Austrian Economics and Third World Development

0:00Well, thank you. This is my first time over to the Mises Institute, actually, and it's probably long overdue, but it's been great to be here today to have lunch with Mark and Joe and Peter. You know, it's it's been a real pleasure walking through the library out there is like being a kid in a candy store. You know, you want to just hang out in between the rows and purchase each of the books on display, which I might do afterwards. we'll see. But it's been really nice to be here and I'm excited to talk about my work in development economics that I've been doing recently. This presentation will be pretty brief. I would like to split it up into three distinct parts. One part, which will be the briefest of all three is just an autobiographical part talking to you about where I'm coming from, what I've been doing, why I've been doing it.

0:52And then there'll be a methodological part talking about where work in development economics fits in more broadly with an Austrian research program. And then finally, I'll try to show off what I've been doing a little bit by giving you a little bit of analysis from some recent field work. So that's where I'm going with this presentation and hopefully there'll be plenty of time for some questions as well. Now to let you know a little bit about myself, I'm from George Mason University. I finished up last spring there, took a job at Mercer University. The last three summers prior to this one, I spent in the field. I spent two summers in the Czech Republic looking at the Czech privatization over there and just kind of studying how different Eastern European privatizations have worked out.

1:39And I've written on the Czech Republic and Eastern reform more generally. The last summer took me to Botswana. It was a chapter in my dissertation. And one of the things that I encountered quite often was you're writing about Botswana, but you've never been there. Do you really know what you're talking about? And to answer that question, I really felt like I needed to get there. I was able to get there. I spent a month there. I had two other team members who were there for seven weeks total. And it was a wonderful experience that I'm going to spend time talking about today. The reason why we were doing this and why I felt that field work was important has been really inspired by Peter Betke, who many of you probably know. Some of you might know even better than me. He was my dissertation chair and he's really kind of been pushing a research agenda that focuses much more on getting your hands dirty by going out into the field and studying problems at a local level and then using the tools of economic analysis to kind of answer a puzzle or answer a question. There are many puzzles with Botswana that I'm going to talk about and it was

2:51is really necessary for me to get there, talk to people, interview people on the ground to start to make sense and form some answers to the Botswana puzzle. Now methodologically, where does this fit in? We call it ethnography, we call it a case study approach to understanding economic development. If you're familiar with the literature in economics, it's moved more and more in the in the direction of using large cross-sectional datasets to try to explain development on a grand scale. You throw every country into a regression and then you say, this seems to be coming out significant or we can't figure out what in the world is going on here. You know, we can't reach any kind of definitive conclusions. Depending on what you read, you can get very cynical about what factors matter for economic development.

3:40In 1995, Gregory Mankiw wrote a paper that basically said we can't sort out what factors are responsible for development because of different econometric problems with the models. And there have been a number of other papers. Sally Martin wrote a paper saying I just ran a million regressions and he found a couple of things that do seem to matter. Instead of taking that approach and getting into that thorny debate, what we've tried to do, and a lot of this has been supported by the Mercatus Center at George Mason University. What's going on there, and there are teams out doing fieldwork this summer, there have been teams out for the last three or four summers, out trying to answer problems of economic development. We feel that the more appropriate approach is a local one where you go and try to explain economic development from the bottom up.

4:32and you could call this ethnographic. Professor Betke likes to call it analytical narratives. And what we're doing is we're going out into the field and trying to get our story right. And from this very specific case, we can form more generalizable conclusions. The analytical narrative that we're relying on at George Mason University, the fairly Austrian analytical narrative is quite different than two other approaches that you'll find. One approach is a new institutional approach that basically involves reading some history and then providing game theoretic explanations of the phenomena that they've studied. If you've looked at Barry Weingast's work, Avner Greif's work, it's very game theoretic and the history is kind of empty, all right?

5:19So this whole movement in our minds has been inspired in part out of a frustration that some of the economic historians aren't paying enough attention to the history. One other approach that has been used and relied on when looking at developing countries is survey work. You go out, you ask businessmen a bunch of questions. You say, what are the barriers to running your business? What are the frustrations you have? You take all of these surveys, you go back home and then you run regression analysis on the surveys. We don't think that's exactly the right approach either. Ours is a little bit different. If you wanted to find some people who were kind of path breakers in this area, you actually have to look to sociology. As a sociologist named Dan Rose wrote a book, I'm blanking on the title right now, but he's talking about living in Philadelphia on the streets, like in the inner city, Philadelphia, okay?

6:13And he lived there for like a year. He became a mechanic and tried to figure out the problems of inner city life, the challenges that face people by going there and becoming one of them, okay? I didn't have the money, the time, nor the patience to go to Botswana for a whole year and try to become like one of the Batswana, which is the name for citizens of Botswana, but I did my best in seven weeks. And I'm going to talk about some of that in just a minute here. So that's kind of broadly what kind of research agenda we've been pushing at George Mason University. and now for me at Mercer University, there are a lot of students that you'll encounter who are just getting out onto the job market or just getting out into the real world who have been involved in this field work at George Mason.

