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Robert Chambers

At an IDS seminar last week, part of its excellent Crisis Watch initiative, Steve Wiggins from ODI argued that his research on the food price crisis shows that during an actual shock, state initiatives are much less important to poor people than their own social coping mechanisms as individuals, communities or through local institutions like churches. These mechanisms include borrowing money, sharing food, collective action etc. It’s what we called ‘resilience’ in our work on the global economic crisis, where a number of studies have identified similar patterns. But in any case, when a shock hits, governments ‘have to be seen to act’ and their actions can help (or hinder) this coping strategy.

If similar conclusions apply to other kinds of shock, then it leads to a slightly different way of looking at public action to reduce vulnerability. I spent dinner thrashing this out with the inspirational Robert Chambers (author’s note, Robert deleted ‘inspirational’ and substituted ‘inebriated and senile’, but I rejected his amendment):

The argument/hypothesis runs something like this

1. We acknowledge that ‘social coping’, rather than state intervention, is often the main way that poor people manage shocks in the short term
2. But coping carries heavy costs, depleting assets, energy, health and social capital if it is not replenished
3. Coping capacity can be strengthened through state or other public action, which can

1. Build it prior to the shock
2. Replenish it afterwards and
3. Support it during the shock

Off the top of our suitably lubricated heads, we came up with a list of possible practical policy applications of this approach

Before/after crises, governments and donors could focus on

1. Preventing shocks from happening in the first place (eg conflict prevention, prudential bank regulation, good macroeconomic management)
2. Make sure loan sharks don’t prey on poor people’s need for finance during a crisis (e.g. interest rates caps, support to microfinance for emergency loans)
3. Recognize the role played in disaster response by churches, mosques, temples and other community based organizations by investing in pre-shock disaster management training and capacity building (eg stockpiling relevant materials)
4. Prevail on all those sniffer dog/angel of mercy outfits to switch from arriving at the scene of a disaster too late to save anyone, to twinning with half a dozen vulnerable communities ‘in peacetime’, and help them build skills and resources to cope when a shock hits. Imagine if all those European firefighters could have built up stockpiles of pickaxes in Port au Prince ahead of the earthquake, rather than sitting around getting frustrated in airports after the event.
5. Encourage better off local people/businesses to provide informal guarantees to schools or clinics that they will pick up the tab for the cost of books, uniforms or essential drugs in the event of a shock to prevent people dropping out of the system when disaster strikes
6. Put in place a system to prevent debt foreclosures on homes, land or other crucial assets, for example through pre-agreed repayment holidays

During crises, they could support social coping by

1. Providing access to information (radio, speaker vans, billboards, texts) on sources of help and who needs what
2. Support connectedness and ‘moral messaging’ – respected local figures calling on citizens to visit 5 neighbours today, that kind of thing
3. Support asset prices – people sell low during a shock (lots of sellers, no buyers), then buy

   A new form of disaster response?

   high (if at all) when the situation is reversed during the recovery. Why not set up pro poor pawn shops where they get the same price at both ends, and so do not run down their assets?

To see if these ideas are barmy or brilliant, we need a better understanding of how social coping strategies actually work and could be strengthened. We could, for example, research areas of coping failure (comparable to market failures), that may require state and/or donor action.

So why not study how people cope in both normal and crisis periods, by accompanying a number of poor families to compile ‘coping diaries’, based on a similar methodology to the ‘financial diaries’ that formed the basis of Portfolios of the Poor? If we set up coping diaries in enough communities, they would tell us how people cope with idiosyncratic (i.e. individual or family) shocks, like a car accident or losing your job, and some communities would be struck by collective shocks, such as big price swings, weather events or earthquakes. Perhaps we could design it in such a way to rapidly scale up the number of diaries in the latter. If it was half as revealing as Portfolios of the Poor, which afterall is a study of financial aspects of coping strategies, it could be money well spent Anyone know if this has been done already? If not, any takers?

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Dani Rodrik sees the IMF’s rethink on capital controls as the sign of a revolutionary shift on the role of finance and argues ‘With this battle won, the next worthy goal is a global financial transaction tax.’

Martin Wolf looks at the plans of Labour and the Tories and concludes that both big parties deserve to lose the upcoming election.

Time to reinforce some stereotypes. Check out this video of a KKK rally in South Georgia  [h/t David Stephen]

Contrasting accounts of gay rights (and their denial) in Africa and Asia from Foreign Policy and Chris Blattman

Anyone fancy a goldfish bowl facilitated conversation about under-capacitated improvement levers that could cross-fertilise predictors of beaconicity and offer meaningful reusable interactivity? If so, visit the British Local Government Association’s valiant attempt to defend the language of Shakespeare through its 2010 Banned Words List [h/t Richard King]

Bill Easterly has a moment of self doubt, as he realizes that quite a few readers are getting irritated by his tone (snide, know it all, that kind of thing – see here for a summary). Stand back and wait for a new, big-hug-Bill (but don’t hold your breath).

And apropos of absolutely nothing, cause and effect, turbo version [h/t David Stephen]

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I feel terrible today, all thanks to the Today programme. For non-UK readers, it’s the flagship drivetime radio news show – the one that politicians and chattering classes listen to as they scan the newspapers and munch on their cornflakes. I was on this morning, talking about aid and corruption.

What you heard on the radio (should you have been listening) was a relatively coherent couple of minutes of discussion. In contrast, what I experienced was about three hours sleep, followed by hours of tossing and turning as about 20 dummy run interviews ran through my head (most of which went brilliantly, of course).

For an NGO wonk, it’s the nearest thing to ‘fight or flight’– in particular that moment when you are sat in a little room on your own (the interviewers are miles away in another studio), plonked in front of a vintage BBC microphone. Hypnotically appealing self-destruct fantasies run through your head as the clock ticks down to your first question- Faint? Run away? Sing an obscene ditty? At stake, kudos if it goes well, barely concealed delight/ crocodile tears from all your so-called mates if you crash and burn, as I

scarier than they look

did a couple of years ago (the Today programme has a reputation for chewing up its guests and spitting out the bones – that’s why everyone listens to it).

In the end the sleepless night was unjustified. The interviewer (James Naughtie) was benign (maybe he’d devoured someone else earlier on – he was the one who worked me over last time), and my co-interviewee Lawrence Haddad, director of the Institute of Development Studies, was excellent. All that stress for nothing.

But it goes so fast! You have time to make about two points, and then it’s thankyou and goodbye and the BBC car back to your dayjob. So in case you’re interested, here’s my crib sheet with all the points I had in front of me, and failed to make………

‘Aid Success Stories

- 33m children into school in last decade
- 4m fewer kids dying every year, despite population growth
- In Nepal, aid has reduced infant mortality by a third in just 5 years
- bed nets and immunisation
- Access to HIV drugs up tenfold in last 5 years
- Country success stories: South Korea and Botswana

But need is rising – climate change

Humanitarian

Risks of diversion rise in ‘fog of war’ or natural disaster. There, you have to accept a certain degree of loss.

