LABOUR APARTHEID IN SOUTH AFRICA: RENT-SEEKING APPROACH TO DISCRIMINATORY LEGISLATION: COMMENT

STEPHEN HOSKWG and HOWARD COOPER*

University of Port Elizabeth

I. INTRODUCTION

There is little doubt that there has been, and still is, considerable rent-seeking activity in South Africa (Dollery, 1988; Hosking, 1990, 1992) and that such activity has influenced a wide range of state action, including the enactment and abolition of various discriminatory laws governing the hiring of labour. It is also hue that economists in South Africa have paid too little attention to this topic. For this reason Dollery’s (1990) contribution in this area is most welcome. However, it also contains several deficiences.

Somewhat surprisingly, given the narrow focus of its title, the paper’s stated objective is the provision of an ‘alternative third view’ (p. 113) of South African political economy, different to those of liberals and Marxists; a rent-seeking view. Whereas the debate between liberals and Marxists, admirably reviewed in Nattrass (1991), focuses on the relationship between state interference and economic growth, the focus of Dollery’s paper is on the relation between rent- seeking activity and various discriminatory laws governing the hiring of labour since 1910, when the Union of South Africa came into being. This relationship is examined in the context of a ‘demand’ for the ‘supply’ of discriminatory labour legislation. The rent-seeking described is from an interest group perspective rather than individual one: the rationale being that Marxists and liberals have traditions which focus on interest groups (p. 115). that other rent-seeking theorists have focused on interest groups and that it is analytically useful to do so (p. 117).

We argue that the paper fails in its primary objective, namely to stand up as a credible alternative to the liberal and Marxist interpretations of South African political economy. The principal problem is that Dollery’s rent-seeking explanation is incomplete because he does not deal with the issue of rent-seeking costs. The application of a rent-seeking framework does, however, raise the interesting issue of whether the costs of apartheid may be even greater than heretofore believed. What makes South African political economy unique is the scope for rents artificially created by the racial bias of legislation. But, rent-seeking behaviour is not characterised by the transfer of economic resources alone. A particularly important feature of it is that these transfers are dissipated in the competition for them, resulting in a larger deadweight loss to society than incurred by ‘normal’ transfers.

A further problem is that the relationship between interest groups and rent-seeking behaviour is not clearly established. This vagueness makes it difficult to evaluate the paper’s stated claim to

* Howard Cooper passed away in 1992.

305

306 AUSTRALIAN ECONOMIC PAPERS DECEMBER

represent the first ‘historical analysis of labour apartheid specifically in terms of rent-seeking behaviour’ (p. 114). As the author himself points out, there is an extant and growing body of literature based on an interest group analysis of South African political economy (Porter, 1978; Lundahl, 1982; Lipton, 1986; Kaempfer and Lowenberg, 1988% 1988b Black and Cooper. 1989; Lowenberg. 1989), of which Lipton’s work is perhaps the best known. The paper’s heavy reliance on Lipton’s work compounds the problem of identifying firstly, whether it is rent- seeking or interest groups that are the key to understanding the history of South African political economy, and secondly, just what the paper’s original contribution is.

Turning to the labour market, the assertion that discriminatory labour legislation can be understood solely with respect to rent-seeking by members or factions (workers, and employers in the mining, manufacturing and agricultural sectors) of the domestic White interest group alone is neither historically nor analytically correct. It implies, that Black political pressure (internal and external) was negligible and thus could be ignored; and that such pressure was unsuccessful in influencing change, and did not consume (dissipate) valuable resources.

Although Dollery does give some examples of ‘action by disaffected black groups’ @. 1 18 and fn. 4) the identity and impact of these groups is excluded on the flimsy groups that ‘until fairly recently’ they have not been ‘successful in influencing the legislative process’ (p. 118); and that rent-seeking only provides a partial explanation of South African labour legislation, a point difficult to reconcile with the paper’s opening claim to provide a general explanation of the history of South African political economy. Both of these arguments can be refuted. Firstly, Hosking (1990, p. 44) has provided evidence that Blacks in South Africa indulged in rent- seeking activities early in the Twentieth Century, and that Black political pressure is correlated with state expenditure on Black education during the 1970s and 1980s. Secondly, it is theoretically implausible that White workers should have had an incentive to rent-seek but Black workers not.

The ‘demand‘ and ‘supply’ of discriminatory legislation (whatever this means) to which there is reference in the paper, relates to the following Acts: the Mines and Works Act of 191 1 and as amended in 1926, the Apprenticeship Act of 1922, the Industrial Conciliation Act as amended in 1956, the Native Land Act of 1913, the Bantu Land and Trust Act as amended in 1936 and the native (Urban Areas) Consolidation Act of 1952. The former three Acts are described as vertically discriminatory Acts while the latter three are described as horizontally discriminatory. These descriptions of discrimination are taken from Lipton (op. cit.. pp. 18-19). Vertical discrimination refers to the job colour bar and horizontal discrimination refers to legislation governing the geographical movement of Black workers. With respect to the former three, rents are asserted to arise to White workers by virtue of their having a monopoly right to these jobs: the losers being employers and Black workers.

