My short essay on opportunity concepts for South Africa

by on August 16, 2017 at 12:06 am in Current Affairs, Economics, Philosophy | Permalink

Here is the piece (pdf), here is the broader symposium, with other notable contributors, including Bill Easterly, Charles Kenny, and Brandon Fuller.  Here is one excerpt from my essay:

…we should keep in mind the strictures of Dani Rodrik that every country, or sometimes every region, is different. Nonetheless this reorientation of measures of progress would have some implications for policy analysis. In particular, high levels of inequality, inequality of opportunity, and relative income mobility would not be seen as problems per se.

Furthermore, the frequent appearance of those concepts in political and also scholarly rhetoric would be seen as misleading and a distraction. The focus instead would be on expanding the absolute size of opportunities for the poor. To make this more concrete, consider a policy change which benefitted both the rich and the poor. Many of the equality metrics would have to struggle with such a policy, which might increase inequality in some manner, whereas the approach recommended in this paper could endorse it wholeheartedly.

It is interesting to note the recent visit of Thomas Piketty to South Africa. He called for a national minimum wage, greater worker participation in company boards, and land reform. Those are all attempts to provide equalizing measures across one dimension or another. Although some parts of those ideas may have merit, they do not seem overall focused on incentivizing wealth creation and opportunity. Piketty even stated: “I think it’s fair to say that black economic empowerment strategies, which were mostly based on voluntary market transactions […] were not that successful in spreading wealth.” It perhaps would have been more appropriate to note South Africa remains a highly regulated, highly legally privileged, and indeed mercantilist economy; the country ranked only number 72 on the 2015 Heritage Foundation Index of Economic Freedom. So perhaps empowerment based on voluntary market transactions has not yet really been tried.

The absolute opportunities approach also suggests a different emphasis for a topic such as land reform. Many arguments for land reform focus on the difference in the land holdings between the rich and the poor, yet perhaps those are not the relevant numbers. A better focus would be the following question: “by how much would receiving more land elevate the opportunities of the poor?” If indeed the answer to that question is optimistic, the case for land reform will be stronger.

Do read the whole thing.

1 prior_test3 August 16, 2017 at 12:36 am

Piketty, Piketty, that name seems to ring a bell for some reason ….

2 Doug August 16, 2017 at 1:16 am

South Africa’s economic malaise begins and ends with the same word: corruption. This is cause of institutional dysfunction and their atrocious showing on the Index of Economic Freedom. Unfortunately endemic corruption is rooted in the modern South African state. It’s the bargain that was made to keep the engines of economic production running through the 1994 revolution.

Oppenheimer got to keep his wealth, Mandela got to take power, and the former paid off the latter, who in turned used the largesse to fuel the political patronage system. Much of it being channeled through “Black Economic Empowerment”. This was a pretty rotten arrangement 20 years ago. But now replace Mandela, a fundamentally principled man of integrity, with Zuma, a sticky-fingered, low-IQ rapist and bigamist.

As long as the ANC remains in power, there’s no hope for any actual economic reform in SA. The whites will continue to either loot the country or flee it. Meanwhile the 90%+ of blacks without the right connections will remain mired in third world poverty.

3 Chip August 16, 2017 at 1:55 am

“The whites will continue to either loot the country or flee it.”

Because every country starts with a finite store of wealth, waiting to be looted.

Or a road, electricity, stock market, port, library and a thousand other things have to be created.

4 Doug August 16, 2017 at 3:29 am

70% of South Africa’s exports are natural resources or agriculture. To a first approximation almost all of SA’s wealth does come from a fixed pool.

5 JWatts August 16, 2017 at 8:49 am

Agriculture isn’t a fixed pool or dwindling resource.

6 Tanturn August 16, 2017 at 10:27 am

Zimbabwe learned that the hard way. South Africa may have to as well.

And since when is exports a proxy for wealth?

7 Pensans August 16, 2017 at 2:08 am

Calling for “land reform” where it was s being pursued by ethnic genocide is reprehensible.

8 prior_test3 August 16, 2017 at 2:13 am

Please, do tell us more about this ‘ethnic genocide’ – somehow, the media has not been reporting on the round up and extermination of an ethnic group in South Africa. Are we talking about tens of thousands, like in the former Yugoslavia, hundreds of thousands like in Ruanda, or millions like during the Holocaust?

9 AT August 16, 2017 at 12:33 pm

I believe it is thousands killed and tens of thousands displaced.

