State building in the colonial era: Public revenue, expenditure and borrowing patterns in the Cape Colony, 1820-1910 by Abel Gwaindepi Dissertation presented for the degree of Doctor of Philosophy (Economics) in the Faculty of Economics and Management Sciences at the University of Stellenbosch Supervisor: Dr Franz Krige Siebrits Co-supervisors: Prof Johan Fourie (Stellenbosch) and Prof Leigh Gardner (London School of Economics) The financial assistance of the National Research Foundation (NRF) towards this research is hereby acknowledged. Opinions expressed and conclusions arrived at are those of the author and not necessarily to be attributed to the NRF. March 2018 Stellenbosch University https://scholar.sun.ac.za DECLARATION By submitting this dissertation electronically, I declare that the entire work contained herein is my own, original work, that I am the sole author thereof (save to the extent explicitly otherwise stated), that reproduction and publication thereof by Stellenbosch University will not infringe any third-party rights and that I have not previously in its entirety or in part submitted it for obtaining any qualification. Signature: A. Gwaindepi Date: October 2017 Copyright © 2018 Stellenbosch University All rights reserved i Stellenbosch University https://scholar.sun.ac.za ABSTRACT We now know that state formation experiences outside Europe were not merely attenuated or failed versions of the European experiences (Herbst, 2000; Hoffman, 2015; Johnson and Koyama, 2016). The diverse paths taken towards the modern state imply that existing knowledge on state formation processes can be enhanced by integrating the experiences of Africa and other developing regions. This dissertation investigates colonial state formation in the British Cape Colony from 1820-1910, a period which saw the consolidation of British rule as well as the discovery of diamonds and gold in the region. The history of the Cape Colony adds a new dimension to accounts of colonial state formation in the 19th century, which are usually based on the experiences of New Zealand, Australia and Canada rather than those of Africa and other developing regions. The history of how the Cape Colony coped with the opportunities and challenges of mineral discoveries also has wide implications for debates on the interaction between mineral resources and institutions. The literature argues that the existing institutional structure shapes prospects for either prosperity or decline in the wake of discovering a resource. The discovery of diamonds in 1867 occurred during the early decades of self- governance at the Cape and the subsequent consolidation of political and economic institutions was heavily influenced by diamond mining as a major source of economic rents. Given that budgets are the ‘skeleton of the state stripped of all misleading ideologies’, as Goldscheid famously asserted, the study investigates the fledgling colonial state through the Cape Colony’s revenue policies, expenditure priorities and public borrowing patterns. The study contributes to the body of knowledge on the 19th century colonial state by presenting and analysing data on the revenue, expenditure and borrowing patterns of the Cape Colony (the data are contained in Appendices A, B and C). Further, it combines the quantitative data with archival records from the Cape Archives, South African Library, Stellenbosch Library and the British National Archives in Kew (United Kingdom). Budget speeches, debates, and other qualitative material help to contextualize trends in the quantitative data and make them intelligible. By combining these two types of discourse, this dissertation adds a new in-depth case study to research on South African economic history, African colonial states and imperial history in general. On the revenue side, the salience of customs revenue was established as a major form of indirect taxes. The second most important revenue item was railway earnings from the state-owned railway system. These two major sources of public revenue formed the backbone of the Cape Colony’s fiscal capacity development. The tax structure meant heavy burdens for the poor, mainly black Africans, while the available evidence suggests that private interest groups resisted taxes successfully. By the end of its existence, the Cape was in dire circumstances with high public debt and diminishing revenues. This was because the growing rivalry with neighbouring colonies meant that customs revenues and railway earnings dwindled in the Cape as trade was captured by other colonies. The expenditure side was dominated by the elite-driven railway construction that primarily served the mining interests at the expense of all other sectors. Education and other social ii Stellenbosch University