Unemployment remains a crucial social and economic issue facing the South African Labour Market.

Unemployment remains a crucial social and economic issue facing the South African Labour Market. Critically discuss the nature of unemployment in SA and possible solutions to address unemployment.

The inheritance of the apartheid socio- political and socio- economic history in the South African labour market has created some structural imbalances that have resulted in alarming and remorseless high rate of unemployment in the labour market. Sixteen years after the post apartheid era, social policy programmes to address the problems of socio- economic and socio- political have done nothing to alleviate unemployment in the South African labour market. They are also external forces such as world economy recession in the period of 2008 and 2009 influenced the instability in the labour market and also placed South African in an unviable position. This essay is going to discuss the nature of unemployment in South Africa and the possible solutions to address unemployment and why it is a crucial social and economic issue facing the South African Labour Market.

With the South African economy strong in Southern Africa the problem of unemployment still remains a crucial social and economic issue that needs to be addressed politically, social and economically and to revisit the inadequacies that occurred during the apartheid era that are contributing to the high unemployment rates in the modern South Africa Labour market. The rise of unemployment in the South African labour market can be linked to the problems that occur in the supply of labour and the demand of labour according to Bean and Layard (1986; 2) the popular explanation that sometimes advanced to explain the rise of unemployment is that of primarily a consequence of rapid labour force growth with the supply of jobs lagging behind the demand for them. The South African labour market unemployment rate is rising responding to population growth and the immigration of foreigners, the lack of demand for labour in the formal sector has been a proximate cause of the rise of unemployment.

According to Barker (2007; 174) an unemployed person is a person who is without work, is currently available for work, and seeking work or wanting work. But however the definition varies the LFS (labour Force Survey) and the ILO (International Labour Organization) have different definitions hence contributing to different figures of the rate of unemployment in South African as different statistics are gazetted by varies institutions according to Barker ( 2007:174) LFS use the expanded definition . The work of varies institutions bringing together major users and experts such as Stats SA, COSATU, the Reserve Bank, the National Treasury, the Office of the Presidency, the Department of Labour, the Department of Trade and Industry and others to come up with unemployment rates but the LFS is the main body to determine unemployment rates. According to Barker (2007:174) LFS defines unemployment as those people within the economically active population who do not work during the seven days prior to the interview, want to work and are available to start work within a week of the interview and have taken active steps to look for work or start some form of self employment in the four weeks prior to the interview. Unemployment rates vary accordingly to the definition that is used to define it hence they are a major difference on the strict definition and the expanded definition used by the LFS. According to Year Book of Labour Statistics time series (415:2008) national definitions of unemployment may differ from the recommend international standard definition, the national definitions used may vary from one country to another as regards inter alia age limits reference periods, criteria for seeking work, treatment of persons temporarily laid off and of persons seeking work for the first time.

The LSF use varies ways to extract figures that can be compiled as to be the unemployment rate in South Africa according to Barker (2007; 178) there are three types of measurement of unemployment the sample survey method which entails that a survey is undertaken among a number of households to determine the economic status of the members of the households, the census method that attains its economic status by asking individuals about their economic status and the last method the registration method that requires all the people to register in not employed. The LSF depends on the sample survey method to determine the unemployment rates in South Africa labour market.

The South African nature of labour market originated from the brutal oppression nature of the colonial era and the apartheid era that marked the emergence of forced employment and unpaid labour as well discriminatory ways of the majority of the population in the labour market, it was mainly characterized with poverty, income inequality, unemployment, high labour costs and low productivity. According to Terrablanch (374:374) the segregated system of education for different levels of literacy and schooling of the different population groups and the large qualitative difference between these different types of education, should be blamed for the undersupply of certain categories of the skilled and professional labour as well as the oversupply of the other categories. Employability disaster in the South African labour market is caused by some of these attributes that occurred in the apartheid era as well lack of government seriousness to implement its policies regarding unemployment in the labour market.

The labour market in 2008 according to ILO Year Book of labour Statistics time series (430:2008) there were 3945000 people unemployed in South Arica, the South African population growth ranges between 47 million and 49 million the availability of a larger labour force is available but job creation has between sidelined with economic growth in the past government policies. According to Barker (185:2008) higher economic growth does not invariably and automatically translate into increased employment. The 2005 unemployment rate according to Barker (179:2008) was 26, 7% which represented 4.5 million people of the 16.8 million total labour force persons in labour market. 2010 the unemployment rate has increased at an alarming rate according to 2010 Budget Review (2010:36) the broad unemployment rate increased sharply from 26.7% to 31.1%. With an estimate of 80% black population in the South African they are the most unemployed group in the multi-racial state Barker (181:2008) elaborates that the rate of unemployment among Africans was 31%, compared to 5% among whites, a total of 3.9 million Africans were unemployed in 2005.The lack of implementation of the government policies lacked to address women emancipation in the South African labour force according to Barker (182:2008) the unemployment rate is serious among women, with official the unemployment rate of 37% as compared to men with only 27%. The unemployment rate according to Altman and Hemson (2007:9) is also serious among the youth more forcefully: about 37% of those aged 15 - 34 were unemployment by the strict definition in 2005 (Labour Force Survey, September 2005).From 1995 the high rate of unemployment has increased according to the 2010 Budget Review (2010:36) employment fell by 870 000 during 2009, raising the jobless rate to 24.3% – the highest level in five years.

Due to structural imbalances in the economy they have always been some unfortunate scenarios of the educated work force with qualifications not attaining jobs according to Barker (182:2008) a total of 34% of the unemployed in 2005 had at least a matriculation certificate compared to 21% which actually means the demand for semi skilled workers in the labour market is decreasing. The attributes of the apartheid in the South African labour market shows that blacks might be highly skilled and have attained qualifications to enable to find employment but they are unable due to inequalities in the labour market according to Bhorat (2004:958) the unemployment rate among black Africans tertiary qualifications went up from 10% in 1995 to 26% in 2002, the BEE (Black Economic Empowerment) as a government policy has not been able to address the inequalities in the contemporary labour market. According to Terrablanch (2002:381) the supply in the African labour will increase to 76% of the total in 2020, the large numbers of Africans that will enter the market during the next 20 years will undoubtedly contribute to African unemployment until 2020.

The South African unemployment labour market is being affected by the structural imbalances in the economy according to Barker (2007;177) structural unemployment refers to the overall inability of the economy ,owing to the structural imbalances ,to provide employment for the total labour force even at the peak of the business cycle. South African economy coming out of the global financial recession period the South African labour market has experienced alarming figures of unemployment. Bendix (418; 1996) elaborated that structural unemployment is now caused by the lack of education and training of the population, structural unemployment is caused by the lack of available labour which possess qualifications or skills necessary to fill in vacancies due to basic inadequacies in the labour force or because of the technological advancement in the South African economy which render existing skills obsolete. The important paradigm shift in the South African economy in the adoption on the neo-liberal democratic capitalism system but this has resulted in the treatment of FDI (Foreign Direct Investments) as highly important than the National Investment thereby resulting in the peripheralise and casualize part of the labour force from the formal sector to the unaccountable informal sector hence creating unemployment in the process as most entrepreneurial activities lack funding from the government.

Although they are various types of unemployment in the South African labour market for instance the frictional, cyclical and seasonal unemployment, structural unemployment is the form of unemployment affecting the labour market. This has caused the South African labour market creating costs of unemployment that affect the economy as a whole according to Haydam (2002:199) the costs of unemployment is divided into two the economic and non economic costs, the economic cost is the lost of output of workers who are unproductive and the non economic cost results in the high level of crime and labour unrest. In South Africa the economic cost of unemployment can be noticed in the low level of GDP and the increases in transfer payment of the government for example the child grants and the UIF (unemployment insurance funds) this raises government expenditure. The South African unemployment is mainly structural in nature but it has been compounded the cyclical unemployment, the fundamental resolution to the problem of unemployment is restructuring of the economy as elaborated by Terrablanch (2002:425) that the RDP that envisaged the restructuring of the economy should have been entrusted to free market capitalism, neo liberalism, globalization and high rate of growth.

According to Bendix (414:1996) the present dilemma of the South African labour market is attributed largely to the past practices which hampered the achievements of the technical and educational qualifications by Blacks hence prevented horizontal and upward mobility and led to sanctions and disinvestment. The lack of employability in the South African labour market can be a cause of the alarming rates of unemployment according to McKenzie & Wurzburg’s (1997) employability is the capacity to be productive and to hold rewarding jobs during a working life, and to be equipped with up-to-date skills and competences. “Is it the fact that South African workers lack the skills and competence that results in the high levels of unemployment?”

The government has put in place various policies to eradicate unemployment in the South African Labour market for instance the GEAR (Growth, Employment and Redistribution Policy), ASGISA (Accelerated and Shared Growth Initiative of South Africa), EPWP (Expanded Public Works Programmes) and RDP (Reconstruction and Development Program).Within the 2010 Budget Review (2010:36) the government focused on the monetary policy and inflation targeting as this will boost investment which will lead to employment opportunities. With the government objective of halving unemployment according to Altman (2008:11) between 2004 and 2014, the unemployment rate would need to fall from about 26% to 13%. The ultimate target will be 6.5% by 2024. Through government policies this objective is attainable if full implementation and accountability within government structures is fully monitored. Minister of Labour Membathisi Mdladlana in 2010 Budget Review (2010:34) said that “stemming the rising tide of retrenchments is critical for us all. What will also be critical will be high-quality and courageous leadership from government,” Government leadership on implementing its policies is very crucial to solve the problem of unemployment.

The 2010 Budget Review (2010:36) targeted education of the South African population as the long term policy and in the interim, a multifaceted approach, driven by clear medium-term objectives, some of the interim approach is job creation maximisation, wage growth needs to be aligned with productivity growth, wage and non-wage costs need to be flexible enough to maintain jobs, air labour protection needs to be effectively enforced, workers should not be intentionally or unintentionally discriminated against in their search for work by practices, regulations or laws. Government policies to alleviate the problem of unemployment in the labour market should be implemented in the public and the private sector of the economy to achieve the unemployment objective.

The GEAR as one of the governmental policies was implemented in 1996 as a way to enhance economic growth and job creation according to Barker (2008:186) GEAR recognizes higher economic growth and significant job creation as the key challenges of the economic policy. As unemployment is one of the macroeconomic objectives of the Government of South Africa GEAR was to address the problems of unemployment according to Barker (2008:186) it had several aims and objectives to among them to structure labour market flexibility within the collective bargaining system, enhance human resource development, a social agreement to facilitate wage and price moderation, small and medium-sized enterprise development, restricting of state assets, tax incentives to stimulate new investment ,expansionary infrastructural investment and anti-inflationary monetary policy. Economic growth is also a government macroeconomic objective that overspills or has a “trickle down effect” to alleviate unemployment but an economy can experience positive economic growth with alarming unemployment rates such as the case with South Africa. Infrastructural development ahead of the 2010 world cup created a lot of jobs, as one of the GEAR core elements of expansionary infrastructural investment infrastructural development has been successful to a greater extent.

