A conversation on technology, economics, COVID-19, and the future of South Africa.
Thavash: Hi everyone, and welcome to this video today where I have a very special guest. I'll be talking to Mr. Kanthan Pillay, well-known South African journalist, business leader, and academic. So, Mr. Pillay, a very warm welcome. Thanks for giving us some of your time today.
Kanthan Pillay: Thanks for having me. Good to be here.
Thavash: Excellent. So, Mr. Pillay, many South Africans know you as a journalist and business leader, but I'm very interested—you have a background in the technology space which many people don't know about. Don't you want to tell us a little bit about that?
Kanthan Pillay: Look, it's one of those things that I think frankly any business leader who's around today needs to have some sort of understanding of the technology space. But in my case, it was just a question of being in the right place at the right time. When I went to the US in 1986 on a scholarship to Princeton, at the time one of the requirements of the scholarship was that you needed to have employment so that you could pay for things that weren't covered by the scholarship. So for example, things like pocket money, being able to pay for your own textbooks, any extracurricular activities. I was holding down a range of jobs at the time.
One of them was working in food services at the university, which basically meant scrubbing pots and pans and serving food. I worked as a bartender at a restaurant in the city. Then I got a job at the university computer center. I walked in there one morning and the woman who was running the place—Rita Saltz was her name—was first in at the office, sitting at the back end. I said I'd like to work here. She said, "Well, what do you know about this stuff?" I said, "Well, absolutely nothing." She said, "Well, what can you do?" I said, "Well, pretty much anything. Just give me time." She said, "Well, when can you start?" I said, "Tomorrow morning is good for me." She said, "I'll see you at 8 o'clock."
And I happened to be there at the birth of the internet, really speaking. Because at that time there were three IP addresses in all of Princeton University. Now, to put that in perspective, Princeton now has a range of Class B subnets—we're talking about millions of potential devices just on the Princeton campus alone. But at the time, as I said, there were three IP addresses.
I was lucky enough to get in there when a range of things that we thought possible today just were not even conceived of. One of the first things that I did was to hook up a Macintosh computer to the IBM mainframe. Simply because I had met this Macintosh computer, which at that time was running off two floppy disk drives. I wanted to be able to produce publications that had a more substantial amount of information than could be contained on two floppy disk drives. There was this IBM mainframe computer with what to me at the time was mountains of space available. My logic was: let's get these to work together. File servers as a concept at the time actually did not exist. So it was a pretty groundbreaking thing.
That actually ended up suddenly becoming a career for me because I ended up playing with lots of cutting-edge technology that the science—in terms of what was being taught at the Department of Computer Science—had not yet come to terms with, because academia generally plays catch-up with technology. I worked in the Program in Applied and Computational Mathematics, which was mainly doing very complicated calculations primarily for the US Department of Defense. We had a new piece of technology called the Intel Hypercube, which was basically 32 i860 processors in a single cabinet. Each of those i860 processors were floating-point units, and they would do very fast floating-point calculations—at that time roughly half the speed of a Cray Y-MP, which was the fastest supercomputer in the world at the time.
I figured out how to get this thing to work. The result of that was that we ended up beating the rest of the country to a Department of Defense grant—at the time it was a four-million-dollar grant for the Program in Applied and Computational Mathematics.
Thavash: Do you need any special security clearances to work on such a project?
Kanthan Pillay: Look, the interesting thing in terms of the way in which the DoD runs these projects is they never really tell you what the end goal is going to be. So all they're really asking you for is to do a particular calculation with various parameters. For example, they would come to us and say, "Calculate the turbulence along a structure that is operating at a particular depth with particular pressures." We'd take a look at this and say, "They are putting this out as though it's a submarine fin, but in fact we can see that this is meant to be on an aircraft. But that's okay, we're just here to do the calculation."
Having said that, I used to work very closely with the people who were briefing us at the Department of Defense. I used to go across to Fort Monmouth, which is where the scientists were based, quite often. They clearly had done their security clearance on me beforehand and all of that type of stuff, I think.
Thavash: Yeah, sorry—I think a lot of us who were into computers, myself from the 90s, we tend to look back and romanticize those as being the good old days of tech. Do you agree?
Kanthan Pillay: Look, I don't think it's a question of good old days. I think what is true is that at the time it was a lot more accessible for someone getting into the field for the first time. The problem that we have today is that the sheer volume of knowledge that one needs to have to get into anything in the IT space—this is massive. I mean, you consider where I'm sitting right now—effectively starting off in 1986 up until today, and there's a massive slew of knowledge that I've acquired during that time. But it's not enough for me to actually stay on top of what's needed to be at the top of the game today. So you need to end up specializing. You can no longer be a generalist at the level that I was when I got past the starting post.
