The role of Local Economic Development Agencies in South Africa’s developmental state ambitions

Introduction

There is a growing sense of urgency for, and emphasis on, the creation of a modern democratic developmental state that will be able to address the triple challenges (poverty, unemployment and inequality) facing South Africa. Chapter 13 of the South African National Development Plan (NDP) argues that a capable developmental state is the only solution to South Africa’s worsening socio-economic crises (National Planning Commission, 2012). At the opposing end of the developmental state is the failure of trickle-down economics to alleviate poverty, quell unemployment and address the growing inequalities in South Africa and the rest of the world, which is blamed on the global capitalist system for failing to emphasise the importance of inclusive socio-economic development (Pickety, 2014). The re-emergence of interest in the developmental state is therefore a reaction to the need to create states that can address the national development challenges facing emerging and developing nations after the 2008 global financial crisis. This is because developmental states operate in a paradigm that seeks to address national development challenges through directing state institutions, capacities and policies towards greater inclusive economic development. This is as opposed to neoliberal-driven systems, which often do not prioritise immediate national interests in the pursuit of economic growth that is often not inclusive.

South Africa’s aspiration of becoming a prime developmental state requires the active participation of all levels of government – national, provincial and local. The South African Constitution (1996) stipulates that whilst the spheres of government are distinctive, they are also interdependent and interrelated. Nevertheless, the role of the state in economic development has always received attention from the national level, with the marginalisation of subnational governments. The decentralisation process led to a key focus on the roles that subnational governments have to play in strengthening democracy and delivering basic services to the people. At the subnational level, the role of provincial governments as the vertical intermediary structure in administering and supporting development is key for both the national and local levels. Despite the interdependence of the levels of government, it is local institutions that have the greatest role to play in addressing the triple challenges, due to their close proximity to the citizens and developmental challenges South Africa is facing. However, local government has been unable to meet citizens’ demands because of inherent incapacities to plan for development, with major inabilities attributed to the lack of capacity within local municipalities; insufficient skilled LED practitioners; a lack of understanding of local economies; a lack of funding for LED; and a lack of integration between local authorities, communities and businesses (Hofisi and Mbeba, 2013; Nel and Rogerson, 2005; Rogerson, 2010).

The failure of South African local governments to champion LED resulted in the establishment of Local Economic Development Agencies (LEDAs) as subnational institutions tasked with creating an appropriate environment to address the triple challenges and enforce a capable local government. The premise behind the establishment of LEDAs was that they are subnational institutions that have the necessary capacity to drive the developmental local government agenda that is linked to South Africa’s developmental state ambitions. This article utilises the developmental state theory to examine the roles and functions of LEDAs in South Africa’s capable developmental state aspirations. While the developmental state literature is silent on the role of subnational institutions in economic development, this article extends the developmental state theory by arguing that the South African developmental local government is the local developmental state, because it is underpinned by the developmental state ideology of promoting development, maximising social development and accelerating economic growth. Developmental states are coordinators of economic development at the national level (Chang, 2003). Similarly, this article argues that LEDAs are coordinators of economic development of the local developmental state (developmental local government). In addition, this article contributes to the developmental state theory by illuminating the roles and functions of subnational state institutions (local government and LEDAs) in advancing South Africa’s developmental state ambitions.

The article is structured in a chronological order that maps the developmental state from the national to the provincial and local level. The next section reviews the literature on the re-emergence of the focus on developmental state theory and the defining characteristics of successful developmental states, while ‘Defining characteristics of successful developmental states ’section focuses on South Africa’s local government system and the institutional challenges that face the country’s developmental state ambition. In ‘Developmental local government as the local developmental state’ section, I demonstrate the link between the developmental state and the developmental local government. ‘The role of LEDAs in South Africa’s developmental state ambitions’ section links LEDAs within the developmental state paradigm, and the roles and functions of LEDAs in advancing South Africa’s developmental state ambitions.

The developmental state

Chapter 13 of the South African NDP envisages the creation of a capable developmental state as the only solution to the ongoing triple challenges of unemployment, poverty and inequality (National Planning Commission, 2012). Developmental states invoke the need for their governments to drive their economic development trajectory, as opposed to relying on the guidance of the market/neoliberal system to allocate resources (Johnson, 1982). Developmental states play a prominent role in economic development because they are driven by the need to attain economic growth, which should be accompanied by radical changes in socio-economic conditions (Burger, 2014). To achieve this, the state uses its capacities and political administrative power to channel resources for economic development (Mkandawire, 2001). The ability of East Asian developmental states to accelerate economic growth, bring millions out of poverty and decrease inequalities is central to the growing interest in the developmental state theory (Kim, 2010). South Africa’s developmental state ambitions are inspired by the success of East Asian developmental states in achieving high and equitable economic growth, consequently decreasing socio-economic disparities in countries such as China, Japan, South Korea, Singapore and Taiwan. The developmental state theory is employed because South Africa hopes to replicate similar developmental outcomes (inclusive economic growth) to the East Asian developmental states.

