Minimum Wage in Southern Africa Results in Apartheid, Blood Diamonds, War

Before Mitt Romney further commits to raising the minimum wage, he should take a trip back in time and across the ocean to witness what it can do to a society. David R. Henderson, “formerly a senior economist on President Reagan’s Council of Economic Advisers,” wrote in Fortune (April 23, 1990):

The orthodox view holds that apartheid was created at the behest of business for the exploitation of native labor. What a surprise, then, to find not only that apartheid flies in the face of capitalist principles but also that socialists and Communists enthusiastically helped to create it. Moreover, most white businessmen oppose apartheid and always did. This is the fascinating story Walter E. Williams tells in South Africa’s War Against Capitalism (Praeger, $37.95). Williams, an economics professor at George Mason University in Fairfax, Virginia, shows that apartheid was designed in part to protect white workers from competition with blacks.

Writes Williams: ”Apartheid is the result of anticapitalistic or socialistic efforts to subvert the operation of market (capitalistic) forces. Indeed, it is the free play of market forces . . . that has always been seen as the enemy of white privilege and that apartheid ideology has always sought to defeat.” An important step toward what later became codified as apartheid came in 1911 when South Africa’s government, caving in to pressure from white labor unions, passed the Mines and Works Act. The first of a series of laws known as the color bar, this act required mine workers to obtain work certificates. Though rationalized on the ground of employee safety, these certificates were used to exclude black workers from the skilled mining occupations and even to limit the number of blacks allowed in unskilled mining jobs. Think of it as affirmative action for whites. According to Williams, the color bar broke down when many white miners went off to fight in World War I. On their return they found that the color-blind capitalist mine owners, trying to reduce their costs, had replaced them with lower-wage black workers. The whites demanded that blacks be once more excluded from skilled jobs.

In 1922, after the mine owners refused to meet the whites’ demands, 20,000 ; white miners, led by Communists and socialists, went on strike. Some strikers made violent, unprovoked attacks on blacks. Williams points out that one of the strike’s leaders was W. H. ”Comrade Bill” Andrews, later to become secretary of the South African Communist Party [formed by the Soviet Comintern in 1921]. Marching through the streets of Johannesburg waving red flags, the strikers chanted, ”Workers of the world, fight and unite for a white South Africa.” Lester Maddox, meet Karl Marx.

Although crushed by the government, the strike cemented the alliance between white labor unionists, white socialists, and white nationalists. In 1923 this alliance was formalized by the union of the Nationalist and socialist Labour parties, which went on to win the 1924 elections, then proceeded quickly to set minimum wages and to reestablish occupational licensing of the skilled and semiskilled trades. The purpose of the minimum wages: to price blacks out of the labor market. Williams quotes the white Mine Workers Union’s statement that because minimum wages would make black labor more expensive, ”most of the difficulties in regard to the coloured question ((that is, competition from black labor)) will automatically drop out.” But as economist Thomas W. Hazlett has pointed out, continuing economic development constantly threatened to undermine the government’s artificial restrictions on competition between employees: Employers, mainly white, could still cut costs by hiring equally qualified blacks at lower wages than whites. Whites tolerated this competition during the economic expansion that got rolling in 1940. But when the economic pie ceased to grow, whites in 1948 elected the white supremacist National Party. As Hazlett notes, the party and those who voted for it believed, probably correctly, that the only way to maintain separate labor markets was to maintain spatial and social separation of the races. Thus was born apartheid (the term did not appear until 1943), the policy of explicit racial separation. Under apartheid, South Africa’s government classifies all people according to race. It also forbids marriages between whites and coloreds, and it segregates urban areas into sections for whites, coloreds, Indians, and blacks. This last law in particular — dictating to people where they can buy or rent housing — is of course an attack on people’s right to engage in voluntary exchange with others, just as the restrictive labor laws are. In Williams’s words: ”The whole ugly history of apartheid has been an attack on free markets and the rights of individuals, and a glorification of centralized government power.”

