Thursday, May 19, 2016

Continuous geometric growth in a finite biosphere is impossible

Continuous geometric growth in a finite biosphere is impossible
There is nothing quite as seductive as extrapolation.  I remember when I was in junior high study hall, we budding gearheads would sit around making "calculations" such as "if you can get a car to go 80 Kph with 150 horsepower, you should be able to go 320 Kph with 600 horsepower." And while this childish foolishness was wrong for dozens of sound reason, it was certainly no worse than the typical budget, growth, or profit calculations one finds in daily newspapers or teevee newscasts.

Geometric extrapolation is even worse.  It is probably the most commonly practiced form of utter insanity. For how long have we known this is crazy?  The Sumerians taught us about the S-curve at least 4000 years ago.  The S-curve is based on the historical experience of producing things--whether corn or iPhones.

Michael Hudson on the humans who knew better
Hudson says that – in every country and throughout history – debt always grows exponentially, while the economy always grows as an S-curve.
Moreover, Hudson says that the ancient Sumerians and Babylonians knew that debts had to be periodically forgiven, because the amount of debts will always surpass the size of the real economy.
For example, Hudson noted in 2004:
Mesopotamian economic thought c. 2000 BC rested on a more realistic mathematical foundation than does today’s orthodoxy. At least the Babylonians appear to have recognized that over time the debt overhead became more and more intrusive as it tended to exceed the ability to pay, culminating in a concentration of property ownership in the hands of creditors.
Babylonians recognized that while debts grew exponentially, the rest of the economy (what today is called the “real” economy) grows less rapidly. Today’s economists have not come to terms with this problem with such clarity. Instead of a conceptual view that calls for a strong ruler or state to maintain equity and to restore economic balance when it is disturbed, today’s general equilibrium models reflect the play of supply and demand in debt-free economies that do not tend to polarize or to generate other structural problems.
And Hudson wrote last year:
Every economist who has looked at the mathematics of compound interest has pointed out that in the end, debts cannot be paid. Every rate of interest can be viewed in terms of the time that it takes for a debt to double. At 5%, a debt doubles in 14½ years; at 7 percent, in 10 years; at 10 percent, in 7 years. As early as 2000 BC in Babylonia, scribal accountants were trained to calculate how loans principal doubled in five years at the then-current equivalent of 20% annually (1/60th per month for 60 months). “How long does it take a debt to multiply 64 times?” a student exercise asked. The answer is, 30 years – 6 doubling times.
No economy ever has been able to keep on doubling on a steady basis. Debts grow by purely mathematical principles, but “real” economies taper off in S-curves. This too was known in Babylonia, whose economic models calculated the growth of herds, which normally taper off. A major reason why national economic growth slows in today’s economies is that more and more income must be paid to carry the debt burden that mounts up. By leaving less revenue available for direct investment in capital formation and to fuel rising living standards, interest payments end up plunging economies into recession. For the past century or so, it usually has taken 18 years for the typical real estate cycle to run its course.
As I have previously pointed out, our modern fractional reserve banking system is really a debt-creation system, which is guaranteed to create more and more debts. The modern banking system is therefore exacerbating the debt growth problem which countries have suffered for thousands of years.
Hudson calls for a debt jubilee, and points out that periodic debt jubilees were a normal part of the Sumerian, Babylonian and ancient Jewish cultures. Economist Steve Keen and economic writer Ambrose Evans-Pritchard also call for a debt jubilee.
If a debt jubilee is not voluntarily granted, people may very well repudiate their debts.

It is important to understand the reasons why geometric extrapolation is ultimately impossible because those assumptions are built into almost every newscast, financial arrangement, political planning, etc.  It would be a rare days anymore when the subject is implicitly brought up at least ten times.

At this link, you can find 23 different charts showing historic geometric growth of human activity--which is why all of them are destined to crash in the very near future.
The human economic growth story is incredible. Population increased exponentially, as did global wealth, factory output and other measures of development.
But the flip side is the steady exhaustion of resources and destruction of the environment. As growth continues, planetary tensions will increase too. This is why we're running into peak everything.