The GEAR employment strategy according to Barker (2008:186) was that of measuring to promote investment and exports, one third of the increase in jobs is to be accounted for by the economic growth, special government programmes are to add another quarter of the new jobs and 30% of increases employment are envisaged from institutional reforms in the labour market, employment enhancing policy shifts and private sector wage moderation. GEAR policies if they were fully implemented the unemployment rate in the South African labour Market should have reached the single digit as that projected in 2014 and 2024 but lack of implementation of core elements of GEAR buy the government resulted in the GEAR policy’s failure. The government focused most on economic growth and not employment according to Terrablanch (2002:424) the GEAR was the best example of the naïve optimism about large labour –absorptive capacity that would unlock if an economic growth rate of 6% can be attained.

The GEAR policy was centered on creating a competent labour force according to Barker (2008:186) the policy emphasis the importance of various measures to increase productivity, including improved training and education, better management training and modernization of work practices. Although the aims and objectives of GEAR were to reduce the rate of unemployment it resulted in consequences in the South African labour market of destroying other jobs according to Terrablanch (2002;424) 1.3 million jobs opportunities supposed to have been created by the GEAR policy by 2001 more than 1 million jobs have been destroyed in the modern sector. The GEAR policy also advocated for flexibility of labour and wage and price moderation, flexibility of the labour according to Barker (2002:186) entails the market’s regulation in a manner that allows for flexible collective structures, variable application of employment standards while wage and price moderation was to ensure that they do not exceed average growth. The most important attribute of the GEAR policy was according to Barker (2008:186) was the concentration of the public resources on enhancing the educational opportunities of historically disadvantaged communities the approach was to be supported by government programmes to provide a powerful vehicle for the equitable redistribution of income.

The government through the establishment of the Expanded Public Works Programme (EPWP) was able to address the problem of unemployment in the Labour market the EPWP was launched in 2003 according to Altman and Hemson (2007:5) the EPWP was a short to medium term response to high unemployment and marginalization aimed to provide work opportunities, training and launch –pad trainees into labour market. With the South African government the last resort of employment creation, government programmes to halve the rate of unemployment in the labour market is crucial to achieve its macroeconomic goals such as the EPWPs. The EPWPs have created a lot of opportunities in the South African labour Market according to the 2010 Budget review (2010:39) the expanded public works programme created 1.6 million short-term jobs during its first phase from 2004 to 2009, exceeding its target of 1 million, 52 billion in the budget was allocated to the EPWPs and 2.5billion of the total will be allocated for labour intensive this means a lot of employment opportunities will be created this year.

The EPWP was established in line with the government objective to halve unemployment by 2014 according to Altman and Hemson (2007:5) EPWP has generated approximately 716400 work opportunities in three against the one million target in 5 years. This achievement by the EPWP shows that it is ironic for the government to create jobs than the relaying on economic players like businesses. Without the establishment of the EPWP the large population unemployed was going to be abjectly poor as capitalist enclavity is raging on form the apartheid era. According to Altman and Hemson (2007:7) the EPWP was designed around service delivery projects that are needed, such as rural infrastructure, clearing of alien vegetation or community-based social services such as early childhood development or home community-based care as well as to intensify labour absorption in the delivery of these services and infrastructure.

The EPWP although criticised as a short time employment that cannot really solve the problem of unemployment however it has made significant strides to address the problem of unemployment Altman and Hemson (2007:7) elaborates that in 2006/2007 approximately 300 000 people were engaged in the EPWP opportunity, with South Africa with one of the highest rates of open employment in the world the EPWP reaches currently about 7% of those unemployed by the broad definition and about 4% by the official definition. Kwazulu Natal region of South Africa has one the highest unemployment rates but the increasingly pauperised of the people has been solved by the EPWP according to Altman and Hemson (2007;12) Kwazulu Natal has the highest number of the EPWP work opportunities and the second number of the unemployed people. The EPWP contribution to employment creation in the provinces of South Africa has limited the number of the unemployed and boosting the house hold incomes hence reducing poverty.

EPWPs face a lot of problems the lack of government funding to the programmes according to Barker (2008:196) such programmes usually involve the denial of resources to some other programmes, EPWP might conflict with the fiscal and monetary policy of the government and largely it’s a temporary role and South Africa’s structural unemployment problem cannot be addressed through such programmes. The arguments against the EPWPs are outweighed by the favours according to Barker (2008:196) the communities are able to manage their own affairs through economic development, programmes have negligible effect on the balance of payments, EPWPs are linked to developmental initiatives by government, workers gain marketable skills to improve their employability and unemployment can be reduced to low levels by the EPWPs in the labour market of South Africa.

Whilst the South African government is focusing on economic growth and economic integration with other global economies that will cause the “trickle down effect” to alleviate unemployment problems in the labour market they indirectly have created socio- economic problems in South Africa. The trend towards capitalist enclavity resulted in the demand for labour while the effects of demographic trends have increased the supply of labour on the labour market hence creation a large pool of unemployed people. All of the policies to eradicate unemployment taken by the government have not been fully implemented for instance policies such as GEAR was not fully implemented resulting in all efforts to address the unemployment problems in the South African labour market uncertain. The problem of unemployment will remain a crucial social and economic issue that will face the South Africa labour market in the next years to come the government has set objectives to halve employment by 2014 from 26% in 2004 to 13% in 2014 but can this targets be achieved, as the reluctance of the government can be noticed in non implementation of its policies to eradicate unemployment.



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Discuss some of the Challenges that nations have faced with regards to Democratization in a contemporary context. You can choose any country in order

The African developmental path to democratisation seems uncertain with political instability ravaging in most African states. Democratization is also being hindered by external forces especially the influence of major hegemony states such as Britain and America, democratization should be encored in the African society by African means. Western imposed democracy has failed to democratize African states hence worsened the situation. Although western democracy has many features that African countries can adopt African genuine democratic development must be rooted on African aspirations, democratic development must be seen as African and for Africans. The inheritance of the authoritarian rule by the Africans from the roots of the colonial era has further hindered democratic development within Africa. This essay is going to elucidate and discuss what is to be done if Africa is to experience genuine democratic development.

Transition from autocracy to democracy in Africa, through the process of democratization should have fundamental elements that spear head this process which have African roots. The history of the African society shows that it was democratic till the brutal and oppressive rule of the colonial masters took centre stage and led to arbitrary governments that have done most of the horrifying acts in the history of human kind for instance the Rwandan genocide that claimed the lives of about 800 000 people in 1994 this was one of the same acts similarity of the colonial governments which opened fire on Soweto school children in South Africa in the apartheid period. According to Turok (1987:10) in most countries independence was the occasion of popular celebration rather than consolidation of people’s power, in which without independence no real democratic development can occur. In the Africa continent the fight of neo- colonialism and imperialism must continue to pave way for democratization.

A genuine democratic development is being hampered by the adoption of the Westminster model especially in the Anglophone countries as popular participation in the political process has been constrained, as the model advocates for one party state which is oppressive and authoritarian. According to Nwabueze (1993:9) "Democratisation is not only a concept, nor is it synonymous with multi-partyism," Nwabueze writes, "it is also concerned with certain conditions of things, conditions such as a virile civil society, a democratic society, a free society, a just society, equal treatment of all citizens by the state, an ordered, stable society, a society infused with the spirit of liberty, democracy, justice and equality, "in the fullest sense of the term, requires that the society, the economy, politics, the constitution of the state, the electoral system and the practice of government be democratised”. These fundamental elements are the backbone for the democratic development in Africa without these elements of civil society, a free society and equity among the population democratization is virtually impossible to develop in Africa.

One of the most fundamental process that have to be incorporated into the governmental structures within the African states is the practice of democratic governance and the rule of law to experience genuine democratic development. Democratic governance requires that government is held accountable; that citizens are consulted and their interests taken into account; and that policies are implemented swiftly, correctly, and consistently. The practice of good governance leads to political stability within the African countries according to Ndulo (2:2006) good governance entails first and foremost a government that lives up it’s responsibilities by ensuring the effective delivery of public goods and services, the maintenance of law and order and the administration of justice and also creates a vibrant civil society as well as a dynamic market that secures economic growth and property.
Good governance enables governments to hold democratic elections which are main essential to democratic reforms if the government enables the people in the decision making of the country decisions. Political tensions are likely not to arise as transparency is by virtue the product of good governance according to Ndulo (4; 2006) transparency is an inbuilt modus operandi in the conception of good governance. Good governance is marked by efficient bureaucracies, predictable rules and laws, fair enforcement, transparent business opportunities, and potential for ongoing policy improvement through public-private dialogue. Good governance paves way for accountability, reponsiveness and openness as the government is able to account for its actions to the people and to justify them.

The monitoring of African countries on the enforcement rule of law by the regional bodies such as the SADC and the continental regimes as the AU (African Union) in African states should be critical to the development of genuine democratic Africa. According to Ndulo (2:2006) the aim of the rule of law is to limit, there by checking the arbitrary, oppressive and despotic tendencies of power, and to ensure the equal treatment and protection of all citizens irrespective of race, gender, status, religion, place of origin or political persuasion. Constitutional democracy should be endorsed or implemented by all countries for democratic development in Africa, most of the Africa countries still use the constitutions that where drafted by their colonial masters prior independence for instance Zimbabwe constitution drafted in during the Lancaster House agreement in 1979, people driven constitutions must be supported by all African institutions and the use of these authoritarian made constitutions must be considered as not African.

According to Ndulo (2006; 2) constitutional democracy is found upon the nation of checks and balances, namely the legislature, the judiciary and the executive this allows for checks of abuse of powers and the violation of citizen rights. Most human rights are enshrined in the constitution and democracy is perpetuated by a vibrant constitution that governs how the state operates. Ndulo (2006;3) further elaborates that though constitutional democracy the assurance that the legitimacy of the government is regularly established by requiring that governmental powers are assumed or exercised only with the mandate of the people ,given periodic intervals though free and fair election that are executed and administered according to the constitution and the protection of fundamental human rights.

But however constitutional democracy is hindered by the government willingness to enforce the constitutional laws as well as interpretation of the constitution to pave way for democracy. For Africa to experience genuine democratic development political rights must be enshrined in the African countries constitutions. Political rights must be protected according to Currie and De Waal (2001:378) political rights involves that every citizen is free to make political choices ,to form a political party, participate in activities of or recruit members for a political party and to campaign for political party or cause. And most importantly political rights advocate that every citizen in Africa has the right to free and fair election for any legislative body establishment.

