Apartheid Was Bad
Herrenvolk state capitalism is not optimal economic policy
While I disagree with Lyman Stone on a host of issues, at least he doesn’t think Apartheid was good. Recently, he engaged in a brief tit-for-tat with Simon Laird, a leading member of the new cohort of foppish neo-Hoppeans that compose the New (New?) Right. The topic of debate was whether Apartheid in South Africa was good, with Laird in the affirmative and Stone in haphazard negation.
Stone’s arguments are quite poor critiques of a decades-long system of stifling, terroristic white supremacy, nearly entirely relying on crude peer comparisons and even conceding that White minority rule may have been “optimal for growth.” Laird’s post proceeds without a modicum of causal inference. His arguments consist of some statements about national IQ, a misreading of the history of Botswana, an evidence-less claim about the impact of sanctions, some nonsense peer comparisons, and the fact that South Africa has had a higher murder rate in recent years.
Aren’t we supposed to be economists here? Aren’t we supposed to use something a little more substantive, a little more scientific in our argumentation than “erm don’t you see graph go down.” Do neither of these people, or for that matter any of the many intellectuals who have come out in favor of Apartheid revisionism have any curiosity about any evidence beyond the most basic, reflexive puttering about?
I do! Apartheid was definitely bad, and the historical political economy research gives us reasons why even outside of basic commitments to human ethical equality.
Of course, if you have an ethical presumption of liberty, you will immediately see that Apartheid is impermissible. I highly doubt that such arguments would appeal to anyone with ‘Apartheid was good’ as a prior, so I will be focusing on the economic performance of the Apartheid regime and other utilitarian considerations.
In economics we have methods beyond pointing a single graph for determining causal inference, development economics has quite different answers to the problems of economic growth than the reactionaries would have you believe. Their error is the same as the Marxists: the crude assumption that capitalist economies best perform under conditions of elite institutional domination. This is a rather strange claim in a world in which Acemoglu and Robinson are Nobel prize winners, or one in which the evidence suggests democracies outperform autocracies.
Long-run prosperity depends on inclusive economic institutions - rules that secure property rights ,enable market entry, and distribute opportunity. These institutions emerge only when political power is broadly held and the state is strong, otherwise elites create extractive institutions to maximize rents, stifling growth. With secure property rights, higher investment in capital - especially human capital, better resource allocation, and openness to creative destruction, democratic states with high capacity experience more rapid economic growth and technological progress.
Minority rule in South Africa preserved a set of inefficient, extractive economic institutions that led South Africa’s economy to underperform. Labor market institutions were enormously constrained (in any other context our libertarian interlocutor would likely identify these regulations as inefficient, a curious error!). The white-only job reservation barred Black and Colored workers from skilled posts, forcing firms to overpay scarce White artisans or operate below efficient scale. Pass laws and contract policing generated monopsony power in the Black labor market, driving real wages in core industries well below efficient equilibrium.
The Bantustans that characterized Apartheid outside of White plurality areas created massive spatial immobility for workers. Some 13 million people were confined to ‘homelands’, an inefficiency that persists in ~17% lower wages than observationally similar workers a decade following the end of Apartheid. All of these factors contributed to a labor market that was anything but free, causing underemployment, artificially low wages for Blacks, and subsidized wages for White workers. Preventing migration to the Cape prevented firms from achieving agglomeration economies, reducing national output.
Racialized over-regulation of the labor market is only one component of the Apartheid regime’s extractive economy. To support buffer zones around the homelands, Pretoria subsidized factories in border regions and imposed burdensome location permits on firms. Studies document higher transport costs, infrastructure duplication, and other inefficiencies in these areas. The mercantilism of the regime shielded White-owned heavy industry from international competition, locking in obsolete technologies.
