Inequality in America is on the rise. Income gains since the 1980s have been concentrated at the top. The top 10 percent today take home 30 percent of all income, and control over three-quarters of all wealth. We have returned to the level of income inequality that marked the Great Depression of the 1920s and 1930s.
Who gets what in America continues to be impacted by a person’s race, gender and family resources. What’s striking, however, is how little people seem to notice.
Evidence from the International Social Survey Programme suggests that people increasingly think their society is a meritocracy – that success in school and business simply reflects hard work and talent. This belief is held most dearly by Americans, but citizens across the world are growing more convinced.
The data show a surprising pattern: The more unequal a society, the less likely its citizens are to notice. Paradoxically, citizens in some of the most unequal countries think theirs is the paragon of meritocracy. How can we explain this phenomenon?
Origins of inequality beliefs
In my dissertation research, I explored the idea that people’s beliefs originate in their childhood experiences.
My research suggests that people in more socioeconomically and racially diverse environments are more likely to appreciate how life outcomes are shaped by structural factors such as race and wealth – that is, the ways in which a person’s family wealth, gender or skin color may impact their chances of getting into college or finding employment.
However, increasing levels of income inequality and segregation mean that modern-day Americans are growing up in less economically diverse environments than in the 1970s. Consequently, people on either side of the income divide cannot see the breadth of the gap that separates their lives from those of others. As the gap grows wider, other people’s lives are harder to view. Rising inequality prevents people from seeing its full extent.
I asked 300 respondents in an online survey to explain why a person graduates from college or drops out; what makes for success at work; what keeps a person out of trouble; and what may land a person in jail.
People typically explained these outcomes in terms of meritocratic factors: Being smart gets you into college, working hard earns you a promotion and being polite to the police may save you from a speeding ticket. In the words of one respondent, “I think people are mostly capable of getting what they want out of life. If they don’t, they either didn’t try hard enough or are too lazy, unmotivated or whatever.”
But respondents were not blind to how structural factors can shape life outcomes. They recognized that some schools better prepare their students for college; that family contacts can help you get that good job or promotion; and that living in a poor neighborhood means you’re on the police radar. As one person put it, “I think that in a lot of cases, outcomes are determined by privilege and race… or a lack thereof.”
When I looked at respondents’ explanations in light of their own background, I discovered a telling relationship: People who grew up in more socioeconomically or racially diverse environments were more likely, by about 20 percent, to explain life outcomes in terms of structural factors. Conversely, people who grew up in homogeneously rich or white neighborhoods saw success in meritocratic terms.
Learning about inequality
To look more closely at how people learn about inequality, I studied a nationally representative sample of 14,000 students across 99 U.S. colleges. I asked students about racial inequality and meritocracy as freshmen, and then again in senior year. Would students grow more convinced about meritocracy over their college years, or did they come to understand inequality in structural terms?
About half of students held on to their original beliefs about inequality. Some 30 percent developed a structural understanding of inequality, while 20 percent came to see things more meritocratic. Their beliefs were shaped by three key factors: college setting, interactions with peers from different backgrounds, and their roommate in the dorms.
In racially homogeneous and exclusive college settings, students developed a more meritocratic view of inequality in the U.S.
Conversely, those who frequently interacted with students from another racial group became more concerned about racial and income inequality, and more critical of meritocracy. Students paired with a roommate of a different race also developed a better understanding of the structural sources of inequality.
Meritocracy, empathy and solidarity
My research suggests that how we see and explain inequality drives our empathy and solidarity with others. We feel for people who we understand are facing hardship by no fault of their own. We have less sympathy for those whose situation, we think, is caused by poor choices or a lack of effort.
If we want our young citizens to develop a better understanding of the world they live in, we need to create conditions for more interaction across socioeconomic and racial lines, at school, in college and in the neighborhoods where they grow up. We can do this by ensuring access to preschool for all income groups; stepping up the effort to desegregate public schools; and considering roommate assignment and other cost-free measures to increase diversity in college life.
