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Land Reform The Western press casts him in the role of an African Saddam Hussein. Neighboring leaders supported his policies but then succumbed to diplomacy and world opinion and, with a few notable exceptions, shunned him. The opposition in and its mouthpieces accuse him - justly - of brutal disregard for human, civil, and political rights and of undermining the rule of law. All he wants, insists Comrade - his official party title - Robert Mugabe of Zimbabwe is to right an ancient wrong by returning land, expropriated by white settlers, to its rightful black owners. Most of the beneficiaries, being war veterans, happen to support his party, the Zimbabwe African National Union-Patriotic Front, or ZANU-PF, and its profligate largesse: "We must deliver the land unencumbered by impediments to its rightful owners. It is theirs by birth; it is theirs by natural and legal right. It is theirs by struggle. Indeed their(s) by legacy." - he thundered in a speech he made to the Central Committee of his party in March 2001 in response to mounting multi-annual pressures from war veteran associations. It was Margaret Thatcher of Falklands fame who, after two decades of fierce fighting, capitulated to rebels, headed by Mugabe. The Iron Lady handed to them, in the Lancaster House agreement, an independent Zimbabwe - literally, "Great Stone House". The racist Rhodesia was no more. But the agreement enshrined the property rights of white farmers until 1990 and has, thus, sown the seeds of the current chaos. Many nostalgic white settlers in Zimbabwe - mostly descendents of British invaders at the end of the 19th century - still believe in their cultural - if not genetic - superiority. Their forefathers bought indigenous land from commercial outfits supported by the British Crown. The blacks - their plots and livestock confiscated - were resettled in barren "communal areas", akin to Native-American reserves in the USA minus the gambling concessions. Starting in 1893, successive uprisings were bloodily suppressed by the colonizers and the British government. A particularly virulent strain of apartheid was introduced. By 1914, notes Steve Lawton in "British Colonialism, Zimbabwe's Land Reform and Settler Resistance", 3 percent of the population controlled 75 percent of the land. The blacks were "harshly restricted to a mere 23 per cent of the worst land in designated Reserves. There were only 28,000 white settlers to nearly one million Africans in Zimbabwe at this time." Land ownership hasn't changed much since. The 1930 "Land Apportionment Act" perpetuated the glaring inequality. At independence, according to "Zimbabwe's Agricultural Revolution" edited by Mandivamba Rukuni and Carl Eicher and published in 1994 by the University of Zimbabwe Publications, 6000 white commercial farms occupied 45 percent of all agricultural land - compared to only 5 percent tilled by 8500 black farmers. Another 70,000 black families futilely cultivated the infertile remaining half of the soil. As black population exploded, poverty and repression combined to give rise to anti-white guerilla movements. The rest is history. The first post-independence land reform and resettlement program lasted 17 years, until 1997. It targeted refugees, internally displaced people, and squatters and its aims were, as Petrunella Chaminuka, a researcher at SAPES Trust Agrarian Reform Programme in Zimbabwe, summarizes a 1990 government discussion paper in the "Workers' Weekly": "To redress past grievances over land alienation, to alleviate population pressure in the communal areas and to achieve national stability and progress. The programme was designed to enhance smallholder food and cash crop production, achieve food self-sufficiency and improve equity in income distribution." Land reform was an act of anti-colonialist, ideologically-motivated defiance. The first lots went to landless - and utterly unskilled - blacks. Surprisingly, theirs was a success story. They cultivated the land ably and production increased. Certified farmers and agronomists, though, had to wait their turn until the National Land Policy of 1990 which allowed for compulsory land purchases by the government. There was no master plan of resettlement and infrastructure deficiencies combined with plot fragmentation to render many new farms economically unviable. As ready inventory dried up, the price of land soared. Droughts compounded this sorry state and by the late 1980's yields were down and squatting resurged. Unemployment forced people back into rural areas. Egged on by multilateral lenders, white farmers, and Western commercial interests, the government further exacerbated the situation by allocating enormous tracts of land to horticulture, ostrich farming, crocodile farming, ranching and tourism thus further depleting the anyhow meager stock of arable acreage. International outcry against compulsory acquisitions or targeting of c. 1600 farms forced the Zimbabwean government and its donors to come up in 1997-9 with a second land reform and resettlement programme and the Inception Phase Framework Plan. Contrary to disinformation in the Western media, white farmers and NGO's were regularly consulted in the preparation of both documents. In what proved to be a prophetic statement, the aptly named Barbara Kafka of the World Bank, quoted by IPS, gave this warning in the September 1998 