Sunday Times

Ris­ing poverty brings ur­gency to univer­sal ba­sic in­come de­bate

SA’s Gini co­ef­fi­cient mea­sure of in­equal­ity — is world’s high­est

- Si­fiso Sken­jana Sken­jana is a PhD can­di­date and an in­vest­ment and eco­nomic re­search spe­cial­ist Poverty · Finance · Wealth · Society · Business · Oxfam · Iceland · World Bank Group · World Bank · Austria · South Africa · Africa · Belgium · Belarus · Iran · Alaska · United States of America · Switzerland · Canada · Finland · India · Namibia · Germany · New Democratic Party (Canada) · Union Bank of India · Alaska Permanent Fund

SA re­mains one of the most un­equal so­ci­eties glob­ally in terms of in­come and wealth dis­tri­bu­tion, with the bot­tom half of the lo­cal work­force re­ceiv­ing a mea­gre 12% of all wages. The Ox­fam “Re­ward Work, Not Wealth” re­port found that the cost of sup­port­ing one per­son’s monthly needs in SA is about R6,460, though the min­i­mum wage, as of May 1 this year, is R3,500.

The World Bank mea­sured SA’s Gini co­ef­fi­cient at 0.63 — the high­est in­ter­na­tion­ally. The Gini co­ef­fi­cient mea­sures in­come in­equal­ity rang­ing from 0 to 1, with 1 be­ing the worst.

Poverty lev­els are also on the rise — the re­cent Stats SA “Poverty Trends in South Africa” re­port found that the poverty head count in­creased to 55.5% in 2015 from 53.2% in 2011, af­ter hav­ing de­clined be­tween 2006 and 2011.

Re­search has un­am­bigu­ously found that poverty and ex­treme in­equal­ity un­der­mine eco­nomic growth and in­vest­ment.

This, along­side ris­ing un­em­ploy­ment, paints a grim pic­ture for the poor and vul­ner­a­ble in SA, re-en­er­gis­ing the pol­icy de­bate on the mer­its of a univer­sal ba­sic in­come (UBI) as a means to ad­dress in­equal­ity, poverty and un­em­ploy­ment chal­lenges.

UBI is a form of so­cial se­cu­rity that en­sures an un­con­di­tional, non­con­trib­u­tory monthly in­come to every in­di­vid­ual. Un­con­di­tion­al­ity means that this in­come would be re­ceived by all, ir­re­spec­tive of their in­come and their work sta­tus.

There are many po­lar­is­ing ar­gu­ments re­lat­ing to the costs of a UBI, its im­pli­ca­tions for the labour force, its moral and so­cial im­pli­ca­tions and its broader im­pact on the econ­omy.

The aim here is to adopt a balanced dis­cus­sion on the prospects of a UBI and im­por­tant con­sid­er­a­tions for its im­ple­men­ta­tion in SA.

The idea of a UBI has long been ex­plored glob­ally. In 2010, Iran be­came the first coun­try to im­ple­ment a full-scale UBI, where it used higher crude oil rev­enues — and re­duc­tions in cook­ing oil and bread sub­si­dies that had pre­vi­ously been in place — to fi­nance a na­tion­wide ba­sic in­come that amounted to 29% of the me­dian house­hold in­come.

In 1982, Alaska es­tab­lished the Alaska Per­ma­nent Fund — also funded through oil rev­enues — which pays all of its cit­i­zens an an­nual div­i­dend.

The US, Switzer­land, Canada, Fin­land, In­dia and Namibia are among the coun­tries that have pi­loted UBI in vary­ing de­grees, and mo­men­tum is build­ing in coun­tries such as Ger­many.

From an aca­demic re­search point of view, two broad ar­eas of study un­der­pin the key el­e­ments im­pli­cated by UBI pro­pos­als.

First is a the­ory of op­ti­mum tax­a­tion, which posits that a tax sys­tem should be cho­sen to max­imise so­cial wel­fare, sub­ject to con­straints. In the con­text of a UBI, its key pro­pos­als sug­gest that the op­ti­mal ex­tent of re­dis­tri­bu­tion rises with wage in­equal­ity.

Sec­ond is a pub­lic choice the­ory, in terms of which re­dis­tri­bu­tion is ar­tic­u­lated as an in­sur­ance, as a pub­lic good, as a means to sat­isfy fair­ness norms and to en­hance al­loca­tive ef­fi­ciency.

