Competition, Productive Capabilities and Structural Transformation in South Africa

Competition law has been promoted across developing countries as part of a market liberalisation package which is premised on a neo-classical model of competition, privileging static allocative efficiency and largely ignoring production. This article critiques this approach through an assessment of its application in South Africa where substantial weight was given to competition law. Building on the critical assessment, the article proposes an alternative framework based on the conception of ‘optimal competition’ of Amsden and Singh (The optimal degree of competition and dynamic efficiency in Japan and Korea. Eur Econ Rev 38:940–951, 1994). It does this through assessing the relationship between competitive rivalry, productive investment and the development of capabilities in two key industry groupings in South Africa, metals and machinery, and plastics and chemicals. We argue that the failure to develop diversified production capabilities in South Africa reflects the entrenched incumbent firm advantages and the lack of a coordinated policy agenda which proceeds from a recognition of economic power and the need to reshape markets to alter competitive rivalry. An optimal competition framework allows analysis of dynamic rivalry and capabilities development.