In a few years from now, cash may no longer exist. Instead, we might be using microchips in our hands which will communicate with a digital currency system. As humans, we want things (and processes) to become more uncomplicated. That is how we measure progress.
Right now, technology facilitates economic activity but may soon supersede the need for faulty monetary policies (by creating more efficient economies) in the long run. Robert Solow was right all along. Despite this, we still use archaic paper currencies. This form of legal tender, however, in a decade or sooner, might be replaced by another official means of exchange of many nations – or at least be in heavy use.
Society needs a safer, easy-to-use means of exchange and incidentally, as you read this, digital currencies are being designed and studied at Universities and information technology ‘thinktank’ companies the world over.
It would require a monumental shift in thinking for people to stop using cash at all. At a human level, it seems simple. Paper money is (literally and figuratively speaking), dirty and it takes up space. It’s also possible for cash to cause stress as when you have it – you have a target on your back.
So, what could replace cash?
Central Bank Digital Currencies (CBDCs) are currently in hypothetical planning stages with some countries conducting proof of concept programmes. CBDCs are a means of monetary exchange (by a Central Bank) that exist in a digital state on a server in a cloud.
The idea of using a CBDC was prompted by the emergence and prevalence of Bitcoin and other cryptocurrencies. Believers in the mass use of CBDCs want the world to use less cash. They believe people are safer if they do not have money at hand, which can be stolen, and that commerce can be more efficient in a cashless society.
We could say that the history of money is a story of its gradual dematerialization from tangible objects to intangible computer code. Programming code is written for and used to facilitate many facets of our lives, so why not with money?
An ETA is sooner than you think
Over time, what has been used as money has changed, starting from trading large objects which were seen as a basic store of value. Gradually people started shrinking those objects into paper and then turning paper (IOUs) into a special paper. Later, they formalized the process by setting up a financial system to support it – Lo and Behold – the adoption and use of cash was borne.
Some progressive nations have shown genuine and committed interest in testing the viability of CBDCs. Seven Central Banks in October issued a statement in which they said they were studying common principles and salient features needed for a viable CBDC.
The Central Banks in Canada, Britain, the European Union, Japan, Switzerland, Sweden, and the United States now believe there is a threat that private digital currencies pose to the control of monetary policy.
More specifically, they are also competing with China, who they purposefully excluded from their group. They plan to have a viable digital currency system to prevent a case in which China gets the first-mover advantage.
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Advantages of CBDCs
We want to create a more efficient payment system. Managing cash can cost money mostly because of securing the safe use of it. We can include more people in a financial system as there is no need for consumers to have a bank account to hold a CBDC.
Safety is, therefore, a huge “positive” to having a cashless society. This is especially in emerging countries where many people still use cash as opposed to cards and electronic transfers (ETFs). Cash is trusted while banks aren’t necessarily trusted at all. Consumers also might not want to pay fees to keep their bank accounts open.
One salient case for a contactless (digital) payment system would is due to the advent of the Covid-19 virus. This has awakened us to the potential emergence and spreading of potential viruses in the future.
CBDC might also make micropayments cheaper which would allow for new services and business models. So, one can enable the efficient sale parts of products and services, such as individual news articles or television series episodes for a few cents rather than relying on subscription models.
A CBDC may also reduce friction between payment systems and increase the speed of transactions while ensuring their finality. This can be achieved by achieving delivery versus payment in securities transactions.
Interest-bearing retail CBDC might boost monetary policy efficiency. CBDC can provide a Central Bank with an additional financial instrument – the rate of interest it carries. CBDCs would provide competition to stable coin exchanges such as Bitcoin and Facebook’s Libra.
Issues with digital currencies & CBDCs
Cryptocurrencies currently exhibit huge swings in value (volatility) as people use them as a speculative asset. This could change if they were somehow monitored and administered by Central Banks.
The disintermediation of commercial banks would occur if consumers move money from bank accounts into CBDC. This could start a vicious cycle as banks raise deposit rates to attract more money and less bank credit will be extended at these higher interest rates.
A Central Bank could need to provide additional liquidity to banks and hence take on credit risk. There could be an increased reputational risk for Central Banks. Digital systems need to be protected and the system’s staff monitored.
Many questions remain unanswered
Cross border transactions will also create new paradigms for central banks. There are risks of a type of dollarisation for economies with volatile exchange ranges and high inflation.
‘Dollarization‘ is when a country replaces its currency with the US dollar because the dollar is so stable and widely used. In the foreseeable future countries may then opt to replace paper money with the best (continental) CBDC available – like a digital Euro for the EU.
The future depends on the goals of the CBDC. It would grant the public access to the state’s balance sheet when, right now, cash is the only way for private individuals to hold central bank money. All other types of money holdings are based on centralized/private money creation systems. These are still prone to manipulation and abuse by central banks themselves or their subsidiaries.
Did you know that there are still more than 700 million people in the world who live in extreme poverty? These people must scrimp, starve, and struggle to survive off less than $1.90 per day.
By 2030, the World Bank estimates that more than 90 percent of those people will be concentrated in Sub-Saharan Africa.
This is perhaps one of the greatest developmental failures of the modern world. Despite the continent’s expansive natural resources and increasing connectivity, foreign actors still feel it’s too risky to heavily invest in their markets.
Blockchain could be the key!
Bitcoin and “Blockchain” were created in the mass wave of distrust in banks after the 2008 financial crisis. Therefore, the technology enables individual, distributed data storage that could become the perfect evidence (trust) base and financial infrastructure for a developing country.
With the right implementation, Blockchain holds the potential to completely revolutionize and revitalize such economies, especially in Sub-Saharan Africa.
