Economic growth at stake at Cosatu’s congress

The divisive issue driving the squabbles, legal actions and expulsions of the last two years, is how to bring about radical economic transformation in South Africa. Vavi and Irvin Jim, NUMSA’s firebrand leader, have been losing the fight to align Cosatu behind an economic program to challenge the Free Market approach of the ANC, a challenge that has been made since 1993, when the first major economic plan emerged for a post-Apartheid South Africa.

Five months before the 1994 elections, the University of the Western Cape published the MERG Report. It took contributions from both the academic world and the struggle, including from Jay Naidoo, Trevor Manual and Tito Mboweni. In its 330 pages, it laid out a plan “to secure a rapid improvement in the quality of the daily lives of South Africa’s poorest, most oppressed and disadvantaged people.” Although never adopted by the ANC after its election, many of its proposals were carried out. But the one intervention it highlighted as essential for fast growth and a more equal society was never put in practice.

The case for state-directed capitalism

That missing proposal is essentially what is at stake at the Cosatu gathering this week – the need for a state that directs private investment towards industries that will be useful for the development and industrialisation of the country rather than leaving it to the whims of the market.

The MERG Report also highlighted the need to grow the South African economy at a sustained rate of 5% per year, per person, after inflation – real per capita annual growth (RPG). This growth rate was echoed in the 2012 National Development Plan as the average required for around 20 years in order to achieve a raft of ambitious development goals.

The state-directed capitalism that Vavi and Jim are calling for has credibility when one considers how sustained rampant growth was achieved elsewhere in the world. Since 1960, the economies of just 11 populous countries (having populations over 10 million) have managed to grow at an average of 5% RPG or higher for 20 years.

The Fast Eleven are Brazil, Chile, China, Hungary, India, Indonesia, Japan, South Korea, Taiwan, Thailand and Vietnam. Among this highly disparate group, forms of state-directed capitalism are recognised as the dominant factor in the growth of all but one of them. Eight of them also operated forms of large-scale import substitution using subsidies, tariffs and quotas in order to kick-start and nurture chosen industries until they were up to economies of scale to compete internationally.

Unfortunately though, Vavi and Jim also remain wedded to a program of nationalisation. Only rarely did state-owned enterprises act directly in the industrialisation of the Fast Eleven – Korea’s steel maker, POSCO, and Chile’s copper mining company, Codelco, being prominent and successful exceptions. Legal complications of nationalisation aside, very few believe the ANC would efficiently run steelmakers or petrochemical firms. South Africa needs, instead, a vastly enlarged Industrial Development Corporation – a body which has created 360,000 jobs in the last twenty years, despite being relatively modestly equipped.

Zwelinzima Vavi. Photo courtesy of Community Media Trust archives.

Growth inhibiting issues

While facing the same growth-inhibiting issues as South Africa such as government corruption, inappropriate high-level appointments, poor quality public healthcare and education, inequality and restrictive labour law, the Fast Eleven still managed to multiply the average income of their citizens many times over.

During Mohamed Suharto’s centralised military rule, Indonesia’s economy grew at an average rate of 5% RPG from 1970 to 1996. (One of the greatest kleptocrats of all time, he allegedly enriched himself to the tune of up to $35bn.) In China, despite rampant corruption at national and local level and a one-party rule, its economy grew at an average rate of 10% RPG since the 1990s. In fact, in 2014, South Africa was less corrupt than seven of the Fast Eleven according to Transparency International’s Corruption Perceptions Index.

Inappropriate high-level appointments are perhaps most strongly implicated in the very poor outcomes in public health and education in South Africa. At around 60, our low life expectancy is actually higher than that of seven of the Fast Eleven at the start of their long-term rapid growth periods. Our literacy rate today, at 93%, is higher than ten of the Fast Eleven at the start of their fast growth. In 1960, not only did Brazil have inequality at similar levels to South Africa today, but it also had a life expectancy of 53 and a literacy rate of just 60%. And yet, its economy grew at an average of 5% RPG from 1960 to 1980.

South Africa has featured towards the very bottom of the World Economic Forum’s rankings for labour-employer relations, flexibility of hiring and firing and wage determinations. Similarly, South Korea has consistently featured in the bottom ten countries for labour-employer relations and the bottom half of the hiring and firing rankings. Up to the 1997 financial crisis in South Korea, and up to today in Japan, large firms guaranteed lifetime employment. While doing so, both economies grew at an average of over 5% RPG for 37 years in the case of South Korea and 25 years in Japan.

Since 1994, Cosatu’s official position has been one of resistance to the policy of market-directed capitalism and open competition with international manufacturers – a policy that the ANC has embraced and one which, perversely, has led to a restructuring of our workforce dramatically away from much-needed primary, low-skilled, industries. Vavi and Jim are calling for that official resistance finally to be translated into action. However, no one will listen until they give up their call for nationalisation and focus exclusively on state-directed capitalism along with elements of market protection.

The opinions expressed in this article are solely those of the author. No inference should be made on whether these reflect the editorial position of GroundUp.