Thursday, November 20, 2008


All Americans in South Africa are super excited because since the rand has dropped relative to the dollar, they have more money and they get to play and have fun. I never got it. I am paid my stipend by the South African government in rand so international exchange rates don't affect me until today. My laptop adapter/charger's cord broke and I need a new one (I'm not able to solder it). When I went to look at the prices stores were charging me as much as R1 448 for an ADAPTER. I couldn't get it. I e-mailed on retail store in South Africa asking if they were sure it was what I was looking for because it should only be $30. She asked if I considered the rand/dollar exchange rate.


Right now, it's close to twice (R10-11/$) what it was when I came (R6/$). So what helps other Americans hurts me. :D Boy oh boy!

I have refrained from talking about economics in awhile because I didn't have much to say. It started as a first world or developed world phenomenon but the way the markets are so tied together, even China's growth has slowed below double digits now. I believe it's at 9%, now. It's still growing but it's slowed, and I expect future slow-down in the future. South Africa has been lucky as we are not as integrated as other emerging countries. The big question is what happens to the emerging countries. Will they suffer?

It really depends on what you mean. Remember when you talk about emerging countries that doesn't mean all developing countries. Some developing countries are not emerging; they're stagnant or sinking (in the case of Zimbabwe). Sub-saharan Africa looks in good shape. Most of our African stock markets are not as liquid as say the New York Stock Exchange and these African stock markets are much smaller. The exceptions are Joburg and maybe Lagos and Nairobi. For Lagos and Nairobi foreign investment is small, derivatives (we'll get into this) are not common, and there is much less credit offered than in the U.S. They are also not as globalized as U.S. banks.

But they have been hit a bit (Nigerian and Kenya). Actually in Nigeria the causes started before this current crisis and is probably unrelated.

What this does mean for Africa is less money invested by foreigners. Foreign demand has decreased, and foreign aid will decrease most likely. Oil prices are dropping which hurts Nigeria but it's currency has held up well. Zambia's, on the other hand, has fallen with copper prices.

So with all that is going on, the worst affected on the continent is South Africa. It has the biggest economy and the economy most tightly linked to rest of the world outside Africa. The rand has been loosing value, about 30% of its value since September. And that's why I have to pay more for a silly adapter.

Ok, now the interesting comments. Because of the craze and turmoil and the dependence on money which helps some but not others, some wonderful innovations and creative ideas have come. Here are some.

My friend Neeki (golden voiced ladies man who wants to find the one with whom the magic never ends; sadly he can no longer look forward to being the first black president of the U.S. Thanks a lot, B!) often comments how strange it is that the people who have most money and the most ability to pay receive the lowest interest rates while someone who has little to no money to pay or repay receives the highest interest rates for loans. Isn't that odd? The economists among you will immediately point out that it's all about risks. Thank you. Neeki and I get it. The point is that our priority is not profit and we are not looking at it from the perspective of risk of the company or from a capitalistic perspective. We're just looking at it logically. What is a poor person supposed to do? Is it even fair? How can poor people like us get loans to help enable and empower us?

In steps Dr. Muhammad Yuunus, a economics professor who got tired of teaching “elegant theories of economics,” and 30 years ago opened up a simple bank (really a self-funded loan) loaning money to 42 people who were in debt to lenders for about $27 each. He worked to establish a lending scheme FOR THE POOR. In Bangladesh banks were reluctant to lend money to poor people because they were not creditworthy. So Dr. Yuunus would act as the guarantor. Guess what? The borrowers paid back on time. He got more members in his program, and by 1983 he opened the Grameen Bank which uses group-lending (the borrowers joins the group of borrowers in order to get money). Today they provide savings, student loans, house loans, insurance products. And it's started a revolution. There are over 3300 microfinance groups worldwide in Asia, Africa, Latin America reaching about 133 million people.

Look at the stats from the Grameen Bank. The borrowers own 96% of the equity of the bank (the government owns the rest). Almost all of the 7.54 million borrowers (it's grown!) are women. It has a 98% loan recovery rate. Over half of the borrowers are believed to have crossed the poverty line.

