At the moment the question of whether South Africa pursues trade and industrial policies aimed at liberalisation or alternative protectionist policies is merely academic.
This is a bold statement but it will become clear why it contains more than a grain of truth.
South Africa has a long history of difficult decisions on trade and industrial policy. For at least a century, various South African governments have grappled with the choice of whether to open up the economy and let the free market find its own way, or to intervene in a protectionist manner in the hope of fostering growth in some industries, either for import substitution or for export-led growth.
In some periods export-led growth through subsidies or tariff protection was favoured. In other periods import substitution was favoured — it was partly necessitated by increasing global isolation. A business environment devoid of government intervention has seldom, if ever, existed here.
It is therefore hardly surprising that many important makers and influencers of policy now seem to favour protectionism. They promote the idea of using state resources (tax money) to “protect” or “help” certain industries or companies to succeed against competitors in other countries.
The textile and clothing industry is one that is often targeted for such protection, notwithstanding the fact that it has enjoyed some form of protection though tariffs or non-tariff barriers since 1925.
“Infant industry”
For 85 years South African consumers have been shouldering the cost of government support for this “infant industry” through artificially inflated retail prices. Of course, success stories could be found in this sector, but stories of failure are much more common — 30 000 job losses in the past three years.
It is impossible to say whether this is as a result of or despite government intervention in the sector but the fact remains that millions of economic agents in South Africa are still being forced to allocate part of their resources to this sector.
These resources may have been better allocated as capital for another industry — high-tech manufacturing, for example — or may have, through discretionary consumption expenditure, supported yet another local industry.
This type of trade-off is often overlooked in South Africa’s economic policy debates – allocating extant resources to one industry means that fewer resources are available for other purposes.
Free markets may not always allocate resources optimally, but there is little evidence to suggest that governments are better at doing so. In practice free-market agents have a greater incentive to succeed than a government bureaucrat.
The irony alluded to in the opening paragraph is that many of the constraints faced by struggling industries or companies in South Africa are at least partly caused by the same state that proposes to spend more to protect them from external forces.
In survey after survey constraints on doing business in South Africa are listed — a heavy regulatory burden, incompetence of government officials, high crime levels, skills shortages, corruption, high regulated prices and infrastructural constraints. All these areas are either fully or partly the responsibility of the state.
Trade and industrial policy
Regardless of which form trade and industrial policy takes, if these constraints are not dealt with, South African growth and prosperity through trade and/or more industrialisation will remain far below that which is possible.
The debate about South Africa’s trade and industrial policy is anchored in the ambition of its becoming a “developmental state” — a poorly defined concept in the local discourse but touted as being the way to 7% real growth.
The Asian Tigers are probably the best-known examples of developmental states. There is a wealth of literature on these states and their growth experiences.
Different authors emphasise different characteristics (such as geographic location and size, cultural factors, degree of homogeneity of the population) but in South African discourse the emphasis is often placed on the perceived key planning role that the government or specific ministries (such as Miti — the ministry of international trade and industry in Japan) played in helping to achieve very high sustained growth.
Central planning
It is argued that higher growth can be achieved by centrally planning industrial development than from each private firm doing independent planning. But this is not always the case, as the massive Daewoo bankruptcy in South Korea showed. The “zombie firm” phenomenon in Japan is a further example.
One of Miti’s most infamous mistakes was when it tried to dissuade a small company from acquiring semiconductor technology. Luckily for the Japanese economy, Sony’s executives ignored Miti’s sage advice.
As with our textile industry, no clear answer emerges from the literature on whether the Asian Tigers prospered as a result of or despite considerable government involvement. What does emerge, however, are a few other things the Asian developmental states did that are necessary (though possibly not sufficient) preconditions for being a developmental state.
These governments created a stable business and social environment by encouraging savings, keeping crime at bay, encouraging quality education that feeds into research and development, building and maintaining quality infrastructure, combating corruption and fostering a culture of professionalism in the public service.
By assuring private enterprises a safe environment with adequate infrastructure, technology, skills and honest and professional public servants, economic and employment growth was encouraged. These are all areas where a government can spend money and effort — and be certain that it won’t be wasted.
Before South Africa can be a developmental state, we need an efficient state. Grandiose macro-scale economic plans are doomed to failure if, at micro level, private economic activity is hamstrung by a lack of the necessary preconditions for rapid development.
Paul Joubert is a researcher at trade union Solidarity’s research institute.