How to pay for an annual Advancement Grant

An Advancement Grant is a once in a lifetime grant intended for every South African citizen to advance their lives through whatever means the grant can purchase. For example, education, training, travel, investment, opening a business, helping to purchase a home. There are no restrictions on how it can be used. It is intended to be the equivalent of paying for a professional tertiary degree (four years of university). In the post There is no such thing as a free lunch Part ll, we postulated an Advancement Grant to satisfy the Fees must fall demands. We indicated that we would sharpen our pencils to determine costs and the means of payment. This is it.

If one assumes an Adult Population of 35 million and a working life of say 47 years (18 to 65) and for the sake of simplicity assume that each year there would be 1/47th of 35 million school leavers qualifying for an advancement grant, that would be 745 000 (say 750 000) school leavers each year. Assuming an advancement grant of R200 000 each that would be R149 Billion a year.

TEAL can fund this as follows.

If we assume a R2.8 Trillion GDP for 2017 that would equal a Total Economic Activity of 2.8 X 30 or R84 Trillion flowing through the banking system. Each Rand of that flow represents both a deposit and a withdrawal from the banking system so the actual Tealable amount would be R168 Trillion. R149 Billion as a percentage of R168 Trillion = 0.089% or about 0.09% (=151.2 Billion)

So, an annual TEAL of about 0.09% on R168 Trillion will pay for a R149 Billion Advancement Grant granted to 750000 school leavers (each school leaver receiving R200 000) each and every successive year.

What of the 34 250 000 who will not receive the Advancement Grant in year one of the scheme (The Left Behinds)?

If each of these ‘Left Behinds’ received R200 000 that would cost R6.825 Trillion. If that were paid out to them evenly over 20 years at an interest rate of say 6% pa, that would be about R10.920 Trillion or R546 Billion per year. Paid out to 34.25 Million each month over 240 months would be 10.92T/240months/ 34.25 Million// per month, or R1328.47 per month per person left behind. R546 Billion as a percentage of R168 Trillion is 0.325% .

So the annual Advancement Grant of R149 Billion and the annual Left Behind Grant of R546 Billion (in total R695 Billion) could be paid annually by a TEAL of 0.09% + 0.325% or 0.415%.

0.415% of R168 Trillion is R697.2 Billion

In Table Form:

Grant

R168 Trillion TEALable amount

TEAL

Total Grant Amount pa

Advancement

‘0.090 % of R168T

R151.2 Billion

R149.00 Billion

Left Behind

‘0.325 % of R168T

R546.0 Billion

R546.00 Billion

Annual Total

‘0.415 % of R168T

R697.2 Billion

R695.00 Billion

NB: This is an exercise. The GDP and the Tealable amount will vary from year to year as will the number of persons qualifying as may the payouts as also will the population, so these numbers are not to be taken as absolutes, merely an indication of what is possible.

Have a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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Endangered Capitalism

In the aftermath of Brexit, but perhaps not so much so for the election of Donald Trump as president of the USA, because he is more probably the archetypical capitalist than not, there is talk of the demise of unfettered capitalism. In an article How Britain fell out of love with the free market, sentiments such as what follows prevail:

The UK Conservative manifesto attacked aggressive asset-stripping” “perverse pricing” ,“exploitative” markets in energy, property, insurance and telecommunications and “the remuneration of some corporate leaders” while the Labour Party offered policies to include – nationalisation, restored trade union rights, restrictions on the City of London – which would undo much of British neo-liberalism. While John McDonnell, a possible contender for Britain’s Chancellor of the Exchequer, lists “generally fermenting the overthrow of capitalism” as an ambition of his, so it seems the possibility that politicians will be interfering in Britain’s and other economies is becoming ever stronger.

Nigel Vinson, who has been a leading player in Britain’s free-market think tanks lists “Wage stagnation, poor GDP growth, crony capitalism in the contracting-out of public services, endless gaming of the system by corporations, a general ennui about the prevailing economic system … ” as criticisms of capitalist practices, culminating in the 2008 crash, resulting from the “deregulation and hubris of the financial markets”.

If you have any doubts about the way capitalists rip value from ordinary people, for their, the capitalist’s own benefit, this article The Real Cost of Regeneration will soon dispel those doubts

The tale from the United States is much the same. In an article How Power Profits from Disaster, Naomi Klein, an outspoken critic of the capitalist excesses, draws a grim picture of these practices in the USA, from which many of the present political leaders of the US profited hugely, which says a lot of the relationship between government and capital in the USA.

In contrast there is the argument that capitalism and the free market system have immeasurably improved the general well-being of the world’s population, particularly during the past century or so, and in particular globalisation has led to the improved life conditions of millions of previously poverty stricken “peasants” in the under-developed countries of the world who have been drawn into the global economy as sources of cheap labour. These improvements are often rooted in exploitative practices of workers abused in sweat shops, for a pittance by western standards, and such-like. Consumers do not always condone these practices in their names, just for cheaper prices, which if only by association may render them complicit in neo-liberal slave labour, and boycotts of certain brands which use these practices break out sporadically throughout the world.

Another downside to globalisation are those left behind by movement of industries from their historic places of operation, to lands with cheaper labour and more exploitative labour practices.

