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Chris Becker's Austrian Perspective on South Africa, Gold and the Ludwig von Mises Institute
With Anthony Wile - June 23, 2013
The Daily Bell is pleased to present this exclusive interview with Chris Becker
Introduction: Chris Becker is an economic strategist at ETM Analytics, an economic and investment consultancy based in Johannesburg, South Africa. He currently heads up ETM's Africa Advisory division, where he is in charge of product development and research. He founded the Ludwig von Mises Institute South Africa in 2011, an economic think tank that promotes the market economy, sound money, private property, and peaceful international relations. He read philosophy, politics, and economics at Stellenbosch University, before becoming a sovereign risk analyst, and moving into economic and investment strategy consulting. He is editor of chrislbecker.com, a leading South African libertarian blog, and tweets @chrislbecker. His research and views have been featured on popular free market websites LewRockwell.com and EconomicPolicyJournal.com, and he is a regular economic commentator featured on mainstream South African financial and news media.
Daily Bell: We previously interviewed South African analyst Leon Louw on South Africa, who runs the Free Market Foundation in South Africa, and we'll ask you some of the same questions we asked him. He was remarkably positive about South Africa and its future, especially if it adopts free-market reforms. Are you similarly positive?
Chris Becker: I would be if the South African government was indeed adopting free-market reforms. But it isn't. This government continues to introduce policies and legislation that restricts personal choice and liberty, inching the country more toward socialism than away from it. The minister of trade and industry, Rob Davies, is a sitting member of the South Africa Communist Party, while the minister of finance, Pravin Gordhan, used to be a member of the SACP. Other key ministries are littered with Communist Party members or sympathizers. The pervasive state ethos is socialist with 'red ideals' clearly pushing the country in that direction, which leaves me less optimistic than Mr Louw.
That said, I am positive about the fact that the ANC government is inefficient and disorganized, enabling the private sector to flourish in parallel to public utilities that can't serve the public's wants. We've seen huge growth in private education, private security and private medical industries in recent years, without which we would have seen rapidly declining living standards of South Africans. In a micro sense this inefficient and disorganized state leaves the space for quite a lot of personal liberty and allows people to get on with things outside of government control. With this strong central planning and regulatory ethos, if the government could actually follow through with its grand plans, South Africa would be a very unfree place. I call it 'dangerous efficiency.'
Daily Bell: Okay. We'll return to these larger issues but in the meantime give us some background on yourself and how you came to be involved with the Ludwig von Mises society.
Chris Becker: I was an economist analyzing sovereign risk of African countries in 2007/8 when the senior economist at the company I was working for at the time was predicting sustained GDP growth rates for Africa of around 8-10% looking 2-3 years out. Then the US housing market reached the tipping point, major US banks collapsed, the US and global business cycle crashed and the effects thereof tipped many SSA countries into acute recessions, rendering these forecasts perfectly wrong. Yet all that the company did was to revise their forecasts to recessions and predict a strong rebound of growth looking 2-3 years out again. This was done without flinching or any explanation to clients of where we had gotten it wrong, like it was just a small glitch in the model.
When challenged on how they could get these forecasts so wrong, they simply responded and said something along the lines of, "This is a once in a lifetime economic crash that couldn't have been predicted." But I felt that if you were an economist, it is exactly the once-in-a-lifetime crash that you should be predicting, if you are to truly add value to clients.
I did my homework and discovered 'the other' economic theory, developed by Carl Menger, Ludwig von Mises and Murray Rothbard, and the followers of this theory had essentially all been warning of the developing crisis and looming downside risks to global growth, including for Africa.
So since 2008 I have been deeply engrossed in learning the economic theories of the 'Austrians.' I struck up a friendship with a business associate at the time, Russell Lamberti, who is now my colleague at ETM Analytics where we are developing some very exciting research products, and together we decided to launch the Mises Institute South Africa where we could also provide an entry point to South Africans in need of direction and filling the black holes left by mainstream economics. Today we have four trustees for the institute and will soon have the legal structures in place to be able to operate as a non-profit organization and start educating the public about liberty and free markets in earnest.
Daily Bell: We believe Africa is being prepped to be another China or Japan, where several countries may come together to stimulate a regional economy to create a kind of "Chinese Miracle." The idea then would be to set up lots of factories producing consumer goods for Western markets. This will artificially lift African peoples out of poverty for the near term. What do you think?
Chris Becker: It's possible that some factories will be set up to produce consumer goods for Western markets, but I question whether this is the longer-term Africa play. I think Africa is being viewed more as a final consumer market than it is a manufacturing hub. Bear in mind China and Japan are each ethnically and politically very homogenous, controlled by one central state, whereas African countries and regions are quite the opposite: tribal, ethnic and deeply heterogenous with arbitrary borders sometimes splitting one tribe in half. This is a major challenge that must be overcome to achieve the integration required to create a Chinese-style manufacturing hub.