Maintaining Apartheid was wasteful. Apartheid was not simply widespread taste-based discrimination, a strict system of racial segregation, effectively a deep system of individualized, firm-level, and spatial regulations on autonomy that again, in any other context, a libertarian would denounce as wasteful and authoritarian. There were significant ‘Guard Labor’ costs in enforcing the regime, including additional police, military patrols, and bureaucrats, which consumed an increasing share of national income. Of course, this does not even include the disastrous and costly military interventions of the Apartheid regime, in Mozambique, Angola, Botswana, and Zambia, all motivated to strengthen the position of Apartheid and often targeting pro-democracy forces. By 1990, defence consumed 13% of government spending and required the conscription of White South Africans. These costs crowded out private investment and consumed tax revenue that could have been used for education, infrastructure, and so on.
Then, we can consider the under-investment in the human capital of the Black and Colored population. Blacks were excluded from quality schooling and apprenticeships, meaning that the White workforce could not expand quickly enough after mining revenues began to fall. The resulting bottleneck depressed total factor productivity growth and forced costly and inefficient capital substitution. There was also chronic under-investment in the Colored population. The fact that Blacks in the Bantustans were restricted from becoming anything other than unskilled workers combined with the industrial policy of the regime which concentrated manufacturing requiring semi-skilled labor in border areas. Firms then inefficiently substituted capital and survived behind tariff walls, dragging down labor productivity. Growth accounting shows that TFP peaked in 1970, and then fell for two decades after as skill bottlenecks built. This arrangement also harmed White workers, with one study demonstrating that each additional year of Colored and Black education raises White wages as the economy as a whole is able to make Pareto improvements. These artificially low wages undermined domestic demand and intensified need for guard-labor as immenseration intensified - a vicious cycle.
All of these factors provide plausible mechanisms for the results of the best counterfactual analyses of the South African economy, which find that free labor markets alone would have generated a 5-10% increase in GDP from baseline. We can thus be reasonably confident that Apartheid South Africa, which possessed a dense network of inefficient economic institutions, had lower economic growth than a counterfactual South Africa with inclusive institutions predicated on democratic majority rule. A comparative study demonstrates that booming mineral revenues obscured this under-performance, but after the softening of commodity prices in the 1980s, the trend in GDP per capita growth turned negative. It is not simply enough to point at South Africa’s economic growth during the period and establish a causal relationship between that growth and Apartheid - otherwise a leftist would be able to do the same with the Soviet Union. The evidence suggests instead that South Africa’s economy grew despite, not because of, its peculiar institutions. Of course, none of the above analysis fully includes the disutility of Black South Africans. The Apartheid government imposed a regime of racial exploitation and segregation through ruthless terrorism. Black wages were artificially suppressed, resulting in lower living standards.
Why did these institutions persist for so long? This is a textbook case of elite capture. The state was an instrument to secure the interests of White, especially Boer, organized labor, farmers, and rural capital. The central mechanism of Afrikaner state capture was state-owned enterprises that controlled state industries and provided patronage to Boers. In many cases, these firms were created explicitly to bypass the power of the Anglo business class. The state sector became a mechanism for rent-seeking. Alongside the institutions discussed above, Afrikaners were able to use state enterprises accrue extractive rents and capture national income that could have been directed to investment. This rent-seeking behavior was unsustainable. As economic growth contracted and the White population sought gains from liberalization, it became more efficient for many Whites to abandon Apartheid.
Apartheid collapsed under its own weight. It was no longer even in the interests of the White population, as evidenced by public choice models of White political behavior. Sanctions had minimal effect on the South African economy, as was noted at the time. Apartheid South Africa’s agricultural and manufacturing sectors were already under the protectionist umbrella of the state’s tariff and subsidy policy and had minimal impacts on the viability of the regime. Rather, democratization was the result of the alignment of incentives between the Black majority and large sections of the White middle class and business, which sought to be free from the restrictive economic institutions that characterized Apartheid. In their own economic self-interest, South Africans decided to abolish Apartheid and democratize, but this process did not result in a dramatically dynamic society.
Democratization saw the persistence of the White elite in South African society, now joined by a substantial Black and Colored cohort. Inequality, which suppresses economic growth, and elite capture of institutions has prevented the democratic transition from truly emancipating the South African people - and the South African economy. Dismantling coercive labor institutions did increase wages, and economic outcomes in the 21st Century for a democratic South Africa have likely been better than the counterfactual continuation of a zombie Apartheid regime, but the country is still saddled with inefficient policies that are maintained for the benefit of an extractive elite. In the former Bantustans, the traditional elite maintains repressive and inegalitarian rule. Organized crime syndicates have captured many elements of the state, which has crucially impacted the electricity grid. The history of South Africa following Apartheid has been characterized by a dearth of state capacity, as seen in the murder rate, blackouts, and so on.
