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...