THE BLOG
01/25/2016 08:00 am ET Updated Jan 25, 2017

Getting Our Two-Speed Society Moving in the Right Direction

Cross-posted from South Africa's Sunday Times.

A few years back, a friend and I took a break from the rarefied meeting halls of the rich and famous at Davos's World Economic Forum to watch an ice polo event across the way in St Moritz. So amazed were we at the display of wealth there, we joked that those attending the polo must be the bosses and owners of those attending the WEF.

Such is the extremity of wealth and poverty in the world that Oxfam reported this week that the richest 62 individuals in the world have the same wealth as the poorest 50% - or 3.8 billion people.

It is in the emerging market world of China, Nigeria, India and (indeed) South Africa that these extremes are most visible. With one major difference in South Africa: here, income and racial inequality are structurally bound.

A legacy of 300 years of colonialism and apartheid has seen to that and, I suggest, even in a perfect world and with a perfect South African performance, we cannot expect that legacy to be unwound in just two decades of freedom.

Two features of South African life highlight the problem: levels of wages, and employment distribution, by race. Today, according to Statistics SA, the median monthly wage per worker across the 16 million who are employed is R10000 for whites and just R2800 for Africans, who make up the majority of the workforce.

Of the 8.3 million South Africans unable to find work or who have given up looking, 7.4million or 90% are black African, 7.5% coloured and the balance Indian or white. Among the unemployed, 70% are under the age of 34 and 50% lack a matric certificate. So we have black African workers at the bottom of the wage pyramid among the employed, and a mass of young, uneducated black Africans populating the unemployed.

This painful reality is somewhat offset by a fast-rising black middle class (17 million mostly black South Africans joined the middle-upper living standard measure band 5-10 in the past decade), and by the government's social grants to 16million poor households. Essentially, the racial structure of wealth and poverty, and apartheid spatial planning in South Africa remains largely intact.

Dig deeper and things are more complex. South Africa is essentially a "two-speed society": one an increasingly nonracial, affluent, mobile and urban developed economy (with all its sophisticated trappings of technology, infrastructure, high-quality private education and health services); and the other a marginalised, rural or peri-urban, African and young, unskilled, subsistence economy with little or no job opportunities, or hope.

Worse, this two-speed economy exists in a world that has now entered a dark, cyclical period in which the cold winds from China and "a lot lower for a lot longer" commodity prices are clashing with the hot winds from an expanding US economy (now in an interest rate hiking cycle, sucking funds from other markets) triggering an electrical storm for South Africa and damaging emerging economies' currencies and their growth prospects.

South Africa will do well to achieve a GDP growth rate higher than even 1% in 2016 (compared to an average over the past 20 years of 3.2%). So, both the affluent nonracial urban society is under pressure as growth falters, and the marginalised African society will suffer from higher food prices, inflation and declining opportunities. Finance Minister Pravin Gordhan's February budget will be caught in the middle and he will have a Houdini act to perform.

No wonder these structural and cyclical headwinds are spilling over into rising racial and other social tensions. So what is to be done?

South Africa needs unity of purpose! The government, business, labour, public institutions, civil society, academia and religious groups need to ask what each can do on their own, what they can do together and how best to combine to optimise outcomes.

Scoring own goals clearly must be avoided and the mistakes of the recent past cannot be repeated.

Specifically, what is to be done?

• Driving higher economic growth outcomes must be centre stage in our planning. Supporting higher growth sectors to take advantage of our weaker currency - like tourism and high value-add manufacturing - should receive urgent attention. Stabilising mining and other industries buffeted by global headwinds needs a supportive administrative and legislative environment;

• Let's continue the good work to resolve energy supply disruptions and control the cost of power;

• Let's fix labour conflicts and put competitiveness first through a wage pact linked to productivity. As part of these labour reforms, let's bring the debate on a national minimum wage to a conclusion, balancing the trade-offs between the level of the minimum wage, its positive effect on bridging wage differentials by race, and potential negative job displacement effects;

• Let's up the game in our public service and get bang for the buck spent on education, health and infrastructure and avoid conflict and waste in state-owned enterprises while attracting new and additional sources of private sector capital and expertise. Let's eliminate a culture of consumption and remove unaccountable or incapable salaried civil servants who undermine the good works of their many fine colleagues in public service;

• Let's apply our minds to practical measures to get the unemployed youth off the streets and into productive activities. One such idea is the National Youth Service Initiative proposal to target recruiting 300000 young people in five years into the defence force to wear a uniform, receive training and learn artisanal skills and perform community service while receiving a stipend. Another idea is a national focus on SMEs to incentivise micro businesses in marginalised communities;

• Let's make available private sector training and mentoring for new businesses, for the public sector initiatives such as the above; and

• Let's cut waste everywhere to achieve a fiscally neutral growth and job-stimulus package that allows for expenditure on these initiatives.

Only South Africans acting individually and collectively over an extended period of time - arguably generations - can start to change the deep structural patterns of racial inequality and unemployment that lie at the heart of our rising conflicts and discords.

In the fight to end apartheid, we overcame conflicts that nearly tore us apart. We can do it again now, this time in the economic and social realm. If we do the basic things right, fix the economic and social fundamentals, global capital markets and fixed investors will eventually follow. Currency strength and investment confidence will follow rising economic outcomes. So let's focus on the basics. And aim to fix our two-speed society over the longer term. One step at a time.

Black and white South Africans share a common destiny. Acting together, those with more resources, the privileged and powerful (black and white) will, I believe, be prepared to make personal and corporate sacrifices to lift the lives of the largely African poor.

With solid leadership, and public and private institutions united in surgical implementation of such credible plans, South Africa will succeed. That way lies our dream of a nonracial, democratic and prosperous South Africa.

Coleman is partner and MD of Goldman Sachs International.