It's a challenging time to be a developmental state
December 1, 2009
By Zoleka Ndayi
From classical liberalism in the 19th century to embedded liberalism after World War II and the triumph of neo-liberalism in the post-Cold War era, changes in the international political economy suggest that South Africa is not standing on firm ground for a developmental state.
In the post-World War II period and up to the 1970s, advanced capitalist states and the Asian economies benefited from embedded liberalism. To realise a developmental state, South Africa would have to adopt embedded liberalism. However, the current neo-liberal international political economy and South Africa's status within it challenges the efforts to become a fully developmental state.
Besides the current economic meltdown, South Africa's socioeconomic woes - characterised by jobless economic growth, unemployment and increasing economic marginalisation of the poor - are attributed to the country's neo-liberal economic policy.
The growth, employment and redistribution (Gear) strategy emphasised a free market approach to economic growth. This economic policy succeeded in generating 4 percent annual economic growth, on average, from its inception in 1996 to 2008.
However, Gear "failed" to provide employment and translate this economic growth into socioeconomic development. It is in this light that the government, through the adoption of a developmental state strategy, seeks to play an active role in balancing economic growth with social advancement, by using the resources of the country to promote socioeconomic progress.
It is worth recalling that just like neo-liberalism, as an economic ideology of the 19th century, classical liberalism emphasised free markets and minimal government involvement in economic activity.
Monetary policy is currently a bone of contention in the ruling tripartite alliance. While the ANC still holds on to a fiscal policy that serves "private interests", the alliance partners, Cosatu and the SACP, are calling for a monetary policy that would serve the economic priorities of a developmental state.
Nevertheless, the failure of classical liberalism in the 1930s paved the way for embedded liberalism after World War II. At the core of embedded liberalism is the notion that the state should intervene in economic activity or even substitute for market processes to promote economic development. The focal points of the state in this context are economic growth, full employment and welfare of the citizens.
Up to the late 1960s, embedded liberalism brought economic prosperity, particularly for the advanced capitalist countries. Perhaps this is the notion that informs the alliance's call for a developmental state.
However, the challenge is that South Africa's economy is not highly industrialised. Besides, the country does not wield enough power in multilateral institutions such as the World Trade Organisation (WTO) and the International Monetary Fund (IMF) to enforce ideological changes in the international political economy.
From the 1980s until the current economic meltdown, the major policy decision makers within the IMF and the WTO - industrialised countries - have been more concerned with efficiency and production and less concerned with welfare and social justice, hence the erosion of state power to regulate the market. Furthermore, a greater chunk of economic activity is among multinational corporations.
It is estimated that 60 percent of global trade is conducted by multinationals, with 50 percent of this amount being between the subsidiaries of a parent company, and 75 percent of them headquartered in the industrialised countries. In this context, South Africa's efforts to bring about a developmental state would be undermined by the increased global competition for investment and production as well as the mobility of capital. These factors would put a strain on the bargaining power of labour.
Owing to the flexibility of capital, it would seem that multinationals would reign over the interventionist nature of the developmental state and the collective power of Cosatu and the other labour union federations.
Though the newly industrialised countries of Asia - Singapore, Taiwan, Hong Kong and South Korea - serve as a model for developing countries, they largely owe their success to the Cold War.
As a way of keeping them away from communism, the US turned a blind eye towards the protectionist tendencies of the Asian Tigers. The Asian economies maintained exceptionally high growth rates and rapid industrialisation.
All the economies have highly educated and skilled human capital, specialising in their particular competitive advantage.
South Korea is the world's largest ship builder, the fourth-biggest car maker, and the headquarters of major global multinationals such as LG, Hyundai-Kia and Samsung, and together with Taiwan, it is a leader in information technology equipment and networks.
However, South Africa is adopting embedded liberalism in a very challenging international political economic setting. There is no threat of communism, the imposition of trade barriers would not go unchallenged by the WTO and the country's major trading partners. Besides, South Africa's economy and labour market are characterised by scarce skills and a shortage of critical skills, which in turn undermine its comparative advantages.
It would seem then, that for South Africa to realise a developmental state, it would need to deal with both the internal and external challenges simultaneously. Externally, South Africa, together with other developing countries, needs to strengthen its bargaining hand in multilateral institutions.
There is no doubt that the current global economic meltdown, like the Great Depression of the 1930s, warrants the rolling back of neo-liberalism and the reintroduction of embedded liberalism.
Multilateral institutions, rather than national governments, stand a better chance of weakening the sovereignty of global business elites. Internally, the limitations of Gear's growth effects to translate to economic development suggest that, in the modern economy, employment and redistribution is possible only where there is sufficient matching modern labour.
South Africa needs to fast-track skills acquisition to meet the demands of the modern economy so as to translate economic growth to socioeconomic progress.
Zoleka Ndayi is a lecturer at Wits University's department of international relations
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