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Publication Details

Reference
Skinner, Caroline & Valodia, Imraan (2006) Two Economies? A Critique of the Second Economy Notion in Recent South African Policy Discussions . Centre for Civil Society Colloquium on the Economy, Society and Nature: 1-10.

Summary
Introduction
In August 2003, President Mbeki in an address to the National Council of Provinces, first introduced the idea of South Africa being characterised by a ‘First Economy’ and a ‘Second Economy’ operating side by side. He states:

The second economy (or the marginalised economy) is characterised by underdevelopment, contributes little to GDP, contains a big percentage of our population, incorporates the poorest of our rural and urban poor, is structurally disconnected from both the first and the global economy and is incapable of self generated growth and development.

Since this speech the notion of the ‘second economy’ has become part of policy rhetoric at all levels of state, including in the recent Accelerated and Shared Growth Initiative in South Africa (Asgisa). In this paper the notion of two economies as articulated by Mbeki and the African National Congress is interrogated. We explore the thinking of two key political economy scholars - Rosa Luxemburg and Harold Wolpe. Luxemburg, writing on the global economy, highlights the exploitative nature of capitalist expansion as it seeks new avenues for accumulation. Writing on South Africa, Harold Wolpe’s seminal work provides a probing insight into the different modes of production and the articulation between these in the national economy. We draw on these writings to reflect on the notion of ‘two economies’ in South Africa. Using Statistics South Africa data we reflect on recent labour market trends. This data supplemented with qualitative research is harnessed to suggest that there are several inaccuracies with the notion of the ‘second economy’. We particularly examine linkages between employment in the formal and the informal economy arguing that, contrary to the views of the President and the ANC, there are in fact fairly close linkages between the formal economy and the informal economy.

The governing party elaborated on the notion of a dual economy by characterising the two economies as follows:
The first and second economies in our country are separated from each other by a structural fault. … what we now have is the reality … of a "mainly informal, marginalised, unskilled economy, populated by the unemployed and those unemployable in the formal sector". The Second Economy is caught in a "poverty trap". It is therefore unable to generate the internal savings that would enable it to achieve the high rates of investment it needs. Accordingly, on its own, it is unable to attain rates of growth that would ultimately end its condition of underdevelopment.
(ANC Today, Volume 4, No. 47, 26 November—2 December 2004)


In outlining what government will do about transforming the Second Economy, much emphasis has been placed on infrastructure development. In the 2006 State of the Nation Address the President has this to say:
We should move faster to address the challenges of poverty, underdevelopment and marginalisation confronting those caught within the Second Economy, to ensure that the poor in our country share in our growing prosperity.

Later in the speech he states:
The public sector will also accelerate infrastructure investment in the underdeveloped urban and rural areas of our country through the Municipal Infrastructure Grant, Expanded Public Works Programme and other infrastructure funds to improve service delivery in the areas of the Second Economy … R372 billion will be provided for both these sets of programmes over the next three years.

From these statements it is clear that included in the notion of the second economy are those working informally (in informal enterprises, domestic work and subsistence agriculture) and those who are unemployed. Further central to the notion of the second economy is that these activities are structurally disconnected from the mainstream of the economy.

The re-emergence of a dualist view of the economy is significant not only because it is being articulated by the President but also because it seems to inform much of the policy focus of the ANC. Not having had a definitive statement from the President, we can only speculate on why he chooses to use the term First and Second Economy, rather than formal and informal. As we shall see, definitions matter and the President’s view of the Second Economy includes the unemployed so he is clearly talking about a conceptualisation of the economy that moves beyond a simple formal-informal dichotomy.

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 Relevant Publications
 The Accumulation of Capital. Chapter 27: THE STRUGGLE AGAINST NATURAL ECONOMY: Rosa Luxemburg 
 Capitalism & cheap labour power in South Africa: Harold Wolpe 
 Labour Market Discrimination and its Aftermath in Southern Africa Guy Mhone 



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