nelson mandela communist party
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African
Communist2nd & 3rd Quarter 2010 Issue Number 180
GROWTH
SPECIAL ISSUE
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African
Communist2nd & 3rd Quarter 2010 Issue Number 1801 Introduction to AC Special Issue: Towards a New Growth Path
Fionna Tregenna and David Masondo
4 The Challenge of Social MobilisationObed Bodibe
10 Debating Development: Paradigms Shaping Economic ProposalsNeva Makgela
17 Building a Progressive ConsensusBen Turok
24 Finance and the New Economic Growth PathSeeraj Mohamed
35 Rethinking South Africas Growth PathKimani Ndungu
44 The role of Industrial PolicyRob Davies
49 IPAP and the Need for a State-Owned Pharmaceutical CompanySidney Kgara and Sheila Barsel
57 The relevance of Regulation in a Developmental State
Reneva Fourie
61 Expanding Democratic Control Over the Mining SectorSACP discussion paper
83 Nationalisation: A Necessary DebateMadoda Sambaha
87 Corruption and NationalisationDavid Masondo
107 The Ideological Basis of NationalisationFrans Baleni
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The African Communist is published quarterly by the South AfricanCommunist Party as a forum for Marxist-Leninist thought
Send editorial contributions to: [email protected], or to
African Communist, PO Box 1027, Johannesburg 2000
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AFRICAN COMMUNIST | Sepember 2010
1
We are pleae o preen hi
Special Iue ofThe African
Communis on he heme
of he New Growh Pah.
Debae on he nee for a new
growh pah an wha hi migh enail
have been ongoing for ome ime. There
i now increaing conenu abou he
nee for a funamenal hif in Souh
Africa growh pah, bu probably le
agreemen abou how far ha hif
houl go an wha he ubance of a
new growh pah houl be. Thi Spe-
cial Iue of AC bring ogeher aricle
on variou opic relae o economic
policy an he growh pah more gener-
ally. Topic inclue inurial policy; he
ebae on naionaliaion; finance an
he growh pah; he role of regulaion;an he challenge of ocial mobiliaion
o puh he new growh pah.
Thi Special Iue i being releae
before he Naional General Council
(NGC) of he ANC.TheNGC provie our
movemen an he SACP wih anoher
momen in hiory o reflec on he ex-
en o which here ha been a hif from
he key pillar of he 996 cla projec
in he po-Polokwane perio. I alo of-fer he opporuniy o review curren
policie an, where neceary, o begin
o moify hee.
Every momen in hiory i boh a
poin of arrival an eparure. Similarly,
po-Polokwane ha e a mileone in
he hiory of our Naional Democraic
Revoluion (NDR) an he ruggle for
ocialim. The 7 ANC elecive Na-
ional Conference hel in Polokwane
wa a poin of arrival for hoe who were
no oppoe o neo-liberal economic
policie an narrow Black Economic
Empowermen. For hem, po-Polok-
wane repreen a perio in which hey
will ue he narrow BEE an globally i-
creie neo-liberal economic policie o
avance heir cla inere. Bu for he
working cla, Polokwane marke he
poenial for raicaliaion of our NDR
o be epiomie by key poliical aneconomic policy hif.
Thi Special Iue aee he po-
Polokwane perio in he conex of he
nee for a new growh pah. The aricle
iagnoe wha i wrong wih he cur-
ren growh pah an i effec on he
ocio-economic coniion on he work-
ing cla, an pu forwar policy propo-
al ha will ake u owar a working
cla-biae growh pah.Depie ignifican progre in vari-
ou area, we are confrone wih a
INTRODUCTION TO AN AC SPECIAL ISSUE
Towards a New Growth PathFiona Tregenna and David Masondo, who edited thisAC Special Issue, set out the framework within which debateson a New Growth Path for South Africa are taking place
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AFRICAN COMMUNIST | Sepember 2010
2
groly unequal iribuion of income
an wealh, unemploymen rae among
he highe in he worl, an rae of
povery ha are compleely unaccepa-
ble. The perience an in ome cae,
worening of hee problem poin
o ome of he way in which we have
no funamenally hife away from
he aparhei growh pah. We canno
accep ha unemploymen, povery,
inequaliy, an oher problem remain
a preen level. There nee o be a
funamenal hif in he growh pah. In
urn, hi poin o he nee for funa-menal hif in economic policy. There
i no reaon o believe ha he coninu-
aion of he exiing policie, or even
incremenal change in hee policie,
woul faciliae he ype of hif in he
growh pah ha i require.
The circumance of he global eco-
nomic crii furher uppor he nee for
hif in policy. The crii highligh he
limiaion of capialim an in paricu-
lar of inaequaely regulae capialim
(epecially o hoe who were previouly
ineniive o hee limiaion). The cri-
i ha alo le o a hif in he main-
ream economic policy icoure. Poli-
cie ha were previouly frowne upon
by many governmen an inernaional
iniuion have now become accep-
able even in orhoox erm. While wein Souh Africa houl no be carrie
away by policy fahion, we alo canno
coninue wih he ame economic policy
ebae a hough nohing ha change.
For all hee reaon, i canno be
buine a uual when i come o eco-
nomic policy.
However, we nee o recognie ha
he ype of policy hif require will
only be realie if here i a hif in hebalance of cla power. Our po-994
experience ha hown ha policy hif
an implemenaion are a funcion of
balance of cla power. When Gear wa
choen a ae policy, i wa no becaue
here were no oher policy alernaive
from working cla organiaion an
inellecual: i wa abou he balance of
cla power.
Policy choice an implemenaion
are no beauy cone abou which
policy i mo beauiful. Nor are hey
abou which policy i mo raional.
They are abou cla inere an abou
which cla ha he power an capac-iy o expre an implemen i cla
inere hrough expreion in policy
choice. For hee reaon, he policy
hif owar a new growh pah will
only be realie hrough organiing an
mobiliing working cla power.
Thi collecion of aricle i no in-
ene o provie anwer a o wha
pecific policie are require. Raher,
hey provie analye of he growh pah
from variou angle. Ce Oupa Boibe
aricle icue ome of he reaon why
i i o ifficul o break from he exi-
ing growh pah even if ha pah i ub-
opimal; examine ae-capial relaion
in Souh Africa; look a change in he
labour force rucure an new way in
which urplu-value i exrace; high-
ligh he imporance of ocial mobilia-ion for moving o a new growh pah;
an leave u wih ome ifficul que-
ion for furher icuion. Ce Neva
Makgela ummarie ome key feaure
of our curren growh pah an he chal-
lenge for change. She hen ienifie
hree alernaive paraigm among he
lef concerning he growh pah, an
highligh he benefi an rik of each.
Ce Ben Turok repor on he icu-ion of a eminar erie ile Prospecs
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AFRICAN COMMUNIST | Sepember 2010
3
for Economic Transformaion. Hi aricle
characerie he po-994 legacy an
offer uggeion for policy hif in
variou area of economic policy. Like
Ce Boibe, he alo leave u wih ome
ough queion for furher icuion.
Seeraj Mohame icue an of-ne-
glece iue: he role of finance in rela-
ion o he growh pah. He provie a
compelling criique of he role of finance,
an illurae how policy ha faciliae
change which have been erimenal o
economic ranformaion. Ce Kimani
Nungu focue on he labour marke, wih emphai on he implicaion of
he growh of non-anar work an
he high rae of unemploymen for he
new growh pah. Going ino more eail
on ome of he apec covere in Ce
Boibe aricle, Ce Nungu look a
coninuiie an iconinuiie wih he
aparhei labour marke, he growh in
non-anar work, an he challenge of
giving meaning o ecen work hrough
he new growh pah.
Ce Rob Davie aricle eal wih he
key area of inurial policy. He analy-
e ome of he limiaion of he cur-
ren growh pah an reflec on leon
from he global economic crii. He hen
icue he approach of he Inurial
Policy Acion Plan (IPAP). The conri-
buion of Ce Siney Kgara an SheilaBarel alo relae o IPAP, bu focue
on he pharmaceuical inury a a cae
uy. They convincingly argue he cae
for a ae-owne pharmaceuical com-
pany. Their icuion of he role of he
ae in hi area alo connec o he
laer aricle on he iue of naionali-
aion. In her conribuion, Ce Reneva
Fourie icue he role of regulaion in
a evelopmenal ae. She preen he
cae for he nee for regulaion, e ou
ifferen ype of regulaion, an ur-
vey he role of regulaion in compara-
ive inernaional experience. Of irec
relevance o ebae aroun he growh
pah, Ce Reneva icue how a evel-
opmenal ae houl approach i role
a a regulaor.
Finally, here i a e of aricle ealing
wih he ebae aroun naionaliaion.
The ANCYL icuion ocumen on he
naionaliaion of he mine ha riggere
ifferen vigorou repone wihin heANC-le movemen. A he core of hee
aricle on he naionaliaion of he
mine i he queion: wha ype of eco-
nomic ownerhip will faciliae eirable
economic growh? The SACP icuion
paper on naionaliaion i inclue in
hi iue. Ce Maoa Sambaha argue
for he broaening of naionaliaion an
paing he expropriaion legilaion o
enable he ae o carry ou naionalia-
ion beyon he mine. Ce Davi Ma-
ono paper i a criical efene of he
ANCYL call for naionaliaion of he
mine. In hi aricle, Ce Fran Baleni ar-
gue ha he coniion for naionalia-
ion are beer now.
We hope ha hi collecion of ar-
icle will bring freh inigh ino he
ebae aroun he growh pah, imu-lae icuion, an conribue owar
haping policie.
Cde Tregenna is an SACP Cenral
Commiee member and Universiy of
Johannesburg economics lecurer. Cde
Masondo is an SACP Cenral Commiee
and Poliburo member and is he YCL
Chairperson.
