Will Mbeki Apply The Lessons Of the World Economic Forum?

Will Mbeki Apply The Lessons Of the World Economic Forum?
Will He Think BIG Today?

Norman Reynolds

Throwing Out the Mantra of A Too Simplistic Globalisation
President Mbeki last week visited New York and the World Economic Forum, paying his respects to the triple temples against terror, for globalisation and to the wealthy club, the home of ‘supply-side’ economics, that serves primarily the interests of international capital and of global corporations. When he was not selling NEPAD, he must have picked up the underlying loss of simplistic confidence that the God of Mammon holds all the answers.

The WEF acknowledged that poverty remains largely unattended and that terror flows from the fact of massive inequality and the denial of life chances to hundreds of millions. Kofi Annan reminded the delegates that until people come first there can be no security and no secure economic pathway. The Chairman of the WEF said much the same in closing the meeting.

The South African Constitution demands the same. Human Dignity is to be the touchstone of all this country does.

Meanwhile, President Bush, down the road in Washington DC, heard nothing. He unveiled a mighty increase in military spending, a few tax cuts for the better off, and paid no attention to the welfare of Americans or of poor nations.

Today Mbeki presents his ‘State of the Nation’ address in Parliament. Will he reveal any lessons learned?

Apart from the still on-going debacle over HIV/AIDS, the nation will want to hear about poor economic growth and still rising high unemployment, about poverty that affects half the population, and about children and the well-being of families and communities. Citizens will hope to hear that they will become the actors, not just this ‘delivery’ government.

It can be put this way. GEAR has reconstructed national housekeeping but a high cost to most families. It is now time to make family housekeeping also healthy.

Mbeki has an option that would represent a breakthrough on many grounds and would elevate him to being a statesman at home and not just abroad.

It centres on the welfare system but incorporates an enormous potential for re-drawing the rights and the role of citizens as financial and investment partners of the state. It adds a clear ‘demand pull’ to our ‘supply’ managed economy in ways that lay the foundation for a Localisation policy to balance the now globally acknowledged weaknesses of simplistic Globalisation.

The programme Mbeki should announce also hits the bulls’ eye on Human Dignity. Its announcement will set citizens dancing in the streets.

The Basic Income Grant
A National Coalition of some 60 agencies has sought to persuade Government that the level of poverty and the structural nature of unemployment (few are cycling through unemployment on the way to another job) are now such that another approach to welfare is needed. A report was submitted some months ago.

The current welfare system, which ‘targets’ beneficiaries and provides no cover to all those between 8 and 65, only reduces the poverty gap (the missing income) of the 22 million poor by a quarter. The proposal, adding a monthly Basic Income Grant (BIG) of, say, R100 per month, to all citizens including children, will relieve three quarters of that gap, pushing 6 million above poverty when poverty is defined as R400 per month.

The BIG will reduce the on-going wastage of millions of lives. It will help families buy the basics, mainly food, keep children in school and introduce the ‘ethic’ of state and citizen partnership (missing in the almost forgotten Masakane programme), a cornerstone of the RDP, so that Councils’ achieve higher service payment levels. And it might, for instance, enable someone to pay for a taxi ride that results in a job – an investment result.

The BIG conflates the expensive overheads of targeted welfare provision amidst general poverty. This saves resources, avoids the social and economic inefficiencies that result from the poor uptake by those who need grants, and removes the regular insult citizens suffer when trying to apply.

The cost to cover our 42 million people at R100p.m. is R46 billion p.a. Tax will recover R24 billion so that the net cost is R22 billion. As BIG generates other savings (such as better health, less violence, less pressure on wage increases), swells fee payments, raises programme efficiencies and spurs local economic activity, the real net effective cost is around R10 billion annually.

Mbeki might announce larger spending on public works, made possible by budget surpluses. This should be tempered. The issue, when so many are poor, is that citizens do not control such programmes. They are not on-going programmes with known local budgets that confer known ‘rights to work’ and to income so that citizens can commit themselves to new internal family, community and citizen / state relationships.

A BIG will resolve the dilemma of the Reserve Bank having to make policy in a vacuum of appropriate state policy. It will allow a move away from a rigid sanctity over inflation targeting towards growth as BIG protects all from price rises. A larger deficit becomes feasible and helps fund the balance on the BIG account, if needed.

The BIG. The Platform To Move From ‘Consumption’ To ‘Investment Grants’
The BIG will change lives. It will help with the goal of Human Dignity. Nonetheless, millions of South Africans seek more than consumption support. They want to become active, actors in their communities and local economies. They want to achieve dignity for themselves. This urge is of great value if it can be unlocked.

The adoption of the BIG would lay the basis for progressive moves by suitably organised citizen groups (community, village, street, Council residents) to move from a ‘consumption’ grant, the BIG, to an ‘investment grant’ in the form of a sophisticated community public works programme driven by the regular issue of Work Rights (that replace the BIG). This opens up far more dynamic (financially, economically and socially) forms of group and community mobilisation around investment in public and private infrastructure. Essentially, it adds an investment loop before people receive wages from work on projects, enlarging local experience, engaging the banks, enhancing local economic multipliers and building in the ‘supply’ (productive) response to this multiplication of local effective demand. That adds another reward to investment and consumption and so secures sustainability.

