Apartheid caused a very peculiar thing: there existed, and some argue today still exist, parallel economies: one a developed economy of immense wealth, development, and prosperity, the other a developing economy of great poverty, dilapidation, and destitution. The existence of the latter economy has provided impetus to the post-Apartheid regime and civil society to call for further and expansive governmentalization of social affairs.
The arrival of British private industry in the eighteenth century in South Africa contrasted with the largely subsistence existence of Afrikaner farmers. The English, as well as Eastern European Jews, established commercial wool farming, import-export businesses, etc. Many Afrikaners regarded private commerce and industry as the driving force behind the South African War (the Second Boer War) and the conquest of independent Afrikaner states (Giliomee 2008, 767–768), especially considering the fact that it was the influx of non-Afrikaner whites to the Johannesburg gold fields in the 1890s and the apparent displacement of local Afrikaner interests that provided impetus to the outbreak of hostilities.
The National Party was founded in 1914 by James Barry Munnik Hertzog and governed South Africa as the senior partner in the Pact Government with the Labour Party between 1924 and 1934. In 1934, the National Party split, with the larger section following Hertzog, then prime minister, into a merger with the South African Party to form the United South African National Party (the United Party), and the smaller section—one of Afrikaner nationalists—following Daniel François Malan.
The National Party secretary and historian M. P. A. Malan wrote with pride that the National Party recognized and was faithful to the “political and traditional policy of whites from generation to generation to keep power in the hands of whites” (translated from the original Afrikaans) (Malan 1964, 267). M. P. A. Malan was chronicling the political successes of the Afrikaner nationalist faction of the National Party, which would be reunited with the Hertzog faction in 1940. He wrote in 1964 that the National Party had always been “a good friend of the workers.” The Labour Party died, as its traditional working-class members went to the Nationalists. Malan noted that the party had been advocating for an industrial color bar since 1922 in gold mining and other industries. The Nationalists, through legislative intervention, put an end to racially “mixed trade unions” and ensured that “white workers are legally protected in selected professions, so that they cannot be pushed out of their jobs by non-white competition” (translated from the original Afrikaans) (Malan 1964, 269).
By 1922, the National Party’s Federal Council demanded that the government take measures to ensure the continued viability of certain “essential” industries, by means of protectionist measures or otherwise (Malan 1964, 79). According to Malan, the direction in which the NP was moving by then was clear: jobs for locals, support and protection of local industry, and economic self-sufficiency for South Africa. This direction culminated in 1923, when the NP and the small Labour Party formed a coalition known as the Pact Government. A 1922 NP Federal Council report confirmed that the Labour and National parties would stand together to “reduce or stamp out the evil that is the dominance of mining magnates and their financial power” (translated from the original Afrikaans) (ibid., 80). The Pact Government coalition continued until 1933, a year before the United Party was formed.
The Labour Party’s involvement in government came with its insistence on the “Civilised Labour Policy” as a response to the “rapid dissolution of racial barriers” in employment. Racial discrimination in matters of employment became even more conspicuous after 1948 (Hutt 1975, 57–58). The Pact Government wanted to set a color bar against non-whites in competition with whites for jobs, mostly in industrial areas. The free-market liberal Edgar Brookes (1956, 190) wrote that nationalism “is fundamentally an emotional rebellion against harsh facts rather than a readiness to face the facts and to see what can be done with them,” alluding to the small number of whites in South Africa. Most available white foreigners were not allowed to immigrate to South Africa at the time of his writing because the National Party was afraid of importing Roman Catholics or liberals. Needs for unskilled labor were being met by the blacks, coloureds, and Indians of South Africa. Herein Brookes identified a fatal flaw in the Apartheid ideology, which rendered the success of the “ideal” of total segregation impossible (ibid.). As the numbers of skilled blacks, coloureds, and Indian workers increased, they would not be content with being kept out of the professions by the so-called Civilized Labor Policy, which was later a cause of the unrest that erupted throughout the country against racial discrimination.
There was also an education color bar. Prior to Apartheid in 1948, university councils had the right to reject or admit students. English universities allowed a small number of non-whites to attend, but the Afrikaans-language institutions did not. Some universities, like the University of Fort Hare, were reserved for blacks (Davies 1996, 321). Brookes wrote of an instance pre-1930 in which a black person who qualified academically tried to enroll in the Transvaal University College (today the University of Pretoria), in the veterinary science program, which was the only program of its kind in Africa. The Senate of the college voted by 20 votes to 12 to refuse admitting him (Brookes 1956, 197). After 1959, special permits were required for blacks to be admitted to white universities (Davies 1996, 322).
