Short cuts (XVII)

Back with some short cuts...

1. Research about private aid is very scarce. this interesting article titled Uncharted Territories by a friend in the Netherlands is an exception. It analyses how NGODs geographically allocate the money they spend. According to a new database specifically built for these research, they show that although "non-governmental development organizations are expected to focus on countries with poor governance, new evidence shows that they do not. While they do tend to focus more than bilateral donors on poor countries, they make some curious geographical choices. It seems that they too have their ‘donor darlings’. It seems that "the more an organization depends financially on its official donor, the greater is the correlation between their choices of countries". Very useful for those working in non-governmental organisations or bilateral agencies!

2. I have been playing with this interesting website developed by the Inter-AmericanDevelopment Bank that gathers very useful information on governance, social and economic conditions, etc... in a very user-friendly way. It is called Datagob.

3. Krugman on Milton Friedman... an interesting approach to one of the most influential and polemic figures in the economics and the political economy of the past century. Latin America was one the most important playing fields for his acolytes!

Between Sachs and Easterly... you find Collier!

I just read this very, very interesting essay written by Michael Clemens from the Center for Global Development. He reviews Paul Collier's new book The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It.

Mr. Collier knows a lot about development and how to proceed to fight poverty and abjection. On other side, Clemens has made a great effort to critically summarise and analyse Collier's main points. According to the former, Collier seems to stuck in the middle between Sachs and Easterly's fightings (that is, between planners and searchers). Collier basically focuses its efforts towards that billion of people living in those developing countries economically stagnant and caught in any of the different poverty traps he considers: armed conflict, natural resource dependence, poor governance and geographic isolation. I haven't read the book yet, but after reading this essay, everybody interested in development should have a deep look at it. I really liked Clemens' conclusion:

Helping the bottom billion will be a very slow job for generations, not the
product of media- or summit-friendly plans to end poverty in ten or 20 years. It
will require long term, opportunistic, and humble engagement, much of it through
public action—built on a willingness to let ineffective interventions die and on
a sophisticated appreciation of the stupendous complexity of functioning
economies. The grievous truth is that although arrange of public actions can and
should help many people, most of the bottom billion will not—and cannot—be freed
from poverty in our lifetimes.

UPDATE: here, you can find Simon Maxwell's (Director of the Overseas Development Institute) opinions on the book.

It seems to be a must-to-have book!

Myanmar: time for int'l (economic) policy

How things will evolve in Myanmar is a mystery, but it seems that the near future, as it was in the 1988 pro-democracy demonstrations, will be written with blood. Recent demonstrations in the country began because the military junta decided, in mid August, to rise fuel prices.

Despite this decision, the growing discontent among Myanmar's people lies in the lack of advancements in terms of political and civil rights as well as in the lack of improvements in the social conditions in a country blessed with nowadays highly profitable natural resources such as oil, gas and precious metals but also with rampant corruption, as stated by a recent report on this issue written by the NGO Transparency International. Moreover, at the beginning of September, a constitutional commission appointed fourteen years ago by the Myanmar's military junta to outline the principles of a new constitution finished its works. The result was really disappointed given the proven anxiety of freedom revealed by the population.

Last day, George Bush said, at the UN General Assembly, that the US would tighten existing economic sanctions on the country. Bla, bla, bla. Unfortunately, the solution seems to lie far away from the UN, and even further from the US or the West. Solution lies within Myanmar's borders. Contrary to Arab countries, this seems to be a bottom-up revolution but international pressure can help.

However, recent years of isolation imposed from this side of the world have been used by other countries from the region to obtain profitable contracts to extract those so-demanded energy primary sources. The principal trade partners of Myanmar: Russia, India, Thailand and other country members of the Association of Southeast Asian Nations - ASEAN but especially China, should play a major role in this issue. Only a coordinated action from the world can avoid bloodshed

On our side, and given the lack of capacity that we normal dwellers have to impact on these kind of issues in the international arena, we, consumers in developed countries, should investigate and check whether any of our companies is operating there and force them to quit countries with the political characteristics of Myanmar.

And now we ask for more interventionism...

Last Monday the city of Barcelona suffered from a massive blackout! The impact and the consequences, be they economic and social, for the city are now beginning to be estimated. The Chamber of Commerce of Barcelona has been the first one in offering an estimation. According to them, the economic loss for the approximate 30.000 shops, small firms and businesses affected by the power cut has been of 62 millions of euros, approximately.

