Unit 3: Redistribution methods

Pg. 164-166

Unit 3: Redistribution methods

Wealth redistribution refers to a channelling of wealth from those who have to those who do not. This is done to achieve a more equal distribution of wealth within a country.

Two Approaches to redistribution:1. Free Market Approach (long-term)

2. Government Approach

1. Free Market Approach

a. Deregulation…b. Inward investment…c. The ‘trickle down’ effect…d. Access to finance…e. Profit Motive…

1. Free Market Approach

Benefits can include:• more sustainable for the future• real outcomes are achieved (instead of artificial ones)• less government intervention results in lower government costs and

therefore saves the taxpayers moneyDisadvantages include:• it takes a long time for the benefits to materialize• if the global economy experiences a downturn, this approach can fail• the free market approach tends to benefit the rich more than the poor

2. Government Approach

a. Education and Training…b. Legislation…c. Taxation…d. Expansionary Fiscal Policy…e. New Technologies…

In South Africa the Government has adopted the following approaches to

redistribute wealth and ensure economic redress.

• Broad-based black economic empowerment• Labour market reforms• Land reform• The New Growth Path

Broad-based black economic empowerment

• BBBEE introduced by DTI • Aim: Increase meaningful participation of black people in

management and ownership of companies• Forces business to comply with transformation• Not BBBEE compliant = No business from Government• BBBEE has contributed to an 85% increase in formal black

employment since the end of Apartheid

Labour market reforms• Apartheid left the country with large disparities in employment,

occupation and income due to the discriminatory laws of the time

• LRA 1998 – outlaws discrimination on the basis of gender/race – led to Affirmative Action

• SDA 1998 – Skills Levy paid by employers on behalf of employees. Money collected is redistributed to SETAs, who in turn are responsible for providing skills training in that particular sector– Bank SETA– Financial and Accounting Services SETA– Education Training and Development Practices SETA– Transport SETA... etc.

Land reform• Land restitution...

The New Growth Path• By adopting a new growth path, government

is aiming to speed up economic and social development -> in other words -> deal with issues such as unemployment, poverty and inequality.

• How?• Renewed focus by government on supporting

capital intensive industries (IT & Manufacturing) to help create employment