Why Nations Fail

Commission:
Suppose the kaffirs [black
Africans] retire back to their kraal [cattle
pen]? Would you be in favor of asking the
Government to enforce labour?
Albu:
Certainly … I would make it
compulsory … Why should a nigger be
allowed to do nothing? I think a kaffir should
be compelled to work in order to earn his
living.
Commission:
If a man can live without work,
how can you force him to work?
Albu:
Tax him, then …
Commission:
Then you would not allow the
kaffir to hold land in the country, but he must
work for the white man to enrich him?
Albu:
He must do his part of the work of
helping his neighbours.
Both of the goals of removing competition with white
farmers and developing a large low-wage labor force were
simultaneously accomplished by the Natives Land Act of

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1913. The act, anticipating Lewis’s notion of dual economy,
divided South Africa into two parts, a modern prosperous
part and a traditional poor part. Except that the prosperity
and poverty were actually being created by the act itself. It
stated that 87 percent of the land was to be given to the
Europeans, who represented about 20 percent of the
population. The remaining 13 percent was to go to the
Africans. The Land Act had many predecessors, of course,
because gradually Europeans had been confining Africans
onto smaller and smaller reserves. But it was the act of
1913 that definitively institutionalized the situation and set
the stage for the formation of the South African Apartheid
regime, with the white minority having both the political and
economic rights and the black majority being excluded from
both. The act specified that several land reserves, including
the Transkei and the Ciskei, were to become the African
“Homelands.” Later these would become known as the
Bantustans, another part of the rhetoric of the Apartheid
regime in South Africa, since it claimed that the African
peoples of Southern Africa were not natives of the area but
were descended from the Bantu people who had migrated
out of Eastern Nigeria about a thousand years before. They
thus had no more—and of course, in practice, less—
entitlement to the land than the European settlers.
Map 16 (
this page
) shows the derisory amount of land
allocated to Africans by the 1913 Land Act and its
successor in 1936. It also records information from 1970
on the extent of a similar land allocation that took place
during the construction of another dual economy in
Zimbabwe, which we discuss in 
chapter 13
.
The 1913 legislation also included provisions intended to
stop black sharecroppers and squatters from farming on
white-owned land in any capacity other than as labor
tenants. As the secretary for native affairs explained, “The
effect of the act was to put a stop, for the future, to all
transactions involving anything in the nature of partnership
between Europeans and natives in respect of land or the
fruits of land. All new contracts with natives must be
contracts of service. Provided there is a bona fide contract
of this nature there is nothing to prevent an employer from
paying a native in kind, or by the privilege of cultivating a
defined piece of ground … But the native cannot pay the

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master anything for his right to occupy the land.”
To the development economists who visited South Africa
in the 1950s and ’60s, when the academic discipline was
taking shape and the ideas of Arthur Lewis were
spreading, the contrast between these Homelands and the
prosperous modern white European economy seemed to
be exactly what the dual economy theory was about. The
European part of the economy was urban and educated,
and used modern technology. The Homelands were poor,
rural, and backward; labor there was very unproductive;
people, uneducated. It seemed to be the essence of
timeless, backward Africa.
Except that the dual economy was not natural or
inevitable. It had been created by European colonialism.
Yes, the Homelands were poor and technologically
backward, and the people were uneducated. But all this

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was an outcome of government policy, which had forcibly
stamped out African economic growth and created the
reservoir of cheap, uneducated African labor to be
employed in European-controlled mines and lands. After
1913 vast numbers of Africans were evicted from their
lands, which were taken over by whites, and crowded into
the Homelands, which were too small for them to earn an
independent living from. As intended, therefore, they would
be forced to look for a living in the white economy,
supplying their labor cheaply. As their economic incentives
collapsed, the advances that had taken place in the
preceding fifty years were all reversed. People gave up
their plows and reverted to farming with hoes—that is, if
they farmed at all. More often they were just available as
cheap labor, which the Homelands had been structured to
ensure.
It was not only the economic incentives that were
destroyed. The political changes that had started to take
place also went into reverse. The power of chiefs and
traditional rulers, which had previously been in decline, was
strengthened, because part of the project of creating a
cheap labor force was to remove private property in land.
So the chiefs’ control over land was reaffirmed. These
measures reached their apogee in 1951, when the
government passed the Bantu Authorities Act. As early as
1940, G. Findlay put his finger right on the issue:
Tribal tenure is a guarantee that the land will
never properly be worked and will never really
belong to the natives. Cheap labour must
have a cheap breeding place, and so it is
furnished to the Africans at their own
expense.
The dispossession of the African farmers led to their
mass impoverishment. It created not only the institutional
foundations of a backward economy, but the poor people to
stock it.
The available evidence demonstrates the reversal in
living standards in the Homelands after the Natives Land
Act of 1913. The Transkei and the Ciskei went into a
prolonged economic decline. The employment records

