The Power and the Money

Code switching

On the Red Line home there were three teenagers, two female, one male. I have never heard anyone switch so fluently between English and French. Multiple times per sentence. The English was from the DMV. The French was not from Quebec; 100% for that. Now, I do not know if the French was from the Hexagon or Côte d’Ivoire or the West Indies, but it was native and how did they switch in the middle of a sentence? I was impressed. More so because their English accent was unaffected. I wish I had been there with a native French speaker. 

I have heard and spoken much Spanglish in my life. This was a whole nother level. 

What does the word “civilizational” mean in French?

There’s been a bit internet pile-on President Macron over the past few days. I dislike these things, on principle. The tweets that fill up my feed seem more designed to let the tweeter enjoy their own self-righteousness or special enlightenment than to express true outrage. It’s all rather unpleasant. I was sad to see the author of one of my favorite books join in.

What are they beating up the French president about? Well, his comment is here:

President Macron expresses doubt that aid will work without institutional reform, favors more aid and direct French involvement in security, praises growth in African nations, calls the continent “a land of opportunity,” and supports aid. Those comments do not seem to be the cause of the outrage.

One issue seems to be that the President misreported fertility rates. Only Niger has a total fertility rate above seven; for most of the continent, the number is around five. Perhaps I am too generous, but this seems like an entirely forgivable mistake.

A second issue is whether high fertility contributes to African poverty. A large literature on demographic dividends implies that yes, it does, at least on the margin. I do not see grounds to criticize the French president on that.

A third issue seems to be that he left out references to the negative impact of the European empires. This blog certainly has an interest in the subject. But Macron has been outspoken in his critiques of France’s imperial past. And in his quote he actually agrees with the idea of a Marshall Plan for Africa; he certainly is not dismissing the idea that Europe owes Africa a debt. I am, however, open to an argument that Françafrique imposes a rhetorical special burden on French presidents. (Does it?)

Which leaves us with his choice of the word “civilizational.” My friend Gabriel Mathy pointed out to me that Macron’s statement is the logical equivalent of calling Africans “uncivilized,” and that, I think most observers will agree, would have been offensive. Language, however, is not algebra: I have no idea of Macron’s odd word choice (to speakers of English or Spanish) has an offensive connotation in French.

At the end of the day, whether there is any basis for outrage hinges on that one word. If it has a racist connotation, like “Oriental,” then Macron deserves connotation. If it does not, then there seems to be nothing here, and I fail to understand the reasons for the pile-on.

And I do wish, sometimes, that the mockery and outrage would stop.

Was the French Empire predatory?

There is a long debate over colonialism, particularly the late-19th-century variant. Most of the literature focuses on long-term effects. So it often loses sight of a simple question: did imperial institutions function basically the same as capitalist institutions in non-colonized places or did they serve to transfer resources to the metropole? That is, did colonialism simply bring areas into the modern world economy (for better or for worse) or did it directly suck resources out of the colonies?

This is not an easy question to answer. In a classic work, for example, Davis and Huttenback showed that British colonial enterprises were less profitable than similar British enterprises at home, in the Dominions, or in the Americas. But profitability tells us little. Imagine that British colonial enterprises had been phenomenally profitable. Would that have meant that they were bad for the colonies? Clearly not! Some other measure is needed. 

So here comes Federico Tadei (Universitat de Barcelona) with an obvious measure: did colonial commodity producers receive the same price for their goods as producers elsewhere, accounting for differences in transportation and insurance costs? 

In a bit more detail, here is what he does:

1. Gather prices at French ports for each commodity between 1898 and 1959. Also gather producer prices (what African farmers received at the farm gate) at African ports. Tadei can do the latter because French African statistics broke port out trade costs from producer prices; 
2. Construct estimates of trading costs including Atlantic shipping, insurance, inland transportation, port charges, and export taxes;
3. Calculate (1) − (2) to get what producer prices should have been under non-predatory institutions;
4. Compare (3) to the actual prices received by African farmers;
5. Check the results by comparing (1) against producer prices for U.S. cotton and wheat exporters or European settlers in Africa to see if American producers selling to Britain were as disadvantaged as French African producers selling to France;
6. Check the results by seeing how much of an increase in world prices is passed on to French African producer prices, plus a few more abstruse checks.

