This is an extract from the COSATU draft discussion document, "A Growth Path towards Full Employment: Policy Perspectives of the Congress of South African Trade Unions", published on September 14 2010.

1. Where Do We Come From?

1.1 In 1990, a workshop on "Economic Policy for a Post-Apartheid South Africa" was convened by the COSATU Economic Trends Group and the ANC Economics Department to come up with some recommendations on economic policy for a Post-Apartheid South Africa^[1]. That workshop was attended by researchers from a number of institutions, part-time economists of the ANC, some ANC leaders, COSATU representatives and COSATU economists. The significance of that workshop is that it introduced the concept of a growth path in the policy discourse of the democratic movement^[2].

1.2 In that period, COSATU's thinking about economic policy questions was impelled by the twin forces of rapidly rising poverty and suffering, and "a realisation that this growth crisis had deep structural roots located in the particular combination of capitalism and apartheid that shaped our present society and economy"^[3]. Because resolving these problems required a package of policies and a coherent strategy, an emphasis on the concept of a growth path was made. In 1992, COSATU proposed that a growth path framework should deal with six distinct areas:

• Principles of Economic Policy
• Redistribution
• Industrial Policy
•  The Role of the State
• Building Workers' Power
• Southern Africa

1.3 The ANC subsequently issued its policy guidelines, encapsulated in the Ready to Govern to document, in which it also argued that the main priorities are:

• Eliminating the poverty and the extreme inequalities generated by the apartheid system;
• Democratizing the economy and empowering the historically oppressed;
• Creating productive employment opportunities at a living wage for all South Africans
• Initiating growth and development to improve the quality of life for all South Africans, but especially for the poor
• Developing a prosperous and balanced regional economy in Southern Africa based on the principles of equity and mutual benefit;
• Giving due regard to the environmental impact of the implementation of economic policy

Two pillars were identified to achieve these objectives. These were:

1. Redistribution programmes to meet the basic needs of our people

2. A comprehensive industrial strategy

1.4 Subsequent to these processes, a crystallization of ideas, based on extensive research around these key areas, emerged in 1993 in the form of a book called "Making Democracy Work: A Framework for Macroeconomic Policy in South Africa". This book was based on background research by both international and local economists who shared the vision and principles of the democratic movement. In its opening line, the book says: "The political transformation of South Africa will make it possible to achieve economic growth and to set realistic goals for improved living standards and economic security for all South Africans, especially the most disadvantaged. Without a new growth path to put these goals within reach, political transformation itself will be in jeopardy"^[4].

1.5 The MERG Report presented detailed proposals on a range of areas, informed by the resolutions of both the ANC and COSATU. These proposals included:

• Macroeconomic Policy
• Social and Economic Infrastructure
• Labour Market Policy
• Rural Development and Food Policy
• Industrial, Corporate and Trade Policy
• Banking and Finance
• The Role of the State

1.6 Although the MERG Report was ultimately not endorsed by the ANC leadership due to the anti-working class ideological shifts that were underway, most [?] of these detailed recommendations ultimately found expression in the Reconstruction and Development Programme (RDP) in 1994. The RDP outlined six principles that make up the political and economic philosophy of reconstruction and development policies in South Africa:

• An Integrated and Sustainable Programme
• A People-Driven Process
• Peace and Security For All
• Nation-Building
• Link Reconstruction and Development
• Democratisation of South Africa

In order implement the RDP, five key programmes were identified by the democratic movement. These were:

• Meeting Basic Needs
• Developing Our Human Resources
• Building the Economy
• Democratising the State and Society
• Implementing the RDP

1.7 The evolution of economic thinking, the formulation and development of social and economic policy for a democratic South Africa has not been as seamless as the above narration suggests. It was brought about by the strengths and assertiveness of the working class in the policy formulation and discourse within the democratic movement. Immediately before the democratic movement could settle on the levers of state power, the under-handed and hidden policy contestation came to the open in 1996, with the emergence of the Growth, Employment and Redistribution Framework (GEAR)^[5]. In fact, a warning of what was to come in Gear was contained in the ‘six-pack' announcement in 2005, which proposed a package of conservative measures, including wholesale privatisation. These documents, unlike others that came before it, did not emanate from the structures of the movement, but were crafted in a terrain where working class hegemony was severely limited-in the state apparatus.

1.8 Proponents of GEAR justified its introduction on the basis that it gave effect to the realisation of the RDP. Some leaders felt that the RDP, noble its objectives and philosophy might have been, was simply not possible to implement. The main reason that was put forward for GEAR was that the economy could not sufficiently generate sufficient resources to finance the programmes outlined in the RDP unless "more deep-rooted reforms" are given attention^[6]. These reforms were^[7]:

• Accelerate Fiscal Reform
• Gradual Relaxation of Exchange Controls
• Market-driven Trade and Industrial Policy
• Public sector restructuring, including the promotion of public-private partnerships
• Social and Economic Infrastructure Expansion
• Labour Market Flexibility for a Labour-Intensive Growth Path
• A Social Compact for Price and Wage Moderation

1.9 Basically, the philosophical underpinnings of GEAR were at odds with the historical positions of the democratic movement. The constraints of fiscal policy that GEAR lamented were not analytically explained and the proposals contained in prior policy documents were ignored. The relaxation of exchange controls paved the way for capital outflow, thereby taking away South Africa's financial resources to fund the RDP. Trade policy was not linked to job creation and made no reference to the promotion of progressive internationalist principles. Industrial policy did not specify sectors to be supported, and made no mention of how to deal with the power of monopoly capital. The push for labour market flexibility departed from the principle of building workers' power and denied the fact that the working class already suffered high levels of exploitation.

1.10 In response, COSATU put forward its own framework that gave effect to the realization of the RDP in the form of a policy document: Social Equity and Job Creation (SEJC). The SEJC used the RDP as an entry point. But the SEJC, unlike GEAR, rooted its understanding of the RDP from the standpoint of the political and economic philosophy that historically underpinned the thinking of democratic movement on policy questions. Unlike GEAR, the SEJC pointed out the historic roots of South Africa's socio-economic challenges in colonialism, racism, apartheid, sexism and repressive labour policies. The SEJC re-asserted the relevance of the historic pillars of our vision of a growth path for a democratic South Africa^[8]:

• A Programme for Job Creation
• A Redistributive Fiscal Policy
• The Break-up of Economic Concentration
• The Promotion of Worker Rights
• The Building of Industrial Democracy
• Promotion of Equity and Economic Development Globally

1.11 The experience of the working class and the vast majority of South Africans of the GEAR experiment will be described below. The triumph of GEAR over the SEJC in informing the policies of the democratic government raised an important question about the mechanisms through which the South African working class sought to assert its hegemony over the state apparatus. It also brought to the fore the need for the working class to sharpen its tactics in the deployment of its forces by becoming more concrete about the sites of resistance and platforms of engagement. Working class hegemony in the democratic movement alone was no longer sufficient, but hegemony over the levers of state power became a pressing issue of concern^[9].

1.12 This led COSATU to raise the following question in 2001: how do we account for the shift to the right in economic policy, especially after 1996? The answer was that there was a change in the balance of power. White capital had successfully won sections of the formerly oppressed into its fold. "Linked to this is the emergence of a "bureaucratic bourgeoisie" that uses its access to the state to expand the class of black capitalists". COSATU further pointed out that "the hegemony of the working class was being eroded by forces that seek a deracialised form of capitalism, with no interest in the long-term objective of building socialism"^[10].

2. What is wrong with the Post-1994 Growth Path?

2.1 What then is the location and purpose of this framework document in the historical evolution of the thinking of COSATU about economic policy?

