Social preconditions for advancement towards a welfare state




Copyright © 2022 Inclusive Society Institute 50 Long Street Cape Town, 8000 South Africa 235-515 NPO All rights reserved. No part of this publication may be reproduced or transmitted in any form or by any means without the permission in writing from the Inclusive Society Institute DISCLAIMER Views expressed in this report do not necessarily represent the views of

the Inclusive Society Institute or those of their respective Board or Council

members.


All records and findings included in this report, originated from

a dialogue on the Meaning of Social Democracy in the Modern World,

which took place on 23 November 2021.


Author: Dr Klaus Kotzé

Editor: Daryl Swanepoel


Content


Executive Summary

  • Setting the scene

Key takeaways from the dialogue

  • National strategic vision

  • Fiscal conditions

  • Appropriate institutions

Opening remarks by the Inclusive Society Institute

  • Daryl Swanepoel, CEO, Inclusive Society Institute

Remarks by panellists

  • Lord Peter Hain, former UK Labour Cabinet Minister and anti-apartheid activist

  • Dr David Masondo MP, South African Deputy Minister of Finance and Principal of the Oliver Tambo School of Leadership, Shouth Africa

  • Dr Michael Dauderstädt, former Head of the International Policy Analysis Unit, Friedrich Ebert Stiftung

  • Prof Chris Mullard, former Professor of Education and Ethic Studies at the University of Amsterdam and Visiting Professor at the University of London and at the Royal Agricultural University. Co-founder of Focus Consultancy, UK

  • Mr Franz Knieps, member of the Board of the BKK Dachverband, Germany

  • Mr Johan Hassel, International Secretary of the Swedish Social Democratic Party

  • Dr Martyn Davies, Managing Director of Emerging Markets in Africa, Dean of the Deloitte Leadership Academy and Chief Economist at Deloitte

  • Hon Maria do Rosario MP, Workers Party, Chamber of Deputies, Brazil

  • Mr Mariano Schuster, Editor, Nueva Sociedad, Argentina


Executive Summary


Setting the scene


The Inclusive Society Institute (the Institute) recognises that progressive policies are required to advance the nations of the world, and in particular those of the developing world, towards greater equity and development. The Institute furthermore recognises that before any policy can have its desired effect, suitable conditions must be in place. Without the appropriate preconditions, even the best policy can only have a limited impact.


On the 22nd of March 2022, the Institute held the second in its series of dialogues on social democracy. While the first dialogue discussed the meaning of social democracy in the modern world, the second investigated which preconditions are required for a society to advance towards a welfare state. The aim of this dialogue was not only to contribute to the global discussion, but, more specifically, to provide guidance in the South African context.

The dialogue offered the panellists from seven countries the opportunity to showcase and expand on the development of the welfare state in their respective countries. The speakers representing both developing and developed countries at various stages of welfare implementation, were brought together to provide a broad understanding and, therefore, illustrate the modes and complexities involved in administering such a system.


Regardless of the form that it takes, a welfare state entails an extensive programme of action, requiring coordinated effort and vast amounts of money. It is therefore imperative that critical debates showcase the requirements as well as the possible effects which could ensue from implementing welfare measures. By drawing from various experiences and insights, the Institute hopes to demonstrate possible routes and scenarios that could inspire and direct South African policymakers in their thinking on social welfare. A welfare state cannot be wished into place; it needs to be built based on calculated decisions and on strategic and sustainable pathways. It is the Institute’s aim to learn from and work with others on an ongoing basis in order to assist policymakers in their critical decision-making process.


The participants in the discussion were:

  • Lord Peter Hain, former UK Labour Cabinet Minister and anti-apartheid activist

  • Ms Maria do Rosário, MP Workers’ Party, Chamber of Deputies, Brazil

  • Dr David Masondo MP, South African Deputy Minister of Finance and Principal of the Oliver Tambo School of Leadership, South Africa

  • Dr Michael Dauderstädt, former Head of the International Policy Analysis Unit, Friedrich Ebert Stiftung

  • Prof Chris Mullard, former Professor of Education and Ethnic Studies at the University of Amsterdam and Visiting Professor at the University of London and at the Royal Agricultural University. Co-founder of Focus Consultancy, UK

  • Mr Franz Knieps, member of the Board of the BKK Dachverband, Germany

  • Mr Mariana Schuster, Editor, Nueva Sociedad, Argentina

  • Dr Martin Davies, Managing Director of Emerging Markets in Africa, Dean of the Deloitte Leadership Academy and Chief Economist at Deloitte

  • Mr Johan Hassel, International Secretary of the Swedish Social Democratic Party

  • Mr Daryl Swanepoel, CEO of the Inclusive Society Institute

The moderator of the discussion was Mr Roelf Meyer, former Minister of Constitutional Development and currently, Director of the In Transformation Initiative.


Key takeaways from the dialogue


The unfolding dialogue revealed the scope of measures that should be kept in mind when establishing social welfare measures. The different voices from different countries provided a hugely beneficial perspective on the range of requirements and limitations facing the South African welfare state. A key lesson that emerged from the dialogue was that the implementation of a welfare state must foremostly be based upon a strategic balance between what is socially desirable and what is administratively and fiscally possible. All actions must first critically consider this strategic balance.


Broadly speaking, the implementation of a welfare state requires: 1) a national strategic vision, 2) fiscal conditions, and 3) appropriate institutions.


National strategic vision


Every nation requires a strategic vision that clarifies its identity and its goals. Such a vision, according to panellist Professor Chris Mullard, is based on the principles rooted in each state. It is imperative that the peoples and the government of each state have a clear understanding regarding what the principles are that bind it and drive it forward. Without a strategic vision, societies crumble. A firm argument for South Africa’s endurance since apartheid – contrary to its perverse inequality – is that post-apartheid South Africa has maintained a vision of transforming into a just and equal state. The principles articulated by the Constitution have bound both citizenry and government to a common set of democratic values.


