Johan Fourie's blog

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Make trade, not war: A solution to the Israeli-Palestinian conflict

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KissAs a general rule, don’t build a wall. Walls leave scars, not only on the landscape but, more importantly, in the mind of those on both sides of it. They are seeds of exclusivity, of ignorance, of arrogance. They provoke anger, destroy trust, and impede any attempts at conciliation between disputing factions. Building walls is never a sustainable solution.

Nowhere is this more clear than in the current conflict between Israel and Palestine. A wall of separation – called the anti-terrorist barrier if you ask the Israelis and the anti-apartheid wall if you ask the Palestinians – has kept the two groups apart, and has prevented any possibility of peaceful co-existence. In fact, it has spawned greater antagonism on both sides: the current conflict has claimed the lives of countless people, mostly Palestinians, owing to the superior defensive and offensive capabilities of the Israelis. (For an excellent, quick and somewhat violent overview of the history of the region, watch this.) What is clear is that the wall has not solved anything. It was built with the purpose to lessen the ‘frictions between people’; in truth, it has only prolonged (and perhaps deepened) the conflict.

Surprisingly, South Africa never had an anti-apartheid wall of its own. While government policy dictated that certain areas were designated for certain race groups, permanent walls separating districts or cities were never constructed to keep people out, or in. I suspect an important reason for this was economic: white South Africans were too dependent on black South Africans to afford complete isolation. In fact, the realisation that both groups depended on another for a better life was one of the key reasons the apartheid policies eventually failed, and which made a peaceful transition possible. Had South Africa had walled-off regions of white and black exclusivity with little interaction between them, a full-scale civil war would have been far more likely.

Another example comes from twentieth-century Europe. After World War I, Western Europe failed to integrate economically. The heavy debt imposed on Germany devastated their economy, and the Great Depression of the 1930s increased trade barriers between countries, reducing cross-border European trade further, hurting the already struggling German economy and giving rise to the radical nationalism of Hitler. The only consequence was another war. After World War II and its incredible suffering which must have created an immense urge for retribution on both sides, European leaders acknowledged that further isolation will only sow the seeds of future unrest. Instead, the foundations of the European Union was formed, relaxing and later removing trade barriers between France and Germany, the two largest countries of Western Europe and on opposite sides of the war. Today, only 60 years later, because of the dense economic integration in Europe, the idea of war in Western Europe is utterly implausible.

Better leadership is often mentioned as the only way to solve the current Israeli-Palestinian conflict. And it is true that in the case of South Africa, Nelson Mandela and FW de Klerk played an immense role in ending the period of apartheid and creating the conditions for a smooth transition to democracy. But I doubt whether talks between Khaled Mashaal of Hamas and Benjamin Netanyahu of Israel would yield any positives without an understanding that the survival, and indeed the prosperity, of the other depends on their sustained cooperation and integration. The distrust, enmity and racism on both sides cannot be eradicated without their interaction, and there is no better way to halt interaction than by building a wall.

Axe has a new advert – #KissForPeace – which tells us, much like the hippies of the 1970s, to ‘make love, not war’. But love and peace won’t happen if there is no incentive for it. If South African (and twentieth-century European) history has taught us anything it is that centuries of racial prejudice (and the threat of conflict) can only be solved with deeper economic integration and repeated human interaction. Only once people realise how much they stand to lose if they hate, will they begin to accept peace. And once they realise that the ‘other’ is not all that different, in fact, that life is better with greater diversity, they may also begin to love.

The wall of separation between Israel and Palestine has only exacerbated the tension. As difficult as it may seem currently (and perhaps this conflict has moved the struggle beyond the point of no return?), tearing down the wall and allowing the movement of goods, services and people across the border is the only enduring solution to the Israeli-Palestinian conflict. Make love peace trade, not war.

Who would want to work three hours a day?

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Hard work: John McEnroe, Novak Djokovic and Richard Branson enjoying the lives of the leisure class

Hard work: John McEnroe, Novak Djokovic and Richard Branson enjoying the lives of the leisure class

I find holidays paradoxical. The thought of sitting on a beach, staring over the ocean and watching the sun set seems like a great way to spend a Friday evening after a productive week of work, but to do so for a week or two – or even a month – seems, to me at least, a frightening prospect. And do what? Listen to the waves. Oh okay, I’m listening. And then? No, listen. Switch off. Think of nothing but the waves. Hmm, okay. Tik tok. And now? As soon as I’m on holiday, there’s an urge to want to be productive.

