation and greater involvement of the markets has in many places been strengthened.

Nowhere is this clearer than in Europe, where the Troika committee – the European Commission, the European Central Bank and the IMF – attached sweeping market fundamentalist reforms as pre-conditions for the financial rescue of struggling states. This has included, for example, proposing workers in Greece be forced to work six days a week.276 The tenacity of this worldview is arguably the result of two things, which are in turn linked once more to inequality: the predominant ideology and the self-interest of elites.

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Ideologically, dominant elites in almost every sphere are much more likely to support the market fundamentalist worldview than ordinary people.

Economists, in particular, are much more likely to strongly hold this view, and this brand of economics has dominated public thought over the last 30 years.

Market fundamentalism, by leading to the concentration of wealth by elites, is also in their self-interest. Elites, therefore, use their considerable power and influence to capture public debate and politics to continue to push for this market fundamentalist approach, as the next section shows.

CAPTURE OF POWER AND POLITICS BY ELITES HAS FUELLED INEQUALITY The second major driver of rapidly rising economic inequality is the excessive influence over politics, policy, institutions and the public debate, which elites are able to employ to ensure outcomes that reflect their narrow interests rather than the interests of society at large. This has all too often led to governments failing their citizens, whether over financial regulation in the USA or tax rates in Pakistan.

Elites are those at the top of social, economic or political hierarchies â&#x20AC;&#x201C; based on wealth, political influence, gender, ethnicity, caste, geography, class, and other social identities. They may be the richest members of society, but they can also be individuals or groups with political influence, or corporate actors.

Economic elites often use their wealth and power to influence government policies, political decisions and public debate in ways that lead to an even greater concentration of wealth. Money buys political clout, which the richest and most powerful use to further entrench their influence and advantages.

Other non-economic elites, such as politicians or senior civil servants, use access to power and influence to enrich themselves and protect their interests. In many countries it is not uncommon for politicians to leave government having amassed great personal wealth. Political elites sometimes use the state to enrich themselves in order to keep in power and make huge fortunes while they govern. They use the national budget as if it was their own to make individual profit. Non-economic elites also often collude with other elites to the enrichment of both.

For instance, todayâ&#x20AC;&#x2122;s lopsided tax policies, lax regulatory regimes and unrepresentative institutions in countries around the world are a result of this elite capture of politics.277 Elites in rich and poor countries alike use their heightened political influence to benefit from government decisions, including tax exemptions, sweetheart contracts, land concessions and subsidies, while pressuring administrations to block policies that may strengthen the hand of workers or smallholder food producers, or that increase taxation to make it more progressive. In many countries, access to justice is often for sale, legally or illegally, with access to the best lawyers or the ability to cover court costs only available to a privileged few.

In Pakistan, the average net worth of a parliamentarian is $900,000, yet few of them pay taxes. Instead, elites in parliament exploit their positions to strengthen tax loopholes.278 The dearth of tax revenue limits government

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investment in sectors like education and healthcare that could help to reduce inequality, and keeps the country dependent on international aid. This prevents the growth of a diverse and strong economy, while perpetuating economic and political inequalities.279 Many of today’s richest people made their fortunes thanks to the exclusive government concessions and privatization that came with market fundamentalism. Privatization in Russia and Ukraine, after the fall of communism, made billionaires of the political elite overnight. Mexico’s Carlos Slim – who rivals Bill Gates as the richest person in the world – made his many billions by securing exclusive rights to the country’s telecom sector when it was privatized in the 1990s.280 Since his monopoly hinders any significant competition, Slim is able to charge his fellow Mexicans inflated prices, with the costs of telecommunications in the country being among the most expensive in the OECD.281 He has subsequently used his wealth to fend off many legal challenges to his monopoly.

Despite being a country ravaged by poverty, the number of billionaires in India has soared from two in the mid-1990s to more than 60 today.282 A significant number of India’s billionaires made their fortunes in sectors highly dependent on exclusive government contracts and licenses, such as real estate, construction, mining, telecommunications and media. A 2012 study estimated that at least half of India’s billionaire wealth came from such ‘rent-thick’ sectors of the economy.283 The net worth of India’s billionaires would be enough to eliminate absolute poverty in the country twice over,284 yet the government continues to underfund social spending for the most vulnerable. For instance, in 2011, public health expenditure per capita in India was just four percent of the OECD country average in per capita terms.285 As a consequence, inequality in India has worsened.

Corporate interests have also captured policy-making processes to their own advantage. Recent analysis of the influence of corporate interests on nearly 2,000 specific policy debates in the USA over 20 years concluded that ‘economic elites and organized groups representing business interests have substantial independent impacts on US government policy, while mass-based interest groups and average citizens have little or no independent influence’.286 Financial institutions spend more than €120m per year influencing the European Union.287

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CASE STUDY

EXTREME INEQUALITY

THE POLITICS OF LAND DISTRIBUTION IN PARAGUAY

Ceferina Guerrero at her home in Repatriación, Caaguazú (2013).

Photo: Amadeo Velazquez/Oxfam

Paraguay has a long history of inequality, perpetuated by decades of cronyism and corruption.288 Large-scale landowners control 80 percent of agricultural land.289 Every year, 9,000 rural families are evicted from their land to make room for soy production; many are forced to move to city slums having lost their means of making a living.290 In 2008, after years of political instability, Fernando Lugo was elected president as a champion for the poor, promising to redistribute land more fairly. But, in June 2012, after 11 farm workers and six police officers were killed during an operation to evict squatters from public land being claimed as private property by a powerful land-owner (and opponent of Lugo), he was ousted in a coup and replaced by one of the country’s richest men, tobacco magnate Horacio Cartes.

Today, Paraguay is the quintessential example of skewed economic development and political capture by elites, leading to incredible levels of inequality. In 2010 it had one of the fastest growing economies in the world, thanks to a massive rise in global demand for soy for biofuels and cattle feed in wealthier nations,291 but one in three people still lives below the poverty line and inequality is increasing.292 Ceferina is a 63 year-old grandmother, living in the Caaguazú district in central Paraguay. She has a relatively small plot of five hectares, which she has been refusing to sell to a big soy company.

‘I have no alternative but to stay here, even though business gets harder every day. In this area there are now towns where nothing is left but soybean crops. Everyone has left, they are ghost towns. It is a lie that these big plantations create job opportunities. They buy modern farm machinery that does everything, so they only need one person to drive a tractor to farm 100 hectares. Who is that providing jobs for? Many people have moved to city suburbs and they are living in misery, on the streets.

These people are famers, like us, who sold their land and left, hoping to find a better life in the city. Selling our land is no solution. We need land, we need fair prices and we need more and better resources.’

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Elite capture is also capture by men The capture of political processes by elites can also be seen as the capture of these processes by men. It contributes to policies and practices that are harmful to women or that fail to help level the playing field between men and women. As a result, women are also largely excluded from economic policy making.

Despite significant progress since 2000, as of January 2014, only nine women were serving as a head of state and only 15 as the head of a government; only 17 percent of government ministers worldwide were women, with the majority of those overseeing social sectors, such as education and the family (rather than finance or economics).293 Women held only 22 percent of parliamentary seats globally.294 Women’s leadership is critical to ensuring that economic and social policies promote gender equality. The concentration of income and wealth in the hands of wealthy elites, the majority of whom are men, gives men more decisionmaking power at national level, and contributes to national laws failing to help level the playing field for women. Around the world there is a legacy of discriminatory laws and practices that compound gender discrimination; for instance on inheritance rights, lending practices, access to credit and asset ownership for women.

CORRUPTION HITS THE POOREST HARDEST When elites capture state resources to enrich themselves it is at the expense of the poorest. Large-scale corruption defrauds governments of billions in revenue and billions more through the inefficiencies of ‘crony contracting’.

At the same time, poor people are hit hardest by petty corruption, which acts as a de facto privatization of public services that should be free.

One study found that in rural Pakistan the extremely poor had to pay bribes to officials 20 percent of the time, whereas for the non-poor this figure was just 4.3 percent.295

Elites shape dominant ideas and public debate Around the world elites have long used their money, power and influence to shape the beliefs and perceptions that hold sway in societies, and have wielded this power to oppose measures that would reduce inequality.

Elites use this influence to promote ideas and norms that support the economic and political interests of the privileged; such as through the promotion of ideas like ‘the majority of rich people have secured their wealth through hard work’, or ‘strong labour rights and taxation of bankers’ bonuses will irreparably harm the economy’. Language is cleverly deployed in Orwellian ways, with inheritance tax rebranded as the ‘death tax’, and the rich becoming ‘wealth creators’.296 As a result, across much of the world there is a considerable misperception of the scope and scale of inequality and its causes. In the majority of countries, the media is also controlled by a very small, male, economic elite.

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One study of academic economists in the USA found extensive and largely undisclosed links to the financial sector among them, and a very strong correlation between these ties and intellectual positions that actively absolved the financial sector of responsibility for the financial crisis.297 These economists have often appeared in the mainstream media as independent ‘experts’. Meanwhile, the share of the world’s population enjoying a free press remains stuck at around 14 percent. Only one in seven people lives in a country where political news coverage is robust, independent and where intrusion by the state into media is limited.298 Elites also use their considerable power to actively stop the spread of ideas which go against their interests. Recent examples of this include governments, driven by elites, clamping down on the use of social media. The Turkish government attempted to prevent access to Twitter following mass protests, and Russia has implemented a law that equates popular bloggers with media outlets, thus requiring them to abide by media laws which restrict their output.299

THE PEOPLE ARE LEFT BEHIND The capture of politics by elites undermines democracy by denying an equal voice to those outside of these groups. This undermines the ability of the majority to exercise their rights, and prevents poor and marginalized groups from escaping from poverty and vulnerability.300 Economic inequality produces increased political inequality, and the people are being left behind.

Since 2011, the divide between elites and the rest of society has sparked mass protests throughout the world – from the USA to the Middle East, and from emerging economies (including Russia, Brazil, Turkey and Thailand) to Europe (even Sweden). The majority of the hundreds of thousands who took to the streets were middle-class citizens who saw that their governments were not responding to their demands or acting in their interests.301 Unfortunately, in many places, rather than putting citizens’ rights back at the heart of policy-making and curbing the influence of the few, many governments responded with legal and extra-legal restrictions on the rights of ordinary citizens to hold governments and institutions to account. Governments in countries as diverse as Russia, Nicaragua, Iran and Zimbabwe, have launched concerted campaigns of harassment against civil society organizations, in an effort to clamp down on citizens who seek to voice their outrage at the capture of political and economic power by the few.302

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BUSTING THE INEQUALITY MYTHS Those who say that extreme inequality is not a problem, or that it is the natural order of things, often base their arguments on a number of myths.

MYTH 1 Extreme inequality is as old as humanity, has always been with us, and always will be.

The significant variations in levels of inequality over time and between different countries demonstrates that levels of inequality are dependent on a number of external factors, such as government policies, rather than simply being the natural order of things.

The 20th century provides numerous examples of how inequality can be significantly reduced and how it can radically increase within the span of just one generation. In 1925, income inequality in Sweden was comparable with contemporary Turkey. But, thanks to the creation of the Swedish welfare state, which, among other things, included provisions for universal free access to healthcare and universal public pensions, by 1958 inequality in Sweden had reduced by almost half and continued to decrease for the next 20 years.303 The experience of Russia mirrors that of Sweden. At the end of the 1980s, levels of inequality in Russia were comparable with its Scandinavian neighbours. However, since the beginning of the transition to a market economy in 1991, inequality has almost doubled.304 In more recent years, countries in Latin America have significantly reduced inequality. Between 2002 and 2011, income inequality dropped in 14 of the 17 countries where there is comparable data.305 During this period, approximately 50 million people moved into the emerging middle class, meaning that, for the first time ever, more people in the region belong to the middle class than are living in poverty.306 This is the result of years of pressure from peopleâ&#x20AC;&#x2122;s movements that have campaigned for more progressive social and economic policies. The governments that the people have elected have chosen progressive policies, including increased spending on public health and education, a widening of pension entitlements, social protection, progressive taxation and increases in employment opportunities and the minimum wage. Latin Americaâ&#x20AC;&#x2122;s experience shows that policy interventions can have a significant impact on income inequality.

There is also a strong body of evidence which shows that extreme inequality has been rising in every other region of the world over the past three decades, which is why the negative consequences must be taken seriously, now more than ever.307

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MYTH 2 Rich people are wealthier because they deserve it and work harder than others.

This myth assumes that everyone starts from a level playing field and that anyone can become wealthy if they work hard enough. The reality is that, in many countries, a personâ&#x20AC;&#x2122;s future wealth and income is largely determined by the income of their parents. A third of the worldâ&#x20AC;&#x2122;s richest individuals amassed their wealth not through hard work, but through inheritance.308 This myth is also flawed in its assumption that the highest financial reward is given for the hardest amount of work. Some of the lowest paid jobs are those that require people to work the hardest, while some of the highest paid jobs are those that require people to work the least. Many of the richest collect large profits from the rent they generate on stocks, real estate and other assets.

When this is taken into account, it becomes clear that those who are paid less work just as hard (or even harder) as those at the top of the wage ladder.309 Women spend more time on unpaid domestic and caring responsibilities than their highly paid counterparts, and are more likely than men to have multiple jobs.310

MYTH 3 Inequality is necessary to reward those who do well.

Incentivizing innovation and entrepreneurship through financial reward will always lead to some levels of inequality, and this can be a good thing. However, extreme inequality and extremes of potential reward are not necessary to provide this incentive. It would be absurd to believe that a company CEO who earns 200 times more than the average worker in the company is 200 times more productive or creates 200 times more value for society. The success of alternative business models such as cooperatives, which have greater income equality at their core, also disproves this myth.

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MYTH 4 The politics of inequality is little more than the politics of envy.

High levels of inequality have negative consequences for everyone in society: the haves as well as the have-nots. As demonstrated in this report, societies with higher levels of economic inequality have overall higher crime rates, lower life expectancy, higher levels of infant mortality, worse health and lower levels of trust.311 Extreme inequality also concentrates power in the hands of a few, posing a threat to democracy,312 and hinders economic growth and poverty reduction. It is not envy, but a preoccupation with the well-being of the whole of society that drives those who campaign against inequality.

MYTH 5 There is a trade-off between growth and reducing inequality, especially through redistribution.

It has long been a central tenet of economics that there is an unavoidable trade-off between strong growth and enacting measures to reduce inequality, especially through taxing and redistributing from the rich to the poor. However, recently there have been a growing number of studies showing that the opposite appears to be the case. In fact, high and growing inequality is actually bad for growth â&#x20AC;&#x201C; meaning lower growth rates and less sustained growth.

A recent high-profile, multi-decade, cross-country analysis by IMF economists showed that lower inequality is associated with faster and more durable growth, and that redistribution does not have a negative impact on growth, except in extreme cases.313 By mitigating inequality, redistribution is actually good for growth.

MYTH 6 Rising inequality is the inevitable and unfortunate impact of technological progress and globalization, so there is little that can be done about it.

This myth is based on the idea that a combination of globalization and technological progress inevitably leads to increased inequality. However, it is based on a set of assumptions that do not tell the whole story. Namely that globalization and new technologies reward the highly educated and drive up wages for the most skilled who are in demand in a global market; that this same technological progress means many low-skilled jobs are now done by

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machines; and that technology and an increasingly globalized market have also enabled companies to shift a lot of low-skilled work to developing countries, further eroding the wages of lower-skilled workers in developed countries.

The myth is that all of this drives a relentless and unavoidable increase in inequality.

However, if this myth were true there would be little difference in the development of job markets in individual countries. In fact, while Germany has, to a large extent, resisted the mass export of jobs and the explosion in wealth and high salaries at the top, countries like the USA and UK have seen highlevels of erosion among mid-level jobs and huge concentrations of wealth.

Similarly, Brazil has managed to benefit from globalization while reducing economic inequality, whereas other countries, such as India, have seen big increases in inequality.

So, while technological change, education and globalization are important factors in the inequality story, the main explanation lies elsewhere, in deliberate policy choices, such as reducing the minimum wage, lowering taxation for the wealthy and suppressing unions. These are, in turn, based on economic policy and political ideology, not on inevitable and supposedly elemental economic forces.

MYTH 7 Extreme economic inequality is not the problem, extreme poverty is the problem. There is no need to focus on inequality and the growth in wealth for a few at the top, as long as poverty is being reduced for those at the bottom.

This is a widely held view, that the focus of development should be confined to lifting up those at the bottom, and that any focus on the growing wealth at the top is a distraction.

Extreme economic inequality not only slows the pace of poverty reduction, it can reverse it.314 It is not possible to end poverty without focusing first on extreme economic inequality and the redistribution of wealth from those at the top to those at the bottom. On a planet with increasingly scarce resources, it is also not sustainable to have so much wealth in the hands of so few.315 For the good of the whole world we must focus our efforts on the scourge of extreme economic inequality.

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Amir Nasser, 12, Jamam refugee camp, Upper Nile, South Sudan (2012).

Photo: John Ferguson

2 WHAT CAN BE DONE To end extreme inequality

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THE HIGH ROAD OR THE LOW ROAD Inequality is not inevitable, but the result of policy choices. In this section, we explore some of the deliberate policy choices that have been and are currently being taken by governments that have affected inequality.

The choice which governments face, to move towards or away from inequality, is illustrated first by two fictional articles, each of which describes a potential future for Ghana as the Economist magazine may describe it in 2040.

The report then focuses on four key areas where strong policy action can help to tackle inequality: work and wages, taxation, public services, and economic policies that can specifically tackle gender inequality.

The section finishes by looking at the kind of progressive political change that is necessary to ensure that governments break the stranglehold of special interests, and act in favour of the majority of citizens and of society as a whole.

Action can be taken to reverse the trends that are fuelling today’s yawning gap between rich and poor, the powerless and the powerful. The world needs concerted action to build a fairer economic and political system that values the many over the few. The rules and systems that have led to today’s extreme economic inequality must change, with action taken to level the playing field by implementing policies that redistribute both wealth and power.

“

Without deliberate policy interventions, high levels of inequality tend to be self-perpetuating.

They lead to the development of political and economic institutions that work to maintain the political, economic and social privileges of the elite.

UNRISD316

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2.1 A TALE OF TWO FUTURES The Economist

GHANA: MELTDOWN TO MIRACLE

T

he world’s top egalitarians arrived in Accra this week for the inaugural meeting of the Progressive 20 (P20) countries. Ghana, which has been instrumental in establishing the new group, is keen to show off its impressive credentials on redistribution and development.

Many of the visitors will linger for a few days of tourism, not least because of Ghana’s largely crime-free streets.

Leaders convening today will look back to the 2015 ‘oil curse crisis’, when a power grab for the nation’s newly discovered hydrocarbon reserves threatened to tear the country apart. They will start by commemorating those who died or were injured in the 2015 riots that triggered the country’s New Deal.

Hundreds died in that conflict, spurring politicians and ethnic leaders, marshalled by the legendary Daavi Akosua Mbawini (dubbed by many as ‘Ghana’s Gandhi’), to draw back from the brink. The 2016 elections that followed saw the cross-party Alliance of Progressive Citizens (APC) take power, backed by a multi-ethnic coalition of Ghana’s vibrant people’s organizations. The APC promptly embarked on what has become a textbook case in development.

Advised by Norway and Bolivia, the new government negotiated a sizeable increase in oil and gas royalties, and introduced an open, competitive tender process for exploration and drilling. But it did not stop there. Learning from the experiences of other oil booms, Ghana put 40 percent of oil revenues into a heritage fund, so that future generations could share in the benefits of the windfall (production is already falling from its 2030 peak). Proceeds from the government’s famous victory over Swiss tax havens at the International Court of Justice also swelled the fund’s coffers.

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1 April 2040 The government followed this with the introduction of progressive direct taxation – taxing the richest to pave the way for the end of the oil period and to rebuild the ‘social contract’ between government and governed.

The APC used this new income for a classic exercise in nation-building, helped by the return of many highly skilled Ghanaians who flocked home from the capitals of Europe and North America. By 2017, the country had achieved universal health coverage and primary and secondary education. It invested in an army of nurses, doctors and generic medicines that today make the Ghanaian National Health Service the envy of the world. They moved swiftly on to upgrade the quality of education, pioneering some of Africa’s most successful vocational and technical training, and building some of the continent’s best universities.

Oil money paid for roads and hydroelectric dams, allowing Ghana to avoid risky ‘public–private partnerships’, which decades on are still draining national budgets across the rest of Africa.

Ghana is particularly proud of its pioneering ‘Fair Living Wage’ policy, which tied the minimum wage to average wages, and then ratcheted up the pressure on inequality by moving the minimum from an initial 10 percent of the average to an eventual 50 percent. The Fair Living Wage has since become one of the membership criteria for the P20. Other positive steps delivered huge benefits for women, not least Ghana’s Equal Pay Act. The APC also made ‘getting the politics right’ an explicit priority. Temporary affirmative action campaigns rebooted Ghana’s political system, filling parliament and the civil service with the best and brightest among women and ethnic minority groups. Citizens and their organizations were involved from the beginning (for example in the recent ‘Be a Responsible Citizen, Pay your Tax’ campaign that rejuvenated Ghana’s tax base).

Now a retired elder stateswoman, Daavi Akosua Mbawini says her country has gone from ‘meltdown to miracle in one generation’. For once, the political rhetoric is justified.

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The Economist

1 April 2040

GHANA: OPEN FOR BUSINESS?

GHANA

CÔTE D'IVOIRE

R

epresentatives from the world’s biggest multinationals are headed to Ghana this week for the country’s annual trade fair, ‘Ghana: Open for Business’. Ghana’s business class can take credit for creating favourable conditions for foreign investment to flourish in the country, which has enjoyed solid growth rates in recent years. Foreign companies that invest in the country are offered tax-free status and access to the world’s cheapest labour force.

With no minimum wage in Ghana, most workers earn on average $0.50 per hour.

Trade fair attendees will land at the new state-of-theart jet port on the Elysium-style island in the middle of Lake Volta that is home to the ten families who own 99 percent of the country’s wealth. Crocodile-infested waters surrounding the island should preclude any protests by the millions living in destitution on the mainland. It is hard to credit that Ghana was once seen as the great hope of West Africa, a country that combined a dynamic and sustainable economy with an impressively stable and democratic political system. All that fell apart under the influence of the ‘curse of wealth’, in the shape of oil and gas finds in the early years of the 21st century.

Those who can afford it buy their drinking water from tankers; the rest have no option but to use polluted rivers and wells. Little wonder that cholera outbreaks are a regular occurrence and infant mortality is among the highest in the region.

GHANA

TOGO

Lake Volta

Accra

The governing elite were swift to spot an opportunity and in no time had sold off the country’s newly discovered resources to the highest foreign bidder, personally collecting a royalty dividend for their efforts. As trade unions and social movements mobilized to call for a fairer distribution of the natural resource bounty, the political elite moved just as swiftly to criminalize public protest and collective organizing. Hundreds died in the riots that followed, leading the government to suspend the constitution and install an ‘interim’ presidency.

Ghanaians still lament the assassination of Daavi Akosua Mbawini (dubbed ‘Ghana’s Gandhi’) as she was building a cross-party movement, the now mostly forgotten ‘Alliance of Progressive Citizens’.

For those on the mainland, electricity comes on for a few hours a day at best. People are afraid to leave their homes, even in daylight hours, for fear of assault. Health and education are a privatized, disintegrated, fee-charging mess, to which poor Ghanaians have little access. Those who can afford it buy their drinking water from tankers; the rest have no option but to use polluted rivers and wells. Little wonder that cholera outbreaks are a regular occurrence and infant mortality is among the highest in the region. Farmers in many areas have reverted to subsistence agriculture, as tapping into more lucrative markets is now impossible.

Small wonder then that foreign investors arriving into Volta will not set foot on the mainland, and their presence will go unnoticed by the vast majority of Ghanaians.

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Businessmen pass an official union demonstration against low wages and lack of benefits for cleaners in the City.

London, UK (2007). Photo: Panos/Mark Henley

WORKING OUR WAY TO A MORE EQUAL WORLD Income from work determines most peopleâ&#x20AC;&#x2122;s economic status.317 The reality for many of the worldâ&#x20AC;&#x2122;s poorest people is that no matter how hard they work they cannot escape poverty, while those who are already rich continue to see their wealth grow at an ever-increasing rate, exacerbating market inequalities.

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In South Africa, a platinum miner would need to work for 93 years just to earn their average CEO’s annual bonus.318 In 2014, the UK top 100 executives took home 131 times as much as their average employee;319 only 15 of these companies have committed to pay their employees a living wage.320 Today’s combination of indecently low wages for the majority and scandalously high rewards for top executives and shareholders is a recipe for accelerating economic inequality.

Labour’s declining share of income

< It would take a South African miner

93 years to earn their average CEO’s annual bonus

>

FIGURE 9: Share of labour income in GDP for world and country groups321 70 65

Percentage

60 55 50 45

World G20 Middle and Lower-middle Income

12 20

10 20

08 20

06 20

04 20

02 20

00 20

98 19

96 19

94 19

92 19

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40

G20 High Income Groups not in G20

Since 1990, income from labour has made up a declining share of GDP across all countries, low-, middle- and high-income alike, while more has gone to capital, fuelling growing material inequalities between the haves and the have-nots.

According to the International Labour Organization (ILO), policies that redistribute income in favour of labour, such as increases in the minimum wage, would bring significant improvements in aggregate demand and growth, while also reducing poverty and inequality.322

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THE LOW ROAD: WORKING TO STAND STILL CASE STUDY

MALAWI TEA PLUCKERS: IN WORK AND IN EXTREME POVERTY

Tea picking in Mulanje, Southern Malawi (2009).

Photo: Abbie Trayler-Smith

Mount Mulanje is home to Malawiâ&#x20AC;&#x2122;s 128 year-old tea industry, which employs more than 50,000 workers in the rainy season. Maria, 32, has plucked tea on the green, seemingly endless hills for over seven years. She and her fellow tea pluckers are the face of in-work extreme poverty.

Maria is fortunate that she lives in housing provided by a plantation and has recently been put on a long-term contract; but almost threequarters of workers have neither of these things.323 The difficulties workers face are exacerbated by the fact that most have no land of their own and cannot supplement their income or food intake through farming.

