Equalise via shared value
Post-Budget reflections: business must build an inclusive economy on the road to recovery
FOLLOWING a pre-Budget round table meeting at Regent Business School, the authors, moderator Fatima Vawda and panellists, who included Professor Somadoda Fikeni, Drs Ralph Mathekga and Emile du Plessis, and Nadir Thokan, held a debriefing to review key issues it was felt Finance Minister Tito Mboweni needed to address.
Among the many issues identified, the question of the private sector’s role and responsibility in South Africa’s economic recovery stood out as a challenge worthy of elucidation.
South Africa is now regarded as the world’s most unequal society, with a fractured, polarised social order characterised by poverty and unemployment.
Some analysts say economic transformation has barely touched the surface of a deeply divided society.
According to former deputy finance minister Mcebisi Jonas: “Twenty-five years after democracy, South Africa retains obscene levels of inequality where the wealthiest 10% of the population owns more than 90% of the wealth and the poorest 50% have little or no measurable wealth.”
Rectifying this malady will require a strategy to deal with inequality, poverty and unemployment, and a bold effort to simultaneously create conditions for sustainable economic growth and inclusive development.
Economists such as Simon Kuznets hypothesise that with economic growth, inequality will automatically stabilise and subsequently erode.
As much as growth is important to increase employment opportunities and address poverty, it will not address inequality substantively.
The Treasury believes the country needs gross domestic product growth of at least 5%, not only to meet the National Development Plan goals but also to deal substantively with the scourge of inequality.
Martin Wolf, the chief economics commentator of the Financial Times, notes that rising inequality is “incompatible with true equality as citizens”, which is a central tenet of democracy.
More recently, Michael Spence and his colleagues, in the paper Restarting the Global Economy, argue that there is a strong trend of rising income inequality and this will be detrimental to both the demand and supply sides of economic growth and could imply new directions in the political economy of individual countries that will have to be charted.
Mike Fucci, Deloitte’s global chairman, claims: “Businesses are increasingly driven by a sense of purpose to promote more socially inclusive growth and ultimately create greater opportunities for all people.”
He says the idea that businesses can operate in silos with little input or influence over societal issues is outdated, adding that a purpose-driven focus is redefining the role businesses should play in a globalised world.
This sense of purpose is further underpinned by the belief that business is an essential part of creating economic opportunities that can reduce inequality.
Michael Porter and Mark Kramer, two renowned academics from Harvard Business School and champions of the free market system, recently argued for a “reinvention of capitalism” by companies taking the lead in bringing business and society back together through “shared value”.
According to them, “shared value” is a business strategy focused on companies creating measurable economic benefit by identifying and addressing social problems that intersect with their business.
They suggest that “business investing in the community is not new. The Industrial Revolution saw many companies provide health clinics, schools and subsidised groceries for workers. In 1888, Lever Brothers (now Unilever) built a town to accommodate workers in its soap factory in the north of England. Cadbury did the same in 1893”.
Another economic model referred to as the “social model” or the “third sector” which derives from the French économie sociale, first recorded about 1900, is gaining momentum, especially in its aim to develop new solutions for issues such as social, economic or environmental problems and to satisfy needs which have been ignored or inadequately fulfilled by the private sector.
By using solutions to achieve nonprofit aims, a social economy has a role to play in creating a strong, sustainable, prosperous and inclusive society.
Even the 2019 World Economic Forum meeting discussed how to use the trillions of dollars locked in pension funds and insurance groups to support sustainable development goals covering poverty, hunger, health, education and global warming.
They agreed that private funding was needed to make up the difference between national budgets and societal needs.
Obviously there are no quick and easy solutions to South Africa’s inequality problem. Without substantive improvements in the human capital of the poor, though, income inequality will remain unacceptably wide.
This will have to happen with far greater political will and focus than is currently apparent from all sectors of society, especially the business sector.
Inclusive growth is a priority in building a socially just and stronger society.
The business sector has to come to the table to help find a meaningful solution, especially given the popular demands for “radical economic transformation”.
Business is an essential part of creating economic opportunities that can reduce inequality
Shaikh is Regent senior academic and managing director; Asvat is senior academic and director of operations; Cassim is a researcher and associate director for academic operations; and Soni is director for research and innovation.