Report on Incentive Structures of Social Assistance Grants in South Africa

Presented by:
Kesho Consulting and Business Solutions (Pty) Ltd

Contracted By:

GeoSpace International

Commissioned By:

The Department of Social Development

Acknowledgements
I would like to thank the following people/organisations for their invaluable contributions to this study: Prof. Paul Spicker, for his research, assistance and contribution to Chapter 2. Dr. Stephen Rule, for his contribution in Chapter 3 on the Literature review. Jan Vorster, for his quantitative research on Incentive Structures of Social Assistance Grants in South Africa (Chapter 4). Prof. Robert Walker, for his invaluable advice throughout the process, participation in workshops, inputs on the literature review and valuable comments on the structure of the report. Rohan Stadler, for his research assistance. Anna van den Berg, Thabani Buthelezi and Thilde Stevens from the Department of Social Development. Access for their valuable contribution through a submission. All other people who contributed information.

While appreciating your input and support, the author accepts full responsibility for the research results.

Mark Steele July 2006

Executive Summary

Executive Summary
INTRODUCTION In South Africa, the provision of social assistance benefits constitutes the largest part of the government’s poverty alleviation programme. By December 2005, a total of 10.6 million people, including approximately 7 million children, were benefiting directly from the various grant types. Grant beneficiaries represent 22% of the South African population, excluding other family members that may also benefit directly or indirectly because of them staying in the same household. In the context of high unemployment, poverty and the increasing HIV/AIDS pandemic in South Africa, it can be expected that the demand for social assistance grants will continue to rise. The increase in uptake was further facilitated by government, with contributions from civil society, through the improvement of systems for both grant delivery and the dissemination of grant information to potential beneficiaries, as well as changes to the eligibility criteria. The sizeable increase in grant uptakes has resulted in at least two general reactions:  On the one hand, stakeholders have applauded the government for the increase in grant uptakes but have also indicated that many people who should be benefiting from social assistance still do not. These stakeholders have also pointed out that the South African Social Security System is not comprehensive. Civil society are conducting campaigns to convince government to extend the benefit system to include all poor children and/or to provide a basic income grant to all South Africans. These efforts are partly motivated by research findings that illustrate the poverty alleviation function of social assistance benefits.  On the other hand, both within government and among the public, some concerns have been raised about the increase in grant uptakes. These concerns are mainly about financial sustainability, corruption and some unintended effects (perverse incentives) within the current South African Social Security System.

Page: i

Executive Summary

The question of the possible existence of perverse incentives in the South African Social Security System has been in the press headlines for sometime. In addition to anecdotal stories in some communities many assumptions have been made about this phenomenon. AIM OF THE REPORT This report is the first part of an ongoing programme of research concerning the incentive structures created by the configuration of social assistance grants in South Africa. Many of the potentially perverse incentives created by the South African Social Security System result from its categorical nature in which benefits are provided to certain categories of people in financial need but not to others and, in addition, some grants have a higher monetary value than others. In the context of high unemployment, poverty and HIV/AIDS, it can be expected that the South African Social Security System will be under continuous pressure. The four key areas that this research addressed were:  the alleged increase in teenage pregnancies relating to the child support grant;  the possible fostering of children in the biological family context in order to access the foster child grant;  the believed reluctance to take medicines to control certain ailments that can lead to permanent disability in order to access the disability grant; and  the supposed tendency of beneficiaries accessing grants not to take part in the labour market and therefore creating a culture of economic dependency. UNDERSTANDING INCENTIVES The incentives associated with the South African Social Security System are created by the provision of grant income only to people with particular characteristics. Some of these characteristics can be acquired by people changing their behaviour in order to be able to successfully apply for grants with the prospect of becoming better off financially. It is therefore important to understand the complexity of human behaviour and other factors that can influence this behaviour in terms of incentives. The decision to change behaviour in order to change one’s characteristics to become eligible for a grant is not a simple and straightforward one. In any decision (for instance to get pregnant to access an amount of R190) there are always certain costs as well as benefits involved. People further do not respond immediately and directly to incentives; for many there are delays, hesitations and

Page: ii

Executive Summary

doubts before they act. Incentives become perverse when an individual would be better off if they took a course of action in which someone else – normally a person or body in authority – disapproves. Moreover, it is sometimes not the potential recipients themselves that respond in unanticipated ways to incentive structures. It may, for example, be gatekeepers such as doctors or social workers, or even social security staff, acting in the perceived best interests of their clients. DISABILITY GRANT The incentive concerns associated with the Disability Grant (DG) were as follows:  Self infection with infected materials;  Engaging in deliberately risky behaviour; and  Failure to take health enhancing medicines or operations in order to stay sick and continue claiming the disability grant. International Evidence International evidence, especially in the United Kingdom, United States and Canada indicates that the increase in claiming disability benefits is a world-wide phenomenon. It is important to recognise that circumstantial evidence of migration into incapacity benefit is not always easy to interpret. For example, the coincidence of high levels of incapacity benefit receipt in areas of high unemployment is not necessarily evidence of shirking; sick people who become unemployed may legitimately be eligible for the DG. No evidence could be found in the international literature of persons infecting themselves, or not taking life saving medicines in order to claim disability benefits. International literature further suggested that incapacity benefits are typically higher than unemployment and other benefits because they are envisaged to be long term rather than temporary. They often also meet the additional costs of disability and may also have a compensatory component. to increase their income. Local Evidence Local evidence suggests that the growing take-up of the DG should be seen in the context of poverty, unemployment, the impact of HIV/AIDS, increased awareness of the DG and the increased access to the South African Social Security System. Further to this, changes in administration and the implementation of the DG system has resulted in the inconsistent Other things being equal, it seems that there are incentives for grant recipients to migrate to incapacity benefits

Page: iii

Executive Summary

application of assessment criteria. Also many people from previously under-serviced areas who should have been in the system, started to exercise their rights to access social assistance benefits. Further local evidence also suggests many instances where applicants change their behaviour in order to obtain the DG, although much of the evidence remains anecdotal. Moreover, such evidence needs to be interpreted with care. When, for example, a medical officer at a tuberculosis (TB) clinic opined that ”…it seems sometimes to me that developing TB is a kind of a blessing for some of them, that they now stand a chance of getting a grant” he was not necessarily suggesting illicit behaviour on the part of beneficiaries but instead remarking on the ironic circumstance of people needing to be sick in order to have access to a stable and more adequate income. It was further stated that in some of the poorer provinces, the DG is known as the “poverty grant” because it is such an important source of income, sustains so many households, and may be mistakenly viewed by some as a generic anti-poverty measure rather than as a grant for persons with disabilities. Quantitative Analysis The analysis of the SOCPEN data confirmed that the rapid increase in uptake of the Temporary Disability Grant (TDG) commenced prior to 2001. The increase in the uptake of the Permanent Disability Grant (PDG) did not occur until after 2001 when it coincided with an apparent reduction in the severity of the conditions for which the PDG and TDG were to be awarded. Further to this it was found that the number and percentage of rejected/not recommended applications have dropped significantly since 1997. Less than 1% (16,289) of applications were rejected in March 2005, compared to 8% (31,821) during 1997. This is most likely to reflect the new more relaxed benefit conditions although one would expect some fall in the number of rejected claims as people become more familiar with the grant system. The feminisation of the DG beneficiaries was also confirmed by the analysis of the SOCPEN data. The majority of women tend to uptake the DG later in life compared to that of men. Just over half the women receiving the DG are also accessing grants for children; whether women who cannot work (disabled) are able to provide adequate personal care to children will depend on the health condition and individual circumstances but it is a phenomenon that is likely to continue even among those who are not, for as long as women continue to take the principal responsibility for childcare.

Page: iv

Executive Summary

Excluding cases that became eligible for the older person’s grant (OPG), it appeared that the majority of DG beneficiaries have remained on the system, irrespective of whether they received a TDG or a PDG. The biggest migration from the TDG to the PDG (28%) happened during 1999 to 2001 and again from 2003 to 2005 (18%). A very low percentage of DG beneficiaries reported being employed, indicating that the DG is well–targeted and that few people are illicitly supplementing their grant income with other earnings. Grant Administration System According to the Social Assistance Act (Act 13 of 2004) the DG is intended to be a compensatory grant and not unemployment or poverty alleviation grant. It appears that many officials and doctors find themselves in ambiguous situations where they recognise both the financial and health needs of people and constitutional right to social security and award the grant believing it to be a form of poverty relief. This is further legitimated by the fact that the DG is not linked to a person’s incapacity but rather to an illness. Another administrative problem encountered was the fact that the TDG is not, as a rule, lapsed and therefore beneficiaries tend to stay on the system for long periods of time. This could act as a factor encouraging people to enter the grant system through the TDG, knowing that they would get financial assistance for a substantial period of time. It was further reported that even if people are unsuccessful on first application, they return with new ailments until such time as their applications are approved. The issue of people discontinuing the taking of their medicines in order to stay in the grant system was tested at a few clinics in Gauteng and although in most cases officials confirmed this behaviour, this phenomenon will be investigated in greater detail when the proposed qualitative research study is launched. Summary The quantitative analysis of the SOCPEN data did not provide any evidence of people changing their behaviour in order to access the DG. It only confirmed the increase in uptake and the feminization of DG beneficiaries. Local evidence and interviews held, however, suggest that perverse behaviour has become apparent amongst some beneficiaries. Further to this, it appears that in some instances, the DG is used as a poverty alleviation grant rather than a compensatory grant. CHILD SUPPORT GRANT

Page: v

Executive Summary

The incentive concern associated with the Child Support Grant (CSG) was as follows:  The CSG provides an incentive for especially teenagers to have a child in order to access the grant, and thereby creating an increase in teenage pregnancies. International Evidence International evidence found that the incidence of teenage pregnancy is high in the United States and United Kingdom where benefit levels are low. It also indicated that the link between social grants and pregnancy is most discussed in the United States, where Charles Murray advocated the ending of such benefits. However, his position was challenged by evidence that increases in lone parenthood and teenage births were trends that were well established prior to the provision of higher benefits in the 1960 and 1970. Local Evidence Local evidence suggested that South Africa already had a relatively high teenage fertility rate before the introduction of the CSG. Demographers pointed out that although the total fertility rate for the country had declined, the teenage fertility rate remained relatively high and did not show the same decline. Some demographers indicated that there was evidence of an increase in teenage births between 1995 and 2005, while others indicated that preteen and early teen fertility had remained constant; fertility had increased amongst girls in their late teens or early twenties. In Lieu of this it appears that there is no consensus whether teenage fertility is increasing or decreasing. Local evidence further indicates that reasons for teenage fertility and family formation are complex and culturally embedded. Having children out of wedlock and teenage births were a well-established phenomena under certain sections of the population long before the introduction of the CSG. Quantitative Analysis The quantitative analysis revealed that there had been a huge growth in the number of CSG beneficiaries in recent years. However, if a comparison is made between the numbers of teenagers receiving the CSG with the incidence of teenage births in the national population, the quantitative analysis suggests that the take-up rate of the CSG by teenage mothers remains low. Teenagers (younger than 20 years) represent 5% of all CSG recipients registered at October 2005. These teenagers claiming the CSG were considerably lower

Page: vi

Executive Summary

(13% lower) than the proportion of teenage mothers in the South African population (mothers younger than 30 years). When the CSG was introduced for younger children, one of the main reasons was to provide financial support during the window of nutritional opportunity period (within the first three years of a child’s life) when good nutrition has the most significant effect on the development of a child. However, the majority (53%) of CSG recipients only apply for the CSG when their children are older. Reasons for the relatively low uptake probably include the fact that caregivers struggle to get the required documentation and do not always have the necessary knowledge about the CSG. Summary From the analysis of the SOCPEN data, no link could be established between the availability of the CSG and the fertility behaviour of teenagers in the South African population. Furthermore, it was evidenced that the percentage of teenage mothers on the system were low, and that most caregivers only apply later for the CSG. In addition, the majority of caregivers only receive one CSG, and resultantly the issue of “farming with children” could also be ruled out. FOSTER CHILD GRANT The incentive concerns associated with the Foster Child Grant (FCG) were as follows:  To foster a child within the biological family context in order to receive a higher grant amount; and  To foster a child after the age of 14 years when the child is no longer eligible for the Child Support Grant. Local Evidence Local evidence revealed that informal fostering is a well-established practice in certain sections of the South African population. It further suggested that foster care is a valuable form of alternative care for children whose parents are dead or unable to care for them. However, the legal and policy framework developed in South Africa for foster care services was based on Western models of family life and childcare practices. This has resulted in a system of foster care that is inadequate in meeting the disparate needs of South African children. Evidence of this is the extent to which foster care has been used as a form of

Page: vii

Executive Summary

income support for poor families rather than a form of alternative care for children found in need of care due to parental unfitness. Factors such as the impact of the CSG, growing numbers of children requiring care due to HIV/AIDS and ineffective family reunification services, have increased pressure on the foster care system. At the same time it appears that the foster care system has failed in adequately meeting the needs of children requiring placement outside the family context. Quantitative Analysis The quantitative analysis revealed that the majority of FCG’s are paid to children who have lost one or both parents and that the majority of foster parents are related to the foster children. In 41% of cases, the foster parent was the grandmother, in 30% of the cases the foster parent was the aunt, and in 12% of cases other relatives were the foster parents. Only in 9% of the cases were the foster parents not related to the foster child. Nearly two (2) out of three (3) foster parents receive more than one grant type. Many are also recipients of the OPG, the DG and or the CSG. Because the majority of foster children are orphans, their placements are expected to be long-term. However, the majority of orphans are not supported through receipt of the FCG and the FCG caseloads could rise substantially if more families took this course of action in the event of parents dying. The quantitative analysis further found that children enter formal foster care when they are older than seven (7) years. Fifty two percent of foster children were 13 years or older. Only 10% were younger than seven (7) years and 8% were older than 17 years. The majority of foster children are in the age band where they are no longer eligible for the CSG. Grant Administration System The FCG was not intended to substitute the CSG in the case of orphans and the extent to which it does could partially be explained by the weaknesses in the administration system for foster care. There are too few Social Workers and Commissioners at the Children’s Courts to handle the high load of cases. The caseloads of social workers are high, which results in reviews (every two years) not being carried out and therefore the FCG almost becomes a permanent grant until the children reach the age of 18. The fact that ID numbers for foster children are not required on the SOCPEN system makes it difficult to verify the age of the foster children. The loopholes in the administration system also makes it possible for children to claim both the CSG and the FCG since the FCG does not require a child IDnumber.

Page: viii

Executive Summary

The foster care system is also designed to make provision for the rehabilitation of parents (where applicable) with the intention to reunite the child(ren) with their biological parents. From interviews with social workers, it appears that the rehabilitation of parents does not always take place as a result of the shortage/high workload of social workers. This increases the notion that foster care is seen as a permanent arrangement rather than a temporary arrangement. Informal kinship care is a well-established practice for which formal intervention through the child protection system is in many cases unnecessary. Many cases are channelled through the child protection system that does not necessarily need protection, but rather financial support. It is mostly grandmothers or other relatives who act as foster parents. Grandmothers claiming foster care are therefore not a new phenomenon. It was also found that children who lost one or both their parents and whose grandmothers were looking after them were receiving CSG in one instance while others under the same circumstances received the FCG. Summary The quantitative analysis confirmed that family members foster most children currently registered on the SOCPEN system. Due to the fact that most children are orphans and no incentives exist to adopt, it can be expected that the foster care could become a permanent arrangement. Further indications point to the fact that most children under the foster care system are in need of financial assistance rather than child protection. CONCLUSION The review of literature indicated that incentives to access social grants have existed as long as means-test-based social security systems have been around. Available literature reveals numerous configurations, dynamics and possible incentives and perverse incentives in the area of social security and welfare systems internationally. The issue is thus certainly not unique to South Africa. In a social security system that is rather categorical (South African) than universal, and in the context of high poverty levels and the impact of HIV/Aids, incentives exist for people to change their behaviour in order to gain an income through one of the available grants. These incentives are not necessarily perverse.

Page: ix

Executive Summary

Further to this, local evidence also indicates that given the high levels of unemployment and poverty, the impact of HIV/AIDS and the growing awareness of citizen’s rights to social security, huge demands on the South African Social Security System will continue. For as long as the current categorical approach of the South African Social Security System continues to exhibit gaps in coverage, the DG and FCG do provide incentives (not necessarily perverse) for people to access these grants. Although no evidence could be found in the quantitative analysis of the Socpen data that link the FCG, CSG and DG to the perverse issues that were researched, it is realised that especially the FCG and the DG are creating incentives for people to use these grants as a form of poverty relief in poor areas. These grants will remain under pressure to cater more widely than was originally intended when the systems were designed. Most of the concerns about possible perverse incentives are related to impoverished people requiring income support within a system that does not provide universal coverage. This opens the system to persons who falls outside the respective age groupings. It appears that within these limitations, officials were for years already responsive to impoverishment, sometimes beyond the intention of the particular grant.

Page: x

Table of Content

Table of Content
Executive Summary Table of Content List of Figures List of Tables Definitions Abbreviations CHAPTER 1: 1 1 2 3 4 5
5.1 5.2 5.3

i xi xiv xv xvi xviii INTRODUCTION AND BACKGROUND

Introduction Background Aim Objectives Methodology
Phase 1: Literature review, conceptualisation and understanding the Grant Administration System Phase 2: Quantitative trend analysis of existing data sets Phase 3: Qualitative fieldwork and analysis

1 2 3 3 4
4 5 5

6

Structure and Contents of this Report UNDERSTANDING INCENTIVES

6

CHAPTER 2: 7 1 2 3 4 5 Introduction

7 7 8 10 11 LITERATURE REVIEW ON PERVERSE INCENTIVES

Characteristics of Incentives Understanding Incentives in terms of Costs and Benefits Scott Kerr’s Model Summary

CHAPTER 3: 13 1 2
2.1 2.2 2.3

Introduction International Evidence
The Existence of Perverse Incentives Children, Lone Parenthood and Fertility Fertility

13 15
15 16 18

Page: xi

Table of Content

2.4 2.5

Dependency Disability and Incapacity Benefits

19 23

3
3.1 3.2 3.3

South African Evidence
Child Support Grant Disability Grant Foster Care Grant

27
27 30 34

4

Conclusion

39

CHAPTER 4: FINDINGS OF THE QUANTITATIVE STUDY ON INCENTIVE STRUCTURES OF SOCIAL ASSISSTANCE GRANTS IN SOUTH AFRICA 1 2 3
3.1 3.2 3.3 3.4 3.5

40 40 40 43
43 44 45 46 46

Introduction South African Grant Beneficiaries Disability Grants
Disability in the South African Population Uptake of the Disability Grants Combination of DG and other grants Income from Grants Migration form Temporary to Permanent Disability

4
4.1 4.2 4.3 4.4 4.5 4.6 4.7

Child Support Grant
Introduction Recipients and Caregivers Marital Status and Teenage Fertility in South Africa Uptake of the CSG Income and Employment Number of CSGs per Caregiver Uptake and Income from other Grants

46
46 48 48 50 51 51 52

5
5.1 5.2

Foster Care Grant
Introduction Foster Care System

52
52 53

6
6.1 6.2 6.3

Migration form one Type of Grant to another
Introduction Changes in Caregiver Migration form Social Maintenance Grant

56
56 57 57

7

Conclusion EXAMINATION OF THE GRANT ADMINISTRATION 61

58

CHAPTER 5: SYSTEM

Page: xii

Table of Content

1 2
2.1 2.2 2.3 2.4

Introduction South African Social Security Administration System
SOCPEN as a Grant Administration System Provincial Responsibilities National Responsibilities Management of the Administrative System

61 61
61 62 62 63

3
3.1 3.2 3.3 3.4

Characteristics of an Effective and Efficient Grant Administration System
Delivery and Volume Speed of Service Accuracy and Adequacy User Efficiency

63
63 64 65 66

4
4.1 4.2 4.3

Weaknesses in the Grant Administration System
Foster Care System Child Support Grant System Disability Grant System

67
67 71 71

5

Conclusion

75 78 78 78 79 82 83 85 87 A-1

CHAPTER 6: SUMMARY OF FINDINGS AND CONCLUSION 1 2 3 4 5 6. Introduction Understanding Incentives Disability Grant Child Support Grant Foster Care Grant Conclusion

BIBLIOGRAPHY Annexure 1: Annexure 2: Understanding Incentives, Paul Spicker Submission by the Alliance for Children’s Entitlement to Social Security (ACESS) regarding the Department of Social Development’s study on the possible existence of perverse incentives in the Social Grant System

B-1

Page: xiii

List of Figures

List of Figures
1 2 3
4

Population pyramid of the South African population adults, 2005 Population pyramid of adult beneficiaries, including recipients of the child grants, October 2005 Population pyramid of the adult beneficiaries excluding recipients of child grants, October 2005 Type of grants received by adult beneficiaries Sex and age profile of DG beneficiaries on SOCPEN, October 2005 Types of grants per sex received by DG beneficiaries Age of mothers less than 30 years on SOCPEN and Census 2001 Percentage of teenage mothers (<20 years at time of birth of CSG child, mother caregivers only)

41 41
42

43 45 45 48 49 50 54 55 57 69

5 6 7 8 9 10 11 12 13

Percentage of teenage mothers per province (mother caregivers only) Percentage take up of FCGs per province Age of foster children grouped Beneficiary migration across grants, shown as percentage Number of Foster Care Grants per Social Worker per province

Page: xiv

List of Tables

List of Tables
1 2 3 4 5 6 7 8 9 10 11 12 13 Steps Involved before applying for a social security benefit Summary of issues pertaining to international evidence on perverse incentives Summary of issues and policy responses on fertility Summary of issues and policy responses regarding dependency Summary of issues and policy responses regarding disability and incapacity benefits Summary of South African research on the Child Support Grant Increases in PDGs, TDGs and CDGs, 2001-2004 Summary of South African research on the Disability Grants Take up of Foster Care Grants, 1998-2004 Foster Care Placements, 2004 Summary of South African research on the Foster Care Grant Number of CSGs per caregiver, shown as percentage Main reasons why children were placed in foster care, shown as percentage 26 30 31 34 36 38 39 52 53 11 16 19 23

Page: xv

Definitions

Definitions
Adoption. placement. Aged Person. Mean any person who has according to the Social Assistance Act, 2004 Adoption is the permanent placement of children within a family setting and

therefore the perfect fit between child and parents is fundamental for a successful

(Act No 13 of 2004) attained the prescribed age in accordance to Sections 10 (a) or (b). Applicant. 13 of 2004). Beneficiary. Means any person who receives social assistance in terms of Section 6, 7, 8, 9, 10, 11, 12 or 13 under the Social Assistance Act, 2004 (Act No 13 of 2004). Care Dependent Child. disability. Care Dependency Grant. Means a grant paid to a parent or a foster parent in respect of a care dependency child in terms of Section 7 of the Social Assistance Act, 2004 (Act No 13 of 2004). Child. Means any person under the age of 18 years. Child Support Grant. Means a grant paid to a primary caregiver of a child who satisfies Means a child between the ages of one and 18 years who Means any person who applies for social assistance in respect of himself or

herself or on behalf of another person in terms of the Social Assistance Act, 2004 (Act No

requires and receives permanent home care due to his or her severe mental or physical

the criteria as in terms of Section 6 of the Social Assistance Act, 2004 (Act No 13 of 2004). Disability Grant. Means a grant paid to a disabled person in terms of Section 9 of the

Social Assistance Act, 2004 (Act No 13 of 2004). Disabled Person. Means any person who has attained the prescribed age and is, owing

to his or her physical or mental disability, unfit to obtain by virtue of any service, employment or profession the means needed to enable him/her to provide for his or her maintenance.

Page: xvi

Definitions

Foster Care Grant.

Means a grant paid to a foster parent in terms of Section 8 of the

Social Assistance Act, 2004 (Act No 13 of 2004). Foster Child. Means any child who has been placed in the custody of a foster parent in

terms of Chapter 3 or 6 of the Child Care Act, 1983 (Act No 74 of 1983) or Section 290 of the Criminal Procedure Act, 1977 (Act No 51 of 1977). Foster Parent. Means any person, except a parent of the child concerned, in whose

custody a foster child has been placed under Chapter 3 or 6 of the Child Care Act, 1983, or Section 290 of the Criminal Procedure Act, 1977, or a tutor to whom a letter of tutorship has been issued in terms of Chapter IV of the Administration of Estates Act, 1965 (Act No 66 of 1965). Older Person. Mean any person who has according to the Social Assistance Act, 2004

(Act No 13 of 2004) attained the prescribed age in accordance to Sections 10 (a) or (b). Older Persons Grant. Means a social grant paid to aged person in terms of Section 10 of the Social Assistance Act, 2004 (No 13 of 2004). Parent Means the legal parent of a child as defined in the Child Care Act, 1983 (act 74 of 1974). Primary Care Giver In relation to a child, means a person, whether or not related to the

child, takes primary responsibility for meeting the daily care needs of the child. Social Grant. Means a grant-in-aid, a supplementary grant, a child support grant, a foster care grant or a care dependency grant.

