Tuesday, 31 May 2011

A tale of shrimp, tennis and beer

By Neil McCulloch

This is the final part of the mini series on Vietnam.

The Old Quarter in Hanoi is an amazing place, full of colonial period houses, bustling markets stuffed with retro chic and a hive of Vespas constantly buzzing around you.  But far from the cool of Hanoi, at the other end of the country, lies Ca Mau, the southern-most province in Vietnam.  Ca Mau has none of Hanoi’s charm – in fact it is famous for only one thing – shrimp.  And yet the story of shrimp in Ca Mau tells us something very interesting about the process of economic reform in Vietnam and beyond.

As Hubert Schmitz’s blog explained, our research in Vietnam is trying to understand what drives economic reforms at the local government level.  Is it the central government pushing the provinces to improve their investment climate?  Or is it pro-active leadership by the province?  Or perhaps it is the business sector pushing for reform after investments have already been made. 

In Ca Mau we saw two processes clearly at work:
  • First, we saw the strong influence of the central government’s conversion to growth oriented policies.  The central government’s priorities in recent years have been threefold: infrastructure, access to land, and administrative reform.  And the most important ingredient for shrimp farming is not baby shrimp – it is land and roads to get the shrimp to market.  Ca Mau has land perfectly suited to shrimp farming and so the strong push from the centre was clearly one of the drivers of local reform.
  • But it is more complex than this.  For the government didn’t promote shrimp until some time after shrimp farming took off.  It was domestic investors that that first realised the money to be made in shrimp; only later did the government then start to facilitate the process.
Now the most influential organisation in town is the Seafood Association.  Interestingly, it doesn’t appear to lobby the local government for improvements in the business climate; because there is no need.  Senior members of the government are members of the association; former State Owned Enterprise managers are active in the industry.  Almost all come from Ca Mau, grew up together, drink together and play tennis together.  The business elite does not need to lobby the government – part of it is the government.  Is this corrupt?  I’ve no idea.  But the embedded relationship between business and government ensures that government both understands and responds to their needs, and that has certainly helped to boost growth in Ca Mau.

Friday, 27 May 2011

Food politics: Balancing the “moral economy” with business

By Noshua Watson

Last week, we started an IDS Globalisation team seminar series on business and development called, Food for thought: business impact on food market and food policy in development. Our colleague Naomi Hossain, a Research Fellow from the IDS Participation, Power and Social Change team, gave a sociological perspective on the global food prices crisis, titled “The Moral Economy of the Street: Popular Responses to the Food and Fuel Prices of 2011.”

Are record food prices behind the “Arab Spring” revolutions? Dr Hossain reminded us of E.P. Thompson’s concept of the moral economy, defining it as ‘where poor people riot to let sellers know when they think the prices are wrong.’ She argued that the food riots that we see today are popular efforts to correct gross failures of governments and establish moral limits to market activities

Dr Hossain’s research is based on the IDS and Oxfam Social Impacts of Crisis project that researches the effects of the food, fuel and financial crises in twelve communities in Bangladesh, Indonesia, Jamaica, Kenya, Yemen and Zambia. She and her colleagues asked what regular people, non-elites, many of whom are poor or work in the informal sector, believe to be the causes of the 2011 food price hike. Despite the debate in Northern media outlets about the role of commodities speculation, most of the people surveyed attributed the food price volatility to government regulatory failures, corruption and lack of responsiveness to speculation by local businesses.

In a prepared response to Dr Hossain’s presentation, Xavier Cirera, a Research Fellow from the Globalisation team and international trade and agriculture specialist, pointed out that governments are in a bind with respect to regulating commodities prices. He believes that the focus should be on limiting volatility, rather than specifying price levels. Unfortunately for governments, regulating food prices is a trade-off between urban populations who suffer from high prices and small farmers, who make up much of the employment base in developing countries and benefit from higher food prices. When food buyers and sellers are both poor, whose moral economy reigns?

Wednesday, 25 May 2011

Vietnam - Finding your own way

By Hubert Schmitz

This is part 2 of this week's mini series on Vietnam.