A strategic vision must be pursued and accordingly adapted throughout changing national conditions. Social and economic justice are prerequisites that must drive policy formulation and implementation. It must guide national debates on fundamental issues such as the protracted land issue. Citizens have an active role to play in establishing and advancing the transformative state. As the path changes, the vision borne from principles must continue to pave the way.


According to Professor Mullard, though South Africa initially set an example in the articulation and pursuit of a strategic vision, it has, together with the rest of the world, lost its ability to draw up a strategic vision based on its own principles and values. Instead of focusing on the implicit and collective values that paved the way for democratisation, South Africa has instead adopted Western values.


While a nation’s vision must be based on its principles, it must strategically be balanced in order to respond to the situation on the ground. The vision and its implementation must align with the needs and lived reality of the citizenry. This means that one group should not benefit at the expense of another. While the conditions of the poor must be central, the richer population cannot feel that they are not receiving commensurate benefits for their higher input costs. Accordingly, people who work for longer periods should be afforded better pensions. The experience of Social Democrats in European states is that social welfare requires a constant adjustment to ensure that both rich and poor draw benefit.


Furthermore, the strategic vision for social welfare is a timeous process that requires constant adjustment. For transformation to be durable and thorough, social welfare must be set up in a sustainable way, where the wellbeing of citizens remains central.


National leadership is critical in the formulation and implementation of a strategic vision. It is the role of leadership to create the environment for trust to be built between different role players, particularly between the state and private enterprise. Cooperation allows for both private and public sectors to flourish. Countries such as Germany and Sweden showcase the advantages of cooperation. Though South Africa does not have the financial power of these states, it must build the belief, based on trust, that through cooperation benefit will be mutual.


Fiscal conditions


The second impression drawn from the dialogue is that fiscal conditions determine the extent and structure of social welfare. A strategic balance must be drawn between maximally supporting people, while always doing so within fiscal constraints. In his contribution, Deputy Minister David Masondo emphasised that while government is providing enormous support to the needy, it cannot do so beyond its fiscal means. Government has significant debt obligations. To provide more support than it can fiscally afford will not be strategic and will simply incur larger debts and, therefore, social pressures down the line. A growing economy is required to expand the social welfare system.


Economic growth will, amongst other things, ensure that more tax can be collected from a larger tax base. Currently, too few people are relied upon to pay income tax. An increase to welfare measures will demand even more from a group of taxpayers that already carry a large tax burden, often without seeing commensurate benefits. When the economy grows, the balance between what is just and what is prudent becomes an easier decision to make. According to panellist Martyn Davies of Deloitte, the answer to this equation is to create jobs. Davies stressed that South Africa’s biggest problem – and the basis for its inequality – is structural unemployment. Structural reform is required to improve fiscal conditions, which will, in turn, open up more space for programmes such as social welfare. The items addressed under structural reform include properly functioning services, a drive towards re-industrialisation, a move away from commodity reliance, and policy certainty.


Appropriate institutions


Policy certainty is the domain of government. While Deputy Minister Masondo committed government to structural reforms and sectoral master plans, he, amongst other panellists, stressed the role of institutions in setting up and administering social welfare. A successful welfare state requires appropriate and properly functioning institutions. This is central to the building and maintenance of a capable state. This was the message shared by various speakers.


Legislation must provide for the establishment of appropriate and capacitated institutions to distribute and redistribute public goods. When institutions – particularly financial institutions – are not regulated, they pose a direct risk to social conditions. Former anti-apartheid activist Lord Peter Hain suggested that institutions should be established to help people support themselves. One such example mentioned is a national investment bank that helps finance investment and infrastructure. This will be particularly attractive to investors such as pension funds and insurance companies. Institutions that are seen to empower people will re-establish trust in the social contract.


Appropriate institutions with a people-centred mandate will assist people to empower themselves. German panellist Franz Knieps pointed to a key lesson from Germany’s long history with social welfare. In Germany there is legislation that empowers workers to have direct and proportional representation in the functioning of industries and sectors they work in. People are both empowered and required to take up active self-administration – contributing to the everyday management and organisation of the sectors they are involved in. Ensuring that people are central to the environment in which they live and work, will build trust and responsibility. It will ensure that institutions and industries are people-centred and do not only seek profit. When social welfare is part of the institutional make-up, it will reduce the reliance on government handouts and will assist citizens to empower themselves.


Opening remarks by the Inclusive Society Institute


“It is therefore important to consider which socio-economic and socio-political conditions are needed to underpin the funding and sustainability of the welfare state”


Daryl Swanepoel, CEO of the Inclusive Society Institute


The first dialogue on social democracy stressed that no system is cast in stone. Though there are underlying values that remain – such as freedom, equality and solidarity – what does change over time is how values are interpreted and how best they should be pursued. There can be different answers to these questions, depending on context and grouping.


At the previous event, panellists agreed that extensive discussion is required on social democracy and its implementation. Following the event, in its subsequent report, the Institute identified five themes around which a series of workshops will be developed to delve deep into the issues that were identified. This series of workshops will commence shortly. The issues that were identified are as follows: social democracy requires a strategic definition; social democracy is about people; it requires an internationalist approach; it must advance a credible alternative to neo-liberalism; and, lastly, it requires the development of a persuasive narrative.


