Portfolio Committee on Trade & Industry/Select Committee on Economic Arrairs

PUBLIC HEARINGS ON INDUSTRIAL POLICY, PARLIAMENT, CAPE TOWN

26 APRIL 2002

SUBMISSION ON BEHALF OF SOUTH AFRICAN COMMUNIST PARTY

The SACP welcomes this opportunity to make a submission on the important issue of industrial policy. Our submission will not primarily take the form of a commentary on the dti?s document, Accelarating Growth and Development: The Contribution of the Integrated Manufacturing Strategy. Rather, we will indicate the SACP?s views of the key elements we believe to be essential to the ongoing process of developing an effective industrial strategy, both in theory and in practice. In general, the SACP sees the present dti discussion document as an advance on the document released last year, Driving Competitiveness: Towards a New Integrated Industrial Policy for Sustainable Employment and Growth. In particular, we welcome:

• The shift in government policy towards a focus on the real economy or micro-economic issues (summarized pp 19-22);

• The fact that the Accelarating Growth and Development document envisages a comprehensive new approach to accelarating growth and development ;

• The identification of a leading role for government and active state leadership as central elements of an integrated manufacturing strategy (p 19);

• The focus on promoting collective action, through sector summits and other mechanisms (chapter on Integrated Value Matrices, pp 26-28 and Deepening Stakeholder Partnerships, pp34-35);

• The identification of employment as a key objective of policy (p 20);

• The indication that the dti will mobilize a range of additional support measures, including customized programmes for particular sectors (pp 29-30).

The SACP also welcomes the spirit of debate and engagement that followed the release of last year?s discussion document and looks forward to the eventual convening of the proposed Growth and Development Summit. As the Ekhurhuleni Declaration, adopted at the recent Alliance Summit noted, "?the success of this Summit?depends on the ongoing mobilization of government and popular forces" around key issues. It is our hope that these hearings can contribute to the raising of public awareness around the critical question of industrial policy.

Our submission should also be located in the context of our concern about some of the very serious distortions in our economy and some urgent interventions that need to be made. These concerns include what is tantamount to an investment strike by South African companies. Currently South African companies have the highest levels of liquidity in decades, but they are not investing these in our economy. Secondly the promises made by those South African companies now listed in in foreign stock exchanges have not materialized, and this includes the investment of South African workers? savings in the London Stock Exchange. In addition the massive failure of the financial sector to invest in our productive economy and with developmental consideration is something that we believe require urgent attention as part of our overall thrust in promoting a developmental manufacturing and industrial policy.

1. THE SACP?s OVERALL APPROACH TO INDUSTRIAL POLICY.

   The SACP has long called for a vigorous industrial policy. Numerous policy conferences which we have held in recent years have identified industrial policy as a key element in placing our economy on the kind of development-orientated growth path envisaged by the RDP. While involving core manufacturing, an industrial strategy, in our view, needs also to encompass mining, agriculture, services and the ?new economy?. By industrial policy we mean a policy-led process of state interventions to drive and promote sectoral growth and development. In the case of East Asia, where industrial policy is often seen to have been most developed, these typically included the deployment of various incentives and penalties to mobilize and discipline private capital behind a carefully defined state-led strategy to promote economic growth and develop productive forces in ways that went against, or at least ahead of, the prevailing logic of the market. While often co-existing in East Asian countries with a negative or even hostile attitude towards trade unions, this was coupled with a push towards a change in shop floor organization in the direction of more participatory forms and models, with a strong emphasis on skills development, as central pillars of raising labour productivity. Industrial policy understood in this way is broader than a "competitiveness strategy" although an industrial policy cannot, of course, ignore this dimension.

   Our emphasis on industrial policy as a priority focus of economic policy derives from our conviction that "market forces" are fundamentally incapable of promoting more than a highly distorted and stunted development of productive forces in former colonial or semi-colonial countries like our own. Indeed, we are convinced that the central lesson of the experience of the very small number of cases where former colonial or semi-colonial countries have achieved some measure of industrial development is that this can only be achieved by policy driven interventions directed at extensive "market failures" in the developmental process.

