A Reconsideration of the Problem of Capital Formation in Underdeveloped Areas: A Case Study of an Indigenous Economy (the Transkei)

In the indigenous economies of Southern Africa, economic activity is oriented mainly towards production for subsistence. Wage opportunities, available outside the traditional economy, are normally engaged in by the residents of these areas on a regular basis, although exploitation of those opportunities has little effect on production activities within the indigenous economy. The problem is that while these areas of subsistence activities are the major depositories of the African’s income-earning assets, the growth potential of such economies is poor. Colin Clark and Margaret Haswell note in this respect that ‘in a real subsistence economy, it can almost be taken as a law of nature that agricultural production will increase at about the same rate as population. Any slower — or faster — growth would cause unbearable social strains.’1 Because of their relative importance, any strategy aimed at stimulating the development of the Homelands must be concerned with the size of the investment fund, as well as the number of profitable investment opportunities available for exploitation within these traditional agricultural areas. In these agricultural economies, the size of the market (as indicated by the level of economic activity) necessarily limits both.