This second dialogue looks at the conditions required for a country to install and advance a welfare state. The objective of this discussion is to afford the panellists the opportunity to share the experience of their countries’ pathways towards the implementation of welfare programmes. To get an understanding of the participant countries’ economic, employment and fiscal structures. For example, how the introduction of welfare programmes benefits the vulnerable in society. Welfare measures may be quite feasible in countries where unemployment is low and there are large numbers of taxpayers paying high taxation rates.


In South Africa, where unemployment stands at 46% and the upper margin of personal tax is already at 45%, only around 1.58 million people out of a population of nearly 60 million pay income tax. Just under 25% of those who pay income tax, pay 80% of all the income tax that is collected. It is therefore important to consider which socio-economic and socio-political conditions are needed to underpin the funding and sustainability of the welfare state.


This is an important discussion within the South African context, where public policymakers have recently introduced a suite of legislation that supports the advancement of the country towards a welfare state. This includes legislative proposals aimed at introducing a national health insurance, a basic income grant and a national social security fund. These measures come on top of already approved and implemented social interventions, such as free housing, free schooling and tertiary education for the poor, free water and electricity for the poor, and school feeding schemes and child and other welfare grants.


What is of concern to many in the policy development fraternity is the long-term sustainability of those interventions. This question remains largely unanswered. This discussion aims to shape and direct policy in this regard.


The Institute wishes to reiterate the importance of these dialogues. Globally, Social Democrats need to formulate their message in a way that establishes clear blue water between themselves and those to the right. More than ever, the world cries out for social justice and greater equality. The Russia/Ukraine conflict proves that an internationalist approach is crucial. It is now needed more than ever. This approach must be based on a value system that places the development of the economy and the wellbeing of citizens at the centre. It is only if the economy is successful and growing, that governments are able to fund the programmes which are needed to truly deliver a just and equitable society. How to balance these two, is what this discussion is about today.


Remarks by panellists


“Unless social democracy provides an alternative to systemic neo-liberal failure, we will not recover the ground, either in Britain, in South Africa, or across the world”


Lord Peter Hain, former UK Labour Cabinet Minister and anti-apartheid activist



Putting aside the real danger of Vladimir Putin’s barbarous war in Ukraine spreading to the rest of Europe and beyond. Putting aside the immense problems of living with Covid-19 and recovering from lockdowns. Putting aside the seismic threat of climate change, the principle sustainable way to create a decent welfare state, is by building a strong economy. Generating faster, greener growth. And learning from Scandinavian countries in particular, who’ve been more successful in achieving these objectives than almost any other country. That, in turn, means abandoning the disastrous grip of neo-liberalism, since its advent around President Reagan and Prime Minister Thatcher in 1980. Its apocalypse should have been the 2007/2008 global banking crisis, which claimed, from allowing recklessly irresponsible bank lending, to become a law unto itself.


Untroubled by a flawed system of financial regulation, most governments across the world permitted market forces to lead financial institutions like lemmings, right over the edge. Today, the casino side of banking still poses a deadly threat to economic stability – with bankers facing the same temptation to take needless reckless risks in the belief that the taxpayer will step in to save them when things go wrong again. Free market systems are inherently unstable and financial markets are prone to periodic failure.


The banks may soon become too big to save. Former IMF Chief Economist Simon Johnson has summed up the situation, saying that “we’re nearing the end of our fiscal and monetary ability to bail out the system. We’re steadily becoming vulnerable to disaster on an epic scale”.


Social Democrats should be insisting upon stricter rules for all financial institutions, including the shadow banking sector of private equity outfits and hedge funds. Public interest must be paramount. Although neo-liberalism ought to be lying in pieces, fit only for the rubbish bin of history, it has nevertheless continued unabated. The Global Financial Crisis, which threatened to plunge the world economy into a second Great Depression, ought never to have happened, according to the efficient market hypothesis. Sudden shocks on the scale of the 2008 banking crisis, ought not to occur. And if they do, the system is supposed to correct itself quickly, with no need for significant state intervention. But the scale of the state rescue of the financial system is enormous. In the UK alone, 133 billion pounds sterling was measured out in cash outlays. The potential cost – including government guarantees of over one trillion pounds – surely shattered any myth that the financial system has self-stabilising properties.


Social Democrats must regain their economic self-assurance. They must start by recognising the success of Keynesian economics, post-World War II. The period 1945 to 1980 saw relatively high average growth – higher than the period under neo-liberalism, at least in the West. Spending was cut by £220 billion, in today’s figures. Eighty-two percent of these cuts were to public spending. Tax cuts continue to be promised by the neo-liberal UK Chancellor. Instead, he should be adopting a big fiscal stimulus, to reverse the current slowdown and get the economy growing.


Despite IMF research showing that, “instead of delivering growth, some neo-liberal policies have increased inequality, in turn, jeopardising durable expansion. There remains a constant cover for neo-liberal austerity across the world”.


Looking further ahead, longer life expectancy and increasing demand for what the American management writer Peter Drucker termed knowledge workers, means an expanding role for the welfare state. In education, pensions, and health services – especially elderly care. Neo-liberal attempts to shrink the role of the state are taking society in entirely the wrong direction. Social Democrats must stop acquiescing in such mistaken strategies. They must renew the case of a balance between private market enterprise, private enterprise, and market economy and public provision.


Jacob Hacker and Paul Pearson in their 2016 study of the part played by government in helping societies flourish, said, “the mixed economy remains a spectacular achievement. By combining the power of markets with a strong dose of public authority, we achieved unprecedented prosperity”. Everyone outside the financial system now realises that the light touch regulation of the banks was a big blunder. Insiders, like former Governor of the Bank of England, Lord King and ex IMF boss, Christine Lagarde, warn that another financial crisis cannot be ruled out.


