Fallacies may lead to sub-optimal behaviour at the individual level, but that does not make them irrational. At the social level especially they provide some of the most rational explanations for seemingly irrational behaviour.
Take the media industry in Nigeria, for example. It is common for journalists to have salary arrears that stretch back for more than a year. In fact, the more prestigious the newspaper brand, the higher the likelihood of long arrears.
Paradoxically Nigerian Journalists work harder than journalists in many African countries, and the longer pay delays the higher the output.
My initial thought when I first witnessed this was to assume that “grey journalism” (what we call “soli” in Ghana) is simply stronger in Nigeria so the formal salary is merely a formality. But more probing suggested that this was not the case.
Then last week it came to me: Sunk Costs fallacy.
The longer pay delays, the higher the amount that would be lost if one leaves the job, and the more valuable the amount becomes from a lump sum investment opportunity point of view. Journalists then see strong incentive in keeping the business running, so that: 1) it does not fail completely and 2) they don’t get laid off for performance issues. Journalists reinforce this with “equity theory” – the idea that it would be unfair to lose their arrears whilst those who stay benefit from the work done to date. The owners then factor this into their financing model (i.e. they see the interest-free borrowing from employees as lower-cost than the high interest charged by the banks for short-term working capital needs). In the end everyone’s logic reinforces everyone’s.
This is obviously fallacious thinking on all sides because economic optimality will advise that the journalists look more to the future opportunities they are losing for staying put in a high-risk job and not the “sunk costs” of the unpaid salaries, which are in the past. It will advise also that newspaper proprietors simply trim staff and reorganise their business models.
But in the same way that scammed investors throw more money into pyramid schemes the riskier it gets, Nigerian journalists opt instead to stay.
From a higher vantage point, however, the fallacy provides the most rational way of describing the group behaviour whatever we may think of the individual judgement that aggregates to the behaviour.

In a recent debate on Facebook about the propriety or otherwise of the highly indebted Ghanaian state building and running factories (something not on the immediate policy agenda but frequently demanded by the country’s residual Marxist intelligentsia), a number of my sparring partners brought up, as expected, the ascendant theory of the “developmental state”.

The phrase, “developmental state”, has breathed new life into boring, old, “mixed economy” tropes of which the economic debate of the last hundred years has never been short of.

Luckily for the champions of this old-new paradigm, the fall from grace of the Washington Consensus and its neoliberal agenda in the late 90s and early part of this Century, following successive global economic crises and “corrections”, has provided fresh context for ceaseless reminders about how no industrialisation or economic development has ever been witnessed anywhere in the world without strong government intervention in the economy.

These interventions have been said to have included “infant industry protection”, “high tariffs”, “political pressure to force-open foreign markets for state-backed enterprises”, “subsidies”, “mercantilist militarism” (opium wars, anyone?), “price controls”, “outright import bans”, “picking winners”, “export promotion”, “labour protections”, etc.

Some of these disparate “interventions” are even used interchangeably in popular formulations of this view, exemplified by such commentators as Ha-Joon Chang, whose 2002 book, Kicking Away the Ladder, combines many staples of the mixed-economy diet to produce a platter of seemingly fresh arguments for the expressed purpose of “debunking the myth of free trade from a historical perspective”.

The problem with many of these economic and political economy works that seek to construct an accurate history of economic development as a note of caution to developing countries about the importance of drawing the correct insights from the historical practices of today’s successful countries in order to more effectively chart their own unique path to development is their weak use of the techniques of historiography themselves. They should perhaps embrace the humility they so often admonish their debating rivals to acquire.

Because, strictly speaking, tracing the actions of States in the management of national economies starts from a foundation in policy history and not development economics. I very much doubt that the likes of Chang, Thandika Mkandawire, and Peter Evans (despite his more careful elicitations) spend as much time as they should examining the works of policy historians like Harry Dickinson and Ernest Bogart.

If they do, there is little trace in their work. How does this limit the value of their recommendations?

It drills a hole in the bottom of their analysis, starting from a fundamental mistake that all actions of the state are to be distinguished from its inactions and classified as evidence of autonomous “intervention”, which presumably keeps the “free market” and its constituent entrepreneurs and capitalist mavens in check, or dictates their conduct.