Command and Control not an option – chaotic places are the ones that most need aid.

How to minimise risk? Get all parties to agree, make local leaders responsible for distribution

When to pull out? Look at net benefit to beneficiaries, if aid starts to actually harm them, eg be spent on guns, then you may have to leave.

Oxfam commissions an independent assessment on any programme over £1m, and publishes an accountability report.

Long Term Development

Aid to fight corruption: DFID has pledged 5% of all funding to governments to support public monitoring of how it is spent, This could support
- Civil society watchdogs (Oxfam supports them in Georgia, Armenia)
- Media scrutiny
- Parliamentary oversight

Eg Ugandan schools: 80% of per capitation grants (i.e. non wage for books etc) was being diverted to local government spending, until government insisted on publishing budgets right down to school level. It then fell to 20%.
 
Some sectors are worse affected than others: military and construction contracts, oil and gas are all favoured honeypots. Schools and hospitals less likely to be hit.

Aid can also be used to build tax revenue and reduce aid dependence: eg Rwanda quadrupled tax income from 1998-2006:

And remember, the long term aim is to help poor people, not least by building effective and accountable states – mustn’t lose sight of that’

If only I’d an hour instead of 3 minutes…….

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What impact do financial crises in rich countries have on their aid budgets? You would probably expect them to lead to a big bank bailout, producing a debt burden and a fiscal hangover, triggering bouts of cabinet infighting over public spending with aid coming off worst (after all, aid beneficiaries aren’t voters, at least in the donor country). Now some World Bank researchers have run the numbers from past financial crises and unfortunately (for aid), they agree.

‘This paper estimates how donor-country banking crises have affected aid flows in the past, using panel data from 24 donor countries between 1977 and 2007. The analysis finds that banking crises in donor countries are associated with a substantial additional fall in aid flows, beyond any income-related effects, perhaps because of the high fiscal costs of crisis and the debt hangover in the post-crisis periods. In most specifications, aid flows from crisis-affected countries fall by an average of 20 to 25 percent (relative to the counterfactual) and bottom out only about a decade after the banking crisis hits.’

Here’s what the typical aid trajectory post crisis looks like. On average, aid keeps rising for 2-3 years after the start of the crisis, then goes into freefall for a decade and doesn’t recover its pre-crisis levels until 17 years after the start of the crisis.

In the UK at least, the good news is that both major parties have pledged to stick to ambitious targets for increasing aid despite the crisis. But governments everywhere will need plenty of scrutiny and public pressure if we’re to prove that (as they used to say during the boom years), ‘this time is different’.

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The Institute for Development Studies is a Good Thing. Located on the brutal 60s campus of the

it looks better in sunshine....

University of Sussex near Brighton, its gurus like Robert Chambers and Hans Singer have educated and inspired generations of Masters and PhD students, who then scattered to every corner of the aid industry and beyond (diplomats, politicians etc).

I was down there last week and sat in on an internal seminar that took stock of its thinking on development, as part of IDS’ ‘reimagining development‘ project.  Five of its senior staff got five minutes each to set out some thoughts on where the impact of the economic crisis had left thinking on development. In order of appearance:

Jethro Pettit detected that people in the development sector are more aware of what they don’t know, ‘running to keep up’ and more open to doubt, uncertainty and new ideas. But he also sees them clinging to a fixation with measurement (e.g. of impact), perhaps in response to uncertainty. He fears the ‘bulging toolboxes’ loaded with proliferating frameworks and concepts, and thinks the issue is to strengthen abilities of practitioners and policy makers to learn continuously, rather than load them down with ever-longer prescriptive guidelines. (‘True that’, as they say in The Wire – my current DVD boxset obsession)

John Humphrey saw the window for innovation created by the crisis already in danger of closing, as countries emerge from recession. He pointed out that most of the ‘new ideas’ are in fact old ones – Tobin Tax, Keynesian revival, UN and Bretton Woods reform, limits to the market. His concern is that ‘pre-existing ideas’ are not necessarily any better than the current lot, so be careful in just dusting down some old Left nostra every time a crisis hits. He proposed looking at surprises for new insights, such as Bangladesh and Indonesia ‘sailing through’ the crisis, contrary to all predictions, and seeing which old ideas become more relevant with the passage of time – the evolution of the Tobin tax into the financial transactions tax. He stresses the long-term decline of Europe and saw the Copenhagen summit as ‘brutal’ in its marginalizing of the EU, [is the development industry a European project? Discuss] He sees growing resource constraints increasing the risk of conflict within and between countries.

Melissa Leach saw the crisis as invigorating interest in another ‘old idea’ – complexity and chaos theory, including the journalistic cliché du jour, the Black Swan. She sees this as a deep challenge to mainstream assumptions that development is all about stability, steady progress and equilibria. She thinks we must advance our thinking by getting back to putting people in the centre of the debate (stuff like wellbeing, I presume), and bringing in ideas from other schools of thought (e.g. evolutionary theory) or from the margins of development’s core disciplines (feminist and environmental wings of economics), Like Jethro, she kicks back against the ‘audit culture’ afflicting the development system.

Tom Mitchell saw Copenhagen as about rich countries opting for a ‘pay, don’t change’ approach to climate change. Easier to find the cash for adaptation and mitigation in developing countries than to change their own economic and business models. He points to the underlying environmental dangers of a growth model built on debt. The climate financing agenda will dramatically  modify the development financing agenda, triggering big institutional shifts.

Mick Moore saw ‘a lot of rejection going on’ in developing countries, with people increasingly saying ‘we don’t want your aid, human rights or organizations’. He sees ‘NGOs’ as becoming a ‘dirty word in much of the South’. He is concerned at the knock-on impact on the discipline of development studies because it has ‘been seduced by Clare Short’ into a narrow focus on aid and aid effectiveness. ‘We have to get away from the agenda set by these declining organizations.’ In these he includes all those organisations ‘whose behaviour is shaped by a primary mission to transfer large amounts of money from the ‘North’ to the (old) ‘South’ in broadly ‘charity’ mode’. He concluded ‘the less we do with these declining organizations the better’ (though I presume this doesn’t extend to refusing their research grants….).

What to make of all this? Agreed with most of it, but was left wanting more – too much of it is already in danger of becoming received wisdom, at least among the progressive wing of development intellectuals. Most of the themes have appeared in this blog in one shape or another over the last 18 months. But then, in the words of my other favourite boxset, West Wing, I guess we should always be left asking ‘What’s Next’?

