South Africa’s welfare debate

SOUTH AFRICA is faced with tough economic choices in an election year as the country languishes with low growth, high unemployment and increasing radicalism. Can the country afford to pay for welfare while bailing out an ailing parastatal sector that presents an ever-increasing drain on the fiscus? Have we finally reached the point where we have to make a choice between a “dirigiste” economy and market capitalism?

Bloomberg the global financial news website criticised South Africa’s “welfare addiction” this week. In an article published Tuesday which, according to T.O. Molefe invoked shades of Ronald Reagan’s “welfare queen” stereotype to argue that South Africa has a welfare addiction, Bloomberg disingenuously pointed out that the number of welfare recipients in the country currently outnumber the number of employed — “Some 16.5 million people receive government benefits, compared with 15.2 million working as of the fourth quarter of 2013 and those on assistance make up 30 percent of the total population.”

Bloomberg managed this slight of hand by conveniently avoiding the demographic reality of South Africa’s welfare system — currently only the youth, the old aged and disabled receive welfare — ignoring the problem of the 24% unemployed who do not receive any form of social security while big businesses remain on the receiving end of state welfare.

South Africa’s massive parastatal sector is a case in point. It lost in the region of R25bn last year and the figure is climbing. A report tabled in parliament shows that SAA has a R1.2bn operating loss bringing its losses to a total of R16bn since 1994. The problem of a welfare state supported by welfare businesses caught in a welfare spiral as the country shifts towards the left is deeply troubling. The solution appears to be dumping elements of the state-guided dirigiste economy while maintaining welfare and social security support for the least privileged.

This would mean letting go of unprofitable state enterprises such as SAA, Telkom, Post Office and Eskom and retaining only those enterprises which are capable of generating a profit. Currently Transnet is the only major state enterprise to show a profit, increasing revenue by 14.3% in the six months to September 2013 to R28.5bn. In effect the profit from Transnet is cancelled out by the losses in other state enterprises, creating the awkward situation where social welfare is entirely supported by tax revenue which is likely to diminish if plans unveiled by radical opposition parties for nationalisation of banks and other businesses proceed.

South Africa could quickly find itself in a double-bind in which all social services such as health, education and welfare payments are solely supported by loss-making state enterprises that have absolutely no hope of ever making a profit. The state would in effect be bankrupted by too much welfare and be forced to either borrow money or increase the circulation of money, in other words inflating the money supply, the banknotes which are created by the printing of money by the central bank. A proposal by the radical EFF to nationalise banks would in effect create one central bank with 220 branches as in North Korea.

Despite these concerns, welfare payments are set to increase as demands for welfare including medialternatives’ own demand for an unconditional basic income grant for each and every citizen, show no sign of abating. The country is in a unique situation. Duma Gqubule an expert for the South African Civil Society Information Service believes the value of untapped mineral resources in South Africa’s is in the region of US$4.7 trillion. “Put differently, the value of these mineral resources is worth one million Rand per South African citizen.” All good and fine, but the question of beneficiation and which economic system is more productive and efficient in terms of adding value and increasing tax revenue is not furthered by arguments which neutralise revenue from the market economy while creating yet another rung of welfare recipients in the process of nationalisation.

The state should not be bailing out businesses and banks which are to use a hackneyed term, “too big to fail’, rather the state should be redistributing the proceeds from productive capital to all citizens who are treated as if they were shareholders.

A state which distributes revenue in the form of an unconditional basic income grant, on a monthly or biannual basis would do a lot more to alleviate problems with poverty and inequality than a state which was tasked with performing a business and venture capital role instead of being an equity partner. Our poor performing parastatals have provided ample reasons why state enterprises are simply massive, under-achieving bureaucracies that do nothing in terms of providing value to citizens as well as consumers. South Africa must find a way to save social welfare while growing its economy. Dumping failing state enterprises and increasing the productive economy is the only solution that stands a chance of succeeding and winning votes.

Co-ownership democracy – the path to a basic income grant

South Africa’s path to a welfare state has not been easy. For starters the problem of how to pay for social welfare in a country with too few taxpayers and not enough full-time employed citizens, has meant that social services have been rolled out first to those in most need — children, the disabled and the elderly. In recent months the ruling party announced the introduction of universal healthcare in the form of National Health Insurance and a number of pilot schemes in which the system would be phased in incrementally.

Although opposition parties and civil society groups have already called for a basic income grant for all citizens along with health care, South Africa has lacked both the political will and the means to achieve this goal. Both the Freedom Charter and our country’s Constitution enshrine the right of citizens to share in the wealth of the country but this promise has appeared out of reach, resulting in ongoing poverty for millions. The pressure on the state to deliver essential services while moving towards a technologically sophisticated industrial economy has resulted in political infighting with far left groups such as the Economic Freedom Front (EFF) demanding that private property be confiscated by the state in a plan that would essentially reduce the economy and the country to a communist dictatorship.