I found Neil McCulloch’s reflections on Vietnam-style “democracy” fascinating. As he observes in his recent blog, as a communist state, democracy may not be its strength but economic development most certainly is.

Vietnam is one of the big success stories of the last two decades. It has overcome the devastation of the American War and of State Socialism and is competing successfully in the global economy. Other countries want to learn from this success but distilling recipes is not easy. Vietnam has found its own way forward, transforming itself economically by a three-fold combination of:
  • using the market to propel economic development
  • provincial governments experimenting with ways of governing the market
  • the Communist Party retaining overall political control.
We can however draw some lessons for the debate on how to promote investment and growth.
  1. The national investment climate approach is not supported by the Vietnamese experience.  The basics of a good investment climate were not in place (enforceable property rights and contract law) in the initial growth phase. Investment did not follow improved legal reform. In our ESRC funded project 'Challenging the Investment Climate Paradigm: Governance, Investment and Poverty Reduction in Vietnam', we are currently investigating whether one can go as far as saying it was the other way round, namely that reform followed the investment.
  2. Understanding or fostering change at the national level is not promising. The national government is important in guaranteeing overall stability but the actual battle for transformation is fought at the provincial level. Vietnam has 64 provinces which have considerable room for experimentation as long as they do not challenge the supremacy of the Communist Party. As Neil noted, this currently does not appear to be a major concern.
  3. Competition between provinces helps.  The Vietnam Chamber of Commerce and Industry (VCCI) has measured annual progress made by provinces in reforming economic governance (See the Vietnam Provincial Competitiveness Index (PCI)).  This measuring has accelerated the appetite for and speed of reform with annual league tables leading to competition between provincial governments.  Some of the laggards are seeking to emulate the successful reformers. Doing well in these league tables has an influence on prospects for promotion of provincial leaders.
  4. Decentralising economic governance has encouraged experimentation. Good practices are emerging of how provincial governments can work with local enterprises. How much the reforms actually matter for investment and growth is something we are currently investigating so watch this space for the results. 
  5. Finding your own way requires taking risks. There is a risk that these reforms will result in new forms of corruption. But there is also the chance that positive lessons will emerge from this process showing how government can harness business to growth that is inclusive and clean. This is precisely what some provinces are now seeking to achieve.
For me, the exciting thing about Vietnam is not its overall rate of economic growth but the ability of its provinces to find ways forward which suit their own varied circumstances.

Tuesday, 24 May 2011

Vietnam elections: the globalisation of democracy?

By Neil McCulloch

This is the first in a mini-series of posts this week on Vietnam – let us know your views and comments. Enjoy!

When we talk about globalisation, we often (well, at least I do) tend to focus on the economic bits. However, perhaps one of the most important ideas to go global over the last century has been “democracy”. The simple idea that every adult has the right to vote on a regular basis for those who they wish to govern them is a powerful one. For example, the current turmoil in the Middle East in part reflects the desire of populations, long afflicted with the rule of a corrupt elite, to have a say in the choice (or rejection) of their leaders.

Which is why I found myself rather bemused sitting, as I was this weekend, in Noi Bai airport in Hanoi, Vietnam. During my visit, the city had been festooned with flags and banners proclaiming the election for the National Assembly, which took place on Sunday. 
Election propaganda (Credit: Neil McCulloch)

Now, if you are not an expert in Vietnamese politics (which I most certainly am not) this may surprise you. After all, Vietnam is one of the last remaining communist one-party states. But of course there is more, or perhaps less, to Vietnamese elections than meets the eye. Candidates can put themselves forward – but are vetted by the Party – only those with acceptable credentials are able to stand. Voters are presented with a list of 5 or 7 candidates – of whom they can only cross out two. So in effect, voters are being asked to remove the least acceptable of a set of candidates pre-selected by the Party. And this is only the National Assembly; executive power lies mostly with the Central Committee and the Politburo, appointed at the five yearly party Congress where all the serious political horse-trading takes place. As a Vietnamese friend says to me, “This is how we play at democracy”.

