Growth, Productivity, Labour Misallocation, and the Paradox of Apartheid in 20th Century South Africa
This dissertation investigates the central economic paradox of 20th-century South Africa: a period of rapid industrialization and economic growth that occurred alongside the systematic entrenchment of apartheid, a pervasive system of state-enforced racial discrimination. The core thesis is that apartheid, far from being a purely social or political system, was a deeply inefficient economic arrangement that imposed substantial and quantifiable costs on the South African economy. These costs manifested primarily as a severe misallocation of labour, which depressed aggregate productivity and constrained the nation’s long-run development potential. The argument is developed through a tripartite empirical investigation that dissects this paradox at the sectoral, aggregate, and regional levels. The first study undertakes a granular growth accounting analysis of the mining and manufacturing sectors, the twin engines of 20th-century growth. It finds that manufacturing growth was driven by technological progress that was racially biased, while the mining sector relied more heavily on the intensification of cheap, unskilled Black labour. The second study develops and calibrates a static general equilibrium model to quantify the aggregate economic losses attributable to discriminatory labour market policies, specifically the “job reservation" system. A counterfactual analysis reveals that eliminating these race-based frictions would have resulted in significant gains in aggregate output. A decomposition of this effect shows that the entire productivity cost of discrimination is attributable to a decline in allocative efficiency, not the technical efficiency of firm. This demonstrates that the primary cost was the prevention of workers from sorting into their most productive roles. The final study employs a quasi-experimental research design to examine a crucial instrument of state policy: the national railway system. It finds that state-led upgrades to the railway network, a tool explicitly used to enforce spatial segregation, causally increased aggregate productivity in the districts it connected. The mechanism for this gain was an enhancement of allocative efficiency, as the modernized infrastructure reduced the effective economic distance between segregated residential areas and industrial centres, thereby mitigating the very spatial distortions it was designed to support. Collectively, these findings provide a quantitative and theoretically grounded narrative of an economy at war with itself. They reveal a state grappling with a fundamental contradiction between its political objective of racial separation and its economic objective of industrial growth, where the economic imperatives of modernization created unintended consequences that systematically eroded the foundations of the state’s core political ideology.
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