African Impressions

I just returned from a first-time trip to Africa.  I was there a bit over two weeks.  We started out in Arusha, Tanzania and finished up in Nairobi, Kenya.  Karen went on to Kampala, Uganda where she helped out in conducting a week-long course in trial practices for Ugandan lawyers.

We visited six places in Tanzania and Kenya, four of which were well known safari destinations.  Experiencing the incredibly beautiful landscape and wildlife of these areas was sensational.  It beat all of my expectations and I am quite grateful to have had this good fortune.

 

I received a very good impression of the efforts that both Tanzania and Kenya are making to preserve their natural heritage.  We were in vast conservancies where there is a great deal of focus on protecting both the landscape and the animals.  Both of the safari companies that we used also are committed to supporting these efforts and employing a very high percentage of people from local communities as well as funding development and philanthropic projects.

 

Tourism is a major factor in the economies of both countries.  It became obvious to me in talking to the people I met at the lodges and hotels that the tourism sector dominates the non-agricultural labor market.  Many, if not most, of them had studied tourism and hospitality in either universities or technical schools.  They lamented the fact that employment outside of the tourism industry was very difficult to obtain and that other industries were not growing apace.

 

Interestingly, in many African countries, remittances from the diaspora are a major part of the economy, averaging 6% of the continent’s GDP and surpassing foreign investment and development assistance.  Though helpful in the short term, this flow of money from successful expatriates is evidence of the loss of valuable resources from these countries.  Developed countries take the best and brightest, luring them with university fellowships and other economic opportunity.  This is a high price to pay for these remittances and cannot be seen as anything but a further exploitation of these countries by their former colonial masters, only partially compensated by the inflow of funds.

 

It seems that Africa is highly dependent on both tourism and extractive industries – mining and oil. Agriculture is also very important, accounting for 30-40% of the continent’s GDP and employing over half the workforce.  Unfortunately, agriculture is highly dependent on manual labor and thus the productivity and wages are low.  This is beginning to change but will take time to significantly impact production and profitability.

 

As in most developing economies, much of the profit is repatriated to the international companies that have invested in Africa or exist due to the legacy of colonialism.  And the remaining profit is often embezzled by corrupt leadership rather than reinvested or shared with the general populace.  None of the people I interacted with had anything good to say about their governments.

 

On the positive side, I was highly impressed by the education, the energy and the incredible warmth of the Africans I met in Tanzania and Kenya, and Karen is finding the same is true for the Ugandans.  If this small data set is any indication of the human potential of Africa, then one must be optimistic about the long-term future.  The legacy of colonialism still has a negative impact in many areas, but the potential of these people will manifest itself soon, I feel certain.  In the meantime, I will research ways to help financially through organizations that empower local action rather than the same Poverty Inc NGOs and missions.

 

 

Do the Rich Fuel the Economy?

Here is a simple, but I believe reasonably accurate rebuttal of the argument that cutting taxes for the wealthy is good for the economy.  

It is estimated by numerous sources that the wealthy spend about 1/3 of their income and ‘save’ the other 2/3.  The middle and lower classes, on the other hand, spend a much higher percentage of their income.  It is estimated by the LendingClub report that 52-64% of consumers live paycheck to paycheck, spending all of their income.  Moreover, the average personal savings rate, defined as the percentage of disposable income saved, is a meager 3 to 4 percent.

One might think that the rich save a greater percentage of their income because they are paragons of financial virtue, but I doubt that.  I think it is more likely that they simply cannot spend fast enough to get through more than a third of what they earn.  Their income is a combination of wages and investment income, and the old adage 'the rich get richer and the poor get poorer' applies.  The wealthy experience an embarrassment of riches, and even though their spending becomes ever more expansive, the majority of them cannot outspend their ever-increasing income.

 

The top 10% of wage earners apparently account for 50% of consumer spending.  However, that does not mean that decreasing taxes to the rich will benefit the consumer economy (which is about 70% of the GDP) more than decreasing taxes for other groups.  On the contrary, a tax dollar given back to the wealthy will only increase spending by 33 cents, but if allocated either to government projects (infrastructure, etc.) or to the middle or lower classes, it will increase spending by almost the full dollar.

 

It seems perfectly logical that if you want to increase consumer spending, which is the heart of the economy, then it is more effective to allocate funds to lower income citizens.  Similarly, if you want to reduce the deficit, then it would be better to increase taxes for the wealthy, as that would have less of a negative impact on spending.

Conservatives would protest that this does not consider the impact of investment that the wealthy make with the other 2/3 of their income.  But I would argue that there is plenty of wealth out there already for true investment in new companies or innovation.  Most of the so-called investing that the wealthy do on an annual basis is in the stock and bond markets, hedge funds, real estate and other investment vehicles that serves merely to increase asset prices.  

Industry grows due to demand.  Investment in businesses is only effective if the demand for products and services is there.  Putting money in peoples pockets creates demand, and the non-rich spend a lot more of their pocket money than the rich.

 

Critics will argue that taxing the rich is a form of class warfare and is driven by class envy, and that it will damage the economy.  But as Jesus said:  “The rich will always be with you” (oops, maybe that was the poor?). There is no danger of the rich ever disappearing.  But a healthy economy and society are more likely if there is a less absurd disparity between the rich and the rest of the world.