Archive for September, 2008

3.9 million British Children in Poverty

30 September, 2008

That’s one in three children, according to the Campaign to End Child Poverty, a coalition of more than 130 organisations including Barnardo’s, Unicef and the NSPCC. The BBC has reproduced their map of child poverty hot spots here.

They have data on every parliamentary constituency in the UK. Their new figures show that 174 constituencies have 50 per cent or more children living in (or on the brink) of poverty. Their report says:

“Birmingham Ladywood tops the list of the grim league table with 81 per cent – or 28,420 – of its children in struggling families. And within Ladywood one ward, Aston, has 87 per cent of its youngsters struggling to get by. But this is still not the most concentrated area of child poverty. An estimated 98 per cent of children living in two zones in Glasgow Baillieston – Central Easterhouse and North Barlarnark and Easterhouse South – are either in poverty or in working families that are struggling to get by”.

This might focus politicians minds, as we move towards a general election by, at the latest, mid 2010. But will there be any cash left in the treasury after bailing out Britain’s feckless banks, we wonder?

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Who to help in the current financial crisis?

29 September, 2008

Who to help in this financial crisis? On the FT web site I argue that the 37 million Americans in poverty (about 12% of the population) should be first in line for help (for US poverty statistics go here).

Many Americans on low-incomes have been sucked into loans that they cannot now service as house prices collape. African Americans will be hit hard (their poverty rate, 24.5%, is twice the average). And the relentless rise in US inequality will continue (see the graph here). The financial services industry feasted for years on selling mortgages to people who wanted to own the roof above their heads. The scandal of teaser-rate mortgages will run and run.

And the financial crisis is causing unemployment to jump. As Ken Rogoff in the FT says:

“A large expansion in debt will impose enormous fiscal costs on the US, ultimately hitting growth through a combination of higher taxes and lower spending”.

The history of financial crises demonstrates two common outcomes. First, bank crises almost always become fiscal crises – as public money has to be used to keep the credit wheels turning. Second, capital gets help first, and labour last (see for instance Mexico’s ‘peso’ crisis of the mid-90s). Will history repeat itself?

Happiness is the Peruvian Amazon

29 September, 2008

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

29 September, 2008

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.

Carbon Taxes Will Need to be Higher to Pay for Development

25 September, 2008

Jeff Sachs and Bono are blogging on the FT web site during this week’s MDG summit in New York (go here). Today, Jeff reports that some bold and creative proposals are coming from the EU, Mexico and Norway, among others. Carbon taxation is to the fore, in particular.

“According to the Swiss Government’s proposal, a $2 per ton levy on carbon dioxide would raise around $48bn per year, money that could play a critical role in helping impoverished countries to meet the Millennium Development Goals and to adapt to climate change. I believe that we’ll be hearing a lot more about carbon levies in the months ahead, as a practical approach to climate change control and development finance”.

Back in 2003, we took a thorough look at innovative sources of finance in a UNU-WIDER project led by Tony Atkinson of Nuffied College, Oxford (go here). The study concluded that many of the proposals were feasible, including carbon taxes. I chipped in with a proposal for a global premium bond to fund chronic poverty reduction – based on the successful UK premium bond scheme (Addison and Chowdhury paper here).

Amongst all the innovative finance proposals, carbon taxes get the most support among economists (more than the popular Tobin  tax: although that may be boosted by the present financial malaise). They not only reduce carbon emissions (a global bad) but also, as Jeff Sachs says, they generate a flow of revenues to finance a step-up in official development assistance (both multilateral and bilateral) as well as global funds to deal with the urgent challenges of climate change, conflict, and HIV/AIDs (to name but three).

All of these problems just get worse without early action: notably climate change, since a stock of carbon is already in the atmosphere, warming the earth — which we will have to adapt to — even as we attempt to reduce the flow of carbon from new emissions. But this is true of conflict and viruses too: war generates more war (notably in the Congo where violence is still endemic after the supposed ‘peace deal’) and viruses mutate to become deadlier (notably unchecked TB).

Given the high returns to taking action now on these global bads, it would be worth accepting a much higher levy on carbon than the Swiss proposal. This would send a clear signal to the market, encouraging a faster rate of invention and adoption of clean technologies. And the additional funds could be spent on peace-keeping and more research for the diseases of the poor world.

But I worry that the US is way behind Europe in all of this, California perhaps excepted. Dealing with the present financial crisis is vital, but it is also a huge distraction from the larger issues such as climate change. And the present administration has been adamant in its opposition to global taxes. Does anybody detect much of a shift in the US position, the occasional piece of rhetoric aside?

