South Africa in the open borders debate

The experience of post-apartheid South Africa is often used by supporters and opponents  of open borders as evidence for their respective positions. Those in favor of  open borders argue that the lifting of restrictions barring the free movement of black people improved the welfare of both whites and blacks. Restrictionists, on the other hand, argue that the welfare of whites and blacks has declined significantly since apartheid. For instance, the experience of South Africa after apartheid is used by both sides in the comments section to this post by Bryan Caplan  that, in part, questions the importance of the political externalities argument against open borders. I intend to do two things in this post: (1) clarify what the consensus position is regarding the welfare of blacks and whites in post-apartheid South Africa and (2) draw out the implications of South Africa’s experience for the open borders discussion.

I. Post-apartheid welfare

So what has been happening to the welfare of blacks and whites since apartheid officially ended in 1994? To answer this question, I review trends in incomes, poverty, inequality, unemployment and crime since 1994.

Incomes

From an aggregate point of view, the South African economy performed relatively well from 1994 to just before the financial crisis . For instance, the rate of growth in real GDP per capita was positive and significantly so for each year from 1994 to 2008 with the exception of 1998 (scroll to page 9 of this UN report). Leibbrandt and Levinsohn work out that real GDP per capita grew by 25% over this period, which coincidentally was the average growth rate for sub-Saharan Africa, excluding South Africa, over the same time period (I computed the latter statistic by using the World Bank’s databank tool available for free here – remember to use ‘constant prices’ rather than ‘current prices’ to calculate real, inflation-adjusted growth). For comparison, real GDP per capita declined by 15% over the period 1980 to 1994 (my own calculations using data from the World Bank’s databank tool that I link to above). Since GDP per capita might be too aggregated a measure (especially for a country like South Africa with distinct racial groups), Leibbrandt and Levinsohn, in the same paper, look at trends in actual incomes as reported by South African households and find that mean household incomes grew by 15% over the period*. In terms of racial breakdowns, the white population’s incomes grew the most at 28%, followed by blacks at 26%. Coloreds and asians saw their incomes grow by 8% and 5% respectively**. No such detailed study is available for household incomes before 1994 but the consensus is that the 1980s to early 1990s were dismal times economically. One might say that the 1980s are an unfair time period to compare South Africa’s later economic performance with because of the economic sanctions in place at the time. A detailed economic analysis, however,  pointed to other structural factors, in addition to the sanctions, as being behind the economic malaise of the 80s and very early 90s.

Poverty and inequality

The consensus position is that poverty has declined across all racial groups since 1994. Leibbrandt, Wegner and Finn writing in 2011 have this to say [emphasis mine]:

The headcount ratio for two poverty lines is shown to have fallen over time, which is in line with a substantial literature (For example, Bhorat and van der Westhuizen (2009), van der Berg et al (2008)). As shown by Leibbrandt, Woolard, McEwen, Koep (2010) and Leibbrandt, Woolard, Finn, and Argent (2010) this decline in poverty is more pronounced if measures of poverty (such as the poverty gap ratio) that are sensitive to the depth of poverty are used. There is some contention over the timing of the poverty declines. For example, Hoogeveen and Özler (2006) seem to indicate an improvement in poverty levels only after 2000. However, there is no disagreement about the long‐run trend. In addition, as illustrated by Bhorat et al (2006) and Bhorat et al (2009) there is no such contention with regard to changes in non money‐metric well‐being. In all analyses, access to services, formal dwellings and private assets are shown to improve in the period from 1996 to 2001 and then on through to 2008.

Inequality on the other hand seems to have increased over all. The widely used Gini coefficient grew from 0.67 in 1993 to 0.70 in 2008 making the country one of the most unequal in the world. However, it does seem that within-racial group inequality has been driving the overall increase. In other words, inequality between racial groups (between, say, whites and blacks) is less a factor in explaining overall inequality than inequality within racial groups. As is the case in most countries, South Africa’s high inequality seems to be explained by educational differentials.