It would take a major intervention to bring actual opportunities in line with the American Dream of social mobility. The next generation’s choices will shape tomorrow’s America. It is up to us, however, to decide what world this generation grows up in, and through what prism they come to see their society.
Research by the Centre for Social Change, University of Johannesburg seems to bear this out. Based on estimates from South African Police Service data, we found that between 1997 and 2013 there were an average of 900 community protests a year. In recent years the number has climbed to as high as 2,000 protests a year.
In a new book, my colleagues from the Centre for Social Change and I attempt to understand South Africa as part of the global protest wave.
On the face of it, protests in South Africa look quite different. They tend to be fragmented and happen mostly in black townships and informal settlements. The occupation of central public spaces in towns and cities, as we are seeing in Venezuela, happens seldom.
While there are important differences there are also commonalities. Whether protests focus around the “1%” as they did during the Occupy movement or around the lack of service provision in townships, protesters around the world are critiquing the failure of a representative democracy to provide socio-economic equality.
Broken promises
South Africa’s governing ANC came into power in 1994 on the promise of a “better life for all”. There have been important gains, such as increasing access to electricity from 51% of the population in 1994 to 85% in 2012, but inequality remains endemic. Recent data from the World Bank confirms that South Africa remains one of the most unequal countries in the world.
As part of research by the Centre for Social Change we spoke to protesters all over the country. A new book from the centre highlights the extent to which protesters are raising not just concerns about the quality of service delivery but also about the quality of post-apartheid democracy. As Shirley Zwane, from Khayelitsha, near Cape Town, explains:
We don’t have democracy!… We [are] still struggling… you see if we are in democracy there’s no more shacks here… No more bucket system… we supposed to have roads, everything! A better education… There is a democracy?…. No, this is not a democracy! They have, these people in Constantia, Tableview, Parklands, they have a democracy, not for us!
For Shirley the quality of post-apartheid democracy is linked to the provision of basic services. She is not alone in this view.
Research by Afrobarometer has found that compared to other countries in the region South Africans are much more likely to emphasise the realisation of socio-economic outcomes as crucial to democracy. That South Africans should view housing and services as central to post-apartheid democracy is unsurprising given that apartheid systemically denied the majority of people these rights.
Crisis of affordability
Community protests are fundamentally about the exclusion from democracy experienced by many black working class citizens since the end of apartheid in 1994.
Although the provision of services to the previously marginalised black majority has increased substantially, black working class households face an increasing crisis of affordability.
In sectors covered by a minimum wage, the real median wage increased by 7.5% between 2011 and 2015. But last year inflation on an average working class food basket was 15% and certain staple foods, such as maize meal, increased by as much as 32%. This has put a real squeeze on working class households especially when, due to high levels unemployment, each black South African wage earner supports four people.
Structural challenges
The crisis of affordability facing black working class households also compounds the structural crisis within local government.
In South Africa local governments are responsible for delivering services. Over the past 15 years local municipalities have increasingly had to find ways to fund these services through their own tax base. Many have resorted to cost recovery measures, for example by introducing prepaid meters. Their introduction has been behind many protests.
The financial difficulties for local and provincial governments looks set to get worse. In the country’s latest budget the National Treasury cut their funding as part of R25 billion budget cuts. In the case of Gauteng, the scene of the most recent protests, this amounted to a R2.9 billion rand cut over three years.
To fill the gap, municipalities and provinces are going to have to look increasingly to their own tax base to fund service provision. A difficult prospect when slightly more than half the population survives on R779 or less a person a month.
A global crisis
As Professor Michael Burawoy argues in our new book, the nature of the crisis varies from country to country. In South Africa the crisis represents the forcible exclusion of many black working class households from democratic institutions, largely because of their inability to afford socio-economic goods. For instance, while access to electricity has increased, access is increasingly mediated by prepaid meters, therefore the ability to access service is inextricably linked to the ability to afford them.
It’s this exclusion that leads many to say that democracy is only for the rich. Globally, people are beginning to search for new solutions to these problems with many being drawn to left-wing movements and political parties, such as Podemos in Spain. Whether such a comparable movement can emerge in South Africa remains to be seen.
