Friday, 30 December 2011

A year of blogging: My favourite blog posts from 2011

By John Humphrey

As 2011 draws to a close, I thought I’d look back on a year of blogging from here in the Globalisation Team at IDS.

Here are my top 3 blog posts from 2011:
  • 2011 has seen much debate on the issue of innovative financing for development – as public sector budgets are squeezed and global financial systems are in a state of uncertainty. My former colleague Neil McCulloch blogged about his research on the Financial Transaction Tax (FTT), with Do £20 notes get left on the pavement? which could provide a possible solution. It’ll be interesting to see going forward how the FTT debate progresses in 2012: perhaps an FTT is no longer seen as a source of financing development in the global South, but instead viewed as a revenue stream for plugging deficits in developed countries?
  • Food has been one of the major themes in development this year – sparked by volatility in food prices, popular uprisings across the Arab world, and famine in the Horn of Africa. 2011 was the year of Oxfam’s biggest ever campaign on food (GROW) and also the year that we at IDS held seminars looking at the role of business in issues of food, nutrition and development. My post on 'The food conundrum: Can small farmers and big business work together to solve the world food crisis?' reflects one of the toughest questions: who will solve the food crisis?
  • Finally, an ongoing issue for those of us that work in development is to fully understand what the public think about issues of aid and global poverty – this is going to become even more crucial in 2012 as public sector cuts begin to bite here in the UK. After all, it’s the public that so generously support development NGOs at times of crisis and disaster. And politicians who decide where government aid should be spent do pay attention to what voters think. My colleague Spencer Henson’s blog posts on public attitudes towards development, based on his research with the UK Public Opinion Monitor are always fascinating: his latest one is ‘Are the UK Public more supportive of aid than we thought?’.
We re-launched our blog in February this year, and have thoroughly enjoyed expressing our views, sharing ideas on new research, and hearing your comments. We hope you’ve also found the posts interesting and useful for your own work – let us know which are your favourites.

Best wishes for the New Year, and do visit again for more posts in 2012.

Wednesday, 21 December 2011

Being sold development at Christmas

By Spencer Henson

At this time of year more than any other, UK consumers are bombarded with efforts to sell them development. Buy a goat in Kenya for your loved one, spend a little extra on Christmas cards where a certain (usually undisclosed) portion goes to a charity working with poor people in the ‘developing world’, give a handicraft made by poor women in rural India, and so on. Fundraisers in international development NGOs recognise that such efforts are effective at getting UK consumers to part with their money. That is why they use them….especially during the ‘season of good will’. But what do they tell us about how ‘the person on the street’ relates to international development?

The recent book Poor Economics by Abhijit Banerjee and Esther Duflo reminded me of some research at the University of Pennsylvania in the mid-2000s. Students were given $5 and then showed one of two leaflets asking them to make a donation to Save the Children. The first leaflet provided factual information about the scale of famine in various countries of sub-Saharan Africa. The aim was to communicate the sheer magnitude of the food insecurity situation across the continent, and thus the imperative for people in the rich world ‘to give’. The second leaflet described a named person (“Rokia”, a seven-year old girl from Mali). The aim was to put across the level of hardship this individual was facing and the impact that a donation could make on such a person.

You can guess which of these two messages was most effective at getting students to donate. Unsurprisingly, the average donation to change Rokia’s life was more than double that from students who were offered the chance to ‘help the masses’. 

Various things may be at work here. Certainly, it is easy for people to feel overwhelmed by the magnitude of the millions in need ‘in Africa’. Perhaps more important, however, is the way in which we all tend to relate to individuals. That is why efforts to sell us development at Christmas often come with the smiling face of a boy or girl…..that YOU can help.

Much ‘good’ work’ may be funded from efforts to sell us development at Christmas. However, there are two critical problems with this model of engagement of international development NGOs with the public.
  • First, it is very much based on the notion of benevolence of the (powerful) rich towards the (powerless) poor. UK consumers can decide how to spend their money at Christmas whereas the poor have little money to spend on anything. Further, as a wealthy donor the consumer can decide who is ‘deserving’ of their charity, however they might judge this.
  • Second, and more importantly, efforts to sell development do little or nothing to challenge the very reasons that people are poor…and the need for benevolence by the rich in the first place. Thus, how is it that such global inequality exists, and what can be done about it? The act of buying a goat, a charity Christmas card or a handicraft fails to challenge the status quo. Some would even argue that buying development perpetuates the very systems that make people poor in the first place.

Tuesday, 20 December 2011

How regulations and standards affect sub-Saharan African countries’ participation in global agri-food trade

By Spencer Henson

A recent article in Trade Negotiations Insights highlights the importance of sanitary and phytosanitary (SPS) regulations and standards for the participation of sub-Saharan African countries in global agri-food trade. This article provides a timely reminder that the ability of poorer countries to diversify and add value to their agri-food exports hinges on their ability to comply with the food safety and plant and animal health requirements in export markets. Whilst compliance with stricter SPS regulations and standards can undoubtedly act as a barrier to trade, most notably where the associated costs undermine the competitiveness of countries with weaker capacity, compliance can also be the basis of market positioning and competitive gain. The act of compliance with food safety and plant and animal health controls in international trade can also act to enliven processes of upgrading in controls directed at domestic markets. This suggests a rather complex interplay of costs and benefits for developing countries pondering improvements in SPS compliance capacity.

There is a widespread recognition that the increasing importance of SPS regulations and standards in global trade contrasts with the declining role of traditional trade restrictions such as tariffs. There are frequent and maybe irresistible accusations (or at least suspicions) that SPS regulations and standards represent the new way in which countries protect their domestic markets against import competition. However, there is limited hard evidence to support this claim. It is important to recognise that, unlike tariffs, food safety and plant and animal health controls can bring about significant benefits in terms of public health and agricultural productivity, and also through increased consumer demand. Furthermore, countries have a legitimate right to protect their citizens, even where the standards and regulations they enact inflict pain on poorer parts of the world.

Of course, all should be done to minimise the adverse effects of SPS regulations and standards on the countries of sub-Saharan Africa. For example, it is legitimate for SPS requirements to be adjusted where comparable but different controls that reflect local conditions can be shown to provide an equivalent level of protection. The history of such equivalence agreements to date, however, does not offer much hope. Rather, the emphasis must inevitably be on building the SPS compliance capacity of the countries of sub-Saharan Africa, both to enhance trade performance and to promote the welfare of their citizens and productivity of their agri-food sectors. The article in Trade Negotiations Insights provides some useful ideas in this respect, including a number of areas where countries can collaborate in order to share information and capacities. However, whilst regional initiatives are effective at stretching the inevitably limited resources available for SPS capacity-building, hard decisions still need to be taken in order to prioritise the ‘shopping list’ of needs presented in the article. Recent work by the Standards and Trade Development Facility (STDF) in developing a coherent and transparent framework for establishing priorities can play a key role in this regard.

The article puts significant emphasis on enhancing the role of the countries of sub-Saharan Africa in the setting of SPS standards, presumably through Codex Alimentarius, OIE and the IPPC. The greater inclusiveness of these institutions is essential, not only for the interests of poorer countries but also to the continued relevance of international standards. Participation of sub-Saharan African countries in the promulgation of international standards is not, however, a panacea to the cure of ‘all ills’. Even if the ‘voice’ of developing countries in general (and the countries of sub-Saharan Africa in particular) were to be heard more effectively, SPS compliance would still be a problem. To be relevant (and to be used), international standards must reflect the needs of all countries, including those that are wealthy. At the same time, the private sector is wading into the standards landscape, such that some argue ‘public’ international standards are being increasingly sidelined. At the heart of the issues faced by developing countries is their incapacity relating to food safety and plant and animal health.

