The limits of economic activities imposed by the South African government has taken toll not just on businesses, but also on households. After six months of significantly reduced economic activity, the savings of both business and households are depleting. The households of the proletariat and the precariat classes are the hardest hit, with declining incomes threatening the livelihoods of these households. Under these extraordinary economic conditions, the state is the bulwark for the poor. While the government has committed R50 billion to cushion the incomes of poor households, just how efficient SASSA has been in delivering this monetary relief is a separate question altogether. And, poor access to health care, lack of basic services and economic informality add to the multiple risks faced by these households.
My interest in this post, however is the black middle class, and where they fit in the Covid-19 milieu. In the last few years, corporate reports and floods of opinion pieces suggest that there is a rapid growth of the black middle class. There is limited scholarly work in this area, and therefore available literature is shaped by journalistic discourses sanctioned by the corporate aspirations to find a larger consumer market for their products and services.
A simple google search of the term ‘black middle class’ reveals optimistic proposals, which suggest that this class might offer the promise of development for South Africa. This is not a South African phenomenon only. Researchers have sought to find the trendlines of middle classes in emerging economies, in search for a silver bullet which will trigger economic growth. By and large, prevailing arguments suggest that this class is business-minded and therefore hardworking, able to innovate and able to create wealth. In the emerging economies at least, middle classes are considered as conspicuous consumers, from China, to India to South Africa. This consumption is then viewed as providing ready market which in turn promotes production. For both China and India therefore, economic growth is co-related with a growing middle class. One of the blind spots of this narrative is that it fails to answer the question of where the middle classes come from, in order to generate growth. I intent to defer this charge to a different post.
The South African public is treated with romanticised image of the middle class, whether in relation to the state or markets — that is, their political and economic behaviours respectively. While China and India’s middle classes have emerged from the private sector, out of manufacturing for China and the services sector for India, for South Africa, the locus point of this class has been the Black Economic Empowerment (BEE) affirmative action policy. The black middle classes are primarily civil servants and secondarily citizens doing business with the state –colloquially referred to as ‘tenderpreneurs’. Let us consider a few statistics of this class.
The state employs about 1.2 million people, and in 2018/19, compensation on state employees took up 35.4% of the consolidated national expenditure. The government wage bill as a percentage of GDP is at 14%, notably above the global average of 10%. The World bank has indicated that Eskom, whose wage bill reached R32.35 billion in 2019, is potentially overstaffed with 66%. With Eskom included, there are at least one hundred and twenty-nine (129) state owned enterprises all of which have played a major role in formation and sustainability of the black middle class.
Moreover, a 2020 report by the Organisation for Economic Co-operation and Development (OECD) notes that South Africa’s civil servants are some of the highest paid in the world when considering the relative size of the economy. Over the last decade, in real terms, per capita remuneration in the public sector increased by annual average of 3.1%, with civil servants who have long tenure (more than 10 years) getting an average of 4.1% annual increase. If we consider US dollar purchasing power parity (PPP), the remuneration of South African public sector managers is comparable to Norway. The above concludes that South Africa’s public sector has one of the highest levels of remuneration both in terms of GDP per capita and US dollar PPP.
Why has South Africa’s growth been dragging, given the expanding middle class? To understand this anomaly, one will have to borrow some lessons from the continent’s economic history. When most African countries became independent in the 1960s, various scholars including Fanon (1963), Dumont, (1966) and Shivji (1976) argued that the expansion of public service would stifle growth and development. These scholars were worried that a high public wage bill would render the state inefficient, simultaneously disabling the fragile private sector. Social mobility was almost entirely dependent on state employment and, this bureaucratic bourgeoisie was not economically productive.
In the 1980s, this dependency school went out of fashion, and was replaced with a nuanced differentiation between the old and the new middle classes. The new school contented that the old middle class of the 1960s through 1980s was mainly located in the public sector, while the new middle class during and after the 1990s was largely neo-liberal, thriving in entrepreneurship. The concerns raised by the dependency school were therefore inaccurate assessment of geo-politics.