UBI is a re­dis­tribu­tive pol­icy frame­work that aims to ex­tend the ways so­cial se­cu­rity is pro­vided in the econ­omy through the pro­vi­sion of a more ro­bust fi­nan­cial safety

Economies pi­lot­ing UBI have had no drop-off in labour-force par­tic­i­pa­tion

net for those in need.

Many of those in need fall through the cracks due to their in­abil­ity to pro­vide the re­quired doc­u­ments for them to qual­ify for needs-based so­cial se­cu­rity.

One of the key im­per­a­tives of the

Na­tional De­vel­op­ment Plan (NDP) is the erad­i­ca­tion of poverty by 2030. Sec­tion 27 of the South African con­sti­tu­tion recog­nises so­cial se­cu­rity as a ba­sic hu­man right, stat­ing that “all South Africans have the right to so­cial se­cu­rity, in­clud­ing, if they are un­able to sup­port them­selves and their de­pen­dants, ap­pro­pri­ate so­cial as­sis­tance”.

The chal­lenge the coun­try faces is the al­loca­tive ef­fi­ciency of its so­cial-se­cu­rity pro­grammes. The five func­tions of so­cial pro­tec­tion as con­tained in the NDP are that it ought to be pro­tec­tive, pre­ven­tive, pro­mo­tive, trans­for­ma­tive and de­vel­op­men­tal and gen­er­a­tive. The pro­pos­als of UBI seek to ad­dress the short­com­ings on so­cial-se­cu­rity pro­vi­sions that fall short of meet­ing these func­tions.

Much of the re­sis­tance to UBI hy­poth­e­sises that:

● UBI should not be univer­sal as it dis­pro­por­tion­ately ben­e­fits those with suf­fi­cient eco­nomic means;

● UBI will neg­a­tively af­fect labour par­tic­i­pa­tion, as peo­ple may not be in­cen­tivised to look for work;

● There are moral short­com­ings to tax the rich to “feed” the poor; and

● UBI seeks to re­move state in­ter­ven­tion in in­come dis­tri­bu­tion for the ad­vance­ment of so­cial and eco­nomic im­per­a­tives.

How­ever, em­pir­i­cal ev­i­dence shows that economies that have pi­loted UBI ex­pe­ri­enced no drop-off in labour-force par­tic­i­pa­tion.

In ad­di­tion, a pro­gres­sive in­come tax regime as in SA nec­es­sar­ily means that those in higher in­come brack­ets find no ma­te­rial ben­e­fit in the UBI through the tax mech­a­nisms in place, while pro­vid­ing mean­ing­ful fi­nan­cial buf­fers for those in lower-in­come brack­ets.

In­stead, a UBI pro­poses to im­prove the qual­ity and quan­tity of the labour force.

In a tough eco­nomic en­vi­ron­ment, young grad­u­ates would still be able to ac­cess low­pay­ing in­tern­ships to gain ex­pe­ri­ence with­out se­verely con­strain­ing the fi­nances of the com­pa­nies of­fer­ing them on-the-job train­ing.

A UBI would also strengthen the bar­gain­ing power of labour, given the fi­nan­cial se­cu­rity it would pro­vide work­ers.

Like any pol­icy de­vel­op­ment process, the UBI would re­quire ex­ten­sive con­tri­bu­tions from labour, busi­ness and the gov­ern­ment to en­sure that the pol­icy frame­work is both balanced and in­clu­sive.

The reser­va­tions lev­elled at the im­ple­men­ta­tion chal­lenges of a UBI are not with­out merit, but as long as there is a univer­sal agree­ment be­tween all stake­hold­ers that the ba­sic tenet of a UBI is the re­duc­tion of in­equal­ity, pro­vi­sion of im­me­di­ately us­able re­sources and, ul­ti­mately, an at­tempt at elim­i­nat­ing poverty, the very same stake­hold­ers will en­gage ro­bustly on how to make UBI work for those who need it the most.

 ?? Pic­ture: Ed­u­ca­tion Im­ages/LUIG via Getty Im­ages ?? In 1982, Alaska es­tab­lished the Alaska Per­ma­nent Fund — funded through oil rev­enues — which pays cit­i­zens an an­nual div­i­dend. An­chor­age is pic­tured above.
Pic­ture: Ed­u­ca­tion Im­ages/LUIG via Getty Im­ages In 1982, Alaska es­tab­lished the Alaska Per­ma­nent Fund — funded through oil rev­enues — which pays cit­i­zens an an­nual div­i­dend. An­chor­age is pic­tured above.
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