Friday, April 30, 2004

Separatist Dreams and Economic Reality

Via Southern Cross, I came across this story on the launch of an independent currency by the Afrikaner separatist community of Orania.

The white homeland of Orania on the banks of the Orange River will be launching its own currency in the enclave's community centre on Thursday to a cautious reception by the Reserve Bank.

The currency will be known as the "Ora" and consists of a range of four denominations -- Ora 10, Ora 20, Ora 50 and Ora 100 -- Eleanor Lombard, spokesperson for the Orania Movement, said in a statement on Wednesday.

Lombard said that during Thursday's unveiling, special momento packages would be on sale.

"The symbols on the Ora 10 note showed the Afrikaner's history, the Ora 20 note his art, the Ora 50 note his culture and the Ora 100 note depicted Orania," said Lombard.

She said the advantages of the town having its own currency was among others -- available cash being replaced with proof of cash and the cash earning interest in the bank; buying power remaining in the community because the currency was only accepted in the town; because the currency could only be spent locally it was safer than cash.

Meanwhile, Reserve Bank spokesperson Themba Hlengani said the voucher or currency must not resemble the South African bank note, in whole or part.

"For instance, it shouldn't be the same colour or font as any of the South African bank notes," he said.

He said this was regulated in terms of South African Reserve Bank Act of 1989.

[............]

According to Lombard the idea for the currency was first mooted by a Prof Johan van Zyl during a conference by the Orania Movement in 2002.

Van Zyl apparently emphasised that a community which wanted to empower itself needed to do so with as many instruments as possible to further enhance its self determination, and having its own currency unit was good example of this.

Let's leave aside for now all discussion of the rights and wrongs of the attempt by the Oranians to perpetuate the old dream of an Afrikaner-only state; for now, the settlement remains confined to private property, and they ought to be free to do with themselves as they wish, as long as no one outside their community is dragooned into it to serve in some subordinate role. My real interest here is in the economic thinking behind the launch of the "Ora", and what that implies for the future economic viability of Orania.

Analyzing the consequences of the new Oranian currency is pretty straightforward, once we take on the fact that the Ora is actually intended to be non-convertible, which is what all the stuff about it being "spent locally" implies. In the real world, non-convertibility has been a condition that virtually every one of the (exceedingly rare) governments that has desired it has proven difficult to enforce, as all it takes to circumvent such a restriction is some tangible commodity that can be used as an intermediate store of value; if gold and diamonds will not do, vegetable produce like cabbage and potatoes will also suffice, though their bulk will make them less convenient for such purposes. But Orania is a small, remote community of like-minded people, so even if it proves impossible in practice to completely prevent Oras from being traded for Rands, it is likely that the members will be able to get close enough to the goal (at least in the outset) for us to ignore this difficulty in our analysis.

Now, on the assumption that Professor Johan van Zyl's vision of a state in which "buying power [remains] in the community" is achieved, what will this mean for the economic well-being of the Oranians? Will the Ora then usher in a golden age of prosperity for the people who are thereby "empowered" by its existence? I can give an unequivocal answer on to this question, and it is a categorical NO. All that will be achieved by keeping "buying power within the community" will be to shut Orania off from all economic exchange with the rest of the world, a state of affairs better known by the term autarky. It will mean Oranians foregoing all of the benefits of trade with the outer world, including the chance to make use of outsiders' specialized skills and the opportunity to purchase resources unavailable within Orania's borders, and the ability to partake in the advantages of scale that make it possible for most Westerners to enjoy a quality of life even the Caesars and the Pharoahs might envy. Not only will Oranians have to grow all of their own food and make their own clothes, but they'll also have to create the very hoes and ploughs to use in their farming, and set up textile mills to weave the very cloth; worse yet, they'll have to mine the raw iron ore themselves, and even on the unlikely assumption that Orania has great reserves of iron lying about idle, they'll then have to set up their own ironworks and steelmills, and build their own (steam?) engines to power these operations!

I think all of the above ought to make it clear that Orania's currency scheme is bound to fail in its current incarnation, as it would lead in the space of a few years to a standard of living so low that even Zimbabweans might start to pity the Oranians' lot. Autarky has failed everywhere it has been tried, and one has only to look at North Korea for one example of how bad things can get even when it is imperfectly applied. There's a good reason why it's been far more common for governments to strive to get their currencies accepted at face value rather than the reverse, and the denizens of Orania are likely to quickly discover that whatever field Professor van Zyl's academic credentials might be in, it certainly cannot be the subject of economics. South Africa's government would be wise to let this harebrained scheme play out to its logical conclusion - just as long as the Oranians pay their taxes of course (and speaking of taxes, how do they propose to pay these to the South African government if their currency isn't convertible?)

On a final note*, I'll also add that it is for the very same reasons I've outlined here that I've always scoffed at those black activists who tell other black people to keep money "within the community" by patronizing black-owned establishments - the idea is just plain stupid. It's true enough that some individuals would benefit from the scheme, but the gains to those individuals who would be able to command higher prices for inferior goods and services would be more than outweighed by the losses incurred by their customers, and the net result would be that the black community as a whole would actually be poorer for keeping its money "within the community" than by just operating as individuals looking for the best value for their money. Anyone who allows himself to be guilt-tripped into patronizing black-owned businesses when better bargains can be had elsewhere is not only a fool, but a traitor to the cause of "black empowerment" he thinks he's serving. Keeping money "within the community" only makes sense if one subscribes to the daft notion that there's only a fixed amount of wealth to go around, and that outsiders' gains can only be at the loss of those "within the community."

*Pun intended.