Edward Jay Epstein’s book The Rise and Fall of Diamonds: The Shattering of a Brilliant Illusion (1982) lays out what happened next:

When the Cold War began … the Soviet Union had no secure source of industrial diamonds. It was entirely dependent on the De Beers cartel [a South African diamond monopoly] for the diamond drilling stones it needed in order to explore for oil and gas, the diamond die stones it needed to produce precision parts and draw out fine wire, and the diamond abrasives it needed to grind machine tools and armaments. Without a continuous supply of these industrial diamonds, it would be impossible for it to rebuild its war-wrecked economy-or to effectively rearm its military machine. Stalin, fully realizing that his crucial supply of diamonds could be cut off at any moment by an embargo, demanded that Russian geologists and scientists develop a more dependable source of diamonds. Since no diamond mines had ever been found in the Soviet Union, there were only two possible ways of satisfying Stalin’s order: either pipe mines had to be uncovered in the unexplored regions of the Soviet Union through a vast program of systematic prospecting, or industrial diamonds had to be manufactured through a laboratory procedure.

The search for diamonds focused on the Siberian plateau in Yakutia province that lay between the Lena and Yenisei rivers, which Russian geologists concluded resembled geologically the ‘shield’ of South Africa. … In the spring, of 1955, another young geologist, Yuri Khabardin, came across a fox’s hole in a ravine with blue earth. He found that it had high diamond content, and excitedly began sending a message over his shortwave radio. It said cryptically, ‘I am smoking the pipe of peace.’ In Moscow, the prearranged code was immediately understood to mean that the geologist had discovered and tested a kimberlite pipe.

Epstein continues:

Just as diamonds began to flow out of Siberia, Russian scientists in a laboratory in Kiev reported that they had found a commercial process for synthesizing minute diamonds that could be used as abrasive grit. The process, though similar to the one that General Electric had developed in the United States, was based on Russian research in high-pressure physics.

As a result:

In the Siberian diamond mine, the gem diamonds, which had first been mined as a by-product of industrial diamonds, could now be sold abroad. In early 1962, the Soviet Union agreed to sell virtually all of its uncut gem diamonds to De Beers. Within a few years, diamond production was nearly ten million carats a year, and the Soviet Union exported some two million carats as gems. Diamonds became the leading Soviet cash export to the West. In 1968, Viktor 1. Tikhonov, the head of the Mirny Diamond Administration, said, “We call ourselves the country’s foreign exchange department.”

On December 4, 1978, Epstein interviewed De Beers head Harry Frederick Oppenheimer:

Oppenheimer explained that it was no secret that De Beers acquired through subsidiaries all the uncut diamonds that the Soviet Union wanted to sell on the open market. “We have of course no reason for concealing this arrangement other than the Russians prefer not to receive any public attention for obvious reasons,” he said almost apologetically. The “obvious reasons” for obscuring the arrangement with De Beers were that the Soviet Union had for some fifteen years called for a total boycott of South Africa and South African businesses, and its dealings with De Beers, if made public, might prove embarrassing.

So, the Soviets were being haunted by Apartheid, the Pandora’s box they themselves had opened. But how long could such an unholy alliance last? The Soviet Union apparently had ambitions of its own in southern Africa, and at some point geopolitical considerations might take precedence over business considerations. I asked how he could be sure that the Soviets would renew the deal.

The answer:

“We paid the Soviet Union more than half a billion dollars last year,” he answered. “This is not a sum it can easily replace, and I can see no conceivable reason why it would want to abandon such a profitable arrangement.” His logic was brutally direct: De Beers provided the Soviet Union with its single largest source of hard currency (only petroleum was a more important export for Soviet trade in 1977)If the Soviet Union withdrew its diamonds from De Beers, it would have to find other outlets to sell its uncut diamonds. And if it precariously dumped these diamonds on the market, the price would collapse, and the Soviet Union would lose an important source of foreign exchange. “What could the Russians possibly gain by competing with us?” he asked rhetorically.

