Books for the (South African) summer (2018 edition)

It’s that time of year again: sun, sand, sea… and softcovers! Here are the top seven books I read this year, and a list of what I hope to read this summer.

Washington Black, by Esi Edugyan

A beautiful and brilliant book about Wash, an early nineteenth-century Caribbean boy who escapes the brutal life of a slave (by building an air balloon), and then journeys the world from the Arctic to London to Morocco on a (surprising) scientific quest.

Silence of the Grave, by Arnaldur Indriðason

Whenever I visit a new country, I try to read at least one local crime novel. On a 12 day visit to Iceland in August, I read through four of Indriðason’s superb crime novels. Silence of the Grave is his most celebrated, and my favourite.

The Book Smugglers of Timbuktu, by Charlie English

The past and the present of West Africa are interwoven in the stories of twenty-first century book smugglers and eighteenth-century European discoverers.

Fishing: How the Sea Fed Civilization, by Brian Fagan

It was not only the domestication of grains that allowed us to conquer the globe. Fishing fed human settlement, rising social complexity, the development of cities, and ultimately the modern world. To be enjoyed with fish and chips…

Marriage, a History: How Love Conquered Marriage, by Stephanie Coontz

Already published in 2006, this accessible history of marriage is both remarkable in its breadth and invaluable as a conversation starter. You may have married for love, but it is highly likely that your grandparents (and certainly their grandparents) did not.

Radical Markets: Uprooting Capitalism and Democracy for a Just Society, by Eric Posner and Glen Weyl

An engaging and provocative view on how markets can reshape society. Particularly relevant for South Africa.

The Great Leveler: Violence and the History of Inequality from the Stone Age to the Twenty-First Century, by Walter Scheidel

Inequality is deepening, and people everywhere are demanding policies that purport to reduce it. Don’t be overly optimistic about these attempts, says Scheidel. A sober view on a topic that will be with us for a long time to come.

On my (non-fiction) reading list this summer:

Sol Plaatje, by Brian Willan

Europe in Flames: The Crisis of the Thirty Years War, by John Matusiak

Go Tell the Crocodiles: Chasing Prosperity in Mozambique, by Rowan Moore Gerety

Capitalism in America: A History, by Alan Greenspan, Adrian Wooldridge

Nabokov’s Favourite Word Is Mauve: The literary quirks and oddities of our most-loved authors, by Ben Blatt

Identity: Contemporary Identity Politics and the Struggle for Recognition, by Francis Fukuyama

Unai Emery: El Maestro: The Authorised Biography, by Romain Molina

 

The future is an unknown unknown

Humans know how to adapt. We have populated the planet not because we found an agreeable environment everywhere, but because we were able to adapt to the diverse and often hostile environments we moved into. And so it is today. To survive and thrive, we need to adapt to the global forces of our times, from climate change to automation.

Those with the freedom and ability to adapt to these global forces will benefit most. Take automation. Artificial intelligence and robotics now allow most tasks that manual labourers perform to be done without human intervention. One of the most exciting technologies revealed at the end of 2016, from my perspective at least, is an automated washing and ironing machine. Dirty clothes go in on one side and the fully-ironed clothes, folded by tiny robotic hands inside the machine, come out on the other side. Finally those dreary Sunday afternoon ironing exercises will be a thing of the past! Collectively this technology will save millions of productive human hours, particularly for women who in almost every society are still responsible for most home labour.

And yet, this wonderful new technology won’t be welcomed by everyone. South Africans employ more than 1 million domestic workers (or more than 8% of the work force), most of whom are women from poor households. If the cost of this new machine falls considerably in the next decade (and minimum wages continue to rise), we might soon see a significant decline in demand for ironing services. Because poor South Africans do not have the freedom to adapt to these new technologies, unemployment and inequality will likely increase.

There are many other examples. Tesla and other car companies are working on self-driving cars (no need for taxi drivers) and, which is likely to have an even bigger effect, self-driving buses. Truck driving is America’s sixth most common occupation. Or consider McDonald’s most recent innovation: self-ordering counters. No need to employ more expensive and unreliable staff. How long until everything in a McDonald’s restaurant is automated, from food preparation to servicing and cleaning? Amazon has recently revealed its plan to open 2000 automated grocery stores across the US. And then there are the many disruptive digital technologies, which The Economist editor Ryan Avent writes about in his latest book The Wealth of Humans.

The political consequences of these supersonic changes are unknown. As Avent notes, we are the first generation to live through an industrial revolution. There is little in history that tells us how society will react to such rapid changes. He predicts social unrest, unless government or civil society can reform social welfare programs on a massive scale. We have already seen this in South Africa and elsewhere: the democratic process, for many, is too slow and cumbersome. Service delivery protests, the #MustFall-movement and the global shift towards a more nativist conservatism suggest that the voices of those at the bottom of the income distribution will be heard outside the ballot box.

More creative solutions to support those left behind by the benefits of technological innovation and globalisation must be found. One idea is to institute a basic income grant that would give every person in South Africa a monthly stipend. This is no novel idea – Thomas Paine proposed a similar idea in 1797 – but economists are increasingly willing to put the idea in practice: Utrecht, a beautiful Dutch city south of Amsterdam, will next year give several hundred of its inhabitants an annual monthly stipend of 960 euro.

The concern is that people opt out of productive labour if they receive money for free. The consensus, though, is that this is unlikely: the aspirational drive of humans to move up the income ladder will push them to work hard regardless. What a basic income grant does is to make sure the ladder is solidly grounded.

But even a basic income grant won’t do enough. The rapid change will bring about psychological and sociological consequences that are hard to predict. Which social policies to implement, from early-childhood development to adult retraining programmes, in order to combat the technological disruption will be important research questions in the next few years. Creative use of technology, ironically, might be one solution.

Donald Rumsfeld famously quipped that there are known knows (the things we know we know), unknown knows (the things we know we don’t know), and unknown unknowns (the things we don’t know we don’t know). The future used to be mostly unknown knows. With some degree of likelihood, we could analyse the past and make conjectures, following somewhat linear trends, about what the future might hold. Change was incremental; we had time to adapt.

The period of rapid change we have seen since the dawn of the Internet is only likely to accelerate. As a species, we have never been required to adapt this fast, and not everyone in society will have the freedom and ability to do so. This will lead to social conflict. To minimise the consequences of this social conflict, the greatest challenge of the next decade is to enable as many as possible to adapt to the inevitable unknown unknowns of our rapidly-changing world.

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

**As this is my first post of the year, I would like to wish all readers a productive and memorable 2017. Let’s hope this will be a good one.

We are still on the way up

I arrived in the USA a day after Donald Trump was announced as president-elect of the United States. I gave talks at Harvard, Mount Holyoke College and MIT, and met with several faculty and students over the four days of my visit. It was eerie. Some students were still in denial, not helped by the fact that they started drinking as soon as the results became evident. Others were in various stages of grief: angry at the nativism of a large chunk of Americans, bargaining in the hope that Hillary might still win, or depressed at how quickly the America of Obama – to whom many at these prestigious institutions look up to as an inspiring intellectual – has given way to the America of Trump – whom they consider to be a coarse, boastful buffoon.

Trump’s victory seems to have been another nail in the coffin of liberty and progress. In America, walls will replace bridges. Despite what Trump has said on the campaign trail, his tax cuts will likely benefit the wealthy elite. And his views on women, on LGBT rights, on climate change, on health care, on trade openness and on immigration is likely to reverse much of the gains in general freedoms the US has made over the last decade.

These trends are not limited to America. Earlier this year the Brexit result revealed the same nativist fear, an anti-open, anti-globalisation vote. Brexit was a vote for a return to the ‘good old times’, however unlikely that is to materialise. It was a vote against intellectualism; liberal London against the conservative hinterland. And in South Africa, the rise of nativist populism on both the extreme right and left reflect a similar frustration with the progressive Rainbow Nation of yesteryear and its liberal (sell-out!) constitution.

Across the globe, it seems, the extraordinary liberty and progress of the 1990s and 2000s are being rejected for a more insular, protectionist conservatism.

We should not be that surprised. Liberty and progress, as a historian at MIT reminded me on my recent visit, is never a foregone conclusion, never an obvious eventuality.  Liberty and Progress is not an Uber ride, taking the shortest, fastest route to a known destination. It is, as the Beatles knew, a long and winding road. Sometimes there are detours, and sometimes we get lost.