So, what is this Blockchain?
Blockchain is essentially a kind of decentralized database that allows you to have a safe, secure way to handle their data without the need for third parties.
For example, you could with Bitcoin, make or accept payments in real-time without needing a centralized bank.
“[It is] a way for one Internet user to transfer a unique piece of digital property to another Internet user, such that the transfer is guaranteed to be safe and secure, everyone knows that the transfer has taken place, and nobody can challenge the legitimacy of the transfer,” said software entrepreneur Marc Andreessen.
“The consequences of this breakthrough are hard to overstate.”
Historic background
Until the mid-twentieth century, most of Africa was ruled under a colonial system meant to exploit the people and their natural resources for European benefit. Africans, in addition, were rushed into development according to European standards rather than homegrown ones.
The legacy of rapid development, distrust and corruption left behind an economic system failing to recover in the 21st century.
While the World Bank celebrates a decrease in global poverty levels, the number is expected to remain stagnant in Africa. Today’s poorest people are living in places with the least economic growth.
Sadly enough, poverty and lack of investment in many developing countries stem from how they were integrated into the world system.
The land was cut into countries according to European treaties and agreements, rather than by traditional and tribal land divisions. This situation worsened upon the handover of colonial power to so-called “democracies.” Power often shifted to the ethnic groups that former colonizers favoured.
Corruption multiplied in the form of bribes, political persecution, rigged elections, and a massive wealth gap. All of this still affects the wealth distribution and investment potentials of many developing countries.
Of course, this created a lack of trust in banks and government throughout much of Sub-Saharan Africa.
The perfect fit for Africa
During a 2012 study conducted in rural Western Kenya, Stanford University researchers waived the costs of opening basic savings accounts for a number of unbanked individuals.
While 63 percent of the subjects opened an account, only 18 percent of them used the accounts. This was likely due to three factors: a lack of trust in banks, unreliable service and prohibitive withdrawal fees.
Unfortunately, the prevalence of unbanked individuals in the informal sectors scares off foreign investors, who heavily rely on transactional evidence to make investments. Otherwise, pouring money into markets is too risky. That’s where Blockchain comes in.
How would it work?
Blockchain can host an entire evidence base of transactions, loan repayments, and asset titles. The technology is also decentralized and requires individual confirmation, creating an element of trust and transparency beyond traditional banking systems.
According to Victor Olorunfemi, Director of Products for Pan-African tech and crypto-exchange, KuBitX, Blockchain’s major benefits lie in “frictionless P2P and cross-border payments, transparent elections, land registry management [and] transparent crowdfunding.”
Let’s look at some of the different ways Blockchain could benefit developing economies, especially in Sub-Saharan Africa.
1. Creating financial infrastructure and accountability
According to a study by the Milken Institute, viable financial markets require consistent, accurate data on assets and credit histories. Luckily, Blockchain may fulfil these needs.
The use of Smart Contracts technology is ideal in areas lacking accountability, such as the real estate or land/agricultural sectors. In Africa, a lack of record-keeping practices often leads to “missing” or non-existent title deeds. In some cases, this is intentional.
Title deeds “go missing,” only to end up in the hands of benefactors other than the rightful owners. Smart Contracts could eradicate these issues through the use of special tokens that cannot be duplicated, changed or removed. See the article on tokenization.
Likewise, Bitland, a company in Ghana, currently helps individuals record deeds and land surveys. By resolving land disputes, Bitland creates more stability while accurately recording land asset data.
“There’s a massive number of people in the informal sector, but there’s not much data being collected on them right now.”
Merit Webster, co-president of the MIT Sloan Africa Business Club.
“That means you don’t have that credit history or payment history for them. If you have a decentralized approach to collecting data, you end up with more malleable data. [This] is very valuable for creating credit histories.” The agricultural industry also has the potential to thrive using Blockchain.
“Blockchain could be used to track goods around the world. This allows farmers to earn a fair wage for their goods.”
Also, farmers could use record-keeping technology to streamline the supply chain and document resources. This would lead to better efficiency, lower transactional costs, and improved logistics.
2. Security in banking
According to the World Bank, there were 1.7 billion people with no bank account in 2017. This situation is worst in developing countries, especially African ones. For example, over 62 million of these people lived in Nigeria.
Besides, data from Google Trends reveal that Lagos, one of Nigeria’s biggest cities, ranks globally as the number one city based on the volume of online searches for Bitcoin (BTC). Clearly, for the city’s 21 million-odd people, there an immense interest in some form of an accessible payment system.
Of course, it’s unrealistic to expect bank branches to magically appear in every remote corner of the world. However, a digital database using Blockchain technologies has the potential to reach far beyond physical banks.
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Many Africans value trust and transparency. In developing countries, this lack of trust goes beyond the Internet. Developing countries with less industrialization tend to have higher levels of corruption.
This reduces national investment opportunities in the public sector and instills a lack of trust in centralized oligarchs handling an international investment.
Because its power lies within the community of users, Blockchain can combat these trust issues. All data logs and amendments must pass through this community and identification confirmation tests.
Blockchain technology also secures your data incredibly. Hacking and data breaches are all too common nowadays. In 2017, for example, around 3 billion Yahoo user accounts were stolen.
When information is stored in the same place, hackers have one, easy target. In contrast, Blockchain is a distributed entity. This dissemination of data leaves it far less vulnerable to cyberattacks.
3. Fostering Entrepreneurship
Coupled with the Internet, Blockchain technology could be the perfect platform for aspiring African developers. Because the ‘source code’ is free of charge, skilled coders can adapt, create, and configure special applications, called DApps.
