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Don’t bet against the historians

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PikettyWEHC

Every three years, economic historians from across the globe gather in one place to discuss the latest research in our field. And so it was again this year that, in early August, more than 1400 of these interdisciplinary scholars convened at MIT in Boston for the latest rendition of the World Economic History Congress (WEHC). It was hot and humid outside, but inside the conference and classrooms, the discussions were no less heated.

Normally a friendly and somewhat reserved crowd, it is as if the political developments of the last three years has forced economic historians out of their slumber. That classic history cartoon – an old man sitting in his rocking chair saying ‘Those who don’t study history are doomed to repeat it. Yet those who do study history are doomed to stand by helplessly while everyone else repeats it’ – seems more apt than ever. As always, there were papers on esoteric topics such as occupational mobility in early-twentieth century Greenland, wine glasses in China during the eighteenth century, or what pollen data can tell us about market integration in Ancient Greece. But it seemed to me, now at my fourth WEHC, that this year the research questions were more aimed at the big questions of the present: How does globalisation lead to populist pushback? Why are inequalities increasing in rich countries, and what can be done about it? How do entrepreneurs use (abuse) networks to become successful? History offers clues (but no quick-fix answers) to all these questions.

Two plenary sessions exemplified this. On the last day of the conference, Jane Humphries and Claudia Goldin debated the missing role of women in economic history. While Humphries, professor of Economic History at Oxford University, discussed the importance of women to the Industrial Revolution, Goldin, a professor of Economics at Harvard, discussed the more recent transition of women into the labour market. She showed, by using extensive data from Harvard Business School graduates, how the gender wage gap can to a large extent be explained by women’s preferences for flexible work. This, she argued, what can be done to close the gap further: women prospered in teams where their skills are substitutable. Instead of operating as a single physician, for example, female doctors were much more likely to stay in the labour market and work more hours if they worked as part of a team of medical experts.

But the big event of the congress was undoubtedly Thomas Piketty’s plenary session. Piketty, who is professor of Economics at the Parish School and known for his best-seller Capital in the 21st Century, has now shifted his inequality work to the political realm. He made a compelling case that the expansion of higher education has altered the traditional alliances in politics. Using three case studies – of France, England and the US – he showed that support from the intellectual elite – those with university degrees – has increasingly shifted to the left in all three countries over the last three centuries. For example, in 1948, less than 20% of all voters with a Masters degree voted for the US democratic candidate; in 2016, it was 70%. Why? Remember that the Democratic Party in the US (or the Labour Party in the UK) is more in favour of redistribution than the Republican Party (or the Conservative Party). For that reason, they tend to get most of their support from the poor (or, at least, those that stand to benefit from redistribution). But the poor is not uneducated anymore. In 1948, slightly more than 20% of voters had a tertiary degree, while in 2016, it was more than 50%. By definition, of course, if 50% of voters have a university degree, they cannot all be in the richest 10%. This means that there has become a disconnect between the educated and the rich. That is why, according to Piketty, new political positions become possible; he identifies four groups of almost equal size that have now emerged in his native France: internationalist-egalitarian (pro-migrant, pro-poor), internationalist-inegalitarian (pro-migrant, pro-rich), nativist-inegalitarian (anti-migrant, pro-rich), and nativist-egalitarian (anti-migrant, pro-poor). The success of Emmanuel Macron was that he could appeal to multiple of these groups.

‘Politics has never been a simple poor vs rich conflict’, says Piketty. ‘One needs to look at the multi-dimensional content of political cleavages.’ We also see this play out in the South African context. The ANC is currently a broad church – from the rural poor to the urban sophisticate. But how long can they maintain this delicate balance, when issues such as globalisation, migration and automation will have decidedly negative effects on one part of their electorate while benefiting another? And these clashes may not be along the fault lines of yesteryear. Capital and labour, poor and rich, educated and uneducated are now in flux. As Piketty says, the US might be returning to the 19th century political alignment, with globalists (high-income, high-education) on one side and nativists (low-income, low-education) on the other. Or it could go the route of the Democratic Party in the US, whose pro-slavery/segregationists introduced poor white policies which also benefited poor blacks. Or we could instead see the re-emergence of a globalist-egalitarian elite like we did in the aftermath of World War II, a system that resulted in the end of colonialism and a global Golden Age of growth.