Take, for example, Martin Plaut’s latest book, Promise and Despair, the story of the delegation of black leaders that traveled to London in 1909 to fight for representation in the new Union of South Africa. Remember, since 1853, the Cape Colony had had a non-racial franchise, allowing men of all races who had sufficient income or property to vote. When the unification of South Africa began to be discussed following the Anglo-Boer War, many had assumed that the (Liberal) English government would extend the same franchise to all. In fact, this was the promise Lord Salisbury had made in 1899. But politics trumped morals. To secure the support of whites in South Africa in case of war, the English reneged on their promises and turned down the appeal of the delegation. Liberty and progress had to wait.

But to focus on the newsworthy failures of liberty and progress the last few months misses the much bigger story of the last few decades: the incredible improvement in living standards of most of humanity. Johan Norberg, in a new book simply titled Progress, concurs: ‘Despite what we hear on the news and from many authorities, the great story of our era is that we are witnessing the greatest improvement in global living standards ever to take place.’ Life expectancy has risen sharply, poverty and malnutrition have fallen. The risk of death in war or natural disaster is tiny in comparison to our parents or grandparents.

 

Reasons to be optimistic: Trends for important human welfare measures are all positive in the long run. Source: ourworldindata.org

 

But this does not mean we should be complacent. Says Norberg: ‘There is a real risk of a nativist backlash. When we don’t see the progress we have made, we begin to search for scapegoats for the problems that remain. Sometimes it seems that we are willing to try our luck with any demagogue who tells us that he or she has quick, simple solutions to make our nation great again, whether it be nationalizing the economy, blocking foreign imports or throwing the immigrants out. If we think we don’t have anything to lose in doing so, it’s because we have a bad memory.’

2016 has been a year of setbacks. It reminds us that liberty and progress are never fait accompli, never self-evident. We have to work hard at it, and even then it is not guaranteed. It requires patience and a long-term view. But don’t let 2016 shake your beliefs about humanity’s march forward: we are still on the way up, even if it will take us a little longer to get there.

*An edited version of this first appeared in Finweek magazine of 15 December.

Books to make you think this summer

It’s – finally! – summer again. After three winters in a row, Helanya and I are looking forward to some sun, sea and sand (and watermelon, and ice-cold beer, and cricket on the tele, and litchis, and did I mention sun?). And what better way to enjoy summer than with excellent local and international books, fiction and non-fiction to make you think. Here’s what I’m recommending for those long, lazy days on the beach:

Nomavenda Mathiane’s excellent Eyes in the Night tells the true story of the life and times of the author’s grandmother, Gogo Makhoba. Apart from the title (I don’t quite understand the relevance), the book is an eye-opener on a neglected part of South African history: the tale of a young girl’s adventures during and after the Anglo-Zulu war of the late nineteenth century. It is an incredible story of resilience in the face of almost unthinkable atrocities. And yet, with the author resisting the urge for melodrama, grandmother okaMakhoba and her experiences of running from the English Redcoats, working in the household of the horrible Oubaas, and then running away to Zulu missionaries who convert her to Christianity, complicates our often oversimplified version of history. Who stole land, and at what cost? How did Christianity affect Zulu traditions? What are the differences between township and traditional Zulu culture? It is good to be reminded that history is never black and white. Through her grandmother’s extraordinary life, Mathiane gives South Africans a vibrant picture of our own interconnectedness and, for lack of a better word, complicatedness. Eyes in the Night is a book I enjoyed thoroughly and is my book of the summer.

Deon Meyer is a household name, and not only in South Africa. Yet his stories are as South African as they come. He has produced another gem with Koors (as far as I can see, still only available in Afrikaans). What happens when 95% of humanity is wiped out by a deadly virus? How do we rebuild civilization? How do societies develop? Yes, this is the fictional story of a young South African boy and his dad trying to survive the aftermath of a deadly virus, but it is more than that: it is a philosophical reflection on the roots of development. What role for specialisation, for trade, for politics, for religion in the creation of societies, and how do these interact as these societies become more complex over time? (Sidenote: political economists familiar with the literature on stationary and roving bandits would particularly enjoy this. If I have to be critical, I would have liked to see more economics – for example, the birth of currency in this post-apocalyptic world, or the emergence of debt and credit, although I guess these are less sexier topics.) Combine this fascinating setting with a murder plot and you’ve got a book that is much like all his others: unputdownable. And I promise: you won’t be able to predict the twist at the end…

I’ve just started Richard Baldwin’s The Great Convergence, but have seen enough to recommend it. Globalization is not popular, yet it continues to lift many out of poverty. Baldwin’s clear analysis of an increasingly complicated phenomenon helps us understand how the the cost of moving goods, ideas and people has shaped, and will continue to shape our economies – and politics. Richard Evans is a historian I greatly admire, and he seems to have produced a wonderful new account of the nineteenth-century in Europe: The Pursuit of Power. (Sidenote: I also love the cover.) The Information Nexus presents an intruiging new thesis that explains the rise of capitalism not so much as an accumulation of capital but instead as an improvement in our ability to record and process information.

Johan Norberg (great name) shows why we should be a little less despondent about the events of 2016: the world is still a much better one than the one of we inhabited a decade or five decades earlier. One way to summarise the book: ‘200 000 people were lifted out of poverty yesterday’ is a newspaper headline that could have appeared every single day the last decade. Donker Stroom is an award-winning true story of an Afrikaner writer and poet and his adventures in England during the Anglo-Boer War. Still unread, but it comes highly recommended.

I will post a couple of my Finweek columns over the next few weeks, but this will be the last personalised blog post for the year. Thanks again for continuing to read, and share my posts: I appreciate all the feedback and support (and criticisms) I receive.

2016 has been a tough year in many respects. Let’s hope 2017 will be filled with happy surprises.

Sapiens and Naledi

I finally read Sapiens: A Brief History of Humankind by Yuval Noah Harari. It is a provocative book, one that challenges many of our long-held beliefs. Religion, for example, is one topic that will upset many – one of the ‘myths’ or ‘fictions’ humans have, says Harari, like money or empire. But it is the discussion of how we have domesticated plants and animals and its implications for today – ‘We did not domesticate food. It domesticated us.’ – that is revealing, if sometimes leaning towards the sensationalist – ‘modern industrial agriculture might well be the greatest crime in history’.

The book sets out to explain the three most important revolutions in human history, the Cognitive Revolution (around 70 000 BCE), the Neolithic Revolution (around 10 000 BCE) and the Scientific Revolution (around 1500 CE). It is much better at the first and second than at the third. In fact, as with one of my favourite books, Jared Diamond’s Guns, Germs and Steel, Harari unsuccessfully attempts to make the post-1500 and particularly the post-1800 period fit into the simple framework of the two earlier epochs. (For example: he attributes the Industrial Revolution to only two things – imperialism and science. If this was true, then China should have had an Industrial Revolution in the 15th century, when they were the most advanced scientifically and were discovering the world with their giant fleets. But they didn’t.) Read the book for the first half, not for the last.

The topic of humans and their evolution is a fascinating, and also fast-changing one. The October 2015 edition of National Geographic tells the tale of Lee Berger’s discoveries of Homo Naledi in a cave near Johannesburg. Homo Naledi fits somewhere between the apelike australopithecines like Lucy, a skeleton discovered in Ehtiopia in 1974, and Homo Habilis, the ‘first’ known human ancestor of us, Homo Sapiens, which was classified in Kenya in the 1970s. This evolution occurred maybe two to three million years ago. Homo Habilis (or the myriad of other forms of proto-humans that existed but are still undiscovered) evolved into Homo Erectus, and then Homo Sapiens. These sapiens left Africa in two waves. Almost all human DNA derive from the second ‘Out-of-Africa migration’ around 75 000 BCE. (The Neanderthals derive from the first out-migration, and new evidence suggests may have left a tiny DNA footprint in some modern Europeans.) The Cognitive Revolution, when we begin to see evidence of art and burials and other cultural traits, begin around 70 000. Homo sapiens – modern humans in all respects similar to us today – reached South Asia around 50 000 years ago, Australia around 46 000 years ago, 43 000 years ago, North America around 15 000 years ago, the Pacific islands around 1300 BCE and New Zealand only around 1280, about the same time as University College in Oxford was founded.

The cave Berger and his large team of archaeologists uncovered was a remarkable find, a possible link between our apelike ancestors and modern humans. It has also shifted attention back to South Africa and our rich archaeological history. This is one area of science where we clearly have a comparative advantage, and more can be done to promote this field of research.

