Friday 30 March 2007

Short cuts (IV)

More short readings:

1. Two different readings from Nancy Birdsall at the Center for Global Development (CGD). The first one, Do No Harm: Aid, Weak Institutions, and the Missing Middle in Africa, emphasises the impact the "missing middle" has on the prospects for development in Africa and what international donors can do to help bolster the middle-income population. The other one, Inequality Matters: Why Globalization Doesn't Lift All Boats, analyses the different impact inequality has had in the way towards development of East Asia and LATAM.

Eventhough it is too much focused in the USA reality, everybody should join the interesting newsletter offered by the CGD... interesting people and interesting ideas on how to change the dramatic situation in LDCs.

2. Professor Abhijit Vinayak Banerjee, from MIT, talks in this piece Inside the Machine: toward a new development economics about the changes in development economics theory.

3. Moving towards a different sector? from a coffee company towards a music company, an interesting decision, at least this is what Starbucks seems to be doing. (Once you have a captive market you can try other things with all these cutomers...)

4. A friend is working for UNAIDS in Bangkok. She is one of the few who do not face too many problems to get into Myanmar (previously known as Birmania). She told me that it is an amazing and very beautiful country. Unfortunately, this beauty seems to be positively correlated to the lack of civil and political rights. Did you know that they have built a new capital? Naypyidaw (forget about Rangoon!)

Tuesday 27 March 2007

The myopism of the elites in LDCs...

Inequality (and inequity) is, in my opinion, one of the most important problems to face when dealing with development.

Inequality in developing countries is high and persistent (for a summary of the effects of inequality on development, don't miss the WDR 2006).

In the face of higher inequality you need more economic growth to make people out of poverty. At the same time, inequality is associated to political instability and social unrest, which diminishes the interest of potential investors (remember, there is important lack of capital in these countries!) and therefore hinders economic growth. Finally, those without resources are usually unable to access capital markets, having a pernicious overall effect in the economic capabilities of a country.

One of the most important reasons for the persistence of inequality lies in the power the economic and political elites (normally the same or closely tied) have to prevent the great majority of the population from benefiting from economic growth. Formal and informal institutions are the way to achieve it.

The strategy of the elites in LDCs consists in keeping the share of the cake, instead of trying to make it bigger.

In a recent report titled: The Next 4 billion, the World Bank has estimated the market power of the 4 billion people in the world living in relative poverty. They represent an awesome $5 trillion market (an important cake!) with an amazing potential. However, there exists important barriers for these people to take advantage of this potential.

If I were hired as consultant for the elites, I would tell them to invest more on the poor, that is, open the political space, pay more taxes (to preferably invest in education, health and infrastructure) and work for the development of an efficient state and public administration.

It is like Germany with the rest of European countries during the creation and development of the European Union. Why have they -the Germans, I mean- been financing the development of the rest of countries in the Eurozone? Guess, and if you don't find the answer ask AEG, BMW, Bayer, Mercedes, Porsche, BASF, Siemens, and many others... now they have a 455 million people market to sell their products!

Another case of irrationality? It must be the case that shellfish doesn't consider variables related to time.

Friday 23 March 2007

Short cuts (III)

Another wave of short readings for the weekend:

1. On the issues of climate change it's becoming harder to determine what is a good or a bad policy. In this interesting short piece, it is argued that building a Toyota Prius takes more combined energy than a Hummer (thanks Joan Oriol for the notice!).

2. Trouble and instability is back in DR. Congo! To keep informed: http://allafrica.com/

3. An interesting piece about the economic inefficiencies derived from the activities of lobbies. It concludes:
The upshot is that the reassuring theoretical result that lobbying is efficient is only valid in highly restrictive situations. In general, the existence of lobbying is highly likely to create economic inefficiencies – a result with implications for the design of political systems, including governance and campaign finance reforms in developing countries. Those inefficiencies are likely to favor less economically productive groups (such as lagging sectors or regions), at the expense of more productive ones. And in societies where there is mobility, and wealth depends more on one’s own productivity than on inherited privilege, there should be no presumption that lobbying need necessarily benefit the rich. Under those circumstances, populist distortions are even more likely.
One can complement this short piece with a recent comment appearing in The Economist about the American-Jewish lobby in the US... It is interesting how US politics work!

Sunday 18 March 2007

Constituency fever in the Andes...

During the last few years, two countries in the Andean region, Bolivia and Ecuador, have lived important political changes. Most of these changes have occurred far from the institutional framework established for that purpose, and presidents in both countries have to, literally, flew away, incapable of achieving better conditions for their citizens even in front of economic dynamism (beside other causes, of course. It's always impossible to determine consider one single cause) .

Clientelism, corruption, and social deslegitimacy have been the main characteristics of the traditional political parties and the political system of representation (few years ago, at the IIG we published two interesting governance country profiles of both countries -in Spanish. Here for Bolivia, and here for Ecuador).

As a consequence, new political figures emerged. Both, Correa and Morales gained the top job claiming for the necessity to make deep changes in the "rules of the game" (be they related to the economic, the political and even the social arena). And this "sweeping behind the carpet" has its immediate translation in the calling of a Constituent Assembly to define and develop a new Constitution.

