South African State Capacity and Post-Apartheid Reconstruction

Abstract

The article examines the shift in the post-apartheid government’s economic policy from its reconstruction and development programme to its growth, employment and redistribution policy. It argues that this move towards a more neo-liberal paradigm reflects the growing reflection of the state’s incapacity. The paper reviews the delivery on promises made by the post-apartheid government after the April 1994 elections and analyses the reasons for its lack of capacity. Lastly, it appraises the potential for a South African developmental state.

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International Journal of Social Economics
South African state capacity and post-apartheid economic reconstruction
John M. Luiz,
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John M. Luiz, (2002) "South African state capacity and post‐apartheid economic
reconstruction", International Journal of Social Economics, Vol. 29 Issue: 8, pp.594-614, https://
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International Journal of Social
Economics,
Vol. 29 No. 8, 2002, pp. 594-614.
#MCB UP Limited, 0306-8293
DOI 10.1108/03068290210434170
South African state capacity
and post-apartheid economic
reconstruction
John M. Luiz
Department of Economics, University of the Witwatersrand,
Johannesburg, South Africa
Keywords Economics, Politics, Development, South Africa
Abstract The article examines the shift in the post-apartheid government's economic policy
from its reconstruction and development programme to its growth, employment and
redistribution policy. It argues that this move towards a more neo-liberal paradigm reflects the
growing reflection of the state's incapacity. The paper reviews the delivery on promises made by
the post-apartheid government after the April 1994 elections and analyses the reasons for its lack
of capacity. Lastly, it appraises the potential for a South African developmental state.
Introduction
The 1994 elections ushered in a new, exciting, and challenging era for South
African society. The democratic government inherited a discriminatory socio-
economic system and a disorganised politico-administrative framework. Yet
expectations for this government to deliver an improved quality of life are
immense. The question is whether the state has the capacity to realise these
expectations. The slow delivery of the government's reconstruction and
development programme (RDP) points to a general inertia within the post-
apartheid state, which has frustrated its endeavours. What differentiates
ordinary states from developmental ones is that a developmental state is one
which is able to formulate and implement policy effectively. This article
examines whether the South African state has the capacity to be a
developmental state.
The article starts off by considering the shift in post-apartheid economic
policy, and argues that the government's tacit move away from the RDP is a
reflection of perceived state incapacity. It appraises current government
economic policy as envisioned in the growth, employment and redistribution
(GEAR) document, and questions its relevance in promoting South African
development. Lastly, it addresses the issue of whether the post-apartheid state
has the capacity to lead the development process and be a developmental state.
Post-apartheid economic policy: from the RDP to GEAR
The African National Congress (ANC) came to power in 1994, with its image of
socio-economic upliftment rooted in the RDP. Fundamentally, the RDP is an
anti-poverty strategy which seeks to eradicate the consequences of apartheid
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by meeting basic needs (RSA, 1994, p. 9): investing in job creation, housing,
welfare, water and sanitation, health-care, transport, land reform, and so forth,
is expected to stimulate the economy through increased demand for producer
and consumer goods and services (although the financing of this increased
social expenditure is inadequately dealt with). Future political stability is
dependent upon the effective treatment of these disparities. Perhaps the most
valuable input of the RDP lies in the consensus it gained across the
heterogeneous population and the sense of urgency it gave to development. The
comprehensiveness of the RDP removes the arbitrariness from government
actions, and acts as a yardstick to assess government accomplishments.
However, it must be pointed out that the financing aspects of the RDP are very
poorly worked out, and its value thus lies more in its vision than as an
economic growth strategy.
The RDP, although comprehensive, is too broad and attempts to be ``all
things to all people''. It thus ends up sounding more like a wish-list. However, it
acts as a useful vision and focuses government's attention on building its
capacity, if it desires to realise its ambitions. It also puts the state at the
forefront of the development process, which may be necessary, given the
magnitude of the reconstruction required. It is not, however, a coherent growth
strategy, as it ignores macroeconomic fundamentals and fails to recognise
constraints.
Blumenfeld (1996, p. 4) states that already by the end of the first year of the
government of national unity (GNU):
...it was apparent that the programme was in difficulties, both practically and politically.
He goes on to say that, except for electrification of houses, improvements in the
provision of water supplies, and the primary school feeding programme, little
progress was made in meeting the first year's targets, especially in the critical
area of housing. Even within the special RDP fund, of the R2.5 billion allocated
to the fund in its first year, only R1.1 billion was actually transferred to the
relevant spending departments, and not all of this was actually spent. The
housing ministry is typical of the problems encountered by the state in
implementing the RDP. The intention was to provide one million houses within
five years. However, between March 1994 and November 1996, only 123,139
houses had been constructed (Burger, 1997, p. 17). In fact, the Department of
Housing ``rolled over'' substantial parts of their 1994/1995 and 1995/1996
allocations. Blumenfeld (1996, p. 5) cynically remarks that even the previous
government, which lacked legitimacy, had managed to build tens of thousands
of houses each year. He comments that underspending on RDP projects soon
became a potent symbol of the government's inability to deliver on election
promises. The RDP began to suffer from a lack of credibility and, despite
continuing lip-service to the RDP, President Mandela announced the closure of
the RDP Office in March 1996. The final nail in the coffin came in June 1996,
when the government presented its new ``growth, employment and
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redistribution'' (GEAR) programme, which signalled a shift in ANC priorities
towards macroeconomic balance and an investor-friendly environment.
Blumenfeld (1996, p. 7) outlines some of the reasons for the apparent failure
of the RDP:
.Conceptual uncertainties. The RDP meant different things to different
people, and the openness of the programme constituted both a strength
and a weakness. It allowed major interest groups to unite behind the
broad vision, but it obscured the lack of consensus behind specific
controversial policy options.