2.2 Firstly, this document emerges out of 16 years of experience with neo-liberal democracy. Whilst indeed political democracy has been deepened in many respects, it is in the field of the economy and ideology that it has failed to take root. In class terms, democracy benefitted those who own economic resources than the working class and the poor. Decisions about the nature and pattern of capital accumulation, social and economic policy, legal institutions and cultural expressions, political practice and the administration of the state, are still biased towards capitalist class interests. To a large extent, the state remains insensitive to the plight of the working class majority.

2.3 Secondly, in almost all the key aspects of development, the policies of the past 16 years have failed to deliver tangible material progress for the working class. The working class has been severely marginalized from effectively participating and staking its claim, in the economy in a number of ways: through the scourge of unemployment, an extremely flexible labour market in the form of casualisation, outsourcing and the use of labour brokers, the commodification of basic needs and the suppression of workers' wages below productivity gains. All these factors are meant to break the power of the working class, increase the power of capital and to boost the profitability of the capitalist system as the basis to support economic growth.

2.4 Thirdly, the points of departure, the problems initially identified in 1990, are still persistent and remain stark under the democratic cloak. Economic growth reproduces inequality of incomes and power, poverty and unemployment. The structure of economic growth has deepened the structural instability associated with mineral-dependent economies in a finance-led world. In almost all spheres of society power still rests with the white minority, which co-opts the black elite, in pursuance of the interests of capital and imperialism.

2.5 Fourthly, experience has shown that there is complexity in the chain of policy-making; the link between policy formulation and implementation is not straightforward. It is not obvious that consensus policy positions that emerge from Alliance deliberations find expression in ANC policy directives, and neither is it obvious that ANC policy directives will find expression in government policy, and neither is it obvious that government policy will be implemented by the state bureaucracy^[11]. Further complications arise because in each of the links in the policy-making chain, there are various layers through which power shifts. In the light of this experience, the working class has to re-assess its engagement strategy and avoid the risk of being managed through unending internal engagements, whilst reactionary policies continue to be imposed by the state.

2.6 Fifthly, this growth path framework emerges within the context of the worst global economic crisis since the 1930's. In the South African case, we have lost over 1.1 million jobs between 2009-2010. This amounts to an average of R35 billion worth of employees incomes being lost, given the average wage of R33 773^[12]. This has plunged 5.5 million South Africans into poverty. The speed with which jobs have been lost, in the context where income distribution has worsened, shows that the types of jobs that have been created are vulnerable. But this also shows the failure of past policies to build a strong internally cohesive productive base and shifting away from reliance on mineral exports. It also shows the weaknesses in existing macroeconomic policies to respond to shocks, and to promote jobs as the first priority.

2.7 The following ten key factors underline what is wrong with the post-1994 growth path. These factors have prompted COSATU to re-instate the concept of a "new growth path" in policy discourse, a move which is also more broadly accepted in the Alliance today, and, at least formally, in government:

The persistence and increase in unemployment:

Unemployment among Africans was estimated to be 38% in 1995 and it stood at 45% in 2005. Overall, the unemployment rate in the South African economy was 31% in 1995 and increased to 39% in 2005^[13]. This is a massive wastage of human resources, which could be mobilized for development. As of 2009, the rate of participation of Africans in the labour force was 52% and for whites it was 68%. Because of the continued structures of domination and exclusion, it will not be wrong to conclude that most Africans do not participate in the labour force because they are the least absorbed in employment. Among Africans of working age (between 15-64 years), only 36% are absorbed into employment whilst on the other hand, 65% of Whites of working age are absorbed into employment^[14]. Among emerging markets, South Africa has the lowest labour force participation rate.

Poverty incidence remains high:

There is no official poverty line for South Africa. Yet, based on measures that are sensitive to household size, one study found that 57% of individuals in South Africa were living below the income poverty line in 2001, and this remained unchanged from 1996^[15]. But measures that assume individuals need R322 a month to survive show that individual poverty has declined from 52.5% to 48%^[16]. This decline is said to be driven by an increase in the number of beneficiaries from government's grant system from 2.5 million in 1999 to 12 million in 2007. This means that 25% of South Africa's population lives on grants, and it is evidence of the anti-working class character of the post-1994 growth path. The economy reproduces poverty, and the state throws money at this problem, without intervening to change its structure.

Redistribution of income has not occurred:

Besides the decline in the real incomes of African households between 1995 and 2005, income inequality has increased across the board. In 1995, the Gini coefficient stood at 0.64 but it increased to 0.68 in 2008^[17]. The share of employees in national income was 56% in 1995 but it had declined to 51% in 2009, i.e. there has been reverse redistribution from the poor to the rich. The top 10% of the rich accounted for 33 times the income earned by the bottom 10% in 2000^[18]. This gap is likely to have worsened, given the fall in the share of employees in national income and the global economic crisis of 2008^[19]. Approximately 20% of South Africans earned less than R800 a month in 2002, the situation is worse for Africans. By 2007, approximately 71% of African female-headed households earned less than R800 a month and 59% of these had no income; 58% of African male-headed households earn less than R800 a month and 48% had no income. Even the Minister of Finance has acknowledged that 50% of the population lives on 8% of national income in South Africa^[20].

In 2008 the top 20 directors of JSE-listed companies, the overwhelming majority of whom are still white males, earned an average of R59 million per annum each^[21], whilst in 2009 the average earnings of an employee in the South African economy was R34 000^[22]. On average, each of the top 20 paid directors in JSE-listed companies earned 1728 times the average income of a South African worker^[23]. On average, between 2007 and 2008, these directors experienced 124% increase in their earnings, compared to below 10% settlements that ordinary workers tend to settle at. Hefty increases were also seen in state-owned enterprises. Directors in state-owned enterprises also experienced the same rate of increase their earnings, thereby contributing to income disparities in the economy. The top 20 directors in SOE's experienced a 59% increase in their earnings, collectively raking in R132 223 million. This amounts to R6.6 million per director, which is 194 times the average income of the South African worker.

Income inequality is still racialised, and has deepened within racial groups. An average African man earns in the region of R2 400 per month, whilst an average white man earns around R19 000 per month. The racial income gap is therefore roughly R16 800 among males. Black women are yet to be liberated from the triple oppression. Most white women earn in the region of R9 600 per month, whereas most African women earn R1 200 per month. The racial income gap in monthly incomes among women is therefore R8 400. The race gap is therefore overwhelmingly severe among males. The gap in monthly income between African men and White women is R7 200^[24]. In addition, 56% of Whites earn no less than R6 000 per month whereas 81% of Africans earn no more than R6 000 per month. These income disparities are deeply connected to the social relations of production at the factory floor and other places of work, and macro-policies that violate the historical commitment to redistribution^[25]. Inequality has increased the most among the Coloured population, by 9 percentage points, whereas among Africans it has increased by 1 percentage point between 1995 and 2008.

The means of production and power remain concentrated in white capitalist hands:

Estimates of black ownership of JSE-listed companies range between 1.6%^[26] and 4.6%^[27]. The JSE is still dominated by few large firms; 50% of JSE is account for by 6 companies and more than 80% is accounted for by large banks and companies engaged in the core of the minerals-energy-complex^[28]. Crucial sectors in the economy continue to be dominated by a few large conglomerates with cross directorships. These conglomerates are vertically integrated and therefore limit entry into the economy by smaller firms. In addition, there has been a rapid increase in foreign ownership of these conglomerates. This has served to consolidate their domestic power through their global networks. Traditional South African conglomerates, such as Anglo-American have undergone significant restructuring, encouraged by opportunities to globally diversify their operations, thanks to financial liberalization. Nevertheless, significant vertical and horizontal linkages continue to define the South African corporate landscape. For example, the links between mining and finance, construction and mining activities, wholesale and retailers and food processors, remain the main building blocks of the South African corporate structure. In addition, little by way of black ownership and worker control has been achieved over the past 16 years. Almost all the top 20 paid directors in JSE listed companies are white males.