So, in Chang’s writings, whenever he sees any record in the literature of Britain imposing high tariffs or the USA investing heavily in defence R&D, he immediately snaps his finger: State at work, Market at bay!

It would be less of a problem if the works of people like Chang, Mkandawire and Evans were not frequently cited by policy actors in developing countries who interpret them to mean that developing countries need to imitate the actions the successful countries took when they were at a lower level of development if they are to see serious growth themselves. This is of course bolstered by the elaborate arguments made in support of the extension of the thesis to the extraordinary economic turnarounds we are seeing in China and a few East Asian countries today (i.e. the so-called “late industrialisation” phenomenon).

That highly mercantilist practices were practiced for most of Africa’s, the Middle East’s and India’s post-colonial period with minimal results, or that tariffs and other interventionist measures, both of a formal and informal variety, remain very high in these regions, is merely put down as further evidence of the importance of “heterodoxy” or of the need for “state intervention to be done right”.

There is, sadly, one little problem with this neat, rubik cube approach to development, argument.

Firstly, the “State” often implied, with a certain degree of “boundedness”, in the works of Paul Bairoch, Angus Maddison, and Kenneth Pomeranz in relation to economic matters before the 19th and especially the 20th century was an infinitely more malleable and amorphous organism than comes across when one reads the likes of Chang and Bairoch.

Whether in the UK, the US, or Japan, the “State” in these bygone eras were, in matters of policy, apprentices to better organised interests in whichever domain held sway. I believe that the phrase “state capture” was of such routine valence that it would have been meaningless to use it in describing affairs in 18th Century Britain, France or the United States in policy terms.

Frequently, state action was merely an extension of the will of the harnessers of market forces since the notion of “public interest” was in those times even more underdeveloped than it is at present.

So, whether it was banning calico or unbanning it. Advocating for a Cotton Tax or abandoning it at the behest of the Manchester Magnates. Opening up to Ireland or clamming up again. Imposing the Corn Laws (which restricted the import of grain into the UK) or repealing it. Signing bilateral trade pacts with former enemy states or revoking them. The true impulses germinated and emanated from dominant actors in the marketplace merely using the state institutions as extensions to their business will.

In fact, the word “lobby” came from a reference to the inner forecourts of the British Parliament in the 18th Century, in a time of intense State manipulation when no registration of lobbyists or conflict of interest legislation was appreciated or in place.

The State’s policy autonomy was heavily circumscribed, lacking as it did bureaucrats with a strategic understanding of emerging phenomenon such as maritime imperialism, colonisation, cross-border banking, the impact of excise duties on trade, the effects of arsenic bleaching on the body, and of course the inner workings of manufacturing and international trade.

Rather than a powerful and knowledgeable State constructing the scaffolding which the private sector meekly climbed to construct the ensuing economic boom, after which the same State kicked away the scaffolding to prevent other societies from emulating this strategic technique, a proper reading of policy history shows something else. It shows that for the most part policies already designed or preferred by manorial entrepreneurs, acting as “Consiglieres” to the State faction within the elite, were legitimised by State endorsement in a far more brutal fashion than any anti-cronyism campaigner today could ever imagine.

In no context is this more graphic than in the colonial and “trade chartering” enterprise, which peaked in the period between the 18th and 19th centuries. The argument that the State had barely any public interest policymaking capacity finds its strongest support here.

Whilst trade policy was firmly in the hands of the league of merchants, such as the Company of Merchants Adventurers and its offshoots, Consiglieres and entrepreneurs like John Cabot (not his original name), Columbus, Don Diego de Azambuja and a whole host of pirates and private warlords dictated the foreign policy of these 18th Century States, occasionally returning to the metropolitan hub for re-endorsement purely as a means of post-facto legitimation.

There is no doubt that had Columbus been as successful as we now know that John Cabot was in raising funds from finance houses on the Continent, he would have approached the Iberian monarchs in the same way that Cabot approached the English Monarch: to ask only for royal endorsement.

