Thomas W. Hazlett
The Concise Encyclopedia of Economics


by Thomas W. Hazlett
About the Author
The apartheid system of South Africa presents one of the most fascinating instances of interest group competition for political advantage. In light of the extreme human rights abuses stemming from apartheid, it is remarkable that so little attention has been paid to the economic foundations of that torturous social structure. The conventional view is that apartheid was devised by affluent whites to suppress poor blacks. In fact, the system sprang from class warfare and was largely the creation of white workers struggling against both the black majority and white capitalists. Apartheid was born in the political victory of radical white trade unions over both their rivals. In short, this cruelly oppressive economic system was socialism with a racist face.
The Roots of Conflict

When the British arrived in South Africa in 1796, they quickly conquered the Dutch settlement that had been established in 1652, setting up a government under the English Parliament and British common law. This liberal, individualistic regime was inherently offensive to the Afrikaners—the Dutch settlers of South Africa—who enjoyed both slavery (generally of imported Chinese and Malays) and a system of law that granted no standing to the nonwhite. The Boers, as the Afrikaners were to call themselves, abhorred the intervention of the British, whom they considered agents of an imperialist power. Following Britain's abolition of South African slavery in 1834, the Afrikaners physically escaped the rule of the British crown in the Great Trek of 1835.

Moving north from Capetown and spilling the blood of several major tribes, including the fierce Zulus, the Boers founded the Transvaal and the Orange Free State (i.e., free of British domination), and proceeded to establish racist legal institutions. The Boers treated brutally, and denied rights to, the relatively few nonwhites who resided and worked in their agricultural economy.

The Capetown of nineteenth-century British rule was markedly different. That area experienced some of the most unconstrained racial mixing in the world. A large nonwhite population, the Cape Coloureds, participated in integrated schools, churches, businesses, and government institutions. And they voted. A color-blind franchise was explicitly adopted in 1854. As a port city, Capetown became internationally famous for its laissez-faire social scene (including miscegenation), rivaling New Orleans as a haven for sea-weary sailors.

The physical separation of the two European populations, as well as the small degree of interaction between the Afrikaners and the African tribes, allowed a brief and uneasy equilibrium in the midnineteenth century. It was not to last. When gold was discovered near the Rand River in the Transvaal in 1871 (diamonds had been found beginning in 1866), the world's richest deposits exerted a powerful magnetic force upon the tribes within the subcontinent: Afrikaners, British, Xhosi, Sotho, and Zulu were all drawn to the profitable opportunities opening in the Witwatersrand basin.

Synergy and Competition: The Dynamics of the Colour Bar

The South African gold rush made the natural synergy between white-owned capital and abundant black labor overpowering. The gains from cooperation between eager British investors and thousands of African workers were sufficient to bridge gaping differences in language, customs, and geography. At first, however, the white capitalist could deal directly only with the limited number of English and Afrikaner managers and foremen who shared his tongue and work habits. But the premium such workers commanded soon became an extravagance. Black workers were becoming capable of performing industrial leadership roles in far greater numbers and at far less cost. Driven by the profit motive, the substitution of black for white in skilled and semiskilled mining jobs rose high on the agenda of the mining companies.

White workers feared the large supply of African labor as the low-priced competition that it was. Hence, white tradesmen and government officials, including police, regularly harassed African workers to discourage them from traveling to the mines and competing for permanent positions. Beginning in the 1890s, the Chamber of Mines, a group of employers, complained regularly of this systematic discrimination and attempted to secure better treatment of black workers. Their gesture was not altruistic, nor founded on liberal beliefs. Indeed, the mine owners often resorted to racist measures themselves. But here they had a clear economic incentive: labor costs were minimized where rules were color-blind. This self-interest was so powerful that it led the chamber to finance the first lawsuits and political campaigns against segregationist legislation.

Nonetheless, the state instituted an array of legal impediments to the promotion of black workers. The notorious Pass Laws sought to sharply limit the supply of nonwhite workers in "white" employment centers. Blacks were not allowed to become lawful citizens, to live permanently near their work, or to travel without government passports. This last restriction created a catch-22. Since passports were issued only to those already possessing jobs, how was a nonwhite to get into the job area to procure a job so as to obtain a passport? Nonwhites also were prohibited from bringing their families while working in the mines (reinforcing the transient nature of employment).

Each restriction undercut the ability of blacks to fully establish themselves in the capitalist economy and, hence, to compete with white workers on equal terms. Confined to temporary status, blacks were robbed of any realistic chance of building up the human capital to challenge their white bosses directly in the labor market.

Yet even on this decidedly unlevel playing field, the profit motive often found ways of matching white capitalists with black workers. Whites formed labor unions in the early 1900s to guard against this persistent tendency, and the South African Labour Party (SALP) was formed in 1908 to explicitly advance the interests of European workers. The SALP, and the unions with which it allied, including the powerful Mine Workers' Union, were all white and avowedly socialist; the British Labour Party formed the model for the SALP.

