3. A. (fians,), University of latal, Durban (Sooth Ifrica), 19t'J 9, A,, Simon Prascr Wniversit~, 39-91 @ lnton David Lowenberg 1999 All rights reserved, This work may not be reproduced in whole or in part, by photocopy or other eeans, without peraission of the author, Name : Anton David Lowerherg Degree : Doctor of Phil.osop1ry Title of Thesis: Towards an Economic T1icor.y of the Apartheid State Examining Committee : Chairman : Clyde G. Reed ohas E. ~urkhpdin~ ni or Suuerv i sor ---- ' JOGF. Chant Ga1.y M . Walton External Examiner Dean, GraduaCe School of Administration IJniversi-ty ol California at Davis DaLc Approved : PARTIAL COPYRIGHT LICENSE I hereby grant to Simon Fraser University the right to lend my thesis, project or extended essay (the title of which is shown below) to users of the Simon Fraser University Library, and to make partial or single copies only for such users or in response to a request from the library of any other university, or other educational Institution, on its own behalf or for one of its users. I further agree that permission for multiple copying of this work for scholarly purposes may be granted by me or the Dean of Graduate Studies. It is understood that copying or pub1 ication of this work for financial gain shall not be allowed without my written permission. T itl e of Thes i s/Project/Extended Essay Towards an Economic Theory of the AparLheid State Author: Y m (signature) (date) I BSTRILCT The use of economic tools to explain the ersrqence or evolution of social and politicaZ institutions has received new impetus and direction ?luring the past two deca3es as a result of the ewetgence of Coasian microeconoaics together with its accoapaaying theory oE property tights allocation and the rate of transactions costs, This thesis begins by identifying aethodological in3iviaualisre and a price theoretic orientation as characteristic features of the neoclassical econoaic approach to institutional change, The "newn econamic history, aodern public choice theory and scanoaic theories of the state all have in cosmn 3 concern with expfaininq the collective choice of institutions as an outcoBe of individual ntility waximizinq behaviout, Several Oif f eren t approaches to this problem arc discussed, with a view to developing an econoeic theory of the South African apartheid polity, Rost existing analyses of apartheid have taken the institutional structure as given and have proceeded ta 3entonstrate the (inef Eicient) alfocative and f inequitable) distributional effects of the s~stes,Apartheid is typically portrayed as an irrational response to a racist social environnent, The purpose of this stu3g, however, is to show %ow apartheid institutions may be treated as an endogenous pro3uct of rational individual choice, si~ptsgeneral equilibriu~ ao3el oE the South african econowy is aug~entedby a predatory theory of the state, in which a ruling group selects the level iii of enfosceaent of apartheid policy, The latter is shown to depend. upon the costs of adqinisteriag, policing and defenatns the institutional syste~, in the face of hath internal an.! external politicaf opposition, as well as upon other exogenous variables such as the jol4 price an3 the occnpational structnta of the white electorate, The model yields testable qualitative predictions, although scascity of qata and proble~s of identification and specification search renaer testinq diff icuf t, never theless it is shown how the dimensions and leterjrtstinants of apartheid enforcement can Be areasursd, and soae preliminary quantitative analysis is unaertaken, 9e tailei! descriptions of the data, formal derivation of the aodel, snl the legislative an? institutional instruments of apartheid, are dealt with in appendices, To uiy parents and to Bart, ACKIQ#LEDGBI!lEITS I would like to thank Professors Tho~asBorcherding and Stephen Eastaa for thoir invalu8ble coassnts, suggestions and support throughout all stages oE this work, fn a43ition, Y profited from helpful discussioa with several other mesbers of the Xconosics Depart~entat Simon Fraser University, of which special aention should be aade of Professors John Chant and Cly3e 6ee4. Particular thanks are due to Ben Heijdra uho, as both friend an3 fellow student, Mas generous in extendinq to llte the benefits of his sound advice and expertise, especially in the areas of fornal aodslinq and econoatetric taetho.lolagp, &Ian Williaes 31~0 contributed to many fruitful aiscussfans dnrinq the fot~ative period of @y ideas, Any reaaining errors are attributable safely to the author, (1-3) Coasian nicroeconooics: the Theory of Propert 7 Riahts and Transactions Costs ,,,,.,,,,...,,..,,,ss9 f 7-4) The Econosic Theory of Ffon-Varket. Behaviour .. ., 19 IT, ECOWOflIC APPROBCHES TO 83STORY, BQLITXCS W#D THE STATE .