The high levels of inequality in South Africa would make the continuation of a single, unified ANC seem unlikely in the medium to long run. Rapid globalisation, automation and increasing pressure on immigration are fissures that even a great leader will be unlikely to control. If history (and economic historians) have anything to add, it is that the future is unlikely to be just a continuation of the present.

**An edited version of this article originally appeared in the 30 August edition of finweek.

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Written by Johan Fourie

October 8, 2018 at 08:00

Join me in New York and Boston!

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On 26 July, the Economics department and LEAP will host a Stellenbosch alumni event in New York. I’ll give a short talk on ‘The Data Revolution in African Economic History’. Four days later, on Monday, 30 July, we’ll host another event in Boston. If you are in the neighbourhood and want to drop in to hear what we’re doing at LEAP, in the department and at Stellenbosch University, please send me a mail. In New York, we’ll meet at the ING offices and in Boston, we’ll be at the Residence Inn hotel in Cambridge.

The reason I’ll be in the US is to participate in the World Economic History Congress, which is hosted by MIT this year. I’m responsible for five papers (yes, I know, this is bad planning), so it will be a busy conference. The programme can be downloaded here. I hope to share some of the results of this research on this blog over the coming three months. (Also, I’m excited about plans for a new look blog. More about that later.)

After the WEHC2018, I’ll take a two-week break before going on a seminar tour in Gauteng, delivering papers at the universities of Pretoria (27 August), Wits (29 August), Johannesburg (30 August) and North-West, Potchefstroom (31 August). I’ll post more detail about those talks closer to the time.

The Autshumao and Krotoa International Airport of Cape Town: My letter to ACSA

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AutshumaoKrotoa

Renaming of Cape Town International Airport: A proposal

I would hereby like to submit a nomination for Cape Town International Airport’s new name.

Cape Town is an international, cosmopolitan city, a ‘melting pot of cultures’. Many individuals from Cape Town’s rich history deserve to be celebrated in the renaming of Cape Town International Airport. Yet I often find that little attention is given, in place names, traditions, and heritage symbols, to the indigenous inhabitants of the region before the arrival of European settlers in the mid-seventeenth century.

I therefore feel it is appropriate that Cape Town’s international airport should celebrate the people who had lived in the region for several centuries before European arrival, who had contributed to the economic and social development of the Cape, often in subordinate positions of indentured labour, and whose descendants still reside here, now mixed with more recent immigrants from Europe, Asia and Africa, a city that is, indeed, a ‘melting pot of cultures’.

My proposal is therefore to rename Cape Town International Airport to the Autshumao and Krotoa International Airport of Cape Town.

Autshumao was the first inhabitant of South Africa to travel abroad. In 1630, Autshumao was picked up by a British ship – called ‘King Harry’ on board – and travelled to the East. There he learned Dutch and English, and when he returned to the Cape, he would become postmaster on Robben Island. He would also act as the first translator and trader when the Dutch East India Company settlers established a refreshment station in 1652. Autshumao later fell into disfavour as trading partner, and was banned to Robben Island. Nelson Mandela would later call him the ‘first freedom fighter’.

His niece, Krotoa, was a translator in the household of Jan van Riebeeck, the first VOC commander of the Cape. She would marry a Danish surgeon and her progeny would include several South Africans of note, including Paul Kruger, Jan Smuts and FW de Klerk.

Naming Cape Town International Airport the Autshumao and Krotoa International Airport of Cape Town would signal recognition of the first inhabitants of Cape Town, and the ‘melting pot of cultures’ that Cape Town has become.

Kind regards,

Johan Fourie

Land expropriation: learning from the Chinese

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GreatLeapForward.jpg

The complexity of the debate about land expropriation without compensation can ultimately be summarized into two questions: Should land be expropriated without compensation? And, if so, who should own the expropriated land? While much media attention has focused on the first, with the focus often on how such a policy will scare off foreign investment, it is the answer to the second, ultimately, that will determine the success of any attempt at redress and wealth creation.

