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Archive for April 2014

Twenty years and counting

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Trafalgar time-out: South Africans voting in the 2014 elections. Source: Jonathan Reader, Marike Groenewald, Ed Kirby and Cindy Atwell.

Trafalgar toyi-toyi: South Africans voting in the 2014 elections. Photos: Cindy Atwell, Michelle Crowther, Marike Groenewald, Ed Kerby and Jonathan Reader.

And so it starts. While those of us lucky enough to be in the homeland will only get the chance to vote next week Wednesday, South Africans living abroad had the opportunity to vote today. And, as I’ve seen from the pictures on my Facebook-feed, it seems the sunshine (I think that is a greyish-blueish sky?) contributed to a festive affair in Trafalgar Square. But it’s not only the 10 000 or so Londoners that voted: I’ve seen pictures of voting stations in Australia, South Korea, Belgium, and even of a couple driving from San Francisco to Los Angeles to cast their vote.

Twenty years after 1994, it’s great to see democracy in action. But the pictures also put into perspective the thousands of South Africans that are working and living abroad. Early this year, Adcorp, a recruitment firm, claimed that more South Africans are returning home than the number of South Africans leaving, reversing the brain drain of skilled professionals that has been a feature of the last few decades. This seemed to suggest that government and private attempts, like the Homecoming Revolution which encourages expats to return home, were successful. Yet a recent study by Thomas Höppli suggests otherwise. Using official immigration and census data from recipient countries, Höppli shows that there are more than 750 000 South Africans living abroad, and that this number is increasing, even if the growth rate has slowed down dramatically. The stock of South Africans living abroad has ‘increased continuously from 2000 to 2010 at an average annual rate of about 5%. Growth subsided from 2010 onwards, averaging a mere 0,6% annually to 2013, but it has not turned negative’.

The brain drain, as the trend is commonly known, is not necessarily bad for the country. South Africans living abroad improve their skills and establish new networks which can often be beneficial for a country in the longer term. Yet the decline in the growth rate of emigration (although not a complete reversal) does suggest that, at least since the recession, South Africa’s relative attractiveness has improved considerably. Many returnees note the relatively high standard of living, good education and (private) health care, and sunny weather as the main pull factors. They should also add the low unemployment level for those with skills.

As a good friend that frequently travels abroad mentioned to me in passing the other day: We have a lot of problems in South Africa, but at least they are our problems. Twenty years after our first democratic elections, I’ll toast to that. Happy voting.

Written by Johan Fourie

April 30, 2014 at 22:42

On racism and restitution: a Stellenbosch journey

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Nic Spaull, PhD student at Stellenbosch, recently wrote a long response to a comment I had made on his Facebook wall. In a nutshell, Nic’s argument was that the dominant culture at Stellenbosch is white and Afrikaans and therefore also conservative and subversively homophobic. I still don’t agree entirely with Nic, but let us focus on another issue which Nic and I have debated since his post and to which he alludes in his final paragraph: that Stellenbosch has not done enough to acknowledge and distance itself from its apartheid history.

Here’s the evidence: There is still a DF Malan* building on campus (erected with National Party funds to honour the founder of apartheid). There is still a plaque commemorating Hendrik Verwoerd in one of the entrances to the Accounting and Statistics building (which used to be called the Verwoerd building). These are the architects of apartheid. The fact that these names and artefacts continue to exist sends a strong signal, Nic argues, that Stellenbosch is unwilling to change. Black students find these relics deplorable and possibly preserved with malicious intend. These relics say: ‘You are now stepping on Afrikaner domain – this is our bastion’.

Architechts of apartheid: Malan, Strijdom and Verwoerd all have Stellenbosch roots

Malan, Strijdom and Verwoerd all have Stellenbosch roots

There is no doubt that some black students find Stellenbosch an uncomfortable and often abusive place. In my conversations with them, they’ve expressed similar views to those expressed on Nic’s blog or on other forums. Racist incidents around Stellenbosch’s bars and pubs seem, sadly, to be a particularly popular anecdote. But for a long time, the university itself harboured an inhospitable attitude towards English-speaking black students. Classes were only in Afrikaans, with little additional support provided. Residences seemed to be places of white exclusivity, the last remnants of what must look like a modern-day version of the Broederbond. Even though the university continued to excel in research, moving up international rankings, the campus remained, and remains, predominantly white and Afrikaans.