The work is hard and Maria must pick a minimum of 44 kilograms of tea every day to earn her daily cash wage. This wage still sits below the $1.25 a day World Bank Extreme Poverty Line at household level,324 and she struggles to feed her two children with it, both of whom are malnourished. According to a recent living wage estimation, Maria would need to earn around twice her existing wage just to meet her basic needs and those of her family.325 But things are starting to change. In January 2014, the Malawian government raised the minimum wage by approximately 24 percent.

A coalition, led by Ethical Tea Partnership and Oxfam, is seeking new ways to make decent work sustainable in the longer term.326

Government regulation and the right of workers to collectively bargain with employers can help to tackle inequality and increase wages for ordinary workers. However, in recent decades, in the context of weakened labour laws, the repression of unions, and the ability of industries to relocate to where

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wages are low and workers are passive, companies have been free to choose poverty wages and poor labour conditions for their workers.

According to the International Trade Union Confederation, more than 50 percent of workers are in vulnerable or precarious work, with 40 percent trapped in an informal sector where there are no minimum wages and no rights.327 In today’s global economy many sectors are organized into global value chains, including industrial manufacturing, such as clothing and electronics, and agricultural trade in commodities like sugar and coffee. Within these, multinational companies (MNCs) control complex networks of suppliers around the world.

They reap enormous profits by employing workers in developing countries, few of whom ever see the rewards of their work.

The prevalence of ‘low road’ jobs in profitable supply chains has been confirmed by three recent Oxfam studies of wages and working conditions.

The studies found that poverty wages and insecure jobs were prevalent in Vietnam and Kenya, both middle-income countries, and wages were below the poverty line in India and below the extreme poverty line in Malawi, despite being within national laws.328 A separate set of three studies of wages in food supply chains in South Africa, Malawi and the Dominican Republic, commissioned by six ISEAL members, found that minimum wages in the relevant sectors were between 37 to 73 percent of an estimated living wage – not nearly enough for food, clothing, housing and some discretionary spending.329

FIGURE 10: Minimum wages as a percentage of estimated living wages (monthly)330

Minimum wages as a percentage of estimated living wages (monthly)

100

80

72.9

60

40

40.2

36.5

Dominican Republic Banana Sector

Malawi Tea Sector

20

0 South Africa Grape Sector

Some argue that low worker wages are a result of consumer demand for low prices. But numerous studies have shown that even significant wage increases for workers of apparel products, for example, would barely alter retail prices.331 Oxfam’s own study found that doubling the wages of workers in the Kenyan flower industry would add just five pence to a £4 ($6.50) bouquet in UK shops.

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The median income of a UK supermarket CEO – in whose shops Kenyan flowers are sold – more than quadrupled from £1m to over £4.2m between 1999 and 2010.332 If executive reward can be factored into business models, why not a living wage for the workers on whom their reward depends?

Women are on a lower road than men for work and wages. In Honduras, for example, women predominate in sectors where labour law is unenforced and there is no social security. They earn less than men, despite working longer hours. The average woman’s wage covers only a quarter of the cost of a basic food basket in rural areas. Their economic dependence on their partners, coupled with the discrimination they face in wider society, can also lock them into abusive relationships in the home, as well as harassment in the workplace.

CASE STUDY

POVERTY WAGES IN THE RICHEST COUNTRY IN THE WORLD

Detroit, Michigan (2008).

Photo: Panos/Christian Burkert

Low wages and insecure work is not a story confined to developing countries. Three of the six most common occupations in the USA – cashiers, food preparers and waiters/waitresses – pay poverty wages.

The average age of these workers is 35 and many support families.

Forty-three percent have some college education, and many hold a four-year degree.333 In a recent survey, half of those questioned told Oxfam that they had had to borrow money to survive, while only a quarter receive sick leave, paid holidays, health insurance or a pension. They live in one of the richest countries in the world, but carry a burden similar to that of workers in the poorest of countries.

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(CASE STUDY CONTINUED) Dwayne works in a fast food restaurant in Chicago. His wages have to provide for two daughters, as well as his siblings, his mother and his grandmother. ‘I’m the sole provider of the household and can’t manage with an $8.25/hour wage ... given how hard we are worked, fast food workers deserve to show something for it.’334 The rise in inequality in the USA has happened in parallel with the decline in the real value of the minimum wage and the decline in union membership.335 The incomes of the bottom 90 percent of workers have barely risen, while the average income of the top one percent has soared.336

The erosion of bargaining power Unions represent an important counterweight to top executives and shareholders whose imperative is largely to maximize profit. Their negotiating power helps ensure prosperity is shared; collective bargaining by unions typically raises members’ wages by 20 percent and drives up market wages for everyone.337 Trade unions also play a crucial role in protecting public services.

In South Korea, for instance, public sector health unions held a strike and protest rallies in June 2014 after the government announced deregulation and privatization of health services.

Many developing countries lack a history of strong unions, and in many places workers are facing a crackdown on their right to organize, which has contributed to falling union membership. In Bangladesh’s garment industry, where 80 percent of workers are women, union membership stands at one in 12.338 According to an analysis of the Rana Plaza disaster, Bangladesh factory owners have ‘outsize influence in the country’s politics, hindering the establishment and enforcement of labour law’.339 In South Korea, public sector workers face deregistration of unions, unlawful arrests and anti-strike action. In 2014, Yeom Ho-seok, a Korean employee of a company making repairs to Samsung phones and founder of the Samsung Service Union, committed suicide following a period of financial hardship. After founding the Samsung Service Union, Yeom’s work was reported to have been reduced by his employer; his take home wage fell to just $400 a month.340 The right to organize has been enshrined in ILO conventions, but since 2012 the official group representing employers (the Employers Group) has contended that this does not include the right to strike. In 2014 this conflict was referred to the ILO’s governing body. Striking is the last resort of workers to bargain with their employees for a fair deal, and revoking it would be a huge blow to workers’ rights.

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THE HIGH ROAD: ANOTHER WAY IS POSSIBLE Turning the tide on poverty wages Some countries are bucking the trend in the race to the bottom on wages, decent work and labour rights.

Brazil’s minimum wage rose by nearly 50 percent in real terms between 1995 and 2011, in parallel with a decline in poverty and inequality (Figure 11).

FIGURE 11: Inequality levels in Brazil during the period in which the minimum wage rose by 50 percent341

Income inequality (as Gini coefficient)

0.62 0.6 0.58 0.56 0.54 0.52 0.5

97 19 98 19 99 20 00 20 01 20 02 20 03 20 04 20 05 20 06 20 07 20 08 20 09 20 10 20 11

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Income inequality (as Gini coefficient)

Since taking office in 2007, the Ecuadorean government, led by Rafael Correa, has pursued a policy of increasing the national minimum wage faster than the cost of living.342 Ecuador joined the World Banana Forum to improve conditions in this key export industry.343 Profitable companies were already required by law to share a proportion of profits with their employees, but new regulations also required them to demonstrate that they pay a living wage; that is a wage ‘covering at least the basic needs of the worker and their family and corresponds to the cost of the basic family basket of goods divided by the (average number) of wage earners per household.’344 A decade ago, many workers earned less than half this amount.

In China, where the government has followed a deliberate strategy of raising wages since the 2008 recession, spending by workers is forecast to double over the next four years to £3.5tn, increasing demand for imported and locally made goods alike.345

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Some MNCs have taken voluntary steps towards improving the lot of their workers. Unilever, International Procurement and Logistics (IPL) and the Ethical Tea Partnership have acknowledged the labour issues identified by Oxfam in recent joint studies and are implementing plans to address them.346 H&M has published a ‘road map to a living wage’, starting with three factories in Bangladesh and Cambodia, which produce 100 percent for the company.347 In the UK, 800 companies have been accredited as living wage employers, including Nestlé, KPMG and HSBC.348 In another hopeful sign, Bangladesh’s Accord on Fire and Building Safety now has more than 180 corporate members, and has brought brands, industry, government and trade unions around the same table for meaningful dialogue on worker organizing in factories, as well as on getting to grips with safety standards.

CASE STUDY

‘ HIGHER ROAD’ EMPLOYERS THAT POINT THE WAY

In the Dominican Republic, the US company Knights Apparel established a living wage factory to supply ethical clothing to the student market.350 Maritza Vargas, president of the Altagracia Project Union, describes the impact that having a living wage had on her life: ‘I can now access nutritious food and I never have to worry that I can’t feed my family. I have been able to send my daughter to university and keep my son in high school – this was always my dream … We now find we are treated with respect in the workplace – this is completely different to our experience in the other factory.’

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It is clear that good jobs help families and societies to progress more quickly.

Our experience at Tesco is that this also makes sense from a business perspective; the best supplier partners for the long-term are those that invest in their people: they tend to be the most productive, most reliable and make the best quality products.

GILES BOLTON GROUP DIRECTOR, RESPONSIBLE SOURCING, TESCO PLC, AUGUST 2014349

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There have been benefits for local shops and trades people too, as a result of workers’ increased spending power. This change came about due to pressure from consumers and, while an encouraging example, it is unfortunately not typical of the companies which work in the Dominican Republic.351 Kenya’s cut flower sector was the target of civil society campaigns in the 2000s. Since then the workers who process these high-value, delicate products have seen real improvements in some areas. Their wages are still far from being a living wage,352 but the most skilled workers, 75 percent of whom are women, report improvements in health and safety, a reduction in sexual harassment and more secure contracts compared with 10 years ago. A majority of workers surveyed for the report agreed that ‘it is easier to progress from temporary to permanent employment than when I started work.’353 Factors aiding this include the implementation of codes, such as the Ethical Trading Initiative Base Code, product certification (Kenya Flower Council, Fairtrade), more professional human resource management, the establishment of gender committees and improved legislation.354 In neighbouring Uganda, conditions in the industry have improved even more (though from a lower base), helped by greater worker organization.355

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Despite the knee-jerk claims of some employers, increases in the minimum wage have had little or no negative macro-level effect on the employment of minimum-wage workers.356 Goldman Sachs economists found that increases in the minimum wage are unlikely to result in significant job losses because of the resulting increase in consumer demand.357 Wage increases offer benefits to business as well; for instance, they often lead to lower worker turnover, which can constitute a significant cost.358

Ending excessive pay at the top If a key cause of the widening wealth gap is labour’s declining share of national income, an obvious solution is a more equitable sharing of wealth within companies.

The idea of restricting income at the top is not a new one. Plato recommended that the incomes of the wealthiest Athenians should be limited to five times those of its poorest residents. And since the 2008 financial crisis, MNCs have faced increasing public pressure to forgo executive bonuses and cap top incomes.

Some forward-looking companies, cooperatives and governance bodies are taking action. Brazil’s SEMCO SA, for instance, employs more than 3,000 workers across a range of industries and adheres to a wage ratio of 10 to 1.359 Germany’s Corporate Governance Commission proposed capping executive pay for all German publicly traded companies, admitting that public outrage against excessive executive pay ‘has not been without influence’. Two US states – California and Rhode Island – have suggested linking state corporate tax rates to the CEO-worker pay ratio – the higher the pay gap, the higher the tax rate.360

Shared interest: Giving workers a stake A growing body of evidence shows that companies owned at least in part by employees tend to survive longer and perform better. In the UK, they consistently outperform the FTSE All-Share index.361 When employees are given a say in governance, as well as share ownership, the benefits appear to be even greater.362 Employee-owned firms have been found to have higher levels of productivity; they demonstrate greater economic resilience during turbulent times, are more innovative, enhance employee wellbeing, have lower rates of absenteeism, create jobs at a faster rate, improve employee retention, and also demonstrate high levels of communication and employee engagement.363 And ‘unlike changes in tax policy (which can be reversed), employee ownership is long-term and sustainable.’364 It is a powerful and practical idea for a more inclusive capitalism.

Productive work will only be part of the solution to out-of-control inequality if decent jobs pay living wages and workers’ rights are upheld and enforced by governments. Voluntary action by employers alone is not enough.

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Hamida Cyimana, 6 years old, does sums on a blackboard, Kigali, Rwanda (2012).

Photo: Simon Rawles/Oxfam

TAXING AND INVESTING TO LEVEL THE PLAYING FIELD The tax system is one of the most important tools a government has at its disposal to address inequality.

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Data from 40 countries shows the potential of well-designed redistributive taxation and corresponding investment by governments to reduce income inequality driven by market conditions.365 Finland and Austria, for instance, have halved income inequality thanks to progressive and effective taxation accompanied by wise social spending.

FIGURE 12: Gini coefficient (income) before and after taxes and transfers in OECD and Latin American and the Caribbean (LAC) countries (2010)366 Percentage variation

Before taxes and transfers

After taxes and transfers

Peru Bolivia Mexico South Korea LAC average Brazil Argentina Uruguay Switzerland USA Israel Canada New Zealand Australia The Netherlands Spain Japan Estonia Poland Portugal UK Italy OECD average Greece France Iceland Sweden Luxemburg Norway Slovakia Germany Denmark Ireland Czech Republic Austria Belgium Slovenia Finland -60

-40

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Reduction in inequality (%)

0

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20

Gini coefficient before and after taxes and transfers

Badly designed tax systems, on the other hand, exacerbate inequality. When the most prosperous enjoy low rates and exemptions and can take advantage of tax loopholes, and when the ri chest can hide their money in overseas tax havens, huge holes are left in national budgets that must be filled by the rest of us, redistributing wealth upwards.

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International tax experts, and standard-setters like the OECD and IMF, acknowledge the damage caused by exemptions, loopholes and tax havens,367 but their commitment to solutions does not match the scale of the problem. Powerful corporations and national and global elites have connived to make international and national tax systems increasingly unfair, thus worsening inequality.

THE LOW ROAD: THE GREAT TAX FAILURE All countries, whether rich or poor, are united in their need for tax revenue to fund the services, infrastructure and ‘public goods’ that benefit all of society.

But tax systems in developing economies – where public spending and redistribution are particularly crucial to lift people out of poverty – tend to be the most regressive, often penalizing the poor.368 The poorest 20 percent of Nicaraguans pay 31 percent of their income in tax, while the richest 20 percent contribute less than 13 percent.369 Indirect taxes like the Value Added Tax (VAT), that fall disproportionately on the poor make up, on average, 43 percent of total tax revenues in the Middle East and North Africa, and up to 67 percent in sub-Saharan Africa.370

CASE STUDY

THE UNEQUAL TAX BURDEN IN THE DOMINICAN REPUBLIC

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There are no politicians who speak for us. This is not just about bus fares any more.

We pay high taxes and we are a rich country, but we can’t see this in our schools, hospitals and roads.

JAMAIME SCHMITT BRAZILIAN PROTESTOR371

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Bernarda Paniagua Santana in front of her business in Villa Eloisa de las Cañitas, Dominican Republic (2014).

Photo: Pablo Tosco/Oxfam

Bernarda Paniagua sells cheeses and other products in Villa Eloisa de las Cañitas, one of the poorest and most under-served areas of the Dominican Republic. Victor Rojas is the manager of a prestigious company; he lives in one of the wealthiest areas of the country. Bernarda pays a higher proportion of her income in indirect taxes than Victor. In fact, the majority of the country’s tax revenue comes from consumption taxes, rather than income tax. Consumption taxes affect the poorest most as they spend a higher percentage of their income on consumption.

Children in Victor’s neighbourhood lack for nothing: they receive the best education on offer and have a doctor visiting the house at the first sign of a fever.

In contrast, Bernarda’s oldest daughter, Karynely finished high school four years ago and now helps Bernarda sell cheeses. She is unable to continue studying or find a good job because she lacks the necessary IT skills, as there weren’t any computers at her school.

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Developing countries also have the lowest tax-to-GDP ratios, meaning they are farthest from meeting their revenue-raising potential. While advanced economies collected on average 34 percent of GDP in taxes in 2011, in developing countries this was far lower – just 15 to 20 percent of GDP.372 Oxfam estimates that if low- and middle-income countries – excluding China – closed half of their tax revenue gap they would gain a total of almost $1tn.373 The lack of tax collection undermines the fight against inequality in the countries that most need public investment to achieve national development and reduce poverty.

Tax collection in developing countries is also undermined by a lack of government capacity. Sub-Saharan African countries would need to employ more than 650,000 additional tax officials for the region to have the same ratio of tax officials to population as the OECD average.374 Unfortunately, no more than 0.1 percent of total Official Development Assistance (ODA) is channelled into reforming or modernizing tax administrations,375 and programmes that would strengthen public financial management, tax collection and civil society oversight are not prioritized.

Tax breaks: A multitude of tax privileges, but only for the few The ‘race to the bottom’ on corporate tax collection is a large part of the problem. Multilateral agencies and finance institutions have encouraged developing countries to offer tax incentives – tax holidays, tax exemptions and free trade zones – to attract foreign direct investment (FDI). Such incentives have greatly undermined their tax bases.

In 1990, only a small minority of developing countries offered tax incentives; by 2001 most of them did.376 The number of free trade zones offering preferential tax arrangements to investors has soared in the world’s poorest countries. In 1980, only one out of 48 sub-Saharan African countries had a free trade zone; by 2005, this had grown to 17 countries; and the race continues.377 In 2012, Sierra Leone’s tax incentives for just six firms were equivalent to 59 percent of the country’s entire budget, and more than eight times its spending on health and seven times its spending on education.378 In 2008/09, the Rwandan government authorized tax exemptions that could have been used to double health and education spending.379 This race to the bottom is now widely seen as a disaster for developing countries, tending to benefit the top earners far more, as well as cutting revenue for public services.380 Developing countries are more reliant on corporate tax revenues and less able to fall back on other sources of revenue like personal income tax, meaning any decline hits them hardest.381 Recently the IMF has demonstrated that the ‘spillover’ effects that tax decisions made in one country have on other countries can significantly undermine the corporate tax base in developing countries, even more so than in OECD countries.382

Tax havens and tax dodging: A dangerous combination Failures in the international tax system pose problems for all countries.

Well-meaning governments attempting to reduce inequality through progressive tax policies are often hamstrung by a rigged international

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approach to tax coordination. No government alone can prevent corporate giants from taking advantage of the lack of global tax cooperation.

Tax havens are territories that maintain a high level of banking secrecy. They charge little or no tax to non-resident companies and individuals, do not require any substantial activity to register a company or a bank account, and do not exchange tax information with other countries. Tax dodging by MNCs and wealthy individuals robs countries, rich and poor, of revenue that should rightly be invested to address pressing social and economic problems. Tax havens are intentionally structured to facilitate this.

They are also widely used. Great Britain’s top 100 companies own about 30,000 subsidiary corporations and 10,000 of these are located in tax havens.383 Ugland House in the Cayman Islands is home to 18,857 companies, famously prompting President Obama to call it ‘either the biggest building or the biggest tax scam on record’.384 Similarly, the Virgin Islands has 830,000 registered companies, despite a total population of just 27,000. At least 70 percent of Fortune 500 companies have a subsidiary in a tax haven.385 Big banks are particularly egregious. Perhaps Bank of America needs a new name – it operates 264 foreign subsidiaries in tax havens, 143 in the Cayman Islands alone.386 Tax havens facilitate the process of ‘round tripping’, which allows companies and individuals to take their money offshore, shroud it in financial secrecy, and then bring it back into the country disguised as FDI. This allows them to reap the reward of tax benefits only available to foreign investment; the money is subject to tax breaks rather than capital gains and income tax that should rightly be charged on domestic investment. To take one example, more than half of FDI invested in India is channelled through tax havens and most of it from Mauritius.387 Forty percent – a total of $55bn – is from just one building in the heart of the capital Port Louis.388 Tax havens also facilitate transfer mispricing, the most frequent form of corporate tax abuse, where companies deliberately over-price imports or under-price exports of goods and services between their subsidiaries.

Deliberate transfer mispricing constitutes aggressive tax avoidance, but it is nearly impossible for developing country tax authorities to police the ways in which companies set the prices of goods and services exchanged between subsidiaries, especially when it is most of the time hidden behind excessive brand, patents or management fees.

Every year Bangladesh loses $310m in potential corporate taxes due to transfer mispricing. This lost revenue could pay for almost 20 percent of the primary education budget in a country that has only one teacher for every 75 primary school-aged children.389 The true extent of the financial losses that all countries sustain due to tax avoidance by MNCs may be impossible to calculate. But conservative estimates put it high enough to achieve the Millennium Development Goals (MDGs) twice over.390 Worryingly, this trend shows no sign of slowing down. Profits registered by companies in tax havens are soaring, indicating that more and more taxes are being artificially and intentionally paid in these low tax and low transparency jurisdictions. In Bermuda, declared corporate profits went from 260 percent of

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GDP in 1999 to more than 1,000 percent in 2008, and in Luxembourg, they rose from 19 to 208 percent over the same time span.391 The richest individuals are able to take advantage of the same tax loopholes and secrecy. In 2013 Oxfam estimated that the world lost approximately $156bn in tax revenue as a result of wealthy individuals’ moving assets into offshore tax havens.392 This is not only a ‘rich-country’ illness. Wealthy Salvadorans, from a country where 35 percent of the population lives in poverty,393 are estimated to hide $11.2bn in tax havens.394 There is no way for governments to make sure that these global companies and rich individuals are paying their fair share of taxes while tax havens are open for business.

Why has there not been a tax revolution yet?

Tax policy is prone to vested interests, particularly the disproportionate influence of business lobbies and wealthy elites opposed to any form of more progressive taxation at the national and global level. As early as 1998, the OECD recognized that tax competition and the use of tax havens were harmful, and expanding at an alarming rate.395 But in the face of intense lobbying from groups representing the interests of tax havens, from tax havens themselves, and from rich country governments, the OECD’s attempts to coordinate action on taxation had been largely abandoned by 2001.396 International tax reform has come back to the top of the international agenda since the 2008 financial crisis. There has been widespread public outrage over a number of high-profile companies, including Apple397 and Starbucks,398 and others, that have been exposed for dodging their taxes and cheating the system. In 2012, G20 governments commissioned the OECD again to propose action to curb profit shifting and other tricks exploited by MNCs that erode governments’ tax bases – leading to the current Base Erosion and Profit Shifting (BEPS) process. If done correctly, BEPS could provide much-needed coherence in the international tax architecture and could help to reduce corporate tax dodging practices, to the benefit of rich and poor countries alike.

However, the process is in grave danger because it represents the interests of rich countries and is open to undue influence from corporate and economic elites. At the end of 2013, the OECD opened consultations to ‘stakeholders’399 to comment on a number of draft rules, including those on country-bycountry reporting. Almost 87 percent of submissions on this issue came from the business sector, and unsurprisingly they were almost all opposed to the proposal. Overall, only five contributions came from developing countries, with the remaining 130 from rich countries.400 There are still strong vested interests that are standing in the way of true reform.

THE HIGH ROAD: HOPE FOR A FAIRER FUTURE Despite the shady network of tax havens and the strong resistance to reform, there are signs of hope. Some countries are taking the high road and adopting

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fiscal policies that tackle inequality. There is also strong recognition among credible actors that the global tax system is not working.

Sailing against strong winds Almost nine months after Macky Sall’s election as President of Senegal in 2012, the country adopted a new tax code to raise revenue to finance public services. This reform simplified the tax rules, increased corporate income tax from 25 to 30 percent, reduced personal income tax for the poorest and raised it by 15 percent for the richest. While more reform is needed in Senegal, the participatory approach taken –including many rounds of consultation with representatives from the business community and civil society – has opened the door for other progressive reforms that can tackle inequality, notably a review of the mining codes to tackle low royalties paid by mining companies.401 In 2005, the newly elected government of Uruguay, led by President José Mújica, set about reforming the country’s regressive tax system. Consumption taxes were reduced, coverage of personal income taxes was broadened, corporate income taxes were consolidated, and some taxes were discontinued.

As a result, the tax structure was significantly simplified and tax rates on the poorest and the middle class were lowered, while the top earners saw their rates rise. Today, inequality measured in after-tax income is starkly lower.402 Despite this domestic progress, however, Uruguay remains a global tax haven, facilitating billions in tax avoidance elsewhere.403 These reforms show that where there is political will, policies can move in the right direction, ensuring that those who have more – corporations and rich individuals – pay more taxes.

International consensus is shifting In the face of constrained budgets and public outrage, international consensus is also shifting. Despite the limitations of the BEPS process described above, the fact that the G8, G20 and OECD took up this agenda in 2013 demonstrates a clear consensus that corporate taxation is in need of radical reform. The OECD’s analysis also demonstrates that there is a need to redefine international rules in order to curb profit-shifting, and to ensure companies pay taxes where economic activity takes place and value is created.404 The IMF is also reconsidering how MNCs are taxed, and in a recent report recognized the need to shift the tax base towards developing countries.405 They also acknowledged that the ‘fair’ international allocation of tax revenue and powers across countries is insufficiently addressed by current initiatives.

OECD, USA and EU processes are also making progress on tax transparency to lift the veil of secrecy that surrounds the global tax system. European institutions have led the way by adopting a reporting system for European banks, agreeing that information, such as where they have subsidiaries, how much profit they make and where they pay taxes, should be public information, especially after many of these banks were rescued with public money. The G8 has made progress on registries of beneficial ownership, with some public registries moving ahead. And a new global standard for the automatic exchange of tax information has been agreed by the G20.

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Alternative proposals that are pushing governments and institutions to go further are also being put on the table. The IMF has recently looked at ‘worldwide unitary taxation’, an alternative tax method promoted by academics and some civil society organizations to ensure that companies pay tax where economic activity takes place.406 Ten EU countries have agreed to work together to put a Financial Transaction Tax in place, which if applied to a broad range of transactions, could dampen speculative trading and raise €30–35bn per year.407 The debate around global and national wealth taxes has been brought to popular attention by Thomas Piketty’s book Capital in the Twenty-First Century, where he proposes a global wealth tax to curb excessive wealth inequality.

He proposes a sliding scale starting at 0.1 percent for those with fortunes of less than €1m, moving up to 10 percent for those with ‘several hundred million or several billion euros’.408 The idea of wealth taxes was also proposed to the Brazilian congress in 2013 by the Brazilian ruling party in the wake of riots.409 In 2012, it was reported that the IMF was considering a one-time 10 percent wealth levy, in order to return many European countries to pre-crisis public debt-to-GDP ratios, but its support for the proposal was quickly denied.410 The economic and financial crises, and Capital in the Twenty-First Century, have undoubtedly started a serious debate about taxing wealth to tackle economic inequality. Oxfam has calculated that a tax of 1.5 percent on the wealth of the world’s billionaires today could raise $74bn. This would be enough to fill the annual gaps in funding needed to get every child into school and deliver health services in the poorest 49 countries.411

More than numbers: Tax is about our model of society ‘How people are taxed, who is taxed and what is taxed tell more about a society than anything else.’