These organizations opposed any degradation of "European" or "civilized" standards in the workplace, by which they meant the advancement of blacks willing to undercut white union pay scales. To discourage mine owners from substituting cheaper African labor for more expensive European labor, the trade unions regularly resorted to violence and the strike threat. They also turned to legislation: the Mines and Works Act of 1911 (commonly referred to as the First Colour Bar Act) used the premise of "worker safety" to institute a licensing scheme for labor. A government board was set up to certify individuals for work in "hazardous" occupations. The effect was to decertify non-Europeans, who were deemed "unqualified."

The legislative victory by the white unions froze African advances until the booming World War I demand for minerals raised employment and pay scales for all races. White workers did not object to black advancement per se, but only to that which they perceived to come at their expense.

The postwar recession and the plummeting price of gold ended such tranquillity. In December 1921 the Chamber of Mines announced a plan to fire two thousand highly paid whites in semiskilled occupations and replace them with Africans. Even before the planned substitution took effect, the Mine Workers' Union launched a massive strike, seizing the mines and occupying the entire Rand mining region for two months.

In a full-scale assault involving seven thousand government troops complete with tanks, artillery, and air support, the government reclaimed the Rand at a reported cost of 250 lives. Several leaders of the strike were hanged. The insurrection was sensational, as was the haunting slogan of the striking miners: "Workers of the world unite, and fight for a white South Africa." The miners saw not an ounce of irony in their "V. I. Lenin meets Lester Maddox" radicalism. They saw ever so clearly that the threat to their interests lay in the mutual interests of white capital and black labor.

Although white workers shared skin color with the capitalists, the goal of mining and manufacturing capital was to hire cheap. As Africans assimilated into Western culture and the work force, the abundance of managerial, skilled, and semiskilled talent would mushroom. The precariously privileged position of white labor would topple. These were not casual racists; they were economically vested up to their eyeballs in the policy of exclusion by skin color. Hence, the landmark election of 1924 tossed out the Smuts government—condemned by the strikers as a tool of big business—in a "white backlash" over suppression of the Rand Rebellion by Pretoria.

The Pact Government, composed of Afrikaner nationalists (in the National Party) and white unionists (SALP), set an agenda of pro forma socialism, which it dubbed the Civilized Labour Policy. Measures enacted in Western democracies as standard, off-the-shelf trade union legislation were adopted in South Africa, but with a racist twist. After the courts threw out the first Colour Bar Act in 1923, on a lawsuit by the Chamber of Mines, the Mines and Works Act of 1926 reestablished the Colour Bar. Like the earlier act, the new one used the pretext of "industrial safety" to keep blacks from moving into favorable job classifications. Despite the legalistic cover story, the government admitted its intent: to "counteract the force of economic advantages at present enjoyed by the native."

Similarly, the Industrial Conciliation Act of 1924, for the ostensible purpose of securing labor peace, authorized sector-by-sector labor-union wage setting. The following year, the Wage Act extended this to the nonunionized sector. These rules amounted to syndicalism with a racial vengeance.

The ebb and flow of the power of white trade unions to dictate terms to their bosses is graphically visible in the ethnic employment statistics. From 1910 to 1918 the ratio of blacks to whites employed in the mines ranged from 8 or 9 to 1. This was pushed down to 7.4 to 1 in the 1918 "status quo" agreement sought by the unions. After the Chamber of Mines suppressed the Rand Rebellion in 1922, it managed to up the ratio to 11.4 to 1. By 1929, however, the National-Labour government, with its "civilized labour policy," had cut it back to 8.8 to 1. In 1953—the heyday of apartheid—the ratio was further constrained to 6.4 to 1, an incredible regulatory "achievement" considering that the natural (unregulated) advance of Africans would surely have pushed the ratio progressively higher over the passing decades.

Black trade unions were not illegal per se, but no black union was registered by the Ministry of Manpower until legislation explicitly promoting African unions was enacted in the late 1970s. Thus white workers were empowered—under the guise of the Industrial Conciliation Acts of 1924, 1936, and 1956—to solely control the terms of employment via officially sanctioned union bargaining. The enormous range of state-backed union powers—setting wages, employment conditions, benefits, entry qualifications, work rules, and negotiation rights on behalf of the entire industrial economy—is staggering. But this was the level of state intervention required to supersede the profit motives of both firms and nonwhite workers. And that was the announced goal: to overrule the market forces that constantly sought to undermine "civilized standards for European workers."

