Discussions
While South Africa slept: why is it not an Asian economy? Part One
The key points
In this Discussion*, Ron Sandrey, tralac Associate, comments on South Africa’s failure to move forward from its strong industrial base and large pool of cheap labour in the 1990s to emulate the Asian success
Over the last fifty years or even more the most remarkable feature of global economic growth has been that demonstrated by the so-called Asian Tiger economies. From the early leader of Japan we saw the next group of Singapore, Hong Kong[1], Korea and Taiwan all progress through the development stages to become modern high income countries. This group was followed by the next wave of loosely Malaysia, India and perhaps China with the latter being more of a tsunami than a wave, and then perhaps Thailand and Indonesia. More lately we are seeing the ‘Tiger Cubs’ of Viet Nam, Laos and Cambodia. The missing aspirant here is the Philippines, which started with a growl that faded to a whimper.
Driving the Asian development wave have been a complex mix of factors and policies, but two common themes that emerge are their industrialisation with an emphasis on exports to the US and abilities to build a sound economic and overall infrastructural base to launch this development assault from. We emphatically concur with Levine and Renelt who as far back as 1992 concluded that: “National policies appear to be a complex package, and future researchers may wish to focus on macroeconomic policy regimes and interactions among policies as opposed to the independent influence of any particular policy”. A one sentence summary of the influential World Bank report of 1996 is “The High Performing Asian Economies all benefited from doing the fundamentals well – encouraging macroeconomic stability, basic education, sound and solvent financial institutions, secure property rights and complementary public investments in infrastructure, and low relative prices of investment goods”. The World Bank report also emphasises that these economies used multiple, shifting policy instruments in pursuit of more straightforward economic objectives such as macroeconomic stability, rapid export growth, and high savings, and importantly pragmatic and flexibility were also features of the mix. Importantly, they got the basics right (it was no miracle). Perhaps two points to emphasise here that are not usually put forward are the education emphasis and the flexibility to change policies and champions that are not performing (the South African clothing sector could take heed of this latter emphasis).
We argue that South Africa did not capitalise on the opportunities it had in the 1990s and later to move forward from its then strong industrial base and large pool of cheap labour to emulate the Asian success. Overall we conclude that on several indicators South Africa ‘slept’ over the period under examination. It performed relatively well against Japan, but by 1990 Japan had reached a high level of economic prosperity and plateaued from there. The pattern for Korea was similar and Malaysia is approaching that level, and we note that the comparison against China is not really a fair one as never in the history of civilisation has an economy grown like China has in recent times. Comparing the three middle income countries of similar status to South Africa of Indonesia, Thailand and the Philippine’s we find that South Africa’s growth patterns are below that registered for Indonesia and Thailand and similar to the Philippines, which is itself a laggard in the Asian growth stakes. Perhaps of more recent interest is the performance of the ‘Tiger Cubs’ of Vietnam, Laos and Cambodia who prove that rapid economic development East-Asian style has been possible in recent times.
We fully acknowledge that South Africa has recently emerged from troubled times, but we similarly hasten to point out that several of the growth Asian economies, and especially the recent Tiger Cubs have also recently emerged from equally or even more troubled periods. Although China has been under Communist rule since 1949 it has moved away from the Maoist radicalism of the past and economic reform has replaced ridged state socialism and generated rapid growth, turning China into one of the world’s largest economies. Landlocked Laos is another of the world’s few remaining communist states and again has only begun opening up to the world. Vietnam is also a one-party Communist state, but it has one of south-east Asia’s fastest-growing economies and has set its sights on becoming a developed nation by 2020. It became a unified country once more in 1975 following three decades of bitter wars. Modern-day Cambodia is benefiting from two decades of relative stability, having endured civil war and the murderous rule of the Khmer Rouge in the 1970s.
We basically agree with Dani Rodrik in his assessment of the future. South Africa faces a challenging set of sequential problems if it is going to succeed in an industrialisation strategy to promote economic development. Its manufacturing and industrial base is weakening, and it has not been able to use the springboard it was gifted in the mid-1990s when it emerged as a nation with significant industrial power and a large resource of unemployed labour. Meanwhile, China in particular has continued erode that industrial base and potential export markets. Again, we concur with Rodrik when he considers that Africa has essentially four options to generate sustained, rapid growth. Africa. The first is to revive manufacturing and put industrialization back on track. The second is to generate agriculture-led growth, based on diversification into non-traditional agricultural products (like Brazil). The third is to kindle rapid growth in productivity in services. The fourth is growth based on the natural resources that many African countries are amply endowed with – but this has not worked really well in the past in any country.
* This Discussion is part of a series prepared by Ron Sandrey examining specific issues raised in a new tralac Working Paper of the same title, available to download here: While South Africa slept: why is it not like an Asian economy?
[1] Both Singapore and Hong Kong are oddities in that they are really only ports. The ITC trade data for 2015 shows that Hong Kong exported merchandise valued at $510.5 billion, but of this some $497.5 billion were re-exports. According to this data Hong Long has similar genuine exports to Estonia and Serbia and just below Tunisia.
References
Levine, R. and D. Renelt, 1993. ‘A sensitivity analysis of cross-country growth regressions’, The American Economic Review, Volume 82, Issue 4, pp. 942-963.
Rodrik, D., 2014. Why an African Growth Miracle Is Unlikely, Milken Institute Review, October 20, 2014. Available at http://www.milkenreview.org/articles/why-an-african-growth-miracles-unlikely
World Bank, 1993. The East Asian Miracle: Economic Growth and Public Policy. New York: Oxford University Press. Prepared by a team led by John Page and comprising Nancy Birdsall, Ed Campos, W. Max Corden, Chang-Shik Kim, Howard Pack, Richard Sabot, Joseph Stiglitz, and Marilou Uy.