27
2009
Herbert Frankel: from Colonial Economics to Development Economics
John Toye[1]
Abstract
Herbert Frankel (1903-96) was an economist of long and varied achievement, who, after a distinguished career in South Africa, served as Oxford University first Professor of Colonial Economic Affairs (later Professor of the Economics of Under-developed Countries) from 1946 to 1971. His professional route took him from colonial economics to development economics, making a significant contribution to each. His intellectual trajectory took him from being a critic of colonial economic policies to being a champion of the efficacy of free market liberalism to deliver development. In this he was a true precursor of the counter revolution in development economics of the 1980s. In a number of ways his writings were prophetic, but it was a younger colleague, Peter Bauer, who became the main standard-bearer of neo-liberalism in development economics.
Herbert Frankel: from Colonial Economics to Development Economics
Economists come to write on the economics of development by very different routes. For some, their motive is the intellectual challenge of doing economics in an exotic society. For others it is the missionary motive of raising welfare levels in poor countries. In the first half of the twentieth century, however, there was another point of entry. Some sons (not yet daughters) of European emigrants stumbled into the economics of development when they found themselves confronting the economic problems of the land to which their parents had emigrated. Raùl Prebisch did so in Argentina, where his father, an emigrant from Saxony, had settled. So did Herbert Frankel, whose parents, who were also German by origin, had chosen to settle in South Africa. The careers of Prebisch and Frankel, who were very close contemporaries, show another similarity. Both made their reputations as economists and economic advisers in their country of birth and the adjacent region in the inter-war period, but during the Second World War the careers of both men faltered and both sought new opportunities on the international scene. At that point their destinies diverged: Prebisch focussed on the external obstacles to development, while Frankel maintained that markets would bring about development, if only politicians would let them do so.
Herbert Frankel (1903-96) was an economist of long and varied achievement, who, after a distinguished career in South Africa, served as Oxford University’s first Professor of Colonial Economic Affairs. His Chair was re-named in 1956 as Commonwealth Economic Affairs, then re-named again in 1963 as The Economics of Under-developed Countries. His professional route took him from colonial economics to development economics, making a significant contribution to each. His intellectual trajectory took him from being a critic of colonial economic policies to being a champion of the efficacy of free market liberalism to deliver development. In this he was a true precursor of the counter-revolution in development economics of the 1980s. In a number of ways his writings were prophetic, but it was a younger colleague, Peter Bauer, who became the main standard-bearer of neo-liberalism in development economics.
1. Early Life and Education
Sally Herbert Frankel was born in Johannesburg on November 22nd 1903, the eldest son of a recent German Jewish immigrant to South Africa. Frankel’s father had cousins in the wholesale grain trade there, and he joined with them in business. The young Frankel was a diffident youth, physically marked with a harelip and a cleft palate. Psychologically, he was much influenced by his mother’s cultural aspirations, but at the same time he was anxious about what his Jewish heritage portended for his life and career. In fact, when suffering came, his family was targeted for being German rather than for being Jewish. During the 1914-18 War his father was interned as an enemy alien, while Herbert had to navigate an uncomfortable secondary education at the Anglican foundation of St John’s College, Pretoria. This early experience made him an unwavering opponent of racial and religious discrimination for the rest of his life.
Although already curious about economics, Herbert Frankel took his B.A. degree in History at the University College of Johannesburg, (which was soon to become the University of the Witwatersrand). While taking his first degree he was greatly impressed by W. M. Macmillan’s The South African Agrarian Problem and its Historical Development (1919), which sought to explain South Africa’s political and economic backwardness. Macmillan had laid heavy stress on the isolation of the farmers in the period before the gold discoveries of the 1870s and 1880s, caused by lack of markets, primitive transport and the physical insecurity resulting from sporadic wars. He argued that the gold rush, and the wave of immigration that followed it, all of a sudden imposed a modern economic psychology on a society whose agriculture continued to be structurally backward. In terms of economic motivation and behaviour, Macmillan saw South Africa as a divided society caught in the on-rush of modernisation, and Frankel absorbed that perspective and made it his own.
Frankel’s interest in economics was fuelled both by practical experience and by academic study. Practically, he learned about the working of the market by watching and helping his father, who was struggling to keep his grain merchant business afloat through the vagaries of the weather and pest infestations. Academically, he learned his economics from R. A. Lehfeldt. As Prebisch also discovered in Argentina, trained economists were thin on the ground outside the metropolitan countries at this time, and it was unusual to be taught by one. Lehfeldt was not a trained economist, but rather a physicist who had successfully turned himself into an economic statistician. Lehfeldt encouraged Frankel to blend his practical and academic knowledge by writing his M.A. Economics thesis on the degree of competitiveness in local maize marketing.
