A SANE APPROACH TO SOCIAL SECURITY
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1. ROOTS OF SOUTH AFRICA'S SOCIAL SECURITY CRISIS
Perhaps the most serious problem of South Africa's economic path and policies has been that of a steady decline in employment growth in the formal sector of the economy over the past three decades. In the last three years this has accelerated to an absolute decline of, on average, at least 150,000 jobs per year, and that in the face of a rapidly expanding population and a growth of the economically active population of some 350,000 a year. Major factors giving rise to employment trends have been South African demographics and a world wide shift in economic structure towards information technology, hi-tech capital intensity, lower demand for heavy industry and hence less demand for raw materials and minerals. These developments have eroded South Africa's comparative advantage and have impacted in its area of weakness. They lie at the root of the current crisis in the provision of adequate social security and employment for its citizens. The historical background of this process is expanded on in Appendix I. These developments also are fundamental to the concerns of the South African New Economics (SANE) Foundation (see Appendix II).
2. A BASIC INCOME FOR ALL SOUTH AFRICA's CITIZENS
The concept of a basic income (also known as a citizen's income or citizen's dividend) payable to all citizens without considerations of means-testing, was a core concept of the Social Credit Movement, founded during the 1930s in response to the economic depression of the time (see Appendix III). The circumstances obtaining in South Africa today are not totally dissimilar to those which obtained at that time throughout the more developed world.
In South Africa a basic or citizen's income would create vast spending power amongst the poor and this could have a large multiplier effect in the country. South Africa does, however, present some very serious problems. In the first place there is the question of financing a citizen's income from the taxes of an impoverishing nation. In the second place there is the problem that most spending by poor communities occurs outside the community, in urban and metropolitan areas. Much of the spending also goes to imported goods with a zero multiplier effect.
The idea of a basic income paid to all citizens was perhaps first raised in South Africa by Leon Louw (1990) of the Free Market Foundation. The author of the present document also carried out some unpublished research on the impact of a basic income on the economy on the basis of a social accounting matrix (Roukens de Lange, 1991, 1993b). Jeremy Baskin (1993) of the Department of Manpower also raised the issue in the press. However, these contributions were not followed up and, in fact, were resisted, by orthodox economists and the civil society movements of the day. More recently the possibility of introducing a basic income for South Africa has come up for discussion in a number of research, labour and civil society movements. Early in 2000 a workshop was organised by Le Roux (2000) of the Institute of Social Development of the University of the Western Cape in which many organisations and people investigating social security and the basic income were represented.
The informal economies of townships and rural communities operate largely independently of the main-stream economy and yet are very vulnerable to it. Employment and income will only be created at an effective level in this sector if people are guided into spending on local goods and services produced within their own community, rather than by spending their limited resources on formal sector and foreign goods in shopping centres where the formal economy dominates. This pattern can be countered if the basic income is paid in terms of a complementary (i.e. parallel) local currency (see Section 5 below).
3. THE TAX BURDEN OF A BASIC INCOME
The Economic Policy Research Institute has carried out investigations of the macro-economics of poverty-reducing income transfers (EPRI, 2000a) and of a people's budget (EPRI, 2000b). The reports conclude that substantial income transfers to the poor are 'feasible, affordable, and capable of supporting increased economic growth and job creation'. For South Africa's current population of about 45 million an income transfer of R100 a month per capita would require annually about R54 billion. Between R33 and R51 billion of additional taxes could be raised by widening and tightening the existing tax collection system using a taxation revenue structure not significantly different from the existing system. Currently about 40 percent of the budget is spent on social services such as education, health, social security and housing. These allocations could be reduced significantly, thereby liberating tax money which could be allocated to basic income payments. Compared to other social security payments, the basic income is relatively easy and cheap to administer because it is universal and does not require a means test; this would liberate further funds by the reduction of administration costs. The EPRI reports suggest that between R10 and R15 billion of tax could be recovered because of such cost reductions.