10 stuart to August 18, 2017 at 4:06 am

In South Africa? You believe? This is a bizarrely common belief.

11 Pensans August 16, 2017 at 8:12 pm

Yeah, it’s amazing the media doesn’t report on violence against whites in SA when they don’t even report on violence against whites in the USA.

12 dont matter August 17, 2017 at 9:10 am

*Yeah, it’s amazing the media doesn’t report on violence against whites in SA when they don’t even report on violence against whites in the USA.*

And why shouldn’t they, what with all this new fakery everywhere.

13 mulp August 16, 2017 at 2:18 am

With the lack of rivers that can provide the transport of China and Europe or the Eastern US, Africa needs railroads spanning it.

Whether built by government as was done in Europe for most of it, or privately by corrupt government subsidies as in the US, Africa needs at least 100,000 miles of rail.

Ideally it would be largely built by Africans as a means to develop industrial capacity. Instead, what limited rail has been built to pillage Africa, either by colonial powers or global corporations with resource extraction the only purpose, except for the rare instrument of moving and supplying military to control territory.

Instead it will be China building railroads to support its trade needs, selling goods to Africa, and one good it wants to sell is train equipment and rail.

14 Magus August 16, 2017 at 6:37 am

Yeah water that’s it. . Like the Congo river or Niger River. Of course Boer in South Africa and English in Rhodesia created upper middle class societies but I’m sure they had secret water stashed away somewhere.

It’s def lack of fresh water that’s the cause of Detroit and Camden and Newark and St Louis’s poverty. I can’t think of anything else they might have in common either the rest of sub-Saharan Africa.

15 prior_test3 August 16, 2017 at 6:45 am

The Boer most certainly did not create a ‘upper middle class society’ – that required the British conquering them first.

16 Alistair August 16, 2017 at 9:30 am

Indeed. The Boer’s values were fiercely rural, parochial, working class, and religious, and had not much in common with British Edwardian middle class values.

17 Tanturn August 16, 2017 at 10:29 am

Nope.

18 Borjigid August 16, 2017 at 8:33 am

The Congo, and to a lesser extent the Niger, are notoriously unnavigable for most of their lengths. This means that for transportation purposes, they are mostly useless.

Do note that mulp was discussing rivers in the context of transportation, not fresh water as you implied.

19 Alistair August 16, 2017 at 9:32 am

Pains me to say it, but Mulp is at least partly right here, at least as far as diagnosis goes.

African internal transport infrastructure sucks relative to the size and population of the continent. I think even 19th century Russia had better connectivity.

20 Pshrnk August 16, 2017 at 9:43 am

Lack of easily navigable waterways would have been a better way to state it.

21 Gareth Roberts August 16, 2017 at 3:27 am

Thanks for this Prof Cowen. I was wondering if there are any examples in history where a country has managed to both reduce income inequality and promote high levels of economic growth with relatively low levels of human capital?

22 prior_test3 August 16, 2017 at 3:50 am

A number of Middle Eastern oil exporters over the last 50 years, as long as one ignores all the imported semi-slave labor?

23 Gareth Roberts August 16, 2017 at 4:18 am

Ah, that is true – although I guess imported labour played a role. The reason I’m wondering is because it’s not clear to me that SA can narrow the income and wealth gap between a small minority and the previously disadvantaged without sustained improvements in the quality of education. Even then it’s not clear to me that a better educated workforce will lead to this – but my prior is that a better education for all is a necessary condition?

24 Alistair August 16, 2017 at 9:37 am

If you’re a dirt-poor country under a traditional leadership, chances are your income inequality is pretty low to start with; I’d be surprised if you could drive it much further down.

To get great inequality, you need either a ferociously successful capitalist system, or a ferociously corrupt modern autocracy running some patronage scheme. Traditional autocracies in dirt poor countries don’t have the administrative and structural provision to squeeze the peasantry that much, and there isn’t that much surplus above subsistence level to redistribute anyway.

25 Golden Elephant August 16, 2017 at 4:01 am

BEE enriched a small group of ANC members who captured white elite and together they formed a mixed elite made of Apartheid era elites and ANC elite.

Sure after so many years of egregious apartheid policies one could not fix South African inequalities with liberalism alone but affirmative action alone will not fix that nation either, it is being used as a political instrument to buy poor men loyalty while keeping the top reserved for well connected blacks and white elites, effectively not given merit its ideal value. I have no problems with improving black population (and poor whites) lives with some sort of easier access rules in order to provide them with better education to properly compete down the road, but turning politicians into millionaires because they are black and ANC members is a recipe for disaster because you’re creating an oligarchy and oligarchies do not work for integration but fight for maintaining status quo.

