Politics,Policy,and Inequality in South Africa Under COVID-19

Abstract

The COVID-19 pandemic has highlighted and exacerbated inequalities in South Africa. The question posed in this article is whether the pandemic and its associated responses offer the opportunity for a more egalitarian society in South Africa, or a more intensively unequal society. The future is contested. On the one hand, there is the consolidation of labor displacement, a growth in unemployment, and a deepening of inequality. On the other, there is the possibility of a turning point toward significant advances in the de-commodification of education, health, and transport. But as with much of the Global South, South Africa has relatively high levels of informality compared to the Global North, which has implications for the impact of the pandemic and the structure of the responses.

Introduction

The trajectory of inequality is shaped by malign and benign forces, so argues Milanović (2018). While the COVID-19 pandemic is certainly a malign force, its effect on inequality cannot be assumed. So far, the pandemic has highlighted and exacerbated inequalities in South Africa. The key question is whether the pandemic and its associated responses offer the opportunity for a more egalitarian society in South Africa, or a more intensively unequal society. The future is certainly contested. On the one hand, we could see the consolidation of labor-displacing growth, a rise in unemployment, and a deepening of inequality. On the other, we are presented with a situation similar to that in post-war Europe, which precipitated an egalitarian moment that led to significant advances in the de-commodification of education, health, and transport through the Keynesian welfare state. The period also witnessed significant advances in human rights, beginning with the UN Declaration of Human Rights in 1948, and major transformations in the rights of women.

South Africa, as with much of the Global South, is different, in important ways, from Europe and the rest of the Global North, most notably due to higher levels of informality, a serious public debt issue, and this has implications for the impact of the pandemic and the structure of the responses. In particular, the ability of the state to coordinate and implement redistributive projects is very different. But the current moment offers some important opportunities. Already, some policy responses which have been implemented on a wide scale would, until very recently, have been dismissed as utopian. There has also been a major shift in the recognition of the informal economy, particularly in areas such as food production and distribution. But if we are to achieve a more equitable and egalitarian society, we will need a social pact as the basis from which to proceed. It is vital that in any such arrangement, those who are asked to moderate their demands (i.e., labor) must be provided with a clear indication of what they will potentially gain through a new redistributive arrangement that aims to benefit the whole society, through policies such as a national health insurance and improved infrastructure and public transport.

The article is divided into three parts. First, we discuss the forces shaping inequality and responses to the pandemic before we chart the history of social pacting in South Africa. Then we suggest possibilities for how a new social pact might be achieved. The key question is what, if anything, is different about the COVID-19 moment that might make it possible to reconcile the conflicting imperatives in a way that we failed to do in the compromise of the early 1990s.

Pandemic and the Reduction of Inequality

In 2015, the leaders of 193 governments promised to reduce inequality under Goal 10 of the Sustainable Development Goals (SDGs). In 2017, Development Finance International (DFI) and Oxfam produced the first Commitment to Reducing Inequality (CRI) index to measure the commitment of governments to reduce the gap between the rich and the poor. The CRI index is based on a database of indicators, covering 157 countries, which measures government action on social spending, tax, and labor rights—three areas found to be critical to reducing the inequality gap. What emerged from the CRI report is that the 10countries most committed to reducing inequality were all from the industrialized welfare states of Northern Europe and those least committed came from the less industrialized and relatively stagnant economies of the Global South (Oxfam, 2018).

This raises the much-debated question of what forces drive a commitment to reduce inequality. In his classic formulation, Simon Kuznets, foregrounds economic growth. He states that as countries industrialize and average incomes grow, inequality will at first increase and then decrease, resulting in an inverted U-shaped curve when one plots inequality level against income (Kuznets, 1955). The economic determinism underlying the Kuznets hypothesis was cruelly tested in the late-twentieth and twenty-first centuries when inequality in the USA and other countries of the industrialized world steadily increased (Milanović, 2018).