The thesis was published as Co-operation and Competition in the Marketing of Maize in South Africa (Frankel, 1926). In it, Frankel noted that the co-operative system in agriculture had been introduced recently and funded by the government, but that this had happened without any initiative for it from, or much understanding of it by, the farmers themselves. After carefully examining of the economic functions of a marketing system, and analysing such statistics on costs and profits as he could assemble, he found no evidence that co-operative societies either raised average producer prices for maize, compared with commercial wholesaler prices, or provided sustainable agricultural credit for their members. However, what he did notice was that the co-operative system fostered strong associations that had a tendency to ask the government to provide them with economic privileges that would not be extended to the commercial grain traders. He became aware of the creation of vested interests, the power of lobbying and the political economy of economic institutions.
In 1923, Lehfeldt advised him to go to England for further study. The London School of Economics was selected, on the grounds that Oxford University was then rather a backwater in economics. With a small scholarship from Wits, he enrolled at the LSE. There he met Harold Laski and Hugh Dalton, whom he admired as teachers, while being highly sceptical of their socialist politics. He also encountered Theodore Gregory, Edwin Cannan, and Lilian Knowles, whom he thought much less politically naive. Originally, Frankel had chosen to do his doctoral research on the financing of the gold mining industry, but at the instance of the Transvaal Chamber of Mines, he changed his Ph.D topic. His new subject was the pricing policy of the South African railways, which he researched under the supervision of W. Tetley Stephenson.
His dissertation, published as The Railway Policy of South Africa (Frankel, 1928), was a critique of institutional failure. The early South African railways were fragmented, and built and run with political goals in view. However, in the constitution of the new Union of South Africa was a requirement that henceforth the railways be operated in the national interest, and for the purpose of binding together the different parts of the country. In Frankel’s view, this meant that they should henceforth be run by an independent agency on “normal business principles”. His book demonstrated that this had not happened, and that the government - to provide a source of additional revenue at the expense of rail users - manipulated the Railway Board’s accounts. Its capital investment programme was decided in the light of political considerations rather than according to expected rates of return, and its employment policy was constrained by the government’s “whites only” directive. Frankel ended by recommending that the railways should remain in public ownership, but with a new and much more independent management, and a new tribunal to investigate rate-setting issues. In today’s terminology, one might say that Frankel created a blueprint for an agency of restraint on discretionary government intervention in the sector.
2. Private and Public Service in South Africa
Railway Policy showed that Frankel had a clear grasp of simple economic principles, and the confidence to apply them thoroughly and carefully to complex problems of national importance. After Lehfeldt’s unexpected death, Frankel returned to Wits, becoming in 1928 a Senior Lecturer, and then in 1930, when he was still only 28 years old, Professor of Economics and Economic History. His LSE credentials had launched him on to a high professional trajectory within South Africa. He was immediately much sought after in South Africa as a consultant. In particular, his services were demanded by Sir Ernest Oppenheimer, who wanted his advice on how worsening world economic conditions would affect the prospects of the diamond marketing monopoly that he had recently created. Frankel’s devotion to “business principles” did not lead him to recoil from such an invitation – rather the opposite: he embraced it. As a result, he wrote an annual review of the Union budget for Oppenheimer regularly for many years thereafter.
In 1928, he began a long career as a member of commissions of inquiry. He served on the South African Road Transport Commission (1928), the South African Railways and Harbours Affairs Commission (1933), the Palestine Royal Commission (1936), the South African Miners’ Phthisis Commission (1941-2), and the Mining Industry of Southern Rhodesia Enquiry (1945). His appetite for public service extended well beyond commissions of enquiry, however. While an undergraduate, Frankel had been impressed with the enlightened thinking of Jan H. Hofmeyr, Provincial Administrator of the Transvaal. Under the aegis of Hofmeyr, Frankel joined the group of younger white liberals, both English and Afrikaans speakers, who produced a liberal manifesto entitled Coming of Age (Brookes, 1930). It was a brave attempt to chart a course towards a non-racial future for South Africa. Yet it was too radical for the vast majority of white South Africans and too timid a promise of advance for the Africans, since the natives were still to be obliged to pass some test of “European civilisation” before they would be given the franchise. Hofmeyr, moreover, proved to be an enigmatic father figure for Frankel, not only in this endeavour, but also in subsequent years.