Real Economics are best Described by Evolutionary Theory

In 1859, Charles Darwin would publish his seminal work entitled "On the Origin of Species by Means of Natural Selection, or the Preservation of Favoured Races in the Struggle for Life."  This work would set off controversies that resound to this day.

Before Darwin, the generally accepted idea was that the world was the way it was because that is how the Creator wanted it.  The majority of intellectual speculation, whether of a scientific, philosophical, or religious nature, assumed that the goal in life was to discover those divine rules that ordered a fixed universe.  After Darwin, while folks still sought to discover the natural laws with universal applications, the focus shifted to describing the mechanisms of change.

No wonder Darwin is often considered the most disruptive thinker in history.

Taking Darwin out of the biology context is a hazardous occupation.  The ugliest of the non-biological manifestation of Darwin's theories is often called "
Social Darwinism."  Perhaps the most famous social Darwinist in USA was the 19th century chairman of Political Economy at Yale by the name of William Graham Sumner.  His most famous student was a kid from Minnesota named Thorstein Veblen.

Veblen was influenced by Sumner--though not in ways usually expected.  Veblen thought Social Darwinism was a monstrous error and devoted much of his life's work to debunking Sumner's teachings.  This did not mean Veblen rejected the theories of evolution.  Far from it.  In 1898, even before his first book was published, Veblen wrote an incredibly important paper entitled “Why is Economics Not an Evolutionary Science”.

Suddenly, the extant economics looked as static and ridged as any holy book.  Veblen would go on to write a body of work that would described "economic man" as a dynamic actor with complex motives who was constantly evolving.  Veblen is usually considered one of the fathers of a discipline called evolutionary economics.  Wikipedia defines this speciality thus:

Evolutionary economics is part of mainstream economics as well as heterodox school of economic thought that is inspired by evolutionary biology. It stresses complex interdependencies, competition, growth, structural change, and resource constraints but differs in the approaches which are used to analyze these phenomena.
Evolutionary economics deals with the study of processes that transform economy for firms, institutions, industries, employment, production, trade and growth within, through the actions of diverse agents from experience and interactions, using evolutionary methodology.
Evolutionary economics is validated by the existence of something that can only be called evolutionary industry.  Toyota imported evolutionary concepts into their system of quality control and called it Kaizen (continuous improvement).  The results were stunning--Toyota so revolutionized quality control they were able to leverage this reputation into their present status as world's largest automaker.

Why this is important

Evolutionary economics, especially in its heterodox manifestations, is hands down the best ways to understand and describe the complexity of the real world.  Typical non-evolutionary economic statements like

The market is always rational
A corporation exists only to maximize the return to the shareholders
Free Trade will bring generalized prosperity

are wrong because they are as static and ridged as any theological statement they so resemble.  This blog rejects static economics--mostly because dynamic descriptions of economic behavior are far more accurate.

Evolutionary industry is important because if we ever produce one, the green sustainable society will happen one tiny little improvement at a time.  And the folks MOST likely to create those new green bits and pieces are those most industrially evolved already.

Tuesday, April 26, 2016

Corruption; the Necessary evil.

I learnt of the term necessary evil way back in high school in a biology exam; in fact my biology teacher had to crack its meaning; I could not decipher its meaning even after series of  drilling by the biology teacher and numerous group  discussions ; till weeks later I understood what necessary evil is. To those who subscribe to the Christian mythology, I likened it to Judas Iscariot who sold Jesus to the Pontius army for a mere 30 bob; which such one evil act he ushered in the necessary Christian covenant with God. In one of our many sister schools, there was a sewage treatment plant that processes raw sewage to fertilizer. This essential product was given to the locals who made booming harvests from their corn and tuber fields. Instead of sugar factories in western Kenya of complaining of low quality cane from farmers, they can produce more ethanol.  I also learnt chicken droppings are a good supplement for dairy herd and fish.
To the Kenyan citizenry, I believe corruption is a necessary evil; I laud the national government on being keen to devolve this resource though not provided for in the 2010 constitution. It functions seamlessly in the context of a closed economy, where the only leakage from the circular flow of income is through inflated Government purchases and money laundering. Among the additional factors of production is an amorphous factor called corruption; its nebular nature allows it to disrupt the normal market demand-supply rules and inject the essential entrepreneurial impetus in a nascent economy.  To realize the full benefits there should be no capital flight inform of overseas bank account ; such proceeds of bleeding the government coffers should be invested loco and sustainably. The cost of capital is nil and as such to ensure the macroeconomic indicators such as inflation remain stable, the cost of capital will be some flashy lifestyles and hangers on; this has a larger multiplier effect than interest paid to the banks since in reaches a wider population.