But why care about the evolution of humans, you may ask. In Sapiens we find the answer: according to Harari, we are about to be replaced by a superior human. After the Scientific Revolution came the Information Revolution of the twentieth century. And now we are at the cusp of the Biotechnological Revolution. Soon we will be able to engineer humans to become amortal (not immortal, because we would still be able to die in car crashes and terrorist attacks). And these humans might be smarter, quicker, better than us. And once artificial intelligence reaches the singularity, who knows what they will do to humans, to us.

I am less pessimistic that we will soon be replaced by Homo Mechanica. Biotechnology, instead of replicating human brains, might allow us to fully exploit our extraordinary creativity. Much like love, it might help us to become better versions of ourselves, a new and improved Homo Sapiens.

How to decolonise an Economics curriculum

The economics curriculum at South African universities is in crisis, claims Ihsaan Bassier, an honours student at UCT. He writes that UCT’s curriculum is ‘largely abstracted from South Africa’s economic crisis and reinforces an anti-poor understanding of policies’. He explains:

Economics is presented as an amoral subject, only examining mechanistic questions and optimising efficiency. If it is amoral, why is so little attention given to heterodox thought? Capitalism arbitrarily privileges those with money over others in the most violent form possible, through a system of class protection, marginalisation of the poor and gross injustice. Rather than being amoral, undergraduate economics in fact promotes a horrible moral: that “rationality” is defined as profit-maximisation and that the point of departure is our violent system. Students are trained to be apologists for capitalism and alternatives are marginalised.

It is both bad economics and anti-poor for students to be bombarded with arguments that government intervention and minimum wages are “bad”. Social benefits are blamed for unemployment, as if it is preferable to allow people to starve; regulation is demonised, as if unfettered business would solve South Africa’s economic problems. Some attention is eventually given to market failure, but only as a token.

Why do we not learn more seriously about other systems and behaviours, about technical aspects of socialism and redistribution, about power, about how racism interacts with capitalism, the pervasiveness of rent and out-of-equilibrium dynamics, or an endless number of alternatives that my education has not exposed me to?

UCT’s curriculum is quite similar to that of Stellenbosch, where I teach. So let me respond to these rather big accusations, and then make a suggestion.

Capitalism arbitrarily privileges those with money over others in the most violent form possible. Economics equips students with a set of tools that allow them to explain the world around them. One of those tools is statistical analysis, which means we can test a hypothesis – like the above statement – with evidence from the real world. And unfortunately for Ihsaan, the real world evidence is pretty clear on this one: capitalism, a system based on the principle of individual rights, has created remarkable economic freedom for humanity over the last three centuries. Consider this: the real income of the median person in the world doubled in the period between 2003 and 2013, a period that included a financial crisis. In 1981 more than half the people in the world lived in absolute poverty. Today, it is less than 20%. It is simply wrong to declare, without proof, that capitalism arbitrarily privileges those with money. Millions of Indians, and Chinese and, yes, Africans too, have higher living standards than their parents did, and that is highly correlated with more market activity, not less. (In fact, privileging arbitrarily is exactly what communism does, by removing people’s individual freedoms and choices. Just ask the Latvians or any other Eastern Europeans who suffered its consequences.)

Global poverty the last two hundred years

That is not to say that everything about capitalism is great. Capitalism is not one thing – it morphs into different forms depending on the political and social context. Capitalism in America is certainly more unfettered than capitalism in, say, France. And there is certainly space for more debate about the type of capitalism we need in South Africa.

But those debates need to be based on sound theories and falsifiable evidence. Economic policy arguments – Is a higher minimum wage better for the poorest? Do social benefits lead to unemployment? Does regulation impede growth? – are all empirical questions, one that economists’ statistical toolkits can answer. Yes, we have theories about how the world works, but as Dani Rodrik explains in his excellent new book, Economics Rules, there is not one single (better) theory, but a menu of theories that economists can use to understand their world. Think of a theory (or a model) as a map. There is no single map that explains everything. Sometimes you need a world map just to look at countries. Sometimes you need a street map to take you to your destination. Other times you need a map of the soil quality if you want to sow for the coming season. Economists’ models are the same. We use different models in different contexts, and what makes a really good economist is picking the right model for the right question.

Here, Ihsaan’s critique is valid. In first and second year, the emphasis is too much on a single theory (or model) of the world, the standard, neoclassical theory. There are good reasons for this, of course: it is mathematically tractable and provides a solid base for understanding basic human interaction. And that is exactly why it is a good platform for understanding why it does not work in every setting: the assumptions are strong but they are also explicit. Relax some of those assumptions, and the results change. This is exactly how we come to improve our understanding of the world. (In my class, I discuss these assumptions in the South African context and ask the students whether they may or may not hold. That is, I’ve found, how students actually gain a better understanding of the complexities of the problems we have in South Africa, and an appreciation for the tools of economics, of modeling and statistical testing, to solve them.) But a more explicit treatment of the menu of theories economists have at their disposal is necessary.

Ihsaan offers three solutions to solve the curriculum conundrum: 1) admit that we are in a crisis, 2) allocate time to a topic in proportion to its importance in our context, 3) include topics such as poverty, unemployment and inequality from the first year. He fears that too many students leave Economics after only one or two years, without understanding the nuances of the models.

What undergraduate Economics begins to do is equip students with the analytical tools to investigate the important topics of our era. Students need the basic skills of mathematical and statistical analyses to be able to empirically test the questions we are all concerned about. To make it more practical: Debating poverty in South Africa is very difficult if your opponent has no idea how to calculate a ‘poverty line’ or ‘median income’. Or the impact of a higher interest rate with someone who has no idea what the monetary transmission mechanism is. Or the impact of an increase in VAT with someone who has never heard about tax incidence. That is why we need those first three years.

And yes, many students leave after only two years. True, they will have a limited understanding of Economics. But no one expects me to be a psychologist with just Psychology 1, or fluent in French with just French 2. This is why we need to encourage more students to enroll for Economics graduate degrees, and why we need to expose them to more analytical tools, not fewer. We cannot afford to have a society where economic policy is not informed by sound economic analysis undertaken by well-trained, analytical economists. Undergraduate Economics – with the emphasis on rigorous analytical training in microeconomics and macro-economics – needs to stay. This not only gives a solid toolkit for those who want just the ‘essence’ of Economics, but it also allows students to continue with graduate Economics, not only in South Africa but elsewhere. And as I’ve said before, to get into US universities requires a lot of analytical skills.

But I also understand the need for more context, for thinking and discussing the very real material problems that South Africans face. So, I have another solution for Ihsaan, one that betrays my biases: We can look to the past to help us understand today’s problems, and we can look to what the brightest minds have thought about solving these complex problems. In short, we can do more to encourage Economic History and the History of Economic Thought as analytical tools of their own to make sense of today’s development problems.

Ihsaan is fortunate: UCT does have a good undergraduate economic history programme, and a wonderful third-year class in the History of Economic Thought. Global and African economic history provides us with an understanding of the historical roots of poverty, inequality and unemployment; the past does not only explain the present, as one colleague notes, but it is analogous to the present. The History of Economic Thought is concerned with philosophers’ (or theorists’) ideas about solving the economic problem, including philosophers that were very much in favour of socialism. If the neoclassical model is a country-map, the History of Economic Thought is a map of the world, showing how neoclassical thinking evolved and why it became the dominant model.

At Stellenbosch, we have created an entire course in the second year to investigate past and contemporary economic development. One semester of Economics 281 starts with the Neolithic Revolution (circa 8000 BCE) and ends with the Economics of Apartheid. The other semester considers all kinds of current development policies, with a specific focus on South Africa. I see Economics 281 as complementary to the standard Economics courses. You cannot have the one without the other.

You do not decolonise a curriculum by removing content. If you do that, you deny students the opportunity to participate in global debates and the global job market. You decolonise by adding more context and diversity. We advance science by standing on the shoulders of giants. Decolonisation done right can add more shoulders to stand on.

 

Piketty in South Africa

After missing his flight and his much-anticipated Cape Town lecture, Thomas Piketty, the French economist who published the widely-acclaimed and best-selling Capital in the Twenty-First Century last year, arrived in South Africa to deliver a lecture at Wits University yesterday. And he did not disappoint, calling for higher minimum wages, land redistribution and, echoing his call in Capital, a wealth tax. But his most stinging critique he reserved, it seems, for economists: “No such science as economics”, one conference attendee tweeted Piketty, “everyone can have an opinion. Applause from room full of social scientists & historians”.