To explain these shifts in inequality, Milanovic distinguishes between two types of forces that drive inequality down: ‘malign’ forces (wars, natural catastrophes, and epidemics) and ‘benign’ forces (more widely accessible education, increased social transfers, and progressive taxation) (Milanović, 2018, pp. 4–5). In his classic study of inequality, Therborn (2013) brings these two forces together by acknowledging the significance of the ‘malign’ forces of violent revolution and war but emphasizes the ‘benign’ forces of peaceful reform that led to the ‘egalitarian moment’ after World War II, when welfare states were built around the notion of full employment, universal health care, education, and social security. ‘Under certain circumstances’, he writes, ‘far-reaching peaceful reform has been possible’(Therborn, 2013, p. 155). He cites as an example

…virtually the whole of the capitalist world from the aftermath of World War II until about 1980, with egalitarian advances of existential rights and respect and a general equalisation of health and life expectancy, as well as major national equalisations of resources of income and education. (Therborn, 2013, p. 155)

Similarly, inspired by the turn of war in the allies’ favor, Franklin D. Roosevelt argued in his State of the Union address, in January 1944, that the first US Bill of Rights had ‘proved inadequate to assure us equality in the pursuit of happiness’. His remedy was to declare the need for an ‘economic bill of rights’ which included the following (Roosevelt, 1944):

the right to a useful and remunerative job in the industries or shops or farms or mines of the nation;

the right to earn enough to provide adequate food and clothing and recreation;

the right of every farmer to raise and sell his products at a return which will give him and his family a decent living;

the right of every businessman, large and small, to trade in an atmosphere of freedom from unfair competition and domination by monopolies at home or abroad;

the right of every family to a decent home;

the right to adequate medical care and the opportunity to achieve and enjoy good health;

the right to adequate protection from the economic fears of old age, sickness, accident, and unemployment; and

the right to a good education.

The Pandemic and Response in South Africa

The pandemic and the health and economic response (the lockdowns) have had a hugely damaging effect on the South African economy and society. These are easily understood when we look at the macroeconomic indicators. First, the narrower measure of the budget deficit for 2020–2021 has, as a result of COVID-19, shifted from 6.8 per cent of gross domestic product (GDP) to 14.6 per cent. In the original 2020–2021 budget, the government had projected its revenue for the fiscal year to be R1.398 trillion. As a result of the shutdown and lower economic growth, the government now expects the revenue to be R1.099 trillion—a shortfall of almost R300 billion. Expenditure, on the other hand, which was initially projected at R1.766 trillion, is now projected to be R1.809 trillion—an increase of about R44 billion. The net result is that the deficit, originally expected to be R368 billion, is now estimated to be R709 billion. Second, within the current fiscal year, the government has cut R101 billion from various budget lines and reallocated R145 billion worth of expenditure for COVID-19 measures, hence the R44 billion of net additional expenditure (Francis & Valodia, 2020b).

These high-level indicators do not, however, give us much information about the experiences of different groups in South African society. South Africa is one of the most unequal countries in the world, and the COVID-19 pandemic is exacerbating these inequalities. Microeconomic data can help us construct a picture of the financial inequalities across South African households. If we divide the households in the country into five groups (quintiles), from the poorest 20 per cent to the richest 20 per cent, we see how deep is the inequality in the country. According to forthcoming research by our colleague Gabriel Espi at the Southern Centre for Inequality Studies, drawing from the National Income Dynamics Study from 2017, approximately 18 million South Africans live in the poorest 20 per cent of households. Almost half of these poorest households are in rural areas (Francis & Valodia, 2020a).

On average, these poorest households have about five members and a total monthly household income of R2,600 (or about R567 per person in the household). Only 45 per cent of households have an employed member. Much of this income would have been lost as the shutdown began. Indeed, a recent study by the Southern Africa Labour and Development Research Unit, which specializes in research on poverty and inequality, found that the poorest 10 per cent of households will most likely lose 45 per cent of their income through the shutdown (Bassier et al., 2020). In contrast, seven million people live in the richest 20 per cent of households, with approximately two people per home (the average size is 1.93 people per household). The average monthly income for these households is almost R38,000 per month (or R21,000 per person). Almost 80 per cent of these households have at least one employed member, and they work far more hours at a far higher wage than those in the poorest 20 per cent of households (Francis & Valodia, 2020a).

Many of the people in the richest households are able to continue to earn an income by working from home, and many will actually save money due to reduced expenditure on things like eating out, holidays, and entertainment. For others, in lower-paid formal employment, the lockdown has exposed many to the risk of losing their jobs. For this group, the Unemployment Insurance Fund (UIF) provides some temporary relief, but it has been beset by administrative failures.

