The myth that sanctions felled apartheid

Two unfortunate lessons for the global BDS movement: White rule in South Africa didn’t end because of boycotts, and Israel isn’t like the old South Africa.

By David Rosenberg, HAARETZ | Sep. 18, 2014 | 2:00 PM

A mural calling for a boycott Israeli goods in the al-Azzeh refugee camp near the West Bank city of Bethlehem, September 17, 2014. Photo by AFP

When the global boycott, divestment and sanctions movement talks about Israel, the word “apartheid” is never far away.

Associating the Jewish state with a racist regime inspires supporters, for whom white-ruled South Africa is the epitome of evil. It’s better than calling Israelis “Nazis,” which remains a distant second-favorite adjective for Israel, but is too controversial. Accusing the Jews of acting like their worst oppressors doesn’t sit well with many and opens up BDS supporters to charges of anti-Semitism.

In any event, the Nazis were brought down by a coalition of mostly Western governments. What inspires BDS is the idea that a grassroots movement of people standing up for justice, human rights, dignity and freedom will name and shame business, governments, academics, performers and anyone else who does business with Israel, eventually bringing the Jewish state to its knees by cutting off trade and investment and isolating it from global scientific research and the arts.

It’s an inspiring vision and another reason, apart from tarring Israel, why the apartheid tie-in is so important. But the view upon which the rationale for BDS rests, namely that South Africa’s apartheid regime was brought down by a grassroots sanctions movement, is a myth.

While Nero waffled

While Western governments and big corporations waffled, labor unions, church groups, students and activists exerted pressure to cut business, government and sports ties with South Africa. You know the rest. South Africa’s economy imploded, Nelson Mandela was released from prison and a new multiracial, democratic government came into being.

South Africa’s blacks rose up in rebellion at the same time, but their leaders never hesitate to acknowledge the important role of sanctions in putting an end to apartheid. Upon leaving prison in 1990, with the task of negotiating the end of apartheid still ahead of him, Mandela said, “To lift sanctions now would be to run the risk of aborting the process toward ending apartheid.”

There’s a Yiddish expression to the effect, “What isn’t true makes a good story.” So it is with sanctions and South Africa. Nevertheless, a true story makes for interesting reading, too, and should offer some food for thought both for Israel and its friends, and the BDS movement.

South Africa was hit by the first sanctions more than three decades before the apartheid regime fell, with a United Nations -imposed arms embargo in the early 1960s. OPEC stopped selling it oil in 1973 about the same time that a grassroots movement got under way in the United States and Europe to pressure companies to stop doing business in South Africa.

The real crunch, however, came in the years 1985-1987, when the European Community, as it was then called, and the United States imposed a series of trade, investment and finance sanctions. Many big multinationals like IBM, General Motors and Ford, sold their South Africa operations.

Yet the effect on South Africa’s economy was exactly the opposite of what you would have expected: The country’s growth rate actually accelerated from an anemic 0.5% in 1986 to 3.3% in 1988. Unemployment, among whites at least, remained unchanged. The Johannesburg Stock Exchange rallied. Divestment enabled South African companies to buy multinational assets at fire sale prices and, given the many loopholes in the sanctions regime, it wasn’t hard for South Africa to find overseas markets for its products. Exports actually rose 26% in 1985-89 even as the price of gold – a major export—was falling.

Philip Levy, an economist now at the American Enterprise Institute in Washington, estimated in a 1999 paper that trade sanctions cost South Africa about 0.5% of gross national product — not an insignificant sum but hardly enough for a regime to surrender its existence.

Real damage to South Africa came in 1985 when Chase Manhattan refused to roll over loans to South Africa, setting off a me-too trend by other banks.

South Africa had $24 billion in external debt, much of it short-term loans, which made it vulnerable to any disruption in financing. Needless to say, a financial crisis developed, the rand fell, the stock exchange was closed and interest payments on debt suspended. But Chase was quite explicit that it didn’t act in order to effect political change in South Africa but because the country’s risk profile had grown too dangerous.

The villain: ?Apartheid itself

In the view of Levy and many other economists, South Africa’s real economic woes weren’t created by sanctions but by apartheid itself.

The rapid growth of South Africa’s economy in the 1960s and 70s led to severe labor shortages, but because the law barred blacks from the cities where most jobs were and deprived them of an adequate education, businesses couldn’t tap the lion’s share of the country’s potential labor pool. Adding to the economy’s woes was the declining price of gold in the 1980s and political unrest that deterred not just Chase but investors from putting money into the country.

The collapse of Communism removed the threat, as the country’s Afrikaner leadership really believed, of the African National Congress transforming South Africa into a communist satellite, which the country’s Afrikaner leadership really believed could happen. By the 1990s the government was willing to talk, and Mandela proved to be an unusually visionary and capable leader.

BDS supporters can take consolation in the thought that apartheid itself caused the collapse of South Africa’s economy. But they shouldn’t because affixing the Scarlett A to Israel is incorrect.

There’s a slight similarity between the economic relationship of Israel to its Palestinian labor and South Africa to its black majority back then. Israeli Arabs haven’t been fully integrated into the mainstream workforce in Israel because they face discrimination in access to education and jobs.

But that’s very different than a law that codifies racism and prevents market forces from violating it. The status of West Bank and Gaza Palestinians looks a little closer to apartheid South Africa because they are largely barred from entering Israel at all. But economically speaking, Israel and the West Bank/Gaza are different countries. Politically and ideologically, the issue of using Palestinian labor, skilled or unskilled, is a security problem, not an ideological one.

Like apartheid South Africa, Israel faces a labor shortage in the coming years, due to an aging workforce, our failure to tap the Israeli Arab labor pool and the refusal of Haredim to get a proper education and join the workforce. As policy makers have begun to tackle the challenge, one of the many barriers to overcome will be making mainstream Israelis more ready to work with Arabs or Haredim as their colleagues or superiors. But unlike apartheid South Africa, equality exists on the books and faces no ideological barrier. Israel faces the same challenge as Americans, French and Germans do vis a vis their minorities.