donor conference: ''We are delighted that the government has called this conference as a key step in our working together to make sure that Zimbabwe reaps the results it deserves from its land reform programme ... Nevertheless, we must not be naive. The downside risks are high. There is abundant international experience to show that poorly executed land reform can carry high social and economic costs ... For instance, a programme that does not respect property rights or does not provide sufficient support to new settlers, is underfunded or is excessively bureaucratic and costly, or simply results in large numbers of displaced farm workers, can have very negative outcomes in terms of investment, production, jobs and social stability." This second phase broke down in mutual recriminations. The government made an election issue out of the much-heralded reform and the donors delivered far less than they promised. Acutely aware of this friction, white farmers declined to offer land for sale. Even as lawless invasions of private property recommenced in earnest, the government initiated the Fast Track Land Reform Plan in mid-2000. It envisioned the purchase of between 5-8 million of hectares of agricultural land, the resettlement of the rural indigent, the provision of infrastructure, technical advice and inputs by both civil and military authorities and the involvement of all "stakeholders" - especially white commercial farmers - in an on-going dialog in the framework of the Zimbabwe Joint Resettlement Initiative. But the Plan fast deteriorated into strong-arm, threat-laden, and litigious confiscation of white property. Following a setback in the polls - its proposed constitution was rejected - ZANU-PF aided and abetted in the disorderly - and, sometimes, lethal - requisitioning of farms by a mob of war veterans, mock veterans, petty criminals, the rural dispossessed, party hacks, and even middle class urbanites. Ironically, the very anarchic nature of the process deterred genuine and the long term settlers. About 2000 farms were thus impounded by the end of last year. The government refused to compensate farmers for the land seized insisting that such reparations should be paid by Britain. It did, however, provide pitiful sums for infrastructure added to the land by the white settlers. As pandemic corruption, lawlessness, and mismanagement brought the country to the brink of insolvency and famine, Mugabe tainted with anti-Western diatribe his merited crusade for reversing past injustices. He lashed at the IMF and the World bank, at Britain and the USA, at white farmers and foreign capital. Xenophobia - no less that patriotism - is the refuge of the scoundrel in Africa. In 1997, Britain's New Labor government ceased funding the acquisition of land from white farmers. Donors demanded matching funds from destitute Zimbabwe. By 1999, the entire West - spearheaded by the IMF - disengaged. Zimbabwe was severed from the global financial system. This was followed by sanctions threatened by the EU and partly imposed the USA and the Commonwealth. Sanctions were also urged by prescriptive think tanks, such as the International Crisis Group, and even by corporate and banking groups, such as Britain's Abbey National. Yet, discarding land reform together with Mugabe would be unwise. The problems - some of which are ignored even by the Zimbabwean authorities - are real. A negligible white minority owns vast swathes of forcibly obtained prime arable land in a predominantly black country. A comprehensive - and just - land reform would cater to farm hands as well. They are mostly black - about one fifth of the population, counting their dependants. They live in shantytown-like facilities on the farms with little access to potable water, sanitation, electricity, phones, or other amenities. They were not even entitled to resettlement until recently. According to "Rural poverty: Commercial farm workers and Land Reform in Zimbabwe", a paper presented at the SARPN conference on Land Reform and Poverty Alleviation in Southern Africa, in June 2001, only about one third of the most destitute black farm workforce have been imported as casual and seasonal workers from neighboring countries. The rest, contrary to government propaganda, are indigenous. Yet, protestations to the contrary notwithstanding, the government, preoccupied with relieving growing tensions in the communal areas and rewarding its own supporters and cronies, refuses to incorporate farm hands fully in its Fast Track Resettlement Program. They are being accused of causing previous resettlement programs to fail. The problems facing Zimbabwe's agricultural sector are reminiscent of the situation in Mozambique, Namibia, Malawi, Swaziland, Lesotho, and South Africa. Namibia has already threatened to emulate Zimbabwe. Sam Nujoma, the country's president, rebuked the market mechanism as "too slow, cumbersome and very costly". An understandable statement coming from the head of a government which, according to Namibian news agency, NAMPA, turned down 151 farms last year for lack of funds. "Land Reform in Zimbabwe: Constraints and Prospects", edited by T.A.S. Bowyer-Bower and Colin Stoneman, notes that development, growth, and poverty alleviation in the continent are directly linked to the ownership and cultivation of land - often the sole means of production. That no regional approach to this pressing issue has arisen