March 27, 2013 | by SGI NEWS
Helmut Reisen, former head of research at OECD Development Centre, talks about the economic and social affairs of the BRICS countries and the reasons why South Africa is no longer a model for sustainable development.
SGI News: Dr. Reisen, this week South Africa hosts this year’s summit of the emerging BRICS economies – Brazil, Russia, India, China and South Africa. Is the nation of the Cape of Good Hope still a model for sustainable development?
Helmut Reisen: South Africa certainly has a number of positive characteristics. It has been a parliamentary democracy since the ANC came into power, and it has a well-developed government administration at the highest level. When you look at social issues, however, especially in the areas of health, education, social inclusion and the labour market, significant weak points are visible, as it is reflected in the BRICS study of the Sustainable Governance Indicators of the Bertelsmann Stiftung.
SGI News: What do you mean by weak points?
Reisen: Pandemic prevention is deficient, as is the general access to health institutions. This is also due to a lack of social inclusion. There are still very strong racial divisions, which are broken at best by a black elite. Within the black population there is profound inequality, and social integration remains also difficult. South Africa has the highest level of social inequality worldwide – not just within the BRICS nations. In this respect, one can understand how social conflict arises; in the mines, for example. That is also due to a very high unemployment rate, and youth unemployment rate, which can in turn be traced back to insufficient education reforms.
SGI News: Where are South Africa‘s biggest problems in relation to education?
Reisen: Primary and secondary education in South Africa is not especially good. And tertiary education has little regard to demand, especially in respect of engineering and other scientific degrees that are important for sustainable development. This leads to a so-called “skills mismatch”, because what is offered by the education system is not what is demanded by an emerging nation exhibiting sustainable growth. On the other hand, for example, there are relatively good educational opportunities in the finance industry. Universities in South Africa are not bad. But there is a structural defect, and access to universities is far from equal. This inequality is present not only in the tertiary sector, but also at the levels below that.
SGI News: What needs to happen in terms of policy?
Reisen: What’s required is an improvement in the quality of public schools, which are attended by the underprivileged segments of the population. There is also a lack of vocational training, which is something that distinguishes Germany, for example. In the secondary and tertiary sectors, there is a need for more attention to be paid to ensuring that the capabilities that are taught are those that are also important for the private sector.
SGI News: How does South Africa compare to other emerging nations with respect to education policy?
Reisen: In this respect, South Africa has been left behind. And that’s the case even though at 20 percent, expenditure on education makes up the largest component of the South African budget. In comparison to Brazil, Russia, India and China, South Africa exhibits the worst performance in education and employment policy.
Reisen: The BRICS nations perform worse in the long-term indicators – that is, the social indicators – than in the short-term indicators such as fiscal space and macroeconomic solidity. In that respect, if sustainability is under threat in the BRICS nations, it is under pressure in the social sector. It is not threatened on the economic side to the same extent as in Europe for instance. To some extent, however, the social deficits can be traced back to the growth process itself.
SGI News: How is that?
Reisen: Emerging countries are generally large countries, and exhibit a dual structure. That means that on the one hand they have a rural, or informal urban, sector with very low productivity, and on the other hand a formal urban sector with high productivity. The growth and development process is characterised by a necessary transfer of resources such as labour and capital from these unproductive sectors to the productive sectors. This process leads to a temporary – and by temporary I don’t mean short-term, but rather for a number of years or decades – to greater social inequality. This inequality occurs between the rural and urban sectors, and also within the urban sector. These are relatively unavoidable processes which are very strong and which can at best be cushioned by good policy.
SGI News: Which country has managed that?
Reisen: Brazil, for example. There, under the administration of Lula and before that Cardoso, you could see a pronounced and strong-willed program targeted at fighting poverty and hunger. Brazil is alone among the BRICS nations in managing to stem the tendency towards growing inequality, especially through the transfer of money to the poorest population groups.
SGI News: In the SGI BRICS study, Brazil is also at the top of the BRICS nations when it comes to social policy.
Reisen: Right, followed by China. Then Russia. In that field, the real problem children are India and South Africa.
SGI News: And how do things look in terms of economic policy?
Reisen: China is ahead of the pack in this regard. China is a successful developing country. It always had governments that involved themselves in development strategies. The experiences in China show that in certain settings the state can intervene with strength and be successful – for example, through financial instruments, subsidies and its industrial policy. China is easily the best-governed country within BRICS – despite a high level of state control, and despite a relatively restrictive policy in respect of direct investment. Brazil and India are next in line for economic policy in the SGI study. Russia is well behind here.
SGI News: Why?
Reisen: It’s predominately because Russia has failed to build a coherent development strategy. Everything happens on a discretionary and short-term basis. Russia mainly survives on resource rents and hasn’t proven capable of diversifying the economy.
SGI News: What are the biggest political challenges facing all the BRICS nations at the moment?
Reisen: The differences within the BRICS countries are significant, but there are at least three challenges which they all share. All of the countries are large and have a dual structure. That means that the fiscal equalisation between the central government and the regional authorities is very important. And this has not, to date, been addressed in an optimal manner in the BRICS nations. It must be conducted so that the regional authorities are delegated tasks that are sensibly funded by means of fiscal transfer. Otherwise, the regional authorities will fail to perform their task, or will attempt to fund it in another way. This encourages corruption.
SGI News: And secondly?
Reisen: The BRICS nations must pay more attention to the skills mismatch in the labour market, to ensure that the education sector doesn’t ignore modern industries. That is indispensable for strengthening industrial competitiveness which allows countries access to higher value-added segments in the modern global production networks. The third aspect is industrial innovation policy. This depends on diversification. It requires a new form of infrastructure in addition to the so-called “hard infrastructure” in the fields of energy and transport. This is “soft infrastructure”: Respect of property rights, individual freedoms, and democracy, to name just a few. These factors are similarly decisive with regards to the sustainable development of the BRICS countries.
Helmut Reisen has been Head of Research at OECD Development Centre till September 2012 and now runs a consulting firm in Berlin. He is author of Economic Policy and Social Affairs in the BRICS, just published by SGI. Helmut Reisen blogs on ShiftingWealth.
Interview: SGI News
Translated from German by Rogan O’Shannessy