International Trade and Investment - A Lever for promotion of Economic Development and Alleviation of Poverty

27 August 2005

Introduction

Happy 10th birthday to NEDLAC!!!

Not speaking from the standpoint of trade or finance economist but from the perspective of political economy

To understand the place of International Trade and Investment within national development requires us clarifying and situating these economic policy options within a conception of "globalization". There are many analytical approaches to globalization but many influential people in South Africa are captive to a conception of "globalization" that suggests: (a) the world is integrating and interdependent through the global market; (b) as a corrollary the nation state has a limited role to play in development - actually some believe even the regulatory role of the state is passe; (c) an open economy that is fully liberalized allowing for "free trade" and unfettered capital flows (FDI, portolio or speculative) will lead to the development of South Africa - we will all be rewarded. This is an ideological conception of globalization, an ideal type, which fails to come to terms with the actual evidence and specific features underpinning the current expansion of global capitalism. More importantly, this ideologised version of globalization wants nothing less than the adjustment of the SA economy based on the trade doctrine of comparative advantage and the whim of global capital.

Such an approach to globalization and Trade/Investment has the following consequences for South Africa (1) it would further peripheralise and underdevelop South Africa such that we run the risk of becoming a fourth world economy - a net importer of capital and high technology goods and probably even of consumer goods if we continue deindustrialising (Yes some would gain from this kind of trade particularly those with high incomes and jobs but the vast majority wont); (2) comparative advantage and liberalization takes us beyond duality(or two economies) and fragments our domestic economy in South Africa - we end up having an "export enclave", a TNC zone, a import-competitive sector, a public sector, second economy and so on…(3) it will widen and deepen social polarization in the society and probably roll back our democratic transition. In short a neo-liberal approach to trade and investment will ruin our country.

In the world economy today foreign trade and investment are important. Over the past few decades the rate of world trade has surpassed world output and FDI flows, in particular, through transnational corporations are important in determining a new global division of labour. The development of the WTO has also placed extremely onerous conditions on member states in the context of multi-lateral trade. However, what is the reality or the real game? (1) All industrialized countries have lowered tariff barriers up to a 10% rate except for certain labour intensive and high technology sectors - this includes clothing, farming for example- importantly there is no general drop in tariff barriers and absolute opening up, (2) non-tariff barriers (low energy costs, tax incentives, low costs of capital etc) persist in most instances, although subsidies etc are declining. In China with the cost of Vat the non-tariff rate is estimated at about 40% for imported goods. (3) domestic interests have been balanced with international interests. (4) while absolute sovereignty has never existed for nation states, they still have options to bargain with TNCs. Large states use their large markets to secure concessions. For smaller states regional integration provides leverage over TNCs etc. (5) TNCs have not monopolized world output of goods and services. National economies are still important contributors to world output. In short, liberalization and protection co-exists in the world we live in. Have we found this balance as South Africa? No!

Put differently, how should South Africa approach International Trade and Investment such that we are able to manage an open economy while at the same time ensuring internal development and poverty reduction? The answer lies, for me, in the following: (4.1.) ensuring international trade and investment are subordinate to the imperatives of strategic industrial policy (4.2) a "developmental state" is constructed with the meritocratic capacity or professional cadre that is able to manage new and sophisticated policy instruments in the context of both a liberalized and protected economy, at the same time. In other words the appropriate degree of integration with the world economy is balanced against the internal development of a mixed economy(4.3) Our newly "imagined democratic South Africa for all", in the context of nation building, fuses our national interest with the national ambition to grow and develop the economy such that South Africa aims to become a first world economy. In other words, we do not fit into a hierarchical world economy through comparative advantage but through developmental and competitive advantage and there is widespread economic mobilization of the population to achieve this - the two nations thesis becomes the one nation solution! (4.4) NEDLAC closes shop and the tri-partite alliance together with the South African developmental state starts leading a very divided capitalist class, which is merely "short-termist" and incapable of leading a new accumulation path or the next wave of heavy and high tech industrial development (4.5) regional integration with SADC is speeded up within a developmental framework rather than a "free trade" framework in which South Africa dominates.

It is only through a South African led development project, with a new developmental state and cohesive tri-partite alliance, can the appropriate trade offs be devised for the strategic and selective use of international trade and investment. This project has to work with a 20-30 year horizon and in the course of this process we must address directly and squarely the widespread poverty and underdevelopment in our country.

Prepared by Vishwas Satgar, Executive Director, Co-operative and Policy Alternative Center (COPAC)