Thavash: Yeah, very true. And I think that problem is actually accelerating if you look at things like AI, data science...
Kanthan Pillay: Well, again, this is stuff that was kind of predicted by Philip K. Dick, very famous science fiction author. I'm sure you've come across him. He's known for things like Total Recall, as an example, which was based on one of his short stories. Blade Runner was based on one of his books called Do Androids Dream of Electric Sheep? I was really into Philip K. Dick when I was a kid, around about 12 years old. I was lapping up his stuff.
One of the things that he predicted was that human beings would become so specialized that the ability for people to be able to hop between various disciplines would disappear altogether. This actually has relevance if you look in terms of where we are right now with the COVID stuff—and I know you want to talk about COVID later on, but I just want to pull these pieces together—because we have everyone focusing on what the epidemiologists are saying without considering that actually humanity lives in what's essentially a complex system. The complex system is not only dependent upon the life cycle of human beings as predicted by the epidemiologists, but also by the economics that drive that entire structure and a range of those other things that come together. If you consider it only from one piece of the puzzle, you are not actually going to be able to take into account that which comes from other factors that contribute to this complex system. And of course, politicians having zero knowledge of any of these fields are the worst people to be doing this.
But going back to the computer science thing—as a result of this contract that we ended up getting, there was a visiting Italian scientist who said, "Hey, this is really great. We're setting up a research center in Sardinia. Why don't you come and set it up for us?" So at that time I was faced with either starting a career on Wall Street—because I'd had a very nice job offer from Salomon Brothers, they'd offered me a $40,000 signing bonus at the time, which was huge—or I had this thing about going to a Mediterranean island that I knew nothing about. So guess what I chose.
Thavash: Well, I think that would have been around the Wall Street crash, so perhaps the right...
Kanthan Pillay: No, the Wall Street crash was very quick. Remember, the Wall Street crash was in 1989 and the markets recovered very quickly from it. People tend to forget that. If everyone who lost their shirts during the Wall Street crash had actually just sat back and done absolutely nothing, they would have been fine.
Thavash: Right, right. Before we get on—do you find time to still keep up with the tech world today?
Kanthan Pillay: Well, it depends on what you mean by keep up. Obviously I'm always looking out for where tech is moving and where the next opportunities are likely to come from. I still code my own websites and that kind of stuff. I'm spending a lot of time now poring over trading bots primarily to play in the cryptocurrency space, but not at the level of actually making use of them right now. I'm just trying to get my head around where the opportunities are to be doing things in that space—but later when we talk global macroeconomics, sure.
I suppose keeping up to speed on it—right now I've got money that's invested outside the country and it's primarily in tech stocks. So I've obviously watched that very carefully. While there's a very strong propensity to stay with the safe stuff—which is basically Facebook, Apple, Netflix, Google, the FANG stocks as they're called—I'm still looking at where the next leap is going to be in tech, where's the next Uber coming from, that type of stuff, the next disruptor basically.
Thavash: Yeah, thanks. Thanks for that. So I want to talk now more in the present and the current state of the world. We've suffered for almost a year with this COVID pandemic. We've been hit economically, and of course people have died in this country and around the world. Does the vaccine trigger an end to this, or are we still too early to be expecting anything that optimistic in your view?
Kanthan Pillay: The problem with predicting the future is that if we were able to do that, a lot of us would be rich. I think that the vaccines are an important first step. And I think if you look particularly in the South African context, we've dropped the ball spectacularly. Our government has been just completely idiotic in terms of the way in which we've done this. What should really have happened is that anyone should have been allowed to import the vaccines. The first thing that would have happened is that all of the medical aid companies would immediately have funded the import of the vaccine. Because if you consider this, the money that the medical aid companies need to spend on giving vaccinations to every single one of their members free of charge is significantly less than whatever it costs to hospitalize everyone who's on a hospital plan.
Thavash: Sorry, sorry—to be fair, what about the millions of South Africans who are not covered by any type of medical aid? How would it work to get the vaccine to them?
Kanthan Pillay: Well, that's government's job, isn't it? But the entire idea of saying that the private sector is not allowed to do it and only the government is allowed to do it means that effectively what you are doing is taking the breadwinners of the country, the most economically active sector of the country—which are the people who are sitting with medical aid—and telling them to get in line based on some arbitrary decision that gets taken by some flunky in government.
And you have to understand that this is a government that's not able to keep computers working at Home Affairs, they're not able to keep the lights on, and we're trusting them to be able to successfully vaccinate us? I don't think so. So it's not a question of either/or. Yes, we should be caring about the masses, but remember that our duty as human beings is first and foremost to take care of our families.
Thavash: Yeah. Lockdowns—your view on lockdowns?
