Claude Baissac

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A South African Developmental State?

The Tripartite Alliance Plan, its Probable Fate and a Perspective into Alternatives

Claude Baissac

June 2009

Claude is a specialist in emerging markets and weak states, with a strong focus on risk management. He has fifteen years of experience serving business and donors in Africa, the Indian Ocean and the Middle East. He has advised over 50 clients in the recent years, many of them Fortune 500s.

He provides support to investment decision, strategic planning, operational risk and crisis management. His focus is on economic, political, security and governance risks. He is an advisor to the World Bank on private sector investment growth and business-enhancing reform.

These two sides of consulting – with both macro and micro knowledge – and senior executive experience in Africa, give him a unique understanding of the requirements and challenges of investment and operation in emerging markets and weak states.

Claude is a doctoral scholar in Political Science and holds graduate degrees from France.

This essay originates from an in depth analysis of the state of the South African state following the 2007-2008 domestic shocks. This analysis, conducted for a mining major, focused on the impact a degraded state capacity would have on their business in the medium and long terms.

The nature of man is intricate;

The objects of society are of the greatest complexity:

And therefore no simple disposition

Or direction of power can be suitable

Either to man’s nature

Or to the quality of his affairs.

Edmund Burke

Introduction: the ANC’s Manifesto and the Challenge of Delivery

The victory comfortably in hand, the ANC has its sight on implementing its election manifesto. Its

priorities are clear. To a large extent, and this is somewhat surprising given that it has been the ruling

party for 15 years, the stated intention is to correct the failures and shortcomings of these same 15

years. The ANC of Jacob Zuma won against the ANC of Thabo Mbeki.

The party’s election manifesto has stated that ‘much more needs to be done’ and has set five priorities:

1) Creating decent work and sustainable livelihood

2) Education

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3) Health

4) Rural development, food security and land reform

5) Fighting crime and corruption

The manifesto details ambitious objectives in each of these priority areas. Crucially, it reaffirms the

centrality of the state in achieving the objectives set out – directly and indirectly.

For instance, the manifesto declares that “state-led industrial policy” will “direct public and private

investment to support decent work outcomes, including employment creation and broad economic

transformation”. Further, the manifesto commits the ruling party to “a massive public investment

programme for growth and employment creation”. In all areas, the state is to lead the way.

The manifesto is expected to become the new government’s programme.

It calls for an activist state and a reversal from some of the key tenets of the Mbeki presidency. Simply

put, it is out with the GEAR-type policy programme and in with the RDP-type programme.

The challenge for Mr Zuma is now to deliver on the ambitious commitment.

Two key questions beset that commitment:

1) Is the programme, assuming it is fully and effectively implemented, likely to achieve the

objectives set out?

2) Can the programme be indeed fully and effectively implemented?

Insofar as the first question, the evidence from South Africa’s recent past and from countries with

similar socio-economic characteristics is not compelling.

The second question is the focus of this essay.

The ANC and its alliance partners have recognised the difficulties and failures of delivery, and have

acknowledged that a large part of the problem of delivery is as much in policy implementation as in

policy formulation. Jacob Zuma’s ambition is to become ‘Mr Delivery’, so to speak.

A South African Developmental State as Key to Effective Government?

The ANC has made crucial reference to the developmental state as key to their programme. It is worth

quoting the election manifesto in this regard:

The developmental state will play a central and strategic role in the economy. We will ensure a more

effective government; improve the coordination and planning efforts of the developmental state by

means of a planning entity to ensure faster change. A review of the structure of government will be

undertaken, to ensure effective service delivery.

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An important aspect of a successful developmental state is investment in public sector workers and in

turn our people expect that they execute the tasks with which they have been entrusted. This means

that the right and adequate numbers of personnel should be placed in the correct positions, and

where this is not the case, government should have the capacity to implement corrective measures,

either through training or redeployment where warranted.

Reference to the developmental state as a policy programmatic component in the party’s manifesto

follows several years of reflections and policy debates. In June 2007, at the party’s policy conference in

Midrand, the notion that South Africa needed to become a developmental state became entrenched. It

was particularly advocated by the left wing of the party, now in a strong, if not dominant, position.

In November 2008, Jacob Zuma stated that “Key to achieving *the+ priorities *of the ANC+ will be the

building of an effective, developmental state”.

From the manifesto, declarations and ANC documents available, it is evident that the ruling party sees

the developmental state as the mean to achieving the ends of its policy programme. The developmental

state is to be the tool that allows the ANC government to implement its programme and achieve its

objectives.

The developmental state in its ANC version is the answer to the challenges of delivery past and future.

In this, it is important to cite at some length one of its most enthusiastic advocates, Jeremy Cronin –

now Deputy Minister of Transport, and a long time critique of the previous administration’s policy

choices and delivery records.

First, on the necessity of a developmental state in South Africa:

Our post-1994 growth tended to entrench [the] realities [of capitalistic concentration], reproducing

social challenges of unemployment, poverty and inequality. Paradoxically, recent growth has not

overcome macro-economic vulnerabilities, notably our current account deficit.

If we are to address these challenges we have to transform our growth path. That requires leadership

from a developmental state prepared to actively intervene in the economy, working together with

labour, communities and business. To imagine we can have sustainable development by abandoning

ourselves to the whims of a “free” market is a discredited illusion.