26 dearieme August 16, 2017 at 6:25 am

“the strictures of Dani Rodrik that every country, or sometimes every region, is different” Stone the crows, that would never have occurred to me. My heartfelt thanks to Mr or Ms Rodrik for that insight, and to Mr Cowen for passing it on.

27 rayward August 16, 2017 at 7:04 am

Here is Eduardo Porter agreeing with Cowen in the American (political) context: https://www.nytimes.com/2017/08/15/business/economy/democratic-party-economy-inequality.html. If Cowen is so certain that today’s high level of inequality is not an economic problem that needs to be addressed, then I suggest he confirm his belief by adopting Peter Boettke’s (Austrian) policy view, which is in a financial crisis, let asset prices collapse rather than have the central bank adopt measures intended to stop the collapse and inflate asset prices. One either believes in markets or one doesn’t. Does Cowen, like Boettke, actually believe in markets? Here is Porter on why inequality is a losing political issue for Democrats: “Banks got a bailout after the financial crisis of 2008. Homeowners whose mortgages were underwater got next to nothing.” [By bailout, what Porter means is that the Fed adopted extraordinary measures intended to inflate the prices of the investment assets held by the banks, restoring their balance sheets and saving the jobs of the bankers.] What Cowen will not do, what Cowen cannot do, is acknowledge that the strong correlation between high levels of inequality and financial and economic instability is a problem. Fine, but if there’s no connection between the two, then why not accept Boettke’s (market) solution in a financial crisis and let markets be markets. [For those not understanding the implications, by allowing assets prices to collapse, they take inequality down with them. That’s a drastic solution to what is a non-existent problem according to Cowen. My view is to adopt measures intended to mitigate (not eliminate) inequality and avoid the financial crisis. Of course, that would violate Cowen’s ideological opposition to government interference with markets. Fine, but don’t interfere with markets when the inevitable financial crisis occurs.]

28 ottinoz August 16, 2017 at 12:15 pm

This is ridiculous. And I mean utterly ridiculous.

What passes for academics is why the world is slowly decaying. First off, South Africa will always have a difficult time developing. The black population has an average IQ of 70. Now, I know you that sounds terrible to you. And I am a terrible person because of it.

But we have to evaluate economic potential based on the available human capital; how it is composed, it’s malleability, etc. No-one is talking about the undeveloped squalid communities of the Lowland Gorilla. There are some intelligence tests that show that the average gorilla IQ exceeds the average South African black IQ. I think Cowen should evaluate O-Ring Theory of Development and rethink everything.

Second, more discussion, particularly with respect to multi-ethnic societies, needs to be placed on market-dominant minorities. In some ways you can look at the South African whites as a market-dominant minority. Is it correct? We do have to remember that they created the society and blacks actually didn’t arrive into it until they crossed Big Fish River 130 years after founding. So it’s complex, but I think there is accuracy in stating that whites still remain a dominant minority in the society.

How about more discussion of market dominant minorities Cowen? That’s an interesting topic for a “renegade” economist to have (market-dominant minorities as defined by Yale Law Professor Amy Chua). Are the Patels in the United States, an ethnic group that now controls 40% of US motels, a group of successful entrepreneurs that happen to have all, by magical consequence, gone into the same industry? Or are they a market-dominant minority? Why avoid the topic (((Cowen)))?

29 Evans_KY August 16, 2017 at 8:30 pm

In nature there is a bird, the killdeer which will feign a wounded wing to draw a predator away from its nest to protect its offspring. Whenever we begin to discuss higher taxes for the rich the response is very similar to the killdeer. Grover Norquist yaps about liberty and for some reason I feel the need to fill the bathtub with water.

I am the granddaughter of welfare recipients. My parents ascended to the lower middle class and I have climbed higher. When I look at those beneath me in income, I don’t think pull yourselves up by the bootstrap. I think how can I help you up the ladder. What I see above me in income is the tendency for protectionism of wealth and status. A violation of societal norms and a tendency to blame those less fortunate for their laziness. Redistribution is not about punishment or equality. It is about shelter (security), food, health, clean air and water, and education. To do otherwise is wasteful and discards the potential in each human being for the benefit of a few.

Note: page 5, “intuition of worth and desert”?

30 James Anderson August 17, 2017 at 5:14 pm

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