South Africa

South Africa

South Africa, a developmental state? No chance.

Protesters chant slogans in Siyathemba township outside Balfour July 22, 2009. Protesters hurled stones at police, who responded with teargas and rubber bullets, after thousands marched through the streets on Wednesday over poor services and unemployment. REUTERS/Siphiwe Sibeko

In the developmental state of Japan post-World War II, the nation’s savings were aggressively employed for industrialisation and to build infrastructure. Its people clearly understood that the benefits of their sacrifice would be reaped by future generations, and that government was managing the process honestly and carefully. J BROOKS SPECTOR finds little evidence to support the notion that the South African government’s National Development Plan will garner similar success.

National development plans on a truly grand scale are not just a new fad for the governing elites of today’s world. Anyone who has ever viewed a major monument from an earlier civilisation such as Stonehenge, the pyramids at Giza, Java’s Borobudur, Cambodia’s Angkor Wat, China’s Great Wall, Great Zimbabwe, or any of the Aztec, Toltec, Mayan and Incan civil engineering projects in the New World is well-acquainted with results from an early form of national planning.

The idea of corralling a big chunk of a society’s output to carry out monumental construction projects was often the dream of those early “oriental despots”. Karl Wittfogel set out the tenets of such an interpretation derived from ideas presented by Marx, Engels, and sociologist Max Weber – that theorised control of the water supply for irrigation became the basis of what Wittfogel called the “Asiatic mode of production” – coupled with a powerful, exploitative bureaucracy. Over time, Wittfogel’s idea has come to be labeled the “hydraulic monopoly” of the ruling class.

Anybody who has contemplated those extraordinary and carefully- and micro-managed irrigation systems for rice cultivation such as the terraced rice paddies in Japan, China, Bali, Java, or the Philippines easily gains a vivid sense of what grabbed Wittfogel’s attention. His lesson is clear: manage the water and you can control pretty much everything else – labour, land distribution, and even religious affiliations. And this pushes the elite to aim for just that kind of control. Naturally, this whole process calls for lots and lots of careful planning – even before the availability of national income data, input-output tables, data-crunching computers and Excel spreadsheets.

More recently, as the West began its rise to global economic dominance, governments in England, France, Germany, the US, and even Czarist Russia, began to support policies of “national improvements” to enhance national wealth, power and economic growth. Shareholder companies were chartered to build toll roads, canals, and eventually railroads as well. The national canal system of France and the canals and horse-drawn, coal-carrying railroads of northern England were among the first manifestations of this urge. Then, the “American System” of Henry Clay in the early 19th century, built on Alexander Hamilton’s “Report on Manufacturers” as well as observations of those British and French experiences, and it promoted the building of federally guaranteed infrastructure – new roads, harbours, canals, and eventually railroads – partly to deflect the nation’s energies away from a growing confrontation over slavery and towards economic growth. When the Republican Party came to office with Abraham Lincoln in 1861, it picked up this exuberance for national development – supporting the Transcontinental Railroad, the Homestead Act and land-grant colleges, setting out the outlines of an avowedly developmental state.

Rather than taking all the risk onto the state, however, the usual idea was for governments to farm out the actual construction (and the risk) to privately chartered companies – in exchange for monopoly-like operating concessions or, as in the US and Russia with the Transcontinental and Trans-Siberian Railroads, through concessions of unsettled land adjacent to the rail lines that builders would sell to cover costs and turn a profit. There were inevitable corruptions and scandals – inflated or watered stock, destructive speculative bubbles, bribed politicians, shoddy construction work. But those roads and railroads were constructed with a profound sense of a possible future together with an implicit understanding that no government department could do much beyond encouraging the construction of the obvious infrastructure and creation of governmental, legal and regulatory frameworks. The rest came from supporting entrepreneurial behaviour, thereby sketching out a path forward, rather than a detailed blueprint.

Back in East Asia, as Japan broke out of its 250-year isolation following the jarring arrival of Commodore Perry’s American naval flotilla in 1854, within 15 years, the government began its own version of national development planning. It borrowed eclectically from French, British, German and American exemplars for everything from building a modern navy to drafting a new commercial legal code. The Japanese government even hired the American Commissioner of Agriculture to establish a modern agricultural sector, including model farms and agronomy research stations in support of a commercial agricultural sector – especially in Japan’s wild west, the lightly settled northern island of Hokkaido. And similarly to the American model, concessions to private companies across the nation meant railroads soon penetrated every part of the country.

