South Africa's Economic Growth in the Post-War Era PDF

Chapter 8: Forcing the pace – rapid progress despite constraints Introduction The developments of mining, manufacturing and agriculture The period of rapid growth The great speed of the economy, especially in the 1960s The economy crashes at hitting the barriers Change was inevitable Three more windfalls of the gold mines Gold mining during the initial post-war decades New reefs discovered in the Transvaal and the Orange Free State The devaluation by the UK and SA in 1949 – raised the price of gold by over 40% By 1955 millions had been spent on the development of the Orange Free State goldfield. Anglo American becomes a dominant mining house in the entire country Three more windfalls of the gold mines Cont. The workforce and wages The ratio of black to white miners – skilled workers were in short supply Wages of black labour were held down The new mines make advances in the mechanization of their operations Labour productivity remains completely flat However, in the early 1960s there was a break in the previous (static) performance. Three more windfalls of the gold mines Cont. Some changes took place: From 1967 white unions agreed to allow certain changes which included: an African ‘boss-boy’ to inspect the workplace; Africans were now allowed to handle explosives and drive underground vehicles The formal colour bar was becoming more flexible The average grade of ore was higher in both the Orange Free State reefs & those on the Far West Rand (than in the older Witwatersrand mines) At this stage -companies increased the output of gold by 175 %, while the tonnage of ore milled increased by only 48% Three more windfalls of the gold mines Cont. What this meant for the industry: Favorable developments Working revenues outpaced working costs Between 1949 and 1970, working profits per ton milled increased almost threefold Mining corporations receive another large windfall The demand for uranium becomes urgent particularly during the 2nd World War Three more windfalls of the gold mines Cont. The first pilot plant to produce uranium concentrate came into operation in 1947 & a full plant was completed in 1952 Further benefits of the construction of these large plants for the recovery of uranium South Africa’s diamond industry was in profitable position in the early post- war period The volume of diamonds produced by SA increased approx. fourfold between 1950 & 1970 Manufacturing: the unprecedented boom The foundation had been laid for the development of a mature, well- capitalised, industrial sector From the end of WWII to the early 1970s were a time of spectacular growth, structural change and modernisation SA was well endowed with capital and entrepreneurship, and there was an elastic supply of labour – industrial workforce would be increased without driving up its costs South Africa could take advantage of the ‘opportunities of backwardness’ after the Great Depression They could borrow from leading industrial nations They acquired the most advanced physical equipment and machinery and the most up-to-date scientific knowledge and technical expertise Manufacturing: the unprecedented boom The large orders of capital equipment and industrials stores from the new mines were crucial contributions made to the industrial transformation in the 50s and 60s Anglo American was at the forefront of massive programmes of investment and expansion in industry They had capital, managerial and technical resource at their disposal – operate on huge scale Investments by overseas multinationals was valuable as an additional source of both capital and foreign exchange Manufacturing: the unprecedented boom Across a range of manufacturing industries, companies in the Anglo America group built large, capital-intensive plants Metals, heavy engineering, chemicals, fibre and textiles, brewing, grain milling and paper making Highveld Steel and Vanadium was Anglo American’s largest industrial undertakings in the 1960s The expansion of the financial sector The growth of the industry was also assisted by the expansion of the financial sector. From the 1860s the small, local ‘unit’ banks (in the Cape Colony) were reinforced by larger ‘imperial’ banks linked to London This was followed by many mergers, leading ultimately to a position in which banking was totally dominated by 2 concerns: the Standard Bank of SA & Barclays Bank (Dominion, Colonial and Overseas). The (JSE ) was founded in 1887 immediately following the gold discoveries on the Witwatersrand In the 1940s the SA Reserve Bank was keen to promote the growth of a money market The National Finance Corporation was established in 1949 The expansion of the financial sector Cont. The National Finance Corporation was established in 1949 A number of private discount houses & merchant banks were established Short-term liquidity was increased The development of financial institutions was a primary factor in the rise of Afrikaner capital At the beginning of the post-war period Afrikaners produced well over 80% of all marketed farm output The proportion of turnover sold by Afrikaner firms in 1948/9 was only 1% in mining & only 6 % in both manufacturing & finance in commerce it was slightly larger, at 25% but the majority of these businesses were small one-man family businesses/ co- operatives (formed to purchase agricultural supplies & market farm produce) The only exceptions were (National Press) & 2 financial institutions: Sanlam and Volkskas The expansion of the financial sector cont. In 1948 Afrikaner business was transformed by election of the National party Gov bodies & local authorities transferred their accounts & deposits to Volkskas & other Afrikaner institutions, - while public corporations & gov agencies awarded contracts to Afrikaner companies for the Supply of material & equipment. A further boost followed during the early 1960s The expansion of the financial sector cont. A 3rd major group that emerged (after the remarkable growth in the early post-war decades) was the Rembrandt Corporation, led by Anton Rupert By the 1970s it had become a massive tobacco multinational as well as a financial & industrial company The main Afrikaner expansion into mining took place in 1963 The share of turnover in Afrikaans ownership had declined in the commercial sector to 16%. By the 1970s the positions of farmers and small business- people and traders within the National Party was markedly weaker than it had been in the early years of apartheid State-directed industrialization The National Party gov elected in 1948 maintained the policy of support for industrialization & tariff protection The system of protection also encouraged a high level of FDI (foreign direct investment) to establish/ expand production facilities in SA (as this was often the only way in which overseas companies could maintain their position in the local market) As a signatory in 1947 to the General Agreement on Tariffs & Trade (GATT) – the body established by the international community to promote free trade, esp. in manufactures Quantitative controls on imports were first introduced in 1948 in response to a large BOP deficit State-directed industrialization Cont. Only a small range of goods (raw materials such as petrol, oil) could be imported without a permit Imports of raw materials & capital goods were given priority over consumer goods Importers of goods (subject to licensing) were informed that no permits would be issued until it had been established that it was not possible to obtain similar materials (or satisfactory substitutes) from SA suppliers. SAPPI (South African Pulp and Paper Industries Ltd) illustrates this procedure very clearly State-directed industrialization cont. Looking at the motor vehicle industry : The 1st vehicles sold to SA were imported fully assembled Ford & General Motors established local assembly plants At the end of the 1950s the proportion (by weight) of components produced within the country was still only 17% The policy was designed to ensure that assembly plants increased the local content of their vehicles. Looking at phase II & III of the programme: Phase II of the programme was initiated in 1964 Phase III, (announced in 1969) required the proportion of local content to be raised to 66 % by 1976 by 1965, 5 companies were producing 15 models with the ‘made in South Africa’ label More direct state intervention in the economy was also maintained, mainly through the (IDC) State-directed industrialization cont. By 1973, the IDC had a portfolio of assets worth R484 million & had made funds available for further expansion of the iron & steel corporation, ISCOR & for the creation in the 1950s of the Phosphate Development Corporation (FOSKOR) to produce superphosphates for agricultural fertilizers 1 of its most important projects was its support for the SAfrican Coal, Oil & Gas Corporation (SASOL) -a major new public corporation formed in 1950 -to convert coal into gas, & then gas into petrol, Diesel & other liquid products Trends in employment, output and productivity Employment in the private manufacturing sector increase from 440 000 in 1948 to 1 160 00 in 1971 In construction, electricity, gas and water supply 520 000 If the approximate 1 700 000 employed in the secondary sector ¾ were black mostly African Expenditure on buildings, plants and machinery resulted in fixed capital per worker more than doubling between 1948 and 1974 This increase was partly due to the substitution of capital for labour in many industries Weaknesses and constraints – the limits to growth In this period of dynamic growth, significant weaknesses and constraints were evident in the industrial sectors Low levels of efficiency of a large part of the workforce The major problem was a growing shortage of skilled labour The BoP problems arose from a combination of short-term cyclical crises and long- term structural disequilibrium A more serious crisis erupted in 1960 and continued until 1963 when capital streamed out of the country – loss of confidence from overseas investors 1961 formation of the Republic “Blocked Rand” – stopped South African residents from remitting funds abroad and non-residents from repatriating the proceeds of sales of local securities Weaknesses and constraints – the limits to growth cont. The more fundamental issue of long-term disequilibrium was created by difficulties in relation to both imports and exports Imports – demand for overseas manufactures remained high despite the policy of import substitution Exports – methods of production sucked in semi-manufactures and capital goods from abroad which did not generate compensating sales of South African manufactures in foreign markets Export performance was generally poor – low productivity meant that we could not compete in the world market The general quality of labour at any given skill level remained to low for a country seeking to compete in the international economy Skilled labour remained almost exclusively a white preserve until the late 1960s Weaknesses and constraints – the limits to growth cont. The only way in which SA could sustain its momentum would be to develop a new export-orientated strategy for manufacturing From the 1960s, numerous government commissions and committees proclaimed the necessity for such a change 1972 the Reynders Commission endorsed the view that ‘import replacement cannot be relied upon to maintain or regain its dominant position as the prime mover of a high rate of economic development…’ A revolution finally comes to commercial agriculture Although output increase in the 1950s and 1960s there was virtually no improvement