Here is the headline result, as a % of prices:

And here is French Africa compared to the United States for cotton:

Moreover, there is a plausible mechanism for extraction: monoposonistic trading companies and compulsory harvest quotas. The effect of the former is obvious; the effect of the latter was to prompt African producers to grow more than they would have in a competitive market. In addition, poll taxes might have induced African workers to enter the labor market, driving down production costs for African farmers and thereby prompting them to grow more. (Forced labor may have had the same effect, inasmuch as it also drove down costs for African producers.)

What I would like to see is the same method applied to Latin American and Asian producers. Brazil, Ecuador and various Caribbean countries exported cocoa; China exported peanuts; Brazil exported cotton. As for palm oil … well, forget that. (United Fruit introduced it into Guatemala, Panama and Honduras in the 1920s without much success. I was involved in a failed effort to introduce it to Chiapas in 1999.) But it is a way of stress-testing the hypothesis. If producers in Latin America and China faced similar extraction rates, then formal imperialism might not have been the problem.

Thoughts?

Wagging the Dog: Lessons from France and Gabon

In 2011, France was wracked by corruption scandals in which African leaders, from Côte d’Ivoire and Gabon in particular, passed off millions of dollars in cash to the Jacques Chirac and Dominique de Villepin. It was the flip side an earlier scandal in which the French national oil company, then called Elf Aquitaine, funneled millions of dollars per year into the coffers of Gabonese leaders. The African tail had begun to wag the French dog; some politicians called it “reverse colonization.”

And now it looks like something similar could happen under President Trump. Consider our own former colony in the Philippines. President Rodrigo Duterte has appointed Jose E.B. Antonio to be Manila’s special representative to the United States. Antonio also happens to be the CEO of Century Properties Group, which is building the Trump Tower Manila and paid the organization around $5 million for the privilege of using the Trump name. More payments are due: one Trump deal in Puerto Rico involved a 12.5% share of profits plus a 4% slice of operating revenues in addition to the up-front fee. 

What happened in France was illegal. What is happening in America appears to be legal: the payments from the Philippines are not coming directly from the government.

But what happened in France had tangible effects on Africa. France continued to prop up the execrable Bongo dynasty well past its sell-by date. In 2008, for example, the French government shut down an investigation into the provenance of Omar Bongo’s Parisian real estate portfolio. In 2010, the American embassy in Cameroon reported that the Gabonese government embezzled funds from the Banque des Etats de l’Afrique Centrale — that is to say, one of the two central banks serving French West Africa — and used them to support President Nicolas Sarkozy. When Bongo’s son, Ali, won the 2016 election with a razor-thin (and clearly fraudulent) margin the country erupted into riots. Ironically, the 2011 corruption scandal made France reluctant to pressure Gabon with anything stronger than mild language: not because Gabonese oil is so important, and not because Hollande received Gabonese money, but because the public scandal itself made any French actions in Gabon appear to be a continuation of the illicit ties between the two nations. 

Right now, a legal battle between President Bongo and his sister is bringing some of the looting to light and the European Parliament threatened sanctions on February 2nd. But Bongo is still there and Gabon is looking far more fragile than an oil-rich coastal statelet of 1.5 million people has any right to be. 

So now in the Philippines you have Duterte running death squads and cozying up to China. Maybe no U.S. president would have been able to do much about the former (and the latter likely deserves no response). But President Trump is not even going to try. And maybe he would not have tried no matter what. But the stench of corruption lies about it. Françafrique, meet Philamerica.

And worse yet, there are other, even more depressing places involved. Wagging the dog, indeed.

What’s the case for dollarization?

 This is not a post about organized crime in Mexico, although I will be returning to the topic shortly. This post asks simply: given all the things that can go wrong with a fixed exchange rate, let alone a currency union, why do so many countries continue to return to them? After all, when they go wrong, they can go very wrong. You can get horrible explosions like Mexico in 1994 or the Asian currency crashes in 1998, or you can slow grinding meltdowns like the depressions in Argentina around the turn of the century or the Baltic States today. 

