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ECH701 - Section 1 - June 2006

UKZN - Concepts and Methods in Economic History and Development


Studies
ECH701 (Honours) - 2006 Semester One, Term Two
Final Paper
Section 1

Lecturer: Professor Bill Freund


Student: James Mardall
Student #: 202520037
Due Date: 10th June 2006, 10h00

Question

Section I: Economic History

1. “If we wish to help turn the intellectual tide of Development


Studies and Development Economics, then we need to put up a
convincing case for the re-introduction of a historical dimension
and justify its presence in a more positive way” (Colin Simmons).
How would looking at some of the classic South African economic
history assist in considering development issues that are being
raised today?

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ECH701 - Section 1 - June 2006

South African Economic History – A Narrow Framework for the


Understanding Contemporary Development Issues

Economic history provides the means by which it is possible to understand the


process of development over time. Therefore, by providing an abridged history of
the process of economic development in South Africa, and then looking at selected
contemporary development issues in Southern Africa, using South Africa’s history
as a framework for the discussion. This paper seeks to provide an understanding
of the way in which the historical dimension, can function as a vehicle for
understanding contemporary development issues. Thereby providing, it is hoped,
some justification for more positive application of historical development and
economic studies, to the contemporary economic and development debate.

South African Economic History – An Abridged Framework

Historically (1860’s), British colonials saw themselves as introducing the,


“essentials of a modern administration” to South Africa. Boer Republics at the time
seemed incapable of, “supporting a viable modern economy”. Although resources
such as land were considered to be abundant, both capital and skilled labour were
scarce. South Africa was characterised by, distanciated internal and international
markets together with poor transport and infrastructure networks. Rural areas
were characterised by, “semi nomadic [subsistence] stock farmers… assisted by
servants [drawn from the local indigenous population and imported slaves]” 1.
With regard to the South African economy prior to the 1900s, industry was
primitive (by British standards) and concentrated in major centres like Cape Town
and Port Natal. Levels of commerce within the country were low, apart from
concentrations at the port areas where customs revenues provided substantially
to administrative coffers. Non value-added agricultural products such as, “ivory,
hides, skins and wool” constituted the majority of exports, whereas imports were
comprised of luxury and manufactured goods of European origin, therefore leading
to a trade deficit. The broader economy was predominately characterised by
subsistence production, barter and trade, and some use of money in the rural
areas. Gradually, infrastructure as well as, “trade, banking, transport, education
and market oriented farming… extended into the interior from the ports” 2. As a
result, property values in areas conducive to livestock farming increased through

1
(Hobart Houghton, (Undated): pp 1)
2
(Hobart Houghton, (Undated): pp 5-9).

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the introduction of valuable livestock such as merino sheep. Subsequently, wool


and ostrich feathers constituted the main exported goods of the period 3.
As a result of these economic activities, white European rule in South Africa
had a dramatic impact on the traditional black economy, due to similar interests
by whites and blacks in the grazing of livestock and other agricultural pursuits,
leading to conflict over land and natural resources 4. However, during this period
according to Kemp, “European concepts of landed property were imposed within
the wider framework of white supremacy and black inferiority” 5.
Agricultural exports remained the mainstay of the South African economy
until newly discovered mineral resources transformed it into a predominant
exporter of raw mineral resources. Initially diamonds, discovered in the Orange
and Vaal Rivers, and Kimberley (1860s–70s) were to lead this transformation. But
diamonds were soon overshadowed by the discovery and extraction of voluminous
natural gold reserves in the Transvaal (1880s). According to Hobart Houghton,
from 1891 to 1910, exports of gold and diamonds vastly overshadowed ‘all other
exports’ 6. However, the mining sector was heavily reliant on the importation of
capital goods, necessary for the extraction of natural resources, which left South
Africa, as Kemp puts it, “ …subordinate to the dominant robber economy of
mining” 7.
As a result of white competition for control of; the extraction,
transportation and excise duties of these mineral resources (between the Colonial
British administration and the White Boer settlers) a number of conflicts occurred.
Beginning with uprising (the Jameson Raid) and culminating in the armed conflict
of the Anglo Boer wars (1899-1902). After the wars, the four provinces of South
Africa (Cape, Natal, Transvaal and Free State) were unable to find consensus with
regard to an integrated administrative system of control, until Union in 1910. As a
result, the State of the Nation at the time, is characterised in Hobart Houghton as
follows, “The evils of today - the inefficiency and extravagance of four
governments doing the work of one, racialism and inter-colonial bitterness,
inequality in fiscal burdens and railway rates, the spectacle of South Africa
thwarted in her endeavour to grapple with her most essential problems because
she cannot command herself - these evils will disappear if the Constitution is
carried” 8
. However, according to Kemp the Union merely guaranteed that
3
(Kemp, (Undated); pp 177)
4
(Hobart Houghton, (Undated): pp 5-9)
5
(Kemp, (Undated); pp 178)
6
(Hobart Houghton, (Undated): pp 18)
7
(Kemp, (Undated); pp 179)
8
(Hobart Houghton, (Undated): pp 17)