The Minister of Finance has asked BIG’s proponents to think again, to be more imaginative. The answer is, “BIG is the first step on the way to bigger things!”

“Free At Last”
Such a move by government will represent a freeing of the Mbeki mind set and of government’s hopeless assumption, from the promise to “deliver”, that it can do much on its own.

Mbeki’s apparently increasingly influential Economic Advisor, Wiseman Nkhulu, was party to the prototype and highly successful ‘Work Rights’ programme run in the drought of 1992-94. Termed the ‘Relief and Development’ programme, it was authored by the writer. Since then jealousies between agencies have buried it and its lessons. When appointed a year ago, Nkhulu stated that he hoped to replicate that programme nationally. It was, he said, the height of his professional and emotional career.

Will the President, and citizens, be “Free at Last” from today?

Jethro,
This below the basis for a follow up article explaining how Work rights work. Norman

Work and Training Rights
A prototype programme, formed around community budgets, was run in the drought of 1992-94. 940 villages and 1160 farm communities successfully invested R100 million within two years. Prof. Wiseman Nkhulu, now Economic Advisor to President Mbeki, has said that he hopes to replicate that programme nationally. He claimed that his association with it was the emotional and professional high point of his career.

This is how an investment grant programme works. Every adult, every half year, receives a number of “Work Rights”; say 30 days, set by Parliament, each with a face value of, say, R30 per day, doubled again to include material and other costs.

Each group or community assembles these to form budgets with which to fund locally determined projects. These help create new productive bases and small farmer and regional enterprise systems to feed additional ‘supply’ into local economies to match the large additional local ‘effective demand’ being generated.

Members buy and sell their Work Rights in local markets for work. On a given date, those holding Work Rights register to work according to how many Work Rights they hold.

Work Rights add the following to the BIG concept: -
§ They add the prior loop of local investment before the wages paid out by selected local projects provide family income. This increases the local multiplier and heightens the return to such expenditure.
§ The buying and selling of Work Rights means that they flow to poorer communities and to poorer members within communities.
§ Communities assemble the Work Rights they hold to form a local investment budget. This confers the four basic economic rights not in the Constitution upon which people can become economic agents: to know the resources available, to learn the opportunity cost of each investment option, to optimise investment across several options (and cover both capital and running cost), and to maximise returns over time.
§ Communities set the wage rate that, since they employ each other, will be low per unit as they seek to raise the output, a positive national gain.
§ Private investment is encouraged so that productive investment matches public infrastructure provision. Beneficiaries have to take bank loans for set proportions of total cost by type of project. The aim is to achieve a doubling of the public funding and to also bring into play the project management skills of the banking sector.
§ Wages and local service payments provide enlarged local household income.
§ Those who ‘buy in’ Work Rights, holding, say, over 80 per year, receive Training Rights. This creates a demand for training where today only state and donor supply exists, and so opens up the sense of individual control over career development.

Evolving A Social Compact to Raise Efficiencies Further
Once citizens and their communities feel secure that Work Rights are on-going and they can rely on them, they enter into a social compact with the state to: -
§ Accept a greater responsibility for ‘social consumption’, that is for school and clinic fees, and to pay fully for all services. This enables the state to divert incrementally the vast budgets for education, health, water, housing, and public works and the subsidies to ill-performing Councils and to transport to citizens through Work Rights.
§ The state thereby becomes an investor through its citizens, indirectly financing schooling, health, housing and services by way of economic activity and growth. It moves from the limits of budgetary expenditure to the dynamics of finance.
§ The local multiplier in townships and rural areas, where most and all the poor live, is low, about 1.3. They are cash deserts. Within three years the local multiplier could rise to 3.0, a more than doubling of effective demand, and again to 4.5 as new locally rewarded economic activity is stimulated by periodic markets linked to internal regional movement patterns and the like.
§ This will create a large mass market for basic goods and services that secures everyone, gives hope and confidence domestically and internationally, and which will swell the national GDP by from 2% to 4% p.a.

A Work Rights programme will mop up the unemployed and mobilise citizens in family ventures and group and community projects. Crime will drop dramatically. This will save society at least half the R50 billion wasted on private security every year, freeing R25 billion for annual investment in Work Rights. Another R30 billion can be diverted over time under social compacts from within state budgets. Some R15 billion can be provided as loans by the banks progressively from year three, and R10 billion additional private and corporate investment can be attracted.

With high local and national multipliers, after four years an additional ‘people-centered’ annual investment should be some R80 billion, or an additional 8% of GDP. That would make a great social, political and economic difference. Some 35% of the cost should be returned to the state as tax and another 25% go to school and health fees that substitute for the re-direction of state budgets.

A Programme The Country Cannot Afford to Miss
With citizens economically secured, the nation engaged in building its people, local and the national economies swelling productively and sustainably, and all restored to “competence” and dignity , the foreign investor will arrive in droves, and on our terms.

President Mbeki, in his State of the Nation speech on Friday, should announce that Localisation will be added to Globalisation to create a truly national economic policy. The state, seeing every citizen as an asset, should announce a start to BIG. Mbeki should go further. Citizens, becoming financial and investment partners of the state can voluntarily graduate to a Work Rights programme. That way the country can enjoy a largely economic, not just welfare, safety net. It further justifies the first step, the BIG.