Introduction
In his 1994 contribution to the Review of African Political Economy, ‘Why structural adjustment is necessary and why it doesn't work’, Gavin Williams joined a rising chorus of scholars publishing in ROAPE and elsewhere, who were criticising the negative effects of structural adjustment on class politics, on the supply of public goods, and on jobs, wages, prices, and services (Williams 1994; see also Campbell and Loxley 1989, Mahjoub 1989, Onimode 1989, 1992, Young 1991, Cornia et al. 1992, Gibbon et al. 1992, Beckman 1993).1 Drawing on his article for inspiration, this study examines the commitment to privatisation in the 1990s by the government of South Africa and the impact of that policy over a decade later. I make two claims that run counter to the literature on privatisation and that reinforce Williams's earlier arguments. First, privatisation was a key element in the effort by the post-apartheid government to expand black ownership and in so doing, to forge a bond between the state and capital. Yet, second, persistent concerns over equity, preferential procurement, and job losses forced the state increasingly to depend on parastatals after the turn of the century and in doing so, to abandon the privatisation of remaining state assets. State-owned enterprises (SOEs) have now become an integral component of the state's developmental agenda alongside the problematic expansion of the private sector into areas that have typically been the state's responsibility. As the article will argue, this developmental state project looks less like that associated with Asian countries and more like that practised by Latin American governments until the 1970s.
Privatisation embraced
Within two years of its victory in South Africa's first democratic elections of 1994, the African National Congress (ANC) government led by President Nelson Mandela had adopted far-reaching structural adjustment reforms grouped together in the strategy known as GEAR (Growth, Employment and Redistribution). In doing so, it followed the turn to neoliberal policies made not only by the former apartheid government, but also by many other African governments in the wake of economic crisis. The justification for this policy choice offered by Alec Erwin, who was minister for trade and industry at the time, was that other countries that had adopted a similar package of policies had ‘grown significantly over the last 10 or 15 years’ (cited in Gumede 2007, p. 107).
Although South Africa was not experiencing economic crisis to the same extent as other African countries, it nevertheless confronted severe fiscal and monetary imbalances by the early 1990s. As Williams noted, ‘the “new” South Africa inherits a legacy of a sharply devalued currency, high inflation, bloated bureaucracy and international debts – combined with claims from the majority of the population for access to better education, more housing and expanding employment opportunities' (1994, p. 217). Following its neighbours, the government implemented a package of reforms that contained many of the standard prescriptions advocated by the international financial institutions. By 1996, it was promoting balanced budgets, deficit reduction, trade liberalisation, cost recovery schemes, and potentially most far-reaching of all the reforms, privatisation (see Habib and Padayachee 2000, Chabane et al. 2006).
Although many features of GEAR were similar to policy reforms adopted by countries that were experiencing more severe crises, the decision to privatise also served other goals of government, particularly that of black economic empowerment (BEE). BEE comprised a varied set of regulatory initiatives and funding mechanisms aimed at redressing the country's legacy of systematic economic marginalisation of the black majority. Its goals were to reverse the long-standing patterns of racial discrimination with respect to employment, land tenure, and ownership; to support small and medium-sized businesses belonging to historically disadvantaged groups; to encourage and finance the purchase by black investors of equity stakes in existing companies; and to build a workforce that reflected the demographic make-up of the country (Southall 2004, Tangri and Southall 2008). Privatisation aligned well with the goals of BEE because it offered opportunities for increasing black ownership (Reddy 2004, p. 23).
By 2004, just eight years after it committed to the privatisation of parastatals, the government had received just over R21 billion (approximately US$3.3 billion) from the full or partial sale of approximately 26 former parastatals (Rumney 2004, p. 2). Regarding proceeds from sales and the average sale value per transaction, South Africa was the top recipient in Africa (Berthélemy et al. 2004, pp. 24, 33). Transactions included the sale of six South African Broadcasting Company (SABC) stations, state-run resorts, a forestry company, and several airports. Partial privatisation of South African Airways (later renationalised) and of the four largest SOEs (Denel, Transnet, Telkom and Eskom) also occurred. With respect to these latter parastatals, the government divested some non-core assets or sold a percentage of shares, but retained a majority interest in the remaining core enterprises (Department of Public Enterprises 2001, 2002).
Both domestic and foreign buyers took advantage of privatisation to purchase companies. Consistent with the goals behind black economic empowerment, most privatisation deals included black investors. They benefited from the full or partial sales of six SABC stations; two forestry companies; a small airline company; resorts; a small percentage of MTN, the cellular telephone network; and shares of the fixed line, telecommunications operator, Telkom (Rumney 2004, p. 2, Reddy 2004, pp. 23–24). With regard to the latter, the state offered shares to foreign and institutional investors, BEE firms, managers, workers and the public. After 2003, it gave historically disadvantaged groups a 20% discount on the initial share price with promises of additional shares if they hung onto their shares for a minimum of two years (Horwitz and Currie 2007). Moreover, both Transnet and Eskom divested non-core enterprises to BEE firms or to new parastatals that complied with empowerment goals (Rumney 2004, pp. 2–4).