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political power remained in the hands of a minority ‘white oligarchy’ while at the
same time ensuring the security of British capital investments in the extractive
mineral based economy and preventing the political inclusion of the black majority
9
.
The socio-economic impact of the discovery of mineral resources in South
Africa was substantial, from a base level of almost zero employment in 1862. By
1912, the mining sector was employing approximately 325,000 paid wage earners.
Of which, 36,000 were white settlers of European origin, while the balance were
made up of migrant black labourers of Southern African origin. “ This mass
confrontation of the traditional African with urban life and modern industry is
probably the most important cultural, social, and economic consequence of the
mineral discoveries [in South Africa]” 10
. As a result, urban population
concentrations increased, due to the financial attraction of the mining sector,
which had a substantial knock on effect on affiliated economic sectors and
infrastructural development into the hinterland. Leading to the growth of both the
urban industrial sector and the rural agricultural sector. This was a result of
agricultural goods transported from the hinterlands to the towns, and minerals
being transported from inland urban centres to the ports, for export to Britain. The
economy was still however, dependant on exchanging primary mineral resources
for capital equipment purchased from the industrialised European nations,
necessary for manufactures. The further impact of these mineral resources on
wage labour was that according to Hobart Houghton, “When diamonds and Gold
were first discovered, skilled workers were scarce and high wages had to be
offered to attract [predominately white] immigrants from abroad; unskilled labour
[predominately local and black] was relatively plentiful at rates of pay set by the
opportunity cost of their earnings in agriculture… Thus a wide disparity between
the earnings of the skilled and the unskilled arose” 11
. This wage structure was
mirrored in the manufacturing sector and wages did not coalesce over time, but
were reinforced by ‘customary barriers’ and the introduction of racially
discriminatory legislation enacted from 1920 until the end of the Apartheid period.
World primary resource markets for minerals and agricultural products
proved to be highly volatile during the antebellum period, unlike the prices for
manufactures. This stimulated a movement of the South African economy toward
(an industrial revolution like) diversification into the manufacturing sector.
However, this movement was frustrated by comparatively (to industrialised
9
(Kemp, (Undated); pp 179)
10
(Hobart Houghton, (Undated): pp 18-19)
11
(Hobart Houghton, (Undated): pp 22)

