The African Colony Part 8

The premier market, now and for many years, must be the Rand. Its great industrial population and the higher scale of living make it the natural market for all native agricultural and pastoral products. So much so that the farmers in the eastern province of Cape Colony, in spite of heavy railway rates, found it profitable to send the bulk of their produce thither. This is at once the advantage and misfortune of the country: advantage, in having an accessible market which it will take years to glut; misfortune, in that the merits of the market to the country producer mean costly living to the industrial inhabitants.

The difficulty will no doubt adjust itself; for if, as all believe, the new colonies take many steps towards feeding themselves, and in consequence the prices of necessaries fall, new and nearer markets will arise in different parts of the country, and a genuinely self-supporting provincial society will be organised. New mining centres in the north and east, possibly, too, in the west, may bring new towns.h.i.+ps into being; old and semi-decayed dorps will revive; and that novelty in the new colonies, towns like Brighton or Cheltenham, which exist purely for residence, may yet be found at Warm Baths for winter, or on the sh.o.r.es of Lake Chrissie for the summer heats. The Rand, again, will be the chief market for the subsidiary industries which must arise,--for coal and iron, for manufactured articles and dressed produce. It is too early in the day to talk in any serious sense of exports. The Transvaal, at any rate, will be for long a consumer rather than a producer among the nations of the world.

The tremendous cost of living is the subject of the chief complaints among new-comers to South Africa. Before the discovery of gold the Transvaal was a cheap country to dwell in. A bullock which now costs 20 could be bought for 5; and a native, who now draws 3 or 4 per month in wages, was then very well content with 5s. Now there is hardly anything which is not scarcer and dearer in South Africa than in almost any other part of the globe. The causes of this high cost are partly natural and partly artificial; but all, I think, are terminable. The demands of the gold industry, the long distance from ports, the spa.r.s.e rural population, are obvious natural causes, all of which tend to modification and mutual adjustment. The artificial causes are three: the cost of ocean freightage, the high railway rates, and the monopoly in the hands of a small mercantile cla.s.s. The first can never be reduced below a fairly high figure, and in the loud complaint of "s.h.i.+pping rings," which is in the mouth of most traders, there is a little unfairness. It is too often the cloak which they use to cover their own extortions. But reductions will certainly be made, and in any case the chief force of the grievance, so far as necessaries are concerned, will decline with the growth of local production. Railway rates have already suffered a substantial decrease, and will be further reduced down to a certain point, which for the present is determined by the fiscal needs of the country. For railway rates are a form of taxation: the railways are the chief revenue producer, and to lower the rates too far would be merely robbing Peter to pay Paul--a form of relief which would need to be balanced by some new form of taxation. The chief efficient cause of the expense of living is undoubtedly the exorbitant monopoly of local merchants. It is no exaggeration to say that anything sold at 100 per cent profit is to the ordinary trader a form of charity: legitimate business begins for him at 120, or thereabouts. No cla.s.s is so clamorous about its interests, so ready to identify its profits with national wellbeing, and claim a monopoly of the purer civic emotions.

But no part of the economic situation is so radically unsound. The Polish Jew and the coolie make a profitable living throughout the country, not because the white population have no prejudice against them, but because they are driven to their stores by the comparative reasonableness of their prices. This cause, as I have said, is artificial and terminable. The influx of a large population will increase the area of compet.i.tion, and reduce profits to a normal basis. And this, again, depends on the prosperity of the mines; so that we are brought round to the starting-point of all South African economics. Once this result were achieved its benefits would react on the mines, for with the decrease of the cost of living wages would go down, and what is at present an ideal--an increase in the area over which white labour can be employed--would come within the sphere of practical politics.

The economic situation of the two colonies is therefore composed of a number of perplexing oppositions. The one certain fact is the great hidden wealth. But to make those riches actual there must be labour, and, over and above any question of imported and indentured workmen, to secure labour there must be reasonable cheapness in the necessaries of life and work. Customs tariffs, railway rates, general taxation, must all be calculated on a modest scale. But, on the other hand, if the country is to advance to that civilisation which is its due, money must be spent freely by the State on productive and unproductive enterprises; and in addition to such services, which are the basis of the Guaranteed Loan, there is the War Debt, 30 millions of dead-weight round the neck of a struggling people. To pay the interest on debts and to provide money for day-to-day needs there must be revenue, and so there comes a point where direct and indirect charges, whatever the demands of the situation, simply cannot be reduced further if the mechanism of Government is to continue in action. Heroic persons advocate heroic remedies, such as the cessation of all enterprise in favour of mining progress, or the renunciation of certain charges in favour of cheap living. In one sense all politics are a gamble; but there are limits beyond which statesmans.h.i.+p cannot go in the way of staking everything on a chance, and yet hope to justify itself in the eyes of the world in the event of failure. The real problem for the statesman is not how to plunge wildly--it requires little skill to do that--but how to adjust with nice discrimination. To preserve an adequate revenue, while at the same time giving ample play to the forces of production, is, in a word, the only policy which contains the rudiments of ultimate success.

