The faltering middle class

And the rise of the precariat class

It may be one of the more disturbing research findings in a very long time. In a report just released, the Institute of Race Relations not only questions the assumed size of the South Africa middle class, but its potential growth.

The middle class is the backbone of our economy and a faltering in its growth could see the crumbling of an important pillar of economic prospects. It has been a significant force behind the growth of many emerging markets, setting them apart from developed economies until the decline of commodity prices partly blemished these prospects for many countries.

There are many activities that rely on middle class prospects – from an increase in asset values such as shares and property, to prospects for manufacturing, retailing, agriculture and many others. Without a sustained growth in the middle class, the outlook for economic growth generally and employment in particular will be severely dimmed. It will make a complete mockery of any ambitious plans to create jobs or stimulate economic growth.

Assumptions about the size and robustness of the South African middle class are now questioned by the IRR research. There have been estimates that this class could make up some 30% of the South Africa population, but the research paper notes: “perhaps just 1 in 10 South Africans has a solid claim to a middle class standard of living.” And regarding prospects it says “of concern is that South Africa’s weak economic performance is likely to put the brakes on any significant further middle class expansion.”

There has been an increase of about 13% in the last ten years in households spending R10 000 pm or more, but the report cautions that this has not been adjusted for inflation. Even if one accepts that the spending benchmark qualifies for middle class status, and not adjusting for inflation, the size of the South African middle class cannot be more than 20%. The Institute uses a number of other measurements to conclude that this figure is probably 10% or even less. What is also relevant is that there has been a notable shift in the changing balance of income between black and white people. Black South Africans earned just under 122% of the total disposable income earned by whites in 1996. By 2013 this had grown to just under 170%.

In the last 20 years, the growth of the middle class has been strongly supported by public sector employment. More than three out of ten employed South Africans work for the public sector. Between 2006 and 2013, public sector employment rose by nearly 25%, while private sector employment was virtually unchanged. Last year alone public sector employment grew by more than 4%, while private sector employment declined by 1%.

In its comment on the 2015 budget, accounting firm Delloite noted: “one is twice as likely to be employed in the public sector today, as 40 years ago – with little perceived improvement in service delivery, law and order and administration. Our BRICS partners spend on average 25% of their total government expenditure on salaries, by contrast South Africa spends approximately 40% of its budget on salaries, or R450 billion annually. Over the next three years government will spend R4.4 trillion, and approximately R1.8 trillion representing 40%, will be spent on the Public Sector wage bill.”

It’s an orgy that simply has to end and as the IRR report notes: “Government finances are under pressure, meaning the civil service cannot be extended further as a black middle class incubator.”

There’s a far more ominous dimension to a faltering middle class. It is an essential rung in individual progress. It is largely made up of relatively skilled, experienced and educated individuals and is an important catalyst for self-improvement, nurturing aspirations and encouraging the attainment of skills and qualifications. It gives hope of a better tomorrow for the youth, for young adults wanting to start and support a family in the comfort of their own home. There’s an absolute limit to which this rung can be reached through simply demanding increased wages, especially at a time when blue collar (and red overall) work is under siege.

The middle class globally is on the decline, leaving the world with widening income disparities and a polarised society between haves and have-nots. It has given rise to what international labour economist, Guy Standing has termed the “precariat”.

He says: “it is a class in the making, approaching a consciousness of common vulnerability. It consists not just of everybody in insecure jobs – though many are temps, part-timers, in call centres or in outsourced arrangements. The precariat consists of those who feel their lives and identities are made up of disjointed bits, in which they cannot construct a desirable narrative or build a career, combining forms of work and labour, play and leisure in a sustainable way.”

Standing believes the protests spreading across the world are manifestations of the precariat taking shape.

We clearly already have a substantial precariat class in South Africa.

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