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Archive for October 2014

The economics of apartheid

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Why did apartheid end? Who benefited from apartheid? What was the National Party ideology when it instituted apartheid? Why did the ANC government have so little room for redistribution when they were elected in 1994? These and many other vexing questions are answered in the December issue of Economic History of Developing Regions, a journal published by the Economic History Society of Southern Africa, in a special issue on the economics of apartheid. All 11 papers have now been published online. The introduction, written by Martine Mariotti and myself, spells out the reasons we decided for a special issue on the economics of apartheid twenty years after it was abolished:

It should surprise no one that the weight of our history hampers our attempts to create a prosperous society. This has been a constant theme in presidential State of the Nation addresses. Of the 25 such addresses since 1994 (two in election years), 20 have mentioned the word ‘apartheid’ at least once. In 2004 Thabo Mbeki, celebrating 10 years of democracy, said that ‘we have always known that our country’s blemishes produced by more than three centuries of colonialism and apartheid could not be removed in one decade’. In 2011 Jacob Zuma said that ‘the legacy of decades of apartheid underdevelopment and colonial oppression cannot be undone in only 17 years’. In more recent addresses, President Zuma has observed that ‘apartheid spatial patterns still persist in our towns and cities’ (2013), and that ‘the culture of violence originated from the apartheid past’ (2014).

The Economics of ApartheidResearchers confirm these views. Poverty levels remain high for black South Africans (Van der Berg 2011; Leibbrandt et al. 2012; Bhorat & Van der Westhuizen 2013; Gradín 2013), their educational attainment and health outcomes continue to lag behind those of white South Africans (Van der Berg 2007; Harris et al. 2011; Spaull 2013; Barbarin & Richter 2013), and unemployment, which was already increasing during the 1970s and 1980s, shows no signs of declining (Banerjee et al. 2008). The distrust and non-cooperation induced by apartheid persist to this day (Burns 2012).

While economists and policy-makers are rightly interested in addressing these consequences of apartheid that affect South Africa today, the task seems to have fallen to economic historians to discover precisely how policy decisions taken during the apartheid era determine the country’s economic growth in the twenty-first century. The stagnation in employment opportunities is a case in point. The shortage of semi-skilled workers caused by the apartheid regime’s statutory job reservation policy obliged manufacturers to overinvest in capital technology, with the result that South African manufacturing became capital intensive rather than labour intensive. The consequence for employment has been low levels of job creation at the unskilled level, precisely the level of skills that the Bantu Education Act of 1953 and subsequent policies had envisaged as being required.

Economic historians are interested in the economics of apartheid not just because apartheid continues to affect South Africans, but because we see analogous situations elsewhere today. Ethnic divisions remain a feature of our times worldwide, perhaps nowhere more overtly than in the continuing conflict between the Palestinian Independent Authority and Israel. Former American president Jimmy Carter (2006) famously called for ‘peace not apartheid’ in this region. In the US, discussions of poverty and inequality often reference apartheid (Massey & Denton 1993).

In South Africa, we continue to extract lessons that hold the promise of not repeating past mistakes. We look for clues to understanding ideologues and their ideologies (Giliomee 2013; Koorts 2014): can we find similarities between Afrikaner nationalism in the early twentieth century and black nationalism in the twenty-first? We investigate apartheid policy counterfactuals (Bhorat & Ravi Kanbur 2006) because they provide a sobering perspective on current trade-offs: should government focus on high quality education for a select few, or education for all, but of lower quality? And at the macroeconomic level we consider the global response to apartheid policies (Kaempfer and Lowenberg 1988; Moll 1991): do economic sanctions force a regime change, or do they instead strengthen the oppressor’s hand?