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AFRICAN COMMUNIST | Sepember 2010
Why, epie general conen-
u, ha here been only
limie rucural change
in he Souh African econ-
omy? I i becaue of lack of conenu
on he require policy inervenion
ha here i lack of movemen? Sruc-
ural change i har, ake ime an re-
quire bol an conien leaerhip.
The proce in po-aparhei Souh
Africa ha been characerie by polar-
ie ebae on he righ mix of policy
inrumen o achieve a ranforme
economy. The aim of hi inervenion i
o focu on ome of he unerlying chal-
lenge ha may be miliaing again
progre.
In he fir inance i he problem of
pah-epenency which creae rongincenive o ay he coure. The ec-
on reaon uggee i he problem
of ae-capial relaion. Laly, a high-
wage raegy eem like an impoibil-
iy bu hen who houl pay for he co
of ocial reproucion?
Very few reource inenive or prima-
ry commoiy economie have manage
o ranform from hi inherie legacy
from colonial rule. The colonial powerregare heir colonie a ource of raw
maerial, place o move heir urplu
people or a be exernal marke o
manage over-proucion a he cenre.
Infrarucure, aminiraion an hu-
man reource evelopmen raegie
were eigne o fulfil hi exracive-
expor economy. Thi i a powerful lega-
cy o overcome.
Several heorie have been avance
o explain hi economic rucure.
From he epenency heory he iea of
an economic enclave encapulae he
ualiic evelopmen ha characerie
many eveloping economie. From he
liberarian perpecive hi i explaine
in erm of relaive comparaive avan-
age. The iea i ha a counry houl
pecialie in area of i reource enow-
men.
Boh perpecive eem o ugge aaic balance of power beween he core
an he periphery, an fail o explain
how former eveloping counrie like
Korea an laerly China upgrae from
expor of raw maerial o iverifie o-
meic an expor-oriene economie.
Why herefore ome ocieie have no
manage o ecape raw commoiy ex-
por economic rucure wherea oh-
er have manage o hrive.The anwer o hi queion conain
wihin i a conunrum. The example
AC SPECIAL ISSUE: TOWARDS A NEW GROWTH PATH
The Challenge of SocialMobilisation to pushthe New Growth PathOupa Bodibe examines the obstacles to breakingwith the current growth path
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ha I have o far ue, Korea an China,
are of counrie ha i no have much
naural reource enowmen o begin
wih. Seconly, ome of he evelope
counrie wih a mineral bae, ay he
Neherlan, acquire hee naural re-
ource a an avance age in heir
inurial evelopmen. How herefore
i evelope counrie like he US an
Briain upgrae from agriculure o
becoming inurial gian an laely
knowlege economie?
Souh Africa wihou oub fall ino
he caegory of a mineral-epeneneconomy for mo of he la year.
Evienly change have occurre over
ecae an recen year, bu expor of
raw mineral ill play a vial role. One
of he recen hif in he mining ec-
or i he plainum ecor ecliping gol
proucion a a key commoiy. Gol on
oher han eem o have lo i lure
for wo reaon: in he fir inance i
he coly exercie of exracing eep-
level gol which require expenive
equipmen an ubanial invemen
ha are no juifie by he curren glo-
bal gol price; econ, ue o hi high
co of mining gol in Souh Africa,
China an Ruia have now iplace
Souh Africa a he leaing proucer of
gol. Thi i epie he fac ha Souh
Africa ill ha ubanial gol reervein comparaive erm.
The one explanaion for he lim-
ie rucural change in he economy
i pah epenence. Cruely pu, pah
epenence implie coninuaion of
a policy choice or economic rucure
even hough in he long run i may be
couner-proucive. For year Souh
Africa ha relie on exracing urplu
from he mineral economy wih infra-rucure, ervice an manufacuring
emerging o reinforce hi growh pah.
Pah epenency ha arien for ev-
eral reaon. A i imple i can be
caue by lack of poliical will o ackle
he more wrenching projec of ocial
ranformaion. I beer o ick wih
wha we have an make incremenal
change wih he hope ha hee will
accumulae ubanially o reemble a
qualiaive change. Inroucing change
will ruffle vee inere an he po-
liical elie migh bargain wih he eco-
nomic elie o le hing remain a hey
are wih a vague hope ha omehow
growh will rickle own.Sicking on a pah of economic evel-
opmen can alo be reinforce by geo-
raegic conieraion. In he TINA
(There I No Alernaive) moel Souh
Africa ha no opion bu o link ino he
global economy by uccumbing o he
icae of he neo-liberal moel. No ur-
prie ha economic policy i exceively
focue on macro-economic balance.
Thi i o enure ha he hallow local
economic bae oe no go ou of kiler
an eroe ae (epecially financial a-
e) hrough unconrollable inflaion.
Commoiy boom a furher im-
peu o pah epenency. During hi
powerful cycle he moel en o gen-
erae ufficien urplu ha can be i-
rece o ocial evelopmen or oher
purpoe. Bu more pecifically i canfuel ren-eeking behaviour acro he
poliical an economic elie rucure.
When hi moel work, uring com-
moiy uper-cycle, here i a powerful
incenive o ay he coure: he Why
fix i when i i no broken menaliy!
In hi cenario he policy objecive i o
iner he previouly exclue (a minor-
iy a ha) ino he wealh accumulaion
agena. Narrow BEE ring familiar bell.Sraegically he newly economically
enfranchie omehow become a new
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oppoiion o horoughgoing ranfor-
maion.
The narraive o far ugge a eer-
mini an almo faaliic view of eco-
nomic ranformaion. The main poin
i ha rucural change will require
reckoning wih pah epenency wha-
ever i ource. Socieie o have choice.
Choice are mae, however, wihin a e
of maerial coniion an o change an
economic rucure require herculean
poliical will o confron he enrenche
power of he ol an new elie. A he
policy level hi require breaking wihhe obeion of expor-promoion ha
ha ominae governmen economic
policy in he po-994 era. The global
receion wipe ou overnigh global
eman for Souh African mineral hu
plunging he omeic economy ino a
ailpin. Thee even alo amply em-
onrae he vulnerabiliy of a narrow
epenency on expor marke.
State-capital relations
Social mobiliaion i one of he key pil-
lar of riving hrough a evelopmen-
al agena. In ha conex ae-capial
relaion are pivoal in riving a evel-
opmenal growh rajecory. The ae
nee buy-in a well a leverage o mar-
hal he elf-eeking inere of capial
for he common goo. Thi i eaier aihan one. The ae alo require ome
relaive auonomy an criical iance
if i i o fulfil i role a a ocial change
agen. I eliberaely ignore for now he
role of labour for reaon which I hope
will be elf-evien in ue coure. Thi
however, oe no imply ha labour
oe no play an imporan raegic role
in economic evelopmen. The Social
Democraic moel amply illurae herole of labour-ae alliance in iciplin-
ing capial in he po-war Europe.
The role of capial ha been one of
he coneniou iue o plague he ri-
parie alliance in he po-994 perio.
In principle here i agreemen ha he
relaionhip beween capial, he ae
an he emocraic movemen i one of
muual epenency an conflic. How-
ever, ju how much collaboraion or
conflic i neceary in hi relaionhip
ha been a maer of ebae.
Driving a new growh moel require
ome buy-in from capial or a lea a
ubanial ecion of capial. Bu capi-
al view i chizophrenic a be. Ofcoure, he view of buine are a i-
vere a he iue uner icuion or
a here are many buine ecor. A
one level, he enlighene elemen of
capial correcly perceive he long-run
anger of high unemploymen, ri-
ing inequaliy an povery o he long-
erm profiabiliy of capial. Ye, when
i come own o policy precripion,
big capial in paricular canno fahom
anyhing ele bu conervaive econom-
ic policie incluing he rien call o
relax labour legilaion. Big buine a-
iuouly promoe i economic viion
on he new poliical leaerhip by cajol-
ing an uble hrea.
Doe he ae have leverage over
capial, epecially big capial? Tha i,
can he ae mobilie Souh Africancapiali o inve in he long erm e-
velopmen of hi counry? The anwer
o hi queion i a efinie no! By giv-
ing in o he agena of big capial uring
mo of he emocraic ipenaion,
he ae weakene i leverage over
large ecion of omeic capial. The
emocraic governmen now ha o face
he like of Anglo-American Plc a iner-
naional inveor raher han a localcompanie. Shifing local liing o he
Lonon an New York Sock Exchange
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AFRICAN COMMUNIST | Sepember 2010
releae local companie from he i-
cipline of he ae an labour. They are
now uner he irecion of inernaional
inveor, epecially iniuional inve-
or who eman hor-erm reurn.
The hor-ermim of capial, epe-
cially financial capial, miliae again
long-erm collaboraion beween he
ae an capial. Removal of capial
movemen rericion ha weakene
he power of he ae o conrol hor-
erm capial movemen. Moreover,
he relaxaion of exchange conrol ha
purre capial fligh by Souh Africancapial in earch of lucraive eal in he
global marke.
Tha ai, capial i ill vulnerable
an can be mobilie o uppor long
erm growh. Thi require ha he
emocraic movemen evelop a more
nuance an iaggregae perpecive
on inernaional an omeic capial.
The fac ha ha many of he big com-
panie ill have ubanial invemen
in Souh Africa provie ome leverage
ha he ae can ue. For example, he
ae ue hi leverage o uccefully
argue for black economic empowermen.
There i no reaon why he ae canno
eploy i power o argue for mineral-
beneficiaion for example. The ae i
no powerle i i how i eploy ha
power ha i a crucial queion.