Purchases by foreign investors accounted for about 40% of total proceeds from sales of SOEs. One sale, the sale of Telkom, constituted the bulk of this amount. The US telephone giant AT&T formed a consortium with Telekom Malaysia called Thintana Communications to purchase 30% of Telkom in 1997 at a cost of over R5 billion (US$1.2 billion). This was reversed when Thintana divested in 2004, two years after a clause giving the private investor exclusive managerial control over the company expired (Horwitz and Currie 2007). In addition, investors from the US, UK, France, and Germany became strategic equity partners in telecommunications, the defence industry, and the transport sector. American investors also purchased tourist resorts (Rumney 2005, p. 9).
Privatisation stalled
Yet, by 2003, the government had sold only around 9% of state assets. SOEs still comprised 44% of fixed capital assets and contributed 14% to the Gross Domestic Product (GDP) (Rumney 2004, p. 3). Tellingly, the government did not sell off its most important SOEs such as electricity supply and generation, defence manufacture, telecommunications, and transport services; rather it reconfigured them in order to pursue closer relationships with private investors, to rationalise operations, to establish linkages with historically disadvantaged firms, and to appease trade unions in those industries. Further sales of existing parastatals with significant weight in the economy did not take place.
Barbara Hogan, the former minister for public enterprises stated in 2009 that, ‘since 2004, government policy has shifted decisively from preparing SOEs for privatisation to ensuring that they are sustainable businesses that provide economic benefit to the country’ (Hogan 2009, p. 2). Accordingly, the strategic plan for 2009–12 called for the more active intervention of the Department of Public Enterprises (DPE) to assist SOEs in contributing to employment and growth, and envisioned a role for SOEs as ‘powerful instruments of the developmental state’ (Molefe 2009, p. 3). The strategic plan recognised the potential contribution of SOEs in addressing market failure, providing infrastructure, offering procurement, absorbing labour, and partnering with foreign and domestic private-sector stakeholders on large capital outlays (Department of Public Enterprises 2009, pp. 4–8).
What is the meaning of the government's reversal on the privatisation of parastatals? Why did it not ‘work’? Many critics have asserted that commercialisation and corporatisation, which continue to figure so prominently in the language of the ANC's economic policies, effectively accomplish the same ends as privatisation. They point to the reduction of jobs in the state sector over the last 15 years, the impact of cost recovery approaches on the poor, and the increased casualisation of labour that has followed the ‘rationalisation’ of the workforce in some sectors – all outcomes of structural adjustment that Williams predicted in 1994 (see also McDonald and Pape 2002, Bond 2002). Policies of corporatisation and commercialisation seek to promote efficiency, corporate governance, market principles and other neoliberal goals. Equally troubling is that private-sector presence is increasingly apparent in areas such as urban governance and the provision of policing and security that typically are the responsibility of the state (McDonald 2008, Murray 2011, Samara 2011). Moreover, the persistence of distributional conflicts across a variety of sectors indicates that the strategy still generates its share of losers and sceptics from business and labour. These outcomes suggest to many that ANC strategy has been marked more by policy consistency than by policy change in the last decade.
Yet, failing to distinguish between the sales of state assets (or privatisation) and the restructuring of existing SOEs to make them more profitable and competitive (also called corporatisation or commercialisation) underestimates the ways in which different stakeholders in SOEs, the Alliance (a tripartite alliance formed in the 1990s among the ANC, the Congress of South African Trade Unions/COSATU, and the South African Communist Party to foster unity and coordinate strategy), and civil society used their access to the state to bring about a shift in strategy even before the end of President Mbeki's first term. Although both the Mbeki and Mandela governments were interested in sidestepping the conflicts associated with privatisation by referring instead to ‘restructuring’ in most key policy documents, the shift that occurred during the Mbeki administration was not simply semantic. The sheer size of the largest SOEs and the many avenues of political access in South Africa's democracy gave numerous opportunities to organised interests such as black parastatal managers, trade unionists, or consumers to oppose divestitures.
The reasons behind their opposition were multiple and conflicting. Whereas trade unions feared the loss of union jobs and a decrease in salaries and benefits that might come with the sale of SOEs, black managers anticipated a possible decline in the availability of managerial positions for black South Africans should the divestiture of SOEs proceed. Moreover, it is likely that widespread, well-organised protests by consumers, unions, non-governmental organisations, and social movements over cost increases following private-sector provision of basic services such as electricity and water influenced government decisions to halt outright divestitures (Pitcher, 2012).
As Williams claims, governments have two choices when faced with the popular rejection of structural adjustment: to ignore and suppress popular discontent, or to adjust structural adjustment (1994, p. 224). The Mbeki administration spent the first few years in office pursuing the former approach before embracing the reassuring language of the developmental state and modifying structural adjustment. The shift was too little and too late to spare the administration from the wrath of supporters on its left flank, and they voted to replace President Mbeki at the ANC's Polokwane conference in late 2007 (Darracq 2008).