The total current South African budget is about R200 billion so that the required income transfer would amount to an increased tax burden of probably only about 10 percent. An amount of R100 a month is, of course, very much less than a survival income, but EPRI's calculations were not intended as an estimate of a true basic income requirements but rather of the cost of energising and encouraging communities to engage in effective exchange and local economic activity. This would allow a multiplier effect to come into effect which would contribute significantly to uplifting the community and beyond that the economy of the entire nation.
It must be realised that a well developed basic income system, as opposed to a social welfare system, leaves a much greater responsibility in the hands of individuals to choose and pay for the social services they really desire. This would presumably lead to greater efficiency in the supply and use of services and would allow an entirely different picture of economic and social renewal to emerge.
Unlike the situation in more developed nations where a basic income would be set at a minimum income level (see Appendix III) the basic income in South Africa would be aimed below that and more at lifting the destitute out of a poverty trap where they do not have the resources to look for work, attend to their physical welfare or set themselves up for even the simplest and most menial of self-help or community activities. In this light a basic income payment could be seen not so much as an additional tax burden, but as a resource with a large multiplier effect generating new life in the local economy.
The most obvious way in which people could be induced to spend their money locally would be to issue the basic income in terms of a complementary (or parallel) currency which could only be spent locally. People may at first be reluctant to recognise the complementary currency as having value, but this would change if it were to be backed by real value that could be purchased with it. We shall explore that possibility below.
Complementary currencies could be effective for uplifting the economy in the following ways:
Complementary currencies of various kinds have been introduced in many communities. In his book The Future of Money, Lietaer (1998) sees the emergence of parallel currencies complementary to national currencies as one of the megatrends of the coming decades. Without this development he foresees a global monetary crash and economic collapse.
Local parallel currencies fall into three basic categories:
Hundreds of mutual credit currencies are in operation in first world countries and there are reports of less developed communities where they have been implemented (Aktie Strohalm; DeMeulenaere). In South Africa a number of mutual credit experiments based on LETS have been set up in various communities, but there may be none in operation today. A number of other community trading schemes are afoot which we are aware of, such as Ubuntu, Adopt a Neighbour and Work Rights projects (Reynolds, 2000). Various other forms of backed currencies operate in the formal economy but perhaps none operate with the backing of local governments.
5. USING A COMPLEMENTARY CURRENCY TO PAY A BASIC INCOME
This idea has received wide encouragement but a wide range of objections have also been levelled against it (Roukens de Lange, 1999). It has also been written up in the form of the so-called Guinea Fowl Scenario (SANE, 1998). A very important question is whether we can link the idea of the complementary currency to that of a basic income. A particular problem is often raised concerning the co-existence of currencies; Gresham's law, which basically states that 'good' and 'bad' money cannot co-exist, is then quoted. But Gresham's law was formulated for non-backed currencies under circumstances different from those which are currently to be found in South Africa. But with careful design of incentives and constraints applied to match the nature of local reality, parallel currencies can and do indeed co-exist.
Many initiatives involving complementary currencies which have been recorded. Lietaer (1998) has explored a range of them in his book 'The Future of Money'. Douthwaite (1996) has investigated complementary currency schemes in a range of countries and will be visiting South Africa and presenting a two-week course early in 2001 at the invitation of SANE and the Midrand Eco-City Project. When the director of SANE (Roukens de Lange) visited Holland in September 2000 he made connections with the Foundation UN Income for All People (www.uno-inkomen.org). They have a large vision for a basic income paid to all citizens of the world, have published extensively (e.g. Kooistra, 1998) and have a strong lobby presence at the United Nations. They are starting at a practical level of implementation with an experiment in which a basic income is paid in a complementary currency in a village in Holland. This project is twinned with a project in a village in India; SANE is expanding the scheme into a triplet project by starting up a project in South Africa. Negotiations for such a project near Cape Town are under way.