.Funding. The affordability of the programme was questioned from the
outset, and initial estimates of the five-year costs of the RDP ranged
from R40 billion to a staggering R700 billion (see Blumenfeld, 1996,
p. 12). This seemed to contradict the government's intention to reduce
the fiscal deficit significantly.
.Institutional uncertainties. According to Blumenfeld (1996, p. 14), from
the outset it was ``unclear whether RDP Office was intended to be a
`super ministry', auditing the activities of the line departments or a
development planning agency initiating new `transformation' projects''.
Although it was given a high profile and located within the president's
own department, it was given neither the resources nor the real
authority to realise its image of overarching power. In practice, projects
were submitted to, and approved by, a cabinet committee, instead of the
RDP Office, whilst actual disbursements were made by the Department
of Finance which ``administered'' the fund, and ultimate responsibility
lay with the line departments. The RDP Office was rendered obsolete.
Departments began to see the RDP fund simply as an additional source
of income. Tensions soon arose between the Minister without Portfolio
(who was responsible for the RDP) and other Cabinet Ministers over
``territorial disputes''.
.Ideological struggles. The RDP was caught up in the evolving struggle
between radicals and pragmatists within the ANC alliance, between
those who were wary of creating a culture of dependency and those who
viewed the RDP as a facilitating condition for the ultimate ``socialist
transformation'' of South Africa.
.Implementation failures. The government lacked the capacity to deliver
on its promises, and even though only a few projects were approved,
only a small proportion of these were implemented. The bureaucratic
procedures for administering the programme involved excessive red
tape, and were often subject to effective veto by civil interest groups in
government's efforts for the RDP to be ``people driven''.
The RDP assumed state capacity, instead of prioritising the need to build this
capacity. The RDP attempted to please everyone, and ended up satisfying no
one. It set out ambitious targets which it was not able to meet. The government
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avoided making critical but difficult policy choices (which departments would
be targeted with additional funds and which would face cuts, which industries
would be stimulated, where would government consumption be cut and
investment increased, etc.), and time was wasted. To a large extent, South
Africa is back where it began at the beginning of 1994, with the same questions
remaining unanswered, only with different protagonists.
Overall, the RDP experience exposed several weaknesses within the post-
apartheid state. It was perhaps important for the ANC to realise that the state is
not omnipotent. The release of the GEAR document by the Department of
Finance in June 1996 reflects a fundamental paradigm shift in government
thinking. One possible interpretation is that government, having accepted its
own limitations as a result of the RDP experience, seemingly decided that
state-led development was inappropriate, and that since the state could not
restructure the economy, the market would have to.
The GEAR's point of departure (RSA, 1996, p. 1) is that ``[s]ustained growth
on a higher plane requires a transformation towards a competitive outward-
oriented economy''. It stresses the need for market-led growth, fiscal and
monetary discipline, and investor confidence. Although the document pays
lip-service to redistribution, its fundamental concern appears to be with the
balance of payments, inflation, and foreign direct investment (FDI), as is
reflected in the conservative policy it advocates. GEAR is situated very
squarely within the supply-side/new-classical paradigm, although it has
Keynesian elements. In fact, Nattrass (1996, p. 26) goes as far as to lump the
GEAR document together with the South Africa Foundation (1996) document
prepared by big business into a right-wing stable. She illustrates their
similarity by stating that both documents envision a world economy as an:
... integrated capitalist system where market forces reign supreme, punishing countries
which do not obey the unwritten code of ``sound'' fiscal, monetary and labour-market policies.
Both documents stress the need for privatisation so as to reduce debt and
signal government's commitment to market-friendly policies and labour
market flexibility. GEAR represents a government coming to terms with
economic realities and accepting its limitations.
GEAR is based upon the assumption that liberalisation will attract FDI. It
therefore adopts a conservative, orthodox, and neo-liberal economic approach,
based on stabilisation, a mild form of structural adjustment, and efforts at
labour market flexibility, trusting that this investor-friendly climate will send
the right signals to the market, and thereby boost investor confidence. This will
result in output and employment expanding (along Keynesian lines), together
with rising exports as the economy becomes more competitive. Income
distribution will improve as growth trickles down in the form of new jobs.
Nattrass (1996, p. 30) concludes that:
We thus get the result that promoting the interests of capital (in the sense of creating an
``investor friendly'' environment) is necessary for growth, and ultimately also good for the
poor and unemployed ± and hence will promote equity in the longer run.
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Whilst GEAR attempts to tackle the socio-political environment that was
inherited by the post-apartheid government, it simultaneously imposes severe
constraints on government's ability to do this. GEAR is primarily concerned
with macroeconomic fundamentals which, whilst important, obscure means
from ends.
On fiscal policy, GEAR lays strong emphasis on the reduction of the overall
budget deficit and the level of government dissaving. It holds that a high
budget deficit (for example, the 1992/1993 7.9 per cent deficit) is unsustainable,
and proposes reducing this deficit to 3 per cent of GDP by 1999. The
government has by and large met this target and its medium term expenditure
framework proposes further reductions for the foreseeable future. This reflects
the government's concern with the rising debt to GDP ratio, low savings levels,
high real interest rates, and the importance of countering inflationary
pressures.
Adelzadeh (1996, pp. 75-9) criticises the GEAR argument on several
grounds. First, it fails to explain why the current deficit is not sustainable
either empirically or analytically, and provides no justification for the arbitrary
3 per cent public deficit targeted at. Since this deficit has important
implications for realisation of the RDP, the government should provide a
rationale for this target. In fact, Tanzi and Zee (1996) have demonstrated that
there is no ideal benchmark for budget deficits and that, under some
circumstances, government borrowing can contribute to accelerated growth. A
relatively high budget deficit may be sustainable if it generates a higher
growth pattern, which then gradually yields more public savings. Second,
GEAR assumes that an increase in government expenditure will necessarily
drive up the interest rate, and thus necessarily crowd out private investment.
