New Economist

Climate change: wait, there's more...

As if the 600 page Stern Review on the economics of climate change were not enough to digest, Her Majesty's Treasury has also posted 36 commisioned pieces of supporting research online. Quite a few concern temselves with 'the China problem', some with the economics of adaptation, others with mitigation and abatement. Though many are clearly for the specialists, readers might find some of interest. The full list is over the fold...

The taxi cost me 4.5 million dollars

A short but alarming post by Jack Stilgoe on the Demos [UK] webloblog: Harare 2 - Everyone's an economist:

"Everyone's an economist," Lawrence tells me as we drive from Harare airport. We overtake an overcrowded minibus, full of people trying to make the most of what petrol can be found. On the back of the bus, a banner says "Opportunity Cost!" On the front, it says "Demand Elasticity!" If "Civilization advances by extending the number of important operations which we can perform without thinking about them" (A N Whitehead), then Zimbabwe's economy needs a nudge. At the moment, for it to work at all, everyone needs to be involved.

Zimbabwe's is an economy going rapidly backwards. Its size has halved in the last 8 years. Unemployment is between 70 and 80% (although the Government hilariously claims it is "pegged" at 9%). Inflation, the ever-optimistic local newspaper tells me, is now down to 900%. Two rates of exchange exist. Unofficially, Western cash will earn you four or more times the offical exchange rate. Those with money or stuff to sell are forced to reinvent markets every week. Petrol is driven over from Mozambique and sold for whatever people will pay. The cashpoints can't be filled quick enough to dispense the doorstops of notes required to buy almost everything. Things will get better, everyone tells me. The taxi back to the airport costs me 4.5 million dollars.

Latest on the Doha debacle

Doha? Don't hold your breath. With 149 conflicting agendas, the WTO trade talks are failing to recast the rules of the global marketplace, reports Heather Stewart from Geneva: Poorest farmers get no harvest from WTO. Here's a small excerpt:

Pascal Lamy, the WTO's director-general, had been pushing hard for negotiators to sketch the outlines of a deal ('modalities' in Geneva-speak) by today, so that trade ministers could come together and discuss the details. But ..he was forced to accede to their demands and admit that the deadline would be missed.

While some were insisting that a few more weeks of hard graft in the Swiss city could roll the talks to their next stage, some observers have already started to question whether the round is about to 'run into the sand' (an especially popular metaphor), and even whether the future of the WTO itself is at stake.

George W Bush will have to reapply to Congress for his right to negotiate trade deals next summer and many analysts believe he is unlikely to get it. Without that authority, any deal would almost certainly be chucked out - so unless the details can be pinned down before then, the whole trade round is in jeopardy.

Europe and America's unwillingness to dismantle their lavish farm subsidies is often seen as the crux of the fraught negotiations, but the game at the WTO involves 149 players, arrayed in a dizzying constellation of overlapping groups. They are all hoping to protect their various interests and prevent signing away the livelihoods of their citizens, as many developing countries felt they had after the Uruguay round of trade talks which ended in 1994.

UPDATE: Tuesday's IHT has a short piece with various encouraging noises: WTO negotiators work to salvage a deal by July:

"We believe that there is a way for us to get to yes and to come up with a successful conclusion to the round," Robert Portman said after a meeting with his nominated successor, Susan Schwab, and the WTO director general, Pascal Lamy. Lamy said, "We've been working hard on precise topics, numbers and texts, so I can get a sense of where the red lines are."

South Africa: "Freedom is not enough"

Today's Guardian has an interesting story on growing unrest in South Africa. The national economy is doing well:

Paradoxically the country is richer and more stable than ever before. Growth is touching 6%, consumer confidence is surging and the country's credit rating has been upgraded. A budget deficit of just 0.5% of GDP is the lowest for 25 years. Sales of vehicles and property are breaking records thanks to a growing black middle class.

But Rory Carroll in Khutsong reports of Townships in revolt as ANC fails to live up to its promises. Beatings, shootings and petrol bombs have seen some areas return to violence in what was once the ANC's heartland, "the sprawls of shacks and low-cost homes where millions of impoverished black people live":

The cause of unrest is economic. People are fed up waiting for jobs and basic services such as electricity, clean water and sanitation. The service delivery protests, as they are known, flared last year and have grown in frequency and passion in the run-up to local elections on March 1. Khutsong, a township of 170,000, 40 miles from Johannesburg, has seen some of the worst trouble.

"We used to like the ANC because it brought freedom. But freedom is not enough," said Solly Nyathi, an unemployed 18-year-old. As well as jobs and decent schools, he said, his community wanted fly-blown tin shacks replaced with decent houses. "Until we get that it will be dangerous for the ANC."

He said the ANC mayor would be killed if he entered the town. He pointed to the blackened shell of a councillor's home. "The protests are not over."

