Is a Coordinating Role for the Department of Economic Development Enough?

By Ebrahim-Khalil Hassen · 18 Dec 2009

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Picture: Kool_Skatkat
Picture: Kool_Skatkat

A central message from government since the 2009 elections is that the "economy needs coordination."

To this end, in addition to the already existing National Treasury and the Department of Trade and Industry, government has created the Economic Development Department (EDD). The creation of the EDD recognises that departments such as communication, agriculture, arts and culture and science and technology all play important roles in the economy. In addition, the restructured Presidency, with two new ministers responsible for planning and performance monitoring, respectively, will have a say on economic policy.

Thus far the debate has focussed on the relative powers between these different government departments in relation to economic policy. In the seven months since the elections, whilst clarity has emerged about what the new ministers in the presidency and several other line departments are working on, the same cannot be said of the EDD. This is partly due to the long process of setting up an administration. However, there is potentially a bigger debate on the role of the EDD that has, as yet, not surfaced in public discourse.

This debate has two poles with many options in between.

On the one hand, it seems likely that the EDD will focus on coordination only. Classically, this role would entail economic modelling, social dialogue and using levers such as tariffs to bring about economy wide changes. This model would, however, exclude the direct delivery of economic development projects.

The central advantage of this model is that a strong focus on coordination would allow for linking macro and micro economic planning and through this begin to nudge the economy towards greater labour absorption. In addition, economic inclusion can be achieved through social dialogue akin to some kind of national social compact. This is the model that seems to be guiding the finalisation of plans for the EDD.

On the other hand, there is the remote possibility that the EDD could seek to support new experiments in economic inclusion by directly running and managing projects. Such a stance would entail a more modest vision for the EDD, as it implicitly acknowledges that we need to learn a great deal about 'what works' and 'what does not' in economic inclusion.

However, a major advantage of this stance is that economic planning would be taken out of the realm of economic modelling and placed front and centre in the power relations embedded within markets. Through such programmes, often in partnership with other line departments, we could be learning 'what works' and 'what does not'.

Moreover, this approach would take as a foundational assumption the fact that the package and tools currently available are inadequate to create an economy that is more widely shared, including one that provides sufficient jobs with good salaries to break poverty. This model seems to have fallen by the wayside, but could be the basis for economic coordination aimed at breaking economic exclusion.

Yet, even if there is wisdom in the EDD opting for a more 'hands-off' approach, somewhere in government there needs to be a role for a disruptive and imaginative approach to economic development for three related reasons. 

Firstly, whatever macroeconomic parameters are set, current dominant economic interests are uniquely placed to adapt and respond. At the same time, smaller players in the economy will be unable to position themselves to take advantage of any changes in economic policy. 

So under the ruse of change, macroeconomic changes are likely to perpetuate current power relations within markets. In particular, this is because an underlying assumption in the debate on industrial policy is that large firms will lead exports and in this way create viable markets.  The outcome, it is argued, is better quality jobs.

Whilst there is certainly a role for improving the export competitiveness of firms in South Africa, through for instance currency pegging, this also means making an implicit deal with dominant firms in various value chains -- that as part of a commitment to opening markets; their contribution would be 'increased employment'.

Even if this outcome is achieved, the impact on structural unemployment is likely to be negligible -- and this brings us to the second reason why economic experimentation is needed, which is that currently the distance to 'economic inclusion opportunities' is wide and probably widening for the already excluded.

Labour market data demonstrates this. With around 1,5 million unemployed graduates in South Africa, it is evident that having a tertiary level qualification is not a guarantee of employment. There are important arguments to suggest a mismatch between the skills of unemployed graduates on the one hand and the requirements of industry on the other. Obviously these gaps need to be closed.

However, are we not implicitly treating these unemployed graduates as passive economic actors waiting for firms to provide opportunities? It would, for instance, be plausible to set up a national scheme to increase the skill levels of these graduates by expanding internships in the public service and/or to create a system that supports the creation of small businesses for them.

Philosophically and practically this would require a fundamental shift in how we conceive of economic interventions. It is a stance that is more deliberate, more disruptive and seeks to shifts power relations by creating a more democratic economy.

Arguably though, unemployed graduates are in a better position to enter employment than the vast majority of unemployed youth. Analysis of youth unemployment indicates that about 70% of unemployed youth (under the age of 35) have never worked before. There is an important recognition across the ideological spectrum that this constitutes structural unemployment. Yet this recognition has, as yet, not translated into public policy. In fact, programmes aimed at addressing youth unemployment are scattered, lack funding and political support. Currently, nothing is in place, even with the restructuring of youth programmes in governments.

For both graduates that are unemployed as well as the unemployed without an education, a department like Economic Development could be leading the way towards opening up opportunities.  This requires a different stance for coordinating the economy. It requires experimentation. In turn, this would require an operational arm in the EDD for it to successfully play its role of ensuring that microeconomic reforms are more labour absorbing. 

Thirdly, without an operational focus, the EDD will not be able to support local economic development initiatives and practitioners in South Africa. There are a multitude of local governments, businesses, NGOs and trade unions doing small bits and pieces to create skills, employment and economic opportunities. Very often these initiatives are small and local. Yet, it is precisely such projects that require an amplification of voice as they potentially constitute a powerful force for economic inclusion in South Africa. 

But the structures of government currently fail to amplify these voices because these initiatives cannot find a strong political home.

The EDD should provide this home. Without a focus on actual projects, it will find it extremely difficult to connect with local projects both in civil society and in government. And practitioners are likely to be frustrated by a coordinating function that, effectively, will not create the one stop shop needed to sustain their projects. For instance, savings clubs or stokvels are currently seeking ways to enter into productive economic activity. They will fail to find a home in government if the EDD is focussed on coordination, economic modelling and social dialogue. 

Why then would the EDD focus on coordination only? The most obvious reason is that line departments would argue that it is their mandate to implement projects. In turn, the EDD would support this view and seek to coordinate what exists.

Sadly, this consensus is likely to lack the disruptive impulse necessary to create opportunities for the excluded and will fail to get a series of experiments going that could break structural exclusion. In so doing, the learning that is needed to scale up viable economic inclusion projects will not be achieved. This could be the central input into developing a broader national plan.

Consequently, there is likely to be disappointment when the structure and programme for the EDD is ultimately announced. Activists in civil society would however still need to find ways to provide voice for economic exclusion, even if the structure and mandate of the EDD is likely to be significantly less than was once anticipated. 

Hassen is the founder of Zapreneur and Proposal Desk, both websites aimed at answering the question, "Can the Internet help South African small business?"

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