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Generations of over-ambition?

August 24, 2014
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Owen Barder lists 21 people who have claimed over the last century that ours is the first generation that can eradicate poverty. In 1919 Woodrow Wilson declared that “For the first time in history the counsels of mankind are to be drawn together and concerted for the purpose of defending the rights and improving the conditions of working people”.

This month Eric Solheim, chair of the OECD Development Assistance Committee, became the latest: “We are the first generation in history with ability to eradicate extreme poverty from the planet. The great kings, caliphs and emperors of the past would not have known how to go about it or how to pay for it.”

Owen’s unspoken point seems to be [Some people] argue that they’re all wrong, that social planners with their grand designs have repeatedly failed to eradicate poverty so they should probably stop trying. People like Owen [Some people] argue that poverty reduction is probably better achieved from the bottom up, using markets instead of goal-setting.

[NB. Owen says in the comments that this isn't his view, that we need to "will the means and the ends". Very sensibly this implies that it's not enough just to promote targets; we should also make mechanisms and funding available to achieve those goals. People like William Easterly are probably more typical critics of social planning and grand designs. Here's some more anti-goalism.]

Hold on a minute. A century is a tiny droplet in the ocean of human history. Just because a few high-minded world leaders came up short of their ambitions in the last few decades doesn’t mean the world should abandon its worthy goal.

The range of figures Owen cites is striking: from British Prime Minister David Cameron, to Jim Kim, president of the World Bank, to Tony Blair, Nelson Mandela, the Heritage Foundation, Henry Kissinger and John F. Kennedy.

Surely the unanimity of their ambition means something? It’s encouraging that right-wing warmongers and deified leftists can agree not only on the desirability of reducing world poverty but also that they predict poverty’s demise. It must be about the only thing such a wide range of political figures agree on! Some of them must know — at least a little bit — what they’re talking about. And if it’s just rhetoric, the politicians are presumably responding to popular demand for social justice.

World poverty has tumbled dramatically in the last century. Without goals to aspire to, without leaders setting targets, surely poverty reduction would have been a lot less. In my mind it’s probably despite the increasing domination of markets that poverty’s fallen, not because of it. After all the Washington Consensus period of liberalisation has been widely condemned by poverty specialists, partly because it brought a fall in African per capita incomes during the 1980s.

Solheim’s half-right: the kings, caliphs and emperors not only wouldn’t have known how to eradicate or pay for the eradication of extreme poverty, they wouldn’t have wanted to. Slavery, destitution and unspeakable inequality were central to those pre-democratic societies. Ours is the first epoch in which ending poverty is seen as either desirable or possible.

In another context the historian Eric Hobsbawm in his autobiography cites a late 1980s play by an East German dramatist called The Knights of the Round Table:

“What is their future? wonders Lancelot. ‘The people outside don’t want to know any more about the grail and the round table… They no longer believe in our justice and our dream’… Does he himself still believe in the grail? ‘I don’t know,’ says Lancelot. ‘I can’t answer the question. I can’t say yes or no…’ No, they may never find the grail. But is not King Arthur right when he says that what is essential is not the grail but the quest for it? ‘If we give up on the grail, we give up on ourselves.’ “

“Only on ourselves?” asks Hobsbawm. “Can humanity live without the ideals of freedom and justice, or without those who devote their lives to them?”

————————————————–

Hobsbwam, E. (2005) Interesting Times: A Twentieth-Century Life, The New Press, New York: p.151

Why I’m voting for Scottish independence

August 22, 2014

photo (5)

When God was making Scotland he created a country with fabulous scenery, full of lush greenery, deep lochs and high mountains. In it he placed a people of warmth and character and a language of great beauty and poetry. A Scotsman asks God, “Oh Lord, what have we done to deserve this?” God replies, “Better not thank me yet, just wait until you see the neighbours I’m giving you!”