The Pact Government also established state control over South Africa’s steel industry in 1928 — creating the Iron and Steel Corporation (ISCOR) — to the widespread, if somewhat hypocritical, condemnation of the South African Party (SAP), the official opposition and main precursor to the United Party. The former and future prime minister and leader of the SAP, Jan Smuts, supported the government’s intention to establish a steel factory outside Pretoria but did not want to see the industry falling under state protection or receiving state support. As reported by Malan, Smuts said that the “dead hand of the State will rest upon [the industry]” (translated from the original Afrikaans) and that the enterprise would thus not succeed. Smuts went as far as to say that state control would act as an adhesive for a socialist “blemish” on the industry. Sir Ernest Oppenheimer, another member of the SAP, condemned the initiative as follows:
“A failed industry will be a disadvantage [to South Africa] especially if it is to be State property, because the pressure that will be exerted in the direction of protected rights will be much greater than if it were a private enterprise.” (translated from the original Afrikaans) (Malan 1964, 104)
The South African Party was also concerned that a state-subsidized and controlled enterprise would undermine, if not totally destroy, the existing private steel companies in South Africa. The opposition’s attempts to stop the creation of ISCOR, however, failed, and the bill that established this state-owned enterprise was passed in 1928, with 78 votes in favor and 50 against (Malan 1964, 104–105).
According to Hermann Giliomee, it was said at a conference dedicated to the economic emancipation of poor Afrikaners in 1939 that Afrikaners must “conquer the capitalist system and [transform] it so that it fits our ethnic nature.” Giliomee writes that there was a north-south divide between Afrikaners, with southerners tending to favor private enterprise and cooperation with English businesses, and northerners being wary of “the excesses of the capitalist system,” and preferring cooperative enterprises where profit was not necessarily the main driver. William Harold Hutt, the acclaimed classical liberal economist who was teaching in South Africa at the time, in 1941 likened the Afrikaner organizing along ethnic lines to preparation for war (Giliomee 2008, 772–773).
Before the National Party was elected to power, it intended to nationalize the mining industry, a powerhouse of white English-speaking capitalists (Giliomee 2008, 774; Laissez-Fair 1987, 174), but did not follow through when it became apparent that economic ruin would follow. Interestingly, the liberal Harry Oppenheimer, son of Ernest Oppenheimer, assisted Afrikaners in the 1960s to take over the General Mining company to overcome their exclusion from the industry, and to create an English/Afrikaner alliance against state intervention in the mining industry.
Despite this general Afrikaner opposition to “capitalism,” the National Party, which represented Afrikaners politically, repeatedly claimed its commitment to the private enterprise economy throughout the twentieth century. As Ian J. Hetherington notes, the South African government, as well as many intellectuals at South African universities, sincerely believed the economic system of the country to be one of free enterprise (Hetherington 1985, 190–191). But as Peter Berger and Bobby Godsell noted:
“The vocabulary of the present government would suggest that South Africa is currently organised along capitalist, or even libertarian lines. In a country where state regulation is central to most aspects of the lives of black South Africans in particular, this is clearly not the case.” (Berger and Godsell 1988, 296)
From the left, too, Apartheid has been described as essentially capitalist (Lazar 1988, 105). Racial oppression, the argument goes, was intended to benefit wealthy capitalists (Vorhies 1990, 19). Liberals were criticized for being “beneficiaries of the very racist system that they claimed to oppose” (Dubow 2014, 10). But the classical liberal economist Clem Sunter notes that despite the presence of crony businesspeople during the era, Apartheid amounted to putting ideology above the natural principles of economics, and as such had nothing in common with capitalism (Sunter 1993, 55). The system “placed major restrictions on entrepreneurship, on free enterprise and on the movement of people, capital and goods to where the markets demanded they should go.” Apartheid was “completely incompatible with capitalism,” which means “free enterprise, entrepreneurship, laissez-faire and voluntary exchange” (Vorhies 1990, 19).
Economists Brian Kantor and HF Kenny of the University of Cape Town criticized the Marxist analysis of Apartheid. They write that the labor theory of value was convenient to Marxists because of the difference in income between whites and blacks. Examples throughout Africa, argued Kantor and Kenny, showed that capitalists rejected Apartheidesque labor controls, to the benefit of the workers (Kantor and Kenny 1976, 27–28). To Kantor and Kenny, it was peculiar that Marxists argued that the South African government knew what was good for capitalists when capitalists themselves, in neighboring states with similar circumstances, were rejecting the kinds of policies the South African government was implementing (ibid., 31).
Kantor, an economic liberal, was appointed professor of economics at the University of Cape Town in 1981. Shortly thereafter, at a meeting of the Free Market Foundation, he argued that ordinary businesspeople need not understand the theory of economics. This is because in the market, information that is communicated through mediums like prices, wages, rents, interest, and competition, is sufficient for ordinary people to read the economy. Government, on the other hand, certainly had to understand the theory and principles of economics. In particular, to Kantor, they had to appreciate from the discipline of economics “why planners were not needed” (Witness 1981).
