Human development and the productivity debate

For the sake of understanding where South Africa features internationally on the scale of ‘human development’ and ‘productivity’ it is worthwhile taking note of the research of G.M. Meier and J.E. Rauch116. Based on empirical research, countries are compared mainly on a per capita Gross Domestic Product (GDP) earning, expressed in US Dollars. The higher, or the lower per capita income is accordingly used to interpret the level of a country’s development programmes. A correlation between the price of commodities and services is observed – the poorer a country, the cheaper its labour117. According to the findings of Meier and Rauch (supported by independent findings of the World Bank and the International Monetary Fund), South Africa falls into the category of medium human development countries”118 and is therefore also categorised as being a “less developed country”.

Meier and Rauch119 quote from the research work of Adam Smith’s “progressive state”, where the observation is made that there is a direct correlation between the levels of skills, dexterity and judgment, and the level of proportional deployment of the labour force in useful and non-useful employment.

Accordingly, it was found that the major sources of growth were (i) the growth in the labour force and stock of capital and (ii) improvements in efficiencies with capital application to the labour component through greater division of labour and technologies, coupled with (iii) foreign trade that widens the market and reinforces (i) and (ii) as a result. The common view is, when once begun, this growth process becomes ‘self-reinforcing’ in a progressive state, as long as such growth favours profit and savings, which in turn create additional capital accumulation. With capital accumulation the demand for labour increases and is absorbed into productive

116

Meier, G.M. and Rauch, J.E. 2005. Leading Issues in Economic Development, OUP. Chapters i-iv.

117 _{Author’s note: This observation is also very true for South African Industry expected to compete with countries with “cheaper labour} costs”, especially in Eastern Europe and Far East.

118

ibid pp22 and 32 119

employment, leading to improved efficiencies and increased specialisation, with a resultant rising per capita income120_.

It is relevant to note the “accumulation” observations as quoted from the works of Bela Balassa121 on the topic of import-substitution industrialisation and the consequences of overriding market signals, that he concurs that if accumulation proceed far enough, that domestic production (as a primary import substitution imperative) can be profitable even at international prices. However, at the second stage of competitiveness, he states that it becomes more difficult due to the efficiency scales of capital-intensive, versus labour-intensive industries122.

Domestic markets are traditionally too small to support the efficient levels of plant size and horizontal and vertical specialization to protect industries in this second phase of import substitution, making international cost competitiveness and the consequent ability to export a cardinal imperative123. The latter is specifically true as related to the SA government’s decision in 1999 to procure relatively small quantities of sophisticated defence equipment from abroad.124

It is subsequently concluded that considerations for “global commodity claims” are enhanced through international trade, which in turn contribute to more direct contact and exchanges in skills and technologies, with resultant foreign direct investment, especially between the developed and lesser developed countries, as was caused by the DIP process, as explained chapter 7.

The observations made by Meier and Rauch in their analysis of the “typology in development theory” and subsequent findings on the issues of shifting from “primary import substitution” to “primary export substitution”, state that the following 120 ibid 121 ibid p135 122

Author’s note: This observation is particularly true for the local DRI, as local demand is driven down by budgetary constraints in the DoD’s budget, which forces the DRI to export in order to be sustainable.

123 _{Author’s note: The local DRI (especially Denel with its vertical integrated cross divisional supply structures) had found it particularly} difficult to be competitive in the field of lower end manufactured goods.

124

The Strategic Defence Package Deal – commonly referred to as the SDP in Dec 1999, involving corvettes submarine aircraft and helicopters.

constraints have to be overcome: (i) the resistance from industrialists to move from certain large unit-profit rates on fairly small domestic demand, to much more uncertain smaller unit-profit rates, but on much larger export volumes (ii) the civil service that is threatened by a reduced power of control and (iii) organised labour watching wage rates more than the wage bill125.

Meier and Rauch observe that countries with industrial protectionist policies (aimed at import substitution) become less competitive as such protectionist mechanisms cause an estimated price increase of six to seven percent of Gross National Product (GNP). Another result indicates levels of lower productivity, supported by empirical evidence that countries applying a more outward-orientated development strategy perform better in terms of exports, economic growth and employment126.

Looking at their economic and development case studies127 on Taiwan and South Korea, they conclude that there remains a case to be made for government intervention, which can take many forms. The view is expressed that policy-makers can coordinate private-sector production and investment decisions through credit control, tax incentives, trade policy and “administrative guidance”. Resultant government investment subsidisation in “modern sectors” of the economy results in large pay-offs, especially evident in the cases of the two countries mentioned. Mention is also made of the effective use of “public enterprises” within the development strategy of the economic and industrial base of a country. The author is however of the opinion that this is unfortunately, as yet, not evident in the case of South Africa’s State Owned enterprises (SOEs), and one will have to wait and see what the results of the Competitive Supplier Development Programme (CSDP) – see par 8 hereunder, will hold for the future growth in the SMME domain.