Both countries have in common different issues which one have to keep in mind when trying to guess the final consequences of these strategies:

- the extraordinary income inequality sustained in pervasive social pacts dating back from the colony (with critical consequences if we consider the institutional framework present in both countries, incapable of avoiding the translation of economic power into social and political power) - closely related, both countries are physically and geographically divided, with local and regional governments pledging for new duties and attributions (more power!)
- and finally, both countries have very demanded natural resources (to see my previous thoughts about the gas issue in Bolivia, have a look at this -in Spanish, though!)

I do think these countries need important institutional reforms. The actual institutional setting has disproportionally benefited a minority of the population (the rich ones). However, I do not think a great reform, such as the elaboration of a new Constitution, will achieve its pretended goal: solve all the numerous and deep rooted problems in these two countries. Not only the lack of consensus in the definition of this new Constitution, but also the lack of consensus in the procedures and steps to be taken are maintaining both countries in a permanent situation of social unrest. Furthermore, in the meantime as well, both countries are experiencing a dangerous concentration of power in the hands of their respective presidents. Given the multiple and divergent positions (i.e. polarization), it would be better to refind the consensus and "repair the holes, rather than starting to build a new house".

However, how to change the rules of the game when the rules to change them seem to be biased?

Friday 16 March 2007

Short cuts... (II)

Here you have some short cuts for the weekend:

1. Really interesting discussion on democracy and economic performance with Ed Glaeser and K. Daron Acemoglu.

2. Mugabe strikes back! Things are getting hotter in Zimbabwe.

3. Another cruel reality from the blogosphere. From the violently harassed Iraq, a blog written by Saad Eskander, Director of the Iraq National Library and Archive.

Thursday 15 March 2007

Latest chinese movements...

After three decades of impressive economic growth -even after last year increasing woes and fears of a possible over heating- China seems to move further on its own path towards development (what is becoming to be known as the Beijing Consensus). Recently, a lot has been said about the passing of a new law that gives individuals the same legal protection for their property as the state. It might be a natural consequence of the flourishing of a wealthy bourgeois concerned by its (personal) interests and their descendants'.

Besides that interesting news, what seemed more shocking in the recent People's National Congress was Wen Jiabao's opening speech, pledging for a new society, a "harmonious" one, as he has named it. It is, somehow, a new social contract (I would say pact, as it is not formally written, even we could talk about "social imposition" as there isn't any type of political accountability) by which social issues are put back in the core of the national political agenda, lately too worried about trade openness and economic growth.

This new society will have to bring back aspects like: social justice, redistribution or environmental sustainability. The increasing inequality (between the cities and the rural areas) as well as the increasing depletion of the environmental capital seems to drive this social turn.

There are two things that really attratcs my attention. The first one is related to how this giant is learning from the past and, although there still persist enormous problems in the country (the most important one are the absence of civil and political rights and increasing social and economic inequality which is feeding social unrest) that will certainly impede to spread growth in a sustainable and equitable way, they realise that sparkling economic growth needs of different requirements than sustaining economic growth. The strategies, that is, economic policies to achieve them, do not need to be the same.Rodrik (it has to be him) wrote about these same issues.

The second one relates to the important gap that exists between what the the chinese leaders plan to do at home, and what their economic anxieties (mainly energetic ones) suppose in developing countries, and mainly Africa. It seems pretty contradictory to buy oil from Sudan, whereas at home you realise how harm economic growth can make when its profits are not adequately shared. (well, I guess this is international political economy!).
This interesting document: China's interest and activity in Africa's construction and infrastructure sectors analyses the implications of this new approach to the missing continent.

Sometimes I ask myself: In the near future... will we find the answer to this period of Chinese economic bonanza in the presence of a benevolent dictator?

Related: a very close friend from Bilbao is currently living in China, he is a photographer. You might have a look at his pics.

Friday 9 March 2007

Mad Bush III: Beyond Thunderdome

Do you remember that retrofuturistic movie with Mel Gibson and Tina Turner? (here you can refresh your mind!) Basically, Tina Turner ran tyrannically a town called Bartertown where electricity, vehicles, and every sort of functioning technology —all almost unheard of in this post-apocalyptic world— are made possible by a crude methane refinery, fueled by pig feces, using a weathered semi tractor as the electricity generator.

Well, change methanol for ethanol. Change Max character for Bush (just only Max) and you will have one of the most important reasons why Bush is travelling to Brazil.

Convinced about the necessity to diversify its sources of energy as well as its energy-dependency on hostile countries, Mr. Bush plans to foster the trade and the production of this kind of energy, very cheap to produce in Latam. The region could take important profits from this new adventure.

Another important issue of discussion related to biofuels is their impact on climate change... it seems that we are still far from resolving this type of problems! As Achim Steiner, the head of the UN Environment Programme has stated, for the specific case of Brazil, the unstoppable increase in sugarcane production is putting important biodiversity rich areas at risk!

