Why South Africa's Apartheid Economy Failed

Abstract

South Africa's apartheid system was enormously costly and ultimately collapsed because the inefficiencies created by apartheid policies escalated as the economy's structure changed. Labor market regulation and industrial decentralization policy inhibited efficient resource utilization, especially as the manufacturing sector became dominant. Apartheid educational policies generated skill shortages. A mercantilistic development strategy distorted trade patterns, exacerbated dependence on foreign capital inflows, and created chronic balance of payments difficulties. The administrative and defense costs of implementing apartheid were onerous and rising. These internal weaknesses enhanced South Africa's vulnerability to capital flight, changes in world prices and business cycle conditions, and political changes abroad. Ultimately, apartheid was abandoned because its costs came to exceed its benefits to white South Africans. The internal dynamics of the system dictated the retrenchment of apartheid, which in all probability would have occurred even without foreign sanctions Copyright 1997 Western Economic Association International.

Estimating the Substitutability of African and White Workers in South African Manufacturing, 1950–1985

“…I show that the degree of substitutability between African and white workers in the South African manufacturing industry did decline throughout the Apartheid period from 9.2% in 1950 to 4.6% in 1985 consistent with the argument in Porter (1978), Lundahl (1982), Lowenberg (1997) and Mariotti (2012). While the elasticity declined over the period, it was still fairly high by 1985 indicating that African and white labor were still substitutable inputs by the end of Apartheid.…”

“…However, conditions in the labor market changed in these later two decades. After decades of excess demand for unskilled labor, shifts in the technology of production resulted in an excess supply of unskilled labor and a shortage of skilled and semi-skilled labor (Lipton 1985, Hofmeyr 1994, Lowenberg 1997, Feinstein 2005. And yet the official regulations of the labor market remained intact.…”

“…However, as whites acquired more skills during the Apartheid period and African skills virtually stagnated, Africans and whites could have become complements. Certainly, Porter (1978), Lundahl (1982), Lowenberg (1997) and Mariotti (2012) argue that this was the case and that the switch from substitutable to complementary factors of production is the reason for the unraveling of the system of job reservation during the 1970s. Job reservation was a complex system that held the most highly paid and highly skilled jobs in the manufacturing sector for white workers leaving Africans to fill only the unskilled vacancies.…”

Sanctions on South Africa: What Did They Do?

“…Stressing the importance of this change, she writes, "as the far right warned at the time, jobs could not ultimately be shared with blacks without sharing power as well." Also see Lowenberg (1997) on the importance of labor market distortions as a barrier to growth. Botha declared a state of emergency.…”

Globalizing Business Ethics Research and the Ethical Need to Include the Bottom-of-the-Pyramid Countries: Redefining the Global Triad as Business Systems and Institutions

“…It is quite clear that the consumers of Western Europe, Japan, and the United States are not highly standardized to global products, and that, in turn, corporations from these regions also seem to behave under different rules, logic, and strategies. Even within Western Europe, there is a clear difference in the business behavior between British and continental European, such as French or Swedish, corporations (Lowenberg, 1999;O'Sullivan, 2000;Ottaway, 2001;Thomsen and Pedersen, 1999;Westney, 1999).…”