Charles Adams412 Taxes are essential sources of revenue to fund the services, infrastructure, and ‘public goods’ that benefit us all, and can be the glue between citizen and state. Governments must rebuild trust in the tax system, and demonstrate that when tax and public spending are done right, they can form the fabric of a decent and fair society, and deliver for everyone fairly.

Reforms in Lagos State, Nigeria have demonstrated that the vicious cycle of mistrust towards governments can be stopped. Since coming to power in May 2007, Governor Babatunde Fashola has invested in roads and education, and communicated to the 15 million inhabitants that those public services were financed by taxes. Fashola has remained highly popular and was re-elected in 2011 with a large majority. In 2011, an impressive 74 percent of Lagosians were satisfied with the way that Governor Fashola has spent their tax money so far.

This shows that, although the willingness of the public to pay taxes is low in many developing countries where governments are typically viewed as wasteful and corrupt, willingness can be rapidly generated by effective fiscal reforms.413 These are signs of hope for the future. But, as ever, turning rhetoric and debate into action will require sufficient political mobilization to oblige governments to stand in solidarity with the 99 percent, and against the special interests that resist reform.

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A notice above the pharmacy window at the Ola During Hospital for children reads ‘Free For Children Under 5’, Freetown, Sierra Leone (2011). Photo: Aubrey Wade/Oxfam

HEALTH AND EDUCATION: STRONG WEAPONS IN THE FIGHT AGAINST INEQUALITY Public services, like healthcare and education, are essential for fighting poverty and inequality.

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GHANA: WEAK HEALTH SYSTEMS COST THE POOREST THEIR LIVES

Babena Bawa was a farmer from Wa East district; a remote and underdeveloped area in the upper-west region of Ghana, where seven health centres serve a population of nearly 80,000 people. There are no hospitals, no qualified medical doctors and only one nurse for every 10,000 people. In May 2014, Babena died of a snake bite that would have been easily treatable, had any of the health centres in his district stocked the necessary anti-venom. Instead his last hours on earth were spent in a desperate race against time to reach the regional hospital, 120km away. The road to the regional centre was too poor and the journey too long, and he died before making it to the hospital.

The story of Babena stands in stark contrast to that of presidential candidate Nana Akufo-Addo. When faced with heart problems in 2013, he was able to fly to London for special treatment.

Public services have the power to transform societies by enabling people to claim their rights and to hold their governments to account. They give people a voice to challenge unfair rules that perpetuate economic inequality, and to improve their life chances.

It is estimated that if all women had a primary education, child marriage and child mortality could fall by a sixth, while maternal deaths could be reduced by two-thirds.414 Moreover, evidence shows that public services can be great equalizers in economic terms, and can mitigate the worst impact of today’s skewed income and wealth distribution. OECD countries that increased public spending on services through the 2000s successfully reduced income inequality and did so with an increasing rate of success.415 Between 2000 and 2007, the ‘virtual income’ provided by public services reduced income inequality by an average of 20 percent across the OECD.416 Long-term trends in poorer countries echo these findings. Studies show that taking the ‘virtual income’ from healthcare and education into account also decreases real income inequality by between 10 and 20 percent in five Latin American countries: Argentina, Bolivia, Brazil, Mexico and Uruguay.417 In 11 out of 12 Asian countries studied, government health spending was found to be ‘inequality reducing.’418 Education played a key role in reducing inequality in Brazil,419 and has helped maintain low levels of income inequality in South Korea.420 However, the extent to which public services are able to achieve their inequality-busting potential depends on how they are designed, financed and delivered. Unfortunately today, in too many cases, the policy choices being made punish the poor, privilege elites, and further entrench pre-existing economic inequality.

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THE LOW ROAD: CUTS, FEES, PRIVATIZATION AND MEDICINES FOR THE FEW Universal public services are a strong tool in the fight against inequality.

But the domination of special interests and bad policy choices – budget cuts, user fees and privatization – can make inequality much worse.

Low levels of public spending and cuts Governments in many countries are falling far short of their responsibilities.

The Indian government spends almost twice as much on its military as on health.422 In Africa, only six countries have so far met the Abuja commitment to allocate 15 percent of government spending to health. Between 2008 and 2012 more than half of developing countries reduced spending on education, while two-thirds decreased spending on health.423

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Even tiny out-of-pocket charges can drastically reduce [poor people’s] use of needed services. This is both unjust and unnecessary.

JIM YONG KIM PRESIDENT OF THE WORLD BANK GROUP421

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There is also an imbalance, which skews public spending on health and education in favour of the already better-off urban areas, and away from investing in schools and health centres in poorer rural areas. Better quality services tend to be concentrated in big cities and towns. In Malawi, where the level of public spending per primary school child is among the world’s lowest, a shocking 73 percent of public funds allocated to the education sector benefit the most educated 10 percent of the population.424 When public services are not free at the point of use, millions of ordinary people are excluded from accessing healthcare and education. Every year, 100 million people worldwide are pushed into poverty because they have to pay out-of-pocket for healthcare.425 A health emergency can doom a family to poverty or bankruptcy for generations. Paying for healthcare exacerbates economic inequality in rich countries too: in the USA, medical debt contributed to 62 percent of personal bankruptcies in 2007.426

Fees still cost some people the earth School fees have been shown to be a common deterrent to enrolment, especially at secondary school level, where they persist more widely. This is because the poorest simply cannot afford to send their children to schools that charge fees, even when such fees are considered ‘low’.

Women and girls suffer most when fees are charged for public services. In many societies, their low status and lack of control over household finances mean they are last in line to benefit from an education or receive medical care. Even the World Bank Group – a long time promoter of user fees – has altered its profee stance. Yet they continue to exist in many of the world’s poorest countries.

“

I went for a cataract operation. They told me it costs 7,000 Egyptian pounds.

All I had was seven so I decided to go blind.

A 60-YEAR OLD WOMAN IN A REMOTE VILLAGE IN EGYPT

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HEALTH CARE COSTS BANKRUPT THE POOREST IN ARMENIA

The Hovhannisyan family in rural community of Verin Getak, Armenia (2013).

Photo: Oxfam in Armenia

In 2010, total spending on healthcare represented 1.62 percent of Armeniaâ&#x20AC;&#x2122;s budget. This under-investment has left people with no choice but to make substantial out-of-pocket payments to meet their healthcare needs.

The high cost of healthcare in Armenia has forced Karo and his wife Anahit into a dire financial situation. Anahit suffers from arterial hypertension and a prolapsed uterus requiring surgical intervention, while Karo has had to live through a myocardial infarction and continues to suffer from complications caused by his diabetes. They do not qualify for subsidized care, and, as a result of their health conditions, they have been forced to take out expensive loans, and to sell off jewellery and livestock. With each health problem that arises, the family has been pushed further and further into debt and poverty.

Dangerous distractions Significant amounts of money are being diverted from the public purse to bolster the for-profit private sector through cash subsidies and tax breaks.

In India, numerous private hospitals contracted and subsidized by the state to provide free treatment to poor patients are failing to do so.427 In Morocco, a recent rapid increase in private schools, supported through government funds and tax breaks, has gone hand-in-hand with widening disparities in educational outcomes. In 2011, the poorest rural children were 2.7 times less likely to learn basic reading skills than the richest children in urban areas; since 2006, this gap has increased by 20 percent.428 Developing country governments are also increasingly entering into expensive and risky public-private partnerships. Lesotho is a striking example of how this strategy can divert scarce public resources away from where they are needed most, driving up inequality in a country that is already one of the most unequal in the world.429

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HEALTH PUBLIC-PRIVATE PARTNERSHIP THREATENS TO BANKRUPT THE LESOTHO MINISTRY OF HEALTH

The Queen Mamohato Memorial Hospital, in Lesotho’s capital Maseru, was designed, built, financed and now operates under a public–private partnership (PPP) that includes delivery of all clinical services. The PPP was developed under the advice of the International Finance Corporation, the private sector investment arm of the World Bank Group. The promise was that the PPP would provide vastly improved, high-quality healthcare services for the same annual cost as the old public hospital.

Three years on, the PPP hospital and its three filter clinics: • Cost $67m per year – at least three times what the old public hospital would have cost today – and consume 51 percent of the total government health budget; • Are diverting urgently needed resources from health services in rural areas where three-quarters of the population live and mortality rates are rising; • Are expecting to generate a 25 percent rate of return on equity for the shareholders and a total projected cash income 7.6 times higher than their original investment. Meanwhile, the Government of Lesotho is locked into an 18-year contract.

The cost escalation has necessitated a projected 64 percent increase in government health spending over the next three years. Eighty-three percent of this increase can be accounted for by the budget line that covers the PPP. This is a dangerous diversion of scarce public funds from nurses, rural health clinics and other proven ways to get healthcare to the poorest and reduce inequality.

For more information see: A. Marriott (2014) ‘A Dangerous Diversion: will the IFC’s flagship health PPP bankrupt Lesotho’s Ministry of Health?’, Oxfam, http://oxf.am/5QA

Rich-country governments and donor agencies – including the World Bank Group, USAID, the UK Department for International Development, and the European Union – are also pushing for greater private sector involvement in service delivery.430 This can only lead to one thing: greater economic inequality.

In fact, high levels of private-sector participation in the health sector have been associated with higher overall levels of exclusion of poor people from treatment and care. In three of the best performing Asian countries that have met or are close to meeting Universal Health Coverage – Sri Lanka, Malaysia and Hong Kong – the private sector is of negligible value to the poorest fifth of the population.431 Recent and more detailed evidence from India has shown that among the poorest 60 percent of women, the majority turn to public sector facilities to give birth, while the private sector serves those in the top 40 percent.432 Private services benefit the richest most, rather than those most in need, and have the impact of increasing economic inequality.

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In education, there is a growing enthusiasm for so-called ‘Low-Fee Private Schools’ (LFPS). However, these schools are prohibitively expensive for the poorest families and are widening the gap between rich and poor. In Ghana, sending one child to the Omega chain of low-fee schools would take up 40 percent of household income for the poorest.433 For the poorest 20 percent of families in Pakistan, sending all children to LFPS would cost approximately 127 percent of each household’s income.434 The trends are similar in Malawi435 and rural India.436 Poor families will also often ‘hedge their bets’ by prioritizing one or two children437 and it is usually girls who lose out. A study in India found that 51 percent of boys attended LFPS, compared with just 34 percent of girls.438 The wealthiest are able to opt-out and buy healthcare and education outside of the public system. This undermines the social contract between citizen and state, and is damaging for democracy. When only the poorest people are left in public systems, the largely urban upper-middle class (i.e. those with greater economic and political influence) have no self-interest in defending spending on public services and fewer incentives to pay taxes. This sets in motion a downward spiral of deteriorating quality, and a risk that structural inequalities will be made worse, as the rich become even more divorced from the reality of a suffering ‘underclass’.439 The Argentinean education system offers a cautionary tale of this two-tiered future. A gradual increase in income inequality has gone hand-in-hand with increased segregation in education.440 Evidence from Chile also showed that the introduction of an opt-out option damaged the efficiency and equity of the entire healthcare system.441

International rules threaten public services As with taxation, international rules can undermine domestic policy.

International education and health service corporations have long lobbied at the World Trade Organization for international rules that require countries to open up their health and education sectors to private commercial interests, and recently Wikileaks exposed plans for 50 countries to introduce a Trades in Services Agreement that would lock in the privatization of public services.442 More immediately, the intellectual property (IP) clauses of current trade and investment agreements, which oblige governments to extend patents on lifesaving medicines, are squeezing government health budgets in developing countries, rendering them unable to provide many much-needed treatments.

For example, the majority of the 180 million people who are infected with Hepatitis C cannot benefit from effective new medicines because they live in the global south where neither patients nor governments can afford the $1,000 per day medical bill.443 In Asia, medicines comprise up to 80 percent of out-of-pocket healthcare costs.444 And while poor countries are hit hardest by high medicine prices, rich countries are not immune. In Europe, government pharmaceutical spending increased by 76 percent between 2000 and 2009,445 with some countries now refusing to offer new cancer medicines to patients due to high prices.

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Strong IP protection also stifles generic competition – the most effective and sustainable way to cut prices. It was only after Indian generic companies entered the HIV medicine market that prices dropped from $10,000 per patient per year to around $100 – finally making it possible for donors and governments to fund treatment for over 12 million people.446 Yet developing countries are being pressed to sign new trade and investment deals, like the Trans-Pacific Partnership, which further increase IP protection, putting lives on the line and, in the end, leading to a wider gap between rich and poor.

The interests that are served when the public interest is not At both a national and global level, powerful coalitions of interests are making the rules and dictating the terms of the debate. Rich country governments and MNCs use trade and investment agreements to further their own interests, creating monopolies that hike up the prices of medicines and force developing countries to open up their healthcare and education sectors to private commercial interests.

In South Africa, private health insurance companies have been accused of lobbying against a new National Health Insurance scheme that promises to provide essential healthcare to all.447 In 2013, the US-based pharmaceutical company Eli Lilly filed a $500m law suit against the Canadian government for invalidating patents for two of its drugs.448 The fact that only 10 percent of pharmaceutical R&D expenditure is devoted to diseases that primarily affect the poorest 90 percent of the global population449 is a stark reminder that big drug companies are dictating priorities to suit their own commercial interests at the expense of public health needs. It is no accident that there is no cure for Ebola, as there has been virtually no investment in finding one for a disease predominantly afflicting poor people in Africa.450 In Europe, the pharmaceutical industry spends more than €40m each year to influence decision making in the EU, employing an estimated 220 lobbyists.451 Often their influence is helped by their close connections to power. For example, there is a well-known revolving door between the US Trade Representative office, which sets trade policies and rules, and the powerful Pharmaceutical Research and Manufacturers of America.452 Margaret Chan, Director General of the World Health Organization (WHO), put it well in 2014: ‘Something is fundamentally wrong in this world when a corporation can challenge government policies introduced to protect the public from a product [tobacco] that kills. If [trade] agreements close access to affordable medicines, we have to ask: Is this really progress at all, especially with the costs of care soaring everywhere?’453

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Within countries, decisions on how much governments spend on public services and who ultimately benefits, are shaped by power struggles between groups with competing interests. All too often, the needs of wealthy elites are put first and progressive public service reforms are resisted. In many Latin American countries, once health insurance was established for formal-sector workers, attempts to expand coverage were challenged by existing members who do not want to see their benefits â&#x20AC;&#x2DC;dilutedâ&#x20AC;&#x2122;.

Only 10% of pharmaceutical R&D spend...

...Is devoted to diseases that primarily Affect the poorest 90% of the global population

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THE HIGH ROAD: RECLAIMING THE PUBLIC INTEREST Governments must take back control of public policy and ensure that the design, financing and delivery of public services policy are done in the public interest, so they can meet their inequality-busting potential. There are countries around the world offering good examples and hope that the high road is possible. For governments to take this road, mobilized citizens must weigh in on policy choices that, to date, have been dominated by vested interests.

Universal Health Coverage The growing momentum around Universal Health Coverage (UHC) – under which all people should get the healthcare they need without suffering financial hardship – has the potential to vastly improve access to healthcare and drive down inequality.

In 2013, Margaret Chan, described UHC as ‘the single most powerful concept that public health has to offer’.454 At the World Bank, President Jim Yong Kim has been unequivocal that UHC is critical to fighting inequality, saying it is ‘central to reaching the [World Bank] global goals to end extreme poverty by 2030 and boost shared prosperity.’455 Some governments are already taking action. China, Thailand, South Africa and Mexico are among the emerging economies that are rapidly scaling up public investment in healthcare. Many low-income countries have introduced free healthcare policies for some or all of their citizens as a first step towards UHC, for example by removing fees for maternal and child-health services. The countries making most progress towards UHC have prioritized public financing of healthcare from general taxation, rather than relying on insurance premiums or out-of-pocket payments by individuals. Every step on this road is a step that can reduce economic inequality significantly, giving everyone access to healthcare.

Before Thailand’s Universal Coverage Scheme was introduced in 2002 nearly a third of the population had no health coverage;456 most of them were employed informally and were too poor to pay insurance premiums. The Thai government moved to finance coverage from general tax revenues, and in just 10 years reduced the proportion of the population without health coverage to less than four percent.457 This was a progressive reform; in the first year, the amount of money the poorest were spending each month on healthcare costs was more than halved.458 The percentage of households forced into poverty through excessive health payments dropped from 7.1 percent in 2000 to 2.9 percent in 2009.459 Infant and maternal mortality rates plummeted.

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FREE HEALTHCARE IN NEPAL

A group of young mothers wait with their children for a check-up at a small rural public health clinic, Makwanpur, Nepal (2010).

Photo: Mads Nissen/Berlingske

Beginning in 2005, the Government of Nepal dramatically improved access to healthcare by removing fees for primary healthcare services (including essential medicines), and by providing cash incentives for women to give birth in a health facility. In Nepal’s poorest districts the proportion of women giving birth in a health centre more than tripled from six percent to 20 percent in just four years.460 Before the reforms, the richest 20 percent of women were six times more likely to deliver in a health facility compared to the poorest 20 percent of women. This ratio halved when charges for deliveries were removed.461 ‘I have been a health worker for 18 years. After free maternal health services were introduced the number of patients increased dramatically.

We used to see just four or five women each month for deliveries and we now see more than twenty. It used to be very expensive to come to the clinic, but now women can deliver here safely for free and they do not have to wait for their husbands to give them the money.’

Nurse Midwife, Surkhet, Nepal

There have even been victories over the pharmaceutical industry’s stubborn efforts to block access to affordable medicines. In 2013, the Indian Supreme Court rejected a patent on Glivec®/Gleevec®, a cancer treatment developed

by Novartis. Patients suffering chronic myeloid leukaemia can now take generic versions of Glivec for only $175 per month – nearly 15 times less than the $2,600 charged by Novartis and a price that should make it possible for the government to afford to treat patients.462

Promising progress in education Since the Education For All movement and the adoption of the MDGs in 2000, the world has seen impressive progress in the number of children gaining primary education. Through increased donor support, domestic spending and debt relief, a wave of countries have been able to eliminate school fees, accelerating access to education for the poorest children. For example, in Uganda, enrolment rose by 73 percent in just one year – from 3.1 million

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to 5.3 million – following the abolition of school fees.463 Fee abolition is critical to tackling economic inequality, and boosting opportunities for the poorest.

However, the quality of the education on offer has suffered in those countries which have failed to match the increase in enrolment with adequate investments in trained teachers, facilities and materials – a situation made more difficult by faltering donor commitments and falling government budgets due to the global economic crisis. This risks reinforcing inequalities in the quality of education between the public and private sectors, and between the poorest and wealthiest children.

Beyond school fee abolition, additional targeted investments are needed to provide the most marginalized children with high-quality education.

These include extra funding for schools in rural and under-served areas, policies to address other financial barriers to poor children’s access to education (such as uniforms, transportation and learning materials), and more accountability for education quality through active community involvement in school management.

Some countries are leading the way. For example, Brazil has championed reforms that increase access to good quality education and allocate more spending to the education of poor children, often in indigenous and black communities.464 These reforms have helped to reduce inequality of access since the mid-1990s: the average number of years spent in school by the poorest 20 percent of children has doubled – from four years to eight years.465 Investment in education and healthcare played a key part in Brazil’s recent success in reducing inequality.

A number of East Asian countries, including South Korea, Japan and Singapore, have implemented programmes specifically designed to promote equitable learning, including investing in high-quality teachers. Even the poorest students are now learning above the minimum threshold.466 There is solid evidence that making equity an explicit goal of education policy can lead to improved educational outcomes across the board.

Public investment in healthcare and education for all citizens is a powerful tool for addressing inequality, and these examples demonstrate that change is possible, even in the face of powerful special interests.

Aid can tackle inequality and political capture Taxation and domestic resource mobilization are critical to boosting public spending. For some countries, harnessing aid and investing it well, for instance into good-quality public services that citizens need and demand, has also helped to reduce poverty and inequality through supporting national public service plans and boosting public spending.

In 2004, just over a quarter of the aid received by Rwanda – a country that had spent 10 years rebuilding national institutions and economic stability following the 1994 genocide – was budget support: long-term aid that can support health and education systems, as well as institution strengthening. Steady growth in budget support up to 2004 allowed the government to eliminate fees for primary and lower-secondary school education, increase spending

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on treatment for people living with HIV and AIDS, and provide agricultural loan guarantees to farmers.467 In many developing countries, aid also plays an influential role in both the economy and politics. As such, when donors actively seek to invest in accountable governance and effective citizen engagement, aid can also help to counteract political capture.

The USA, for instance, is seeking to focus agriculture investments in the north of Ghana â&#x20AC;&#x201C; an historically poor region â&#x20AC;&#x201C; channelling these through local district councils, in an effort to make the councils more responsive to local farmer input. In parallel, the USA is also supporting farmer associations to demand responsiveness from district councils; as a result, district councils are now demanding more support from central government.

This kind of aid is crucial, but, since 2009, aid to civil society organizations has stagnated at around 14 percent of total aid flows by OECD DAC members.468 Meanwhile, the longer term trend is of donors increasing aid to the private sector; multilateral aid to the private sector alone has increased ten-fold since the early 1990s.469 This is a worrying trend that skews priorities away from supporting public spending on good governance, public services, small-scale agriculture and other inequality-busting public goods.

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Ensanche Luperon, candy seller, departs every afternoon to sell sweet coconut candy, despite living with a disability that hinders his mobility and speech, Dominican Republic (2014).

Photo: Pablo Tosco/Oxfam

FREEDOM FROM FEAR The development successes of recent decades have lengthened life expectancies and decreased birth rates across much of the developing world. However, this is now putting a strain on informal support systems, leaving millions of people in desperate situations.

Elderly people, older women in particular, face harsh conditions, as do children and people unable to work due to disability or lack of job opportunities.

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ZAMBIA: THE POWER OF PENSIONS

Tiziwenji Tembo is 75, and lives in the Katete district of Zambia.

Eleven of her 15 children are dead, and she now cares for four grandchildren. Until recently, she had no regular income and she and her grandchildren often went without food. Her children often refused to go to school because they did not have uniforms and books, and their fellow students would laugh at them. Their lives were transformed, however, when she began to receive a regular pension worth $12 per month, which has enabled her family to eat more regularly, buy school uniforms and repair their house.470

Social protection often involves governments providing money or in-kind benefits – child benefits, old-age pensions and unemployment protection, for instance – that, like healthcare and education, put ‘virtual income’ into the pockets of those who need it most, mitigating an otherwise skewed income distribution. It is not only central to reducing economic inequality, but also to making society as a whole more caring and egalitarian, and less based on individualism.

After the Second World War, the majority of wealthy nations introduced largescale, often universal, social protection systems, that guaranteed a basic income to all citizens and offered insurance against unemployment, old age and disability, building a path ‘from cradle to grave’. In the USA, the introduction of social security and pensions in the 1930s dramatically reduced levels of poverty among the elderly.

The 2008 financial crisis prompted the establishment of the Social Protection Floor Initiative, led by the ILO and WHO. The initiative encourages countries to offer basic income security for the unemployed, all children, the elderly and persons with disabilities or who are otherwise unable to earn a decent living. However, recent figures show that more than 70 percent of the world’s population is not adequately covered by social protection.471

TOWARDS UNIVERSAL COVERAGE Universal coverage has been the ambition in most wealthy countries, rather than targeted benefits for the needy. This has often been for political reasons: giving benefits to all increased a sense of national cohesion and solidarity; it ensured the support of the middle classes and avoided the stigmatization of means-testing.

Deciding who is deserving of benefits is a complex, ever-changing and often divisive exercise, which has its own costs and can be subject to fraud. One study shows that targeting is less efficient in low-income countries, owing to high leakage, under-coverage and administrative costs. A staggering 25 percent of targeted programmes are found to be regressive and, in Africa, targeted programmes transfer eight percent less revenue to the poor than universal ones.472 Moreover, targeted programmes are usually aimed at the

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The true measure of any society can be found in how it treats its most vulnerable members.

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household level, meaning that women and vulnerable groups, such as the elderly, can be undermined in the process.

Despite this, in recent decades smaller, targeted, means-tested benefits have become increasingly favoured, particularly by the World Bank and the IMF. This is based on the much more limited role for government envisioned by market fundamentalists and the view that universal benefits are unaffordable for many countries. It also fits with the ever more widespread perception that welfare benefits inhibit work and that the focus should be on individuals having to stand on their own feet and not be stifled by the â&#x20AC;&#x2DC;nanny stateâ&#x20AC;&#x2122;.473 Linking the provision of benefits to particular conditions or behaviours, such as getting children immunized or sending them to school, is becoming increasingly popular. However, there is no evidence that this works, and, as with poverty targeting, it requires significant administration and a system of sanctions that must be enforced.474 Implicit in the approach is the judgement that firstly poor people will not make the right choices, and secondly that they can be persuaded to make behavioural changes with money.

All countries should be working towards permanent universal social protection systems, which reduce vulnerability and increase resilience to shocks.

Mechanisms that can scale-up rapidly at times of crisis, when a basic level of protection is not enough, should also be further pursued. A good interim path would be to guarantee social protection to categories of people; for example, providing benefits to all mothers or all people over a certain age.

This would reduce debate and the stigma attached to means-testing to identify who is most needy.

Many developing countries now have levels of income that are on par with those in Europe when universal schemes were introduced there, challenging the idea that these benefits are unaffordable. Multiple studies have also shown that basic levels of social protection are affordable across the developing world.475 Things are already changing. Over the past two decades, middle-income countries have expanded social security on a massive scale. China has nearly achieved universal coverage of old-age pensions, while India has instituted an employment guarantee for its rural population, benefiting hundreds of millions of people.476 One study found that social protection was responsible for a quarter of the reduction in Brazilâ&#x20AC;&#x2122;s Gini coefficient.477 The time has certainly come for all countries to broaden social protection as a critical tool for reducing inequality, and to ensure the most vulnerable are not left behind.

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Bin Deshweri and Girijar presenting for NGO Samarpan Jan Kalayan Samiti in Konch, Uttar Pradesh, India (2007).

