Tag Archives: economics

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The Privatisation of America

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Key West conch republic bumper stickerJohn Robb has just re-posted “USA Inc.“, a speculative future-history essay he wrote back in 2007, meant to be read as if “written from the perspective of a think tank that’s operating in support of the status quo economic elites in 2025.” He saw the recession coming, predicted an increasing entrenchment of US forces in unwinnable open-source guerrilla conflicts, and riffed on these themes to predict a future where massive government debt leads to the privatisation of… well, pretty much everything. [image by szlea]

Roads, waterworks, military bases, schools, parks, and much more were quickly sold at appropriate prices. Attempts by government’s to retain ownership and rent them as multi-year leases were initially successful, but as the crisis deepened the market cooled to these schemes. Within a year of the start of what is incorrectly but popularly termed “The Great Theft,” outright sales of assets to global investment funds, corporations and individuals were by far more common. The speed of this transfer in ownership has been unmatched by any example prior or since. By 2015, less than three years after the panic began, upwards of 60% of all public assets from the national to the local levels were formally in private hands.

Note that Robb says this is not a future he desires or advocates, but that it seems nonetheless more plausible as events develop; for extra chewiness, compare and contrast with Tim Maly’s “The Free Freeways” Futurismic essay about the seccession of the US highway system.

I think I can safely predict that a lot of you will say Robb’s USA Inc. could never happen, and those of you who are American citizens would be better qualified to make that judgemnet than I… but I’d be very interested to hear your reasoning. Is Robb’s style of doomsaying just a symptom of the inherently self-critical character of American politics, and hence an indication that the problems he’s flagging up are already being grappled with at a subliminal level?

Or is the feeling that it couldn’t happen merely a form of knee-jerk wishful thinking and denial – “too big to fail” scaled up to a whole nation?

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Kenya dials up banking by text

Many places across the planet lack basic commercial infrastructure. Kenya is serving as a case study of how banking by mobile phone seems to fill (or leapfrog?) the gaps. Since a phone-text bank service called M-PESA was introduced in 2007, almost 40% of Kenyan households have one user, while only 22% of adults have traditional bank accounts.

M-PESA charges fees for transfers, and doesn’t pay interest on savings. It might, though, spur development by making it easier to move capital around. The impact of the system is being watched by Tavneet Suri (MIT/Sloan) and William Jack (Georgetown U.).

In a 2008 survey of 3,000 households in areas representing 92% of Kenya’s population, Suri and Jack found that despite M-PESA’s fees, large numbers of Kenyans are using it for basic banking functions. About 38% of money transfers originated in rural areas. According to Suri, farmers are one group that employs the technology to lend each other money in lean times.

“Many of these people work in agriculture where you have highly variable incomes because of the weather,” explains Suri. “That means banks also don’t want to lend to them because the risk is much higher. So people insure risk, by making informal agreements: ‘I’m going to lend you money if you need it.’ And if you were not able to feed your family, you would receive transfers from people in your network. This happens in a lot of developing countries.”

The researchers’ data also shows that 41% of M-PESA money transfers are sent to parents, and only 8% to children, which also strongly suggests that M-PESA fills a classic role in a developing economy; children who leave home to work may be sending money back to help their parents.

The physical separation of people has always made money transfers difficult in developing countries, however, notes Suri, a Kenya native whose family lives outside Nairobi, the capital. Sending money from one place to another has often been “hard to do, costly, not very safe. You might send money with a bus driver and it wouldn’t get there, because he might get robbed. Now it gets there within five seconds, as soon as it takes a text message to arrive.”

And despite their inability to earn interest, Kenyans appear to use M-PESA as a savings tool. In a current working paper summarizing their results, “Mobile Money: The Economics of M-PESA,” Suri and Jack note that 77% of Kenyans say they keep money “under the mattress” at home, so to speak. About 11% of households say they have had savings stolen or become lost, though, meaning that tucking cash away is a money-losing strategy. By contrast, under 2% of M-PESA users believe they have lost money through the system (by sending it to an unintended recipient). That means Kenyans without access to banks should, on aggregate, retain more of their savings through M-PESA.

The next wave of research will look at whether M-PESA really does speed the spread of capital. Freeing up small packets of wealth makes a difference where it’s needed, as Nobel Prize winner Muhammad Yunus, or Heifer International, can attest. (And maybe writers, artists, or musicians, wherever they are, need to see if they can get their 1,000 fans on Twitpay.)

[Mobile Phone With Money in Kenya by whiteafrican]

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Back to the future of the past? Venture capitalist advocates a return to radical futurism

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Advocates of science fictional thinking crop up in the weirdest places. For example, Peter Thiel helped found PayPal and invested early in Facebook, and his main business is hedge funds and venture capital (which may predispose one to take his ideas with a large pinch of salt, given the economic events of the last couple of years), but he also invests in the sorts of venture that seem to have leapt right off the pages of old-school science fiction novels: sub-oceanic human colnisation projects, life extension research and private space flight, for instance.

So why does a man with that much money sloshing around want to invest in blue-sky futurism? Because he believes that radical progress is the only thing that will keep the existential wolves from civilisation’s door:

Wired: You’re worried about economic stagnation, but you’re optimistic about artificial intelligence and space?

Thiel: I think we have to make those things happen. We should be looking at technologies that might lead to really big breakthroughs. As a starting point, let’s just go back to the science fiction novels of the 1950s and ’60s and try to run the past 40 years again.