Poor Christopher needed money, thus his plea to the Crown of Castile was for a full commission. He was rejected on the advice of the bureaucrats and technocrats in charge of the formal State. But the man wouldn’t take no for an answer; he continued to press and push, until finally, against the counsel of the Civil Service, the Iberian Monarchy grudgingly decided to fund him.

Thereafter, he more or less wrote his own contract, including in it a few choice provisions, such as  reserving for himself the position of Governor of the lands he anticipated discovering. It is highly doubtful that the Iberian aristocrats knew much about the elements of this endeavour. But Señor Columbus seemed on top of his brief, and the returns seemed good, so like good European Monarchs of the era, they just signed the papers.

On the strength of these covenants, Columbus was soon installed at the head of a petty, and utterly vicious, despotism in Hispaniola (present-day Haiti and the Dominican Republic). By the time petitions and pleas forced the Iberian State to intervene, recall and imprison him, the man had basically wiped out the indigenous races on the Islands. Was this exactly Iberian foreign policy? Very doubtful. At least at that time. The State will learn over time the lucrativeness of colonial brutality, but only because they had such fine teachers in “privateers” such as Señor Columbus.

This pattern is evident across most of the States that successfully industrialised and have today become models of effective economic development. For centuries, States were happy to be at the padded end of the golden leash, following entrepreneurs, adventurers, warlords and inventors around as they learnt the ropes. State competence was slow to build and concepts of public interest and public administration we take for granted today developed slowly, often long after they had been established in private enterprise.

A look at the accounting systems of the Adriatic and other continental trading houses compared to the “political arithmetic” texts adopted by the likes of the French Treasury of the same period, and in general between the 15th and 18th century, demonstrates clearly this gap in competence. But let’s broaden the horizon beyond the Occident.

In South Korea, the rise of General Park Chung-Hee marked the beginning of the country’s modern rebirth. The justifiable focus on the human rights abuses of the era has had an unfortunate side effect of characterising the regime as an all-powerful micromanager of the economy, dictating to all economic actors in a manner consistent with its political dictatorship. This however masks the true sequence of the country’s economic policy evolution, and seriously marginalises the role of the Federation of Korean Industries (FKI), recognised then and after as the prime architects of the Chaebol-spirited blueprint of industrialisation.

When General Park overthrew the corrupt technocracy created by the Ivy League – educated Syngman Rhee, bureaucratic top-down blueprints by then leader John Chang were the guiding spirit of policy. Park, a lifelong mediocre student, had little understanding of policy or administration. He knew this. Thus, despite packing virtually all political institutions with military and military-affiliated cronies, he was remarkably “obedient” on matters of economic policy, allowing the newly formed FKI, powerful Chaebol chieftains, and other economic actors to guide the administration as it drove through the backward economy a mixture of mercantilist and liberal reforms until his assassination after nearly two decades at the helm, by which time the foundations of an industrial power had already been formed.

When people like Ha-Joon Chang and Bruce Cummings talk about the Economic Planning Board of South Korea or Japan’s MITI, they often underplay the microtubules in these overarching frameworks, thereby allowing to fester the naïve assumption that State intervention to direct the conduct of private economic actors was the main game in town. By so doing they misconstrue the “unusual humility”, or “deference” of these so-called “entrepreneurial-states” to the guiding forces of “Consigliere private interests”. Even though they know better.

In many ways this is what truly distinguishes all the governments that successfully industrialised from those that did not.

Whilst the degree of perversity of the “State capture” by the Consiglieres differed significantly from location to location and epoch to epoch: from Finland in the Baltics to Israel in the Negev; and from context to context: from the Pacific Railway Acts in the United States to the Decree on Factory Privatisation by the Meiji in Japan; the apprenticeship of States to Consiglieres is a consistent feature until the relative balance between public interest and capital interests shifted ever so slowly towards the centre in the second half of the 20th Century.

And whether the Consiglieres were of the calibre of the Strutts, Arkwrights, Cobdens and the Quakers and Manchesterians of Britain, or more like the Zubaitsu grandmasters of Japan, or even more colourfully still, like the Tai-Pans and Hua-Qiao/Hua-Ren Lords of the Chinese seas, the fundamental principle of negotiating legitimation for Consigliere interests under State imprimatur is a recognisable feature in all contexts.