The good news is that we are getting better at understanding how the past affects us and recognizing analogies between past and present. With the tools of econometrics, South African economic history studies are adding a valuable quantitative analysis to the rich qualitative analysis that is growing larger each year (Fourie & Schirmer 2012). The digitization of data previously buried in archives and libraries is beginning to make the apartheid era more accessible. Studies of apartheid can contribute to important themes in the economic history literature, such as the longevity of institutions and path dependence (North 1990; David 1994; Acemoglu et al. 2005). The era provides natural experiments with which we can analyse human behaviour in response to distorted incentives. The benefit of such experiments is that the inferences drawn are causal (Diamond & Robinson 2010). And because South Africa’s twentieth-century experience is a microcosm of global development, with the incomes of rich and poor diverging, the apartheid and post-apartheid periods serve as an analogy for the process of globalization and the potential effects of greater integration (Dalby 1998).

This special issue brings together the work of economists and historians to showcase recent developments in the study of the economic history of apartheid. We hope that the papers will inspire scholars to continue to work on this topic, to explore underused data sets and to maintain the conversation about this definitive era in South Africa’s history.

It is especially exciting to see younger researchers tackling this tough research area. As we report in our contribution, newly digitised, micro-level South African data, often with spatial features, allow for much deeper insights into not only the South African past but in things that are important to social scientists in general, like the political economy of policy-making. We discuss, for example, the fascinating work of LSE PhD-student Ed Kerby, University of Illinois PhD-student Nicolas Bottan, Harvard PhD-student Martin Abel, UCLA PhD-student Katherine Eriksson, MIT PhD-student Daniel de Kadt and Columbia PhD-student Laurence Wilse-Samson. Their affiliations include some of the leading economics departments in the world. That alone should be an indication of the treasure-trove of research possibilities the apartheid period offers.

But challenges remain. Although some are South African, these PhD-students are all based at universities outside South Africa. They are also all white. Let’s hope that the excellent research being done by a younger generation of (foreign-based) economists can act as a catalyst to encourage South African students to delve into an economic past that will remain with us for some time to come.

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Written by Johan Fourie

October 22, 2014 at 11:37

When diversity hurts

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‘Diverse People Unite’ is the motto on the South African coat of arms. Diversity is a great thing, we believe, because it exposes us to new peoples, new experiences and new ideas. But what if diversity also results in lower productivity? This is the uncomfortable result of a forthcoming paper in the Quarterly Journal of Economics, one of the foremost journals in the field. The paper, written by Jonas Hjort of Columbia Business School, provides evidence that suggests that ethnically diverse teams are less productive than ethnically homogeneous teams. Hjort writes:

A body of literature suggests that ethnic heterogeneity limits economic growth. This paper provides microeconometric evidence on the direct effect of ethnic divisions on productivity. In team production at a plant in Kenya, an upstream worker supplies and distributes flowers to two downstream workers who assemble them into bunches. The plant uses an essentially random rotation process to assign workers to positions, leading to three types of teams: (a) ethnically homogeneous teams, and teams in which (b) one, or (c) both downstream workers belong to a tribe in rivalry with the upstream worker’s tribe. I find strong evidence that upstream workers undersupply non-coethnic downstream workers (vertical discrimination) and shift flowers from non-coethnic to coethnic downstream workers (horizontal discrimination), at the cost of lower own pay and total output. A period of ethnic conflict following Kenya’s 2007 election led to a sharp increase in discrimination. In response, the plant began paying the two downstream workers for their combined output (team pay). This led to a modest output reduction in (a) and (c) teams – as predicted by standard incentive models – but an increase in output in (b) teams, and overall. Workers’ behavior before conflict, during conflict, and under team pay is predicted by a model of taste-based discrimination. My findings suggest that inter-ethnic rivalries lower allocative efficiency in the private sector, that the economic costs of ethnic diversity vary with the political environment, and that in high-cost environments firms are forced to adopt “second best” policies to limit discrimination distortions.

