New School Economic Review

LDC, LDC & HIPC – development lingo & definitions

by Benjamin on March 23, 2010

I feel it’s my responsibility to notice when I am getting old and/or slow, and I think a sign is when the language of development changes under your feet. I admit not having been at the Development debate for a while – but when did LDC go from being Less Developed Country to Least Developed Country? And what does that even mean?

I noticed that the UN was talking about the North and the South two years ago, and was told that had been the lingua franca of development for a good 12 months by then. Back then, the World Bank’s HIPC – Highly Indebted Poor Countries – were the main topic of discussion, and by 2009 there were 40 countries on the list. Now it seems that the development debate is shifting to the UN, as the LDC countries are judged on 3 new criteria by the UN committee on development policy. Of course the Human Development Index is part of that indicator, as is two sets of social/structural indicators, and rather strangely, so is population size? If you have more than 75m people you can’t be an LDC, regardless of your economic situation. So that gets rid of China and India, and lets the Development debate side-step such ‘not-least’ developed countries as Bangladesh, Indonesia, Pakistan, Ethiopia, Vietnam and Egypt, probably a relief for donors and theorists. Comparing LDCs and HIPC countries seems to suggest that (thanks to the Wikipedia listings) there hasn’t been a big change in priorities:

What should we make of all this? For starters, Wikipedia must be wrong about Bangladesh, it’s too big to be an LDC, so be careful of sources. Somewhat interestingly, the new LDC countries seem to have a lot more Asian nations than the old HIPC list did. Perhaps this is a political move to focus on the rise of Asia, or more likely its a bit of realpolitik, picking Asian nations who have neighbours that have come out of the old Less Developed country Status through a variety of methods, and not Sub-Saharan nations who have had respectable growth trajectories, but are not very good at providing ‘success stories’ for policy makers. Either way, I suspect that a new label will come along in five years, so don’t get too attached to these and just get your head down and try to do some good. Ahhh… Idealism

UNCTAD says markets cannot find prices

by Benjamin on September 26, 2009

UNCTAD just released their annual Trade and Development Report with a launch talk at the LSE, and never shy of controversy, they announced in the launch talk that “Financial Markets never find the right price”, while linking the crisis with development and climate change.

The director of Globalization and Development, Heiner Flassbeck, argued that spot prices in the financial and commodity market is not driven by some underlying fundamentals. Prices were driven by fluctuations in the future markets, which are so heavily disturbed by trading noise that they have little to do with the commodity. Spot prices are then dragged up or down by forward expectations, sometimes for years, before causing a crash somewhere, and then being dragged off in a new distorted direction. The argument is interesting and his talk is worth a listen – you can download it here.

The report, and Dr. Flassbeck, goes on to debate the issue of climate change, arguing that there are no real ‘costs’ of switching to green production, there is  simply a change in preferences which will allow the market to find a new optimal distribution… I haven’t had a chance to read the report yet, but if anyone has a copy – let me know as the talk and following discussion was very interesting.

What HIV Epidemic?? Hans Rosling’s back

by Benjamin on August 30, 2009

In June, Hans Rosling (raved about earlier) gave a talk at the US State department explaining that the mindset about developing and developed countries is wrong, and the idea of an African HIV epidemic is wrong… He has a dataset, and if our mindset does not coincide with the dataset, then one of them must be wrong… The talk encompasses historical comparrisons of the US and China, an overview of world incomes and a discussion of the HIV ‘epidemic’  in Africa… Which according to Rosling is not an epidemic, but rather is a

Special situation probably of concurrent secxual partnerships among part of the heterosexual population in some countries or some parts of countries, in South East Africa. Don’t make it Africa, don’t make it a race issue. Make it a local issue.

Below is the State Department talk, but a documentary entitled “Rosling’s World” just aired on Swedish Television (in Swedish with English Subtitles), which will be free to watch until 15 September. I’m off to watch it now.

All in all, this is well worth watching, and I am sure it will provoke some responses.

Clean water for everyone? Could it be that simple?

by Benjamin on August 19, 2009

800m people cannot access clean water, 1.4m children die from Diarrhoea every year due to unclean water and sanitation, The UN has its own water section and WaterAid is dedicated to the issue, as is a chunk of the MDG’s… But for at least two years now a product’s been around which can sterilise water on demand, and it is being bought by… campers and soldiers. Watch the below and explain to me how that can be used to solve the problems it was meant to solve:

The end of Jeffrey Sachs?

by Benjamin on May 15, 2009

It's all about Geography according to Sachs

The Columbia Undergraduate magazine just published a very interesting article on Jeffrey Sach’s impact on students, and paints a very bleak picture. Students start out optimistic about Sach’s ideas and suggestions. Especially his book, The end of Poverty – now with a foreword by Bono – is read with great enthusiasm by Sachs’ first years, but then dissilusionment sets in.