At present, the bulk of Africa's investment inflows are directed at infrastructure (mostly power and transport), energy and agriculture. The investment flows are being driven primarily by state-led companies in the energy space, and private equity firms partaking in private-public partnerships in the infrastructure space and in agriculture. The attraction here is a wealth of untapped natural resources and minerals, and arable agricultural land that can be developed to serve a growing Asian market and the Western consumer market.
That said, a number of firms are also entering Africa in an attempt to capture the African consumer market. To name a few, we've seen Spanish retailer Zara, Australia's Trenery, Witchery, Cotton On, British retailer TopShop all set up shop in Johannesburg in the past two years. The list goes on and is not restricted to South Africa. At the same time, South Africa's manufacturing sector is shrinking and manufacturers say their local supply chains are disappearing and they now need to look to China to source various specific goods for their manufacturing processes.
In other words, Africa's industrial sectors (more distant from the consumer) and the wholesale and retail sectors (nearest the consumer) are big and growing. However, it lacks the capital to transform those raw materials into final consumer goods internally. There's mining and some farming, and there's retail, but the middle is missing – that middle is diversified manufacturing, the productive heartland of any truly developing country. Africa sits with production structure consisting mostly of final consumer goods and services and very basic resource extraction processes, with a hollow middle.
For example, if you go to Africa's copper producing region – the Copperbelt in Zambia – you cannot buy a copper souvenir that was produced locally. The copper is shipped a couple of thousand kilometres to China, where it are transformed into final consumer goods – souvenirs in this case – before being shipped back to the Copperbelt where they are sold to consumers. Angola extracts oil from the Earth, and sends it offshore for refining before importing it back into the country for final consumption. Africa's history of the past several decades is one of exporting raw materials in exchange for final consumer goods.
The reason these intermediate sectors are so undeveloped is due to particularly low savings rates over the period, which has led to a lack of capital accumulation and capital goods producing (i.e., manufacturing) sectors. African societies tend to be less patient than their Japanese, Chinese or Western counterparts, displaying incredibly low levels of saving. Where and when Africans do wish to save, their efforts have been frustrated by irresponsible government deficit spending, money printing and inflation, outright confiscation or war.
To argue that Africa will be transformed into a Japanese or Chinese type manufacturing hub, one would need to argue that the average African's time preference will decline in order to release the necessary savings and investment to develop rich and sophisticated higher and middle order goods sectors. Africans must stop spending on consumer goods and start saving and investing in production processes, but with such mismanaged currencies, negative real interest rates and rising consumer credit facilities from banks, there is a strong anti-saving institutional structure in place.
So we're not seeing increasing savings rates in Africa – or at least, to the extent that we are the state is frustrating these efforts and funneling resources toward government consumption. What we are seeing is an inflow of foreign savings and investment to develop resources and infrastructure, and the earnings from these sectors are either squandered by politicians on pet projects or poor investments that have little to no economic value, or used to fund perpetual trade deficits. I'm convinced that the renaissance of the African consumer that foreign retailers are coming after is largely Africa riding on the coattails of the resources boom and debt financing. Foreign retailers are coming in to capture the retail market enabled by foreign investment, and the African consumer gets to enjoy these goods today but may not be left with increased capital to be productive enough to buy these goods once there are no new mining and farming assets for foreign savings to capitalize.
In my opinion, Japan, China and India have noticed the Western consumer is tapped out, and are viewing the African market as an alternate consumer market to the West. Asia vendor financed the West. Now it's vendor financing the African consumer by buying and investing in its resources and agriculture sector, giving Africa the funds to buy its manufactured goods. Instead of getting US Treasury Bills in exchange for a consumer, Asia gets land and resources, real physical assets as collateral. It's a much stronger vendor financing model than was used to fund Western consumption, but it still leaves Africa as a peddler of resources and indebted governments and households. And we know how that has worked out for the West.
In the past, Westerners were reluctant to lend African governments money, but since the GFC and zero interest rate policies of the Western world, the search for yield has changed this. The average maturity of Africa government debt has lengthened, and bond yields have mostly declined, incentivizing debt-financed infrastructure investment. In other words, Africa is also borrowing from its future to increase purchasing power in the present. If we do not see meaningful trends of economic liberalization by African governments, there is a major debt bubble building that African governments will have no choice but to default on.
This is the fundamental issue that Africa must deal with if it is to become a true manufacturing hub.
Until African societies save more and create better policy environments for saving, investment gains will likely be unsustainable, and exposed to the whims of Western printing presses.
Daily Bell: Tell us more about the kinds of centralization you see taking place in Africa and who is behind it.
Chris Becker: I'm not seeing centralization as much as I am seeing a drive toward integration of countries. As it is, governments have a hard time controlling dissent within their respective territories where they rule over multiple ethnic and tribal communities, not to mention trying to establish a federal type government structure that would supersede their own.