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Europe) and historically, weak investment in; rural area development, countrywide
infrastructure, education and training. In addition, poverty and industrial mining
sector unrest and revolt (due to falling gold prices and subsequent layoffs) had a
negative impact on South Africa’s Gross domestic Income and thereby access to
foreign capital resources necessary for manufactures in South Africa 12
.
The unrest ushered in by the antebellum period, led to a new pro-white
nationalist South African governance structure, strongly favouring the Afrikaner
(Boer) population. This led to an increase in the government’s involvement in the
South African economy, through structures such as the Board of Trade and
Industry (1921) and the increased introduction of protective tariffs. However, the
manufacturing sector was still to a large extent reliant on foreign imports (such
fibre and fabric for the textile industry), due to its technical inability (small scale
and historically poor capital investment) to compete on the world market 13
.
Further to this, the State attempted to capitalise strategic manufacturing sectors
through the formation of entities like the Iron and Steel Corporation of South Africa
(ISCOR 1928). These State created entities strongly focussed on the creation of
employment for ‘skilled’ whites, consequently the growth of these entities led to
an increased demand for ‘unskilled’ black labour. The long-term effect of this pro-
white employment framework and the concurrent legislation, such as the Wage
Act (1925) and the Mines and Works Amendment Act (1926), was to enforce the
disparity in income and living standards between white and black South Africans.
According to Hobart Houghton, the government of the day exhibited little concern
for the poverty of blacks, because, “… there was a widespread belief that if they
were thrown out of work in town they could always return to their subsistence
economy in the country [which became the Apartheid periods homelands] without
suffering great hardship” 14
.
Subsequent to the gold standard being abandoned by South Africa in 1932
the economy improved considerably, it is to this period (1933-1938) that Hobart
Houghton attributes South Africa’s ‘Rostowian take-off to sustained economic
growth’. This is evidenced by statistics that show manufactures sectoral share of
output and income increasing from; 33 – 75 million pounds; dramatically
outstripping the agricultural sector 28 – 70 million pounds; and rapidly
approaching the mining sector 40 – 80 million pounds, during the period 1933-38
15
. However as Kemp points out, the South African Market demand during this

12
(Hobart Houghton, (Undated): pp 24-27) & (Kemp, (Undated); pp 181)
13
(Kemp, (Undated); pp 177)
14
(Hobart Houghton, (Undated): pp 28-31)
15
(Hobart Houghton, (Undated): pp 33)

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period was, “almost exclusively [based] upon the demand of the white minority”.
Furthermore, he argues that although the abovementioned period, quantitatively
signals a rapid growth period, this may have occurred as a result of a build up to
World War II and due to the benefits of historical and ongoing investment in the
mining sector 16
.
The result of this economic growth which continued well into the 1970s,
coupled with the effects of discriminatory labour legislation. Was that while the
predominately urban white population benefited greatly from an increased
standard of living, the predominately rural black population remained
impoverished and at a comparatively lower standard of living. This led to an
enforced state of what Hobart Houghton refers to as ‘economic dualism’. An
assumption that Wolpe refers to as being ‘untenable’, by suggesting that different
modes of production operating within the same state, cannot be treated
independently of one another17. Furthermore the availability of a vast and elastic
unskilled labour reserve beyond the borders of South Africa and throughout the
Apartheid homelands of Southern Africa depressed the unskilled wage rate, even
as the economy expanded and diversified 18
. Leading Wolpe to suggest that,
“Apartheid can be best understood as the mechanism specific to South Africa in
the period of secondary industrialisation, of maintaining a high rate of capitalist
exploitation through a system which guarantees a cheap and controlled labour
force, under circumstances in which the conditions of reproduction of that labour-
force is rapidly disintegrating” 19
.
South Africa’s economic growth was not however a smooth
trajectory, following the Second World War for instance and prior to 1966, South
Africa experienced five balance of payment crises, due to its exposure to free
trade with world markets. These were indicative of the weaknesses inherent in the
economy. The first three crises (1949, 1954 and 1958) occurred as a result of
heavy private and public demand for imported manufactured capital goods, the
crises were addressed through export, monetary and fiscal interventions. The last
two crises (1960 and 1965) occurred as a result of international capital flight
(largely due to widespread unrest on the African continent) and inflationary
pressure due to a lack of skilled labour, these crises were again dealt with through
the introduction of monetary and fiscal instruments 20
.