After a week, the city seems to have recovered a certain level of normality. However, this situation seems to be very fragile. In certain parts and neighbourhoods of the city, the electricity is available thanks to portable power generators that, like big batteries (see the pic), provide electricity but also more noise and pollution. In addition, the numerous and frequent power cuts remember us that this is not more than a transitory solution.

The fall of a big electricity transportation cable over a distributional plant seems to have been the trigger for the blackout. However, the (political) circus begins when the different political parties start to analyse and determine the reasons as well as the "guilties" for what has happened. It is not an easy thing, as this is supposed to be a publicly supervised sector.

One SOE (state owned enterprise), Red Eléctrica Española is the one in charge of transporting the electricity, whereas a private firm FECSA - ENDESA is the one in charge of distributing and service the power to households and firms. Due to the singularities and characteristics of this market we are in front of a natural monopoly. Because of the perverse incentives associated to a monopoly, this sector is regulated by the National Energy Commission (Comisión Nacional de Energía or CNE). As it states in his web:

"The goals of the Commission are to ensure the existence of effective competition in Spain's energy systems and their objective and transparent functioning for the benefit of all agents operating in those systems and that of consumers"

Well, after almost 10 years of the creation of this regulator body, neither transparency nor the existence of effective competition have been achieved in the sector. FECSA keeps on reporting more benefits from its activities and REE seems to be an untouchable firm. Could have the accident be avoided with more and better infrastructure investments? Was the CNE aware of the fragile situation of the electricity network in Barcelona? Isn't there the appropriate mechanisms to force firms to invest in the network?

It seems that the CNE hasn't done the job properly, and has not forced the two firms involved to spend more of their profits in adequating the network... but who watches the watchdog? Another great issue to be solved in democracies with "perfect markets"!

Addendum: for less in countries like Bolivia presidents were forced off the top job.

Colombia's impressions (1/2) Cartagena de Indias

Just landed from a two-week trip to Colombia and Venezuela. Very intensive, but not enough to really realise about the disparities within both countries. Let me talk a bit, first, about Cartagena de Indias and then about Bogotá. In a later post I will drop my impressions on Caracas.

The first one, Cartagena is a historical city and a very beautiful one (if you move far away from the walls, things change!). It has colourful colonial buildings and very charming squares full of history. Sea food is really good (I really loved Las Muelas de Cangrejo) and the sorrounding islands, called Islas del Rosario, are really close to an objective idea of how the paradise should look like and a good place to dive. Within the walls and the Getsemani Neighbourhood are really good restaurants but also nice "terrazas" to taste good Rhum (try el rincón de Fidel!). Beaches like Boca Grande o la Boquilla are a good start to get the pulse of the local life. You shouldn't miss them! However, besides these beautifuls sights there are others like the Bazurto market, or the Manga neighbourhood, which I'm sure they don't appear in leaflets of travel agencies. They are parts of "the other Caribbean" and show two important features of latinamerican cities: 1. "the missing middle", that is, the inexistence of a consolidated middle class and 2. the high levels of polarization, by which one can find two different societies living in the same city, but doing two completely different lives. One characterised by the opulence and the other by the lack of opportunities.

Short Cuts (XVI)

After a few days of holidays, shortcuts are back!

1. The magazine Foreign Policy and The Fund for Peace have released the latest edition of the Failed States Index. The whole article can be found here. As everybody should expect, African countries lead the ranking.

2. An interesting article from the NY Times sum up the main important trends in economics teaching nowadays (thanks David for illuminating us!). I really like these two quotes:

1. Economists can’t pretend that the consensus for free markets and free trade that existed 30 years ago is still here (from Robert B.Reich @ Berkeley)
2. I fall into the methods of the mainstream, but not the faith (from Rodrik, referring to mainstream econ)

3. Last Wednesday I saw part of the movie "The Corporation" on tv. You can watch it on youtube. Even though I agreed with some of the comments, I thought it was somehow biased. I was especially concern about the comments on the (in)famous water war of Cochabamba. I came across this interesting article from the IADB about the issue a few years after. It somehow summarises my thoughts on the issue.

Some facts about Colombia...

