The New Growth Path and the Three Elephants in the Room

By Saliem Fakir · 19 Jan 2011

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Old political-economy problems always nibble at the feet of new aspirant runners. These problems are systemic and get carried from one era to another despite the changing face of political players. 

In the last 15 years, South Africa rode the economic wave on the basis of a commodity boom, consumption driven growth and the financialisation of our economy via stock speculation, property bubbles and other ways of sourcing unearned income. The real economy showed little traction other than what was already in place.

Fifteen years is a lot of time to lose. If we look back we may ask ourselves, “Where did we spend all our effort and who has benefited the most during this time?”

The fact that the development dividend never really materialised speaks to both state failure and market failure.

State failure was typified in the sense that state-owned enterprises (SOEs) played the reluctant role of development agents as they fell over their feet to emulate private sector models (at the same time suffering from maladministration, waste, subversion of corporate governance, power struggles and managers caring more for their glamorous images and fringe benefits than service to community).

The pressure for SOEs to be genuine development agents hardly came to be, as efforts in this direction were never really enforced.

The private sector’s contributions to development sufficed, at least in some quarters, as being notionally about paying taxes (happily recouped via the backdoor by cutting labour costs, monopolistic pricing and extraction of rents thrown the consumer’s way).

The New Growth Path (NGP) implicitly and explicitly acknowledges these failures and is in haste to fill the gap by seeking to drive growth in jobs via the creation of new sectors as well as lifting the energy of old, sluggish and declining sectors and industries. It’s a race against time.

The sentiment of the NGP is in the right direction. No more of that financialisation and consumptive driven stuff to get things going in the real economy while simultaneously committing to building our long-term capabilities, and endorsed by none other than Nobel Laureate, economist, Joseph Stiglitz.

But the NGP also got a taste of “rough politics” soon after it was released for public comment.

Old friends, such as COSATU, decried it for lacking a more consultative process in its early stages of development as well as for not having a comprehensive and far reaching enough vision.

The private sector decried it for increasing the creep of government on the economy and proposing a wage cap, which also seems to be getting an inordinate amount of media attention.

There was hardly anything new in the howls of the private sector, packed with the usual empty rhetoric, the persistent mythology about fail-safe markets and self-righteous admonitions about the sins of too much state. 

First Elephant in the Room: The Skills Deficit

The NGP’s ask is a tall order: five million decent jobs by 2020. And that too will only bring down the jobless numbers from 25% or so to 10%, assuming all goes to plan.

Nevertheless, the NGP appears to overlook the first elephant in the room, which is the recognition that not everybody will be or is employable in the formal economy.

Ideas for what to do with the surplus of bodies are in short supply. 

Above and beyond this, the placing of large swathes of citizens on permanent welfare through grants isn’t exactly “development.” Even though it aids the cause, it merely points to the failures of the last decade or so.

While South Africa continues to be rich in natural resources, its human resource capacity remains poor in many areas where new growth opportunities lie. This increases our dependence on private firms, as well as foreign state enterprises, foreign skills and foreign capital.

This question of foreign involvement through skills, investment and access to markets will be one of those elephants in the room that will no doubt pit government, business and labour against each other.

Second Elephant in the Room: The National Passion for Rent Seeking

The wage cap debate that the NGP elicited raises the problem of the second elephant in the room: the national passion for rent seeking. This is not only the preserve of the private sector, but seemingly also rife in state institutions.

It is no surprise that some corporations were caught out by the Competition Commission for monopoly pricing and creaming their market advantage in the essential services and goods sectors. Rent seeking exploded at the same time as economic growth and the slow stagger into a period of inflation also lent a helping hand to sneak profits under the cover.

Pioneer Foods was a good case in point, squeezing every loaf of bread for more cents from constituencies that are the most vulnerable and dependent on a staple food product, while management simultaneously gave themselves lavish bonuses. There was no development dividend here, just exploitation of market advantage. 

The national sport for personal accruement exceeds the ability to tame it. It is daily flashed in our faces, as a form of mocking, from political to corporate echelons and from minor misdemeanours to the outrageous. The slow march into a parasitic economy poses the biggest threat to the vision of the NGP.

Changing this ethos is more likely to shape our shift away from the quick descent into self-interest to self-sacrifice.

Third Elephant in the Room: A Dysfunctional Economy

The NGP lacks a crisp distillation of what the current economy needs to shed or shrink, as its long-term viability has come into question. What, from the old economy, needs expansion and boosting? What needs repair in terms of infrastructure and new investments? Which new sectors need to be identified and prioritised for industrial development?

These distillations would also define the nature of capital mobilisation, highlighting ways to make private capital part of the national project in a progressive way.

The agricultural, mining, fishing, and other traditional high job creation sectors still hold promise, but are either caught up in bureaucratic wrangles, corruption, complacency and/or conflicts over rights and access without development support.

Breaking this logjam and inertia is a Sisyphean task. It is something that needs to be worked out over time through a combination of sanction, incentive and encouragement to nurture the latent willingness to make a contribution as part of national duty.

Traditional sectors themselves will have acquired stronger capability because of their maturity, but new growth can also be spurted by remedying problems of expansion, broadening ownership to more productive previously disadvantaged entrants, building better linkages across sectors or within the sector itself between different parts of the value chain, ensuring efficiency and productivity, lifting barriers imposed by new rules and drastically reducing the misallocation and wastage of capital.

Other sectors that rely on special skills, knowledge, managerial expertise and capital will not come just at the blink of dawn. These are tougher to crack but can be built slowly around new infrastructure investments (like elements of the green economy that the NGP talks about in the energy sector). There will be a need for patience and lots of trial and error.

Given the effort required to create new industrial sectors, it precludes the possibility that the state can facilitate everything and be everywhere just because of the sheer scale of the issues and depth of concentration required.

The flooding of effort into all fronts in the panic for success may prove to be the Achilles heel of the NGP. It is the peril of all grand plans – going wide and big because many voices need to be satisfied but really struggling to get out of the starting blocks because the demands overstretch the early enthusiasm and proposals.

Fakir is an independent writer based in Cape Town.

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Catherine Wijnberg
19 Jan


Good thought provoking article - perhaps you miss an opportunity to enquire where the money will come from to fuel this development? We have squandered 15 years of national income that should have been set aside for future building - good old R&D in the economy. In fact we have overspent and not saved both as a people, and as a country. Oops. Now what?

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21 Jan

A Hardheaded Examination of Some Real Issues

Yes, a thoughtful and insightful piece. There's a lot of fanciful stuff written one economics and, on the other hand, a lot of stuff that is not imaginative enough. This piece poses some practical issues and does so very well.

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