Name: Wudassie Ayele ID: SGS/0371/2015A

ASSIGNMENT I: DEVELOPMENT ECONOMICS

CRITICAL AND COMPARATIVE OUTLOOK INTO DEVELOPMENTAL

STATE AND NEOLIBERALISM THEORY: CASE OF SOUTH AFRICA

I. INTRODUCTION

The world has witnessed various economic challenges in different time periods, to this end
economist have developed different economic theories to address the economic bottlenecks. In this
regard developmental state and neoliberalism are the predominant economic theories applied by
countries. This paper aims to critically review the application of both theories in the case of South
Africa and provide a comparative analysis based on the publications made available by Sagie
Narsiah and Joseph Ayee entitled ‘Neoliberalism and Privitization in South Africa University’
and ‘The Developmental State Experiment in Africa: The Experience of Ghana and South Africa’.

II. ANALYSIS: DEVELOPMENTAL STATE AND NEOLIBERALISM

 Conceptualization and Basis of Recognition

Neoliberalism is a concept centered on free market economy grounded in fiscal austerity,

deregulation and privatization. It positions the private sector at the center of the structure by
establishing a capitalist mode of production. A mode of production where ownership of the means
of production is transferred to the private sector and capital is centralized in the hands of
capitalists. 1

Developmental State embraces political and economic vision with inference to historical and
socio-economic realities of society taking a contextual orientation. It aims to tackle a broad range
of developmental issues including poverty, unemployment, inequality and public services by
adopting policy directions that fast-track industrialization, economic growth and expansion of
human capital. To this end, it endorses a holistic approach that takes up political, economic and

1 Sagie Narsiah, 2002: Neoliberalism and Privatization in South Africa, GeoJournal, 57: 2-3
Name: Wudassie Ayele ID: SGS/0371/2015A

administrative directions. An administrative inclination that addresses specific institutional

bureaucracies and is grounded on collaboration with various stakeholders at all levels. 2

The major components are effective and efficient public administration/institutions, transformative
economic policies and proper implementation. Whereas, an autonomous and independent
institution together with a committed, accountable and transparent political structure constitute the
critical aspects for expeditious and effective implementation. Overall, the theory encompasses
political, ideological and institutional connotations with a comprehensive outlook targeted at
advancing citizen’s living standard. 3

Comparatively, where developmental states considers variety of aspects and overall processes
including political, social, economic as well as institutional and structural bottlenecks
neoliberalism is limits its focus on the economic variables. Conceptually, developmental states
gives recognition to contextual specificity noting the socio-economic plus historical aspects. In
addition, places a significant importance to administrative and bureaucratic features that determine
the effective and efficient implementing capacity of institutions free from interference with full
autonomy guided by the principles of transparency and accountability.

Furthermore, neoliberalism assumes the private sector as the central driver of the economy with
little or no government intervention. In contrast, developmental state recognizes the critical role
government policies, structure and interventions play in attaining a diverse set of development
challenges, beyond a focus on profit with aim at advancing the economic prosperity for all subjects.
This further calls for diverse and extensive policy directions with a broader scope addressing the
political, economic and administrative components and ultimately provide comprehensive results.
In a nutshell, developmental state is holistic in-terms of vision, scope, components, approaches,
target groups and expected outcomes whilst incorporating the economic aspects covered by
neoliberal theory although the direction or intensity may differ.

Africa National Congress (ANC)’s recognition and consequent adoption of both theories have
been influenced by various developments and debates that framed the discourse on the theories.

2Ibid, 4 -5
3
Joseph R.A. Ayee, 2013: The Developmental State Experiment in Africa: the Experiences of Ghana and South Africa, The
Round Table: The Commonwealth Journal of International Affairs, 4-5
Name: Wudassie Ayele ID: SGS/0371/2015A

Moreover, the theories have been echoed and clearly stipulated in major ANC documents to a
varying degree.

