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".