Friday, 11 May 2012

Tailoring New Economics To South African Realities

South African Realities? What do ignorant liberals know about reality? You won't easily find more liberal bullshit than this, but it is still worth reading. Was it not for the crap about the Pre-1994 South Africa, deliberately trying to mislead people as to the truth about the time, it would have been quite a good document. Why liberals always have to splutter their political ignorance no one will ever understand. You will also never find a liberal saying a single word about the 10,000 times worse atrocities perpetrated under the ANC Regime of course and they will always do their utmost best to avoid and hide it. For some sense of reality See: Apartheid an inhumane system?

But here it is: (taken from http://www.sane.org.za/docs/tailoring.htm )


AART ROUKENS DE LANGE
JUNE 2000
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SANE is an autonomous network for the creation of a humane, just, sustainable and culturally appropriate economic system in South Africa

ABSTRACT  

In the early post-World War II years the S A economy and employment opportunities grew rapidly. By 1970 about 80 percent of the economically active population was absorbed in the formal economy, in farm or domestic labour, or in a viable subsistence life style. However economic growth rates declined significantly after that so that today, in the year 2000, only about 45 percent of the economically active population is employed in the formal sector. The income share of the bottom 40 percent of the population is only about 3.4 percent. Many survive by the unsustainable exploitation of the natural environment or by socially destructive or criminal activities. In pursuing its GEAR policies South Africa has followed the structural adjustment prescriptions of the IMF and WTO with disastrous consequences. The prescriptions of New Economics are entirely different and its policies are designed so that individual self-interest is co-incident with the greater good. Specific policies are focussed around the following concepts:


  1. Promoting local and limiting global economic activity
  2. Paying a basic, non-means-tested income to all citizens
  3. Encouraging complementary currencies to stimulate economic activities in cash-poor communities
  4. Creating new money by spending it into existence, e.g. through a citizen's income, thereby breaking the money generating monopoly of the banking system
  5. A tax structure which taxes non-renewable inputs and value subtracted ('bads') rather than income and value added ('goods').

These basic ideas need to be tailored to match South African realities. In particular they must allow for the country's parallel developed (First-World) and developing (Third-World) economies. One way in which this adaptation can be done is to pay a citizen's income by means of a complementary currency backed by government social services.

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1. INTRODUCTION

In some ways South Africa is like all other countries, in other ways it is like some others, and in its own, unique way it is like no other country. It is subject to the same environmental and ecological threats as all other countries on this earth, it is caught up in the realities of a globalising economy and it is adapting to rapidly changing production, service and information technologies.

South Africa shares many features with more advanced economies in that it has a well-developed physical infrastructure, an advanced banking and financial sector and a manufacturing sector that can produce varied and sophisticated products. It also shares features with the poorest nations: an under-educated and under-skilled population relative to the requirements of an advanced economy, large-scale unemployment negatively affected by economic globalisation patterns, and local communities lacking modern economic, social and infrastructural facilities.

Yet in some ways South Africa is like no other nation. South Africa has a historical pattern which has determined a current reality which must be understood if we are to find effective solutions for its current malaise. It has a complex problem structure with a unique mix of human and physical resources which contribute to both its strengths and its weaknesses.

South Africa has some significant positive features such as its well developed and diversified economy and infra-structure, and the universal global goodwill towards the current government. The country has an attractive climate, great tourist potential and bountiful mineral resources. It has a heterogeneous population mix which has emerged peacefully from an apartheid regime to a fully democratic government. But there are also many serious negatives.

The country has a dual social and economic structure with a minority of the population living according to the pattern of a 'First World' economy and the majority living according to degraded 'Third-World' standards or in socially and economically marginalised 'Fourth World' conditions. Over the past quarter century South Africa has experienced economic (GDP) growth rates which have consistently fallen below the population growth rate. This has resulted in a persistent trend towards economic impoverishment. This trend has gone hand in hand with even slower employment growth and more recently a rapid decline in employment opportunities in the formal economy. The steep rise in criminality in the country is directly correlated with these circumstances.

If we are to get the nation back to health and towards a sustainable future it is important to take a look at the historical roots and structure of South Africa's current disease. We cannot accept simplistic ideological solutions designed for other times and other countries.