It is refreshing that the article puts considerable focus on the role of SPS regulations and standards at the regional level. The need for countries in sub-Saharan Africa to pool capacities in order to meet the compliance challenges posed by industrialised country markets has been highlighted above. Over time, however, SPS regulations and standards are likely (or at least it is assumed) to become a more pertinent issue in south-south trade, highlighting the need for harmonisation within sub-Saharan Africa. The Regional Economic Communities (RECs) potentially have a major role to play in this regard. Relatively little is known, however, about the role of SPS regulations and standards within regional trade in sub-Saharan Africa today, and how these are evolving over time. Work along these lines is essential if we are to predict (and plan for) the evolving impact of SPS regulations and standards into the future. Whilst IDS is doing some work on this issue with UNIDO, much more analysis is needed.

It is important to remain mindful of the considerable challenges faced by the countries of sub-Saharan Africa in the face of seemingly ever stricter SPS regulations and standards. Many of these issues, however, are much more complex than appears ‘at first sight’, belying the effectiveness of ‘quick fixes’.

Monday, 12 December 2011

Good-bye to the future

By Hubert Schmitz

For an Anglo-German (I have dual nationality – British and German) it is heartbreaking to see how the UK Government is de-coupling from Europe. There is nothing wrong in defending the national interest. But what is the national interest? Our Prime Minister equates it with the interests of the financial sector, clustered in the City of London. This is deeply worrying.

Continental European Governments have come round in favour of the financial transaction tax in order to slow down speculative financial flows. IDS research has shown that such a tax can be effective. But the UK government regards it as against the national interest. Continental European governments want to exert more control over the financial sector. This is never easy but at the time of the last election even the Tories proclaimed that this was needed. Now it is judged against the national interest.  

An even greater tragedy unfolds if we look at the wider picture and reflect on the position of the UK and Europe in the world. I have just come back from research trips to China and Vietnam. The pace of change and transformation in East Asia is visible and breathtaking. It has been for some time and seems set to continue. The global power shift is clearest in industrial production but is beginning to extend to industrial innovation.  And most interestingly, it is extending to the green economy. China is ramping up public and private investment in wind power, solar power and electric vehicles. Meanwhile the UK and most of Europe is scaling back investment in the industries of the future.

The UK decision over whether and how to collaborate with Europe needs to be seen against this bigger picture. A well-functioning European financial and industrial system can find a way of competing and cooperating with China.  We have shown this in a recent study on the European and Chinese wind power industry. A mal-functioning European financial and industrial system means that European governments, including the UK governments, will be limited to administering decline.  The national British interest would have been served by working with continental European government on ways of reforming the financial sector so that it supports rather than undermines the real economy.  It is a hard thing to do and the Prime Minister turning his back on Europe makes it even harder.

Wednesday, 7 December 2011

Beyond Durban: On track towards a +4 degrees C world

By Dirk Willenbockel

While all eyes are fixated on the future of Euroland and the looming global depression, the UN Climate Summit in Durban has entered into its decisive final phase and stumbles on to pre-programmed failure.
  • Will Durban drive the final nail in the coffin of the Kyoto process and give up on a new global deal with legally binding emission reduction commitments altogether?
  • Or will the negotiations at least lead to some “road map” to a comprehensive post-Kyoto deal that may eventually enter into force by 2020?
  • Or will the decision simply be postponed yet again – as seems most likely at this stage?
What seems clear is that none of these conceivable outcomes leads to an emission path consistent with the agreed goal to limit the average global temperature rise to 2o C above pre-industrial levels. Climate science is adamant that annual global CO2 emissions will have to peak by 2020 at the latest and need to drop steadily in subsequent decades in order to maintain a reasonable chance to achieve this aim.

The International Energy Agency estimates that about 80 percent of the power stations likely to be in use in 2020 are either already built or under construction. Most of these are fossil fuel powered and will continue to pour out carbon for decades. This means that a large fraction of the global energy-related emissions permissible under a +2o C scenario are already locked in by the existing infrastructure. The implication is that the door to achieving the required emission cuts at a manageable cost is rapidly closing. Delaying action is a false economy.

A recent contribution to the scientific journal Nature points out that the hope to maintain the 2o aim if decisive mitigation action is delayed further now “is equivalent to racing towards a cliff and hoping to stop just before it”.

With no second commitment period under the Kyoto Protocol and no binding post-Kyoto deal covering the major emitters in sight before the end of the decade, we are left with the voluntary pledges for emission reductions submitted by developed and developing countries under the Copenhagen Accord. It has indeed been suggested – notably by the former UK chief scientific adviser David King – that a voluntary bottom-up pledge-and-review process would be a realistic and promising way forward. However, UNEP research shows that the voluntary pledges submitted are pathetically inadequate to meet the +2o C target.

UK Climate Secretary Chris Huhne’s verdict on King’s suggestion:
"Sidelining the push for a legally binding deal on curbing emissions in favour of a voluntary approach is about as useful for the climate as a chocolate tea pot”.
Meanwhile, greenhouse gas emissions reached a new record high last year, and scientists are getting serious about contemplating development prospects in a 4o C world. A whole recent issue of the Philosophical Transactions of the Royal Society is devoted to the topic. I have reached my word limit here, but recommend the paper on sub-Saharan Africa in that issue.

Tuesday, 6 December 2011

Diamonds, violence and tyranny: NGO Global Witness leaves the Kimberley Process

By Vivienne Benson

There was no doubt a degree of scepticism from Mike Davis from Global Witness when he spoke about the Kimberley Process at the beginning of our Conflicting Interests: Business and Development Seminar Series in November. So, yesterday’s announcement that the international NGO has decided to leave the diamond certification scheme, which was originally established to stop the trade in blood diamonds, is not altogether surprising.

Mike Davis cited several reasons why the scheme has been unsuccessful in his seminar:
  • A myth has emerged that the Kimberley Process solved conflicts such as those in Liberia and Sierra Leone – the reality is that the process only got underway after the conflicts had ended.
  • The only controlled part of the diamond trade is from the moment the diamond is exported from the producer company to when it is imported at the other end.
  • There are no clear standards for supply chain control or due diligence, which is a huge weakness –the industry relies on the State to control the flow of the diamond’s certification, but this creates a problem because often the State is not able (or not willing) to do this properly.
Charmaine Gooch, Founding Director of Global Witness further argued this point yesterday*, on the role of industry:
‘The diamond industry must finally take responsibility for its supply chains and prove that the stones it sells are clean.’ She continued, ‘they should be required to demonstrate that the diamonds it sells are not fuelling abuses – by complying with international standards on minerals supply chain controls, including independent third party audits and regular public disclosure. Governments must show leadership by putting these standards into law.’
So how should businesses operate in areas of conflict?
This sentiment has been repeatedly echoed throughout the seminar series – with several references to John Ruggie, UN Special Representative on Business and Human Rights who within the UN 'Protect, Respect and Remedy' Framework in 2009 laid out guiding principles for businesses and states operating in areas of conflict, in particular:
  • Because the risk of gross human rights abuses is heightened in conflict-affected areas, States should help ensure that business operating in those contexts are not involved with such abuses.
  • Some operating environments, such as conflict-affected areas, may increase the risks of enterprises being complicit in gross human rights abuses committed by other actors.
This reiterates a key theme from the seminar series, that the State and industry cannot operate separately, or in place of each other, particularly as their interests are inherently different. Businesses should not be expected to take over the State role, but they should adhere to international due diligence standards and always consider their impact on the communities in which they operate.

* Global Witness (2011), Global Witness leaves Kimberley Process, calls for diamond trade to be held accountable,, (accessed on 5 December 2011)

Friday, 2 December 2011

Can philanthropies lead us to an economics of wellbeing?

