State needs to step in to alleviate absolute poverty but that cannot be a long-term policy
Following a two-hour discussion about debt, growth and unemployment hosted by veteran journalist and former Business Day editor Songezo Zibi on Twitter Spaces last Sunday, a veteran policymaker reached out and offered some feedback.
The two main points from the feedback were that 1) there seems to be an inflexible commitment to fiscal outcomes and solutions to the economic challenges we face; and 2) there is an established posture that any solutions that are proposed by those who could be described as heterodox, including expanded roles of the central bank, are simply treated as caricature or as some sort of radical economic transformation pipe dream.
I offer some thoughts, points of agreement and disagreement in this debate.
The most immediate and glaring challenge is the 12-million odd people of working age who remain unemployed, and what to do with and for them. Whether heterodox, orthodox or as I am — not married to any ideology but pragmatic — there is agreement that this is a crisis that needs a solution. I don’t imagine there is anyone across the spectrum of ideologies who thinks the unemployed must just be left to destitution, hunger and death simply because they can’t find jobs for the skills they have, which could give them an income to take care of themselves.
The disagreements lie with the solutions to this unemployment problem. Some propose a universal basic income grant (BIG) at the minimum poverty level, while others have suggested an employment incentive scheme to help firms employ more people. These measures have fiscal implications that, depending on the design of the funding mechanism, could worsen rather than solve SA’s economic growth and unemployment problems.
Requesting those who argue for these solutions to provide an assessment of the fiscal effects and the dynamic response of growth and employment in future is not equivalent to saying the unemployed are on their own. There must be a sense of what consequences these solutions might have in the long term. If the long-term consequences of these solutions completely negate the short-term benefits, alternative solutions must be found that provide relief over the short-term and sustainable solutions in the long-term.
So far, none of those proposing a BIG or employment incentive have provided any credible long-term sustainability analysis. Most simply say it is affordable based on a variety of tax policies. I have not seen any analysis of how those changes in taxes to fund this support will affect the economy in future. This is equivalent to asking the country to skydive without a parachute and no knowledge of the conditions on the ground.
SA has a strange unemployment problem, possibly the only country with such a problem. It has a known binding skills shortage and one of the highest unemployment rates in the world. Yet the solutions currently debated do not attempt to figure out how to resolve this strange problem. It seems to me that the focus is on treating the symptoms and not the cause, and that means whatever solution is adopted will be permanent, which is where fiscal sustainability comes into question.
A politically and economically palatable solution might involve a short-term support mechanism to relieve absolute poverty with a stated time frame, combined with practical solutions to transition people out of state support into employment through the enhancement of their skills and productivity. The state helps young people acquire skills and create conditions for private businesses to employ those skills.
Simply put, there must be an exit strategy to state support. It is bad policy to make the state the provider from birth to grave for a large section of society without helping that section of society stand on its own two feet.