Breaking up the big banks to separate retail banking from investment banking, with taxpayers guaranteeing only the socially essential parts – like payment systems and customers deposits – and not the risky casino side, is essential to prevent another financial collapse. And growing inequality must be reversed by social democratic policies. If this is not done, countries like South Africa will experience increased social unrest.


Research in 2015 showed that there had been no rise in the real wages of working and lower middle-class Americans since the late 1970s. Indeed, the level was lower than in the late 1960s and early 1970s. No wonder then, that in 2016, Donald Trump’s ugly populism found a ready response, also amongst key former Democrat-voting white working-class Americans. As middle and lower America lost out, inequality widened hugely. Certain public services were cut, and social and political unrest increased.


Adair Turner, former Chair of Britain’s Financial Services Authority, confirms that much financial activity is socially useless. In his 2015 book, Between Debt and the Devil, he argues that the vast majority of bank lending in advanced economies does not support new business investments. Instead, funds increased consumption, or the purchase of already existing assets, in particular real estate, and the urban land on which it sits. Achieving faster growth in the medium- and longer-term means adopting an active industrial strategy.


In her book, The Entrepreneurial State, Mariana Mazzucato has cited dozens of examples from America, South Korea and Taiwan, where the state has been the source of innovation, prompting technological advance in areas like aviation, the internet, biotechnology and green technology.


A National Investment Bank could also help to finance investment in infrastructure, including accelerating investment in housing and in low-carbon innovation, by attracting funding from pension funds and insurance companies – because the latter need to acquire long-term assets to match their long-term liabilities.


An initiative like this would fit with what radical thinkers like Noah Smith call New Industrialism, an approach to economic policy that respects the power of the private sector but isn’t afraid of an activist government. Unless social democracy provides an alternative to systemic neo-liberal failure, we will not recover the ground, either in Britain, in South Africa, or across the world.


Remember that after World War II, UK national debt as a share of GDP was more than double what it is now. Yet, Britain, following the war, created a welfare state and achieved higher economic growth and prosperity to fund it than has been possible since. The choice for South Africa and elsewhere is not between a high performing economy and high public spending, but rather, both can be unlocked through a balanced, activist approach.


“The role of the welfare state is to ensure that people don’t have to depend on the market for their survival”


Dr David Masondo MP, South African Deputy Minister of Finance and Principal of the Oliver Tambo School of Leadership, South Africa


The role of the welfare state is to ensure that people don’t have to depend on the market to survive. While they do need to participate in the market, their incomes should not determine whether they can participate.


The question as to how South Africa has built a welfare state is an important one, ranging from the old-age pension to the disability grant and childcare support grant. Our unemployment rate, as Daryl mentioned, is close to 40%, which is around 11 million people. Since the arrival of Covid-19, government has been granting the poorest in South Africa US$23 per month as a way of providing them with some income, to allow them to participate in the market. In total, almost 28 million people in South Africa receive direct transfers from government. That is almost half of the population. And that excludes those who receive free education, housing, and other free items that are awarded in terms of means testing.


Within this context, only seven million people in South Africa pay personal income tax. In terms of US dollars, that’s 400 billion – almost the same size as Denmark’s economy of US$356 billion, with a small population of almost six million. In South Africa, it is not that there is no will to spend, to increase the public expenditure, but rather, that there are very real fiscal constraints. South Africa has a public debt of R4 trillion – that is a lot of money that is owed to lenders.


On the tax side, the economy has not been growing since the global economic crisis. For this year, 2022, it is projected that the economy is going to grow by 2.1% against the National Development Plan target of 5%. South Africa’s revenue is clearly limited and constrained.


Addressing the problem raised by Peter Hain, it is not that South Africa has not been spending. In fact, the expenditure has been growing, but unfortunately, it has been growing targeting unproductive expenditure: bailing out state-owned entities. Since 2019 we have spent almost R293 billion on these entities, which is almost US$19 billion. And that has had an impact on other expenditure items in government.


We are working very hard to reorganise our state-owned entities, to make sure that they don’t continue to be a fiscal burden on our finances. We agree that it’s important to grow the economy.


One of the constraints for the growth of our economy, since the global economic crisis, has been on the supply side – the supply of electricity, energy, telecommunication, water and skills. In order to address these constraints, the government has embarked on a programme called Operation Vulindlela, which is aimed at providing reliable electricity, water and telecommunications.


There are people who criticise government, saying that it is not focussing on the demand side of the economy. But this is not correct. One only needs to look at the huge amount of money that is paid to provide for the poor. Besides, one cannot realise demand, if one doesn’t deal with the supply side of the economic constraints. There could be demand globally, for many goods and services, yet these items need to be transported to global markets.


Demand has recently improved thanks to the commodity boom. This, however, has been cyclical growth that cannot be depended upon. And it’s for this reason that it is important to have structural change, towards sustainable growth. Government is embarking on industrial policies towards reversing the de-industrialisation that has occurred since 1994. There are different master plans that have been put in place, to boost manufacturing capacity. These plans also take into account the climate, the environment, and re-industrialisation through the green economy.


“The central challenge the welfare state faces is the inequality in the country”


Dr Michael Dauderstädt, former Head of the International Policy Analysis Unit, Friedrich Ebert Stiftung

South Africa should consider the experiences of other countries, such as Germany, in its discussions on a social welfare state. The history, institutional structure and financing of the German welfare state offers interesting lessons for South Africa. Created in the 19th century, under the Chancellor von Bismarck, the German welfare state is one of the oldest such structures in the world. It provides insurance for old age, sickness and accidents at work, and is financed through contributions from workers and employers. This structure has remained the same throughout the years, being a wage-based insurance-type welfare state at its core. But lately, major reforms have been brought about, including care insurance, reflecting an increasing number of old people needing care.


