Reader Mail: China Buying African Resources, Boom Starts With Iraq War

How about some reader mail on Africa and Australia?

“Dear DR,

“Might be interesting to do a bit of a focus on China's activity in Africa at the moment. Just as chock-a-block full of resources as Oz, but without pesky obstructions such as high labour costs, worker safety regulations and economic/political regulations.

“You could argue that a lot of the US dollars being sent over by US consumers are being used by China to safeguard its future supply of resources through Africa (sounds a bit like the IMF and World Bank really doesn't it).

“Fair enough to argue that the infrastructure for wholesale raping of Africa is not yet present, but have you seen how fast the Chinese can put up a skyscraper in Shanghai? I wouldn't be betting against China developing Africa as a low-cost substitute to Australia over the coming years.”

We wouldn't bet against it either. China has nullified the political risk of investing in Africa by adopting an amoral national policy. Human rights don't figure in Chinese investment decisions. That means China is quite comfortable with African regimes that the West only deals with behind closed doors. From an investment perspective, it pays to look at Australian firms with African assets...and then assess the amount of political risk those have (will those assets be nationalised?).

And here's a note about the origins of the boom. We argued yesterday that physically, the global boom cycle starts with iron, coal, and steel. That's why Australia is so keenly valued. But is there another explanation? One reader thinks so.

“To me, it seems the Global Booms starts with the War in Iraq. Have you ever checked out the Dow Jones Index over the last 7 years. It is very interesting.

“War simulates economic growth in the US. Strong US growth equals increase retail and business sales. Products are manufactured in China, Vietnam, Thailand and Japan, services outsourced to India.

“Increased profit in these countries increases investment in infrastructure and then the Aussie companies supplying these companies experience strong growth. Africa has pesky things like kidnapping, executions, corruption and explosions at sites."

Compelling theory, and hard to argue with. Still, the retail boom in America-and all the aftershocks of increased capital spending in China and mining activity in Australia-starts with the expansion of credit more than the expansion of military hostilities.

Wars are always useful for governments to distract from mismanaged finances at home, or some other impending and real crisis (like Peak Oil). But wars never create real economic prosperity. They only destroy lives and property and divert capital from otherwise productive uses.

Oh sure, a good war can give the appearance of expanded economic activity. Factories hum and bullets fly. But war, as the French economist Frederic Bastiat pointed out, is nothing more than plunder.

It's the national equivalent of going around and breaking windows. It's good for the glazier. But what's unseen is what all that money spent repairing broken windows would have otherwise been spent on. You never see it because it never happens.

Bastiat put it this way, "Surely one of the saddest things that can present itself to anyone who loves mankind is that of a productive age bending all its efforts to infect itself - by way of education - with the thoughts, sentiments, the errors, the prejudices, and the vices of a nation of plunderers...Plunder by way of war, that is, rudimentary plunder, simple and undisguised, has its roots in the human heart, in man's nature, in the universal motive force that actuates the social world - his attraction toward satisfactions and his aversion to pain...

"Man, thus confronted with a choice of pains, the pains of want and the pains of toil, and driven by self-interest, seeks a means of avoiding them both in so far as possible. And is then that plunder presents itself as the solution to his problem. He says to himself: It is true that I have no means of procuring the things necessary for my preservation and my enjoyment - food, clothing, and shelter - unless these things have previously been produced by labour. But they need not necessarily be produced by MY labour. They need only have been produced by someone, provided I am the stronger.

"Such is the origin of war."

Dan Denning
The Daily Reckoning Australia

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