/ 24 January 1997

Pay the citizens of SA

Imaginative alternatives are needed to deal with poverty, argues Jeremy Baskin. And he has a particularly bold one to offer

UNEMPLOYMENT and poverty are arguably the biggest challenges facing South Africa. And yet there is a startling paucity of ideas on how to tackle them. Certainly there are lots of specific ideas that could make a difference – ending state subsidies of capital-intensive farming; promoting small, medium and micro-enterprises; encouraging tourism; to name only a few. But one hears about few big ideas, major structural innovations that could have an impact.

The only serious idea is the call for deregulation of the labour market. Reduce the cost of hiring and more will be hired, is the simple version of the argument. More generally, the government is urged to increase labour market flexibility, push down the level of unskilled wages, and make it easier to hire, fire and retrench employees.

But it is hard to see this idea as practical. It seriously overestimates the current inflexibility of the labour market. And it only makes sense if it is not watered down. To work, it would require the government to take on and “tame” the labour movement, and, in doing so, increase the level of conflict in society.

Is it really practical to pursue policies which promise the long-term possibility of employment and economic growth but, in the short and medium-term, increase earning inequalities, income disparities and social conflict? Are policies which do not also encourage the re-integration of our divided society, which do not build social cohesion, really sustainable?

It is relatively easy to critique the labour market deregulationists. But, in truth, few progressive alternatives have emerged. We need to heed the warning of the Indian philosopher Ashis Nandy when he says “the surest guarantee of oppression is the inability to imagine alternatives”.

So imagine the following – a basic income for all. Every adult citizen of South Africa (18 years and older) is given a monthly transfer of, say, R150 from the fiscus. This amount is given to all citizens, is not means-tested, and comes with no strings attached. It is a social entitlement linked to the general obligations of citizenship. This R150 is paid monthly into the bank account of each citizen.

It is a modest sum, to be drawn and used by the individual as needed. It is paid to all citizens, partly for practical reasons (to avoid bureaucracy, inspectors, and the possibilities of corruption etc), but mainly to give expression to the notion that citizenship is also about the obligations each South African has to every other. It can be a glue helping bind South Africans, and assisting the development of a common national purpose.

Can we afford it? Is it practical in rural areas or if people don’t have bank accounts? Why should Harry Oppenheimer also get it? These questions are partly answered by listing some of the advantages of the basic income idea.

* First, it will help alleviate the most extreme forms of poverty. Households have an average of three or four adults. For the most destitute households, and there are many, this is a form of direct income transfer that will at least keep some of the worst effects of hunger from the door. The amount is modest but will make a real impact on poverty and malnutrition.

* Second, by beginning to reduce absolute poverty and tackle inequality, a basic income should contribute to social cohesion and the reduction of crime. The extent to which it does so would, of course, depend on the amount of the transfer. Indirect effects, such as the promotion of productivity gains, might also be expected.

* Third, the amount suggested is low enough not to stop anyone looking for a job, but significant enough to make people willing to work for less than they might have. This means it should not act as a disincentive to employment. And it should moderate pressure on labour costs, but without reducing incomes at the bottom end.

* Fourth, it should change the power balance within the family and increase its social cohesion. The individual autonomy and self-respect which the basic income system encourages should empower women and younger people within the family. In many ways the aim is to replicate some of the positive effects seen in the transfers of state pensions to the elderly.

* Fifth, it would bring all citizens into the financial system and could act as a disincentive to unregistered economic activity and associated evasion of taxes.

* Sixth, it could result in a range of direct savings by, for example, reducing the size of the civil service (removing means-testing and making electronic transfers allows for leaner and cheaper delivery); cutting some existing transfer payments (although this is not inherent in a basic income system); avoiding the duplicate costs of other citizenship systems (such as election voting rolls and identity documentation); and improving the revenue system. Indirect savings from enhanced social stability could also be substantial but are harder to measure.

* Seventh, it is an attempt to develop a basic safety net for all citizens in a situation of limited state bureaucratic capacity. It recognises that it is not affordable or sustainable to attempt to develop and expand existing transfer systems on the West European welfare model. These systems are, in any case, under pressure and there is widespread agreement they must be reformed. Nor do we have the state capacity to deliver a complex and means-tested system of transfers efficiently and effectively, even if this were desirable.

* Eighth, it should boost the level of demand for basic commodities and, if responded to by domestic manufacturers, this should act as an economic stimulus. The economic multiplier effect could be significant.

Before looking at costs, let us tackle some obvious queries. This “crazy” idea is not entirely new. It has been promoted internationally by a range of progressive economists, including two Nobel Prize winners. It has been referred to variously as a basic or citizenship income.

The basic income idea need not substitute for all existing welfare transfers. There is clearly a case for retaining some specific transfers which are conditional or means-tested. Indeed, in principle, a basic income transfer can co-exist with other welfare transfers, although there are cost implications in maintaining multiple systems.

And a basic income system could be introduced incrementally. It could be phased in by age cohort, by region, or in other ways. Gradual implementation may make the system more affordable.

Our problems need radical solutions and the basic income proposal is clearly a radical one. But there is one major and obvious question that it must confront. How much will it cost?

Detailed costings would depend on the details of its design – whether it is implemented gradually, the amount of the transfer, whether it replaces existing welfare transfers, and so on. And it would be essential to adjust the income tax of those earning above, say, R1 000 per month in order to neutralise the effect of the transfer on second and third quintile income earners. For those in the middle- class and above (say earning R4 000 per month upwards) it would be essential to reclaim more than the R150 transfer in order to help pay for the transfer system as a whole.

If one assumes there are 20-million South Africans above the age of 18 years, and that one would reclaim the transfer and half the cost of the balance in the form of taxes from the wealthier 50% of citizens, then a transfer of R150 per month would amount to R9-billion per annum (10-million times by R1 800 per annum = R18-billion divided by two = R9-billion).

This figure can be reduced to the extent that existing welfare transfers and associated administrative personnel are reduced. Clearly a basic income system does not come cheap and detailed costings are needed. But the potential benefits for society, the sealing of a social contract between citizens and between generations, clearly merits further exploration.

— Jeremy Baskin is writing in his personal capacity. He is currently employed in the Department of Labour and is a former member of the Comprehensive Labour Market Commission