Thomas Piketty: Direct wealth distribution needed to fix SA’s extreme inequality

It will be difficult to solve South Africa’s extreme inequality problem without more direct wealth redistribution efforts, according to French economist Thomas Piketty.

Piketty, who was the keynote speaker at a webinar celebrating 100 years of economics at the University of the Witwatersrand, was responding to debates around the creation of a basic income grant in South Africa.

Despite massive redistribution efforts after 1994, Piketty noted, South Africa’s inequality problem has shown little sign of subsiding. According to the 2022 World Inequality Report, inequality in South Africa has been extreme throughout the 20th and 21st centuries. 

The top 10% of earners held between 50% and 65% of the country’s wealth during this period, whereas the bottom 50% of the population has never captured more than 5% to 10% of the national income. 

“While democratic rights were extended to the totality of the population after the end of apartheid in 1991, extreme economic inequalities have persisted and been exacerbated,” the report noted.

“Postapartheid governments have not implemented structural economic reforms (including land, tax and social security reforms) sufficient to challenge the dual economy system.”

One argument against the creation of a basic income grant is that South Africa’s social welfare system is already extensive, and that casting an even wider net would be far too great a burden on the country’s public purse.

Redistribution in South Africa has proven ineffective in closing the country’s yawning wealth-inequality gap. This is despite evidence that suggests that redistribution has worked elsewhere.

“And that is really the most depressing feature of South Africa, which is that if you look at pre-tax income, your primary income, your share of total income going to the bottom 50% is really incredibly small. And it didn’t make much progress since after apartheid.”

That does not mean, however, that redistribution should be reduced, Piketty said. “It should be increased. And I am in favour of universal basic income,” he added.

“But, we really need to think about why so little progress has been made in terms of primary income going to the bottom 50%. And I think it would be a big mistake to say that is because we have too much redistribution. Because in other parts of the world, more redistribution for the bottom 50% also came with an improvement in the share of primary income potential.”

The reason for this improvement not happening in South Africa likely has to do with continued spatial segregation in the country, Piketty said. The country could benefit from further desegregation policies and fixing the public transportation system.

“I think if you don’t redistribute the primary assets themselves, including wealth, bargaining power and residential property, it is probably going to be difficult to change this really extreme concentration of primary income that we see in South Africa.”

In his new book, A Brief History of Equality, Piketty argues that income redistribution policy — including basic income, unemployment insurance and family benefits — are important but insufficient to actually redistribute wealth.

He contends that direct wealth distribution, through land reform and minimum inheritance, has to happen to suture inequality. “Wealth-based redistribution,” Piketty added, “will probably take even more time and even more difficult political battles. If we want to make progress in terms of wealth redistribution, we will have to get there at some point.”

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