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How religion shapes an economy

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Harare billboard

Source: Her Zimbabwe

Drive around Harare and you will notice something very peculiar. Billboards across the city do not advertise the latest car model or data bundle or washing powder. In Harare, by contrast, almost every billboard advertises church services. They all follow a precise formula: next to the photo of the charismatic spiritual leader is the date of the event and a promise, best summarised in this example: ‘Freedom from poverty/freedom from disease/freedom from barrenness.’ The implication: join us to improve your material welfare.

On my visit last year, I spoke to several university students who attend these services. One told the incredible story of a pastor who arrived one Sunday morning at his church with a truck full of bricks. These were ‘blessed bricks’, he proclaimed; one of them built into your house would, according to the good pastor, alleviate you from material want. According to the student, he sold each of the 10 000 bricks on the truck for $10. The last few ones even fetched as high as $50. Do the math. It would seem that at least one person’s material welfare did improve significantly.

This and similar stories by the students reminded me of something that had happened five centuries ago. By the 16th century, the abuse of indulgences – a payment to reduce the punishment for sins – had become a serious problem that the Catholic Church in Europe recognized but was unable to restrain effectively. A young German professor of theology, Martin Luther, rejected the belief that freedom from God’s punishment for sin could be purchased with money, and penned his Ninety-Five Theses to the door of All Saints’ Church in Wittenberg on 31 October 1517, a date now considered the start of the Protestant Reformation.

Luther’s movement, and the ones it would kindle elsewhere, heralded an era of prosperity across Northern Europe. The Catholic city-states of Southern Europe – think Venice – were some of the wealthiest in 14th and 15th century Europe. But by the 17th and 18th centuries, these had been supplanted by cities in the Protestant North, notably in Holland and then England.

Many scholars have linked the Protestant Reformation – at least indirectly – to this reversal of fortunes. German sociologist Max Weber, for example, argued that the Reformation encouraged the ethics of hard work, thrift and efficiency, and that this resulted in a change in savings behaviour by the followers of the new religion, with consequences for investment and growth. Others highlighted the impact the new religion had on literacy and education, as it emphasized adherent’s ability to read and write, and that this channel of causation was what propelled the North forward. But proving these theories empirically was difficult.

A new NBER Working Paper by Davide Cantoni, Jeremiah Dittmar and Noam Yuchtman posit another channel and finds empirical support for it. The authors assemble a new, highly disaggregated dataset on the degrees received by German university graduates for more than 2000 German towns in the period following the Reformation. They then split the sample in two: those students that qualify with religious degrees, and those with secular degrees. The authors are also able to identify the occupations of these German graduates, and split the occupational sample in two: those who find work as monks and priests, and those who find work in administration and the private sector.

The results are remarkable. In those areas that experienced the Reformation, two things happen. First, the Protestant university students increasingly studied secular subjects, especially degrees that prepared students for public sector jobs, rather than church sector-specific theology. Graduates of Protestant universities, in contrast to universities that remained Catholic, also increasingly took secular, especially administrative, occupations.

Second, the Reformation affected the sectoral composition of fixed investment. In Protestant regions, new construction shifted from religious toward secular purposes, especially the building of palaces and administrative buildings, which reflected the increased wealth and power of secular lords.

In short, the Protestant Reformation changed the preference for physical and human capital investment from unproductive to more productive activities. Importantly, this reallocation was not caused by preexisting economic or cultural differences. The interpretation is therefore that it was the Reformation, and not some other underlying factor, that resulted in this shift to the secularization of graduate degrees and the workforce.

This had profound long-run consequences. With more students studying secular subjects and more of them finding jobs in the public or private sector (instead of the religious sector), a process of cultural and intellectual change was set in motion that culminated, ultimately, in the enlightenment, the scientific revolution and modern economic growth.