16
(Kemp, (Undated); pp 182-183)
17
(Wolpe. H, (Undated); pp 296)
18
(Hobart Houghton, (Undated): pp 33)
19
(Wolpe. H, (Undated); pp 296)
20
(Hobart Houghton, (Undated): pp 38-39)

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Unpacking Selected Contemporary South African Development Issues

Issues of race aside, according to Harold Wolpe, it is evident that the South
African state has historically focussed on furthering the outcomes of the capitalist
mode of production 21
. Namely that, South Africa’s economy has historically been
heavily reliant on mining and agriculture, and that manufactures have been
unable to match these in terms of contributing to export earnings. Although the
threat and imposition of sanctions during the apartheid period did stimulate the
government to intervene in the economy through the creation of import
substitutive manufactures (i.e. chemicals, fuel and energy production, vehicle
manufacture etc). This did not lead to widespread increased employment and
standards of living. Rather, the rural areas and homelands underwent a period of
population reduction and economic ‘stagnation’ 22
. This is a situation that has not
yet been adequately addressed, and is currently being exacerbated by the
contemporary government’s macro-economic policy frameworks (i.e.
Reconstruction and Development Programme (RDP 1994 –1995) and Growth
Employment and Redistribution (GEAR 1996-2005)) 23
.
However as Kemp suggests, it is singularly complicated to separate the
direct effects of apartheid from the complicated web of articulations between
South Africa and the global economy 24
. With respect to contemporary South
African development issues however, according to André Gunder Frank in
Brenner’s “The Origins of Capitalist Development: A Critique”, “The roots of
[global] capitalist evolution … were to be found in the rise of a world ‘commercial
network’, developing into a ‘mercantile capitalist system’… Specifically: the
metropolis expropriates economic surplus from its satellites and appropriates it for
its own economic development. The satellites remain underdeveloped, for lack of
access to their own surplus and as a consequence of the same polarization and
exploitative contradictions which the metropolis introduces and maintains
(emphasis in original) in the satellite’s domestic structure” 25
. According to the
abridged framework of South Africa’s Economic History presented in the previous
section, a conclusion can be drawn that it is a country that exhibits all the signs of
being a satellite (according to the above analogy). This would seem to suggest

21
(Wolpe. H, (Undated))
22
(Hobart Houghton, (Undated): pp 40-43)
23
(Ahriweng-Obeng & McGowan, (1998))
24
(Kemp, (Undated))
25
(Brenner, (1977); pp 28)

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that South Africa was by comparison to the Metropolis (for example colonial
Britain), historically underdeveloped.
At the same time however, it is evident from the arguments suggested by
Ahriweng-Obeng & McGowan 26
, as well as Daniel & Lutchman 27
. That the
contemporary South African economy may well be acting as a Metropolis to the
rest of Africa. In this respect it is suggested that the patterns of trade and
commerce that were disrupted during the Apartheid period are beginning to re-
exert themselves on the broader Southern African economy. Furthermore, as
Ahriweng-Obeng & McGowan suggest, “…It is a centre for the collection of surplus
(profits) [from Africa] for transmission to the core [the developed countries] and
for the administration of core and South African investments in the African
periphery” 28
. This is a view that is consistent with the historical use of the elastic
migrant labour supply that was drawn to the gold mines of South Africa during the
Apartheid period as discussed by Wolpe 29
and prior to it, as discussed by Hobart
Houghton . 30

The stuff of History

By way of conclusion, it is evident that the perspective provided by


economic history presents a means of understanding the
interconnectedness of the various dimensions of economic development.
Not only as they apply to issues that are relevant within the boundaries of,
for example the South African state. But also, that they provide a way of
understanding the global developmental interconnections over time, for
example between the developed, developing and underdeveloped
countries, as in the case of the developmental interconnectedness
between for example; Europe, South Africa and Southern African
economies. By reintroducing the historical dimension, and introducing as a
result an element of hindsight into the way in which historical development
has occurred, in for example South Africa (as in the case of this paper).
Contemporary theories such as those examined by Ahriweng-Obeng &
McGowan can be juxtaposed with the analysis of the likes of Wolpe. This

26
(Ahriweng-Obeng & McGowan, (1998))
27
(Daniel & Lutchman, (2006),
28
(Ahriweng-Obeng & McGowan, (1998): pp 176)
29
(Wolpe. H, (Undated); pp185)
30
(Hobart Houghton, (Undated): pp 33)

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can lend new credence to contemporary theories and possibly suggest new
avenues for investigation. History as a result, does not need to put up a
convincing case in order to justify the value of its inclusion into the
contemporary debate. It is by its very nature the stuff of which the present
day society is produced, it is development, for without the measure of
history there is no way of knowing where development begins and
therefore no way of measuring whether it has occurred.

