The Centre for Development and Enterprise (CDE) — a lobby group funded by big business — has come out against a basic income grant (BIG), a proposal that would alleviate hunger and poverty, and stimulate the economy from the ground up.
This position was advanced and repeated in a Sunday Times opinion piece by CDE executive director Ann Bernstein on June 12.
The CDE argues that SA’s public finances cannot afford a BIG. Instead, it says, the answer to poverty lies in enabling the growth of labour-intensive industries through more aggressive structural reform — or the government getting out of the way of the market so it can create jobs (presumably by removing regulation aimed at protecting workers, consumers and the environment).
Unfortunately, mounting evidence shows that such approaches do little to address the spiralling social and economic costs of poverty and unemployment in the short term, and in the long term can serve to exacerbate these trends. Moreover, these prescriptions simply double-down on the policies which have resulted in the dire economic situation we now face. The CDE offers no meaningful alternatives that would alleviate the current crisis of poverty.
The CDE’s key argument is that the grant is unaffordable because it will imperil SA’s ability to reduce the debt-to-GDP ratio. This seemingly objective technocratic language conceals a political position, which is rooted in specific economic interests and priorities.
In prioritising the interests of the vulnerable, and of South African society as a whole, the many economists who support a BIG, including those at our organisation, the Institute for Economic Justice (IEJ), disagree with this narrow and outdated analysis — which is not supported by the growing evidence-based consensus.
Firstly, the claim that a BIG is not desirable is premised on the assertion that job creation is a competing and more important priority. The CDE suggests that we should focus on jobs, to the exclusion of grants. This overlooks the fact that job growth is stymied by poverty and the strong evidence that social protection supports employment.
Research overwhelmingly shows that cash transfers have had a positive impact on work motivation, job-search activities and overall labour-market participation, as well as the ability to overcome geographical barriers to work in low- and middle-income countries. Evidence also shows that a BIG boosts demand for — as well as supply of — labour, by revitalising economic activity, which in turn leads to job creation.
It is patently false to claim that tax increases will, de facto, slow economic growth
This is supported by studies that have found cash transfers in comparative contexts result in increased rates of self-employment and entrepreneurship; increased access to credit; increased ability to take entrepreneurial risks; and increased investment in productive assets. Indeed, a BIG constitutes a massive investment in grassroots productivity and human capital, the benefits of which are concentrated in local communities and depressed areas.
Contrary to the CDE’s “free market” dogmatism, the market alone is unlikely to shift the employment prospects of young people in Clocolan in the Free State, Groblersdal in Limpopo or Lusikisiki in the Eastern Cape anytime soon, but evidence shows that income support can play an important role in doing so.
The CDE’s second claim is that a BIG is unaffordable because, even if funded through taxation, it will slow growth and ultimately induce an economic crisis. They take particular issue with progressive taxation options put forward by the IEJ to help fund the grant. In the well-worn refrain of the business lobby, they warn that slightly increased taxes on the wealthiest will hamstring the economy, rendering social spending unsustainable in the long run.
It is patently false to claim that tax increases will, de facto, slow economic growth. The evidence presented above provides examples of how well-spent government funds can spur economic growth while reducing poverty and inequality.
This is also supported by a recent study by the International Trade Union Confederation, based on evidence from eight low- and middle-income countries, which found that progressive taxation used to finance social protection led to positive changes to GDP and modest surges in employment.
The CDE’s report also misrepresents the IEJ’s proposals, with alarmist rhetoric about a “tax shock”. Economists agree that taxation measures can and should be phased in through carefully managed implementation scenarios to mitigate risks of shocks to the economy.
It is also incorrect to argue that a reduction in government expenditure is the only, or principal, manner through which the country’s debt ratio can be reduced. This strategy has been shown to be self-defeating.
The government has in recent years prioritised real cuts to social spending. This austerity has served to choke GDP growth and resulted in increased unemployment and poverty. Other possibilities exist for promoting growth that is inclusive and sustained. Macroeconomic policy can play a role in both increasing aggregate demand and expanding domestic supply to support growth, which will in turn lead to improved GDP and a better debt-to-GDP ratio.
Cynically, the CDE attempts to bolster its economic claims by suggesting that a BIG is on the table because of “the governing party's need to shore up support”. This is a curious, paternalistic and rather anti-democratic position to take.
We should expect parties in a democratic system to pursue policy platforms that they anticipate to have widespread support, and respect voters’ rights to judge the merits of these policies. While it must be accompanied by accountability for delivery, the popularity of a policy is by no means an inherent argument against it.
In claiming that a BIG will lead to an economic crisis, the CDE overlooks the fact that we are already in an economic crisis. One which is felt profoundly in the lives of the majority of people in SA, and cannot simply be captured by the blunt metric of GDP. The role of a BIG in addressing this crisis goes beyond simply increasing poor people’s consumption. It also constitutes a meaningful investment in people’s economic and political agency, which helps to dismantle many of SA’s structural constraints to inclusive growth.
Poverty and economic exclusion, not tax, are the biggest barriers to economic growth in SA. The CDE has it the wrong way around — you do not grow the economy in order to eventually include people. You include people, in order to grow the economy.
• The IEJ is a progressive think-tank that provides rigorous economic analysis designed to arm policymakers and the public with progressive policy options to combat poverty, underdevelopment and inequality in SA, the region and the continent.
Would you like to comment on this article?
Sign up (it's quick and free) or sign in now.
Please read our Comment Policy before commenting.