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Archive for July 2012

Remaphobia and post-apartheid economics

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Why Nations Fail authors, Daron Acemoglu and James Robinson, have recently written a series of blog posts on South Africa. One of these, The Fear of Oligarchy, argues that the “African National Congress (ANC) were so concerned that alienating the white elite would be very costly, they ended up with a society even more unequal than the one they inherited”. They argue – using a mind map that link prominent black politicians to private sector firms – that “white capital” gave the ANC political elite a stake in the private enterprise economy. “Perhaps the major driver of the lack of effective reform in the extractive economic institutions of Apartheid is not just that the ANC elite were fearful of collapse but also because they started seeing their personal interests in the continuation of the same economic institutions.”

This is reminiscent of professor Sampie Terreblanche’s views of the “secret meetings” that took place at the CODESA negotiations to end Apartheid, in which white capital absorbed the black political elite to protect their own interests. The high inequality today, Terreblanche argue, is a result of the black elite selling out to the greed and selfishness of “neo-liberal democratic capitalism”.

These explanations for South Africa’s high current inequality omits three important facts. Firstly, South Africa’s post-1994 economy has grown surprisingly well. While we’ve not reached the stellar growth rates of China and India, South Africa maintained growth rates between 2 and 6% for 14 years after what is universally considered a remarkable political transition. Why is this important? Because this growth has not only benefited the rich, as many pundits tend to suggest. In fact, several research papers over the last few years show explicitly that poverty in South Africa has declined, especially after 2000. Had the political transition been less smooth – and ANC leaders been less accommodating of “white capital” or, more broadly, of “the market” – this remarkable achievement of persistent, positive growth in the face of some pretty severe economic and social challenges (high debt levels, unequal social spending, high political expectations) would certainly not have been possible. We don’t know the counterfactual, of course, but Zimbabwe post-2000 does point to one possibility. Few of the thousands of immigrants that entered South Africa over the last few years would be positive about President Mugabe’s enthusiasm to fight the forces of white capitalism.

Secondly, the mind map of connections between politicians and the private sector should not be all that surprising. Most former politicians, in any democracy, often take up private sector positions, either as business leaders within the organisations or as advisers on the Board of Directors. While there are several (recent) examples of blatantly corrupt deals within the South African political system, the media have so far done a good job of exposing these, and these officials were axed (often only after severe media pressure, but still). Perhaps Acemoglu and Robinson should rather compare the level of political-private sector connections between South Africa and the United States, say, or Japan, or India. Not to mention China, or Russia. The results might be surprising.

Thirdly, what is “white capitalism” anyway? Most of the companies Acemoglu and Robinson include in their mind map are not wholly white-owned. They are publicly listed companies on the stock exchange, their shares owned not only by white South Africans, but predominantly by large pension funds (who control the money of all South Africa’s pensioners, including blacks) and also by foreign investors. To blame “white capital” is to blame an non-existent foe, to attack a straw man.

The ANC leaders after the 1994 transition had few better alternatives. Trevor Manuel, Thabo Mbeki and Tito Mboweni’s macroeconomic policies were spot on – not only to benefit “white capitalism” but for the benefit of all South Africans, especially the poor. What was lacking was effective microeconomic policies and, especially, the implementation and execution of these policies.

Those that dwell on whether the ANC peacemakers sold their soul in 1994 have remaphobia, a fear of facts. The reason South Africans still face severe problems today are not due to the greediness of the ANC officials who negotiated peace in 1994, but because these leaders (and their successors) struggled to create or sustain the institutions required of a successful democracy: most notably, a public office that deliver the services their citizens require. (In a sense, these services were there before 1994, but only catered toward a select few.) The challenge was – and still is – to extend these services to all South Africans.

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Written by Johan Fourie

July 26, 2012 at 21:04

A remarkable life

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He had written the Constitution of the League of Nations (after World War 1), and the Preamble to the United Nations Charter (after World War 2). Winston Churchill once declared that “my faith in him is unbreakable”. Woodrow Wilson admired him “extravagantly”. Albert Einstein said that he was one of the few men who understood the theory of relativity.  He would meet John Maynard Keynes in the evenings, and “we (would) rail against the world”. Nelson Mandela praised his contribution to “promoting freedom throughout the world”. But perhaps the most apt quote comes from Lord Todd, the Master of Christ’s College, Cambridge, who said that in the 500 years of the College’s history, of all its members, past and present, three had been truly outstanding: John Milton, Charles Darwin and Jan Smuts.