125

ibid p149

126 _{ibid p160. (Author’s note: On the other side of the scale one finds certain countries (especially in Eastern Europe) that silently} subsidize its manufacturing industries, which creates very favorable Labor rates, which in turn makes it extremely difficult for especially the DRI to compete – also negatively influenced by the long supply lines moving manufactured goods to Europe).

127

The research findings of various economists also reflect on the role of “foreign contact and technology transfer” in a developing country. Coetzee quoting from a study by Egan and Mody from 1992, states that there are evidence of various forms of in-plant training, also taking place in the developed country’s factories; ” …buyer

may send international experts to train local workers and supervisors … buyer may

also arrange short-term worker training in a developed country plant…” It is

observed that technology transfers are key to improved production (best practices); contribute to competitiveness, increased exports and sales, and subsequent profitability128. A case in point in terms of the South Africa industrial participation programme is the skills development and training that technical staff of Denel Aviation (now Denel Saab Aerostructures) has received as part of the DIP obligations under the procurement of the Gripen fighter aircraft from Sweden. Similarly Boeing has established a manufacturing hub at the same Denel facility by donating production machinery and training Denel staff in the principles of lean manufacturing in the production of a range of Boeing aircraft parts, regularly ordered by Boeing.

In the case of South Africa, the country’s shortage of skilled black people is still squarely blamed on apartheid and the fact that black communities in the “Black Homeland” programmes were deprived of access to proper/better schools129. Despite the South African government’s initiatives with the creation of a skills levy fund and the establishments of various training and skills development structures, South Africa is still faced with huge shortages in many vocations. These skills shortages are further aggravated by government’s interference with demands for affirmative actions and equity employment, aggravated by a constant outflow of human capital.130

128 _{ibid pp172 – 176 (Author’s note: This approach has been particularly evident on the SDP’s where numerous employees of local DRI-} companies (and the SANDF) were sent on specialized training courses in OEM countries, e.g. Sweden, France, Germany and the UK) 129

ibid p206. (Author’s note: Today, as a result of having being historically disadvantaged, the Country is generally suffering, as black people who have not been properly skilled are, as a result of the SA Government’s equity employment policy, required to perform outputs they were never trained to achieve. This impacts across the Country, local and central government, as well as in the public and private industries.

130

During March 2007, on the first anniversary of the establishment of Jipsa – a high-level working group attempting to address local skills shortages – Deputy President Phumzile Mlambo-Ngcuka has called on the business community to do more to address the shortage. “For every skilled person the company needs they should train five,” Joint Initiative for Priority Skills Acquisition (Jipsa)

Quoting the World Bank Report of 1999131

, T. Alan and A. Thomas conclude with the

statement “that economies are built not merely through the accumulation of physical

capital and human skill, but on a foundation of information, learning and adaptation. Because knowledge matters, understanding how people and societies acquire and use knowledge – and why they sometimes fail to do so – is essential to improving people’s lives … poor countries – and poor people – differ from rich ones not only because they have less capital, but because they have less knowledge…”

Seeraj Mohamed132, in a recent article on the South African government’s macroeconomic policy, expresses the views that such a policy will cause inflation to grow beyond the existing targets levels and that the economy will be losing many jobs and fixed investments as a result of the government’s neo-liberal macro- economic policies. He expresses the hope that the SA government’s intended infrastructure expenditure will promote more private investment, but that it requires a closer integration between industrial and economic growth policies.

The World Bank Report of development policies for the 21st century states that development will fail if the following four interactive building blocks are not included: ™ macro-economic stability as an essential prerequisite for achieving growth;

™ growth needs to trickle down in an interdependent process and human development needs need to be addressed directly;

™ development should happen coherently and comprehensively and should not depend on a single policy; and

™ the principal that institutions matter, and sustained development should be based on processes that are socially inclusive and responsive to changing circumstances.133

achieved significant progress in the first nine months after it was launched. She said this was achieved through better coordination and synthesis of information and initiatives

131

Alan, T. and Thomas, A. (ed)2000. Poverty and Development into the 21st Century. OUP. p409. 132

Sareej Mohammed is a senior research fellow at the CSID of WITS. Engineering News, March 2-8, 2007. 133

The key to development appears to be locked in the word ‘sustainability’. When one considers the ‘new world order’ with the concept of ‘globalisation134_{’ one also needs}

to consider the impact of this phenomenon. This is seen by some as a politically convenient135 rationale for implementing unorthodox neo-liberal economic strategies, and furthermore conceived as a powerful transformative force, responsible for a massive societal shake-out process. In turn this makes the imbalance between the ‘have’s’ and the ‘have-nots’ only that more notable and consistently influence the sovereignty of all those involved, especially those lesser-developed societies.