I’m being unfair to beach holidays, of course. Every December I spend at least a few days on the beach, soaking in the southern sun, and reading my too long list of books. It is paradise. But I do sometimes wonder about the idea of leisure: what is its purpose and how to best use ‘free’ time, i.e. time not spent working? I’m not only thinking about it because I’ve just been on holiday (which made me think about the value of leisure time) but because I’m reading a book in which a couple of leading economists predict the future. Their predictions are fascinating and not all positive, but one of them, the idea of more leisure time, had me thinking: do we really want a 3-day work-week? What would we do with all our free time? Richard Branson, founder of Virgin, suggested the same thing in a post yesterday:

New innovations will drive industries forward, but they will also reduce our reliance on people power. Ideas such as driverless cars and drones are becoming a reality, and machines will be used for more and more jobs in the future. Who knows, maybe even pilot-less planes, could become reality one day! On the face of it, this sounds like bad news for people. However, if governments and businesses are clever, the advance of technology could actually be really positive for people all over the world. It could help accelerate the marketplace to much smarter working practices. The idea of working five days a week with two day weekends and a few weeks of annual holiday is just something people accept. For some reason, it is considered set in stone by most companies. There is no reason this can’t change. In fact, it would benefit everyone if it did.

The trade-off seems straightforward: More work means higher incomes, which in turn means a greater ability to consume. Better technologies would mean that we can do the same work faster, so instead of working five days a week, we can get the same work done in three days. More time for leisure, right? Well, not exactly. What if ‘work’ provides some utility? What if you have a job that you actually enjoy: not always, of course, but a job which brings success and a sense of self-worth. (Just consider someone that is unemployed. It is not only the fact that they do not have an income that matters; it is that their skills are unwanted by anyone else.) In addition, leisure – let’s think of travelling, for example – is costly. So having a long weekend every weekend may not sound so appetising if you think about what it might do to your wallet. More importantly, what if what we do is not about maximising our absolute utility – i.e. obtaining a certain level of income that would satisfy our basic needs – but instead maximising our relative utility, in other words, keeping up with the Joneses (or the Kardashians). In this case we would be forced to spend more hours working harder to reach the top of the status ladder.

It is for this reason that John Maynard Keynes’s prediction, made a century ago, has not been realised. While he correctly predicted that living standards would vastly improve, he believed that we would spend a considerable larger amount of our time on leisure. (In technical terms, he overestimated the backward-bending labour supply curve.)

Thus for the first time since his creation man will be faced with his real, his permanent problem – how to use his freedom from pressing economic cares, how to occupy the leisure, which science and compound interest will have won for him, to live wisely and agreeably and well.

The strenuous purposeful money-makers may carry all of us along with them into the lap of economic abundance. But it will be those peoples, who can keep alive, and cultivate into a fuller perfection, the art of life itself and do not sell themselves for the means of life, who will be able to enjoy the abundance when it comes.

Yet there is no country and no people, I think, who can look forward to the age of leisure and of abundance without a dread. For we have been trained too long to strive and not to enjoy. It is a fearful problem for the ordinary person, with no special talents, to occupy himself, especially if he no longer has roots in the soil or in custom or in the beloved conventions of a traditional society. To judge from the behaviour and the achievements of the wealthy classes today in any quarter of the world, the outlook is very depressing! For these are, so to speak, our advance guard-those who are spying out the promised land for the rest of us and pitching their camp there. For they have most of them failed disastrously, so it seems to me – those who have an independent income but no associations or duties or ties – to solve the problem which has been set them.

I feel sure that with a little more experience we shall use the new-found bounty of nature quite differently from the way in which the rich use it today, and will map out for ourselves a plan of life quite otherwise than theirs.

For many ages to come the old Adam will be so strong in us that everybody will need to do some work if he is to be contented. We shall do more things for ourselves than is usual with the rich today, only too glad to have small duties and tasks and routines. But beyond this, we shall endeavour to spread the bread thin on the butter – to make what work there is still to be done to be as widely shared as possible. Three-hour shifts or a fifteen-hour week may put off the problem for a great while. For three hours a day is quite enough to satisfy the old Adam in most of us!

The decision to switch to a more leisure-filled life would presumably have important consequences for society too. Richer individuals would substitute income for leisure, meaning that inequality would fall. The poorer part of society will work harder until they attain a certain level of wealth, and then also begin to substitute income for leisure. But I just don’t see this happening. Perhaps we’ll leave the dull, mind-numbing tasks for computers and robots, but we’ll certainly continue to work. Look at the richest individuals: do they work any less than us normal folk? Not really. Yes, they certainly enjoy a higher standard of living, with access to better medical services and larger houses and more travel and better education for their kids. But they don’t actually work less. The backward-bending supply curve only really kicks in once people reach retirement age.

