A PARALLEL CURRENCY TO PAY FOR A BASIC INCOME IN SOUTH AFRICA

by Aart Roukens de Lange
Director, South African New Economics (SANE) Network

Great human need and deprivation exist throughout South Africa, but in particular in rural regions. This has resulted in a massive influx to the metropolitan areas of South Africa. The old government tried to stop 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 economically driven by crime, feeble informal economic activities and old age pensions.

The informal economies in South African townships and rural communities operate largely independently of the formal 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; however, local consumer power could be created by introducing a local complementary currency or voucher system. This could be done by providing people with a basic (or citizen's) income in terms of such a currency.

1. A Basic Income For All Citizens

Before looking at the specific needs in South Africa and the feasibility of complementary currencies 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 as a means for effecting poverty alleviation. Some important reasons for providing a basic income are:

2. Development of the Basic Income Concept

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 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. Much 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 about43 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.

3. Complementary Currencies

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

Complementary currencies of various kinds have been introduced in many communities. In his book The Future of Money, Lietaer (2000) 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.

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:

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 diminished. 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 provide details for 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.

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:

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.

6. 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 an occasional paper by Roukens de Lange 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.

The present author has carried out an extensive modelling study 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.

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

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