Firstly on the role of the State in shaping and driving industrial policy and strategy, as the main supplier of goods and services, in the Public Sector as well as to the private sector.

Secondly we will focus on the need to expand the State sector as well as the social sector of our economy. That restructuring of the State and its economic base is essential in order to turn around the economy of our country.

Thirdly our submission will focus on specific areas of weakness and omissions in the DTI document, "accelerating growth and development". This will specifically be in relation to the state.

What we will outline is our belief in an integrated industrial strategy, driven by the state, with necessary regulation.

The role of the state in driving a growth and development industrial policy and strategy is fundamental in a developing country such as ours.

The central challenge facing the South Africa economy remains widespread poverty and massive inequalities, aggravated in the past decade by the massive loss of formal employment.

In defining the role of the state, and in addressing these economic problems, we must first explore the nature of the state and the roots of poverty and unemployment.

The state includes the machinery of government – the institutions and relationships that constitute the ruling power. Thus, it incorporates the elected government itself, as well as the security forces, the big social services, state-owned enterprise and local government.

The state often presents itself as a neutral bureaucracy, run by a political government, but being above class interest. In reality, however, like any other social institution, government agencies reflect the interests of broader social classes. Any society rests upon an economic base, which reflects the dominance of one class in that economy by another.

The South African state to a lesser or greater degree reflects those class interests. In our transitional period, as has been the case with the liberation from colonial rule elsewhere in Africa, the state itself is a site of contestation.

For a developing country that is going through transition, from one socio-economic order to another, the role of the state will remain dominant.

• On the one hand, political and economic power diverge. The new government attempts to use the state to change the nature of economic ownership and power. For its part, capital exerts tremendous pressure to modify the objective interests and ideology of the political leadership in favour of its own interest. If it succeeds, it can establish a unified ruling class where the state machinery primarily aimed to advance and protect the interests of capital.

• On the other hand, the state machinery is still shaped largely by its oppressive history and past objectives. Governments programme attempts to introduce new ways of working with the masses of our people and new tasks that confront the government, carried out in a broad programme of transformation of state machinery.

From this perspective, our state today can be described as a national democratic government presiding over a largely unreconstructed state machinery in a capitalist system. The task of the government is thus to restructure both the state system and the economy.

For the state to play this role effectively, certain contradictions within the state system must be addressed as part of the overall process on transformation of the state. Efforts at transformation must take into account the fact that the state is a major employer, accounting for close to 20 per cent of all formal employment. Proposals for change must assess the impact on overall employment as well as on workers. Otherwise, this can lead to regional slowdowns in the economy as well as uncertainty and deteriorating services.

For growth and development to take place, requires constant state intervention in five key areas: -

• The creation of sustainable quality jobs
• Reshaping sectoral dynamics
• Setting an appropriate fiscal and monetary framework
• Expanding a comprehensive social security system
• Supporting greater access to wealth & skills for the working class/poor

There must be a shift towards more labour-intensive growth overall and production that uses both labour intensive sectors and technology. These sectors are those that are largely directed at domestic production and consumption.

What needs to follow this, are sectoral agreements in which both state and private sector resources, are redirected to investment in labour intensive production.

Any industrial policy can only be measured in its effectiveness if it is supported by an appropriate macroeconomic strategy. The current macro-economic strategy does not assist, and in fact, hinders growth and development, by being restrictive.

Industrial policy and macro-economic strategy have to be mutually reinforcing. Interest rates and exchange controls have an obvious impact on industrial strategy. The current fiscal austerity programme has led to deep cuts in social expenditure, lead to job losses, which in turn has had a knock on effect on other components of the economy and overall growth.

The state has to set minimum standards of living for all South Africans. The social wage would combine basic social and municipal services with a basic income grant and other transfers. Since the social services (except for welfare grants) are inherently labour intensive, maintaining the social wage means substantial increase in these areas of employment in the public service.

The social wage must

1. provide an adequate income, health care, security and housing to stabilise communities;
2. develop more efficient, socialised systems to meet retirement, transport and health needs for working people, reducing the costs of employment while improving benefits; and
3. generally be designed to support economic growth and employment creation as far as possible.

The state must focus on providing strong policy support for sectors to protect and create quality jobs and meet both domestic needs and exports. To this end, it should ensure growth in relatively labour-intensive sectors, by supporting them directly and/or, where appropriate, strengthening capital-intensive activities that supply them. From this standpoint, the expansion of infrastructure, housing and social infrastructure such as schools, clinics and police stations combines improvements in the social wage with a stimulus to investment and employment.