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from the gold mining companies collected by the historian
Francis Wilson show that this decline was widespread in
the South African economy as a whole. Following the
Natives Land Act and other legislation, miners’ wages fell
by 30 percent between 1911 and 1921. In 1961, despite
relatively steady growth in the South African economy,
these wages were still 12 percent lower than they had been
in 1911. No wonder that over this period South Africa
became the most unequal country in the world.
But even in these circumstances, couldn’t black Africans
have made their way in the European, modern economy,
started a business, or have become educated and begun a
career? The government made sure these things could not
happen. No African was allowed to own property or start a
business in the European part of the economy—the 87
percent of the land. The Apartheid regime also realized that
educated Africans competed with whites rather than
supplying cheap labor to the mines and to white-owned
agriculture. As early as 1904 a system of job reservation for
Europeans was introduced in the mining economy. No
African was allowed to be an amalgamator, an assayer, a
banksman, a blacksmith, a boiler maker, a brass finisher, a
brassmolder, a bricklayer … and the list went on and on, all
the way to woodworking machinist. At a stroke, Africans
were banned from occupying any skilled job in the mining
sector. This was the first incarnation of the famous “colour
bar,” one of the several racist inventions of South Africa’s
regime. The colour bar was extended to the entire economy
in 1926, and lasted until the 1980s. It is not surprising that
black Africans were uneducated; the South African state
not only removed the possibility of Africans benefiting
economically from an education but also refused to invest
in black schools and discouraged black education. This
policy reached its peak in the 1950s, when, under the
leadership of Hendrik Verwoerd, one of the architects of
the Apartheid regime that would last until 1994, the
government passed the Bantu Education Act. The
philosophy behind this act was bluntly spelled out by
Verwoerd himself in a speech in 1954:
The Bantu must be guided to serve his own
community in all respects. There is no place

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for him in the European community above the
level of certain forms of labour … For that
reason it is to no avail to him to receive a
training which has as its aim absorption in
the European community while he cannot and
will not be absorbed there.
Naturally, the type of dual economy articulated in
Verwoerd’s speech is rather different from Lewis’s dual
economy theory. In South Africa the dual economy was not
an inevitable outcome of the process of development. It
was created by the state. In South Africa there was to be no
seamless movement of poor people from the backward to
the modern sector as the economy developed. On the
contrary, the success of the modern sector relied on the
existence of the backward sector, which enabled white
employers to make huge profits by paying very low wages
to black unskilled workers. In South Africa there would not
be a process of the unskilled workers from the traditional
sector gradually becoming educated and skilled, as
Lewis’s approach envisaged. In fact, the black workers
were purposefully kept unskilled and were barred from
high-skill occupations so that skilled white workers would
not face competition and could enjoy high wages. In South
Africa black Africans were indeed “trapped” in the
traditional economy, in the Homelands. But this was not the
problem of development that growth would make good. The
Homelands were what enabled the development of the
white economy.
It should also be no surprise that the type of economic
development that white South Africa was achieving was
ultimately limited, being based on extractive institutions the
whites had built to exploit the blacks. South African whites
had property rights, they invested in education, and they
were able to extract gold and diamonds and sell them
profitably in the world market. But over 80 percent of the
South African population was marginalized and excluded
from the great majority of desirable economic activities.
Blacks could not use their talents; they could not become
skilled workers, businessmen, entrepreneurs, engineers, or
scientists. Economic institutions were extractive; whites
became rich by extracting from blacks. Indeed, white South

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Africans shared the living standards of people of Western
European countries, while black South Africans were
scarcely richer than those in the rest of sub-Saharan Africa.
This economic growth without creative destruction, from
which only the whites benefited, continued as long as
revenues from gold and diamonds increased. By the
1970s, however, the economy had stopped growing.
And it will again be no surprise that this set of extractive
economic institutions was built on foundations laid by a set
of highly extractive political institutions. Before its overthrow
in 1994, the South African political system vested all power
in whites, who were the only ones allowed to vote and run
for office. Whites dominated the police force, the military,
and all political institutions. These institutions were
structured under the military domination of white settlers. At
the time of the foundation of the Union of South Africa in
1910, the Afrikaner polities of the Orange Free State and
the Transvaal had explicit racial franchises, barring blacks
completely from political participation. Natal and the Cape
Colony allowed blacks to vote if they had sufficient property,
which typically they did not. The status quo of Natal and the
Cape Colony was kept in 1910, but by the 1930s, blacks
had been explicitly disenfranchised everywhere in South
Africa.
The dual economy of South Africa did come to an end in
1994. But not because of the reasons that Sir Arthur Lewis
theorized about. It was not the natural course of economic
development that ended the color bar and the Homelands.
Black South Africans protested and rose up against the
regime that did not recognize their basic rights and did not
share the gains of economic growth with them. After the
Soweto uprising of 1976, the protests became more
organized 
and stronger, ultimately bringing down the
Apartheid state. It was the empowerment of blacks who
managed to organize and rise up that ultimately ended
South Africa’s dual economy in the same way that South
African whites’ political force had created it in the first
place.