This is still obviously a society with significant frictions to economic growth, but much of this state failure is a result of drastic inequality - a holdover from Apartheid. Even after democratization, the South African state is predominantly captured by misaligned elites whose objective is not to optimize for progress. The solution to this problem is deeper liberalization and land reform - not the restoration of the previous inefficient system!
I have noticed a recent turn in small sections of the Progress Studies-adjacent space towards a certain fetish for autocracy. I urge libertarians and classical liberals to resist the temptation of this path. At the end of that road is not a dynamic, high-growth equilibrium defended by an enlightened monarch or concentrated political class. The only things you will find upon abandoning egalitarian democracy are stagnation, shanty towns, and the barrel of a gun.
As a post-script, here are responses to the specific arguments advanced by Laird. None of these arguments are particularly plausible.
1] “Mauritians are not Africans”
This is a response to Stone’s argument re: IQ in his disagreement with Deep Left Analysis. As national IQ is not strongly associated with economic growth and it doesn’t respond to the question of whether or not Apartheid was “good”, this argument has no bearing on my own.
2] “Botswana did not have racial apartheid laws, but the black majority was not allowed to govern.”
Botswana was not an autocracy, but a dominant-party democracy with competitive elections. Though Botswana’s democracy was and is relatively shallow, the black majority is indisputably exercising a degree of popular sovereignty. The country holds local popular assemblies that check the authority of chiefs and allow for public contribution to policy making. The state protects basic liberties such as freedom of speech and assembly, and has an independent judiciary and other constitutional constraints. The very fact that Botswana experienced electoral turnover after the ruling party attempted to further centralize power is evidence of the reality of Botswana's inclusive institutional arrangements. Botswana’s government is not maximally democratic, but it is undeniably characterized by inclusive institutions - certainly enough to demonstrate that African self-rule does not preclude economic growth.
The first ruler of Botswana was educated at the London School of Economics and did implement a classical liberal economic agenda, but contrary to Laird’s claim that this program was against the will of the black majority - it is plausible that the BDP was implementing a program with majoritarian support. The party’s base was smallholders, the nationalist middle classes, traditional elites, and the rural bourgeoisie. The BDP’s program of guaranteed property rights and liberal democratic norms, as well as state support for the rural economy, seems to at first glance be similar to the programs of many agrarian-liberal political parties with similar bases. It is actually not uncommon for the rural poor, especially smallholders, to vote for classical liberal policies. If anything, this was the original base of liberal parties in Europe. My confidence in this claim is pretty low though and I would definitely have to pick up a real book on Botswana before having any more confidence in it.
3] “Sanctions hurt South Africa’s economy. The sanctions were lifted after 1990.”
I discuss sanctions above, but it is in this section where Laird dismisses a study (Bhattacharya and Lowenberg 2009) by claiming that “it’s generally not worth reading a study if the author would have lost his friends and damaged his career had he found a different result.” This is an insane epistemology that would conclude that all research supporting any salient consensus view is illegitimate. If Laird has actual methodological critiques of the study, I would love to hear them!
4] “South Africa’s performance compared to other countries in the region.”
South Africa’s economy began declining in the 1980s during the global downturn, which in South Africa, like other countries with unfree labor institutions (Yugoslavia, Sweden, etc.) experienced declining factor productivity and chronic underemployment. South Africa’s underperformance begins during the Apartheid regime, when compared to its neighbors and to counterfactuals.
5] “Murder”
The high murder rate in South Africa is the result of state capacity failures, rise of organized crime, and drastic inequality and unemployment. Again, these are symptoms of extractive institutions, not of democratic majority rule. It is also unclear to me what the causal argument here is supposed to be? 1] Crime was lower before the end of Apartheid, thus 2] Apartheid prevented crime - is an error of logic so basic as to be obviously made in bad faith.
