Vol.3 No.26, 11 October 2003

New Ways to Address the Crisis of Poverty in South Africa

In recent years the reigning paradigm in the world of money, finance, trade and economic development has been one of deregulated and global free markets accompanied by national financial discipline. This economic world view has been promoted by the so-called Washington Consensus made up of the International Monetary Fund (IMF), the World Trade organisation (WTO) and explicitly or by default by the national governments of most nations of the world.

The ideological thinking of the Washington Consensus is based on the theory of comparative advantage which is based on the notion that if every economy breaks down protective economic barriers and acts according to its own comparative advantage, all economies will operate in the area of greatest economic benefit, thereby enriching all nations and all people.

This is the theory; the actual practice has been very different. The global free market paradigm has come under increasing pressure which first burst into global prominence at the meeting of the WTO in Seattle in 1999. These talks collapsed as a result of the activism of numerous NGOs and allied demonstrators. Since then every meeting of the agents and partners of the Washington Consensus has been accompanied by various forms of anti-globalisation activism.

Most recently, the meeting of the WTO in Cancun in Mexico collapsed. This collapse was caused not so much by demonstrators from without but by the reaction of WTO member countries outside the G8 group of most developed nations. At this meeting South Africa played a leading role in challenging unfair trading practices of the leading G8 nations. These countries protect and subsidise their own industries and people resulting in the collapse of the export markets of less favoured nations. This has a direct impact on poverty and unemployment in such countries.

Nations have been encouraged to accept the free-market paradigm of the Washington Consensus to concentrate on export industries and markets and to remove restrictions to imports and capital flows. However, in practice developing countries have met significant barriers to trade. Also, the process of seeking competitive advantage has Encouraged exporters to neglect concerns of sustainability.

The unfavourable effects of free market operation and globalisation can be countered by focussing on local economic development, environmental protection, sustainable development practices and simpler life styles.

How should South Africa respond?

At a recent gathering of the SARPN at the Human Sciences Research Council (HSRC) in Pretoria, concerning 'New Ways to Address the Crisis of Poverty in South Africa', Margaret Legum presented SANE Views on this crisis. The essence of her contribution may be found at the website of the HSRC. The essential elements which she addressed are given here in point form.

In theory, if every economy breaks down protective economic barriers, every nation's best interests will be served. The practical experience of it has been very different. Some unintended consequences have been:

• Income and wealth redistribution from the poor to the rich
• Systemic unemployment
• Wide-spread unemployment
• Promotion of the interests of large multi-national corporations, in particular by ways of a tax regime favouring such interests, and at the expense of the interests of governments, small business and civil society.
• Chronic and inevitable shortage of purchasing power, particularly of working-class, rural and unemployed people
• Increasing share of gross national product contributed by capital at the expense of labour and government
• Highly mobile or 'foot-loose' capital in search of speculative gain
• Instability of exchange and interest rates
• Degradation of the environment
• Casualisation of labour
• Illegal and criminal activities
• Falling of government revenue.

Solutions

SANE advocates radical alternatives to current neo-liberal economic policies. These alternatives are aimed at steering society in socially and environmentally desirable directions. Some basic directions could be

• Creating livelihoods rather than jobs
• Promoting social entrepreneurs
• Introducing a Basic Income Grant (BIG)
• New taxes as sources of government revenue. Such taxes could take the form of:
  - A very small total economic activity levy (TEAL) of, say, 0.05 percent or 5 cents in the rand on each transaction passing through a financial institution.
  - A Tobin tax of, say, 0,01 percent on all international currency transactions, with the aim of curbing excessive currency speculation.
  - Green taxes based on environmental impact of economic activities
  - Tax on negative social impact rather than on value added or income
• Money creation via the Reserve Bank rather than commercial banks

All these issues need further expansion and have or will be dealt with in other SANE Views. The last of these points needs some elaboration here. Under present monetary and fiscal policies most money is created through bank loans made by commercial banks against collateral, Instead the Reserve Bank could create money on the basis of need for meeting the demand for money to facilitate commercial transactions. The Basic Income Grant (BIG) could be used as a tool for injecting the required money supply into the economy.

Much research still needs to be done on the above and related issues. The New Economics Foundation (NEF) in the UK offers a very wide platform and connections for such research. To date SANE has not had the funding nor the manpower to pursue such research. The national vision in government, business and academe has also not been focussed in this way. The time has come for a shift in our economic paradigm.

© South African New Economics Network 2007. Page generated at 09:34; 22 September 2007