E-mail to the treasury – Covid 19 Demand Side Economic Response

Ladies and Gentlemen of the Treasury.

I head up a political party: Direct Democracy Forum Reg Number 936.

We have as cornerstone policies:

1) A Senate, drawn from the streets, 2) Tax Reform (Total Economic Activity Levy, Replaces all other taxes) (TEAL), 3) A Universal Basic Income (Including National Health Insurance Funding) (UBI), 4) An Advancement Grant (for tertiary education and other advancement activities) (AG), 5) A Sovereign Wealth Fund (SWF), 6) Banking and Monetary Reform

We suggest the last five items should be adopted to relieve the effects of the Covid 19 pandemic and any subsequent economic fall-out.

Assuming an adult population of 35 Million adult South Africans, a UBI of R5000 per month would deliver R175 Billion into the demand side of the economy, each month. Apart from the obvious economic stimulus this would bring to the economy it would also have the effect of empowering and uplifting every recipient in the economy, and to ‘challenge’ the supply side to claim their share of that stimulus through trade and industry. A UBI is intended to replace all other grants.

A UBI can be paid for by a 2%TEAL on all the money flowing through the banking system. You would not be printing money so much as re-purposing existing money. If you created or borrowed the money you might wish to recycle it using TEAL. A ½% TEAL could also fund the Fiscus.

You can ‘create’ the required money, if you wish (see below*). This is what the banks would do if you borrowed R175 Billion from them, at interest. They would create the money from nothing, as is their wont, then lend it to you at interest. If treasury themselves created the money from nothing instead of going to the banks, treasury would get the money and save the country and the taxpayers the interest.

The ANC are talking of a Sovereign Wealth Fund (SWF). If you stimulate the demand side of an economy without ensuring that the supply side keeps pace, you have a classic inflation/hyper-inflation situation. The SWF can be used to intervene in the supply side of the economy to help it maintain the required balance between demand and supply. This it does by investing in the supply side economy. This, however, would not be the SWF’s sole function. The SWF can be rapidly funded using TEAL and other mechanisms to become effective in this manner, inside of months, or even days (see below**).

Part of the supply side intervention would be for the SWF to own and run commercial, industrial and community banks alongside privately owned and run banks, thus influencing the financial services sector. We believe that the S A Reserve Bank (SARB) should be wholly owned by the SWF and operated for the benefit of the economy, regulating the money supply and interest rates to that end. Any money creation (see above *) would be under the auspices of such a SARB.

The rational for this is that a UBI is an intervention designed to fill the void left by the already existing 4th Industrial Revolution’s lack of formal sector employment opportunities. The Covid 19 pandemic seems just to have accelerated the onset of this dilemma. There is more to this (see below **).

** Further details are available at our web site, http://ddforum.co.za. If you wish to discuss any of this you may contact me on +27 76 060 1973 and or at

Thank you for your attention.

John Barrington.
Leader, DDF.
24/03/2020

The Third Economy

Jeremy Rifkin’s works, in particular ‘The End of Work’ and ‘The Zero Marginal Cost Society’ have had the world talking because they are a take on a very real problem, the decline of the (non-specialist) labour market which together with burgeoning population predicts huge proportions of the world’s populations facing unemployment and poverty while an ever diminishing proportion of specialists (the elite) are stunningly successful and affluent, all the time while capitalist productivity rises and demand falls. In short they are arguing that Capitalism will become the victim of its own success and end up producing large volumes of goods for which there are few markets and (presumably) capitalism will eventually implode.

Rifkin imagines that the employment slack will be taken up by the rise of a third economy (the first and second being the public sector and the private sector economies). This third being largely a social economy or a ‘social commons’, servicing diverse community needs through non-profit non government organisations powered largely by a low-paid, oft-times voluntary and probably relatively unskilled workforce. Rifkin imagines that the third economy will service the social needs of society which are not being met by a shrinking public sector economy, which is under constant budget constraints, nor being met by a disinterested private sector economy for which there is little profit in public service. Rifkin also envisages much shorter working weeks with more workers earning lower weekly wages, to try and help take up the employment slack.

