28. How did Einstein Help Create Eskom?
South Africa Industrialises
Just before the start of the First World War, Robert Millikan, professor of physics at the University of Chicago and a specialist in electron theory, travelled to Germany to present an academic paper. A few years earlier, in 1905, the scientist Albert Einstein had proposed a linear relationship between the wavelength of light and the maximum velocity of electrons emitted from irradiated metal. Einstein was developing quantum theory – and Millikan was adamant that he was wrong.
While visiting Dresden Millikan was introduced to a young researcher who had just completed his PhD. The young man was South African and could thus speak English – which is probably why he was asked to show Millikan around campus. They also shared a research interest, as the young researcher was also working on Einstein’s theory. In fact, Hendrik van der Bijl had already found why it was so difficult to prove: the high velocities that Millikan had discovered did not prove that Einstein was wrong, but rather showed that the test had picked up a stray field.
Van der Bijl must have explained to Millikan that his attempt to prove Einstein wrong was futile. He reported that the news was ‘a very great disappointment to [Millikan] but this disappointment was outweighed by the joy which naturally came to him as a true scientist when he found that my experiments confirmed the deductions from the Electron Theory. We remained great friends ever after.’1 Millikan went on to change his opinion about Einstein’s theory, and published a seminal paper confirming Einstein’s results in 1916, although without any credit to van der Bijl. In 1923 he received the Nobel Prize in Physics.
Millikan did, however, repay the favour. Just before war broke out in Europe, Millikan helped van der Bijl find a job at Western Electric in New York. Van der Bijl moved to the United States and soon began work on tube physics and electronics, technology that was used to build the first telephone line between New York and San Francisco. In 1914 he designed (without credit) the French TM and British R valve. Millions of these bulbs were produced. In 1920 he also published the seminal textbook on tube physics, which was used by a generation of students in American universities.
But van der Bijl had bigger things on his mind. Just as his textbook was published, he received an offer that would change the course of his career – and that of a country. It all started a year earlier. While South Africa’s prime minister Jan Smuts was negotiating the Treaty of Versailles, he had read a paper by van der Bijl.2 The paper was about how scientific research could be used to bolster industrial development. Smuts was so impressed that he invited van der Bijl to return to South Africa to become scientific and industrial adviser in the Department of Mines and Industries.
Much like the dreams that African independence leaders had for their own countries three decades later, van der Bijl’s vision for South Africa was for it to become an industrial power. And for private industry to flourish, he believed, South Africa required substantial investments in transport and electric power. Here the government could play a role.
He began by creating an electricity company – the Electricity Supply Commission (Escom, today Eskom) – in 1923. Although it was the first South African parastatal, van der Bijl made it clear that he would run the company as if it were a private company. Its initial investment would come from private and state loans. It had multiple goals. The main one was to produce cheap electricity to support the mining industry, the largest contributor to state revenues, which fuelled the government’s increasingly interventionist economic policies. Supporting the fledgling manufacturing industry was also a priority for him. At the same time, Escom was a way to provide employment for the thousands of ‘poor whites’ (a term largely used as a euphemism for Afrikaners at the time) who had moved to the cities in search of mining jobs but had lost out to lower-paid black labour. The sudden influx of large numbers of poor whites had political consequences; in 1924 the Pact government of the National Party and Labour Party, largely representing the interests of disgruntled white workers, came to power.
Fortunately, van der Bijl kept his job in government. And it did not take long before the new government adopted another of van der Bijl’s ideas. This was to build a steel company, seen as a further cornerstone of industrialisation as well as a way to employ poor whites. The Iron and Steel Corporation, or Iscor, was founded in 1928, also under the leadership of Hendrik van der Bijl.
Managing the two opposing goals – of providing cheap inputs to the economy and providing jobs to poor whites – was a complicated balancing act. Van der Bijl succeeded largely in only one of them: to produce cheap electricity and steel. In 1939, only sixteen years after Escom was created, South Africa’s total electricity output was six times greater than in 1922.3 Half of this was used by the mines, but a growing share (14 per cent) was also used by industry. Iscor began production in 1934, producing 103,666 tons of steel in that year. Four years later production had risen to 1,031,495 tons. On the other hand, despite promises that Iscor would employ ‘white labour entirely’, by the end of the 1930s more than half of all Iscor jobs were filled by black workers. At Escom, white workers formed 38 per cent of the labour force, which was the same share that white workers held in the rest of the economy.