However, what is not explained is how these rents are dissipated. which as we have already stated is a crucial requirement for an activity to be classed as rent-seeking. Prima facie, the only Act which satisfies this requirement is the Apprenticeship Act of 1922. The argument required here would be that the training requirements laid down in the Act were unnecessary for the job and did not improve productivity, and thus the cost of the statutory required training in effect dissipated the rent. However, even with this argument there are still problems, e.g. that of whether or not in this context the Act can legitimately be considered racially discriminatory.

1994 LABOUR APARTHEID IN SOUTH AFRICA 307

The paper is full of unsuhtantiated assertions (or speculation). For example, manufacturers are asserted to contrive rents behind tariff barriers, and then (as part of an exchange) pass on some of this rent to White workers (p. 120). Farmers are asserted to support job reservation in the mining and manufacturing sectors ‘in return’ .(p. 121) for exemption from job reservation in the agricultural sector and ‘a highly favourable package of horizontal discrimination’ (p. 121).

The explanation given for the abolition of discriminatory legislation is inadequate and unconvincing. The abolition of discriminatory provisions is attributed (p. 121) to a ‘new configuration of interest groups’ in which White labour had less ‘relative power’ and to ‘an increasingly influential manufacturing sector’ opposed to job reservation (although still behind tariff barriers). The vital missing factor in the explanation is, of course, Black political pressure. In addition to this shortcoming, no serious attempt is made to identify the transfer mechanism between groups.

The relevance of rent-seeking to the three Acts cited above concerning horizontal discrimination is also not established. The ‘pass laws’ are mentioned in this connection, but not the other notorious Acts, like the Group Areas Act of 1950 and the Urban Areas Act of 1950, and as amended and consolidated in 1957 and 1966. It is asserted that White workers were not interested in seeking rents through horizontally discriminatory legislation because they enjoyed enough rent (p. 122) through other means (suddenly White workers are no longer rent maximisers): thus rent-seeking in connection with this legislation is attributed to capitalists. The latter are asserted to have gone about their rent-seeking by dividing up the labour market. Why segmented labour markets enabled employers to extract more rent than they would have in unsegmented markets is not clear: nor is it clear what is meant by artificial rent in this context. At this point the paper gives the appearance of switching from a rent-seeking framework to a Marxian one in part and a liberal one in part, with the state cast in the role of facilitator to a process whereby capitalists extract surplus labour from Black workers, and with skilled labour shortages forcing the government to reform (a liberal point).

Our conclusion is that Dollery fails to provide either a satisfactory alternative to existing interpretations of South African political economy or a credible rent-seeking explanation for the evolution of discriminatory labour legislation in South Africa during the Twentieth Century. The reason for the latter failure is not that a rent-seeking framework is inappropriate, but that the framework is improperly applied. Both the contents and title of the paper are misleading. No serious attempt is made to identify the artificial rent, nor to describe the process of rent-seeking in South Africa, important interest groups are left out of the analysis, the paper is filled with unsubstantiated assertions, and in many places the argument conforms to, rather than contrasts with, liberal and Marxist interpretations of the history of discriminatory labour legislation.

310 AUSlRAlMN ECONOMIC PAPERS DECEMBER

rent-seeking costs is incorrect. In essence. I argue that the pattern of racially discriminatory labour legislation in apartheid South Africa can be explained as a consequence of a demand for discriminatory labour regulation by some white interest groups and a concomitant supply of racist labour law from white legislators. Whilst the direct costs and benefits will of course accrue to interest groups and legislators, far more significant indirect costs will be borne by South African society as a whole as a constquence of drastic restrictions placed on the usage, training and mobility of black labour. This latter dimension of rent-seeking costs is referred to throughout the paper. For example. I note that ‘... such an approach would stigmatise the net outcome of statutory racial discrimination as welfare reducing for society at large ...’ (Dollery, 1990, p. 113).

Secondly. Hosking and Cooper make much of my use of rent-seeking by white economic interest groups, and more especially my explicit employment of Lipton’s (1986) fivefold classification of white economic interest groups in South Africa (Dollery, 1990, p.117). For instance, Hosking and Cooper argue that ‘the paper’s heavy reliance on Lipton’s work compounds the problem of identifying firstly, whether it is rent-seeking or intesest groups that are the key to understanding the history of South African political economy, and secondly, just what the paper’s original contribution is’. These remarks apparently overlook my stated reasons for examining the behaviour of interest groups within the rent-seeking paradigm; to wit, ‘...since it can be argued that in recent years both liberals and marxists have increasingly recognised the role of interest groups in South African political economy. a rent-seeking analysis attaching central importance to the rational behaviour of such interest groups forms part of the natural progression of the debate’ (Dollery, 1990, p.114). It need hardly be added that Lipton’s (1986) taxonomy of white economic interest groups in South Africa is now almost universally adopted by scholars of South African political economy. Nor is it obvious that rent-seeking and interest groups are somehow mutually exclusive in any understanding of the evolution of discriminatory labour legislation in South Africa.

