Wednesday, 26 February 2014

Should university be free? A report from Chile

By Carlos Fortin

In current mainstream debates on the economics of education it is a firmly established piece of received wisdom that universities should not be free. The World Bank and the IMF in particular have consistently argued that free higher education, especially in developing countries, amounts to a subsidy to students from rich and middle income families who can either afford the economic cost of their university studies or should finance them with loans to be paid back after the student graduates and starts earning an income. Only students from low income families should be entitled to non-reimbursable grants.(1)

The issue has recently come up in a major way in Chile, where the electoral platform of the candidate who won last December’s Presidential election, Michelle Bachelet, includes a commitment to free university education; this has predictably attracted sharp criticism from orthodox observers and analysts.

Interestingly, strong support for the unorthodox view – that higher education in Chile should be universally free - has come from someone who was Director of the Western Hemisphere Department at the IMF from 2009 until 2012, Nicol├ís Eyzaguirre, a Harvard Economics Ph.D. and former Chilean Minister of Finance.

Eyzaguirre’s main contention is that the orthodox view does not apply in a country like Chile, which is characterised by a highly unequal income distribution and a de facto segregated educational system. In those conditions, charging full fees to the better off and extending loans to middle income students would, in his view, lead to serious perverse results:
  • Parents who can afford the fees would prefer to send their offspring to private institutions – or universities abroad - at a similar or even higher cost but with a higher academic level, because of having more resources; the system would thus tend to become segmented between ‘a handful of paid and expensive universities, well equipped and with top level faculty, that would attract the scions of the elite, and a large number of [lower academic level] public universities for the rest’;
  • Parents and students who would receive loans would tend to factor in the issue of repayment into their choice of careers, biasing it towards those that involve fewer years of training and have more promising labour markets; this would create a disconnect between preferences and talents and actual choice of careers, resulting in both individual dissatisfaction and a loss of social efficiency and productivity;
  • The burden of repayment of the loans would be heavier for students of the middle and lower income brackets, as the unequal character of Chilean society manifests itself, among other things, in that ‘an important part of the income of the graduates is not a function of educational level but of networks and family contacts’; this would breed discontent and alienation among graduates, a phenomenon already visible in the student protest movement that erupted in 2011 and continues to date.
By contrast, Eyzaguirre argues, free higher education would help reduce educational segregation and raise student satisfaction and commitment, leading – together with a number of other measures and in due course - to better academic standards and an increased productivity.

The analysis is persuasive, but the orthodox are not convinced and the debate goes on. Fortunately, there might be a chance to put it to the test: President-elect Bachelet has recently announced that Eyzaguirre will be Minister of Education in the incoming government.

Related resources
(1) See Nicholas Barr, ‘Financing Higher Education’, Finance and Development. A Quarterly Magazine of the IMF, Vol. 42, No. 2, June 2005.

Carlos Fortin is an IDS Research Associate currently working on the relationship between the emerging international trade regime and human rights.

Thursday, 20 February 2014

The G8 New Alliance – whose alliance?

By Jodie Thorpe

As someone who’s been watching the New Alliance for the last year, I’ve been heartened to see a vigorous reaction to the Guardian global development’s excellent article ‘G8 New Alliance condemned as new wave of colonialism in Africa’. Over 300 comments and as many tweets within 24 hours of publication should help to raise awareness and scrutiny of an initiative that potentially has broad impacts on African agriculture.

The ‘New Alliance for Food Security and Nutrition’ was launched by the G8 in May 2012 - driven largely by USAID, though DFID picked up the mantle when the UK assumed the G8 presidency in 2013. According to USAID, the New Alliance is ‘a commitment by G8 nations, African countries and private sector partners to lift 50 million people out of poverty over the next 10 years through inclusive and sustained agricultural growth’.

At the heart of the New Alliance lie Country Cooperation Frameworks setting out G8 (donor) funding commitments, African government policy actions, and statements of investment intent from private companies. Through these frameworks, 10 African countries have signed up to over 200 policy commitments, including changes to laws and regulations around land and natural resources, intellectual property and seeds, and tax and export rules. For a breakdown of policy commitments see the Guardian’s interactive analysis.

Questioning the quality of investment
Based on a scan I did last year, roughly 80 African and multinational companies had also made commitments to invest in these countries, through 'Letters of Intent' – though it was unclear whether these were new investments or a repackaging of plans already in the pipeline. While the letters are not public, summaries included in the Cooperation Frameworks showed pledges totalling $5 bn over 10 years in irrigation, processing, trading, financing and infrastructure. Of this, $2 bn came from two major seed companies, Syngenta and Yara.