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1.) References and Bibliography

1.1.) Readings

Ahriweng-Obeng .F & McGowan .P, (1998), “South Africa in Africa”, Parts One and Two,
Journal of Contemporary African Studies, XVI (1 & 2), pp 5-38 & 165-196.

Baran .P, (Undated), “On the Political Economy of Backwardness”, Idem., pp 75-92.

Brenner .R, (1977), “The Origins of Capitalist Development: A Critique”, New Left Review,
No. 104’ (July – August 1977), pp 25-92.

Bundy .C, (Undated), “The Rise and Fall of the South African Peasantry: - The Herschel
Peasantry: A Case Study”, pp 146-165.

Crankshaw .O, (1996), “Changes in the Racial Division of Labour in the Apartheid Era”,
Journal of Southern African Studies, XXI.

Cumings .B, (1984), “The Origins and Development of the Northeast Asian Political
Economy: Industrial Sectors, Product Cycles, and Political Consequences”,
International Organisation, Vol. 38, No. 1, (Winter 1984), pp 1-40.

Daniel .J & Lutchman .J, (2006), “South Africa in Africa: Scrambling for Energy”, Sakhela
Buhlungu et al (eds), State of the Nation: South Africa 2005-2006, pp 484-509.

Fine .B & Rustomjeee .Z, (1992), “The Political Economy of South Africa in the Interwar
Period”, Social Dynamics, XVIII (2), pp 26-54.

Foster-Carter .A, (1978), “The Modes of Production Controversy”, New Left Review, No. 107,
(January – February 1978), pp 47-77.

Furguson .J, (1990), “Introduction: - The Anti-Politics Machine: Development Depoliticization


and Bureaucratic State Power in Lesotho”, Cambridge and Cape Town: Cambridge
University Press and David Phillips, pp 3-21.

Hobart Houghton .D, (Undated), “Economic Development 1865-1965”, Wilson and


Thompson (eds), Oxford History of South Africa, II, pp 1-49.

Kemp .T, (Undated), “South Africa: Gold, White Supremacy and Industrialisation”, Tom
Kemp (ed), Historical Patterns of Industrialisation, pp 177-190.

Leftwich .A, “Politics in Command: Development Studies and The Rediscovery of Social
Science”, New Political Economy, Vol 10, No. 4 (December 2005), pp 573-607.

Leys .C, (1996), “The Rise and Fall of Development Theory”, London, James Curry, pp 3-44.

Moore D., “The Second Age of the Third World: From Primitive Accumulation to Public
Goods?”, Third World Quarterly, Vol. 25, No. 1, (February 2004), pp 87-109.

Moll .T, (1991), “Did the Apartheid Economy ‘Fail’?”, Journal of Southern African Studies,
XVII (2), pp 271-291.
North .D, (Undated), “Structure and Change in Economic History”, pp 201-209.

Pollard .S, (1965), “Economic History – A Science of Society”, Past and Present, No. 30, pp
3-22.

Rostow .W.W, (Undated), “The Take-off into Self-Sustained Growth”, Agarwala and Singh
(eds), The Economics of Underdevelopment, pp 154-188.

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Sen .A, (2004), “Elements of a Theory of Rights”, Philosophy and Public Affairs, Vol. 32, No.
4, (December 2004), pp 314-356.

Simkins .C, (1981), “Agricultural Production in the African Reserves of South Africa”, Journal
of Southern African Studies, VII, pp 256-283.

Simmons .C, (Undated), “Economic Development and Economic History”, Ingram and
Simmons (eds), Development Studies and Colonial Policy, pp 1-99.

Wightman .D, (Undated), “Why Economic History?”, Susan Strange (ed), Paths to
International Political Economy, pp 23-32.

Wolpe. H, (Undated), “Capitalism and Cheap Labour: From Labour to Apartheid”, Wolpe
(ed), The Articulation of Modes of Production, pp 289-319.

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