attests to the quality of the self-centred, thuggish, and venal African leadership. Politically-motivated land reform will lead to the emergence of the next generations of the deprived and the discriminated against. Resettlement has to be both fair and seen to be fair. It has to be based on unambiguous criteria and transparent and even-handed procedures. It has to backed by sufficient agricultural inputs and machinery, financial and technical assistance, access to markets, and basic infrastructure. The proximity of services and institutions - from schools to courts - is critical. Above all, land reform has to look after people displaced in the process - commercial farmers and their workers - and thus enjoy near universal support or acquiescence. Legal title and tenure have to be established and recorded to allow the new settlers to obtain credits and invest in buildings, machinery, and infrastructure. Alas, as both Human Rights Watch and the UNDP concluded in their detailed reports, none of these requirements is observed in Zimbabwe. Hence the recurrent failures and the blood-spattered chaos they have produced. Is Mugabe to blame? Surely. Is he the prime mover of this debacle? Not by a long shot. He merely encapsulates and leverages pernicious social forces in his country and in the continent. Until the root problems of Africa are tackled with courage and integrity Mugabe and his type of "reform" will prevail.
Lebanon, Economy of A day after he won a parliamentary vote of confidence, 58-year old Rafiq Hariri, Lebanon's multi-billionaire prime minister, reluctantly formed a new, overtly pro-Syrian government with 30 ministers, only 11 of whom are new faces. Lebanese Information Minister Michel Samaha was quoted by regional news agencies as saying: "The president indicated that the new government comes at a very sensitive time regionally. (It comes) in the shadow of pressures and accusations, which Israel is behind, targeting Syria and Lebanon to give up ... their principled stand that calls for resistance to occupation ... We must deal with...the importance of internal solidarity and solidarity with our Syrian brothers so we face as one the challenges directed at us." Syria, in other words, is merely securing its Lebanese flank, faced with mounting tensions and an increasingly unhappy United States. Hariri formed 5 governments hitherto and has been serving as premier for 9 out of the last 11 years. Like Italy's Silvio Berlusconi, Hariri owns various media, including the Future television channel, a radio station and a newspaper. His tentacular grip extends to banking, real estate, oil and manufacturing. Hariri is credited with the reconstruction of Lebanon's infrastructure, reduced to rubble by 15 years of rabid civil war that ended in 1990. The conflict and its aftermath have plunged Lebanon into a massive usurious public debt amounting to 180 percent of its gross domestic product, or $31 billion. Lebanon spends half its budget - about $3 billion - on interest payments. Threatened with a default, international donors pledged yet another $4.4 billion in soft loans last November. The USA, Britain, Germany and Spain refused to pitch in without the seal of approval of the International Monetary Fund, withheld until recently. A month later, Lebanese banks have been "convinced" to purchase $4 billion of interest free two-year government bonds. This slashed the country's debt service by $400 million a year. Following the Paris-II donor conference, gross foreign exchange reserves surged to more than $10 billion. Gross capital inflow - at $3.2 billion - was enough to cover the trade deficit and yield a balance of payments surplus of $2 billion. Add to this $45 billion in total bank deposits - seven tenths of which are held in foreign currency - and the pound's strength against the US dollar is explained. The price of Lebanese Eurobonds jumped 20 percent in the last six months. In its latest financial statements, Banque Audi, a local outfit, pegged 2002 GDP growth at a miserly 1.5 percent. Exports increased by 15 percent to slightly more than $1 billion - though the Chamber of Commerce and the Ministry of Industry and Oil deem these figures wholly inflated. Construction still moves and shakes the economy with the number of square meters covered by permits up by one eighth - as is the number of international landings and departures. But activity in the Port of Beirut dropped, albeit marginally. Lebanon is notorious for the glacial pace of its reforms. Market liberalization is peremptory. The country's 35 year old import monopolies are yet to be scrapped. Much-needed privatization is stalled. The electricity utility and two mobile phone operators alone can fetch up to $5 billion. Two austerity budgets in a row - and the introduction of a value added tax in February last year - did nothing to revive the flaccid economy. The tax administration and the judiciary are infamous hotbeds of venality and bloated inaptitude. Both the banking system and the business community are risk-averse and interest rates are still too high, despite recent reductions. Still, left to its own devices, the country can gradually regain its position as the banking and commercial hub of the Middle East. With a deep rooted mercantile culture, a well-equipped coast line, a polyglot, highly educated and high income population, private media and connections to all the nations of the region