Archive for the ‘Europe’ Category

Far from Correcting the Distortions of Unbridled Capitalism, the Political Process Makes Them Worse

29 August, 2008

So says Sam Brittan in today’s FT, reviewing Robert Reich’s Supercapitalism: the Battle for Democracy in an Age of Big Business. You’ll remember Reich as Bill Clinton’s secretary for labor.

In a nutshell, Reich argues that the golden age of capitalism — the rebuilding of the post-war years up to the 1970s — delivered enough prosperity to win the allegiance of most ordinary folk. That got replaced by ‘supercapitalism’ which has delivered our present mess.

For Brittan the novelty in Reich’s book lies in his rejection of a central role for corporate social responsibility. Instead, Reich gets into the intellectual bed of Milton Friedman — who famously argued that it’s the job of businessmen to make lots of dosh, and that’s their sole responsibility. For Reich we need to strengthen states to ensure that dosh-making is compatible with society’s goals — as set out by democracy.

Brittan likes this (unexpected) approach. But he’s less optimistic about democracy pushing business in the right direction. US energy policy is Brittan’s example (presumably excessive subsidies for biofuels driving up world food prices). And Brittan cautions that this might also let business off its (moral) hook:

“… there is a danger that the Friedman-Reich position could inadvertently give sustenance to the “I was only doing my job” defence for evil actions”.

We continue to think this one over while awaiting our copy of Reich’s book. In the meantime, you can read his excellent blog here.

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The WTO’s war on the African, Caribbean and Pacific countries: Part 2

3 June, 2008

In a previous post I examined the recent ruling from the WTO Dispute Settlement Body over the EC’s banana quotas for ACP countries. This was simply the latest in a number of issues that have been damaging to the interests of ACP countries. Another concerns the dispute between Brazil, Australia and Thailand on one side and the EC on the other over sugar. This had the positive effect of reducing the EC’s colossal sugar subsidies. In the latest year reported to the WTO these were reported to be €5.6 billion, on a crop of sugar worth a total of €4.8 billion. But the ruling also had a strongly negative effect on ACP countries because it removed the preferential market access quotas that they previously had. These quotas allowed ACP countries to export a certain amount of unrefined sugar to the EC at the EC’s high internal price rather than the much lower world price. The effect of removing this was estimated to cost the ACP countries $352 million a year.

Finally, there is the issue of Economic Partnership Agreements (EPAs) currently being negotiated by the EU. These result from the expiry at the end of 2007 of the previous Cotonou Agreement that granted preferential market access to ACP countries into the EC market. The Cotonou Agreement was not compliant with WTO rules since it did not include any reciprocal preferential market access for EC exports into ACP countries, but was entirely one-way. As such, it could be challenged by other developing countries that were not part of the ACP group that felt that their exports were harmed by the arrangment. In order to prevent this, the EU (more…)

Can Donors Help Cook Up Growth?

15 February, 2008

Making an economy grow should be easy. Just invest in technology (to raise labour productivity — a new seed variety for instance). Add lots of education (especially high quality primary schooling). And then a dash of institutions (protecting the property rights of investors). Oh, and don’t forget the infrastructure. Voilà! 10 per cent growth year-on-year, and before you know it everyone will be rich (and moaning about how unhappy they are).

So, all you need is a growth cookbook (maybe this is Nigella’s next opus?). You could pick up a US one (a bit tired around the edges, but well-tested homely fare). Or an Asian takeaway (select from Malaysian, Korean, Chinese, or Vietnamese). Or how about Scandinavia’s rather bland — but very successful — growth Smörgåsbord? (Finnish being our favourite).

What you will not find is much from Africa. Indeed the shelf is largely bare, Botswana and Mauritius excepted. And it is Africa that aid donors are mostly concerned about (although the Pacific islands and Haiti are huge challenges too). True, Africa is now growing, pushed ahead by rising commodity prices. But Africa has been here before (the 1970s, when it largely squandered the fruits of the last commodity boom — resulting in economic turmoil, spectacularly so in Nigeria). Nobody is yet writing up Africa as a growth success-story — because recent growth seems so fragile.

And a lot of that growth doesn’t reach the people who need it: GDP is rising fast in Angola and Equatorial Guinea but the average person doesn’t see much benefit, let alone the poor (on Angola see my book here). Nigeria looked more hopeful last year, especially after the debt deal. But never underestimate the ability of Nigeria’s politicians to clear the pot before anyone else gets a turn (see recent back-sliding on corruption).

