My long time friend Hank, smiled at my complex argument: African dictatorships are all coming unglued because of The Muslim Brotherhood and the Islamic Revolution. He smiled even more when we discussed the western press’s view about the north African people’s desire for Western style freedom of expression and self government. He actually started to chuckle as he explained his simple and elegant version of the real problem.
“Ken, you’re a chartist: get a chart of the price of grain for the last six months. Then you’ll see what the problem is.” So, I looked up the price of sorghum, an important cereal crop in Africa: it had risen 86% in the past 6 months! The price of wheat has gone up 67% in the same time! Hank pointed out that these people do not enjoy the same high income levels as we westerners. Food takes up a far larger percentage of their take-home pay. As long as they could get by in their modest lifestyles, they lived in peace. But now that the price of food has blown through the roof, they are hopping mad!
He chuckled even more as he pondered what he would do if he were an advisor to the north African dictators. He pointed out that all these countries are oil producing nations and that the price of oil has also risen in the past six month, though not as much as the price of grain. The dictators should simply use the excess profit on their oil exports to subsidize the price of food imports. Simple and elegant.
Neither of us did the math: how much grain is consumed vs. how much oil is produced. Does it add up? In these dictatorships, who controls the oil revenue and who buys the grain? I’m sure that implementing Hank’s simple and elegant solution might not be that simple. But his analysis is compelling, isn’t it?
In my investment book, Beyond the Bull, I encourage readers to try to see investing through the eyes of other participants in the investment process. That principle would also serve us well in the political arena. If we could walk in the same sandals as our north African friends, what would we learn?
Diverting state income from oil revenue to feed the people seems like good politics and good business to guys like Hank. But maybe it’s not that simple or that elegant. Maybe that oil revenue is used to pay the army and the police. Maybe oil revenue is used to prop up the bureaucracy of friends and supporters that a dictator needs to manage the various branches of government. Maybe these nations have borrowed against future oil revenue… maybe they’re seriously in debt like some European nations and need every penny of oil revenue just to repay their loans prop up the regime. Maybe this – maybe that: but who really knows?
Question: In a world that’s coming undone at the seams, what can we really do?
Answer: we can be a little more like my friend Hank: smile, live a simple and elegant life and keep your own house in order.
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