Page: xvii

Abbreviations

Abbreviations
AIDS AP CASE CDG CSG DG EU FCG GDP GHS HIV HSRC LFS OECD OPG PDG PMO SABC SAPA SOCPEN StatsSA TB TDG UK US Acquired Immune Deficiency Syndrome Assessment Panel The Community Agency for Social Enquiry Care Dependency Grant Child Support Grant Disability Grant European Union Foster Care Grant Gross Domestic Product General Household Survey Human Immuno Virus Human Science Research Council Labour Force Survey Organisation for Economic and Co-operation Development Older Persons Grant Permanent Disability Grant Pension Medical Officer South African Broadcasting Corporation South African Press Association Social Pension Database Statistics South Africa Tuberculosis Temporary Disability Grant United Kingdom United States

Page: xviii

Chapter 1: Introduction and Background

Chapter 1: Introduction and Background
1. INTRODUCTION In South Africa, the provision of social assistance benefits constitutes the largest part of the government’s poverty alleviation programme. By December 2005 a total of 10.6 million people, including approximately 7 million children, were directly benefiting from grants types. Grant beneficiaries' represent 22% of South Africa’s population, excluding other family members that may also benefit directly or indirectly because of them staying in the same household (Vorster, 2006). As the majority of beneficiaries of social grants are women and children, this most probably results in a direct alleviation of the consequences of poverty in households headed by women (Vorster, 2006). In the context of high unemployment, poverty and the increasing AIDS pandemic in South Africa, it can be expected that the demand for social assistance grants will continue to rise (Vorster, 2006). The increase in uptake was further facilitated by government, with contributions from civil society, through the improvement of systems for both grant delivery and the dissemination of grant information to potential beneficiaries, as well as changes to the eligibility criteria (Vorster, 2006). The sizeable increase in grant uptakes has resulted in at least two general reactions:  On the one hand, stakeholders have applauded the government for the increase in grant uptakes but have also indicated that many people who should be benefiting from social assistance still do not. These stakeholders have also point out that the South African Social Security System is not comprehensive (See submission by ACESS attached as Annexure 2). Civil society are conducting campaigns to convince the government to extend the benefit system to include all poor children and/or to provide a basic income grant to all poor South Africans. These efforts are partly motivated by research findings that illustrate the poverty alleviation function of social assistance benefits (Vorster, 2006).

Page: 1

Chapter 1: Introduction and Background

 On the other hand, both within government and among the public, some concerns have been raised about the increase in grant uptakes. These concerns are mainly about financial sustainability, corruption and some unintended effects (perverse incentives) within the current South African Social Security System (Vorster, 2006). 2. BACKGROUND The question of the possible existence of perverse incentives in the South African Social Security System has been in the press headlines for sometime. In addition to overwhelming anecdotal stories in some communities, many assumptions have been made about this phenomenon. The following news article can be found on the SABC NEWS website as an illustration:
Social grants policy might be reviewed November 03, 2005, 15:00 Social security grants policy might be reviewed if a link between teenage pregnancy and the uptake of child support grants is proved, Vusi Madonsela, the social development director-general, says. This follows claims from many quarters of society that girls fall pregnant to get the money due to poverty. In a media briefing at Parliament today, Madonsela said there is no current evidence of any links between child support grants and an increase in teenage pregnancy. Statistics South Africa (Stats SA) had recently looked at the prevalence of uptake of child support grants and issues of teenage pregnancy before and after the introduction of the child support grant in 1997. "And what Stats SA found is that there is no demonstrable increase in teenage pregnancy after the introduction of the grant. "But it does give us an opinion that perhaps we would need to dig deeper into the matter, because there is anecdotal information a possible link...So, we would like to satisfy ourselves that (this) is indeed the case, and if it is, we will need to take appropriate measures with regard to a possible review of our policy." During the same briefing, Manto Tshabalala-Msimang, the health minister, said many assumptions are being made about the growth in the numbers of people accessing grants and the massive fraud experienced in the system. To assess the impact of social grants on communities, research on "perverse incentives" had been commissioned.

Page: 2

Chapter 1: Introduction and Background

"These incentives refer to behavioural changes in our communities, and examples include alleged increase in teenage pregnancies relating to the child support grant, and potential fostering of children by biological family members in order to access the foster care grant," she said. – Sapa

These assumptions have mostly been made in the absence of comprehensive information on social grant beneficiaries. In order to act and respond on these assumptions, the Social Cluster requested the Department of Social Development to commission a research study to investigate the possible existence of unintended effects and if they are found to exist to specify their character. The four key areas that this research addressed were:  the alleged increase in teenage pregnancies relating to the child support grant;  the possible fostering of children in the biological family context in order to access the foster child grant;  the believed reluctance to take medicines to control certain ailments that can lead to permanent disability in order to access the disability grant; and  the supposed tendency of beneficiaries accessing grants not to take part in the labour market and therefore creating a culture of economic dependency. 3. AIM The aim of this report is to examine the possibility of incentive structures created by the configuration of social assistance grants in South Africa. 4. OBJECTIVES The objectives of the study were:  To understand the human behaviour with regard to incentives and the complexities around that, mainly in terms of costs and benefits of decisions;  To give a review of international and local literature on the concept of incentives and perverse incentives;  To do a quantitative analysis of administrative data on the SOCPEN System, and data collected through the Beneficiary Profile Survey, in relation to other data

Page: 3

Chapter 1: Introduction and Background

sources in an attempt to understand the pattern benefit in the context of the existence of possible perverse incentives; and  To analyse the grant administration system in regard to the weaknesses that could contribute to financial leakages and possible perverse incentives. 5. METHODOLOGY Additional questions were added to the Beneficiary Profile Survey of the Department of Social Development addressing issues of possible unintended effects. After much consideration and various interactions with both local and international experts, it was realised that the study had to be broadened to accommodate the multi-dimensional aspect of this research topic. It was then decided to follow a three-phased approach to examine and understand these incentives within the context of grant administration, family structure and individual and family strategies for making ends meet and the interaction between all these. In lieu of this, the three phases of the research are discussed below: 5.1 Phase 1: Literature review, conceptualisation and understanding the Grant Administration System This phase includes local and international debates on the four issues mentioned above, methodological challenges as well as the conceptualisation of possible perverse incentives in the context of behavioural issues. An examination of the grant administration system has also been done in this phase to understand the context in which these issues possibly exist. Further to this, the Alliance for Children’s Entitlement to Social Security (ACESS) were approached and asked to respond to the study on perverse incentives in the social grant system. ACESS is an alliance of more than 1000 member organisations working on a wide range of children’s issues. It also works with a number of affiliated organizations in civil society such as COSATU, the Treatment Action Campaign, the Basic Income Grant Coalition and many others. Through its work with its members ACESS has a detailed understanding of the experience, needs and concerns of poor children and their parents within the social assistance system in our country

Page: 4

Chapter 1: Introduction and Background

The submission received from ACESS has been included as Annexure 2 of this report and their comments, where appropriate, have been included into the reports’ discussions and findings. 5.2 Phase 2: Quantitative trend analysis of existing data sets (full report is available on request) The main aim of the quantitative analysis was to utilise existing data to establish a proper profile of grant beneficiaries to inform the debate on incentives. All beneficiaries were included but focus was on the Child Support Grant (CSG), Foster Care Grant (FCG) and the Disability Grant (DG). Additional questions to cover the unintended effect related to Social Grants were added to the Beneficiary Questionnaire. These questionnaires were administered to 2000 Beneficiary Households; the complete data set on the Beneficiary Survey was utilized in this study. Variables from a SOCPEN profile were compared to National data (Stats SA) to contribute to a better understanding of uptake. The 2005 National Profile Survey on Grant Beneficiaries and their Households together with Census data 1996 and 2001; 1995-1999 October Household Surveys; 2000-2004 General Household Surveys; and, 2000-2005 Labour Force Surveys were utilised to identify variables linked to debates on possible or unintended incentives of social benefits. 5.3 Phase 3: Qualitative fieldwork and analysis (This phase will be completed by the end of the financial year) Information will be gathered at Provincial level by means of small focus group discussions and in depth interviews by experienced fieldworkers. This qualitative work will seek to compliment and further explore some of the findings obtained from work done in phase 1 and 2. All four areas of concern to the Social Cluster would be covered during this phase. In addition, the qualitative research would seek to explore the following issues:  Current perceptions and attitudes about grants and their recipients.  The social, cultural and family circumstances that shape household finances and budgeting.  The administrative arrangements that affect access to and utilisation of grants.  Views about whether social grants empower recipients to participate as active citizens or deter them from productive activities.

Page: 5

Chapter 1: Introduction and Background

6.

STRUCTURE AND CONTENTS OF THIS REPORT This report discusses only Phases 1 and 2 above. Phase three will be carried out as an independent study to this report. The structure of this report is as follows: Chapter 1: Chapter 2: Chapter 3: Chapter 4: Chapter 5: Chapter 6 Introduction and Background Understanding Incentives Literature Review on Perverse Incentives Findings of the Quantitative Study on Incentive Structures of Social Assistance Grants in South Africa Examination of the Grant Administration System Summary of Findings and Conclusion

Page: 6

Chapter 2: Understanding Incentives

Chapter 2: Understanding Incentives1
1. INTRODUCTION This chapter attempts to clarify the concept of “incentives” and “perverse incentives”. Professor Paul Spicker from the Robert Gordon University wrote a paper on “Understanding Incentives” (Spicker, 2005) in which he suggested a few concepts on incentives. A few important issues have been extracted from this document in order to gain a better understanding of incentives and to place incentives in the context of the South African Social Security Grant System. The complete paper written by Professor Paul Spicker is attached to this report as Annexure 1. 2. CHARACTERISTICS OF INCENTIVES According to Spicker (2005), an incentive consists of three characteristics. The three characteristics are:

 Incentives are about potential gains, rewards, pay-offs or desired outcomes.
The gain that people stand to receive might be money, social status, better health or any of a wide range of benefits: the test is something people want to have, and it affects the choices they make.

 Incentives are marginal approaches. This implies that they are not
determinants of behaviour but rather contributory to behaviour. Therefore it is necessary to consider and understand the influence of other factors on a person’s behaviour in order to evaluate the impact of an incentive. When a firm offers to sell a service, it is not an “incentive” to purchase the particular service; but when it lowers its price to draw in customers, it is.

 Incentives are about motivation. It is understood that incentives influence
action, that the actions are capable of being influenced, and that the choices are eligible, or capable of being chosen. The availability of free medical care is not an

1

This chapter is based on an extraction from a report written by Professor Paul Spicker (2005), “Understanding Incentives”. Some sections of this report have been copied directly. See Annexure 1 for a copy of the full report.

Page: 7

Chapter 2: Understanding Incentives

incentive to have a tracheotomy, and the cost of residential care is not an incentive to murder your aged parents. In summary an incentive ought to meet the following three criteria:  Potential gain – that the supposed incentive implies a desired change in outcomes;  Marginal effect – this implies that they are not determinants of behaviour but rather contributory to behaviour. It is therefore necessary to consider and understand the influence of other factors on a persons behaviour in order to evaluate the impact of an incentive; and  Influence on motivation – that people have a choice, that the incentive is capable of being chosen, and that the incentive is capable of influencing action. All three elements are necessary when understanding the concept of incentives. If there is no gain, if the gain is not in the future or expected, or if the gain does not affect people’s choices, there are no “incentives”. 3. UNDERSTANDING INCENTIVES IN TERMS OF COSTS AND BENEFITS Spicker (2005) stated that incentives cannot be understood in isolation and that they vary according to the context in which they are applied. If incentives are concerned with a potential gain (getting pregnant to access R190 CSG money, etc), the first question is whether or not people are gaining. This will depend on a balance of factors, taking into account losses as well as gains (a teenager may gain R190 per month for a child, but may loose in terms of opportunity costs later in life). Each person is faced with an individual choice that can be represented in terms of a balance sheet. In other words, incentives should be understood in terms of a calculation of costs and benefits of the decision. Spicker (2005) further stated how a cost-benefit approach can be applied through arguments about incentives to work (dependency on grants). He continued to state that when we read that unemployment benefits (or in the South African context, social grants) are a disincentive to work, we are being told that being unemployed is a desirable outcome (a potential gain), that unemployment benefit (social grants) has a noticeable small effect on choices about working, and that unemployment benefits

Page: 8

Chapter 2: Understanding Incentives

influence motivation, outweighing other factors. Each of the following propositions, as it stands, is questionable:

 Being unemployed is a desirable outcome. This view dismisses issues of
stigma, boredom, lack of direction, and the consequences of unemployment for ill health, exclusion and poverty (Spicker, 2005).

 Unemployment benefits have a noticeable effect on choices about working.
Overall, a substantial majority of people do choose to work, and the vast majority of people who experience unemployment subsequently return to work. If unemployment benefits have an effect, the effect is limited. Unemployment benefits tend to be limited both in financial terms and through a series of conditions imposed on receipt (for example, suspension of benefit on leaving work without “good cause” or on refusal of employment opportunities (Atkinson, 1995)). Systems are designed to limit their relative attractiveness, and if there is a potential to tip the balance, it has not been realised in practice (Spicker, 2005).

 The influence of the unemployment benefit outweighs other factors.
Unemployment is structured and conditioned by a range of economic factors. Some unemployment may be voluntary, but much is not. The forms of nonvoluntary unemployment include, amongst others, frictional, seasonal, casual, demand-deficient, structural and exclusionary unemployment. Where people are able to make decisions about work, there are many other factors besides benefits that influence decisions – typically financial rewards in employment, social status, social pressure and the desirability of roles related to work (Spicker, 2005). In summary, Spicker (2005) says that understanding incentives in terms of costs and benefits makes it possible to understand that for incentives to work is not a simple choice between working and not working, but a calculation of the costs and benefits of working or not working. The costs of working are principally the opportunity cost of time, the loss of unemployment assistance and the associated costs of work, including e.g. travel and child-care. The benefits of working are financial, in terms of earnings, social (in terms of social inclusion), status and personal (in terms of selfactualisation). The costs of not working are not only financial; they also include stigma, degradation, isolation, boredom, the denial of opportunities and social exclusion. Since the benefits

Page: 9

Chapter 2: Understanding Incentives

of employment are large, the benefits of being unemployed are small, and costs of unemployment are considerable, the balance, which leads overwhelmingly to people working, is easily identified, predictable and unsurprising. This does not mean that unemployment assistance will have no incentive effects, but the conditions in which that may apply are relatively restricted, and tend to be confined to the limited cases where unemployment is voluntary, work is done for a very low income and financial decisions outweigh social ones. This example illustrates the complexity of understanding incentives in the context of human behaviour and the factors that can influence behaviour. The decision to change your behaviour in order to change your characteristics to become eligible for a grant is not a simple straight forward decision. For instance the decision to become pregnant when you are a teenager in order to access R190 a month is not necessary an easy one. Yes, there will be a financial gain, but other factors (costs and benefits) will influence that decision. There are certain costs to that decision and certain benefits. The question is what tips the scale in favour to get pregnant or not to get pregnant. 4. SCOTT KERR’S MODEL Spicker (2005) uses Scott Kerr’s model to further illustrate the complexity of understanding human behaviour in terms of incentives where he examines patterns of claiming social security benefits. According to Spicker (2005), Kerr suggests that people have to go through several steps before claiming social security benefits and each one has to be passed before proceeding to the next level (step). The steps are:

Page: 10

Chapter 2: Understanding Incentives

Step Perceived need Basic knowledge Perceived eligibility Perceived utility Beliefs and feelings Perceived stability of circumstances Claiming
Source: Spicker, 2005

Implication of step People had to feel there was a need People needed enough basic knowledge to know where to go They had to think they might be eligible They had to think it worthwhile Claiming had to be acceptable, despite stigma or personal beliefs They had to think their condition would last long enough to make it worthwhile They had to go through the process of applying

Table 1: Steps involved before applying for social security benefits

Spicker (2005) further says that although Kerr’s Model has been useful, because it led to research, which looked at a series of influences, it also has a conceptual defect. (See Annexure 1 for further details). What we can learn from this Model is that people do not respond immediately and directly to incentives or stimuli; for many, there are delays, hesitations and doubts before they act. 5. SUMMARY In summary of the above, the following statements are made:  Incentives are signals about the potential effects of taking a possible course of action: a person has the potential to be better off if they take one course of action rather than another.  Incentives are perverse when an individual would be better off if they took a course of action of which someone else – normally a person or body in authority – disapproves.  In the context of the social security or grant system, being ‘better off’ means being financially better off. The incentives associated with the SA grant system are created by the provision of (extra) grant income only to people with particular characteristics, characteristics that people can acquire through changing their behaviour and hence potentially become better off financially.

Page: 11

Chapter 2: Understanding Incentives

 This potential can only ever be realised if the incentive signals are received and understood, and if people are able to change their behaviour and decide it is worth doing so in order to be better off financially.  Although incentives exist in theory this does not mean that they operate in practice. Incentives are purely theoretical constructs that need have no real world effects.  Even if some people do change their behaviour, it does not mean that incentives operate for every individual.  An incentive is unlikely to be an incentive for everybody and, even if it is, it is unlikely to be equally strong. Some people may not prioritise being better off financially as much as others and may attach greater importance to the nonmonetary costs associated with changing their behaviour (Cost/Benefit).  Incentive effects are marginal factors and there is therefore a need to understand the other influences on a person’s decision before the impact of an incentive can be assessed. Other influences that need to be understood with respect to people’s behaviour about social grants include grant administration, family structures, individual and family strategies for making ends meet, and the interaction between all three.

Page: 12

Chapter 3: Literature Review on Perverse Incentives

Chapter 3: Literature Review on Perverse Incentives
1. INTRODUCTION The literature review overall reveals a mixture of opposition to excessive social security on the one hand and advocacy in its favour, on the other. Most researchers on the subject take a position somewhere between the two extremes. The approach of countries to social security can be categorised into three broad types (adapted from Walker, 2005): liberal, conservative and social democratic. The three types are exemplified by:

 Liberal – United States; where the free market is prominent and only when people
are unable to participate in the money economy for reasons beyond their control, are social grants used to relieve poverty;  Conservative – Germany; where corporates and other employers provide for social security and local communities fulfil the function for people not currently or previously linked to an employer; and  Social Democratic – Sweden; where generous universal provision is made by the state in order to achieve comprehensive social security and equality. Most of the literature available pertains to the developed world, where poverty is limited in comparison with its prevalence in South Africa. As hinted at in the typology above, arguments in favour or against grants are premised upon ideological predispositions about whether grants serve the purpose of providing relief to those trapped in poverty or whether they discourage initiative and the desire for economic self-sufficiency. Whereas many of European countries (notably Sweden and the United Kingdom) tend to be fairly generous and comprehensive in their social security systems, the United States is far less so inclined. Social protection, in the form of cash payment allocated on the basis of financial and other qualifying circumstances, is an important dimension in the reduction of poverty and multi-dimensional deprivation (Shepherd et al., 2004). Social protection policies should always be part of a broader set of policies – on macro-economic stability,

Page: 13

Chapter 3: Literature Review on Perverse Incentives

enterprise and employment development, health, and education – aimed at reducing risk and vulnerability and encouraging pro-poor growth. A social protection approach can make a strong contribution, alongside other approaches, both towards preventing the slide into poverty and assisting with recovery, and towards the long-term reduction of poverty and multi-dimensional deprivation, as one way for chronically poor people or their children to escape poverty (Shepherd et al., 2004). It can also contribute to the achievement of human rights if a state progressively takes on social protection as the obligation of ensuring that citizens have an adequate standard of living, backed up by social security in case of loss of livelihood through disability, sickness, old age or other causes. Well-designed social protection programmes can have a positive, rather than a restraining impact on economic growth. They can help to shape the pattern of economic growth in favour of the poor, such that the poor benefit at least as much as, if not more than, the average. The primary purposes of social protection are seen as:  To prevent, mitigate and enhance the ability to cope with and recover from the major hazards faced by all poor people;  To contribute to chronically poor people’s ability to emerge from poverty, deprivation and insecurity, and to challenge the oppressive socio-economic relationships which could be keeping them poor, by increasing livelihood security and linking such increases to the promotion of enhanced livelihoods; and  To enable the less active poor to live a dignified life with an adequate standard of living, such that poverty is not passed from one generation to the next. Social protection can relieve some of the market failures that prevent or slow economic growth and prevent poor people from taking advantage of the opportunities growth provides. It can also make strong contributions to the protection and building of the human, financial, natural and physical assets of poor people, which enable them to grow out of poverty. A combination of strengthened safety nets, conditional transfers to support human capital development and basic social assistance measures is the most effective method of protecting the poor.

Page: 14

Chapter 3: Literature Review on Perverse Incentives

2. INTERNATIONAL EVIDENCE 2.1 The Existence of Perverse Incentives Perverse incentives probably exist in all social security systems although they are most frequently discussed in the context of systems reliant on means-testing. Available literature reveals numerous configurations, dynamics and possible perverse incentives in the area of social security and welfare systems internationally. The issue is thus certainly not unique to South Africa. With regard to older persons, Anrig (undated) and Aaron (2005) suggest that providing a basic minimum grant to all pensioners in the United States instead of aiding people in relation to their original salaries would disadvantage the middle class, and create perverse incentives. Larin and Greenstein (1998) have pointed similar adverse effects of a reduction in social security retirement and disability benefits and made suggestions about how such effects could be minimised. Carlson (2005) suggests that reduced state pensions create a perverse incentive to have fewer children in working age, if the same pension is given to all people. Perverse incentives can sometimes have effects, which depending on one’s policy perspective, can be considered to be beneficial. Examples from the United States include instances in which women in abusive relationships might be encouraged to separate from their spouses and women living in their parental homes, to start out independently in the event of unemployment benefits being made available by the state. In the United Kingdom, Cackett and Green (2005), point out that while more people have started work since 1997, many people have also fallen out of the labour market altogether. In December 2004, 7,835,000 people of working age in the United Kingdom were neither looking, nor available, for work, and were thus deemed to be ‘economically inactive’. This was an increase of 285,000 since May 1997 (from 7,550,000). Although the inactivity rate among all working age people has remained relatively stable over this time, approximately 21 per cent, this marks a rise in inactivity among working age men. The authors (Cockett and Green, 2005) further indicated that “historically, inactivity rates have always been higher among women, reflecting women’s greater role in child raising. However, over the last twenty years, there has been a convergence in inactivity rates between men and women, with

Page: 15

Chapter 3: Literature Review on Perverse Incentives

women’s inactivity rates falling and men’s rising. Since 1984, female inactivity rates have fallen by around 7 per cent, while male inactivity rates have risen by around 5 per cent. Since 1997 alone, 300,000 more men of working age have become economically inactive, a rise in the inactivity rate for men from 15,3% in 1997 to 16,3% in 2004. This change is attributed to increased access to social security in the form of the Incapacity Benefit or other social grants”.

SUMMARY OF ISSUES

POLICY RESPONSES

Older persons provide false information Old age grants calculated in relation to in order to access state pensions pre-retirement salaries Early retirement from being Promotion of job opportunities for older economically active owing to generous persons state pensions Incidence of divorce in order to access Unemployment benefits irrespective of better unemployment benefits marital status Not making an effort to find work owing Unemployment benefits valued at less to generous unemployment benefits than the average minimum wage
Table 2: Summary of issues pertaining to international evidence on perverse incentives

2.2

Children, Lone Parenthood and Fertility A strong case is made in favour of state provision for child support. The argument is that children do not choose to be born and brought up by poor parents. The reason for their poverty (unemployment, sickness, divorce, indolence of the parents) is seen to be irrelevant to children’s circumstances or as a criteria for determining eligibility for a social security grant, and the state is obligated to provide for such children. Another rationale for state-sponsored child support is pronatalism, where fertility rates are almost below replacement level and the state perceives the need to encourage the rearing of children, and to support working women who have children. The incidence of teenage pregnancy is high in the United States and United Kingdom where benefit levels are low. The link between social grants and pregnancy is most discussed in the United States and the United Kingdom where, ironically, the incidence of teenage pregnancy is high and benefit levels are low. In the United States, Charles Murray (1984) advocated the ending of benefits to lone parents although his analysis has been refuted (Walker, 2005) by evidence that increases in

Page: 16

Chapter 3: Literature Review on Perverse Incentives

lone parenthood and teenage births were trends that were well established prior to the provision of higher benefits in the 1960s and 1970s (Christensen & Rosen, 1996). Nevertheless, the focus has continued because, unlike many advanced economies, the United States welfare system is categorical (like that of South Africa) rather than universal. Social assistance is therefore payable only to families with children (and to the aged), hence lone parents are the main recipients since they are typically the poorest group. Disproportionate numbers of recipients were also African-American. The United States debate focuses primarily on never-married mothers since, divorced and separated mothers typically have slightly higher incomes and often more work experience (Weaver, 2000). In Britain and most other OECD countries most lone mother recipients of benefits have previously been married (or with the increasing demise of marriage) or partners in a long-term relationship. There have been political discussions that the existence of benefits provides mothers the financial security to end a marriage. In much of Europe, this is generally seen as a positive development especially given that domestic violence is very widespread and women’s ability to escape abuse is enhanced (possibly protecting children in the process). In the United States, however, the strong pro-marriage lobby has successfully promoted the adoption of measures to prevent the breakdown of marriage funded through the welfare grant system; for the most part these initiatives are still being evaluated. Hartman (1997) analyses how the United States has gradually increased its public spending on social grants. This amounted to almost nothing in the late 1700s, when religious and other private organisations provided a widespread network of welfare services in an age of high levels of volunteerism. In 1902, only 2,7% of government spending, as a percentage of personal income, was spent on social welfare. This had increased to 24,5% in 1992. He argues that the United States government provides a powerful incentive for unmarried motherhood among low-income families. An unmarried mother has a higher social grant entitlement from the state than she would receive were she married to a low-income husband. He suggests that social welfare “seduces” many lower income people into operating as individuals while placing increasing tax burdens on economically productive families. As a policy response he suggests several measures to incentivise family formation:  Personal tax should not exceed one-third of income;

Page: 17

Chapter 3: Literature Review on Perverse Incentives

 Welfare should be limited to those who are truly incapacitated, with temporary relief for the capable as a last resort;  Welfare grants should never exceed minimum wage levels;  No taxes should be hidden;  Married couples should have the same tax privileges as single people; and  Older people should pay tax on all income, including social grants. Hartman (1997) is further of the view that such measures would promote a preference for the family as the fundamental social unit and would discourage divorce, remaining single or living together. Policy responses to the phenomena of teenage births and lone parenthood have been varied:  These include sex education at school level and the legalisation of abortion.  In the United States, abstinence programmes are advocated as an effective preventative measure.  With respect to childcare and lone parent groups, a policy response is to facilitate continued education, ongoing support and employment.  In the United States, the right to grants is not unconditional. There are time limits to being a recipient and receipt of a grant is conditional on participation in employment or employment related activities.  In respect of lone parenthood, the individuals concerned are encouraged to find work.  The provision of childcare is promoted in order to facilitate employment for the parent.  It is policy to recover child maintenance payments from absent parents (predominantly fathers); sometimes the money recovered is offset against expenditure on grants.  Maintenance payments are not means-tested means, thus helping to reduce the unemployment and poverty traps. 2.3 Fertility There is no evidence that pro-natalist policies based on high family allowances have increased the birth-rate (Spicker, 2006). This suggests that financial considerations do not loom large in the decision (if there is one) to have children. There is some

Page: 18

Chapter 3: Literature Review on Perverse Incentives

discussion in the United States about mothers having multiple children with multiple fathers (“welfare mums” and “dead-beat dads”). Large families do feature in discussions of poverty in OECD countries because they tend to be the most disadvantaged. This is partly because a normal wage is not generally sufficient to support a large family but also because benefits are high in relation to wages since they reflect the large family size. In the United Kingdom there is suspicion that equivalence scales used to adjust for differences in household size when measuring poverty are not well suited to assessing the circumstances of low-income families. In China under the one-child policy, families received no additional benefit for a second child and lost benefit for and subsequent children (along with other sanctions).