Writing here in 1995, Lance A Compa, then of Cornell University, notes that in addition to the reduced working hours, Rifkin proposes a social wage funded by a value added tax (VAT) (in the USA) but excluding vat on basic necessities, along with defence spending budget cuts. Aronowitz and DiFazio in their book ‘The Jobless Future’ also propose reduced working hours but with more progressive income taxes instead of a VAT, along with a host of other measures, many of them in support of social welfare type expenditure along with infrastructure spends to help take up labour slack.

According to Compa, both books imply “a willing turn toward a shared genteel poverty”. However, Compa does not seem to share Rifkin’s nor Aronowitz and DiFazio’s sense of gloom regarding employment, and instead argues that history and the current experience suggests “that there is still plenty of work to be done and plenty of people wanting to work”. In short he is suggesting that while the mix of supply and demand for work is changing, it is not evaporating.

The Direct Democracy Forum (see DDF) have a slightly different take on these problems, agreeing in part with Rifkin et al’s perceptions, on the one hand, and in part with Compa’s contrary view, on the other.

We agree that three separate economies are emerging, the already existing public sector and formal private sector economies and a third economy that we would categorise as an informal private sector economy, an alternative to the formal sector economy of the Fortune 500 corporates and their ilk. We imagine this economy as being a merging of the formal and the commons economies of Rifkin’s imagining, but definitely not a second class economy of genteel poverty as Compa interpreted Rifkin et al to imply.

We do not believe a social wage will work as an adequate motivation for employment (as demonstrated by the failed Finnish so-called Basic Income Grant experiment), rather we see the need for a UBI or BIG (Universal Basic Income or Basic Income Grant) which, being universal and unconditional, goes to every adult citizen in an economy. We believe that an adequate UBI/BIG will to a large extent pay for the basic needs of most recipients. Those needs which cannot be met by a UBI/BIG we believe will motivate folk to trade with others in their communities and in this ‘third economy’, for mutual profit. Some may be content to seek low income service positions in NGOs and other service organisations but nothing will stop the more ambitious from exercising their entrepreneurial skills to rise above a mere survival level.

The DDF anticipate there could be significant movement between the formal and informal economies, of skills and labour and finance, as members of all three economies interact and move between the economies, as and when circumstances allow or dictate. So the DDF don’t see a rigid stratification where the ‘have-nots’ cannot or may not enter into the domains of the ‘haves’. Nor do we envisage the opposite.

Rather we see a more fluid society with movement between the different economies occurring more or less on a voluntary basis. Because whichever economy one occupies, the basic needs of everyone could be met from the UBI/BIG, there would be less importance attached to which economy one occupies at any point in time, and less stigma attached to not being a part of a formal economy if one is part of the informal third economy. That is not to say that one should lack ambition, just that it would not be a question of life or death, or survival or poverty, so much as to how one can move up (or down) in society, either within the economy one occupies or between economies, so as to improve one’s circumstances.

The question of how to pay for this UBI/BIG leads us to the topic of tax reform. A UBI/BIG in most economies would exceed the GDP. So, if one were to tax the GDP to pay for a UBI/BIG, that would be the same as having a higher tax than one earns, say a 120% tax on income. Clearly that would not work.

Before we look at an alternative to income tax, think of how iniquitous income tax is. What the tax authorities say, is, if you succeed, if you earn a wage or salary (you are one of the employed and therefore a success when compared to the unemployed), or if you trade at a profit (you are a success compared to those who trade at a loss), we will take from you, a part of that wage, salary or profit. Generally, the goal is to collect 30% or more of one’s income (or the GDP) in taxes. However, if you fail (do not earn an income or declare a real or concocted taxable loss,) you get off scot free, or tax free.

So what is the alternative? Both Rifkin and Aronowitz and DiFazio suggest that we add more and more complex taxes, when we should at least be trying to simplify taxes and make the collection process less complex and less expensive, even if we cannot actually reduce the taxes themselves. The DDF believe that is too complex and too costly and also believe they have a more effective and more economical alternative solution.

The DDF has a core policy to replace income tax and all other taxes, direct or indirect, with a Total Economic Activity Levy or TEAL. TEAL levies all the funds flowing through an economy’s banking system. In South Africa, where we have a good idea of what that amounts to, a ½% levy on all the transactions debited or credited to one’s bank account in all the bank accounts in the land, would collect about 30% of the GDP. This in effect reduces one’s tax payments from 30% or so of one’s income and profits, to 1% of one’s income or 1% of all of one’s trading activities (½% on all debits and ½% on all credits in your bank accounts). This presumes that you spend all that you earn. By comparison, banks in South Africa can charge more than ½% on all transactions for bank fees.