South Africa’s Reserve Bank Governor Lesetja Kganyago. Reuters/Rogan Ward
Central banks everywhere play a critical role in shaping the direction of a country’s economy. The South African Reserve Bank is the central bank of South Africa. Its main mandates are to ensure financial and economic stability and to regulate the banking sector. It achieves the first thorough monetary policy which involves targeting inflation to prevent borrowing costs from rising and competitiveness of the economy from deteriorating. But the bank has been criticised for focusing too much on curbing inflation – it keeps inflation within a target range of 3% to 6% – at the expense of economic growth. And the banking regulation arm is also facing a barrage of questions. The Conversation Africa organised three economic scholars to pose questions to the Reserve Bank Governor Lesetja Kganyago.
Nimisha Naik, Wits University - How should the Reserve Bank respond to the country’s recent credit rating downgrade? What approaches can it take to limit the potential decrease in investments to South Africa?
Lesetja Kganyago: A rating downgrade implies higher risk for investing in a
country. As such (everything else being equal) a higher return is required to attract the same amount of foreign capital necessary to finance South Africa’s current account deficit.
As markets shift to reflect the higher return needed, the country’s currency might weaken. This adjustment may be compounded by foreign funds having to divest from South Africa as their investment mandates prevent them from holding non-investment grade assets.
But a credit rating downgrade need not trigger a reaction from the Reserve Bank, unless its impact on capital flows and the exchange rate jeopardises price stability.
Raising the repo rate – the rate at which the central bank lends to commercial banks – by itself would do little to attract new investments. This is because only a small part of capital flows into the country consist of short-term money market investments. Most are made up of purchases of longer-term bonds and equities.
But failure to deal with the inflationary consequences of currency depreciation, which pushes up import prices and potentially all prices, would also push up both short and long term borrowing costs. This could eventually endanger the policy framework we have in place. As the commitment to low inflation weakens, investors will push up their expectations of future inflation, which further increases borrowing costs. This would, in turn, exacerbate capital outflows and push the currency down and prompt stronger inflation, in a vicious cycle.
The Reserve Bank has tended to think that, over time, such a negative outcome from a downgrade has become less likely. Market expectations of higher borrowing costs had already reached levels similar to those of lower-rated, non-investment grade countries even before the 3 April Standard and Poor’s rating event. This implies that the market had mostly “priced-in” the downgrade.
Also, at the moment the global context is unusually supportive of emerging markets. Interest in riskier assets is being sustained by higher commodity prices and better global growth prospects. These factors in turn suggest that short-term selling of rand-denominated assets may be relatively muted.
Nonetheless, further downgrades, in particular to “local currency” ratings, would again lower prices of assets and raise the cost of financing in the economy. This would be clearly negative for South African borrowers, domestic financial institutions and economic growth more generally.
Professor Alan Hirsch, University of Cape Town - The recent budget showed that the National Treasury is tightening fiscal policy. Does this provide scope for monetary policy loosening?
Lesetja Kganyago: There are two major channels through which fiscal policy tightening can interact with the monetary policy stance. Firstly, curbing private and public-sector spending growth normally dampens demand-driven price pressures. These are pressures caused when demand for goods and services cannot be easily met by increased production of those goods and services, resulting in higher prices for them. Secondly, reassuring investors about the medium-term sustainability of debt levels limits the risk of capital outflows – and therefore downward pressure on the rand.
The moderate tightening in South Africa’s fiscal stance over the past three to four years has gradually lowered the amount of annual borrowing from around 4% to about 3% of GDP. This is expected to continue over the next two years.
Some of this fiscal restraint has occurred through tax increases. Expressed as a share of pre-tax disposable income, direct household taxes increased by 1.5 percentage points between 2012 and 2016.
Another part of the fiscal consolidation has happened through a nominal spending ceiling which is an absolute rand value for spending in a given year.
