Thursday, 30 June 2011

Christine Lagarde - Plus ça change

By Stephen Spratt

So here we are again. Europe’s stranglehold on the top job at the IMF – just like the US grip on the World Bank Presidency – continues. Christine Lagarde, the French finance minister, is to be the eleventh Managing Director of the Fund, all of whom have been Europeans, five of which have been from France. Yes… plus ça change.

The manifest unfairness of these arrangements is so obvious that the case does not really need to be made. For those who remain unconvinced that people who head vital international institutions should be appointed on merit rather than nationality, I refer them to the excellent work of the Bretton-Woods Project.

And this matters. The Managing Director at the Fund is no mere figurehead. In his time at the IMF, Dominique Strauss-Kahn made real efforts to reform the institution, pushing for the Fund to have a much stronger macroeconomic coordinating role to deal with large and persistent global imbalances, for example. Given many see these imbalances as at the root of the global financial crisis this seemed a rather good idea.

But perhaps who runs the IMF doesn’t matter as much as it should. The head of the Fund is heavily constrained by vested interests, even when they try to do sensible things that are evidently just. The global policy coordination initiative, for example, came to little, as have other major reforms of recent years, notably efforts to make voting rights more democratic.

Why is positive change at the IMF so hard to achieve?
  1. It requires those in positions of power to vote away this power.
  2. For policy coordination to work, countries need to consider the (long-term) ‘global interest’ as well as their own (perceived and often short-term) national economic interest.
  3. Large developing countries are rightly unwilling to allow economic policy to be heavily influenced by an institution which the US and Europe still effectively control. Both retain a veto over major policy changes at the IMF, while China and India, for example, have a fraction of the voting rights needed to enforce a veto.
  4. The IMF is still seen as overly ideological and as acting in the interests of its most powerful members. Although this has changed somewhat in recent years, it is still too redolent of the ‘Washington Consensus’ for many and too swayed by the views of vested interests in financial markets. 
In some ways, the final point is the most depressing aspect of the recent ‘election’ for the top job. Christine Lagarde’s only real competitor was Agustín Carstens, Governor of the Mexican central bank. Both sang from a familiar hymn sheet in many respects, and no credible alternative emerged with a different song.

Although the ‘Chicago-trained economist’ is more pragmatic than critics give him credit for he was quick to stress the solution to Europe’s debt crisis was more austerity in countries buckling under a mountain of debt. Ms. Lagarde’s diagnosis has been the same. Neither argued for a more sensible and just approach that would see bondholders shouldering a fair share of the burden - Plus ça change...

We need an IMF Managing Director that is prepared to stand up to its members, and to vested interests in the financial sector. That really would be a change worth having.

Tuesday, 28 June 2011

Reforming the Generalised System of Preferences – is it worth the effort?

By Xavier Cirera

Last week I had the opportunity to participate in an informal dialogue with members of the European Commission and country representatives, and organised by ECDPM analysing the new reform proposal of the Generalised System of Preferences (GSP) to start in 2014.

The proposed reform has different components, but in a nutshell it is an attempt to consolidate existing preferences for LDCs and lower middle income countries. The EU is aiming to do so via removing most middle income countries (mainly Latin American countries) from the list of beneficiaries, so reducing the targeted countries to those more in need, but without increasing the product coverage of preferences.

The GSP grants lower tariffs and duty free-access to a large number of imports (all imports for LDCs) from 178 developing countries and territories into the EU market, and it has been in place since the late 1960s.

So what is the likely impact?
  • In the medium run, the proposed changes may erode rather than consolidate preferences. Some of the countries that will be excluded from GSP are currently negotiating a Free Trade Agreement (FTA) with the EU. Removing them from the GSP may push some of these countries to sign an FTA, improving their market access to the EU and further eroding the existing tariff preference enjoyed by GSP eligible countries.
  • The reform excludes some countries with large number of poor people (the new bottom billion).
  • The potential gains and costs appear to be small according to my CARIS colleagues in an initial assessment. Also, some of the exporters that will lose preferential access may continue exporting by reducing their price margins, and some of the opportunities created by exiting firms could be taken by developed countries firms.
The European Commission is aware of the expected small impact of the GSP reform. The mid-term evaluation of the GSP that we did last year is testament to the fact that the impact of GSP has been significant but small. However, it has had not had an impact in encouraging export diversification and more importantly, there is hardly any room left for increasing impact using tariff instruments.