The only check needed here is to ensure corruption doesn’t gnaw into capital inflows, FDI and Chinese neocolonialism. The proceeds of corruption needs to be reinvested back into the economy, in productive tested sectors like real estate, security/bonds markets. This will create employment of labor and capital.
Assuming the national government budget of KeS 1 trillion; 40% goes to administration. The balance 600billion is spent on supplies and development; 40% of this is sucked into corrupt pockets of dealers and tenderprenuers. If the kes240b is put into economically feasible and sustainable investments, the impact would be bravura. I have watched satellite towns grow out of this money; the purchasing power of the local grow multifold improving their lifestyles and life expectancy thus inching closer to Sustainable development goals. In laissez fairre economy, the government has no role in business; it’s the role is to provide enabling factors. In a highly taxed society, the violation of taxation principle of “no direct quid pro quo’ can only be achieved through bleeding the overbearing Caesar. It’s through corruption that the public funds with no accountability land into the hands of entrepreneurs eager to impact their lives and those of their communities. The impact is more direct and wide than the much hyped Kenyan Economics stimulus program during the 2008 global economic downturn. I have always believed, any sound mind being given an opportunity, the potential in them comes to fore. At the county level ordinary latrine masons and Mr. Fixit have matured to contractors doing office blocks and refurbishments; cyber cafĂ© attendants have turned into IT consultants opening Facebook accounts for county bosses.; the Juakali artisans hatched by former President Moi can fabricate mkokotenis (hand drawn carts) and gates worth millions. This is must be the eighth wonder of the world. What do we need to see to believe we are global trendsetters?
The antidote we offer for corruption appreciates that the vice is here to stay; the so called independent institutions like EACC, Judiciary, Asset Recovery Agency, Prisons, parliamentary oversight committees et al ,  only serve the already corrupt but none seeks to address the mindset, the moral grounding and aspirations of the corrupt or aspiring. It’s inherent in the human nature to circumvent the rules, thus as in the Garden of Eden, we are evil. Then how can we turn this evil into a force to reckon with? The transpiration in kingdom plantae if prolonged it can kill the same plant it meant to serve. The stomata apertures serves as the control mechanism. With the assumption of a rational imp, is corruption bleeding the Caesar unsustainably?  I believe not.
Deciduous trees shed their leaves in periods of prolonged sunshine thus no loss of life sustaining sap substrate. What triggers this shedding of leaves and ultimately loss of the stomata? Are the stomata, the antidote ineffective? Does this lost water condition the environment? Well, if human beings, thus Kenyans, are intrinsically evil, then we only need to rope in the essential component of necessity and this corruption will serve us all well. Drawing further from the analogy of the plant, the trunk and the branches can shake off the leaves and the public coffers suffer no more hemorrhage; or the leaves, the Kenyan citizens must fall off the branches. But is this feasible in a free market economy? Is this pragmatic enough in face of inefficient government agencies? Can we trust the government to create wealth for all? We must embrace the necessary evil or perish.
ngubia emoji.

Monday, September 21, 2015

Quit sugar for small holder banana economy...

