British Investment in Southern Africa¶
Charles Harvey (1974). British Investment in Southern Africa. Journal of Southern African Studies, Vol. 1, No. 1. Taylor & Francis.
| Type | journal article |
| Scope | Economics and economic history of apartheid |
| Method | mixed |
| Period studied | 1959–1973 |
| Regions | South Africa, Britain, Namibia |
| Themes | sanctions divestment, labour markets wages, business and state, mining migrant labour, macro fiscal finance debt, inequality poverty unemployment, unions strikes |
| Citation key | harvey1974 |
Argument¶
Harvey argues that the importance of British investment, to South Africa's growth and to Britain's own finances, has been greatly exaggerated, so withdrawal or a ban on new investment would do little economic damage to the apartheid state. The 1959-65 net capital outflow, during which the economy still grew rapidly, is his main evidence. He holds that pressure on British firms to raise black wages, promote black workers and avoid recruiting white immigrants is the more promising strategy. Higher wages need not cut employment, and some firms can afford them without losing profitability. The case rests on aggregate balance-of-payments figures, a small and self-selected sample of eleven firms interviewed in 1972-73, and secondary sources, notably Wilson.
Evidence and method¶
Aggregate balance-of-payments and investment figures, mostly in footnotes (Kane-Berman, Hobart Houghton, Reddaway et al. on UK profitability). Interviews and a prepared questionnaire with eleven British firms in London and South Africa, 1972-73, a sample the author calls small and biased. Secondary sources: Wilson on gold mine labour, Baldwin on the Northern Rhodesian copperbelt, Kilby on Nigeria, the Tomlinson Commission, SAIRR Survey of Race Relations 1972, and Guardian reports on the 1973 campaign.
Place in the debates¶
- Sanctions/disinvestment effectiveness: would withdrawal of British capital damage the South African economy? (see Sanctions, disinvestment and the anti-apartheid movement). Sceptical. Withdrawal would not harm the economy because real assets stay, exchange controls can block outflows, and the economy grew despite capital outflow in 1959-65. He favours pressing firms on wages, and personally favours reducing British investment for political reasons.
- Does foreign investment/economic growth erode apartheid ('growth will lead to change')? (see Liberal vs revisionist: was apartheid functional or dysfunctional for capitalist growth?). Doubtful. The belief that British firms are beneficial 'appears to have been largely unfounded', though he sees black employment as the area where change is most likely.
- Do higher black wages cause unemployment through capital substitution? (see Unemployment: causes, measurement and labour market institutions). Argues the effect is more complex than claimed. Higher wages can bring productivity gains, the wage bill share is small, and demand shifts can create jobs, so a strong case remains for higher minimum wages.
- Migrant labour and its costs to employers / use of foreign labour on the mines (see The mine migrant labour system: origins, recruitment, foreign labour and stabilisation). Follows Wilson that foreign recruitment let mine employers avoid raising wages and kept tighter control against unrest. He argues that industry has found ways to manage migrancy, which explains why business objects to it less than to colour-bar constraints.
Findings¶
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British investment's importance to South Africa is exaggerated. New foreign investment is a minor share of total investment and growth continued without it. (p. 2)
the absolute amount of net new foreign investment in South Africa has been higher than ever before, but it has been less than 20 per cent of total new investment.
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The 1959-65 episode of net capital outflow shows that the economy can withstand an investment strike. (p. 6)
The net outflow of investment capital in 1959-65 inclusive was R485m, yet the economy not only survived, it flourished.
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The profit flow to Britain from South Africa is small, so the capital value of British holdings is an illusion. (p. 3)
This is currently rather less than £100m a year, or 13 per cent of British earnings from all overseas investments, or just over 1 per cent
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The state could use exchange controls to block any withdrawal that threatened the economy, limiting the impact of divestment. (p. 4)
the government would simply use its powers under existing exchange control rules to prevent or slow down the flow of funds out of the country.
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Gold mine wage evidence: real black cash earnings stagnated while white earnings rose, undermining the low-productivity justification for low wages. (p. 10)
real black cash earnings were constant for nearly 60 years, while real white earings rose by 72 per cent
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Wage increases are cheap relative to turnover for the sample firms, so firms can afford them. (p. 9)
in the sample firms, the black wage bill was in all cases 15 per cent or less of turnover, in all but one firm it was less than 10 per cent
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British investment in South Africa was unusually profitable, and low perceived risk could allow firms to accept lower returns. (p. 13)
It is a well-established fact that British investment in South Africa is more profitable than any other major area of British investment.
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Foreign recruitment of mine labour was a device to avoid higher wages and control unrest (following Wilson). (p. 8)
foreign recruitment was a device for the gold mining employers to avoid having to pay higher wages in order to attract and keep South Africans
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The subsistence-farming defence of migrant wages fails because the reserves lack land. (p. 15)
in the South African context, there is not enough land. In the 1950s, the Tomlinson Commission estimated the population of the reserves as being twice its carrying capacity.
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Black promotion into white jobs offers productivity gains, and white labour shortage and management quality drive the shifting colour bar. (p. 20)
black promotion meant replacing the bottom end of the white labour force with the very best of the black.
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Early-1970s strikes signal growing black bargaining strength, since employers can no longer replace whole workforces. (p. 21)
it is no longer possible for employers to contemplate wholesale replacement of their labour force, as was possible until only a few years ago.
