22 August 2008

OECD vs Industrial Policy: Will South Africa be impressed?

by Nicolas Pons-Vignon Click here to see the OECD Policy Brief Economic Assessment of South Africa, 2008. When it comes to appraising economic strategies, some organisations display a remarkable level of consistency. The OECD, faithful to its neoliberal stronghold reputation, has just released a superbly ideological appraisal of South African economic policies. Beyond stating the obvious - that SA has an enduring unemployment problem and is marred with world-record inequality - the Paris-based organisation praises the "prudent" macro policies carried out since 1994 and claims that SA has benefited from trade liberalisation. And how should SA tackle unemployment, according to the OECD? Any idea? Yes, you have guessed right: it should make its labour markets more flexible. Economists in South Africa are growing tired of showing that the country's labour market is in fact way too flexible, allowing for a continuation of extremely harsh working conditions that many consider to be one of apartheid's worst legacies. As anywhere else, the only way to address structural unemployment is to... create employment. This is what some are trying to do in South Africa, through an ambitious, albeit still emerging, industrial policy. Unsurprisingly, the OECD is extremely worried about this and warns that "the emphasis on industrial policies risks preserving the apartheid-era pattern of protected national champions insulated from foreign competition and enjoying high mark-ups. This runs counter to the acknowledged need to enhance the level of competition in the economy. Also, the emphasis on government programmes and initiatives is at odds with the recognition of failures of government planning, coordination, and administrative capacity as one of the constraints to achieving faster and more widely shared growth." The OECD does not say if its reluctance to see Governments intervene is limited to Africa or if it considers that all countries that developed thanks to such intervention (namely, all now-developed countries) should not be taken as a serious examples for late developers. Let's hope that South Africans do not take this ideological, poorly documented and researched advice too seriously. As far as I'm concerned, I see it as a sign that something promising is happening with industrial policy in SA. For a reflection on what SA should do with the OECD's advice (i.e., not much), read Seeraj Mohamed's editorial.

Nicolas Pons-Vignon is a senior researcher at the Corporate Strategy and Industrial Development (CSID) research programme at Wits University, South Africa. He was a doctoral researcher at the French Institute of South Africa (IFAS) until December 2007; in his PhD research, he analyses the impact of the outsourcing of forestry operations in South Africa, focusing on the link between corporate restructuring and rural poverty. He holds an MA in Public Administration from Sciences-Po (Paris) and an MSc in Development Studies from the School of Oriental and African Studies (London). Nicolas is the initiator and course director of the African Programme on Rethinking Development Economics. He worked as a consultant at the Paris-based OECD Development centre, where he researched violent conflicts in developing countries. Prior to this he was a project officer in London, Paris and Rabat for PlaNet Finance, an NGO which supports micro finance institutions.nicopv@gmail.com