2. SOUTH AFRICA'S ECONOMIC HISTORY, 1960 - 2000

In 1960 South Africa's old apartheid regime had its first major scare as a result of the Sharpeville uprising against the pass system imposed on the country's black African population. After this scare the economy rapidly recovered, and for the rest of the 1960s experienced a boom period with economic GDP growth in excess of 5% per annum. Employment opportunities were plentiful, unskilled migrant labour streamed in from the homelands and skilled labour immigrated from overseas. In 1970 about 81% of the economically active population was involved in the formal economy - including farm and domestic workers - and most of the remaining economically active population was engaged in informal or rural subsistence activities. Many rural people were 'resting' and not considered to be economically active.

Early in the 1970s the world experienced an energy crisis and became increasingly aware of 'Limits to Growth' and environmental degradation. The economic climate in South Africa deteriorated significantly, economic growth rates decreased to 3 to 4 percent, persistent inflation manifested and unemployment rates increased steadily. At the time, projections of employment, capital intensity and economic and population growth patterns indicated that, if the trends of the 1970s were to continue, by the end of the century the formal economy would provide employment for only about 65 percent of the economically active population (Roukens de Lange, 1980). As things turned out, trends worsened and by 1990 this percentage had already declined to nearly 60 percent (Roukens de Lange, 1993) and today only about 45 percent of the labour force is employed in the formal sector. Levels of informal employment are not easy to estimate because informal activity ranges down to below survival income levels. Household surveys carried out by Statistics South Africa (1999) indicate that currently at least 40 percent of the population can be classified as unemployed, i.e. without any identifiable formal or informal employment (Viljoen, 2000).

Income levels have also shifted significantly during the 1990s to an even more skew distribution. In 1996 the income share of the bottom 40 percent of the population had declined to 3.4 percent while the share of the top 10 percent had risen to 53.0 percent (Whiteford & Van Seventer, 1999).

Towards the end of the 1970s gold prices rose steeply and it looked as if the South African economy would recover its former glitter. However, the gold-price bonanza did not last and instead of windfall profits being spent on labour intensive developments such as housing and community development for the less advantaged population, most of the bonanza was spent on apartheid structures such as bantustan governments, a beefed-up defence force, and high technology projects such as atomic energy research and armament industries. By the mid 1980s South Africa's economy was in serious trouble and its apartheid dream in tatters. Serious political unrest grew and South Africa was well on the way to revolution. This was only averted by the historical process of transfer of power to a democratically elected government in 1994.

Since 1994 there has been a decline of 20 percent in per capita income and an even greater deterioration in the overall quality of life. Unemployment has grown disastrously and much of the nation is experiencing crushing poverty. There has also been an increasing polarisation between rich and poor, and an insidious pattern of inflation and high interest rates. All these factors have given rise to an increasingly intolerable growth in crime and a break-down of traditional patterns of social and community organisation. There has been a great decrease in economic and community efficiency and a growing menace of corruption. Large numbers of South Africa's young, educated and skilled people have emigrated while there has been a huge and largely illegal inflow of destitute people from the rest of Africa. This has aggravated local social problems.

3. CURRENT SOCIAL AND ECONOMIC STRUCTURAL REALITIES

South Africa's inherent characteristics and past social and economic policies have given rise to a set of circumstances which must be recognised if we are to find the best way out of our difficulties. Social, economic and environmental policies appropriate to these realities must be designed. We have looked at some of South Africa's strengths and weaknesses and its historical patterns. We shall now identify some further important realities of South Africa's current socio-economic system structure:

  • Idle manpower, production capacity and skills existing side-by-side with great material needs
  • Limited markets and loss of niches for traditional, subsistence and craft skills
  • Patterns of livelihood based on traditional skills no longer valued and yet not replaced by production of tradable goods
  • Money, almost entirely created through bank debt at high interest rates, ending up in the hands of debt-strangled people, organisations and commercial enterprises operating in the formal sector of the economy; unemployed and informal communities largely cashless and hopeless
  • Insufficient money in circulation to buy what industry and local labour is capable of producing
  • Effective local industrial capacity and associated employment destroyed because of cheaper imported goods and global competition - a form of global economic warfare
  • Economic capacity drained away from local communities by cheaper production and retail markets in urban centres.

