Thabo Mbeki’s new presidency is not the first to announce a “government for the poor”. Perhaps the experience and antecedents of the African National Congress leadership mean this aspiration is sincere, and that new ways will be sought to achieve it.
It seems election campaign encounters with extreme destitution and helplessness shocked ministers — not only the depth of the suffering but also the failure of current policies to address it. If so, the government must re-examine the assumptions on which current policies are based, to avoid the same mistakes. It will have to ignore opposition advice, backed by business, to carry on as before but abolish poverty — an oxymoron.
The first of these assumptions is that wealth at the top trickles down to the bottom. In fact, wealth moves relentlessly up, so that top business people’s incomes and assets absorb a steadily increasing share of income in all countries open to the global market.
Salary and wage earners get a lower share of national and international wealth each year. All gains in labour productivity go to the owners of capital, who constitute a diminishing number of richer and richer people.
Wealth does not trickle down, it siphons up. This international trend is most marked in countries where the government is small relative to the economy, where the government intervenes least to regulate the way business is done and where taxes are low. Under such regimes, increasing inequality is systemic. It can be changed only by deliberate government action.
Since our liberation we have been advised to go down the route of restricting the government’s size — and what it does to regulate the economy. Having agreed, Minister of Finance Trevor Manuel has had cause to complain that we have not received the promised prosperity and foreign direct investment.
So we need to abandon the assumption that unregulated markets attack poverty. It was always illogical. In politics, we know checks are needed against the abuse of power. The rights of authority have to be balanced against the rights of the governed. Hence checks and balances and a rigid Constitution as a way of protecting the less powerful and promoting their human rights.
So why is it OK that people whose power rests on wealth should be allowed to exercise that power without regulation or restriction? The government must deliberately enact policies that contradict the upward surge of income.
The second assumption that needs questioning is the focus on exports. Exports are good for foreign reserves. But they tend to be highly capital-intensive, in the interests of global competitiveness. For each job created in the export sector you need a lot of capital. Exports can be very profitable for capital owners and hence raise the statistics of national growth. So they seem to encourage growth. In fact, they often cost jobs. On the false theory that exports produce growth, governments subsidise exporters in ways and in amounts that could produce more jobs and community livelihoods if invested in local economies.
Imagine local economies in which money circulates many times internally. People make good livelihoods by trading with each other. Skills are used within the community to build facilities, and the income generated is used to enhance the local economy.
There is some importing and exporting, but it is not the main focus. There is no poverty. That happens all the time in commercial centres, less in small towns and villages, and very little in Gugulethu or rural Ciskei. This is because the entire economy is export-orientated.
Changing it means engaging social entrepreneurship at the local level. People who are expert in working with communities and enhancing local skills should be valued and paid. That is one of the best investments we can make in addressing poverty and creating livelihoods. There exists a range of ideas, internationally researched, for how that can happen — from savings schemes and food gardens to local currencies and cooperatives, from land regeneration to city parks.
Contrary to myth, lack of skills is not a problem — poor areas are teeming with skilled, educated and experienced people who cannot get jobs. What is needed is large-scale investment there. The current ideology is that employing people at community level and backing them with institutional resources is unsustainable and creates dependency. Community workers are expected to work voluntarily or for a small stipend — even though their communities are desperate for cash.
We are not short of money — we need to change the focus of where we spend it. And that means re-conceptualising an economy that will bring income, capital and assets down to earth and into areas from which it has been forcibly sucked.
The third assumption is that conventional taxes are the only way to raise government revenue. There are much better ways. Transaction taxes are simple, cannot be evaded and raise money painlessly for all concerned. Taxes on employment should be abolished altogether.
Taxes should be designed essentially to influence prices so that we privilege benign economic activity and penalise toxicity.
This is the time for some serious thinking on taxes to make the government more effective in the economy.
Margaret Legum is an economist with the South Africa New Economics Network