Increased investment in agriculture in Africa is to be welcomed. However, there are significant questions around the quality of that investment, which will determine whether any growth derived is ‘inclusive’ and lifts people out of poverty. This appears to be missing from the plans. Colin Poulton of the School of Oriental and African Studies, quoted in the article, hits the nail on the head: that there is no clear theory of change of how the company investment commitments, coupled with government policy changes, will benefit small-scale farmers and drive poverty reduction. The implicit theory of change is that dialogue between CEOs and African Presidents will quickly breakdown barriers to investment, which will drive growth, which leads to poverty reduction.

Focusing interventions
Beyond the (questionable) assumption that growth is sufficient to drive poverty reduction, the problem is three-fold. First, there is no apparent analysis in the cooperation frameworks of which interventions, of all the investments that might be possible, would deliver development in country-specific circumstances. Given the scale of the challenge and the relative scarcity of resources, there should be a focus on interventions with the greatest development potential. Admittedly, this isn’t a particular failing of the New Alliance – it affects many initiatives in the area of ‘business and development’, and is a gap that IDS’s new Business and Development Centre is tackling.

Second – and related to the above point – recent research by Oxfam and IIED shows how policy changes designed to improve the investment climate for agriculture tend to discriminate against small-scale farmers, particularly women. They favour instead large-scale land acquisitions and the creation of islands of advanced export agriculture, which may link to some more organised smallholders but are generally disconnected from the local economy. This is not an inevitable outcome, however, and the report identifies more inclusive policies, such as measures that strengthen local control over land and natural resources, regulate commercial investment, and promote the equitable inclusion of small-scale producers in value chains. The report also finds a gap around policies that would address gender equality, such as helping overcome women‘s ‘time poverty’ or ensuring their control over key assets.

Policies that tip the balance in favour of smallholders
Source: Oxfam 2012 *

Finally, the general absence of farmers from the elite policy dialogues being fostered as part of the New Alliance mean that the solutions being offered are based on a particular worldview that is linked to the existing political and economic systems underlying the poverty. This is not to say that CEOs and presidents have nothing to bring to the table, but that farmers, including marginalised groups such as women, must be central to defining the challenges and potential solutions. This is true for any initiative that has poverty reduction at its heart, but is especially true where substantial government policy change is part of the mix.

Jodie Thorpe is a Research Fellow with the Globalisation Team at the Institute of Development Studies.

* The material used, from "Figure 2: Examples of adapting policy priorities to the three 'rural worlds' in 'Tipping the balance: Policies to shape agricultural investments and markets in favour of small-scale farmers" is reproduced with the permission of Oxfam GB, Oxfam House, Johns Smith drive, Cowley, oxford OX4 2JY, UK Oxfam GB does not necessarily endorse any text or activities that accompany the materials.

Monday, 17 February 2014

Inclusive green growth in Africa- can we cut through its complexity?

By Ana Pueyo

Last week we welcomed our partners from ISSER, KIPPRA, Durham University and The Policy Practice, for the kick-off meeting of our project Green Growth Diagnostics for Africa 1

We had three days of stimulating discussions about the methodological and practical challenges of using a growth diagnostics (pdf) approach to promote inclusive green growth and applying it to Kenya and Ghana, with a particular focus on the electricity sector.

High Risks, Low Rewards

It is widely agreed that underinvestment in renewable generation in developing countries derives from a risk-reward problem. Risks are too high, which translates into high costs of financing. Renewable energy investments are particularly sensitive to high interest rates due to high investment costs and lower operational costs, opposite to fossil fuel alternatives. Rewards are often too low to make up for this, as a result of low and distorted electricity prices, high transaction and infrastructure costs or lost revenues due to long delays in setting up the project . Consequently, in the global competition for scarce financial resources, renewable energy projects in Africa often don’t pass the test.

High risks and low rewards are caused by multiple constraints: technical, institutional, economic, political, financial, human capital. Suites of policies are recommended on all fronts. Among these, feed-in-tariffs (FiT) have emerged as cornerstone policies and have rapidly diffused internationally. They promise investors a guaranteed access to the electricity system and secure future revenue streams, thus mitigating the risk associated with long-term, fixed cost investments. Many African countries have already implemented FiT, including Kenya, Tanzania, Nigeria, Rwanda, Uganda and South Africa. Others are planning to do so very soon, such as Ghana which has been in discussions
with the EU to obtain technical and financial support for its FiT.

A Slow Progress

And still, the flow of renewable energy investments in Sub-Saharan Africa is painfully slow. Its renewable energy markets remain the least developed globally, even though its resources and its need are the greatest. Recent oil and gas discoveries are making things worse.