Unemployment

The consensus position is that the unemployment rate has been increasing since 1994. In 1995, the unemployment rate stood at about 15% whereas it currently stands at about 25%. A widely read study pointed to structural rigidities linked to poor labor market policies as being behind the persistence in unemployment post 1994.  In the absence of such rigidities, the authors contend that the labor market would have adjusted to absorb some proportion of  the large and unprecedented increase in labor supply that followed the fall of apartheid. Others, however, believe that unemployment had been trending upwards well before 1994 and the post 1994 labor policies adopted by the new African National Congress (ANC)-led government might have exacerbated the situation.

Crime

The one sore spot of post-apartheid South Africa seems to be the perceived increase in crime, especially violent crime. Crime began trending upwards as early as the 1980s with the trend line probably becoming steeper somewhere in the early to mid 1990s. Homicide rates which were as high as 65 per 100,000 population in 1995 reduced to half that figure by 2009. On the other hand, the rate of aggravated robberies increased significantly in the post-apartheid period. The Institute for Security Studies (ISS)data shows that the rate of aggravated robberies increased from about 150 per 100,000 population in 1997 to just under 300 per 100,000 population in 2004 (an almost 100% increase!) although the rate of such robberies has recently began declining. The same data also show that the incidences of rape, car jacking and murder have been declining post 1994. It is quite likely that the story around aggravated robberies has been responsible for the high crime narrative in South Africa.

 

II. Implications for the open borders discussion

Reading the above set of facts, one gets the sense that life in post-apartheid South Africa has not been entirely good but neither has it been the horror story that some have made it out to be. Can one then draw some implications for open borders from South Africa’s experience during the transition from apartheid to democracy (to all intents and purposes an “open borders event”)?

a) Political Externalities

With the dissolution of apartheid institutions beginning in 1990, black africans were free to live and work anywhere in the new republic. Blacks were also conferred full citizenship rights implying that they could participate in the country’s democratic process. The fact that blacks were in the majority during the transition to democracy in 1994 probably meant that the median voter was black. Parties hoping for success at the polls had to appeal to the policy preferences of the median voter who likely preferred interventionist policies to right the wrongs of the past. This is probably one of the factors behind the ANC’s victory in 1994 and the statist policies that they later on put in place. Prima facie, it seems that political externalities might have been a factor in post-apartheid South Africa. Had the new “immigrants” been denied voting rights, then perhaps the country’s economic policies might have been less intrusive. If this line of thinking is correct, then an optimal approach to open borders might be to deny, at least at the outset, voting rights to new immigrants. On the other hand, the South African case is quite different to what is most likely to happen under global open borders. For one thing, the mass “South Africanisation” that followed the dismantling of apartheid was devoid of the “selection factor” that is likely to be important under a regime of open borders. Immigrants are likely to identify with the attributes of the destination polity (why go there in the first place?) thus making political externalities a matter of less concern.

b) Crime and other undesirable outcomes

It is quite clear that the rate of crime in the immediate aftermath of apartheid was historically high by South African standards (though important to point out that crime began rising in the 1980s). Since the crime trend line became steeper in the early to mid 1990s, it becomes tempting to conclude that the “new comers” brought the crime along with them. If this conclusion is true, then the implication is not that the new comers should not have come in the first place but that background checks were never performed on the new comers to isolate those who had a criminal record and/or were likely to perform crimes in the future. (Note that it was probably impossible to perform such checks in South Africa’s unique case without upsetting an already delicate situation). It is not clear, for instance, why the US or any other country that opens up its borders cannot perform such checks. Perhaps a policy of sudden open borders (such as happened in South Africa with an incoming population many multiples that of the home population) might place strains on the verification process. In which case a policy of gradual open borders with some learning happening along the way  might be more optimal if the concerns around crime and other undesirable elements are important.

 

South Africa’s experience transitioning to democracy after apartheid holds some valuable lessons for the open borders discussion. I think using South Africa to completely write-off open borders is not the right lesson to draw from this story.

 

 

* The discrepancy is probably explained by the fact that GDP per capita is  sensitive to outliers (a possibility given South Africa’s high income inequality) whereas the household income data is in natural logarithms to avoid the problem of outliers.