Kanthan Pillay: Lockdowns don't work. It's very clear that lockdowns don't work. Education is a far more significant determinant in terms of how you get people to actually deal with this. For example, when we moved from the most restrictive levels to where we are right now, did I end up modifying my behavior significantly? The answer is no. I'm still not going out to restaurants, I'm still not going to hang out at pubs, I'm still not going to large gatherings. My parents are still mainly housebound, so I do most of the shopping that's involved because it's a sensible thing to do.
Really, what should be happening is that the economy should be set as free as we possibly can, and all of the vulnerable groups really should be protected. So if you're diabetic, then you need to stay away from any potential infection risks. If you happen to be over the age of—it's a moving target now, but let's say late 40s onwards—take more precautions than you would for your kids, all of that type of stuff. I really don't get where this desire to force particular streams of activity to succeed while others fail comes from. But again, it goes back to our earlier point: when you lack a fundamental understanding of what's necessary to keep everything working and how to make money, things are going to fall apart.
Thavash: Yeah, so a more sensible approach would have been preferred. That's a good segue into talking about the economic situation. I want to rewind back, and I think this will be an interesting question to you. In '94 we were the darlings of the world, we had our 15 minutes of fame. There's an argument to be had that perhaps we didn't capitalize on it in terms of developing the economy, positioning ourselves as a location globally for manufacturing, services—basically everything that some Eastern countries have done, and not just Eastern countries, countries around the world that got it right. What is our place as a result in the world in 2021?
Kanthan Pillay: You have to understand that you can't see that entire period from 1994 now as monolithic. If you look in terms of what happened from the period from let's say 1994 to 1996, at that stage we were kind of all over the place. Remember that when we got to that stage, we were just about to see the precursor of the Asian crisis. But crucially, at that point we didn't really have an economic policy to speak of. We talked in 1994 to 1996.
Coming up to 1996 was when Thabo Mbeki was effectively running the country at the time, even though Mandela was president. He took a very important decision, and that was to drop the Reconstruction and Development Programme and instead move it in the direction of GEAR, which was Growth, Employment and Redistribution. The net effect of this was to say all of the social welfare programs that we had planned as the ANC—we're tossing out. What we're effectively going to do is to set the economy free and allow business to actually flourish.
The net effect of that was that South Africa then went through the single longest sustained period of growth in its entire history. The net result of that was that we suddenly had—because our economy was booming—and there were a couple of things that Mbeki instructed Trevor Manuel to do at the time, because remember Manuel was Finance Minister. The first thing that he instructed Trevor Manuel to do was to pay back the debt. So we wiped out the national debt completely. We also had tax cuts every single year during that period of time, and the end result of that was that more money flowed back into the economy.
But the dividend that then came from paying off the national debt—because remember at the time paying the national debt was the single biggest item in our budget, I think it was close to about 22–23% of the budget was going to pay for the national debt—so the dividend that then came from paying off the national debt, Thabo Mbeki then took and plowed that into social grants. The net impact of plowing that money into social grants was the single biggest transfer of wealth and eradication of poverty that's ever taken place anywhere in the world. Because we had a reduction in terms of living standard measures—LSMs, we're talking about here—over a five-year period we had a reduction in LSM 1 of 60%. That meant for every 10 people that you had among the poorest of the poor, six of them were lifted out of poverty during that time as a direct result of that social grant. And so it created a virtuous circle.
Thavash: But then just to recap on that—so it sounds like the initial GEAR policies were very capitalistic in nature, business-friendly, and then we moved to the social grants which did have an impact as you said, lifting tremendous amounts of people out of poverty. But then when should that have been paid back? Surely that was not sustainable?
Kanthan Pillay: No, you see, actually it's an interesting scenario out here. But you know, as a capitalist I'm actually not hostile towards the idea of social grants. In fact, I prefer social grants to the entire idea of government being responsible for being a provider. The starting point around this is that I think that people generally know how to manage their money better than government does.
So if you take education as an example, the cost of educating a pupil per year in South Africa right now is roughly R20,000 per pupil per year. So my view is that I would rather take that R20,000 and give that directly to the family of that child and then allow them to make choices in terms of how the kids get educated. Because right now you have a scenario in many townships around the country where people have been setting up private schools—why? Because government education is a disaster.
So now just to go back to the question of social grants—if you take that view that instead of money being poured into the pocket of government who then spend it on our behalf, pour that money directly, and the entire economy then booms as a result because people spend money sensibly.
Thavash: But then so I have to ask you on that point—so that's classic demand stimulus by the sounds of things, right? Put money into the hands of people. How do you balance that with increasing tax revenues without impacting business?
Kanthan Pillay: Well, you don't need to increase tax revenues. Because remember at the time what Thabo Mbeki was doing was actually systematically going through tax reductions. And we actually hit a sweet spot. Because at the time when the 2008–2009 crisis kicked in, remember that we were literally a debt-free country at that point and we were able to pay social grants out of profits, not out of borrowing. So think of that as a workable business model.
