The South African Civil Society Information Service

Employing the Poor: What Can South Africa Learn from India?

By Saliem Fakir · 17 Aug 2011

One can take a cynical view of the world. In the absence of a fundamental restructuring of the economy, all we end up doing is tinkering with the art of state philanthropy both on the side of social safety nets and as far as job creation goes.

If the market is unresponsive to job creation due to its interest in rent seeking, then our government will have to continue doing what it has been doing for the last 10 years: escalate the level of public sector employment. This is more than the private sector is willing to commit to.

The public sector in South Africa is witnessing the largest growth in jobs relative to other sectors. According to the Labour Force Survey for the first quarter of 2011, the state, at all three tiers of government, employs about 1.9 million people or 14.1% of the working population. This is up from 1.7 million in 2008 or 12.6% of the working population.  

As job growth is slow in other sectors, it appears that the state is, by default, becoming the employer of last resort.

So serious is the situation that the state has had to, as of this year, create a special jobs fund to incentivise the private sector to employ more people who are mainly young black job seekers.

Whether it will work remains to be seen.

If South Africa is to go in the direction of the state being the employer of last resort and extend this beyond the professional class, we should be mindful of the lessons being learnt in India at present.

India has similar challenges to South Africa. It is also a country where a minority cashes in on economic growth while the majority trails behind barely making it from one day to the next. India’s problems are structural. Ownership and economic power is one-sided.

Close to 300 million people are excluded from the benefits derived from the country’s booming economic growth. 

Structural problems such land ownership, inequality, the inability of the poor to gain access to credit, wage disparities and barriers to entry into the job market still persist.

India’s problems are also exacerbated by its history of religious conflict, ethnic, caste and class divisions that reinforce the structural patterns, which continue to plague the country’s ability to create an economy that includes its poor in a meaningful way.

India has faced high growth but a slow down in employment growth.  For instance, at average growth rates of 6.7% in India in the 1990s, the rate of growth of employment was only 2.7%. Moreover, this still doesn’t tell us whether employment creation was permanent or not.

This gap between economic growth and the number of jobs created is an ongoing challenge for both India and South Africa, as it perpetuates the “growth with no jobs” scenario. Or to put it more starkly: growth accompanied by the destruction of jobs.

Where South Africa has used various grants and public works programmes and Brazil the Bolsa Familia, India has crafted a macro-intervention that is not too far off, yet somewhat different.

India came up with what is called an employment guarantee scheme or the employer of last resort. An explicit admission, at least, that capitalist industrial economies are unable to ensure total inclusivity into the mainstream economy.

Full employment schemes have been worked out before. One of the early pioneers was the economist John Pierson. In the 1940s, Pierson designed the US government’s employment of last resort scheme. Thus, India’s scheme was tailored using an old idea, but within an emerging economy context.

In 2005, India enacted the Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA). The law guarantees 100 days of employment per year to a member of a household on a rural public works project. The scheme was initially targeted at 200 of India’s 600 districts, but was later expanded.

The cost to the Indian government was estimated to be about 1.3% of GDP. The wages set under the MGNREGA are according to the minimum wage standards of the country.

The main areas of target have been labour intensive work in environmental programmes like watershed management (similar to South Africa’s Working for Water programme), soil erosion prevention and similar initiatives.

India opted for the MGNREGA as it found that non-guaranteed public works wage schemes did not create a sustainable situation for individual or family oriented economic progress. Neither did it create greater inclusion into the mainstream economy. Its successes with regard to this were, at best, minimal.

Under India’s MGNREGA, the work secured on public works programmes is casual and manual. In rural areas, it is meant to fill a seasonal unemployment problem.

Work has to be provided within 15 days of a person requesting employment and it should be located within 5km of the distance from the project. If the work is beyond the 5km zone, the employee is given a travel and living allowance.

If no work is provided, the job seeker qualifies for an unemployment allowance, which is usually set at a third of the minimum wage.

The introduction of such a scheme has led to policy shifts in several areas. The first is creating the political demand for the right to work. Secondly, it forces state allocations to be made in the right place and with the correct audience because of legal obligation. Thirdly, the scheme allows some transition into the mainstream economy as those covered by it can borrow from banks or micro-finance institutions. Fourthly, the scheme expands household enterprises and builds assets. And finally, the right to work, in a sense, also forces more rapid deployment of funds and the building of infrastructure, which acts as a positive stimulus on the economy of rural areas.

This is the case because the state is in one way or another legally obligated to provide employment.

However, there are also challenges and problems that come with such macro-economic interventions, as India currently runs the largest programme in the world.

India’s employment guarantee scheme faces the same constraints as our proposed Basic Income Grant, which other centrally managed grant systems also face.

These programmes require good co-ordination and planning. Local demand from recipients has to be persistent and organized. And, local authorities have to be capable and properly governed.

Thirty years of prior experience in the State of Maharashtra has shown that while such schemes provide relief for the poor they have not led to fundamental shifts in the economy.

The level of poverty in the State of Maharashtra, compared to other states, remains persistent. Demand for unskilled wage work under the scheme has not subsided but rather increased, which further points to systemic problems within the economy.

The design of such a scheme has to answer two fundamental questions: Does it provide relief during difficult times or does it push people further behind the poverty line?

Given the complexities of implementing such a scheme without a fundamental restructuring of the economy, it is likely that such schemes will serve more as state welfare rather than a bridge into the mainstream economy.

Studies are not conclusive in India, but while employment guarantee schemes and other such systems should help build bridges into the mainstream economy, so far, they have not entirely achieved this. They have acted more as buttresses in times of economic uncertainty and also as structural reinforcements for high earners and the professional classes.

The key to successful transitions out of poverty depends considerably on the extent to which there is improvement in livelihoods, enhancing of existing capital assets and more fundamentally, the ability of the poor to successfully develop their human capital so as to facilitate participation in the mainstream economy.

One can tell a lot about whether a MGNREGA-like scheme will succeed by looking at what the poor are able to own in terms of land and other assets as well as the quality of educational and health services they have access to. In this respect, the MGNREGA and similar schemes are no silver bullet solution. 

Thus, in all this there is a crucial dilemma that cannot overlooked: this is the general problem of boxing poverty as a welfare issue, as well as the settling in of policy complacency and not doing enough to change the structure of the economy. If MGNREGA-like schemes are to succeed as transition tools, then economic restructuring must also happen simultaneously.

Should you wish to republish this SACSIS article, please attribute the author and cite The South African Civil Society Information Service as its source.

All of SACSIS' originally produced articles, videos, podcasts and transcripts are licensed under a Creative Commons license. For more information about our Copyright Policy, please click here.

To receive an email notification when a new SACSIS article is published, please click here.

For regular and timely updates of new SACSIS articles, you can also follow us on Twitter @SACSIS_News and/or become a SACSIS fan on Facebook.

Read more articles filed under Economic Justice.

You can find this page online at http://sacsis.org.za/site/article/729.1.