The developmental state
To recognise the continued strength of trade unions, the power of well-orchestrated social movements or the capacity of managers of SOEs to force a policy change on privatisation is not to suggest that what we have now in South Africa is a ‘developmental state’. This phrase keeps popping up in nearly every commentary on economic policy in South Africa. Government officials have promoted it; conferences have analysed it; academics have criticised it (Freund 2007, Gumede 2007, 2009, Bond 2008, Edigheji 2010, Marais 2011, pp. 338–359).2 It seems to mean everything to everyone; it is non-threatening and it appeals to different constituencies from emerging black capitalists to labour unions.
But if what is meant by ‘developmental state’ is similar to Chalmers Johnson's depiction of Japan after World War II, then the term may be an inappropriate one in the South African context. According to Johnson's now-classic analysis, Japan's phenomenal post-World War II growth can be ascribed to ‘conscious and consistent governmental policies dating at least from the 1920s’ (1999, p. 37). After World War II, these efforts were driven by economic nationalism and grounded in a desire to catch up with the West. To accomplish these objectives, Johnson argued that it required first ‘a small, inexpensive, but elite state bureaucracy staffed by the best managerial talent in the system’ (1999, p. 38). Second, this bureaucracy must be sufficiently insulated from politics and given latitude to perform its duties without interference. Third, the state must have control over a number of ‘market-conforming methods’ such as financial institutions, parastatals (of the public–private variety), and a tax regime. It should support research and development as well as foster opportunities for discussion. Fourth, the Japanese model included an agency within the state that essentially spearheaded, controlled, and managed the process. It had its own budget and possessed ‘internal democracy’ (Johnson 1999, pp. 39–40).
Allowing that, as Johnson pointed out, such a model cannot be ‘duplicable’ (Johnson 1999, p. 40), one still has to highlight the ways in which South Africa's approach falls short of the Japanese model. First, in spite of a weakly orchestrated effort to encourage consumers to be ‘proudly South African’ by purchasing locally produced goods, the extent of South Africa's integration into the global economy makes the pursuit of economic nationalism unrealistic. Second, the bureaucracy is plagued by severe skill shortages and inexperience. It is not now, nor was it ever, insulated sufficiently from politics. As the National Party discovered, the ANC finds that public sector appointments serve as useful tools for dispensing patronage or currying favour with vested interests (see also Gumede 2009, pp. 55–59). Third, although it is theoretically possible that the National Planning Commission under Trevor Manual could prove comparable to Japan's now famous government agency, the Ministry of International Trade and Industry (MITI), most indications are that it serves more as a strategic planning, advisory body populated by South Africa's leading academics and entrepreneurs than the developmental powerhouse that MITI was (South African Press Association 2010).
Turning to those ‘market conforming’ tools over which developmental states should exercise control in order to foster economic growth, South Africa again demonstrates mixed results. Given its exposure to foreign markets, the government has reduced control over financial policy and this appears critical to the kind of development that took place in South Korea or Taiwan, for example (Woo-Cumings 1999, p. 11). In addition, although its exchanges with big business are not acrimonious, they do not yet approximate those ‘mutually beneficial relations’ (Johnson 1999, p. 60) between state and business that appear to be the hallmark features of developmental states from Japan to South Korea and that are necessary to the realisation of such a state's economic objectives.
If not yet a developmental state then perhaps it is a developmental-state-in-the-making? The key instruments this state has at its disposal in order to approximate some of the features embodied by other developmental states are legislation, parastatals, public works programs, special funding mechanisms, and networking with the business sector. However, the uses to which the South African government is putting these different public instruments reflect a developmental state that is more like those in 1970s Latin America described by Schneider than that depicted in Japan by Chalmers Johnson. Their purpose is to favour the politically well-connected, to exclude or co-opt potential critics, and to enhance state power (Schneider 1999, pp. 276–305). Recognising that democratic institutions in South Africa offer a check on some of the predatory excesses associated with such goals, nevertheless, the accumulation of power and political favouritism are ever-present in South Africa. After detailing the substance and purpose of the key instruments, I will then explain the broader objectives they intend to realise.
ASGISA, B-BBEE and the New Growth Path
The joining of neoliberal principles with developmental aspirations surfaced clearly in the Accelerated and Shared Growth Initiative for South Africa (ASGISA), which was launched in 2003–04 and then made a national strategy in 2006. ASGISA continued to emphasise key neoliberal themes such as efficiency, growth, liberalisation, and competition but it blended these themes with a focus on reducing poverty, generating employment, increasing skills, and strengthening state capacity (Presidency of South Africa n.d.).
Central to ASGISA was an expanded, revised approach to black economic empowerment (BEE), a policy goal repeatedly expressed but inconsistently pursued after 1994. The government revised the policy in response to criticism that previous initiatives had focused too narrowly on ownership at the expense of skills training or a more representative workforce from senior management to entry-level positions. Black Management Forum, a prominent business association for black managers, which drove the policy revision, observed that owing to the weakness of the earlier legislation, black South Africans who were becoming owners were merely ‘fronting’ for companies that wanted to comply with the rules. They had no real power nor did they acquire substantial equity in the firms they ‘owned’.3 Tellingly, in spite of efforts to expand black ownership through divestitures, companies with black ownership of more than 25% of the total equity comprised less than 2% of the assets listed on the Johannesburg Stock Exchange a decade after the transition to democracy (Tangri and Southall 2008, p. 700).