All of this is happening as I write this in 2017. So we have a conflict of outcomes, massively improved life styles for some ironically brought about by abusive capitalist practices and massive losses for others, brought about by the same practices, The only people who seem to benefit consistently are the ruling elite and the big players in the capitalist system.

The point to all of this is that I do not see neo-liberal globalisation as practised currently as a sustainable option. Yes, the rich can continue to get richer and the poor poorer and this can carry on until something gives. Maybe the market place collapses because there are not enough affluent consumers to support it, or maybe the poor just get sick and tired of being poor (a la France (1789-99) and Russia (1917) and Germany (1930-1945)), and history has a way of repeating itself, and the world could slip into another cycle of autocratic despotism. And do we want that to happen? Do we really want democracy and capitalism to collapse to be replaced by autocratic rule? From chaos come autocrats to impose order and that is a distinct possibility.

Is there another way? Is there a way to save capitalism and democracy and to fend off their attackers, whether they are religious fundamentalist (a la radical Islam) or statist autocrats (a la Vladimir Putin)?

I would argue there is.

The only reason either of those or any other extremist versions of society are allowed to gain a foothold is that populations perceive unfairness by existing systems as being unacceptable and will welcome almost anything in their place which promises justice and order, thus allowing extremism to occupy a moral high-ground. “Liberalism has failed”, they will argue. “We (our religion, our autocracy, our order) will restore order and justice to society”, they will argue. And folk, sick and tired of being abused and marginalised will listen, in their misery and hope for something better, forgetting that what comes with the promise of autocratic justice and order is far worse than the limited and imperfect freedoms under a neo-liberal order

What if there were generally order and justice in society? Extremist appeal would be very much diminished. They would have to work harder to destabilise societies to the point where their intervention would be supported even by a disgruntled minority.

Let me explain what I understand by capitalism. Capitalism is the private ownership of wealth and the means of production and distribution of goods and services for profit. I believe that as far as possible, government and bureaucrats should be kept at arms length from capitalism, namely from private ownership of wealth and the means of production and distribution for profit. Can we risk losing that ownership by ceding it to others?  I don’t believe so.  .I believe however that rampant capitalism as practiced by the neo-liberals as evidenced by the examples given above, should not be beyond the scrutiny and censure of society and in particular, capitalists should be accessible to society. That is, there should be in place the means for ordinary people to protect themselves from the excesses of rampant capitalism. How you achieve this last goal is not exclusively part of this discussion.

So, could there be order and justice in a democratic and capitalist society?

I believe there can indeed be such order and justice, one born out of consent of the governed.

Typically, government is run by the political and oligarchic elite, often the same body of people or at least bodies closely associated with one another. There is little or no influence from the electorate except at four or five year intervals for election purposes, and even that is highly manipulated with the same oligarchs and elites controlling media controlling opinion and trends in a manner that is far from objective. We won’t even consider for the moment, the phenomena of false news or propaganda.

If instead there were a senate peopled by ordinary people, through which all legislation and regulation needed to pass for approval, I would argue that such political representation of ordinary people would change the political landscape. It is true that not all the political and oligarchical elite would approve of such a senate, but I believe it would be preferable to any of the revolutionary outcomes cited above.

Such a senate is proposed here for South Africa.

So how does this control the excesses of unbridled capitalism? It would allow the ordinary people of a society to exert their influence on regulation and legislation which may be intended to disempower them or defraud them. I believe that would be a very significant act of empowerment.

So capitalism can otherwise continue making the rich richer and the poor poorer?

One of the primary concerns about rampant capitalism is that tendency. It leaves the poor (the left behinds) poorer and feeling disempowered and helpless and strips wealth and dignity from them. This is a dangerous outcome that needs to be addressed and a very effective way of addressing it is with a Basic Income Grant. Apart from helping to fight poverty, having a basic income will empower people who otherwise may have nothing, not even hope and dignity, and aid others who may not be so impoverished but are borderline cases, with little or no income surplus to their needs.

To those who believe that one should only receive that which is earned, let me suggest that the world is full of capable people equipped and willing to earn but who cannot be employed because the formal labour market is oversupplied. This is not going to get better. This is going to get worse with the advent of automation, computerisation and the gig economy. So how are these people going to survive? A basic income grant will not only provide for basic needs but will give recipients opportunity to invest in themselves, in savings, in education, in training, in businesses and arts and crafts and so on. Whatever you can imagine would be stimulated and advanced by such a grant.

You can think of it like this; a basic income grant paid to your population would be a very effective way of stimulating both the demand and the supply side of any economy and those most in need will spend it on their needs instead of having nothing to spend, and nothing to contribute to the economy. So I believe a basic income grant is a win win solution for many social and economic needs.

A Basic Income Grant is proposed here for South Africa

There are other things one can do to engage your population in your economy. A Sovereign Wealth Fund is one such means, provided that it was owned by each individual of your population, in equal parts, rather than by your government. In turn the sovereign wealth fund invests in your and other’s economies, wherever an investment makes sense and profits are to be made by the fund, and therefore by its owners, your population. In most countries, such a fund would become a very significant part of your economy and give your population a sense that it is engaged in your economy, rather than being divorced from it.

Such a fund is proposed here for South Africa.