One particular economic group, that is, the informal workers, has no protection whatsoever, and the lockdown effectively removes their ability to earn any income at all. Analysis of the Labour Force Survey data shows that there are 2.6 million South Africans working in the informal sector as own-account workers or their employees (ILO, 2018; Rogan & Skinner, 2018). Approximately, a million more people are employed as domestic workers, many of whom do not have employment contracts or any unemployment benefits. Many of these people would effectively have lost their jobs and their ability to earn an income at midnight on Thursday, 26 March, when the lockdown began. When the lockdown ends, many of these workers, especially women, who often occupy the most precarious positions in the labor market, will find it very difficult to re-establish their work on the street corners, taxi ranks, and train stations around the country. These workers, sometimes called ‘the precariat’, have work, but no protection whatsoever.

During events like a lockdown, or a protracted economic crisis, it is not income, but wealth, which sustains households. Here, the inequalities are unfortunately even more striking. A new study by our colleagues Chatterjee et al. (2020) of the Southern Centre for Inequality Studies and the World Inequality Lab finds that the poorest 50 per cent of South Africans have an average net wealth of negative R16,000. That means their assets are less than their liabilities; they are deeply in debt. By comparison, the richest 10 per cent of South Africans have an average net wealth of R2.8 million per person (the top 1 per cent has an average net wealth of R17.8 million per person).While these individuals would have lost a portion of their wealth in the recent stock market crash, they are still substantially better off than most, and their households far better equipped to endure the lockdown.

Before the pandemic, South Africa had about five million people working in the informal economy (Francis et al., 2020a). As we have argued with our colleague, Kamal Ramburuth-Hurt, the prevailing view in economics is that the informal economy acts as a shock absorber for the formal economy in times of economic crisis. This is based on the premise that there are no barriers to entry to informal work. In South Africa, there is evidence to the contrary. In contrast to many other developing countries, South Africa has both very high unemployment and relatively low informal employment (Francis et al., 2020b). About 34 per cent of workers in South Africa are informally employed, while the global average is more than 60 per cent (ILO, 2018). The most recent evidence from South Africa is that the informal economy has had proportionately larger employment losses during the Covid crisis. This is part of a longer trend. Following the 2008 crisis, Mike Rogan from Rhodes University found that both the formal and informal sectors are contracted—the formal sector by 4 per cent, the informal by 7 per cent (Rogan, 2016). This suggests that the informal economy does not necessarily absorb those who lose their formal jobs. In the current crisis, this was exacerbated by the design of the lockdown and physical distancing protocols. These have had a particularly severe impact on the informal economy (Francis et al., 2020b). This highlights the importance of considering the informal economy in any economic policy going forwards.

Furthermore, we argued that women in the South African labor market continue to suffer higher unemployment, lower wages, and more precarious working conditions than men, even when doing the same work (Francis et al., 2020b). There is already mounting evidence that the Covid-19 crisis has had a disproportionate impact on women, both by destroying paid jobs, and increasing the burden of unpaid work.

Any economic policy proposals from government will have to address these inequalities if the country were to emerge from the pandemic with a more equal and fair society and a more resilient economy. The budget is one of the key tools that the government has to effect meaningful change, although it cannot address all these problems on its own. Of course, rebuilding is a long-term process, but the budget is a key starting point. In many of its pronouncements on managing the economic fallout from the pandemic, the government has emphasized its intention to forge a new economic growth path that would address the high levels of inequality in South Africa (Francis & Valodia, 2020b).

Toward a Social Pact

In his statement on 21 April 2020, on further economic and social measures in response to the COVID-19 pandemic, President Ramaphosa suggested that our economic strategy ‘will require a new social compact among all role players—business, labour, community and government—to restructure the economy and achieve inclusive growth’; such a compact, Ramaphosa said, ‘will build on the cooperation that is being forged among all social partners during the crisis’(Ramaphosa, 2020, p. 6).

Given the sharp racialized inequalities that have been so painfully revealed during the lockdown period, achieving consensus among the social partners will not be easy. The obstacles to a social compacting process are immense. How does one draw the large swathe of South Africa’s poor, marginalized, and the informal economy into the pacting process? Clearly, the Community Chamber of the National Economic Development and Labour Council (NEDLAC) does not adequately represent these ‘communities’ (Webster et al., 2013). There are also significant differences within each social partner, within organized labor and within business (by race, size, rural–urban region). Another fissure lies within the broad state sector itself, relating to macroeconomic policy coordination, or the lack thereof since 1994. How can we institutionalize mechanisms for greater coordination, especially given the constitutional independence of the South African Reserve Bank?