in farming efficiency From the mid 1960s the sector made advances in its use of resources and good progress continued during the 1970s There was a steady decline in the number of farming units in the commercial sector Average farm size increased by over 40% Subsistence farming showed no improvements Resettlement policies conducted in the 1960s and 70s forced millions of black people off farms and out of towns, making reserves more overcrowded and under-resourced Income from agricultural production provided only a small and diminishing part of household income Poverty stricken rural communities were increasingly dependent on remittance from migrant workers A revolution finally comes to commercial agriculture cont. At the beginning of the post-war period the demand for farm labour was still increasing Thereafter the trend was downward and by the 1980s the regular labour force had fallen below its initial level in 1947 the number of seasonal and casual workers employed fell even more steeply By the 1960s urban employers began to raise wages and improve working conditions for black workers in manufacturing and this forces farmers to recognize the need for better remuneration. Between the mid 1960s and mid 1970s real farm wages in the Transvaal and Orange Free State more than doubled A revolution finally comes to commercial agriculture cont. The combination of rising output and a regular labour force meant that there was a substantial increase in output for each worker the largest contribution to the improved performance came from increased production of cereals, advances on wine farms in the Western Cape, Natal sugar plantations and fruit farms in the eastern Transvaal Maize production increased from 3 million acres after the war to 5,5 million acres by the early 1970s Output of wool, meat and dairy products showed less progress The crucial element behind both the rise in labour productivity and the increased outlays on non-farm inputs was the rapid increase in the use of capital assets Farmers were encouraged to invest heavily in machinery and equipment Although the overall performance was much better, we were still performing poorly by international standards mandela.ac.za CHAPTER 9 Hitting the barriers: from triumph to disaster Introduction After the development of the diamond fields of Kimberley (early 1870s) the South African economy achieved 100 years of successful economic growth. The country started completely dependent on the agricultural sector, and transformed into a modern, capital-intensive economy. From the 1920s - 1970s the industrial sector was expanding. High profits & abundant foreign exchange as there was an unlimited international demand for gold. There was then a dramatic structural break & the economy switched from progress to decline From growth and stability to stagnation and inflation From 1948 to 1973 there was a phase of growth and stability Then a period of stagnation & inflation from 1973 to 1994 – resulting in a decline in real output per head, slowdown in the rate of growth of output, employment, labour productivity & exports. Other signs of crisis included: - stagnation in real gross fixed capital formation, - diminishing output per unit of capital, - rising unemployment, - rapid inflation, - a steep depreciation in the exchange rate - Persistent BOP problem Three main economic explanations are suggested for the deterioration. 1. First, the position of the gold mines was transformed by changes in both domestic supply & foreign demand. – Costs of production rose rapidly & gold lost its special position for the international monetary system. 2. Second, there were many adverse external economic & political changes. – From the 1970s, world output & trade declined – Increased inflationary pressures in SA – rising demand for gold & other natural resources drove up the exchange rate, making it more difficult for manufacturers to export. – international hostility to apartheid became stronger – loss of confidence in the country for financial & political stability – huge outflow of capital. 3. The final cause was the low levels of efficiency & high costs of production in the industrial sector. The more the economy became dependent on industry for further growth, the greater the harmful impact of this low competitive capability. These economic factors added to political discontent & militant activity by African people (in mines & factories, townships, schools, farms & Villages). This failure of the economy persuaded the President, de Klerk, to make the dramatic change in policy announced in 1990. - public negotiations with The (ANC) & other parties took place - this lead to democratic elections in 1994. The decline of gold mining despite yet another windfall Abolishment of the fixed gold price 1971 From then on the price of gold was determined by market forces – peaked in 1980 Mining companies reacted to the early rise in prices by shifting extraction to lowers grades of ore The increase in the price of gold was also associated with a revolutionary change in labour policy – Increasingly worried about dependence on foreign labour and increased recruitment from urban areas Increase in profits were used to finance research and technological innovation Changes in government policy finally eliminated all legal forms of job reservation The government also claimed a substantial share in the increased profits of the gold mines Large part of the ensuing tax revenue was devoted to improvements to the transport infrastructure – new ports and railway lines The decline of gold mining despite yet another windfall But in the 1980s the price dropped sharply By 1987 on in five mine were producing at a cost that exceeded the current gold price Massive programmes of rationalization were imposed Employment dropped from 530 000 in 1986 to less than 200 000 by the end of the century The engine that drove the South African economy forward for 100 years was no longer functioning The expansion of coal and platinum After 1970 the diversification of the mining industry continued with the expansion of coal production. – The development of a new washing techniques during the 1960s by Anglo American made coal suitable for the iron and steel industries, power stations and other industrial uses. – Substantial new markets were found in Europe and Japan, both for coking coal and for steam coal for electricity generation. – Massive new investments were also undertaken to improve the transport infrastructure and reduce the costs of moving and handling coal. – The imposition of sanctions from the mid- 1980s eliminated sales to Denmark, France, and the United States, alternative markets were found in South Korea, Taiwan, and certain Mediterranean countries. The other notable development in the mining industry was the emergence of the platinum group of metals (platinum, palladium, and rhodium). – Production increased by 60 per cent between 1980 and 1994. – In the late 1990s the price continued to rise rapidly, and by the end of the century the platinum group had displaced gold as South Africa’s principal mineral. – Increased demand was driven by growing popularity of platinum jewellery and use of the metal as a catalyst in new vehicle exhaust systems. Manufacturing’s failure to achieve export led-growth The progress of manufacturing that started in the 1930s, continued during World War II & accelerated after the war. External & internal conditions were conducive to growth, so that expansion was rapid. The peak growth rate of almost 10 % per annum was reached in the 1st half of the 1960s. So why did manufacturing fail to achieve export led growth At some point between 1972 & 1975 there was a structural break & a shift to much lower rates of growth of output, employment, and productivity The average annual rate of growth of real manufacturing output declined. There were incentives for manufactures to substitute capital for labor. Every attempt to accelerate the rate of growth led to a weakening of the BOP. Since protectionism was introduced, manufacturing had relied on gold mining for foreign currency to cover the cost of imported components But gold mining was now in decline… Two factors negatively affected SA’s export potential. 1. World output & trade restricted the growth of markets. 2. There was a real appreciation in the value of the rand making exports less competitive. - The appreciation of the rand was driven by the influence of worldwide commodity price increases - There was a further oil shock in Iran in 1979-80 - In the 1970s food prices were also driven by crop failure in the USA. – Reduction in competitiveness was very damaging for exports of manufactures not linked directly to natural resources From the early 1980s the economy was trapped in a vicious cycle of low efficiency & poor labor productivity. This kept costs of production high & retarded growth of exports. The resulting pressures on the BOP forced authorities to restrict imports. These policies discouraged investment by dampening business confidence limiting supply of essential capital & intermediate goods from abroad. Sanctions in the mid 1980s cut off flow of funds from NY, London & other financial centers Slow growth & low investment reinforced the weakness of the Economy Prevented an escape from low levels of productivity The decline in fixed investment There was an initial rise and subsequent decline in investment in fixed assets, gross domestic fixed capital formation, in the period 1954–94 This covers capital expenditure by both public corporations and state-owned business enterprises as well as by general government for school buildings, hospitals, and other fixed assets for public services. The overall investment ratio began to rise from 1963, as the economy recovered from the post- Sharpeville crisis. The movement was then reversed, and the ratio started to fall. By 1993 it had plunged below 15 per cent. The decline in fixed investment The critical factor in both the upswing and the downward movement was the behaviour of public-sector investment by the major corporations such as SASOL, ISCOR, and ESCOM. The share of government and public enterprises in total investment was 53 per cent in 1976, and then declined rapidly to 27 per cent in 1994. The most important manifestations of the resulting crisis were seen in the balance of payments and in the labour market. mandela.ac.za Chapter 10: The final crisis and the retreat from apartheid Sanctions, capital flows and BOP crisis The rise of anti-apartheid campaigns for sanctions The earliest calls for sanctions were made in 1960 Votes to ban trade with SA in a wide range of products in 1985 and 1986 Sanctions, capital flows and BOP crisis Political hostility in African countries Trade sanctions had little effects to the economy as compared to the financial sanctions Exports of goods other than gold rose from 13.5% of GDP in 1964-1973 to 17.9% in 1977-1980. Exports of gold rose from 7.9% to 12.4% in the same years Authorities relaxed restrictions on imports Sanctions, capital flows and BOP crisis Mid 1970 the relationship between the current account and capital account started worsening 1959-1963 was the only period in which there was not a continuous net inflow of capital The only period in which there was not a continuous outflow was 1981-1984 SA could no longer compensate for current account deficits Sanctions, capital flows and BOP crisis Intense BOP crisis Total exports fell from $26 000 million in 1980 to $16000 million in 1985. The falling of exports was due to 2 factors: a) A fall in the dollar price of gold while the quantity available remained stable