All Commentary
Monday, April 17, 2017

Why Africa Should Worry Less About Income Inequality

And worry more about economic freedom.

Early this week, the South Africa Daily Maverick published an op-ed titled, “It’s not Zuma that we need protection from, it’s the market.” While the author rightly calls out the role of cronyism in destroying ordinary South Africans’ economic mobility, she doesn’t seem to make a distinction between economic freedom and crony capitalism.

This spotlights a crucial misunderstanding in the ongoing battle against capitalism in South Africa, and across Africa.The values of freedom will continue to take a back seat as anti-market forces demand more state control of the economy against “corporate” interests.

The Benefits Seem Unattainable

How is it that perceptions of the market are so negative on a continent with such a rich tradition of economic freedom?

It can be alleged that the arguments for capitalism have become too utilitarian to appeal to a continent that has been ravaged by the effects of slavery, colonialism, kleptocracy, ethnic genocide, crony capitalism, and extreme poverty. Indeed, in his 1999 book “Development as Freedom,” Harvard Professor Amartya Sen argued,

The discipline of economics has tended to move away from focusing on the value of freedoms to that of utilities, incomes, and wealth. This narrowing of focus leads to an underappreciation of the full role of the market mechanism, even though economics as a profession can hardly be accused of not praising markets enough.”

Thus, while capitalism is beneficial because markets work to expand income, wealth, and other economic opportunities, some of the harsh realities in African countries, especially when compared with progress in other parts of the world, tend to make these material benefits seem unattainable.

It is not inequality of income, but inequality of freedom that traps people in poverty.

Moreover, to market skeptics, it starts to seem plausible that these benefits are unattainable because capitalism itself works against the poor. After all, extreme poverty, chronic unemployment, and misery persist all across Africa, including in countries with relatively free economies, like Botswana. Worse still, even in conflict-ridden South Sudan, foreign companies have reportedly made millions from dealing with South Sudanese generals while the general population suffers from man-made famine.

With seemingly discouraging economic realities on the ground, it most certainly doesn’t help when leading development organizations, such as Oxfam, bolster anti-market rhetoric by claiming that inequality has never been greater. Oxfam’s executive director Winnie Byanyima even said, “It is obscene for so much wealth to be held in the hands of so few when 1 in 10 people survive on less than $2 a day. Inequality is trapping hundreds of millions in poverty; it is fracturing our societies and undermining democracy.”

Poverty is Not about Possessions

Left with the burden of proof, pro-market thinkers must grapple with the question of how to persuade people to value capitalism. A good place to start is to advocate for the expansion of human freedom. Organizations like Oxfam use the World Bank’s income-based definition of poverty, characterizing as “poor” anyone who earns less than $1.90 a day. Instead of focusing on income, pro-market thinkers, especially in the developing world, could consider going back to Professor Sen’s definition of poverty, which is grounded in freedom.

While crony capitalism continues to be a scourge on Africa, it should not seen as evidence against capitalism itself.

Sen argues that the condition of poverty extends beyond having little or no material possessions. Rather, poverty should be understood as the deprivation of basic capabilities, not merely lowness of income. In this way, freedom should be viewed as both the primary end, and the principle means, of development.

Thus, Byinyima is right about one thing: inequality is trapping people in poverty. But, Byinyima and market sceptics in general fail to acknowledge the kind of inequality that traps people in poverty. Indeed, it is not inequality of income, but inequality of freedom that traps people in poverty.

Recognizing the reality of freedom inequality would allow for the dissemination of more valuable statistics to help the poor. In the same seminal work from 1999, Professor Sen argued that the statistic of “$2 a day” prevents policymakers from accessing more useful data:

If our attention is shifted from an exclusive concentration on income poverty to the more inclusive idea of capability deprivation, we can better understand the poverty of human lives and freedoms in terms of a different informational base (involving statistics of a kind that the income perspective tends to crowd out as a reference point for policy analysis).”

Beyond the Dollar Sign

One can only imagine the statistics that are crowded out by repeating the “$2 a day” talking point to influence development policy. For instance, how many of the people living on less than $2 dollar a day can freely move and work in their country? How many of them are arrested or fined or imprisoned for working informally?

How many of them have tried to open a business, only to find out it takes more than 100 days to deal with the bureaucracy, including paying a bribe? How many of them have tried to be entrepreneurial, only to be forced out of business because NGOs, like Oxfam, provided certain products for free, effectively forcing them out of business?

While crony capitalism continues to be a scourge in Africa, it should not be seen as evidence against capitalism itself. While income inequality exists, it should not be perceived as inherently unjust. What is unjust is that the poor are deprived of the freedom to better themselves, and that is a worthy cause to fight.