Which brings us back to the pastors of Zimbabwe. In a country devoid of private sector opportunities, religious entrepreneurship is a popular calling for charismatic individuals. But if the brightest young minds choose professions in the religious sector – and the little surplus capital that there is, are used to fund mega-church buildings (as you will find when you drive around Harare) – then Zimbabwe is experiencing exactly the opposite of the Protestant Reformation. Selling ‘blessed bricks’ is the modern equivalent of the sixteenth-century indulgences sold for salvation.

The result? Productive investments in human and physical capital becomes investments in unproductive activities. The circle of poverty is strengthened, exploited by religious entrepreneurs who themselves profit from others’ hardship. Are we returning to the Middle Ages, or will our generation’s Martin Luther rise up?

*An edited version of this first appeared in Finweek magazine on 16 November 2017.

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Written by Johan Fourie

January 4, 2018 at 10:57

How competition cracks down on corruption

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saacartoon

For all the flack the private sector gets from both the left and the right, it has one redeeming feature that critics find difficult to avoid: competition. Take KPMG, the global auditing firm that has been at the center of the Gupta family scandal, in which South African taxpayers’ money was used to fund a wedding at Sun City in 2013. Upon the release of an internal report on the matter, KPMG CEO Trevor Hoole quit, as did the chair of the board and six other top staff. And in the weeks that followed, companies began to ditch KPMG as auditors, led by Magda Wierzycka’s Sygnia and followed by Hulisani, Munich Re, Sasfin, AVI, Telkom, and many others. Even that slowest moving of institutions – universities! – joined the KPMG culling. Sources within KMPG suggest that the mood is bleak.

KPMG is just one example. Bell Pottinger, the British public relations and reputations management firm, went into administration on 12 September after its Gupta-sponsored campaign to inflame racial discord in South Africa was exposed. And global consultancy McKinsey may be in even more trouble as the extent of its relations with Eskom and black-owned supplier Trillian (which was neither black-owned nor a legal supplier) becomes evident.

Market forces are at work. When companies built on trust and reputation lose it, clients will (and should) jump ship. It’s not personal, it’s business. Deloitte and PwC will benefit from their competitor’s indiscretion. But more than that, they would want to make sure that their own house is in order. Expect the quality of audits to increase significantly in future.

In contrast, those at the root of the problem are ensconced by the uncompetitiveness of government. The Gupta tentacles reach almost everywhere in the public sector, most notably in Treasury where minister Malusi Gigaba has suggested the Public Investment Corporation uses its considerable assets to support flailing state-owned enterprises like SAA. In wonderful irony, Cosatu threatening to replace the PIC with privately owned fund managers to oversee its members’ pension funds. Competition discourages bad behaviour.

Politics, of course, is competitive. Elections pit politicians and their parties against each other, with voters, presumably, electing that party which would serve their interests best. But elections are fuzzy reflections of voter preferences. (Brexit and the recent US elections are good examples.) And, most importantly, they only occur every five years. Had KPMG been subject to the same slow process of five-year elections, would anyone have remembered their misdemeanour two years from now?

Corruption, though, is a crime, and any politician found guilty should be punished accordingly. But as we have seen in South Africa, the rot can be so deep that those with the power to act against the rampant corruption – the National Prosecuting Authority, the Hawks, the Public Protector – can choose to stay quiet. And when the media lose their ability to fairly report on these matters – exactly what Bell Pottinger’s campaign against white monopoly capital tried to do – the corrupt actions of politicians will go uncensored by an oblivious public.

That is why impartial government audits are so important. Critics often claim government officials pay too much attention to ‘clean audits’, that it takes the focus away from what politicians should be doing. Helen Zille, Western Cape premier, admitted as much in 2015: ‘Trying to achieve a “clean audit” can actually become a stumbling block to service delivery. It also puts a brake on innovation in government.’