Although the term ‘developmental state’ is associated with the rapid industrialisation and economic growth of the East Asian Tigers, the term was first used by Johnson (1982) to explain the miraculous state-led economic growth of Japan in the 1970s and 1980s. This does not, however, mean that developmental states only came into being in the 1970s; postcolonial African and Latin American states (from the 1950s) could be characterised as developmental states because they were based on a state-led development model. This is notable in that the failures of developmental states are mostly cited on the key failings of postcolonial states, i.e. inefficient public services, bloated state-owned enterprises, state capture and patronage (Meyns and Musamba, 2010). The developmental state can also be linked to the rise of welfare economics that dominated the development approaches post World War era (Chang, 2003). For a country like China, the developmental state approach is linked to the Confucian era, when the state was regarded as the most important social and economic player. These examples suggest that the developmental state theory cannot be traced to a unilateral development phase, but it is rather an ongoing state-led developmental process that is attributed to many features. The East Asian example is therefore a reference point of modern successful developmental states.

The debate on the role of the developmental state and the role of the state in economic development matters has burgeoned in Africa recently. The state is without a doubt the most important socio-economic and political institution in the development of a vibrant society (Evan, 2010; Evans, 1995). The debate about the role of the state and the free market in economic development is somewhat never-ending. The argument from the developmental state perspective is that the state has a greater role to play in directing the country’s developmental trajectory because of the imperfections of the market system (Meyns and Musamba, 2010; Mkandawire, 2001), whereas the argument from the neoliberal perspective is that the state should play a minimal role because of government failures in achieving sustainable economic development. The failures that are frequently cited include the problems associated with developmental states in Latin America and Africa, and the failure of governments to deliver adequate services to citizens. Although the global neoliberal development landscape has frustrated and constrained the role and ability of the state (by advocating for minimal state intervention) to respond to developmental challenges, the role played by states in mitigating the 2008 economic crisis and its ongoing effects led to the re-emergence of growing interest in the role of the state in economic development matters (Meyns and Musamba, 2010).

To proponents of the developmental state, the 2008 global financial meltdown and its ongoing effects were evidence of the imperfections of the free market system. For Edigheji (2010), the global financial crisis was proof that if no regulations are put in place for markets, the sustainability of the economy will not be maintained, causing an inverse effect on the country’s development. For Turok (2010), it was further proof that the government has an important role to play in managing markets in order to overcome the adverse effects associated with unregulated markets. The global financial crisis therefore led to the re-emergence of the need for the state to be involved/intervene in the economy. Both Edigheji (2010) and Turok (2010) were of the view that the recent global financial crisis exposed the importance of developmental states, because developmental states often emerge out of the need to regulate or intervene in market failures and the need to accelerate economic development or address economic failures. The economic crisis also led to more emphasis on the role of the state in minimising the impact and protecting the poor from economic shocks. In addition, modern immediate developmental challenges such as growing global inequality and unemployment have also contributed to the increase in support for state intervention.

The developmental state is defined as a state where the government has an important role to play in the economy, both at the micro and the macro level (Meyns and Musamba, 2010; Turok, 2010). One of the most important definitions of the developmental state that informed this study is by Mkandawire (2001), who described it as a state that is underpinned by a developmental ideology that is aimed at utilising the state’s administrative power, political influence and resources in the pursuit of economic development. The developmental state theory is therefore underpinned by two components: the ideological component, which argues that the state is the most important player in accelerating development and growth, and the structural component, which gives the state the necessary administrative power, political influence, resources and capacities to achieve economic development (Berhane, 2012). For example, the central role of the state is the pillar of the Chinese developmental state that is associated with Confucianism, which emphasises the state as the social and economic regulator (Mabasa and Mqolomba, 2016). These components bequeath the Chinese state with the necessary mandate to coordinate economic development planning in a development-oriented manner, contrary to market-driven development that has often exacerbated poverty, unemployment and inequality, e.g. the South African context where neoliberal policies such as the Washington Consensus invariably entrenched poverty and inequality. In addition, at the centre of all these components is the emphasis that the free market cannot effectively accelerate inclusive development without the intervention of the state. Based on this understanding, the state is therefore needed to play a role in directing public goods and ensuring that any state intervention is for the benefit of the citizens (Grindle, 2004).

Many defining characteristics are given to a developmental state, some of which are negative and some of which are positive. Mkandawire (1999) held that a developmental state is characterised by the promotion of macro-economic stability; the establishment of sound and accountable institutions; and effective administration that deals with conflicts and restores peace, ensures property rights and mostly advances human development. On the other hand, there are those who hold that a developmental state has little regard for human rights (Leftwich, 2002). The fact that some of the foremost developmental states were based on authoritarian regimes has been highlighted as one of the influences in the success of a developmental state. As such, it has been concluded that developmental states can never be democratic. These assumptions are based on a neoliberal informed thinking that presupposes that democracy can only coexist with liberalism and presupposes the impossibility of a democratic developmental state. However, Edigheji (2010) and Mkandawire (2001) have shown that it is possible to create a democratic developmental state; Botswana and Mauritius are examples of modern developmental states that are democratic (Edigheji, 2010; Mkandawire, 2010; Sandbrook et al., 2007), i.e. efficient developmental states do not necessarily rely on authoritarian regimes. The idea of a modern democratic developmental state is important because it seeks to align states with the current democratic development trajectory being witnessed internationally.