I can understand the frustration with economists. They write in a language few other social scientists understand. They tend to support a system of wealth creation that is not very hipster. And Piketty is right: For a while in the previous century economists may have believed that economics is a science on par with physics, and that the economy can be manipulated much like a giant computer. But for the most part, economists have now realised (and incorporated into our models) the knowledge that people are not always rational agents, and that they make decisions within social settings where context and institutions matter as much as incentives. Witness the rise of behavioural economics and the renaissance of economic history.

Yet bashing economics is a favourite past-time of social scientists in South Africa. At the recent South Africa Historical Society conference in Stellenbosch, a historian and one of the organisers of yesterday’s Piketty event suggested to a room full of his colleagues and students that instead of studying economics, historians should just read more. I agree that we all should read more, but why deride economics in the process?

It is difficult to not attribute such ridicule from social scientists and historians to a fear of numbers. Because what economists – and certainly most South African economists – do, is measure. We measure the increase in prices in order to determine the most appropriate level for the interest rate. We measure the quality of schools to ascertain why kids drop out too early, or why many of our high-school graduates struggle to find jobs. We measure the international trade of goods and services to understand competitiveness and adjust tariffs. And yes, we measure income levels to say something about inequality and its historical evolution. Still, there is much we don’t yet measure, which is why we need more (historical) statistics, not less, much like Piketty called for yesterday: “We need data to have a better conversation about inequality in South Africa.”

More data allow us to test our hypotheses about how the world works. Because we believe, much like other (social) scientists do, that theories help us to explain and understand the world better than simply ‘having an opinion’. Astrologers have an opinion. Homeopaths have an opinion. But I don’t rely on them to tell me why I am ill. Social scientists (yes, all of them, even historians) construct theories about how the world works, and then use evidence (quantitative or qualitative) to test the relevance of these theories.

Which is why I find it surprising that very few of the commentators at yesterday’s Piketty lecture actually engaged with Piketty’s theory at all. I assume everyone actually read the book – or at least the first chapter that summarises the thesis quite nicely. But did any take the trouble to read at least some of the critiques? This paper is a good start, written by an economist and political scientist. It actually uses South Africa as a case study (in comparison to Sweden) to show why Piketty’s measurement of inequality misrepresents what actually happened in both countries during the twentieth century. Or there is this (rather long) response from Deirdre McCloskey, certainly no proponent of the mathematical direction economics took in the 80s but also not averse to fighting with numbers.

And why did no one – not even Piketty himself – make an effort to gather historical data on wealth inequality in South Africa? With little effort and using Reserve Bank data, a PhD student at Stellenbosch could calculate wealth and income rates for South Africa going back to 1975. Instead of finding the same U-shaped rebound in private accumulated wealth as Piketty did for rich countries, she found that in South Africa the wealth-to-income ratio has been relatively low and stable at about 250% for the past 40 years.

This is important not only because it shows that social context and institutions matter, but because it could have very real policy implications. The Davis Tax Committee’s recent recommendation on estate duties is partly motivated by extensive references to Piketty’s book. Acccording to the Financial Mail, the committee suggests that the rules should change so that tax revenue from estate duties increases by about 10 times. Here’s Stan du Plessis, dean of Economic and Management Sciences at Stellenbosch and PhD supervisor of the student, on the topic: “The Davis Tax Committee and everyone else in SA assumed that since inequality is so high in SA, what Piketty was saying must also hold true for SA. It does not.” That is what economists do.

Land expropriation is another policy of choice to reduce inequality. Piketty argues that because land redistribution have reduced inequality in Brazil, for example, it should work in South Africa too. Not quite: I don’t know much about farming, but I do know that most land in South Africa is not as fertile as in tropical Brazil. Here a farmer needs a lot of capital equipment to be productive, which in turn requires large scale farming to be profitable. It also requires management and technical expertise. Those things, in contrast to land, are difficult to expropriate and transfer. Why not, instead, give poor, black South Africans a choice: I am quite confident that not all would prefer to become farmers. Offer them shares (at massively discounted rates, perhaps subsidised with the income from the wealth tax) in companies listed on the Johannesburg Stock Exchange. To begin with, the SA government owns shares in several listed companies too: if these are transferred to poor South Africans, they have liquid capital which they can – if they so choose – either sell and buy land or hold on to earn dividends. This is what BEE is all about, and in the few cases where it was implemented correctly, like in Naspers selling discounted shares to black South Africans, it has created immense wealth. Giving someone land without the necessary scale, capital and skills to work it (especially someone living in a city, like most South Africans now do), dooms them to a live of subsistence farming.

Piketty’s other proposal of a higher minimum wage also fails to acknowledge the excellent work of South African economists over the last few years. Yes, a higher minimum wage in the United States might not increase unemployment (because it is off a low base and much lower than the median income level), but to recommend such a policy in a country with an unemployment rate above 30% is not only irresponsible but disastrous. New research by labour economists in my Department at Stellenbosch shows a stark rise in unemployment, 4.8% in the Western Cape of mostly temporary workers, following the increase in the Western Cape minimum wage on farms two years ago.

Because data allow us to test and improve our models, certain theories become generally accepted. One of them is the likely impact of a wealth tax. I am not necessarily against a limited wealth tax (for political economy reasons), but what Piketty and his commentators failed to do was spell out the likely effects of such a tax. So let me attempt to do so. A wealth tax favours the young and punishes the old. Young people, like me, have many debts. If the wealth tax is instituted on net wealth (which I think is what Piketty argues for), then it will have a limited impact on me but will tax my parents heavily, who have paid their debts during their lifetime. So here are my options: either I live frugally now, saving carefully and repaying my debts, only to be taxed by government when I’ve done so, or I stop saving and buy a fancy new car, because that’s better than giving it to government. Rather than growing my savings, I would instead find ways to consume all my earnings. (This is why Bill Gates suggests a progressive consumption tax instead. Piketty warns that consumption is difficult to measure, which is true. But it actually encourages saving, investment and accumulation, something a wealth tax does not do.)

Except, of course, one type of investment which cannot be (directly) taxed: education. So expect to see parents, because they cannot leave their children a large physical inheritance, spend even more on educating them. Surprisingly, this will likely increase inequality in South Africa even further. As economists know very well and as Kuben Naidoo, Deputy Governor of the South African Reserve Bank, so eloquently put it yesterday, “the major increase in inequality in South Africa is as a result of rising skills and not wealth accumulation”. Even if all the gains from the wealth tax is spent by government on education (unlikely to be the case), we will continue to have a schooling system that is horribly unfair. A lot of tax money so far has failed to fix the problem; South African economists that have measured these things clearly show that more school resources (like higher teacher salaries or buying more books) help little to improve education outcomes. Why is that likely to change if we add even more money to the mix?

Wealth taxes are most likely to reduce investment and social mobility, exactly the opposite of what is necessary to fix South Africa’s economy. Yes, we may get the richest billionaires to cough up some more of their wealth to government. But will it really matter to the kid from Soweto or Soshanguve whether Nicky Oppenheimer or Johann Rupert or Patrice Motsepe has R8 billion or R4 billion in wealth? Not a lot.

What will matter to that kid is whether he will get a fair chance in life. That is unlikely to happen if we don’t fix our education system first and make it easier for people to do business and create jobs. A wealth tax that discourages investment and raises the cost of education is not going to help, and might even have a perverse impact.

I agree that we need to address South Africa’s massive inequality. To correct this wrong is the reason many economists choose to study economics in the first place. And I also understand Piketty’s appeal: he proposes three policies that are relatively easy to implement and requires little more than political will. But, unfortunately, these policies are disconnected from the real world, the world which South African economists study. In a best case scenario these policies will reduce inequality marginally in the short run; a worst case scenario is that they inhibit investment and put further limits on social mobility by raising the returns to quality education.

I realise that I cannot convince everyone about the need to study economics. As an economic historian I’ve had my own gripes with the mathematisation of the discipline. But to ignore the theories of human behaviour that economists construct, theories that have been empirically shown to be worth keeping, is wrong. Opinions without facts are not worth listening to, as Hans Rosling perfectly explained. Let’s encourage our students to engage with Piketty’s theories, test them against the evidence, and keep them and use them if they apply to South Africa. Or improve them if they don’t.

