Lou Dobbs’ recent appearance with Bill Moyers on the Moyers PBS show Now made for fascinating television. Dobbs charges that big businesses are “traitors,” who conspire to cut their costs of production by “off-shoring American jobs.” Dobbs believes that American workers, who are paid $25 an hour, should not be required to compete with Indian workers, who are paid merely “cents.”
The problem is that Dobbs’ job protectionism scheme has been tried before. Apartheid South Africa’s so-called “civilized labor policy” was based on a similar principle. It proved to be an unambiguous failure.
After gold was found in South Africa’s Transvaal province in 1873, mining became the country’s chief industry. South African capitalists soon recognized that blacks could do many of the jobs previously done by whites and for much less money. In an efficiency drive, they fired whites and hired blacks instead. Between 1911 and 1922, the number of white miners decreased from 24,746 to 14,207.
Discontent among white workers grew. South Africa’s capitalists were accused of racial treason. General Ian Smuts, the prime minister at the time, was called a capitalist puppet. He was urged to protect “civilized labor standards” by barring blacks from competing with whites. Smuts held out and white miners, egged on by communist labor unions, instigated the so-called Rand Rebellion of 1922. By the time the government put the rebellion down by violent means, which included artillery shelling and aerial bombardment that flattened parts of South Africa’s commercial center of Johannesburg, hundreds of people lay dead.
General Barry Hertzog of the opposition Afrikaans National Party played the protectionist card during the 1924 general election. He declared that it was “in the nature of things [that] the fittest would survive, but the fittest was not European. The fittest was the native, who could live more cheaply. Parliament would have to take steps to stop the kind of economic force which was against the European.” Hertzog won and formed a coalition government with the socialist Labor Party. In 1926, the national-socialist government barred much of black competition by passing the “Mines and Works Amendment Act.” The system of job protectionism or “color bar” would later expand to include social segregation. Apartheid was born.
In the long run, the “color bar” proved as impracticable as it was immoral. It imposed unacceptably high costs on South African mining companies, who had to compete with increasingly productive foreign firms. The companies bribed and cajoled their way to government exemptions, hiring blacks and cutting their costs wherever and whenever they could. As a consequence, the number of black miners steadily increased from 190,137 in 1911 to 609,790 in 1970. By that time, the Nationalist government accepted the inevitable and proceeded to reconcile South Africa’s employment laws with the needs of the market. The “color-bar” was gradually consigned to history.
South African history shows that job protectionism is unlikely to work. Companies, which face international competition, will continue to increase their productivity. Critics berate the system of free enterprise for giving businesses the right to reduce their labor force. But countries, which restrict free enterprise, are not immune from the laws of economics either. In such countries, businesses resort to bribery to get around labor restrictions and stay competitive.
If the United States embraces Dobbs’ ideas, favoritism and arbitrary treatment of companies will increase, and productivity will decline. But jobs that can be performed more cheaply elsewhere will still be “off-shored.”