[15] The latest information available on the subject of the Transvaal gold mines will be found in the exhaustive report prepared for Mr Chamberlain by the mining engineers, and published at Johannesburg in 1903.

[16] The following are some of the working costs of the mines.

Low costs: Geldenhuis Deep, 22s.; Geldenhuis Select, 17s. 6d.; Geldenhuis Main Reef, 17s. 4d.; Meyer and Charlton, 18s. 2d.; Simmer and Jack, 20s. 7d. High costs: City and Suburban, 29s. 1d.; Bonanza, 27s. 6d.; Robinson Deep, 30s. 2d. The Robinson-Randfontein group have ore of a gold value of 34s. 9d. per ton, and a profit of 2s. over the working cost. The Bonanza has ore worth 5 a-ton.

[17] Imported labour reduces itself in practice to Chinese or j.a.panese. Even supposing that the Indian Government consented to the strict form of indenture necessary for mining purposes, the political danger of introducing coolie labour into a country which already contains a considerable coolie population would be very great.

[18] An argument often used in this connection is that the employment of Asiatic labourers, repatriated at the end of their contract, would mean that a very large sum of money annually left the country. But the same thing will happen if native African labour is brought from Central or Western Africa or Somaliland. It is happening at present with the natives from Portuguese territory, who form 90 per cent of the existing labour-supply.

[19] I have said elsewhere that there are few South African problems which are not long-descended. The first proposal to introduce Chinese labour was made by Jan van Riebeck, the first Governor of Cape Colony, about the year 1653. He urged the scheme with great persistence, but home opinion proved too strong for him.

[20] The cost of the acquisition of the present railway systems was roughly 14 millions. This does not, of course, represent an accurate statement of capital outlay, as in the Orange Free State considerable sums were spent out of State revenue. But even if we put the figure at the outside limit of 20 millions, the net profits are still more than 10 per cent of the capital value.

II.

The foregoing is a rough survey of the a.s.sets with which the new colonies start on their career. As in all beginnings, a mult.i.tude of questions protrude themselves. Every politician has his own nostrum, every interest its own pressing demands. But the main questions are simple, at least in their outlines, and it is permissible to disentangle from the web the chief threads of economic policy. Three postulates there must be before a solvent and progressive nation can be founded. In the first place, life must be made possible,--life on the various scales which a civilised society demands. In the second place, industries--the gold industry and the host of subsidiaries which must follow--should be given free scope for development by enlightened legislation, and the removal of burdens from the raw material of progress. Finally, a sufficient revenue must be secured to meet the vast reproductive expenditure which the country demands.

To reconcile these three needs, which in practice often appear contradictory, is the task of the new Government.

Taking the three axioms as our guide, we have to consider the two questions in all administration--the raising of revenue and the apportionment of expenditure. Our inquiry into revenue must be chiefly concerned with the Transvaal. The Orange River Colony is for the present prosperous, and its future solvency seems a.s.sured. With a certain income of half a million, and an expenditure of a little less, its fiscal problem is simplicity itself. But the Transvaal presents the case of a country with great potential wealth, which must borrow heavily to elicit its prosperity. Certain revenue-producing charges must be cut down to make life on a proper scale possible, but revenue must also be raised to make this life possible. It is the old story of Egypt--taking out of one pocket to put into the other, with somewhere behind the transaction an economic Providence to enhance values in the exchange. Such a policy is based upon a faith in the land, which by its productive power provides a natural sinking fund to wipe off enc.u.mbrances. Loans can be raised at 4 per cent, because the country repays a hundredfold.

The main items, exclusive of railways, which in the financial year 1902-3 made up the revenue of the Transvaal, were customs revenue at upwards of two millions, mining revenue at half a million, stamp and transfer duties at 720,000, taxes on trades and professions and post and telegraphs at a quarter of a million each, and native revenue at a little over 300,000. The total revenue was about 4,700,000. The estimated revenue for 1903-4 has been put at 4,500,000, made up of customs at 1,800,000, mining revenue at 750,000, post and telegraphs at 360,000, taxes on trades and professions at 200,000, native revenue at 500,000, stamp and transfer duties at 700,000, and 200,000 for miscellaneous items. Since the object of the present inquiry is to estimate the financial position of the country, it is necessary in the first place to take the various sources of revenue one by one, and estimate their value and their defects. Several may at once be omitted. Post and telegraphs barely pay for their working expenses, and cannot be counted upon as a source of revenue. Stamp and transfer duties, stand licences and rent, and the bulk of the miscellaneous items, are for the present static figures, or vary within narrow limits, and it is improbable that they will be altered so as to greatly increase their present revenue during the next few years. Revenue questions for the Transvaal are concerned with two items which far excel all others in importance--mining revenue and customs. There is a third, and the largest of the three, railway profits; but, as will be explained later, this item has been excluded from the separate budgets of the two colonies.

