The new OECD “Society at a glance” (paywall) report came out today. It’s part of a series of policy papers assessing the social implications of the economic crisis and its aftermath, and offers a list of policy recommendations on a yearly basis.
The picture is never good.
The financial upheaval of 2007-08 created not just an economic and fiscal crisis but also a social crisis. Countries that experienced the deepest and longest downturns are seeing profound knock-on effects on people’s job prospects, incomes and living arrangements. Some 48 million people in OECD countries are looking for a job – 15 million more than in September 2007 – and millions more are in financial distress. The numbers living in households without any income from work have doubled in Greece, Ireland and Spain. Low-income groups have been hit hardest as have young people and families with children.
The financial crash was one of the most important events that occurred within my lifetime, but still some people don’t seem to get how far reaching its impacts have been. The American Republican Party seemed to mostly bury its collective head in the sand, perfectly willing to sacrifice the welfare of poor people for the sake of a few narrow political goals.
The paper is filled with interesting data and charts, but the are some other gems here. Food security:
While federal food assistance programmes in the United States now support roughly twice as many households as in 2007, the number with inadequate access to food at some time in the year has nonetheless climbed from 13 million (11% of all households) in 2007 to 17.6 million (15%) in 2012. Rates of food insecurity were substantially higher among households with children (20% in 2012) and lone-parent families were particularly affected (35%). Forty-one percent of all food-insecure households received no support through federal food assistance programmes.
As someone who grew up in a food insecure household, I take this quite seriously. Right wingers who have a stocked fridge don’t get what it’s like to have an empty fridge. It’s easy to say that SNAP benefits foster “a culture of dependence” with a bulging stomach. Perhaps they don’t know that in food insecure households, the last people to eat are the kids. Of course, they don’t care.
To “crisis-proof” social policies and to maintain effective support throughout the economic cycle, governments must look beyond the recent downturn. First, they need to find ways to build up savings during upswings to ensure they can meet rising costs during downturns. On the spending side, they should link support more to labour market conditions – for example, by credibly reducing benefit spending during the recovery, and by shifting resources from benefits to active labour market policies. On the revenue side, they should work to broaden tax bases, reduce their reliance on labour taxes and adjust tax systems to account for rising income inequality. Second, governments need to continue the structural reforms of social protection systems begun before the crisis. Indeed, the crisis has accelerated the need for these. In the area of pensions, for example, some future retirees risk greater income insecurity as a result of long periods of joblessness during working age. In health care, structural measures that strip out unnecessary services and score efficiency gains are preferable to untargeted cuts that limit health care access for the most vulnerable.
If GWB 1 is any indication, the Republican Party dislikes savings and when they get a surplus they seem to squander it. There’s no reason to believe that the future will be any better. I’m thinking about the dichotomy of labor taxation versus capital taxation. Republicans have made it quite clear that they dislike capital taxation and prefer labor taxation. But what this does is create a gated community of capital holders, who exert vast political control without having to take responsibility for, well, much at all.
While I do advocate for a national sales tax to pay for transfers to create an income floor for American wage earners, we also need to tax the hell out of inheritances. There’s no reason that Bill Gates’ son (does he have one?) deserves a leg up any higher than he’s already got it. If America wants to foster innovation, it has to start by bolstering it’s labor classes. Forcing them to go without meals and scramble around to meet basic health needs only creates a dog eat dog culture of basic survival, and leaves little room for good ideas.
Alright, happy zombie day.
Here’s a few articles I’ve been reading this morning that I liked.
Intellectual Property Rights, the Pool of Knowledge, and Innovation by Joe Stiglitz (National Bureau of Economic Research)
We began by noting that some observers of innovation have claimed that a more important determinant of the levels of investment in R & D and the pace of
innovation than the intellectual property regime is the “opportunity set,” the knowledge pool from which applied researchers can draw. Knowledge, it is has long been recognized, is a public good—a
common resource from which all can draw (see, e.g., Stiglitz 1987).32 Intellectual property provides a way of appropriating the returns to investments in knowledge, but in doing so, effectively privatizes a public good. But every innovation draws upon prior knowledge, and the boundaries of “new” knowledge are inherently imprecise. Patents inevitably enclose what would otherwise have been in the
public domain. In doing so, not only do they impede the efficient use of knowledge, but because knowledge itself is the most important input into the production of further knowledge (innovations),
they may even impede the flow of innovations.