Putting aside the political relations between the EU and developing countries, the key question is whether so little impact justifies distorting European markets with unilateral preferences, especially when the main constraint for developing countries is lack of supply capacity.

Some would rightly argue that:
  1. Unilateral preferences have had an impact on increasing trade in products that were already exported; and,
  2. Underneath all the products included in unilateral preferences there are particular product lines where preferences may still be valuable; this is where preference margins are large and developing countries could potentially export them.
But it seems to me that a much better approach would be to understand why the GSP reform does not work and to use instruments that overcome these challenges, rather than blindly focusing on what could potentially work. In practical terms, this would mean directly linking the GSP system to specifically tailor made Aid for Trade interventions designed to overcome binding constraints for selected products with larger margins. 

I would argue to shy away from using most of the current generic approaches, where trade policy and Aid for Trade are implemented in “parallel” (i.e. unilateral preferences + road rehabilitation + trade policy capacity building). It is easy to think that these generic approaches are more likely to be guided by administrative convenience for policy makers, where Aid and Trade Policy are formulated in different departments, rather than considering the actual effectiveness.

Friday, 24 June 2011

The Decentralisation of Indonesia – What happened after the Big Bang?

By Neil McCulloch

I’m just back from a fascinating conference on Democratisation and Decentralisation in South East Asia, with a focus on evaluating ten years of Indonesian decentralisation.

Indonesia undertook a “big bang” decentralisation in 2001, shortly after the overthrow of long-time dictator Suharto in 1998.  Suharto had, for more than 30 years, run one of the world’s most centralised states, with everything that matters decided in Jakarta.  The fledgling democratic Indonesia took a huge gamble in decentralising most functions of government to the district governments.  Each district now has its own directly elected mayor or district head, as well as an elected parliament.

It’s hard to overestimate what a gamble decentralisation was.  After the horrendous ethnic conflict and bloodshed, collapsing economy and political chaos of 1998, many commentators suggested that Indonesia might break up, or descend into civil war.  Not only has this not happened, but Indonesia is now widely regarded as an example of how to make the transition from autocracy to a functioning unitary democracy with a free press.  As Marcus Mietzner’s argued in his keynote address at the conference, given Indonesia’s history and conditions in which decentralisation occurred, the outcome has been remarkably good.

At the same time decentralisation has not been a roaring success either.  For all the hype about bringing decision making closer to the people, public services have not improved, poverty remains high, and corruption is pervasive.  My own talk showed that a new measure of the quality of economic governance at the district level is uncorrelated with local economic performance.  In other words, sadly, good governance doesn’t help you grow. 

The reason for this is probably the same as the reason why services haven’t improved.  Although millions of Indonesians are now participating in elections, the same “money politics” determines who the candidates are.  As a result it is broadly the same local elites that are in charge, and, in some cases, have used decentralisation as a tool for self-enrichment and political patronage. The pattern is often the same – a candidate buys a candidacy from a political party, using funds from private sector backers to pay.  Then, when in office, procurement rules are rigged to ensure that the same private backers get paid back handsomely for their investment.

But none of this is unique to Indonesia.  Such “elite capture” happens the world over.  As Andrew MacIntyre and Douglas Ramage have nicely put it, “Indonesia is a Normal Country”.  And, little by little, improvements are coming.  The anti-corruption commission is investigating a large number of cases and has already put offenders in jail; local electorates routinely kick out officials that they know to be corrupt.  The key challenge going forward will be to strengthen accountability for delivering genuine improvements – better services, jobs and poverty reduction.  Only when local leaders start to lose their jobs because they failed to deliver, will we be able to declare Indonesia’s decentralisation a success.

