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Archive for November 2012

Experiencing history

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The South African Economic History Annual, a new publication by the Economic History Society of Southern Africa, was published today. The Annual brings together news of recent and upcoming events, ideas and research by scholars across several disciplines (and hopefully this will expand in future), and one or two personal accounts and interviews.

2012 was a great year for economic history research in Africa. The World Economic History Congress was held in Africa for the first time and, as Sophia du Plessis writes, shifted the focus to African economic histories neglected for too long. New data sources are being unearthed and digitised, more South African universities are offering undergraduate or graduate programmes in economic history, and several South African students are enrolled in economic history programmes abroad.

As Africa’s future prospects brighten, so does the interest in African economic history.

But, as regular readers of this blog would know, economic history is not only about things that happened in the past. Development is a process – a non-linear, staccato process of trial and error – that fits the mercury-in-the hand cliché very well: as soon as we seem to be closer to describing it, understanding it, explaining it, the development process inevitably changes, affected by time, terrain and technology. It is constantly changing, and although our past affects our present (and there are several reasons to understand this), our present will in all likelihood affect our future in very different ways. Which is all the more reason why economic historians can ill afford to cosily hide in ivory towers, sneaking out for a quick trip to the archives. Or to only travel from comfy conference to conference, presenting our work to (predominantly) Western scholars with the (exclusive) aim of publishing in the top journals. (Not that it’s a bad thing to publish in those journals, given the increasingly important tenure and/or ratings incentives.)

But Felix Meier zu Selhausan’s fascinating account of his experience at Mountains of the Moon University in Western Uganda is a reminder that economic history – in addition to its research and teaching component – should also be experienced. Felix has spent the last two years at MMU, a seven year old university funded by the local community, teaching various undergraduate courses and, over a few beers in Stellenbosch a while ago, he explained to me how he has seen the difference tertiary education has made. Not measured, not surveyed, not deduced from national census data. Seen. Isn’t that more gratifying than any journal publication? Incidentally, by physically being there, Felix also stumbled upon some very unique datasets that will help his own research – and begin to shed new light on Uganda’s colonial (and, potentially, pre-colonial) period.

Not everyone has two years to spend in the Pearl of Africa. But perhaps we – and I’m actually referring here mostly to economists like myself – should make an effort to engage more with the communities we investigate. I suspect the learning curve will be much steeper, and more rewarding.

PS: The Mountains of the Moon University would appreciate support, in whatever format. Books, exchanges, funding. Send Felix a mail if you have any ideas.

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Written by Johan Fourie

November 29, 2012 at 20:16

Four lessons from railways in Ghana

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Railways in Ghana: The growth of cocoa production along the railroads are clearly visible. Source: Jedwab and Moradi (2012); Figure 4.

In times of economic crisis, transport infrastructure are often the first items slashed from the government’s budget. This is because 1) it’s easy to do so: there are few consumer, labour or other electoral groups that feel strong enough about the unbuilt railway or airport, and 2) like a frog in boiling water, we only notice the decline of the infrastructure over an extended period of time (and when it’s already too late): small potholes don’t attract the anguish of protesters, but wait a few years and those same potholes might double or tripple the time and cost of traveling. Any politician trying to cut government expenditure on education or health would face the (election) gallows, but cut transport infrastructure investment and few will notice.

One of the reasons economic historians investigate the past is because they believe that history has valuable lessons that can inform the tough decisions of policy makers face. Rémi Jedwab and Alexander Moradi, in a recent Working Paper, show just how important transport infrastructure can be to aid a country’s development. They investigate the construction of two railways in early twentieth-century Ghana. The railways were built for the extraction of minerals and for political and military reasons (to connect the main cities in the interior, to help in transporting troops in times of war). But, surprisingly to many of the colonial governors, the railroads had a much bigger economic impact: because of reduced transportation costs, many subsistence farmers switched production to cocoa, a rich cash-crop. Using detailed GIS census data of farm production, the authors show that those farms that were closest to the railroads benefited the most. The benefits were immediate, and within a decade most farmers were successful cocoa producers, making Ghana an example of the positive impact of colonial policies. But the railroads also had long-term benefits: using recent census data, the authors show how cities arose closer to the two railroads and how, later, once the boom in cocoa prices had ended, manufacturing and the service sector benefited from the lower transport costs of the railways.