The DDF think TEAL is a far more equitable system than income and profits tax. Some of the advantages of TEAL are:

  • 1) All will pay the same low ½% TEAL.
  • 2) TEAL effectively works like a progressive tax, thus the more active you are in the economy the more TEAL you pay in absolute terms.
  • 3) TEAL is uncompromising and unconditional – all persons active in the economy’s banking system pay TEAL, so there are none who get away scot free (or tax free).
  • 4) TEAL broadens the tax base from the narrow GDP tax base to a much broader tax base, encompassing all economic activity in the economy. In South Africa this broader tax base is, on average, some 30 times the value of the GDP.
  • 5) TEAL can be thought of more as a rent that everyone pays rather than a tax that only some pay.
  • 6) The cost of collecting and administering TEAL is estimated to be some 10% of the costs of administering the conventional tax systems.
  • 7) The savings from implementing TEAL would more than pay for the costs of implementing and running a Senate, drawn from the streets rather than from a political party base, thus broadening and strengthening the reach of democracy at little or no extra cost.
  • 8) TEAL makes a UBI/BIG fiscally possible.

So how does TEAL make a UBI/BIG possible?

In South Africa’s economy, a 2.165% TEAL on all the economic activity, as measured by the flow of funds through the banking system, will pay for;

  • 1) the fiscus
  • 2) a moderately significant UBI/BIG
    • including funding for a National Health Insurance scheme,
  • 3) an Advancement Grant
    • to pay for Tertiary Education or any other advancement initiatives,
  • 4) help seed a Sovereign Wealth Fund.
  • 5) A UBI would effectively be an investment in the demand side of the economy, stimulating both the demand side and the supply side of the economy and both the formal and informal economies.

We believe the above makes TEAL an eminently more desirable alternative to income and profits taxes and makes a UBI/BIG and an informal third economy a viable and preferable alternative to genteel poverty in a social commons.

DDF : Overview

Direct Democracy Forum Overview:

PDF Overview

The Direct Democracy Forum (DDF) is a registered South African political party (IEC registration number 936). The DDF is a party of policies, not personalities.

The DDF believe in Capitalism (the private ownership of Capital, Property and the Means of Production and unrestricted access to the Market Place). The DDF believe in Democracy. But the DDF also believe that both systems need tweaking to benefit our society equitably. The DDF want both Capitalism and Democracy to succeed and to serve all in South Africa.

The DDF have six core policies which differentiates them from all other political parties. They are; 1) tax reform (TEAL or Total Economic Activity Levy), 2) Basic Income and Advancement Grants, 3) Sovereign Wealth Fund, 4) a People’s Senate and Municipal Forums 5) Electoral Reform and 6) Money and Banking Reform.

Central to DDF economic policies is the replacement of conventional taxes (30% or so of the GDP) with a single levy of 1/2% on the broader economy, to fund the fiscus. We call this Total Economic Activity Levy (TEAL). This is possible because there is a general relationship of 30 times (or more) of the value of the GDP flowing through the Banking System in any given year. Thus a R3 Trillion GDP will mean about 90 Trillion (or more) flows through the banks in that year. Each Rand is both a deposit and a payment which sums to R180 Trillion. 37% added for settlements within single banks pushes this to R246.6 Trillion.

OUT: 30% tax of the GDP of R3 Trillion (R0.9 Trillion).

IN:    1/2% TEAL on 246,6 Trillion (R1.233 Trillion).

This would effectively replace a 30% tax burden on profits and income (which penalises success) with a 1% TEAL on the economic activity (½% into + ½ % out of bank accounts) which is more like an economic rent than a tax. The 1% assumes you spend all that you earn. The banks collect TEAL from their clients and pay it to the revenue service, much like they do with VAT.