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Photos of bureaucrats at their desks around the world [h/t Chris Blattman]

Also from Chris Blattman, how to be a good discussant

Matthew Lockwood surveys the emerging technologies that give him most hope for beating climate change

Time for some development lists: Nancy Birdsall and Owen Barder give their top ten things to do now to speed up development

How libraries can save lives – World Book Day was on 4 March [h/t Rob Cornford]

And, just because I had a brilliant cultural weekend, here are my two top tips:

Best film: Exit through the Gift Shop. Banksy does for street art what Spinal Tap did for heavy metal

Best musical performance: The Manganiyar Seduction – if they come your way, check these guys out. Extraordinary,

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The Economist magazine combines liberal economic orthodoxy (pro liberalization, anti state etc) with a politically liberal commitment to individual human rights. The latter presumably prompted this week’s cover story, Gendercide: What happened to 100 million baby girls?’ Even if it does come with the rest of the ideological baggage, (more on that later) it’s hard to think of any other mass market publication that would lead with that story. Respect. I assume the issue was linked to today’s 100th International Women’s Day, though no mention is made of it (maybe the author sneaked it through….)

The article updates Amartya Sen’s 1990 piece, which produced the original 100 million figure. It finds that the practice of selectively aborting female foetuses is spreading, both in China and India (the target of Sen’s original investigation) – see chart- but also including other East Asian countries such as South Korea, Singapore and Taiwan. former communist countries in the Caucasus and the western Balkans, and even in Asian-American subsets of the US population.

The acceleration is ‘a product of three forces: the ancient preference for sons; a modern desire for smaller families; and ultrasound scanning and other technologies that identify the sex of a foetus’. The new technology has seen selective abortion replace outright infanticide or the neglect of girl children as the main driver of the disparity. It also helps explain one of the more surprising findings – far from being some hangover of ‘backward’ thinking, within China and India the areas with the worst sex ratios are the richest, best-educated ones.

Another revelation is the difference between first, second and third children. The sex ratio is much more skewed as parents have more children and start to ‘demand a boy’ (see chart). Among third children in Beijing municipality there are almost three times as many boys as girls. The consequences? A rising population of frustrated single men, many of them in societies that put a huge premium on marriage, some strange economic side effects, such as increased savings rates as families save to set up their sons in a house fit for increasingly scarce brides (think bowerbirds) and anecdotal evidence of a fall in the value of dowry in parts of India (supply and demand at work).

The trends and consequences are grim, and there are few straws of hope to clutch at. One is South Korea, where the magazine sees a kind of gendercide Kuznets curve. ‘In the 1990s South Korea had a sex ratio almost as skewed as China’s. Now, it is heading towards normality. It has achieved this not deliberately, but because the culture changed. Female education, anti-discrimination suits and equal-rights rulings made son preference seem old-fashioned and unnecessary. The forces of modernity first exacerbated prejudice—then overwhelmed it.’

A recent study in China and India found that the gender ratio had at least stabilised at around 120 boys to every 100 girls. Perhaps a combination of social change and a shift in the relative prices of boys and girls (this is the Economist, folks) due to shifting supply can turn it around, but the evidence is thin.

Alas, the Economist’s readers don’t seem interested in such subtleties – the comments on the

The First International Women's Day - any Economist readers, I wonder?

website are a depressing mix of ‘See? The Chinese and Indians are barbarians’, and rabid right-to-lifers. Not much evidence of liberalism there.

And what does the Economist miss? Last word to Alice Evans, a PhD student at the LSE ‘never does the article explicitly note that these decisions (to abort/ starve girls) are the product of gender inequalities. Instead they blame: ‘the ancient preference for sons’ – as if this continued practice is just an old habit, rather than a rational response to prevailing inequalities in gendered rewards.’

If people want to dig deeper, here are the sources used for the article:

Gendercide The worldwide war on baby girls Technology, declining fertility and ancient prejudice are combining to unbalance societies Mar 4th 2010

“China’s excess males, sex selective abortion and one child policy”, by Wei Xing Zhu, Li Lu and Therese Hesketh. BMJ 2009

“Why is son preference so persistent in East and South Asia?” By Monica Das Gupta, Jiang Zhenghua, Li Bohua, Xie Zhenming, Woojin Chung and Bae Hwa-Ok. World Bank, Policy Research Working Paper 2942.

“Sex ratios and crime: evidence from China’s one-child policy”, by Lena Edlund, Hongbin Li, Junjian Yi and Junsen Zhang. Institute for the Study of Labour, Bonn. Discussion Paper 3214

“Bare Branches”, by Valerie Hudson and Andrea den Boer. MIT Press, 2004

“Is there an incipient turnaround in Asia’s “missing girls” phenomenon?” By Monica Das Gupta, Woojin Chung and Li Shuzhuo. World Bank, Policy Research Working Paper 4846.

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Thinking Big, Going Global is a new IDS working paper on what is arguably the first fully fledged international NGO from the South. Since 2002, BRAC, a Bangladeshi NGO, has gone global, expanding its programme of ‘microfinance plus’ (education, health, enterprise support, etc) to Afghanistan, Liberia, Sierra Leone, Southern Sudan, Tanzania, Uganda, and Pakistan, formally establishing BRAC International in mid 2009. It also set up BRAC UK and BRAC USA, mainly to raise funds. According to Brac International’s Imran Matin, BRAC’s total budget is about $500mn, about the same size as Oxfam GB, and it’s got there in half the time, being founded in the newly independent Bangladesh in 1972.

Going global does not appear to have been part of some grand strategy as much as a series of experiences in new country contexts, starting with Afghanistan in 2002. By 2006, BRAC was reportedly one of the largest NGOs in the country. BRAC drew four key lessons from this experience:

1. South-South collaboration worked, and motivated, experienced Bangladeshi development

BRAC Afghanistan Training and Resource Centre

professionals could work successfully with trained local staff to deliver a rapid programme expansion.

2. The basic elements of the BRAC development model worked and could be replicated, once adapted to local conditions. In Afghanistan, schools had to be for girls only, and the costs of delivering services were higher.

3. The value assigned to a philosophy of scale, to ‘serve as many people as possible’, has been important for staff motivation.

4. Resource constraints can be overcome. BRAC Afghanistan initially received a small grant from BRAC Bangladesh and donor funding followed once results were demonstrated.

The only comparable Southern-based organisations are microfinance institutions like Grameen Bank, but BRAC is pretty much the only ‘microfinance plus’ organization to achieve this kind of scale. And scale is central to its philosophy – for BRAC, small is stupid. Or as its founder/CEO F.H. Abed more diplomatically puts it, ‘small is beautiful, but big is necessary.’ The organization has 115,000 staff in Bangladesh, and 6,000 in the international programme.

BRAC Liberia

So how is BRAC different from Oxfam or other northern-based international NGOs? According to the IDS paper, written by Naomi Hossain and Anasuya Sengupta:

BRAC’s strategy is to create entire new frontline organisations in the new countries, rather than to act as brokers for international aid.

A second difference between BRAC and other international NGOs is that many of the latter have moved away from direct service delivery towards ‘strategic’ high-end policy or rights-based advocacy work since the 1990s. BRAC on the other hand, is quite happy to do service delivery, and doesn’t seem to share other INGOs’ worries about undermining state systems.

BRAC staff do not receive high international NGO salaries. They are paid twice what they would earn in Bangladesh, as well as modest expenses, a total which probably comes to half the salary of a UK-based international NGO. Nor does BRAC follow the stringent and costly security rules of other international actors.