My sense, though, is that this is changing. I’ve lived in Stellenbosch for more than a decade. The campus today looks remarkably different than it did when I was a student. Nic showed some graphs that suggest little has changed, which is the reason he argues that not enough is being done. I tend to differ, mostly because I believe that the best type of change is that which happens organically. A call, if you like, for incrementalism. Here’s some hard numbers published on the university website: since 2007, white, male undergraduate students have increased by 9.6%. In the same period, black, male undergraduate students increased by 73%. White females increased by 6.4%. Black females increased by 148%. Yes, black students are still a minority, but these numbers reflect a rapidly growing minority. Given another decade, Stellenbosch should have the same racial profile that UCT has today.

Accessibility is one reason for these dramatic changes. All courses in the faculty where I teach (Economics and Management Sciences) are now taught in English. In 2014, for the first time in Stellenbosch University’s history, more English-speaking students enrolled than Afrikaans-speaking students. Various campus activities, like the very successful Diversity Week, encourage debates about gender, race, religion and sexual orientation, and activities that engage students from different social networks. Several building projects on campus are actively promoting social integration between those living in residences and commuters, for example. The point is: the Stellenbosch campus in 2015 will look very different from the Stellenbosch campus of 2010.

Many Afrikaans-speaking whites might sneer at such changes. ‘There are more than enough English universities for English-speaking South Africans to go to’, the argument goes. ‘Why do they want to come to Stellenbosch?’ Three reasons: 1) Because, if Stellenbosch wants to be the best university in Africa, we want to attract the best students. For a long time, and for historical reasons created by the Malan’s and the Verwoerd’s of the past, the best students used to be white and Afrikaans. Not any more. 2) Because the firm of the future wants to appoint employees that can interact with a diverse array of clients and colleagues. Computer programmers, marketers, scientists, engineers, artists will have to collaborate with people that do not share the same ideas about the world. The best place to get exposure of such interaction is at varsity. 3) Not only that, but one of the most fundamental lessons we have learned is that diversity – of race, religion, ideas – promotes the scholarly process, that there are positive externalities generated by interacting with people that see the world different from yourself. The whole (universitas) is greater than the sum of its parts.

Which brings us back to the question of whether the DF Malan building should be renamed. Perhaps renaming it to the Beyers Naude Memorial Centre will send a strong signal, even if it is only a signal. But I fear that is a too easy solution. As Nic noted to me, if the name is changed, Stellenbosch can take the ‘moral high ground’ having distanced itself from its horrible past. No, Nic. The moral high ground is exactly the place we should avoid, because it leads to self-satisfaction and self-congratulation that you have ‘dealt with the past’ when South African society all around us is so obviously still affected by its legacy. Changing a plaque on a wall cannot and should not give ‘us’ the moral high ground. Instead, our collective history should serve as a constant reminder not only of where we come from, but how we’ve travelled and how far we still have to go.

This week Public Works Minister Thulas Nxesi’s wife, Nombulelo, received an Honours in Public Administration from Stellenbosch University. The degree was conferred on her in the DF Malan Memorial Centre. Some may see this as irony, and perhaps others may see shame and tastelessness. I disagree. In a country where our recent history has such a devastating impact on the present, this is how we claim agency of the future. I say let’s keep the DF Malan Memorial Centre. Let’s keep the historical artefacts in buildings to apartheid founders. For Cecil’s sake, let’s keep Rhodes University’s name, and the Rhodes Scholarships, and the Rhodes memorial in Cape Town, even if it is named after one of the most racist men in history. And we do so not to celebrate their deeds, but to celebrate how far we’ve come as a country.