New modes of subtracting surplus and
the growth path
The mining-agriculural revoluion e-
pene on cheap migran labour o ex-
rac abolue urplu value. Thi wa
alo a moel ha unerpinne he in-
urial revoluion of he 94. Wihin
hi emerge a racialie inurial re-
laion yem characerie by un-freean oppree black labour. African
ha o be iplace from heir lan an
heir economic inepenence wa e-
roye o mee he eman for cheap
labour by mining, agriculure an inu-
ry. Thi i he core of aparhei in he
workplace ha hape Souh Africa
inurial relaion for ecae.
The new labour law regime ough o
eraicae hi eifice of labour conrol
by giving worker acro he economy
equal righ. Formally, herefore, we
can alk of eraicaion of he racialie
yem of un-free an oppree labour.
Wha i he realiy? Of chief concern i
wha ha replace he cheap migraorylabour yem a a ource of urplu val-
ue? A relae queion i wha kin of
inurial yem will unerpin he new
growh pah?
Suie on hi fron are ill ena-
ive. Informaliaion of labour relaion
(caualiaion an ouourcing) i i
agree o be he new ource of exrac-
ing abolue urplu value. Thi i char-
acerie by low wage, precariou work-
ing coniion an hor erm labour
conrac. The workplace ha become a
veriable place of inecuriy. Permanen
worker are worrie abou ecuriy of
heir job while caual an ouource
worker are he new layer of righ-le
worker. There i a rong enency in
he economy o proliferae hee non-
anar form of employmen. A uchhe working cla ha been reconfigure
ino a core wih permanen job an a
periphery full of he caual/ubconrac-
e, informal ecor an unemploye
worker. The rerucuring of labour i
a global phenomenon ha ha gaine
momenum in Souh Africa a capial
ough o ecape he new labour regula-
ion.
Alongie hi exracion of abolue value are he high-ech inurie uch
a auo, heavy-chemical an eel.
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Thee ecor en o be highly capial-
inenive an o no generae employ-
men in ufficien quaniie o mop up
he unemploymen problem in Souh
Africa. The pauciy of kill i a ource
of leverage for kille worker relaive
o employer. The majoriy of he Souh
African unemploye lack he neceary
kill o ener hee high ech inu-
rie.
Thi polariy low wage employ-
men on he one han an kille well
pai employmen on he oher parly
explain he riing income inequaliy inhe counry. I am rawing hee iue
o poe he queion: i Souh Africa
eine for a low-wage growh ra-
egy even if i i no eirable? Compe-
iion from oher eveloping counrie
like China, Inia, Vienam o cie a few
eem o poin o he low-wage pah for
Souh Africa. The la year ha een
proucion hifing owar hee low-
wage an un-free labour zone. Shoul
Souh Africa purue hi pah a par of
i growh raegy?
Therein lie a huge area of ebae
abou he caual link beween wage
an growh. The neo-liberal roue ug-
ge ha lower wage will ranlae in
improve growh, an hi perpec-
ive ha aheren wihin he ae an
he ANC. Bu hi raegy i o explainunemploymen from a upply-ie per-
pecive ha i, if he price of labour i
righ hen labour eman will increae.
A baic fac i ha eman for labour
i a erive-eman. Tha i, labour i
no emane a an en in ielf bu i
purre by oupu growh. On hi fron
he Souh African economy ha no per-
forme well. So how can we pur oupu
growh in ufficien egree o imulaejob growh? Tha bring u back o he
queion of rucural change an he
baic hei of he RDP.
The RDP epoue a raegy of
growing he omeic marke hrough
a raegy of meeing baic nee. Fur-
her, i calle for a reiribuive ra-
egy ha woul reul in large ranfer
of income, ae an capabiliie o raw
in he majoriy of our people ino he
economic mainream. The raegy alo
ha rong regional evelopmen objec-
ive o harne he economic poenial
of he SADC region a a ingle economic
bloc. A high wage raegy require
among oher change in he paern oflabour eman away from he cheap la-
bour yem ha currenly characerie
employmen paern in he ervice
an manufacuring ecor.
Even o, uppoe ome ecor will
coninue o be locke in a low-wage
cycle, hen who houl pay for ocial
reproucion? The rerucuring of pay
package ha reule in he iplace-
men of he co of reproucion
healh, eucaion, ol age penion on
o iniviual houehol an he ae,
away from he employer. The coun-
erpar o he co of oing buine in
Souh Africa i he co of working. An
orinary worker mu pay for ranpor,
eucaion, healh care an ocial inur-
ance ou of a hrinking pay package.
Wage have a be kep o or marginallyincreae above inflaion, uggeing
ha he va majoriy of worker earn
below a living wage.
Conclusion
The nee for a growh raegy i aken
a given in hi inervenion. However
here are wo eemingly inracable
conunrum ha face policy maker
an aciviie. In he fir inance ihe near-overwhelming power of pah-
epenency which miliae again
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progre. I i generally accepe in he
evelopmen lieraure ha ocial mo-
biliaion i an eenial ingreien in
marhalling ociey behin a viion of
economic evelopmen. The ae face
he ifficul queion of how o mobilie
capial behin i objecive of economic
an ocial ranformaion.
Finally, i he ream of a high-wage
economy ju ha a chimera? The
economy i locke ino paern of ex-
racing abolue urplu value from
new form of cheap labour, mainly
young African women. Global compei-ion beween big eveloping counrie
eem o reinforce he low-wage raegy
in Souh Africa. In ha conex how will
high-wage employmen be generae in
Souh Africa? If on he oher han, he
economy i uck in hi low-wage vi-
ciou cycle who mu pay for he co
of ocial reproucion beween employ-
er, he ae an houehol. Thee are
ome of he perinen queion con-
froning policy maker an acivi.
Cde Bodibe is an SACP member and
serves on he Compeiion Commission
Endnote. See he conribuion o hi Special Iue
by Kimani Nungu on non-anar work.
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Pracical men, who believe hemselves
o be quie exemp from any inellecual
influence, are usually he slaves of some
defunc economis. JM Keynes
Since 994, ebae have rage in
he Alliance abou he irecion of
growh. To a large exen, he if-
feren poiion have been hape
by iagreemen abou he naure of he
core economic challenge. Bu hey alo
reflec he broaer economic icoure
an inernaional experience, omeime
a he co of pracical engagemen wih
Souh African realiie. Over-epenence
on heoreical moel ha omeime
given rie o policy propoal ha are
irrelevan or unworkable in our coni-
ion. Thi problem ha been reinforceby he general enency o focu on he
promie benefi of propoe raegie
wihou examining heir co or he like-
lihoo of failure.
To uppor a more objecive ae-
men of he propoal currenly in he
policy icoure, hi paper analye
ome broa paraigm ha hape key if-
ference. For conex, i fir ecribe he
curren challenge an he broa policyrepone o ae. I hen ienifie hree
ominan paraigm he ani-povery
approach, inurialiaion an employ-
men-focue - in erm of heir over-
arching viion, implicaion for policie
on ecor an capial, an main rik.
Current challenges
Economic raegie are eigne o re-
pon o pecific economic challenge.
In mainream economic heory, how-
ever, an emphai on growh ha become
hegemonic, o he neglec of equiy or
employmen creaion. An virually no
economi now engage wih iue of
iempowermen an alienaion, which
were originally cenral o Marxi eco-
nomic.
The raionale for a narrow focu on
growh ha been wofol: fir, ha in
he long run growh will benefi every-one omewha; an econ, ha employ-
men creaion an enhance equiy are
far eaier in he conex of rapi econom-
ic expanion.
The problem wih focuing on growh
a he core economic problem i ha in
Souh Africa, economic growh ha been
cloe o he inernaional norm ince he
raniion o emocracy in 994. Bu
unemploymen an inequaliy remainfar higher han in oher mile-income
economie.
AC SPECIAL ISSUE: TOWARDS A NEW GROWTH PATH
Debating development:Paradigms shapingeconomic proposalsNeva Makgetla assesses the current growth path,the obstacles to change and the frameworks withinwhich the Left has made its proposals
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Economic growh in Souh Africa
largely racke he inernaional average
beween 994 an 9. Only lower-
income counrie mo famouly China
grew ubanially more rapily. Com-
pare o oher mile-income econo-
mie, growh in Souh Africa lighly
lagge Eaern Europe bu kep up wih
Lain America.
Depie growh, inequaliie in income
an economic power remaine profoun.
In he mi , he hare of he op %
in naional income wa higher han in al-
mo any oher mile-income counry.Deep inequaliie in income were a-
ociae wih exraorinarily high job-
lene, eep inequaliie in earne
income, an highly concenrae owner-
hip of ae.
In , only 4% of working-age
aul were employe, compare o
an inernaional norm of aroun 6%.
The ILO Key Inicaor for he Labour
Marke (KILM) foun ha Souh Africa
ranke among he en counrie wih
he lowe employmen raio in he
worl
Among he employe, he iffer-
ence in income beween highly kille
an oher worker were unuually eep.
In , he Quarerly Labour Force Sur-
vey foun ha one in even non-agricul-
ural formal employee an wo hirof omeic, informal an farm worker
earne uner R. In -6, he aver-
age income from work in he riche %
of houehol wa ime he average
income of he poore 6%.
Ae were even more unequally i-
ribue han earne income. In -
6, he average houehol in he riche
ecile earne 94 ime a much from
invemen a one in he poore 6%.I receive hree quarer of i income
from capial, compare o uner % for
he poore 6%.
Inequaliy i only lighly iminihe
if we look a income from all accumula-
e ae, incluing penion an ener-
prie profi. The riche % of houe-
hol go almo wo hir of income
from hee ae, while he poore 6%
receive %.
Souh Africa unuually harh in-
equaliie an high joble rae reflece
boh he aparhei pa an he rucure
of economic growh from 994.