Capitalism, which has been so badly managed from a societal perspective as to make it an endangered system, needs to be reinvented to be better managed from a societal perspective, so as to no longer be endangered. What these moves do in effect, is to empower ordinary citizens politically and economically using the tools of capitalism and democracy to help eradicate poverty, and to raise democracy and capitalism to a moral high-ground that radicals of whatever persuasion will find difficult to match let alone challenge.

This post originally posted in John’s Bolg 

Have a look at DDF policy on the Basic Income Grant (BIGand DDF policy on the Total Economic Activity Levy (TEAL).

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There is No Such Thing as a Free Lunch. Part II

In my last post Is a Basic Income Grant Stealing from the Rich I referenced an article There is a problem with the way we define inequality.

This article made a number of interesting assertions about attitudes on inequality, the principle one to my mind being that we should stop obsessing with the rich and super rich and start obsessing with eliminating poverty, and also, importantly, the assertion that peoples’ attitudes were less angry about wealth and more angry about unfairness. As was stated the public perception of wealth inequality itself being aversive to most people is incorrect, and that instead, what people are truly concerned about is unfairness” and also that “People typically prefer fair inequality to unfair equality”, and, as we are beginning to see in South Africa, what really gets folk going is unfair inequality, a la the Zuptas state capture and wealth grabs.

So we all need the right to work harder and earn more and be wealthier than our neighbours, that is fair and acceptable. Just reward for just gainful employment is acceptable. But if you cheat in order to be wealthier, that is just not on.

This got me thinking about the Fees Must Fall movement and protests (see here) because it really is unfair that certain sectors of our society perhaps have little or no access to higher education. Let me be very clear, it is not the access of those who have access that is unfair, but the lack of access by those who don’t have access that is unfair. This is a major argument in the article There is a problem, the issue of unfairness.

A major conclusion of the article is that “the solution lies in addressing the fact that poverty and unfairness exist.”

This set me to thinking about the conflicting unfairness inherent in the fees must fall campaign; the unfairness of the poor being unable to access higher education just because they were poor, and the unfairness of the same poor, expecting those who do not benefit from higher education, to have to pay for the higher education of the same poor. Something simply does not add up.

You cannot fix a wrong inflicted on anyone or group by inflicting another wrong on another one or group. That is simply wrong and unfair and will be perceived as wrong and unfair and is probably why most people object to paying for the education of others who are seen to be unwilling to pay for their own education.

To reiterate, at the risk of being boring, “what people are truly concerned about is unfairness” and “People typically prefer fair inequality to unfair equality”.

So the problem is how to fix one wrong without creating another wrong?

The Direct Democracy Forum (DDF) believe that the Universal Basic Income Grant goes a long way to relieving poverty in a fair and equitable way, Thus all in society contribute to the system in an equally proportional manner and all benefit from the system equally. Is this fair and equitable? Some would say no and others, the DDF included, would argue that imperfect as it may be, it is fair and equitable, and is a lot better than what we have.

But, and here is the big BUT, could all higher education students afford to pay for their education (fees and accommodation) exclusively with a BIG? Of course, students can supplement their income by working full and part-time in internships or apprenticeships or articles, and there is nothing wrong about that, in fact many qualifications require it of you in order to qualify you as a professional fit to administer to (for example) your patients if you are a doctor or your clients if you are an accountant or lawyer. But what if a Basic Income Grant simply isn’t enough because fees and or accommodation have escalated out of all proportions.

Education throughout the world is becoming almost prohibitively expensive. Privatisation of funding is making it even more unaffordable and the level of debt that graduates are left with is making them wonder if education is even worth it, and some of the schemes are just there to make finance providers rich at the expense of society in general and the graduate population in particular. And yes, there are calls all over the world for fee free education, so South Africa is not alone. Indeed there are countries where tertiary education is free, but the much lauded fee free system of Germany is branded by some as being unsustainable. Others are saying the opposite, that fees are becoming, like the dinosaur, extinct, So everyone has a point of view and is looking for a solution.

Maybe then we need a different mechanism

The DDF believe that such a mechanism could exist which may be imperfect, but might none the less be better than what we have. But again there is the question of fairness..

But to address the issue of fairness, it would need to be a mechanism that benefits all equally, maybe a universal education grant. But what about those to whom a higher education is unsuited. How would they benefit from such a scheme? The short answer is that they would not benefit, and we would be back to a situation of unfairness.

Perhaps, as has been suggested about wealth and income inequalities taking our attention away from the real issue of poverty (see There is a problem), we are focussing on the wrong thing. Instead of just focussing on education for the poor we should instead be focussing on the bigger issue of how to better the lot of all. So what the DDF are now considering is the possibility of a once in a lifetime “Universal Advancement Grant”. I can hear the groans – “not another grant!” and “this is a slippery slope?” and “What a daft idea!” – I can just imagine the moans and groans and yes, you have a right to be sceptical. Indeed the DDF still rest on their assertion that there is no such thing as a free lunch so the means to pay for this needs to be found.

But consider this in the light of fees must fall and the issue of fairness; What if everyone had this once in a lifetime “Advancement Grant” and could use it to pay for their tertiary education or as a down-payment on a house or as a business investment or to travel abroad with, or indeed, just to fritter it away on trivia. What if?

