Federalism and the Democratic Transition: Lessons from South Africa¶
Robert P. Inman; Daniel L. Rubinfeld (2005). Federalism and the Democratic Transition: Lessons from South Africa. American Economic Review (Papers and Proceedings), 95(2), session 'The Democratic Transition and Economic Growth'. American Economic Association.
| Type | journal article |
| Scope | Economics and economic history of apartheid |
| Method | theoretical or conceptual |
| Period studied | 1990–1996 |
| Regions | South Africa, Western Cape, Northern Cape, KwaZulu-Natal, nine provinces |
| Themes | transition post apartheid, macro fiscal finance debt, politics ideology elections, comparative theory, business and state |
| Citation key | inman2005 |
Argument¶
The authors argue that a federal constitution with elected provincial governments holding real fiscal powers was essential to South Africa's democratic transition. They model the NP elite as ranking federal democracy above autocracy and autocracy above unitary democracy, which blocks the transition unless the ANC majority also prefers federalism to a unitary state. Four constraints make federalism credible: a long-run tax rate below the revenue-maximising rate, a minimum grant for the majority, a credible elite punishment strategy (full fungibility of grants in the elite province), and a suitable size for the elite province. When these hold, annual fiscal politics is a repeated prisoner's dilemma that sustains cooperation. The 1993 interim constitution, the nine provinces and the Financial and Fiscal Commission's grant recommendations are presented as meeting these conditions, though only just.
Evidence and method¶
A formal game-theoretic model of elite and majority preferences, tax rates and social-service grants. The empirical material is the authors' own experience as advisers to the Financial and Fiscal Commission (1994-2000), Waldmeir's 1997 account of the negotiations, the FFC's 1995 recommendations, and Muthien and Khosa (1998) on provincial demarcation. Calibrated figures for the grant are given in rand.
Place in the debates¶
- Why the apartheid elite agreed to a democratic transition (elite incentives and constitutional bargaining) (see Why apartheid ended: reform, transition and elite bargaining). The elite would only concede if protected against a unitary, majority-dominated state. Credible provincial fiscal powers and the threat of local punishment gave that protection, making the settlement self-enforcing.
- Efficiency-based fiscal federalism (Tiebout-Musgrave-Oates) versus transition principles (see Post-apartheid economic policy, governance and corruption). The transition requires central financing of local services and decentralised spending on redistributive services. This reverses the usual efficiency principles, which apply only to the later 'second-order' agenda of growth and efficiency.
- Negotiated settlement: decline of military and sanctions pressure versus constitutional design (see Why apartheid ended: reform, transition and elite bargaining). Constitutional and fiscal design, not only external pressure or insurgency, made the elite's consent credible. ANC leaders saw continued military resistance as too costly.
Evidence ledger¶
Inference¶
Quantification: Illustrative figures.
Primarily a formal game-theoretic model (repeated prisoner's dilemma with grim-trigger strategies) of an elite and a majority choosing between autocracy, unitary and federal democracy. The model is applied to South Africa as a single illustrative case study, with a few calibrated numbers (grant per resident, revenue-maximizing grant) checked against model inequalities. No statistical tests.
The author's caveats¶
The authors note that the quantitative derivation of the grant bounds is in an expanded version still in process, and that the model omits tax inefficiency effects on elite productivity. They also acknowledge that the compact is only a statutory arrangement, fragilely positioned and not enforceable by a constitutional court.
Gaps in the evidence¶
The argument needs the actual FFC documents, negotiation minutes and provincial revenue and expenditure data to test whether the grant levels and boundary choices matched the model's constraints. It also needs comparison with transitions that lacked federalism and some measure of elite exit propensity and tax elasticity, which the model assumes (N(τ) decreasing) without estimating. The FFC reports, the 1994 election returns and national fiscal data existed then and are accessible now. The elite's and ANC's preference rankings could also be tested against negotiating archives and interviews.
Replicability: Data poorly documented.