Academic journal article
By Schneider, Geoffrey E.
Journal of Economic Issues , Vol. 34, No. 2
The key to economic growth, it is said, for developing nations is to reach the point where development is self-sustaining, because investments in economic ventures yield positive returns, and these returns provide funding for new investment. The development of a viable manufacturing sector is often seen as the key to self-sustaining development, because there are constraints on the extent to which a society can develop through the export of primary products alone. Yet the proper method to develop a manufacturing sector in a developing economy remains in question. While most reasonable economists agree that some amount of protectionism and government intervention can be beneficial to infant industries in the early stages, it is commonly thought that there are limits to development behind trade barriers and that public sector investment is inherently inefficient.
The South African experience suggests that industrialization that takes place behind protective barriers can be more robust than conventional economists admit, and that public sector investment can be efficient and spur growth. It suggests as well that economic growth based on labor repression limits the extent of industrial development by reducing domestic aggregate demand and antagonizing workers. From 1925 to 1973, the government of South Africa pursued an active policy of import substitution to stimulate domestic manufacturing and state investment in key sectors. Industrialization in South Africa was generated by a symbiotic relationship among the state, state corporations, and the mining sector with the creation of huge state-owned corporations, protection of domestic industries, provision of a guaranteed local market for new industries, and state repression of labor. Industries also benefited from a ready pool of funds from mining. Despite protection, economic growth in South Africa was phenomenal thro ugh the 1960s. The growth of the manufacturing sector was particularly striking, and South Africa remains the most industrialized country in sub-Saharan Africa. Since the early 1970s, however, the South African economy, along with the manufacturing sector, has stagnated, for a number of complex reasons.
In what follows, I identify the sources of the success of South African manufacturing, as well as demonstrate the limits to the conventional wisdom on this subject. Although the World Bank continues to extol the virtues of development through free trade, the South African case shows us that long-term industrial development can occur via a selective delinking of key sectors of the domestic economy from the international economy. But South Africa's experiences also show that the benefits of development must be shared with labor for development to be self-sustaining.
South Africa, like many countries in sub-Saharan Africa, is well endowed with natural resources. However, in most African countries, the profits generated by primary product exports were not reinvested domestically. Instead, profits were usually repatriated by foreign firms or captured by domestic elites. South Africa was able to keep many of the profits generated by gold and diamond mining within the country. This was done by making production for the local market extremely profitable. As South African economist Jill Nattrass [1981, 162] commented, "it was largely due to the determined efforts that were made by successive South African Administrations after 1924 to encourage industrialization and to develop a class of local manufacturing capitalists, that enabled South Africa to escape the ill effects of economic imperialism that were the concomitant of colonialism in so many instances on the African continent."
Direct state intervention in the economy to promote the development of local industry began with the installation of protectionist policies in 1881 by Paul Kruger, president of the Transvaal Zuid Afrikaansche Republiek.  Earnings from mining were large, but little was going to the Afrikaners who governed the region and who made up a majority of the white population. …