Mandela Rhodes Scholars
Mandela Rhodes Scholars

Debunking economic myths about African growth

By Zukiswa Mqolomba

Recent reports on Africa’s development have been characterized by high levels of optimism. This trend is totally different from previous commentary, which was riddled with pessimistic accounts about the future of the continent. Development agencies cite the rapid economic growth of some African countries as a sign of economic development. Seven of the 13 fastest growing economies in the world are African. This growth lies at the heart of what some commentators and politicians describe as the “Africa rising thesis”.

But Africa remains behind in almost every human and economic development indicator. According to the Human Development Reports for sub-Saharan Africa, nation states in sub-Sahara have disappointingly low Human development indicators (HDIs). Indicators pertaining to health, education and employment have fallen dramatically. Furthermore, sub-Saharan states have low levels of social protection, high unemployment, poverty and pervasive food insecurity. This is attributable, in part, by the emergence of a strand of development thinking in Africa in the 1990s that undermined the role of the state in socio-economic development. Spearheaded by the major economies (the US and UK) and the Bretton Woods Institutions (World Bank and International Monetary Fund), a market-based economic system in tune with economic liberalisation was adopted by developing countries as part of their lending conditions. In this instance, the role and the capacity of the state were significantly reduced. The private sector received pre-eminence in the new development approach with the privatisation of most state-owned enterprises along with outsourcing of service delivery.

The limitations of orthodox economics
General consensus is that the “leading developmental state” emerges in stark contrast to neoclassical economics that has long argued that “state interference” tempers with economic growth as it disrupts market equilibrium with devastating consequences. Institutional economics have since recognised the limitations of orthodox economics, whose failures to explain market “anomalies” is largely attributable to its failure to recognise the importance of non-market related institutions (ie political and cultural institutions) in shaping the very same institutions required to achieve market equilibrium.

The World Bank’s neoclassical reading of the success of the East Asian economies, with its focus on minimal state-prudent and conservative macroeconomic policies, is debunked as being too simplistic. Better yet, these were disproved by analysis that confirmed that South East Asian economies have developed through the active involvement of the state in determining strategic national agendas (ie the thrust of macro-economic and industrial policy, trade, and labour market policies), debunking the minimal state theory of development.

Structural adjustment programmes
Many scholars argue that structural adjustment programmes might have aggravated the deterioration of human security in sub-Saharan Africa attributable, in part, by the manner in which it diminished the role of the state in directing development. The employment performance of Africa’s economies did not adequately meet the needs of the society. Despite the calls to liberalise national economies, despite the focal policy themes to grow first, distribute later, despite narrowly defined economic growth trajectories since independence, and despite the promises of “trickle-down effects”, African states have not been able to make serious dents on poverty and unemployment levels.

Instead they have been bewildered by jobless growth levels. There has since been recognition that development in Africa requires more than sound economic management and that building state capacity in the pursuit of broader human development goals (ie employment and income equality) requires equal priority. Structural adjustment reforms demonstrate how Africa cannot leave the well-being of its people in the hands of an unregulated market, that the state has an integral role to play in directing development and ensuring that economic growth achieves the twin objectives of sustainable economic growth and improving social welfare simultaneously.

Learning from the East Asian Tigers
The emergence of the “leading state” in development discourse follows the rapid rise of the East Asian Tigers (such as Japan, China, Indonesia, Malaysia, Singapore, South Korea, Japan and Taiwan) as an economic and consequent political force in the 1990s. Much of what is known to constitute the “leading state” is, as a consequence, modelled against the East Asian Tigers. Their developmental states prefer state intervention in the operation of the free market in the interests of directing socio-economic goals. In this regard, the leading state is said to drive economic development, as well as industrialisation in the interest of the “public good”. The concept is said to be an institutional model that adopts a statist approach to account for the high patterns of economic growth of the lately industrialised nations.