Democracy does cause growth (National Bureau of Economic Research)
Our baseline results use a linear model for GDP dynamics estimated using either a standard within estimator or various different Generalized Method of Moments estimators, and show that democratizations increase GDP per capita by about 20% in the long run. These results are confirmed when we use a semiparametric propensity score matching estimator to control for GDP dynamics. We also obtain similar results using regional waves of democratizations and reversals to instrument for country democracy. Our results suggest that democracy increases future GDP by encouraging investment, increasing schooling, inducing economic reforms, improving public good provision, and reducing social unrest. We find little support for the view that democracy is a constraint on economic growth for less developed economies.
Abe’s Law: Domestic Dimensions of Japan’s Collective Self-Defense Debate (HERE)
The Edutainment Industrial Complex (Africa is a country)
So this is their strategy? Ask a bunch of relatively wealthy, globally-mobile pop superstars to tell rural youth to not participate in the flashy urban lifestyle they (the artists) usually promote–to stay in the countryside and participate in the resource extraction side of global capitalism? As Sean pointed out to me over email, the video isn’t unlike the type campaign some dictatorship (South Africa’s racist regime was fond of it) might use as a tool of “national development” or to fight crime or build national morale.
Is this a surprise? Western liberals have long romanticized rural poverty and encouraged Africans to simply do nothing about their developmental problems. Sorry, I had to put on my curmudgeon hat for a while.
Well, it should really be, what I was reading two weeks ago, but… details, details….
The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor Generally speaking, I like Bill Easterly’s views on aid and development. Easterly questions traditional models of development, arguing that top down strategies which rely on purely technical solutions rarely work, and often do more harm than good. Here, Easterly again makes the argument that the development world is full of bumbling technocrats, who fail to see the simplicity of the real problem of African development.
Note, however, that I do not share the views of uninformed cynics, which laugh at the “folly of development” and the evils of foreign aid indiscriminately. Easterly is often propped up by cynical opponents of foreign aid as a spokesperson for why we shouldn’t be given money to poor people, or by Ron Paul style non-interventionists who are quick to dismiss anything the United States does outside it’s borders, not to suggest at all that the United States alone is responsible for development. To me, and call me stupid, the issue is far too complex to boil down to a black and white view of a few self satisfied cynics. Debates over what works and what doesn’t work in development are far more interesting to me than debates of whether development is “good” or “bad.” But… I digress…
Easterly argues that what’s missing from the picture is the guarantee of true democratic rights, that is, legal restrictions on the powers of government. The reason democracy is faulty in Africa, is that most African governments equate democracy with merely having elections, when, in fact, democracy is a function of checks on the ability of government to stifle opposition and the guarantee that citizens are fully protected under the law. He is absolutely right. The structures of African governments (in general) were initially constructed to support a colonial model, which guaranteed that power would be held by a privileged (white) few. However, post-independence, few governments have made substantive changes to the ways in which they govern, despite having had, in most cases, nearly 50 years to do so. Easterly lays blame with development organizations, which offer highly technical solutions to basic problems, but are weak-kneed in demanding that governments work to guarantee basic rights to their citizens.
While I agree that democracy is about more than just having elections, and agree that basic rights must be guaranteed in order to have a free state, I wonder if he gets so caught up in the grand academic thought process, and misses some of the details. His treatment of Asia is quite limited, for example. There, most governments achieved their developmental goals without guaranteeing the rights of citizens and sometime achieved them under incredibly authoritarian and sometimes brutal one party systems. While I don’t think that the end of development is worth the means of authoritarian brutality, it must be pointed out that many governments (for example, South Korea and Taiwan) only loosened their grip after they had an educated middle class which demanded increased freedoms and rights (see the work of Ha-Joong Chang and Joe Stiglitz for a reasonable treatment of the subject). While Africa and Asia are two very different places, any discussion of development has to include both.
