When the budget failed to put up social grants in line with inflation there was much negative comment but fairly quickly this was overtaken by the self-righteous demands of public service workers for a 7.9% increase. This in turn was quickly displaced by angry student demands for free higher education and then by renewed demands for a Basic Income Grant (BIG) which, in its original form, would “target 33 million people”, although targeting more than half the total population means not targeting anything.
An examination of these demands shines a garish light on the higgledy-piggledy nature of ANC decision making. Social grants began to take off in 2003-2004. Initially 6.8 million people received such grants, which included 2 million old age pensioners. This bold attempt to launch Africa’s only welfare state occurred in the midst of the commodity super-cycle which saw South Africa’s growth rate soar to 5%. The Mbeki government decided happily but very unwisely that this was to be the new normal. Thereafter spending soared so that today over 18 million people receive such grants.
In effect the government had given in to Cosatu’s demands which created a small labour aristocracy earning high wages and enjoying a high level of legally reinforced job security. This guaranteed that South Africa could not compete with its emerging market peers and thus ensured that a large and increasing proportion of the labour force would be unemployed.
The rational thing to do would have been to liberalise the labour market, allow wages to fall in the more competitive environment thus created and gradually claw one’s way back into export markets. But the ANC did the opposite: in effect it accepted that high unemployment was a permanent state of affairs and that all you could do was hand out public charity to the poor. So unemployment and inequality got steadily worse.
Public service workers had regularly got generous pay increases ever since 1994 but the situation got completely out of hand during the financial crisis of 2008-2009. Faced by a collapse of demand in the international economy the IMF encouraged governments to meet the crisis with Keynesian means. Typically, this meant borrowing heavily in order to launch a major infrastructure programme which would soak up a good deal of unemployment and usefully strengthen the economy ready for the recovery.
To the IMF’s utter horror the Zuma government borrowed big – and then gave most of the money away in a huge pay increase for public sector workers. That is, instead of helping the unemployed the government simply gave more to the most privileged section of those already in work.