Wednesday, 22 June 2011

Will Hutton’s “Them and Us” – Equality or fairness?

By Carlos Fortin

Since March I have been the convenor of a workshop on development policy and inequality in Latin America at the Chile 21 Foundation in Santiago. As an admirer of Will Hutton’s taut and incisive prose in his Observer columns, I was hoping his book Them and Us would allow an interesting comparison of inequality in Latin America and in Britain and help provide much needed conceptual clarification in this muddled field. I was not disappointed on the former score, but I was on the latter.

My problem stems from the fact that the central issue in the book is not equality but ‘fairness’.  Hutton defines this in the sense that individuals should be rewarded in proportion to the amount of discretionary effort they deploy to achieve socially useful results, provided they actually achieve them.  The aim is not to eliminate, or even reduce inequality, but to make access to the higher levels of income and living standards dependent on ‘talent, effort and virtue’. 

The theoretical bases for this position have been put forward as an alternative to mainstream equality theory by a group of contemporary social philosophers, and Hutton indeed cites some of them. In effect, however, his case for abandoning classical egalitarianism seems to rest on two considerably shakier points.
  1. We are born with a set of universal moral instincts, of ‘intuitive judgements of right and wrong that transcend history, religion or culture’ (Hutton 2010: 47). These can be discovered through experiments by behavioural psychologists in which individuals are asked to express judgments about hypothetical moral dilemmas. The answers, they claim, would indicate a preference for due ‘desert’ (‘reward or penalty… proportionate to the value or harm generated’ (Hutton 2010: 51)), not equality. Few moral philosophers seem to take this view seriously.
  2. People in an advanced capitalist society like Britain simply would not stand for egalitarianism. The only evidence he offers for this proposition is a 2008 opinion survey on British social attitudes that found that, while 76 per cent of respondents felt that the gap between those on low and high incomes was too large, only 34 per cent felt that the government should redistribute money from the wealthy to tackle inequality. There is however strong evidence that when questions are more specific, the answers are quite different. The European Social Survey 2008/2009 asked a question about state intervention in selected aspects of social policy. The results indicate that respondents felt that the responsibility in most aspects of social policy lay largely with the government.
Be that as it may, the transposition of Hutton’s analysis to the Latin American case is highly problematic, on at least two grounds:
  1. Because inequality levels are dramatically higher in Latin America. For example in Chile in 2009, the Gini coefficient  was 0.324 in the UK and 0.555 in Chile, whilst the ratio of income of the top to the bottom deciles was 1: 3.59 in the UK and 1: 46 in Chile.
  2. Chileans seem to strongly favour state intervention to reduce inequality. As I reported in a previous post, opinion polls show that a huge percentage of respondents support the notions that the State must implement strong policies to reduce income inequality among rich and poor and should be mainly responsible for ensuring the welfare of people and job creation.
Will Hutton certainly does not agree with Peter Mandelson’s relaxation about “people being filthy rich as long as they pay taxes” but his proposal to shift the aim of a good society from equality to “fairness” does go in that direction.

In the heyday of neoliberal policies in Latin America, centre-left analysts and politicians found it convenient to speak of equidad (fairness) instead of equality so as not to unduly offend the dominant ideology.

Things have changed since then. The basic document discussed in the 2010 Conference of the United Nations Economic Commission for Latin America and the Caribbean (CEPAL) bore the title “Time for Equality: Closing Gaps, Opening Trails”. The central proposals called for the introduction of structural reforms that would lead to a more equal primary income distribution; and for subsequent strong government redistributive interventions through taxation, transfers and the provision of social services to further reduce inequality.