Yet countries continue to do it. All the West Indies save Jamaica fix to the dollar. Ecuador, El Salvador, and Panama have dollarized. The Baltic States have already been mentioned. Denmark fixes to the euro. The euro itself has no shortage of suitors, even now. In fact, even with the Eurozone’s problems, countries want to form currency unions. East Africa wants to form a currency union. Why? 

Well, history is a big reason. The CFA franc, for example, exists and is linked to the euro because of the French non-empire also known as Françafrique. A similar thing can be said about the West Indian links to the dollar. These historical links make it very hard to figure out the effects of a currency link. Maybe countries link to countries with which they trade. Or countries trade more and link with countries with whom they have special political links. All that would make it hard to tell whether exchange rate certainty has a big effect on trade, because causality could run both ways. That didn’t stop Andy Rose from trying, but the results were still highly contested.

Jeffrey Frankel came up with a neat natural experiment. In his own words:

“The long-time link of CFA currencies to the French franc has clearly always had a political motivation. So CFA trade with France could not in the past reliably be attributed to the currency link, perhaps even after controlling for common language, former colonial status, etc. But in January 1999, 14 CFA countries woke up in the morning and suddenly found themselves with the same currency link to Germany, Austria, Finland, Portugal, etc., as they had with France. There was no economic/political motivation on the part of the African countries that led them to an arrangement whereby they were tied to these other European currencies. Thus if CFA trade with these other European countries has risen, that suggests a euro effect that we can declare causal. The dummy variable representing whether one partner is a CFA country and the other a euro country has a highly significant coefficient of .57. Taking the exponent, the point estimate is that the euro boosted bilateral trade between the relevant African and European countries by 76%. It is not doubling, and the timing is not perfect. But it does suggest that the effect on trade among small countries is very substantial even after correcting for endogeneity.”

It is true that the CFA franc is in a fixed exchange rate with the Eurozone, not a currency union. Still, as fixed exchange rates go, this one is very strong. It’s supported by the French treasury and not just the governments of the countries in question. Moreover, these countries are dependent on France in umpteen ways, and their governments would find it very difficult to leave the zone without risking economic and political collapse. So there doesn’t seem to be a strong institutional reason to reject the results. It isn’t quite a currency union, but it is close. So what happened in 1999 between the CFA countries and the Eurozone wasn’t quite an accidental currency union, but it was close. And even if it isn’t a real currency zone, the experiment can shed a lot of light on fixed exchange rates. 

So fixed exchange rates promote trade! Great news for those of us with strong intuitions that fixed exchange rates and currency unions should be good things for small countries. Problem is, the quantitative results are a little odd:

First, the effect starts in 1997, not 1999. It is possible that expectations of the fixed rate with the rest of Euroland caused the trade boom, but that seems a little ad hoc. Second, the effect seems to have faded out by 2006. Neither result lets one say with confidence that dollarization (or even fixing to a bigger currency) is a good thing for poor countries. Either the result from the CFA-Eurozone experiment is stronger than it looks (maybe 2005-06 were just bad years, or the authors failed to correct for some important factor), or fixed exchange rates only have brief and transitory effects. 

We still have a mystery. Thoughts? 

Overwork, French neocolonialism, and the economics of labor migration

 One thing that truly does suck is being in Paris on a rainy weekend with your wife and being utterly unable to enjoy the city, let alone take that side trip to the south of France, because a chapter of your next book (and an article for a conference) is taking much longer to write than it ought to. This post therefore gets a leisure tag, because of the lack thereof. But now you know why I haven't finished the Dubai posts (one more is waiting about Iran) or said more about nuclear power, the reason for my trip.

One thing that doesn't suck is Doug Muir's explanation of Comorian independence. It may be unsatisfying, but so is reality. It does leave me wishing that Julius Nyerere, a heroic man of heroic accomplishments, hadn't been so ... well ... unyielding in his anticolonialism. The world, I think, would be a marginally more happy place with 800,000 additional French citizens in the Indian Ocean, rather than 800,000 poor victims of lousy institutions wedded to French neocolonialism.

