Quote of the week

Mrs Escobar, Henao’s record of her years as the long-suffering wife of the world’s most infamous drug trafficker, opens with a question she has often been asked: ‘How could you sleep with that monster?’ Her answer is that she loved him, and, in retrospect, that she was too afraid to leave. Henao has lived with Escobar’s legacy far longer than she lived with Escobar, who was killed in 1993. She changed her name and the names of her children (Juan Pablo is now Sebastían, Manuela is Juana and she is María Isabel), fled Colombia, went into hiding and fought lawsuits, blackmail and media attacks.

Jessica Loudis
London Review of Books
10 June 2020

Privilege and inheritance: Time to disrupt intergeneration transfers of wealth

The transfer of wealth between generations increases inequality and makes it more persistent across generations. In South Africa the problem has an acute racial dimension, as the transfer of intergenerational wealth is a significant mechanism through which subsequent generations of white South Africans are able to retain and further boost our economic privileges accumulated over generations of colonial and apartheid rule. The time has therefore come to start the process of reimagining how we deal with the transfer of intergenerational wealth.

Last week, as I was pouring over news reports and Twitter feeds about the global renewed “Black Lives Matter” protests sparked by the killing of George Floyd by Minneapolis police officers, I spotted a headline to the effect that a group of white people had “given up” (or had pledged to “give up”) their white privilege. I cringed at the glibness of the headline and moved swiftly on.

But it did make me reflect again on practical and concrete steps that could be taken to begin to dismantle the system that produces and reinforces privilege. One such – relatively modest – step would be to abolish the system of intergenerational inheritance or at least to heavily tax intergenerational inheritance and donations. (Another concrete step would be the imposition of a wealth tax, but as I have previously written in support of a wealth tax, I leave that aside for now.)

Writing about white privilege from an American perspective, Cory Collins argues that  “the ability to accumulate wealth has long been a white privilege – a privilege created by overt, systemic racism in both the public and private sectors”.

As is the case in South Africa, there is an enormous wealth gap between white households and black households in America.  Research from Brandeis University and Demos found that, in the American context, the racial wealth gap is not closed when black people attend University. Nor do they close the gap when they work full time, or when they spend less and save more. Collins thus concludes:

The gap, instead, relies largely on inheritance – wealth passed from one generation to the next. And that wealth often comes in the form of inherited homes with value. When white families are able to accumulate wealth because of their earning power or home value, they are more likely to support their children into early adulthood, helping with expenses such as college education, first cars and first homes. The cycle continues.

Of course, intergenerational inheritance does not only benefit white people (although it disproportionately benefits us), and the abolition (or radical curtailment) of inheritance would also impact on wealthy black people and their offspring. But I would argue that the unchecked transfer of wealth between generations is an injustice in and of itself and that it should be corrected, even when this is unrelated to white privilege.

Inheritance provides for the intergenerational transmission of inequality. The work of Thomas Piketty in this regard is now well-known. (Piketty’s views on the manner in which inheritance perpetuate and accentuate inequality has been criticised by some economists who do not share his ideological disposition, but it seems to me that it is difficult to argue in the South African context that intergenerational inheritance does not perpetuate race-based inequality in South Africa.)

Intergenerational inheritance benefits individuals who, through no effort of their own, happen to have been born to parents who have amassed some wealth. These parents, in turn, may well have inherited from their parents, also through no effort of their own. There is a double injustice here, as those whose parents or larger family have no wealth of their own, often have to financially support their parents when they grow old, while those who are already financially privileged because they do not have this extra responsibility, will inherit from their parents.

Ironically, the abolition (or radical curtailment) of intergenerational inheritance should, in principle, not only appeal to individuals on the left of the political spectrum. Those who claim they believe in an “equal opportunity society” – in other words, a meritocratic system in which individuals get ahead based on their own talents and efforts – should in theory support efforts to curtail inheritance rights as inheritance is gifted, not earned.

Of course, many people who claim to have achieved their success on merit, ignore the many ways in which privilege of all types gave them an unmerited leg up. But those who genuinely support a meritocratic system would be hard pressed to argue that individuals who inherit from their parents do so on the basis of merit.

There are two broad approaches to curtail the effects of inheritance on the perpetuation of inequality.

First, the right to inherit (or to inherit more than intimate personal belongings or more than a certain amount) could be abolished entirely, but with exceptions made for spouses or partners and for non-adult children. The exceptions would be based on the assumption that it would be unjust to leave spouses or partners (especially those financially dependent on their spouse or partner) in the lurch when their spouse or partner dies. Children who are orphaned, and any other people who have been genuinely dependent upon the deceased, should also not be disadvantaged by the death of their parents or ward.

Second, a slightly more modest intervention would be the imposition of an inheritance tax, calculated on a sliding scale with the top scale at 100%, along with a similar tax on intergenerational donations made before death. For example, the scale could provide for an inheritance tax of, say, 10% to kick in on any amount of more than R100 000 in an estate, and then gradually increase until everything over, say, R1 million in an estate, could be taxed at 100%. (I am not wedded to these figures and only use them to illustrate my point.) This approach would mitigate against the potentially harsh consequences on poorer individuals who were financially dependent on the deceased. It would thus allow for modest inheritance without perpetuating intergenerational inequality.

I assume that many people will not be keen on my (not remotely original) proposal, because the idea of inheritance as something natural and inevitable is deeply embedded in our various cultures. Others will point out potential practical problems, or will argue that imposing decisive limitations on the intergenerational transfer of wealth may be incompatible with the global financial system we operate in. Yet others would argue that the abolition of inheritance or the imposition of a steep inheritance tax, potentially infringes on the right to property guaranteed in section 25 of the Constitution.

While I would – given some time – probably be able to develop relatively cogent (hopefully even persuasive) counter-arguments to most of these objections, the purpose of this article is not to provide a watertight policy blueprint on how to deal with the problem of inheritance.

My aim has been more modest, namely to identify a specific legal mechanism – inheritance – that is widely accepted and deeply entrenched in our society, but, that I believe contributes to the perpetuation of race-based inequality in South Africa, and to urge change. Such change will, by its very nature, be incremental. (I am not a believer in revolutionary change because I always worry about who will take power the day after the revolution is done.) But I believe, over time, a complete overhaul of the inheritance system could have a profound impact on racial inequality.

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