Monday, 20 June 2011

Why help the poor? ... it is the right thing to do and we may well benefit

By Spencer Henson

In the face of growing criticism at increasing government spending on aid to developing countries, most notably from many of the Conservative Party’s traditional supporters, the UK’s International Development Secretary has come out fighting. In a speech on 8 June, Andrew Mitchell laid out the case for aid:

“It is a stain on all our consciences that a girl born in South Sudan today is more likely to die having a baby than to complete primary school. When we know what life – and death – is like for over a billion people living on less than 80 pence a day, and we have the wherewithal to do something about it, then yes, I do believe we have a moral imperative to do so.
But if the moral case were not enough we also know that whether you’re talking about tackling conflict, addressing climate change, building global economic stability or helping the most vulnerable populations, international development is one of the best means we have of protecting UK security and prosperity.”
Results from the UK Public Opinion Monitor (UKPOM) at the Institute of Development Studies (IDS) suggest that the general public also recognise the moral and self-interest cases for aid. However, individuals who consider aid to be the “right thing to do” are less likely to focus on the potential benefits for the UK. Conversely, moral arguments tend to be less to the fore in the thinking of those who focus on self-interest. Perhaps Andrew Mitchell was aiming to gain the attention and support of both of these constituencies?

But to what extent do the moral and self-interest cases for aid to developing countries sit well with one another? Pragmatically, there are two key issues here.

First, the psychology of human values, that are claimed to be at the root of the attitudes we hold and how these are played out in our behaviour, suggests that morality and self-interest may be in direct conflict with one another. Thus, arguments about the ways in which the UK may ultimately benefit from giving aid to developing countries may actually dull notions of morality, and vice versa. This clearly makes communication with the general public difficult, and suggests that the International Development Secretary’s oration is unlikely to have boosted support for aid. It might have even undermined support amongst those who were “sitting on the fence”.

Second, if we have an aid policy based simultaneously on morality and self-interest, how are decisions made as to where this money is spent, and on what? Aid based on moral concerns would presumably be directed at those in most need, defined in terms of poverty and/or broader notions of human rights. Conversely, if greater weight is put on the ultimate benefits to the UK, whether in terms of security or prosperity, aid will more likely focus on countries that are seen as a “hub of terrorism” (maybe Pakistan or Afghanistan?) or that could present a future vibrant market for British goods ( maybe India?).

Evidently, UK aid policy under the current government is directed at both of these imperatives (or goals). Only time will tell which wins.

Thursday, 16 June 2011

An inevitable Greek tragedy?

By Neil McCulloch

A Greek tragedy is unfolding as the world watches furious Greek protestors demonstrate against the extreme austerity measures imposed by their government. As the Economist argues; there would be few who would not react in such a way.

The fact is Greece is bankrupt. It owes well over 100 per cent of its GDP and has no realistic prospect of being able to pay it soon. Much of the blame lies with itself – it ran extravagant policies for far too long and fiddled (legally) the numbers to make things seem better than they were. The financial crisis laid bare the nation’s finances and plunged it into its worst financial crisis since the Second World War. 

If a firm goes bankrupt, the solution is easy, albeit painful: investors lose their money; and creditors, too, are usually forced to take a hit as the remaining assets are distributed between the competing claims. Countries are not firms – but it is abundantly clear that something similar is needed for Greece.  Bluntly put, holders of Greek bonds are not going to get their money back; the best thing to do therefore would be to acknowledge this and immediately give substantial debt relief, or equivalent, to Greece.

Sadly, this is not going to happen.  The European Central Bank is strongly against any kind of write down (or even extending the maturity) of the debt, because, inevitably this means a further bail-out from the ECB.  European voters from countries that are not in a mess, are fed up of bailing out countries that are and so their politicians are not in a generous mood.  “The Greeks themselves must pay, through austerity and structural adjustment” is the cry.  Europe’s leaders therefore will do enough to allow Greece to limp on, but no more.

So, as Greece’s politicians surely knew, complete default is political suicide because of the chaos that would ensue, and is in fact happening on the world stage.  They therefore accepted whatever funds they could get and promised reform.  But they know full well that there was no chance of delivering it.  No politician in their right mind could stick to a plan that forces such pain on the people that vote them into office.  So they have slipped, and will inevitably beg for more money and further relief, which in turn will be given, resentfully, by the rest of Europe because, at any point in time, it will always be easier politically to roll over the debt one more time, than to bite the bullet and cancel it.