Epstein then makes a critical point:

The Soviet Union also had considerable influence in other diamond producing areas in Black Africa, such as Angola. I wondered if the logic of the arrangement between De Beers and the Soviets required the Soviets to use their power in those countries to help De Beers retain its control over diamond mines there. “You will have to address that question to the Africans concerned,” he replied abruptly. The tone in his voice made it clear that there were aspects to the Soviet arrangement that he decidedly did not want to discuss.

In his book, Epstein recounts that “The Soviet-backed MPLA faction seized Luanda in July [1975], initiating a full-scale civil war… With the assistance of Soviet rockets and Cuban troops, the MPLA forces quickly routed the other two rival factions (despite aid to them from the CIA). By the year’s end, the MPLA was in almost complete control of Angola.” In early 1976, Albert Jolis, “a resourceful American, who had served in the OSS during World War II” and who went on to become head of “an international diamond firm called Diamond Distributors, Inc., or DDI” – a potential competitor to De Beers – “learned that his diamond concession had been canceled by the new MPLA regime.”

[Jolis] arranged for someone in Angola with connections to the MPLA Angola to investigate the loss of this concession. In Luanda, his intermediary made inquiries at the Ministry of Natural Resources and eventually obtained an internal staff report that cleared up the mystery. According to this document, the Soviet Union had specifically instructed its MPLA allies to cancel all agreements and negotiations with Jolis’s Diamond Distributors, Inc. Adding insult to injury, the Soviets had further advised the Angolans that Diamond Distributors, Inc., was an established front for De Beers. Since the MPLA had strictly forbidden Angolans from trading with South African companies, this piece of misinformation linking Diamond Distributors, Inc., to De Beers effectively precluded the former from doing any business in Angola.”

Under Soviet guidance, the MPLA arranged to sell the entire production of its diamond fields to a supposedly independent firm in London named the Diamond Development Corporation. The Angolan diamonds actually went to the offices of the Diamond Development Corporation in Chichester House, near Holbein Circus on the fringes of London’s financial district. The Diamond Development Corporation, putatively in the business of sorting and selling African diamonds, was in turn owned by the Chichester Corporation, which itself is controlled by subsidiaries of De Beers. Both corporations were established by De Beers to provide a double-cover for its dealing with African nationalists. As one former De Beers executive explained, ‘If the Angolans ever demanded an interest in the Diamond Development Corporation, the assets and profits could be shifted to Chichester.’ The shipments of Angolan diamonds were driven around Holbein Circus to Number 2 Charterhouse Street, headquarters of the Diamond Trading Company. Through this circuitous route Angola’s diamonds again entered the De Beers stockpile. Then, with the assistance of Cuban troops, the Angolans also managed to close down the smuggling routes between the diamond fields and the Congo border.

This continued well into the 1980s. So, while the KGB, Che and the rest of their Cuban and East German puppets were running around Southern Africa starting wars and taking over newly independent countries (everywhere that just happens to have diamond mines) — it turns out that it was the Soviets who were cutting special deals with the apartheid regime’s moneyman. This could explain why the forces of SACP/ANC/MK under the command of Soviet agent Joe Slovo (KGB files and Slovo’s daughter confirm Slovo’s command of those organizations) spent so much time fighting the MPLA’s rivals in Angola (thus ensuring the Soviet Union’s control of Angola and it’s diamond mines – which also paid for Apartheid) rather then fighting in South Africa itself. The sanctions on South Africa that the Soviets demanded were also a deception – while it would weaken the Apartheid regime’s capacity to end the stalemate, it would not cripple the regime because, as Harry Oppenheimer told Epstein, “I can think of no commodity less susceptible to dangers from UN sanctions than diamonds”.

The stage was set for an endless war, which would have served the Soviets’ interest perfectly. Had Reagan not won the Cold War – and had Reagan’s ambassador to South Africa, Edward Perkins, not help undo the Anti-Capitalist Apartheid system – then perpetual war might well have happened.

All of this trouble in Southern Africa can be traced back to one terrible idea – a federal Minimum Wage.

It didn’t do them any good – and it doesn’t do us any good either.


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