2. THE CONTEXT OF "GLOBALISATION"

   Our views in this regard are also strongly influenced by our understanding of the process of "globalisation". We have as the SACP argued strongly against views that have presented "globalisation" as a phenomenon that has "overcome" or "transformed" capitalism or imperialism. We have insisted that "globalisation" has retained essential exploitative, uneven, contradictory and crisis-riden features of capitalism and imperialism.

   At the same time, we have acknowledged that "globalisation" has been associated with important changes in the modus operandi of global capitalism. These include, on the one hand, the rise of "information and communications technology" and of ICT derived knowledge as the driving force of rising productivity and accumulation; the formation of, and integration of productive activity into, global networks; the pressure for freer movement of capital and commodities across national borders; and the strengthening of multi-lateral regulation. Various writers, including those of Marxist and neo-Marxist persuasions, have been among those who have compared the rise of "informationalism" with the "industrial revolution" in terms of its significance for the development of productive forces. On the other hand, "globalisation" has been associated with growing inequality, marginalisation and social exclusion. In our view, both aspects ? the development of productive forces in the direction of "informationalism" and the widening inequality ? exist in a dialectical relationship i.e. both aspects are inter-linked and integral to the same process.

   The SACP?s view is that both aspects have major significance in the formulation and implementation of economic policy. On the one hand, we clearly need to be doing all we can to equip productive enterprises and our people to benefit from the technological advances associated with "informationalism". At the same time, we need to recognize that those very same technological changes, operating in a capitalist and imperialist context, are fuelling and exacerbating widening inequality and marginalisation. It is, for example, through ICT that global capitalism is engaged in a process of selective inclusion into global networks of "useful" activities across the globe. The flip side of this is, of course, marginalisation and exclusion of peoples and productive activities across the globe, which, given the imperialist context, is sharpest and most evident in underdeveloped countries. It is, therefore, for us no surprise the process of capitalist globalization has been accompanied by a widening of inequality on a global scale. A study published in April 2001, for example, indicated that the global GINI coefficient was both greater on the world scale than in individual well known unequal societies and had increased from 62,5 in 1988 to 66 in 1993. Over the same period the share of income going to the poorest 10% had declined by 27%, while that going to the richest 10% had increased 8% (Robert Wade, The Economist, 16/4/2001).

   In our view, we need in such a context, to pursue strategies that swim both with and against the logic of globalisation. We need to swim with it in so far as it concerns technological development, raising the capacity of our people and productive enterprises to utilize informational technology to increase access to knowledge and thereby raise productivity and skills. But we need to swim decidedly against the logic of globalisation when it comes to issues associated with its polarizing and marginalizing tendencies.

   Above all, we are firmly of the view that we should never forget that the international context we are operating in is one of imperialism. While it is clear to us that in this context we need to continue to complement our domestic economic strategies with initiatives to promote greater equality or reforms at the global level, our own preliminary assessment is that, while it remains important to continue to engage in whatever international fora are available to support our case for greater equality, we should not over rely on the short term prospects of making immediately beneficial breakthroughs.

   This has a number of consequences. First, it would suggest that expressed or imagined sentiments of influential external "players" (potential investors, International Financial Institutions) should have less weight in determining the content of our policies. Our approach to attracting foreign investment etc. should rather rely on creating an objective environment of development-orientated growth where, whatever their sentiments towards us, foreign investors will want to become involved. Second, it would suggest that our response to actual or potential "external shocks" (e.g. speculative movements against our currency) should rely more on defensive measures we can take in our own economy than on international moves to "reform" the global architecture.

THE NEED FOR AN ACTIVE DEVELOPMENTAL STATE

The SACP is convinced that fundamental to all efforts to place our economy on a development-orientated growth path will be a developmental state. Our perspective in this regard derives in part from our long term socialist vision, but it is also informed by our reading of the experiences of the small number of semi-peripheral countries that have succeeded in promoting industrial development.