The state has played a central role in China’s economic growth, for example, in the expropriation of private corporations into “public hands” (ie state-owned enterprises) for development purposes. China’s development trajectory fares well showing that the state has the ability to transform its economic bases by promoting productive income-generating economic activities. China also records an upward movement in the human development index (HDI) of more than 30% since its economic reforms. It has also experienced extraordinary institutional reforms, which have proven to be effective in promoting its economic growth.

The state must play a more critical role
So the above affirms the contributory functions of the state in economic development, and in ways that are distinct from Soviet-type, all-encompassing interventions.

Bearing in mind the success of the “leading state” of the East Asian Tigers, we should be focusing our efforts in building state capacity to lead development in South Africa and Africa at large. The post-colonial state has a responsibility to transform the structure of the economy and in ways that ensure economic benefits for all. We have seen powerful examples of how state building efforts have the resultant effects of improving the livelihoods of precious citizens.

Let us learn from these to ensure that poverty, unemployment and inequality become a thing of the past. Let us rebuild state capacity. Let us build a technocratic state that delivers on the national mandate. Let us build state capacity for all. Let the state lead.

Zukiswa Mqolomba is a senior researcher, senior policy analyst and scholar activist who currently works for the government. She is a political economist by training. She is currently doing her PhD in African Studies with the University of Cape Town. She is specialising on China-Africa relations. Previous work includes work as a consultant for the World Bank in Washington DC. She has two master’s degrees: a master’s from the University of Cape Town and a master’s in poverty and development from the University of Sussex. She is a pan-Africanist in terms of her ideological inclination. She believes in the African renaissance and believes that her generation of peers can make meaningful strides towards achieving it. She writes in her personal capacity.

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    • Jon Quirk

      An extraordinary twist on reality; I wrote the below in 2010.

      Lessons from China; but have the right ones been brought back?

      Fri, 10 Sep 2010

      Our President, together with a large delegation, has just returned from China. I wonder what lessons they gleaned from this trip?

      I hope this blog, to be read quietly, sotto voce, rather than in the usual South African fashion of shouting, or striking, or trashing city centres will help, and thus we can all, as a country benefit from this expensive, but potentially beneficial, exercise.

      Our national balance sheet consists of two sides; Assets and Liabilities, though the way our Government talks (and to whom it talks) and acts, you would be forgiven for thinking there was only the one – the Liabilities; represented by the alliance partners, seeking ever-increasing allocations to their constituencies, irrespective of the cost to the country.

      Yet enterprise is the life-blood of all economies. Without oxygen-rich blood flowing through the veins of an economy, the rest would wither and die very quickly. Enterprise develops businesses, creates jobs, generates wealth and pays every single cent of the taxes on which the State exists, and without which it could not exist.

      Enterprise has made China what it is today. Enterprise is in short the Asset side of the equation.

      The liabilities side is State Expenditure; it juggles funds from those considered “in surplus” (tax-payers) and redistributes to those considered needy without any consideration as to the economic efficacy or sustainability of these transfers; the trick of successful Governments is to get as much “bang” for each such buck spent, and to maximise the inputs to the Assets side, which is often a case of doing less and thus freeing up the energies of the private sector, and reining in wasteful social-transfer expenditure, something China has learnt well.

      The most debilitating expenditure, that which just causes the arteries that carry the oxygen-enriched blood round a healthy body and cause it to become sclerotic before it’s time, are expenditures with no return either economic or social. Successful societies generally require some level of cohesion, and hence the necessity, at times, for state intervention; it is interesting to note, however, that China, generally held out to be a communist or socialist state, has very limited state interventions, and the first thing that any visitor to China thus notices is the extreme industriousness of the Chinese people as they go about their daily business, mostly in small-scale family based businesses.

      Governments rely on votes; it is what sustains them and enables them to win the next election and stay in power. Yet within this short-termist, self-serving conundrum lie the heart of the problem. Easy, short term electoral success can be “bought” with welfare payments; yet also these are the seeds of our long term terminal illness.