Public participation through the periodical elections in Africa countries must be natured and promoted by the regional institutions and the continent intergovernmental institution the AU. Participatory democracy according to Currie and De Waal (2001:83) it advocates for individuals or institutions to take part in the decision making that affects them. Monitoring of the elections must not be left to government mechanisms but all countries must adhere to the AU Charter during the elections and a powerful delegation from the AU council must render the elections free and fair elections if not, the AU as continent intergovernmental body must enforce that fair and fair elections are conducted elsewhere in the African soil. The AU Charter on Human rights and people’s rights strongly enforce people participation through elections as their right in a democratic country, this Charter has been numerously violated by many Africa countries that violates human rights in the name of protecting the country sovereignty. This calls for the strengthening of the AU as a continental body and other regional institutions that governs the affairs of each state. Power to intervene in the country affairs must be enshrined in the African Union constitution when the action of the state undermines the Africa political stability and violation of human rights to the attainment of a democratic continent.

According to Ndulo (2006:4) participation in political process must be conducted in an atmosphere characterized by the absence of intimidation and the presence of and the respect of a wide range of fundamental human rights and the participation must be built on freedom of association and speech as well as capabilities to participate constructively in the running of the state affairs. Active participation of civil society and private sector in the construction of a country’s democratic environment must be promoted, Elections in the African states have been characterised with violence and intimidation of the electorate as well as of the opposition leaders. But however according to Thomson (2000:223) the holding of election, is not the prerequisite for democracy, a mature democracy order requires that the new rules of the political game endure between election and indeed, compel incumbent governments to hold further polls within a constitutional defined period and continued accountability and representation are far more important that the simple mechanics of holding elections.

The need for political credible opposition parties in the political environment within the African states is a very strong element for the genuine democratization development. Africa states must tolerate the establishment of other political institutions that are able to oppose the ruling parties and make the electorate have an alternative political force to veto into power most African countries advocates for multi party state but in practice one party is dominant and use state instruments to suppress the new formulated political parties. According to Thomson (224:2000) he gives an example of how African states have hide behind the name of practicing multi party states but in reality it is only the need to legitimise their governments, the 1995 General elections in Zimbabwe were very free from instances of intimidation and malpractice but it was accompanied by lack of any political alternatives or even counter forces to the ruling party ZANU PF, Robert Mugabe regime was unpopular and procedural democracy was in place this same scenario was the same in the 1985 and 1990 general elections. The need to strengthen political parties and allow the establishment of any political party within a state must not be hindered but seen as platform for the voices of the people to be heard.

With in the concern of establishment political institutions in African states multi party competition must flourish as it is one of the most mechanisms for promoting democratization. According to Thomson (2000:217) multi parties assist the aggregation of differing views and the interest found within the society and also offer the electorate alternative public policy choices and historically multi party competitions has fostered the most example of representative and accountable governments. Multi party competition must be promoted by Africa intergovernmental institutions such as the AU to enforce democratization of the Africa continent. But it must be noted that the adoption of multi party system within the African continents can be a survival strategy of authoritarian regimes as they will be seeking for legitimatization of their governments during the election period the ruling parties use all states mechanisms to suppress the other political parties. Thomson (2000:220) the re-invention of the multi-party democracy in the African states can be seen as a reaction to the crisis of authority but what is of great concern is that states elites search for legitimacy and the subsequent abandonment of authoritarian structures lay at the heart of Africa conversion of multi party democratization development. The absence of legal political parties has left the African continent vulnerable to ruling elites to abuse political power to violate the human rights of the people as they rule with decree and virtually above the law. Multi party competition is important as public views are represented and it is the root to a democratic continent.

African states should promote a rejuvenated civil society as it is one of the most fundamental ways to experience a genuine democratic path, during the colonial era civil society played an important role in pressuring democratic reforms in Africa they also from part of increasing checks and balances of power. Churches, trade unions, ethic associations, women’s organisations, professional bodies, farming cooperatives, community groups and political parties must be left to flourish in the political environment within the African countries for Africa to experience genuine democratic development. Thomson (2000:225) elaborates that civil society activities can act as a powerful counter force to prevent the state monopolising the political process they help to ensure public interests are paramount and that the government must respect the rules of a democratic game.

It is important to note that the presence of civil society is there to cooperate and challenge the government at the same time, without this independent associational activity there is a grave danger that the state will become too dominant and abuse power which paves way for human rights violation and subjects intimidation. The presence of theses independent activities enables the development of democratization process in Africa according to Ndulo (2006:6) civil society work to enforce accountability and transparency where certain human rights, such as the rights of association, expression and the freedom of press are sufficiently protected. Churches in the colonial era for instances did facilitated the democratization development Archbishop Desmond Tutu used the church pulpits for denouncing the apartheid regime. Thomson (2000:221) elaborates that churches are significant force within the anti-authoritarian campaign, difficult to ban and very probably more legitimate that the government itself, religious organizations offer national opportunities for people to assemble. For Africa to experience a genuine democratic development the presence of civil societies must be enhanced.

Democratic development in Africa must be accompanied by that ability to separate the state and the ruling party. Political parties are not supposed to use states institutions to achieve their political goals. In Africa this have been very common as leaders use the state machinery for the political gains the use of the military and the police to intimidate people in the time of the elections, disrupt anti-government rallies, harass opposition leaders and the use to the state constitution to amend laws that favourably suit their political ambitions. According to Thomson (2000:226) multi party democracy also needs a neutral state whose institution provide the level playing field on which political parties can compete, democratic development needs a new political environment in Africa where there is a clear distinction between states institutions and those of the ruling party.
Without the clear separation of the states institutions and those of the ruling party political regimes are able to be in power for long periods of time thus why in most African countries coup d'états are a common scenario as removing the ruling parties from power mainly revolutionary parties can not be done in a democratic manner. Thomson (2000:226) gives an example of how Chiluba president of Zambia defeated Kaunda‘s presidential campaign by using the power of the state, the MMD majority in parliament was used to amend the constitution to prevent “first generation “Zambians from running for president while Kaunda’s parents were born in present –day Malawi with Kaunda out of the race Chiluba secured his second term.
The use of the constitution to silence political opponents can be noticed in the current period by the Robert Mugabe regime in Zimbabwe, the use of the Public Order and Security Act (POSA) and Access to Information and Protection of Privacy Act (AIPPA) gazetted to ban public gathering and ban all private media institutions. During the period of the President Mobutu in Ghana the executive used the state to oppress the people Turok (1987:51) elaborates that President Mobutu ruled by decree, virtually above the law, de facto life president, capital offence to insult him, unlimited personal power, he used the state mechanisms against all opponents and protestors, while the security forces, the judiciary, prefectorial crops and the party were organs of depoliticisation coercion and mass control. Separation of the state and the ruling party is a very fundamental element for Africa to experience genuine democratic development. Political leaders should not use the power and resources of the state to specifically bolster the position of their own parties.
Access to information and a free and independent media are vital for educating citizens on public policy issues and helping them hold government accountable for its actions as well as to pave way for genuine democratic development in Africa. Federation of African Journalists (FAJ) was formed at a congress in Abuja, Nigeria, in 2007 with the theme of "Building a Strong and United Voice for African Journalists" but this have yield nothing in media reforms in the African countries hence strengthening of these institutions will spearhead democratic development. Thomson (2000:227) elaborates that most incumbents in government readily utilise the state owned media, almost all state newspapers, radio and television on the continent to provide a pro-governmental outlook in reporting. Opposition parties find it had to get their view and policies through the states controlled media, African journalist have been arrested, intimidated, charged with treason or even killed for opposing the ruling elite through the private media.
According to Ndulo (2006:9) he argues that active and open media can serve a number of important purposes in democratic development ,including acting as a watch –dog over the state, providing civic for a to debate issues and promoting human rights hence it influence democracy and good governance. State controlled media in transitional and authoritarian countries have been used to promote terror and political instability as hate speech and discrediting of political opponents is very common. Ndulo (2006:9) further more in elaborated that controlled media was used to incite genocide in Rwanda which was one of the most brutal tribal killings in the history of human kind he argues that open media reforms can influence democracy, peace media reforms in Benin helped that country to avoid violence during the 1996 presidential elections. Access to information and a free and independent media within the African countries is vital for Africa to experience a genuine democratic development.
The most important element for Africa to experience genuine democratic development is the need for strong economies, strong economies enables the construction of a welfare state, a state that is able to take care of it’s citizens political, socially and economically needs. Ndulo (2006:6) elaborates that civil and political rights are not luxuries but rather fundamental elements of durable economic success. Most of the wars in African or causes of political instability are created due to the ruling elite not able to address the social inequalities in the societies; revolutionary uprisings were based failure of the colonial governments to address the economic and political welfare of the general population so is the current period uprisings of the African people. Thomson (2000:226) quotes Afrifa Gitonga’s advice that democracy is found on full bellies and peaceful minds. Economic development opens the African States to more liberal political and economic development that in paramount to the genuine democratic development the establishment of market institutions, creation of space for the private sector and private sector input should entrench values such as transparency, responsibility, and fairness, values which uphold democracy as well. The effects of economic development can result in the genuine democratic development in Africa.

African states have for a long-time suffered the lack of diplomacy as relations among states have not yet strengthened as dependency of external institutions to solve African conflicts especially the EU (European Union) and America. According to Baylis and Smith (2008; 388) Diplomacy refers to a communications process between international actors that seeks through negotiation to resolve conflict short of war. Diplomacy must be strengthened for a genuine democratic development as communication is very vital during conflicts hence avoidance of war and political in stability in the continent countries, African conflicts must be solved by Africa for Africans as a result diplomacy must be enhanced to experience genuine democratic development.
According to Thomson (2000:227) the unleashing of ethnic mobilisation in the African continents is one of the most ways for Africa to experience genuine democratic reforms multi party democracy open up the possibility of full scale ethnic mobilisation. Although imposed colonial borders have caged different ethnic groups within the single state and centralised structures created conflicts to emerge has one ethnic group want to dominant the other in the same territorial area. Thomson (2000:227) elaborates that the possibility of African parties will come to mirror the ethno-regional division within their society ethnic tensions are noticed in Congo Brazzaville, Kenya, Rwanda and Malawi. Nigeria has to some extent contained the problem of ethnic wars by the Federal government which tries to unify all regional ethnic groups.
Genuine democratic development in Africa is difficult to achieve but slow progress towards democratization is truly taking place in African countries. True democracy is almost impossible to achieve, and has been the primary goal of many nations, beginning from ancient civilizations of Greece and Roman Empire but elements of democracy must be left to flourish within the Africa states to uphold human rights and promote political stability. It must be understood by African ruling elites and governments that democracy is not a Western ideology but existed in Africa before the west started imposing their western type of democracy in African states. Genuine democratic development must be fuelled by Africans for Africans not the West.


