UJ Poverty Colloquium

Joel Netshitenzhe:

Executive Director: MISTRA

21 July 2011

ADDRESSING CHALLENGES OF POVERTY

Colloquium on Poverty

MAJOR THEMES

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❶ Definitions and magnitude of poverty

❷ Identifying interventions

❸ Relationship: poverty and economic

growth

❹ Challenges of socio-psychological

capital

❺ Conclusion

DEFINITIONS & MAGNITUDE

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Introduction

Data and analysis in abundance…

Welcome initiative

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‟

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

Is the challenge merely one of implementation?

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

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

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):

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DEFINITIONS & MAGNITUDE Capability and data

Household below 1995 2005 2008

- R524 a month (IES) 53% 48% 49%

- R388 a month (AMPS) 52% 45% 39%

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).

(Amartya Sen: “Equality of What”)

Development Indicators, 2010: The Presidency

❸ 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%

❹ Location and sectoral manifestation:

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DEFINITIONS & MAGNITUDE Capability and data

► 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

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Why is it necessary to take into account fiscal

incidence and social expenditure?

DEFINITIONS & MAGNITUDE Fiscal incidence & beyond income

On the one hand…

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

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

The Presidency, Ten Year Review

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IDENTIFYING INTERVENTIONS Hierarchy: government influence & impact

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.

Exte

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Long-term impact on poverty and exclusion

Full-time employment

Support for micro enterprise

Public employment programmes

Social grants

Free basic services and housing

Exte

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Long-term impact on poverty and exclusion

Full-time employment

Support for micro enterprise

Public employment programmes

Social grants

Free basic services and housing

Anti-poverty Strategy: The Presidency

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

Starting point: growth storyline

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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

IDENTIFYING INTERVENTIONS

► Super-cycle anchored in demand from global growth regions; opportunities

for PGM and fuel cell technology – creating possibilities for mature industrial

cluster

❸ Mining as catalyst for new industrialisation drive:

► Balance cost and opportunity: forward and backward linkages and job

opportunities depending on R&D, regulations, procurement and feed-in tariffs

❹ Opportunities in the Green Economy

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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 self-

employment 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 small-

scale agriculture renders land a critical cushion for poor rural

communities

Utility of developmental state model?

IDENTIFYING INTERVENTIONS

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

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Utility of developmental state model?

IDENTIFYING INTERVENTIONS

◙ 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

SOUTH AFRICA: SOME PROS BUT NEED TO ADDRESS CONS…

Also need urgent action on e.g. youth…

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► 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

IDENTIFYING INTERVENTIONS

Relationship: poverty and growth

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IDENTIFYING INTERVENTIONS

Beyond the assumed impact of growth on poverty, there

is in fact a bidirectional relationship…

Need pro-poor growth and pro-growth poverty reduction

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

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)

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SOCIAL CAPITAL Weakest among the poor

Using proxy indicators, social capital seems to be weakest

among the poor:

Race 1996 2009

African 46% 52%

Coloured 34% 41%

Indian 17% 12%

White 13% 15%

◙ 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:

◙ 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

Fractured families: A crisis for SA (SAIRR, 2011)

Macrosocial Report, The Presidency, 2005

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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

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SOCIAL CAPITAL Have we learnt from the crisis?

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

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)

CONCLUSION Poverty is a common challenge

A unique opportunity

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.

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

END

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