In Why Nations Fail we discuss how the Apartheid regime in South Africa in many ways epitomizes extractive institutions. It emerged gradually during European colonization of South Africa, finding its first wave of institutionalization after the Union of South Africa was formed in 1910. It then intensified after the election of the National Party in 1948 which ruled the country until democratic transition occurred in 1994.
The economic institutions of Apartheid were designed to redistribute income and assets from blacks to whites which they did very effectively. As they were gradually constructed, the real living standards of Africans probably fell by 50-60% as shown by Pim de Zwart’s research. Frances Wilson’s book Labour in the South African gold mines, 1911-1969 shows that, though South African economy as a whole was growing, the real wages of gold miners was the same in the late 1960s as it had been in 1910.
So it was only the whites who benefitted from South African growth as the world’s most unequal country was being created.
These extractive economic institutions were backed up by extractive political institutions. The Union in 1910 brought together the Boer Republics of the Transvaal and the Orange Free State with the British colonies of Natal and the Cape. At the time, the Transvaal and the Orange Free State had racially-based franchises, while Natal and the Cape Colony had franchises based on property ownership and tax-paying status as in Britain itself in 1910, so they actually enfranchised rich blacks and coloreds. But after the Union, the blacks were disenfranchised in 1936 and the coloreds were disenfranchised 1956. Only whites had political power and with such extractive institutions, they were able to set up extractive economic institutions.
It should then be not a surprise that the transition to inclusive political institutions which occurred in 1994 was driven by conflict. It emerged from a long struggle and was only made possible by the increasing ability of the black population to organize and oppose white rule chiefly through the African National Congress (ANC). The ANC’s victory seemed to sound the death knell for the extractive economic institutions of Apartheid.
But as we discuss in the next three posts, moving to a new set of economic institutions has turned out to be much more difficult than most assumed in 1994.