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TRANSFORMATION 12 1990 ARTICLE DEMOCRATISING ECONOMIC GROWTH ALTERNATIVE GROWTH MODELS FOR THE FUTURE Stephen Gelb The debate about future economic strategies and development paths for South Africa is being conducted at present in terms of two separate concerns redistribution and growth The former is a response to the need to redress the extreme inequalities in distribution of income and wealth and the related disparities in living standards for which South Africa is notorious and which have historically been expressed essentially in racial terms The latter is a response to the severe decline in South Africa s economic growth performance over recent years which has evidently coincided with and been linked to the change in the political balance which has now finally brought us to the edge of negotiations I take as implicit both the need for significant reorganisation of our economy and society to redress racial inequalities in distribution of economic power and resources as well as the explanation at least in broad terms for the existing situation as put forward during the 1970s by the radical view of South African development This paper begins instead with an examination of the nature of South Africa s economic decline and of the obstacles which exist to restoring sustained growth in the future It then continues with an examination of the business government attempt to counter this decline The fourth section spells out in broad terms an alternative approach to restoring economic growth one which is being debated and developed by economists and others linked with the ANC and its allies South Africa s Economic Crisis The essence of the argument developed at greater length elsewhere is that considered in the context of a long run perspective on capitalist growth and development the South African economy has been in an economic crisis since 1974 The popular connotation associated with crisis is an idea of collapse or breakdown But the original more useful meaning of the term is turning point In this sense a crisis in a capitalist economy implies that the system cannot continue to develop along the same path as before it must 25 GELB TRANSFORMATION adapt or die as PW Botha eloquently expressed it more than a decade ago South African capitalism reached a turning point in the mid 1970s reflected in both the decline of the long run growth rate of the GNP as well as the more unstable and volatile shorter run cyclical fluctuations since that time as compared with the period following World War II These changes in the pattern of GNP growth have been linked to the failure of the growth model the combination of patterns of production distribution and consumption in other words the form of capitalist growth which had characterised the postwar period of relatively sustained economic expansion The years since have seen the decay of this old order and the emergence thus far of only some elements of a possible successor The turning point has not yet been fully traversed the crisis continues The growth model which emerged in South Africa in the postwar period focussed on extending industrialisation via the production of previously imported sophisticated consumer goods for use primarily within South Africa A possible alternative orientation would have been to expand production of basic consumer items for both larger domestic and foreign markets This was the path followed by south east Asian industrialisers like South Korea Two primary factors pushed South Africa perhaps inevitably towards the former path racial domination creating political pressure to substantially raise white living standards while similar black demands were repressed mineral wealth making it possible to pay for the necessary machinery imports The resulting growth model has been called racial Fordism to indicate that racial domination was the pre eminent factor shaping economic institutions It combined import substitution industrialisation ISI with the apartheid structuring of the labour and consumer goods markets Whites were in a similar position to the working classes of the advanced industrial countries with steadily rising living standards while blacks especially Africans remained relatively impoverished though their incomes did rise slowly Thus inequality increased The essential foundation of racial Fordism was the expansion of exports of gold and other precious metals and their stable prices on world markets Overall export earnings were relatively stable as distinct to constant so that there was only limited variation in the investment coefficient the ratio between investment and GNP over the course of the business cycle This model fitted well with growth patterns in the major industrialised economies and like these countries South Africa grew rapidly with an average GDP growth rate of 4 9 per annum between 1945 and 1974 While 26 TRANSFORMATION GELB cyclical fluctuations occurred there was a relative stability in the long run in the relation between the changes in labour productivity and in capital intensity so that the wage share was relatively constant The interaction between these variables followed a similar pattern as found in the advanced economies though productivity growth and wage share in South Africa were both at lower levels absolutely The model s success in achieving growth brought its own problems however The emphasis on capital intensive production methods meant first that employment rose but slower than the overall labour force so that unemployment also rose Also machinery and intermediate production inputs came to dominate imports so that the ability to expand production was increasingly tied to balance of payments considerations By the start of the 1970s there were already clear indications that these factors were becoming serious obstacles Indeed these rigidities helped to shape the manifestations and impact of the economic crisis as it has developed their legacy constitutes two of the key problems we confront today But more immediate problems arose linked to the wider crisis developing in the international economy as a whole There were three immediate causes of the crisis Firstly rising costs of imports of both machinery and commodities especially oil after 1973 which raised the cost of investment and productivity improvement in South Africa Secondly the collapse of the Bretton Woods system of fixed exchange rates led to fluctuating prices on world markets for South Africa s mineral exports which now

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