Whilst this may be true, it makes no differentiation between types of
government expenditure and leaves no room for the crowding in effect. There is
a growing literature that indicates that the relationship between public
expenditure and growth is more complex, and that it is necessary to
differentiate between the various components of government expenditure. The
issue is thus to shift spending from current to capital expenditure which, in
fact, GEAR commits to, but the implementation has largely failed thus far.
Public expenditure can very well rejuvenate an economy and lead to private
sector confidence. Productive public expenditure in the area of infrastructure
(such as roads, transportation, and housing) and human capital can play an
important role in promoting economic development and encouraging private
investment. GEAR overlooks recent developments in endogenous growth
theory, which place greater emphasis on the crowding in effects of public
expenditure and the increasing returns to scale that would emerge out of faster
growing demand and the growth in skills of the workforce (Barro, 1990, 1991;
Fischer, 1991; Mankiw et al., 1992).
The above does not seek to negate the significance of sound fiscal policy, but
rather stresses the importance of addressing the reality of a stagnant economy.
It is startling to note that, between 1973 and 1995, public sector total
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investment more than halved in real terms, whilst current general government
expenditure steadily increased in real terms by 260 per cent over the same
period (Newton, 1997, p. 18). Table I illustrates the trend in the capital and
current components of general government expenditure between 1973 and
1996.
The table indicates the deterioration in the composition of general
government expenditure, with total current expenditure rising from 70 per cent
of the total budget to 91.4 per cent between 1973 and 1995. This trend needs to
be reversed urgently if South Africa is going to embark on a high growth
strategy.
Even more worrisome is the growing proportion of total government
expenditure attributable to wages and salaries. This proportion has risen from
21.5 per cent between 1981 and 1990 to 31.9 per cent between 1991 and 1995.
Compare this to its declining proportion in Brazil and Korea, where it dropped
from 9.4 per cent to 8.7 per cent, and from 14.2 per cent to 13.1 per cent
respectively over the same period (World Bank, 1997, p. 199). This stresses the
importance of a fundamental shift that is required in the composition of
government expenditure, and the political strength required to implement this
change. Thus far the government has been unable to significantly reduce
current spending, because of socio-political pressures. Cutting the size of the
public sector is an important step in the reprioritisation of government
spending towards capital expenditure. However, this requires a strong, hard
state (not necessarily authoritarian) that is able to confront populist labour
unions head-on. The government has had mixed fortunes in this regard. In 1998
it capitulated to teachers' demands after a national strike, whilst July 1999 saw
the largest strike by the public service ever after failed wage negotiations.
GEAR regards low inflation as an important requirement for higher growth,
employment opportunities, and equity. However, both Korea and Brazil
experienced their rapid take-offs with double digit inflation rates, averaging
just under 20 per cent in Korea and around 25 per cent in Brazil. GEAR
acknowledges that the current high interest rates have a negative effect on
economic growth, and therefore aims for lower (but positive) real interest rates.
The South African Reserve Bank, however, has not accommodated GEAR on
Table I.
General government
expenditure patterns,
1973-1996
Government expenditure (percentage total budget)
Total current expenditure Total capital expenditure
1973 70.0 30.0
1980 78.3 21.7
1985 81.6 18.4
1990 88.5 11.5
1995 91.4 8.6
1996 90.3 9.7
Sources: Newton (1977, p. 22); South African Reserve Bank (1997, 1998).
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this front, and has stubbornly held onto very high interest rates despite the
1998 slow-down in the growth rate of both inflation and economic growth. Only
during the course of 1999 have interest rates finally starting to decline as the
economy headed for recession.
GEAR defines the main objective of monetary policy as the maintenance of
financial stability and a reduction in the inflation rate. Whilst this is important,
the danger is that it may lead to stop-go cycles. Growth thus becomes
unsustainable in this environment, with a ``built-in contractionary monetary
policy'' (Adelzadeh, 1996, p. 79). This contradicts the primary objective of
GEAR, namely the attainment of a significant growth rate. This fixation with
inflation is misplaced, given that South Africa has not had a history of
uncontrollable inflation. Even the World Bank acknowledged that the costs to
growth and employment of reducing the traditionally moderate inflation rate in
South Africa (10-20 per cent) to single digits would be substantial, as we have
witnessed (Fallon and da Silva, 1994, p. 164). Lower inflation is not an end in
itself, but only a means to achieve overall economic development. The Reserve
Bank's ``successful'' record on inflation ignores the consequences of its policies
on other macroeconomic variables, most notably unemployment. Whilst one
cannot overlook the role of monetary policy in dealing with the balance of
payments constraint, it is a dangerous ploy to hold economic growth ransom to
short-term capital flows. Excessively high real interest rates are stifling
economic growth, and this needs to be rectified.
On trade and industrial policies, GEAR entails a shift away from demand-
side interventions, such as tariffs and subsidies, to supply-side measures. It
seeks to enhance the competitive capacity and employment absorption of
manufacturing, together with the continued advancement of tourism as an
export sector, and appropriate growth-oriented policies in other sectors (RSA,
1996, p. 12). It holds that given the real depreciation of the currency, a
compensating lowering of tariffs is desirable. In other words, the depreciation
is providing a window of opportunity by improving the competitiveness of
South African exports, and therefore the reduction of tariffs will have less of a
negative effect. Granted there is an argument to be made in favour of
liberalisation, but I would argue that this entails a gradual approach to
minimise the shocks to domestic industry and allow them time to adjust. Yet
South Africa is doing so more rapidly than is required by the WTO/GATT
agreements, and this reflects the underlying politico-economic philosophy of
the current government.