Defining characteristics of successful developmental states

The most recognised successes of developmental states were recorded in certain East Asian countries in the 1980s, i.e. South Korea, Taiwan, Hong Kong, China and Singapore (Evans, 1995, 2005; Meyns and Musamba, 2010). There are many different perspectives regarding the characteristics of successful developmental states by various leading authors of the developmental state theory. Below is a list of the foremost defining characteristics that are found in leading developmental states.

Johnson (1982) held that a developmental state has a small but efficient bureaucracy, whose role is to guide the trajectory of economic development that has to be protected from rent-seekers and interest groups in order to achieve long-term sustainability. The state gives necessary power to its bureaucrats to develop interventionist approaches that will promote the national development agenda. In short, the state dedicates its administrative and political resources to development planning and execution. This understanding is connected to Berhane’s (2012) structural component of the developmental state, which gives the state the right to lead economic development because of its capacity. Other prominent authors (Chang, 2003; Evans, 1995; Von Holt, 2010) also emphasised the importance of a strong bureaucracy in driving the efficiency of the developmental state, as seen in East Asia and in modern democratic developmental states. Maintaining the autonomy of the bureaucracy is important in developing policies and implementing programmes that will lead to socio-economic development in the lives of citizens and the promotion of institutional goals (Evans, 1995; Von Holt, 2010). Important lessons regarding the necessity of an autonomous bureaucracy are evident in the failures of African and Latin American developmental states, where the bureaucracy was captured by rent-seekers, promoted neopatrimonialism and used government positions to advance self-interests rather than national interests and institutional goals.

Leftwich (2000) argued that the success of developmental states relies on a political elite that is developmentally driven and committed to the cause of attaining economic growth. A development-oriented political leadership has the ability to inspire confidence by directing the state’s capacity towards developmental outcomes. Various studies have discussed the importance of a political leadership that is driven by a powerful economic and political ideology that is focused on rapid development (Wade, 2000). At the heart of this development is the role of the political leadership in helping create sound institutions as well as institutional reforms, which play a major role in the facilitation of political stability and sustainable economic development. In contrast to the successful developmental states, failed developmental states were riddled with what Acemoglu and Robinson (2013) called ‘extractive political elites’, who create extractive economic institutions that fail to be inclusive or bring economic growth and development to the citizens. Acemoglu and Robinson pointed out that states such as Zimbabwe and North Korea have extractive economic institutions that are used to enrich the friends of political elites rather than for the benefit of the majority of the people.

A performance-driven government is a core requirement for an effective developmental state. The role of government in providing basic social services, service delivery and a positive relationship between it and its citizens is thus key in a developmental state. The path to efficient and sustainable economic growth rests upon the collective work of the government, private sector and communities, as was reflected in the institutionalisation of partnerships between the political leadership, the financial sector and the industrial capital by the Asian Tigers (Wade, 2000). The relationship between the private sector and the state was based on mutual respect, which led to the private sector taking advantage of subsidies and subsequently increasing performance and productivity in industries (Acemoglu and Robinson, 2013). As a result, this created better conditions for capital accumulation, the strengthening of competition and the improvement of productivity (Evan, 2010). The ability of the states to promote a culture of competitiveness and reward was a good way to promote investment in the major industries. The two achievements that were noted as further successes were the ability of these states to reduce poverty and the political legitimacy that the political elites enjoyed. The equity problems that were faced in these states were addressed in the midst of transformation, as the rapid industrialisation that the states undertook was accompanied by a decrease in income inequality and a subsequent decrease in unemployment and poverty rates (Kim, 2010).

The case of South Korea is one of the most important case studies that reflects the four characteristics of an efficient developmental state. The political leadership demonstrated itself as being development oriented by investing in education and designing effective economic policies. To craft such national developmental policies, it relied on a strong bureaucracy which made it a performance-driven government. The successful rise of South Korea was thus the result of a strong, development-oriented political leadership and a strong bureaucracy, which were able to form tripartite social dialogue and foster the relationship between government, unions and businesses (Norwegian Agency for Development Cooperation, 2011). South Korea used social dialogue with key industries as a means of achieving consensus on the required developmental needs of the state. This promoted a production-driven private sector that took advantage of the readily available skills, policies and technologies (Acemoglu and Robinson, 2013). As a result, the country moved from a GDP per capita of US$2300 in 1980 to more than US$30,000 by 2011 (Acemoglu and Robinson, 2013; Nordic, 2011). The success of South Korea therefore reflects the importance of inclusive institutions in bringing about prosperity in nations.