Pushed to the extreme, these findings suggest that, if South Africa’s businesses want to become more productive, then they should forget about the ‘Rainbow Nation’ and only employ people of the same ethnicity, i.e. Xhosas or Sothos or Afrikaners or Zulus. Businesses that opt for diverse teams will grow slower than businesses which employ only people from one ethnic group; in a profit-maximising, Darwinian world, the ethnically homogenous businesses will eventually win against the diverse but unproductive ones. Where businesses already employ different ethnicities, Hjort’s evidence suggests that it would be best to let those of the same ethnicity work together in teams instead of mixing team members across ethnicities. So much for ‘Diverse People Unite’!

Of course, things are not that simple, and it would be silly to conclude from this that diversity is evil. We should remember that most teams in the real world don’t assemble flowers into bunches; teams are often required to provide creative solutions to complex problems where innovative, out-of-the-box thinking is required. It seems reasonable to assume that ethnically diverse teams have a higher probability of dissimilar ideas than ethnically homogenous ones. In economics jargon, perhaps ethnically diverse teams are more prone to economies-of-scope rather than economies-of-scale. And a logical conclusion from Hjort’s work is that, were ethnic rivalries to disappear, the negative impact of diversity on productivity would all but disappear too.

But such results force us to stop and think about the untested assumptions we make. And it raises difficult questions too: even if our own labour and development economists find that diversity hurts our productivity, is there not a moral argument in favour of maintaining ethnically diverse teams? Given our history of forced racial segregation, how do we weight the ethics against the efficiency arguments? My expectation would be that some of the counter-productivity effects that Hjort finds will be mitigated over time by working with people from a different ethnic group, and that this in any event is the only way of addressing the issue at its core. As economists, we should understand the value in delaying instant productivity gains for even greater long-term benefits.

Written by Johan Fourie

October 15, 2014 at 09:39

What Amanda Gouws wants

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GouwsAmanda Gouws responded in today’s Cape Times to my blog post of August 29, which later appeared in the Cape Times under the regrettably misleading heading “Gender parity is not the ideal”. Prof. Gouws is right on many fronts: I have not read the literature on formal versus substantive gender equality, and know little about the different definitions of gender justice. I also had not read the open letter published by the Women’s Forum and, in truth, did not even know that a Stellenbosch University Women’s Forum existed or that it was them who had published the poster in the lift.

Instead, I arrived at work one morning, got into the lift and, as one does, scanned through the wall posters. One of them, the infographic on gender inequality, was fascinating. I got out of the lift and later that week, I wrote a post on this blog about my thoughts on the difference between a strict 50% gender quota and gender equality, which I defined as the opportunity to be promoted and to earn the same regardless of your gender. I said that where discrimination still persists, it is wrong. I said that I suspect we are moving in the right direction; that if you had to draw a similar infographic a decade ago, it would look remarkably different. And I made suggestions that could speed up the process by, for example, making parental leave for men compulsory and equal to that of women.

Somehow, though, prof. Gouws has missed that I agree with her on nearly every point she raises in her response today. Instead, she chooses to build her own straw man, one that vaguely sounds like he might have said the things she protests against, and shoots him down. She misquotes me several times. To give one example, she writes: “Fourie thinks it is ‘normal’ to have fewer women professors”. I don’t think that and didn’t say that. Control-F my blog post or the Cape Times piece and see if you can find the word ‘normal’ in it, which she attributes to me by placing it in direct quotes. I also did not say “in time it will change”, although, according to prof. Gouws’s own statistics, it has. She notes that in her twelve years in the Senate, the number of female professors has increased from 6 to 60, an annual growth rate of 21%. If the trend continues, we could see gender parity at senate level within the next decade, not 40 years as prof. Gouws suggests. Now that is worth celebrating, right? Wrong, according to prof. Gouws. It is simply my “sexism hiding behind arguments about numbers”.

