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Did the Apartheid Economy 'Fail'?

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Terence Moll (1991). Did the Apartheid Economy 'Fail'?. Journal of Southern African Studies, Vol. 17, No. 2. Taylor & Francis.
Type journal article
Scope Economics and economic history of apartheid
Method descriptive quantitative
Period studied 1920–1985
Regions South Africa, comparative sample of 20 middle-income developing countries, East Asia, Latin America
Themes manufacturing industrial policy, business and state, macro fiscal finance debt, comparative theory, methods data sources, labour markets wages, transition post apartheid
Citation key moll1991b

Argument

Moll challenges the widespread claim, made across the political spectrum, that the apartheid economy grew 'exceptionally rapidly' until the 1970s. He defines 'failure' as growth somewhat below potential and tests it against four criteria. These are growth before and after 1948, comparative output growth, response to world demand (manufactured exports), and productivity growth (TFP). South Africa meets none of them, so the apartheid economy grew 'curiously slowly' despite very favourable resources and a boom in the world economy. He attributes this partly to the apartheid superstructure and partly to ill-directed state policy, notably inefficient import substitution and neglect of exports. He concludes that the aggregate evidence supports the liberal critique over the radical 'cheap labour' case, but that this does not imply that free markets are preferable.

Evidence and method

Real GDP series 1920-85, both conventional and 'gold-recalculated' (gold-bearing ore milled). Sources include Du Plessis, South African Statistics, World Bank World Tables, Summers and Heston ICP data for selecting a 20-country comparison group, UNCTAD trade statistics, and Maddison's TFP data for comparators. SA TFP figures are drawn from his Cambridge PhD thesis (1990). Secondary literature on the capital goods sector (Kaplan) and on policy.

Place in the debates

Findings

  • After allowing for the world boom, growth after 1948 shows no surge relative to earlier periods. (p. 7)

    Allowing for exogenous factors, then, there is certainly no sign of an economic surge after 1948 - if anything, quite the contrary.

  • South Africa's growth record within a comparison group of 20 middle-income developing countries was consistently mediocre. (p. 10)

    It can thus be concluded that South Africa's overall growth-record is consistently mediocre within this group of countries.

  • South Africa's share of world manufactured exports more than halved between 1955 and 1985, so it did not benefit from the post-war export boom. (p. 12)

    South Africa's share of world manufactured exports fell by more than half between 1955 and 1985, from 0.8 per cent to 0.3 per cent.

  • State industrial policy favoured inefficient import substitution, with distinctively apartheid features, rather than exports. (p. 14)

    But economic policy in South Africa was directed instead towards an inefficient import-substitution industrial model in the 1950s and 1960s, with local touches due to the apartheid system.

  • Fear of black proletarianisation and resistance, along with white worker interests, may have discouraged an export strategy. (p. 16)

    It is not impossible to suspect that such a spectre discouraged active industrial exports policies in South Africa.

  • TFP growth in 1950-73 was the lowest in the comparison group. (p. 17)

    In the earlier period, South Africa's near-zero productivity growth is the lowest shown

  • A counterfactual shows the scale of lost output: Brazil's TFP growth would have made the economy 50 per cent larger by 1973. (p. 19)

    Had South Africa achieved the same - unexceptional - rate of TFP growth as Brazil over the 1950-73 period, for example, its GDP growth-rate would have been 1.9 per cent per annum higher, and by 1973 the economy would have been 50 per cent larger.

  • Taken together, output, export and productivity indicators make a strong case for failure. (p. 20)

    South Africa's comparative output-growth record is poor, and its record in terms of the growth of manufactured exports and total factor productivity verges on the disastrous.

  • Reframes the 1980s 'crisis' as the visible end of a long slump since the 1940s, masked by the resource endowment. (p. 21)

    rather than moving into a slump or crisis in the 1980s, as is often argued, the South African economy has suffered from a prolonged economic slump since the 1940s

  • Supports the liberal critique and questions the cheap-labour thesis, since labour controls protected inefficient firms. (p. 21)

    The aggregate evidence discussed above appears to support the liberal critique of apartheid, implying that the finding by various researchers that the apartheid system hampered efficient resource allocation and prevented firms from making full use of black workers

  • The lesson for post-apartheid policy concerns the quality of state intervention, not its presence or absence. (p. 22)

    it is not simply the fact of state intervention in South Africa, but its quality and intentions, that should be questioned.

