Economic Restructuring in South Africa: Reactionary Rhetoric Prevails¶
John Sender (1994). Economic Restructuring in South Africa: Reactionary Rhetoric Prevails. Journal of Southern African Studies, 20(4). Taylor & Francis.
| Type | journal article |
| Scope | Economics and economic history of apartheid |
| Method | policy analysis |
| Period studied | 1993–2004 |
| Regions | South Africa, South Korea, Japan |
| Themes | transition post apartheid, labour markets wages, macro fiscal finance debt, business and state, comparative theory |
| Citation key | sender1994 |
Argument¶
Sender, a member of the MERG economics team, replies to Nattrass's critique of the MERG macroeconomic framework. He argues that her critique is 'reactionary rhetoric' in Hirschman's sense, relying on perversity, futility and jeopardy arguments. He claims she misreads MERG on business confidence, minimum wages and the Reserve Bank, and that MERG in fact places private-sector investment at the centre of its analysis and proposes a cautious, phased minimum wage. He also argues that East Asian experience shows effective state institutions can be built by 'institutional learning' during intervention, rather than before it.
Evidence and method¶
MERG's own framework document and working papers (Rustomjee on investment functions, Edkins on minimum wages), World Bank studies on South African agriculture and on adjustment in Africa, Reserve Bank Quarterly Bulletin, the minimum-wage literature (Card and Krueger, Katz and Krueger, Dickens et al.), and the literature on Korean and Japanese industrial policy (Chang, Amsden, Freeman). The evidence is cited rather than analysed afresh.
Place in the debates¶
- Macroeconomic strategy for the post-apartheid transition: state-led/MERG-style growth through public investment versus cautious, market-friendly policy that puts business confidence first (see Post-apartheid economic policy, governance and corruption). Sender defends MERG's public-investment-led framework and rejects the view that deference to business confidence is a binding constraint.
- Minimum wages and employment (see Post-apartheid economic policy, governance and corruption). Sender argues there is no demonstrated employment loss. He cites South African farm evidence and international studies, and favours a phased national minimum wage set by tripartite Wages Boards.
- Role of the state in industrialisation (East Asian developmental state; rent-seeking vs institutional learning) (see Industrialisation, protection and industrial structure). Sender holds that Korea and Japan show institutions can be built through struggle and learning while intervening. He rejects Nattrass's claim that bureaucratic capability must come first, and rejects the Krueger-style rent-seeking view.
Findings¶
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MERG's analysis of investment determinants is presented as the only serious econometric study of the question in South Africa. (p. 3)
MERG has produced the only serious analysis of econometric attempts to assess the determinants of investment in the South African economy.
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The MERG framework treats private-sector reluctance to invest as central, which Sender uses to rebut the charge that it ignores business confidence. (p. 3)
places the long-standing and continued refusal of the private sector to invest its burgeoning financial surpluses productively at the very centre of its analysis.
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Sender asserts that there is no empirical basis for the link between less state intervention, business confidence and investment. (p. 4)
The empirical evidence for such a link in South Africa, or in other developing economies, does not exist.
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MERG proposes a first-ever national minimum wage with a conservative starting level, not an increase in an existing minimum. (p. 4)
In fact, MERG recommends the introduction, for the first time in South Africa, of a national minimum wage, and repeatedly argues for a conservative initial approach to the setting of such a wage
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MERG cites South African farm evidence that wage changes and employment changes are unrelated, against the claim that minimum wages cause labour shedding. (p. 4)
including work showing the absence of an empirical relationship in the South African agricultural sector between the rate of change of agricultural wages and agricultural employment.
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Even with all MERG labour-market policies, a large low-wage unskilled segment is projected to persist, countering the charge that the programme ignores a low-wage sector. (p. 5)
that if all labour market policy recommendations are followed more than 20 per cent of the black economically active population will still be in the unskilled, low-wage category by the year 2000.
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MERG's projected real wage growth is modest, so the programme is not an aggressive high-wage strategy. (p. 5)
The MERG framework also projects an annual average rate of growth of real pre-tax wages over the period 1993 to 2004 at the extraordinarily moderate rate of one per cent.
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East Asian cases show institutions are built deliberately, so bureaucratic capacity need not precede intervention. (p. 6)
Korea and Japan are classic examples of conscious efforts to import, modify and invent the institutions crucial for rapid capitalist industrialisation.
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State capacity in Korea and Japan was contingent and politically constructed, not a given. (p. 6)
The political and institutional conditions for successful state intervention in these economies were contingent on the outcome of an intense and protracted process of political struggle, ideological campaigning and conscious institutional innovation.