It all reminded me of the discussions on China’s role in Africa. BRAC arrives, does service delivery at scale and low cost, free of the colonial baggage and expat culture of northern-based international NGOs. In countries like Afghanistan, it is seen as less alien, more muslim. But it seems to pay scant attention to the wider political and social impact of its work (although to be fair, it did set up a relatively small BRAC Advocacy and Human Rights Unit in 2002, along with a BRAC University and research institutes).

The IDS paper ends with a question, which it doesn’t attempt to finally settle: ‘Is
BRAC an ‘alternative’ development approach? Or merely the hand-maiden to
neoliberal development policy?’ Whatever the answer, watching BRAC’s progress will be fascinating (and educational for more northern, and perhaps more sluggish, INGOs).

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‘Each time the system runs into problems, the Federal Reserve quickly lowers interest rates to revive it. These crises appear to be getting worse and worse.’ So begins a sobering analysis by Peter Boone and Simon Johnson in the CentrePiece, the journal of the LSE’s Centre for Economic Performance.

The argument is contained in the two graphics. First the  historical record – as private sector credit has grown relative to the economy, the Fed (US Central Bank) has been forced to socialize bad debts and drop interest rates lower to dig the economy out of each successive crisis and start inflating the next bubble. ‘When the bailout is done, we start all over again. This has been the pattern in many developed countries since the mid- 1970s.’

But in the latest crisis, the interest rate has pretty much hit zero – there’s nowhere else to go – and ‘The real danger is that as this cycle continues, the scale of the problem is getting bigger. If each cycle requires greater and greater public intervention, we will surely eventually collapse.’

‘So what should be done? First, consider the regulatory problem: there are two broad ways to view past regulatory failure that has helped us arrive at this dangerous point. One is to argue it is a mistake that can be corrected through better rules. That has been the path of successive Basel committees.’

But it won’t work because of politics – the second graphic: ‘In our view, the long-term failure of regulation to check financial collapses reflects deep political difficulties in creating regulation. The banks have the money, they have the best lawyers and they have the funds to finance the political system.’

So what might work better? Something so crude that the lobbyists can’t mess with it: ‘We believe that the best route to creating a safer system is to have very large and robust capital requirements, which are legislated and difficult to circumvent or revise. If we triple core capital at major banks to 15-25% of assets, and err on the side of requiring too much capital for derivatives and other complicated financial structures, we will create a much safer system with less scope for ‘gaming’ the rules.’

And get stuck into the incentives system: ‘Second, we need to make the individuals who are part of any failed system expect large losses when their gambles fail and public money is required to bail out the system…. This requires legislation that recoups past earnings and bonuses from employees of banks that require bailouts.’

And a wonderfully simple way to overcome the ‘too big to fail’ syndrome: ‘We could impose rising capital requirements on large institutions over the next five years, thus encouraging them to develop orderly plans to break up and shrink their banks.’

The alternative is truly scary: ‘With our financial system now well-oiled to take on very large risk once again, and to gamble excessively, can we be sure that we can continue this cycle of bailing out eventual failures? At what point will the costs be so large that both fiscal and monetary policies are simply incapable of stopping the collapse? Last year, we came remarkably close to collapse. Next time, it may be worse. The threat of the doomsday cycle remains strong and growing.’

This may all sound an insider City/Wall Street argument, far removed from the gritty realities of shanty town and village in developing countries, but as the current crisis has shown, the chaos of the rich world’s casino capitalism casts a long shadow. It matters who wins this one.

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This from the FAO’s ‘State of Food Insecurity in the World 2009′. Click on the graphs.

After decades of improvements, the number of undernourished people (in millions) in the world has been rising rapidly since the mid 1990s.

Even as a proportion of total population, hunger started rising in the middle of the last decade

This is partly because aid to agriculture has been collapsing for decades (% of total aid)

The global crisis of 2008/9 hit Asia particularly hard (percentage increase in malnutrition in 2009)

 And food prices are continuing their rebound (this from the FAO’s World Food Prices Index - the orange line is the latest and shows that food prices are already back to late 2007 levels)

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Hablas Espanhol? Because my compadre, free spirit and innovative thinker on development,

Our Man in Madrid

Gonzalo Fanjul at Oxfam Intermon in Spain has just started a new blog on development issues. First few posts include why conflict leads to reduced infant mortality and agonizing over human rights in Cuba.  Brainfood guaranteed.

Strengthening the rule of law in China one case at a time – the work of the China Labour Bulletin

Why intelligence clearance turns you into a moron [h/t Alex Evans]

‘Unhappily, the result of what I call success would probably be a still bigger financial crisis in future, while the results of what I call failure would be that the fiscal rope would run out.’ Martin Wolf thinks the chances of the world economy moving from public bail out to sustained recovery are very slim.

Academic precision and the destruction of knowledge from Richard Gowan

‘it’s economically illiterate and its tone is pretty smug…… one might get more sense out of a hamster.’ Matthew Lockwood takes no prisoners in his two-part critique of the new economics foundation’s ‘Growth isn’t Possible’ report.

“I didn’t know I had this in me. It’s during the earthquake I realized I can be a good leader.” Oxfam America talks to the new generation of young Haitian leaders emerging from the rubble.

UN debates and US healthcare reform given a musical makeover [h/t David Steven]

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The Robin Hood Tax campaign has certainly struck a nerve. On the one hand, huge public support (within three weeks of the launch, 300,000 views of the Bill Nighy youtube, 120,000 fans on Facebook, 30,000 signed up on email) and serious political interest (UK parliamentary launch with 80 MPs, lobby meetings with all the major parties). But also a significant amount of ‘pushback’ in the blogosphere and op-ed columns. Criticisms fall into two broad camps: although it’s an interesting phenomenon, I don’t intend to discuss the first – the ‘who does Bill Nighy think he is?’ tendency of policy wonks who clearly resent upstart celebs speaking out (except to say that Bill’s been campaigning for Oxfam for years, and that the policy wonks are presumably jealous at how much coverage he gets). Let’s get onto the substantial stuff. In the initial exchange of fire, two main issues emerged:

1. Who pays in the end, assuming $400bn doesn’t just come out of thin air? Critics like the FT’s Tim Harford claim that calling it a ‘tax on bankers’ hides the fact that ordinary punters will pay in the end.

My response: Because it is levied once per transaction, the FTT acts as a kind of frequency filter. If a financial institution turns over its whole portfolio once a day, it will pay 365 times as much tax as one that turns over its portfolio once a year. So in the first instance, the tax will fall on high frequency traders like hedge funds and the proprietary trading houses of investment banks, not on low frequency traders like retail investors, people changing money to go on holiday, or high street banks. 

