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.

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