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An amazing Kenyan innovation

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It takes me quite a bit of effort to start reading an e-book, but yesterday I read [amazon_link id=”B007FPP7NI” target=”_blank” ]Money, Real Quick[/amazon_link] by Tonny Omwansa and Nicholas Sullivan, and  am very glad I overcame my reluctance. It’s a great overview of the M-PESA phenomenon. It sets out very clearly the reasons the mobile transactions scheme has been such a phenomenal success, the kind of amazing effects it is having on Kenya and the other countries where it’s now been launched, and also the challenges facing the service as it grows. I highly recommend this for anyone interested in either the specifics of mobile transactions or broader issues of economic development.

As the book says, “E-money is flying around the country, over the heads of lions and elephants.” Kenya, like other low income countries, is a cash-based economy. This presents special problems for poor people. They are highly vulnerable to theft, can’t save easily – banks and ATMs are few in number and too expensive for small transactions. There are problems I’d never thought of – rats eating notes stashed under a mattress; the temptation of bars passed on the way home with a bit of cash in hand. M-PESA has changed all that. It had 8 million subscribers by the end of 2009 and 15 million – nearly 70% of the adult population – by the start of 2012. Although 60% of Kenya’s electronic transactions are through M-PESA, they account for only 2.5% of the total value, and the balance in all M-PESA accounts combined is just 0.2% of total bank deposits. The system generates millions of very small transactions. It is, as the book says, “A financial tool for the masses.”

This is amazing. Exclusion from formal financial services is one of the barriers keeping people in poverty – they can’t save, can’t keep money securely, have to spend a lot of time and risk a lot of money in making transactions. (See one of the best books on this, [amazon_link id=”0691148198″ target=”_blank” ]Portfolios of the Poor.[/amazon_link]) The authors of Money, Real Quick write: “Maybe the formal financial sector will never provide what the poor need; maybe they will craft their own quasi-formal, technology-based, shadow banking system.”

The book describes some of the effects of M-PESA in expanding people’s opportunities. There is a living to be made as an agent for the scheme. Small businesses are able to develop a financial track record that qualifies them for loans or working capital. Farmers can pay into a savings scheme to acquire specific types of irrigation equipment. There is even a scheme allowing people in Kibera, the notorious slum, to invest in the stock market via a mutual fund. There is an M-PESA based pension scheme. It is hard to be sure how far the effects of M-PESA reach, but the book suggests they go quite a long way to explaining the economy’s recent success and the burst of innovation and entrepreneurship around Nairobi and other cities.

There are some challenges. The banks were, unsurprisingly, alarmed although the Kenyan authorities seem to have responded to their lobbying with a robust evidence-based assessment, and dismissed the claim that M-PESA had an unfair advantage. But its operator, Safaricom, has a very high market share and there are competition issues – other entrants are now active in the market. This includes other big multinationals. A deeper challenge is the question of what will move low income countries beyond cash – and whether m-transactions schemes can work as well in other countries.

I worked on a report on mobile transactions in general commissioned by Vodafone at the time of M-PESA’s commercial launch, The Transformational Potential of M-Transactions – it can be downloaded here (scroll all the way down to Paper number 6) and I think is still a good overview of the challenges and potential. Dave Birch of Consult Hyperion was involved in the early days too. Money, real quick, is another area of mobile where an important business model innovation has come from Africa (the first and most important was the idea of pre-paid cards). Kenya is way ahead of the UK and US here. The story is an amazing one, well worth reading if you don’t know it.

[amazon_image id=”B007FPP7NI” link=”true” target=”_blank” size=”medium” ]Money, Real Quick: The story of M-PESA (Guardian Shorts)[/amazon_image]

Who is responsible for the Greek debt crisis?

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The headlines are full of Greek politics – will the country opt out of the austerity/bailout/Euro package or not? It seems the rest of the Eurozone is presenting the issue as an ultimatum.