Second, on the nature of the developmental state: in an opinion piece published in the Mail and

Guardian in October 2008, Cronin briefly defined the developmental state as ‘an active state with the

capacity to intervene in the economy to coordinate and drive transformation’.

Third, on the mechanics of the South African developmental state:

The alliance summit broadly endorsed the proposal for setting up a high-powered planning

commission in the presidency. It would need to develop medium and longer-term strategic planning.

It would need to ask challenging, cross-cutting questions that often drop between the cracks.

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And:

We could have a senior executive structure, a council of state or, perhaps, we might call it a Cabinet

working committee. It would consist of the president, deputy-president, senior ministers responsible

for convening strategic clusters (for example, governance, economic development, infrastructure,

human development, social development and the criminal justice system), as well as a few other

senior ministers -- finance, international affairs and defence.

Further:

Below the Cabinet working committee would be, in terms of our Constitution, a Cabinet consisting of

all ministers. This Cabinet would possibly be somewhat larger than it is now if we split up some of the

rather too extensive current departments.

Much of that is now being put in place. The ANC is indeed at work to establish a developmental state

through a restructured Cabinet and government.

The Developmental State Question

While much has been said and decided by the ANC about the necessity and mechanics of a South African

developmental state, surprisingly little has been said about what that state is and whether it is desirable

and achievable.

In terms of the first issue – what exactly is a developmental state – much clarification is needed. This

essay seeks to provide a modicum of that, with the view to providing some elements to answer the

second and third issues – the desirability and achievability of such a developmental state in South Africa

now.

And what exactly is a Developmental State?

The developmental state is a proposition first formulated in the 1980s to account for the economic

performance of Japan, South Korea and Taiwan after 1945. The concept rejected the neo-classical

account of the performance of these “late” economic developers. Today, there is some consensus on

what the developmental state is, and what it is not.

The development state is a state which organises itself to produce accelerated development – that is,

achieve developmental objectives through developmental policies. The developmental state is not the

liberal state, whose focus is the protection of political, social and economic achievements.

For Beeson “the key (...) is state capacity, or the ability to formulate and implement developmental

policies. For a state to achieve such an outcome, it not only needs a competent bureaucracy, it also

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needs an effective relationship with the domestic business class that will inevitably be at the centre of

any successful developmental initiatives”. (Beeson, 2003)

A state can only be developmental if it succeeds in acquiring the legitimacy and control that are

necessary to formulate these objectives and implement them. It needs both autonomy and

embeddedness.

“The state *has+ to be sufficiently embedded in society so that it [is] capable of implementing its goals by

acting through social infrastructure, but not so close to business that it *risks+ ‘capture’ by particular

interests and *is+ thus incapable of acting in the wider ‘national interest’. (Beeson, 2003)

The autonomous state formulates and implements objectives and policies independently of specific

interests – be they those of a political ruling elite, business or corporate groups, labour organisations or

the “people” at large – that are exclusive to the interests of other social groups.

The embedded state has “a concrete set of social ties that binds *it+ to society and provides

institutionalised channels for the continual negotiation and renegotiations of policies”. (Evans, 1995).

The embedded state is not detached from its society, but is connected to it by multiple ties.

Embedded autonomy is necessary but not sufficient. The developmental state also “depends on the

existence of a project shared by a highly developed bureaucratic apparatus with interventive capacity

built on historical experience and a relatively organized set of private actors who can provide useful

intelligence and a possibility of decentralized implementation”. (Evans, 1995)

A state is developmental when there is a tacit or explicit arrangement between an effective bureaucracy

which formulates and implements national policy and a private sector which generates economic

growth through the mobilisation of resources and the creation of economic value added.

These, however, are not sui genetic: a competent autonomous bureaucracy does not self generate;

neither does a capitalised, effective private sector. Fundamentally therefore, at the root of the

developmental state is a political system which either permits the creation or fosters the expansion of

the above capacities. Pivotal is the imperative of a sufficiently broad consensus on a societal project that

is sustainable in objectives and benchmarks, and delivers the goods.

Such consensus usually finds its source in a “dominant, determined and usually united political elite,

dedicated to the promotion of growth.” (Leftwich, 2006). That political elite may originate from diverse

sources (the military, post revolution governing elites, post independence democratic elites, etc.) and

social classes or groups.

The political elite leads the way. It formulates its social project. It generates consensus and participation

by creating an environment where key social groups can prosper provided they work toward capital

accumulation and economic value creation that sustains accelerated growth. The elite allocates shares

of the proceeds of economic value added through regulation, taxation, public investments and social

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policy. It supports the development of a bureaucracy for effective policy formulation and

implementation. It fosters the growth of stable, predictable and sufficiently fair political institutions to

guarantee social and political stability and promote long term investment. These institutions include, in

addition to the bureaucracy itself, the regulatory and legislative structure, the judiciary and dispute

resolution institutions. These regulate conflicts between capital and labour to maintain internationally

competitive labour while providing for improvements in social conditions and standards of living.

The Developmental State and its Stakeholders

The developmental state is characterised by a strong specialisation and division of responsibility

between the state, business and labour.