4. THE 'OLD' ECONOMICS OF SOUTH AFRICA

An obvious question arising out of all the above observations is why an economy which worked so well in the 1960s has been sinking into ever deepening decline. The most evident and simplest answer to this question is that local and global, physical and social circumstances have changed but that economic and social policies have not adapted to these new realities.

Let us look at South Africa's performance from this point of view. In the 1960s production and social service activities were labour intensive and employed a level of technology much lower than that of today's sophisticated industrial and information technologies. Communication systems were much less developed and a much larger share of economic activity was non-tradable. These circumstances suited the South African economy perfectly. It had access to a large pool of cheap and submissive labour and was richly endowed with minerals and raw materials required for the infrastructural development of both its own economy and for those of its trading partners. Foreign competitors offering consumer goods were distant and did not threaten local producers which were perhaps less efficient and productive but which nevertheless had acquired the technology for setting up an effective and internally competitive South African economy.

The comparative advantages that South Africa enjoyed in the 1960s declined as global economic circumstances shifted. Technology in the developed world became increasingly sophisticated, capital intensive and labour saving. Economic policies and individual lifestyles were pursued in South Africa to keep up with these trends. This may have appeared to be in the short-term national interests of the time, but in a longer term perspective they were clearly destined to fail. Instead of concentrating on inward development suited to South Africa's local strengths, we tried to remain a global player by adopting ever more sophisticated technology requiring more capital, more highly skilled and less unskilled manpower. This played directly into our areas of weakness. Furthermore we became more vulnerable to the environmental, social and labour costs already absorbed and adapted to by the economies of more advanced nations.

Throughout the decades of the nineteen-seventies, eighties and nineties the South African Reserve Bank followed a policy of high interest rates in order to limit consumer spending and inflation. During the nineties foreign exchange restrictions were lifted and the country was exposed to the process of economic globalisation. Under these circumstances interest rate has had to serve the additional role of attracting speculative money flows from overseas in order to maintain the balance of payments - and this while savings and long-term investments of local people and organisations was flooding out of the country! The decision to lift foreign exchange restrictions has had a disastrous effect on the impoverishment of the nation. High interest rates have had to serve as the all purpose 'hammer' for managing economic and monetary policy.

Over and above following a monetarily and structurally unsound path of economic and technological development, South Africa also persisted before the transfer of political power, in following a politically disastrous and economically draining path of development dictated by the pursuit and defence of its apartheid vision. When the apartheid regime finally handed over the reigns of power in 1994 South Africa had lost nearly all its former economic strength.

When the New South Africa came into being in 1994 the country may have shed the scourge of its apartheid past, but its economic troubles were far from over. The global political and economic climate had shifted radically from those of the Cold War and Apartheid era. The ideology of Marxism with its centrally planned communist system had disintegrated in the former Soviet block and was totally discredited world-wide. Instead of the constant battle between the political forces of left and right and the economics of communism and capitalism, only the latter remained. It now asserted itself with increased vigour, self-interest and ideological focus, mainly through the so-called Washington Consensus consisting of the U.S. government and the global institutions of the World Bank, the International Monetary Fund (IMF) and the World Trade Organisation (WTO).

5. THE WASHINGTON CONSENSUS

The Washington Consensus vision is based on the theory of comparative advantage and the success of post World War II reconstruction of war-ravaged economies. It is based on neo-classical theory which correlates increased growth with increased capital input. It is also based on the theory of comparative advantage of national economies postulated by 19th century economist David Ricardo. But Ricardo also specified the necessary conditions that capital should not move between national economies and that there should be full employment. What he also implicitly assumed was the uniformity of human needs, motivation and aspirations. These conditions do not apply to today's globalised economy and by ignoring them we cause untold unintended consequences to manifest.

The policies of the Washington Consensus have failed dramatically almost wherever they have been applied. It is not necessary to go into detailed argument to substantiate this statement but it is worthwhile to note what Joseph Stiglitz, former chief economist and vice-president of the World Bank, and now professor of economics at Stanford University and disaffected critic of the Washington Consensus, has to say about these policies.