But who has their money in the hedge funds? Well up until recently, it was almost entirely ‘henwees’ – High Net Worth Individuals (HNWIs) – so an FTT would have been hugely progressive, affecting only rich individuals ability to ‘use money to make money’. Admittedly, in the last few years pension funds and other institutional investors have started buying into the more speculative investment vehicles, so the boundary has got a bit more blurred. According to a recent report in the FT ‘most UK schemes were now looking to allocate up to 15 per cent of their portfolio to hedge funds’, although the current percentage is well below that. So an FTT could deter pension funds from moving into higher risk investments – arguably no bad thing. But yes, even though overall, an FTT would be extremely progressive, there would be some pass through to pension plans. In practice, however, an FTT would in reality be a family of taxes at different levels on different kinds of transaction,  and could be fine tuned to maximise that progressivity.

2.  If we don’t introduce it in all countries at the same time, it will put those that do at a commercial disadvantage, and lead to a mass flight of financial institutions.

My response: Ideally an FTT would be applied globally by all countries.  But while this is being negotiated at the G20 and elsewhere, there is nothing to stop governments taking steps, either as a group of like-minded countries, or unilaterally.

And here’s what for me is the killer counter-argument to this objection. A range of domestic FTTs imposed by different countries already exist! They show that unilateral action is completely possible, and that fears that introducing a tax makes firms go elsewhere are overblown:

- UK: a 0.5% Stamp Duty on share transactions raises more than £3.2 billion each year
- US: a small transaction tax finances the Securities and Exchange Commission
- Belgium: An FTT on the transfer of shares, bonds and other securities. At a rate of 0.5-1.7 % it raised Euro 147 million in 2005.

So if the UK investment houses are willing to stomach a 0.5% tax on share transactions, are they really going to flee these shores over a tax 10 or even 100 (in the case of currency transactions) smaller? Unlikely.

There are a number of other points that get picked up with less regularity: there are other taxes like a wealth tax that are even better (see my previous response); an FTT wouldn’t necessarily curb volatility (I have some sympathy with that one); we should go with an expansion of President Obama’s levy on banks instead (as well, maybe, but not instead – you won’t see much cash for climate change or development out of a bank levy).

And the question that’s been nagging at me for weeks finally surfaced at the parliamentary launch last week. Suppose an FTT were to be be introduced – what guarantee would there be that the revenue would not all go straight to filling fiscal holes in the North, rather than half of it going to climate change and development, as proposed? Two responses: firstly, moral suasion – governments would need pretty thick skins to raid the money destined for development. But thick skins go with the job description, so we also need to think through the mechanics of how the tax would be levied, and see if there is a stage before it reaches the hands of finance ministries, where it could be channeled into arms-length escrow-type accounts that would then distribute it in pre-agreed proportions.

Finally, some stick is being handed out to the Robin Hood Tax campaign for the (over) simplicity of its messages (see Tim Harford’s follow up post). To which I would respond, duh, there’s a clue in the title – it’s a campaign, not a seminar. Campaigns need to have clear messages that inevitably do violence to some of the detail, but the groups that constitute the RHT are busily having detailed grown-up policy discussions with decision makers, reading the research, commissioning new work etc etc.

So where do I think the criticisms are justified? I think there are two places. Firstly, we should have made it clear that we were always talking about banks and other financial institutions, not just the banks, and that we recognized that money does not come out of thin air (but that this is a very progressive way to raise it). Mind you, ‘a tiny tax on wholesale transactions in financial markets’ isn’t quite as catchy – back to campaigning again.

Secondly, we should probably have devoted more attention to putting forward our thinking in policy wonkland, perhaps with a separate geeks website for debate, exchanges of information and research etc. That’s something we need to sort out as the campaign develops. But there should be no let up on the public campaigning – Bill Nighy. Richard Curtis et al have brought this discussion to a level of prominence that ‘undercover economists’ could only dream of. All power to them.

Last word to Einstein: ‘We should be on our guard not to overestimate science and scientific methods when it is a question of human problems; and we should not assume that experts are the only ones who have a right to express themselves on questions affecting the organization of society.’ I’m with Albert.

Update 2 March: for more on ‘who pays the tax’, read this excellent paper by Sony Kapoor (who also gives Tim Worstall a good going over in the comments to this post).

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I’ve always felt uneasy with using the term ‘human capital’ as a synonym for ‘people’. In this month’s issue of the consistently excellent Prospect magazine, philosopher Edward Skidelsky beautifully nails the arguments:

‘Economists, said John Maynard Keynes, should think of themselves as humble specialists, on a par with dentists. But his advice has gone unheeded. Over the past 50 years, economics and its jargon have penetrated every corner of human life. Decisions to marry and inject heroin alike are explained in terms of utility maximisation. Doctors, priests and scientists are lumped together as service providers or rent seekers. Schoolteachers are urged to “add value” to their pupils. The pig philosophy, as Thomas Carlyle called it, has become all-embracing.

Of the many harms inflicted by economics on the English language, “human capital” is the most grievous. Coined by Chicago economists Jacob Mincer and Gary Becker in the 1960s, it refers to the stock of personal skills and qualities that constitutes a worker’s economic value. Such skills and qualities are often costly to acquire and yield returns only over a long period of time, so are readily thought of as a kind of capital. Mincer and Becker’s work has provided the intellectual rationale for the huge expansion of higher education in recent decades. In an economy dominated by the knowledge and service industries, with personality and expertise at a premium, “investment in human capital” is the name of the game.

The phrase “human capital” is now so thoroughly naturalised that we seldom pause to ponder its implications. What is capital anyway? Capital is not a particular kind of good, but any good viewed in relation to certain interests. A donkey is capital to the wood-carrier. A derelict church is capital to the restaurant entrepreneur. Capital, in short, is wealth viewed not as an end in itself but as a means to more wealth. The phrase “human capital” insinuates that human beings too are to be viewed in this light—as instruments of the productive process. We have all of us attained the status which Aristotle reserved for slaves, that of living tools. What a triumph for the dismal science! Keynes naively supposed that economic growth was for the sake of personal cultivation. His modern successors have put him right: personal cultivation is for the sake of economic growth.’

Brilliant. ‘Human capital’ shall not pass my lips again.

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‘Lifting the Resource Curse’, a new Oxfam paper, revisits the difficult question of how to ensure natural resources are a blessing, and not a curse, for poor countries. Countries like Angola, where oil revenues (which represent 80 per cent of national income) are estimated at $10bn per year, yet 70 per cent of the population live on less than $2 per day. By one estimate, between 1997 and 2002 more than $4bn in state oil revenues ‘disappeared’ from the Angolan treasury; an amount almost equal to total government spending on social services in the same period.

The first step for any country is to get your hands on the money. There are some successes to point to: Bolivia saw oil and gas revenues rise from $448m in 2004 to $1.531bn in 2006, due to the redistribution of profits agreed in contracts after 2005.

But then you have to use the money wisely (and not nick it). Indonesia and Norway are good examples of countries with significant revenue from natural resource extraction, where public spending is aligned coherently with long-term development goals. Oxfam’s research highlights some key ways to improve the opportunities offered by revenues from extractive industries: upgrading legal and fiscal frameworks in poor countries with natural resources; renegotiating contracts with big extractive companies; and putting in place or reinforcing public financial management systems. These systems should use extractive revenues for social spending, as well as for setting the foundations for the diversification of production, job creation, and to mitigate the social and environmental impacts of exploitation.
 
