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South Africa

Looking for a Developmental State

Wednesday 12 September 2007, by Ben Fine

Over the past few years, from the president’s office down, South Africa’s position as a developmental state has been firmly on the agenda.

This is to be warmly welcomed for two reasons. First, the government has justified the sudden turn to the developmental state as always having been waiting in the wings once the economy was sufficiently stabilised and secure.

In my view, this is a reinvention of the past decade’s economic and social policy, a way of excusing the Gear policy while departing from it. But the rise of the putative developmental state is a rhetorical shift in the government signalling its belief that a job has been half done and conditions are now favourable for more interventionist policies.

Second, of course, the politics of the rise of the developmental state is a matter of appeasing critics of the government’s economic and social policies. In particular, there has been the failure to address high and worsening levels of unemployment and impoverishment while black economic empowerment has mainly flourished as a source of elite enrichment.

These two factors mean that, at least in part, the new agenda provides a broader framework for debating, and determining policy, one that might mark a considerable shift from the immediate past. This suggests that the developmental state will mean, and be used to mean, different things to different people, both in debate and in practice - just as Gear is now interpreted as the developmental state in waiting.

In this light, it is of importance to examine the theory, practice and ideology of the developmental state. For some, it has a long history, dating back for example to the protectionist measures of Germany and other now developed countries, including the US, in order to promote infant industries with the potential ultimately to compete with British manufacturing supremacy. Latin American import-substituting industrialisation is a more recent example. But it has been superseded by the notion of the East Asian newly industrialised countries (NICs) as developmental states, with Japan in the historical and intellectual lead.

From this, it is crucial to recognise two features of the developmental state stance. First, whenever there has been any economic development, it has both required interventionist policies and has inspired interpretations ex post as developmental state. Significantly, second though, neither Japan nor South Korea, for example, knew they were developmental states until western economists told them so after the event. Indeed, it is arguable, if with tongue in cheek, that it was only once these countries enjoyed the benefit of a critical mass of western-trained economists proffering neo-liberal advice that their success as developmental states was doomed! This does not bode well for South Africa. Instead of declaring itself a developmental state in advance, it might have done better to have got on with it, leaving the labelling for future historians.

The developmental state approach has fallen into two different types, what I call the economic and the political schools. The economic school argues that the market does not work well in promoting industrialisation; it is appropriate to intervene to get prices wrong and to distort market incentives to build up industries selectively that can become both internationally competitive and the basis for subsequently broader industrial development. South Korea’s commitment to its steel industry, against the advice and support of the World Bank on what was its comparative advantage, is an illustration with its provision of the basis for construction, car and shipbuilding industries.

In other words, the economic school explains the developmental states, especially the east Asian NICs, in terms of judicious and significant state intervention to promote industrialisation against the logic of leaving everything to the market.

Not surprisingly, the developmental state literature proved a decisive theoretical and empirical challenge to the neo-liberal Washington consensus from the 1980s onwards. As such, it has never been effectively answered. But, during the 1990s, the Washington consensus was seamlessly transformed into the post-Washington consensus, neatly side-stepping the interpretative and policy challenge posed by the developmental state approach by conceding that the market needed to be supplemented when subject to imperfections as long as state and other institutions were sufficiently capable and, free of corruption.

In a sense, this is where the economic school ends and the political school begins. For the former relies exclusively on identifying the right economic policies without examining the politics of whether they will or can be carried out (other than by an all-seeing, all-powerful and all-benevolent state). By contrast, the political school is almost entirely concerned with whether the state has the autonomy to implement the right policies against the vested interests that might capture it otherwise (including its own personnel and politicians). Little or no attention is given to what are the right policies as opposed to the political conditions under which they might, in principle, be identified and adopted.

The division of the developmental state literature into these two schools reflects an analytical weakness across them that is not adequately addressed by simply adding the two together. This is that both schools accept the analytical agenda, set by the Washington consensus, of state versus market even if adopting a pro-state stance against neo-liberalism. Instead, it is more appropriate not to privilege this opposition and instead examine how underlying economic and political interests are both formed and represented through both the state and the market.

Paradoxically, South Africa’s interest in the developmental state was more or less non-existent whilst, in the early 1990s, it was at its strongest in the wider world. And, over the past decade or so, the developmental state has itself gone into decline more widely but has attracted new-found interest in South Africa for reasons previously outlined. Interestingly, though, the appeal of the developmental state went into decline before the Asian crises of 1997 had tarnished its reputation. The reason, apart from minimal but outflanking concessions from the post-Washington consensus, is that it was argued that the developmental state is responsible for its own demise.

The more it is successful the more it undermines the conditions for its own existence. For it brings powerful interest groups to bear, both corporate capital and organised labour, as well as demands for democracy. This is thought to undermine the state’s autonomy and corresponding capacity to be developmental.

The authoritarian developmental state, such as South Korea, becomes dominated by its own previously directed conglomerates. And the Latin American, populist developmental states, were undermined by excessive demands for wage and welfare increases. In other words, the developmental state can only exist as an interregnum in the passage to development.

Nonetheless, over the past few years, quite apart but separate from the revival of the developmental state in South Africa, the developmental state has enjoyed a more general revival. In part, this reflects the bounce-back of the east Asian NICs but, not surprisingly, the most prominent new application has been in China - both at a national level and for its success in prompting more local developmental states.

There has also been some attention, previously sorely neglected, to the role that the developmental state can play in promoting economic and social welfare more generally as opposed to an exclusive preoccupation with industrialisation and industrial policy.

This all bodes well for policy making in South Africa although it remains to be seen whether the rhetoric is matched by the delivery. And whether the deluge of developmental statism across departments is a rhetorical copycat carried from on high or a case of the letting of the cat out of the bag to vent frustration over centralised constraints on more interventionist policies in the past. But at the end of the day, the developmental state that South Africa becomes will be a matter of what and for whom, and this remains to be settled.

For the first decade and more of economic and social policy has primarily rejected, not postponed, the developmental state in what were more favourable circumstances in some respects. With the Washington consensus in disarray and South Africa’s prestige potentially allowing it to take a developmental lead on behalf of other developing countries under the neo-liberal cosh. South African economic policy was hijacked in order to serve the interests of its conglomerates.

Industrial policy cannot be successful until they are co-opted and, if necessary, coerced into supporting a domestic programme of industrial development and diversification building upon the basis provided by energy and mineral sectors. Both for this purpose, and for generating finance for economic and social infrastructure and welfare, South Africa’s financial system and macroeconomic policy will need to be reformed to underpin such programmes. The alternative route tends to seek a free flow of international capital for the few, and parading this as macroeconomic stability and success.

In short, I would give one cheer for the developmental state for its shift in policy framework, another cheer if it leads to more progressive and interventionist policies in practice, and a third and loudest cheer if it appropriately identifies, challenges and mobilises the underlying economic and political interests that have precluded such policies in the past.

# Ben Fine is the professor of economics at the School of Oriental and African Studies at the University of London

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