Photo: Rajendra Shaw/Oxfam

ACHIEVING ECONOMIC EQUALITY FOR WOMEN In rich and poor countries alike women perform the majority of unpaid labour, are over-represented in part-time and precarious work, and are often paid less than men for doing the same job. Even in societies that are considered to have achieved high levels of gender equality overall, women face significant income and influence gaps.478 The right mix of policies is needed to eliminate the barriers that inhibit womenâ&#x20AC;&#x2122;s economic equality. Yet, all too often, policymakers do not take into account the potential impact that policy measures will have on women.

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THE LOW ROAD: GENDER-BLIND POLICY PRESCRIPTIONS Failure to consider the particular situation of women and girls can unwittingly lead governments to reinforce gender inequalities or end up giving with one hand while taking away with the other. In China, successful efforts to create new jobs for women were accompanied by cutbacks in state and employer support for childcare and elderly care, which conversely increased women’s unpaid work.479 Fiscal policy can also have unintended negative impacts on women and girls.

Tax cuts designed to stimulate economic growth, whether made to income taxes or to corporate taxes, benefit men far more than women because the largest benefits of such cuts go to those with the highest incomes and corporate share ownership. A recent study in Ghana found that an indirect tax on kerosene, used for cooking fuel in low-income urban and rural households, is paid mostly by women.480 However, direct taxes on those that can most afford them are essential, as countries with reduced tax revenues have less capacity to deal with economic crises, and end up having to introduce austerity measures to balance their budgets. When austerity budgets call for reduced public sector employment, these layoffs hit women hardest because they are heavily represented in the public sector. When austerity cuts reduce public services, not only does this place an undue burden on women, it also makes it more difficult for them to get a job. According to research conducted on the impact of austerity in Europe,481 after the financial crisis mothers of small children were less likely to be employed than before and more likely to attribute their lack of employment to cuts to care services.482 Governments have come together time and again to commit to eradicating gender inequality. The Convention on the Elimination of all Forms of Discrimination against Women obliges states to eliminate discrimination and differences in treatment between women and men ‘by all appropriate means’. In addition, the 1995 Beijing Platform for Action calls for an approach to macroeconomic and development policy which addresses the needs and efforts of women in poverty and promotes a ‘more equitable distribution of productive assets, wealth, opportunities, income and services’.483 Now is the time to make good on these commitments.

THE HIGH ROAD: THE RIGHT POLICIES CAN PROMOTE WOMEN’S ECONOMIC EQUALITY Many of the policies that reduce economic inequality also have a huge impact on reducing gender inequality. Free primary education and free healthcare disproportionately benefit women and girls. Public services are more used by women; they ensure the state takes some of the burden of care away from women, whether it is healthcare or childcare. Social protection grants, such as universal child benefits, also have a big impact on gender inequality.

Regulations around minimum wages and job security, as well as those that guarantee paid holiday, sick leave and maternity leave, all help to narrow the

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gap between women and men. Again, women are the main beneficiaries of these, as they are the ones most likely to work in insecure or low-paid jobs.

Progressive taxation also benefits women more, as it means the burden of tax falls on rich men, while the public services it pays for more often benefit poorer women.

Understanding the differential impact of public policies and public spending decisions on women and men is essential to maximizing the positive impact of policies on reducing gender inequality, as well as tackling economic inequality.

Governments need to undertake gender impact analyses based on sexdisaggregated data. South Africa did so and then introduced a child-support grant for the primary caregivers of young children from poor households. The grants reach poor, black and rural women better than previous measures.484 In India, the Ministry of Agriculture introduced a gender-budgeting programme for rural women, who are the major producers of food, with significant participation by those women. As a result, in 2000 the National Agriculture Policy encouraged state governments to direct at least 30 percent of their farm budget allocations to women farmers, and set minimum standards for their access to irrigation subsidies, training, credit and farming-related governance structures. Strengthening womenâ&#x20AC;&#x2122;s role in farm programmes and communities has enhanced the food and economic security of their families.485 South Korea has introduced a number of measures for women workers, including lengthening pre- and post-natal maternity leave and paternity leave, becoming the first country in East Asia to do so. Return to Work Centres provide women with employment information, vocational training and childcare services, and generous subsidies encourage employers to hire and retain female workers before, during and after pregnancy.486 Nevertheless, the gap in wages between women and men remains very high and progress in narrowing it over the last 40 years has been slower than expected, showing that far more needs to be done.487 South Koreaâ&#x20AC;&#x2122;s rapid economic growth since the 1960s has been fuelled by labour-intensive exports that have employed mainly women. In theory, sustained high demand for female labour, coupled with narrowing gender educational gaps, should lead to much more progress towards achieving wage parity than has been observed over the last 40 years. Progress, however, has been very slow in South Korea (as it has been in other East Asian economies, including Japan, Hong Kong, China and Singapore).

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LOW-FEE CHILDCARE IN QUEBEC

In 1997, the Canadian province of Quebec created a low-fee childcare programme (costing only $7 (CAD) per child per day) to improve the status of women and poor families, and to contribute to building a better labour force. Over the following years, the proportion of children in Quebec under the age of four attending daycare has risen sharply – from 18 percent in 1998 to 53 percent in 2011. Elsewhere in Canada attendance rates have remained constant at around 20 percent for children up to the age of five.

The most significant impact has been on women’s employment and earning potential. Between 1996 and 2011, the rate of female employment increased faster in Quebec than in the rest of Canada. In Quebec, the number of mothers participating in the labour force rose faster than that of women without children, which was not the case in Canada as a whole. Moreover, the relative poverty rate of families headed by single mothers fell from 36 to 22 percent, and their median real aftertax income rose by 81 percent.

One study estimated that in 2008 nearly 70,000 more mothers held jobs than would have been the case without universal access to lowfee childcare – equivalent to an increase of 3.8 percent in women’s employment. The same study estimated that Quebec’s GDP was about 1.7 percent ($5bn (CAD)) higher as a result, and that the tax revenue that the Quebec and federal governments received due to that additional employment significantly exceeded the programme’s cost.488 This reform was good for women, boosted the economy and promoted women’s economic equality.

A transformational shift is needed in the design and implementation of policies to eradicate the barriers that inhibit women’s economic equality. Government must address the care responsibilities predominately shouldered by women, ensure fair and decent work with equal pay for all, redress women’s unequal access to assets and finance, reform discriminatory land and inheritance laws, and end violence against women at home and in the work place.

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Women protesting at the Tunisian Constituent Assembly, demanding parity in election law, Tunisia (2014).

Photo: Serena Tramont/Oxfam

PEOPLE POWER: TAKING ON THE ONE PERCENT In this report we have shown how the massive concentration of economic resources in the hands of a few people can have negative consequences for all of society, including the threat it presents to accountable governance.

Those with money can use it to buy power and to rig rules, regulations and policies in their favour, creating a cycle of growing economic inequality. Politicians and institutions that should represent citizens and keep inequality in check are instead being influenced by the rich and powerful, resulting in policies and actions that further widen the gap between rich and poor.

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The global alliance of civil society groups CIVICUS has reported an increase in threats to civil society space in recent years,489 something that Oxfam has seen firsthand in its work with civil society organizations around the world. This takes many different forms, including direct repression, the introduction of legal restrictions on legitimate civil society action, funding restrictions and, in some cases, a crackdown of communications technology.490 Despite this, people around the world are coming together in ever greater numbers to take back power. This can be seen in the mass of protests that have sprung up across the world in the past few years,491 where hundreds of thousands of people took to the streets to vent their frustration about the lack of services and their lack of voice.492 This discontent is reflected in opinion polling conducted by Oxfam and others, which clearly reflects that people around the world continue to be deeply concerned that their governments are acting not in their interests, but on behalf of national and international elites.493 The good news is that political capture and economic inequality are not inevitable. History has shown time and again that the antidote to the capture of power is the mobilization of empowered and informed active citizens.495 This makes it a crucial ingredient in the fight against inequality.

There are numerous examples of citizens and civil society organizations across the world holding their governments to account and demanding more inclusive and representative policy making. Below are three such cases from Chile, Hungary and Iceland.

Chile: Protests bring education reform and a new government The biggest public demonstrations to hit Chile since the return of democracy in 1990 erupted during 2011. Initially spurred by discontent over the cost of education, they grew to encompass concerns about deep divisions of wealth (Chile is the most unequal country in the OECD496) and the control of government by business interests.497 A coalition of students and trade unions mobilized 600,000 people in a two-day strike demanding reform. Elections at the end of 2013 brought in a new government that included key members of the protest movement, on a platform of reducing inequality and reforming public education.498

Hungarians block user fees and privatization In 2006, the Hungarian government proposed health service reforms including hospital closures, the introduction of user fees, and the creation of regional, part-private insurance funds. After parliament passed a first law to introduce patient fees and fees for other public services, including university education, campaigners gained enough signatures to force two referenda in 2008, which eventually led the government to abandon the attempt.499

Iceland: Popular participation in country’s political evolution In early 2010, a series of popular protests against the proposed mass bailout of Iceland’s three main commercial banks forced the newly elected government – who had pledged to shelter low- and middle-income groups from the worst of the financial crisis – to hold a referendum on the decision. Ninety three percent of Icelanders rejected a proposal that the people (rather than the banks) should pay for the bankruptcy.

“

People are not tolerating the way a small number of economic groups benefit from the system. Having a market economy is really different from having a market society. What we are asking for, via education reform, is that the state takes on a different role.

CAMILA VALLEJO VICE-PRESIDENT OF THE STUDENT FEDERATION OF THE UNIVERSITY OF CHILE494

”

“

The government has failed the average person in Iceland. It protects the interests of financial institutions while it couldn’t care less about normal people who have no job, no income and have lost the ability to feed their family.

BALDUR JONSSON A PROTESTOR IN ICELAND500

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Formal provisions for public participation in the political process were introduced and led the government to crowd-source a new constitution.

The process included selecting citizens at random for an initial forum, holding elections for a constitutional council, making the draft constitution available online and sharing it through social media to allow people to comment.

The new constitution, which includes new provisions on equality, freedom of information, the right to hold a referendum, the environment and public ownership of land, was put to referendum in 2012 and approved.501

CASE STUDY

HOW BOLIVIA REDUCED INEQUALITY

Bolivian indigenous groups descend from El Alto to La Paz demanding a constituent assembly to rewrite the Bolivian constitution (2004).

Photo: Noah Friedman Rudovsky

Bolivia was, until recently, a country where poverty and inequality sat alongside racial discrimination against the country’s majority indigenous population, who were largely excluded from political decision making.502 After a decades-long struggle by Bolivia’s social movements and civil society organizations, the country’s first-ever indigenous president, Evo Morales, took office in 2006.

Social movements pushed for the creation of a radical new constitution, which enshrined a series of political, economic and social rights, including extending provisions for participatory and communitybased governance.

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(CASE STUDY CONTINUED) This was accompanied by a range of new progressive social programmes funded by renegotiating the countryâ&#x20AC;&#x2122;s contracts for its oil and gas at a time of high global commodity prices.503 A much larger number of people now benefit from the exploitation of the countryâ&#x20AC;&#x2122;s natural resources.

The government, responding to the demands of the people, used the natural resource windfall to invest in infrastructure, targeted social programmes and increases in the universal pension entitlement.504 It has also raised the minimum wage, and increased public spending on healthcare and education. Even though more spending on these services is needed, poverty505 and inequality506 in the country have fallen continually for the past 10 years.

Significant challenges remain. To date, the oil and gas windfall has allowed the government to avoid the issue of tax reform, where significant redistributive and sustainable potential remains.507 This means that the countryâ&#x20AC;&#x2122;s economic model has so far been almost entirely based on revenue from extractive industries, which in the longrun can undermine sustainable, pro-poor development.

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Women on their way to work in the rice fields in River Gee county, Liberia (2012).

Photo: Ruby Wright/Oxfam

3 TIME TO ACT And end extreme inequality

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Today’s extremes of inequality are bad for everyone. For the poorest people in society though – whether living in sub-Saharan Africa or the richest country in the world – the chance to emerge from extreme poverty and live a dignified life is fundamentally blocked by extreme inequality.

Oxfam is calling for concerted action to build a fairer economic and political system. A system that values the many by changing the rules and systems created by the few that have led to today’s crisis of inequality; a system which levels the playing field through policies that redistribute money and power.

As outlined in Section 2, there are many concrete steps that governments and institutions can take to start closing the gap between the haves and havenots. This is not an exhaustive agenda, but, if committed to, these steps could start to reduce economic inequality.

Governments, institutions, multinational corporations (MNCs) and civil society organizations must come together to support the following changes, before we are tipped irrevocably into a world that caters only to the privileged few, and consigns millions of people to extreme poverty.

1) MAKE GOVERNMENTS WORK FOR CITIZENS AND TACKLE EXTREME INEQUALITY Working in the public interest and tackling extreme inequality should be the guiding principle behind all global agreements and national policies and strategies. Effective and inclusive governance is crucial to ensuring that governments and institutions represent citizens rather than organized business interests. This means curbing the easy access that corporate power, commercial interests and wealthy individuals have to political decision making processes.

Governments and international institutions should agree to: • A standalone post-2015 development goal to eradicate extreme economic inequality by 2030 that commits to reducing income inequality in all countries, such that the post-tax income of the top 10 percent is no more than the post-transfer income of the bottom 40 percent.

• Assess the impact of policy interventions on inequality: • Governments should establish national public commissions on inequality to make annual assessments of policy choices – regulation, tax and public spending, and privatization – and their impact on improving the income, wealth and freedoms of the bottom 40 percent; • Institutions should include measures of economic inequality in all policy assessments, such as the IMF in their article IV consultations; • Publish pre- and post-tax Gini data (on income, wealth and consumption) and income, wealth and consumption data for all deciles and each of the top 10 percentiles, so that citizens and governments can identify where economic inequality is unacceptably high and take action to correct it;

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• Implement laws that make it mandatory for governments to make national policies and regulations and bilateral and multilateral agreements available for public scrutiny before they are agreed; • Implement mechanisms for citizen representation and oversight in planning, budget processes and rule making, and ensure equal access for civil society – including trade unions and women’s rights groups – to politicians and policy makers; • Require the public disclosure of all lobbying activities and resources spent to influence elections and policy making; • Guarantee the right to information, freedom of expression and access to government data for all; • Guarantee free press and support the reversal of all laws that limit reporting by the press or target journalists for prosecution.

Corporations should agree to: • End the practice of using their lobbying influence and political power to promote policies that exacerbate inequality and instead promote good governance and push other groups to do the same; • Make transparent all lobbying activities and resources spent to influence elections and policy making; • Support conditions that allow civil society to operate freely and independently, and encourage citizens to actively engage in the political process.

2) PROMOTE WOMEN’S ECONOMIC EQUALITY AND WOMEN’S RIGHTS Economic policy is not only creating extreme inequality, but also entrenching discrimination against women and holding back their economic empowerment.

Economic policies must tackle both economic and gender inequalities.

Governments and international institutions should agree to: • Implement economic policies and legislation to close the economic inequality gap for women, including measures that promote equal pay, decent work, access to credit, equal inheritance and land rights, and recognize, reduce and redistribute the burden of unpaid care; • Systematically analyze proposed economic policies for their impact on girls and women; improve data in national and accounting systems – including below the household level – to monitor and assess such impact (for example on the distribution of unpaid care work); • Prioritize gender-budgeting to assess the impact of spending decisions on women and girls, and allocate it in ways that promote gender equality;

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• Implement policies to promote women’s political participation, end violence against women and address the negative social attitudes of gender discrimination; • Include women’s rights groups in policy making spaces.

Corporations should agree to: • End the gender pay gap and push other corporations to do the same; • Ensure access for decent and safe employment opportunities for women, non-discrimination in the workplace, and women’s right to organize; • Recognize the contribution of unpaid care work, and help reduce the burden of unpaid care work disproportionately borne by women, by providing child and elderly care and paid family and medical leave, flexible working hours, and paid parental leave; • Support women’s leadership, for example by sourcing from women-led producer organizations, supporting women to move into higher roles and ensuring women occupy managerial positions; • Analyze and report on their performance on gender equality, for example, through the Global Reporting Initiative’s Sustainability Reporting Guidelines and the UN Women Empowerment Principles.

3) PAY WORKERS A LIVING WAGE AND CLOSE THE GAP WITH SKYROCKETING EXECUTIVE REWARD Hard-working men and women deserve to earn a living wage. Corporations are earning record profits worldwide and levels of executive reward have soared.

Yet many of the people who make their products, grow their food, work in their mines or provide their services earn poverty wages and toil in terrible working conditions. We must see global standards, national legislation and urgent corporate action to provide workers with more power.

Governments and international institutions should agree to: • Move minimum wage levels towards a living wage for all workers; • Include measures to narrow the gap between minimum wages and living wages in all new national and international agreements; • Tie public procurement contracts to companies with a ratio of highest to median pay of less than 20:1, and meet this standard themselves; • Increase participation of workers’ representatives in decision making in national and multinational companies, with equal representation for women and men;

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• Develop action plans to tackle forced labour in workplaces within their borders; • Set legal standards protecting the rights of all workers to unionize and strike, and rescind all laws that go against those rights.

Corporations should agree to: • Pay their workers a living wage and ensure workers in their supply chain are paid a living wage; • Publish the wages paid in their supply chains and the number of workers who receive a living wage; • Publish data on the ratio of highest to median pay, and aim to meet the ratio of 20:1 in each country of operation; • Build freedom of association and collective bargaining into the company’s human rights due diligence; • End the practice of using their political influence to erode wage floors and worker protections, uphold worker rights in the workplace, and value workers as a vital stakeholder in corporate decision making; • Track and disclose roles played by women in their operations and supply chain; • Agree an action plan to reduce gender inequality in compensation and seniority.

4) SHARE THE TAX BURDEN FAIRLY TO LEVEL THE PLAYING FIELD The unfair economic system has resulted in too much wealth being concentrated in the hands of the few. The poorest bear too great a tax burden, while the richest companies and individuals pay far too little. Unless governments correct this imbalance directly, there is no hope of creating a fairer future for the majority in society. Everyone, companies and individuals alike, should pay their taxes according to their real means, and no one should be able to escape taxation.

Governments and international institutions should agree to: • Increase their national tax to GDP ratio, moving it closer to their maximum tax capacity, in order to mobilize greater domestic public revenue; • Rebalance direct and indirect taxes, shifting the tax burden from labour and consumption to capital and wealth, and the income derived from these assets, through taxes such as those on financial transactions, inheritance and capital gains. International institutions should promote and support such progressive reforms at the national level;

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• Commit to full transparency of tax incentives at the national level and prevent tax privileges to MNCs where the cost/benefit analysis is not proven to be in favour of the country; • Adopt national wealth taxes and explore a global wealth tax on the richest individuals globally and regionally, and commit to using this revenue to fight global poverty; • Assess fiscal policies from a gender-equality perspective.

5) CLOSE INTERNATIONAL TAX LOOPHOLES AND FILL HOLES IN TAX GOVERNANCE Today’s economic system is set up to facilitate tax dodging by MNCs and wealthy individuals. Tax havens are destroying the social contract by allowing those most able to contribute to society opt out of paying their fair share.

Until the rules around the world are changed, this will continue to drain public budgets and undermine the ability of governments to tackle inequality.

However, any process for reform must deliver for the poorest countries.

A multilateral institutional framework will be needed to oversee the global governance of international tax matters.

Governments and international institutions should agree to: • Ensure the participation of developing countries in all reform processes on an equal footing; • Commit to prioritizing the eradication of tax avoidance and evasion as part of an agenda to tackle the unfair economic systems that perpetuate inequality; • Support national, regional and global efforts to promote tax transparency at all levels, including making MNCs publish where they make their profits and where they pay taxes (through mandatory country-by-country reporting that is publicly available), as well as who really owns companies, trusts and foundations (through disclosure of beneficial ownership); • Automatically exchange information under a multilateral process that will include developing countries from the start even if they can’t provide such data themselves; • Combat the use of tax havens and increase transparency, by adopting a common, binding and ambitious definition of what a tax haven is, as well as blacklists and automatic sanctions against those countries, companies and individuals using them; • Ensure taxes are paid where real economic activity takes place; adopt an alternative system to the current failed arm’s length principle of taxing companies;

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• Only grant tax breaks where there has been an impact assessment of added-value to the country and a binding process to disclose and make public all tax incentives; • Promote the establishment of a global governance body for tax matters to ensure tax systems and the international tax architecture works in the public interests of all countries, to ensure effective cooperation and close tax loopholes.

Corporations should agree to: • Stop using tax havens; • Support national, regional and global efforts to promote tax transparency at all levels, including publishing where they make profits and where they pay taxes (mandatory country-by-country reporting that is publicly available).

6) ACHIEVE UNIVERSAL FREE PUBLIC SERVICES FOR ALL BY 2020 The high cost of healthcare and medicines drives a hundred million people into poverty every year. When user fees are charged for schooling, some children can access high-quality private education, but the majority make do with poor-quality state education, creating a two-tiered system. Privatization further entrenches the disparities between the poorest and the richest, and undermines the ability of the state to provide for all.

Governments and international institutions should agree to: • Guarantee free high-quality healthcare and education for all citizens, removing all user fees; • Implement national plans to fund healthcare and education, by spending at least 15 percent of government budgets on healthcare and 20 percent on education. Donor governments must mirror these allocations in bilateral aid, and international institutions should promote equivalent social spending floors; • Implement systems of financial-risk pooling to fund healthcare via tax and avoid health insurance schemes that are based on voluntary contributions; • Stop new and review existing public incentives and subsidies for healthcare and education provision by private for-profit companies; • Implement strict regulation for private sector healthcare and education facilities to ensure safety and quality, and to prevent them from stopping those who cannot pay from using the service; • Exclude healthcare, medicines, medical technologies, knowledge and education from all bilateral, regional or international trade and investment agreements, including those which lock national governments into private healthcare and education provision;

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• Ensure that women’s health needs are prioritized, sexual and reproductive rights are upheld, and that bilateral aid is not permitted to constrain women’s access to reproductive health services.

Corporations should agree to: • Stop lobbying for the privatization of vital public services, including healthcare and education; • Work with government efforts to regulate private healthcare providers to ensure their positive contribution to Universal Health Coverage.

7) CHANGE THE GLOBAL SYSTEM FOR RESEARCH AND DEVELOPMENT (R&D) AND FOR PRICING OF MEDICINES, TO ENSURE ACCESS FOR ALL TO APPROPRIATE AND AFFORDABLE MEDICINES Relying on intellectual property as the only stimulus for R&D keeps the monopoly on making and pricing medicines in the hands of big pharmaceutical companies. This endangers lives and leads to a wider gap between rich and poor.

Governments and international institutions should agree to: • Agree a global R&D treaty which makes public health – not commercial interest – the decisive factor in financing R&D; • Allocate a percentage of their national income to scientific research, including R&D for medicines; • Exclude strict intellectual property rules from trade agreements and refrain from all measures that limit government’s policy space to implement public health measures and increase their access to medicine, medical technologies, knowledge, health and education services; • Break monopolies and encourage affordable pricing of medicines via generic competition; • Scale-up investment in national medicine policy development and drug supply chains.

Pharmaceutical companies should agree to: • Be transparent about the cost of R&D, and look for new ways to finance R&D beyond intellectual property; • Stop national and international lobbying for private corporate gains at the expense of public health.

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8) IMPLEMENT A UNIVERSAL SOCIAL PROTECTION FLOOR Social protection is central not only to reducing economic inequality, but also as a way to make society more caring and egalitarian, and to address horizontal inequalities. For the very poorest and most vulnerable there must be a universal and permanent safety net that is there for them in the worst times.

Governments and international institutions should agree to: • Provide universal child and elderly care services, to reduce the burden of unpaid care work on women and complement social protection systems; • Provide basic income security for children, the elderly and those who are unemployed or unable to earn a decent living, through universal child benefits, unemployment benefits and pensions; • Ensure the provision of gender-sensitive social protection mechanisms to provide a safety net for women, in ways that provide an additional means of control over household spending.

9) TARGET DEVELOPMENT FINANCE TOWARDS REDUCING INEQUALITY AND POVERTY, AND STRENGTHENING THE COMPACT BETWEEN CITIZENS AND THEIR GOVERNMENT Finance for development has the potential to reduce inequality when it is welltargeted; when it complements government spending on public services, such as healthcare, education and social protection. It can also help strengthen the government–citizen compact, improve public accountability and support citizen efforts to hold their government to account.

Donor governments and international institutions should agree to: • Increase investment in long-term, predictable development finance, supporting governments to provide universal free public services for all citizens; • Invest in strengthening public administrations to raise more domestic revenue, through progressive taxation for redistributive spending; • Measure programmes on how well they strengthen democratic participation and the voice of people to challenge economic and social inequalities (such as gender and ethnicity).

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NOTES 1.

Based on ‘Figure 4.4: Levels of infant mortality rate in 2007 by province’, in UNDP and Statistics South Africa, ‘MDG 4: Reduce Child Mortality’, http://statssa.gov.za/nss/Goal_Reports/ GOAL%204-REDUCE%20CHILD%20MORTALITY.pdf

2.

National Planning Commission, ‘Divisive effects of institutionalised racism’, http://npconline.co.za/pebble. asp?relid=85; and World Bank (2006) ‘World Development Report 2006: Equity and Development’, World Bank Group, http://www-wds.worldbank.org/external/default/ WDSContentServer/IW3P/IB/2005/09/20/ 000112742_20050920110826/Rendered/ PDF/322040World0Development0Report02006.pdf

3.

Statistics South Africa (2012) ‘Census 2011’, http://statssa.gov.za/publications/P03014/ P030142011.pdf

4.

B. Harris et al (2011) ‘Inequities in access to health care in South Africa’, Journal of Public Health Policy (2011) 32, S102–23, http://palgrave-journals.com/jphp/journal/ v32/n1s/full/jphp201135a.html

5.

P. Piraino (2014) ‘Intergenerational earnings mobility and equality of opportunity in South Africa’, Southern Africa Labour and Development Research Unit, University of Cape Town, http://opensaldru.uct.ac.za/bitstream/ handle/11090/696/2014_131_Saldruwp.pdf?sequence=1

6.

World Bank (2006) op. cit.

7.

Gini data from World Bank database. Gini coefficient for South Africa was 0.56 in 1995 and 0.63 in 2009, http://data.worldbank.org/indicator/SI.POV.GINI

8.

B. Milanovic (2009) ‘Global Inequality and the Global Inequality Extraction Ratio: The Story of the Past Two Centuries’ Policy Research Working Paper 5044, Washington, D.C: World Bank, http://elibrary.worldbank.org/doi/book/10.1596/ 1813-9450-5044

9.

