South Africa has the institutional capacity to accelerate growth as envisaged in the Accelerated and Shared Growth Initiative (ASGISA). It is less well placed to share that growth, writes Michael Sachs.
At the ANC's National General Council in June 2005, the commissions on Theory of Development reported that: "The central challenge our movement faces in the Second Decade of Freedom is to defeat poverty and substantially reduce the level of unemployment. This means that the ANC and government must produce a coherent development strategy. Elements of this would involve identifying where we need to move to and what strategic leaps we need to get there."
At the beginning of this year, in his State of the Nation address, President Thabo Mbeki unveiled the Accelerated and Shared Growth Initiative for South Africa (ASGISA). He made it clear that ASGISA was not a 'development strategy'. He explained that "ASGISA is not intended to cover all elements of a comprehensive development plan. Rather it consists of a limited set of interventions that are intended to serve as catalysts to accelerated and shared growth and development".
Further work is clearly needed to develop the type of economic strategy that the National General Council (NGC) proposed. But while not completing the work of the NGC, ASGISA does take us forward in defining the kind of programmes we require to substantially reduce unemployment and poverty. It proposes a framework for economic intervention in pursuit of broadly defined targets such as 6% growth.
Therefore, whether ASGISA is described as a set of programmes, or a policy package, it represents a clear set of choices, which rest on particular assumptions about the character of South Africa's current stage of development, and which will impact on South Africa's development trajectory into the future.
This article aims to raise some of the questions posed by ASGISA about South Africa's broader development path as a contribution towards further debate.
QUANTITY, QUALITY AND INSTITUTIONS
At the centre of the ASGISA programme is infrastructure investment. In essence, this aims to:
We have all become aware of the need for energy investments. The lack of adequate transport infrastructure, for example in Gauteng, is another critical constraint on faster growth.
The ANC's 2006 local government election manifesto envisages R400 billion of infrastructure investment over the next five years. The most immediate contribution towards fighting poverty and unemployment will emerge from the 'multiplier effects' that this vast quantity of state expenditure will generate. The state's direct contribution aims to raise the overall level of domestic investment in a manner that 'crowds-in' private sector investment.
And by stimulating demand throughout the economy, and by directly creating jobs in certain sectors such as construction, ASGISA will have an immediate economy-wide effect on the levels of growth.
However, this expenditure cannot be taken for granted. Roll-overs and under-expenditure on government's capital budgets mean that questions about the 'capacity to spend' (rather than the availability of financial resources) will increasingly come to the fore.
The indirect and longer term impact of the investment programme will depend not so much on the quantity of investment but on its quality. The quality of our investment depends to a large degree on our institutional and micro-economic environment, rather than the broad aggregates of macro policy and budget allocations. It also depends on critical political and social choices that will influence the trajectory of development into the future.
Where institutions are weak, the quality of investments is likely to be sub-optimal. This raises the problem of state capacity in general, and the capacity of local government in particular. Whereas many of the parastatals, national and provincial departments which will drive economic investment have strong capacity, our weakest institutional link is at the local level, where the bulk of social investments aimed at improving the capital stock available to poor and marginalised communities will be executed. ASGISA's investment programme aims to both accelerate growth and ensure it is shared.
But it could be argued that the best quality institutions are those concerned with acceleration, while those tasked with ensuring it is shared are somewhat weaker.
The qualitative investment choices we make will also influence the overall trajectory of development. We have already noted that much of the emphasis of economic investments envisaged by ASGISA to 'reduce the cost of doing business' are targeted towards the costs of exporting primary commodities.
Hopefully, as well as increasing investment and innovation in these industries, the upgrading of rail, port and other infrastructure will benefit other sectors of the economy by improving access to overseas export markets. And it cannot be doubted that building the mineral and energy core of the economy is essential to accelerating growth.
However, we should also not forget the point made by the NGC commissions that:
"South Africa's economy has been historically dependent on the resources sector, particularly mining. The pattern of development that this has generated continues to constrain our economic growth. This results in challenges that affect every aspect of our economic transformation and development strategy.
"Addressing the challenges of poverty and unemployment requires us to lead the economy toward a new pattern of development, involving a diversified industrial base."
The sectoral strategies identified do speak to these priorities, by seeking to build non-core sectors such as the creative industries, tourism and others. But the relationship between South Africa's growth path, and its historic dependency on minerals and energy has certainly not been resolved.