In a recently published paper Stiglitz (2000) notes that he saw how the IMF, in tandem with the U.S. Treasury Department, responded to the economic crisis in East Asia in 1997/98 and that he was "appalled". Pressure from these authorities had caused East Asian countries to liberalise their financial and capital markets which contributed to a real estate boom. When the bubble burst in Thailand (quoting Stiglitz extensively here) "just as suddenly as capital flowed in, it flowed out causing a .. big economic problem. .. As the crisis spread to other East Asian nations - and even as evidence of the policy's failure mounted - the IMF barely blinked, delivering the same medicine to each ailing nation that showed up on its doorstep. .. Changing minds at the IMF was virtually impossible .. IMF inertia was so hard to stop because .. everything was going on behind closed doors .. (IMF) economists frequently lack extensive experience in the country; they are more likely to have firsthand knowledge of its five-star hotels than of the villages that dot the countryside. .. team members copied large parts of the text for one country's report and transferred them wholesale to another. .. IMF staff frequently consists of third-rank students from first-rate universities .. a student who turned in the IMF's answer to test question 'What should be the fiscal stance of Thailand, facing an economic downturn?' would have gotten an F."

Stiglitz goes on to describe IMF failures in Mexico, Indonesia and in particular in Russia. He points out that Malaysia and South Korea, which did not strictly comply with IMF prescriptions, fared much better than Thailand which did. He ends his essay by saying "if the people we entrust to manage the global economy .. don't begin a dialogue and take their (the Seattle and Washington protestors) criticism to heart, things will continue to go very, very wrong. I've seen it happen."

South Africa has not been dictated to directly by the IMF but it has followed its advice. It has also complied with WTO prescriptions concerning the abolition of the financial rand and the lifting of trade tariffs. The consequences for the economy and long-term future of our country of exposing ourselves to global economic forces have been disastrous. It may not have been possible to isolate ourselves totally from the realities of a globalising economy, but we have failed to look at where they are inappropriate in the light of South Africa's structural and human realities. We have acted as if, in Margaret Thatcher's words, 'There Is No Alternative' - a point of view often referred to as TINA. But there are alternatives, and not only the Marxist one. In particular there is the alternative offered by New Economics(1).

6. SOUTH AFRICAN NEW ECONOMICS

The South African New Economics (SANE) Foundation is a non-government organisation with the mission of "promoting and encouraging a process and system which will create a humane, just, sustainable and culturally appropriate system in South Africa". New Economics offers some specific policies for counteracting many of the serious structural imbalances, unsustainable practices and environmental damage generated by the current economic system. Five important principles of New Economics are the following:

MAJOR POLICIES OF NEW ECONOMICS

  1. Promoting local and limiting global economic activity
  2. Paying a basic, non-means-tested income to all citizens
  3. Encouraging complementary currencies to stimulate economic activities in cash-poor communities
  4. Monetary reform to diminish the money generating monopoly of the banking system
  5. A tax structure which taxes non-renewable inputs and value subtracted ('bads') rather than income and value added ('goods').

The above policies need to be adapted with great insight to the specific circumstances of this country. In particular it is necessary to consider the dual nature of the South African economy and to match consumption patterns to local production capacity. This consideration supports the first of the above New Economics principle and runs counter to the 'neo-liberal' wisdom of the globalisation process.

Perhaps the most serious problem of South Africa's economic path and policies has been that of inadequate growth - and in recent years an absolute decline - in job opportunities in the formal sector of the economy. This is directly attributable to South Africa's efforts to be a 'global player' by pursuing capital intensive and labour saving economic and industrial policies. The question is how to resist this process and protect local industries and communities.

Many projects aimed at creating skills and self-employment opportunities are in operation in South Africa, but most of them are struggling to reach levels of viability where they can provide an adequate income and where services are not undercut by the formal economy or by imported goods. A process of out-sourcing and casualisation of labour is taking place in the formal sector. This reduces demand for labour by large formal businesses and substitutes it with the input of small businesses and the self-employed, usually at much reduced income levels and with poor job security.

In protecting ourselves from the forces of globalisation we could follow the route of Albania or Burma or Cuba, and insulate ourselves from global influences. These countries have managed this by a process of isolation and rigid control. New Economics offers a flexible and strategic alternative process of guiding the market's 'invisible hand'. This it does by setting the 'boundaries of the economic playing field' and the 'rules of the economic game' on the basis of the above principles and such that the self-interest of producers and consumers will coincide with socially, economically, structurally and environmentally sound choices.

