The economics of apartheid: An Introduction

Economic History of Developing Regions

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The economics of apartheid: An introduction Martine Mariotti & Johan Fourie To cite this article: Martine Mariotti & Johan Fourie (2014) The economics of apartheid: An introduction, Economic History of Developing Regions, 29:2, 113-125, DOI: 10.1080/20780389.2014.958298 To link to this article: https://doi.org/10.1080/20780389.2014.958298

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THE ECONOMICS OF APARTHEID: AN INTRODUCTION Martine Mariotti1 and Johan Fourie2

ABSTRACT Twenty years after apartheid was formally abolished it continues to shape South African society. Its legacy persists over and above interest in it as a perverse phenomenon. We therefore find it timely, as part of our introduction to this special issue, to review some important studies of the economic aspects, and particularly some newer research by young scholars. Since so much about the apartheid system remains unexamined, Economic Research Southern Africa (ERSA) organized a workshop in March 2013 to bring together people who work on the economics of apartheid. This special issue is partly the result of papers presented at this workshop or collaborations developed there.3 Keywords: apartheid, South Africa, history, racial inequality JEL code: N4, J3, I3

INTRODUCTION It should surprise no one that the weight of our history hampers our attempts to create a prosperous society. This has been a constant theme in presidential State of the Nation addresses. Of the 25 such addresses since 1994 (two in election years), 20 have mentioned the word ‘apartheid’ at least once. In 2004 Thabo Mbeki, celebrating 10 years of democracy, said that ‘we have always known that our country’s blemishes produced by more than three centuries of colonialism and apartheid could not be removed in one decade’. In 2011 Jacob Zuma said that ‘the legacy of decades of apartheid underdevelopment and colonial oppression cannot 1 2 3

Department of Economics, Australia National University, Australia, and Department of Economics, Stellenbosch University, South Africa.

Department of Economics, Stellenbosch University, South Africa. Corresponding author: johanf@sun.ac.za.

We thank ERSA for financial support for the workshop, held at Cape Town’s Slave Lodge, 20–22 March 2013.

Economic History of Developing Regions Vol. 29 (2) 2014 ISSN Print 2078-0389, Online 2078-0397 © Economic History Society of Southern Africa pp 113–125 http://dx.doi.org/10.1080/20780389.2014.958298

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be undone in only 17 years’. In more recent addresses, President Zuma has observed that ‘apartheid spatial patterns still persist in our towns and cities’ (2013), and that ‘the culture of violence originated from the apartheid past’ (South Africa Government Online 2014).

Researchers confirm these views. Poverty levels remain high for black South Africans (Van der Berg 2011; Leibbrandt et al. 2012; Bhorat & Van der Westhuizen 2013; Gradín 2013), their educational attainment and health outcomes continue to lag behind those of white South Africans (Van der Berg 2007; Harris et al. 2011; Spaull 2013; Barbarin & Richter 2013), and unemployment, which was already increasing during the 1970s and 1980s, shows no signs of declining (Banerjee et al.

2008). The distrust and non-cooperation induced by apartheid persist to this day (Burns 2012).

While economists and policymakers are rightly interested in addressing these consequences of apartheid that affect South Africa today, the task seems to have fallen to economic historians to discover precisely how policy decisions taken during the apartheid era determine the country’s economic growth in the twentyfirst century. The stagnation in employment opportunities is a case in point. The shortage of semi-skilled workers caused by the apartheid regime’s statutory job reservation policy obliged manufacturers to overinvest in capital technology, with the result that South African manufacturing became capital intensive rather than labour intensive. The consequence for employment has been low levels of job creation at the unskilled level, precisely the level of skills that the Bantu Education Act of 1953 and subsequent policies had envisaged as being required.

Economic historians are interested in the economics of apartheid not just because apartheid continues to affect South Africans, but because we see analogous situations elsewhere today. Ethnic divisions remain a feature of our times worldwide, perhaps nowhere more overtly than in the continuing conflict between the Palestinian Independent Authority and Israel. Former American president Jimmy Carter (2006) famously called for ‘peace not apartheid’ in this region. In the US, discussions of poverty and inequality often reference apartheid (Massey & Denton 1993).

In South Africa, we continue to extract lessons that hold the promise of not repeating past mistakes. We look for clues to understanding ideologues and their ideologies (Giliomee 2013; Koorts 2014): can we find similarities between Afrikaner nationalism in the early twentieth century and black nationalism in the twenty-first?