These are available on Crypto platforms and provided by companies like Ethereum, and a South African firm specializing in what they called the Keto-Coin.
Rather than waiting for governments to drag their feet trying to create jobs—individuals on the continent can form small firms that build and sell Crypto-based Apps locally or abroad.
“Despite the frictions and impediments mentioned,” said Olorunfemi. “Blockchain can still provide an avenue for promising African tech projects to access capital (FDI) via token offerings on digital assets exchanges.”
Many courses are even readily available online to quickly learn about new technology. Microsoft, for instance, offers a platform via Azure for you to build and learn about the Blockchain.
One-man shops in countries with unfavourable economic systems, like Zimbabwe, can also adopt smaller, stable, Cryptocurrencies to facilitate or payments. In cases of rampant inflation, they can temporarily act as a store of value or help you pay for things until your currency stabilizes.
As with the Venezuelan hyperinflation case study, Cryptocurrency intervention could help many developing countries troubled with economic instability.
There is also the option of Crypto-mining. But before you pull out the ‘high-consumption energy’ argument – think outside the box for a moment. What about energy sources that are free and available nearly 24/7? Like water and the sun!
The African continent is full of capable scientists and mechanical engineers. One could build special solar-powered energy centers to power Bitcoin-mining.
And without the expertise, governments or private companies could alternatively just invite Crypto companies with abundant financial resources to mine (cleanly) for a special tax/fee while creating jobs for the locals.
4. Elections
In addition to the financial side of things, Blockchain technology could help eliminate some forms of corruption. For example, many African countries’ elections are incredibly vulnerable to the social scourge. In some extreme cases, some officials change or forge written ballot votes to rig elections.
To combat this, Blockchain databases could record votes. This makes it nearly impossible to tamper with using Smart Contract technology. Having fair elections improves infrastructure, which then increases development and economic dependability.
While some might see Africa’s economy as underdeveloped, others might see it as a blank canvas well-suited for a large-scale implementation of Blockchain. Economic and governmental systems are shifting and slightly shaky in many Sub-Saharan African nations.
The challenge is to foster a rigid economic system to implement Blockchain.
Don’t just take our word for it—African nations have often implemented new, practical technologies before the Western world. Let’s look at the example of M-Pesa. Back in 2014, Americans and Europeans were amazed by Apple Pay’s launch.
However, this mobile payment system wasn’t exactly “new.” By that time, Kenyans had used M-Pesa, a very similar technology, for years.
“There’s a lot of opportunity to leapfrog the way the West developed and have these more unique African solutions, but it needs to come from within,” said Webster.
“It needs to come from entrepreneurs in the continent who want to implement these solutions. It’s important to engage people very early on. Systems incubated in the West don’t stand as great of a chance to work as African ones do.”
Concluding remarks
With the possibility of an experimental, large-scale takeover of Blockchain technology to improve African infrastructure, the nations there could leapfrog in development and growth.
This must begin internally. According to Olorunfemi, “Education—of policymakers and other stakeholders—which is often ignored has to be a critical factor in paving the way for the acceptance and adoption of new technologies and the accompanying investment.”
The results in Sub-Saharan African countries could help eliminate much of the world’s poverty. It would also remove remnants of mistrust and corruption left behind by the days of colonial exploitation.
While there are some obstacles to large-scale Blockchain implementation, we can’t think of a better benefactor than there. The possibilities for business using the Blockchain are endless!
To learn more about how to get started with Cryptocurrency mining or purchasing, visit our resources page for useful links and guides.
Additional input by Bobby Quarshie (BQ).
Citations: Christopher Lee and Jackson Mueller.
Swan, Melanie. “Anticipating the Economic Benefits of Blockchain.” Technology Innovation Management Review 7.10. Oct. 2017.
Bitcoin Lessons from Venezuela, Where Hyperinflation Reigns. Online Source: https://www.lathropgage.com/newsletter-237.html
You don’t have to be an online arsonist, hacker, or international cyber-terrorist to hide your online identity. Likewise, concealing your PC’s web address or your Internet Protocol address (IP address), making it unknown to the public, does not necessarily mean you are up to no good online.
We will, therefore, build a case for why it is important at times to conceal your private online location using VPNs (Virtual Private Networks).
A VPN is a connection method used to add security and privacy to your private and public networks. This includes your Wi-fi Hotspots and access to the Internet. They are most often used by corporations to protect sensitive data but now also by people like yourselves for the same purpose.
Let’s get back to the importance of your IP address. It is probably something you rarely think about but is crucial to your online lifestyle even as an individual. How so? You might still ask.
Well, without an IP address, you wouldn’t be able to get the current weather, check the latest news, or view videos (streaming) online for instance.
The uses of VPNs
Your IP is also used to access every online service you partake in including very private things like your internet/mobile banking or online trading activity. Think of it as your physical address and how important it is when getting things delivered by post or using it when you need to make applications for loans, jobs, etc.
“Without a public IP address, online service providers like Netflix, BBC, or Amazon wouldn’t know where to send the information you asked for. They wouldn’t be able to get it to your computer.”
Now the argument for whether using VPNs is illegal is highly debatable for some of the valid reasons highlighted above. It should, however, be a given right to be able to use it. And even though it is commonly used by cyber-thugs to mask their clandestine and often dark activities, it should not be outlawed altogether.
The case for VPN
The legitimacy of VPNs debate, therefore, carries on into a grey area. We will, however, investigate a few VPN providers that are ‘paid for services’ and even offered by established companies such as AVG(which primarily offers Antivirus protection).
The directive is to help the everyday consumer surf the web without ‘virtual’ salespeople bombarding them with offers based on personal information gathered in an ‘unsolicited’ manner.
Policies like the European-based GDPR law were put in place to protect consumers from the non-consensus use of their data. Even your Internet Service Providers (ISPs) can track your online activities via your IP and sell your browsing habits.
Some forward-thinking people and companies, however, have long been shielding themselves manually using VPNs.
One direct benefit for you as a consumer is the ability to access content (information, products, and services) from different servers. A good VPN service can enable you to obtain access to other geo-locational content despite being on a different continent.
It is perfectly legal provided you are paying for the service. The burden falls on the provider of the service and not you if it came down to a legal “scrap”.
Rationale for using them
If you perform these tasks frequently, you need a VPN:
Hide your IP address (to enable anonymity from marketers and hackers)
Change your IP address (to avoid identity theft)
Encrypt data transfers (private and financial data)
Mask your location (to access other services)
Access blocked websites
A word of caution when navigating websites blocked by governments with a VPN. Unless you are a high-profile journalist working on a case and backed by good legal aid – it’s not a wise thing to do. Do some research if you are not sure because accessing such sites could land you in some hot water. Rather use a known privacy service like Tor to ensure full anonymity to gain access to restricted sites if you really must.
Top Virtual Private Network Protocols
VPN protocols and available security features are numerous. The most common (best) protocols are: ExpressVPN – the acclaimed best offshore VPN for privacy and unblocking. IPVanish – great for P2P and Torrenting. VyprVPN – the best choice for those looking for security. NordVPN – security is its middle name. TunnelBear – dubbed the easiest VPN to use. Windscribe – a VPN which gives you unlimited connections. Hotspot Shield – an awesome solution for online browsing. KeepSolid VPN Unlimited – the jack of all trades of VPNs. CyberGhost – rich clients and ease of reconfiguring. ZenMate – user-friendly VPN that caters to the newbies to VPN. PureVPN – take advantage of easy to use apps and access to many servers.
Picking a VPN service can be a daunting task as there are now literally hundreds of them to choose from. Landing the right one means striking the right balance between what you are offered, the ease of use, and naturally, the price.
Some providers offer free you VPN services while some like AVG charges for their VPN service. Paid VPN providers, however, are preferred to the free service providers as they offer robust gateways, proven security, additional free software, and unmatched speed.
The key is to find the best VPN that meets your immediate needs while matching your budget.
Leadership values are not only confined to the running of a political campaign, party, or country for that matter, however, like in any venture that has an objective and deals with human beings – it forms the backbone of a successful business.
Consequently, what leaders such as CEO of Tesla Elon Musk, for example, say or does, have a positive or, in the recent unfortunate case, a negative impact on the shareholdings of his business.
The share price can decline sharply and worse yet, it can lead to the exit of senior staff members and thus undermining the business, its leadership values, and objectives.
This why it is critical for companies to adopt the right practices and responsible leadership to enable them to address both internal and external issues affecting them.
This is even most relevant when dealing with a company that has a multinational operational facet such as the Murray and Roberts Group – a South African company that operates in a global setting.
This specific multinational company was used in a case study for a research paper because it is firmly entrenched in the construction and engineering industry.
More specifically, they service the global natural resources market sectors of underground mining; Oil & Gas; Power & Energy. Such a diverse set of operations requires a varied set of objectives spearheaded by a solid leadership path.
A new model of leadership
We have covered the topic of Emotional Intelligence before. It now surfaces again within a brand-new leadership model known as the ARCHES model. The name derives from a key characteristic of the physical structure of an arch and its durability.
Coupled with its diversity in models and materials and its depiction as symbols of triumph, it represents an apt analogy of what responsible and effective leadership should be.
The model was especially derived by an academic* for a syndicate group assignment and is based on six key characteristics that should be imparted in a leader.
An effective and responsible leader is one who is attuned to their followers, responsive, possesses the necessary competencies, serves with humility, is ethicaland adopts a sustainable approach to leadership.
A leader who possesses all these attributes is one who can rise above adversity and lead their followers in a way that promotes innovation, motivates, develops skills, promotes personal growth, and encourages improved performance.
B.Moyo
Application of the model
The model defines attuned leadership as the act of being self-aware, informed, and aware of the environment in which you exist – servant leadership.
Employees should be encouraged to take responsibility for their actions because responsibility and effectiveness are complimentary. The demise of US energy company Enron, for example, was due to a failure of management to execute communication-based responsibility, internally and externally.
A volatile, uncertain, complex, and ambiguous environment in which a business operates can result in many potential projects not coming to fruition.
In such an environment, leaders that are attuned, responsive, and possess the right competencies can expert power as their way to influence followers to exhibit the same traits.
Referent power develops out of admiration of another and a desire to be like them. Expert power, on the other hand, is a person’s ability to influence others’ behaviour because of recognized knowledge, skills, or abilities. This requires the leader to have a tolerable level of humility.
This is defined as a personal quality reflecting the willingness to understand the self (identities, strengths, and limitations). That combined with a purpose in the self’s relationship with others.
Once again, the emphasis on Emotional Intelligence coupled with traditional leadership competencies is needed to steer multifaceted companies.
Even more so when dealing with diverse cultures and work ethics across borders and continents.
Direct consequences
Being the largest employer in the locality directly implied that Murray and Roberts had to be consistent with the idiomatic Zulu expression of “Umuntu ngumuntu ngabantu”. This means: I am because you are, you are because we are. Good leadership in the Ubuntu philosophy is based on the engagement with communities and defines a well-led organization.
Not paying attention to ethical issues surrounding a community or the environment can have an adverse effect on your values. This would also affect your staff and the image of the company you steer.
Finally, a practical leader will also consider any upcoming projects with the lens of understanding the environment that surrounds them to incorporate the concept of sustainability.
