Why Nations Fail: The Origins of Power, Prosperity, and Poverty

schools and discouraged black education. This policy reached its peak in the 1950s, when, under the leadership of Hendrik Verwoerd, one of the architects of the Apartheid regime that would last until 1994, the government passed the Bantu Education Act. The philosophy behind this act was bluntly spelled out by Verwoerd himself in a speech in 1954:
    The Bantu must be guided to serve his own community in all respects. There is no place for him in the European community above the level of certain forms of labour … For that reason it is to no avail to him to receive a training which has as its aim absorption in the European community while he cannot and will not be absorbed there.
    Naturally, the type of dual economy articulated in Verwoerd’s speech is rather different from Lewis’s dual economy theory. In South Africa the dual economy was not an inevitable outcome of the process of development. It was created by the state. In South Africa there was to be no seamless movement of poor people from the backward to the modern sector as the economy developed. On the contrary, the success of the modern sector relied on the existence of the backward sector, which enabled white employers to make huge profits by paying very low wages to black unskilled workers. In South Africa there would not be a process of the unskilled workers from the traditional sector gradually becoming educated and skilled, as Lewis’s approach envisaged. In fact, the black workers were purposefully kept unskilled and were barred from high-skill occupations so that skilled white workers would not face competition and could enjoy high wages. In South Africa black Africans were indeed “trapped” in the traditional economy, in the Homelands. But this was not the problem of development that growth would make good. The Homelands were what enabled the development of the white economy.
    It should also be no surprise that the type of economic development that white South Africa was achieving was ultimately limited,being based on extractive institutions the whites had built to exploit the blacks. South African whites had property rights, they invested in education, and they were able to extract gold and diamonds and sell them profitably in the world market. But over 80 percent of the South African population was marginalized and excluded from the great majority of desirable economic activities. Blacks could not use their talents; they could not become skilled workers, businessmen, entrepreneurs, engineers, or scientists. Economic institutions were extractive; whites became rich by extracting from blacks. Indeed, white South Africans shared the living standards of people of Western European countries, while black South Africans were scarcely richer than those in the rest of sub-Saharan Africa. This economic growth without creative destruction, from which only the whites benefited, continued as long as revenues from gold and diamonds increased. By the 1970s, however, the economy had stopped growing.
    And it will again be no surprise that this set of extractive economic institutions was built on foundations laid by a set of highly extractive political institutions. Before its overthrow in 1994, the South African political system vested all power in whites, who were the only ones allowed to vote and run for office. Whites dominated the police force, the military, and all political institutions. These institutions were structured under the military domination of white settlers. At the time of the foundation of the Union of South Africa in 1910, the Afrikaner polities of the Orange Free State and the Transvaal had explicit racial franchises, barring blacks completely from political participation. Natal and the Cape Colony allowed blacks to vote if they had sufficient property, which typically they did not. The status quo of Natal and the Cape Colony was kept in 1910, but by the 1930s, blacks had been explicitly disenfranchised everywhere in South Africa.
    The dual economy of South Africa did come to an end in 1994. But not because of the reasons that Sir Arthur Lewis theorized about. It was not the natural course of economic development that ended the color bar and the Homelands. Black South Africans protested and rose up against the regime that did not recognize their basic rights and did not share the gains of economic growth with them. After the Soweto uprising of 1976, the protests became more organized andstronger, ultimately bringing down the Apartheid