Tackling poverty

Although South Africa has made progress in reducing poverty since 1994, the trajectory of poverty reduction was reversed between 2011 and 2015, threatening to erode some of the gains made since 1994. Approximately 55.5 percent (30.3 million people) of the population is living in poverty at the national upper poverty line (~ZAR 992) while a total of 13.8 million people (25 percent) are experiencing food poverty.

Poverty, in some important ways, is similar to the pandemic, as are all major problems. To solve the problem we have to understand the basics thereof.

One problem that often sends problem-solvers off in the wrong direction is the assumption that if someone is poor then someone else is automatically to blame for it. The assumption is that the wealth of some is somehow taken from those without. But important facts are neglected.Poverty is the default state of humanity. As the saying goes: “We come into this world naked.” When people do nothing, or too little, poverty is their natural state.

It is wealth and prosperity that is unnatural. It takes work – and lots of it, for humans to reach a state where they are relatively well off. Crops require a combination of human labour and mind. Houses do not fall from the sky; nor do automobiles, televisions or water systems. Every material good people desire or need requires mixing human labour with natural resources in specific combinations as discovered and directed by the human mind.

These are facts, which are crucial if we want to understand the process by which poverty is defeated.

Understanding this helps explain why poverty and prosperity are unequally distributed. In simple terms wealth is unequally distributed because it is unequally produced. There are a number of reasons that is true and not all of them are caused by the have-nots failing to produce. One important lesson in economics is the political process often prevents wealth creation and hinders prosperity.

A second thing to understand is that wealth creation must, out of necessity, come before wealth distribution. You can’t distribute what doesn’t exist.

Politicians often seem to think wealth simply falls from the sky and no human producers are involved. The food they want to distribute is created by some people. The healthcare they want to give out is provided by some specific people. The tax monies they confiscate is taken from individuals who worked for it.

The problem with this is there are unintended and unavoidable consequences. The more you take from those producing, the lower their incentive to produce more. The greater the tax burden on those who are producing wealth, the lower the incentive to produce more in the future. The solution isn’t found in punishing those who are able to produce but to expand the freedom of those who aren’t able, so they can.At the same time government can take from those who produce and give to those who are well-off but inept. We see that in massive subsidies to various state-owned enterprises, with highly paid managers, that are losing billions. Whether it is Eskom or SAA it sucks in the productive labour of others and destroys wealth benefitting only a small number of the political class.

Often the enemy of wealth creation, and thus the friend of poverty, is an over-zealous government doing the absolute wrong things. A few months back Minister Stella Ndabeni-Abrahams promised a war on small businesses that were not formally registered with the government. She bragged she would “close businesses that are trading illegally.”

What would that accomplish? It would mean higher unemployment as small vendors and workers they may employ are made unemployed. It would increase poverty and destroy wealth. It does the exact opposite of the very things that must be done in order to create wealth on a widespread basis.

The World Bank noted that small and medium sized enterprises “account for the majority of businesses worldwide and are important contributors to job creation and global economic development.” Yet those were the very businesses the government wanted to close down. The solution isn’t closing business but one-step registration that is cheap – if not free – and easy. Instead of having enforcers looking for the unregistered have assistants helping them to register. Once again a government solution was the opposite of what needed to be done.

Sometimes the most productive thing government can do to foster wealth creation and greater prosperity is to stop doing the things that destroy them.