But audits matter because they change behaviour. A 2016 NBER Working Paper Eric Avis, Claudio Ferraz and Frederico Finan examined the extent to which government audits in Brazil reduced corruption. Brazil’s anti-corruption programme randomly audits municipalities for their use of federal funds, and this randomness allows the authors to test whether audits have a causal impact on corruption. They find that being audited in the past reduces future corruption by 8 percent, while also increasing the likelihood of experiencing a subsequent legal action by 20 percent. The reduction in corruption comes mostly from the ‘audits increasing the perceived threat of the non-electoral costs of engaging in corruption’. In other words, audits make politicians less likely to award government contracts to friends at inflated prices, which saves public resources and improves service delivery.

This is why KMPG’s actions are so despicable, and why it should be punished in the market place. It was the last line of defence, and it failed in its duty to uncover the misuse of public funds. If guilty, the same fate will hopefully befall McKinsey too.

But it might not be that easy. Many South African industries are concentrated, and the oligopolies in them are often deeply entwined. KPMG remains the auditors of Standard Bank and Investec. The fall of KMPG will also strengthen the dominance of Deloitte and PwC, which may render them, if a scandal was to hit them, too big to fail. With few obvious competitor, McKinsey has, so far, remained largely unscathed.

More competition, in both oligopolistic industries and the public sector, is how you ensure that corruption is identified and punished.

*An edited version of this essay appeared on 2 November in Finweek magazine. Note that this essay was written before the Steinhoff debacle of the last week. My point stands, though. As details emerge of who is responsible for the Steinhoff mess, one thing remains clear: several members of the executive, including Marcus Jooste, CEO of Steinhoff, and Ben la Grange, chief executive of Steinhoff Africa Retail, have already lost their jobs. Where illegal actions have occurred, shareholders will make sure prosecutions follow. Compare Dudu Myeni, former boss of South African Airways, who, after finally being fired after years of mismanagement at SAA, landed a nice job as special adviser to the Minister of Transport.

Written by Johan Fourie

December 11, 2017 at 09:53

Should South Africa host the 2023 Rugby World Cup?

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South Africa 2023

Tomorrow (Wednesday) we will know whether South Africa will host the 2023 Rugby World Cup. Here are my thoughts on hosting mega-events:

One of my aspirations when I was in high school was to bring the Olympic Games to Cape Town. Imagine a brand new athletics stadium and athlete village at Ysterplaat. Athlone Stadium could play host to sevens rugby, while the breathtaking Cape Town Stadium would host all football games. Newlands Rugby Stadium could be converted into a 20 000-seater indoor gymnastics stadium, Bellville velodrome would play host to cycling, Hartleyvale could host hockey, Camps Bay beach volleyball, Muizenberg surfing, the Waterfront sailing, and Langa could get a brand new boxing venue and swimming pool that could serve the community long after the Olympics is gone. And what better venue to launch the new Olympic code of T20 cricket than Newlands cricket stadium?

The sports stadia would, of course, be just one element of a much bigger infrastructure drive. The largest innovation will be in transportation: a new, world-class international airport, built on the N7 to Malmesbury, would allow Cape Town to lift international arrivals from 2 to 10 million. A new CapeRocket mass rapid rail network would connect the new airport with the city and neighbouring towns of Paarl, Stellenbosch, Somerset West and Simon’s Town, perhaps even Worcester through the Huguenot Tunnel. If a train could take you from Worcester to Cape Town City Center in less than an hour, imagine what that would do to the daily commute – and property prices in rural areas! (That is radical economic transformation, I can hear Cape politicians say.) And an Uber-like app for all city transport, including taxis, now electric, would allow spectators to seemingly move between the different transport modes.

In moments of weakness, these dreams return. But then reality kicks in, informed by several years of research on the impact of mega-events. The picture is not a positive one. In short, the Olympic Games is an expensive undertaking which rarely delivers on the promises of spectacular economic growth. Robert Baade and Victor Matheson, two experts in the field, summarises it best: ‘In most cases the Olympics are a money-losing proposition for host cities; they result in positive net benefits only under very specific and unusual circumstances.’ There are exceptions, of course. Los Angeles in 1984 was a financial success for two reasons: it built very few new stadia, and the costs that were incurred were mostly funded by the private sector. Barcelona in 1992, too, is considered a success, uplifting a city to global tourism status to the extent that Catalonians are now trying to curb tourism.

But these are the exceptions that prove the rule. Most cities that host the Summer Olympic Games continue paying for the event long after the closing ceremony. Montreal hosted the 1976 Olympic Games; Canadians finally repaid all of the debt in 2006, 30 years later. Many even argue that Greece’s economic woes of the last decade was a direct consequence of its 2004 Olympic Games expenditure. Most Olympic venues, built specifically for the event, are, at best, used for occasional events, much like the Cape Town stadium that was built for the 2010 World Cup. At worst, these venues fall into disrepair, and become a huge fiscal burden on the local government. Consider, as example, Rio’s Olympic venues only one year after the event!

Ex post studies of mega-events confirm the visual evidence. In a paper I co-wrote with Maria Santana-Gallego in 2011, we found that mega-events like the Olympic Games and Soccer World Cup boost a host country’s tourism by about 7%. This varies depending on whether the event was held during the off-season (like the 2010 World Cup in South Africa, and unlike the Olympics in Athens), the type of event (the Olympics is held within one city, the Soccer World Cup in several cities) and even who participates in the event.

Even if tourism increases substantially, as it did for South Africa before, during and after the 2010 World Cup, these advantages can easily be undone. In a back-of-the-envelope calculation, I have shown that all the tourism benefits South Africa derived from hosting the FIFA World Cup were undone by our ridiculous visa rules in 2015, a classic case of the negative unintended consequences of good intentions without sound analysis.

Despite the evidence against mega-events, cities and countries still line up to bid for them. It seems like an irrational thing to do, but there are very rational reasons cities and countries do so. These reasons are mostly political. The politician who hosts the event, will often not be the one who pays for it. There is an immense feel-good factor associated with hosting mega-events; having watched 8 games of the 2010 World Cup around South Africa, I know these emotions very well. And voters often vote for politicians not based on calculated policy statements, but on how they make them feel. A second reason is that cities can use a mega-event to get a larger share of the national budget.

South Africa 2023 stadiums.png

South Africa wants to host the 2023 Rugby World Cup. There are reasons for and against doing this. On the positive side, no new large infrastructure will be required. The event will also be held during the tourism ‘off-season’, meaning that rugby supporters would likely not displace other tourists. Its bid document projects an economic impact of R27 billion, with R5.7 billion to low-income households. A total of 39 000 temporary and permanent jobs is expected to be created. Sounds like a no-brainer.

But it’s not that simple; there are few things in life that are certain, but that these numbers are inflated is one of them. Cabinet has already approved a guarantee of R2.7 billion which was required World Rugby. The event will require public resources in an era when budgets are already under considerable stress. On the tourist side, South Africa have strong existing links with rugby-playing countries; tourism is therefore unlikely to see much of an increase before and after the event. And the feel-good factor of a tournament the size of the Rugby World Cup is limited if your team don’t win the finals; as a thought experiment, would 1995 have had such treasured memories were it not for Joel Stransky’s final drop goal?

Despite my childhood dreams, we were fortunate to escape the 2004 Cape Town Olympic bid, and even more fortunate to escape Durban’s Commonwealth Games disaster of 2022. Hosting mega-events are expensive parties, with inflated benefits and underestimated costs. (I should add: this is not only true for South Africa, but for Ireland and France, our competitors for the 2023 bid, as well.)

My heart wants us to win the bid; my head says it’s probably not the worst thing if we don’t. Let’s see what happens tomorrow!

*An edited version of this first appeared in Finweek magazine of 19 October 2017.

Written by Johan Fourie

November 14, 2017 at 07:05

The politics of infrastructure

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Cape Town railway historic

What type of infrastructure would be best for South Africa’s future? The answer, of course, depends on your point of view. If you live and work in Gauteng, your answer might well be to expand the Gautrain network. Or if you reside in Cape Town, you might prefer investments in desalinization plants. Your occupation may also be relevant. If you’re a miner, you are unlikely to support the expansion of renewable energies. A trained software engineer? Well, you’re likely to support large investments in telecommunications infrastructure.

An important – but often underappreciated – role of government is to choose the type of infrastructure that is destined to shape the country’s future development path. This choice is never neutral though: for every decision, there are winners and losers. Choose to build a new coal-fired power plant? That will benefit coal mine owners and workers, while the users of electricity, were the costs of alternative sources to fall rapidly, will pay. Choose to build a high-speed train network across the country (a hyperloop, perhaps!), then users of this network, likely to be high- or middle-income South Africans, will benefit, while long-distance bus services, taxi operators and rental cars will pay. The government’s job, in theory at least, is to choose the projects that will maximize the benefits and minimize the costs.

But things are never that simple. A research paper that will soon appear in the European Review of Economic History, written by Alfonso Herranz-Loncan and myself, investigate the infrastructure in the Cape Colony built during the second half of the nineteenth century. Before the discovery of diamonds in 1867, the few railways that existed (in and around Cape Town) were privately-owned and largely unprofitable. But the discovery of diamonds and the rush to the mines meant the demand for fast, affordable inland transport increased exponentially. The Cape government had to react.

They did. They bought the few existing lines, and then began to the process of connecting Cape Town to Kimberley, finally achieved in 1885. The connection to the booming diamond region brought huge economic benefits: we estimate that the railway may account for 22-25 percent of the increase in income per capita in the Cape during the diamond-mining period (1873-1905). This is a massive share for a single investment and a clear indicator of the transformative power of railways during the first era of globalisation.

But these benefits were not equally shared by everyone. Surprisingly, the government itself earned a meager 3.7% average return on its capital. Had a private firm built the railways, far fewer branch lines would probably have been built. As Stellenbosch PhD student Abel Gwaindepi now shows, the government incurred huge debt to build this infrastructure, and although the government did benefit through customs duties and other tariffs, the main beneficiaries were the owners of the diamond fields. The railway link between Cape Town and Kimberley could now transport the machinery and foodstuffs required to feed the growing Kimberley population. Western Cape wheat farmers, who supplied the mines with food, was another group of beneficiaries. It is not entirely coincidental that it was also these two groups – mine owners and Western Cape farmers – who had formed a political alliance in Cape parliament.

Of course, it was not only mine owners and Cape farmers that benefited. As detailed reports of passengers show, Cape Colony residents from all walks of life used the railways. But, ultimately, it was tax payers who had to foot the debt that were incurred, and often these tax payers were spread across the entire colony (far from the direct benefits of the railways) – and after unification in 1910, the rest of the country. And the location of the railways meant that those with less political influence – like Basotho farmers, who were of course producing wheat much closer to the diamond fields – lost out. Here is one missionary report from 1886, the year after the railway line was completed: ‘Basutoland, we must admit, is a poor country… Last year’s abundant harvest has found no outlet for, since the building of the railway, colonial, and foreign wheat have competed disastrously with the local produce.’

The nineteenth-century Cape railways contributed significantly to economic growth, but it inadvertently also had distributional consequences: some benefited more than others, and some even suffered as a result of its construction.

The lessons for today? Politics shapes the type of infrastructure that’s built. And infrastructure shapes the direction of economic development. So the key question is this: Are we building the type of infrastructure that will put South Africa on a path of broad-based economic development, or is the choice of infrastructure determined by the self-interest of those with decision-making power, much like Cecil John Rhodes and his cronies during the late nineteenth-century?

Put differently, when we choose a new power-generating facility or national air carrier or telecommunications license, do we consider the benefits for society as a whole or the benefits for a specific interest group?

*An edited version of this first appeared in Finweek magazine of 5 October 2017.

Writing a biography of an uncharted people

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Biography

Two weeks ago, early on the Tuesday morning while still in bed, I opened my laptop to start the day. I was staying in a guest house in Guelph, Canada, where I was on a short visit before heading off to the Economic History Association meetings in San José at the end of that week. Scanning through my mails, my eyes came to rest on an address I had expected – an email from our Development and Alumni Relations officer. It read only: ‘Geluk Johan!’ – ‘Congratulations Johan!’ Our Mellon application was successful. The Biography of an Uncharted People project had begun.

The idea for the Mellon project had started roughly a year earlier. South Africa’s individual-level census data for much of the period before 1948 has not been preserved, and economic history is increasingly moving towards understanding ‘history from below’, using large datasets to investigate the social, demographic and economic aspects of human behaviour in the past. Fortunately, large numbers of other types of individual-level records have been preserved in South Africa’s archives, and are increasingly being digitised by institutions such as FamilySearch.org. These records include things like marriage records, death notices, voters’ rolls, tax censuses and slave emancipation records. Using such source material, I believe, would have two main benefits: firstly, it would open many new avenues for historical inquiry and, secondly, it would help equip history students with the skills of the data revolution, something I’ve written about before.

Dyanti Ngcita

An example of a Cape province death certificate

But transcription is expensive. The Andrew W. Mellon Foundation, however, is a generous supporter of research in the humanities, and after a rigorous internal and external application process, with many excellent competing project bids, we received, on that wonderful Tuesday morning, the happy news of success – starting in January 2018, the project will be funded for five years.

This will not only be a South African project. We have brought together an impressive team of scholars, with a wide range of expertise. Now we are scouting for academically dedicated and enthusiastic students to join us in writing this new biography. We offer bursaries from postdoc to Honours level. More information is available on the project website.

I am excited about what the newly transcribed information, currently hidden away in millions of unused documents, can reveal. I am excited about building a team of dedicated and brilliant young scholars, a team that can continue long after the five years funding term. And I am also excited to join a new faculty and department, encouraging inter-disciplinary research that will, hopefully, provide new insights into the lives of South Africans, present and past.

Why #DataMustFall

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ZimBoth the Independent Communications Authority of South Africa (Icasa) and the Competition Commission are concerned about South Africa’s high data costs. It is about time. Of the 48 African countries ranked by ResearchICTAfrica.net for the first quarter of 2017, South Africa was the 22nd most expensive in which to buy 1GB data. All of South Africa’s main competitors on the continent, including Egypt (1st), Ghana (4th), Nigeria (8th) and Kenya (15th) ranked higher. Our poorest neighbour – Mozambique – ranked second, with US$ 2.27 for 1GB in contrast to our US$7.49.

Consumers have known this for some time. Last year, radio personality Thabo “Tbo Touch” Molefe started a Twitter campaign – #DataMustFall – that went viral. He was subsequently invited to address the parliamentary Portfolio Committee on Telecommunications and Postal Services about the high cost of broadband in South Africa. Said Molefe at the time: “The power of data gives access to education, mentorship, skills training, financial assistance, job searching and recruit.”

Molefe is correct. There is now ample evidence globally to show that internet access at affordable prices is correlated to better job market opportunities. This is especially true in South Africa, where the employment rate is seven percentage points higher in areas connected to the internet than those with no connection. The problem is that economists have struggled to show that this relationship is causal: areas with internet connectivity usually have all the other amenities that are associated with better job market prospects. It then becomes an empirical question of how to separate the effect of internet connectivity from things like education, infrastructure and wealth that also affect job market prospects?

