(This economic note is based on a public lecture by Prof. Stefan Dercon (Centre for the Study of African Economies, University of Oxford), delivered at the University of Pretoria on 4 December 2025. The full lecture, titled “South Africa’s Gamble on Development and Inclusion: Then and Now,” can be accessed via the following YouTube link).
In the last three decades, growth in developing and emerging economies has been substantial: for example, between 1992 and 2022, lower-middle-income countries saw growth of 2.8 per cent per year in per capita GDP (in constant prices of 2015). On average, it coincided with a remarkable improvement in global poverty, at least when focusing on extreme poverty. Using the World Bank’s definition of extreme poverty (living on the equivalent purchasing power of less than 2.15 dollars in the United States), the number of extremely poor people fell by two-thirds to about 700 million. Still substantial, but no doubt a significant fall from around 2 billion in 1990.
South Africa did not manage this kind of growth: it only managed average per capita GDP growth in real terms of 1.1 per cent per year in this period, and the number of extremely poor grew from 12 to 14 million, according to World Bank data.
In my book Gambling on Development, I explain why some countries win and others lose. I lay out a simple comparative and descriptive framework to try to explain success and failure in growth and development. Borrowing from political economy writing, it helps to focus on the interests of the elite in a country: the leaders in politics, business, civil service, media, academia, and possibly traditional religious or ethnic leaders. Not because I deeply approve of the role of elites or think they should be the vanguard in society but rather because they have power, including the power to change or the power to keep the status quo.
Institutional economists such as Douglas North acknowledge their role as well and describe the emergence of a state in terms of a deal between elites and an elite bargain. For example, he writes: “A […] state manages the problem of violence by forming a dominant coalition that limits access to valuable resources – land, labour, and capital – or access to and control of valuable activities – such as trade, worship, and education – to elite groups.” (North et al. 2009). States emerge out of conflict and can function as long as there is a strong enough coalition of elite players with a broadly shared interest in terms of who has access to resources and opportunities. This is not simply or necessarily about signing coalition agreements or bold statements. It is about actions and behaviour – and who gets access to rents and who wins or loses from the coalition.
Just having an elite bargain for stability and rent distribution may be enough to keep power and the status quo, but it is unlikely to lead to growth and development. For that, those with power and influence must be able to choose progress: they must be willing to take actions that favour the longer-term over the short-term rent distribution to allow change to happen. That is where it becomes a gamble for elites: they like to keep things as they are, but growth and development create new aspirations, require new businesses and sectors to emerge, and will test the status quo.
At times, countries have chosen to gamble on a development bargain: an elite bargain that puts growth and development at the centre. In China, the Chinese Communist Party’s power coalition that chose an ideological approach to the economy was removed by a new coalition in the Party that enthroned Deng Xiao Ping in the late 1970s as leader of pragmatic reformers, no doubt as a route to keep the Party in power for longer, but it was no doubt risky at that time.
In Ghana or Bangladesh in the 1990s, the powers that be in politics, military and business appear to have put short-term differences aside and bought into an understanding that a functioning democracy was the best guarantee for economic and development progress in their context, opening the door for 2-3 decades of considerable growth and development progress. This deal has been tested, not least as rent capture clearly has come to the fore more and more, with macroeconomic instability resulting in Ghana, and the fall of the increasingly repressive and corrupt government in Bangladesh.
In Ethiopia, a government struggling to keep ethnic differences at bay gambled on growth and development as a means to maintain legitimacy, leading to it becoming one of the fastest countries in the world between 2010 and 2020. Still, differences between different nationalities in the country have erupted in more recent years, and conflict and instability have intensified.
What about South Africa, then?
The deeply unjust elite bargain during Apartheid had clearly become untenable in the 1980s, including through a further failing economy. The end of Apartheid and the emergence of democratic governance can be seen as having come about as a new elite bargain, as it was not simply about the political system. It contained a series of implicit undertakings on how the economy would be run, in short, how resources would be accessed and distributed. Deeply simplified, the deal that ended Apartheid can be seen as the formation of a new coalition between (white) capital and (black) trade unions. It was a successful deal in the spirit of Douglas North: a coalition by leaders of opposing groups to end conflict, with some clear principles of who has access to resources and opportunities. While there was no big agenda of resource redistribution, a relative status quo in that respect, it had a strong focus on creating opportunities to enter into any form of economic activity and profession for the non-white population.
Looking back at the 1990s, it was not a development bargain but more an elite deal for stability. It led to limited structural changes, leaving incumbents in business in powerful positions, few routes to overcome spatial inequalities, a regulatory framework unsuited for a burgeoning informal sector, and a lagging education system for the black population. In short, a dual economy and society: a growing but still small group of non-whites have been able to converge in incomes and positions to the levels of the white population, albeit desperately slowly, and leaving the majority of the black population in the informal sector, low paid occupations or unemployed. Disappointing longer-term growth figures ever since, the continuing presence of extreme poverty, as mentioned earlier, and the status of South Africa as the most unequal country in the world in terms of the Gini coefficient point to this conclusion. Even if inequality, duality and privilege slowly became less simply ‘white’ (although not yet quite colour-blind).
It is, however, not easy to see whether a more ‘progressive’ growth and development deal could have been struck then that also would have ended the conflict and repression. The lack of a development bargain and the apparent status quo will have contributed to rightful frustration. The Zuma period exploited this, legitimising using the power of the state for successful rent capture and distribution at a grand scale, but also through creating a sense of impunity for lower-level corruption and rent-seeking, with decreasing good governance as a result.
Within the difficult constraints of the current elite bargain, still largely between white capital and black formal sector labour, it is hard to see that change can happen fast. For some, it may suggest a time for more radical change, although history in neighbouring countries such as Zimbabwe is not kind to such a view.
For others, including myself, a route to simply make the rich poorer is inferior to serious attempts to make the poor richer. It will require continued efforts to get the state to function better again (as in energy, transport and logistics), but also to go well beyond this in the economic sphere: a stronger determination to open up the existing systems, creating more competition in the economy, breaking incumbency in the business environment, and creating far more opportunities for the informal sector without first world style regulation. Most importantly, it will require a renewal of the elite bargain, as the pathetic growth in recent decades is not helping the economic fortunes of those with power and influence in business, politics and broader society either. It will have to involve important choices that should affect the status quo – as the status quo is increasingly untenable. With the current turbulent global political environment, maybe it is the right time to focus minds?
References
North, Douglass Cecil, John Joseph Wallis, and Barry R. Weingast. Violence and social orders: A conceptual framework for interpreting recorded human history. Cambridge University Press, 2009.
Dercon, Stefan. Gambling on development. Why some countries win and others lose. Hurst publishers, 2022.
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