7:04The analysis I'm going to show you today as Professor Salerno noted a moment ago is based on this past summer's field work in Botswana. The title is Look Botswana, No Hands, Why Botswana Should Let the Economy Steer Itself. And I think from the title, you can probably guess where this is going to some extent. Now, a lot of you probably don't have a clue about, know nothing about Botswana beyond it's in Africa. Maybe you know that there might be some elephants there and that they have an AIDS problem. Beyond that, many of us probably don't know much about it. If you wanted to know where it is geographically, it's directly north of South Africa. Okay, so South Africa is right at the bottom of Africa.

7:51Just up from that is Botswana. It's a landlocked country, about the size of Texas, right smack in the middle of Africa. I should have brought a map of that, but hopefully you're able to picture where it's at. The reason why I became fascinated with Botswana is that for the last 30 years, give or take, it's been the fastest growing country in the world. Okay, from 1965 to 95, it definitely was. A couple of countries surpassed it in the last couple of years. This remarkable growth has led people to call Botswana the Africa's best kept secret, the African miracle. Two years ago, Matt Lauer from NBC went there and kind of really boasted about how wonderful Botswana was. If Matt Lauer's going there, it must be kind of a nice place to go.

8:39and in fact it is a beautiful place. I'm not going to talk about the beauty of Botswana so much as I am the economy and what was responsible for the development in Botswana. Going there, I wanted to make sure that the data that we were looking at in the West in fact was representing a true story or telling a true story. Is Botswana really the success that people have been making it out to be or is the data somewhat misleading? You know, is the story just like a straight story of economic development and we should continue to like bet on Botswana or does it have some problems? After I went there and just after a few days there I realized that it was a very complicated economy and I became over my month there quite pessimistic over time about Botswana's prospects for the future and frustrated with what they've been doing over time.

9:32Just to give you a little bit of background, it deserves a lot more attention, but this is a short presentation and a paper that I wanted to keep fairly short too. Botswana became independent in 1965. At that time, many regarded it as the poorest nation in Africa. The British government when they got rid of Botswana, just before they got rid of Botswana, in 1960 said, Botswana has dismal economic prospects that are based on hopes of agriculture, salt and coal, all right? According to the experts, one of two things was gonna happen. Botswana was gonna become a heavily indebted country or it was just gonna be absorbed by South Africa, okay? Neither looked particularly good. At that time, Great Britain was really excited to just be getting rid of it, okay?

10:19They had no knowledge that there were any natural resources there. They felt like it was expensive to even administer protection to that colony, okay? So in 1965, along with many other countries in Africa, Botswana became independent. In 1972, they discovered diamonds in Botswana and that forever changed Botswana's history. From 1965 to 1975, Botswana was growing at about 10 and a half percent per year, okay? Now that doesn't mean much to us if we don't think about that number for a minute. If the U.S. were to grow at 10.5% per year for a 10-year period, we would go from about $37,000 per capita income in the United States to about $90,000.

11:08Botswana was starting at a much lower point, so they went from like $300,000 to $1,000. Still a pretty remarkable move, one that we kind of discount because they're moving from such a small starting point, but still splendid in and of itself. From 1965 to 1995, they grew at about 7.7% from 65 to 2003, 5.1%.

11:30A lot of information that I'm throwing at you, but I just want you to know that those are remarkable. That's a remarkable growth performance over time. Anything over 5% is quite strong. We get excited by three to 4% growth in the United States. Botswana was achieving 10% for a while, 7%. and now 5% over a long period of time, almost 40 years now. What in the world was responsible for that economic development? Going there and talking to people, there were a number of different factors. Five of the big ones that I'm just going to mention rather briefly, Botswana adhered to something called National Development Plans, all right? These were five-year plans that specified what kind of spending the government could engage in.

12:18not like Soviet Union five-year plans where we're gonna tell you exactly how our country is going to do for the next five years or anything like that. It was plans that were attempting to constrain government. If you wanted to spend, you had to specify it. And after that spending was specified, you couldn't make any kind of amendments. If you wanted to amend spending, you had to get unanimous consent of parliament. Pretty tough to do when you have 27 members The Theory of Money and Credit

13:17had to pass both the economic and social feasibility test. If they passed one, they received some consideration. Now, what would it mean to pass an economic feasibility test? You had to show that government spending was going to be profitable. Kind of tough to do, but they tried to show that most government spending could produce a rate of return. For example, when building roads, they had to show that the roads were going to get reasonable use. One anecdote that I can share with you while I was there, Botswana citizens are very proud of the fact that their first president was even constrained by the feasibility tests. He was asked, do you want us to pay of a road to your house, all right? And it was like three miles of roadway, you know? And he otherwise would have to ride down like a dirt bumpy road.

