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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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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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.


8/116


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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5

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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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.


12/116


8

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


13/116


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.


14/116


10

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.


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


15/116


11

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


16/116


12

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-


17/116


13

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-


18/116


1

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


19/116


15

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


20/116


1

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


21/116


1

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


Building a Progressive ConsensusBen Turok reports on the Prospects forEconomic Transformation seminars


22/116


18

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


23/116


1

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


24/116


20

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


25/116


21

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


26/116


22

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.


27/116


23

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.


28/116


2

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


Finance and the NewEconomic Growth PathSouth Africas financial policies have played a key rolein inhibiting economic transformation, writes Seeraj Mohamed


29/116


25

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


30/116


2

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-


31/116


2

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


32/116


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


33/116


2

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

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Nelson Mandela Communist Party