There was a plot before that was spearheaded by Muammar Gaddafi to integrate Africa monetarily with a gold dinar standard. Of course, he is no more, some argue because of his gold plans and rejection of the US dollar, so wind has been knocked out of the monetary integration sails. Interestingly, Robert Mugabe just recently said he plans to launch the Zimbabwe dollar again but this time it will be backed by gold. Gideon Gono, the man who destroyed the Zimbabwe dollar with the printing press said about this plan something along the lines of, "Gold has proven its value as a monetary asset, and it is clear the world will be forced to move back to a gold standard in the future." So this is potentially an interesting development for Zimbabwe. According to reports, Gaddafi and Mugabe were the two main proponents of a gold standard for Africa, but their influence has either been erased or weakened so much that this plan has been dealt a severe setback. Besides, African governments are such prolific money printers, and it is so profitable to them in the short term, that I can't see an African central bank being set up anytime soon.
The African Union, based in Addis Ababa, Ethiopia, is an attempt to centralize decision-making authority in Africa. A sort of political elite, often those who've failed in domestic politics yet consider themselves somehow nobler than their political competitors, tend to advocate for more AU powers to supersede their failed ambitions at a national level. This body has been able to create some international cooperation, but it is largely toothless and must not be compared with the EU, which has been able to exert real influence (mostly negative) from Brussels.
Daily Bell: Do you see it as part regulatory and legal issue, as well?
Chris Becker: One of the major handbrakes to regional growth is regulatory bottlenecks and physical infrastructure constraints. There is a concerted effort to embark on public-private partnerships to lower these constraints through some major infrastructure investments.
The regulatory bottlenecks are a major constraint. I mean, it is easier for a South African based company to leave here and set up a remote office on the tiny island of Mauritius from where it can service an African market, owing to onerous capital controls in Africa's most developed economy. A major South African agri-business firm just last month announced it was going to run its Africa (ex South Africa) operations from there. Currently, there is a high profile challenge by South African billionaire, Mark Shuttleworth, against the SA Reserve Bank around capital controls. He was essentially forced to leave his home country and set up shop offshore to serve an international market, due to capital controls. There are also numerous cases of South African businesses moving to Nairobi, Kenya or even London, UK, to open branches from where they can serve an African market.
Here these entrepreneurs are sitting in the so-called "gateway to Africa" – South Africa – but are leaving the country to serve other African markets. Lowering these regulatory constraints has to be the first hurdle to be cleared before even considering a proper centralization of policy making or government.
Borders remain incredibly difficult to cross in Africa, and governments tend to be incredibly distrustful of foreigners. So, the barriers – regulatory, cultural and physical – are simply too huge to see pan-African political or economic integration as even a remotely viable option at this stage.
Daily Bell: We think the countries most likely to participate in an African style Chinese Miracle are Nigeria, The Ivory Coast, Kenya and South Africa. What do you think?
Chris Becker: I think we can rule South Africa out of this one. The state is tending inexorably toward socialism and not toward free markets. Nigeria and the Ivory Coast are possibilities but I would put my money on Kenya out of the four countries your list. The spreading conflict in West Africa related to blowback caused by the French intervention in Mali is my major concern for the region. Warring is not good for economic progress. Ivory Coast is socially very unstable, as is northern Nigeria. Moreover, Nigeria (and to a lesser degree Ivory Coast), are highly resource dependent. This raises political corruption and lowers the incentive for true free-market reforms.
Kenya, on the other hand, is a comparatively stable society – the electoral unrest of 2008 notwithstanding. The biggest positive in Kenya is that the government knows it has limits. It recently lowered members of parliament salaries after public protest, and they recently reversed legislation introduced as recently as October 2012 that wanted to force mining companies to hand over some 35% of their Kenyan assets to the government or locals. This move came after the market pushed back to say this is a poor policy that will chase away foreign investment. That is a bold and swift move by a government that is surrounded by other governments always wanting to take more assets from the private sector. So there seems to be some economic sense in some of the key decision makers in the Kenyan government.
The Kenyan government has also liberalized certain sectors such as telecoms that has translated to tremendous gains for the sector. In other areas the government still hangs on, such as power and transport infrastructure, but who knows? This could also be unleashed to the potentialities of the market in the future. Kenya has a reasonably well-educated population with a strong work ethic, and geographically, the country faces key Indian Ocean markets of the Middle East, India, China, Japan, Korea, Thailand and other substantial markets. Overall, Kenya does seem one of the most positive stories to me.
Then, as mentioned earlier, keep an eye on previously very socialist and closed states such as Ethiopia, which, if freed, could see tremendous growth and investment going forward. We are not seeing this just yet but are keeping a close watch on them.
Daily Bell: Where do you see Africa in ten years?
Chris Becker: Despite its constraints, I see sub Saharan Africa as more developed, more industrialised near the retail sectors, with a bigger middle class and consumer base buying goods a Western household would be buying today.
