How to sustainably grow an economy

South Africa has a growing problem of wealth and income inequality - this is how we can create prosperity for all.

In theory, South Africa needs to significantly grow its economy if we are to create these millions of much needed jobs that the government has promised everyone.

Currently our economy is growing at an annual rate of around 1.4%, when what we really need is for it to be churning along at around 6%.

The result (surprise surprise), thanks to this shortfall - a rising unemployment issue.

But the lack of jobs is also not our only major issue when it comes to economics.

South Africa also has a growing problem of wealth and income inequality - and this is a problem which is getting worse even though South Africa is considered to already be the world's most unequal society.

Considering that we are largely trying to grow the economy in the same way that we always have (by relying on big business to grow and create additional employment opportunities) - this trend will obviously continue and inequality as well as rising unemployment will worsen into the future.

So why is this the case and why is the problem getting worse?

Reason #1: Well, advances in technology means that increasing levels of business productivity are now produced by the leveraging of increasing more effective technology. The demand for human productivity in the traditional areas that generated huge numbers of jobs in South Africa previous (mining, agriculture, manufacturing) - has been decreasing for years. Automation is here to stay and if anything will certain ensure that even more of these jobs that were once held by humans, get redistributed to machines.

Reason #2: As financial margins are squeezed, thanks to globalisation and a focus on selling commodities instead of building strong product brands - the big businesses that dominate the local economy have consolidated and monopolies have been created. If you want to see this system in action, just think about shopping malls in South Africa. Only big brand retailers can afford the rent at the Waterfront or Sandton City and outside of the malls South African consumers are few and far between. Our shopping malls literally throttle and concentrate economic activity into pin-pricks of economic vibrance and grant access to market only for the few well-capitalised brands.

[Before we continue - let's just define certain concepts for the purposes of clarity.]

What is a business:? A business is a very effective way to generate wealth [through profit from the offering of a value proposition] and distribute that wealth to a variety of stakeholders [suppliers, employees, shareholders].

What is a brand? A brand refers to the creation and promotion of a unique and highly-valued proposition for which a business can charge a premium.

What is innovation? Innovation is the process whereby people implement new ideas to generate value.

If a business creates wealth through the financial margin that it is able to charge, a desirable brand can maximise that margin due to the scarcity quotient that it carries.

If a government is wanting to grow an economy and ensure that it is sustainable and doesn't generate excessive levels of inequality, then it should:

  • Focus its policies on ruthlessly restricting monopolistic behaviour by big business (which limits margin growth as well as the creation of new jobs);
  • Promote the creation of increasing numbers of small businesses - and in particular, focusing on increasing the number of small local brands that are able to export products and services for a premium into a global marketplace for foreign currency;
  • Incentivise small business to build strong brands and encourage innovation and creative value-added processing, ensuring that we are able to sell internationally desirable goods and services.

The major enemies here are monopolies, commodities and a focus on purely demanding existing business to create more jobs; as well as our stuck national mindset of disempowerment and a lack of personal drive, responsibility, action and self-reliance.

Previously: 9 South African small business opportunities for 2020 - Cherryflava