Redistribution+v.+Industrialisation,+Makgetla,+B+Day




 * Business Day, Johannesburg, 09 September 2005**

=A redistributive vs an industrialisation strategy=


 * Neva Makgetla**

IT IS now common cause, at least in the democratic movement, that SA needs an industrialisation strategy. The past 10 years have seen rising income inequalities because of stagnant wages and soaring unemployment. The state must be more active to secure shared growth, so that the majority benefit as the economy expands.

But the strategy remains unclear. We can clarify some strategic choices by looking at scenarios based on a redistributive and an industrialisation strategy.

The redistributive strategy which government is pursuing involves dependence on minerals exports. Minerals and metals contribute two-thirds of exports, but only about 10% of gross domestic product and employment. Diversification within mining would continue, with efforts to support growth in the high end of the formal sector such as heavy chemicals and vehicles.

With this structure of production, formal employment would grow slowly (about 1% a year), so unemployment would stay high. The focus on heavy industry means the new jobs would pay fairly well. It would also maintain concentrated ownership.

The redistribution elements would come about through government taxation to enhance antipoverty measures — social transfers and grants as well as aid to microenterprise. In the long run, substantial redistribution could slowly foster more balanced economic growth.

Unfortunately, few mineral-exporting developing countries have achieved this ideal. Most still face huge inequalities, high unemployment and poverty.

The biggest short-run economic risk in this scenario is a crash in commodity prices. That could result from a world economic downturn, technology changes or the emergence of new producers abroad. In these circumstances, redistribution would fall apart as both tax revenues and employment shrink. This was the experience of most African countries from the 1970s.

In contrast to this redistribution approach, in an industrialisation scenario the state would work with stakeholders to grow new sectors that could create jobs. That would require a bias toward labour-intensive sectors, generally light industry, services and agriculture. It would aim not only at exports, but also to meet local and regional needs.

In this scenario, mining would continue as a major engine for the economy, but its importance would decline. That requires a redirection of activities by all stakeholders, including the state, capital and even labour. For decades, economic institutions and programmes have been structured to support heavy industry. Reversing that requires painful readjustments.

Employment-friendly industrialisation also requires appropriate macroeconomic policies, including a relatively expansionary fiscal policy, lower real interest rates and depreciation of the rand, and protection for new industries. It does not require weaker labour laws. But it would create jobs in labour-intensive sectors that rarely pay well. Working-class households would benefit more from higher employment than from higher pay.

If successful, this type of industrialisation would ensure rapid jobs growth through the development of new, sustainable industries and agrarian reform. Workers would be better off because they would not have to support so many unemployed people, and because lower unemployment would increase unions’ leverage to negotiate better pay.

But the industrialisation strategy can easily fail. The state may support activities that are simply not sustainable, putting pressure on social spending without creating sustainable employment.

Moreover, unless handled carefully, the strategy can lead to capital flight, so that diversification fails for lack of capital. Countries typifying successful industrialisation strategies do not face strong mining groups that could resist restructuring the economy.

Clearly, the redistributive and industrialisation scenarios can be combined to some extent. Diversification of mining can go hand in hand with efforts to grow light industry and services. Antipoverty efforts must form part of any strategy for balanced growth.

Still, the question remains whether the state will make a serious effort to restructure the economy toward employment creation, or continue to concentrate on welfare strategies.


 * **Makgetla is a Congress of South African Trade Unions economist.**


 * From: http://www.businessday.co.za/articles/opinion.aspx?ID=BD4A89940