Many constraints remain after the implementation of FiT. Public funds are limited and cannot address all of them. Also, very often policies that have worked elsewhere are not politically viable because they clash with the interests of powerful groups. Furthermore, they can have unintended macroeconomic effects, affecting the structure of domestic prices with repercussions for the growth prospects of different production sectors and the income growth of different socio-economic groups. Even if new renewable generation capacity is eventually added to the electricity system, this may not deliver inclusive growth if the increased quantity and reliability of supply do not reach the poor.
With this project, our research team seeks to support policymakers in cutting through this complexity in their pursuit of inclusive green growth. Our work will:
  1. systematise the search for the most significant constraints on increased private investment in specific green energy technologies in a particular country at a given moment in time;
  2. identify the reforms that can deliver the greatest impact for effort;
  3. assess the political feasibility of these reforms and test their macroeconomic implications;
  4. take into account the  distributional impacts from both a technical and economic perspective.
All this requires local knowledge and experts in multiple disciplines that can talk to each other. Our great team has all that: political economists, power systems engineers, economists and environmental scientists from Kenya, Ghana and the EU.

And as evidenced by our lively meeting, we can talk!

 1.This Project runs until June 2016 and is funded by a grant from the Engineering and Physical Science Research Council (EPSRC).

 Ana Pueyo is a research fellow on the Globalisation Team at the Institute of Development Studies.  She is currently working on Green Transformation, low carbon growth and pro-poor access to electricity.

Wednesday, 5 February 2014

Is the UK lagging behind cutting edge business thinking on development?

By John Humphrey

A week ago, Justine Greening, the UK Secretary of State for International Development, made a speech about business and development at the London Stock Exchange.

Three quarters of it was about the importance of economic growth in developing countries. ‘Growth’ was mentioned 18 times in the speech, and ‘economic development’ 16 times, and this is to be welcomed.

The big achievements in poverty reduction in the last 20 years have come from accelerating economic growth in many developing countries.

But how is business to contribute to this?

The majority of the Secretary of State’s references to this focused on removing barriers to business development (bureaucracy, infrastructure) increasing financial flows and market reforms, with some references to the benefits for British businesses of growth and market development in poor countries.

But is the Secretary of State lagging behind cutting edge business thinking on development?

Leading businesses are focusing on the quality of economic growth as well as the quantity. The global businesses contributing to the post-2015 development agenda are increasingly defining their role in terms of a broad approach to corporate sustainability that considers natural resources constraints, environmental degradation and sustainable economic growth.

One such example is Unilever, whose Sustainable Living Plan links the long-term sustainability of its business to broad social and development issues such as responding to climate change, water shortages, food prices and obesity. The Sustainable Living plan also recognises that many of these challenges are outside of the capacity of individual companies to address, which leads to an emphasis on engaging with governments on the big global issues of deforestation, water scarcity and undernutrition. In other words these businesses have a broader understanding of the type of economic development that will improve the livelihoods of the poor than that presented in Justine Greening’s speech to the London Stock Exchange.

Justine Greening’s speech made just one reference to sustainability, referring to the role of aid in driving “the kind of sustainable, inclusive growth that creates more and better jobs and raises incomes.”

But, how is such sustainable and inclusive growth to be achieved?

Some businesses are saying that they need to change the way they operate in order to ensure the long-term viability of their own businesses and to contribute more effectively to economic development. The submission to the UN High-level Panel by the United Nations Global Compact and the World Business Council on Sustainable Development (PDF) set out a clear argument about the conditions under which businesses are likely to support sustainable development.

This can be boiled down to two factors:
  1. Businesses are increasingly taking a long-term approach defining their interests, which includes the sustainability of their activities.
  2. Businesses are, or should be, driven by moral values as well – “business has a moral imperative not only to ‘do no harm’ but to act in the enlightened interest of future generations and for the good of society”.
Both of these drivers are important determinants of business action, but it is demonstrably clear that many businesses are not driven by such concerns. The very fact that leading businesses devote time to developing mechanisms to control business behaviour (codes of conduct, private and multi-stakeholder standards to address issues such as deforestation, etc.) indicates that there is still a lot to be desired with respect to business behaviour.

Some business behaviour is good, some is bad. Getting the most out of business for development goals means maximising the good and minimising the bad. This, in turn, requires development actors to:
  • Be more specific about how businesses can contribute to sustainable and inclusive growth.
  • Discriminate between the positive and negative impacts of business and develop strategies to maximise the former and minimise the latter. In both areas, collaborations with businesses will be an important element of policy.
  • Prioritise between the many different ways in which positive collaborations with businesses can be developed so that scarce development resources can be employed where they have most effect.
These concerns will be at the heart of the work of the new Business and Development Centre at IDS, which will be launched in March 2014.

John Humphrey is Professorial Fellow with the Globalisation research team, at the Institute of Development Studies. A version of this blog, entitled UK is not thinking smart about growth in developing countries, was originally published on The Conversation.

Previous blogs by the same author: