Around the World with Joseph Stiglitz

BWPI Chair and Nobel Laureate Joe Stiglitz has a new documentary just out. ‘Around the World with Joseph Stiglitz’ is a hard-hitting look at globalization. Joe takes two journeys. His own journey began in Gary, Indiana. The documentary returns to his hometown to see what shaped his thinking. It then heads across the world, taking in Botswana, Ecuador, India and China. It weaves together the social and economic effects of globalization, recommending ways to manage it for the good of all.

If you are in New York you can catch it at the Lincoln center this Wednesday (3 December).

In the meantime, check out Joe’s interview with Alex Jones on YouTube on his book The Three Trillion Dollar War: the True Cost of the Iraq War, with Linda Bilmes. And Joe on the sub prime crisis on CNBC.

Happiness is the Peruvian Amazon

This week’s Expat Lives in the FT features José “Pepe” Alvarez, a former Spanish friar who moved to the Amazon 25 years ago. He worked with poor people on the outskirts of Iquitos city and with remote Indian communities, and is now based at the Peruvian Amazon Research Institute, helping to protect the forest and its wildlife. He won the 2006 Parker/Gentry award for conservation biology.  There are some wonderful photos here.

His philosophy of life is summed up as follows:

“People in the US and Europe generally have more possessions but also more worries and less peace and happiness than many people who live a simple life here in the jungle. I have learnt some of the most important lessons of my life. People here are some of the happiest I have ever met even though they have nothing but a small hut, a wooden canoe and a paddle. Although they have many, many problems, they are happier than most of the people I know from Europe and the US. The key is enjoying simple things and every moment as it comes, and not worrying too much about the past or future”.

Peru has deep poverty, and very high inequality. Over half of Peru’s population is poor and about 20% are extremely poor, according to the World Bank. People in the Amazon and the Andes are worst off. People born in Lima can expect 20 years more of life than those born in the southern highlands, on average (go here).

Peru’s development has been highly unequal. The mining boom of recent years is not distributing enough of its benefits to the poor (if at all). However, Peru’s social movements are trying to rectify this.  In the recent BWPI working paper, Mining and Social Movements, Tony Bebbington and co-authors discuss the fight-back by Peru’s communities.

Coping with Global Inflation

Our readers don’t need reminding that Inflation has been on the rise globally (although the present financial crisis could knock that on the head). The poor are being hit hard by rising food prices – the price of rice in Asia has doubled, causing real distress in countries without effective social protection. Africa is scrambling to respond.

Macro-economists in central banks and finance ministries are worried people. Today looks alarmingly like 1979-81: inflation pushed up by the second oil price spike and recession looming. That combination of inflation and recession – stagflation – is the worst scenario for policymakers. Inflation requires demand restraint, recession requires demand expansion – and policy-makers have a difficult time in choosing which direction to go down. The early 1980s are a warning of what can happen. Real interest rates (the interest rate minus the inflation rate) turned from negative to positive – pushing up the real cost of borrowing for firms already hit by weakening sales. Eventually the oil price collapsed, bringing inflation down with it, but also distress for over-borrowed oil producers such as Mexico and Nigeria. That then set the stage for the debt crisis that took a full decade to work itself out, with massive social fall out, and poverty spiking higher (the 1980s were Latin America’s “lost development decade”).

So what should today’s policy-makers do? The Centre for Development Policy and Research at SOAS has a new Development Viewpoint out on global inflation. The author, Terry McKinley, argues that they must be clear on the causes, otherwise the response could make the situation worse. Since the sources of recent oil and food inflation are ‘globalised’, developing countries cannot hope to maintain low domestic inflation by the standard practice of raising domestic interest rates, argues Terry. Such a misguided “monetarist response” would only heighten the risks of recession, he concludes. Go here for the paper, a timely contribution to the present debate — and a warning from the past.

Should Cash Transfers Come with Conditions?

Or in other words, do governments know best? Best, that is, for poor people. If so, then adding conditions to a cash transfer alters household behaviour in ways that might help them escape poverty faster. Linking cash transfers to school participation is an example. Conditional cash transfers (CTTs) are on the rise (see this new book by BWPI’s Armando Barrientos and David Hulme, as well as the CPRC Kampala conference on social protection next week).

