A two-year research study from Harvard’s Growth Lab has taken a deep dive into why South Africa has gone backwards over the last 15 years – and a collapsing state is a big part of the answer.
The study was led by Ricardo Hausmann, professor of public development at Harvard, and former Venezuelan Minister of Planning, who saw his own home country collapse after a new government took over in 1993 and implemented various anti-growth policies and made many economic missteps.
Hausmann’s career has been built around development diagnostics and assessing the reasons why certain countries fail to live up to their economic potential.
The new report, titled “Growth Through Inclusion in South Africa”, worked to understand why South Africa is struggling so badly to grow its economy three decades after the fall of apartheid, and offers some potential paths forward.
However, before working to resolve a problem, it first needs to be diagnosed.
“It is painfully clear that South Africa is performing poorly, exacerbating problems such as inequality and exclusion,” the researchers said.
The study highlighted key problems holding South Africa back:
- The economy’s ability to create jobs is slowing, worsening South Africa’s extreme levels of unemployment and inequality.
- South Africans are deeply disappointed with social progress and dislike the direction where the country seems to be heading.
- Despite its enviable productive capabilities, the national economy is losing international competitiveness.
- As the economy staggers, South Africa faces deteriorating social indicators and declining levels of public satisfaction with the status quo.
- The underlying capabilities to achieve sustained growth by leveraging the full capability of its people, companies, assets, and know-how remain underutilized.
“After 15 years, attempts to stimulate the economy through fiscal policy and to address exclusion through social grants have failed to achieve their goals.
“Instead, they have sacrificed the country’s investment grade, increasing the cost of capital to the whole economy, with little social progress to show for it,” the researchers said.
“Three decades after the end of apartheid, the economy is defined by stagnation and exclusion, and current strategies are not achieving inclusion and empowerment in practice.”
The big question, then – is why?
The study identified two key problems with South Africa, driving this stagnation and deterioration: a collapsing state and spacial exclusion.
Over the last 15 years, South Africa has seen a broad-based state collapse across critical public goods and services, the researchers said.
There has been a deterioration in the provision of electricity, freight rail, ports, roads, water, and passenger rail. At a local government level, municipalities have been given big budgets and even bigger responsibilities but are largely ill-equipped to actually perform their duties.
The paper argues that the collapse in state capacity can be traced to recurring issues of gridlock, ideology, overburdening of public organizations, and political patronage.
- Gridlock within the legislative process and leadership of government has prevented critical decisions from being made in time to address system breakdowns. This has happened repeatedly in both electricity and rail.
- Ideology has prevented the full capabilities of society from contributing to address supply needs, for example, by limiting private, provincial, and municipal power generation or devolution of the management of urban passenger rail to capable city governments.
- Things have been made worse by a mistaken belief that preferential procurement rules could be imposed on complex organizations, such as the network industries, at little cost. Rather, these rules have overburdened critical public organizations by adding financial costs, reducing effectiveness,
and expanding space for patronage systems to take hold.
- Political patronage has been a widespread problem, as well documented by South Africa’s Judicial Commission of Inquiry into allegations of State Capture, Corruption and Fraud in the Public Sector including Organs of State, better known as the Zondo Commission.
“While it can be easy to place the blame of state collapse on corruption and patronage, this would overlook the direct ways that gridlock, ideology, and overburdening have contributed to struggling and failing public systems,” the researchers said.
“Overall, these causes have resulted in a continued loss of technical capacity and competent management across public organizations, making capacity loss harder to overcome.”
These failings of the state bleed into all sectors of society, and attempts to counteract them have largely failed.
Because the state cannot run effectively and takes ideological and legislative pathways that block growth, it has attempted to uplift the disenfranchised through social transfers. However, the researchers said that these transfers are more about redistribution than inclusion – “palliative, rather than curative”.
“They merely compensate people and companies for their exclusion, rather than include them in the productive economy. They do not create the basis to increase sustainable employment in South Africa,” the researchers said.
How to fix it
There is no simple fix for South Africa’s problems; however, if the country is to arrest the collapse of the state, it needs to urgently start building state capacity.
This would entail completely rethinking policies like preferential procurement and decentralisation.
“Instead of helping to address spatial inequalities, the current system has exacerbated them,” the researchers said.
Instead of splitting resources and sending them off to be devoured by the black hole of local government, they would be better distributed towards strategies that tackle the cause of state collapse, rather than its symptoms.
Broadly, the researchers suggest tackling the problem in three key ways:
- Unburdening capacity – by relaxing the secondary and tertiary goals that have been layered onto state companies and public entities; locally and nationally.
- Build up and protect capacity – by getting rid of cadre deployment and transition to merit-based systems of employment. This will build a system that attracts and retains talent over time.
- Leverage existing capacity – by pulling in society at large to help fix struggling systems, especially in network industries.
Positively, in some respects, the government is moving towards meeting at least some of these goals. In the midst of the ongoing energy and logistics crisis, the state has reached out to the private sector for assistance in rebuilding key networks.
With a few policy moves, the government is also working towards professionalising the public service – while the courts and opposition parties are challenging the ANC’s long-held practice of deploying cadres.
However, state-owned companies remain a massive thorn in the side of a capable state, with decades of rot and mismanagement still sapping the state’s coffers through debt and bailouts.
While some steps are being taken to mitigate this – like rolling some entities into one – the state insists on creating new SOEs, while pushing ahead with other massive systems like the NHI that have the potential to falter like almost every other entity that has come before.