The state provides the direction, makes the rules and supervises resource allocation for accelerated

growth and enhanced welfare efficiency. The role of business is to productively mobilise domestic

resources to generate economic value added, and thus growth. It is usually in private hands, but there

are varying degrees of state capitalism under the form of state owned enterprises or parastatals. Labour

is at the same time a resource and a social and political constituency. The state must therefore balance

the economic and political tension between business and labour, and between these

groups/constituencies and itself.

The state will intervene selectively and strategically through a variety of policy instruments designed to

direct resources in ways that foster growth and development.

These instruments will be macroeconomic as well as microeconomic. They will include monetary policy

(interest rates, exchange controls, devaluations), fiscal, investment and trade policy (tax regimes,

foreign investment and ownership regimes, import and export regimes), budgetary policy (direct and

indirect subsidies, investments in infrastructure, education, research and development), regulation

(employment and working conditions, wage bargaining, commercial dispute rules), and direct

intervention.

For instance, between the 1970s and late 1990s Korea and Taiwan set out to create select strong

industrial poles (textiles and textile technologies, automotives, shipping, consumer goods and electronic

equipment, etc.). Initially, this meant manipulating a host of variables in order to foster progressive

capitalisation and resourcing, acquisition of soft and hard skills and technologies, and sales under

conditions permitting the businesses involved to be sufficiently profitable to generate growth.

Preferential interest rates were given, prime industrial land was provided at discounted prices, key

production costs were subsidised, tax incentives were given, central bargaining was tightly controlled to

limit wage inflation, infrastructure investments were directly made by the state (industrial zones, roads,

railways, ports, power, housing, etc.), technical colleges and universities were developed, etc.

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Competition was strictly controlled, allowed to occur in some sectors and not in others. Foreign firms

were restricted in their activities, often by limiting FDI to minority stakes if they served the domestic

market or limiting their activities to exports. This encouraged domestic and foreign firms to associate,

and for the former to acquire soft and hard expertise from the latter.

The creation of these industrial poles rested in large part on a strong export orientation: “rather than

'liberalizing' trade to remove a bias against exports, the Koreans and Taiwanese set about restructuring

their trade regimes so as to ensure that, in given industries, export sales were more profitable than

domestic ones. This required action on two fronts: (1) discouraging production for domestic sales via

penalties, tariffs, and restrictions on imported inputs, and (2) buttressing the penalties with a host of

special rights and export promotion subsidies.” (Weiss and Hobson, 1995)

Export orientation allowed domestic firms, boosted by the advantage of state support, to transcend the

structural limitations of their domestic markets. Rather than being focused on serving small markets

with limited demand volumes and purchasing power, and limited scope for competition and thus

efficiency gains, domestic firms accessed the vast, competitive markets of North America and Europe.

Once a successful industrial pole had been established and could compete advantageously with those of

advanced economies, the sector was noticeably liberalised.

Developmental States and Democracy Do not (Always) Make Good Bedfellows

Historically, the developmental state has not been democratic. The degree of social control required to

affect successful development has usually come with repressive politics. Alliance building, cooption and

incentivisation have not been sufficient to ensure compliance from all social groups, particularly from

organised labour.

So, together with the powerful elite, the autonomous state and the competent bureaucracy,

developmental states have tended to harbour “a relatively weak and subordinated civil society”,

“repression and poor human rights”. (Leftwich, 2006)

The Modern Developmental State

The Asian developmental states rose and prospered in a world very different from the one South Africa

faces. A once triumphant model has been called into questions by systemic and cyclical problems: the

‘democracy gap’ crisis of South Korea and Taiwan in the 1990s, the 1998 financial crisis, the entry into

force of WTO rules against trade and investment distortions (export subsidies, import restrictions,

preferential treatment of domestic capital and firms), the collapse of the manufacturing exports to the

European and American markets are but some of these problems. Japan’s ‘lost decade’ has eroded faith

in the capacity of its once almighty MITI.

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This notwithstanding, the emergence of ‘new’ developmental states in the 1990s, seemed to support

the notion that the concept was fairly flexible to adaptation and innovation. The term became

applicable to countries like Brazil and, closer to home, Botswana and Mauritius. These countries were

more democratic, less heavily industrial, and were far more opened to international trade and

investment.

The Impact of the Global Financial Crisis

Development economics has pitted dirigisme and neo-liberalism against each other. The developmental

state seemed to transcend this opposition through its market-augmenting creed. Yet, where the neo-

liberals have seen too much state intervention under the developmental state, the dirigists have seen

too little. After the crisis of 1998, many predicted the end of the developmental state, with its

discriminatory policies and its corrupt form of crony capitalism. Globalisation and financial deregulation

rendered policy autonomy difficult:

(...) The increased scale and influence of the international financial sector in particular has created a

form of ‘regulatory arbitrage’ in which governments everywhere compete to attract mobile capital by

attempting to provide the most pro-business environments.40 This view has been popularised by

Thomas Friedman, who claims that governments everywhere are locked in a ‘golden straitjacket’ of

policies centred on balanced budgets, shrinking states and economic liberalisation; a failure to

subscribe to such policies invites the wrath of ‘the markets’ (Beeman)

Now many predict – or hope for – the end of the neo-liberal creed, and call for ‘the return of the state’

and ‘re-regulation’, seeing an opportunity for renewed centralised planning, the return of industrial

policy and ‘national champions’, and direct state interference in micro-economic decisions. This is

clearly visible in Cronin’s position. He states in his “Future of the State” article:

Planning by the state has, of course, been one of those things scoffed at by the international neo-

liberal onslaught in the past decades (unless it happened to be strategic planning by the Pentagon).