We investigate apartheid policy counterfactuals (Bhorat & Ravi Kanbur 2006) because they provide a sobering perspective on current trade-offs: should government focus on high quality education for a select few, or education for all, but of lower quality? And at the macroeconomic level we consider the global response to apartheid policies (Kaempfer and Lowenberg 1988; Moll 1991): do economic sanctions force a regime change, or do they instead strengthen the oppressor’s hand?

The good news is that we are getting better at understanding how the past affects us and recognizing analogies between past and present. With the tools of econometrics, South African economic history studies are adding a valuable 114

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quantitative analysis to the rich qualitative analysis that is growing larger each year (Fourie & Schirmer 2012). The digitization of data previously buried in archives and libraries is beginning to make the apartheid era more accessible.

Studies of apartheid can contribute to important themes in the economic history literature, such as the longevity of institutions and path dependence (North 1990; David 1994; Acemoglu et al. 2005). The era provides natural experiments with which we can analyse human behaviour in response to distorted incentives. The benefit of such experiments is that the inferences drawn are causal (Diamond & Robinson 2010). And because South Africa’s twentieth-century experience is a microcosm of global development, with the incomes of rich and poor diverging, the apartheid and post-apartheid periods serve as an analogy for the process of globalization and the potential effects of greater integration (Dalby 1998).

This special issue brings together the work of economists and historians to showcase recent developments in the study of the economic history of apartheid.

We hope that the papers will inspire scholars to continue to work on this topic, to explore underused data sets and to maintain the conversation about this definitive era in South Africa’s history.

THE LITERATURE The difficulties associated with paying for and enforcing apartheid in the 1980s and ending it in 1994 prompted analysis of the system’s origins, nature, consequences and costs. By the 1980s, over 30 years of apartheid had provided sufficient evidence for the likes of Merle Lipton (1986), Stephen Lewis (1990), Terence Moll (1991), Nicoli Nattrass (1991), Nancy Clark (1994), Owen Crankshaw (1996), Anton Lowenberg (1989, 1997), Henry Kenney (1998), Lowenberg and William Kaempfer (1998), John Iliffe (1999), Clark and William Worger (2011), Johann Fedderke and Charles Simkins (2012) and Charles Feinstein (2005) to discuss its larger themes. Others addressed more specific issues, such as Afrikaner living standards (Steenekamp 1990), Afrikaner entrepreneurship (Verhoef 2009) and cross-cultural business dialogue (Parsons 2001). A thorough discussion of the last two decades of the apartheid period may be found in two issues of the South African Journal of Economic History, the precursor to the present journal, edited

by Stuart Jones and Jon Inggs (1994, 1999).

Lipton’s 1986 book on capitalism and apartheid was a seminal contribution to the Marxist-liberal debate. As Nattrass (this issue) notes, by the 1970s it was being asked who the beneficiaries of apartheid were. Marxists argued that since capital benefited from low wages, it was capital that benefited at the expense of the working classes of all races (Legassick 1974), whereas liberals argued that although capital did benefit from low wages, low wages were simply the outcome of a policy designed to protect white workers from competition with black workers. Lipton, a leading proponent of the liberal view, notes the fluidity of economic policy over the 30-year period in response to economic opportunities 115

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and challenges (Lipton 2007). She argues in her 1986 book that although economic policy may have seemed at times to favour capital in the form of the mining and manufacturing sectors, systems such as statutory job reservation for whites began to hinder growth in the manufacturing sector. When capital productivity began to decline, capitalists lobbied the government for economic reform in the face of opposition from white farmers and white labour and in that sense capital helped bring about the end of apartheid. Some disagree with that view, and it is important to note that the mining industry in particular benefited for a long time from the pass laws and migrant labour (Feinstein 2005).

We would argue that Nattrass (1991) put an end to the ideological ‘Marxists versus liberals’ debate when she observed that a more scientific approach would have a better chance of answering the question of who benefited from apartheid.

With the demise of apartheid and a clearer understanding of its costs and benefits, that debate has tapered off and been replaced with a more traditional economic analysis.

Among the first to take this approach were Kaempfer and Lowenberg (1988) and Moll (1991). In the tradition of economic investigation, Kaempfer and Lowenberg (1988) offer an explanation for both the origins and the demise of apartheid. Using a public choice model, they conclude that while international sanctions may have hurt the economy, it was the costs of running apartheid at home, particularly as resistance was increasing in the 1980s, that ultimately made the system untenable. Moll (1991) shows that the rapid growth of the South African economy during the early years of apartheid was more likely to have been due to the worldwide rebound after World War II than to cheap labour, and that, compared with other economies at similar stages of development, the overall growth was in fact slow, and beginning to run into difficulties as early as the 1970s. This finding has been confirmed by Feinstein (2005) and again by Nattrass and Seekings (2011).

