As South Africa prepares for local government elections in November, the usual concerns about corruption have resurfaced. However, according to Ghaleb Cachalia, a businessperson and management consultant, this might be the wrong question to ask. Cachalia suggests that a comparison between South Korea and Ghana offers valuable insights into the relationship between rent-seeking and economic growth. At independence, the two countries had comparable incomes, but South Korea's GDP per capita now stands at over $36,000, while Ghana's is $3,300.
South Korea's remarkable growth was not without its share of corruption. Under President Park Chung-hee, politically connected conglomerates received subsidized credit and protection in exchange for loyalty and kickbacks. However, the key difference lies in how these rents were utilized. In South Korea, rent-seeking was linked to production, with the state demanding exports and international competitiveness. This approach allowed the country to industrialize rapidly and achieve significant economic growth.
In contrast, South Africa's history of extraction has been characterized by a system of rent-seeking that rewards political control rather than productive activity. For over a century, the country's economy has been driven by the extraction of mineral resources, with benefits concentrated within a small number of families and corporate structures. The state's role in this process has been to provide a framework for cheap labor and to facilitate the export of gold and diamonds.
The legacy of apartheid has also played a significant role in shaping South Africa's economy. The regime built a sophisticated bureaucracy, capital markets, infrastructure, and industrial base, but these institutions were designed to serve the interests of a racial minority. As a result, political access became more attractive than productive investment, and the underlying temptation to engage in rent-seeking behavior has persisted.
The Zondo commission's report on state capture highlighted the ways in which procurement, appointments, and state-owned enterprises were redirected towards a new network of politically connected individuals. While stronger institutions, prosecution, and accountability are essential, enforcement alone cannot address the deeper issue of what political power pays individuals to do. If it pays to control tenders, licenses, and state companies, people will continue to compete for political power for personal gain.
The experience of Asian developmental states offers an alternative approach. Rather than eliminating rent-seeking altogether, these countries have sought to discipline rents to serve development goals. The objective is not to control the state, but to make it profitable to engage in productive activities such as building competitive firms, increasing exports, and investing in capital. This approach has allowed countries like South Korea to achieve rapid economic growth while minimizing the negative effects of rent-seeking.
Ultimately, South Africa's economic development will depend on changing the incentives that drive political behavior. Until it becomes more profitable to engage in productive activities than to control the state, political power will remain an end in itself, and economic growth will suffer. As Cachalia notes, the question is not who will control the state, but what those who control it will make it profitable to do.
Key points
- South Africa can learn from South Korea's experience with rent-seeking and growth.
- The country's history of extraction has been characterized by a system of rent-seeking that rewards political control rather than productive activity.
- Changing the incentives that drive political behavior is crucial to promoting economic development in South Africa.