Implementation of a basic income is a major social undertaking, and tying it to a complementary currency is an even more complex initiative. The money issued must be backed and its supply controlled so that it does not lead to a spiral of inflation. In the main-stream economy money is created via bank debt. This creates major dislocations in the monetary system (Rowbotham, 1998; Carmack, 1998). Huber & Robertson (2000) have suggested that money should be created by an independent monetary authority to match the supply of goods and services. Banks would then serve only as brokers of monetary transactions, and not as creators of legal tender. Such criteria would also have to be applied to the generation of the payment of a basic income in complementary currency. It may therefore not be possible to make totally regular payments of basic income in constant amounts. It will certainly be advisable first to try out local experimental schemes before unleashing the scheme at a national level.
To make any complementary currency work effectively requires active community negotiations and participation. To tie it in with the payment of a basic income requires the political will of regional and/or national governing authorities. Probably the most important consideration will be that of the backing of the currency. Local or indeed national governments supply health and education services which are paid for by the taxes of the formal economy. It may be possible to offer these services to local communities in terms of the local complementary currency. The individual can then decide which services she wishes to purchase with her complementary money. She can also decide that she does not need her basic income money and use it to pay for services or goods she wants from someone who wants more of the local currency (say to pay school fees). In this way community trading will be set up which will expand the field of operation of the currency. More of the currency will therefore be required to match the level of economic activity so that the local authority can then issue more of the currency. It will thus be able to pay complementary currency to citizens in excess of the services it offers. This will in turn increase the level of economic activity in the community in a multiplier effect similar to that of the fractional reserve system of banks.
6. A SANE SOCIAL SECURITY PROGRAMME
Basic income and complementary currency are but two aspects of a more comprehensive package of economic reform measures proposed by the S A New Economics Foundation. Other aspects are concerned with tax, and monetary and bank reform; these aspects can be explored on SANE's website and in other SANE publications or books available from its resource library. What is of primary importance in advocating a social security programme is the demonstration, through practical ventures and social experiments, that the SANE programme would in fact prove to be workable and affordable. SANE is currently involved in the process of setting up such schemes and requires much support for this process.
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PERSPECTIVES ON EMPLOYMENT AND INCOME IN SOUTH AFRICA
In 1970 about 81% of the economically active population was involved in the formal economy - including farm and domestic workers - and most of the remaining economically active population was engaged in informal or rural subsistence activities. Many rural people were 'resting' and not considered to be economically active (Roukens de Lange & Van Eeghen, 1989).
Early in the 1970s the world experienced an energy crisis and became increasingly aware of 'Limits to Growth' and environmental degradation. The economic climate in South Africa deteriorated significantly, economic growth rates decreased to 3 to 4 percent, persistent inflation manifested and unemployment rates increased steadily. At the time, projections of employment, capital intensity and economic and population growth patterns indicated that, if the trends of the 1970s were to continue, by the end of the century the formal economy would provide employment for only about 65 percent of the economically active population (Roukens de Lange, 1980). As things turned out, trends worsened so that by 1990 this percentage had already declined to nearly 60 percent (Roukens de Lange, 1993) and today, in the year 2000, only about 45 percent of the labour force is employed in the formal sector. Levels of informal employment are not easy to estimate because informal activity ranges down to below survival income levels. Household surveys carried out by Statistics South Africa (1999) indicate that currently about 40 percent of the population can be classified as unemployed, i.e. without any identifiable formal or informal employment (Viljoen, 2000).
Income levels have also shifted significantly during the 1990s to an increasingly skewed distribution (Roukens de Lange, 1993; Whiteford & Van Seventer, 1999). In 1996 the income share of the bottom 40 percent of the population had declined to just 3.4%, down from 3.8% in 1991. All these adverse trends are related to the process of globalisation which is affecting all national economies across the world. However the extent of its impact is related to the extent to which the national economy is open to global economic forces. In the case of South Africa the severity of the current economic depression and loss of employment opportunities is undoubtedly related to its industrial policies which have been directed towards making South Africa a 'global player' by pursuing capital intensive and labour saving economic and industrial policies. The question is how to resist this process and protect local industries and communities.