Like most African states roughly two decades after their independence, South Africa’s black middle class mainly consists of public servants. Thus, both the dependency theory of the 1960s and 1970s and its replacement in the 1990s are useful lenses in the efforts to understand South Africa’s black middle class and its potential for economic growth-or lack of it. Given the favourable working conditions and high wages in the public sector, for the most part, the black middle classes are not entrepreneurs. This might explain why South Africa ranks among the least entrepreneurial countries in the world, of which the same ranking cannot be applied to the size of the middle class. Given the opportunities for public rents, this class mediates between allocation of state resources on one hand and on the other, petit bourgeoisies whose interest is to access state resources by all means possible.
Most assessments of this class are however, castigatory, and therefore fail to examine the economic vulnerabilities within which this class operates. Perhaps this holds the answer to the question of low growth in the face of expanding black middle class. I suggest that South Africa’s middle class is highly vulnerable and, as Roger Southall argues, stereotypes that focus on consumption show only half the picture of this class. The social and economic behaviour of this class is important in the attempt to understand the realities of this class. Because middle class households in South Africa are strongly linked to working class households through kinship ties, they often experience scarcity and financial debt due to high dependency ratio. It might well be that the elites, who include marketing agents and politicians, know very little about the realities and the true character of this class.
Long before Covid-19, during the first quarter of 2016 the JD group, a South African furniture conglomerate which owns several chains of furniture stores such as Hi-Fi Corporation, Joshua Doore, Russels and Barnets, closed down a total of 214 stores (111 Joshua Doore stores, 97 Russells stores and 6 Burnet Stores) across the country. These closures led to a total of 4110 jobs. The reason for these shut downs was according to the JD group that there was not sufficient market for their furniture. It is important to note that these furniture stores thrive on customers who are able to access credit, suggesting that they (the customers) have a regular income. These trends raise fundamental questions about the optimistic school, and the notion that these middle classes are characterised by high levels of spending. This is not entirely a question of size, importantly, it is also a question of indebtedness. In December 2019, a report from Debt Counselling Association noted that 10 million people in South Africa had bad debt — which is to say, they had missed three or more monthly repayments. The report also noted that these 10 million individuals had on average eight loans each. During the same time, the National Credit Regulator reported that 84% of those who earn R15,000 a month or more have some form of debt. This was just before the dramatic landing of Covid-19.
Even before the pandemic, most of the black middle class in South Africa were roughly three salaries away from poverty. This is the length of time the banks allow for catch-up on unpaid mortgages, after which a foreclosure is initiated. Also before the pandemic, on average, about 20 000 houses every year were either auctioned or served with sale in execution notices. On a per-capita basis, the repossession rate was four times higher than the world average and 20 times more than countries such as Denmark and Singapore. This harsh reality points to the precarious nature of South Africa’s middle class-under ordinary times.
While the state does offer income security in form of wages to the black middle class, this class is largely responsible for bearing the economic burden of state failure in provision of basic services. These middle-class households seek for private services -education and health, and, in the context of their entanglement with the poor and working-class households, facilitate access to private services to their kinship relations. In responding to the Covid-19 pandemic, as already noted, the government has offered a range of relief measures to businesses, small and large, and to poor and working-class households. The black middle-class households have been left to the vagaries of the markets, and therefore it is up to them to negotiate with market forces.
The challenge faced by this class is that, these market pressures, along with redistribution pressures are likely to force the black middle class into a kind of constant scarcity, which I have labelled elsewhere as ‘small p’ poverty. ‘Small p’ poverty is a shallow kind of scarcity, which is characterised by constant commuting in and out of the lack of basic needs. If not checked, ‘small p’ poverty can turn to structural kind, characterised by a long-term lack of basic needs, which I refer elsewhere as ‘big P’ poverty. The pandemic is a conducive environment for black middle-class households which were already trapped in small p poverty, to graduate into the ‘big P’ kind. This will be a greater challenge for the state which is already burdened with increasing unemployment.
Several stakeholders including the minister of finance have called for wage reduction of public servants. In the long haul, this is beneficial for the fiscus. However, the debate should be deferred until after the pandemic. But also, the state needs to find ways of negotiating with the market forces on behalf of this class under the conditions of the pandemic. In the medium term, discussions on wage freeze or reduction should account for the issues I have raised above, and most importantly, they should be bundled with deliberate efforts to facilitate mobility of the current bureaucratic bourgeoisie to the private sector. A private sector based black middle class is a future worth placing our sustainable growth bet on.
Dr Jason Musyoka, is a senior researcher, Department of Political Science, University of Pretoria, Hatfield Campus. He writes in his personal capacity.