In a few days, I'll be heading towards Colombia, a country I don't know too much about, besides those news insistently talking about violence and cocaine laboratories in the middle of the jungle. I'm really excited about it. I've travelled to Ecuador, Peru and Bolivia for professional issues, but never to this country nor Venezuela (in august I'll travel there for a wedding). These five countries conform the Andean region, a place in the world characterised by its diversity, both human and geographical.

I've been searching in the Internet about some info, and I came across this article written by James A. Robinson from Harvard University, which look pretty interesting: "A Normal Latin American Country? A Perspective on Colombian Development"

Besides that, there are some main characteristics which I think Colombia share with its neighbours (I'll test them out while listening to cumbia) and crucially weaken its institutions and thus, its development prospects:

• States are fragile and do not reach the whole country (important levels of corruption, inefficacy of the public initiatives,
  
• Inequality (economic and social) hampers the consolidation of a common and shared view of the country in the social imaginary. Consequences: the most important source of state revenues are indirect taxes and all five countries are major exporters of labourers.
  
• Geographic disparities within these countries determine important economic and social development differences across regions
  
• The political systems of representation are fragile and incapable of aggregating the different needs of country
  

Unfortunately, Colombia suffers from another two crucial issues: high levels of violence from paramilitary forces, revolutionary groups and the army, as well as from the illicit activities related to cocaine production. Both seem to be closely related. Besides the instability that both issues generate at the institutional level, they have generated around of 3 million of displaced people!

@ marginal revolution there is another interesting post (and discussion) about this country.

Short Cuts (XV)

Brief ideas to think about during the weekend, short cuts to things happening around the world...

1. The giant, even more giant. According to the Netherlands Environmental Assessment Agency China has become the world champion in CO2 emissions:

In 2006 global CO2 emissions from fossil fuel use increased by about 2.6%, which is less than the 3.3% increase in 2005. The 2.6% increase is mainly due to a 4.5% increase in global coal consumption, of which China contributed more than two-third. China’s 2006 CO2 emissions surpassed those of the USA by 8%. This includes CO2 emissions from industrial processes (cement production). With this, China tops the list of CO2 emitting countries for the first time. In 2005, CO2 emissions of China were still 2% below those of the USA. These figures are based on a preliminary estimate by the Netherlands Environmental Assessment Agency (MNP), using recently published BP (British Petroleum) energy data and cement production data. In the 1990-2006 period global fossil-fuel related CO2 emissions increased over 35%.

Is China currently eating its future?

2. The Clinton Foundation strikes back! This new initiative, named the Clinton Giustra Sustainable Growth Initiative (CGSGI) is founded by philantropists from North and South America and according to Clinton:

"This initiative will focus on improving living conditions in Latin American countries and other nations, in partnership with the mining industry and other sectors. Ultimately, our goal is to bridge the gap between the rich and poor, and give all people a shot at a better life.”

At first sight, good news as competition in the "development market" increases. On the other hand, all these initiatives too often lack the necessary transparency to work properly!

3. Fifteen commandments every development economist should bear always in mind... according to Rodrik and YounotSneaky!. The one I like most is the first one:

1. The answer to most questions in economics is usually “It depends”.

4. The always great band "Beastie Boys" are back with a new LP... have a look at their new video in their home page... Yes, it's instrumental, something I admired when I first came across with "ill communication", another great LP.

The (distortionary) power of retail companies

In Spain, meanwhile consumers complain about the price they pay for a kilogram of strawberries, farmers demonstrate in central squares giving out boxes full of strawberries free of charge. Farmers say that what they take from their work is not enough to make a living. Then, who's getting that important difference between the price paid by final consumers and the cost for farmers? What explains this distortion?

We have always been taught about the supply and demand curves that set the prices and quantities in perfect markets. We have also learnt about how supply and demand functions are set. However, very often, we forget about retailers, those companies in charge of moving those products from factories or farms to the shelves of the supermarkets. Everything would be OK if these companies were competing in perfect conditions. However, the important margin they are able to accrue can only be explained by the extraordinary market power they have achieved.

On the supply side, the important concentration movements happened during the last decade has allowed big groups (such as Carrefour or Wal-Mart) to go to farmers and use their increasing power they have to access final consumers to set a price. On the demand side, it is becoming very difficult for consumers to effectively enjoy the price reductions derived from effective competitive markets...