A critical first step is to develop sectoral strategies to guide government, capital and labour. These strategies must ensure that production shifts to meet changes in domestic demand that result from improvements in the social wage. They must also help diversify exports. Government can support sectoral strategies through:

1. Targeted investment in transport, communications, schools, clinics and other infrastructure;
2. Measures to ensure that the financial sector supports new kinds of production, including self-employment and co-operatives, as well as low-income housing;
3. A review of tariffs to ensure that reductions do not harm employment;
4. Rigorous implementation of the skills development process to address the national skills shortage;
5. Greater support for constructive implementation of new labour policies including in the public service, agriculture, domestic labour and other sectors that must make a substantial adjustment; and
6. A strategy to ensure retail networks support domestic production and ensure efficient distribution of wage goods.

5. Democratisation and strengthening of the State

2. Measures to control lobbying by big business by defining consultative

forums and limiting the scope for corruption, including setting

appropriate constraints on the ability of sections of the public service

to become fragmented by opted out of the public service for reasons

of accumulation of wealth.

3. The improvement of co-ordination within government, by

consolidating departments, developing specialised units within

departments and giving them capacity for greater co-operation.

4. Measures to end corruption and control patronage.

The following tables suggest the role of the main sectors of the state in support of an industrial strategy to turn around growth and development in the country.

After 1994, two basic approaches emerged to restructuring the South African state. The first essentially adopts the new managerial approach, empowering management to define efficient structures. Ultimately, the new managerial approach ends up reducing the capacity of the state to fulfil the RDP, and weakens its capacity to drive an industrial strategy. It reduces the state to a facilitator instead of a driver of industrial strategy.

The second approach sees restructuring more as a process of ensuring that the public service could carry out national policies effectively, provide support to the economy and supply the necessary services and goods that will ensure an integrated approach between the state and industrial strategy.

In the managerialist approach, management drives the restructuring process, with support from business consultants, using private-sector analytical methods to define the aims and needs of restructuring. Typically, these methods take the current budget allocation as fixed, irrespective of social need. These restructuring initiatives often arise in response to budget cuts.

As a fundamental assumption, the managerialist approach argues for

• A contracting state, and
• The remodelling of government agencies to be more businesslike, aiming to reduce costs as far as possible while meeting targets set by the politicians.

The concept of the contracting state starts with the assumption that businesses can provide services more efficiently than government bureaucracies. By extension, to improve efficiency, political leaders should only set targets for government functions. To achieve these aims, they should then contract autonomous agencies – ideally from the private sector, but if unavoidable within government. As these agencies seek to achieve government objectives within a fixed budget, they will have to cut costs.

Implementing a contracting state entails a radical re-engineering of government to separate decision-making and regulatory activities from actual service delivery. The managerialist approach therefore starts by classifying activities as "core" and "non-core." As a rule, it expects to outsource "non-core" activities. The criteria for designating "non-core" activities remain vague, effectively letting management decide what the state should do.

The core/non-core distinction and the contracting state incorporate a distinct political and social agenda, which is hostile to the RDP.

It inherently presupposes that

1. Government activities should be held to the minimum necessary.
2. Traditional, bureaucratic methods of providing government services are necessarily less efficient and effective than private business.
3. Public-service managers should ultimately decide what are "core" functions for government, with very little consultation with other stakeholders or the political leadership.
4. Restructuring should define the ideal macro structure for government, without looking at how to get there. Managers do not need to take into account or inform the public about the social or financial costs of achieving their ideal.

The contracting out approach would weaken the public sector, making it harder to meet the needs of the poor. It ignores both the need for substantial capacity to manage contracts, and economic realities that face private business.

The fact is that the private sector has no material interest in serving poor communities, which cannot pay enough to provide a profit. Outsourcing and contracting out are therefore unlikely to ensure quality services for the poor. The experience with privatised welfare payments points to the potential for problems.

Government may be able to use subsidies and regulation to ensure that private providers serve the poor, but that requires considerable capacity and sophistication. The danger is that government will lose its capacity to provide a service and then find it cannot compel the private provider to meet agreed-on targets.

Contracting out in poorer provinces will likely favour companies headquartered outside the province. In this case, it could aggravate the drain of resources to richer areas, undermining the local economy.

At a practical level, neither the public nor the private sector has the capacity to manage outsourcing on a large scale. The biggest rollovers have been in sectors that require new relationships to the private sector – public works, poverty relief, and DTI subsidies to private enterprise. Given a lack of government capacity, contracting out also opens the door to corruption.

Generally, the managerial approach ignores most modern change and human-resource management techniques. Above all, efforts to cut personnel costs to the bone lead to unacceptable losses in terms of morale, skills and productivity.

Essentially because of these inherent contradictions, managerialist restructuring often runs into opposition from communities, employees and politicians. Where restructuring affects a large number of workers and households, the proposals are generally implemented only partially or not at all. The resulting deadlock forms a major reason for the on-going failure to transform the state.

As an alternative to the managerialist approach, the restructuring process may be driven through a negotiated process involving political leadership, parliament, management and organised labour. Examples of this kind of developmental methodology include the service and skills audits initiated by the PSCBC, aspects of the Batho Pele campaign and the educator redeployment process.

