Africa's Heart of Darkness

Consider this post the Rosetta Stone on the turmoil in Egypt.

Millenia ago Egypt thrived as a global economy because of natural and geographic considerations: Africa's diverse resources could trade with ease from Egypt's location on the northeast corner of the continent; and the drying of the Sahara forced migration to more lush region, such as the Nile River Valley. From the start the economy was planned, meaning a central figure made the economic decisions for everybody. In Egypt's case, the pharaoh appointed a bunch of bureaucrats to oversee all of the industry: Mining, fishing, farming, slavery, warfare, energy, commerce, et cetera.

Unlike Cuba, the government didn't tell people what they could and could not produce. In Ancient Egypt, this was likely a decision made by the innate capabilities of the farmers and of the land itself. Not unlike Cuba,
Egyptian bureaucrats remeasured and reassigned the land to farmers after every rainy season based on past crop yields, assessed the expected crops for the next harvest, collected part of the produce as taxes, and stored and redistributed it to those on the state's payroll.

If your family was successful, you didn't live hand-to-mouth, and could store surpluses for future use. If you were really wealthy the men in your family may have access to the trading route to use extra goods to barter for others on the market. A market is anywhere buyers and sellers meet, and seeing as how Egypt had both command and market economy characteristics, it's what's known as a mixed economy.

To be fair, the percentage of produce and even manufactured goods which reached markets was probably small. Most people living over 8,000 years ago found personal financial gain of marginal importance to the tests of survival of the day. But we already know that international trade provided part of the economic base for the developing Egyptian high culture (e.g., wholesale merchants acting for the crown) that has influenced every civilization since. The extent to which private individuals were involved in trading goods and services cannot be estimated. Major changes to the early barter system began to with the influx of foreigners to Africa's shores, and the introduction of coined money in the Late Period. As expected, market forces (natural Supply and Demand) seem to have played a role above all during the periods when the Government was in upheaval.

Well, the government is certainly in upheaval now. Amid an ongoing promenade of marches, rallies, civil disobedience and riots people of all faiths colors, and backgrounds have gathered to protest a plethora of economic ills; namely the rising unemployment rate, creeping steadily back to 10%; the high cost of food because banks are now closed due to the local instability and the demand for groceries is outstripping the supply to the shelves; low wages have sparked flames of public outrage since 2004, but are gathering oxygen for the long slow burn today; and steadily falling Gross Domestic Product growth when they need it most.

The focal point of all of this righteous angst is President Mohamed Hosni Mubarak, the "Pharaohonic" figurehead in power for the last 30 years. Sounds like Zimbabwe (and President Robert Mugabe) all over again.

What is the eternal unrest that darkens Africa's heart? Despite birthing the
race of mankind, the governments of the Motherland quarrel against the very

people they were formed to serve, making a mockery of the notions of independence, sovereignty and civil and human rights. For years, Zimbabwe was Africa's "Golden Child" excelling far beyond its expectations as a former British colony. Has a history littered with slavery and marginalization based on color and culture poisoned the population of potential leaders of the people? Or are the vices and bad economic decisions of government officials an individual flaw (repeatedly observed) that rests in the heart of the person and not of the people? Is ECONtrepreneurship the responsibility of the person, the government, or the colonizer? We'd love to hear your thoughts.

Our hopes for a brighter Egypt, and thus, a more prosperous Africa.

dls









* Thanks to this summary of Ancient Egyptian Economics for research, Bloomberg BusinessWeek 

The State of the Union 2011

We revisit the President's annual address on what's going on in the U.S. and provide a briefing for busy ECONtrepreneurs.

After the opening preliminaries to thank us, shoutout the audience and squash partisan politics, he delved into some heavy positive (verifiable) and normative (opinion) economic information on Innovation that was broad in scope but riddled with detail.

President Obama rightly noted that technological advances have forever changed how we live, (look for) work, and play. While it's false that America is the largest and most productive economy (as based on Gross Domestic Product data, which is generally accepted in this country), it is true that the economy has escaped the snares of the recession and we are in the upswing of a recovery phase. This is the area of the business cycle that follows a downturn in economic activity. America is now progressing towards a new peak, led by corporate profits, net exports and (hopefully) employment. In the graphic below, "Real Output" is another name for the Gross Domestic Product.

Next, he considered our technological capacity to the education initiatives of boom economies such as India and Japan. While advances in gadgets and digital medium has largely contributed to U.S. economic growth over the last thirty years, India and China invested in their children, resulting in a smarter, more effective labor force. Consider the implications if America were to follow suit, coupled with our technology. Obama called for a reinvention of our energy policy to spearhead U.S. economic growth into the future. His vision is to develop the most able researchers and the most green policies on the planet. Think solar- or water-powered automobiles in the next decade. Not just more jobs, but more high-paying jobs. By 2035, he challenges the country to get 85% of its energy from renewable sources such as those just mentioned.

And speaking of education: it is positive information that investing in education is a predictor of the economic performance of a nation; we are more productive, live longer and engage in less crime. Race to the Top is an Executive-level initiative that provides monetary rewards for ideas to improve student achievement and teacher quality at the state level. Thrifty ECONtrepreneurs will dually be on the lookout for the now-permanent Tuition Tax Credits. A tax credit is an amount you are allowed to subtract from what you owe in taxes. So if you spend money on a student's expenses, you may qualify for the American Opportunity or the Lifetime Learning Tax Credit; incentives to consider the long-term implications of what higher education can do for you.