Now, a lot of people don't think microfinancing or microcredit will solve the worlds problems. After all, not everyone is an entrepreneur and needs money for a business; plus don't you need certain skills for business? Poor people end up competing with other poor people instead of accumulating wealth or creating jobs. These are the arguments. So The World Bank had allocated at most 1% to such programs because it is reluctant. Now they are slowly starting to invest more. We will see what becomes of it. The goal is to reach 175 million people through microfinance by 2015 the deadline for the UN Millennium Development Goals.

A Moneyless Alternative
This is what we have in Cape Town. We have a group that is trying to establish a market in which goods and services are sold and traded based on their value. A think tank for alternative economics called South African New Economics (SANE) has a suborganization called Community Exchange System (CES). At CES all products are sold for 'talents'. A talent is the measure of the worth of something. For example, a lemonade is T10, yoga classes for T30, Used Nikon Camera for T750, Humane mouse trap for T60, second hand clothes for T5, Dog walking for T20/hour, time management coaching for T100/hour. This happens on Saturday afternoons at Salt River Community House near my church. Customers are few, though.

The mantra is “what goes around comes around.” So if you have something for sale, you put an ad up. And when you need something you also put an ad up. The Transition Network is an effort to setup a similar CES in the township of Khayelitsha. The funny thing is that to setup this CES called Transition Network, outside funding is needed. So it sounds contradictory to the purpose of having a moneyless society. The hope, in the end, is that this empowers Khayelitsha to be a self-sustaining economic entity less dependent (well they say independent) on outside sources and groups for money.

A Country of Contradictions
I think we're a developing country here in South Africa. But you often here otherwise. The problem is it's really two disjoint worlds. That's why you can have people suffering miserably and at the same time others pushing us to boycott inhuman animal testing, damage to the environment, products that exploit people and violate human rights.

So the question in South Africa is this: how do you go up to a poor person who is trying to buy coffee and ask them to go online and buy fair trade coffee instead so that the cycle of exploitation of workers in Ethiopia stops? How do you do it. The U.S.? Ok, it's possible. But here, only a small minority of people have the money to do the right thing. You cannot go to a poor person and ask her to pay more money to buy organic food, fair trade food, etc. Our mayor (Cape Town—Helen Zille) said “We are not a first-world country. We cannot ask people not to buy cheap Chinese imported clothing when they are struggling to put food on the table.” [quoted in the UCT globalist] Do you see the problem? So it's something we face here.

The big question is who bears the onus for change. Some thing first-world governments should discipline rogue companies and governments. Others think even the poor would be willing to pay a bit more if they understood why.

Are the Markets Good or Bad? Do they degrade our moral character?

All of the mess of the world markets have caused a ton of writing on economics and economic philosophy in general. I love this next site which posts 13 essays answering the second question of this subsection—Do free markets erode our moral character?

Please go and check it out. I thought instead of answering the questions, go look at the wide spectrum of answers there. The one good thing out of the mess of the markets is that people have finally admitted that what we have is quite faulty. No one will say that capitalism—well some have said that capitalism is faulty. They usually use the terms free market in my readings. But with all its faults and problems and issues, the belief is that it is the best system. In other words, I think Americans believe all other systems have more faults and immoralities. So though it is not necessarily comprehensively good, it is the least faulty and we will stick with it as there are no viable alternatives. So we sit while the free world—free market economists sit back and think of a better way (see subsection above of moneyless alternatives that probably will not spread around the world. Heh heh). I am not sure they will find anything without an individual revolution (see section on World Blog Day), but we'll see what turns up.

In the meantime, what do you do with capitalism? Do you keep it and regulate it or allow it go free again? Is it fair that we put all sorts of checks and balances on presidents, the judiciary, and the legislative branches in the political context but we put no similar checks and balances on the market (well, banks) in an economic context? That's the question. And some believe, it's enough to let banks fail. Lessons are learned by other banks when they see one fall and that should be enough without regulation.

I didn't want to get into this because I thought the cause of all this was clear. I thought it was due to the subprime mortgage situation. And it is. But people want a deeper connection, and they want the full story. So, in light of that, I will do a multi-part series on an explanation of what happened with the global economic system in very simple laymen's terms, for those of us who are not economists. I do warn you that I will build. So if you miss a session, you will need to back and look up definitions in a previous one.

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