The old mining revenue was mainly indirect. A tax on profits was indeed imposed by the late Government in February 1899, but war broke out before there was time to organise its collection. The real burden lay in the dynamite monopoly, which at its worst increased the price of explosives by 2 the case, and at its best by about 30s. The mines required an annual supply of 300,000 cases, which meant an annual charge, beyond the cost of material, of 450,000. The average net profits on the annual production of gold may be put at 6,000,000, which, with a 5 per cent profit tax, would return 300,000 a-year.

Had the Boer _regime_ continued, the mining industry would have contributed in the form of imposts something between 600,000 and 750,000 per annum (for a reduction of 10s. in the dynamite charge had been promised on the eve of the war). From the standpoint of the mines the whole sum was an impost, but only the yield from the profit tax would have found its way into the Exchequer.

The present charges on the mining industry consist of the prospectors'

and diggers' licences, the 10 per cent tax on profits, imposed by Proclamation No. 34 of 1902, and the cost of native pa.s.ses, which was formerly paid by the native himself, but is now borne by the employer.

The mining industry will therefore on its present basis pay from half a million upwards in profit tax, about 120,000 for native pa.s.ses, and about 50,000 in licences. It is difficult to see how this taxation could be fairly increased. To add, for example, a charge of 20s. per case to explosives would be to tax the means of production,--a fatal heresy,--to keep some of the smaller mines out of the profit-making cla.s.s, and in the long-run to harm the Exchequer itself. The true policy is not to hamper the earning of profits by excessive charges, but to enlarge by judicious encouragement the area over which profits are made. It is of the first importance that European capital should be attracted to, and not scared away from, the country. Under the present system the Government receipts will advance _pari pa.s.su_ with any increase in the prosperity of the mines, and to secure the ultimate gain one may well be satisfied to forego a larger immediate return.

There is a fourth source of revenue from mining enterprise which may be roughly described as windfalls. The Government has a moral right, which no one denies, to profit by new discoveries, and in any case, as a large landowner, it will be interested as an immediate partic.i.p.ant.

The provisions of the old Gold Law have been so often discussed in print that it is sufficient here to give the briefest sketch of them.

Legislation by the late Government on precious minerals began as early as 1858, and continued in a long series of resolutions and counter-resolutions till the somewhat confused position of affairs was simplified and regulated by the famous law, No. 15 of 1898. The basis of this law is to be found in the principle that to the owner belonged the owners.h.i.+p of minerals found under his land, but to the State the right of regulating their disposal. It attempted to give to both owner and State a fair share of the proceeds, while at the same time the prospector and discoverer received a moderate reward for their enterprise. There can be no question about the validity of the three rights; the only dispute is concerned with their relative proportions. Besides the matter of share, there is one other question of great importance--how far it is permissible for an owner to refuse to allow the exploital of minerals under his land.

I take the last question first. Under the old law the owner of private property could prospect without a licence on his own land, and could give authority to any licensed person. If minerals were found, the State President, subject to certain compensation, could throw open the land as a public diggings. State land could be prospected and proclaimed in exactly the same way. But if the owner of private land refused to prospect himself or allow others to prospect, the State could not interfere to compel the exploital of his minerals. Much has been said of the right of the public in the shape of the prospector to go anywhere in his search; but no such _right_ has ever existed or can exist. The whole question is one of policy. It is clearly not the interest of the State to leave the chief source of its wealth unworked; nor in any real sense is it the interest of the private owner. But it would be an intolerable burden to a farmer to be subjected to constant trespa.s.s by any prospector who cared to take out a licence. We must, however, clearly distinguish between Crown and private land, so far as the steps towards the discovery of the minerals are concerned. Crown land, under strict conditions, should be free to any licensed prospector; but, as the settlement of Crown land by agricultural tenants is a vital part of Government policy, provision must be made for ample compensation to such a tenant for disturbance caused by prospecting. Such provision should refer not only to unproclaimed or hereafter to be proclaimed Crown land, but should be brought to cover areas such as Barberton, Lydenberg, and the Wood Bush, which have been long working gold-fields. If compensation and security is not provided, some of the most valuable agricultural and pastoral lands in the country will be incapable of white settlement, and their only occupants will be the Kaffir, the coolie, and the bywoner, who have no interest in creating permanent homes. It is undesirable to tie up minerals, but it is equally undesirable to tie up agricultural wealth. People have talked of proclamation as if it were an inviolable contract between the Crown and the public, to which no new conditions could be added. There is neither legal nor historical justification for this view. It is right for the Crown, having given permission to the public to go upon its lands for a particular purpose, to impose from time to time conditions under which the permission may be exercised. On private lands the case is different. No owner of a private farm who is in beneficial occupation of it (when he is not, the land should be treated for this purpose as Crown land) should be compelled to allow prospecting unless he has already himself prospected or given authority to others. To enact otherwise would be to make a freehold t.i.tle little more than a farce.

But in order to prevent a reactionary or indolent owner from tying up valuable minerals for an indefinite time, when there are reasonable grounds for believing that such minerals exist, the Commissioner of Mines should have the power to give notice to the owner that he must prospect or allow others to do so, and, if he still refuses, to issue to the public a small number of prospecting licences on the property.