African cities are likely to have caught up and modernized to resemble some bigger Western cities as they are today. Today there's a huge gap between Africa's major cities and those of the West. But in the same way that Asian cities modernized and caught up to the West, African cities are likely to, as well.
However, I also see Africa as more indebted to the rest of the world and its own taxpayers, and it's hard to tell whether that bill will need to be paid in 10 or 20 years, but at some point the bill will come due and this will bring the African consumer back down again. We are also likely to see a bigger contingent of Westerners living in these cities as economic conditions back home prod them to look for opportunities elsewhere. Already Portuguese nationals are returning to the prior colonies in Angola and Mozambique at the fastest rate since colonization. I think in essence Africa is setting up for a boom-bust cycle, but I am quite certain that the human and real capital that flows here in the coming decade will leave it better off than it is today. Will Africa be free of poverty? No. But it is likely to be wealthier on a per capita income basis.
The wildcard is social stability. If war and civil war rear their heads again, it could be a huge setback for certain regions. Liberia is a good example. It has benefitted immensely from peace since 2003, but stability remains tenuous and a relapse into civil war would destroy this progress. The bottom line is Africa is not one, homogenous story. Some countries are going to be doing very well in 10 years' time, but many, unfortunately, may even have regressed.
Daily Bell: Is it a tribal society or can it be converted to a Western consumer one?
Chris Becker: Tribal peoples are quickly integrated into a Western consumer economic model, once they move from the rural areas into the city and are exposed to the lifestyle. We've seen this in many African countries already. Luxury brands are moving into Africa's major centers to benefit from this conversion of tribal peoples into enjoying Western consumer goods. Like I said, savings levels in Africa have been poor, so if interest rates are kept artificially too low due to foreign inflows caused by Western money printing, Africa will quickly be turned into a Western-type consumer model – and debt-financed consumption spending will boom.
Daily Bell: Why would the Western powers want to bother?
Chris Becker: Western powers are currently bothered with Africa for resources. While the West moved into Africa to build hospitals, China moved in to secure long-term resource assets and I think the West was caught napping, possibly a result of its own short-termism. Western powers are now moving aggressively to strengthen ties and to secure resource and energy assets on the continent. Africa is a place to secure raw energy and other resources, but I think Western oriented manufacturers are now also discovering that the African consumer offers tremendous, if not fundamentally sound, potential, as well.
Daily Bell: Was the great resource raid on Africa in the 1800s merely a pretext for nationalization and centralization? Is all this part of some larger long-term colonial plan?
Chris Becker: I don't think so. I think the imperialists that came to Africa in the 1800s were probably arrogant enough to think they'd rule their colonies into perpetuity. Of course, they were also competing with one another, and I doubt part of their plan was to merge, centralize and share the spoils down the road. Long-term central plans give rise to unintended consequences that are difficult to predict and leave the central planners needing to respond to circumstances and events that were never planned. I think this is where Africa is today. The West is being forced to respond to Africa not through economic means, as the East has done and is doing, but political means, i.e., war, to secure these longer-term assets. This is because the West is losing its economic power to the East, which is something they would not have been planning for in the 1800s; they were probably planning for the contrary.
Daily Bell: Let's talk about South Africa. We think it is deteriorating as a free country but Louw disagreed. What say you?
Chris Becker: South Africa has slipped steadily down the Freedom of the World rankings in the past decade. Leon Louw and the FMF are partly involved in constructing the Freedom of the World Index, so I'm not sure how he maintains that South Africa is becoming freer – unless he said that more than ten years ago. Since the turn of the millennium, all indications point to South Africa becoming less free and more socialist. The state owns and 'runs' more than 700 state-owned enterprises. In fact, a report was recently released that found the state doesn't even know how many enterprises it owns, but they know it's more than 700, and they're still counting!
There is a new central plan on the table called the "National Development Plan" that aims to be the economic playbook for more than 50 million people. The government is in the process of setting up a national health insurance scheme that would attempt to socialize medical care. The government maintains capital controls that prevent people from investing freely abroad or setting up businesses locally to serve an international market. The government frequently accommodates lobby groups and places ever higher duties on imported products to protect local industries. The banking sector is highly concentrated and is a monetary inflation machine that extracts resources from the vast low-income population excluded from the credit markets. Government spending has climbed above R1 trillion ($100 billion) for the first time this year, and our ex-communist finance minister bragged about it in the delivery of the government budget in parliament. The government wants all South Africans who trade with each other to register and get approval with a bureaucratic office before they can do so. The bill would also give the state the power to raid any private residence if suspected to be engaging in any form of trading. The state has pressed hard to go ahead with the state protection of information bill, which would criminalise anyone exposing government wrongdoing. The state makes it very onerous for a person who wants to own a firearm for self-defense to acquire one legally, while criminals who disregard the law can buy a firearm on most street corners. The Rica Act [the Regulation of Interception of Communications and Provision of Communication-Related Information Act], also gives the South African government the power to spy on its people and according to some makes the NSA spying scandal look like spying from a distance.