Developmental local government as the local developmental state

The developmental state literature is silent on the role of subnational state institutions in economic development. Turok’s (2010) work, Towards a developmental state: Provincial economic policy in South Africa, although only focusing on the role of provincial governments, is nonetheless key because it recognises the role of subnational governments in advancing South Africa’s developmental state ambitions. Turok found that each and every province had different set-ups and faced dynamic situations, with uneven capacities to deal with development challenges. Some provinces performed much better than other provinces, for example provinces such as the Eastern Cape and Limpopo (being amongst the least developed provinces in South Africa) were experiencing low employment rates, whereas provinces such as Gauteng and the Western Cape (being the two most developed provinces in the country) had better employment rates. The aims of these provinces also varied, with the main objectives being growth, employment and sustainable growth, and the least objectives being regional competitiveness, broader economic participation and enterprise development. Some of the economic development objectives that were mostly pursued by the provinces included investment, trade and tourism, whereas the least included supply service of land, and the regeneration of old industrial areas (Turok, 2010). Since Turok (2010) only explored the developmental state at the provincial level, this article goes a step further by exploring the developmental state at the local government level. A capable developmental state will materialise through the active participation of all government spheres in supporting and coordinating development (National Planning Commission, 2012).

South African local government has an important role to play in ensuring the country becomes a capable developmental state that can address the country’s triple challenges (African National Congress, 2017; National Planning Commission, 2012). The local government derives its mandate from the South African Constitution, with its objectives, as stipulated in Section 152(1), being to:

provide democratic and accountable government for local communities;

These constitutional objectives are in line with the country’s efforts to address the backlogs inherited from the apartheid government. For example, because South Africa only emerged from the apartheid regime in 1994, significant effort was placed on institutionalising democracy, even though it often negated the need to emphasise the redistribution of economic benefits. To expedite the process of addressing socio-economic disparities, South Africa aligned the role of government with that of a developmental state through the developmental local government ideology. The White Paper on Local Government defined developmental local government as a government that it is committed to working with citizens in creating suitable and sustainable mechanisms of meeting the social, political and economic needs of the people, and subsequently improve their livelihoods (Department of Provincial and Local Government, 1998). This definition is grounded on the four principal actors of the developmental state, namely the state, business, society and bureaucracy. In essence, the Whiter Paper is in line with the developmental state because it affirms the central role of the local developmental state (developmental local government) in accelerating local economies and improving socio-economic conditions.

The developmental local government has to be understood as the local developmental state, as it is grounded on the developmental ideology (the central role of the state in economic development) of the developmental state. This is evident in that the White Paper (DPLG, 1998) states that a developmental local government must have the following distinctive features:

Maximise social development and economic growth.

The interpretation of the developmental local government as the local developmental state is necessitated because the above-mentioned defining characteristics are tenets of the developmental state. Notably, these characteristics are in line with the ideological component of the developmental state, which argues that the state is the most important player in accelerating development and growth. For example, whilst developmental states coordinate economic development planning at the national level, the local developmental state through the White Paper coordinates economic development planning at the local level. In addition, developmental states prioritise the acceleration of economic growth (Leftwich, 2002). Similarly, the local developmental state is driven by the need to maximise economic growth and social development. All of these examples justify the intimate involvement of the local developmental state (developmental local government) in economic development matters, because a democratic developmental state will only succeed if it is effective at the grassroots level.

Van der Waldt’s (2015) assertion that the main function of developmental local government is to help address national development challenges, promote development opportunities and advance the realisation of national developmental goals is evident that developmental local government translates to the local developmental state. The task of the local developmental state is therefore to mitigate the worsening triple challenges of unemployment, poverty and inequality through dedicating the necessary capacity and resources, which represent the structural component of the developmental state. As indicated, the structural component tasks the state with utilising its resources and political administrative powers to achieve the desired outcome, albeit South African local government has not been able to effectively materialise the idea of a developmental local government due to capacity issues and failure to plan for development, etc. (Hofisi and Mbeba, 2013; Nel and Rogerson, 2005; PSC, 2009). The failures of South African local government to advance South Africa’s developmental state aspirations are discussed below. It is based on these failures that this article will argue that LEDAs emerged as the most important vehicle in the realisation of a capable local developmental state.

One of the fundamental drivers of a developmental state is a development-oriented political leadership that is motivated by the need to address national developmental challenges. Local government is therefore one of the most important vehicles for realising an improvement in socio-economic conditions through the provision of social services and dedicating resources and capacities to attain developmental goals. Waldner (1999) highlighted that at the heart of rapid and sustainable development is the need for political leadership to play a leading role in facilitating economic development opportunities and reforming institutions to be development oriented. The task of the development-oriented political leadership is therefore to create a positive interface between the actors of the developmental state to ensure effectiveness. As developmental states are fundamentally driven by the need to attain economic growth, the political leadership should dedicate resources and capacities to strengthen institutional arrangements for local economic development (LED); however, LED remains one of the least prioritised functions of local government (Patterson, 2008). In addition, governance challenges such as political interference, poor political leadership and corruption impact municipalities negatively by weakening their institutional ability (Van der Byl, 2014). These challenges were also noted in The Presidency’s (2015) local government review, which criticised the lack of political leadership and bad governance in local government. These inherent failures indicate that South Africa does not have a development-oriented political leadership that can drive the centrality of the state as the main economic development facilitator and increase the state’s capacity to respond to the triple challenges.

