Governments in Developing Countries: Perpetrating or Curbing Social Inequality?

*Lucy Chamba and Bobo Chazireni*

### **Abstract**

Governments through the mechanism of state-owned enterprises (SOEs) are mandated to provide public services such as education, health, water, and sanitation to all its citizens. Hence, the public sector remains a major instrument for reducing social inequality and promoting income redistribution. Political science literature alludes to the fact that SOEs can be used as a tool to distribute income and alleviate poverty in economies of all types. However, inefficiency of these organizations has led them to appear as vehicles of social inequality in most developing nations. This is because public goods have become out of reach for the majority of citizens. In essence, failure to deliver public value by state-owned entities has resulted in most citizens living in poverty. The chapter considers how SOEs may alleviate the current social inequality present in emerging market economies (EMEs). A systematic review of literature and secondary data analysis was used to establish the current performance of SOEs in service delivery in light of addressing social inequality. Findings allude to the current failure of SOEs to alleviate the problem of social inequality. The chapter concludes by showing how government through the instrument of SOEs may endeavor to reduce social inequality. The study adds to the body of literature in public administration and political science literature.

**Keywords:** state-owned enterprises, public value, social inequality, emerging market economies, developing countries

#### **1. Introduction**

Economic inequality is endangering the lives of more than 1.5 million people in Zimbabwe as lives are lost each year due to high-income inequality, which is exacerbated by inaccessibility of public services. SOEs are located in strategic sectors of the Zimbabwean economy yet they continue to perform far below expectations in service delivery. These entities are created by government to provide essential services to citizens which the private sector finds expensive to provide at non-commercial rates. As such the poor performance of these entities has continued to disadvantage the majority of citizens.

A common belief in the political science literature is the recognition that SOEs ought to be used by government as a tool to distribute income, as well as public services [1]. SOEs are also expected to play important role in upgrading the economic welfare and raising social standards of the masses through appropriate policies of corporate responsibility. A research conducted by Oxfam's has found that the 85 richest individuals in the world have as much wealth as the poorest half of the global population. The study concluded that more 80 percent of people around the world are suffering due to the spending cuts that came with austerity, and this is set to rise with the current global economic crises [1]. In Zimbabwe alone, more than 2 million people are living without access to health services and clean water, due to poor service delivery by SOEs, while the country's education system is now inaccessible to most people in Zimbabwe.

Literature points to the great potential of wealth distribution through effective public service delivery. An OECD study, looking at public services and income distribution across 27 countries, offers strong evidence for the case that public services reduce economic inequality. However, this is not the case in Zimbabwe where more than three-quarters of the population is failing to access public services. This chapter focuses on how SOEs in Zimbabwe may contribute to reduction of social inequality, which is glaring due to high poverty levels. A systematic review of 75 journal articles from public administration and political science journals was conducted. This study contributes to an understanding of the magnitude of inequality in Zimbabwe, an EME in sub-Saharan Africa, and the role of the government through the vehicle of SOEs to reduce inequality.

#### **2. Methodology**

A systematic review of literature was conducted using the PRISMA guidelines. Overman [2] highlights that systematic reviews are relatively scarce in public administration research but have become common practice in medicine and healthcare research. The PRISMA guidelines give a good indication of the necessary steps for a robust systematic review [3]. Using these steps where possible, academic publications have been selected that were published from the year 2000 to date in DHETaccredited public administration and political and social science journals, listed in ISI Web of Science index. Articles from the journals, based on a 5-year impact factor, were included, based on their scope of interest. Articles were selected using the study's keywords in article topics in Web of Science, supplemented with the same query in the EBSCO search engine. These keywords include inequality, social inequality, economic inequality, structural inequality, and state-owned enterprises. The search yielded articles a total of 42 articles. Screening based on abstracts was done firstly to remove studies that were clearly not related to the study topic. The inclusion criteria used to consider the full text of studies were the provisional topic which was "SOEs and inequality." An evaluation of the risk of bias was done, to improve objectivity of the study. Data were extracted from included studies and synthesized into an argument on the role of SOEs in reducing inequality.

