Sunday, April 16, 2006

Bono? Bill Clinton? Jeffrey Sachs? You?

The Center for Global Development (website) gives away a "Committment to Development" award annualy. Past winners of the award include the Cancellor of the Echequer (fancy name for the British head of the treasury) Gordon Brown for last year, and Oxfam's "Make Trade Fair" campaign for 2004. Nominations for 2006 are now open. It will take you just a few minutes to nominate your favorite development crusader/mujahid. To do so, click here.

My choice?
Not Sachs, not Easterly, not even Bono - in fact, none of the big-name celebrities.
I think that at the end of the day, the award has to pay tribute to the extra-ordinariness of ordinary people. From what I have read/heard/seen this year, nowhere has this been more possible in 2006 than through a neat new concept called Social Entrepreneurship.
For this, I nominate the Ashoka Foundation, a leading organization for social entrepreneurship, and all of its "Ashoka Fellows" for the Committment to Development award in 2006.

Who is your choice?

Tuesday, March 14, 2006

The Obituary of a Development Economist

Hans Singer
Sir Hans Singer, development economist, died on February 26th, aged 95.
The Economist March 11th 2006

THE poor are always with us, said Jesus. But they are not always fashionable. Few people have been such indefatigable thinkers about the economics of poverty as Sir Hans Singer, a British development theorist who was born a Jew and brought up in a Catholic area of mainly Protestant Germany. He came from "a minority in a minority in a minority", he liked to say, with a smile that belied how much he cared about the world's marginalised.

Sir Hans—then plain Mr Singer—was planning to become a doctor when, in the early 1930s, he was won over to economics by a series of lectures by Joseph Schumpeter and Arthur Spiethoff, respectively Austrian and German economists. A year after Adolf Hitler's rise to power in 1933, Schumpeter persuaded John Maynard Keynes to accept the newly married asylum-seeker from Nazi Germany as one of his earliest PhD students at Cambridge.

It would prove a life-changing introduction. Not only did Keynes intervene personally when Sir Hans was interned by the British government early in the second world war, and thus help to win his speedy release, he placed before the young German an intellectual panorama that would inspire Sir Hans's thinking for the next 70 years.

Sir Hans's career began just as the Bretton Woods institutions were finding their feet. How to rebuild Europe's shattered societies, how to harness the economies of the third world—these were questions of crucial importance. As the World Bank and the United Nations agencies got going, Sir Hans moved from new department to new department, energetically offering practical suggestions while also elaborating the theoretical underpinnings of the new economics of development.

Sir Hans's best-known work, developed during his early years at the UN and published in 1949, concerned the long-term deterioration of poor countries' terms of trade. It analysed why, in the long run, the price of primary products tended to decline relative to that of manufactured goods. Sir Hans's conclusion was that the benefits of trade were distributed unequally between the countries that imported agricultural commodities and those that exported them, to the disadvantage of the exporters. The proposition became known as the Prebisch-Singer thesis, though it is now recognised that Sir Hans rather than his Argentine collaborator, Raul Prebisch, did most of the work.

Though the thesis was dismissed by several of the leading American trade theorists of the day, citing the boom in commodity prices that followed the Korean war, the experience of coffee-growing countries, such as Brazil and Kenya, and of cocoa-producers like Côte d'Ivoire suggested that Sir Hans's ideas could not be rejected out of hand. Yet their consequences were generally damaging, giving third-world countries licence to pursue import-substitution schemes behind protective tariffs as their main development strategy. The Prebisch-Singer thesis became all the rage, and was seized on by neo-Marxists, such as Paul Baran and A.G. Frank, who tried—wrongly and unsuccessfully—to claim Sir Hans as one of their own.

Instinctively practical rather than ideological, Sir Hans liked to base his theoretical work on observations, not dogma. And in argument, as in chess, he would always show a charming acquiescence. This deceptive meekness may have been reinforced by his short stature and cherubic curls. To Sir Alec Cairncross, a friend and (taller) colleague, he gave "the impression of a troubled, uncertain but reasonable man who [was] used to being contradicted but would not dare himself to contradict."