Evidence ledger¶
Sources used¶
| Source | Kind | Period | How used |
|---|---|---|---|
| MERG, Making Democracy Work: A Framework for Macroeconomic Policy in South Africa (1993) | commission or official report | 1993 (projections 1993-2004) | Primary text under dispute; used to show MERG's stated positions on investment, minimum wages, wages boards, the Reserve Bank and projected wage and employment outcomes. |
| MERG model projections, Table A.24 | national accounts macro | projections to 2000 and 1993-2004 | Used to show that over 20 per cent of the black economically active population would remain in the unskilled low-wage category by 2000, and that real pre-tax wages would grow only about 1 per cent a year. |
| C. Rustomjee, 'Investment Functions and Modelling of Investment Behaviour in the South African Economy' (MERG Working Paper, August 1993) | secondary literature compilation | 1993 | Cited as the only serious analysis of econometric attempts to assess the determinants of investment in South Africa, rebutting the charge that MERG ignored business confidence. |
| World Bank, Adjustment in Africa: Reforms, Results, and the Road Ahead (1994) | international trade or finance data | 1980s | Cited for the claimed empirical regularity that orthodox adjustment policies coincided with declining private and public investment rates. |
| South African Reserve Bank, Quarterly Bulletin (March 1994) | official statistical series | to March 1994 | Cited to support the claim that capital outflows continue and private domestic investment is in long-standing decline. |
| M. Roth, H. Dolny and K. Wiebe, Employment, Efficiency and Land Markets in South Africa's Agricultural Sector (World Bank, 1992) | secondary literature compilation | c. 1992 | Econometric work cited by MERG, and by Sender, as showing no empirical relationship between changes in agricultural wages and agricultural employment. |
| World Bank, South African Agriculture: Structure, Performance and Implications for the Future (Draft, 1993) | commission or official report | 1993 | Evidence cited by MERG on agricultural wages and employment. |
| H. D. Van Schalkwyk and J. A. Groenewald, 'Regional Analysis of South African Resource Use and Productivity', Agrekon 31, 3 (1992) | secondary literature compilation | 1992 | Cited among the agricultural evidence MERG used on wages and employment. |
| Minimum wage studies: Card & Krueger (1993); Katz & Krueger (1992); Dickens, Machin & Manning (1993); Wilkinson (1992); Edkins (MERG 1993) | secondary literature compilation | 1992-1993 | Cited as empirical evidence that minimum wage legislation has not caused the employment losses Nattrass assumes. |
Inference¶
Quantification: None.
Polemical rebuttal of Nattrass's critique, built on close reading of the MERG framework document, selective citation of other studies' econometric findings (agriculture, minimum wages, investment), comparative reference to Korea and Japan, and Hirschman's typology of reactionary rhetoric. No original data analysis.
Key claims¶
| Claim | Basis | Strength |
|---|---|---|
| MERG did analyse the determinants of private investment and business confidence, contrary to Nattrass's allegation. (p. 540) | Rustomjee's MERG working paper and the MERG framework pp. 9, 253, which Sender cites rather than reanalyses. | Partial data |
| No empirical evidence exists linking less state intervention to higher business confidence and investment in South Africa or in other developing economies. (p. 541) | World Bank Adjustment in Africa for the 1980s pattern, plus assertion; no South African data presented. | Illustrative or anecdotal |
| Capital outflows continue and private domestic investment is still declining despite the ANC not adopting the 'risky' MERG proposals. (p. 541) | South African Reserve Bank Quarterly Bulletin, March 1994, p. 5, cited in a single footnote. | Partial data |
| MERG proposes a first national minimum wage set conservatively as a fraction of the Minimum Living Level, with phasing via sectoral Wages Boards and research on employment effects. (p. 541) | Direct reading of MERG, Making Democracy Work, pp. 14, 163, 165. | Systematic data |
| Evidence shows no relationship between agricultural wage changes and agricultural employment in South Africa, so minimum wages need not shed labour. (p. 541) | Roth et al. (World Bank 1992), World Bank draft 1993 and Van Schalkwyk & Groenewald (1992), as cited by MERG; not reexamined. | Partial data |
| Even with MERG's labour-market policies, over 20 per cent of the black economically active population remains in unskilled low-wage work by 2000 and real wages grow only 1 per cent a year, so the strategy is not excessively ambitious. (p. 542) | MERG model projections (Table A.24, p. 314; p. 8). | Partial data |
| Korean and Japanese experience shows effective state institutions were built through contingent political struggle and institutional learning, not as a precondition. (p. 543) | Secondary works by Chang, Freeman, Amsden and Nolan. | Illustrative or anecdotal |
The author's caveats¶
Acknowledges only that MERG policies may not raise corporate investment by the amount or at the time envisaged, since 'the world is an uncertain place'. No data limitations are discussed.
Gaps in the evidence¶
The rebuttal relies on MERG's own model projections and on cited studies without presenting any South African time series on investment, wages and employment. A direct test would use sectoral wage and employment data, such as Central Statistical Service surveys and agricultural census data, to estimate minimum-wage employment effects; these existed in 1994 but are not used. Evidence on the technical feasibility of fruit-harvest mechanisation and on investment determinants would require firm-level or industry data.
Replicability: Not applicable.