Uganda is the ultimate banana republic (no pun intended). Ugandans consume more bananas per person than anyone else on earth. I have remarked in the past on the Jubilee administration’s penchant for skidding on banana skins. You might expect that while in Uganda, they would watch out for banana skins. No such thing.
It is difficult to fathom how the administration would have put out a message that could be construed to mean they had traded milk for sugar. Commercial dairying being a predominantly Kikuyu-Kalenjin affair, and sugar cane a Luo-Luhya one, even ignoring for the moment the President’s conflict of interest issues, the political dimension of it would still have made it the most slippery banana skin that the administration has stepped on to date. But such is the nature of mediocrity. Just when you think it could not get worse, it does.
Why is Kenya’s smallholder tea successful and cane sugar a dismal failure? There are three factors. The first is market orientation, the second is the nature of the products and the third is the business model.

Market orientation.
Tea is an export crop, while cane sugar production was established as an import substitution industry. Because Kenyan tea farmers have to sell their produce in the world market, they have to be globally competitive. That is, they have to produce profitably a product the tea consumers out there want, at a price that they are willing to pay.
If they were not able to, there is not much that the government could do to protect them from competitors. It could be argued that the government could subsidize them. Perhaps, but not for long. It would quickly fall foul of competitors, who would report to the WTO. If that did not work, the competitors would do the same and being more competitive to begin with, the subsidy war would bleed us more.
The sugar industry on the other hand is a classic case of the pitfalls of import substitution. There are two of them. The first is that import substitution industries were seldom based on viability. Rather the argument was, we are importing so much of this product, why can’t we produce it ourselves?
The question that was seldom asked when import substitution industries were started was: can we produce our own competitively?
More often than not, the size of the market was hardly big enough for a viable industry. In the case of sugar, there was also immense political pressure — central Kenya had cash crops, coffee and tea, while western Kenya had none.
The second pitfall is that of infant industries refusing to grow up. Once an industry was given protection, there was no incentive for it to become efficient. In fact, the reverse happens.
The industry acquires political clout that ensures it is never exposed to competition. One way of doing this is ensnare the policy makers so that they acquire vested interests in keeping the industry protected no matter how inefficient. In the 70s, foreign investors did this by making policy makers sleeping partners, suppliers and distributors.
The infant industry problem is compounded if the industry is State -owned as is the case with our sugar industry. The industry becomes a gravy train for the elites since they know the State will always bail it out. This is precisely the case with our sugar industry. For well over a decade, we have sought protection from COMESA imports and have done nothing to make the industry competitive. We are not about to.