The paradox of leisure is that we want to have the freedom to afford it, but when we do we choose more work instead. Even if we can ensure a minimum income to all citizens, either through something like a basic income grant or because a lot of things are now free as Michael Jordaan has argued, the truth is that ‘the old Adam in most of us’ (or is that Eve whispering in our ear?) will want us to work harder so that we can move up the social ladder (or at least avoid moving down). While we all need a holiday once in a while (or something besides doing what we normally do), I don’t see us working three hours a day and spending the rest sipping cocktails and watching the sunset over the horizon. Not even Richard Branson, who owns his own beach on his own island, does that.

 

Written by Johan Fourie

July 15, 2014 at 09:59

The second tragedy of Russel Botman’s death

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Dignitaries at the funeral of Prof Russel Botman. Photo: Denvor de Wee / City Press

Dignitaries at the funeral of prof Russel Botman. Photo: Denvor de Wee, City Press

The unexpected death of prof Russel Botman on Friday, 27 June came as a shock to the faculty and students of Stellenbosch University. I was on my first day of leave in the Kruger National Park, and with the little cellphone reception I had, I could see the hundreds of messages on Facebook and Twitter. Messages of thanks and support. Messages of hope that his legacy will be carried forward.

After a week in the Park, I returned yesterday and could finally read through the several obituaries written about prof Botman. Those written immediately after his death highlighted, as expected, his exceptional achievements in his fight against the apartheid structures, his rise as a leading theologian and his success at continuing the transformation process at Stellenbosch University. As one commentator mentioned, Botman often had to straddle two (or even three) worlds: balancing the diverse demands on Stellenbosch’s first black rector and vice-chancellor was no easy task even for someone as capable as him.

Yet what saddened me even more on my return was the clumsy and, in my reading at least, cynical attempts to link prof Botman’s passing to the apparent persistence of white nationalism. Here, for example, is the blurb to a recent article by Marianne Tham:

While family, friends, colleagues and dignitaries paid tribute to Stellenbosch Rector and Vice Chancellor Russel Botman at the weekend, Afrikaans singer and self-proclaimed activist, Steve Hofmeyr, triumphantly tweeted that he had just sung Die Stem to a crowd of 45,000 gathered at the “Innibos National Cultural Festival” in Nelspruit. While the two events may appear random and unconnected, they offer an entry point into an increasingly necessary national debate about the meaning of transformation in a constitutional democracy.

No, they don’t. They appear ‘random and unconnected’ because that is exactly what they are. Steve Hofmeyr and his Mbombela stadium of fans (in Mpumalanga) singing Die Stem is as representative of events at Stellenbosch University as Julius Malema and his cheering crowds in Marikana are of transformation debates at UCT. (The latter may actually be more representative, seeing that the EFF won a million votes in the recent elections, and 2.5% of the ward where UCT is located. Hofmeyr, remember, is a singer, not a politician.) Thamm, though, sees a correlation: “The hardening of attitudes among some Afrikaans speakers can be evidenced in the type of ‘activism’ popular [of] Afrikaans figures like Steve Hofmeyr’. No evidence is provided for this ‘hardening of attitudes’ at Stellenbosch. The best Thamm can do is to cite the report on initiation practices at North-West University. And a quote by an unidentified individual more than a decade ago.

Pierre de Vos, in his blog Constitutionally Speaking, makes exactly the same unfortunate generalisations. Fascinatingly, he starts with an anecdote of his experience at Stellenbosch in the late 1980s. His inability to register his religious affiliation as atheist in the late 1980s somehow has a bearing on initiation practices at North-West today. He then continues to argue that white, Afrikaans universities are unconstitutional because the exclude black students. Let me restrict my remarks to three short points: 1) As a good friend notes, Afrikaans != white, especially in the Western Cape. Check the census. 2) The Stellenbosch of De Vos in the 1980s is vastly different from the Stellenbosch of today. As I wrote a few weeks ago, Stellenbosch is transforming rapidly. Check the numbers. 3) The comparison with North-West and Stellenbosch is problematic. North-West has three campuses with one, Potchefstroom, teaching almost entirely in Afrikaans at the undergraduate level. Translation services are successfully used to accommodate non-Afrikaans speakers. In my faculty at Stellenbosch, all courses are offered in English and Afrikaans. At the graduate level in Economics, all instruction is in English. In that sense, Stellenbosch approximates Pretoria and Bloemfontein, two other universities where Afrikaans is taught (and which Pierre fails to mention). Check the facts.