Something that doesn't suck but is, I think, incorrect, is Charlie Stross's analysis of the economics of restrictions on labor mobility. The discussion gets started at comment #27. Go, argue!

Of course, I have a dangerous streak of Francophilia, and am therefore not to be trusted.

Near-recolonization in the Comoros

 Oh, gosh, the Comorian story gets weirder. I knew that one of the Comorian islands, Anjouan, had to be invaded by the African Union (with much French support) in 2008 when Mohamed Bacar refused to step down as the president of the province following a disputed election. I also knew that Anjouan had declared independence in 1997 and was reluctantly coaxed back into the Union, which contributed to the crisis 11 years later.

What I did not know was that the separatists did not actually want independence. Rather, they wanted reunion with France. In all seriousness, the rebels raised the Tricolor and asked to become an overseas collectivity. Paris said no, of course. It would wreck relations with Africa and cost no small amount of money. And where would it end? Still, I can't imagine that nobody in Paris was tempted; one hell of a compliment, that. I don’t know of any British ex-colonies petitioning to re-become a Crown Colony. 

To be fair, the story isn’t completely unique: Cape Verde tried to get into the European Union back in 2006, and given how reluctantly it accepted independence I suspect that a vote to reunite with Portugal would probably pass. That said, I’m still not sure what to make of the Anjouan story. Probably nothing, truth be told. But it does bring home to me the overall weirdness of the initial vote to secede from the French Republic. Puerto Rico, Samoa, the CMNI ... most American possessions with status akin to an overseas collectivity do not seem to want independence. The few that did (e.g., the TTPI, whose residents were neither American citizens nor nationals, whereas the Comorians enjoyed full French citizenship before 1975) carefully negotiated a limited form of independence that preserved the benefits of association with the United States. So what happened in the Comoros to push its leaders into not only accepting independence, but a very badly negotiated independence deal with a French government that would have been happy to keep the islands within its orbit?

And don’t say nationalism, because many places are nationalist yet eschew sovereignty when the costs are high enough. They certainly were high in the Comoros, and it would seem that by the 1970s those costs should have been manifest. Why then did Comorian nationalism drive its leaders towards secession ... a decision a good chunk of the nation’s people seem to regret?

More Doug in Senegal, and why you shouldn’t worry about the deficit

  It seems as though I start a lot of posts with the words “it seems.”  I will try to rectify this in the future. 

Ditto, “so,” a verbal tic I blame on my unbridled admiration for Doug Muir, who has, by the way, written a little more about Senegal.  He tells us about the Mourides, a powerful Muslim sect of which I am embarrassed to say I knew nothing.  He bemoans the crappy state of Dakar’s airport, and receives in turn a useful warning from Bernard.  Finally, he wraps his trip with a discussion of W, railroads, France, birds, the CFA franc (e.g., France yet again, although he doesn’t say so), the weather, the expats, and the clothes.  I am pretending not to be annoyed at not getting a shout-out on the France tip, which means that pique is not the reason why I am not explaining the story of the Senegalese railroads under French colonial rule. 

Which brings us to the U.S. federal deficit.  You hear a lot of worring about how interest rates are going to rise from all this wild borrowing.  Where will the money come from?  We are doomed, doomed!!  No links, because I actually like and respect many of the people doing the worrying.  But they need not.

I just had a colleague in my office with the latest BEA numbers, worrying about just that.   Where will the money come from?  So I pulled out a spreadsheet and showed him.  In the first quarter of 2009, annualized personal savings came to $620 billion, or 5.7% of personal income.  Total savings (again, annualized) came to $1,273 billion, or 9.1% of GDP. 

Personal savings is only going up.  If we assume that nominal GDP growth is flat in 2010 (meaning, most likely, that real GDP keeps falling), a rise in the personal savings rate to 10% will produce $468 billion of additional savings.  Retained earning are also likely to rise, say from 4.6% to 5.0% of GDP.  That’s another $47 billion.  Total of $515 billion in new savings ... just as the federal deficit is projected to fall by $393 billion.  Plenty of wiggle room should private investment rise (one can hope) or the current account deficit fall (which seems likely).  A rise in real interest rates does not seem like something we need to worry about.

