Will new money ever win over old money?

NAIROBI: Since the founding of Microsoft in 1975, there has been a global revolution, with new money from service-based industries replacing old money from manufacturing and industries closer to the earth, like farming and mining. In Kenya, the other source of old money has been the State.

We never used to hear of people like Bill Gates, Sergey Brin (Google) or Jack Ma (Alibaba). In Kenya, we never used to hear of Safaricom or even Airtel. Looking at the Nairobi Securities Exchange, not many listings are based on new money. Except for Safaricom, the biggest firms by market capitalisation are from old money sectors — brewing, banking, farming and mining.

Old money based on land, gold or even fine art is not affected as much by economic cycles. In Kenya, new money eventually finds safety in old money, particularly in land, which is why property prices are hitting the roof.

If we look at the richest men in Kenya, few have made their wealth from software, fashion or telecommunications — though we must accept that getting an authentic list of the richest Kenyans is nothing but educated guesswork. Still, they are associated with land or industries close to the earth, like food and construction.

New money is based on ideas, often intangible. These ideas are easily transferable from one country to another, unlike real estate or mines. Your location on this planet is irrelevant when it comes to software or the Internet.

The lack of borders means your market is much bigger and grows faster, unencumbered by culture and stereotypes.

Getting new money is made easier by another factor: intangibility and connection to our emotions. Economists will say such services are price inelastic. Noted how teens, no matter their socio-economic class, seem to always have airtime. They would prefer to skip lunch to ensure they have credit. Some are actually dealing with serious cases of addiction to social media, not very different from addiction to cocaine or weed.

INFLATING TENDERS

New money protects itself by continues improvement to attract more people and make users more hooked. Without M-Pesa, would Safaricom have withstood the onslaught from Airtel? The same improvement applies to fashion, movies, software and even education. Why do we want to get admission to Ivy League universities? They are old, but their curricula aren’t.

So why has new money not taken over Kenya? Will it ever?

To create new money, you need a lot of thinking. Microsoft Windows’ operating system needed brains to sit and write millions of lines of code. That is harder than selling plots or inflating tenders.

How long did it take researchers to come up with flat screen TVs, touch screens or even Viagra?

Are you surprised that lots of firms behind new money seem to originate from California and its universities, which attract students from all over the world? Silicon Valley would be less innovative and spinning less new money if there wasn’t so much diversity. Contrast that with the emerging trend in Kenya of ‘owning’ new universities based in the counties.

Whether it is software, fashion, entertainment, drugs, perfumes or hedge funds, you need lots of thinking. That we don’t love thinking is not in doubt; cheating in exams is hard to eliminate. Yet, serious thinking, which spawns innovations, can be very profitable.

But it is more than that; we rarely protect new ideas. Anyone ever been taken to jail for pirating software or books?

Interestingly, new money is made the old-fashioned way, through monopolies that are granted through patents or copyrights.

The hard thinking needed in creating money might be driving corruption. Why spend sleepless nights trying to file patents when buying land and sub-dividing it will make me you rich overnight? Why think of abstract ideas when there is oil or tenders?

One way to deal with corruption is to have a critical mass of Kenyans who believe in new money based on new ideas. The mushrooming of innovation centres will eventual offer old money competition.

We also must reform our education system to make it a catalyst of new thinking, of innovation. One simple way is to ensure there is competition in higher education. Such competition is created through diversity and incentives.

We talk of East African integration, yet find few East Africans in our schools. We must ensure the new counties and county-based universities and schools do not create uniformity of thought, which is popular only in graveyards.

CREATIVE DESTRUCTION

What incentives do we offer students who crack their heads in science and technology to spawn new ideas, which spin new money?

Some argue that politics will keep new money at bay because of the unholy alliance with old money — new money would be a threat to old money and its grip on political power.

Old money will definitely try to control new money, which is not class conscious. How many scientists call Muthaiga or Runda or Karen home? Schumpeter’s gale of creative destruction will further threaten old money. Ever wondered why lots of creative guys come from Eastlands or rural areas?

As Cytonn Investments CEO Edwin Dande says: “I am confident that just as the political environment transformed over the last 20 years from a closed and lazy system to an open and competitive system, the business environment will favor models based on innovation and productivity, as opposed to networks and connections .... Going forward, you have to have an idea that you can turn into a product or service that sorts out a fundamental problem in society, at a competitive price, to stay relevant.”

Old money can resist the rise of new money, but not indefinitely. Some even argue convincingly that new money, made honestly and through hard thinking, might be what is needed to clean up the political system and create a new Kenya, a Swahili Tiger.

The writer is senior lecturer, University of Nairobi School of Business. [email protected]