The labor market rules that were intended to raise barriers against black workers ironically blocked the path for what were commonly called "poor whites," the lowest tier of the protected class. Hence, the final intervention of the "civilized labour policy" was nationalization of businesses that employed large numbers of nonwhites. In a policy of "affirmative action," state-run railways and other huge state enterprises preferentially hired and promoted less skilled whites. In fact, many industries were nationalized just to impose racial preference. Merle Lipton reports that the perverse tendency toward the employment of (more expensive) whites was evident after the proclamation of the 1924 "civilized labour policy." Between 1924 and 1933 the number of whites employed by South African Railways rose from 4,760 to 17,783, or from 10 to 39 percent of employees, while the number of blacks fell from 37,564 to 22,008, or from 75 to 49 percent. In central and local government employment the proportion of whites rose from 45 to 64 percent, while the number and percentage of blacks correspondingly fell.

From the Colour Bar to Apartheid

The Colour Bar brought labor calm because the black workers and white capitalists "taxed" by the deal lacked the requisite political muscle to disrupt the system. Moreover, a long period of South African prosperity began in the midthirties, fed by international demands for the country's mineral exports. Demand during World War II was particularly strong and led again to a large expansion of the mining and industrial sectors. This lured many thousands of new African workers into the wage economy. During the boom these new workers were not substituting for white managers; indeed, the massive influx of black industrial labor prevented severe bottlenecks that would have lowered even white working-class incomes.

But mirroring the experience of a generation earlier, the postwar contraction brought an end to the comparative tranquillity. By 1948 the first signs of white unemployment sent a shock wave through the (white) electorate, and tremors that "poor whites" would be passed up by upwardly mobile black workers excited a radical response: the National Party was elected to implement apartheid, a newly comprehensive social policy of "separate development."

The problem apartheid attacked was circular. Economic cooperation among the races led to social integration. Social integration led to further economic cooperation because industrialists, eyeing low-wage blacks anywhere in their neighborhoods, found them irresistible. Social separation enforced by law—apartheid—was seen as the essential way to shore up the economic protection of white labor.

Furthermore, white farmers, wanting an artificially large supply of cheap black labor, endorsed measures limiting industrial jobs for blacks. Farmers have been key allies of white labor in initiating and preserving apartheid. Indeed, the gerrymandering of parliamentary seats to grant overrepresentation to the rural sector gave the National Party its 1948 victory even though the party lost the popular vote by a substantial margin.

The ruthlessness with which South Africa applied apartheid is legendary. The Group Areas Act (1950) dictated where members of the various races could legally reside. To enforce this, whole communities were brutally uprooted on the orders of bureaucrats. The Population Registration Act (1950) gave the state bureaucratic control over the racial identity of its citizens, and in combination with the Pass Laws, regulated internal travel. Government spending on education was hugely biased in favor of whites. In 1952, school spending per black child was about 5 percent of spending per white child. Africans were not allowed to own real estate. All these measures attempted to buttress the economic protectionism already enjoyed by white labor under the Colour Bar legislation.

Capitalists strongly opposed apartheid, and apartheidists strongly opposed capitalism. As historian Brian Lapping notes: "The National Party had to override some of the biggest financial, commercial and industrial interests in the state.... Overruling the bosses, the 'capitalists', as both the National Party and the communists liked to call them, was popular with the party faithful."

The notorious Broederbond, the secret Afrikaner "brotherhood," which exercised huge influence on the racist policies of the apartheid government, stated its agenda quite succinctly in 1933: "Abolition of the exploitation by foreigners of [South Africa's] national resources... the nationalization of finance and the planned coordination of economic policy." White supremacy had its very own industrial policy.

Apartheid in Retreat

Beginning about 1970, the internal contradictions of apartheid finally caused its slow demise. After the massive legal discrimination of the early apartheid years, black income, relative to white, fell dramatically, and the advance of white workers was won. But much like the boom periods of the two world wars, the robust economic growth of the sixties rendered apartheid's protection increasingly obsolete (many white workers no longer required all the separateness that apartheid had wrought) and exceedingly expensive (the South African economy was continually stalled by the artificial truncation of labor supply). Necessity became the mother of reform. According to Herbert Giliomee and Lawrence Schlemmer:

As the white skilled-labor shortage worsened, the government became ever more impatient with white trade unions which were hampering the training of blacks and thus blocking black advances into skilled jobs. In 1973 it was announced that blacks, including Africans, could do skilled work in the white areas. The government did not rigorously adhere to its promise that it would consult with white trade unions before making this decision. In 1975 the defence force announced that black soldiers would enjoy the same status as whites of equal rank, and that whites would have to take orders from black officers. This broke the rule that the hierarchical structure (or ratchet) must be kept intact, with blacks always working under whites.