In terms of industrial policy, GEAR is particularly weak and vague, and
lacks imagination. The Korean case demonstrates the need for a symbiotic
relationship between the public and private sectors, especially in the area of
industrial policy. When the private sector is suffering from inertia and risk
aversion, it may be necessary for the public sector to lead the way by
launching new enterprises. Adelzadeh (1996, p. 84) asserts that this could be
done by:
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...government investing in productive infrastructure; by supporting start-ups and co-ops; by
establishing new joint ventures with the private sector; and by establishing new public sector
firms where necessary.
The reality is also that South Africa has had a successful history of the state
leading industrialisation with the establishment of ISCOR, ESCOM, SASOL,
and so forth.
Chang (1996, p. 6) stresses the enormity of the scale of industrial
restructuring required by South Africa during the next decade, and that there
are many reasons to believe that such large scale industrial restructuring is
unlikely to be achieved by market forces alone. He states bluntly that the
attempt to maintain a ``California'' standard of living for a small proportion of
the population, surrounded by a sea of relative poverty, has created an
unsustainable industrial structure. To change this industrial structure within
an acceptable time-frame is an immense challenge. Chang states that even in
``normal'' times, industrial policy has an important role to play in resolving
co-ordination problems. The market mechanism is often inadequate in
bringing about large-scale restructuring, and even self-claimed laissez-faire
governments have adopted forceful industrial policy in times of industrial
crisis: witness the Reagan administration's rescue of Chrysler in the early
1980s, and the nationalisation of the declining ship-building industry by the
right-wing Swedish coalition of the late 1970s.
South African post-apartheid state capacity: a potential
developmental state?
The apartheid state disintegrated most rapidly in the 1980s, when it could no
longer afford nor control its apartheid creation. The post-apartheid state
inherited these state organs, as well as a highly mobilised and politicised civil
society, from the liberation struggle. There is thus the potential of Migdal's
(1988) case of a weak state confronting a strong society. There are clearly
pockets in South Africa where the state is not in complete control: crime in
Gauteng, gangsterism in the Western Cape, KwaZulu-Natal's civil strife,
ongoing corruption, and maladministration in various provincial governments.
The state thus needs to reinvent and re-establish itself as the dominant
institution. It can be argued that the South African state is weak, not only
because it lacks the capacity, but also because the government lacks the
political will to implement policy. This is reflected in its inability to cut down
on the size of the civil service, and the growing proportion of revenue
attributable to salaries. Part of the problem is that the South African
government is itself politically fragmented, representing many different
constituencies and ethnic groups. As a result, its political will is fragmented
too.
Luiz (2000) argues that the nature and capacity of the state, to a large extent,
determines the efficacy of economic policy. State-led development will have
disastrous consequences where the state does not possess the capacity to
formulate and execute a developmental vision. It is therefore critical to evaluate
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the potential of the South African state in this regard before advocating
economic policy. This is crucial because economic policy should not assume
state capacity, but should be targeted mindful of state capabilities. This is not
to deny the possibility of learning by doing.
Reviewing the delivery on promises of the post-apartheid state five years
after the April 1994 elections leaves one with a mixed picture. The section
below outlines the performance of selected departments, mainly departments
involved with social policy (which was an important ANC election strategy)
(Burger, 1997; South African Institute of Race Relations, 1998; annual reports of
various departments).
Education
The 1999/2000 budget allocation was R48.5 billion[1] (22.1 per cent of total).
The South African Schools Act was passed in 1996, establishing a uniform
framework for the organisation, governance, and funding of schools. Progress
has also been made with curriculum reform, the development of a National
Qualifications Framework, an audit of teacher education, promotion of adult
basic education and training, and education support services. About 1,500
schools have been refurbished, and plans to the amount of R1.1 billion for
building schools have been approved. The National Commission on Higher
Education completed its work in 1996, and a Green Paper on Higher Education
Transformation has been published. However, the debacle surrounding the
1996 and 1998 matric examinations exposed serious inadequacies surrounding
the administration of education (leaking of papers and corrupt marking). The
number of private schools increased significantly after 1994, as did the number
of schools opting to write matriculation examinations set by the Independent
Examinations Board (see South African Institute of Race Relations, 1997,
p. 244). This indicates the growing lack of confidence in the public education
system. Likewise, the proposed introduction of an ``outcome-based'' curriculum
for schools has run into problems with provinces opining that they have neither
the funds nor the capacity yet to begin this programme. Of the key ministries,
Education is generally regarded as having been the most ineffectual. This does
not bode well given what we know about the importance of human capital in
driving economic development. The appointment of a new minister (regarded
as efficient) to this portfolio after the 1999 elections is a positive step.
Health
The 1999/20000 budget allocation was R24 billion (11 per cent of total).
Primary health services are now free of charge at the point of delivery,
although little provision has been made to ensure that there are sufficient
funds, personnel, and medication available. Between April 1995 and the
beginning of 1998, more than 560 clinics had been built or upgraded and more
than 200 mobile clinics had been purchased. Health services for pregnant
women and children under six have been free since 1994. Legislation was
passed allowing for abortion on demand, but bottle-necks have appeared in
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public hospitals. This department has been enveloped in controversy. The
Sarafina II scandal exposed unauthorised expenditure on this AIDS play to the
tune of R14.2 million. The importation of Cuban doctors has been severely
criticised. Even more controversial were the various new pieces of legislation
dealing with the medical industry passed in 1997 and 1998. These dealt with
the parallel importation of drugs, the compulsory use of generics, and price
controls.
Housing
The 1999/2000 budget allocation was R3.5 billion (1.6 per cent of total).
