ADDRESSING CHALLENGES OF POVERTY Colloquium on Poverty UJ Poverty Colloquium Joel Netshitenzhe: Executive Director: MISTRA 21 July 2011
MAJOR THEMES ❶ Definitions and magnitude of poverty ❷ Identifying interventions ❸ Relationship: poverty and economic growth ❹ Challenges of socio-psychological capital ❺ Conclusion 2
DEFINITIONS & MAGNITUDE Welcome initiative Introduction MISTRA has joined UJ Centre for Small Business Development, BLSA and other partners because this initiative has the potential to unite various sectors of society, proceeding from the understanding that poverty is not just a government problem Data and analysis in abundance Research work on this issue is quite extensive: The Presidency, dsd, universities, recent OECD report; and international studies e.g. on India, China and World Bank on Latin America Various experiences in implementation These include Government War on Poverty initiative led by the Deputy President, on-going generic socio-economic programmes and the work of dsd in particular Is the challenge merely one of implementation? Could argue, as a consequence, that poverty is over-researched and the challenge is implementation. But this would be inaccurate: embedded in the weaknesses of implementation are conceptual issues as reflected in on-going debates in NEDLAC 3
DEFINITIONS & MAGNITUDE Capability and data Amartya Sen s concept of capability is instructive in defining poverty: eschews a top-down development approach beyond asserting rights, it is also necessary to look at functionings where barriers to act out of personal choice are removed posits understanding of poverty as more than just income; and asserts transdisciplinary relationship among: economic growth, social policy, assets, social capital and institutional factors Income poverty headcount (in 2008 constant Rand): Household below 1995 2005 2008 - R524 a month (IES) 53% 48% 49% - R388 a month (AMPS) 52% 45% 39% (Amartya Sen: Equality of What ) Development Indicators, 2010: The Presidency In large measure it reflects improvements in employment though this has been negatively affected by the economic downturn and access to social grants (from 2.4m in 1997 to 14m in 2010). 4
DEFINITIONS & MAGNITUDE Capability and data ❸ ❹ Depth and severity of poverty: the depth of poverty (how far below the poverty line the poorest are) has declined, reflecting mainly low-paying jobs and social grants however, the severity of poverty (square of gap between poverty line and incomes of poor) has not declined: inequality is not decreasing Gini coefficient at about 0.67: poorest 20% earn 2.3% of National Income and richest 20% about 70% Location and sectoral manifestation: while a large number of the poor are located in rural areas, 4 Metros are among the 20 districts/metros with the highest % of those living in poverty (MLL): many more urban areas if towns added most of the affected are children, women and youth: with the latter (15 24 year old), employment ratio is 13.2% compared to 40% in Asia and Latin America and 50% of those looking for work are jobless; 86% of unemployed youth have not gone beyond Grade 12 and two-thirds have never worked NPC Diagnostic Report; NSDP: The Presidency 5
DEFINITIONS & MAGNITUDE Fiscal incidence & beyond income Why is it necessary to take into account fiscal incidence and social expenditure? Fiscal incidence and Gini coefficient Using the Lorenz and concentration curves for social spending: while social spending had no impact on Gini coefficient in 1993, it reduces this by about 41% by 2002 On the one hand The Presidency, Ten Year Review Dr Montek Ahluwalia, Deputy Chairperson of the Indian Planning Commission emphasises that where incomes improve and services do not: income gets discounted as e.g. poor water services lead to diseases and increased household expenditure on health. In SA, for e.g. due to apartheid spatial settlement patterns, workers use about 40% of income on transport On the other hand Provision of social services e.g. housing and electricity does improve human condition; but without income: subsidised housing is in some instances sold or rented out; and the poor use electricity only for lighting 6
Extent of government influence IDENTIFYING INTERVENTIONS Hierarchy: government influence & impact Social grants Free basic services and housing Public employment programmes Support for micro enterprise Full-time employment Anti-poverty Strategy: The Presidency Long-term impact on poverty and exclusion Social grants are quite effective as a direct transfer; but they are weak on long-term impact, including fiscal sustainability. It is precisely those interventions with better longer-term impact that require participation by other social partners. 7
IDENTIFYING INTERVENTIONS Starting point: growth storyline ❶ Multiplier effect of infrastructure programmes: Over R800bn has been budgeted as rolling investment every three years: direct employment; crowd in private sector; advance supplier industries and there are opportunities in sub-saharan Africa for a few decades to come ❷ Aggregate demand and shared growth: Growth (SA and SSA) generates virtuous cycle, with profound opportunities for manufacturing, including current imports and other IPAP sectors; as well as measures such as SME facilitation, rural development and skills training ❸ Mining as catalyst for new industrialisation drive: Super-cycle anchored in demand from global growth regions; opportunities for PGM and fuel cell technology creating possibilities for mature industrial cluster ❹ Opportunities in the Green Economy Balance cost and opportunity: forward and backward linkages and job opportunities depending on R&D, regulations, procurement and feed-in tariffs 8
IDENTIFYING INTERVENTIONS Utility of developmental state model? Besides matters to do with the role of the state in the economy and the quality of the bureaucracy, the logic of developmental state model also suggests... Emphasis on economic growth: focus on employment and selfemployment and in earlier phases large-scale absorption of low- and semi-skilled workers often at expense of labour standards Trickle-down from high growth: reliance on economic rising tide with little or no social security Land as cushion for the poor: tenure system and history of smallscale agriculture renders land a critical cushion for poor rural communities Much easier to implement in societies with high levels of social cohesion and low levels of inequality, and a commitment to sharing benefits and sacrifices 9