And what if this could be substantially paid for by the savings made from shrinking the size and cost of government? What if?

Wouldn’t that solve the issue of fees must fall and fairness at the same time? It possibly would for this and future generations of beneficiaries, but those of us who have already missed that boat would not think of it as fair and to to pay such a grant to all the rest of the county’s citizens would probably be impossible, but could we compensate them somehow? Perhaps an enhanced BIG granted over time (say over 20 years) to compensate those who didn’t receive the advancement grant might work and be affordable?

So maybe a universal once In a lifetime “Advancement Grant” is not so daft an idea after all, and is worth considering.

The DDF have some pencil sharpening to do to figure out how to pay for it all. But that is part of the process.

Have a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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Is a Basic Income Grant stealing from the rich?

An interesting article from BBC Future (There is a problem with the way we look at inequality) looks at the wealth gap and some publications on the subject and concluded that there were actually three different elements that one should distinguish between in order to understand what needs to be done to rectify an obviously unjust situation. The issue, they say, is not the existence of a gap between rich and poor, but the existence of unfairness”.

So the trick is to understand what of the wealth gap is just and what of it is unjust. We would paraphrase the situation thus, we need to deliver justice without destroying that which is just and desirable, because, if we destroy that which is good in an attempt to destroy that which is bad, what is left for those of us who want the good? Perhaps only the bad. This is reflected in the law of unintended consequences.

English is full of pithy little sayings and a very pertinent one for this topic is; “don’t throw out the baby with the bathwater”. In other words, be careful of the baby (the economy). You don’t wish to destroy the economy.

A point highlighted in the article was that one study argued that the public perception of wealth inequality itself being aversive to most people is incorrect, and that instead, what people are truly concerned about is unfairness” and that “People typically prefer fair inequality to unfair equality”. Nicholas Bloom, an economics professor at Stanford University arguing against a world of absolute equality, observed “why would I work for 50 hours a week if everything I’m given is free?”. Indeed, why work at all if you receive the same as Joe Blogs who works 50 hours a week, when you get the same for not working at all?

The three ideas we need to grasp about equality are 1) People should have equal opportunity in society, regardless of their background, race, sexuality, gender and so on. 2) Fair distribution says that benefits or rewards should be distributed fairly based on merit. 3) Equality of outcome says that all in society should earn the same rewards irrespective of their input into society.

Most of us would agree with points 1 and 2 but many would disagree with point 3 (see Bloom (above)).

Many economist interviewed for the article agree that too much attention is paid to the fact that the 1%, and the super-rich exist. Instead, they argue, we need to concentrate more on helping those less fortunate, who via a lack of fairness, are unable to improve their situation.

Harry G Frankfurt, emeritus professor of philosophy at Princeton University argues in his book On Inequality that “the moral obligation should be on eliminating poverty, not achieving equality, and striving to make sure everyone has the means to lead a good life”.

Experts say the solution to poverty lies in addressing the fact that poverty and unfairness exist because addressing that should be the real moral obligation.

While we at the Direct Democracy Forum (DDF) agree with all of this, our approach is more pragmatic than moral. We suggest it is in fact in the interests of all of society, including the rich and the super rich, that poverty be eradicated, and that it is also in the interest of the market economy that poverty be eliminated. After all, the poor cannot afford to buy cars and washing machines and dishwashers and clothing and medical services and education and housing and recreation and food and travel and electricity and swimming pools and stereo sets and computers and video equipment and so on and so on and so on, while even the modestly affluent, the sort of lower middle class (financially speaking), can, over time, buy all these goods and services. By making the demand side of the economy stronger, we all, even the rich and the super rich, grow richer.

If we use a slightly different analogy, every farmer knows he has to sow the seeds of his prosperity by investing in his land and his livestock. Similarly every person who relies on the economy for his prosperity, both the rich and the poor, needs to sow the seeds of this prosperity by investing not only in the means of production, but also the means of consumption.

So we at the DDF argue that a Basic Income Grant (BIG), funded at first by the economy through the application of a BIG TEAL, will sow the seeds of that prosperity, and should not be viewed as stealing from the rich to give to the poor, but as an investment in the demand side of the economy, and if at the same time, a BIG makes the lives of countless of individuals better and makes ”sure everyone has the means to lead a good life”, to quote Harry G Frankfurt, so much the better.

In addition, it should be remembered that TEAL collects in equal proportion from everyone. While the rich may contribute more than the poor, that is only because the rich are more economically active than the poor. But they all contribute in equal proportions.

So, in answer to the question, is a BIG stealing from the rich, we would answer emphatically and resoundingly, NO! It is an investment in their own and everyone else’s prosperity.

For those who wonder how we could pay for a Basic Income Grant, see how to pay for a basic income grant and take a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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Mental Health Subsidy Crises? Dial BIG for Help!

Remember the Esidimeni crises when a mental health care facility was closed and patients transferred willy-nilly to other ill-equipped facilities. A health ombudsman report suggests that as many as 80 (others say more and still counting) patients may have died as a result of that fiasco and not just 36 as originally reported.

Could things get worse? Apparently they can.