Many projects aimed at creating skills and self-employment opportunities are in operation in South Africa, but most of them are struggling to reach levels of viability where they can provide an adequate income and where services are not undercut by the formal economy or by imported goods. A process of out-sourcing and casualisation of labour is taking place in the formal sector. This reduces demand for labour by large formal businesses and substitutes it with the input from small businesses and the self-employed, usually at much reduced income levels and with poor job security.
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SANE AND NEW ECONOMICS
THE SOUTH AFRICAN NEW ECONOMICS (SANE) FOUNDATION is a non-government organisation with the mission of "promoting and encouraging a process and system which will create a humane, just, sustainable and culturally appropriate system in South Africa". New Economics offers some specific policies for counteracting many of the serious structural imbalances, unsustainable practices and environmental damage generated by the current economic system. Background to the South African New Economics Foundation (SANE) may be obtained from the website sane.org.za .
The following are five principal areas of New Economics policy:
The above policies apply to all national and local economies but need to be adapted with great insight to the specific circumstances of each country and each community. In South Africa it is particularly necessary to consider the dual nature of its economy and to match local consumption patterns with production capacity. This demands the promotion of appropriate local economic patterns. Unfortunately this runs counter to the current 'neo-liberal wisdom' of the globalisation process.
Only the first three are of direct relevance to the Social Security Commission but it must be emphasised that the effectiveness of New Economics policies are dependent on the interaction with other policy aspects in a comprehensive systems approach to South Africa's economic and social problems.
In protecting ourselves from the forces of globalisation we could follow the route of Albania or Burma or Cuba, by insulating ourselves from global influences. These countries have managed this by a process of isolation and rigid control of foreign exchange, travel and trade. Another approach is that of the East Asian 'Tiger' economies which maintained strong protectionist policies while their industries were maturing to high and competitive levels of sophistication. New Economics offers a more flexible and hopeful alternative through a process of guiding the market's 'invisible hand'. This it does by setting the 'boundaries of the economic playing field' and the 'rules of the economic game' such that the self-interest of producers, consumers and the nation will coincide with socially, economically, structurally and environmentally sound choices.
Promoting local community economic processes and limiting national and global economic interaction is of particular importance to South Africa because of the dual nature of its economy in which the informal component is not competitive with formal national and global economies. The greatest need and deprivation in South Africa exists in rural regions. This has resulted in a massive influx of people into the metropolitan areas of South Africa. The old apartheid government tried to resist this process by subjecting the black African population to pass laws and exercising influx control on the basis of this. However it could not resist the pressure of poverty and rapid population growth, so that by the middle 1980s, when resistance to the apartheid regime took on revolutionary dimensions, it gave up on this quest. Today the hunger and deprivation of the rural areas has largely been translated into vast poverty-stricken urban slums harbouring vast numbers of unemployed who are economically sustained by crime, feeble informal economic activities and old age pensions.
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WHY A BASIC INCOME ?
Some important reasons for providing a basic income are the following:
In Canada the Social Credit Party won elections in a number of provinces in the 1930s and later. The Social Credit Movement and its concept for a basic income is described in a recent book by Michael Rowbotham (1998); we quote here from this book. "Douglas claimed that people needed a basic income, and that the economy needed them to have it. .. The basic income would consist of a supply of money created by the government, free of debt .. it would make up for the lack of purchasing power caused by the banking system. .. The amount would be calculated to boost purchasing power to the point where the goods of the economy could be bought without debt-based growth having to be undertaken. .. It would boost purchasing power without raising prices ..".
In looking at specific needs in South Africa we must look at the available literature and case studies. Non-means-tested basic incomes are being widely investigated in many countries. The Basic Income European Network (BIEN) has been active since 1986 and publishes a quarterly bulletin with contributions from a wide range of countries. At its 8th international conference in October 2000 papers were presented on activities in a dozen different countries on four continents. CORI (Conference of Religious in Ireland) has also carried out a great deal of research and investigation into the basic income issue. In Britain the Citizen's Income Study Centre (CISC) is active at the London School of Economics (Clark & Healy, 1997). The Foundation UN-Income for All People (Kooistra, 1990) has published a number of books and publications and maintains an active lobby presence at the United Nations in Geneva and New York.