14:03And you don't want to ride down dirty bumpy roads when you're the president. He asked them, instead of saying, oh, of course, I would love that, he asked them, does it pass the feasibility test? And they said, well, not exactly, sir. you'd be the only person riding on it. And he said, well, then I don't want the road. And for his entire time in office until 1980, he had no road, no paved road going to his house. He rode coach on the Botswana airline instead of like having some kind of first-class airplane or his own jet, which presidents in the Western world enjoy. Things that were helping to constrain spending then had to have both of those tests passed in order to get financing. Another thing that was probably helping Botswana develop in that early period was they were very comfortable keeping their expats around at the time of independence.

14:55They actually allowed the British to come to the table with them and figure out where in the world are we going to go now that we're free? What should we do? In most other African countries, the first people to go and get the heck out of the country were the foreigners and the expats. They wanted nothing to do with the new government and the new government wanted nothing to do with them. So in Botswana, there was much more of an attitude of cooperation as opposed to conflict between those two groups. When talking about the expats in Botswana, some of them would say the president would actually come and sit down with them and have Saturday night dinners. And it was just a very engaged cooperative environment, something that is totally a complete departure from the trend when you think about other African leaders.

15:47Throughout most of the rest of Africa, they were putting up statues of Marx or Lenin at the time of independence, certainly not interested in any kind of Western point of view. Botswana had a different path. The reason in part why they had such a different path was just their president's attitude towards Westerners. He was educated in Great Britain. He married a white English woman, which was very controversial, but it certainly helped him develop a more tolerant attitude. If you wanted to try to explain, why were they so different? I think that that probably had something to do with it. Two other things going on in Botswana that helped them develop in that early period. One of them was they had no defense, okay? Basically, the way that they were handling any kind of conflict was they had a local police force that would try to put down any kinds of civil uprisings, any kind of protests. It was all handled by a very small police

16:44force. The attitude of the early reformers, we talked to a number of the more important people in that early reform period, was that the best defense was no defense, okay? Now how in the world could the best defense be no defense? Essentially what they thought was if one of our neighbors, and their neighbors were complete basket cases at this time, okay? There's no question about that if you look at it. You have Apartheid South Africa, you have Rhodesia, you have other night beers going on in the West, which is now Namibia. At that time it was German West Africa. All of these countries that basically wouldn't have minded going in and invading Botswana. Their attitude was if we arm, it's very likely that they're going to just try to come and conquer us.

17:30If we don't arm ourselves at all, somebody has to come to our aid. Okay, if we just put up our arms and say, we have nothing, you have to help us, it would be a huge humanitarian disaster if nobody came. And they basically, to some extent, were very good economists. They said, let's free ride off the rest of the world and hope that they answer our calls. Fortunately, for a long period of time, nobody bothered Botswana, okay? And in this early period, they didn't have to engage in massive defense spending, which certainly eased some of the fiscal burden of being a country. Final factor helping Botswana develop was just a general openness to dissidents and a toleration of foreigners. They were very comfortable allowing different humanitarian organizations to come and not only set up camps there, but in fact like set up full-fledged organizations.

18:24They welcomed foreigners from Rhodesia, later on Zimbabwe. They welcomed people on the run from South Africa. Basically, they took anyone who wanted to come. And you can look at old speeches. You can talk to people there. And it was just an attitude of complete openness, okay? They wanted these feisty people because maybe it was kind of good for business in Botswana. You know, the feisty types might actually be somewhat entrepreneurial. Let's bring them here, okay? So in many ways, Botswana was like the Switzerland of Africa. They were fairly neutral. They were fairly tolerant and quite open. And by being open and tolerant, they certainly were able to develop much more rapidly.

19:11I've talked about their economic performance over time. It's not just dollars that they enjoyed, like increases in their per capita income. It also led to massive improvements in wellbeing. Illiteracy dropped by more than 50% over this period of time. Infant mortality was on the decline. Sanitation, access to sanitation improved tremendously. When I was there this last summer, I was scared to death to go to Africa. I went and I met with a physician and they load you up with about a half dozen shots and you're thinking, this isn't good. The more shots that you get, the scarier it's going to be. And I got there and they tell you, don't drink the water, boil all water, don't talk to anyone, Get in your house after dark.

19:58All of these things that are really freaking you out. And we got there and it was just actually a very safe place. It reminded me a lot of like a small Midwestern town. I'm originally from the Midwest. You felt quite safe. There was no sense of insecurity for your safety. You could drink the water actually. It was completely all right in the cities that we were. When we went out into the more rural areas, we were a little more careful, but it certainly wasn't the place we were imagining it to be. Usually when you think of Africa, you have a stereotype like probably not a place I want to go. And Botswana certainly departs in a big way from that stereotype. From 1965 to the present, they've enjoyed remarkable development.