As someone from an English background growing up in Scotland I used to shrivel at those sort of jokes. I remember modifying my rounded vowels so that people wouldn’t sneer. My parents, born well south of the Tweed, once went to a party held by a neighbour, who, forgetful after a few drinks, confided in them that he “hated the English”.

I sometimes felt I had a vague inkling of what it must be like to have a different skin colour among bigots. The slight stiffening of posture; the difference in tone.

Here’s another typical quip:

A visitor to Scotland was walking through a farmer’s field one day when he spotted a pool of water. He was thirsty and began to drink from it, scooping the water out with his hand. When the farmer saw what he was doing he cried, “Laddie, dinnae drink fae there, it’s fu’ ae coo keech!”*

The visitor didn’t understand and called back: “Speak English please, I’m English!”
The farmer replied: “Use two hands, you’ll get more that way!”
Source

That gag’s a bit funnier than the first but it’s still essentially xenophobic, the kind of joke that at first made me suspicious about independence. A country that blamed its neighbour for its own problems surely didn’t have enough self-respect to run its affairs. An already inward-looking nation – and, let’s face it, one which is ethnically homogenous – faced the risk of disappearing even further up its own posterior.

I’ve never been a brandisher of flags because flags represent invented tradition, the false sense of being part of a tribe. The Union Jack is canned monarchy. Those who wave it are effectively shouting: “Amritsar, Mau-Mau, aristocracy, inequality!” The Saltire’s little better given that Scots administered a large part of the British empire. Far from making me proud, it leaves me indifferent.

I find patriotism distasteful. I’ve never met most other Scots so I don’t consider myself part of a Scots community and like all of them it’s only chance that I was born in Scotland. Patriotism, in my cynical mind, is the thin end of the racist wedge.

Scotland’s no better than anywhere else, whatever the flag-wavers say. The people who happen to live in this particular territory are much the same as others – they’re just humans, with good points and bad points, who respond to similar impulses. They eat, talk politics, laugh, drink (OK, maybe they’re not quite the same as everyone else), so they shouldn’t behave like they’re special or seek unique treatment. As it happens I like most Scots I meet, but then I like lots of other peoples too.

There’s nothing inherent in Scottish character which in some unpleasant future would prevent the kind of nationalism seen in the Balkans. Give Glasgow football bigots their own flag and country, tell them they’re special, and the less-enlightened among them might do all manner of nasty things. Nationalism uncorked can be difficult to re-bottle.

National traditions, which underpin national symbolism, are like dead hands reaching from beyond the grave and forcing us to behave in a certain way. Why not decide what we do for ourselves?

A beauty-contest of nationalisms?

But if politics is about deciding things for ourselves, then maybe independence isn’t such a bad idea after all. Maybe the Scottish movement for self-rule is the more benign of the British nationalisms?

As Adam Ramsey of OurKingdom says here: “You’d never catch Salmond or Sturgeon or Swinney saying ‘Scottish jobs for Scottish workers’. There are no prominent Scottish isolationists, and most [independence] advocates argue against empire rather than apologising for it. Not only the SNP, but the broader movement is vocally welcoming of migrants, and encourage inclusion: ‘we’re a’ Jock Tamson’s bairns’ and all that.”

The emergence of UKIP, in contrast, is part of a gradual rightwards shift in English party politics. The “who, me?” brand of pseudo-innocence that pervades Nigel Farage’s pub politics can’t hide a foul streak, the kind of BNP-lite bile that prompted so many liberal commentators to give him sofa-to-wall coverage around the European elections.

It’s not so much UKIP’s popularity that’s so worrying; it’s the response of the main parties. I still think that the best UKIP can hope for is a seat for Farage in the Commons (dreadful though that would be), followed by a collapse in support as people figure out that his party is run by middle-England nutjobs with a toilet roll for policy.

