Democratic Alliance MP Nigel Bruce would have us believe that industrial policy and economic growth are mutually exclusive. In his ”Industrial policy or economic growth?” (July 18) he argues that state intervention in the form of industrial policy has led to economic failure, while laissez-faire policies are drivers of growth.
A dissenting voice would be that of Cambridge University’s Ha-Joon Chang, who has been involved in developing and evaluating industrial policies across the world.
In his book, Kicking Away the Ladder: Development Strategy in Historical Perspective, published last year, Chang argued that by trying to force developing countries to move away from active industrial policies, the developed nations were kicking away the ladders instrumental in their own development.
The lesson of history is that the powerful will always bully the weak by using their manufacturing hegemony or a ”consensus” based on self-serving evidence.
Chang’s historical reconstruction shows how state intervention, through protection and subsidies, was vital to the evolution of today’s developed economies. He shows that in most developed countries, ”the policies that were used are almost the opposite of what the present orthodoxy says they employed and currently recommend that the currently developing countries should also use”.
In particular, the United Kingdom and the United States are singled out as having particularly interventionist regimes as a means of achieving economic growth. Towards the end of the 19th century, US president Ulysses Grant accused Britain of double standards for attempting to force free trade on his country. ”Within 200 years, when America has got out of protection all that it can offer, it too will adopt free trade,” he remarked.
Even in the few cases where developed countries follow laissez-faire policies, Chang finds evidence of other interventions crucial to their development. These include The Netherlands’s and Switzerland’s rejection of patent law because of its inconsistency with their view of free-market principles.
What is more, Bruce’s reduction of industrial policy to one of ”picking winners”, black economic empowerment and gender equality is out of touch with developments in South Africa.
The Growth and Development Summit put sector-based industrial strategies firmly on the agenda by agreeing to stage sector summits as a means of achieving ”more jobs, better jobs and decent work for all”. The National Union of Metalworkers and the Congress of South African Trade Unions recently proposed interventions in the metal and engineering sector.
The proposals go well beyond Bruce’s usual suspects and include changes to the trade regime, the export of scrap metal, import parity pricing, measures to increase investment, the Proudly South African campaign, access to credit, the development of skills and training, and research and development. These proposals were aired publicly for the first time at the very parliamentary hearings Bruce refers to.
His article should be seen as an attempt by a representative of the privileged classes to kick away a potential ladder for South Africa’s unemployed, working poor and subsistence farmers.
The active policies of the apartheid state underpinned the rapid development of the economy from the period Bruce points to. The fruits of this growth were channelled to the country’s whites, allowing them to attain living standards comparable with those of the developed world.
Chang points out that since the rise of the Washington Consensus, average per capita income in developing countries has fallen by more than 50%. The consensus has created conditions for stunted economic development, the continued dominance of developed economies, growing income inequality and recurrent economic crises.
The Washington Consensus has little relevance to South Africa, with its high unemployment rates, income inequality and sluggish growth. We need to learn from the past, when today’s rich countries looked out for themselves and adopted policies that helped them mount the development ladder and snubbed the demands of the powerful.
We need an active state, with an active agenda for growth and development.
David Jarvis is acting director of the National Labour and Economic Development Institute. He writes in his personal capacity