Was apartheid economic failure inevitable?

Apartheid is the separation of people by race, in housing, schools and the workplace (Feinstein,
2005, p.3). By the end of apartheid, SAs economy was a failure; !" growth rates were
disastrous, unemployment and consumer prices soared from the #$%&'() to the #$()'$% time
period (as shown in *able #), and the balance of payments (B+") position deteriorated se,erely in
the #$(-s. *his surmises that SAs failure was the conse.uence of the go,ernments enforcement
of discriminatory racial ideology, which is consistent with the liberals ,iew that apartheid is
/economically irrational and incompatible with a dynamic economy, and would ultimately pro,e
damaging to the countrys growth and prosperity0 (Feinstein, 2005, p. 162). +n the other hand,
the radicals were con,inced that apartheid, primarily through its pro,ision of cheap and controlled
labour, would be beneficial to growth. 1owe,er, in light of the shortage of labour, lower labour
producti,ity, poor human capital, and political unrest that would ha,e necessarily resulted from
SAs racially'discriminatory policies, this essay will argue that the apartheid'based economy was
destined to fail.
Table 1: Key macroeconomic indicators for South Africa
from 194894
(#)
#$%&'()
(2)
#$()'$%
Annual % growth rate
3eal !"4capita 2.2 '-.5
6nemployment 5.5 &.(
7onsumer prices ).5 #).&
Percentage of GDP a!erage for perio"#
7urrent Account '2.8 #.#
Source9 :einstein 2--8 pp #%8, 2-#
;ess *eo 1ui <ing
7lass roup &
=elasco .
:irstly, apartheid economic failure was ine,itable because the urban e>clusion policy and the
labour allocation system hampered the industriali?ation process by limiting the supply of skilled
and semi'skilled labour se,erely. !esiring complete separation between the races while still
wanting to use the black workers for industrialisation, the 6rban Areas Act was reinforced in
#$82. @o African was allowed to enter the towns unless they were looking for a Aob, in which
case they must register with the local employment bureau within ) days, and would be matched to
a ,acancy on a first'come'first ser,e basis (Feinstein, 2005, pp.153$15%). *his migrant labour
system contradicted with the logic of industriali?ation B black workers needed to concentrate in
urban areas to pro,ide labour for economic e>pansion B and led to a se,ere shortage of workers
re.uired for industriali?ation. :urthermore, the system of labour allocation was highly inefficient;
skills mismatch was bound to occur as Aobs that re.uire a certain set of skills and e>perience may
be offered to a worker lacking those skills and e>perience. *his greatly reduced labour
producti,ity. 1ence, the go,ernments preoccupation with enforcing racial separation retarded
SAs economic growth B and to a significant e>tent, because the economy was becoming
increasingly dependent on the industrial sector, whose output as a percentage of !" rose
steadily since #$%&, reaching )#C by #$(-, #.& times that of agriculture and mining combined
(Feinstein, 2005, p.1%%).
Secondly, apartheid economic failure was ine,itable because the ,arious discriminatory labour
policies lowered labour producti,ity and heightened the shortage of labour. *he 7olour Bar
Degislation of #$##, the Apprenticeship Act of #$22, and further legislation in #$85 e>cluded
Africans from not Aust ,arious skilled Aobs but also semi'skilled Aobs, and reser,ed certain Aobs for
the Afrikaners (Feinstein, 2005, p.15&). 7onse.uently, the allocation of black labour to their
highest ,alued uses, which would undoubtedly spur economic growth, was hindered. Also, white
workers, sheltered from competition and paid higher wages irrespecti,e of their competency,
became complacent and inefficient, further lowering the producti,ity of the entire labour force.
*hirdly, a largely uneducated population B a poor source of human capital and a recipe for
economic failure B emerged under the discriminatory education policies. 6nder the Bantu
Education Act of #$8), the go,ernment financed African education by a general poll ta> collected
from Africans, and funded schools only if they implemented the new discriminatory curriculum
that prepares students for mere manual work ('or"en, 1((%, p.(6). Education was also to be
gi,en in the pupils mother language. *his lowered education standards as there was a lack of
material in indigenous languages for both the students and teachers (Feinstein, 2005, p.15().
Table !: "ducation level of Africans vs Afri#aners
Percentage of
population
Africans Afri#aners
Standard $ or hi%her 8%C $$C
Standard & or hi%her 2#C of urban
Africans, (C of rural
Africans
$%C
Source9 :einstein 2--8 p.#5#
*aking the le,el of education among the whites to be the benchmark for what good human capital
means, we see that the under'allocation of resources and the discriminatory curriculum produced
a population with a poorly'educated maAority, incapable of de,eloping more comple> secondary
and tertiary sectors to propel the economy forward. *he deleterious effects of the deteriorating
education standards can be seen e,en in industry9 when the formal Aob colour bar in #$&# was
abolished, firms had to in,est a lot to train the black workers before they could take up the skilled
Aobs, leading employers to pressure the go,ernment to pro,ide impro,ed national education for
blacks ()owen*erg, 1((&, p.6%).
:urthermore, there was a se,ere misallocation of resources under the apartheid system. Ft was
estimated that the di,idend from the elimination of the costs of apartheid system would add
appro>imately G2,---million to SAs !" (Feinstein, 2005, p.250). *he prime e>ample of
Source9 Staehelin'Hitt, 2-#2, p.)
resource misallocation is the "olicy of Separate de,elopment B a policy centred solely on racist
ideology ('or"en, 1((%, p.110) B that sought to stem the influ> of black workers into urban areas
by de,eloping self'supporting African Ihomelands. *his policy (which failed) was an utter waste
of resources (e.g. on land reclamation) that could ha,e been used to generate growth.