You can't second guess the markets; "leave it to them", has been the mantra.

In a January 2009 presentation at the Chris Hani Institute he expresses that “he global economic

crisis presents the left with major possibilities but also serious challenges”.

The debate is unlikely to have found the definite answer partisans of either side seek, global financial

crisis and economic recession or not.

Assuming it is a Desirable Outcome, can South Africa Become a Developmental State?

Assuming for now that transforming South Africa into a developmental state is desirable, the next

fundamental issue is whether it is achievable. This requires some considered analysis.

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The key characteristics of the developmental state are as follows:

1) It is led by an elite controlling the institutions of the state that is motivated by a coherent

political, economic and social project

2) That elite is not predatory on society as a whole or motivated solely by its self enrichment

3) Its coherent project seeks to generate widely distributed economic welfare

4) The state has the capacity through a competent bureaucracy to formulate and implement

policies which will achieve the overall project

5) Social groups and forces, and primarily business and labour, are mobilised through positive and

negative incentives to implement the overall project

Insofar as these characteristics are concerned, it is evident that the country does not readily qualify.

The Elite Project – In Search of a Consensus Development Model

The post 1994 governing elite has been one of the most progressive in the developing world. South

Africa’s ruling elite identity is profoundly anchored in the ethics of national liberation, democracy and

equality. Its governing project has been established on the foundations of the Freedom Charter, the

ANC’s constitution and key policy documents. It remains deeply committed to these ideals, traditions

and frameworks, as represented in the 2009 election manifesto.

The governing elite has for the most part supported the development and consolidation of democratic

institutions and the creation of a liberal economic system. However, this process has been characterised

by intra-elite conflicts and the competition of two opposite models of development, symbolised by the

RDP versus GEAR debate. But intra-elite conflict has not been limited to development. It led to the worst

crisis the ANC experienced in its recent history between roughly 2006 and 2009; a crisis some say has

been solved by the latest victory, but which is probably not resolved.

Indeed, the party remains profoundly divided between its left and right wings; the gulf being wide

between those members of the business elite whose development was fostered under the Mbeki

presidency and labour and the communists, who have long asked for the demise of GEAR and its

‘neoliberal’ anchoring. Today, no real consensus exists to replace the one imposed by the Mbeki’s

presidency. The left is lobbying hard for a developmental state that would represent a return of sort to

the RDP era of 1994-1996. The right is doing the same in favour of the status quo ante, albeit seasoned

with some leftist compromises given the new assertiveness of the left and its role in the Zuma and ANC

consecutive victories.

South Africa confronts a rather strange paradox: whilst it has been continuously ruled by the ANC since

1994, and while that party is assured of being in power for many years to come, there is no fundamental

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economic development policy consensus within the ruling elite. The party remains divided over which

economic paradigm is most likely to bring about widely distributed economic welfare, and the balance

of power between the left and the right keeps on tilting, creating much uncertainty in the economy.

Contrast this with the two African developmental states of Botswana and Mauritius, where the

economic development policy direction have long been established, and changes of government do not

affect this. Contrast this with Brazil, China, South Korea and Taiwan.

It is still very unclear which way the ship of government will now sail. The consultative style of Zuma’s

leadership may very well increase uncertainty by fostering a culture of competition for influence within

the cabinet and around it. Rather than setting a clear policy direction, compromise would be sought in

order not to alienate the many conflicting interests represented within the ruling party, its business

supporters and the alliance members. This would be very un-developmental state-like.

The Limits of Non-Predation

The democratic commitment of the ruling elite does not constitute in itself a guarantee that it will not

stray into anti-democratic directions. The Mbeki regime was often uncomfortable with democratic

institutions and prickly as regards the ‘open society’. The not so uncommon notions that the ANC knows

best, that it shall rule until ‘hell freezes over’ (or something like that), or that forces opposing it are

necessarily antidemocratic, elitist, counterrevolutionary demonstrate the uneasy tension between the

party’s revolutionary DNA and a compromise constitutional setup that puts limits on its most radical

strands.

Examples the world over abound of ‘ethical’ national liberations movements who have turned horribly

totalitarian. Crossing one of the northern borders and spending a couple days there should be sufficient

demonstration of that. As Roger Southall writes,

As the experience of Zimbabwe demonstrates (…) the rhetoric and political righteousness of liberation

politics can too easily translate into the assertion by a nationalist elite that they have an

unchallengeable right to rule, whatever their incompetence and abuse of power

Similarly, corruption, patronage, and corporatisation have become critical problems. Under Black

Economic Empowerment, cronyism has developed and is likely to hold increasing influence over politics

and business. Political connections are now a fast way to riches. Campaign financing is notoriously

murky and non transparent, with foreign interests being allowed to contribute unchecked.

The circumstantial evidence provided by some high level corruption scandals indicates worrisome

trends. The ‘Arms Deal’ has demonstrated the extent to which corruption has penetrated the highest

echelons of power. Other scandals have shown that the lower the political scale the more rampant it

appears to be: Oilgate, Travelgate, the Toni Yengeni case, and so on and on. One may look at the

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website of the Office of the Public Protector and peruse the list of investigation reports and media

releases to get a further sense of it.