What’s more serious is that the main parties all responded to the rise of UKIP by galloping even further to the right. It’s as if Miliband, Clegg and Cameron got together in some London gentlemen’s club and collectively decided that there’d been a popular rejection of Europe, when in reality most UKIP support only came from a forgotten stratum of English people voicing their protest at their perceived powerlessness.

Now that all the main Westminster parties have promised a referendum on EU membership, Scotland potentially faces the choice of two unions: with England or Europe. Most Scots would surely choose greater ties with the continent. Despite the scaremongering Brussels will let Scotland in.

Contrary to my past fears about the ugly side of nationalism, so far Scotland hasn’t experienced anything like the level of right-wing thuggery that seems occasionally to burst forth in England. (The so-called Scottish Defence League (defence against what?) is just a gaggle of bewildered knuckle-draggers. In August last year I saw a very Fringe event: the SDL, significantly outnumbered by the anti-fascist league, staged a sad protest outside the Scottish parliament. Bizarrely the SDL was supported by members of the English Defence League, of whom there are many more.)

The long-term rightward drift in English politics manifests itself in lots of other ways: the stealth privatisation of the National Health Service; benefit cuts; austerity; arms spending; militarism; inequality.

No large Scottish party agrees with any of this. Every major political grouping supports public ownership of the NHS, which has suffered less under devolution than it has south of the border. The Scottish political spectrum is unanimous in its support of a basic level of welfare, from the Green party’s advocacy of a basic citizen’s income for all, to Salmond saying that a Scottish constitution would establish a right to a house and a decent wage. All but the Scottish Tories recognise the need for greater equality. Few Scots support Trident, and indeed the prospect of its removal has been a major motivation behind independence.

And if you think the politicians are lying about all this, one way of locking them in to their commitments is to vote for a self-rule — ie. a new constitution. I for one don’t believe Westminster’s promises of new powers for Scotland after September.

In a way it’s the London establishment that’s moving away from Scotland and from ordinary people. If you’re a Scottish anti-nationalist, you probably ought to vote for self-rule.

A better economy is possible

Scotland is more sensible about economic policy, too. Rather than urging yet more liberalisation and the encroachment of the market into every part of our lives, the Scottish government argues for a strategic, developmental approach. Current UK economic policy sees tax and spending as necessary evils or about revenue collection. Leave the economy alone, the free-marketeers say, and it will look after itself.

But the events of the last decade or more have proved that the economy isn’t very good at self-care and that governments need to intervene to produce desirable outcomes and to mitigate the worst impacts of markets. The Scottish government reports that capital spending under independence would have been £7 billion higher over the five years following the global financial crisis, and that this would have helped mitigate the impact of recession by creating 19,000 jobs.

Presenting specific policy controls, as Holyrood does, takes chutzpah, as does the naming of specific economic sectors for development. They aren’t the high-employment, low-value-adding industries of the past; there’ll be no return to ship-building or mass manufacture. The future is in the life-sciences, whisky, tourism, the creative industries, digital and information communication technology and renewable energy.

The government has formed a fund for the support of the wave-power industry, something which it sees as important for meeting carbon-reduction targets and as a possible source of exports. Rather than the discredited import-substitution or ‘picking winners’ policy so derided by the right it’s smart, targeted investment in sectors with obvious potential (Scotland is very windy and wavy, for example, and has lots of good scientists and engineers), in conjunction with the private sector.

Of course there will be a few failures, but it also looks likely that the success stories will outweigh the cock-ups. Most other governments and many economists lack the imagination to go beyond the same old low-tax, hands-off, light-touch policy that has dogged economics for the past few decades. Alex Salmond’s government and its advisers should be congratulated on their courage and foresight (not that we’re voting for them on September 18th). Who knows whether in 20 years, when the oil is running out and countries are fighting over fossil fuels, we’ll look back at Scotland’s policy of energy self-sufficiency as a stroke of genius?