SUMMARY OF ISSUES Pregnancy and childbirth in order to access child grant benefits

POLICY RESPONSES o o o o o o o o Sex education Abstinence programmes Legal abortion Childcare facilities Lone parent support groups Limited duration of grant in order to encourage employment Strict claiming of maintenance from non-custodial parent No benefits for second subsequent children and

Table 3: Summary of issues and policy responses on fertility

2.4

Dependency Bane and Ellwood (1994) examined the problem of “creating” dependency in the United States system. They argue that there are various competing models of response to a system of social security:  The first is the rational choice model, whereby the recipients of grants weigh the costs and the benefits thereof;  The second is the level of belief in being able to control one’s destiny by being proactive in dealing with one’s circumstances; and

Page: 19

Chapter 3: Literature Review on Perverse Incentives

 The third is prevalent culture in relation to personal, family and community values. The authors argue that the first (rational choice) is the most effective one in explaining behaviour in respect of grants, although anomalies suggest that the other two models have some validity. They also argue the importance of ensuring that social grants are never worth more than wages earned through employment. 2.4.1 Unemployment trap An argument against generous social grants is the “unemployment trap”. If a household is able to access social benefits that exceed the value of wage income that might be earned by members of the household who could be employed, this could serve as a perverse incentive to abstain from working. Anomalies of this sort result from the value of grants being determined in relation to the need of the household (in terms of its size), whereas wages are determined by supply and demand for labour. 2.4.2 Reservation Wage It is also “generally presumed” that individuals in search of employment set a “reservation wage” for less than which they would not be prepared to take on paid work. Research in the United Kingdom has shown that this can exceed the value of social benefits that are obtainable in the event of unemployment. However, there is empirical evidence that people often do work for less than their stated minimum wage because they work for reasons other than money (Walker, 2005). Policy Responses

 A response to potential dependency on the state is an Activation Policy (often
termed “welfare to work or workfare in the United States” (Lodemel and Trickey, 2001)), in terms of which receipt of a grant is conditional on activities including a job-search, and training for work experience. Such a policy is ubiquitous within OECD countries.

 Also, wage subsidies and refundable tax credits have been designed in Europe
and the United States to increase work incomes in relation to those social benefit incomes.

 Basic Income Guarantee/Social Dividend/Negative Income Tax- All of these
involve fixing a support level (usually based on some measure of need) taxing people above this level and paying out money through the tax system to people

Page: 20

Chapter 3: Literature Review on Perverse Incentives

with less (negative tax).

These schemes have seldom been implemented

because of the difficulty in reaching everybody through the tax system and in paying out of negative tax payments in real time to ensure people avoid poverty (refundable tax credits are a form of targeted negative income tax). In Sweden and Germany, benefits have been marginally reduced since the 1990s. 2.4.3 Poverty Trap This is a situation where a high proportion of any marginal addition to gross income that is lost to the combined effect of taxation and reductions in benefit. South Africa avoids this problem by not insisting that people report increases in income and/or not policing changes in circumstances and requesting over payments of grants to be repaid. Policy Responses

 Reduce rate of benefit withdrawal – the benefit is reduced less than Rand for
Rand of increased gross income. This is common in many system;

 Increase period of income assessment – income is assessed over a long period
so periods of relative prosperity are offset by periods of low income;

 Better-off calculations – providing benefit recipients accurate information showing
that they would be better off financial working. 2.4.4 Income security versus income level Evidence, especially qualitative research in the UK suggests that low-income families place much weight on the security of income and swapping benefit for employment is viewed as risky. Policy responses Reduce risk by: providing information, making return to benefit risk free; providing childcare; providing employment mentoring schemes, etc.

Page: 21

Chapter 3: Literature Review on Perverse Incentives

2.4.5

Accommodation (dependency) There is some evidence (OECD countries) that people accommodate to living on benefits even if income is low. They find strategies for making ends meet and benefit from secure low income. It has been proposed that people choose to live on benefits rather than to seek employment. This is sometimes inferred from evidence that the probability of leaving benefit increases with the length of time that someone has been on benefit but this is an error. The reason is that the falling probability of leaving benefit is the product of two processes: “state dependency” (i.e. accommodation) and “heterogeneity” the process by which people with little chance of leaving benefit because of low human capital are left behind after their better qualified contemporaries have already left (Walker and Ashworth, 1994). It is very difficult indeed to disentangle these two processes and hence to identify the extent of accommodation or true dependency. There is also evidence of people trying very hard to find work and leave benefit and taking jobs paying less than benefit grant incomes. Policy responses Activation enforced by sanctions (reductions in benefit).

2.4.6

Informal Economy - underclass This is the extreme variant of accommodation when grant recipients supplement their grant income with undeclared earnings and/or other forms of crime. These ideas have been much discussed in the US mainly by writers on the ideological right opposed to welfare benefits. In this context, the debate has been fused with issues of race. Black ghettos have been characterised as communities inhabited by lone parents and unattached men with economies fuelled by benefit grant income and the proceeds of crime, especially drugs. William Julius Wilson (not of the political right) has opined that in such areas where jobs are scarce and men have poor education and few skills, women choose not to enter long-term relationships with unreliable men but to bring up their children alone or within female dominated family networks of support (Wilson, 1987). The concept of the underclass is highly contested with many on the ideological centre and left challenging that the phenomenon exists or is tied to the provision of welfare grants.

Page: 22

Chapter 3: Literature Review on Perverse Incentives

Policy responses  Economic regeneration and urban renewal;  Activation;  Enhanced benefit security: more identity checks, linkage of benefit grant and tax records etc; and  Anti-fraud campaigns.

SUMMARY OF ISSUES Financial dependency on the state

POLICY RESPONSES o Grants never to be worth more than minimum level of wages for employment Grants only for incapacitated State creation of employment Grants conditional on actively looking for work Grants conditional on receiving skills training recipient recipient

o o o o Accommodation, i.e. becoming used to o and taking state support for granted Continued claiming of grant while o receiving income from informal (illegal) o economy o o

Activation, i.e. recipient is required to seek work and benefit is reduced if he/she does not Increased identity checks Anti-fraud campaigns Urban renewal Employment creation programmes

Table 4: Summary of issues and policy responses regarding dependency

2.5

Disability and Incapacity Benefits Disability relates to some form of debilitating illness or impairment while “incapacity benefits” describes grants that are paid to people who are unable to work (or work to full capacity) on account of a disability. These topics are of increasing salience amongst much of the OECD world because of the increased prevalence of disability and incapacity. There have been several international conferences on the topic and a number of trilateral meetings involving

Page: 23

Chapter 3: Literature Review on Perverse Incentives

the United Kingdom, United States and Canada. It is unclear why disabilities are increasing and more people are claiming incapacity benefits. Some possibilities include:  Efficiency demands of the labour market make less productive workers unemployable (they therefore claim benefits);  Incapacity benefit is a form of disguised unemployment;  Stigma associated with disability (especially mental illness) has declined and people are less inhibited about revealing a disability;  Industrialisation has increased disability through industrial accidents, stress, pollution; and  Disability (like poverty) is relative and people are less prepared to “put up” with a disability. In the United Kingdom, the numbers claiming incapacity benefit are almost at a historical high with caseloads three times greater than for unemployment benefit (called Jobseeker’s Allowance). Conversely, more disabled people are in employment than ever before. Incapacity benefits are typically higher than unemployment and other benefits, because they are envisaged to be long-term rather than temporary. They may meet the additional costs of disability and they may have a compensatory component. Other things being equal, there is an incentive for grant recipients to migrate to incapacity benefits in order to increase their income. Between the 1970s and 1990s, many countries in the OECD adopted antiunemployment policies that sought to reduce labour supply by encouraging early retirement and a migration to incapacity benefits. As unemployment was structural and geographically clustered this generated high local concentrations of people claiming incapacity benefits. Increasingly these policies have been re-thought with attention given to measures to activate the unemployed to find employment. There is some concern that the earlier policies have left a legacy of high levels of incapacity benefit receipt – especially in areas subject to structural unemployment - and a culture in which individuals (and their doctors) expect long-term unemployed people to migrate onto incapacity benefits. The United Kingdom has begun to apply large-

Page: 24

Chapter 3: Literature Review on Perverse Incentives

scale activation policies to recipients of incapacity benefits (Alcock, Beatly et al., 2003). These were initially voluntarily but have become increasingly mandatory. There does not appear to be any discussion in international literature of persons infecting themselves so as to claim disability benefits. Rather the discussion is framed in terms of malingerers. Moreover, medical opinion has also changed with an increasing belief that it is better to treat muscular-skeletal ailments with continued exercise (and hence work) rather than with rest. Similarly, conditions such as depression and anxiety are also thought to be best treated by maintaining a person’s normal activity. Associated with this, assessments of incapacity for the purpose of assessing eligibility for benefits based on what a person cannot do are being replaced by assessments of what a person can do. However, one emergent element in the debate on disability is the enormous diversity in conditions and in their consequences, both between individuals and for single individuals over time. It is important to recognise that circumstantial evidence of migration onto incapacity benefit is not always easy to interpret. For example, the coincidence of high levels of incapacity benefit receipt in areas of high unemployment is not necessarily evidence of shirking. Job queuing theory indicates that, in areas of slack labour demand, employers have an enhanced choice of high productivity recruits such that disabled people (perceived as less productive) will be a long way back in the job queue. Conversely, a higher proportion of disabled people will be employed in the labour force during a boom than during an economic recession. Furthermore, a proportion of people who are working will be incapacitated in terms of the definitions used for benefit purposes. If they lose their jobs, they will become eligible for both unemployment and incapacity benefit and may choose the latter or to migrate from the former to the latter to receive the higher benefit. There is also evidence of employer prejudice (often based on ignorance) and also special difficulties for small employers in accommodating disabled people with fluctuating conditions that makes their attendance (or productivity) unreliable. Such prejudice is counteracted by legislated affirmative action in favour of people with disabilities in terms of the US Rehabilitation Act and Americans with Disabilities Act (US Department of Labour, 2006). There has been a range of policy responses to deal with the needs of people with disabilities (Walker, 2005). These include:

Page: 25

Chapter 3: Literature Review on Perverse Incentives

 Anti-disability discrimination legislation that is applicable to employment;  Benefit eligibility assessments to determine level of employability;  Activation measures to encourage persons to seek employment. These include rehabilitation, re-training, work trials, mentoring, and specialist job-placement;  Partial disability benefits, which supplement a person’s wages based on an assessment of percentage incapacity or employability. In Sweden, Germany and Korea, the value of the benefit granted is directly related to the degree of disability;  Protection of the right to return to Incapacity Benefit if an attempt at employment fails for reasons linked to incapacity; and  Occupational rehabilitation: the evidence is that it is advantageous to prevent someone leaving the labour market through incapacity rather than relying on him or her subsequently returning.

SUMMARY OF ISSUES Physical or mental disability

POLICY RESPONSES o o Disability Benefit Rehabilitation programmes Advocacy of rights of people with disabilities Medical assessment Mandatory search for appropriate work if possible Measures to encourage as much normal activity as possible Partial disability benefit computed on proportional loss of income

Stigma resulting from disability Inappropriate benefits claims for

o disability o o o

Claims in order to avoid work

Partial disability

o

Table 5: Summary of issues and policy responses regarding disability and incapacity benefits

Page: 26

Chapter 3: Literature Review on Perverse Incentives

3 3.1 3.1.1

SOUTH AFRICAN EVIDENCE

Child Support Grant Incentive Concerns “The CSG provides an incentive for especially teenagers to have a child in order to access the grant”. Having been initiated in 1998, the Child Support Grant (CSG) is now claimed on behalf of over 3 million children aged 14 or lower. Beneficiaries are subject to a means test in order to be eligible for a CSG for each child within the age limit. Louw (2003) has pointed out the burgeoning numbers of beneficiaries and the increasing burden on the national fiscus in the face of the HIV/AIDS epidemic. On the issue of state provision for orphaned children, Meintjies et al (2003) has questioned the principle of a means-tested CSG. They argue that a universal CSG for all children regardless of their parental circumstances should be considered, as the most equitable, accessible and appropriate way of childcare. This would draw more impoverished children into the social security net without creating perverse incentives. Similarly, the Alliance for Children (2006) suggests that all children should be beneficiaries of the CSG, thereby eliminating the need for a means test and in turn the perverse incentivisation to access such grants. Likewise, the University of Cape Town’s Children’s Institute (2003) has stated that “current provisions create perverse incentives for poor children to live in foster care with caregivers who are not their biological parents, and provide little if any support to biological parents to care for their own children”. The Institute interprets this situation as a complete contradiction of “the principles enshrined in the South African Constitution, the White Paper for Social Development and the draft Children’s Bill, where family preservation is accorded highest priority”. The resultant recommendation is an amendment to the Social Assistance Bill, such that all children under 18 years should have access to the CSG. Van der Berg (2003) argues, for reasons similar to those discussed in Section 2.4, that a social grant linked to a means test can create a ‘poverty-trap’. It can lead to

Page: 27

Chapter 3: Literature Review on Perverse Incentives

change in behaviour such as reduced motivation to earn wages or save money; the breaking of links with a spouse; or increased fertility. He suggests lower age limits for the CSG, or that single-mothers should not be eligible; or even that the CSG should be phased out. He further suggests that poverty in South Africa is a consequence of “bad targeting” of social grants to the “wrong groups”; as well as an inadequate provision of essential services; and insufficient social protection for poor and vulnerable individuals. Armando Barrientos and Jocelyn DeJong (undated) conducted an analysis of childhood poverty benefit systems in South Africa, Mexico, Krygzystan and Chile. They found that targeted conditional cash transfer programmes are vertically efficient in poverty reduction – i.e. there are insignificant leakages of the benefits to the nonpoor. However, such programmes are not as efficient in horizontal poverty reduction, i.e. the benefits are not successful in reaching all of the poor. Conversely, family allowances are better at the achievement of horizontal than of vertical poverty reduction in this sense. The South African CSG was reported to be most effective on both counts, a desirable assessment that seems likely to be perpetuated until the programme is fully implemented. They additionally report that targeted cash grants to poor families have improved school attendance by up to 30% in Mexico, Bangladesh and Nicaragua and have contributed to a reduced incidence of child labour. In some areas significantly more requirements are imposed upon applicants for the CSG than required by law. These include the pursuit of maintenance; and letters from schools substantiating the relationship between the child and the grant applicant (Goldblatt and Solange, 2005), therefore raising the threshold of eligibility. 3.1.2 Evidence  Research on beneficiaries of the CSG indicates that there has been huge growth in the number of beneficiaries in recent years.  There is also evidence of an increase in teenage births between 1995 and 2005. While pre-teen and early teen fertility has remained constant, fertility has increased amongst girls in their late teens or early twenties (Udjo, 2003).  In half of the cases in KwaZulu-Natal where the primary care giver is not the mother of the child, the mother is nevertheless the person receiving the grant.

Page: 28

Chapter 3: Literature Review on Perverse Incentives

 Additionally, one in seven (14%) of the children in receipt of the CSG in KwaZuluNatal do not have caregivers who fulfil the requirements of the means test.  In spite of these apparent irregularities, the CSG was reaching only 42% of poor children in KwaZulu-Natal in 2004. 3.1.3 Counter-evidence

 Take-up of the CSG for infants is very low in the province and many children
remain excluded from the CSG because they lack the required documentation (Woolard et al. 2005).

 Nevertheless, the CSG is effectively targeting children in poor households, as
revealed by a significant improvement in child health and nutrition (as measured by height-for-age).  Further analysis reveals that whereas only 5,3% of CSG mothers are in the 15-19 age category, this category accounts for 18% of all mothers in the 2001 Census. This implies that teenage mothers are under-represented amongst CSG beneficiaries and thus in most cases unlikely to be deliberately becoming pregnant in order to claim the CSG.  The high proportion of non-mother recipients of CSG on behalf of children in their care can be accounted for by a culture of complex family networks with childcare undertaken by women within extended intergenerational families. Fluid patterns of childcare would explain the mismatch between mothers and principal caregivers. Women may migrate to urban centres in search of work, while leaving their children at home to be cared for by kin.  The uptake of CSG overwhelmingly by women rather than men is consistent with the measure being perceived to be for children rather than to increase general household income.  It is arguable that the increased uptake of the CSG is attributable to a growing awareness of its availability and active measures by government to promote takeup. The CSG reaching 93% of poor children whose carers/parents apply suggests that the grant is effective.

Page: 29

Chapter 3: Literature Review on Perverse Incentives

SUMMARY OF SOUTH AFRICAN RESEARCH ON THE CHILD SUPPPORT GRANT Increased incidence pregnancy amongst late teens and early 20s (Makiwane & Udjo, 2006) Decline in marriage (Amoateng, 2006) Young mothers receiving CSG but older person is actual caregiver (Woolard et al, 2005) Teen mothers often not receiving CSG for their infants (Woolard et al, 2005) Extra document requirements imposed on CSG applicants (Goldblatt & Solange, 2005)
Table 6: Summary of South African research on the child support grant

3.2 3.2.1

Disability Grant Incentive Concerns  “Self infection with infected materials;  Engaging in deliberately risky behaviour; and  Failure to take health enhancing medicines”. Regarding access to the Disability Grant (DG), it was stated at the People’s Health Summit (2004) that in the event of nutrition subsidies being given to people with HIV/AIDS and not to people without it, perverse incentives would be created. There was also mention of the idea that people taking anti-retroviral drugs might be encouraged to discontinue their medication in order to improve their chances of accessing a DG. Research has been conducted to determine reasons for the increase in the uptake of permanent and temporary DGs and CDGs (Delany et al, 2005). It was found that from October 2001 to September 2004, the number of permanent DGs being disbursed increased by 143%, from 400,000 to 970,000. The equivalent increases in temporary DGs and CDGs were 61% and 119% from much smaller bases.

Page: 30

Chapter 3: Literature Review on Perverse Incentives

Permanent DGs Oct 2001 Sept 2003 % increase
Source: Delany et al, 2003.

Temporary DGs 233,000 375,000 61%

Care Dependency Grants 37,000 81,000 119%

400,000 970,000 143%

Table 7: Increases in PDGs, TDGs and CDGs, 2001-2004

The study entailed an examination of a nationally representative sample of 3500 files of beneficiaries of the three grant types. It was found that new beneficiaries of permanent and temporary DGs in 2003 were more likely to be young, black African and female than was the case in 2001. Factors associated with the growth in beneficiary numbers of all three grant types were:  the removal of the oversight role of Pension Medical Officers and the introduction of assessment panels (APs) for applications in 2001;  the failure to institute a set of national guidelines to provide a framework for the work of Medical Officers and APs;  an increase in the occurrence of chronic illnesses (particularly HIV/AIDS) and TB as one of the diagnoses of the disability for which the grant was awarded;  an apparent reduction in the severity of the condition for which the disability grant was awarded; and  the possibility of a less rigorous review of the means test aspect of the application process. Several possible explanations for the increase in the number of beneficiaries of these grants were provided:  The high levels of poverty have meant that people who would previously not have applied (partly because they had alternative forms of income) have now applied for the grant;  The impact of the HIV/AIDS epidemic means more HIV+ people are applying for the DG. This impact is indirectly inferred by the increase in the proportion of female and younger beneficiaries, groups disproportionately affected by the

Page: 31

Chapter 3: Literature Review on Perverse Incentives

disease. An increase was also found in beneficiaries with tuberculosis, a condition often associated with HIV/AIDS;  A greater awareness of the grants (owing to publicity campaigns run by the DoSD and other agencies) and a greater level of access to the grant; and  Lack of oversight (removal of PMO role) and absence of a consistent set of rules whereby permanent DG applications can be assessed has allowed inconsistent application of eligibility criteria by MOs and APs. Additionally, in the case of temporary DGs, increased numbers are directly attributable to a ruling in the case of Mashishi’s class action in February 2003. This resulted in the reinstatement of overturned 35,529 temporary DGs, mainly in KwaZulu-Natal and the Western Cape, subject to the implementation of appropriate lapsing procedures for the temporary DGs. The report (Delany et al, 2003) distinguishes between “push” and “pull” factors that influenced the growth of permanent DGs. The “push” factors were increasing poverty levels and the impact of HIV/AIDS. The “pull” factors were increased awareness of the DG and access to the social security system. The report notes that it did not take possible fraud or corruption into account. “In all provinces the interviews conducted spoke of the presence of some form of fraud and corruption, either on the part of beneficiaries withholding information or submitting fraudulent applications, or on the part of syndicates and corrupt government officials. For example, in the Eastern Cape interviewees spoke of the existence of ghost files and syndicates that were working with government officials and medical officers to obtain grants fraudulently. The Eastern Cape has recently undergone a forensic audit and several arrests have been made. At Athlone in the Western Cape there was also a problem of fraudulent medical forms, a problem noted in several other studies. Interviewees also spoke of the intimidation of medical officers and assessment panel members by applicants. In the Northern Cape site interviewees cited intimidation as the reason for the failure of the assessment panel pilot. In the Eastern Cape the medical officers are no longer required to make a recommendation in part because of the intimidation they experienced (Delany, 2005: 96). The loss of managerial control may not signal a behavioural change among applicants. The implication is a reduction in the number of applications being rejected;

Page: 32

Chapter 3: Literature Review on Perverse Incentives

inappropriate applications may indicate a failure adequately to communicate accurate information about the grants and the eligibility criteria. The Mashishi Court ruling, which led to authorities not lapsing grants highlight administrative failure rather than perverse incentives. 3.2.2 Evidence  The highest and most consistent uptake of the PDG has been in poorer provinces. Unemployment is a harsh reality in these provinces where the TDG is being called ”the poor man’s grant” (CASE, 2005).

 “I applied for the grant because I am unemployed, my children are educated but
also not employed and the other reason is that I am old, 58 years old. I also explained to the doctor about my sickness, that he must understand that my sickness is permanent. So he helped me to apply for the grant to support my family” (Delany et al, 2005:53).  Consistent upward trend in both grants since 2001 (Vorster, 2006).  Feminisation of caseload (Vorster, 2006).  Noticeable increase in young applicants (Vorster, 2006).

 Marked increase in proportion of awards for chronic conditions especially
HIV/AIDS cases on PDG (CASE, 2005).  Apparent reduction in the severity of the condition for which TDG and PDG is awarded (CASE, 2005).  Shift in TDG applications from repeat to new or first-time one (CASE, 2005).  In all provinces interviews spoke of the presence of some form of fraud and corruption, either on the part of beneficiaries in terms of withholding information or submitting fraudulent application, or on the part of syndicates and corrupt government officials and those involved in assessment. For example, in the Eastern Cape interviewees spoke of the existence of ghost files and syndicates that were working with government officials and medical officers to obtain grants fraudulently (CASE, 2005: 96).  A loss of control and oversight following the termination of the PMO function and no set of clear national assessment guidelines to replace it (CASE, 2005). 3.2.3 Counter Evidence  Increase in prevalence of HIV/AIDS in general population (CASE, 2005).

