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Are there other BIG ideas for aiding the poor and unemp...

South Africa


Are there other BIG ideas for aiding the poor and unemployed?

The introduction of food stamps and a basic income grant could go a long way towards helping the poor. (Archive Photo: Buziwe Nocuze)

A Basic Income Grant (or guaranteed annual income) is a hot topic for economists and policy planners, especially in light of SA’s high unemployment and poverty rates and the recent looting in KZN and Gauteng. But SA’s economic woes are more than just millions of poor people without money. While new jobs are scarce, many of the country’s army of the unemployed are ill-equipped for the jobs that exist now or might appear in the future, let alone create their own small businesses. Does history offer insights for possible ways forward? 

Exactly one year ago, I wrote about some of the origins of proposals for what is variously called a guaranteed annual income or a universal basic income grant. As the discussion in South Africa about the feasibility of adopting such a plan becomes increasingly prominent, it is useful to reprise part of that earlier article that described both the intellectual background of a prior debate about such a programme in the late 1960s, as well as the bureaucratic, political and budgetary issues that ultimately put paid to such a plan in America half a century ago. Perhaps that experience can help inform the current debate in South Africa. 

As I wrote back in 2020:

There was a moment in US political and economic life that surely stunned almost everyone watching it. In 1969, the newly elected president, Richard Nixon, endorsed something dubbed the Family Assistance Plan – the FAP.

Less than a year earlier, Nixon had run an acrimonious, hard-edged “law and order” candidacy for president. He had railed on ad nauseam about the rampant crime in the streets, those conniving welfare cheats who were driving Cadillacs while receiving welfare payments…

Nevertheless, once in office, Nixon had fallen under the spell – intellectually at least – of a youngish and often unconventional Harvard academic, Daniel Patrick Moynihan, whom he had appointed as a senior domestic policy adviser in the White House. Moynihan had built a reputation as an analyst of the contemporary urban condition (including his co-authorship of the best-selling, critically acclaimed volume, Beyond the Melting Pot). As an academic, he was prepared to jettison political and intellectual orthodoxy, and, instead, champion new ideas and approaches to resolve the challenge of the urban underclass.

Moynihan had become especially concerned about what he saw as the explosion in the 1960s of an African American underclass, now increasingly in the country’s cities, after so many had moved northwards in The Great Migration. But they were an urban ethnicity failing to follow the upward climb that had been achieved by other, earlier ethnic migrants to US cities. Instead, Moynihan observed, this underclass was now increasingly dependent on welfare, prone to be in single-parent, female-headed households, and where the young men were too often co-opted by life on the streets – the illegal drugs, the alcohol, the crime.

These concerns were at the core of the so-called “Moynihan Report”, officially, The Negro Family: The Case For National Action, issued in 1965, when Moynihan had been an assistant secretary of labour in Lyndon Johnson’s administration. Moynihan had been tasked with designing the programmes of the newly declared “War on Poverty”, with the goal of reversing urban decay and poverty in the US. Given that his report had significantly relied upon the argument that the female-headed black household had its roots in the pathologies of slavery – rather than seeing such households as bulwarks of resilience against yet deeper disasters – the report fuelled an acrimonious national debate in both political and academic circles about the circumstances of black American life.

Welfare programme payments in the US at the time were largely via the programme, Aid to Families with Dependent Children (AFDC). The beginning of this programme had been a public recognition during the Great Depression [in the 1930s] that economic deprivation could not simply be left to the generosity (or the lack of it) of local and state governments. Moreover, it came along when the idea of welfare was gaining an impetus from the Social Security pension system for the elderly, also first instituted in 1935.

In essence, AFDC provided a basic floor of aid, but only as long as the immediate household receiving aid did not include a father or male partner who should have been working, but who was not, and was thus deemed illicitly “living off” AFDC money ostensibly designed to aid children. In the mid-1960s, further programmes such as food stamps (now called the Supplemental Nutrition Assistance Program, or SNAP) were established.

Medicaid for healthcare support for the poor and various housing subsidies followed. After decades of struggle and sustained lobbying by labour unions and others, Medicare, the medical programme for the elderly, was also passed into law.

In his new position, Moynihan was looking for a larger, all-encompassing way to reform the entire Augean stable of the welfare system and to create a road to dignity and family stability he saw as crucial. He warmed to an idea of fundamentally reforming welfare along the lines of what had been proposed for years by economist Milton Friedman – the negative income tax (NIT). Friedman was clearly no left-wing social reformer or policy advocate eager to increase welfare entitlements. Instead, he was the leader of the “Chicago School” of economics, a strong right-wing, thoroughly monetarist, deeply conservative, sometimes nearly libertarian perspective – and the force of his ideas came through his teaching as well as in more popular books like Capitalism and Freedom.