Empirical evidence has been produced through official investigations (Jali Commission on the

Department of Correctional Services, for instance; 2002 Public Administration Survey on Corruption),

surveys (University of Pretoria: Survey into corruption experienced in the South African Private Sector;

Institute for Strategic Studies: National Victims of Crime Surveys; Transparency International: Corruption

Perception Index; Afrobarometer: various) and studies (ISS: Corruption and the South African Police

Service; ISS and Transparency International: The National Integrity Systems TI Country Study Report on

South Africa, 2005).

Opinion surveys provide yet additional evidence of the growth and negative impact of corruption.

Afrobarometer indicates that corruption perception surveys improved dramatically in the late 1990s and

early 2000s thanks to the work of the Heath Commission and the National Directorate of Public

Prosecutions. Its 2006 perception survey showed 45 percent of respondent expected that local

government officials and councillors were involved in corruption, 36 percent for national officials, 26

percent for MPs and 22 percent for members of the Presidency. In a separate survey, when asked to

rank national institutions, South Africans rated the police, Home Affairs, Parliament and the judiciary

poorly. Business, SARS and the media ranked only moderately better.

In 2002 alone, over 400 government officials were charged with financial misconduct. In 2003, the

Department of Labour is said to have lost over R1 billion of its skills development funding through such

misconducts. The Road Accident Fund famously lost at least R1 billion at about the same time. In 2004

the Minister of Social Welfare indicated the grant scams were costing the state R2 billion per year. The

situation is worse at the provincial and local government levels.

The University of Pretoria found that nearly 30 percent of companies surveyed had experienced bribery

attempts (being offered or asked for a bribe).

PriceWaterhouseCoopers’ 2007 Global Economic Crime annual survey reported alarming rates of

economic crimes: 72 percent of companies surveyed reported having fallen prey to asset

misappropriation, for an international average of 42 percent. The second highest reported economic

crime was reporting fraud/financial misrepresentation (45 percent).

The ISS Victims of Crime surveys (1998, 2004 and 2008) have documented an increase in the experience

of corruption between 1998 and 2008. Most reported incidents of victimisation by corruption had to do

with traffic police, SAPS, government employment agencies, welfare agencies, and Home Affairs.

Administrative corruption in functions where public servants are in control of financial transactions has

becoming endemic.

Tender fraud is considered to be on the rise, facilitated by the massive increase in public social and

infrastructure expenditure. Economic crimes facing the private sector are of an even greater magnitude.

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The latest evidence comes from a report made public in April 2009, revealing that over the past few

years over 2,000 government officials have awarded over R600 billion rands companies belonging to

themselves or relatives by manipulating processes and failing to disclose conflicts of interests.

The Scorpions saga, the charges against National Police Commissioner Selebi, and the years of political

and legal infighting within the ANC have done much to further dent the country’s image abroad and that

of the state at home.

The Administrative Capacity Crisis, Root Cause of non-delivery

South Africa faces an enormously problematic weakness in administrative competence and capacity.

There is no denying that there has been a progressive degradation of administrative competence and

capacity at all levels of government. This is most critical at the provincial and local levels, where

capacity has literally collapsed in some areas. Central government has retained more competence and

capacity, but with serious disparities between ministries and agencies (compare the Treasury and SARS

with Home Affairs, the Department of Health, and the Department of Education).

The weakness of the public administration has had a direct impact on delivery and public perception. A

2006 survey by Afrobarometers showed than less than 50 percent of respondents found that the local

government system was working well. The poll found 57 percent dissatisfaction over road maintenance,

and 50 percent over community cleaning. It found 27 percent dissatisfaction with revenue collection,

confirming the notion that government is perceived as being better at collecting than spending

effectively. The survey showed immense variations between provinces, with “rural” provinces

(Mpumalanga, Limpopo and Northwest – from worst to best) performing worst and “urban” provinces

(Gauteng, KZN and Western Cape – from worst to best) performing best. Considering that the new

government model relies heavily on local government for delivery, this is gravely concerning.

The 1994 regime change and overhaul of the public service resulted in the loss of considerable

knowledge and experience within government, as many experienced white bureaucrats were replaced

by often inexperienced black bureaucrats. This ‘changing of the guard’ occurred extremely rapidly, and

without adequate knowledge management or skills transfer to improve service levels – or indeed

maintain them.

The skills challenge in South Africa, both within government and beyond, was finally prioritised in March

2006 when the Joint Initiative for Priority Skills Acquisition (JIPSA) was set in motion. Its results have

been largely insufficient: in November 2007 the Centre for Development and Enterprise (CDE) found

that “South Africa’s skills shortages are not only persisting, but intensifying”. It cites chronic vacancies

and poor productivity in the public service. It references countless surveys of businesses complaining

about the impact of skills shortages on employment, innovation and growth. At the end of December

2006 national and provincial governments alone listed some 321,665 vacant posts; with average annual

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vacancy rates holding steady at 24.3 percent (2006), 23.4 percent (2005), and 25.1 percent (2004). The

highest vacancy rates occur within the senior management band, with an average of 35 percent of all

posts unfilled; a 59 percent vacancy rate at deputy director-general level is particularly disturbing says

the CDE as is the 42 percent vacancy rate in middle management. Six out of every ten deputy director

general positions remain vacant. Ann Bernstein, Executive Director of the CDE wrote that “These vacant

posts create instability leading to all sorts of constraints and bottlenecks, including poor oversight,

performance management, policy implementation, and interruptions or discontinuous service delivery”.