Calculated based on B. Milanovic (2013) ‘All the Ginis Dataset (Updated June 2013)’, http://econ.worldbank.org/WBSITE/ EXTERNAL/EXTDEC/EXTRESEARCH/0,,contentMDK:22301380~ pagePK:64214825~piPK:64214943~theSitePK:469382,00.html

10. F. Alvaredo, A. B. Atkinson, T. Piketty and E. Saez (2013) ‘The World Top Incomes Database’, http://topincomes.g-mond.parisschoolofeconomics.eu 11. Warren Buffett, in an interview for CNN, September 2011.

12. Credit Suisse (2013) ‘Global Wealth Report 2013’, Zurich: Credit Suisse, https://publications.credit-suisse. com/tasks/render/file/?fileID=BCDB1364-A105-05601332EC9100FF5C83; and Forbes’ ‘The World’s Billionaires’, http://forbes.com/billionaires/list (accessed on 16 December 2013). When this data was updated a few months later by Forbes, the rich had already become richer and it took just the richest 66 people to equal the wealth of the poorest. The disparities between the rich and the poor have become increasingly evident. http://forbes.com/sites/ forbesinsights/2014/03/25/the-67-people-as-wealthy-asthe-worlds-poorest-3-5-billion 13. Forbes (2014) ‘The World’s Billionaires’, op. cit. (accessed in March 2013, March 2014 and August 2014).

14. Forbes (2014) ‘The World’s Billionaires: #2 Bill Gates’, http://forbes.com/profile/bill-gates (accessed August 2014).

NOTES

15. ‘Forbes (2014) ‘The World’s Billionaires’, http://forbes.com/billionaires 16. M. Nsehe (2014) ‘The African Billionaires 2014’, http://forbes. com/sites/mfonobongnsehe/2014/03/04/the-africanbillionaires-2014; Calculations by L. Chandy and H. Kharas, The Brookings Institution. Using revised PPP calculations from earlier this year, this figure estimates a global poverty line of $1.55/day at 2005 dollars, http://brookings.edu/ blogs/up-front/posts/2014/05/05-data-extremepovertychandy-kharas 17. The WHO calculated that an additional $224.5bn would have allowed 49 low-income countries to significantly accelerate progress towards meeting health-related MDGs and this could have averted 22.8 million deaths in those countries.

Thirty nine out of 49 countries would have been able to reach the MDG 4 target for child survival, and at least 22 countries would have been able to achieve their MDG 5a target for maternal mortality. WHO (2010) ‘Constraints to Scaling Up the Health Millennium Development Goals: Costing and Financial Gap Analysis’, Geneva: World Health Organization, http://who.int/choice/publications/d_ScalingUp_MDGs_ WHO_finalreport.pdf A 1.5 percent tax on the wealth of the world’s billionaires (applied to wealth over $1bn) between 2009 and 2014 would have raised $252bn. Oxfam calculations based on Forbes data (all prices in 2005 dollars).

18. A 1.5 percent tax on billionaires’ wealth over $1bn in 2014 would raise $74bn, calculated using wealth data according to Forbes as of 4 August 2014. The current annual funding gap for providing Universal Basic Education is $26bn a year according to UNESCO, and the annual gap for providing key health services (including specific interventions such as maternal health, immunisation for major diseases like HIV/ AIDS, TB and malaria, and for significant health systems strengthening to see these and other interventions delivered) in 2015 is $37bn a year according to WHO. See UNESCO (2014) ‘Teaching and Learning: Achieving Quality for All 2013/14’, EFA Global Monitoring Report, http://unesdoc. unesco.org/images/0022/002256/225660e.pdf, and WHO (2010), op. cit.

19. To derive the Gini coefficients, the authors took the poverty headcounts and the mean income/consumption figures for 2010, and established what Gini coefficient is compatible with those two numbers if income/consumption has a lognormal distribution in the country (i.e. if log income/ consumption follows a bell curve). Gini coefficients were India (0.34), Indonesia (0.34) and Kenya (0.42). For the GDP/ capita projections, the authors used IMF World Economic Outlook April 2014 current-dollar PPP figures, adjusted for US CPI inflation in 2010–12. For the poverty projections, the authors used those done by The Brookings Institution, using Brookings spreadsheet, ‘Country HC & HCR revisions – 05.14’, received 21 July 2014; except China, India, Indonesia headcounts from L. Chandy e-mail, 22 July 2014; 2010 means from Brookings spreadsheet, ‘Poverty means_2010’, received 22 July 2014; conversion factors from GDP/capita growth to mean consumption/income growth from L. Chandy, N. Ledlie and V. Penciakova (2013) op. cit., p.17. For these projections the authors have used the global extreme poverty line of $1.79 in 2011 dollars ($1.55 in 2005 dollars) because of the anticipated adjustment in the global extreme poverty line (up from $1.25). $1.79 was calculated by The Brookings Institution based on new data from the International Price Comparison Programme and the World Bank’s extreme poverty line methodology. For more information see: http://brookings.edu/blogs/up-front/posts/2014/05/ 05-data-extreme-poverty-chandy-kharas 20. Ibid.

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21. Based on unpublished calculations by L. Chandy using the same methodology as used in L. Chandy, N. Ledlie and V. Penciakova (2013) ‘The Final Countdown: Prospects for Ending Extreme Poverty By 2030’, Washington, D.C.: The Brookings Institution, http://brookings.edu/~/media/Research/Files/ Reports/2013/04/ending%20extreme%20poverty% 20chandy/The_Final_Countdown.pdf 22. Africa Progress Panel (2012) ‘Jobs, Justice and Equity; Seizing Opportunities In Times of Global Change’, Switzerland: Africa Progress Panel, p.6, http://africaprogresspanel.org/ publications/policy-papers/africa-progress-report-2012 23. Africa Progress Panel (2013) ‘Africa Progress Report 2013: Equity in Extractives – Stewarding Africa’s natural resources for all’, Geneva: Africa Progress Panel, http://africaprogresspanel.org/ wp-content/uploads/2013/08/2013_APR_Equity_in_ Extractives_25062013_ENG_HR.pdf 24. K. Deininger and L. Squire (1998) ‘New ways of looking at old issues: inequality and growth’, Journal of Development Economics, 57(2):259–287; A. Alesina and D. Rodrik (1994) ‘Distributive Politics and Economic Growth’, The Quarterly Journal of Economics 109(2):465–90; R. Benabou (1996) ‘Inequality and Growth’, Working Paper 96-22, C.V. Starr Center for Applied Economics, New York: New York University, http://econ.as.nyu.edu/docs/IO/9383/RR96-22.PDF; A. Banerjee and E. Duflo (2003) ‘Inequality and Growth: What can the data say?’, NBER Working Papers, Cambridge: National Bureau of Economic Research, http://nber.org/papers/w7793; J. Ostry, A. Berg and C. Tsangardies (2014) ‘Redistribution, Inequality and Growth’, IMF staff discussion note, IMF, http://imf.org/external/pubs/ft/sdn/2014/sdn1402.pdf; Asian Development Bank (ADB) (2014) ‘ADB’s support for inclusive growth’, Thematic Evaluation Study, ADB, http://adb.org/documents/adbs-support-inclusive-growth 25. See, for example, A. Berg and D. Ostry (2011) ‘Warning!

Inequality May Be Hazardous to Your Growth’, http://blog-imfdirect.imf.org/2011/04/08/inequalityand-growth; T. Persson and G. Tabellini (1994) ‘Is Inequality Harmful for Growth?’, American Economic Review 84(3): 600–621; A. Alesina and D. Rodrik (1994) ‘Distributive Politics and Economic Growth’, The Quarterly Journal of Economics (1994) 109 (2): 465–90.

26. M. Kumhof and R. Rancière (2010) ‘Inequality, Leverage and Crises’, IMF Working Paper, IMF, http://imf.org/external/pubs/ft/wp/2010/wp10268.pdf 27. F. Ferreira and M. Ravallion (2008) ‘Global Poverty and Inequality: A review of the evidence’, Policy Research Working Paper 4623, Washington, D.C.: The World Bank Development Research Group Poverty Team, http://elibrary. worldbank.org/doi/pdf/10.1596/1813-9450-4623 28. Data based on World Bank, ‘World Development Indicators’, http://data.worldbank.org/data-catalog/worlddevelopment-indicators 29. E. Stuart (2011) ‘Making Growth Inclusive’, Oxford: Oxfam International, http://oxf.am/RHG; R. Gower, C. Pearce and K. Raworth (2012) ‘Left Behind By the G20? How inequality and environmental degradation threaten to exclude poor people from the benefits of economic growth’, Oxford: Oxfam, http://oxf.am/oQa 30. F. Ferreira and M. Ravallion (2008) op. cit.

31. Ibid.

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32. R. Wilkinson and K. Pickett (2010) The Spirit Level: Why Equality is Better for Everyone, London: Penguin, p.59.

33. E. Godoy (2010) ‘Millennium Goals Far Off for Mexico’s Indigenous Population’, Inter Press Service, 18 October, http://ipsnews.net/2010/10/millennium-goals-far-off-formexicos-indigenous-population/ 34. The Demographic and Health Surveys Program, http://dhsprogram.com/Data 35. The Demographic and Health Surveys Program (2011) ‘Ethiopia: Standard DHS, 2011’, http://dhsprogram.com/ what-we-do/survey/survey-display-359.cfm 36. R. Wilkinson (2011) ‘How economic inequality harms societies’, TED Talk, http://ted.com/talks/richard_wilkinson 37. M. Corak (2012) ‘Inequality from Generation to Generation: The United States in Comparison’, http://milescorak.files. wordpress.com/2012/01/inequality-from-generation-togeneration-the-united-states-in-comparison-v3.pdf 38. S. A. Javed and M. Irfan (2012) ‘Intergenerational Mobility: Evidence from Pakistan Panel Household Survey’, Islamabad: Pakistan Institute of Development Economics, p.13–14, http://pide.org.pk/pdf/PSDPS/PSDPS%20Paper-5.pdf 39. J. Stiglitz (2012) The Price of Inequality: How Today’s Divided Society Endangers Our Future, Penguin, p.23.

40. World Economic Forum (2014) ‘Global Risks 2013’, Switzerland: World Economic Forum, p.9, http://www3. weforum.org/docs/WEF_GlobalRisks_Report_2014.pdf 41. S.V. Subramanian and I. Kawachi (2006) ‘Whose health is affected by income inequality? A multilevel interaction analysis of contemporaneous and lagged effects of state income inequality on individual self-rated health in the United States’, Health and Place, 2006 Jun;12(2):141–56.

42. R. Wilkinson and K. Pickett (2010) op. cit., p.25. Wilkinson and Pickett’s research focused on OECD countries (a grouping of rich countries), yet the same negative correlation between inequality and social well-being holds true in poorer countries.

43. N. Hanauer (2014) ‘The Pitchforks are Coming … For Us Plutocrats’, http://politico.com/magazine/story/2014/06/ the-pitchforks-are-coming-for-us-plutocrats-108014. html#.U_S56MVdVfY 44. UN Office on Drugs and Crime (UNODC) (2011) ‘Global Study on Homicide’, Vienna: UNODC, http://unodc.org/documents/data-and-analysis/statistics/ Homicide/Globa_study_on_homicide_2011_web.pdf 45. UNDP (2013) ‘Human Development Report for Latin America 2013–2014’, New York: UNDP, http://latinamerica.undp.org/ content/rblac/en/home/idh-regional 46. J. Stiglitz (2012) op. cit., p.105.

47. P. Engel, C. Sterbenz and G. Lubin (2013) ‘The 50 Most Violent Cities in the World’, Business Insider, 27 November, http://businessinsider.com/the-most-violent-cities-inthe-world-2013-11?op=1 48. UNDP (2013) op. cit.

49. T. Dodge (2012) ‘After the Arab Spring: Power Shift in the Middle East?’, LSE Ideas, http://lse.ac.uk/IDEAS/ publications/reports/SR011.aspx 50. Latinobarometro (2013) ‘Latinobarómetro Report 2013’, http://latinobarometro.org/latContents.jsp

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51. M. Carney (2014) ‘Inclusive Capitalism: Creating a sense of the systemic’, speech given by Mark Carney, Governor of the Bank of England, at the Conference on Inclusive Capitalism, London, 27 May. 52. For more on this see: T. Piketty (2014) Capital in the Twenty First Century, Cambridge: Harvard University Press.

53. Speaking at the opening session of the 27th international congress of CIRIEC, Sevilla 22-24 September, 2008, https://sipa.columbia.edu/sites/default/files/j.14678292.2009.00389.x.pdf 54. UNCTAD (2012) ‘Trade and Development Report, 2012’, Geneva: United Nations, p.V, http://unctad.org/en/pages/ PublicationWebflyer.aspx?publicationid=210 55. K. Watkins (1998) ‘Economic Growth with Equity: Lessons from East Asia’, Oxford: Oxfam, p.75, http://oxf.am/RHx 56. D. Ukhova (2014) ‘After Equality: Inequality trends and policy responses in contemporary Russia’, Oxford: Oxfam, http://oxf.am/gML 57. J. Stiglitz (2012) op. cit., p.160.

58. M.F. Davis (2012) ‘Occupy Wall Street and international human rights’, School of Law Faculty Publications, Paper 191, http://hdl.handle.net/2047/d20002577 59. S. Tavernise (2010) ‘Pakistan’s Elite Pay Few Taxes, Widening Gap’, The New York Times, http://nytimes.com/2010/07/19/ world/asia/19taxes.html?pagewanted=all&_r=0 60. M. Wolf, K. Haar and O. Hoedeman (2014) ‘The Fire Power of the Financial Lobby: A Survey of the Size of the Financial Lobby at the EU level’, Corporate Europe Observatory, The Austrian Federal Chamber of Labour and The Austrian Trade Union Federation, http://corporateeurope.org/sites/ default/files/attachments/financial_lobby_report.pdf 61. Carlos Slim’s near-monopoly over phone and internet services charges some of the highest prices in the OECD, undermining access for the poor. OECD (2012) ‘OECD Review of Telecommunication Policy and Regulation in Mexico’, OECD Publishing, http://dx.doi.org/10.1787/9789264060111-en 62. UNRISD (2010) ‘Combating Poverty and Inequality’, Geneva: UNRISD/UN Publications, http://unrisd.org/publications/cpi 63. IDH (2014) ‘Raising wages for tea industry workers’, case study, http://idhsustainabletrade.com/site/getfile. php?id=497 64. In addition to the millions of men and women whose livelihoods depend on waged income, around 1.5 billion households depend on smallholder or family farming (including pastoralists, fisherfolk and other small-scale food producers). While Oxfam works extensively in support of smallholders (see for example: Oxfam (2011) ‘Growing a Better Future: Food Justice in a Resource-constrained World’, Oxfam, http://oxfam.org/en/grow/countries/ growing-better-future), this report is primarily concerned with issues facing people on low incomes in waged labour.

65. J. Ghosh (2013) ‘A Brief Empirical Note of the Recent Behaviour of Factor Shares in National Income, Global & Local Economic Review, 17(1), p.146, http://gler.it/archivio/ISSUE/gler_17_1.pdf 66. High Pay Centre, http://highpaycentre.org/ (accessed August 2014).

67. Living Wage Foundation, ‘Living Wage Employers’, http://livingwage.org.uk/employers

NOTES

68. P. De Wet (2014) ‘Mining strike: The bosses eat, but we are starving’, Mail & Guardian, http://mg.co.za/article/2014-0515-mining-strike-the-bosses-eat-but-we-are-starving 69. International Trade Union Congress (2014) ‘Frontlines Report’, ITUC, http://ituc-csi.org/frontlines-report-february-201414549?lang=en 70. R. Wilshaw et al (2013) ‘Labour Rights in Unilever’s Supply Chain: From compliance to good practice’, Oxford: Oxfam, http://oxfam.org/en/research/labor-rights-unileverssupply-chain; R. Wilshaw (2013) ‘Exploring the Links between International Business and Poverty Reduction: Bouquets and beans from Kenya’, Oxford: Oxfam and IPL, http:// oxfam.org/sites/oxfam.org/files/rr-exploring-links-iplpoverty-footprint-090513-en.pdf; IDH (2013) ‘Understanding Wage Issues in the Tea Industry, Oxfam and Ethical Tea Partnership’, Oxford: Oxfam, http://oxfam.org/en/grow/ policy/understanding-wage-issues-tea-industry 71. ILO (2011) ‘A new era of social justice, Report of the DirectorGeneral, Report I(A)’, International Labour Conference, 100th Session, Geneva, 2011.

72. L. Mishel and M. Walters (2003) ‘How Unions Help all Workers’, EPI, http://epi.org/publication/briefingpapers_bp143 73. Source: Instituto de Pesquisa Economica Aplicada, and Departamento Intersindical de Estatica e Estudos Socioeconomicas, Brazil, http://ipeadata.gov.br. An online data set produced by IPEA, see also: http://dieese.org.br 74. Economist Intelligence Unit (2013) ‘Ecuador: Quick View – Minimum wage rise in the pipeline’, the Economist, http://country.eiu.com/ArticleIndustry. aspx?articleid=1101039494&Country=Ecuador&topic= Industry&subtopic=Consumer%20goods 75. S. Butler (2014) ‘Chinese shoppers’ spend could double to £3.5tn in four years’, the Guardian, http://theguardian.com/ business/2014/jun/03/chinese-shoppers-spend-doublefour-years-clothing-western-retailers 76. Wagemark, ‘A brief history of wage ratios’, https://wagemark.org/about/history 77. ECLAC (2014) ‘Compacts for Equality: Towards a Sustainable Future’, Thirty-fifth Session of ECLAC, http://periododesesiones.cepal.org/sites/default/files/ presentation/files/ppt-pactos-para-la-igualdad-ingles.pdf The Gini coefficient is a measure of inequality where a rating of 0 represents total equality, with everyone taking an equal share, and a rating of 1 would mean that one person has everything.

78. D. Itriago (2011) ‘Owning Development: Taxation to fight poverty’, Oxford: Oxfam, http://oxf.am/wN4; IMF (2014) ‘Fiscal Policy and Income Inequality’, IMF Policy Paper, Figure 8, Washington, D.C.: IMF, http://imf.org/external/np/pp/ eng/2014/012314.pdf 79. Oxfam new calculations based on IMF calculations on tax effort and tax capacity. A simulation has been undertaken to estimate how much revenue could be collected if the tax revenue gap is reduced by 50 percent by 2020. Assuming that GDP (in $ at current prices) expands at the same average annual growth rate recorded in the biennium 2011–2012; and that tax capacity remains constant at the level presented in IMF figures.

80. J. Watts (2013) ‘Brazil protests: president to hold emergency meeting’, the Guardian, http://theguardian.com/world/2013/jun/21/brazilprotests-president-emergency-meeting

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81. Institute of Policy Analysis and Research-Rwanda (2011) ‘East African Taxation Project: Rwanda Country Case Study’, IPAR-Rwanda, http://actionaidusa.org/sites/files/ actionaid/rwanda_case_study_report.pdf 82. See US Senate Committee, Homeland Security & Governmental Affairs (2013) ‘Permanent Sub-Committee on Investigations, May 2013 Hearing Report, 15 October 2013’, http://hsgac.senate.gov/subcommittees/investigations/ media/levin-mccain-statement-on-irelands-decision-toreform-its-tax-rules 83. See UK Parliament, Public Accounts Committee inquiry, HM Revenue and Customs Annual Report and Accounts, Inquiry Tax Avoidance by Multinational Companies, November 2012, http://publications.parliament.uk/pa/cm201213/cmselect/ cmpubacc/716/71605.htm 84. For full details of Oxfam’s calculations and methodology see: Oxfam (2013) ‘Tax on the ‘private’ billions now stashed away in havens enough to end extreme world poverty twice over’, 22 May, http://oxfam.org/en/pressroom/ pressreleases/2013-05-22/tax-private-billions-nowstashed-away-havens-enough-end-extreme 85. President Obama, Remarks by the President on International Tax Policy Reform 4 May 2009, http://whitehouse.gov/the_ press_office/Remarks-By-The-President-On-InternationalTax-Policy-Reform 86. EquityBD (2014) ‘Who Will Bell the Cat? Revenue Mobilization, Capital Flight and MNC’s Tax Evasion in Bangladesh’, Position Paper, Dhaka: Equity and Justice Working Group, http://equitybd.org/onlinerecords/mnutaxjustice; see also: C. Godfrey (2014) ‘Business among friends: Why corporate tax dodgers are not yet losing sleep over global tax reform’, Oxford: Oxfam, http://oxf.am/chP 87. Analysis from Forum Civil, Oxfam partner in Senegal working on fair taxation, http://forumcivil.net/programme-craft 88. For more details see: C. Godfrey (2014) op. cit.

89. IMF (2014) ‘Spillovers in International Corporate Taxation’, IMF Policy Paper, http://imf.org/external/np/pp/ eng/2014/050914.pdf 90. S. Picciotto, ‘Towards Unitary Taxation of Transnational Corporations’, Tax Justice Network, (December 2012), http://taxjustice.net/cms/upload/pdf/Towards_Unitary_ Taxation_1-1.pdf 91. C. Adams (1993) For Good and Evil: The Impact of Taxes on the Course of Civilization, Lanham: Madison Books.

92. The European Commission proposed a tax of 0.1 percent on transactions of shares and bonds and 0.01 percent on derivatives. See: http://ec.europa.eu/taxation_customs/ taxation/other_taxes/financial_sector/index_en.htm; The German Institute for Economic Research (DIW) calculated that this would raise €37.4bn, http://diw. de/documents/publikationen/73/diw_01.c.405812.de/ diwkompakt_2012-064.pdf 93. A 1.5 percent tax on billionaires’ wealth over $1bn in 2014 would raise $74bn, calculated using wealth data according to Forbes as of 4 August 2014. The current annual funding gap for providing Universal Basic Education is $26bn a year according to UNESCO, and the annual gap for providing key health services (including specific interventions such as maternal health, immunisation for major diseases like HIV/ AIDS, TB and malaria, and for significant health systems strengthening to see these and other interventions delivered) in 2015 is $37bn a year according to WHO. See: UNESCO (2014) op.cit., and WHO (2010) op. cit.

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94. G. Verbist, M. F. Förster and M. Vaalavuo (2012) ‘The Impact of Publicly Provided Services on the Distribution of Resources: Review of New Results and Methods’, OECD Social, Employment and Migration Working Papers, No. 130, OECD Publishing, p.60, http://oecd-ilibrary.org/socialissues-migration-health/the-impact-of-publicly-providedservices-on-the-distribution-of-resources_ 5k9h363c5szq-en 95. N. Lustig (2012) ‘Taxes, Transfers, and Income Redistribution in Latin America’, Inequality in Focus 1(2): July 2012, World Bank, http://siteresources.worldbank.org/EXTPOVERTY/ Resources/InequalityInFocusJuly2012FINAL.pdf 96. OECD Secretariat (2010) ‘Growth, Employment and Inequality in Brazil, China, India and South Africa: An Overview’, OECD, http://oecd.org/employment/emp/45282661.pdf. Also Ramos showed that between 1995 and 2005 education was the most important element explaining the decline in wage inequality in Brazil. See: Ramos (2006) ‘Desigualdade de rendimentos do trabalho no Brasil, de 1995 a 2005’ in R. Barros, M. Foguel and G. Ulyssea (eds.) Sobre a recente queda da desigualdade de renda no Brasil, Brasília: IPEA. 97. H. Lee, M. Lee and D. Park (2012) ‘Growth Policy and Inequality in Developing Asia: Lesson from Korea’, ERIA Discussion Paper Series, http://eria.org/ERIA-DP-2012-12.pdf 98. K. Xu et al (2007) ‘Protecting households from catastrophic health spending’, Health Affairs, 26(4): 972–83.

99. C. Riep (2014) ‘Omega Schools Franchise in Ghana: “affordable” private education for the poor or forprofiteering?’ in I. Macpherson, S. Robertson and G. Walford (eds.) (2014) Education, Privatisation and Social Justice: case studies from Africa, South Asia and South east Asia, Oxford: Symposium Books, http://symposium-books.co.uk/ books/bookdetails.asp?bid=88 100. The research undertaken by Justice Quereshi concluded India’s corporate hospitals were ‘money minting machines’.

From Qureshi, A.S. (2001) ‘High Level Committee for Hospitals in Delhi’, New Delhi: Unpublished Report of the Government of Delhi.