#### **3. The reality of inequality in Zimbabwe**

The post-Mugabe regime under President Emmerson Mnangagwa's "new dispensation" saw many of the country's socio-economic challenges inherited from the

#### *Governments in Developing Countries: Perpetrating or Curbing Social Inequality? DOI: http://dx.doi.org/10.5772/intechopen.109786*

Mugabe regime being unaddressed or even intensified. Zimbabwe's multi-faceted crisis was further exacerbated by the impact of COVID-19. Its continued economic decline was characterized by high prices, cash shortages and a huge debt overhang, and further deepening of inequality [4]. The reintroduction of the Zimbabwe dollar, as the medium of exchange, led to record inflation, which peaked at over 700% in July 2020 and nearly eradicated the income of many Zimbabweans. This economic decline resulted in a severe humanitarian crisis, which according to the UN left over seven million Zimbabweans in need of food aid at the end of 2021. Austerity measures in public spending have resulted in government cutting spending on SOEs, which has resulted in the poor performance of these utilities and consequent failure to deliver affordable public services to citizens. This has exacerbated economic inequality and affected the quality of public services that could prevent the downward spiral into an even more unequal society.

Inequality is defined as the state of not being equal, especially in status, rights, and opportunities [5]. Economic inequality refers to the skewed distribution of income and wealth. This phenomenon continues to rise in Zimbabwe despite efforts by statesmen to restrain it. Thus, the government has a double imperative that entails ensuring wealth redistribution as well as efficient delivery of equity-busting public services. Well-delivered, free public services are the bedrock to poverty eradication, especially in OECD countries, where the benefit of public services is virtually equal across all income groups [6]. The entire population benefits by the same token in absolute terms through public utilities that are accessible and this offers a remarkable picture of equality resulting from public services [1].

Due to the economic recession in Zimbabwe, the level of unemployment has risen to above 90 percent. Zimbabwe's economic crisis was exacerbated by the impact of COVID-19. The economy contracted by 22.8% in the period 2019–2021 and further by 10.2% in 2022 [4]. The consequence of the economic decline is that most Zimbabweans are currently employed in the informal sector, which has poor incomes, and this begets income inequality. Income denotes a household's disposable income in a particular year and comprises earnings, self-employment, capital income, and public cash transfers less income taxes and social security contributions paid by households [7]. The distribution of income in an economy is measured on a countryby-country basis by the Gini Coefficient. The Index is on a scale of 0–100, where a high value indicates a more egalitarian society, while a low value suggests a lot of the national income is in the hands of very few depending upon the unit of measurement [8]. The Gini Coefficient in Zimbabwe rests at 29.6%, lower than most African states, and depicts a huge gap between the rich and poor. This implies that in Zimbabwe the resources or economic wealth lies in the hands of a few, showing a high level of income inequality.

Income inequality also means that services such as education and healthcare are inaccessible to the majority of Zimbabweans. The disparities in incomes also affect the access to quality education. Education is not affordable to the majority of Zimbabwean families most of whom are living below the poverty datum line. Fees are high for most parents in all three sectors that are primary, secondary, and tertiary education. Also added to the fees are ancillaries such as textbooks, and data or Internet connectivity all of which are beyond the reach of most parents who are either unemployed or civil servants with low salaries. The cost of accessing the Internet remains prohibitive in Zimbabwe. According to the Worldwide Mobile Data Pricing 2022 report released by Cable.co.uk 2002 shows that the average price of 1GB of data in Zimbabwe is \$4.92, with the cheapest plan being \$1.73 and the most expensive

being \$12.92 [9]. Internet connectivity by public entities such as Telone and Netone is not evenly distributed, and Internet service is poor in terms of connectivity in highdensity arrears as well as rural areas only fast in the central business districts and in low-density areas. Most of Zimbabweans cannot afford internet services by private players such as ZOL, liquid, and Utande, which though efficient remain beyond the reach of the majority.