Aparhei eprive he majoriy of
Souh African of proucive ae ankill an remove many o locaion far
from he economic cenre of growh.
The yem wa nooriouly rooe in an
effor o enure African in paricular ha
no alernaive economic opporuniie o
poorly pai job in he mine an farm.
From he early 9, however, he e-
man for labour from he formal ecor
plummee, wih mining an agriculure
ogeher heing aroun a million job
in he following hree ecae.
The impac of aparhei emerge
graphically from he ijuncure be-
ween elemen paern an economic
growh. In he lae , % of he popu-
laion ill live in municipaliie locae
moly wihin he former Banuan.
Economic opporuniie an houehol
income in hee region lagge far be-hin he re of he counry.
Social gran, uppor from family
member an remiance were rongly
reiribuive, bu coul no fully offe
inequaliie in ae, pay an acce o
employmen. In 9, almo four mil-
lion people go an ol-age or iabiliy
penion a R a monh, while nearly
nine million go a R4 chil-uppor
gran. Thee gran were oo mall o liffamilie ou of povery. Bu hey forme
he main ource of income for a quarer
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of all houehol, an for almo wo
fifh of houehol in he former Ban-
uan.
In aiion, coninue inequiie in
eucaion an healhcare reprouce
economic inequaliie acro genera-
ion. The wor eucaion an meical
care were ill foun in he poore com-
muniie, noably he former Banuan
which ill houe 4% of all chilren
uner , alhough only a hir of work-
ing-age people.
The reul emerge in eriary eu-caion. In heory, i houl be a cenral
mechanim for ocial mobiliy. In prac-
ice, inequaliie in general eucaion
an income mean i ill moly repro-
uce inequaliy. Thu, in 6, while
African comprie hree quarer of he
populaion, hey mae up only % of
univeriy uen, an a much maller
hare of uen in profeional pro-
gramme.
The rucure of growh from 994 i
lile o are he high level of joble-
ne generae uner aparhei. In par-
icular, he mining value chain coninue
o upply over half of all expor, while
growh wa fae in he financial ecor.
Neiher of hee inurie generae em-
ploymen on a large cale or me he baic
nee of he majoriy. Inea, he bulkof employmen wa creae in he ocial
an privae ervice, reail an conruc-
ion, reflecing he ominaion of privae
conumpion by he rich combine wih
governmen pening on infrarucure
an ervice for he majoriy.
Variou facor mainaine he e-
penence on mining an he relaively
rapi growh of he financial ecor.
To ar wih, in conra o economicheory, in he real worl economie en
o iplay pah epenence ha i, hey
o no eaily iverify from long-aning
aciviie. In Souh Africa, boh buine
an he ae eablihe infrarucure,
iniuion an kill o uppor mining
over many ecae. To evelop oher ec-
or ypically require ha hey fa-rack
hi kin of uppor yem, which in
urn woul eman boh rik-aking an
ignifican invemen.
In hi conex, he financial ec-
or expane in large par becaue of a
rapi rie in hor-run capial inflow in
he . Thee inflow, in urn, reflecehigh level of inernaional liquiiy re-
uling fir from he rae imbalance
beween China an he global Norh an
laer from imulu package acro he
worl in repone o he global economic
ownurn. Inere rae in Souh Africa
remaine high compare o mo oher
counrie hroughou hi perio.
The reuling financialiaion of he
economy wa aociae wih limie em-
ploymen creaion an eep inequaliie.
The financial ecor ielf generae only
aroun job in 9, or % of
he oal, alhough i accoune for %
of he GDP. Bu i faciliae an grew
from large peculaive inflow from he
re of he worl ha renghene he
ran. The reul wa more expenive ex-
por an cheaper inpu, lowing growhin he re of he economy.
Capial inflow coul have uppore
growh if hey ha enhance invemen.
While capial inflow fune a uban-
ial increae in governmen expeniure
on infrarucure in he lae , inve-
men a a whole remaine below % of
he GDP. In effec, hen, hey pai moly
for luxury impor inea of capial
goo.A hey conribue o lower inflaion
an falling inere rae, he capial in-
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flow alo fuelle he creaion of crei
which moly benefie he high-income
group. Daa from he -6 Income an
Expeniure Survey inicae ha ome
% of oal crei o houehol wen o
he riche %, almo enirely for hou-
ing an car.
Governmen economic raegy from
994 i lile o challenge he unerlying
rucure of growh. In effec, he rani-
ion o emocracy buil an implici ocial
compac: buine woul reain i prop-
ery righ, an by exenion i wealh
an anar of living, while governmen woul ue i ax revenue increaingly
o are backlog in ervice for black
communiie lef by aparhei.
Thi effecive rae off lai he bai
for exremely able economic policie
from 994 o he en of he , epie
ofen heae rheoric an ebae. Thee
policie were characerie eenially by
conervaive moneary policy, moerae
fical policy (excep for rericion in he
lae 99), an only very limie mea-
ure o encourage new economic acivi-
ie an invemen.
Thi moel increaingly face wo
hrea o i viabiliy.
Fir, he emphai on improving
ervice for eprive communiie effec-
ively ivere reource from bulk an
core economic infrarucure. Moreover,he eucaion an kill yem increa-
ingly faile o repon o he economy
nee for more profeional an arian.
In he mi-, AgiSA ienifie boh
hee area a requiring urgen aenion,
laying he bai above all for he uban-
ial increae in public invemen in he
lae .
Secon, he moel i no lea o u-
aine employmen creaion on he nec-eary cale. The relaively rapi growh
of he mi- generae wo million
new job, bu half of hem iappeare
in he ubequen ownurn. A a reul,
he hare of he working-age popula-
ion wih employmen in wa he
ame a i ha been in he early . Bu
wihou a ignifican improvemen in
employmen, improvemen in govern-
men ervice, while ubanial, coul
no overcome he eep inequaliie an
povery inherie from aparhei.
The perience of joblene, pover-
y an inequaliy hrough he emocraic
era fuelle ebae on he lef on how o
achieve beer oucome. The nex ec-ion explore he ominan perpecive
in hee ebae.
The paradigms behind the
economic debates
We here ouline hree paraigm ha
hape economic ebae on he lef:
he ani-povery perpecive; inurial
policy; an a focu on employmen crea-
ion an equiy. In each cae, we ienify
he overarching logic; he implicaion
for he proucion rucure an capi-
al; he promie benefi; an he main
rik. The aim i no o eail he ebae,
bu raher o ugge broa ifference in
perpecive an heory. Thi chemaic
preenaion leave ou imporan nu-
ance an compromie poiion in he
hope of clarifying he ocial an econom-ic logic ha unerpin curren ebae
an policy propoal.
Anti-poverty
Acivi focue on alleviaing povery
ene o argue for a greaer ue of gov-
ernmen revenue, erive from axe
on he formal ecor a well a borrow-
ing, o improve ervice an gran in
hiorically impoverihe communiie.In effec, hi viion woul upcale he
exiing implici pac ha reae he ex-
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iing economy eenially a a ource of
reource for reiribuion hrough he
ae raher han eeking o ranform i
o creae more opporuniie for he ma-
joriy.
Thi perpecive oe no require ha
he ae influence he rucure of pro-
ucion or ownerhip. By exenion, i
houl ju eek o uppor growh acro
he economy, which given pah epen-
ency woul likely uain he exiing
ominance of mining an finance.
The raegy promie immeiae
improvemen in he living anarof he poor, ay he boom hir of he
populaion, moly hrough ocial gran
(which are relaively eay o roll ou) an
houing. In he longer run, proponen
argue in line wih he RDP ha im-
prove income an living anar for
he poor will ranform he economy o
enure more incluive an uaine
growh. On he one han, hey will pro-
vie poor houehol wih he infraruc-
ure, kill, healh an financial abiliy
neee o fin proucive employmen.
On he oher, increaing income for he
poor will renghen eman for baic
goo an ervice, imulaing prouc-
ion an generaing more employmen
opporuniie.
A major benefi of hi approach from
he anpoin of he ae wa ha ii no require explici inervenion in
he economy. I relieve he governmen
of reponibiliy for ranforming he
economy, wih he aociae rik of fail-
ure an poenial conflic wih buine.
Inea, governmen coul focu on he
more agreeable ak of improving he
live of i coniuen hrough he more
convenional public funcion of provi-
ing baic ervice an houing.The funamenal rik in hi raegy
i ha reiribuion hrough he ae
prove inaequae o uppor new kin
of economic growh an by exenion
enhance employmen. In hee circum-
ance, unemploymen woul remain
high while governmen revenue woul
epen largely on he ae of he global
economy. A a reul, he proviion of
ervice on he hope-for cale woul
remain conee an precariou, wih
cuback looming whenever he worl
economy lowe own.
In he even, experience from 994
uggee wo core obacle o he e-
ablihmen of a viruou cycle in heeconomy hrough governmen ani-
povery programme. Fir, he cale of
ranfer remaine oo mall o provie
he hope for ep-up in coniion for
he poor an, by exenion, in eman.
Secon, he relaively rong ran mean
ha new eman for manufacure, epe-
cially clohing, appliance an houehol
furnihing, wa me largely by impor
raher han omeic proucion.
A final rik of he ani-povery ra-
egy i ha he convenional mechanim
for elivering governmen ervice en
o emobilie communiie, raher han
galvanie hem. Hiorically, governmen
ha elivere ervice o iniviual an
houehol, which have lile ay in he
proce. The en reul i ha people
ofen ee hemelve a compeing forbenefi raher han working ogeher o
allocae carce reource in heir collec-
ive inere. Conflic over governmen
ervice can eaily emerge, ogeher wih
he convicion ha beneficiarie are un-
eerving or corrup.
