SA needs social consensus, jobs to cut inequality - Patel

Friday, May 18, 2012

Cape Town - If the country is to overcome inequality, South Africans have to reach a consensus on both workers' wages and executive pay rates and speed up the creation of more jobs, Economic Development Minister Ebrahim Patel said on Thursday.

Speaking at the Next Economy National Dialogue on income inequality in Parliament, Patel singled out figures in the 2010 household survey that revealed that the top 10% of earners in South Africa took home salaries that were 101 times higher than the bottom 10% of earners.

"When what one person takes away is so disproportionality larger than what another takes away, the social glue that holds society together weakens," he said, adding that income inequality also suppressed the market, as fewer people were able to buy goods and services.

What was needed were more effective partnerships between all sections of society.

"If partnership can do what it did to the Japanese economy after the end of the Second World War, or the German economy, or to a number of other successful economies, partnership needs a sense of being in something together," said Patel.

He also highlighted the progress that Brazil had made in overcoming inequality since the mid-1990s, even though between 2000 and 2008 the two countries had grown at nearly the same rate - 3.5% for Brazil and 3.6% for South Africa.

The government is addressing inequality, largely through social grants, the country's regressive tax system and the free or subsidised basic services.

However, he said this wasn't enough, adding that the government alone would not be able to overcome inequality in South Africa.

"We have got to build to a greater and greater extent, opportunities for employment, for jobs, for decent work, as the principle means out of poverty," said Patel.

While over 300 000 new jobs had been added over the last 12 months, just over 400 000 new jobs had been added since the adoption of the New Growth Path 18 months ago - compared to the previous 18 months preceding the adoption of the new policy when the country lost over 600 000 jobs.

"But not withstanding that jobs growth, we are hardly making a dent in jobs growth, we are hardly making a dent in unemployment levels. So we have to speed up jobs growth...," he said.

Commenting on the idea mooted by the National Treasury to implement a youth wage subsidy to boost employment, Cosatu general secretary Zwelinzima Vavi believed that tax incentives would only address unemployment in the short-term.

Vavi acknowledged that unemployment was the biggest problem the country faced but said that at the same time, one couldn't look away from the issue of high pay, adding that the country needed a mechanism to get chief executives to disclose the level of their pay packages.

He agreed strongly with the 2011 report and findings of the UK High Pay Commission, that shareholders should be given more power to vote on the pay packages and bonuses of top executives.

He said top executives wanted to measure their packages with those of first world countries, while executives argued that workers had to be paid on par with other developing countries.

"It's a brutal winner-takes-all mentality form of a capitalist system..." he said of executive pay, pointing out that top executives in South Africa earned 1 728 times the average worker in their respective companies, while this gap was only at 319 times in the US.

Bobby Godsell, chairman of Business Leadership SA, who backed the idea of setting up a commission to examine corporate pay as the UK had done, said the business sector was often unfairly demonised.

Business owners and business leaders were not only after money when running a company, but also wanted to build good companies and make a contribution to society.

In this way, top executives had to be remunerated accordingly, he said.

In response to Vavi's assertion that inequality was increasingly dividing the country along class lines, Nazmeera Moola, head of macro-strategy at Macquarie First South, stressed that the country needed to create more jobs, no matter the scale of remuneration.

"There is class warfare and the warfare is between those who have formal sector jobs and those that don't," she said.

What would relieve unemployment and narrow the gap between the rich and poor, she said, was if the country helped smaller firms to hire more workers.

The UK High Pay Commission had developed a 12-point plan, which had been subsequently adopted by the Labour party.

Deborah Hargreaves, the commission's chairperson, said the plan included a call to give shareholders a binding vote on the chief executive's pay or exist bonuses.

Hargreaves pointed out that last month Johan du Toit, the chief executive of SA company Central Rand Gold (which has dual listing on the JSE and London stock exchange) resigned after 75% of the company's shareholders voted to deny a pay rise for Du Toit.

She said the UK government was currently drafting regulations around executive pay, which include making allowances for more diversity on companies' remuneration committees and the calculation of a single figure around which executive pay could be structured.

However, she said the UK government had not turned down a more controversial idea to have an employee representative on remuneration committees.

She said massive distortions in pay destabilised the economic growth as it drew away many of the brightest minds to the financial sector, away from the industrial sector.

It also demoralised those in the workforce who felt that pay rates were unfair.

There was also evidence that more equal societies attracted more entrepreneurialism.

She said the top 0.1% of income earners in the UK (earning more than 500 000 pounds and consisting of 36 000 people) saw their pay rise by 64% between 1997 and 2008, while the income of middle-income earners rose only by seven percent over the same period.

In a recent British survey that asked how much top executives should be paid, most people polled said top executives should be paid between 500 000 and 700 000 pounds - a massive contrast to the average top pay of 4.2 million pounds, she said.