Why inequality will not be fixed with Pikettian posturing and distorted data, The Conversation, 1.10.2015

In the hot ideological wars South Africans wage, perhaps none is as violent to the truth as the rejigging of the Gini coefficient measuring income inequality.
This number is zero if everyone shares income perfectly equally and one if only a sole person gets it all. Before state redistribution kicks in, South Africa’s Gini, as measured last November by the World Bank, is a shocking 0.77. This is the highest of any major country. But a curious strategy of revising the Gini downwards was recently adopted by the World Bank and its local allies.

Thomas Piketty’s visit reminds us of the need to reconsider South African inequality-fibbery. The World Bank’s Pretoria staff now claim the Gini can be reduced to 0.59 if state social grants, education and health spending are included in the calculation.

This is a not-so-rigorous finding because state-funded benefits enjoyed by corporations and the rich magically evaporate from the bank’s analysis. Nevertheless it triggered a landslide of commentators and economists heralding how well redistribution was going. A state grant to a poor family to raise each child, the most common form of transfer that goes to 16 million caregivers, is just R330 per month, or US$0.75 a day.

That cacophony must have been in South African Finance Minister Nhlanhla Nene’s ear when he reduced the real value of funds given to the poorest by 3% in this year’s budget. He simultaneously allowed the rich to increase their annual offshore expatriation from R4 million to R10 million.

The neoliberals’ co-opting of Piketty

Piketty, a genuine social democrat, would be aghast at this interim outcome of South Africa’s recent inequality debate. Yet the French economist is being enthusiastically embraced and co-opted to advance the neoliberal agenda. As one long-standing South African business leader put it this week:

The extent to which several of Piketty’s points for reducing inequality resonate with the overall thrust of the National Development Plan is striking.

The plan has been endorsed by big business and the conservative opposition for its neoliberal macroeconomic policy and mega infrastructure projects. In reality, it is severely wanting on inequality.

It projects that by 2030 its strategies will reduce the Gini only from 0.69 to 0.60. That means the income share earned by the poorest 40% will rise from 6% to just 10%. As Neil Coleman, from the Congress of South African Trade Unions, has argued in the strongest critique of the plan to date:

0.6 would still make our levels of inequality higher than any other major country in the world! This long-term target (which Brazil has surpassed by far in less than 10 years) is an embarrassment for a country claiming to be serious about combating inequality.

French economist and academic Thomas Piketty book
Reuters/Charles Platiau

The full-on neoliberal onslaught desired by the businessman – he advocates user charges and fiscal discipline – has faced resistance from a working class that the World Economic Forum has found to be the most militant on earth each year since 2012.

Justifiably, the workers demand higher levels of social spending, for South Africa ranks a pathetic fifth from the bottom of 40 major countries in this category (as a share of GDP). Borrowing locally to raise state spending makes sense. The most recent public debt and deficit analysis from Barclays Capital considers South Africa substantially under-borrowed (in local terms not foreign debt) compared to its peers.

A classical Keynesian policy of growth-through-redistribution is certainly desirable in this terribly unequal society. That’s why I’m very sympathetic to my colleagues Imraan Valodia and Vishnu Padayachee, who believe Piketty’s influence can revive this tradition.

Marxist economic insights ignored

We apparently require much more revolutionary political impulses in society if even the Keynesian project is to advance. Setting aside the threat to co-opt Piketty into the National Development Plan, I’m worried about a different danger of Pikettian posturing – the delegitimisation of perhaps the strongest tradition(s) within South African political economy, Marxism.

According to Piketty’s Capital in the 21st Century:

Modern economic growth and the diffusion of knowledge have made it possible to avoid the Marxist apocalypse … Marx totally neglected the possibility of durable technological progress and steadily increasing productivity.

This flippancy is what you expect from someone who brags openly about his ignorance about the Marxian intellectual framework:

I never managed really to read it … Das Kapital, I think, is very difficult to read and for me it was not very influential.

A bust of Karl Marx in London.
EPA/Andy Rain

There are various well-read Marxist rebuttals to Piketty by, among others, David Harvey, Esteban Maito, Adam David Morton and Michael Roberts. Some reflect on his unfamiliarity with the idea of the “rising organic composition of capital”. This is when higher capital intensity in production causes falling profitability over time.

This is the core process behind overproduction crises in Marx’s schema. Without comprehending those tendencies, Piketty has no clue about the crisis of “overaccumulation” which now bedevils the world economy. Widespread gluts are to him mainly the manifestations of inefficient distributional economics.

Piketty also fails to analyse (as Marx does) long periods of speculative finance. He terms these immaterial capital as a dismissal of their importance. In contrast, Marxists like Harvey have long argued that bailouts of private creditors using monetary and public debt mechanisms would simply displace, not resolve, the contradictions.

What’s wrong with Piketty’s analysis

Piketty’s central thesis in Capital in the 21st Century is that:

When the rate of return on capital exceeds the rate of growth of output and income, as it did in the nineteenth century and seems quite likely to do again in the twenty-first, capitalism automatically generates arbitrary and unsustainable inequalities that radically undermine the meritocratic values on which democratic societies are based.

First, he uses a terribly stilted measure of GDP, expertly demolished by the University of Pretoria’s Lorenzo Fioramonti. Second, the central problem with this, as has been pointed out by his right-wing critics too, is its mishandling of residential capital.

The Piketty inequality critique is vital – but only if he can withstand the neoliberal embrace, and if local Keynesians can amplify his arguments against the South African Reserve Bank and the country’s National Treasury.

Nevertheless, there are obvious intellectual reasons to be suspicious of Piketty. But all this matters little. It is the challenge of changing the political balance of forces that far transcends our ideological bantering, isn’t it?The Conversation

This article was originally published on The Conversation. Read the original article.