The inaccessibility of utilities in Zimbabwe depicts the inequality that prevails in this economy. Clean and safe drinking water is not available to the majority of Zimbabweans. Basic water supply is defined by the minimum standards for drinking water as provided for by SDG 6.1, which refers to universal and equitable access to safe and affordable drinking water ([10], p. 01). This is yet another source of inequality in Zimbabwe. Statistics on access to basic water show that about 60% of the population accesses basic water. From the households without water, about 87% in urban areas expended an average of 30 minutes fetching water per day, while in rural areas 54% of the population consumed between 31 minutes and 3 hours [11, 12]. Although the water seems accessible to somewhat the majority, Zimbabwe tap water is generally unsafe for drinking, as in most cases the water is untreated due to lack of purification chemicals by ZINWA the water authority in the country. Social inequality is further aggravated by the fact that the well to do are able to purchase treated drinking water, while the poor are left with no option but to consume borehole water, which in most cases is also contaminated. There is a high prevalence of outbreaks of water-borne diseases in the high-density communities, an insignia of limited access to clean water and also lack of alternatives as most inhabitants are not in apposition to drill safe boreholes for their water consumption.

The levels of corruption in most SOEs in Zimbabwe are very high and have also led to the demise of most of these entities and consequent inaccessibility of public services. Studies have accentuated the notion that higher corruption levels are found to be disproportionately associated with lower education and health spending. Gupta et al. [13] posit that corruption can affect income distribution and poverty through its impact on human capital formation and the distribution of human capital. First, corruption weakens tax administration and can lead to tax evasion and improper tax exemptions implying that for a given tax system, the higher the level of corruption, the lower the tax revenue and the lower the resources available for funding public provision of certain services, including education. Furthermore, corruption increases the operating cost of government and, consequently, reduces the resources available for other expenditures such as the financing of social spending. Another effect of corruption is that rich urban dwellers can lobby the government to bias social expenditure toward higher education and tertiary health, which tend to benefit high-income groups [14–16]. Corruption can also increase expenditure on tertiary health because bribes can be more easily extracted from the building of hospitals and purchasing of state-of-theart medical equipment than from expenditure on vaccinations. Finally, corruption can increase the share of recurrent expenditure devoted to wages as opposed to operations and maintenance [17]. This lowers the quality of education and health services and affects the ability of the state to improve educational attainment levels.

The greatest setback of corruption is that it can affect the targeting of social programs for the truly needy. The use of government-funded programs to extend benefits to relatively wealthy population groups, or the siphoning of funds from poverty-alleviation programs by well-connected individuals, will diminish the impact of social programs on income distribution and poverty. Taxpayers and corrupt public officials can also divide the savings from taxes and duties, with the costs borne by

poorer taxpayers with low ability to pay bribes, and reflected in lower provision of social services that are vital to the poor [18].

### **4. How can government use SOEs to contribute to reduction of inequalities in Zimbabwe?**

Governments throughout the world are mandated to promote social equity. Authors such as John Rawl (1997) cited by Guy and McCandless [19] posit that government should redress social and economic inequalities to benefit the least advantaged in society. The idea is reiterated by Fredrickson et al. [20] in his compound theory of equity, which states that government should operate from a paradigm of equity in order to reduce social inequality and so to achieve the objective of equity. Thus, Frederickson's theory implies that the realization of social equity is a deliberate action by governments, and lies in the balance between philosophy and praxis, meaning that philosophy highlights the importance of social equity, while public administration legitimizes it. Social equity is now a moral imperative [21], and this means that governments are compelled to reduce drastically the levels of social inequality in their economies and this may be achieved by attaining cost-effective of service delivery by state-owned enterprises, whose obligation is to deliver public goods to citizens.

