Many enthusiastic people are convinced of the potential for a monthly basic income grant (BIG) to help South Africa’s poor. But would it? The jury is still out because the written evidence covers only bits and pieces of the problem. Also, much of the research has not been subjected to assessment by independent experts.
Certain questions are still outstanding.
First, any income grant is by design intended to put more resources into the hands of the poor to be used any way they want. This will certainly relieve poverty by being spent on consumables such as food, fuel and shelter, but it will enable relatively few to escape from poverty.
Leaving poverty behind permanently, as opposed to softening the bite of poverty, requires individuals to invest some of the extra resources. A wide range of goods meet this investment requirement, including education, skills training, seeds, workshop space, tools for production, working capital such as raw materials, and commodities for resale.
Do not be unrealistic, you say — the poor will spend extra money on what they decide are their most urgent needs. Preaching to them about not consuming all of it is absurdly optimistic. Perhaps. But then, for consistency, one has to ask whether the idea of giving the poor alternatives to cash has been adequately researched, found lacking and then rejected. The answer is not at all clear that it has.
The standard way to raise investment by the poor — to enable them to engage in production — is through the supply of what economists like to call merit goods. Citizens of all states, irrespective of their ability to pay, have at least a minimum right to these goods. They include schooling, training, health care, child care, decent housing, enterprise grants, public transport and social services.
Putting it baldly, if we are going to spend an extra R50-billion every year on the poor, it is not obvious that supplying it in cash form is clearly better — for the poor as well as the non-poor, now and in the indefinite future — than supplying R50-billion in higher quantities and qualities of merit goods that by design provide the poor with long-term investment.
Economic effect
Second question: the disciples of an income-grant assert that paying it will stabilise the macro-economy and provide a growth spurt. That has not been demonstrated. The South African economy is not chronically demand-constrained with unused capacity to produce, so that any stimulus from extra spending (in this case by the poor who will save less and spend more) may or may not be beneficial depending on the level of economic activity.
The output gap, between actual and potential gross national product, is itself a cyclical phenomenon. So, extra spending might stabilise. Equally it might boost inflation, interest rates and exchange-rate depreciation.
Thirdly, one practical reason put forward for a BIG policy to cover all citizens is that targeting — aiming material help at poor groups only — can be imprecise and therefore inefficient. It also requires a means test, which in South Africa has powerful negative associations from the apartheid era.
One can agree that this is true without feeling in the least obliged to abandon targeting completely. It is still practised throughout the world, together with constant efforts at its improvement, because it is recognised as a legitimate policy to pinpoint anti-poverty actions. Corruption is a problem in all governments, but it must be weeded out, not side-stepped by adopting second-best policies.
Fourthly, will all the poor benefit equally in welfare terms? If we take our poor population to be the lowest 40% of individuals on the income scale — a widespread convention — we must recognise that the differences within this group are vast. If you divide this group into four equal chunks, ranging from the poorest of the poor to the richest of the poor, the average income of the poorest of the poor in the bottom 10% is easily three times lower than their neighbours in the next 10% bracket.
Another way of looking at it: the richest 10 % of the poor has more than seven times the income level of the poorest 10%. So, this is far from a homogeneous group meriting equal receipt of redistributed income.
Fifthly, do we know what the poor themselves want? One example, highly valued in other countries, is the obligation to work in exchange for income from the state. Work is not just the means to resources and production. It is the means to self-esteem and social acceptability. Simply providing a basic income does not recognise this, yet there is abundant evidence that receivers of welfare in the United States and elsewhere want to perform meaningful work in return for what they receive. Why should the South African poor be different? Has anybody asked them?
Uncertainties
A range of other uncertainties about a potential BIG policy can be listed. Can we presume a reservoir of untapped altruism in taxpayers? Will private philanthropy — charities, trusts and individuals who help the poor — decline in response to such a grant? In addition, at present a universal, unconditional grant exists nowhere in the world. Why are South African conditions judged an exception to the rule? We are not told.
Finally, paying out an income grant will not necessarily advance the goals listed in the Bill of Rights. It is the intention of our Constitution that every South African citizen should achieve autonomy in the political, social and economic dimensions of their lives. Clearly, giving the poor money increases their scope to live in the ways they want while that money is flowing to them. What it may not do is permanently increase their autonomy, self-esteem, self-sufficiency and the likes, all the higher goals intrinsic to human rights.
Try this thought experiment: if a basic grant were put in place now, and 20 years down the line the same proportion of the population were judged to be poor, would the programme be assessed as successful? Supporters of a BIG would say yes. Other people would say no because too few individuals would have escaped from poverty, hence the policy was only marginally successful.
So, until more research is done (and debated), it will be prudent not to put all our anti-poverty eggs into one basket marked ”BIG”. The need is great. But we have to do our homework first.
Sean Archer’s working paper, The Basic Homework on Basic Income Grants, can be ordered through www.cssr.uct.ac.za. He is a research associate in the University of Cape Town School of Economics. Archer will be discussing flaws with the proposed BIG on October 27 at the Leslie Social Science building on the University of Cape Town upper campus. More information: [email protected] or Tel: 021 650 5117