Between March 1994 and November 1996, only 123,139 houses were built or
under construction, many through public subsidies. However, this process is
gaining some momentum: between March 1994 and August 1995, the average
monthly delivery was 536 subsidies; this increased by 1,297 per cent over the
next 12 months to a monthly delivery average of 6,953 subsidies. A special
ministerial task team on short-term delivery was established in August 1995 to
identify short-term blockages and policy impediments to housing delivery, and
to propose interventions to overcome these. The housing ministry has admitted
that it will not be able to reach its target of 1 million low-cost houses by 1999
but maintains that it will be reached by 2000. In April 1996 the National
Housing Finance Corporation was established, and shortly after, the People's
Housing Process, a government programme focused on the mobilisation of
alternative forms of finance for low income earners. The Housing Act came into
effect in April 1998. It defines housing development in the context of the
constitutional roles and responsibilities of the three spheres of government,
prescribes housing policy principles, and seeks to restructure housing
institutions and policy. However, as discussed earlier under the RDP section,
the housing department's slow delivery record is indicative of the overall
capacity problems being experienced by government.
Welfare
The 1999/2000 budget allocation was R19.8 billion (9 per cent of total).
A White Paper for Social Welfare was tabled in Parliament in February
1997, and provided clear directives for a national developmental welfare
strategy. A five-year Strategic Welfare Action Plan to implement this White
Paper was completed in the 1997/1998 financial year. The Lund Committee
Report's main recommendation for a flat-rate child support benefit was
accepted by Cabinet, and this is being phased in. The department has launched
a review of social grants data to establish a more accurate data base of social
security beneficiaries. The department has also initiated various programmes
for unemployed women with young children, and is reforming the juvenile
prison system. On the negative side, the Minister has admitted that every year
some 10 per cent of the funds allocated for the payment of social pensions was
lost to fraud, theft, or inefficiency, which clearly indicates a capacity problem
(South African Institute of Race Relations, 1997, p. 427).
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Agriculture and land affairs
The 1998/1999 budget allocation was R4.3 billion (2.1 per cent of total).
The Commission on the Restitution of Land Rights is processing in excess of
14,000 claims, although only one had been finalised by mid-1997. The Land
Claims Court became operational in 1996. The department has introduced Bills
to Parliament, which will have a significant impact on the land and tenure
rights of previously disadvantaged communities (the Extension of Security of
Tenure Bill, the Restitution of Land Rights Amendment Bill, and the Provision
of Certain Land for Settlement Amendment Bill). The land reform programme,
transferring 1.8 million hectares to 54,000 households in two years, was
unsuccessful, with less than R20 million of the R314 million spent. By the end
of 1998, 179,088 hectares of land had been transferred to 33,366 households.
During 1996 the process of deregulation of agricultural marketing was given
impetus by the promulgation of the new Marketing of Agricultural Products
Act and a restructured National Agricultural Marketing Council. A special
grant assistance scheme for small farmer development has been introduced to
help groups enhance their production efficiency by improving farming
infrastructure and through farmer training.
The above indicates that although the post-apartheid state has promulgated
unlimited new legislation, it has experienced little tangible success in actually
fulfilling its initial election promises and targets. However, one must remember
that the 1994 elections saw the first change in government in almost five
decades, and hence the transition would of necessity entail a significant
learning curve. Almost all government departments have speeded up their
delivery recently (notably housing and health), which evinces that capacity is
improving after the initial inertia. But much still needs to be done, especially at
provincial and local level, where capacity is sorely lacking.
It is important to remember that South Africa has recently undergone a
major political transition, with democracy yet to be consolidated. Politically
tenuous environments make economic reforms all the more problematic, as
recently witnessed in Eastern Europe. Nothing is certain during transitions.
South Africa finds itself in the ``zone of transition'', where democratic survival
is most dependent on economic prosperity. Przeworski et al. (1996, p. 49)
maintain that democracy is unlikely to survive in a country where per capita
income is between $1,000 and $4,000, if the economy is declining. Economic
development in South Africa is dependent upon a stable political environment,
where investment is possible and state policy consistent. By the same token, a
stable political environment is dependent upon a growing economy, which
improves the living conditions of all. The situation becomes awfully complex,
because the state must undertake certain painful structural adjustments in the
economy, and rebuild political and bureaucratic institutions, whilst
simultaneously ensuring visible socio-economic upliftment in the short run.
There is considerable debate over whether the South African state has the
capacity to actively promote economic development. Simkins (1994, p. 19)
argues that state planning creates expectations which cannot be met. The state
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will choke itself if it attempts direct delivery of economic development to the
extent specified in the RDP. Implementation capacity and resistance, rather
than resource availability, will turn out to be the binding constraints. It is
crucial to come to grips with the issue of state capacity before advocating
economic policy; therefore, the latter is dependent on the former. Nattrass (1994,
pp. 530-1) acknowledges this fact in the following lengthy quote:
The old division between radicals and liberals now occurs on the institutional issues. If for
example, one had faith in the ability of a future South African state to act developmentally ±
for example, to develop good (yet non-corrupt) relations with business, to pick industrial
winners and to discipline and support capitalists appropriately ± then support for a strongly
interventionist industrial policy follows naturally.
If on the other hand, one suspects that the state would end up over-large, packed with
corrupt friends and relatives of the ruling elite, and managed by technically inept and
arrogant politicians, then one could be forgiven for leaning towards free-market policies. The
problem is that there are an awful lot of ifs around. More work on the institutional dynamics
of successful industrial restructuring would help make this a little less arbitrary. However, in
the end, economic policy is likely to proceed on a trial and error basis. But such policies
should start out cautiously. The stakes are simply too high for immediate, aggressive
interventions.
