If Hong Kong, London, and Singapore were at one end of the value chain in the 1980s, South Africa was at the other. There would seem to be few places more physically different. Hong Kong hugs a deep harbor at the base of a mountain covered in dense jungle. With building space so scarce, it is a vertical city, its skinny skyscrapers greedy for square footage. Canary Wharf likewise thrusts upward from the sprawl of Greater London, and Singapore out of blue-green straits crowded with ships and tankers.

  The Eastern Cape of South Africa, by contrast, bent the axis of construction ninety degrees, bringing it back to earth. Its buildings were low-slung, made from cinder blocks patterned for ventilation, decoration, and economy. The few urban areas featured a smattering of multistory towers in reinforced concrete; halfhearted stretches of streetlights lined asphalt roads that vanished off into the yellowing grassland, thornbushes, and shrub-clumps of the veld. Dirt roads wound down to collections of rondavels, round mud huts topped with thatched roofs, or to rectangular dwellings capped with sheets of corrugated iron. Yet unlikely as it sounds, in the 1980s this place was just as much a site of neoliberal experimentation as Hong Kong, London, and Singapore. It was the hinterland and its workers, as much as the tax haven and its jet set, that symbolized capitalism’s brave new future. Libertarians flocked to both. Just a few years after calling for “two, three, many Hong Kongs,” Reason magazine asked: “How hard is it to get South African citizenship?” It made the eyebrow-raising pronouncement that “it is possible that in the past decade no country has moved further toward a libertarian society than South Africa.”2

  Speaking to an audience of two thousand at the University of Cape Town in 1976, Milton Friedman announced that democracy was overrated. The market was a much surer route to liberty, he said; voting by dollars was better than voting by ballots.3 The key to freedom was not free elections but decentralization of state power itself. In the 1980s, South African libertarians followed this line—but in a direct betrayal of their own rhetoric, their version of radical capitalism was entirely dependent on the disciplining (and subsidizing) hand of the state. As an overlooked case of neoliberal ideas in action, the Black “homeland” of Ciskei in white-ruled South Africa shows how certain kinds of economic freedom depended on political disenfranchisement.

  1.

  Apartheid South Africa was in the midst of a legitimation crisis as Milton Friedman gave his lecture. Since the late 1950s, new flags had risen one by one across the continent. Where once flew Union Jacks and the blue-white-and-red of the French Tricolore now waved the Masai shield of Kenya, the crane of Uganda, and the black star of Ghana. When Portugal finally quit Africa in the late 1970s, Angola put a machete on its flag, and Mozambique chose another symbol of armed struggle: the AK-47. Rhodesia became Zimbabwe in 1978, making South Africa’s white minority rule an even more striking aberration. Digging in at the southern end of the landmass, the apartheid establishment was alone and embattled.4 As a solution, the government chose a version of what Friedman was recommending: decentralization instead of democracy. Creating a series of so-called homelands on the baseless notion (derived from colonial anthropology) that certain populations rightfully belonged in certain territories. Many homelands were noncontiguous, creating a fragmented landscape that led anti-apartheid activists to dub them Bantustans, combining the umbrella South African category for Africans with a suffix from the precedent of Pakistan, which was split by colonial powers into West and East Pakistan (later Bangladesh) on opposite sides of independent India.5

  Extending the technique of “divide and rule,” some Bantustans were even made into pseudo-independent nations, unrecognized by any other states. The first to gain this nominal independence was the Republic of Transkei in the Eastern Cape. In a pantomime of decolonization, the ceremony included speeches from the new head of state and a 101-gun salute to a sparse crowd in a newly built stadium. The only foreign dignitary in attendance was a general from the military dictatorship of Uruguay, an emissary from the Southern Cone’s own version of capitalism without democracy.6 Transkei was the first of four fake nations created in South Africa’s effort to prove that it was following the trend toward self-determination and the end of empire.7 It was followed by Bophuthatswana in 1977, Venda in 1979, and Ciskei in 1981. Under Bantustan policy, Black South Africans lost their South African citizenship and were made into citizens of homelands that many had never set foot in. Upwards of 3.5 million people were relocated by force, especially the elderly, women, the unemployed, and opponents of the regime.8 The idea was to make South Africa itself progressively whiter while retaining access to an itinerant labor force concentrated in balkanized territories. It was a vision where only a minority of the population were citizens and the rest guest workers.9 Critics rightly described the homelands as “dumping grounds.”10 The anti-apartheid activist Steve Biko called them “sophisticated concentration camps” and “the greatest single fraud ever invented by the white man.”11

  Like Transkei, the pseudo-nation of Ciskei was on the Eastern Cape, in the southeast of South Africa. It had its own airline and its own national stamps, showcasing handmade carpets, pineapple canneries, and bicycle factories. In a grimly symbolic episode, when its flagpole was raised on December 4, 1981, it broke and had to be held up by South African soldiers.12 While Ciskei was known mostly as an open-air prison for South Africa’s “surplus people,” in the 1980s it also became the unlikely site of what neoliberals called a “laboratory experiment … designed with the help of a blueprint which was drawn up by economists who believe in the power of markets, prices and incentives.”13 Rather than replacing the Bantustan model, libertarians wanted to figure out how to make use of it while being less explicitly racist. They hoped that the homeland could work as a kind of zone, inviting in foreign capital while encouraging voluntary segregation from below instead of mandatory segregation from above.

  South African libertarians were given their opening when Ciskei’s leader for life, Chief Lennox Sebe, assembled a commission to give shape to the new homeland’s economic policy. Written by what the Financial Times called “the supply siders of Ciskei,” the report was a recipe for turning the homeland into “an African Hong Kong.”14 Its authors expressed optimism that the homeland could become the “banking haven” that Africa lacked.15Acting on its recommendations, Ciskei privatized traditional land and granted tax holidays to foreign investors.16

  At the head of the commission was Leon Louw, a South African who had attended the Hong Kong meeting of the Mont Pelerin Society on Friedrich Hayek’s invitation.17 Louw was born in 1948 into a conservative Afrikaner family in the mining town of Krugersdorp—a town whose namesake, South African president Paul Kruger, also graced the gold coin called the Krugerrand, an investor favorite.18 In 1975, Louw helped found the Free Market Foundation, a think tank that brought Friedman to the country. The FMF saw South Africa’s “tragedy” in the mismatch between its rhetoric of pro-capitalism and anti-communism and the reality of what they saw as “creeping socialism.”19 To them, apartheid was just another taxpayer-funded social program reliant on a high degree of intervention, incorporating color bars in the labor market, welfare for the white population, and state ownership of many companies.20 Louw called himself an “abolitionist”—he believed that free markets would secure social order and deliver prosperity better than the racial state-led capitalism that apartheid represented.21

  Louw hoped that Ciskei would be a showcase of a more open form of capitalism to influence the rest of the nation, creating buy-in from the Black community previously excluded from property ownership and independent enterprise. A significant aspect of the commission’s report was its claim that private property was part of the traditional model of land tenure in southern Africa.22 It praised the suppressed “free market spirit” of the Black community.23 Yet what came into existence bore little resemblance to the cultivation of an indigenous entrepreneurial class. The homeland that sold itself as “Africa’s Switzerland” was a caricature case of corporate welfare, overseen by union breakers willing to murder.

  The instrument used in Ciskei was the export processing zone, or EPZ. An EPZ traced out a patch of territory that was legally designated as outside the host country: an offshore space without leaving home soil, with a different set of regulations, rules, and oversight, inevitably more favorable to investors. As scholars like Patrick Neveling have shown, EPZs had several antecedents. One was foreign trade zones in the United States, duty-free spaces created out of warehouses or factories. First seen in America in the 1930s, these took off in the 1980s, especially for oil processing and automobile assembly.24 Another forerunner was the duty-free zone of Shannon Airport in the Republic of Ireland. Once a necessary stopover for transatlantic flights, Shannon adapted after aircraft range improved and rendered it redundant by becoming a trailblazer of tax-free manufacturing in 1958.25 A third precursor was in Taiwan, which set up its first EPZ in the port of Kaohsiung in 1966. An American labor leader testified about seeing the Kaohsiung EPZ a few years later, separated from the city by a high fence and armed guards. He recounted his guide explaining “with obvious pleasure that by virtue of the fence and a few laws, the land we were standing on was no longer considered part of Taiwan.” Companies operating inside the fence could avoid paying Taiwan’s domestic taxes. He called the zones “fantasy islands for intensifying corporate profits.”26