This same process can be used to fund a Basic Income Grant (BIG) (aka UBI or Universal Basic Income) of say R5000 per month for every adult South African Citizen, while a once in a lifetime Advancement Grant of about R200000 for each member of the same population can pay for tertiary education or other advancement expenditure. We see these grants as a joint investment in the demand side of the economy and in SA’s population, giving them opportunities and choices they would not otherwise have, which will also stimulate the supply side to pursue the increased demand. A BIG will also fund a National Health Insurance Scheme and help fund a Sovereign Wealth Fund in which every adult South African Citizen has an equal share (SWF). The BIG and the Fiscus can be funded from a 2.165% TEAL (see Teal the Big Picture ). The DDF expect the SWF will eventually fund the BIG from profits earned.

To help redress the problems of Democracy we propose a Senate, populated independently of party politics. This Senate has a rolling population (50% are replaced annually) drawn by a random process (called sortition) from a cross-section of a volunteer population, identified for example, by Age, Income, Education, Cultural Affiliation, Religion, Gender & etcetera, and arranged into peer groups. Thus far some 40 peer groups have been identified. At 10 senators per peer group this equals 400 senators. The legislative assembly and cabinet would legislate and regulate, and the Senate would approve or reject that legislation and regulation. This includes the possibility of a minority veto to block discriminatory legislation or regulation. The cost savings from replacing tax with TEAL will more than pay for the Senate. A similar structure and process is proposed on a smaller scale for Municipal Forums at local government levels.

In conjunction with the Senate proposal, the DDF envisage Electoral Reforms which 1) Elect Members of Parliament and Councils directly by Constituency, 2) allow voters to cast Votes of No Confidence at national and local elections to reflect in parliament and council votes cast against matters before these assemblies, and 3)  allow voters to Recall and Replace MPs and Councillors through recall votes and by-elections. 

These Senate and electoral reforms will give voters’ opinions more relevance on a daily basis in the country’s assemblies. 

Money and Banking reforms (M&B) are proposed so our society as  whole benefits from the efforts of the financial services sector.  This will probably include the SWF wholly owning the South African Reserve Bank and entering the financial services marketplace through part or full ownership of some commercial banks and institutions spread across the entire financial sector, so as to introduce elements of competition which do not presently exist in that sector, with the SARB controlling the upper limits for rates of interest and other (non interest) charges levied by players in the financial services sector, and, importantly, directly controlling the money supply available to the economy.   The SARB is key to these reforms and it’s remit will be to benefit, through its actions, all of the economy, rather than just a thin slice of the economy. 

We do not think these proposals are a total solution for all SA’s woes. There needs to be a framework of sound government policy and administration. In that sense, Cabinet and the Executive will be the executors of the will of parliament and SA’s population, as delivered through the exercise of direct democracy in the Electoral Processes, the Senate and Municipal Forums, but we think the proposals sketched above will contribute to a more prosperous and happy South Africa.

These are the core policies of the DDF.

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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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.

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Why DDF policies are relevant

 

Every idea has its time.

Some eminent persons have recently lent weight to the need for three of the four pillars of DDF policy.

Johann Rupert, Chairman of Richemont, recently observed that he backs governments introducing universal basic income for all citizens to cope with the economic upheaval sweeping the world and that the new economy necessitates giving people time to ”re-skill” themselves see here. The relevant DDF policy is for a Basic Income Grant.

Former South African Finance Minister Pravin Gordhan speaking at a University of Johannesburg function, (see here) observed that while there were benefits and winners from globalisation, there were also downsides and losers, creating an instability and unpredictability that has forced “sheer misery” on millions across the globe, who march barefooted from one country to another while at the same time becoming victims of xenophobia and other forms of attack. He adds that all future global policy frameworks should include how to solve this inequality. He gave as examples of losers and what happens when they realise they are losing out, as the outcome of elections in the US, France and Brexit.

He further points out that we have to recontextualise what a social safety net means. We have to put in place, as societies, as economies, new kinds of social safety nets which will ensure that people who are not just poor but who are able, willing, educated, trained, but can’t get a job, can still receive an income.

He also said that “if rich people and big companies are evading or aggressively avoiding tax, or live in multiple jurisdictions as a result of which they pay pay tax nowhere at the end of the day, where is the fiscal capacity going to come from into the future?”

Relevant DDF policies are the Basic Income Grant, Total Economic Activity Levy or TEAL, and Sovereign Wealth Fund .

Adding his weight to the need for change is Finance Minister Malusi Gigaba who quotes the definition of radical economic transformation (see here) as changing the structure, ownership and institutions of our economy to include all South Africans in opportunity and wealth creation, particularly marginalised groups such as black people, women and youth but offers no viable means of achieving these goals.

