Posts Tagged ‘economics’

Book Review: And The Weak Suffer What They Must? by Yanis Varoufakis

Source: http://yanisvaroufakis.eu/

Ten years ago, I read and reviewed Making Globalization Work by Joseph Stiglitz – my first Big Econ tome iirc – and my attention was immediately engaged by the eminently readable style of writing. Reading Stiglitz not only raised the bar for my expectations from nonfiction writing but lowered the barriers to my resistance to the subject of economics. I went on to devour everyone from the immortal words of The Argumentative Indians to the White Man’s Burden and it’s early hints of design thinking in development.

Today however I have a smile on my lips as I sit down to write this review of Yanis Varoufakis’ And The Weak Suffer What They Must? Europe, Austerity and the Threat to Global Stability – a search for his bio turned up a piece of trivia, we’re both born on the 24th of March in the 1960s. It seemed to validate my enjoyment of his narrative style, and my daily hour of reading pleasure over the past couple of weeks.

Varoufakis’ words breathe life into what could have been a dull and dry narrative, full of mindnumbing statistics and incomprehensible GDP growth rates. He humanizes the political economy of Europe, imbuing the German Bundesbank with nefarious motives and a schoolmaster’s strict discipline, and engagingly explains the social and political motives that shape the decisions that influence and impact the whole world.

No other economist that I’ve read has managed to dramatize the stage and the actors in such a way, crafting a gripping narrative of the sweeping changes that took place in the post war era.

The FT’s Martin Sandbu merely calls it an opinionated history, but isn’t that what ultimately history is? A well-balanced review worth reading:

His intellectual rebellion (in many ways justified) against the eurozone’s consensus view of what needed to be done with his country often seemed an end in itself rather than a policy in the service of changing the world for the better.
[…]
The book is nonetheless highly readable. It is also important, outlining a perspective on global economics that influences policy thinking in broader circles than the radical left.

What I personally found amusing when digging up the book reviews that I like to use interspersed with my own opinions in my reviews, was the The Guardian’s blatantly biased put-down of the man and his writing:

Yet while this book reflects a giant ego, and will not win prizes for its ponderous style, it is not entirely without merit for those with strength to plough through the pages.

But reading the review all the way through, one sees hints of a resemblance to the outline of points made by Sandbu in the FT. My own opinion is that if you’re looking to understand the politics of economics then there isn’t a better book yet that I’ve come across.

Highly recommend; eminently readable.

Analysis of the mobile phone’s impact on cash flows and transactions in the informal sector

As we saw, Mrs Chimphamba needs to juggle time and money as part of her household financial management in order to ensure that expenses can be met by income. We also saw that the mobile phone was made viable and feasible by the availability of the prepaid business model that gave her full control over timing and the amount required to maintain it — how much airtime to purchase? when? how often? — all of these decisions were in her hands, within the limits of the operator’s business model. Now, we’ll take a closer look at the impact of the mobile on her domestic economy.

Readily available real time communication has helped Mrs C by speeding up the time taken for a decision on a purchase or a sale. That is, the transaction cycle has been shortened. As the speed of information exchange increases, it increases the speed of transactions — it shortens the duration of time taken to execute them from inception to completion. This, in turn, implies that more transactions can now take place in the same amount of time thereby increasing the frequency and the periodicity. When mobile money is present, one can see that as both quantity and frequency of transactions speed up, so does the cash flow. We’ll come back to this factor.

To explain using a real life example, Mrs Chimphamba does not need to sit at her homestead wondering if today someone will pass by to purchase a bottle of wine. Similarly, Mrs C’s customers do not need to go out of their way to pass by her homestead to see if the wine is distilled and ready for sale, or whether it will still take another day or two for the next batch to be ready. Further, the uncertainty of whether they’ll have cash on hand on that future day, or if they’ll return as promised are all elements that real time communication have minimized.

Now, Mrs C is able to let her regular customers know that she’s making a new batch for sale and do they want to reserve a bottle for purchase? It allows her customers to put aside cash for this purchase. She is even able to accept and execute larger orders for some future date, and even accept some cash advances if her operating environment includes the presence of a mobile money transfer system such as those more prevalent in East Africa. This in turn changes her purchasing patterns and decision making as the pattern of cash flows — timing and amount — changes. She isn’t making do anymore on an unknown and predictable sale based on sitting and waiting for someone to show up to buy her wine.

Real time communication has improved the decision making cycle for both buyer and seller in a transaction as it counteracts uncertainty and information asymmetry even while speeding up the time take for a decision.

As the quantity and frequency of transactions increase— first, in cash conducted face to face, and then later, remotely by mobile money, regardless of the size of each transaction — the change in cash flow patterns begins to smooth out the volatility (the uncertainty factor has changed completely) between incoming and outgoing, as well as the decisionmaking involved. That is, the gap between income and expense starts becoming less in terms of both timing and amount — there is the possibility of a steady stream in the pipeline. Calculus offers hints of how the curve can begin to smoothen out as frequency and periodicity of transactions begins to accelerate.

Size of transactions thus begin to matter less in that the incoming amount now does not need to be so large as to cover expenses for an unknown duration of time before the next incoming payment; nor do expenses have to be tightly controlled constantly due to the uncertainty of the duration of time before the next payment, and the types of expenses incurred during this unknown period of time.

So the boost in decision making — how long it takes to complete a transaction, how often can transactions be completed — enabled by the real time communication facilitated by the mobile phone; plus the attendant immediacy of receiving payment via the same platform is the root of the improvement in the hyperlocal economy and consumption patterns among the informal sector actors. This is why large established traders (with sufficient financial cushion) were heard to observe that both purchasing power and consumption patterns had changed in their market town (Busia, Kenya Jan 2016) in the past 10 years since first the mobile phone, and later, mPesa, were introduced into their operating environment.

Uncertainty and information asymmetry that have long characterized the fragile and volatile nature of the informal sector operating in inadequately provided environments with unreliable systems and scarce data. In the next chapter we’ll step back and take a broader look at communication, connectivity, and commerce in the informal economy starting with the description of the operating environment’s characteristics regardless of continent.

This is part of a newly launched Medium where I will write in detail on economic behaviour and its drivers in the informal economy. Much of it draws upon the original research in the field from 2008-2009 which was shared on the prepaid economy blog. I found that time had passed and increased my understanding and I wanted to explore those discoveries in writing. Much of this is the foundation for recent works on ‘Mama Biashara‘.