So what’s an aid donor to do? This is now becoming urgent — we hear that donors are pushing growth up their priority list. Seems sensible: countries will remain aid-dependent until they get their GDP up. And growth can reduce poverty, especially when new jobs and tax revenue (for pro-poor public spending) are the result (however, the chronically poor can miss out, and some types of growth harm poor people — see our recent post).

But which growth cook-book will donors turn to? And will the recipes be palatable to aid-recipients? We’ll return to this theme in a future post. Meanwhile, over to Nigella.

Mobilizing for a New War on Poverty

3 February, 2008

With the US teetering on the edge of recession, rising unemployment, and a precipitous fall in house prices, poverty is moving up the political agenda. And inequality too, since the land of opportunity is generating more openings for those in the middle and higher income ranges than at the bottom.

The brand new Stanford Center for the Study of Poverty and Inequality (SCSPI) has a free policy magazine, Pathways. It asks: how might a new war on poverty be fought?

Tim Smeeding sets the scene. Of 21 nations with comparable data, the overall poverty rate varies from 5% in Finland to 20% in Mexico. The US poverty rate is 17%, the second highest of the 21, and the highest of all rich nations. The comparison with the UK is startling; policy action over the last ten years has reduced UK child poverty to 11% which, while still too high, is much lower than the US at 18%. Britain has cut its child poverty rate to 45% of the 1999 level, while US kids saw no such gains. What the Brits have done, the Yanks can too.

Hillary Clinton, John Edwards, and Barack Obama contribute to the first issue. Priority reading to find out what might happen if the next occupant of the White House declares a new war on poverty.

Human Trafficking — the Dark Side of Globalization

29 January, 2008

The ease with which we can now travel, send money, and communicate has dramatically reduced the costs of shipping human beings — into prostitution and forced labour. Our recent post highlighted Hatti and Maiti Nepal and their work to help those trafficked in Nepal. The plight of Nigerian children trafficked through Manchester is reported here.

Now, Emma Thompson and Sam Roddick have teamed up to highlight this modern slavery at a UN forum which meets in Vienna in February (go to UN.GIFT). They are backing an art installation that dramatically explores globalization’s dark side.

7 cargo containers illustrate what happens to women sold into the global sex trade. Each container — by a different artist — shows the stages of the trafficking process, starting with hope and then descending into fear and despair.

The installation was first shown last September in London’s Trafalgar Square, to much praise (video here). Emma Thompson is Chair of the Helen Bamber Foundation, which helps the victims of human rights violations and raises awareness of human trafficking. (Helen Bamber herself worked to help concentration camp victims).

Last week, 11 Romanian children were taken into care after being seized from alleged child traffickers (who were using them for crime on Britain’s streets, including Manchester, in a modern version of Oliver Twist). Go here for why kids in Romania still get a hard deal.

The choice of containers for the exhibition is inspired. Globalization would not have been possible without the container. The introduction of this humble steel box from the 1950s onwards allowed a much faster turnaround at ports, thereby dramatically cutting the costs of global trade. Now it is used to smuggle people.

Abandoned containers have been turned into homes by the poor. But now the construction industry is starting to use them to build affordable homes (there is one housing development in London). And a new school in Cape Town is built using containers (go here)

Fitting Britain’s Richest into Manchester City’s Stadium

21 January, 2008

The top 0.1 per cent of the UK’s income distribution — that’s 47,000 people with a pre-tax income of more than £350,000 — would be just enough to fit into Manchester City’s Stadium (at least they could afford a season ticket).

This, and other gems, are contained in ‘High Income Individuals: Racing Away?‘, a new Institute of Fiscal Studies study. The top 0.1 per cent has an average pre-tax income of £780,000 per year (for our American readers, that’s about $1,500,000). The average pre-tax income of all income tax payers is £25,000 per year. The top 10% have seen faster income growth than the population as a whole, and the top 0.1% have experienced the fastest growth of all — globalization is of enormous benefit to the UK’s financial sector (and Premier League football players aren’t doing too badly either).

UK Income inequality is now at its highest level since the 1940s. And, northerners tend to have much lower average incomes than southerners, as Sir Stuart Rose, boss of M&S recently pointed out (story here). So, more sales of champagne in the south than flat caps in the north.

Yet, Britain is still significantly less unequal than the US: our Gini coefficient is 0.35, while the US Gini is 0.46 (the higher the Gini, the more unequal the society). Income inequality started to rise in the 1980s (Tony Atkinson’s WIDER annual lecture explains why). Still, the Guardian’s leader today is right to wonder whether everyone is getting “a fair kick of the ball” (as UK Chancellor of the Exchequer, Alistair Darling, recently stated).