By 2003, the government replaced the narrow, ad hoc approach to BEE of the 1990s with more comprehensive legislation, the Broad-Based Black Economic Empowerment Act (B-BBEE). As previously, the revised policy aimed not only to encourage black ownership and a representative workforce, but also to promote skills development, managerial control, and procurement policies aimed at black-owned businesses (Department of Trade and Industry 2003). From 2007, the government introduced codes of good practice that awarded points to existing companies for procuring goods from BEE firms or extending equity to historically disadvantaged investors. Companies with a turnover of more than R5 million were expected to comply with a certain number of elements of the scorecard depending on their size. Any company that did business with the government had to address each element of the scorecard while those companies with a turnover of less than R5 million were exempt from compliance. In each sector, the government introduced detailed codes and charters regarding the requirements for compliance. It also initiated legislation that specifically targeted small and medium enterprises in particular product areas (Organisation for Economic Cooperation and Development and African Development Bank 2007, p. 497, Mthimkhulu 2008).
The recently launched New Growth Path (NGP) reiterates many of the concerns regarding equity and ownership expressed in ASGISA and repeats the now familiar refrain that the goal of the South African government is to increase employment, create a more representative workforce, enhance competitiveness and foster growth. More than previous policy frameworks, it clearly identifies particular economic sectors that will be targeted to meet the ambitious goal of 5 million jobs by 2020 including agriculture, mining, manufacturing, tourism, infrastructure, housing, and ‘green’ development projects (Economic Development Department (EDD) 2011). To carry out these tasks, the NGP assigns a prominent role to the ‘developmental state’ (EDD 2011, p. 61), and, as has been with case with other developmental states, it is clearly situated within a market-driven economy where ‘private business is a core driver of jobs and economic growth’ (EDD 2011, p. 62). As I discuss below, the instruments of the state are balanced against a continuing and prominent role for the private sector.
The state resurfaces
The public sector and SOEs
Both ASGISA and NGP have provided the institutional foundation for the government's developmental agenda; parastatals, public works projects, preferential procurement, state-managed asset funds, and public–private partnerships (PPPs) are the interlocking instruments for implementing these initiatives. Whereas in the mid 1990s, the government sought to reduce the financial burden of SOEs on the state, increase economic efficiency, foster black ownership, and attract foreign direct investment through privatisation, over the last decade, the government has stressed the importance of SOEs to employment creation and maintenance, the provision of public goods, and black empowerment alongside its continued emphasis on increasing SOE competitiveness, productivity, and profitability (Department of Public Enterprise 2000, pp. 7–8). In the latest strategic plan of the DPE, for example, SOEs are ‘strategic instruments of industrial policy and core players in the New Growth Path’. (Department of Public Enterprises 2011, p. 1)
Instead of selling parastatals, then, the government reversed course and incorporated them into its development strategy. To back up its developmental rhetoric, it allocated considerable funds to SOE investment. Between 2004 and 2007, expenditure on SOEs averaged around 25% of total public expenditure (Quist et al. 2008, p. 34). Over the last decade, parastatals have provided managerial positions for the historically disadvantaged and sustained formal sector, union jobs in a weakening economy. They have met most government targets with regard to employment equity for blacks, women, and persons with disabilities (Erwin 2006). Black managers occupied 55% of the management positions in the public sector by 2005 and the first job for 70% of black university graduates was in the public sector, suggesting that it was playing a critical role in the creation of a black middle class. Slightly over half of black South Africans earning at least R8000 a month were employed by the state or in an SOE (Altman 2005, pp. 14–15, Market Tree Consultancy 2009). Finally, in 2010, five of the largest SOEs – Alexkor, Denel, Eskom, Transnet and Telkom – together accounted for 1.2% of jobs in the total formal sector labour force of about 9 million (Statistics South Africa 2011, p. vi).
Preferential procurement and PPPs
Along with the public sector, SOEs are also the lynchpin of other government-driven undertakings, notably its preferential procurement policy, its infrastructural improvement programme, and public–private partnerships. Almost all of these initiatives endeavour to create and expand black equity, build black managerial experience, and provide or expand employment, and they do so without excluding the private sector. Consistent with the objectives of the Preferential Procurement regulations of 2000, the public sector and parastatals are expected to consider and award tenders for sub-contracted work to firms owned by historically disadvantaged individuals. They are encouraged, but not required, to give preference to locally owned businesses, small and medium firms, enterprises in rural areas, and those that may add new jobs or teach skills if they were to receive a contract (South Africa 2000). For example, by fostering upstream and downstream linkages with private BEE firms, SOEs such as Eskom and Transnet in particular are core nodal points in the creation of networks of suppliers from small and medium empowerment firms.
