How an empowerment grant can contribute to SA’s economy
An extraordinary 73% of households in the basic income villages reduced their debt — and none increased it, writes Karen Jooste
The manner in which popular discourse has framed jobs and grants as competing strategies has led to near consensus that any expansion of the latter would lead to an economic catastrophe. But an empowerment grant, set at the food-poverty line (R547 a month) and paid to all able-bodied persons earning below the upper-bound poverty line, might actually put our economy on a growth path, while creating much needed meaningful work.
Currently, 9.6-million adults are unemployed and the median wage for those black South Africans “lucky enough” to find a job in 2016 was a mere R2,600 a month. A shocking figure considering that in April 2018, according to the Bureau for Food and Agricultural Policy, a four-member household requires a monthly income of about R7,823 to buy basic food stuff (if 35% of the total expenditure is allocated to food).
It is also unlikely that this situation will improve as we find ourselves in a position where small businesses are closing down and shedding jobs and larger companies are getting bigger, but not necessarily hiring or paying workers more. As such, I was fascinated to listen to sociologist and former professor Dr Sarath Davala at the 18th World Congress of the Basic Income Earth Network in Finland recently as he talked about the results of two basic income pilot studies in the Indian state of Madhya Pradesh.
An empowerment grant is not ‘welfare’, it is a strategic, productive investment and a low-cost way of accelerating economic growth
The recipients used the money not just for “welfare” improvements; it also had a marked impact on reducing debt and increasing savings, boosting productivity and generating new economic activities. In the subsequent book he co-authored, Basic Income: A Transformative Policy for India, it is detailed how households receiving the basic income were significantly more able to reduce previously incurred debt; avoid incurring new debt, or reduce the amount of new debt compared to control groups.
The grant enabled households to avoid taking food on credit and prompted loansharks to advance credit or loans at a lower interest rate and, in some cases, it enabled poor households to borrow “softer” loans from relatives or friends rather than resorting to exploitative forms of distress borrowing.
An extraordinary 73% of households in the basic income villages reduced their debt — and none increased it. By contrast, 18% of the control villages had reduced their debt and 50% had increased it. At the same time, even though debt was widespread, some households did manage to save money, and an interesting finding was how perceptions about savings changed throughout the course of the pilot.
Initially, 62% of the households receiving the basic income grant reported they were saving for security, 3% for investment purposes, and 28% for no specific reason. By the end of the pilot, 47% reported they kept savings mainly for security while those who saved for investment purposes increased to 13%. In terms of economic activity, more households who received the basic income were able to increase their earned incomes and many fewer had experienced a fall in earned income compared to the control groups. The increase in earned income was the result of increased investment and/or increased work and labour.
The pooling of resources between friends and family to buy productive assets also became a distinctive feature among the households receiving the basic income. But the primary finding was that the number of adults having both a main and a second important economic activity increased significantly, as did the number of days spent doing own account work.
Financial liquidity feeds self-employment
This has long been my argument: that what is badly needed in our country is a way to get more money into more people’s pockets at grass-roots level to allow for “self-employment”. Financial liquidity provides the necessary incentive and basic security for an entrepreneurial spirit to grow, which is a prerequisite for an adequate supply of new business feeding the economy. An empowerment grant is not “welfare”, it is a strategic, productive investment and a low-cost way of accelerating economic growth.
Businesses can earn empowerment points for their financial contributions to the fund which is a far simpler and more transparent system that the current BEE scorecard
It is a far less radical idea than the current, publicly debated policy proposals, such as the nationalisation of the Reserve Bank or expropriation of land without compensation, and its financial viability can be sustained if it is phased in and policies and programmes that are not socially just and do not facilitate economic growth and sustainable development are scrapped.
In my view, it will certainly yield better results than the this year’s reprioritised R57bn to cover fee-free higher education; R59bn on financial bailouts for embattled state-owned enterprises (SOEs); and even the reprioritised billions for the “economic stimulus package and recovery plan”.
For example, instead of an infrastructure fund, I would rather propose an empowerment fund from which the proposed empowerment grant be paid. Businesses can earn empowerment points for their financial contributions to the fund which is a far simpler and more transparent system that the current BEE scorecard. In this way, not only can the grant be financed but replace a scorecard system which curbs investment, fuels corruption and which has not benefited 86% of black South Africans, according to a 2017 report by the Institute of Race Relations (IRR).
Black South Africans
It has become of paramount importance to find more effective ways to increase the participation of black South Africans, in particular in the economy, as their exclusion limits our ability to expand the productive base, sustain economic development and address poverty and inequality. Given the findings of the Indian pilot, an empowerment grant might just do that. Over and above the direct impact on debt and savings and economic activity indirect effects on the economy through better nutrition, health and education should not be forgotten. In fact, the grant might help promote competition and drive up quality with regards to the latter.
An interesting finding in the Indian pilot studies was the manner in which basic income households searched out low-cost “private” education and healthcare. This does not mean that health and education has to be privatised but, similar to SA, it says a lot about the dismal quality of the majority of state-run schools and health facilities.
An empowerment grant is not a panacea, but as part of a package of policies, it can go a long way in creating an environment in which the 30-million South Africans who have to make ends meet with less than a R1,000 a month can be incorporated into the economy.
Davala mentions how initially they feared that the R40 equivalent basic income used in the Indian pilot would be too low to have a major impact. However, they soon realised that the “real” value of the money was much more than it seemed and that a small amount of reliable, extra income can and does make a big difference.
I think South Africans can draw inspiration from these pilots, recognising that what we need to achieve “economic freedom” is not a revolution but an evolution of ideas, and for this reason I believe a basic income pilot study on home soil might be a very good idea.
• Jooste, MP, is the DA’s minister of social development and deputy chair of the DA in the Northern Cape.