Research Proposal Economics
Waqas Ahmed
research_paper_lewis.pdf
1
The Lasting Economic Legacy of South African Apartheid
In Partial Fulfillment of Economics 410: International Economic Development
March 17, 2014
Prepared for Dr. Grammy
Prepared by Alex Lewis
2
By analysis of objective economic measurements and assessments, South Africa occupies
the unique position of being the most successful African country on the continent of Africa.
South Africa has the largest national income at a gross domestic product of $384.3 billion in
Africa, an unemployment rate competitive to that of other top performing African nations, and a
relatively stable currency that has acceptable inflation.1 The Republic of South Africa, then, is
far removed from the common notions of the developmental economic status of an African
nation; it represents the best aspects of a developing nation. Despite South Africa’s glowing
metrics and international renown among the developing nations, South Africa owes its greater
success in comparison to other African nations to its long history of European colonial rule.
Unlike many other countries on the continent, the colonists of South Africa did not suddenly
abandon the colony with the downturn of colonialism in the late 19th and first half of the 20th
century. For over a century, South Africa benefited from the economic and organizational
development capacity of the United Kingdom and other European colonial powers; it did not
have to suffer the destructive economic disruptions of civil wars or struggles during power
vacuums. Though what South Africa gained in comparative economic prosperity it lost in racial
equity. One scholar put it succinctly: “… as the rest of the world tried to meet the challenges of
civil rights movements and decolonization, apartheid symbolized resistance to the winds of
change…”2 The curious developmental economist looking to assess the economic affect
apartheid has had on various components of South Africa’s economy should look to the disparity
1 “South Africa,” last modified February, 2014, http://data.worldbank.org/country/south-africa Novel data comparisons were made by cross-examining other country profiles on the World Bank site. 2 Gay Seidman, “Is South Africa Different? Sociological Comparisons and Theoretical Contributions from the Land of Apartheid,” Annual Review of Sociology 25 (1999): 419-421
3
between white and non-white unemployment and wages, what groups constitute the population
of the agrarian sector, and racial proportions in the participation of the various power structures.
Economics deals with the observable, sometimes surprisingly dismal, reality of human
action in response to incentive stimuli. Consequently, ascribing solely emotional or social
conditioning causation in apartheid would be unhelpful. The dominant Afrikaners may have been
racists by coincidence but the intellectually busy economist looks to the economic incentive for
an explanation. White middle class workers, for example, pushed for many of the laws under
apartheid dealing with labor issues through their labor unions. One argument posits that the
discrimination occurred because white labor sought to hijack government to suppress
competition for jobs and drive up wages. Non-whites were only targeted because of their lack of
political clout.3 From a game theory perspective, the labor union members leveraged their
position effectively. Turning toward the macroeconomic scale, the collective bargaining and
lobbying only serves to concentrate wealth in fewer hands. This aforementioned trend is
supported by the empirical data (See Figure 1). While economic-centric organizations have only
relatively recently started estimating and recording Gini Index trends, several scholars have
attempted to estimate Gini coefficients for South Africa since 1959.4 Looking to Figure 1, one
can see that as apartheid went on wealth concentration became more consolidated. Interestingly,
3 Geoffrey E. Schneider, “Neoliberalism and Economic Justice in South Africa: Revisiting the Debate on Economic Apartheid,” Review of Social Economy 61 (2003), pp. 25-26 4 Jerry Cromwell, “The Size Distribution of Income: An International Comparison,” Review of Income and Wealth 23 (1977): pp. 3; D. Lachman and K. Bercuson, “Economic policies for a new South Africa,” IMF Occasional Papers 35 (1992); Shail Jain, “Size Distribution of Income: A Compilation of Data,” World Bank: Washington, DC.; Jacques Lecaillon, “Income distribution and economic development: an analytical survey,” World Employment Programme, ILO Geneva (1984), The Presidency of the Republic of South Africa. Economics Indicator – 2009. Pretoria: 2009.
4
0.52 0.55
0.58
0.71 0.68
0.65
0.57 0.51
0.48
0.63 0.68
0.62 0.566 0.578
0.674 0.631
1959 1960 1965 1970 1975 1976 1980 1985 1987 1990 1991 1993 1995 2000 2006 2009
Gini Coefficient Trend and Records Estimates for South Africa from 1959 to 2009
Figure 1
however, after an initial drop during the late 1980s, the Gini Index looks much like it did at the
height of apartheid.
Even after the official end of apartheid, the disparity between white and non-white wages
and unemployment rate is significant. For example in 2000, black unemployment was
approximately 32%, an astounding 4.6 times the white unemployment rate.5 To make matters
worse, the wages between those who are unemployed show large discrepancies. In some sectors,
the average black employee makes approximately a fifth of the wage of a white counterpart. A
skeptic would be quick to jump to the conclusion that it is possible that white workers are simply
5 Schneider, “Neoliberalism and Economic Justice,” 45
5
Figure 2
more qualified. The contention would be true but the analysis should not stop there; it is because
blacks were oppressed for so long and excluded from productivity improving training and human
capital investment ventures that they exhibit skills worthy of less pay.