By Noshua Watson

A team from IDS recently led the Bellagio Summit in Italy, as part of the Bellagio Initiative on the Future of Philanthropy and Development in the Pursuit of Human Wellbeing, funded by the Rockefeller Foundation. Philanthropies have big names, but relatively small pockets. Aid flows, let alone foreign direct investment flows and remittances, are far greater than philanthropic funding for international development. So what could philanthropies possibly do to ease, fix or change the effects of globalisation on development?

From the Bellagio Initiative and Summit, there seem to be three ways philanthropic foundations can influence globalisation:
  1. Engaging with the processes of globalisation
  2. Tackling the inequities of globalisation head on
  3. Focusing both more AND less on outcomes.
Philanthropies need to be more politically engaged by supporting organisations that take direct action and also take advantage of their independence by taking more risks and experimenting more.  Of course, philanthropies do try to address inequities and meet communities’ needs, but they also need to explore how they are part of a system that generates those very inequities through lack of accountability, how they manage and spend their funds or how they incorporate feedback and learning.  Philanthropies are also in a situation where they are trying to better measure and manage their resources, but not focus on outcomes so much that they don’t experiment or lose sight of the long-run benefits. There is much to be learned from the reports on the series of Global Dialogue meetings, commissioned research and the Bellagio Summit.

If we are really honest, what would it mean for globalisation if, like the Bellagio Initiative, we frame development in terms of wellbeing? Wellbeing is a broader conception of development than economic growth. We currently describe globalisation largely in terms of economic institutions, flows, patterns and outcomes. But what if we looked at what globalisation means for wellbeing, we would certainly advocate different policies. Given that the OECD and national governments are beginning to adopt the concept, maybe economists should add this to our bag of tricks.

Tuesday, 29 November 2011

More on the cracks in the "Chilean economic miracle"

By Carlos Fortin

In my previous blog post I reported on an impressionistic assessment of the extent to which Chilean society is experiencing a deep malaise about the prevailing social, political and economic model.

The LatinobarĂ³metro Opinion Survey 2011 released on October 28 provides quantitative evidence for the assessment. The survey examines the attitudes of Chileans to public policies as well as a number of social, economic and political variables, and compares the 2011 responses to those in 2010 - it does not make for comfortable reading.

The worst rated public policy is education:
  • When asked ‘What is the best public policy in your country?’, only 1% of respondents mentioned education;
  • 9% of respondents  answered ‘education’ in response to the multiple-choice question, ‘Which of the following public policies has benefited you and your family’a question not asked in 2010).
This is not surprising given that the present wave of protest is precisely about the poor quality, high cost and unequal nature of education. The dissatisfaction, is however, much more general:
  • Less than one third of Chileans replied that they were satisfied with democracy, a drop of 24 percent from 2010.
  • Similarly 34% of respondents said they trust government, a decrease from 58% in 2010.
As for the operation of the economic model, the survey reveals serious doubts about some crucial components:
  • Only 20% of those asked felt privatisation of state companies has been beneficial for the country (34% in 2010);
  • Those satisfied with the performance of privatised public services dropped from 27% (2010) to 18% in 2011;
  • 16% considered the current economic situation in the country to be  ‘good’ or ‘rather good’ (27% in 2010);
  • Although 30% felt that their personal economic prospects for the following 12 months were ‘better’ or ‘somewhat better’, this is substantial fall from the 48% in 2010;
  • Although a majority (63%) of Chileans still believe that private enterprise is indispensable for the development of the country, the proportion has fallen from 76 % in 2010; and
  • For the first time since 1998 less than half (43%) of respondents agree that ‘the market economy is the only system that can make Chile into a developed country’ (56% in 2010).
More ominous was the response to the question, ‘Would you say that the country is governed by a few powerful groups in their own benefit, or is governed for the good of all the people?’
  •  Only 22% of Chileans believe the country is governed for the good of the people, as against 34% in 2010.
This is no doubt linked to the perception that the society is highly unequal: to the question ‘How fair do you think income distribution is in the country?’, only 6%  thought it was ‘very fair’ or ‘fair’; the corresponding percentage in 2010 was 12%.

Chile seems therefore in for a rather difficult period of political, social and economic soul searching, and it is unclear whether the present political structures can provide an adequate framework for the exercise.

Thursday, 24 November 2011

Climate change finance: What future for the Green Climate Fund?

By Stephen Spratt

The Green Climate Fund was announced with some fanfare in 2009. Conceived as a vehicle to transfer up to $100 billion per year from developed to developing countries, it was seen as one of the few successes to come out of the wreckage of Copenhagen. Importantly, developed countries committed to provide this $100 billion as ‘new and additional’ resources.

The Fund remains a shell, but one which many hope will be filled at COP17 in Durban starting next week. Exactly how this will be achieved remains anyone’s guess. Last year the UN Secretary-General's High-level Advisory Group on Climate Change Financing proposed a combination of direct budgetary transfers, carbon taxes, carbon market instruments and private investment leveraged by multilateral development banks. They also suggested some more innovative sources, such as a Financial Transaction Tax. None of this has happened yet, and disagreements between countries are far more noticeable than any emerging consensus.

Some have suggested that pessimism is overdone. A couple of weeks ago, for example, the Economist reported on a study by the Climate Policy Initiative (CPI), which estimated annual flows of $98 billion going to developing countries already. So, maybe the Green Climate Fund is not needed after all?

The problem lies in the nature of the finance and what it is being funded. The Green Climate Fund is supposed to do two things: help fund the transition to a low carbon economy (i.e. mitigation); and help countries cope with the climate change that is already in the system (i.e. adaptation). Of the $98 billion of financing identified by the CPI, $93 billion has gone to mitigation activities such as renewable energy infrastructure. The bulk of this finance has come from private investors.

Why the focus on mitigation? Well, the obvious reason is that there is no money in adaptation. While investors can generate a return from, say, building a wind energy plant – particularly where there are subsidies to support this – the same cannot be said of things like flood defences. Some of the mitigation-focused investments that have happened are made possible by public subsidies funded by developed countries, but many would have happened anyway for commercial reasons, and so cannot be described as ‘new and additional’ sources of finance in any meaningful sense.

Adaptation is different. It is more properly thought of as compensation from the countries that have caused the problem to those that suffer most from it, rather than a mutually beneficial investment. If we rely on private finance, adaptation funding will be meagre, yet the World Bank estimates annual adaptation financing needs of between $80-$100 billion per year, or about the same as the target for mitigation and adaptation that we are struggling to reach.

And the costs are likely to be larger. The World Bank’s estimates are based on adaptation needs in a world of 2 degrees warming. But fewer and fewer people think that this is achievable. Many now talk of 4 degrees being a more realistic ambition. On current trends we are on course for 6. Last week the World Meteorological Organization reported record levels of greenhouse gas concentrations in the atmosphere – far greater than predicted a few years ago. On the same day, the Financial Times described how drilling techniques like ‘fracking’ were unlocking vast reserves of natural gas and oil (article available by subscription only), creating a new ‘age of plenty’ of fossil-fuel resources in the US. The same article described the scramble for Arctic oil reserves, made possible by the shrinking of polar ice caps.

Regardless of progress on mitigation, which looks distinctly unlikely, judge Durban on its ability to generate large quantities of new public finance for adaptation in vulnerable developing countries. It looks like it will be needed.