In fact, Sir Hans was rarely contradicted. His was the voice of sweet reason. Seeing that the world's poor could not afford market interest rates, he argued for an agency that would offer soft loans and outright grants to the poorest countries. For this, Eugene Black at the World Bank and Senator Joseph McCarthy both regarded Sir Hans as one of the "wild men of the UN", and a communist to boot, but his ideas took hold. He thus helped to set up the International Development Association (the World Bank's soft-loan agency), the UN Development Programme and the World Food Programme.

Retirement from the UN at the age of 59 allowed Sir Hans to take up the offer of a fellowship of the Institute of Development Studies at the University of Sussex and further develop his academic work. Writing again under his own name—rather than the umbrella authorship of the UN—he produced another 30 or more books and nearly 300 other publications on subjects ranging from food aid to the role of the economist, with a fluency that led a rival academic to describe him, somewhat unkindly, as "the Edgar Wallace of modern economics".

Sir Hans did most of his work in a golden age of simplicity in development economics, when progress for poor countries seemed assured. No longer: while many countries in Asia have recently bounded forward, many in Africa have slipped back. Sir Hans, however, never gave up the search for explanations. Indeed, he was in such a hurry at the end of his life that, at the age of 86, he signed up for a speed-reading course.

Thursday, March 02, 2006

Link to "Where did all the productivity go?"

Wednesday, March 01, 2006

Graduates versus Oligarchs

By Paul Krugman
The New York Times
Monday 27 February 2006

Ben Bernanke's maiden Congressional testimony as chairman of the Federal Reserve was, everyone agrees, superb. He didn't put a foot wrong on monetary or fiscal policy.
But Mr. Bernanke did stumble at one point. Responding to a question from Representative Barney Frank about income inequality, he declared that "the most important factor" in rising inequality "is the rising skill premium, the increased return to education."
That's a fundamental misreading of what's happening to American society. What we're seeing isn't the rise of a fairly broad class of knowledge workers. Instead, we're seeing the rise of a narrow oligarchy: income and wealth are becoming increasingly concentrated in the hands of a small, privileged elite.
I think of Mr. Bernanke's position, which one hears all the time, as the 80-20 fallacy. It's the notion that the winners in our increasingly unequal society are a fairly large group - that the 20 percent or so of American workers who have the skills to take advantage of new technology and globalization are pulling away from the 80 percent who don't have these skills.
The truth is quite different. Highly educated workers have done better than those with less education, but a college degree has hardly been a ticket to big income gains. The 2006 Economic Report of the President tells us that the real earnings of college graduates actually fell more than 5 percent between 2000 and 2004. Over the longer stretch from 1975 to 2004 the average earnings of college graduates rose, but by less than 1 percent per year.
So who are the winners from rising inequality? It's not the top 20 percent, or even the top 10 percent. The big gains have gone to a much smaller, much richer group than that.
A new research paper by Ian Dew-Becker and Robert Gordon of Northwestern University, "Where Did the Productivity Growth Go?," gives the details. Between 1972 and 2001 the wage and salary income of Americans at the 90th percentile of the income distribution rose only 34 percent, or about 1 percent per year. So being in the top 10 percent of the income distribution, like being a college graduate, wasn't a ticket to big income gains.
But income at the 99th percentile rose 87 percent; income at the 99.9th percentile rose 181 percent; and income at the 99.99th percentile rose 497 percent. No, that's not a misprint.
Just to give you a sense of who we're talking about: the nonpartisan Tax Policy Center estimates that this year the 99th percentile will correspond to an income of $402,306, and the 99.9th percentile to an income of $1,672,726. The center doesn't give a number for the 99.99th percentile, but it's probably well over $6 million a year.
Why would someone as smart and well informed as Mr. Bernanke get the nature of growing inequality wrong? Because the fallacy he fell into tends to dominate polite discussion about income trends, not because it's true, but because it's comforting. The notion that it's all about returns to education suggests that nobody is to blame for rising inequality, that it's just a case of supply and demand at work. And it also suggests that the way to mitigate inequality is to improve our educational system - and better education is a value to which just about every politician in America pays at least lip service.
The idea that we have a rising oligarchy is much more disturbing. It suggests that the growth of inequality may have as much to do with power relations as it does with market forces. Unfortunately, that's the real story.
Should we be worried about the increasingly oligarchic nature of American society? Yes, and not just because a rising economic tide has failed to lift most boats. Both history and modern experience tell us that highly unequal societies also tend to be highly corrupt. There's an arrow of causation that runs from diverging income trends to Jack Abramoff and the K Street project.
And I'm with Alan Greenspan, who - surprisingly, given his libertarian roots - has repeatedly warned that growing inequality poses a threat to "democratic society."
It may take some time before we muster the political will to counter that threat. But the first step toward doing something about inequality is to abandon the 80-20 fallacy. It's time to face up to the fact that rising inequality is driven by the giant income gains of a tiny elite, not the modest gains of college graduates.