Similarly, public–private partnerships (either between SOEs and the private sector or municipalities and the private sector) increase black participation at several points in the labour process, from the use of casual or seasonal labour to the participation of black investors. Public–private partnerships are commonly associated with controversial efforts to pursue cost recovery in the area of service delivery. With the support of the US Agency for International Development, the South African government created a not-for-profit company called the Municipal Infrastructure Investment Unit (MIIU) in 1998 to give technical and financial help to municipal authorities seeking to form partnerships with the private sector ostensibly to create, improve, and extend public services such as water, electricity, garbage collection, sanitation, and public transport (Hlahla 1999, p. 567, McDonald 2008, pp. 188–189).
Referred to as municipal service partnerships, they included build, operate, and transfer schemes; management contracts; and fixed-term concessions that varied from 5 to 30 years; or alternatively, some form of corporatisation. By 2004, local authorities had entered into about 40 of these municipal service partnerships across the country, about half of which were focused on water and sanitation provision (Allan 2004).
Owing to their emphasis on cost efficiency at the expense of a consistent supply of essential services such as water or electricity, they were vigorously contested not only by the trade union movement but also by various social movements, especially the Anti-privatisation Forum. In response, the government cancelled some contracts and proceeded more cautiously with respect to others. The MIIU also appears to have been disbanded in 2006. Moreover, after much public outcry, in 2002 the government offered 6000 litres of free water and 50 kW of electricity per household per month, from which the most vulnerable sectors of the population were expected to benefit. In all, 87% of poor households are now covered by the free basic water policy (Global Water Intelligence 2009) yet critics charged that the amount was not sufficient to meet basic human needs. The issue continues to be contested in the courts and on the streets.4
Contestation over service delivery, however, has not interrupted the vigorous pursuit of public–private partnerships by national and local government in other areas of the economy. Notably, new state-driven, greenfield investments such as the Gautrain and building of stadia in preparation for the 2010 World Cup equally exemplify the state's commitment to fulfilling broader goals of employment generation, skills development, and the promotion of black ownership in collaboration with the private sector. The construction of five new stadia and the refurbishment of existing sports facilities was estimated at a cost of R10 billion (Alegi 2008, p. 416).
So far, the Gautrain, a high-speed, passenger rail link, is the most lavish and ambitious of the infrastructure projects undertaken by government and the private sector. At a cost of R26 billion, it is one of the most expensive construction projects ever in Africa. Begun in 2006, it is a public–private partnership between the Gauteng municipal government and the Bombela Concession Company, which is a consortium of private-sector firms. The consortium was awarded a 20-year build, operate, and transfer (BOT) concession to run the railway. It has contributed partial financing of around R3 billion to the project, though as is often the case with PPPs, the government has contributed the bulk of the investment (R23 billion) and shoulders most of the risk (Van Der Westhuizen 2007, pp. 343–344, Gautrain 2011, see also Freund 2007, p. 666).
The composition of the concessionaire again demonstrates the pursuit of empowerment objectives. It consists of six foreign and domestic firms; one of the latter firms, the Strategic Partners Group (SPG), was explicitly designated as a BEE company with a 25% shareholding (Gautrain 2011). SPG was formed in 2002 largely for the purpose of investing in the Gautrain. Individual shareholders include former or current members of the Black Economic Empowerment Commission, the Black Management Forum and the Black Business Council, who have business experience in both the public and private sectors. Corporate shareholders include, but are not limited to, various community trusts or holding companies started by the individual shareholders as well as the Alexandra Chamber of Commerce; Black Management Forum Investment, the investment arm of BMF; and Dyambu Holdings, a women's investment group (Strategic Partners Group 2011).
One of the other domestic investors, the J and J Group, is equally interesting, particularly because it reflects several core constituents of the ANC's political base so well. It was founded by two close friends, Jayendra and Jay Naidoo, who have strong ties to the ANC and to the labour movement. Jayendra represented the ANC at the negotiations that brought about the transition to democracy in the early 1990s and Jay was the minister who oversaw the implementation of the Reconstruction and Development Programme from 1994 to 1996 before becoming communications minister (Gqubule 2004). The J and J Group includes among its 200,000 shareholders a coalition of non-governmental organisations: SACCAWU, a trade union in the commercial and catering sectors with over 100,000 members, and Masincazelane, a social investment trust belonging to the South African Communist Party (J and J Group 2011).
In accordance with the expanded objectives of B-BBEE, the Gautrain project has sub-contracted or procured goods from approximately 350 new or existing BEE firms. The total value of procurement is estimated at around R3.24 billion. Many of the materials used to build the train have been sourced locally. Moreover, the Gautrain has promoted skills training and development and has contracted construction firms that employ unionised workers. The project generated just over 11,700 direct, local jobs by 2008. The development of retail services at the sites of stations is underway (Gautrain Management Agency 2008).
Public works
To complement the reliance on SOEs, preferential procurement, and PPPs to address the demands of the historically disadvantaged, the government implemented an Expanded Public Works Programme (EPWP) in 2004 which built upon earlier public works initiatives begun after the transition to democracy. The objectives of the programme specifically targeted joblessness and the chronic shortage of skills within the South African working class. Administered by all levels of government with the support of SOEs and the private sector, the EPWP offers skills training; financial support to small and medium enterprises; labour intensive, temporary jobs, primarily in sectors such as infrastructure and construction; and support for sustainable livelihoods in rural areas (Department of Public Works 2009).