Traditionally, rural to urban migration is seen as a normal part of any developing
economy’s progress. Increased movement from the agrarian country side to the population dense
cities is often a sign that an economy’s labor is being put to better use in a more productive
vocation that comes with higher wages by natural consequence. Unfortunately for the concerned
researcher, the South African government under apartheid did not make great efforts to
document black migration from rural to urban centers.6 One estimate found of migration among
black South Africans that “this increase began well before the official end of apartheid in 1991 or
the first free election in 1994.”7 Therefore, when an examination is made of the recent trends,
6 Holly E. Reed, “Moving Across Boundaries: Migration in South Africa, 1950 – 2000,” Demography 50 (2013): 72 7 Ibid.
6
there should not be an overlooking of the prior conditions. From an inspection of Figure 2, a
general migration pattern can be determined, namely that rural to urban migration constitutes the
majority of migration.8 This, again, is supportive of developmental economic theory. Arthur
Lewis’ Dual-Sector model would have predicted as much. The striking trend with the regards to
the purpose of this paper however is the rate of the migration. Prior to the repeal of the Pass
Laws in 1986 and other reforms and concessions made before what is considered the official end
of apartheid in 1994 with the first fully free democratic elections, internal migration was highly
regulated, even more so for non-whites. Pass Laws were essentially passports required to move
from region to region within South Africa that blacks were required to keep on them at all times
they were removed from their home regions. One author found:
“During apartheid, patterns of internal migration were more or less determined by Group Areas Act, which ascribed specific residential locations to specific ethnic groups in South Africa. Non-
white labour migration to “white” urban areas was exempted from the specifications of these two acts…”9
Again, by examining Figure 2, one can see that the rate at which urban to rural migration
occurred sped up significantly after 1985, approximately double. Therefore, a reasonable
conclusion that South Africa is steadily developing as well as correcting some of the effects of
apartheid seems reasonable.
Despite South Africa’s relative success with migration overall, they still have the
problem of single women households being disadvantaged when compared to single men’s
migration rates. In of itself, the problem does not lie in single women households lagging behind
more mobile single men in migration to urban sectors. The problem is merely an indicator that
8 Ibid. 9 Oumar Bouare, “Determinants of internal migration in South Africa,” Southern African Journal of Demography 8 (2001-2002), 23.
7
Figure 3
single woman households are still stuck in the agrarian countryside where they are kept from
being otherwise productive labor. This can be observed in Figure 3.10
Besides the fact the evidence suggests that roughly 50% of the population is being underutilized
in terms of national production of goods, the logical consequence is that those women’s
households are living in subsistence conditions. Additionally, the inequality sheds more light on
the income inequality presented in Figure 1 earlier. Income equality, after all, is a major
component in developing nations where too much concentration of wealth into too few
individuals leads to suboptimal results. Specifically, the de facto exclusion of women from the
urban, high productive workforce means in the longrun there will be slower economic growth
10 Reed, “Moving Across Boundaries,” 75
8
because of the present lack of human capital investment in whole swaths of the population.
Conclusively, while South Africa has made strides in the area of migration after apartheid, the
Republic ought to look inspect its current migration patterns to ensure they do not instigate an
official gender apartheid.
Throughout the era of apartheid, the various positions and bureaucracies of governments
were filled with white staff, especially in the 1950s and 1960s before the height of the period of
state-sanctioned racism. Blacks occupying positions of significant government roles did not
occur until the time of reforms of the 1980s which included a committee established in 1984 to
investigate options for giving black Africans greater political rights. The committee concluded
that the optimal strategy for larger Afrikaner survival “was the acceptability of a new
constitution for the majority of the population [blacks].”11 Most importantly, the point to take
away from this is that the institutions of great influence and power in South Africa were
controlled by whites who were – at some level – conscience of their status and prepared for it.
Thus, the investigator of modern day remnants of apartheid should look toward black African
presence in the political and economic power structures to see if they are represented in a way
proportion to their population in South Africa.
