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The 2018 state of the nation address and the subsequent budget speech suggest that the government is still unclear about many aspects of South Africa’s political economy.
Until the government fully appreciates it, many proposed interventions will continue to scratch the surface – and the social compact will not help much. The government must understand South Africa’s political economy, lead the proposal for solutions then bring other partners on board. Otherwise, the proposed collaborations with business, labour and civil society will be futile.
There are two difficult issues that government seems to be avoiding. First, the government is still not directly confronting the fundamental issue of the structure of the South African economy. Inequality, poverty and unemployment are largely a result of the structure of the South African economy. Second, the government has not pursued options for socioeconomic development although it is cognisant that South Africa needs a different approach or model for socioeconomic development which should be informed by a new vision for South Africa’s political economy.
Linked to the two difficult issues mentioned is the fundamental question of the kind of society we should be moulding. Granted, the increase in social grants helps given the challenge of poverty and unemployment. However, besides the political rhetoric that the increases in social pensions counter the increase in VAT, there is a particular kind of society that is being inadvertently moulded. Funds should be scaling up public works programmes and ensuring job opportunities – and mechanisms for people to building their own houses and for our communities to self-govern should be put in place.
The government finds itself in a tight corner largely because it has not managed the economy well; an economy that is in itself problematic as it was not designed to serve the whole of society. Of course the Zuma administration has not taken care of public finances. And, indeed, the challenges of unemployment, inequality and poverty were inevitably going to worsen because the necessary economic reforms have not been undertaken since the mid-2000s. Naturally, the ramifications of apartheid colonialism were going to be increasingly more pronounced because the structure of the economy has not been touched and there has not been a shift in the approach to socioeconomic development.
Regarding the structure of the economy, there are four interrelated issues – besides the question of ownership because ownership also determines the structure of an economy.
The distribution of sectors and their contribution to total output, respective capital and labour intensities of the sectors, the dominance of certain sectors and their linkages across the economy as well as relationships of the main sectors with other big sectors are among the four main issues dictating a structure of an economy.
Pertaining to the last issue, that is why there is a phenomenon that is characterised as the Minerals-Energy Complex (MEC) in South Africa.
The essence of the MEC is that there are advanced sectors that have developed around the mining, energy and financial sectors. The MEC represents institutions that are centred on mining and mineral extraction bound together through the interaction of the state and domestic corporate capital, as I have explained in a book published in 2016.
In their book in the 1990s, Ben Fine and Zav Rustomjee argued that “the Mineral Energy Complex lies at the core of the South African economy not only by virtue of its weight in economic activity, but also through its determining role throughout the rest of the economy.”
It would seem that it is still the case that the MEC has a “determining role throughout the rest of the [South African] economy” although its weight has reduced. The MEC requires serious policy interventions to make it work for the South African economy.
Taking a straightforward definition of the structure of an economy as the composition of an economy by sectors and sub-sectors, economic transformation has to imply processes to change the structure and pattern of economic development. Although there are some industries whose contributions to the economic activity of South Africa have increased since 1994, in particular the sub-sectors in the services sector have increased their contribution to the economy, the economic structure has not changed much. Also, the economy is still largely capital intensive (meaning that the economy uses more machinery than labour).
With regards to the industrial structure, there are three main dimensions worth considering.
Economists use concentration ratios as summary measures of the number and relative size of firms in different sectors on the assumption that sectors include similar products. The structure also takes into account vertical and conglomerate linkages (i.e. the extent to which firms control production at different levels of supply and in related activities).
Lastly, the industrial structure can also be understood, at a more fundamental level, as having to do with the nature and orientation of big businesses in particular and the way they interact. This is one area where anti-trust and competition legislation and policy are showing some results. It is however not enough in the context of South Africa to be addressing concentration in the economy. The structure of the economy as a whole needs fundamental transformation.
In the meantime, while we confront the intractable issues of the structure of the economy and the approach to socioeconomic development as well as the South Africa we want, a robust industrial policy and an effective labour market policy should be implemented.
The government needs to be clear that the fundamental task at hand is to redress the ramification of apartheid colonialism and government must be mindful that the challenge of unemployment largely affects the African youth. It is in this context that the employment subsidy programme should be a youth wage subsidy programme, as was conceptualised in the mid-2000s, rather than a broad labour market intervention as suggested by the budget speech.
• Vusi Gumede is a professor and director of the Thabo Mbeki African Leadership Institute, Unisa