The five fundamental policies of New Economics enumerated above need to be evaluated and introduced to match the South African system structure of problems. The last four principles apply to any modern economy but will need some adaptation to the specific circumstances of the South African economy. The first principle is of particular importance to South Africa because of its dual formal / informal structure.

6.1 Promoting Local And Limiting Global Economies

The greatest need and deprivation in South Africa exists in rural regions. This has resulted in a massive influx to the metropolitan areas of South Africa. The old government tried to resist this process by subjecting the black African population to pass laws and exercising influx control on the basis of this. However it could not resist the pressure of poverty and the rapid increase in the population so that by the middle 1980s, when resistance to the apartheid regime took on revolutionary dimensions, it gave up on this quest. Today the hunger and deprivation of the rural areas has largely been translated into vast poverty-stricken urban slums, socially and economically driven by crime, feeble informal economic activities and old age pensions.

The informal economies in townships and rural communities operate largely independently from the main-stream economy and yet are very vulnerable to it. Employment and income will only be created in this sector at an effective level if people are guided into spending on locally produced goods and services within their own community rather than by spending their limited resources in 'first-world' areas and on foreign goods. In most communities there is a great lack of spending power in terms of the national currency but local consumer power could be created by introducing a local complementary currency. This could be done by providing people with a basic (or citizen's) income in terms of such a currency.

6.2 Basic Income For All Citizens

Before looking at the specific needs in South Africa we shall take a look at the issue of basic income from a more general perspective. Non-means-tested basic or citizen's incomes are being widely investigated in many countries. Some important reasons for providing a basic income are the following:

  • To provide life support and a constructive platform for economic activity for the unemployed
  • To provide a measure of financial independence to those in work who would otherwise be wholly dependent on wage income and therefore open to exploitation
  • Recognition of the fact that the vast majority of the population has no land or other valid means of subsistence, and therefore needs a degree of direct access to basic necessities, which the economy should be well capable of providing
  • Recognition of each person's right to the earth's resources and of society's inheritance of earlier economic activity.

In most European countries there are active citizen's income research programmes. The Basic Income European Network (BIEN, 2000) is engaged in publishing and conferencing on the issue. In their March 2000 newsletter active programmes and publications in 11 European countries were reported.

Before World War II the citizen's dividend was a core concept in the Social Credit Movement founded by Major Douglas. This movement took on major proportions in response to the economic depression of the time. In Canada the Social Credit Party won elections in a number of provinces in the 1930s and later. The Social Credit Movement and its concept for a basic income is described in a recent book by Michael Rowbotham (1998). We quote here from this book: "Douglas claimed that people needed a basic income, and that the economy needed them to have it. .. The basic income would consist of a supply of money created by the government, free of debt .. it would make up for the lack of purchasing power caused by the banking system (see section 6.4)). .. The amount would be calculated to boost purchasing power to the point where the goods of the economy could be bought without debt-based growth having to be undertaken. .. It would boost purchasing power without raising prices ..".

Recently the possibility of introducing a basic income into South Africa has come up for discussion in a number of research, labour and civil society sources. The idea of a basic income paid to all citizens was raised in 1990 by Leon Louw of the Free Market Foundation in the book Economic Alternatives edited by McGregor (1990). The present author also carried out some unpublished research on the impact of a basic income on the economy on the basis of a social accounting matrix and published some ideas on the basic incomes in the press (Roukens de Lange, 1991). Jeremy Baskin of the Department of Manpower also raised the issue in the press (1993).

A citizen's income would create vast spending power amongst the poor and this could have a large multiplier effect in the country. South Africa does, however, present some very serious problems. In the first place there is the question of financing a citizen's income from the taxes of an impoverishing nation. In the second place there is the problem that most spending by poor communities occurs outside the community in urban and metropolitan areas. Some of the spending also goes to imported goods with a zero multiplier effect.

The Economic Policy Research Institute has carried out an investigation of 'The Macro-economic Implications of Poverty-Reducing Income Transfers' (EPRI, 2000). The report concludes that substantial income transfers to the poor are 'feasible, affordable, and capable of supporting increased economic growth and job creation'. For South Africa's current population of about 43 million an income transfer of R100 a month per capita would require annually about R52 billion. According to EPRI's report between R33 and 51 billion of additional taxes could be raised by widening and tightening the existing tax collection system using a taxation revenue structure not significantly different from the existing system.