DEVELOPMENTAL CAPACITIES
There is continuing debate about the notion of a developmental state in South Africa. In its contribution, the NGC noted that: "The developmental state must be conceptualised in concrete terms. It is a state with a programme around which it is able to mobilise society at large. It is also a state with the capacity to intervene in order to restructure the economy, including through public investment."
If we are to conceptualise the developmental state in 'concrete terms' it may be more useful to consider developmental capacities of our particular state, rather than try to envisage an entirely new form of state that we would call 'developmental'.
Some states emphasise regulatory capacities, for example competition policy and the regulation of state and private monopolies, environmental and social regulations and institutional arrangements to ensure financial sector stability. In other states, welfare capacities are highly developed:
Part of these capacities include sectoral targeting, or a concern with "which industries ought to exist and what industries are no longer needed" (Johnson). Another capacity associated with developmental states has been an ability to lead indicative planning as a mechanism for mobilising society around a common medium term objective, such as accelerating growth, or restructuring of the economy.
In South Africa, the post-apartheid democratic state has made significant achievements with respect to its regulatory and welfare capacities. Much of the ANC's first term of office was devoted to a root and branch transformation of the regulatory and policy architecture, and creating the regulatory institutions needed to manage this architecture. The last fifteen years have also witnessed a massive expansion of the welfare state, including through direct transfers to the poorest people and active labour market policies.
The ASGISA initiative may not change our government into a remodelled 'developmental state' (and it makes no claim to do so) but it certainly does take us forward in building the kind of developmental capacities that we have neglected. This indeed may be ASGISA's main long-term significance.
Building our developmental capacities means ensuring better coordination of economic policies between departments, spheres of government and parastatal enterprises. It means improved prioritisation of economic programmes based on the identification of key constraints, as well as an ability to mobilise society in general behind an economic programme.
For the first time since democracy we have set a growth target (of 6%).
Many commentators have had much to say about whether this is too ambitious or too humble. Either one may be the case, but more important than the percentage chosen is the use of targeting per se. It is the target which has animated engagement with ASGISA; and it is around this target that consensus can be built, with both labour and capital, about the concrete nature of resources that must be marshalled to realise the target. This has shifted us away from the shopping list approach to economic development that has characterised previous attempts at a social compact.
ASGISA also places sectoral targeting and industrial policy much more firmly on the state's agenda than at any time in the past 12 years. Once again, debates about the sectors chosen or the instruments employed may rage on forever. But by taking a particular view, by selecting particular sectors and by embarking on concrete programmes to realise its view, government has taken an initial small step, which must always be the first act of any long journey.
CAN GROWTH BE ACCELERATED AND SHARED?
Probably the greatest ambiguity within the ASGISA project is the definition of what exactly is meant by 'the second economy'. Given that ASGISA is not an overarching strategy but a set of programmes, it is probably beyond its own scope to define this elusive concept. The absence of a commonly accepted definition of the second economy tends to confuse discussions, both within the Alliance and among the broader policy and academic community.
In many respects, ASGISA's second economy interventions appear as an 'add-on' to the investment and growth programme. Rather than regarding the gross inequalities as the central problem that developmental interventions should solve, the programme appears to emphasise that growth of the 'first economy' will generate the resources that will then trickle down into the 'second economy'. We should recall that, in the words of the NGC, "there can be no Chinese wall between interventions in the first economy and the second economy. Our interventions should aim to restructure the economy as a whole".
ASGISA's 'shared' component is focussed largely on assisting those in the 'second economy' with the capital, human resources and other assets that will enable them to participate effectively in the first economy. To some extent, this approach obscures the structural faults which sustain South Africa's dualistic economic structure and diverts attention from initiatives that aim to 'restructure the economy as a whole'. For instance, ASGISA identifies the highly monopolistic and concentrated character of South Africa's markets, but proposes little in the way of addressing this constraint. We wish to promote small business, which is a very good idea, but neglect to address barriers to entry, which monopolistic agents consciously erect to keep out small business.
Another important structural feature of our economy, on which dualism rests, is the highly unequal distribution of assets among the population. While accelerated land reform is mentioned, there is little focus on this or broader questions related to redistribution of assets.