As PM Blair might say - much done, much more to do.

Corruption: what the people think

Transparency International have published their Global Corruption Barometer 2005. Based on a Gallup International survey conducted for International Anti-Corruption Day 2005, it reveals widespread concern about corruption around the globe.

Close to 55,000 people in 69 countries were polled as part of the Gallup International Voice of the People 2005 survey, between May and October 2005 to assess their views on corruption.

Asked to indicate the degree of change over the past three years, the overall view of citizens in 48 countries out of 69 is that corruption has increased. In six countries, citizens’ views overall are that corruption declined over that period: Colombia, Georgia, Indonesia, Hong Kong, Kenya and Singapore.

In 13 countries – Bolivia, Costa Rica, Dominican Republic, Ecuador, India, Israel, Nicaragua, Nigeria, Panama, Paraguay, Peru, Philippines and Venezuela – more than 50 percent of those responding feel that corruption increased a lot. Africans and Latin Americans are the most negative about the past.

Looking to prospects for the next three years, the picture is somewhat more upbeat. In 12 countries, respondents overall expect corruption to decline, with Indonesians being the most optimistic (63% expecting corruption to decrease a lot). 

From a regional perspective, Africa stands out as a region of relative optimism.

Hat tip: Pablo Halkyard at Private Sector Development Blog

Migrants matter: Global Economic Perspectives 2006

Migrants can make a difference according to François Bourguignon, World Bank Chief Economist. They can generate substantial welfare gains for migrants and their families, as well as their origin and destination countries:

With the number of migrants worldwide now reaching almost 200 million, their productivity and earnings are a powerful force for poverty reduction. Remittances, in particular, are an important way out of extreme poverty for a large number of people. The challenge facing policymakers is to fully achieve the potential economic benefits of migration, while managing the associated social and political implications.

His comments drew on the World Bank's newly published Global economic prospects 2006: Economic implications of remittances and migration (the full 182 page report is available to download here). As usual it's a thorough and readable piece of work, backed up by solid research. One particularly interesting fact:

Officially recorded remittances worldwide exceeded $232 billion in 2005, with India receiving almost 10% of the amount ($21.7 billion).China came second with $21.3 billion, followed by Mexico ($18.1 billion), France ($12.7 billion), and the Philippines ($11.6 billion).

France? There are certainly plenty working in the City, but I didn't realise they were that well renumerated...

What makes reforms happen, and what are their effects?

These are the twin themes of the IMF's Sixth Jacques Polak Annual Research Conference, being held in Washington, DC, yesterday and today. All the papers are available online, and are worth a look.

My favourite is Trade, Inequality, and the Political Economy of Institutions (PDF) by Quy-Toan Do of the World Bank and Andrei Levchenko from the IMF. Its modelling shows that greater trade openness may not always be positive for institutional quality. Here's the abstract:

We analyze the relationship between international trade and the quality of economic institutions, such as contract enforcement, rule of law, or property rights. The literature on institutions has argued, both empirically and theoretically, that larger firms care less about good institutions and that higher inequality leads to worse institutions. Recent literature on international trade enables us to analyze economies with heterogeneous firms, and argues that trade opening leads to a reallocation of production in which largest firms grow larger, while small firms become smaller or disappear.

Combining these two strands of literature, we build a model which has two key features. First, preferences over institutional quality differ across firms and depend on firm size. Second, institutional quality is endogenously determined in a political economy framework. We show that trade opening can worsen institutions when it increases the political power of a small elite of large exporters, who prefer to maintain bad institutions. The detrimental effect of trade on institutions is most likely to occur when a small country captures a sufficiently large share of world exports in sectors characterized by economic profits.

Who's the most corrupt country?

Pablo at PSD Blog draws our attention to the 2005 Corruption Perceptions Index, published yesterday by Transparency International. (See the 2005 index and map). The media release states:

The 2005 Index bears witness to the double burden of poverty and corruption borne by the world’s least developed countries. “Corruption is a major cause of poverty as well as a barrier to overcoming it,” said Transparency International Chairman Peter Eigen. “The two scourges feed off each other, locking their populations in a cycle of misery. Corruption must be vigorously addressed if aid is to make a real difference in freeing people from poverty.”

Despite progress on many fronts, including the imminent entry into force of the United Nations Convention against Corruption, seventy countries - nearly half of those included in the Index - scored less than 3 on the CPI, indicating a severe corruption problem. Among the countries included in the Index, corruption is perceived as most rampant in Chad, Bangladesh, Turkmenistan, Myanmar and Haiti – also among the poorest countries in the world.

Chad and Bangladesh were equal worst this year; in 2004 it was Haiti and Bangladesh that were the most corrupt countries. Last year's least corrupt country, Finland, was edged out slightly by Iceland in this year's ranking, while New Zealand retained its status as the second least corrupt country in the world.

