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State Capitalism vs Liberal Capitalism

In: Business and Management

Submitted By sergiopanayi
Words 1465
Pages 6
Capitalism is the combination of many actions that provides the economic structure such as the changing balance of output, trade, income and employment. This is based on private ownership by means of corporations or individuals. There are many types of capitalism. This essay discusses two types of capitalism that are currently being debated in the media, State capitalism and liberal capitalism.
This essay also investigates whether the South Africa is really state capitalism or are they using Major Private Sectors to socially develop the South African economy, being Neoliberal capitalism?

State Capitalism VS Liberal Capitalism
State capitalism is when the government takes control over the commercial economic environment. The government may own shares in a public company listed in the stock exchange, acting as a large shareholder. Another type of economic system where State capitalism would be involved is when production is owned by private companies and the state controls the credit and investment allocation.
Liberal capitalism is also known as free market capitalism; it gives companies and individuals the freedom to run their own market and set their own price systems. Individuals or companies would benefit with their gains and face detriment with their errors. The government may intervene to control free trade and open competition by eliminating private Monopoly.
Neoliberal Capitalism is where private sectors seek to maximise the political and economic priorities of the state.

South African Government Interventions
Referring to the State of Nation Address by President Jacob Zuma, there are many interventions the Government desires to implement to improve the South African socio-economic structure. The various areas are unemployment, transportation, health, education, fight against crime, human settlements, energy, water settlements, rural development and others.
Below will discuss some of the interventions in South Africa:
Solving the problem of unemployment is one of the biggest challenges encountered by the South African government. South African unemployment goes as far back as the 1970’s. Employment continued to decline in the 1990’s and early 2000’s. This was caused by the slow growth in mining and agriculture resulting in a further rise in unemployment. (Zuma 2012)
In 2003 to 2008, jobs grew rapidly but the unemployment still did not fall below 20%.
The Government is trying to reduce unemployment by means of two methods, namely State capitalism and Neoliberal Capitalism.
The government is helping unemployment by launching the New Growth Path Framework. They identified that; infrastructure development, tourism, agriculture, mining, manufacturing and the green economy are the major job drivers. Government is not only helping the unemployment by using every government entity including; state owned enterprises, funding new industrial and manufacturing projects, training and re-training, but are also getting support from social partners. Social partners would be the business, labour and community sector, which are the major job drivers. Therefore the combination of government controlled sectors with the social partner enterprises creates a mixture of a state capitalism and neoliberal economy.
“Government alone cannot solve the challenges faced by the country, but working together, solutions are possible.” (Zuma 2012)

By Government developing new infrastructures and projects such as the Growth Path Framework mentioned above will increase the growth of labour demand. See graph below.

By increasing the number of firms and projects will shift the demand curve to the right and therefore increasing the number of labours from L1 to L2.

Transportation and Water
Government is planning to develop and integrate rail, road and water infrastructure in various parts of South Africa. This is increasing the production of minerals; namely coal, platinum, palladium, chrome and other minerals. This will also expand the rail transport thus connecting coalfields to power stations.
The government is planning to link South Africa’s major cities, such as Gauteng, Durban and the Free State with each other and with the major sea-ports to improve exports. The government is implementing this integration with their state owned enterprise, Transnet. Thus implying that the upgrade of transportation is state led capitalized. Further to this, Transnet is reducing port charges to decrease the cost of doing business.
Furthermore the reason for government intervention in transportation and water development is to increase the production of minerals which is our primary GDP driver. Mining Industry contributes 8.8% directly to the country's gross domestic product (GDP) and another 10% indirectly. (Brand South Africa 2012)

Health and Education
Government is implementing National health insurance systems such as the refurbishment of hospitals and nursing homes. As well as spending a large amount of money for schools and universities in poor areas such as Mpumalanga and the Northern Cape. As well as planning to invest in more teachers to teach. South Africa is currently sitting on 705 000 enrolments in grade R and by 2014 having a 100% coverage. Over 8 million learners attend free schooling and benefits from government schools. Government instituted a Section 100 intervention to improve non-delivery of textbooks, non-payment of students transport, excess teachers, and general poor culture of learning and teaching. (Zuma 2012)
This will allow the youth to gain education and skills and will prevent poverty and inequality.
Increasing the Health in the economy will contribute significantly to economic growth. Healthier workers are physically and mentally more productive as they are more energetic. Labourers will be less absent from work and this will result to more production for the economic market. The state intervenes with this as it will increase the GDP.
Education also escalates economic growth, production and innovation, democracy and social cohesion. Investing in education will benefit individuals and the society. Education benefits an individual’s health, increases productivity and earnings and reduces inequality. Education will benefit the society as it drives economic competitiveness and reduces poverty. It also contributes to democratization, promotes peace, stability and concern for the environment. (The World Bank 2011),
However it can be said that education and healthcare is not a question of state capitalism but state obligation.
This cannot be said as State capitalism as other countries running a Liberal market still provides free Education and health care. (Balakrishnan and Elson 2008:2)

How interventions are financed
It is one thing listing the interventions that government would like to implement however these interventions need to be financed. There are certain sectors that produce more money than others for the country and therefore the government would naturally spend more on these sectors. However they cannot neglect the other sectors as accelerating growth in these sectors would accelerate economic growth.
The main source of government collections is through tax measures (SARS 2012), A total of R889 billion was provided for the period 2011/2012. R77 billion is spent on Debt service cost, R4 billion for established practice, the budget framework which includes unallocated contingency reserve. R808 billion is left for the allocation of national, provincial and local government. Transfers to local government have increased to over R70 billion in budgetary assistance and infrastructure for 2011/2012.
The budgetary allocations are then split further into various sectors and departments. These budgets are taken into account government interventions. The following has been allocated to assist in government interventions:
Job creation - All the funds mentioned below help with Job creations.
Education – Education takes up 21% of government spending which is the largest share. Education and skill spending rises from R 190 billion in 2012 to R 215 billion in 2013/14. Therefore an addition of R24.3 billion will be added.
Health services – Total spending on health services increase from R 63 billion in 2007/08 to R113 billion
Making communities safer – A total of R 12.8 billion goes to the department of police and 670 million for the upgrade of information technology
Economic development and industrial promotion – An addition of R 2.5 billion will be allocated to the economic development and industrial promotion.
Rural Development and agriculture – A total of R 19 billion will be spent on rural development and agriculture in 2011/12, rising to 21 billion in 2013/14.
Transport - Government transport spending will amount to R66 billion next year to 80 billion in 2013/14 (Gordham 2012)
However a number of the items listed as government interventions above can be argued as items of state obligation and not as interventions of State capitalism initiatives or structures. In other wards items such as education and health care do not form a business component to the economy as this fall under service delivery. Sectors which are driving revenue within the economy such as mining are primarily privately owned (Balakrishnan and Elson, 2008:2)
Although number sections are run by government, which would be typically classified as state capitalism. There are various sectors as mentioned above which are privately run which will fall under Neoliberal capitalism. Therefore it can be said that South Africa is a state and Liberal capitalism.…...

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