The Democratic Alliance at its recent congress raised and debated the policy proposal that child grants paid to poor parents should be increased in value and in due course doubled. The justification is a laudable one. The DA is concerned about high rates of malnourishment that is prevalent among poor children, and that manifests as stunted growth. That in turn has a number of deleterious consequences, including diseases and educational disadvantages suffered by young people.
It is important that we remind ourselves at the outset what it is that we want to achieve: We want to avoid the poverty trap that is making this endemic developing-world state of affairs possible.
Being a poverty trap, it is only fair that we should point out the obvious: If we can turn poverty around, we can deal with this problem. The first point to note therefore, is the simple one that the higher the per capita GDP of a country, the lower the malnourishment. Here is a list of African countries, selected at random save for the deliberate inclusion of SA and our neighbour Namibia, showing their GDP per capita and their rate of malnourishment according to the statistics of the World Bank:
|Country||Per capita GDP||Malnourishment 2015|
|Ave 1st quartile||8081||14.32|
|Ave 1st quartile||2407||12.14|
|Ave 1st quartile||865||31.48|
|Ave 1st quartile||504||32.62|
It is fairly clear that in Africa at least, it is the relatively wealthy countries that have best dealt with the problem of malnourishment. That problem will best be tackled then, by growing our economy.
The second point is that even in poor countries, per capita growth improves countries’ response to malnourishment:
|Country||PC GDP % Δ||Mal % Δ|
|Ave 1st quartile||33.6|
|Ave 2nd quartile||13.8|
|Ave 3d quartile||42.8|
|Ave 4th quartile||5.8|
The next question is whether social spending (welfare payments) improves malnourishment. Here is a table setting out social spending of the same list of countries, together with their levels of malnourishment:
|Country||Social spend ($)||Malnourishment 2015|
At first blush it seems as if the countries in the first quartile have low malnourishment because they have high social spending, which seemingly vindicates the proponents of the doubling-down hypothesis. But under scrutiny this hypothesis fails:
- The countries in the first quartile are all wealthy countries, that have low malnourishment. This accords with the correlation between per capita wealth and low malnourishment that we see in the first table. It may well be the relative wealth of their citizens that improves malnourishment;
- That this is so, is demonstrated by Ghana, Gabon, Congo and Nigeria, that disprove the idea that it is grants that achieve the beneficial results. These countries are all relatively wealthy countries (in the African context at least) and they have low malnourishment figures. Most importantly they have very low social spending. That supports the idea that what matters is wealth created by people themselves, not social grants.
- The 2nd, 3rd and 4th quartiles do not continue with the trend of high levels of social spending correlating with low malnourishment. If there was anything to the theory, we would have expected lower social spending progressively to deliver more malnourishment. There is no such correlation. The bottom quartile is as successful as the second in fighting malnourishment.
- Unfortunately we do not have figures to compare the change in social spending in the different countries. But what we do know, is that in South Africa social spending increased exponentially. Here is how a 2014 report of Statistics SA titled ‘Poverty trends in South Africa : An examination of absolute poverty between 2006 and 2011’, describes the growth of welfare in South Africa:
“South Africa’s social assistance system has expanded tremendously since 2000, growing from around 3 million grants to 15 million by 2011. Growth in grants has been primarily driven by the expansion of child support grants which increased from roughly 150 000 recipients in 2000 to over 10 million in 2011. The coverage of this grant has successively been extended to children in older years, reaching those between the ages of 15 and 16 in 2010 and thus increasing its ability and reach to improve the lives of those living below the poverty line. Between the IES [Income and Expenditure Survey] 2005/06 and IES 2010/11, the number of grant holders increased by over 46%, growing from 10.2 million in 2006 to 14.9 million in 2011”.[i]
Against the background of such growth, if these grants were necessary and effective in dealing with the problem of malnourishment, one would have expected that malnourishment would have been much worse in 2000, and would have been drastically reduced since then. Instead, as we see in the above figures, SA already had relatively low malnourishment by African standards, and it was not reduced by any significant degree between 2000 and 2015.
The authors Deveraux and Waider show that while there has been some reduction in the prevalence of out-and-out hunger, the rate of stunting due to malnutrition was almost constant over the period 1993 to 2008, with a very modest decline in 2012.
The point is if grants were such a powerful instrument to fight malnutrition, should we not by now have seen a far more dramatic improvement?
We must remember that over the same period (2000-2015) unemployment in SA (on the narrow definition) increased from about 4 million to 5.5 million. That means that while it is true that many people were lifted out of absolute poverty by means of social grants, these grants went to an increasing crowd of jobless workers. (Theoretically of course they went in aid of children, but remember it is the parents who spend the money, so all the unemployed adults in an extended family are likely to benefit too). The result is not only that an increasingly unproductive process is taking place (as fewer people work for the food so distributed), but the number of mouths to feed (other than targeted children) is increasing all the time. This creates a classicwelfare trap. While fewer produce, more become dependent on consuming.
What is more, given the need to spread the meagre produce purchased with a grant in this way, is hardly likely to achieve the aim of good, balanced nutrition for children.
So inevitably the proposal is now to double the benefit. That must mean that there will be an increasing burden on the fiscus. According to the South African national budget for 2017/18, out of total income of R1 414.1 billion, R180 billion already goes to welfare[ii].
That amounts to about 11.5 per cent of the budget.[iii] It is not clear where the saving should come from to fund the doubling og the grant.