Page: 33

Chapter 3: Literature Review on Perverse Incentives

 Convergence between Provinces in the uptake of grants could indicate a growing awareness among legitimate applicants as could the increase in first-time applications (CASE, 2005).  Positive attempts to increase take-up including offices in previously un-serviced areas (highest rate of increase is in such areas) (CASE, 2005).  No increase in proportion of TDG awards for chronic illnesses including HIV/AIDS(CASE, 2005).  The loss of managerial control may not signal a behavioural change among applicants. (The implication is a reduction in the number of applications rejected; inappropriate applications may indicate a failure adequately to communicate accurate information about the grants and the eligibility criteria) (CASE, 2005).  Mashishi Court ruling that led to authorities not lapsing awards highlight administrative failure rather than perverse incentives (CASE, 2005).  Possible TDG beneficiaries are being awarded with HIV/AIDS related symptoms but not explicitly noted (CASE, 2005).

SUMMARY OF SOUTH AFRICAN RESEARCH ON DISABILITY GRANTS Increased proportion of young black female applicants for DG (Delany et al, 2005) 143% increase in DG recipients between Oct 2001 and Sept 2003 (Delany et al, 2005) Increased incidence of TB and HIV-related opportunistic illnesses (Delany et al, 2005) Greater lenience in assessment of DG applicants (Delany et al, 2005)
Table 8: Summary of South African research on the disability grants

3.3 3.3.1

Foster Care Grant Incentive Concerns  “To foster a child within the family in order to receive a higher grant amount; and  To foster a child after the age of 14 years when the child is no longer eligible for Child Support Grant”. Foster care is a valuable form of alternative care for children whose parents are unable to care for them. In South Africa, the legal and policy framework developed for

Page: 34

Chapter 3: Literature Review on Perverse Incentives

foster care services were based on Western models of family life and child care practises. This has resulted in a system of foster care that is inadequate in meeting the needs of South African children. Evidence of this is the extent to which foster care has been used as a form of income support for poor families rather than a form of alternative care for children found in need of care due to parental unfitness. Factors such as the impact of the CSG, growing numbers of children requiring care due to HIV/AIDS and ineffective family re-unification services, have increased pressure on the foster care system. At the same time it appears that the foster care system has failed in adequately meeting the needs of children requiring placement outside the family context (Vorster, 2006). This system has come under pressure because of a huge increase in take-up, mainly due to the growing awareness of the grant, poverty and the impact of HIV/AIDS. With a value three times that of the CSG and a longer duration, it is argued the FCG can create an incentive (not necessarily perverse) for impoverish families to put their children in the care of others (Vorster, 2006). 3.3.2 Evidence A study of trends in take up of the FCG from March 1998 until March 2004 revealed an increase of 346% (Naicker, 2005). The number of FCG recipients was 43,906 in March 1998 and 197,303 in March 2004. Table 2 shows that the annual rate of increase was most dramatic between March 2002 and March 2003 (117%), having been below 7% from 1998 to 2001 and 25% in 2001-2. In the most recent year included in the study, 2003-4, the rate of increase declined but remained high, at 42%.

Page: 35

Chapter 3: Literature Review on Perverse Incentives

Prov WC EC NC FS KN NW GP MP LP Total

Mar-98 % incr Mar-99 % incr Mar-00 % incr Mar-01 % incr Mar-02 % incr Mar-03 % incr Mar-04 14677 8152 3578 3175 5024 1571 5737 1120 872 43906 0.71 3.70 4.39 10.27 19.41 3.69 8.56 3.48 15.83 5.90 14781 8454 3735 3501 5999 1629 6228 1159 1010 46496 -6.52 5.65 -2.30 8.97 22.45 13.51 13.44 8.11 34.85 5.57 13817 8932 3649 3815 7346 1849 7065 1253 1362 49088 -5.42 6.25 4.28 9.86 4.59 13.25 6.79 5.19 33.33 3.92 13068 9490 3805 4191 7683 2094 7545 1318 1816 51010 3.30 22.24 12.46 43.02 55.67 29.08 21.67 13.20 71.70 25.12 13499 57.04 21199 8.76 44.68 11.92 53.10 44.76 79.36 37.98 89.33 71.07 23057 35646 8176 22930 45686 12539 26136 6568 16565

11601 112.38 24638 4279 5994 70.72 7305

149.87 14977

11960 163.87 31559 2703 9180 1492 3118 158.64 6991

106.34 18942 132.51 210.55 3469 9683

63826 117.41 138763 42.19 197303

Source: Vorster, 2006

Table 9: Take up of Foster Care Grants, 1998-2004

 Increases in unemployment and poverty would have increased the relative demand for FCGs in the poorer provinces (Naicker, 2005).  An audit of children’s services (Naicker, 2005) found that in 2004 the FCG was increasingly being regarded as a poverty reduction measure rather than a child protection intervention.  Sharp increases in the number of applications for foster placements occurred in the period 2002-3 and the audit reports claim that some misuse of the FCG is evident in that “foster parents utilize it for their own benefit and not to properly (sic) provide and care for the foster child”. Such situations cannot be adequately verified owing to massive caseloads on social workers (Naicker, 2005).  A further factor was the increase in backlogs in the completion of reviews of foster child placements and the obtaining of extensions to enable the continuation of the FCG. This could be an indication that the FCG is regarded more and more as a permanent grant and not as a temporary measure to create a safety-net for vulnerable children (Naicker, 2005).  One of the conclusions of the audit is that “Unemployment is one of the main demands (sic) for foster care placements. Families experience dire poverty and make false claims to access the grant” (Naicker, 2005: 426).

Page: 36

Chapter 3: Literature Review on Perverse Incentives

 During 1999 social security staff warned that the system would most probably not
be able to cope with the increased uptake. Social Workers and Children’s courts are struggling to handle applications (Vorster et al, 2000).

 During 1999 welfare staff reported an increase in applications for the FCG from
grandmothers caring for their grand children (Vorster et al, 2000).

 Some social workers indicated then that they were overburdened and not eager to
work with Foster Care applications because it took up a lot of their time, time that could have been spend on child protection services rather than poverty alleviation. In the Northern Cape, for example, once social workers have established that the child was of eligible age for the CSG, the social worker would immediately apply for CSG ”just to get them off my back” regardless of whether the caregiver could qualify for a Foster Care Grant (Vorster, 2000: 130).  Already during the 1980’s it was found that most children in formal foster care were in “unplanned, long- term placements”. 3.3.3 Counter Evidence  The placement of children with relatives is a well-established child care practise in South Africa, particularly in black families (Dlamini & Simkins, 1992).  One of the reasons is the occurrence of births out of wedlock: when a mother subsequently marries a man who is not the father of her children, these men do not necessarily want to care for another mans children, with the result that the mother leaves the children in the care of her own mother or other relatives (Vorster, 2006).  Another reason is that children in rural areas for example, have traditionally been left in the care of relatives such as grandmothers, to allow biological parents to obtain employment in cities. In an attempt to provide for the needs of these children, and in view of their own economic hardship, these informal fostering practises have increasingly become formal as placement in foster care would enable a foster parent to obtain a FCG (Vorster, 2006).  There are also a growing number of children who are orphans mainly due to the impact of HIV/AIDS. The majority of them are care for by relatives or other member of their community. The government encourages people taking care of orphans to apply for the foster child grant (Vorster, 2006).  The procedure for processing and supervising FCGs should be reviewed as a matter of urgency so that it places less strain on the judicial system, on social

Page: 37

Chapter 3: Literature Review on Perverse Incentives

workers, and on the time and resources of prospective and existing foster parents (Lund Committee 1996:5).  The courts and provincial departments tasked with the approval of FCGs may have become more efficient owing to the increase in resources at their disposal (Naicker, 2005).  There was an increased demand for FCGs owing to greater public awareness as a result of media campaigns, imbizo’s and welfare month (Naicker,2005);  It is suggested that the increase in demand was a consequence of increases in the number of orphans and in the sexual and physical abuse of children (Naicker 2005).  There could have been deliberate delays in the processing of applications prior to 2002, in order to balance provincial budgets. Subsequent to an amendment to the Regulations, the payment of FCGs was to take effect from the date of the court order rather than the date of application (Naicker, 2005).  A sample of 1068 foster parents revealed that a substantial proportion (57%) of foster parents are aged 50 or older, possibly indicative of grandparents fostering their grandchildren in the absence of the biological parents, possibly as a result of HIV/AIDS mortality (Naicker, 2005). Statistics on the number of children placed in foster care were reported for some provinces in the audit report as detailed in Table 10: Free State: 24000 Gauteng: 32143 (foster care services) Eastern Cape: 6141 (lodged from July to December 2004) Northern Cape: 40000 North West: 16600 Limpopo: 14454 Mpumalanga: 10176
Source: Naicker, 2005

Table 10: Foster Care Placements, 2004

Page: 38

Chapter 3: Literature Review on Perverse Incentives

SUMMARY OF SOUTH AFRICAN RESEARCH ON THE FOSTER CARE GRANT 346% increase in FCG take-up from March 1998 to March 2004 (Naicker, 2005) Increased court efficiency in awarding FCG (Naicker, 2005) More public awareness of FCG (Naicker, 2005) Increased demand for FCG owing to child abuse (Naicker, 2005) New regulation: FCG after court order rather than application date (Naicker, 2005) Large proportion (57%) of FCG recipients aged over 50 (Naicker, 2005)
Table 11: Summary of South African research on the Foster Care Grant

4.

CONCLUSION The review of literature indicates that incentives to access social grants have existed as long as means-test-based social security systems. Available literature reveals numerous configurations, dynamics and possible perverse incentives in the area of social security and welfare systems internationally. The issue is thus certainly not unique to South Africa. Targeting is often a less than ideal approach to provide social protection: it is difficult to avoid wrongful exclusion and inclusion, it is expensive and administratively difficult to do well, and it reduces social solidarity. In a social security system that is rather categorical (South African) than universal, and in the context of high poverty levels, the incentives are there to change behaviour in order to gain an income through one of the available grants. Evidence from local research mainly confirm the increase in the uptake of the disability, foster care and child support grants on the one hand, but on the other hand this uptake is put in the context of poverty, impact of HIV/AIDS and a failure in the grant administration system in some instances.

Page: 39

Chapter 4: Quantitative Study Findings

Chapter 4: Findings of the Quantitative Study on Incentive Structures of Social Assistance Grants in South Africa2
1. INTRODUCTION As part of this study, a quantitative analysis of SOCPEN data was undertaken by Jan Vorster from DATADESK. The aim of the quantitative analysis was to utilise existing data to contribute to the establishment of a proper profile of grant beneficiaries in order to inform the debate on incentives of social assistance grants. The analysis exploits administrative data from SOCPEN covering the period 1997 to 2005, in an attempt to understand the pattern of benefit receipt. It also draws on the 2005 beneficiary survey and other sources as appropriate. The analysis focuses on the CSG, the FCG and the DG, which are benefits that have featured in discussions of incentive effects. It reveals trends in the uptake of benefits while comparisons with population surveys also provide evidence of the advancing coverage of the system and hint at levels of take-up. Cross-benefit analysis reveals the extent of uptake of multiple benefits while analysis of longitudinal data, tracks the migration of beneficiaries from one benefit to another. When interpreting the findings, it was vital to take into account the impact of legislative changes and grant administration as well as the influence of poverty, unemployment, the HIV/AIDS pandemic and cultural practices regarding childcare and marriage. 2. SOUTH AFRICAN GRANT BENEFICIARIES Statistics South Africa (Stats SA) estimated the total population of South Africa at 46.9 million in July 2005 (Stats SA, 2005c: 9):  Based on the number of persons registered on SOCPEN it seems that 22% of the South African population were receiving grants by October 2005;  Adult women (18 years or older) represent 39% of the South African population and approximately a third (6.04 million) are either grant beneficiaries themselves

2

This chapter has been based on an extraction from Vorster, Jan (2006), “Quantitative Study on Incentive Structures on Social Assistance Grants in South Africa”. Some sections have been copied directly.

Page: 40

Chapter 4: Quantitative Study Findings

(receiving disability grants or older person’s grants) and/or they are recipients of grants on behalf of children;

Source: Vorster, 2006

Figure 1: Population pyramid of the South African population adults, 2005

Gender (adult beneficiary) Female
120

Male
120

100

100

Age of adult beneficiary

80

80

60

60

40

40

20

20

0 800,000 1,000,000 600,000 400,000 200,000 0 200,000 400,000 600,000 800,000

0

1,000,000

Frequency Source: Vorster, 2006

Figure 2: Population pyramid of the adult beneficiaries, including recipients of child grants, October 2005

Page: 41

Chapter 4: Quantitative Study Findings

 There is an increasing number of adult women recipients and beneficiaries of grants due to the immense increase in uptake of grants for children as well as the increase in the number of women accessing the DG.  Women represented just over half of all DG beneficiaries in October 2005.

Gender (adult beneficiary) Female
120

Male
120

Age of adult beneficiary

100

100

80

80

60

60

40

40

20

20

0 400,000 300,000 200,000 100,000 0 100,000 200,000 300,000 400,000

0

Frequency

Source: Vorster, 2006

Figure 3: Population pyramid of the adult beneficiaries excluding recipients of child grants, October 2005.

 The majority of beneficiaries receiving “adult grants” (older person’s grants and disability grants) are women (see Figure 2). Overwhelmingly, women are also the recipients of child grants.  Ten percent of all beneficiaries receive more than one type of grant;  The most frequent combinations of grant types are the DG and CSG (5.7%), followed by the OPG and CSG (2.1%) and the OPG and FCG (0.7%).  The proportion of recipients with multiple kinds of grants increased over time, mainly because more women accessed the DG and the eligible age for the CSG was extended.

Page: 42

Chapter 4: Quantitative Study Findings

6%

2% 4%

14% 48%

26%

CSG

OPG

DG

DG CSG

OPG CSG

Other

Source: Vorster, 2006

Figure 4: Type of grants received by adult beneficiaries (only major grant types shown)

3.

DISABILITY GRANTS  In their explanation of the rapid take-up of the DG, CASE (2005:116) identified poverty, the impact of HIV/AIDS, increased awareness of the DG and increased access to the social security system as important factors.  Changes in the administration and implementation of the disability grant system resulted in the inconsistent application of assessment criteria.  Many people from previously under-serviced areas who should have been in the system earlier, also started to exercise their rights to access social security.  Officials involved in the assessment and awarding of DGs cited, in qualitative research, poverty and unemployment as probably the most common reasons for the increase in uptake (CASE, 2005).  From international experience, it appears that virtually all new grant systems experience an increase in take-up as awareness and knowledge begins to permeate both formal and informal support and advice systems (Walker, 2006).

3.1

Disability in the South African Population

 Although not the intention of the DG system, it appeared from qualitative
research findings (CASE, 2005, and Vorster et al, 2004) that those who were awarding DGs, some were also considering applicants who might be able to work and had the desire to work but could not find employment, to be suitable recipients of a DG.

Page: 43

Chapter 4: Quantitative Study Findings

 Many officials find themselves in an ambiguous situation: they recognise people’s need and constitutional right to social security, but appreciate that the DG was not intended to cater for the unemployed. Yet some administrators have awarded the disability grant as a form of poverty relief.  The DG should be understood in the context of a categorical system that provides disabilities.  The analysis of SOCPEN data covered the period 1997 to 2005 with data available in alternate years. It confirms a rapid increase in take-up and indicates that it started before 2001; with a rapid growth in temporary disability grants (TDGs).  The increase in the uptake of permanent disability grants (PDGs) did not occur until after 2001 when it coincided with an apparent reduction in the severity of the condition for which PDGs and TDGs were awarded.  CASE sited in Vorster (2006) a loss of control and oversight following the termination of the Pension Medical Officer function in 2001 and the absence of a set of clear guidelines to replace it at that stage.  The Mashishi court ruling regarding the TDG does not point to beneficiaries changing their behaviour, but rather to problems in grant administration.  It is interesting to note that the number and percentage of rejected/not recommended applications have dropped significantly since 1997. Fewer that 1% (16 289) of applications were rejected in March 2005 compared to 8% (31,821) during 1997. 3.2 Uptake of the Disability Grant  The feminisation of the DG population was also confirmed by the study (see Figure 4). The majority of women tend to take up the DG later in life compared to men.  Should other provinces follow the same path as KwaZulu-Natal where women beneficiaries of the DG are in the majority, a substantial increase in up-take among women can still be expected in the Western Cape, Northern Cape and Limpopo provinces. no benefits for long-term unemployed people and where disproportionate numbers of unemployed people report health problems and

Page: 44

Chapter 4: Quantitative Study Findings

200000 150000 100000 50000 0
9 -1 15 4 -2 20 9 -2 25 4 -3 30 9 -3 35 4 -4 40 9 -4 45 4 -5 50 9 -5 55 4 -6 60 9 -6 65

Female

Male

Source: Vorster, 2006

Figure 5:

Sex and age profile of DG beneficiaries on SOCPEN, October

2005 (Note: there is no uptake of DG figures for women aged 65 and above, seeing as women
are eligible to apply for an Older Person’s Grant at age 60; men are only able to at age 65)

3.3

Combination of the DG and other grants  Just over half of women receiving the disability grant are also accessing grants for children (Figure 5); a phenomenon that is likely to continue for as long as women continue to take the principal responsibility for childcare.  Should these caregivers not be fit to be employed, the question remains whether they will be able to provide the proper care needed by their children.  The majority of these women received the child support grant before they accessed the disability grant. However, there were provincial deviations in this pattern.
700000 600000 500000 400000 300000 200000 100000 0
D G D D D G D O G G G er th /C SG DG /C G C /F G C /F G C /S

Female

Male

Source: Vorster, 2006

Figure 6: Types of grants per sex received by DG beneficiaries (only combinations of statistical relevance are shown)

Page: 45

Chapter 4: Quantitative Study Findings

3.4

Income from Grants  Reflecting the limited hours of paid work and low earnings of women, the combined median monthly income of female DG recipients from all grants was approximately on par with the median earnings for women in South Africa.  In the case of men, the income from the DG was less than half the median male earnings.

3.5

Migration from Temporary to Permanent Disability  Excluding cases that became eligible for the older person’s grant, it appeared that the majority of DG beneficiaries have remained on the system, irrespective of whether they received a TDG or a PDG.  The biggest migration from the TDG to the PDG (28%) happened during 1999 to 2001 and again from 2003 to 2005 (18%).  A very low percentage of DG beneficiaries reported being employed, indicating both that the DG is well–targeted and that few people are illicitly supplementing their grant income with earnings.  Of those who registered as rejected in March 1999 and who reapplied later, 60% were successful in claiming a DG (either a PDG 5% or TDG 55%) by March 2001.

4. 4.1

CHILD SUPPORT GRANT Introduction Before the introduction of the CSG, South Africa already had a relatively high teenage fertility rate. Demographers point out that while the total fertility rate for the country has declined, the teenage fertility rate has remained relatively high and has not shown the same decline. It appears that there is currently no consensus amongst demographers whether the teenage fertility rate is increasing or decreasing. Both Makiwane and Udjo and Moultrie and Dorrington as cited in Vorster (2006) reported an increase in the proportion of births in certain categories of teenagers. While Makiwane and Udjo as cited in Vorster (2006) found an increase in the proportion of births during the late teens (18 to 19 years), Moultrie and Dorrington as cited in Vorster (2006) found an increase in the proportion of births to teenage mothers (15 to 19 years) in four of the nine provinces. However, they differ on whether the national teenage fertility rate is increasing or decreasing. Moultrie and Dorrington’s

Page: 46

Chapter 4: Quantitative Study Findings

(2005) study covered the period from Census 1995 to Census 2001 and found a decrease in teenage fertility nationally, while Makiwane and Udjo (2006) study covered the period 1995 to 2005 and reported an increase. 4.1.1 Children in poor households  Nearly two thirds or 12 million children below the age of 18 years live in households with a monthly income of R1200 or below (Childrens Institute, 2006:1).  By October 2005, 59% of all poor children were receiving social assistance grants. The majority received the CSG (6.6 million) while approximately 300000 received the FCG and 91 000 the CDG. 4.1.2 Profile  28% of all mothers receiving the CSG were teenagers at the time of birth.  Comparing the number of teenagers receiving the CSG with the incidence of teenage births in the national population suggests that the take-up rate of the CSG by teenage mothers is low. Teenagers (younger than 20 years) represent 5% of all recipients in October 2005).  Nearly all (98%) of caregivers of CSG beneficiary children are woman.  The proportion of teenagers claiming the CSG was considerably lower (13% lower) than the proportion of teenage mothers in the South African population (mothers younger than 30 years) (Census 2001).  There appears to be no consensus whether teenage fertility is increasing or decreasing, however, demographers agree that the levels remain high.  Before the introduction of the CSG there was already a relatively high incidence of births to teenage mothers.

Page: 47

Chapter 4: Quantitative Study Findings

120 100 100 80 60 44 40 20 0 Mothers: Census 2001 15-19 20-24 25-29 Mothers: SOCPEN Total 18 5.3 38 40.3 100

45.4

Source: Vorster, 2006

Figure 7: Age of mothers less than 30 years on SOCPEN and Census 2001

4.2

Recipients and Caregivers  From SOCPEN data it appears that the CSG is mainly claimed by the mothers (94%) of eligible children. The rest of the claimants act as guardians (mainly grandmothers) and custodians.

 The 2005 beneficiary survey confirmed that the majority of child beneficiaries live
with their mothers who are also recipients of the CSG (De Koker et al, 2006).  There was a low incidence of recipients not living with the CSG beneficiary children and nearly all recipients were the first recipient of a CSG within the first three years after the child’s birth. 4.3. Marital Status and Teenage Fertility in South Africa  Reasons for teenage fertility and family formation are complex and culturally embedded.  Having children out of wedlock and teenage births were well-established phenomena under certain sections of the population long before the introduction of the CSG (Preston-Whyte, 1993).  For a large section of our population, marriage does not occur without bride wealth and impoverished men find difficulty in obtaining it.

Page: 48

Chapter 4: Quantitative Study Findings

 The domains of marriage and childbirth do not need to coincide. While premarital births are disapproved of in many circles, the stigma attached to it is relatively low as it is partly mitigated by the much valued demonstration of fertility.  In this context it can be argued that the CSG probably lessens the negative financial consequences of existing social practices especially for children.  Before the introduction of the CSG, research indicated that even where women had husbands, many raised their children with minimal financial assistance from biological fathers.  The majority (75%) of CSG mother recipients at the time of application for the CSG have never been married. However, it appeared from the 2005 beneficiary survey that the proportion of women who had never married was lower than the proportion registered on SOCPEN, probably indicating a change in the marital status of these woman after they started to receive the CSG.

3.22 24.79

71.99

No

Yes, 1 child

yes, > 1 child

Source: Vorster, 2006

Figure 8: Percentage teenage mothers (<20 years at time of birth of CSG, mother caregivers only)

Page: 49

Chapter 4: Quantitative Study Findings

LIM MPU GAU NW KZN FS NC EC WC 0% 20% 40% Yes >1 Child Source: Vorster, 2006 60% Yes 1 Child No 80% 100%

Figure 9: Percentage of teenage mothers (per province (mother caregivers only)

4.4

Uptake of the CSG  When the CSG was introduced for younger children only, one of the main motivations was to provide financial support during the “window of nutritional opportunity” period (within the first three years); when good nutrition has the most significant effect on the development of the child.

 Moreover, Woolard et al, (2005) established the positive impact of an early
receipt of the CSG on the development of children.  However, the majority of recipients successfully applied for the CSG when their children were older; 53% recipients applied for the CSG after the so-called “window of nutritional opportunity” period.  Reasons for the relatively late uptake probably include the fact that caregivers struggle to get the right documentation and do not always have the necessary knowledge about the CSG.  Care givers who were not the mothers of the CSG beneficiary children tended to apply later for the CSG than mothers did.  Both mothers who were teenagers at the birth of the CSG beneficiary child and those who were not, tended not to claim the CSG within the first year after the child’s birth.

Page: 50

Chapter 4: Quantitative Study Findings

 The proportion of mothers who were teenagers at the birth (not necessary at application) of their eldest child to be registered on SOCPEN from 2000-2004, increased from 23% in 2000 to 32% in 2004.  It appears that 15% of teenage mothers (19 and younger) claimed the CSG when they were 20 and 41% claimed it when they were 21 to 25 years old. 12% claim the benefit when they were 19. 7% when they were 18 and 4% when they were 17 or younger. Those claiming a CSG before they were 18 represent only 1% of all mothers receiving a CSG. 4.5 Income and Employment  The CSG is directed at children of low income caregivers and means-tested. It is therefore not surprising that many CSG caregivers were unemployed and were living in the poorest areas and in households with low incomes.  The labour absorption rate of women CSG recipients was lower than that of the population South African women; 18% CSG women recipients was involved in employment, compared to 33% women from the national population.  Those with jobs were usually low paid and not employed for a whole year. Fewer than 40% of those employed received a regular income. It seems that the CSG is well-targeted and does not leak to many non-poor caregivers and households.  Without an income from the CSG, many children and their households will be destitute. 4.6 Number of CSGs per Caregiver  There is no evidence that the majority of CSG recipients are claiming grants on behalf of many children. The majority claim for one child only (see Table 12).  The proportion mothers accessing more than one CSG is much lower than the number of children per woman in the national population.  58% of CSG recipients received only one CSG.  Less than 1% of CSG recipients claimed for five children or more.

Page: 51

Chapter 4: Quantitative Study Findings

Nr of Children receiving CSG 1 2 3 >4
Source: Vorster, 2006

% 58% 30% 10% 2%

Table 12: Number of CSGs per caregiver, shown as percentage.