One view is that households know what’s best for themselves. So adding conditions to cash transfers to poor households is redundant. But collecting information is costly (in both time and money). Therefore households are unlikely to have full information. If so, then conditionality could steer them in a direction that they would go if they were fully informed. For example: Governments are likely to have a better understanding of the benefits of immunization than households, so conditioning the transfer on immunization will help.

Knowing whether conditionality does deliver tangible gains is vital. One reason is that conditionality by its nature implies monitoring, and monitoring has a cost. If conditionality does not deliver a gain then the money spent on monitoring might better go to increasing the size of the cash transfer itself (and even if there is a gain, it needs to be one big enough to justify the administrative cost of imposing conditionality).

So how do we capture the behavioural effect? It’s tricky, because behaviour can’t be directly observed. A new IPC one pager reports on the latest work by Alan de Brauw and John Hoddinott which aims to get around this problem (go to IFPRI for the full paper). They found that some households in Mexico’s PROGRESA (now called Oportunidades) did not receive the forms necessary to monitor their children at school, so their cash transfers were in effect unconditional. Their school enrollment is compared to the (majority of) households who were monitored.

Result? If the household was not monitored then its children were less likely to attend school on average. This effect is significant but modest. However, the absence of conditionality really kicks in when children should be moving from primary to secondary school. School attendance was severely reduced when children were making the transition to lower secondary school. These effects are even stronger when the household head is illiterate. De Brauw and Hoddinott conclude that:

“… debates over “to condition or not to condition” are overly simplistic. In the case considered here, there is clearly little benefit to conditioning transfers based on enrollment in primary school. However, in terms of increased school enrollment, there are large benefits associated with conditioning transfers at entry into lower secondary school”.

Hence, you can get a lot more bang from your CTT buck by focusing in on situations where altering household behaviour has the biggest effects — in this case encouraging more households to send their kids to secondary school.

Sharing Poverty Information through IPC

This just in from the folks at the International Poverty Centre.

“IPC is pleased to announce a new section on its website: Poverty Networks. This new resource brings together web-based platforms that share development-related publications and initiatives. You will be able to access IPC’s collaborating networks on this website”.

The WTO’s war on the African, Caribbean and Pacific countries: part 1

Last week, the WTO’s Dispute Settlement Body issued its decision on whether or not the EC had complied with the previous ruling in the long running banana dispute. In brief, the EC allows 775,000 tonnes of bananas to be imported from the African, Caribbean and Pacific (ACP) countries duty-free each year, while imports from other countries have to pay a (fairly substantial) tariff. The US has challenged this, leading to a seemingly endless dispute.

The ruling is that the EC’s preferences are inconsistent with WTO rules on non-discrimination. The Dispute Panel appeared to accept the EC’s contention that the preferences did not reduce the value of US banana exports in any way, but nevertheless the US has faced diminished ‘competitive opportunities’ due to the EC banana rules. That is, the handful of banana growers in the US were unfairly affected by not having full access to the EC market.

In reality it is not bananas grown in Florida and Puerto Rico that motivated the US to challenge the EC preferences. Rather it is the very many more bananas grown by US corporations in Ecuador, Columbia, the Philippines, Costa Rica and other countries that it is concerned about. Over 50% of total banana exports are controlled by just two companies, both of which are American, grown mostly in those four countries. That these countries already account for around 60% of EU banana imports doesn’t seem to matter.

The US’s ‘competitive opportunities’ that the WTO is steadfastly protecting come at the expense of some of the poorest countries in the world. Estimates made by the FAO have suggested that if the EU abandons the quota, as they have been instructed to do by the WTO, and replaces it with a tariff of €75 per tonne with ACP countries given duty-free access, exports from Caribbean ACP countries will decline by 30% by 2010. For

Surging Food Prices — Globalization’s Downside

Globalization is often said to be good for the poor. The jury is in fact still out. But for certain, many of the poor are now being hit by rising global food prices — FAO’s food price index was up 37% in 2007, on top of the 14% increase in 2006 — and globalization is the cause.

How so? Asia’s demand for food is surging along with robust economic growth and urbanization. And with oil close to $100 a barrel — again due to strong global growth — the world’s farmers are turning land over to corn and sugar for ethanol. The New York Times summarises it all here.

Folk are getting worried. Over on the ODI blog Simon Maxwell reports from Davos that World Bank President Robert Zoellick and World Food Programme (WFP) Head Josette Sheeran are both running initiatives to highlight the ‘forgotten MDG’ (No.2 — Halve, between 1990 and 2015, the proportion of people who suffer from hunger).