Both authors disregard the transformation of the Stellenbosch campus over the last decade, much of it due to the work of prof Botman. Neither authors cite any statistics, which are readily available from the university website. Instead, they choose to use anecdotes and tweets to say something about the apparent unwillingness of Stellenbosch to transform. As with bad science, they seem to want to prove a point before they consider the evidence. At a time when we are supposed to celebrate the contribution of a fine leader, their sloppy journalism only leads to discord based on disinformation. That is exactly the antithesis of what Russel Botman stood for.

Written by Johan Fourie

July 8, 2014 at 07:46

The dangerous nationalism of Julius Malema

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No laughing matter: nationalism is a dangerous game Photo: Refilwe Modise

No laughing matter: Nationalism is a dangerous game. Photo: Refilwe Modise (The Citizen)

It’s ironic that Julius Malema, in his first speech in parliament yesterday, would reference Louis Botha, the first Prime Minister of the Union of South Africa. Here is what Mr Malema had to say about Botha:

This elite pact is reflected by the fact that the most prominent statue in this Parliament, is a statue of Louis Botha, and the one of Nelson Mandela is very small and is hidden behind the statue of Louis Botha. Louis Botha is not our Hero and cannot be a Hero of a democratic South Africa. He is a colonial warmonger, who fought for the exclusion of black and indigenous people from running their own country and affairs. Its people like this who made white South Africans think they are superior and if we continue celebrating them, we are equally perpetuating white supremacy. The statue of Botha outside this Parliament must go down, because it represents nothing of what a democratic South Africa stands for.

That statue represents backwardness and apartheid and therefore it belongs to the dustbin of history and to be replaced with a bigger statue of seaparankwe Rolihlahla Nelson Mandela. We will never have true friendship and peace if white minority still behaves like they are superior and we should remain inferior in our country. All black people continue to learn the languages of white minorities as part of our attempt to reach out to them and create friendship but with very little attempt from their side to at least learn one of our African languages because they have a wrong mentality that we must suck up to them.

These are some of the legacies people like Louis Botha have left us and it must be crushed,we must not celebrate anything that perpetuates white supremacy. As part of nation building maybe we need to harsh steps by not celebrating any white person who doesn’t at least know or make an effort to at least know one of our African languages because by not knowing our languages or our culture they are effectively perpetuating the stereotypes of white supremacy. If you have a white friend as black person and he/she doesn’t know your language or not taking initiative to learn your language that person is no friend at all.

Perhaps it would surprise Mr Malema to know that, almost exactly a century ago, one of the big debates in our country was about what it is to be South African. The Second South Africa War at the start of the century, which saw the savagery of concentration camps and scorched-earth tactics, was still fresh in the minds of South Africans. One political group, lead by Louis Botha and Jan Smuts under the banner of the South African Party, claimed that the two white races – as the Afrikaners and British were generally referred to – should reconcile and build a unified country. Their definition of South African was ‘inclusive’, at least in terms of their world view: it included whites from opposing sides of the War and, in the Cape, Coloured South Africans. (Because of the pseudo-science of race hierarchies at the start of the twentieth century, blacks, in South Africa, elsewhere in Africa, and in the Americas, were not allowed to vote.)

In contrast to this message of unification, a small group of Afrikaans-speaking whites began to assert that the only ‘true’ South Africans were those that distanced themselves from the British Empire, that wanted to see a South Africa independent from the British throne. These ‘true’ South Africans also had to have another trait: they could speak the emerging language of the locals that we would later call Afrikaans. Only by speaking Afrikaans did one show true loyalty to the country. The National Party would emerge from this second grouping, and even though their leader, JBM Hertzog, also favoured the more inclusive definition of what it is to be South African, the nationalist tendencies would finally win out, with the formation of the ‘Purified’ National Party, which, as we all now, gave us the policy of apartheid. Nationalism, in this case white nationalism, would have devastating consequences for the country. It is difficult not to draw historical parallels: a message of unification after an intense period of racial confrontation (the 1910s/1990s). The rise of organised labour against monopoly capital (1920s/2000s). The impetus to solve the social and economic difficulties of a depression (1930s/2010s). A rise of nationalism and the defeat of the moderates (the 1940s/2020s?). And then?

