Proposed Thesis Topic – Essays on the Relationship between Foreign Direct Investment (FDI) and Economic Development: With reference to the Financial History of South Africa 1910-2010¶
Mazanderani, Ali (2012). Proposed Thesis Topic – Essays on the Relationship between Foreign Direct Investment (FDI) and Economic Development: With reference to the Financial History of South Africa 1910-2010. EH590 workshop paper, 17 October 2012.
| Type | working paper |
| Scope | Economics and economic history of apartheid |
| Method | synthesis review |
| Period studied | 1910–2010 |
| Regions | South Africa, Britain |
| Themes | business and state, macro fiscal finance debt, mining migrant labour, methods data sources, comparative theory |
| Citation key | mazanderani2012 |
Argument¶
This is a thesis proposal plus a draft chapter outline. It argues that FDI in South Africa was broadly, but not unambiguously, positive for development in each of five historical periods. FDI also acted through an underrated channel, direct influence on public policy. In the 1910-1932 chapter, British imperial banks lobbied to keep South Africa off gold after WWI. Mining houses first backed the gold standard, then switched once they saw that leaving it would raise the gold price by more than it raised their costs. The pressure from mines and banks, not economic necessity, is said to have forced the government off gold in 1932 and to have opened a decade of strong growth. The proposal also surveys the economic, banking and company literature and finds financial history neglected.
Evidence and method¶
Mostly a historiographical survey of economic histories, banking and Reserve Bank histories, company histories and biographies. The draft chapter relies on secondary and published sources: Arndt, De Kock, Schumann, Frankel, SARB annual addresses and the Gregory and Lumby figures. No new archival or quantitative work is presented in the text provided.
Place in the debates¶
- Liberal vs radical (revisionist) paradigms in South African economic historiography (see Liberal vs revisionist: was apartheid functional or dysfunctional for capitalist growth?). Notes (via Iliffe) that these paradigms have dominated and paralysed the debate. Argues that both neglected finance and focused on labour and gold, and positions the thesis as filling that gap.
- FDI and economic growth: causality and desirability (see Finance, capital flight, the 1985 debt crisis and banking). Accepts the presumptive consensus that FDI is good for growth but stresses the lack of consensus on causality. Proposes a historical case study as an alternative to cross-country regression work.
- Why South Africa left the gold standard in 1932 and the role of capital (see Finance, capital flight, the 1985 debt crisis and banking). Contends that lobbying by imperial banks and then the mining houses, rather than external necessity, drove both the post-WWI inconvertibility and the 1932 departure.
Findings¶
-
The proposal's overall thesis: FDI's impact was distinct in each of five periods and broadly positive, though not unambiguously so. (p. 3)
Within each of these periods the impact of FDI, both in terms of linkages and outcome was distinct, and broadly, but not unambiguously, positive.
-
The author sees a gap in the literature: no comprehensive financial history of South Africa exists. (p. 2)
No comprehensive financial history of South Africa has been published.
-
Finance and the real economy have received little joint attention outside mining. (p. 2)
Except where it explicitly related to the mining industry, limited attention has been paid to the interplay of financial and economic developments.
-
South Africa's weight in the world gold market in the 1920s gave its gold-standard decisions international significance. (p. 4)
Africa was producing around half the world’s newly mined gold it contributed, between 1925-1930, around 63% of gold imports to London, the world’s largest gold market
-
Imperial bank lobbying produced the 1920 Currency and Banking Act, which made notes inconvertible and disregarded the Gold Conference's recommendations. (p. 5)
They got their wish when the Currency and Banking Act of 1920 was passed, directly due to their lobbying.
-
After Britain left gold in 1931, capital flight out of the Union pound drained Reserve Bank sterling assets and tightened domestic credit. Banks estimated U£13-14m left between September 1931 and February 1932. (p. 6)
Union-pounds were transferred into sterling on the assumption that either Britain would return to gold or that South Africa would abandon gold and tie up with sterling.
-
The coalition for leaving gold included banks, exporters and the Chamber of Mines, against the government and Reserve Bank. (p. 7)
The opposing camp constituted the banks, exporters and the Chamber of Mines (Franzen, 1983:95).
-
The post-departure rise in the gold price is credited with the subsequent prosperity. (p. 7)
the jump in the gold price from 85s to 120s per fine ounce following departure from the Gold Standard is generally accepted as being responsible for the subsequent years of prosperity
-
The author's central contention is that mining and banking capital, not necessity, forced South Africa off gold. (p. 7)
I contend that ultimately it was the public pressure instigated by the mines and banks (not necessity as in the case of the UK) which led to South Africa ultimately abandoning the gold standard.