These traits might sound like they need to be learned but most should be already ingrained or come naturally to you or your leaders.
If not this is not the case, you need to quickly install the right personnel with such to help steer your business enterprise or economy for that matter, to success.
In economic terminology, the term “utility” has not much to do with multifunctionality nor completing specific useful tasks.
It does in context, relate to the level of satisfaction or “completeness” one derives from the consumption of a product or service. For example, there is only so much pizza you can eat before feeling ill from satiety.
On a broader and more macroeconomics spectrum, our utility levels will also help determine how resources are allocated and consumed.
Definition
The concept, a brainchild of Daniel Bernoulli, has so many relevant connotations. As humans, we individually have a maximum biological boundary which when reached, signals absolute satisfaction. This in economic terms is called maximum (total) utility.
Total utility is the complete satisfaction that you can get from consuming all units of a specific item.
Economists are more interested in the changes in levels of utility or what is referred to as the marginal utility.
We will return to its application to the economy.
Applying utility
Incidentally, the utility has no formal unit of measurement – though we coined the term “utils”. These so-called utils equate a number to utility levels in a controlled sample experiment.
Understandably it can be quite a feat to quantify utility as it is based on human behavioural preferences. The closest we got to quantifying such was via the marketing concept of the consumer black box.
As an illustration, the concept can be applied to something as basic as eating a delicious meal.
Depending on how hungry you were, you would derive the highest utility from the first few bites of your meal.
As you progressed and depending on your appetite, each additional fork/ spoon, or handful would provide fewer levels of satisfaction. As you reach your stomach’s capacity (towards satiety) your utility diminishes.
This can be applied to the taste of the meal. It specifically explains why we tend to eat something sweet after a main (savoury) meal.
The appreciation of ice cream when you are starving would diminish quickly as you concentrate on filling up your stomach. This as opposed to enjoying the taste.
When compared to the running of an economy, governments and policymakers can determine which goods and services yield the most utility.
This helps them to consequently direct expenditure to identified priority areas (products/services).
It is a long term concept
Education, for instance, may not provide immediate utility (gratification) for scholars and pupils. However, when appropriately harnessed, could yield higher levels of satisfaction. This is when you enter the job market with better remuneration packages.
Tweaking education curricula, taking into consideration levels of utility to whip up your interest for the good or service. This should, therefore, be a prime focus for legislators.
Inputs such as maximum times you can concentrate and the length of study for a course should be offered without compromising the substance.
Without a doubt, there would be considerations, at a micro-level to assist in enhancing both marginal and total utility in the education sector.
The concept of utility is a lot less ubiquitous as we think and relates to the unsavoury phenomenon of megalomania and why there is greed. When levels of self-gratification diminish quickly, it takes longer for those with lower levels of marginal utility to reach a plateau of pleasure.
Drug addiction, sexual appetites, and fetishes would then kick-in. In such cases, people upgrade the “product or service” that they have already maximized utility in. At that stage, another level of fulfillment would be sought.
The utility applied to finances
It also explains why you lose a lot of money gambling or investing in stocks. The satisfaction of gaining more for a little outlay will often drive you to take more risk until a level of risk aversion kicks in.
High-risk investors “called whales” are now delving into the Crypto market to maximize their utility. They are diverting their funds from property and stocks into digital currencies like Bitcoin and Ethereum.
The saying too much of a good thing is inevitably bad for you applies. It can be countered by diversifying the things that deliver pleasure or satisfaction to you.
This is to ensure that you do not maximize utility on them too quickly and lose interest. Worse case, you end up delving into the dangerous territories of addiction.
Economists need to be relevant, more than ever before. They also need to formulate a means to measure and quantify utility or provide “utils” for at least, the most common goods and services.
With such a strategy, policy-making, product pricing, and the efficient allocation of resources would be more effortless.
The thought of “servers” and “hosting” are rarely things you consider on a daily basis. If you are not an IT or a software architect, then probably not at all.
For the mentioned professionals, however, these decisions are critical to the operations of a business however large or small.
There is a fine line between how (and where) your software systems are used. This line has become thinner because of evolving cloud technology and automation.
Sourcing and deploying the right IT architecture could therefore help your business stay afloat, or sink without.
Communication is key
The most effective mode of communication in any business (other than verbally or telephonically) is still electronic mail (E-mail).
It is effective because it helps you get a time-stamp and a reference point when it comes to the documentation of your conversations. This is important tool when it comes to your legal obligations and commitments.
Emails are, therefore, something that should not be taken for granted! We consequently send, receive emails with attachments through various devices. All this without a second thought as to how this happens.
After all, this is the job of the IT-guys, right?
Well quite rightly so. They often clash with their management and board of directors for funds to keep this going without compromising operations. Emails are crucial not only from a daily functional point of view but from security but also the compliance facet.
Defining servers
Your company’s IT infrastructure: Emails; File-servers; Databases (CRMs and ERPs) and other communication tools are commonly managed on-site on systems referred to as ‘on-premise’ solutions.
These are managed by computer-like CPUs that look like the standard boxes that you plug your monitor and keyboards. They, however, have a lot more processing power and storage than your average desktop and are called Servers.
Your servers naturally must be kept cool because of the heat they generate from being on all the time. As you can imagine, built-in fans are far from being enough to cool them off!
There an array of server types. Each of them is designed to run the tasks of your mail exchanges, file storage, and the storing/deploying of remote PC operating systems. Others handle your databases and other dedicated functions.
You would need to have the licensed software to operate each server providing unique services. This makes it quite an expensive outlay if you have all of the abovementioned requirements!
