South Africa

South Africa, a developmental state? Five years later, still no chance

By J Brooks Spector 28 November 2017

In the wake of the latest alarm bells from the international ratings agencies about South Africa’s economic policy incoherence and incompetence, J. BROOKS SPECTOR takes another look at South Africa’s continuing love affair with the words of the developmental state, but not its hard choices. And along the way he casts a nervous eye northwards, as Zimbabwe may, soon enough, actually get its act together, even as South Africans continue their foolish argument about the sacred meanings of that phrase, “the developmental state” amid the contest for the leadership of the African National Congress and then on into the 2019 general election.

Nearly five years ago, in increasing despair over South Africa’s anaemic economic growth amid an economic policy landscape largely shaped out of some weak, lumpy mush, I wrote, “South Africa, a Developmental State? No Chance.” It is repeated below to give a sense of the criticisms raised then. Now, sadly, nearly a half-decade later, little has changed, except for the worse as international ratings agencies continue to deliver bad news for South Africa. As Donald Trump might have tweeted over some much less consequential matters: “So SAD.”

And it is sad. Despite the lack of growth, South Africa’s politicians and senior government figures continue to blame the global commodity cycle for South Africa’s febrile economic growth, rather than policy choices or the lack of them. South Africans continue to squabble furiously over whether university education should be free or not, rather than confronting and addressing the failures of the nation’s primary and secondary educational systems that abandon more than half of every student cohort that enters its first year of education – eventually allowing most of them to drift into desperate lifetimes of sporadic, casual labour at best. This failure to confront the inadequacies of education contributes to extraordinary levels of youth unemployment, and an overall unemployment level that is headed towards 30% of the working population.

Meanwhile, the government’s policy-makers doggedly tussle over a national economic policy framework (outside of the subsidised car manufacture) without agreement on how to encourage or nurture more foreign direct investment – or even domestic investment in new plant capacity or new industries. Moreover, despite the criticality of the minerals sector to national foreign exchange earnings and for the incomes for the several hundred thousand people who still work in that declining sector (as well as the many more people who must depend on those employees’ earnings), national policy-makers and mining sector leaders, collectively, remain unable to reach a stable, comprehensive policy framework to guide the sector or potential investors for the future.

But these debates are not abstract economic policy Socratic dialogues for the college classroom or economics journals. They are the vital core of what must be decided and implemented, if South Africa is to reach growth levels sufficient to bring down unemployment and improve income levels for its citizens. And all of this must take place in an environment where financial services and other service industries (including government employment) comprise an ever-growing share of total employment, even though the country’s education and training system as well as support for entrepreneurial endeavours seems almost designed to ignore or thwart a shift from manufacturing and mining.

Wikipedia defines the developmental state as “the phenomenon of state-led macroeconomic planning in East Asia in the late 20th century. In this model of capitalism (sometimes referred to as state development capitalism), the state has more independent, or autonomous, political power, as well as more control over the economy. A developmental state is characterised by having strong state intervention, as well as extensive regulation and planning.”

The late Japanese economic scholar Chalmers Johnson, in his vastly influential work, MITI and the Japanese Miracle: the growth of industrial policy 1925 – 1975, was the first to define the developmental state comprehensively. (MITI was the Ministry of International Trade and Industry, and its predecessor agencies took the lead in state development capitalism, first in Japan’s new conquests of Korea after 1910, and Manchuria after 1931, until the end of the Second World War. Veterans from those colonial-style administrations were then largely responsible for the subsequent successes of the “Japanese economic miracle”, post-1952.)

In South Africa, this debate over the developmental state has now rejoined the current political dialogue, most importantly, perhaps, in the contrasting and competing visions being proffered by the two leading claimants to the leadership of the African National Congress – Deputy President Cyril Ramaphosa and former AU Commission Chair (and now an MP) Nkosazana Dlamini Zuma. Last week, Business Day’s lead editorial argued (thereby making its electoral preference abundantly clear),

Both call for some kind of economic Codesa. Nkosazana Dlamini Zuma compares this directly to the constitutional negotiations and says that similar negotiation on the economy and land ownership is necessary and easily possible. Cyril Ramaphosa talks of a ‘new deal’ for jobs and growth to be negotiated by all stakeholders in the economy.

Ramaphosa’s exposition, which he delivered at a public meeting in Soweto last week, drew mostly from the National Development Plan. He spelled out 10 priorities in a sort of apex of importance with job creation and investment at the top. Along with these goes the need for confidence-building measures and an economic recovery programme.

It includes an action plan of programmes – like the youth employment scheme he has been developing with business – and policies, like special economic zones and tax incentives for small and medium enterprises. Investor-friendly policies – fiscal discipline, caution over debt – are promised.