The only ray of light I see shining through this dense web of socialism is that due to such significant inefficiencies in South Africa's government, it is pressing South Africans to become self-sufficient and find alternatives to the state. This is why we are seeing tremendous growth of the number of people living in private, gated communities, growth of the private education system, growth of private security and any other services that the government hasn't monopolized in its entirety. These have been among the strongest growth sectors of the South African economy in recent years and they're only getting warmed up.
The other positive about the ANC government is that it lacks the discipline to follow through with a real communist or Marxist agenda, which requires very strict cadre self-control, coordination and planning. Therefore, all its grandiose plans are essentially doomed to failure and have in the past left enormous cracks for entrepreneurs to run through. As Mises said, "Capitalism breathes through loopholes." This government leaves many of those. But we are seeing such regulatory hyperinflation that there are becoming extra layers of loopholes, making it that much more difficult and costly to run a business here.
Daily Bell: Who is leading the fight for free markets in South Africa? Give us some political names and also some of your colleagues.
Chris Becker: I don't know a politician truly fighting for free markets in South Africa. There are some politicians who have a more capitalist mindset, but they hardly could be regarded as serious warriors of liberty. The problem in South Africa is that the constitution's bill of rights sets all sorts of socio-economic goals, with complete disregard to the notions of self-ownership and liberty. Unlike the US Constitution's Bill of Rights, which aims to restrict the scope of government, the South African Bill of Rights aims to expand government's role in interpersonal relations.
For example, one of the basic human "rights" in this bill of rights is that all South Africans have the "right" to healthcare. I mean, this means that any South African has the "right" to force another South African to treat him or her medically. Can I put a gun to a doctor's head and force him to treat me, because the Constitution says I have a right to healthcare? The Constitution essentially champions this type of behavior. So to be a politician who fights for freedom in South Africa means you must succeed in throwing out a major section of the Constitution.
So we tend only to have more or less statist, unfree politicians and political parties in South Africa. True liberty movements, unlike Ron Paul's movement, are entirely out of the mainstream in South Africa. There are think tanks, businesses and individuals championing true freedom of the classical liberal kind.
One is the Mises Institute South Africa, which for now is a website and blog where some of South Africa's top Austrian economists pen articles and thoughts for a public readership. We are in the process of formalizing the institute so we can accept donations in order to run conferences and seminars open to the public. My colleagues Russell Lamberti, Gareth Brickman, and Simon Watson are the names to look out for there.
Then there's the Solidarity Research Institute, housed within a major labour union in South Africa. They comment on legislation and are always pushing back against the state to defend economic freedom of its members – and as a result, other South Africans at large. In their research reports they are want to quote the likes of Ludwig von Mises when analyzing things such as the impact of nationalization of the mines. The name to look out for there is Piet le Roux, an economist and brilliant social commentator. It sounds weird for a union to be pro-liberty, but they manage to pull it off and have realized that sound economic policies have the most benefit for their members!
Another is the Free Market Foundation, which was a lone voice advocating free markets for many years. Leon Louw and Herman Mashaba are two of the big names there. Herman Mashaba deserves special mention as a man who built a very successful business during the apartheid years serving mostly the black community. As a black man who made a huge success despite apartheid, he is today decrying the socialist policies of the ANC, and is an inconvenient activist to the political elites who continue to blame white people for poverty nearly 20 years after Apartheid.
Turning to columnists and writers, a widely read and loud voice for liberty is Ivo Vegter. Ivo writes for various publications, and in 2011 was a finalist for the Bastiat prize for journalism. Ivo takes advantage of the fact that, despite challenges by the state, press freedom in South Africa remains well-entrenched. The mainstream press may not be overtly pro-liberty, but it certainly spends a lot of its time criticizing the state and highlighting its blunders and theft. So, in that sense, the press by and large plays an important, if often misguided, role in the cause of liberty.
Last, but not least, is a cartoonist by the name of Jeremy Nel – aka Jerm – who started off drawing for the pro-state newspaper The New Age but was fired for being controversial, i.e., insulting the state too much. This catapulted him to fame and he was snapped up by major – and successful – news publications and he is today one of the most read cartoonists in the country, and he is a Misesian.
Daily Bell: Louw told us Winnie Mandela had an interest in free markets. Is this true?
Chris Becker: I don't know. But I would say that "having an interest" in free markets and actively advocating and promoting free markets are very different things. I've never heard her promoting the principles of private property, sound money and liberty. Maybe she was interested in free markets in the same way that I am interested in socialism, but that doesn't mean much.
Daily Bell: Some more questions we asked Louw... Are free-market economics and thinkers popular in South Africa?
Chris Becker: I think there is an increasing interest in free-market economics, but it's still on a very small scale. South Africans have been so conditioned, for generations now, in a statist mold. The Nationalist Party government (the apartheid regime) was a highly socialist regime. There were regulatory boards from the wool market to the television market. So every generation alive today has quite a statist mindset. South Africans often don't see the problem with banning things they don't like, even if these things don't harm anyone else.