The total current South African budget is about R200 billion so that the required income transfer would amount to about 25 percent of this. An amount of R100 a month is, of course, very much less than a survival income, but EPRI's calculations were not intended as an estimate of basic income requirements. It is clear that an adequate basic income paid in rands for lifting people above the poverty line is out of the question.

On the other hand a basic income payment could be seen not so much as an additional tax burden, but as a resource with a large multiplier effect generating new life in the local economy. This would allow an entirely different picture of economic renewal to emerge with the potential for new tax generation. It must also be recognised that a basic income would significantly reduce the need for public and welfare spending, thereby liberating tax money. It is easy and cheap to administer because it does not require a means test; this would liberate further funds by the reduction of administration costs. Currently about 40 percent of the budget is spent on social services such as education, health, social security and housing. These allocations could be reduced significantly and allocated to basic income payments. This would leave a much greater responsibility in the hands of individuals to choose and pay for the social services they really desired.

The most obvious way in which people could be induced to spend their money locally would be to issue the basic income in terms of a complementary currency which could only be spent locally. People may at first be reluctant to recognise the complementary currency as having value but this would change if it were to be backed by real value that could be obtained with it. We shall explore that possibility below.

6.3 Complementary Currencies

Complementary currencies could be effective for uplifting the economy in the following ways:

  • providing a means of exchange in local communities having little formal currency
  • matching local needs and production
  • promoting economic activity and informal employment
  • promoting a mode of multilateral bartering
  • protecting local communities from unstable world systems of prices and interest rates
  • cutting ties with national and global economies which prevent local production and trade
  • moving from economies based on competition to ones based on co-operation.

Complementary currencies of various kinds have been introduced in many communities. In his book The Future of Money, Lietaer (1998) sees the emergence of currencies complementary to national currencies as one of the megatrends of the coming decades. Without this development he foresees a global monetary crash and economic collapse. There are various types of local currencies which can be introduced to achieve this outcome. They fall into three basic categories.

  1. Mutual credit (e.g. LETS). This type of currency is created by participants themselves in any transaction at a mutually agreed cost. Transactions are communicated and records kept at a central recording point for all participants in the local currency scheme. A mutual credit currency will always be limited to the members of a scheme and they must ensure that all transactions are recorded. This requires a level of initiative, education and commitment which cannot be extracted from many members of a community, particularly in less developed regions. It will always be limited to the exchange of locally produced goods and services. Douthwaite (1996) provides background information on a wide range of initiatives.
  2. Fiat currencies are created out of nothing by a central authority which must keep control over the amount issued in order to keep a balance between supply and demand. All national currencies are now of this type. Fiat currencies can be issued by local communities or authorities but will always require the community members to be confident that they can be used to purchase real value. They provide a record and information which will allow needs to be matched by products or services offered.
  3. Backed currencies. These currencies can be created by any authority. They can always be exchanged for goods or services which have real value, e.g. gold or voyager miles. The currency can also be used for trading. Backed currencies can be used in any region where the backing authority operates. Typically a municipality will provide goods and services which can be purchased with the backed currency.

Hundreds of mutual credit currencies are in operation in first world countries and there are reports of less developed communities where they are in operation. In South Africa a number of mutual credit experiments based on LETS (Local Exchange and Trading System) have been set up in various communities, but it appears there are none in operation today. There are a number of other community trading schemes afoot which the author is aware of (Ubuntu, Adopt a Neighbour and Work Rights projects). Various other forms of backed currencies operate in the formal economy, e.g. voyager miles, but probably none operate with the backing of local government.

A very important question is whether we can link the idea of the complementary currency to that of a basic income. A particular problem is often raised concerning the co-existence of currencies. Gresham's law which states that bad money drives out the good is then quoted. But Gresham's law was formulated for circumstances different from those which are currently to be found in South Africa. What is probably true is that purchasers will want to spend their complementary currency while traders will want to receive the national currency. To make the complementary currency really work will require active trade-offs and community negotiations. Probably the most important consideration will be that of the backing of a currency. Local or indeed national governments supply health and education services which are paid for by the taxes of the formal economy. It may be possible to offer these services to local communities in terms of the local complementary currency. The individual can then decide which services he or she wishes to purchase with her complementary money. She can also decide that she does not need her basic income money and use it to pay for a service she does want from someone who wants more of the local currency (say to pay school fees). In this way community trading will be set up which will require more currency. This can then be supplied by the local authority in excess of the services it offers.