A cornerstone of such policies should be the promotion of transparency throughout the extractive industry supply chain, from the agreement of contracts to the allocation of revenues through public budgets.

If you have a government that wants to make natural resources into a national blessing, there is no shortage of advice. Numerous “best practice” guides have been developed in the last few years showing how to improve management of the extractive “value chain” – from licensing to government expenditures. These include the IMF’s Guide to Resource Revenue Transparency, the Natural Resource Charter developed by Paul Collier and others, a book, “Escaping the Resource Curse” edited by Macartan Humphreys, Jeffrey Sachs and Joe Stiglitz, and innumerable academic and NGO reports (the Oxfam report has over 4 pages of recommendations to be getting on with). African governments can access technical advice c/o the AfDB’s new African Legal Support Facility.

Fine, but what if you don’t have an effective state – if vested interests are skimming off revenues from oil and mining, and will do their best to stop you spending it on schools and hospitals? (This is where I try desperately to avoid using the phrase ‘political will’, banned by a previous blog). This is quite common since part of the curse of wealth is precisely that ‘money coming out of the ground’ often weakens the social contract between state and citizen (eg the state no longer needs to tax its people) and undermines institutional development.

At a national level, Lifting the Resource Curse argues, unsurprisingly, that the active involvement of civil society is essential both to increase the public pressure on governments to make the most of natural resource endowments and to act as watchdogs, tracking both the origins and uses of revenues from extractive exploitation. It is also of crucial importance to have public institutions that can support this process of participation and which are efficient in their control, monitoring, and enforcement of it.

But I think the paper could have gone a bit further with its power analysis on this – what other influential domestic groups have an interest in harnessing extractive industries for the national good? Answer, virtually all of them – business sectors (manufacturing, exporters, agriculture, finance), trade unions, media, national parliaments and local governments. Where and how have these kinds of coalitions formed and had an impact? There’s a lot more to life (and change) than CSOs.

At an international level, apart from the ever-expanding but voluntary Extractive Industries Transparency Initiative, there are moves in the US to introduce legislation that would require extractive industry companies that list on the New York Stock Exchange (basically all the big ones) to disclose payments to governments. Similar moves are under way in Spain. Clamping down on tax havens and international banking secrecy might also curb some of the outflows of stolen money. Export Credit Agencies could insist that any companies they support comply with the highest standards on bribery, corruption and transparency.

With high commodity prices looking set to continue, the ability to make natural resources work for the common good, rather than private evil, will play a big part in determining which countries prosper and which fail.

See also my recent post on a World Bank paper on this issue. Oh, and the black and white pic is apparently a Californian beach in the 1920s. Those were the days, eh?

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One of the aspects which is almost invariably missing from substantive discussions on the global economic crisis (and which quite often, doesn’t even get lip service) is the gender dimension. Women and men experience crises in different ways, and are unequally affected by government responses. Often, pre-existing inequalities, which include under-representation of women at all levels of economic decision-making and their over-representation in informal, vulnerable, and casual employment, are more significant than gender inequalities arising specifically from the crisis.

Disaggregating the gendered inequalities, impacts and responses can reveal issues that are largely invisible from conventional accounts of the crisis, for example, the impact on the ‘unpaid economy’ as women are forced into taking second and third paid jobs to make ends meet, or the squeeze on women in the informal economy resulting from job losses in the formal economy, or women’s particular vulnerability to being put on short hours in factories and large firms. Since the early days of the crisis, Oxfam’s been trying to fill that gap, and has just published a spate of papers, most of them from our hyperactive East Asia team. Here’s a quick guide

Gender Perspectives on the Global Economic Crisis kicks off with an overview of the issues, and the findings of research from this and previous crises  

Women Paying the Price: The impact of the global financial crisis on women in Southeast Asia summarizes the regional lessons

The original paper from March 2009 that set things in motion, Paying the Price for the Economic Crisis  

Then we get down to the national level

The Real Story Behind the Numbers: The impacts of the global economic crisis 2008–2009 on Indonesia’s women workers

Feminised Recession: The impact of the global financial crisis on women workers in the Philippines

Triple Burden: The impact of the financial crisis on women in Thailand

Beyond the Crisis: The impact of the financial crisis on women in Vietnam 

More Vulnerable: The impact of the economic downturn on women in Cambodia

And finally, the East Asia team has produced this short (6 minute) video of vox pops with Asian women that puts a human face on the issues discussed in the papers

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The end of this week (26 February) is the deadline both for commenting on our new draft paper on the impact and response to the global economic crisis, and to take the ultra-quick online survey to help sharpen up the contents of this blog. After that, I promise not to request participation of any kind for at least a month.

Back to some nice links. Zapping mosquitoes with Chris Blattman

Even if the Robin Hood Tax’s only success is to persuade Dani Rodrik to take up blogging again, (and it won’t be), it will have been worth it

Interesting challenge, and some chutzpah. Paul Collier blames NGOs for undermining Haitian state-building. Pots? kettles? (see my previous post)

Alex Evans wishes that Britain could be more like Norway

It’s a bit old, but it’s still brilliant. (Mostly) pregnant women breakdancing for the cause (maternal mortality) on London’s South Bank back in the summer of 2008.

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Another day, another IMF U turn, this time in a ‘Staff Position Note’ on capital controls by Ostry, Ghosh, Habermeier, Chamon, Qureshi, and Reinhardt (they seem to prefer writing by committee at the Fund – personally, I’m with Sartre: ‘hell is other people’). This comes hard on the heels of its recent rethink on inflation, part of a laudable institutional journey of reflection, prompted by the financial meltdown. Don’t think this one needs subtitles, so here are the highlights, plus some comments from me.

First the intro, which drives a wedge between the case for liberalizing trade and that for opening up capital markets, and summarizes the concerns of emerging market economies (EMEs) on the latter.

‘The benefits from a free flow of capital across borders are similar to the benefits from free trade, and imposing restrictions on capital mobility means foregoing, at least in part, these benefits. Notwithstanding these benefits, many EMEs are concerned that the recent surge in capital inflows could cause problems for their economies. A concern has been that massive inflows can lead to exchange rate overshooting (or merely strong appreciations that significantly complicate economic management) or inflate asset price bubbles, which can amplify financial fragility and crisis risk. More broadly, following the crisis, policymakers are again reconsidering the view that unfettered capital flows are a fundamentally benign phenomenon and that all financial flows are the result of rational investing/borrowing/lending decisions. Concerns that foreign investors may be subject to herd behavior, and suffer from excessive optimism, have grown stronger.

The question is thus how best to handle surges in inflows. The tools are well known and include fiscal policy, monetary policy, exchange rate policy, foreign exchange market intervention, domestic prudential regulation, and capital controls.’

And the findings?

