Vol.1 No.16, 27 October 2001

Tailoring New Economics to South African Realities


South Africa shares many features with more advanced economies in that it has a well-developed 'first-world' physical infra-structure and advanced financial sector and manufacturing sectors. It also shares features with the poorest of the newly baptised 'two-thirds' World: an under-educated and under-skilled population and large-scale unemployment negatively affected by economic globalisation patterns.

Over the past quarter century South Africa has experienced economic (GDP) and employment growth rates which have consistently fallen below the population growth rate. More recently we have seen a rapid decline in employment opportunities in the formal economy. The steep rise in criminality in the country is directly correlated with these circumstances.


South Africa's inherent characteristics and past social and economic policies have given rise to a set of circumstances which must be identified if we are to find the best way out of our difficulties. Some of these are:

Social, economic and environmental policies appropriate to these realities must be designed.


An obvious question arising out of all the above observations is why an economy which worked so well in the 1960s has been sinking into ever deepening decline. The most evident and simplest answer to this question is that local, global, physical and social circumstances have changed but that economic and social policies have not adapted to these new realities.

Let us look at South Africa's performance from this point of view. In the 1960s production and social service activities were labour intensive and employed a level of technology much lower than that of today's sophisticated industrial and information technologies. Communication systems were much less developed and a much larger share of economic activity was non-tradable. These circumstances suited the South African economy perfectly. It had access to a large pool of cheap and submissive labour and was richly endowed with minerals and raw materials required for the infra-structural development of both its own economy and for those of its trading partners. Foreign competitors offering consumer goods were distant and did not threaten local producers which were perhaps less efficient and productive but which nevertheless had acquired the technology for setting up an effective and internally competitive South African economy.

The comparative advantages that South Africa enjoyed in the 1960s declined as global economic circumstances shifted. Technology in the developed world has become increasingly sophisticated, capital intensive and labour saving. We have tried to remain a global player by adopting ever more sophisticated technology requiring more capital, more highly skilled and less unskilled manpower. This has played directly into our areas of weakness.

Throughout the decades of the nineteen-seventies, eighties and nineties the South African Reserve Bank followed a policy of high interest rates in order to limit consumer spending and inflation. During the nineties foreign exchange restrictions were lifted and the country was exposed to the process of economic globalisation. Under these circumstances interest rate has had to serve the additional role of attracting speculative money flows from overseas in order to maintain the balance of payments - and this while savings and long-term investments of local people and organisations was flooding out of the country!


When the New South Africa came into being in 1994 the country shed the scourge of its apartheid past, but its economic troubles were far from over. The global political and economic climate had shifted radically from those of the Cold War and Apartheid era. Far from this helping South Africa, the so-called Washington Consensus consisting of the U.S. government and the global institutions of the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO) has pulled South Africa and many other countries into a situation of economic decline and distress.

The Washington Consensus vision is based on the theory of comparative advantage and the success of post World War II reconstruction of war-ravaged economies. These conditions do not apply to today's globalised economy and by ignoring this untold harmful unintended consequences have manifested.


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. Five important focusses of New Economics policy are the following:

  1. Promoting local and limiting global economic activity
  2. Paying a basic, non-means-tested income to all citizens
  3. Encouraging complementary currencies to stimulate economic activities in cash-poor communities
  4. Monetary reform to diminish the money generating monopoly of the banking system
  5. A tax structure which taxes non-renewable inputs and value subtracted (the 'bads') rather than income and value added (the 'goods').

The above policies need to be adapted with great insight to the specific circumstances of this country. In particular it is necessary to consider the dual nature of the South African economy and to match consumption patterns to local production capacity. This consideration supports the first of the above New Economics principle and runs counter to the 'neo-liberal' wisdom of the globalisation process.

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 their 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 of small businesses and the self-employed, usually at much reduced income levels and with poor job security.