The bureaucracy in the South African local government-led development landscape does not have the required capacity to advance the developmental state aspirations. Local governments are riddled with failures to deliver basic services due to their lack of efficient bureaucracy (Atkinson, 2007; Monkam, 2014). The lack of a strong and efficient bureaucracy can be explained by two factors: the politicisation of municipalities and the lack of professionalisation of local government offices, which led to the prioritisation of cadre deployment over experienced officials. The Municipal Demarcation Board (2012) cited capacity challenges in the majority of South African local municipalities, yet some of these problems are not limited to the local government level. Evans (2005, 2010) showed that a strong and capacitated bureaucracy is needed in order to accelerate the development that a country hopes to undertake, yet Von Holt (2010), in a study on the inner workings of bureaucracy in post-apartheid South Africa, found that the bureaucracy in the health department, as in other departments, was very inefficient. Sandbrook et al. (2007) also showed that the success of modern democratic developmental states such as Mauritius, Chile and Costa Rica was driven by an efficient bureaucracy. Based on these observations, and in conjunction with the rampant corruption in the South African government and the recent state capture challenges, it can be deduced that South Africa lacks an efficient and autonomous bureaucracy.

The Municipal Systems Act (2003) directed

municipal planning to be developmentally oriented in order to achieve the objectives as contained in the Constitution and together with other organs of state contribute to the progressive realization of the fundamental rights linked to the environment, property, housing, health, water, social services and education.

The private sector plays an important role in job creation and improving a country’s economic prospects; in fact, a production-oriented private sector has been hailed as the driver of economic development in developmental states (Westphal, 2002). This was evident in the case of South Korea, where the government’s ability to have a reciprocal recognition with the private sector, in conjunction with the private sector’s ability to maximise on national policies, led to inclusive economic growth. The South African experience is contrary to this, however, due to the mistrust between government and capital, as well as the uncertain policy environment; red tape has been identified as one of the leading factors that undermine investment in South Africa (Rogerson, 2010). In addition, the local government-led development landscape has been heavily criticised for alienating non-governmental actors such as the private sector in the LED process (Meyer-Stamer, 2006). Turok (2010: 506) found that ‘Considerable effort seems to be devoted to investment attraction and business development, but far less to the business environment – physical infrastructure, human resources and enabling institutions.’ Turok further indicated that there seems to be less focus on the business sector, as three out of the nine provinces did not make any links between government and businesses in their policies. This is evidence that there is ongoing feelings of mistrust between the government and the private sector, which will only undermine the country’s development prospects.

The role of LEDAs in South Africa’s developmental state ambitions

The failure of local government to effectively generate socio-economic improvements in the lives of South Africans meant that there was a need to reform the relationships between municipalities and local economies. Ratnam and Tomoda (2005) argued that globally there was a need to shift the development trajectory towards the creation of subnational state institutions or entities of economic development that seek to help reform the public services. These state entities would be devised with the idea of creating institutions that respond to the needs of both the public and private sectors in order to advance inclusive and effective economic development. For this reason, these entities operate ‘outside the mainstream of ministries and departments and … under different rules of central control and internal operations’ (COGTA, 2014). This reform, as noted by COGTA, was in line with public sector reforms globally, with the intention to strengthen service delivery and promote a culture of efficiency and effectiveness. The establishment of LEDAs in the South African local government-led development landscape can be attributed to this very understanding. In addition, these LEDAs give credence to state-led development, because they act as coordinators of economic development at the local level, as would the developmental state at the national level.

Developmental states do not need to pronounce that they are necessarily developmental states, but their policies and mobilisation of resources for greater economic development sets them apart as developmental states (Edigheji, 2010). In South Africa, such traits can be observed through the establishment of the LEDAs to put necessary impetus on LED and accelerate local government-led development. The establishment of LEDAs can be understood through the structural component of the developmental state, where the state (the local developmental state in the case of this article) uses its administrative power, political influence, resources and capacities to achieve economic development through establishing LEDAs as economic development vehicles. The introduction of LEDAs as economic development vehicles follows the failure of municipal LED units to champion LED. The task of subnational entities such as LEDAs is to improve the effectiveness of government’s ability to bring much-needed improvement in the lives of ordinary South Africans who are languishing in poverty, unemployment and inequality. In addition, these entities are important in materialising South Africa’s capable developmental state vision. While developmental states such as South Korea (1960s–1990s) and China (from the 1960s) centralised planning, modern democratic developmental states such as Botswana and Mauritius are leaning towards decentralised planning. Through the decentralisation process, local government has emerged as a key player in addressing socio-economic challenges through the provision of service delivery (COGTA, 2014). This article therefore extends the developmental state theory to the local government level, to show the potential role of LEDAs in accelerating economic development and South Africa’s capable developmental state ambitions.

