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  All in all, Botswana was intriguing.

  The Second World War did much to unleash black Africans’ expectations. War is always a major watershed in history. The war changed many of the social, economic, and political balances of the continent. Many Africans went off to Europe, where they experienced a different mode of life. Back home, they had certainly observed the English colonialists. After the war, many foreigners moved into Africa. They brought prosperity even though the Africans thought they were all colonialists out to exploit them.

  When the British were chased from Ghana in 1957, Kwame Nkrumah, the first black prime minister, pledged, “If we get self-government, we’ll transform the Gold Coast into a paradise in ten years.”

  Outside of Ghana many other blacks realized they weren’t cashing in on the worldwide, post-war prosperity. They naturally thought if they got rid of the outsiders, their oppressors, things would get better.

  They got rid of them and things got worse. Typical of the new democrats, Nkrumah turned dictator and jailed his enemies. He made court buffoons of the press and forced farmers to sell their output to his crooked cronies on the Ghana Cocoa Marketing Board, which destroyed the small farmers’ farms with its low prices. By the time he escaped to Romania in 1966, he had created the pattern for African leadership for the next twenty-odd years.

  All across Africa post-colonial blacks got one man, one vote—but only once. In came the dictators. Their first act was to snatch everything they could from the “exploiters,” never mind building up their countries’ economies. To them it looked as if they could make things all right forever if they could rip off the colonialists. They expropriated the lands and made themselves into what they called good Communists and socialists. Many of them were simply perfectly ordinary dictators and tyrants who covered over what they were doing with the theory of the day, socialism, which they said was the sound social policy.

  This theory didn’t work, however, any more than any statist theory of government can work. As their economies had fallen apart, the dictators had become more and more frantic to preserve what they had. To shore up their collapsing economies, they’d put on tariffs, import controls, regulations, licenses, and currency restrictions, everything they could think of.

  Once again, here were governments employing Band-Aids instead of dealing with their root problems. These measures provided short-term help, but their economies had continued to spiral downward. They had a reprieve with the commodities boom in the 1970s.

  Ironically, that boom itself was swelled by worldwide commodity shortages engendered by the colonialists leaving Africa a decade before. They had taken with them their knowledge of production techniques, administrative savvy, marketing contacts, and every scrap of capital they could repatriate to their homelands. Production of everything in Africa naturally declined. Before other mines and agricultural lands could expand to fill the economic void, prices rose dramatically. Without this boom in prices, these dictators, like the Communists in the Soviet Union, would have been tossed out long before.

  By the late eighties, African leaders had no more room in which to maneuver. There were no more Band-Aids that would work. With new sources of minerals and agricultural products coming on stream, the commodities boom had fallen apart. Africans across the continent reacted by calling for change. Change meant democracy movements, since Africans were reacting to failed one-party dictatorships, as had happened in Boston in the late eighteenth century and in China in 1989.

  Today only a handful of the fifty-odd African countries, such as Zambia, São Tomé, Mauritius, and Botswana, have open governments. My take is that unrest and clashing factions will produce many problems here. However, I don’t think these problems will be as endless as those in Central Europe.

  Why not? For the past forty-five or fifty years Central Europe has been thinking, Well, if we had democracy, we’d have prosperity. We in the West know democracy doesn’t necessarily mean prosperity.

  Central Europe will probably go the same route as Africa: elect statist governments that will become more restrictive as things go wrong and put on controls “to solve things.” Thus, as in Africa, these Central European democracies will probably be stillborn. Ignoring the history of Africa and South America, they will head down the same path, the one of massive regulations, high inflation, ethnic warfare, bad currencies, and ultimately dictatorships. In addition to the root problems of badly managed economies and irrational borders, Central Europe is filled with armaments, which will further complicate its political affairs.

  Ordinary Africans, like ordinary South Americans, have traveled the hard road long enough to know they must be vigilant about what form of government they allow. Unlike the Central Europeans, they now have the collective wisdom to know democracy isn’t enough, to know certain political and economic policies won’t work.

  They now realize they must no longer put up with oppression, that they must cut out regulations and controls, and that they must embrace a true open society. Those who are now running these countries are freeing up and privatizing the economies. No longer do they think the way to solve their problems is to centralize everything. They know state businesses don’t work and that the only way to gain any prosperity is to unleash the entrepreneur.

  Of one thing I am sure: Africa has to find its own solutions. Nineteenth-century colonialism, socialism, and Communism have been tried and have not worked. True democracy might work here, yet it might not. What would work would be a system that would unleash the spirit of the people to do better, one that would allow the market to help them find their own true way.

  Even though neither they nor anyone else knows exactly where they are going, Africans are now on the right road for the first time in decades.

  We drove down to Gaborone, which was so well developed we could have been driving into Montgomery—big buildings, paved streets, and good road signs. We exchanged currency and indeed didn’t have to have our currency forms stamped. We spoke to bankers, brokers, and others in the financial markets. They all confirmed that the currency was freely convertible.

