SA is paying the high cost of discrimination

WHAT price is South Africa paying for racism, sexism and a generally sluggish response to transformation?

Looking at the principles of identity economics popularised by George Akerlof and Rachel Kranton and some studies on ethnic fractionalisation by Daniel Posner could answer this question.

Zooming in on the impact of the entrenchment of racial and genderbased discrimination, we can find direct negative effects on key economic variables and indicators, namely schooling, financial inclusion, income levels and broad GDP social and economic development measures.

Educational attainment, for example, is a key variable in any study of human capital development. The extent of the skills shortage in South Africa limits innovation, technology assimilation, research and development and ultimately economic growth. Not achieving the required levels of education results in exclusion by class and race — it is the poor who cannot afford quality education, and it is the black population that forms the majority of poor people.

When education becomes commoditised, how much is the private sector coming to the party to invest in this commodity? It is the very companies that face challenges finding the desired skill levels that show trepidation in investing in skills development.

In the labour force, 41.2% of people have only primary school education, 31% have secondary schooling and 16.5% have tertiary education, according to World Bank African development indicators. This is hardly a beacon of hope.

And income inequality continues to worsen. In 2014, the lowest 20% of earners got 2.7% of the total earnings pie, while the highest 10% got more than 50%. Wage structures continue to discriminate on race and gender.

Gary Becker’s 1957 book, The Economics of Discrimination, found that where discrimination was most prevalent, both the discriminator and the group discriminated against had low incomes.

An alternative view of our identities as South Africans is the extent to which ethnic diversity can be a catalyst for corruption.

Economist Ross Levine, in a 1997 paper, found that countries with diverse ethnicities had 2% less economic growth than ethnically homogeneous countries.

This is without doubt a function of the discrimination that filters through societies, institutions and organisations.

Studies on the impact of ethnic diversity on economic outcomes find that ethnic diversity can be a significant catalyst to rent-seeking, corruption and mismanagement of public funds. The lack of policy cohesion as a result of ethnic diversity creates a platform for politicians to seek favours.

This ethnic diversity may result in suboptimal policy development and execution, leading to lower economic growth.

Ethnically diverse countries have 2% less growth than homogeneous countries

South Africa ranks eighth out of 160 countries on a Stanford University ethnic and cultural diversity index.

To what extent, then, is cultural diversity hampering policy cohesion, and ultimately growth, in South Africa? The polarisation of interest groups leads ultimately to lower economic growth.

It is said that individuals gain or lose “identity value” when their actions conform to or depart from social group norms.

This presents both a risk of the perpetuation of the status quo, or perhaps an opportunity, in that if everyone starts embracing transformation, the non-transforming masses will follow, and soon we will be on a prosperous journey of tolerance, acceptance, equity and fairness.

South Africa — what will it be?