Servers are not irreplaceable and can overheat, get corrupted, or crash like a hard-drive (or a NAS server system). You, therefore, need to be maintain them at a cost to your business via your IT department.
Depending on the amount of data and complexity, the maintenance is outsourced to specialized IT companies or software license providers.
Cloud-computing
In the early 2000s, ‘the cloud’ or ‘cloud computing’ became a new concept. It is basically a very large set of high-end servers equipped with software to manage all the tasks mentioned above. It is usually offered as a service under a single (monthly or annual) subscription.
So basically, you are renting the service of a server as opposed to owning it. Renting, just like with property or cars, relieves the user of all the costs of maintaining the product in question.
This sort of rental service offered by cloud service providers is now known as Software as a Service (SaaS). This also saves you from purchasing any hardware let alone paying for the extra electricity bill to cool a server room.
According to Quora.com, the main difference between a cloud and a datacenter is that a cloud is an ‘off-premise’ form of computing that stores data on the Internet.
A Datacenter, on the other hand, is an on-premise set of hardware that stores data within an organization’s local network.
As an IT professional, you constantly face the burning question of whether to go for a solution that will relieve you of mundane tasks – like server maintenance. Naturally, you would also want a solution that facilitates the daily administering of user-profiles, data archiving, and backups. But to what costs then?
Deciding on which to go for
There are many pros and cons when it comes to the hosting of your company’s data on a local server as opposed to having it run via the cloud. There is also a massive array of choices and bundles between the top cloud service providers.
Cloud service providers have several data centers used as backups. So your email hosting may have several servers in different locations to serve that function. This curbs the risk of your data getting lost, unavailable, or hacked.
Maintaining a server is expensive as you require massive cooling systems. Some smarter companies like Microsoft,are now taking to the deep oceans for that function.
When it comes to email hosting or the storage of your files in the cloud only five large multinational corporations’ names come to mind. Microsoft, Oracle, Google, IBM, and Amazon.
These companies however bear the burden of maintenance, while providing just the service you require on a subscription basis.
Setting up an on-premise solution, in contrast, can be a tedious exercise and an expensive one. This is more applicable to smaller companies that do not have large IT budgets.
Licensing your server is no child’s play either!
Having to decide on costs versus functionality will determine how to license your server. This would be either per-server, per virtual machine needed, or per processor core and then you needCALs). If you don’t believe it, just have a look at this licensing guide!
An example
To illustrate the difference, let’s say you have an outlay of a hundred thousand dollars to acquire the software licenses for three years. This compared to a cloud-hosted package that performs the same function over the same timeframe.
You can then piggy-back off companies like Amazon and Microsoft’s security services, which then costs eight thousand dollars monthly ($96k annually).
So, within three years of using the cloud, you would have reached the $100K cap that would be spent only for licenses. You would have also saved with an extra $188K in additional services.
This is a portion of what you would have been spent on maintenance, technical support, security, upgrades, and updates.
These figures are rudimentary, but the long-term savings are noticeable as cloud service providers tend to provide value-add solutions when pricing their bundles.
Microsoft recently launched its Microsoft 365 package which includes an upgrade to the latest operating system (Windows 10 Professional or Enterprise). This is something you would have had to source and pay for separately.
Stress relievers
Software deployment and the administration of user accounts is cloud-based. This means you can do this conveniently and remotely from your PC, laptop, tablet, or even your smartphone!
This means as an IT professional, you will now have more time to oversee more important issues like data security and overall IT policies. Better yet, you would have the time to investigate ways to automate and improve your systems.
This is possible without the inconvenience of running from PC-to-PC to install operating systems, Office software, or manage mailboxes.
Remote desktop services of an on-premise server were a step in this direction – but are a pain to set up. So, you can view the cloud as an evolution of remote-desktop services.
Infrastructural setbacks
The only (and potential) hindrance to using cloud services naturally would be the availability of good and cheap broadband (Internet connectivity).
Without both, the justification for running your business fully on the cloud would not stick. Some businesses, especially in developing countries, go endure desperates attempts to adopt the cloud.
They use what is known as hybrid-systems: a combination of cloud and on-premise solutions.
If you operate in a country without forward-thinking government officials that facilitate broadband availability, you will suffer the most.
Like an old, car, outdated hardware and software can lead to costly services (out-of-date and warranty solutions). This leads to you having heftier maintenance fees and support costs by third-party IT professionals.
The old rhetoric of ‘not trusting the cloud’ is now one of the past. Cloud services often outperform on-premise solutions when it comes to high-end security software and data protection. This is because of the obvious economies of scale involved in setting up expensive security software.
The level of security has to be the digital equivalent of Fort Knox. This especially if you are dealing with sensitive data such as financial, legal services, healthcare, and educational institutions.
Your company would need a system that will keep all such data secure and data compliant.
Data is now treated as a commodity. There is now a subsequent need to trade and value it. We now have Blockchain-based solutions like IOTA to facilitate your payments. This while keeping data encrypted, decentralized, and safe.
In the advent of the new GDPR laws, some companies will still opt to keep and maintain their servers internally. By doing this, however, you might lack the transparency and tools needed to show your consumers how you handle their sensitve data.
One fundamental and often ignored view within economics is that humans have the propensity to display irrational behaviour in the decision-making processes.
Based on this notion, one can conclude that we have a fundamental tendency to act corruptly and be generally criminally-inclined except maybe the virtuous few.
How advanced our economy or society is, depends on what measures or incentives we enforce to deter or punish criminals.
In most cases, we find that in countries where punishment is severe (e.g. in Central Europe or Nigeria), the criminals end up moving to less strict countries.
