The Restraint of Power

Originally published in the Informanté newspaper on Thursday, 28 July, 2016.

This week, President Hage Geingob opened his inaugural International Relations and Cooperation Policy Review Conference (renamed, along with the ministry, from Foreign Affairs when he assumed office), and he charted out a new course for Namibian diplomacy – a policy not only in line with Article 96 of the Namibian Constitution, but also a policy steeped in realpolitik, and a policy that speaks not only to our Namibian development goals, but also to the changing dynamics of international diplomacy.

His outline should be seen against the backdrop of the art of diplomacy itself, which, as a tool of statecraft, is actually quite a bit younger than most people assume. Up until quite recently, the main tool of human statecraft was war. But as humanity advanced, wars became costlier, and more ruinous to states. By the latter half of the 18^th century, events unfolded that would start to change this. 

After fighting the Seven Years’ War and supporting the American Revolution, the French Empire was deeply in debt. King Louis XVI attempted to salvage the French economy by instituting an onerous tax regime, but this merely inflamed resentment of the populace, and resulted in the French Revolution. The First French Republic was formed in its aftermath, and this disturbed many of the old empires in Europe. The Revolution sowed the seeds of nationalism, but republics were still a new and untested form of government, and the French Republic soon collapsed. 

Out of its ashes, however, rose a Hero of the Revolution. Napoleon Bonaparte established a popular dictatorship, and with the people behind him, led the new French Empire and his Grande Armée on a war of conquest across Europe, with only Portugal, Russia and the United Kingdom left standing by 1812. But Napoleon made the fatal mistake of invading Russia, a move that has brought so many an army to its knees. By 1815, Napoleon was finally defeated at the Battle of Waterloo, and for the first time in 25 years, Europe was no longer at war. 

In the wake of the Napoleonic Wars, Europe had realised that continual war was threatening to unravel society, and set in place a system to prevent any further wars of that scale. The Congress of Vienna was the first massive meeting of ambassadors from all of Europe, dedicated to the single goal of establishing a lasting plan of peace for Europe. It aimed to resize the major powers to maintain a balance of power, and so prevent any single one from attempting to take over another.

This ushered in the era of Pax Brittanica and the Concert of Europe. With the United Kingdom established as the undisputed master of the seas, it’s Royal Navy could blockade any Empire that attempted to upset the balance of power, and the major powers could call a new congress, like that in Vienna, when any threat to peace arose. But no system is perfect, and less than 60 years later, it started to unravel.

Prussia rose as the most powerful of the German States, and in 1870, Prussia provoked France into an attack, and united the German states in an alliance. Having won, this alliance in 1871 declared Wilhelm I the Kaiser of the new united German Empire. The balance of power had shifted in Europe, and it has shifted precariously towards the Germans, and war. But the German Chancellor, Otto von Bismarck, was a shrewd diplomat, and worked tirelessly to maintain a network of alliances to keep the Concert of Europe intact. In order to prevent Germany’s economic rise from instigating war, Bismarck called the Berlin Conference in 1884, and the European powers organised their efforts to colonize Africa. The Scramble for Africa was on, and through that conference, Germany took control of German South-West Africa, now Namibia.

But the power imbalance could not be masked forever. With the assassination of Archduke Franz Ferdinand of Austria in the Bosnian capital of Sarajevo on 28 June 1914, War engulfed Europe once again, and 5 years later, another treaty attempted to re-establish peace. Out of the Treaty of Versailles came another institution, the League of Nations. German South-West Africa was transferred under mandate to the British Empire, under the administration of South Africa. The League of Nations was to prevent wars by providing for the collective security of its members, and was the first institution specifically formed to maintain world peace. But with its powers principally vested in the Great Powers that comprised it, and the United States declining to join, it was doomed to fail. 

The Treaty of Versailles proved too onerous to provide a lasting peace, and less than 20 years later, the League failed to prevent another World War. The terrible destruction wrought by World War II, and the weapons of mass destruction developed during it finally made the world realise that war was no longer a viable option for statecraft if humanity was to survive on this planet. The successor to the League of Nations emerged in the aftermath of this terrible war – the United Nations. 

The UN has so far prevented another worldwide war in the past 70 years, though it is not without its faults. It successfully led the European nations to decolonize Africa and the rest of the world by granting the colonies independence, but when it attempted to assert directed control over Namibia in 1966, South Africa did not comply. It took more than 20 years to resolve after that, with much bloodshed in between. But Resolution 435 was finally implemented by 1989, and our country was born in 1990, on the back of diplomacy, not war. 