And make no mistake, it is not only a matter of lower prices... but also quality. Recent news talk about Blockbuster having decided to rent movies just only in blue ray format instead of the HD DVD one. Blockbuster left Spain a few years ago (the business model didn't work out here!, but they are very well positioned in the US market. Who is in charge of deciding which products are better? the final consumer or the retailer?...

Are retailers constraining our chances and then competition? If the answer is yes, then national regulators should start to work!

Short Cuts (XIV)

Friday's shortcuts from the oven...

1. A new index has been created to rank nations of the world according to their peacefulness. It is called Global Peace Index and Sustainability. It doesn´t seem to be very correlated to GDP! We'll check it out next week. Click on the map to enlarge it! quite interesting.

2. Did you know that Florida has the same GDP as South Korea and New Jersey's economy is like Russia? Have a look at how the map of US would be if were supplanting states for countries around the world here! Via strangemaps!

3. Politics inaction! the G8 summit celebrated in Heiligendamm (Germany) ended past week... have a look at the summit declaration... very vague and according to past commitments not reached, I don't think this one will be different... why is it so difficult to commit in serious stuff concerning Africa? Getting back to the basics, that is, reading Mancur Olson's The Logic of Collective Action may help us to understand why! (for those not interested in reading the whole book, here is a good summary of the main thesis!)

4. The young and fragile democracy of Palestine seems to be collapsing. Very bad news for Middle East stability...

Important (and worrysome) increase in world military expenditure...

According to the 2007 yearbook of the SIPRI - Stockholm International Peace Research Institute, the world military expenditure in 2006 (around 1.204 billion in current US$) grew by 3,5% with respect to 2005. From 1997 and 2006 the rise has been an impressive 37%. It highlights that:

The continued surge in China’s military spending—which reached an estimated $49.5 billion (in 2005 dollars)—saw it overtake Japan ($43.7 billion) to become the biggest military spender in Asia and the fourth biggest in the world in 2006. India was the third biggest spender in Asia, with $23.9 billion (in 2005 dollars). The USA spent $528.7 billion and Russia an estimated $34.7 billion (in 2005 dollars) on their military sectors in 2006.

Given that USA, Russia and the European Union are the main suppliers, international trade of weapons has also increased. Almost 50% more if we compare the data from 2006 and 2002.

Contrary to what my fellow friend Marc Bou said in a post published in his blog, I do not believe in the idea that the increase in military expenditure is associated to a more peaceful world. It is true that international army forces are increasingly being used to secure fragile states in their way towards peace, it is true that armies are becoming crucial players in countries affected by natural disasters... but the important lack of transparency as well as the lack of regulation in this industry (including its trade) makes me feel really suspicious about this thesis.

It is also true that, as the SIPRI says, most forms of armed political violence appear to be either declining or stabilising, but random violence in the form of terrorism around the world seems to be increasing. More regulation and intelligence, and not more weapons, seems to be the key to fight these new forms of violence.

But above all these reasons, investing just a part of this 1.204 billion US$ in health and education would provide better returns in terms of stability and peace! I'm pretty sure about that!

Short Cuts (XIII)

I've recently become quite lazy updating the blog... too many unuseful things in the head! But here you have more links to some important news in the world!

1. The climate change debate becomes more and more interesting (=confusing) everyday. Via Xavier Sala-i-Marti's homepage I came across this interesting documentary about the issue. It confronts directly Al Gore's thesis.

2. ICTs very well used! Amnesty International is using satellite images to follow all those lost villages in Darfur under threat. in this website Eyes on Darfur, you can follow what's going on!

3. There is a pretty interesting discussion going on on the net about the suitability of neoclassical economics. It all started with this article: Hip Heterodoxy.

Lybia's opening up...

Few weeks ago, a friend came back from Lybia after a business trip. I was amazed by the things he explained and the potential the country seemed to have. I came across this interesting article on the Business Week on how the country is moving on and how private entrepeneurship is taking the lead in the economy. However, critics from within are coming up... Are we in front of a new "crony capitalist" state?

To keep an eye on the "missing continent": http://allafrica.com/

Short Cuts (XII)

More short cuts to the news for the weekend. Some are good, others not! like life I guess!