When prospecting has taken place, and, after an investigation by the Government, minerals are found to exist in payable quant.i.ties, the area, subject to all rights of compensation, should be proclaimed a public digging.

Under the old law the discoverer, if his discovery were made at least six miles distant from a locality already worked, was ent.i.tled to mark off six claims which he could work without payment of licence-moneys.

He had also the ordinary public right of pegging off not more than fifty claims in the proclaimed area, and fifty additional claims on payment of reduced licences. The only real reward to the prospector for his trouble and expense was the six free claims--hardly a sufficient inducement to undertake laborious, and often costly, enterprises. The Gold Law Commission recommended that the discoverer should receive one-thirtieth of the proclaimed area, provided that in no case such one-thirtieth exceeded thirty claims. This seems a reasonable but not extravagant honorarium to the pioneer. He would be ent.i.tled to the first selection, and would hold his claims free of licence-moneys till they reached the producing stage.

The owner, under the old law, was ent.i.tled to reserve a _mynpacht_, equal to one-tenth of the proclaimed area, for which he paid either 10s. per morgen per annum or 2-1/2 per cent of his gross profits. He was also ent.i.tled to mark off a _werf_ or homestead area, on which prospecting was forbidden; and on this, too, he could claim a _mynpacht_ from the State. He was ent.i.tled to a certain number of owner's claims, which could not exceed ten. He was ent.i.tled, before proclamation, to grant to other persons a certain number of claims called _vergunnings_. Finally, he was ent.i.tled to share equally with the Government in all licence-moneys on claims, and to receive a share, varying from one-half to three-fourths, of all licence-moneys on stands. This system gave the owner about one-sixth of the whole proclaimed area,--an extravagant share, and one complicated by the curious rights into which it was divided. Such unmeaning complexity must be abolished, and one form of t.i.tle--claim licences--subst.i.tuted.

_Werf_ and _vergunning_ claims should be done away with, and the owner, as the Commission recommended, be allowed to peg out one-seventh of the proclaimed area, which should take the place of _werf_, _mynpacht_, _vergunnings_, and owner's claims. The Commission has also recommended that, while the owner should retain half of the proceeds of licences, the Crown should have the right, without consulting him, to remit or reduce the licence-moneys in what appear to be deserving cases.

The State, under the old law, received all licence-moneys on claims and stands situated on State lands, and half the licence-moneys from claims and stands on private lands. It received also certain payments from the owners of _mynpachts_. This in itself should provide for a considerable revenue. But in addition the Crown should have the right of sale of claims in proved districts, where the ground has a certain value. The former method, in places where pegging was out of the question, such as along the Main Reef, was to hold a claims' lottery, a method which was neither rational nor lucrative. The sale by auction of claims in proved districts would bring in a large additional revenue and do no injustice to the prospector. But in all places yet unproved the public should be free to peg out claims and try their fortune. It is important, also, to revise the present system of licence-moneys, so as to make the licences small during the prospecting and non-producing period, and raise them when mining actually begins. Under the old law all licences were 1 per claim per month, a payment which bore heavily upon the poor prospector who was still labouring to prove his claim. Prospectors' licences were issued at 5s. per month on private land and 2s. 6d. on Government land. The Commission recommended the abolition of prospectors' licences, and the subst.i.tution of one general licence to search for minerals, on which a stamp duty of 2s. 6d. per month should be charged. When minerals are found and a public digging has been proclaimed, licence-moneys of 2s.

6d. per claim per month should be paid on Government land, and 5s. on private land till the producing stage is reached. After that date the old licence of 1 would come into force.

The Transvaal Legislature will shortly be called upon to consider a new Gold Law based on the report of the Commission, of which I have sketched the chief features. Of almost equal importance, in the light of recent discoveries, is the new Diamond Law, where substantially the same questions of principle are involved. Owner, discoverer, and State should have a fair share of profit--but especially the State. We are none too well off in the ordinary course of things to be able to afford to neglect our windfalls. A serious and permanent increase of revenue can come only from a gradual increase of producing activity; but, apart from permanent needs, many occasions will arise for capital expenditure in reproductive works which are vital to progress. A windfall is a development loan without guarantee or interest or sinking fund to burden the mind of the Exchequer.