It took people a while to realise that war is always the same.  When you fire that first shot, no matter how right you feel, you have no idea who's going to die. You don't know whose children are going to scream and burn. How many hearts will be broken? How many lives shattered? How much blood will spill until everybody does what they were always going to have to do from the very beginning: Sit down and talk.

Our President was part of the independence struggle, but he was also part of the peace that followed. As one of the architects of our constitution, he had seen what lies down the other path, and chose a different course for our country. The Harambee Prosperity Plan is a child of conflict that wishes to live in peace. His International Relations and Cooperation Policy emboldens not only our country to live in peace and cooperation with our neighbours, but also invites Namibians to work together, in diplomacy, with one another and our neighbours. 

Henry Kissinger said that diplomacy is the art of restraining power. President Geingob aims to restrain the power of government, and give the Namibian people the power to achieve prosperity. When you fight for something, you’re never quite happy with what you get – you always want to fight to get more. But when you build something up for yourself, you love what you’ve built. Our country was born from diplomacy, and built up by Namibians. That’s why we love it so. Let’s keep that momentum going.

Blood, Sweat and Tears

Originally published in the Informanté newspaper on Thursday, 21 July, 2016.

Last week, former pyramid scheme Herbalife Ltd had to change the way the company operates and pay a US$ 200 million fine in order to avoid being explicitly labelled a pyramid scheme by the FTC in the United States. Herbalife in future will now have to pay its distributors based on sales, and not on how many new distributors they recruit. "Herbalife is going to have to start operating legitimately, making only truthful claims about how much money its members are likely to make, and it will have to compensate consumers for the losses they have suffered," FTC Chairwoman Edith Ramirez said.

Pyramid schemes are a form of investment fraud that preys on our human propensity not to properly envisage large numbers. The most well-known pyramid scheme is the age old chain letter. We’ve perhaps all see one in our lives, one promising that by sending a minimal amount to the 6 or 10 people on this list, then adding your name to the list, removing the top name and mailing it to the next group of people, you’d make millions in a short time. After all, it sounds so simple. 

N$ 100 is first sent to you by 6 people (N$ 600), then 36 people send you N$ 100 in the second round (N$ 3600), 216 people in the third round (N$ 21 600), 1296 people in the fourth round (N$ 129 6000), 7776 people in the fifth round (N$ 777 600) and finally 46 656 people in the sixth round, netting you a cool N$ 4 665 600. Unfortunately, this explanation misses out on a crucial point. You are most likely not on round 1 of this pyramid scheme.

If you’re starting on round 6, you’re one of the 46 656 people who are now sending out letters. Your group will need to recruit almost 2 billion people by stage 12 to get your money – a third of the world’s population! In fact, by stage 8, almost all of Namibia would have to be recruited! It becomes clear why this is untenable. Pyramid schemes, thus, make a few people at the top of the pyramid rich, at the expense of everyone below them. 

This fact is now widely recognized, and its why multi-level marketing companies, such as Amway and Herbalife, as so cautious to not be labelled pyramid schemes, and why they have to actually sell products and pay commission instead of just receiving money. Of course, their commissions schemes are set up like pyramids just like the example above, which means most of the commission still accrues to those at the top of the pyramid, a fact they are loathe to admit in their recruitment.

But pyramid schemes are simply the second most popular form of an investment scam that preys on our greed, and our wish to get rich quick. At the start of the 19^th century, a man named Charles Ponzi started a company and offered investors either a 50% return on their investment in 45 days, or 100% return in 90 days. He claimed that he could achieve this due to postal reply coupons, which would be redeemed in a country at a set value, but purchased in other countries at a discount. 

While this was true, countries had restriction on the volume that could be imported, and Charles Ponzi in fact did NOT use this to generate returns. Each new investor’s money was put in a pool, and if someone wanted to withdraw the money, that was taken from the pool as well. As long as he had enough new investors, he could pay out the old ones, and he built up his credibility using that. Investors eventually simply reinvested immediately, meaning money could just stay in the pool.

This, of course, was doomed to failure to moment that new investors could not cover those who wanted to withdraw. Such schemes are insolvent from the get go, and those running the pool usually dip into this money to fund lavish lifestyles to keep up the impression that the investments are doing quite well. Charles Ponzi took in US$ 15 million in a year, and when investors wanted to cash out, his pool had only N$ 5 million left.