‘If the economy is operating near potential, if the level of reserves is adequate, if the exchange rate is not undervalued, and if the flows are likely to be transitory, then use of capital controls is justified as part of the policy toolkit to manage inflows. Such controls, moreover, can retain potency even if investors devise strategies to bypass them, provided such strategies are more costly than the expected return from the transaction: the cost of circumvention strategies acts as “sand in the wheels.”

A key issue of course is whether capital controls have worked in practice. Our sense is that the jury is still out on this. Controls seem to be quite effective in countries that maintain extensive systems of restrictions on most categories of flows, [got that? – the IMF is saying that capital controls work best when they’re comprehensive!] but the present context relates mainly to the reimposition of controls by countries that already have largely open capital accounts. The evidence appears to be stronger for capital controls to have an effect on the composition of inflows than on the aggregate volume. For example, in the case of Chile and Colombia, controls do appear to have had some success in tilting the composition of inflows toward less vulnerable liability structures.

Looking at the current crisis, our own empirical results suggest that controls aimed at achieving a less risky external liability structure paid dividends as far as reducing financial fragility. An interesting twist is that some foreign direct investment (FDI) flows may be less safe than usually thought. In particular, some items recorded as financial sector FDI may be disguising a buildup in intragroup debt in the financial sector and will thus be more akin to debt in terms of riskiness.’

A few caveats, which largely seem to be about not encouraging China to see capital controls as an alternative to devaluing its currency (a political hot topic in Washington and elsewhere):

‘Global recovery is dependent on macroeconomic policy adjustment in EMEs, which could be undercut by capital controls, notably in cases where currencies are  undervalued. In addition, controls imposed by some countries may lead other countries to adopt them also: widespread adoption of controls could have a chilling longer-term impact on financial integration and globalization.’

The caveats are weaker, and the U turn more pronounced than in the paper on inflation I reviewed last week. That’s partly because this is a journey that began over a decade ago. On the eve of the Asian financial crisis of 1997/8, the Fund was on the verge of amending its Articles of Association to enshrine capital account liberalization as one of its explicit aims. The Asia crisis started a rethink, which has continued with the latest trauma. But I’ll only believe that the Fund has really changed when we see its staff out there advising developing countries on the best ways to introduce capital controls.

And anyway, a rethink at the Fund may not be enough. The push for capital account deregulation has been locked in in several regional and bilateral trade agreements. In its bilateral trade agreements with Chile and Singapore, the US government insisted on the elimination of precisely some of those ‘speed bump’ controls now recognized by the Fund as useful tools to help economies navigate the turbulent seas of international capital.

So a long way to go to make capital markets work for development, but this is at least a welcome step. More coverage in the Economist and the New York Times.

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The IMF is doing some very interesting (and praiseworthy) rethinking in response to the global crisis, if a new paper co-authored by its chief economist Olivier Blanchard is anything to go by. It’s written by and for economists, so it’s not exactly bedtime reading (unless you’re an insomniac), but here’s the highlights, and my attempts at translation.

Overview: ‘The great moderation lulled macroeconomists and policymakers alike in the belief

All change at the IMF?

that we knew how to conduct macroeconomic policy. The crisis clearly forces us to question that assessment.’

Translation: we thought we knew it all. We don’t. Back to the drawing board.

‘To caricature: we thought of monetary policy as having one target, inflation, and one instrument, the policy rate. So long as inflation was stable, the output gap was likely to be small and stable and monetary policy did its job. We thought of fiscal policy as playing a secondary role, with political constraints sharply limiting its de facto usefulness. And we thought of financial regulation as mostly outside the macroeconomic policy framework.’

Translation: We thought all you had to do was keep inflation down, and all you needed to do that was vary interest rates to control prices. Government finances were secondary, and anyway, we didn’t like pesky politicians interfering. We thought regulating financial institutions was irrelevant to overall stability. Whoops.

‘It is clear that the zero nominal interest rate bound has proven costly. Higher average inflation, and thus higher nominal interest rates to start with, would have made it possible to cut interest rates more, thereby probably reducing the drop in output and the deterioration of fiscal positions.’

Translation: because we kept inflation rates so low, interest rates were also low, so when the crisis hit and we needed to boost the economy, we only had a bit of leeway to lower interest rates (you can’t take them below zero). Instead we had to spend shedloads of cash, and that has left us with a massive fiscal hangover.

‘The crisis has returned fiscal policy to center stage. It has also shown the importance of having “fiscal space”. The aggressive fiscal response has been warranted given the exceptional circumstances, but it has further exposed some drawbacks of discretionary fiscal policy for more “normal” fluctuations—in particular lags in formulating, enacting, and implementing appropriate fiscal measures (often due to an awkward political process).’

Translation: Fiscal policy really matters, and many governments have tried to spend their way out of recession, but getting spending plans through the legislature takes much longer than dropping interest rates, and gets bogged down in pork. In normal times, it’s better to have other options (like more leeway on interest rates).

‘Identifying the flaws of existing policy is (relatively) easy. Defining a new macroeconomic policy framework is much harder. The bad news is that the crisis has made clear that macroeconomic policy must have many targets; the good news is that it has also reminded us that we have in fact many instruments, from “exotic” monetary policy to fiscal instruments, to regulatory instruments. It will take some time, and substantial research, to decide which instruments to allocate to which targets, between monetary, fiscal, and financial policies.’

Translation: Damn, life is more complicated than we thought. Still, lots of work for us researchers….

‘The crisis has shown that large adverse shocks can and do happen. In this crisis, they came from the financial sector, but they could come from elsewhere in the future—the effects of a pandemic on tourism and trade or the effects of a major terrorist attack on a large economic center. Should policymakers therefore aim for a higher target inflation rate in normal times, in order to increase the room for monetary policy to react to such shocks? To be concrete, are the net costs of inflation much higher at, say, 4 percent than at 2 percent, the current target range? Answering these questions implies carefully revisiting the list of benefits and costs of inflation.’

Translation: We think we need to double inflation targets to give governments more room for manoeuvre on interest rates. But hold on a minute, we work for the IMF, so we’d better play safe and pretend we’re merely posing this as a question.

‘If one accepts the notion that, together, monetary policy and regulation provide a large set of cyclical tools, this raises the issue of how coordination is achieved between the monetary and the regulatory authorities, or whether the central bank should be in charge of both. The increasing trend toward separation of the two may well have to be reversed. Central banks are an obvious candidate as macroprudential regulators.’

Translation: The economy is just too important to be left to elected politicians. Why not put the Central Bank in charge of everything? 

This paper is mainly about policy in the rich countries, but if the change in tone ‘trickles down’ into the Fund’s work in poor countries, it should at least lead to a reduction in its traditional insistence on low inflation at any social cost. Encouraging signs? Further coverage in the FT and on the Vreelander blog.

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The World Bank’s influential PREM (Poverty Reduction and Economic Management Network) team has a new series of topical notes, pulling together its research on breaking issues (they’ve obviously been reading the literature on using research for influence – rehashing existing research at the right moment for policy makers is one of the most effective forms of influencing). It’s called ‘Economic Premise’ (geddit?). Very welcome idea, but the premises behind the first issue are a bit patchy.