The other direct taxes are so few and unimportant that they may safely be neglected. But it is necessary to face the question of adjustment and new taxation, for the time may come when it may be expedient to lower many of the existing duties and to revise thoroughly railway rates, and it is desirable to have alternative proposals to meet the decline of revenue which will follow. It may be desirable, for instance, to abolish wholly the present charge on dynamite, as it most certainly will be necessary to lower still further the cost of transit on the railways. But new taxation must be imposed with the greatest caution. The present population of the Transvaal pays in indirect taxes 10 a-head as against 2 at home; the field for direct taxation is therefore strictly circ.u.mscribed. To certain taxes the road is barred. A land tax, however light, would bear heavily upon the impoverished rural districts, and in any case is impossible under the Terms of Surrender. An income tax would make life unbearable if the limit of exemption were low, and if the limit were high the yield would be inconsiderable. A general profit tax on the earnings of both companies and individuals may become feasible in time, but we must first await the return of normal conditions of life. One way may be found in increased native taxation, a matter which, as it is bound up with other questions of native policy, is discussed in another chapter. But the object of all new taxation must be to strike at the untaxed and unproductive elements in society, for reasons quite as much political as economic. On this ground two taxes seem just and desirable, though there are certain obvious difficulties to be surmounted before they can be levied. The first is a tax upon unoccupied lands, a quite possible and equitable tax which would meet with little real opposition. Land companies in the Transvaal alone possess some 12 million acres, the bulk of which has been bought for supposed mineral values. Not 10 per cent of the land is occupied, and nearly 50 per cent is capable of occupation of some kind. Quite apart from revenue considerations, a tax which would compel settlement, or, failing that, would drive some of the more obstinate companies to put good land in the market, would be sound policy. What applies to the companies would apply to the private landowner who has his half-dozen farms, and lives in a corner of one of them. _Latifundia_ bid fair to be among the curses of the land, unless proper measures are taken to check them in time; and if this is done, the land troubles of the Australian colonies and their confiscatory legislation will be saved to South Africa. The machinery would be simple. A permanent commission would have to be established (the judicial committee of the Central Land Board, provided for in the Settler's Ordinance, could do the work). Each owner of unoccupied land would be summoned before it to state his case. He might show that three-fourths of his land was at the moment incapable of occupation, in which case he would only be a.s.sessed on the remainder. The tax might be an _ad valorem_ tax of 2 or 3 per cent. A day might be fixed, say eighteen months from a.s.sessment, when the tax would come into operation. In case owners proved refractory and preferred to pay the tax, it might be increased on a sliding scale till settlement became compulsory. There would be no hards.h.i.+p to company or individual, since only land for which a white occupier could be found would be a.s.sessable for the purpose. The second tax is of equal importance but far greater complexity. The most difficult person to reach in taxation is the holder for the rise, the speculator who is nothing else, the great cla.s.s which toils and spins not and grows fat on the energy of others. The basis of his activity is the quotation of shares, and a tax to affect him must be in relation to such market values. You cannot introduce a too c.u.mbrous machinery without acting in restraint of legitimate trade, quite apart from the fact that most of the business is done with bearer shares which pa.s.s through fifty hands before registration. But it might be possible--it is a problem for a revenue expert to decide--to affect this cla.s.s indirectly and curtail its activity by a tax on the profits of companies based on the average quotation for the preceding year. At the best it would be only a half measure, for it would be limited to dividend-paying companies, and the energies of the middleman are chiefly exercised on companies whose profits are still wholly speculative. But with all deductions there seems to be a chance of revenue in such a tax, and a certain general economic value. The tax, again, would be limited to new issues, for in the case of old issues, even when the shares stand at 1000 per cent premium, a high dividend may represent a very moderate dividend on the capital of the investor who bought in when shares were high. If the dividend of a new issue justified a high quotation, the quotation would be high in spite of the tax, but the existence of the tax would tend to keep down the speculative quotation to some reasonable relation to former dividends.

If dividends declined, and the quotation fell, the tax would go automatically out of existence. Such a tax, if possible, would not yield in normal years a great revenue, but it would have certain salutary and permanent effects. It would touch companies only in a high state of prosperity. It would indirectly touch the man who buys not for dividends but to realise by taking away in some part the basis of his speculations. It would exercise a steadying influence upon the market, and prevent, at least in one cla.s.s of security, fict.i.tious rises. But as a means of revenue its position would be really that of a windfall, for it would enable the Crown to profit largely out of any period of great financial excitement. A boom, so eagerly desired by all but in many of its results so maleficent, might be delayed by its agency; and if it came, as no doubt it would in spite of any ingenious taxation, and share values became blindly inflated irrespective of past or present dividends, the Government would perform that rarest of feats, and derive an honest profit from the vices of the mult.i.tude.

The Transvaal, till the other day, was the only important South African state not included in the Customs Union. Its customs law was No. 4 of 1894, amended by Ordinance 22 of 1902. The basis was an _ad valorem_ tax of 7-1/2 per cent on all goods brought across the border, with an addition of 20 per cent to the valuation price for the purpose of the tax in the case of goods directly imported from over-sea. The purpose of this provision is obvious, since to goods bought at the coast the cost of over-sea freightage and handling is added in reaching the price on which the tax is a.s.sessed. But to this general duty there were two important exceptions. There was a lengthy free list, which included, in addition to goods imported for Government use, all live stock, books, tree, flower, and vegetable seeds and plants, tools and effects of immigrant mechanics, fencing material, mining and agricultural machinery, cement, and unmanufactured woods.

There was also a list on which, in addition to the general 7-1/2 per cent, special duties were charged. Beer paid 3s. per gallon, dynamite 9d. per pound, gunpowder 6d. per pound, spirits from 14s. to 1 per imperial gallon, manufactured tobacco 3s. per pound, leaf-tobacco 2s.

per pound (when brought from over-sea), wine from 4s. to 12s. 6d. per gallon. The tariff was therefore moderately protectionist. Most articles necessary for the great industries were free; articles of common use were subject only to the _ad valorem_ duty; while articles of luxury, and especially all fermented liquors, were subject to a fair but not excessive special tax.