The structure of the economy remains mineral-dependent and is now finance-led:

The economy is still very much reliant on mineral exports for foreign exchange earnings. Although some have found that manufacturing exports have increased, surpassing minerals, such exports remain driven predominantly by the core minerals-energy-complex. Petrochemicals, mining and Basic Iron and Steel make up 69% of total exports, and are highly capital and energy intensive. Many studies have found that the manufacturing sector has rapidly increased exports, attributing this to trade liberalization, which is said to have increased productivity and competitiveness. This is misleading, because the so-called manufacturing that has increased exports, especially basic iron and steel and petro-chemicals, constitute the key pillars of the minerals-energy-complex.

In fact, over a long-haul the structure of exports has failed to break the dominance of core minerals-energy-complex sectors, and imports continue to be made up of sophisticated manufactured items such as machinery and equipment. Between 2003 and 2008 manufacturing imports rose by almost 10 percentage points, thereby contributing problems in the external balance. Since 1975 the financial sector outperformed the non-financial sector in terms of growth performance. By 2005, the financial sector was growing almost twice the growth rate of the non-financial sector. A combination of the increase in finance and the capital-intensive MEC core puts further limits to job creation.

Control of the economy is still in white hands:

Top management and senior managers continue to be predominantly drawn from the white population. This perpetuates historical networks that determine the probability of promotion and recruitment. In turn, this determines whether one moves to a higher income bracket or not. That 45% of all top management promotions went to white males and 17% went to white females in 2008 is an indictment of the socio-economic quality of our democracy. African males and females account for 13% and 6% of all promotions and recruitment in top management respectively. In short, 62% of all promotions and recruitments were drawn from 12% of the South African population^[29]. The current democratic dispensation thus reproduces the colonial character of the control of the forces of production in our economy.

The health profile of the population has deteriorated:

In 2006, a black female South African expected to live 12 years shorter than a white male, and an average male in Sweden expected to live 30 years more than an average black South African female^[30]. The life expectancy of South Africans was the highest in 1992, at 62 years. Ever since then life expectancy fell to 50 years in 2006^[31]. The situation seems to have worsened since 2006. The life expectancy of a white South African now stands at 71 years and that of a black South African stands at 48 years, according to the South African Institute of Race Relations Survey (2009). Whites therefore expect to live 23 years more than blacks according to the study.

The crisis in education persists and the quality of education is declining:

The poor's children remain trapped in inferior education with wholly inadequate infrastructure. Indeed "70% of (matriculation) exam passes are accounted for by just 11% of schools, the former white, coloured, and Asian schools"^[32]. What is of major concern is that 12-year olds in South Africa perform three times less than 11-year olds in Russia when it comes to reading and 16-year olds in South Africa perform three times less than 14-year olds in Cyprus when it comes to mathematics^[33]. Nevertheless, white learners perform in line with the international average in both science and mathematics, which is twice the score of African learners.

Furthermore it is estimated only 3% of the children who enter the schooling system eventually complete with higher grade mathematics, 15% of grade 3 learners pass both numeracy and literacy, 70% of our schools do not have libraries and 60% do not have laboratories, 60% of children are pushed out of the schooling system before they reach grade 12. In 1997, approximately 1.4 million learners entered the system in Grade 1. The matriculation pass figure of 334,718 learners in 2009 means that 24% were able to complete matriculation in the minimum of 12 years. Lastly, 55% of educators would leave the profession if they had an opportunity to do so. This is symptomatic of an ineffective and dysfunctional education system^[34].

The housing challenge is still persistent:

There has been progress in the provision of housing; 74% of South African households live in brick structures, flats and townhouses. Nevertheless there remain 15% of households who live in shacks, which amounts to 1.875 million households. Despite the progress that has been made in the provision of decent human settlements, the quality of housing remains a major challenge; 46% of South African households live in dwellings with no more than 3 rooms, 17% of households live in 1-room dwellings. Among Africans 55% live in dwellings with less than 3 rooms and 21% live in 1-room dwellings, whereas at least 50% of White households lives in dwellings with no less than 4 rooms. These disparities in the conditions of living are a direct consequence of the legacy of apartheid, and the accumulation path that underpins it.

Progress has been registered in meeting basic needs but affordability remains a problem:

Significant progress has been made in the provision of basic needs in the past 16 years. Households with no access to water infrastructure fell from 36% in 1994 to 4% in 2009. Access to sanitation also dramatically improved over the same period, from 50% to 77%. Access to electricity also improved from 51% to 73%^[35]. Nevertheless, in the light of high unemployment, low-paying and precarious work affordability is a problem. As a result, a number of communities have engaged in service-delivery protests, partly inspired by the low quality of services, partly by lack of services and general government neglect, and partly because of cut-offs, which have been informed by the notorious cost-recovery policy on basic services.

This policy has led to 1.3 million households, which account for almost 5 million people, experiencing water cut-offs due to non-payment^[36]. The main drivers of non-payment are affordability, low incomes and unemployment. The over-arching policy framework within which service delivery occurs makes the impact of access to basic amenities not to be enjoyed by working class and poor households. The 15-Year Review captures this clearly when it says: "problems of quality and affordability of services reduce the impact of broader access. For example, women in households which can afford to use electricity only for lighting, and not for heating or cooking, do not reap the full improvement that electrification can bring to their lives"^[37]. We cannot agree more and we have to ask why this is the case.

2.8 The persistence of these fault-lines points to a need for a shift in class power relations in order to lay an appropriate political context for thorough-going transformation of South African society. The past 16 years has shown that the ballot box, though necessary, is not a sufficient path to power. No policy shift will automatically emerge unless it is preceded by a shift in class power relations in society. This new growth path document will be one of those documents to emerge from the labour movement, without any tangible changes in the dimensions we have identified above, unless the working class takes it upon itself to alter the balance of forces.

3. The Myths and Tenacity of Neo-Liberalism

3.1 The package of policies that came to be known as neo-liberalism emerged in the late 1970's, primarily in response to the fall in the global rate of profit. These policies were geared towards resolving this crisis of profitability. In order to improve profitability capital had to: a) cheapen inputs to the production process, b) increase the rate of exploitation of labour, c) export capital to areas that have lower capital-labour ratios, d) disinvest from real capital accumulation by allowing existing capital stock to depreciate, e) channel money capital into financial speculation. All these activities found concrete expression in the neoliberal package of policies. Contained in such policies is a many-sided onslaught on the working class.

3.2 In South Africa, the canon of neo-liberal thinking remains GEAR. Now regarded as merely a short term stabilisation programme by its advocates, GEAR's economic principles and philosophy continue to dominate the practice and articulation of policy, even Post-Polokwane. The principle of GEAR is that growth must occur first, and then employment will follow. Once employment increases, the distribution of income will improve. This principle, which is in sharp contrast to the RDP, is reflected in the persistent setting of growth targets as the primary focus, rather than targets for employment and income distribution. In a GEAR framework, economic policy must first promote economic growth, this in turn will generate the demand for labour and therefore increase employment; employment will increase people's incomes and thereby lead to an improvement in the distribution of income. This causal structure has spectacularly failed.