We have been here before.  During the 1980s, there was a Latin American debt crisis.  Several Latin American nations were insolvent - but it took a decade or so before the Brady Plan began to seriously address the solvency issue that was obvious from the start. In the 1980s and 1990s several African countries were mired in debt levels similar to those of Greece today.  They were forced to “structurally adjust”.  Many were, unsurprisingly, unenthusiastic about such reforms – but they did so to enable the debts to be rolled over, again and again, until finally the HIPC initiative and the Gleneagles Agreement in 2005 recognised reality and gave significant debt relief.

We know from history that generous debt relief now would save the Greeks from a decade of misery... and we know from history that it isn’t going to happen. That is a true Greek tragedy.

Wednesday, 15 June 2011

Do £20 notes get left on the pavement? Some thoughts on the Financial Transaction Tax debate

By Neil McCulloch

There is an old joke in economics about a junior economist and a senior economist, who are walking along the street. They see a £20 note lying on the pavement, but the senior economist walks straight past. So the junior colleague, not wishing to appear stupid, does the same. But he can’t help asking “Why didn’t you pick up that £20 note on the pavement?”. “Oh”, replies the older economist, “I didn’t pick it up because it can’t really have been there, otherwise someone would have picked it up already!”

This joke was told by Dr Rodney Schmidt from the North-South Institute at a workshop in Brussels yesterday to launch IDS Research Report “The Tobin Tax: a review of the evidence”, which I co-authored with Grazia Pacillo. Rodney told it to the audience to counter the view expressed by Ian Harrison of the Association for Financial Markets in Europe, that if a Financial Transactions Tax (FTT) is such a good idea, why hasn’t it already been done?

Yet in one sense Ian is right. Although our Research Report shows strong evidence that a FTT is feasible, there are still a lot of technical details that need to be worked out in order to turn the idea into a reality. How, for example, do we prevent the tax migrating to offshore jurisdictions? How do we prevent it from distorting markets? How do we stop the markets from “re-engineering” financial instruments to avoid the tax? These are legitimate and important questions that need serious answers.

Currently we have a Catch 22 situation - a lack of clarity about how the tax would be implemented makes people assume it can’t be done, which, in turn, means that little effort is devoted to sorting out the details that might make it work. Yet there is now a lot of evidence that the tax is feasible. Even the IMF, who oppose the tax, acknowledge that it is technically feasible (see IMF 2010). When I have spoken privately to senior bankers and financial market actors they all agree that, in principle, it can be done.

At the same time, the thing I found remarkable about the Brussels gathering, was that the tone of the debate has changed. The question is no longer “Should we have a FTT?”, but instead, “How can we implement a FTT in a way that makes sense?”. In other words, not whether, but how?

But the “how” is clear. What is needed is a clear political statement from the G20 that it will be done. If the G20 can show political leadership, then this will force the academics and the industry into the same room – to sit down and seriously work through the mechanics of implementation. And for once, a £20 (billion) note will not be left on the ground.

Monday, 13 June 2011

DFID and the role of the private sector

By John Humphrey

The Department for International Development (DFID) have just launched a paper setting out their approach to the private sector. It is a very public commitment to enhancing and expanding work with the private sector, and it provides a good overview of an extensive range of activities that are already being carried out. It covers both how DFID proposes to improve the environment within which the private sector operates, and also how DFID would wish to work with the private sector to achieve development goals. It highlights a number of ways in which businesses are already contributing to the achievement of these goals.

An excellent blog by Zahid Torres-Rahman on the Business Fights Poverty website highlights the many positives in the paper, and also points out a few omissions.

The document explicitly says it is not a blueprint for future work, and it is very much establishing the terrain of existing DFID private sector activities and how they make contributions to development rather than planning out a future strategy. Nevertheless, the first two sentences of the document set out an ambitious goal: to put the private sector at the centre of generating opportunities and prosperity for poor people in developing countries.