It’s a great economic history paper: its lessons are applicable to all government policy makers faced with tough budgetary cuts or “planning commissioners” that are responsible for the long-term economic vision of a country.

The first lesson: transport infrastructure may have very different (positive) consequences than initially envisaged. The Ghanaian colonial governors had thought that mining would be the most important beneficiary of the project. Palm oil and even tourism were also touted as potential industries that could benefit, but few thought that cocoa would become the cash crop of choice. Even in the much less complex colonial economies, policy makers simply could not predict the sector with the most potential.

Lesson two: the type of transport infrastructure that was built (in this case, railways) cut the transport costs between local producers and the export market by more than 50%. Before the railways, only a few farmers had invested in cocoa production (it takes several years for a tree to produce) and these farmers had two ways to get their cocoa to market, either loading it on their heads and walking it to market (costing 30-60 pennies per kilometre), or rolling it in casks (23 pennies per kilometre). The railway reduced this price to 11.3 pennies per kilometre, suddenly generating not only huge profits for those closest to the export market, but also allowing many farmers in the interior of Ghana to shift to cocoa production profitably.

Lesson three: the public sector had to fund the initial cost of building the railway; there was no private sector to do this initially (and no bank would have been willing to fork out money for a project that had no definite returns). Even though modern transport infrastructure has become ‘excludable’ (see Calitz and Fourie (2009) and Fourie (2006) for an overview), because the beneficiaries are not always evident up front, it remains a public good that needs government support.

Lesson four: transport infrastructure results in long-run spatial changes that has important development consequences. As the authors show, agriculture next to the railroads has now been replaced by manufacturing and service industries. Most of the largest urban areas are along the railroads, and those people living closer to the railroads have a higher likelihood of access to better education, health, water and sanitation services.

I’m not advocating some Sachsian splurge in infrastructure spending. Building a railway through some of the poorest provinces in South Africa, like the former Transkei region or rural Limpopo, may yield few benefits. As many travellers in South Africa will also point out, railroads need accompanying services, such as timely, reliable and safe trains. (This is perhaps one topic which Jedwab and Moradi can expand on.) South Africa has a well-connected rail network, but the service is not what it should be.

But maybe railroads are not the transport infrastructure of the future. Let’s take broadband. What will the affect be of a high-speed broadband connection (and affordable services) to households living in the former Transkei? Unfortunately, these days it’s not simply about producing cocoa and loading it onto the railways destined for some international consumer. To access the digital highway requires a computer and the skills to use it. But that should not be a reason for not building broadband links, but rather a call to improve education and access to services in these rural areas.

It’s easier and cheaper to do this in cities: connecting the Khayelitshas, Grassy Parks, Durbanvilles and Constantias will benefit entrepreneurs and businesses in Cape Town by reducing internet costs for every industry that uses the web (lesson 2) although the beneficiaries are unknown, even invisible (lesson 1). The social benefits will outweigh the private ones, and no private firm will be able to recoup the social benefits, which is the reason government should foot the bill (lesson 3). Broadband in cities will make it a more appealing place to work and live, providing more people with a higher standard of living (lesson 4).

Siyakha: let’s build.

Written by Johan Fourie

November 27, 2012 at 21:29

Evidence of the slow demise

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Employment in agriculture in the Cape Winelands District Municipality. Data: Quantec (2012); own calculations.

My post on the Cape Winelands labour unrest generated huge interest from a wide spectrum of readers (a big thank you to everyone who retweeted on Twitter and shared on Facebook; I was even invited to write an Afrikaans version for the Sunday paper Rapport).

Meanwhile, I’ve found corroborating evidence for my supposition that higher wage demands and better technology will reduce the demand for labour on farms. The figure above shows agricultural employment numbers for the five local municipalities of the Cape Winelands District Municipality, the region where most of the unrest occurred. I must admit that I was surprised by the rapid decline since 1995: even while output has increased by 1.4% annually over the entire period (not shown), employment has fallen from more than 120 000 jobs to fewer than 50 000 today. The trends are similar across all municipalities meaning that wine farmers in the Stellenbosch region shed jobs as much as citrus farmers in the Witzenberg region. This is, of course, a story of productivity growth: more output with fewer inputs, probably caused by the need to compete in lucrative export markets. But it is an unhappy outcome for farm workers, who’ve seen their job opportunities in the industry collapse.

My prediction remains unchanged: Higher wage demands will only accelerate the decline of employment on Western Cape farms.

