Annually on 15 September, people around the globe commemorate the International Day of Democracy — not only to celebrate democracy but also to promote and protect it. I want to focus on democracy in South Africa — and more specifically on the link between development and democracy.

It would be fair to say that growing unemployment, poverty and inequality and the resulting instability pose a threat to our relatively young democracy. That is why it is so important to equip our people with the skills they need to contribute to the country’s development.

American poet Walt Whitman reckons that a country’s development and sustainability depend to a greater extent on the abilities and character of its people than on the extent of its natural resources and size of economy. Japan is a good example of a country with few natural resources and where its people’s ingenuity has led to wealth. 

Skilled people are an asset to a country, while unskilled people are a burden to society. In his book, The Ultimate Resource (1983), American professor of economics Julian Simon argues that shortages and problems in a country encourage skilled people to innovate and search for solutions.

We desperately need lasting solutions to our most pressing challenges to ensure a stable democracy in the long run. What we also need is sustained economic development that could set us on a path of wealth creation for all South Africans. This would go a long way in alleviating some of our escalating problems that threaten to derail our democratic project.

Industries and development

When it comes to wealth creation, economic development worldwide normally begins with development in the primary sectors such as agriculture, fisheries, forestry and mining, which in turn form the basis for manufacturing and construction.

This creates a need for among others better financial and administrative services which in turn serve the development of the primary sector. This then creates an operating environment, leading to new opportunities for manufacturing and trade.

This applied to South Africa too.

In 1911, the primary sector in South Africa was responsible for 48% of value added to the economy. For the last 29 years, it has maintained an average of (only) 8.7% (agriculture, forestry, and fishing at 2.8% plus mining and quarrying at 5.9%).

On the other hand, the value added to the economy by the service sectors (so-called tertiary sector) has maintained an average of 68.2% over the last 29 years (this figure courtesy of George Kershoff from the Bureau for Economic Research at Stellenbosch University). An increase in the contribution of the tertiary sector happens to all countries as they reach a higher level of development.

Visit Daily Maverick’s home page for more news, analysis and investigations

It is disturbing that over the last 29 years — given our country’s high unemployment rate — the manufacturing sector contributed an average of 22.9% to our economy, dropping to an average of 13.6% over the last 10 years. The construction sector’s added value to the economy averaged 3.2% over the same period (also courtesy of George Kershoff). In the second quarter of 2022, the manufacturing, agriculture, and mining and quarrying industries all shrank, while the finance, real estate and business services industry grew.

According to futurist Philip Spies, in investment circles reference is made to “Wall Street”, meaning large financial companies, and “Main Street”, which refers to investors in the real economy, that is, in smaller businesses in trade and manufacturing.

Metaphorically, according to him, South Africa’s economy changed from a Main Street economy to a Wall Street economy from 1990 to 2022, which is at odds with the development needs of a relatively underdeveloped country and young democracy like ours that desperately needs entrepreneurship and small businesses.

Human capital

With almost a quarter of the 21st century behind us, it’s becoming clear that a democratic society’s progress is no longer just determined by the size of its natural resources, but by the quality of its people, the good order of society, and a knowledge economy.

This trend sets crucial and ongoing new requirements for people’s skills. In a democratic country, citizens’ training, knowledge, character, and level of commitment ultimately determine that country’s development and future.

Industrial development should currently play a major role in our country, but unfortunately, this sector is underperforming in terms of our needs.

Akin to industrial development we must follow the logic of the new information and knowledge economy. In this respect, it is important that both our public and private sectors focus more sharply on the management of intangible assets, such as the quality of our people, both in training and character; the building of formal and informal networks; good relations with workers and within communities; the development of market-adapted products and services for clients and customers; continuous skill development of our people; and methods for their self-realisation.

We find ourselves today in an economy in which skills and knowledge development as well as pioneering innovation have become the primary drivers of a country’s prosperity.   

Going forward, we must build our human capital as this will become increasingly important for sustained economic growth, wealth creation and, ultimately, the flourishing of our democracy.

According to Harry Patrinos and Noam Angrist, “a country’s human capital is crucial for its economic success”. They found that “human capital comprises the largest component of a nation’s wealth, at 64%”.

Alan Murray and David Meyer point out that “85% of the current market value of US corporations is secreted in intangibles such as human, intellectual and social capital. On the other hand, 40 years ago, 80% of the market value of US corporations was attributable to tangible assets.”

Unfortunately, according to the Human Capital Index (2018), South Africa is ranked at 126th out of 157 countries.

If we keep misreading the proverbial tide and do not develop our people effectively for a 21st century economy, poverty, inequality, and unemployment will increase which in the long run could easily erode and severely damage our democracy. DM