Welfare that Drives Growth

“It’s about the economy, stupid”, was the campaign refrain of Bill Clinton’s election team in 1992 as they battled incumbent George H Bush for the US presidency. Focussing attention on that fact worked for Slick Willie, just as it should for us when we view this country’s progress.

The SA Institute of Race Relations has issued a report pointing to South Africa’s sizeable underclass, people seemingly left behind in the two decades we’ve had of rising living standards. That progress includes the proportion of people in the lowest three of 10 living standard measures falling from 39% in 2001 to just 12% last year. Those living on less than US$2 a day dropped from 14% in 1996 to 3.5% in 2012.

The institute puts much of this down to the payment of welfare grants to the poorest. It says that fully 31% of South Africans, 16.5 million people, now receive grants although the figure may not be that high, many people qualifying for more than one grant. This vast expansion of direct assistance to the poor has been done without breaking the bank.

Even so, the institute’s point that welfare grants have “not truly lifted millions of people out of the underclass” seems well made: “People reliant on social grants are largely dependent on the State for their survival and without work are not in a position to improve their living standards any further”.

Except, of course, that our welfare-by-cash (as opposed, say, to giving food stamps) does allow for free economic choices where none existed previously. This transfer of choice, rather than providing direct state services, probably helps overall income rise as people use welfare moneys to create more income. It presumably has something to do with the relatively large rise in black African disposable income, which, in current prices, rose from R161 billion in 1996 to R756 billion in 2011.

After all, that took place in a formal labour market struggling to absorb new entrants to the point where Statistics SA reckons up to 37% of people of working age are without jobs (although Adcorp Analytics thinks this vastly overstated – they put unemployment at 19% tops).

Paying out social grants has more positive effect than simply staving off absolute destitution although the 70% drop in malnutrition these past 20 years suggests that it is critical there too. It automatically brings economic activity to places where there was none before.

That might help explain the country’s GDP growth outstripping its population growth consistently since democratisation, the thing on which all else hangs. Our population growth has slowed to 1% a year and continued urbanisation will slow it further until we have a new problem of too few young.

In the Eighties we grew GDP at an average 1.6%; in the Nineties at 1.9% and in this century’s first decade at 3.6%. Even during this Great Recession we’ve consistently grown GDP by more than double population growth.

Off this comes rising average incomes in a trickle down that, if kept up, becomes a flood, as was seen in the take-off that countries like South Korea experienced in the 1970s and beyond. Welfare payments are more than just holding measures – they’re a way to let the poor help to determine this growth.

– Paul Pereira (first published in The Citizen, 20 August 2013)