Vol.2 No.15, 20 July 2002
Government's Response to the Basic Income Grant
It is encouraging that, in a recent interview, Dr Zola Skweyiya, Minister of Social Development, acknowledged the need for a basic income grant (BIG). However, he also saw major obstacles in its implementation, and we quote:
"Nobody disputes the call for a Basic Income Grant. Nobody disputes that we need a comprehensive social security system in SA.
"One thing that comes out very clearly is that introducing such a big change in our lives needs a little bit more planning and for Government to be able to do that, Government should be prepared.
"We have problems now distributing pensions to the elderly only and children. The system is not up to date at the present moment. Can you imagine if we have to give this (Basic Income Grant) to almost everybody? Will it ever be able to administer and manage that within two months? Do we have a civil service that is able to do that?"
He has spoken an unfortunate truth, but we do not believe that this situation cannot be overcome with careful strategising, planning and goodwill. What we do need to be clear on is the larger perspectives of the BIG and its implementation.
Currently the thinking about the BIG is still somewhat naive, in particular in that it is seen as being financed directly by taxes. We shall here explore an expansion of the approaches to BIG financing which can make the process of providing a safety net for the people of South Africa both feasible and affordable.
ALTERNATIVE MEANS OF FINANCING THE BIG
Complementary Currencies and Work Rights
In the previous issue of SANE Views (SV2#14) the possibility was raised of financing the BIG, at least in part on the basis of local complementary currencies. A brief mention was made of the suggestion by Dr Norman Reynolds of the possibility of paying the BIG in terms of a local currency which he called the Soweto dollar and of 'work rights'. Dr Reynolds has since published his ideas in an article in Business Day. We quote from this here:
"The Basic Income Grant is but a platform .... to pay all or part of the BIG in local currencies managed by the Reserve Bank so that the funds stay within marginalised areas and build up local demand ... (Local currencies) thus reward local production and are used to pay for local services, saving Councils from their current financial ruin."
Reynolds also suggests moving from a simple grant to a tradable 'work rights' allocation system for doing community work. We quote here his arguments for his proposals:
"Gear, Government's macro-economic policy, fails to understand that South Africa has two economies. The first, with which it deals, is the modern one that is largely centred upon the cities. The second is the marginalised economy, the real apartheid legacy of townships, of dysfunctional rural areas and of hawkers on city streets. Globalisation has further marginalised these areas where most South Africans live, where there is no working economy, no cash circulation, little active exchange of goods or services or of laughter amongst residents.
"Neighbours have become 'economic strangers'. Life has degenerated to that of daily, individual survival. The drivers of the modern economy - scale, low unit costs, cash circulation, a diversity of goods and services - are absent.
"With the loss of jobs with restructuring and the failure of the modern economy to create, increasing numbers of citizens are now economic prisoners of these depressing places Unemployment is often 40% or higher."
CREATING NEW MONEY
Complementary currencies can be of two basic types:
A typical mutual credit currency is the LETS (Local Exchange Trading System). They are created by local communities themselves and are based on a mutually agreed upon payment system for value added by local services and production. They provide a very effective means of stimulating local economic activity; they are not the topic of discussion here.
Fiat is Latin for "let there be". Fiat currencies are created by government and the banking system. National currencies are of a fiat kind, even if they are paid in the form in a complementary currency as a BIG.
In a modern economy most money is created by banks when bank loans are made. Only a small proportion - coins and paper money - is created by the state. Today the state creates only about three percent of the money supply as debt-free cash. The other 97 percent comes as interest-bearing debt created by the banks.
There is nothing magical about this proportion. In 1963 the proportion of debt-free money was about 21 percent. The state could once again increase its share of money creation by paying the BIG in terms of money it creates by fiat. This would not be inflationary if the BIG results in increased economic activity. The increase in the money supply would be backed by government services (e.g. school and clinic fees). The Reserve Bank would ultimately control the supply of money.
The process of introducing a non-means-tested BIG is probably simpler and more effective than that of introducing other life-support social and financial services. Nevertheless the South African Government's ability to manage the process may not be adequate and support will be required from the business and civil society sectors. This will require significant co-ordination of people of ability and goodwill. Nothing is more important for the long-term stability, sustainability and peace of the country than the harnessing of these resources to implement an effective safety net for the people of this country.
Aart Roukens de Lange
© South African New Economics Network 2007. Page generated at 10:24; 03 August 2007