In Africa, we’ve also had our share of Ponzi Schemes. Adriaan Nieuwoudt and his Kubusse is probably the most well-known of these, but in recent times these schemes are usually packaged as ‘secret investment vehicles’ with a ‘magic formula’ that guarantees returns. The Masterbond Group investment Ponzi scheme had a Namibian pensioner shoot himself while on the phone with the liquidators in South Africa when that broke. And more recently, Riaan Potgieter’s suicide when Prowealth’s Ponzi scheme collapsed also comes to mind.

And yet people still fall for these schemes. After South Africa’s Abante Group’s Relative Value Arbitrage Fund Poniz Scheme failed, Herman Pretorius shot his partner Julian Williams before turning the gun on himself. Currently Kobus Kellerman and David Cosgrove’s South African Belvedere Ponzi scheme is also in the midst of collapsing. And this happened even after the high profile implosion of the biggest Ponzi Scheme ever – that of Bernie Madoff. It’s a mighty fall after you’ve swindled investors out of US$ 65 billion.

Why do so many people get taken in by scams such as these? Because we tend to look at people instead of the facts on the ground. These scammers either are or appear to be experts in their field, and appear trustworthy – they’re in good standing at the church, and they look successful. But neither of those are any indication that an investment that is pitched is sound. 

They then go one further – they claim they’re formula or strategy is a secret, and only a select few will be brought into the club. We have a natural need for exclusivity, a need to feel special, and they exploit that. People also tend to get drawn into it because a friend can get them into ‘the opportunity of a lifetime,’ and we tend to trust our friends and peers. After all, if people like me are doing it, someone would have checked it out and seen if there was anything untoward, right? And that’s how Bernie Madoff took US$ 65 billion from his friends and members of his synagogue. 

So how can you prevent yourself from falling for scams like these? Don’t invest emotionally – be dispassionate. Don’t get involved in investments after dramatic changes in your life. Be careful about who you trust with your money – just because someone is well-known at church, or a good friend or coworker, does not mean they have your best interests at heart. See if this person and institution is registered and has information available on public websites and at the regulator. Watch out for these tactics: They tell you that you have a limited time to invest, or that the investment has a 10% or more return without any risk. They say the investment is too complex to explain, or top secret. And their returns year after year is too consistent, regardless of what happens in the market. If it sounds too good to be true, you’re probably being scammed.

It took Warren Buffet 15 years to earn his first million. It took him another 25 years to reach a billion. Bill Gates took 6 years to make his first million, and another 8 to make his first billion. Even our own Quinton van Rooyen built up his wealth over the past 25 years. What they’d all tell you is that becoming rich is not a quick process – in fact, it takes years filled with blood, sweat and tears to get there.

When Prices Go Up

Originally published in the Informanté newspaper on Thursday, 14 July, 2016.

This year, Namibians felt the full force of higher inflation again for the first time in quite a while. Inflation hovered about 3% to 3.3% for most of 2015, before spiking up to an average of 6.5% for the first half of the year. Inflation has become a relative constant in modern times, with most economies and central bank targeting a modest but positive inflation target. But inflation is also the scourge of the working class, reflecting in higher and higher prices that leave most people complaining when it suddenly increases, like it did in Namibia this year.

Inflation is now a fact of life, almost as certain as death and taxes, and while the concept of inflation (prices go up) seems simple, there is a lot hidden behind such a simple concept. Inflation, in fact, exists because we developed the concept of currency. Before the invention of currency, or money, the economy operated as a barter system. 

Imagine Joe, the cattle farmer. He has bred quite a herd of cattle, but a family cannot live of cattle alone. He has to take his cattle to the market to get his mealie meal and mahangu from those farmers. But exchanging one cattle each to Paulus the mahangu farmer and Tomas the maize farmer would give him way more mahangu and maize meal he could store or use, as cattle is worth much more. And what if Paulus and Thomas already have enough cattle to slaughter for their families? They might not want another cattle, leaving Joe up a creek without a paddle. 

This, obviously, would not do. It makes running any sort of business nearly untenable. So early societies developed a method that would ease trade – a store of value for your goods. Beads, ivory and metals were thus used to denote a certain amount of goods – an early form of money. These goods were used because they were rare, and not easily created from scratch. But these first currencies led to the first fraud as well. Fake ivory and beads meant that metals gained the upper hand, and metal began to be weighed, and stamped into coins.

