8.docx - Industrial Policy in a Harsh Climate the Case of South Africa Forthcoming chapter in UNCTAD\/ILO volume Industrial Policy for Economic

8.docx - Industrial Policy in a Harsh Climate the Case of...

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Industrial Policy in a Harsh Climate: the Case of South Africa Forthcoming chapter in UNCTAD/ILO volume: Industrial Policy for Economic Development – Lessons from country experiences Nimrod Zalk 1 Introduction This paper reviews South Africa’s progress with the development and implementation of industrial policy over the post-apartheid era. Three broad phases are identified, straddling both pre- and post-1994 (the year of South Africa’s first democratic elections). It argues that economic policy between 1994 and 2007 in particular has been overwhelmingly dominated by orthodox economic reforms. In particular these reforms were meant to achieve a step change in fixed investment and thereby catalyse higher levels of growth and employment across the economy, including manufacturing. However, these reforms have not delivered significant or sustainable investment, growth or employment gains. A policy shift in relation to industrial policy began to emerge from 2007. Since then there has been significant progress with the development and implementation of industrial policy in terms of both transversal instruments and sectoral strategies. Despite this, mobilisation of the necessary support instruments has proceeded very slowly and subject to severe constraints. This is against the background of the economy being subject to three major external and internal shocks: on-going currency overvaluation and volatility, the global financial crisis and great recession, and a domestic electricity supply and price shock. The paper concludes that for industrial policy to succeed in South Africa,
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Final Draft considerably greater coherence and co-ordination between industrialisation objectives and macroeconomic and other economy-wide policies are required. The importance of manufacturing and the need for industrial policy There has been a recent international resurgence in the twin concerns of industrialisation and industrial policy, which has also found limited expression in institutions such as the World Bank for which active industrial policy has long been anathema ((Wade, 2012)). This has occurred against the background of the disappointing results of orthodox policy reforms in a range of developing countries since the late 1980’s and the manifest unsustainability of a finance-led economic model for developed countries in the light of the global financial crisis and associated great recession. At their core, orthodox economic policy prescriptions are premised on the notion that unencumbered markets in general and financial markets in particular rationally allocate resources to their most productive and developmental uses. This is despite some developments within neoclassical economics itself which questions such conclusions, largely based on market imperfections. As Kindleberger (2005) has demonstrated historically un-(or lightly) regulated financial markets are prone to vast and irrational inflation of asset prices (mania) which inevitably are followed by subsequent collapse (panic) and spillover onto the real economy (crash).
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