It’s been only twenty years since the end of apartheid. In another twenty years, Stellenbosch will be irrevocably different. Not because you won’t hear Afrikaans (you will), or because you won’t see a white face (there will still be many), but because it will be a place where the sharpest minds congregate to solve Africa’s most daunting challenges. And to graduate in a hall that remind us of the long and costly road to freedom for all.

*Lindie Koorts, postdoctoral fellow at the University of the Free State and former PhD-student at Stellenbosch, has written an excellent new biography of DF Malan. The Financial Mail reviews it here, or you can read Steve Hofmeyr’s review in Afrikaans here. Listen to Lindie’s interview on SABC here.

Written by Johan Fourie

April 25, 2014 at 09:38

Counterfactual Africa

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Africa before European arrival: Swedish artist Nikolaj Cyon used historical sources to draw a map of Africa without European settlement or colonialism

Terra intactum: Nikolaj Cyon used historical sources to draw a counterfactual map of Africa  (Source: http://developmentdaily.files.wordpress.com/2013/07/alkebu-lan-1260.jpg)

What if Europeans never colonized Africa? What would modern-day boundaries of African countries look like had the Scramble for Africa never occurred? The short answer is that we will never know, but the thought-experiment is appealing. So appealing, in fact, that Swedish artist Nikolaj Cyon decided to create a map of what Africa would look like today if borders of ethnic groups remained fixed from around 1600. The above map, showing the South on top (to subvert the traditional Europe-on-top orientation), draws on historical sources to show the territories of the major ethnic groups that existed in Africa prior to European arrival.

So what would a tourist, visiting this counterfactual southern (northern?) Africa, have seen? (If you really want the full experience of this post, listen to this song while reading.) If the Khoe groups of the Cape decided to unify politically, a country roughly the shape of today’s Western Cape including half of the Eastern Cape (up onto the Fish River) would have existed. Let’s call it Khoe-country. If I had to venture a guess, the landscape would have been dotted with villages – around Paarl, Swellendam, George, Graaff Reinet – with the capital of Khoe-country around modern-day Grahamstown: Gona. Traveling east, our tourist would have entered the land of the Xhosas and visited the capital Mthatha. Further up the coast, the kingdom of the Zulus, Zululand, the largest country in southern Africa, would have welcomed our visitor. Here the visitor would have seen the beautiful hills around the capital Ulundi and perhaps paid a short visit to the forgotten kingdom of the Basotho people across the stunning Drakensberg mountains. Traveling North, the visitor would have visited the lands of the BaPedi, and their capital, Phsiring, and from here back west into the BaTswana kingdom, the country of mines. Returning to the Cape, the traveller would have met the San-peoples of Komani and Xam, living in the arid regions of the Kalahari around the Gariep river.

What is most interesting about this map, perhaps, is the extent to how colonial boundaries cut ethnic boundaries. Consider the BaTswana, with their capital in Gaborone. Today’s Botswana only includes a fraction of the territory of the then BaTswana people. Had BaTswana been a country, it would have included large parts of South Africa’s Northwest province (platinum mines) and the Northern Cape. Even Kimberley (diamonds) would have been part of Botswana. But the haphazard colonial borders also benefited the BaTswana. Today, Botswana encompasses almost all of the Khwe en parts of the !Xoo and Khomane San territories, peoples that have lost their independence.

A number of recent papers in Economics attempt to assess the costs of these artificial borders on African development. In a recently published paper in the Quarterly Journal of Economics, Stelios Michalopoulos and Elias Papaioannou use light density as measured by satellite images to investigate whether ethnic groups split by colonial borders exhibit different rates of development, and why. They do find significant differences between two ethnic groups divided between two countries like, for example, between the Tswana of Botswana and Tshwana of South Africa, but attribute this not to differences in national institutions (country-wide policies) but instead to ethnic-specific traits (like the role of chiefs, culture and pre-colonial institutions). Their paper is open to critique: their use of Murdoch’s ethnolinguistic map of Africa, a popular but controversial map of Africa’s many ethnic groups, is problematic. (The above map was presumably not drawn with Murdoch’s data, as the boundaries of the two maps do not overlap.) Nevertheless, their and other results provide quantitative proof that the artificial partitioning of African countries had a detrimental effect, causing conflict and lower levels of development.