To achieve this, a lot of work will need to be done in three areas:
  1. creating a vision for the private sector's contribution to development,
  2. complementing this vision with an understanding of the private sector's own visions, motivations and ambitions for its operations in developing countries, and
  3. a deeper understanding of which types of engagement between public agencies and the private sector contribute most effectively and cost-effectively to growth and poverty reduction.

Thursday, 9 June 2011

Robin Hood Tax: back in the spotlight

By Neil McCulloch

Financial Transaction Taxes (FTTs) have been back in the media spotlight this week, with a new briefing paper published by the UK’s Robin Hood Tax campaign.

The report claims that it would take about 18 years for the banks to repay the costs of the financial crisis (based on the IMF estimate that the cost of government debt arising from the crisis is £737bn, and also the £203bn tax taken from the financial sector in the five years leading up to 2007). See The Guardian, The Scotsman and The Independent for analysis of the new report.

The campaigners are asking for an extra £20bn of taxes on financial institutions, and they’re pushing for “a Financial Transaction Tax of 0.05% on stocks, shares, bonds, currency and derivatives.”

Whilst campaigners like the RHT activists and other NGOs are arguing the moral case for making the bankers pay for their mess, I think the real issue is a much more practical one: Would it actually be feasible to implement an FTT on a national, regional or global level? It’s all very well wanting something on an ideological basis, but policymakers need to be convinced that a tax could actually work in practice.

Next Tuesday IDS is co-hosting an event in Brussels that’s looking at this very issue: is an FTT a viable solution, or an impossible dream? I’m going to be launching my new Research Report (which is a review of the evidence for and against an FTT) and we’ll be hearing from representatives from the financial sector, NGOs, academia and the EU.

I hope it’ll be a good opportunity to see what the evidence really says on this issue, and get to the bottom of some of the practical issues for implementing an FTT. I’ll be blogging from the event, so check back next week for an update.

Wednesday, 8 June 2011

Reflections on my first Systematic Review

By Xavier Cirera

I’ve just completed my first Systematic Review (SR) – we looked at the impact of tariff reductions on employment and government revenue in developing countries. It’s rare that I get a chance to sit back and reflect on a research project when it’s completed, but given that SRs are only emerging in social sciences, I thought this would be a good opportunity to share my experience of the process.

DFID, in an effort to improve evidence-based policy decisions in development has funded two rounds of SRs managed by 3ie about important development questions. For this project, I worked with colleagues Dirk Willenbockel and Rajith Lakshman here at IDS, supported by the EPPI Centre.

For those of you who are unfamiliar, a Systematic Review (SR) is a methodology that attempts to synthesise and critically appraise existing evidence. While SRs have been a common practice in disciplines such as healthcare and medicine, they are rarely used by social scientists, who have tended to use literature reviews. For those that would like more background information, 3ie produce a useful introduction to SRs

In my view, the key advantages of SRs compared to traditional surveys are (a) clarity in the methods of synthesis, (b) transparency regarding what is and is not included, and (c) replicability.

Here are a few general impressions about conducting a SR – and it would be good to know what other people think:

  1. It’s a very labour intensive exercise. The transparency and clear methods of SRs are translated into a very labour intensive exercise (at times painfully so), especially regarding searches and inclusion and exclusion of relevant studies.
  2. There’s a mismatch between the policy question that you’re trying to answer and the way existing evaluations address the question. This is especially true in the case of macro or meso interventions, where the causal link between the intervention (e.g. a tariff reduction) and outcome (e.g. employment) is distant, complex and affected by a large number of factors (such as sector differences and country characteristics etc). In these cases, rather than directly answering the big question, existing evaluations focus on narrow aspects of the causal link, which makes the final synthesis difficult.
  3. There’s a larger number of methodological approaches in social sciences. In medicine, many SRs synthesise studies that use the same methodology and measurement units. But SRs in social sciences face the challenge of synthesising different methodologies in evaluations; ranging from purely qualitative to experimental or Randomised Control Trials (RCTs).
  4. Although it’s transparent, you still need to make strong assumptions about which studies to include. While the criteria for including and excluding relevant studies is made explicit, SRs still require a significant number of assumptions regarding which studies to include, and why some studies are of higher/lower quality than others.
So overall, what’s my verdict?