BIBLIOGRAPHY

Baylis J and Smith S 2005. The Globalization of world Politics 3rd edition Oxford University Press USA
Currie I. & De Waal J. (contributing eds) with De Vos P., Govender K. & Klug H. (contributors), The New Constitutional and Administrative Law vol 1: Constitutional Law (2001). South africa
Turok B; Africa what can be done (1987) Zed Book ltd London
Thomson A; An introduction to African Politics (2000) Routledge New York/ London
Ndulo M: Democratic reform in Africa It’s impact on Governance and Poverty alleviation (2006) James Currey Limited Oxfrod
Professor Ben O. Nwabueze', Democratisation (1993), http://worldviews.igc.org/awpguide/democ.html [accessed on 31 March 2010]

Criticism of the World Bank and the IMF

Criticism of the World Bank and the IMF encompasses a whole range of issues but they generally centre around concern about the approaches adopted by the World Bank and the IMF in formulating their policies. This includes the social and economic impact these policies have on the population of countries who avail themselves of financial assistance from these two institutions.
Critics of the World Bank and the IMF are concerned about the conditionalities imposed on borrower countries. The World Bank and the IMF often attach loan conditionalities based on what is termed the 'Washington Consensus', focusing on liberalisation—of trade, investment and the financial sector—, deregulation and privatisation of nationalised industries. Often the conditionalities are attached without due regard for the borrower countries' individual circumstances and the prescriptive recommendations by the World Bank and IMF fail to resolve the economic problems within the countries.
IMF conditionalities may additionally result in the loss of a state's authority to govern its own economy as national economic policies are predetermined under the structural adjustment packages. Issues of representation are raised as a consequence of the shift in the regulation of national economies from state governments to a Washington-based financial institution in which most developing countries hold little voting power.
With the World Bank, there are concerns about the types of development projects funded by the IBRD and the IDA. Many infrastructural projects financed by the World Bank Group have social and environmental implications for the populations in the affected areas and criticism has centred around the ethical issues of funding such projects. For example, World Bank-funded construction of hydroelectric dams in various countries have resulted in the displacement of indigenous peoples of the area. There are also concerns that the World Bank working in partnership with the private sector may undermine the role of the state as the primary provider of essential goods and services, such as healthcare and education, resulting in the shortfall of such services in countries badly in need of them.
Critics of the World Bank and the IMF are also apprehensive about the role of the Bretton Woods institutions in shaping the development discourse through their research, training and publishing activities. As the World Bank and the IMF are regarded as experts in the field of financial regulation and economic development, their views and prescriptions may undermine or eliminate alternative perspectives on development.
There are also criticisms against the World Bank and IMF governance structures which are dominated by industrialised countries. Decisions are made and policies implemented by leading industrialised countries—the G7—because they represent the largest donors without much consultation with poor and developing countries.
It further shows the links between tremendous odious debt and poverty in the developing countries with the effects of the current forms of globalization that marginalizes a vast majority of people around the world.
While not the only part of the global financial system that has been destructive for most people of the world, the IMF and World Bank policies have been a major instrument to structure the global economy (via structuring the national economies of developing countries) to allow a form of neoliberal globalization to be pursued that has led to the criticisms mentioned above.
Critics also point out that the beneficiaries will be largely the wealthy people in western nations and the transnational corporations, while the majority of people in the world will not benefit.
The Critics Many from the political left who criticize the IMF and the World Bank deride those organizations' clear preference for free-market policies. But free-market advocates think that whatever policies the organizations prefer are beside the point; their actions per se cause undesirable market distortions that almost always cause more harm than good. This apparent discrepancy is caused by the schism between the rhetoric of the Fund and the Bank and what they actually do. When a sovereign nation's economy is so imperiled that the government faces a default on its debt, the IMF and World Bank provide it with low-interest loans, under the auspices of preventing any global economic crisis that might ripple outward. (This is why developed nations fund the IMF and the World Bank out of their own treasuries: They ostensibly provide protection from the worldwide economic chaos that might ensue if one nation or region were to go under.) The loans often come with conditions, called "Structural Adjustment Programs." This means that in order to get the loan, an imperiled nation's government must promise to make reforms in its economy to reduce the likelihood of such an economic crisis occurring in the future. The current administration of the Fund and the Bank favor the implementation of free-market policies, such as trade liberalization, as the best solution to a country's economic woes. This is where leftist thinkers come in with their critiques. First of all, they point out, most of these imperiled countries, almost all of which are in the developing world, do not have the institutions that developed economies have built over time to properly regulate a market economy. Yet a market economy is forced on these countries as a condition of receiving the loans they need to stave off catastrophe. Often, they say, the result is an even worse combination of wealth disparity, increasing poverty and environmental exploitation. To top it all off, the countries eventually have to pay off the IMF and World Bank loans, when often their economy hasn't even improved. The left would rather see the Fund and the Bank give out loans with radically different conditions, or none at all. They see the conditionality of the loans as the cause of the widely noted failures - in East Asia, in Russia, in Latin America - of the IMF and World Bank to succeed in their missions of global economic stability and poverty eradication.
To impose one-size-fits-all economic policies to any country, no matter how right those policies might be, is to institute the kind of top-down economic planning that is anathema to free-market thinkers.
But why then, if the IMF and the World Bank are going around promoting free-market economics, do free-market advocates oppose the IMF and the Bank? The answer is that free market critics oppose the actions of the institutions themselves - their interference in the global economy. To force one-size-fits-all economic policies to any country, no matter how right those policies might be, is to institute the kind of top-down economic planning that is anathema to free-market thinkers. Central planners at the Fund and the Bank cannot take into account all of the many subtle effects the policies they promote might have on the countries they de facto control with their loans. Even if all the IMF policy recommendations are correct, countries have no incentive to follow them once the bailout check clears. Loan conditionality is a threat with no teeth, because the IMF has demonstrated that it will continue loaning even to delinquent countries. The only real incentive governments have to reform is given when their economies start to fail; then they must either reform or watch their countries slide further into the abyss. IMF bailouts and loans give countries excuses not to make needed reforms and prolong economic backwardness while building up enormous levels of debt. But this is not the only way in which IMF and World Bank interventions usually leave a country worse off than before. By putting together generous bailout packages with the principal purpose of enabling cash-strapped countries to pay off their foreign creditors, these institutions encourage foreign investors to engage in risky lending behavior around the world - a market distortion that causes global instability when the whole purpose of the IMF is to prevent it. The repeated failures of the IMF and the World Bank have inspired passionate opposition from 20-30 year-olds, because these failures often have devastating consequences for the world's poor. But when this generation came looking for answers, it found Bono rather a thoughtful spokesperson for free trade. It would be a severe understatement to say that the protectionist, anti-trade left has been more successful at tapping into this well of discontent for grassroots support. The free-market movement did not even begin to fight. The free-market movement made a good intellectual case against the international financial institutions and suggested a solution to the problem: The United States should refuse to extend to the IMF or the World Bank any more funding for their disastrous interventions; instead, it should remove all barriers to the free exchange of goods and services across its borders, regardless of what policies other countries pursue, as an alternative way to strengthen the global economy.
By putting together generous bailout packages, these institutions encourage foreign investors to engage in risky lending behavior around the world causing global instability when the whole purpose of the IMF is to prevent it.
But the movement was unable to educate and energize a grassroots army on this issue. Instead, a protest movement powered by the organizational muscle of the large labor unions and radical environmentalists used opposition to the Fund and the Bank to advance a protectionist agenda, calling for the erection of tariff walls and subsidies to impede the flow of goods and services across borders. This movement advocated "democratizing" rather than dismantling the Fund and the Bank - in other words, trying to open the Fund and the Bank to pressure from groups that support protectionism and closed borders rather than free trade. The free-market movement espoused a more internationalist position, but the protectionist left overwhelmingly attracted the most grassroots support. But a lack of grassroots support is not the only reason why the free market movement has failed to drive the debate. Another reason is that the business lobbies that drive the formation and passage of free trade agreements, such as the proposed Free Trade Area of the Americas, have no interest in defunding and dismantling the IMF and the World Bank. Rather, most businesses would not mind if these organizations continued to provide a safety net for risky but high-yield investments in recently opened markets. Because deep-pocketed business lobbies drive much of the free-market agenda at the political level, the movement is missing a key ally in Washington. This, in addition to a lack of grassroots support, has all but silenced free-market opposition to the Fund and the Bank, and magnified the left's position in the debate. The battle to reform or dismantle the IMF and the World Bank, from either the left or the right, faces an extraordinarily daunting road. Criticisms of the IMF and the World Bank tend to anger Wall Street, and can be fatal to conservative politicians. Wall Street was rocked when former Treasury Secretary Paul O'Neill suggested that most of the money from an IMF bailout to Brazil in 2002 might wind up in "Swiss bank accounts" and thus opposed the move. This and other candid statements contributed to the Bush Administration's decision to axe O'Neill shortly after the 2002 elections. The movement on the left also faces significant political obstacles, as its inability to project a coherent message and the strange tactics of its most vocal adherents have relegated it to the margins of American political debate. With friends like these, The IMF and World Bank scholarship programs for underachieving countries look safe for the near term. But the problems they pose to the world economy are real, and must be addressed at some point by a consensus of opponents. While this consensus might contain strange bedfellows at first, unlikely alliances can sometimes demonstrate the seriousness of a problem. Perhaps such an alliance is needed to help the developing world graduate to developed economies. Further Reading
· Bastiat, Frederic. Economic Sophisms. Irvington-on-Hudson: Foundation for Economic Education, 1996.
· Friedman, Thomas L. The Lexus and the Olive Tree: Understanding Globalization. New York: Anchor Books, 2000.
· Hazlitt, Henry. Economics in One Lesson. San Francisco: Fox & Wilkes, 1996.
· International Financial Institution Advisory Commission (Meltzer Commission). "Report to the U.S. Congress and the U.S. Department of the Treasury." March 8, 2000.
· Lindsey, Brink. Against the Dead Hand: The Uncertain Struggle for Global Capitalism. New York: John Wiley & Sons, 2002.
· Shultz, George, William Simon and Walter Wriston. "Who Needs the IMF?" Wall Street Journal, February 3, 1998.
· Smith, Adam. The Wealth of Nations. Modern Library Edition. New York: Random House, 1937.
· Stiglitz, Joseph E. Globalization and Its Discontents. New York: W.W. Norton & Co., 2002.

