Apartheid’s Economic Growth and Decline

Apartheid’s economic regime could never achieve its grandiose desires, as the very nature of its system was built on a rotten ideology that put racial discrimination before economic realities.

Apartheid’s economic regime could never achieve its grandiose desires, as the very nature of its system was built on a rotten ideology that put racial discrimination before economic realities. Despite initial successes in the post-War period, subsequent declines and an examination of Apartheid’s rejection of sound economics in favour of nationalist ideology doomed it to deteriorate by the 1970s, with its economic rot arguably persisting to this day.[1] This article will explore the goals of the Apartheid regime and its initial alleged successes. More attention will be paid to discussing why this growth path was unsustainable. The focus for the failure of Apartheid will touch on the cases of labour and then on the failures of protectionism. Ultimately, this article will find that the Apartheid system failed as it rejected economic realities and principles in favour of racialist ideology.[2]

Initial Growth

The post-War economy was initially marred with pessimism that there would be a crash in gold prices, and that gains made during the wartime period would be undone.[3] Gold did not crash, however. Rather, a currency devaluation that raised the comparative advantage of commodity exports, the discovery of new gold reefs and improvements in mining efficiency led to a golden age for gold.[4] This was alongside a veritable economic golden age in the global economy. Not only was there extra capital in the domestic market, there was a surplus of capital everywhere.[5] While the government and some industries feared that SA signing onto the General Agreements on Tariffs and Trade (GATT) would mean an end to protectionist policies, they found a way to continue their policies of import substitution, rather encouraging foreign investors to set up their business on-shore, providing extra capital, employment and overall investment locally, to avoid tariffs.[6]

During the period of 1950 – 1980, the SA economy tripled in size.[7] The period up until the 1970s saw what seemed to be a rise in manufacturing, services and the general economic success of the country, but as will be revealed in the subsequent section, this success was in spite of, rather than because of, Apartheid’s policies, and that the rot of the segregationist planning state was even able to undo the natural prosperity gained as a result of a good global economy and an endowment of valuable minerals.

Failing Policy

The Minister of Labour in 1957 argued that despite economic laws, it is more important to maintain the nonsensical idea of “European civilisation”.[8] This was the prevailing sentiment among policy makers, who instated ideological policies to restrict and exploit African labour, not so much for the benefit of capital (as Marxist historians posit) but for their white worker constituents. This admission by a policy maker of violating economic laws for racial ideology is useful, but unneeded, as the policies of Apartheid demonstrated a violation of core economic principles throughout its existence, twisting the market and creating unsustainable growth.[9] The political desire for segregation and racialised economic prosperity and power infringed on economic needs and realities.[10]

Labour policies actively excluded Africans from participating in the growing manufacturing sector, while also attempting to utilise cheap African labour to prop up mining.[11] This active exclusion and exploitation created a deadly cocktail of not only political resentment and unrest, but also led to malinvestment. Racial barriers prevented those identified as African from better paid jobs or even from lucrative self-employment.[12] Gentle, like many other historians, would argue that this process of eliminating economic opportunities was in aid of capital, particularly the mineral-energy complex (MEC).[13] While this is partly true, it cannot be ignored that a racial socialist ideology backed many of Apartheid’s economic policies. African entry into semi-skilled and skilled labour, as well as African entry into entrepreneurship, was a threat to Afrikaner and white economic superiority. As well as excluding the majority of the population from participating meaningfully in the economy, Fourie and Mariotti argue that the job reservations caused a shortage of semi-skilled workers, leading to malinvestment and industry becoming too capital intensive while there were many viable workers in actual fact.[14] While policy makers believed that the migrant worker system that had benefitted mining would work for the entire economy, they were sorely mistaken.[15]

Ignoring the signs

Despite findings made by the Van Eck Commission that protectionism was ultimately too costly for the economy, the Apartheid government continued the practice.[16] Increased import substitution did sustain a degree of modernisation and innovation, supported by a growing domestic market.[17] The market didn’t grow fast, enough, however and was still too small by the 1970s to sustain the arguably artificial manufacturing industry.[18] This article posits that manufacturing in SA was, at least partly, artificial. Even with heavy support by mining groups and increasing foreign and local capital investment, manufacturing still required support from the state.[19]

By 1971, after years of apparent growth, it was established that manufacturing was still uncompetitive. Instead of ending protection and letting the forge of free market competition strengthen the weak industries, policy makers increased protection – coddling industries so that they would never have to grow up.[20] Import substitution was not sufficient to make this coddling justified, as manufacturing ran into huge balance of payment issues as they still relied on foreign technology and imports.[21] The domestic market remained too small to sustain the protected industries, requiring an export-driven approach to justify their existence, but as they had never been required to compete against foreign competitors, they were unable to break into the export market.[22] Protectionism ultimately breeds weak industries, doomed to drag an economy down until policy makers grow the sense to cut them loose.

