THE PUSHPIN PUNDIT

Africa Needs a BIG Experiment

(posted May 21, 2006)

            A wide coalition of groups in South Africa has been campaigning for a basic income grant (BIG).  Under the BIG proposal, the South African government would pay a small income supplement of perhaps $10 a month to every person (or every person above the age of six).

            Several years ago, it seemed that the campaign for a BIG might succeed in South Africa.  However, the campaign has stalled, with government officials declaring that the program is unaffordable.

            One way to look at the BIG campaign is as an attempt to build a stronger welfare state in the only country in Sub-Saharan Africa that can afford a welfare state – a campaign irrelevant to the rest of Africa and, as it happens, too ambitious even for South Africa.  But I see the BIG differently; I see it as a potential aid model.  Western donors should cooperate with the government of South Africa in financing a BIG experiment in several poor South African communities.  If the results are good, Western donors should help to establish a national program in South Africa and other African countries.

            Income-support programs in developing countries are often hailed by development experts.  South Africa itself, along with Namibia, has a noncontributory social pension system that reduces poverty not only among the elderly, but among the children and grandchildren of the elderly.  Several Latin American countries have school subsidy programs that pay parents to keep their kids in school.  Development experts are delirious with praise for these school subsidy programs. 

            Income-support programs in developing countries do more than provide for the immediate needs of the poor.  These programs also promote economic growth.  Stephen Devereux, probably the world’s leading expert on social protection in developing countries, writes that “the multiplier effects of injecting cash or food into poor communities has invariably been underestimated.”  Devereux, Social Protection for the Poor (2002), p. 14.  A 1997 World Bank report on the Brazil school subsidy program notes:  "[T]he scholarship program has indirectly impacted the economy of those cities where it is implemented- the sudden flow of resources into poor neighborhoods has created an immediate growth in demand for basic goods, benefiting the local economy."  Ayesha Vawda, Brazil: Stipends to Increase School Enrollment (1997).

            Most current aid programs, whether by governments or international charities, are immensely wasteful.  Aid-financed income support programs would be far more efficient in moving money from donors to the world’s poor.   

            A good current analogy to the aid-financed basic income grant can perhaps be found in the remittances sent by migrant workers back to poorer family members in their countries of origin.  These remittances represent an infusion of cash, from outside a poor country, paid directly to people in that country.  Everyone agrees that remittances are beneficial to the economies of poor countries.     

            While there is reason to be very hopeful about the effects of a BIG in South Africa, its likely effects are contested.  Will a BIG create even more unemployment among the poor, as predicted by its opponents, or will it instead increase the productivity of the poor by improving their nutrition and health?  To help answer such questions, we need a BIG experiment.

            In a previous post, I advocated an international food stamp program which, like the basic income grant, would be an income-support program.  The advantage of a food stamp program is that it would attract funding by appealing to farm interests in rich countries; it would harness the political power of rich-country farmers for the benefit of the world’s poor.  However, an aid-financed BIG would be easier to administer than a food stamp program.  Either program, in my opinion, would be a far better use of aid money than most current projects.

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