The difficulty was that the tariff was not a fair guide to the real taxation of imports. The Transvaal has no seacoast; all her imports have to be landed at the ports of other colonies or states, and carried to her borders by alien railways. Moreover, all the seaboard colonies, as well as the Orange River Colony, were banded together in a Customs Union, from which she was excluded. A tariff hostility was therefore smouldering on, which gave acute annoyance to the Transvaal importer. I will take two instances of purely predatory imposts. The coast colonies levied a so-called transit due of 3 per cent on dutiable articles for the Transvaal, a due which was the same in principle as the levies which the barons of the Rhine used to make from the harmless merchants pa.s.sing through their borders. Again, in the case of the Orange River Colony, the only inland colony in the old Customs Union, the duties were collected at the coast ports, and a collecting charge was made, which was simply another form of the transit due. At one time the charge was as high as 25 per cent of the duties collected; but on the pet.i.tion of the Orange River Colony it was afterwards reduced to 15 per cent. How far such a rate was from representing the real cost of collection is shown by the fact that the Transvaal duties were collected by the coast colonies from the occupation of Pretoria to the end of 1901 at a charge of only 2-1/2 per cent.

The Transvaal had thus a tariff in itself reasonable, but she was embarra.s.sed by her isolation. It was obviously desirable that she should enter into the Customs Union, which would then comprise the whole of South Africa, for if federation is ever to become a serious policy it is well to begin by throwing down economic barriers. But economics have an awkward way of overriding all other considerations, and the entrance of the Transvaal into the Union could only be a matter of hard business--give and take on both sides. The interest of the two parties was on this matter far apart. The coast colonies are agricultural and pastoral, and their ports are forwarding depots. They are frankly protectionist, and their customs have always been their chief source of revenue. The Transvaal is industrial, and for the present a free-trader; she must have cheap food, cheap raw material, cheap necessaries. While at the moment customs form the largest item in her revenue, it does not overshadow all others, and in time it is probable that it will sink to a second place. The question was, therefore, What of her present tariff would the Transvaal relinquish to meet the wishes of the Union, and what compensating advantages could she expect from her members.h.i.+p?

The Bloemfontein Conference of March 1903 prepared a Customs Convention, which has since been ratified by the several states, and the old Customs Union has been amended and extended to include the whole of British South Africa. How far has this act improved the economic position of the Transvaal? In the first place, there is one solid gain, the abolition of the transit dues, estimated at between 250,000 and 300,000 per annum. There is, too, a gain in the mere fact of union, and the freedom which it gives from the incessant bickerings of conflicting tariffs. Since her duties are collected by the coast colonies at the moderate charge of 5 per cent, a saving may also be effected by the reduction of the customs establishment on her borders.

The benefit which she has conferred in return is the opening of her markets without restraint to the products of British South Africa, an opening which should amply repay the coast colonies for the reduction in the protective tariff from over-sea. The actual tariff charges are in the nature of an elaborate compromise. To take first the case of the simple food-stuffs. In 1898, under the old Transvaal tariff, imported flour paid in duty 26,955, and imported mealies 16,290. Under the old Union tariff they would have paid respectively 114,068 and 69,332--a difference of over 400 per cent. The old Union rate was 2s. per 100 lb.

for grain and 4s. 6d. per 100 lb. for flour, while the old Transvaal rate was an _ad valorem_ duty of about 9 per cent. It was impossible that either party could accept the other's rate, so the present solution of 1s. for grain and 2s. for flour may be taken as a satisfactory compromise, which an industrial country could support. It must be further remembered that all food-stuffs produced elsewhere in South Africa enter free, and that the cost of bread under the new system will be if anything reduced. Article XV. of the Convention gives the Transvaal a further power in times of scarcity to suspend the duty on food-stuffs altogether, and give a bonus to imports of the same cla.s.s produced in the neighbouring colonies. The ordinary manufactured article, which in a non-manufacturing country plays as large a part in the cost of living as bread, is also reduced for the purchaser. It pays an _ad valorem_ duty of 10 per cent, which at first sight seems higher than the old rate of 7-1/2, which with other charges worked out in practice at about 9. But 2-1/2 per cent must be deducted on account of the 25 per cent preferential rate for British goods, and with the abolition of the transit dues the actual duty will work out at between 7 and 8 per cent. Raw material and the necessaries of industry remain much where they were under the old tariff, which was highly favourable to them; but the charge on dynamite has been reduced from 9d. a-pound to 1-1/2d., which is a reduction of over 30s. on the 50-lb. case.