For Friedman, the negative income tax was the way out of the growing tangle of welfare programmes and the unhealthy dependency it inevitably bred in its recipients. In essence, as long as your household income was still below a certain level and you filed a tax return, you received a payment – with the disbursements made on a sliding scale until you moved into the ranks of solid, tax-paying citizens.

At a certain point, a household started paying taxes rather than receiving payments. (But the difficulty with any such plan, to critics, is that it never quite answers the problem of how to entice people into the workforce if the only job they can get is little better than the NIT benefit they were already getting while they were sitting at home, watching television.) Under Friedman’s plan, benefits, keyed to the tax system, decline progressively the more a person earns – just as tax payments by individuals increase as a share of their earnings.

But here is where the realities of politics and budget came into play.

Regardless of this potential financial hiccup, at least for Moynihan, here was a way out of both the mess of the welfare system and the social decay he was observing. Accordingly, he sold the plan, now christened the FAP, to Nixon and his new administration. But, despite initial enthusiasm, the president pulled back from pushing the plan forward in the face of opposition from conservative members in Congress, especially in the Senate Finance Committee, over the revolutionary nature of the idea, as well as the uncomfortable fact that with the Vietnam War continuing to consume vast federal resources, there was little fiscal room left in the federal budget to try anything as big as this was, and as untested and expensive as this wild and crazy idea was, despite Friedman’s imprimatur on the idea. [Italics added]

At around the same time, Moynihan was warming to the NIT, from an entirely different political corner, this time the far left, the case for a guaranteed annual income (the GAI) was also being made. A leading exponent for it was economist Robert Theobald [and] he was increasingly focused on the question of whether or not work itself might be going the way of the dinosaur as a result of the inevitable, implacable, increasing automation of the economy, and thus the transformation of the country’s entire economic structure. 

All those pick and shovel, strong-back jobs that had been the first stop for many aspiring immigrants were now evaporating and machines were increasingly taking their place. If so, a guaranteed annual income would be the right – and indeed might be the only appropriate response to assure every American had the money needed to survive and, hopefully, to thrive in the fast-approaching post-industrial age.

Theobald’s ideas naturally had roots in earlier writings, such as Edward Bellamy’s 1888 novel, Looking Backward, the first utopian novel that assumed the problem of work and welfare had been solved in the incoming century after its writing. Or a similar value could be found in the ideals in the Marxist approach, first enunciated in 1875: “From each according to his ability; to each according to his needs” – an idea that similarly assumed the real issue was the equitable distribution of the cornucopia of wealth, rather than the economic engine of wealth creation for a growing economic pie. People would work because they wanted to, not because they had to in order to survive.

For South Africa, now, the expressed urgency of dealing with a massive underclass of the unemployed (even unemployable) poor by taking up such a programme is a hot topic. In a way not totally dissimilar to the concerns that had motivated Daniel Moynihan, the current discussion comes out of the reverberating shock wave of the turmoil and looting that seems to rest on top of the appalling, presumably unsustainable, but stubbornly resistant to change, poverty and unemployment in South Africa.

Questions about any proposed programme’s shape and extent, its cost and financing mechanisms, and its larger social impact are beginning to enter the national discussion, but given South Africa’s economic circumstances, the discussion should also include whether or not there might be alternative types of programmes that might generate some of the same, or even better, outcomes for South Africa’s predicament.

One of the most discussed proposals calls for issuing monthly payments of around R1,300/month to everyone over 18 (presumably existing as independent family units), for a projected annualised cost of some R200-billion. Other plans propose means-tested payments (i.e. eligibility is dependent on whether individuals already have earned income and thus is not a programme of universal benefits) thus creating a plan that would be somewhat less expensive. 

The question of how current SASSA child grants would be factored into the mix also depends on the various proposals. Financing such a vast new government initiative is financially feasible as long as certain changes in government budgeting and revenue are carried out in order to increase government revenue sufficiently — and if the money collected is somehow ring-fenced appropriately for this task. 

But the question of raising sufficient revenue is not actually the fundamental question. Such discussions are a variation of the classic “guns-or-butter” question. No government budget is fully set in concrete, and budgets are obviously adjustable to meet new demands or national existential challenges such as the Great Depression or World War 2. But not all “butter” expenditures should be seen as the same either. There is always politics in the mix. 