Of course, it would be sheer mendacity to insist that a J.P. Morgan is scarcely different from a Sir Henry Morgan (the feared buccaneer) as far as this model of Consigliere-State Capture is concerned. The key point however is that the notion of the State apprenticing itself to powerful non-state actors until state actions become merely the vessel for achieving the entrepreneurial agenda of more competent cabals has a long footprint in the annals of policy history. Many purported “State actions” in this view could thus be interpreted as either market or corporatist-driven, with a sheen of official legitimation.

In summary, therefore, there is a very sophisticated reason why some records of prolonged state intervention in certain societies in certain epochs appear so rosy whilst others in other societies emit such foul odour.

This same reason explains why Uganda failed so miserably to industrialise under the high-handedness of Obote and Amin but Taiwan flourished under the overbearing Chiang Kai-Shek. Just as it does the divergence between the outcomes of Levi Eshkol’s economic plans, which enhanced Israeli national competitiveness, and those of Nasser’s State Capitalist strategies in Egypt followed by Sadat’s more liberal-oriented approaches, which both failed to yield substantial industrialisation and economic transformation.

The reason is simple: in those countries where the State either refused to be led or led without the chaperoning arms of powerful Consiglieres, the economic transformative policies of the State rarely led to market growth or subsequent economic development.

When a State is led by the likes of a Mobotu or Kamuzu Banda, an Enver Hoxha or a Plaek Phibunsongkhram (Chomphon Por), the prospects of deferential State attitudes to Consigliere direction and guidance decreases rapidly.

In the above light, the economic development that developmental state theorists claim results from effective State interventions becomes stunted in situations where the State is a domineering force in the economy. This does not require the presence of predatory behaviour on the part of the State, a la Evans, at all.

Worse still, the State of the disposition described in the preceding paragraphs, denied the learning that comes from policy apprenticeship, sidesteps its necessary “captivity period”, and never builds the capacity and competence to rule well when the era of public interest policy-making dawns. Such a State fails both its pre-enlightenment mandate of rapid capital accumulation for economic development and its enlightenment mandate of institutional development for good governance and human development.

A double tragedy we are witnessing in many parts of Latin America, Africa, and South & West Asia today.

 

 

 

 

 

 

 

Should the government build factories? Or invest in business ventures? In Ghana?

 

It is one of the abiding mysteries of contemporary society that discomfort about government ownership and management of business ventures is seen as ideological, whilst support for the conduct is seen as “pragmatism”.

The truth though is that the pragmatic position would be to oppose direct government investment in business ventures, at least in Ghana, on grounds of common sense.

Why? Simple: common sense.

Why would a government be investing in a company? Not for revenue? What should the revenue be spent on? Not public/social welfare?

With that in mind, consider what such an investment would really mean.

The Ghanaian government suffers a perpetual budget deficit, so every investment would mean borrowing to invest.

Due to the genius of our ways, our government borrows at nearly 20% at the medium-term international cedi rate or 9% at the international dollar rate. It borrows at roughly 15% at the short-term, domestic, cedi rate, but that is irrelevant for this analysis, since no serious business investment can be short-term.

So assuming government goes and borrow at 20% in order to establish a business, say in agro-processing.

Since the government is borrowing at 20% to invest, we have to assume that its required return on capital is at least 30%.

Assuming the government wants to set up a chocolate factory in Sefwi to take advantage of the cocoa industry there.

The intended end products are cocoa butter and dark cocoa powder/refined cake.

From detailed schematics I have seen in the context of a private project, $7.5 million is required for a plant that can process 2 tons per hour. Just the plant for now. Let’s say Government wants to make a serious dent in our raw cocoa exports so they peg the production at 80,000 tons per annum, which is about 10% of the average annual yield over the analysis horizon.

The minimum investment required for such a plant would be $160 million (including start-up working capital and auxiliaries).