A mere comparison of tariffs does not show the real cheapening of the necessaries of life; for to get at the practical effect, the abolition of the transit dues, the reduction of railway rates, amounting to at least 300,000 per annum, and the preference rate on British goods, must all be considered. Under the old tariff and railway rates every 100 lb. of flour from Port Elizabeth to the Transvaal paid 9d. to the Transvaal in duty. The freight was 6s. 2d., so that it paid altogether in charges 6s. 11d. Under the Convention the same quant.i.ty of flour will pay 2s. in duty and 3s. 9d. in railway rates, so that, in spite of the higher duty, the charge is only 5s. 9d.,--a saving to the Transvaal consumer of 1s. 2d., and a gain to the Transvaal treasury of 1s. 3d. There are many instances of a similar kind. Ordinary groceries will be reduced by about 3 per cent, paraffin by 1s. 6d. a case, grease by 2s. 6d. per 100 lb., cement by 2s. 9d. a cask. Tea and coffee, on the other hand, show a slight increase. In one branch there is a very marked increase, and an exception to the inter-colonial free trade, which is the basis of the Convention. Each party to the Union is ent.i.tled to levy on the importation of spirits distilled in and from the produce of places within the Union a duty equal to any excise duty which it may levy on spirits made within its own borders. In the Transvaal there is no excise, for the manufacture of spirits is wholly forbidden. It is of the most urgent importance to keep fermented liquors out of reach of the native population, and to suppress all illicit traffic. The importation of Portuguese spirits has been stopped by treaty, and it was clearly impossible for the Transvaal to consent to the importation of spirits on easier terms from the other British colonies. The concluding paragraph of Article XVII., therefore, provides that "where a prohibition exists in any colony or territory of the Union against the manufacture of spirits for sale, it shall be lawful for such colony or territory to levy on spirits produced within the Union a custom duty not exceeding that levied on similar spirits produced outside the Union." The duty in force is therefore from 15s. to 1 per imperial gallon in addition to the 10 per cent _ad valorem_ rate; which, it has been calculated, is an increase on the former cost of from 4s. to 6s. per case.

The new Union is therefore almost wholly in the favour of the new colonies. The cost to the consumer is lessened, but the revenue does not lose appreciably, since charges, formerly diverted by the coast colonies, now go to its coffers. The coast colonies, in an admirable spirit of statesmans.h.i.+p, have consented to surrender a part of their revenue in order that the chief industrial market of South Africa might be open to their people--an example of that policy of foregoing certain revenues on a narrow basis for the sake of a possible revenue in a wider field which is of the essence of good government. The preference given to British goods, while still further reducing rates in favour of a large cla.s.s of imports, is also a step towards federation, which does not, as such experiments are apt to do, militate in any serious way against local commerce. The one person who might complain is the farmer of the Transvaal, who sees his markets thrown open to the old grain-lands of Cape Colony; but if the long railway journey which his rivals have to face is not a sufficient handicap to enable him to hold his own, then we need not lament his fall. Vital as agricultural progress is, it cannot hope for protection at the expense of industrial prosperity.

The normal expenditure of the Transvaal may be taken roughly at 3,600,000. This figure is exclusive of debt charges, or any capital outlay on development which may be met out of revenue. It represents merely the day-to-day cost of the administrative machine. As revenue is enlarged the expenditure will follow suit; but it is unlikely that the proportion of costs to receipts, which is roughly three to four, will ever increase. On the contrary, it might be considerably reduced by a more complete administrative decentralisation. At present there are a number of isolated departments--Native Affairs, Lands, Mines--with local representatives wholly independent of each other, and responsible only to the heads of their departments. The resident magistrate, who is really an administrative official, since the legal work is done by the a.s.sistant magistrate, and who as a rule is not a lawyer, has a very narrow control over a few subjects like local government and public health. The system is wasteful both of money and energy, for the isolated departments often overlap unconsciously; and since there is no local check, the tendency is for the head of a department to increase his local staff and to vie with other heads in securing large estimates. It also means that a constant inspection has to be kept up from headquarters, and each department supports a force of travelling officials. The Indian precedent might be followed with advantage, and real heads of districts established, who would have a control, direct or indirect, over all administrative work. They should be responsible for the efficient and economic working of their district, prepare their local estimates and reports, and answer for their work only to the Governor and Council. The great departments would exist as before, but their local staffs would be much reduced in number, so far as such staffs were administrative and not intrusted with expert work. Experts, such as inspectors of machinery, customs officers, and veterinary surgeons, would remain directly responsible to their own departments, though over these also the district administrator would exercise a general supervision. In this way a very considerable saving would be effected in salaries, the unnecessarily large force of travelling inspectors could be reduced, and the friction which inevitably attends the working of isolated and independent officials in any district would be saved by the establishment of responsible heads,--deputy administrators, whose business it would be to supervise all district Government work, and control all local expenditure.

III.

The natural a.s.sets of the country and the existing fiscal system have been roughly sketched in the foregoing pages. It remains to consider what burden these two factors in collaboration are called upon to bear.