In addition, the CDE found that outmoded human resource practices and information management

systems are pervasive, with skills levels of incumbents being weak, inappropriate or poorly utilised. The

study also revealed that too much time is spent on recruitment and not enough on improving

productivity. Finally the report uncovered poor succession planning and a worrying ‘juniorisation’ of

senior positions.

According to Home Affairs, 70 percent of the department’ senior officials failed their internal test in

2008, illustrating the debacle that department in particular, and the country’s public service in general,

represent.

The current government’s chronic inability to spend budgets effectively is indicative of these capacity

issues. Despite an overall budget execution of 93 per cent in 2006/07, execution is still erratic at local

and provincial levels, especially for capital investment, with huge underspending in some departments

and levels of government as well as overspending in others.

These problems offer a frustrating counterpoint to the largely successful efforts to achieve

‘representativity’, which Roger Southall states

has been simultaneously a bid to extend its control of the state, a strategy to meet the expectations

of its constituency, a thrust to redress the social injustices of apartheid and a hope that the

commitments to delivery and growing work experience of black employees will compensate for any

lack of formal education and training for the jobs they do.

Effective government arises from the existence of a public sector shielded from the vagaries of politics

and leadership change. Key to competence and capacity is the extent to which the administration is

professional and stable. In this regard, South Africa has a long tradition of politicised and polarised

bureaucracy: the colonial bureaucracy was primarily British or Anglo-South African, and served the

political aims of the colonial state; the nationalist bureaucracy was the primary instrument through

which the state implemented its racist agenda as well as its goal of eradicating white poverty; the

current bureaucracy has been transformed in order to represent the demographic make-up of the

country and advance the social welfare agenda of the state. Little cognisance of the education, training

and experience required to develop and implement such an agenda was taken. In addition, the majority

of the public administration is strongly aligned with the dominant party, and there is ample evidence of

patronage. This significantly undermines autonomy, competence and stability.

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Not a Developmental State, Not a Strong State, but not a Weak State Either

When limited capacity, competence and corruption come together the impact is devastating. The Home

Affairs passport saga has been nothing short of a national humiliation. And what to say of crime, or of

the country’s inability to control its borders? So much so that the US government has slammed the

country in its latest Anti-Terrorism report:

South African identity and travel documents generally included good security

measures, but because of poor administration, lack of institutional capacity, and

corruption within the Department of Home Affairs, which is responsible for

immigration services, thousands of bona fide South African identity cards,

passports, and work/residence permits were fraudulently issued.

And what to say of an electricity crisis which could have been avoided had government listened to its

experts, and had a proper administration and management system been in place?

And what to further say of the national health care system, when ministers themselves acknowledge

preferring to use a private health care system they publicly target for being elitist and greedy?

The cumulative economic costs of these problems (direct, indirect and opportunity) must run into the

hundreds of billions per year as they have a damaging impact on key variables. They decrease overall

productivity, destroy employment, and turn domestic and foreign investment away.

An analysis of the ‘state of the state’ in South Africa yields clearly paradoxical answers. States are

expected to perform a number of specific tasks, to provide what are commonly called political or public

goods and services (versus the private goods and services individuals and the provide sector provide).

Without these, societies cannot exist sustainably and prosper. There is broad consensus that these

political goods and services include:

1) Security and territorial integrity

2) Political and administrative governance, participation

3) Economic performance, freedom, infrastructure and sustainability

4) Social wellbeing

There is of course much room for variation over what states do themselves or pass on to individuals,

social groups and the private sector.

Compared with its peers against clear benchmarks of performance, South Africa achieves both high and

weak marks in the provision of the above public goods.

The country ranks 110th out of 141 countries in the Brookings Institution’s Index of State Weakness (the

work of now US Ambassador to the UN Susan Rice). Whilst its political governance and economic

performance are above average, its social welfare and security performances are abysmal.

Claude Baissac

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The country’s performance is no less paradoxical in the Mo Ibrahim Index on African Governance, where

it ranks in the top 5 – behind Mauritius, Botswana, the Seychelles and Cape Verde (note that all are

small island states). It ranks high on political governance but falls short on welfare and security. The

country’s ranking in security puts it on par with Angola, Nigeria, and Somalia. This is a truly appalling

record.

Based on this and other indicators, South Africa appears to be a ‘stronger weak state’ for lack of a better

term. It is a paradoxical state whose future is not without danger. Uncomfortably straddling the border

between strong and weak states, it can easily slip downward to weaker state status. Alternatively,

guided by solid and pragmatic government policy, it can improve its performance and climb upward to

stronger state status, and achieve a lot – but certainly not all – of its ambitions.

What of the Developmental State Project?

This essay started with two questions, and set out to answer the second:

1) Is the government’s programme, assuming it is fully and effectively implemented, likely to

achieve the objectives set out?

2) Can the programme be indeed fully and effectively implemented?

The ANC has determined that the most effective way to successfully achieve its objectives is through the

creation of a South African developmental state. It is believed that such as state will address the dogging

problems of implementation and delivery.