3.3 In order to realize this causal structure, neo-liberalism advocates a package of policies. The basic tenets of neo-liberal policy can be summarized as follows:

• Trade liberalization
• Financial liberalization
• Labour market deregulation
• Limited role of the state
• Fiscal austerity
• Tight monetary policy
• Central bank independence

3.4 Trade liberalization is promoted in order to enhance "international competitiveness". This, it is often argued, is a requirement for successfully integrating the South African economy in a rapidly changing global environment. In South Africa, trade liberalization has strengthened the power of multinational corporations; it has weakened the power of the state to direct industrialization and has led to disintegration of productive structures at local level. The secondary sector has been losing jobs since 1995, thanks partly to trade liberalization. Between 1995-2008, the secondary sector lost 350 000 jobs. The policies of the past 16 years have thus failed to promote labour-intensive industrialization, in line with historical positions of the democratic movement.

3.5 Financial liberalization is a twin to trade liberalization. Untrammelled global commodity capital flows have to be coupled with the required flows of money capital to facilitate the flow of value on a global scale. But also, the dominance of the money form of capital, which emerged in the 1970's, led to the rise of speculative financial activity as a distinctive area of fictitious capital accumulation as opposed to real capital accumulation. Financial liberalization took at least 3 forms:

• Bank deregulation and interest rate liberalization
• Exchange rate flexibility
• Removal of exchange controls

3.6 South Africa embraced all these aspects. From the mid-1990's, exchange rate volatility increased after the removal of financial rand exchange controls. On the one hand high interest rates attracted short-term capital flows whilst on the other hand the relaxation of capital controls gave new impetus to capital outflows, which sapped the country of resources that could be invested domestically. The removal of exchange controls also facilitated the outflow of capital in the form of delisting of South African conglomerates from JSE to the London Stock Exchange: Gencor, Liberty Life, Anglo-American, De Beers, Old Mutual, SA Breweries, Investec and Didata are all big firms that have accumulated capital by exploiting South African and regional labour through the migrant labour system and apartheid repression. They have now found a way to eschew the responsibility of financing industrial diversification in South Africa.

3.7 Because of such large outflow of domestic resources, South Africa's dependence on short-term capital flows to finance its expenditures has increased. High interest rates themselves served to depress domestic saving, which is insufficient to finance investment expenditure. On the other hand, these interest rates are required to keep attracting short term flows to finance expenditures. This way of managing the economy led to a rapid rise in South Africa's foreign debt from $25 billion in 1994 to $78 billion in 2008, with relatively little increase in real productive investment in the private sector. In just 5 years, the share of foreign capital inflows in total savings rose from zero in 2001 to 75% by 2008, a swing from the outflows registered in 2002. This makes our economy vulnerable to capital flow reversals and entrenches the power of global financial capital to hold domestic state policy hostage.

3.8 The volatility and level of the exchange rate plays a significant role in deterring investment in the manufacturing sector, especially for those firms that have no power to shift resources on a global scale, within their own vertically integrated commodity chains. Consequently, the strength of the exchange rate volatility has significantly impacted the valuation of cash-flows of such firms and has thus served to depress investment. At a structural level, the strength of the exchange rate due to short-term capital inflows tends to depress the profitability of mining and thereby leads to a contraction of manufacturing. The exchange rate determines the fortunes of the manufacturing sector mainly through the linkage of the latter to resource-based sectors and directly through exports.

3.9 Labour market deregulation complements the liberalization of global commodity and money capital flows. In particular, labour market flexibility increases worker vulnerability by disrupting workers' ability to organize. In addition, labour market flexibility atomizes workers, intensifies competition among them, which drives down the real wage relative to productivity. Even if workers successfully resist these pressures capital, through state policy, draws in immigrant labour that has been beaten to submission by neo-liberalism in order to weaken the bargaining position of the working class. The state itself through outsourcing, the allowance of casual labour, the use of labour brokers and illegal immigrant labour, pursues the interest of the capitalist class in a bid to restore profitability. Labour market deregulation also makes it impossible to combine employment with significant skills development because of the precarious nature of employment. As of 2009, it was estimated that 30% of employment in the South African economy is now due to labour brokers. Major players in the wholesale and retail sector for example, which is highly feminized, work with 20% permanent and 80% atypical employees.

3.10 The limited role of the state took a particularly unique significance in South Africa, since the democratic forces failed to dislodge white capital from the means of production and to reconfigure colonial production relations. We argue below, in Part 1 Section 11, that this laid the basis for the neo-liberal disengagement of the democratic state from productive activity in critical areas. In other words, the state withdrawal from critical activities reflected a class compromise which facilitated the accumulation of capital by black capitalists. The disengagement was itself an engagement by the state to fulfil its role of linking black and white capitalist accumulation, thereby arbitrating the conflict between the two. This perspective of the role of the state has far-reaching implications and calls for a complete re-conceptualization of what may have been considered progressive or regressive in the last 16 years.

3.11 The withdrawal of the state from the provision of basic goods to a large extent explains the persistence of unemployment, the rise of structural unemployment and the increase in the Lazarus-layers of the working class in South Africa. The privatisation of infrastructure provision and the supply of other basic goods meant that labour-intensity was subordinated to the dictates of profit-making. The tendency of capitalist accumulation to increase capital intensity is bound up with the quest for higher profits. The construction sector for example, which is critical for infrastructure provision, experienced a massive 105% increase in the technical composition of capital between 1994-2008. This meant that private-sector-driven infrastructure delivery could not deliver as many jobs as anticipated, let alone the requirements of skills development and decent wages. Without a state-driven infrastructure programme, it will be impossible to dent structural unemployment whilst increasing the skills base of the labour force.

3.12 GEAR also followed religiously the dictates of fiscal austerity-setting a 3% deficit-GDP as the yardstick to measure fiscal prudence. Tight fiscal policy is alleged to lower interest rates, because national savings are released to finance private investment-which should be the engine of economic growth. However, after the introduction of GEAR's fiscal austerity measures, economic growth collapsed from 5% to 0%. This of course exacerbated job losses, narrowed the tax base and further called for more fiscal restraint. Fiscal policy was not used as a counter-cyclical tool to manage demand in order to attack structural unemployment and as redistributive instrument to meet basic needs.

3.13 Fiscal policy became a tool through which public sector-induced demand expansion was to be restrained and private sector induced demand was to be expanded. All this fell in line with limiting the role of the state in the economy and relying more on the private sector to correct historical injustices. The private sector failed to lead demand expansion and instead it siphoned resources out of the economy through capital flight. To this day, fiscal policy in South Africa has maintained a pro-cyclical stance-playing a rearguard role in relation to private sector sentiment. Indeed, fiscal policy is subjected to monetary policy, which is aimed at gaining elusive credibility in the eyes of finance capital rather than the working class.

3.14 Fiscal austerity without tight monetary policy, especially the drive to have positive real interest rates as a rule-even when these exceed the growth rate of the economy, will be impossible to achieve. Tight monetary policy serves as a disciplining device for fiscal authorities because with deficit spending, high interest rates relative to the growth rate produce explosive public debt. In order to constrain fiscal policy to run surpluses and to ensure stable debt-GDP ratios, high real interest rate are required. Such interest rates guarantee a superior return to bond-holders, sustain speculative capital inflows and thus tend to strengthen the currency, which in turn encourages the outflow of capital.

3.15The basic monetary policy of neo-liberalism is inflation targeting. Underpinned by monetarist theories, proponents of inflation-targeting believe that the best job for a central bank is to anchor inflation expectations. They argue that interest rate policy cannot have long-run effects on economic growth and unemployment, but can only keep inflation expectations down and thereby lower long-term interest rates. This, it is said, is enough to stimulate investment and long-term economic growth. But the need to constrain fiscal policy to achieve the inflation target casts serious doubts about these claims.

