A leading international economist says that South Africa should introduce a national minimum wage and additional taxes on wealth to combat inequality.
This is according to a report by the Sunday Times, quoting “rockstar” economist Thomas Piketty, speaking at the 13th Nelson Mandela annual lecture this week.
Piketty is an economist with celebrity status, after his best-selling book, ‘Capital in the Twenty-First Century‘ sparked global debate over the relationship between growth and inequality.
Piketty suggested that South Africa has a long way to go to reversing inequality in post-apartheid South Africa, likening the country’s situation – and the massive divide between rich and poor – as similar to 1792 France after the revolution.
“The French elite refused to address the situation, saying that inequality was so high that economic growth would resolve the situation,” he was quoted saying.
However, this was not the case, according to the economist, as unlimited faith in the economy as a self-regulating system was misplaced.
Piketty, and his supporters, believe that, while a small degree of inequality is needed to promote growth, at high levels growth is actually stunted. The economist promotes wealth redistribution as key to development.
He suggested South Africa introduce a “progressive wealth tax” – which would start of small and gradually reach the needed levels – as a “peaceful solution” to fighting inequality.
According to the Business Times, while many economists agree with the view that capitalism doesn’t auto-correct to equality, a tax on capital isn’t the way to go, suggesting a tax on consumption would be better.
It’s argued that a tax on wealth would transfer money into the hands of the state, which has historically shown to be less effective than the private sector at using capital for development.
The full story can be found in the Business Times from 4 October.