A week or so after I wrote the original post, I was contacted by Stellenbosch University’s marketing office to know whether they could send the piece to the media. My blog is public, so I don’t mind if the posts are reposted elsewhere, and so I agreed. A month later, September 30, the piece was published in the Cape Times under the title “Gender parity is not the ideal”. I would have chosen a different title, but newspapers need an audience, and catchy titles like that sell. So I understand why they did it. But I certainly did not find it “necessary to take the issue into the media without consulting the Women’s Forum”, as prof. Gouws claims.

The Women’s Forum, according to prof. Gouws, “wanted to start a debate about gender equality at Stellenbosch University. This was an opportunity for our male colleagues to show solidarity with women.” I would suggest prof. Gouws got exactly what she wanted.

Written by Johan Fourie

October 10, 2014 at 14:20

Gender apartheid

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Boy meets girl: expect their grades to drop

Boy meets girl: now expect their grades to drop

Seeing that, according to the Cape Times, I don’t believe in gender parity, I might as well go the full distance and call for gender apartheid. Yes, I want separate neighbourhoods for boys and girls, separate beaches and benches, separate entrances to public buildings. Heck, I might even demand separate homelands for men and women. And to be honest, this will be much easier than implementing racial apartheid because we already have separate schools, separate sports teams and separate toilets.

You might think that I do this because I believe that one gender is somehow inferior to the other, but in fact I’m basing my big plan for gender apartheid on science which says that separate gender development is better for both sexes. According to a paper published in the American Economic Journal: Applied Economics, boys and girls do better at school if they interact less with the opposite sex. Here is the blurb for Andrew Hill’s paper The Girl Next Door: The Effect of Opposite Gender Friends on High School Achievement:

This paper finds that a student’s share of opposite gender school friends negatively effects high school GPA (grades). It uses the gender composition of schoolmates in an individual’s neighbourhood as an instrument for the gender composition of an individual’s self-reported friendship network. The effect occurs across all subjects for individuals older than sixteen, but only in mathematics and science for younger students. Additional results indicate effects may operate inside the classroom through difficulties getting along with the teacher and paying attention, and outside the classroom through romantic relationships.

Hill’s paper comes at a time when there is some debate about whether single-sex schools or mixed-gender schools are best. His results show unequivocally that single-sex classrooms are better for kids because they get along easier with the teacher and are not distracted by opposite-gender friends. I would think that a romantic relationship might prove to be a valuable confidence booster, with a positive impact on grades. But alas, it seems like the opposite sex is bad news. One might also think that causality works in the opposite direction: that poor-performing kids tend to select into relationships with the opposite sex. Let me rephrase that: nerds have their books and jocks have their girls. But Hill’s clever use of an econometric technique called instrumental variables avoids this possible causal problem: kids that live in neighbourhoods with lots of kids from the other gender tend to do worse in exams than kids who live in neighbourhoods where the other kids happened to be of the same gender. Causality runs therefore clearly from interaction with other kids to worse grades.

But somehow I am slightly uncomfortable with the policy implications of these results. Maybe it’s because I attended a mixed-gender school and simply don’t want to believe that these schools are necessarily worse than single-sex schools. (My mother and my wife attended a single-sex school, though, so I can’t be too critical.) But maybe it’s also because I believe that schools impart more than just our ability to do math and learn history. Maybe the social interactions in school are really important to teach values such as fairness, equality and diversity. Of course, many single-sex schools organise student interactions outside the classroom to accommodate this vital part of social learning. But taking Hill’s findings literally, one would want to avoid even these social interactions.

The results also imply that with relatively little additional costs, the grades of high school students across the country can be improved by just making all schools same-sex schools. A sort-of Grand Gender Apartheid policy for schools. But I wonder what we’ll lose in the process. If my own high school experience is anything to go by, I would think a lot. School is a multidimensional experience and shouldn’t be reduced to only one criterium – grades. Gender apartheid, much like other forms of apartheid, is a bad idea.

Written by Johan Fourie

October 3, 2014 at 12:53