With Archimedes’ discovery of the principle that bears his name, coins could reliably be valued, even if they were shaved, or otherwise debased or tampered with. Economies developed around a tri-metallic system, with gold, silver and copper coins, in decreasing order of value. And here the first vestiges of inflation cropped up. It was suddenly quite profitable to mine gold, silver and copper, since you could then create your own money, and buy goods with it. But since you could potentially mine more gold than the other sectors of the economy produced goods, the value of gold coins would decrease. If there were, for example, 10 000 gold coins in circulation, and 10 000 cattle, each head of cattle would cost 1 gold coin (in our hypothetical 2 good economy). But if someone now mined another 5 000 gold coins this year, but only 2 000 cattle were born, suddenly you had 15 000 gold coins with only 12 000 cattle, and each head of cattle would now cost 1.25 gold coins – 25% inflation in the price!

So metallic currency had a built-in inflation driver – production of the metal. This became especially prevalent in what was called the Price Revolution during the 15^th to 17^th century in Europe. With the Spanish treasure fleet returning from the new world, the supply of gold and silver increased dramatically, resulting in prices increasing sixfold over 150 years. But it also had another downside – weight and storage. Wholesalers could take in a large amount of coins, which make for a tempting target. Transporting it makes for an even more tempting target. A solution was required.

The invention of the printing press made a solution possible. First invented in China by Pi Sheng in the 11^th century, it also allowed for the first paper currency. This revolutionised trading, as the hard metals could now be stored in a secure place (say, a bank) and the paper was notes that delineated the currency stored there to be retrieved after trading, should a trader so wish. By the time Johannes Gutenberg introduced the printing press in Europe, paper notes followed in its wake.

But paper notes had a downside. Since these notes could be produced cheaply and easily, there was nothing stopping those with vaults of gold to issue more paper notes than they had available. And similar to how additional gold would cause inflation, so too would additional paper. After such an occurrence, people would rush to convert their paper to gold, causing a bank run, and more often than not, a bank would collapse, ruining those who did not redeem first.

As I’ve noted in an earlier Theory of Interest, it was one of these that granted central banks the responsibility to maintain a currency’s stability, after a run on the Bank of England in 1797. Thereafter, central banks started to stop allowing paper money to be redeemed for gold in their vaults. But most countries still backed the currencies with gold in their central banks, if only because foreign exchange between currencies would be settled in gold. 

This resulted in some stability to currencies, but ultimately, the era of international trade showed the cracks in this system. With each currency backed by gold, debtor and creditor nations started causing rather large gold debts to be incurred between them, sometimes threatening a nations local gold reserves. When this occurred in the US in 1971, President Richard Nixon unilaterally suspended the US Dollar’s link to gold, and most nations followed. 

Now every nation trades based on paper currency, backed by the credit of their nation. But governments still control the rate of fiat money (as it is now called) production. And this still creates inflationary pressure on currencies. Should a government spend (create money) too much while the economy slows, inflation is sure to spike up. When this is not brought under control, as was the case in Zimbabwe, hyperinflation can be created.

This, of course, is not the whole story behind inflation, but it is why inflation can exist in our modern economies. Hopefully, though, it does give some insight into why Namibia’s government budget was cut, in line with slower growth forecasts alongside higher inflation. While government decisions may sometimes appear opaque, with a little history and insight, much can become clear to almost every citizen.

Have Some Perspective

Originally published in the Informanté newspaper on Thursday, 7 July, 2016.

“Space”, Douglas Adams said, “is big. Really big. You just won't believe how vastly, hugely, mind-bogglingly big it is. I mean, you may think it's a long way down the road to the chemist, but that's just peanuts to space.” And it is, but too often our sense of perspective of how big it really is, is warped by the various models we’ve seen in life, or pictures we’ve seen in textbooks. To see our place in this world, it is perhaps necessary to get a glimpse of where we are, just to gain a measure of perspective.

About a month ago, I employed a device to show how short our lives really are, by compressing the entirety of existence into a year. Space, however, is so big, that this device can’t be used for all of space. Instead, I’ll try to show the vastness of just our solar system, by compressing it into a space perhaps a bit more familiar to us. I’ll place our solar system, to scale, within the borders of Namibia. 

The solar system is comprised of 8 planets, the four inner, rocky planets, and the outer four gas giants. Several more dwarf planets orbit the sun, of which the most well-known is Pluto. But the solar system extends way past the orbits of these planets, and since most of us are not quite as well acquainted with those features of our solar system, I’ve picked an arbitrary limit to our exercise today – the distance the Voyager 1 space probe was at in 1990, when it took the famous ‘Pale Blue Dot’ photograph. 

This implies a scale of about 1 to 8 million. In other words, for every 1 kilometre in Namibia, the solar system has 8 million kilometres. Since Windhoek is almost at the centre of Namibia, let’s place the Sun there. The sun makes up 99.86% of the total mass in the solar system, so perhaps you’d expect it to be big compared to Windhoek, but no. 