The Apartheid regime, then, was heavily interventionist. The Price Control Act of 1964 authorized the government to control the prices of goods and services. These goods included “electrical and non-electrical household appliances and parts therefor,” which included hairdryers, sewing and knitting machines, vacuum cleaners, toasters, etc.; movie tickets; bricks; cameras and their parts; films, flashlights and their parts; margarine; lawnmowers and their parts; tobacco; cigarettes and cigars; sugar; coal; milk; firearms and ammunition; whisky; television receivers; mineral water and fruit juice; bread; butter; and cheese (Swanepoel 1976a). The classical liberal Don Caldwell also writes of subsidized exports, rent paid to the state, Sunday trading restrictions, control boards, state financing of politically favored projects, job reservation, unemployment insurance, monopolization and protection of favored industries, occupational licensing, tariffs, exchange controls, agricultural subsidies, and a complex tax collection system, among other things (Caldwell 1989, 39–41).
In 1976, Milton Friedman, who had just been awarded a Nobel prize, was in Johannesburg hosted by the Graduate School of Business of the University of Cape Town. He said he opposed the idea of egalitarianism for South Africa. By this Friedman meant state policy directed at addressing wealth inequality. For him, the pressing issue of income discrepancies between whites and blacks had to be resolved by removing barriers and “artificial impediments to the advancement of the individual in accordance with his capacity and ability,” and not by government programs (Feldberg et al. 1976, 48–49). In 1981, ZSA Gurzynski, professor and head of the School of Economics at the University of Cape Town, wrote in defense of the free-market system in the Free Market Foundation journal Free Market. After problematizing the fact that the notions of “private enterprise” and “free markets” have been misrepresented and mischaracterized in South African discourse, especially by socialists, Gurzynski wrote:
“It is essential, therefore, to place the terms Private Enterprise and Free Markets in their proper perspective and to show that far from being conditions under which people are enslaved and exploited, they are the very conditions which are essential to the maintenance of the freedom and dignity of the individual.” (Gurzynski 1981, 24)
Gurzynski criticized the government for having “taken upon itself the task of promoting and co-ordinating the development of the country’s various ethnic groups.” The reasoning advanced by government was that black South Africans required “special protection, since their backward economies could not possibly compete with the highly productive and aggressive white economy.” This and the concomitant control exercised over the so-called white economy made “the government the key economic agent for the whole country.” While it was, according to Gurzynski, indeed a legitimate role for government to create the conditions necessary for enterprising individuals to operate freely, it would be better to rely “on individual freedom, private property, free enterprise and free markets,” as these are “the most conducive to development and economic growth.” “The more control the government exercises, the greater is the regimentation of society and the smaller is the freedom of the ordinary, individual citizen” (Gurzynski 1981, 24).
Piet Meyer, former chairman of the Afrikaner Broederbond—a semi-secret society to which most of the holders of power in politics, culture, and business belonged during the Apartheid era—said in 1981 that Afrikaners had to resist the free-enterprise economy because it intended to integrate racial groups:
“An integrated economic system tends inevitably towards an integrated society at all levels—political, educational, church and eventually also in cultural and social spheres. May the Afrikaners never allow themselves to adapt passively to the tendencies and demands of the free enterprise system especially where it involves well-being for its own sake.” (Meyer, quoted in Zille 1981)
The article in which Meyer was quoted, written by Helen Zille—who is today one of South Africa’s most prominent and controversial liberals—illustrated the tension between the verligte (‘enlightened‘) and the verkrampte (‘closeminded‘) factions of Afrikanerdom and particularly the National Party (Zille 1981). That tension reflected what Caldwell noted—that there is no such thing as “Apartheid capitalism,” and that the architects of Apartheid knew that they had to make great onslaughts on property and freedom to implement their policies (Caldwell 1989, 24).
After 1985, large-scale disinvestment took place as foreign companies withdrew from South Africa. The companies tended to sell their interests in the country to local buyers, which, wrote the classical liberal University of the Witwatersrand economist Duncan Reekie, had the result of increasing concentration in particular industries and “at an aggregate, cross-economy level.” Complaints were subsequently heard about having a ‘free market’ like this in South Africa, but the increased concentration was essentially induced by government. Reekie points, for example, to the tax advantages that long-term insurance companies enjoyed that enabled them to tailor more beneficial outcomes than can a saver who invests directly. He also notes the strict exchange controls that inhibited domestic companies from expanding their operations abroad, thereby causing them to focus on local expansion (Reekie 1990, 115–116).
Pierre van den Berghe wrote in 1979 that after Apartheid was abolished, and a free market system was implemented in South Africa, there would be “a drastic reduction of the standard of living of most whites” and that the living standards of blacks, coloureds, and Indians would “improve only marginally.” He was arguing that Apartheid propped up whites economically (Van den Berghe 1979, 15). In reality, while Apartheid intended to prop up whites, almost immediately after Apartheid ended in 1994, and South Africa attained the highest level of economic freedom it had ever experienced, white incomes skyrocketed (Economist 2013).