For perspective, note that the most consistent production plant we have had in the contract is the CPC plant (various others have collapsed or are on the verge of collapse). It is a 65,000 ton capacity plant, which now needs urgent capitalisation to the tune of $300 million. It is swimming in debt and currently reliant on political life-support, being a relatively successful state-owned enterprise.

Let’s say that capacity utilisation is a remarkably successful 75%.

The final conversion ratios for cocoa butter and powder are quite similar, at around 70%. So let’s adjust our capacity numbers for finished products to, say, 26,000 tons of cocoa powder and 30,000 tons of cocoa butter.

Let’s use $7000 as the projected mean price for high grade cocoa butter, based on our historical analysis and a price of roughly $2500 for powder.

Let us also assume an average price over the period under analysis of $2500 for Ghana grade I cocoa beans (note that if Government decides to subsidise the light crop beans as it has sometimes done in the past, this will still involve spending Government funds).

This is all very rosy analysis, but let’s keep it that way for simplicity sake.

Gross margin per ton of cocoa products manufactured will thus be $3500 or 58%.

However, adjusting for conversion factors we get this interesting result:

$200 million goes into purchasing cocoa. When the cocoa is ground, converted to butter and powder/cake, and sold, the proceeds amount to less $280 million. A 28% gross margin.

Labour costs haven’t been accounted for. Electricity, no. Water, no. Maintenance, no. Depreciation, no. Overheads, no. Supplies, no.

Is it any surprise then that well-funded cocoa processing companies run by seasoned management executives cannot afford to pay Cocobod (the national cocoa agency) for the cocoa they buy? Or that many have shut down? A story similar across our industrial landscape?

Let’s say, the Government of Ghana has miraculous powers.

Let’s say, all other costs of the factory are squeezed into 60 million dollars per year. So a neat profit of $20 million can be realised from pure operations (i.e. ignoring financial effects).

How long will it take the Government of Ghana to pay off the $160 million loan?

Eight years, right? If nothing out of the ordinary happens. Of course, as the factory ages, costs will escalate due to higher maintenance and replacement costs etc. (as the finance folks like to say, risk is a function of time) but let’s keep things simple, shall we.

But actually it is not 8 years. That’s too optimistic. There is something crazy called “compound interest”. Let’s ask Excel to help us.

Actually if year 8 was to be chosen as the break-even year, the amount owed would have ballooned to $520 million thereabouts, assuming no money was borrowed to run the factory in the intervening period.

No matter how you looked at the picture, it isn’t pretty. We haven’t even touched the IRR and NPV calculations using the 30% weighted average cost of capital. But even without any detailed analysis, I am sure that you can see cumulative losses in the region of at least $400 million in the first decade of the operation of this factory.

Now here is the question, if the point was social or public welfare, why not simply invest the $160 million directly in health, education, and the like today and reap the results earlier?

I can hear two objections: a) you chose cocoa processing deliberately to present an impossible prospect; b) you are only accounting for economic costs and results, what about the benefits of employment?

Sadly, none of these protests make any sense.

Whatever the venture you choose, if it is manufacturing, the payback period in Ghana would not be less than 8 years. In so far as government’s cost of capital is so ridiculous, forget it. It will produce only losses. But do we want government to get into trading and services? In industries requiring low capitalisation and quick payback period? I don’t hear a ‘yes’.

What does this mean?

No way can a government that fails to create an environment for flourishing private enterprise do better in the same environment running businesses that the private sector is failing at. But if the private sector is flourishing in a sector then what is the point of government intervention there? Why not just take 25% of what they make as taxes plus the payroll taxes as well?

Secondly, the employment that shall be generated is a function of the profitability of that enterprise. If the government is paying too much for labour, then the losses will compound.

At any rate, if these labourers are citizens of Ghana then their employment shall be at the expense of other Ghanaians denied the social investments that could have been made with the $160 million and saddled, on top of the neglect, with the $400 million dollars debt burden. The 500 or so workers of one factory will be living large on the misery of 500,000 Ghanaians. In fact, as we saw with Ghana Airways, that usually is the case: only the Government hirelings benefit.

Now, tell me: who is being pragmatic and who is being ideological: the constructive sceptics who advise against direct government investment into business ventures or the ideologues who have never developed any model or simulation to back their views but hold on to them like articles of faith?

