The Political Economy of Structural Transformation

Abstract

Abstract This chapter examines the evolution of the political settlement in South Africa, which is critical for understanding its structural transformation path as well as for the reconfiguration of industrial policy. The success or failure of countries to drive structural change is understood in terms of the extent to which the political settlement, or governing coalition of interests, supports the growth of diversified industrial activities with higher levels of productivity. The chapter analyses why and how, despite the developmental agenda of the ruling African National Congress (ANC), South Africa has failed to achieve its production transformation. The chapter finds that the political settlement forged around South Africa’s transition from apartheid to democracy created the conditions for a corporate restructuring of the economy characterized by high profitability, despite low investments. This has involved power entrenchment in large incumbent organizations and coalitions of rentieristic interests, which have undermined necessary industrial policy enforcement. Persistent high unemployment and inequality have fuelled dissatisfaction and contestation over the core objectives of a more developmentalist state. Industrial policies have also been undermined by the fragmentation of the state, leading to misaligned policies.