20:45They've experienced huge improvements in their infrastructure, their education. Roads have increased from something like 100 kilometers of Roadway to about 10,000 kilometers. The number of flights in and out of Botswana has been increasing. Things that we might look at to get a sense of general prosperity. All of the signs of prosperity tend to be pointed in the right direction. Over time, it's become a more service-oriented economy. Tourism's now a really big industry in Botswana, and they've done a good job of marketing it. But with all of this progress, there are some things that are pretty puzzling. Since about the mid-1970s, and I'm going to put up one little diagram here. Since the 1970s or so, Botswana's government has been growing at a pretty rapid rate.

21:36And I'll talk about the rates of growth in just a minute, okay? So the data isn't real great here in 1965, but in 1965, Botswana's government spending as a percentage of GDP was around 23%, okay? From 1965 to 1975, government spending was steadily declining, all the way down to about 12 or 13 percent around 1975. Okay. Does anyone, by the way, know what government spending in the U.S. is right now, just to have like a general benchmark? Government spending as a percentage of GDP? Yeah, it's something like that. Yeah. Yeah, I mean, it fluctuates a little bit, but that's that's pretty good. And depending on what you measure, you know, some of us think it's like 50 or 60 percent. But yeah, we'll call it 35 and say that that's good.

22:24In Botswana, it was low and, you know, for a developing country, this is actually depressingly high. But for the first 10 years, government is on the decline. The government that we measure anyway is on the decline. And, you know, Botswana is growing at a 10.7 percent rate. Around 1975, government begins a steady trend higher and today, government spending in Botswana is about 35% of gross domestic product. You know, some say that it's pushing 40% if you include a couple of other things that they don't include. What in the world was going on here in Botswana's history? What are we to make of Botswana today? I sat down with one of their finance ministers and I asked him, I said, so what is the deal?

23:09You know, you're this rapidly developing economy, but 40% of your development is government spending. Isn't that alarmingly high for being a developing country? You know, he said, yeah, of course, but, you know, it's kind of hard to go back on it now. And he understood the logic of big government, which is a very frustrating cycle to get out of. I'm going to talk about what happened around 1975, bring us all the way to the present, and then talk about Botswana's future. Looking at that graph, between 1975 and 2003, Botswana's government spending was increasing at 10.3% per year, okay? If you compare that to South Africa over that same period of time, South Africa was averaging 2.8% per year.

23:55So pretty rapid increases in government spending compared to its closest competitor and its biggest competitor, okay? From 1995 to 2003, Right at the end of the graph there where you see another big jump, it was increasing at 8.3% per year, okay? Think about the United States again, to get a little bit of perspective on these numbers. W is really proud of himself when he can keep government spending fixed except for the defense and homeland security, all right? Botswana isn't even coming close to W and they're saying, let's increase it at 8% per year, okay? It's pretty rapid for a developing country, okay? Why in the world did this happen? Why was Botswana's government growing so rapidly?

24:40Well, in the late 1970s, early 1980s, Botswana decided to establish a national defense. Today, the national defense makes up 15% of all government spending. Why did they establish a national defense? In part, it had to do with some raiding that was occurring throughout the 1970s. Remember, Botswana was open and very tolerant. They were welcoming dissidents from South Africa and from Zimbabwe. While there were freedom fighters and other groups that were really ticked off that Botswana was protecting people that they wanted back in their home countries, they would come into the country and basically indiscriminately slaughter people along the border. Botswana said, we can't allow this to continue.

25:27The numbers were in the hundreds, if not up to about a thousand people. Civilians who were slaughtered in a lot of these raids, okay? Botswana citizens maybe rationally said, you know, this can't continue. We can't allow this. We're not going to be able to do it all on our own just by trying to like, you know, arm ourselves and shoot anyone who comes into our country. We want the national defense there to give us some kind of border protection. And they got a national defense that provides border protection and a lot of other things to Botswana. Today, the big controversy is whether Botswana should develop an air force, okay? A lot of the people we talked to were sitting there scratching their hands and heads saying, why in the world would Botswana need an air force? You know, like, who do we have to fight with?

26:13There's nobody flying planes in Africa, you know, let alone people to bomb, you know? So there are huge problems whenever you start to introduce a national defense. And you have tremendous pork and corruption charges that have been surfacing in Botswana. Empirically a lot of development economists have looked at the effect of defense spending on development and on corruption. Defense spending isn't a good thing for development and is a very bad thing in terms of the amount of corruption in your country. So not exactly good trends for Botswana. So from 1975 to the present they go from 0% national defense to 15% of the government budget being eaten up with national defense spending. That explains a good chunk of the government growth.

