Daily Times

Historically, when the colonisers took over parts of Africa and Asia- they were fundamentally building extractive and exploitative institutions. Such is the case of South Africa, where the riches of their country were restricted from them, only to be taken by their coloniser. For example, South African settlers had property rights; they invested in education, extracted gold, silver, diamonds and sold them for high profits across the world. However, over 80 percent of the South African population was marginalized and excluded from the great majority of desirable economic activities. Africans could not use their talents. They could not become skilled workers, businessmen, entrepreneurs, engineers or scientists. Economic institutions were extractive. Europeans became rich by extracting from Africans. Indeed, European South Africans had the same living standards as people from Western European countries. While South Africans were scarcely richer than those in the rest of sub-Saharan Africa. This economic growth with creative destruction, from which only the Europeans 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 its power in the Europeans, who were the only ones allowed to vote and run for office. They dominated the police force, the military, and all political institutions. These institutions were structured according to 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 Africans completely from political participation. Natal and the Cape Colony allowed Africans to vote, only 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, natives 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 theorised. It was not the natural course of economic development that ended the colour bar and the Homelands. The South Africans protested and rose up against the regime that did not recognise their basic rights and did not share the gains of economic growth with them. After the Soweto uprising of 1976, the protests became more organised and stronger, ultimately bringing down the Apartheid state. It was the empowerment of Africans who managed to organize and rise up that ultimately ended South Africa’s dual economy.

In several instances the extractive institutions that underpinned the poverty of these nations were further strengthened, by the very same process that fuelled European growth: European commercial and colonial expansion

World inequality today exists because during the nineteenth and twentieth centuries some nations were able to take advantage of the Industrial Revolution and the technologies and methods of organisation. Technological change is only one of the engines of prosperity, but it is perhaps the most critical one. The countries that did not take advantage of new technologies did not benefit from the other engines of prosperity either.

This failure was due to their extractive institutions, either a consequence of the persistence of their absolutist regimes or because they lacked centralised states. In several instances the extractive institutions that underpinned the poverty of these nations were further strengthened, by the very same process that fueled European growth: European commercial and colonial expansion. In fact, the profitability of European commercial empires was often built on the destruction of independent polities and indigenous economies around the world. Or on the creation of extractive institutions essentially from the ground up, as in the Caribbean islands, where, following the almost total collapse of the native populations, Europeans imported African slaves and set up plantation s systems.

In the eighteenth century, under the leadership of Robert Clive, the East India Company switched strategies and began to develop a continental empire. At the time, India was split into many competing polities, though many were still nominally under the control of the Mughal emperor in Delhi. The East India Company first expanded in Bengal in the east, vanquishing the local powers at the battles of Plassey in 1757, and Buxar in 1764. The East India Company looted local wealth and perhaps even intensified; the extractive, taxation institutions of the Mughal rulers of India.

This expansion coincided with the massive contraction of the Indian textile industry, since; after all, there was no longer a market for these goods in Britain. The contraction went along with de-urbanization and increased poverty. It initiated a long period of reversed development in India. Soon, instead of producing textiles, Indians were buying them from Britain, and growing opium for the East India Company to sell in China.

The Atlantic slave trade repeated the same pattern in Africa. Many African states were turned into war machines intent on capturing and selling slaves to Europeans. As conflicts between different polities and states grew into continuous warfare; state institutions, which had not yet achieved much political centralisation; crumbled in large parts of Africa. This paved the way for persistent extractive institutions and the failed states of today.

The few parts of Africa that escaped the slave trade, such as South Africa, Europeans imposed a different set of institutions, this time designed to create a reservoir of cheap labour for their mines and farms. The South African state created a dual economy, preventing 80 percent of the population from taking part in skilled occupations, commercial farming, and entrepreneurship. All this not only explains why industrialisation passed by large parts of the world but also encapsulates how economic development may sometimes feed on and even create underdevelopment in some other part of the domestic or the world economy.

The writer is a former Director, National Institute of Public Administration (NIPA). Government of Pakistan, a Political analyst a public policy expert and an author. His book post 9/11 Pakistan was published in the United States

Published in Daily Times, September 15^th 2018.