4.7

Uptake and Income from other Grants  The proportion of caregivers who are receiving the disability grant in combination with the CSG has increased such that, by October 2005, ten percent of all CSG recipients received a DG and CSG.  It is especially grandmothers of CSG beneficiary children who are receiving an OPG and CSG (4% of all CSG recipients).  Sixteen percent (16%) of CSG recipients receive an income from grants higher than the 2003 national median employment amount for woman.  Those receiving both a DG or OPG and a CSG have a monthly income approximately on par with the median income for employed women in South Africa.

5. 5.1

FOSTER CARE GRANT Introduction  Neither the SOCPEN data nor the 2005 Beneficiary Survey were specifically designed to investigate whether biological parents leave their children in the care of relatives in order to claim a FCG, which is three times the value of the CSG and payable for a longer period.  However, what was apparent from the 2005 beneficiary survey was that for many it was not an option, because the majority of foster children are orphans (see Table 13).

Page: 52

Chapter 4: Quantitative Study Findings

Reason Double Orphan Mother deceased, father not available Abandoned Children neglected, parents unfit Parent(s) in jail Other Father deceased
Source: Vorster, 2006

Percentage 45.1% 33.2% 9.7% 6.3% 0.5% 3.7% 1.5%

Table 13: percentage

Main reasons why children were placed in foster care, shown as

 Informal kinship care is a well-established practice for which formal intervention through the child protection system is in many cases unnecessary.  It is mostly grandmothers or other relatives who act as foster parents and, during the 1990s, those who were on the state maintenance grant system were actively encouraged to apply for a FCG.  Grandmothers claiming the FCG are therefore not a new phenomenon. From the 2005 beneficiary survey it appeared that there were children who had also lost one or both of their parents and whose grandmothers were looking after them who received a CSG, while others in the same circumstances received a FCG. 5.2 Foster Care System  Even though the foster care system, a system based on Western models of family life and child care practices, was primarily designed to provide protection to children, it appears that it is also providing poverty relief to children not necessarily in need of the formal intervention of the child protection service.  This poverty relief is going mainly to relatives of foster children. This is not a new phenomenon and already during the 1980s the Government recognised this.  The foster care system is under pressure, resulting in backlogs and some children are not getting the protection that they should receive. There are too few

Page: 53

Chapter 4: Quantitative Study Findings

social workers and commissioners at Children’s Courts to handle the many applications.  Many cases are channelled through the child protection system that does not necessarily need protection but rather financial support.  It also appears that the foster care system is failing to adequately meet the needs of children requiring placement outside the family context.  There has been a major shift since the 1990’s in terms of both the racial and the geographical composition of foster parents. The overwhelming majority of foster parents are now African. A larger proportion is now living in rural areas and/or in informal dwellings.

9.7 4.9 7.3

9

19.5

12.5

3.4 12.2 21.5

WC

EC

NC

FS

KZN

GT

NW

MP

LM

Source: Vorster, 2006

Figure 10: Percentage take up of FCGs per province

 The majority of foster parents are related to their foster children. 41% of cases,
the foster parent was the grandmother. In 30% of the cases the foster parent was the aunt. And in 12% of cases other relatives or family are the foster parents (De Koker et al, 2006).

 Only in 9% of the cases, the foster parents are not related to the foster child (De
Koker et al, 2006).  The majority of foster parents are older woman and 41% is grandmothers of the foster children.  Informal fostering is a well-established practice in certain sections of the South African population.

Page: 54

Chapter 4: Quantitative Study Findings

 Nearly two out of three foster parents receive more than one type of grant. Many are also recipients of the OPS, the DG and or the CSG.  The majority of foster children are orphans, many of whom have lost both their parents. The majority fathers of those children who have lost their mothers don’t make contact with them.  Because the majority of foster children are orphans, it is to be expected that foster placements will be long term.

 Should the majority of caregivers of orphans take up government’s invitation to
apply for FCG, a massive increase in the demand for FCG can be expected. By October 2005, 300,317 foster children were registered, while there were already in 2004 533,746 maternal orphans and 512,684 double orphans in South Africa (Jacobs et al, 2005: 53).  Children enter formal foster care mainly when they are older than 7 years. Fifty two percent (52%) of foster children were 13 years or older. Only 10% were younger than 7 years and 8% were older than 17 years.

27348 65548

97164

0 to 7

8 to 14

15 to 21

Source: Vorster, 2006)

Figure 11: Age of Foster children grouped

 The majority (65%) of foster children had been in formal foster care for less than three years, while 90% had been in foster care for less than three years. Only 10% of children had been in foster care for longer than five years.  The majority of foster children fell into the age group 7 to 14 years at the time their applications were registered on SOCPEN.  Approximately 50% of foster children had been staying with their foster parents for ten years or longer before becoming beneficiaries of the FCG, 26% had been staying for 2 years or less while 19% had been staying for three to nine years. Four percent were direct placements.

Page: 55

Chapter 4: Quantitative Study Findings

 It is thus evident that the majority of foster children were most probably not in need of protection, but that their caregivers were applying for income support.  There appears to be an inconsistent application of stipulations regarding the legal placement of children in kinship care.  There are huge backlogs regarding new applications, which is not to the benefit of neglected or abused children in need of care.  A shortage of social workers and commissioners of Child Welfare, as well as an increase in demand mainly cause backlogs.  For many years foster care has been regarded by applicants as a poverty alleviation measure rather than a child protection measure. Even among some professionals this appears to be a commonly held view.  From the 2005 beneficiary survey it appeared that a small percentage of children were being fostered while their mothers formed part of their household. However, it is unclear whether these mothers were suited to taking primary care responsibility for the care if these children. 6. 6.1 MIGRATION FROM ONE TYPE OF GRANT TO ANOTHER Introduction  A very low proportion (1%) of child beneficiaries migrated from one grant to another.  The main migration took place from the CSG to the FCG (39.6%), followed by migration from the CSG to the care dependency grant (CDG)(20.3%).  Few (5%) child beneficiaries were transferred from one caregiver to another.  The SOCPEN dataset did not include sufficient detail on the reasons but, in most cases, the death of a caregiver was the main reason.

Page: 56

Chapter 4: Quantitative Study Findings

CSG-FCG-FCG SMG-FCG-FCG

CSG-CDG-CDG CSG-CDG-CSG

SMG-CSG-CSG other

CDG-CSG-CSG

Source: Vorster, 2006

Figure 12: Beneficiary migration across grants, shown as percentage

6.2

Changes in Caregiver  Only 2% of children who ever received the CSG were transferred from one recipient to another  Currently the CSG lapses with the death of the caregiver and the new caregiver must reapply, leaving vulnerable children without financial assistance when it is very much needed.  Children did not directly migrate from the CSG to the FCG; there was a time lag in the majority of cases.  There were a small proportion of cases where children were on the CSG and unsuccessful applications were made for the CDG.

6.3

Migration from the Social Maintenance Grant  A small percentage (16%) of child beneficiaries of the terminated State Maintenance Grant (SMG) reappeared on the grant system; most of them were beneficiaries of the CSG.  Predictions were that many former SMG beneficiaries will end up on the foster care system but it appeared not to have happened.  A very low percentage of these children were later beneficiaries of the FCG. It was assumed that in the absence of the SMG many single mothers would have had no other option than to leave their children in the care of others so that others could claim a FCG for the children.

Page: 57

Chapter 4: Quantitative Study Findings

7.

CONCLUSION The analysis of the SOCPEN data confirmed that a rapid increase in take-up of the TDG commenced prior to 2001. The increase in the uptake of the PDG did not occur until after 2001 when it coincided with an apparent reduction in the severity of the condition for which the PDG and TDG were awarded. Further to this it was found that the number and percentage of rejected/not recommended applications have dropped significantly since 1997. Fewer than 1% (16,289) of applications were rejected in March 2005, compared to 8% (31,821) during 1997. This is most likely to reflect the new more relaxed benefit conditions although one would expect some fall in the number of rejected claims as people become more familiar with the grant system. The feminisation of the DG population was also confirmed by analysis of the SOCPEN data. The majority of women tend to take up the DG later in life compared to men. Just over half the women receiving the DG are also accessing grants for children; whether women who cannot work are able to provide adequate personal care to children will depend on the health condition and individual circumstances but it is a phenomenon that is likely to continue even among those who are not, for as long as women continue to take the principal responsibility for childcare. Excluding cases that became eligible for the older person’s grant (OPG), it appeared that the majority of DG beneficiaries have remained on the system, irrespective of whether they received a TDG or a PDG. The biggest migration from the TDG to the PDG (28%) happened during 1999 to 2001 and again from 2003 to 2005 (18%). A very low percentage of DG beneficiaries reported being employed, indicating that the DG is well–targeted and that few people are illicitly supplementing their grant income with earnings. The quantitative analysis revealed that there had been huge growth in the number of CSG beneficiaries in recent years. However, if a comparison is made with the number of teenagers receiving the CSG with the incidence of teenage births in the national population, the quantitative analysis suggests that the take-up rate of the CSG by teenage mothers remains low. Teenagers (younger than 20 years) represent 5% of all CSG recipients registered at October 2005. These teenagers claiming the CSG were considerably lower (13% lower) than the proportion of teenage mothers in the South African population (mothers younger than 30 years).

Page: 58

Chapter 4: Quantitative Study Findings

When the CSG was introduced for younger children, one of the main reasons was to provide financial support during the window of nutritional opportunity period (within the first three years of a child’s life) when good nutrition has the most significant effect on the development of a child. However, the majority (53%) of CSG recipients only apply for the CSG when their children are older. Reasons for the relatively low uptake probably include the fact that caregivers struggle to get the right documentation and do not always have the necessary knowledge about the CSG. The quantitative analysis reveals that the very majority of FCGs are paid with respect to children who have lost one or both parents and the majority of foster parents are related to their foster children. In 41% of cases, the foster parent was the grandmother, in 30% of the cases the foster parent was the aunt, and in 12% of cases other relatives are the foster parents. Only in 9% of the cases are the foster parents not related to the foster child. The majority of foster parents are older woman and 41% are grandmothers of the foster children. Nearly two (2) out of three (3) foster parents receive more than one grant type. Many are also recipients of the OPG, the DG and or the CSG. Because the majority of foster children are orphans, their placements may be expected to be long-term. However, the majority of orphans are not supported through receipt of FCG and FCG caseloads could rise substantially if more families took this course of action in the event of parents dying. The quantitative analysis further found that children enter formal foster care when they are older than seven (7) years. Fifty two percent of foster children were 13 years or older. Only 10% were younger than seven (7) years and 8% were older than 17 years. The majority of foster children are in the age band where they are no longer eligible for the CSG. Given the high levels of unemployment and poverty, the impact of HIV/AIDS and the growing awareness of citizen’s rights to social security, there will be huge demands on the social assistance system. While the current categorical approach is resulting in holes in our social security system, the disability grant and foster child grant are under pressure to cater more widely than was originally intended when the systems were designed. Most of the concerns about perverse incentives are related to impoverished people requiring income support within a system that does not provide universal coverage. It appears that within these limitations, local officials were, for

Page: 59

Chapter 4: Quantitative Study Findings

years, already responsive to this need, sometimes beyond the intention of the particular grant. The relatively high incidence of children in kinship care and teenage births were well established phenomena before social assistance was available to large sections of our population. The child support grant and foster care systems seem to be protecting the vulnerable – children – from the worse financial consequences of existing behaviour. However, there is no conclusive evidence from SOCPEN data and other quantitative sources that grants contribute to an increase in any of these. The Department of Social Development currently plays a crucial role in securing social assistance to low-income households through a non-comprehensive social grant system. Alternatives are needed for those who are able and prepared to work, but who end up receiving grants that are not intended for the long-term unemployed. Part of the solution would be for central government to implement an integrated plan for poverty alleviation, which has, at its core, an emphasis on job creation. Furthermore the impact of HIV/AIDS on the social assistance system should be thoroughly evaluated. Currently the Department of Social Development is, among other things, also footing the bill for the high levels of unemployment and the impact of HIV/AIDS.

Page: 60

Chapter 5: Examination of the Grant Administration System

Chapter 5: Examination of the Grant Administration System
1. INTRODUCTION An effective and efficient Social Security Administration system should be an instrument through which policy is implemented in such a way that the correct cash benefit is transferred to every person eligible at an appropriate time. Such a system should have adequate controls in place to be able to exclude persons not eligible from accessing Social Security benefits, and also limit any unintended effects that may occur. It is for this reason that the South African Social Security Grants Administration System has been examined in the context of the occurrence of possible unintended effects. The focus will be on administrative problems during grant applications and approval and loopholes in the SOCPEN System to understand the context in which these issues possibly exist. 2. 2.1 SOUTH AFRICAN SOCIAL SECURITY ADMINISTRATION SYSTEM SOCPEN as a Grant Administration System The administrative system of the South African Social Security grants system is called the SOCPEN system (The Social Pension System). The SOCPEN system administers the follow grant types:  Old Age Pension;  Child Support Grant;  Disability Grant;  Foster Child Grant;  Care Dependency Grant;  War Veterans Grant;  Grant in Aid (given only in combination with OAP and DG if qualify); and  Social Relief of Distress.

Page: 61

Chapter 5: Examination of the Grant Administration System

In order to understand the functioning and operation of the SOCPEN system, the different levels of operation as well as the processes within the administration system are briefly explained. The SOCPEN administrative system functions at 2 levels: at an application and process level (the value chain) and at a maintenance, verification and informationmonitoring level. The application process is a Provincial function and is decentralised. The maintenance, verification, voucher generation and monitoring is a centralised function and controlled by SASSA at a national level. 2.2 Provincial Responsibilities The main responsibility at provincial level is to receive, capture and approve grant applications. Some of these processes are further decentralised to district level in order to improve service delivery. Although norms and standards are in place, currently provinces administer these processes differently. With the establishment of SASSA, uniformity in the administration process should be reached in the near future. 2.3 National Responsibilities Once an application has been approved and put into payment at a Provincial level, the responsibility of voucher generation, validation and information-monitoring becomes a SASSA function at national level. The SOCPEN system at a national level generates the vouchers for payment to beneficiaries. Once the vouchers are generated, the funds are transferred via the provincial offices to third party pay contractors who administer the cash benefits on behalf of the SASSA. At a national level, payments are monitored and a number of mechanisms are implemented to limit loopholes in the system. If for instance exceptionally large payments are detected in a month, Provinces are informed and payments can be stopped if irregularities are detected. The maintenance and enhancements of the system is also a national responsibility and undertaken on an ongoing basis to ensure sustainability, stability and the effective delivery of services to clients.

Page: 62

Chapter 5: Examination of the Grant Administration System

2.4

Management of the administrative system The management of the South African Social Security System is the responsibility of SASSA. SASSA is a newly established agency and started functioning autonomously from 1 April 2006. The responsibility of the Department of Social Development (formerly responsible for the implementation of the grants) is now only responsible for the development of policies for the implementation of the administrative system and the monitoring of the implementation of these policies. The management of the administration process is realised through a service level agreement signed between the Department of Social Development, SASSA and Provincial offices. There are currently nine (9) service level agreements in place governing the delivery of cash benefits and the management of the administration system. This in itself can pose a risk in terms of weaknesses in the management of the administrative system, since there is no single document governing management. This however is only an interim arrangement until SASSA becomes fully functional. Apart from the service level agreement, monitoring of the implementation of the administration system by both the National Department of Social Development and SASSA is an important management instrument that will assist and improve the management of the system at all levels of implementation. Although monitoring is done frequently by the Department of Social Development, the recommendations made in the monitoring reports are not being implemented at the moment and this can be seen as a challenge in terms of administration due to the fact that mistakes made are not being rectified or remedied.

3.

CHARACTERISTICS

OF

AN

EFFECTIVE

AND

EFFICIENT

GRANT

ADMINISTRATION SYSTEM 3.1 Delivery and Volume When planning for ability of delivery and coping with volumes, the technical ability of the system as well as the implementation thereof by personnel at an implementation level should be taken into account and strategies should be developed to incorporate

Page: 63

Chapter 5: Examination of the Grant Administration System

the optimal functioning of all aspects that the administrative system of a cash benefit system comprise of. According to Robert Walker (2005), the predominant objective is the efficient processing of applications and delivery of benefits. Any administrative system concerned with the delivery of benefits must be adequate to meet the volume of delivery of cash benefits. Failure to deal successfully with these volumes could result in delays and often a compromise in accuracy on the delivery side of cash benefits. (Walker, 2005: 230) On the recipients’ side, these delays could add to uncertainty in people’s lives and often destitution in the case of cash benefits aimed at poverty alleviation. The SOCPEN system as a transfer and payment system can quite successfully carry the volume of transactions without any noticeable problems or causing any delays in payment due to incapacity of the system. This is due to the vigorous planning in terms of frequency to deal with any possibility of large take-up rates of the grants that was not anticipated by the sections responsible for implementation of the grants. This planning and continuous enhancement in terms of delivery and volume happens at a national level. The system currently carries approximately 11 million active beneficiaries with ease and should a sudden rapid increase occur, provisions have been made to deal with the increase without compromising the delivery of services. Apart from the ability of the system to support the delivery and volume at a national level, provincial level’s responsibility to deal with these issues is also critical. Although the SOCPEN system has the ability to sustain a large number of applications rather effortlessly, delays are currently being experienced in terms of the capturing, validation and approval of applications. In the South African context this is a provincial responsibility and the delays are caused by a number of factors such as the lack of sufficient human resources, lack of technological resources and the large amounts of backlogs to be dealt with. The delays vary between Provinces, and in some cases applicants can wait up to more than 120 days for their first payment. This could lead to immense frustration and hardship amongst applicants. 3.2 Speed of Service Speed and response in the delivery of services is important and beneficiaries of cash benefits generally dislike having to queue and wait in offices or at pay points. Delays are inconvenient and stressful, especially to those recipients accompanied by

Page: 64

Chapter 5: Examination of the Grant Administration System

children, older persons and those beneficiaries with disabilities. Applicants want processing times to be short and payments to be prompt. Due to the decentralised administrative system, there are several areas in the application process where speed of delivery can be a frustration to applicants. During the process it can also be possible that an applicant experience several different delays during the delivery of the service applied for (Delays can occur for example at the capturing phase, approval stage and with the first payment). As is the case with delivery and volume, speed of service depends not only on technical ability to provide the service applied for promptly, but human resources, availability of infrastructure and the application process will all have an effect on the speed of service. 3.3 Accuracy and Adequacy It goes without saying that recipients expect to be paid their correct entitlement and an adequate level of benefit. An adequate level of benefit is a policy issue, but the correct entitlement is an administrative one. Both considerations link to customer satisfaction. Certainly, measures of customer satisfaction are linked to the outcome of an application. People most likely to complain or show dissatisfaction are those whose applications have been rejected. The associations between the outcome of an assessment and satisfaction means that benefit levels are likely to constrain the level of customer satisfaction that an administrative system can attain. This is almost irrespective of the quality of other aspects of the service (Walker, 2005). While an applicant places a premium on accuracy, when benefit rules are complicated they are unlikely to be aware of assessment errors that occur, especially in the case of illiterate applicants and applicants with limited literacy. In such cases, a general feeling of injustice might lead to an appeal being lodged against the decision (i.e., the disability grant in South Africa), instead of acceptance due to the understanding of the assessment process (Walker, 2005). Another aspect to mention with regards to accuracy in social security administration systems is the recovery of funds from benefit recipients, which can result in long-term indebtedness (Walker, 2005: 232).

Page: 65

Chapter 5: Examination of the Grant Administration System

The National Treasury largely determines the South African Social Security grant amounts and the amounts are adjusted annually in order to provide adequate cash benefits to the vulnerable. As mentioned above, the accuracy of cash benefits is administrative and often mistakes can be made in the calculation of individuals’ cash benefits. Large communication campaigns and chasing targets, such as the targets of the child support grant, may put administrators at an implementation level under a lot of pressure to reach set targets. Accuracy is easily compromised and can be to the disadvantage of the applicant/beneficiary, especially if the beneficiary has been underpaid. Policies for the recovery of funds from beneficiaries due to overpayment are in place. These policies are implemented differently in various provinces. In some provinces, recovery of funds is viewed as an administrative burden. In very few cases funds are actually recovered. In cases were recoveries do take place, this can often place the beneficiary in debt to the Department for years. Since the grant programme is targeted at the poorest of the poor and the most vulnerable citizens, the burden of indebtedness to the Department can weigh heavily on these beneficiaries and their families. 3.4 User Efficiency According to Walker (2005), from an application perspective, user efficiency is defined as obtaining the maximum benefit for the minimum effort. This does not necessarily correspond with technical efficiency when defined narrowly in the shortterm interests of administration systems. Internationally, recipients require ease of application, simplicity of rules and procedures, good communications and avoidance of repetition in providing information to agencies. (Walker, 2005: 232) Applicants interpret simplicity in terms of being readily able to discover the benefits available, the level of their entitlement and the application procedure that needs to be followed. Simplicity has definite advantages for administration in terms of ease of computerization, less staff training, reduction in error and lower advertising costs.

Page: 66

Chapter 5: Examination of the Grant Administration System

The Administration system of the South African Grant system can be described as somewhat cumbersome for both the applicant and the administrator. The forms used for most grants are detailed and often quite technical and this could result in applicants feeling frustrated with the process of applying for a grant. It must also be noted that a large number of beneficiaries are only semi-literate and some even illiterate and these beneficiaries can feel intimidated by the process. Administrators on the other hand can also feel intimidated by the process, especially in cases where no proper training has been provided to administrators on the application processes. Difficulty in especially the application of the means test can be detrimental to user efficiency and circumstances of beneficiaries. In the case of the South African Social Security grant administration system, it is not entirely a disadvantage that the administration process is long and tiresome, as this may also be instrumental in closing possible gaps where unintended benefits can come about. 4 WEAKNESSES IN THE GRANT ADMINISTRATION SYSTEM In this section, an attempt is made to examine some aspects of the system to determine possible loopholes and weaknesses that may exist and could add to the occurrence of unintended effects in the grant administration system. Concerns with regard to unintended effects, are mostly concerned with:  Foster Child Grant;  Child Support Grant; and  Disability Grants. 4.1 4.1.1 Foster Care System Introduction The foster care system was designed to intervene on behalf of children needing protection, especially neglected and abused children. The FCG is linked to the foster care system.

Page: 67

Chapter 5: Examination of the Grant Administration System

Foster care is supposed to be a temporary arrangement until such a time as the child can be reunited with his or her biological parent, or until, in the case of an orphan, is adopted by either the foster parent(s) or other individuals or families. The FCG is not means tested as its objective is not poverty alleviation but to provide financial support to protect children for a short-term or on a temporary basis pending the rehabilitation or reconstruction of the child’s natural environment for their safe return. According to the Child Care Act, placement of foster care is usually two (2) years, and placements beyond this time period require an extension of the court order. FCGs are paid to registered foster parents for children who have been placed in their care. The placing of children in the care of a foster parent is a legal process and is dealt with by the children’s court. The process of placing a child in foster care is complicated, costly and usually a lengthy process which involves interviews with the applicant and the child in question. Foster parents and subsequent placements are recommended by Social Workers who then present each case in a Children’s Court. The Commissioners of Child Welfare through a court order then formalise the foster placements. 4.1.2 Social Workers There is currently a shortage of Social Workers who have to deal with the ever increasing number of FCG applications (See Figure 13 below). They are overloaded with work and do not have time to review cases, resulting in the huge backlogs that exist in the system across the country. According to Acess (2006) the foster care system is collapsing under the strain of the number of applicants.

Page: 68

Chapter 5: Examination of the Grant Administration System

90 80 70 60 50 40 30 20 10 0 WC EC NC FS KZN GT NW LM MP

Grants per Social Worker

Supposed norm of 6

Figure 13: Number of Foster Care Grants per Social Worker per province

In terms of access to the FCG the following 2 scenarios exist:

 CSG provided instead of FCG due to workload of Social Workers. Since 1999
social workers have reported an increase in applications for the FCG by grandmothers caring for their grandchildren (orphans). Social workers further indicated then that they were overburdened with work and were not eager to work with these applications due to an already high load of work. Social workers seem to believe that time spent on child protection services rather than poverty alleviation is more important. In the Northern Cape social workers recommend to FCG applicants that they should rather apply for the CSG as this is quicker and less complicated. One of the social workers stated that this was done “..just to get them off my back” (Vorster, 2006)

 FCG applied for instead of CSG due to higher monetary value. During an
interview with a Social Worker in Pretoria North, similar facts to the above were stated and that an increase in applications for the FCG was apparent. They further stated that many applications for the FCG were based on the fact that others care for people’s children because their parents live and work far from their children. Caregivers, mostly grandmothers and other relatives, then apply for the FCG because of its higher monetary value. Many people see the FCG as a way of poverty alleviation. Most applicants do not understand the legal implications of the grant.

Page: 69

Chapter 5: Examination of the Grant Administration System

4.1.3

Identity Numbers With regard to the SOCPEN system, some weaknesses do exist that could allow people to be entered onto the system fraudulently. One of these weaknesses is the field on SOCPEN where the child beneficiary’s ID needs to be captured. Provision is made for this and the although Act requires an ID number because foreign children can also be fostered through the foster care system, the child’s ID-number field on SOCPEN is not validated. This means any number can be entered into this field, eg. 12345679 or 0000000. Therefore it is difficult or in some cases, even impossible, to verify child ID-numbers or birth dates. This could lead to the same child being used to access more than one foster child grant, or a child staying on the system for any period of time because age cannot be verified.