“Religious mindfulness” or “Religious mindedness” is a gift. It is a miraculous gift. Its possibility is an extraordinary mystery.

If you are blessed with a religious mind, treasure it. It shall not always be as easy to acquire and cultivate as it apparently is today for many millions.

Is “personal faith” distinct from “social faith”? Yes. And the fascinating thing is that one does not even have to be religiously minded to have personal faith. Any more than one has to be romantic to experience love.

Personal faith is like music. Since it requires no socialisation per se for its enjoyment, personal faith needs no explicit contemplation of religious objects. Like good sleep or the preference for particular meals, it is one more element of the complexity of self that is lost when it is measured or justified.

The average cost of winning a US Congressional seat (HoR) is about $1.6 million.
 
We know from insider accounts that the equivalent cost of a Ghanaian parliamentary seat is about $500,000.
 
US per capita income in PPP terms is nearly $60,000. Ghana’s per capita income in PPP terms is just a little above $4000. In nominal terms the difference is even more staggering.
 
The population in an average US congressional district is more than 700,000. The population in an average constituency in Ghana is just a little above 100,000. This is relevant if the standard marketing notion that audience size is a factor in outreach cost i correct (a theory, by the way, on which the $520 billion global digital ad industry depends).
 
There are other comparison factors that produce similar outcomes.
 
In relative terms therefore it is at least ten times more *expensive* to get into the Ghanaian Parliament than into the US Congress.
 
Some have hypothesised that the high costs of doing politics in developing countries like Ghana make higher levels of corruption inevitable.
 
What they have failed to do however is to provide a uniform theoretic to probe this situation rigorously without losing the human essence of the analysis. That is to say, without unnecessary quantitative distractions.
 
I propose, in a very very brief treatment, a “cost of capital” framework for understanding why this is so.
 
And no, I don’t mean that we must magnify the headline costs provided in respect of Ghanaian parliamentary campaigns above by taking into account interest rates and the opportunity costs of going into politics in Ghana in the context of such large expenditures. That would be a perfectly valid addition, but we would be overflogging the matter.
 
Rather, what I have in mind is a “capital interconvertibility framework”.
 
I would like us to consider a simplified world in which three main forms of capital define one’s capacity to play the game of politics: Social Capital, Economic Capital and Political Capital.
 
Social capital refers to all the assets available to an individual or entity that can be used directly to offset the transaction costs of building new social connections (i.e. human to human, institution to institution or human to institution).
 
It is obvious that reputation is a prime example of the kind of assets mentioned here. Reputation reduces the search time involved in due diligence for a counter-party during a transaction.
 
Economic capital refers to material assets that can be deployed to material ends with minimal loss of value.
 
Political capital refers to all the assets that can be used directly to offset the *agency costs* associated with group actions. This obviously includes authority, power, position, legitimacy etc. Power, for example, dramatically reduces the coordination costs of getting a group of unruly, self-interested, people to fall in line.
 
I theorise that in developing countries the conversion ratio/”exchange rate” between one form of capital and the other tends to be excessively large.
 
In particular, converting social capital to economic capital and thence to political capital is highly difficult/expensive. Converting political capital to economic capital or economic capital to social capital, on the other hand, is much easier.
 
The implication then is that many simply skip the accumulation of social capital, borrow economic capital in large amounts, trade it for political capital and then aggressively look for channels to convert the latter back into economic capital to pay off the borrowed economic capital.
 
In the so-called developed societies the process of converting political capital to economic capital or economic capital to social capital tend to be more difficult, thus incentivising the accumulation of social capital directly.
 
Furthermore, the lower conversion ratios in developed societies often allow a quicker conversion cycle between social and political forms of capital.
 
You may counter the argument put forward here by pointing to the near-universality of political corruption and dismiss the entire analysis as built on the fallacy of exceptional levels of corruption in developing societies compared to so-called developed societies.
 
But you would only be partially right. Whilst political corruption is indeed universal, the “proportionality” of corruption is not of universal character.
 
Corruption is a standard “agency cost” associated with economic transactions. Often people with decision making power in economic transactions try to compensate for what they perceive to be an undervaluation of their political capital.
 