3.16The emphasis on long-term interest rates as drivers of investment, the link between inflation-targeting and lower inflation expectations, the reliance on bond markets to drive interest rate movements, are all open to question. Empirical evidence in support of inflation-targeting is not as clear-cut as advocates of inflation targeting would have it. In the South African case, inflation-targeting has been extremely regressive-it generates pro-cyclical fiscal policy, is inadequate a framework to support industrial development, and heavily relies on financial market forces, which are dominated by a few large banks, to transmit monetary policy actions to the real sector.

3.17 Neoliberal monetary policy also advocates for positive real interest rates. This, it is said, will stimulate savings and thus resolve the financing of investment. But the effect of real interest rate on savings is also open to question. Indeed, savings are determined more by income levels and, in an open economy, by the extent of capital outflow. Thus, real interest rates can be kept as high as possible, but the outflow of capital can depress savings necessary to support domestic investment. In most instances, especially where industrial development is involved negative real interest rates coupled with other financial policy instruments, may be a necessary condition for industrial expansion. But such financial repression goes counter to the interests of financial capital.

3.18Because the central bank plays an important role in financial markets, neo-liberalism calls for central bank independence from government interference^[38]. In practice, central bank independence insulates central bank policy from democratic processes. It thus robs the population of an important institution through which it can allocate resources to advance its democratic aspirations. Proponents of central bank independence argue that independence removes the printing press from the politicians, who are prone to abuse it thereby generating hyper-inflation and "political business cycles". Empirical evidence about the link between central bank independence and inflation is not as clear-cut as these advocates suggest.

3.19Firstly in practice, as we have already mentioned, even if the population votes for an expansionary fiscal stance, the central bank can independently sabotage government by setting real interest rates to be above the growth rate of the economy, thereby making public debt explode faster than would otherwise be the case. Secondly, the removal of the printing press as one of the sources to finance developmental government expenditure constrains the public sector to raise funds only by raising public debt, taxes and tariffs of basic goods and services such as water, electricity and transport, which may not always be optimal. Thirdly, advocates of central bank independence naively assume that class forces cannot impinge on central bank practice. By removing the central bank from democratic ownership and control, they place it in a position that makes it easy for conglomerate elites to co-ordinate their private interests^[39].

3.20The policies of the past 16 years have failed to challenge the power of conglomerates, and have in fact strengthened their stranglehold through financial and trade liberalization. They have failed to diversify the economy outside of the heavily concentrated and capital-intensive minerals-energy-complex core and instead, have added financial capital accumulation as another important dimension in this complex. This has continued to stifle the growth of downstream industries in at least three ways:

Firstly, by diverting crucial inputs towards the Minerals-Energy-Complex core, upstream industries continue to lock the economy in mineral export dependence and in a capital intensive growth path. The lack of access to affordable inputs, combined with the strength of the exchange rate, prices downstream industries out of the global market.

Secondly, trade liberalization has led to the decimation of some sectors, e.g. clothing and textiles, white goods and electronics, and has continued to make it difficult for sophisticated domestic manufacturing sectors such as machinery and equipment and transport equipment, to develop.

Thirdly, low wages, high unemployment and deteriorating income distribution constrain domestic demand for downstream industries. This in turn perpetuates the dominance of capital intensive sectors in production. Growth over the past 10 years was driven by the MEC core, and non-production sectors such as wholesale and retail and finance, real estate and business services. The wholesale and retail sector relies heavily on atypical employment and has significant import content, whilst the financial sector is dominated by a few large banks.

3.21If neo-liberalism has been so regressive, why has it been so tenacious? The answer to this question has already been given by the COSATU CEC in 2001: It is because of the balance of power. This balance of power finds expression in the economists' training in universities, short courses and training that politicians are offered by the IMF, World Bank and private banks. Having imbibed these courses, the appetite for alternative views about the economy that are in line with the political philosophy of the liberation movement is completely suppressed. But more importantly, the underlying class interests that have coalesced exert pressure on the state to solidify class compromise in state policy, so that the state acts to co-ordinate national activity in a predictable manner, in line with the interests contained in that class compromise.

4. The Six Pillars of the New Growth Path

4.1 The basic point of departure of this growth path document is that our society suffers from the intersection of apartheid distortions and socio-economic exclusion of the vast majority from economic activity. This fundamental problem has been exacerbated by the neoliberal experiment of the past 16 years, which promoted the unrestrained operation of the capitalist system. South Africa's neo-liberal policies of the past 16 years have not only deepened the exploitative tendencies of capitalism. They have also broadened the scope of their operation in the Southern African region. The expansion of South African multinationals into the African region carries with it the persistent exploitative tendencies that are characteristic of the South African economy.

4.2 Decent work means that the character of the growth path should be clearly biased towards the working class. It should be wage-led and redistributive-economic growth should raise wages in real terms and must improve income distribution. This means that economic growth should deliver lower rates of exploitation of labour, and increase access by the working class to basic goods and services, including sufficient time for working class heads of households to take care of their families and to play an active role in building social cohesion.

4.3 A redistributive growth path that creates decent work is better positioned to be poverty-reducing and therefore, it is better positioned to be pro-poor. The patterns of income distribution that have emerged in the past 16 years, the levels of unemployment and the associated poverty rate show that economic growth promotes poverty. Redistribution must necessarily encompass the question of economic power because, as we have seen, this economy pays 1728 times the average wage of a worker to an individual who happens to be a director.

4.4 Figure 1 provides a schematic view of how the pillars of the new growth path hang together. The starting point in the process of creating decent work is redistribution of incomes and power. Redistribution must inform:

Fiscal Policy:

The tax system, the composition of expenditure and the financing of the budget must be informed by the need to redistribute income and wealth. Redistributive fiscal policy will mobilize the resources to deliver social infrastructure (education facilities, health facilities, housing, water and sanitation, energy). Such a fiscal policy will also deliver economic infrastructure to support industrial development, and will also deliver comprehensive social security. In delivering these basic goods and services, the state will create decent work.

Monetary Policy:

Interest rates and credit allocation must promote a redistributive agenda. Through redistributing the social surplus from financial speculators and rentiers to industrialists through concessionary finance, quantitative controls on the financial sector and management of the exchange rate, inserting tax-frictions on financial transactions, monetary policy will support industrial development. A redistributive monetary policy will also support housing and developmental infrastructure finance, through differential interest rates. Monetary policy must be co-ordinated with fiscal policy and must be geared towards support for an expansionary fiscal stance.

Industrial Development:

In procuring inputs into infrastructure development, allocation of credit, technology support, and skills development and training, the state will support local industries. Local industries in turn, will be required to also procure from other local suppliers as a means to build a cohesive industrial base. The expansion of industry will create decent work, increase value-added, and thereby increase the social surplus required to maintain the sustainability of the expansionary fiscal stance through a wider and deeper tax base. Monetary and fiscal policy instruments will have to be deployed to ensure that the social surplus generated does not leak out of the economy in the form of capital outflows and imports.

Collective and public forms of ownership:

Our society suffers from a history of dispossession. The past 16 years sought to return the wealth to a few Blacks, on behalf of the people as a whole. This has failed to resolve the underlying problems of apartheid and capitalism. The new growth path will progressively support the emergence and expansion of collective forms of ownership. Some strategic inputs to industrial development e.g. the mines, steel production and petro-chemicals should be in the hands of the state in order to build state power to direct industrialisation. Co-operatives should also be supported and be closely linked to state initiatives in order to build a progressive alliance between collective forms of ownership in the economy. Such an initiative will lead to redistribution of power in the economy and break the stranglehold of a few conglomerates.

The development of the Southern African region:

Whilst South Africa faces major challenges; our country cannot tackle its challenges fully unless it contributes towards regional development. South African capitalism developed on the basis of migrant labour drawn from the regional economy. By contributing to the development of social and economic infrastructure in the region, South Africa will be fulfilling its internationalist obligations and will foster closer economic and cultural integration of the region. South Africa's industrial development can also benefit immensely by levering the strengths of the regional economy, especially in relation to food security, water, energy and market access.