But it was not only the state that contributed to South Africa’s industrialisation. In 1941, during the darkest hours of the Second World War, a young Anton Rupert invested £10 in his new Johannesburg firm, Voorbrand Tabakmaatskappy, a tobacco company.4 While some friends backed his decision by investing in it, others warned him against what they considered a terrible decision for someone with so much potential: why would anyone want to take on the behemoth United Tobacco Company, which controlled 90 per cent of the industry? But Rupert was emboldened by a new spirit in Afrikaner society. The 1938 centennial celebrations of the Great Trek had caused a cultural awakening. The first order of business discussed and debated in several ‘congresses of the people’ was the weak economic position of the Afrikaner. One estimate was that Afrikaner-owned businesses accounted for just 5 per cent of total output of trade, industry, finance and mining. Another estimate was that Afrikaner incomes were only 60 per cent of those of white English-speaking South Africans. This needed correction, Rupert believed, and the only way to do so was to get one’s hands dirty.
Only four years after Rupert entered the tobacco industry he also invested in a struggling wine operation. He had little capital of his own, so he drove around the countryside persuading farmers to invest in his company. Almost all investment came from other Afrikaners, and in this way Distell was born.5 Rupert’s success came through partnerships. The company Voorbrand became Rembrandt through building a relationship with the UK-based Rothmans. Rembrandt would later turn into Richemont, acquiring luxury-goods brands such as Cartier, Alfred Dunhill, Vacheron Constantin and Montblanc. In 1945, the year the war ended, Rupert moved to Stellenbosch to be closer to his wine business – he had spent sixty-nine nights on the train between Johannesburg and Cape Town in the previous year. He purchased a house for 12,200 rand. Had the seller invested that money in Rupert’s company, he would have owned 300 million rand’s worth of shares by the turn of the century.
Although Rupert is the poster boy of the rise of Afrikaner entrepreneurs in the 1940s and 1950s, there were many others. In 1955 Renier van Rooyen purchased a single store – Bargain Shop – in Upington, a town in South Africa’s Kalahari desert.6 A decade later, after having established branches in several towns, he renamed the business Pep Stores, a company that would become a retail clothing giant. The question is whether the success of these Afrikaner entrepreneurs was due to state support – especially after the 1948 election victory of the National Party, which explicitly supported Afrikaner interests. There is no doubt that a black entrepreneur with the same talent, dedication and fortitude as Anton Rupert or Renier van Rooyen would not have been able to reach the heights they did. There were simply too many barriers in the way of black entrepreneurial success in South Africa at that time.
But it is also true that few of these Afrikaner business empires were built through government subsidies or tenders. Rupert’s ideas about racial ‘coexistence’, a policy to replace apartheid, provoked the ire of the father of separate development, Hendrik Verwoerd, and subsequent apartheid leaders. In the 1970s Pep Stores built a thriving business in coloured neighbourhoods, selling shares to 871 coloured investors. When the scheme ended in the 1980s, eighteen years after it started, those investors received a return of 7,000 per cent on their initial investment.7 Government and the profit motive of private business often did not see eye to eye. More interested in securing votes, the apartheid government was more enamoured of the white trade unions, which, in turn, were more interested in protecting white jobs than in growing the economy.
State support, instead, was directed at parastatals. In 1940 van der Bijl founded the Industrial Development Corporation (IDC), and two years after his death, in 1950, the IDC established Sasol. The plan was to produce oil from coal, an ambitious scheme with unproven technology that for much of the 1950s seemed a futile exercise. There was growing international pressure to isolate and sanction South Africa, especially after the Sharpeville massacre of 1960 in which police killed sixty-nine peaceful protesters, and the government’s consequent desire for self-reliance ensured that Sasol continued to receive the financial and scientific support it needed to succeed. Success – the production of synthetic fuel – not only brought self-reliance but also esteem; it gave rise to what the historian Stephen Sparks has called a ‘techno-nationalist “pioneering” discourse that celebrated the toil and ingenuity of South African engineers and scientists’.8
Self-reliance meant the production not only of oil, but also of weapons. In 1968 Armscor was established to manufacture armaments. In the 1970s and 1980s Armscor engineers produced six nuclear weapons, all of which were scrapped by F. W. de Klerk in 1991. South Africa remains the only country in the world to have voluntarily dismantled its own nuclear arsenal.