101. A. Marriott (2014) ‘A Dangerous Diversion: will the IFC’s flagship health PPP bankrupt Lesotho’s Ministry of Health?’, Oxford: Oxfam, http://oxf.am/5QA 102. A. Marriott (2009) ‘Blind Optimism: Challenging the myths about private health care in poor countries’, Oxford: Oxfam, http://oxf.am/QKQ; World Bank (2008) ‘The Business of Health in Africa : Partnering with the Private Sector to Improve People’s Lives’, International Finance Corporation, Washington, DC: World Bank, http://documents.worldbank. org/curated/en/2008/01/9526453/business-health-africapartnering-private-sector-improve-peoples-lives 103. R. Rannan-Eliya and A. Somantnan (2005) ‘Access of the Very Poor to Health Services in Asia: Evidence on the role of health systems from Equitap’, UK: DFID Health Systems Resource Centre, http://eldis.org/go/ home&id=19917&type=Document#.VBBtVsJdVfY 104. A. Cha and A. Budovich (2012) ‘Sofosbuvir: A New Oral OnceDaily Agent for The Treatment of Hepatitis C Virus Infection’, Pharmacy & Therapeutics 39(5): 345–352, http://ncbi.nlm. nih.gov/pmc/articles/PMC4029125 105. Speech by World Bank Group President Jim Yong Kim at the Government of Japan-World Bank Conference on Universal Health Coverage, Tokyo, 6 December 2013, http://worldbank. org/en/news/speech/2013/12/06/speech-world-bankgroup-president-jim-yong-kim-government-japanconference-universal-health-coverage

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106. S. Limwattananon et al (2011) ‘The equity impact of Universal Coverage: health care finance, catastrophic health expenditure, utilization and government subsidies in Thailand’, Consortium for Research on Equitable Health Systems, Ministry of Public Health, http://r4d.dfid.gov.uk/Output/188980 107. See BBC News, Business (2013) ‘Novartis: India rejects patent plea for cancer drug Glivec’, 1 April, http://bbc.co.uk/news/business-21991179 108. L. Bategeka and N. Okurut (2005) ‘Universal Primary Education: Uganda’, Policy brief 10, London: Overseas Development Institute, http://odi.org/sites/odi.org.uk/ files/odi-assets/publications-opinion-files/4072.pdf 109. B. Bruns, D. Evans and J. Luque (2012) ‘Achieving World Class Education in Brazil: The Next Agenda’, Washington D.C.: The World Bank, http://siteresources.worldbank.org/ BRAZILINPOREXTN/Resources/3817166-1293020543041/ FReport_Achieving_World_Class_Education_Brazil_ Dec2010.pdf 110. K. Watkins and W. Alemayehu (2012) ‘Financing for a Fairer, More Prosperous Kenya: A review of the public spending challenges and options for selected Arid and Semi-Arid counties’, The Brookings Institution, http://brookings.edu/ research/reports/2012/08/financing-kenya-watkins 111. G. Ahobamuteze, C. Dom and R. Purcell (2006) ‘Rwanda Country Report: A Joint Evaluation of General Budget Support 1994–2004’, https://gov.uk/government/uploads/system/ uploads/attachment_data/file/67830/gbs-rwanda.pdf 112. Z. Chande (2009) ‘The Katete Social Pension’, unpublished report prepared for HelpAge International, cited in S. Kidd (2009) ‘Equal pensions, Equal rights: Achieving universal pension coverage for older women and men in developing countries’, Gender & Development, 17:3, 377–88, http://dx.doi.org/10.1080/13552070903298337 113. ILO (2014) ‘World Social Protection Report 2014/15: Building economic recovery, inclusive development and social justice’, Geneva: ILO, http://ilo.org/global/research/globalreports/world-social-security-report/2014/WCMS_245201/ lang--en/index.htm 114. ILO (2008) ‘Can low-income countries afford basic social security?’, Social Security Policy Briefings, Geneva: ILO, http://ilo.org/public/libdoc/ilo/2008/108B09_73_engl.pdf 115. S. Wakefield (2014) ‘The G20 and Gender Equality: How the G20 can advance women’s rights in employment, social protection and fiscal policies’, Oxford: Oxfam International and Heinrich Böll Foundation, p.7, http://oxf.am/m69 116. See: A. Elomäki (2012) ‘The price of austerity – the impact on women’s rights and gender equality in Europe’, European Women’s Lobby, http://womenlobby.org/ spip.php?action=acceder document&arg=2053&cle= 71883f01c9eac4e73e839bb512c87e564b5dc735&file= pdf%2Fthe_price_of_austerity_-_web_edition.pdf 117. A. Elomäki (2012) op. cit. In 2010, the employment rate for women with small children was 12.7 percent lower than women with no children, compared to 11.5 percent lower in 2008. In 2010, 28.3 percent of women’s economic inactivity and part-time work was explained by the lack of care services against 27.9 percent in 2009. In some countries the impact of the lack of care services has increased significantly. In Bulgaria it was up to 31.3 percent in 2010 from 20.8 percent in 2008; in the Czech Republic up to 16.7 percent from 13.3 percent.

NOTES

118. I. Osei-Akoto, R. Darko Osei and E. Aryeetey (2009) ‘Gender and Indirect tax incidence in Ghana’, Institute of Statistical, Social and Economic Research (ISSER) University of Ghana, referenced in J. Leithbridge (2012) ‘How women are being affected by the Global Economic Crisis and austerity measures’, Public Services International Research Unit, University of Greenwich, http://congress.world-psi.org/ sites/default/files/upload/event/EN_PSI_Crisis_Impact_ Austerity_on_Women.pdf 119. D. Elson and R. Sharp (2010) ‘Gender-responsive budgeting and women’s poverty’, in: S. Chant (ed.) (2010) International Handbook of Gender and Poverty: Concepts, Research, Policy, Cheltenham: Edward Elgar, p.524–25.

120. P. Fortin, L. Godbout and S. St-Cerny (2012) ‘Impact of Quebec’s Universal Low Fee Childcare Program on Female Labour Force Participation, Domestic Income and Government Budgets’, Université de Sherbrooke, Working Paper 2012/02, http://usherbrooke.ca/chaire-fiscalite/ fileadmin/sites/chaire-fiscalite/documents/Cahiers-derecherche/Etude_femmes_ANGLAIS.pdf 121. W. Wilson (2012) ‘Just Don’t Call Her Che’, The New York Times, http://nytimes.com/2012/01/29/opinion/sunday/ student-protests-rile-chile.html?pagewanted=all&_r=0 122. CIVICUS (2014) ‘State of Civil Society Report 2014: Reimagining Global Governance’, http://socs.civicus.org/wp-content/ uploads/2013/04/2013StateofCivilSocietyReport_full.pdf 123. Oxfam’s polling from across the world captures the belief of many that laws and regulations are now designed to benefit the rich. A survey in six countries (Spain, Brazil, India, South Africa, the UK and the USA) showed that a majority of people believe that laws are skewed in favour of the rich – in Spain eight out of 10 people agreed with this statement.

Also see Latinobarometro 2013: http://latinobarometro.org/latNewsShow.jsp 124. OECD (2014) ‘Society at a Glance: OECD Social Indicators’, http://oecd.org/berlin/47570121.pdf 125. CIVICUS, ‘Civil Society Profile: Chile’, http://socs.civicus.org/CountryCivilSocietyProfiles/Chile.pdf 126. G. Long (2014) ‘Chile’s student leaders come of age’, BBC News, http://bbc.co.uk/news/world-latinamerica-26525140 127. CIVICUS (2014) ‘Citizens in Action 2011: Protest as Process in The Year of Dissent’, p.53, http://civicus.org/ cdn/2011SOCSreport/Participation.pdf 128. Based on ‘Figure 4.4: Levels of infant mortality rate in 2007 by province’, in UNDP and Statistics South Africa, ‘MDG 4: Reduce Child Mortality’, http://statssa.gov.za/nss/Goal_Reports/ GOAL%204-REDUCE%20CHILD%20MORTALITY.pdf 129. National Planning Commission, op. cit; World Bank (2006) op. cit.

130. Statistics South Africa (2012) op. cit.

131. B. Harris et al (2011) ‘Inequities in access to health care in South Africa’, Journal of Public Health Policy (2011) 32, S102– 23, http://palgrave-journals.com/jphp/journal/v32/n1s/ full/jphp201135a.html 132. P. Piraino (2014) op. cit.

133. World Bank (2006) op. cit.

134. Africa Progress Panel (2012) op. cit.

135. Warren Buffett, in an interview for CNN, September 2011.

136. Calculated based on B. Milanovic (2013) op. cit.

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137. Gini data from World Bank database, Gini coefficient for South Africa was 0.56 in 1995 and 0.63 in 2009, http://data.worldbank.org/indicator/SI.POV.GINI 138. For a further discussion of the relative merits of these measures see A. Sumner and A. Cobham (2013) ‘On inequality, let’s do the Palma, (because the Gini is so last century)’, http://oxfamblogs.org/fp2p/on-inequality-lets-do-thepalma-because-the-gini-is-so-last-century 139. B. Milanovic (2009) op. cit.

140. M. Cummins and I. Ortiz (2011) ‘Global Inequality: Beyond the Bottom Billion’, Social and Economic Working Paper, New York: Unicef, http://unicef.org/socialpolicy/files/ Global_Inequality.pdf 141. Ibid. Population data is for 2007 or most recently available data, in PPP constant 2005 international dollars according to the global accounting model.

142. Calculated based on B. Milanovic (2013) op. cit.

143. Based on available data over the past 30 years. F. Alvaredo, A. B. Atkinson, T. Piketty and E. Saez (2013) ‘The World Top Incomes Database’, http://topincomes.g-mond. parisschoolofeconomics.eu 144. Calculated using World Bank data (accessed 2 July 2014) and F. Alvaredo, A. B. Atkinson, T. Piketty and E. Saez (2013) op. cit. The combined total of the bottom 40 percent across Nigeria, India, and China is 1,102,720,000.

145. Calculated using World Bank data (accessed 2 July 2014) and F. Alvaredo, A. B. Atkinson, T. Piketty and E. Saez (2013) op. cit. The combined total of the bottom 40 percent across Nigeria, India, and China is 1,102,720,000.

146. Merrill Lynch and CapGemini (2013), Capgemini Lorenz Curve Analysis, 2013, New York: CapGemini, http://worldwealthreport.com/reports/hnwi_population 147. Forbes (2014) ‘The World’s Billionaires’, http://forbes.com/billionaires 148. A. Gandhi and M. Walton (2012) ‘Where do Indian Billionaires Get Their Wealth’, Economic and Political Weekly, Vol XLVII, No 40, Mumbai: EPW Research Foundation, http:// michaelwalton.info/wp-content/uploads/2012/10/WhereDo-Indias-Billionaires-Get-Their-Wealth-Aditi-Walton.pdf 149. Forbes (2013) ‘India’s Richest List’, http://forbes.com/india-billionaires/list 150. M. Nsehe (2014) ‘The African Billionaires 2014’, http://forbes.com/sites/mfonobongnsehe/2014/03/04/ the-african-billionaires-2014

NOTES

154. N. Hanauer (2014) ‘The Pitchforks are Coming … For Us Plutocrats’, Politico, http://politico.com/magazine/ story/2014/06/the-pitchforks-are-coming-for-usplutocrats-108014.html#.U_S56MVdVfY 155. Forbes (2014) ‘The World’s Billionaires: #2 Bill Gates’, http://forbes.com/profile/bill-gates (accessed August 2014).

156. Wealth-X and UBS (2013) ‘Wealth-X and UBS Billionaire Census 2013’, http://billionairecensus.com 157. Forbes (2014) ‘The World’s Billionaires: #2 Bill Gates’, http://forbes.com/profile/bill-gates (correct as of August 2014).

158. Wealth data from Forbes (http://forbes.com/billionaires/list/#tab:overall), as of 4 August 2014. Calculations by Oxfam. Percentage return rates are indicative of what could be earned in a modest fixed-rate low risk return account, 5.35 percent reflects what these more savvy investors achieved in a year between July 2012 and June 2013. See: Wealth-X and UBS Census (2013) op. cit.

159. See: http://patrioticmillionaires.org 160. Oxfam calculations, based on Wealth data from Forbes, downloaded 4 August 2014. French GDP in 2013 was $2.7tn, based on IMF Word Economic Outlook.

161. The WHO calculated that an additional $224.5bn would have allowed 49 low-income countries to significantly accelerate progress towards meeting health-related MDGs and this could have averted 22.8 million deaths in those countries.

Thirty nine out of 49 countries would have been able to reach the MDG 4 target for child survival, and at least 22 countries would have been able to achieve their MDG 5a target for maternal mortality. WHO (2010) op. cit. A 1.5 percent tax on the wealth of the world’s billionaires (applied to wealth over $1bn) between 2009 and 2014 would have raised $252bn.

Oxfam calculations based on Forbes data (all prices in 2005 dollars).

162. A 1.5 percent tax on billionaires’ wealth over $1bn in 2014 would raise $74bn, calculated using wealth data according to Forbes as of 4 August 2014. The current annual funding gap for providing Universal Basic Education is $26bn a year according to UNESCO, and the annual gap for providing key health services (including specific interventions such as maternal health, immunisation for major diseases like HIV/ AIDS, TB and malaria, and for significant health systems strengthening to see these and other interventions delivered) in 2015 is $37bn a year according to WHO. See: UNESCO (2014) op.cit., and WHO (2010) op. cit.

151. Calculations by Laurence Chandy and Homi Kharas, Brookings Institution. Using revised PPP calculations from earlier this year, this figure estimates a global poverty line of $1.55/day at 2005 dollars. L. Chandy and H. Kharas (2014) ‘What Do New Price Data Mean for the Goal of Ending Extreme Poverty?’, http://brookings.edu/blogs/up-front/posts/2014/05/05data-extreme-poverty-chandy-kharas

163. A quarter of the world’s 1.1 billion poor people are landless.

See: International Fund for Agricultural Development (IFAD) ‘Empowering the rural poor through access to land’, Rome: IFAD, http://ifad.org/events/icarrd/factsheet_eng.pdf

152. Credit Suisse (2013) ‘Global Wealth Report 2013’, Zurich: Credit Suisse, https://publications.credit-suisse. com/tasks/render/file/?fileID=BCDB1364-A105-05601332EC9100FF5C83; and Forbes’ ‘The World’s Billionaires’, http://forbes.com/billionaires/list (accessed on 16 December 2013).

165. The World Bank (2008) ‘World Bank Development Report 2008: Agriculture for Development’, Washington, D.C.: The World Bank, http://siteresources.worldbank.org/INTWDR2008/ Resources/WDR_00_book.pdf

153. Forbes (2014) ‘The World’s Billionaires’, op. cit. (accessed in March 2013, March 2014 and August 2014).

164. L. Ravon (forthcoming, 2014) ‘Resilience in the Face of Food Insecurity: Reflecting on the experiences of women’s organizations’, Oxfam Canada.

166. Russia Today (2013) ‘Sugar producer tops Russia’s largest landowner list’, 17 May, http://rt.com/business/russialargest-land-sugar--428 167. Defined here as over 100 hectares.

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168. The Transnational Institute (TNI) for European Coordination Via Campesina and Hands Off the Land Network (2013) ‘Land Concentration, land-grabbing and people’s struggles in Europe’, http://eurovia.org/IMG/pdf/Land_in_Europe.pdf 169. FAO (2013) ‘The State of Food Insecurity in the World 2013: The multiple dimensions of food insecurity’, Rome: Food and Agriculture Organization, http://fao.org/publications/ sofi/2013/en 170. To derive the Gini coefficients in Figure 3, the authors took the poverty headcounts and the mean income/consumption figures for 2010, and established what Gini coefficient is compatible with those two numbers if income/consumption has a lognormal distribution in the country (i.e., if log income/consumption follows a bell curve). Gini coefficients were Brazil (0.54), China (0.35), India (0.34), Indonesia (0.34), Mexico (0.42), South Africa (0.59) and Kenya (0.42).

For the GDP/capita projections, the authors used IMF World Economic Outlook April 2014 current-dollar PPP figures, adjusted for US CPI inflation in 2010-12. For the poverty projections, the authors used those done by The Brookings Institution, using Brookings spreadsheet, ‘Country HC & HCR revisions – 05.14’, received 21 July 2014; except China, India, Indonesia headcounts from L. Chandy e-mail, 22 July 2104; 2010 means from Brookings spreadsheet, ‘Poverty means_2010’, received 22 July 2014; conversion factors from GDP/capita growth to mean consumption/income growth from L. Chandy, N. Ledlie and V. Penciakova (2013) op. cit., p.17. For these projections the authors have used the global extreme poverty line of $1.79 in 2011 dollars ($1.55 in 2005 dollars) because of the anticipated adjustment in the global extreme poverty line (up from $1.25). $1.79 was calculated by The Brookings Institution based on new data from the International Price Comparison Programme and the World Bank’s extreme poverty line methodology. For more information see: http://brookings.edu/blogs/up-front/ posts/2014/05/05-data-extreme-poverty-chandy-kharas

NOTES

182. K. Deininger and L. Squire (1998) op. cit.; A. Alesina and D. Rodrik (1994) op. cit.; R. Benabou (1996) op. cit.; A. Banerjee and E. Duflo (2003) op. cit.; J. Ostry, A. Berg and C. Tsangardies (2014) op. cit.; Asian Development Bank (2014) op. cit.

183. A. Berg and J. Ostry (2011) ‘Inequality and Unstable Growth: Two Sides of the Same Coin?’, IMF Staff Discussion Note, IMF, http://imf.org/external/pubs/ft/sdn/2011/sdn1108.pdf; J. Ostry, A. Berg and C. Tsangarides (2014), op. cit.

184. A. Berg and J. Ostry (2011) op. cit.

185. M. Kumhof and R. Rancière (2010) ‘Inequality, Leverage and Crises’, IMF Working Paper, IMF, http://imf.org/external/pubs/ft/wp/2010/wp10268.pdf 186. See, for example, A. Berg and D. Ostry (2011) op. cit.; T. Persson and G.databaseTabellini (1994) ‘Is Inequality Harmful for Growth?’, American Economic Review 84(3): 600–621; Alesina and Rodrik (1994), op. cit.

187. E. Stuart (2011) ‘Making Growth Inclusive’, Oxford: Oxfam International, http://oxf.am/RHG 188. Asian Development Bank (ADB) (2011) op. cit.

189. F. Ferreira and M. Ravallion (2008) op. cit.

190. Data based on World Bank, ‘World Development Indicators’, http://data.worldbank.org/data-catalog/worlddevelopment-indicators 191. Africa Progress Panel (2013) ‘Africa Progress Report 2013.

Equity in Extractives: Stewarding Africa’s natural resources for all’, Africa Progress Panel, p.28, http://africaprogresspanel.org/publications/policy-papers/ africa-progress-report-2013 192. F. Ferreira and M. Ravallion (2008) op. cit.

172. Unpublished calculations based on the methodology and model developed in L. Chandy, N. Ledlie and V. Penciakova (2013) op. cit.

193. E. Stuart (2011), op. cit.; R. Gower, C. Pearce and K. Raworth (2012) ‘Left Behind By the G20? How inequality and environmental degradation threaten to exclude poor people from the benefits of economic growth’, Oxford: Oxfam, http://oxf.am/oQa

173. This is comparing the wealth of the bottom half of the population from the Credit Suisse yearbook with the Forbes data, as downloaded in March 2014.

194. Represented by a Gini coefficient of 0.2, a level which many Eastern European countries had in the 1980s and Nordic countries have now. F. Ferreira and M. Ravallion (2008) op. cit.

174. See the World Bank’s World database, http://databank.worldbank.org/data/home.aspx

195. Represented by a Gini coefficient of 0.6, about the level in Angola.

175. Oxfam’s own calculations. See Note 170.

196. Represented by a Gini coefficient of 0.4, about the level in Uganda or Singapore.

171. L. Chandy, N. Ledlie and V. Penciakova (2013) op. cit.

176. Africa Progress Panel (2013) ‘Africa Progress Report 2013: Equity in Extractives – Stewarding Africa’s natural resources for all’, Geneva: Africa Progress Panel, http://africaprogresspanel.org/ wp-content/uploads/2013/08/2013_APR_Equity_in_ Extractives_25062013_ENG_HR.pdf 177. Ibid.

178. Ibid.

179. World Health Organization, Global Health Observatory Data Repository, http://apps.who.int/gho/data/node.main.HE-1546?lang=en 180. Ibid.

181. This is part of the theory behind Nobel prize-winning economist Simon Kuznets’ famous ‘Kuznets curve’, and implies that it is unnecessary and ineffective for developing economies to worry about growing inequality as with time it will reduce of its own accord.

197. F. Ferreira and M. Ravallion (2008) op. cit.

198. K. Raworth (2012) ‘A Safe and Just Space for Humanity: Can We Live Within the Doughnut?’, Oxfam Discussion Paper, Oxford: Oxfam, http://oxf.am/gdx 199. See, for example: D. Hillier and G. Castillo ( 2013) ‘No Accident: Resilience and the inequality of risk’, Oxford: Oxfam, http://oxf.am/UNg 200. This 30 percent of people consume an average of 6.5 global hectares of productive space per person.

N. Kakar, Permanent Observer to the United Nations of the International Union for Conservation of Nature. quoted in Royal Government of Bhutan (2012) The Report of the HighLevel Meeting on Wellbeing and Happiness: Defining a New Economic Paradigm, New York: The Permanent Mission of the Kingdom of Bhutan to the United Nations, p.52.

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201. F. Pearce (2009) ‘Consumption dwarfs population as main environmental threat’, 15 April, the Guardian, http://theguardian.com/environment/2009/apr/15/ consumption-versus-population-environmental-impact

221. R. Wilkinson (2011) op. cit.

202. http://sticerd.lse.ac.uk/dps/case/cp/CASEpaper152.pdf

224. Data on social mobility is restricted to fathers and sons.

203. In addition, they are likely to account for an even higher proportion of historical contributions. D. Satterthwaite (2009) ‘The implications of population growth and urbanization for climate change’, Environment and Urbanization, Vol. 21(2), http://cstpr.colorado.edu/students/envs_5720/ satterthwaite_2009.pdf

225. S. A. Javed and M. Irfan (2012) ‘Intergenerational Mobility: Evidence from Pakistan Panel Household Survey’, Islamabad: Pakistan Institute of Development Economics, pp.13-14, http://pide.org.pk/pdf/PSDPS/PSDPS%20Paper-5.pdf

204. N. Kakar, in Royal Government of Bhutan (2012) op. cit.

205. J. Martinson and A. Gani (2014) ‘Women at Davos: What’s happening to the numbers?’, the Guardian, 17 January, http://theguardian.com/lifeandstyle/womens-blog/ interactive/2014/jan/17/women-davos-numbers-worldeconomic-forum 206. UN Women (2012) ‘2011-2012 Progress of the World’s Women.

Factsheet: Global’, http://progress.unwomen.org/wpcontent/uploads/2011/06/EN-Factsheet-Global-Progressof-the-Worlds-Women.pdf

222. J. Stiglitz (2012) op. cit.

223. M. Corak (2012) op. cit

226. R. Wilkinson and K. Pickett (2010) The Spirit Level: Why Equality is Better for Everyone, London: Penguin.

227. R. Wilkinson and K. Pickett (2010) op. cit., p.59.

228. Wilkinson and Pickett’s research focused on OECD countries (a grouping of rich countries), yet the same negative correlation between inequality and social well-being holds true in poorer countries.

229. S.V. Subramanian and I. Kawachi (2006) ‘Whose health is affected by income inequality? A multilevel interaction analysis of contemporaneous and lagged effects of state income inequality on individual self-rated health in the United States’, Health Place, 12(2):141-56, http://ncbi.nlm.nih.gov/pubmed/16338630

207. ILO (2011) ‘A new era of social justice, Report of the DirectorGeneral, Report I(A)’, International Labour Conference, 100th Session, Geneva, 2011.

230. R. Wilkinson and K. Pickett (2010) op. cit.

208. UN Women (2012), op. cit.

231. Ibid, p.25.

209. P. Telles (2013) ‘Brazil: Poverty and Inequality. Where to next?’, Oxfam, http://csnbricsam.org/brazil-poverty-andinequality-where-to-next

232. Ibid.

233. Data provided by the Equality Trust, http://equalitytrust.org.uk

210. UNDP (2013) ‘Humanity Divided: Confronting Inequality in Developing Countries’, New York: UNDP, Chapter 5, http://undp.org/content/dam/undp/library/Poverty%20 Reduction/Inclusive%20development/Humanity%20Divided/ HumanityDivided_Ch5_low.pdf

235. Ibid.

211. S. Wakefield (2014) op. cit.

236. World Values Survey, http://worldvaluessurvey.org/wvs.jsp

212. P. Telles (2013) op. cit.

237. UNAH-IUDPAS, http://iudpas.org

213. P. Das (2012) ‘Wage Inequality in India: Decomposition by Sector, Gender and Activity Status’, Economic & Political Weekly, Vol XLVII, No 50, http://epw.in/system/ files/pdf/2012_47/50/Wage_Inequality_in_India.pdf

238. The homicide rate for Spain is 0.7 per 100,000, OECD Better Life Index, http://oecdbetterlifeindex.org/countries/spain

214. World Bank (2012) ‘World Development Report 2012: Gender Equality and Development’, Washington, D.C.: The World Bank, pp.85–87, http://siteresources.worldbank.org/ INTWDR2012/Resources/7778105-1299699968583/ 7786210-1315936222006/Complete-Report.pdf 215. Office for National Statistics (2014) ‘Inequality in Healthy Life Expectancy at Birth by National Deciles of Area Deprivation: England, 2009-11’, p.1, http://ons.gov.uk/ons/dcp171778_356031.pdf 216. The Demographic and Health Surveys (DHS) Program (2011) ‘Ethiopia: Standard DHS, 2011’, http://dhsprogram.com/ what-we-do/survey/survey-display-359.cfm 217. E. Godoy (2010) op. cit.

218. T.M. Smeeding, R. Erikson and M. Janitl (eds.) (2011) Persistence, Privilege and Parenting: The Comparative Study of Intergenerational Mobility, New York: Russell Sage Foundation.

219. J. Stiglitz (2012) The Price of Inequality: How Today’s Divided Society Endangers Our Future, London: Penguin.

220. M. Corak (2012) op. cit.

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234. E. Anderson (2009) ‘What Should Egalitarians Want?’, Cato Unbound, http://cato-unbound.org/2009/10/19/ elizabeth-anderson/what-should-egalitarians-want

239. Freedom House (2012) ‘Freedom in the World: Honduras Overview’, http://freedomhouse.org/report/freedomworld/2012/honduras#.U-jP9eNdWgo 240. J. Johnston and S. Lefebvre (2013) ‘Honduras Since the Coup: Economic and Social Outcomes’, Washington, D.C.: Centre for Economic and Policy Research, http://cepr.net/ publications/reports/honduras-since-the-coup-economicand-social-outcomes 241. I. Ali and J. Zhuang (2007) ‘Inclusive Growth Toward a Prosperous Asia: Policy Implications’, ERD Working Paper No. 97, Manila: Asian Development Bank, http://adb.org/ publications/inclusive-growth-toward-prosperous-asiapolicy-implications 242. R. Wilkinson and K. Pickett (2010) op. cit. p.234-5; Centre for Research on Inequality, Human Security and Ethnicity (2010) ‘Horizontal inequalities as a cause of conflict: a review of CRISE findings’, p.1, http://qeh.ox.ac.uk/pdf/pdf-research/ crise-ib1; Institute for Economics and Peace (2011), ‘Structures of Peace: identifying what leads to peaceful societies’, Figure 5, p.16, http://economicsandpeace.org/ wp-content/uploads/2011/09/Structures-of-Peace.pdf 243. UN Office on Drugs and Crime (UNODC) (2011) op. cit.

244. UNDP (2013) op. cit.

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245. P. Engel, C. Sterbenz and G. Lubin (2013) op. cit.