Government budgets have expenditure levels that are not infinitely fungible or ignorable. Interest on government debt (to foreign and domestic bondholders or international financial institutions) is not a discretionary expenditure unless a government decides to default on its core obligations. Nor – in large measure – can government salaries and pensions be cut without major political upheavals. In a place like South Africa, virtually any change in one category of spending must come at the expense of those limited discretionary budget items. Pay more social welfare and you must now cut something like infrastructure, public safety, or even, gasp, government salaries. 

The cost of the most discussed BIG will come to at least R200-billion annually, something that would be equal to approximately 20% of the government’s total annual cost of salaries and benefits for all of its civil servants. Such shrinkage would generate a heavy political cost for the government, especially given the governing party’s close relationship to government employee unions, and the tasks they perform (and to the staff complement), in order to fund a vast new social welfare programme.

The writers of the Freedom Charter clearly understood this human need: Work supports the growth of self-esteem through the recognition of people as valuable human beings, beyond work’s purely economic impact.

What the programme’s proponents argue is that there are ways out of this bind. They can cut this budgetary Gordian knot with some simple changes to the country’s tax structures, along with slashing expenditures on staffing. Their argument is revenue would be enhanced from wealth taxes, increased rates of personal and corporate income taxes, new financial transaction taxes, and the inevitable cracking down on waste, fraud and mismanagement. 

The latter three are always proposed by government reformers but rarely successfully achieved, even by much stronger, more agile governments. Meanwhile, the issue of wealth taxes or significantly higher income taxes or add-on taxes begs the question of whether or not such increases might actually drive higher net worth or earnings taxpayers to leave the country or arrange to have their income and wealth expatriated, or even just to figure out clever ways to evade taxes, thus seriously lessening the overall revenue take for this and other programmes. 

As Business Maverick’s Tim Cohen argued the other day, “BIG’s proponents think it could be achieved by increasing tax, but … SA’s tax base is too small, and existing tax rates are massively uncompetitive globally.” In truth, no one really knows if government revenue could be achieved for such a programme (or other needs) with any real certainty. This is especially true as changes in tax rates and collections often do not hold to the rosier predictions of their proponents.

Another important yet infrequently discussed question is the social impact of a R1,300 monthly payment. Some proponents almost seem to be arguing that such payments – aside from the obvious impact of a modest amount of additional money in the pockets of poor consumers to pay for their families’ daily bread – would help lessen social and political upheavals such as the recent devastating tumult and looting. The logic of their argument seems to be that the looting was significantly the acts of desperately poor people securing food (although the available evidence points to much wider scale looting of items well beyond daily necessities).  But the causes and the results of the looting were considerably more complex than simply hunger and impoverishment.

Does anybody really wish to argue that more money in the pockets of the poor will successfully address the anger of the poor – or the unemployed – over their material circumstances, especially since any available discretionary income beyond the most basic of necessities would remain orders of magnitude smaller than the income of the wealthy in this society. No BIG could ever be sufficient for the poor and unemployed to purchase the kinds of goods, beyond food, that most would desire. Could it even, instead, fuel a greater sense of envy of those better off, once they realise how little the BIG really provides them? 

Start with some relatively simple ideas. It is a truism South Africa’s economy has been simply incapable of generating jobs in the numbers needed to make even a dent in the vast number of unemployed. In fact, the number of those beyond the circle of employment continues to grow.

There is, after all, no reason to assume even an effective implementation of this programme would seriously dent the conspicuous consumption by many of the country’s nouveau riche, by the tenderpreneurs, or by the politically well-connected, even as it puts further strains on the circumstances of the working middle class due to the taxes needed to support the plan. Such realities might even contribute to new levels of class friction. (As a cautionary footnote, one of the key factors that has contributed to the defection of working-class voters from the Democratic Party in the US since the 1960s has been a story fed to them by rightwing populist politicians that welfare-receiving poor people are living large on the money paid through the taxes of hardworking, working-class people.) 

Another aspect of the circumstances of the poor often going unremarked upon is the value of work to those who do it versus those living in dependence. Could a BIG programme have a discernible impact on the psychological wellbeing and growth of its recipients, beyond the presumed slight lessening of their hunger? Protests by the poor or working-class people, and one of the aspirational elements of the Freedom Charter, have usually included calls for fairly compensated work rather than modest handouts. Sociologists and philosophers have long recognised the value of gaining and holding work (although they can also, as George Orwell did so well, criticise the demeaning impacts of mind-numbing, physically punishing, menial work that exists without any real future improvements in their conditions in a volume like The Road to Wigan Pier, describing the circumstances of coal miners in Depression-era Britain). 