Despite the logical universality of this phenomenon, theory is still required to explain why developing country politicians tend to charge such high corruption fees relative to the value of their economic decisions.
 
Only the capital interconvertibility framework explains why, for instance, African politicians in charge of tiny economic fiefdoms still price their kickbacks at a level considerably above that of their compatriots in, say, the West.
 
All one has to do is look at the sums mentioned in European and American political corruption scandals versus the case in African scandals.
 
Here is a random sample:
 
Ghana
______
 
Woyome Scandal – ~$30 million
SADA ACICL Scandal – $25 million
AMERI Scandal – $150 million
GYEEDA Scandal – $900 million (investigative committee’s estimate)
 
Kenya
______
 
Goldenberg Scandal – $1.5 billion
 
Nigeria
_______
 
Abacha Scandal – $500 million (recovered; actual amount is in the billions of dollars)
 
US
______
 
Whitewater Scandal – $300,000
William Jefferson Scandal – $400,000
Jesse Jackson Jr Scandal – $750,000
 
Europe
_________
 
Chirac Scandal – $3 million
Kohl Scandal – $1.6 million (2.3M DM)
 
 
There is no doubt, upon any careful analysis of the evidence, that African politicians, for instance, overcharge corruption fees relative to the economic value of their political decisions.
 
Only the capital interconvertibility framework provides an adequate account of why this is so by linking the phenomenon to the high convertibility ratio from economic to political forms of capital, and the conversely low convertibility ratio from the political to the economic form.
 
 

There is little doubt that the propagation of “cultural power” has something to do with the accumulation of “economic power”.
There are, however, some types of “economic power” that are inherently more “cultural”; some national industries that project cultural power/imperialism better. Technology and fashion for instance. Thus “economic power” is best replaced with the notion of “economic influence” when one embarks down this thematic path.
 
When a country transforms economically in a way that impacts other countries, they get taken “seriously” and their forms of representation become more worthy of imitation and appropriation.
 
That is why you can actually track the rise and decline of the “Ninja” genre in Hollywood with the rise and decline of Japan’s economic influence.
 
You might counter by asking why “kung fu”, as a cinematic fixture, also appears to have emerged in the 70s, at the onset of China’s opening up, but peaked in the mid-90s, aligning with the waning of the appeal of the likes of Jet Li, Jackie Chan, Bolo Yeung etc, even as China’s climb continues on an even steeper trajectory. But you would be wrong.
 
Kung fu did not peak and crash. It became appropriated, mainstreamed and enfolded in the same way that burger, pizza, blazers, sunglasses and nail extensions have become. Every fight choreography in every action flick embodies kung fu moves today. That is in fact the height of cultural diffusion. And the fact that you don’t even notice kung fu anymore is actually proof of one successful Chinese cultural globalisation project.
 
Note however that “economic influence” rather than “economic power” is the driving force here. Contrary to some formulations, cultural imperialists don’t have to do all the heavy lifting to diffuse their forms and symbols themselves.
As Gramsci so brilliantly framed it: very often those at the receiving end of imperialism do the PULLING that makes imperialism thrive. Good imperialism therefore requires “induced consent”.
 
Thus it is not China’s expanding GDP that will drive more projects like kung fu into our global consciousness. It is its ability to attain excellence in certain industries, particular orientations of its economic diaspora, its willingness to trade identity for influence, and the direction of its investments in “show off innovations” that inspires beyond making money.

The truth is that we have been bullied into submission by a reign of jargon that prevents us from seeing home BASIC truths, or what the Akans like to call, ‘efie nyansa’, when it comes to macroeconomic management in Africa. The blatant truth is that ‘remote leadership’ is not entirely viable.

No one can manage something effectively without having ‘skin in the game’, metaphorically speaking.

That is why the Americans made the Federal Reserve a federation of banks, a guild of money changers, literally speaking. Much derided and much criticised, especially by our brothers on the left, yet the model has endured and created more financial might for the Americans than any imperial power we have ever seen in history.

But why look to the Americans, when we can look to our own African history?