Industrialisation
The inurialiaion approach, capure
primarily in he governmen InurialPolicy Acion Plan (IPAP an ), ar-
gue ha governmen houl focu on
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encouraging he proucion of manufac-
ure goo epecially for expor. Thi
raegy ha he poenial for acceing
larger marke in orer o rive ma-
bae proucion, which in urn will
ecure more rapi growh an higher
employmen. The approach i moelle
on he relaively rapi evelopmen ex-
perience in Aia epecially in he 96
an 7.
The core of he inurialiaion ra-
egy i ha he ae houl focu uppor
on convenional manufacuring, noably
capial goo, ranpor an elecronic,a he key o inernaional compeiive-
ne. In Souh Africa, aheren have alo
calle for invemen in ligh inurie
uch a clohing an foo proceing, in
orer o generae more employmen, a
well a in beneficiaion of mining pro-
ucion. In conra, hey ofen argue
ha he ervice an proucion o mee
omeic eman are inherenly le
compeiive, le proucive an hence
le eirable.
The raegy require ha govern-
men collaborae cloely wih inurial
capial, while reucing uppor for min-
ing, farming an finance. Tha, in urn,
eman ha he ae be able o in-
ervene effecively an eciively in he
economy. In paricular, i mu be able
boh o ienify prioriy aciviie an omobilie infrarucure, kill an regula-
ory inrumen o uppor hem in he
face of lobbying from oher group.
Proponen of inurialiaion ar-
gue ha only manufacuring can gener-
ae able, ecure employmen an rive
growh in he longer run. Their evience
i largely hiorical an inernaional,
ince inurialiaion ha been crucial
o growh in virually every evelopeeconomy. In aiion, knowlege-in-
enive manufacuring ecor ypically
generae beer-pai an more kille
employmen han mining, agriculure or
many ervice, alhough ofen on a rela-
ively mall cale.
The inurialiaion raegy prom-
ie grea rewar, bu alo bring ignifi-
can rik.
Fir, he raegy require he ae o
manage economic growh. Tha mean i
mu accep reponibiliy for failure a
well a uccee. Poliically, epecially in
highly ivie an inequiable ocieie,
i ha proven ifficul for governmen o
ake on hi rik. The reul ha generallybeen limie funing for new aciviie
a well a an inabiliy o align ae func-
ion o uppor hem.
Secon, he raegy aume ha
global eman for manufacure expor
will remain for he foreeeable fuure. In
he even, he recen economic ownurn
poine o he poibiliy of a uaine
ecline in eman for manufacure im-
por by he global Norh. China eem
likely o remain a major ource of growh
in he coming ecae, bu i ha gener-
ally impore moly commoiie an
ervice from Souh Africa, raher han
manufacure.
Thir, virually all eveloping coun-
rie ee he expor of manufacure
o worl marke a a major ource of
growh in he fuure. A a reul, SouhAfrica ha ene up upporing he ame
ecor ubiie by oher ae, noa-
bly auo, pharmaceuical an clohing.
Finally, an perhap mo funamen-
ally, he inurialiaion raegy i e-
igne o uppor uaine long-erm
economic growh raher han employ-
men creaion or equiy. A a reul, i
focue governmen aenion on inu-
rie ha canno creae much employ-men in he meium erm, however nec-
eary hey are o long-run growh, while
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ignoring more labour-inenive aciviie
in agriculure, he ervice an conruc-
ion. Moreover, he focu on expor can
lea o propoal o hol own wage o
uppor compeiivene.
Focusing on employment and equity
The recen ANC icuion ocumen on
he economy argue ha he ae houl
refocu economic policy more explicily
on equiy, wih employmen creaion a
he cenral mechanim o ha en. I
propoe four inerlinke raegie:
meaure o enhance overall economicefficiency hrough improve regulaion,
infrarucure an kill; uppor for em-
ploymen-creaing aciviie; uppor for
broaer ownerhip an ocial mobiliy;
an improve ocial ecuriy an acive
labour-marke policie.
In hi view, in he hor o meium
erm he ae houl uppor agricul-
ure, ervice, ligh manufacuring an
conrucion epecially o mee omeic
an regional nee, ince hee ecor
can creae employmen fairly rapily.
I houl uppor inurialiaion a a
longer-erm goal raher han an immei-
ae prioriy. To enhance economic equiy,
i houl alo uppor form of collecive
ownerhip a well a more equiable ac-
ce o qualiy eucaion. In conra,
narrow BEE i preene a impoingignifican co on he economy wihou
generaing aequaely benefi for he
majoriy in reurn.
The employmen/equiy raegy
promie a ubanial ecline in joble-
ne a well a greaer ocial coheion in
he meium erm. Bu i alo involve
ignifican rik. Above all, a wih he
inurialiaion raegy, he ae may
prove oo paralye by ecional ebaeo prioriie clearly an mobilie reourc-
e o uppor employmen-creaing ac-
iviie. Moreover, if i ge he economic
calculu wrong, i may en up builing
permanen ubiie for whie elephan
ino he buge.
A furher rik i ha he focu on em-
ploymen creaion may lea o a failure
o uppor knowlege-inenive inu-
rie an expor. Once full employmen
i achieve, he economy may be locke
ino low prouciviy aciviie an low-
er growh an lack he capaciy for more
avance proucion.
Conclusions
A review of he logic unerpinning eco-
nomic ebae in Souh Africa poin
o he coninue epenence on iner-
naional experience an heory raher
han eaile analyi of our own circum-
ance. Cerainly he hiory of oher
counrie an abrac economic analyi
are crucial for coming up wih iea for
areing he unemploymen an in-
equaliy ha plague he Souh African
economy. Bu hey mu be ee o
ee if hey fi Souh African realiie an
aee for heir rik a well a heir
promie benefi.
A paricular challenge i ha eco-
nomic paraigm ypically ignore how
poliical power hape he opion an
rik for evelopmen. To be uccefulin a capiali emocracy, however, any
raegy mu boh unie he majoriy
an provie ufficien incenive for capi-
al o mainain invemen. By exenion,
i will likely en up more complicae,
nuance an compromie han any aca-
emic policy propoal.
Cde Makgetla is a Depuy Direcor
General in he Economic DevelopmenDeparmen
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The New Agena, DBSA, FES
Seminar erie began in No-
vember 9 uner he ile
Prospecs for Economic Trans-
formaion. The aim wa o e ou he
broa parameer of he rucure of he
economy an o eermine wha nee
o be one o change ha rucure in
he inere of economic ranforma-
ion. I wa argue ha unle ha
rucure wa change he variou o-
cioeconomic ajumen being mae
woul no funamenally change he
live of he majoriy of our people.
Four eminar were planne, The
srucure of he economy, The value chain,
Poenial resources for developmen, an,
Is a grea leap forward possible? A grea
eal of icuion wen ino evelopinga conenu. Thi wa largely achieve
hough everal imporan iue were
lef for furher conieraion. Builing
an agree poiion among Souh African
economi abou wha ha o be one,
even among likemine progreive, i
ifficul. Thi i parly becaue he econ-
omy i complex, an becaue he polii-
cal implicaion of policy eciion are
o eniive. Thi i why we have ye oeablih a naional conenu aroun
many major iue. Neverhele he
eminar howe conierable conver-
gence on key policie.
The ifficuly of arriving a agree
poiion i illurae by he plehora
of economic policy ocumen ha
have emerge over he la wo ec-
ae variouly calle he Four Scenario,
RDP, Gear, AgiSA, Incluive Growh,
Growh an Developmen, Reiribu-
ive Growh, Rerucure Growh, New
Growh Pah an many oher. All hi i
inicaive of inene ebae abou eco-
nomic policy. I alo how ha we are
no hor of policy iea, hough we fall
hor of agreemen.
I i alo increaingly apparen ha
he agena before governmen i oo
large an complex an ha here i no
publicly viible riving cenre. Tran-forming an rerucuring o complex
an economy i unlikely o uccee wih-
ou a rong cenral agency o provie
coherence of policy an coorinaion of
implemenaion. Even he privae ecor
i noable for an abence of ienifiable
common purpoe.
The final eion of he eminar a-
empe o bring ogeher he rich iea
preene a he eminar. We all agreeon he ileA Developmenal Growh Pah
which eem o capure he piri of he
AC SPECIAL ISSUE: TOWARDS A NEW GROWTH PATH
Building a Progressive ConsensusBen Turok reports on the Prospects forEconomic Transformation seminars
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icuion ince i inclue he key no-
ion of evelopmen, he eenial ingre-
ien of growh, an he nee o move
in a new irecion. The nee for a new
agree irecion, or pah, i accepe
by all excep hoe who remain efen-
ive abou he roa ravelle ince 994,
alhough even here a cerain ofening
can be een. In a recen commen, Min-
ier of Finance Pravin Gorhan, hope-
fully reflecing a Treaury view, poke of
a new moel o creae job an elimi-
nae povery.
The eminar agree ha a evel-opmenal growh pah houl no be
conceive in incremenal erm bu a a
qualiaive break. Given he rigiiie of
pa performance, i implie economic
rerucuring. Wihou rerucuring
here can be no ignifican evelop-
men.
The ranformaion of he economy
preen a formiable challenge, ye we
have no choice bu o procee. The e-
enial poin i ha he rucure of he
economy ha remaine unchange for
a long ime an he main beneficiarie
remain a mall cluer of corporaion
an iniviual wih a large elemen of
ren-eeking ha i profi ubanially
above normal marke reurn on inve-
men. The hare of profi in he naion-
al income climbe from 4% in 994 o4% in 9, wih a correponing rop
in he hare of remuneraion. In -6
he hare in he naional income of he
poore % wa ju uner %, even af-
er ocial gran.
