Abstract
One reason for the relatively poor development performance of many countries around the world today may be the high levels of inequality during and after colonisation. Evidence from colonies in the Americas suggests that skewed initial factor endowments could create small elites that own a disproportionate share of wealth, human capital and political power. The Cape Colony, founded in 1652 at the southern tip of Africa, presents a case where a mercantilist company (the Dutch East India Company) settled on the land and established a unique set of institutions, within which inequality evolved. This paper provides a long-run quantitative analysis of trends in asset-based inequality (using principal components analysis on tax inventories) during the seventeenth and eighteenth century, allowing, for the first time, a dynamic rather than static analysis of inequality trends in a newly settled and pre-industrial society over this period. While theory testing in other societies has been severely limited because of a scarcity of quantitative evidence, this study presents a history with evidence, enabling an evaluation of the Engerman--Sokoloff and other hypotheses.
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Notes
Williamson (2009) argues that inequality was much lower in Latin America during the early phases of European settlement. In fact, he finds little evidence that suggests inequality was persistent over centuries, as argued by Engerman and Sokoloff, and concludes that the persistence of inequality in Latin America “is a myth”. While his results shed some doubt on the severe levels of inequality proposed by earlier research, the transmission mechanism of relatively high initial inequality to institutions that perpetuate inequality is not invalidated (see Frankema 2009 for an exposition of Latin American land inequality). In fact, inequality measures at the Cape are comparatively similar to the results for Spanish America reported in Milanovic et al. (2008).
Although Kuznets was himself not convinced of the empirical evidence for his hypothesis, a noteworthy group of scholars agree that the Kuznets curve holds for the early industrialised countries, notably Britain and the USA. Williamson, although not the first to do so, proclaims in his book ‘Did British Capitalism Breed Inequality’ that the “facts support Simon Kuznets’ (1955) conjecture that income inequality is likely to show an early rise and later decline as economic development proceeds” (Williamson 1985, 200). Relying on a range of data sources, he concludes that the rise in inequality began in 1760. Although interrupted by the French Wars, inequality increased rapidly after Waterloo. “British inequality seems to have reached a peak somewhere around the 1860s or shortly thereafter. While not spectacular, the egalitarian levelling up to World War I was universal” (Williamson 1985, 200). The evidence for the USA is as compelling (Williamson and Lindert 1980).
Slaves came mostly from Madagascar, Indonesia (Java), India, Angola and Mozambique.
See Ross (1982) for an exposition of the Cape economy institutions.
The Commander of the Cape Colony only later received the title of Governor.
The density is plotted on a log scale in order to more clearly illustrate the spread. The distribution of slaves is highly skewed to the right and assumes the lognormal form that modern day income distributions do.
In isolated cases, however, harvests were reported without any evidence of any seed sown. In this case the seed sown was imputed from a bivariate OLS regression of grain harvest on seed sown for all positive values of both items.
Indeed, many of the asset indices computed below accorded negative weight to these measures. Conventionally, possession of assets should contribute positively to wealth, unless a stigma is attached to that commodity. For instance Moser and Felton (2007) indicate that black and white televisions contribute negatively to wealth indices in recent times, particularly with the inclusion of colour televisions. In this data, it appears that incidence of weapons is low in later years. In 1705, no weapons were recorded whatsoever. This year is therefore excluded from the analysis. It is not clear whether this is a result of poor recording or whether this is indicative of reality. There is no indication in the consulted literature that these items were taxed and would therefore not be well-captured by officials.
The salient difference is that monetary incomes are poorly measured in modern surveys as they form the unit of taxation, while it is assets that may have been poorly measured in Cape Colony records for precisely the same reasons. Due to the largely subsistence nature of this society, moneymetric measures of wealth are not a likely alternative.
For the pooled sample a clear “kink” appears after the eigenvalue of the first component for most PCAs conducted. This is not true for the samples that calculated different weights for each year, underlining the rejection of using separate weights for the individual years, when it is more difficult to explain the full variation in the data with one component. The most convincing analyses are for the indices that exclude weapons, suggesting that one PCA component effectively captures most of the variation in the data for the more stable indicators in the sample.
Not all figures are presented in the analysis, but only typical observations are shown for illustrative purposes. All figures are available from the authors on request. Specific observations with respect to omitted graphs can be found in Table 1.
The initial drop and correction in inequality displayed by the “Short and Long-Term” and “Core 3” indices should be viewed with caution, particularly given the small sample sizes during this period.
A Phillips-Peron stationarity test on this time series of Gini coefficients based on “core 1” delivers a McKinnon approximate P value of 0.1485, hence not rejecting the hypothesis of a unit root. This suggests that this series does change over the entire period.
Should the Gini coefficient move within the confidence band of the previous period, inequality is not considered to have changed significantly. Should, however, the Gini coefficient move above (below) the confidence interval of the previous period, then inequality has risen (dropped) by a significant margin.
It is for this reason that the Theil coefficient was implemented alongside the Gini coefficient, as the latter is less sensitive to differences in the tails of a distribution compared to at the mode.
It is even evident that the exclusion of weapons raises the levels of inequality substantially within the same society. However, regardless of the basket of goods, the trends remain consistent. To find comparable baskets of goods in other colonies to compare levels of inequality is not feasible, but trend comparisons may be more realistic. It is therefore not clear whether inequality levels are “high” relative to other countries and money-metric measures in other periods. What is however important, is that the evolution of inequality over this period can be compared to the evolution of inequality in other societies.
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Acknowledgments
The authors would like to thank Jan Luiten van Zanden, Stephan Klasen, Sam Bowles, Servaas van der Berg, Walter Zucchini and two anonymous referees for their valuable comments. Participants at the following seminars and conferences also provided helpful feedback: FRESH meetings (Strasbourg), Groningen University, Göttingen University, Stellenbosch University and the ERSA Economic History Workshop (Durban). Financial supports from the Department of History and Culture at Utrecht University, the Deutsche Akademischer Austauschdienst, the Faculty of Economic and Management Sciences and the International Office at Stellenbosch University are gratefully acknowledged. The authors would also like to thank Harri Kemp and Hendrik van Broekhuizen for valuable research assistance, and Hans Heese for his generosity in sharing the raw data.
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Fourie, J., von Fintel, D. The dynamics of inequality in a newly settled, pre-industrial society: the case of the Cape Colony. Cliometrica 4, 229–267 (2010). https://doi.org/10.1007/s11698-009-0044-1
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DOI: https://doi.org/10.1007/s11698-009-0044-1
Keywords
- Settler societies
- Wealth distribution
- Inequality
- Asset index
- Institutions
- Mercantilism
- Dutch East India Company
- South Africa