In its first five years, it provided employment opportunities for around 1.6 million people. This figure exceeded the original government target of creating one million ‘work opportunities’ over five years. Regarding higher-quality, full-time work, however, only 550,915 person-years of employment were created. Wage rates varied considerably among the sectors that provided employment. In some cases, the wages offered were below estimated cost of living expenses and did not keep pace with the rate of inflation (Department of Public Works 2009, p. 110). Phase II of the project from 2009 to 2014 anticipates the creation of a further four and a half million ‘work opportunities’ or approximately two million full-time jobs (Department of Public Works 2009, p. 138).
Public Investment Corporation
Finally, the Public Investment Corporation (PIC) brings the financial muscle of the public sector to public and private investment projects. Funded primarily by the pensions of government employees, PIC invests in large infrastructure projects; property development; and sectors such as retail, manufacturing, telecommunications, and energy, not only in South Africa but also more recently in the rest of Africa. With R1 trillion in assets, it is ‘one of the largest investment managers on the African continent’ and ‘one of the largest asset bases in the country’ (Public Investment Corporation 2008, pp. 1, 4, 2011, p. 7). For example, its institutional weight was sufficiently powerful that it was able to force Sasol, in which it held a 13.5% share, to appoint the first black South African woman to the Sasol board (Fornby 2004, p. 1). Through its Isibaya Fund, it also supports the goals of the NGP by investing in projects that create jobs or foster empowerment (Public Investment Corporation 2011, pp. 7, 14).
What role for the private sector?
Politics and private-sector growth
The resurfacing of the state in areas that it expressed a willingness to divest just 10 years ago should not be taken to mean that the state is anti-capital. In fact, it shares with other developmental states a commitment to a largely private-sector driven economy. It has energetically promoted the country's productive advantages to foreign investors, who responded by investing about US$41 billion into the economy between 1994 and 2008. Foreign direct investment (FDI) reached a high of nearly US$10 billion in 2008 before deteriorating in 2009 as a result of the global financial crisis (World Bank 2010).
Moreover, several efforts by the government to address past discrimination against black entrepreneurs reinforce the claim that it is wholly committed to a private-sector economy. As we saw, before the government rethought its privatisation strategy, almost all privatisation deals allocated a percentage of equity to black-owned companies. Beyond privatisation, government has utilised public funding mechanisms such as the National Empowerment Fund (partially financed with proceeds from privatisation) and the Industrial Development Corporation to finance investments by BEE firms (Reddy 2004, pp. 28–29, Chabane et al. 2006, pp. 561, 566). Private funding has also been critical to the growth of black capitalists.
Those with political connections in South Africa have been particularly eager to take advantage of the government's overtures to the private sector, indicating that whatever commitment they previously had to nationalisation during the period of struggle has more or less vanished. Former political prisoners, exiles and current members of the ruling party occupy seats on directors' boards or have received financing from the state to acquire equity in established companies. Conglomerates such as Sanlam, Old Mutual, and Absa also have backed business ventures by the well-connected in return for political influence (Southall 2008, pp. 292–295). Moreover, even with privatisation effectively shelved, trade unions, the ANC Youth League (ANCYL), civic groups, and members of the ruling party have taken advantage of their political linkages to join the corporate community (Southall 2004, Freund 2007).
Often relying on pension funds or the dues of their members, trade union federations such as COSATU or individual trade unions have established holding companies or trusts, which then have made targeted investments in a diverse range of companies from minerals to media. COSATU's investment arm, Kopano ke Matla, formed in 1996, has shares in manufacturing, finance, Internet technology, affordable housing developments, and tourism (Kopano ke Matla 2012). The Mineworkers Investment Company has stakes in media, banking, hospitality and gaming, and oil distribution alongside foreign investors, established capital and emerging black-owned businesses (Mineworkers Investment Company 2012). The SACTWU Investment Group or SIG, the investment arm of the South African Clothing and Textile Workers Union (SACTWU), once described as ‘militantly socialist’ (Iheduru 2001, p. 8), has diverse holdings in media, textile companies, gaming, and hotels via their investment in HCI, a holding company run by a former leader of SACTWU (Hosken Consolidated Investment Limited 2012). The proceeds from investments, where they are realised, are ostensibly used to finance health, skills training, and housing loans for workers.
Yet, the three examples mentioned above are among the more successful of the union companies. Others have been plagued by bad business deals or corruption, or they have collapsed (Cargill 2010, pp. 136–148). These failures have provoked debates within the union movement over the wisdom of participation in the private sector and prompted COSATU to issue recommendations on responsible investment (COSATU n.d.).5 They include the identification of strategic investments to be made by union companies, guidelines on the distribution of returns to members, better coordination and training of union trustees on company boards so that workers' interests are represented, policies on ownership, and fuller investigation of financial abuses (Cosatu 20 n.d.). By their very nature, these recommendations suggest that union investment companies are likely to increase their engagement with the private sector despite recent rhetoric about nationalisation.