4.1.4

Court Order Number The court order number field is currently also problematic, as no uniform court order numbers are utilised, which creates a huge challenge for the administrators in terms of verification of valid court order numbers. The Social Security Grant administration system often relies on the administration systems of other Departments in order to validate beneficiary data. There is currently no centralised database of court orders where these can be verified. The impact of this is that the court order cannot be authenticated.

4.1.5

The Lapsing of Grants The administration of the foster care system is a welfare responsibility whilst the payments of these grants are administered through the SOCPEN system. Limited contact exists between these two administration systems, which create many challenges, and risks. The welfare processes of moving children from homes to families are not very often communicated to the payment administrators, and therefore grants are not lapsed accordingly. This could lead to foster parents receiving payments where children are no longer in their care. Another challenge is that FCGs are not lapsed automatically when court orders expire after 2 years. Administrators of the SOCPEN system are not responsible for the notification of lapsing of these grants, since this has to be done by Social Workers. After a period of two years, the court order for fostering a child expires and legally the

Page: 70

Chapter 5: Examination of the Grant Administration System

State becomes the guardian of the child in question. Without a valid court order, in theory, the foster child grant cannot be paid to a child. Currently there are huge backlogs with regard to the reviews of FCGs due to the already mentioned problem of lack of sufficient social workers to undertake reviews. This results in children staying in the foster care system until the age of 18 or 21, (if child is still of a school going age) due to non-lapsing of grants after 2 years. 4.1.6 Adoptions The FCG is meant to be only a temporary measure of placing a child in a safe, stable environment until parents are rehabilitated or until children are adopted. The majority of children currently receiving FCGs are orphans and therefore, rehabilitation is not an option and adoption of these children is rare. A reason for this could be that there are no incentives for the fostering family to adopt a child who is fostered, since no monetary compensation is given to a family who adopt a child. Another reason why children might not be adopted is the fact that, according to the Act, strict checks are done on various aspects of living conditions of prospective parents, one being the ability to provide for children financially. However, due to the high poverty level amongst most families in South Africa, these criteria are often not met by families. 4.2 Child Support Grant System To determine whether the administrative system contribute to the decision of a teenager to get pregnant, is almost impossible, as this is a personal choice and not an administrative function. This issue will be researched in detail during phase 3 of the project. 4.3 4.3.1 Disability Grant System Introduction According to the Act (13 of 2004), a person becomes eligible for a DG, if he/she: (a) has attained the prescribed age (18 years); and

Page: 71

Chapter 5: Examination of the Grant Administration System

(b)

is, owing to a physical/mental disability, is unfit to obtain by virtue of service, employment or profession the means needed to enable such a person to provide for their own maintenance.

According to Regulation 2(3)(b) a person only becomes eligible for a disability grant if the disability results in them becoming incapable of entering the labour market. Furthermore, the applicant must not refuse employment, which is within their capabilities, or to receive treatment, which may improve his/her condition. In lieu of this, the disability grant is supposed to be a grant that replaces employment income amongst people with a disability and is not a grant awarded on the basis of the presence of a disability (or ailment) alone. 4.3.2 Assessments of Disability Grants When applying for the DG, an applicant does not specify whether they are applying for a permanent or a temporary DG. The decision resides with the medical doctor conducting the assessment of the applicant. The doctor decides whether the ailments afflicting the applicant warrant a permanent or a temporary grant. These doctors are either doctors from the State, or doctors approved by the State (or in some provinces, assessment panels are utilised) to conduct the examinations. These doctors or assessment panels are required to complete certain forms pertaining to the applicants’ medical condition and provide recommendations as well. A problem arises when doctors or assessment panels are not adequately trained for assessing beneficiaries for the DG. This could lead to errors pertaining to information of the applicant as well as inaccurate diagnoses being made. Another problem is that doctors tend to prioritise very sick patients and set aside certain days or times to examine DG applicants. This causes backlogs with the processing of applications. Also, problems concerning doctors vary between the provinces. In provinces, such as Gauteng and the Western Cape, there are sufficient numbers of doctors and backlogs aren’t such a problem. In provinces where doctors are few and far between, such as Limpopo, immense backlogs of applications are reported.

Page: 72

Chapter 5: Examination of the Grant Administration System

4.3.3

Security measures in place Various security measures have been implemented to prevent fraudulent disability grant applications being made. After the doctor or assessment panel has conducted their examination, the prescribed form is completed (with recommendations) and sent directly to the district office where the applicant applied; this is done to prevent applicants from copying the medical form and distributing it to other people. According to the norms and standards of the Department of Social Development, forms are also supposed to be numbered in order to prevent the duplication of such forms; this is done as a measure against both internal and external fraud.

4.3.4

Lapsing of TDGs and Backlogs A TDG is only valid for a period of six months, with a possible extension of another six-month period, pending the positive outcome of a review. Lapsing of the TDGs (6 or 12 months) may only occur after the appropriate notification has been given to beneficiaries (3 months). Due to administrative problems, such as unreliable addressfields, it is not always possible to notify beneficiaries well in advance of the lapsing of their grants. This results in grants not being lapsed and overpayments occur. The lapsing of grants also differs across the provinces. Gauteng, Western Cape and Northern Cape provinces all laps grants automatically; Gauteng is the province with the least amount of backlogs and all three provinces notify beneficiaries by post. The problem with this however, is that notifications don’t always reach their intended destinations. Other provinces, like the Eastern Cape and Free State receive list of possible grants to be lapsed and beneficiaries are then lapsed manually. Mpumalanga, Limpopo and North West have extreme backlogs in the processing, and hence lapsing, of grants, whilst KwaZulu Natal has a system of manual lapsing in place that worked well in the initial stages, but has become bottlenecked and lapsing of grants do not take place timeously.

4.3.5

Other Administrative problems Other administrative problems also encountered are:  Fraudulent doctors, who only endorse grants for 6 months. This can be seen as a problem because every time the doctor makes an assessment, the doctor gets a

Page: 73

Chapter 5: Examination of the Grant Administration System

fee. So, instead of making a recommendation of a permanent grant and getting a once-off fee, the doctors have patients coming back every 6 months and receive payment for each visit;  Collusions of staff, who forge applications or forms in order to obtain money;  Inconsistency in the completion of the forms; this refers to the criteria not being applied uniformly. This should be understood in the context of social factors, which are not supposed to be considered in the making of a recommendation. 4.3.6 Medication and the disability grant From interviews held at various clinics with health workers, it became apparent that some beneficiaries discontinue their medication in order to stay impaired to continue receiving the TDG. At the Pretoria North Clinic a system has been implemented whereby recipients must take their medication for 6 months consecutively in order for an extension to be recommended. This has been implemented through the monitoring of recipients files and medication uptake records and has proven to work quite successfully. If a person fails to take medication for 6 months consecutively, the respective doctors do not recommend recipient applications. Although this system works well in this specific clinic it may not be the case for other clinics due to large volumes of patients, management problems and time constraints. During interviews held at the Pretoria Academic Hospital, a nurse who was asked about medication stated the following. “…. Although transport may be a problem for some people, they ‘forget’ their medicine and stay sick for longer so they can keep on getting the grant. But then again, some people may really have trouble in getting to the hospital in order to get their medication because of a real lack of money for transportation. It is sad, because instead of getting better, they only want money….’ 4.3.7 HIV/AIDS, TB and other ailments HIV/AIDS affects a large portion of the population, and the progression of the condition has a large impact on whether an applicant is eligible for a disability grant or not. Although rumours have been received that people are infecting themselves deliberately, interviews with staff at the Pretoria North Clinic indicated no incidences of this nature that they are aware of. According to Acess (2006) cases have been reported where HIV mothers stop taking their ARV in an effort to drive their CD4 count

Page: 74

Chapter 5: Examination of the Grant Administration System

down so as to access the grant. Further research needs to be conducted in order to substantiate such rumours. 4.3.8 Poverty From the interviews conducted with several health workers and social workers it appears that a lot of people who are unemployed apply for the DG because the grant is seen as a means of acquiring a regular income. This is further supported by the submission of Acess (Acess, 2006). It was stated that people with minor conditions, like very slight high blood pressure, apply for the grant (although often rejected) since there is a misconception amongst the populace that even the slightest impairment makes one eligible for the grant. A health worker at the Pretoria Academic Hospital also stated that a lot of applicants are turned away because of non-recommendations, but they return with new illnesses “…it appears that they will do anything to receive the grant…”. From the quantitative analysis of beneficiaries, it appears that there has been a sharp increase in the take-up of the DG for people between the ages of 50-59 for females and 54 -64 for males. This is the period where people are most vulnerable in terms of losing their jobs due to physical demands and also age, but they are still too young to access the Older Person’s Grant. 5. Conclusion In conclusion, possible weaknesses can be summarised as followed:  The FCG is intended to be a temporary arrangement, but in practice it is being utilised as a permanent/long-term arrangement as a result of the high number of orphans and in the context of poverty alleviation.  Due to the high caseloads of social workers, the CSG is often recommended in cases were FCG is appropriate.  In other cases the FCG is applied for by caregivers instead of the CSG due the higher monetary value of the FCG.  It appears that applicants of FCG do not understand the legal implications of applying for FCG.

Page: 75

Chapter 5: Examination of the Grant Administration System

 A valid 13-digit South African ID-number is not compulsory for foster children, and therefore, it is not possible to validate the existence of these children, whether the individual is still alive or to determine the age of the individual.  The huge backlogs with regard to the review of FCGs due to the lack of sufficient numbers of social workers, result in children staying in the foster care system until the age of 18 or 21.  The lack of a uniform court order numbering system contributes to insufficient controls of the system, which in turn opens-up possible areas where unintended effects can occur.  The FCG is utilised as an alternative to adoption (orphaned children), and the majority of families do not fulfil the financial criteria to adopt a child.  Inexperienced doctors or assessment panel members can lead to errors pertaining to information of the patient as well as inaccurate diagnoses being made.  Various security measures are in place to address the possibility of unintended effects and fraud, which are implemented by the Provinces.  TDGs are not lapsed according to the Regulations in all provinces, due to inaccurate address information of beneficiaries, huge backlogs and the required notification of pending lapses.  In the context of poverty and HIV/AIDS and unemployment, it appears that some doctors and assessment panel members are sympathetic toward applicants when making recommendations for DGs.  Cases have been reported where beneficiaries discontinue their medication in order to retain incapacity benefits.  The Department of Social Development does monitoring on a frequent basis, but very few of these recommendations are implemented.  The SOCPEN system can sustain large volumes of applications rather effortlessly, but the lack of sufficient human and technological resources at provincial and district level hampers the speed and volume of processing of applications. Due to the fact of the diverse populations across the country, a decentralised system for the dispensation of social assistance grants is the only feasible option for such an enterprise, but due to the above mentioned lack of resources, this contributes in its own way as no uniform control is exercised on a national level.  Chasing of targets in terms of beneficiary numbers can put administrators under pressure and this easily compromises accuracy.

Page: 76

Chapter 5: Examination of the Grant Administration System

 The complicated nature of the application forms can be cumbersome to both the applicants and the officials, especially with regards to the application of the means test. This, however, is instrumental in closing possible gaps where unintended effect can occur.

Page: 77

Chapter 6: Summary of Findings and Conclusion

Chapter 6: Summary of Findings and Conclusion
1. Introduction In South Africa, the provision of social assistance benefits constitutes the largest part of the government’s poverty alleviation programme. By December 2005, a total of 10.6 million people, including approximately 7.7 million children, were benefiting directly from the various grant types. Grant beneficiaries represent 22% of South Africa’s population, excluding other family members that may also benefit directly or indirectly because of them staying in the same household. The sizeable increase in grant uptakes has resulted in at least two general reactions:  On the one hand, stakeholders have applauded the government for the increase in grant uptakes but have also indicated that many people who should be benefiting from social assistance still do not.  On the other hand, both within the government and amongst the public, some concerns have been raised about the increase in grant uptakes. These concerns are mainly about financial sustainability, corruption and some unintended effects (perverse incentives) within the current South African Social Security System. This report is the first part of an ongoing programme of research concerning the incentive structures created by the configuration of social assistance grants in South Africa. Many of the potential perverse incentives created by the South African Social Security System result from its categorical nature in which benefits are provided to certain categories of people in financial need but not to others and, in addition, some grants have a higher monetary value than others. System will be under continuous pressure. 2. Understanding Incentives The incentives associated with the South African Social Security System are created by the provision of grant income only to people with particular characteristics. Some of these characteristics can be acquired through changing their behaviour in order to In the context of high unemployment, poverty and HIV/AIDS it is expected that the South African Security

Page: 78

Chapter 6: Summary of Findings and Conclusion

be able to successfully apply for grants with the prospect of becoming better off financially. It is therefore important to understand the complexity of human behaviour and other factors that can influence this behaviour in terms of incentives. The decision to change behaviour in order to change ones characteristics to become eligible for a grant is not a simple and straightforward one. In any decision (for instance to get pregnant to access an amount of R190) there are always certain costs as well as benefits involved. People further do not respond immediately and directly to incentives; for many there are delays, hesitations and doubts before they act. Incentives become perverse when an individual would be better off if they took a course of action in which someone else – normally a person or body in authority – disapproves. 3. Disability Grant The incentive concerns associated with the DG were as follows:  Self infection with infected materials;  Engaging in deliberately risky behaviour; and  Failure to take health enhancing medicines or operations in order to stay sick and continue claiming disability grants. International evidence, especially in the UK, US and Canada indicates that the increase in claiming disability benefits is a worldwide phenomenon. It is important to recognise that circumstantial evidence of migration into incapacity benefit is not always easy to interpret. For example, the coincidence of high levels of incapacity benefit receipt in areas of high unemployment is not necessarily evidence of shirking. No evidence could be found in the international literature of persons infecting themselves, or not taking life saving medicines in order to claim disability benefits. International literature further suggested that incapacity benefits are typically higher than unemployment and other benefits because they are envisaged to be long term rather than temporary. They often also meet the additional costs of disability and may also have a compensatory component. Local evidence suggests that the growing take-up of the DG should be seen in the context of poverty, unemployment, the impact of HIV/AIDS, increased awareness of the DG and the increased access to the South African Social Security System. Further to that, changes in administration and the implementation of the DG system

Page: 79

Chapter 6: Summary of Findings and Conclusion

has resulted in the inconsistent application of assessment criteria. Also many people from previously under-serviced areas who should have been in the system, started to exercise their rights to access social assistance benefits. Further local evidence also suggests many instances where applicants change their behaviour in order to obtain the DG, although much of the evidence remains anecdotal. Moreover, such evidence needs to be interpreted with care. When, for example, a medical officer at a tuberculosis (TB) clinic opined that ”…..it seems sometimes to me that developing TB is a kind of a blessing for some of them, that they now stand a chance of getting a grant” he was not necessarily suggesting illicit behaviour on the part of beneficiaries but instead remarking on the ironic circumstance of people needing to be sick in order to have access to a stable and more adequate income. It was further stated that in some of the poorer provinces, the DG is known as the “poverty grant” because it is such an important source of income, sustains so many households, and may be mistakenly viewed by some as a generic anti-poverty measure rather than as a grant for persons with disabilities. The analysis of the SOCPEN data confirmed that the rapid increase in uptake of the TDG commenced prior to 2001. The increase in the uptake of the PDG did not occur until after 2001 when it coincided with an apparent reduction in the severity of the conditions for which the PDG and TDG were to be awarded. Further to this it was found that the number and percentage of rejected/not recommended applications have dropped significantly since 1997. Less than 1% (16,289) of applications were rejected in March 2005, compared to 8% (31,821) during 1997. This is most likely to reflect the new more relaxed benefit conditions although one would expect some fall in the number of rejected claims as people become more familiar with the grant system. The feminisation of the DG beneficiaries was also confirmed by the analysis of the SOCPEN data. The majority of women tend to uptake the DG later in life compared to that of men. Just over half the women receiving the DG are also accessing grants for children; whether women who cannot work (disabled) are able to provide adequate personal care to children will depend on the health condition and individual circumstances but it is a phenomenon that is likely to continue even among those who are not, for as long as women continue to take the principal responsibility for childcare.

Page: 80

Chapter 6: Summary of Findings and Conclusion

Excluding cases that became eligible for the OPG, it appeared that the majority of DG beneficiaries have remained on the system, irrespective of whether they received a TDG or a PDG. The biggest migration from the TDG to the PDG (28%) happened during 1999 to 2001 and again from 2003 to 2005 (18%). A very low percentage of DG beneficiaries reported being employed, indicating that the DG is well–targeted and that few people are illicitly supplementing their grant income with other earnings. According to the Social Assistance Act (Act 13 of 2004) the DG is intended to be a compensatory grant and not an unemployment or poverty alleviation grant. It appears that many officials and doctors find themselves in ambiguous situations where they recognise both the financial and health needs of people and constitutional right to social security and award the grant believing it to be a form of poverty relief. This is further legitimated by the fact that the DG is not linked to a person’s incapacity but rather to an illness. Another administrative problem encountered was the fact that the TDG is not, as a rule, lapsed and therefore beneficiaries tend to stay on the system for long periods of time. This could act as a factor encouraging people to enter the grant system through the TDG, knowing that they would get financial assistance for a substantial period of time. It was further reported that even if people are unsuccessful on first application, they return with new ailments until such time as their applications are approved. The issue of people discontinuing the taking of their medicines in order to stay in the grant system was tested at a few clinics in Gauteng and although in most cases officials confirmed this behaviour, this phenomenon will be investigated in greater detail when the proposed qualitative research study is launched. In summary, the quantitative analysis of the SOCPEN data did not provide any evidence of people changing their behaviour in order to access the DG. It only confirmed the increase in uptake and the feminization of DG beneficiaries. Local evidence and interviews held, however, suggest that perverse behaviour has become apparent amongst some beneficiaries. Further to this, it appears that in some instances, the DG is used as a poverty alleviation grant rather than a compensatory grant.

Page: 81

Chapter 6: Summary of Findings and Conclusion

4.

Child Support Grant The incentive concern associated with the CSG was as follows:  The CSG provides an incentive for especially teenagers to have a child in order to access the grant, and therefore creating an increase in teenage pregnancies. International evidence found that the incidence of teenage pregnancy is high in the United States and United Kingdom where benefit levels are low. It also indicated that the link between social grants and pregnancy is most discussed in the United States, where Charles Murray advocated the ending of benefits. However, his position was challenged by evidence that increases in lone parenthood and teenage births were trends that were well established prior to the provision of higher benefits in the 1960 and 1970. Local evidence suggests that South Africa already had a relatively high teenage fertility rate before the introduction of the CSG. Demographers pointed out that although the total fertility rate for the country had declined, the teenage fertility rate remained relatively high and did not show the same decline. Some demographers indicated that there was evidence of an increase in teenage births between 1995 and 2005, while others indicated that pre-teen and early teen fertility had remained constant, fertility had increased amongst girls in their late teens or early twenties. In lieu of this, it appears that there is no consensus whether teenage fertility is increasing or decreasing, however they agree that levels remain high. Reasons for teenage fertility and family formation are complex and culturally embedded. Having children out of wedlock and teenage births were a wellestablished phenomena under certain sections of the population long before the introduction of the CSG. The quantitative analysis revealed that there has been a huge growth in the number of CSG beneficiaries in recent years. However, if a comparison is made between the numbers of teenagers receiving the CSG with the incidence of teenage births in the national population, the quantitative analysis suggests that the take-up rate of the CSG by teenage mothers remains low. Teenagers (younger than 20 years) represent 5% of all CSG recipients registered at October 2005. These teenagers claiming the

Page: 82

Chapter 6: Summary of Findings and Conclusion

CSG were considerably lower (13% lower) than the proportion of teenage mothers in the South African population (mothers younger than 30 years). When the CSG was introduced for younger children, one of the main reasons was to provide financial support during the window of nutritional opportunity period (within the first three years of a child’s life) when good nutrition has the most significant effect on the development of a child. However, the majority (53%) of CSG recipients only apply for the CSG when their children are older. Reasons for the relatively low uptake probably include the fact that caregivers struggle to get the right documentation and do not always have the necessary knowledge about the CSG. From the analysis of SOCPEN data, no link could be established between the availability of the CSG and the fertility behaviour of teenagers in the South African population. Furthermore, it was evidenced that the percentage of teenage mothers on the system were low, and that most caregivers only apply later for the CSG. In addition, the majority of caregivers only receive one CSG, and resultantly the issue of “farming with children” could also be ruled out. 4. Foster Child Grant The incentive concerns associated with the FCG were as follows:  To foster a child within the biological family context in order to receive a higher grant amount; and  To foster a child after the age of 14 years when the child is no longer eligible for the Child Support Grant. Local evidence reveals that informal fostering is a well-established practice in certain sections of the South African population. It further suggested that foster care is a valuable form of alternative care for children whose parents are dead or unable to care for them. However, the legal and policy framework developed in South Africa for foster care services were based on Western models of family life and childcare practices. This has resulted in a system of foster care that is inadequate in meeting the disparate needs of South African children. Evidence of this is the extent to which foster care has been used as a form of income support for poor families rather than a form of alternative care for children found in need of care due to parental unfitness.

Page: 83

Chapter 6: Summary of Findings and Conclusion

Factors such as the impact of the CSG, growing numbers of children requiring care due to HIV/AIDS and ineffective family reunification services, have increased pressure on the foster care system. At the same time it appears that the foster care system has failed in adequately meeting the needs of children requiring placement outside the family context. The quantitative analysis revealed that the majority of FCGs are paid to children who have lost one or both parents and that the majority of foster parents are related to the foster children. In 41% of cases, the foster parent was the grandmother, in 30% of the cases the foster parent was the aunt, and in 12% of cases other relatives were the foster parents. Only in 9% of the cases were the foster parents not related to the foster child. Nearly two (2) out of three (3) foster parents receive more than one grant type. Many are also recipients of the OPG, the DG and or the CSG. Because the majority of foster children are orphans, their placements are expected to be longterm. However, the majority of orphans are not supported through receipt of the FCG and the FCG caseloads could rise substantially if more families took this course of action in the event of parents dying. The quantitative analysis further found that children enter formal foster care when they are older than seven (7) years. Fifty two percent of foster children were 13 years or older. Only 10% were younger than seven (7) years and 8% were older than 17 years. The majority of foster children are in the age band where they are no longer eligible for the CSG. The FCG was not intended to substitute the CSG in the case of orphans and the extent to which it does could partially be explained by the weaknesses in the administration system for foster care. There are too few Social Workers and Commissioners at the Children’s Courts to handle the high load of cases. The caseloads of social workers are high, which results in reviews (every two years) not being carried out and therefore the FCG almost becomes a permanent grant until the children reach the age of 18. The fact that ID numbers for foster children are not required on the SOCPEN system makes it difficult to verify the age of the foster children. The loopholes in the administration system also makes it possible for children to claim both the CSG and the FCG since the FCG does not require a child ID-number.

Page: 84

Chapter 6: Summary of Findings and Conclusion

The foster care system is also designed to make provision for the rehabilitation of parents (where applicable) with the intention to reunite the child(ren) with their biological parents. From interviews with social workers, it appears that the rehabilitation of parents does not always take place as a result of the shortage/high workload of social workers. This increases the notion that foster care is seen as a permanent arrangement rather than a temporary arrangement. Informal kinship care is a well-established practice for which formal intervention through the child protection system is in many cases unnecessary. Many cases are channelled through the child protection system that does not necessarily need protection, but rather financial support. It is mostly grandmothers or other relatives who act as foster parents. Grandmothers claiming foster care are therefore not a new phenomenon. It was also found that children who lost one or both their parents and whose grandmothers were looking after them were receiving CSG in one instance while others under the same circumstances received the FCG. In summary, the quantitative analysis confirmed that family members foster most children currently registered on the SOCPEN system. Due to the fact that most children are orphans and no incentives exist to adopt, it can be expected that the foster care could become a permanent arrangement. Further indications point to the fact that most children under the foster care system are in need of financial assistance rather than child protection. 6. CONCLUSION The review of literature indicated that incentives to access social grants have existed as long as means-test-based social security systems have been around. Available literature reveals numerous configurations, dynamics and possible incentives and perverse incentives in the area of social security and welfare systems internationally. The issue is thus certainly not unique to South Africa. In a social security system that is rather categorical (South African) than universal, and in the context of high poverty levels and the impact of HIV/Aids, incentives exist for people to change their behaviour in order to gain an income through one of the available grants. These incentives are not necessarily perverse. Further to this, local evidence also indicates that given the high levels of unemployment and poverty, the impact of HIV/AIDS and the growing awareness of

Page: 85

Chapter 6: Summary of Findings and Conclusion

citizen’s rights to social security, huge demands on the South African Social Security System will continue. For as long as the current categorical approach of the South African Social Security System continues to exhibit gaps in coverage, the DG and FCG do provide incentives (not necessarily perverse) for people to access these grants. Although no evidence could be found in the quantitative analysis of the Socpen data that link the FCG, CSG and DG to the perverse issues that were researched, it is realised that especially the FCG and the DG are creating incentives for people to use these grants as a form of poverty relief in poor areas. These grants will remain under pressure to cater more widely than was originally intended when the systems were designed. Most of the concerns about possible perverse incentives are related to impoverished people requiring income support within a system that does not provide universal coverage. This opens the system to persons who falls outside the respective age groupings. It appears that within these limitations, officials were for years already responsive to impoverishment, sometimes beyond the intention of the particular grant.