To a considerable degree, this model became the pathway for Japanese development in Manchukuo (Manchuria), after this territory was seized from China in the 1930s. Under strong government guidance, banks and industrial conglomerates marshalled the finances and technology to exploit Manchuria’s abundant natural resources. Then, after World War II, Manchuria reverted to China, but that development model – the pulling together of private capital, labour and resources under strong government administrative “guidance” that had been pioneered in Manchuria, became the pattern for Japan’s post-World War II recovery itself. And then, after that, other governments borrowed the model, adapting it to local conditions, as the template for growth in the “Four Little Dragons of Asia” – South Korea, Hong Kong, Taiwan, and Singapore. Eventually it also became the model for still other East Asian nations, preeminently China – once it had shed it Maoist developmental model of a centrally planned, command economy, adopting instead Deng Xiaoping’s version of state-led capitalism.

At the core, any effort at a developmental state confronts two choices. One is to decide a state apparatus can determine the best outcomes and drive investment into those best bets. Alternatively, it can set out the case for and lead national investment in infrastructure and hope this leads to effective outcomes. The first assumes a government can actually gather enough information to make the right choices, the bureaucracy can be supremely effective, that there will be no black swan events to switch things around unpredictably, that the government knows more than the market, and that a technocratic elite will actually be able to make the best possible choices for a society. The second alternative assumes the future isn’t knowable in deep enough detail – certainly not decades in advance. Instead, the best that can be done is to ensure key government-supported inputs make it possible for entrepreneurs and investors to take reasoned chances, making what they hope will be the best exploitation of that government-nurtured infrastructure in order to grow businesses and create new jobs.

In the old days, of course, it’s in all the text books, economists used to say there were three crucial, basic variables for economic activity – let alone growth. These were land, labour and capital. Nowadays, South African economists like Iraj Abedian have amended that somewhat to argue that in a country like South Africa, the most crucial inputs have now become having dependable, reliable energy supplies; a well-educated and well-trained workforce; and reliable, available water supplies that are used as efficiently as possible. If this is true, a crucial task for the state, now, is to ensure these three requisites are met, rather than allocating capital for bureaucratically or politically favoured projects, regardless of any economic rationality that will skew the national economy. Moreover, Abedian as well as others have observed good investments can easily attract capital from flexible, fast-moving global capital markets, as long as the economic and political conditions encourage such investments. Businesses are, instead, sitting on large amounts of capital, but they are holding back on investing in major new projects until the political-economic landscape is less murky. And historically, governments have not been all that effective in making such allocations of capital anyway.

For example, consider the enormously wasteful expenditure of scarce capital in China in the 1950s in “The Great Leap Forward”. It created thousands of backyard blast furnaces that consumed enormous amounts of labour and capital, but they didn’t produce the kind and quality of output needed by secondary-level industries.

And even in Japan, in the post-war period, at a time when capital truly was scarce, government declined to allocate foreign exchange to Soichiro Honda’s company, already famed for its high quality motorcycles, to expand into the more technologically complicated automobile sector. The government determined instead that the country already had too many automobile manufacturers and Honda should stick to his choppers instead. Eventually, the company found alternative sources, including Honda’s own private savings, and the results – and Honda’s technological and commercial success – are a matter of record. But, importantly, it was not one certified by Japan’s Ministry of International Trade and Industry as a likely winner worthy of capital support.

And so, one comes to the South African National Development Plan and the national urge for a developmental state. For the past several years, under the tutelage of Minister in the Presidency Trevor Manuel, now-deputy ANC president Cyril Ramaphosa, business leader Bobby Godsell and several other senior figures, the National Development Plan has slowly taken shape, coming forward after the now, nearly forgotten GEAR and ASGISA plans.