Just as the message of the white nationalists appealed to white voters in the 1940s, there is a reason Mr Malema’s message appeals to black voters. There is a common enemy (for Afrikaner nationalists, it was the British Empire, and when that turned out to not be scary enough, black South Africans; for Mr Malema and his nationalists, it is arguably white South Africans). And there is economic disenfranchisement (for Afrikaner nationalists, it was the ‘poor white problem’; for Malema, it is inequality). Much like the nationalist leaders of African countries that gained their independence in the 1950s and 1960s, Malema speaks directly to the hopes and aspirations of millions of people frustrated by the current economic stagnation. Even his speech is clothed in the same rhetoric. Here is Mr Malema last night: We “acknowledge and greet the millions of South African workers, the poor, and downtrodden and dejected masses of our people”. Here is Kwame Krumah, elected as the first president of an independent Ghana in March 1957: I am the “Hope of Millions of down-trodden Blacks, Deliverer of Ghana, Iron Boy, Great Leader of Street Boys”. Idi Amin called himself the “Conqueror of the British Empire in Africa in General and Uganda in Particular”, Malema calls for the “political, social and economical (sic) liberation of blacks in general and Africans in particular”. Yet both Kwame Krumah and Idi Amin caused tremendous hurt to their economies. Krumah nationalised key industries. He heavily taxed (black) export farmers. His idea of African socialism failed to deliver his followers from the perils of poverty. Ghana is now, with a working democracy and market reforms, finally realising its potential, the black star of Africa. Amin, in his attempt to rid Uganda of the ‘external forces’ (sound familiar?), expropriated land and assets from all whites and Asians, and forced them to leave the country. The economy collapsed and Uganda, one of the most beautiful countries on earth, has never really recovered.

There is a reason the statues of Louis Botha and Nelson Mandela stand outside our parliament. Both men fought for the reconciliation of different race groups. Both wanted South Africa to participate in the global economy. Both believed that education is the key to a better life for all. That should be enough reason to keep them in their place. But there is another reason for those statues: it is that we should learn from history never to open our society to the poison that is nationalism. Perhaps that is why Mr Malema wants us to forget the past.

Written by Johan Fourie

June 19, 2014 at 09:10

An ode to the beautiful game

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Ke Nako: At my first World Cup game in 2010, Cape Town stadium

Ke Nako: Before my first World Cup game in 2010, Cape Town stadium

They don’t call it the beautiful game for nothing. The FIFA World Cup, which kicks off on Thursday night when Brazil hosts Croatia, is, by all accounts, the most global of events. More than half of the global population will watch at least one game live. And there are many on-field clashes to whet the appetite: the finalists of South Africa four years ago, Spain and the Netherlands, face each other in the group stage on Friday night; the Rumble in the Jungle (England vs Italy play in the capital city of Amazonia on Saturday); Portugal vs Germany on Monday the 16th. Many pundits believe it is Brazil’s World Cup to lose. I don’t think they will have it that easy. Argentina, Germany and Spain are excellent contenders. Colombia, Uruguay, Chile, Holland and Belgium are good bets. But if I had to put money on an outside chance, I’ll go with France. And then there are the superstars who would want to shine on the world stage. Messi, Ronaldo, Robben, Neymar, Balotelli. New stars will be born – Paul Pogba (France), James Rodriquez (Colombia), Christian Atsu (Ghana) – and some will see their last flicker (Pirlo, Gerrard, Drogba). Yet the World Cup is not only about football teams or players. All across the world, Fantasy teams are being drafted. For the next few weeks, household schedules will change. Pubs and bars will be packed, the meeting place for new and old friends. There will be tears of joy and tears of sadness. Memories will be made.

As the excitement builds for the Brazilian party, I have to admit a certain nostalgia for what can only be described as one of the most memorable sporting events South Africa would ever host. And not only because South Africa did exceptionally well as a host, but because of the vivid memories I have of the tournament. See, Coetzee, Gustav and I traversed our beautiful country in search of the beautiful game. I was fortunate to attend eight games, driving roughly 5000 km to watch the likes of Spain, Holland, Brazil, England and Italy play. I have many memories of that road trip, but two stand out. The first is of watching South Africa play France in the final group game. Even though we had to win by three goals – which was nearly impossible against a good, if distracted, French side – that day in Bloemfontein will remain vividly for the exhilaration of the crowd. I know those vuvuzelas sounded on TV like a beehive on loudspeaker, but inside the stadiums they were awesome. Especially if you had a ‘conductor’, someone, usually on the upper end of the scale, who would, during a lull in the game, stand up, turn around and start blowing on his vuvuzela with a slow, marching beat. The challenge would be to see how many vuvuzelas he can recruit to his tune. Obviously, if there were several ‘conductors’, it’s one big cacophony. But in the case of that particular game, especially after South Africa scored first, the vuvuzela beat was, for a few minutes, in complete unison in a full stadium. We were one big army marching as one for our team. I knew then that there was no way France was ever going to win that game.

