The international community is already responding positively to our call for
massive investments.In 1994 South Africa invested around 17 per cent of GDP. Over the following
decade the ANC government adopted a very free-market economic policy, was
open to international trade and investment, offered strong incentives to domes-
tic and foreign investors, and maintained a stable democratic political system.
This stance was both promoted by, and widely praised by, international organ-
izations like the IMF and World Bank. After ten years there had been
absolutely no change in the investment ratio, which still hovered around 17 per
cent of GDP. Consequently growth rates were disappointingly slow and little
dent was made in South Africa’s very high levels of poverty.
Policy, expectations, and shocks (such as sudden increases in the price of
oil) clearly influence investment. Investment rates often fluctuate dramati-
cally, indicating that they are influenced over the short and medium term by
more than a fixed deep determinant. In Zambia, for example, investment as a
share of GDP dropped from 41 per cent in 1975 to 14 per cent in 1979. In
China during the Great Leap Forward investment increased from 12 per cent
of GDP in 1957 to 31 per cent in 1960. As discussed above the most important
explanation for inequalities in the contemporary world economy is not fluctu-
ations over a few years but instead relentless economic processes that persist
through decades. Short-term factors like policy and shocks cannot explain
why for decades investment rates were more than 30 per cent of GDP in much
of East Asia and less than 10 per cent of GDP in Sub-Saharan Africa,or why
Domestic and Foreign Direct Investment 63Box 3.1 Karl Marx and the crucial importance of
investmentThe ownership of capital was a crucial determinant of Karl Marx’s theory of
exploitation, social and economic change. It marked the division of capitalist
society into two different classes. In a pre-industrial, pre-capitalist society most
production is conducted on a small scale, by craftsmen who own their capital
equipment and small farmers who own their land and implements. In an indus-
trial-capitalist economy the scale of production increases enormously and tends
to be organized into ever larger units. All the capital equipment (what Marx
called the means of production) is owned by a small class of capitalists, whilst
the bulk of the population, the workers, own only their labour. Capitalists own
the capital equipment and control the human capital embodied in the labour they
employ, from which they earn a profit. Workers perform labour services for the
capitalists,from which they earn a wage. To undercut rivals capitalists are driven
to invest and expand the scale of production, which boosts profits and provides
the key dynamic driving the economy forward. Capitalists also boost their prof-
its by squeezing workers’ incomes below the value of their productivity
(exploitation) which contributes to conflict between the two classes.