Product characteristics.
The reason why Kenya’s smallholder tea is successful, in fact the most successful in the world, is because smallholder farmers are able to produce much higher quality tea than plantations. The reason is deceptively simple. The smallholder farmers pick ‘two leaves and a bud’ – the shoots that give the best tea. Plantation workers are paid by weight so they pick three or four leaves.
Even if the plantation wanted them to pick two leaves, the supervision costs of enforcing would be too high. It would need an army of supervisors to inspect every basket. And of course the supervisors could always collude with the pickers for a share of the additional earnings.
The only foolproof solution is for the plantation owners to inspect every basket. In economics, we call this a principal - agent, or incentive compatibility problem.
Sugarcane is the complete opposite. Smallholder sugar does not command any quality premium over plantation sugar. If anything, the labour value-added is very little. Labour is required during planting and harvesting. In the intervening period - close to two years—farmers do very little. The earnings from sugarcane production are in essence returns to capital and land rent.
To illustrate, let us suppose sugarcane is grown by an absentee landlord. The cane is sold in a competitive market. The alternative is to rent out the land at Sh5,000 per year. It costs Sh50,000 per acre to grow a crop which takes two years.
Even assuming a very generous return on capital at 20 per cent per year, in a competitive market, and equally generous “entrepreneurial rent’ at 10 per cent of capital employed. In a competitive market, the returns to the absentee landlord would be Sh35,000. An average smallholder farmer in Meru who picks her own tea will have made at least Sh300,000 on an acre of tea.
Of course the two are not directly comparable. The tea earnings include returns to labour (about 50 per cent), which for the telephone farmer is a cost. Half of the balance is the quality premium. Once direct costs such as fertilizers are taken care of, the returns per acre become comparable to the sugarcane growing absentee landlord. And that is precisely the point. The purpose of smallholder cash crop farming is to provide them with profitable self-employment—to make them small capitalists, not slaves of capital.
Business model.
The architects of Kenya’s smallholder tea industry were remarkably clever and foresighted. In the 60s, state ownership of enterprises was in vogue. They went against the grain and chose outgrower owned, private sector managed enterprises.
The State, through the Kenya Tea Development Authority (KTDA), guaranteed loans to the factories which were repaid by deductions from farmers earnings. The factories were managed by the multinational tea plantation companies on contract and progressively replaced by the KTDA as local capacity was developed.
This is why the privatization of the industry did not entail sale of assets. The farmers had financed the assets. The State had simply been a facilitator and custodian.
The sugar industry took the State- ownership route. The one exception to some extent was Mumias which was a joint venture between the government and Booker Tate, a multinational sugar company, which managed the company until it was privatized and management localized. The rest is history.
Privatization is not a solution. As noted, the contribution of sugarcane to the value of sugar is comparatively little. Most of the value is created at milling, which is capital intensive. Sugarcane today is politically priced at well above its economic value.
The cost is paid by consumers twice, directly through high prices, and indirectly as taxpayers through bailouts. Private millers will have no business paying for cane more than its economic value.
There is no business model I can think of where, in a regionally integrated competitive market, sugarcane would emerge as the best alternative for western Kenya’s smallholder farmers. The only one with a fighting chance is if the government gives the farmers the mills, debt free, but this entails a huge assumption—that the farmers would run the mills efficiently. Doubtful.
One of the arguments forwarded against the Uganda deal by among others, my good friends Prof Anyang Nyong’o and Dr Mukhisa Kituyi, is Uganda does not have a sugar surplus and the deal will be a conduit for barons to bring in sugar from farther afield. I don’t disagree that mischief could be afoot, but the surpluses argument should not arise.
The EAC Common Market Protocol was signed in November 2009. It became effective on July 1 2010, with a five-year transition period which ended on June 30 this year. The EAC is now legally a single market. In a single market, you produce where it is cheapest and sell where it is most profitable. The Ugandan millers are not obliged to satisfy the Ugandan market first before selling in Kenya or any of the other EAC countries for that matter.
They are not demanding market access because they have a surplus, but because the Kenyan market is more profitable. They are entitled to our market. Moreover, you don’t produce a surplus and then look for a market. You find a market and then produce for it.
We may be able to stave off external competition for a while, but the bell has tolled for western Kenya’s sugar industry. The Kerio Valley Development Authority (KVDA) estimates that it can grow sugarcane on large scale at a quarter of the western Kenya cost in the Turkwell basin. Tana River County can put more land under large scale irrigated sugarcane than the entire western Kenya sugar belt with plenty to spare. The Ugandan millers or other investors could, and probably will, invest in large scale production here. Are we going to stop them?
What are the alternatives for western Kenya? There is no shortage of them, and at any rate, the lesson the region should learn from sugarcane is that mono-cropping is a bad idea. As I hope I have demonstrated, the alternatives should be evaluated on two criteria. The first is that it is labour intensive, meaning, it enables the farmers to employ themselves.
The second is that the farmer accounts for a high percentage of the end value of the product. A good example is, lo and behold, milk! Dairying is labour intensive, cows (or goats) must be fed and milked every day. Second, milk comes from the cow ready to drink.
That is as high a percentage of end value as you are likely to get. Processing i.e. pasteurizing and packaging fresh milk does not add value to milk per se, it simply improves the logistics of getting it to a mass market.
Most Kenyans in fact prefer their milk straight from the cow. As it happens, there is a technology, the “milk ATMS”, which is making it possible for farmers and consumers to cut out the processors from the value chain.
The milk ATMS have taken the market by storm, in the US and Europe as well. It is a good example of a highly disruptive technology. In the US, the milk processor lobby has secured bans in several states.
The informal market controls 80% of the Kenyan milk market; may the guys who sell chopped sugar cane may soon have a dominant share....