The second memory is of the Dutch beating Brazil in Port Elizabeth. Because we had arrived way too early, the three of us (with another friend, Willem), had waited patiently outside the area where the players would arrive. Brazil arrived first, the curtains of their bus closed so that there was no way to spot any of their superstars. In contrast, when the Dutch arrived, we could identify nearly every player. It was then that Coetzee made eye-contact with Wesley Snijder, the Dutch midfielder, who returned Coetzee’s wave with a smile and a nod. Wesley Snijder went on to assist both goals as the Dutch clawed their way back against an impressive Brazilian team. Coetzee still believes that the Dutch should thank him for his contribution to their win.

The World Cup was not only a personal highlight, but it did wonders for our country too. I don’t deny that some stadiums remain underutilized and perhaps should simply be dismantled. And I certainly don’t appreciate the way FIFA, the organising body, goes about its business. But the airport, rail and road infrastructure that had been planned in South Africa long before we won the bid to host the World Cup may still not be complete had the World Cup never happened. And the impact of the event on the image of South Africa, and Africa in general, I believe, has been larger than we might think. We’ve certainly seen an increase in tourism, especially from countries outside our traditional markets, like Argentina and Brazil. And even though three reputable sport economists, Thomas Peeters, Victor Matheson, and Stefan Szymanski, claim in a recent article published in the Journal of African Economies that the per tourist cost of the World Cup was much higher than the government claims, I still think that on a cost-benefit analysis we come out positive. (Peeters et al. make a rather strong assumption: they ignore any tourist arrivals from other African countries. If these additional tourists are included, the numbers change significantly.) I’ve written about this before, and said something along these lines recently to CNN Money.

During the 2010 World Cup, I was still unmarried and shared a flat with a friend. I was about to leave on a four month study trip abroad, and still had to write most of my PhD. And I still had not met Jerry (our cat). How things have changed! Unfortunately, I won’t be in Brazil for this year’s event. But I’m sure that, when the next World Cup rolls along in four years’ time, I’ll think back to 2014 and reminisce about the past four years, and perhaps to the memories created during the coming four weeks. Which means that World Cup is somehow more than a sporting event. It is a beacon that maps the lives of millions of fans around the world. A beacon that, as Simon Kuper writes, we share collectively, that unites us as a global community. And that is what makes it the beautiful game.

They say academic papers are boring. They obviously haven’t read these.

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Source: http://xkcd.com/1283/

Source: xkcd

Academic papers in Economics, with few exceptions, have titles that are best described as unappetising: ‘A Heteroskedasticity-Consistent Covariance Matrix Estimator and a Direct Test for Heteroskedasticity‘ zzzzzzzz. So I decided to give some of the most cited papers in Economics a clickbait make-over.* (I chose ten of the 100 most cited papers in Economics.) See if you can guess the paper – the link will take you to their respective Repec pages. And please add more ideas in the comments section.

When Michelle heard what her friends earned in New York, she decided to move there too. She never expected this to happen.

Daniel thought it was a great idea to buy insurance. Then he discovered this.

What is the recipe for economic growth? Finally, we have the answer.

His bank wouldn’t give him a loan. Then Joseph tried this.

My mother said to never trust an economist about the future. But sometimes – like this guy – they get it spectacularly right.

Mosquitoes killed millions of Europeans. This is what happened next.

One more reason to blame the French!

Janet Yellen takes her husband along when she wants to buy a second-hand car. Here’s why.

This guy committed a crime. Here’s why he should not be punished for it.

I laughed so hard when I saw this guy confuse correlation and causation. He should’ve just read this!

Some popular book titles have also been clickbaited. And to those looking for some clickbait inspiration, you can randomly generate your own here.

I doubt that Economics papers will get sexier titles in the near future. But the clickbait movement, whether you like it or not, is here to stay and will perhaps force scholars to sell their papers more overtly. A little bit of clickbaitism might indeed be necessary to attract a larger (non-academic) audience, and help close the gap between the profession and the real world.