Rather, what we need to worry about is a continuing shortfall in demand.  What if Americans don’t substitute domestic consumption for imports?  Final demand will fall.  What if domestic investment doesn’t quickly rebound?  (It was $2 trillion in 2008, a full 25% higher than in the beginning of 2009.)  Final demand will fall.  In that situation, we might be wishing for another round of stimulus, rather than worrying about the deficit. 

UPDATE:  The May numbers just came out from the BEA.  Looks like the personal savings rate hit 6.9% that month.  We are on track to exceed 10 percent in 2009, and in my opinion the country will permanently return to 1970s savings levels.  That said, past performance does not always predict future results.  Any counterarguments?

Doug in Senegal part 5

  Doug is now in Goree, a small island off the Senegalese coast.  I don't have much to add at the moment, unfortunately.  (Or not.)

Doug in Senegal parts 3 and 4

  My friend Doug Muir is in Senegal.  He is visiting a city that I am deeply ashamed to admit that I had never heard of.  His reports from Kaolack are here and here.

Read the posts.  They pose an interesting question, about infrastructure, trade, and prosperity.  How much would an improvement to Kaolack's port reduce transport costs?  How much would a reduction in transport costs increase peanut production?  (In other terms, are there increasing returns in peanut production?)  These are unanswered questions; it isn't a sure thing that fixing Kaolack will promote growth.  After all, a declining peanut economy could provoked the city's decline, rather than the other way around. 

Which isn't to say that Doug is wrong; he probably isn't.  Just that any and all development quick-fixes deserve careful stress-testing before they are implemented. 

Hopefully we'll hear more from him soon.

Domingo flojo, and Doug in Senegal parts 1 and 2

  ¡Domingo flojo!  Despierta tarde en el mediodía, llama al tren, pa’ver q pasaría ... Narnia?  No no no no no. 

So I line up a trip to the deep-pit copper mine.  Chido!  At which it point it starts to hail around here, and the company cancels.  (Liability issues.  Chile is not Mexico, it seems.)  So I figure, hey, Chile has restarted passenger train service, why not chill in Chillán?  Metro to the train station, thin attractive woman a little older than me and wearing this cute little neo-hippy snoopy hat sells me a ticket with just the right amount small talk to remind me why I like this country so much.  Only ... she realizes that the return trips are all sold out.  I debate taking the bus back, decide no, and now regret it.  WTF am I going to do in Santiago on a rainy lazy Sunday?  Work in my hotel room?  Too depressing! 

I'll figure something out.  Meanwhile, Doug Muir is in Senegal, with details here and here.  I, of course, am fascinated by the French influence.  As always, don't expect pictures from Mr. Muir, but do expect lots of information, historical detail, and very good analysis about what it all means. 

You can also go here and here on this blog, where we discuss another part of the French not-empire in West Africa, or here, where you find out how Burundi got a handle on infectious disease.

I'll be back with more about regional inequality, copper, and the effect of the Panama Canal on Chile, but right now I'm going to go brave the rain and wander aimlessly around Santiago for a while.  I will, however, take requests for any Chile-related topics you might want to know more about.  (Randy has one pending on regional inequality.)  Hasta pronto, mis cuates desconocidos. 

The great socialist scramble for Africa

  So, China is trying to get into the Nigerien uranium business, for reasons known only to the China National Uranium Corporation.  (Although I will guess later in this post.)  Here's the story to date.  On June 5, 2007, the Nigerien government formed the Société des Mines d'Azelik (Somina) a mining enterprise intended to exploit the Azelik uranium deposit way up in the north.  Niger got a 33% stake in the enterprise, with China getting 67%.   On July 6, Toureg rebels kidnapped a Chinese national for four days.  On November 9, Somina got an official license to work at Azelik.  On November 11, the Toureg rebels declared that China's contracts were "invalid."  At which point the Nigeriens accused Areva (the French state-owned nuclear company) once again of funding the rebels.  The same rebels, that is, who attacked Areva in April.