This article has explored the initial growth trajectory of the Apartheid economy, found the optimism deceptive, and then identified how two particular branches of policy, labour and protectionism, led to the inevitable decline of the economy. Let this be a warning to future economies and policy makers. Do not exclude the majority of the population from the workforce, and do not coddle your industries to the point of ineptitude. Apartheid was doomed because it thought it could trump economics. It was wrong – and it paid the price.

Nicholas Woode-Smith is the Managing Editor and a Co-Founder of the Rational Standard.

Bibliography

• Feinstein, Charles. An Economic History of South Africa: Conquest, Discrimination and Development. Cambridge: Cambridge University Press, 2005.

• Fourie, J and M. Marriotti. “The economics of Apartheid: An introduction.” Economic History of Developing Regions 29, no. 2 (2014): 113 – 125.

• Gentle, Leonard. “Escom to Eskom: From racial Keynesian capitalism to neo-liberalism (1910-1994).” In Electric Capitalism: Recolonising Africa on the Power Grid. Edited by David MacDonald, 50-69. HSRC Press, 2008.

• McCarthy, Colin. “Apartheid ideology and economic development policy.” In The Political Economy of South Africa, edited by N. Nattrass and E. Ardington, 43-54. Cape Town: Oxford University Press, 1990.

• Nattrass, N. and J. Seekings. Class, Race, and Inequality in South Africa. New Haven: Yale University Press, 2005.

[1] The topic of how Apartheid policies continues to persist in post-Apartheid South Africa is extensive, and unfortunately cannot be developed satisfactorily in this paper. A particular case of rot that may interest the reader is the case of Eskom, and how its pre-Apartheid and Apartheid roots led to the preservation of a flawed price structure that has led to grave economic issues long after the end of Apartheid.

[2] These factors are by no means the only issues to lead to the unsustainability of the Apartheid system. One glaring political flaw is the exclusion of the majorityof the population from being economically productive or politically active. With the inevitable growth of the black middle class, this led to the segregationist state being completely unimplementable.

[3] Charles Feinstein, An Economic History of South Africa: Conquest, Discrimination and Development (Cambridge: Cambridge University Press, 2005), 144.

[4] Ibid., 168-172.

[5] Ibid., 172.

[6] Ibid., 174.

[7] N. Nattrass and J. Seekings, Class, Race, and Inequality in South Africa, (New Haven: Yale University Press, 2005), 99.

[8] Feinstein, An Economic History of South Africa: Conquest, Discrimination and Development, 158. The quote in full: “The European worker in this country must be protected or else European civilization will go under. Even though it might intrude upon certain economic laws, I would still rather see European civilization in South Africa being maintained and not being swallowed up than to comply scrupulously and to the letter with the economic laws.”

[9] A primer in Austrian economics and the notion of the socialist calculation problem and price theory cannot be inserted in full in this paper, but it is sufficient to say here that there are certain economic realities. If a state ignores them, then signals are sent to investors, businesses and other stakeholders. These signals lead to bad investments and bad behaviour, which will inevitably lead to a decline when the economic realities catch up. An example would be the government fixing the price of beef during a shortage. If the price is fixed too low, beef will sell too fast and suppliers will halt production as it becomes economically unsustainable for them to continue.

[10] Colin McCarthy, “Apartheid ideology and economic development policy,” in The Political Economy of South Africa, ed. N. Nattrass and E. Ardington, (Cape Town: Oxford University Press, 1990), 47. The argument made on this page inspired, if not directly linked to the sentence footnoted.

[11] The Native Labour Act of 1953 actively excluded Africans as workers in many industries, adding onto the existing Colour Bar. The 1951 Native Building Workers Act and then 1956 Industrial Conciliation Act added to these job reservations.

[12] Nattrass and Seekings, Class, Race, and Inequality in South Africa, 91.

[13] Leonard Gentle, “Escom to Eskom: From racial Keynesian capitalism to neo-liberalism (1910-1994),” in Electric Capitalism: Recolonising Africa on the Power Grid, ed. David MacDonald (HSRC Press, 2008), 52.

[14] J. Fourie and M. Marriotti, “The economics of Apartheid: An introduction,” Economic History of Developing Regions 29, no. 2 (2014): 114.

[15] Feinstein, An Economic History of South Africa: Conquest, Discrimination and Development, 161.

[16] Ibid., 131.

[17] Ibid., 173.

[18] Ibid., 188.

[19] Ibid., 180.

[20] Ibid., 188.

[21] Ibid., 188.

[22] Ibid., 192.