The two proponents of a policy of land expropriation without compensation in South Africa – the ANC and the EFF – stand on very different sides with regards to answering the second question: the ANC has made it clear that ownership should be in private hands, while the EFF has forcefully and repeatedly made the case that the state should be the custodian of all land. Their policy would see the state expropriate all private farm land and lease the land ‘equally’ to the people of South Africa. Dali Mpofu, National Chairperson of the EFF and a respected advocate, has defended this stance by referring to China in a 2017 tweet: ‘Chinese land is owned … by the state and it has registered the highest consistent economic growth in the world!’

Mpofu’s example is an interesting one, and worth exploring. Indeed, Chinese economic growth over the last four decades has been a historically unprecedented 8% per year. But Mpofu would do well to note that this growth was not a consequence of agriculture. Between 1990 and 2016, the share of agriculture in GDP has fallen dramatically from 26.5% to 8.5%. This was associated with massive urbanization; in 2016, 57.4% of the total population lived in urban areas, a dramatic increase from 26% in 1990. Far fewer people now live off the land, and those that have moved to the (often new) cities, are remarkably better off.

This is because land is not the valuable commodity it once was in the nineteenth and twentieth centuries. As a way to empower people, land is probably the least useful asset nowadays, because it requires significant investment in physical and human capital to make it productive. Even then, the most valuable assets today are intangible – skills, intellectual property rights, data. In the twentieth century, agriculture could only thrive with significant state intervention in the form of marketing councils, favourable tariffs and other measures, measures that came at the cost of the South African consumer. In the 21st century economy, living off the land – without significant capital investment – will limit the ability of those that most need access to good education and health services and opportunities for social mobility that are found in cities.

This is even more true if the expropriated land is owned by the state. Let us return to Mpofu’s country of choice: China. Between 1955 and 1957, 96% of China’s 550 million peasants were dispossessed of their private property rights. This was the largest movement from private to communal property rights in history. As Shuo Chen and Xiaohuan Lan show in a 2017 paper published in the American Economic Journal: Applied Economics, the results of this process of land dispossession was devastating for the peasants, and the Chinese economy. The authors use data of 1600 counties that launched the movement in different years, and find that in the year of the dispossession, the number of cattle declined by 12 to 15%. In total, this was a loss of almost 10 million head of cattle. Why? Because people started killing their own animals to keep the meat and hides as soon as they released that they will lose the property rights to the use of those animals, and they did not trust the state to be able to safeguard what used to be theirs. This loss also affected grain output, which fell by 7%. We now know that Mao was not discouraged by this initial production shock. No, he doubled down. This initial process of land dispossession set the stage for the Great Leap Forward movement of 1958, which led to the worst famine in human history that killed an estimated 30 million people.

China’s process of collectivization should be the example that Mpofu and the EFF leadership study. If they want more evidence of how collectivization collapses an economy, they need look no further than Tanzania’s Ujamaa and Operation Vijiji, a much understudied but enlightening experience. Or ask our Zimbabwean neighbours about their land reform programme. As Tawanda Chingozha, a PhD student in the Department of Economics at Stellenbosch University, shows using sophisticated satellite imaging technology, Zimbabwe’s land reform programme caused a significant reduction in both the quantity and quality of crops harvested, and not only on formerly white commercial farms. The empirical evidence against state-owned land ownership is unequivocal.

Land is an emotive issue because the memories of dispossession, forced removals, and apartheid segregation remain vivid for many. Others are simply unhappy with the slow process of economic progress in the last decade, and see in land a source of safety and security.

But if land is expropriated and private property removed, the hope of economic progress will be nothing more than a mirage. We have smart people in South Africa. Surely we can find a way of redress that actually empowers people – and won’t replicate our disastrous past policies that subjugated the poorest to a life of poverty on the periphery of progress?

*An edited version of this article originally appeared in the 26 April edition of finweek.

A moment to remake South Africa

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Cyril

At the dawn of independence, it fell on the first generation of African leaders to choose a new economic paradigm to deliver economic freedom to their people. In the Cold War between capitalism and communism, these African leaders almost unilaterally preferred a third option – ‘African socialism’ – a potpourri of policies built on the ethic of egalitarianism grounded in African history and culture.

At the second annual LEAP Lecture at Stellenbosch University in October 2017, Emmanuel Akyeampong, professor of African history at Harvard University, returned to the topic of ‘African socialism’ following independence, and its consequences for the continent. In countries as diverse as Ghana, Tanzania, Senegal and Guinea, he notes, the new policies were, ultimately, attempts to industrialise, to break away from the agriculture-based systems of the colonial economies.