The President then went in on the ongoing debate on illegal immigration and demanded that we suffer the uncomfortable dialogue on national etiquette and policies to protect America's labor force and best economic interests, the nation of origin of the employee nonwithstanding. He normatively opined that kicking out the undocumented young intellegensia could result in vacant university seats or a decline in small business formation.

Infrastructure in the 2011 address now refers to both physical and digital innovations: American needs to improve both its interstates and information highways. Obama repeated a plea to push forward with plans to build a high-speed transportation system to compliment the high-speed internet which now transverses our country's citified and rural terrain. Public transportation investments can go a long way towards extending job mobility and business growth on the homefront.

The last point was a tricky one: to lower the corporate tax rate without adding to the deficit. How? Doubling exports by 2014, parterning with India, China and South Korea to add to the domestic workforce, enforcing our trade agreements (especially in the Asia-Pacific region), continuing to amend legislation as necessary to protect the American people (think health care and credit cards among others) and encouraging that "key word": Innovation. American exports are notoriously low compared to our imports, one big reason why our GDP (and therefore our productivity, as Obama pointed out) lacks behind that of the European Union.

Obama then began to speak in detail on how these ambitions could be reached, most notably a 3-year freeze in annual Federal spending, so as not to increase the deficit any more. The estimated savings, he warned, while good, will not be enough, so we much move to cut excessive spending wherever it is found, not just in the domestic arena. A powerful motivator for fledging ECONtrepreneurs who are seeking to maximize their futures, and not capitalize on the offerings of the present alone. While Medicare and Medicaid will likely take cuts, he wants to focus on continuing or increasing benefits for those Americans who require assistance to sustain themselves: retirees, the indigent and the impoverished. Other ambitions such as simplifying the tax code, keeping government progressive and of course, not allowing bipartisan politics to hinder our overall growth.

What can the State of the Union 2011 do for you?




cheers,

dls

Goudou Goudou

As we welcome in the new year we can reference the Andinkrah symbol, Sankofa:

Literally translated from the language of the Akan people (W. Africa) as "it is not taboo to go back and fetch what you forgot;" we need to know where we came from to know where we are going! With that, the Delasol Group begins 2011 looking at the progress and setbacks experienced by the Haitian macroeconomy since the devasting earthquake one year ago.

Haiti is a country steeped in stories of triumph and scandal. Located on the eastern side of the island of Hispanola, the French exploited hundreds of thousands of African citizens to develop sugar and coffee plantations; the most profitable of all the French colonies at the time. In 1791, when slaves outnumbered colonists 10 to 1, a violent uprising resulted in the country becoming the only nation to gain independence following a successful slave revolt. For the African Diaspora, Haiti represents hope against all odds and freedom by any means. The new flag was France's, turned on its side and devoid of the white stripe, for obvious reasons.

Prior to January 12, 2010, Haiti was the worst off economy in the Western Hemisphere. Over half the population lived in abject poverty. The majority of production is agricultural, so the Carribbean nation is subject to frequent natural disasters that completely disrupt commerce. In 2008 alone, four hurricanes ripped through the island (Fay, Gustav, Hannah and Ike) in less than a month's time, causing billions of dollars worth of damage. The lack of technologically-efficient industries and domestic investment means that aid and financial captial to rebuild must be obtained from external sources.

One year ago today, the country was brought to its knees by the most devastating earthquake in two centuries. Close to 300,000 human beings lost their lives and the total cost of the disaster was estimated between $8-14 billion by the Inter-American Development Bank*. So what, if any, is the upside for Haiti?

A strong dose of resilience for starters. The term 'goudou goudou' (pronounced "goo DOO goo DOO"), the title of this post, is Creole slang for the disastrous earthquake. Saying it quickly over and over mimics the sound of buildings unrelentlessly shaking free of their foundations. A lighthearted attempt to bounce back from the darkest hour in recent history.

Another bright spot is legal measures that improve trade. The HOPE Act manifests an appropriate acronym: the Haitian Hemispheric Opportunity though Partnership Encouragement Act; specific legislation aimed to increase exports of Haitian goods and services (namely, apparel) to wealthier customers in the U.S. A very BIG deal, because exports are a boon to a country's production capacity, or GDP. While great in theory, HOPE I (passed in 2006) needed some tweaking, which necessitated the need for HOPE II (2008); legislation that broadened the scope of what types of goods are traded. Early evidence supports a positive response to HOPE II initiatives.

A third area is external aid. To date, world governments have committed more than $9 billion, including over $1 billion from the United States. But perhaps the best way to help a person or a country in need, is to help them help themselves. We here at the Delasol Group are staunch advocates of learning from experience and education: rather than depend on others to solve our economic problems, what common sense tactics and bold steps can we take to secure our own future wealth? Will Haiti summon the Sankofa principle to create a better tomorrow for its children? The selection of an incorruptible, solvent government by the people would be a step in this direction. Unfortuantely, there's still much work to be done.

Peace and Prosperity to Haiti!


delasol


*Established in 1959 to support development efforts in the Caribbean and Latim America to reduce poverty and income inequality. Visit their site here.

More info on the HOPE ACTs (PDF file)