5.1 Promoting Local And Limiting Global Economies

The informal economies in 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 in this sector at an effective level if people are guided into spending on locally produced goods and services within their own community rather than by spending their limited resources in 'first-world' areas and on foreign goods. In most communities there is a great lack of spending power in terms of the national currency but local consumer power could be stimulated by introducing a local complementary currency. This could be done by providing people with a basic (or citizen's) income paid in terms of a local complementary currency.

5.2 Basic Income For All Citizens

Some important reasons for providing a basic income are the following:

In most European countries there are active citizen's income research programmes. The Basic Income European Network (BIEN, 2000) is engaged in publishing and conferencing on the issue.

Recently the possibility of introducing a basic income into South Africa has come up for discussion in a number of research, labour and civil society quarters.

A 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 and in urban and metropolitan areas. Some of the spending also goes to imported goods with a zero multiplier effect.

The total current South African budget is about R200 billion so that the required income transfer for an amount of R100 a month per person would be about 25 percent of this. This is, of course, very much less than a survival income but it is within the realm of the possible if extracted from normal sources of taxation. However a basic income payment can be seen not so much as an additional tax burden, but as a resource with a large multiplier effect, generating new life in local economies and hence in the national economy. A citizen's income would be easy and cheap to administer because it does not require a means test. It would also liberate further funds by reducing the costs of social services in education, health, social security and housing which would to a large extent be paid for in terms of the basic citizen's income.

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 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 valuein the form of social and economic services.

5.3 Complementary Currencies

Complementary currencies could be effective for uplifting the economy:

Complementary currencies can be created by any authority. They have real value if they can be exchanged for goods and services such as those which could be supplied through taxation in the formal economy.

Hundreds of mutual credit currencies are in operation in first-world countries and also in less-developed communities. Given adequate measures of monetary control, community trading would be boosted. This in turn would require more currency which could then be supplied by the local authority in excess of that required for payment for its own services.

5.4 Monetary Reform

The nature of money and how it is created has been central to the matter of economic governance for centuries. Monetary reform could be introduced:

A major problem of modern economies is the way money is introduced into the economy through bank debt. This gives immense power to banks and requires that the economic system operate on the basis of debt. Monetary reform could allow money creation to be transferred to independent local authorities independent of government control and carefully monitored so as not to cause inflation or major disruptions to economic life. It could be spent into the economy through public works, a basic income or some other suitable mode of government spending.

5.5 Tax Structure

The last major area of transformation promoted by New Economics is that of tax structure.. This could be reformed in order to:

Currently the basis of taxation rests on that of income, expenditure and profits. This demotivates people and organisations and encourages them to find ways of tax avoidance. Meanwhile the environment is damaged both as a result of using non-renewable resources and as a result of pollution and environmental damage. A better system of taxation would be to tax these 'bads' and to allow people the reward of value added by their labour.

In South Africa we are trapped in human and political problems and we have not begun to look at these issues. However, there is no reason from a human-development point of view why we should not reform our tax structure. Taxing 'bads' rather than 'goods' will provide us with a long-term perspective and vision which is almost entirely absent in the current system.


No single element of a South African New Economics programme dealt with above would be able to sort out the problems of the South African economy, but together they could provide the synergy required. It is not possible to guarantee this but a bold strategy is clearly needed to save South Africa from economic decay and disintegration. In one of SANE's occasional papers (available on its website) a 'Guinea Fowl' scenario is described in which the outcome of a concerted New Economics strategy is described. The Guinea Fowl is an indigenous bird which lives well off simple pickings in the midst of plenty. This is an analogy for the happy co-existence of a formal and an informal economy through the synergy of the various aspects of a SANE strategy.

SANE is exploring collaborative schemes and research projects with other NGOs, research institutes and research departments at various universities. Projects have been designed and research proposals drawn up. There is a need for education, advocacy and the lobbying for SANE ideas. There is much work to be done if we are to establish a vibrant and sustainable New Economy for South Africa.

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