This NDP can be read as a profoundly optimistic document. It sets out two alternative futures for South Africa. One is a place where the average young person has few chances for a really good education, a decent job, a fulfilling life, and one who will likely be tormented by endemic disease, beaten down by poverty and ending with a too-early death. The other, of course, is one where citizens will have real choices for education that will lead to good jobs and opportunities for a decent life, and where businesses have been able to create such jobs because of an effective partnership with government and the NGO universe.

The Education and Training Unit (ETU), a training consultancy sympathetic to government policies, in defining the developmental state, says, “In South Africa, we have committed to building a developmental state that efficiently guides national economic development by mobilising the resources of society and directing them toward the realisation of common goals. We place the needs of the poor and social issues such as health care, housing, education and a social safety net at the top of the national agenda.”

The ETU continues, “A developmental state must be able to direct and support economic development through building a strong public service, creating an investor friendly environment, supporting small business development, using state owned enterprises effectively and driving strategic investment initiatives. The state has to play a role in keeping our economy competitive and close to the leading edge in the global development of knowledge and technology. The state has to be able to control its vast resources and directly apply them to the strategic tasks that will enable us to meet our goals.”

And Joel Netshitenzhe, one of the ruling party’s policy intellectual leaders, has quoted University of Sydney professor Linda Weiss, as saying, “South Africa has set itself the unusual and challenging goal of becoming a developmental state. In principle, this is a unique and noble enterprise: unique in so far as no state has ever self-consciously set out to become a developmental state; and noble in so far as such a project draws inspiration from the experience of certain countries that achieved growth with equity.”

At this point in the country’s political discourse, in fact, virtually every political party in South Africa has signed on to the NDP, effectively turning it into an apolitical football and a technocratic roadmap for national advancement. Disagreeing with it effectively becomes unpatriotic. As a result of this consensus, most South Africans expected a full exposition of the plan in Jacob Zuma’s 2013 State of the Nation Address to Parliament earlier this month. Instead, what it heard was a nod towards this big blueprint at the beginning of his speech, and an acknowledgement at the end of it, but with the thick middle of this sandwich simply a list of infrastructure projects that are planned or promised, rather than guidance or understanding of how the state’s resources will be systematically directed towards fulfilling the goals of the NDP.

Given the visible disappointment that Zuma had so little to say about his own government’s plan as a set of marching orders for its future direction top to bottom, ministers Trevor Manuel and Collins Chabane addressed the media a few days after the “big speech” to breathe some life into further discussions about the NDP. In their discussion, Manuel and Chabane were surprisingly frank that the key impediment to carrying out the plan was the state’s ability – or a lack of it – to implement things. Manuel started by explaining that the state has tons of data available to it through the census and other tools from Stats SA, but most of it simply isn’t being used properly or effectively.

The big problem, they said, was a lack of capacity in the state rather than just money to carry out ambitious plans – and besides, there really isn’t a giant pool of money to do everything anyway (Watch this space for announcements of new taxes to fund large-scale projects like the planned National Health Initiative, just for one example). As a result, a difficult, concrete task is to align government offices and policies effectively – via a thorough reform of the government service – to achieve the goals of the plan successfully.

Chabane insisted the plan’s success would ultimately be through a partnership with business and the NGO sector, not just something that comes from more government spending. Manuel also stressed that serious reforms in the public service, such as banning employees from contracting for providing government with procured services, would be critical to cut the waste and corruption. “It is no longer business as usual,” Manuel warned.

But business and investment analyst Claude Baissac has argued that any effective national development plan must improve the government’s dialogue with business and “foster a regeneration of business-labour relations, fostering a more cooperative format” even as “business must be mobilised to help deal with seemingly insoluble problems like crime, education, healthcare, [and] infrastructure maintenance and provision.” Moreover, “it must decisively fight and root official corruption out, otherwise it will never have the control it imperatively must have over delivery – as ‘private entrepreneurship’ will continue diverting state resources toward their corrupt and socially destructive ends. This will have a political cost, but a cost well worth paying in the long run.”

Any litany of South Africa’s current challenges would certainly include – without being limited to – dealing with growing public (and private) corruption; seemingly intractable crime patterns; the failure of the country’s educational system to rise to the 21st century’s demands for correctly skilled young employees; an increasingly collapsed national public health sector; the failure to maintain the public infrastructure such as roads, bridges, electrical and water reticulation crucial for economic stability and growth; a constant cycle of rising expectations on the part of the poor; and the near hiatus of foreign and domestic investment into job-creating industry (as opposed to hot money in and out of the markets).