Finally, Hosking and Cooper attack my purported neglect of black economic interest groups in the formation of discriminatory labour legislation in South Africa. In essence, I justified the exclusion of black economic interest groups because racist labour legislation flowed from a racially exclusive parliamentary context in which blacks were neither electors nor legislators. Moreover, during the period 1910 until shortly after World War I1 when discriminatory labour legislation was entrenched in South Africa, there is little evidence of extraparliamentary activity by black economic interest groups. It is a matter of historical fact that apartheid labour regulation originated in the white legislative assembly, especially after the election of the Pact government in 1924, and this requires explanation. I qualify my rent-seeking explanation by noting that ‘...the exclusion of blacks from the analysis serves to emphasise further the partial nature of the present attempt at explaining the metamorphosis of South African labour legislation in terms of a rent- seeking perspective’ (Dollery. 1990, p.118). but nowhere do I claim that rent-seeking by black workers did not occur, as Hosking and cooper assert.

1994 LABOUR APARTHEID IN SOUTH AFRlCA 31 1

REFERENCES

Anderson, G.M., Rowley, C.K. and Tollison, R.D. (1988), ‘Rent-Seeking and the Restriction of Human Exchange’, Journal of Legal Studies, vol. 27.

Brooks, M.A. and Heijdra, B.J. (1989). ‘An Exploration of Rent Seeking (Survey Paper)’, Economic Record, vol. 65.

Dollery, B.E. (1990). ‘Labour Apartheid in South Africa: A Rent-Seeking Approach to Discriminatory Legislation’, Australian Economic Papers, vol. 29.

Leininger, W. (1993), ‘More Efficient Rent-Seeking: A Munchhausen Solution’, Public Choice, vol. 75.

Lipton, M. (1986), Capitalism and Apartheid: South Africa, 1910-1 986 (Claremont: David Philip).

Samuels, W.J. and Mercuro, N. (1984), ‘A Critique of Rent-Seeking Theory’, in D.C. Colander (ed.), Neoclassical Political Economy (Cambridge: Ballinger).

Tullock, G. (1985), ‘Back to the Bog’, Public Choice, vol. 46.

Alaouze, Chris M.

Amadeo, Edward and Dutt, Amitava

Basu, Santonu

Bradbury. Bruce

Broll, Udo

Creedy, John

Cubitr, Robin P.

Dollery, Brian

Fahrer, Jerome and Rohling, Thomas

Gill, Flora

Goel, Rajeev

Grant, Simon and King, Stephen P.

Haruna, Shoji

Hosking, Stephen and Cooper, Howard

INDEX TO VOLUME 33

1994

The Utility Maximising Firm: Price Stabilisation and Duality

The Wicksell-Keynes Connection: Dynamic Analysis, Loanable Funds and Wage Flexibility

Deregulation of the Australian Banking Sector: A Theoretical Perspective

Measuring the Cost of Children

Foreign Production and Forward Markets

Exchange Equilibria: Bargaining, Utilitarian and Competitive Solutions

Lump Sum Menu Costs and the Labour Demand Curve

Labour Apartheid in South Africa: A Rent-Seeking Approach to Discriminatory Legislation: Reply

Some Tests of Competition in the Australian Housing Loan Market

Inequality and the Wheel of Fortune: Systemic Causes of Economic Deprivation

Industrial Location, Advertising and Entry Deterrence

The Treatment of Deductions Under a Sales Tax

Competitive Long-Run Industry Equilibrium and Factor-Price Uncertainty

Labour Apartheid in South Africa: A Rent-Seeking Approach to Discriminatory Legislation: Comment

27

253

272

120

1

34

7

309

107

139

53

21

175

305

Karfakis, Costas I. and Phipps, Anthony J.

Lim, G. C. and Mahin, Vance L

Lloyd, P. J .

Lye, LN. and Sibly, H.

Madsen, Jakob, B.

Nickerson, David and Reynolds, Stanley

Olekalns, Nilss and Sibly, Hugh

Van Gompel, J o h n

Voon, Thomas

Yang, Bill

Do Movements in the Forward Discount on the Australian Dollar Predict Movements in Domestic Interest Rates?

Australian Short-Term Interest Rates: An Empirical Analysis of the Transmission Pracess, 1988-1991

A Multiple-Output Cost Function for Australian Universities

Testing for Pricing Asymmetries in Customer karkets

The Real Wage Gap and Unemployment in the OECD

Monopoly Investment, Pricing and Production under Intertemporal Demand Uncertainty

Default Risk in Implicit Contract Models of the Credit Market

Achieving Macroeconomic Stability: The Role of Wage Indexation and Exchange Rate Policy

Chinese Demand for Australian Wheat: Application of Market Share Models

Simultaneous Advertising as a Signal of Product Quality

62

75

200

239

96

155

215

228

186