Five years ago, on a warm January day, I started a blog. I tend to forget detail easily, but I somehow vividly remember sitting at my desk, squeezed into a bedroom that was also a living room and home office space, and watching a hawk land on the small balcony. They say you have to write about what you see, so that is how I started my first post.
It’s five years later. Life is different. Helanya and I have moved twice since that day. We’ve travelled. I’ve graduated my first (soon to be two) student(s). But we’ve been fortunate, too, in that many things have not changed at all. We’ve attended many baby showers and few funerals. We’ve gained wonderful new friends through travelling. My students keep on inspiring me. And my colleagues and co-authors continue to have too much patience.
My blog has remained, too, although a long-time reader would recognise some change. As with most new things, I was productive initially, writing 10 posts in my first month. I soon realised I couldn’t keep up the pace, and the frequency declined to average between four and six posts. I blogged about many things that interested me, but Economics-related topics seemed to take precedence.
At the beginning of last year, I was offered a contract to write a bi-weekly column for Finweek magazine. Due to time and (more importantly) idea constraints, I began to post my columns as posts instead of writing altogether new posts. The result has been that the length of my posts has increased, but that the frequency has declined. It also means that the average number of visitors per day has declined somewhat. I would like to think that there is a quality-quantity trade-off, though. There is some evidence to support this claim: the number of permanently registered readers has continued to increase.
It’s strange to reread some of the posts that I wrote several years ago. They are recognisably me, but they are also different from how I would write about the same topic now. I guess that means that I’m learning. Or unlearning.
Or just growing older.
Blogging is a difficult business these days. What I had hoped to do when I started was to debate, to challenge, to offer a different, sometimes unpopular, perspective. But I have become less eager to do this, probably because I have lost some of my youthful big-eyed optimism, but mostly because of the uncritical social media platforms that now dominate public debate.
I would like to think the blog has had some impact, though. My 258 (this will the the 259th) posts have attracted 295 659 visitors to my site, who’ve read my posts 417 095 times. That is an unfathomable number, and much more than I could have hoped for. The large number is largely the result of one post I wrote – Why and what to study in South Africa – which I wrote in May 2013 and has since received more than 156 000 views. It also has 251 comments. The most views in one day actually come from a book review about Ken Follett’s Century trilogy. He retweeted the blog post, and I was swamped by visitors. Most of them were there for the images of the characters, which I had borrowed from someone else (with due credit, fortunately.) My favourite post? There are many that I like (of course), but I think the one that stands out is my response to Zuma’s remarks at the beginning of 2015.
This morning the Stellenbosch heavens finally opened up for some much-needed rain. I hear doves cooing, playing in the temporary ponds in our new flower bed. Perhaps they are descendants of the chicks that hatched five summers ago… (but then this will likely be the third or even fourth generation, as Google tells me that doves only have a 1.5-year lifespan in the wild.) It’s the start of a new year, a time when we tend to look to the future. And I wonder: Where will we be in another five years’ time?
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.
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.
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.
One of the biggest barriers to deeper economic integration in Africa is the excessive trade costs that prevent regional trade. Import tariffs have traditionally been an important source of revenue for poorer countries, and it has taken several spaghetti-like agreements to reduce these. Although an agreement has been signed to create a Free Trade Area from the Cape to Cairo, none of the 26 countries have ratified it. Import duties remain between most African countries.
But tariffs are only of the costs of trade. It takes time to move a container from Johannesburg to Kinshasa, and the journey by land is often filled with tales of unscheduled delays and red tape. I remember traveling through the Victoria Falls border post between Zimbabwe and Zambia a few years ago and asking the truck drivers how long they had to wait to cross into Zambia. Their response: ‘A couple of days, if we are lucky’. This is no way to encourage regional trade.
Poor infrastructure is another significant barrier. The massive distances between major economic centres means that the unit cost of transport is high. A new paper in the Review of Economic Studies by Tufts University economist Adam Storeygard confirms this. Storeygard measures the impact of the oil price increases between 2002 and 2008 on the incomes of African cities. He compares two types of cities: those with a port on the coastline, and those of similar type but 500 kilometers inland. Using satellite imagery over the period, he finds that the oil price shocks increased the size of port cities by 7% more than in cities in the hinterland. The take-away: high transport costs retard growth. And because many African cities are located far from the coast, the high transport costs of poor transport infrastructure explains why African manufacturers find it difficult to compete with manufacturers in Asia and Europe. Just think of the difficulty manufacturers in landlocked countries like Malawi or Zambia face.
But even where better physical infrastructure reduces transport costs, other, ‘softer’ trade barriers often remain. Corruption, for example. Traveling into Malawi on my trip of a few years ago, we were pulled off the road a few kilometres after the border post by an armed man, and then required to return to the border post because we needed ‘additional insurance’. That was a $50 payment that went straight into the friend of the armed man’s pocket.
The effects of these ‘invisible’ trade barriers on trade and consequently economic performance have been hard to quantify, though, until now. In a new American Economic Review paper – ‘Corruption, Trade Costs, and Gains from Tariff Liberalization: Evidence from Southern Africa’ – Sandra Sequeira of the London School of Economics and Political Science finds that a reduction in tariffs between South Africa and Mozambique in 2006 had a very limited effect on trade. This is surprising: one would expect that lower tariffs would lead to higher levels of trade. And yet, the sharp decrease in tariffs had basically no effect (in technical terms, the elasticity of imports to tariff changes was very low).
