Vol.2 No.21, 20 August 2002
Letter to Business Day on the Basic Income Grant
Dear SANE Views reader
Below you will find my response to an article condemning the Basic Income Grant (BIG) which appeared in the Business Day. After my letter you will find the first section of the article as it appeared in the paper. The two points of view indicate that there is still a massive chasm between New Economics and the reigning Economic paradigm. I am leaving it up to you to judge this issue
Aart R de Lange
Editor, SANE Views
Letter to Editor, Business Day
8 August 2002
NEW APPROACH TO THE BASIC INCOME GRANT
On Thursday 7 August an article appeared in your paper headed: Should State Take Path of Basic Income Grant?
The first statement in your article is that 'Government's scepticism is justified'. That is a summary dismissal which throws the baby out with the bath water. We need to reflect more deeply on how a basic income grant (BIG) can be structured so that it meets both the desperate levels of idle destitution in the country and expands rather than constricts the national economy.
In the first place it is necessary to shift our 'zero-sum' paradigm which assumes that the BIG must be paid for from taxes. In fact it must be designed such that it is a vital path of revitalisation and growth. Such a view is illustrated by the tale of a traveller who arrives in an economically destitute little town in the early part of a day, books in at the local hotel and pays for his hotel room in advance. The hotel manager rushes off to pay the butcher who has threatened to stop supplying the hotel. The butcher in turn rushes off to pay the builder who pays the hardware shop which pays the travelling salesman who pays his hotel bill. At the end of the day the traveller returns to the hotel to offer his apologies that his travel plans have changed and that he wants to have his money back. This is given to him but, of course, not before it has stimulated the economy in manifold ways.
The moral of this story is that it is not how much money is available that matters, but the velocity at which it circulates. It needs to flow instead of being hoarded; it is in spending money that it has value, not in having it. It also illustrates that the BIG should be directed towards stimulation and circulation in the local economy rather than to giving people just a small bit of shopping power. Such shopping is likely to take place outside the local community so that there is no local multiplier effect.
To encourage the local multiplier it may be better if the BIG is paid not in terms of rands but in terms of a local currency which could be called a Soweto dollar. If the local government accepts this currency in payment for items such as school fees, building materials and clinic services, the local currency will be recognised as having real value. It will then be more likely to be used as a medium of exchange for other local economic activity. Empty bellies will be filled and idle hands will be active at very little cost.
Alternative forms of money are used in thousands of communities all over the world. Let us get this means of moving the economy activated in South Africa. Much information on economic alternatives can be found on the website of the South African New Economics Network: sane.org.za.
Aart Roukens de Lange
The original Business Day story can be found at :
Should state take path of basic income grant?
GOVERNMENT's scepticism over a proposed basic income grant of R100 a month for all South Africans is justified.
The proposal comes from a committee which was appointed by Social Development Minister Zola Skweyiya and led by Prof Viviene Taylor, his special adviser.
Although the cabinet has not yet given a final yea or nay, Finance Minister Trevor Manuel has repudiated the grant as unaffordable economic "populism", while government communication CEO Joel Netshitenzhe says the cabinet's "philosophical approach is different".
It cannot be denied that government has a moral responsibility to confront poverty. The critical question is whether this should be done through tax transfers, such as the one proposed, or through employment.
One problem with the grant proposal is its cost. The Taylor committee said "potential tax increases" to finance it were not within its brief.
However, even if the committee's modest estimate of a net cost of R24bn was correct, this would push government spending up from 28% of gross domestic product to 31% whereas Manuel promised to reduce it.
This would be only the beginning of a commitment that risks undermining government's entire fiscal strategy, and in particular, its signal achievement of cutting the budget deficit.
Once Manuel had conceded a universal grant, he would be under pressure to increase the sum to stay abreast of inflation at least irrespective of whether economic growth was rapid enough to keep generating the necessary increases in tax revenue.
© South African New Economics Network 2006. Page generated at 17:10; 24 September 2006