Poverty reduction cannot be achieved through purely inward-looking policies. A sustainable regional approach, which is based on building regional economic capabilities, technology transfers and economic development policy coherence, is required to systematically deal with poverty. Indeed, the major driver of migration in the sub-Continent is the levels of poverty and economic under-development that exist in our neighbouring countries.

In addition there needs to be political will to industrialize the region, and to link national industrial initiatives into a coherent regional industrialization strategy. Hence our industrialization strategy must balance the national imperative to address domestic basic needs and the needs of the people in the region. The same approach should inform each of the national initiatives in the region.

Environmental sustainability^[40]:

Economic growth and development must support sustainable environments. Industrial and social processes must minimize the disruption of natural processes; limit environmental degradation, adverse changes in bio-diversity, soil erosion and desertification, the emission of greenhouse gases, especially carbon dioxide, and pollution of water streams and ground water. Patterns of consumption must also be aligned towards products that optimize environmental regeneration.

In this new growth path, we draw a link between environmental sustainability and poverty eradication in the Southern African region. Most of the economies in the region are still agriculture based. They are therefore vulnerable to water scarcity, environmental degradation and changes in the climate. This in turn directly affects the livelihoods of the vast majority, who continue to rely on subsistence agriculture. Whilst recognising the need to mechanize agriculture, put it on a commercial basis and to raise productivity levels, it is clear that an unsustainable natural environment will pose an absolute barrier to poverty alleviation. This is exacerbated by the fact that the vast majority of rural people have no access to technology, skills, credit and markets.

Figure 1: How the Pillars of the New Growth Path Hang Together

4.5 Clearly, the centrality of redistribution in our growth strategy requires an active state to drive economic development. Our economy continues to be dominated by a few conglomerates, which are increasingly going global-exhibiting strong trends towards multinational ownership and the continued entry of foreign ownership in conglomerates that are of South African origin. This places our growth path at loggerheads with global forces and will thus have to rely on the power of the working class to mobilize all those whose interests coincide with building the long-term productive potential of our country.

4.6 Embedded in the analytical framework that is outlined above is a shift in policy. However such a shift should be informed and be rooted in a clear articulation of class interests in which the working class has to play a pivotal role. This framework calls for redistribution of the means of production, which is the economic basis of state power. It calls for a complementary redistribution of the social surplus for use to finance the development process, and to deepen and widen working class incomes. Market forces are not going to achieve this, but a purposive state that solidifies working class hegemony in state policy is required to achieve this.

4.7 In this regard, and given the class implications that this growth strategy entails, the working class cannot rely solely on the ballot to deliver this strategy. The success of this growth strategy relies heavily in the reconfiguration of power relations within the democratic movement and society in general. This is a necessary condition for shifts in state policy as outlined here to occur. The working class is thus required to consistently fight for this framework to find expression in state policy and practice.

5. The Character and Role of the State in the New Growth Path

5.1 At the advent of democracy in South Africa, neo-liberal globalization was at its height and provided an overarching context for public-policy making and socioeconomic development in all but a few countries in the world. Hence, the defined role and character of the state that emerged from the ruins of the apartheid state were by and large shaped by this hegemonic neo-liberal paradigm. Neo-liberalism provided the ideological thrust behind the restructuring of the public service and the public sector as a whole.

5.2 The official refrain was that the role of the state was not to create jobs and that the state should not intervene in the economy because this would crowd out private sector investment, distort incentives and lead to inefficient allocation of resources. Instead, the refrain went, the role of the state is to create a conducive political, legal and economic climate for private sector investment, and therefore economic growth.

5.3 Attempts were made to render the emerging democratic state into a "regulatory state" through the "right-sizing" of the public service, to "down-size" the public sector through privatization and deregulation. Generally a figment was presented which assumed that the state is above class conflict, sets parameters and arbitrates class conflict, steers social contradictions in the direction of national interest. Obviously this conception and practice engendered a highly conflictual relationship between the state and the working class. Notwithstanding episodes of cooperation, for the most part, the first three terms of the democratic government were defined by an overarching conflictual relationship over the class character of the policies that were pursued by the state.

5.4 The state is a strategic centre of power and is not class, gender and racially neutral. Each class, even within gender and racial categories, constantly seeks state power because invested in such power is monopoly over the police, army and intelligence structures which can be used for repressive purposes, power to levy a tribute in the form of taxation, print money and to engage in borrowing on behalf of the country. State power also guarantees that the class that wields it has access to national productive resources and to determine their use. It is within this context that the role of the state should be framed.

5.5 The working class has to be clear about the possibilities that exist, if it wields state power, to advance social development in its own interest. Furthermore, the working class has to be clear about the limitations of advancing a social development agenda in the context where it does not wield state power. The institutional mechanisms through which the working class seeks to shift state policy must be assessed and a review of the energies that are invested in various platforms where policy is discussed must be undertaken^[41]. A question about the role of these engagements in de-mobilizing class struggle rather than advancing it has to be discussed^[42].

5.6 From COSATU's perspective, the discussion about the developmental state; its structure, capacities and role must be firmly grounded in class analysis. State policy expresses intra-class and inter-class dynamics, it serves as a co-ordinating mechanism to enact the interests of underlying class forces, depending on which class wields power. The class, race and gender character of the state normally flows from the pattern of ownership of the means of production.

5.7 In the South African case, the state is rooted in the matrix of these social relations. In the past 16 years, attempts to resolve the racial pattern of ownership of the means of production have been severely limited, and have been accompanied by escalation of class exploitation and domination. Efforts to resolve the gender question have only served to deepen the race and class dimensions-because on the economic front, among women whites were the major beneficiaries of Affirmative Action policies in the past 16 years and (mainly black) working class women faced casualisation, unemployment and extreme poverty.

5.8 Therefore a key question that will have to be answered as a point of departure in discussions about the developmental state is: in whose class interest is the developmental state constructed? Building state capacity, restructuring its organs and redefining its role in the economy in particular can either serve to deepen and escalate the exploitation, oppression and domination of the working class or it can reduce and ultimately eliminate such phenomena. As is argued below, the retreat of the state from the provision of basic goods is one way in which the state was impelled to intervene in order to express a resolution of the conflict between the black and white capitalists and to create a link between the two fractions of capital.

5.9 A materialist analysis of the state demands that the economic beneficiaries over the past 16 years be specified. Those who benefited are the ones who wield state power and thus are responsible for the socio-economic trends that have emerged over the same period. The analysis of trends in income distribution, unemployment, poverty, health, education, housing and access to basic utilities over the past 16 years points unambiguously to the capitalist character of the state. The analysis also shows that this state, whilst it represents an advance over the apartheid capitalist one in the sense that it has reduced the brutality of exploitation, has nevertheless facilitated the deepening and escalation of exploitation under more humane conditions.