Leaving the cage

Somehow a lot of Scots, Welsh and English – middle-class and poor – have been lulled into believing that what we have now is the best that we can hope for; that a life of working hard, doing what the politicians tell us and worrying about the mortgage is as good as it gets. Equality, instability and uncertainty are here to stay.

But they aren’t. The cage door is open, and we can leave it. Which of the 30 countries to gain independence since 1960 wants to return to its previous union? Almost all small countries have managed to forge a more prosperous future than when they were part of the empire or a bigger nation. Most people in former colonies will tell you that they care less about cash than about having control over their lives.

Singapore is perhaps an extreme example of small-country economic success but it’s one I know well after having lived there for three years. The hundred or more states and territories with smaller populations than Scotland have proven that small nations are viable; in fact some economists, such as these World Bank authors, argue that smallness makes countries more nimble and adaptable, allowing them to develop via growth in human resources.

We shouldn’t accept that in no Westminster election since the second world war has the Scottish vote brought to power the party Scotland voted for. Talk about turkeys supporting Christmas. If we want representation we can’t afford not to vote for independence.

Just as the Irish assembly was part of the political settlement that then brought about parliaments in Cardiff and Edinburgh, Scottish independence can demonstrate to England that more democracy is possible; that we don’t need to submit to five-year dictatorships punctuated by meaningless polls at which we choose between shades of grey.

Squabbling over a few pennies here and there or however long the oil lasts is beside the point. Recent psychological research confirms the fairly obvious fact that the freedom to make choices makes us happier than money does. For the first time Scots can be in charge of their own destinies, and in more than a narrow, old-style nationalist sense; in a way that has the potential to revitalise democracy in the whole of the British isles.

The minority of predominantly English people who complain in some vague way that they “don’t want Scotland to leave us” are just dangling red herrings. Despite it being OK to ignore Scotland for the last half-century they seem suddenly to have noticed that Scots have their own views about how their lives should be run. Scotland’s not going anywhere. English people will still be able to travel north without passports, go camping in the Highlands or visit the Edinburgh festival.

Independence, in short, is the only hope of a fair and sensible society everywhere. That statement bears rephrasing in the negative: by sticking with the union Scottish people risk condemning everyone to perpetual misrule by the same grey old British political establishment. Independence isn’t really about old-style nationalism; it’s about bringing democracy closer to home. This is it. It’s our chance.

When I was growing up some people who heard my slightly southern inflections would ask where I was really from. Now, in a newer, more open-minded and mature Scotland with international ambitions, I don’t feel quite such a need to justify my identity. Hopefully the increasing number of ethnic minorities, English and people coming from overseas feel equally secure.

It seems worthwhile ending with a more upbeat joke.

In Glasgow the other day I went to the barber. I settled down in the chair.

“Comfy?” asked the barber.

“Scotland,” I replied, with self-assurance.*

* explanations/translations

Rodrik: almost there, but not quite

August 17, 2014

Somehow this Project Syndicate piece from Dani Rodrik really irritated me. I think it’s because he’s half right  — he’s one of the few contemporary neoclassical development economists who I think bark up the right tree — but also scarily misleading.

Rodrik’s main point is that disagreement among economists is healthy; that it’s harmful for economists to coalesce around a narrow model of the economy. Rodrik rightly criticises the apparently near-unanimous agreement in a 2009 survey among ‘top’ economists (whoever decides who they are) on at least five policies: trade, rent controls, exchange rates, outsourcing and fiscal policy.

Rodrik says that trade policy shouldn’t always involve lower tariffs and an absence of quotas because some models have shown that in a situation of increasing returns to scale or externalities trade restrictions can raise welfare. There’s a huge neoclassical literature in this area, including famous papers by James Brander and by Paul Krugman, who won the Nobel prize for his work broadly on this stuff. Political economists like Ha-Joon Chang convincingly argue the case for infant-industry protection.

Rent controls, Rodrik says, are similarly debatable in the case of imperfect competition (which is always the case, in my view).

