By William H. Hutt
Chapter 18, Economics of the Colour Bar, pp 173-180. Published in 1964.
THROUGHOUT the description and analysis of South African developments the reader will have perceived the interaction of two sets of opposed forces, the first tending powerfully to liberate the non-white peoples of the world from inertias and coercions which would otherwise perpetuate historical inferiorities of occupation, training and status, the second tending to maintain or strengthen the coercions which hold the non-Whites in economic subjection.
The liberating force is released by what is variously called ‘the free market system’, ‘the competitive system’, ‘the capitalist system’ or ‘the profit system’. When we buy a product in the free market, we do not ask: What was the colour of the person who made it? Nor do we ask about the sex, race, nationality, religion or political opinions of the producer. All we are interested in is whether it is good value for money. Hence it is in the interest of business men (who must try to produce at least cost in anticipation of demand) not only to seek out and employ the least privileged classes (excluded by custom or legislation from more remunerative employments) but actually to educate them for these opportunities by investing in them. I have tried to show that in South Africa it has been to the advantage of investors as a whole that all colour bars should be broken down; and that the managements of commercial and industrial firms (when they have not been intimidated by politicians wielding the planning powers of the state) have striven to find methods of providing more productive and better remunerated opportunities for the non-Whites.
UNLIMITED GOVERNMENT EXPLOITS THE POLITICALLY WEAK
The subjugating force is universally exerted through what we usually call, when writing dispassionately, the interventionist, collectivist, authoritarian or ‘dirigiste’ system or, when writing tendentiously, by euphemisms like ‘the planned economy’. Unchecked state power (or the private use of coercive power tolerated by the state) tends, deliberately or unintendedly, patently or deviously, to repress minorities or politically weak groups. Thus the effective colour bars which have denied economic opportunities and condemned non- Whites to be ‘hewers of wood and drawers of water’ have all been created in response to demands for state intervention by most political parties (although in some of the most blatant cases, to pressures from those who have claimed to be ‘syndicalists’ or ‘Marxists’). Of course, the extension of state control need not necessarily involve discrimination on the grounds of race, colour, caste or creed; yet in practice it does seem always to discriminate against the politically weak; and by reason of history, the non-Whites have (so far) usually fallen into this class.
Experience of coloured minorities in Britain today seems superficially to contradict the principle just stated. That is due to an illusion. It is true that, except through state tolerance of the occasional private use of coercive power by labour unions (in order to keep out non-white interlopers), a deeply-rooted tradition of fair play has prevented conspicuous discrimination against the advantage of a small non-white political minority. But this is because the minority is at present so small that there is no political advantage to be won through the promise of legislative discrimination against it. What appears now as a powerful ethical convention hostile to racial discrimination will, I fear, prove precarious under the traditions of omnipotent representative government. Until the Courts are empowered to declare unconstitutional and void all laws or collective agreements which contain colour discriminations, open or disguised, minority rights will be insecure.
COMPETITION LIBERATES MINORITIES
The virtues of the free market do not depend upon the virtues of the men at the political top but on the dispersed powers of substitution exercised by men in their role as consumers. In that role, a truly competitive market enables them to exert the energy which enforces the neutrality of business decision-making in respect of race, colour, creed, sex, class, accent, school, or income group. The reader will have noticed that at no time have I claimed that the free market which releases the ‘liberating force’ has been motivated by altruistic sentiment.
For omnipotent representative government (i.e., constitutionally unchecked government, without enforceable rules for making rules) to claim a similar neutrality, we would have to have absolute faith in the virtues of the men who hold, seek or wish to retain power, against the temptations to buy the support of majorities by discriminating against minorities. Virtue may triumph; but in the light of the realities of vote-catching pressures, it demands that the camel shall pass through the eye of a needle.
In a book published nearly 30 years ago, I argued that competition is essentially an equalitarian force. In a country of racially homogeneous population, it tends, unless obstructed by sectionalist law and administration or the use of private coercive power (as by labour unions or business monopolies), to bring about the classless society. In a multiracial society, it tends, because of the consumers’ colour-blindness, to dissolve customs and prejudices which have been restricting the ability of the under-privileged to contribute to, and hence to share in, the common pool of output and income. This is because business decision-makers – ‘entrepreneurs’ – have an immensely powerful incentive to economise for the benefit of their customers, who collectively make up the public. Their success depends upon their acumen and skill in acquiring the resources needed for production at the least cost, and especially in discovering underutilised resources. Yet in some backward countries it is still regarded as a weakness that private industrialists should put their wealth ‘into speculative and high profit-making enterprises, into manufacture of consumers’ goods, rather than into basic industries. It is hardly surprising that the rate of economic development has most disappointed the hopes of rulers in countries where such opinions are influential. Labour is the most striking example of under-utilised resources which the economic interests of private profit seekers would attract to more productive uses. Even in countries of homogeneous population, large classes of people will have been confined to work of avoidably low productivity and hence of low value as a result of custom reinforced by deliberate restrictions on competitive markets.