Van den Berghe was thus wrong on most counts. For whites and Indians particularly, a freer market has meant a considerable rise in welfare. Coloureds and blacks benefited as well, albeit to a far lesser extent. The average incomes of blacks seem to have plateaued in the year 2000, shortly after the post-Apartheid government’s new labor laws came into operation. Van den Berghe was, however, correct in noting that Apartheid was “grossly at variance with a free market” (Van den Berghe 1979, 62).
It is today widely assumed “that extensive state intervention is required to undo the legacy of apartheid and that traditional liberalism is irrelevant” (Kane-Berman 2002, 2). This assumption is based on the idea that because the Apartheid government caused the poverty South Africa is burdened by today, the democratic government should be the entity to undo it. A cruder basis for this reasoning is the idea that because the Apartheid government succeeded in uplifting whites from poverty and providing whites with benefits, the democratic government must do the same on behalf of blacks. Such reasoning, to liberals, exalts collectivist endeavor.
It is more difficult for liberals to criticize the post-Apartheid government than the Apartheid regime (Kane-Berman 2017, x), especially from an economic standpoint. Bloom of the Democratic Party related in the year of transition, 1994, that campaigning for liberal values in areas considered by the African National Congress to be their turf was incredibly difficult, and that the Democratic Party encountered intimidation when working in those areas (Bloom 1994, 3–4). Kane-Berman (2019a) relates that many liberal organizations joined the ANC-affiliated United Democratic Front during the transition, and the “Mandela years after 1994 helped to ensure that almost everyone continued to see the ANC through rose-tinted spectacles.”
Kierin O’Malley (1994, 39) specified the dangers:
“It is not impossible that the market consensus alluded to above is simply a subterfuge and that once Nkrumah’s adage about seeking first the political kingdom has been achieved, the domestic left will be forced by populist pressures from below to embark on a more radical socialist economic project.”
Clem Sunter, too, warned in 1992 that the end of Apartheid would cause domestic and foreign “effendis” to regard South Africa as a prime location to, once again, try a new model of socialism. They would argue that socialism failed elsewhere for reasons other than its inherent impossibility, and as such it would be worth a try in South Africa (Sunter 1992, 162).
To guard against those dangers, O’Malley argued, liberals had to ensure that there were adequate constitutional protections for the market economy, such as the right to private property. These protections were taken up in the 1996 Constitution; for instance, in the section 25 right to private property and the section 22 right to freely choose one’s trade and occupation. Some of these guarantees, as O’Malley and Sunter predicted, are today in the crosshairs of an increasingly left-populist regime.
Liberals warn that intervention exacerbated the poverty that contemporary intervention is meant to remedy. State-owned companies represented substantial interference in the economy during the Apartheid era, with the largest of such companies having been among the largest enterprises in the whole economy: the Post Office, Transnet, and the power utility Eskom, with the latter having been the single largest company by 1990 (Leach 1990, 95). By 1990, too, television-producing firms in South Africa were statutory monopolies that received tariff and import quota protection from foreign competition (ibid., 100). Duncan Reekie wrote then that wealth distribution would be better through deregulation and privatization. Privatization could be pursued not only by sale but also by simply giving state companies, freely, to South Africans (Reekie 1990, 111). Kane-Berman too notes the truism that under regimes of economic freedom there is more prosperity and less poverty (Kane-Berman 2002, 3).
Since the late 1980s, the South African government has declared itself to be pursuing privatization. Some steps were taken, like the privatization of ISCOR in 1989 and the passage of the Minerals Act of 1991, but little else was achieved by 1990 according to Reekie (1990, 120), and certainly little else was achieved thereafter. Regardless, by the end of Apartheid, private enterprise had proven to be competitive when contrasted with the statutory monopolies. The Cooperative Wine Growers Association was an unnatural state monopoly over the wine production industry of some 6,000 farmers. It had the ability to fix prices and set production quotas. South African Breweries, on the other hand, was a private enterprise that controlled 99.9 percent of the malt beer market, but with no protection from competition. Economist Daniel F Leach argued that SA Breweries dominated the beer market “because the economics of beer production dictates that it is efficient for one firm to serve the market,” and was, as such a natural monopoly (Leach 1990, 97) but with no “monopoly power” (ibid., 105).
Sunter wrote that the notion that “the State will provide” has led to big government, itself a phenomenon of the 20th century. Ordinary people have outsourced their responsibility to care for themselves and their families and communities to government. Hitherto the government had provided extensively for the welfare of the white minority. Going forward the majority would expect a similar arrangement. Sunter wrote that this would never come to be. The promises would not be fulfilled (Sunter 1993, 69–70).