Friday, December 19, 2014


With poverty of the mind, values and matter we are bound to be trapped in the vicious cycle.
Various disciplines, among them economics have sought to address this scarcity of resources and how human behaviour is shaped by the scrabble of resources; perfected by Keynes , mercantilist et al

Politics , laws, family and marriage  and all associations seek to share these resources by each individual player seeking to have a cutting advantage over the other; to effectively control and eventually annihilate the other; thus Charles Darwin survival for the fittest.

How have modern societies escaped or perfected Darwinism??

Life is a rat race and to join the fast lane there has to be collateral damage inform of bad laws, death and collapsed buildings and other human made calamities.
To escape the rate race we have to seek an equitable way of fighting scarcity; to nourish the mind the soul and the body and that’s what Marxism is all about

Corruption, nepotism, is all ways of seeking competitive advantage over the other.

Laws, taboos are made by owners of resources  as a means of seeking to control the masses, the lumpen proletariat; they are meant to serve the ruling elite unless the masses (if they got the critical mass) rise and redefine the societal values.

The security bill, some say curtails some of the fundamental rights enshrined on the bill of rights.
But we forget that every right granted comes with a huge responsibility.
I hold the view that the media is irresponsible; they need to sell news. Are these the excesses of the untamed capitalism?
Unchecked social media is on the rampage where all abuses are traded?
Political utterances that fuel hatred and hatred; all later denounced?
Forgive me, but in a society where the social fabric is broken down,  we need laws  what those not in power call draconian;
 And focused dictators ; and that’s why Kagame  is my living model- I am a Kagame wannabe..

On a different note we need to change the word BRIBE to TIPS
In most western countries, one is obliged to tip almost everyone from bank tellers, hotel attendants, and cab drivers et al…. remember chickens.. IT’S THE ART OF THE DEAL

This would allow institutionalizing corruption (sorry giving tips) and stopping wasting resources fighting what seems a vibrant self-regulating enterprise.

Dowry is a way of appeasing the bride’s parents– is it a bribe or a tip??

Saturday, November 22, 2014

New railway is not value for money

So far, the raging debate on the proposed standard gauge railway is focusing on dodgy procurement. 
There are also questions about the cost although, on the whole, it is not evident that it is grossly overpriced. Many people seem to be under the impression that it is otherwise a good investment. It is not.
Three hundred billion shillings is not loose change. If it proceeds, it will be the biggest loan that we have borrowed to date. It will increase our external debt by close to one third, our debt to GDP ratio by nine percentage points and our interest payments on external debt by 50 per cent. 
The annual repayment of the principal amount translates to over Sh600 million per county - you may want to think what your county could do with an extra Sh600 million every year for the next 10 years.
If we are going to put ourselves in debt to this extent, we need to be sure we are getting value for money. Are we?
I have a simple back-of-the-envelope method I use to check whether a project makes commercial sense.
At the very minimum, a commercial project should pay the cost of capital. Let us put the cost of capital at 7.5 per cent per year, about the rate that we can expect to pay on the sovereign bond we are about to float. This means that the project needs to generate a surplus of Sh22.5 to pay for capital.
To generate this kind of surplus, the railway would have to have a turnover of at least Sh120 billion. Assuming that it charges the prevailing tariff of US$1,000 per container, it would need to carry 1.4 million 20-foot containers a year, 4,000 a day. That would take about 48 very long trains every 24 hours. The busiest single line railways in the US, for instance, run 20 trains a day.
What about cargo? The Mombasa port is now handling containers about one million TeUs (twenty feet unit equivalent). That means the new rail would have to enjoy a monopoly of Mombasa port cargo to pay its way. This is probably why the Chinese financiers are asking for guaranteed cargo. But what they do not seem to appreciate is that the Kenya State does not have the same command and control power that the Chinese State has.
One can argue that the cargo volume will grow. That is true. But we are not demolishing the old line. And the new one comes only to Nairobi at first.
It does not make sense to load cargo going beyond Nairobi on the new line only to transship it to the old line that could have carried it from Mombasa in the first place.
More importantly, the region is building competing transit corridors not least our very own LAPSSET. But the most immediate competition is Tanzania’s central line. This line goes from Dar-es-Salaam to Isaka, about 100 km south of Mwanza.  It is being extended to Kigali, with a branch line to Musongati in Burundi. At 1,400 km, the distance from Dar to Kigali is 25 per cent shorter than Mombasa to Kigali.
If our Chinese friends make good their pledge to build the mother of all ports at Bagamoyo, Mombasa will have a hard time competing for transit cargo to and from Rwanda and beyond. 
The Lamu port, if completed, will also take a chunk of domestic and northbound cargo. And Djibouti is also angling for South Sudan and Ethiopian business as well. No massaging of data, or growling at critics, will make this railway make commercial sense.  
The long and short of it is that the railway will be paid for by taxpayers’ money. Our constitution has set out five principles that public finance must fulfill. Two of these are pertinent.
Article 201(c) requires inter-generational equity that is fairness between current and future generations. Article 201(d) requires that public money be used in a prudent and responsible manner. Let us take 201 (d) first.
The fact that the railway cannot pay its way does not mean it is imprudent. It may be that it has huge indirect public benefits which are not captured by the revenues -- what we call in economics positive externalities, are very high.