b) A depreciation of the rand against all major currencies Sanctions, capital flows and BOP crisis An increase in the volume of merchandise exports made through the rand depreciation could not offset the massive movement in the exchange rate August 1985 Chase Manhattan Bank of New York called for the repayment of all outstanding loans and deposits as they fell due Immediately after the 15th of August 1985, the economy faced a debt crisis. Sanctions, capital flows and BOP crisis By June 1987, 120 US companies including General Motors and IBM had sold their investments SA was forced to become the net exporter of capital The authorities restricted imports directly by imposing imports charges and indirectly by raising interest rates Changes in the labour market In the early 1960s, there was a series of increases for both skilled and unskilled black workers in the manufacturing In 1970 mining followed with much larger increases Commercial farmers were forced to raise cash wages Real farm wages for regular farm employees more than doubled between the mid-1960s and mid 1970s in the Transvaal and Orange Free State Changes in the labour market Domestic pressures for improvements in pay and conditions were reinforced by external developments House of Commons recommendations Large differentials between white and black workers By 1976, average real earnings for African workers in manufacturing were almost 40% higher than in 1970 Changes in the labour market The rate of increases in wage from early 1960s to mid-1970 far exceeded the improvement in output per worker The old policy of job reservation was formally retained 1965 –only one in ten of the non-farm skilled workforce was black By 1990 the proportion had rose to 4 in 10. There was a net increase in the total number of artisans and apprentices over this period There was also some limited progress by black workers into positions as foreman and other supervisory occupations The number of white employees in managerial and professional posts rose Changes in the labour market In the tertiary sector, the position was different Black employment increased in most of the routine white collar occupations In these semi-professional and white collar occupations, the number of black workers increased from 221 000 in 1965 to 937 000 in 1990 Divergence in the movements of male and female participation rates and increase in the relative importance of female labour For all males the participation dropped steeply from 97% in 1960 to 65% in 1996 where as for females it rose over the same period from 30% to 49%. Changes in the labour market The precise extent and timing of movements in unemployment are difficult to measure accurately Two major features which are evident are the slow growth and the decline in employment – sharp rise in unemployment If the expanded rates of unemployment are applied to the census data of 1996 it can be calculated that there were +- 1,4 million discouraged workers added to the 4,88 million officially unemployed. Unemployed +- 6,3 million of Economically active 16,13mil In 1960s the population available for work increase by 1,69 mil of which only 75 000 failed to find work Changes in the labour market Why were 6,3 million people unable to find work in 1996? 1. There was some pressure from the supply side After falling slightly until 1970, the proportion of the population in the working age range rose from 55% to almost 61% - adding 1,4 million people by 1996 2. Replacing labour with capital In agriculture there was extensive mechanization In mining there was mechanization In manufacturing, firm responded to the rise in real wages, the growing militancy and organization of the labour force and government policies that made labour more expensive and capital cheaper. The retreat from apartheid With the emergence of serious economic difficulties from the early 1970s the government started to retreat gradually from many of its positions Skill shortages remained a severe problem There were growing demands for changes from many sections of industry, commerce, commercial agriculture and from abroad Erosion of the colour bar to provide more skilled workers required improvements in education and training 1977 the Wiehahn commission looked into all aspects of labour relations, including trade union rights The Rieckert commission considered other aspects of the use of labour Wiehahn: Africans should be included in the definition of “employee” Full trade union rights Quick increase in number, membership and militancy of African unions The retreat from apartheid Industry demanded for huge improvements in African education and training Government accepted the need for significant reform From the early 1980s the government initiated far-reaching policy reforms and structural adjustments in the commercial farming sector The main reform involved the progressive introduction of market forces in place of the system of administered prices Among the steps towards liberalization were a decline in the real prices received by producers for major products such as maize and wheat Lifting the price controls on many agricultural output products Extensive deregulation of control under the Marketing Act and the dissolution from 1993 Reduction in protective measures and tariffs The retreat from apartheid The level of financial support for the farm sectors was reduced by various measures Introduction of market-related interest rates on loans Less generous tax subsidies for capital expenditure The reforms made capital more expensive relative to labour and reduced the support for spending on non-farm inputs There was an acceleration in the rate of growth of total factor productivity, from 2% (1965-1981) to 3%(1981-1991) The fallacy of ‘cheap’ labour By 1986 many of the apartheid’s major economic institutions and policies had been dismantled Public education and inequitable distribution of land was not changed Reforms had minimal impact: Stagnation persisted The economy remained in the grip of the BoP constraint Businesses lacked confidence in the future – no new investments Real income continued to fall Unemployment rose Root of the problem was SA’s poor standard of labour productivity Output per worker in manufacturing fell well below that in many other countries in 1994 What mattered was the relationship between wages and productivity The fallacy of ‘cheap’ labour Both the National Party and the revisionist failed to recognize the extent to which the needs of manufacturing diverged from those of mining and farming They ignored the difficulty of achieving high productivity in industry on the basis of migrant labour force They failed to appreciate the potential growth based on more skilled and more productive black labour force Improvements in productivity generates higher real wages and higher profits Another consequence of ‘cheap’ labour wat that growth was inhibited because the domestic market wat tightly constrained by low incomes of the black population Individual capitalists might have benefitted from low wages but capitalists as a whole suffered from lack of markets and absences of economies of scale The fallacy of ‘cheap’ labour Productivity of white workers was adversely affected by the system – artificially shielded jobs created little incentive to improve their performance All of these dysfunctional elements of the relationship between apartheid and economic growth outweighted those elements which were beneficial for some individual capitalists who still relied primarily on unskilled, low-wage, African labour mandela.ac.za TUTORIAL NOTES – CHAPTER 1 The main content of this chapter focuses on providing an accounting of the history of South Africa and its original inhabitants before the period of “conquest, discrimination and dispossession”. This chapter will be divided into three different sections, each focussing on a different topic that will contribute to the overall goal of the chapter. 1. The first section of this chapter looks to lay out the key features that were present in South Africa that led to its unique development following the arrival of settlers in the Cape. It places emphasis on the large amounts of human and natural resources that the country had as what set it apart. 2. The second section will look at the economy from an international perspective, following the year 1913. The study of the economy will be divided in to three time periods which will end in 1994 and provide a look at both the local and international economy during these times. 3. The third section examines the two main indigenous groups that inhabited the country before the arrival of settlers – the KhoiSan and Africans. It looks at how they lived, moved around, sustained and governed their way of life in the country. 1. A unique historical endowment Like many African countries, South Africa’s economy changed after the arrival of settlers. In particular, there were three key variables that set SA and its economic development apart, all based around the countries human and natural resources: 1.1 Khoisan and African Population – large numbers of indigenous groups were already living in the southern half of the continent before the arrival of settlers. These groups had established their own ways of living and social norms, laws, etc… 1.2 The presence of European settlers – a small number of Europeans settled in Cape Town to create a refreshment station for DEIC ships. When the demand for refreshments increased, more Europeans settled and worked the land to meet demand. When conflict with indigenous people over land and resources occurred, the settlers had more advanced weaponry to fight with. They also took control of the area through legislation and prohibited the indigenous people of voting rights and political influence. 1.3 Wealth of mineral resources – South Africa also contained a vast amount of minerals, particularly gold. Its discovery would come to radically transform the economy, which was originally small and carried by the agricultural sector. Following the discovery of the natural minerals in the late nineteenth century, the countries’ economy would see a move from its stagnant and small nature into a more progressive and developed state. 2. The economy in an international perspective Before we proceed to survey South Africa’s history of economic development, it will be helpful to place the country’s performance in an international perspective. For the period before 1870 there are no data on overall growth. After 1870 growth accelerated, though there is still no overall measure of this. For the assessment of comparative economic performance in an international perspective, we take a deeper look at the economy of SA and the world at large following the year 1913. To create a more detailed analysis, the period after 1913 has been subdivided into three phases: from 1913 to 1950, 1950 to 1973, and 1973 to 1994. 