Saturday, December 3, 2022

“The Pula clouds our vision”

I have revisited the book “A History of Economic Doctrines” by Charles Gide and Charles Rist.
The book evidences how some societies have been able to allow growth and exchange of ideas. It is incredible how as a nation we seem to think that only a select group of people, those with formal training in particular subjects and politicians should be allowed to generate ideas about the economic direction that this country should take.

I believe that the various ideas in the book can be used as a framework to give a particular perspective to understanding why our economy does not seem to be able to provide for the needs of our people, and why we now have cost sharing featuring in our government’s planning.

I submit that contrary to popular myth we have not really been prudent in the management of our mineral largesse, we have been lucky and our luck has run out, we are now reaping the fruits of our false sense of security.

It seems at some point in time there was a school of thought that had very little regard to the kind of economic activity that is prevalent in Botswana. In this country there is a lot of merchandising as traders buy goods to sell to customers for a profit.

According to the authors, this type of transaction was viewed by this school of thought as trafficking and it is “a sheer waste, for the wealth instead of growing larger becomes less, because a portion of it is absorbed by the traffickers themselves”.

I believe currently these traffickers are called traders. The authors state that according to Mercier de la Riviere “After all merchants are only traffickers, and the trafficker is just a person who employs his ability in appropriating a part of other people’s wealth.”

Our government pays its employees every month and the same buy goods from merchants.
The salaries are largely paid by money raised through the sale of diamonds; our wealth. The goods are sold for profit. I contend that the profit represents appropriation of the wealth portion of our mineral revenues.

I submit that I am not wrong to suggest that we have not moved too far from the position expressed by Mercier de la Reviere. In actual fact we are evidence that supports the contention that merchants appropriate our wealth.

For a long time we were told that construction of infrastructure like roads is evidence of development. The authors quote Adam Smith comparing money to a highway and saying “ …while it circulates and carries to market all the grass and corn of the county, produces itself not a single pile of either.”

How often have we had economists and politicians tell us that we need roads and railways as if these produced anything?

Adam Smith in continuation of the above passage states “… The judicious operations of banking, by providing, if I may be allowed so violent a metaphor, a sort of wagon-way through the air, enable the country to convert, as it were, a great part of its highways into good pastures and cornfields, and thereby increase very considerably the annual produce of its land and labour”.

The above passage may seem to support our development planners in focusing on infrastructure development but I contend that it is deceiving. Given that our annual produce is not really agricultural but mining we must of necessity look at the highway that promotes mining. I submit that the appropriate highway for mining is the US Dollar not a tarmac highway.

Because mineral sales are US Dollar denominated, rather than worry ourselves trying to diversify our economy from minerals through promotion of manufacturing we should concern ourselves at least in the medium term with diversification in the minerals sector. In the short term we should look at another US Dollar denominated industry, tourism.

At the heart of my submission is the idea that we do not really need the Pula for it is like an island in the US Dollar river. Because it is not a regional currency it only makes sense in Botswana. Nobody buys diamonds using our currency.

The majority of tourists that we want to attract do not use the Pula, they pay using US Dollars. Protecting the Pula only serves to pretend to our people that we are in control of our economy and diverts our attention from the substantive issue: how do we make foreign goods and services accessible to our people? Making the Pula stronger does not really achieve this objective.

Of late there has been talk of import substitution. One may ask, what is really at the heart of import substitution? I submit that we cannot answer this question without regard to what Adam Smith is quoted as having said: “It is not from the benevolence of the butcher, the brewer, or the baker that we expect our diner, but from their regard to own interest. We address ourselves, not to their humanity, but to their self-love, and never talk to them of our necessities, but to their advantages.”

The authors also quote Adam Smith as having said “It is the maxim of every prudent master of a family, never to attempt to make at home what will cost him more to make than to buy…. What is prudence in the conduct of every private family can scarcely be folly in that of a great kingdom.”
Does it make sense to try to produce that which we can get cheaply from other countries? Proponents of import substitution must give us a solution to this problem.

The above shows that we have a problem in our hands if we believe we can achieve import substitution if we cannot show what advantage investors will get by localizing their production.
It seems to me that our development planners in seeking to attract foreign investment have elected to ignore this reality. As long as we do not make a distinction between a local producer and a local merchandiser we are wasting our time.

I also noted that the authors detail a transition in Adam Smith’s thinking.

At one point labour was the source of value but he seems to have subsequently discarded this thinking. Our economic planners on the other hand seem to lack the courage to change their thinking.

If one bears in mind what Adam Smith said about one of the disadvantages of division of labour then one has reason to be concerned.

When children of economists become economists themselves do we have reason to expect any new ideas from them? Because they are likely to belong to the same school of thought as their parents it means if they come to power we are likely to be subjected to the same errors that we were subjected to by their fathers.

I also found in the book, that Adam Smith postulated the theory that labour or effort is the cause of value and that Karl Marx used this to good effect in his attack on capitalism (ibid page 94).
Why do we not have capitalists who can borrow from Karl Marx? I remember reading a book by the Catholic Bishops Conference of Canada wherein they held that Marxism could be used as a tool for analyzing economic activity.

I wonder how many of our planners can actually give effect to this thinking.
The book also discusses a familiar subject, the entrepreneur. We are told “the entrepreneur serves as the pivot of the whole system.” We are told “The entrepreneurs, accordingly, are mere intermediaries who set up a claim for those productive services which are necessary to satisfy the demand for certain products.” Given that the world is hungry for our minerals why do we want to satisfy a non existent demand, foreign investment in manufacturing? In regard to minerals our government must behave like an entrepreneur in its dealings with external entities.

In my view as we start negotiations with De Beers on diamond mining we should take the perspective that the Pula does not really exist. The existence of the Pula distorts the picture or clouds our vision.

What we should focus on is maximizing the US Dollar that we can get from our diamonds so that the same serves as the river that carries our economic activity.
The current thinking that looks at the Pula/Dollar exchange rate is flawed for it misses the point.
I believe that in the short term our mineral strategy takes precedence over our human resources strategy. We should therefore be ensuring that our best brains are invested in the development and execution of our mineral strategy.

It is wrong to have our negotiating team top heavy with civil servants who have spent their working lives in the public service and who owe their status more to political expediency than ability. As the authors state “The state is an inefficient administrator because its agents are negligent and thriftless, not being directly interested in administration, but paid out of public funds.”

They quote Adam Smith as having said that if the administration of land falls on the State it would not produce a fourth of the present produce because of the “negligent, expensive and oppressive management of its factors and agents.”

I believe that Dr. K. Koma read this book. I however do not recall ever reading anything by him resolving the questions raised above. Our economic planning has been dominated by the thinking of three men, Masire, Mogae and Gaolathe.

I do not believe that they ever resolved the issues raised above. I do not believe that anybody who glorifies the economic mismanagement of Masire, Mogae and Gaolathe can provide a solution.
Show me the economic policy of BMD and I will show you perpetuation of the flawed economic thinking of Masire, Mogae and Gaolathe.

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