A good example of this was JF Kennedy’s mission to put man on the moon. Its direct economic returns were zero, but the technological advances it engendered are said to far exceed its cost.
But it is hard to see what the public benefits beyond those that accrue to the owners of the cargo that is carried are. And the fact that alternative modes of carrying cargo on the same route, including modernising the existing one, means that even the additional economic benefits to those are not that significant. 
A good example of this was JF Kennedy’s mission to put man on the moon. Its direct economic returns were zero, but the technological advances it engendered are said to far exceed its cost.
But it is hard to see what the public benefits beyond those that accrue to the owners of the cargo that is carried are. And the fact that alternative modes of carrying cargo on the same route, including modernising the existing one, means that even the additional economic benefits to those are not that significant.  
If we must build a railway, it is doubtful that this particular one is the best value we can get for our money. It seems to me that a new line from Lamu to Thika represents better value for money. Three reasons.
First, it is a cheaper and faster alternative to the proposed LAPSSET route, as there is already a line from Thika to Nanyuki that only needs rehabilitation. All it would require to make LAPSSET a reality is a container terminal in Nanyuki and a good road from Nanyuki to Juba, as the road to Ethiopia is already under construction. The economic rationale for replicating the Mombasa-Nairobi line when we are struggling to secure funding for the LAPSSET infrastructure has totally escaped me.
Second, it would connect both the Northern Corridor and the proposed LAPSSET corridor to both Mombasa and the new Lamu port. Choice for the customer, and competition between the two ports, can only be a good thing.
Third, it will stimulate development of the historically marginalised regions along its route. It will carry livestock and livestock products to the ports for export, coal and cement from Kitui, and food from the million acres of the lower Tana that we are about to irrigate.  

Let us now consider 201(c), the inter-generational equity provision. This provision requires that we do not burden future generations unnecessarily, and vice-versa. It would be unjust to borrow money to consume today, for example, to throw the Golden Jubilee party, which would be repaid in 20 years.
That is obvious enough. What is less obvious is that it is equally unjust to tax poor people today for an investment that will benefit future generations who, in all likelihood, will be wealthier than we are today. 
It should be readily apparent that taxing people who don’t have enough to eat to finance a project whose benefits will be realised in 50 years is as unconscionable as burdening our children and future generations with debt whose benefits they will not enjoy.
So, how else then can we finance such a long-term investment as a good railway project? There are various ways, but the most obvious is to borrow as long term as possible. As it happens, we do have access to long term cheap loans from the World Bank -- 40-year maturity, 10-year grace period at 0.5 per cent interest. 
If it were World Bank IDA or the African Development Bank’s (ADF) money, the repayment works out to a third of the Chinese loan, and we will not start paying until 2024, by which time the economy will be much bigger, there will be a lot more cargo to carry, and in effect, the public financial burden less onerous.
But this funding will not be available for long, as it is only available to the poorest countries, a status that we will soon graduate from. What a smart government would do is take advantage of this to finance as many long term capital projects as the World Bank and AfDB are willing to finance.
There is no shortage of commercially viable infrastructure projects, energy ones notably, for the Chinese to finance. At any rate, the Chinese are likely to win most of the construction work even when it is competitively tendered.
It’s hard to see what is smart about getting into the kind of murk they now find themselves in on this project. All it does is to reinforce the negative perceptions that many people have about the way they are doing business with African governments.
It is a lose, lose, lose project. We lose, the President loses, the Chinese lose. It is not worth it.