To start of with neoliberalism, the theory had established its ground in ANC policy discourse due
to a range of factors. One of the argument underlines the critical role played by World Bank (WB)
and International Monetary Fund (IMF) in introducing and framing a neoliberal discourse within
ANC policy funding and organizing various trainings and undertaking consecutive missions. The
trainings and missions targeted key governmental officials and structures aimed at guaranteeing
support and collaboration with ANC towards formulation of an economic structure dictated by
neoliberal theory.

Second argument elaborate on the impact of academic institutions and think-tanks knowledge
products and debates that centered and favored the neoliberal discourse. The publications, policy
debates and discussions framed within the neoliberal discourse and disseminated through major
media outlets –Academic Institutional Media- dictated ANC economic policy direction. The third
arguments notes that the budget deficit and socialist program had left ANC no alternative but to
adopt the economic model initiated during the apartheid regime which inherently was neoliberal. 4

The developmental state debates predominantly have had negative connotations. The debates
either note the theories failure to prevent Asian economic and global crisis, the gaps in the literature
or Africa’s lack of political commitment, uncontrolled government intervention and limited human
capital. Another view underlines democratic developmental state as the appropriate policy
direction. The finally view argues that developmental state has roots in Africa. 5

Interesting although the developmental state debates where rather focused on the gaps of the theory
or the structural in-competencies of African political, social and economic structure, it was a theory
that was clearly echoed in the official political and regulatory policy documents. It seems, even
though neoliberalism was predominant in South Africa’s policy discourse with support from

4
Sagie Narsiah, 2002: Neoliberalism and Privatization in South Africa, GeoJournal, 57: 3-4
5
Joseph R.A. Ayee, 2013: The Developmental State Experiment in Africa: the Experiences of Ghana and South Africa, The
Round Table: The Commonwealth Journal of International Affairs, 6
Name: Wudassie Ayele ID: SGS/0371/2015A

critical actors, the developmental state theory despite its critical review by scholars have found its
way to being openly acknowledged and adopted in major political and policy documents.

 Major Trajectories

Developmental state theory is divided into two schools of thoughts, which are political and
economic. The political is dedicated to assessing government’s capacity to formulate and
effectively implement development policies and programs. The economic thought is focused on
facilitation of free market through institutional or regulatory means with the objective of achieving
development. 6

The trajectories of a developmental states are thus a reflection of the facets covered by the political
and economic perspectives of the theory. The first is a development driven political leadership,
meaning governments must have a clear political and economic vision with a commitment to its
full implementation. Accordingly, governments are to identify and act on major policy priorities
that meet the desire vision as well practice the required commitment towards its effective
implementation. Second feature is systemic corruption, it is imperative that governments have the
regulatory framework and institutional structures with capacity, autonomy and power to
adequately prevent and address systemic corruption at all levels of the government structure. Third
comes patronage, is where appointments are made to advance the leading groups political power
within the system and is based on favourism. 7 Fourth comes tackling mismanagement of the
economy, beyond adopting policies and programs government should be committed to their
effective implementation, sustainability and continued advancement of the outcomes by
embracing a holistic approach. As such it is critical that complementary sectors and their
institutional structures should function towards achieving a common policy goal. 8

Fifth is state autonomy, which is concerned with state’s autonomy and capacity to adopt and
implement policies with due regard to public and national interest. It further works to create a
conducive political space for the active engagement of non-governmental institutions and facilitate

6
Ibid, page 5
7
Ibid, page 8
8
Ibid, page 9
Name: Wudassie Ayele ID: SGS/0371/2015A

modalities for collaboration. 9 Sixth relates to developmental public administration or public

service, this aims to tackle the politicization of public administration space and independence from
any sort of government interference. Particularly, through enhancing its capacity and independence
towards establishing an accountable and transparent institutional structure. 10 Seventh is
production-oriented private sector, this entails as in neoliberal theory governments should establish
the necessary framework for collaboration with private sector as critical actors in fast-tracking
growth and development. 11 Eighth component speaks to effective national development planning,
which entails the need for a comprehensive strategic plan complemented by the necessary
monitoring and evaluation framework. 12 The ninth feature which is self-explanatory underlined
the need for good governance. The final aspect is the expansion of human capital, which apart
from market oriented economic variables focus on investment on economic sectors that advance
the living standard of society such as health, infrastructure, education etc. 13