Jan Christian Smuts studied at Stellenbosch before he went to Cambridge, he fought in the Second South African War (against the British), in the First World War (in Tanzania, against the Germans), and in the Second World War (in North Africa), he accompanied Churchill to France after the D-Day landings, advised King George V on the Irish rebellion, was twice Prime Minister of South Africa,  Chancellor of the University of Cambridge, and was considered one of the leading experts on South African botany.

I recently read ‘Jan Smuts: A Man of Courage and Vision’ by Antony Lentin. It provides – in less than 200 pages – an insightful overview of the life and times of this extraordinary man. Every page offers a new adventure, like meeting Austrian Finance Minister, Joseph Schumpeter, in Vienna, or, on an early morning stroll in Paris, accidentally meeting Herbert Hoover (future president of the United States). The most fascinating anecdote, however, comes from his Tanzanian campaign against the Germans. The German Kaiser had awarded Smuts’s adversary, General Paul Emil von Lettow-Vorbeck, an Iron Cross, but it fell into the hands of Smuts. Gallantly, Smuts forwarded the Cross to Von Lettow-Vorbeck with his own congratulations attached. Ten years later, the two would meet again, in London, at a function, and Smuts would toast to his former foe’s good health and mark the event as a sign of reconciliation. When Von Lettow-Vorbeck fell on hard times in his old age, Smuts sent him food parcels and arranged for a pension to be paid to him.

Today, though, Smuts is uncelebrated in South Africa. As much as Madiba is the face of reconciliation at the turn of the 21st century, so Jan Smuts was the face of reconciliation at the turn of the twentieth century. In 1905, Smuts wrote to his arch-enemy, Sir Alfred Milner, that “history writes the word ‘reconciliation’ over all her quarrels”.  What if our children, a century from now, have forgotten the tremendous reconciliatory work of Mandela, much like we have forgotten Smuts? Let’s hope the future will be more kind to our collective memory of South Africa’s great conciliators, a history where Jan Smuts deserves his rightful place alongside Nelson Mandela.

Another stadium for Green Point?

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Another White Elephant? Image from futurecapetown.com

The City of Cape Town is building another stadium in Green Point. Next to the iconic Cape Town stadium, a new Green Point athletics stadium is currently under construction, with a capacity to seat 5500 spectators. futurecapetown.com has been critical of the design of the new stadium, but I’d like to take another step back: Why is a new athletics stadium at all necessary? Isn’t there a state-of-the-art athletics stadium in Bellville, which was given a multi-million rand upgrade as recently as 2005? Moreover, this is prime property. Next to the new Cape Town stadium, this land could have been rezoned to accommodate a five-star hotel or A-grade offices. Or why not build a sports tower to accommodate the offices and archives of Western Province Rugby, Ajax Cape Town, and all the other sport federations in the province, offering further incentives for WP Rugby to move from Newlands to the impressive Cape Town stadium? It’s not even that the new athletics stadium is built with a long-term events strategy in mind. As futurecapetown.com points out, the new stadium cannot even be expanded for large events. If Cape Town hopes to host the All Africa Games, or Commonwealth Games, or Olympic Games, the new stadium would be pretty useless.

As I’ve written before, infrastructure like sports stadiums says a lot about the city’s vision for its future. Cape Town stadium positions Cape Town as a world-class city, able to stage a FIFA World Cup and – hopefully – many international rugby and soccer matches (and a concert or two). But would a new athletics stadium of this size not have been more sensible in a densely populated, under-serviced area like Langa or Harare, Khayelitsha? If we would like to nurture South Africa’s next generation of world-class athletes, do you build a 5500-capacity stadium in Green Point, where the opportunity cost of land is excessive, or in Khayelitsha, close to those kids who might dream about being the next Mbulaeni Mulaudzi or Khotso Mokoena? I would think the latter.

Written by Johan Fourie

July 18, 2012 at 08:52

European colonisation: good or bad?

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James Robinson at the World Economic History Congress 2012, Stellenbosch University. Photo by Reinhardt Germishuijs.

A major theme of the current World Economic History Congress (follow #wehc2012 on twitter) is the colonial impact of European settlement. James Robinson, in his plenary on Monday (here are the slides), argues that “there is a clear case for colonialism retarding development”, especially in “colonies which corresponded to a pre-colonial polity: there was the essentials of order and public goods provision which could have been the basis for development, colonialism stopped the existing dynamics of centralization and severed links of accountability (indirect rule) and in many cases created or intensified conflicts.” According to Robinson, “colonies of large scale white settlement: mass immizerization associated with land expropriation, creation of huge inequalities, institutionalized racism. These colonies were more successful on average during colonialism, but had worse problems to deal with afterwards (Zimbabwe).”