Issue number 1 is entitled ‘Natural Resources and Development Strategy After the Crisis’ and starts with the data.  ‘It is notable that, while commodity prices fell sharply from their peak in 2008 with the onset of the global recession, they generally remained much higher than previous recession lows, often as high as in 2005–07, a period of robust world growth. Furthermore, prices have also rebounded smartly over the course of 2009.’  [see graph]

The paper then addresses four main issues:

1.  How dependent are developing countries on primary commodity exports?  ‘Although declining, commodity or natural resource dependence remains a fact of life for a majority of developing countries. Commodities still comprised a little over 60 percent of the merchandise exports of the average developing country in the middle part of this decade [presumably they mean the last one], although this was down from over 90 percent in the late 1960s.’

2. What is the outlook for primary commodity prices? ‘In the 1950s the famous Prebisch-Singer thesis argued that real primary commodity prices (for example, relative to manufactures prices) displayed a long-run declining trend. [But] based on econometric study of long time series, the present consensus appears to be that real commodity prices do not display any permanent trend or drift over time.’

3. Is there a natural resource “curse” (or blessing)? ‘The short answer is “no” or rather “it depends.” Natural resources are “neither curse nor destiny”… negative long-run growth effects are mostly related to oil and minerals —concentrated “point source” resources that can easily become the object of rent-seeking and redistributive struggles (including armed conflict). On the other hand, there is little evidence of negative growth effects related to high prices for agricultural commodities, which are generally more open to competitive entry. Second, high oil and mineral prices mostly have a negative impact on long-run growth in exporting countries with bad governance. They have a significant positive impact on growth in exporters with good governance. This finding suggests that continued high commodity prices in the next few years could provide valuable resources to accelerate economic and social development in commodity exporting countries with good policies and governance.’

At this point alarm bells started to ring for me. Natural resources and governance are not independent variables – the interesting question is the impact of natural resources on governance itself. Countries are not born with either good or bad governance, they evolve, not least because of the influence of ‘money coming out of the ground’. How will Ugandan governance fare when its new oil finds come on stream this year? The Bank (or at least PREM) seems stronger on the economics and data than on the politics.

But that is nothing compared to this paper’s blind spot on environmental constraints. An entire paper on commodities, including agriculture, in which the only reference to climate is ‘investment climate’ is really quite an achievement. Might climate change not just have a bit of an impact on the future supply of commodities? And nothing on natural resource exhaustion either. Long term investors have largely accepted that oil production will peak, probably this decade, and then fall away. But in this paper the happy world of unlimited natural resource usage lives on. Extraordinary. Other bits of the Bank are doing good work on climate change, but it doesn’t seem to have reached the authors. Deep breath and back to point 4.

4. What policies can help poor countries best manage commodity resources for development? A fairly standard set of policy prescriptions:

a) Deal with governance through transparency, as in the Extractive Industries Transparency Initiative, backed up by citizen watchdogs. Not a bad thing (after all, we NGOs developed the ideas behind the EITI as Publish What You Pay, before Tony Blair nicked and rebranded the idea), but hardly a game changer.

b) Set up Natural Resource Funds to put money aside during booms and smooth out the impact of price swings on government revenues.

c) Don’t spend all the money on consumption and wages. Better in low income countries ‘to devote a larger portion of resource revenues to high-return public domestic investments, leading to higher growth and, ultimately, a higher value of consumption than under the permanent income strategy.’

For natural resource wonks, this last point is more significant than it seems. The authors think the standard advice, known as the ‘permanent income approach’ to natural resource fiscal management, doesn’t go far enough, and want governments to spend more.

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Supermarkets are not just a northern phenomenon, but are spreading fast across the developing world. Some of them arrive from outside, like the giant Tescos outside my hotel on a recent visit to Korea; others are homegrown. Either way, they are having a big impact on the lives and prospects of farmers, large and small. Thomas Reardon at Michigan State University is the guru on this, and in a recent issue of World Development, pulls together a series of case studies from Eastern Europe, Africa, South Asia and China to take stock of where the supermarketization of the world has got to. It’s not open source, I’m afraid, but here are some highlights:

Modern, Western-style supply chains are spreading, along with several other traits, including ‘the shift from public to private standards, from spot market relations to vertical coordination of the supply chain using contracts and market inter-linkages, and shift from local sourcing to sourcing via national, regional, and global networks.’ As with supermarkets in the rich countries, this is all done to cut costs and increase quality. The rise of the supermarkets is one part of a three-pronged ‘agrifood industry restructuring’ that is also transforming the wholesale sector and food processing.

When there’s a choice, companies tend to source from larger farmers and avoid the little guys on grounds of cost, quality and general hassle. However, there are exceptions: companies source from small farmers in contexts where small farmers dominate the agrarian structure. But even then, they prefer to buy from small farmers with access to irrigation, farmers’ associations, farm equipment, and paved roads, rather than the poorest of the poor.

However, where companies need or want to source from small farmers, but the farmers lack access to credit, inputs, or extension, companies sometimes use ‘‘resource-provision contracts” to address those constraints. This kind of ‘contract farming’ is spreading in many countries, and includes both contracts that are exploitative, and others that provide genuine opportunities for small farmers.

Overall, the research for the journal tends to show positive effects on small farmers of inclusion in modern channels, including on incomes and assets of farmers, and positive externalities to the local labor markets (I think that means more and better jobs….), although Reardon wants to see more research based on panel data (i.e. comparing the same households over time), rather than cross-sectional stuff that just compares countries or communities at a single point.

The research concludes that ‘government policy affects the pace and nature of agrifood industry transformation, and influences the inclusion of small farmers. While there are situations where the transmission effect of food industry transformation to farmers is still relatively weak (such as in China), in many countries the impacts are already emerging. While medium/large farmers are best equipped to face this transformation, even small farmers can be included and improve their lot via the modernizing markets, but their access to non-land assets such as irrigation, access to roads, to association, to greenhouses, and so on, is crucial for this inclusion. In some cases the food industry companies will themselves provide access to these assets (via ‘‘resource-provision contracts”) in order to assure their farm supply base. But there is a significant and substantial and urgent role for governments to provide assets to farmers to ‘‘make the grade” for the successful participation of small farmers in the transforming food economy.’

The implications for small farmers are profound. Supermarkets source the majority of their products locally, and the volumes traded are significant and growing. Domestic markets are central to the livelihoods of small farmers, and supermarkets could potentially expand farmers’ sales. But unless they can meet the supermarkets’ demanding quality and quantity requirements, farmers risk being consigned to the least profitable backwaters of the domestic economy, just as they are currently at the global level.

The rise of food processors and fast food chains in developing countries poses similar challenges. Citing problems of scale and quality, branches of McDonalds and Pizza Hut in Ecuador prefer to import potatoes for French fries, even though the Andes is the original home of the potato. Any NGOs or others trying to support small farmers by helping them achieve ‘power in markets’, by for example forming associations to increase scale and improve quality, had better be aware that they are chasing a moving target.

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