Thursday, 17 November 2011

An ‘extractive’ perspective on operating in areas of conflict

By Vivienne Benson

So far our Conflicting Interests Seminar Series has heard from three speakers. Interestingly all their talks focused on the nature of the extractive industry operating in areas of conflict or fragile states, albeit coming from different perspectives:

Some key points have arisen:
  • UN ‘Protect, Respect and Remedy’ Framework – more widely known as the John Ruggie Framework is a relatively new initiative offering clear guiding principles for businesses to follow
  • The idea of due diligence is recurring – companies should adhere to a set of high standards when operating in a fragile area, often going beyond state ‘regulation’, as the governing body is not always able to enforce rules, or not interested in doing so
  • Considering business impact on the community is paramount, as in vulnerable circumstances businesses can either help or exacerbate a volatile environment with their actions.
This series will continue on 22 November, with Kate Meagher, LSE Researcher and IDS Alumna discussing ‘How bandits make business: informal enterprise, unemployment and instability in Nigeria’.

Hugh Elliott, International Government Relations Manager of Anglo American will conclude the series on 29 November by addressing management and conflict prevention from an insider’s perspective.

*The speakers are all interviewed and seminars are recorded to go online – so have a listen...

Friday, 11 November 2011

Are the UK public more supportive of aid than we thought?

By Spencer Henson

A recent report in the Independent newspaper suggests that the majority of the UK public support the government’s policy of increasing spending on aid to developing countries.  Further, they seem to believe that we should be spending much (much) more on aid than we currently do, and way beyond the target set by the government.  For those that support aid, this appears to be good news.  It certainly paints a different picture to the results from the UK Public Opinion Monitor (UKPOM) based at the Institute of Development Studies (IDS), which suggest that over 70 per cent of people think aid spending should be cut.

But which of these different views of the world do we believe? 

And, why is there such a divergence in evidence on how the UK public feels about aid to developing countries?  Largely, this reflects the way in which questions are asked in our surveys and how we interpret the results.  In the case of this recent report, which incidentally was commissioned by David Cameron’s Director of Political Strategy – people were asked whether they agreed that:
“…even as we deal with our deficit, Britain is still one of the wealthiest countries in the world and we should be proud we are continuing our commitment to international development.” 
In total, 50 per cent agreed with this statement, with 37 per cent disagreeing.  It is perhaps surprising that more people did not respond positively to a question that generates such a ‘warm glow’ inside.

Interpreting responses

Interpreting these responses depends on whether we believe that most people who answered the survey were aware of “our commitment” in terms of how much the UK aims to spend on aid.  Even if they were told the amount in pounds, many likely struggled to interpret whether this is ‘big’ or ‘small’ or perhaps more importantly ‘sufficient’ or ‘insufficient’. 

Perhaps one indication of this is that survey respondents, on average, thought that the UK should allocate almost eight per cent of government spending to aid….which is more than it currently spends on national defence, police and the criminal justice system, transport, etc.  Does the public really believe we should spend this much?  If so, are they happy for taxes to rise to pay for it and/or for spending to be cut (even more than is currently taking place) on some ‘big ticket’ items?  The questions used in the UKPOM try to make this reality more apparent to respondents.  Thus, it is not surprising that support for increases in aid spending are more muted.

So do we really know how the public feel about the UK’s aid to developing countries, and especially whether they support increases in aid spending?  Certainly we can almost get any number we like through careful choice of how the question is posed.  However, it seems that even when we generate a ‘warm glow’ in our respondents, still only half support increases in aid spending, whilst over a third do not. 

Whilst such a negative perspective on public support for aid may not be welcomed amongst those of us who work in the area of international development, there is nothing to be gained from a pretence that the public are more positive about aid than they actually are.  Rather, we need to redouble our efforts to ‘turn public opinion around’….by raising awareness and knowledge of where aid works (and where it doesn’t).

Tuesday, 8 November 2011

Is the idea of China saving the world a fair expectation?

By Jing Gu

In the recent weeks, the Eurozone crisis has become much more dramatic. Despite grave and widespread predictions among officials, business people, academics and journalists that China can save the world, this has not transpired.

The questions that we should ask are:
  • Why should China save Europe?
  • Can China balance its domestic development and its international role?
China inevitably lacks a clear definition of its international role, because it falls between developed and developing countries: Song (2003) points out that it needs a stable and orderly international environment, ensuring free trade, so that it can make the most of its huge economies of scale and large development potential. However, the technical development level of its industry does not match that of developed countries will mean that it wants to try to find ways of assisting its industries. This is reflected in the trade disputes in which it has been mainly a defendant in the WTO. So it can be easily noticed (Pang, 2006) that while China is characterised as a “participant” in the international system, this does not mean China wishes either to be a leader of a developing country block, or to side with the developed countries. 

The distinctive element of China's global self-presentation is its cautious, reactive and pragmatic diplomacy: Here, Chinese policy declarations and statements of core principles may appear, in parts, vague, but “…these expressions reflect the Chinese way of viewing and conducting politics and have their roots in Chinese political culture” (Wang, 1998). China may not appear to be following an overall articulated strategy. But this is where an ingrained cultural style combines with a deeply pragmatic responsive mode towards the dominant power in world society. Wang says:
In Chinese eyes, ‘adjustments’ in domestic and foreign policies are only natural as long as ‘principles and goals’ remain unchanged… In the Chinese mind, wise and farsighted statesmen are those who can ‘adroitly guide action according to circumstances (yinshi lidao)’ (Wang, 1998).
It has to be recognised that a primary principle of Chinese culture is the practical and common sense nature of adapting to different relationships: In an interview with Joshua Cooper Ramo - the author of the ‘Beijing Consensus’, the former Singapore’s leader Lee Kuan Yew made remarks about China: “They made ad hoc pragmatic decisions as they went along, and then looked to whether that lead to disorder or loss of control…This is a controlled opening up, exposure to foreign ideas of people who are absolutely sound ideologically. I detect a pragmatic step by step approach.” (Ramo, 2005)

The extent of the difference between the Chinese way of thinking and that of some Western countries is in itself, the key issue that has to be addressed before China can be expected to ‘save’ the world.

* References 

Pang, Z. (2006) The role of China in the international system, FuDan International Studies Review, 6 (in Chinese)

Song, H. (2003) China and WTO: A process of mutual learning, adapting and developing, In Y. Wang (Ed.), Construction within contradiction: Multiple perspectives on the relationship between China and international organisations (pp. 164–195), Beijing: China Development Publishing House

Ramo, J. (2005) The Beijing consensus, London: Foreign Policy Centre

Wang, J. (1998) International relations theory and the study of Chinese foreign policy: A Chinese perspective. In T. W. Robinson, & D. Shambaugh (Eds.), Chinese foreign policy: Theory and practice. Oxford: Clarendon Paperbacks

Thursday, 3 November 2011

Cracks in the 'Chilean economic miracle'

By Carlos Fortin

John Kenneth Galbraith is reported to have once said about Milton Friedman: 'Milton's misfortune is that his economic policies have been tried'. For a long time the Chilean case appeared to give the lie to Galbraith's witticism. Alas, though, not any more.

Despite continuing acceptable economic performance indicators in Chile, a deep malaise about the prevailing model of society and the economy is surfacing. This is highlighted by a wave of publicly supported street protests led by university and high school students. The protesters have succeeded in redefining the country’s public agenda and putting the political class and the advocates of the current neoliberal model on the defensive.

The students' complaint is about education being highly unequal, prohibitively costly and of poor quality. Their main proposals are
  • a universally free education financed by increased taxation of higher incomes, and
  • an end to for-profit enterprises running educational establishments that benefit from government subsidies
These proposals are a matter of controversy. In particular the idea of a universal free higher education has been criticised as a subsidy to the rich. But the protest seems to have struck a deeper chord. It is a challenge to the dominant Hayek-Friedmanian view that responsibility for personal advancement is solely individual and that inequality is justifiable on grounds of differential individual talents and efforts and the need for incentives.

An indication of the seriousness of this challenge is the fact that Chilean sociologist Eugenio Tironi has recently published an article in El Mercurio which in effect amounts to a mea culpa.