Written by Johan Fourie

November 18, 2012 at 19:26

The slow demise of the farm worker

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The future of the Western Cape farm worker?

The farm strikes and social unrest in the Western Cape over the last week has created considerable emotional distress on both sides. Farm workers complain about their R70-a-day wages, while farm owners are aggrieved about the loss of output (remember, we are close to harvest season), threat to their security and destruction of capital (hundreds of vineyards and several buildings have been burned down). And then there are the other interest groups, the trade unions, the political parties (the DA governs the Western Cape, the only province not to be governed by the ruling ANC), and the media with their own vested interests and polarised audiences.

As always, emotive politics dominate the debate. COSATU, headed by the charismatic Tony Ehrenreich, calls for mass action against the “exploitation” of farm workers. The national Minister of Agriculture, Forestry and Fisheries, Tina Joemat-Pettersson, has said that through the strikes, the workers have shown that they will not be “oppressed”, that they won’t be “treated like slaves”, that they deserve “basic human rights” and that “we cannot have a province where there is still Apartheid” (these quotes are all from her spokesperson’s twitter account).  The Eastern Cape branch of the ANC has even called for a wine boycott, even though De Doorns produces table grapes, not wine.

The South African wine (and grape) industry has a notoriously bad history of labour relations, principally because it was built on slavery. Abolished in 1838, de facto slavery – in-kind payments, often with liquor (known as the dop system) – continued on many farms until the end of the twentieth century. A relatively recent book – Grape, by Jeanne Viall, Wilmot James and Jakes Gerwel – summarises this history very well (I reviewed it here). The practice does not continue today, of course, and is illegal: farm workers are now paid a minimum wage of R70 per day, although in-kind payments, like free accommodation, food and transport, are still often provided in addition to the minimum wages. (Helen Zille, premier of the Western Cape, has invited anyone that have proof of the dop system persisting to contact her personally and she will prosecute.)

References to “slavery” and “Apartheid” therefore does little to address the two core economic issues that are hidden behind the political posturing: 1) that R70 per person per day is, in fact, a higher than median wage given South Africa’s income distribution, and 2) that improving farming technology is increasingly allowing farm owners to substitute capital (harvest machines) for labour.

According to Treasury, 55.1% of South Africans earned below R1720 per household (in 2006 prices). If we assume that two members of the household work (and that there are no pensioners that earn a grant), then R70 a day would equal a minimum of R2800 a month. Farm workers in De Doorns are therefore NOT in the poorest 60% of South Africa’s population. Which is the reason for another tension: the massive migration of workers from the Eastern Cape and other rural areas where most of the poorest live without income opportunities, to towns in the Western Cape. The 8000 permanent workers in De Doorns are supplemented annually by 8000 temporary workers that are either from other provinces or from neighbouring countries. In economic jargon, the supply of labour is outstripping the demand, which forces prices down.

Secondly, better technology allows farm owners to produce more output with fewer inputs. Labour used to be the most crucial input, but it isn’t any more, as anyone attending a recent farm fair would know. Incredible harvesting machines (see picture) now allow farm owners to substitute the work of hundreds of labourers. And as an anonymous De Doorns farm owner recently noted, these “machines don’t complain, work all day, don’t ask for wage increases and don’t burn down your place.” Instead of employing 200 farm labourers, a harvesting machine and 20 farm labourers (now earning a much higher salary because they are much more productive) is a much more lucrative option for farm owners.

So what will happen? The farm workers, supported by the trade unions and the Minister, will request national government to increase the minimum wage to R150 a day.  Anyone with Economics 101 should be able to predict the consequences: a minimum wage creates a price floor, which creates unemployment. Thus, I suspect that if 16000 workers work this year, several thousand less will be required next year. And these numbers will continue to decline over time. Even if they still “only” receive R150 per person per day, those lucky enough to have a job will be in the top 30% highest income earners in South Africa. But what prevents them – or those that organise them – to demand for even higher wages? This risk will further encourage farm owners to switch labour for capital.

More sadly, those that won’t be able to find a job next year, won’t be able to find any work anywhere else in South Africa for below R150 per day, because it will be illegal for farm owners to appoint them at a lower wage, even if they would be willing to work for one. I suspect this will only cause greater tensions between existing farm workers and migrant arrivals. Perhaps this is what Joan Robinson referred to when she said: “the misery of being exploited by capitalists is nothing compared to the misery of not being exploited at all.”