** South Africa is officially divided into four racial groups: blacks, whites, coloreds (people of mixed-race) and asians.

 

 

Grieve Chelwa

Grieve is currently a PhD student in economics at the University of Cape Town in South Africa. Grieve has worked and lived in 5 African countries, in four of those as an immigrant. He is originally from Zambia.

See our blog post introducing Grieve, or all blog posts by Grieve.

12 thoughts on “South Africa in the open borders debate”

  1. Grieve, thanks for the interesting post.

    ” Leibbrandt and Levinsohn work out that real GDP per capita grew by 25% over this period, which coincidentally was the average growth rate for sub-Saharan Africa, excluding South Africa, over the same time period (I computed the latter statistic by using the World Bank’s databank tool available for free here).”

    Africa as a whole has benefited from rising commodity prices and demand from China and India. What portion of South African growth since 1994 would you attribute to increasing prices for mineral and other commodity exports from SA?

    What portion would you attribute to the end of sanctions improving terms of trade? And are there any other noteworthy drivers of growth that can be broken out via sectoral and trade statistics?

    “political externalities”

    South Africa’s Corruption Perception Index has deteriorated since 1995, from 5.6 then to 5.0 in 2000, and 4.1 in 2011 today. Accordingly, its worldwide corruption rank has fallen from 23rd in 1996 to the high 60s.

    This is still less corrupt than is typical of African countries, but there is no sign that the slide will stop anytime soon.

    http://www.transparency.org/cpi2011/results
    http://archive.transparency.org/policy_research/surveys_indices/cpi/previous_cpi

    In the World Bank “Doing Business” rankings SA is at 39, down from 35 in 2008, and I believe further since 2004 when the rankings started, but not by nearly as much as corruption:

    http://en.wikipedia.org/wiki/Ease_of_doing_business_index
    http://www.doingbusiness.org/~/media/GIAWB/Doing%20Business/Documents/Annual-Reports/English/DB08-FullReport.pdf

    “other undesirable outcomes”

    It’s worth mentioning that average life expectancy has fallen by almost 8 years, in significant part through bad policy:

    http://en.wikipedia.org/wiki/HIV/AIDS_denialism#Post_Mbeki_government_in_South_Africa
    “Despite its lack of scientific acceptance, HIV/AIDS denialism has had a significant political impact, especially in South Africa under the presidency of Thabo Mbeki. Scientists and physicians have raised alarm at the human cost of HIV/AIDS denialism, which discourages HIV-positive people from using proven treatments.[5][6][8][10][11][12] Public health researchers have attributed 330,000 to 340,000 AIDS deaths, along with 171,000 other HIV infections and 35,000 infant HIV infections, to the South African government’s former embrace of HIV/AIDS denialism.[13][14]”

    1. Is the decline in life expectancy pretty much a function of the AIDS epidemic? If so, it doesn’t seem generalizable. Even if you say it the end of apartheid empowered HIV denialist Mbeki, it still seems far-fetched to cross-apply that.

      1. Different ages and places have different novel problems. In the past, figuring out how to deal with Communism, the Great Depression, or the 1918-1919 flu all posed surprising and challenging problems. In 50 years the US may have to make good choices in the face of synthetic bioweapons that could kill off most of humanity, the creation of superhuman beings through genetic engineering or artificial intelligence, catastrophic side-effects of geoengineering, or space colonization…

        Failure on one major, supposedly novel and sui generis, policy problem is suggestive of future failure on other novel problems. And it seems likely that the next century or so will bring some very important new problems indeed.