2.1 PHASE 1: 1913 – 1950 The first phase spans over the two world wars and the Great Depression of 1929– 1933. The economies experienced major setbacks; infrastructure and property suffered major damage. Time of severe recession as output, employment, trade, and prices collapsed. massive over-production and tumbling prices of wheat, sugar, coffee, and many other commodities. The country introduced protective tariffs and other measures in a desperate attempt to maintain their own output, leading to the collapse of international trade. Gold standard was finally abandoned, but only after the policies imposed in its name had done considerable damage; and many banks were forced to close as the value of their assets collapsed. South Africa was one of a small number of countries that both benefited from the two wars and escaped most of the adverse effects of the depression. both gold mining and industry prospered in the 1930s and again during the Second World War. 2.2 PHASE 2: 1950 – 1973 Here, the world economy enjoyed a long and unique ‘golden age’ of dynamic growth. Countries which had fallen behind during the world wars and the Great Depression were now able to catch up. Countries become more productive and started making efficient use of their under-utilised resources, leading to excessive growth. Governments amended policies (fiscal, monetary) more willingly in attempt to ride the wave of economic growth and reach full employment. Abroad, capitalist economies worked together harmoniously in the face of the threat posed by the growth of the Soviet Union and other communist countries. Capitalist countries co-operated to create an international monetary and financial system under the leadership of the US, encouraging the removal of barriers to trade. Across the globe, output, productivity, investment, and foreign trade shot forward at an exceptional pace, and employment was high and inflation low. In time, however, global golden age came to an end. Some of the factors that emerged were the direct consequence of the preceding era of rapid growth, such as the inflationary consequences of the increased pressure for higher wages that could be exerted in an era of full employment, or the elimination of the exceptional ‘benefits of backwardness’ [the benefit of producing with previously underutilised resources reached its limits]. Others were largely independent, such as the activities of the member states of the Organization of Petroleum Exporting Countries (OPEC) which caused the explosive rise in oil prices in 1973, and the increase in oil prices again in 1979. Big governments shifted from promoting growth to fighting inflation. The system of fixed exchange rates established immediately after the Second World War proved increasingly unable to withstand the strains of the great change in the relative economic strength of the United States and the other industrial nations. The expansion of world trade dropped sharply. 2.3 PHASE 3: 1973 – 1994 This period was characterised by the general deterioration in the performance of the world economy. Growth in output and trade slowed, while inflation accelerated, and unemployment rose. Growth in real GDP dropped. The final result of this prolonged decline was that South Africa ended up being overtaken by many other countries economically. 3. The people and economy before 1652 In 1652, before the Europeans arrived in the Cape, the southern portion of Africa was occupied by two major groups of inhabitants – the KhoiSan and the Africans. In this section we will take a look and how they lived and what eventually became of these groups in time. 3.1 The KhoiSan The KhoiSan population was divided into two subdivisions, namely the San hunter-gatherers and the KhoiKhoi nomadic herders. San hunter-gatherers are estimated to have had been living in South Africa for over 10 000 years. They were mostly known for their stunning rock art paintings and their skilful techniques in getting food. The San did not practise land ownership were very adaptable to different and changing environments. The hunter-gatherers were not a military group, and this resulted in them falling to stronger indigenous groups such as the KhoiKhoi and Africans when it came to conflicts for land and resources. They survived in remote mountain areas and semi-deserts, but as Europeans expanded their movement into the interior of the western Cape in search of pasture, they took over San hunting grounds, and there was a brutal and one-sided struggle in which large numbers of San people were viciously exterminated. The San also suffered very high mortality during the three major smallpox epidemics that afflicted the region in the eighteenth century. The remaining San were kidnapped and forced to work on the settlers’ farms for the rest of their lives, becoming servants and eventually infused into the coloured population. Others moved across the border to seek refuge and safety, starting new lives in Botswana and Namibia. The KhoiKhoi population were slightly more advanced than the San, and exhibited a better standard of living and advanced social organisation. They engaged in livestock farming, building up herds (mainly cattle) and often moving around seasonally with them in search of grazing lands. There were no individual or family titles to land, but stock was owned by individual households, not communally, and there was considerable differentiation, with wealthy chiefs and headmen owning large herds while many others had no stock. The Khoikhoi did not develop arable farming, because the hot, dry summer months of this winter rainfall zone were unsuitable for the indigenous grains, millet, and sorghum. While the group was able to overcome the San in conflicts, they were no match for the new Dutch arrivals. Following the establishment of the refreshment station and other settlements by the Dutch, major disputes rose over land, water and livestock. The KhoiKhoi were severely outpowered and would end up losing their resources and independence to the settlers. In the end, they became servants and cheap labourers. 3.2 The Africans From Africans. two major linguistic groups, the Nguni and the Sotho–Tswana, were established and continued the slow southward migration into Africa. They entered two very different ecological habitats in the eastern and western parts of southern Africa. The Nguni-speaking ancestors of today’s Zulu, Swazi, and Xhosa people, moved south across the Drakensberg Mountains into the well-watered land between the mountains and the Indian Ocean, an area in which they could practise their skills in both animal husbandry and cultivation. The relative abundance of water, good pasture for grazing, and land suitable for arable cultivation in this region promoted a dispersed pattern of settlement, with no large towns. Individual households were largely self-sufficient and could find all their resource requirements close to their homes. The traditional grain crops were millet and sorghum, and these staple grains restricted them to the region of summer rainfall. A divergent rainfall pattern created a natural barrier between the Bantu-speaking cultivators to the north and east of the dividing line, and the Khoikhoi herders who occupied the zone of winter rainfall to the south and west. The other group were the Sotho who primarily resided in the Kalahari (present-day Botswana), and ending in the east on the Drakensberg Mountains (present-day Lesotho). These areas were characterised by too little rain; whatever rain there was fell too erratically. Sotho settlements were thus concentrated where water was available, in large villages and towns, some with more than 5 000 inhabitants. They practised crop farming, often moving seasonally to different fields for better output. As a result of the nature of their living environments, crop failures, plagues (locusts, pests) and cattle diseases were not a rare occurrence. All this made it an appropriate strategy to spread risk by cultivating several fields scattered over a wide area, embracing different soils and varied opportunities for rain. The poor quality of the grassland, and the great distances between sources of water, also necessitated extensive pastoral farming (focus more on livestock rather than crops), with seasonal movements of livestock. The Nguni people in the East could largely achieve the necessary diversification on an individual basis, in a succession of small-scale repeat practices. By contrast, a more co-operative relationship permitting a man from one area to use someone else’s land in a distant region was required by the more capricious rainfall and less varied vegetation and soil types in the vast West 4. HOW DID THE AFRICAN SOCIETIES LIVE? They all shared basically the same technology and knowledge of agriculture, and all attached exceptional importance to pastoral farming. Cattle were the principal means of accumulating, storing, and reproducing wealth, and the primary medium of exchange. Cattle were owned individually, but land was held communally, and was administered by the chief of the ethnic group and by his sub- chiefs and headmen. Every married man was entitled to receive a reasonably sized site for his house and land to cultivate from the chief and his groups. So long as he maintained his home and cultivated his land, it remained in his exclusive possession and could pass on his death to his heirs. Neither sale nor rent of land was recognized in tribal law. The chief regulated all use of the resources available to his people (veld, forest, grazing land, etc…), leaving little scope for individual initiative or innovation. Arable farming (focus on crops instead of livestock), from tilling and sowing to harvesting and threshing, was undertaken mainly by women. There was no rotation of crops, and when the fertility of soil was exhausted, the households moved on to freshly cleared land, fertilized by the ash of the burnt cover. Non-agricultural production was quite limited; raw materials from livestock were generally used to accessories such as bags and shields. A few craftsmen learnt mining and smelting and made things such as shoes, spears and knives. These African subsistence economies were basically self-sufficient and were viable as long as adequate land was available. They enjoyed a decent standard of living, with a healthy diet including milk from cattle and goats, porridge and beer from corn, and meat from hunting. 5. Barriers preventing the development of the early South African economy: As a result of their seasoning movements to support their farming practises, they did not have any steady geographical or political continuity, and their societies remained small. They also lacked a stimulus for sustainable and progressive trade; there were no regular markets or trade fairs where individuals met to conduct business activities. Specialization in production, and thus inter-tribal trade, was limited by the broad uniformity of economic activity across large areas. Exchange between groups occurred sparsely and on a small scale, mostly necessitated by factors such as crop failures. External trade was restricted because groups had no access to large, prosperous foreign markets and did not produce suitable export good. Trade in animal products could make chiefs wealthy but did not promote development and innovation. There was also a lack of properly developed transport vehicles and trading routes, with vast distances needed to be covered between groups of traders. The result of all these factors was that the extent of any surplus over minimum levels of subsistence was extremely modest. It was possible only to a very limited extent to support craftsmen and other specialists, encourage learning and formal study, or erect permanent buildings or large religious structures. Any surplus was accumulated primarily in cattle, but cattle were frequently paid to others as dowry or tribute, seized in raids, or lost during droughts. The typical pattern for any individual society was one of cyclical fluctuation rather than continuous accumulation and growth. Africans were unaware of the spread of literacy and of advances in science and learning world which meant little technical improvement, and overall economic and social progress. TUTORIAL NOTES – CHAPTER 2 This chapter serves to provide a detailed accounting of the arrival, movement and quest for dispossession that settlers embarked on upon arriving in South Africa. It is divided into five sections which individually explore the different stages and levels of the conflicts, wars and dispossession that occurred in the country, as well as the outcomes of this dispossession for the original inhabitants of the land. 1). The first section looks at the VOC (short for “Vereenigde Oostindische Compagnie”) and the development of its refreshment station in the Cape into more fully fledged settlement. It also looks at how the Cape came to change after the VOC was ousted and came under British rule. 2). This section explains the primary issue settlers faced when they arrived in the country – a shortage of labour. 