In contrast, fiscal austerity, deregulation and privatization constitute the major aspects of
neoliberalism, the most prominent being privatization. Privatization in general can be tactical or
systematic. The tactical is directed at achieving the short term political goals such as addressing
budget deficit or awarding political constituencies. The systematic alter overall political and
economic institutions towards reducing public sector oversight and governments involvement is
economic sector. 14 In the context of South Africa the 1980’s reform where more of a tactical
privatization whereas the post-apartheid period was induced with a systematic privatization
reform. ANC Growth Employment and Redistribution (GEAR) policy taking a systematic
approach adopted a market oriented development strategy. Accordingly, an institutional structure
was setup to coordinate the effective engagement of the private sector in the provision of public
services. In-line with this a large scale privatization of organizations engaged in public service
delivery was effected. The downside of the privatization scheme has been that the public service
economic sector are mostly owned by few multinational cooperation driven by profit pushing from
the market local and small scale entrepreneurs. In addition, the profit oriented nature of these

9
Ibid, page 10
10
Ibid, page 12-13
11
Ibid, page 14
12
Ibid, page 15
13
Ibid, page 16-17
14
Sagie Narsiah, 2002: Neoliberalism and Privatization in South Africa, GeoJournal, 57: 6
Name: Wudassie Ayele ID: SGS/0371/2015A

cooperation has significantly undermined the rights of the laborer through various contractual
amendments. 15

The case of South Africa showcases that a developmental state and neoliberal theory can be
simultaneously incorporated in the economic policy structure of a nation. This indicates that the
scope of a developmental state theory is broad enough to incorporate and adopt the features of
neoliberal theory when it comes to its economic components, although the degree of application
may differ. This is where the preferred economic policy direction of the state is neoliberal.
However, a complete privatization scheme can undermine the key objectives of a developmental
state which are built on the basis of eradicating poverty, inequality and public service delivery for
all. Mainly as privatization in the pure neoliberal term is profit oriented with a tendency to lead to
accumulation of capital by few multinational corporation as was the case for South Africa. This
has been critical in creating income inequality, poverty, lack of access to public service which
stand opposite to the objectives of developmental state.

The trajectories of developmental states are a reflection of the wider scope outlined in the schools
of though and definition part reaching beyond the limits of the economic variables to address
various political, administrative, institutional as well as accountability and transparency
frameworks. It further takes a variety policy direction targeted at improving the overall living
standard of society. In contrast, in the specific case of South Africa the neoliberal agenda was
implemented through privatization that revolved around free market economy and capitalist mode
of production which was profit based with negative effect on access to affordable and quality
public service delivery.

In addition, South Africa’s developmental state policy created a space for collaboration and
effective participation of various frameworks, placing the government as the guarantor of
economic prosperity with a central role. Nonetheless it acknowledged the centrality of the private
sector in advancing economic growth and advancing public sector delivery in the country. Overall,
these theories may differ in scope, approach, feature, and lead actors their simultaneous

15
Ibid, page 17
Name: Wudassie Ayele ID: SGS/0371/2015A

implementation in the case of South Africa had presented an opportunity to assess their
complementary aspects.

III. POLICY RECOMMENDATIONS

• In addressing internal developmental challenges developing states should take a holistic
approach that centers on political commitment, institutional autonomy, capacity,
accountability and transparency;
• Engage and acknowledge the private sector a critical actor in the advancement of economic
growth with the adoption of proper regulation that address its limitations;
• Create a conducive environment for the active participation of all stakeholders whilst
keeping public and national interest at hear towards better capital, technical resource
mobilization and coordination.

IV. BIBLIOGRAPHY
1. Sagie Narsiah, 2002: Neoliberalism and Privatization in South Africa, GeoJournal, 3-12
2. Joseph R.A. Ayee, 2013: The Developmental State Experiment in Africa: the Experiences
of Ghana and South Africa, The Round Table: The Commonwealth Journal of International
Affairs,