      Whilst they do sustain the recipients short term, nothing about these payments adds to National wealth, unless with them comes the development of suitable skills that can add to the national wealth. This is a global problem; the value of an unskilled pair of hands has fallen consistently over the past fifty years, partly as a result of increasing mechanisation but more pertinently as a result of the sheer numbers of unskilled workers coming onto the World stage as our global population has exploded from 3 billion to well over 7 billion in less than two generations.

      No economy anywhere in the World can absorb so many, so quickly. China recognised this early and under Chairman Mao Zedong introduced their one-child policy, reducing their population by 400 million less than it would otherwise have been. This factor, combined with tapping into the capital generated by the Chinese Diaspora throughout the rest of the World in the late 1980’s were two of the main factors, together with the adoption of a capitalist mindset that allowed and encouraged the ownership of private property, that have catapulted forward the Chinese economy.

      It is to be hoped that these fundamental lessons are paramount in the minds of our President as he returns from his recent visit. Up to his departure, what had we done to date? Population growth is out of control; we despise those who, fearful of the future, (as was the case in China) took funds off-shore and do not enough to encourage its repatriation, and further are making loud noises seeking to nationalise privately held assets.

      Thus we have been doing precisely the reverse of that which has made China economically powerful.

      Our Government has already appointed two who could generally be described as Enterprise Commissars, yet their efforts to date have shown little or no signs of success. Their broad mandate is to promote, encourage, facilitate and set up and develop a platform in which enterprise can flourish, such that increasing tax revenues can thus flow into the National Fiscus for all the other Government departments to spend.

      The UK has just appointed an eminent and highly seasoned Banker to the position of trade minister, yet we have two ex unionists with no real industrial, financial or business experience and thus one wonders whether the real reason is seeking to control enterprise rather than to aggressively grow the business sector which is the only sustainable way to grow unemployment and thus start to overcome our massive, exponentially-growing and crippling youth unemployment and build stability and sustainability.

      The appointment at the helm of someone of the stature of Bobby Godsell would be a wonderful start; an objectives-driven businessman rather than a politician would not only enable things to be got done, it would also send out all the right signals, and be very much in keeping with how China would tackle this seemingly intractable problem.

      Another approach of China would be to release the energies of its various regions; each competing individually to attract industry and jobs to the respective provinces, thus breaking down a larger problem into bits that can be more easily addressed; central government by itself can never has all the answers, and freeing up regional energies must be a central part of any solution.

      Enterprise is the only game in town; the only thing that matters – growing the economy and taking of all brakes that prevent this from happening. The spending side, Liabilities side, of the Government equation can take care of itself. It really is that simple; and three of the most sclerotic areas that must be addressed are our employment laws, bureaucratic Governmental red-tape and our high tax base. Address these and the fresh oxygenated blood will soon start to course through our National economy, jobs flow and as an added bonus, there will be more for the redistributive ministries to spend; governance does not have to be a zero-sum game where “success” seems to be redistributive rather than generative. In short, we need to learn the RIGHT lessons from China, and we hope this is what our President and his entourage learnt and have taken on-board from the recent state visit, and that we as a country will thus enjoy the fruits of China-scale success.

    • DavyH

      Nevertheless, Tanzania’s movement from a nationalised to a free market economy during the early 90s was accompanied by an explicit apology for the failure of the largely socialised state.
      The growth of the Asian Tigers was directed by governments but accomplished by a highly educated and motivated workforce who were willing to work in conditions and for returns that would have Cosatu et al striking for years.
      This is an interesting debate, but any single-focused solution is far too simplistic to bring resolution.

    • Richard

      China’s economic success was almost entirely down to slave-wages and banning of unions and worker forums. Essentially, the low pay given to workers allowed Chinese companies to outcompete everybody else in terms of price. The state allowed companies to operate on the basis of competition and profit, not socialist principles of all benefits being shared among staff. That model would not be acceptable in Africa, and especially not South Africa, with its strike-prone workforce and strikingly low levels of productivity.

    • ian shaw

      And yet, by some “miracle”, these accursed policies managed to lift hundreds of millions of Chinese out of poverty.