Page: 86

Bibliography

BIBLIOGRAPHY
Aislinn Delany, Debbie Budlender, Tom Moultrie, Margie Schneider & Zaid Kimmie (2005), Investigation into the Increase in Uptake of Disability and Care Dependency Grants since December 2001, Researched for National Treasury and Department of Social Development, Johannesburg, Community Agency for Social Enquiry (confidential). Alcock, P. Beatly, T. Fothergill, S. Macmillan R. and S. Yeandle (2003). Work to Welfare: How men become detached from the labour market. Cambridge UP. Alliance for Children (2006), http://216.239.59.104/search?q=cache:6lPmnver3sMJ:www.acess.org.za/documents/extendi ng_grant.pdf+%22perverse+incentives%22+and+%22social+grants%22&hl=en Amoateng, Yao (2006), Research on the declining incidence of marriage in South Africa, Pretoria, Human Sciences Research Council. Anrig, Greg Jr (undated), http://www.socsec.org/publications.asp?pubid=530 Armando Barrientos (2005), Non-contributory pensions and poverty reduction in Brazil and South Africa, IDPM Manchester, January. Armando Barrientos and Jocelyn DeJong (undated), Child Poverty and Cash Transfers, CHIP Report 4. Bane ,May Jo and David T. Ellwood (1994), Welfare Realities: From Rhetoric to Reform, Harvard University Press. Conrad Barberton (undated), http://216.239.59.104/search?q=cache:Jop0_opZhzsJ:www.idasa.org.za/gbOutputFiles.asp %3FWriteContent%3DY%26RID%3D1424+%22perverse+incentives%22+and+%22social+gr ants%22&hl=en Basic Income Grant Coalition (2005), http://www.sarpn.org.za/documents/d0001135/Post_budget.pdf

Page: 87

Bibliography

Brink PM (1999). Foster Care as Substitute Care. Cape Town: Discussion paper for South African Law Commission. Brink PM (2006). Thoughts on the Foster Child Grant. Cape Town: Personal memorandum. Budlender D, Rosa S & Hall K (2005). At all Costs? Applying the means test for the Child Support Grant. Cape Town: Children’s Institute and Centre for Actuarial Research, University of Cape Town. Cackett, Ben and David Green (2005), Work And Benefit Dependency Since 1997, http://72.14.203.104/search?q=cache:BOC4S7htDSYJ:www.civitas.org.uk/msword/workDepe ndencyBriefing.doc+%22social+security%22%22perverse+incentives%22&hl=en Carlson, Allan C. (2005), Making Social Security Reform Family-Friendly,

http://www.frc.org/get.cfm?i=PL05C01 CASE (2005) Investigation into the Increase in Uptake of Disability and Care Dependency Grants since December 2001, Community Agency for Social Enquiry, Report commissioned by The National Treasury and The Department of Social Development Case A, Hosegood V & Lund F. (2003). The Reach of the South African Child Support Grant: Evidence from KwaZulu-Natal. Working Paper no 33: Durban: Centre for Social and Development Studies, University of Natal. Case A, Hosegood V & Lund F (2005). The reach and impact of Child Support Grants: evidence from KwaZulu-Natal. Development South Africa vol 22 no 4 pp 467-482. Children’s Institute. (2006). Facts about uptake of the Child Support Grant. Fact Sheet No.3 of 2006. Cape Town: Children’s Institute, University of Cape Town. COSATU, http://www.cosatu.org.za/docs/2000/ssaudit.htm De Koker C, De Waal L & Vorster JH. (2006). A profile of social security beneficiaries in South Africa. Stellenbosch: Department of Sociology & Social Anthropology, University of Stellenbosch.

Page: 88

Bibliography

Ernst and Young and SITA (2003), Roadmap for improving service delivery in the SOCPEN environment, Confidential report for Department of Social Development. Gassmann, Franziska (2004), How to Improve Access to Social Protection for the Poor? Lessons from the Social Assistance Reform in Latvia, Eindhoven, December. Gelback, Jonah B. & Lant Pritchett (1997), More for the poor is less for the poor: the politics of targeting, World Bank Research Group, Washington DC, World Bank. Goldblatt Beth and Solange Rosa (2005) Implementation of The Child Support Grant: A Study of Four Provinces and Recommendations for Improved Service Delivery, Centre for Applied Legal Studies, University of the Witwatersrand, Children’s Institute, University of Cape Town. Harber M (1999). Social policy implications for the care and welfare of children affected by HIV/AIDS in KwaZulu-Natal. Research Report No. 17. Durban: School of Development Studies, University of KwaZulu-Natal. Hartman, David A. (1997), The Economic Assault of the Welfare State on the Traditional Family, World Congress of Families, Czech Republic. Henry J. Aaron (2005), Our best anti-poverty program, http://www.prospect.org/web/viewprint.ww?id=9026 Hickey, Sam (2005), Thinking about the politics of social protection in Africa: towards a contextual and theoretical approach, Social Protection for Chronic Poverty Conference, IDPM Manchester February. Jacobs M, Shung-King M & Smith C (eds) (2005). South African Child Gauge 2005. Cape Town: Children’s Institute, University of Cape Town. Kamerman, Sheila B. (1998), From Vienna to Jerusalem: In Search of Evidence, International Social Security Association, Jerusalem. Kamerman, Sheila B. and Alfred J. Kahn (1999), Child and Family Policies in an Era of Social Policy Retrenchment and Restructuring’ (Luxembourg Income Study).

Page: 89

Bibliography

Larin, Kathy and Robert Greenstein (1998), http://www.cbpp.org/12-15-98socsec.htm Lodemel, I and H. Trickey (2001) (eds). An Offer You Can’t Refuse: Workfare in an international perspective. Bristol: Policy Press. Louw, Megan (2003), Orphans of the HIV/AIDS epidemic: an impending crisis for South African Development, Bureau for Economic Research, Stellenbosch University, Stellenbosch Economic Working Papers 1/2003. http://www.ber.sun.ac.za/downloads/2003/working_papers/WP-01-2003.pdf Lund Committee on Child and Family Support (1996). Report of the Lund Committee on Child and family Support. Pretoria: SA Government Printers. Makiwane M & Udjo EO (2006). A Quantitative Study on Fertility Trends in South Africa, and their Relationship with the Introduction of Child Support Grant. Pretoria: Child, Youth, Family and social Development, Human Sciences Research Council. Meintjies, Helen, Debbie Budlender, Sonja Giese, Leigh Johnson (2003), Children in need of care or in need of cash? Questioning social security provisions for orphans in the context of the SA Aids pandemic, Children’s Institute and Centre for Actuarial Research, University of Cape Town, http://www.health-e.org.za/resources/foster_care.pdf. Mehrota, Santosh (undated), Improving Child Wellbeing in Developing Countries What Do We Know? What Can be Done? Moore, Stephen (1995), http://www.cato.org/testimony/ct-moore.html Moultrie TA and Dorrington R (2005). Estimation of fertility from the 2001 South Africa Census data. CARe Monograph No.9. Cape Town: Centre for Actuarial Research, University of Cape Town. Naicker P (2005). The Audit Report on Services to Children in South Africa. Pretoria: Department of Social Development

Page: 90

Bibliography

Nattrass N (2006). Disability and Welfare in South Africa’s Era of Unemployment and AIDS. CSSR Working Paper No. 147. Cape Town: Centre for Social Science Research, University of Cape Town. Preston-Whyte E (1993). Women who are not married: fertility, ‘illegitimacy’, and the nature of households and domestic groups among single African women in Durban. South African Journal of sociology 24 (3) pp 63-71. Shepherd, Andrew, Rachel Marcus and Armando Barrientos (2004), Policy Paper on Social Protection written for DFID, September. Spicker P (2005). Understanding Incentives. Unpublished Working Paper prepared for the Department of Social Development for the project on incentives of social assistance grants. Aberdeen: Robert Gordon University. Simkins C & Dlamini T (1992). The Problem of Supporting Poor Children. In Burman S & Preston-Whyte E (eds). Questionable Issue: Illegitimacy in South Africa. Cape Town: Oxford University Press. South African Council of Churches, http://www.sacc-ct.org.za/BIGfact6.html Taylor Committee (1999), http://www.sarpn.org.za/CountryPovertyPapers/SouthAfrica/taylor/report5.php The Children’s Institute (2003), http://web.uct.ac.za/depts/ci/plr/pdf/subs/sub_socsec_ci.pdf Statistics South Africa. (2005a). Labour Force Survey. Pretoria: Stats SA Statistics South Africa. (2005c). Mid-year population estimates. Pretoria: StatsSA. Statistics South Africa. (2005d). Prevalence of Disability in South Africa. Report No. 03-02-44 (2001). Pretoria: StatsSA. Statistics South Africa. (2005e). Stages in the life of South Africans. Report No. 03-02-46 (2001). Pretoria: StatsSA.

Page: 91

Bibliography

Taylor Committee (2002). Transforming the Present – Protecting the Future. Draft Consolidated Report. Pretoria: Report of the Committee of Inquiry into a Comprehensive System of Social Security for South Africa. van der Berg, Servaas (1999), http://216.239.59.104/search?q=cache:F_qeGuxIhNUJ:datafirst.cssr.uct.ac.za/resource/pape rs/vdberg_9930.pdf+%22perverse+incentives%22+and+%22social+grants%22&hl=en van der Berg, Servaas (2002), Issues in South African Social Security, Bureau for Economic Research, University of Stellenbosch, http://www.ber.sun.ac.za/downloads/2002/working_papers/WP-01-2002.pdf Van der Berg S, Burger Ronelle, Burger Rulof, Louw M & Yu, D (2005). Trends in poverty and inequality since the political transition. Stellenbosch: University of Stellenbosch, Bureau for Economic Research Vorster JH, Rossouw HM & Muller GJ (2000). Phasing out the State Maintenance Grant within the context of Developmental Social Welfare. Stellenbosch: Datadesk, Department of Sociology, University of Stellenbosch. Vorster JH, Eigelaar-Meets I, Poole C & Rossouw HM. (2004). A profile of social security beneficiaries in selected districts in the Western Cape. Stellenbosch Department of Sociology: University of Stellenbosch. Walker, Robert (2005), Social security and welfare, Maidenhead, Open University Press. Walker R (2006). Untitled memorandum to the research team of the project on incentives of social assistance grants for the Department of Social Development. Nottingham: University of Nottingham. Walker, Robert with Karl Ashworth (1994). Poverty Dynamics, Issues and Examples. Ateershit Arebery. Weaver, R. Kent (2000). Ending Welfare as We Know It. Washington DC. Brookings Institution Press.

Page: 92

Bibliography

Wilson, William J. (1987). The Truly Disadvantaged. Chicago: Chicago University Press. Woods, Karen (1997), Welfare reform that really works, http://www.effwa.org/highlighters/v07_n4.php Woolard, I. 2003. Social Assistance Grants, Poverty and Economic Growth in South Africa. Working Paper. Cape Town: Development Policy Research Unit, University of Cape Town. Woolard, Ingrid, Michael Carter & Jorge Agüero (2005). Analysis of the Child Support Grant: Evidence from the KwaZulu-Natal Income Dynamics Study, 1993-2004, Pretoria:

Page: 93

Annexure 1

Understanding incentives
By Paul Spicker Although the idea of "incentives" is widely used in economic a discussions, there has not been much thought about what an "incentive" actually is. There are three core elements in the way that the idea of incentives is used. First, Incentives are about potential gains, rewards, pay-offs, or desired outcomes. When there are incentives, people get something different from their choices than they would if there was no incentive. The gain that people stand to receive might be money, social status, better health, or any of a wide range of benefits: the test is that it is something they want to have, and so that it affects the choices they make. A disincentive, conversely, is about a potential loss or penalty. Second, incentives are marginal approaches. An incentive implies the introduction of a motivating factor -that is, something different, or something new -which changes the patern of existing choices. When a firm offers to sell a service, that is not an "incentive" to buy; but when it lowers its price to draw in custom, it is. Incentives are about the things that make a difference to choices. They are about potential gains -about what will happen (or at least, what is expected to happen) if people behave differently. The idea of "gain" is still important -a marginal change which alters the patterns of consumption (such as repositioning a product in the market) is not an incentive -but not all gains have an incentive effect. Because incentives are about future prospects, they depend crucially on information and expectations. A gain that people did not realise might be there is not an incentive. A reward that is introduced after the event is not an incentive. If something has already happened, it is not an "incentive". Changes in circumstances before a decision is made can also affect the choices people make, but they change the basis of decisions rather than the outcome. Parenthood, bereavement and divorce lead to people acting differently from the way they did before, but they are not incentives. Equally, changing the conditions under which a decision is made is not usually thought of as an incentive,. Good weather can encourage to people going to tourist destinations, and a perception that there is increased competition in the labour market can encourage people to go into higher education, but these are not "incentives". For the same reason, it is not usually thought of as

Page: A-1

Annexure 1

an incentive to remove an obstacle to action -for example, making discrimination illegal, or providing child care for someone who has not been able to work otherwise. These actions make choices possible, rather than changing the outcome of the choice. (This point is not universally accepted -EU documents identify child care as an "incentive" (Council of the European Union but I think that is because they treat "incentive and support structures" as a single issue.) Third, incentives are about motivation. It is implicit in the idea that incentives. influence action, that the actions are capable of being influenced, and that the choices are eligible, or capable of being chosen. An inducement to do something that people cannot do is not an incentive. We do not usually talk about incentives in fields where patterns of behaviour are settled beyond thinking. The availability of free medical care is not an incentive to have a tracheotomy, and the cost of residential care is not an incentive to murder your aged parents. Beyond the question of feasibility, motivation necessarily depends on a range of conflicting and competing considerations, including personal preference, conflicting and competing incentives and the context in which an incentive is instituted. For an action to be an incentive, then, there are three criteria which ought to be met: These are:

• • •

potential gain - that the supposed incentive implies a desired change in outcomes; marginal effect - that the factor has a marginal influence in the context where it is applied; and influence on motivation - that people have a choice, that the incentive is capable of being chosen, and so that the incentive is capable of influencing action. All three elements are necessary to the concept. If there is no gain, if the gain is not in the future or expected, or if the gain does not affect people's choices, there are no "incentives".

Incentives in theory In public policy, incentives are primarily a method of operation. This reflects the use of the term in ordinary language, where an incentive is a way of stimulating and encouraging someone to do something - like a competition prize, a reward for good behaviour, or a carrot for a donkey. The popular sense of the term "incentive" is based in the intention which guides

Page: A-2

Annexure 1

the offer; a prize is offered as an "incentive" even if no-one enters the competition. Incentives make a contribution to motivation, rather than being the only reason, and the effectiveness of incentives depends on the relative contribution they make. In economics, by contrast, incentives can be any potential gain, or any marginal factor influencing choices through altering outcomes. The economic approach encompasses the ordinary use of the term, but because the term is used so generally it goes well beyond it. The language of incentives in economics treats incentives as effects rather than as intended actions: wages, prices, taxes and profits are commonly construed as offering incentives or disincentives, even if no-one intended them to be used that way. The economic approach can include a wide range of factors which influence behaviour, including personal situation, circumstances, and calculations of likely benefit. The idea of incentives in economics is used in two main senses. The primary use relates to the analysis of aggregate behaviour. Changes in the behaviour of an aggregate group of people happen throughout the process of economic interaction. Supply and demand curves generally represent aggregate preferences, rather than individual action. Because the idea of incentives is used so widely in economics, the kinds of function which are described in this way are many and varied. On one hand, many incentive functions are concerned with supply functions. Samuelson and Nordhaus suggest that incentives typically "denote adequate returns to working, saving and entrepreneurship." (Samuelson, Nordhaus, 1995, p 617) On the other hand, incentive analysis can also used to refer to prices and consumption. When prices go up, demand typically falls; when prices fall, demand increases. It makes perfectly good sense to say that lower prices act as an incentive to buy the item, and that higher prices act as a disincentive. We might say, for example, that an increase in petrol prices acts as an incentive to leave cars at home and take alternative forms of transport instead. It is always possible to qualify statements of this sort - there are commodities where higher prices act as an incentive to buy - but the broad statement is well-founded: price is generally understood as a motivating factor. Price is an important signal, but it is not the only consideration. The idea of 'elasticity' refers to the propensity of an aggregate population to respond to different conditions. Elasticity can, in some cases, be zero, or almost zero. Life insurance or the costs of care create a potential gain for surviving relatives, but no financial inducement is going to get people to murder their parents in any large numbers. Economics may be a dismal science, but it is not as cynical as some people seem to assume. There is no necessary assumption that people must respond

Page: A-3

Annexure 1

directly to financial stimuli. Whether or not a measure has an incentive effect must, then, depend on the context in which the incentive is applied. The way that people behave is shaped by many factors, and changes in any of them can affect the way that people respond. Ordinarily, aggregate functions (like demand and supply curves) depend on the contribution of a range of influencing factors. The composition, and the responsiveness, of aggregate behaviour to change depends on the issue and the conditions where it occurs. Changes in the contributory factors affect the shape and the position of the curve. Equally, the responsiveness of such functions depends on the context and the thing which is demanded. The assumption that an increase in tax or benefits is likely to have a disincentive effect should not be taken as self-evident. Where a function is inelastic, even a large change might have little effect. Changing the behaviour of people in aggregate, or on average, is not the same as changing the behaviour of every individual. An incentive might not affect many people; it only has to affect some. When prices change, the key decisions are made by people at the margins, the people whose decisions are likely to be altered. A prize competition can be used to promote cultural activity, but relatively few people will enter. Incentives, in this sense, fit with a general approach which is concerned to shift people in a desired direction, rather than to alter the behaviour of each and every person. The other main economic use of the term "incentives" is, by contrast, strongly expressed in individualistic terms. Statements made about "individuals" are based, not on individual psychology, but on the behaviour of an "average" individual, "homo economicus". Both analytical welfare economics and "rational choice" models attempt to analyse issues like preference, cooperation and relationships to groups in terms of the "rational" utilitymaximising individual. "Incentive theory" is concerned with issues like competing incentives and conflicts between principals and agents; assessments of potential gains are modelled to determine the effect of rewards and punishments in influencing negotiations, I have not referred to this literature - directly in this paper, because despite its name it has very little direct application to the issues in public policy I am concerned with. The existence of rewards and payoffs is not sufficient to understand incentive motivation, which is marginal and depends on context; there are logical problems in moving from the analysis of individual behaviour and motivation to group behaviour, or vice-versa; and the use of rewards and punishments by government is rarely done solely with the intention of producing - incentive

Page: A-4

Annexure 1

effects. It is in the nature of the analysis, then, that it leaves out important dimensions in the understanding of policy. Although both rational choice and game theory are capable of incorporating pre-existing motivation and social norms, the concept of the self-interested individual tends to be taken ceteris paribus, which means that the existence of an inducement is taken as sufficient reason for action. In the process, some of the reservations attached to aggregate analysis in particular, the importance of elasticity of response - are likely to be lost. This is the core problem with the analysis used by Charles Murray in Losing Ground, which attempts to explain the behaviour of welfare recipients. He writes: 1. People respond to incentives and disincentives. Sticks and carrots work. 2. People are not inherently hard working or moral. In the absence of countervailing influences, people will avoid work and be amoral. 3. People must be held responsible for their actions. ..." (Murray, 1984) It is difficult, however, to imagine in what circumstances people can exist "in the absence of countervailing influences." Murray's ideal couple, "Harold" and "Phyllis", are not affected by the social, economic or cultural issues that affect other people. They seem to have no opinions about work, unless it is that work is undesirable. They have no parents, no schooling and no socialisation. In Murray's world, it is not just true that people respond to incentives and disincentives; they seem to respond to nothing else. This reductionist view of individual behaviour has its origins in the idea of "psychological hedonism". "Nature has placed mankind", Jeremy Bentharn wrote, "under the governance of two sovereign masters, pain and pleasure." (Bentham, 1789, ch 1 para 1.) Bentham's view was profoundly influential in its day: it was the core principle behind the idea of the penitentiary, and it has been seen as the founding principle of the reformed Poor Law, and the decision to make the condition of paupers "less eligible" than the position of the independent labourer. The view means, in a nutshell, that if you want people to do things, you make it pleasant; if you want them not to do it, you make it unpleasant. However, the belief that people will do whatever is pleasant, and avoid what is unpleasant, is at odds with reality. People clearly do not seek pleasure and avoid pain, which has led economists to substitute the general idea of "utility". There is no evidence that individuals do, either individually or on in aggregate, maximise utility, but if they do, it is because the idea is circular: "utility" is identified as the quality of what people have actually chosen.

Page: A-5

Annexure 1

The Benthamite view has come down into several common economic saws: that people will maximise utility; that they will always prefer to increase their material welfare; that people will respond to inducements by pursuing them, and that they will respond to negative effects by avoiding them. Murray's assertion that "sticks and carrots work" is based in the same philosophy. If people were built like Skinner's pigeons, responding automatically to predetermined stimuli, this might be true. If we accept that people do respond to stimuli, which is uncertain, we do still not know that they will respond in the particular circumstances where the incentives and disincentives are applied. We do not know that other things are equal: we do not know the alternatives, the costs, the constraints. But even if other things are equal, we cannot tell from the knowledge that people stand to gain from a change in conditions what their response will be. Sticks and carrots might work, but they might not. Recasting incentives Incentives cannot be understood in isolation. They have a marginal influence. That must mean that they vary according to the context where they are applied. If incentives are concerned with a potential gain, the first question is whether or not people are gaining. That is not self-evident, because it is not the same question as whether they are gaining when "other things are equal". It depends, necessarily, on a balance of factors, taking into account losses as well as gains. Each person is faced with an individual choice, that can be represented in terms of a balance sheet. In other words, incentives can be understood in terms of a calculation of costs and benefits. From the opening section, certain conditions ought to be satisfied if a measure or change in circumstances is to be held to have an incentive effect. Explaining behaviour in terms of costs and benefits meets all the criteria.

1. Potential gain. The desired change in outcome is identifiable in terms of the balance
of costs and benefits.

2. Motivation. The contribution made by the incentive in the context of the individual
calculation depends on the other factors which are taken into account.

3. Marginal effect. Incentives and disincentives are marginal factors, not determinants;
they have the potential to tip the balance, but they will not do so in every case.

Page: A-6

Annexure 1

An illustration of how a cost-benefit approach can be applied might be arguments about incentives to work. When we read that unemployment benefits are a disincentive to work, we are being told that being unemployed is a desirable outcome (a potential gain); that unemployment benefit has a discernable marginal effect on choices about working, and that unemployment benefits influence motivation, outweighing other factors. Each of these propositions, as it stands, is questionable. (1) Being unemployed is a desirable outcome. This view dismisses issues of stigma, boredom, lack of direction, and the consequences of unemployment for ill health, exclusion and poverty (Gallie, 1999). There is some evidence of detachment from the labour market for a minority of older men, and within that group, some people - mainly more affluent people choosing to take early retirement - do consider not working desirable. Most, however, do not. (Alcock et al, 2003) (2) Unemployment benefits have a discernable effect on choices about working. Overall, a very substantial majority of people do choose to work, and the vast majority of people who experience unemployment subsequently return to work. If unemployment benefits have an effect, the effect is limited. In relation to long-term unemployed people, "the level of unemployment benefit has no explanatory value in considering the labour market behaviour of the long-term unemployed." (L Dawes, 1993, cited Alcock et al, 2003, p 13) There is some evidence in the UK which suggests that there may be an impact on the position of low-paid wives of husbands who are in receipt of benefits (Davies et al, 1994). Unemployment benefits tend to be limited both in financial terms and through a series of conditions imposed on receipt (for example, suspension of benefit on leaving work without "good cause" or on refusal of employment opportunities: Atkinson, 1995). Systems are designed to limit their relative attractiveness, and if there is a potential to tip the balance, it has not been realised in practice. (3) The influence of unemployment benefit outweighs other factors. Unemployment is structured and conditioned by a range of economic factors. Some unemployment may be voluntary, but much is not. The forms of non-voluntary unemployment include, amongst others, frictional, seasonal, casual, demanddeficient, structural and exclusionary unemployment. Where people are able to make

Page: A-7

Annexure 1

decisions about work, there are many other factors besides benefits that influence decisions - typically financial rewards in employment, social status, social pressure and the desirability of roles related to work. Understanding incentives in terms of costs and benefits makes it possible to identify the main issues more clearly. Incentives to work are not a simple choice between working and not working, but a calculation of the costs and benefits of working and not working. The costs of working are principally the opportunity cost of time, the loss of unemployment assistance and the associated costs of work, including e.g. travel and child care. The benefits of working are financial, in terms of earnings, social, in terms of social inclusion, status, and personal, in terms of self-actualisation. The costs of not working, which are equally benefits of working, are not only financial; they include stigma, degradation, isolation, boredom, the denial of opportunities and social exclusion. Since the benefits of employment are large, the benefits of being unemployed are small, and costs of unemployment are considerable, the balance which leads overwhelmingly to people working is easily identified, predictable and unsurprising. This does not mean that unemployment assistance will have no incentive effects, but the conditions in which that may apply are relatively restricted, and tend to be confined to the limited cases where unemployment is voluntary, work is for very low income and financial decisions outweigh social ones. The calculation implies that such effects would be small - which is consistent with the empirical evidence. (Atkinson, Mogensen, 1993)

Page: A-8

Annexure 1

Figure 1 shows a simple graphical representation of incentives in terms of a cost-benefit decision. The horizontal axis shows the balance between costs and benefits. As the surplus of benefit over cost increases, so does quantity: the function is curved because of diminishing marginal returns. Conversely, an excess of costs over benefits (the dotted line) will lead to a reduction in quantity demanded or supplied. Incentives increase the balance of benefits over costs; disincentives increase the balance of costs over benefits. As with any generalisation, this representation embodies some assumptions. The first is that, ceteris paribus, people respond to benefits by doing more rather than less. This is tenable, but it is not necessarily true: for example, some people may respond to increased rewards by relaxing their efforts (implying that the right-hand part of the curve dips downward). The actual shape of the function depends on the context, norms and circumstances it is being applied to. The second assumption is that costs and benefits can be set directly against each other. There may however be circumstances where the values of cost and benefit are interdependent; according to the psychology of "cognitive dissonance", people's perception of benefit depends on the number and intensity of costs, and vice-versa (Festinger, 1957). Third, the function has been assumed to be continuous: this is more likely to be true in aggregate than it may be at individual level, where there may be discontinuities, There is some evidence, too, to suggest that responses to economic stimuli may be delayed by initial inertia, reflecting the time, trouble and effort of gathering information, making judgments and making alternative arrangements (Madrian, Shea, 200 1). Fourth, the function describes marginal change; from an initial equilibrium, the origin would represent the status quo ante. If the origin represented zero instead - that is, the position which each person took when cost and benefits were equal - the function could in principle pass through a number of points on the positive axis. The graphical representation also prompts three further observations. First, it is possible to increase or decrease quantity demanded or supplied by shifting or altering the shape of the function, which other forms of persuasion or dissuasion may do. Second, as the function is drawn, the functions of individuals do not necessarily cease to apply when their personal consumption reaches zero: there may be circumstances in which people are determined, not just that they should not do something (like smoking) but that other people should not do it either. Third, although it is represented in individual terms, there is no need to make any assumption about the behaviour of the "average" individual. Subsequent calculations can be aggregated or disaggregated to represent the position of different groups and categories of people.