Thursday 8 March 2007

LATAM, time for the micro (tax reform)

Whenever one travels around Latin America and starts asking for some specific economic issues one realises how damage the search for macroeconomic stability and crony capitalism have had in the past two decades of fighting against poverty and in the future prospects. Certainly, and eventhough there exists a macroeconomic stability (which seems to be consolidating) there still persists important inadequacies in terms of the necessary microeconomic foundations leading to sustainable and equitative growth.

One of the issues where the lack of reforms was most striking concerns the inability of the tax systems of the countries in the region to collect enough resources to implement accurate policies conducive to development. I just read this interesting article from the IMF and the WB (Fiscal Policy for Growth and Development: An Interim Report), at some point (page 2) it asserts:
"The success of fiscal policy in relation to its stabilization objective may have come at the cost of long-term economic growth."
It seems that the IFIs are starting to publicly admit there was too much obsession (and probably some miopysm) when advising for restrict fiscal and macroeconomic balance. It's time to focus on microeconomic reforms!

Here you can find (in Spanish, though) a similar analysis specific for Peru and considering the recent elections won by Alan GarcĂ­a.

Friday 2 March 2007

Interesting interview with Joseph Stiglitz...


Thanks Hugo for this very interesting interview with Joseph Stiglitz appearing in The International Herald Tribune. He talks about almost everything: housing, international trade, Latam politics, international political economy... very up-to-date.

I really like these two answers to these other two interesting questions (about the new left in Latam and about housing):

Q. I would like to hear your analyses of Latin America’s leftists. What do you make of Venezuela’s economics? Are Venezuelan policies sustainable over the long term? Is Chile truly the holy grail of development economics?

Paul Escobar
Canada

A. Chile has had impressive success over the past 15 years, after a major recession brought on by excessive faith in free market economics under Pinochet through insufficiently regulated banking. But there are alternative interpretations/explanations of that success. Chile did not follow many key elements of the Washington Consensus during its most successful years. It imposed capital controls. It only privatized part of its copper mines, and the privatized mines arguably did not perform better than the nationalized ones, though the profits were sent abroad, while the profits of the nationalized mines could be used in the nation’s efforts to develop. Government and foundations lay behind many of its successful development projects (such as its fisheries) - the kind of industrial policies that the Washington Consensus railed against. And unlike the Washington Consensus, Chile put considerable emphasis on social policies.

Chile did two things that were part of the Washington consensus - it liberalized trade and it limited its government deficits. The lesson is similar to that of the successful countries of East Asia: Globalization can help bring prosperity, but countries have to manage globalization on their own terms, in their own way. Chile did this. The countries that followed the Washington Consensus mantra have, by and large, not done so well.

It is the failures of these policies that have provided the impetus for the new movements in Latin America. Venezuela is the country in Latin America with the richest resources, but it is a rich country with poor people; before Chavez came to power, between two thirds and 80 percent of the people were in poverty. The riches of the country went to the rich, who did not want to share them with the vast majority of the citizens. Countries like Ecuador, Bolivia and Venezuela signed agreements with foreign oil, gas and mining companies that were generous to the foreign companies but cheated the country out of what was rightfully theirs.

There is an ongoing debate about whether it was the result of corruption or incompetence of previous Administrations, or the consequence of pressure to privatize these resources quickly. But for the impoverished people of these countries, these distinctions may matter little. All they know is that their country is getting less than it should. The new governments have been able in many cases to cut a better deal. They know that they need the expertise of the foreign oil companies. They have been explicit in saying that these companies should get a fair return on their investment. Indeed, these companies are getting a very, very high return on their investment. These countries are only asking that they get a larger share.

In many cases, these countries have put into place health and education policies that are already working, bringing health and education to the poor barrios for the first time. It is these successes that partly account for the popular support of these governments. Some critics label such policies as populist, but if populism results in the poor getting education and health services for the first time, isn’t that what democracy is supposed to produce?

The countries are also putting into place longer-run growth policies.
Some of these policies and projects make enormous sense. But how successful these policies and projects will be will depend partly on how they are implemented. It is too soon to make a clear verdict.

Q. Inflated and imperfect real estate markets, driven by speculation, have emerged as a defining characteristic of globalization. Is it time for a global housing regulator, or something approaching a transparent global housing regime? Who will stem the speculative tide?

Hasan Jafri
Hong Kong

A. Throughout history, capitalist economies have been marked by booms and busts. At this juncture, it is hard to conceive of how a global regulator could work, but there is much that regulators within each country can do, for instance by adjusting requirements on downpayments of housing and other terms of mortgages, and increasing capital gains taxes. Regulators can dampen these fluctuations, even if they do not eliminate them.

What the international community can do, though, is to stabilize the flow of speculative money that helps feed these bubbles. Most importantly, the international community should give countries enough “policy space” to allow them to undertake stabilizing actions, for instance, the imposition of Chilean-style taxes on capital inflows, or the imposition of stabilizing prudential regulations.


Have a look to the rest of the interview here. It's worth a quick reading at bed before falling asleep...