The writers of the Freedom Charter clearly understood this human need: Work supports the growth of self-esteem through the recognition of people as valuable human beings, beyond work’s purely economic impact. As the Freedom Charter advocates: “There Shall Be Work And Security! All who work shall be free to form trade unions, to elect their officers and to make wage agreements with their employers; The state shall recognise the right and duty of all to work, and to draw full unemployment benefits…” [Italics added]

Back in the 1940s, psychologist Abraham Maslow first set out the still-accepted typology of the hierarchy of human needs. They begin from the basic physiological ones of food, water and shelter; then on up through the needs for safety, security, and freedom from fear; needs for friendship, intimacy, trust, inclusion; on to needs such as pride, a feeling of accomplishment and reputation; and then, finally, what Maslow called the need for self-actualisation through opportunities to achieve one’s full potential. While a simple income transfer can assist with that first level, it progressively has less and less ability to contribute to the higher ones. Could we, instead, design efforts to provide income but which might also help people fulfil in some way those higher-level needs?

Start with some relatively simple ideas. It is a truism South Africa’s economy has been simply incapable of generating jobs in the numbers needed to make even a dent in the vast number of unemployed. In fact, the number of those beyond the circle of employment continues to grow.

Moreover, any skills held by many of the unemployed are no match for jobs that exist or that may come into existence in the future – as the nature of employment needs evolves. But simultaneously, the country demands the construction, improvement, renovation or maintenance of much of its infrastructural base. While some of this work requires advanced engineering and technical skills, much of it does not demand high-tech construction knowledge and it can be carried out through the work of many, many unskilled – but effectively guided and managed – hands. (India’s vast network of earthenware dams and roads was often built on the backs (and heads) of armies of workers carrying the necessary materials to the worksites, without the use of heavy construction equipment for that effort.)

If this is replicable, a national mobilisation of currently unemployed workers could be marshalled to carry out such work. They would earn what might be the first wages many of them have ever earned, and they would be improving the nation’s stock of infrastructure as well. It is easy to say such things cannot be done at scale, but in the midst of the Great Depression, in the US, where 25% of the American workforce was unemployed and families destitute, around three million young men moved through the Civilian Conservation Corps (CCC) system. They built bridges, trails, roads, inns and shelters in national parks and protected wilderness areas all across the country, creating infrastructure still in active use today. The programme was so successful that congressmen of both parties insisted on such efforts for their respective districts. 

Many of those who participated testified afterwards about how that experience made real contributions to the growth of their own self-worth (and to their skills) because of their participation in it early in their lives. For budgetary calculations, a programme like that can become a “two-for”, producing income transfers to the poor and unemployed (CCC participants were required to remit a portion of their earnings to their families), as well as enhancement of the infrastructural patrimony. 

Taken together, would initiatives like these end the nation’s poverty and hunger? No, not entirely. But they, or ideas and initiatives resembling them but shaped to meet local circumstances, could deliver real incomes and benefits, without necessarily generating a lifetime of near-total dependence on the part of beneficiaries. 

To make optimal use of this kind of mobilisation, a real basic education training and skills development component must be an integral part of it, imparting the knowledge needed to start and run small businesses, once their enlistments in localised versions of the CCC model conclude. Businesses, universities and other institutions must be part of this effort.

Meanwhile, of course, real hunger must also be addressed. But instead of the current haphazard issue of food parcels (often delivered for partisan political gain) and the irregular good works by dedicated charities and individuals, there should be a specifically South African model of the SNAP programme, or what used to be called food stamps. 

The core idea is that individuals who qualify by virtue of their low household incomes receive a set value of coupons (sometimes delivered electronically these days) per month to receive major discounts at the points of sale for all foodstuffs, thereby making even a very modest food budget stretch much, much further. (People like Congresswoman Alexandra Ocasio-Cortez have testified to the lifesaving support their families once received via food stamps in her childhood.) 

To preclude fraud, there is no real secondary market for these coupons – legal or illegal – because they only have value at the actual point of purchase. Expressly prohibited from purchase are tobacco products, alcoholic beverages and fast food meals. Other than that, purchases are left to individual taste and food preference. Each sales point then turns in the value of the coupons it has accepted at the end of the month and is then reimbursed for the costs of its handling of these discounted transactions. 

Meanwhile, the coupons help stabilise and underpin demand for food products, thereby helping underwrite farm incomes. The secret of the SNAP programme is that it is a federal government agriculture department programme, and it was initially sold to Congress for their support through appealing to more conservative legislators from rural districts as a programme designed to improve and stabilise farmers’ incomes.

