Public Sector Growth in the British Cape Colony: Evidence From New Data on Expenditure and Foreign Debt, 1830‐1910

• Author: Johan Fourie,Abel Gwaindepi
• Published date: 01 September 2020
• DOI: http://doi.org/10.1111/saje.12257
• Date: 01 September 2020

South African Journal of Economics Vol. 88:3 September 2020

doi: 10.1111/saje.12257

341

PUBLIC SECTOR GROWTH IN THE BRITISH CAPE COLONY:

EVIDENCE FROM NEW DATA ON EXPENDITURE AND

FOREIGN DEBT, 1830-1910

ABEL GWAINDEPI†,* AND JOHAN FOURIE‡

Abstract

The public expenditure shifts that took place following the discovery of diamonds and gold during

the second half of the nineteenth century had far-reaching consequences for southern Africa’s

development. Using new data for public expenditure and foreign debt in the Cape Colony and

evidence from Cape parliamentary budget debates, we trace and explain the growth of the public

sector. We find that the coincidence of mineral discovery in 1867 and the granting of responsible

government status rapidly accelerated the growth of the public sector. Owing to strong mining

interests, railways accounted for more than 70% of the public works expenditure from the 1880s

onwards. Spending on human capital and welfare enhancement remained limited. Both the

quantitative and qualitative evidence suggests that the mining elites managed to build coalitions

that swayed public expenditure decisions towards self-serving ends.

JEL Classification: H5, H54, H63, N17, F54

Keywords: cape colony, economic history, government expenditure, infrastructures, public debt, south

africa

1. INTRODUCTION

When the Union of South Africa was created in 1910, joining the two British colonies

of Natal and the Cape Colony with the former Boer Republics of Transvaal and the

Orange Free State, the new South African state inherited not only much of the colonial

institutions, but also the debt and public expenditure structure of the former colonies.

The public finances of the Cape Colony, the larger of the two British colonies and seat

of the new parliament, would be of particular importance, notably because of the deficits

and accumulated debt it brought into the new state. In 1909, the year before unifica-

tion, the Cape had a national debt to GDP ratio above 140%, higher than most other

British colonies. A decade earlier, it was almost 200%. Understanding the development

of the Cape’s finances during the second half of the nineteenth century is thus of utmost

* Corresponding author: Postdoctoral fellow, Economic History Department, Lund University,

Lund, Sweden. E-mail: abel.gwaindepi@ekh.lu.se/abelgwaindepi@gmail.com

† Economic History Department, Lund University

‡ Economics Department, Stellenbosch University

© 2020 The Authors. South African Journal of Economics published by John Wiley & Sons Ltd on behalf of Economic

Society of South Africa

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reproduction in any medium, provided the original work is properly cited.

South African Journal

of Economics

342 South African Journal of Economics Vol. 88:3 September 2020

© 2020 The Authors. South African Journal of Economics published by John Wiley & Sons Ltd on behalf of Economic

Society of South Africa

importance, not only in ascertaining how the Cape came to be so indebted, but also how

the structure of public expenditure shaped the political and economic institutions that

would ultimately form the basis of the Union of South Africa.

We use new data on public expenditure and national debt to understand these ques-

tions. In doing so, we contribute, first, to a growing literature on quantifying the nine-

teenth century “South Africa” (De Zwart, 2011; Fourie and Van Zanden, 2013; Greyling

and Verhoef, 2015; Magee et al., 2016; Herranz-Loncan and Fourie, 2018; Von Fintel

and Fourie, 2019). Much of this work is dedicated to understanding the nature and

sources of economic growth and its effect on living standards, complementing the ex-

tensive work by political, economic and social historians (De Kiewiet, 1957; Davenport

and Saunders, 2000; Giliomee, 2014; Pretorius, 2014). Besides a few aggregated or

summarised expenditure series, covering short periods, (De Kock, 1924; Greyling and

Verhoef, 2017), no systematic exposition of the nineteenth-century Cape’s public expen-

ditures and debt exists. The study contributes to this lacuna that has not been addressed

either by quantitative economic historians or social and political historians. The tensions

between the English and the Dutch on the one side against the indigenous Africans on

the other, have been explored in different forms. Public expenditure and debt data allows

us to superimpose the contested Cape history onto actual decisions as revealed by expen-

diture priorities. The post-1910 “gold and maize” alliance was premised on the shared

need for cheap labour (Morrell, 1988; Greyling et al., 2018). We question whether such

an alliance – between diamonds and wheat – existed in the nineteenth century Cape.

Second, our study contributes to a more nuanced (or complicated) interpretation of co-

lonialism. By analysing expenditure allocation towards infrastructure investment, education,

health and other social outlays, we expose the changing priorities of the colonial state, away

from an “inclusive” yet austere state to a more spendthrifty but “extractive” one. We are

particularly interested in the changing priorities that accompanied mineral discoveries and

how this interacted with state autonomy accorded through self-government (1854) and re-

sponsible government (1872). Since public expenditure policies reflect political choices, the

paper draws extensively from a compendium of qualitative archival material from the Cape

colonial budget debates and parliamentary speeches of governors. The paper also draws from

correspondence between the Cape Colony and imperial authorities in England to identify

those factors that lie at the root of the Cape’s transition towards a large public sector.

We begin with a brief explanation of the Cape economy and political developments to

explore the context in which public expenditure and debt increased as a share of the total

budget. We then move to discuss theoretical lenses of public sector growth, anchoring

this on Wagner’s “law” of public expenditure and subsequent refinements by others. This

is followed by a section on data and methods used to reconstitute and classify data from

the bluebooks and other colonial sources. The following section reports the results. Here,

we discuss the functional classification and the expenditure patterns on infrastructure,

social spending and the role of public debt. The final section concludes.

2. THE CAPE COLONY ECONOMY AND POLITICS

2.1. The Cape Colony Economy

For much of the first half-century after Europeans settled in Table Bay in the mid-seven-

teenth century, the Cape Colony was largely a fledgling half-way house for soldiers and