China will grow larger

Originally published in the Informanté newspaper on Thursday, May 21, 2015.

By the end of June 2015, China will have launched its own international financial institution. Called the Asian Infrastructure Development Bank, or AIIB, it is poised to become a real alternative to the current development banking systems such as the World Bank, the International Monetary Fund and the Asian Development Bank. But unlike these incumbent institutions, it will not be led by the United States.

And while its working capital of US$ 50 billion is smaller than that of the World Bank (US$ 2.2 trillion) or the Asian Development Bank (US$ 160 billion), it has managed to attract 57 potential founding members – many of them traditionally staunch US allies. In fact, despite concerted US pressure, its European allies have all joined as founding members of this new bank, alongside its erstwhile enemies such as Russia, and, of course, the BRICS countries. 

And with Japan, Canada and the United States being the only developed economies not participating, the AIIB has painted a picture of an increasingly isolated United States alongside China’s growing role in international finance. In fact, it could be argued that one of the main motives for China in founding the AIIB is the hold up of voting share reform in the IMF, World Bank and other international institutions – a hold up that is mainly due to an un-cooperative US Congress.

While this China-led development bank marks a major shift away from traditionally US-dominated multilateral institutions, China has been quick to assure everyone that it “is not another US,” and does not seek “Yuan hegemony.” Though this may be true, it will nevertheless accelerate the dedollarization of world finance, and weaken the dollar’s position as a world reserve currency.

However, other actions by the People’s Republic of China shows the other side of the coin. Since 2009, it has signed currency swap agreements with 31 counterparties – ostensibly to support trade and investment, and promote the international use of the Yuan. A map of the counterparties looks like a veritable who’s-who of international trade – with the glaring exception, of course, of the United States.

Still, China has not been isolated from the lacklustre growth in the world economy following the financial crisis. Indeed, some estimates put China’s growth rate going forward at only 3.8%. But that is still ahead of most other G20 economies, which worryingly show sign of asset price inflation while simultaneously showing signs of economic deflation. 

And while China’s public debt is one of the highest in the world, at US$ 1.8 trillion, it is comparatively low when compared to the United States, at US$ 15 trillion, especially when you consider China’s Public Debt to GDP is at only 17.3%, compared to the United States at 89.3% of GDP. Namibia itself is at 30.2% of GDP.

But for a single fact, one could almost believe China poses no threat to the US and the US Dollar hegemony over the world. For the past several years, China has been buying oil from Iran in Yuan. This has, in effect started to establish a petroyuan market for oil. And as previously mentioned in the Informanté, the petrodollar has been the basis for the US Dollar gaining its status as a reserve currency.

With Iranian sanctions close to being lifted, it seems China has quietly established a petroyuan market to counter the petrodollar market. The use of the Yuan to settle oil trades is set only to increase, with China viewed as a rising power, and the United States as a declining hegemon. Whatever China’s economic growth, the role of the Yuan seems to have been embedded in a post-US world. Only time will tell if the Chinese Yuan will truly unseat the dollar.

The Economics of Zero

Originally published in the Informanté newspaper on Thursday, May 7, 2015.

Traditional economics has always been defined in terms of the basic economic equilibrium equation: Production of a good will settle at a quantity (Q) produced at a price (P) where demand and supply are equal. However, in the past 20 years we’ve seen massive growth in a market where these basic equations no longer make sense – digital goods. Because digital goods can be reproduced perfectly, and at zero cost, suddenly the supply side of traditional economics makes no sense – because suddenly, the price drops to free.

 

With digital products, most of the scarceness of a product is wiped out – consumers can get as much as they desire at the low, low cost of zero. And in the developing world, such as Namibia, where everything else is scarce, an abundance of digital goods is a life-saver – eliminating inequalities of education and recreation in one fell swoop. 

This sounds great to the average consumer – but a nightmare for producers of content. After all, how are you going to get paid for what you produce? And how can you get paid if your product is free?

Readers of the Informanté should have the savvy to notice a glaring inconsistency in the previous argument: The newspaper you’re holding right now is free! In fact, it has been free since inception, and many more stories are posted via Facebook and on its website that are also available for free. 

Many content producers grasping at straws have clutched onto ‘intellectual property’ protection. While this has provided some basis for producers to protect themselves, the basic premise of ‘intellectual property’ is flawed. Ideas and stories are non-rivalrous in consumption (i.e. one person’s consumption does not prevent another from consuming it), and thus cannot be treated economically as property. In fact, African oral tradition has never had the idea of a ‘story’ as property. 

They often say that this is because creators of content have a right to make money from their work. Hogwash! Economics is not a moral issue – no one has a ‘right’ to make money off their work, they can merely try to make money off it. Businesses fail every day if they have products no one wants to buy – no entrepreneur has a ‘right’ to succeed. 

And this attempt to make something abundant suddenly scarce should be repugnant to a society that will be poorer for it. Putting a price on something economics dictates should be free only worsens the gap between ‘haves’ and ‘have nots’, and should not be tolerated in a country that strives towards more equality between its citizens.

But what about Namibian content producers? How will they live? Create? I suggest they also look at the other side of the coin – an enlarged audience. Without costs limiting the size of the audience you can reach, you have a much larger pool of potential customers. One example of this would be the Informanté’s reach across the Namibian population. 

And while certain digital goods are now abundant, content creators still have lots of non-abundant goods to sell – now to a much wider audience. Think gigs and concerts for musicians and the like. After all, for centuries beforehand, artists still created without selling to the general public. In previous eras, this was done via patronage – a countries leaders and wealthy often commissioned works.

Even now, our friend the digital world is making even that easier. While the Informanté’s patrons are its advertisers, with the concept of crowdfunding comes a new way for artists to go forward. With websites such as Patreon allowing fans to either contribute per work of per month to content producers, making a living from your art has become even easier. And for Namibians with a wider audience, services such as these will be a godsend. 

If you can gain 1 000 fans willing to sponsor you N$ 10 per song produced, would you not be much more motivated to produce? Now imagine 10 000 fans. Namibia is a small country. We should not be shunning the coming digital economy, but rather embrace it. We now have the world as our audience – let us put on a show!