26:58In my paper, I also talk about a couple of other things responsible for the government growth. Botswana, in a lot of ways, is looking more and more like the United States over time. And this isn't a good thing for Botswana, all right? They've decided that maybe, since the United States and Western European countries have a lot of education, that we should invest in education heavily. Today, if you want to go to school all the way through college in Botswana, you can. The big controversy is that you have to pay for Your Own Books in College, okay? You know, the government picks up most of the remaining bill for you, okay? A huge drain on government spending. They've also increased environmental regulations, labor laws over time, all things that make them look more like a Western country, even though they're a developing country.

27:46So they're losing that advantage over a lot of other countries. I have one other table up here to just show you. Wow, this thing is so nice. Instant focus, instant adjustment, pretty cool. This table is looking at education spending in Botswana from 1970 to 1999, the last year I have data for. This is relying on world development indicators data. So when we go into the field, we do rely on conventional data sources, but we want to back that up with a lot of interviews and information that we gather from the ground. Botswana's education spending over time has increased from 4 million current US dollars in 1970 to 450 million dollars in 1999. Quite the growth industry, okay?

28:32Between 1970 and 1980 that rate of increase is 31% per year and then it's leveled off to a healthy 11-10% from 1980 to the present, okay? This kind of Education spending certainly has been explaining, let's go back to this one, some of this, some of this rapid, massive increase in government activity. Okay, two other things that also have contributed to government growth. Over time, Botswana has had more and more interest groups developing, especially in the capital, Havarone. One person that we interviewed said, we've learned very well from Americans. The best growth industry here is interest groups, okay? And I have that kind of information that I was able to acquire in interviews.

29:22And they understand that over time, interest groups are going to increase, but they all basically... The logic of special interest government has basically been established. So you could look at that early period as a period where the slate was basically clean. And after some kind of early period where they could get policy shocks in later periods. The government just took off with more and more interest groups. I talk about some of those in the paper. Over time, this makes the promotion of good policy a pretty difficult task. Finally, there were some changes in attitudes over time that have occurred as well. A lot of them coming from the discovery of diamonds. With this seemingly infinite resource, which it isn't, but the attitude there is that they have this wonderful revenue source.

30:09The attitude has shifted in the way that they view politicians from one where they're where individuals are asking what can I get from you or what will you give me instead of asking you know what's best for the nation so over time there's been a general shift to a concern much more with like am I going to get HIV cocktails do you promise that as a presidential candidate okay as opposed to like what's your policy on economic development okay you can understand how that shift can probably I'll probably be explaining part of that as well. So it's not just one factor that's been leading to Botswana's government growth over time. It's a combination of things, but the final result is big government in Botswana. I talk about ways that maybe Botswana can reclaim their post-colonial moments.

30:58I call this early period a post-colonial moment. I shouldn't put my hands on there. I call this early period a post-colonial moment where they've had a declining government, something we don't see real often in the world. Okay, government getting smaller and rapid development. Can Botswana ever get that back? I'm skeptical, but if they want to get it back, there are some basic things they need to do. They need to return to a concern with budget balance and smaller government spending, something that isn't a first order concern right now among the Botswana. When we were over there, the talk was much more, well, you guys run big deficits in the US, what's wrong with us running big deficits? For the first 30 years, they've been very hawkish about never going in debt, okay? There's a very good reason for this. They're concerned that if they go deep into debt, they could become quite dependent on South Africa.

31:48They're worried about South Africa kind of going bonkers at any given time and them not being able to get imports in Botswana, okay? So for rational reasons, they've avoided debts for the most part over their history. More recently, there's a shortfall in revenue from the diamond industry. they've said, you know, it's not so bad if we run some deficits. It certainly would be bad in their case to be taking on deficits just because of the signal that reflects in the way that they've shifted their policy positions. Another thing that's going on in Botswana that would be nice to see reform on is just an end to the handouts for the private sector. Botswana has become very concerned with diversifying away from diamonds, okay? But it's diversification that's thinly cloaked Special Interest Handouts. Essentially what's going on is the Botswana government is now picking new sectors that they want to subsidize, okay, so textiles is something that they think that they could do very well at, okay, they're basically subsidizing the textile industry which isn't making any money, but they say that it's, you know, a way to diversify their economy in case they run out of diamonds. You understand the difficulty of picking winners or losers in an economy for signaling reasons and for

33:04and systemic reasons Botswana should get out of that business. And finally, there's a very strange relationship in Botswana between the state and the private sector. It's something that they call peristatals. A lot of other countries call it that as well. For example, the media in Botswana is largely supported by the government. So people are scared to ever come out and say anything negative about the government because they're gonna lose a lot of their advertising revenue if they do. The government is in cahoots with a lot of the think tanks.

33:39You can't imagine how nice it is to have the Mises Institute that can say anything it wants about anything going on in the world and feel pretty free about that, okay? In Botswana, there are think tanks that are basically making sure to tote the party line and say just what it is to get another contract from the government. And there isn't the same level of criticism or like engagement going on between think tanks and the government in Botswana. So it would be nice to see some kind of split or divide there between the state and the private sector. These are modest proposals, proposals that probably won't get put into practice anytime soon, but things that would be nice to see over time if Botswana is going to start to take the right steps towards smaller government.