Education for Mobility?

Tironi, an ideological icon of the social-democratic coalition that governed for 20 years after the Pinochet dictatorship and highly influential in securing the adoption of the neoliberal model by the coalition, writes that the current Chilean model of society:
'rests on the expectations of social mobility of the population which make them accept high levels of inequality as the price to be paid for the forthcoming opportunities...the governing classes told the people the mechanism [for mobility] was education, offering a future whose only limit was the talent of each individual'.
In this view, Tironi writes,
'individual energies should be devoted to studying, not to promoting structural change'.
His conclusion:
'for hundreds of thousand families this promise was … a swindle... The way forward is not to try and repair the myth but to make a clean break with it'.
What seems to be at stake in the current Chilean debate is the vision of what a 'good society' is and the role and place of equality in it. And the answers that are emerging are a far cry from what Milton Friedman had in mind in the 1970s when he coined the phrase "Chilean economic miracle".

Monday, 31 October 2011

If environmental taxes are such a good idea why have they not been implemented?

By Stephen Spratt

A couple of weeks ago I attended the 12th Annual Environmental Taxation Conference, which this year was held in Madrid. This was a fascinating event from which I learned a huge amount.

Why should countries implement environmental taxation?

This was the first time I had attended this conference, and – despite its high quality – I came away a little less optimistic about the prospects for environmental taxation than when I arrived.

This had nothing to do with the strength of the broad case in favour:
  • Taxing ‘bads’, such as pollution, so that taxes can be reduced on ‘goods’ such as employment, which is obviously a good idea
  • Broadening the tax base in ways that boost tax revenues overall, in both developed countries (under severe fiscal strain) and developing countries (with relatively low total tax takes), also makes sense. If you have to tax something – which you do – using mechanisms that also reduce environmentally damaging activity is a good place to start.
Neither was my pessimism borne of technical or ethical concerns:
  • From transport to natural resources, to energy and low carbon development, a wealth of scholarship underpins an impressive understanding of how to design and implement environmental taxes
  • Similarly, issues of equity were addressed in detail, with palpable concern that mechanisms should not adversely affect the poor informing much of this work.
It seemed to me that – in developed countries at least – environmental tax experts have a good grasp of the policy options and their broader implications, particularly where and how environmental taxes should be implemented, and the criteria we should use for assessing this.

So why the pessimism on my part?

Nobody mentioned public opinion...despite the attractiveness of green taxes, no country has implemented them to anything like the extent they could. They remain a small fraction of government revenues, even in the most enthusiastic countries.

Share of Environment Taxes in the Total Tax Revenue in 1995 and 2005
 * Source: European Environment Agency

Nobody likes taxes, but environmental taxes are particularly disliked. It is not clear why this should be, but it is a fact. This is documented well by the 2009 Green Tax Report from the Chartered Institute of Taxation’s – check out section 5.4 Public Perceptions of Environmental Taxes.

A topical example of the intense distrust of environmental taxation is this: Australian ‘Carbon Tax’ Wildly Unpopular.

What, if anything, might be done about this?
  1. Part of the problem seems to be a suspicion that environmental taxes are not really about the environment at all, but about raising revenues. There is certainly an element of truth in this, and if the goal of a tax is to raise revenue, policy makers should say so.
  2. Another option is earmarking – or ‘hypothecation’ as it is known in the trade. Tax experts are generally against the suggestions that taxes should be spent on particular things, rather than go into general coffers. While there are good reasons for this, they are not as important as the need to build and maintain public support for such measures – dedicating at least a share of revenues to complementary environmental goals might help in this respect.
Many developing countries have implemented environmental taxes, and many more are considering doing so. There are more outstanding technical and ethical issues than is the case for developed countries, but even if these are resolved the question of public opinion will remain. There is no reason to assume that environmental taxes will be any more popular in low and middle income countries than they are in high income countries. If these mechanisms are to have any chance of fulfilling their undoubted potential, this needs to be addressed directly, and not swept under the carpet as if it does not matter.

* European Environment Agency (2009), Share of Environment Taxes in the Total Tax Revenue in 1995 and 2005, (accessed on 31 October 2011)

Friday, 28 October 2011

From farm to fork

By John Humphrey

In my previous blog post I mentioned I would be taking part in a panel hosted by Business Fights Poverty, talking about ways of ‘harnessing value chains and private sector innovation to boost nutrition.’ I sat with Marc van Ameringen from the Global Alliance for Improved Nutrition (GAIN) and Miguel Pestana from Unilever.

The key issues that arose:
  • How can we close the gap between the farm and finger?
There was some divergence of opinion on this. I focused on how to close the gap between farm and the undernourished populations needing more nutritious food. Miguel Pestana from Unilever rightly observed that just focusing on the value chain ignored issues such as sanitation (and some great work is being done at IDS on community-led approaches to improving sanitation) health services and infrastructure. The unresolved question is that while narrowly focused approaches do miss some important determinants of outcomes, the broader the approach, the more the risk that small advances are not made.
  • How do we keep the private sector engaged?
This is a tricky one. To some extent, regulations should be put in place to ensure standards. But there is still the question of incentivising companies to engage in the process of buying and selling nutritious products to the poor. Can companies make a profit from reducing hunger and undernourishment? Bottom of the Pyramid is a great idea, but how well does it really work? And if it doesn't, what we do about it?
  • Finding out what works
The monitoring and evaluation of new initiatives is essential, as from there we can assess how best to take this forward, we are still in very early days. Getting food to those that need it the most is not a new question – agriculture-nutrition linkages has been discussed for a long time, with distinguished contributions from IDS Fellows – but the approach of looking at value chains and the private sector is new territory, and assessments of different value chain initiatives and between these and other approaches (fortification, feeding programmes, etc.) need to be made systematically.

Thursday, 20 October 2011

Conflicting interests? How businesses operate in areas of conflict

By Vivienne Benson

Our Business and Development Seminar Series this term is ‘Conflicting Interests: How Businesses Operate in Areas of Conflict,’ – it begins on 25 October.

Mike Davis, Campaigner from NGO Global Witness will be addressing ‘Breaking the Links between Commerce and Conflict,’ at the first seminar. Global Witness have conducted international campaigns against natural resource-related corruption and conflict using a number of countries as case studies – including Burma, Indonesia, Liberia, Sudan, Zimbabwe, Equatorial Guinea, Turkmenistan, and the Ukraine. In particular, Global Witness was part of the coalition that campaigned for the creation of the Extractives Industries Transparency Initiative.

The issue of the ethics of businesses working in the extractive industry in countries of conflict is obviously a hot one. Huge amounts of natural resources are often located in these parts of the world, and they can often be the fuel for, or the currency in, conflict. Discussing this during the seminar series is Edward O’Keefe from Synergy Global, and Aidan Davy from the International Council on Mining and Metals (ICMM).

Synergy Global works with companies, governments and NGOs, focusing on the management of social issues surrounding large-scale commercial projects, particularly in the extractive sector.

Also speaking at the series is Kate Meagher from the London School of Economics (LSE), and Hugh Elliott, International Government Relations Manager from Anglo American.

As before, this series will address many questions; however it will undoubtedly raise many more. Businesses working in the developing world continues to be a controversial subject. Are companies exploiting vulnerable areas for their own gain or are they bringing wealth and enterprise to support communities in bringing themselves out of poverty?

Sunday, 16 October 2011

World Food Day: Quantity AND Quality

By John Humphrey

I have been looking through the Issues Paper produced by FAO for World Food Day. This year, the theme is food price volatility and what should be done about it. There is a lot of good material about some of the determinants of food price volatility, the impacts and some initiatives to counter these negative impacts.