267. FAO (2013) op. cit.

246. UNDP (2013) op. cit.

268. D. Ukhova (2014) op. cit.

247. A. Smith (1776) An Inquiry into the Nature and Causes of the Wealth of Nations (1904 5th ed.), Book I Chapter VIII, London: Methuen & Co., Ltd., http://econlib.org/library/Smith/smWN3.html

269. A. Izyumov (2010) ‘Human Costs of Post-communist Transition: Public Policies and Private Response’, Review of Social Economy, 68(1): 93–125, http://tandfonline.com/doi/ pdf/10.1080/00346760902968421#.U-Y1eBb0Rpk

248. J. Stiglitz (2012) op. cit., p.105.

270. A. Franco-Giraldo, M. Palma and C. Álvarez-Dardet (2006) ‘Efecto del ajuste estructural sobre la situación de salud en América Latina y el Caribe, 1980–2000’ [‘Impact of structural adjustment on the health situation in Latin America and the Caribbean, 1980-2000’], Revista e Salud 2(7), pp.291-9, http://scielosp.org/scielo.php?script=sci_ arttext&pid=S1020-49892006000500001

249. Centre for Research on Inequality, Human Security and Ethnicity (2010) op. cit.

250. T. Dodge (2012) op. cit.

251. D. Hillier and G. Castillo (2013) op. cit., p.16.

252. UNDP (2013) ‘Human Development Report for Latin America 2013–2014 Executive Summary’, New York: UNDP, p.16, http://latinamerica.undp.org/content/dam/rblac/ docs/Research%20and%20Publications/IDH/IDH-ALExecutiveSummary.pdf 253. C. Provost (2014) ‘Gated communities fuel Blade Runner dystopia and “profound unhappiness”’, the Guardian, 2 May, http://theguardian.com/global-development/2014/ may/02/gated-communities-blade-runner-dystopiaunhappiness-un-joan-clos 254. D. Hillier and G. Castillo (2013) op. cit.

255. UNDP, Unicef, Oxfam and GFDRR ‘Disaster risk reduction makes development sustainable’, http://undp.org/content/dam/undp/library/crisis%20 prevention/UNDP_CPR_CTA_20140901.pdf 256. J. Rawls (1971) A Theory of Justice, chs. 2 and 13, Cambridge: Harvard University Press.

257. UN Office for Disaster Risk Reduction (UNISDR) (2014) ‘New pact must integrate DRR and national development’, http://unisdr.org/archive/37652 258. Latinobarometro (2013) ‘Latinobarómetro Report 2013’, http://latinobarometro.org/latContents.jsp 259. J. Stiglitz (2012) op. cit., p.160.

260. M. Carney (2014) ‘Inclusive Capitalism: Creating a sense of the systemic’, speech given by Mark Carney, Governor of the Bank of England, at the Conference on Inclusive Capitalism, London, 27 May, http://bankofengland.co.uk/publications/ Documents/speeches/2014/speech731.pdf 261. For more on this see, T. Piketty (2014) Capital in the TwentyFirst Century, Cambridge: Harvard University Press.

262. Speaking at the opening session of the 27th international congress of CIRIEC, Seville, 22-24 September 2008, https://sipa.columbia.edu/sites/default/files/j.14678292.2009.00389.x.pdf 263. T. Cavero and K. Poinasamy (2013) ‘A Cautionary Tale: The true cost of austerity and inequality in Europe’, Oxford: Oxfam International, http://oxf.am/UEb 264. World Bank database, http://data.worldbank.org/indicator/ SI.POV.GINI, Gini rose from 0.29 to 0.38.

265. M. Lawson (2002) ‘Death on the Doorstep of the Summit’, Oxford: Oxfam, http://oxf.am/RHN 266. M.L. Ferreira (1999) ‘Poverty and Inequality During Structural Adjustment in Rural World Bank Policy Research Working Paper 1641, Washington, D.C.: The World Bank Policy Research Department Transition Economics Division, http:// elibrary.worldbank.org/doi/book/10.1596/1813-9450-1641

271. UNCTAD (2012) op. cit.

272. CEPAL (1999) ‘Balance preliminar de las economías de América Latina y el Caribe’ [‘Preliminary assessment of the economies of Latin America and the Caribbean’], Santiago de Chile: CEPAL, http://eclac.org/publicaciones/xml/2/9042/lcg2153e.pdf 273. K. Watkins (1998) op. cit.

274. N. Lustig, L. Lopez-Calva, E. Ortiz-Juarez (2013) ‘Deconstructing the Decline of Inequality in Latin America’, Tulane University Working Paper Series 1314, http://econ.tulane.edu/RePEc/pdf/tul1314.pdf 275. R. Assaad and M. Arntz (2005) ‘Constrained Geographical Mobility and Gendered Labor Market Outcomes Under Structural Adjustment: Evidence from Egypt’, World Development, 33 (2005):3, p.431-54.

276. I. Traynor (2012) ‘Eurozone demands six-day week for Greece’, the Guardian, 4 September, http://theguardian.com/business/2012/sep/04/ eurozone-six-day-week-greece 277. M.F. Davis (2012) op. cit. http://iris.lib.neu.edu/cgi/ viewcontent.cgi?article=1191&context=slaw_fac_pubs 278. S. Tavernise (2010) ‘Pakistan’s Elite Pay Few Taxes, Widening Gap’, The New York Times, 18 July, http://nytimes.com/2010/07/19/world/asia/19taxes. html?pagewanted=all&_r=0 279. U. Cheema (2012) ‘Representation without Taxation! An analysis of MPs’ income tax returns for 2011’, Islamabad: Centre for Peace and Development Initiatives / Centre for Investigative Reporting in Pakistan, http://cirp.pk/ Electronic%20Copy.pdf; AFP (2012) ‘Report unmasks tax evasion among Pakistan leaders’, The Tribune, 12 December, http://tribune.com.pk/story/478812/report-unmasks-taxevasion-among-pakistan-leaders 280. Carlos Slim’s near-monopoly over phone and internet services charges some of the highest prices in the OECD, undermining access for the poor. OECD (2012) ‘OECD Review of Telecommunication Policy and Regulation in Mexico’, OECD Publishing, http://dx.doi.org/10.1787/9789264060111-en 281. Ibid.

282. Forbes Billionaire List (2014) ‘India Richest’, http://forbes.com/india-billionaires/list 283. A. Gandhi and M. Walton (2012) ‘Where Do India’s Billionaires Get Their Wealth?’, Economic and Political Weekly, Vol. XLVII, No. 40, http://epw.in/commentary/where-do-indiasbillionaires-get-their-wealth.html 284. From a speech by Christine Lagarde at the Richard Dimbleby Lecture in London in February 2014, https://imf.org/ external/np/speeches/2014/020314.htm

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285. OECD (2014) ‘Society at a Glance 2014: OECD Social Indicators’, OECD Publishing, http://oecd.org/els/soc/ OECD2014-SocietyAtAGlance2014.pdf

304. D. Ukhova (2014) ‘After Equality: Inequality trends and policy responses in contemporary Russia’, Oxford: Oxfam, http://oxf.am/gML

286. M. Gilens and B.I. Page (2014) ‘Testing Theories of American Politics: Elites, Interest Groups, and Average Citizens’, Perspectives on Politics, http://polisci.northwestern.edu/ people/documents/TestingTheoriesOfAmericanPolitics FINALforProduction6March2014.pdf

305. N. Lustig, L. Lopez-Calva, E. Ortiz-Juarez (2013) op. cit.

287. M. Wolf, K. Haar and O. Hoedeman (2014) op. cit.

288. J. Hobbs (2012) ‘Paraguay’s Destructive Soy Boom’, The New York Times, Opinion Pages, http://nytimes. com/2012/07/03/opinion/paraguays-destructive-soyboom.html?_r=0 289. Oxfam, ‘With no land to cultivate, young people in Curuguaty, Paraguay, have no future’, http://oxf.am/pDY 290. J. Hobbs (2012) op. cit.; E. Abramson (2009) ‘Soy: A Hunger for Land’, NACLA, http://nacla.org/soyparaguay 291. Behind only Singapore and Qatar. Source: World Bank database, http://data.worldbank.org 292. IMF (2014) ‘IMF Executive Board Concludes 2013 Article IV Consultation with Paraguay’, Press Release, http://imf.org/external/np/sec/pr/2014/pr1462.htm 293. Inter-Parliamentary Union and UN Women (2014) ‘Progress for women in politics, but glass ceiling remains firm’, UN Women, http://unwomen.org/en/news/stories/2014/3/progressfor-women-in-politics-but-glass-ceiling-remains-firm 294. World Bank (2014) ‘Voice agency and empowering women and girls for shared prosperity’, World Bank Group, http://worldbank.org/content/dam/Worldbank/document/ Gender/Voice_and_agency_LOWRES.pdf 295. A. Hussain (2003) ‘Pakistan Human Development Report’, UNDP, http://hdr.undp.org/en/content/pakistan-national-humandevelopment-report-2003 296. See, for example, F. Luntz (2007) The Words that Work: It’s Not What You Say, it’s What People Hear, New York: Hyperion.

For more examples see: http://nodeathtax.org/deathtax 297. J. Carrick-Hagenbarth and G. Epstein (2012) ‘Dangerous Interconnectedness: Economists’ conflicts of interest, ideology and financial crisis’, Cambridge Journal of Economics 36 (2012): 43–63.

298. K. Deutsch Karlekar and J. Dunham (2014) ‘Freedom of the Press 2014: Press Freedom at the Lowest Level in a Decade’, Freedom House, http://freedomhouse.org/sites/default/ files/FOTP2014_Overview_Essay.pdf 299. N. MacFarquhar (2014) ‘Russia Quietly Tightens Reins on Web With “Bloggers Law”’, The New York Times, http://nytimes. com/2014/05/07/world/europe/russia-quietly-tightensreins-on-web-with-bloggers-law.html?_r=0

306. World Bank (2012) ‘Shifting gears to accelerate prosperity in Latin America and the Caribbean’, Washington, D.C.: World Bank, http://worldbank.org/content/dam/Worldbank/ document/LAC/PLB%20Shared%20Prosperity%20FINAL.pdf 307. T. Piketty (2014) op. cit.

308. Forbes (2014) ‘Forbes Releases 28th Annual World’s Billionaires Issue’, http://forbes.com/sites/forbespr/ 2014/03/03/forbes-releases-28th-annual-worldsbillionaires-issue 309. S. Steed and H. Kersley (2009) ‘A Bit Rich’, New Economics Foundation, http://neweconomics.org/publications/ entry/a-bit-rich 310. Worldwide women spend 2–5 hours per day more on unpaid care work than men (cited ILO (2014) op. cit.)

311. R. Wilkinson and K. Pickett (2010) op. cit.

312. R. Fuentes-Nieva and N. Galasso (2014) ‘Working for the Few: Political capture and economic inequality’, Oxford: Oxfam, http://oxf.am/wgi 313. Ibid.

314. Africa Progress Panel (2012) ‘Jobs, Justice and Equity; Seizing Opportunities In Times of Global Change’, Switzerland: Africa Progress Panel, p.6, http://africaprogresspanel.org/ publications/policy-papers/africa-progress-report-2012 315. J. M. Baland, P. Bardan and S. Bowles (eds.) (2007) Inequality, cooperation, and environmental sustainability, Princeton: Princeton University Press.

316. UNRISD (2010) ‘Combating Poverty and Inequality’, Geneva: UNRISD/UN Publications, http://unrisd.org/publications/cpi 317. In addition to the millions of men and women whose livelihoods depend on waged income, around 1.5 billion households depend on smallholder or family farming (including pastoralists, fisherfolk and other small-scale food producers). While Oxfam works extensively in support of smallholders (see for example: Oxfam (2011) ‘Growing a Better Future: Food Justice in a Resource-constrained World’, Oxford: Oxfam, http://oxfam.org/en/grow/countries/ growing-better-future), this report is primarily concerned with issues facing people on low incomes in waged labour.

318. P. De Wet (2014) ‘Mining strike: The bosses eat, but we are starving’, Mail & Guardian, http://mg.co.za/article/2014-0515-mining-strike-the-bosses-eat-but-we-are-starving 319. High Pay Centre, http://highpaycentre.org (accessed August 2014).

300. M. F. Davis (2012) op. cit.

320. Living Wage Foundation, ‘Living Wage Employers’, http://livingwage.org.uk/employers

301. Civicus (2013) ‘State of Civil Society 2013: Creating an enabling environment’, Civicus, http://socs.civicus.org/wp-content/uploads/2013/ 04/2013StateofCivilSocietyReport_full.pdf

321. J. Ghosh (2013) op. cit.; an elaboration from data generated by the UN Global Policy Model (2013).

302. Ibid.

303. S. Gärtner and S. Prado (2012) ‘Inequality, trust and the welfare state: the Scandinavian model in the Swedish mirror’, Department of Economic History, University of Gothenburg, http://ekonomisk-historia.handels.gu.se/digitalAssets/ 1389/1389332_g--rtner_prado-2012-hs.pdf

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322. M. Lavoie and E. Stockhammer (eds.) (2014) ‘Wage-led Growth: An equitable strategy for economic recovery’, ILO, http://ilo.org/global/publications/books/forthcomingpublications/WCMS_218886/lang--en/index.htm 323. E. Chirwa and P. Mvula (Unpublished report, 2012) ‘Understanding wages in the tea industry in Malawi’, Wadonda Consultant.

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324. Oxfam and Ethical Tea Partnership (2013) ‘Understanding Wage Issues in the Tea Industry’, Oxford: Oxfam, http://oxf.am/wNZ. This takes into account wage increases since the research was conducted by Ergon Associates in 2011.

325. R. Anker and M. Anker (2014) ‘Living Wage for rural Malawi with Focus on Tea Growing area of Southern Malawi’, Fairtrade International (Western Cape, South Africa), Fairtrade and Social Accountability International (Dominican Republic), and Fairtrade, Sustainable Agriculture Network/ Rainforest Alliance and UTZ Certified (Malawi), http://fairtrade.net/fileadmin/user_upload/content/2009/ resources/LivingWageReport_Malawi.pdf 326. IDH (2014) ‘Raising wages for tea industry workers’, case study, http://idhsustainabletrade.com/site/getfile. php?id=497 327. International Trade Union Congress (2014) op. cit.

328. R. Wilshaw et al (2013) op. cit.; R. Wilshaw (2013) op. cit.; IDH (2013) op. cit.

329. Fairtrade International (2013) ‘Living Wage Reports’, http://fairtrade.net/workers-rights.html#c9571 330. This research was undertaken by Richard and Martha Anker.

They also assessed the value of in-kind benefits and other factors influencing worker’s pay. Their reports are available at http://fairtrade.net/workers-rights.html#c9571

NOTES

340. Good Electronics (2014) ‘Samsung’s no union policy claims another life’, http://goodelectronics.org/news-en/ samsung2019s-no-union-policy-claims-another-life 341. Source: Instituto de Pesquisa Economica Aplicada, and Departamento Intersindical de Estatica e Estudos Socioeconomicas, Brazil, http://ipeadata.gov.br/. An online data set produced by IPEA, see also http://dieese.org.br 342. Economist Intelligence Unit (2013) op. cit.

343. FAO, Working Group on Distribution of Value, http://fao.org/ economic/worldbananaforum/working-groups/wg02/en 344. Camera de Comercio de Guayaquil, ‘Boletin Economico’, http://lacamara.org/ccg/2013%20Feb%20BE%20CCG%20 Salario%20Digno%20y%20las%20PYMES.pdf 345. S. Butler (2014) ‘Chinese shoppers’ spend could double to £3.5tn in four years’, The Guardian, http://theguardian.com/ business/2014/jun/03/chinese-shoppers-spend-doublefour-years-clothing-western-retailers 346. See: R. Wilshaw (2013) op. cit., ‘Unilever Response and Commitments’, pp.94–95; IPL commitments in R. Wilshaw (2013) ‘Exploring the Links between International Business and Poverty Reduction: Bouquets and beans from Kenya’, op. cit.; Ethical Tea Partnership press release for ‘Understanding Wage Issues in the Tea Industry’, http://oxfam.org/en/ pressroom/pressreleases/2013-05-02/new-coalitionformed-address-low-wages-tea-industry

331. R. Pollin, J. Burns and J. Heinz (2002) ‘Global Apparel Production and Sweatshop Labor: Can Raising Retail Prices Finance Living Wages?’, Cambridge Journal of Economics, http://scholarworks.umass.edu/cgi/viewcontent. cgi?article=1012&context=peri_workingpapers; Workers Rights Consortium (2005) ‘The Impact of Substantial Labor Cost Increases on Apparel Retail Prices’, http://senate. columbia.edu/committees_dan/external/wrc1105.pdf

347. See: H&M, ‘A fair living wage for garment workers’, http://about.hm.com/en/About/sustainability/ commitments/responsible-partners/fair-living-wage.html

332. A. Osborne (2012) ‘CEOs and their salaries: because they’re worth it...?’, The Telegraph, http://telegraph.co.uk/finance/ newsbysector/banksandfinance/9002561/CEOs-and-theirsalaries-because-theyre-worth-it....html

349. Email to Oxfam, 4th August 2014.

333. J. Schmitt and J. Jones (2012) ‘Low-wage Workers are Older and Better Educated Than Ever’, Center for Economic and Policy Research, http://cepr.net/documents/ publications/min-wage3-2012-04.pdf; and data collected by Oxfam America.

334. Quote taken from Fight for 15, http://fightfor15.org/en/dwaynemitchell. The campaign argues that US tax payers are forced to pay nearly $7bn a year when fast food workers depend on public assistance, http://fightfor15.org/en/the-facts-2 335. Economic Policy Institute (EPI) (2014) ‘As union membership declines, inequality rises’, http://epi.org/news/unionmembership-declines-inequality-rises 336. Oxfam America (2014) ‘Working Poor in America’, Boston: Oxfam, http://oxfamamerica.org/explore/researchpublications/working-poor-in-america 337. L. Mishel and M. Walters (2003) op. cit.

338. R. Wilshaw (2010) ‘Better Jobs in Better Supply Chains’, Oxford: Oxfam, http://oxf.am/aFg 339. S. Labowitz and D. Baumann-Pauly (2014) ‘Business as usual is not an option: Supply chains sourcing after Rana Plaza’, Stern Center for Business and Human Rights, http://stern.nyu.edu/sites/default/files/assets/ documents/con_047408.pdf

348. Living Wage Foundation, http://livingwage.org.uk/ employers. There has been an increase in the number of FTSE 100 companies accredited as living wage employers from six in December 2013 to 15 in August 2014.

350. Alta Garcia, ‘What is a Living Wage?’ http://altagraciaapparel.com/living-wage.html 351. S. Maher (2013) ‘The Living Wage: Winning the Fight for Social Justice’, War on Want, http://waronwant.org/overseaswork/sweatshops-and-plantations/free-trade-zones-insri-lanka/17978-report-the-living-wage 352. R. Wilshaw (2013) op. cit.

353. L. Riisgaard and P. Gibbon (2014) ‘Labour Management on Contemporary Kenyan Cut Flower Farms: Foundations of an Industrial-Civic Compromise’, Journal of Agrarian Change, Vol. 14(2), pp.260–85.

354. S. Barrientos (forthcoming, 2014) ‘Gender and Global Value Chains: Economic and Social Upgrading in Agri-Food’, Global Governance Programme.

355. B. Evers, F. Amoding and A. Krishnan (2014) ‘Social and economic upgrading in floriculture global value chains: flowers and cuttings GVCs in Uganda’, Capturing the Gains Working Paper 2014/42, http://capturingthegains.org/ publications/workingpapers/wp_201442.htm 356. D. Card and A. Krueger (1993) ‘Minimum Wages and Employment: A Case Study of the Fast Food Industry in New Jersey and Pennsylvania’, American Economic Review, Vol. 84(4), pp.772–93, http://nber.org/papers/w4509; A. Dube, T.W. Lester and M. Reich (2010) ‘Minimum Wage Effects Across State Borders: Estimates Using Contiguous Counties’, IRLE Working Paper No. 157-07, http://irle.berkeley.edu/workingpapers/157-07.pdf

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357. Huffington Post (2014) ‘Even Goldman Sachs Analysts Say A Minimum Wage Hike Wouldn’t Be A Big Job Killer’, http://huffingtonpost.com/2014/04/02/goldman-sachsminimum-wage_n_5077677.html

372. See OECD statistics for tax per GDP ratio in OECD countries, http://oecd.org/ctp/tax-policy/revenue-statistics-ratiochange-previous-year.htm; and IMF (2014) op. cit. for tax per GDP ratio in developing economies.

358. See, for example, M. Reich, P. Hall and K. Jacobs (2003) ‘Living wages and economic performance: The San Francisco Airport model’, Institute of Industrial Relations, http://irle.berkeley. edu/research/livingwage/sfo_mar03.pdf; W. Cascio (2006) ‘The High Cost of Low Wages’, Harvard Business Review, http://hbr.org/2006/12/the-high-cost-of-low-wages/ar/pr

373. Oxfam new calculations based on IMF calculations on tax effort and tax capacity. A simulation has be undertaken to estimate how much revenue could be collected if the tax revenue gap is reduced by 50 percent by 2020. Assuming that GDP (in $ at current prices) expands at the same average annual growth rate recorded in the biennium 2011–2012; and that tax capacity remains constant at the level presented in IMF figures.

359. Wagemark, ‘A brief history of wage ratios’, https://wagemark.org/about/history 360. P. Hodgson (2014) ‘Rhode Island tries to legislate sky-high CEO pay away’, Fortune Magazine, http://fortune.com/2014/06/24/rhode-island-ceo-pay 361. Employee Ownership Association data, http://employeeownership.co.uk/news/whitehall-update/ employee-ownership-index 362. National Center for Employee Ownership (2004) ‘Employee ownership and corporate performance: A comprehensive review of the evidence’, Journal of employee ownership law and finance, Vol. 14(1); Employer Ownership Association (2010) ‘The employee ownership effect: review of the evidence’, Matrix Evidence.

363. J. Lampel, A. Bhalla and P. Jha (2010) ‘Do Employee-Owned Businesses Deliver Sustainable Performance?’, London: Cass Business School; Matrix (2010) ‘The Employee Ownership Effect: a Review of the Evidence’, London: Matrix Evidence; R. McQuaid et al (2013) ‘The Growth of Employee Owned Businesses in Scotland’, Report to Scottish Enterprise.

364. Richard Wilkinson, co-author of The Spirit Level, in a talk to Oxfam staff, July 2014.

365. ECLAC (2014) op. cit.

366. In Figure 12, the measurement of the Gini coefficient has been changed from between 0 and 1 to between 0 and 100, in order to accurately display the percentage change before and after taxes and transfers. Comisión Económica para América Latina y el Caribe (CEPAL) (2014) ‘Compacts for Equality: Towards a Sustainable Future’, Santiago de Chile: United Nations, p.36, http://cepal.org/publicaciones/ xml/8/52718/SES35_CompactsforEquality.pdf 367. See: IMF (2014) ‘Spillovers in International Corporate Taxation’, IMF Policy Paper, http://imf.org/external/np/ pp/eng/2014/050914.pdf; OECD (2013b) ‘Addressing base erosion and profit shifting’, OECD Publishing, http://oecdilibrary.org/taxation/addressing-base-erosion-and-profitshifting_9789264192744-en 368. D. Itriago (2011) op. cit.

369. Coordinadora Civil, ‘Nicaragua based on living conditions survey’, INIDE (Instituto Nacional de Formación de Desarrollo) http://inide.gob.ni/bibliovirtual/publicacion/Informe%20 EMNV%202009.pdf; combined with J. C. Gómez Sabaini (2003) ‘Nicaragua: Desafios Para La Modernizacion Del Sistema Tributario’, Banco Interamericano Desarrollo, http://iadb.org/regions/re2/EstudioNI.pdf 370. IMF (2014) ‘Fiscal Policy and Income Inequality’, IMF Policy Paper, Figure 8, Washington, D.C.: IMF, http://imf.org/external/np/pp/eng/2014/012314.pdf 371. J. Watts (2013) ‘Brazil protests: president to hold emergency meeting’, the Guardian, http://theguardian.com/world/2013/jun/21/brazilprotests-president-emergency-meeting

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374. Christian Aid and Tax Justice Network – Africa (2014) ‘Africa Rising? Inequalities and the essential role of fair taxation’, http://christianaid.org.uk/images/Africa-tax-andinequality-report-Feb2014.pdf 375. IMF, OECD, UN and the World Bank (2011) ‘Supporting the Development of More Effective Tax Systems: A report to the G-20 development working group by the IMF, OECD, UN and World Bank’, p.21, http://oecd.org/ctp/48993634.pdf 376. N. Shaxson (2012) Treasure Islands: Tax Havens and the Men Who Stole the World, London: Vintage Books.

377. M. Keen and M. Mansour (2009) ‘Revenue Mobilization in Sub-Saharan Africa: Challenges from Globalization’, IMF Working Paper, p.21, http://imf.org/external/pubs/ft/wp/2009/wp09157.pdf 378. M. Curtis (2014) ‘Losing Out: Sierra Leone’s massive revenue loses from tax incentives’, London: Christian Aid, http://christianaid.org.uk/images/Sierra-Leone-Reporttax-incentives-080414.pdf 379. Institute of Policy Analysis and Research-Rwanda (2011) ‘East African Taxation Project: Rwanda Country Case Study’, IPAR-Rwanda, http://actionaidusa.org/sites/files/ actionaid/rwanda_case_study_report.pdf 380. V. Tanzi and H. Zee (2001) ‘Tax Policy for Developing Countries’, IMF Economic Issues No. 27, http://imf.org/external/pubs/ft/issues/issues27/#5 381. C. Godfrey (2014) op. cit.

382. IMF (2014) op. cit.

383. See: A. Prats, K. Teague and J. Stead (2014) ‘FTSEcrecy: the culture of concealment through the FTSE’, London: Christian Aid, http://christianaid.org.uk/images/FTSEcrecy-report.pdf 384. President Obama, Remarks by the President on International Tax Policy Reform, 4 May 2009, http://whitehouse.gov/the_ press_office/Remarks-By-The-President-On-InternationalTax-Policy-Reform 385. R. Phillips, S. Wamhoff and D. Smith (2014), ‘Offshore Shell Games 2014: The Use of Offshore Tax Havens by Fortune 500 Companies’, Citizens for Tax Justice and U.S. PIRG Education Fund, http://ctj.org/pdf/offshoreshell2014.pdf 386. Ibid.

387. IMF (2014) op. cit.

388. A. Sasi (2012) ‘40% of India’s FDI comes from this bldg’, The Indian Express, 21 August, http://archive.indianexpress.com/news/40--of-indias-fdicomes-from-this-bldg/990943 389. EquityBD (2014) op. cit.