*I thank Waldo Krugell for this idea. He introduced a paper on the ‘Spatial persistence of South Africa in the twentieth century’ with a clickbait title – ‘South Africa implemented apartheid. You would never have guessed what happened next’.

Written by Johan Fourie

June 4, 2014 at 10:10

The rhetoric of economic transformation

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Spot the entrepreneur: Oprah is not fabulously wealthy because of redistribution of wealth, but because she was a more innovative and efficient entrepreneur than her talk-show competitors

Spot the entrepreneur: Oprah is not fabulously wealthy because of the redistribution of wealth, but because she was a more innovative and efficient entrepreneur than her talk-show competitors

This week, Jacob Zuma, appointed for a  second term as president of South Africa, announced his cabinet. He will have 35 ministers and one deputy-president: I’m happy to see Pravin Gordhan move to the Ministry of Co-operative Governance and Traditional Affairs, where he can only improve the inter-governmental workings of provinces and municipalities.  Nhlanhla Neneis is our new Minister of Finance. He has been schooled for this position, but it remains to be seen if he can withstand the pressure to relax the fiscal reigns as Gordhan and Trevor Manuel did before him. Naledi Pandor returns to Science and Technology, a capable minister for an important if peripheral post, and Aaron Motsoaledi can continue the good work he has been doing in healthcare.

But, as expected, Zuma also rewarded his allies with new and important positions, in spite of some having atrocious track records. All and sundry agree that Tina Joemat-Pettersen had a terrible first term as Minister of Agriculture, Forestry and Fisheries (AFF). She has returned, now as Minister of Energy, a vital portfolio given South Africa’s inability to supply enough electricity for its growing demand. A sinister commentator might say that this appointment paves the way for even bigger corruption scandals in a department where massive public investments are urgently needed – think nuclear or fracking. The new minister in agriculture is Senzeni Zonkwana, long-serving head of the National Union of Mineworkers and president of the South African Communist Party. His deputy will be Bheki Cele, who was the National Commissioner of the South African Police Service until October 2011, when he was suspended from duty, due to allegations of corruption.

The appointments in the Agriculture, Forestry and Fisheries portfolio signal a strong emphasis by the president on land reform, which is part of his vision to ‘transform the economy’. Here’s an excerpt from his inaugural address:

Economic transformation will take centre-stage during this new term of government as we put the economy on an inclusive growth path. As the National Development Plan outlines, the structure of the economy will be transformed through industrialisation, broad-based black economic empowerment and through strengthening and expanding the role of the state in the economy.

So let me ask the obvious question: Is this really the best way to transform an economy? Does history suggest that this is indeed a road to economic transformation? Are there not better alternatives available?

But perhaps it’s best to start with a question of definition: what is ‘economic transformation’? I suspect it is not ‘transformation’ in the sense of an ‘industrial revolution’ that our president refers to. Because if you want an industrial revolution – as happened in England in the nineteenth century, and in the US in the early twentieth century, and in several Asian economies at the end of the twentieth century, and is happening in China now – it is not with affirmative action or expanding the role of the state in the economy where you would start. Instead, economic transformation is about encouraging entrepreneurs to imitate or innovate ideas, processes and technologies that will help businesses become more productive. It is the farmer adding another tractor and harvester, a digital irrigation system and genetically-modified seeds. It is the miner using improved drilling equipment, a more efficient air ventilation system, and more affordable railway transport to the ports. It is the retailer building a better distribution network, using cellphones for digital payments, finding markets that are underserviced. It is the software programmer writing a new app that allow millions of users to save time and money.

The rise of inventors like James Hargreaves (Spinning Jenny), Henry Ford (assembly plant), Kiichiro Toyoda (founder of Toyota) or Yang Yuanqing (CEO of Lenovo Computers, the frugal innovator as The Economist notes) did not come about because of broad-based empowerment policies or a bigger state. It was because the incentives of those societies allowed inventors and innovators to prosper from their brilliant ideas, sometimes with state aid, yes, but the entrepreneur, not the politician, was always the most important. The reason England experienced an Industrial Revolution was due to relative factor prices (high wages, cheap energy -> incentives) and the scientific revolution and the ideology of the Enlightenment (generation of useful knowledge, a patent system that protected new innovations and free-trade economic policies -> rhetoric). To transform, entrepreneurs must make use of comparative advantages and be encouraged to do so (or, at least, not be prevented from doing so).