6.4 Monetary Reform

The nature of money and how it is created has been central to the matter of economic governance for centuries. This history is recorded extensively by Carmack (1998), both in book form and in a set of video tapes. The issue of money generation has been dealt with in detail by Michael Rowbotham (1998) and even more recently by Huber and Robertson (2000). We may well ask why we would want to have monetary reform. Some answers that emerge are the following:

  • To provide a system of economic exchange and livelihood in which the output of productive capacity and the consumption of basic needs are not limited by scarcity of money
  • To match the supply of goods and services to money available at stable prices
  • To generate money other than by means of a system in which money is generated through bank debt with its associated interest burden, thereby keeping it in short supply and withholding it from the poor and unemployed
  • To allow the economy to function so that further growth and development are subject only to human effort, sustainability of natural resources and to genuine need (but not to greed or the tyranny of the monetary system).

A major problem of modern economies is the way money is introduced into the economy through bank debt. This gives immense power to banks and requires that the economic system operate on the basis of debt. If levels of debt decline the amount of money available for commercial transactions decreases and economic life is stunted. There needs to be enough money to keep the economy moving. In a country such as South Africa a large proportion of the population is unemployed and too poor to obtain and afford bank loans. In rich and developed countries dole money is paid to the unemployed. This is not feasible under current economic circumstances in South Africa. The unemployed therefore remain cashless and can only become active in the formal economy by the introduction of a basic (citizen's) income or by an effective process of monetary reform such as has been suggested by Huber and Robertson (2000). They detail a process in which money generation is transferred from the banking system to a monetary authority independent of government control. The amount of money created is carefully monitored so as not to cause inflation or major disruptions to economic life and is spent into the economy through public works, a basic income or some other suitable mode of government spending.

6.5 Tax Structure

The last major area of transformation promoted by New Economics is that of tax structure. We can again ask why we would want to change existing systems. Some important issues are the following:

  • To provide a mechanism for steering society for the greater good of all
  • To protect the vulnerable and the environment
  • To limit socially damaging excesses of wealth and poverty
  • To help steer the nation and world towards long-term sustainability
  • To provide the income needed for good governance.

Currently the basis of taxation rests on that of taxing income and profits. This demotivates people and organisations and encourages them to find ways of tax avoidance. Meanwhile the environment is damaged both as a result of using non-renewable resources and as a result of pollution and environmental damage. A better system of taxation would be to tax these 'bads' and to allow people the reward of value added by their labour. The need for this restructuring of taxation is being increasingly recognised by highly developed countries where the basis of taxation is slowly shifting. The issues of taxation have been dealt with with great clarity by Margaret Legum (1999) and by James Robertson (1998).

In South Africa we are wrapped up in human and political problems and we have not begun to look at these issues. However there is no reason from a human-development point of view why we should not reform our tax structure. Taxing 'bads' rather than 'goods' will provide us with a long-term perspective and vision which is almost entirely absent in the current system.


7. A SANE STRATEGY

No single element of a South African New Economics programme dealt with above would be able to sort out the problems of the South African economy, but together they could carry the synergy required. It is not possible to guarantee this but a bold strategy is clearly needed to save South Africa from economic decay and disintegration. In one of

a 'Guinea Fowl' scenario is described in which the outcome of a concerted New Economics strategy is described. The Guinea Fowl is an indigenous bird which lives off simple pickings in the midst of plenty. This is an analogy for the happy co-existence of a formal and an informal economy through the synergy of the various aspects of a SANE strategy.

Just describing a scenario is clearly not enough to set out a workable alternative. It is not possible to prove that the scenario could be realised, but it is possible to set a process in motion for its evaluation. SANE has active links with several organisations which could help it in this process. A new economic paradigm also needs to be accepted in the minds and hearts of people. This requires an education programme promoting new values - values based on community well-being, the 'greater good' and the 'higher self', rather than on the stimulation of individual self-interest.

An important link is one with the Millennium Institute in Washington. They have developed a modelling package called Threshold'21 based on the methodology of system dynamics. They have indicated their enthusiasm for adapting this package to the structure of South Africa's dual economy. Negotiations are under way to involve them in using this for the modelling of the South African economy.