The German welfare state has a progressive tax system, which means that people with higher earnings pay more. Germany has also more or less abolished the wealth tax it had until the 90s, where poor people do not pay any income tax at all. The whole system is now basically orientated towards protection of status, rather than redistribution from the rich to the poor. This means that if you are earning well during your working life, you will get a higher pension. Similarly, if you become unemployed, you will receive benefits at the level you were employed.


Overall, the German welfare state has worked relatively well, reducing the inequality between the market distributions of income. The inequality of disposable income is much lower in Germany, than the market income inequality. The German system, therefore, provides a type of insurance against poverty and old age. There is de facto a minimum income for poor people. If someone is unemployed for a very long period, they receive – what the Americans call in the narrow sense – a welfare benefit. It’s the same if a person receives a pension which is too low, they will receive an additional topping up to have a minimum level of income.


The German state, as a whole, spends about €1 500 billion, which is about 50% of German GDP. This goes towards all the different services, including education, health and social protection. Viewed over the long term, since German unification in 1991, it becomes clear that in absolute terms there has been a continuous increase. From this funding, the lion’s share goes to old age, family and disability. Unemployment is a relatively small share, due to German unemployment, fortunately, being relatively low over the last decade or so.


As mentioned, the welfare state is financed by taxes and contributions from workers and employers. Almost 35% of the fund comes from gross wages. The Social Insurance Fund only takes a percentage of wages up to a certain income threshold, which is about €5 000-€6 000 per month. Mothers, for instance, get an additional pension for each child. There are also some other special features which are not reflected in the contributions, and therefore the state contributes tax money to the pension system.


The central challenge the welfare state in South Africa faces is the inequality in the country, which in Germany is comparatively very low. But still, it’s substantial, and increased in the late 1990s and early 2000s. Although it has been relatively stable of late, Germany still has a significant number of poor people, with a poverty rate of between 15-20%. As a result of the Covid-19 pandemic, there has been an increase in unemployment and poverty.


Germany is a society which is aging fast. While life expectancy is increasing, birth rates are more or less declining, or at least staying at a low level. In earlier times, 100 contributors to the social insurance system had to take care of about 50 pensioners. This will increase to 66 in the next ten years or so. And about 30 years ago, there were only 10 pensioners to be supported by 100 contributors. This is a major problem. So too, is the burden that migration and refugees are placing on the welfare system.


“When looking at its vision, South Africa sets an example … The realisation of its vision, together with the realisation of the constitution itself are not static entities. They change and must be modernised”


Prof Chris Mullard, former Professor of Education and Ethnic Studies at the University of Amsterdam and Visiting Professor at the University of London and at the Royal Agricultural University. Co-founder of Focus Consultancy, UK


This contribution will take a critical look at which socio-economic and socio-political conditions are needed in a country to underpin the funding and sustainability of a welfare state. To these ends, there are four prerequisites that need to be addressed urgently if transformative change is to occur.


First is the reassertion of an organic home-grown conceptualisation of a national vision. The world as a whole, not just South Africa and Africa, has lost its ability to conceptualise and pursue a vision. Second is the economic and material realisation of this vision. Third is the creation of a transformative and entrepreneurial state. And lastly, is the reinvigoration of collectively legitimated and community anchored leadership.


When looking at its vision, South Africa sets an example. Its articulation of the rainbow nation was bound by a set of constitutional and democratic values. This realisation of its vision, together with the realisation of the Constitution itself are not static entities, rather, they change and must be modernised. Many politicians are saying much the same thing; therefore, these are not simply theoretical points. As societies change, constitutions and laws too must change, and must be articulated and reinforced in legislation. Judges must act on important matters, such as the question regarding land. Herein, all citizens play an equal part in the making of a society – a notion of collective action and responsibility that is the vision of President Ramaphosa. Vision, as can be seen here, is not a static set of principles or static set of values, but rather, an ongoing building set of ideas that are organically rooted.


The second aspect is the economic and material challenge regarding inequality. Policy cannot simply be talk, it must be accompanied by actions that are orientated towards real change. The comment by Deputy Minister Masondo on the need to create a manufacturing base is an important one, as South Africa and other African societies have been losing theirs. Here, both neo-colonialism and the flight of capital have played a central role. These and other related issues need to be addressed in a more systematic way. For example, it is important to look at how wealth is being distributed within a society, to look at the bureaucracies that are stifling growth.


It is important to assess the institutional representation that citizens really occupy and influence. What does true representation mean? It means the remodelling of the state to reflect citizens’ boundaries. Not the boundaries of the middle class or of the elite – black or white – but the values of the citizens, ordinary citizens. And their demands for employment, housing, education, opportunities, infrastructural improvements, and so on.


Societies have shifted away from the values of citizens, the values of the communities, the values that informed the change to democratisation. In their place, Western values have been adopted. This is clear from the behaviour of leaders and administrators.


Furthermore, the rights of citizens must be central in the transformative state: it is the citizen that counts, not the elite. It’s not just about parliament and the judiciary and so on, the state must be central to citizens’ lived reality. And not just at the national level, but also at the provincial, metropolitan and community levels. It calls for a reinvigoration, if you like, and a kind of dictatorship of the community. The collective awareness and the acceptance of vision and objectives is absolutely necessary, and in fact, community and social action is derived from this collective awareness. This is not a debate that must be held in Cape Town, or Westminster or Stockholm, for that matter, it must occur organically within the community. This remodelling would ultimately allow for collective government.