International evidence suggests that an equitable distribution of land is closely correlated with shared equitable growth (World Bank). Noting this fact, and since we have committed ourselves to redistribute 30% of agricultural land over the next 10 years, one would have thought that, alongside reducing unemployment and poverty, agrarian reform would have been a central component of ASGISA, with the explicit intent of overcoming the two economy divide creating an asset-base for shared growth. This raises the thorny question of the relationship between agrarian reform and industrial development. Arguably, this is the question that has traditionally been at the heart of debates about economic duality, or the two economy divide, in other countries.
Among the developing countries, it was the Bolsheviks who first had to confront the apparent contradiction between agrarian reform and industrial development. Alec Nove, an economic historian of the USSR, writes that:
"This kind of dilemma has been faced in other developing countries. There is a tendency for the same people to demand both land reform and industrialisation. Yet land reform often has the effect, at least in the short term, of reducing the volume of marketable production, and sometimes of total production, because egalitarian land redistribution strengthens the subsistence sector..."
It should be remembered that an increase in subsistence production may very well result in less inequality, greater food security for poor households and reduced poverty. But since Gross Domestic Product (GDP) measures only the value of marketed goods and services, a strengthening of the subsistence agricultural sector would stand against the logic of accelerating growth, at least in the short to medium term.
It is worth noting that all the East Asian developmental states initiated rapid economic growth only after completing significant land reform. Redistribution preceded growth, and none of these East Asian states implemented both at the same time. Nevertheless, having completed significant land redistribution, these states ensured that the growth that subsequently emerged was equitably shared.
Land and agrarian reform are mentioned in ASGISA, but do not constitute one of the main priorities of the programme. Perhaps the reason for this is not lack of interest in agrarian questions, but rather that an implicit trade off is being made in favour of accelerated growth, and against shared growth.
As we develop the overarching developmental framework proposed by the NGC, we should pose the question: are our job creation and poverty reduction targets in contradiction with our land reform objectives? In other words, can growth be simultaneously accelerated and shared?
ANIMAL SPIRITS IN THE AGE OF HOPE
There is another factor, which may require us to trade redistribution for accelerated growth. This relates to the question of perceptions of the future, which John Maynard Keynes identified as central in the determination of the overall rate of investment in any economy:
"It is safe to say that enterprise which depends on hopes stretching into the future benefits the community as a whole. But reasonable calculation is supplemented and supported by animal spirits, so that the thought of ultimate loss which often overtakes pioneers... is put aside as a healthy man puts aside the expectation of death.
"This means... that economic prosperity is excessively dependent on a political and social atmosphere which is congenial to the average business man. If the fear of a Labour Government or a New Deal depresses enterprise, this need not be the result either of reasonable calculation or of a plot with political intent; - it is the mere consequence of upsetting the delicate balance of spontaneous optimism..."
When unveiling ASGISA, President Mbeki made reference to opinion polls which indicate that "our people are firmly convinced that our country has entered its Age of Hope. They are convinced that we have created the conditions to achieve more rapid progress towards the realisation of their dreams. They are certain that we are indeed a winning nation".
He went on to say that government is committed to "play its role to give new content to our Age of Hope. I am honoured to have this opportunity to announce some of the elements of the programme of our government to honour this commitment". This programme is ASGISA.
The 'Age of Hope' is therefore integral to the success of ASGISA. If state-led investment is to 'crowd in' the private sector, an Age of Hope must be inaugurated, in which the pessimism of white business (both local and international) about the future of an African republic is decisively overcome. This entails that measures aimed at redistribution, or radical transformation of social relations, would need to be put on the backburner, since they would certainly generate adverse consequences for the need to create a "political and social atmosphere which is congenial to the average business man".
Furthermore, ensuring that state-led investment 'crowds in' the private sector means that intensified and closer partnerships are required by the state and the owners of private capital.
What does the need to build an Age of Hope and to intensify partnerships between the state and capital mean for the political alliance on which the legitimacy of the state is often assumed to depend? The NGC answered this question as follows: "In many international cases, the developmental state has been characterised by a high degree of integration between business and government. The South African developmental state has different advantages and challenges. While we seek to engage private capital strategically, in South Africa the developmental state needs to be buttressed and guided by a mass-based, democratic liberation movement in a context in which the economy is still dominated by a developed, but largely white, capitalist class." It remains to be seen how the state will respond to these questions, and whether the vision outlined by the NGC commissions is a realistic one.
Michael Sachs is the coordinator of the ANC Economic Transformation Committee. He writes this in his personal capacity.
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