And remember the most crucial thing that we need to look at in any society is the sweet spot comes when two numbers correlate. The first number is population growth, the second number is economic growth. As long as you've got economic growth exceeding population growth, you are growing more prosperous as a country. As soon as it switches the other way around, it's a disaster because it means a country is getting poorer because the measure of productivity of the country is declining overall. So then that's the scenario right now.
Thavash: That leads me to two very interesting questions. Is GDP the right indicator to measure an economy like South Africa's?
Kanthan Pillay: Firstly, GDP is probably the most important indicator because GDP is giving us an indication of whether we're going forward or whether we're going backwards. Now we have the scenario right now where our population growth is significantly larger than our GDP. As long as it was the other way around, we could still continue smiling. It doesn't really matter how many kids people have because as long as your economic growth is faster, there's enough money to actually sustain those people.
Now we have the scenario where because the population growth is exceeding the economic growth, it means that every year the amount of money that you're able to pour into uplifting people out of poverty gets spread among a larger number of people, which means therefore that there's less per person, which means effectively that okay, we're going backwards. In fact, if you look at my website, I wrote a piece fairly recently, a couple of thoughts about GDP, which people are welcome to take a look at. So it's a factor, but it should not be the sole factor.
Thavash: So we can put some links to that article if any of the viewers are interested. But then that brings me to my second question, which is going to be a little bit controversial. We saw a population jump due to factors in surrounding countries. We were highly sympathetic to the situation in Zimbabwe—you know where I'm going with this. We have a politician currently calling for open borders. Is this feasible, to be diplomatic?
Kanthan Pillay: We're conflating a couple of things out there. I think one of the things that we need to do is to try and separate out what actually makes sense from a matter of national policy and the impact of other things.
Firstly, going back in terms of population growth, the one thing that we do know—there are studies around the world that show this—the best way to actually curb population growth is prosperity. I cannot say this more clearly. Because if you consider that when you're poor and primarily in a rural environment, you have many children because that's your retirement plan. Because when you can no longer work, you're reliant on each of those children to then give you something at the end of that process.
Now when you have modernized economies where people become more prosperous, we have fewer kids per generation than we've done before. And what that means is that because we have fewer kids, we spend more money on their education, we spend more money on passing on generational wealth. And this happens across the globe. So you'll see now in India, for example, population growth has actually slowed as prosperity has increased, and they've been able to do this without the draconian measures that the Chinese had to do. The Chinese are in trouble at this level, by the way, because of their one-child policy, because it means now that they don't actually have a sufficient volume in terms of a younger generation to continue growing the economy going forward.
But then now let's look at the example that you brought up in terms of open borders. Open borders are great as long as the rules of those open borders apply equally across the board. When you have disproportionate systems in each of those countries—so now consider that our court system has taken a decision that anyone who comes into this country as a refugee is entitled to the same rights as a citizen, which means that they are entitled to have access to health care, to education, and all of that stuff—that means that you're going to have an influx of people into this country to take advantage of those systems without paying for it. And that becomes a problem.
So you can't have—open borders are great, but it has to be on the basis of fundamental equality. And that's why the European Union is in as much trouble as it is right now. It's the reason why Brexit happened. It's because frankly the British got tired of the fact that you had people flocking from Poland to take advantage of national health benefits that are not available back in their home country. So yeah, none of these things are binary. We can't just say that immigration is bad, open borders are bad, the way to fix people from breeding is to have forced sterilization—no. It's all interconnected, and complex systems really kind of work that way.
Thavash: It's very interesting. I want to then move to the economic growth question. Obviously we went up to 2009 and then we saw deficits increase from 2009 due to various factors, and I don't want to get into the politics of 2009 to 2021. But if you had the ability to reshape our economy tomorrow—let's say you were president, you woke up tomorrow morning you were president—what are the two to three things, the low-hanging fruit, the easy things to do to make this country more business-friendly, to attract foreign investment, and to really get the GDP growth going again?
Kanthan Pillay: The first thing that I would fix in this country is public transportation. I can't say—if there's a single thing that we could do in this country that would make an immediate difference in terms of the lives of the population as a whole, it would be public transportation. And public transportation, you must understand, is very different from what we have today, which is essentially commuter transport, right? Which is getting people to and from particular routes.
When I was in South Korea a few years ago, I landed in Seoul and then I went out to Suwon, which is where Samsung's headquarters were. They are literally two separate cities, but the fascinating thing is that the underground railway network literally connects the entire country at that level. So I can just hop on a metro train from Seoul and go all the way up to Suwon quite effortlessly within a short space of time.
