State's legitimacy also important - letter in Business Day

My letter to Business Day was published today:

SIR – Does economic growth lead to greater equality or inequality? According to Thomas Piketty in his book Capital in the Twenty-first Century it’s the latter. David le Page would seem to agree (The value of an endlessly expanding GDP is doubtful).

While le Page targets the wrong type of growth as the culprit, in Piketty’s book growth itself is the problem. Both recommend higher taxes for the super-rich which can then be re-distributed to the poor and spent on infrastructure.

As Hilary Joffe remarks (Raging debate over inequality has resonance in SA) tackling inequality in SA raises the spectre of affirmative action and BEE. But just as important is the capacity of the state – as the recipient and spender of our taxes – to effectively put them to use in reducing inequality. All the countries where inequality is lowest have a highly capable public service. Sadly the same cannot be said in South Africa, where spendthrift public enterprises compound the problem.

A key precondition of a state’s ability to raise taxes is its legitimacy. When the South African state continues to suffer from corruption, incompetence and waste we can never expect the super-rich to willingly contribute a disproportionate amount of their wealth to taxes.

Mark Cutifani’s call for business to re-examine its role in society beyond just making profits and rewarding shareholders should be seen in the same light. It will get nowhere as long as state coffers are routinely plundered to the benefit of the few and things around us fall apart.

So the issue of growth causing equality or inequality in South Africa is moot. Until the state gets its act together not only will growth be anaemic but its fruits will fall on thorny ground and be choked.

There’s an election around the corner.