Instead, we should be realistic about the job prospects in the agricultural sector. Job creation can only happen if output expands: redistribution (between capital and labour) will only result in substitution (of labour with capital). For rural salaries to keep track with urban salaries, rural productivity will have to improve and this usually happens slower in the agricultural sector than in manufacturing and services (which are mostly urban industries). Urbanisation will fasten. The best any politician can do is to ensure that the kids of these workers have access to excellent schools, so that they can profit from their own productivity.

Increasing the minimum wage is a short-term solution. In the medium run, a higher minimum wage will only destroy jobs. If Minister Joemat-Pettersson and Mr Ehrenreich really want to benefit farm workers, they should rather worry about another legacy of Apartheid – the poor performance of rural schools, especially in those provinces where many of the migrants come from – and less about government policies to change the minimum wage. Unfortunately, the latter is much easier to do, and popular to sell.

Written by Johan Fourie

November 14, 2012 at 12:28

Planetary Apartheid

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Laurence Wilse-Samson, PhD student at Columbia, writes the following in the soon-to-be-published South African Economic History Annual:

It thus appears to me that a deep knowledge of South African economic history would bring the added reward of new perspectives into old and important questions in political economy and economic development. For example, a central feature of the 20th century South African economy was the control of labour. There is perhaps here an analogy to various issues around globalisation. When, increasingly, in the 1960s and 70s, white mine owners wanted to “outsource” routine tasks to (far cheaper) black workers, white unionized miners responded with strong and prolonged action against this “unfair competition”.

Obviously, the nature of enforcement of such protectionist measures is different in the globalisation process from that of the cruel Apartheid regime. For example, pass laws, influx control and job reservation restricted the movement of black South Africans (and the 1913 Natives Land Act denied them property rights on “white land”). However, some of the economic logic is similar, and the argument of unfair competition sounds a little like what one might hear in Western Europe or in the US. The barriers against movement across nations are today just as strong and strongly enforced if less barbaric than those that existed within the Apartheid state. 

The barriers to movement imposed by the Apartheid authorities are of course not identical to the high barriers to immigration that is now commonplace in all countries of the globe. But there are parallels. As The Economist recently noted, it is increasingly difficult for even highly-educated folk to move to the United States, or Britain, countries that used to be welcoming to immigrants. The anti-immigrant sentiment in much of Europe still influence political ideologies. If you’re South African, obtaining a Schengen Visa to travel in Europe is not easy; one official of a European country that will remain unnamed given that I am forced to apply there again soon, told me, when I complained about the excessive fees (R1200), that “you can be lucky we allow you at all”. And even here, in South Africa, it is time-consuming and expensive to appoint a foreign national, and poorer immigrants are not always welcomed by the locals, as the 2008 xenophobic attacks attest to.

Laurence’s analogy, though, is pertinent. We are easy to criticise within-country division (like South African or, more recently, Israeli Apartheid), but easily support between-country barriers to entry (Mexican immigrants to the US, Senegalese immigrants to France, or Zimbabwean immigrants to South Africa, for example). Laurence’s point is that we can use the Apartheid experience to identify (and perhaps estimate) the impact of high barriers against movement. If Apartheid taught us one thing, it’s that spatial segregation imposes severe transaction costs that make trade expensive. Just ask those residents in townships on the outskirts of cities or, even more poignantly, those in the former homelands. These individuals remain far removed from the high-quality services, notably education, that they, more than anyone, need to break free from the poverty trap. Economists know that the free movement of individuals will create a more prosperous world: trade theory suggests that the free movement of goods and services across national borders (globalisation) would tend to equalise factor rewards, but a far quicker way to reduce global inequality is to allow the free movement of people. The US during the first phase of globalisation (the end of the nineteenth century) is a good example. If we are serious about the condition of the global economy, why are we making it increasingly difficult for migrants to move?

It is ironic that those countries that supported the fight against Apartheid most vehemently are now the ones building fences and raising barriers to prevent people from moving there. I’ve heard many explanations for this: to protect local jobs, to keep some cultural (or religious) homogeneity, for safety and security reasons, or that very Verwoerdian of ideas, to help the countries where the migrants originate from develop independently (in economic jargon, to help them combat the brain drain). Incidentally, all of these were also justifications for Apartheid.

If we are so appalled by within-country barriers, why then do we allow a planetary Apartheid?

Written by Johan Fourie

November 5, 2012 at 21:47