Migrant Labour and the process of Primitive Accumulation in Southern Africa.

The so called Primitive Accumulation
Primitive accumulation paved way for the efficacy of the capitalist system this process led to the displacement of the local inhabitants off their means of production in the bid to create a working class that would rely on the sale of their labour for subsistence. According to Marx (668:1977) the so called primitive accumulation is nothing else than a prehistoric process of divorcing the producer from the means of production he elaborates that it is primitive because it forms the prehistoric stage of capital and of mode of production corresponding with it.
The capital system has two fundamental elements according to Marx (668;1977) the commodity possessors which must come in contact which the owners of money, means for production, means of subsistence with the objectivity of increasing the sum of values they posses. Marx (668:1977) elaborates that capitalist system presupposes the complete separation of the labourers from all property in the means by which they can realise their labour. This form of displacement off the means of production of the natives is called primitive accumulation Marx (668:1977) elaborates that the economic structure of the capitalistic society grew out of the economic structure of the feudal system. In the feudal system the landlord owned the means of production the land and the serfs provided labour in the feudal system.
Marx (668:1977) concluded that primitive accumulation resulted in the prehistoric movement which changed the produces into wage workers was the efficacy of the transformation of the feudal system into capitalist system. Furthermore Marx (667:1977) accumulation of capital presupposes surplus value; surplus value presupposes capitalist production, capitalistic production presupposes the pre-existence of masses capital of labour power in the hands of producers of commodities. The capitalist system to emerge according to Marx (668;1977) the process of primitive accumulation took away from the labourer the possession of means of production; a process that transforms on the one hand, the social means of subsistence and of production into capital on the other, the immediate producers in wage labourers.
Proletarianization process due to the primitive accumulation was the emergence of a working class that would rely on sell of labour for their subsistence. According to Marx (669; 1977) great masses of men are suddenly and forcibly torn from the means of subsistence and hurled as free and unattached proletarians on the labour market. Primitive accumulation was a process to pave way for the capitalistic system that highly depends on the peasant’s workforce. The use of force and violence were the mechanisms to force the process of primitive accumulation by the colonial authorities.
Labour Supplies in Historical Perspective; study of Proletarianization of African Peasantry Rhodesia
Arrighi attempts to refute the oft-cited economic models that of Lewis and Barber. Lewis model of economic development with ‘unlimited’ supplies of labour has far more limited application to the Rhodesian experience of capitalist development. Barber assumed ‘unlimited supplies of labour were to a large extent the result of a process of primary accumulation in which politics rather than market mechanism predominated and through which the gap between labour productivities in the peasant and capitalist sectors widened. Lewis proposed a two sector model of labour reallocation from a low productivity ‘subsistence sector’ to a high productivity ‘capitalist sector’. Lewis point out that since productivity in the capitalist sectors is postulated to be sufficiently high to make the stipulated payment of wage consistent with the rate of profit that employers expect in order to undertake production.
Lewis postulates that surplus is reinvested in way that increases the demand of labour, the process continues until surplus of labour in the subsistence sector disappears he further postulates that wages may rise before the process is completed slowing down the capitalist accumulation . Barber according to Arrighi (181;1973) distinguishes Lewis stages of development of African wage development that expansion of capitalist sector is rapid enough to reduce the absolute population in the subsistence sector Baber argued that the indigenous African economy is organized so to be self –sufficient. In the other point Arrighi cites Lewis (181;1973) argues that technological progress in the subsistence sector led to surplus of labour while Baber argues that the introduction of the money economy that was of unfair practices increasing the real incomes was not necessary.
Arrighi (183;1973) elaborates either Barber or Lewis interpretation of the development of the African labour wages and relationship between development and underdevelopment of capitalism respectively is of relevance to Rhodesia experience. Baber’s assumption of quasi employment lasted through the 1950s is uncertain the Rhodesian capitalist economy was different market mechanisms were discarded in the determination of wages and the real wage. The fundamental political mechanisms of legislation and violence were the driving force in development of African labour because Africans were investing and innovating in response to market opportunities. Arrighi (194;1973) postulates that taxation was the first resolution to reduce the discretionary nature of African participation in the money economy. Land appropriation also forced Africans to pay rent and be committed to the supply of labour.
The creation of African dependence on exchange with the capitalist sector and introduction of the cash payments increased the African participation in the money economy. Baber’s analysis according to Arrighi (214;1973) failed to interpret the development of the African wage labour force in Rhodesia with the failure to account that market forces, did not in the beginning favour capitalist development. Rhodesian capitalist system according to Arrighi (214; 1973) undergoes the process of primary accumulation which Lewis mentions as the major force for reallocation of the noncapitalist sector to the capitalist were political mechanisms. However according to Arrighi (220; 1973) Lewis analysis is limited to a period of twenty years the mid 1920s and the mid 1940s in Rhodesia experience of the creation of the capitalistic system.
Black Gold: Mozambican Miner, Proletarian and Peasant
The service economy of Mozambique consisted of transport networks and a large pool of labour reserve. The shortage of labour in South Africa and other Southern African countries made them to engage in agreements of importing labour from Mozambique. Mozambique migrant labour was used as labour reserve by South African mine and agricultural industries as Mozambique was the earliest and leading supply of cheap labour to South Africa because their government was guaranteed an income from the sale of labour First (1983;17). Importation of Mozambique labour by South Africa was on the merit that it was less costly than the South African workers according to First (1983;14) he elaborates that Portugal as the colonial power derived the major source of her income from invisible earnings, and speculated on the sale of labour power of its African workforce. There were many agreement and convections which were used to govern fixed labour quotas and guaranteed routing through Mozambican and railways of fixed percentage.

The Mozambique’s role as a supplier of labour was issued as formal statutes in 1897 this was in the realisation that Portugal mercantile capital can be attained through the trade of gold, then ivory and later slaves were able to fuel the process of primitive accumulation which would consolidate a Portuguese capitalist formation and a Portuguese’s metropolitan bourgeoisie (First 1983;13).Native Africans were subjected to ruthless legislation and deprivation of the main source of survival the land to force them to sale their labour to survive in the money economy created by the Portuguese. According to First (1983;13) the Portuguese government leased out great tracts of the country of the country to private foreign capital that had economic exploitation rights as well as political control. The introduction of the WENELA recruiting agency to have monopoly over labour in Mozambique was meant to exploit the labour reserves for the benefit gold mines in Transvaal, Natal and Diamond fields of the Western Cape. First (1983:19) elaborates that the role of WENELA was not only to recruit labour but to recruit and employ it at any cost.

WENELA recruitment agency and the Portuguese government introduced the system of indentured labour that would bring down the labour overhead costs to the thriving mining and agriculture industry. According to First (1983;19) minimum contacts period of twelve months meant that the migrant worker could not determine his time of departure nor the period of his absence, uncertainly in the working environment meant exploitation was easy. The use of deferred payment was the principal source of revenue to the state according to First (1983;25) the system of deferred payment had the advantage for the state in that the required the worker to spend a large portion of his wages in the Mozambican economy thus constituting a demand for commodities produced or circulating in the economy.

The Mozambican colonial economy derived revenue from the sale of labour which was exported to Southern African states. The process of primitive accumulation in Mozambique was different from other Southern African states as it did not focus on the productive investment of labour but merely on the exportation of labour for its capital accumulation.


Bibliography
Arrighi G (1969) Labour Supplies in Historical Perspective; the proletarization of the peseantry in Southern Rhodesia in Arrighi,G and Saul,J Essays on the Political Economy Of Africa. Monthy Review, New York

Frist,R (1983) Black Gold;Mozambican Miner, Proletarian and Peasant, Harvester Press, Sussex Part 1; The export of Labour.pp12-46

Marx,K (1977) Capital, Volume 1 Part viii ‘The so called Primitive Accumulation” Lawrence &Wishart, London pp667-8

Southern Africa in the new Mellennium

Partner or Hegemon? South Africa in Africa Regional and continent economic dominance of South Africa can be displayed with its massive capital investment in other nations. This article questions the notion if South Africa is a partner or hegemon in Africa. According to McGowan ( 1998;6) South Africa has become the largest Republic’s single largest export market in 1993 Africa including four members of the Southern African Custom Union (SACU) accounted for 31,7% of SA exports. In trade South Africa has dominated becoming a significant market for African products according to McGowan (1998;10) Botswana, Lesotho, Namibia and Swaziland (BNLS) in regional trade they totally depend on South Africa and the rest of SACU is a very large market for South African exporters. Trade expansion of South Africa into the continent with trade with non SACU members growing at an outstanding pace according to McGowan (1998;6) with the implementation of GEAR the South African economy has grown remarkably, Southern Africa has been called the ‘Economic Giant of Africa’ with all the credit going to SA. McGowan (1998;168) ascertains that within the theory of hegemonic assent by Wallerstien South Africa can be classified as semi-peripheral country with market supremacy in the agro-industrial productive efficiency making it possible for the rising hegemon to be the lowest cost producer in other markets.

In Transportation according to McGowan (1998;14) SA retained and enhanced its dominance from the 1980s and 1990s with well established roads, shipment and air facilities best in Southern Africa .SAA is the largest airline in Africa and containerization system in the shipping industry made the industry best in Africa. Infrastructural development the South African government has been involved in projects across the region that boost their economy according to McGowan (1998;15) gives an example the Cabora Bassa Hydro-electric scheme in Mozambique potential to generate 100000mega-watts is in collaboration with SA in which it will benefit significantly. In telecommunications South Africa according McGowan (1998;15) South Africa is totally hegemonic within Southern Africa as it levelled with Denmark. The South African economy according to McGowan (1998:20) is 3,4 times than the other 11 countries combined and 13,5 times than the region second largest producers Angola with total GDP similar to developed countries. The structural position as South is also beneficial to its economic development s McGowan (1998;20) elaborates the SA occupies a structural position of advantage similar too US in the world economy. Whilst there is significant evidence those countries landlocked with no direct access of the world market according to McGowan (1998;22) have been incorporated into the South African-dominated regional sub-system SACU are practically economic provinces of SA. McGowan (1998;29) propounds that majority of the private sector enterprise operating in the region are South African creating an enormous opportunity for them to increase their structural power in the policy process.

