In a society in which inequality is widening, fairness is not just about wages and income, or wealth. It’s a far more generalized perception. Do I seem to have a stake in the direction society is going, or not? If the answer is a loud “no,” then brace for a decline in motivation whose repercussions will be felt economically and in all aspects of civic life.
Inequality across the globe has been widening for decades – we all know that. The debate however is not about the facts, but over its meaning. So says Nobel laureate and ex World Bank chief economist Joseph E. Stiglitz, in his soon to be published book The Price of Inequality.
While Stiglitz’s theories have focused on America, the same arguments hold truth especially for Africa, home to seven of the world’s fastest-growing economies, with 70% of Africa’s population living in countries that have averaged economic growth rates in excess of 4 per cent over the past decade and result in the region increasing the pace of growth well beyond 5 per cent over the next two years.
The Africa Progress Report on Jobs, Justice and Equity released this week (30th May) records that most countries are not on track to achieve the Millennium Development Goals by 2015, flagging slow progress in areas such as child nutrition, child survival, maternal health, and education. Launched by the Africa Progress Panel, the report warns that Africa’s strong economic growth trajectory is at risk because of rising inequality and the marginalisation of whole sections of society.
So while some in Africa are celebrating our recent turnaround in good fortune, we need to keep in mind the millions of people not yet experiencing the same fortune, and take time to design sustainable economies that will guard us against any possible fallout (although one would argue that terrorism and growing violence ins some African countries is an expression of inequality).
From the right, you sometimes hear the argument made that inequality is basically a good thing: as the rich increasingly benefit, so does everyone else. Stiglitz believes this argument is false: while the rich have been growing richer, most people (and not just those at the bottom) have been unable to maintain their standard of living, let alone to keep pace. A typical full-time male worker receives the same income today he did a third of a century ago.
From the left, meanwhile, the widening inequality often elicits an appeal for simple justice: why should so few have so much when so many have so little? It’s not hard to see why, in a market-driven age where justice itself is a commodity to be bought and sold, some would dismiss that argument as the stuff of pious sentiment.
Stiglitz theorises that there are good reasons why the wealthy and those in power should care about inequality — even if they’re thinking only about themselves. The rich do not exist in a vacuum. They need a functioning society around them to sustain their position. Widely unequal societies do not function efficiently and their economies are neither stable nor sustainable. The evidence from history and from around the modern world is unequivocal: there comes a point when inequality spirals into economic dysfunction for the whole society, and when it does, even the rich pay a steep price.
“Disparities in basic life-chances – for health, education and participation in society – are preventing millions of Africans from realizing their potential, holding back social and economic progress in the process,” says Kofi Annan, Chair of the Africa Progress Panel.
The need for equitable growth is all the more critical because of Africa’s “profound demographic shift”, which will see the continent’s population double in three decades, and continue to rise into the second half of the twenty first century. The Africa Progress Panel highlights that today there are 70 million more Africans aged under 14 than there were a decade ago. Over the next decade that number will rise by another 76 million.
The Panel’s report identifies a range of challenges demanding urgent action on the part of governments, including:
Africa’s youth population (15-24 year olds) will rise from 133 million at the start of the century to 246 million by 2020 – requiring another 74 million jobs over the next decade simply to prevent youth unemployment from rising. An agenda for raising skills and generating rural jobs through off-farm employment is top priority across Africa.
In the absence of a concerted effort to raise the productivity of smallholder agriculture, Africa will remain vulnerable to food security crises. ‘Land grabs’ by foreign investors and speculators are a major threat and African governments ought to consider stronger regulations across the board.
Urgent action is required to tackle what it describes as a ‘twin crisis’ in access and learning. With 30 million children out of school and many of those in school failing to master basic literacy, Africa is ill-equipped to generate jobs and take its place in a knowledge-based global economy. A strengthened focus on education and the creation of appropriate funding mechanisms is paramount in creating social equity.
Global economic governance and aid:
Africa still has a weak voice in areas – such as trade, finance and development assistance – that have a critical bearing on its citizens. Aid remains vitally important and that African governments and development partners must deliver on their commitments in a transparent and accountable way.
What Africa needs is a “relentless focus” by policymakers on jobs, justice and equity to ensure sustainable, shared growth that benefits all Africans. Failure to generate equitable growth could result in “a demographic disaster marked by rising levels of youth unemployment, social dislocation and hunger. Africa’s governments and development partners must urgently draw up plans for a big push towards the 2015 Millennium Development Goals.
Values to build a socially equitable Africa
There are some foundational values and tenets Africa has to hold on to in order to ensure social equality as the continent develops:
People are not machines. They have to be motivated to work hard. If they feel that they are being treated unfairly, it can be difficult to motivate them. This is one of the central tenets of modern labor economics, encapsulated in the so-called efficiency-wage theory, which argues that how firms treat their workers—including how much they pay them — affects productivity.
When corporate C.E.O.’s argue that wages have to be reduced or that there must be layoffs in order for companies to compete — and simultaneously increase their own compensation — workers rightly consider what is happening to be unfair. This in turn affects their efforts on the job, their loyalty to the firm, and their willingness to invest in its future. The widespread sense by workers in the Soviet Union that they were being mistreated in exactly this way—exploited by managers who lived high on the hog — played a major role in the hollowing out of the Soviet economy, and in its ultimate collapse. As the old Soviet joke had it, “They pretend to pay us, and we pretend to work.”
The other principle economists often underestimate the role of trust in making our economy work. If every contract had to be enforced by one party taking the other to court, our economies would be in gridlock. Throughout history, the economies that have flourished are those where a handshake is a deal. Without trust, business arrangements based on an understanding that complex details will be worked out later are no longer feasible. Without trust, each participant looks around to see how and when those with whom he is dealing will betray him.
Widening inequality is corrosive of trust: in its economic impact, think of it as the universal solvent. It creates an economic world in which even the winners are wary. But the losers! In every transaction — in every encounter with a boss or business or bureaucrat — they see the hand of someone out to take advantage of them.
The crux of the matter is that unless Africa’s politicians, power brokers, business leaders and influencers begin to advocate trust and fairness in Africa, the current pattern of trickle-down growth will only continue to benefit a few. This will in turn result in poverty reduction, maternal health and childhood survival falling far short of what Africans have a right to expect.
“Africa is on its way to becoming a preferred investment destination, a potential pole of global growth, and a place of immense innovation and creativity. But there is also a long way to go – and Africa’s governments must as a matter of urgency turn their attention to those who are being left behind. I believe Africa and its leaders can rise to this challenge. If they do, Africa will become more prosperous, stable and equitable. This is a prize which we all, wherever we live, will share.” - Kofi Annan.
Excerpts from The Price of Inequality, by Joseph Stiglitz, to be published in June by W.W. Norton & Company, Inc. (U.S.), and in July by Allen Lane (U.K.); © 2012 by the author.
Photos: Jason Florio, floriophoto.com