Politically, South African blacks have successfully attained a level of power in South
Africa’s governmental bodies that matches their demographic importance, namely a majority. In
fact, it was found that South Africans were most influenced by the “racialized party images”
presented by the political parties and the media.12 Rationally, one can conclude that South
11 Hermann Giliomee, “Democratization in South Africa,” Political Science Quarterly 110 (1995): 87. 12 Karen E. Ferree, “Explaining South Africa’s Racial Census,” The Journal of Politics 68 (2006) 814
9
Africans are engaging in a sort of reverse apartheid, and one should suspect that government
cronyism will not be exclusive to those of European origin. The control over the government,
though, is in name only if the various apparatus agencies of the government are captured by
private interest, which in South Africa is dominated by whites. In terms of public perception, the
Republic is seen as less corrupt than other countries on its continent. Of course, given that the
whole of Africa is made up of developing nations the relative perception is deceiving. In terms of
the world, South Africa holds the rank of being perceived as the 72nd most corrupted nation as
measured by government corruption, which implies that the government is ineffective at resisting
corruption, withholding from power abuse, and engages in secret dealings.13 Public perceptions
of corruption, however, do not imply actual corruption. Though, in the case of South Africa, they
are indicative of very real rent-seeking activity of local and foreign private interest and
participation in cronyism by government chiefs. One scholar described the situation:
“The resulting cronyism may become an increasingly salient feature of another potential source of corrupt favoritism: the rearrangement of business opportunities or the contracting out of
traditional functions of governments to private ventures with political connections.”14
A famous example was the Dyambu Trust’s running of a government detention camp in Lindela,
a place to keep illegal immigrants before they were processed by the Department of Home
Affairs. Those kept at the facility claimed to have been denied access to attorneys and other aid
without first paying fees and bribes to the private jailers. Overall, the same scholar found that on
the whole, “Amongst white South Africans experience of corruption would have been
exceptional rather than normal, and concentrated in municipal rather than national state
13 “Corruption Perceptions Index 2013,” last modified January, 2014, http://cpi.transparency.org/cpi2013/results/ 14 Tom Lodge, “Corruption in South Africa,” African Affairs 97 (1998): 183
10
agencies.”15 Interestingly enough, the perception of corruption between white power elite and
government has led to black entrepreneurs and industry captains to reject notions of corporate
responsibility in the social sphere due to a feeling of “white” firms not doing enough to correct
past wrongs. A researcher posits: “therefore their [black firm managers] own contribution to
CSR [corporate social responsibility] remains minimal.”16
South Africa has made improvement in migration allowance and participation in politics
laid out earlier as two economic performance categories where one could potentially detect
lasting effects of apartheid. South Africans are moving to urbanized areas at greater rates than
ever before and far greater than would have seemed possible under apartheid, which represents a
healthy march toward developed economy status and more prosperity. Real wages, while, having
an initial fall in the 1990s due to “the growth of unregulated work hav[ing] resulted in downward
pressure on wages” are much higher now (albeit falling as of recently).17 The income inequality
that stains the South Africa’s economy, while unfortunate, is an expected complication of a
developing economy and looks much like that of similar nations in different parts of the world
with similar history. Political corruption is on the decline and many firms, instead of exploiting
the government levers of power, are actually contributing to social welfare of the South African
people. Future complications of South Africa will most likely involve the growing number of
South Africans bound to be justifiably upset with the rather extreme amounts of income
15 Ibid, 171 16 David Fig, “Manufacturing Amensia: Corporate Social Responsibility in South Africa,” International Affairs (Royal Institute of International Affairs 1944-) 81 (2005): 617. 17 Marlea Clarke, “Ten Years of Labor Market Reform in South Africa: Real Gains for Workers?,” Candian Journal of African Studies 38 (2004): 572. ; Nir Klein, “Real, Wage, Labor Productivity, and Employment Trends in South Africa: A Closer Look,” IMF Working Paper (2012): 5
11
inequality that still exist in the country let alone the problem of highly extreme disparities in
unemployment between white and non-white labor.
12
Works Cited
Bouare, Oumar. "Determinants of Internal Migration in South Africa." Southern African Journal of Demography 8.1 (2001): 23-‐28. Clarke, Marlea. “Ten Years of Labour Market Reform in South Africa: Real Gains for Workers?.” Canadian Journal of African Studies (2004): 558-574 Ferree, Karen E. "Explaining South Africa's Racial Census." The Journal of Politics 68.4 (2006): 803-15. Fig, David. "Manufacturing Amnesia: Corporate Social Responsibility in South Africa."International Affairs (Royal Institute of International Affairs 1944-) 81.3, Critical Perspectives on Corporate Social Responsibility (2005): 599-617. Giliomee, Hermann. "Democratization in South Africa." Political Science Quarterly 110.1 (1995): 83-104. Klein, Nir. “Real Wage, Labor Productivity, and Employment Trends in South Africa: A Closer Look.” IMF Working Paper (2012). Lodge, Tom. "Political Corruption in South Africa." African Affairs 97.387 (1998): 157-87. Martins, Johan H. “Household Budgets as a Social Indicator of Poverty and Inequality in South Africa.” Social Indicators Research 81.2 (2007): 203-221. Møller, Valerie. "Quality of Life in South Africa: Post-‐Apartheid Trends." Social Indicators Research 43.1/2, Quality of Life in Countries Undergoing Rapid Social Change (1998): 27-‐68. Pedersen, Alex West. “Inequality as Relative Deprivation: A Sociological Approach to Inequality Measurement.” Acta Sociologica 47.1 (2004): 31-49 Schneider, Geoffrey E. "Neoliberalism and Economic Justice in South Africa: Revisiting the Debate on Economic Apartheid." Review of Social Economy 61.1 (2003): 23-50. Seidman, Gay. “Is South Africa Different? Sociological Comparisons and Theoretical Contributions from the Land of Apartheid.” Annual Review of Sociology 25 (199): 419 -440 Sherer, George. "Intergroup Economic Inequality in South Africa: The Post-Apartheid Era."The American Economic Review 90.2, Papers and Proceedings of the One Hundred Twelfth Annual Meeting of the American Economic Association (2000): 317-21. Siebert, W. S. "Black Trade Unions and the Wage Gap in South Africa." Managerial and Decision Economics 8.1 (1987): 55-65.