What explains this surprising result? Sequeira uses a novel dataset of exporters’ bribe payments between South Africa and Mozambique to show that the decline in tariff rates at the border resulted in a 30% decline in the probability of bribe payments and a 20% decline in the average bribe amount paid. In other words, the lower tariffs did not actually reduce firms’ trade costs, it just shifted paying corrupt border officials to actually paying the tariffs as required by law, boosting government revenue. That is also why the elasticity of imports was so low: because costs did not fall in practice, there was no concomitant increase in trade.
Sequeira’s innovative study shows that high tariffs explain why corruption thrives. Remove the tariffs and the ability to solicit bribes vanishes. But don’t think that trade will suddenly blossom. Bribes keep trade costs lower than what they would be if tariffs were fully paid; lowering tariffs only lower the amount corrupt officials receive.
This has important implications for policy-makers: first, lower tariffs may actually result in an increase in tariff revenue as traders switch from paying bribes to paying the now more reasonable official tariffs. Free trade agreements (with zero tariffs) may not result in a significant fall in revenue either, because much of the revenue goes into the pockets of corrupt officials in any case, and will likely lead to greater transparency; Sequeira finds, for example, that trade statistics also improve when corruption practices decline.
But don’t expect free trade agreements like the one being discussed at the moment to result in a large increase in regional trade. As long as other barriers, like delays, severe red tape and poor infrastructure, remain, regional trade in Africa is likely to remain too weak to foster the economic development it promises to deliver.
*An edited version of this first appeared in Finweek magazine of 17 November.
One of the baffling things in explaining the Industrial Revolution is that education, that pillar most economists believe to be critical for economic growth, seems to have played a relatively minor role. Universal public education was a consequence rather than a cause of the Industrial Revolution. Eighteenth-century England did not first have a skilled population before they had an economic transformation; the uncomfortable truth is that it was the other way round.
This uncomfortable truth does not suggest that formal education was completely unimportant. It suggests, instead, that much of what caused the Industrial Revolution was the scientific knowledge obtained by an elite group of highly skilled artisans, inventors and entrepreneurs. It was not the average level of education of every Brit that mattered. Most of the breakthrough technologies of the era – the Spinning Jenny, the steam engine – came instead from upper-tail tinkerers who had hoped to make a profit from their innovations.
A wonderful new research paper by economists Mara Squicciarini and Nico Voigtländer in the Quarterly Journal of Economics confirm this. They use the subscriber list to the mid-eighteenth century French magazine Encyclopédie to show that knowledge elites mattered in explaining the first Industrial Revolution: in those French towns and cities where subscriber density to the magazine was high, cities grew much faster in the following century, even when controlling for a variety of other things, like wealth and general levels of literacy. Their explanation? Knowledge elites (engineers, scientists, inventors) raise the productivity at the local level through their piecemeal innovations, with large positive spill-overs for everyone around them.
Fast-forward to the twenty-first century. High-skilled workers are the stars of today’s knowledge economy. Their innovations and scientific discoveries spur productivity gains and economic growth. Think, for example, of the immense contributions of Sergey Brin’s Google, or Elon Musk’s Tesla, or even Jan Koum’s WhatsApp. It is for this reason that the mobility of such highly talented individuals has become such an important topic – consider that all three individuals mentioned above are immigrants to the United States. There is little doubt that the most prosperous economies of the future will be the ones to attract the most skilled talent.
Which is why understanding the push-and-pull factors of current global talent flows are so important, and the subject of an important new article in the Journal of Economic Perspectives. The four authors begin with the facts. High-skilled elites are more mobile: between 1990 and 2010, the number of migrants with a tertiary degree increased by 130%; those with only primary education increased by only 40%. More of these high-skilled migrants depart from a broader range of countries and head to a narrower range. While OECD countries constitute less than a fifth of the world’s population, they host two-thirds of high-skilled migrants. 70% of these are located in only four countries: the United States, the United Kingdom, Canada and Australia.
The United States, unsurprisingly, dominates all rankings. Since the 1980s, of all the Nobel Prizes awarded for Physics, Chemistry, Medicine and Economics, academics associated with American institutions have won over 65%, yet only 46% of this group was born in the United States.
One fascinating and underappreciated fact of global migrant flows is the role of highly educated women. Between 1990 and 2010, high-skilled women immigrants to OECD countries increased from 5.7 to 14.4 million; in fact, by 2010, the stock of highly skilled women migrants exceeded male migrants! As the authors note, ‘Africa and Asia experienced the largest growth of high-skilled female emigration, indicating the potential role of gender inequalities and labour market challenges in origin countries as push factors.’
And what about South Africa? The authors calculate the emigration rates of high-skilled individuals by country for 2010, and plot these on a graph. South Africa is a clear outlier: emigration of high-skilled individuals is the sixth highest of the countries included, and by far the highest for countries with more than 10 million people. This is worrisome. True, some of this emigration is made up by high-skilled immigrants from our African neighbours, like Zambia and Zimbabwe, who also have high emigration rates. But the fact remains: our economic outlook will remain precarious if we continue to shed high-skilled individuals at these exorbitant rates.
Is there something to do? The authors mention various push and pull factors that affect the decision to migrate, from gatekeepers that pull the best talent by giving citizenship based on a points system to repressive political systems that suppress freedom of speech and scientific discovery and push the best and brightest to emigrate. If South Africa is to prosper, high-skilled individuals should be recruited and retained – not pushed to find opportunities elsewhere. Protests at universities do not help; providing residency to graduates, as the South African government has proposed, will.
In the knowledge economy, knowledge elites are the bedrock of success. If we are to learn from history, cultivating them should be our number one priority.
*An edited version of this first appeared in Finweek magazine of 3 November.
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.