3). The third section delves into how the different settlers in the country aimed to solve the labour crisis that they faced, which was to dispossess the inhabitants of their land so they would be forced to work for a living. 4). The fourth section tells the story of the Great Pedi Kingdom and its battle against the Boer Republic. 5). The final section provides a summarised version of the main outcomes of the campaign of land dispossession in South Africa. 1. European expansion into the interior The process of conquest and dispossession began very early in the history of white settlement at the Cape when the Khoikhoi were forced almost immediately to cede parts of their traditional grazing lands to the Europeans who had landed in Table Bay to develop a refreshment station for the Netherlands East India Company (VOC). In 1672 two of the nomadic tribes were induced to sign treaties under which they surrendered control of a large area of land from Table Bay to Saldanha Bay in the north and to the mountains of Hottentots Holland in the east. The compensation actually paid for this was derisory and only a small fraction of the sums promised in the treaties. One fundamental reason for the slow pace at which the settlers increased both their activity and their numbers, and thus the area over which they operated, was the policy of the VOC. The main goal of the VOC was to establish a refreshment station for its long-distance voyage ships in The Cape of Good Hope. These would be produced by the ‘free burghers’ who had settled on the land. The farmers soon found that rearing cattle was far more profitable than growing wheat, and that wine could also be produced in the locality. Unfortunately, the VOC prohibited them from selling their produce to anyone else and potentially creating a free market. They feared that allowing this would lead to their own ships having to pay higher, more competitive prices. The VOC also prohibited the cultivation of tobacco, in order to preserve for themselves the profitable barter trade in this commodity with the Khoikhoi. In addition, they were adamant that no form of manufactured goods should be produced at the Cape, since this would both diminish the market for the establishments that produced these goods in Holland, and deprive the VOC of the customs duties that were collected on such goods when they were imported into the colony. Upon realisation that there were better and more fertile lands in the area, the VOC looked to promote emigration to the region, bringing in skilled farmers from Holland and women from orphanages to settle and increase the white population. While it can be said that the VOCs’ initial stance on not wanting to initially settle in the Cape delayed its development, there were also other natural factors that further delayed its development: region lacked a suitable staple (sheep had no wool, wine was inferior) rainfall was sorely insufficient and unreliable moving around the region was difficult (rivers were dry, no bridges) The negative effects of the monopoly created by the VOC would eventually come to be felt in the 18th century. A point was reached where the burghers were producing far beyond the demand of the Company. In good years, the free burghers suffered from surpluses, and crop failures in bad years. The burghers suffered and got poorer, whereas on the other side of the fence the VOC officials gained large estates and grew wealthier. These circumstances finally pushed many burghers to escape the jurisdiction of the Company and move elsewhere to live their own lives. In 1660, Jan van Riebeeck had ordered the building of a hedge to establish a boundary between the gardens and grain farms of the VOC settlement and the Khoikhoi. His successor proclaimed that the Great Fish River – just beyond modern Port Elizabeth, almost 500 miles to the east of Cape Town – was to be the boundary between the colony and the Xhosa. In this new frontier economy, land was abundant and cheap, while labour and capital were scarce and expensive. The settlers swiftly adapted to these conditions by abandoning arable farming in favour of an exceedingly extensive and semi-nomadic system of cattle-keeping. Land was effectively given away by the Company under the system of ‘loan farms’ (form of leasehold under which anyone could claim a large farm in return for a notional fee). The British Recapture the Cape In 1806, when the British recaptured the Cape, the area saw a rise in economic activity. They did away with the VOCs restrictions on trade and even allowed for some manufacturing to occur in the area. Additional branch of government bank was formed to provide greater financial services The first private banks were established in the 1830s Following the collapse of Britain’s farm prices, they began to see a greater need to expand and settle in the Cape as a means of alleviating the economic difficulties they faced at home. The British government would eventually assist some 5,000 settlers to emigrate to the eastern frontier of the colony in 1820. Further assisted immigration followed after 1837, when some 5,000 artisans and labourers came from the United Kingdom to help rebuild the population of the Cape. The removal of the VOC from the Cape came with many economical benefits, but the British themselves brought with them many other changes that were unfavourable to the locals. These changes would eventually initiate the Boer trekking into the interior of the country. The dominant economic factor for the trek was the shortage of land; they could not maintain even their extensive system of stock farming in the arid land that remained to the north. The attempt of the British authorities to introduce a more economically rational scheme for the allocation of land than the VOC system of ‘loan farms’ was alleged to be one of many grievances that had triggered the Great Trek. The main body of trekkers moved into Natal, where they established a republic with the goal of independent from British rule. In time however, Britain annexed the area and the trekkers were forced to move away while new British emigrants settled. 2. Abundant land and scarce labour From the onset of the meeting between the Xhosas and settlers, conflict arose over land and resources. The settlers wanted to take the land to pursue their own interest, mostly: For pasture and arable farming For speculation in gold and diamond mining Coercing black people to become labourers A major issue with the settlers’ plans was that there was a shortage of labour in the area. As long as free land existed, hired labour would either be unavailable, because those needed to farm the land preferred to work as independent peasants on the free land, or it would be unprofitable, because the minimum wage at which workers were willing to enter the labour market would need to be at least as much as they could earn as independent farmers. To solve this dilemma, settlers decided on the campaign of dispossessing the inhabitants of their lands so that they would have no choice but to become labourers. 3. The roots of conflict A strategy of conquest and dispossession was pursued energetically by both Dutch and British settlers and was generally supported in the late eighteenth century by the VOC, and later by Britain, though the imperial government. The territory in which they sought to do this gradually expanded away from their entry point at Cape Town until they claimed possession of almost the entire country south of the Limpopo. UK became more militant against Africans in 19th century British called for the destruction of all independent black states Emerging body of mine owners in need of labour supported UK and Britain’s cause 4. Defeat and dispossession of the Pedi by British and Boer A substantial Pedi kingdom first emerged in the late eighteenth century that united previously fragmented chiefdoms under the hegemony of a powerful king. The Pedi tribe was based within the Limpopo province. Sekwati, a younger son of the former king, rose to power during the periods of war and upheaval in the 1820s. Their forebears had arrived in this region in about the mid-seventeenth century. Looser groups under subordinate chiefs owing allegiance to the Pedi king lived outside this core area. There were three features key to the kingdoms’ survival – area was well supplied with water, it had mountain ranges for defence strategies and it was well positioned with trade routes. In 1845 two parties of trekkers arrived in the area. They saw the area as an economic hub, hunting area and farming community. Sekwati signed a peace agreement with the settlers. The trekkers claimed that this document made over all rights to land, while Sekwati interpreted it as an allocation to trekkers of land on which they could settle, but without disposing of his people’s title to the property. Trekkers made a second attempt and attaing the land through a treaty signed in 1846 with the Swazi king, Mswati, under which a large area of land was allegedly ceded to the Boers. Sekwati refuted it stating the Swazi king hand no right to sign over what was not his. In 1859 the republic’s parliament declared that each burgher could lay claim to one or more lenings plaatsen (quit-rent farms), for an annual payment, usually of 30 shillings. This enabled some officials, traders, and non-resident landowners from the Cape and Natal to accumulate massive landholdings. The first stage in the dispossession of the Pedi had been accomplished. In 1852 the trekkers organised a twenty-day siege but failed to force Sekwati into submission. Pedi success in battles with the trekkers and with other African societies was in part due to their possession of firearms. Sekwati died in 1861 and was succeeded by his eldest son, Sekhukhune. Members of other kingdoms that had dispossessed of their land sook refuge with the Pedi king and strengthened his power. The discovery of gold and diamonds in the 1970s led to increased conflicts over land between the groups. There were also fears among the Boers of the growing strength of the Pedi. Boers looked to weaken the power of the kingdom by seizing cattle, destroying crops, and attacking those who attempted to work the land. After the war, a brief period of negotiations occurred. These ended when the British decided to annex the Transvaal Republic in 1877. British had three reasons for this mode of action – (1)they wanted to create a single South African federation joining the Cape Colony and Natal with the two Boer republics, (2)they were anxious to ensure the economic viability of their two older South African colonies and of the Transvaal and (3)they were determined to show their power over the Pedi, and to exact tax revenues from them. The campaign against Sekhukhune began in 1878 with a siege lasting two months. In the following year a huge army was assembled, with combined British and African (mainly Swazi) troops, three times as large as the force deployed by the Boers three years earlier. This consolidated army would eventually come to spell the end of the great Pedi Kingdom. 