In a truly free enterprise society, however, it is the duty of the state not only to refrain from legislation which raises the income of favoured groups by making certain wanted things scarce, but to prevent private arrangements having the same effect by enforcing laws and procedures which are usually known as anti-monopoly or anti-trust. Indeed, the basic distinction between a competitive enterprise or free market system and a restrictionist system is that, under truly free enterprise, the contrivance of scarcity for the
private or sectional interest is prohibited, whereas the only limit to the creation of scarcities by ‘central planning’ is the discontent which may be expressed through the ballot-box or, where free elections are suppressed, through the potential intrigues of groups manoeuvring for control of the armed forces and exploiting popular discontent in the process.
In referring to ‘truly free enterprise’, I have obviouslv envisaged a form of society which the course of history has never allowed fully to emerge. In every country of the world, economic self-rule by the people is frustrated to some extent by state intervention to protect sectional interests. By ‘economic self-rule by the people’, I simply mean the democratic exercise of consumers’ sovereignty. Under a free market system, income receivers as a whole control the economy through the discipline they exercise over decision makers, through buying or refraining from buying the services and commodities offered in the market. The present is a restrictionist, not an equalitarian or liberal age; and I know of no country in which the state forbids all creation of scarcity, that is, all action for the benefit of at least some politically powerful sections. There is, for instance, no country in the world in which anti-trust legislation, although widely and rightly applied to industrial and commercial activities, has been effectively applied to organised labour and organised agriculture…
In a free market system, however, in which the state has not been prevented (through the political power of sectional groups) from performing its co-ordinating role, the detailed pattern and rate of progress of economic development is set by responsible entrepreneurial planning. The form in which the community’s resources are replaced or accumulated is then the result of responsible foresight and decision-making on the part of the business men who seek to avoid ‘losses’ and to make ‘profits’ in catering for the freely expressed preferences of the sovereign consumer.
STATE PLANNING PUTS SECTIONAL ABOVE SOCIAL INTERESTS
In a state-directed economy, on the other hand, planning in response to socially expressed (i.e., market expressed) needs is replaced by planning with political objectives. I have shown how, in South Africa, non-white labour has not been allowed to flow to where entrepreneurs have anticipated the highest yield from it; how for many years industrial managers have not been free to locate new industries or to develop existing businesses according to their judgment of prospective profitability; how socialist procedures have been increasingly devoted to controlling centrally the industries, occupations and areas in which the Whites, the Coloureds, the Indians and the Africans shall be allowed to work.
The ultimate motive for ‘central planning’ decisions is political – the exercise of state power for sectional interests – and the trouble about any system under which politically powerful groups are favoured is that the social interest is ignored. As Professor P. T. Bauer has remarked (of India today) :
“The increasingly close governmental control of social and separatism by enhancing the prizes of political power and thus the intensity of the struggle for it, and for this reason it has accentuated concern with ethnic differences between the rulers and the ruled. . . .’
When democratic precepts are honoured, political power confers no rights beyond that of determining non-discriminatory rules. Once the ability of political majorities to enrich themselves at the expense of political minorities is excluded by iron-clad constitutional entrenchments, all motives for central planning of the type which we have had in South Africa (for ‘separate development’) would disappear.
LIMITED GOVERNMENT THE ANSWER
Some argue that the defect of central planning in South Africa is simply that non-Whites are without effective political representation. If all races were properly represented, they believe, the power of the state could be used for the benefit of all, instead of for the benefit of the Whites. But this is a partial truth. Universal suffrage would merely mean the transfer of power to a new political majority, with no constitutional limitations to prevent retaliatory abuse. If there is to be a bloodless solution to South Africa’s race problems it will, I suggest demand the acceptance of the philosophy of free enterprise, better described as ‘liberalism’ in its 19th century sense. The ethos of this philosophy is that it denies the right of the state to discriminate. Whilst many laws can be made only by majority decisions, the liberal insists that all the laws so determined must apply to all members of the community in the same sort of way. Under such a precept, as J. S. Mill acknowledged, the state may legitimately treat classes and races differently if, as a result of history, they happen to be primitive and uneducated. But the precept creates no justification for any apartheid ideal. Differentiation is justified only if it is being accompanied by genuine steps to remove the causes of the backwardness which has temporarily justified the differential treatment.