Now, how many of Britain’s richest are playing for United or City? (That’s enough football for now – ed.)

Reasons to be Cheerful, Part 1

20 January, 2008

The late, great, Ian Dury, had a hit with his song ‘Reasons to be Cheerful‘ back in the 1970s. So, with the start of the new year, and in the spirit of the song, lets list some reasons to be cheerful in the first month of 2008:

1. The One Laptop Per Child is now shipping — over a quarter of a million to Peru alone; it sells at $188, and a new commercial venture aims to get these computers down to $50 (see our recent post).

2. The World Bank’s soft-loan arm (the International Development Association) got replenished late last year — after worries that the Wolfowitz debacle would sink the Bank’s funding, the donors rallied round, and Britain became IDA’s biggest contributor (giving the Americans pause for thought: see ‘Bested by the Brits’ in the NYT here).

3. More Americans started to treat climate change seriously. And the Europeans got their act together, and pressed the US hard at the Bali meeting in December (see a summing-up on the CDG blog here). The Republicans ended their state of denial about climate change, finally catching up with the big shift in public opinion (see The Economist here).

4. Economic growth in the developing world keeps motoring, despite the US buckling under the sub-prime mortgage crisis. The South — or at least the Asian part of it — might be decoupling from the North, for the first time.

5. Remittances from North to South continue to rise. Africans living in the UK send home some $400 million a year to relatives (but African governments need to do more to help these transactions, and the resulting investments).

6. The Micro-finance game just keeps getting bigger. What used to be a minority sport has now gone main stream. Lots of product innovation going on, with micro-insurance now starting to catch up. ASA of Bangladesh comes top in a recent Forbes ranking of Microfinance institutions.

7. The Ghanains are punching above their weight in the world of diplomacy. Ghana’s President John Kufuor (also chairman of the African Union) and Kofi Annan are trying to bang heads together in Nairobi to resolve the elections crisis — in the pleasant but firm way only Ghanains can.

8. Iain Duncan Smith, ex leader of the Conservatives, gave a barnstorming performance at the Blackpool party conference on the theme of Britain’s ‘broken society’. And he’s highlighted the Manchester of poverty alongside wealth.

9. More young people than ever want to get involved with development. Why? Maybe its all the travelling during those gap years or older siblings burnt out by the corporate world. Check out the BOND (British Overseas NGOs for Development) site here. If you are a young economist take a look at the ODI Fellowship scheme.

10. The Web makes it possible to find almost any piece of poverty research you want. For those of us who started out in the days of type-written manuscripts this is still amazing.

er, that’s it…. but I’ll try and think of more, and return with Part 2 soon

Incidentally, Ian Dury was one of UNICEF’s childrens ambassadors in his last days. There’s a great pic of him here with a Zambian boy on one of his Africa trips. He campaigned tirelessly to eradicate polio having been disabled by the disease when a child (relatively common in Britain of the late 194os when he got it).

Illiberal Capitalism – Freedom foregone?

9 January, 2008

Capitalism and Freedom is a long-running theme (indeed it’s the title of the late Milton Friedman’s book: you can guess what his view was). In today’s FT Gideon Rachman sums up the view of many a decade ago (and epitomised in Francis Fukuyama’s book The End of History). “The chain of thinking works something like this. Communism failed as an economic system. Russia and China have had to embrace free markets. Economic freedom will, in time, produce political freedom”, writes Rachman. Countries that democratize should benefit from higher inward investment (and more growth). They can draw on more of the world’s stock of (commercial and technical) knowledge without worrying about people’s access to knowledge about their country’s politics (see a paper by Tony Addison and Almas Heshmati here).

But the capitalism and freedom thesis doesn’t seem as self-evident as it used to be. Many Russians equate the opening up to democracy with their own hardship as the economy simultaneously went through an often-chaotic liberalization and privatization process (creating today’s wealthy oligarchs, while throwing many workers into the street). Russia experienced the sharpest fall in male life expectancy of any peacetime economy in the early 1990s (Russia’s social crisis during the transitions is documented in the UNU-WIDER book by Andrea Cornia and Renato Paniccià).

The oil price boom of the last few years has provided President Vladimir Putin with abundant revenues; one of his first steps was to raise the state pension (pensioners were impoverished by the transition). Many Russians do not want to return to the penury of the late 1990s. So, prosperity combined with political authoritarianism has gone down well with many of the voters. Spatial inequality remains high with many remoter areas in deep poverty (go to this paper by Stanislav Kolenikov and Anthony Shorrocks at UNU-WIDER) but enough people are benefiting from the last few years of growth to give President Putin a strong power base (aside from his crackdown on political competitors).