  2. BK, here is my response to your comments.

    1. Sources of post-apartheid growth
    A good number of studies have investigated the sources of growth after 1994. The emerging story line seems to be that growth after 94 has largely been a function of improvements in the economy’s ability to efficiently combine capital and labor in the production process. Economists refer to this as an improvement in Total Factor Productivity (TFP) or simply technological progress. Faulkner and Loewald use “growth accounting” techniques and conclude that about 62% of the growth registered between 1995 and 2000 and 52% of that registered between 2001 and 2007 was due to improvements in TFP (link:http://www.econrsa.org/papers/p_papers/pp14.pdf) . The interesting question then becomes why did TFP improve over this period? Opening up to the rest of the world certainly helped but so did many other home grown policy changes. Faulkner and Loewald thus write: “The results suggest a structural shift in the sources of South Africa’s economic growth. The accumulation of factor inputs (capital and labor) have diminished in importance, while technological progress has increased. This outcome seems appropriate given the series of policy and economic shocks that affected the economy over the long-term and accords well with developments in labor and capital markets. Reintegration with the world economy and a sustainable democratic constitution has supported the redevelopment of economic channels that favor the increased access to and feed through of knowledge and an emphasis on productivity as a response to greater competition. Macroeconomic stability, the historically low inflation and interest environment further augmented TFP growth through facilitating an expansion in private investment” (page 7). The fortunes in the mining sector have historically been linked to the general fortunes in the rest of the economy but the evidence seems to suggest that something more fundamental than gold has been shaping fortunes post 94.

    2. Corruption and ease of doing business
    It is not surprising that people’s perception of corruption has increased since 1994. As noted in my post, the ANC-led government, probably inspired by the preferences of the median voter, put in place a set of statist policies which have resulted in an increase in the importance of government in the economy. For example, in 2000 government spending was 25% of GDP but by 2012, this statistic had grown to 32% (I used the IMF’s WEO database available here: http://www.imf.org/external/pubs/ft/weo/2012/02/weodata/weoselgr.aspx). The growing importance of government has naturally led to an increase in opportunities for rent seeking behavior. There is a widely held perception that only those with political connections (or those who actively seek out political connections) have access to the various tenders floated by government.

    A similar story line seems to be behind the deterioration in the country’s ease of doing business index. South Africa has some of the best infrastructure on the continent and even in the world when it comes to telecoms and road infrastructure that you would think the country is an investor’s dream come true. The trouble is that the new government has promulgated lots of legislation whose intent is to correct the wrongs of the past. Companies are required to have a certain percentage of their top management be individuals who were previously disadvantaged. A similar requirement must be met in terms of ownership structure, general workforce, third-party service provision and even type of clientele (for instance banks and insurance companies must sell a sizable proportion of their products to previously disadvantaged communities). Many companies, especially foreign multinationals, have had a hard time meeting these requirements. Opportunities for rent-seeking behavior have grown here as well feeding into people’s perceptions about corruption.

    As noted in my post, if the fear is that political externalities are indeed important, then a middle-ground solution might be an initial disenfranchisement of new immigrants.

    3. Aids and life expectancy
    It is certainly true that the country’s life expectancy declined, somewhat perilously, in the post-apartheid period largely as a result of the AIDS epidemic and the careless manner with which it was handled. It seems that the new government initially started-off with a somewhat clear and rational agenda of confronting the epidemic but later changed course when Thabo Mbeki became president (Nicoli Natrass who heads the AIDS and Society Research Unit at the University of Cape Town has written extensively on the genesis of AIDS denialism in South Africa). It seems reasonable to conclude that the AIDS debacle was largely a result of having the wrong president at the wrong time rather than something to be attributed to the preferences of the many new immigrants. It quite likely that had Nelson Mandela or somebody else been at the helm during this time, the story of AIDS in South Africa would have taken a different turn.

    1. That paper mentions the changing prices of different commodities as major factors in growth at different times, but in a quick search I didn’t see info on the relative size of the sectors and price movements.

      “Total Factor Productivity (TFP) or simply technological progress”

      Doesn’t an increase in commodity prices register as an increase in TFP? The same workers and machinery extract the same amount of iron ore, but the iron is sold at a higher price, so the dollar value of output for a given set of inputs increases, even if the physical outputs are identical.