Naturally, in our counterfactual world, it is extremely unlikely that borders would have remained fixed for 400 years. Ethnic borders in the pre-colonial were in continuous flux, and there is no reason that conflict over territories would have stopped suddenly. Take Johannesburg, for example, the location of the world’s wealthiest gold mines. On Cyon’s map, Johannesburg sits at the junction of the kingdoms of the BaSotho, Zulu, BaPedi and BaTswana. Is it not possible that the discovery of gold would have caused severe conflict over resources between these groups?

Two countries, of course, do fit the current map of Africa quite well: Lesotho and Swaziland. Both countries experienced little European settlement, and while the Basotho did lose territory to the Voortrekker settlers, the position of Swaziland on Cyon’s map is exactly the same size and in the same location as modern-day Swaziland. So how did these countries perform in the absence of colonisation? Not great. Swaziland has a GDP per capita of around $6000, ranked 116 out of 187 countries by the IMF. More than 50% of the country’s annual budget is paid by South Africa. Life expectancy is at 50 years. Much of the reason for this low level of development can be attributed to geographic and institutional reasons: both countries are land-locked and have tiny markets, and communal ownership remains widespread. In the counterfactual world as drawn by Cyon, it is highly likely that more of these small, land-locked and poor countries would have existed.

Counterfactual history is art not science, fiction not fact. (Or, if you trust Sheldon and Amy’s judgement, a board game.) And more importantly, asking what the map would have looked like, and what it should look like, are two very different questions. But counterfactual history does challenge the imagination and, more importantly, propagate the promise that the future is malleable.

Written by Johan Fourie

April 17, 2014 at 13:35

Is a wealth tax the pragmatic solution to South Africa’s inequality?

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Clifton

Luxury living: a wealth tax on Clifton houses such as this one could pay for larger social transfers

On Monday night, in a speech delivered at Stellenbosch University’s Department of Economics, Andrew Donaldson, Deputy Director General responsible for Public Finance in South Africa’s National Treasury, suggested the following: that to address the severe and persistent inequality of South African society, a much larger share of the government budget should be devoted to redistribution. Not only is this morally good, he argued, but recent research by the IMF suggests that it is also better for the economy (or, at the minimum, that it does not affect economic growth negatively). Whereas South Africa now redirects about 3% of GDP from the rich to the poor, this could increase substantially. Iran, for example, redistributes 11%.Yes, this is another post on inequality. I’ve written recently about the good and bad of inequality, and about its relationship with capitalism. But Donaldson’s paper, coming from the centre of policy-making in South Africa, suggests that it is a topic that we need to give our full attention. The study of inequality was, for a long time, the preserve of development economists, debating the many ways it could be measured, lamenting its slow change, while the rest of us focused on improving economic growth. Not any more. The rising popularity of more left-leaning policies, both outside and within the ANC, suggests that there is pressure within government to act on the perceived slow economic transformation since 1994; while poverty has declined significantly (thanks to growth and redistribution), inequality has remained stubbornly high.

Donaldson noted that there are several ways the state can help improve the income distribution. The most obvious – and for many economists, the only way – is to improve education. South Africa spends a considerable amount on education, yet education outcomes for a large segment of our population are appalling, to the extent that South Africa is ranked embarrassingly low on international rankings. But it is one thing to say that we ‘need to get the education system right’, and another to actually do it. It is clear our education is failing, and there is no indication that it will improve in the short run. In the meantime, these kids are exiting school and entering the labour market armed with very few skills. And so, because they are unable to partake in the fruits of the market economy, the dreams and aspirations of millions of young South Africans depend on what they can receive from government. Donaldson’s argument is that this growing gap between the educated and uneducated is unsustainable politically and economically. Something’s gotta give, and so one suggestion is to expand the social welfare system, to increase the amount these individuals receive directly from government, which will, hopefully, give them a better chance of participating in the formal economy.