South African xenophobia: We are all immigrants

Consequence of the 1885 Berlin Conference? Source: Zapiro

South Africa is a country of immigrants. 2000 years ago, when Romans were conquering Europe, Chinese invented paper making, and Jesus was born in the Middle-East, only the San lived in South Africa. Visit Aliwal North, or Lesotho, or Fish Hoek, or Kwazulu-Natal, and you will find evidence of their existence. Around 300 CE, groups of blacks crossed the Limpopo, settling within the boundaries of modern-day South Africa. Roughly three hundred years later, these groups reached the Eastern Cape. This slow process of gradual migration – known as one of the largest migrations in world history – created the cultural differentiation within black society that we still observe today: the clicks of the Xhosa, for example, is the result of assimilating the Khoesan language. The reason they supplanted the ‘indigenous’ San was iron-working and crop cultivation: two key ingredients to support larger populations. Recent evidence shows that another group – the Khoe – moved into South Africa roughly between 900 and 1300 CE. A pastoral people, they came from Botswana, crossed the Gariep, and settled in the Western and Eastern Cape. (They were roughly 10 cm taller than the San, who still relied mostly on hunting and gathering, although with the arrival of the Khoe, the San often lived in a servant-relationship with the Khoe.)

It was the Khoe the Portuguese first met on their visit to Africa’s southernmost trip in the fifteenth century. And it was the Khoe who lost their land when the Dutch settled the Cape in the seventeenth century. And after 1652, that dreaded date in South African history, came more Europeans: Germans, English, French, Scandinavians. And with the Europeans came slaves from the East: mostly from modern-day Malaysia, Indonesia, India, Sri Lanka, Madagascar and Mozambique, but also China, Iran, and the coast of West Africa (even as far as the Canary Islands).

During the nineteenth century came more Europeans, British mostly, moving to sunny South Africa to escape the working-class squalor of the early Industrial Revolution. And when diamonds and gold was discovered, more came, this time from all across Europe, and America, and Australia. But the diamond mines required labour, and so millions of Africans came from across southern Africa: Tswanas from Botswana, Shonas and Ndebele from Zimbabwe, Makua and Tsonga from Mozambique, Chewa and Lomwe from Malawi. At the beginning of the twentieth century, more than 60 000 Chinese were brought to work on the mines, although the experiment proved disastrous and most were sent back. In Kwazulu-Natal, however, the settlement of more than 150 000 Indians on sugar plantations proved more enduring.

Immigration never stopped, not even during apartheid, comprising many nationalities, religions and ethnicities: Jewish, Portuguese, Greek, to name a few. The world wars brought thousands of Western and Eastern Europeans to South Africa. And mines continued to bring foreign workers to the country, in their tens-of-thousands. And it continued after 1994: Between 1995 and 2010, more than a million Basotho (from Lesotho) and Swazi (from Swaziland) traveled to South Africa every year. The New South Africa brought Chinese and Pakistani and Cuban and Bangladeshi and Nigerian and Somali and Congolese and Vietnamese and Senegalese immigrants to our shores. Many of the Italian and German and Irish and American tourists who fall in love with the country and its people, stay behind. More than a million Zimbabweans now call South Africa home.

South Africa is a country of immigrants. And yet, we treat our new arrivals like shit. This week, xenophobic attacks in Soweto relived the awful attacks of 2008. Poor communities are disgruntled because immigrants ‘steal the jobs of locals’. And while the attacks on foreigners are limited to townships, the vitriolic sentiment is pervasive, even into upper middle-class households. “Send them back to their own countries” is the standard response on news sites.

It is certainly sad that many of the foreigners’ origin countries are struggling economically, notably Zimbabwe. But South Africa should be thankful to these immigrants, welcoming them, offering them work visas (and, after a few years, citizenship) and allowing them to build our economy. They are not a drain on our resources, but a boon. The literature on the economics of immigration suggest that immigrants stimulate the domestic economy, creating jobs (and not stealing them). That is because immigrants are often better-educated, more resourceful and more driven; they have to make a success because their support structures (family and ethnic networks) are limited. Especially in South Africa where skills are in short supply, foreign skills are critical if our economy is to thrive.

South Africa, the rainbow nation, should be the one place where we celebrate diversity, where we live Thabo Mbeki’s vision of the African Renaissance. It is deeply ironic that we consider our African neighbours ‘foreigners’ only because they live in countries created by European colonial officials randomly drawing lines on a map.

Instead, we despise these ‘foreigners’. We attack them. We loot their shops. We don’t give them work visas, which means they can’t find work as nurses, or electricians, or university professors. They find it difficult to open a bank account, register a car, or buy a house. In short, we make their lives a living hell. (Read Jonny Steinberg’s latest novel – A Man of Good Hope – to get a sense of the hope and determination of these immigrants, but also of the sad reality of their unwelcoming arrival here. The Economist reviews the book here.)

I am sure we can all do better. For the future of South Africa, we need to do better. That a country which has survived apartheid can be so hostile to outsiders is perhaps the greatest indictment against our generation. Especially considering that we are all, essentially, immigrants.

#JeSuisÉtranger

An easy history of the twentieth century

Art by Spaska.

I rarely get to read fiction books these days, but that changed this holiday when, on advice of Helanya, I decided to tackle Ken Follett’s Century trilogy. The books follow families (and later extended families) in five countries: Wales, England, Russia, Germany and America. And it is epic in scope: the first book, Fall of Giants, covers roughly WWI and its immediate aftermath (1900s to 1920s), the second, Winter of the World, covers the rise of socialism, fascism and WWII (1930s-1940s), and the third, Edge of Eternity, spends an inordinate amount of time in the 1960s (the rise of the Berlin Wall, the Kennedy assassination,  and the civil rights movement in the US) but then moves rapidly to conclude with the fall of the Wall. A brief epilogue describes Barack Obama’s victory speech in Chicago.

The story begins with Bill Williams and his sister, Ethel, raised in a strict (Godly) household in a fictional town in Wales. Billy is thirteen and about to begin work in the local coal mine, while Ethel, strong and sexy, works in the estate of Lord Fitzherbert and soon begins an affair that would have repercussions in all three books. To give a sense of the intertwined nature of the story (spoiler alert): Ethel’s illegitimate son fights in WWII against his aunt’s secret husband, becomes a Member of the British Parliament, marries an American women who is the daughter of a Russian bootlegger, and has a dyslexic son who becomes one of the world’s most famous musicians.

Ken Follett won’t win the Nobel for Literature, but he has created something quite wonderful. History writing is often criticized for being dry and detached – ‘just one damn fact after another’ – but this historical storytelling is everything but dispassionate. It’s easy to learn about historical events  – the Battle of the Sommes, the storming of the Winter Palace, Pearl Harbor, the Freedom Riders movement, Cuba, Vietnam, Watergate – when beloved characters are intertwined in the plot, often on both sides. Here the stories of two Russian brothers, Grigor and Lev, are a fascinating case in point: Grigor wants to go to America but ends up giving his ticket to his lazy and murderous brother, Lev. Their paths diverge dramatically: Lev will become a rich man, a movie producer, his (illegitimate) son a US senator. Grigor will start the Bolshevik Revolution, help introduce communism to Russia and remain a man of power within the Russian elite. But in comparison to Lev, Grigor’s family will be relatively poor, will experience continuous shortages of food and other basic necessities, will be continuously harassed by the secret police, will be ill-equipped in all the wars they fight, and, ultimately, will see the system implode on itself. For those who favour communism, this series is a stark reminder of why it does not work.

It’s difficult to be critical of such a series, but with such an epic scope, some things are missed. There is little mention of the world outside Western Europe, Russia and the United States. Latin America (apart from Cuba) hardly features. Asia (apart from Vietnam and Japan) hardly features too. Africa might not exist; I think South Africa gets three mentions, one on the Boer War and two on apartheid. The character who recommends that France remains in the post-WWI negotiations may have been Jan Smuts, but the remarks are attributed to a British lord. Nelson Mandela or African independence should have received an honourable mention, especially during the discussions on civil rights.

But these are small qualms. Together, the three books are more than 2500 pages. That’s already bordering on encyclopedic. Ken Follett has given us the easiest way to learn about a century that won’t be easily forgotten.

Robert Ross and the voyages of discovery

I was fortunate to attend a workshop on African history in Leiden this week. The workshop, organised to coincide with Robert Ross’ valedictory lecture tonight, brought together his students and colleagues from all over the world: Austin (Texas), Livingstone, London, Melbourne and seemingly everywhere in-between. It was a testament to the immense impact Robert Ross, who has been at Leiden’s Center for African Studies for nearly 40 years, has had on the field. Although I know him as one of the most prominent historians of South Africa, the papers presented over the last two days reflected his wide-reaching interests: from the puzzle of the slave trade in Saudi Arabia, the lives of African interpreters in the Congo, the rise and fall of a pineapple canning factory in Zambia, to the conservation efforts of a mid-twentieth century chief in Northern Malawi.