Relevant DDF policies are the Basic Income Grant, Total Economic Activity Levy or TEAL, and Sovereign Wealth Fund.

On a more esoteric level, Andy Becket examines a philosophy called Acceleration, born of the ever increasing pace of change in the world. In his article Accelerationism, how a fringe philosophy predicted the future we live in, he observes that “the world is changing at dizzying speed – but for some thinkers, not fast enough”. He asks the question, “Is accelerationism a dangerous idea or does it speak to our troubled times?”

Observing that much of the world has got faster, “that working patterns, political cycles, everyday technologies, communication habits and devices, the redevelopment of cities, the acquisition and disposal of possessions – all of these have accelerated”. The development of the philosophy has gone through stages from the weird to the pragmatic (see the article Accelerationism ) and recent advocates, Nick Srnicek and Mark Fisher founded a new political philosophy derived from Accelerationism: “left accelerationism”.

Srnicek and Fisher’s book “Inventing the Future” 2015, argues for an economy based as far as possible on automation, with the jobs, working hours and wages lost replaced by a universal basic income. Sounds like something out of Science Fiction movie, but if you can get your head past the radical economic transformation which that implies and which Gigaba ostensibly wants, it becomes not just imminently doable but entirely unavoidable.

Again, relevant DDF policies are the Basic Income Grant Total Economic Activity Levy or TEAL and Sovereign Wealth Fund.

These are not the only voices in the debate around a basic income grant. Pilot applications are happening all over the world, from as close to home as Namibia to as far away as Finland. While these schemes are cautious and mostly aimed at supporting the elderly and unemployed, the DDF believe that we should not have a bunch of bureaucrats issuing judgement on their citizens as to who is and is not deserving, but that the BIG should be a universal right applicable to all of a nation’s citizens, irrespective of their health, wealth and the stage of their lives.

The DDF believe that the Basic Income Grant and the Sovereign Wealth Fund in tandem, at first funded by TEAL, will address many of the economic needs of South Africa. If you think of a BIG as being an investment in the demand side of the economy and TEAL as being an affordable and equitable means of funding both the fiscus and a BIG, then what at first appears fanciful becomes viable.

How is this significant for the DDF? It lends weight to the credibility of DDF policies that so much of the rest of the world is engaged in examining the viability of policies similar to those of the DDF. The DDF are not alone. We are not just an isolated band of extreme economic and social theorists. We are pragmatists seeking a working solution to the problems outlined by Johann Rupert, Pravin Gordhan, Malusi Gigaba, Andy Becket, Nick Srnicek, Mark Fisher and many others throughout the world. DDF policies need to be given serious consideration by anyone who is even just a little concerned for the future of South Africa and indeed the world.

While many are saying that yes we need a basic income grant, while agreeing with them, we have determined the means of funding a universal basic income grant through the application of TEAL. That makes the DDF feel just a little special and gives the DDF a sense that its time is coming.

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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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Health Care:

Background:                                          PDF: Policy Statement Health Care

Goals: 

  • The purpose of Direct Democracy Forum (DDF) health care policies are to improve the health care delivery system through a process of incentivisation and privatisation.
  • It is anticipated that this will occur in stages and over time:

Stages:

  • 1) Incentivise public health care systems with bonus systems based on delivery and outcomes for health care units (HCUs).  A health care unit is any hospital or clinic or practice run or previously run by the state.
  • 2) Shift burden of salaries from the state to the HCUs based on delivery and outcomes.
    • This would probably be voluntary, that is state employees who wished to remain state employees rather than HCU employees could probably do so but would be unable to participate in the HCU profit share schemes and share ownership and etc. (see below).
  • 3) Offer profit sharing schemes for participating staff of HCUs also based on delivery and outcomes.
  • 4) Offer share ownership of HCUs for participating staff of HCUs,  in partnership with the state.
  • 5) Disinvest the state from health care delivery systems in favour of the private sector.