Anxious governments are keeping a close watch over food inflation; it’s politically dangerous — especially to authoritarian states. The urban poor may join street protests organized by political dissidents. And the rural poor often can’t produce enough to eat (if they are farmers) — while the poorest are often labourers without any land at all. Rural discontent is a big worry for the Chinese government (many rural people have not shared in China’s globalization-driven economic boom). Food riots have now taken place in Indonesia and Pakistan (See the FT report here).

Some governments are stepping up price controls; China, Russia and Thailand have all capped basic food staples. Malaysia is planning to stockpile basic foods. Venezuela is threating to expropriate food companies that hoard.

We have been here before; the 1970s saw the widespread adoption of price controls (that then create black markets, and decrease producer incentives, thereby exacerbating shortages) and large government subsidies to contain the consumer price of food (fiscally ruinous unless you have generous oil revenues). Governments often swear that these measures are temporary — but they are politically very difficult to remove once in place. For the poor, better measures are social protection and targeted nutrition interventions (consumer food subsidies often benefit the rich more than the poor since the rich consume more food — especially meat, including animals fed with subsidized bread).

Eventually food output should rise to dampen at least some of the price rise (although this effect could be muted by the switch of crop land to corn for ethanol). But the chronically poor have very few means to cope: being largely unskilled they find it hard to get compensating wage increases when food prices rises; many are women with young (and hungry) children; and many are too old or too sick to find work. So even if production does rise eventually, the chronically poor could get badly squeezed by rising food costs. They can’t wait.

This is not just a problem for the poor world. The US government buys surplus food for distribution through food banks such as America’s Second Harvest — but these purchases are now at a 26-year low as farmers switch to biofuel crops. So the food banks face shortages — at a time of rising unemployment and a stalling economy.

Here in Britain we have much the same story. Except now its got caught up with another debate about food quality (see our recent post about the history of British food).

Talking chicken, a free-range bird costs £6, while one eking out its miserable life in a battery-farm goes for 3 quid. But many poor families can afford only the latter. And they get berated by middle-class foodies for not feeding their families well. Jay Rayner in The Guardian worries that “We have managed to confuse our foodie obsessions – a set of lifestyle choices for the affluent – with a wider and much more serious debate on public nutrition that affects the very poorest in society”.

Of course you can go vegeterian (a good idea in itself), but British bread prices are up following a 15% rise in the price of flour (a standard loaf cost 52p in 2000; now its nearly £1). There is no escape.

Why so Many Malnourished Children?

Maternal and child undernutrition is the cause of 3.5 million deaths, 35% of the disease burden in the under-fives and 11% of the total global disease burden — according to a new study by Robert Black and team in The Lancet (go here). Vitamins, minerals and a daily feed of breast milk could prevent a third of these deaths (lack of Vitamin A alone accounts for 600,000 deaths every year).

Improved nutrition in early life also makes for more productive adults — enabling them to earn higher wages (see this paper by John Hoddinott et al.). They can then afford to better feed their children. So, reducing maternal and child malnutrition can help break the transmission of poverty across the generations (see Kate Bird’s recent CPRC overview).

These numbers makes a powerful case for investing more in child (and mother) nutrition to defeat chronic poverty. But what to do exactly? The 2004 Copenhagen Consensus decided that providing micronutrients had the best cost-benefit ratio of all nutrition interventions. And this intervention was No.2 in the experts ranking of 17 possible ways to improve the world (control of HIV/AIDS was No.1).

Although malnutrition kills about 2 million under-fives every year, the world spends only $250 million on nutrition aid — according to UNICEF’s Bruce Cogill. This compares with the $3 billion spent on HIV/AIDS, which kills about 380,000 children (under 15) (Report here). It’s hard to make these resource allocation decisions, but clearly donors need to step up nutrition support — and be creative in raising the funds (increase taxes on foods associated with obesity in the rich world? Its one possibility. Generates a ‘double dividend’: more money for hungry kids, and less diabetes and heart disease in the North).

Those working with the micro-finance revolution will be pleased to know that women’s access to micro-credit improves the nutrition of young girls (see this UNU-WIDER paper by Basudeb Guha-Khasnobis and Gautam Hazarika). It helps women earn an income to feed their families, especially girls who often get less priority when times are hard. So that’s another tick in the box of micro-finance.