5.10 The role and character of the developmental state that is envisaged,must a least be informed by the following^[43]:

Firstly, its outlook must be:

• Working class biased
• Based on participatory democracy
• Anti-imperialist

Secondly, the state must decisively intervene in the economy to redistribute resources in order to address:

• Divisions resulting from our Apartheid past
• Unemployment, inequality and poverty
• Rural-urban development divide

Thirdly, the state must take direct responsibility and must rely less on the private sector and market forces through:

• Nationalization of strategic sectors and ownership of productive resources
• Promotion of co-operative and other worker-centred forms of ownership
• Support downstream industries and lead industrial development
• Promotion of regional integration based on an anti-imperialist outlook
• Structured relations with extra-state organs of mass power

Fourthly, it must strive to achieve universal access to:

• Decent jobs
• Quality education
• Quality healthcare
• Comprehensive social security
• Decent housing
• Access to water, energy and sanitation

5.11As noted by COSATU in 2001, the balance of power is the most important factor that will determine whether the state fulfils these obligations and meets these requirements. The failure of the democratic forces to dislocate white capital from power and the reconfiguration of class forces inside the movement itself has meant that the state had to give way in critical areas of the economy, to allow the emergent black capitalist class to accumulate capital^[44]. This has taken the form of the state moving away from directly delivering basic goods such as housing, social infrastructure such as clinics, schools, hospitals and economic infrastructure such as roads. The state then progressively became an administrator of tenders, the collector of taxes, a national fund-raiser through public borrowing, and the disburser of funds. The actual delivery of public goods increasingly rested with the private sector.

5.12It is in this connection that the significance of the "bureaucratic bourgeoisie that uses its access to the state to expand the class of black capitalists" has to be understood. Because the black capitalists do not have the means of production on the same scale and quality as white capitalists, they are objectively forced to collude with the white capitalist establishment, in order to accumulate capital and to deliver on the tenders. In some instances, even the quality of what is delivered leaves much to be desired, if delivery occurs at all^[45]. This collusion essentially leaves the historical architecture of apartheid capitalism intact, with cosmetic changes to fulfil political correctness. But this political correctness is on the basis of an anti-working class, neo-liberal, ideology that calls for a limited role of the state in the economy and the expansion of its role as a tender supplier. Thus, a "tender state" creates an important link between black and white capitalist accumulations. Calling for the state to directly deliver basic goods threatens to fracture this intra-capitalist class linkage.

5.13 In the initial phase of the growth path, the emphasis of the state will be to deliver social and economic infrastructure, and thereby directly create jobs in the process of delivering basic goods and services to the people. But the link between infrastructure expansion and job creation is complicated by the intervention of the private sector through tenders. The reliance on the private sector to deliver basic goods, with the state only playing the role of supervision and tender supply, blunts the employment potential of the infrastructure expansion programme. The technologies that are used by the private sector are based on profit-making and tend to be capital intensive, whereas if the state directly delivers basic goods, it can determine employment intensity in line with its projected employment impact, by choosing labour intensive methods of production.

5.14Given the proper balance of forces and the extent of the problems that have been spawned by capitalism and apartheid, the kind of state that must drive the development process must have various inter-related capacities. In line with the literature on the developmental state, we propose that the state builds the following 4 key capacities:

1. Extractive Capacity: The state must have capacity to extract social surplus, mobilize national resources, in order to fund social and economic development. Extractive capacity includes, but is not limited to:

• The mobilization of national saving for development
• Quantitative regulation of credit allocation by the financial sector
• A progressive tax and levy system

2. Redistributive Capacity: In the extraction and use of national resources, the state must be redistributive, to deal systematically with the history of dispossession and the failures of neo-liberalism. This can be achieved through:

• Improved and expanded provision and access to basic goods and services to the working class and poor communities
• Expanded and comprehensive social security
• Employment guarantee for all willing and able to work at a statutory minimum wage, to expand public sector roll-out and maintenance of basic goods and services
• Low interest rate policy that redistributes social surplus from financial rentiers and speculators, to industrialists in targeted sectors through Development Finance Institutions and the State Bank
• Promote collective forms of ownership, small and medium enterprises through credit access, access to capital equipment and technology, markets and skills
• Tax on financial transactions, to re-orient investment towards the productive sector

3. Transformative Capacity: Transformative capacity relates to the capacity of the state to change the industrial structure and lead the process of social transformation. This includes:

• Production and allocation of strategic inputs to targeted sectors at affordable prices, e.g. water, energy, steel, chemicals, fertilizers, capital equipment, etc.
• Maximize direct and indirect labour-intensity and localization of public expenditure through setting clear targets for all state sector entities (SOE's, Agencies and Departments)
• Lead and support research and development of new technologies and products in order to meet basic needs and to improve the global competitiveness of the South African and the regional economy
• Develop a clear national innovation system-linking state entities, education and training institutions, research institutions, civil society and the private sector.
• Set up aggressive targets and punitive measures to promote social transformation-dealing with divisions and unequal access to resources and power as a result of continued apartheid networks in the economy and society
• Remove the profit motive from the provision of basic goods and services, increase labour-intensity of state expenditure and support BEE in the productive private sector

4. Administrative Capacity: The state must have a highly skilled technical cadre to drive the state apparatus and the economy as a whole. This will improve the efficiency, quality and pace of delivery of basic goods and services such as infrastructure, administration of justice, provision of social security, social amenities, etc. Administrative capacity can be improved by:

• Clear career-pathing in the state apparatus
• Aggressive human resource development of public servants across all spheres of government, SOE's and Agencies
• Closing the pay-gap between the private and public sectors through, among others, the tax system and putting controls on private sector pay
• Improving the education and training system, setting clear targets and punitive measures to higher education and other post-secondary education institutions
• Increasing the role of strategic state institutions, especially SOE's and Agencies, in improving access and shaping the content of education and training
• Filling and creating new strategic posts in the state apparatus, informed by the new role of the state
• Efficient and effective utilization of existing capacities, by constantly assessing areas of under-allocation and over-allocation of public resources, in line with changes in areas of emphasis in the state developmental programme
• Set up punitive measures against corruption in both private and public sectors

5.15The key levers of the developmental state will be the departments, state-owned enterprises, agencies and financial institutions.

Departments must:

• Provide political oversight over agencies and entities under them
• Submit reports, detailing their performance in line with developmental targets^[46]
• Use budgets to support targeted sectors as identified in the Industrial Policy Action Plan 2
• Co-ordinate activities of State-Owned Enterprises and Agencies and direct them towards employment creation, delivery of basic goods and services, in line with their developmental mandates and targets

State-Owned Enterprises and Agencies must:

• Increase the labour-intensity of their budget expenditure and contribute towards overall labour-intensity of the economy
• Provide decent work, eliminate outsourcing, the use of labour brokers and precarious work
• Procure inputs from local industries, in support of IPAP 2
• If they procure from foreign firms, they must put in a provision for skills and technology transfer to local firms
• Play a leading role in revitalization of rural economies through economic and social infrastructure provisio
• Lead in skills development through bursary schemes, partnerships with relevant institutions, targeting those located in rural areas and former Bantustans
• Support research and development of new technologies to promote cost-effective ways of producing and to benefit downstream industries
• Eliminate the profit motive from the delivery of infrastructure, by directly delivering infrastructure, basic goods and services to the economy and communities-this means building internal skills
• Produce strategic inputs for industries: water, electricity, steel and other metals, cement and chemicals

5.16 The state must not shy away from creating new enterprises that are geared towards the production of basic goods such as transport. For example, the national innovation system that underpins the new growth path should exploit and consolidate all existing technologies that have been developed domestically, with a view to reduce the reliance of the country on foreign technologies. For example, linking automotive manufacturing and advances in South Africa's military technologies may open new opportunities for the country to manufacture its own vehicles cheaply-thereby lowering the costs of public transport. The state can also create its own construction, cement, automotive, capital equipment and financial enterprises.

5.17 That a state is developmental cannot be legislated, it depends on what the state does and how it does it. In our case, a state will be developmental if it develops its capacities to address the terrible legacy of apartheid and capitalism. In this connection what has emerged over the past 16 years has been a developmental state for black and white capitalist accumulation. However, because the latter were dominated by traditional conglomerates and short-termist financial interests, which have no incentive to promote industrial diversification beyond what we historically inherited from apartheid, the state lost its long-term planning perspective. We now sit with a complex of crises ranging from energy, water, unemployment, education, health and poverty.