I think that SRs are an important and worthwhile tool for evidence-based policy. They help to specify conceptual models, theories of change and contextual factors when understanding causal relationships, which is vital for social science.

SRs are also a transparent and comprehensive approach to answering major policy questions, and very helpful in scoping the appropriate questions to answer in the first place. More importantly, SRs can be drivers for identifying important methodological limitations in existing evaluations, and at the same time provide information about how to realign policy with empirical evidence.

While the benefits clearly outweigh the costs, it is also true that more work is required to shape methodological approaches to the complex nature of evaluations in social sciences, especially regarding more macro policy interventions. 

A final thought on a related issue...

While most evaluations we reviewed seemed to focus on a key question (i.e. whether a policy intervention works) very few considered an additional critical question for policy: whether interventions are the most cost effective way of achieving the specific outcome. It seems to me that the issue of cost-effectiveness is sometimes missing in the current heated debate on evaluations and RCTs, but it is critical for policy makers and practitioners who are managing a portfolio of interventions.

Monday, 6 June 2011

Is bigger always better?

By Noshua Watson

Why do African farmers have to scale up to participate in global markets? Can’t scale be provided elsewhere in the value chain?

The current debate about food production seems to be whether African farmers need to be big or small to be efficient. I think that the point of John Humphrey’s recent blog post and Dirk Willenbockel’s response (and pointer to a summary of the debate) is that farmers don’t have to be big themselves, they just have to be part of something big.

As Steve Wiggins wrote for the Future Agricultures Consortium, “... let’s get the economies of scale where they are needed: in the supply chains, in processing, transport  and marketing – where lumpy investments and sophisticated know-how count. But let’s leave the farming to the local experts, the family farmers, who have all the incentives to work hard and carefully.”

The Future Agricultures Consortium recently hosted a conference on land grabbing that examined how the social consequences of commercial land concentration threatens rural communities. To avoid this, Olam International seems to make an effort to reach out to small farmers and use hybrid models of large-scale and small-scale farming.

But even if farmers can produce specialised products, get market updates by mobile phone and have decent roads to transport their goods, price volatility leaves small farmers quivering at the tail of the supply chain.

Friday, 3 June 2011

Promoting the dirtier side of development

By Stephen Spratt

When most people in the UK think about aid, I imagine they think of things like disaster relief, health and education, or perhaps human rights. And a lot of money is spent on these things. But many may be surprised to discover, however, that more than any of these issues, the UK spends 18.4 per cent of aid on infrastructure – water, electricity and transport systems – and for all donors the figure is above 20 per cent.

For the past six months I have been researching the relationship between infrastructure and development, with the Private Infrastructure Development Group, looking at the contribution made by national and international development finance institutions (DFIs), particularly their ability to leverage private investment. I have taken five broad lessons from this:
  1. Infrastructure is of fundamental development importance – without things like clean water, reliable power supplies, communications, and at least basic transport services, many other aspects of human development will be impossible to achieve.
  2. Infrastructure is of fundamental environmental importance – public transport and renewable energy investments underpin all ‘visions’ of sustainable, low-carbon economies.
  3. Increasing private investment into the infrastructure sectors in developing countries is essential – the World Bank estimates that the infrastructure funding gap in Africa alone is $93 billion per year.
  4. Private investment alone cannot meet the shortfall.
  5. The development community needs to engage with infrastructure issues far more than they have done to date.
Given the importance of infrastructure I have been struck by how little is actually known about it. Everyone knows it is hugely important of course, but not which aspects are most important. Private investment needs to play a key role, but where this is most needed (and appropriate) and where a different approach would work better is still not clear.