Exchange rate policy is also open to discussion and should differ according to circumstances. “[T]he proposition that floating exchange rates are an effective system relies on assumptions about the workings of the monetary and financial system that have proved problematic”.

No single model works anywhere. One size doesn’t fit all, which Rodrik has argued before and which I argue in my book.

So far, so good.

But when Rodrik describes economics as a “discipline [which] comprises a diverse collection of models, and that matching reality to model is an imperfect science with a lot of room for error” I think he goes badly wrong. Modelling, especially of the mathematical sort, isn’t always the route to the truth.

Loads of well-known economists (and some lesser names) have unearthed important concepts without models and have explicitly said that models shouldn’t be the only method going. Adam Smith, for example, wrote about the division of labour after physically observing the operation of the pin factory in Pathhead. He didn’t build a model. The whole Scottish tradition of political economy grew out of a combination of empirical observation and reasoning, combining the universal and the particular.

None of Keynes, Ricardo or Marx were ‘modellers’ as such, and Keynes famously rubbished Tinbergen’s attempt to apply econometrics to his theory. One of my favourite development economists, Albert Hirchsman, preferred to observe and draw conclusions rather than go to poor countries armed with a model. Michal Kalecki was similarly suspicious of generalisations. Chang doesn’t model but he’s really useful.

It’s certainly been my own experience that very few policy prescriptions or models are universally applicable in developing countries. People don’t all behave the same way; they tend to be influenced by different things (even that touchstone of all safety-conscious economists, ‘incentives’, means varying things in various places); and institutions and values vary. Modelling, with its inevitable reductionism and falsity of assumption simply isn’t the best way to understand other economies. This is one of the themes of a great book, Postmodernism, Economics and Knowledge, by Cullenberg, Amariglio and Ruccio.

So economics isn’t a discipline characterised by models. Even if most mainstream economists now perform modelling, the existence of a few non-modellers or economists who don’t fetishise the model proves Rodrik wrong.

It’s therefore despairingly narrow to imply that disagreement between advocates of various types of model is enough. Proper disagreement needs to take place on a much wider plane — and it has done so in the past, between competing schools of thought: Austrian, Marxist, Post-Keynesian, neoclassical, green, whatever. Real dialectic is necessary for genuinely new thinking.

I’ve always been dubious about the stale joke about the ambivalent economist which Rodrik prods into life like a seaside donkey halfway through his piece. President Eisenhower is supposed to have wished for a one-handed economist because they kept saying “on the one hand, on the other”. The joke’s not that funny, and in my experience mainstream economists tend to be rather unanimous in their worldview and policy prescriptions. If only they’d been a bit more two-handed in the run-up to the 2007/8 crisis.

[Update: here's a slightly fresher quip from @elianalorch: Have you heard the joke about the economist? ...Well, if it was funny, you would've heard it already.]

I just don’t think that economists try to “match reality to model”. They rigidly stick to an approach which says that modelling is the only way to discover things about economies. Many economists fight to prove their model correct even in the face of contrary evidence. Look at the so-called ‘debate’ between freshwater and saltwater economists in the United States. I can think of a few pubs in Edinburgh where that sort of bust-up would be sniggered at as a lovers’ tiff.

To describe mainstream economics as an “imperfect science with a lot of room for error” suggests that we’re almost on the right track but we need to tweak things. How can economics be almost correct when most of its prominent practitioners so patently failed to predict the crisis and when the discipline remains so far from useful in many important situations, such as in the developing — ie. majority — world?

I think the Rodrik piece is so irksome because he’s the upstart, the leftfield critic wheeled out to satisfy the doubters. In reality his view is quite conventional and serves to delude the non-specialist that the discipline is vigorously searching for answers. I don’t want to criticise Rodrik too much because he sounds like a good bloke, but something’s wrong when the damaging claims of an ersatz radical are broadcast to such a wide audience.