Easterly makes me feel good, though, in his preface. Mentioning anywhere that markets are good things in a discussion of development will have one branded as a rabid right winger, which is just a pathetically myopic view (or merely a by-product of total ignorance). The tired argument of market vs state which dominates political discussions in the US (and elsewhere) is merely a distraction from the real argument we should be having, which is over rights vs. non-rights. Are rights being protected or not? Is there proper representation or not? You can have any type of free market system you like or even a heavy welfare state, but if the guarantee of basic rights to free speech, assembly, expression and representation aren’t there, you don’t have a democracy and you probably don’t have continued development of the type that matters most.
But, I’m not a political scientist, and could easily rant on aimlessly for hours to no end whatsoever.
Politics in West Africa – Sir Arthur Lewis (1965) – Sir Arthur Lewis was a Nobel Prize winning economist from St. Lucia. He wrote this fantastic little book on the state of West African politics following independence in 1965. It’s just as relevant now as it was back then. His scathing criticism of authoritarian African governments and the multitude of missed opportunities for development for African countries were both timely and eerily prophetic. I’m particularly drawn to his criticism of viewing Africa through a Marxist lens, pointing out that, outside of a few foreign corporations, there are few true capitalists and that the plentiful nature of land compromises efforts to commodify it, and thus create a European style, class based system. He also points out the problems with the one party state, pointing out that the one party state was often created by force following independence, rather than consensus. In fact, the nature of the independence movements themselves compromised the creation of true constitutional democracies, which guarantee the rights of the minority. Independence movements were created to topple minority rule. Great book.
Against the State: Politics and Social Protest in Japans I can’t put this book down. An excellent account of the fight to stop the building of Narita airport in the 1960’s, the implications of which were more than merely a struggle of some farmers unwilling to part with land. The struggle for Sanrizuka was a culmination of the coalescence of a wide variety of actors, many of which had little in common ideologically, reacting to an ever disconnected state. Apter rightly points out that despite strict rules on social behavior and self-control, Japan’s history is filled with examples of social change brought about not through discussion, but incredible and coordinated violence.
The Violence of Financial Capitalism (Semiotext(e) / Intervention Series) I bought this book thinking it might be an interesting perspective on the financial crash and the events which followed it. I was somehow let down to find that the book didn’t really live up to it’s striking title. Marazzi views the crash as not an aberration, but rather another aspect of capital accumulation by financial elites, a tool of undermining labor and a method of creating conditions of social change which benefits a minority of privileged individuals. While I don’t really argue that these things didn’t (aren’t) occurring, the treatment of the subject was far too academic and disconnected for me to get behind. It is possible that I’m just not well informed on the particular academic perspective of this author. I will have to read it again.
What will replace the Millennium Development Goals when they expire in 2015? Will the UN’s new benchmarks finally include the private sector?
The Millennium Development Goals, a set of eight developmental benchmarks which the world should achieve by 2015 are set to expire. Though there have been many gains, most notably in the worldwide reduction of extreme poverty since 2000, successes between countries remain uneven. Many people are wondering what set of policy recommendations will come next.
I’m reading “A Framework for Sustainable Development,” a document from the Sustainable Development Solutions Network, which aims to bring together a number of experts from a variety of fields with the goal of developing partnerships and creating innovative solutions to new developmental problems.
The Solutions Network mobilizes scientific and technical expertise from academia, civil society, and the private sector in support of sustainable-development problem solving at local, national, and global scales. This Solutions Network accelerates joint learning and helps to overcome the compartmentalization of technical and policy work by promoting integrated approaches to the interconnected economic, social, and environmental challenges confronting the world. The SDSN works closely with United Nations agencies, multilateral financing institutions, as well as other international organizations.
The document suggests the creating of 12 thematic groups, each of which will bring experts and institutions together to work on specific problems. These include themes such as macroeconomics, health, sustainable industry, oceans, forests and governance, among others. They all address very real problems the world is facing that will require the collective knowledge of a variety of stakeholders to successfully solve.