****..*.**,8*r*,,*****~.**oo~**~~**************~~ {2,1) The leoclassical Theory of Tnstitutionaf Change an? the *T#av* Economic westory ,,, ,,,,,, ,,,23 (2-2) Econofnic Theories of Politics ant? the Stats ,,,,36 (2,2,4) Property Rights, Contract Theories, and Interest Group Theories of the State ,,,,,.,,,,,,,54 (3,2) Sociological and Psychalogical approaches to Racial Prejudice and Xparthei.9 Tdeoloqy ...,,,.,,,8n (3,3) ~CO~OR\~GAppitaachea to the Explanation of Bace Discrimination an4 Apartheid ,.,,,, ,,,,,,,,.,,,, .,97 [3,3,?) A Critical Survey sf Rcanomic Theories of Race Discrisination ......,,, .,.,,. ,,.,,. ..a,e R? f3.1) The Rationality of Apartheid Tnstitutions .. , ,,I97 (4,3) Imp1ica tions an3 Predictions of the Yodel .. , ,155 (5.8) Conclusions and Rvenues for Further Research ., 1130 RPPENDTX 1: The New Econa~icRistory .,. ., ,,,, ,, ,. .. ,,. .. ., 19Q (A2.1) Geolr~raphical Separation ['Grand ilp;lrtheid8) ,,705 (A2.2) Apartheid in the tabour Rarket ,,,,,.. ,.,, ., ..209 APPEMDIX 0: Definition an3 Description of the Data Used in LIST 02' TABLES 5-2 Regression Results - Ccrporate Taxes ,,, ,, , ,, ., ,, ,, , . 175 5.3 Regression Results - Labour Force Teasures of apartheid ,,,,,8,,,,,,,08,,,,....,r..~~t,.I.,,,,a 177 Weoclassical economics is often accused by its detractors of failing to provide an explanation of the processes of cha~qe in social institutions, ?lore specifically, it is characterize3 as wahistorics2n, Thus Runt and Schuattz criticize neoclassicaP econowists for their unquestioning acceptance of the existinq socio-econo~ic institutional structure and for displaying a total lack of historical perspective (7972, p. 8). Xn neoc'lassical rso*Iels, the-individual decision raaker responds with dispassionate rationality to changes in his social and ecancr%ic environaent which, in turn, is regard& as exogcnouslp deteraiined. In Veblen's words: (This) conception of msn is that of a lightning calculator of pleasures and pains, who oscillates like a hoinogeneous globule of desire or happiness under the ispulse of slianli that shift hia aboat the area but leave hia intact, He has neither antecedent nor consequent (Hunt and Schwartz, 1372, p. 11). Critics - whether institutianalists or narxists - chis that initial endou~ents of wealth and political power, laws, conventions and nrules of the gamew ate not subject to explanation, According to #elf, the purpose of neoclassical theory is to preaict the consequences of waximizing behaviour, But the institutional circuastances in which this behaviaut takes place - what Yarxists refer Lo as the nsocial relations of productionu - are taken Eor granted (7979, p, 831, Thus neoclassical ecsno~icshas nothing to say about how different distributions of wealth come about an3 how different distributions mag be associated vith different types of econoqic systews, In addition, neoclassical sodels "cannot describe the evolution and 3evelopaent of the institution of pr ivatc prbpertyt8 (Nsll, 1979, p. 79). Instead they are preoccupied uith the efficient allocation of resources and ignore such issues a% the effect of alternative distributions of power in society, This view derives directly fro@ Farx" critique of cXassica3. political econoay: Political econosy starts vith the fact of private property, but it does not explain it to us, ft expresses in general, abstract foraulas the -------material process through vhich private property actus117 passes, and these foraulas it then takes for l..!~. Zt does not gggphd~cg these laws, i,e, it sacs not de~anstratehow they arise from the very nature of private praFettp, Political econoap,,, takes for granted what it is suppose3 to explainw (rlarx, 9972, pp, 101-102). This alleged abstraction from unaerlying social and politicwl institutions wakes neoclassical theory into an historically relative set of hypotheses, and thus snpposc3ly imparts a sttonq ideological bias in favour oE existing institutions (Eaeek, 1967, But Barxists have not been the only critics to indict economics of 3 certain vacuity, Alaerican institutional thought, itself an offshoot of the Ger~anhistorical school and directfp descendeddroa the nark of Vsklan, is characterized by a thorough dissatisfaction with formal neoclassical price t he~ry and a nislrust of sfwplifying mo3els of hunan behaoiour {Kitch, 1983, pp, 169-1 78). Snstitulionalists such as John Coasons, 3iesLey nitchell, John H, Clark, Bcxford Tugwell an3 Gardiner mans are units? in tbhr view of orthodox neoclassical econoaics as "a type of scientific thought which gives too such attention to the shape or fora of its theorizing, an3 not enouqh consideration to the content of that theorizing and its relation to the real facts of econoric lifen {Gruchy, 19f17, p. 23). The cotAnton intellectual