The reul i growing inequaliy, e-
vere an periing unemploymen an
unaccepable povery.
There i evience ha living coni-
ion for many have improve omewhaa a reul of governmen acion in he
proviion of ocial ervice an welfare
gran, umme up in he phrae ocial
wage. Some economi are criical of
hi phrae an hol ha coniion for
he poor have eeriorae. Neverhele
here i ubanial agreemen acro
he counry ha he overall coniion
for he poor are unaccepable.
Remarkably even he mo conerva-
ive voice agree ha he yem i no
uainable. I cerainly oe no reflec
wha he force ruggling again apar-
hei ha in min.
The legacy since 1994The Souh African economy experi-
ence moe hough uaine growh
over he po-aparhei perio. Growh
accelerae beween an 7,
bu lowe ubanially hereafer a
he financial crii hi. The naure of
ha growh ha been queione, bu
i i clear ha i i no reul in a ub-
anial rickle own effec. Furher-
more, he rucure of he growh pah
conaine imbalance which inhibie
all-roun rapi economic evelopmen.
Hence unemploymen, inequaliy an
povery remaine ubanial.
I i agree ha growh ince 994
wa parly le by conumpion by he af-
fluen an he conumpion-riven ec-
or of he economy grew a ouble he
rae of proucion-riven ecor wihignifican job creaion in he conump-
ion ecor. Thi conumpion-riven
growh wa bae on privae crei ex-
enion leaing o unuainable level
of houehol eb. There i however
ome ebae abou he ignificance of
job creae in he ervice ecor an
wha may be expece in hi ecor in
he fuure.
Conumpion-riven growh habeen increaingly upplie by impor
leaing o a growing rae efici which
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ha been increaingly finance by exer-
nal hor-erm porfolio capial inflow
which have in urn prevene currency
ajumen o bring he curren accoun
ino balance.
Wore, of he maive growh in pri-
vae crei exenion ince 994, only a
iny proporion (le han 6% in )
wen ino brick an morar fixe in-
vemen. Thi wa parly ue o a lack
of invemen capial ue o he fligh
of mining an oher capial abroa, o
ha our inurie conrace having
lo acce o hoe urplue an ech-nological capabiliie. Thi leakage wa
faciliae by he relaxaion of exchange
conrol by he reaury an alo con-
ribue o macro-economic inabil-
iy. A a reul inury wa arve of
capial an unable o evelop imporan
linkage hroughou he economy. I i
no urpriing herefore, ha even a he
peak of hi conumpion-riven growh
pah, he economy grew lower han he
average for meium income eveloping
counrie an unemploymen i no
fall below .%.
Thi confirm ha unemploymen i
rucural an canno be overcome wih-
ou new funamenal policy choice.
There i a rongly hel view ha
here wa exceive zeal in puruing a
narrow verion of macro-abiliy focu-ing on financial inicaor which caue
inabiliy in oher macroeconomic vari-
able.
Since 994, hor-erm porfolio
capial inflow have been aociae
wih inflow ino mining an mineral
relae ock on he back of he global
commoiy boom. Thee inflow are a-
ociae wih relaively high Souh Afri-
can inere rae, ha i, he carry raewhich i highly peculaive gamble on
he global financial marke. Volaile
hor-erm capial inflow an ouflow
are liable o conribue o a erie of fi-
nancial hock which eabilize he
economy.
There i alo evience of he effec of
exceive financialiaion in he yem
an ren eeking a he expene of in-
vemen in proucive ae. New re-
earch i unfoling he conequence of
hee enencie for he real economy,
epecially a i i accompanie by high
level of colluion beween a relaively
mall cluer of corporaion. The ingle
fae growing ecor wa Finance anInurance, more han oubling i hare
in GDP beween 994 an from
6 o %, wihou a correponing in-
creae in privae invemen an aving
rae.
Proucion-riven ecor have been
ominae by relaively capial-inenive
mineral-energy prouc, wih limie
iverificaion, o ha our expor ba-
ke remain ominae by mining an
elecriciy-inenive reource proceing
prouc.
Thi growh pah i (on a per capia
bai) one of he mo carbon-emiion
inenive in he worl o ha here are
increaing rik o our expor hrough
mouning preure for eco-proecion-
im meaure in evelope economie.
Monopoly pricing of key inpu i-avanage proucive aciviie an
conumer.
Recommendations
The eminar erie generae a poiion
which can be ummarize a follow:
a. A developmenal sae needs o
be consruced, wih a srong core insi-
uion capable of driving developmen.
The sae mus be able o harnesssubsanial sae and privae finances
which could be used for concessional
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capial for invesmen. I migh hen
choose o direc his capial o produc-
ive secors in he real economy, recog-
nizing ha he value chain goes way
beyond mineral exracion and manu-
facuring indusry.
b. The producive secors would be
incenivized o focus primarily bu no
exclusively, on he domesic and re-
gional marke, wih he added impeus
given by a srong local procuremen
policy.
c. None of his would work wihou
a differen kind of public service andsae owned enerprises. Exising insi-
uions require major reform, enlarg-
ing and reskilling. This also applies o
he privae secor.
d. In order o ensure ha he proc-
ess includes he wides possible parici-
paion, social capial, in all is forms,
would have o be mobilized and ca-
paciaed.
e. Arguably, wihou he above,
growh may coninue, bu i will no be
ruly developmenal.
f. I is also essenial ha he proc-
ess is no undermined by excessive
cauion in governmen and by privae
secor ren seeking. The financial sec-
or would have o be subjeced o close
scruiny and regulaion.
Industrial policy
There ha been conierable ebae
abou wha we mean by proucive.
One view i ha our manufacuring in-
ury ha been eriouly eroe an
hi mu be remeie urgenly ince i
i he founaion of wealh creaion hav-
ing very ignifican muliplier capabili-
ie. The preen epenence on mineral
exracion ha o be overcome wihouloing he foreign revenue i bring. A
properly reource inurial policy
focue on ecor wih high employ-
men an growh muliplier i criical
o reuciae he proucion ie of he
economy an rener conumpion-riv-
en ervice job more able an viable.
I i alo eenial o he abiliza-
ion of he rae balance o rawing
on appropriaely equence rae poli-
cie which promoe compeiive impor
replacemen. Such policie woul be
bae on boh upply-ie an eman-
ie inervenion uppore by empha-
i on labour-inenive inurie an
he relae ervice. The imporance ofpromoing labour-inenive inurie
canno be over-emphaie.
Anoher view i ha manufacuring
inury i le imporan in he preen
informaion age an ha he wier erv-
ice ecor i able o boo employmen
far more rapily. Aequae recogniion
nee o be given o invemen in ha
kin of proucive arena.
Ye anoher view i ha wihou he
capaciaion of he whole of ociey no
amoun of invemen in pecial area
i likely o creae a able, ucceful o-
ciey. However, ince we canno o eve-
ryhing a he ame ime, where o we
ar? An how o we equence avail-
able invemen?
Review of macroeconomic policyThe analyi lea o he unavoiable
concluion ha we nee a major review
of our macroeconomic policie, inclu-
ing fical an moneary policie. I i
clearly inufficien o concenrae on he
financial funamenal wihou equal
aenion o he real economy an he
ocioeconomic facor, epecially em-
ploymen an ecen work.
Thi i no o rejec he view ha heabiliy of key macro-economic vari-
able i eenial, ha variable uch a
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he buge efici an inflaion mu
be kep a reaonable level an ha an
imporan hrea o abiliy are exernal
financial hock. Bu hee are no he
ole conieraion in macro-economic
policy.
The financial sector
A major iue cenre aroun he rapi
increae in financialiaion in he econo-
my. New meaure houl be inrouce
o reinforce he impac of he Conumer
Crei Ac, incluing meaure o curb
he ue of crei car an he conump-ion of luxury goo, epecially hoe
which are impore.
While here i a broa conenu ha
here houl be a more compeiive an
able currency, limie progre ha
been mae in ienifying all poible
inrumen. Accumulaion of foreign
reerve i an imporan meaure. How-
ever, capial conrol which icourage
he movemen of hor-erm peculaive
capial flow in an ou of he economy
houl alo be ienifie.
The global financial crii ha caue
a ubanial rehinking abou he een-
ial of neoliberal economic orhooxy.
If economi globally are calling for a
rehink, Souh Africa can harly abain
ince our nee are o much greaer.
There i unforunaely evience ofrong reiance by he privae ecor
o inve in proucive ecor beyon
mineral exracion. Privae invemen
in proucive aciviy generally i no
increae a much a in oher compa-
rable counrie. Alo, here ha been a
very ignifican hif abroa by ome of
he major corporaion an a coninu-
ing leakage of capial an capaciy o
oher counrie. A he ame ime heevelopmen finance iniuion have
no been recapialize for ecae an
have herefore aope conervaive in-
vemen policie o uain heir capi-
al bae. Governmen nee o be more
proacive here.
While here i a perien refrain
abou he low level of aving available
for invemen, he Public Invemen
Commiion which epen largely
on governmen penion fun inve
mainly in ock an hare. The pro-
poal ha a larger porion of hee fun
be irece ino proucive ecor i on
he able.
The power of asset managers
We nee a far beer uneraning of
wha fun, public an privae, are avail-
able for invemen, how invemen i
procee, an who ecie. The poin
i ha we nee o harne ubanial
fun for a variey of Sae-linke Ini-
uion an Agencie, incluing conce-
ional capial o expan he economy.
We nee an organogram of how fun
flow, who ake eciion a wha poin
an why hi may be ignifican. There
i a new recogniion of he criical role
playe by ae conulan an inve-
men manager in giving hape o over-
all invemen in he economy.