Yet the most striking feature of this system is that, despite its limited nature, there is almost no popular clamour for change. No riots on the streets here – no one occupying Ba Dinh square demanding change. As another friend said to me, “I just don’t care”. The reason for this political apathy seems clear – Vietnam grew at almost 7 per cent last year. Its economy has been storming along at a pace only outstripped by China. Ordinary Vietnamese are doing better and better – why change a system that is manifestly delivering the goods? Perhaps the more interesting question is why the Vietnamese system is effective. Why does it not appear to be hampered by the problems that have beset the Middle East and elsewhere, where growing corruption and cronyism have contributed to economic stagnation and unemployment?

My guess is twofold.
  • First, Vietnam’s government, despite its wholesale conversion to capitalist production, still holds to a strong developmental ideology. Leaders not only repeat the mantra of helping the people, many of them appear to believe it. Although many are deeply involved in, and benefiting from, their control over key economic assets (see Martin Gainsborough’s excellent book on how the State is far from retreating in Vietnam), political promotion does appear to depend on having done something good for society more broadly. 
  • Second, despite the fake elections, Vietnam’s political system has sufficient contestability among the political elite to ensure that the top positions are occupied by people who are both competent and at least not destructively corrupt (see Eddy Malesky’s great paper comparing the political systems in China and Vietnam, and how Vietnam’s much more contestable system gives rise to far less regional inequality).
As I was speeding to the airport, I noticed that every house beside the road was flying the Vietnamese flag – a red flag with one yellow star. “Why?” I asked. “Because the authorities require them to do so on important days like this,” came the answer. As an exercise in democracy it certainly only merits one star – but for development results Vietnam gets five.

Monday, 16 May 2011

The Rule of Law vs. Not getting shot

By Neil McCulloch

I’ve just been reading a great paper* by Stephan Haggard at the University of California on the Rule of Law.  It’s one of those papers that you read and say to yourself, “yes, that’s all pretty obvious”, and then realise that what he has made obvious is the opposite of received wisdom on the subject!

What he does is gather data across a large number of countries on various measures of the “Rule of Law”. There is a small industry producing such measures these days, since everyone realised that institutions and governance were critical for development. 

Haggard takes some of the most common measures:
  • Property rights (how much real control you have over your assets) and how well contracts are enforced  (the traditional literature says that these are really important for long-run economic growth)
  • Security of person (whether there is lots of violence and you are likely to get murdered)
  • Measures on the checks and balances on government
  • Measures of corruption
  • And a couple of popular aggregate measures such as the Rule of Law indices from the World Bank and from the World Economic Forum.

Then what he shows is, to me at least, an eye opener.  He finds that:
  1. These measures really aren’t that well correlated, i.e. they really are measuring different things.
  2. He replicates a famous study by Acemoglu, Johnson and Robinson (2001), which purports to show that property rights are crucial to long-run economic growth, and shows that, pretty much any of the above measures of the Rule of Law might have been driving that result. In other words, it might not be property rights at all, it might be less corruption, or better checks and balances on government or better security – you just can’t tell.
  3. When you look at how long-run economic growth is affected by all of these measures individually, the only one that matters is the aggregate Rule of Law index – and that is probably driven by corruption, not property rights.
Finally, he finds something which makes so much sense it is slightly embarrassing that us governancy-types tend to ignore it – that physical security and conflict have a big negative effect on growth and make growth much more volatile. Of course this isn’t new – Paul Collier has written a whole book (called Wars, Guns and Votes) on the subject and IDS has a large MICROCON research project on it. But, given the huge efforts expended on fancy governance interventions, it is worth being reminded that the evidence strongly supports the obvious point that establishing basic security of person is an essential pre-requisite to any kind of economic development.

* Stephan Haggard and Lydia Tiede, 'The Rule of Law and Economic Growth: Where are We?', World Development Vol. 39, No. 5, pp. 673-85, 2011

Saturday, 14 May 2011

Is the Singer-Prebisch hypothesis being reversed by current high commodity prices?