In China, the economic transition was much better managed; “walking across the stream while feeling the stones under foot” as the proverb goes. Reforms in the agricultural system in the first phase from the 1970s onwards delivered rising food output, declining real food prices, and rising incomes (while the land reforms of the 1950s, often brutally conducted, provided something of a safety net for the eventual economic transition). The major drive into the global manufacturing economy then created new sources of income. China has thereby created a unique form of state capitalism. Vietnam took the lesson to heart, and is following a similar trajectory: economic liberalization (mostly) and tight political control. Vietnam’s chronic poverty has, for the most part, fallen sharply (for CPRC poverty research on Vietnam go to here).

Rising prosperity delivers support for the one-party state, leading to few challengers (and China has locked up plenty of journalists and monitors Internet access: will this blog make it past the ‘Great Digital Wall’?). China’s reluctance to let the currency appreciate – a source of tension with Washington – reflects a desire to keep growth rolling at an annual 10 per cent (although the currency policy is now relaxing somewhat to contain the inflationary pressures of growth)

Regional grievances have so far been contained, and the Party has moved over the last two years to address the discontent in rural areas of people who feel they have missed out from the boom. High growth is delivering ample tax revenues for the Party to now patch-up the alarming gap in health-care provision that opened up over the last decade.

A pressing challenge is still to reduce poverty in China’s western provinces (UNU-WIDER analysis of China’s spatial poverty is found here). Increasingly warm relations with neighbouring Russia provide part of the solution: expect to see some big Chinese-Russian initiatives in infrastructure to link up new economic zones in China’s poorer provinces with markets in Europe and Japan through better land transport routes (the ‘silk road’ is back).

Rachman’s points out the irony of it all: “In China, hopes that a flourishing private sector might provide an alternative source of power to the Communist party have so far not been realised. On the contrary, the party’s stake in large, cash-generative state monopolies has led some to joke that it is now ‘the world’s biggest holding company'”.

So, for the moment ‘illiberal’ capitalism is gaining traction. The neat link between capitalism and (political) freedom appears to be broken. We wonder what Milton Friedman would have thought of it all.

EU trade agreements – gambling with livelihoods in the developing world?

6 December, 2007

The EU is locked in last minute negotiations with countries from the African, Caribbean, and Pacific (ACP) group on Economic Partnership Agreements (EPAs). Any country not signed up by 1 January faces losing its EU trade privileges under the EU’s (self-imposed?) deadline.

The war of words is ferocious. Oxfam argues that the EU is pursuing “… an extremely aggressive agenda that pays little more than lip service to development”. Bob Geldof and Africa advocacy group Data have weighed-in with an alternative African Trade Initiative. EU trade commissioner Peter Mandelson retorts that campaigning NGOs are putting huge political pressure on countries not to sign, and are giving out misleading information. Together with Louis Michel (EU development commissioner) he recently argued in the Guardian that: “critics of the EU’s trade agreements are gambling with livelihoods in the developing world”.

Last minute confusion reigns over who has signed and what they are signing up to. Trade-expert Chris Stevens is tracking the story on the ODI blog. The ACP’s manufacturers worry that there will be no tariff protection for industrial development. Mandelson argues that the trade preferences of the last 30 years have not delivered much industrial development, and that EPAs offer a new beginning. The WTO gave the EU and ACP 7 years to sort this out, so this is hardly rushing it, concludes the EU trade commissioner.

The East African Community, the Seychelles, and Zimbabwe have signed. Angola, Fiji and Papua New Guinea seem willing. Some Southern Africa Development Community (SADC) members were close to signing, but South Africa and Namibia have refused to sign-up. They don’t want to be bound to offering the EU the same terms as any future bilateral trade agreements with other parties (under the EPA ‘most-favoured nation’ clause). Loss of EU privileges will hit Namibia’s beef industry. South Africa need not worry about an EPA: it already has a bilateral trade treaty with the EU.

The EU argues that it offering 100% market access under EPAs (except for sugar and rice) and that if any partners grant more market access to others in future deals, then the EU should get the same treatment. The EU is pursuing the same line in negotiations on a trade deal with India. Services have been left for a future second stage.

The process to put in place EPAs by end-2007 began after the WTO ruled against the longstanding agreement governing the EU’s trade with the 79-member ACP group (mostly former European colonies). If a country is not signed up to an EPA by the deadline then the EU will apply the Generalised System of Preferences (GSPs) and its less generous tariff rates.