  Libertarians aimed to construct such a fantasy island in Ciskei. In the 1980s, the South African government sent agents abroad to solicit foreign investors for what they euphemistically called “decentralization areas.” The agents had their best luck in Taiwan and Hong Kong, promising to undercut what had formerly been low-wage zones that had themselves seen wages slowly rise into the middle-income tier.27 By 1988, there were eighty small Taiwanese factories in Ciskei, producing “everything from doll heads to fishing rods.”28 One Taiwanese investor praised the situation. “This is like Taiwan 30 or 40 years ago,” he said: “no competition, cheap labor.”29

  As in all EPZs, the workforce was mostly female. Reporting on the “bonanza” for Asian companies, the Boston Globe featured a picture of women in headscarves at Ciskei’s China Garments.30 Another textile factory was staffed entirely by women, who sat side by side on benches or sacks of fabric.31 These were typical sweatshop scenes: low-ceilinged factories crowded with scores of workers in hairnets, laboring at sewing machines alongside piles of clothing under fluorescent lights.32

  Reports hailed an “economic boom” of rapid industrialization and rising employment, but this relied on increasing aid flows from the South African government, with transfers of 120 million rand (about $20 million in today’s dollars) in 1984 alone.33 A rise in the price of gold—one of the nation’s key exports—filled state coffers and allowed it to set up some of the best investor incentives in the world.34 Ciskei wages were already artificially low, set at 50 percent of the wages in nearby East London, which were themselves 25 percent below the national average. On top of this, investors received a fifty-dollar monthly wage subsidy per worker out of the aid budget, meaning, as the Wall Street Journal reported, “It didn’t take much to figure out that by paying workers less than $50 a month … investors could make money just by employing people.”35 Indeed, some businesses, including an American clothing company operating through a Hong Kong subsidiary, hired unnecessary workers just to collect the subsidies.36 In the supposed “laboratory experiment” of free markets in Ciskei, investors were offered a deal too good to pass up, as the state paid the wages of their employees, subsidized 80 percent of the cost of their factory rentals, and billed them for no corporate taxes.37

  While investors were lured to Ciskei by the carrots of state subsidies, they also profited from the apartheid state’s liberal use of the stick—and the gun. The would-be libertarian utopia operated hand in glove with the South African security forces. These punished everyday civilian acts of resistance while actively enforcing the prohibition on trade unions. One activist, Priscilla Maxongo, described how women in the labor movement were routinely arrested, interrogated, and tortured. She recounted having a rubber tube tied around her neck to cut off her air supply until she divulged information about the groups organizing for workers’ rights.38

  In 1983, police killed fifteen protesters when they shot into crowds demonstrating against a 10 percent bus fare increase.39 The Times called Ciskei an “ugly little police state.”40 Thozamile Gqweta, the secretary of the South African Allied Workers, had his house set on fire with the front door wired shut; his mother and uncle died when their houses were similarly set on fire; his girlfriend was shot by police as they left his mother’s funeral; and he was himself detained for three months and tortured with electric shock.41 In another incident of many that transpired in the year that Reason celebrated Ciskei as a “haven of prosperity and peace in South Africa’s back yard,” security forces entered a Ciskei church commemorating the tenth anniversary of the Soweto uprising and beat the congregation with whips made of rhinoceros hide, hospitalizing thirty-five and killing a fifteen-year-old boy.42

  The tragedy of the partnership with the police state was starkest in 1987. That year, Louw traveled to Dakar to meet members of the African National Congress in exile. He hoped to persuade the socialist ANC that privatization was a better way to reform South Africa.43 Months later, the Black civil rights lawyer who had organized the meeting was found in the back seat of his own car bound and beaten to death by the Ciskei security forces.44 Louw’s partners in building a libertarian utopia were actively exterminating the democratic anti-apartheid opposition.