In Kwame Nkrumah’s Ghana, for example, plans were drawn up for massive infrastructure investments. Sadly, many of these projects never got off the ground, or were only finished much later. In one project, for example, Nkrumah convinced the Russians to build a railway from Kumasi to Ouagadougou, the capital of Burkino Faso, but the railway was never completed.

The most extreme version of ‘African socialism’ was Julius Nyerere’s umajaa (villagization) campaign in Tanzania in 1967. This essentially meant the collectivization of all forms of productive capacity, notably in agriculture; Tanzanians, Nyerere believed, must learn to free themselves from dependence on European powers by becoming self-reliant.

Nyerere’s bold vision, and those of his contemporaries, failed miserably. Says Akyeampong: “The 1980s put paid to the concept and the vision, as steep economic decline resulted in what has been called Africa’s ‘lost decade’; the most notable architect of African socialism, Nyerere, conceded that his attempt at ujamaa had failed and stepped down from power in 1985; and the collapse of the Soviet Union in 1989 marked the triumph and ascendancy of capitalism.”

But Akyeampong is less interested in the reasons for their failures than in the boldness of their visions.  “It is the vision of bold and broad transformative change that I find admirable and worthy of emulation, and the desire to lift entire populations out of poverty and give them a decent life.” This optimism and boldness was not limited to the African leaders themselves; even the World Bank, soon after independence, remarked: ‘For most of Africa, the economic future before the end of the century can be bright’.

As I listened to Cyril Ramaphosa deliver his first State of the Nation address, I was reminded of that special moment in time when monumental change seemed possible. The general mood seems to have lifted after Jacob Zuma’s departure. Is this another moment when the trajectory of history seems to shift gear?

We should, of course, learn from history. Utopian visions of the future can easily become a justification for social engineering. While a powerful state can quickly transform society, it can do so at the cost of freedom. This is not the route I have in mind. Instead, this opportune moment can be used to redefine the social contract, to implement a nuanced set of social democratic policies with two explicit aims: economic security and economic freedom. In short, we want to live in a just and prosperous society.

How do we achieve that? Security requires that people have a basic standard of living. One policy proposal that has attracted a lot of interest is the basic income grant, a small monthly grant (of say R752, the lower-bound poverty line) to every South Africa, regardless of income. This would replace the child support grant. Every person with an ID document will be required to open a bank account (perhaps with a new state deposit bank), which will be linked to their SARS account. To partially fund this, VAT will increase. A tax on consumption means we incentivise savings and investment, the heart of creating economic prosperity.

There are many such policy options. State ownership of some assets, like aeroplanes and television stations, make little sense. These can be sold to pay off national debt and lower personal income taxes. Government can also save by reducing the number and size of departments and keeping the increases in the public wage bill to less than inflation.

As South African cities have some of the longest transit times in the world, infrastructure investment in urban areas – notably in public transport and housing – needs urgent attention. Water and electricity can benefit from innovations like desalination and solar panels. Broadband access can be expanded through incentive programmes.

A prosperous society requires an educated populace and work for them. Investing in early childhood development is key to eradicate large discrepancies that already exist when kids arrive at school. Incorporating the private sector in secondary and tertiary education, perhaps through a voucher system, is one way to not only improve the quantity of seats in class, but also provide opportunities for entrepreneurs at the local level. We should also welcome immigrants with skills with open arms; they not only bring much-needed expertise, but they often build new businesses that create jobs and improve living standards.

Cyril Ramaphosa has a window of opportunity in the first few months of his tenure. He can dare to be bold, and should do so. Says Akyeampong: “We need the bold and transformative vision of the likes of Nyerere and Nkrumah to ensure that come 2050 we do not find ourselves in the same predicament as on the eve of independence, when our new leaders, coming out of decades of repressive colonial economic policies, were faced with what appeared to be insurmountable challenges.” What will economic historians, fifty years from now, say about Ramaphosa’s moment to remake South Africa?

*An edited version of this article originally first appeared in the 15 March edition of finweek

The politics of infrastructure

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Cape Town railway historic

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

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

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

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

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

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

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

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

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

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

Writing a biography of an uncharted people

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Biography

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

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

Dyanti Ngcita

An example of a Cape province death certificate

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

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

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