This guest article was written by William Laraque who is the Managing Director of US-International Trade Services.
Africa and Technological Myths
One of the great myths repeated at Davos recently is what I term the African pole vault. Because Africa was able to leap to cell phones, it is forecasted that it is just a matter of time before the continent embraces all other forms of technological progress. Kenya has adopted M-Pesa and M-Kopa and so it is assumed that soon, just as cell phone use spreads throughout Africa, so will other forms of Fintech, e-commerce, technological wonders. These economic prognostications remind me of John Kenneth Galbraith who wrote that “the function of economic forecasting is to make astrology look respectable.”
As we have seen with the U.S. sponsored Power Africa program, the continent is filled with tyrants, corruption and misconceptions about the need for democracy as an essential precursor to economic progress. Furthermore such absurdities as Nigeria, a country with enormous oil reserves, having frequent blackouts, exist.
China, through its Resources for Infrastructure Investment (R4I) program, provided most of the money to develop African infrastructure. There was no need on the part of African rulers to adopt democracy as a political system or the free-market economy as a model. Now that Chinese economic growth is moderating, it will be interesting to see how this changes African attitudes toward democracy and free-market economics.
Political and Economic Corruption
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Essential to our discussion is the understanding of the difference between political and economic corruption. Much on display in the world, tyranny, despotism and plutocracy are examples of political corruption. Also prevalent are many examples of economic corruption, such as monopoly, oligopoly and oligarchy. Some political systems are harder to define because they bridge the expanse between the political and the economic. These are called plutocracies.
Inversions, Subversions and other Versions
Last night, I heard Jeff Inmelt, the Chairman of GE, say that the US should adapt Simpson-Bowles and fix the U.S. tax code which presently admits inversions and other perversions. Google, Pfizer-Allergan and a number of other deals recently display the growing dysfunction of the U.S. tax code.
Plutocracy and Taxes
The great misconception about the U.S. being declared a plutocracy by Princeton University and others, is that this is a purely political term. It is not commonly understood that plutocracy is an economic term and has an economic impact because of tax policy. Regrettably, the notion that the U.S. is a democracy is flawed. The U.S. is at best a plutocracy whose culture favors the buying of politicians who make policy. According to Jared Bernstein*, “there is this notion that the wealthy use their money to buy politicians; more accurately, it’s that they can buy policy, and specifically, tax policy.”
* Member of the Center on Budget and Policy Priorities.