I have recently ventured into the world of health, nutrition and agriculture-nutrition linkages, having previously conducted research on agricultural production and agri-food value chains. As a result, I am probably suffering from "convert zeal". Nevertheless, I am struck by the extent to which the food problem is defined in quantitative terms:
  • There is not enough food
  • We need to produce more food by increasing investment, improving technology and reducing production of (and incentives for) non-food agricultural crops, particularly biofuels.
No-one is likely to argue that food availability is unimportant, although there are intense debates about the importance of global food availability and the access of the hungry to this food. But, a recent visit to Bangladesh highlighted to me what many food and nutrition specialists have been saying for a long time – a country can be very successful in increasing production and productivity of basic grains such as rice, but on its own this will not solve problems of undernourishment and access.
  • Undernourishment is still a massive problem in Bangladesh, in spite of significant improvements in rice production.  This is because, contrary to what one might think, these improvements do not translate very directly into more varied diets and improvements in indicators of undernutrition.
  • Greater availability and access to staple foods needs to be complemented by greater consumption of foods that have the vitamins, minerals and proteins essential for health. This means not only increasing production of more diverse and nutritious foods, but also ensuring that that undernourished people gain access to them.
The lesson is that the world food challenge is one of quality as well as quantity. Diversifying diets and ensuring that nutritious food gets to the populations that most need it is as big a challenge as producing enough calories to feed the world.

On 26 October, I will be joining speakers from the Global Alliance for Improved Nutrition (GAIN), and Unilever to talk about establishing better linkages between agricultural programmes and nutrition programmes and the ways in which businesses can contribute to promoting the production and consumption of nutritious food. The seminar “Harnessing Value Chains and Private Sector Innovation to Boost Nutrition” is promoted by Business Action for Africa in London.

*Please go to the Business Fights Poverty website to register for the event.

Friday, 14 October 2011

Do we care about development when times are tough?

By Spencer Henson

Media commentary across many of the traditional donor countries suggests that aid budgets are under pressure and that tax payers in many of these countries are at best ambivalent about development assistance. 

There is a broad political consensus for increases in aid spending in the UK, despite deep cuts in most other areas of public expenditure.  However, results from the UK Public Opinion Monitor (UKPOM), an ongoing IDS survey aiming to understand public attitudes to development, suggest the public think aid should be cut. The UK government has countered that we in the rich world have a moral obligation to help the World’s poor.  Although, it is not clear that the UK public are listening.

But are our concerns about the poor really so fickle? 

Do we really believe that we can only ‘afford’ to help the poor when times are good, whilst ‘looking after number one’ when times are tough.  It is a more complicated than that: 
  • On the one hand, results from the UKPOM suggest that we continue to be concerned about poverty ‘at home’.  When times are tough and when more of the people that live near to us are struggling, UK poverty is given greater priority. 
  • On the other, the UKPOM also suggests that public engagement with charities that work in developing countries has held up under current conditions of austerity.  Indeed, more people seem to give regularly to international development than many other ‘good causes’, and causes that might be of benefit to them themselves. 
Of course, periodic appeals for money when humanitarian crises strike play a big role here; and there have been a number of these in the last year or two.  But this hardly suggests that we in the rich world ‘don’t care’ about the plight of those in the poorest parts of the world.

Looking beyond the current economic plight of many people in the UK provides a far more ‘rosy’ picture.  Broadly, people agree with the government - we do have a moral obligation to help those in the poorest parts of the world. 

The UKPOM also suggests that there is stronger support for increases in aid spending in the longer term.  However, many people remain sceptical as to whether aid works, even if they can see beyond the stereotype of stashes of cash in Swiss bank accounts.  This requires that we have positive evidence of what works (and what doesn’t) and are prepared to share it with the world in a way that is easy to comprehend and that grabs attention.

Tuesday, 11 October 2011

Business minded: IDS at the party conferences

By Vivienne Benson

IDS has hosted a fringe event at all three party conferences in the last month asking the question 'is business the new aid?' - have a listen to the discussions that took place at the Liberal Democrat and the Conservative events.

Today, Zahid Torres-Rahman, Founding Director of Business Action for Africa and Business Fights Poverty posted his thoughts on the IDS panels that he partook in for the recent party conferences. He gave his thoughts, and set about answering the question 'is business the new aid?'

Business has been the hot topic at IDS, and particularly in the Globalisation team in the last year. We have listened to many speakers from NGOs, academia and the private sector giving their thoughts in our business and development seminar series. The next series begins on 25 October, and will focus on business working in conflict areas. Mike Davis, campaigner from Global Witness is the first speaker, and we will also be hearing from Hugh Elliott, Anglo American and Kate Meagher, LSE (among others).

Here are some other stories/events that might be of interest...
If the party conferences are anything to go by, it is clear we can't stop talking about business and nor can anyone else. Please post some comments if you have any thoughts...

Friday, 7 October 2011

Why do we keep talking about business?

By Noshua Watson

You may have noticed that over the last few weeks, months in fact, the recurring topic of this blog has been about the impact of business in international development. Particularly as IDS has now hosted three fringe events at all the recent party conferences, asking ‘is business the new aid?’

IDS Director Lawrence Haddad, argued in his blog post this week that the answer to this question is no.

‘No because businesses creating jobs and tax revenues are much more powerful than aid in reducing poverty and no because unlike businesses, aid has a responsibility to work for the most vulnerable.’

It does depend on what perspective you consider the role of business. From a philanthropic stance, there is a clear space for organisations with the capacity to support governments and civil society through tough economic times in donating aid to developing communities. The issue with such organisations is around regulation, and ensuring that the support is sustainable.

However, as Haddad emphasises, the focus should inherently be on how business can work within a country and create growth. It is about a community being able to support itself out of poverty.

David Cameron’s close out speech at the Conservative Party Conference echoed these thoughts, but he obviously put his attention a bit closer to home.

‘Our businesses need the space to grow - literally. That's one of the reasons we're reforming our planning system. It's hard to blame local people for opposing developments when they get none of the benefits. We're changing that. If a new manufacturing plant is built in your area - your community keeps the business rates. If new homes get built - you keep the council tax.’

Business acts at all levels, be it your corner shop or the Bill and Melinda Gates Foundation. It seems we are all singing to a similar tune, it’s now time to put it into action, home and away.

Tuesday, 27 September 2011

Ed Miliband speech: business and growth

By Noshua Watson

I’ve just been listening to Labour Party leader Ed Miliband’s speech to the Labour Party Conference in Liverpool this afternoon. 

As well as setting himself apart from previous leaders Tony Blair and Gordon Brown, reflecting on the UK riots this summer, and criticising corporation tax cuts, Miliband said a couple of sentences that really caught my attention….

“You’ve been told all growth is the same, all ways of doing business are the same.

But it’s not.

You’ve been told that the choice in politics is whether parties are pro-business or anti-business.

But all parties must be pro-business today.” 

The reason these phrases stood out is that although Ed Miliband is of course referring to the UK economy, what he said seems to me to reflect the changes we’ve seen over the last few years in international development thinking.

Here at IDS we’ve been looking at the conditions required for growth that benefits poor people. And increasingly we’re examining what types of business models have real development impact. There aren’t easy solutions to these questions, and we’re going to keep working on them. We hope that Ed Miliband will offer up some specific solutions for the UK based on the global evidence.

Monday, 26 September 2011

Who will help the people? How philanthropic organisations can meet aid needs

By Noshua Watson

If governments are struggling to meet common needs, who will? I’ve written an article for The Guardian (UK) newspaper on how philanthropic foundations can cooperate to fund public goods that benefit multiple countries, social classes or generations. The piece focuses on the role of foundations in funding malaria prevention and peace initiatives.