Essentially, this is the language of ANC economic policy orthodoxy as we have known it, espoused by the national Treasury and the ANC’s own economic transformation subcommittee. It is also the language of business. Dlamini Zuma’s plan, which she outlined in Business Day last month, is less specific and more political. It is captured by three priorities: economic transformation; education; and the need to build a developmental state.

Both redistribution – for example of ownership – and growth are captured under the heading of economic transformation. Key sectors and activities will be the oceans economy, mining, petrochemicals, food and beverages and beneficiation. Job creation will be stimulated by an ‘entrepreneurial industrial policy and plan’….

Education is an apex priority. SA needs an all-encompassing skills revolution that would train and empower teachers, upgrade educational facilities and adjust curricula to prepare young people to play a role in a global and pan-African world. There is scant recognition of the role business and private investment would play; the key driver of economic change and growth is the developmental state. For a developmental state to flourish, corruption must be rooted out, the public service and local government made more responsive and state enterprises placed ‘at the centre of transformation and fulfil their mandates’.

Dlamini-Zuma’s plan for SA sounds a lot like the policies of the left-leaning parts of the ANC – best expressed by Cosatu policy documents – through the ‘90s and the 2000s. Because the role of private investment in growth is not appreciated, disproportionate reliance is placed on the state to solve redistribution issues and get the economy growing….

Should Dlamini-Zuma win the ANC presidential race, there is a danger that many years will be spent following this learning curve again.”

What neither posture makes real space for, however, is a deep understanding of the ways the economic leaders in the various East and South-east Asian states that have followed this pattern – first Japan, then the “Four Little Dragons”, then China and now, most recently, increasingly Malaysia, Indonesia, the Philippines, Vietnam and Thailand – have all placed educational quality, governmental leadership, honesty, and administrative capability, and the need to generate savings for investment by the population, right at the very core of this project.

In each of these cases, governments increasingly guided, but did not try to actually run, industries, and they largely kept politics out of their respective equivalents to South Africa’s SoEs – the State-owned Enterprises. Education in every one of these nations is considered a national goal – but one in which successful students face great pressure to prevail in academically or skills-heavy environments. There may be individual social and psychological costs to this intense competition, but gaining access to the best possible education is highly competitive and eagerly sought after – even in those theoretically egalitarian societies.

The astonishing events in the past week in Zimbabwe eventually may also begin to cast some unfavourable light on South Africa’s lethargic growth trajectory. This will be despite Zimbabwe’s current appalling circumstances – with external investment near zero, perhaps 90% unemployment, and millions of its most productive citizens forced to find work beyond its borders. However, if the new Zimbabwean government can achieve effective policy coherence, civil service honesty and competence; if it can begin to attract or entice some of its skilled citizens back home to help rebuild, restore or expand the economy; and if t can demonstrate to potential external investors and external aid bodies that Zimbabwe is a place to invest in or assist, it may well be able to achieve serious growth, absorb many more of its skilled and educated citizens and thereby provide an example to other nations. Like South Africa.

But, sadly, even if this happens, based on its recent track record, South Africa is likely to remain mired in its current sterile debate over how to achieve the promised land of a “developmental state”. But this may be without addressing the fundamentals East Asians first worked out in an embryonic form in the immediate aftermath of the Meiji Restoration of 1868 in Japan – and then refined over the next 150 years.

Here is my column from 26 February 2013, entitled “South Africa, a developmental state? No chance”:

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 labelled 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 Manufactures” 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, pre-eminently 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.

Watch an interview with Professor Ronald Dore on YouTube:

And third, and finally, such future-oriented behaviour 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

Read more:

  • Karl A. Wittfogel and His Provocative Theory of Oriental Despotism
  • The Developmental State
  • A Developmental State: South Africa’s developmental capacity (a PowerPoint by Joel Netshitenzhe)
  • A Democratic Developmental State in Africa? (A research report by Ghanian scholar Omano Edigheji)
  • National Development Plan 2030 (the entire plan and related documents)
  • A South African Developmental State? A Critical Perspective (a paper by Claude Baissac)
  • Shinohata: A Portrait of a Japanese Village, by Ronald P. Dore, a Kirkus Review

Photo: Students from Wits University hold their hands up pleading for police not to shoot them during a march to protest against the cost of higher education in Johannesburg, South Africa, 20 October 2016. Photo: EPA/KIM LUDBROOK

Gallery

While we have your attention...

An increasingly rare commodity, quality independent journalism costs money - though not nearly as much as its absence.

Every article, every day, is our contribution to Defending Truth in South Africa. If you would like to join us on this mission, you could do much worse than support Daily Maverick's quest by becoming a Maverick Insider.

Click here to become a Maverick Insider and get a closer look at the Truth.


#GUPTALEAKS

How the Guptas tore through red tape to hire Indian nationals illegally

By Jean le Roux for News24

Burger King is called "Hungry Jack's" in Australia. This is due to one restaurant in Adelaide having already claimed the named Burger King.