Why does this stuff become important? It's because the people are living in Seoul but the jobs happen to be elsewhere. Even though you're talking about distances of 60 to 70 kilometers, what it means is that a person who lives in Seoul is able to get their kids off to school and then hop on to a train and get down to work and then come back in time to still spend time with their family in the evening.
Now contrast that with the scenario that we have in our country right now, where there are jobs available in Pretoria, there's a workforce that's available in Soweto, but the only way that people are able to get from Soweto to Pretoria to have access to those jobs is by hopping four or five minibus taxis in quick succession. Which means that effectively they are spending two hours in the morning, two hours in the evening just on commuting. It means that at least 50% of their salary is going towards paying for transportation costs, and that is the single biggest knock-on effect in terms of the overall economy.
Plus factor in that those four hours a day that could be spent on family time between parents and kids—again if you look in terms of social degradation, why do you have breakdown of family structure? It's because of the fact that parents aren't able to spend time with their children in order to infuse generational cultural values in terms of honesty and integrity and all of those things. If you have a functional public transportation system and if you just get that one thing right, everything else kind of flows from that.
So one doesn't have to have grandiose plans. Consider the sheer amount of money that we're spending right now on SAA and that money being poured into the transportation system is very quickly going to fix it. It's a different form of transportation, but effectively what we are doing with SAA is we're subsidizing transport for the rich, whereas we should be subsidizing transport for the poor. So our government, which claims to have the interest of the poor at heart, has actually got it backwards.
So I wouldn't do anything more than that. If there's a single thing that I would say as president, as my legacy project, I just want to do this one thing—that's what I'd do, to get people to work affordably. And that has enough.
Consider the other things—for example, why do we have slums? Okay, we can call them informal settlements, but they're essentially squatter camps, they're slums. You call them what they are. The reason why those things exist is because people move there because they are close to where work opportunities are. Now if your public transportation system would allow you to live in a place like, I don't know, let's say Ennerdale, which is in the southern part, south of Soweto, and to be able to travel from there to Pretoria in the space of an hour at relatively low cost, why would anyone want to live in a squatter camp out near Pretoria? Absolutely. So all of the social ills that get cured based on the ability to move people over vast distances quickly and efficiently.
Thavash: That's very interesting. So then let me ask you one more question on the local economy and capitalism and business-friendly politics. Now our political parties generally talk about uplifting the poor. There's always been a move very strong towards communism, socialism. How would you sell capitalism and economic growth to the average disenfranchised South African who perhaps has not heard the right message, who's got a negative image that it's not the right thing, it's for the rich or for a certain group or class? You've got the opportunity now to sell it to him. How would you do that?
Kanthan Pillay: It's a hard one, simply because most people already intrinsically understand what capitalism is all about. If you think about it, why is Black Friday as hugely successful as it is in our country? And if you look in terms of the things that people buy on Black Friday—if it's things like they will go and buy a trolley load of Coke, as in Coca-Cola, which happens to be on special because it's marked down by 50%—people actually understand that this is an opportunity for them to be saving money going forward and they take advantage of that opportunity.
So intrinsically people know how to manage their own money and they know how to make money work for them. And we see this in spin-offs and in terms of things like stokvels as an example. We see it in terms of people understanding the concept of shared transportation—they set up lift clubs. Those are all things that are inherently capitalist in nature.
The issue that we have is trying to differentiate between capitalism and crony corporatism. And crony corporatism is a huge problem in this country. In fact, many people who think that South Africa is a capitalist country—actually it isn't. Because if you consider just taking a look at the JSE as an example, there's the 80-20 rule which applies—people should look at the 80-20 rule by the way because it applies lots of—yeah, exactly. But 20% of the companies on the JSE control 80% of the wealth of the JSE, and they are essentially monopolistic in terms of the way in which they operate. Because there's a level of collusion that goes on between all of them, even though it's not overt collusion.
Which is why you've got a scenario where Cell C is not able to succeed against a backdrop of those two giants of Vodacom and MTN. It's why you have a scenario where new players trying to enter the market are effectively squashed down by the larger players. Consider banking, for example. Why is it that whenever there's a shift in the interest rates, all of the banks adjust their rates to exactly the same level? Why is there not one bank saying, "We are always going to set our prime lending rate at prime minus one, so we'll always be 1% lower than the other banks"? It's a business opportunity. Why don't they do it?
Is that simply a regulation failure? No, it isn't. It's a lack of access to market opportunities in terms of how people are able to get in there. So yes, at one level you can say that it's a regulation failure because it's a failure to make it easy for new participants to enter the marketplace.