This position is somewhat surprising, given that this is the same Robinson of the now famous Acemoglu, Johnson and Robinson paper, which argues that settler institutions were conducive for economic development in contrast to the extractive institutions set up in areas where Europeans could not settle. Also, Easterly and Levine have a new paper which shows empirically that the more Europeans that settled, and the earlier they did so, the better for those countries today: “The results are consistent with the view that the proportion of Europeans during the early stages of colonization exerted an enduring, positive impact on economic development.”

So was colonisation good or bad? I guess it depends on who you ask. Ask the masses of native inhabitants who died because of settler diseases (or the settlers who died of native diseases), and they would be pretty sceptical about the benefits of colonisation. Ask the slaves and the indentured labourers who struggled to survive just above subsistence (although there is also heterogenous experiences here), and they would also be pretty pessimistic about the benefits. But the descendants of settlers, slaves and natives that now live in countries where European immigration was greater have attained higher living standards than regions where European settlement was low. Is it better to live in South Africa or the Congo? Ask the Congolese, Somali and Zimbabwean immigrants (settlers? refugees?) that arrive in South Africa every day.

But perhaps we are asking the wrong question. As I’ve argued before, showing that more white people is correlated with higher levels of income today explains very little about the mechanisms that cause this growth. If we want to learn from the histories of colonisation, we need to understand its causal mechanisms – property rights, human capital, trade, democracy, language, religion or culture, and its dynamic interactions with each other over time. Only by understanding these mechanisms can the experiences of colonisation have positive consequences for future generations.

Written by Johan Fourie

July 10, 2012 at 18:30

Welcome to Stellenbosch

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(c) Jaco le Roux (www.jacoleroux.com)

With the World Economic History Congress 2012 kicking off in two days, the more than 800 delegates have begun arriving in the not-so-summery Stellenbosch. (The above photo, by Jaco le Roux, is a good example of the type of weather we’re wishing for.) The WEHC2012 is, of course, an exciting event for economists and historians on the African continent: not only is it the largest such conference ever held on African soil (nearly 800 papers will be delivered over five days in 15 parallel sessions), but it also the leading lekgotla for some of the most acclaimed international economic historians. With the conference theme “The Roots of Economic Development, the opening morning plenary, by James Robinson, co-author of Why Nations Fail, is sure to stimulate debate about the importance of political institutions as a causal determinant of economic development. So, too, will the debate between James and Gareth Austen on the root causes of African development on Friday afternoon. In-between, I look forward to some really interesting sessions, particularly the Presidential Session on “Inequality and the Quality of Life” (Wednesday morning, Arts building 229), the Economics of Civil War (Tuesday afternoon, Arts building 225) and two sessions of Economics and Causation in History on Friday. But there are sessions for everyone’s taste: from “Transnational Marriage Markets and Migration” (Friday afternoon, Arts building 229) and “Fashion and Economic Development” (Tuesday morning, Arts building 228), to “The Value of Used Goods” (Wednesday afternoon, Arts building 220) and “Global Land Grabbing and Food Security in Africa” (Friday morning, Arts building 220). The programme is available here.

I’ll also present a couple of papers: A session co-organised by Erik Green (Lund University), Ewout Frankema (Utrecht University) and myself will investigate the colonial causes of development and underdevelopment. We have invited papers covering diverse geographic areas, including Haiti, Tanzania, the Spanish Philippines, Mexico, Botswana and my own work on the Cape Colony. Join us in Room 226 (Arts building) on Tuesday afternoon. I’ll also present a paper on Cape living standards in Leigh Gardner’s session on “Living Standards in Africa” on Wednesday morning (Ou Hoofgebou 2027), and in Joerg Baten and Alex Moradi’s session on “Human capital and Development in Africa and Latin America” on Wednesday afternoon (Arts building 223). Finally, I’ll present some new ideas about Cape Colony fiscal policies (co-authored with Ada Jansen and Krige Siebrits) on Thursday morning in Ewout Frankema and Anne Booth’s session on “Colonial Fiscal Policies” (Ou Hoofgebou 1017).

The organisation of such a conference is a massive undertaking, and without the help of African Agenda, I’m not sure it would have been possible. Aside from the formal academic sessions, there are a host of other activities, like a book launch, a welcome dinner (at Moyo, Spier) and a cultural evening (in City Hall). And I’m sure some delegates will find some time for a wine-tour or two. Incidentally, there’s also the annual Stellenbosch International Chamber Music Festival running concurrently, so delegates in the mood for cultural enrichment should certainly consider attending a show.

We’re excited and ready to go. Let’s hope the weather plays along.

PS: If you’d like to keep abreast of news and conference updates, follow our Twitter account @wehc2012.