The author is executive director of the Brooks World Poverty Institute, University of Manchester.

A Ribbon for Safe Motherhood

22 September, 2008

Every minute another woman dies during childbirth – or soon after from easily preventable causes. Many die before childbirth, in pregnancy. Death takes mothers, daughters, and wives from their communities, leaving widowers and orphans.

Today in Manchester I heard Sarah Brown and Brigid McConville speak movingly of their work with the White Ribbon Alliance for safe motherhood. WRA is an international alliance with members in 91 countries and National Alliances established in 11 – ranging from Burkina Faso to Bangladesh to Zambia. It is taking the campaign to New York this week for the UN Millennium Development Goal summit to push on the maternal health goal (MDG 5). Improvement has been limited: DFID sums it up:

“. There are two targets: one to reduce maternal deaths and the other to provide universal access to reproductive health. Little progress has been made over the past two decades and MDG 5 is severely off-track”.

Poverty is a cause of maternal death. An African woman has a 1 in 16 chance of dying from a pregnancy while a European has a 1 in 1,800 risk. And maternal mortality is a cause of poverty. The household loses not only a human life, but the income that the woman’s livelihood provides. The Chronic Poverty Report cites health crises, and the associated impact on the household’s resources (including health fees), as a big initiator of the descent into chronic poverty. This makes for hungry and sick children. Orphans are more likely to die after their mother’s death – their chance of death is three times the average for children in the 1-5 age group. One mother’s death thereby ripples across the generations.

Do check out the WRA video for their Promise to Mothers Lost campaign, and read Sarah Brown’s letter in Elle.


Universal Right to Pleasure

21 September, 2008

We enjoy our grub here in Manchester. And so does Slow Food Nation which came together over Labor Day in San Francisco to celebrate an inclusive food movement to create a better American food system.

The slow food movement originated in Italy over 30 years ago, founded by Carlo Petrini. He was annoyed by a badly cooked pasta dish at a political meeting and wrote to the organizers to tell them so — who responsed that the comrades didn’t bother with such trivialities. Petrini retorted that the working class had every right to good food. And so the ‘universal right to pleasure was born’.

So, food quality shouldn’t be just a middle-class foodie concern – the way it is often presented. The link between poverty and bad nutrition remains an urgent issue in the UK (check out the Food Access Network). And then there are the 400 million-plus people in chronic poverty whose food – when they can get it – is often appalling: anyone for mud-cakes? (see this story from Haiti).

The BBC food programme covered the San Francisco event and includes a speech by Carlo Petrini himself, as well Raj Patel of Stuffed & Starved (one of our favourite books this year).

The Slow Food Story: Politics and Pleasure by Geoff Andrews traces the origins of the movement. In the UK it is still early days. The industrial revolution, rapid urbanization, and the second world war did much to destroy English food culture, and it has only really started to recover over the last 20 years.

Kate Colquhoun’s The Story of Britain’s Cooking tells a dismal tale. Ian Jack in the New York Times asks why we developed such a poor cuisine despite so many excellent ingredients (‘the roast beef of old England’) and finds it in “… the triad of the Industrial Revolution, empire and free trade. The first drove people from the fields to the factories; the colonies of the second grew what Sidney Mintz has called the tropical ‘drug foods’ (including sugar and tea); the cheap imports encouraged by the third drove out the homegrown”. By 1800 according to Colquhoun:

“… the poor in Britain were now subsisting not on a diet that had remained broadly unchanged for centuries of ale, grain and vegetables and a modicum of fatty meat, but on a vastly less nutritious mix of often adulterated white bread, cheese, tea and sugar”.

The slow food movement in the UK has so far focused largely on quality. It is only now taking on the ethical and political issues that Petrini championed, according to the BBC food programme. “What’s good, clean, and fair” are the watchwords, and Petrini urges us to be curious about food: because it tells us much about the culture of the people who produce and eat it.

To that end, to maintain the ‘Ark of Taste’, the movement has supplied vacumn packing machines to India to market more widely a rare variety of basmati rice. Globalization has made us aware of other food cultures but it has also endangered local food cultures as well. And as Petrini emphasizes, when a food culture is threatened, a whole life style is endangered.

Confused about the Financial Crisis? Is Man United Safe?