McGowan(1998;179) quotes Margenthau 1948 as he cites that SA’s regional diplomacy seeks national interests rather than regional security, tight border controls and the aggressive promotion of exports and investment for economic growth and job creation in South Africa it’s relationship would be one of a self hegemon. The SACU and BLNs states have been frequently undermined by SA economic activities as they display their power and strength to sign treaties that affect trading activities. According McGowan (1998;183) SA behaviour since 1994 renegotiated bilateral agreements with other Southern African countries that invariably undermine the integrity of SACU’s customs union. The failure by SA to rectify the Free Trade Protocol was an act to undermine SADC. In conclusion South Africa has shown strong elements of being a hegemon than a partner in SADC region with furthering of domestic issues rather than regional.
South African’s Zimbabwe Policy; Unravelling the Contradictions
Mbeki’s presidency emerged a new era diplomatic relations between South Africa and Zimbabwe. Freeman article demonstrates the contradictions posed by South Africa’s great power status in Africa and its economic strength. According to Freeman (2005;148) the Mbeki administration’s support to Mugabe regime after the controversial land reform and fraudulent elections in 2000 seemed to contradict the essence of the African Renaissance which Mbeki had promised to speared in Africa and also put the question Western support for NEPAD.

Freeman (2005;150) propounds that the support of the Mugabe regime was in the bid to mend the tense and irritated relationship which had developed between South Africa and Zimbabwe in the initial post colonial apartheid phase and Mbeki himself believed in anticolonialism and that Britain never leaved to its promises for funding land distribution in Zimbabwe. The issue of human rights and democracy to denounce ZANUPF government was illogic to Mbeki and other SADC heads of government according to Freeman (2005;151) for Mbeki it was a cover up to seeking regime change and a way for violating Zimbabwe sovereignty. African Renaissance and NEPAD advocated for good governance and democracy was very opposite with the foreign policy implemented by Mbeki. Freeman (2005;155) the anti-imperialist and anti western agenda by ZANUPF questioned the very existence of the implementation of NEPAD and African Renaissance. Freeman (2005;158) emphasis that the reason Mbeki support for the Mugabe government was in the politics of identity that emerged in the liberation struggle and the emergence of MDC (Movement for Democratic Change) was labelled a western agent there derail the gains of the liberation struggle in Zimbabwe.

Zimbabwe land reform programme according to Freeman (2005;162) provided a “wake up” call for South Africa serves as a rallying point to mass discontent and radical mass political in South Africa provides a key domestic vector shaping official policy. The major criticism of the Mbeki government faced was within the Triple Alliance the open support of MDC and ZCTU (Zimbabwe Congress of Trade Unions) by COSATU and SAPC according to Freeman (2005;164) emergency of opposition parties such as the MDC by ANC and other regional leaders was viewed a threat and challenge the existence of liberation parties in Africa and that a credible alternative might emerge within South Africa. Freeman (2005;166) elaborates that Mugabe made a clear mockery to the NEPAD and African Renaissance elements of good governance and peer review put forward in these strategies highlighted the reversion to the sort of politics the concepts condemned. In conclusion the article demonstrates the failure of South Africa in political field but much vocal in the economic sphere. Hegemonic display of South Africa in Zimbabwe situation showed SA’s government authority weak and in ironic and perverse turnaround, Mugabe has so far ended to set the agenda.

SADC; A Development Community without a development Policy
The principal existence of SADC is for implementing economic co-operation, security, regional integration as well as developmental strategies to member nations. This article by Arrigo Pallotti postulates the failure of SADC to fuel its mandatory objective of speeding trade liberalisation as the primary aim of interstate economic co-operation and examines the political ambiguities surrounding the creation of SADC.As Pallotti (2004;515) elaborates the transformation of SADCC to SADC in 1992 after the Treaty of Windhoek the led to the advocacy of a neutral neo-liberal strategy of region integration which implemented trade liberalisation as the main instrument of economic development in Southern Africa.
The SADC advocacy for regional trade liberalisation and economic integration of Southern African countries has been hampered by globalisation and the degree of polarisation that exist between regional nations. According to Pallotti (2004;514) SADC approach of increasing regional integration ignores the notion of inter-state and intra state power relations and putting in place alternative developmental strategies for the developing counties in the region. SADC promoted intra-state relations in the bid to encourage regional integration according to Pallito (2004;514) the governments with the fear of economic marginalisation in the global economy led them to adopt ambitious but vogue integration policies. The initiative move by SADC to implement the SADC Trade Protocol in 1996 Pallotti (2004;516) elaborates it resulted in gradual removal trade barriers among member states in Southern Africa derived from the Trade Development and Co-operation Agreement concluded by the EU and South Africa.

The clause resulted in major debates prior its implementation SA advocated for rules of origin to be involved in the protocol, political tensions surfaced according to Pallotti (2004;518) on the definition of rules of origin of textiles and clothing was the major obstacle to the Protocol implementation. With non SACU-SADC, Zimbabwe and Mauritius arguing with SA terms as they highlighted trade protectionist motives which goes against the Trade liberalization objective of SADC. According to Pallotti (2004;520) the interstate- state political tensions has showed its unable to promote equitable and sustainable development as polarisation of economic and political relations in greatly noted in South Africa.

At the blink of this impulse the emergency of Industrial Strategy in 1996 which according to Pallotti (2004:520) was to compliment the regional trade liberalisation process mainly focused on the polarisation that characterized economic relations in SADC. The advocacy for industrialization for SADC member nations by the draft was seen as ambitious as further polarisation of economic development in Southern Africa and wouldn’t help in to address the inter-state tensions and imbalances that the establishment of free trade was going to bring. Pallitto (2004;522) elaborates that regional development policy implemented SADC has proved unable to agree on a regional developmental strategy that could prompt transformation of the dependent economic structures of countries and have effects on free trade to facilitate economic growth. South Africa hegemonic status in the region can still be noticed as it benefits more from trade at the expense of SADC countries according to Pallitto (2004;523) the inter-state economic relations of South Africa and the region has not reversed which has led to economic disparities among countries.

In conclusion the Pallitto article demonstrates the SADC’s economic development strategies’ failure in furthering economic interests to the rest of Southern Africa as well as continued polarisation of economic development with the SADC member nations.

Bibliography
Ahwireg-Obeng F and McGowan P 1998 Partner of Hegemon? South Africa in Africa; Journal of Contemporary African Studies South Africa
Freeman L.2005 South Africa’s Zimbabwe Policy; Unravelling the Contradictions; Journal of Contemporary African Studies South Africa
Pallotti A: 2004 SADC: A Development Community without a Development Policy Review of African Political Economy No 101:513-531 ROAPE Publications ltd, 2004

Inflation

The Zim economy 100 Billion note during the recession period....

Southern Africa in the new Mellennium.

Partner or Hegemon? South Africa in Africa

Regional and continent economic dominance of South Africa can be displayed with its massive capital investment in other nations. This article questions the notion if South Africa is a partner or hegemon in Africa. According to McGowan ( 1998;6) South Africa has become the largest Republic’s single largest export market in 1993 Africa including four members of the Southern African Custom Union (SACU) accounted for 31,7% of SA exports. In trade South Africa has dominated becoming a significant market for African products according to McGowan (1998;10) Botswana, Lesotho, Namibia and Swaziland (BNLS) in regional trade they totally depend on South Africa and the rest of SACU is a very large market for South African exporters. Trade expansion of South Africa into the continent with trade with non SACU members growing at an outstanding pace according to McGowan (1998;6) with the implementation of GEAR the South African economy has grown remarkably. McGowan (1998;168) ascertains that within the theory of hegemonic assent by Wallerstien South Africa can be classified as semi-peripheral country with market supremacy in the agro-industrial productive efficiency making it possible for the rising hegemon to be the lowest cost producer in other markets.

In Transportation according to McGowan (1998;14) SA retained and enhanced its dominance from the 1980s and 1990s with well established roads, shipment and air facilities best in Southern in Africa. SAA is the largest airline in Africa and containerization system in the shipping industry made the industry best in Africa. Infrastructural development the South African government has been involved in projects across the region that boost their economy according to McGowan (1998;15) gives an example the Cabora Bassa Hydro-electric scheme in Mozambique potential to generate 100000mega-watts is in collaboration with SA in which it will benefit significantly. In telecommunications South Africa according McGowan (1998;15) South Africa is totally hegemonic within Southern Africa as it levelled with Denmark. The South African economy according to McGowan (1998:20) is 3,4 times than the other 11 countries combined and 13,5 times than the region second largest producers Angola with total GDP similar to developed countries. The structural position as South is also beneficial to its economic development s McGowan (1998;20) elaborates the SA occupies a structural position of advantage similar too US in the world economy.

Whilst there is significant evidence those countries landlocked with no direct access of the world market according to McGowan (1998;22) have been incorporated into the South African-dominated regional sub-system SACU are practically economic provinces of SA. McGowan (1998;29) propounds that majority of the private sector enterprise operating in the region are South African creating an enormous opportunity for them to increase their structural power in the policy process.

McGowan(1998;179) quotes Margenthau 1948 as he cites that SA’s regional diplomacy seeks national interests rather than regional security, tight border controls and the aggressive promotion of exports and investment for economic growth and job creation in South Africa it’s relationship would be one of a self hegemon. The SACU and BLNs states have been frequently undermined by SA economic activities as they display their power and strength to sign treaties that affect trading activities. According McGowan (1998;183) SA behaviour since 1994 renegotiated bilateral agreements with other Southern African countries that invariably undermine the integrity of SACU’s customs union. The failure by SA to rectify the Free Trade Protocol was an act to undermine SADC. In conclusion South Africa has shown strong elements of being a hegemon than a partner in SADC region with furthering of domestic issues rather than regional.

South African’s Zimbabwe Policy; Unravelling the Contradictions

Mbeki’s presidency emerged a new era diplomatic relations between South Africa and Zimbabwe. Freeman article demonstrates the contradictions posed by South Africa’s great power status in Africa and its economic strength. According to Freeman (2005;148) the Mbeki administration’s support to Mugabe regime after the controversial land reform and fraudulent elections in 2000 seemed to contradict the essence of the African Renaissance which Mbeki had promised to speared in Africa and also put the question Western support for NEPAD.
Freeman (2005;150) propounds that the support of the Mugabe regime was in the bid to mend the tense and irritated relationship which had developed between South Africa and Zimbabwe in the initial post colonial apartheid phase and Mbeki himself believed in anticolonialism and that Britain never leaved to its promises for funding land distribution in Zimbabwe. The issue of human rights and democracy to denounce ZANUPF government was illogic to Mbeki and other SADC heads of government according to Freeman (2005;151) for Mbeki it was a cover up to seeking regime change and a way for violating Zimbabwe sovereignty. African Renaissance and NEPAD advocated for good governance and democracy was very opposite in with foreign policy implemented by Mbeki. Freeman (2005;155) the anti-imperialist and anti western agenda by ZANUPF questioned the very existence of the implementation of NEPAD and African Renaissance. Freeman (2005;158) emphasis that the reason Mbeki support for the Mugabe government was in the politics of identity that emerged in the liberation struggle and the emergence of MDC (Movement for Democratic Change) was labelled a western agent there derail the gains of the liberation struggle in Zimbabwe.

