The recent violence has prompted government and the ANC to give greater attention to a basic income grant for South Africans (“Ramaphosa says basic income grant will show government cares”, July 18).
Apart from the obvious moral imperative to treat extreme poverty, a basic income grant would also be just the thing to help devastated small businesses recover from the double whammy of rioting and Covid-19. And what a boost it would provide to SA’s morale! Can you imagine the relief?
There are several arguments why a basic income grant could produce an explosion of entrepreneurial energy. First, it would remove some of the anxiety about failing. People are more willing to risk beginning a business if they have a safety net.
Second, it would increase the market, particularly for businesses offering products and services to poorer people. Most of those billions would be spent within weeks, and mostly on local businesses. Some calculate this money would circulate so quickly through the economy (the multiplier effect) that the return to the fiscus (through VAT, for example) could pay for the whole grant.
Third it could provide seed capital for microenterprises to emerge. Apart from friends and family, the only current source of working capital for microenterprises is short-term loans, usually at high interest rates. That is discouraging. But if I can buy my first raw materials from my own resources, I won’t need to see my small margins disappear to the lender.
The true universal basic income is a monthly cash amount given unconditionally to everyone regardless of whether they have a job. Unlike the Temporary Employer/Employee Relief Scheme (Ters) it would be a permanent feature that everyone could depend on into the future.
What is more likely to be offered in SA is a conditional basic grant to the unemployed. That would certainly help, and is of course much less expensive, but it is more complicated to administer and fails to provide some of the benefits of the universal grant.
The arguments for the grant being universal and unconditional include avoiding the complications of a means test, and thus being cheaper to administer and less open to corruption than conditional grants. Recipients retain dignity because everyone is eligible. It enables family members to stop work temporarily to care for children or elderly or ill relatives. Apart from that, evidence shows a universal basic income does not discourage people from working. It gives independence, allowing victims of domestic violence to escape.
But even a conditional grant would boost the economy. I wonder if it would reduce crime? And would it work? Some serious economists are conducting the largest, long-term (12-year), randomised evaluation of a universal basic income in 295 villages in Kenya. It is too early to evaluate, especially as Covid-19 has introduced unusual conditions. But an interim study from September last year suggests the payments modestly but significantly reduced hunger, sickness and depression in spite of the pandemic.
They reduced hospital visits, and initially recipients increased their income through starting new enterprises, though this was lost during the pandemic, aggravated by a lean agricultural season. Still, recipients suffered smaller increases in hunger.
Arguments against are surprisingly few. Some have argued it would be inflationary, but the biggest problem is the cost. At R500 a month the annual cost of a universal basic income would be about R200bn more than is spent on other grants. A conditional grant would cost less. But even that is not as scary as it sounds given the economic boost it would bring, plus the accompanying increase in taxes.
SA has already mobilised at least R30bn for Covid-19 vaccinations alone. Isn’t hunger an even worse chronic condition, with an easier antidote?
• Cook chairs the African Management Institute.
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