If the sun was placed to scale on the Christuskirche in Windhoek, it would be quite large, but it would not even reach the Tintenpalast. It would be a mere 174 meters across, but it’s mass, even if also scaled down by 8 000 000, would be approximately 250 billion billion tons. 

But let us move out from the Sun. The closest planet from the sun, Mercury, is also the smallest planet. On our scale, it would be a mere 7km from Windhoek’s centre, or about at the Lafrenz turn-off if driving northwards. The planet would be a mere 60cm across, or two standard size rulers. 

The next planet on our journey out of the solar system is Venus, the hottest planet in our solar system. If we had continued to drive northwards, it would be at Elisenheim from Windhoek, and about a meter and a half across, or approximately one and a half strides. 

The next planet should be quite familiar to all of you, the planet Terra, colloquially known as Earth. Travelling outwards from Windhoek, it would orbit at about the location of Herbothsblick on the way to the airport. The planet of life and water would be about 1.6 meters across, or about my height. 

Next up, we have the Red Planet, known as Mars. Mars would orbit at about halfway between Windhoek and the Hosea Kutako Airport, entirely inhabited by robots, namely the two Mars Rovers, Opportunity and Curiosity. Mars is quite a bit smaller than Earth, being a mere 85 centimeters across at our scale. 

The four inner planets is comparatively quite close to the sun. But now the distances start to escalate. The biggest planet in our solar system, Jupiter, named after the Roman god of the sky, orbits at a distance just beyond that of Rehoboth from Windhoek. A truly massive planet, Jupiter has a mass of two and half times that of all the other planets combined. At our scale, it would be almost 18 meters across, or about the size of a bus and a half. 

Next on our journey outwards, we encounter Saturn, the least dense planet of the solar system, as well as the most beautiful to behold. A massive cloud of gas, with rings surrounding it, you’d find it orbiting about 20km before Gobabis from Windhoek. The planet itself would be 15 meters across, about a bus and a quarter in size, but its rings would extend from 16.5 meters around it to 47 meters around it. Truly a spectacular sight. 

But now the distances really stretch. Our second to last planet, Uranus, is more than double that distance away. Orbiting at a distance of 360 km from Windhoek according to our scale, it would be between Tsumeb and Grootfontein. Uranus, a blue ice giant, is nevertheless smaller than our previous two planets, and it would measure a mere 6.4 meters across, or about half a bus-length. 

And if you thought that was far, the furthest planet outward from the sun, Neptune, named after the Roman god of the seas, would be orbiting a mere 20km from Rundu around the sun in Windhoek. It is the only planet found not by initial observation, but by mathematical prediction due to the gravitational effects it had on Uranus’s orbit. The furthest planet is still only a 6.2m sphere at our scale, orbiting around the 174m sphere of the sun in Windhoek.

Even further out, is the dwarf planet Pluto, a mere 30cm ruler across, orbiting at the Orange river, our Southernmost border from Windhoek. But the Voyager 1 space probe was even further out, at the equivalent of the Kunene River mouth from Windhoek, when Carl Sagan convinced NASA to turn the spacecraft’s imaging sensors back towards Earth, and take that fateful photo. 

To quote Carl: “We succeeded in taking that picture, and, if you look at it, you see a dot. That's here. That's home. That's us. On it, everyone you ever heard of, every human being who ever lived, lived out their lives. The aggregate of all our joys and sufferings, thousands of confident religions, ideologies and economic doctrines, every hunter and forager, every hero and coward, every creator and destroyer of civilizations, every king and peasant, every young couple in love, every hopeful child, every mother and father, every inventor and explorer, every teacher of morals, every corrupt politician, every superstar, every supreme leader, every saint and sinner in the history of our species, lived there – on a mote of dust, suspended in a sunbeam.”

“The earth is a very small stage in a vast cosmic arena. Think of the rivers of blood spilled by all those generals and emperors so that in glory and in triumph they could become the momentary masters of a fraction of a dot. Think of the endless cruelties visited by the inhabitants of one corner of the dot on scarcely distinguishable inhabitants of some other corner of the dot. How frequent their misunderstandings, how eager they are to kill one another, how fervent their hatreds. Our posturings, our imagined self-importance, the delusion that we have some privileged position in the universe, are challenged by this point of pale light.”

“To my mind, there is perhaps no better demonstration of the folly of human conceits than this distant image of our tiny world. To me, it underscores our responsibility to deal more kindly and compassionately with one another and to preserve and cherish that pale blue dot, the only home we've ever known.”