Look, there are some things that we've done that are actually significant in recent times. Let me give you one very specific example. There was this idea that in terms of our shopping malls you have this concept of anchor tenants, and the anchor tenants were generally put in place with an agreement that if they happen to be in a shopping mall, then a competitor won't be there. So historically if you go to any particular shopping mall, you would find a Pick n Pay but not a Checkers, because that would be written into their contracts. And now we have a situation where the Competition Commission has determined that this is anti-competitive. Absolutely right. Because as far as I'm concerned, if I'm going shopping, if it so happens that the butter is cheaper at Checkers and the cheese is cheaper at Pick n Pay, I just want to be able to walk between shops as opposed to drive between shopping centers. So that's one of the scenarios where regulation would actually have been important.
But most of the anti-competitive stuff that we have comes from this whole idea of national bargaining agreements that take place between particular industries. So you have very large manufacturing facilities that sit down with unions and then do wage determinations for the entire industry, which fails to take into account the possibility that a new player might want to enter the market. So let's say if I'm in the clothing industry as an example, let's say I happen to be setting up in a place like Newcastle, which has probably better than a 90% unemployment rate in that particular city, and I want to say I'm getting together a group of people and we're going to start manufacturing clothing out here and we're going to end up paying each other R2,000 an hour plus we're going to split the profits at the end of the year. You're not allowed to do that. Why? Because big business and big labor have gotten together and they've taken a decision that you as the person who is setting up this company don't have the right to determine what you're able to afford to pay. So all of these pieces come together.
Thavash: So it's classic oligopolies which we've seen in other countries as well. I want to shift to global macroeconomics and the global outlook. I want to start with what we've seen over the last 20 years in terms of globalism and these large multilateral trade deals—BRICS, TPP, NAFTA, I think it's now being renamed. Now we've been brought into BRICS. Do you see value in these global partnerships, or has it just been a mechanism to shift manufacturing jobs to certain regions? Honest question—what have we gained out of BRICS?
Kanthan Pillay: If you look in terms of what South Africa has gained out of BRICS right now—well, we've got access to the BRICS bank, which theoretically means that our government is able to borrow more money to steal. So at that level, yes, we've gained something.
Look, I think that BRICS right now, in the broad scheme of things, it's actually only the middle part—it's Russia, India, China—and those three countries are essentially frenemies because they're competing in the same space at a number of levels. But at the same time, what they have very successfully been able to do is to create their own monetary system so that it's not dollar-denominated. And that is hugely important because what it means is that you've been able to have the free flow of commerce between those three entities that is outside of the US banking system. Because the US, by controlling the banking system, effectively controls the global economy.
So how does the US enforce the fact that we are not allowed to buy oil from Iran? Well, they do that by simply making it impossible for anyone to route payments across to Iran. So Russia, India, and China have actually been able to very successfully create a scenario where when India buys oil from Russia, for example, they're able to pay in rupees, and ditto in the case of China. So there's all of these trade exchanges that are happening.
Brazil has moved in a different direction because Brazil voted in a conservative government, and Brazil in fact very quickly ramped up its alliances with the United States during the Trump era. Now you've suddenly got the Biden era coming in again, and that's kind of upset the apple cart at some levels. So I don't know where that's going yet. But South Africa is kind of like a flea on the larger dog of BRICS. We bloodsuck, but we're not really able to suck out the blood from the entire entity.
Thavash: So looking at the smaller country and what the smaller country can do to protect itself in this era of globalization—now I made a video in 2019 which I theorized at that stage that I felt that Bitcoin could help these countries overcome the petrodollar or the US dollar as a global reserve currency. And we're starting to see it—we've seen countries like Iran, Venezuela embrace it. So this is the proper segue way to get into cryptocurrencies. Do you see that happening, and what's your view on the space?
Kanthan Pillay: It's very interesting—it merges tech and economics, so it's a very interesting space to a lot of us. The interesting thing in terms of crypto is that it's highlighted the fact that the entire idea of fiat currencies is one of the biggest cons in terms of the human race. Ever since we abandoned the gold standard, there's been a systematic destruction of wealth by governments who have just simply been able to print money.
If you consider for example what currently happens in the United States—so how does the United States actually do stimulus? Well, what they effectively do is they borrow money from the Federal Reserve and they inject it into the economy. But what is the security that they provide to the Federal Reserve? Well, they print a massive amount of money and they deliver that to the Federal Reserve as security for the money that they borrowed. So effectively you're injecting something into the economy that doesn't have any real value. But the United States is the only country that is able to get away with doing this, and the reason for that is because the United States has insisted that you can only transact oil in US dollars.
Now when you have a scenario where the only way you're able to buy a barrel of oil means that you have to have US dollars, it means that every country in the world is forced to be part of it. Now there's a couple of things that are actually shifting things away from that space. The single biggest thing that's going to cause the breakup of the US dollar is going to be the movement towards other energy sources away from petroleum. And I don't think people have any idea right now what the impact of electric cars just as a single category of thing is going to have overall on the way in which the world monetary system actually runs.