A new NBER Working Paper by Jonas Hjort of Columbia University and Jonas Poulson of Harvard University offers an answer. The two authors exploit the gradual arrival of 10 submarine Internet cables from Europe in cities on Africa’s coast in the late 2000s and early 2010s to identify whether the higher speeds and cheaper data costs created new jobs. First, they show that the arrival of the cables did, in fact, increase average internet speeds and the expansion of the network. They then compare the changes in employment patterns in cities and towns with a bigger versus a smaller increase in access to fast Internet. “In each of three different datasets that together cover 12 African countries with a combined population of roughly half a billion people, we find a significant relative increase—of 4.2 to 10 percent—in the employment rate in connected areas when fast Internet becomes available.” Just as Molefe said: faster and cheaper internet creates jobs!

As with any economic change, there are both winners and losers. Hjort and Poulson show that the faster, cheaper internet reduces employment in unskilled jobs, but “enables a bigger increase in employment in higher-skill occupations”. In other words, just as automation does in the developed world, faster internet in Africa results in a change in the type of skills required. One might expect the consequence to be deeper levels of inequality. Not true, says the authors, especially in South Africa. Faster, cheaper internet enables South African workers of low and intermediate educational attainment “to shift into higher-skill jobs to a greater extent than highly educated workers”. The net effect is that fast internet lowers employment inequality across the educational attainment range in South Africa.

So what types of jobs were created by the arrival of the submarine cables? The authors find that “new and new types” of jobs were created via the “extensive margin” (meaning: new users) and “intensive margin” (meaning: different use of the internet by existing users). Using detailed firm level data, they show that, in South Africa, new firms are established, notably in sectors that benefit from ICT. In Ethiopia, by contrast, existing firms improve their productivity. In other African countries like Ghana, Kenya and Nigeria, firms with access to the faster, cheaper internet export much more, perhaps, the authors suggest, because “website communication with clients become easier”.

Technology is not just a threat to job creation – it is also an opportunity. But as the #DataMustFall movement has shown, fast internet access remains a mirage for most South Africans. That is hopefully changing. Non-profits, like Project Isizwe, want to facilitate the roll-out of free WiFi in public spaces in low income communities, as it is already doing in Tshwane. Similar initiatives are following in South Africa’s other metros. Both Google and Facebook are designing new technologies that could revolutionise connectivity for in rural areas.

Consumers are rightfully angry about the high cost of data in South Africa. Yet it is local entrepreneurs and their employees that should be most upset. As Hjort and Paulson show, cheap data will create more firms and more, better-paying jobs. “Employment responses of the magnitude we document indicate that building fast Internet infrastructure may be among the currently feasible policy options with the greatest employment-creating potential in Africa.”

Fast and cheap internet is probably the simplest way to alleviate South Africa’s high unemployment conundrum. Policy-makers should take note.

*An edited version of this first appeared in Finweek magazine of 24 August 2017.

Written by Johan Fourie

August 30, 2017 at 10:56

How do we build a prosperous, decolonized South Africa?

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boys-plowing

I recently attended an academic conference at the University of the Free State on the topic ‘Decolonizing Africa’. Much of the debate was, understandably, about the past: about the lingering effects of the (Atlantic) slave trade, European colonization that included the imposition of largely artificial borders, and the post-colonial failures of independent Africa. But at the final keynote, delivered by Prof Alois Mlambo of the University of Pretoria, the discussion turned to the future. How do we build a prosperous, decolonized South Africa?

One unescapably emotive topic is land reform. The expropriation and dispossession of land in South Africa is the root, many agreed, of the severe levels of inequality that plague the region. But how to correct this past injustice was not so easy; in the audience, too, were several Zimbabwean scholars quite critical of that country’s land reform programme. Over lunch, one Zimbabwean student told me the tragic story of his grandfather, a former farm worker on a white farm turned successful tobacco farmer after land reform, only to lose his land because he was considered ‘too successful’ by the ruling ZANU-PF party. The farm is now dormant.