5. The final outcome – land allocation in South Africa from 1913 (1) The passing of the Natives Land Act of 1913 can be seen as the full achievement of the goal of dispossession set by the settlers. Under this law, black people were confined to about 7.3% of the land and prohibited them from owning/renting land outside specified reserves. Upon investigation and contention, in 1936, a new Act was passed that increased the land available to black people to 13%. The land that was made available to them however was infertile in insufficient for them to sustain themselves. (2) The 1913 Land Act also contained provisions that prevented black sharecroppers and squatters from farming on white-owned land in any capacity other than as labour tenants. This was difficult to enforce in the short term because many of the absentee landowners were influential companies or rich individuals and many farmers, even in the Orange Free State, were not immediately willing to give up the benefits they derived from sharecropping agreements. (3) The Land Act also allowed mines to justify paying laborers low wages, claiming that the 13% land they had was sufficient to sustain them and their families. ECONOMIC HISTORY – CHAPTER 3 This chapter tells the story of how the white settlers went about acquiring the labour they needed for their plans from the African population. It serves to layout the different tactics of coercion and legislation that they implemented into eventually forcing black people into transitioning from subsistence farmers into labourers. The chapter is divided into six subsections: 1) The first section deals with how the new supply of labour was used and distributed between the industries (mining and agriculture) to pursue economic growth. 2) This section describes the different forceful measures used by white settlers to secure labour. 3) Here, an analysis of the different legal and legislative measures used to control the African population are examined. 4) This section describes the different ways in which the white farmers used the labour they obtained. 5) This portion of the chapter details how labour was acquired and contracted on mines, and the laws relevant to this governing. 6) This serves to provide and account for the persistent refusal to increase black wages by farmers, and the resulting outcome of that – scarce labour. 7) Finally, we look at the poor living conditions that black people were forced to live under after they were dispossessed from their land during labour coercion. 1. Black labour for white masters As the process of conquest and dispossession was completed over the second half of the nineteenth century, Africans progressively lost the possibility of continuing to farm independently. In many regions there was a short-lived but very significant development of successful African peasant farming, stimulated by rising demand from the white economy, especially after the mineral discoveries. But white farmers feared their competition and coveted their land and labour. With government help, laws and practices were imposed to destroy the peasantry and create a rural working class. The dispossession of Africans meant it now became possible for SA to develop through its two main economies – agriculture and mining. In the agricultural sector there was a surplus of labour and a scarcity of capital, Many labourers receive a wage greater than the value of the extra output they produced/MPL. [MPL = change in output resulting from addition of a unit of labour], It became evident that the same output could be produced by fewer workers, The economy was undergoing ‘disguised unemployment’ (people stuck in jobs where they weren’t being productive). It would be more beneficial if the surplus labour would move from agriculture to mining, where it was paid a wage that was higher than the traditional sector. This market mechanism would bring result to wages that are less than MPL, capital accumulation increases, and thus economic growth. For as long as surplus of labor could be drawn from the agricultural sector cumulation expansion of the industrial sector could continue, Therefore, the reallocation of labor from the traditional sector to the industrial sector brought economic development. In order to achieve the movement of labor from agriculture to mining, the government got involved and used forceful tactics and coercion. The more land settlers came to seize and own, the greater the control they gained when it came to controlling the supply of labour. To sustain their farms, the settlers’ mainly needed herders, shepherds and servants. As the Cape became more and more developed, the need for more labour began to increase (especially with the rise of gold and diamond mining). There was a major change from subsistence to commercial farming stemming from the need to feed all these labourers. Competition between industries rose for labour as all were developing fast and relied on manual labour for production. With the farming sector, the maize industry saw the greatest need for labour. The product was a staple with high demand from both blacks and whites. Whites came to rely heavily on the labour of African and coloured people, but the problem was that there was not enough supply to meet the demand. 2. The use of compulsion to obtain labour As a result of the demand outpacing the supply of labour, the white powers saw it necessary to use force in order to coerce Africans to supply the labour they needed. Many different avenues were explored in order to supplement the workforce: (1) Slavery The first slaves were brought to the colony in 1658, and became an essential part of its labour supply, however slavery was later abolished in 1834 and the labour supply problem would return. When the Khoikhoi population were eventually stripped of their land, they were driven to take work on white farms as labourers in order to sustain themselves. In return for their labour, they were paid in food and clothing. In 1828, the Ordinance 50 law was passed with the purpose of improving the living conditions of the Khoi. According to this new law, the Khoi were to be seen as equal to the whites in the eyes of the law. However, this new bill did nothing to change the situation of the Khoikhoi. Although slavery was officially abolished in 1834, all slaves were obliged to serve another four years as ‘apprentices’, and so were not finally emancipated until 1838. Initially many freed slaves sought to leave their masters, but quickly found that there were few alternatives open to them (they had no resources) After this, employers started using the system of seasonal/temporary employment. Many became labour tenants, working in return for the right to use small plots of land. This only served to further increase dependence of the farm owners. (2) Indentured child labour The children (known as inboekelinge) were captured in wars or in special raids, often undertaken for the specific purpose of becoming labourers. Some children were handed over by their parents in return for land, food, or other goods. Inboekelinge were given food and lodging, but no pay. According to the law, the males were supposed to be released at 25 and the females at 21. This didn’t always happen, especially in areas that weren’t well regulated. When time came for them to be released, it was difficult because they had already grown accustomed to Boer ways of living and had been away from their families for years. (3) Labour from abroad Sugar cane farms in the Natal were the first to bring in labourers from India. They made up about 70% of the labour force. Their labour was tightly control under indentures where their wage costs were fixed. Upon completion of their contracts, they had the option of going back home or staying as free citizens. The mining industry later brought in workers from China, specifically to fulfil tasks of unskilled nature. An additional two measures of compulsion were used to change the supply of labour. The first of these was labour tax, where tribes that had been beaten on the battlefield or settled on trekker lands had to supply labour. The second was the use of prison labour, where convicts were used to develop much of the infrastructure in the Cape and supply labour. 3. Taxes, restrictions on movement, and other forms of pressure When the exercises of compulsion failed to induce Africans to supply their labour to employers, the government turned to legislation to turn up the heat. They established three formal mechanisms to exert pressure on black men to work for white masters: 1. The use of taxation This came in the form of hut/poll taxes and was charged to everyone regardless of their incomes. It was also a means of raising fund for the government. The taxes were set at a level that would force young men to leave their rural areas in order to earn enough to pay them. The first hut tax was levied in Natal in 1849 at a rate of 7 shillings per hut, but was doubled to 14 shillings in 1875 as the need for labour increased following the mineral discoveries. 2. Enforcement of pass laws Pass laws served to control the movement of black people and limit their numbers in suburban areas. Together with the Master and Servant Act, the laws worked to prevent workers leaving their employers for “greener pastures”. The Masters and Servants Ordinance which imposed penalties on workers who broke their contract, succeeding in placing servants more tightly under the control of their masters. In the Cape, Africans could only enter the colony if a settler they were contracted to had obtained a pass for them. 3. Erosion of farming opportunities and land As white farmers’ access to capital and government aid increased, and they were able to improve their own economic position by extending the share of their land that they farmed themselves, there was a steady erosion of the land available to Africans on white farms in these areas. The three mechanisms used by the government to coerce Africans into becoming labourers were also supplemented by two other factors. The first was the goal of increasing the poverty of the land reserved for Africans. This would reduce their ability to become subsistence farmers and be independent. The second was the use of trade, whereby Africans were exposed to European goods in an attempt to get them accustomed to things that they couldn’t produce themselves, and thus make them dependent on working in order to get them. 4. African labour on white-owned farms Once the white farms had finally attained the labour supply they wanted, they made use of it in several different ways: Rent tenancy was a system under which whites with too much land allowed Africans to work their land in return for a payment of rent. The second arrangement was sharecropping or ‘farming-on-the-half’, under which Africans obtained the use of land for cultivation or grazing stock, and also somewhere to live. In return for this they provided their own ploughs, oxen, and seed, and had to give half (or more) of their crop to the white landowner. It meant that African farmers had to produce at least twice their own subsistence. This arrangement was attractive to absentee landowners. The third system, labour tenancy, was essentially a relationship under which Africans provided a specified amount of labour, and the farmer allowed the labourer and his family land on which to reside, plus grazing rights and a small plot to cultivate.. For farmers who were land rich but income poor, it