Many of these state companies would eventually become private enterprises. Sasol was the first to do so, partially in 1979, and fully in 2000. Iscor was sold for $3 billion in 1989. Denel was spun out of Armscor in 1992. Telkom, the telecommunications company that was created from the former Department of Post and Telecommunications, was partially privatised in 1996.
Such privatisations often have political consequences. Although we don’t have evidence for South Africa, the authoritarian regime of Augusto Pinochet in Chile provides a relevant example. During his dictatorship from 1973 to 1990, Pinochet privatised several state-owned entities at prices below market value, often selling these companies to individuals closely connected to him.9 Once democracy arrived, these firms invested in lobbying the new government, financing political campaigns, employed former politicians and finding ways to avoid paying taxes. Privatisation without the necessary regulatory and institutional framework to increase competition may invite the same inefficiencies often criticised in state-owned entities.
Should we consider the South African parastatals set up during the twentieth century a success? As I explained above, there is little doubt that they contributed to increasing South Africa’s industrial output. But the more important question is: At what cost? Sasol was ‘a parastatal funded by taxpayers’ money with an official regulatory regime heavily skewed to its advantage’, Sparks concludes.10 What would have been the case had the apartheid government not supported Sasol? Would entrepreneurs have filled the gap? It is unlikely that private capital, with its shorter time horizon, would have been willing to support the development of a technology that would only yield dividends a decade after its establishment. But then again, what other technologies could have been devised with the resources used to prop up Sasol for a decade? Imagine that funding going to universities or scientific institutions instead, or, through lower taxes, back into the pockets of visionary entrepreneurs like Rupert or van Rooyen, or to close the large funding gap between white and black education.
We will never know, of course. That is why counterfactual history is such a perilous scholarly exercise; as Einstein allegedly said, ‘a man should look for what is, and not for what he thinks should be’. What we know is that South Africa industrialised because of state-led investments in infrastructure and science that allowed (white) entrepreneurs to flourish. These state-led investments were run on business principles and on belief in the benefits of science but were funded through high taxes on mining profits rather than by excessively taxing agriculture, as was the case in Latin America and elsewhere in Africa. As we will discover in the next chapter, those high mining profits depended on one critical element.
Dirk Vermeulen. 1998. The Remarkable Dr. Hendrik van der Bijl. Proceedings of the IEEE, vol 86, no 12, 2445-2454. at 2448↩︎
The Nobel laureate for Chemistry Lord Todd, Master of Christ’s College at the University of Cambridge, said in 1970 that ‘in 500 years of the College’s history, of all its members, past and present, three had been truly outstanding: John Milton, Charles Darwin and Jan Smuts.’↩︎
N. L. Clark, Manufacturing Apartheid: State Corporations in South Africa (New Haven: Yale University Press, 1994), 103.↩︎
E. Dommisse, Anton Rupert: The Life of a Business Icon (Cape Town: Tafelberg, 2024).↩︎
The Dutch brewing company Heineken acquired Distell in 2023.↩︎
A. Ehlers, Renier van Rooyen and Pep Stores Limited: The genesis of a South African entrepreneur and retail empire, South African Historical Journal, 60 (3), 2008, 422–51.↩︎
A. Ehlers, Business, state and society – doing business apartheid style: The case of Pep Stores Peninsula Limited, New Contree, 63, 2012, 35–66.↩︎
S. J. Sparks, Apartheid modern: South Africa’s oil from coal project and the history of a company town (PhD thesis, University of Michigan, 2012), 7.↩︎
González, Felipe, Mounu Prem, and Francisco Urzúa. "The privatization origins of political corporations: Evidence from the Pinochet regime." The Journal of Economic History 80, no. 2 (2020): 417-456.↩︎
Sparks, Stephen. "Between ‘Artificial Economics’ and the ‘Discipline of the Market’: Sasol from Parastatal to Privatisation." Journal of Southern African Studies 42, no. 4 (2016): 711-724. at 724.↩︎