Postwar economic growth in South Africa has made the nonwhite population so heavily integrated within the "white" society that the very idea of "separate development" is ridiculous as a practical proposition, never mind its moral implications. Without skilled black labor, white living standards would fall precipitously. The inevitable economic magnetism between the races has drawn people physically and socially close together. Whereas the median white voter of the twenties insecurely viewed black workers as substitutes, the majority of whites in recent years have seen racial cooperation as economically beneficial. On the other hand, the dramatic growth of an educated, urban African population, including a sizable black middle class, served to enormously raise the cost of enforcing apartheid. Indeed, the old African tribal system, which was cynically manipulated by apartheid policymakers under the notorious homelands policy, was eclipsed by the rise of urban townships closely tied to industrial job centers.

The vicissitudes of apartheid can be measured by the ratio of black income to white. From 1946 to 1960, despite a decrease in the white proportion of the population, a constant 70 percent of South Africa's national income went to whites. But between 1970 and 1980, this fell to 60 percent. Apartheid's decline can also be seen in increasing expenditures on black education: the twenty-to-one ratio in white-to-black per-pupil educational spending in 1952 had shrunk to about five to one in 1987. Most evidently, reform is seen in the elimination of the apartheid laws: the Prohibition of Mixed Marriages Act (scrapped in 1985), the abolition of the Pass Laws (1986), and the widespread elimination of "petty apartheid" (whereby separate facilities for racial groups was rigidly maintained). In 1991 President F. W. de Klerk eliminated the Group Areas and Population Registration Acts, the backbone of social apartheid. The nation turned its attention to crafting "a new South Africa," as the president set a 1994 deadline for adoption of a color-blind constitution guaranteeing equal rights under law to all citizens.

Did international sanctions against South Africa force Pretoria's hand in these reforms? The evidence is virtually unanimous that progress has been only modestly correlated at best, and negatively correlated at worst, with such foreign campaigns. Not only did sanctions fail to lower South African trade flows from their previous levels, but GNP growth actually accelerated after the European Community and the U.S. sanctions (in September and October of 1986, respectively). Most astoundingly, South African businesses reaped at least $5 billion to $10 billion in windfalls as Western firms disinvested at fire sale prices in the 1984-89 period.

Whatever the economic impact, the immediate political effect of sanctions was to encourage retrenchment by the Botha regime. Right-wing (proapartheid) support rose sharply in the May 1987 parliamentary elections, and the National Party government responded by shelving all reforms and brutally suppressing antiapartheid dissent, initiating a state of emergency accompanied by sweeping press censorship. Only with a fading of sanctions pressures, a rebounding economy, and key changes in the international geopolitical environment (notably, the collapse of the Eastern bloc) did the course of reform reassert itself.

Apartheid was sought by those economically threatened by the synergies between black workers and white capitalists. That interest groups can so steer economic regulation as to achieve the social savagery of apartheid is a chilling lesson for those who take their politics—and hence their economics—seriously.

About the Author

Thomas W. Hazlett is a Senior Fellow at the Manhattan Institute for Policy Research, and a Senior Research Associate at the Columbia Institute for Tele-Information. In 1991-92 he was Chief Economist of the Federal Communications Commission.

Further Reading

Doxey, G. V. The Industrial Colour Bar in South Africa. 1961.

Frederickson, G. M. White Supremacy: A Comparative Study in American and South African History. 1981.

Giliomee, Herbert, and Lawrence Schlemmer. From Apartheid to Nation-Building. 1989.

Hazlett, Thomas W. "Kinnock's Crowning Cheek on Apartheid." The Wall Street Journal (December 31, 1986): 14.

Hazlett, Thomas W. "The Economic Origins of Apartheid." Contemporary Policy Issues 6 (October 1988): 85-104.

Hazlett, Thomas W. "One Man, One Share: How to Privatize South Africa." The New Republic 203 (December 31, 1990): 14-15.

Hazlett, Thomas W. The Effect of U.S. Economic Sanctions on South African Apartheid. Davis, CA: University of California at Davis, Institute of Governmental Affairs, Applied Public Policy Research Program, working paper series no. 3, April 1992.

Hufbauer, Gary Clyde, Jeffrey J. Schott, and Kimberly Ann Elliott. Economic Sanctions Reconsidered, 2d ed. 1990.

Lowenberg, Anton D. "An Economic Theory of Apartheid." Economic Inquiry 27, no. 1 (January 1989): 57-74.

Lapping, Brian. Apartheid: A History. 1987.

Lingle, Christopher. "Apartheid as Racial Socialism." Kyklos 43, no. 2 (1989): 229-47.

Lipton, Merle. Capitalism and Apartheid. 1986.

Lipton, Merle. "The Challenge of Sanctions." Washington, DC: Investor Responsibility Research Center, 1989. Paper presented to the Economic Society of South Africa, Johannesburg, September 6-7, 1989.

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