19 September, 2008

Then go the freakonomics blog. Guest bloggers Doug Diamond and Anil Kashyap provide an excellent guide to what is going on. They also assure us Mancunians that the blessed United is safe:

“… the Federal Reserve made a bridge loan to A.I.G., the largest insurance company in the world; perhaps best known to most of the world as the shirt sponsor of Manchester United soccer club, A.I.G. has assets of over $1 trillion and over 100,000 employees worldwide. The Fed has the option to purchase up to 80 percent of the shares of A.I.G., is replacing A.I.G.’s management, and is nearly wiping out A.I.G.’s existing shareholders. A.I.G. is to be wound down by selling its assets over the next two years. (Don’t worry, Man U will be fine.) The Fed has never asserted its authority to intervene on this scale, in this form, or in a firm so far removed from its own supervisory authority”.

So, that’s ok then. Meanwhile our comment to Ken Rogoff’s piece in yesterday’s FT on the impact of the crisis on the dollar argues that now is the time to invest in better social protection for the 37 million Americans in poverty. Bailing them out can help stabilize the domestic economy, and put a floor under the wobbly property market — and thereby help reduce the need to bail out the financial system. In the meantime, United becomes the first football club to be sponsored by a central bank. Thanks, America’s taxpayers!

US Financial Crisis Hammers the Poor

18 September, 2008

Former IMF chief economist, Ken Rogoff worries that the dollar is headed for another dip in today’s FT (go here). He says:

“If the US were an emerging market country, its exchange rate would be plummeting and interest rates on government debt would be soaring”.

Instead the dollar has strengthened over the last month. But he doesn’t think this will continue. Rogoff is worth listening to: over the summer he said a major US financial institution would fail before the end of the year (reported here). And this has now come to pass (with more on the way?).

What does the financial crisis mean for the poor? Earlier in the year we commented on the big rise in the number of people using America’s food banks (see our February and US archives). The US government buys surplus food for distribution through organizations like America’s Second Harvest — and these are facing heavy demand in areas worst hit by the house-price collapse.

Given the US slowdown, unemployment will rise further. With few if any savings, plus the cost of health care (and the fact that many Americans are uninsured), unemployment can quickly push people into poverty. The US prides itself on social mobility (the rags-to-riches story that all those self-help books play upon). But only 6% of children born to parents with a family income at the very bottom move to the very top (see the Economic Mobility Project here). It’s actually a very static society, especially for African Americans.

Unemployment is, in turn, pushing up the default rate in the already hard-pressed mortgage market. This adds to pressure on mortgage-bonds and the balance sheet of the financial sector.

Putting in place effective safety nets for those on low-incomes could help establish a floor under house prices (and thereby indirectly help the dollar, which is Ken Rogoff’s concern). Since many low-income families were lured into mortgages they cannot now afford through so-called ‘teaser rates’ (low interest rates to suck them into debt) they deserve as much help as the banks — if not more.

But we fear that any help will be squeezed out by the fiscal costs of the financial crisis itself (not to mention the continued cost of Iraq: see Joe Stiglitz here on the ‘three trillion dollar war’). And it is very likely that the US will exercise even less voice in international development, since its bilateral and multilateral aid commitments will come under budgetary pressure as any new administration (be it democratic or republican) will focus on domestic priorities first. The bottom line: it’s not just America’s poor who are hammered, but the world’s poor as well.

It’s Called the Girl Effect

18 September, 2008

CARE has a neat video on the huge impact of educating girls: “It’s called the girl effect”. Indeed it could be an investment with one of the largest returns — for both the individual and their society.

Larry Summers found that  on average wages increase by more than 10% to 20% for each additional year of schooling (with the returns being especially high in Africa and South Asia, where literacy is lower: go here). He calculated that there was a much higher return to society from investing in the human capital of girls than in such ‘hard’ infrastructure as electric power plants. And then there are the positive effects on infant mortality, maternal mortality, and the position of women in their societies. Summers did his calculations back in the early 1990s, and subsequent research has continued to confirm the substantial benefits of girls’ education.

For further work in this area go to the BWPI working paper series. Farhad Hossain and Tonya Knight discuss the use of micro-credit for education in Bangladesh in ‘Financing the Poor: Can microcredit make a difference?’. The Grameen bank provides education loans (as well as scholarships for its clients). Increased female education has contributed to improving their social status over the last three decades: this is evident in the number of women who now have jobs in banking and other service sectors in Bangladesh.

Also check out the work of Ruth Levine and Nancy Birdsall at CGD. A good site for advocacy and research, especially on what the IMF and World Bank are up to, is Gender Action.