It set me to wondering why there hasn’t been more discussion about exactly what the terms of the bailout cover, and why. Because it was a shock to learn – via Paul Seabright’s recent Princeton in Europe lecture – that by 2008 Greece had become the world’s fifth biggest arms importer (pdf), and the second and third biggest customer for German and French arms exporters respectively, presumably in deals financed by German and French banks. Even in 2011, Greece’s defence spending amounted to 3.2% of GDP, the highest in Europe as a share of GDP,  and $1230 per Greek citizen.

(Parochial note – the UK is the world’s 5th biggest arms exporter, Europe’s 3rd behind France and Germany, and our biggest customers by 2008 were the US, India and Chile.)

Stopping the purchases would make a handy dent in the 9% of GDP budget deficit. So surely would ending interest payments – even defaulting – on those loans that financed the earlier arms build-up. If German and French banks were encouraged to extend them by their governments for geopolitical reasons, then those governments should take responsibility and face their own taxpayers, rather than placing the whole burden on Greek taxpayers.

This obviously isn’t the whole story. After all, not that many Greeks are taxpayers (only just over half, it seems), so there is definitely a need for Greece to face up to its own responsibilities too. But I find it odd that the story about Greece’s astonishing military build-up isn’t better known. All I could find is one Guardian article that mentioned it.

The data source is the highly-regarded [amazon_link id=”0199695520″ target=”_blank” ]SIPRI Yearbook[/amazon_link]. This is one of the shadowy areas of the global economy that economists don’t discuss enough, along with the outright illegal economy – as I touched on at the weekend with a little rant about the vampire cephalopods of the global economy.

[amazon_image id=”0199695520″ link=”true” target=”_blank” size=”medium” ]SIPRI Yearbook 2011: Armaments, Disarmament and International Security (SIPRI Yearbook Series)[/amazon_image]

A fishy tale of monopoly power

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There’s a fascinating article in The Washington Monthly about a kind of fish, the menhaden. The stocks are in precipitous decline, and as the fish is at the bottom of the food chain, other fish and birds are dying as a result, and the coastal waters near the shore are becoming increasingly covered in algae. Author Alison Fairbrother writes:

“Pound for pound, more menhaden are pulled from the sea than any other fish species in the continental United States, and 80 percent of the menhaden netted from the Atlantic are the property of a single company.”

The fish are used for feed pellets, cosmetics, fertilizer and many other products, including now Omega-3 fish oil for foods, so they are factory-fished. The business is more or less a monopoly – the company fishing menhaden out of the Atlantic is Omega Protein, coincidentally a significant donor to political campaigns.

The menhaden story isn’t new to me. In 2007 I read a marvellous and terrifying book about their decline, [amazon_link id=”1597265071″ target=”_blank” ]The Most Important Fish in the Sea[/amazon_link] by H Bruce Franklin.

 [amazon_image id=”1597265071″ link=”true” target=”_blank” size=”medium” ]The Most Important Fish in the Sea: Menhaden and America[/amazon_image]

Omega Protein is a renamed and merged corporate descendant of Zapata Oil, founded in 1952 by the future President George H.W. Bush – conspiracy theory material about it abounds. Omega Protein’s website mentions just a little about conservation of the fish stocks in its sustainability section. It claims:

“STATEMENT: Both the Atlantic and Gulf menhaden populations are overfished.
FICTON: Though this statement is often heard, it is not true. Both the Atlantic and Gulf menhaden are subject to regular stock assessments (a method to estimate the status of the population) conducted by the National Marine Fisheries Service. The most recent assessments (2010 for the Atlantic and 2006 for the Gulf) show that menhaden are not overfished and overfishing is not occurring.”

The Washington Monthly article is about exactly these official stock assessments – it’s well worth a read, as is the book.

Just like the banking industry, the story is one of how monopoly always subverts effective regulation (market power always turns into political political power); competition is important for multiple reasons. It’s also always illuminating to see how complex the modern economy is. One of the zillions of components of everyday products turns out to be an unimpressive fish you’ve never heard of.