1. Keneth Sokoloff passed away this week. Every scholar and researcher interested in Latin America, and more concretely, interested in why the region is where it is right now, should read some of his articles. He gives interesting ideas about all of these. Especially this ((gated though!):

Engerman, S. L. y K. L. Sokoloff. 1997. “Factor Endowments, Institutions and Differential Paths of Growth Among New World Economies: A View From Economic Historians of the United States”

2. When we were at the university and we read a lot of things about people we never saw, like Stiglitz, Lucas, North,... and many others it was quite disappointing! I always wondered how they looked alike. I even remember asking one friend who was heading towards the university of Chicago to send me pictures of some of them. Internet helped me with this! Now you can also see them moving! Wanna see Acemoglu talking about the rise and fall of nations?

3. Music suggestion: for those of you who love 70's R'N'R -ac/dc (with Bon Scott, of course), Led Zeppelin and Black Sabbath- then you should listen to this Australian power trio "Wolfmother". This saturday they play in Barcelona. I was really tired of listening to death bands!

Degrowth economics?

I cannot empirically demonstrate this whole idea (I'll try it, though, with some examples in successive posts) but a lot of signals lead me to think that we, developed societies in developed countries, live well over our possibilities. And certainly, if every citizen in the world were supposed to enjoy the same level of consumption we enjoy in the first world, I do think the planet could not handle with such pressure. Last Easter I came across a short article appearing in a national newspaper talking about a new radical growth theory called Degrowth Economics. An interview (in Spanish) with the creator can be found here.

More or less this field of study argues "for the need to deconstruct the current development debate, which he views as an unsustainable result of westernization. In order to truly develop, poor countries must break from the path of mental, cultural and economic dependency the so-called “developed countries” want to impose."

Something similar happened to us when we went to Bolivia to talk about the necessity to fight against cronyism in the national economy and tried to show the good things about markets (with strong states, of course!). Congressmen from the political party of Evo Morales -MAS (Movimiento al Socialismo)- were reluctant to accept our vision of the markets... indigenous had very different metal models to accept some of the basis of markets. Something similar happens with Islam and the predominant (western) views of what a good market looks like.

All of this came to my mind because I receive the interesting newsletter from New Economics Foundation explaining how they have tried to established the day when Britain's national level of consumption would start to go beyond their environmental means. According to them it was last 15th of April. Here you can download the whole report.

Short Cuts (XI)

Those involved in the invasion of Iraq seem to be falling! Some short cuts to the info in the net to enjoy during the weekend:

1. Time waits for no one and it won't wait for Wolfowitz! He quits! An interesting chance for the Bank to make important changes within. Interesting people talking about the Wolfowitz's affair (longer than a Brazilian soap opera). Nancy Birdsall, for example, asks herself which kind of World Bank we need. Dani Rodrik asks for candidates in his blog. And remember, it HAS to have US nationality! UPDATE: the Center for Global Development has released an interesting online survey to gather opinions from the development community about the selection process and the qualifications the candidate should meet to replace Wolfotwitz.

2. A recent report released by the Servicio de Estudios del BBVA analysing the economic impact of the Free Trade Agreement between Peru and the USA.

3. Everybody interested in LATAM should follow this interesting blog promoted by Nouriel Roubini. They have started with an interesting question about whether the actual economic success in the region is due to external conditions or good policies promoted within. Leaving aside the important differences existing among the different countries in the region (Hirschman would be very angry, though!) and without doing the appropriate analysis case-by-case, I think it is still too soon to have your say, but certainly the hike in prices of natural resources in international markets is playing a crucial role! Unfortunately, I'm not so sure about the crucial role of policies and initiatives promoted within the countries!

China is (unintentionally) promoting democracy abroad

An important amount of newspapers and news editions on TV here in Spain are increasingly promoting the participation of the audience. If you are involved in the news and if you can take a picture or capture a video of it you are very welcome to send it to the news editor. Some of these news groups are also offering cash in return, something that can create important perverse incentives. Here and here you can find some examples (if you enlarge the picture attached you will see one of these ordinary reporters capturing the news!).

This new capability is possible thanks to the affordability of mobile phones. (Almost) everybody has a mobile phone, and a great majority of these communication devices now bring a high-definition camera on it. The funny thing about all of this is that most of these mobiles phones and the majority of the components in them are being manufactured in China, the main reason explaining the low cost of them (the decreasing price of these type of products also explains the contention of inflation in developed countries given the hike in oil prices!).