Boosting the domestic economy is the key to raising Papua New Guinea growth

August 13, 2014

The creation of the PNG LNG project highlights the next major challenge facing Papua New Guinea: how to grow the non-mining sectors. Economist Dan Gay says growing domestic demand, the internet and service industries can help overcome inherent problems.

Whatever the Pacific’s been doing until now, it hasn’t been working.

Overall economic growth in the region has been lacklustre and trade growth disappointing.

World Bank data shows that in 1980, just after most countries became independent, merchandise trade in Pacific Island small states was 88.8% of GDP.

Twenty-two years later, in 2012, it had actually fallen to 76.5%. In the rest of the world, it rose from 35.2% to 50% of GDP over the same period.

Main challenges

Some of the main challenges are transport costs, including shipping both internationally and domestically, as well as energy, finance, infrastructure and costs resulting from a lack of domestic competition.

Low formal employment is a challenge, as are the tyranny of distance, a lack of economies of scale, geographic fragmentation and isolation.

Policymakers had imagined that trade agreements would somehow automatically solve all the Pacific’s trade problems.

Currently Pacific exports comprise about the same proportion of GDP as in 1989, roughly the start of the liberalisation period, manifested in the signing of trade agreements.

Clearly trade agreements haven’t much boosted either trade or exports.

To boost productive capacity you need an activist government (and donor community) capable of stimulating capital accumulation, technological progress and structural change through policy. This is what happened in almost all other successful developing economies, with and South Korea and Japan being the prime examples.

The Pacific is borrowing an inappropriate trade model from elsewhere, and needs to use a much more development-focused model, which is tailored to its own ends.

Boosting production

I don’t think there’s much scope for intra-regional goods trade. The Pacific island countries aren’t going to sell much fish or coconuts to each other.

To boost productive capacity you need an activist government (and donor community) capable of stimulating capital accumulation, technological progress and structural change through policy.

This is what happened in almost all other successful developing economies, with and South Korea and Japan being the prime examples.

They were able to export their way to success partly because they built such a big domestic engine, not just via the increasing penetration of international markets. The issue of boosting domestic demand has been neglected in the Pacific, with too much faith placed in demand from overseas.

In my view, the Internet represents a huge and until now under-exploited opportunity for services trade in the region. It doesn’t matter where you are in the world. It addresses many the problems of the islands, like distance, smallness and fragmentation.

Service industries

The one bright spot for trade in the Pacific is in services.

Principally this means tourism but other areas are emerging too, like the export of labour.

My calculations, using World Bank data, show that average trade in services from the Pacific island states has risen from 39.2% of GDP in 2005 to 50.0% in 2012.

Business process outsourcing and call centres, even things like engineering, education and architectural services can all be potentially traded online.

The Melanesian Spearhead Group trade in services agreement is an example. There is provision for nurses and others to bypass the normal immigration and work permit rules.

In my view, the Internet represents a huge and until now under-exploited opportunity for services trade in the region. It doesn’t matter where you are in the world. It addresses many the problems of the islands, like distance, smallness and fragmentation.

And certain countries in the region have good education and skills, the kind of things that could be sold online.

Business process outsourcing and call centres, even things like engineering, education and architectural services can all be potentially traded online.

The Pacific needs to develop a trade and economic development model that suits its own circumstances.

Thimbles, buckets and taps

July 25, 2014

I’ve been wittering on delivering cogent analysis lately about the importance of productive capacity in the Pacific islands.  Productive capacity is defined by some economists as the  resources, entrepreneurial capabilities and production linkages which together determine the ability of a country to produce goods and services and enable it to grow and develop.

In other quarters, in contrast, it’s generally imagined that trade agreements will somehow automatically solve all the Pacific’s trade problems; that somehow, given unlimited access to overseas markets, the Pacific island economies will independently generate the corresponding supply. That’s unlikely.