Friday, 23 September 2011

The stubborn arithmetic of growth

By Stephen Spratt

Last week saw the release of the latest Annual Report by the Carbon Disclosure Project (CDP). As the name suggests, the CDP aims to get companies to disclose their carbon emissions, as well as information on things like policies or targets. The CDP sends an annual survey to leading global companies on behalf of 551 institutional investors, who manage US$71 trillion in assets.

The basic idea is straightforward enough – the more that is known about companies’ performance on carbon emissions, the more discerning investors can be about where they allocate their funds. As companies come to appreciate this, they will be incentivised to reduce their emissions so as to attract investment.

Underpinning all this is the assumption that there is a relationship between financial and ‘carbon’ performance – what’s good for the environment is good for the bottom line. And this year’s report appears to bear this out, with companies that have emission-reduction targets in place performing better on stock exchanges than those without such policies.

A number of other areas of progress are reported. More than half of Global 500 companies have emission reducing policies in place for the first time, for example, and 45 percent saw emissions decline over the year, up from 19 percent in the previous year. The number of companies refusing the answer the survey also continues to fall.

This is all very much to be welcomed...up to a point.
  • The first caveat is the old chestnut of causality – do companies that reduce carbon emissions perform well on stock markets because of this, or are companies that do well on stock markets more likely to have ‘enlightened’ policies on climate change? Intuitively, the latter seems more plausible.
  • Second, we need to distinguish between efficiency and scale. Clearly, using energy more efficiently is good for the bottom line, so we would expect companies to be making efforts in this department. And so they are. 76 percent of Global 500 companies have emission reduction targets in place. Interestingly, however, only 44 percent of these targets relate to ‘absolute’ emissions.
This is where the relationship between environmental and financial performance may start to break down. Any company that improves its productive efficiency can reduce costs and boost profits, but this is not the same as reducing total emissions. It is perfectly possible to increase efficiency year on year, but still generate more absolute emissions. To avoid this, efficiency gains need to be greater than increases in the scale of production. As was compellingly demonstrated in Tim Jackson’s Prosperity Without Growth?, there is no evidence that this is happening.

Globally, it is absolute emissions that matter of course, but if efficiency cannot outstrip scale, the only way to reduce total emissions is to make less stuff. While all companies want to produce goods as efficiently as possible, none seek to reduce the amount of goods they produce. Moreover, it is highly unlikely that the 551 institutional investors supporting the CDP would reward them with increased investments if they were do so.

As developed economies do everything they can to boost growth, the implications of this stubborn arithmetic have been forgotten for now. This doesn’t mean the problem has gone away though.

Tuesday, 20 September 2011

Is business the new aid?

By Noshua Watson

Yesterday, IDS hosted a panel titled “Is Business the New Aid?” at the Liberal Democrat Party Conference Fringe in Birmingham, UK.  We were fortunate to have Christine Svarer from Care International UK, Zahid Torres-Rahman from Business Action for Africa and two Liberal Democrat Members of Parliament, the Rt Hon Malcolm Bruce and Martin Horwood

The panelists first responded to the provocative question by defining what “aid” means and what it is intended to do. Official development assistance from government to government will continue to be important, but the volume of private flows that affect development, such as foreign direct investment and remittances (which are frequently invested in small businesses) cannot be ignored.  Most importantly, if the goal of aid is to advance economic development, it is difficult to do without business. Including the private sector in development also means monitoring and improving the impact of business and development.
The audience of party members, government officials, NGO executives, corporate executives and students, challenged the panel with questions including:
  • Why doesn’t the conversation around aid to Africa include more discussion about industry and investment instead of disasters and relief?
  • To what extent do inclusive business initiatives address women?
  • When governments partner with business, should they really be giving money to for-profit organisations to finance development programmes?
  • What is the role of business in fragile states or conflict areas?
The panelists drew attention to research done by IDS on African regional trade and investment initiatives and the intensive Chinese investment in Africa. They pointed out that Coca-Cola and Danone have programmes that specifically aim to integrate women into global value chains.  With respect to public-private partnerships, they generally tend to be “obligation-style”, rather than “opportunity-style” and they won’t be effective unless they clearly contract with businesses for specific tasks that play to their strengths.  The panelists confessed that there is much to be learned about the role of business in conflict areas.

For more discussion of ‘the new Aid’, check out this dialogue on Tales from the Hood.
*The third seminar series on business and development at the Institute of Development Studies ‘Conflicting Interests’ will begin on 18 October with a presentation from Mike Davis, Campaigner at Global Witness - everyone is welcome.

Monday, 19 September 2011

On the multilateral trading system and less developed countries

By Xavier Cirera

World Trade Organization Director-General Pascal Lamy, in a speech on 6 September to CUTS International in Delhi, said that the multilateral trading system of the future would have to address the pressing challenge of advancing the Doha Round: ‘to find the political courage and the pragmatic steps which will lead our Members to have an honest negotiation'.

It is very unrealistic to expect any progress in the Doha Round. There is clearly not enough willingness on the side of developed and emerging markets to conclude the Round. In addition, the current economic climate of slow growth in OECD countries is not the most conducive environment within which to reach any agreement, since it is in times of crisis and slow growth that protectionist constituencies gain strength.

So what are the implications for the poorer countries of no agreement? Clearly, the liberalisation commitments for the poorer countries of a hypothetical Doha agreement would have been minimal. So not much action on this area. In addition, these countries already have significant preferential access in developed countries’ markets via preferential schemes. Therefore, little additional access to these markets would have been achieved, although an agreement on the reduction of agricultural subsidies in developed countries could have been a very positive outcome for some least-developed countries (LDCs). In general, one may be tempted to conclude that as far as LDCs are concerned, the failure of the Doha Round is not a big deal.

However, the financial crisis of 2008 has shown two important things. The first is the central role of exports in the recovery. The second is the growing importance of South-South trade. The multilateral trading system is not only about North-South trade, but also about South-South trade, and it is important to reduce trade barriers between emerging and developing countries in order to foster South-South trade integration. Therefore, with or without Doha, it is important that the multilateral trading system ensures advances in this area and, more importantly, that no new protectionist measures are introduced that affect LDCs’ access to Southern markets.

Thursday, 1 September 2011

Tackling inequality: Where do we start?

By Noshua Watson

Timothy Noah at Slate magazine wrote a fantastic series on the history and sources of income inequality in the US.  Based on inequality research and extensive conversations with economists, he allocated blame to various causes of the increase in income inequality in the US since the 1970s:
  • Racial and gender discrimination 0%
  • Single parenthood 0%
  • Information technology and computers (increased productivity of skilled workers) 0%
  • Immigration (downward pressure on wages) 5%
  • Tax policy (lower marginal tax rates for the rich) 5%
  • Trade (decreased wages for unskilled workers) 10%
  • The decline of labour (decreased labour union membership) 20%
  • Wall Street and the ultra-wealthy (Winner Take All markets and superstar pay) 30%
  • Poor primary and secondary education (increasing returns to tertiary education) 30%
What do you think?  Is this an effective way of prioritising our resources? Some causes are more global than others.  Which ones can we actually influence with development policy?

Thursday, 25 August 2011

What the world needs now is... more MBAs?

By Noshua Watson

Economist Guy Pfeffermann points out that businesses in developing countries need good managers and aid for management education. In Africa, he says aid donors focus on primary and secondary education rather than tertiary education, local governments are unlikely to request funds for business schools because they are largely private, and business schools typically attract the middle class, rather than the poorest. Foreign donors also contribute to a shortage of management talent, as aid projects attract the best and the brightest away from the local private sector. 

Despite their relatively better-off clientele, African business schools are starved for resources. Rather than dismiss business schools as a target for development, we should think of training effective managers as a way of building capacity across many sectors – health, manufacturing, education, small business and so on.

