Working Paper
Post-Apartheid South Africa

South Africa’s transition to democracy in 1994 created new possibilities for economic policy. Economic liberalization brought sustained, if unspectacular, growth that reversed the long decline in per capita incomes, but left its scars in much job shedding associated with business becoming internationally competitive. This accords with international evidence that trade liberalization takes time to realize positive employment effects. Disappointing employment growth in the face of an expanding labour force fed rising unemployment. However, using poverty estimates from a combination of sources, this study demonstrates that poverty nevertheless declined quite substantially after the turn of the century. Poverty dominance testing shows this conclusion to be insensitive to the selection of poverty line or measure. But empirical analysis does not allow strong conclusions to be drawn on causal relationships between globalization and poverty trends. A polarization measure and a bi-polarization index are used to investigate whether income or wages have become increasingly polarizing forces. The polarization measure shows a modest increase in income polarization between 1995 and 2000, but no clearly discernable trend in wage polarization for 1995-2004, although the trend at low levels of α is consistent with an amplified impact of qualifications and skills on wages. Income polarization amongst blacks is the highest and has widened further. The bi-polarization index tracks divergence in incomes or the ‘vanishing middle-class'. Thus increased upward mobility of black workers in post-apartheid South Africa may have dominated any bi-polarizing forces induced by globalization. This conjecture of two opposing forces is supported by a large increase in overall wage bi-polarization. In summary, South Africa experienced declining poverty, increasing inequality and polarization, and falling bi-polarization during the first post-transition decade. There were both winners and losers from liberalization. The triad of political, trade and financial liberalization has had dramatic effects on the domestic economy and society, although it is impossible to disentangle these effects empirically. The most important impact of re-integration was sustained economic growth, without which all South Africans would have been significantly worse off. The counterfactual to re-integration into the global economy is not a different distribution of income, but an economy with a different production capacity.