34:24Just to wrap things up, I'm running out of time. To wrap things up, what are we to take from Botswana? I scratch my head, I think about this a lot at night time. What am I supposed to say at the end of the day about Botswana? And the truth is, there are a couple of different things that I could say. We have evidence here in the early period that smaller government, good policy leads to high development. Let's not forget about that, that laissez-faire worked in Botswana in the short run. Okay? We have evidence and we have some understanding of how government grew in Botswana. The way that it grew in Botswana is quite similar to a lot of other places. Mark and I were talking earlier today and we said, you know, it kind of reminds you of that part in Star Wars where they talk about people applauding when liberty falls or whatever.

35:16You know, people wanted a national defense. People want support for education. and at the end of the day, what do you get as a result? A whole combination of processes and forces that lead to big government, okay? Similar story to our own story and to most other countries' stories. It's good to tell that story again, all right? That story never gets old for some of us, all right? Another thing you could take from the Botswana experience is the power of markets. At the same time that government has been growing rapidly over time, Botswana has continued to grow at Fairly Rapid Rates, okay? The growth hasn't ended just because government has gotten big, okay? And what, depending on what day of the week it is and what kind of mood I'm in, I'm willing to tell any of those stories.

36:03And any one of those three seem pretty valid when you look at the Botswana experience. So this analysis is basically an overview of Botswana's post-colonial history. I think it's a fascinating history. It has a lot of implications in understanding the United States and understanding other countries that you might be looking at and understanding Africa's plight. There are a lot of criticisms of Africa, African development approaches that are currently in practice. We can't have the United States telling Africa what to do because that would be imposing, okay? We don't want Africa doing it because they'll mess it up. Well, if they look at Botswana's experience, maybe they could have some kind of guide or like some kind of model when they approach their own development experiments in other African countries.

36:55The important thing for them to understand is they need to look at old Botswana as opposed to present day Botswana. I really hope that that in fact happens when different developing nations in Africa get serious about reform. Hard to say that it will though. Just to wrap things up here, how does this all fit in with the Mises Institute, with Austrian economics? In my opinion, and I think I'm kind of speaking for Pete Bettke here too, in my opinion, this is an approach that's quite consistent with both Mises and Rothbard. You know, Rothbard apparently told a lot of young students, you know, who are looking for direction, what should we do? What should we do? Can you tell us what kind of project to work on? And he would say, I can't do a Rothbard impersonation like Professor Bettke can, but I'll try.

37:42You know, he would say, you know, go do history, you know, history is real good. and we're trying, you know, we're trying to go out there and we're taking a unique theoretical approach to the field and coming back and trying to provide answers that really don't surprise us. Okay. It's, you know, this isn't rocket science, you know, the conclusions we reach are ones that, you know, basic economic analysis should lead you to. But what's unique about it is that we're doing field work with theory. A lot of field work is done without theory. Let's go out there and just say that this is a unique experiment where demand curves, in fact, slope upwards, okay? That's not the way we're approaching the field. We have these lenses, you know, which you can call economic analysis, you could call Austrian economics.

38:27We go out the window, we look at the real world, and we try to make sense out of it with those lenses in place. And that's, in my opinion, how all of this is, you know, fundamentally Austrian at its core. And with that, I'll shut up, I'll turn this off, if I hit the right button, and I'd welcome any questions, comments, concerns, criticisms, and the like. Yeah. You mentioned this western copycat phenomenon that's going on. I think it's pretty standard in terms of developing the story in a year. Do you think that this could change the focus of the direction for ethnography and field research in terms of looking at more domestic issues and performing some very institutional understanding to send better signals as to what the benefits of Western civilization and commerce are.

39:26I mean, you've got people like in the neocon movement, who are propagating this Western copycat phenomenon and encouraging foreign direct investment as a successful means for development. Fundamentally, our position on neoconservatism and Western impositions, whatever they want to send abroad, is that they had better know what in the heck is going on in that country. This ethnographic approach at its core is one that's saying, you know, let's make sure we have the culture or the indigenous institutions that are going on, the stuff on the ground right, and we have a good understanding of the history of these countries before we go in unapologetically, you know, throw democracy at them or throw, you know, like some kind of different aid idea, you know, you read the approaches that we've taken previously in development economics and you just get depressed, you know, it's, let's go there and produce shoes in this country and what does it do? It just crowds out local shoe producers who were in fact making some money in that industry and story after story is one where there hasn't been enough sensitivity to the local conditions

40:37so I think the ethnographic message ultimately is one where you have to recognize that the people there matter and it's one that's decidedly like anti-western in some sense but yet you know it's all it is those Western institutions to a large extent that we would like to see established there at at the end of the day. Let's see, oh boy, you, Peter.