The response from economists would naturally be that greater redistribution will have an adverse effect on economic growth; that increasing the marginal tax rates on the rich will disincentive them to work (or force them to move to other countries), reducing the productive and entrepreneurial capacity of the country, and cause economic stagnation, or decline. But this is not the case, Donaldson argues, citing a recent IMF report. The report, surveying a large number of countries over many years, finds little evidence for a trade-off between redistribution and growth. In fact, the IMF authors suggest redistribution has a benign effect on growth. That implies that governments can increase redistribution considerably without any adverse effects:

We nonetheless see an important positive conclusion from our look at the big picture. Extreme caution about redistribution—and thus inaction—is unlikely to be appropriate in many cases. On average, across countries and over time, the things that governments have typically done to redistribute do not seem to have led to bad growth outcomes, unless they were extreme. And the resulting narrowing of inequality helped support faster and more durable growth, apart from ethical, political, or broader social considerations.

Which is the reason for Donaldson’s question: Is there greater scope for fiscal redistribution? He proposes several ways that Treasury can redirect tax income to the poor: most notably he suggests that a labour subsidy, not only for young people, but across the economy for the lowest income earners, could incentivise businesses to increase employment of unskilled jobs. In reality, this is something like a negative income tax; individuals that earn below R5000 per month, would get an additional state subsidy of R1000, for example. Other tools to redistribute include the more blunt instruments of higher pensions and child support grants.

Of course, someone will have to pay. He suggests increasing marginal rates on income taxes. In a question I posed to him afterwards, I asked whether higher income taxes are not inherently unfair. The reason for South Africa’s skewed income distribution is its centuries of inequality, and of the repressive and discriminatory labour policies of the twentieth century. Surely, then, a wealth tax is more appropriate. Why should a twentysomething (black and white) of the coming decade pay for the mistakes of the past? A wealth tax, in theory, taxes past incomes. He was unimpressed: few wealth taxes have been successfully implemented, he suggested, and they are often administratively expensive. This is true, but I feel slightly justified in my question given that I share this with the author of a book (to be published in about a month) that will have a profound impact on the field of Economics.

At least, that is the claim of Paul Krugman, who recently reviewed Thomas Piketty’s Capital in the Twenty-First Century. South Africa is not the only country to struggle with solving rising inequality. In short, Piketty argues that globally “we haven’t just gone back to nineteenth-century levels of income inequality, we’re also on a path back to ‘patrimonial capitalism’, in which the commanding heights of the economy are controlled not by talented individuals but by family dynasties”. His suggestion to fix this? Wealth taxes! Here’s Krugman’s summary:

Piketty ends Capital in the Twenty-First Century with a call to arms—a call, in particular, for wealth taxes, global if possible, to restrain the growing power of inherited wealth. It’s easy to be cynical about the prospects for anything of the kind. But surely Piketty’s masterly diagnosis of where we are and where we’re heading makes such a thing considerably more likely. So Capital in the Twenty-First Century is an extremely important book on all fronts. Piketty has transformed our economic discourse; we’ll never talk about wealth and inequality the same way we used to.

Maybe Desmond Tutu, in his call for a white wealth tax in 2011 (in a speech at Stellenbosch University) was on to something, even though his emphasis on ‘white’ was perhaps misplaced. More realistically, while a wealth tax may have negative consequences, these may be less severe than the alternative policies. Consider the Promotion & Protection of Investment Bill (which allows the state to claim land and other property without compensation as a ‘custodian’), the Private Security Regulation Amendment Bill (which forces foreign-owned companies to sell 51% to South Africans), and the Employment Equity Amendment Act (which forces firms with more than 150 staff to use national demographics as ‘guide’ for racial targets in employment), to name a few recently proposed bills that aim to transform the South African economy (see more here). It is likely that these will have far greater, perverse and unintended consequences.

A wealth tax, especially if implemented at the global level, may allow government to strengthen the bottom of the income distribution through social transfers without jeopardizing the economy’s ability to produce.