The San Michele Home, a flagship facility for mental health care, faces being closed because the Gauteng Health Department is withdrawing the R3400.00 per patient per month subsidy, because, the department claims, the facility does not comply with the regulations for such an establishment. These regulations were recently changed and, it is claimed, are excessively stringent and, in any event, the home has not been given a reasonable opportunity to comply with the new regulations.

Forget the San Michele Home for a moment. It appears that as many as 160 (one hundred and sixty) mental care facilities face closure for the same reasons. San Michele Home has about 200 patients in its care, so let us assume that each of the 160 homes have on average100 patients in their care. That means that some 16 000 patients (or more) are at risk, something that reduces the Esidimeni crises to a level of insignificance that is truly frightening.

It seems that the Gauteng Health Department are trying to discard their subsidy obligations to the mentally ill community and, quite callously, do not care much about the risk of a few more deaths here and there.

One would have thought that they would have learned from the Esidimeni fiasco, but apparently not.

But the Direct Democracy Forum (DDF) are not here to berate the Gauteng Health Department for whatever their lapses may be, merely to observe that if a Basic Income Grant of R5000 per month for every adult South African were in place, all sixteen thousand or so patients would not be at risk, because they could provide for their own medical subsidy at the facility of their choice, and would not need to be subsidised by a reluctant province or even an unwilling national government.

For those who would ridicule the idea of a Basic Income Grant, see how to pay for a basic income grant and take a look at DDF policy on the Basic Income Grant (BIG) and DDF policy on the Total Economic Activity Levy (TEAL).

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Recession? Dial BIG for help

Recession? Car sales down? No problem. Dial BIG for help:

South Africa slipped into recession with two successive quarters of negative growth in the GDP and car sales shrinking 13% to 34 956 units, year on year to April 2017.

Imagine there is in place a Basic Income Grant (BIG) of R5000 per month given to every adult South Africa citizen (see here) in 2017, and 0.1% of that population, say 34 400 of them, decided that they would like to buy new cars in 2017 because with the R5000 BIG they could afford to buy a car and pay it off over say the next three years. That would almost double new car sales for 2017 and boost new car sales by maybe R6.2 Billion, or more, in 2017.

I wonder what effect that would have on the motor industry and on SA’s latest recession?

I wonder too, if the remaining R1.5 Trillion pa additional spend by BIG recipients in 2017 (see here) would have any effect on the rest of the economy? I would guess that yes, it would have an enormous and positive effect on the economy.

Bye bye recession. Hello prosperity!

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How to pay for a Basic Income Grant

How can one pay for a Basic Income Grant (BIG)?

The short answer is that a TEAL (a Total Economic Activity Levy) would pay for a BIG. Later, the role of TEAL as a source for a BIG may be taken over by a Sovereign Wealth Fund, in part or in full, depending on the success of the SWF project (see SWF)

Let us explain how:

First what should a basic income grant be set at?

In the UK people who typically use food banks earn less than £320.00 (at R17/£ = R5440) per month and in the US they are thinking of $10 000 pa or about $800 BIG per month (at R13:50/$ = R10 800) while Finland are talking about €800 BIG per month (at R15.50 = R12 400), so the Direct Democracy Forum’s (DDF’s) suggestion of R5 000 BIG per month is quite modest when compared to other countries’ needs and suggestions. But let’s stick with R5 000 per month as a starting point.

What would the monthly and annual BIG bill be at R5 000 per month?

Our best guestimate is that the adult South African population is about 34,4m. That would mean a monthly BIG bill of R5 000 X 34.4m equals R172 Billion or an annual BIG of 12 times that amount (no thirteenth cheque) or R2.064 Trillion.

That’s frightening. Where on earth do we get R2.1 Trillion Rand a year, an amount rising along with the population as we go on in time? That is almost the value of the current GDP (our estimate at R2.8T for 2017).

The DDF reasons as follows.

If there is a relationship of 30 times the GDP to the amount of money flowing through the banking system (a relationship we observed in an earlier TEAL exercise in 2011) , a GDP of R2.8T would equate to R84T passing through the banking system, per year, We call that the TEA or Total Economic Activity. But each Rand of TEA represents a deposit into one bank account and a withdrawal from another bank account (we call this the doubling factor). So the TEALable amount is the TEA doubled, or R84T doubled to R168T.

Suddenly, 2.1 Trillion Rand seems quite small. In fact a 1.2% levy on the Tealable amount of R168T would deliver R2.1 Trillion. Not cheap but also not that expensive when you consider that the R2.1 Trillion will go back into the economy and effect the money velocity and the GDP (more about that later) and generally increase the size of the pie that we are all eating from.

Is a BIG just a thinly disguised wealth redistribution?  Does it not steal from the rich to give to the poor?  

This is not the topic of this post but for those who are thinking along those lines and do not at first see beyond the wealth redistribution element (yes, there is such an element) then we suggest you consider the effect on the economy of boosting the potential spend of the population by a net R1.5 T a year (remember the social welfare grant offset).  That has to boost the demand side of the economy enormously and provide the suply side of the economy with numerous wealth making opportunities, not just for the existing industrial and commercial powerhouses but also for the small trader and industrialists (the SMEs that everyone says should be the backbone of our economic revival) and individuals at large. In addition the socio-economic benefits for the population as a whole probably make it worthwhile.  But this is discussed more fully here and elsewhere in DDF’s current affairs posts,

Are there dangers? Yes, there are:

Will a BIG effect inflation?