  Not only convertible, but hard. I wondered why it wasn’t at least deteriorating like the lira or some of the other weak European currencies.

  One of the world’s largest diamond mines was here, discovered only a few years before. The area also did a big business in ranching, even exporting cattle. In Central Africa we had seen only goats and pigs, but down here it was cattle. Raised on the open steppes, cattle had traditionally been a good livelihood here, the measure of a tribesman’s wealth. Botswana had another comparative advantage over other African countries.

  A little more homework told me Botswana had a balance-of-payments surplus. In other words, every year it exported more than it imported.

  It even had a government-budget surplus.

  This startled me. A government-budget surplus would be rare anywhere, but was especially surprising in Africa. Botswana also had three years’ worth of foreign-currency reserves. This meant if it stopped exporting tomorrow, stopped earning foreign currency—deutsche marks, rand, and dollars—it had enough foreign currency in the central bank to import at its present rate for three years. The same number of Sony TVs could come in, the same number of Caterpillar tractors.

  Contrast this to Italy, where the foreign reserves were measured not in years, but weeks. Indeed, many countries had only a few weeks or months of reserves, their governments’ living so hand-to-mouth that imports and currencies had to be rigidly controlled.

  I did more homework and found out Botswana really did have democratic elections. I was warned by the opposition politicians, those out of power, that the police were getting a little corrupt. The other thing that worried me about Botswana was that diamonds as a commodity were a short sale. I didn’t think the diamond market would collapse any time soon, but I certainly didn’t want to be buying them.

  I felt I had to be careful because the government might be foolish with all that surplus money. It ha
d built a big soda-ash mine, which I wasn’t convinced was a great business for this country. The government might invest in a joint venture with a large international company involving a show project only because it thought this was the proper way to do things, not as a sound way to make money. If that soda-ash mine didn’t work, it could be evidence that the government would fritter away the country’s assets.

  Later I found out the soda-ash mine wasn’t working, which certainly gave me pause about investing further here. The government had opened up the mine, it had turned out soda ash, but it wasn’t profitable. The press had quoted the government as saying the lack of profits was due to technical problems and the price of soda ash. Well, that explanation wasn’t news to me, because I was sure this government, like every other, was never going to say it didn’t work because it was its own fault. What I had to do was figure out whether the price of soda ash had really collapsed or whether the government had been incompetent.

  On the plus side, the government had decided the country should be full of capitalists and that it needed a stock market. If it were going to develop industry, with a sound economy and jobs and all the rest, it recognized that it would need a stock market to raise capital.

  So it had passed laws, given tax incentives, and done everything it took to attract capital. It hadn’t gotten too far with it. Since it was such a tiny market, there was only one stock broker in the entire country. This broker was in a joint venture with Barclay’s Bank. That made me feel good, because I knew Barclay’s wasn’t going to disappear soon. The entire stock market was in one guy’s office, and he had only a half-dozen employees.

  In fact, the entire market happened at one guy’s desk. He matched up buy and sell orders. There were seven stocks.

  I kept investigating. I went to see the government minister in charge of the stock market. He confirmed the government’s intentions to aid the raising of capital.

  “Yes,” he said, “we’re going to build it up. We’re going to continue to pass favorable laws to make it work well. We’re going to give tax incentives for companies to go public and for people to buy and own shares.”

  At least the government had recognized you could not just start a market and sell stock if there hadn’t been one before. People would then say, “What is stock? I don’t want any part of it.”

  But if you said, “Stocks pay dividends, and we won’t tax them,” it doesn’t take people long to figure out, “Well, if I put my money in the bank, I pay taxes on it. But if I put it in this newfangled stock market, I don’t pay taxes.” So, they’ll put it in the stock market.

  This government had learned all these tricks. So I asked, “Who’s against this? Who’s against a stock market?” You have to worry about this in any country. If there’s an election and the other side comes in and says, “We’re socialists, and we don’t like this stuff. We’re going to change the rules,” you get out then—if you can.

  “No one,” he said. “The opposition is in favor, too.”

  I checked to see if these stocks were expensive. I looked at traditional measures, like price-to-book value. Were the balance sheets sound? Did they pay a dividend? Were the price-to-earnings ratios high? Were they viable industries? Did they have a good future in Botswana?

  Things looked fine. I figured I was not going to lose any money. These stocks appeared cheap enough that the worst that would happen was they would sit there and give me no return. All I would lose, I hoped, was the opportunity cost. However, they all paid dividends, so it wouldn’t be that unproductive. I would be getting dividends in a currency that was hard or at least semi-hard.

  I had ascertained that Botswana had a sound economy and a sound social structure. I had ascertained that there was a new stock market and that the government wanted it, and that the opposition also wanted to develop and encourage it. I had further ascertained that the stocks were cheap relative to dividends and other traditional stock-market valuations. The final reason I invested here was because it was next to South Africa.