Xhosa and Kat River Khoe warriers in the 8th Xhosa war, 1851 (Source: http://xhosaculture.co.za/category/xhosa-history/)

To me, though, Robert Ross is South Africa’s foremost historian of the colonial period. His books have made telling contributions to our understanding of slavery (Cape of Torments: Slavery and Resistance in South Africa), race relations (Beyond the Pale: Essays on the History of Colonial South Africa), and, probably his most well-known, class and status (Status and respectability at the Cape of Good Hope: A Tragedy of Manners). He was senior editor of the Cambridge History of South Africa Volume 1 to appear in 2010, and has just published a book on a group of fascinating South Africans: Khoe farmers in the nineteenth century Kat River Valley of the Eastern Cape.

One of Ross’ most important contributions, I argued in my talk yesterday, is a manuscript he published with his student, Pieter van Duin, in 1987. The Economy of the Cape Colony in the 18th Century used statistics from the vast VOC records in Cape Town to show that the Cape economy was more dynamic than earlier historians had assumed. Here is the introduction to my paper, available online, that explains this important contribution:

For much of twentieth century scholarship, the capitalist, industrialising South African economy began with the 1860s discovery of diamonds in the interior. The Cape Colony of the eighteenth and early nineteenth centuries  was, to quote some prominent authors, a ‘social and economic backwater’, ‘more of a static than a progressing community’, a slave-based subsistence economy that ‘advanced with almost extreme slowness’. The traditional view was that although pockets of wealth emerged close to Cape Town during the eighteenth century, this relative affluence was overshadowed by the increasing poverty of the frontier farmers who, ‘living for the most part in isolated homesteads, gained a scanty subsistence by the pastoral industry and hunting’.

In the 1980s Robert Ross, economic and social historian of the Cape, subverted this view by extolling the virtue of numbers. He was the first to recognise the value of the mass of Cape production statistics assiduously collected by the Dutch East India Company.  Ross argued that the belief that early Cape farmers ‘overproduced’ during the first half of the eighteenth century – that the market was too small to absorb the rising production of wheat, wine and meat – was ‘not only empirically false, but also conceptually absurd’. He showed that consumption was rising too, driven not only by the demand from ships sailing between Europe and the East, but also by an expanding domestic market of Company officials and settler farmers.

Ross’s seminal arguments of the 1980s, and his hard work digitising the production records of the Colony, breathed new life into a neglected area of South African history. Yet more than two decades later his cliometric contribution often goes unnoticed. In  this paper I summarise a new body of work that uses econometric techniques and largely confirms Ross’s arguments. In the introduction to her recent history of mining in South Africa, Jade Davenport suggests that before mining began in the latter half of the nineteenth century, ‘South Africa was a sleepy colonial backwater whose unpromising landscape was seemingly devoid of any economic potential’. Robert Ross and his students would not agree.

Because Ross’s earlier work was central to my PhD research, I visited him several times in Leiden while writing my dissertation. During one of these visits, knowing my interest in historical data, he showed me a census of missionary stations that had been collected in 1849. As he browsed through the data, I realised that this was a wonderful source to test the then fashionable technique of age-heaping, a way to estimate numeracy by exploiting the statistical properties of a society’s age profile. We agreed to investigate this further, hoping that it might say something about the different strategies missionary societies used in their ‘civilizing’ efforts. And it did. Together with Russel Viljoen who collected the original data from the archives, we co-authored a paper on literacy at the Cape’s mission stations. I wrote about the paper in this 2012 blog post, and it has just appeared in the Journal of Southern African Studies.

Scholars such as Robert Ross leave a legacy much deeper than they might ever know. Often working on their own in archives or in one-on-one conversations with students, their legacies may not be as easily quantifiable as those of an entrepreneur or engineer. They often battle the publish-or-perish incentive system of universities focused on immediate outputs. And they often struggle with funding in disciplines that are not considered to have much economic value.

Yet their ideas have shaped – and continue to do so – how we understand ourselves. Their words and books uncover the unknown, hidden or forgotten; much like the European discoverers of the Middle Ages, they sail on fledgling ships to report of great riches and great knowledge. We sit at their feet. They are the interpreters from a distant land called The Past; they allow us to not only learn about it, but to learn from it. They inspire us to travel too, to take the leap. And so we find ourselves in dusty archives one fine Saturday morning. In search.

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

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.

Books I want to read (before the end of the year)

No time for long posts this week, so I’ve decided to just list the many books that are currently on my have-to-read list. I’ve started with some of them already, but its too early to pass judgement. Some have not even been published yet. So don’t take this as approval – it is little more than a wishlist.

Genes seem to be making a comeback as explanation for our persistent inequalities. The Son Also Rises by Gregory Clark will certainly be controversial. I happened to be in Clark’s office last year on the day he submitted the final manuscript, and he was excited about the book’s prospects. His thesis: class differences are the result of genetic inheritance. Conclusions: 1) The Swedes are far less socially mobile than they like to think. 2) We can do very little to accelerate social mobility; all government attempts to redress the income distribution are useless. 3) If you believe this thesis, then it has serious implications for whom you decide to marry. Perhaps less controversial but still in uncomfortable territory will be Nicholas Wade’s A Troublesome Inheritance. Wade will draw on scientific research to discuss evolutionary differences in human traits. These books, if read insensitively, will give ammunition to racists everywhere. That is not their purpose. Caution is advised.

I often like reading about the history of objects, and there are four new books about everyday things that look quite interesting: On Paper by Nicholas A. Basbanes documents paper’s two-thousand-year history. (Get the hard cover, it is done beautifully.) Milk by Deborah Valenze is a local and global history of how humans have used and abused milk. The People’s Car by Bernhard Rieger tells the story of the Volkswagen Beetle, probably the most loved car in history. And Tom Standage has written a new book on the history of social media, Writing on the Wall.

For the more hard core economics gurus out there, Thomas Piketty has written a seminal book – Capital – which is scheduled for publication today and should be on every economists wish list. Here’s the blurb:

What are the grand dynamics that drive the accumulation and distribution of capital? Questions about the long-term evolution of inequality, the concentration of wealth, and the prospects for economic growth lie at the heart of political economy. But satisfactory answers have been hard to find for lack of adequate data and clear guiding theories. In Capital in the Twenty-First Century, “Thomas Piketty analyzes a unique collection of data from twenty countries, ranging as far back as the eighteenth century, to uncover key economic and social patterns. His findings will transform debate and set the agenda for the next generation of thought about wealth and inequality.

If you want more on wealth and inequality (and economic history), certainly read Angus Deaton’s The Great Escape: Health, Wealth and the Origins of Inequality. It is an excellent overview of what we know about the process of economic development. For a more local flavour, I’ve ordered Jade Davenport’s Digging Deep: A History of Mining in South Africa. This is the first South African economic history text in nine years, and should make for fascinating reading. (Although, if I have to be critical without reading the book, the blurb suggests that Davenport has not read much of what has been published recently in South African economic history. She writes: “Before the advent of its great mineral revolution in the latter half of the 19th century, South Africa was a sleepy colonial backwater whose unpromising landscape was seemingly devoid of any economic potential.” Uhm, no, no and no. For a summary, read this.) On South African history, I’m also reading Bill Nasson’s The War for South Africa, an excellent account of the Anglo-Boer War, I’ve just finished Tim Couzen’s South African Battles and I’ve just received Lindie Koorts’ biography of DF Malan (available in Afrikaans and English) in the mail. Hopefully I’ll write a post or two about these books in the future.

For now, though, it’s back to marking essays, setting tests and preparing for class. And maybe sneak a few minutes to watch the cricket.

Smart people should build things

Because CNN says so: Kobus Ehlers and his team at FireID are building something.

Smart People Should Build Things is the title of a new book by Andrew Yang, a serial entrepreneur and founder of Venture for America. Yang shows that most graduates from top US universities become bankers, lawyers, consultants, or doctors in one of the five main metropolitan areas of America: New York, Boston, San Francisco, Los Angeles or Washington D.C. Why is this? Because smart people want to achieve, ‘and that’s what achievement looks like’ in America today.