Yes, it probably will, but that would need to be countered by 1) easing into a R5 000 BIG over time (say over 5 years) to ease the inflationary pressures on the economy, and 2)  dropping existing social welfare benefits (for example old age pensions) as the BIG matches or betters them (you won’t receive both an old age pension and a BIG together) and 3) increasing the GDP, in short increasing the supply of goods and services to match the increased availability of the R2.1T of BIG money.

Will a BIG effect the money supply and won’t that in itself be inflationary?

The answer to that is probably not a simple yes or no. Yes a BIG of R2.1 will effect the availability of money but not to the extent of R2.1 T.  Remember the social welfare offsets and that TEAL does not create money.  The economy may become more liquid.  A BIG will probably make existing money more accessible, particularly for the poor, and make money circulate more quickly and more often and that could be inflationary (see above on counter measures).  The No side to that is that TEAL does not in itself create money, print money or borrow money.  So the money supply per se should not be effected by a TEAL funded BIG, and that in itself should restrain inflationary tendencies.

Will a BIG of R2.1 Trillion lift the GDP to R4.9 Trillion?

No, probably not: 1) the BIG will substitute for existing social welfare grants, so there will be an offset factor, and 2) any increased demand trend will probably be met by a trend to import more, not produce more (remember we are in a post industrial phase in South Africa and are more a nation of consumers than producers, and I squarely blame the ANC for that).

So how do we move the supply trend to produce more and import less?

This will need a concerted and coordinated effort of the private and public sectors to boost production, maybe even engaging in targeted programs of import substitution and production benefaction, particularly by engaging as many of the BIG recipients as possible to invest as much of their BIG in production capacity, either of their own or through the JSE by investing in corporations which can expand their capacity to compete for the expanding markets for their goods and services, and of course, investments by the Sovereign Wealth Fund in South Africa’s production capacity.

Would a DDF administration have an overarching socio-economic-industrial strategy?

Yes, there would have to be such a strategy. In short, all the damage that successive ANC governments have done and in particular the damage the most recent (2014-19) ANC government has done, would have to be reversed. This is a tall order but when South Africans can stop hating one-another and when even the poorest of the poor has a stake in the economy and has some security and hope for the future, we believe that a united and determined South Africa can do just that, and in fact must do it, because the alternative is an ever downward spiral toward abject misery for most of our population.

So that is how a Total Economic Activity Levy will pay for a Basic Income Grant.

Capisce?

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Unpacking State Capture:

The Public Affairs Research Institute (PARI) have produced a report which unpacks the Capture of the South African State by Zupta Inc in a very clear and dispassionate manner that makes sense of and expands on, Thuli Madonsela’s (our ex Public Protector) State of Capture report and details very succinctly the manner in which Denel, Eskom, Transnet, Prassa, to name a few SOEs (State Owned Enterprises) and Treasury were taken over by Gupta surrogates and then milked.

Page 42 of the PARI report Betrayal of The Promise details the modus operandi for milking an SOE. We paraphrase:

New minister (say for energy) changes the SOE board composition

SOE embarks on new capital expenditure projects

The new board support radical economic transformation or has close personal links to bidders

Tender is awarded in circumstances of clear conflict of interest.

This is a process that can take years to put in place and clearly is part of a systemic process of looting compliant state coffers and public and private purses (for example, how much do you pay versus how much should you pay, for electricity?).

To add insult to injury, the DA’s Natasha Mazzone suspects that Eskom engineered the rolling blackouts (remember them?) in order to create a panic filled and compliant market place to ensure that the coal deals of Eskom’s choice and terms and conditions were met, as part of the milking process. Well, the Direct Democracy Forum (DDF) pretty much suspected that was behind the rolling blackouts, and it wouldn’t be the first time that Big Power (here and elsewhere) manipulated the market place to their profit. Wherever there is a monopoly these behaviours are pretty much a given.

Then came the email exposé about the extent of the state capture and President Zuma’s planned retirement bolt-hole in Dubai, and further still, the role Bell Pottinger had, (also see here) a UK PR firm contracted by the Gupta’s to run a disinformation campaign aimed at the South African public, duping the nation and creating red herrings to detract from the looting that was happening in front of our very eyes.

It is all pretty sickening, particularly given the state of the economy, wide-spread poverty and the terrible need for social, economic and administrative justice in South Africa.

South Africa is not entirely alone in this sense. If you haven’t heard of Operation Car Wash, a Brazilian equivalent to Zupta-Gate, read all about it, it is very informative. There are lessons to be learned from Brazil’s experience.

There is not much you or I or the DDF can do at the moment but they say that truth is stranger than fiction and there are upcoming elections and, while the DDF having the necessary political clout to do anything substantial about this is unlikely, sometimes the unlikely happens against all odds. We also think that the members of Zupta Inc should contemplate the fact that many in South Africa will be looking forward to seeing justice done when a government of integrity takes power from the ANC.

So, our message to them is, “You can run but you cannot hide”.