Friday, May 23, 2014

Corruption is a social evil ; Six strategies to fight corruption

Thanks a lot for this insightful piece on combating the malignant social and economic malfunction called corruption
Broadly, there are three policy proposals on curbing corruption: lawyers approach, the businessman’s approach and the economists approach. These consist respectively in producing tougher new laws, tougher enforcement of existing laws and increasing the level of competition in the economy, both among firms and bureaucrats.
Singapore and Hong Kong are some of the least corrupt countries on the world are successful applications of lawyers approach – they have draconian laws on corruption; they also pay their bureaucrats exceptionally well but the level of political competition on this e countries is extremely low; this has allowed exception level of pay in the bureaucracy without too much political completion.

I will borrow example from one country in East Africa-Kenya; this is my country of birth.
The Kenya Civil service is among the highly paid; this was strategic to attract and retain and high performing from the private sector’s ; it started with an elite Dream Team crafted by the former president in late 90s to turn around the Kenyan economy; vision 2030 secretariat and et al.
Yes, the work by Rijckeghem and Weder (2001) that there is an inverse relationship between the level of public sector wages and the incidence of corruption may be partially correct; it ignores the rent seeking nature of the economic man and the politics of the country which are central to award of civil service jobs.; what about the level of civil liberties?
The Kenyan MP is paid over $10,000per month excluding various unwarranted allowances like sitting allowance (being paid to be in parliament), yet they still misuse constituency development funds, solicit bribes to support either private or public members bill , refuse to pay for child support?
Thus the questions is how much of the clean record if any in Kenya/LDC can be attributed to the policy of high wages?

The red tape of bureaucracy is not a choice of large institutions but product of the desire to systemize processes which should/must outlive the officeholders/owners; and that’s why  it’s easy for a small outlet in downtown street to complete an order for emergency backup generator that for GE( Kenya) to fix a rundown backup generator
Government are the highest rent seeking entity in the economy; they extract income through these bureaucracies; they also create employment otherwise every government unit/ department should be run as a business unit able to finance its operations.
I agree these needless regulations need to be removed but are the leaders ready to pay the political price?  And as such instead of dismantling these bureaucracies they create more efficient  ‘political outfits  ie centers of excellence like Huduma Centre in Kenya; constitutionalize various commission and authorities , merge moribund parastatals rather that privatize them et al
Thus there’s a a correlation between the nature Governance of a country and level of red tape.

Corruption is a social evil with immediate economic effects but long-term damage on moral fabric of the humanity; it eats into the family values where ones worth is measured by the size of the wallet.
It emanates from the Id- the instinctive nature of the being, the self, the selfish, the animal desire to fulfill immediate aggressions which matures into fully grow untamed ego.
It’s also fueled by the capitalism which advocates completion, privatization and wealth accumulation.

To address corruptions we need a bottom up approach

1.      Disband Anti-corruption agency- this agency serves the master.
2.      Set up a Whistle blowing agency whose sole mandate is educate the citizenry on corruption
3.      Make corruption a subject/ topic in basic education.
4.      Personalize corruption; carry out national wide HIV like campaign and sensationalize and sensitive citizens on evils/benefits of corruption.
5.      Set an alternative form of Social justice dedicated to corruption like the Rwanda’s Gecaca system.