It is funny... whereas in developed countries information and communication technologies (ICTs) are promoting transparency and participation, the country where most of these products are made is still characterised by the lack of transparency and democracy. Certainly, China is promoting democracy abroad! Unintentionally though!

Short Cuts (X)

More shortcuts (a few days later, though)...

1. Pretty good news last week! Bill Clinton (well, his foundation) has reached to an important agreement with some indian chemical firms to reduce the price for second line AIDS treatment in developing countries. Here you can find three interesting articles analyzing the impact of AIDS in developing countries. My question is... Why couldn't WHO or UNAIDS reach to this agreement before? My answer is... doing business with ex presidents from the US you get much more public awareness (signalling theory!)

2. A couple of friends flied last sunday to Zimbabwe, Tod Moss from CDG talks here about what to do in the country.

3. Why meddling children in the Palestinian cause with rage and fury? This footage, from Hamas tv station and addressed to infants, makes me really sad. Certainly, promoting these mental models is not the best way to enhance the appearance of individuals looking for peaceful solutions to the disastrous situation in the region. Instead of that, maybe they should teach the historical pact subscribed past week to bring peace back to Northern Ireland.

Short Cuts (IX)

Short cuts to interesting stuff in the www. Nice weekend!

1. Last 3rd of May it was World Press Freedom Day! Reporters without borders publish an interesting list of predators of press freedom. In this short piece Amartya Sen shows some of the positive consequences of having an independent media.

2. According to a recent report made by the World Economic Forum, the climate change, the political instability and the persistent and high levels of inequality are the most important obstacles for maintaining economic growth in Latin America.

3. There are two cartoonists I follow. One is El Roto, from EL PAIS, and the other is KAL, from The Economist. It is amazing how they depict our world!

The importance of taxing for development... the case of Latam

During the past year, and thanks to the funding of the Fundación Carolina, me and a colleague at the IIG, we have been able to research on the difficulties of reforming tax systems in the Central Andean region, more concretely: in Bolivia, Ecuador and Peru.

Why reforming? It seems pretty clear that these governments are incapable of obtaining the necessary resources to fulfill their main duties and responsibilities (those assigned by the society). In addition, in those countries there exists a widespread perception that taxes are collected in an inadequate manner (that is, inequitably and very complicating). The same negative perception appears when asked about public expenditures. The great majority of society perceive that taxes are spent inefficiently and rampant corruption facilitates misappropriation.

As a consequence, fiscal policy in these countries is trapped in a sort of vicious cycle by which people tend to do whatever they can to avoid paying taxes, whereas those in government lack the incentives to offer adequate public services such as education and health. The access to easy money, imposing taxes on activities to natural resources deepens these sort of problems.

Our main hypothesis relied on the idea that inequality and institutions (either formal and informal, and endogenously explained by this same inequality) play a great role in explaining the distortionary tax system prevalent in the region (low tax pressure, low redistribution, limited tax bases, progressive direct taxes on paper not in practice, tax system biased towards indirect taxes,...)

In a recent post on marginal revolution about economic heterogeneity in Latin America I came across this other interesting post on the necessity to spread the use of property taxes in developing countries.

Additionally, the necessity to achieve a new fiscal pact is achieving more and more importance in the developing agenda (especially in the LATAM region). The research department from the Inter-American Development Bank has recently edited a special issue on this important ingredient for the development recipe (here in English and in Spanish) which supposes an interesting start for those of you interested in this key issue!

Inequality lies in the heart of the "underdevelopment problems" in LATAM. Facing them becomes crucial, and constructing better public institutions with more resources seems to be a good first step! More on this issue to come!

Short Cuts (VIII)

Time waits for no one, week comes to an end and here you have more short readings for the weekend:

1. 70 years ago, on April 26th of 1937, the Condor Legion, then commanded by Hitler, indiscriminately bombed a small town in the Basque Country called Gernika with the approval of Franco. It was the first time civilians were the main target of military actions... the horrible scenes led Picasso to paint one of his most famous paintings (in the picture).