The inaugural meeting of the Africa Academy of Management (AFAM) was held as part of the Academy of Management (AOM) conference in San Antonio, Texas last week. AOM has nearly 20,000 members, mostly business school professors, from 110 countries. One of AOM’s strategic objectives is to increase the international diversity of management research theory, evidence, collaboration, teaching, practice and career paths. Sessions at last week’s conference included ‘The Landscape of Management Education and State of Scholarship in Africa: Enlightenment for the East and West’, ‘Innovative Approaches to Understanding Management in Africa’, ‘Environmental and Social Issues in Africa’ and ‘Challenges and Opportunities for Academics Working in Emerging Markets’.

Should we really prioritize educating the relatively well-off? Or should we channel some resources into a segment of society that will generate considerable impact in the governance and success of local institutions?

Monday, 22 August 2011

Inequality – a cause of the financial crisis?

By Carlos Fortin

Some weeks ago I sent a message via the Recovery with a Human Face Network in which I mentioned an intriguing thesis put forward by Ranghuram Rajan in his book Fault Lines: How Hidden Fractures Still Threaten the World Economy. 1

Rajan links the 2008-2009 financial crisis to income inequality in the United States via populist political responses.  He argues that rising income inequality led to political pressures for housing credit, and that the response was ‘populist credit expansion, which allowed people the consumption possibilities that their stagnant income otherwise would not support’.  This, in the face of the ‘difficulty, given the increasing polarization of U.S. politics, of enacting direct income redistribution’ (Rajan 2010: 42). The result was the subprime debacle and the subsequent global crisis.

While the main target of Rajan’s critique is government intervention in low-income housing credit, what I found remarkable is that such an establishment figure should essentially be arguing that the crisis was, at least partially, due to the highly unequal character of the US society and economy. In fact, he writes that rising income inequality is the most important endogenous fault line in the U.S. today. Given his impeccable orthodox credentials - he is Professor of Finance at the University of Chicago and a former chief economist at the International Monetary Fund - I thought this refreshing.

But Lance Taylor rightly pointed out in a subsequent message that a similar thesis has been argued from a less conservative viewpoint.  His book, Maynard’s Revenge. The Collapse of Free Market Macroeconomics 2 (2011), contains an illuminating Keynesian analysis of the falling labour share of income in the U.S. in the post-1980 period.  It illustrates how this in turn led to household over borrowing through what was ‘effectively an alliance between mostly non-affluent households, finance, and politicians in power […] in support of more debt’ (Taylor 2011: 346). Similar arguments, also from a progressive perspective, are put forward by Gabriel Palma (Palma 2009) 3 and Guy Standing (Standing 2011) 4.

It would seem therefore that both on the right and on the left inequality is being seen not only as dangerous politics but also as bad economics.

1 Rajan, R. (2010) Fault Lines: How Hidden Fractures Still Threaten the World Economy, Woodstock: Princeton University Press
2 Taylor, L. (2011) Maynard’s Revenge. The Collapse of Free Market Macroeconomics, Cambridge, MA: Harvard University Press
3 Palma, G. (2009) ‘
The Revenge of the Markets on the Rentiers. Why Neo-Liberal Reports of the End of History Turned Out to be Premature’, Cambridge Journal of Economics 33.4: 829-69
4 Standing, G. (2011) The Precariat – The New Dangerous Class, London: Bloomsbury

Thursday, 18 August 2011

Global financial turmoil part II: Five lessons from developing countries

By Stephen Spratt

The media have reported on the extraordinary events in global markets over the last few weeks with escalating excitement. We are, it seems, sailing from one set of uncharted waters to another, with the water getting choppier all the time. But, for many of us who study financial crises in developing countries, much of this seems rather familiar.

Here are five lessons from developing countries that policy-makers might want to consider:

  1. Sometimes markets are right – markets can be irrational, but this does not mean they are always wrong. The market view that many European countries have unsustainable levels of debt is correct, and it is no good pretending otherwise. The desperate desire to avoid private sector losses at all costs has been a prominent feature of developing country crises, which produces one of two results: outright default (as in Argentina), or years of economic hardship as the burden of adjustment is borne entirely by the citizens of the affected countries (as in too many developing countries). Even the IMF now accepts this - a far cry from the Fund’s previous positions on developing country crises. Governments need to accept this basic fact and impose a reduction of debts to sustainable levels - this means the private sector accepting major losses.
  2. And sometimes they are wrong – the decision to ban short-selling triggered the usual complaints about ‘shooting the messenger’. This reflects the false view that markets merely respond to changes in economic fundamentals. The self-fulfilling nature of some crises in developing countries have demonstrated that market ‘sentiment’ can be the most important economic fundamental of all, and that this can become decoupled from economic reality. When Malaysia implemented capital controls in 1998 to prevent speculation against its currency, dire consequences were predicted. When the controls were lifted a year later, more money flowed into Malaysia because it had remained relatively stable. Direct controls on market activity to short-circuit destructive speculation in a crisis can be both necessary and effective.
  3. This time it is NOT different – bubbles are bubbles, but they can always be described as the result of something else. In the five years from 2000, house prices in Ireland increased by 25% a year and a large proportion of bank lending was directed to the property sector, much of it borrowed from overseas. Prior to 1997, huge amounts of capital flowed into Thailand, particularly the Bangkok property markets, causing land prices to double as real-estate boomed. Whether a Celtic or an Asian Tiger, it is not possible for property prices to grow at multiples of the growth rate of the economy. But booms are exciting and no politician likes to turn the music off when a party is getting going. For this reason counter-cyclical mechanisms need to be hard-wired into financial systems to counter the formation of bubbles. And this needs to be done now, not when a new bubble is forming when it will already be too late.
  4. Short-term debt is dangerous – a key lesson of developing country crises is the importance of short-term debt. As the great economist Hyman Minsky pointed out, benign economic conditions will lead to a position of ever-greater financial fragility, as more and more debt becomes short-term. The reason is simple: borrowing short-term is cheaper. As long as you can roll the debt over this is fine, but when creditors start to worry about your ability to repay and turn off the tap, a crisis is the inevitable result. Italy needs to roll over debt equivalent to a quarter of its GDP in the next year and other European countries are in a similar position. Lengthening maturities, and preventing a new wave of short-term borrowing, needs to be a core part of restructuring and reform.
  5. Politics matters – uncertainty and a lack of political unity really spooks markets. For different reasons, both the US and EU seem incapable of taking the necessary economic decisions. In the Eurozone, it appears obvious that only greater fiscal union, where risks are collectively guaranteed through the issuance of Eurobonds, for example, will work. But this is not politically acceptable in some of the stronger economies (particularly Germany) who fear they will have to pick up the tab for their profligate neighbours. There have been numerous attempts in developing countries to protect particular economic and financial arrangements in a crisis. To work, markets need to believe that countries both can and will do what is needed, which explains why in 1997 Hong Kong was able to maintain its exchange rate peg with the dollar when many South East Asian countries could not. Countries need to do what is necessary to make an economic system work, or design a new system that they can make work. Muddling through is not an option.
While there are many similarities between the current turmoil and developing country crises, there are also big differences. In particular, developing countries have often been on the receiving end of forces they could do nothing about. This does not mean that they were always blameless – though often this was the case – but they could do nothing about the instability emanating from major financial centres in the developed world. In Europe and the United States this is not the case. As well as getting their own houses in order politically and economically, they are also in a position to reshape global financial markets and make crises the exception rather than the norm. An example is the recent agreement by France and Germany to push for a financial transaction tax in Europe. The usual howls of protest and predictions of catastrophe will no doubt be heard from vested interests, but such a proposal makes a lot of sense, particularly if implemented in the global financial centres of Europe.