🔒 WORLDVIEW: The problem with the SA “developmental state”

For the last 15 years or so, South Africa has embraced the concept of the “developmental state” without ever firmly defining what that means beyond some platitudes about encouraging growth and creating jobs. As the economy languishes with sup-par growth and world-busting unemployment levels, the ANC government’s claim to be operating as a developmental state rings increasingly hollow.

So, what is a developmental state and why has South Africa failed to achieve one?

Developmental states – the Asia experience

The classical examples of developmental states come out of south-east Asia and include countries like Malaysia, China, and South Korea. A few decades ago, the governments in those countries decided to ignore Western advice about their role – specifically, that governments should limit themselves to making and enforcing rules and providing services to citizens, allowing private businesses to get on with building the economy. Instead, they decided to take a hands-on, active role in building the economy.

In practical terms, this meant huge investments in infrastructure and, in many cases, strong-arming private capital into investing in particular sectors – electronics manufacturing, for example – as well as actively managing labour to ensure that workers put in long hours and improved their productivity. These governments also invested in human capital, putting pupils through rigorous basic education and then streaming many of them into apprenticeships and other practical job training.

This hands-on developmental state approach worked. Countries like South Korea, Malaysia, Singapore, and Taiwan were able to virtually eliminate abject poverty and enable large portions of their populations to catch up to Western living standards. While incomes in places like China remain lower than those in, say, Portugal, the gap has narrowed exponentially in the last twenty years. Developmental states work.

So, why not in SA?

Given the historical success of Asia’s developmental states, why has SA’s attempt to imitate them delivered such paltry returns? The answer to this question is complex.

First, the government has failed to encourage or force domestic private capital to invest in the real economy.

While the JSE remains one of the developing world’s largest pools of capital and the South African domestic debt market is unusually well developed, real business investment has been negligible. Few private investors are building factories or investing in productivity-enhancing technology, and the government has no clear strategy for unlocking this pool of capital.

Part of the problem is that the government has not identified attractive sectors for investment. Mining is an obvious one, but the legal uncertainty around the industry has put off investors – a case of the right hand of government actively undermining the left.

Another problem is that its easier and less risky for businesses to focus on financial market investments, rather than real investment. Why invest for the long-term when you can make a quick buck on the market?

Second, the government has failed to attract foreign private capital. While foreign investors are happy to buy South African bonds and stocks – and reap the associated returns – they have been reluctant to commit to foreign direct investment. There are no US companies building factories in South Africa. There aren’t even US companies asking South African factories to manufacture on their behalf.

Again, part of the problem is that the government has no clear priorities for attracting investment. Most Asian developmental states identified key sectors, such as electronics manufacturing or assembly, and then created special economic zones or incentives to attract foreign investors. They subsidised infrastructure for those sectors like ports, rail, and electricity, and provided guarantees on capital security. SA has not concretely identified any particular areas for development and has limited programmes aimed at incentivising foreign investment. It has also allowed infrastructure to decay rather than investing in it.

Third, South Africa lacks a skilled bureaucracy. After apartheid, a top priority for the new government was replacing apartheid-era apparatchiks with ANC cadres. This had the unfortunate side effect of deskilling certain departments and destroying institutional memory. While it was understandable, the policy led to unintended consequences for state capacity.

Cadre deployment is another issue. In itself, cadre deployment doesn’t have to inhibit the success of a developmental state. China, for example, is a paradigm case of cadre deployment. There is no separation between party and state – only members of the Chinese Communist Party (CCP) can be bureaucrats and all bureaucrats are CCP cadres.

The difference lies in the fact that the CCP actively recruits the best and brightest for deployment. Rather than looking at the existing roster of members and picking a new hire, the CCP seeks out talent and brings them in as members, then deploys them.

This works fine in a one-party state, but things are obviously a little different in a democracy. It’s not easy for the ANC to force top university graduates to become members – certainly not as easy as it is for the CCP. But there is absolutely no reason why the ANC can’t prioritise competence over loyalty when picking people for government roles.

For any developmental state to succeed, a competent, technocratic bureaucracy is mandatory. The ANC has allowed its cadre deployment policies to make this impossible in SA.

Finally, and most importantly, a successful developmental state requires single-minded focus. The CCP rides roughshod over any objections to its policies. Indeed, CCP members and citizens who object or fail to deliver are routinely imprisoned or worse. It’s extraordinary social control – think Big Brother armed with machine guns – allows China to deploy a compliant workforce and to move people around almost at will.

Such a system is not possible in SA, thankfully. SA is a democracy and citizens have a right to object to government plans or to change the government if they want to. To make a developmental state work under these conditions, the ANC would need a unified, single-minded approach, bringing all its constituents onboard. Instead, the alliance is fractured. The labour part of the ANC routinely marches against ANC policy. Attempts to clean up Eskom have been met with aggressive resistance by the ANC’s labour “allies.” Perhaps unsurprisingly, workers prefer their current jobs to the vague promise of future economic growth in exchange for sacrifice now.

If the ANC wants to build a developmental state, it is going to need a lot more discipline. It may need to eject the elements that are resisting the economic agenda and build new coalitions to get the whole country focused on economic goals.

Until these issues are addressed, a developmental state will remain a chimaera. And if the ANC can’t overcome these issues, then a developmental state is not an appropriate model for SA and an ideological rethink is in order.