FOOTNOTES

^[1] Workshop on Economic Policy for a Post-Apartheid South Africa, Harare 28 April-1 May 1990.

^[2] The concept found prominence in the subsequent Ready to Govern: ANC Policy Guidelines, 28-31 May 1992 and has ever since found citizenship among some important policy documents.

^[3] Report of the COSATU Economic Policy Conference, 27-29 March 1992.

^[4] Making Democracy Work: A Framework for Macroeconomic Policy in South Africa: A Report from the Macroeconomic Research Group to the Members of the Democratic Movement in South Africa, Centre for Development Studies, University of the Western Cape, 1993.

^[5] It could be argued that off-shoots of neo-liberalism emerged in 1992 in the Ready to Govern document, where it is mentioned that: "Emphasis will be placed on macroeconomic balance, including price stability and balance of payments equilibrium", and furthermore in the 49^th Conference of the ANC held in Bloemfontein in 1994, where it was noted: "That the economic legacy of apartheid featured levels of inequality, unemployment and economic disempowerment of the majority, and the concentration of ownership by the large conglomerates" but then we "resolved to endorse belt-tightening...fiscal discipline, along with monetary stability..."

^[6] The trouble with these justifications was that they never challenged the concentration of power by a few conglomerates. The justifications about lack of resources to fund the RDP were drummed up whilst conglomerates continued to take capital out of the country.

^[7] Growth, Employment and Redistribution: A Macroeconomic Strategy, Department of Finance 1996, p.4.

^[8] Social Equity and Job Creation-The Key to a Stable Future, Proposals by the South African Labour Movement, 1996, p. 10.

^[9] Two instances are instructive in this regard. Firstly a consensus on the role of the state was reached in 1998, but this had little impact on government policy. Government continued to downsize and right-size the public service (See the Report: "Accelerating Transformation", 2000, p.71). Secondly, the "post-GEAR consensus" of 1998 showed that "Alliance agreements appeared to have limited impact on thinking at the level of government" (Accelerating Transformation, p.85).

^[10] COSATU Central Executive Committee Political Discussion Paper, July 2001.

^[11] An instance in this regard is the issue of the youth wage subsidy, which was rejected by COSATU and later by the ANC NGC in 2005. This issue disappeared from the radar, only to emerge in the Budget Speech on 17 February 2010 from the ranks of the state bureaucracy. More instances are cited in the COSATU report on "Accelerating Transformation"

^[12] These are based on the Quarterly Labour Force Surveys (2009 and 2010) and Quarterly Survey of Employment and Earnings (2009).

^[13] The Role of the Working Class and Organized Labour in Advancing the National Democratic Revolution, ANC Policy Discussion Document, 2007.

^[14] Labour Force Survey, October 2009.

^[15] Fact Sheet No1-Poverty in South Africa, Human Sciences Research Council, 26 July 2004.

^[16] Towards a 15-Year Review, The Presidency, 2009, p.18. R322 a month is said to be a "high poverty line", but a crude calculation shows that this cannot cover items such as cooking oil, soap, sugar, tea, clothes, transport etc. if an individual buys 12.5kg of mealie-meal, 4 full chicken portions and 12 loaves of bread.

^[17] Development Indicators 2009, The Presidency, p.25. These are based on Income Expenditure Surveys.

^[18] Human Development Report: Fighting Climate Change-Human Solidarity in a Divided World, 2007/08, p.283.

^[19] In the Budget Speech 2010, the Minister of Finance notes that in South Africa "income inequality is among the highest in the world; and half of our population survives on 8% of national income". Nevertheless, the policy proposals that are contained in the Budget Review 2010, completely fail to address this problem.

^[20] See Budget Speech 2010.

^[21] McGregor's Who Owns Whom, 30^th Edition, 2010, p.45.

^[22] Quarterly Labour Force Surveys (2009) and Quarterly Survey on Employment and Earnings (2009 Quarter 1).

^[23] This is far worse than in the US, where it is estimated that CEO pay was 319 times that of the average worker in 2008. See America's Bailout Barons, S. Anderson et.al, Institute for Policy Studies, 2009, p.2.

^[24] Community Survey, 2007.

^[26] See A. Ntingi and B. Hlatshwayo: Blacks Own Less Than 2% of JSE, Fin24.com, 28 March 2010.

^[27] Figure supplied by Duma Gqubule, Kio Advisory.

^[28] Figures supplied by Duma Gqubule, Kio Advisory.

^[29] See the Employment Equity Report (2008/2009).

^[30] World Development Report (2006): Equity and Development.

^[31] World Development Indicators, 2009.

^[32] See G. Barnard (2009): Realizing South Africa's Employment Potential, OECD Working Paper No. 662.

^[33] It is due to such realities that the ANC noted in 1969: "We have suffered more than just national humiliation. Our people are deprived of their due in the country's wealth; their skills have been suppressed and poverty and starvation has been their life experience. The correction of these centuries-old economic injustices lies at the very core of our national aspirations".

^[34] COSATU CEC Report, 01-03 March, 2010.

^[35] Development Indicators 2009, The Presidency.

^[36] D. Hemson and K. Owusu-Ampomah: The "Vexed Question": Interruptions, Cutoffs and Water Services in South Africa, in Pillay U. ed.: South African Social Attitudes-Changing Times, Diverse Voices, HSRC Press, 2006, p.161.

^[37] Towards a Fifteen Year Review, The Presidency, 2009, p.73.

^[38] Central bank independence takes two forms: goal independence, when the central bank determines the goals of monetary policy. This form of independence is hardly practiced. The SARB is not goal independent, its policy framework comes from the National Treasury, b) operational or instrument independence, which the SARB enjoys, is when the central bank is allowed discretion to use whatever instrument or strategy it deems most appropriate in order to achieve the goals that are set by government. We are here concerned about instrument independence.

^[39] For example the Federal Reserve Board could not account for trillions of dollars printed during the economic crisis that started in 2007. In another instance, when they want to take funds abroad, conglomerates can engineer a policy of strengthening the exchange rate, with the help of the central bank, thereby draining the country of foreign exchange reserves.

^[40] Here, we limit our attention to the natural environment. It should however be noted that the broader social environment, e.g. the environment that protects women's rights, human rights, workers' rights, has a significant impact on poverty alleviation and economic development.

^[41] The First Term Report of the COSATU Parliamentary Office titled "Accelerating Transformation", was published in 2000. Perhaps, an updated report may be necessary to consolidate the experience of the working class between 2001-2009, and to systematically reflect on strategy and tactics of the working class.

^[42] An example of how the working class found itself mired in a web of institutional engagements that produced protracted discussions without policy change is the engagement around GEAR. See COSATU Central Executive Committee Political Discussion Paper, July 2001.

^[43] COSATU Submission to the Public Service Summit, 2009.

^[44] This position is articulated in various resolutions of COSATU: "Congress notes the promotion of privatization of state assets as a way to promote black enterprise...and resolves to strengthen the role of the state to resolve the historic marginalization of the majority and to reverse the privatization of state assets, which is being justified in the name of black economic empowerment", COSATU 8^th National Congress or "Congress notes that the current BEE policies of government seek to replace white monopoly capital with a non-racial monopoly capital and that many attacks on the working class in last 12 years has been a result of active promotion of BEE by either the private sector or the state...", COSATU 9^th Congress.

^[45] It is estimated by the Minister of Human Settlements that 50 000 houses have to be rebuilt because of poor workmanship. This amounts to R1billion. At a wage of R3 000, this money could have created 5 555 public sector jobs that would last for a period of 5 years, lifting an estimated 20 000 South African out of poverty.

Source: COSATU, September 14 2010

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