Page: A-9

Annexure 1

The value of this kind of cost-benefit approach is intuitively clear, and it is disappointing that the literature has little to say about it - more so when there are so many examples of CBA from the perspective of people who are offering the incentives. My main source for the approach, though the connection with incentives may seem indirect, was a paper by Burton Weisbrod on the problems of getting people to claim social security benefits. (Weisbrod, 1970) In stark contrast to the assumption that people are strongly motivated to claim benefits, the general experience of social assistance systems is that people who are entitled often fail to claim and that attempts to persuade them to do so are very limited in their effectiveness. (Van Oorschot, 1995) Weisbrod suggested that the demand for services should be seen in terms of an assessment of the costs and benefits of receiving payments. The costs included the costs of information, the time and trouble of claiming, and the cost of shame and humiliation. The benefits of claiming have to be judged against the level of payment, but more importantly (because claimants are often very unclear about how much money they might gain) against their perception of the needs they hope to meet. The limitations of the model There are some important conceptual limitations in the approach. Potential gain, motivation and marginal effect, are central to understanding incentives. There are reservations to make from the perspective of each. Potential gain. The evaluation of potential gain strictly in terms of costs and benefits may be misleading; there may be a hedonic difference in utility which is not directly revealed by costbenefit analysis. Norms and pre-existing influences may affect motivation. Kreps argues that extrinsic incentives may at times conflict with norms and other intrinsic motivation, leading perversely to the effect that incentive schemes may have the opposite effect from that intended. (Kreps, 1997) Motivation. Motivation is complex, and establishing that the balance of costs and benefits lies in a particular direction does not establish that people will be motivated to take action. Bonner and Sprinkle identify four principal theories of motivation. These are: expectancy theory - people act to maximise expected satisfaction; agency theory - people act rationally to maximise their welfare or utility;

Page: A-10

Annexure 1

goal-setting theory - people act to meet personal goals, even if the specific action has negative consequences; and social-cognitive theory - people's effort relates to their perceptions of self-efficacy in task performance. (Bonner, Sprinkle, 2002) The main dimensions which determine how employees respond to tasks are based in personal characteristics, developed skills, the nature of the task to be undertaken and the environment they are functioning in. Monetary incentives are particularly poorly associated with people's responses. (Bonner, Sprinkle, p 3 10) Marginal effect. Sometimes people have to take not one action, but several. If people have to make, not one, but many decisions, the calculation of costs and benefits is liable to be erratic. Scott Kerr, examining patterns of claiming social security benefits, proposed an influential "threshold" model (Kerr, 1983), which dominated much of the research on take-up done in the 1980s. (see Craig, 1991) Kerr suggested that people had to go through several steps before claiming, and each one had to be passed before they would go on to the next. The steps were:

• • • • • •

perceived need: people had to feel there was a need; they had to have enough basic knowledge to know where to go; perceived eligibility: they had to think they might be eligible; perceived utility: they had to think it worthwhile; beliefs and feelings: claiming had to be acceptable, despite stigma or personal beliefs; perceived stability or circumstances: they had to think their condition would last long enough to make it worthwhile; and claiming: they had to go through the process of applying.

Kerr's model has been useful, because it led to research which looked at a series of influences, but it has a conceptual defect: the steps are neither sequential nor distinct. What people know about benefits is not distinct from what they think about them; some people suppose that benefits are not for people like them, and some do not want to know. This does not, however, vitiate the main point, which is that dealing with complex, progressive decisions does not lend itself to a simple static representation in term of costs and benefits.

Page: A-11

Annexure 1

People do not respond immediately and directly to stimuli; for many, there are delays, hesitations and doubts before they act. Some of the circumstances in which concepts of "incentives" are applied are concepts of that kind - for example, on the putative effect of unemployment benefits on the speed of return to work. (Nickell, 1979) In so far as this is predictable, it could possibly be represented in terms of the shape of the cost benefit function in figure 1 - implying relatively inelasticity near the origin - but if responses are not immediate, there is also the risk that assessments of costs and benefits may give a misleading view of the nature of the calculation being undertaken. All this implies that, even if an incentive is capable of being analysed in terms of costs and benefits, the balance may not be enough to establish the effects. The assessment of costs and benefits performs a more limited role, but it can be argued to serve some useful purposes. First, identifying costs and benefits is an useful step in operationalising empirical research problems in order to examine the influence of different factors on patterns of behaviour. The incentive effects of different factors within the calculation can be identified, and where the balance of costs and benefits can be established, it provides a summary figure against which preferences and utility can be weighted. Second, the balance of costs and benefits yields useful information for policy, relating to both the direction and the strength of incentives in context. Third, the balance of costs and benefits is potentially important for many of the other issues that discourses about incentives are concerned with - issues like fairness, morality or the distribution of rewards. References P Alcock, C Beatty, S Fothergill, R Macmillan, S Yeandle (2003), Work to welfare, Cambridge: Cambridge University Press. A B Atkinson, G Mogensen (1 993) Welfare and work incentives, Oxford: Clarendon. A B Atkinson (1995), Incomes and the welfare state, Cambridge University Press. J Bentham (1789), An introduction to the principles of morals and legislation, Oxford: Blackwell 1960. S Bonner, G Sprinkle (2002), The effect of monetary incentives on effort and task performance, Accounting, Organizations and Society 2002 27(4-5) pp 303-345. Council of the European Union (2004), Opinion of the Social Protection Committee, 6509104 SOC 80, http://ue.eu.int/ueDocs/cms~Data~docs/pressDatalen/misc/79687.pdf P Craig (1991), Costs and benefits, Journal of Social Policy 20(4) pp 537-566.

Page: A-12

Annexure 1

R Davies, P Elias, R Penn (1 994), The relationship between a husband's unemployment and his wife's participation in the labour force, in D Gallie, C Marsh, C Vogler (eds) Social change and the experience of unemployment, Oxford: Oxford University Press. L Festinger (1957), A theory of cognitive dissonance. Evanston, IL: Row, Peterson. D Gallie (1999), Unemployment and social exclusion in the EU, European Societies l(2) 139167 1999 S Kerr (1983), Making ends meet, London: Bedford Square Press D Kreps (1 997), Intrinsic motivation and extrinsic incentives, American Economic Review Papers and Proceedings 87(2) 359-364. B Madrian, D Shea, 2001, The power of suggestion, Quarterly Journal of Economics 116(4) pp 1149-1 187. C Murray (1 984), Losing Ground, New York: Basic Books. S Nickell (1979), The effect of unemployment and related benefits on the duration of unemployment, Economic Journal 89 pp 34-49. W van Oorschot (1995), Realizing rights, Aldershot: Avebury. P Sarnuelson, W Nordhaus (1995), Economics, 1 5th edition, New York: McGraw Hill. R Titmuss (1968), Commitment to welfare, London: George Allen and Unwin. P Townsend (1976), Sociology and social policy, Penguin, Harmondsworth. B.A. Weisbrod (1970) On the stigma effect and the demand for welfare programmes =Madison, Wisconsin: University of Wisconsin Institute for Research on Poverty

Page: A-13

Annexure 2

SUBMISSION BY THE ALLIANCE FOR CHILDREN’S ENTITLEMENT TO SOCIAL SECURITY (ACESS) REGARDING THE DEPARTMENT OF SOCIAL DEVELOPMENT’S STUDY ON THE POSSIBLE EXISTENCE OF PERVERSE INCENTIVES IN THE SOCIAL GRANT SYSTEM - July 2006 I INTRODUCTION

ACESS is an alliance of more than 1000 member organizations working on a wide range of children’s issues. It also works with a number of affiliated organizations in civil society such as COSATU, the Treatment Action Campaign, the Basic Income Grant Coalition and many others. Through its work with its members ACESS has a detailed understanding of the experience, needs and concerns of poor children and their parents within the social assistance system in our country. In May 2006 ACESS was approached by the Department of Social Development and asked to respond to a study on the possible perverse incentives in the social grant system. The Department explained that following a quantitative study which had failed to provide any causal links between grants and people’s behavior in response to these, a qualitative study would now be undertaken in the hope that it would shed light on the issues being researched. The Department noted that such a study could not ‘provide definite evidence or fact about what people do, it is however envisaged to shed valuable explanatory light on the attitudes, perceptions and experiences of some key sectors of society’. ACESS was asked to comment on the following four issues:  The alleged increase in teenage pregnancy relating to the child support grant;  The possible fostering of children in the biological family context in order to access the foster care grant;  The believed reluctance to take medicines to control certain ailments that can lead to permanent disability in order to access the disability grant; and  The supposed tendency of beneficiaries accessing grants not to take part in the formal or informal labour market and therefore creating a culture of economic dependency. Elsewhere in the letter of request the Department says that it wishes to study perceptions about grants and the beneficiaries; perceptions of fraud and misuse; and views about whether benefits deter beneficiaries from productive activities and from being active citizens.

Page: B-1

Annexure 2

This submission tries to address the issues and areas of enquiry identified by the Department based on ACESS’s own research and experience in the area. II CONTEXT AND GENERAL COMMENTS

It is frequently noted that the social assistance system in South Africa is very extensive for a developing country. Approximately 10 million poor people access the system at significant cost to the state. According to the Minister of Social Development (based on research commissioned by government) the social grants have a critical role in reducing poverty, contribute to social cohesion and impact positively on economic opportunities of households receiving grants.3 Social grants (according to the EPRI study commissioned by the Department of Social Development) reduce hunger and malnutrition, increase school attendance and job searching, and have a positive impact on macroeconomic development. 4 It is also widely acknowledged that grants impact positively, beyond the recipient, on other household members. The social assistance system is premised on providing for those who cannot work in the employment sector. Thus, old people, people with disabilities and children under 14 are seen as vulnerable and therefore deserving of state support. This system is based on the assumption that a person who does not fall within any of these categories is not deserving of social assistance. However, given the very high levels of structural unemployment in our country, many millions of able bodied people who wish to work are nevertheless destitute or very poor (about 50% of the poor are not covered by grants). These are the people who desperately look to the social assistance system for help. Their expectations of support are not unfounded. The Bill of Rights of South Africa provides ‘everyone’ with a right of access to ‘social security, including, if they are unable to support themselves and their dependents, appropriate social assistance’.5 It is in this context that we need to understand the discourse around social grants in our country. Understandably, there are those who are not entitled to grants who view those who are with envy. Scarce resources sometimes lead to mistrust and conflict. Anger against the state is also a by-product of extreme poverty, particularly in a society such as ours where the disparities between rich and poor are massive. Fraud and corruption are also unfortunately
3

Z Skweyiya (10 December 2004) ‘Opening Remarks at the Launch of the Report on the Economic and Social Impact of Social Grants’ Pretoria, press release issued by the Department of Social Development. 4 M Samson et al (EPRI) The Social and Economic Impact of South Africa’s Social Security System 30 September 2004. 5 S 27 of the Constitution of the Republic of South Africa Act 108 of 1996.

Page: B-2

Annexure 2

found in many areas of our society and social grants are no exception – the investigation into widespread fraud in the social grant system, often by officials has been publicized by the Department of Social Development. For those of the middle class and working class who have jobs, the poor are frequently seen as ‘scroungers’ who are lazy. There are many complex reasons why grant recipients are viewed negatively and why myths, stereotypes and misconceptions develop around grants. This situation is not unique to South Africa with many welfare beneficiaries in developing countries facing negative labeling and stigma. Understanding this discourse and the possible variety of responses by the public to the grant system as it is presently structured is helpful in improving the design and reach of social grants. Evidence of perverse incentives (if any is found) as well as perceptions of such incentives should not be used to cut back existing benefits. Any changes must be made with a view to widening the social assistance net to all who need and are entitled to it. It is ACESS’s belief that the establishment of a comprehensive social security system (as proposed by the Taylor Committee of Inquiry) is a necessary vehicle for addressing extreme poverty in our country. Where misconceptions exist about grants, the government should provide education and information to the public to correct these views. (A note on the use of the term 'active citizenship' by the Department in its letter inviting comment on its research project - a person can be poor and in receipt of a grant and still be an active citizen. The term implies that they participate actively in the civic and political life of the society and not just in the economic sphere. Many grant recipients and other very poor people are giving of their time and effort to support others, work in community organizations, on social projects, in politics and many other areas of community life). III TEENAGE PREGNANCY AND THE CHILD SUPPORT GRANT

There is no increase in teenage pregnancy that corresponds to the introduction of the Child Support Grant (CSG) and the problem of teenage pregnancy predates the grant by many years.6 Lund shows that there was also no link between increased fertility and the State Maintenance Grant which predated the CSG.7 reproductive health, The reasons for high levels of teenage pregnancy in the African population include lack of adequate knowledge on sex and disempowerment, sexual violence and coercion and the lack of

6

B Goldblatt (2003) ‘Teen pregnancy and abuse of the Child Support Grant. Addressing the myths and stereotypes’ Agenda 56, 79-83; P Martin ‘Exploding the myth that social security breeds dependency’ Sunday Times 24 April 2005. 7 F Lund (2006) ‘Gender and social security in South Africa’ in V Padayachee (ed) The Development

Decade? Economic and Social Change in South Africa, 1994-2004 HSRC, 160-179.

Page: B-3

Annexure 2

adequate role models for boys.8 While teen pregnancy and its causes point to important social problems, these cannot be placed at the door of the CSG. It is unlikely, given that the costs of raising a child (in terms of time, energy, the physical strain and the financial consequences) far outweigh the small monthly sum of the CSG, that a person would make such a decision. Thus, even if a small number of teenagers are falling pregnant to access the grant, this must be understood to be irrational behaviour. Interesting research conducted in Hlabisa9 found that of the 12 865 children resident in the study area 4 684 children under the age of seven were in receipt of the CSG and that only 3.67% of these children had teenaged mothers. The same study found that 8.65% of the children not accessing the grant had teenaged mothers. Thus children of teen mothers appear to be less likely to benefit from grants than those with older mothers. Another issue that is often associated with teenage motherhood is that these mothers do not live with their children but simply hand them over to grand mothers. The Hlabisa study found that in fact 82% of the children receiving grants were living in the same household with their mothers. In many studies of the CSG, researchers are confronted with the view by members of the community, that mothers abuse grant money, spending it on themselves rather than their children. But as the EPRI study shows, the CSG is being spent almost entirely on food with a direct impact on the nutritional status of the children in CSG households. A range of poverty alleviation, health, educational and other benefits flow to children (and others) in households where there is a CSG. The misconception of incorrect use of grant money seems to stem from the same assumption that informs the fertility myths ie: that young women are irresponsible, grasping and selfish. It is not borne out by any research into the way the grant is actually being used. IV FOSTERING IN THE FAMILY TO ACCESS THE FOSTER CARE GRANT

There has been a dramatic increase in the take up and application rate for the Foster Care Grant in the last few years. It seems likely that HIV/AIDS is the major reason for this since increasing numbers of children are losing parents. This means that increasing numbers of
8

F Lund, ibid, 166, P Martin op cit, B Goldblatt op cit, 81. A Case et al (2003) The Reach of The South African Child Support Grant: Evidence from the Hlabisa area of KwaZulu-Natal in 2002. www.nu.ac.za/csds/publications
9

Page: B-4

Annexure 2

children are being looked after by people other than their parents. In this context, it is quite understandable that family members faced with the burden of caring for these additional dependents will look to the grant system for support. This is precisely what the legislation creating the FCG was intended for and allows. Rather than berating these people and accusing them of misusing the system, we should be celebrating the fact that so many of our people are prepared to look after their child relatives. It is possible that there may be parents who hand over their children to relatives to care for them so that they can access the FCG, when the parents themselves are present. This could indicate the levels of desperation that poor people feel when faced with hungry children. The fact that the FCG grant is pegged at a higher amount than the CSG might lead to this desperate behaviour. It may reflect a real inability to care for and support children by their parents, particularly since children over the age of 13 are not provided for in terms of the CSG. Parents sick with Aids might also hand over children to other relatives when they become unable to care for them. Obviously, where people are giving incorrect information to officials to access grants this is fraudulent behaviour and can be dealt with in terms of the regulations to the Social Assistance Act and other laws. Ultimately, however, government’s approach must be to solve the root cause of this behaviour which, as outlined above, is more likely to be motivated by desperation than greed. In a recent workshop hosted by ACESS with respect to the future of the foster care system (FCS), participants noted the following: 1. The FCS is collapsing under the strain of the numbers of applications for a foster care order and grant by family members taking care of children orphaned (through the death of one or both parents or the death of one and abandonment by the other). 2. For many applicants, the motivation for applying for a foster care order is to a) have the caregiver relationship recognised and made official, b) to allow the child access to the various forms of psycho-social support that comes with the foster care placement (in theory), and c) to access the foster care grant. 3. The FCS cannot accommodate the current and definitely not future numbers of such applicants. The FCS cannot be fixed to make it work for this purpose. An alternative solution needs to be found which provides the benefits but not the problems and disadvantages that go hand in hand with the use of the FCS for these purposes.

Page: B-5

Annexure 2

In light of the foregoing ACESS proposes a dual system for addressing the care and support needs of orphans and other vulnerable children.  One system for children who need short-term care in order to facilitate rehabilitation – a court process with professional social work supervision is envisaged as at present. The aim is to facilitate family reconstruction work.  Another system is needed for children who will require long term alternate care – Here it is proposed that a system in which there will be some form of formal registration of a child’s placement with a caregiver is facilitated via the DSD. Caregivers would need to be registered and meet some minimum criteria. This would not necessarily require a court order. V RELUCTANCE TO TAKE MEDICINE TO STAY ON THE DISABILITY GRANT

The Disability Grant (DG) has grown dramatically in recent years because of the Aids epidemic. There are many rumours around behaviour and the grant. These include the following:  That people deliberately try to become infected so as to access the grant;  That people fail to take ARVs to stay on the grant or that people stop taking ARVs prior to review of their grants so as to ensure a reduced CD4 count;  That HIV+ people have unprotected sex in the belief that this will lower their CD4 count and ensure that they get grants or keep existing grants.  That doctors are selling HIV+ blood to people who wish to defraud the DG system. There are a number of recent studies that explore these issues and argue that the DG as currently structured may in fact create perverse incentives where people are having to choose between extreme poverty and their own health. Leclerc-Madlala,10 in a study in Durban, found evidence of a number of perverse incentives regarding ARV treatment. She gives the example of a 26 year old single mother who has stopped taking ARV s in an effort to drive her CD4 count down so as to access a grant.

10

S Leclerc-Madlala (2006) "'We will eat when I get the grant": negotiating AIDS, poverty and antiretroviral treatment in South Africa' African Journal of AIDS Research forthcoming.

Page: B-6

Annexure 2

Hardy and Richter also point to the worry of the DG creating perverse incentives with regard to HIV treatment. 11 Nattrass12 explains that the DG is seen as a form of poverty relief - thus, desperation because of joblessness leads many to look to the grant as a possible means of survival. She quotes research by CASE, commissioned by the Department of Social Development on the DG, where an official in a clinic says 'It seems sometimes to me that developing TB is a kind of a blessing for some of them, that they now stand a chance of getting a grant’. ACESS recognizes the dire consequences to the individuals themselves and the country as a whole, should the DG indeed be providing such a perverse incentive. However, the solution to this problem cannot be to “tighten the net”. On the contrary, the existing safety net must be widened to ensure that those people living in poverty, who are not covered by the current net (people over 14 years and not eligible yet for a pension), are not driven to make such devastating choices. VI GRANTS AND ECONOMIC DEPENDENCY

There is a fear, articulated by certain people in government, that grants will create dependency as people will rely on state support rather than using their own efforts to find work or create economic opportunities for themselves. There are a number of responses to this: 1 In the case of the CSG, R190 is not sufficient to prevent a person from wishing to earn other income. It is barely enough to feed a single child, let alone the other hungry people in the household. 2 As the EPRI study shows, grants have a developmental effect in that they provide the resources for people living in households with grants to engage in job seeking activity. Conversely, people in poor households without a grant have less opportunity to job seek. 3 Social assistance, because it increases access to education is also developmental, since a greater number of educated people is a key indicator of development in any country. 4
11

Grants do not stop people from working – the lack of viable employment options do.

C Hardy and M Richter (2006) 'Disability grants or antiretrovirals? A quandary for people with HlV/AIDS in South Africa' African Journal of Aids Research 5(1) 85-96. 12 N Nattrass (2006) 'Disability and Welfare in South Africa's Era of Unemployment and AIDS' CSSR Working Paper No 147, Centre for Social Science Research, University of Cape Town.

Page: B-7

Annexure 2

Martin points out that the poor do not have the freedom to choose between social security and employment. 13 5 Those who receive grants are already seen by the state as dependent ie: old people, the people with disabilities and children. It is their circumstances rather than the grants that has made them dependent. 6 Grants and pay points create economic opportunities. Lund documents the creation of micro economies around pension day markets. 14 The social assistance system is a lifeline to many starving people who would, in all likelihood rather be holding down regular jobs than sitting at home relying on meager handouts. The dependency discourse undermines the dignity of those who are poor and requiring of state assistance. Research conducted by Lund and others on the impact of the Social Assistance programme points to the fact that our Social Assistance system is well targeted in that it reaches poor, rural. barely literate or undereducated women. It is these very people who will not find it easy to access the labour market. VII CONCLUSIONS

While job creation and economic growth strategies are critical in South Africa they have thus far proved inadequate to address large scale poverty and unemployment and seem unlikely to do so in the near future. Desperation by millions of the poor who have no safety net means that they will go to great lengths to somehow qualify for support. It is pointed out by Noble et al that the real perverse incentive is the absence of a comprehensive safety net rather than the presence of any element of the current social grant system.15 How government should respond: 1 2 3 4 Increase the CSG to 18; Review the means test which currently renders many people living in significant poverty ineligible for support; Progressively implement the right to social assistance to all who need it; Consider alternatives such as a BIG, the public works linked to grants system being rolled out in India, and other such options to address extreme poverty and develop poor areas;
13 14

Op cit. Op cit, 172-3. 15 A Whitworth, G Wright and M Noble (2006) ‘A Review of Income Transfers to Disabled and Long Term Sick People in Seven Case Study Countries and Implications for South Africa’ Working Paper 5, Centre for the Analysis of South African Social Policy, University of Oxford.

Page: B-8

Annexure 2

5

Consider creating a chronic illness grant separate from the DG that provides a package of services to those who are HIV+ or face other serious illnesses including money for food, transport to clinics and basic services such as shelter, water and electricity so that people can get to clinics to access ARVs, eat enough appropriate food to complement their medication and have clean water, warmth etc necessary to cope with their illnesses;

6

Improve access to education so that people are not forced to use the grant system to ensure their loved ones are educated.

With regards to the FCG, create a dual system for addressing the care and support needs of orphans and other vulnerable children:  One system which facilitates family reconstruction and would involve a court process with professional social work supervision;  Another system for children who will require long term alternate care – with the formal registration of a child’s placement with a caregiver taking place outside of the court system. Finally, the DSD should consider commissioning more valuable and relevant research which helps us to understand the impact of the grants on children’s well being as well as on understanding what concerns young people have and what informs their choices. It appears that the Department’s research study on perverse incentives has not been well conceived. Focus group discussions in communities are unlikely to provide reliable or useful information on this issue. They are most likely to provide a host of subjective opinions about the grants and their recipients. Some of these views will be shaped by the broader conservative social discourse that sees state assistance as ‘hand outs’ to the ‘undeserving poor’ rather than a constitutional entitlement that is essential for the survival of millions. (Prepared by Beth Goldblatt of the Centre for Applied Legal Studies, University of the Witwatersrand on behalf of ACESS. Thanks to Shirin Motala, Shereen Usdin and Marlese Richter for comments on and additions to the draft).

Page: B-9