So the Chinese suspended work.  And the Nigerien government started to hem and haw and stall and delay.  So much for all those Chinese plants to build 50 MW of (conventional) power plants in the country and a €27.3 million bridge over the Niger river.  On the other hand, the Chinese didn't want to lose their options, so on April 30, 2009, they agreed to lend the Nigerien government $95.22 million at 2% over ten years, with the loan explicitly (but vaguely) tied to the stalled Azelik project.  China, meanwhile, sold 5 percentage points of its interest in the mine to a state-owned Korean company, which promised the Nigerien government that it would buy 400 tons per year once (if) the 700 tons-per-year mine gets up and running.  The president of Niger has just visited the site, in order to show his seriousness about getting the project back on track. 

The hitch is that as the Chinese project in Azelik stalled, France was on the move. In January 2009, Areva signed a deal to open the largest uranium mine on the continent, and President Sarkozy visited Niger in March to give it his full-throated support.  That's a problem for the Chinese.

Now, the Chinese still have a good project if they can get it running.  After all, they have gotten the Korean government to implicitly promise to buy the uranium at whatever price the Chinese charge, which will be quite a coup if the mine opens.  Not a terribly bad plan.  That said, the overall impression is that the Chinese really don't yet know how to play this game.  

So what exactly is the game?  Suggestion below the fold.

On the edge of the French energy empire

  In 1965, the French discovered uranium in Niger.  Here is what the New York Times had to say about it in 1969, right before production began.  It makes for fascinating reading.  

The paved road comes to an end in this isolated, dust-colored market town on the southern shore of the sand sea known as the Sahara.  About 300 miles farther north, along an ill-defined track, lies the town of Agadez.  About 150 miles beyond that, near the jumbled boulders of the Air Mountains, the village of Arlit is rising.  Where nothing more than tumbledown mud huts stood two years ago, French and African workmen are building cement-block houses, shops, an electrical generating plant big enough for a city of 40,000 — and two uranium processing plants. 

The uranium will be produced by a company in which the government of Niger holds 20 percent, German groups 10 percent, and the French Atomic Energy Commission and two French mining companies 70 percent ...

In a country where the per capita income runs about $75 a year ($351 in 2008 dollars), peanuts and bony steers constitute the only significant exports, where fuel is so scarce that technicians once tried and failed to make a power plant run on peanut husks, the discovery of uranium was an extraordinary event.

Niger will receive about 40 percent of the company’s profits ... Niger is counting on only $4 million a year in revenues by 1975 — about a tenth of the current national budget.  “Even with this strike,” said a local economist this week, “this is never going to be a rich country—unless they find a market for sand.” 

Imperialism can pay ... the imperialized

  The French empire in Africa never really ended.  In 1960, the autonomous territories of the “French Community” got seats in the United Nations, but for most the change was less than dramatic.  Only Mali dropped the use of the old colonial currency.  The new African governments increased trade restrictions, bit by bit, and the French market closed to their exports, bit by bit, but Paris fought hard to keep the European market open for a very long time.  The Yaoundé and Lomé conventions granted the “associated” states preferential access to what later became the E.U. 

Empire didn’t go away in another more visible manner:   French troops remained on the continent, French nationals staffed the governments and newly-created armies, French companies (often state-owned) dominated the export industries, and France knocked over more than a few recalcitrant governments while propping up others. 

Niger, where the French found uranium, made for a particularly egregious example.  In 1963, French troops rescued the government of President Hamani Diori from a coup.  In 1969, the French discovered uranium, and two French companies got exclusive rights.  In March 1974, French, Nigerien, and Gabonese representatives meant in Niger’s capital to discuss Diori’s insistance that the country’s uranium contracts be renegotiated.  Coincidentally, Diori fell to a coup the next month.  It seems that all of Diori’s French military advisors had gone on vacation and no one picked up the phone in Paris when news of the violence arrived.  The New York Times went so far as to accuse France of abetting the coup because Diori wanted to give uranium concessions to Exxon.  The next guy kicked French troops out of the country, but the French remained in control of the mines ... and their troops came back in 1981 anyway.

So what did the combination of continuing French intervention and French uranium mining mean for Niger?  An unexpected answer below the fold.