The last group struck me:
Redefining the Role of Business for Sustainable Development (synthesis of ideas, including from the other Thematic Groups, on how business in key sectors
can contribute to sustainable development; ways for business and financial markets to internalize externalities such as environmental damage and support a shift
towards the polluter pays principle; management of non-sustainable “stranded assets” as part of a shift to a socially and environmentally sustainable economy)
It’s interesting that the private sector seems to be almost an afterthought. This, or course, follows a general pattern. Policy groups and NGOs often take an adversarial approach toward business. The MDGs adressed nothing regarding the private sector and business development. The “thematic group” here, doesn’t really appear to wish to engage with private business at all, apparently offering a top down approach to dictating how business should participate.
This is a grave mistake. Though it is entirely true that many of the world’s greatest environmental challenges are directly attributable to capitalist activities, pushing the private sector to the margins is no way to engage multinationals in working toward a sustainable future. If businesses can’t be convinced (rightly) that the long term health of the planet and the equitable development of human resources is in their long term interest, then they will continue on a path of destruction. Moreover, there is no evidence to suggest that the private sector is a monolithic entity. Private businesses are a varied in intent and practice as NGOs.
Pharmaceuticals to treat malaria, HIV and TB don’t appear out of nowhere and despite the role of the public sector in encouraging and supporting basic research to create life saving drugs, governments are in no position to bring such innovations up to scale and market them successfully.
Even stranger to me, is that a list of themes that allegedly purport to deal with global welfare would not include business development in developing countries. Rapidly urbanizing and dynamic countries in Sub-Saharan Africa faces unique challenges to bringing people out of poverty, one of which is the development of domestic economies. Lack of access to capital, a paucity of banking services and regulatory handicaps keep African entrepreneurs from growing and potentially improving the lives of everyone involved. Again, the MDG’s did not address the problem of business development. Here again, we see the same pattern.
It was interesting that the tone of a document, A NEW GLOBAL PARTNERSHIP:ERADICATE POVERTY AND TRANSFORM ECONOMIES THROUGH SUSTAINABLE DEVELOPMENT written by leaders of two developing countries, Ellen Johnson Sirleaf of Liberia and and Dr Susilo Bambang Yudhoyono of Indonesia (well, David Cameron’s in there, too), would be so different from the UN’s Framework:
3. Transform economies for jobs and inclusive growth. We call for a quantum leap forward in economic opportunities and a profound economic transformation
to end extreme poverty and improve livelihoods. This means a rapid shift to sustainable patterns of consumption and production–harnessing innovation, technology, and the potential of private business to create more value and drive sustainable and inclusive growth. Diversified economies, with equal opportunities for all, can unleash the dynamism that creates jobs and livelihoods, especially for young people and women. This is a challenge for every country on earth: to ensure good job possibilities while moving to the sustainable patterns of work and life that will be necessary in a world of limited natural resources. We should ensure that everyone has what they need to grow and prosper, including access to quality education and skills, healthcare, clean water, electricity, telecommunications and transport. We should make it easier for people to invest, start-up a business and to trade. And we can do more to take advantage of rapid urbanisation: cities are the world’s engines for business and innovation. With good management they can provide jobs, hope and growth, while building sustainability.
The UN’s new development framework clearly has Jeff Sachs at the helm and certainly the group intends to influence policy. But policy without the acknowledgement and inclusion of the private sector, both on a macro and micro level, is doomed to fail.
Researchers at Georgetown and MIT have shown that transactions over M-PESA, an African phone banking service can help struggling households when faced with a sudden illness, weather event or economic shock.
We explore the impact of reduced transaction costs on risk sharing by estimating the effects of a mobile money innovation on consumption. In our panel sample, adoption of the innovation increased from 43 to 70 percent. We find that, while shocks reduce consumption by 7 percent for nonusers, the consumption of user households is unaffected. The mechanisms underlying these consumption effects are increases in remittances received and the diversity of senders. We report robustness checks supporting these results and use the four-fold expansion of the mobile money agent network as a source of exogenous variation in access to the innovation.