Written by Johan Fourie

April 10, 2014 at 07:48

The past is the future we fear: notes from 1827

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One of the benefits of studying economics (and economic history) is that you’re a bit more resilient to the populist sentiments of politicians and policy-makers. Especially during election time, facts and fiction are often mixed together in one of those big, black pots, with a touch of fantasy added as special ingredient, and served to expectant ears. We all like to have our ideas about the world affirmed and politicians are good at exploiting this weakness. They tell us exactly what we want to hear. Never let the facts get in the way of a good story.

SomersetLord

Lord Charles Somerset

Much has been said in the build-up to this South African elections, for example, about growing inequalities in South Africa. Whether you think severe and persistent inequality is only slightly bad or extremely bad, there is no denying that a highly unequal society, like South Africa’s population, is not only morally unjustifiable but also a barrier to higher rapid growth. And this is not peculiar to South Africa, of course. Mechanisation, globalisation, and various other trends seems to be driving a gap between those with wealth and those without. Even the IMF has acknowledged that this is an issue.

Many ascribe this growing inequality as an inevitable consequence of the capitalism machine. Like Marx predicted, it seems as though the social structures of our societies are crumbling under the corruption of commerce. And it’s not only the lefties that are having a field day: prominent economists, like Brad Delong, are struggling to come to grips with robots hijacking our jobs. But, as Delong notes, this is not the first time that we’ve encountered the problem of inequality. Sometimes the past is the future we fear. During the Great Depression, many in Europe thought that communism was the only way to escape the deprivation that permeated Western societies. The iron curtain, and its collapse, would later show communist claims to a utopian future to be false.

But even in our own history, we have telling reminders that the egalitarian past we so happily paint is all but true. I recently discovered a table in the Records of the Cape Colony (Theal, 1905) that listed wages paid to all government employees of the Cape Colony in 1827. Remember, this is a time before the discovery of minerals, before the abolishment of slavery, yes, even before the Great Trek. This was a society, presumably, without the upheavals and inequalities of modern capitalism, without the corruption and nihilism of the ‘neoliberal’, materialistic world we inhabit today. And yet, Lord Charles Somerset, then governor of the Cape (let’s call him the premier, or the president), earned £10 000 annually (p. 28). In contrast, a bookkeeper in the Office of Collector of Tithes and Transfer Duties (equivalent to someone working for SARS today), earned, on average, £45 (p. 43). That’s right, he (his names was TF Dreyer) earned 222 times less than the president. What does an auditor at SARS earn annually these days? Let’s say a conservative R300 000. Apply the same ratio, and Lord Charles Somerset earned the equivalent of R66 million. Jacob Zuma, officially at least, earns only R2,6  million. Or take Patrick Kelly, a messenger in the Office of Civil Engineering, who earned £9, less than 1000 times that of Lord Somerset. And, of course, these were all white government workers. Had you been black, you could at best wish for a job in the police, at £4 per annum, that is, 2500 times less than the president. (If a policeman today earns R100 000 annually, that would take the president’s salary to R250 million. Zuma could buy a Nkandla every year with that money.)

MilanovicCapitalism does not necessarily lead to higher inequality, especially not in the very long run. (In more thorough research, Dieter von Fintel and I showed that the eighteenth century Cape Colony was also severely unequal.) But even in the short run, capitalism isn’t always bad. An excellent example is South Africa’s own recent history: Branko Milanovic of the World Bank recently tweeted South Africa’s Gini coefficient for the last decade. While income inequality is slightly higher in 2010 than in 2000, the pattern is decidedly mixed over the decade. Our spending is less unequal in 2010 than in 2000. These changes in inequality also masks the rapid declines in poverty that the country has seen since 1994. A SALDRU report by Arden Finn, Murray Leibbrandt and Ingrid Woolard of UCT shows the incredible gains that a free market (with help from the state) has allowed: From 1993 to 2010, a multidimensional index of poverty has fallen by 29 percentage points from 37% to 8%. These are dramatic improvements, often unappreciated.

The past is a scary place. The future is brighter than we think. We still have problems to solve, but the we are in far better shape to do so. Let’s remind politicians of that this elections.

Written by Johan Fourie

April 3, 2014 at 15:00