Page 80 - Monocle Quarterly Journal Vol 1 Issue 1 Q4

BANKING
“In a study completed by two American Professors, Daron Acemoglu and James A. Robinson, it was argued that Piketty’s general laws of capitalism ignore the role that political and economic institutions play in understanding the inequality of the past.”
a standing ovation by the wealthiest elite of South Africa. Rather than address the politics of Piketty’s policies it seems more apt to question the validity of Piketty’s economic argument and apply it to a South African context as a test of whether the concepts of Piketty are applicable in South Africa at all.
If one applied Piketty’s hypothesis to South African data, would it show that South Africa’s increasing inequality is due to r > g? In fact, would it even show that inequality has increased, and furthermore would it show that r > g since the failure of Apartheid?
In a study completed by two American Professors, Daron Acemoglu and James A. Robinson, it was argued that Piketty’s general laws of capitalism ignore the role that political and economic institutions play in understanding the inequality of the past. ey used South African interest rates and economic growth rates to test r > g and proved that it did not explain historical patterns of inequality as Piketty suggested it would. Although the study was insightful, its use of interest rates as a proxy for return made it incomplete.
Piketty’s de nition of capital includes pro ts, dividends, royalties, capital gains and other capital components. A more comprehensive proxy than interest rates would need to be used. Monocle Solutions’ research team set out to re-test Piketty’s original hypothesis in a South African context: that, when the return on capital exceeds South African economic growth, the result is rising inequality. Instead of using interest rates solely, a composite index – R – was created using a combination of South African returns on the four major asset classes – namely cash, bonds, property, and equity – as a proxy for return on capital.
Findings with South African Data
Over two decades of data were collected (1994–2014) and the following proxies were used for each of the corresponding asset classes. For the less risky and liquid cash asset class, the three-month Johannesburg Interbank Agreed Rate (JIBAR) was used. e return on the bonds was measured using liquid government bonds – namely: R194, R186, R153, and R157. e property class was represented by annual growth rates in the value of property obtained from the Lightstone property index. e property class was further segmented into the following categories: national luxury, high, mid and low value. Lastly, the South African All Share Index was used as a proxy for equity. e data source used as
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