M-PESA is a cel phone based banking system which allows users to send and receive money to friends and family. Transactions can be small; most users are transferring less than $10 at a time. Users are charge about $.40 to transfer money and a percentage to withdraw. It is free to deposit money into the system.
Anyone can be an M-PESA agent. Starting an M-PESA business requires only a small investment so that even extremely rural areas have access to the system. Agents receive a percentage of transaction costs, and often piggy back it onto existing enterprises such as grocery stores and mobile phone shops. M-PESA not only provides a needed service, but has also created profitable business opportunities for people even in isolated rural areas.
The system is wildly popular. Africans are extremely mobile but maintain deep friend and family networks often spread out over wide distances. When a person has trouble, he or she will often turn to family and friends for financial help.
Previously, people would send money by getting on a bus and travelling, or by sending it with friends who might be going to a particular destination. Transportation costs are high ($5 to go a distance of 200km) and often outweigh the amount to be sent. Sending money by hand also incurred risks of loss to theft and misuse.
The number of M-PESA users has skyrocketed since its introduction in 2007. Nearly all adults in Kenya have access to a cel phone now, and the number of M-PESA users is now 70% of all mobile phone users.
Shocks due to illness or negative weather events such as drought can be devastating for a poor household. A single bout of malaria could set a family back as much as a month’s income or more. When poor households lose money, they don’t get it back and successive events can quickly pile up so much so that families will often wait until illness has become too severe to effectively treat.
Jack and Suri, the researchers who conducted the study found that illness shocks can reduce a households consumption by at least 7%. An average household only consumes around $900 a year, nearly half of which is for food. A 7% reduction in consumption could mean that households will simply eat less given a sudden negative event.
M-PESA users, however, experience no reduction in consumption given a sudden health or economic event. Presumably, the ability to transfer money quickly over long distances provides insurance against disaster. Mutual reciprocation allows the system to effectively function to protect against financial disaster.
This has incredible implications for public health. Financial concerns are an incredible barrier to insuring prompt and effective treatment for diseases such as malaria, diarrheal disease and respiratory infections. An efficient system of moving money creates a broader social insurance scheme, protecting the public against the worst and, hopefully, reducing costly advanced treatments and mortality.
M-PESA is a private sector entity, which was never intended as a public health intervention. However, in an area where public sector health delivery is inefficient, underfunded and most broken, a private sector banking initiative could help bolster availability of life saving drugs (for example) by insuring a consistent flow of money. Shops in extremely isolated rural areas will be more likely to stock malaria drugs if they know that customers have the means to pay for them.
This also has incredible implications for development. One of the pillars of the Millennium Development Goals and the recent Rio+20 Conference on Sustainable Development is to insure that the basic health needs of the poorest people on the planet are met. This cannot happen without addressing the greater problem of financial stability of poor households, which requires the participation of the private sector. Covering basic issues of financial movement, security and access to funds by isolated households is a major step to not only helping households which are disproportionately impacted by health and weather events, but also allows flow of cash to poor regions, bolstering local economies.
A working paper from the Initiative for Policy Dialogue tracked all protests from 2006 to 2013. The authors classified each protest according to the types of grievances and causes of outrage, the profile of demonstrators, size and the nature of opposition.
They found that protests are becoming more common worldwide and larger in size. The largest protests in human history (one exceeding 100 million people) have occurred in the past six years.
Increases in frequency are consistent across all types of protests, including economic justice, failure of political representation, rights and global justice.
Full on riots are fortunately few (only ~10% of all protests), but arrests and state violence are common. The biggest offenders include Iran, Russia, the US, Canada and Cameroon.
Developed countries account for the lion’s share of protests and the authors noted increased levels of “soft repression” in the form of surveillance and profiling.
More encouraging, they found that 37% of protests result in some kind of political change. These gains were mostly in the areas of political, legal and social rights. Global issues and economic justice, however, appear the most difficult areas to achieve change. No surprises here. These problems are vastly complex, entrenched, include numerous players and not easily solved.