Evidence ledger¶
Sources used¶
| Source | Kind | Period | How used |
|---|---|---|---|
| Author's survey/interviews of eleven British firms in South Africa and London, 1972-73 | author survey or fieldwork | 1972-1973 | Underpins most claims on wages, mechanization, migrant labour, white labour supply, black promotion and profitability among British firms. |
| Interviews with other people in South Africa | interviews oral history | 1972-1973 | Supplementary background for the firm-level findings. |
| Guardian campaign and reports on British firms' wages, 1973 (25 April 1973; 14 March 1973; 16 April 1973) | newspapers periodicals | March-April 1973 | Shows the effect of publicity on wage increases and supplies the cement chairman's statement on subsistence farming. |
| Parliamentary Sub-Committee/Expenditure Committee evidence on wages of African workers employed by British firms (HMSO, 1973) | parliamentary debates | 1973 | Evidence that firms raised wages (April) after Guardian publicity and cited PDLs; the author did not systematically analyse it. |
| Productivity and Wages Association survey for UKSATA, quoted in Guardian, 14 March 1973 | author survey or fieldwork | 1973 | Evidence that firms' belief in their beneficial role is largely unfounded, flagged as of doubtful value. |
| Wilson, Labour in the South African Goldmines, 1911-69 (data on real white and black gold mine earnings, Table 5) | secondary literature compilation | 1911-1969 | Supports the claim that real black earnings were constant for about 60 years while white earnings rose, and that foreign recruitment avoided higher wages. |
| Reddaway et al., Effects of UK Direct Investment Overseas: Final Report (Cambridge, 1968), Table IV.5 | secondary literature compilation | 1955-1965 | Evidence that British investment in South Africa is more profitable than in other major areas. |
| Wilson, Migrant Labour in South Africa (SACC/SPRO-CAS, 1972) - Witsieshoek description, citing 1970 census and Tomlinson Commission | secondary literature compilation | 1950s-1972 | Illustrates that reserve land cannot support migrants' families, so cash wages are essential. |
| Tomlinson Commission report (as cited) | commission or official report | 1950s | Estimate that reserve population was twice carrying capacity, used to refute subsistence-farming claims. |
| South African Institute of Race Relations, A Survey of Race Relations in South Africa, 1972 | secondary literature compilation | 1972 | Source for household size and income, white unemployment, apprentice training and white union policy. |
| Quarterly Bulletin of Statistics, Table A10, December 1971 | official statistical series | 1969-1970 | Share of white immigrants coming from Britain. |
| Kane-Berman, 'The Rich get Richer', Reality, July 1972 (net capital inflow figures) | secondary literature compilation | 1965-1970 | Establishes foreign capital's small share of gross domestic investment. |
| ILO, Employment, incomes and inequality: Kenya (Geneva, 1972); Kilby, Nigeria; Baldwin, Northern Rhodesia | secondary literature compilation | 1920-1966 | Comparative evidence that higher wages can raise productivity and employment. |
New data¶
Interview-based survey of eleven British firms operating in South Africa (1972-73), using a prepared question set, covering wages, mechanization, migrant labour, white and black labour supply and profitability; self-described as small and biased.
Inference¶
Quantification: Illustrative figures.
Policy-oriented argument mixing aggregate balance-of-payments reasoning, the 1959-65 capital outflow as a quasi-natural experiment, and small-sample qualitative and descriptive evidence from eleven firm interviews, supplemented by other scholars' studies.
Key claims¶
| Claim | Basis | Strength |
|---|---|---|
| British investment matters less to South Africa and Britain than usually claimed; the economy grew rapidly despite net capital outflow in 1959-65. (p. 56) | Aggregate balance-of-payments figures and growth rates cited from secondary sources (Kane-Berman, Hobart Houghton); no primary series reproduced. | Partial data |
| Profit flows to Britain from South Africa are small relative to Britain's total overseas earnings. (p. 53) | Asserted aggregate figures without cited source. | Asserted |
| Higher black wages are affordable for firms because the black wage bill is a small share of turnover. (p. 59) | Interview sample of eleven firms' wage bill to turnover ratios. | Partial data |
| British investment in South Africa is more profitable than elsewhere, so higher wages need not deter investment. (p. 63) | Reddaway et al. profitability data plus seven of eleven sample firms reporting higher profitability. | Partial data |
| Migrant workers' families cannot subsist on reserve agriculture, so cash wages and the PDL are relevant. (p. 65) | Tomlinson Commission estimate and Wilson's impressionistic Witsieshoek description, plus a Guardian-quoted employer statement. | Illustrative or anecdotal |
| Black promotion into white jobs often reduces costs and raises productivity; barriers often reflect management attitudes. (p. 70) | Eleven-firm interviews; eight firms reported cost decreases; anecdotal dialogue and examples. | Illustrative or anecdotal |
| Foreign pressure (Guardian campaign, Parliamentary inquiry) produced wage increases by British firms. (p. 57) | Press and Parliamentary evidence on timing of April increases and firms' admissions. | Illustrative or anecdotal |
| Real black gold mine earnings were constant for about 60 years while white earnings rose, showing productivity gains are not shared. (p. 60) | Wilson's Table 5 on gold mine earnings. | Systematic data |
The author's caveats¶
The author calls the eleven-firm sample small and biased toward better-behaved firms, as some firms refused to co-operate. He had not studied the larger Parliamentary evidence, and the survey did not cover white wages or measure the degree of activity on recruitment or black promotion. Guardian-quoted postal surveys are described as of doubtful value because of partial response.
Gaps in the evidence¶
The argument needs systematic balance-of-payments and investment series (SARB data, UK Board of Trade investment statistics) rather than assertion, and firm-level wage, employment and profit data for a larger, unbiased sample. The Parliamentary Expenditure Committee evidence existed then and could have tested the sample's findings. Employment effects of wage increases (mechanization and productivity) are asserted by reasoning, not measured with industry or census data, which existed then.
Replicability: Data poorly documented.