In addition, there is the persistent lag in improving economic productivity throughout industry and the mining sector (although that compromises employment of course). Then there is also a recalcitrant, frequently incompetent civil service that fritters away governmental energies; the failure to plan effectively to meet the growing demands for energy production; the on-going de-industrialisation of the country’s economic base in the face of import pressures from lower production cost countries like China; persistent labour unrest and a declining sense of social cohesion; the failure to distribute economic benefits fairly to the population at large (the country’s Gini coefficient has been headed the wrong way); a failure to complete any major land redistribution efforts to relieve social pressures; and a limited – even shrinking – tax base. True, the NDP identifies most of these problems and notes their subtle interconnections and why a holistic strategy is critical, but ultimately it relies on some slender reeds and exhortations to deliver actual results.

Or, as the NDP Commission has noted in its report the failure to implement policies and an absence of broad partnerships are among the main reasons for slow progress in national growth. As a result, the commission has defined its set of primary challenges as addressing the facts that: too few people work; the quality of school education for black people is poor; infrastructure is poorly located, inadequate and under-maintained; spatial divides hobble inclusive development; the economy is unsustainably resource intensive; the public health system cannot meet demand or sustain quality; public services are uneven and often of poor quality; corruption levels are high; and, finally, South Africa remains a divided society.

But rather than follow the approach that ultimately worked so effectively in Asia in tackling those things governments can do (providing quality education, a competent civil service, and effectively expanding and maintaining infrastructure), the NDP casts its net much wider, concluding that it will conduct an all-things-to-all-people approach. As its report says, “This plan outlines a new development approach that seeks to involve communities, youth, workers, the unemployed and business in partnership with a capable state. The aim is to develop the capabilities of individuals and of the country, creating opportunities for all. Critically, the plan emphasises the urgent need to make faster progress on several fronts to sustainably reduce poverty and inequality.”

However, three basic challenges remain preeminent. First, any comprehensive NDP assumes there is an optimum solution to any future issue that a government plan can address – almost two decades away into the future. For the second, as it stands now, the plan still shies away from bending all government efforts to invest in rigorous educational improvements as the key driver for development – just as the governments in Japan and in the Asian Little Dragons did in their economic takeoffs – and in dealing with reliable energy and water supplies as well.

Development economic historian Ronald Dore explored Japanese economic growth, in both pre- and post-World War II periods. In his famous study of economic growth at the “coal face” rural village level, “Shinohata”, Dore notes that Japan endured decades of enforced, deferred consumer gratification on the part of the population as a whole as the nation’s savings were ruthlessly channeled to industrialisation and infrastructure build. These efforts finally paid off effectively – but only generations later. And much the same processes have similarly happened in those famous “Four Little Dragons of Asia”. The key, of course, was that there was a clear, society-wide understanding among those who had to sacrifice in the here and now that their skimping would pay off for future generations because government was managing its processes carefully and honestly – the social compact seriously mattered and investment now would pay off for future generations.

And third, and finally, such future-oriented behavior crucially depends on a generally honest, thoroughly goal-oriented, capable, focused civil service. By contrast, South Africa’s general inability to turn much of its civil service into a well-tuned instrument of national purpose means politics (and the influence peddling and corruption that go hand-in-hand with that) often trumps actual achievement. This, in turn, will continue to make it difficult – or impossible – to reach the NDP’s own goals. And that, in turn, will mean this latest South African plan – like the others before it – likely will end up with so many others that have come and gone since 1994. This outcome will be a cruel trick on those millions of South Africans who have continued to wait, each day a little less patiently than the one before it, for a way out of their current miseries – and onward to that often-promised “better life for all”. DM

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Photo: Protesters chant slogans in Siyathemba township outside Balfour July 22, 2009. Protesters hurled stones at police, who responded with teargas and rubber bullets, after thousands marched through the streets on Wednesday over poor services and unemployment. REUTERS/Siphiwe


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