due to its multi-ethic composition - Lebanon is a natural economic anchor as well as the role model for a democratic, liberal and pluralistic Arab world. It is also the natural export route for Middle Eastern oil. Alas, this is but a pipe dream. Lebanon is a puppet state, remote controlled by members of the Syrian secret services and some of its politicians. Anti-Syrian lawmakers and businessmen are harassed on a regular basis, often under the pretext of a security agreement between the two countries. In a notorious case, a television station owned by Gabriel Murr, a Christian candidate, was silenced last September on flimsy legal grounds. Syria's pernicious influence is all-pervasive. The Central Boycott Office in Damascus - set up by the Arab League in 1951 to blacklist all firms with operations or subsidiaries in Israel - moved to renew its activities. Lebanon is one of its members. Such trade restrictions will do nothing to lure sorely needed foreign direct investment to its battered economy. But it can hardly be expected to resist Syrian pressure to comply. Many denizens feel that Syria should emulate Israel and unilaterally withdraw from Lebanon its 20,000 troops and agents - an "occupying force" according to American Secretary of State, Colin Powell. Others are still wary of their southern trigger-happy neighbor and regard Syrian presence as a kind of insurance policy. Israel again threatened war this past September over the diversion of water from the Wazzani, a border tributary of the Hasbani river. The Hizbullah - a militant, well-armed, trained, Iranian-sponsored, anti-Israeli and anti-American militia cum political party in the south - would be only too happy to partake in future skirmishes. It receives $100 million annually from Iran and Syria in cash and in materiel. In a patently suicidal interview on CBS television's 60 Minutes, Hassan Nasrallah, the leader of the Shiite Muslim militant group proffered this thinly veiled threat: "American policies in the region encourage this kind of retaliation, whether we agree with it or not ... I believe the continuation of American policy will make enemies of all Arabs and Muslims 1,400,000,000 Muslims around the world. Lots of groups will surface, not necessarily al-Qaida. And they'll be impossible to bring to justice." The war in Iraq, though mercifully shorter than feared, is an added burden. A fortnight ago, Mustapha Nabli, the World Bank's Middle East Chief Economist, warned of collapsing tourism (a mainstay of the Lebanese economy), surging oil prices (Lebanon is a consumer, though Syria a producer), faltering trade in with Iraq (a crucial import destination and source of subsidized crude) and dwindling foreign direct investment. Central Bank first vice-governor and former economy minister Nasser Saidi believes that the conflict will shave 1 to 2 GDP percentage points off Lebanon's growth. Lebanon's economy is heavily dependent on expat remittances. According to the Saradar Investment House quoted by the Lebanese Daily Star, these equal one seventh of its GDP and have been growing by a whopping one quarter every year. This, on average, is five times both the amount and growth rate of foreign direct investment in the country. The entire banking system relies on these familial flows. Growth in remittances outweighed the increase in foreign currency deposits by two to one and amounted to more than triple the leap in non-resident foreign currency deposits. But a global slump - and an Arab recession - may send many Lebanese emigrants packing and render this fount of foreign exchange desiccated. Desperate to extricate itself from the Middle East's surrealistic quagmire, Lebanon is looking to the European Union. Last June it joined the Euro-Mediterranean Partnership by signing an Association Agreement. It is thus eligible for free trade in industrial goods by 2010 and for cuts in tariffs and quotas till then. Lebanon runs a $3 billion trade deficit with the EU. Nasser Saidi openly exhorts Arabs to resist American hegemony by teaming up with the Europeans. He reminds the EU that the Middle East is the origin of one third of its energy needs. He is all for the much proposed Euro-Mediterranean Investment Bank in conjunction with GAFTA the Greater Arab Free Trade Area and a World Bank-like EuroMed Investment guarantee Agency (EMIGA). Saidi is representative of the philosophy of Lebanese civil servants and businessmen. But whether the EU is listening is another matter altogether. Patching up bruised relations with the USA may prove to be a higher priority and one that necessitates the sacrifice of Syria and its appendage, the nominally independent state of Lebanon. Leisure and Work The official working week is being reduced to 35 hours a week. In most countries in the world, it is limited to 45 hours a week. The trend during the last century seems to be unequivocal: less work, more play. Yet, what may be true for blue collar workers or state employees is not necessarily so for white collar members of the liberal professions. It is not rare for these people lawyers, accountants, consultants, managers, academics to put in 80 hour weeks. The phenomenon is so widespread and its social consequences so damaging that it acquired the unflattering nickname: workaholism, a combination of the words "work" and "alcoholism". Family life is disrupted, intellectual horizons narrow, the consequences to the workaholic's