IDENTIFYING INTERVENTIONS Utility of developmental state model? SOUTH AFRICA: SOME PROS BUT NEED TO ADDRESS CONS Political transition informed by sufficient consensus which can lay the basis for an economic miracle Formation of the NPC and policy a priori to build a developmental state Relatively developed social wage system including social grants Natural endowments and areas of excellence can catalyse industrialisation Growth prospects in the neighbourhood (SSA) are changing for the better Inequality, poor social cohesion and leadership deficit undermine strategic orientation and discourse Economic path dependency entrenches inequality even during high growth periods Dispossession (combined with mechanisation, pre-emptive action and poor programmes) undermines possibility to use land as a cushion; and entrepreneurship undermined Setting on the journey in period of global rules that limit options 10
IDENTIFYING INTERVENTIONS Also need urgent action on e.g. youth Education and skills development: direct correlation with household income, initiative to start and sustain a small enterprise, confidence among young women to pursue economic opportunities Wage subsidy: critical to address the school-to-work transition and incentivise employment of youth at least to gain experience Learnerships: as part of skills development, and can be multiplied many-fold if a deliberate campaign is undertaken (57% transition to employment) Public Works Programme: ensure implementation of Phase II, with focus on youth and women Jobs transition through the state: special dispensation for young workers in services such as CDW s, auxilliary nurses and social workers Entrepreneurship: assist youth and women and improve SA s TEA Index including better creativity with BBBEE and land reform 11
IDENTIFYING INTERVENTIONS Relationship: poverty and growth Beyond the assumed impact of growth on poverty, there is in fact a bidirectional relationship Poverty does negatively impact on growth A 10% increase in poverty lowers GDFI by 6% and GDP growth rate by 1%: people trapped by poor access to finance, health, education and technology and mired in survivalist conflict do not optimally contribute to national economic advancement Need pro-poor growth and pro-growth poverty reduction On the one hand, need for e.g. sectoral strategies that favour labour-intensive sectors, without inducing medium-term growth-impeding inefficiencies On the other hand, the negative impact of some pro-growth actions, e.g. trade liberalisation can be ameliorated through direct assistance to the poor Human capital is critical Especially educational attainment ( the great liberator ) can ignite virtuous cycle; but need decisively to address quality: the poor experience lower, late and uncertain rates of return to education (World Bank Latin American and Caribbean Studies: Poverty Reduction and Growth) 12
SOCIAL CAPITAL Weakest among the poor Using proxy indicators, social capital seems to be weakest among the poor: On aggregate, according to Census figures, the nuclear household had declined from 46.3% in 1996 to 41.1% in 2001. More striking from a recent survey is the proportion of children with absent fathers: Race 1996 2009 African 46% 52% Coloured 34% 41% Indian 17% 12% White 13% 15% Fractured families: A crisis for SA (SAIRR, 2011) Generally, Africans have a low composite score and belong to social networks with meagre resources and little to offer one another While participation in community and social organisations (including sport and religious bodies) is high, it seems this is in decline Macrosocial Report, The Presidency, 2005 13
SOCIAL CAPITAL Socio-psychological challenges Less discussed hindrances to policy implementation and dealing with poverty are matters to do with social consciousness which impact on both institutional capacity and social solidarity The psychology of the more heartless among frontline office workers, who seem to derive pleasure in making governmental systems complex and life difficult for citizens The impact of power on the psyche: reflected in the arrogance of some individuals in political leadership who callously pour scorn on the plight of communities; and the poverty-patronage dynamic (one of MISTRA research projects) The impact of the social system under which we live, which is based on competitive relations: tendencies such as flaunting of economic status, kicking of the ladder and climbing on the back of others A short-termism that prevents the leadership of various sectors from identifying common objectives and working together to pursue them 14
SOCIAL CAPITAL Have we learnt from the crisis? Experience during global economic crisis (2009) Germany UK South Africa % change: GDP -5% -6% -1.8% % change: employment -4% -2% -6% Extrapolation from Hilary Joffe, Business Day (20/04/2010) McKinsey counts the cost of the Galleon scandal Mr Barton said there was a wider drop in trust in business since the global financial crisis, which would require capitalism to adopt a longer-term perspective, freeing executives from running their companies merely to hit quarterly earnings targets. McKinsey aims to change asset managers incentives and methods of measuring performance to encourage a longer-term approach from investors. FT (11/07/2011) quoting Dominic Barton, McKinsey s Global Managing Director 15
CONCLUSION Poverty is a common challenge Poverty needs to be addressed in joint action among all social partners. This is not just about being charitable. It is in the self-interest of all sectors of society that we succeed in addressing poverty for, combined with inequality, it is an equal opportunity disease that affects all, directly and indirectly. A unique opportunity The greatest opportunity for South Africa currently derives from the efforts to develop a Vision and National Strategic Plan (not of government but of the country as a whole) in partnership among all social partners. Activism among all social sectors is key, contributing to common vision and ensuring its implementation: a social compact for high growth, against poverty and inequality. 16
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