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390. In C. Godfrey (2014) op. cit., Oxfam estimated the tax gap for developing countries at $104 billion every year and corporate income tax exemptions at $138 billion a year. These losses combined could pay twice over the $120 billion needed to meet the Millennium Development Goals related to poverty, education and health, as calculated by the OECD (2012) ‘Achieving the Millennium Development Goals: More money or better policies (or both)?’, OECD Issue Paper, http://oecd.org/social/poverty/50463407.pdf 391. M.P. Keightley (2013) ‘An Analysis of Where American Companies Report Profits: Indications of Profit Shifting’ CRS Report for Congress, Congressional Research Service, http://fas.org/sgp/crs/misc/R42927.pdf 392. For full details of Oxfam’s calculations and methodology see: Oxfam (2013) ‘Tax on the ‘private’ billions now stashed away in havens enough to end extreme world poverty twice over’, 22 May, http://oxfam.org/en/pressroom/ pressreleases/2013-05-22/tax-private-billions-nowstashed-away-havens-enough-end-extreme 393. Data taken from World Bank database, http://data.worldbank.org/country/el-salvador 394. M. Cea and F. Kiste (2014) ‘El Salvador “oculta” $11,200 millones en paraísos fiscales’, El Mundo, http://elmundo. com.sv/el-salvador-oculta-11200-millones-en-paraisosfiscales based on James Henry calculations in J.S. Henry (2012) ‘The Price of Offshore Revisited’, Tax Justice Network, http://taxjustice.net/cms/upload/pdf/Price_of_Offshore_ Revisited_120722.pdf 395. OECD (1998) op. cit.

396. J. Sharman (2006) Havens in a Storm: The Struggle for Global Tax Regulation, Ithaca and London: Cornell University Press.

397. See US Senate Committee Homeland Security & Governmental Affairs (2013) ‘Permanent Sub-Committee on Investigations, May 2013 Hearing Report, 15 October 2013’, http://hsgac.senate.gov/subcommittees/investigations/ media/levin-mccain-statement-on-irelands-decision-toreform-its-tax-rules 398. See UK Parliament (2012) Public Accounts Committee – Nineteenth Report, HM Revenue and Customs: Annual Report and Accounts, Tax Avoidance by Multinational Companies, http://publications.parliament.uk/pa/cm201213/cmselect/ cmpubacc/716/71605.htm 399. Consultations are open to all non-formal OECD/ non-G20 members.

400. C. Godfrey (2014) op. cit.

401. Analysis from Forum Civil, Oxfam partner in Senegal working on fair taxation: http://forumcivil.net/programme-craft 402. Uruguay now has the largest differences in inequality before and after taxation in the LAC region, showing that its progressive fiscal policy is efficient in reducing inequality.

N. Lustig et al (2013) ‘The Impact of Taxes and Social Spending on Inequality and Poverty in Argentina, Bolivia, Brazil, Mexico, Peru and Uruguay: An Overview’, Commitment to Equity Working Paper N.13, http://commitmentoequity. org/publications_files/Latin%20America/CEQWPNo13%20 Overview%20Aug%2022%202013.pdf. In 2013, its Gini coefficient dropped nine basic points from 0.49 to 0.40.

NOTES

403. Uruguay was initially included in the G20 blacklist of tax havens as a financial centre that had committed to – but not yet fully implemented – the international tax standards.

It was removed only five days later after providing a full commitment to exchange information to the OECD standards.

However, the country has strict financial secrecy laws, including one of the world’s tightest bank-secrecy statutes, which forbids banks from sharing information, except in rare cases. See Tax Justice Network (2013) ‘Financial Secrecy Index: Narrative Report on Uruguay’, http://financialsecrecyindex.com/PDF/Uruguay.pdf 404. OECD (2013b) op. cit.

405. IMF (2014) op. cit.

406. S. Picciotto (2012) op. cit.

407. The European Commission proposed a tax of 0.1 percent on transactions of shares and bonds and 0.01 percent on derivatives. See: http://ec.europa.eu/taxation_customs/ taxation/other_taxes/financial_sector/index_en.htm 408. T. Piketty (2014) op. cit., p.572.

409. Reuters (2013) ‘Brazil’s ruling party to propose tax on large fortunes’, 26 June, http://reuters.com/article/2013/06/26/ economy-brazil-wealth-idUSL2N0F21P220130626 410. See K. Rogoff (2013) ‘Why Wealth Taxes are Not Enough’, http://project-syndicate.org/commentary/kennethrogoffon-the-shortcomings-of-a-one-time-wealthtax#FpTcXurUs6odiUl2.9; and IMF (2013) ‘IMF Statement on Taxation’, Press Release No. 13/427, http://imf.org/external/np/sec/pr/2013/pr13427.htm 411. A 1.5 percent tax on billionaires’ wealth over $1bn in 2014 would raise $74bn, calculated using wealth data according to Forbes as of 4 August 2014. The current annual funding gap for providing Universal Basic Education is $26bn a year according to UNESCO, and the annual gap for providing key health services (including specific interventions such as maternal health, immunisation for major diseases like HIV/ AIDS, TB and malaria, and for significant health systems strengthening to see these and other interventions delivered) in 2015 is $37bn a year according to WHO. See: UNESCO (2014) op.cit., and WHO (2010) op. cit.

412. C. Adams (1993) For Good and Evil: The Impact of Taxes on the Course of Civilization, Lanham: Madison Books.

413. iiG (2011) ‘Raising revenue to reduce poverty’, Briefing Paper 16, Oxford: iiG, http://iig.ox.ac.uk/output/briefingpapers/pdfs/iigbriefingpaper-16-raising-revenue-to-reduce-poverty.pdf 414. UNESCO (2013) ‘Education Transforms Lives’, Education For All Global Monitoring Report, Paris: OECD, http://unesco.org/new/fileadmin/MULTIMEDIA/HQ/ED/GMR/ excel/dme/Press-Release-En.pdf 415. G. Verbist, M.F. Förster and M. Vaalavuo (2012) op. cit.

416. Ibid.

417. N. Lustig (2012) op. cit.

418. R. Rannan-Eliya and A. Somantnan (2005) ‘Access of the Very Poor to Health Services in Asia: Evidence on the role of health systems from Equitap’, DFID Health Systems Resource Centre, http://eldis.org/go/home&id=19917&type=Document#.

VDF945SwKa1

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419. OECD Secretariat (2010) op. cit.. Also Ramos showed that between 1995 and 2005 education was the most important element explaining the decline in wage inequality in Brazil.

See: Ramos (2006) ‘Desigualdade de rendimentos do trabalho no Brasil, de 1995 a 2005’ in R. Barros, M. Foguel and G. Ulyssea (eds.) Sobre a recente queda da desigualdade de renda no Brasil, Brasília: IPEA. 420. H. Lee, M. Lee and D. Park (2012) op. cit.

421. World Bank Group President Jim Yong Kim, Speech at World Health Assembly, Geneva, 21st May 2013, ‘Poverty, Health and the Human Future’, http://worldbank.org/en/news/ speech/2013/05/21/world-bank-group-president-jimyong-kim-speech-at-world-health-assembly 422. Goverment of India spends 1.3 percent on health, and 2.4 percent on the military. World Bank database, http://data.worldbank.org/indicator/MS.MIL.XPND.GD.ZS 423. M. Martin and R. Watts (2013) ‘Putting Progress at Risk? MDG spending in developing countries’, Development Finance International (DFI) and Oxfam, p.28, http://oxf.am/Upm 424. UNESCO (2014) ‘Teaching and Learning: Achieving Quality for All 2013/14’, EFA Global Monitoring Report, http://unesdoc. unesco.org/images/0022/002256/225660e.pdf 425. K. Xu et al (2007) op. cit.

426. D.U. Himmelstein et al. (2009) ‘Medical Bankruptcy in the United States, 2007: Results of a National Study’, The American Journal of Medicine, 122:741–6, http://amjmed. com/article/S0002-9343(09)00404-5/abstract 427. The research undertaken by Justice Quereshi concluded India’s corporate hospitals were ‘money minting machines’.

From A.S. Qureshi (2001) ‘High Level Committee for Hospitals in Delhi’, New Delhi: Unpublished Report of the Government of Delhi.

428. The Global Initiative for Economic, Social and Cultural Rights ‘Privatization of education in Morocco breaches human rights: new report’, http://globalinitiative-escr.org/ privatization-of-education-in-morocco-breaches-humanrights-new-report-2 429. World Bank (2010) ‘Lesotho – Sharing growth by reducing inequality and vulnerability: choices for change – a poverty, gender, and social assessment’, Report No. 46297-LS, Washington DC: World Bank, http://documents.worldbank. org/curated/en/2010/06/12619007/lesotho-sharinggrowth-reducing-inequality-vulnerability-choices-changepoverty-gender-social-assessment 430. A. Marriott (2009) op. cit.; World Bank (2008) op. cit.

431. R. Rannan-Eliya and A. Somantnan (2005) op. cit.

432. L. Chakraborty, Y. Singh and J.F. Jacob (2013) ‘Analyzing Public Expenditure Benefit Incidence in Health Care: Evidence from India’, Levy Economics Institute, Working Papers Series No. 748, http://levyinstitute.org/publications/analyzingpublic-expenditure-benefit-incidence-in-health-care 433. C. Riep (2014) op. cit.

434. B.R. Jamil, K. Javaid, B. Rangaraju (2012) ‘Investigating Dimensions of the Privatisation of Public Education in South Asia’, ESP Working Paper Series 43, Open Society Foundations, p.22, http://periglobal.org/sites/periglobal. org/files/WP43_Jamil_Javaid&Rangaraju.pdf

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435. UNESCO (2009) ‘EFA Global Monitoring Report 2009: Overcoming Inequality: Why Governance Matters’, Paris: UNESCO, p.166, http://unesco.org/new/en/education/ themes/leading-the-international-agenda/efareport/ reports/2009-governance 436. Ibid. For the two-thirds of Malawi’s population that live below the poverty line, even the moderate fees charged in urban low-fee private schools would cost them one-third of their available income. In rural areas of Uttar Pradesh, India, the cost would be even greater. It is estimated that for an average family in the bottom 40 percent of the income distribution, educating all their children at a low-fee school would cost around half of their annual household salary.

437. Lower-income families tend to have larger families and sending all their children to LFPS is financially impossible.

438. J. Härmä and P. Rose (2012) ‘Low-fee private primary schooling affordable for the poor? Evidence from rural India’ in S.L. Robertson et al (eds.) (2012) Public Private Partnerships in Education: New Actors and Modes of Governance in a Globalizing World, Cheltenham: Edward Elgar Publishing.

439. T. Smeeding (2005) ‘Public Policy, Economic Inequality, and Poverty: The United States in Comparative Perspective’, Social Science Quarterly, Vol. 86 (suppl): 955-83.

440. UNESCO (2014) op. cit.

441. E. Missoni and G. Solimano (2010) ‘Towards Universal Health Coverage: the Chilean experience’, World Health Report 2010: Background Paper 4, Geneva: World Health Organization, http://who.int/healthsystems/topics/financing/ healthreport/4Chile.pdf 442. Public Services International (2014) ‘Wikileaks confirms TISA alarm raised by PSI’, http://world-psi.org/en/wikileaksconfirms-tisa-alarm-raised-psi 443. A. Cha and A. Budovich (2012) op. cit.

444. Y. Lu et al (2011) ‘World Medicines Situation 2011: Medicines Expenditures’, Geneva: World Health Organization, p.6, http://who.int/health-accounts/documentation/ world_medicine_situation.pdf; E. Van Doorslaer, O O’Donnell and R. Rannan-Eliya (2005) ‘Paying out-of-pocket for health care in Asia: Catastrophic and poverty impact’, Equitap Project: Working Paper #2, http://equitap.org/publications/publication.html?id=502 445. S. Vogler et al (2011) ‘Pharmaceutical policies in European countries in response to the global financial crisis’, Southern Med Review 4(2): 69–79.

446. WHO, with UNICEF and UNAIDS (2013) ‘Global Update on HIV Treatment 2013: Results, impact and opportunities’, Geneva: World Health Organization, http://unaids. org/en/media/unaids/contentassets/documents/ unaidspublication/2013/20130630_treatment_report_en.pdf 447. M. Mackay (2012) ‘Private sector obstructed plans for NHI scheme – claim’, Sowetan Live, http://sowetanlive.co.za/news/2012/03/08/privatesector-obstructed-plans-for-nhi-scheme---claim 448. Public Citizen (2013) ‘U.S. Pharmaceutical Corporation Uses NAFTA Foreign Investor Privileges Regime to Attack Canada’s Patent Policy, Demand $100 Million for invalidation of Patent’, https://citizen.org/eli-lilly-investor-state-factsheet; HAI, Oxfam, MSF (2011) ‘The Investment Chapter of the EU-India FTA: Implications for Health’, HAI Europe, http://haieurope.org/wp-content/uploads/2011/09/11June-2011-Fact-Sheet-The-Investment-Chapter-of-theEU-India-FTA-Implications-for-Health.pdf

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449. P. Stevens (2004) ‘Diseases of poverty and the 10/90 gap’, International Policy Network, http://who.int/intellectualproperty/submissions/ InternationalPolicyNetwork.pdf 450. See, for example: http://rt.com/news/177656-ebolavaccine-treatment-africa 451. Health Action International Europe and Corporate Europe Observatory (2012) ‘Divide and Conquer: A look behind the scenes of the EU pharmaceutical industry lobby’, Health Action International Europe and Corporate Europe Observatory, http://corporateeurope.org/sites/default/ files/28_march_2012_divideconquer.pdf 452. Z. Carter (2011) ‘Bill Daley’s Big Pharma History: Drugs, Profits And Trade Deals’, Huffington Post, http:// huffingtonpost.com/2011/09/28/bill-daley-big-pharmatrans-pacific-partnership_n_981973.html; G. Greenwald (2012) ‘Obamacare architect leaves White House for pharmaceutical industry job’, The Guardian, http://theguardian.com/commentisfree/2012/dec/05/ obamacare-fowler-lobbyist-industry1 453. Address by Dr Margaret Chan, Director-General, to the Sixtyseventh World Health Assembly, Geneva, 19 May 2014, http://apps.who.int/gb/ebwha/pdf_files/WHA67/A67_ 3-en.pdf 454. Address by Dr Margaret Chan, Director-General, to the Sixtyfifth World Health Assembly, Geneva, 21 May 2012, http://who.int/dg/speeches/2012/wha_20120521/en 455. Speech by World Bank Group President Jim Yong Kim at the Government of Japan-World Bank Conference on Universal Health Coverage, Tokyo, 6 December 2013, http://worldbank.org/en/news/speech/2013/12/06/ speech-world-bank-group-president-jim-yong-kimgovernment-japan-conference-universal-health-coverage 456. V. Tangcharoensathien et al (2007) ‘Achieving universal coverage in Thailand: what lessons do we learn? A case study commissioned by the Health Systems Knowledge Network’, Geneva: World Health Organization, http://who.int/social_determinants/resources/csdh_ media/universal_coverage_thailand_2007_en.pdf 457. D.B. Evans, R. Elovainio and G. Humphreys (2010) ‘World Health Report: Health systems financing, the path to universal coverage’, Geneva: World Health Organization, p.49, http://whqlibdoc.who.int/whr/2010/9789241564021_eng. pdf?ua=1 458. S. Limwattananon et al (2011) op. cit.

459. Health Insurance System Research Office (2012) ‘Thailand Universal Coverage Scheme: Achievements and Challenges.

An independent assessment of the first 10 years (20012010)’, Synthesis Report, p.79, http://gurn.info/en/ topics/health-politics-and-trade-unions/developmentand-health-determinants/development-and-healthdeterminants/thailand2019s-universal-coverage-schemeachievements-and-challenges 460. T. Powell-Jackson et al (2010) ‘An early evaluation of the Aama “Free Delivery Care” Programme’, Unpublished report submitted to DFID, Kathmandu.

461. Ibid.

462. See BBC News, Business (2013) ‘Novartis: India rejects patent plea for cancer drug Glivec’, 1 April, http://bbc.co.uk/news/business-21991179 463. L. Bategeka and N. Okurut (2005) op. cit.

464. B. Bruns, D. Evans and J. Luque (2012) op. cit.

NOTES

465. K. Watkins and W. Alemayehu (2012) op. cit.

466. OECD (2012) ‘PISA 2012 Results: Excellence through Equity: Giving Every Student a Chance to Succeed Volume II’, http://oecd.org/pisa/keyfindings/pisa-2012-resultsvolume-ii.htm 467. G. Ahobamuteze, C. Dom and R. Purcell (2006) op. cit.

468. Figure refers to 2009–11 share of total ODA to and through civil society organizations. O. Bouret, S. Lee and I. McDonnell (2013) ‘Aid for CSOs. Aid at a Glance – Flows of official development assistance to and through civil society organisations in 2011’, OECD Development Cooperation Directorate, http://oecd.org/dac/peer-reviews/Aid%20 for%20CSOs%20Final%20for%20WEB.pdf 469. P. Davies (2011) ‘The Role of the Private Sector in the Context of Aid Effectiveness’, OECD, p.17, http://oecd.org/dac/effectiveness/47088121.pdf 470. Z. Chande (2009) op. cit.

471. ILO (2014) ‘World Social Protection Report 2014/15: Building economic recovery, inclusive development and social justice’, Geneva: ILO, http://ilo.org/wcmsp5/groups/ public/---dgreports/---dcomm/documents/publication/ wcms_245201.pdf 472. D. Coady, M. Grosh and J. Hoddinott (2004) ‘Targeting Outcomes Redux’, The World Bank Research Observer, Vol. 19, No. 1, pp.61–85, http://elibrary.worldbank.org/doi/ abs/10.1093/wbro/lkh016?journalCode=wbro 473. See, for example: BBC News Magazine (2011) ‘A Point of View: In defence of the nanny state’, 4 February, http://bbc.co.uk/news/magazine-12360045 474. C. Arnold with T. Conway and M. Greenslade (2011) ‘Cash Transfers: Evidence Paper’, UK Department for International Development, http://webarchive.nationalarchives.gov. uk/+/http:/dfid.gov.uk/Documents/publications1/ cash-transfers-evidence-paper.pdf http://webarchive. nationalarchives.gov.uk/+/http:/dfid.gov.uk/Documents/ publications1/cash-transfers-evidence-paper.pdf 475. ILO (2008) op. cit.

476. A. de Haan (2013) ‘The Social Policies of Emerging Economies: Growth and welfare in China and India’, Working Paper 110, International Policy Centre for Inclusive Growth, UNDP, http://ipc-undp.org/pub/IPCWorkingPaper110.pdf 477. N. Lustig et al (2013) op. cit.

478. Human Development Report, ‘Gender Inequality Index’, http://hdr.undp.org/en/content/gender-inequality-indexgii; World Economic Forum, The Global Gender Gap Report, http://weforum.org/issues/global-gender-gap 479. S. Wakefield (2014) op. cit.

480. Institute of Statistical, Social and Economic Research, University of Ghana (2009) Gender and Indirect Tax incidence in Ghana, referenced in J. Leithbridge (2012) op. cit.

481. A. Elomäki (2012) op. cit.

482. A. Elomäki (2012) op. cit. In 2010, the employment rate for women with small children was 12.7 percent lower than women with no children, compared to 11.5 percent lower in 2008. In 2010, 28.3 percent of women’s economic inactivity and part time work was explained by the lack of care services against 27.9 percent in 2009. In some countries the impact of the lack of care services has increased significantly.

In Bulgaria it was up to 31.3 percent in 2010 from 20.8 percent in 2008; in the Czech Republic up to 16.7 percent from 13.3 percent.

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483. The Fourth World Conference on Women (1995) ‘Beijing Declaration and Platform for Action’, Paragraph 58, http://un.org/womenwatch/daw/beijing/platform 484. D. Elson and R. Sharp (2010) ‘Gender-responsive budgeting and women’s poverty’, In: S. Chant (ed.) (2010) International Handbook of Gender and Poverty: Concepts, Research, Policy, Cheltenham: Edward Elgar, pp.524–25.

485. Ministry of Women and Child Development (2007) ‘Gender Budgeting Hand Book for Government of India Ministries and Departments’, Government of India, pp.55-56, http://wcd.nic.in/gb/material/Resource%20Material/ GB%20Handbook%20and%20Manual/Hand%20Book.pdf 486. K. Goulding (2013) ‘Gender dimensions of national employment policies: A 24 country study’, Geneva: ILO, http://ilo.org/wcmsp5/groups/public/---ed_emp/ documents/publication/wcms_229929.pdf 487. Of particular note is South Korea’s continued wide gap of 38.9 percent. Korea’s rapid economic growth since the 1960s has been fuelled by labour-intensive exports that have employed mainly women. See: UNDP (2013) ‘Humanity Divided: Confronting Inequality in Developing Countries’, United Nations Development Programme, http://undp.org/content/ dam/undp/library/Poverty%20Reduction/Inclusive%20 development/Humanity%20Divided/HumanityDivided_FullReport.pdf 488. P. Fortin, L. Godbout and S. St-Cerny (2012) op. cit.

489. CIVICUS (2014) ‘State of Civil Society Report 2014: Reimagining Global Governance’, http://socs.civicus.org/wp-content/ uploads/2013/04/2013StateofCivilSocietyReport_full.pdf 490. Ibid.

491. Ibid.

492. Ibid.

493. Oxfam’s polling from across the world captures the belief of many that laws and regulations are now designed to benefit the rich. A survey in six countries (Spain, Brazil, India, South Africa, the UK and the USA) showed that a majority of people believe that laws are skewed in favor of the rich – in Spain, eight out of 10 people agreed with this statement.

Also see: Latinobarometro (2013), http://latinobarometro.org/latNewsShow.jsp 494. W. Wilson (2012) op. cit.

495. CIVICUS (2014) op. cit.

496. OECD (2014) ‘Society at a Glance: OECD Social Indicators’, http://oecd.org/berlin/47570121.pdf 497. CIVICUS, ‘Civil Society Profile: Chile’, http://socs.civicus.org/CountryCivilSocietyProfiles/Chile.pdf 498. G. Long (2014) ‘Chile’s student leaders come of age’, BBC News, http://bbc.co.uk/news/world-latin-america-26525140 499. D. Hall (2010) ‘Why we Need Public Spending’, Greenwich: PSIRU, p.59, http://psiru.org/reports/2010-10-QPS-pubspend.pdf 500. O. Valdimarsson (2010) ‘Icelanders Hurl Eggs at Parliament in Mass Protests’, Bloomberg, http://bloomberg.com/ news/2010-10-04/icelanders-hurl-eggs-red-paint-atparliament-walls-as-thousands-protest.html 501. CIVICUS (2014) ‘Citizens in Action 2011: Protest as Process in The Year of Dissent’, p.53, http://civicus.org/cdn/2011SOCSreport/Participation.pdf

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502. J. Crabtree and A. Chaplin (2013) Bolivia: Processes of Change, London: Zed books.

503. The country’s largest gas fields saw a complete reversal in shares, with 82 percent for the government and 18 percent for the companies. http://oxfam.org/sites/oxfam.org/files/ bp134-lifting-the-resource-curse-011209.pdf 504. J. Crabtree and A. Chaplin (2013) op. cit.

505. World Bank, http://data.worldbank.org/country/bolivia 506. ECLAC (2013) ‘Social Panorama of Latin America’, http://cepal.org/publicaciones/xml/8/51768/ SocialPanorama2013.pdf 507. N. Lustig (2012) op. cit.

The widening gap between rich and poor is at a tipping point.

It can either take deeper root, jeopardizing our efforts to reduce poverty, or we can make concrete changes now to reverse it. This valuable report by Oxfam is an exploration of the problems caused by extreme inequality and the policy options governments can take to build a fairer world, with equal opportunities for us all. This report is a call to action for a common good. We must answer that call.

KOFI ANNAN Chair of the Africa Progress Panel, former Secretary-General of the United Nations and Nobel Laureate

Oxfam is an international confederation of 17 organizations networked together in more than 90 countries, as part of a global movement for change, to build a future free from the injustice of poverty:

Š Oxfam International October 2014

Oxfam America www.oxfamamerica.org Oxfam Australia www.oxfam.ca Oxfam-in-Belgium www.oxfamsol.be Oxfam Canada www.oxfam.ca Oxfam France www.oxfamfrance.org Oxfam Germany www.oxfam.de Oxfam GB www.oxfam.org.uk Oxfam Hong Kong www.oxfam.org.hk Oxfam India www.oxfamindia.org Oxfam IntermĂłn www.oxfamintermon.org Oxfam Ireland www.oxfamireland.org Oxfam Italy www.oxfamitalia.org Oxfam Japan www.oxfam.jp Oxfam Mexico www.oxfammexico.org Oxfam New Zealand www.oxfam.org.nz Oxfam Novib www.oxfamnovib.nl Oxfam Quebec www.oxfam.qc.ca

Although this publication is subject to copyright, the text may be freely used for political advocacy and campaigns, as well as in the area of education and research, provided that the source is acknowledged in full. The copyright holder requests that any such use is reported in order to assess its impact. Any copying in other circumstances, or its use in other publications, as well as in translations or adaptations, may be carried out after obtaining permission; the payment of a fee may be required.

This report and information about the Even It Up campaign can be found at: www.oxfam.org/even-it-up

Please contact policyandpractice@oxfam.org.uk The information contained in this document is accurate at the time of printing.

For further information, please write to any of the organizations or visit www.oxfam.org Email: advocacy@oxfaminternational.org

Published by Oxfam GB for Oxfam International under ISBN 978-1-78077-721-4 in October 2014.

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Oxfam GB is registered as a charity in England and Wales (no. 202918) and in Scotland (SCO 039042) and is a member of Oxfam International.

The Fair Society.

Chapter 1

Peter Corning

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“As long as poverty, injustice and gross inequality persist in our world, none of us can truly rest.”

“Like Slavery and Apartheid, poverty is not natural. It is man-made and it can be overcome and eradicated by the actions of human beings.

Sometimes it falls on a generation to be great.

You can be that great generation. Let your greatness blossom.

Of course the task will not be easy. But not to do this would be a crime against humanity, against which I ask all humanity now to rise up.

Make Poverty history. Then we can all stand with our heads held up high.”

– Nelson Mandela “Economic Apartheid is a crime against humanity.”

– Institute for Economic and Social Upliftment