Part of the problem is the private sector itself. For companies, commercial confidentiality is a major concern – even when there is no reason why it should be. As a result, the same rules of transparency that apply to other parts of national and international aid spending do not apply to public-private-investments (PPI). What we tend to get is a cherry picking of the best examples to be showcased in annual reports, rather than a balanced picture of what is happening on the ground. This is very bad for research and evidence-based policy.

If we cannot rigorously compare different approaches and examine what works, where and why, we have no choice but to muddle through, unsure of whether the tens of billions of public money devoted to PPIs around the world are achieving the best outcomes possible. This does not mean they are not – we simply do not know.

This brings me back to public perceptions of development spending. Politicians have a role to play here – we hear lots about helping people in need, or even promoting the UK’s national interest, but nobody mentions the dirtier side of development – roads or power plants – despite the fact that huge resources are devoted to these areas.

It is not just the private sector and politicians that explains the lack of knowledge, however, it is the lack of focus on these issues by my colleagues in the development community. Given the importance of the subject, the resources that are already devoted to it, and the resources that need to be, this is very difficult to understand. The fact that the UK public and its leading politicians are not talking about infrastructure and development is not that surprising. Neither are most of those working in development.

Wednesday, 1 June 2011

The food conundrum: Can small farmers and big business work together to solve the world food crisis?

By John Humphrey

I turned on the radio yesterday morning and just caught the end of the interview between Nicola Horlick, a London investment banker, and Barbara Stocking, the Chief Executive of Oxfam GB, on BBC Radio 4’s Today Programme. They were discussing the latest Oxfam report on global food security. One big area of disagreement was the role of small farmers in global food production. Horlick was arguing strongly that the increasing global food needs meant that small farm production would not be sufficient to meet global demand and that this justified large-scale investments in agriculture in developing countries, and particularly in sub-Saharan Africa.

Coincidentally, Chris Brett, who works for one of the world's largest global food traders, Olam International, made a presentation yesterday at the globalisation team's Business and Development, ‘food for thought’ seminar series. Was he in favour of large-scale farming in Africa?

Well, up to a point. Olam owns farms and plantations, but it also works with 1.4 million small farmers worldwide. Inputs for its cotton ginning mills, cashew processing plants, etc., come from small farmers. Working directly with thousands (or tens of thousands) of small farmers is not efficient, but when these farmers are organised into farmer groups or cooperatives, companies like Olam can incorporate them into the supply chain. Furthermore, the farmer groups have much more capacity to invest in better inputs, equipment and processes than individual small farmers.

Olam is not the only large company committed to working with small farmers. Across Africa, there are many examples of links between groups of small farmers and large companies. Global companies such as Unilever are committed to working with small farmers.

The argument about the global food crisis and how to tackle it raises big issues:
  1. Do we have a global food crisis so urgent that small farmers need to be pushed to one side? Dirk Willenbockel from the globalisation team at IDS worked on the analysis of food price trends used by the Oxfam report and also contributed to the major study on global food and farming produced by the UK government's Foresight programme. The Foresight programme's final report concluded that smallholder farming has a role in global agricultural solutions: ‘Smallholder farming, which has been long neglected, is not a single solution, but an important component of both hunger and poverty reduction’.
  2. Will increasing production alone solve the problem of hunger? Nicola Horlick's argument focuses on global availability of food. The implication is that there will not be enough food to go around if we don't produce a lot more and do this through large-scale farming. But availability of food is not enough. People need access to food: the capacity to produce it or buy it.
Chris Brett from Olam International also raised the issue of food access in our seminar. Incorporating small farmers into agricultural value chains means that they not only generate the incomes needed to buy food, but also keep land and retain the capacity to produce food for their own consumption. With rising prices and global food shortages, this sounds like a good strategy for reducing risk. London financiers have taken a lot risks in the past few years that have had disastrous consequences for UK taxpayers. Are African farmers next in the firing line?

The good news is that, unlike Nicola Horlick, some of the big companies actually involved in agriculture have a much more nuanced view about how to respond to the global food crisis.