An ILO study (Fraile, 2010, p. 32) on social pacting in developing and transitional societies concluded that:

…many conventional efforts to promote tripartism in the developing world through focused consultations on particular issues such as labour law reform, or through broader but essentially deliberative exercises such as the Poverty Reduction Strategy Programmes (PRSPs), may be missing a key element required for their success. Governments may want to consider putting wages—and the concomitant discussion of macroeconomic policy parameters—on the table to encourage the emergence of social pacts.

The president gave little indication of what a post-COVID-19 compact in South Africa would entail, but a useful point of departure would be to revisit the concept of social compacting, our experience of the concept, and what lessons can be drawn from South Africa and other transitional and developing countries.

The idea of a social pact has been an elusive goal in post-apartheid South Africa. Indeed, as early as 1996, the Presidential Labour Market Commission called for an Accord for Employment and Growth. The current call for a social compact raises a number of questions:

Are there specific conditions that make for successful social compacting?

Why have the previous calls for social compacting failed?

Are current conditions more favorable for a successful compacting process?

What would the content of such a compact be?

And what compromises are implied by a meaningful social pact between the state, labor, business, and civil society, and with what goals in mind?

We need to recognize that the social structure of the labor force in the Global South differs from that of the northern advanced industrialized societies. Where the latter has historically been composed largely of full-time permanently employed workers (represented mainly by national industrial unions), in the South, a multiplicity of classes and class fractions exist: urban workers, the informal sector, the unemployed, small entrepreneurs, and peasants. The industrial working class is a minority, while trade unions do not often represent the majority of workers, let alone other strata. As a result, the principal agent of the Southern pact has been the developmental state, not the organized associations of capital and labor (Webster & Adler, 1999, pp. 354–355).

Importantly, a social compact is not possible unless all key actors perceive that the country is in a stalemate and recognize the need to bargain and make concessions (Webster & Adler, 1999). But a pact could open up the possibility of a non-zero-sum solution in a labor-surplus economy such as South Africa, where growth could be prioritized in a manner that generates sustainable jobs.

What were the processes that encouraged the concessions that enabled the political pact of 1994 to occur? South Africa had entered a stalemate where neither capital nor labor was able to secure their interests by pursuing their traditional demands through adversarial strategies and tactics. It is possible to identify six conditions that make a compromise possible (Webster & Adler, 1999, 373–378):

parties have to enter a situation of stalemate in which no party is able to achieve its objectives;

the stalemate has to lead to a situation where the costs of not compromising begin to outweigh the perceived gains in standing fast;

parties must have access to—or be in a position to create—institutional arrangements that allow bargained arrangements to be reached;

organizations must be able to represent their constituencies effectively and be able to mobilize and restrain their followers according to their strategic and tactical vision;

it is imperative that individuals are willing to risk making strategic choices that may break with the organization’s prior commitments;

the international context must be conducive to the pact or, at a minimum, does not serve to affirm the parties’ unwillingness to compromise.

For such a compromise to take place, all parties must share a perception of stalemate and be willing to accept a suboptimal solution to the impasse. A Southern pact is likely to differ from the post-war historic compromise in Europe: it cannot simply be based on high wages and high labor standards for organized workers. Three different kinds of compromises have been suggested (Webster & Adler, 1999, pp. 370–378): first, the introduction of a social wage to all citizens with the right to income security; other forms of welfare such as education, health, and shelter; a right to share to the full in the social heritage; and the right to live in a safe environment. Second, allow a degree of ‘regulated flexibility’ in the labor market—greater job and wage differentiation—in return for a minimum standard of benefits, thereby ameliorating the impact of variation on workers. ‘Variation gives incentives to individual capitals—particularly in small, labour-intensive firms—to invest and create jobs, while the social wage provides workers at the lower end of the labour market and the unemployed with a degree of income security’(Webster & Adler, 1999, p. 372). Third, a requirement that capital relinquish unilateral control over investment and production decisions by embracing forms of co-determination at micro, meso, and macro levels. In the absence of such joint decision-making, it is likely that the surplus generated through wage stability would benefit capital alone rather than generate growth and employment creation. In return for labor gaining increased control over the distribution of the surplus, capital gains a more productive workforce and greater flexibility in the labor market.

What Makes the COVID-19 Social Pact Possible?

For a number of reasons, the COVID-19 pandemic may have created the conditions for a viable social compact in South Africa. First, the pandemic has accentuated an already precarious fiscal position on the part of government which may force the social partners into having to reach an agreement on important elements of a social pact including the levels and earnings in public employment (which until recently the public sector unions have not been willing to entertain), levels of social expenditure, and the need for increases in taxation among the upper classes. Until this point, discussion about a wealth tax or a social solidary tax would have been readily dismissed. Now, given the precarious fiscal position, all social partners are open to discussions about not only expenditure reform but also, crucially, revenue reform too.