Standard economic analysis of the developmental state invokes the need for the state to intervene where there are major market failures (Berhane, 2012), for example, the 2008 global financial crisis led to states developing interventionist policies to minimise the impact. Some of the interventions involved the state bailing out financial institutions, including in the United States, whereas some other states adopted policies that protected local industries. Similarly, at the local government level, LEDAs were introduced to intervene by addressing market and institutional failures in local economies. The notable key market failures in South African local economies are linked to risk aversion in the financial sector, poor access to market information, poor infrastructure and poor service delivery (COGTA, 2014), while institutional failings include the lack of capacity within local governments to plan and implement LED, a lack of governance structures, a lack of funding for LED and a lack of understanding of LED (Hofisi and Mbeba, 2013; Meyer, 2014; Nel and Rogerson, 2005). With this background in mind, it becomes clear that the introduction of LEDAs can be read from the developmental state approach that is based on the need for the state to intervene to reduce institutional and market failures that undermine the state’s ability to generate economic development. LEDAs are therefore subnational institutions that are used as interventionist mechanisms to create capable local governments, which will advance South Africa’s aspirations of becoming a capable developmental state.

Bateman (2014) criticised LEDAs for supposedly operating within a neoliberal agenda in that they are funded by the United Nations’ Development Programme (UNDP). Bateman used the example of LEDAs in South Africa, Latin America and European states as examples of LEDAs that operate within a neoliberal approach. However, Bateman’s criticism of LEDAs is not relevant in the South African context because they are not funded by the UNDP, nor do they operate from a neoliberal approach as demonstrated above. As indicated in this article, South African LEDAs operate from a developmental state paradigm that seeks to address the key failings in local economies and improve local government’s capacity to respond to socio-economic needs. Bateman also argued that LEDAs have tended to undermine the capacity of municipal LED units to efficiently perform their mandate. The South African case is contrary to Bateman’s assertions, because LEDAs only exist because of the incapacities within South African local municipalities to implement LED. In addition, capacity is only undermined when there is no clear coordination of roles and functions between LEDAs and LED units. The fact that LEDAs are introduced as municipal entities in South Africa gives credence to state-led development rather than market- or neoliberal-driven development. As such, Bateman’s argument and criticism cannot hold on South African LEDAs. In addition, Bateman’s universalised criticism of LEDAs also fails to hold internationally, because some LEDAs were introduced by parent municipalities to address complex challenges faced by local economies in the absence of necessary capacity within local governments, and to promote state-led development.

Setting up institutions of development requires a lot more than just putting up a structure; it requires the strategic planning of the roles and functions that those institutions are going to undertake within the developmental space. It is equally important that new institutions are created to add value to the developmental space by not duplicating roles and functions that are already undertaken by other institutions. The coordination of roles and responsibilities is important in ensuring the effectiveness of development. Table 1 demonstrates the article’s position that LEDAs are the appropriate institutions to create a capable local developmental state that might be able to impel LED. The table compares the roles and functions of a developmental local government (local developmental state) against those of LEDAs. The comparison is placed in a metric that seeks to match the roles of a local developmental state and roles of LEDAs in the local government-led development. Van der Waldt (2015) asserted that the developmental state should dedicate its administrative and political resources to accelerate economic development; however, I have already demonstrated and argued that LEDAs are established as economic development vehicles based on this developmental state ideology.

OPEN IN VIEWER

Table 1.

Local Economic Development Agencies and the developmental local government.

Local Economic Development Agencies	Developmental local government
1. LEDAs are specific-goal driven economic development mechanisms with the aim of bettering the LED resources and services	Maximise social development and economic growth
2. LEDAs are mechanisms that provide an efficient and effective partnership between different stakeholders in order to improve stakeholder relations and limit the duplication of tasks	Integrating and coordinating development planning
3. LEDAs are vehicles that bring better expertise and resources to existing LED units within municipalities	Promoting democratic development and
4. LEDAs have the financial power to support businesses within their geographical space or jurisdiction	Building social capital at the local level to enable local solutions to development challenges

LEDAs: Local Economic Development Agencies.

Source: Adapted from IDC (2008a) and DPLG (1998).

The first task of LEDAs in a local developmental state is to promote and find suitable ways of improving social and economic development. From a developmental state perspective, the local bureaucracy within LEDAs has the important task of accelerating economic development and addressing the structural challenges that undermine local economies. This task is executed through the widely accepted dual role of LEDAs, i.e. territorial promotion and the implementation of projects (Suarez et al., 2015). In the South African context, LEDAs promote territorial information to avail market information to potential investors in a bid to mitigate the market failures and financial aversions that are associated with local municipalities. In short, LEDAs intervene to address market failures in the same way that developmental states would necessarily do at the national level. Second, the failure of local governments to implement large-scale economic development projects that have significant economic impact resulted in LEDAs having to act as implementation agencies because of their inherent LED expertise, capacity and resources (Canzanelli, 2011; IDC, 2008a). As the developmental state literature suggests, a strong and capacitated bureaucracy is required to accelerate the development that a country hopes to undertake. Similarly, at the local developmental state, the staffing capacity, expertise and resources within LEDAs are required to improve the prosperity of local economies.