In this context it is worth revisiting evidence that amongst South Africa’s peers, countries with high state consumption spending invariably have higher unemployment:
In other words, the more the state spends (as is likely to happen if the suggestion of the DA comes to fruition), the more the takers are likely to be. The economic principle is known as “the tragedy of the commons”: As soon as a resource is free and available to the public, it tends to be exhausted as more and more people make use of it. There is no check on the consumption. Long before any economic benefits of improved child nutrition will be felt, those benefits will be swamped by the growing idleness that feeds on it.
What is more, there is a strong case to be made that welfare grants contribute to our reprehensibly low start-up rate of small businesses.
Here are the percentages of the population intending to start a business in South Africa compared to the other African countries cited in the Global Entrepreneurship Monitor 2016/17 Global Report (GEM Report):
|Country||Entrepreneurial intentions (%)|
|Average, excluding South Africa||49.5|
Source: Global Entrepreneurship Monitor 2016/17 Global Report[iv]
It is clear that the vast majority of our unemployed do not even consider starting a business.
The same story is told by the figures showing ownership of new businesses:
|Country||New business ownership rate (%)|
|Average, excluding South Africa||8.8|
Source: Global Entrepreneurship Monitor 2016/17 Global Report
Someone sitting at home (possibly in a free government house) who receives a grant providing enough to buy food for the family, may well have felt compelled to start a small business in the absence of that grant. It is clear that there is a perception that the government will provide. There is no urgency to start new businesses.
Is South Africa exceptional in this regard? Here is a list of various African countries (selected on the basis of availability of data) and the percentage of GDP paid towards social welfare by each:
|Country||Total public social expenditure as % of GDP||Total public social expenditure per capita (US$)|
|Central African Republic||2.800||17.32|
|Average, excluding South Africa||1.057||51.90|
Source: World Bank[v]
Save for Namibia, South Africa is by far the highest spender of state funds on welfare in terms of percentage of GDP. South Africa spends three times as much on welfare expressed as a percentage of GDP, but more than six times as much in absolute dollar terms per capita, than its African counterparts.
Looked at another way: as there are about 17 million welfare recipients in South Africa (about 30 per cent of the population), we are talking of a massive injection of cash for no productive work in return. That $396.27 per capita per year translates to about R1 350 per beneficiary per month on average. In comparison to South Africa’s $396.27, of the entrepreneurial countries identified earlier, Burkina Faso spends $20.35 per person per year. Uganda, recently named the most entrepreneurial country in the world,[vi] spends a puny $11.10. These countries have such low welfare payments that clearly there is strong motivation to work or start a business.
No country can hope to supply jobs to all of its citizens who want to work, without a growing business sector. Every single private-sector employer once was a business start-up.
There is no way in the world that we will reverse the growing tide of unemployment by means of welfare grants targeted at children, while those are gradually and voraciously eaten up by the unemployed.
In its May 2016 report ‘South Africa: A new growth strategy’, the SAIRR highlighted the following change in the relationship between the number of people in employment and the number of people receiving social grants:
“… the number of people on social grants now exceeds the number of people in employment. In 2001, before the major roll out of child support grants occurred, there were 312 employed people for every 100 on social grants. Now there are only 86 people with jobs for every 100 people on social grants”.[vii]
Welfare grants are displacing employment. The only sources for state expenditure are taxpayers’ money, state borrowing or printing cash. All of these undermine the collective purse of the country, taking up money that could have been used by the private sector to create real jobs and wealth.
Africa Check recently reported:
“There is concern over whether South Africa’s spending on social welfare is sustainable in the long term. According to research that has compared the government’s expenditure on social grants and civil service remuneration since 2008 with government revenue over the same period, these will absorb all government income by 2026 if current growth trends are not adjusted” [my emphasis].[viii]
That may well not happen. But how are we to turn the growing trend of unemployment around if we were to double child care grants? There is not a socialist policy that fails (and believe me, this one is failing) that does not sooner or later elicit the retort from its proponents: What we need to do, is just to spend more money on it.
No we do not. What we need to do is to create more jobs. Millions more. Towards which which the Job Seekers Exemption Certificate, also proposed by the DA, is an excellent start.
[i] Statistics South Africa, ‘Poverty trends in South Africa: An examination of absolute poverty between 2006 and 2011’, 2014, available at http://www.statssa.gov.za/publications/Report-03-10-06/Report-03-10-06March2014.pdf (last accessed 22 March 2017).
[ii] Budget 2017: Budget Review, National Treasury of the Republic of South Africa, 22 February 2017.
[iv] Global Entrepreneurship Monitor 2016/17 Global Report (Global Entrepreneurship Research Association, 2017), available for download at http://www.gemconsortium.org/report (last accessed 20 March 2017).
[v] World Bank, Social Security Protection Indicators, available at http://datatopics.worldbank.org/aspire/indicator/social-expenditure (last accessed 22 April 2017).
[vi] Megan Kurose, ‘The most entrepreneurial country in the world (hint: it’s not the U.S.)’, StartupRounds, 19 January 2017, available at https://www.startuprounds.com/entrepreneurial-country-world-hint-not-u-s/ (last accessed 26 April 2017).
[vii] SAIRR, ‘South Africa: A new national growth strategy’, May 2016, available at http://irr.org.za/reports-and-publications/occasional-reports/files/sairr_national-growth-stategy_web_200516.pdf (last accessed 20 March 2017).
[viii] Louise Ferreira, ‘Factsheet: Social grants in South Africa – separating myth from reality’, Africa Check, available at https://africacheck.org/factsheets/separating-myth-from-reality-a-guide-to-social-grants-in-south-africa/ (last accessed 12 March 2017).