Zimbabwe land reform programme according to Freeman (2005;162) provided a “wake up” call for South Africa serves as a rallying point to mass discontent and radical mass political in South Africa provides a key domestic vector shaping official policy. The major criticism of the Mbeki government faced was within the Triple Alliance the open support of MDC and ZCTU (Zimbabwe Congress of Trade Unions) by COSATU and SAPC according to Freeman (2005;164) emergency of opposition parties such as the MDC by ANC and other regional leaders was viewed a threat and challenge the strength of trade union support for opposition in Zimbabwe suggests that a credible alternative might emerge within South Africa. Freeman (2005;166) made a clear mockery to the NEPAD and African Renaissance elements of good governance and peer review put forward in these strategies highlighted the reversion to the sort of politics the concepts condemned. In conclusion the article demonstrates the failure of South Africa in political field but much vocal in the economic sphere. Hegemonic display of South Africa in Zimbabwe situation showed SA’s government authority weak and in ironic and perverse turnaround, Mugabe has so far ended to set the agenda.

SADC; A Development Community without a development Policy

The principal existence of SADC is for the implementing economic co-operation, security, regional integration as well as developmental strategies to member nations. This article by Arrigo Pallotti postulates the failure of SADC to fuel its mandatory objective of speeding trade liberalisation as the primary aim of interstate economic co-operation and examines the political ambiguities surrounding the creation of SADC. As Pallotti (2004;515) elaborates the transformation of SADCC to SADC in 1992 after the Treaty of Windhoek the led to the advocacy of a neutral neo-liberal strategy of region integration which implemented trade liberalisation as the main instrument of economic development in Southern Africa.

The SADC advocacy for regional trade liberalisation and economic integration of Southern African countries has been hampered by globalisation and the degree of polarisation that exist between regional nations. According to Pallotti (2004;514) SADC approach of increasing regional integration ignores the notion of inter-state and intra state power relations and putting in place alternative developmental strategies for the developing counties in the region. SADC promoted intra-state relations in the bid to encourage regional integration according to Pallito (2004;514) the governments with the fear of economic marginalisation in the global economy led them to adopt ambitious but vogue integration policies. The initiative move by SADC to implement the SADC Trade Protocol in 1996 Pallotti (2004;516) elaborates it resulted in gradual removal trade barriers among member states in Southern Africa derived from the Trade Development and Co-operation Agreement concluded by the EU and South Africa.

The clause resulted in major debates prior its implementation SA advocated for rules of origin to be involved in the protocol, political tensions surfaced according to Pallotti (2004;518) on the definition of rules of origin of textiles and clothing was the major obstacle to the Protocol implementation. With non SACU-SADC, Zimbabwe and Mauritius arguing with SA terms as they highlighted trade protectionist motives which goes against the Trade liberalization objective of SADC. According to Pallotti (2004;520) the interstate- state political tensions has showed its unable to promote equitable and sustainable development as polarisation of economic and political relations in greatly noted in South Africa.

At the blink of this impulse the emergency of Industrial Strategy in 1996 which according to Pallotti (2004:520) was to compliment the regional trade liberalisation process mainly focused on the polarisation that characterized economic relations in SADC. The advocacy for industrialization for SADC member nations by the draft was seen as ambitious as further polarisation of economic development in Southern Africa and wouldn’t help in to address the inter-state tensions and imbalances that the establishment of free trade was going to bring. Pallitto (2004;522) elaborates that regional development policy implemented SADC has proved unable to agree on a regional developmental strategy that could prompt transformation of the dependent economic structures of countries and have effects on free trade to facilitate economic growth. South Africa hegemonic status in the region can still be noticed as it benefits more from trade at the expense of SADC countries according to Pallitto (2004;523) the inter-state economic relations of South Africa and the region has not reversed which has led to economic disparities among countries.

In conclusion the Pallitto article demonstrates the SADC’s economic development strategies’ failure in furthering economic interests to the rest of Southern Africa as well as continued polarisation of economic development with the SADC member nations.


Bibliography Ahwireg-Obeng F and McGowan P 1998 Partner of Hegemon? South Africa in Africa; Journal of Contemporary African Studies South Africa
Freeman L.2005 South Africa’s Zimbabwe Policy; Unravelling the Contradictions; Journal of Contemporary African Studies South Africa
Pallotti A: 2004 SADC: A Development Community without a Development Policy Review of African Political Economy No 101:513-531 ROAPE Publications ltd, 2004

Chang’s (2003) argument about role of state in developing economies.

• 1. Introduction

There is much controversy over the government’s role in developing the country’s economy, views ranging from developmental state and laissez-faire. Since the failure of several nations (particularly in Africa) to develop despite extensive government involvement, more market-friendly approaches have been advocated and preached for the last couple of decades, yet there is little sign that this has the ability to move countries up the ladder either, and so the debate continues.

It will be argued in this essay that industrial policies have worked and that there is a case for industrial policies and an active government role in the development of a country. Yet it will be recognised that there are problems that will have to be overcome. The issues at hand are not simple and straightforward.

Firstly, the reader will be introduced to what industrial policy is and what the different policy tools that have been used are. The second section will look at the empirical evidence for and against industrial policies working as a catalyst for economic development, and inspect the problems of market failure, in short the section will examine the case for industrial policy. Finally, the question about government failure will be raised. Is the government able to solve market failures despite its problems?


2. What is industrial policy?

Before any debate on industrial policy can start, defining the concept is of importance. Chang (1994:59-60) discusses several definitions, finding them too broad and general he settles down for the much narrower definition that industrial policy. is “a policy aimed at particular industries (and firms as their components) to achieve the outcomes that are perceived by the state to be efficient for the economy as a whole” (Chang, 1994:60).

“Perceived” needs to be emphasized as this gives room for the failure of governments if there is a gap between the perceived and the actual efficient outcomes, and “the economy as a whole” means that there is room for industrial policies to reduce efficiency in some area of the economy at some time, if it is perceived that there is/will be a net gain in the economy as a whole.

The definition given by Chang still allows for a wide variety of industrial policies. Just to give the reader a taste of the wide range of policy tools available, some few of the means by which states have used industrial policy are listed below:

• Tariffs (import substitution) and taxes
• Local content requirements (ownership and inputs)
• Discriminating interest-rates
• Direct subsidies
• Investment guarantees
• Sector-specific skills development and R&D


3. Why Industrial Policy?

3.1 History and Empirics: Has it ever worked?

Considering the heated debate surrounding the viability of industrial policies as a tool to achieve industrialization, a natural starting point would be to examine history in order to uncover the empirics of success and failure of industrial policies. Have such policies ever been able to assist development?
Lal (1983:71) claims that there have been no countries that have achieved higher growth as a result of industrial policies. Countries having employed industrial policies and developed have rather done so despite of industrial policies implemented. He goes further and states that countries that maintained free trade regimes have consistently outperformed those who intervene in markets through the use of industrial policies. (Lal:1983:71). However, Lal fails to give one single example and thus his claims are not substantiated.

Along the same lines, Krueger (1990:12) argues that there are no evidence that living standards were falling in developing countries prior to 1950 and that the deterioration happened post 1950’s when government intervention was high. From this she concludes that intervention in the market is a hindrance to development.

Note however, that from the statement “there is no evidence that living standards were falling” it does not logically follow that living standards were actually not falling. The lack of evidence might just be due to the lack of data, reliable data is notoriously hard to get in developing countries even in today’s world. In addition to this, Krueger does not present any evidence that living standards were rising either in the period prior to 1950.

Furthermore, to claim that developing countries were in the utopia of laissez-faire prior to 1950 is a crude statement considering the fact that several (in fact almost all African) countries were under the rule of colonisation during that time, subject to severe trade-restrictions and often exploited by monopolies from the “mother countries”.

Despite the weakness in the above claims made by Krueger and Lal, there is some truth in saying that industrial policies have failed in developing the economies of many countries, in particular African countries.

Import-substitution and trade taxes amongst other interventions were heavily used in African countries with disastrous results. It becomes clear that industrial policy, like text-book free-market economics, is not all that simple in reality. There are however cases where industrial policies have been implemented and the desired results were achieved.

Chang (2003), in direct contradiction to Lal claim that all the developed countries preaching free-trade today were built upon industrial policies. In his book “Kicking away the ladder”, Chang extensively discuss several case-studies and presenting data on previous tariff levels of the then industrialising countries, and it is worth noting the highly involved governments of the United Kingdom and the USA.

More recent famous cases of countries successfully implementing industrial policies are Japan and Korea with their governments’ close collaboration with the industrial entrepreneurs, and Norway’s local content requirement with respect to the oil-industry, spurring national research and technological innovation in this field, moving the country up to higher technological production.

Compared to Lal’s sweeping statement, Chang’s detailed investigation to the former policies of developed countries should be given weight. It should at least be accepted that industrial policies have worked and can work in some instances. The question at hand is thus not whether the use of industrial policies are good or bad, but rather what industrial policies are needed for success.


3.2. Theoretical Justifications and market failures:

This section will mainly draw on the ideas from Chang (1994) and Rodrik (2004) about the failures inherent in the market and thus the necessity of government intervention.

3.2.1. Coordination problems of the free-market economy

The kernel of this type of failure is that ex-ante coordination problems create efficiency losses to the economy.

In the perfect decentralized model it is assumed that firms can enter and exit markets without incurring a non-recoverable loss (waste) and that there is no interdependence amongst firms. If there are profits to be made, firms will enter the industry, perhaps more than what is viable, but this will only mean that the least productive firms will go bankrupt and leave the industry, leaving the market to clear at the most efficient outcome. The market corrects itself ex-post, so there is no need to correct for coordination failure (excess firms entering the industry) ex-ante by the government.

In real life however, investments in a bankrupt firm cannot be “instantaneously and costlessly shifted to other activities” (Chang: 1994:65). Due to this fact, the markets ex-post correcting mechanism for the coordination failure is sub-optimal, since this will incur a waste in the form of “asset specificity”, i.e. investments made into assets that cannot be shifted to other industries. Only ex-ante correction of the coordination failure will ensure that there is no waste incurred by bankrupt firms. It is for this reason government intervention is needed in order to ensure that there an optimal number of firms entering the industry.

Investment coordination is needed to avoid both over-investment and under-investment. Due to the fact that firms know they may face irrecoverable losses in terms of specific assets, they may be too risk weary to enter an industry, and this could lead to under-investment in the industry. If there are too many firms entering the industry, competition will force some firms to exit, thus resulting in their specific investments being wasted. The government can in these circumstances facilitate and settle private bargaining among potential entrants. Another method to coordinate entry is to implement “conditional entry”. By this it is meant that new potential entrants will only be allowed to enter the industry if there are increases in demand, so called production licenses will have to be given (Chang:2002:66-67).