Another important link is with the Midrand EcoCity Project (MECP). They are interested in setting up a SANE experiment in Midrand, near Johannesburg, including various local currency experiments. Active negotiations are under way with them and we are looking towards an effective experiment as a nucleus for establishing a vibrant New Economy in South Africa.

The present author has carried out an extensive modelling study of a very different nature based on a Social Accounting Matrix (SAM) for South Africa. This is a useful instrument which can be used to establish the economy and society-wide consequences of alternative macro-economic policies (Roukens de Lange, 1989), as well as of alternative economic structures such as the consideration of parallel formal and informal economies (Roukens de Lange, 1992).

SANE is exploring collaborative schemes and research projects with other NGOs, research institutes and research departments at various universities. Projects have been designed and research proposals drawn up. There is a need for education, advocacy and the lobbying for SANE ideas. There is much work to be done if we are to establish a vibrant and sustainable New Economy for South Africa.

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REFERENCES

Aktie Strohalm. Towards a Sustainable and Equitable Future, and other literature around New Economics in the developing world. E-mail strohalm@intouch.nl. Utrecht, Netherlands.

Citizen's Income Research Centre (CIRC). Various publications. E-mail: citizens-income@lse.ac.uk and website www.citizens-income.org.uk . London School of Economics.

Basic Income European Network (BIEN). Regular newsletters, publications and website www.etes.ucl.ac.be .

Carmack, PSJ (1998). The Money Masters. Video plusvideo script. Royalty Production Co. www.themoneymasters.com .

Douthwaite, R (1996). Short Circuit: Strengthening Local Economics for Security in an Unstable World. Green Books, Dartington, UK.

Economic Policy Research Institute (EPRI, 2000). The Macro-economic Implications of Poverty-reducing Income Transfers. Cape Town. www.epri.org.za .

Huber, J & Robertson, J (2000). Creating New Money: A monetary reform for the information age. New Economics Foundation, London. info@neweconomics.org.uk .

Legum, M (1999). Alternative Forms of Taxation. Occasional Paper No.1, South African New Economics (SANE) Foundation. Cape Town.

Lietaer, B.(1999). The Future of Money: A New Way to Create Wealth, Work, and a Wiser World. Unpublished book. www.transaction.net/money .

Louw, L (1990). A dozen popular South African Myths. In: McGregor's Economic Alternatives, 230-234. Juta & Co, Cape Town.

Reynolds, N (2000). Work Rights. Market Society report. E-mail: marketnr@iafrica.com . Private Communication.

Robertson, J (1998). Transforming Economic Life. Green Books, Schumacher Briefings, Dartington, UK.

Roukens de Lange, A (1980). Technological and Socio-economic Change in South Africa: Where Are We Heading? S A Journal of Science, 76(10):445-450.

Roukens de Lange, A. (1989). The Impact of Macro-economic Policies on the South African Economy: Analysis Based on a Social Accounting Matrix. J. Stud. Econ & Econometrics (SEE), 13(3):21-44.

Roukens de Lange, A (1993). Manpower in South Africa: Trends in Demand, Supply, Remuneration and Skill. Occasional Paper No 20, Institute for Futures Research, University of Stellenbosch.

Roukens de Lange, A (1993). Incorporating Informal Sectors into the 1988 Social Accounting Matrix for South Africa. Report to the Development Bank of Southern Africa. Institute for Futures Research, University of Stellenbosch.

Roukens de Lange, A (1999). The Guinea Fowl Scenario for South Africa. 1998. Occasional paper No. 2, South African New Economics (SANE) Foundation. Cape Town.

Statistics South Africa (1999). October Household Survey

Viljoen, D. (2000). Employment projections of Development Bank of Southern Africa.

Whiteford, A & Van Seventer, D. (1999). Winners and Losers: South Africa's changing income distribution in the 1990s. WEFA Southern Africa, www.wefa.co.za.

1. The New Economics movement arose out of the seminal work of E.F. Schumacher who, in 1976, wrote a treatise on a new "economics as if people mattered". New Economics must not be confused with the more recently introduced concept of The New Economy which is the recently coined description of the economics of free trade, globalisation and the information technology revolution.




1 comment:

  1. It is best to exploit different options for extra income protection.

    ReplyDelete