By Xavier Cirera

Today’s newspapers are full of reports of commodities prices falling (see Reuters and Guardian for a couple of references). And just last week, BBC News questioned whether this is just a small blip or a turning point. Whilst this might not yet be clear, one thing is certain: commodity prices have risen steadily since the early 2000s.

In addition, the main view is that commodity prices are expected to remain high in the long run, due to increasing energy and resource pressures arising from higher demand in emerging markets. All this begs the question of whether we are seeing the beginning of the reversion of the Singer-Prebisch (S-P) hypothesis.

What is the Singer-Prebisch hypothesis?

There are countless theories that surround development economics, but without doubt one of the most influential and solid hypotheses is the S-P theory. It describes the trend of primary commodity prices to deteriorate in the long-term, therefore reducing the terms of trade for countries that specialise in commodities.

As many developing countries tend to export commodities and import manufactured and capital goods, this implies the need to increase the volume of exports in order to keep importing the same level of manufactured and capital goods, or otherwise experience a deterioration of the trade balance.

Declining terms of trade was one of the arguments used to justify Import Substitution Industrialization (or ISI) policies, aimed at distorting the economy to facilitate the development of manufacturing sectors, very popular in the 1960s and 1970s. It has also influenced discussions about whether natural resources are a curse for development. 

Is the hypothesis being reversed?

Although it is still very early to tell, a sustained increase in commodity prices, including agricultural products, could potentially enhance developing countries’ terms of trade. If this does happen, the policy question will be how to use the rents from commodities and natural resources for sustained productivity changes, economic growth and human development.

The evidence from resource-rich countries tells us that this can be very challenging and difficult to achieve. However, I’m certain that a scenario of improving terms of trade for developing countries presents more opportunities for structural transformation than ISI strategies have had in the past, especially when the S-P hypothesis may still stand for low-skilled manufacturing products.

Wednesday, 4 May 2011

Five things the new Oxfam America/ Coca-Cola/ SABMiller report tells us about measuring private sector impacts on communities

By John Humphrey

A few weeks ago Oxfam America published a poverty footprint analysis on the Coca-Cola/SABMiller value chain in El Salvador and Zambia. I’ve just got round to reading the report, and have been mulling over what it tells us about assessing private sector impacts on communities. Here are my top five:

1. Big business cares about its impact on communities around the world – businesses are waking up to the need to understand the impact of their activities on poor people. They’re recognising the benefits of transparency and accountability – not simply of corporate social responsibility. I think we’re going to see many more reports like this in the future, coming out of partnerships between the private sector, NGOs and academics.

2. We need to better understand evaluation methodology – the team that produced the report consisted of company representatives, staff of global consulting companies, NGO staff and local researchers. These different groups used a broad range of tools, including interviews, focus groups, surveys and direct observations. Here at IDS we’re working to develop methodologies for research on the impact of the private sector that are rigorous, easy to adapt to changing contexts, and that give us results we can turn into action.

3. The major impact of companies is not in direct employment – the results show that staff employed directly by SABMiller were only a small fraction of the total number of people who worked in the chain. Many more people were employed in supplying inputs, particularly sugar, to the processing plants and in the distribution networks. This pattern was also seen in Oxfam UK’s study of Unilever in Indonesia.

4. Time will tell whether the recommendations are put into practice – the report makes a whole series of recommendations for Coca-Cola/SABMiller, including the need to monitor whether existing labour standards are met, and establish business training for women in the value chain. Implementing these will require time and resources, and in some cases, a rethinking of their approach. 

5. What is businesses and development about? – the report documents quite carefully how the operations in El Salvador and Zambia generate incomes and employment. But all businesses do this. The point of business and development is to enhance growth and poverty reduction outcomes by doing business differently. The report does show that there have been explicit efforts to address some environmental issues, particularly with respect to water. Addressing some of the social issues in the value chain, particularly with respect to gender and informal employment, will be more difficult. The Unilever Indonesia report shows that quite a lot can be done. A repeat of the assessment exercise in one or two years' time will be valuable and revealing.