India's index score was unchanged from last year at a poor 2.9, while China's score deteriorated from 3.4 previously to just 3.2 (see my previous post on how Corruption threatens Chinese economy).

For more on why transparency and corruption matter for development, see Measuring transparency, fighting corruption.

Doing business: New Zealand, Singapore beat the US

The United States is a good place to open and run a local business, but it is even easier in New Zealand and Singapore, according to the World Bank's Doing Business 2006 report, released today. Canada came fourth in the Ease of Doing Business Index, Norway fifth and Australia sixth out of 155 countries surveyed. 

As one might expect, the five Anglosphere economies did well - all five were ranked in the top ten, a remarkably strong and consistent performance. The Nordic nations also stood out, with all five coming within the first 14.

Serbia and Montenegro was top reformer, improving in eight of the ten areas studied. It was followed by Georgia, Vietnam and Slovakia. Former Soviet bloc countries Lithuania and Estonia were ranked just behind Sweden at 15 and 16 respectively - better than most EU-15 members. Iraq (114) and Afghanistan (122) were not strong performers, but better than Congo, which came last at 155. Most of the mots business very poor performers were African countries, and they also had the lowest pace of reform.

Amongst the G10, Germany came 19th, the Netherlands 24th, Spain was 30th, France a poor 44th, and Italy a truly woeful 70th - behind such 'business friendly' regimes like Columbia, Saudi Arabia, Nepal and Columbia. The World Bank estimate that in Italy it takes 17 steps and 284 days to complying with licensing and permit requirements for ongoing business operations, which costs on average a staggering 147.3% of income per capita. Is it any wonder their economy is doing so badly?

The United Kingdom came ninth, down from seventh place last year - though the Bank notes that "this year's rankings are not comparable to last year's as three new sets of indicators - on dealing with licences, paying taxes and trading across borders - have been included". That did not stop today's Times claiming "Britain has slipped back in the race to be the best country in the world for doing business", which was "a blow to Gordon Brown’s claims to be boosting Britain’s competitiveness".

I doubt it; excluding the three new topics, the UK had the fourth best average ranking - suggesting, if anything, an improvement on last year's  rankings (though some methodologies have changed).

The 2006 report and overview (PDF) make it clear these measures of how business-friendly a country is are closely related to economic performance. Although I have some quibbles about the data and methodology, the findings are fascinating and are a valuable way of encouraging cuts in red tape for business. Well worth a look.

UPDATE: The World Bank press release has now been issued. There is also some press attention already. As mentioned, The Times tries to beat up the UK numbers. Reuters leads with Simple business rules spur job creation, and Edmund L Andrews at The New York Times highlights that New Zealand Named Best Nation for Business.

Easterly: "big plans" for Africa won't work

As Liberal Order points out, William Easterly had a nice op-ed in Sunday's New York Times (registration required) on Live 8 and the work of Jeffrey Sachs, Bono, etc: Tone Deaf on Africa. Easterly's point is not that foreign aid is necessarily a waste of money, but that "big plans" to end poverty don't work:

It's great that so many are finally noticing the tragedy of Africa. But sadly, historical evidence says that the solutions offered by big plans are not so easy. From 1960 to 2003, we spent $568 billion (in today's dollars) to end poverty in Africa. Yet these efforts still did not lift Africa from misery and stagnation.

Why don't big plans work? Because they miss the critical elements of feedback and accountability. If consumers like a product, its maker prospers; if they don't, the company goes out of business. If voters complain about public services to their local politician, the politician either fixes the problem or gets voted out of office. It doesn't always work, but it works well enough for rich people to get potato chips and paved roads.

For the poor, Professor Sachs and the United Nations Millennium Project propose everything from nitrogen-fixing leguminous trees to replenish the soil, to rainwater harvesting, to battery-charging stations, for, by my count, 449 interventions. Poor Africans have no market or democratic mechanisms to let planners in New York know which of the 449 interventions they need, whether they are satisfied with the results, or whether the goods ever arrived at all.

So what's the alternative?

The sensible alternative is to concentrate on piecemeal solutions to poor people's problems.You can evaluate the results of a specific intervention by comparing them with conditions in another group without the intervention, and you can get feedback from those affected and hold an individual aid agency accountable.

The Dutch aid organization I.C.S. Africa distributed deworming drugs to schoolchildren in the Busia district of Kenya. Ninety-two percent of the children had intestinal worms that cause listlessness, malnutrition and pain. I.C.S. invited economists to evaluate its program, comparing those children who got the drugs with those who did not. The deworming drugs decreased school absenteeism by a quarter. "Pupils who had been miserable now became active and lifeful," said a schoolteacher.