In short, Yang’s story goes like this: The smartest kids go to the top universities, are recruited by the largest corporates and funnelled into fancy offices with high paying salaries where they perform routine, uninventive tasks. The reason they choose this path is because it is the road of least resistance: while it is arduous and challenging to study to be a doctor, or lawyer, or economist, the risk is low if you have a certain academic ability. Jump through the necessary academic hoops, and a high-paying job is assured.

To Andrew, this is a bad thing for America. Imagine if Mark Zuckerberg, known to be one of the top students of his generation, had decided to accept a job at a prominent New York consulting firm. Instead he founded Facebook, to the benefit of the American economy (including the consulting firm, who now advises clients to invest in Facebook) and billions of people around the world. And it’s not only the economy that benefits, Yang argues, but also the entrepreneurs themselves; Zuckerberg is not only fabulously wealthy, but he actually enjoys what he’s doing.

So is this also true for South Africa? What do South Africa’s top talent choose to study, and what do they end up doing with their lives? Are they building future Facebooks, or accepting cosy jobs in Sandton or Canary Warf? To answer this question, I tracked down the top 20 matric students on the Merit Lists for 2001 to 2010, published by the Western Cape Department of Education. A friend and I could find degrees and current job descriptions on 77% of these students (174 of the 226 students on the list; for several years, the List included the names of more than 20 students).

(Incidentally, 115 of these 174 matrics (66%) decided to study at Stellenbosch. The second most popular university is UCT, which attracted 20%. Only one student studied at the other Western Cape university, UWC. 61% of these students are female.)

At Harvard in 2011, 29% of graduates went into finance and consulting, 19% into Law School and 18% to medical school. Table 1 shows the choice of the Western Cape’s top talent: similar to Harvard, 18% of students studied to become medical doctors. Far fewer of our top students study Law (5%), while a significantly higher number went into finance and consulting – 36% when we add the two categories of Accounting, and Maths, stats and finance (which is dominated by Actuarial Science).

Field	Freq.	Percentage	Upstarts	Abroad
Accounting	28	16%	6%	29%
Arts	14	8%	100%	30%
Engineering	34	20%	57%	14%
Law	8	5%	33%	20%
Maths, stats and finance	37	22%	12%	27%
Medicine	30	18%	0%	15%
Natural and Earth Sciences	20	12%	71%	47%
Total	171	100%	31%	26%

 

We should ask the same question of South Africa that Yang asks for America: how many of our best students choose the paths of least resistance? To test this, I also include another variable in Table 1: ‘Upstarts’ show the percentage of students from the various fields that now work in small to medium-sized firms (I only included students that finished school up until 2007). The story is quite clear: those in Math, stats and finance, and in Accounting end up working for big, established corporates: for example, nine former students now work for PwC. It is the engineers (57%) and especially the scientists (71%) that end up working for small, South African start-ups. (Students from the Arts also end up in small firms, although the sample size here is tiny; we could only find information on four individuals.)

Students in Engineering and the Natural and Earth Sciences are more likely to start their own thing, or join another small start-up. Unfortunately, many of them do so in foreign countries. ‘Abroad’ denotes the share of students that are situated outside South Africa. Close to half of all the students with a Natural and Earth Sciences degree end up abroad. While some are continuing their studies at top US and British universities and will hopefully return to South Africa, many seem to have relocated permanently. How many of them might be a future Elon Musk?

South Africa needs more start-ups if it is to grow the economy. Most innovation (especially transformative innovation, like Facebook or, to use a South African example, Mark Shuttleworth’s Thawte) occurs in small firms, and this is also where most employment is created. And to lead such innovation and job creation we need the sharpest tools in the shed to start or join these young companies.

Because it is better for South Africa if our smartest students build their own companies or join young ones, perhaps we should offer them incentives to do so. Stellenbosch University already has excellent facilities for start-ups – the MIH Media Lab, for example, and InnovUS. Many Stellenbosch start-ups are already making their mark on the national and international stage, like digital payments app SnapScan, developed by FireID (a company founded by a top 20 Merit List alumni). But maybe we should do more, and Yang offers a number of suggestions like tax incentives, risk sharing or greater emphasis on graduate recruitment, like his own Venture for America.

Of course, we can’t all be innovators, scientists, and entrepreneurs. And not all start-ups will be successful. But what we should do is to create incentives that will reduce the risks for aspiring young innovators to try something new, incentives that will encourage smart kids to join an upstart rather than a corporate conglomerate. South Africa’s GDP – and their happiness – would be much better for it.

*A shortened version of this essay appeared in Die Matie, the student newspaper of Stellenbosch University (12 March 2014)

Measuring progress

GDP is perhaps the most popular and influential measure in Economics. Everyone from presidents to plebs use it to show that ‘the economy’ is ‘doing well’, ‘recovering’, ‘accelerating’, and what we economists consult to identify a country’s ‘growth’, ‘development’, ‘progress’. It’s universally accepted (at least by economists) that higher economic growth is good for a country, and for an obvious reason: those countries that have experienced high growth rates have managed to achieve goals that are universally accepted as good: reducing poverty, and increasing the living standards of people. In short, a higher GDP (per capita) is an excellent indication that people are better-off than before.

But GDP is not panoptic. It measures the Gross Domestic Product, meaning the total value of all goods and services produced within the borders of a country for a year. Thus the more stuff we produce, the higher the GDP. Divide all that stuff by the number of people that live in a country, and you get GDP per capita. Each person in the Central African Republic, for example, ‘produced’ $272 in 2012. Compare that to Norway, a country with about the same number of people and rich in resources, where each person ‘produced’ $99558, more than 200 times more. Or think of it this way, for each yearly salary of a Norwegian, an inhabitant of CAR had to work 210 years to earn an equivalent income. (Numbers from the World Bank.)

Yet is this average Norwegian 210 times ‘better-off’ than the average CAR citizen? This of course depends on what you mean by ‘better-off’. Economists have developed a fuzzy concept called utility to address this concept of what best can be described as a combination of satisfaction and happiness. But there is no standard measure of ‘utility’. The United Nations have developed the Human Development Index which not only considers income (GDP) but also other standards of living, including education, health and inequality. The correlation to GDP remains high, as is indicated by our example: Norway is not only the second most affluent country on earth (after Luxembourg) but also receives the highest score on the UN HDI. In short, if you could choose your place of birth, you should choose Norway. The CAR, however, ranks 180th of 187 countries. A more recent measure, the Happy Planet Index, aims to include ‘sustainability’ as a criterion; sustainability is here measured as the ecological footprint. Here, Norway is ranked 29th and CAR 137th. The correlation between GDP, then, and other measures of living standards seems high, which is the reason for its popularity. 

It helps to note, however, that GDP hasn’t always been pervasive. I listened to Dan Hirschman present a paper ‘Inventing the economy’ in Chicago last week. Hirschman, a PhD candidate in Sociology at Michigan, noted that the concept of national income did not exist before the 1930s, when the need arose to measure the impact of the Great Depression. While earlier economists, notably Smith, had written about the ‘wealth of nations’ implying the capacity of a country to produce output, the technical challenge of measuring such production (of goods and services) was not overcome before the middle of the twentieth century. The measurement of GDP as we know it today was only standardised in the 1940s, and many African countries only adopted it after independence in the 1960s. (See Google’s Ngram viewer above of the phrase ‘Gross Domestic Product’ appearing in English-language books. It’s really only the 1950s that the phrase is popularised.) This also explains why using historical data series of GDP are fraught with difficulties. Morten Jerven has shown the inconsistencies between data banks in earlier GDP estimates for twentieth-century African countries: compare, for example, the CAR 1960 GDP estimates in the Penn World Tables, the IMF statistics and Angus Maddison’s historical estimates.

Yet while Jerven’s point has important implications for scholars who use historical data series in regression analyses, for example, we should be careful to equate the past with the present. Most African countries have significantly improved their capacity in collecting and analysing data. Hirschman, in his presentation, referred to Jerven’s work and mentioned that several African countries’ GDP data is still poor. I would be hesitant to jump to this conclusion, mostly because GDP estimates are subject to all sorts of political influence and biases, even in the developed world, which means that the ‘accuracy’ of these estimates is not ‘good’ or ‘bad’ but rather somewhere along a continuum with many dimensions. Caution, also, because such pronouncements suggests a whiff of first-world arrogance.