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Molefe Eskom-Tegeta Scam

 

An analysis of the State Capture Timeline of the events from 1st November 2011, when Glencore et al purchased Optimum Coal Holdings (OCH) and Optimum Coal Mines (OCM) to 1st January 2017, when Brain Molefe resigned from Eskom in disgrace, shows four clearly distinct sub-sets.

These are the periods 1) 1st November 2011 to 1st March 2015 2) 1st April 2015 to 8th April 2016 3) from 11th April 2016 to 14th April 2016 and finally 4) from 23rd May 2016 to 5th September 2016.

The first period 01/11/2011 to 01/03/2015 is an approximate three year and four month period during which Glencore and partners purchased Optimum Coal Holdings and found that the pre-existing twenty year Coal Supply Agreement (CSA) with Eskom was a loss-making deal to the tune of some R100M per month, which needed to be re-negotiated. Around 1st March 2015, a draft addendum to the CSA agreeing to sell coal to Eskom at cost through to 2018, was said to be approved by the Eskom Tender and Procurement Committees.

The second period runs from 1st April 2015 when Brian Molefe joins Eskom Holdings SOC Ltd, through his stewardship until 11th April 2016, when the Loan Consortium approved the business plan which saw OCH and OCM sold to Tegeta (aka Oakbay/Guptas).

During this period Molefe, (who Eskom assures all of us had no influence over board decisions) appears to have intervened to:

  1. force OCH/OCM into Business Rescue by refusing to approve the addendum to the CSA (see above) needed by OCM who were losing up to R120M per month on the Hendrina CSA, as well as having Eskom impose a R2.1765 Billion penalty on OCM,

  2. quash any hopes of sales to bidders other than Tegeta, and there were a few alternative bidders (any sale required Eskom approval, probably in terms of the extant CSA) as no approval was given except for the Tegeta deal,  and

  3. to force upon the sellers the sale of Optimum Coal Holdings and all subsidiary business assets, including the Koornfontein Mine and the Optimum Coal Terminal Concession (very significantly), as well as Optimum Coal Mines, to Tegeta. (see above – any sale required & etc ….. )

Also during this period,

  1. on 4/03/2016, Tegeta obtained a certainty letter from the Bank of Baroda as cover for the purchase of all shares in OCH, viz the Tegeta share of R2.15B as agreed.

  2. on 30/03/2016, Eskom signed a release on the agreement for OCH and

  3. on 8/04/2016 the Loan Consortium approved the underlying business plan (assuring them they would be repaid the outstandings on the revolving loan granted Glencore et al in January of 2011).

On 11th December 2015 an agreement was struck for the sale of OCH (as above) for R2.55B, payable to the Loan Consortium, R2.15B by Tegeta and R400M by Glencore.

Everything sort of looked ok.

The third period ran from 11th April, 2017 to 14th April 2016:

  1. 11th April 2016 Tegeta defaulted on the sale agreement (they were short R600M) and tried to re-negotiate the deal with the Loan Consortium, which effort the Consortium rejected.

  2. 13th April 2016, Eskom prepays to Tegeta a R659.5M pre-payment on a CSA for Arnot power station, supplied by OCM, but paid to Tegeta at a premium of R1.20 / GJ, being a profit to Tegeta which should have been for account of OCM under management of the BRPs,

    1. At that time OCM was still owned by OCH and managed by the BRPs whose mandate only expired 31st August 2016.

  3. 14th April 2016 Tegeta and Glencore settle their full monetary obligations to the Loan Consortium

The 4th period ran from 23rd May 2016 to 5th September 2016: This period can only be described as raiding the honey pot:

  1. 23rd May 2016 Tegeta transfered R280M from the Koornfontein Rehabilitation Fund to the Bank of Baroda.

  2. 21st June 2016 transfered what is variously reported as R1.4612B or R1.4699B from Optimum Mine Rehabilitation Fund Trust to the Bank of Baroda.

    1. The interest on these funds at 7% pa would amount to R122.5M

  3. 5th September 2016 Oakbay/Tegeta/Guptas sold the Optimum Mines coal export allocation at Richards Bay Coal Terminal to Vitol, an international coal trading firm, for a cool US $250M (R3.68B). The allocation was acquired through the purchase of OCH by Tegeta, paid for on 14th April 2016, a 5 month profit of R1.5B, while still retaining all the remaining assets of OCH.

Then of course, only on 31st August 2016 do the BRP’s relinquish responsibility and obligations for OCM. Until that point the BRP’s were still managing OCM.

The final chapter of this saga was Brian Molefe resigning as CEO of Eskom, in disgrace, having had his fraternisation with the Gupta’s publically exposed.

How to summarise this.

From 1st November 2011 to 1st March 2015 business was amiable between OCM and Eskom with emphasis on securing the coal supply for Eskom to the benefit of both parties.

From 1st April 2015 when Brian Molefe joined Eskom to 8th April 2016, relationships soured and OCM was pushed to the wall by Eskom’s unwillingness to negotiate mutually beneficial business deals with OCM, penalising OCM to the tune of R2.1765 Billion and OCM were forced to sell to the buyers of Eskom’s choice (viz Gupta’s Tegeta) on terms and conditions of Eskom’s choice (the Gupta’s wanted the Coal Concessions at Richards Bay Harbour for a song).

