Early 20th century, South Africa (SA) was struggling to break out of a commodity-dominated economy. To establish a secondary sector, the state embarked on a developmental state project, focusing on protectionism. Ultimately, as this article will show, this was a failure.
The Rise of the Developmental State
By 1910, SA was suffering from a severe shortage of skills and purchasing power, preventing the rise of a secondary sector. Many blamed foreign imports, leading to, as Bozzoli (1975) argued, an ideological shift from imperialistic production to a desire for protectionism and economic nationalism.
While the Cullinan Commission of 1910 and the Customs Tariffs Act of 1914 attempted to establish tariff protections, genuine protectionist policies were only passed in earnest after the Pact government was elected in 1924. This government wanted to promote import substitution and did so through the Customs Tariff Act of 1925, which provided protection to infant industries that offered preferential employment to white workers. The state also established ISCOR and ESCOM as state enterprises to dominate the steel and electricity sectors, allowing them increased leverage over the secondary sector. It is important to emphasise at this point that, while there may have been some desire to achieve real economic independence, the true agenda of the Pact government was to provide employment for their white constituents.
While ISCOR seemed good on paper, as it provided steel where no private initiative was willing due to costs, it was criticised as highly uneconomical. Protectionist policies were also not working as well as many would have hoped, as tariffs led to increased indirect costs in the price of goods and wages. It didn’t help that white labour was required to man these infant industries and were paid exorbitantly (at the expense of black labour).
None of these protectionist policies were paying off, until 1933, where the price of gold increased, causing a chain reaction which allowed for a rapid surge of manufacturing as domestic spending power grew. This domestic demand was needed, as local manufacturing still couldn’t compete with foreign manufacturers.
Some historians, like Schneider (2000) argue that protectionism in SA worked and can work, if not for the unsustainable abuse of black labour. But the evidence doesn’t suggest this. Throughout SA’s experimentation with protectionism, it was running into huge problems of inefficiency and rising costs – hidden and blatant. As Schneider himself points out, SA was reliant on imported technology. The unprofitability of domestic manufacturing led to huge balance of payment issues. Due to the tariff restrictions on foreign imports, local markets had to rely on more expensive local alternatives, driving up the cost of living. The Van Eck Commission found that sheltered industries were not self-sustainable and that protection was costing around £10 million a year by 1939/40.
Yes, local manufacturing started to employ a great deal of labour but at terrible costs. Without the forge of foreign competition, infant manufacturing in SA never grew up, costing South Africans a fortune just to prop up an unsustainable racialised job programme.
Farming was not much better. Underperforming white commercial agriculture dominated the sector, while African farming was deliberately stifled. Between 1910 and 1935, 87 bills were passed aimed at assisting white farmers. The most dire of these policies was that boards of farmers were established, allowing farmers to restrict outputs in order to drive up prices, at the expense of consumers. Protectionist policies allowed local farmers to get away with monopoly pricing. Feinstein argues that, despite all this state help, farming was still highly inefficient by 1945, but a foundation for possible modernisation had been established. Was it worth it though? What if the state had not overly discriminated against black farmers? What if the market was opened up for foreign and African suppliers, allowing consumers to benefit from cheap food, freeing up their capital to invest in other things? The problem, as is often the case in history, is judging what didn’t happen. We cannot truly do so but keeping in mind the costliness and inefficiency of farming in SA, it is safe to say that the state did not establish a truly flourishing commercial agriculture industry.
Smuts was prime minister of SA from 1919 – 1924 and 1939 – 1948. In 1939, Smuts did continue the previous policies of industrial expansion, according to Feinstein. Nattrass and Seekings also argue that he attempted a form of more humane orthodoxy, but ultimately failed. The Industrial Development Corporation (IDC) was founded in 1940, aiming to promote economic growth and industrialisation. ISCOR was further expanded during this time, and direct assistance to private enterprise was offered. Lastly, protectionist policies were expanded, opening to provide tariff protection for infant industries without the need for them to reach a certain size first.
Overall, while Smuts did increase some of the protectionist policies and did establish the IDC, the foundations of SA’s developmental state were started before and after his tenures.
The unseen of SA’s manufacturing blunders is the potential for real organic, market-led growth, ignoring racial boundaries and benefitting from globalised trade. The seen is an inefficient and racialised exploitative economy costing consumers in excess of £10 million a year just from protected manufacturing. SA industries should have been forced to compete on the world stage, to test if they were worthy of competing at all. At the end of the day, the consumer and citizen should benefit. In SA, only a minority of state cronies and workers appointed by virtue of their skin colour received any benefit. As such, can one really say that SA built up a thriving manufacturing sector, let alone a thriving economy? While the majority of the population could not benefit, it is intellectually dishonest to say that SA was in any way a model developmental state, let alone a model economy.
Bozzoli, Belinda. “The Origins, Development and Ideology of Local Manufacturing in South Africa.” Journal of Southern African Studies 1, no. 2 (1975): 194 – 214.
Evans, Peter B. “Predatory, Developmental, and Other Apparatuses: A Comparative Political Economy Perspective on the Third World State.” Sociological Forum 4, no. 4 (1989): 561 – 587.
Feinstein, Charles Hillard. “Transforming the economy: the rise of manufacturing and commercial agriculture.” In An Economic History of South Africa: Conquest, Discrimination and Development, 113-132. Cambridge: Cambridge University Press, 2005.
Nattrass, N. and J. Seekings. “South African Society on the Eve of Apartheid.” In Class, Race, and Inequality in South Africa, 49 – 89. New Haven: Yale University Press, 2005.
Schneider, Geoffrey E. “The Development of the Manufacturing Sector in South Africa.” Journal of Economic Issues 34, no. 2 (2000): 413 – 424.
 Charles Hillard Feinstein, “Transforming the economy: the rise of manufacturing and commercial agriculture,” in An Economic History of South Africa: Conquest, Discrimination and Development (Cambridge: Cambridge University Press, 2005), 114.
 Belinda Bozzoli, “The Origins, Development and Ideology of Local Manufacturing in South Africa,” Journal of Southern African Studies 1, no. 2 (1975): 214.
 Feinstein, “Transforming the economy: the rise of manufacturing and commercial agriculture,” 117-118.
 Ibid., 119.
 Ibid., 120.
 Ibid., 121.
 Ibid., 119.
 Ibid., 121.
 Ibid., 123.
 Ibid., 128.
 Geoffrey E. Schneider, “The Development of the Manufacturing Sector in South Africa,” Journal of Economic Issues 34, no. 2 (2000): 413.
 Ibid., 416.
 Feinstein, “Transforming the economy: the rise of manufacturing and commercial agriculture,” 131.
 Ibid., 134.
 Ibid., 131.
 It must also not be forgotten that white labour was overpaid at the expense of black labour.
 Ibid., 135.
 Ibid., 141.
 Ibid., 142.
 Ibid., 142.
 Ibid., 124.
 N. Nattrass and J. Seekings, “South African Society on the Eve of Apartheid,” in Class, Race, and Inequality in South Africa. (New Haven: Yale University Press, 2005), 84-89.
 Feinstein, “Transforming the economy: the rise of manufacturing and commercial agriculture,” 124.
 Ibid., 124.
 Ibid., 124.