Whilst it is true that economic policy should be tailored around the structure of
the state, one must avoid taking too static a view. The East Asian case
demonstrates that this capacity can be constructed with the right political will.
The Korean state was in shambles after the civil war, and yet a decade later it
was ambitiously directing Korea's development process (see Luiz, 1999). Korea
reconstructed the necessary institutions for industrialisation, and this
illustrates that building effectively functioning institutions need not take an
excessive amount of time. In fact, the institutions became more and more
efficient each time they intervened, because of ``institutional learning''. Sender
(1994, p. 543) takes a more dynamic approach to state capacity:
The existence of an appropriate bureaucratic apparatus in these economies was not a prior
God-given gift (miraculously available in a complete form to Japan in the immediate post-war
period or to Korea at the start of the Park regime). Nor can the strength of the South Korean
state be regarded as a completely predictable function of the underlying circumstances in that
country. The political and institutional conditions for successful state intervention in these
economies were contingent on the outcome of an intense and protracted process of political
struggle, ideological campaigning and conscious institutional innovation.
State capacity in Korea was not an initial condition, it was a deliberately
created property. State failures abound; however, incapacity is not a static
condition which must be accepted as given (in the present and for the future).
States can grow to become efficient with the necessary commitment. The South
African state, in particular, faces a challenging learning curve. It still has a long
process to go through before it is capable of what Nattrass calls ``aggressive
interventions''. This does not mean that the state should resign itself to a lesser
role, because then it will never have the capability. Capacity comes by learning,
which, in turn, comes from actual experience. The South African state cannot
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be over-ambitious in the short run, but this does not mean it should have no
ambition. Vision is crucial.
The article next examines if South Africa has a potential developmental
state (whether it can be constructed), by looking at whether it fits the criteria
spelt out by Leftwich (1995). These point to the importance of socio-political
and administrative factors in determining state capacity, which, in turn, impact
on economic development.
A determined developmental elite. A developmental state requires that the
core elite (especially senior politicians and bureaucrats) who determine
economic policy be developmentally-oriented (as opposed to predatory). The
President has a particularly important role to play as an aggressive, proactive
development entrepreneur. President Park in Korea surrounded himself with
such efficient technocrats, and was kept abreast of all projects. In South Africa,
President Mandela's role was more significant in the area of reconciliation and
symbolism. However, President Mbeki has tightened his grip on the state,
setting up a squad made up of a team of economists and strategists in his office
to oversee every influential government function. The new unit will function in
a manner similar to a ministry of state planning, and is intended to prevent
departments duplicating or undermining each other's work. The unit will
enable the presidency to play a leading role in governing the formulation and
implementation of a broad strategic socio-economic vision, and co-ordinating
the various aspects of economic policy (see Edmonds, 1997, p. 2). All this
activity under Mbeki is very similar to the situation under Park in Korea, and it
remains to be seen whether Mbeki possesses the right qualities to galvanise
such a strategic team.
Relative autonomy. It is important that the state is able to formulate and
implement policy relatively free from aggressive lobbying. Absolute
autonomy, however, is dangerous, because the state becomes answerable to no
one, and predatoriness is the outcome. Rather, it is an ``embedded autonomy''
which is necessary ± the state's autonomy needs to be embedded in a concrete
set of social ties that binds the state to society and provides institutionalised
channels for the continual negotiation of goals and policies (Evans, 1995, p. 12).
In South Africa, the ANC government is aggressively being lobbied by interest
groups from the left and right (more specifically, labour and big business). It
can be argued that this is reflected in the shift in government policy from the
RDP, which was a more populist document indicating an initial labour bias, to
GEAR, which represents a swing to the right and demonstrates the influence of
capital. An authoritarian form of corporatism (as in Korea and Japan), where
the state dominates and where labour and business become mechanisms for
transmitting state policy, is an option, but this requires that the state has the
political will to enforce its policy, preferably by co-opting these groups (in
subordinate positions). The state, however, needs to have a definite
development vision for South Africa and a coherent policy programme to draw
these groups in. Indecisive arbitrary state action which vacillates will estrange
these groups and lead to confrontation. Mbeki's strategic team has the
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607
responsibility of generating an economic vision which will inspire a national
developmental culture to emerge. It will be necessary to market this
programme to the populace, as Park did with his two best-selling books on
Korean development.
Civil society needs to engage the state in a constructive manner so as to
facilitate the overall development process. Diamond (1994, pp. 66-7) contends
that civil society must transform if it is to play a positive role in the future. To
do so, it must adapt:
.from resistance and hostility to (apartheid) state authority, to acceptance
of the authority and legitimacy of the democratic state;
.from seeking to displace the state as alternative authority structures, to
engagement with the state as watchdog, advocate, and developmental
partner;
.from a self-styled monolithic broad front, to acceptance of democratic
pluralism and competition of interests within the urban black
community;
.from close affiliation with the ANC to autonomy from political parties;
.from secretive and poorly institutionalised organisations with informal
procedures and memberships to transparent and institutionalised
organisations with formal procedures, written rules, and openly
documented memberships and finances; and
.from blocking the plans of state authorities to initiating positive
development plans and policies of its own.
The point is that civil society needs to become a responsible, constructive
player in socio-economic planning, and to do this it must move away from its
roots in resistance politics to becoming a partner in a more formal corporatist
environment. Civil society therefore has a role to play in ensuring that the state
remains aware of its responsibilities and in preventing it from becoming
predatory, but must not be a threat to state stability. Its purpose is not to
prevent state policy through centrifugal pressures, but to provide a centripetal
focus to national development.