Leadership, as the last point, is a precondition for change. Wartime cooperation is needed, as the world is now in a struggle for social freedom. Objective-driven leadership is needed for an economically inclusive society, which is currently lacking in the world. Leadership must be decisive, time-bound and monitored. And if necessary, punitive, even retributive on current and past corruption, on tax evasion, avoidance and non-compliance, and so forth. All these things must be part of that package called modern and entrepreneurial state leadership. Some might call this a form of benevolent dictatorship, but I would prefer to term it a collectively driven transformative leadership. For this leadership to flourish, it is necessary to come together and reengage with the very values, beliefs and ideas that created the original democracy here in South Africa.


These four aspects are imperatives. Unless these are grasped as the real fundamentals, the state will remain unable to grow, leading to a situation where its people and communities are unable to grow. Where there is, in fact, only progressive freedom, which is not freedom at all, but a control of the people. People must be allowed to prosper in the interest of communities.


“A welfare state, as can be seen from Germany’s long experience, needs time to organise”


Mr Franz Knieps, member of the Board of the BKK Dachverband, Germany


A successful welfare state requires appropriate and well-functioning institutions to deliver on constructive change. Such a system is not put together overnight, as can be seen from Germany’s long experience, it needs time to organise. The nucleus of such a system is social solidarity, which for Germany first started with the miners in the 12th century. The mining fund is now more than 750 years old; its long history holding many lessons on how to propel and adapt social security.


Employers and administrators must work strategically. One needs both sides to form the Bismarck-type social insurance system. Bismarck did not simply want to improve social security, instead, he tried to defeat the unions and Social Democrats. Yet, in fact, his legislation was the most important contribution to involve workers. Their representation in legislation and administration was critical – not at the top level in parliament, but at the second level, in a system of self-administration.


In recent years, social security has been a precondition for change. Not only for changing the consciousness of people, but also for changing working conditions and other things, towards growth. Without a system of social solidarity, there would not be the acceptance and willingness from the population.


Of late, there has been a rapid change in the ideology regarding the system of social security. Up until the early years in our century, costs for social security were seen in a negative light. But now there’s a fundamental change, as costs are handled in the light of investment in health, comfortable aging, and so on.


In Germany, the welfare state is fixed, but there are still debates about how it should be organised to ensure financial stability and sustainability. These debates are good; they guide the administration and institutions dealing with insurances and welfare to ensure that the best and most balanced scenario prevails. The most important questions revolve around how tax money is allocated to the pension funds and to the health insurance and long-term care insurance funds.


The second big topic relates to how the state integrates care, especially long-term and chronic care. Germany is the world champion of acute care, but it’s a developing country when it comes to chronic care for the elderly and for people with disabilities. The new government is committed to modernising the structures in primary care centres, reducing the number of small hospitals and fostering digital transformation.


In Germany, highly paid professionals have their own social security and pension systems, with many privileges. While Germany is a rich country, it still has inequalities and barriers to access. The government is always working to reduce these privileges, thereby ensuring greater equality. It may be a wealthy country that is able to afford an extensive welfare programme, however, it is Germany’s history and critical, discursive practice around social welfare that allows it to strategically address inequalities on an ongoing basis.


“Social Democrats believe in the state. When people don’t trust the state, they don’t pay taxes and parallel societies develop. This leads to people turning to alternatives such as far right and populist movements”


Mr Johan Hassel, International Secretary of the Swedish Social Democratic Party

Three tasks need to be advanced in order to develop an inclusive and socially democratic welfare society: poverty must be eradicated, human capital must be developed, and appropriate institutions must be put in place to distribute and redistribute public goods.


At the core of the first task – the effort to curb poverty – is the question of employment. In Sweden, the goal of full employment has been the guideline of the Social Democratic Party since the 1950s. Through the emphasis on improving the lives of all, Sweden has been able to fundamentally increase its wealth over the last century. Today, there are new social risks, new structures in the economy. The first job of the welfare state is to establish the contract between the state and its citizens.


Secondly, there should be equity in financial terms. Everybody should get a fair chance of a pension, which is exactly what states with social welfare systems such as Germany and Sweden have done, bringing about systems that are both inclusive and universal. Those who have worked for a longer time, should have a larger pension. This gives recognition to the elders in society.


The third institution is housing. In many countries, as it is in Sweden, this is a question for the market economy. For Social Democrats, housing is a fundamental social right, especially for those in the lower class. In Sweden, housing is again one of the most dominant political issues. It is driving segregation, and it is driving the split in society, between different people. Indeed, the inequality seen in housing is one of the main reasons for the split in Western societies today. Social Democrats have neglected this issue and have neglected the role of communities. Housing is essential for keeping the society together and for eliminating poverty.


The fourth is the cost of living, and finally, there is healthcare. Good healthcare should be made available for everybody.


These are the five main areas which are crucial for a state to erase poverty and to build trust between citizens and the state. These issues have been neglected and are now some of the main reasons for the drive towards the right in Europe and the United States.


The second task in developing an inclusive and socially democratic welfare society is to increase human capital. Education at all levels, but especially pre-education, for example kindergartens, is essential. Societies must invest in early childhood education, something that has been neglected in Sweden since the society turned towards privatisation.


Vocational and appropriate adult training is also very important, as when the economy and industry changes, people must constantly upgrade their skills. Currently, the transformation of energy and industry is driving the need for digital skills. To ensure these skills, investment in human capital is central. The state must play a proactive role in investing in the economy of tomorrow in order to erase poverty – the state must invest in human skills.


Furthermore, the state must be as fair on taxes as it must be hard on corruption. If corruption maintains a foothold in society, in institutions, then people will not trust the state and it will pose an existential threat to the ideas of social democracy and solidarity. The reality of tax havens and tax fraud has led to significant distrust in societies, to the shrinking of the tax basis. If this can be reversed, then all states, in principle, will have the resources needed to set their societies on a better course. However, none of this can happen without collaboration between states and societies.

Social Democrats believe in the state. When people don’t trust the state, they don’t pay taxes and parallel societies develop, which leads to people turning to alternatives such as far right and populist movements.


“When one wants to address inequality in society, one has to tackle unemployment. This is the primary cause of inequality”


Dr Martin Davies, Managing Director of Emerging Markets in Africa, Dean of the Deloitte Leadership Academy and Chief Economist at Deloitte


Before any discussion can take place on the nature or extent of a social welfare state in South Africa, it must be asked: what are the central provisions needed for such a system? Here the answer is clear, South Africa first needs to create the fiscal space.


South Africa urgently needs structural changes, with inequality being the burning issue of the time. The World Bank has recently allocated South Africa the highest Gini coefficient in the world. This level of inequality is politically, economically, socially, and morally unacceptable. It is truly a burning issue in South Africa. With structural dependence on the export of commodities, one often sees that inequality is baked in. Herein there is no trickle-down effect, instead, the rents from the trickle down are extracted or captured by political leaders. This is a standard model, unless you are Norwegian, or perhaps Canadian.


Since 1994, the de-industrialisation of the economy has seen haemorrhaging of jobs. Perhaps the only successful proactive industrial strategy we’ve had in this country is in the automotive industry. There may have been some green shoots in other sectors, such as the textile garment sector, in the last year or two, but that is as a result of a unique set of circumstances coming together. Supply chain disruptions and Chinese inflation in labour costs has perhaps been more supportive of the domestic industrial agenda around textile garments, than proactive policies of government.


Manufacturing is so important to cancel out inequality. Manufacturing creates certain incomes, unlike typical agricultural jobs where income is not as predictable. It creates a so-called structural employment. Also, manufacturing embeds knowledge and diffuses knowledge into the economy and creates skills, residual skills. And there’s no sector like manufacturing that also encourages and spurs the growth of the services sector, which arises on the back of manufacturing. To be where South Africa is, on the downward slope of deindustrialisation, is a very precarious position to be in.


In the era of digital, or the so-called Fourth Industrial Revolution, capital is not interested in labour-intensive models, particularly in economies where one has restrictive labour legislation. And that’s the challenge that South Africa faces.


Many speakers have touched on the inability of the state to provide public goods and services to a wider population. This failure is a major contributor to inequality. Indeed, the failure to provide basic goods and services is a major contributor to inequality in any society.


An interesting exercise undertaken by FirstRand, and reported in its Annual Report, asked what the major contributor is to South Africa’s unacceptable Gini coefficient. According to the report, the answer is structural unemployment.


FirstRand did an intriguing assessment: it looked at the Gini coefficient of the staff of FirstRand Group. In 2014, FirstRand had the same Gini coefficient as the United States. They also assessed a listed mining company in South Africa. Again, contrary to news reports, in terms of income disparities between high earners and relatively lesser earners, the mining company had a score equivalent to that of New Zealand. From this, it is clear that the inequality in South Africa is due to structural unemployment and not pay differentials between senior management and so-called blue-collar workers. This is not a politically popular statement to make, but it’s an economic fact. When one wants to address inequality in society, one has to tackle unemployment, the primary cause of inequality.


By creating permanent jobs, a society moves from structural unemployment to giving people the opportunity to create well paid jobs and add value to their lives. How this is done is the ultimate question that South Africa faces. First, there is a need to shift to an economy that looks more towards manufacturing and services. The competition is becoming far greater. However, because of the invasion of Ukraine and the Covid-19 pandemic, there is an ongoing move towards the fragmentation of the global supply chain. In terms of the invasion of Ukraine, there has been an increase in the balkanisation of the global economy. This may create renewed opportunity for peripheral economies, such as South Africa’s, to be more involved in local value chain development and manufacturing.


Furthermore, it is clear that competition drives efficiency and results in gains in productivity in the economy. This is as true for companies as it is for countries. Competition drives efficiency, and therefore should not be hindered in any way. Big, enabling capital should not be limited from investing in big, enabling economic infrastructure.


In South Africa, there is an inability to remove red tape and bureaucracy. This is a big disruption to the rise of small business and the opportunities for aspiring entrepreneurs. It disrupts the creation of a workforce with the skills that the economy needs.


Lastly, there is the matter of policy certainty. South Africa will not be able to attract capital if it does not have policy certainty. Recently there has been good rapport built between business and government; the conversations have been world class. But the same is needed in terms of policy certainty from the political power establishment, regardless of what side of parliament they sit on. Capital needs clarity.


In conclusion, to solve societal problems, the GDP must rise. Inclusive growth ultimately comes from high GDP growth over a generation or two. In 2008, South Africa was growing at 5.5%. This occurred with the fiscally conservative policy of GEAR, which has received a lot of political criticism over the years. Had South Africa maintained this growth rate, this conversation would have been a very different one. If only government could have retained the correct policies, and above all, practical and good implementation of those policies. There’s no reason why South Africa cannot get back to a 5%-plus growth in the current global economy.


“The task of opposing fiscal neo-liberalism and advancing democracy is the task of everyone the world over”


Maria do Rosário, MP Workers Party, Chamber of Deputies, Brazil



Under President Bolsonaro, Brazilian democracy has undergone a tumultuous and destructive few years. The social democratic policies that former presidents Dilma Rousseff and Lula da Silva implemented have systematically been eroded. Instead of their pro-poor agenda, Bolsonaro has undone social interventionist policies. He has allowed the rich to attain a disproportionate amount of the nation’s wealth. His policies have furthermore wreaked havoc on the environment, the Amazon particularly, and have neglected public infrastructure, rebuffing social investment commitments.