      Wikipedia claims that in 2007 the mining industry directly made up 18% of GDP while employing less than 1% of the population, and dominated exports. And as you said, and looking at some graphs and tables below suggests, swings have been big and the indirect effects on the economy are larger.

      http://en.wikipedia.org/wiki/File:South_African_trade_balance_1992-2011.svg
      http://en.wikipedia.org/wiki/Economy_of_South_Africa#Historical_statistics
      http://en.wikipedia.org/wiki/File:Tree_map_export_zaf_all_show_2009.svg

      It’s worth figuring out how just how much global resource prices contributed to growth, since the supply of minerals and fossil fuels in the ground is not very strongly tied to mass immigration, beyond the import of some mining experts and perhaps some mine workers, a small number relative to the population.

      “It quite likely that had Nelson Mandela or somebody else been at the helm during this time, the story of AIDS in South Africa would have taken a different turn.”

      Mbeki was unusually bad on this particular issue, and that his AIDS policies were not in response to electoral pressure. However, there is substantial variability on policy among political leaders on many issues. Any country’s performance can be made to look better if we imagine the counterfactual that the worst leaders and policy mistakes were changed, but those mistakes provide evidence about the underlying causes and frequencies of mistakes across policy areas.

      For example, while Mbeki may not have faced strong electoral pressure in favor of his destructive AIDS policies, he faced less of an outcry than he would have with a more educated and informed electorate, or if he were not the leader of the party of national liberation.

      And the de facto requirement that top leadership be members of the ethnic majority, combined with large disparities in education levels and measured cognitive skills, reduces the expected level of education and cognitive ability among those who win the competition for office. Those disparities are partially a result of apartheid in education, but large disparities still exist in other countries, both rich and poor, and SA has higher rates of education among blacks than the average for sub-Saharan Africa, which would supply a large portion of migrants under open borders.

      1. You are quite right that in a theoretical sense an increase in commodity prices should reflect in an increase in TFP. But these measures usually control for this by estimating TFP growth in real (constant price) terms as opposed to measuring it in current (nominal) terms. In this way the measure captures the increase in actual productivity stripped of price influences. Further, one would expect that an increase in the price of commodities should have a significant effect on growth in per capita GDP. However, this logic is not borne out by the data at least for the typical sub-Sahara African country. Consider the work of Raddatz: ” External shocks, such as commodity price fluctuations […] are often blamed for the poor economic performance of low-income countries. This paper quantifies the impact of these different external shocks […] and determines their contributions to output volatility in low-income countries. We find that they can only explain a small fraction of the output variance of a typical low-income country. Other factors, most likely internal causes, are the main source of fluctuations. From a quantitative perspective, the output effect of external shocks is typically small in absolute terms […]”. Link: http://www.sciencedirect.com/science/article/pii/S0304387806001842. Admittedly, the sample in Raddatz looks at a host of sub-Saharan African countries with the exception of South Africa. But if commodity prices do “not” matter for the typical sub-Saharan African country where commodities form a considerable proportion of GDP, then commodities should be far less relevant for South Africa where they form a far less share of GDP.

        I am still digesting your comments on the AIDS issue but will revert as soon as possible.

  3. “improved the welfare of both whites and blacks…crime”

    You should probably break out crime victimization trends by race: apartheid probably restricted black-on-white crime (through access to victims and racist enforcement) much more than black-on-black crime. Today most violent crime victims and almost all violent criminals are black, so the total pool of potential crime victims did not much increase, except perhaps for the subcategories of crimes targeting the rich and the former beneficiaries of apartheid.

    http://www.statssa.gov.za/publications/P0341/P03412012.pdf

    For purposes of open borders, recipient countries are interested in victimization of natives.

    It’s also worth mentioning that rates of rape remain among the very highest in the world, and that this interacts with the prevalence of HIV:

    “a woman being raped over the age of 25 has a one in four chance that her attacker is HIV positive and more women than men are affected from HIV/AIDS.”
    http://en.wikipedia.org/wiki/Sexual_violence_in_South_Africa#Statistics

    These sources suggest that the risk of HIV infection from an infected attacker is on the order of 1%:

    http://asci.researchhub.ssrc.org/working-papers/ASCI%20Research%20Paper%2026-Cathy%20and%20Charlotte%20%281%29.pdf.pdf
    http://www.aidsmap.com/Estimated-risk-per-exposure/page/1324038/

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