From 11th April 2016 to 14th April 2016 Tegeta tried to re-negotiate the deal as they were short of R600M and having failed to renegotiate, Eskom bailed them out by pre-paying Tegeta R659.5M on a CSA contract that was not even Tegeta’s to have (they had yet to close the OCM/OCH deal).

From 23rd May 2016 to 5th September 2016, even before OCM management had shifted from the Business Rescue Practitioners, the Gupta’s plundered the assets of OCH, including transferring some R1.75 Billion of Rehabilitation Trust Funds into Tegeta business accounts at the Bank of Baroda and selling the Richards Bay Coal Export Concessions at a R1.5 Billion profit.

Was this shrewd business dealings or a monumental multi billion Rand scam involving hundreds of millions of Rands belonging to a state owned public enterprise?

We at the DDF believe Molefe was the Gupta’s inside man at Eskom, and the scam plan from the outset was to defraud Glencore, owners of OCM and OCH, of their assets, in particular the Richards Bay Coal Terminal Concessions, and to profit thereby, because when it looks like a duck and walks like a duck and talks like a duck, that’s what it ducking well is, a duck.  So when a deal looks like a scam, there is no alternative conclusion to arrive at than it’s a scam.

Brian Molefe: This is the same man whom having resigned from Eskom in disgrace for fraternising with the Guptas, was offered an ANC seat in parliament, then offered a R30 Million severance package by the Eskom board after only 18 months of service, and when that last piece of chicanery was overturned, re-established as Eskom’s CEO.

This is the land we live in.

South Africa.

A land of infinite opportunities if you know the right Gupta.

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The Failure of BEE

Siya Khumalo lamented HERE at how BEE had been used to benefit the few instead of the many. BEE (Black Economic Empowerment) is a policy of giving preference to those previously excluded from the economy by the Apartheid policies of the Nationalist Governments between 1948 and 1994. While it is true that few benefited from it while many did not, his plea that BEE should be made to work for the many set me to thinking that it was just one of many ANC policies that did not work for South Africa because the ANC simply did not and does not work for South Africa, but for itself.

This was my response to the article:

I am leader of Direct Democracy Forum (DDF), a registered SA political party (http://ddforum.co.za).

Maybe it is just the circles I mix in but I do not and have not, for many years, known any white or black South Africans who are unwilling to share what they have in terms of time, skills, expertise and knowledge, with their fellow South Africans, so I think Siya Khumalo’s analysis of our dilemma is a bit simplistic.

First, BEE has not and will not work because it interferes with our constitutionally guaranteed freedom of association.. The only sound economic policy for South Africa is a colour-blind policy that seeks to lift all out of poverty by engaging all, fully, in the South African economy, irrespective of their race, colour or creed. That will allow us all to share our time, skills, expertise and knowledge with our fellow South Africans, irrespective of our race, colour and creed. This would be a multi-directional engagement by and between us all based on the freedom to choose and the freedom of association guaranteed by our constitution. ANC policies, if anything, have stifled that freedom for too long and need to be discarded as soon as possible.

The problem is far more systemic than to bee or not to bee. It is more correctly viewed as the extent to which government should be and has been allowed to intrude into the private, commercial and industrial lives of its citizens.

Thuli Madonsela’s state capture report epitomises the extent of the abuse of that relationship by certain government agents and certain private citizens for the enormous profit of the few and the general expense of the many. In the opinion of the DDF this is criminal, and if not so, it should be.

DDF policies, are intended to address the many problems faced by our country and its citizens, on many levels and in many ways, and to provide our citizens the freedom to engage with one-another free of government restrictions and limitations.

It is our perception that most folk have enormous good will for one-another, and that if allowed to engage with one-another free of restraint, will do so for the betterment of themselves and of all, and, as they do that, South Africa will start healing from the scars of its history.

John Barrington.

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Junk Status still on the table

Looming credit downgrades are but one symptom of the economic turmoil wrought by political infighting in the ANC. In lock step are market performances which are very much on a downward trend and have been for the past 9 months or so, after a brief period of recovery early in the year. And we are nowhere near being out of trouble with possible junk status ratings in sight as soon as June 2017, unless there are some substantially positive changes in the management of the economy. (time is running out)

Nene-gate, Gordhan-gate, and political leadership hell bent on programs of self-gratification instead of listening to sound fiscal advice from the very people they appoint to watch the economy for them, are all contributing factors to the prospects of an impending junk status.

One wonders if it is the intent of the ANC to actually destroy the economy and whether they realise that in doing so they will also destroy the lives of the tens of millions of South Africans who rely on the economy for their daily bread, and what they, the ANC will do, once they have achieved their goal, how they will appease the poor and starving who have had the wealth of their nation and their communities and their homes smashed and littered at their feet.

The Direct Democracy Forum (DDF) recognise the interdependence of the nation-state and the economy and will use economic indicators as useful benchmarks for measuring their success in governance. DDF policies for Basic Income Grant and a Sovereign Wealth Fund will enable all South African Citizens to share in the fruits of the economy. The DDF believe that a wealthy nation will be a happy nation and gaining and sustaining that wealth for all in the country will be the primary goal of DDF economic policies, where the integrity and acumen of people such as Nene and Gordhan will be respected and supported and harnessed to attain those goals.

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