The above analysis raises significant doubts as to whether South Africa can transform into a

developmental state in the way envisaged by the ANC. The project – for what we know of it – faces

overwhelming structural obstacles. Not least among these are the absence of a consensus elite project

and a public sector facing systemic crisis of capacity, competence and efficacy. These two factors alone

preclude the ability of the state to formulate a consensus policy project and get it implemented with

much success.

The advocates of the developmental state and key party leaders have recognised that the state has

failed in some of its key obligations. Matthews Phosa’s recent admission of serious mistakes and failures

in front of the press says as much. As quoted in the Mail & Guardian, he stated that:

People have been given jobs without the necessary qualifications and then could not do the job

properly. There were very outrageous cases. Mistakes were made and we must correct them.

And:

Let's be blunt about it, most of those who left were white. They are now in the private sector, in

Australia, in Vancouver. We need to correct these things.

Claude Baissac

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Further:

We need to make the public service attractive for people. If we don't deal with it service delivery is

not going to take place.

However correct the diagnostic of the ANC appears to be, the solution to the problem does not rest in

the proposed cure. Advocates of the developmental state are effectively proposing that the cure lies in

injecting more of the illness into the patient’s body: giving an overriding role to an already struggling

state administration. The misdiagnosis is profound and potentially devastating to the overall delivery

objectives and to the economy as a whole.

The magnitude of the dysfunctionality of the country’s public administration and public sector –

including the vast majority of the parastatals – is such that turning it around would require massive

amounts of resources, skills, management energy, governmental focus and time. If the continuing failure

of the Home Affairs restructuring, the state of collapse of the local government structure (finally

acknowledged by government) and the inability of South African Airways to restructure are any

indication, turning the whole thing around could bring the state near bankruptcy while failing to deliver

the goods.

Illustratively, SAA alone has cost the taxpayer many billions while undermining the country’s otherwise

dynamic airline industry. It has consistently lost money on one bad strategy after the other, has been

mired in corruption and conflict of interest scandals, has failed to establish good labour relations

(somewhat contradictory to the notion that state owned enterprises are better at managing that), has

encountered ever greater commercial difficulties, and is becoming an ever greater source of national

embarrassment. Admitedly it has maintained a large labour force, has spread its wing far and wide, and

provides much revenue for that other – yet far more effective – monopoly, Airport Company of South

Africa. However, there is no evidence that even larger employment could not have resulted – directly

and not – from a combination of alternative use for the money sunk into the airline by government, and

the opportunities created by a civil aviation sector unfettered by an airline repeated accused, and often

found guilty, of anticompetitive practices.

Yet, SAA will not be allowed to fail, almost irrespective of how many bailouts government will have to be

put together. Its management knows that, and so do its employees. Thus there is very little incentive for

them to perform according to a mandate which is admittedly confusing: are they there to provide a

competitive commercial service, fly the South African flag across the world, provide revenue to ACSA,

give as much employment as feasible, achieve some uncertain ‘developmental’ agenda, or all of these

potentially contradictory and not necessarily welfare positive goals?

In the case of the national airline, therefore, it is likely that the developmental state would simply be a

justification for a form of corporatism where an unhappy compromise between labour interests,

particular interests within government and the ruling elite, and the ‘national interest’ is maintained at

very high cost to everyone else.

Claude Baissac

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This unhappy state corporatism would be giving the illusion of economic control to the state without

achieving effective economic development – and potentially be welfare negative given its likely huge

direct, indirect and opportunity cost.

Overall therefore, the evidence available points toward a very strong probability that constructing a

developmental state anchored on the public sector and the country’s public enterprises in the way

envisaged and now initiated would most likely divert scare resources to rapidly diminishing returns.

Furthermore, it is highly probable that such an effort – characterised by greater state regulation over

the economy – could lead to significant disruptions in the productive sector of the economy, through

greater indirect taxation, anti-competitive behaviour by state-sponsored institutions, decrease

economic efficiency, an increased regulatory and bureaucratic burden, the imposition of

‘developmental’ and social objectives, and so on.

In this sense, one of the key features of the developmental state, its market augmenting purpose, could

be nullified and the project could instead turn South Africa into an anti-developmental state, weakened

and impoverished.

What (Possible) Way from Here?

The developmental state emerged to accelerate growth and development through a national project

harnessing business and labour, where government played a leading role by incentivising desirable

micro-economic behaviour while disincentivising non desirable ones.

The idea of turning South Africa into a developmental state is potentially useful.

It is so, provided such a programme is done pragmatically and progressively, and provided it is

established on a proper diagnostic of the problems confronting South African society. It is so provided it

does not evacuate the key structural problems confronting state capacity, and, to the contrary, make

these structural problems the central objective of a developmental state in South Africa.

Currently, the programme does not do that. Currently, the programme treats the state as an external

agent that can be mobilised almost immediately and without particular difficulties to save the problems

of a society and economy treated as objective realities to be manipulated by the agent state.

The problem needs to be turned on its head as follows:

Firstly, the South African state should not be treated as an external agent of change. It needs to be

treated as a problem itself, partly solution and partly impediment to growth and development.

Second, society and the economy should be treated as agents themselves in the achievements of

growth and development.

Claude Baissac

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Thirdly, accepting this, the developmental state concept should be seen as a useful approach to

addressing one of South Africa’s most pressing emergencies: that of the state of the state itself. Today,

the South African state faces the real prospect of weakening further and further, to the point that it

would no longer be a ‘stronger weak state’ but a weak state, period.

