9 - Hitting the barriers: from triumph to disaster

Summary

Following the development of the diamond fields of Kimberley in the early 1870s, the South African economy achieved a hundred years of successful economic growth. Previous chapters have charted the process by which a relatively backward country, almost wholly dependent on a largely self-sufficient agricultural sector, was transformed into a dynamic, modern, capital-intensive economy. From the 1920s to the 1970s an expanding industrial sector was supported by a combination of high profits and abundant foreign exchange derived from unlimited international demand for gold. There was then a dramatic structural break and the economy switched from apparently triumphant progress to distressing decline.

The present chapter first establishes the main features of this turning point. This is followed by an analysis of the reasons for the severe downturn in gold mining, and of the problems experienced in the attempt to promote the expansion of exports of manufactures. The chapter ends with a review of the effects of the rise and fall in fixed capital formation. The further consequences of these developments for the balance of payments and the labour market, and the eventual retreat from apartheid, are examined in the final chapter. Unfortunately, it is impossible to analyse these developments in a complex economy without using certain economic concepts and terms, and readers who find that at some point this chapter becomes too technical and difficult are encouraged to omit the remaining sections and go straight to Chapter 10.