health are severe: fat, lack of exercise, stress take their toll. Classified as "alpha" types, workaholics suffer three times as many heart attacks as their peers. But what are the social and economic roots of this phenomenon? Put succinctly, it is the result of the blurring borders and differences between work and leisure. The distinction between these two types of time the one dedicated to labour and the one spent in the pursuit of one's interests was so clear for thousands of years that its gradual disappearance is one of the most important and profound social changes in human history. A host of other shifts in the character of the work and domestic environments of humans converged to produce this momentous change. Arguably the most important was the increase in labour mobility and the fluid nature of the very concept of work and the workplace. The transitions from agricultural to industrial, then to the services and now to the information and knowledge societies, each, in turn, increased the mobility of the workforce. A farmer is the least mobile. His means of production are fixed, his produce was mostly consumed locally because of lack of proper refrigeration, preservation and transportation methods. A marginal group of people became nomad-traders. This group exploded in size with the advent of the industrial revolution. True, the bulk of the workforce was still immobile and affixed to the production floor. But raw materials and the finished products travelled long distances to faraway markets. Professional services were needed and the professional manager, the lawyer, the accountant, the consultant, the trader, the broker all emerged as both the parasites of the production processes and the indispensable oil on its cogs. Then came the services industry. Its protagonists were no longer geographically dependent. They rendered their services to a host of "employers" in a variety of ways and geographically spread. This trend accelerated today, at the beginning of the information and knowledge revolution. Knowledge is not locale-bound. It is easily transferable across boundaries. Its ephemeral quality gives it a-temporal and non-spatial qualities. The location of the participants in the economic interactions of this new age are geographically transparent. These trends converged with an increase of mobility of people, goods and data (voice, visual, textual and other). The twin revolutions of transportation and of telecommunications really reduced the world to a global village. Phenomena like commuting to work and multinationals were first made possible. Facsimile messages, electronic mail, other modem data transfers, the Internet broke not only physical barriers but also temporal ones. Today, virtual offices are not only spatially virtual but also temporally so. This means that workers can collaborate not only across continents but also across time zones. They can leave their work for someone else to continue in an electronic mailbox, for instance. These last technological advances precipitated the fragmentation of the very concepts of "work" and "workplace". No longer the three Aristotelian dramatic unities. Work could be carried out in different places, not simultaneously, by workers who worked part time whenever it suited them best, Flexitime and work from home replaced commuting as the preferred venue (much more so in the Anglo-Saxon countries, but they have always been the pioneering harbingers of change). This fitted squarely into the social fragmentation which characterizes today's world: the disintegration of previously cohesive social structures, such as the nuclear (not to mention the extended) family. This was all neatly wrapped in the ideology of individualism which was presented as a private case of capitalism and liberalism. People were encouraged to feel and behave as distinct, autonomous units. The perception of individuals as islands replaced the former perception of humans as cells in an organism. This trend was coupled with and enhanced by the unprecedented successive annual rises in productivity and increases in world trade. These trends were brought about by new management techniques, new production technology, innovative inventory control methods, automatization, robotization, plant modernization, telecommunications (which facilitates more efficient transfers of information), even new design concepts. But productivity gains made humans redundant. No amount of retraining could cope with the incredible rate of technological change. The more technologically advanced the country the higher its structural unemployment (attributable to changes in the very structure of the market) went. In Western Europe, it shot up from 5-6% of the workforce to 9% in one decade. One way to manage this flood of ejected humans was to cut the workweek. Another was to support a large population of unemployed. The third, more tacit, way was to legitimize leisure time. Whereas the Jewish and Protestant work ethics condemned idleness in the past they now started encouraging people to "self fulfil", pursue habits and non-work related interests and express the whole of their personality. This served to blur the historical differences between work and leisure. They were both commended now by the mores of our time. Work became less and less structured and rigid formerly, the main feature of leisure time. Work could be pursued and to an ever growing