With the emphasis shifting away from ideological disagreement the scientific approach has gained ground. However, the absorption of former departments of economic history into either economics or history departments, and the pressure from students and the job market, has meant that the topic of apartheid economics has been of interest mainly to history scholars. The major publications following the apartheid period reflect this. The first authoritative economic history of South Africa, Feinstein’s (2005) An Economic History of South Africa, was published a full decade after the end of apartheid. Like those before him, Feinstein is adamant that the apartheid system collapsed under its own weight, dragged down by ‘a colossal bureaucratic apparatus of influx controls and labour bureaux’; that the apartheid rulers had ‘ambitious aims’ but in practice achieved very little; and that three things caused the system’s downfall: the gold mines’ loss of profitability, industry’s low efficiency and high production costs, and adverse external economic and political changes – all three of which led the new State President FW de Klerk to make the dramatic policy changes he announced in 1990 (Feinstein 2005: 154–156, 202).

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Nicoli Nattrass and Jeremy Seekings (2011) provide an overview of the economics of apartheid in the most recent Cambridge History of South Africa.

They use the little statistical evidence available from official publications to investigate broad changes in production, labour, poverty and inequality. They find evidence of rapid mechanization which, they argue, ‘meant not so much replacing skilled with semiskilled work as replacing large quantities of unskilled labour with smaller quantities of semiskilled labour’, thus exacerbating inequality.

The apartheid government attempted to address this through fiscal redistribution, but the post-1970 economic changes had a surprising effect on income inequality: while South Africa’s Gini coefficient remained roughly the same between 1970 and 1993, within-group inequality increased significantly. They note, for example, that the Gini coefficient for the black population rose above 0.6, only marginally below the overall figure for South Africa (Nattrass and Seekings 2011: 544, 551, 562).

Unlike historians, economists have largely shied away from investigating South Africa’s apartheid past, one reason being that as apartheid became history, policymakers wanted to solve problems that the new democratic economy had inherited. The focus therefore shifted to the macroeconomy (Du Plessis et al. 2007) and to using new individual level data sets that for the first time provided information on the entire population. The aim was to improve living standards for the previously disadvantaged (Bhorat & Hodge 1999; Klasen 2000; Leibbrandt et al. 2000; Carter & May 2001).

Economists understandably looked forward to meeting the challenges to the South African economy, increasing our economic understanding and contributing to the policy discussion. South African economists were some of the first to study labour migration (Posel & Casale 2003; Posel 2004), the effects of cash payments (Case & Deaton 1998; Jensen 2004), intergenerational education mobility (Thomas 1996; Nimubona & Vencatachellum 2007; Burns & Keswell 2012), social networks (Magruder 2010), education production functions (Case & Deaton 1999; Fedderke et al. 2000; Van der Berg 2008) and the role of women in the rural labour force (Casale & Posel 2002).

Another reason for the economists’ delayed response to the study of apartheid has been the notorious lack of apartheid era data. The creation of the ‘homelands’ as reserves for the black population meant that the decadal censuses of 1970 and 1980 excluded a large proportion of blacks, and even where they were enumerated, more limited information was obtained than for coloureds, Indians and whites. The first inclusive household survey was conducted in 1993 (PSLSD 1994) and the first inclusive census in 1996. Furthermore, since the apartheid regime (using the excuse that the homelands would be independent countries) provided very little macroeconomic data, we have limited information on apartheid era black wages, particularly in the homelands.

Yet, as this special issue attests, economists are showing renewed enthusiasm for investigating the apartheid period. One reason for this resurgence of interest is the persistence of the apartheid legacy, with the South African economy still 117

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plagued by the inequality of opportunity and outcomes we saw in the early 1990s.

Economic growth and the much vaunted economic reforms have not given the boost to employment and living standards that many expected. Indeed, some authors argue that inequality has increased since the demise of apartheid (Leibbrandt et al. 2010). We are obliged to recognize that the South African economy today is still tied to the apartheid era economy, that there is indeed path dependence and that we have to understand the economy of the twentieth century in order to improve outcomes in the twenty-first.

Another reason is the broad shift in the methodology of economic history research in North America and Europe that started in the second half of the twentieth century and has spread to South Africa. Our archives and government publication libraries house massive collections of official data. Now that we have more local and international financial support and better technology, the task of transcribing and digitizing South Africa’s recent economic past is getting under way.