The economics of crime, especially violent crime experienced in countries like South Africa and Brazil, is something that requires adept research if anything is to be done.
In the US, studies were conducted to access the impact of legalized abortion on the level of crime. This was discussed in detail in a best-selling book by Levitt and Dubner’s called Freakonomics.
The study found that legalizing abortion (seen by many as legalized killing equivalent to death sentences) reduces the level of drug abuse and subsequently other criminal activity.
The real problem
Perhaps there is no relevance here but for instance, abortion is legal in South Africa yet a high crime rate prevails. So, what’s the problem then?
Part of the problem lies in the fact that the incentives/benefits of committing crime far outweigh the “costs” and chances of being caught and convicted by the judiciary. John Nash through his renowned works (well at least amongst economists), devised what he called “game theory” or “the prisoner’s dilemma”.
Cheating occurs through degrees of severity from a classroom test or examination all the way to the plotting and execution of murder or indirectly killing individuals by selling users addictive drugs.
Then you have your white-collar crime such as insider trading, corporate espionage (unlawfully acquiring recipes, formulas, and technologies from rival companies).
Or simply ‘cooking the books’ or siphoning off profits from a company’s coffers.
Nash’s rationale for such cheating behaviour boils down to the attitude of: ‘if I don’t, someone else will, and leave me with the short end of the stick – so given the option, I’ll always cheat’.
His explanation is one ‘formally proven’ reason for human ‘irrational’ behaviour – or rather, could we say it is rational if the outcome is to favour the decision-maker in the short or long term? This is instinct is innate in human behaviour of not such a few.
Crime and law enforcement
Back to the subject of crime: higher than usual levels has often been blamed on the poverty caused by poor and exclusionary fiscal, social and monetary policies.
There are of course more layers and underlying factors unique to the history of political climate and resource allocation.
Further studies (such as that in the Freakonomics book) need to be carried out such as the potential effects of police presence in deterring crime in the diagram below: Police officers per 100,000 population by regions and sub-regions (medians)
Also, highly recommended if you are a law enforcer, economist, government official, or student, is a book entitled Economics of Crime by Erling Eide, Paul H Rubin & Joanna M Shepherd.
This book covers the theory of public enforcement including probability and severity, fines and imprisonment, repeat offenders, incentives of enforcers, enforcement costs and enforcement errors.
It might shed some light as to how criminally-inclined people can be dealt with once and for all. Because as we know – whatever government is doing to fight crime now is clearly not really working!
“When crimes are left alone long enough to fester, a second economy is borne.”
The proceeds from a ‘secondary’ economy because of criminal activity never benefit society. Even though people like Pablo Escobar were seen by locals (in his Colombian town) as philanthropists, their assistance came at a price. Such contributions which are naturally tax-free generally are referred to in economics as ‘social ills‘.
A third market is formed – one comprised of the need to feel secure.
Dealing with the scourge
But fighting fire with fire (with more guns & police who are sometimes corrupt themselves) will not alone solve the problem.
Criminals simply become more aggressive when met with a more confrontational approach as seen in South Africa. The Jeppestown (Johannesburg) shoot-out in 2006 for example, left several police officers and criminals dead.
It’s time to get ’smarter’ about crime and look to the accuracy and conclusive study of human behaviour and the use of incentives.
As crimes continue to ravage communities, cities and countries, we can question why government officials have relatives who own or have stakes in security companies.
It basically places less of an ‘incentive’ for officials to do much about crime.
So, conceivably, those with such vested interests in the third economy would need to be weeded out of the system for crime to be curbed.
That would be the first major step in order to bring about some rationality to society.
What does a small-scale farm-holding, two presidents, some tech companies, and their respective local currencies all have in common?
The answer might be obvious if you have been paying attention to the so-called trade war between China and the US in the news lately. But why is it of concern and what are the far-reaching implications for the rest of the world?
Active involvement in international trade is a vital sign of your country’s financial health and boosts its Gross Domestic Product (GDP).
GDP measures the value of all goods and services produced in a country. From raw materials (input costs) to value-added (assembly and skilled labour costs) to come up with final goods or services.
And though “domestic” implies that this refers to your country’s internal economy, the contributions can be extended from a services perspective.
This occurs when your country places emphasis on or relies on income from Foreign Direct Investment (FDI) to help boost its economy via its GNP. GNP is a similar measurement but slightly different from GDP as it incorporates.
Importance of trade
Fact is, all our goods and services come from unit price or costs that arise from the initial extraction of raw materials.
These then undergo production leading to the product or service of intrinsic value for both local and international (via exports) consumption.
An ideal situation for your country is to export more than it imports to maintain a positive balance of trade. So basically more money flowing in than out.
The trade surplus is then plowed into your economy via the fiscal budget. It can supplement a shortage of funds raised from domestic taxes. The opposite, which isn’t always a bad thing, (trade deficit) would have to be managed and nursed like any other loan.
The US has often criticized Germany for exporting a lot (cars, trains, and machinery) but not importing much. This is deemed not being ‘fair’ in trade practice. But trade itself arises from market forces, priorities, and consumer demand.
We all love a BMW, Audi, and Mercedes Benz. So these German-made products will always be in demand compared to US car makes. Who you chose to trade with gives rise to favourable balance of trade if you are engaged in a trade agreement or a trading bloc.
Why this is also a big deal
The demand for your country’s goods and services will directly impact the strength of its local currency. More trade means more of your currency is required to pay for goods and so its value goes up.
A strong local currency leads to stronger purchasing power for its citizens and residents. Comes in handy when you plan things like holidays, purchase goods online, invest or just send cash abroad as gifts.