Party organs and civic organisations have also become economic players and as with the unions, results have been mixed. The ANCYL established a holding company, Lembede Investment Holdings, which acquired stakes in property, fishing, agriculture, mining and other sectors before being converted to a development trust following allegations of non-transparent deals and a lack of audits (Business Report 2009, ANCYL 2009). The South African National Civics Organisation (SANCO) formed its own investment company, Sanco Investment Holdings (SIH), in 1995 and made initial investments in petrol stations and media. Yet, scandal plagued SIH after its founding. Few of its investments generated revenue for SANCO; the leadership was accused of misusing funds and concluding shady business deals (Zuern 2004, pp. 11–13, Ngobeni 2005).
Black beneficiaries of privatisation, restructuring, and empowerment deals of course have extended beyond political elites or those organisations close to the Alliance. They include black entrepreneurs who managed to emerge throughout the twentieth century by working in those economic spaces unseen or ignored by the apartheid state and in spite of discriminatory legislation. They later took advantage of urbanisation and the relaxation of regulations to build businesses and accumulate capital. Following the transition, they relied on the opportunities occasioned by the scrapping of apartheid as well as legislation targeting the historically disadvantaged to raise capital, to invest in existing or new businesses, to accept management positions, and to join company boards (Maseko 2000). Aided by empowerment legislation, the share of black South Africans in private-sector management has climbed from 18.5% in 2000 to 32.5% in 2008 (Southall 2010, pp. 11).
Stealth private-sector expansion
Finally, the government has sanctioned the expansion of the private sector into areas such as service delivery, urban management, and policing, that are not typically characterised by private-sector presence. In urban areas over the last 15 years, public–private partnerships between municipal authorities and the private sector to provide service delivery have evolved into much more comprehensive and transformative models of restructuring that employ the language of neoliberalism such as efficiency, competition, rationalisation, deregulation, and de-centralisation to justify their growth. Referred to by Murray as ‘entrepreneurial modes of urban governance’ (Murray 2011, p. 246), these schemes share control over urban management between city planners and managers and private business, many of which have strong BEE credentials or linkages to BEE suppliers. While the ostensible goal is ‘urban revitalisation’, enhanced security, or more grandly, building a ‘world-class city’, the tools to accomplish such objectives largely lay with the private sector, which draws its inspiration from various Business Improvement District (BID) models pioneered in the US and Canada and rapidly adopted by other cities across the world in the 1980s and 1990s.
Johannesburg's adoption of the BID model was altered to the more politically neutral appellation City Improvement District (CID), and enacted into law with the passage of the City Improvement District Act (No. 12 of 1997). The act sanctioned the formation of CIDs under circumstances where 51% of the property owners agreed to its creation and recognised management agencies for CIDs that included property owners and at least one representative from the municipal council (Murray 2011, p. 259). Other cities such as Cape Town and Durban have adopted the CID model to advance similar goals to those pursued in Johannesburg such as the reduction of ‘crime and grime’, the revitalisation of urban space to entertain and comfort those with money, and the branding and marketing of these cities as world-class cities to tourists and foreign investors (Miraftab 2007, McDonald 2008). From the gentrification of once derelict housing to the provision of security cameras, private firms occupy central roles in the development and surveillance of urban space.
Not only have the compliance and encouragement of municipal, provincial and national state entities been critical to the rapid growth of these new modes of governance, but also private-sector operators have taken advantage of the ambiguous status of public–private partnerships and the increasing fragmentation and impoverishment of public administration to advance their interests. Some companies, flush with the injection of capital stemming from the expansion of private equity firms in South Africa, are turning towards the design, construction, and management of entirely new private cities, built from scratch, that include commercial, residential, and retail spaces. Bestowed with romantic names such as Waterfall City, Waterfall Equestrian Estate, or Cradle City, these utopian dreamscapes market lifestyles of leisure, luxury, convenience and security to the wealthiest echelons of South African society (Waterfall City 2012, Cradle City Professional Team 2008).6
Alongside the rise of privately built and maintained cities, some private firms have steadily encroached on areas formerly in the public domain such as the cleaning and maintenance of public buildings or policing, whereas others have flouted labour regulations in order to become more competitive in urban markets. For example, CIDS and new urban developments have been accompanied by an explosion of private security forces, whose numbers now exceed that of the South African police force by four to one (Samara 2011, pp. 36–37). Moreover, many of the half a million employees who work in small and medium-sized private security firms are not unionised and enjoy little job security. These companies either ignore existing regulations to reduce labour costs or they sub-contract hiring to labour brokers who exploit loopholes in labour laws to hire casual labour and withhold benefits on behalf of their benefactors. Private companies in other sectors such as construction, cleaning and maintenance are replicating this practice. As a result, the use of non-union and casual labour has accelerated (Cosatu 2011, pp. 82–86).7
The developmental state or the desarrollista state?
Just as Williams predicted in 1994, the government of South Africa adjusted structural adjustment because it did not work. But what does support for the puzzling combination of B-BBEE, public works projects, new modes of urban governance, and public–private partnerships suggest about relations between state and market in South Africa? The concept of the developmental state appears to capture the evolving relationship, but as I indicated in the beginning of the paper, it is less like the developmental state described by Johnson and more like the desarrollista state described by Schneider. The discourse of developmentalism is ubiquitous, but it is a developmental state that selectively delivers benefits to the political base of the party by relying on strategic and conscious market interventions and uses of the public sector to realise its objectives (Schneider 1999, pp. 276–305).