Friday, February 24, 2006

Planners vs. Searchers:

Prof. Easterly's Speech:
"Planners vs. Searchers in Foreign Aid"
ADB Distinguished Speakers Program
18 January 2006

(Assigned reading for Wednesday February 22nd. J.Z's comments and questions follow here. You can use the comment feature for your thoughts.)

One of the first things that strikes me about Easterly's speech is the way he comes across in it, i.e. a classic maverick. Having worked in the field of foreign aid and development economics (including with the much-derided WB) I guess we can properly call him a born-again, saved, ex-planner! In fact, when I read this, it reminded me of another title I have often seen on the bookshelves and wondered if Easterly had in fact written that book in disguise: The Confessions of an Economic Hit-man!
It is clear that as an ex-planner, his experience gives Easterly a lot of credibility in critiquing the planners, as he does in great detail (and somewhat harshly) in his speech. After reading The Elusive Quest for Growth, this was a welcome read from Easterly, for me at least.

I found his discussion of the current incentive systems in the field of foreign aid particularly convincing. There does seem to be a moral hazard when the myriad aid agencies are all drawing up plans that -incidentally- always call for an increase in foreign aid and ODA.

I also liked very much his acknowledgement of the complexity of the poverty phemonemon. On page 3 he says: "Poverty is a complicated tangle of political, social, historical, institutional, and technological factors." In its shying away from the oft seen characterization of poverty as a purely economic -or even more rediculously, financial- problem, this is a good characterization -though no definition- of poverty. However, interestingly, I spotted a significant omission. He does not characterize poverty as owing partly to cultural factors. I recall our earlier discussions around this subject and would like to get other people's thoughts on this. One can always stretch political and historical factors to overlap with culture, but I think Easterly's omission of cultural factors is significant still -and welcome.

One of the questions that came to me over and again is whether many of his criticisms against the general category of "Foreign Aid", i.e. foreign aid is wasterful, bad, ineffective, "neither a democracy nor a free market", etc. could better be levied against the current operators and actors in the field of Foreign Aid. There is a fine line here and I may sound confusing. But it does seem to me that foreign aid may remain an effective policy option in the presence of a different incentive structure and a different set of actors who are accountable and responsive to the intended beneficiaries' demands. It does not make sense to me to deride foreign aid itself for what has been the chronic failure of foreign aid administrators. I am not completely convinced by Easterly's argument that a calculated influx of foreign aid and investment by donor countries has been a complete failure, or that they would still be a failure under different circumstances.

I found it interesting that according to Easterly, economic aid and assistance both from Western public and governments might be motivated as much by altruism and noble goals as by a need to achieve the "SIBD catharsis" for their own consciousness...

The "Gordian knot of CDF/PRSP/IF/MTEF/MDG planning."
Enough said.

Sometimes when listening to people or reading texts that are weighed down by a general abundance of vague, overly-generalized, and intellectually labored phrases and words, I get the sense that the other party is bullshitting me and has no idea about the subject they are talking about. I think Easterly makes the same point about the foreign-aid-industrial-complex (to slightly tweak Eisenhower's phrasing of the military-industrial complex). For example terms like: Action Matrix, Integrated Framework, Incorporated Prioritized Action Plan, Comprehensive Development Framework, PRSP, etc. generally suggest s lack of confidence of the writer/speaker with the subjects in question, i.e. distant realities on the ground in Sub-Saharan Africa, South-East Asia, and the Bolivian Jungles.

