Vol.4 No.5, 29 April 2004

What Chance for Policy Change on Poverty?

Margaret Legum

Mbeki’s new Presidency is not the first to announce a ‘government for the poor’. But perhaps the life experience and antecedents of the ANC leadership mean that that aspiration is sincere, and that new ways will be sought to achieve it. It seems that election encounters with extreme destitution and helplessness shocked Ministers - not only by the depth of the suffering but also by the failure of current policies to address it.

If so, the government must re-examine assumptions on which current policies are based, so as to avoid the same mistakes. They will have to ignore consistent opposition advice, backed by business, to carry on as before but abolish poverty. That is an oxymoron.

The first of these assumptions is that wealth at the top trickles down to the bottom. In fact wealth moves relentlessly up, so that top people’s incomes and assets absorb a steadily increasing share of incomes in all countries open to the global market. Both salary and wage earners get a lower share of national and international wealth each year. All gains in labour productivity go to the owners of capital, who constitute a diminishing number of richer and richer people.

Wealth does not trickle down, it siphons up. This international trend is most marked in countries where government is small relative to the economy, where government intervenes least to regulate the way business is done and where taxes are low. Under such regimes, increasing inequality is systemic. It can be changed only by deliberate government action.

Since our liberation we have been advised to go down this route of restricting government’s size, and its action to regulate the way the economy works. Having concurred with thast prescription, Finance Minister Manuel has had cause to complain that we have not received the promised resultant prosperity and foreign direct investment. So we need to abandon the assumption that unregulated markets attack poverty.

It was always illogical. In politics we know checks are needed against the abuse of power. The rights of authority have to be balanced against the rights of the governed. Hence checks and balances and rigid constitutions as a way of protecting the less powerful and promoting their human rights. So why is it OK that people whose power rests on wealth should be allowed to exercise that power without regulation or restriction? Government must deliberately enact policies that contradict the upward surge of income.

The first question that should be asked about any policy should be would it take effective purchasing power to poor people, or would it simply grow GDP via enriching already rich people.

The second assumption that needs question is the focus on exports. Exports are good for foreign reserves. But they tend to be highly capital intensive, in the interests of global competitiveness. So for each job created in the export sector you need a lot of capital. They can be very profitable for capital owners, and hence raise the statistics of national growth. So they seem to encourage ‘growth’ defined in terms of average per capita GDP. In fact they usually lose jobs.

On the false theory that exports produce growth, governments subsidise exports and exporters in ways and in amounts that could produce much more employment and community livelihoods if invested in local economies.

Imagine, for instance local economies in which money circulates many times internally. People make good livelihoods by trading with each other. Skills are used within the community to build its facilities, and the income generated is largely spent to enhance the local economy. There is some importing and exporting, but it is not the main focus. There is no poverty. That happens all the time in Capital city commercial centres, less in small towns and villages, and very little in Gugulethu or rural Ciskei. That is because the entire economy is export oriented.

Changing that means engaging social entrepreneurship at the local level. People who are expert in working with communities and enhancing local skills should be valued and paid. That is one of the best investments we can make in addressing poverty and creating livelihoods. There exist a range of ideas, internationally researched, for how that can happen – from savings schemes and food gardens to local currencies and cooperatives, from land regeneration to city parks. Lack of skills is not a problem, contrary to myth: poor areas are teeming with skilled, educated, experienced people who cannot get jobs. What is needed is large-scale investment in local livelihoods rather than employment.

Unfortunately the current ideology is that employing people at community level, and backing them with institutional resources, is unsustainable and creates dependence. Community workers are expected to work voluntarily or for a small stipend – even though their communities are desperate for cash. In fact we are not short of money. We need to change the focus of where we spend it. And that means re-conceptualising an economy that will address poverty by bringing income, capital and assets down to earth and into areas from which it has been forcibly sucked.

The third assumption is that conventional taxes are the only way to raise government revenue. There are much better ways. Transaction taxes are simple, cannot be evaded and raise money painlessly for all concerned. Taxes on employment should be abolished altogether. Taxes should be designed essentially to influence prices so that we privilege benign economic activity and penalise toxicity. This is the time for some serious thinking on taxes to give government the resources it needs to be more effective in the economy.

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