Evidence ledger

Sources used

Source Kind Period How used
Du Plessis (Du Piesanie), 'Die Bepaling en die Gebruik van Kapitaalopbrengsverhoudings' (M.A. thesis, Pretoria, 1968), chapter 4 – real GDP 1920-48 at 1958 prices secondary literature compilation 1920-1948 Supplies the pre-1948 real GDP series used to compare growth before and after 1948 in Table 1.
South African Statistics 1976 and South African Statistics 1982, p. 21.7 (real GDP 1948-69 at 1963 prices; 1969-74 at 1975 prices) official statistical series 1948-1974 Provides the conventional official real GDP series for the post-1948 period in Table 1 and the base for South African growth rates in Table 2.
Chamber of Mines of South Africa, 1988 Statistical Tables (Johannesburg, 1989), p. 12S – gold-bearing ore milled chamber of mines or recruiting records c.1920-1985 Tons of ore milled is used to recalculate real gold-sector output and hence the 'recalculated' GDP growth rates.
Summers and Heston, 'Improved international comparisons of real product and its composition: 1950-1980' (UN International Comparison Project data) international trade or finance data 1960 base year (1950-1980 series) Population and per capita real GDP in 1975 international prices select the 20 comparator middle-income countries.
World Bank, World Tables 1976, 1983, 1987 (Economic Data Sheets / country tables) international trade or finance data 1950-1985 Source of national real GDP growth rates used to rank South Africa among comparator countries by decade.
World Bank, World Development Report 1980 (Washington, 1980), p. 111 international trade or finance data 1980 Used to justify excluding Iran and Iraq as capital-surplus oil exporters from the comparator sample.
Chung-In Moon, 'The future of the Newly Industrialising Countries', Table 7.2 secondary literature compilation 1960s-1970s Provides NIC growth rates (7.6% in 1960s, ~8% in 1970s) compared with South Africa's.
UNCTAD, Handbook of International Trade and Development Statistics 1976, 1983, 1988 (Tables 4.1, A6, A9, A10) international trade or finance data 1955-1985 Source for South Africa's share of world and developing-country manufactured exports (SITC 6-9 less 67, 68) in Table 3.
Report of the Commission of Enquiry into the Export Trade of the Republic of South Africa (Reynders Commission, RP69/72) commission or official report 1972 Quoted to show foreign-exchange shortage constrained growth, requiring either lower growth or more exports.
Social and Economic Planning Council, Economic Aspects of the Gold Mining Industry (Report II, UG32/48) commission or official report 1948 Cited for the contemporary view that devaluation would be inflationary and ineffective.
Angus Maddison, The World Economy in the 20th Century (Paris, 1989), pp. 81, 91 – TFP, GDP, employment, capital stock for comparator countries secondary literature compilation 1950-1984 Supplies growth-accounting figures for other countries against which South Africa's TFP growth is compared in Table 4.
Moll, 'Output and Productivity Trends in South Africa: Apartheid and Economic Growth' (PhD thesis, Cambridge, 1990) author survey or fieldwork 1920-1985 Underlies the recalculated GDP, TFP estimates, sectoral employment shares and elasticity estimates; the article is a summary of chapters 4-6.
Population Censuses (South Africa), educational stock numbers, 1960-85; 1951 Population Census population census 1951; 1960-1985 Used as a cross-check on education-based labour quality estimates for TFP; the 1951 census lacked comparable data on black education.
Kaplan, 'The South African capital goods sector' (1989) and 'Limited development of the South African machine tool industry' (1987) secondary literature compilation 1980s Relied on for the claim that capital goods export performance and technological capability were poor.

New data

Author's recalculated South African GDP series (gold output measured by ore milled), TFP growth-accounting estimates for 1950-84, and sectoral employment shares, built in his PhD thesis; only summarised in the article and available on request.

Inference

Quantification: Descriptive tables.

Comparative growth accounting and benchmarking: South Africa's GDP growth is compared across pre/post-1948 periods, ranked against 20 middle-income developing countries, and its manufactured export shares and TFP growth are compared with other countries. Policy explanations (import substitution, quotas, political interests) rest on secondary literature and reasoning rather than tested data.

Key claims

Claim Basis Strength
Real GDP growth after 1948 was not faster than before; with the recalculated gold indicator there is virtually no difference, despite the post-war world boom. (p. 275) Table 1: Du Plessis thesis series, South African Statistics 1976/1982, and Chamber of Mines ore-milled series for the recalculation. Partial data
South Africa's output growth was mediocre relative to 20 comparable middle-income developing countries (tie 13th, or 12th, over 1950-85). (p. 279) Table 2: World Bank World Tables growth rates for countries selected using Summers-Heston 1960 population and income data. Systematic data
South Africa's share of world and developing-country manufactured exports fell steadily from 1955 to 1985, indicating failure to exploit external demand. (p. 281) Table 3: UNCTAD Handbook of International Trade and Development Statistics, SITC 6-9 less 67 and 68. Systematic data
South Africa's total factor productivity growth in 1950-73 was near zero, the lowest among the comparator developing countries. (p. 286) Table 4: author's TFP estimates from his thesis compared with Maddison's figures for other countries. Partial data
Slow export growth was due to domestic supply-side and policy factors (inefficient import substitution, protection, quotas), not external demand. (p. 283) Elasticity estimates in the author's thesis, the Reynders Commission, and secondary literature (Fransman, McCarthy, Lachman); no direct quantification in the article. Illustrative or anecdotal
Apartheid labour controls and political interest-group pressures (white workers, protected manufacturers) help explain the failure to adopt an export strategy. (p. 285) Sectoral employment shares from the author's thesis, plus secondary works (Lipton, Terreblanche, Jones) and Stolper-Samuelson reasoning. Asserted
South Africa's technological capability and capital goods sector were weak, with low local innovation and poor capital goods exports. (p. 289) Kaplan's studies of the capital goods sector and Nattrass and Brown. Illustrative or anecdotal

The author's caveats

The author notes the GDP numbers are questionable (1950s-60s 'rather shaky', 1930s-40s 'estimates rather than measures'), that GDP cross-country comparisons are hazardous, that Table 3 export data are affected by a large unclassifiables item, that the TFP approach is dubious, that Latin American TFP figures need adjustment, and that comparable education data could not be located. Methodological details and statistics are 'provided on request'.

Gaps in the evidence

The causal story linking apartheid or specific policies to slow growth is not tested with firm-, sector- or policy-level data (tariff and quota incidence, export subsidies, rent-seeking). Evidence on technological adoption and the political-economy of interest groups is thin and rests on secondary sources and assertion. Archival records on trade and industrial policy, firm-level surveys of manufacturing, and disaggregated censuses of manufacturing existed and could test these mechanisms; the author's recalculated series and TFP inputs are not fully published here.

Replicability: Data described but not public.