Slashing inequality serves business

Prioritising poor in capitalism’s best interest

SO the theme of inclusive growth was discussed at length by everybody at this year’s World Economic Forum on Africa in Durban, yet the pink elephant in the room remains untouched: how do you get business to buy into the concept of inclusivity?

I have yet to meet a CEO who wakes up every morning thinking about how he is going to make the world a better and less unequal place. Business is primarily accountable to capital, whether it be shareholders or debt holders.

Their bosses are clear about why they allocate the billions of debt and equity to them — to generate returns.

How, then, do we get business to appreciate that an increasingly unequal society is against its commercial interest and that of its masters?

In the African economic outlook session, Germany’s finance minister, Wolfgang Schäuble, observed that most of the recent sociopolitical instability we are experiencing points to societies that have features of actual or perceived inequality, and that business ought to be very involved in avoiding this as it poses serious business risk. Obviously, Schäuble is correct. However, how many executives actually go about their business with this fact in mind?

In the South African context, the CEO Initiative would rightfully argue that their work over the past year and a bit has been largely about doing their best to help keep the macroeconomic fundamentals stable.

They worked tirelessly to help contain the credit rating of the country, before the rug was pulled from under their feet and a decision outside their control and influence was made.

However, even with the best intentions, the reality is that business is primarily concerned with economic growth and not necessarily its inclusiveness, whereas government, in its attempt to appeal to the majority of South Africans, is likely to appear more concerned with inclusivity.

The interpretation of inclusive growth, in the South African context, could therefore create a conflict that may even divide us on racial lines.

The rich and the “haves” (read white) are likely to be more concerned about economic growth, with or without inclusivity. The poor and the “have nots” (read black) are likely to agitate for more inclusion, with or without growth.

Economist Dr Adrian Saville has done extensive work to prove that over time the closest thing to a silver bullet for company earnings growth is GDP growth.

Outside superior products, visionary management, an entrepreneurial culture and all the fancy stuff we would like to believe are reasons for good companies delivering great-earnings growth, economic growth is the most powerful factor.

His analysis did not take into account the type or nature of the growth. It didn’t say whether inclusivity mattered to company earnings.

Executives in South Africa are largely remunerated and incentivised based on headline earnings growth.

LSo it is no wonder that business would always look for economic growth first before inclusivity. Besides, the majority of the people who make key decisions in these businesses are themselves already “included” in the economy. They make up the top percentiles of South Africa’s wealthiest people.

On the other hand, the poor are not likely to feel GDP growth as much as they would probably feel the impact of no GDP growth.

When the economy is doing well and companies are making profits, it does not necessarily translate into a boom in job creation or bigger wage increases. Yet when the economy weakens, business typically responds by culling jobs.

So the “have nots” may successfully argue that when the economy was growing, their own household economies didn’t grow.

They were not necessarily worse off, but they certainly weren’t better off, either. They are therefore more likely to push for inclusivity whether or not economic growth happens. That is why some politicians have played on this by declaring that “if the rand falls, we shall pick it up”.

This is a dangerous logic — on the part of the rich and on the part of the poor. It is also irresponsible behaviour on the part of the leaders — both in government and business.

We need urgent agreement on what inclusive growth means for us all, the haves and the have nots.

The rich must accept that they cannot build higher walls to keep out their countrymen who are growing more impatient with their lot in life not improving. The poor must also appreciate that, without growth, there is nothing to be inclusive about. It cannot be a zerosum game. Unfortunately, all this needs leadership.

❛ When the economy grew, their household economies didn’t