From the above, we can observe that the first role of LEDAs is associated with improving capacity and ensuring that local government is capable of driving economic development. The local government political leadership has the crucial role of channelling resources towards LEDAs to meet its development objectives. This undertaking is in line with Leftwich’s (2000) argument that developmental states are driven by a strong commitment to attain economic growth, which is accompanied by radical changes in socio-economic conditions. The commitment to attain economic growth is, however, undermined by the absence of a development-oriented political leadership in South African local government, as is evident in the fact that LED still remains an unfunded mandate as municipalities do not prioritise it (Patterson, 2008; Rogerson, 2010). This is in conjunction with the already weakened institutional ability of municipalities to deliver adequate socio-economic services, especially in small town and rural municipalities. Hence there is a need for more political buy-in in order to increase financial resources for LED.

Developmental states are economic development coordinators, e.g. the Chinese state is at the centre of that country’s economic development planning. At the subnational level, the second task of LEDAs in a local developmental state is to coordinate development planning and democratic development. While the national government is criticised for centralised systems of planning and coordination that neglects the role of subnational state institutions (Gumede, 2009), local government nonetheless has some autonomy in planning through Integrated Development Plans (IDPs), which are a vehicle for legislators to empower local governments to successfully drive LED strategies (Gunter, 2005). However, the setback that undermines this role is that LED planning is not executed by LEDAs, but by municipal LED units; LEDAs do not craft policies, but merely implement them (IDC, 2008a; Khambule, 2018). The underlying problem is therefore that the bureaucracies within municipal LED units have insufficient skills and knowledge of the local economy to design economic development policies (Meyer, 2014; Nel and Rogerson, 2005). Incapacities within local governments to plan for development (through LED strategies and IDPs) are not only limited to the South African local government-led development landscape – they are a global phenomenon facing many decentralised institutions because they are new in the policy development landscape and were not necessarily demanded by states but by neoliberal-oriented ideologies. LED strategies and IDPs were only introduced in post-1994 South Africa through the idea of a developmental local government.

While LEDAs are premised on having better LED expertise, as seen in Table 1, their establishment as implementing vehicles limits their ability to solve planning incapacities associated with local municipalities, i.e. planning for development. Van der Waldt (2015) asserted that the state must have the necessary and sufficient capacity to manage its territory, possess the capacity to increase its ability to design and derive appropriate policy outcomes. Hence LEDAs (based on their internal capacities), as the main territorial development drivers, are appropriate vehicles to drive the planning of the local developmental state. The planning incapacities that have plagued municipal LED units can be solved through bequeathing LEDAs with the necessary mandate to coordinate economic development planning in a development-oriented manner. The fact that LEDAs are also regarded as institutions that can coordinate development planning between different stakeholders (IDC, 2008a) might lead to co-administrative capacities to address the planning failures. As such, LEDAs should play a decisive role in development planning and be used as the dedicated planning structure to meet South Africa’s capable developmental state ambitions. Successful developmental states rely on the state’s capacity to effectively plan for development.

The third important task of LEDAs in a local developmental state is the integration of different stakeholders with different capacities in bid to strengthen institutional arrangements for LED. Developmental states depend on the reciprocal recognition and strong interface between the four actors: bureaucracy, businesses, society and the state. An efficient, effective and development-oriented public service depends on a stable political–administrative interface and improved coordination (National Planning Commission, 2012). As noted in Table 1, the establishment of LEDAs was based on the premise that they are the appropriate institutions to drive partnerships between different stakeholders (IDC, 2008a). The ability of LEDAs to integrate the capacity of different stakeholders is therefore important in the bid to address the private–public divide that is caused by the mistrust between the private sector and government. Meyer-Stamer (2006) and Rogerson (2010) indicated that municipal LED units often marginalise non-governmental actors in LED, whereas the Public Service Commission (2009) noted that civil society and businesses are rarely involved in policy decision-making. Successful developmental states such as China and South Korea relied on a strong interface between the government and business, i.e. involving all stakeholders at the local level in development matters is vital for democratic development (Van der Waldt, 2015) because it promotes an inclusive development, and this is crucial for South Africa as the most unequal society in the world. Effective development depends on strong partnerships between local institutions, thus LEDAs should be at the forefront of creating cohesion between government, civil society and businesses through creating a sense of local ownership within the different stakeholders by involving them in decision-making. This might ensure that a bottom-up democratic developmental state is created.