https://scholar.sun.ac.za spending remained at the periphery of public expenditure while debt-driven and railway- centred infrastructure development took centre stage from the late 1870s when the Cape had attained self-governance and responsible governance. The discovery of diamonds proved to be the major positive economic shock that pushed the Cape economy and therefore public finances to a higher equilibrium. The businessmen with mining interests steered the government towards policies or actions beneficial to their interests through legislation that prevented direct taxation on them. This group with mining interests steered the government’s public finance policies to revolve around mining promotion. This shaped what this study characterises as a minerals-railway-complex (MRC). The MRC encapsulates the nature of the state-business informal coalition that determined not only the public finance patterns but also the pattern of economic industrialisation during the Cape’s existence. The 19th century business environment, with weak state institutions, meant that public finance policies were distorted to serve the interests of the political and economic elite. iii Stellenbosch University https://scholar.sun.ac.za OPSOMMING Dat staatsvormingservarings buite Europa nie bloot verswakte of mislukte weergawes van Europese ervarings was nie, het onlangs erkenning verkry (Herbst, 2000; Hoffman, 2015; Johnson and Koyama, 2016). Die verskillende roetes wat tot die moderne staat gelei het, impliseer dat bestaande kennis van staatsvormingsprosesse uitgebrei kan word deur die ervarings van Afrika en ander ontwikkelende streke in berekening te bring. Hierdie proefskrif ondersoek koloniale staatsvorming in die Britse Kaapkolonie van 1820-1910, 'n tydperk wat die konsolidasie van Britse heerskappy sowel as die ontdekking van diamante en goud in die gebied ervaar het. Die geskiedenis van die Kaapkolonie voeg 'n nuwe dimensie toe aan verslae oor koloniale staatsvorming in die 19de eeu, wat gewoonlik op die ervarings van Nieu-Seeland, Australië en Kanada gebaseer is, eerder as dié van Afrika en ander ontwikkelende gebiede. Die geskiedenis van hoe die Kaapkolonie die geleenthede en uitdagings van minerale-ontdekkings hanteer het, het ook wye implikasies vir debatte oor die interaksie tussen minerale hulpbronne en instellings. Die literatuur beweer dat die bestaande institusionele struktuur vooruitsigte vir welvaart óf agteruitgang in die nasleep van die ontdekking van 'n hulpbron vorm. Die ontdekking van diamante in 1867 het gedurende die vroeë dekades van selfbestuur aan die Kaap plaasgevind en die daaropvolgende konsolidasie van politieke en ekonomiese instellings is wesenlik deur diamantmynbou as 'n belangrike bron van ekonomiese gewin beïnvloed. Gegewe dat begrotings, soos Goldscheid welbekend beweer het, die 'skelet van die staat is wat van alle misleidende ideologieë gestroop is', word die jong koloniale staat in die studie deur middel van die Kaapkolonie se inkomstebeleid, uitgaweprioriteite en openbare leningspatrone ondersoek. Die studie maak 'n bydrae tot kennis oor die negentiende eeuse koloniale staat deur statistiek oor die inkomste-, uitgawe- en leningspatrone van die Kaapkolonie te verskaf en dit te ontleed (Bylaes A, B en C bevat die statistiek). Verder kombineer dit kwantitatiewe data met argiefrekords vanuit die Kaapse Argief, die Suid-Afrikaanse Biblioteek, Stellenbosch Biblioteek en die Britse Nasionale Argief in Kew (Verenigde Koninkryk). Begrotingstoesprake, debatte en ander kwalitatiewe materiaal help om tendense in die kwantitatiewe data te kontekstualiseer en verstaanbaar te maak. Deur hierdie twee tipes diskoers te kombineer, voeg hierdie proefskrif 'n nuwe deurdringende gevallestudie by tot navorsing oor Suid-Afrikaanse ekonomiese geskiedenis, Afrika-koloniale state en imperiale geskiedenis in die algemeen. Aan die inkomstekant is die belangrikheid van doeane-inkomste as 'n belangrike vorm van indirekte belasting bevestig. Die tweede belangrikste inkomste was die spoorwegverdienste van die staatsbeheerde spoorwegstelsel. Hierdie aansienlike bronne van openbare inkomste het die ruggraat van die Kaapkolonie se fiskale kapasiteitsontwikkeling gevorm. Die belastingstruktuur het swaarder laste vir die armes, hoofsaaklik swart Afrikane, beteken, terwyl die beskikbare getuienis daarop dui dat privaatbelangegroepe belasting suksesvol teengestaan het. Teen die einde van sy bestaan was die Kaap in ‘n haglike toestand met hoë openbare skuld en dalende inkomste. Dit was omdat toenemende mededinging met omliggende kolonies beteken het dat doeane- iv Stellenbosch University https://scholar.sun.ac.za inkomste en spoorwegverdienste in die Kaap afgeneem het, daar handel deur ander kolonies oorgeneem is. Die uitgawekant is oorheers