Competent economic bureaucracy. It is essential that the state bureaucracy,
which has to execute government policy, be competent and insulated from
capture by interest groups. The civil service inherited from the apartheid era,
although in the process of transformation, still faces a fundamental identity
and legitimacy crisis in the post-apartheid era. Public service management
until recently was still dominated by white Afrikaner males, which is putting
the bureaucracy under great strain, as it simultaneously attempts to implement
government policy and transform itself. Table II illustrates that although not
yet fully representative, some strides have been made in this respect in terms of
the central public service. Note that in 1992 only 0.6 per cent of management
and senior management in the public service was African (South African
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Institute of Race Relations, 1994, p. 464), whilst Table II shows that by the end
of 1996 this proportion had risen to over 33 per cent. In senior management
positions, the white share has declined to 40 per cent, and even many of these
were ANC appointees.
There are two issues which arise from Table II. First, whites are still over-
represented in the public service at management levels. Some of these
bureaucrats were the implementors of apartheid, and are now expected to
reconstruct the South African socio-economic and political environment. The
guarantee of job security given to civil servants during constitutional
negotiations has exacerbated bureaucratic inertia. Second, the government's
policy of affirmative action may have a double-edged effect. Whilst
representativeness may indeed enhance the legitimacy of the bureaucracy, it
will not necessarily promote capacity and autonomy. To the contrary, Cameron
(1996) argues that affirmative action policies hindered effective RDP delivery
by inhibiting the expansion of capacity. Building state capacity entails hiring
the best qualified and most dedicated people, regardless of race. Whilst
improving the representativeness of the bureaucracy is vital, it cannot be
undertaken at the expense of capacity. South Africa already suffers from a
severe skill shortage, and is in no position to implement rapid affirmative
action. Affirmative action is a long-term process, which begins with human
capital development at all levels.
The most critical problem lies with the provincial and local levels of
government. Most of the new provinces have been cobbled together from
fragments of the old provincial and homeland systems. New local government
structures will also have to be built up from an inheritance of racially
segregated institutions. Full consolidation of these tiers of government is likely
to take several more years. The culture of non-payment which permeates South
African society has created warning signs for local government. Outstanding
debts to local authorities stood at over R6 billion in October 1996, and as many
as 92 authorities have insufficient funds to cover one month's expenses,
indicating a seriously distressed condition (Solomon, 1997, p. iv). Many local
governments lack the capacity to render regular accounts, leading to poor
payment trends, whilst only 46 per cent of authorities are able to apply full
follow-up procedures to collect money owed to them (Solomon, 1997, p. iv). The
exact relationship and boundaries among the three tiers of government must
also still be finalised.
Management of non-state economic interests. This links up with the issue of
state autonomy from business and labour. In a capitalist economy, the state has
to walk a fine line between competing interests. Two of the most important
interest groups are labour and business, which have the power to challenge the
state. In South Africa, business has organised itself into various bodies,
including the South African Chamber of Business and the South Africa
Foundation. The latter has increasingly played an important role, for example,
through the publication of the Growth for All document. Its influence is
apparent in government's subsequent GEAR document, which has strong
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Table II.
Race and gender
composition of the
public service by skill
level: 30 November
1996
Salary grading African Asian Coloured White Total Male Female
Lower skilled 223,503 5,007 25,336 17,063 270,909 159,611 111,298
Percentage 83 2 9 6 100 59 41
Skilled 196,130 11,115 28,933 72,753 308,931 152,815 156,116
Percentage 63 4 9 24 100 49 51
Highly skilled production 323,285 21,952 53,564 158,336 557,137 258,153 298,984
Percentage 58 4 10 28 100 46 54
Highly skilled supervisor 11,717 1,643 2,282 19,262 34,904 27,296 7,608
Percentage 33 5 7 55 100 78 22
Management
a
1,156 116 92 2,275 3,639 3,251 388
Percentage 32 3 2 63 100 89 11
Senior management
b
165 12 14 127 318 287 31
Percentage 52 4 4 40 100 90 10
Total 755,956 39,845 110,221 269,816 1,175,838 601,413 574,425
Percentage 65 3 9 23 100 51 49
National population 76 3 8 13 100 49 51
Notes:
a
Director and chief director.
b
Deputy director-general and director-general.
Source: Public Service Commission (1996).
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undertones of the business document (see Nattrass, 1996). Labour has
traditionally been a thorn in government's efforts, but appears to be losing
some of its momentum. COSATU (the largest labour federation) also faces the
dilemma of its alliance with the ANC, which has forced the union to pacify its
demands. Growing tension has arisen between the SACP/COSATU and the
ANC, and it is not improbable that COSATU could organise itself into a
political Labour Party.
The development of the National Economic Development and Labour Council
(NEDLAC) is an important step in the direction of a corporatist arrangement, as
it allows parties to negotiate openly over issues of national importance. In
addition, Adam (1999,p. 279) makes the fascinating observation that:
...corporatism in the decisive economic realm guarantees the consensual type of democracy
that simple majoritarianism lacks in the political sphere.
The political dominance of the ANC is thereby potentially mitigated and a more
effective form of decision-making is introduced.
Repression, legitimacy, and performance. A strong state may be needed to
push through necessary but unpopular policy, for instance, in dealing with trade
unions. In a democratic state repression is unacceptable. This is especially true in
South Africa where there has been a legacy of repression, which will not be
tolerated in the new democracy. However, the post-apartheid state has the benefit
of being perceived as legitimate, and hence commands a degree of respect and
loyalty which the apartheid state did not. To maintain this legitimacy, the state
will have to perform, and the benefits of economic growth must become visible
shortly. The ANC has a window of opportunity at the moment,where insufficient
political opposition exists[2] and where it is virtually guaranteed victory in the
next election. It can therefore push through necessary economic reforms without
major threat. What is needed is not necessarily a repressive state, but a hard one.