Because if the only reason why you needed to hold US dollars was to buy oil, and suddenly the global dependence on oil has actually shifted, what happens to the intrinsic value of the US dollar? You're not able to prop it up anymore. And at that level, the question then becomes: what then do people invest their money in that is actually going to give them at least the ability to stand still? Because remember right now you're always going backwards in terms of what your money is actually worth. So where do you actually put it so that you can be reasonably sure that it's not losing value?
During my grandfather's generation it would be literally keeping gold coins under the mattress. In many parts of the world like South Africa we're not allowed to own gold coins—we could buy Krugerrands, but that's a crock because that's massively inflated in terms of its price. If you go to Abu Dhabi you can literally walk up to a vending machine, put in your credit card, and get out a bar of gold. And the reason for that is because it's a store of wealth and the governments there actually recognize it.
Crypto is becoming that store of wealth. But remember that there are governments who rely upon the ability to be able to effectively steal your wealth through inflation and through taxation. Once you have the ability to freely exchange money between individuals that is outside of reach of government, that is the single biggest threat to government around the world. And that's why you are seeing all of these crackdowns that are happening on an ongoing basis in terms of cryptocurrency.
So what's going to happen in the long term is crypto is here to stay. Which cryptocurrency ends up being people's choice—I think there's going to be a basket of them, mainly because you need the ability to be able to pay for transactions quickly. The problem with Bitcoin right now is because verification of a transaction takes a minimum of 15 minutes. You're not going to be standing for 15 minutes in a shopping queue to ensure that the R5 that you've just spent on buying a handful of sweets is going to be processed.
So basically, I think my personal view is that Bitcoin will be seen as gold. You won't buy a cup of coffee with Bitcoin. You will store your wealth and use it for large transactions like maybe buying a house. And there will be a few others for other purposes.
Thavash: Do you see the 20s then being a period of potentially high inflation across global fiat currencies due to all of what we've discussed?
Kanthan Pillay: I think that the interesting scenario that we've got right now is that if you look particularly in terms of the rand-dollar exchange rate—if you consider what a disaster situation the South African economy is in right now, but at the same time we've been able to maintain that roughly R15 to the dollar threshold, and you have to ask yourself why is that. And the reason why that's the case—it's not that people actually have confidence in the rand, it's that people don't have any confidence in the US dollar anymore, and that has a ripple effect across all of the fiat currencies.
So I'm answering your question kind of in a backward fashion, but I think that a larger number of people are becoming aware of the intrinsic lack of value that exists in the existing monetary systems, and that means that they are looking for alternatives in terms of what they're doing.
Thavash: One final question on global affairs. What's your view on some of the censorship we're seeing across social media platforms? And we heard about the Great Reset—is there something sinister brewing now post-COVID in the world?
Kanthan Pillay: Oh, absolutely there's something sinister brewing. But that something sinister has been going around quite a while. Very interesting article in Time actually over the past week that talks about—you know, if in any other scenario this would be termed as conspiracy and collusion to affect regime change in the United States—but Time is now quite openly talking about how big tech came together with civil society and with unions in the US to do their damnedest to ensure that Trump was kept out of office. So it's out there in the open now.
This is exactly the same type of thing where if China does it, then everyone gets furious about it. If India does it, everyone gets furious about it. But it's okay for the United States to clamp down on particular trains of thought simply because of the fact that—oh, this is going to encourage violence.
I think what's going to happen is that there already has been a dramatic shaking of credibility in terms of your traditional sources of information. Now consider this: since the beginning of this year, CNN has lost 44% of its audience. And now ask yourself why is that, and what are the explanations behind that. On the other hand, there are some vehicles like Fox News for example that have actually increased their base. And that actually points to a crisis of credibility that's happening at a number of levels.
You see places like YouTube now clamping down very firmly on trains of thought that don't agree with their global outlook. But at the same time you are seeing more and more competitors coming up to places like YouTube. You're also seeing a scenario where there's an attempt to try and censor the internet at some level.
So I don't know if you know that there's a website called Dear South Africa—are you familiar with it? No? Well, Dear South Africa is a group of people who essentially host petitions primarily around a range of things—so expropriation without compensation. There's a petition on Dear South Africa where you're able to make your submission and they crowdsource those submissions, put them into a format that's suitable for being submitted to Parliament, and they do that. And they were taken offline this week by the Internet Service Providers Association, presumably for some violation of terms of service.
Now the entire idea that you have people who are meant to be providing you a pathway are able to shut off that pathway—it creates a scenario though where an increasing number of people are going to move into the dark web. Because—and you know, we don't have time to discuss what the dark web is all about here—but the entire idea is that you have encrypted end-to-end transactions where because of the fact that even though they're traveling along the same internet lines, because no one is able to see what's actually going on in that particular transaction, they're not able to censor it.