There is a need for a deliberate effort in the improving of performance of SOEs so that they become high-performance organizations (HPOs). These organizations are committed to innovation, and proactively create products and services for their clients and deliver them to the satisfaction of the clients [22–24]. SOEs are implored to take advantage of Fourth Industrial Revolution (4IR) technologies such as artificial intelligence, augmented reality, genetic engineering, additive manufacturing, Internet of things, and cloud computing so as to provide public services in the most affordable and efficient manner. 41R technologies result in SOEs being able to leverage on industrial process automation for effective public service delivery at lower costs. SOEs may mimic HPOs by going the extra mile for their customers, by striving to provide world-class customer value [25], dwelling on customers' future and long-term needs, and exceeding customer expectations [26–28]. Thus, when SOEs use customer information for developing new products and services, and consider customer needs to be a priority in service delivery, the results amount to affordability and accessibility of the services, consequently reducing inequality.

The use of intrapreneurship may also be used as a strategy for inequality reduction by SOEs. Intrapreneurship, through imploring innovative ideas to create value in SOEs, has been recognized as a strategy for improving the performance of parastatals [29, 30]. Quality jobs remain scarce and if current trends persist, the share of vulnerable employment in Africa will remain at 66% far from the Agenda 2063 target of 41% by 2023. To date close to 282 million workers are vulnerably employed, and as such reduction of inequalities becomes crucial for lowering poverty. Structural transformation may be hard to sustain without improving productivity growth. Zimbabwe's SOEs like most African parastatals lag behind the global productivity frontier in many labor-absorbing sectors and so need to boost their productivity to sustain long-term growth. 4IR technology provides an opportunity for SOEs to improve material welfare and reduce inequality in Zimbabwe through multiple channels such as by improving labor productivity, education and health services access and quality, urban management and service delivery by the adoption of smart city technology, and decreasing the cost of consumer goods [25].

The government in Zimbabwe may also contribute to lowering structural inequality by being an employer of choice rather than a last resort or stepping stone for the employable. While it is acknowledged that unemployment levels are at their highest in Zimbabwe, the public service has retained employees because there are no options in the labor market. Most public servants employees are among the poorly remunerated with most living below the poverty datum line. This effect cascades to the private sector, with most paying meager salaries, even when they can offer better, as they copy the public service, which leads to greater inequality. Income inequality is detrimental to human development and also affects decent work, due to such health indicators as mortality rates, malnutrition and stunted growth, HIV prevalence, and general poor health [19]. The public service may lead in the fight against income inequality by remunerating their employees well as they help raise the bar in terms of salary levels, which implies better standards of living through disposable incomes. Through offering attractive packages, the public service may alleviate the burden of the informal sector by absorbing some of its members into formal employment and as such further reduce social inequality.

It is important to acknowledge that SOEs on their own may not effectively reduce income inequality. The invisible arm of the government may be used to subsidize these entities instead of the normal austerity measures widespread across most EMEs so that the entities may be able to sustain themselves in this dynamic environment. Strategic SOEs such as those which provide essential services such as electricity, water and sanitation, transport, and education should be heavily subsidized so that they have the basics required for operations as this will ensure that the services are provided at affordable rates. The authors such as Byrant [31] are of the view that public policy has a significant impact on reducing social inequalities through specific public policies that influence these such as government provision of income and housing security, program support for individuals and families [32], and poverty reduction. This, however, largely involves governmental transfers of national wealth among the citizens through social welfare policies. The government may introduce policies, laws, and regulations to facilitate the stronger bargaining power of, or on behalf of, workers, so that both public and private employees can secure higher wages and benefits that correspond to their output in their workplaces. Strengthening of collective bargaining may assist in achieving the goal of decent work and poverty reduction and prevent strikes and riots, as income inequality may generate discontent and grievances among the population [33].

Further, the oversight role of government through good governance of SOEs may also help reduce social inequality by whipping these public utilities into good performance and compliance. An econometric analysis by a Poniatowicz et al. [34] to examine relations between institutional factors pertaining to the quality of governance and the level of GDP per capita shows that good governance has a positive influence on organizational performance and quality of life in an economy [35]. Hence, if governments around the world are bent on building fairer societies, this is exactly the kind of deliberate policy intervention that they must prioritize.