In 1835, the Asante watched in horror as the 800-year old currency, the cowrie, began to collapse in inflation.

This was a trans-regional currency long before sterling and euro had acquired their later, multinational, prominence. Cowries were legal tender from the coasts to the southern reaches of the Sahara. But by the mid-19th Century, the currency was in free fall.

The first two decades of the inflationary period was actually less dramatic than we have seen of currencies like the Cedi and Zimbabwean Dollar in our own time, which is itself saying a lot. The cumulative depreciation of the cowrie was about 73%. But in the following decade the loss of value spiraled to a cumulative 1500%.

Many factors account for the decline of the currency, the most pressing of which were international. The British had started to trade large volumes of the shells between their various colonial regions, and as political instability in certain colonies, due to poll tax rebellion and similar agitations, reduced demand elsewhere, excess shells poured into other places.

But the Asante knew that they did not fully control the rise and fall of currencies. Just as today, no nation fully controls the value of their currencies. But the Asante fiscal and monetary managers, the Batahene, WERE DIRECTLY IMPLICATED IN THE RISE AND FALL OF THE NATIONAL WEALTH, and every penalty and incentive worked together to ensure that they never forgot that.

So, they implemented a tri-monetary system involving gold dust for the coastal trade with the Europeans, cowries for the Northern trade with the Sahelians, and kola as a transactional medium that enabled hedging.

They further devised an elaborate conversion mechanism across the three currencies, whereby gold dust served as the chief reserve currency, since it also played the role of forex, the means by which firearms from Europe were secured for national defence, and iron bars obtained for light manufacturing (the importance of light manufacturing is itself revealed by the use of iron and brass prior to gold as the reserve currency).

One cannot emphasise enough that the fiscal and monetary authorities saw their actions directly translated into financial indices for the health of the economy in a very direct manner. Bankruptcy of national institutions could not be covered by ‘IMF English’. Taxes could not be raised arbitrarily. The mercantile system literally rode on the back of the skill of the fiscal and monetary authorities.

So much so that by the mid-19th century, the skills required for effective currency trading could only be acquired after years of training in goldweights, hedges and trade-routing.

Even more intriguingly, customs outposts were increased to prevent any unsanctioned osmosis across the three currencies.

This is how Asante managed to preserve the value of kola from crashing alongside cowries. In fact, the cowrie inflation actually therefore led to a boost of margins of more than 250% for Asante traders well until the collapse of Asante power in 1874, when the British started to dismantle the customs union Kumasi had imposed across the Sahel-forest belt.

Furthermore, the Asante implemented a policy of tight quality assurance for gold dust, considerably raising the penalty and costs for adulteration, and devising techniques for bullion management that are intriguing even by today’s standards. Had they failed, adulterated gold dust would have triggered an inflationary spiral capable of crashing the national exchequer.

Clearly, this was efie nyansa at work. When there is no IMF jargon to hide behind, and leaders have their skin in the game, getting down to it is the only option. No wonder the Asante could maintain that scale of import trade in firearms.

In this era, the major gunmakers of Birmingham, the heart of the British armaments trade, and even further afield in the Belgian Liege, knew that the Gold Coast was the happening place.

The likes of Webley & Scott, William Tranter, Samuel Galton, and George Kynoch were soon shipping 100,000 units of prized flintlocks, and could still not keep up with orders.

The amount of pure gold dust needed to sustain such a trade was quite staggering. Dutch records talk about some vessels transporting 10,000 ounces (circa $12.5 million in today’s money) in single consignments.

The gun traders of Great Britain could of course not have known that the Asante was slowly developing a gunmaking culture of their own, and that their policy included blocking British guns from reaching the Sahel. They could not have known that the plan was to station gunsmiths in those regions in order to own the trade in arms once their supply chain could handle the requisite output at sufficient scale and quality.

Of course, the fall of Kumasi prevented this and similar industrial strategies from coming anywhere close to reality, but the key point is how integral a sound fiscal and monetary policy, which ensured adequate flow of forex without inflation, was to maintaining the economic expansionist ambition of a 19th century African power. And how an economic leadership ‘with skin in the game’ often excels in the development of such policies.