was the ideal way to secure the necessary supply of labour. The final arrangement was wage labour, which replaced labour tenancy once land was no longer a free resource that could be used by farmers as a cheap form of remuneration Wages were paid in cash and kind. 5. Migrant labour for the mines From the late 1870s a small group of skilled technicians and mechanics– operated and maintained the capital equipment and supervised the manual labour of Africans. The rise of gold mining in the 1890s caused the demand for labour to shoot up. With limited so supply however, competition with the agricultural industry began. The gold mining sector realised early on that they needed to employ a great number of Africans at low wages if they were to maximise profits. The labour force in the gold fields incorporated three key features first developed on the diamond diggings: I. a rigid demarcation in which occupations designated as skilled were reserved exclusively for highly paid white workers while manual work was performed solely by low-paid black workers II. an African workforce that was recruited as short-term migrants III. and the housing of Africans in closed compounds. In 1911, the Native Labour Regulation would be passed. This new Act served to strengthen the regulations set in place by the Master and Servant Act, making it illegal for African mineworkers to go on strike. The act also made all Africans working on the mines subject to the pass laws. All African miners were recruited on a temporary basis as migrant labour. The usual contract was for twelve to eighteen months, and for the period of the contract they were prohibited from seeking or taking up any other job. enormous labour turnover and constant reinduction of the workforce required by reliance on oscillating migration imposed heavy costs on the mining companies, nut this was offset by benefit of paying low wages and economies of scale. Use of migrant labour also enabled them to evade responsibility for the incidence of silicosis [mine claimed workers were at less risk due to short working periods]. The Rand Native Labour Association was established by mines as a mechanism to recruit labour and avoid labour competition. 6. The paradox of scarce labour and low wages Throughout the pursuit of labour by mine owners and farmers, they persistently refused to pay workers high wages. Their justification for this was that the labour supply would not respond to higher wages. In a nutshell, they argued that the higher the amount they paid for wages, the less labour would be supplied by Africans (backward-sloping demand). Their theory was debunked and flawed on many levels however: - treatment of all Africans as though they were a single homogeneous group (flaw) - frequent confusion between individual responses and the aggregate supply of labour - evidence from public works showing higher wages did in fact increase supply There were also several other reasons why they refused to pay higher wages to their workers. In its simplest form, higher wages meant lower profits for owners and they did not want that. Another factor was the legacy of the pre-mineral era, in which defeated Africans lived on land taken from them by whites, and worked for farmers who either conscripted their labour, or paid them only the barest minimum as labour tenants. 7. The deterioration of the reserves The areas left for exclusive African occupation were originally called locations, then reserves, and then under apartheid - ‘homelands’. The three largest were the Transkei, Ciskei and Zululand. These areas were under extreme pressure because of overcrowding, which led to their deterioration. These last three indicators – average income, infant mortality, and government expenditure on agriculture – graphically reveal the true meaning and unbridled extent of the discrimination prevalent in South Africa. The traditional custom of migration to new land was no longer possible, but Africans were unable to adapt to the new circumstances that had been imposed on them. On the arable side, monoculture exhausted soil that could no longer be left to recuperate properly. ECONOMIC HISTORY – CHAPTER 4 This chapter serves to dissect the main means of legislation and formal discrimination that aimed to bar African people from attaining better employment, education and skills – the colour bar. The chapter will be divided into four sections each looking at different aspects and outcomes of this colour bar: 1) The first subsection explains why the colour bar was created in the first place 2) The second subsection details the battle of white miners in trying to maintain their jobs and higher wages against the desire of mine owners to higher more black workers, who were severely cheaper. 3) The third subsection looks at all the internal and external factors that led to a severe drop in the standard of Boer farmers in the second half of the 19th century. 4) The fourth subsection examines the various policies and Acts that were brought into existence by the current government in an attempt to change the lives of poor white people. 1. Motivation and methods for creating a colour bar This colour bar is one of the most distinctive aspects of South Africa’s economic history. It was a regulation that served to exclude the African population from undertaking certain skilled and semi-skilled jobs in employment. What set the colour bar apartheid was that it was backed by legal and political systems, which made its oppressive nature much easier to impose. Under the colour bar skilled jobs reserved for Europeans and manual work undertaken only by black workers, under the justification that only whites possessed the necessary skills for more advanced jobs. - The first implementation of the bar occurred in 1893 in the Transvaal, where blasting underground could only be done by a qualified white person under the guise of “safety”. - A further act of 1898 stated explicitly that no coloured person was permitted to hold an engine driver’s certificate of competency. Black miners were responsible for mining underground, whereas the white miners merely served as supervisors. Despite the black miners doing the bulk of the work, the white miners earned far higher wages. The differences in income originally stemmed from genuine scarcity of skilled artisans made it necessary for mining companies to offer high wages to attract workers from Europe. Even though now they had attained the desired skilled artisans, white miners did not want their significantly higher wages to drop. As time went on, the exclusion of Africans from more and more jobs became furtherly integrated into legislation. The Mine and Works Act was later passed to serve as an instrument of regulating the industry. Government would come to use its powers under the Act to further strengthen the structures of the colour bar and spread it to other provinces. The Apprenticeship Act was passed in 1922. The Act set Standard VI (the top grade in primary schools) as the minimum requirement for apprenticeship. Since very few African children had the opportunity to reach this level, they were further systematically excluded from certain jobs. Amendments to the Mine and Works Act would also effectively prevented Africans from acquiring the formal qualifications necessary for performance of skilled work. 2. The conflict with white mine - workers The position of white miners to maintain their significantly higher wages would eventually bring them into conflict with mine owners. Since, under the gold standard, mine owners received a fixed price for their product, they had to have a tight grasp of their expenses if they wanted to achieve profits. The salaries of the white miners made one of the biggest expenses for them. On the other end, African workers were much cheaper to employ, easier to control and they were perfectly competent to do the skilled jobs. Mine owners began to realise that hiring more black workers would drastically cut their costs, and in turn raise their profits. ❖ In 1907 white miners went on strike to prevent the companies allowing Africans to do skilled work. Government intervened and insisted that the mines maintain a definite ratio of white to black labour. ❖ In 1913 a strike was called over the refusal of a particular mine to recognize a white trade union. ❖ In response to the strike British forces were brought in and they opened fire on the demonstrators. ❖ The conflict and violence of the strike spread rapidly to both the railway and the gold mines. ❖ A temporary truce between owners and workers during the war year, however conflict with the companies then resumed as soon as the Armistice was signed in 1918. ❖ In 1918, under pressure from white trade unions, the companies agreed to maintain the status quo with regard to the relative scope of employment of black and white miners, but soon realised it wouldn’t be financially sustainable. ❖ In 1919 Britain had suspended the gold standard, allowing sterling to float against the dollar, until it could reduce prices and wages sufficiently to restore the conditions necessary for its successful operation. ❖ Rising inflation in all aspects of production costs made it essential for the companies to find some means of reducing their costs. Since white miners earned 12x more than black miners, the obvious solution was to fire the whites, and hire more Africans. ❖ At the end of 1921 the Chamber of Mines announced that it proposed to permit the elimination of a number of redundant unskilled and semi-skilled Europeans. The proportion of black to white miners would be increased and mine owners could use their labour in whatever direction they thought fit. ❖ The announcement by the Chamber of Mines led rapidly to a major strike which in turn became an armed rebellion. ❖ The rebellion was suppressed after fierce fighting, in which over 200 people were killed and many more wounded and strikers returned to work on terms dictated by the Chamber of Mines. ❖ The end result was that wages of white miners were immediately reduced by about 25%, the ratio of black to white workers was raised to about 10:1 and there was improvement in the productivity of African miners (introduction of small jackhammer drills, reduction in the time that African miners were underground) The victory of the mine owners came at a heavy price at the subsequent general election, when the ruling South African Party was defeated in the general election of 1924 which was won by an alliance between the National and Labour parties (combined to form Pact government). Their electoral success reflected the bitter opposition of white artisans to the policy of the Chamber of Mines, consequence of resentment in the Afrikaner community at the growing poverty among whites. All agreed that whites should not be forced into a position where they had to compete with Africans for unskilled jobs. 3. The ‘poor white’ problem and the closing of the pastoral frontier The standard of living for many Boer farmers in the second half of the 19 th century took a turn for the worse. The decline in the quality of their living stemmed from both internal and external factors, and the overall change the was occurring in the country: I. Further expansion into the country was blocked by the desert, by the African population in the limited areas that remained to them and by international boundaries. In any case, most of the desirable land had been appropriated. II. The closing of the pastoral frontier coincided with the extinction of the vast game herds which Boers hunted for meat. Farms were further impoverished by rinderpest, a cattle disease. III. Speculators attracted by the mineral discoveries drove up land prices, and it became increasingly difficult for new generations to acquire their own farms. IV. High birth-rates and the current inheritance laws that entitled each child to an equal share of land led to farms being broken up and becoming smaller and smaller. V. Boer farmers couldn’t afford the expensive fences necessary for improvements in their livestock. Their strips of arable were too small and too scattered to be farmed efficiently, and their grasslands had been reduced in size and quality. VI. The Boers also lacked education, skills, and capital. They suffered from the same lack of access to prosperous markets and inability to produce appropriate export goods. VII. Britain decided that extensive destruction of Boer farms was necessary in order to prevent the Afrikaner commandos living off the land while waging their guerrilla campaigns against the British army. This served to further drive them into poverty. VIII. A great majority were unwilling or unable to become wage-earning farm workers and drifted to the towns. The unwillingness to perform unskilled work which Africans could do more cheaply was the crux of the ‘poor white’ problem. 