41:27from the presentation I read the paper on, with the presentation of the states, but from your discussion today, it isn't obvious to me which parts of that story could not have been told based on secondary data, reports that others have made, World Bank reports and so on. What exactly is the ethnographic approach given to individuals otherwise? That's good, and that's something that you have to have value added, otherwise you could do it from here, or you could do it from reading history books. I think what it's providing is it's giving you another source of verifying what you're getting from your history books, what you're getting from your World Bank data. Pete Becci calls it triangulation. You're kind of lining your story up and making sure it fits.

42:13You have your traditional history, you have your conventional data, now you have this third thing that's making sure the other two things are correct. In Eastern Europe, we had data which was all messed up. We have history which a lot of it is all messed up. We need that third thing to find out what in the world is really going on there. In those cases, the ethnographic approach is clearly adding value. Let's get the story of the local entrepreneur who's engaging in black market activity. Now, in the case of Botswana, what we were looking for and going there was to try to get an understanding of what people there actually think about the current state of Botswana, what the reform process was actually like over time, you know, something that you can't get from your traditional historian, who's kind of biased in and of himself, you don't know what...

43:04Could you describe in a little bit more detail what you actually did? Okay, sure. Did you sit in the market square and watch people for hours? Okay, so what we did in Botswana and what we tend to be doing with most of these field work approaches more generally is you do a whole bunch of research up front before you go. You read everything you can on the country. I had done research prior to this on Botswana, so that was easier for me. The two other people who came with me to the field did a lot of that, you know, looking at a whole list of historical sources. Because you get together, you formulate some questions. What is it we want to make sense out of when we go over there? Then you have to be willing to recognize that maybe the question you're going there with is going to change on the fly.

43:51We went there wanting to make sense out of how diamonds, how bots want to escape something called the natural resource curse. That whole research program had to be scrapped because we couldn't get into the diamond mines at all. It was described to us as like Fort Knox. The diamond mines are better protected than the President of the United States. in the United States. So we said, hmm, you know, we've got to like figure out a different research track here. Now, what did we do when we got there? We lined up interviews with as many people as we could. We were able to get in the neighborhood of 35 interviews, which is about one per day for seven weeks, you know, taking weekends off. And that's a good total, surprisingly, you know, so it's, you know, you try to line up interviews with local citizens, businessmen, and then people in government The Theory of People who had previously been in government and then you ask them a series

44:43of questions. It's called, you know, it's just face-to-face interviewing. Now one of my other people who was with me, one of my team members, was much more comfortable than I was at like going and just trying to absorb what's going on in the market. So he would go like off on his own and be doing stuff like in the market square and And just like interacting and saying, I'm Andres and you know, I'm here to find out what you think about things, you know, and he would be like, sitting in a circle with people and doing his own thing. Now, I wanted more formal interviews because I wasn't all that comfortable doing that. But in the interviews, you're just trying to, you know, basically, it's a detective story and you're trying to figure out, put the pieces in place as to what in the world has happened here. Now, you could get that from a history book, but As far as I know, I haven't seen a history that's really concerned about this growth of government over time and that can explain it without being there as well.

45:44You know, you could just dig through the archives and maybe tell the same story, but that evidence wasn't there for us anyway. And even the archive work, you have to get to the university there or something. I hope that kind of answers what we did and the value in it. Can you talk a little bit about the overall structure of the government and how it has changed over the past three years? A lot of their revenue comes from the diamond industry.

46:32industry has been changing over time and they've been renegotiating and trying to extract more from the government as they go along, you know, and originally it was basically a 50-50 venture, De Beers and Botswana, it's called Debswana, all right, De Beers has control rights, they have some leasing rights where they're allowed to explore for a couple of years and over time the taxes on the revenue being The amount of money being extracted from the mines has been steadily increasing, so that tax has been going up to maintain a certain revenue flow to the government. We don't know exactly how that tax is shaping up, what amount of the profit is being taxed, because all of that is really closed, and that information isn't there.

47:19But we know that it's 40% of all government revenue is from the diamond mines. The structure of government is largely based on the British model. They have kept features of their traditional government in place. They have something called the Kagotla, which is an old, old traditional institution where they sit around and discuss things and encourage consent and unanimity before they proceed. That's an institution that's fairly uncommon in Africa as well. So they're less hierarchical than a lot of other African countries. Can you talk a little bit more about the raiders coming in? For example, why didn't a lot of parties come up?

48:23you know done more interviewing along the border and found out if there were in fact Rothbardian defense agencies or you know if it was just every man to themselves you know I don't know I would assume there had to have been some contracting out you know of like you know somebody who was pretty good at like shooting protecting or you know like somebody protecting like a reserve you know along the border there are a lot of game reserves you know maybe they were more effective protectors I that part of my story I would like to do more Are there any legal obstacles to that?