  Ciskei was a “Trojan horse to topple apartheid.” So claimed a British neoliberal think tanker on the front page of the Wall Street Journal.45 But it was no such thing. Rather, as a South African economist stated frankly, “If the ANC came into power in South Africa, they would conquer Ciskei and integrate it again into South Africa at large. So the continued success of Ciskei depends upon the continued survival of the South African government.”46 Another economist supported the sentiment, saying that the last thing South Africa needed was “the kind of government you are getting in the rest of Africa. Every citizen is better off with the current traditional regime firmly entrenched.”47 By “traditional,” of course, he meant the tradition of white minority rule.

  The libertarian Bantustan was not an expression of the popular longing of the South African people. It was not a lever to weaken the grip of the apartheid state. Rather, it served a role in the strategy of the apartheid state and it needed the apartheid state to live. Libertarians were not brave resisters. They were the useful idiots of the government in Pretoria. At a time when the truth of violent state repression could be easily read about in major newspapers, a neoliberal think tanker called for Ciskei to be added to the Freedom House rankings as a separate country, even though nobody but South African elites bought the idea of Bantustan independence. “I would urge that Ciskei be put in and highlighted and spotlighted,” he said. “I think this is a beacon for all of us on South Africa, and I am very happy with what’s going on there.”48 He asked of the United States: “Can we have a Ciskei here?” Like many other libertarians, he saw the height of economic freedom in a state unburdened by representative democracy, stripped of its capacity to tax and redistribute, and trained by the threat of capital flight to always put investors’ needs first.

  2.

  Even as the Ciskei experiment showed what should have been rather troubling results for those who claimed to believe in freedom, Leon Louw sought to scale up the model of the business-friendly zone to a reform plan for the whole nation. He met with a Texas oil millionaire visiting South Africa and shared his own idea. The Texan had promised funding—money that eventually came from Charles Koch, whom Louw thanked in the opening pages of South Africa: The Solution, published in the Ciskei capital Bisho in 1986.49 The book, which Louw cowrote with his wife, Frances Kendall, was one of South Africa’s most successful political bestsellers at the time, selling close to forty thousand copies, and was released and widely reviewed internationally.50

  In their book, the couple proposed a “Swiss solution” for South Africa, breaking up the existing system of states and Bantustans into a mosaic of “cantons,” where residents could “vote with their feet” by leaving with their capital whenever they desired. Every South African would have multiple citizenships—national, cantonal, and local. The model of one person, one vote would be replaced with the Swiss model of one person, many votes.51 The central government would control no major revenue sources, make no major transfers between cantons, and be constitutionally bound to respect private property rights. All education and land would be privatized, and high bars would be set for constitutional changes by referendum.

  The outcome would be what Louw and Kendall called a “marketplace in politics.”52 They believed that most cantons would be what they called “cosmopolitan”—that is, multiracial—but a key feature of their proposal was that “people of a particular race or ideology can cluster together in ‘national’ or ‘ethnic’ cantons to satisfy their particular preferences and escape the kind of governments they reject.”53 The freedom of movement would be constitutionally secured but, crucially, the right of citizenship in this or that canton would not be.54 In other words, you might take a job in a segregated canton but might not be permitted to settle there permanently or receive the benefits of citizenship. This was precisely how the existing labor market worked in apartheid South Africa as Black workers moved in and out of white areas for employment but had limited rights of residence, let alone property ownership. What the authors called the “freedom of disassociation”—and the freedom to privately discriminate—was central.55 Louw and Kendall hoped the re-parcelization of land into many cantons and the decentralization of control over natural resources would safeguard against policies of racialized revenge. Louw left no doubt about this implication when he told Time magazine, “We want to make it possible to let the tiger—the Black majority—out of the cage without whites being eaten.”56