Latest Economic Research – The economics of apartheid Reply

EOAwbThis is a post about the latest research into the economics of apartheid, a publication of the Economic History Society of Southern Africa, published in the Economic History of Developing Regions journal. Its aim was to bring together the recent work of economists and historians to showcase developments in the study of the economics of apartheid.

Twenty years after the end of the apartheid system, there can be no doubt that its legacy continues to shape South African society. Indeed, politicians have repeatedly mentioned that apartheid spatial patterns continue to exist in town and cities, and that the culture of violence prevalent in South Africa originates from the past. Academic studies have also confirmed that this is the case with black poverty remaining high whilst there continues to be an overall lag in the quality of their education. Black unemployment is also stubbornly high and there remains an element of distrust and non-cooperation.

The papers presented in this journal, help to shed some light on what the long term consequences of the apartheid system were, so that we can have more understanding about how the apartheid system of yesteryear, continues to hamper the economic development and cohesion of South African society today.

1) Apartheid policies were aimed at appeasing white unskilled labour (Mats Lundahl, Anton Lowenberg & Koorts)

1904 Skilled Occupationswb

A 1904 list of skilled trades and occupations reserved for European workers

As a result of the colour bar, a policy which excluded black Africans from skilled or semi-skilled work, and the ‘civilised labour policy’, white unskilled workers ensured that their jobs on the mines would be secured. Through political persuasion and rebellion, white unskilled workers, who demanded higher wages than their black African counterparts, ensured that their employment was legislated so that they could not easily be replaced by cheaper black labour.

Job reservation did not ensure the growth of capital, and was a severe constraint on the profitability of Mining and Industry, since owners of capital were not able to make use of the abundant cheap black labour available to them – they were forced to hire more expensive white workers. Gradually, the need for more and more skilled workers arose as the economy modernised, with the result that the apartheid colour bar was relaxed and restrictions gradually lifted in the 1980’s.

The main benefits of the system had not been owners of capital, mining companies or industrialists, but rather the unskilled white workers who gained control of the political environment and ensured that policies favourable to them were introduced.

This is also shown to be evident in the rise of DF Malan’s political career. He was a talented individual with a strong desire to protect his own class, the poor unskilled whites and farmers, and he did so by integrating a mix of economic policies from the right and the left into a coherent worldview able to move with the times. His greatest priority was to unite ‘Afrikaners’ on the basis of nationalism, and ensure the state provided and cared for the poor whites and particularly the farmers.

2) Apartheid policies resulted in low skill levels and reduced consumer demand (Mariotti and van Zyl-Hermann & Eriksson)

For more than 100 years, the colour bar had been prevalent in South African history, predating even the Apartheid system. This policy ensured that certain skilled occupations were reserved for white workers only. Through the industrial Conciliation Acts of 1924, 1951 and 1956 – the government was allowed to intervene in the private sector and reserve certain occupations only for specific groups. As whites gradually moved into more high skilled occupations, there was also more room for blacks to be hired into semi-skilled and other skilled positions. Indeed, by 1977 several job reservations had been cancelled and after the Wiehan Commission of 1979, job reservation was scrapped entirely despite the attempt by white miners to thwart labour reform with their March 1979 Miners strike. This legislation – initially meant to protect white workers from competition with blacks – was scrapped once it became clear the economy needed more skilled workers in order to continue growing and modernising. In some sense, the apartheid system was merely a response to changing economic and political constraints.

BantuwbBut the lasting impact was that overall skill levels in the economy remain very low, as the vast majority of the black population were trained and equipped only for low skilled work (read more here). The associated low wages, also meant that the total consumer demand in the economy was severely curtailed, as the majority of the income resided in the hands of the skilled and semi-skilled white workers – severely limiting the domestic demand for goods and services and thereby preventing any self industrialisation. Even though the 1953 Bantu Education Act increased literacy and educational attainment, the emphasis was on preparing the youth for semi-skilled jobs. Today, we still have a situation where a large number of unemployable youth with low skill levels continue to enter the labour market (read more here).