Payment for services:

  • The DDF will install a Basic Income Grant (BIG) system and recipients will receive as part of the BIG package, paid for membership of a national health insurance scheme (NHIS), much like existing private sector medical aid schemes except it would probably be run under the auspices of a Sovereign Wealth Fund.
  • Private sector medical aid scheme members will be able to use the HCU facilities as well as private health care facilities, as also will members of the NHIS have access to both sets of facilities.
  • Whichever scheme you are a member of will pick up the payments for services rendered in accordance with the rules of your scheme.
  • It would probably be possible to be a member of both the NHIS and private medical aid schemes.

How to fund the NHIS:

  • A deduction of around R600 per month per beneficiary from the UBI/BIG will in all likelihood adequately fund the NHIS (National Health Insurance Scheme) but could be adjusted up or down if needs be.
  • The arithmetic for that is as follows:
    • Assume a GDP of R3 Trillion.
    • The nation’s health spend is said to be 8.8% of the GDP = R3 Trillion X 8.8% = R264 Billion (includes public and private resourced health care).   
    • Assume a Citizenry of 35 Million each getting a UBI/BIG, from which is deducted R600 per month and paid over to the NHIS.
    • So contributions from the UBI = R600 X 35 Million per month X 12 (for a year)  = R252 Billion.
    • The point being that the R252 Billion contributions from the UBI/BIG are in the ballpark for the national health spend of R264 Billion. 
  • So a NHIS funded from a UBI/BIG is doable. 

Points to ponder:

  • Public health care workers would, in time, be paid based on services rendered rather than just for turning up for work.
  • The NHIS would probably be the single largest buyer of medical services and would just as probably have a sobering influence on medical costs and medical aid costs.
  • Health care patients would be free to use the service providers of their choice and service providers would, in theory, rise or fall based on the quality and quantity of the services they provide and their reputations in the health care market place.
  • It may be necessary to provide state run health care facilities for sectors of the health care market that cannot be run profitably by the private sector on its own.  Such state health care units may be run exclusively by the state or preferably, in partnership with private sector health care providers.

Conclusion:

The DDF  believe there should be an element of competition between medical facilities in order to stimulate the provision of improved services and improved patient experiences and outcomes.  Members of the public can attend the facility of their choice, the different institutions will be encouraged to compete with one another to provide better services and thus attract more patients and more revenue, from which the institutions and their staff will benefit.  

In short the DDF will be introducing rewards for good service delivery and consequences for poor service delivery.   The DDF believe this will benefit all sectors of the medical profession and their patients, who at the end of every day, are the most important players in a health care system. 

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The DDF or DIRECT DEMOCRACY FORUM  is a South African political party registered with the IEC (reference 936).     The DDF has six main agendas that will ensure VOTER RELEVANCE, FAIR TAX,  FAIR GOVERNMENT, SOCIAL JUSTICE  & COMMERCIAL PARTICIPATION in the economy for all South African Citizens and a FINANCIAL SERVICES SECTOR WHICH BENEFITS THE ENTIRE ECONOMY (See DDF in a NutshellHave Your Say,   FAQs, GOALS, Change.org Petition)  

They are:

  1. Create an UPPER HOUSE OF PARLIAMENT or SENATE, populated directly from the streets, bypassing Party Political processes & structures in a process called Sortition
  2. ELECTORAL REFORMS to give voters more relevance in the country’s assemblies.
  3. Adopt TEAL (Total Economic Activity Levy) as the only source of state revenue, replacing all other taxes and levies.
  4. Initiate a Basic Income Grant (BIG/UBI) and Advancement Grant (AGfor ALL ADULT SOUTH AFRICAN CITIZENS
  5. Create a Sovereign Wealth Fund to invest in SA and the world at large and in which every adult South African Citizen has an equal share (SWF)
  6. Reform the present Money and Banking system so as to benefit the entire economy. (M&B)

These six agendas will 1) restore politics to the people, 2) tax all participants in SA’s economy fairly and equitably,  3) invest in the demand side of the economy by engaging all adult South African citizens in the demand side economy, 4) ensure that every adult South African has a stake in the economy and  5) Ensure that S.A.’s economy as a whole benefits from the activities of the financial services sector. 

The direct effect this will have on poverty is less important than the effect on wealth creation opportunities for all sectors of the economy but particularly for those who will not previously have had such opportunities, both in  the formal and informal sectors, this coming from expanded economic activity.

(See  Have Your Say,  DDF in a Nutshell, FAQs, GOALS, Change.org Petition

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