This new data, and the increasing popularity of economic history, has begun to attract younger researchers looking for ways to demonstrate their analytical skills. The topic of the Bantustans, apartheid-era independent ethnic homelands, has been a magnet for scholars searching for a natural experiment to measure causal effects. Taryn Dinkelman, for example, has estimated the long-run health effects of early childhood exposure to drought. She finds an increase of 3.7 to 5.8% in disability rates later in life, and an effect twice as large for the homelands.

This finding has implications for understanding the role of natural disasters in African countries, especially those that, like the homelands, have inadequate access to public and private safety nets (Dinkelman 2013).

A PhD student at the London School of Economics and Political Science, Edward Kerby, has investigated the origin and evolution of regional development and the policies that gave rise to the largest industrial planning project on the African continent. Because the peripheral but labour-abundant homelands lacked agglomeration economies, incentives for industrial zones were systematically introduced over 40 years in these homelands and the industrial periphery of apartheid South Africa. Using apartheid-era primary archival sources, Kerby traces the development and eventual failure of these special zones and notes the lessons for similar industrial planning today (Kerby 2014).

University of Illinois PhD student Nicolas Bottan, together with Paulo Bastos, uses the homeland boundaries to test the standard bargaining theory in which the dismantling of coercive institutions improves the negotiating position of unionized mineworkers (Bastos & Bottan 2014). From the 1996 census these authors document large income gaps between communities inside and outside the homelands. They find that spatial income convergence between 1996 and 2011 was considerably stronger among marginalized communities with higher initial exposure to resource rents, confirming the standard bargaining theory.

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Harvard University PhD student Martin Abel (2014) uses the forced relocation of blacks to the Bantustans to investigate how it affected inter-ethnic trust and social capital. He finds that people living in the former homeland areas are less trustful of other South Africans, less proud to be South African, and less keen on the idea of a united country than those living close to former settlement camps (Abel 2014).

The Bantustan borders have had lasting effects on political outcomes too.

PhD student Daniel de Kadt from the Massachusetts Institute of Technology, together with Horacio Larreguy, uses voting patterns at ward level over five election years (2000–2011) to show how the empowerment of traditional authorities can prop up the ruling party, a system these authors call ‘clientelistic quid pro quo’. Using a difference-in-difference approach, they find that traditional leaders in South Africa provide electoral benefits of roughly 6.5 percentage points to the ruling African National Congress party (De Kadt & Larreguy 2014).

Surprisingly little attention has been paid to identifying and measuring how apartheid affected neighbouring countries, such as Mozambique and Malawi, which were sources of labour for the South African mines. Dinkelman and Martine Mariotti (2014) have begun to fill this gap by investigating two historical events: the removal of migration quotas in 1967 and the Malawian ban on mine labour in 1974. Using Malawian census data, they show that labour migration had large, positive and lasting effects on the educational attainment of those left behind, with those most exposed to the migration shocks having 0.08 to 0.135 more years of schooling in adulthood and being 2 to 3 percentage points more likely to have ever attended school.

The sudden withdrawal of labour from South Africa had political and socioeconomic consequences for the country. Columbia University PhD student Laurence Wilse-Samson (2013) shows that the reduced supply of foreign mine labour increased local demand for black workers but the slow local response also increased mine and farm mechanization. He shows that these induced structural changes increased the support for political reform in open districts more than in closed districts, while mining districts became more supportive of the nondemocratic regime (Wilse-Samson 2013). Using the same shock to employment, Mariotti (in press) shows that the increase in employment of black males based in the homelands following the withdrawal of foreign labour led to an increase in living standards within those homelands.

A promising new research topic is apartheid as an economic phenomenon in itself. Mariotti (2012a) explores the consequences of white upward mobility on the reservation of semi-skilled jobs for whites. She finds that as white workers shifted into increasingly skilled jobs, the pressure to reserve semi-skilled jobs decreased and blacks began to move into those jobs, even before the formal end of statutory job reservation. This shift in employment patterns occurred despite the fact that, as Mariotti (2012b) finds, employers in the manufacturing sector considered

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blacks and whites substitutable for each other throughout the apartheid period, despite the official reservation of these jobs for whites.

THE PAPERS IN THIS SPECIAL ISSUE This special issue brings together authors who were first writing about apartheid during the period itself and authors who have taken up the topic more recently.

The questions they raise show that there are still fruitful areas of research open to economic historians interested in how apartheid affected the South African economy.

Mats Lundahl discusses the winners and losers in statutory job reservation.