Private consulting and public service on this scale led to unintended delays in the publication of Frankel’s next substantial work of economics, Capital Investment in Africa (Frankel, 1938). Intended as an input into Lord Hailey’s An African Survey, it came too late to influence any but the later chapters. The bulk of Capital Investment is the presentation of a mass of detailed statistics on investment in Africa, by sector and by dependency. This was a major feat in itself, but the statistics aside, the book has been criticised because it “seems by later standards to lack a central organizing principle” (Fieldhouse, 1982: 160). While this is a fair comment, Frankel did demonstrate empirically how much foreign investment into Africa was linked to minerals discoveries, how much came from Britain and how much went to, or through, South Africa – three features of African foreign investment that endure today. He saw foreign investment not in mere financial accounting terms, but – following Macmillan - as the catalyst of a revolution by means of which Africa was being incorporated into the capitalist system of world income generation. By extension, he later forecast that minerals discoveries would trigger a similar process in Britain’s African colonies (Frankel, 1954).
The critical problem for attracting foreign investment, Frankel believed, was the creation of a supply of indigenous labour. This requirement had been addressed by using various forms of compulsion, which in turn had created vested interests and artificial industries. It was this specific South African history of labour coercion that rendered useless a standard economic analysis.
“Investment in Africa is thus bound up with very wide political and sociological issues. It cannot be regarded as dependent only on the normal incentives which are assumed to govern the application of capital under freely competitive conditions.” (Frankel, 1938: 15)
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Between 1933 and 1946, Frankel was joint editor with Robert Leslie of the new South African Journal of Economics. In terms of his own contributions to the journal, the most interesting were published during the war years, when he volunteered to work for Hofmeyr, who by this time had become Minister of Finance in Jan Smuts’ government. As a member of the South African Treasury Advisory Council, Frankel served as Hofmeyr’s unpaid and unofficial adviser on national income and budgetary matters. From 1941 to 1945 some of his national income estimates appeared in the SAJE (Frankel, 1941, 1943a, 1945; Frankel and Herzfeld, 1943 and 1944). This was valuable foundational work, although it needed quite a few adjustments later in order to be brought into line with the UN System of National Accounts (Franzsen, 1954: 115-6).
At the same time, he also published two remarkable Presidential Addresses to the South African Economic Society (Frankel, 1942 and 1943b). Taking his cue from the recently proclaimed Atlantic Charter, Frankel noted the change in rhetoric away from ‘securing the freedom of nations’ towards ‘securing the economic welfare of all people’. He welcomed the change because it recognised the interdependence of income-generating activities throughout the world. “The extent of the incomes of [any state’s residents] does not . . .depend any longer on separate national policies, but rather in a continuously increasing degree, on the income-creating activities of individuals all over the world” was his major theme. His minor theme was that the illusion that national income was something created inside national boundaries gave sustenance to short run beggar-my-neighbour policies (Frankel 1942: 182-3). Buoyed up by this vision of “transnational economic development” – what we now call globalization - he surprisingly brushed aside national income accounting as an economically meaningless nationalist illusion, even while being engaged in constructing South Africa’s national income accounts. This paradox later puzzled Peter Bauer (1954: 584).
Frankel not unreasonably expected some official national recognition by the South African government of his heavy and unrequited wartime labours for Hofmeyr, once the war was over. That recognition never came, and Frankel became a deeply disappointed man.
3. The move to Oxford and Development Economics
At the second Commonwealth Relations Conference in Australia in 1938, Frankel had suggested setting up a Chair of Colonial and Commonwealth Economics, to explore economic problems that were common to many British dominions and colonies. When a new chair in Colonial Economic Affairs was established at Oxford University in 1945, it was offered to Frankel. Hofmeyr’s ingratitude, along with the slow drift of South African public opinion towards Afrikaner nationalism, decided Frankel to accept the Oxford chair, which was later coupled with a Professorial Fellowship at Nuffield College. His move to Britain in July 1946 brought him into an intellectual climate that was in many ways unsympathetic to him, but for different reasons from those that had led him out of South Africa. In Britain, faith in the free market was at a low ebb. Apart from John Jewkes, he found few colleagues in Oxford who shared his veneration of the market mechanism and his distrust of development planning, state expenditure and socialism. It is said that Thomas Balogh, one of the more left-wing economics dons, scheduled his lectures on development economics to coincide with Frankel’s, to prevent his students hearing what Frankel had to say! His situation was improved in 1950 when Hla Myint was appointed a University Lecturer. With Myint, Frankel conducted a development economics seminar regularly for the next fifteen years (Frankel 1992: 246). Myint’s emphasis on the importance of international trade in stimulating economic development was quite compatible with Frankel’s vision of transnational economic development.