The fourth task of the local developmental state that LEDAs have to execute is the promotion of social capital to enable an efficient LED that is led through local ownership. The premise that LEDAs have the financial capacity to support local businesses and LED initiatives in their territory (IDC, 2008a) is inaccurate in the context of South Africa, as they have been mired in financial sustainability challenges dating back to the first wave, which failed because of a lack of readily available funds to support development initiatives (Pretorius and Blaauw, 2008). The second wave of LEDAs was funded by the IDC based on five-year pre-establishment grants; however when the IDC funding ended, the financial burden was left with the municipalities (because LEDAs are municipal entities), which can barely collect enough revenues to support their own functions (Monkam, 2014). This trajectory has continued to manifest within LEDAs, because they currently have no financial sustainability model. Bateman (2014) showed that LEDAs in Latin America are also facing sustainability challenges because of a lack of funding. As a consequence, it is therefore inevitable that LEDAs will have a limited impact in supporting LED initiatives in their territories and in addressing the failure of this aspect of local government-led development. For LEDAs to effectively drive the developmental state ambitions, local authorities and the national government have to show commitment to attain economic development by prioritising financial resources for LEDAs.

It is evident from the discussed roles and functions that LEDAs have an important role to play in South Africa’s ambitions of becoming a capable developmental state that can respond to the worsening triple challenges. The financial challenges facing the local government-led development landscape might be addressed by the national government through the provision of necessary financial resources to unlock the potential of local economies. As noted by Turok (2010: 500), developmental states tap into the potential of the economy when they ‘intervene to improve or develop the market by creating finance institutions to provide patient risk capital, encouraging long-term business decisions and improved management, and stimulating productive activity in forms or places that may not occur spontaneously’. At the subnational level, the national government working together with the provincial government can create an LED bank that is designed to fund local enterprises that have the potential to create employment chances. LEDAs could therefore apply for these grants based on the identification of local enterprises that show economic potential. The financial sustainability of LEDAs in small town and rural municipalities must also be prioritised by looking into different sustainability models.

The most important task for the government is to ensure that LEDAs are institutions that will create a capable local government that will feed to South Africa’s aspiration of becoming a developmental state. In order for this to occur, the government needs to do some ground work, which should include, but not be limited to, prioritising placing professional, skilled and efficient public servants within local government, and ensuring political commitment. The most important drivers of successful developmental states have been considered to be a development-oriented political leadership, an autonomous and effective bureaucracy, a production-oriented private sector and a performance-oriented government (Meyns and Musamba, 2010). Developmental local government, or rather the local developmental state, should prioritise these characteristics within its institutional structures if South Africa is to become a capable developmental state. It is also essential to adopt the understanding that LED can fully reach its potential if institutions of economic development (LEDAs) work hand in hand with civil society, businesses and local government to unlock the economic potential of local economies.

Conclusion

This article has extended the developmental state theory to the subnational level by sustaining the argument that the developmental local government is the local developmental state. The article argued that the developmental local government is underpinned by the developmental state ideologies of promoting and accelerating social and economic development, as well as the promotion of the state (local developmental state in the case of this article) as the main economic development coordinator. In addition, the article used the developmental state theory to trace the establishment of South African LEDAs. Based on the standard economic analysis that invokes the need for the state to intervene in institutional and market failures, the study noted that LEDAs were established to be interventionist institutions to address key failings of local government-led development. Based on this observation, this article argued that the establishment of LEDAs can be understood from the ideological and structural components of the developmental state. The literature review has shown that the success of some of the leading developmental states was attributed to a development-oriented political leadership, a strong and efficient bureaucracy, a performance-driven government and a production-oriented private sector. South Africa’s aspirations of becoming a capable developmental state depend on the interdependence, interface and co-operative governance of all the spheres of government and non-state actors.

The article further revealed that the roles and functions that LEDAs are premised on are in line with the capacity that is needed to drive the local developmental state. Based on the metrics in Table 1, it is evident that LEDAs were introduced to ensure that local government is capable of responding to the socio-economic needs of the majority of South Africans who are mired in unemployment, poverty and inequality. While LEDAs have the necessary role of driving economic development, they face certain impediments such as not having the required financial capacity to support local initiatives or the necessary mandate to coordinate development planning. These factors arise because LEDAs rely on parent municipalities for institutional and operational funding, and only municipal LED units have the necessary mandate to plan for development. It is concerning that the role of planning for economic development is left to municipal LED units, despite the lack of planning capacity and failure to understand local economies by municipal officials. This points to the lack of coordination of roles and functions in the local government-led development landscape. Other challenges, such as continued maladministration, a failure to provide adequate services, corruption and a lack of coordination, might undermine the creation of a capable local developmental state.

South Africa’s local government-led development landscape should possibly look into the institutional barriers that are inhibiting LEDAs in advancing South Africa’s ambition of becoming a capable developmental state. In so doing, the framework that links LEDAs to the developmental state should also be kept in mind. The link between LEDAs and South Africa’s developmental state ambitions might improve the institutional arrangements and management of LEDAs.

This article has successfully located LEDAs within the developmental state paradigm. In doing so, it has also negated Bateman’s (2014) universalised assertion that LEDAs operate in a neoliberal paradigm. LEDAs in South Africa were set up as subnational entities aimed at addressing the developmental challenge facing the country, giving credence to state-led development, yet the continuity challenge facing LEDAs is one of the most crucial issues hindering their success. The involvement of national government in LEDAs could thus be crucial, both for guaranteeing the sustainability of LEDAs and for ensuring maximum impact in the local government-led development landscape.