Research Round Up #1.: Manufacturing Mass Entrepreneurship?

The National Development Plan speaks to ‘mass entrepreneurship’ to reduce unemployment and foster economic growth in South Africa.  To quote:

A large percentage of jobs will be created in domestic-orientated activities and in the services sector. Some 90 percent of jobs will be created in small and expanding firms. The economy will be more enabling of business entry and expansion, with an eye to credit and market access. By 2030, the share of small-and medium-sized firms in output will grow substantially. Regulatory reforms and support will boost mass entrepreneurship. Export growth, with appropriate linkages to the domestic economy will be critical in boosting growth and employment, with small- and medium firms the main employment creators. ((National Planning Commission, 2011) page 119)

In context, South Africa is one of the world’s most unequal societies. Can small business be the great equaliser? This is a question I am addressing as I attempt to complete the Masters programme at the WITS School of Governance. And no, I do not have any answers yet, but remain skeptical that the NDP is correct. In recent months, there have been discussion on economic policy. We take a look at some of the commentary on Mandela era compromises, before highlighting some of the policy perspectives related to industrial policy and entrepreneurship, specifically black industrialists.

Blame it on Mandela era compromises?

One of the reasons to remain skeptical is that our economic performance has been mediocre. One of the reasons advanced for this performance are the choices we made during our transition to democracy. The debate is usually emotional, but one has to take notice when academics from very different perspective reach the conclusion that we have made huge mistakes.
Professor Alan Hirsch, now at the University of Cape Town, and once one of the key economic thinkers in government over the last twenty years argues that indeed we have made significant mistakes. He identifies areas of weakness as:

  • assets such as wealth and land could have been more radically redistributed;

  • the Reserve Bank could have been given a full-employment mandate (like the Fed in the US);

  • competition policy could have attacked oligopolistic structures, not only anti-competitive behaviour;

  • a more vigorous industrial policy might have been introduced;

  • small businesses could have had more committed support; and

  • the apartheid structure of cities could have been more urgently addressed.

Leftist academic, Professor Patrick Bond reaches a similar conclusion. However, he raises a set of prerequisites for effective industrial policy. He argues:

But to adopt such obvious reforms would require radical economic transformation led by an honest government, not just rhetoric from a duplicitous, exhausted-nationalist regime. And most important, it would require a powerful democratic movement from below.

Professor Bond takes a stand on issues, and for that he must be respected. The problem I have is that the analysis focuses too much on structural changes, and not enough on the what people can do. In leftist thought, this gap is filled by work on the ‘solidarity economy’. It is an interesting and hopeful perspective that sees collective forms of ownership forming the basis for a more effective economic policy. I am still assessing the arguments developed, and hoping that it answers the main question I have – can the solidarity economy scale? Otherwise, it share something in common with ‘mass entrepreneurship?

Ineffective Implementation?

It should be noted that President Mandela is the only president in South Africa to have convened a small business summit. In it he said,

“By stifling entrepreneurship amongst the majority, apartheid not only robbed many of their livelihoods, but it deprived the entire nation of critical job creators; it robbed itself of a pool of creativity and drive. In order to develop the Small, Medium and Micro Enterprise sector in South Africa, we need to take into account inherited obstacles. These include: low levels of education and training; barriers to markets; inaccessible finance and lack of support institutions.” Speech by President Nelson Mandela at the second National Conference on Small Business 5 November 1997, Durban

It raises a question, whether the challenge is a more operational one. In other words, whether ineffective implementation is to blame.

Markets – Are they the problem?

Such contextual change might require more – changing the way many people in the financial sector think about the economy. Chris Hart has been in the news for all the wrong reasons.  He is a co-author on a paper that challenges research that South African economy is highly concentrated. I find the argument in this paper unpersuasive, but gives one an idea of the thinking that needs to be challenged. The argument that South African economy is a competitive market economy is not just the view of some academics, but is common amogst business leaders. We have covered the responses of business leaders to understanding of the market on ZApreneur.

Change Industrial Policy? With a social compact?

So at issue is whether Hirsch and Bond (strange bedfellows) are right, or if Hart and company are correct. Either the economy limits small business development and economic democracy or there are structural limits to small business development? Surely, it cannot be both?  Either the conditions for mass entrepreneurship are present or they are not?
One of the most interesting policy papers addressing this question is by Dr. Neva Makgetla, from Trade and Industrial Policy  (TIPS). She  argues for a shift towards light manufacturing and expansion into Southern African region.  She argues that the employment impacts and successful smaller businesses would be much greater. I think she has a good analysis of the options, and especially around how we link economic reforms to equity objectives.
The Department of Trade and Industry (DTI) has released a policy paper on Black Industrialists [PDF Link]. It argues:

It is envisaged that through this policy coordinated support will be given to promote the long-term sustainable development of black industrialists. It should be acknowledged that despite the spectrum of challenges facing black businesses (such as skills development, standards, quality, productivity improvements), various platforms, including the resolutions of the Black Industrialists Indaba (March 2015), have highlighted access to finance and markets as the major stumbling blocks to their sustainable development. It is for this reason that the Black Industrialists Policy will focus initially on financial and market access support in collaboration with the private sector.  

The NDP has released a paper exploring the concept and practicalities of a social compact. It covers ground that has been covered before, but brings the small business question to the fore. It says:

A strategy for the facilitation of small business development should be developed, addressing both the macro- and micro-interventions required to raise the level of entrepreneurship in South African society. These range from bureaucratic demands on these businesses in terms of the tax regime to regulations and by-laws at municipal level.

This is early days and lots of questions. Hoping to continue to share links, ideas and other stuff, to support better policy (and complete my long overdue dissertation). ZApreneur 2.0 is also coming soon, and will be my contribution to doing something, and not just understanding the world. No guesses as to what I will find more interesting to do – the research or an intervention.

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