  I knew South Africa was at a crossroads, and that it could either become Argentina—the old Argentina, where they printed money, had rampant inflation, and bought votes—or it would become open and sound. My analysis was that even though South Africa was Botswana’s largest trading partner and even if South Africa didn’t make it, Botswana was still not going to be a disaster. I was not going to lose money in Botswana, because its stocks were cheap and there were many other things going for it.

  If South Africa became dynamic with explosive growth, I was going to make a lot of money in Botswana, its northernmost neighbor, just as Canada, our neighbor, had become rich because of our markets. I came to think that Botswana was the best means of investing in South Africa because it didn’t have the political, economic, and social dangers South Africa presented. I had all the potential of South Africa without its risk.

  I went back to the fellow who ran the stock exchange and bought all seven stocks because I couldn’t see what difference it made to pick and choose among them. Obviously, if you’re starting a stock market you don’t start with Joe’s Corner Liquor Store. You start with your largest, soundest enterprises—banks and mines. And that’s what they were—not a whole lot of risk. In the beginning, I never go into these markets with a lot of money. I like to get my feet wet and see what kind of problems happen before I really pile in.

  Several more companies have come public since then, the same sort of companies—big ones—which I’ve also bought. When Joe’s Corner Liquor Store in Francistown goes public, that will be the time to get out. I hope that will be a long, long time from now.

  We stopped at kimberley, which I had long wanted to see. It is the site of the world’s largest manmade hole, called just that, The Big Hole.

  Back in 1871 diamonds had been found here on what used to be a large hill. From that date until the site had been exhausted in 1914, not only had the hill been carted away, but an enormous crater eight hundred yards deep and covering thirty-seven acres had been dug into the ground. From all over the world tens of thousands of people had poured in to make their fortunes. A number of them did get rich. More than 28 million tons of earth had been removed by hand and sifted, and about six thousand pounds of diamonds had been found, 14.5 million carets, which at today’s prices would fetch almost $200 billion.

  The De Beers mine across town looked as if it would match in size and be even more valuable than The Big Hole had been.

  In many cultures throughout history, emeralds, sapphires, and rubies have been more precious than diamonds. That diamonds were now more valuable than all other gemstones was a recent phenomenon. A hundred years before, emeralds had been far more valuable.

  The De Beers Mining Company not only set up the South African diamond monopoly, it then set out to control the world price by keeping diamonds off the market. To build demand the company came up with the extraordinarily successful advertising campaign, “A Diamond Is Forever,” that fixed in the public’s mind that emotionally important events, such as engagements, marriages, and special anniversaries, needed a diamond to commemorate them.

  At least since ancient China and the time of Christ, business owners have tried to establish monopolies. The early Chinese emperors forbade anyone to export silkworms, under the pain of death. The aromatic gum resin frankincense, which the Wise Men brought to Christ’s birth, was the product of a monopoly. The two Arabian cities that produced the resin also forbade the export of the frankincense tree under punishment of death. Their monopoly kept the price at the equivalent of our price of gold, four hundred dollars an ounce, which is why frankincense was considered an extraordinary offering for a child in a manger.

  Nearby Angola was going through a terrible civil war. Even so, about fifty thousand people were there digging up diamonds. Since Angola had no government, De Beers had not been able to get those miners under its control. Nevertheless, as soon as there was a government in Angola, the first thing it would do—both warring polit
ical parties had said so—would be to gain control of the diamond market “for the good of the country.” They would pass a law that would say to the prospectors, “You can only sell your diamonds to us, the central buying unit, or go to jail.”

  To the buyers they would say, “For your own good we won’t let you buy from the producers, otherwise the greedy capitalists will sell you counterfeits.”

  Actually, the measures would serve to control the price and enable the government to get its mitts on all the hard currency.

  For the past sixty or seventy years, De Beers has succeeded in hiking the price of diamonds to an incredibly artificial level. There was never an economic justification for such a high price. Now that monopoly is starting to crack. Historically, De Beers has controlled 100 percent of production and sales. Today that number is about 80 percent. In thirty years, diamonds will have less value than they have now. Certainly they are not a gemstone in which to invest.

  Why not? The law of supply and demand is once more hard at work. Since De Beers has set the price high, people are motivated to find diamonds. To maintain its high prices, De Beers has to buy from every producer who puts diamonds to them. If it refuses to buy, the producers will sell elsewhere. The price will crack and plummet. De Beers’ inventory will become worthless.

  On the other hand, if De Beers continues to buy all the diamonds offered by independent entrepreneurs, it will eventually run out of money and have to stop buying. Either way, the price of diamonds will drop. Nothing lasts forever, certainly not artificial controls, whether concocted by bureaucrats or capitalists.