Taken together, would initiatives like these end the nation’s poverty and hunger? No, not entirely. But they, or ideas and initiatives resembling them but shaped to meet local circumstances, could deliver real incomes and benefits, without necessarily generating a lifetime of near-total dependence on the part of beneficiaries. 

Could the current South African state be capable of organising and managing such programmes? That certainly could be a real challenge. That, and costing out such efforts. But it should be worth thinking beyond that simple Milton Friedman-esque notion of handing over some cash each month, in perpetuity, to the entire nation, thus generating a crushing sense of dependency and despair about the future, in addition to a potentially massive drag on the government fiscus, potentially distorting or deeply damaging the national budget and tax regimen. Perhaps there is even the possibility of mixing elements of the BIG with these ideas. 

But the crucial point is that government planners should not be welded only to the ideas of a couple of economists from the 1960s, without current knowledge of the cruel realities of South Africa’s current economic crisis. DM  



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All Comments 9

  • An economy is a self organising entity and is best managed by leaving it alone. But no, our govt must interfere at every turn. BEE, charters, EWC, capable state nonsense, etc. The result is the world’s worst inequality, poverty and unemployment.

    Just imagine what would happen if you had to wait for government permission to get out of bed every day? A shambles, that’s what. Well that’s our government .
    A shambles

  • A suggestion made by progressive trade unionists in the early 1990’s as they foresaw large scale unemployment and skills shortage for SA’s future was to overhaul the entire railway network to ‘normal’ gauge as opposed to the Southern African narrow gauge. This allows for higher carrying capacity and speeds. Any railway building starts off with large scale earth moving which could employ millions of unskilled workers, using shovels, pickaxes, wheelbarrows etc. As such project progresses over the decades many workers would be likely to have enhanced their skills, now being capable of being trained to use machinery or learn how to properly weld tracks and bridge components made of steel as that would, of course, be necessary. This would have been a project of at least 25 to 30 years. Would that have been done we would today have a rail infrastructure comparable to France or Germany. Just imagine to travel from Joburg to Cape Town by train in about 4’30 hours or have virtually no container trucks up and down the N3 because the trains, carrying up to 50 containers of 40″ each would do the trip in about 3’30 hours instead of the about 7’30 to 8 hours a truck needs for the trip. Not to mention environmental aspects as rail is by far the least polluting mode of transport.

    • According to the article in Construction Review On Line, dated 19 July 2019, South Africa is set to build a standard gauge railway between Durban and Johannesburg.

      One of the reasons for selecting the 3′-6″, Cape gauge, in the 19th century was that it would enable tighter curves in mountainous regions. Having travelled from Cape Town to Port Elizabeth many times ±60 years ago, I know the line between George and Oudtshoorn in the Outeniqua Mountains has many such tight curves. So it may not be economically feasible to convert this and other lines in mountainous regions to standard gauge.

      Also all our neighbouring countries use Cape gauge. This means that rail transport between those countries and South Africa would be hampered by having to either offload and reload, or change the bogies from standard to Cape gauge and vice versa (this would be possible for the rolling stock but not the locomotive) at the border.

  • I am getting really annoyed at the recurring angle of arguing social welfare payments are a means to prevent recipients from looting and burning. In other words : pay to avoid a next KZN.

    For every 1 that looted and burnt, probably 10,000 decent yet impoverished did NOT. It is a total insult to those decent folk to assume that because they are poor they will loot and burn.

  • Well J Brooks Spector, perhaps your first suggestion should have been to give a job to someone to clean up th garbage at that SASSA payment centre. You can be poor, but to be filthy is another matter.

  • Stanford University published a paper in 2020 and one of the conclusions are: “Findings are generally positive that UBI- type programs alleviate poverty and improve health and education outcomes and that the effects on labor market participation are minimal.” The labour market point suggests that people don’t stop working when given BIG but use it to augment current income to fund education of their children, purchasing good, etc. More research is needed for sure. But let’s not judge the proposal and others the author suggests too quickly.

    • I am not opposed to such payments. The question always is, though, who pays? South Africa has high taxation rates across the board as it is, but more importantly, it has a very steep and very thin tax paying base. You will be startled to find out that out of 23m registered taxpayers only 4,3m were assessed in 2019. Of these, 2,9m paid tax. Of these in turn less than 45,000 people earned R2,0m or more. And that is where a huge chunk of our Personal Income Tax of R360bn comes from. Scary stuff – 1,000 Airbus flights and they’re all gone.

      There have to be better ways to do this. And instead of looking to the USA and Europe, why don’t we simply take a look at Rwanda and Zimbabwe, do an honest comparative assessment, and really, call a spade a spade for once.

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