To boost productive capacity countries need an activist government (and maybe even donor community) capable of stimulating capital accumulation, technological progress and structural change through policy. These things won’t happen by themselves. Some of the now-uncool economists like Hirschman and Kalecki said these things long ago.

As I said in this p5730685856_770d88226d_q (1)ost, putting all your faith in market access is a bit like filling a bathtub with a thimble. Better  to use a bucket instead, or even turn on the taps — ie. put at least some effort into also developing the  domestic economic engine so that there’s enough to export.

This isn’t true only of the Pacific. My trade diagnostic work in other least developed countries has led me to  the conclusion that in most small, peripheral developing countries much more needs to be done to  develop productive capacity. Few least-developed economies have the economic flexibility or adaptability  to be able to generate much new supply in response to enhanced market access.

Whatever’s been going on until now hasn’t been working. As this World Bank blog points out:

The world’s 45 Least Developed Countries that are not oil producers (non-oil LDCs) are exporting less and less in the global market place. Between 1985 and 2012, the world market share of non-oil LDCs’ exports of goods and services fell from 1.2 percent to 0.8 percent—all while their share in world population rose from 7.5 percent to 9.9 percent.

LDC share of exports

 

These 45 countries — around a quarter of the world’s total, containing one in ten people — have been increasingly marginalised despite their products facing no quotas or taxes in any major market: Australia, New Zealand, China, the US or Europe.

In my view the LDCs are borrowing an inappropriate trade model from elsewhere and need a much more development-focused strategy tailored to their own ends. Good intentions exist in that direction, but with little impact so far. It’s no good imagining that the LDCs can emulate the rich economies and concentrate solely on opening markets (in any case there’s not much more to open) because they haven’t got much to sell in those markets.

European, Chinese and US firms are logically concerned with breaking down overseas trade barriers (although even for them the gains are looking more and more slim). LDC economies are incalculably less complex or sophisticated than these bigger economies and just can’t supply the diversity of goods and services. They face a completely a different scenario.

It’s useful that the LDCs have such huge potential market access, and building domestic capacity doesn’t exclude the possibility of maintaining good access to overseas markets. Nor does it necessarily mean protection (which is another story and which might not be possible anyway). Trade liberalisation also helps countries import more cheaply, which can contribute to economic growth and maybe exports. The point is that to export more, you need to be able to produce more.

Sustainable Development Goals Haiku winner and runners-up announced!

July 22, 2014

Dan:

My deeply non-poetic SDG Haikus were:

LDCs need more
Productive capacity,
Not market access.

and…

Don’t forget about
Building strong economies.
Poverty matters.

Originally posted on Post2015.org - what comes after the MDGs?:

Last week marked another milestone in the long and winding process to define a new global development agenda.  Governments concluded a year’s work in an ‘open working group’, to propose a set of new Sustainable Development Goals (or SDGs).

To celebrate the group’s final meeting, @clairemelamed and @PJLaddpost2015 initiated a twitter Haiku competition.  We could claim that it was a serious effort to explore the various topics in the agenda through the medium of poetry.  Actually, it was the work of about 10 seconds in the coffee break at a MY World planning meeting.  But anyway. The simple rule: a Haiku is a three line poem, with 5,7 and 5 syllables on each respectively.

The competition unleashed an incredible number of so far hidden poetic souls among the wonks and diplomats of sustainable development. The entries numbered in the hundreds …..

Below we list ten(-ish) of our favourites, but with…

View original 470 more words

Pacific islands: Market access alone won’t boost trade

July 17, 2014

A blog I wrote for the Lowy Institute for International Policy:

Solomon Islands last week became the first country to receive approval to export timber to Australia under new guidelines on the legality of logging products. The move secures the $4 million market in sawn timber exports to Australia, an industry which employs at least a thousand workers.