4. Labour policies of the Pact government [1924–33] The Pact government represented the sectional interests of its rural and urban supporters. When it came into power, it sought to make numerous changes to the legal and legislative structure to better benefit the voters who had put it in power (poor whites). The following are the major policies/changes they adopted in pursuit of this goal: 1) Creation of a new Department of Labour, the extension of the scope of the Workmen’s Compensation Acts, improvements in the standards specified under the Factories Act, and the introduction of old age pensions to cover whites and – at a lower rate – coloureds. 2) They incorporated a series of policy changes working to promote the interests of Afrikaans-speaking poor whites moving to the towns (creating employment for unskilled/semi-skilled white workers, improve wages, and protect them from competition from Africans). 3) The government introduced a discriminatory employment policy for what was officially described as ‘civilized’ labour. Under this definition, whites were to be employed on unskilled and semi-skilled work at wages above normal. 4) The Pact government also took steps to re-establish the legality of the colour bar. In 1926, after a fierce political struggle a Mines and Works Amendment Act was passed allowing legal colour bar to be established by regulation in industry as well as in mining. 5) The government also passed two major laws, both serving the goal of protecting white people for having to compete with Africans for employment: The Industrial Conciliation Act - concerned primarily with skilled labour and organized groups of white workers and incorporated a legal definition of ‘employee’ which effectively excluded almost all Africans. The Wages Act - established a three-man Wage Board to regulate wages and conditions of work in industries in which employers and workers were not organized. The provisions of the Act effectively precluded the Board from recommending wages for unskilled workers below the rate at which employees could support themselves. It essentially promoted the employment of white workers at the expense of black. ECONOMIC HISTORY – CHAPTER 5 This chapter serves to provide an accounting of how South Africa and its economy transformed from a small and mainly agricultural system, into a more advanced and competitive economy. This transformation is contributed to the discovery of gold and the discovery of minerals in the country. The chapter is divided into five subsections: 1) The first section analyses the two types of export economies that exist in the world and provides and account of which one SA fell under during the time of gold discovery in the country. 2) The second subsection highlights the special characteristics that were present in SA that made it possible for gold to be the engine of export-led growth for the country. 3) The third section describes how the mining industry was during the time, how the gold was actually mined as well as how the industry expanded. 4) The fourth section talks about how the gold mining came about transforming the economy of the country from a relatively undeveloped, into a competitive and growing economic hub. 5) The final section touches on one of the main reasons why the mining industry was able to be so successful and profitable during its peak – through exploiting the black population. 1. Models of export-led growth Undeveloped economies are usually trapped in vicious circles of poverty. Because income is low there is little demand, and consequently very little output other than subsistence production of food. Low levels of output in turn close the circle by perpetuating low incomes. The expansion of exports to overseas markets provides one of the best means for a country to break out of this trap and enjoy export-led growth. For SA, the staple product that would lead to this kind of growth was gold. When it comes to the export economy, there are generally two kinds: Small-scale homestead farming Large-scale farming/mining products such as wheat, wool, meat, crops such as sugar, bananas, cotton, and milk rubber found in US, Canada, Australia, and southern America, Asia, east and west New Zealand Africa, and the West Indies gains from exports largely retained in Economies of scale in the relevant the country technologies lead to large units no economic advantages from growing enterprises usually owned by foreign bigger multinational companies, dependent not labour-intensive (family mostly on foreign capital does work) distribution of income is highly distribution of income in the skewed community of small farmers is gains from production are taken out of relatively egalitarian/equal the region little place for direct investment of conditions associated with low foreign capital in the export sector as standards of education, very limited output is made by small units advances in human capital, and encourages search for ways to authoritarian political systems. substitute capital for labour Social and political factors allow for supports the development of local cheap labor suppliers (as income increases, they This export economy is profitable for diversify to produce other things) the foreign owners and selected local interests, but not for host economy and society The export-led growth that occurred in SA was built around gold and the mining sector. When it comes to the two types of growth, SA fell under the large-scale mining side. The way in which the SA gold mining industry operated matched that of large-scale export-led growth in many ways: I. Mines were run by big enterprises II. 90% of the labour force was unskilled and paid low wages III. Companies were foreign owned and reliant on foreign capital IV. There was virtually know education/development of local Africans V. There was very little investment into growing a local industry 2. The special features of gold in South Africa As previously mentioned, the gold mining that occurred in SA favoured large-scale mining, which was not a very good instrument for achieve export-led growth. How then was it able to perform this vital function? ❖ Gold played unique role in international finance, serving as the basis from world money supply under the “gold standard”. ❖ The world price for gold was placed at a fixed rate, both under the gold standard and the Bretton Woods arrangements. ❖ During that entire period there was only one change in the dollar price, with the US believing that devaluation of the dollar would help to bring about a general rise in commodity prices. ❖ Great Depression later forced the world to abandon the gold standard. South Africa stood alone, offering various objections to abandonment - gold was the essential bulwark against rising prices, removal would simply lead to inflation. The outcome of the abandonment however was a 50% increase in the price of gold. ❖ In the remainder of the decade the price received in South Africa fluctuated according to the exchange rate set for sterling. ❖ There was a further small increase in the price of gold on the outbreak of the Second World War. ❖ In September 1949 the United Kingdom announced a substantial devaluation of sterling. South African currency was devalued against the dollar to the same extent as sterling, with a corresponding increase of over 40% in the sterling price of gold. ❖ From the late 1920s, South Africa benefited from a stable or rising price for gold, whereas the prices of primary products were reduced during the farm crises and Great Depression. ❖ Changes in the sterling price of gold showed that gold provided a much more favourable platform for economic development than other primary products. The stability or rising price of gold thus made it a much better basis for development. What was the critical feature of South African conditions which made it possible for gold to act as the growth engine for a more general process of economic expansion? 1. Favourable geographical environment and climate 2. Discovery of diamond fields and gold mines 3. Opportunities in gold mining attracted best human capital to country (skills, knowledge) 4. Pre—established European legal framework (property rights, contract laws, democracy) 3. The character and expansion of the mining industry The discovery of diamonds in 1867 led to two radical changes in the mining industry. The first was the consolidation of more than 3,000 individual land claims into a few large joint- stock companies [ De Beers Consolidated Mines under the control of Cecil Rhodes]. The second was the investment of large amounts of capital in the sector. In 1884, a gold reef was discovered in Witwatersrand, Transvaal government proclaimed the area a public goldfield in September 1886. Johannesburg was founded in the same year, Hundreds of companies from London and Paris were eagerly floated to purchase farms in the new district and to participate in the boom, Production and exports of gold expanded, The Witwatersrand goldfield was marked by an exceptional continuity and uniformity in the length and breadth of its reefs, Gold was not located in easily accessible; it was embedded in huge quantities of hard quartz rock, The visible ‘outcrops’ where the reefs appeared on the surface were quickly exhausted, leading to the industry switching to deep-level mining, The miners drilled holes in the rock, inserted dynamite, and blasted the quartz loose from the face. From there it was hoisted to the surface and expensive physical/chemical processes were applied to extract the gold. The millions of tons of rock brought to the top were first reduced in size in stonebreakers, then crushed into finer pieces. The finely crushed ore was carried in a stream of water over plates covered by strips of corduroy cloth, where particles of gold were caught in the pile, The finer gold which escaped the corduroy cloth was dealt with by the Macarthur– Forrest cyanide process. Here, gold that was either too small to be caught by the cloth, or was combined with impurities, was dissolved in solutions of potassium cyanide. This enabled the proportion of gold recovered from the ore to be increased from 60% to almost 100%, Production costs were reduced by additional technical advances (such as the introduction of small jack-hamme

South Africa's Economic Growth in the Post-War Era PDF

Document Details

Tags

Related

Summary

Full Transcript

Upgrade to continue