1 THE GREAT DIVERGENCE IN SOUTH AFRICA: POPULATION AND WEALTH DYNAMICS OVER TWO CENTURIES African economic history working paper series No. 47/2019 Dieter von Fintel, Stellenbosch University [email protected] Johan Fourie, Stellenbosch University 2 ISBN 978-91-981477-9-7 AEHN working papers are circulated for discussion and comment purposes. The papers have not been peer reviewed, but published at the discretion of the AEHN committee. The African Economic History Network is funded by Riksbankens Jubileumsfond, Sweden For submissions, contact: Erik Green Department of Economic History Lund University P. O. Box 7083 The great divergence in South Africa: Population and wealth dynamics over two centuries∗ Dieter von Fintely and Johan Fouriez Abstract Does wealth persist over time, despite the disruptions of historical shocks like colonisation? This paper shows that South Africa experienced a rever- sal of fortunes after the arrival of European settlers in the eastern half of the country. Yet this was not, as some have argued was the case elsewhere in colonial Africa, because of an institutional reversal. We argue, instead, that black South Africans found themselves at the mercy of two extrac- tive regimes: those in `white South Africa and those in the `homelands. The political and economic institutions of each of those regimes favoured a small elite: in white South Africa, whites, and in the homelands, the black chiefs and headmen. Democracy brought inclusive institutions for black residents in white South Africa but not for those in the former home- lands. This is why we see mass migration to the urban areas of South Africa today, and why addressing the institutional weaknesses of the for- mer homelands is key to alleviating the poverty in these regions where a third of South Africans still reside. Keywords. reversal of fortunes, population persistence, institutional reversal, colo- nial impact, settler economy, African economic history, traditional leaders ∗We thank the editor, three anonymous referees, Kara Dimitruk, Katherine Eriksson, James Fenske, Erik Green, Remi Jedwab, Martine Mariotti, James Robinson, participants at the ASSA meetings in San Francisco, the WEHC in Kyoto and the ESSA conference in Cape Town for valuable comments on an earlier version of the paper. yLEAP, Department of Economics, Stellenbosch University; Institute of Labor Economics (IZA), Bonn. E-mail: [email protected] zLEAP, Department of Economics, Stellenbosch University. 1 The great divergence in South Africa: Population and wealth dynamics over two centuries August 12, 2019 1 Introduction Countries colonized by European powers during the past five centuries ex- perienced a reversal of fortunes: those that were relatively rich in 1500 are now relatively poor. In their seminal contribution to African economic his- tory, Acemoglu et al. (2002) show that pre-industrial population density is negatively correlated with modern-day income per capita. The result holds even when they include only African countries in their study sample. The cause of this negative correlation, they argue, is the institutions es- tablished by Europeans in the colonies. Fewer Europeans settled in densely populated regions, and instead of introducing `good' institutions (such as private property rights), these colonial powers imposed `bad', extractive in- stitutions. They say it was the poor institutional environment, rather than the geography, that made these countries poorer today than countries where `good' institutions were set up. They note that the `reversal in relative in- comes' occurred mostly during the late eighteenth and early nineteenth cen- turies, and they argue that it `resulted from societies with good institutions taking advantage of the opportunity to industrialise' (Acemoglu, Johnson, and Robinson 2002, p. 1231). Not everyone accepts the validity of this hypothesis. More recently, Maloney and Caicedo (2016) have used sub-national pre-colonial population densities for eighteen countries in the Western hemisphere to show that population density has persisted up to today: those countries with highest concentrations in 1500 remain most densely populated. Importantly, those countries also have higher average income levels today, challenging Acemoglu et al.s hypothesis and suggesting wealth persistence instead. We compare the merit of these two conflicting arguments by considering the case of South Africa over the past two hundred years. Our results show, firstly, that the settlement of black South Africans has been highly persistent: those areas that were populated primarily by this group in the 1830s and 1911 remain densely populated by their descendants today. At first, this appears to lend support to the argument of Maloney and Caicedo 1 (2016): locational advantage determines persistence. But we argue that this is a simplistic interpretation of historical processes. The settlement patterns we observe in the 1830s are related to specific historical events, particularly conflicts within the Bantu-speaking peoples and the movement of European settlers into the interior of the country. As new archaeological evidence now shows, indigenous settlement patterns were very different only one century earlier. Although we find population persistence in the two centuries before 2011 (the date of the most recent South African census), it is unlikely that settlement patterns at the beginning of the nineteenth century reflected a stable, Malthusian equilibrium. Path dependence may be a better explanation for the observed trends than persistence. When we consider measures of welfare, we find that the regions that were most densely populated early in the nineteenth century have today the high- est unemployment rates and the lowest night lights luminosity. If we assume that high population density in this era reflects relative wealth { as it would have, given the devastating effects of the Mfecane { this seems to suggest that a reversal of fortunes occurred, of the kind that would support Acemoglu et al.s argument . But it is, again, not that simple. South Africa did not expe- rience an institutional reversal: rather, black South Africans were subjected to extractive institutions in both `white South Africa' and the homelands, the semi-autonomous polities that were formed around historically densely settled areas. The extractive institutions in these homelands were the result of a mixture of precolonial institutions and apartheid-era government in- fluences. Democracy brought new institutional arrangements: black South Africans could now own property and vote in `white South Africa, but were still subject to extractive institutions in the former homelands. The result was diverging economic outcomes for black South Africans, mitigated only by open borders and large out-migration. Our paper expands the debate in three ways. First, past population density is often assumed to be correlated with income. At least during the pre-colonial era, when populations tended to rise with and offset any increases in wealth, this Malthusian argument appeared to be valid. We question this assumption in the case of South Africa. In particular, we ar- gue that the slave trade and internal warfare may have obliged people to settle (even before colonial displacement) in areas that were not optimal for wealth accumulation following industrialisation { such as areas that were rugged or far from markets. Second, both Acemoglu et al. (2002) and Mal- oney and Caicedo (2016) include descendants of European settlers in their current-day estimates of population density and income. Their estimates are therefore confounded by other causal mechanisms (in addition to geog- raphy and institutions), such as cultural and genetic diversity. Our focus is only on the descendants of the indigenous, Bantu-speaking inhabitants of South Africa. The mechanism that explains the persistence or reversal of population density and wealth must be either geography or institutions. 2 Third, we argue that the mechanism that Acemoglu et al.(2002) found to explain reversal of fortune, i.e. a change in institutions, does not explain the South African case. Black South Africans were generally excluded from economic and political rights in both `white South Africa and the former homelands. It was only towards the end of apartheid, and emphatically so after 1994, that these rights began to be shared more equally and the welfare of black South Africans in the former `white areas began to improve. The same was not true in the former homelands, where the positions of chiefs and headmen became more entrenched, deepening the institutional divide. Migration from the former homelands to the cities has become the primary poverty alleviation strategy for black South Africans in the twenty-five years after the end of apartheid. In short, our paper questions the premises of the persistence versus re- versal debate. Black South Africans incomes have diverged enormously, not because of an institutional reversal, but because of idiosyncratic historical shocks that affected the timing and intensity of settler migration, the type of extractive institutions that were set up in both `white South Africa and the homelands and the inability to move between these, and the institutional divergence after the start of democracy. As the case of South Africa shows, history is too complicated to be compressed into binary outcomes at the bookends of historical eras. 2 Geography vs Institutions There is little doubt that both geography { the climate, terrain, disease and other