But we're seeing a growing interest in free-market economics and thinkers, and it is coming primarily from the Afrikaans community seeking answers to secession and being self-sufficient. Inevitably, if you go down this road you're going to end up with the likes of Mises and Hoppe and us free market commentators. And even if those of this bent are not particularly the academic types who read free-market literature, their actions result in free-market outcomes. We're seeing quite a bit of the latter in South Africa.
Daily Bell: Give us some background on South Africa and how whites are looked on today.
Chris Becker: It's hard to say how whites are being looked on, because it varies from person to person. White people have very good relations with black people in their employment, and vice versa. People of all races get on with things in a peaceful manner. In the neighbourhood I live in, many black women are caretakers of white babies whose mothers are at work. It's not some kind of warzone between blacks and whites. Politicians, of course, try to pit whites and blacks against one another, constantly blaming whites as a reason for unemployment and poverty. This is the age-old strategy of dividing and conquering. Employed blacks who do business and interact commercially with white people on a day to day basis can see through this nonsense. But the large parts of unemployed and destitute people might not. It is they who might look at whites as being the cause of their problems instead of blaming the state. The worse the country does economically due to growing government and poor policies, the more the unemployed can be pitted against the whites by populist leaders, and the greater the tension is likely to become.
The problem for government, though, is that government officials and their crony cadres are by far the best off financially – relative to the value they add to society. Running more than 700 state owned businesses is a very lucrative way of disappearing taxpayer money. It is these guys who are living the real high life, and it is not going unnoticed. Their subjects – black and white alike – notice what's going on here and as a result, unrest in the townships and protests against the government are getting more severe.
Daily Bell: What are the biggest problems economically and sociopolitically?
Chris Becker: The biggest problem sociopolitically is that the government is trying to wedge its way between all voluntary exchanges of South Africans. This is driving apart people who should be engaging in mutually beneficial exchanges, and creating an antagonism and tension in society.
In terms of economic problems, the government, central bank and commercial banks are debasing the value of the rand at a reckless rate, impoverishing the low- and middle-income and unemployed classes. This has been ongoing since the 1970s, well before the ANC government took over, but the ANC has barely slowed down this process.
Government is also legislating to protect the bigger businesses from competition, so the small and medium business sector is shrinking, and the entrepreneurial class is shrinking, which is a major concern.
Daily Bell: Are there any parties willing to grapple with these problems?
Chris Becker: Certainly not among the two major parties that stand a chance of ever winning the majority vote. The Freedom Front is fighting for the right to Afrikaner self-determination and marginal freedoms from government, but they're a small party overall. The Cape Party is fighting for secession of the Western Cape from the Republic, which I think is a great and meaningful cause. However, their movement has not gained meaningful traction yet. My prediction is that it will gain true traction down the road as people from the rest of the country flee the chaos caused by the ANC government and seek refuge in the Western Cape instead of emigrating. There is also a South African Libertarian Movement down in Cape Town but I don't think they're aiming to become a political party just yet.
Daily Bell: Is South Africa quasi-communist at this point?
Chris Becker: Yes, you can say so, but then again, so are most countries these days. The government runs more than 700 state owned businesses, spends more than one rand of every three rand generated in the form of GDP and heavily regulates the rest of the economy. My educated guess is the state controls about two-thirds of the economy in one form or another.
Daily Bell: Can South Africa REALLY be turned around? Can it become freer?
Chris Becker: The one positive trend here is that many people are moving into private and gated communities to escape the chaos in publicly owned spaces. The ANC government is so bad at maintaining even basic levels of personal safety and security that people are taking care of this themselves. Private police outnumber government police by more than three to one, and the value and number of gated communities is growing strongly. This is one way to steadily undermine the influence of the state in one's personal life. The more this trend continues, and the more such private gated communities are created back-to-back, the less influence the state will have over people as the state is essentially excluded from these private communities.
More broadly, in a conventional political sense, I am pessimistic. One hopes politicians will eventually see their destructive ways and change them, but I'm not holding my breath.
Daily Bell: Is South Africa headed toward a Zimbabwe-style collapse?
Chris Becker: Slowly, South Africa's productive sectors are being undermined and hollowed out by poor policy, and this is resulting in a stagnating or declining standard of living for many South Africans. The number of entrepreneurs entering the market place is shrinking, and this is a major negative for South Africa.
I think a big decider of whether the collapse will be Zimbabwe style will depend on whether government implements policies to confiscate property from the productive classes outright, over and above its regular taxes. This is still a small probability, as the checks and balances still exist to prevent government from doing this, but I can't say the risk does not exist. For now, it is getting the trough filled with regular tax revenues and preferential borrowing rates thanks to the central bank manipulating interest rates lower than they should be, and this is supported by QE from the major Western central banks driving the search for yield and preventing the rand from weakening as much as it should be.