2. Watch out if you drive in Africa! According to the latest WHO report entitled Youth and safety:

Africa's roads are by far the world's most dangerous with more than 24 in
every 100,000 of the continent's population dying on them annually

So, now we can say that investing in infrastructure not only promotes economic growth but also implies important savings in terms of lives!

3. In this short piece from The Washington Post Bill Easterly offers his views on the actual situation of the World Bank. According to him, the Wolfowitz's affair is just only another problem to add to the structural ones. It's worth a reading!

4. Boris Yeltsin died this week. He was in command of Russia while the "dark" processes of privatisation took place. Stiglitz wrote a lot about this issue in his Globalization and its Discontents.

5. Yes... Rodrik has recently set up his own blog!

Trade for development?

Here we go again! Another round of negotiations has taken place in Delhi in an attempt to revive stalled (but also unequal) global trade agreements. Something really shocking is that despite this persistent lack of agreement, and according to the latest WTO report, last year international trade grew faster than in 2005. Another important idea is that "not everything comes from China". According to this same report, and quoting Evan Davies from BBC News:

"In terms of exports of goods alone (which account for four-fifths of global trade), Germany is the world leader, with the US second and China third."

There are some questions I would like to raise concerning this issue in terms of its consequences for developing countries:

1. The ideological and intellectual basis that sustain these rounds of negotiations sometimes forget that increasing trade is a mean to achieve better economic and social conditions, not an end in itself. The WTO 's main goal is to fix and enforce fair trade deals conducive to better economic ans social conditions.
   
2. LDCs are obsessed with achieving greater access to agricultural markets in developed countries. Certainly this is a good start, but their advancements today in accessing these markets in developed countries has a big cost: the opening of their markets to services and industrial goods originated in developed countries. Moreover, great distribution groups (mainly from 1st world countries) play a major role in making the profits go back to developing countries.
   
3. Modernization and development can't be sustained in the export of products made with cheap labour force. Developed countries today are those that made possible to generate products with more added value based in technology and well prepared human capital.
   
4. These round of trade negotiations should also consider the free movement of temporary workers from developing to developed countries!
   
5. Conditions today are very different from those faced by nowadays developed countries. Developed countries today protected their infant industries (the international competence wasn't that fierce!) and developed efficient public sectors to deal with the risks associated to more open markets.
   
6. China and India have recently joined the WTO, whereas their impressive economic performance dates back from almost 2 decades ago!

More ideas on this issue here (in Spanish, though!)

Sant Jordi / Saint George

Here, today, men give roses to women, and women give books to men. Strange, eh? 'cause women in Spain read much more than men! (here the news! and some data)

Anyway, have a nice day!

Short cuts (VII)

Here we go again with some more short cuts to get the good but dispersed information and events around the world!

1. I certainly do not believe that being able to "almost freely" buy an automatic gun is the main reason for last week tragedy in Virginia University. In these and in other horrible experiences in the past, other reasons might have played an important and deeper role. Elements such as social cohesion, the feeling of being considered part of a family, a community, a project; increasing individualism in society,... and many others come to my mind. Societies, everywhere in the world can create disappointed individuals, but I'm completely sure that restricting the access to weapons would avoid "unregrettable" consequences. Here is an interesting debate on the issue!

2. A great classic on the East Asian Miracle and the WC, by Paul krugman: Dutch Tulips and Emerging Markets

3. ODA from developed towards developing countries fell during last year. DAC provides the official info. If we consider the different types and conditions of aid under the umbrella of these overall figures reality would be even worse... but again, the debate should move from quantity towards quality!

Good news at the global level

Data, data, and more data... The World Bank has recently published its latest estimates concerning the advancements against underdevelopment (the World Development Indicators). At the global level, the fight against poverty seems to be working. People in the world living in abject poverty (with less than $1 a day) has diminished between 1990 and 2005 by around 265 million people. A great success considering population growth and that this has taken place in developing countries.

Besides this bright picture there are other questions not directly confronted by this Bretton Woods organisation...

• It seems that there is much more consensus in the analysis of the number of poor people people than in how getting out of poverty. China is the champion country in terms of reducing the number of poor people. And China, as well, has chosen its own path towards development (one which really lies far from the recommendations of International Organisations such as the World Bank or the IMF). On the opposite side, we find Africa and Latin America, two of the best students in the Washington Consensus graduate courses but the worst in terms of poverty reduction.
  