So far so good. But these great interventions are now pushing against a countervailing force: the recent and rapid run-up in world food prices. What is this doing to child nutrition? Let us know.

Does Growth Reduce Poverty? – It Does and it Doesn’t

The good news from the UN’s recently released World Economic Situation and Prospects is that the developing world’s economies grew on average by just under 7% last year. Only 9 countries saw their GDP fall (see our recent post).

So what does this mean for the world’s poor?

God gave economists two hands. On the one hand, poverty should fall. On the other hand, it might not. And growth sometimes increases poverty. This is a three-hand issue.

Let me explain.

On the one hand, the link between growth and poverty is now well-sorted out conceptually. If initial inequality is high, then growth’s effect in reducing poverty is modest. (In their recent BWPI working paper Ajay Chhiber and Gaurav Nayyar work through the effects). It stands to reason that if you own a 1,000 acres of prime land and agricultural prices are booming (which they are in Brazil as sugar-based ethanol production rises) then you will make more from growth than if you have an acre of scrub. The upshot: 7% GDP growth will benefit the poor most in the least unequal societies.

On the other hand, many chronically poor people exist outside the main growth poles (dirt poor, environmentally-stressed regions, cut off from major markets, for instance). Or they are too sick to be productive. Unless they get help (maybe that cousin who now has a job in a boom area) then growth might not do much for them. This is so even in China, where growth is going at 10 per cent a year (see this NYT report).

And on my third hand, some folk are ‘adversely incorporated’ into the market-economy. Their assets get stolen by richer folk — urban land that suddenly becomes valuable for commercial development for instance (in South Asia’s booming cities, but this is also happening in parts of Africa: Addis Ababa is one case). So, their lot gets worse with growth. In the global boom of the late 19th century, whole swathes of African smallholders were dispossessed to create what is today one of the world’s most unequal societies: South Africa. Which is why many South Africans don’t feel they get much from today’s boom — a big issue in the lead up to the 2009 elections. (On South Africa see the CPRC working paper by Andries du Toit and David Neves).

Now, God also gave economists two feet, and 10 toes, so……(to be continued).

No Laptop Per Child?

Efforts to get cheap computers into the hands of children in the poor world suffered a set back over the new year with the withdrawal of Intel from the One Laptop Per Child (OLPC) project. Intel had a bust up with OLPC and MIT’s Nicholas Negroponte, who inspired the project. The laptop (called the XO) is starting to ship and in Peru Intel is alleged to have tried to get the education ministry to adopt its Classmate PC instead (the XO runs on a chip from one of Intel’s competitors). Seems that the industry has now woken up to the size of this market and its profitability. There don’t seem to be any Intel press releases with their side of the story. OLPC news can be found here.

It looked like Intel’s withdrawal could seriously damage the project. In a WSJ report, an Intel spokesman said, rather cryptically, that they had reached a “philosophical impasse with OLPC’ (call out Alan Turing, anyone?). But OLPC now seems to have an unstoppable momentum, fortunately.

Encouraging the IT industry to produce these cheap appropriate technologies is akin to getting the big drugs companies to research the tropical diseases that kill poor people — but aren’t as profitable as the diseases of affluence. OLPC now seems to have encouraged a veritable rush from commercial producers.

BBC World has an interview with Mary Lou Jepsen who initiated the project with Negroponte. Describing herself as a ‘hardware chick’, she’s the inventor of the OLPC’s LCD screen — a key breakthrough in reducing its cost (the screen is viewable in strong sunlight and is very power efficient). She talks about the battle to persuade manufacturers to build the screens, after much early doubt. But these technologies are now likely to enter the commercial market as well. Indeed, the FT technology blog reports that her new company is working on $50-$75 laptop. This will be lower than the cost of the OLPC XO, the target price of which is $100 (the WSJ reports that the current model actually sells for $188 — still cheap).

In another interview on Groklaw Jepsen says that 260,000 are going to children in one-room classrooms in rural Peru. This is an amazing number. What will be the social and economic effects? Negroponte always described this as more of an education than a computer project. He’s right: out go those old textbooks — the kids can hook immediately to the latest reading material (and maybe get learning help on line from volunteer teachers? And read this blog?).

My posts are generated from my wonderful MacBook. But it cost us at least 1200 bucks. Can’t wait to start blogging from a $50 machine — shows that technologies developed for poor people can benefit us all.

(ps. the SciDev Net site keeps everyone in touch with the latest science and development news)