The truth is that parliamentary institutions (not only in South Africa, but in many other countries of the Western world) have been allowed to develop in a manner which the great protagonists of democracy, J. S. Mill, von Humboldt and Tocqueville, would have deplored. Decisions by parliamentary majorities may conflict headlong with the democratic ideal unless the powers of parliament are rigidly limited and defined by powerful tradition or appropriate constitutional checks so as to exclude discriminatory laws. But the so-called democratic world accepted the form of government advocated by the apostles of a free parliamentary system without remembering or understanding the conditions necessary for it to function without injustice or tyranny. In any good society a ruling majority can be allowed no rights (a) to enrich itself at the expense of a minority or an unrepresented class or race; or (b) to attempt to maintain any historically determined status or privilege at the expense of a minority or the unrepresented. The rule of law must be a rule of non-discrimination and a rule, therefore, of limited state intervention in the sphere of markets and free contract.
The inspiration of racial discrimination in South Africa has not been solely the desire of the enfranchised Whites to hold back the economic advancement of non-Whites, or the hope of protecting the established expectations of Whites, or a determination to prevent the ultimate political supremacy of the Africans, which their rise in the economic and social scale seemed to threaten. Others thought, quite sincerely, that it would be a mistake to upset the peaceful economy of the tribal areas where the Africans were naively contented with their primitive ways of living, and that it was in the true interests of the rural Coloureds that they should remain as happy, loyal farm workers. But we have seen that industrialists and commercial men – for whose policies I have claimed no altruistic motivation – perceived that new and additional products could be brought within the reach of the community’s income (hence causing that income to grow) if cheap labour, available through the recruitment and training of non-Whites, was used to the best advantage; that private business firms were always willing to invest in human capital, that is, in the development by training of the industrial capacity of Coloureds, Africans and Indians; that progress has often been obstructed because business managements have not wished to flout influential public opinion or the prejudices of their existing staff, or to fight quixotically against the ‘political realities’ of their time – the power of the state to make or destroy their fortunes; and finally that, whenever the more enterprising business men have seen some way of evading the legislative obstacles to non-white training and employment, they have done so to the benefit of the depressed groups and of the community.
In sharp contrast, the customs, prejudices and inertias which confine the non-Whites in the Republic of South Africa to low-paid work have been perpetuated by state laws and restrictions of organised labour exactly similar to the laws and restrictions that are applauded by people in all political parties who favour state direction. The survival of apartheid is, indeed, the survival of a kind of socialism – often altruistically motivated-whilst the dissolution of colour injustice has been continuously assisted by competitive capitalism. The persistence of colour injustice has been a triumph, perhaps temporary, for the ideologies of ‘dirigisme’.
The age-old determination of white South Africans to continue to be both white and supreme can be observed today to be in process of transformation. The white intelligentsia are thinking more and more in terms of how to avoid black supremacy (a mere turning of the tables). For market forces, reinforced recently by a world opinion inflamed at reports (sometimes true and sometimes untrue) of colour injustices, are now making far-reaching political adjustments expedient. The Bantustan policy, so far enacted concretely in Transkei ‘self-rule’, has been a reluctant, improvised, clumsy move in the required direction. But it is only the first move. If a bloodless solution is to be found, subsequent moves will, I suggest, have to be framed in an understanding of the need for effectively entrenched rules for making rules – a constitutional check on the power of politicians who accept: the responsibilities of government.
Born in London, William Hutt (1899–1988) was an economist of the classical tradition who identified himself with the Austrian School. He studied at the London School of Economics and became a professor at the University of Cape Town. He is particularly known for his works “The Factory System of the Early Nineteenth Century” (1925), The Theory of Collective Bargaining (1930), and The Strike-Threat System (1973). You can read more about Hutt here.
 ‘E.g., the exclusion of West Indians as bus drivers and conductors. Labour union efforts to prevent the employment of Italians or Poles in mining work should be mentioned.
 ‘Economists and the Public, 1936, pp. 81-2, 313-1 5, 319-23. The process of competition may be defined as the substitution, for the consumers’ benefit, of the least-cost method of achieving any objective, which includes producing and selling any commodity. This is the most appropriate definition of competition, whatever the institutional arrangements which give rise to that substitution. A competitive system cannot exist unless the state perfbrms its role; but under competitive capitalism the state acts wholly in the collective interest and never in the sectional interest.
 ‘The New India, quoted in P. T. Bauer, United States Aid and Indian
DwehW, Pp. 49.
 Bauer, op. cit., p. 7.