extent, was pursued from home. The territorial separation between "work-place" and "home turf" was essentially eliminated. The emotional leap was only a question of time. Historically, people went to work because they had to and all the rest was designated "pleasure". Now, both were pleasure or torture or mixture. Some people began to enjoy their work so much that it fulfilled for them the functions normally reserved to leisure time. They are the workaholics. Others continued to hate work but felt disoriented in the new, leisure enriched environment. They were not qualified or trained to deal with excess time, lack of framework, no clear instructions what to do, when, with whom and to what. Socialization processes and socialization agents (the State, parents, educators, employers) were not geared nor did they regard it as being their responsibility to train the populace to cope with free time and with the baffling and dazzling variety of options. Economies and markets can be classified using many criteria. Not the least of them is the work-leisure axis. Those societies and economies that maintain the old distinction between (hated) work and (liberating) leisure are doomed to perish or, at best, radically lag behind. This is because they will not have developed a class of workaholics big enough to move the economy ahead. And this is the Big Lesson: it takes workaholics to create, maintain and expand capitalism. As opposed to common beliefs (held by the uninitiated) people, mostly, do not engage in business because they are looking for money (the classic profit motive). They do what they do because they like the Game of Business, its twists and turns, the brainstorming, the battle of brains, subjugating markets, the ups and downs, the excitement. All this has nothing to do with pure money. It has everything to do with psychology. True, the meter by which success is measured in the world of money is money but very fast it is transformed into an abstract meter, akin to the monopoly money. It is a symbol of shrewdness, wit, foresight and insight. Workaholics identify business with pleasure. They are the embodiment of the pleasure principle. They make up the class of the entrepreneurs, the managers, the businessmen. They are the movers, the shakers, the pushers, the energy. Without them, we have socialist economies, where everything belongs to everyone and, actually to none. In these economies of "collective ownership" people go to work because they have to, they try to avoid it, to sabotage the workplace, they harbour negative feelings. Slowly, they wither and die (professionally) because no one can live long in hatred and deceit. Joy is an essential ingredient. And this is the true meaning of capitalism: the abolition of work and leisure and the pursuit of both with the same zeal and satisfaction. Above all, the (increasing) liberty to do it whenever, wherever, with whomever you choose. Unless and until the Homo East Europeansis changes his set of mind there will be no real transition. Because transition happens in the human mind much before it takes form in reality. It is no use to dictate, to legislate, to finance, to cajole, to offer the human being must change first. It was Marx (a devout non-capitalist) who said: it is consciousness that determines reality. How right was he. Witness the USA and witness the miserable failure of communism. Liquidity Large parts of the world today suffer from a severe liquidity crisis. The famed globalization of the capital markets seems to confine itself, ever more, to the richer parts, the more liquid exchanges, the more affluent geopolitical neighbourhoods. The fad of "emerging economies" has all but died out. Try telling the Macedonians about global capital markets: last year, the whole world invested 8 million USD in their poor country. Breadwinners earn 300 DM a month on average. Officially, in excess of one third of the workforce is unemployed. Small wonder that people do not pay their bills, employers do not pay salaries, the banking system has a marked tendency to crash every now and then and the average real default rate is 50%. Illiquidity erodes the trust between the economic players. Such trust is a precondition to the existence of a thriving, modern economy. We all postpone the gratification of our desires: we save now and consume later, for instance or we sell goods or services and get paid a month later. Such postponement of gratification is at the heart of the economic machine of the new age. It cannot be achieved, however, if the players do not trust each other to fulfil their promises (to pay, for example). Alternatively, the state can instate an efficient court system, aided by active law enforcement agencies. Keeping promises can be imposed to counter the natural tendency to ignore them. The countries in transition lack both: liquidity necessary to keep one's monetary word and the legal system to force him to do so if he reneges. Small wonder that solutions are actively being sought by all involved: the business community, the state, the courts and even by consumers. In this article, we will describe a few of the global trends. The trends are global, the reaction is world-wide because the problem is global. Bouncing checks have become a household reality in places as rich as Israel, for instance. The mounting crisis in Southeast Asia foreshadows bankruptcies and delinquencies on a chilling scale. The