In view of the peculiar situation of the new colonies, the necessity of a loan for development is sufficiently obvious. The country was desolated by war. Large sums were necessary for compensation to loyalists and for the repatriation of the Dutch inhabitants. The backward system of our predecessors had left public works ill provided for in most places, particularly in the country districts. If the wealth of the provinces, mineral and agricultural, was to be exploited, and the existing industries granted reasonable facilities for progress, a heavy expenditure was imperative for railway extension. If the rural parts were to be developed and their population leavened with our own countrymen, considerable sums must be expended on settlement, and on such reproductive schemes as forestry and irrigation. Finally, certain heavy liabilities awaited the incoming Government. To buy out the existing railways and repay certain military debts and advances from the Imperial Treasury, fully 14 millions were required. The old debt of the Transvaal, amounting to 2-1/2 millions, which carried 4 per cent interest, must be paid off, and the capital required for the repayment made part of a new loan at an easier rate. The liabilities and needs of the country stood therefore as follows: An advance by the Imperial Government to cover the estimated Transvaal deficit of 1901-2, 1,500,000; the old debt of the Transvaal, 2,500,000; compensation to loyalists in Cape Colony and Natal, 2,000,000; the acquisition of the railways and the repayment of the existing railway debt, 14,000,000; repatriation[21] and compensation in the new colonies, 5,000,000; railway extension, 5,000,000; land settlement, 3,000,000; various public works, 2,000,000,--a total of 35,000,000. This is the sum comprised in the famous Guaranteed Loan.

But this figure, large as it is, does not exhaust our burden. During the year 1901 and 1902 the question of the contribution of the new colonies to the imperial war debt was keenly discussed both in South Africa and in England. Some fixed the payment likely to be required at as much as 100,000,000; others argued that the new colonies were likely to have so many burdens of their own that they could not be called upon to contribute at all. Moderate men on both sides saw that some contribution was equitable, but asked that it should not be fixed so high as to cripple development. There were various proposals, such as the ear-marking of certain sources of revenue and all windfalls, or the allocating of a certain proportion of any annual surplus; but such schemes were liable to the objection from the side of the Imperial Government that there was no certainty in the contribution, and from the side of the new colonies that there was no finality in the liability. The settlement which Mr Chamberlain announced in his speech at Johannesburg in January 1903 was, perhaps, the best possible in the circ.u.mstances. The contribution was fixed at 30,000,000, to be raised in three years by contributions of 10,000,000 per annum. The first 10 millions at 4 per cent were underwritten without commission by the great financial houses of the Rand, and there is no reason to doubt that if they are called to make good their guarantee, it will prove a profitable investment. It is difficult to overestimate the merit of an arrangement which tends to bind the great houses to a closer interest in the general development of the country. The War Loan was secured wholly upon the Transvaal, but there is a contingent liability on the Orange River Colony to pay a further sum of 5,000,000 out of the Government share of any discoveries of precious stones and metals.

We have, therefore, to face a total debt of 65,000,000, of which 35 millions at 3 per cent are a charge upon both colonies, and 30 millions at 4 per cent upon the Transvaal alone. It is a heavy responsibility for a white population of a few hundreds of thousands, face to face with a labour problem. That the world at large believes in the future of the country is shown by the way in which the Guaranteed Loan was taken up, the first 30 millions having been subscribed more than thirty times over. On this loan the interest charge, with 1 per cent sinking fund, will amount to an annual payment of 1,400,000: in three years time the War Loan, unless (which is probable) it can be issued at a lower rate than 4 per cent, will mean an annual charge of 1,200,000, with no sinking fund allowed. We have therefore in front of us a possible annual payment of 2,600,000, with a slight increase in the future when a sinking fund is provided.

The payment, large in itself, was made more difficult by the circ.u.mstances of the two colonies. The larger loan is secured on both, but while the Orange River Colony had a fair claim to a considerable part of the proceeds, it was clearly impossible that she should pay a share of the charge proportionate to her receipts. If she shared in the loan only to the extent of the annual contribution which on her small revenue she could afford, many important public works both of land settlement and railway extension would have to be abandoned.

Joined with this general administrative difficulty, there was a departmental one connected with the railways. The main line through the Orange River Colony had acquired, as one of the main feeders of the Transvaal, a purely fict.i.tious value, and the Orange River Colony profited greatly by the receipts. But to have within one system two types of line, one a through line simply, the other connected directly with the great centres of production and consumption, and to have those two types of lines used as revenue-producing agents for two different administrations, was to make a consistent railway policy impossible. The country of the through line, whose fict.i.tious value produced a very real revenue, would reclaim against reduction in rates for the benefit of the other.

Both difficulties have been met by a very ingenious scheme. The Inter-Colonial Council of the two colonies, created by Order in Council of 20th May 1903, is significant in many ways, notably as the first overt step towards federation; but for the present we may look upon it purely as a financial expedient. Two important departments, common to both colonies, were placed wholly under the administration of the Council--the Central South African Railways and the South African Constabulary; and a number of minor common services, such as surveys and education, were added, and power was given to the two legislatures to increase the number when they saw fit. A Railway Committee of Council forms the permanent controlling authority in all railway matters. All net profits of the railways in each year are a.s.signed to Council to form its revenues. Out of these it has to meet the expenditure of the Constabulary and the minor common charges, as well as the annual charge and management costs of the Guaranteed Loan.[22]