So, you can see why a strong Dollar or Euro is always favoured and why sometimes drastic measures are taken to keep it that way.
“A higher demand for your country’s products has a direct positive impact on its currency and exchange rate”
A quick glimpse of the world in terms of the input costs for goods and services gives it a competitive edge when it comes to trade.
US – intellectual property, services, weaponry.
Germany – steel and engineering machinery giving rise to high performing automobiles.
Many African countries – mineral resources such as oil, tobacco cocoa, and precious stones.
Israel – military intelligence.
South America – agricultural produce.
India – IT and customer services.
China – agriculture, building/(manual) labour, and of late technology.
The beef with China
The technology that China (no.2 on the list) offers the rest of the world is the subject of hot debate. The alleged theft of US intellectual property for tech gadgets and software by China.
This is one of several unfair trade practises and motives for why the US recently decided to start imposing heavier (punitive) tax-like increases on multiple goods imported by China.
China then reciprocated by hitting the US with tariffs (on agricultural produce) causing the trade war that drives each country to protect its own economy.
The higher input costs naturally, lead to the price of your product going up and reducing its competitive advantage and demand. Higher input costs can also affect your local labour force for the worse too.
Factories, multinational corporations, and industries such as farms (both commercial and subsistence) will have to cut the cost of labour. In worse cases which we have seen, workers are laid-off in a heartbeat to stop or prevent accounting losses.
These factors would have hopefully been taken into consideration by the respective leaders before pulling the tariff triggers. Acting with emotions rather than looking at the far-reaching implications is irresponsible.
Have the talks of the trade war impacted productivity and the global trade economy? So far it’s just the stock markets (securities and commodities) reacting. Only time will tell.
There are many schools of thought on how to manage natural resources. The idea that a non-renewable resource “gifted” by nature to a country is something that should be considered a once-off benefit shows how forward-thinking that nation is.
If your country happens to have a wealth of a mineral resource, should the current generation use it for their benefit alone or should future generations of the country also benefit?
This also raises prognosis into an important distinction is between wealth and income.
Defining wealth
A non-renewable resource is a good that can only be consumed once such as oil and gas. They are distinct from renewable resources such as forests and fisheries in such a way that, if managed properly can give you a sustainable stream of income for all time.
Some non-renewable resources can, of course, be recycled, and most metals and some fossil fuels fall into this category.
A goldmine, for example, should be viewed as a source of wealth (and not just income and profits for the company mining the yellow stuff). And while this sounds normative, no single generation has the mandate to spend that wealth in their lifetime.
The wealth must instead be preserved for future generations and only the incomefrom that wealth be used by the current generation.
A shining example
Norway* (if not now one of a few) is the only country in the world that consistently applies the principle of intergenerational fairness. The revenue that Norway contracts from oil and gas has since 1990 been collected in a fund that currently stands at over $1 trillion. This number is growing every second!
The wealth is converted into money and the value preserved. This (sovereign) fund is maintained for future generations, and only the interest earned from this wealth is used for the current generation.
In this way, all future generations will benefit from the ‘lucky situation’ of the country.
The Government Pension Fund Global is saving for future generations in Norway. One day the oil will run out, but the return on the fund will continue to benefit the Norwegian population – Norges Bank (The managers of the public fund)
In intergenerational economic terms, this is the only correct way of using the non-renewable assets of the country. It is encouraging that other countries are looking to the Norwegian model.
Other ways of re-investing
A different school of thought is that some of the wealth can be invested to create future growth that will provide better sustainable income for the country.
Many Middle Eastern countries are prime examples. They invest the revenue in construction projects to create a platform for economic prosperity.
This is seen in the vast projects in the UAE cities of Dubai and Abu-Dhabi. They aim to produce sustainable income for the region when the oil runs out.
It is an interesting illustration of Say’s law – in which supply creates its own demand.
Will the investment in infrastructure enable these countries to sustain their level of wealth for all future generations or will they 200 years from now be vast cities in the desert. A legacy to a time where opulence and abundance purveyed?
In most developing countries, like most of Africa, there is no consideration for future generations. The wealth of non-renewable resources such as gold, platinum, and diamonds are used in today’s budgets. This is with little thought that this wealth could one day not be there and should not be spent now.
The wealth inherited from previous generations is used to finance an unsustainable level of consumption.
Conclusion
The main lesson to take from this is that a non-renewable resource can only be used once. It is a precious endowment that is bestowed upon the country by luck or good fortune and it is therefore selfish to use it on the current population.
It is not income, but wealth. This distinction is alien to most but is very important. Wealth is something that should be preserved.
The three basic options facing a country are: spending it, preserving it, or you can simply invest it in future sustainable growth.
The choice is ours.
*Revised and originally written by a Norwegian economist working for a Sovereign Fund company that has since moved to the Private Equity sector.
We spoke about globalization in an earlier post on some general terms – citing that it has taken a different shape or evolved. This article below however, delves deeper and highlights on nine reasons why this evolution will be forced to happen.
It is so well written, it covers all salient points and asks all the right questions – such as what we have pondered on the validity of GDP as a measure of success. The Intelligence Quotient (IQ) has of late been questioned as the main determinant of intelligence in the advent of Emotional Intelligence (EQ) and soon Artificial Intelligence (AI). Likewise, we must question the accuracy in the way the success (or disguised failures) of a nation is presented, and what we are told is required for this success to materialize.
We especially loved this analogy of the current world situation and if anything is to be taken from this article, this is it:
Again kudos to the author Gail Tverberg for this in-depth piece (featured on her website on 31 Jan 2018). In it, Gail touches on issues such as a population growth, a growing wage-disparity, heavy energy consumption, and the demand for cheaper alternative energy:
