10 March 2017

South Africa's Grant Scandal Exposes Myths About How the State Should Run Things

Photo: Barbara Maregele/GroundUp
Protesters press for the payment of social grants. South Africa's Constitution includes "second generation" human rights such as the right to food, shelter, education and health services.

The social grants scandal rocking South Africa has been greeted with understandable shock. It's also challenged two popular ideas about how government should operate.

The first is that public-private partnerships (PPP) are efficient. The second is that national government is better at running things than provincial government (the equivalent of states or counties).

Both are so widely supported that they seem obviously true - but in the wake of the social grants' saga their truth now seems far less obvious. Both are implicated in an unfolding scandal which threatens to disturb payment of social grants to about 17 million South Africans who depend on them.

The idea that PPPs are efficient needs another look. The principle behind them is well known. Because the government lacks the capacity to perform some of its functions, it needs the expertise of private, for-profit, companies who have the ability to do what it can't, presumably because they wouldn't be in business if they didn't.

The second truism under a cloud is the view that, if you want something in government done, you must take it away from the provinces that are wasteful and incompetent. It's firmly believed across the spectrum: even critics of national government often assume that, if there's any chance people will be effectively served, it rests with the centre, not the provinces.

The unfolding social grant crisis has come to prove that these widely held assumptions could be misplaced.

Public Private Partnerships

At first glance the PPP model sounds like a classic 'win-win': government gets the expertise it needs while the private provider expands its business. Citizens also win because they get the service they need. What, besides ideology, could possibly prompt anyone to object?

Court proceedings confirm that the PPP between the government and Cash Paymaster Services, the company contracted to distribute the grants, may have worked for both parties - but not for millions of grant beneficiaries. The private partner received more than its fee for distributing each grant. It also used its position to market services provided by a network of subsidiary companies: funeral policies, microloans, smart cards, airtime and insurance.

It's also claimed that grant recipients are bombarded with sms messages selling these products. If they bite, the money is deducted from their grants. The company denies this but confirms that it uses its position to sell services.

Using PPPs to market products to a captive audience who may well believe that what they are being asked to buy has official sanction is not what the advocates of PPPs have in mind. The social development department and the South African Social Security Agency (SASSA) did nothing to ensure that the poor and vulnerable were protected and so it's not clear in what way this was a partnership. It seems more like a takeover by the private provider.

The public interest

This doesn't mean that all PPPs should be tarred with the same brush: there clearly are cases in which government can increase its capacity by working with private providers.

But it does show that PPPs are not a guaranteed cure for government incapacity: unless government has the capacity to ensure that these arrangements serve the public, they are not partnerships, but surrenders to private interests.

Without the necessary controls, PPPs may do more to help the government and businesses than to serve citizens: since much corruption in this country stems from collusion between public and private actors at citizens' expense, corruption could be seen as a particular popular type of PPP.

The capacity which governments need to ensure that PPPs are in the public interest is the ability to assess citizens' needs and to ensure that the agreement will meet them. This requires an understanding of what citizens want and the will and ability to negotiate terms which will give it to them. Social Development and SASSA seemed to lack either the will or the ability to do either.

This should challenge the simplistic idea that, to do its job, government need simply call in private providers. PPPs will not achieve their stated purpose if they are buck-passing exercises: the government is still responsible for the service and it's failing the public unless it can ensure that its private partner really is meeting the needs of citizens.

The role of provinces

Before SASSA was formed, social grants were distributed by provinces. In the Eastern Cape in particular, grants weren't paid efficiently and the courts were forced to intervene. It was widely assumed that this showed the dangers of assigning grants to provinces - a single national distribution agency would, it was assumed, solve the problem.

SASSA was created in 2005. Twelve years later, it still lacks the capacity to distribute grants itself or to negotiate terms with the private provider which protects beneficiaries. While grant distribution seems more efficient, beneficiaries are now subject to commercial pressures they did not face when provinces distributed grants. The shift hasn't been the magic bullet the country was promised.

There was, to be fair, one good reason for changing the provinces' mandate to distribute grants. The amount to be paid and who was eligible for grants was fixed by national government - the provinces had no say. But provinces don't levy taxes and so they receive a fixed sum from which they must fund all their obligations. Grants were a large and growing expense and, whenever they were raised, provinces had less to spend on their other needs. A system in which a government entity must provide a service but has no control over what it costs is unfair and unworkable.

But this problem need not have been solved by creating a single grants agency: provinces could have been given separate funding for grants so that other budget items were not affected.

The problems in the provinces are not an illusion - the bad press is often justified. But the SASSA case shows that they are not necessarily solved by taking provinces out of the equation.

Incompetence, patronage and indifference are not a provincial monopoly: which sphere of government provides a service may be less important than whether citizens have the muscle to ensure that it works for them. There's no reason why this should be easier at a national than a provincial level (it is easier for organised interest groups to influence government at national level, but that doesn't make citizens any more powerful).

Centralising government functions creates the illusion of greater effectiveness because it makes it easier to issue orders from the top. But it gives no guarantee of greater effectiveness: the orders may be no more reasonable and they may be ignored.

Fixing government is about increasing citizen power and ensuring that officials and politicians are more accountable. It's not about shifting services to national level in the forlorn hope that officials will push buttons and all good things will follow.

In both cases, the 'obvious' needs another look. Bringing in private providers and excluding provinces are not automatic gateways to better government. The social grants scandal shows that improvement requires creative thinking, not relying on truisms which are less true than they seem.

Disclosure statement

Steven Friedman does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond the academic appointment above.

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