1owe,er, despite the glaring demerits of apartheid, some would argue that failure was not
ine,itable because SA did e>perience an initial period of growth and the pro,ision of cheap labour
had helped the mining sector to e>pand. Fn the mining industry, discrimination and the depression
of wages worked as workers /had little recourse against ill treatment and in any case could be
easily replaced if they pro,ed too troublesome0 (+lar, an" 'orger, 200%, p.6(). 1ence,
producti,ity did not suffer significantly and firms could e>ploit the genuinel- cheap black labour
to reap greater profits and e>pand. *he growth of real !" per capita accelerated to 2.2C per
annum in #$8-'(), up from #.)C in #$#)'#$8- (Feinstein, 2005, p.1%%). 1owe,er, unlike the
mining sector, the manufacturing sector could not afford labour turno,ers because this was a
sector where producti,ity increases with repetition, where skills and de>terity were ,ital and
where firms had to incur a considerable e>pense in retraining Africans e,ery time there was
turno,er. 7oercion was also ineffecti,e, as the .uality of work produced could not be easily
assessed. *he oppressed, unmoti,ated and hence inefficient industrial workers who were
producing fewer outputs were able to get away with it. 7onse.uently, labour producti,ity in SA
was low relati,e to other economies and unit labour costs were high, despite wages being cheap.
At the end of the apartheid period, labour producti,ity in SA was between 8- and (8C of the le,el
in de,eloping
countries
Feinstein 2005,
p.2%6). *his greatly
hurt SAs e>port
competiti,eness and meant that /its hope of achie,ing e>port'led growth based on the
manufacturing sector was doomed to fail0 Feinstein 2005, p.2%&).
Some ha,e also attributed the failure of SAs economy to e>ternal factors. *he #$(5 B+" crisis,
which se,erely retarded growth as SA had limited access to foreign credits, capital, and new
technology and had to restrict imports to correct the current account deficit, was argued to be the
result of e>ternal de,elopments. :irstly, the rise in oil prices and the Datin America debt crisis led
oil states to de,ote large speculati,e short'run capital to SA and made possible the subse.uent
immediate withdrawal and hence sudden outflow of capital. Also, the international communitys
increased hostility towards the apartheid regime, which led countries to impose financial
sanctions, contributed significantly to capital outflow and hence the precipitation of the crisis.
1owe,er, 1eftin and Staehelin'Hitt highlighted that most of the net outflow of capital had
already begun before sanctions were imposed, due mainly to the political unrest caused by the
Soweto uprising and also because of the growing costs of production under apartheid policies
(.eftin an" /taehelin$'itt, 2012, pp. 2$3) (See Fllustration #). 1ence, e>ternal factors, while
influential, may not ha,e been the determining factors of failure.
*here is another internal reason not related to apartheid that may ha,e led to SAs economic
failure B SAs choice of growth strategy9 import substitution industrialisation (FSF). *he
go,ernment had hoped that the establishment of a strong domestic manufacturing industry
through protectionist measures would reduce the reliance on foreign imports and mining re,enues
for growth. Jet, after the domestic consumer goods market has become saturated, further growth
can only be sustained by e>tending FSF to the market of factor inputs. 1owe,er, the protection of
an inefficient domestic factor input industry would raise domestic costs of production, hurt e>port
competiti,eness and worsen the current account deficit ()owen*erg, 1((&, p.65). :urthermore, FSF
could not work in Africa because there was a small domestic market and hence manufacturing
firms could not reap significant economies of scale to lower costs and prices. :or e>ample, by
#$58, there were fi,e different car firms producing fifteen different car models and despite low
African wages, production cost e>ceeded the 6S by %8C )eunig, 2012, sli"e 36).
1owe,er, whether or not FSF was a determining factor for economic failure is not conclusi,e as
other countries e.g. East Asian *igers, were successful in using FSF to achie,e substantial growth
(0gu1iu*a, 2011, p.2). :urthermore, in the wake of the apartheid, it was FSF, complemented with
an e>port regime, that helped to gal,anise SAs rapid economic de,elopment B a testimony to the
appropriateness of FSF strategy (A"ewale, 2012 pp. 2(($300). He can howe,er, be certain that
apartheid nudged FSF to the path of failure. !omestic manufacturers would only be granted tariff
protection if they met the go,ernments labour conditions, including the employment of a
reasonable proportion of white workers ()ipton, 1(25, p.1(), which encouraged firms to use white
workers instead of cheaper black workers. 1ence, apartheid helped to reali?e the inefficiencies
and higher production costs that critics of FSF had often warned would result under FSF.
Fn conclusion, this essay has aimed to argue that apartheid economic failure was ine,itable due to
the abo,ementioned ill effects, which are but a subset of the negati,e economic effects that
resulted from the apartheid system. Kost significantly, the failure of the economy and the failure
to carry on the positi,e (albeit a small) growth rate of #$%&'() was because SA was transitioning
from a mining'based economy to a manufacturing'based one, which rendered Icheap labour no
longer cheap as producti,ity under an apartheid system suffered in the distincti,ely different
Word count
3eferences9 5)
*able and :igures9 &)
*otal word count e>cluding
references, tables and figures9 #5(&
manufacturing sector. "erhaps then, the only way that the failure could ha,e been pre,ented is if
SA had not made the transition but e,en this was ine,itable as common sense dictates that point'
source resources would e,entually be depleted and hence cannot be relied on to generate growth
indefinitely. 1ence, apartheid economic failure can be said to be ine,itable.
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