The trouble with measuring GDP in Africa and elsewhere today is that the nature of economies are changing rapidly. The issue of whether to include, for example, housework, has always plagued economists. (As Hirschman noted in his talk, Norway, for example, did include it for several years before the standardisation of national income statistics where it was excluded.) But because of the continued technological changes – and the movement to digital production and cross-border trade-in-services – what qualifies for ‘value-added’ is not always clear. (Take the 3D printer: if I print my own toys at home, would this be added to GDP? It should, but who cares about toys, right? Well, what if I print my own house?)

That is why I’m so excited to read Diane Coyle’s new book, GDP: A Brief but Affectionate History. She promises to explain how and why the difference between current estimates of GDP and what we hope to measure – living standards, utility, welfare – might be growing. Perhaps it’s time for a new measure?

Don’t bet against GDP though. It’s popular because it tracks, crudely and inadequately but ultimately helpfully, how we’ve progressed over the last 200 years. And economic historians are continually expanding our understanding of the economic past; my own work with Jan Luiten van Zanden has attempted to measure South Africa’s GDP since 1700. Others have begun work on even earlier periods in Europe.

How we measure economic progress is important. It tells us about the progress countries have made, and allows us to compare, fairly accurately, differences in income between peoples, both between and within countries. Gross Domestic Product, to misquote Winston Churchill on democracy, is perhaps the worst way to measure progress, except for all those other ways that have been tried from time to time.

The American future: notes from a visit

Take-off: Photo by Johan Fourie at Desert Museum, Tucson, Arizona, October 2013.

Yesterday our stay in Tucson came to end. It’s been a great experience; Tucson, a mid-size city in southern Arizona, is an eclectic mix of university town, military base and hippie culture. It’s also close to the Mexican border, which means that you will find excellent Mexican food, a welcome alternative to typical American fast-food diet. (How is Chipotle not yet a global franchise?) Oh yes, and Tucson is also in the desert, which means you’ll encounter saguaros, javelinas, ocotillos and fantastic autumn weather.

I was there to visit the University of Arizona’s Department of Economics. I presented the day after my arrival, which allowed a quick introduction to the faculty and students. First observations (of the US system in general): math ability is effectively the only criterion used for entry into the PhD programme. A significant proportion of students fail their first year (of five). A high proportion, often more than 50% of the graduate student body, is Asian-American, especially within the University of California system. In Tucson, foreign students from countries as diverse as Iran, Korea, Uruguay, Kazakhstan and China make up a large proportion of graduate students (in Economics). There are very few African students, at least at the universities I’ve visited. (I’m not referring to African-American students, although they are also underrepresented, as are Hispanic Americans.)

(Perhaps this warrants another post, but by considering the proportion of Indian and Chinese students at US universities, it’s easy to understand why these countries can be optimistic of their economic future. In contrast, even though some African economies are growing at rapid rates, it’s clear that the skills shortage will soon dampen this growth if these countries do not actively import skills from abroad.)

Our stay in Tucson was especially enjoyable thanks to the generosity of our Airbnb host, Ross, my host at the Department, Price Fishback, his colleague, Tiemen Woutersen, as well as that of Taylor Jaworksi (who is on the job market this year). Price treated us to a visit to the Desert Museum (where I snapped the above picture), and tickets to attend two college basketball games, a college football game (with more than 50000 spectators, close to 100 players per team and a show so professional I’d give them a World Cup to host any day of the week) and several lovely dinners. Arizona is mining country, so Helanya and I also visited Bisbee, a quirky mining town close to the Mexican border. We even took a tour of the old copper mine, which I am embarrassed to say was my first experience of an actual mine (discounting Gold Reef City). While here, I read Bill Carter’s Boom Bust Boom. As a resident of Bisbee, Bill explores the ways in which mining affects his own town, but also copper’s pervasiveness in our everyday lives.

Helanya and I also flew to San Francisco where we rented a car to visit Stanford (distinguished, high-tech, Asian), the Google campus (expectant, powerful, hipster) and UC Berkeley (classy, affable, under construction). The next day, I presented at UC Davis, their Economics department has a strong emphasis on economic history. Greg Clark submitted the final manuscripts of a book that morning which, in typical Greg Clark-style, promises to challenge prevailing ideas of social mobility.

This was my first extensive visit to the States, and I’ve made several observations. Helanya and I lived close to the university in a place we rented through Airbnb. The great advantage of the apartment was that my office was a 10 minute walk. The bad thing about Tucson (and the US in general), though, is that you need a car to get pretty much anywhere. Even though public transport is available in Tucson and they are building a new tram system linking campus to downtown, the differences between European university towns and the US are stark. I guess the US is more like South Africa (or South Africa more like the States); cars are ubiquitous and central to how Americans work and play. This culture of the car is both expensive and time-consuming, a consequence of the American Dream and subsidized home-ownership which created vast suburban areas resistant to public transport. Reducing this dependence on cars – or transforming this car into something more efficient – will be the greatest challenges (and opportunities) of the future.

Americans are known to be extroverted and self-assured, and our experience largely supports this generalization. The upside of this is that they are overtly friendly, sometimes irritatingly so, like when Helanya ended up next to a guy on the two-hour San Francisco flight who wanted to be her non-stop tour guide and personal councillor. (Do you really ask someone whether they are happy in their relationship ten minutes after you’ve met them – when their husband is sitting across the aisle?) This is, for someone used to the diffidence of Europe, both refreshing and awkward.

But America is also straddling a thin line between a country united and divided. Before any college sports game, the crowd falls silent and turns to the national flag that hangs prominently in the stadium. A trumpet plays the The Star-Spangled Banner and the crowd follows in song. It is an impressive display. The frequency of American flags (massive ones) that are visible across American towns, the regularity at which veterans and current soldiers are celebrated (at airports, on TV, at sports games), and the pervasiveness of American Culture, from fast food to news and movies and fashion, made us sympathetic and somehow part of this country built from an eclectic mix of migrants. (But that, of course, can easily lead to ignorance too: no, the World Series is not a world series.)

But just like South Africa, America is also a country divided along racial lines. As mentioned above, university entrance is highly disproportional to the population; Asian-Americans and whites are overrepresented, Hispanic and African-Americans are in the minority. (What happened to Native Americans, you might think? Aside from an excellent museum in Washington, they really are at the fringes of society.) There are affirmative action policies in place to redress these discrepancies, but they can have perverse outcomes. Francisca Antman, Assistant Professor in the Department of Economics and the University of Boulder Colorado, shows, for example, how people of mixed-race reclassify themselves depending on the type of affirmative action programmes. “Consistent with supporting evidence showing that individuals from underrepresented minority groups face an incentive to identify under affirmative action, we find that once affirmative action is outlawed, they are less likely to identify with their minority group. In contrast, we find that individuals from overrepresented minority groups who face a disincentive to identify under affirmative action are more likely to identify with their minority group once affirmative action is banned.”

Disunity is not only by race, but also by political affiliation. On our journey across America we’ve met staunch supporters of the Republican Party, outspoken Democrats and many who are critical of both. We’ve also endured the consequences of failure by the American government to reconcile differences across party lines. We’ve watched MSNBC and CNN but also FOX. We’ve heard debates about gun control, legalizing marijuana, Obamacare, the debt ceiling and the future of democracy. These are not easy issues in a country that is increasingly unequal. Those at the lower end feel their privileges eroding: immigration threatens their jobs, they believe, while gun control threatens their leisure. Those in South, or those in rural areas, feel more vulnerable, they argue, than those in the North, or those in cities. Obamacare’s intricacies make it an easy straw man for all the things wrong with government.

There are no easy answers, but Americans easily forget that they still live in one of the most remarkable countries on earth. Two days ago, someone asked me what my thoughts are on the future of the American economy. ‘Is it really going down?’

No, it’s not. Other countries may be doing better, but that’s a good thing. America is still the land of opportunity. It still provides the best platform for any entrepreneur – local or foreign – to turn their ideas into reality and ‘make it big’. Think about Google, now fifteen years old (and founded by an immigrant). Think about Facebook, who is only ten years old. Or Airbnb, who is only five. Its universities still draw the best of the global best to America’s shores, and many come to stay. Its politics may be perplexing and convoluted, but it is still the country that can elect a president from one of its smallest minorities.

Because of its promise, America will continue to be a country of migrants. (The political challenge is in supporting this, not inhibiting it.) Minorities will grow bigger; Spanish, which is already widely-spoken, might even become an official language. Americans of Asian heritage will increasingly be an economic elite, a consequence of their excellent tertiary education.

That means the American of the future might look very different, but she will continue to live in a country that inspires hope and belief in a better future.