NEVA MAKGETLA: Welfare fills a gap, but more can be done to promote equality

The democratic government has relied mostly on social grants and basic services to redress SA’s world-class inequality and joblessness. These efforts have far outstripped measures to reconstruct the economy to generate more equitable outcomes in the first place. The result is arguably the strongest social safety net in the developing world, but only limited progress towards a more inclusive economy.

Ultimately, prioritising redistribution over reconstruction reflects the stalemate between highly concentrated economic power and political democracy. Elected governments find it easier to upgrade services for the majority than to embark on the risky task of building a more equitable economy.   

SA now has one of the most extensive redistributive programmes in the world. According to the World Bank, in the mid-2010s social grants equalled almost 5% of the GDP in SA. That placed SA third in the Word Bank’s sample of 112 countries, behind only Georgia and Ukraine. In the other Brics countries, the figure ranged from 0.3% in China to 1.2% in Russia. It was under 1.5% in two-thirds of the countries in the database. The World Bank found that SA’s safety net programmes provided 30% of recipients’ total income — the highest in its sample of 26 upper-middle-income countries. 

Combined with other government services, social grants have been hugely effective in reducing severe poverty. The share of households where children go hungry at least sometimes fell from over 25% in 1996 to 6% in 2022. The World Bank estimates that SA’s social protection programmes reduced the number of people living in poverty by nearly 50%. They sheared 10% off the Gini coefficient, the standard measure of inequality.   

The benefits of programmes to improve conditions in working-class communities extend far beyond the reduction in poverty. Most obviously, they limit the conflict, protest and crime that follow from unjustified inequalities. They also contribute directly to building a more inclusive and dynamic economy.

Surveys show that social grants enable family members to look for paid work and take on entrepreneurial risks. Moreover, they increase demand for necessities, including government services as well as consumer goods such as bread and clothing. These products are usually more likely to be labour intensive and less likely to be imports, which supports domestic businesses and job creation.

Nonetheless, the returns from economic activity — that is, the primary distribution of income — remain extraordinarily inequitable by world standards. Even including social grants, SA reliably ranks as the first or second most unequal economy among reporting countries.

Joblessness is also exceptionally high. In almost every other country, about 60% of the adult population is employed. In SA, since the late 1980s the figure has ranged between 40% and 45%. In statistical terms the main reason is low levels of self-employment, due primarily to the destruction of black business under apartheid and the continued pre-eminence of heavy industry: mining, metals, petrochemicals, capital goods and the automotive sector in particular.

Relying on social grants to redress these inequalities poses some risks. Its beneficiaries are vulnerable to shifts in policy, fiscal constraints and bureaucratic decisions. Because mining products still account for half of SA exports, fluctuations in world commodity prices largely determine government revenues and consequently the scope for maintaining social grants and other redistributive programmes.

Economic reconstruction to shape a more dynamic and equitable economy would, in theory, bring about equality both more effectively and more sustainably than government spending on households. In practice though, SA’s uneasy combination of political democracy and highly centralised economic power make it difficult to manage the disruption and risks of economic reconstruction on a significant scale.

Moreover, in political, social, human and economic terms SA cannot afford to limit redistributive policies in order to finance industrial policy. Still, even without cuts to social spending far more could be done to promote equality by rigorously prioritising labour-intensive light manufacturing and services, improving the ecosystem for small businesses, and advancing equality in schools.   

• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.