I’ve written before on the issue of food prices and protest in South Africa and other authors have found similar trends in the Middle East. While the grievances of protesters often has little to do with food or issues of daily living, I’m wondering how economic pressures might be stimulating conditions favorable to demonstration. No doubt, we might look to solving the worldwide problem of volatile agricultural commodity prices and food availability.
Most interesting are the ubiquitous calls for “real democracy” or adequate representation of the populace in political matters. Policy makers would do well to respond to this simple and obvious call for inclusion. If not, we will see further unrest and potentially more violence and instability.
That’s the first time I’ve typed “2014” all year. Wow.
Here are some articles I’m reading this morning:
1. The news seems to be all over debates on the general shift toward the right in Europe (a feature in a recent issue of the Economist). Specifically, discussion of the tightening of immigration/migration rules are starting to heat up. One analyst has developed models to determine exactly what the long term impact of reduced migration in the UK would be on the overall economy. The results aren’t good.
Our results show that a significant reduction in net migration has strong negative effects on the economy. First, by 2060 in the low migration scenario, aggregate GDP decreases by 11% and GDP per person by 2.7% compared to the baseline scenario (Figure 1). Second, this policy has a significant negative impact on public finances, owing to the shift in the demographic structure after the shock. The total level of government spending expressed as a share of GDP increases by 1.4 percentage points by 2060. This effect requires an increase in the effective labour income tax rate for the government to balance its budget. By 2060 the required increase is 2.2 percentage points. Third, the effect of the higher labour income tax rate is felt at the household level, with average households’ net income declining because of the higher income tax despite the initial increase in gross wages due to lower labour supply. By 2060, the net wage is 3.3% lower in the low migration scenario.
Humans are more mobile in the 21st century than they’ve ever been in human history. Say what one will about globalization, but the reality is that it’s already happened. Cutting the cord on migration would see declines in income in both the developed (through loss of productivity) and developing worlds (through loss of remittances).
2. Niger and France have yet to come to an agreement to the terms of a contract to mine uranium by state owned multi-national giant Areva. Niger would like to increase their share from the current 5% to 12%. Areva is worried about profitability. Not knowing Areva’s operating costs and Niger’s track record of transforming mining revenues into public services, I’m not sure what to think.
France derives 75% of its energy from nuclear power and Areva gets 37% of its uranium from Niger. On top of this, Niger has few other options with which to generate money. The two parties have a lot at stake.
3. Krugman rails on the 50th anniversary of Lyndon Johnson’s War on Poverty. On the surface, it looks to be a bitter failure. Inequality is at an all time high and wages have been slipping for the bottom 25% for decades. Still, Krugman ends on a positive note. The pain we feel now could help spur a new progressive movement. I think he’s probably right. Amid the political circus, We’ve been quietly expanding social programs like Medicaid and it’s going to work out well for us. It’s really easy to be pessimisitic about American politics, but there’s potential light at the end of the tunnel, assuming that progressive can finally get their story straight and the right continues to shoot itself in the face.
4. Groups in Zimbabwe are gearing up to fight over who will succeed the old bastard. I think he’s already dead and we’re actually seeing a robot. I’m not confident that whoever succeeds him will be much better. It’s possible that his poison has been spread so thick, that Zimbabwe, once a rising economic star, will continue to be the inexcusable poster child for African political failure.
At the core of the long running struggle for supremacy in ZANU-PF are two factional groups led by Mujuru and Mnangagwa. Mujuru’s side, sometimes referred to as ‘the moderates’, is a purportedly pro-business and centrist bloc that is seen as attempting to push ZANU-PF politics to the centre and improve relations with the international community.
Mnangagwa’s camp, the so-called ‘hard-liners’ or ‘old guard’, is mostly made up of an elite group believed to have dominated Zimbabwe’s political scene since the 1980s; many assume that this faction would seek to continue Mugabe-style politics, anti-western rhetoric and policies as well as continued authoritarianism.