If demand was to decrease, thus shrinking the number of optimal firms in the industry, the government needs to step in to ensure that specific asset investments are not going to waste. This has been done in Korea and Japan by the government creating recession cartels (during temporary falls in demand) and negotiated exit (for more permanent recessions).
In a recession cartel, the firms agree to reduce their supply for some time, thus allowing all the firms to stay in business, and hence no exit-waste. These types of cartels are justifiable since the more exit there is of firms the greater power the firms left will have, and it could even lead to a monopoly situation (Chang: 1994: 67).

In some instances, there is a need for firms to exit even if it causes some waste, such as if the fall in demand is permanent. However, if some firms exit (incurring a loss), the remaining firms will profit. This will lead to no firm wanting to be the first to leave the industry. This dragging out of the inevitable scenario results in everyone being worse off. The excess supply may cause the price to plummet, and all firms may be able to go on for some time at a loss, but eventually some firms will go bankrupt being forced to exit and thus still incur a loss of investment. If exit must happen, it should happen as soon as possible. The government can arrange compromises between the firms, in order to generate voluntary exit from the industry, for example by ensuring that the remaining firms pay compensation to them (Chang:1994:69).

3.2.2 Vertical Investment Coordination
When it comes to investing in new a new industry, although it may be potentially profitable, entrepreneurs may be unwilling to enter the industry if the profits depend on investments being made by other actors. It can be illustrated as an assurance game, where all actors along the vertical chain wish to invest if the others do so, and not to do so if others do not (as the profits depend on all investments being made). There are two equilibria in this game, where the Pareto optimal is [invest, invest], yet the economy is often stuck in the lower equilibrium where no-one invests, since there is a clear first-mover disadvantage.

Here the government has a vital role to play. It can create a focal point by announcing plans and encourage the different actors to invest, perhaps by offering preferential interest-rates on loans for investment in the desired areas (Chaudhuri: 1990: 32). A key characteristic of the game described above is that the risks and costs are borne by the individual but the benefits generated are enjoyed by others too. Thus socialisation of the risks, such as investment guarantees (where the government guarantees to cover losses of investment of a firm who takes the initial step, if other firms don’t follow suit and profits are not realised) is a good way of inducing investments (Rodrik: 2004: 14). If the government does not intervene in these circumstances, economic change may never happen (Chang: 1994: 76-79).

The example of the Taiwanese orchid industry given by Rodrik (2004) would serve well here. The orchid industry has proved to be profitable, however it is doubtful that they would have ventured into this area if the government had not ensured that all complimentary investments had been made, such as the availability of irrigation, logistics and transport networks, electrical grids nearby, quarantine, marketing abroad and so on (Rodrik:2004:12).

Another problem with investments into new industries, like the one described above, is that it is unknown territory. With no previous prices and costs known to entrepreneurs, it is not possible to know ex-ante whether a particular industry is going to be in a country’s comparative advantage. Thus, without being able to refer to costs and prices, this uncertainty will deter investment into un-ventured industries. The government must be involved in a process Rodrik refers to as “self-discovery” (Rodrik:2004:12). If one industry proves to be unprofitable, the resources devoted to the “experiment” have not been a waste, since self-discovery is not merely about finding profitable industries. Rather, self-discovery is a learning process aimed at increasing the level of information for entrepreneurs. Hence the government must provide support for entrepreneurs to enter industries with unknown parameters so that they can fully exploit all potentially successful industries.


4. Perceived problems with industrial policies:
There are several problems associated with industrial policies, but due to the limitations of this paper, only the main and most serious criticism will be dealt with in this section, as well as responses to these objections.

4.1. Information failures
In a sense the problem of information failure can be divided into two categories:
4.1.1. Insufficient information.

This objection to industrial policy usually argues that the government will not be able to overcome market failure as they posses no more information than economic agents. If the government does not posses perfect information then they will not be able to plan correctly, hence the industrial policies implemented will be inaccurate and not induce efficiency gains.

However, as Chang (1994: 80) writes, having insufficient information is not really an obstacle to planning, uncertainty is the core reason for why we try to plan in the first place. If everyone had perfect information, planning would be redundant.

Furthermore, considering that business do not possess perfect information either, it is hard to see why this argument (of government possessing insufficient information) gives weight to the statement that businesses should be in charge of planning. At the most, it could be argued that neither government nor business are better than one each other in planning for the future, but not that business are better equipped than the government to do so.

4.1.2. Asymmetric information.

The argument against industrial policy based on the belief that there is asymmetric information between firms and government and that this lack of “local information” possessed by firms cause the government to be less able to make appropriate decisions regarding the efficiency of the economy.
Again, Chang replies to this that asymmetric information is a problem that everyone has to deal with, between the government and firms, amongst firms and even within firms. Yet economic agents can function and overcome these obstacles, there is no reason why the government should not be able to do so either. Furthermore, this problem persists in all areas of activity between any agents, so if one wish to believe that this argument is strong enough to dismiss industrial policy then one must also be prepared to dismiss all sorts of policy, as other areas will also be suffering from the problem of asymmetric information (Chang:2002:82).

4.2. Government failures:

4.2.1 Rent-seeking, corruption and weak political will.
A very common line of criticism towards industrial policy and government intervention is the propensity for these to generate rent-seeking and making the government and its bureaucrats prone to corruption. A country with weak political will or with underpaid bureaucrats and politicians may not be able to withstand the pressure from industries’ interest groups to prolong protection or other (intended temporary) support offered by the industrial policies (Pack: 2000: 64). This would result in the industries remaining inefficient and never build their competitive edge up as preached by developmental states. The result is a perpetuated drain in resources, a waste and lack of an efficient industry.

All though the point above is valid, it is important to realise that the problem here is not with the industrial policies, but with other political factors. The conclusion should not be to avoid industrial policies, but rather to emphasize and build strong institutions and regulatory system of punishment and rewards. As Chang (1994:84) puts it, the state needs to set a strict set of performance criteria that needs to be met, and the state needs to have a punishment mechanism available to deter firms resisting the termination of certain policies intended to be temporary. If the government can make such threats credible, firms will not slack off during the period of protection, but instead bolster their competitive edge up as much as possible (which is the ultimate goal of industrial policies).

Furthermore, although protecting the industry from excessive competition from abroad, it does not mean that all competition is banned from the industry. The state could ensure that there are enough domestic firms to generate moderate healthy competition, perhaps allowing the firms to compete for future protection, where the government will provide support for a group of best performing individual firms rather than the industry as a whole.

The situation of rents in the case of industrial policy is similar to that of rents accrued to a patent holder. In the patent holder case there are often strong set of rules dictating how long the patent holder is protected that are rigid. Institutions preventing excessively prolonged protection as a result of successful lobbying by interest groups could be built using the patent laws as a model. Patents are even promoted by neo-classical economist as innovation is important, if it is possible to create a balance between incentives and restricting monopoly power in the patent case, then there is no reason to believe this can’t be done in the case of industrial policies either.

Lastly, as Rodrik (2004:37) points out, rent-seeking behaviour can occur with any type of policy, even those regarding macro-economic fundamentals such as privatisation, and is thus not restricted to industrial policy, yet there is much reluctance to accept this. One can thus not argue that industrial policies must go out the window while maintaining that the government has a role in creating other necessary macro-economic policies.

4.2.2. Comparative advantage of the government

Krueger (1990:17) argues that the government has a comparative advantage in providing and devoting resources towards macro-economic fundamental policies (such as building schools, improving infrastructure and communication amongst other things), and should not devote its time allocating investment in terms of industrial policy. If you have a comparative advantage in something, then you spend your resources more efficiently doing that than anything else, thus the government is generating inefficiency when committing itself to industrial policy as it distracts resources from where they would be most effective: macro-economic fundamentals in accordance with the Washington Consensus.

Krueger’s argument is logical, yet the premises on which it is built are weak. What is it that makes the government have a comparative advantage in dealing with macro-economic fundamental policies more than it can deal with industrial polices? No explanation or evidence is given for this claim, and there is no reason to believe that the government is more competent in investing in infrastructure and education than it is in investing in its other industries, so the argument above cannot be considered a valid criticism towards industrial policy.


5. Conclusion
At the end of this paper, we should summarize the questions raised and look at the answers we have found. Do industrial policies work? History tells the tale of many successful uses of industrial policy, yet also of some failed attempts. It is fair to say that industrial policy can work.

The theoretical insights made by Chang (1994) show that the market posses some inherent flaws that need to be resolved in some way or another. In the face of the problems inhibiting today’s developing nations, is it plausible to believe that they can overcome the government failures so to be able to use their state as an effective policy maker with the interests of the economy in mind? Some countries managed to do so, others have not. This highlights the significance of the context in which the policies are implemented, as policies need to be shaped accordingly.

It is at this stage important to ask the question -What are our options? Should we abandon industrial policy (and all other policy making for that sake) if we run into challenges, and turn to the just “do nothing” option and let a flawed market take care of things? Krueger (1990) and Lal (1983) both claim that government failures are more sever than market failures, yet they both omit to explain or prove why this is always so. It is not implausible to believe that the magnitude of the two failures will differ from case to case? Too often, academics decide on an ideology or position they want to hold a priori, and then look for arguments supporting, instead of taking a long good look at the evidence at hand and then decide on the opinion to hold. The neo-liberal position is filled with an irrational state-phobia.

The new theoretical work on market failure tells us there is a case for industrial policy and government intervention. History and empirics tells us it has been done successfully. Industrial policy can thus be viewed as a necessary but not sufficient condition for achieving economic development and efficiency.

Instead of giving up all together on industrial policy when it runs into problems, lets recognize the need for more objective research on the topic, focused on the conditions that make industrial policy work and how these can be achieved, rather than engage in an endless debate on whether it is a “growth elixir or poison” (Pack:2000).



Bibliography

1. Chang, 1994 “The political economy of industrial policies”

2. Chang, 2003. Kicking away the ladder, London, Anthem.

3. Chaudhuri, M. 1990. “Market failure and government failure” in Journal of Economic Perspectives vol.4 no.3

4. Kreuger, A. 1990. “Government failure in development” in Journal of Economic Perspectives vol. 4 no. 3

5. Lal, 1983. “Industrialisation and Planning”

6. Pack, H. 2000 “Industrial Policy: growth elixir or poison?” in The World Bank Observer vol. 15 no.1

7. Rodrik, D. 2004. Industrial Policy for the 21st Century