A sustainable fiscal trajectory for deficits and borrowing is an important influence on the cost of capital in the economy generally. Greater borrowing by the public authorities can put upward pressure on interest rates.
While government spending has contributed to South Africa’s recovery from the global recession of the 2009-2010 period, the impact of the higher cost of borrowing weighs more heavily on economic activity as borrowing continues year after year. This appears to be where the country is now. Spending contributes less than it did earlier to sustained economic growth, in part because the cost is higher.
As a contribution to short-term economic growth, government and private debt has probably become a constraint. Fiscal space is being re-opened as government debt levels stabilise and the economy’s growth rate strengthens. Household debt levels have also come down in recent years, especially in 2016. This also creates space for stronger consumption growth over the longer-term.
As the fiscal consolidation progresses and deficits work down, both inflation and interest rates should moderate. This is helpful to monetary policy. It has, and should, continue to facilitate the Reserve Bank’s gradual and flexible approach to getting inflation sustainably down towards the middle of the target band of 3% to 6%.
Professor Alan Hirsch - As global interest rates rise this year, will the Reserve Bank be able to delay reciprocal increases in order not to stifle South Africa’s meagre growth. And to allow its currency to continue to favour exporters?
Lesetja Kganyago: The rise in global interest rates will tend to depreciate other currencies, except those of economies that will get a strong and direct growth benefit from more robust growth in the US. But domestic conditions are critically important. The inflation targeting framework provides room for flexibility, allowing the Monetary Policy Committee to choose what weight to place on external and internal factors in deciding policy.
Policy is not bound to follow interest rate decisions of major central banks. This is unlike countries that use the exchange rate targeting framework for achieving low inflation. As the Monetary Policy Committee has noted, domestic economic growth has been weak and this requires policy settings that are supportive. For these reasons, “de-coupling” of interest rates is a common feature of growth and policy cycles.
This implies that some currency depreciation has been expected in recent years. And indeed this has happened. In this context it’s been important for policy to focus on whether depreciation will generate future inflation. Up to now we have been fortunate this “pass-through” into domestic prices has been less than would normally be expected.
This may, in part, be because of lower commodity prices and terms of trade and the more generally weak economy. The upshot is that we have gained competitiveness as the nominal exchange rate has depreciated, without much stronger growth in domestic inflation. This has helped to keep interest rates at near historically low levels since 2010. This has supported the recovery in the economy, while still keeping expectations of future inflation just within the target band.
Professor Jannie Rossouw, Wits University. - Does the existing structure of private shareholders still serve the best interest of the Reserve Bank and South Africa?
Lesetja Kganyago: The Reserve Bank’s shareholding structure is unusual, yet not unique in the world of central banking. At present, eight central banks in the world have a degree of private ownership. These include the US Federal Reserve, the Bank of Japan and the Swiss National Bank.
Historically, most central banks were privately-owned. This pattern changed drastically after the Great Depression of the 1930s. Back then, many governments felt that the conflict between private shareholders’ interests and the public policy mandate of these institutions had in some cases prevented appropriate policy responses.
But several safeguards ensure that the Reserve Bank’s shareholding structure does not pose such risks in South Africa. In fact, the Reserve Bank’s private shareholders have no influence on the Reserve Bank’s key mandates of price and financial stability.
The Governor and his or her deputies are appointed by the president of the country. And the SA Reserve Bank Act can only be amended by Parliament. The Reserve Bank’s functional independence is enshrined in the Constitution. Equally, as per the spirit of the constitution, the inflation targeting framework has been determined through a consultative process between National Treasury and the Reserve Bank.
Provisions of the Act further stipulate that no individual shareholder, including his or her associates, can hold more than 10,000 of the existing 2 million shares. It also caps the dividend at 10c/share. These prevent any attempt by shareholders at extracting significant profits from the institution, for instance through the sale of its assets.
Overall, the role of the Reserve Bank’s private shareholders remains one of oversight and can improve governance. This happens, for example, through the tabling of an annual report and financial statements at the annual general meeting of shareholders.