Once the emerging market debt bubble bursts, and it becomes more costly for our government to borrow in the open market and roll debts, and is possibly forced to default, and higher interest rates result in a liquidation of the malinvestments built during the credit boom causing government tax revenues to collapse, perhaps at that point will the government start to expropriate assets and chase capital out the country and precipitate a Zimbabwe-style crisis.
The other path to this eventuality could be a collapse of the mining sector. Mining exports, like agri exports in Zimbabwe, are the biggest earner of foreign currency in South Africa by far, yet the sector is in dire straits due to strikes and poor state policies that deter investment. A collapse in the mining sector would create an acute shortage of foreign currency in South Africa, and it would then be very tempting for the government to pass laws to allow the central bank to print money and give it directly to the government and other favored groups to keep buying the things they need.
A lot has to go wrong to get to a Zimbabwe-style collapse, and South Africa is nowhere near that level. However, the current trajectory is in that direction. In other words, if someone or something doesn't change, this scenario may become a reality. Certainly, complacency here would be foolish.
Daily Bell: Are more white people leaving South Africa these days? Louw also spoke of a brain drain.
Chris Becker: White people are leaving but white people are coming back to South Africa, too. As the jobs environment in other Western economies becomes increasingly thin and as nationalism rises, we are seeing white people return to South Africa, often out of necessity. The standard of living for a middle income employed person remains pretty high in South Africa. And there are many opportunities to serve a market where government is failing, so there are certainly still opportunities here.
As the housing boom was building in the West, human capital was sucked out of South Africa, but since that bubble has burst, and since money printing by Western central banks is now fuelling an emerging market debt bubble, human capital is again being sucked back into emerging markets, and South Africa is one of these benefitting. With freer immigration policies we could certainly be benefitting more from skilled people seeking new homes to earn a living, and I suspect South Africa will lose to countries like Kenya and Mauritius on this front. So it's not all negative on the brain drain front but it could be more positive.
Daily Bell: What are the big industries in South Africa? Are any of them prospering?
Chris Becker: Mining is historically a key industry in South Africa. The country was essentially built with resources. As gold was sent overseas, South Africa was able to import capital goods that led to rapid economic progress. However, mining today is on its death bed. Labour laws, labour unrest, rampant price inflation, poor state transport infrastructure, BEE laws that deter new investment, capital controls that deter new investment, high taxation and the threat of nationalization are seeing miners withdraw from South Africa. This is a very negative trend.
The same factors are driving manufacturing into the ground.
Meanwhile, as government debt and private debt balloons, a consumer boom is underway. Because consumption spending naturally means dissaving, new capital is not being formed in the mining and manufacturing sectors. Thus, it is very much a consumption story in South Africa, and this is why foreign retailers are entering the country en masse. While it would be hard to argue retail is prospering, it certainly is seeing increased competition and investment. In particular, we are seeing quite an influx of luxury goods, most likely to serve the crony political classes. The sales of Lamborghini, Maserati and Ferrari automobiles in South Africa relative to income per capita could be among the highest in the world, if not the highest.
But these are the unsustainable credit-fueled boom sectors. The sectors that are truly prospering, I'd say, are private security, private education, private gated communities (residential estates) and solar panels and diesel generators to make people less dependent on patchy power supply. These are the sectors that are essentially providing alternatives to state failure and are seeing tremendous growth. There is potential for this kind of growth in the private provision and distribution of electricity but the government utility essentially prevents the private sector from achieving economies of scale here. A next major growth sector is likely to be the private provision of potable water, as in Angola and Ghana where private water provision is booming.
Daily Bell: Would these companies among other forces be behind a more united Africa?
Chris Becker: The companies benefitting from state failure are the ones solving the economic and political challenges South Africa faces today.
The companies of the large, established industries don't really want to see a politically or economically united Africa but they do want to see borders easier to cross so they meet needs and serve customers across Africa. So I'd say that large and small corporations are a force for progress in Africa. It's the governments that are the big handbrake to decentralized, free market order.
Daily Bell: Why so many wars in Africa – Libya, Tunisia, Mali, etc.? Are these wars for resources or control or both?
Chris Becker: Libya was a war about control of resources by the West and to exclude the numerous Chinese energy companies operating there. Tunisia was a civil war where the West did not intervene as blatantly as they did in Libya, but it looks as if it was an uprising against a government aligned to and funded by the West. In Mali, the former French colony, the French still have significant commercial interests, and the intervention there is about protecting those interests. However, the French intervention in Mali has set off a cascade of attacks throughout West Africa that has become a serious instability risk for the entire region. Not surprisingly, the blowback has been aimed at French firms operating in the region. First it was a French gas plant in Algeria, then a French-owned uranium mine in Niger. There are more examples of this type of blowback – and the US is now also providing support to governments in the region through money transfers and training – so US firms are also likely to become a target.
