Jonas writes for us

MUCH has been written about the historical system of apartheid capitalism, and I will not take up time repeating what can be learned in History 101. It is, however, important to understand that racial inequality is deeply rooted in the structure of the economy, which in some respects has changed with globalisation, but in many others has stayed the same.

The colonial wars of dispossession of the 19th century saw Africans violently removed from their land and their livelihoods, and forced to reside in so-called native reserves where they were exploited as cheap labour.

Our inheritance in 1994 was a black majority with very little education and skills, no wealth or access to wealthgenerating assets, limited access to basic services, and no history of legislated democracy. Added to this we inherited a state machinery built to exploit and oppress, and serve the interest of a small white minority.

Our expansive fiscal redistribution policy has brought significant social returns in reducing extreme poverty and vulnerability among the black masses, and extending access to basic services. We have assembled a state architecture that is able to serve all South Africans. We have – through constitutional provisions – built a robust system of accountability.

There have been significant changes in the pattern of earnings, though less so in patterns of wealth. The income earned by black people has gone from roughly one-third to just over half of national income over the past 20 years. Black people now constitute about half of the top 10% of income earners, but only a quarter of the top 1% of earners. The black middle class, broadly defined, has grown from four million in 1994 to about nine million by 2014.

The structure of capital has changed since 1994, but not in ways that have benefited the black majority. What we have seen, for example on the JSE, is a significant decline in white family-owned wealth (from 40% to under 10%), matched with a significant rise in foreign ownership (from literally nothing in 1994 to over 40%). We have also seen a huge increase in institutional investors (pension funds, PIC and the like). But black unemployment, and levels of inequality, have not reduced. And while the black share of income has increased, the black share of wealth in the economy has not really increased.

Why, when we have such an extensive fiscal redistribution programme, has inequality not reduced? Two reasons account for this. Incomes from assets (savings, houses, pensions, investments, shares etc) have grown faster than wage income. In other words, growth benefits those already endowed with assets (ie white South Africans).

Secondly, as the economy has restructured from a low-skills mining, agriculture and manufacturing economy towards a high-skill services economy, the rates of return to skilled people have been higher. Simply because skills are in short supply, the salaries of skilled people have gone up faster. This has been exacerbated by our poor education and training outcomes, as well as our reluctance to import skills. So what must we do differently? Fiscal redistribution (progressive taxation combined with state spending on grants, public services and social infrastructure) is a proven method of increasing inclusivity, and must be sustained despite its limits. Quality public education both increases economic growth potential and increases the employment prospects of the marginalised. Improving education must be our primary focus.

Affirmative action/positive discrimination and indigenisation policies have had mixed success. They have been less effective when the state is weak and unable to target disadvantaged groups well, when benefits are captured by elites, or when the policies discourage private fixed investment and provoke capital flight (due, for example, to threatened property rights). Also, race/ethnicity-based affirmative action can perpetuate and entrench racial/ethnic tensions, encourage patronage entitlements, and trigger out-migration of skills and know-how.

What we should focus more on is transforming, growing and diversifying our economy for increased inclusivity. This suggests that our growth strategy must be accompanied by active measures to increase levels of economic participation of the historically excluded in prioritised value chains. This must move beyond the usual suspects of regulating inclusion (B-BBEE etc), and focusing narrowly on state sector markets (through preferential procurement). Instead, the focus must be on practically addressing the actual productivity constraints faced by new entrant firms owned by the historically excluded.

This includes: (a) access to capital; (b) access to technology; (c) access to efficient and cost-effective logistics and ICT connectivity; (d) access to cost-effective inputs; (e) access to ongoing business support and mentoring; and (f) access to markets.

Importantly, these support measures must be specifically tailored to opportunities in identified and prioritised sectors and industries. The established private sector must be engaged and reoriented through a set of appropriate incentives and sanctions. This should be at the heart of industry-level compacts that need to be negotiated with state and non-state players. Wage-led inequality reduction measures are important, but only if accompanied by rising productivity.

As we sustain our campaigns to eradicate racism and reduce inequality, we must be mindful of the catch 22s we need to navigate. Reducing inequality and poverty requires faster growth, but faster growth is undermined by the social tensions and risks associated with inequality. Significant redistribution of income and assets such as land may reduce inequality but will also likely reduce investment and growth. Conversely, excessive protection of property rights may be good for investment and growth, but will just reproduce existing race-based inequalities.

This requires high levels of political maturity and leadership among all social partners. Spoilers, opportunists and populists must be managed.

So, at this moment, let us choose to come together – let us talk about the lack of economic opportunity, and the shame that comes with not being able to provide for one’s family. Let us talk about the indignity of shack living and broken education, of the cycle of violence that often comes with poverty – all of which has its genesis in our racial past.

Let us talk. But do not allow our anger to be exploited by politicians and people so blinded by prejudice that rationality escapes them.