While international experience does not suggest that the shareholding structure of a central bank meaningfully affects its performance, there is equally no obvious case for changing such a structure in South Africa at present.
Professor Jannie Rossouw - What needs to happen before there can be a debate about a lower inflation target, say 3% - 5%?
Lesetja Kganyago: South Africa’s inflation target range is both relatively wide and high by international standards, including among emerging countries. At the time the 3%-6% target was adopted in the early 2000s, South Africa remained an economy in transition, having recently faced renewed exposure to global economic volatility.
The economy was thus exposed to shocks, and it was felt that a relatively wide and high target would be more credible in such a vulnerable environment. The strategy seems to have borne fruit: compliance with the target has improved over time despite greater currency volatility. Inflation, as well as inflation expectations and wage growth, display lesser volatility than in the early years of the targeting regime. And the policy appears to have gained growing acceptance, over the years, from respective stakeholders.
But a relatively wide target can create uncertainty as to the actual objectives of monetary policy. In the South African case, this lack of clarity has resulted in an anchoring of inflation expectations at the upper end of the target range, which now restrains the margin of policy manoeuvre in the event of exogenous shocks.
In addition, the persistence of higher inflation in South Africa relative to its major trading partners introduces a medium-term depreciation bias to the currency, which will raise the risk premium on domestic interest rates. Achieving a lower inflation rate would help ease these constraints on the economy. Whether a more efficient target (using a point, a lower target, or being more explicit about where in the band is the best inflation rate) could help achieve such an outcome is an open question for economists to consider.
The target was revised to 3%-5% in 2001 but after the currency depreciation that same year the range was revised back to 3%-6% with the proviso that once inflation is back within the target then the 3%-5% target range will be reinstated. This has not happened yet.
Professor Alan Hirsch - What has the Reserve Bank learned from the Barclays/ABSA saga? Will it be more circumspect in allowing foreign investors to buy thriving South African banks in the future?
Lesetja Kganyago: The Barclays Plc separation from Barclays Africa Group (trading in South Africa as Absa Bank) has renewed the policy debate on foreign ownership of the large South African banks at the Reserve Bank. The debate is also back because of the regulatory reforms imposed by the Basel Committee and the Financial Stability Board on global systemically important banks following the global financial crisis.
These reforms imposed various additional requirements on global systemically important banks. This has filtered down to their significant subsidiaries operating in different jurisdictions, including emerging markets. These subsidiaries then need to compete with other local banks that don’t need to meet those global systemically important banks requirements, contributing to an uneven playing field.
The Reserve Bank is supportive of and welcomes foreign ownership of South Africa’s large banks. But it remains cautious against controlling ownership by a global systemically important bank, as this could result in onerous regulatory requirements being imposed on the local operation.
The actual separation is also closely monitored as the local banking operations have become closely aligned and integrated on IT systems, infrastructure and processes with their parents. As such any separation needs to ensure that the local subsidiary remains operationally stable during and after the separation.
When the Banking Registrar assesses new investors applying to acquire a stake in any bank, its office conducts a fit-and-proper assessment. This is to establish the strategic intent of these investors. It’s to see whether the investment is expected to be long-term in nature, how the investment will be funded and how the investors plan to fulfil their fiduciary duties, including in terms of governance.
Residents say the land has stood unoccupied for decades
By Ashleigh Furlong
19 May 2017 Residents start to build houses on land in Town 2, Khayelitsha. Photo: Ashraf Hendricks
A massive land occupation is underway in Town Two, Khayelitsha,
near the Magistrates’ Court with hundreds of sites demarcated on the
land. If the occupiers are successful, thousands of people will live on
the privately owned land.
The occupiers are backyarders from Town Two who say they are tired of
renting and living with their parents, while an enormous piece of land
stands empty. All the occupiers that GroundUp spoke to said the land had
stood unoccupied since they were children.
“I’m a 42-year-old and I am living in my mother’s house,” said Thuliswa January Tshofela.
“We are sick and tired of backyards and renting,” said Liwa Mdleleni.