The difficulty with these wars is that it seems previously dormant Islamists are taking up arms in sympathy with what they argue are their oppressed brothers in Mali or Libya or even the Middle East against Western powers, and so it is not a war being fought on one front but multiple fronts. Does this not sound like the plot of a movie we've seen before?
Daily Bell: What changes would you make immediately if you could pick three top ones – for both Africa and South Africa?
Chris Becker: These are not changes that are ever likely to come about but I'll give my top three changes for Africa in any case. In order of priority, if I was to become president of a united Africa, I would:
- Ban central banks and legal tender laws to allow competing currencies to circulate in exchange.
- Sell state land and privatize large, inefficient state assets, especially in power provision, water and transport.
- I would also open borders to allow the flow of goods and people to move freely by getting rid of all border posts.
Daily Bell: What about South Africa's central bank – is that part of the problem?
Chris Becker: Yes, it's a major cause of the country's problems – particularly the high levels of income inequality we see today. Since 1965, the South African Reserve Bank has increased the number of rands in circulation by 44,000%. To place this in perspective, the Federal Reserve has only increased the US dollar supply by 2,400% since 1965, so our central bank and commercial banks are beating the Fed and US commercial banks in the money printing stakes, hands down! Let this stat provide some context to those expecting a hyperinflation in America soon! It is well known in free market circles that monetary debasement is wealth destructive for the majority of the population using that money – if the SARB continues with this policy it will continue impoverishing millions more South Africans.
Daily Bell: Any chance of Africa going on a gold standard of some sort?
Chris Becker: I highly doubt it in the coming five to ten years. While South Africa is an aggressive monetary debaser, we are prudent by African money printing standards. African governments are known to really crank it up and frequently go through monetary rebasings to 'deal with inflation.' Just a few months ago the Zambian government lobbed three zeroes off kwacha bank notes to make it easier to account in and transact with its legal tender. They haven't stopped rolling new kwacha's off the printing press, though, and the currency has just fallen to the lowest levels seen since early 2009.
That said, Robert Mugabe in May announced his government would re-launch the Zimbabwe dollar backed by gold. Maybe other African governments will follow suit once they've also destroyed their currencies and the public rejects these currencies in exchange, but I don't see them willingly giving up the profits that accrue from the printing press.
Daily Bell: We think Africa should be left alone to evolve at its own pace and fear for the future of Africa if Western powers try to create an artificial consumer miracle in Africa. How about you? Your thoughts?
Chris Becker: Agreed.
Daily Bell: What additional endeavors are you involved in that you want to point out to our audience?
Chris Becker: At ETM Analytics my colleagues and I have developed unique analytical products through which to view the risk and opportunity profiles of African economies. We analyse and score not only Sovereign Risk using our own methodologies, but also analyse and score Asset Expropriation Risk to help real capital investors understand which governments and territories pose the greatest risk of asset expropriation (whether physical property, or regulatory assets such as licenses, etc). As a side note, it is no surprise to learn that the Zimbabwe government poses the greatest threat there and not long thereafter they announced they'd be going after Standard Chartered's assets.
We also produce the Africa Insight – a daily report commenting on, but more importantly analyzing and interpreting, key economic, political and capital market events on the continent, relating these back to our structural analytical products. To trial this report, or to see samples of our other Africa research, Daily Bell readers should get in touch with me through email, and I can get that arranged. This is in addition to the private sector economic data and indices we construct, and the global business cycle monitoring services we provide to fund managers and investors.
Daily Bell: Thanks for sitting down with us.
The Daily Bell
This was a fascinating interview and the only place where we still have questions has to do with what we consider to be some sort of organized effort by Western powers to "modernize" Africa via consumerist production.
This has happened in both Japan and China, as we've pointed out. Central bank money stimulation has been used to industrialize society and in turn generate capital that has funded US deficits.
Meanwhile, US consumers are directed toward the production of this society. Factories expand and revenue flows in a virtuous circle - until, of course, the realities of market manipulation and price fixing catch up to all involved. It happened in Japan and it's happening in China.
While Chris Becker disagreed somewhat with our views on this subject, we're certain Africa has been targeted for considerable "development" and that eventually it may end badly. Before then, however, fortunes will be made.
We're certainly in agreement with Mr. Becker on the points he makes regarding what would help South Africa retain civil freedoms and advance opportunity generally:
- Ban central banks and legal tender laws to allow competing currencies to circulate in exchange.
- Sell state land and privatize large, inefficient state assets, especially in power provision, water and transport.
- I would also open borders to allow the flow of goods and people to move freely by getting rid of all border posts.
These are modest enough suggestions but they would likely notably increase competition in South Africa and thus create opportunities for entrepreneurs and businesspeople generally.
They would also work well in the US and Europe. Such sensible strategies are often suggested by those who understand that free markets and human action are preferable to authoritarianism and region-wide price fixing.
Hopefully, Chris Becker's views will win the day over time. South Africa will be fortunate if they do.