Evidence ledger¶
Sources used¶
| Source | Kind | Period | How used |
|---|---|---|---|
| South African Reserve Bank, Governor's Annual Address at the Ordinary Meeting of Stockholders (annual series from 1921; 1922 and 1925 addresses cited) | official statistical series | 1921 onward (1922, 1925 cited) | Evidence on the banks' losses from gold-coin arbitrage and on contemporary official opinion about the gold standard. |
| SARB 1922 annual address, p. 6 (bank losses on gold coin purchases) | official statistical series | 1922 | Supports the claim that the banks lost heavily buying gold coin from Britain to ship and resell in South Africa. |
| SARB 1925 annual address, p. 16 (quoted view on the gold standard) | official statistical series | 1925 | Quoted to show that official opinion held gold's value depended on the gold standard. |
| Currency and Banking Act of 1920 | legislation gazette | 1920 | Shows the legal step making notes inconvertible and creating the Reserve Bank, attributed to bank lobbying. |
| Mint Act 1919 | legislation gazette | 1919 | Cited (via Ally 1994) for the establishment of the Pretoria Mint. |
| Gold Conference, October 1919 (recommendations) | commission or official report | 1919 | Establishes that the official recommendation was for a free gold market, a mint and a refinery, which the 1920 Act then disregarded. |
| Currency Conference, October 1921 | commission or official report | 1921 | Shows that support for gold remained strong, yet inconvertibility was extended to 1925 at the request of the banks and mining houses. |
| Kemmerer-Vissering Report | commission or official report | c. 1924-25 | Cited as a probable reason why the government chose to remain on gold in 1931. |
| Select Committee on the Gold Standard (estimate of capital flight) | parliamentary debates | 1932 | Gives a lower estimate of capital flight than the press and the banks. |
| Commercial banks' estimate of capital transfers Sept 1931-Feb 1932 (via De Kock 1954) | secondary literature compilation | Sept 1931 - Feb 1932 | Quantifies capital flight that drained Reserve Bank sterling assets and eroded support for remaining on gold. |
| Gregory (1931) data on South African gold shipments to London | secondary literature compilation | 1925-1930 | Shows the international importance of South African gold, motivating the case. |
| Officer (1987 & 1993) estimates of gold points | secondary literature compilation | gold-standard era | Provides the transaction-cost band for gold-point arbitrage in the explanation of exchange-rate behaviour. |
| De Jongh (1947) money supply composition | secondary literature compilation | early 1930s | Used to argue that gold hoarding was too small a threat to force South Africa off gold. |
| Lumby (1983) on the gold price rise after leaving the standard | secondary literature compilation | 1932 onward | Supports the claim that the rise in the gold price drove the subsequent prosperity. |
| South African Journal of Economics, early issues (1932-33 debate articles) | newspapers periodicals | 1932-1933 | Used to show how central the gold standard debate was in contemporary economic writing. |
| Company histories of the Big Four banks and other firms with foreign interest (e.g. Barclays DCO, Standard Bank, Anglo American) | company records or reports | 1914-2000 | Identified as planned source material for the thesis on foreign-owned banks and firms; not yet used for specific claims. |
| Biographies, autobiographies and correspondence of key decision makers | other | 1910-2010 | Planned qualitative material to give narrative context for the data. |
Inference¶
Quantification: Illustrative figures.
Historical case study and narrative process-tracing of the 1919-1932 gold standard debate. Corporate and policy interests are inferred from contemporary secondary accounts and official publications; there is no systematic test, and the broader thesis rests on a periodised narrative alongside the FDI-growth literature.
Key claims¶
| Claim | Basis | Strength |
|---|---|---|
| South Africa stayed off gold after WW1 until 1925 mainly because of incentives and pressure from the Imperial (British) banks. (p. 4) | Arndt, SARB 1922 address, the Currency and Banking Act 1920 and the Gold and Currency Conferences, read as showing bank lobbying; no direct lobbying records are cited. | Partial data |
| Mining houses first backed gold, then reversed once they saw the gain from leaving it, and thereby precipitated SA's exit from the gold standard. (p. 4) | Franzen (1983) and De Kock (1954) on the Chamber of Mines' shift; no Chamber minutes or company records are used. | Illustrative or anecdotal |
| The Currency and Banking Act of 1920 and the inconvertibility of notes resulted directly from bank lobbying, overriding the Gold Conference recommendations. (p. 5) | Arndt (1928), the Act, the Gold Conference and the Strakosch proposals, as described in secondary sources. | Partial data |
| Staying on gold in 1931-32 caused substantial capital flight, depleting Reserve Bank sterling assets and tightening domestic credit. (p. 6) | Commercial banks' estimate of U£13-14m (De Kock 1954) versus a Select Committee estimate of U£9-10m and press estimates up to U£30m. | Partial data |
| Leaving gold raised the gold price from 85s to 120s per ounce and produced a decade of strong growth. (p. 7) | Price figures and the claim of general acceptance come from Lumby (1983); no national accounts or growth series are presented. | Illustrative or anecdotal |
| SA was not forced off gold by necessity (no exchange, current account or banking problem) but by pressure from mining and banking capital. (p. 7) | Inference from the absence of macroeconomic distress, a single coin-share figure (De Jongh 1947) and secondary accounts of lobbying. | Asserted |
| Across the five periods 1910-2010, FDI's impact on South African development was distinct in each period and broadly, though not unambiguously, positive. (p. 3) | No evidence presented in this proposal; this is the author's programmatic expectation. | Asserted |
The author's caveats¶
No caveats about the evidence are stated. The only acknowledgement is that estimates of capital flight differ: the banks put it at U£13-14m, the press up to U£30m and the Select Committee at U£9-10m (footnote 9).
Gaps in the evidence¶
The argument that foreign banks and mining houses drove monetary policy needs direct evidence of lobbying, such as Chamber of Mines and bank board minutes, Treasury and Reserve Bank files, and Hansard debates; these exist in archives but are not cited. Claims about growth and FDI outcomes need quantitative series such as FDI stocks and flows, balance of payments and national accounts. Those series are available for the period (e.g. Frankel, Feinstein) but are not used. A counterfactual or comparative analysis with other gold producers or Dominions is also missing.
Replicability: Data poorly documented.