Wired: We need underwater cities and flying cars, otherwise we’re going bankrupt?

Thiel: We go bankrupt if radical progress doesn’t happen and we don’t realize it’s not happening. That’s a dangerous combination.

It’s a strange and topsy-turvy world when venture capitalists advocate wild flights of fanciful imagination while science fiction writers advocate plausible extrapolations from the status quo, don’t you think? 😉

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Neomedievalism

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The Rocinha favela, Rio de JaneiroWhile I’m on the subject of Bruce Sterling, here’s a brief piece he flagged up at Foreign Policy – a bleak prediction that the world is reverting to a kind of technology-mediated econo-political feudalism. Call it Neomedievalism:

The state isn’t a universally representative phenomenon today, if it ever was. Already, billions of people live in imperial conglomerates such as the European Union, the Greater Chinese Co-Prosperity Sphere, and the emerging North American Union, where state capitalism has become the norm. But at least half the United Nations’ membership, about 100 countries, can hardly be considered responsible sovereigns. Billions live unsure of who their true rulers are, whether local feudal lords or distant corporate executives. In Egypt and India, democratic elections have devolved into auctions. Delivering security and providing welfare aren’t just campaign promises; they are the campaign. The fragmentation of societies from within is clear: From Bogotá to Bangalore, gated communities with private security are on the rise.

This diffuse, fractured world will be run more by cities and city-states than countries. Once, Venice and Bruges formed an axis that spurred commercial expansion across Eurasia. Today, just 40 city-regions account for two thirds of the world economy and 90 percent of its innovation. The mighty Hanseatic League, a constellation of well-armed North and Baltic Sea trading hubs in the late Middle Ages, will be reborn as cities such as Hamburg and Dubai form commercial alliances and operate “free zones” across Africa like the ones Dubai Ports World is building. Add in sovereign wealth funds and private military contractors, and you have the agile geopolitical units of a neomedieval world. Even during this global financial crisis, multinational corporations heavily populate the list of the world’s largest economic entities; the commercial diplomacy of emerging-market firms such as China’s Haier and Mexico’s Cemex has already turned North-South relations inside out faster than the nonaligned movement ever did.

There are positive sides to a world where every man can be a nation unto himself. Postmodern Medicis such as Bill Gates, Anil Ambani, George Soros, and Richard Branson take it upon themselves to cure pandemics, run corporate cities, undermine authoritarian regimes, and sponsor climate-saving research. But the Middle Ages were fundamentally a time of fear, uncertainty, plagues, and violence. So, too, their successor. AIDS and SARS, terrorism and piracy, cyclones and rising sea levels — it is no longer clear how to invest in the future, or what future to invest in. Figuring out how to respond to this new world will take decades at least. The next Renaissance is still a long way off.

Well, colour me vindicated – this sounds a lot like the world I’m trying to describe when I batter on about the death of geography, the decline of the nation-state and the rise of the corporate entity as political liege… albeit a more succinct (and distinctly more qualified) version thereof. [image by fabbio]

Coming as it does from a publication whose focus is international diplomacy, the screed above takes a bleak view of this imminent new world order – if you can see your profession withering on the vine, it’s bound to make you a bit glum. But I’m not so sure the neomedieval world is going to be a worse place for everyone… or even the majority. To be honest, the majority of people will notice no major changes in their lives at all – the proper nouns in the newsfeed headlines will change, and the adverbs will become more inflammatory (if that’s possible), but it’ll be business as usual in the global favela.

For those of us sat comfortably in our current states of privilege, however, a lot of things will change… or at least they’ll seem to, because we have the luxury of time and curiosity to watch it happening. The first thing we’ll lose is certainty…

… those of us who still have any certainty left, that is. 😉

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How publishers can exploit “virtual currencies”

Given that publishing economics are pretty topical at the moment, this video embedded in this post from GalleyCat last Thursday seems either alarmingly prescient or laughably silly, depending on your viewpoint.

Here’s the thesis in a nutshell: those mind-numbingly infuriating and spammy Farmville games your friends play on Facebook are surprisingly good at generating income for their creators, so publishers should take a leaf from the same book to spice up their own online offerings. The theory does come from the president of a company called Orca which specialises in developing virtual currencies for corporations, so a certain bias in favour of the idea is to be expected…

Here’s an excerpt (which I’ve excerpted in turn from GalleyCat’s post – yay, lazyweb!):

“They convert [virtual currencies] at prices that are not easily divided–one dollar gives you 33 credits [for example] … People don’t necessarily think, ‘it cost me 42-cents to send my friend a virtual beer.’ I think when the publishing industry starts thinking about how they chunk up content–whether it be articles or chapters–it shouldn’t be a debate of whether an article is worth one dollar or three dollars. An article should cost 43 credits.”

My immediate instinct is that this idea stinks, though that’s probably due to my kneejerk loathing of Farmville, Mafia Wars et al; maybe there’ll be a way to graft virtual currencies onto the publishing ecosystem without introducing the intrusive “social” aspects (read as “spamming”) and underhand pricing structures that seem to inform such games, which I suspect wouldn’t gel well with the book-buying demographic. But then again, if you get rid of those aspects of the system, you’ll probably never make a dime with it… so it’s back to the drawing board, I guess.