Generally, the developmental approach starts with the argument that restructuring should take forward the broad transformation of the public service, and not be dictated by analytical methods devised to enhance the power of business management and cut costs. It assumes that South Africa needs a strong state to drive reconstruction and development.

By extension, the developmental approach rejects the idea that only independent agencies – whether stated owned or private – can deliver services efficiently. Rather, the public service must rely on a combination of strong administrative measures, appropriate decentralisation, mobilisation of employees, and improved oversight and participation by the public and by major stakeholders.

In the developmental approach, the budget constraint is not taken as static. Instead, through interaction between social and fiscal requirements, an appropriate balance should emerge between short and long term needs, and between macroeconomic stability and development imperatives.

Finally, developmental restructuring must take into account the costs and benefits to society as a whole, not only to individual departments. That means, in particular, that transformation initiatives must determine and find ways to manage the social and economic costs of eliminating jobs. Only then can unnecessary disputes and delays be avoided.

All in all, in terms of both practice and principle, it seems that only developmental restructuring can achieve transformation of the public service. But it requires an understanding on all sides that

• restructuring large institutions inevitably takes time;
• the costs of the transition must be taken into account; and
• funds and time must be set aside to consult with stakeholders.

The historic 2001 Public Service Job Summit puts in place a mechanism to govern the transformation and restructuring of the Public Service. The agreement has a profound contribution to make to an industrial strategy for our country, and the broader pubic sector.

" That the primary objective of economic policy is to promote growth and development in order to create jobs, sustainable employment, alleviate poverty and reduce inequality. These basic objectives are set out in the RDP."

"The realisation of these strategic objectives, requires a leadership that is able to carry out a wide range of structural reforms in both the economic and social dimensions of our economy, which includes the public service and the broader public sector. These reforms are guided by four pillars of a job creation programme:-

Job creation in the sectors of the public service

HRD for job creation

Special employment programmes

Job creation in the integrated provincial projects"

Our comments will focus only on those areas of the document which relate to the state.

The starting point for the DTI is the Microeconomic Reform Strategy of government, a document that relegates the role of the state to one page in bullet format at the end of the MRS document.

The Microeconomic Reform Strategy as adopted by government focuses on removal of obstacles to competitiveness, economic efficiency and equity.

5.1 The six key key performance areas as outlined in the document do not address the critical factor of investment in development, infrastructure and social investment.

5.2 The global environment is never analysed in the document and more importantly the character of the key motive forces that are driving globalisation of economies. This is a serious omission since it suggests there is a common acceptance of globalisation as being a positive contribution to the development of economies around the world.

What this has meant in the Public Service, is a massive drive by the WTO through GATTS, which has resulted in the privatisation of huge sectors of state health and higher education. around the world. WTO are looking into new areas in the public service to section off into the hands of the private sector.

5.3 There is general agreement that in order to have growth and development an integrated approach to development is necessary. Therefore one would expect this to be reflected in the draft, but this is not the case.

The draft deals with growth and development as different components and therefore commits the long established mistake that development will over time happen due to growth. This is a typical neo-classical approach to poverty reduction and is premised by two notions:-

Firstly that growth is sufficient for development, and that the two are synonymous. Secondly that extending markets will automatically benefit the poor

5.4 The role of the state in transforming structures of production and ownership to address poverty and unemployment, is overshadowed by the continues emphasis on cutting costs, increasing exports, and being competitive internationally

5.5 The nature of capital in South Africa is not dealt with, again a huge omission given the nature of the subject being dealt with.

5.6 That a core objective of economic policy, arresting the job loss slide, and the creation of sustainable jobs is weakly dealt with. It would not be sufficient to indicate that it is reflected in the microeconomic reform strategy.

7. Finally, we would strongly suggest that the proposed two-month period between public hearings, and additional discussions in NEDLAC, and recommendations being taken to cabinet are reviewed. We are trying to set in place an industrial strategy, which it is said will roll out to 2014.

Before any recommendations go to cabinet far greater consensus needs to be reached around the different perspectives that are currently being held. It would be a great mistake to wish to conclude in the mentioned timeframe, without sufficient consensus and then have to live with antagonisms and key forces pulling in different directions thereafter.

Whilst it is understandable that a shared vision may not be altogether possible, at least a minimum programme for growth and development should be shared by the main stakeholders.

In South Africa, the developmental state must fulfil four key functions –

• providing an adequate social wage;
• ensuring a growth path that brings about employment;
• strengthening democracy;
• securing more equitable distribution of wealth.

In effect, these functions provide criteria for defining the main tasks facing the different sectors within the state.

To fulfil its developmental imperatives, the state must have adequate capacity in terms of both assets and personnel. Proposals that aim only to cut down on the capacity of the state will undermine its ability to bring about development. Furthermore, this kind of managerial restructuring has typically run into such opposition from workers and communities that no change at all takes place.

We need a strong state with whom key stakeholders can identify priority areas and act together for growth and development.