There are, of course, many countries that have tried to follow different routes. Latin American countries are infamous for attempting state-sponsored industrialisation, and failing. Russia, through mass murder and communist policies, transformed their economy from agriculture to industrial at the start of the twentieth century, only to stagnate later. Communist China before the market reforms was a basket case with a few rich state officials (much like North Korea today). Closer to home, Ghana, Nigeria, Kenya and Tanzania are growing rapidly not because of a larger state, but because their entrepreneurs are finding opportunities to exploit.

The policies proposed by president Zuma are, ironically, exactly the opposite of what is written in the NDP. The South Africa of 2014, it seems, believes that we can grow prosperity through a large state and the transfer of wealth. We won’t: not because we are somehow incapable of making it happen, but simply because it has never worked before. This is harsh, but true. Yet – I understand the reason for this sentiment. Our massive inequality and the populist appeal of ‘economic revolutionaries’ will make a large state that can ‘redress’ the past appealing. The truth is that our woeful education system and rigid labour laws make it difficult for the poorest to take advantage of market opportunities, which leaves them with little alternative but to absorb the populist sentiments. If you were poorly-educated, living in poverty and hopelessness, would the illusions of prosperity that the populists promise not seem very real too?

There are no easy answers. If we stay the course of a market approach, there is little doubt that inequality will remain, simply because of the massive inequalities in education. If we choose to encourage entrepreneurship, for example, many of those entrepreneurs may be white South Africans (people like Koos Bekker) who will become extraordinarily rich (Naspers is now the largest internet company outside China and the US). Even though this will boost economic growth and reduce poverty (which is the reason the US is rich), it won’t affect the distribution of income (which is the reason America is also massively unequal).

Instead, we have decided on a different type of economic transformation: redistribute existing wealth. In some sectors this will be relatively successful: Naspers has, for example, made thousands of black South Africans prosperous by offering them shares at discounted rates several years ago. This is black economic empowerment at its best. But the economic transformation the president envisages is, most likely, not limited to such slow adjustments of our income distribution, especially if change needs to happen within the political deadline of five years. So instead of encouraging imitation and innovation of our entrepreneurs, we could expect to see policies that attempt to transform ownership. Expect agriculture to see the first of these radical transformations.

Thomas Piketty argues that inequality exists because capital grows faster than the economy. This implies that the rewards to the owners of capital (rent from land, buildings, equipment) grow faster than the returns to workers (wages). While this may be true, it is a very static way to explain the exponential growth the world has seen over the last two centuries. Here’s Deirdre McCloskey’s view neatly summarised by Evan Davis:

McCloskey has long argued that economists are far too preoccupied by capital and saving. She doesn’t even like the word capitalism, on the grounds that capital is not what got us where we are today. ‘If Scotland is trying to become Holland, then capital accumulation is how to do it. That will double your income, maybe triple it.’ But for her, that sort of accumulation is a scratch-card-sized prize — and the lottery jackpot beckons. She enthuses about the Great Enrichment of the 19th century. ‘What happened, understand, is not 100 per cent growth, but anywhere from 2,900 per cent growth to 9,900 per cent growth. A factor of either 30 or 100.’

That jump in incomes came about not through thrift, she says, but through a shift to liberal bourgeois values that put an emphasis on the business of innovation. In place of capitalism, she talks of ‘market-tested innovation and supply’ as the active ingredient of our economic system. It is incidentally a system ‘drenched’ in values and ethics overlooked by economists.

Professor McCloskey has a point, of course. Think of the Bill Gates and Steve Jobs, big wealth accumulators in recent times. It wasn’t the magic of compound interest on capital that made them rich; it was intellectual property. They created billions of dollars of business from virtually nothing at all. If you measure the profits as a return on the small amount of initial capital invested, then it looks huge; but capital was no more important an ingredient of the original Apple or Microsoft than cookies or cucumbers.

And to me, this is one big distinction at the heart of the wealth equality debate: whether capital — past accumulation of savings — gets to devour the future, or whether the future is created afresh by each generation. This argument is a struggle between those who think riches are created from riches, and those who think riches are created from rags. Are big profits best viewed as a generous return on capital, in the way that worries Piketty? Or as coming from innovation that ultimately benefits us all?

Capital and saving will not make South Africa prosperous, regardless of whether it is in rich or poor, black or white hands. If we want our children’s children to be better off, we need to design policies that encourage our farmers, miners, retailers and software programmers (and talk-show hosts!) to invest in innovation. And we need our leaders, especially the president, to change the discourse on economic transformation away from the redistribution of wealth towards the empowerment of entrepreneurs.

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