It’s good news, but the move shouldn’t be read as a boost to Solomon Islands’s flagging trade balance, still less a prop to its shaky economy. Logging in the Solomons is in terminal decline and timber sales to Australia remain less than 1% of total exports. Forestry fueled the economy since independence in 1978. So many logs have been felled that there are few viable areas of natural forest left to exploit. Plantations remain a small part of production.

Like many Pacific island countries Solomon Islands has spent decades liberalising its own economy and securing overseas market access for products like timber.

The country is a member of the World Trade Organisation, party to three regional trade agreements and has duty-free and quota-free entry to China, Europe and the US. Australia and New Zealand, the region’s biggest trading partners, also grant tariff and quota-free access. Efforts are underway to reduce quarantine barriers. Under PACER Plus, the trade agreement currently under discussion between Australia and the Pacific Island Forum countries, little remains left to liberalise.

All this emphasis on market access (both inward and outward) hasn’t benefited trade as much as it was supposed to.

Over the past 30 years Pacific island merchandise trade has fallen as a proportion of economic output, according to World Bank data. During the same period exports of goods and services from the Pacific islands rose more slowly than the world average. In some of the most enthusiastic regional liberalisers, like Solomon Islands, exports of goods and services even formed a progressively shrinking share of economic output.

It may seem like a no-brainer, but much of the reason for this underperformance is that Pacific island countries simply can’t produce enough. However much other countries want Pacific island goods, the Pacific just can’t make things for those markets in adequate quantity, consistency or quality.

When I worked in the Vanuatu Department of Trade, a colleague came back from a trade fair in Japan saying that a potential buyer loved Tanna Coffee and wanted 20 containers per month. Great, my friend replied, but 20 containers was total national production in a good year.

That story is typical: across the region, formal work forces are too small, countries too distant and fragmented, and production until now too volatile to fulfil the demand that exists for Pacific products. It’s a bit like trying to fill a bathtub with a thimble.

But this doesn’t mean the islands should give up on trade. Instead of concentrating relentlessly on opening up to foreign markets, much more should be done to boost domestic productive capacity. Use a bucket, not a thimble.

Economists define productive capacity as the resources, entrepreneurial capabilities and production linkages which together determine the ability of a country to produce goods and services and enable it to grow and develop. Productive capacity deals more with the national economy than with foreign markets, although the two are linked.*

The productive engine develops via capital accumulation, technological progress and structural change. Clearly these processes have been weak in most of the Pacific island countries.

Rates of capital accumulation are very low, partly due to the small size of the formal economy in many countries but also as a result of low savings rates and the underdevelopment of financial services, which mean that savings are not converted into investment. Technological progress has been limited or non-existent. Structural change (the rate at which agricultural productivity has risen and manufacturing and services have supplanted agriculture) is similarly slow. Melanesia’s economies in particular remain dominated by large subsistence sectors.

Roads, ports, bridges and wharves in many parts of the Pacific are among the poorest in the world, and this in countries which depend critically on transport. Tertiary, vocational and higher education need to improve if the region is to produce higher value-added goods and services. Low levels of labour productivity and widespread underemployment are among the key causes both of the weakness of productive capacity, and, more importantly, of persistent poverty.

It’s about time the Pacific island countries and development partners stopped putting all their faith in market access and started attending to the more complex task of developing and diversifying the domestic economic engine. Trade can boost development, but only if the islands have enough to sell.

 

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Photo by Flickr user Tony Morris.

*As well as the 2006 UNCTAD Least Developed Countries report this perspective draws analytically on works including Albert Hirschmann (1958) The Strategy of Economic Development. Yale University Press, New Haven, Conn.; Michal Kalecki (1969) Theory of economic dynamics, New York: Augustus M. Kelley; Nicholas Kaldor (1967) Strategic Factors in Economic Development Cornell University Press, Ithaca, New York; Jose Antonio Ocampo (2005) (ed.) Beyond Reforms: Structural Dynamics and Macroeconomic Vulnerability, Stanford Economics and Finance, Stanford University Press and the World Bank, Washington DC.

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