Opinion: The overlooked potential of basic income in addressing socio economic crises

Opinion: The overlooked potential of basic income in addressing socio economic crises
Opinion: The overlooked potential of basic income in addressing socio economic crises

By Isobel Frye

See original post here.

South Africa is a formal egalitarian democracy. Elections are less than a month away and the faces of hopeful candidates flutter from lampposts. For the first time ever, a very real possibility exists that the ANC will not be returned as the ruling party either nationally or provincially. leading most of the provincial legislatures. All bets are off.  

And so it is surprising that in all this contestation, the idea of a universal basic income is not more of a vote catcher. It could be said that the failure of more parties to punt the grant is a signal of a worrisome future. This failure can be attributed to one of three things. Either parties don’t understand the very sticky nature of the economic and employment crisis that we are in, or parties have a far more successful policy solution to the affordable elegance of a universal basic income, or simply that parties have concluded that solving the grinding daily poverty that is the reality for more than half the electorate does not interest them as a policy priority for the next five years.

The seventh administration will inherit poverty levels of more than 55% and a real unemployment rate of 41% — almost 12 million people, 77% of whom are permanently unemployed. For people under the age of 24 the unemployment rate is a crippling 69%. 

But this dysfunction is housed in an even more stark dynamic: South Africa is the most unequal country in the world both in terms of wealth and income. Quite incredibly, this income inequality is not driven by the wage dilution caused by unemployment, but rather by the unsustainable wage gap among the employed. The income inequalities are so extreme that the notion of two nations living in one country coined by former president Thabo Mbeki seems to have bled away and been replaced by two very separate countries. The rules and the values and the protections of state embodied by democratic freedoms do not pertain in the second, lesser country.

The data on poverty levels, inequality and the unemployment rates are freely available. One would expect the policy pundits of aspirant governments-in-waiting to have worked these key numbers to inform the policies they are punting in their manifestos. And we would expect them to have looked to comparative countries to see what has worked and what has not. No country has been able to create 12 million jobs in any short or medium term. When these parties promise to fix the unemployment numbers by creating decent jobs for all, that is simply not a bankable promise. And either those politicians who promise this know that their promise is not possible, or they don’t. Neither of these options signifies a great voting choice.

Why are social security system choices important?

“Social security” refers to the huge system designed to balance the front end of the economy and corrects the cycles of supply and demand required for a regular, circular flow of the economy when the market fails to do so.. Through “tax and transfer” mechanisms, excess is reduced and need is addressed. In industrialised nations of high or full employment, every worker contributes a fair portion of their salary to tax each month. This pays for the running of the state: the civil service, the schools, police, licensing departments and traffic cops. A second mandatory payment is made into a national insurance fund. This fund insures against poverty and provides income when people need it. Many countries pay universal child benefits as an investment in the future, and pensions for older people as a sign of respect for the good each person has done throughout their lives. To those who are disabled, have become too sick to work or who lose their jobs, a monthly income is paid from this same fund that meets their basic needs.

That is a system built to care for the nation. To keep people fed, shops and traders selling and factories producing. But in South Africa we started under apartheid the social security system was built on with a privatised system of pension fund contributions, and unemployment for white men was rare because of job reservation.

So now we have a formal democracy where each person counts equal value, but we have 12 million people out of work, and for more than two thirds of the unemployed, this is a permanent condition. And there is no permanent or decent income stream that will enable people to eat, supply customers to shops and traders, and thus no suppliers for factories to sell to.

Advocates for a decent universal basic income grant — that is, one that is value indexed to the upper bound poverty line of R1 500 a month — have argued that such a grant should be paid to every child and person legally resident in South Africa. Paid to all, but taxed back from income tax payers who will be neither better or worse off. This will provide the level of stimulus needed to rescue the economy. 

The current GDP growth rate is forecast at 0.9%. At lower than the population growth rate, the 0.9% is, in effect, negative economic growth. “Helicopter money” is an idea that has been used successfully to rescue many other economies, which is what a universal basic income would in effect be to begin with. Given that factories are running at 20% below capacity largely because of a lack of demand, inflation is not going to be an immediate problem and it can be controlled by policy instruments as the economy starts to turn.

So, turning back to the contesting parties who promise to save South Africa. What do they say about a universal basic income grant in their manifestos to a country with more than 55% of the population living below the poverty line?

The ANC has affirmed its commitment to existing grants. These grants are paid to about 18 million — children, older people and people with disabilities. The child grants are R530 a month and the pension is R2 180. The ANC has repeated its intention to upgrade the R370 monthly social relief of distress that is budgeted for just over nine million people to a better system in future, but no further detail is provided.

Oddly, the idea in its purity of universal access and decent value has had little traction with political parties, bar ActionSA. 

The Democratic Alliance (DA) targets the 14 million child support grants for their primary election upgrade promise, vowing to increase the monthly R530 to the food poverty line of R760 a month. But the DA appears to be even more uncertain about the adult social relief of distress grant than the ANC. Although it, too, says it will keep the grant and convert it to a “jobseekers grant” with various conditions, it then qualifies their promise by saying that this will only be done if there is enough economic growth to pay for it. True to its liberal ideological orientation the DA will not introduce a jobseekers grant if this would mean an increase in tax from the employed to pay for the grant for the unemployed.

Rise Mzansi is less keen on social grants in general. They do promise to ensure that everybody has enough food through a combination of grants and food vouchers and own grown food gardens and access to cheap food markets.

The Economic Freedom Fighters maintains its position that it will double the value of existing grants to older people, children and people living with disabilities. With regard to the 12 million unemployed, they promise to introduce a “graduates grant”. This seems to be an even more targeted relief than the DA version of a “job seekers grant”.

The Good party is much more upbeat about social security and appears to be far more social democratic in its ideological alignment than other parties. Its promise is for a means tested unconditional basic income grant of R999 a month for those earning under R1000 a month.

ActionSA is the only party that sees the economic stimulus idea in the universal basic income grant proposals. It promises to introduce a universal basic income stimulus, taxed back from the rich, for an initial three years. The value will rise in keeping with the poverty lines. It claims the effect of this will create a 2% additional GDP growth and 1.6 million additional jobs.

A study of coalition governments’ policies reveal that after elections, coalition governments often tend towards conservative policy compromises to promote coherence between them. This finding does not augur well for those hoping for a more redistributive coalition government.

But in any event we also need to know whether the new administration can depart from the current austerity macro-economic framework adopted by the treasury and the South African Reserve Bank. The Finnish coalition model, for example, allows for budget line item changes and swops within the framework, but it does not allow for changes to the overall framework. If this is true, then the space for bold new policies under whatever banner might simply be a fiction.

In all of these scenarios, any future government committed to introducing real change will have to do some really hard thinking and advice-seeking from constitutional experts and investors alike to discover ways to benefit the majority of South Africans.

Given the enormity of the growth, unemployment, poverty and inequality crises facing the country ahead of elections, the failure of more parties to punt the universal basic income grant is a worrisome signal. Should we attribute this failure to a failure to understand the depth of these crises, or that they have a far better and as yet unannounced grand solution, or are we left to conclude that they simply don’t care?

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