Learning to diversify 
for development

24th July 2009 By: Seeraj Mohamed

I recently had the opportunity to attend the 
African Task Force meetings organised by economics Nobel Prize laureate Professor Joseph Stiglitz’s Initiative for Policy Dialogue (IPD). The meetings were held on July 9 and 10 July, in Pretoria, and were 
attended by an impressive group of international economists.

Stiglitz started the IPD, at Columbia Univer-
sity, in New York, in 2000. The aim of the IPD, according to its website, is to “. . . help developing countries explore policy alternatives and enable wider civic participation in economic policymaking”. The IPD 
recognises that the policy choices of developing countries are often constrained by pressures exerted by developed-country governments, aid providers and international financial institutions, such as the World Bank and the International Monetary Fund. Further, mainstream economists often present a very narrow range of options to help further 
economic development.

During my interaction with Stiglitz and other members of the task force, I was happy to find agreement on an important role for the State and industrial policy in develop-
ing countries. Developing countries require 
industrial policy not only to deal with areas where there is market failure, but also to change the development trajectory of a country. Stiglitz stressed the importance of knowledge and learning for an economy. The learning possibilities in an economy are constrained by a narrow industrial structure. Many African economies, including South Africa, have industrial sectors focused on mining and minerals. Most of the mining and mineral products are exported without much value addition. The potential for learning in an industrial structure centred on mining and minerals production and exports is limited. The overall development potential of a country becomes constrained.

The importance of learning for economic development cannot be ignored. There is no predetermined path for economic devel-
opment in a country. Business and government have to embark on a process of searching and learning to find a path that works for the country with its specific history and strengths and weaknesses. I thought about South Africa’s economic growth over the past few years. During this period, the services sec-
tor emerged as the largest contributor to gross 
domestic product (GDP) – it contributed more 
than the manufacturing and mining sectors did 
to South Africa’s GDP. It seems that there is much room for learning in the services sector.

However, one has to take a closer look at how the services sector grew in South Africa. Significant job growth in services has been in only two sectors – wholesale and retail trade services and business services. These are sectors where there is very little learning by workers that will support the economic development of the country. In fact, these are sectors where many workers are in the informal sector or are casual workers. Business ser-
vices seem like an area where there could be important learning. However, the business services sector in South Africa has been dominated by the growth of labour brokers and private 
security. The growth in labour broking has occurred because many mines and manufacturing businesses have outsourced cleaning services. Workers who worked in mines and factories now still clean or guard those mines and factories but their conditions of service have changed drastically. They have less job security, lower wages and fewer benefits. Their opportunities to learn on the job and to be trained to move on to better jobs in the mines or factories have shrunk.

An important lesson from the African Task Force meetings is that development should be seen as a learning process that builds the skills and knowledge base of a country. South Africa requires an active industrial policy that tackles market failures and shifts our economy onto a new growth and development path where we absorb more people into employment and increase their opportunities to learn. We have to diversify the industrial and services base of our economy.