By developmental state we mean a state that accepts that it must play a leading role in promoting growth and development, that takes a lead in formulating policies and developing visions, and mobilizes a range of measures to mobililize social forces and resources to give effect to those strategies. It is a state that acts, in a context where at the present stage of our National Democratic Revolution both markets and private capital continue to play a major role in economic life, but which does not hesitate to lead and act ahead of those markets. It is a state that recognizes that our efforts to promote growth and development will encounter extensive "market failure" including:

• A failure by private capital and profit maximising enterprises to, of their own volition, to plan, invest in and lead economic infrastructure projects that are often critical to promoting investment in productive enterprises;
• A failure by both domestic and foreign capital to invest in viable projects to create strategic industrial capacity or otherwise develop productive forces in developing countries or "emerging markets" ahead of a proven record of profitability;
• A failure to initiate and lead strategy development at sectoral or value chain level;
• A failure to address a broad range of developmental backlogs and introduce workplace transformations to raise the capacities and skills of working people.

Looking at our own experience in South Africa over the past seven years, it seems to us that where we have had some successes in promoting investment and growth a number of elements have been in place. These include:

• A government led and conceived (but not necessarily totally funded) infrastructure development programme. The Strategic Development Initiatives (SDIs) or Industrial Development Zone (IDZ) programmes both embody elements of such an approach, although there is much to debate about the overall character of these specific programmes.
• An active role by a parastatal, such as the Industrial Development Corporation, acting as its mission statement says to "identify and support opportunities not yet addresses by the market". Examples of such a role include the Mozal or Saldanha steel projects where the the IDC acted in the market, but with a broader vision than immediate profit maximization and became the dynamic and leading force, but not necessarily the largest shareholder, in strategic productive investments (whose broader character is again open to debate).
• A government led process of developing a sectoral or industry strategy backed up with appropriate incentives and benefits for firms cooperating in the programme. The clearest example here is the Motor Industry Development Programme where elements of this programme, if not necessarily its entire content, are indicative of what can be achieved.

The SACP?s view is that these lessons from our own experience as well as those of successfully industrializing developing countries need to form the basis of an integrated industrial strategy that would have to include:

• State led economic infrastructure development programmes;
• State driven sectoral and value chain planning process;
• The identification of areas of strength or advantage, which in our case would include cheap electricity and raw materials beneficiation;
• An active role by appropriate parastatals and SOEs;
• The mobilisation of public, social and private capital behind a defined strategy by means of, inter alia, incentives and regulatory measures.

While some elements of such an approach can be discerned in existing policies and practices, our view as the SACP is that we are still far from the effective formulation and implementation of the comprehensive, integrated industrial strategy that we clearly need. In last year?s discussion document, the dti argued that "knowledge intensity" is key to industrial strategy and that policy should focus on enhancing knowledge capacities, promoting innovation, R&D, breaking down artificial barriers between manufacturing and other economic activities and promoting joined up government. We agree that these are indeed important aspects of industrial policy. At the same time, we believe that we must not be tempted to see these elements as substitutes for developing capacities in other key areas essential to the effective implementation of an integrated industrial strategy, including those identified above. We also believe that the legitimate desire to extend the scope of policy beyond traditional manufacturing to service sectors (which we indeed share), must not divert attention away from the imperative to develop more effective strategies for core manufacturing and indeed mining, agriculture and energy sectors.

In the resolutions adopted at our Strategy Conferences, the SACP has accepted that an industrial policy must involve policy choices. As a party of the working class, we have repeatedly stated that the goals of job retention, job creation and poverty eradication are central to our vision of industrial strategy. We are not convinced that it is a foregone conclusion that jobs must continue to be lost in agriculture, mining and formal manufacturing. We believe that these sectors can and must become sectors of job creation. Another critical issue is to locate the promotion of export oriented activity in a broader context. While this is an important objective, policy cannot, in our view, focus exclusively on export orientated sectors. We need to give a higher priority than hitherto to strategies for basic needs production, and the development of non-tradable service sectors. Public works programmes linked to infrastructure development also need to be extended as a matter of urgency.