Vol.4 No.8, 06 July 2004
An Economy of Our Own
By Margaret Legum
Like the proverbial oil tanker, governments do not change direction easily or quickly. Change must be fuelled by an urgent problem and led from the top. It seems we may now have both.
President Mbeki's new direction is rooted in deepening, widening and intractable poverty, which threatens the state of the nation that he leads. Our enviable democracy cannot survive a situation in which almost half our people are not contributing to the economy either as producers or as effective consumers.
Anyone who believes this is unconnected to the GEAR strategy demonstrates the triumph of hope and ideology over experience. Contrary to promises the GEAR period lost us employment and investment capital.
The President displays courage in taking on a central tenet of that strategy - that government should be small, leaving the unregulated market and the private sector to effect economic growth. Out of that theory has grown a shibboleth that has crippled new thinking. It is that the opposite of the unregulated global market is an authoritarian centrist regime that ends the market economy. Two minutes thought shows this is neither logical nor historically valid.
Two outcomes will characterize a successful new South African macro-economic system: getting money to the poor, and properly resourcing the government. First we need to decentralize wealth. Poor people must gain spending power: they must get the cash to buy the goods and services they need - food, shelter, clothing, water, fuel and schooling.
It may seem tautological to suggest that getting money to poor people is the solution to poverty. It is also obvious, urgent and inescapable. Any policy that postpones or ignores that result must be discarded - especially any that, by contrast, concentrates wealth. It is impossible to get income to poor people if rich people multiply exponentially their relative share of the nation's wealth, sucking up money rather than trickling it down.
A basic income grant is the obvious beginning. It can be rejected only if destitution and helplessness are disregarded or underestimated as a source of profound dependence. A universal grant will begin a process, requiring expert social entrepreneurship, of decentralizing the economy and so reactivating dead and dying local areas.
Without that grant you cannot start to grow livelihoods to fill the four million jobs gap. That gap will never be filled by formal jobs, which are declining globally. Technology has seen to that. Future successful economies will comprise mostly individual and group livelihoods in sustainable agriculture, commercial and productive enterprise. Sustainability will require labour intensiveness, because we are not short of labour but we are running out of energy sources to fuel capital intensiveness.
Second, the government must be enabled to lead that process from the front because it involves a change of direction. The private sector in a free market economy has an essential role to play in innovation and allocating resources between consumers; but it is not designed to act in the interests of anyone but itself.
The private sector is incapable of creating change or producing growth unless the conditions for profitability are already there. It is essentially responsive. It is not the business of business to take initiatives in the interests of the wider economy. It is not its job to expand the economy. It is an illusion that business - foreign or local - can be persuaded to invest. If conditions are right they invest without persuasion; otherwise not.
Already the private sector has been accorded responsibilities it cannot exercise. The government spends R1.2 billion on poverty alleviation, while business spends R2 billion. That proportion is outrageous in a democracy. The private sector money is allocated on business grounds and could be withdrawn without accountability. A democracy cannot put two-thirds of its poverty alleviation, including priorities as to direction, in the hands of organizations that see it as a bye-product of marketing strategy.
Relying on markets to make developmental policy is equally futile. Markets advantage size and privilege short-term profit-taking. Unregulated markets ensure spaza shops give way to supermarkets, organic farmers to agribusiness, diversity to homogeneity. Mergers and acquisitions concentrate wealth. Markets ensure that identical goods fly round the world, gobbling aviation fuel and polluting the air, to provide consumers with illusory choice on supermarket shelves.
Government needs to get back in charge. They need to employ intelligent and creative people to plan and implement new regenerative policies. That takes money. Government needs a new and more efficient way of collecting revenue. Everyone hates personal and corporate taxes, and does everything they can to avoid them. VAT is unfair because poor people feel it worst. There are ways of doing without all of those taxes, while providing more funding to government.
The first is a transaction tax. Our financial institutions facilitate transactions worth some R220 billion a day for 240 days a year, making an annual total of R52, 800 billion. If both sides in each transaction were to pay a tax of 0.05% (that is 5 cents in every R100), it would bring the government some R380 billion annually - enough to end all current taxes without loss of revenue. The money would go direct from the banks to the treasury. Large business would pay most of it. But the vast expense of tax departments would be ended; and their market increased by 14%.
A 'Tobin' tax - so called after its inventor - would similarly put a levy on currency transactions, thus simultaneously calming speculative trading and raising huge revenues.
Third, duties should be levied on activities that diminish the value of the planet's resources - that pollute the air, water or soil, or that use non-renewable resources like fossil fuels, fish stocks and forests. Such duties would make those activities more expensive and privilege their more benign competitors.
Fourth, governments could regain the right to create - instead of borrowing - the new money that all economies need each year. They would spend it into the economy debt-free, as they now do with the minted coins and notes. Currently the commercial banks create new money in the form of debt when they give loans. Governments should get the value of that new money on behalf of the citizenry, while also more accurately matching new money with the national need.
These ideas are new. They follow no ideology. We need open-minded leaders prepared to research their merits. The President has taken the first step.
© South African New Economics Network 2006. Page generated at 17:11; 24 September 2006