• Other important question refers to the World Bank... is this one the appropriate organisation to analyse and determine the number of poor people in the world? I mean, given that the World Bank is the most important organisation to fight against this global illness, shouldn't his progress be scrutinised by an independent organisation?... may be we should think about he creation of an independent organisation to set the size of poor people in the world, no?

Additional thought: in the interesting book Freakonomics (here you can find the blog), the authors distinguish among economic, moral and social incentives. Do the countries dealing with the world bank face any moral incentives to follow the world bank recommendations after the recent Wolfowitz's nepotist behaviour towards his partner? The board of governors of the Bank should ask for his resignation. By doing that, the Bank would recover most of its legitimacy towards its "customers".

Short Cuts (VI)

The weekend is back... and with it, more short cuts:

1. For those interested in clear cut data on development issues, you should have a look at these interesting maps developed by the World Bank.

2. Wanna check what happened (is happening) in Darfur? Interesting ICT applications towards the fight against atrocities against human being! Follow this link.

3. The vital signs of Latam according to the Mackinsey Quarterly: simple, but with the main important ideas on the region (subscription required! it's worth it, though!) Maybe one should complement this information with the recently aired Statistical yearbook for Latin America and the Caribbean, 2006. Some things seem to be working in the region: poverty is decreasing, inflation remains low, growth remains stable, public finances in order..., how sustainable is this positive evolution? how much of this can be explained by external factors such as the increasing demand of natural resources present in the region?

3. Bad news for Wolfowitz's war against corruption. He seems to be the first one in not reaching his own predicaments... how can you fight corruption if you are seen as a nepotist?

Short Cuts (V)

A longer list of short cuts as I expect not to be connected to the Internet until next week. The reason, spring break!, which in Spain means: scary people looking like old fashioned KKK supporters rallying in the streets.

Much more interesting stuff in the following links:

1. Always wanted to study at the MIT but not smart enough? now you can! A really interesting initiative... is the MIT doing some type of "educational dumping" or is it too confident on signal theories?

2. Ever wondered about the meaning of certain songs? then you should visit this web. And about the relationship between song lyrics and economics? then look at this blog, via marginalrevolution.

3. From aggressive marketing to soft marketing... or from hard power to soft power, this is what the US should have to be doing. At least this is what Bou thinks after reading Nye's "The paradox of American Power"!

4. Jokes about economists and economics. I like this one:

A physicist, a chemist and an economist are stranded on an island, with nothing to eat. A can of soup washes ashore. The physicist says, "Lets smash the can open with a rock." The chemist says, "Lets build a fire and heat the can first." The economist says, "Lets assume that we have a can-opener..."

Paul Samuelson

5. Some youtube rarities... learning philosophy with the Monty Python.

The synergies in development: from plans to strategies

The more one reads about development, the more one realises about the complementarities existing among different policies and initiatives. We could even talk about "the economies of scale of development".

For example... how are we gonna reduce maternal mortality if we don't have appropriate roads that can make women arrive to hospital in due time? How will we be able to attract new teachers to schools in isolated rural areas if facilities are not appropriately set up? How are we gonna have adequate teachers if they die of AIDS before being adequately trained? How can we develop an adequate industrial policy if we don't have an appropriate judicial system capable of pursuing corruption?

If we accept these preliminary facts, then we can understand why underdevelopment can be "understood" as "being trapped in a vicious cycle" (see this World Bank report for this same case in LATAM), but also, why international cooperation agents and donors should agree and talk about consensuated strategies and not about isolated plans when defining their development assistance initiatives in LDCs. Bilateral and multilateral donors should look for the economies of scale existing in ODA, something which is currently not happening!

Unfortunately, we live in a world of limited resources (and political interests, of course!), and it is impossible to face all the symptoms associated to underdevelopment (lack of human capital, lack of access to sanitation facilities, to water, pervasive corruption, unpaved roads, and many many more...). The solution lies then in an appropriate sequencing, and prioritising the interventions under the umbrella of an adequate strategy taking into account the peculiarities (be they social, institutional and economical) of the country considered.

An example adapted to the study of the constraints of economic growth can be found in "Growth Diagnostics" by Hausmann, Rodrik and Velasco. A good summary here.

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!)

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.

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!

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?

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.

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.