With former President Lula da Silva eligible for election this year, there is hope that social democratic policies will return. Lula is polling strongly and has massive support from those who know his leadership, as well those who see Bolsonaro as being centrally responsible for the recent decay. There is now a good chance that the democratic gains that have been lost under Bolsonaro can be regained. These gains have essentially to do with the people-centred policies of social democracy. Under Lula, social rights and support was bolstered and many people – especially the indigenous and lower classes – were allowed to improve their living standards. While Lula is the champion of the people, it is more about these gains of democracy that need to be championed. Brazilian people and those around the world must rally behind movements that are people centred, while anybody who actively works against the will and prosperity of the people must be confronted in the name of democracy.


Everyone the world over must advocate for democracy and unity. This must take place in a substantive manner, relating to a broad range of issues. This is essential for the world to experience true democracy. This, the task of opposing fiscal neo-liberalism and advancing democracy, is the task of everyone everywhere on Earth. Thus far, there are some victories. Chile and Argentina are two examples where the tide has turned towards social democracy. Brazil must now do the same.


Brazil will have a general election in October, which will have a real effect on the global movement towards social democracy. These last few years in Brazil have been an awakening for the Labour Party. Now it is again gaining traction, with democracy being built in a much stronger fashion.


In 2016, Brazil underwent a rupture when President Bolsonaro was elected. The crumbling of institutions has been ongoing and Brazilian democracy has been negatively affected. With the effects of Covid-19 and with record unemployment, Brazil is in an untenable situation. Healthcare for all people has declined, and yet the government has executed policies to reduce the resources for health, social welfare and employment, which has directly affected the indigenous and poor people of Brazil the most. These developments are the responsibility of the right-wing government in power – a government whose policies undermine social cohesion. Brazil is a country undergoing a dictatorship, even if this is not known by the population. Crimes are not taken to court, military control has again grown out of control, and human rights are neglected.


What is happening in Brazil is very dangerous. Power is radicalised, and there is an ongoing destruction of the public sector. Brazilians should be very concerned about the independence of the election process.


Today, former President Lula is on track to regain power and turn the tide back to social democracy. A new Lula government will create a very strong front of support for democracy in Brazil – a front that will advance democratic debate through ideas and concepts. Under Bolsonaro, democracy has been affected in a very negative way. Today, Brazilians feel that the interests of the people in power are different from those in society, which has a direct impact on the rights of the people, especially indigenous people. The Brazilian democratic front will advance fundamental human rights in the manner that President Lula and Dilma did when they were in power.


“Social democracy is a political movement that originally was a protest movement against capitalism”


Mr Mariana Schuster, Editor, Nueva Sociedad, Argentina

This contribution will address some issues with and the differences between welfare and social democracy. Social democracy is a political movement and popular culture that was originally a protest movement against capitalism. It advocated for socialism and has transformed to become a very powerful movement towards reforms within capitalism. This is best seen in the development of Europe, but in South America it has also been successful, albeit in ways that differ from Europe. Social democracy left the transformation of socialism centred on reforms within. This transformation, according to the classic literature, led to the development of the welfare state.


This system is different from the Bismarck Model. Even if the concept or understanding of social democracy was not evident at the formation of the welfare state, its meaning was baked in. However, social democracy and the welfare state are not the same. In Europe, at least in Western Europe, the welfare states were the product of a social political action, whereas outside Western Europe, one finds something completely different. In Latin America, social democracy as a force was developed in Chile, Uruguay and Argentina at the beginning of the 20th Century. The welfare state became stabilised during the 1940s and 1950s.


In Argentina, under Juan Domingo Perón, social democracy was a force towards providing security to workers. This movement was not about socialism, but about social democracy as a populist force. Across South America, classic welfare states did not arise as a social democratic force until the 1980s, and welfare was advanced through the labour parties as the forces of the left nationalism, of revolutionary nationalism.


Over the last 30 years, South America has seen the development of the left wing, similar to what Europe is working on today. In South America, what can be considered as welfare politics has been pushed by Social Democrats; the continent has its own social democratic forces that have been working in different ways to those of their European partners. In South America the welfare state is still being built up. Until now, the Social Democrats have been trying to destroy the structures of the right, but they have not had the outright success that their European compatriots have had over the last 50-60 years.


The challenge of the developing world is not only to install and constantly improve upon policies, but also upon deep transformation of the state, which allows for changes that are more durable and sustainable. While there are many lessons to be learnt from European countries, there are also many classic examples of other countries, especially in the Americas, that offer clear and experienced templates to follow for those in the developing world.


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This report has been published by the Inclusive Society Institute

The Inclusive Society Institute (ISI) is an autonomous and independent institution that functions independently from any other entity. It is founded for the purpose of supporting and further deepening multi-party democracy. The ISI’s work is motivated by its desire to achieve non-racialism, non-sexism, social justice and cohesion, economic development and equality in South Africa, through a value system that embodies the social and national democratic principles associated with a developmental state. It recognises that a well-functioning democracy requires well-functioning political formations that are suitably equipped and capacitated. It further acknowledges that South Africa is inextricably linked to the ever transforming and interdependent global world, which necessitates international and multilateral cooperation. As such, the ISI also seeks to achieve its ideals at a global level through cooperation with like-minded parties and organs of civil society who share its basic values. In South Africa, ISI’s ideological positioning is aligned with that of the current ruling party and others in broader society with similar ideals.


Email: info@inclusivesociety.org.za

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Web: www.inclusivesociety.org.za