Most importantly, with menhaden, as with other resources, having accurate data on the stocks is essential to make sure we are using enough – but not too much – to improve our own prosperity and leave at least as much for the next generation.

You probably haven't heard of the menhaden

In the tentacles of vampire cephalopods

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The next book I read is going to be Grigory Yavlinsky’s [amazon_link id=”0300159102″ target=”_blank” ]realeconomik: The Hidden Cause of the Great Recession[/amazon_link]. On paging through, it’s apparent that the book is about the moral and social norms then permit the market economy to function well – and their breakdown as a major contributory factor to the crisis. I’m sure I’ll agree – it was a big theme of [amazon_link id=”0691145180″ target=”_blank” ]The Economics of Enough[/amazon_link] (out soon in Italian by the way as Economia dell’abbastanza). Yavlinksy – an architect of Russia’s transition to a market economy –  ends with a call for a restoration of moral principles in politics and the implementation of public policy.

If only it were as easy as the kind of people who go into politics deciding they have to act in the public interest. That’s a good start, obviously. However, the book has just one sentence that touches on oligarchy and doesn’t mention the illegal economy at all. New estimates suggest the shadow economy ranges in size from 18% of GDP on average in the EU to 40% in Sub-Saharan Africa, 35% in the post-socialist economies. That’s £1 in every £5 or £3 respectively generated outside the law and the tax system. Activity on this huge scale must be facilitated by both the banking system and by law enforcement turning a blind eye.

And then there are the legal ‘vampire squids’, to apply [amazon_link id=”B003F3FJS2″ target=”_blank” ]Matt Taibbi’s[/amazon_link] brilliant image to the still-in-denial banking industry. The world economy is ententacled by vampire cephalopods, whether operating inside or outside the law. Of course social norms must change, but I fear that won’t be enough.

[amazon_image id=”0300159102″ link=”true” target=”_blank” size=”medium” ]Realeconomik: The Hidden Cause of the Great Recession (and How to Avert the Next One)[/amazon_image]

A cure for economic catastrophe and sore feet

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I’m feeling glum because I’ve hurt my foot – this is a bad thing, as I dance, a lot. So I reached for some comfort reading this morning, and picked up an old favourite, [amazon_link id=”069112292X” target=”_blank” ]A Century in Books[/amazon_link], a 2005 celebration of the centenary of Princeton University Press. It picks a book a year to describe in a page or so, illustrating both the intellectual contribution and the range of titles published over the years (I should add, this is my publisher so I may be biased). Just leafing through it makes one feel better educated, even as a dabbler in the great world of scholarship.

[amazon_image id=”069112292X” link=”true” target=”_blank” size=”medium” ]A Century in Books: Princeton University Press 1905-2005[/amazon_image]

Today I turned to the description of 1945’s [amazon_link id=”0140124993″ target=”_blank” ]How To Solve It: A New Aspect of Mathematical Method[/amazon_link] by George Polya. Apparently it shows how to use the mathematical method to tackle non-mathematical problems, and has never been out of print. I like his advice: “In order to solve this differential equation, you look at it until a solution occurs to you.” Sounds like it would indeed be applicable in many contexts.

[amazon_image id=”0691023565″ link=”true” target=”_blank” size=”medium” ]How to Solve It: A New Aspect of Mathematical Method (Princeton Paperbacks, No. 246)[/amazon_image]

Another one that found me was on [amazon_link id=”B0049N1H3S” target=”_blank” ]The Edge of Objectivity: An Essay in the History of Scientific Ideas[/amazon_link] by Charles Coulston Gillespie, a 1960 volume on the history of science. It seems the author argues that science is the ‘progressive development of more objective, detached, mathematical ways of viewing the world.’

I wonder what he would have made of this interesting article on the tyranny of narratives? In discussion on Twitter yesterday, I think we concluded that one could try to stand outside a specific narrative but it would require empathy rather than reason.

Anyway, peering at the economic and political catastrophe out there in the world, I’ll stay inside the tower of books, at least until my foot gets better.