Wealth Secrets, three years on

“I do not understand what this book is supposed to be,” said the New York Times, in its review. Neither did my publishers, placing a book about income inequality in the self-help section of bookshops. And, to be fair, I was soon at a loss myself, even though I wrote it. I intended the book as satire, which the Telegraph reporter who came to interview me during a layover in Amsterdam clearly understood. But in his writeup of our interview, he decided to play it straight, and the book’s rather shocking suggestions on how to get rich became a series of chatty tips. “If you can’t beat ‘em, join ‘em,” I thought, and on my personal website, I began pitching the book as a series of rags to riches tales. So what was the book supposed to be? Three years on, that is a lot easier to explain, because a lot of very clever people have started to say similar things, more clearly than I did. At the time I wrote Wealth Secrets, most of the talk about income inequality focused on Thomas Piketty’s insights regarding capital accumulation and inherited wealth. But Wealth Secrets was about another source of inequality: what economists call “rent seeking.” Rent seeking is the pursuit of monopoly profits for monopoly’s sake. While most pursuit of profit tends to enhance the wealth of society, rent seeking is unproductive, detracting from economic progress. Wealth Secrets attributed much of the recent growth in inequality in the US and UK to rent seeking, particularly in the financial and technology sectors – and more broadly, argued that many of...

Two decades of geopolitical analysis

[UPDATED JULY 2018] I’ve been employed to analyze geopolitics and the world economy for about twenty years now, which means, alarmingly, I’ve got a track record. (Most of my publicly-available articles are now posted on this blog.) What did I get wrong, and what did I get right? The worst calls 1. Turkey My worst call has been Turkey. In a 2004 editorial, I contended that Turkey was on the path traveled by so many Eastern European states: convergence with Western Europe. I even invested in Turkey, I was so sure of this call. To be fair to myself, the problem arguably wasn’t with Turkey: to my surprise, the EU got cold feet. But even after that I doubled down on Turkey with another article predicting a turnaround. This is an example of what Daniel Kahneman would call irrational decision-making based on “loss aversion.” C’mon Turkey! This is your year! 2. China Starting with my 2003 book The Kimchi Matters, co-authored with Marvin Zonis and Dan Lefkovitz, I’ve continually been predicting trouble in China. But, China just keeps on booming. I did get some things right: in a 2004 editorial, I predicted that China would get into trouble by stimulating its economy too much if it faced a downturn. That is indeed what happened during the 2007-8 global slowdown, and China now faces a severe debt problem as a result. So I doubled down on this prediction as well. But there’s no denying that, blithely disregarding my sniping from the sidelines, China is still booming today. Good for you, China. The best calls 1. Venezuela In 2004, I wrote an...

Technology, the bad governance solution (or: why Nigerians love their smartphones)

Nigeria recently announced a statistical revision that at a stroke nearly doubled the size of the country’s economy. The International Monetary Fund, after careful review, endorsed the revised estimate as accurate. That said, there was some statistical trickery involved. Nigeria had failed to update the base year for its GDP estimates since 1990, which had the effect of making entire sectors of the Nigerian economy disappear from official statistics. This may have been an oversight, but probably wasn’t. For countries soliciting foreign aid, appearing to be very poor is useful. By contrast, for countries soliciting foreign investment, appearing to be rich is useful. And indeed, shortly after the revision, Nigeria raised $1 billion in a sovereign bond issuance, despite a Standard & Poor’s rating downgrade. Indeed, the bond issue was oversubscribed, as investors rushed into what is now (following the revision) Africa’s largest economy. The understatement of Nigerian wealth is one reason that the big international telecoms companies decided not to bid when Nigerian mobile phone licenses were put up for auction in 2001. As a happy result, Africa has some thriving mobile telecoms companies and entrepreneurs, notably South Africa’s MTN and the Sudanese telecoms billionaire Mo Ibrahim. Actually, the understatement of Nigerian wealth is only part of the reason for this strategic miscalculation. What international telecommunications companies also did not understand is just how badly Nigerians wanted mobile phones. Consider the following graph, taken from the Upstream/YouGov 2013 Emerging Market Mobile Attitudes Report: Strikingly, an overwhelming majority of Nigerian respondents envisioned using smartphones for activities beyond talking and texting. Even more strikingly, the top choice of content that Nigerian...