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Two weeks ago, Daron Acemoglu, Simon Johnson and James Robinson were awarded the 2024 Nobel Prize in Economic Sciences for their pioneering work on the role of political and economic institutions in shaping long-term economic prosperity.
In their famous The Colonial Origins of Comparative Development, Acemoglu, Johnson, and Robinson (AJR) argue that the institutions established during European colonisation have had lasting effects on today’s global income inequality. They showed that in colonies where European settlers faced low mortality, they established strong property rights and inclusive institutions, fostering long-term economic growth. In contrast, high settler mortality led to extractive institutions focused on resource exploitation, stunting development. AJR used settler mortality as a clever instrument to explain how institutions impact modern GDP levels.
Their thesis has been hugely influential. Nearly every undergrad social science student will be exposed to it at least somewhere in their studies. (If not, you’re studying at the wrong university.) But despite its popularity, it has also faced much (sensible and less sensible) criticism. Some scholars argue that the role of human capital – brought by European settlers – cannot be disentangled from the impact of institutions. (Indeed, a paper by Dieter von Fintel and myself on the French Huguenots, also makes this point.) Others suggest that European migration, rather than institutional development alone, explains much of the wealth disparity. Others question the empirics, or point to trade networks and cultural factors as alternative explanations. In fairness, these critiques highlight just how difficult it is to isolate the true causes of economic development from historical data.
What is less known, though, is Acemoglu and Robinson’s work on South Africa. This is where I want to pause today. One paper that is not cited by the Nobel Committee but ought to be prescribed reading, is the paper Why is Africa Poor?. In it, Acemoglu and Robinson argue that processes of state formation were delayed in Africa relative to Eurasia, and state institutions appear to have been intensely absolutist and patrimonial. Using case studies, they then show how these initial institutions interacted perversely with a series of shocks that hit Africa, in particular, the slave trade in the early modern period and colonialism in the 19th and 20th centuries.
South Africa is one case they investigate. They argue that the creation of a dual economy in South Africa was a direct consequence of European colonial policies, which divided the country’s resources and labour along racial lines. Regions such as Natal, with private property rights, a functioning legal system, and thriving agriculture, starkly contrasted with areas like the Transkei, where communal land ownership and traditional chiefs prevailed. This system established two distinct economies: one modern and prosperous, the other backward and impoverished. However, this underdevelopment was not a natural outcome but was deliberately engineered by South African elites to suppress African economic progress, ensuring a supply of cheap labour for white-owned businesses while eliminating competition from African farmers.
Had these ‘extractive’ institutions not been imposed, another South Africa would have emerged. Acemoglu and Robinson highlight how African communities prospered in regions like the Ciskei and Transkei in the late 19th century, adopting new agricultural technologies and investing in land when provided with opportunities. The 1876 report by Civil Commissioner John Hemming, which described the transformation of Fingoland with ‘substantial huts and brick or stone tenements’ and widespread use of irrigation and the plough, exemplifies this potential. However, white landowners systematically reversed this period of African economic dynamism through measures like the Native Land Act of 1913. This legislation legally divided South Africa into a modern, prosperous part for Europeans and a poor, underdeveloped section for Africans, deepening the economic divide and setting the stage for apartheid.
Acemoglu and Robinson argue that the Native Land Act institutionalised poverty by stripping Africans of land ownership and economic autonomy, pushing them into low-paid labour. Testimonies, such as George Albu’s in 1897, reveal the intent to create a workforce that ‘must work for the white man to enrich him’. Policies like the ‘Colour Bar’ further entrenched this exploitation by barring Africans from skilled jobs, ensuring white workers faced no competition. In the twentieth century, education for black South Africans was also deliberately restricted, with apartheid leader Hendrik Verwoerd stating that they had no place in the European community beyond manual labour. In this way, colonial policies in South Africa systematically engineered underdevelopment, enabling a racially segregated economy to flourish.
In 2019, my research with Dieter von Fintel built on the insights of Acemoglu and Robinson. We extended their analysis by focusing on the persistence of population patterns and wealth disparities long after apartheid’s formal end. We show that the fortunes of black South Africans were shaped by not one, but two extractive regimes: the exploitative system of ‘white South Africa’, and the parallel system in the ‘homelands’, where black chiefs controlled resources. Even after the arrival of democracy, which introduced inclusive institutions for black South Africans in urban areas, the former homelands have remained economically stagnant. Using indicators like night-time luminosity, we show that regions once designated as homelands still suffer from higher unemployment and lower levels of development.
This is an example of how ‘institutions matter’ in South Africa. But I find their most interesting analysis of South Africa in their lesser-known book, The Narrow Corridor, published in 2019. First, their theory: they argue that a balance of power between the state and society is crucial for fostering liberty and building inclusive institutions. They propose that state capacity develops through a struggle between elites and civil society, where both sides accumulate power over time. When the state becomes too dominant, a despotic regime emerges, while a weak state arises when society is disproportionately strong. The narrow corridor refers to the delicate balance between state and society, leading to an inclusive state with the highest levels of state capacity and liberty.
South Africa, they argue, was outside the corridor for much of our history. How can such a society move into the corridor? A serious challenge or an existential crisis is typically necessary for a change in the path of such a nation.
Three things matter: the ability to form coalitions that support such a transition, the location of the current balance of power between state and society relative to the corridor, and the shape of the corridor, which affects how these two factors play out. They then explain how South Africa managed to enter this ‘Rainbow corridor’ through black economic empowerment:
BEE not only initiated close relationships between industrialists and those denied political power, but it also reassured businesses that ANC leadership and the black middle classes would be much less interested in expropriating white-owned assets and wealth.
In an episode of the Our Long Walk podcast (available wherever you find your podcasts), I asked Robinson whether he still thinks Black Economic Empowerment was a success.
I know black economic empowerment is controversial in South Africa but to me, you can’t just say, okay, now we have democracy. White people [can] keep everything. They get to keep all the land and all the businesses, and let’s let the past be past; we’ll all move forward. You can’t build a society like that. Something had to be done. I don’t know if that was the best thing that could have been done, but I’ve always had this very positive perspective on black economic empowerment. I thought many aspects of the institutional design are pretty clever, actually, if you thought about it as a way of transforming the past and exiting from the shadow of apartheid. After all, apartheid wasn’t the creation of a free natural creation of a free market. Apartheid was created by the state. So if it was created by the state, it had to be unravelled by the state.
Acemoglu, Johnson, and Robinson’s research shows how extractive institutions, established during three centuries of colonialism, shaped South Africa’s dual economy and entrenched inequality. Black economic empowerment was a vital, though perhaps imperfect, policy to navigate the narrow corridor between state and societal power. The lesson is that economic development requires continued policy innovation and experimentation. Just like the methods a Nobel-winning scientist would use.
An edited version of this article was published on News24. Support more such writing by signing up for a paid subscription. The images were created with Midjourney v6.