49:23the police force prior to the defense was the provider of security or something like that but I would think that I would like to go back again next summer and that would be something I would like to find out more about is in fact were there de facto defense agencies in place doing the job and look more closely at the severity of these freedom fighters as well clearly there were deaths caused by it but was the motivation there The groups that were being harmed really want the end government or was the momentum already in place for defense and this was just like the final straw in the camel's back, you know? Joe? When you said ethnographic, I expect a little bit more micro-micro approach in that I expected you maybe to investigate the cultural foundations of economic activity, The variation in the tribal attitude towards economic activity, and in particular, the property rights structure among the tribe, and then how that was in some sense revived by the colonial period.

50:32The colonial economic institutions that were left. In particular, the microstructure of markets. You know, more like Fernando de Soto, even the old Peter Bauer, I don't, you know, how much activity, you use some physics that I don't think I would look behind, I wouldn't ponder. You know, how much of their activity is non-market activity? Of their production is non-market production, it's household production. Let's investigate the cultural foundation. The key is property rights. You never really said anything about it.

51:18You know not not as much and I really in this paper I tried to deal with the post-colonial period to the present much more than the earlier period I I have an earlier paper that talks much more about the colonial forces and what was going on in colonial Botswana and pre-colonial Botswana now that was before I went over over there, you know the truth is it was hard to get people to talk about cultural change over time or the different culture you know they it has been regarded as a fairly homogeneous place you know in terms of just general cultural attitudes there are like some of the old guard who are willing to talk about a change in values you know but like deep cultural differences like is there like a real entrepreneurial group that we could that we could Find, you know, like that that kind of micro story, right, yeah, yeah, yeah, yeah, yeah, I would like to hear more about that, put it that way, whether I'm on phase.

52:35I think it's very important what you're talking about. I think it should also be focused on property rights. Ultimately, the attitude towards property rights, how they have developed and how they will develop in the future. These macros mean nothing. What I think you want to hear is the illusion of these institutions and what we're going to be prognosis for the future. That's where the problems will come from. Yeah, I completely agree with you. You know, I mean, we were talking about wanting to explore the property rights structure there in much more detail. For example, one thing that, you know, there are like huge constraints on time and getting something produced and, you know, you're only there for seven weeks.

53:24for seven weeks. Now that's just like, you know, kind of making an excuse. And we do recognize how important the property rights structures were. For example, they generally have a common landholding policy. You know, so they're very comfortable with like allowing the tribe to live anywhere on the land, but then you have property rights over your cattle. Okay, and cattle for a long time has been like a really big thing in Botswana. Now, One time, cattle has become less and less significant. They're trying to move away from being cattlemen anymore. So it's become more of a hobby. You get out of town and you go to your cattle post. And you don't live there and rely on that as much anymore. But there's stuff to do in that area without a doubt. And I would like to go back and focus on that much more.

54:12There are a lot of tribal disputes that I don't talk about either between the San and the mining company that you know have gone to the highest court and everything you know that you know need to be explored as well yeah I agree and that's that's something that needs much more research it's interesting there were eight groups There's a general cluster of Americans hanging out in the evening talking about who they've been able to get in interviews, what they're looking at.

55:00One group was trying to come up with a general equilibrium model of Botswana. I'm sitting there going, I'm really glad I'm not in that group. If I go back, I would like to be the property rights group, certainly. You know, one of my team members, Andreas Meroqueen, actually has been talking about doing stuff related to the property rights structure for part of his dissertation, too, because he was so puzzled by how that's affecting economic activity. You know, this comments with rights to the things that are mobile, you know, so it's, yeah, a huge question. Related to that concern is, Rothbard introduced several critiques and innovations on empirical statistics that he would use, and I was wondering if you would try to use any of his definitions or any other Austrian definitions, say GDP or something like that.

55:58I'm especially sympathetic to his looking, taking out, stripping government from gross domestic product. I've done that. Actually, it's, it's the, it's a different paper. But I've stripped that out. And when you look at like Botswana's development, taking government out from 1993 to 2003, or something like that, you know, it falls to around 2.8% growth from the 5.1% or whatever it was, you know, so I Let's look at some of that because Botswana's growth miracle doesn't look nearly as miraculous when you look at just private sector growth. And then if you go farther and you like take out the diamonds, you know, and you say that that's like, I don't know, you want to put that into a separate category and say that's not real entrepreneurial activity.

56:45That's just like good luck to some extent and you kind of take that out. What does Botswana have going for it? You know, the things it does have going for it are, you know, a really vibrant tourist industry. You know, it has some wonderful natural beauty that they've been able to really play up and, you know, they have been doing some service activity as well, car manufacturing and things like that. So, yeah, I am sympathetic to Rothbard's, especially his notion of what exactly is it that we want to see in gross domestic product. And I've looked at that and it diminishes recent Botswana history to some extent when you take government out, you know. I think we'll end there, we're out of time, and he'll turn it off for a few more questions.