Saol may be a goo example, be-
caue Saol i big, i pu a lo of money
ino he SA economy an i make a e-ciion ha i live wih for quie a long
ime. So, he way hey make hoe eci-
ion are very imporan. I alo very
ignifican when hey ake projec off
he able.
There nee o be rong linkage be-
ween BEE ranacion an broaer e-
velopmenal goal uch a higher level
of employmen, proucion an value-
aing procee. R billion of ran-acion have been one oay uner BEE
of a oal ock of abou R. rillion an
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approximaely % are currenly well
uner waer.
There are rong argumen abou
he economy becoming more compei-
ive. However we nee o iinguih
beween wha nee o be one o be
more compeiive in global marke an
how compeiion houl be encourage
omeically.
Local procurement
We nee o enure ha he ae encour-
age increae publicly influence local
procuremen in a conex of enhancelong erm compeiively price inpu.
The ae nee o ake rong acion
hrough compeiion law o enhance
compeiion in he economy o break
exiing monopolie. Ani-compeiive
pracice an rucure are require,
paricularly acion o encourage price
reucion of goo bough by poor
working cla conumer.
Local procuremen promoe local
manufacuring inury an he relae
ownream aciviie o grow employ-
men an herefore eman which will
impac poiively on he raing ac-
coun. There i a poenial enency
for local procuremen o lea o higher
price for conumer goo, epecially
if he policy bring in higher ariff for
impore goo, bu hi nee o beweighe again he benefi of job crea-
ion. Unemploye people prefer job o
cheap conumer goo.
Local procuremen alo boo na-
ional prie an confience, imporan
elemen in builing a emocraic e-
velopmenal ae.
The public service
There i abunan evience ha he pub-lic ervice an ome public iniuion
are performing well below he eire
level. Many area operae in a bureau-
craic manner an provie hoy ervic-
e. The public ervice nee o inrouce
more rigorou compeence eing an
uppor where kill are eficien. There
eem o be inufficien commimen o
ranformaion an oupu.
We require a hif in he public erv-
ice owar excellen ervice elivery
an capaciaion hrough a combina-
ion of a meriocraic recruimen proc-
e wih kill upgraing in he conex
of a rong effor owar ranforma-
ion. Skille peronnel from he privaeecor coul be inrouce o fill exi-
ing gap. However he eucaion y-
em mu prouce far greaer number
of grauae a all level, in cience,
mah an echnology. Since here i an
acue horage of profeional kill, e-
riou effor mu be mae o fragmen
profeional ak o ha hey can be
performe by lower level echnician.
China earlier policy of barefoo oc-
or wa an excellen example for e-
veloping counrie.
We require far more emphai on
proper accounabiliy.
The frequen commen by public
repreenaive on he amage one by
corrupion in he public ervice mu
be accompanie by evere puniive
meaure. The flagran violaion of herequiremen of he PFMA o icloe
ener preference, buine link an
oher abue ha o be ackle hea
on.
Regional markets
We faile o prioriie he regional mar-
ke in SADC afer 944 an now effor
o creae regional uniy are being un-
ermine by he European ParnerhipAgreemen. Greaer effor are require
o encourage regional inegraion.
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Social capital
Traiional African ocieie ha enor-
mou ocial coheion wih ome rei-
ual manifeaion an loyalie. Alo,
uring he ruggle year poliical an
labour movemen a well a civil oci-
ey formaion buil a powerful ene
of oliariy, much of which remain
inac. However hee aribue are no
being mobilie for evelopmen e-
pie frequen claim ha we are puru-
ing people-cenre an people-riven
evelopmen. The culure of popular
paricipaion in projec nee o be in-rouce a every level.
Agriculture
Some corporaion impac on he agri-
culural yem, an on he foo value
chain, raiing conumer price. How o
curb hee phenomena i one of he mo
eriou challenge for governmen.
So wha houl be one?
A new confience abou he Souh
African economy i emerging bae on
more concree reearch abou our nau-
ral reource. We are inee a reource
rich counry, accoring o Ciicorp, he
riche in he worl. Bu he counry an
i people o no benefi proporionally
from he ue of hoe reource, an ha
lie in he realm of public eciion mak-
ing. A Ha-Joon Chang ha amonihe
u, we are far oo rik-avere, an engage
in bean-couning raher han in promo-
ing a new expanionary viion for he
economy an our people. Thi i worhy
of eriou icuion.So:
Wha o we o?
Wih which reource?
In wha prioriy?
In wha equence?
An by whom?
Cde Turok is an ANC veeran, former
SACP CC member and poliical prisoner.
He is an MP and edior ofNew Agenda.
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The reform of he Souh Afri-
can financial yem an in-
ernaional financial relaion
houl be cenral o he icu-
ion of a new economic growh pah for
Souh Africa. We canno alk abou o-
luion o unemploymen, povery an
inequaliy an inurial an economic
evelopmen wihou aeing he role
of finance in haping he evoluion of
our economy. We have o be clear abou
he role we wan finance o play in our
fuure evelopmen an our new eco-
nomic growh pah. Unforunaely, mo
of our economic policy icuion rea
he financial ecor a if ha very lile
impac on he re of he economy. We
rea he financial ecor a if all hey o
i ake epoi an han ou loan inan objecive fahion. We eem o have
bough ino he rheoric ha Souh Af-
rica ha a ophiicae financial ecor
wihou aking ophiicae for wha?
I am alway puzzle by he lack of a-
enion given o finance in our Souh Af-
rican economic policy ebae. Maybe we
houl pu many of our economic policy
icuion on hol unil we have aken
ime o examine an icu he SouhAfrican financial yem an how we can
reform i for economic evelopmen. My
view i ha we canno really evelop
an uccefully implemen macroeco-
nomic policy, inurial policy, policie
for mall buine an cooperaive, an
even povery alleviaion policie wih-
ou coniering reform of he financial
yem. The financial ecor ha grown
in economic an poliical imporance
an influence over he pa few ecae
in Souh Africa an globally. We know
ha he omeic privae financial ec-
or ha a huge impac on he allocaion
of capial in Souh Africa. We know ha
global financier, peculaor an crei
raing agencie have a huge influence
over inernaional loan an inve-
men o Souh Africa. Their peculaive
aciviie affec he exchange rae, infla-
ion, inere rae, an ae price anhave he poenial of eabiliing our
macro economy. Furher, we know ha
many governmen, incluing our own,
have empere heir economic policie
o appear creible o he financier. For
example, he public aemen ha he
Growh Employmen an Reiribuion
programme aope in 996 wa no
open for icuion or negoiaion wa a
clear ignal o he marke. Governmenwa aying ha hey woul no paner
o populi preure o increae efici
AC SPECIAL ISSUE: TOWARDS A NEW GROWTH PATH
Finance and the NewEconomic Growth PathSouth Africas financial policies have played a key rolein inhibiting economic transformation, writes Seeraj Mohamed
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an engage in inflaionary ocial pen-
ing an invemen in evelopmen. In-
ea hey were aying ha hey woul
keep he efici in check an enure ha
inflaion i no reuce he real reurn
of he financial ecor an invemen
by he wealhy.
Thi paper will conier he influ-
ence of Souh African financial yem,
paricularly he privae financial ini-
uion an our inernaional financial
ealing on he Souh African growh
pah ince 994 an more paricularly
over he pa ecae. The wo main a-pec of finance coniere will be he
impac of capial flow on he economy
an financialiaion of non-financial
corporaion. The paper will argue ha
financialiaion caue he miallocaion
of capial ha reuce accumulaion an
eer economie ono an unuainable
pah wih increae financial crie.
The concluion warn again accep-
ing impliic argumen by mainream
economi abou he reaon for low
invemen in Souh Africa. I ay ha
a eeper uneraning of he link be-
ween finance an inury i imporan
an ha reform of he financial yem
i neceary o eer Souh Africa ono a
new economic growh pah.
Exchange rate liberalisation, capitalflows and the wrong growth path
The financial crie in eveloping
counrie uring he 99, incluing
he Aian financial crii, provie clear
uppor o he conenion ha uncon-
rolle capial flow, paricularly hor-
erm capial flow (commonly referre
o a ho money) ino an ou of coun-
rie, creae economic rik ha may
increae a counry macroeconomic fra-giliy an lea o financial crii. The iea
i ha an increae of hor-erm capial
flow o a counry increae liquiiy in
ha economy, which ha o be aborbe
omewhere in he economy. Govern-
men can chooe o op ha money
from enering an freely circulaing in
an economy. If ha money ener he
economy i uually caue an increae in
financial liquiiy an increae acce
o eb in ha economy. Thi eb coul
be ue o finance increae houehol
conumpion an home an car bor-
rowing, fixe invemen by buinee
or hor-erm peculaive invemen
in financial an real eae marke byhouehol an financial iniuion.
The balance of paymen coni of
a rae accoun (of goo an ervice)
an a financial accoun of capial flow
(coniing of long-erm foreign irec
invemen, hor-erm porfolio flow
an oher flow, which are moly hor-
erm foreign bank loan). Uually, for-
eign capial flow ino a counry when
a counry ha a rae urplu (i.e., i ex-
por more han i impor). However,
wieprea financial liberaliaion ha
allowe movemen of peculaive capi-
al acro he globe. A a reul, coun-
rie coul receive large capial flow
wihou necearily running a rae
urplu. When here i a large urplu
on he curren accoun i caue an im-
balance in he balance of paymen anmore ofen han ha o be offe wih in-
creae impor. Furher, inflow of cap-
ial will have he effec of renghening
he omeic exchange rae. Therefore,
here will be a negaive impac on ex-
por an a bia owar impor. When
foreign capial flow are aociae wih
increae eb riven-conumpion by
he more affluen, a ha happene in
Souh Africa, here will be increaingimpor of luxury goo. The increae in
our rae efici over he pa few year
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ha no been ue o impor of machin-
ery an equipmen linke o proucive
invemen bu o conumpion.
Counrie uch a he US, Briain an
Souh Africa have marke bae finan-
cial yem, where buinee uually
epen on aving, reaine earning or
ock an bon marke o finance heir
longer-erm fixe invemen. They
may alo have acce o ae evelop-
men financing, uch a ha provie
by he Inurial Developmen Corpo-
raion. On he whole, he privae bank
an financier are le ineree in long-erm inurial invemen bu will
provie hor-erm loan o buinee.
Counrie uch Germany an Japan have
bank bae financial yem where he
bank are more likely o provie longer-
erm finance o buine an o evelop
longer-erm relaionhip wih borrow-
er. Therefore, one woul expec ha
a uen increae of liquiiy in he
financial yem in he US, Briain an
Souh Africa o be very ifferenly al-
locae o ha in bank bae financial
yem counrie like Japan an Ger-
many. The financial inflow in marke
bae financial yem, uch a Souh
Africa, woul be more likely o flow o
hor-erm loan for conumpion an
peculaion in financial an real eae
marke while in bank-bae yema proporion of hoe fun woul be
more likely o go owar fixe inve-
men. However, even in bank bae
financial yem here woul be a prob-
lem wih uing fun ha become avail-
able ue o hor-erm foreign capial
inflow for long-erm fixe invemen.
There woul be a mauriy mimach
where he bank are uing hor-erm
borrowing o finance long-erm loan.Therefore, ho money inflow are more
likely o be aociae wih lening for
conumpion an peculaion.
Our experience in Souh Africa up-
por hi conenion. In my 6 paper
aeing he impac of capial flow on
he Souh African economy ince 994,
I argue ha he urge in hor-erm
capial flow ino he Souh African
economy from he mi-99 were a-
ociae wih increae conumpion,
peculaion an capial fligh from he
Souh African economy raher han in-
creae in proucive invemen (Mo-
hame, 6). I alo mae a link be-
ween he large capial inflow an hecurrency crii in .
My argumen wa ha large urge
of hor-erm capial flow can eaily
be revere an coul quickly leave he
counry. Therefore, he rik o he econ-
omy of increae hor-erm inflow i
capial fligh by foreign inveor. Thi
capial fligh can occur becaue hey
become worrie abou coniion in he
ho economy ha coul lea o low or
negaive reurn on heir invemen.
For example, when hor-erm foreign
capial flow ino an economy lea o
increae peculaion in ock an real
eae marke he price for hee a-
e will increae an bubble may form
in hee marke. Inveor may cor-
recly fear ha he bubble are unu-
ainable an, herefore, wihraw heirmoney from he ho economy. There i
a problem of elf-fulfilling prophecie
in financial marke where a fear ha a
price will ecline or a bubble will bur
will lea o iniial elling of ha ae,
which coul hen eaily urn ino her-
ing behaviour an panic elling of hoe
ae.
Foreign inveor ignificanly in-
creae heir porfolio capial flow (in-vemen ino ock an bon marke)
ino Souh Africa uring from he early-
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99 an paricularly afer 994 (ee
figure ). Ne porfolio flow (inflow
minu ouflow) grew from .% he
ize of GDP in 996 o 4.% he ize of
GDP in 997. The Aian financial crii
eeme o have care hee inveor
an here wa a rop of porfolio flow
o .7% he ize of GDP in 99. I eem
ha ome of he money from pecula-
or ha lef Aia uring he Aian fi-
nancial crii may have been move o
Souh Africa in 999 an porfolio flow
more han ouble o 6.4% he ize of
GDP in ha year.Thee peculaor may have real-
ie ha he urge in porfolio flow
o Souh Africa from 996 woul caue
bubble ynamic in he ock marke. In
here wa a hif of money ou of
he counry an ne porfolio flow wa
-.% he ize of GDP. Thi hif of mon-
ey ou he counry eem o have creae
a panic by he ize of ne porfolio
flow wa -6.6% of GDP. The impac of
hi capial fligh ou of he counry wa
a currency crii. The exchange rae of
he ran o he US ollar roppe %
in . The impac of hi maive ran
epreciaion wa inflaionary becaue
he ran price of impor, incluing im-
poran impor uch a oil, o he coun-
ry increae. The repone of he Souh
African Reerve Bank wa o puh up in-ere rae by 4% uring ha year. The
SARB wa uing higher inere rae o
curb omeic economic aciviy, uch
a conumpion, invemen an em-
ploymen creaion, o reuce inflaion
caue by a maive exchange rae e-
preciaion e off by a reveral in por-
folio flow. They prove wha a blun
inrumen inflaion argeing i.
Imporan macroeconomic variable,uch a he exchange rae, inflaion an
he inere rae, were ignificanly af-
fece by he relaively eay movemen
of ho money ino an ou of he coun-
ry. Therefore, I have been arguing ha
i i inaccurae for member of Govern-
men o have argue ha Souh Africa
ha ha macroeconomic abiliy. A
long a we allow eay an relaively un-
conrolle movemen of capial ino an
ou of Souh Africa we will coninue o
have volailiy in key macroeconomic
variable an macroeconomic inabiliy
becaue he Souh African economy will
coninue o be a playgroun for pecula-
or an heir ho money. Thi volailiyan inabiliy ha a remenou nega-
ive impac on Souh African buinee
ha wan o make long-erm plan o ex-
por, inve in proucion an increae
employmen. I creae a preference for
liquiiy ha rive money away from
long-erm proucive invemen an
employmen creaion owar hor-
erm peculaive aciviie ha have he
poenial of exacerbaing an exaggera-
ing he up an own of buine cycle
a a reul of he boom an bu naure
of he marke ha arac peculaor.
Furher, he growh of financial marke
an he increae ue of erivaive an
ecuriiaion creae vulnerabiliy o in-
creae yemic rik in he economy,
epecially when financial marke an
capial flow are inaequaely regulaean conrolle.
Afer here wa anoher in-
creae in capial flow o eveloping
counrie. One of he reaon for hi
increae flow of capial wa ue o
money leaving US ock marke when
here wa he crah of he Docom bub-
ble. Financial peculaor were earch-
ing for higher reurn in oher counrie
(much of hi capial lef US ock mar-ke an move ino peculaion in US
real eae marke an ecuriie eb
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AFRICAN COMMUNIST | Sepember 2010
28
marke, which e off he bubble in US
real eae marke an he coniion
for he ubprime crah). The increae
flow of ho money o Souh Africa from
le o an even larger growh in ne
porfolio flow o he counry han ur-
ing he 99. Ne porfolio flow were
.% of he ize of GDP in an by
7 hey were 7.% he ize of GDP in
ha year (ee figure ). Thi maive
increae of liquiiy ino he Souh Afri-
can economy e off a boom in ock an
erivaive marke an an ecalaion of
eb riven conumpion (ee figure for ock an figure for erivaive).
The inex (where = ) for all
hare price in Souh Africa grew from
6 in o in 7 (abou
ime) The ouaning value of fuure
conrac (a financial erivaive) wa
6.% he ize of GDP in an by
7 i ha kyrockee o 67.% he
ize of GDP.
The urge in ho money flow ha
he effec of renghening he ran ex-
change rae again he US ollar an
oher currencie, which puhe own
inflaion an allowe he SARB o re-
uce inere rae. Thee change in
macroeconomic variable an he ma-
ive increae in liquiiy reule in a
huge increae in privae ecor eb.
SARB aa how u ha crei exen-ion o he privae ecor grew from
aroun 6% o over % of he ize of
GDP in hoe year repecively. How-
ever, privae buine enerprie fixe
capial formaion grew from % of he
ize of GDP in o abou 6% of he
ize of GDP in (ee figure 4 for a
comparion of privae ecor eb an
privae buine enerprie fixe inve-
men). The big queion i wha hap-pene o all he re of ha lening o
he privae ecor.
One area where eb grew remen-
ouly wa houehol. Houehol eb
o ipoable income in Souh Africa
grew from % in (an average of
lower han 6% hroughou he 99)
o aroun 7% in (ee figure ).
I i worh remembering ha a large
proporion of he populaion remain
unbanke an wihou acce o crei.
Therefore one can aume ha mo of
he increae eb o houehol wen
o more affluen houehol. The reul
of hi increae eb wa increae
conumpion by hoe relaively afflu-en houehol wih acce o crei.
Souh Africa alo experience a real
eae bubble an a recor increae in
car ale. A he ame ime, here wa
a menione above a large increae in
hare price an a bubble in he ock
marke. An analyi of he SARB flow
of fun aa how ha a very mall
percenage of privae ecor crei ex-
enion wen o fixe invemen from
99 o (ee figure 6). During he
perio 99 o 7, excep for wo
year, corporae level of fixe inve-
men were lower han heir ne acquii-
ion of financial ae. In hor, hor-
erm capial flow ino he Souh African
economy le o increae liquiiy an
a large increae in privae ecor eb.
Thi big increae in eb wa no ueo inve in proucive aciviie bu le
o eb riven conumpion in more af-
fluen houehol an an overall higher
level of peculaion in real eae an fi-
nancial marke.
The implicaion of relaively un-
conrolle movemen of capial ino
an ou of he Souh African economy
have ha a huge impac on he naure
of economic growh an have rehapehe Souh African growh pah. Fine an
Ruomjee (996) argue ha he Souh
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AFRICAN COMMUNIST | Sepember 2010
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African economy evelope aroun he
mineral an energy complex. The ini-
uion an infrarucure ha exie
in he counry favoure mining an
mineral ecor an economic ecor
wih cloe linkage o hee ecor. The
liberalie financial marke an he