And I think that that's going to be an increasing view as people suddenly start taking responsibility for their own privacy at a level that they haven't done before. We saw this in terms of what happened with the Facebook-WhatsApp debacle fairly recently—the sheer volume of people that switched to Signal and to Telegram. And Facebook is never going to be able to claw itself back from that credibility gap in terms of WhatsApp. And to this day I'm still seeing everyday updates in terms of how to further protect your privacy from Facebook. So it's gone.
Thavash: So I'd like to start wrapping up the discussion. My closing thoughts, and then after this question we can hear your general closing thoughts. But my closing thoughts: you know, we were a country that had—we were starting to go into debt, we had the SOEs in crisis, all of this before COVID. And now we're trying to get out of COVID. If nothing changes in South Africa, what are the prospects for this country over the next decade?
Kanthan Pillay: It depends on which part of the country you're looking at and who in the country you're looking at. I think that you probably noticed that I haven't been on Twitter over the course of this year, simply because I just did an assessment and decided that was not a productive use of my time. So I've been pretty much off there. But as I was closing off last year, I said my slogan for 2021 is going to be "Defund the bastards." And the bastards in this case being our overlords who sit primarily in Luthuli House.
Really what we need to do is we need to have a situation where we have a real democracy in this country. And we have a real democracy at the point at which Parliament becomes real. Parliament becomes real when the ANC is a minority party. So the ANC has to drop below 50%. If the ANC drops below 50%, the only way they're going to be able to pass any legislation or budget for that matter is with the cooperation of the other parties.
So you're never going to have a situation—I think if you look at the growth trajectory—where the DA is going to be the party that's able to rule the country. But you are going to have a situation where the DA is able to have substantial influence in terms of what gets passed. So it's either going to have to be the country is run by an alliance of the ANC and the likes of the EFF, or it's going to be a scenario where if the ANC wants to move in a more growth-oriented direction, then they'll need the cooperation of the DA to get legislation passed.
So look at that as a future political model that's going to determine where the country goes. Until that time, I don't think that we're going to see any growth that's actually going to happen. Eskom is never going to be able to claw its way out of the debt hole that it is in right now. In fact, the view that I've expressed in the past is that Treasury should simply take the view that it should take the entire Eskom debt, absorb it into the Treasury, and write off the debt as part of the fiscals rather than something that Eskom ever needs to make back. Reset Eskom to zero, slash electricity prices from there, and that will be the single biggest thing that will then be able to spark business growth.
They're unlikely to do that simply because these complicated SOE structures are primarily a means for our government to steal. And as long as we recognize that that is the business model for the African National Congress in its current incarnation—it is to have as many of these entities as possible and all of them funnel money back to the mothership which is the ANC. They've learned well from the Chinese, which is why they're such good friends with the Chinese.
For my part, what I'm quite determined to do is to spend as little money as I possibly can that's eventually going to make its way into the pocket of government.
Thavash: Very interesting. Any final thoughts, closing thoughts before we end off?
Kanthan Pillay: I would suggest that everyone who can actually afford it start putting in place solar panels at their place and going off-grid.
Thavash: They're going to charge you for that now.
Kanthan Pillay: No, no, they can't charge you for the solar panels. What they can do is they can raise the amount of money that they are charging you to be connected to the grid. So in other words, it's kind of like when you wanted an ADSL line at your home but you still had to pay Telkom rental for the fixed line costs coming to your home. That's the type of scenario that Eskom is looking at.
But you know, if you go onto Eskom's smallest package, as you go to a package and you eventually replace all of your light bulbs with LEDs, toss out your electric stove and put in place gas stoves—all of these little things eventually mean that it's more money that's going into your pocket. You're still building residual value in your home and you're not paying it out to government. And you know, it's a better investment than you could make sticking it into the JSE. The JSE has actually gone backwards in real money terms over the past several years.
Thavash: Yeah, well, Mr. Pillay, on that note, let's end it there. Thank you so much. We've gone a bit over the time. I certainly enjoyed our chat and I found it very interesting—some very good points. Especially, and I'll do a wrap because I like doing this for the viewers: you mentioned the need to improve public transportation as the number one thing that could get our economy going again. You mentioned that we don't really have a proper capitalism in this country—there are barriers to entry, the monopolies, and that's also preventing economic growth. And you also mentioned aspiring to become a proper democracy as opposed to the current system. And those are three points that were made. So thank you for joining us today, and I think the viewers will most certainly have enjoyed this, and perhaps in the near future we can have you on again.
Kanthan Pillay: A pleasure. Okay, thanks.