Mdleleni said people lived their lives renting houses and yet will
never have a title deed to their name. He pointed to flats on the
periphery of the open land and said that he was told that flats such as
these would be built, but that nothing had happened.
By late morning, a large contingent of law enforcement and police had gathered.
Residents began constructing homes on plots they had demarcated earlier.
Law enforcement and workers in orange T-shirts began knocking down
poles that demarcated the sites. The few homes that had been built were
demolished.
The occupiers shouted at law enforcement, but did not try to stop
them. As soon as law enforcement retreated, residents began rebuilding.
Like many other residents, Tshofela said that residents in Town Two
had to cross this large expanse of open land (about 120,000 square
metres, equivalent to 14 rugby fields) to access public transport and it
was dangerous because of criminals. Many occupiers said it would be
better if they built a settlement on the land.
“I have been married for 16 years. My eldest son is ten, and I still
stay at my mother’s house,” said Tshofela. “We are tired. We want this
land.”
Bathande Vanqa said that he had lived in Khayelitsha his whole life.
“In 2013, government promised that they will give us land and we will
build our own houses … We are building our future on this land,” he
said.
“We won’t rest until we have built houses. We will fight until the end,” said Vanqa.
The City of Cape Town responded that “the City has removed pegs and
partially erected unoccupied structures. Although we empathise with the
plight of our residents, we simply cannot allow the invasion of land.
Invaded land becomes a fire-, flood and health risk and it makes the
provision of basic and emergency services almost impossible in some
cases.
Our residents know which channels to follow and we are always open to
engagement but we cannot support illegal actions. It will not improve
the lives of our vulnerable persons.” Skeleton structures of homes are broken down supervised by law enforcement. Photo: Ashraf Hendricks
Published originally on
GroundUp
.
Kei Road Location school and clinic closed and taps run dry
By Mbulelo Sisulu
19 May 2017 Protesters blocked entry to Kei Road location. Photo: Mbulelo Sisulu
Residents of Kei Road Location near King William’s Town,
Eastern Cape, are without water and the local clinic and the school have
been closed since protests started in the early hours of Monday 15 May.
Protesters blocked the entrance road to the location and also
switched off the generator that pumps drinking water for Kei Road and 18
villages. Taps have run dry and people are fetching water from a river
and a nearby dam.
The protest action arose because residents say they registered for
houses in 1996 and are still waiting, while people in surrounding
informal settlements, some established only a few years ago, are
receiving RDP houses and basic services. Kei Road is home to about 1,600
residents.
Houses were built at Southdown informal settlement in 2015, and water
and sanitation was provided. Preparations are currently underway to
start construction in June on houses for informal settlements Haddon
Farm and Ndakana Village.
A Kei Road community leader and resident said: “Our location was
established around 1940, but has not been developed by our government.”
He wished to stay anonymous because he said he was being targeted by
police as a troublemaker. He said police had come looking for him at his
house. “As a married man, you cannot have dignity when you still live
at home with grandparents, parents and your wife,” he said.
Peter Ntisani, 43, said that on Tuesday when returning home from his
job at Amathole District Municipality in Stutterheim, “I met police who
shot me with rubber bullets.” He says he had to be booked off work for
five days by his doctor.
Police spokesperson Captain Siphokazi Mawisa said a public violence
case was opened when about 30 community members protested. “They closed
the R63 and threw stones at the police who fired rubber bullets to
disperse them. No one reported any injury to the police,” she said.
Eastern Cape Education spokesperson Mali Mtima said the department is
aware of the situation. “Our district department is busy discussing the
way forward to help this school. We urge our community members to allow
teachers and kids to go to school.”
Eastern Cape Health spokesperson Sizwe Kupelo said there is
absolutely nothing they can do as a department when residents close the
roads.
“We are very sorry for the people of that area,” he said.
Councillor Xola Nqatha said that a delegate from Cooperative
Government and Traditional Affairs took down the grievances of residents
on Tuesday 16 May and would respond in 14 days.
Residents say they are not going to stop their protest until their demands are met.
Published originally on
GroundUp
.