Such a path is not the inevitable outcome of South Africa’s democracy. According to social and economic rights activist Nicole Tin,”Communism tries to correct the imbalance between the poor and the rich through the idea of common ownership. The fault is the implementation of a centralized common ownership. All the wealth gets centralized into the hands of a few people in the government and wealth distribution becomes a problem. China and Russia have given up on this idea of a common centralized ownership.”

Democracy, she says “is attractive as every citizen has a vote to pick the government. However, beyond this vote, democracy has nothing tangible to offer to its citizens. Wealth and power are concentrated among the rich.”

In the new democratic order envisaged by post-Marxists like Tin the common ownership of property would exist side by side private ownership of property by individuals or organizations, as currently practiced in democratic countries. For example, land pieces sold by governments.

The most important difference is that the proceeds from the lease or sale of common properties are distributed directly to all citizens equally.

In current democracies, even communist ones, Tin says, “such proceeds are kept, confiscated, in the government treasury. Common properties include land, oil, minerals, water, air space, road space, electromagnetic wave bands, nature parks, fishery license, sovereign wealth fund, and anything else in the country that is not already owned by private individuals or organizations.”

“In current democracies, citizens get zero wealth from being a citizen. In a citizen-ownership or co-ownership democracy, citizens equally share the wealth realized when common properties are sold. Each citizen in a citizen co-ownership democracy has a right to vote and a right to an equal share of the country’s wealth.”

In South Africa where the dominant theme  of wealth sharing and resource allocation is known as ubuntu, this makes sense, since there are limitations to what can or cannot be shared, necessitating the creation of shares, stocks and bond certificates.

“The amount of citizen dividend per citizen depends on the country’s common wealth. The amount is expected to be very substantial in many countries. For example, in Alaska, the amount can be easily a few thousand dollars per resident. In Singapore, the amount is estimated at about $9000 per citizen. (The details are in the cases supplied by Tin below). The amount over a person’s lifetime is easily hundreds of thousand of dollars, or even a million dollars.

So how exactly are we going to pay for all of this wealth sharing? Welll, South Africa has mineral wealth, the reserves of which remain some of the world’s most valuable, with an estimated worth of R20.3-trillion ($2.5-trillion). Overall, the country is estimated to have the world’s fifth-largest mining sector in terms of GDP value.  Government investment in the economy is in the region of billions of rands and like Dubai plans are afoot to beneficiate mineral wealth and to move beyond this windfall to a modern information economy.

The transition from a democracy to a citizen co-ownership democracy needs no revolution says Tin,  It needs only a political party to champion this idea, win the citizens over and you institutionalize this idea. “In some countries such as Switzerland, citizens can initiate and vote for a new democracy. They do not have to wait for any political party.”

“Careful institutionalization of citizen co-ownership and citizen dividend is essential. Past examples, e.g., the Alaska Permanent Fund and Alberta Heritage Fund, have shown that  dividend funds without careful protection will be diverted by politicians to other “urgent” uses. A good protection is through Constitutional laws that require a high referendum to change. A normal law that can be easily changed by a simple Parliamentary majority is not much of a protection.

The path towards a Basic Income Grant in which citizens gain financial freedom from birth and where the state essentially pays each and every citizen a basic salary every month is a long one. We may not ever get there as a developing nation, but we can certainly redistribute the nation’s wealth on a per annum or quarterly basis. There is no reason why the annual windfall from the state on the basis of co-ownership could not benefit us all in the same way that below par taxpayers already receive annual benefits from SARS in the form of a tax return. If you earn under R99 056 pa you already get your employees IRP pay deductions back, but if you unlucky enough to be unemployed you receive nothing. This is the gap which opposition parties need to fill in order to stay relevant to the 25% -36% segment of South Africans who remain unemployed.

BIG: We want wealth redistribution now, not poverty alleviation sometime in the future!

OPPOSITION to a basic income grant (BIG) falls into two categories — there are the free marketeers who preach an extreme form of market fascism in which economic losers need to be punished in order for the system to sustain itself, along with the exploitation of labour for profit, and for whom welfare is anathema (since it would mean relief from the punishment “incentive” and dilution of the motive forces behind capitalist competition), then there are the market liberals like Sean Archer (Cape Times Oct 24) who puzzle themselves with theories that merely restate the problem of poverty in terms of pseudo-scientific empiricism.

How much will poverty alleviation cost? How many poor are there in South Africa, and how can we distinguish between the poorest of the poor and the not-so-poor? Questions like these trouble the minds of liberals who have never experienced poverty, or who fear that tackling this issue will erode their status and position in society, effectively overturning the apple-cart as it were. The definition of what it means to be poor, as Archer intimates, must inevitably be rewritten by a form of redistribution that tackles the harshest of economic cruelties and depredations.