Lessons from the World Economic Crisis

The world economic crisis is now reaching South Africa. Just before our elections, Minister Trevor Manuel advised Third World countries to be patient, and await the kicking-in of the bail-outs into the body of developed economies, which, hopefully, shall restore these economies to good health, in turn benefit Third World economies. Mr. Manuel simply assumes that Third World economies are tail-ends of the global capitalist system.

This line of reasoning is blind to the fact that Third World economies are not similar to those of advanced capitalist nations. The South African economy is radically different from any of the economies of advanced capitalist countries.

In the West, capitalism first transformed the countryside through dispossessing the majority of rural people of the land; penetrating the countryside with capitalist relations; industrializing agriculture and industry; and reducing the peasantry to a small minority of the nation. The overwhelming majority of people in Western societies are participants in the capitalist market economy. This experience has not been duplicated in South Africa.

South Africa is not an urban, industrialized country. The last census showed that the majority of African people still live in rural areas. Our economists tell us that the former homelands areas, where the majority of Africans still live, contribute less than one percent of GNP. Even though a substantial portion of these people have moved to urban areas since 1996, they have been pushed out of rural areas by underdevelopment and misery, rather than by development and jobs in towns and cities. The average African working adult in urban areas is not employed in industry and manufacture, but makes a living in the `informal sector’. Unemployment is way above 20 per cent, which would be considered a catastrophic Depression in developed Western countries, forcing upon governments policies which emerged to fight the 1929 Depression. Half or more of the citizens of South Africa are living in the condition of a Depression, if you combine the unemployed and the poor.

The policies which lifted the West out of the Depression were State-financed Public Works, large State investments in infrastructure construction, large State subsidies to farmers and industries, the Arms Industry, and, decisive, World War 2 which eliminated unemployment altogether. South Africa was also hit by the catastrophe of Depression after the Anglo-Boer War, particularly in the 1920s and 30s. The White leaders of the time formulated largely similar policies, but only lifted the White population out of the Depression.


Such policies work effectively where the economic `wall-to-wall’ foundation of society is industrialized, or is in the process of serious industrialization. Capitalism and industrialization in South Africa have not created an industrialized `wall-to-wall’ economic foundation for all citizens. Capitalism and industrialization were historically confined to white settlements areas –to cities, towns, and white farmlands. The vast majority of the population (Africans and Coloureds) was not, and has not been, incorporated firmly and effectively within the capitalist industrial economy. The South African economy is terribly lop-sided: capitalism and industrialization (i. e., development) were confined only to the tiny white-dominated `enclaves’ of society –cities, towns, and white farms. This is what the economists advising President Mbeki called the First Economy –which is tied to developed Western financial institutions, stock markets, industries, and consumer markets. This is what the entirety of South African economics is about, as well as the concerns of our economists, Reserve Bank policies, and Mass Media discussions on the economy. When our economists and bankers say `the fundamentals of our economy are sound’, they mean the state of this First Economy which is attached to a minority of society.

The vast majority of our population, mainly Africans and Coloureds (Northern Cape and Western Cape) are mainly in what economists called the Second Economy. The vast basis of this `economy’ is the massive non-industrialized African rural sector of society, making its living through subsistence agriculture. A huge sector of this population has moved to cities and towns, pulled there by the failure of development in their rural communities; only to land in cities and towns which themselves are not developing, therefore without jobs and necessities of life for them.

The first, most urgent task facing us is to spread development and industrialization to rural communities in which the majority of our citizens live, thus lessening the stress on urban areas, and increasing the welfare of everyone urban and rural. We must establish a `wall-to-wall’ industrial foundation for the total nation. By so doing, we shall end the lop-sided nature of our current economy.

The World Bank stated years ago that the Achilles Heel of the South African economy is the smallness of its domestic market. Our domestic market is very small because the majority of our citizens are not effective participants in our market economy: they are in non-developing, non-industrializing rural areas; they hardly have any money in their hands with which to buy anything. In World Bank terms, therefore, the most urgent task is to vastly increase our domestic market by incorporating within the market the 60 percent of our population currently outside or marginal to the market. We need to exhibit the same commitment to balanced development shown by the leaders of China, who have re-directed hundreds of billions of government budget towards developing rural China and the Western Region of the nation. This shall achieve what any market economy needs –a vastly increased domestic market. China made the mistake in years past of making her economy and national income too dependent on the sale of her products in the markets of developed countries. In the current crisis of Western economies, the demand for products made in China has plummeted, producing unprecedented unemployment levels and enterprise shut-downs in recent Chinese history. The leaders of China have learned that the first requirement of sound economic policy is to develop a large and increasing domestic market.

The physical and spiritual health of our entire population, the sound education and moral/economic regeneration of the nation, the development of the arts and languages, now depend directly and literally on our success in incorporating into national life the cultural, spiritual, and artistic heritage of rural communities.

The kick-starting of our economy for growth and development cannot and shall not be through huge investments in cities and towns. It can only be through initial huge investments in rural areas where the majority of non-participants in the market economy are found. We should gain insight from the experience of China. The Post-Mao Great Reforms, which led to China becoming a huge power in the World Economy were first implemented in rural areas. To quote Chinese scholars: “Reform was first implemented in the rural areas, then gradually carried out in cities…” (Gao Shangquan, Liu Guoguang and Ma Junru, The Market Economy and China, 1999) Students of the Chinese economy have reported that almost half of the acceleration in the growth rate during the first reform phase (1978-83) came from improved agriculture and rural development. (China: The Next Decade, edited by Denis Dwyer, 1994, p. 13)

Our government has allocated billions of rand for infrastructure construction in preparation for 2010. This has had a minor impact in reducing unemployment. The latest issues of the Quality of Life Survey, published by the Durban Metropolitan Council (Urban Strategy Website), argue that the quality of life for the masses of people in the Durban Metro has actually deteriorated, in spite of increases in investments in infrastructure which have been put in place by the Metropolitan Council.

Because rural underdevelopment has become the massive barrier to the development of the entire national economy, and the massive barrier to the improvement of the quality of life of all our people, only initial huge investments in rural development shall remove the barrier to growth and development of our economy and have the largest impact in reducing unemployment. This argument needs to be stressed because it comes from outside the box of current economic thinking, in spite of the newly announced establishment of the department of rural development. The danger is that we are likely to establish the new department and still be guided by the `old ways’, by the current paradigm of Western economics, at the very time when the current crisis of the Western economy is calling for a new model of economics.




About Professor Herbert W. Vilakazi

Professor Herbert Vilakazi was born at Nongoma, KwaZulu/Natal, South Africa. He received his tertiary education at Columbia University, and at the New School For Social Research, both in New York City, USA. He has taught sociology and other social sciences at various tertiary institutions in and around New York City (City College of City University, Essex County College in Newark, Livingstone College, and State University of New York). He has also taught at the University of Transkei (now Walter Sisulu University), University of the Witwatersrand, University of Cape Town, and University of Zululand. He served as Deputy-Chairperson of the Independent Electoral Commission from 1998 to 2004. He has also served as Special Advisor to the Premier of KwaZulu/Natal (2005-2007). He is Chairperson of Vilakazi Development Strategies.
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