The purposes to which the desarrollista state in South Africa is directed are multiple and conflicting, political and economic. The first is to socially engineer a change in the locus of economic power by channelling goods to the historically disadvantaged. Parastatals and public works projects are ideally suited to these tasks owing to their spatial location and their scope. Because SOEs like Transnet and Eskom are territorially dispersed around the country, they allow the state to allocate jobs, management positions, and procurement as widely as possible. Their high levels of employment appease trade unions and their well-paid management positions provide opportunities for educated black South Africans to join the middle class. In return, the party sustains the political loyalty of its supporters.
Second, public works projects and procurement provisions backed up by empowerment legislation endeavour to link business politically and economically to the state. They are designed to offer opportunities for ‘tribute taking’ (as Williams would say) to political supporters of the regime through the provision of procurement, management positions, B-BBEE, empowerment funds, and shares. But the goals extend beyond clientelism: the policies seek to capture established firms with large capital projects and regulate them via requirements regarding the inclusion of historically disadvantaged groups. The effort by the government to re-engineer socio-economic arrangements in South Africa, to support the growing black middle class, and to facilitate the movement back and forth between business and politics via deployment or empowerment initiatives has begun to cement a different kind relationship with business, one where business is more controlled by, and more dependent on, the state. As Nattrass and Seekings (2010) point out, this is currently counter-balanced by the large size of South Africa's economy and the strength of civil society, but there is little doubt that the state and business are becoming more closely intertwined.
Third, the South African developmental state shares with its counterparts from Japan to Latin America a demonstrated commitment to capitalist expansion. While parastatals are allowed to remain in those sectors with high capital outlays and high unionisation, the private sector is expanding, under state encouragement, into non-unionised and non-traditional sectors. Alongside or instead of the state, the private sector is driving the creation of city and residential improvement districts, local policing, community surveillance, infrastructure provision, and grand, mixed-use urban development schemes.
Yet, the use of state companies and government officials to create, privilege or strengthen particular groups of capital, even if these groups have been historically disadvantaged in the past, raises questions about fairness versus favouritism, accountability versus irresponsibility, and transparency versus secrecy. Moreover, to the extent that city improvement districts or new private cities rest on contracts with private companies in order to function, they raise concerns about participation by, and accountability to, common citizens because they relocate governance functions from local councils or municipalities to private businesses. In that sense, they mimic the exclusionary practices of Latin America's desarrollista states. Such practices work to demobilise the population, marginalise non-elites, undermine social justice, and restrict participation in decision making to the politically and economically powerful. Such actions are not confined to authoritarian regimes: as Schneider points out, democratic governments engage in them as well (Schneider 1999). The success of the left in deposing Mbeki should not blind observers to the challenges entailed in building a more participatory democracy in South Africa.
Conclusion
Government officials have reshaped earlier decisions as they gained experience and mastered control of the South African state. Now that this post-transition state has strengthened, it is in a position both to aid capital and to control it. Adopting the language of developmentalism provides a user-friendly means to do so. Over the course of the 1990s, the government recognised the limits of the market economy to correct the injustices of the past and increasingly has used the power of the state to rely on state enterprises and state procurement contracts to build black equity, pursue affirmative action, forge linkages with historically disadvantaged firms, train black managers, and create employment. At the same time, the government sustained and extended linkages between parastatals and private capital that previous governments had established.
Parastatals did not previously and do not now operate in isolation from the rest of the economy; instead they interact and intertwine with existing private firms (Clark 1987). It would be tempting to call this a ‘developmental democracy’. Yet, the privileges it selectively accords to prominent political supporters or the favours it allows to established, historically white capital mean that it fulfils neither C.B. Macpherson's understanding of developmental democracy as ‘individual self-development’ (cited in Sklar 1996, p. 35) nor Richard Sklar's view of it as collective and national development (Sklar 1996, p. 35). Rather, the South African version of ‘developmental democracy’ has severe flaws embedded in both the adjective and the noun used in that phrase. The patterns of intervention into the economy betray the state's origins in a previous, highly segregated era; and the restricted benefits that the government bestows on loyalists cast doubt on its commitment to a politics of inclusion and social justice. These characteristics suggest that the current state in South Africa best approximates a Latin American desarrollista state, though obviously it would be better if we could find a good Zulu word to capture its current expression.
Note on contributor
Anne Pitcher is Professor of Political Science and African Studies at the University of Michigan. She is the author of Transforming Mozambique: the politics of privatization (Cambridge, 2002) and Politics in the Portuguese empire: the state, industry, and cotton, 1926–1974 (Oxford, 1993). Her most recent book, Party politics and economic reform in Africa's democracies, has just been published by Cambridge University Press. Her research examines how the logic of party-system competition affects the outcome of economic reforms across Africa, particularly in Zambia, Mozambique, and South Africa.