simplest method is to revert to a cash economy. Payments are accepted only in cash. This, naturally, slows the velocity of money-like products and diminishes their preponderance, obstructing the expansion of economic activity. An even more malignant variant is the barter economy. Goods and services are swapped on a no-cash basis. It is money that generates new value added (by facilitating the introduction of new technology, to mention but one function). In the absence of money, the economy stagnates, degenerates and, finally, collapses because of massive mismatches of supply and demand aggregates and of the types of goods and services on offer and demanded. Still, this system has the advantages of keeping the economic patient alive even following a massive liquidity haemorrhage. In the absence of barter economy, the economy might have ground to a complete halt and deteriorated to subsistence agriculture. But barter is like chemotherapy: it is good for a limited period of time and the side effects are, at times, worse than the disease. In many countries (Georgia, to mention one) defaults are prevented by demanding prepayment for projected consumption. Let us take the consumption of electricity as an example: many heavy users and numerous households do not pay their bills at all. To disconnect the electricity is an effective punitive measure but it costs the electricity company a lot of money. The solution? Programmable Electronic Meters. The consumers buys a smart card (very similar to phone-cards). The card allows the buyer to use a certain amount of prepaid electricity and is rechargeable. The consumer pays in advance, electricity is not wasted, the electricity company is happy, the tariffs go down for all the users. Prepayment does have a contracting effect on the demand and usage of electricity - but this is welcome. It just means that people use electricity more efficiently. A totally different tack is the verification approach. The person making the payment carries with him a card which confirms that he is creditworthy and will honour his obligations. Otherwise, the card also serves as an insurance policy: an entity, not connected to the transaction, guarantees the payment for a fee. This entity is financially viable and strong enough to be fully trusted by the recipient of the payment. This market in credit guarantees is more developed in the USA (where credit cards have overtaken cash and personal checks as a mode of payment) than in Western Europe. But even in Europe there are credit card equivalents which are very widespread: the Eurocheck card, for instance, is really a credit card, though it usually comes with physical checks and guarantees only a limited amount. One must differentiate the functions of a debit card (with direct and immediate billing of a bank account following a transaction) from those of a credit card. The latter allows for the billing of the account to take place in a given day during the month following the month in which the transaction was effected or converts the payment into a series of instalments (within the credit limits of the cardholder as approved by his bank). But in both cases, the guarantee is there and is the most predominant feature of the system. Such cards seem like a perfect solution but they are not: the commissions charged by the card issuers are outrageous. Between 2 and 10 percent of the payment made go to the pockets of the card issuers. Cards get stolen, forged, lost, abused by their owners, expire. But with the advent of new technologies all these problems should be solved. Electronic POS (point of sale) cash registers, connected through networks of communication, check the card and verify its data: is it valid, is it presented by the lawful owner, was it stolen or lost, is the purchase within the limits of the approved credit and so on. Then, the billing proceeds automatically. Such devices will virtually eliminate fraud. The credit card companies will guarantee the payments which will be subject to residual crime. Another fast developing solution is the smart card. These are cards similar to phone cards and they can be charged with money in the bank or through automatic teller machines. These cards (in wide use in Belgium, Austria, Germany and many other countries) contain an amount of money which is deducted from the cardholders account. The account is billed for every recharge. The card is the electronic (and smart) equivalent of cash and it can be read (=debited) by special teller machines in numerous businesses. When payment is made, the money stored in the card is reduced and the recipient of the payment stores the payment on magnetic media for later delivery to his bank (and crediting of his account). A more primitive version exists in many countries in Eastern Europe: depositors receive checks exactly corresponding to the amount of money deposited in their account. These checks are as safe as the banks that issued them because they are fully convertible to cash. They are, really, paper "smart cards". Credit cards and (more cheaply) smart cards are a way to restore confidence to a shattered, illiquid economy. Macedonia should consider them both seriously and encourage them through the appropriate legislation and assistance of the state. For Macedonia, the choice is to be liquid or, God forbid, to economically self-liquidate. |
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