His paper tracks the development of macroeconomic modelling of apartheid labour market policy from Porter’s (1978) discussion of a multi-sector economy with only one type of labour to his own (Lundahl 1982, 1989) expansion of that model to include both skilled and unskilled labour. He criticizes the Wintrobe (1998) model for failing to recognize the importance of factor rewards in the South African economy. He shows that, contrary to the Marxist claim that job reservation ensured the growth of capital, it was white unskilled labour that benefited most from job reservation, while capitalists were constrained by the obligation to hire expensive white workers. He notes how various theoretical models evolved over time to deal with the industrialization of the South African economy.

A confounding feature of apartheid for those who have tried to pigeonhole it over the years is the fluidity of the economic ideology in response to need and opportunity. The papers by Anton Lowenberg, Lindie Koorts, Martine Mariotti and Danelle van Zyl-Hermann, and Servaas van der Berg all address this theme.

Lowenberg has focused for some time on the public choice and political economy aspects of apartheid. His work tempers the liberal argument that apartheid staunchly supported the white working classes. In this issue he builds on previous work (Lowenberg 1997) to show that rather than being rigid the apartheid ideology was pragmatic, adjusting where necessary in the face of economic constraints and responding to economic incentives by varying the strength with which it enforced its racist ideology.

Koorts supports Lowenberg’s argument by analysing the economic rhetoric of DF Malan, one of the National Party’s chief ideologues. She shows that Malan and the National Party shifted their views from anti-capitalist to anti-communist during their tenure, in response to the political issues of the day. This fluid approach to economic policy is one of the reasons we have struggled to pinpoint the economic goals of apartheid.

An example of this fluidity is described by Mariotti and Van Zyl-Hermann in their analysis of the decline of statutory job reservation and the recommendation by the Wiehahn Commission that it be abolished. They show that state implementation of statutory job reservation was flexible, with increasing support 120

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for the manufacturing sector’s need for semi-skilled workers. Following decreasing implementation of this statute in both the manufacturing and mining sectors, the Wiehahn Commission was charged to determine the viability of the policy.

In a complete turnaround, the government accepted the recommendation to scrap job reservation despite the disapproval of white and coloured trade unions.

By the 1970s the apartheid government was aware of the high poverty levels among blacks. Servaas Van der Berg discusses the fiscal result of a shift in social spending from whites to blacks in the mid-1970s. This is perhaps not quite a case of ideological fluidity, but it shows that the apartheid government was aware of the importance of blacks to the South African economy and that it had accepted that its vision of separate development had failed. Van der Berg shows that the initial spending shifts were so well channelled that post-apartheid social spending is now extremely well targeted.

Nicoli Nattrass contributes to the conversation about the costs and profitability of apartheid with a discussion of the declining rate of capital productivity.

She revisits the Marxist-liberal debate prevalent in the literature of the 1970s and 1980s and shows that the data simply do not support the notion that cheap unskilled labour was the cause of rapid economic growth during apartheid.

Roy Havemann also contributes to the topic of the costs of apartheid. He looks at the multiple exchange rate system that was devised to provide macroeconomic stability in the 1970s and 1980s when South Africa was becoming increasingly isolated politically and economically. Despite the implementation of an at times complicated exchange rate system, the regime was unable either to halt politically inspired capital flight during the 1980s or to encourage foreign investment. Indeed, the system led to, among other things, an increase in concentration in industry, lower growth in manufacturing exports, and increased exchange rate volatility.

Roger Southall and Katherine Eriksson investigate the effect of apartheid on black wealth and education outcomes. Southall discusses the development of the black middle class during the twentieth century, and particularly that group’s difficulties in finding an equivalent political position in the apartheid system.

Eriksson contributes to the debate about the importance and longevity of institutions. Investigating the effects of the change in the language of instruction from English or Afrikaans to the mother tongue under the Bantu Education Act of 1953, she finds that in the long run this policy change increased both educational attainment and wages for people it had affected by 1980.

Finally, Waldo Krugell looks at how apartheid’s influx control policies affected the spatial distribution of people and wealth from 1911 to 2011. He finds that despite many attempts by successive white governments from 1911 until the end of apartheid to limit the inflow of blacks into urban areas by setting up legal and physical constraints and encouraging industrial development in peripheral areas, South Africa today has an over-concentration of settlement in areas of initial white settlement.

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CONCLUSION In this introduction we have shown that much remains to be elucidated about this period in South Africa’s economic history. Topics have become broader as scholars have begun to use a larger set of analytical tools and have had access to more data. The ideological debates of the 1970s and 1980s have been replaced by a more traditional form of analysis using economic modelling and data. The mass of recent publications shows that interest from both the economics and the history communities is alive. We believe the study of the economics of apartheid, to which we offer this special issue of Economic History of Developing Regions as a timely contribution, will continue to grow and flourish.

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