Thatcher's government in the 1980s in the UK illustrates that it is possible to
have a hard state in a democratic environment, if the state possesses the
necessary will and political leadership. Too much democracy, too soon, can be
detrimental, a point that Barro (1994, p. 24) makes with reference to South Africa.
Whilst not advocating a return to an authoritarian form of government, it may be
necessary for the government to get tough on certain issues and accept the fact
that it cannot only exercise popular policy.
Whilst South Africa does not fit Leftwich's (1995) conditions for a
developing state flawlessly, the above illustrates that it may possess the
necessary potential for a version thereof. Developmental states are, after all,
constructed entities, although elements may fortuitously be inherited. With the
right political will the state can build its capacity and activate the economic
development process.
The post-apartheid state and economic development
Currently, government policy as reflected in the GEAR document appears to be
an oxymoron: it is not enhancing growth, employment, or redistribution. This
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is reflected in the lack-lustre employment and mediocre growth performance of
the economy. Luiz (2000) argues that a threshold effect may exist in terms of
government intervention, below which such intervention may be required to
stimulate growth, whereas above the threshold, problems arise with this
intervention. GEAR is an appropriate policy response for a country which has
crossed this threshold, in that it focuses on macroeconomic fundamentals
which are in line with global trends. If South Africa's recent experience had
been one of growth, then GEAR would be ideal to keep this momentum going
by providing a clear economic policy statement for the private sector. The
threshold effect in South Africa is much more complicated, because of the
perverse political effects of apartheid. Whilst it would appear that South Africa
crossed the threshold in the 1960s (as is implicitly recognised by the Reynders
Commission) and that the best policy response in a normal environment at that
time would have been a GEAR-like policy, the adverse political climate made
growth a difficulty.
The South Africa inherited by the post-apartheid state finds itself with a
fairly sophisticated economy, but one which has stagnated since the 1970s. It is
because of this stationary economy that this paper argues that GEAR may not
be enough to get the momentum going. GEAR would be appropriate once
growth and the private sector have been galvanised. However, if the
government wishes to pursue GEAR, then it must do so whole-heartedly, with
an absolute commitment to its entire implementation. There are two main
points that need to be raised: first, although GEAR commits itself to shifting
government spending from current to capital expenditure, it has failed to do so;
and second, GEAR calls for greater labour market flexibility. In terms of the
latter point, the government has, in fact, done quite the opposite. The
Department of Labour has introduced new legislation (such as the Employment
Equity Bill) and amended existing legislation (such as the Basic Conditions of
Employment Act) in such a manner as to increase labour market rigidities. The
result has been that despite moderate economic growth, employment in the
formal sector has fallen. The lack of flexibility in government's labour market
regime adds considerably to the cost of employment. Business people view
labour as expensive when coupled with low productivity, and in addition now
also find it hard to lay off in times of economic hardship. The government
cannot implement GEAR in bits and pieces. If this is the policy it wishes to
pursue, then it must have the political will to do so in its entirety, and be willing
to accept the consequences thereof (with labour in this instance). A hard state is
required, whether South Africa pursues a neo-liberal or statist economic
strategy. As discussed earlier in this paper, South Africa may require a super-
ministry to co-ordinate the formulation and implementation of economic policy,
along the Korean model of the Economic Planning Board. In this way, the
departments of Finance and Labour would be forced to develop policies which
are in sync with one another. At the moment, the impression is created that
departments are doing their own thing, and that integration and co-ordination
into a national economic vision are lacking.
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In view of the fact that South Africa's economic growth rate has been rather
stunted since the 1970s, with average growth more than 50 per cent below that
of other upper middle income countries (according to World Bank development
reports), a more activist state policy may be required. Since the early 1970s,
South Africa has not been able to sustain an economic growth in excess of 3.5
per cent. Even after 1994 when capital inflows resumed and export growth
accelerated, South Africa has still not been able to push through this apparent
low growth ceiling. It could be argued that to break through this ceiling, the
state would be required to actively engage the economy by underwriting risk,
by co-ordination, and by crowding in private sector participation. This is
especially true in countries where the politics are endemically unstable, which
makes investors all the more risk averse. It is erroneous to compare South
Africa with other current emerging markets, and insist that we should fully
liberalise, as some of them are now doing. They have gone through their take-
off period, and their economies now possess an inherent dynamism. The South
African state has a history of directing economic development, and hence the
capabilities and institutions can therefore be capitalised upon.
Conclusion
South Africa is in the throes of a major political, economic, and social
transition. Transitions are, by their very nature, times of instability and
insecurity, and this requires guidance and vision from the state. The
consequence of failed transitions can be disastrous on many different counts.
The issue is thus whether the South African state has the capability to launch
South Africa through this zone of transition. The reconstruction of the South
African economy requires the absolute political commitment of the state.
Whilst the capacity to engineer a new order for South Africa may be lacking,
this capacity can be, and must be, built.
The state cannot isolate itself into self-imposed paralysis. It has a leading
role to play in stimulating growth in South Africa. This is not to justify the
state replacing the market, but rather guiding it and creating new
opportunities. What is required is not a scattershot approach to state planning,
but a selective, coherent strategy based on dynamic comparative advantages. If
GEAR fails to deliver, as is currently the case, the repercussions will be dire.
There is a danger then of a void developing in economic policy, with GEAR
being replaced by a highly populist alternative due to mass pressure. This was
the case in Brazil where cycles of alternating populist and conservative policies
reflected state-society dynamics. Given South Africa's huge income
inequalities, the Brazilian scenario is very likely. States do not implement
policy in a vacuum.
Notes
1. The exchange rate in mid-2000 being roughly R7 to the US dollar.
2. The ANC garnered just short of a two-thirds majority in the 1999 elections whilst no single
opposition party scored more than 10 per cent of the vote.
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