#### **5. Conclusions**

Pressure continues to mount on world leaders to reduce inequality. Efforts have been made through organs such as the United Nations (Sustainable Development Goals) and African Union (Agenda 2063) in concerted efforts to tackle, this thorn in

#### *Governments in Developing Countries: Perpetrating or Curbing Social Inequality? DOI: http://dx.doi.org/10.5772/intechopen.109786*

the flesh for most governments. However, Zimbabwe like most developing countries is at the greatest risk of rocketing poverty and inequality due to stagnating public spending on public services. In practice, equality exists when policies compensate individuals facing disadvantageous circumstances; thus, efforts by the government in Zimbabwe to address inequality should largely use the instrument of SOEs. The first step is to understand the dominant forms of inequality prevalent within the country and the drivers of those challenges in order to craft the right strategy. At the same time, SOEs need to work in concert with the private sector and players in the social sector, including non-governmental organizations to identify the right steps and implement them effectively. SOEs need to balance income and wealth redistribution with policies that promote renewal. In this way, there is a deliberate shift to creating conditions that give people equal access to opportunities and empower them to thrive socially and economically. Leadership in SOEs must implement robust policies, regulations, and processes to advance job creation, inclusive employment (such as incentives for hiring people with disabilities), and intrapreneurship.

Literature alludes to the notion that the concept of social equity has evolved from fairness of the organization, its management, and its delivery of public services to encompass policy formulation as well as outcomes. This calls on the Zimbabwean government to put enablers in place to ensure increased equity, with the most important being fiscal and social protection systems. Through SOEs, government is able to facilitate the expansion of spending on education and health care and to support disadvantaged groups. Tax reforms, however, should be designed to avoid significant negative impact on job creation. At the same time, governments should assess social programs and systems with a close look at whether those programs and systems adequately protect those working in the informal economy. The findings of the assessment should be used to improve access to social programs and systems for those who need them most, including women, those with disabilities, and those in minority groups. These safety nets for vulnerable groups, however, should not be the primary means of support. Rather, governments should increase their focus on developing systems that provide vulnerable groups with enablement programs to improve their situations sustainably.

Public sector leaders should strive to improve effective governance of SOEs and the rule of law. The latter, in particular, is vital, because corruption in most instances limits the growth and performance of SOEs. In addition, governments should adopt policies that prohibit discrimination and protect workers' bargaining rights to ensure fair minimum wages. With regard to infrastructure SOEs need to invest to develop physical and digital infrastructure within the country, they should pay particular attention to the regions most affected by inequality. The private sector can be a powerful partner in infrastructure development, and governments should find ways to leverage the private sector's contribution, including through public-private partnerships. Such partnerships can be effective not only in the development of infrastructure such as roads and bridges but also in the construction and maintenance of assets such as social housing, hospitals, and schools.

Inequality remains a real and pernicious threat in Zimbabwe as it continues to rise despite efforts to curb it, thus undermining growth and economic stability. The right mix of policies and strategies in SOEs can lead to a more equitable distribution of income and access to opportunities, improved social mobility, and enhanced wellbeing. This ultimately leads to achievement of SDGs 1 and 10 of poverty eradication and reduced inequalities. Free and efficiently delivered public services are an investment in the achievement of social equality. Reduction of social inequality implies a fairer future

for the masses and as such prioritizing these services are crucial to stop society from being tipped irrevocably into a world that only caters to the needs of the privileged few. This chapter has illuminated how government, through the arm of SOEs, may be used as a facilitator for the effective reduction of social inequality in EMEs.

### **Author details**

Lucy Chamba\* and Bobo Chazireni Durban University of Technology, Durban, South Africa

\*Address all correspondence to: lucyteechamba@gmail.com

© 2023 The Author(s). Licensee IntechOpen. This chapter is distributed under the terms of the Creative Commons Attribution License (http://creativecommons.org/licenses/by/3.0), which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.

*Governments in Developing Countries: Perpetrating or Curbing Social Inequality? DOI: http://dx.doi.org/10.5772/intechopen.109786*

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### **Chapter 5**