Getting land reform right is fraught with difficulty. Not everyone that suffered land expropriation wants to return to farming – by far the largest number of recipients of successful land claims in South Africa choose the cash instead of the land. (This is often ignored by politicians and commentators when simply taking the hectares transferred as measure of land reform success.)  And even when recipients choose to return to the land, they often struggle to support themselves because of the small size of land allocated, or a lack of capital investment, or a lack of technical or management skills. There are also political consequences: because land recipients, like those in Zimbabwe, often do not receive title deed to the land they are given, they become ensnared by the political party that gave them the land. Why do people still vote for ZANU-PF despite the state of the economy? Because they worry a vote for the opposition means that they might lose their land. Most worryingly, it is often the original farm workers who lose the most, like the Zimbabwean student’s grandfather.

This is not to say that some form of wealth redistribution is not imperative. But whereas land (and the minerals it contained) was clearly the most productive resource when it was expropriated in the nineteenth century (which is the reason it was expropriated), a valid question is whether it still is the most productive. Of course, people value land not only for its economic uses: there are a myriad of historic, cultural and religious reasons why the land of your ancestors are treasured. But as a redistributive policy aimed at creating a more equitable society, is land reform the best way to create prosperity for those who suffered historical injustice?

Think of the fastest growing companies globally: which of them still rely predominantly on land ownership? AirBnB is a great example: it is the world’s largest accommodation service, without owning any property! For AirBnB and the myriad other unicorns that have created incredible wealth for their founders and shareholders, it is not land or physical property that creates wealth, but science and technology. (Even farmers know this: that is why they are investing in science to improve their crops and in technology to mechanize production.)

In the twenty-first century, land is what you buy with your wealth, and not the reason for your wealth. A quip about Stellenbosch wine farmers summarize this well: How do you make R1 million farming in Stellenbosch? You spend R2 million.

Prof Mlambo remarked that India and China, both with a history of colonisation, is not growing at above 5% because they have redistributed land. They have prospered because they embraced science and technology. Consider this: in the 2015/2016 academic year, 328,547 Chinese students studied in the United States; only 1,813 South African students did. (If you account for population size, 7 times more Chinese than South Africans students study in the US.) Take South Korea, a country with roughly the same population size as South Africa: 61,007 South Koreans traveled to study in the US in 2015/2016, 33 times more than South Africa.

So how would a redistribution policy look that takes science and technology seriously? I don’t have the answers, but here are some suggestions. Most of us would agree that education is key, but the South African education system has not made much progress in the last decade and it is unlikely to do so in the next. Redistribution must start at the first year of life. Publicly funded but privately run nurseries will remove the gap between the rich and poor that has already emerged when kids arrive at school. For primary and secondary education, a voucher system that incentivize private schools for the poor is an option. At tertiary level, we need more and better-funded universities, notably in science and technology. (It would help to send more of our smartest students abroad to study at the frontiers of science – they will return with new ideas and networks to propel our industries forward.) Visas for and recruitment of skilled immigrants can boost research and entrepreneurship. Improve free wifi access and invest in renewable energies. The private sector, because that is where most innovation occur, can be incentivized through appropriate legislation to offer shares to workers – or to those living in communities where they operate. There are a myriad of innovative possibilities.

If Zimbabwe has taught us anything, it is that politics may triumph over economic logic. Land reform in Zimbabwe was not an economic strategy in as much as it was a strategy to keep the ruling party in power. It has had severe economic consequences, as anyone visiting Zimbabwe today can attest. The real radical economic transformations of our age – just in my lifetime, the Chinese has managed to reduce the share of people living in absolute poverty from 88% to less than 2% – have not come from redistributing an unproductive twenty-first century resource. It has instead been the result of investments in science and technology. Any attempt to redistribute with the purpose of building a more prosperous society should take this as the point of departure.

*An edited version of this first appeared in Finweek magazine of 29 June 2017.