Thus, the developmental state project could usefully serve a project of reengineering the South African

state at its three levels (national, provincial and local). Such an endeavour is imperative. There cannot be

a viable South Africa without it. However, this should not be done through the state-centric model

currently preferred. This should be done through a ‘right sizing’ of government and the establishment of

effective modes of cooperation between the state, business and civil society.

A developmental state programme for South Africa should be a long term affair. It could only be a long

term affair. It should comprise several phases and should capitalise on the country’s unique assets

rather than attempting to subdue or marginalise them.

South Africa has a unique opportunity, one that few developing countries have: the country has a model

constitution, a vibrant civil society, a good (but strained) economic infrastructure, a well established and

internationally competitive private sector, among others. Civil society and the private sector have

demonstrated their resilience and an ability to adapt to changing international and domestic realities.

The country is endowed with high labour productivity despite severe strains on skills and training, and

continuing high unemployment. Indeed, the country’s labour productivity (GDP per person employed) is

far higher than that of India, China, Brazil and Malaysia.

The private sector is mature and on the whole a healthy contributor to the country. Together with the

non profit sector it should be deputised by government to help it achieve its developmental strategy.

The public health sector is a case in point. South Africa operates a dualistic health care system. The

public sector is experiencing failure on a systemic level: worn out infrastructure, insufficiency of skills

and personnel, management weaknesses, dropping levels of service. The private sector, while

confronted with some problems (skills, costs, state capacity) is considered world class, and providers of

health insurance, hospitals, emergency services are amongst the world’s best.

Current rumours that the country’s health care system needs to be nationalised under the aegis of a

new National Health Insurance is the probably the opposite of what is needed, and what is affordable to

South Africa. As currently disclosed, it may destroy the private health care industry without improving

the state of the health care sector an inch. The reform could lead to a critical loss of skills and

competence, source of comparative advantage for the country. It would lead to an increase in economic

outmigration by the country’s economic and professional elites. Worst of all, it would to a dramatic

decline in public health and welfare. Such a system should capitalise on the strength of the private

sector and seek to extend its efficiency advantage to all.

Claude Baissac

19

The duality of the health care sector is a feature of the South African economy and applies to many of its

sectors: education, public safety and security, basic infrastructure, and so on. Economic data available

suggests that this duality is likely to increase as state capacity continues to be a problem or worsens.

For the left this duality is both a cause to and a product of structural inequality between the haves and

the haves not, and one which must be suppressed through forceful state intervention. For the right it is

an outcome of necessity and opportunity, and the expression of a successful entrepreneurial

environment. It is the product of consumer requirements and the inability of the state to provide for

those who have the means to afford quality services.

The truth of the matter is that South Africa’s private sector, but also its non profit sector and private

citizens, indeed represent a unique opportunity for the country and for the government’s programme of

improved and shared economic opportunity and social betterment.

How a positive developmental state programme is established remains to be determined. The

irretrievable point of departure will have to be an acknowledgement by the ruling party that its current

programme is doomed to failure. This is unlikely to happen soon.

Yet, an interim approach could be for government to improve dialogue with business and civil society

organisations, and to foster a regeneration of business-labour relations, encouraging and sponsoring a

more cooperative format. A government-labour-business pact could be essential to improving what

each of the parties need: more jobs, better jobs, greater revenues and profits, higher tax revenues, and

social stability. To this end, government could mobilise personalities who have crossed the divide,

turning some of the beneficiaries of BEE into a crucial bridge between the two stakeholder groups that

are most critical to the country’s socioeconomic future.

The innovative capacity of business could be mobilised to ‘brainstorm’ solutions to some of the

country’s most insoluble problems: crime, education, healthcare, infrastructure maintenance and

provision, etc. Where feasible, ‘social commercialisation’ of some services should be experimented.

Where feasible and desirable, full commercialisation should be introduced.

As for the state, that it does need to ‘recapacitate’ itself is beyond anyone’s doubt. It should do so

urgently, but in a focused and pragmatic manner. Much is required to achieve that. Illustratively: (i) it

must decisively fight and root official corruption out, otherwise it will never have the control it

imperatively must have over delivery – as ‘private entrepreneurship’ will continue diverting state

resources toward their corrupt and socially destructive ends. This will have a political cost, but a cost

well worth paying in the long run; (ii) it must identify where its limited resources are most needed and

best utilised, and prioritise its action on these priority areas; iii) it must identity best practice in its own

structures, learn how to replicate them, and do that effectively. Similarly it must identify worst practice

and root them out; iv) it must re-skill its most critical departments and administrations, creating poles of

Claude Baissac

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excellence where it matters most. This means attracting ‘the best and the brightest’ the country has to

offer. This will also have a political cost.

In this effort too, government could extend a hand to the creative force the country is endowed with.

The private sector has ample experience of delivering results at good value. The non-profit sector has

plenty of experience has achieving great social outcomes on very little budget and resources.

They could certainly contribute in reengineering the state and extending its reach.

In conclusion, the government could create a pragmatic developmental state whose principal

orientation are cooperation, innovation, experimentation and flexibility. The current project sounds like

the exact opposite, and is destined to failure – with a likely unaffordable economic and social cost. The

ultimate outcome will be a weak state.