Second, the power of local capital has been significantly attenuated by the pandemic. The number of businesses in South Africa that are likely to require significant injections of capital to survive the pandemic is high, and the government has had to offer a number of credit guarantees, tax deferrals, and arrangements to tide over enterprises in a cashflow crisis. From seeing government as ineffective and a hindrance to the project of capital, business is now reliant ongovernment support.

Third, while South Africa has had unusually high levels of unemployment for the best part of two decades, the COVID-induced lockdown and the associated economic slowdown are likely to lead to a significant increase in unemployment, with some estimates forecasting unemployment of 50 per cent. This, together with the already high levels of marginalization, precarious, and low-paid work, has created the conditions whereby more than half of the workforce is either unemployed or subsisting in the informal economy, which itself has been placed under severe stress due to the lockdown. There is now something of a realization that this ‘insider-outsider’ pattern of growth is no longer socially sustainable and that a more inclusive path for growth has to be found. While there have been extensive discussions about a social pact for the last two decades, this has always been among the insiders—business, government, and unions representing workers in the formal economy and the public sector. In the current crisis, voices representing the outsiders—NGOs, academics, and activists—have been instrumental in making the case for a temporary COVID grant to be paid to those in the informal economy and the unemployed (Bassier et al., 2020). If this impetus continues, the voice of marginalized groups could well be brought into discussions about a new social compact.

Fourth, interactions between business, labor, and government on the imposition of a lockdown and the phasing out of the hard lockdown in NEDLAC have created both higher levels of trust among the key groups and also an impetus for the development of a social pact. There are some persistent challenges, however. South Africa has a fourth partner in social dialogue—the community constituency. The intention of their inclusion is to represent the economic ‘outsiders’ who are excluded from business, labor, and government. However, there are serious reservations about the ability of this group to organize appropriately and questions about whether they do actually represent the economic outsiders at all.

Fifth, as highlighted by Mazzucato (2020), there is a tendency for the costs of a crisis to be socialized but rarely are these opportunities used to create the conditions for success to be socialized. The pandemic has raised a number of discussions among policymakers about using the process of socializing the economic costs of the pandemic to restructure the patterns of growth to enable greater socialization of profits. There are now discussions about curbing excessive ‘short-termism’ in corporations, regulating executive pay, democratizing the corporation, enforcing high levels of taxation for the very wealthy, and providing a basic income grant.

This suggests that contemplating a new social pact in South Africa is not necessarily futile. But important constraints remain. The key question is whether the government is able to push through an agenda that is truly inclusive in a fiscal crisis and with a highly contested political party system, the costs for which are borne equitably.

Conclusion

Policymaking in post-apartheid South Africa has generally been cautious and pragmatic, characterized by marginal interventions rather than any radical changes. Indications from the government are that this will continue; the COVID-19 adjustment budget, tabled in June 2020, was very much within the orthodoxy of policy for the last two decades. But there are some signs that things might be changing. In April, the government introduced a special COVID-19 grant of R350 per month for all unemployed people. This is, in many ways, a universal basic income by another name: an instrument which has long been resisted by the state. Importantly, this shift in government policy is taking place in the context of a changed international climate, broadly supportive of more redistributive social and economic policies. There is tentative optimism that further radical changes might be possible.

Another important development is the changing balance of power between the insiders and outsiders. By some estimates, unemployment in South Africa could reach 50 per cent in the next few months. There is increasing realization that the tenuous insider–outsider arrangement cannot work anymore. The cost to the insiders from avoiding a new social pact is rising, as is the disruptive power of the outsiders. The decentralized nature of these protests and the lack of nationally representative organizations of the poor and marginalized require a rethink of the classic peak-level social dialogue model underlying NEDLAC. Instead of conceiving of one grand national-level pact, what may be required are multiple local-level issue-based and community-led developmental pacts.

Serious constraints still remain. There are concerns both about the will and capacity of the state to lead a process of social pacting and to implement the outcome successfully. What is clear, however, is that the issue can no longer be avoided or delayed. Even as the pandemic rages through South Africa, the economic damage is becoming clear, and it is evident that it is beyond the bounds of traditional economic tools to address the socio-economic fallout. Above all, it will require new inclusive bargaining arrangements that transcend the insider–outsider divide.