3) Increased mechanisation resulted in endemic unemployment (Nattrass)

As a result of the various policies aimed at excluding black workers from skilled positions, industrialists responded through capital investment and accumulation that limited the dependency on the black labour supply by reducing the need for low skilled workers. Up until 1970, there had been chronic labour shortages faced by both agriculture, industry and mining companies. But, following the 1970 global crash and recession, there was suddenly very high unemployment together with an economy which had a strong emphasis on mechanisation to increase labour productivity. In the 1970’s, there was a sharp fall in manufacturer profit due to the sudden increase in capital prices.

UnemploymentByEducationwb

The majority of the unemployed in South Africa are unskilled

The effect for today is that the South African economy still has a strong emphasis on mechanisation to drive up labour productivity. But, this undermines capital productivity and entrenches high rates of unemployment. The South African economy is not set up to exploit and make use of its comparative advantage of cheap labour as it is based upon an apartheid system which aimed to prevent the share of income from labour going to Africans.

4) Misplaced and reduced FDI (Havemann)

As a result of the exchange rate controls implemented during the apartheid system, the economy was plagued with several long term economic, social and political distortions. The multiple exchange rate system was devised in order to provide macroeconomics stability at a time when South Africa was becoming increasingly politically and economically isolated. It consisted in a system of capital controls with a “financial” rand for non-residents, and a “commercial” rand for residents. The short term result was increased stability, but in the long run there were several adverse effects.

The financial setup reduced FDI and also resulted in a concentrated industry as firms are trapped into investing in non-core activities and thereby create conglomerates. It also resulted in a reduced growth in export orientated manufacturing.

5) Politics dominated by the interests of the black middle class (Southall)

Bantustans were established in South Africa for the purpose of concentrating the members of designated ethnic groupsas the basis for creating

Bantustans were established in South Africa for the purpose of concentrating the members of designated ethnic groups as the basis for creating “autonomous” nation states for South Africa’s different black ethnic groups

Since the apartheid system was designed to limit the growth of the black middle class in the economic sphere, the black opposition to apartheid was overwhelmingly drawn from the black elite. They were disappointed at not being included in society and were adamant on their desire for national unity and not separate development. The Bantustans, were created by the apartheid system as a means to appease the class interests of the black middle class, but was only partly successful in doing so. Instead, there remained a high sense of grievance amongst them and a demand for change, much more so than from the black unskilled population.

The ANC became the vanguard of the black middle class and many of their policies since the end of white rule has resulted in the expansion of the black middle class. Indeed, much of the political tension seen today has shown the ANC to be primarily concerned with the interests of the black middle class rather than black unskilled workers, leading to the rise of rival parties such as the EFF.

6) Development along political rather than economic lines (Krugell)

SA Population dnesity using 2011 census data

SA Population density using 2011 census data

Apartheid’s influx control systems affected the spatial distribution of people and wealth from 1911 until 2011. The system aimed to prevent the growth of the black urban population with decentralised homeland industrial development away from the economic centres and gold reefs. As a result, South Africa developed with too many small towns, and too few big towns, which now have too many people. Without apartheid, there may have been more large cities. Wealth was also concentrated in white areas rather than spreading to the homelands to stimulate economic development in other regions.

This has meant that most of the poor urban areas face high transportation costs in order to reach the urban centres. Following the end of apartheid, new houses were still being built in areas far away from city centres, compounding the spatial policies of apartheid.

Conclusion

The apartheid economic policies continue to have detrimental effects on the South African economy of today. In many respects, the South African economy has the same inequality of opportunity and outcomes as in 1990. Politics and political institutions determine what kind of economic institutions exist, they can also change them to promote shared prosperity (this was one of the key findings of Acemoglu and Robinson). If the political scene in South Africa begins to change and become more concerned with the interests of the unskilled black population, perhaps the unwanted economic effects of Apartheid will be more speedily redressed.

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