Or consider the awkward wording in this quote from a UN report on the progress (or lack thereof) on achieving the MDGs:

"The decline in hunger is slowing."

I guess next would be, "An overall decline is observed in the decline of hunger according to the "Integrated Comprehensive Global Universal Hunger Matrix Strategy Framework: Getting Serious about Causing an Increase in the Level of Decline in Hunger"!
Wait, that actually sounds somewhat like Aidinglish (otherwise referred to as "Donor Language"!

Easterly's discussion of "the political economic of aid in the rich countries" was especially interesting (pages 8-9), and it favors planners and celebrities as opposed to searchers and those who "toil in the field mostly unnoticed by the rich country public and media." Reading this, and a latter passage on how aid flow to the national governments (often euphemistically called "the countries") produces fewer good results than to the non-or-for-profit non-governmental sectors, including non-profit NGOs, I was reminded of the brief Foreward to an Afghan NGO's Annual Report for 2005 that discusses similar themes around government and non-government competition and cooperation for implementing foreign aid. I will bring a copy of this to our next class session.

In the first paragraph of the conclusion Easterly writes: "While the aid community planners were dithering about whether to increase foreign aid by a few tens of billions for all poor countries, the citizens of just two large poor countries -India and PRC- were generating an increase in income for themselves of $715 billion every year."
I think there more factors had to do with the India-PRC success than simply the absence of planners here. For instance Easterly fails to mention that both of those countries at more than 1 billion people each have huge domestic markets that could impact economic development and infact industry development in ways that would not be possible for many small and underdeveloped African countries. Furthermore, both had effective governments (in one case, an undemocratic one until recently devoted to five-year plans) that was again absent in the failure cases...

Towards the end, Easterly writes: "The best aid plan is to have no plan."
While he has gone to lengths to prove this point, I think that this borders on "nihilism in economic development philosophy" and I am even tempted to be inordinately presumptuous and correct him as "what you mean is, the best aid plan is to have different, more effective plans." Elsewhere Easterly clearly suggests a change in plans, rather than a total abandonment of plans. That really sounds nihilistic and pessimistic to me (Amartya Sen's review of his upcoming book in Foreign Affairs is titled The Man Without a Plan). Because no matter whichever direction foreign aid goes, it is bound to still be ruled by some sort of a plan...

Lastly, I had a sense while reading some of Easterly's harsher and more mock-toned allegations against Sachs that he might himself be a little carried away (maybe a little) by the intellectual-scholarly turf-war (jealousy? afterall Sachs is somewhat the EconEev and EndPoverty celebrity, after Bono of course) that he is apparently engaged in with Sachs. Here is some of my evidence for this claim: Easterly on Sachs: surprisingly bad and an exchange of Letters to the Editor of Washington Post between the two; and also Sachs v. Easterly.

And finally, some other good links that I looked at while reading Planners vs. Searchers:

Easterly's review of Sachs' The End of Poverty in Washington Post:
A Modest Proposal

A further article driving the point in Planners vs. Searchers home, in Washington Post:
The West Can't Save Africa

Webpage on Sachs' book The End of Poverty on columbia website, with interesting graphs and figures:
Facts on International Aid

The writer of one of the retorts to Easterly's criticism of Sachs cited the following page as an instance of where incrementalism and small steps is actually part of the MDGs:
Millenium Development Goals Quick Wins

Lastly, some positive reactions to Easterly's Planners vs. Searchers speech from someone who was in the audience:
My Kind of Economist

OK. That is about all my thoughts on Planners vs. Searchers. I hope you all get the time to reply before next Wednesday (or since R.R. will be back too, we can spend a little time going over it in the beginning on Wednesday before getting to Rodrik.)

More Aid!
(That is See You Later in Aidinglish)


Thursday, February 23, 2006

Let the Quest Begin!

We are a group of three students and one Economics Professor at a small liberal arts college, engaged in a quixotic attempt to understand what causes, sustains, and hinders economic development.

In our quest after this Holy Grail, what we have found so far is well summarized in the words of our mentor Dr. A.: “Sometimes I just wonder if the World Bank is welfare for economists…”

Future posts will include class readings, excerpts, and discussions. Please feel free to comment or join our discussions.

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