By the second year Sanjay Reddy dispels the notion that Geography is the key to development, and that “technofixes” are much more complex than Sach’s lets on.  Sala-i-Martin will argue that Poverty Traps do not exist and the answer is to be found in his papers. There are no easy answers and Sachs, they say, is asking the wrong question anyway – which William Easterly also agrees with.

Sachs, if nothing else, did make Economics sexy. With the help of Ms. Jolie and others...

Now there is a film on the way called The End of Poverty? – that extra question mark was presumably the best way to avoid being sued, as the film has nothing to do with Sach’s or his book, in fact, it seems to take the old colonization story and blames colonization where Sachs blames Geography.

The whole story is probably a lot more complex, as the Columbia students realise in retrospect, “Maybe Jeffrey Sachs isn’t as sexy as we thought freshman year.”

The Aborigine Development Attitude

by Benjamin on May 13, 2009

There’s a LOT of talk in development economics, especially by the World Bank, about involving local stakeholders while anthropologists worry, “can the subaltern speak?” A couple of Aborigine quotes do a pretty good job of addressing that.

If you have come to help me you can go home again. But if you see my struggle as part of your own survival then perhaps we can work together.

Attributed to an unnamed aborigine woman in The Manila Declaration on People’s Participation and Sustainable Development, Quoted in Rai (2001: 198). A little more to the point perhaps:

Dogs have fleas and we have anthropologist

Atributed to an Aborigine activist in Adelaide, by Middleton (2000: 1). 

I don’t know about speaking and involvement, they can sure kick some A..

References
Middleton, Hannah. 2000. “Marxist Anthropology.” Australian Marxist Review 42 (November)
Rai, Shirin. 2001. Gender and the Political Economy of Development. Polity Press: Cambridge, UK.

New Political Economy: History affects Development Policy

by Benjamin on April 27, 2009

“Listen up Economists: Why might history matter for Development Policy?” begins Prof. Ravi Kanbur‘s brief note on how history and, more importantly, a country’s perception of their own history has a significant effect on policy outcomes and policy making in developing countries, (and developed countries as well). Kanbur poses his argument within the framework of ‘new political economy’, where the old subject area – political economy – which includes history/politics/economy/economics is superimosed on the standard micro-economic model by way of a top layer of equations, so that “for those of us in the new political economy school, we might also try to endogenize the policy choice itself, by in turn modeling the policy and political process, the incentives of the different players (interest groups)”.

He criticisies policy models for not including political response, especially when theoretical work on this has moved forward, so “paradoxically, therefore, where it matters most we tend to ignore politics in the policy prescription, although these days our research papers are replete with models of rational choice politics” meaning that understanding the politics of the present and the influence of the past upon it, is very important for any development economist. Crucially,

It is the embedding of the past in the present’s perception of policy that is the transmission mechanism linking history to today’s development policy.

So history matters, politics matters, perceptions of the economy matter, all in-so-far as they can be incorporated into the typical micro economic model through a set of appropriate equations. This might be the achilles heel of the approach – at least for the moment – as we seem to be adding a rational optimising politician to the rational optimising agent. Can history then be worked into the agents utility function to make the politican redundant? Is that what the more ‘traditional’ micro-economist would argue? Either way, I guess people interested in institutions would encourage the seperation…

New Political Economy might not have the richness of Political Economy, but it does include the beginnings of a reply from microeconomics to the criticism of being a-historical and a-social, and therefore not very useful in the formulation of policy. I am not sure that it should be thought of as a ‘new’ political economy, but it is definetly a step in a new(ish) direction.

Some good development news… really… maybe?

by Benjamin on March 20, 2009

It seems that there is bad news around every corner, but there is a shimmer of light if one has a look at some development statistics for the last 30 years. At least the ones presented by William Easterly seem to indicate some real progress over the last many years:

Really?

This seems to indicate two things: development economists know what they are doing and life, globally, has been getting better over the last thirty years: To the former Easterly responds “One group that doesn’t deserve much credit is “development experts,” because there is a terrible crisis of confidence in development economics now, where we all freely confess we don’t really know what to advise governments on how to speed up development.” … The question then remains whether the beautifully logged series are representative of real change or just creative statistics… Any thoughts?

The IMF’s rhetorical u-turn: Buyer Beware

by Benjamin on January 15, 2009

When Dominique Strauss-Kahn, the managing director of the International Monetary Fund (IMF), announced on 15 December (2007) that in this time of crisis “it is fiscal expansion, not fiscal contraction, that we need”, he broke rank with 30 years worth of IMF dogma and advice. The IMF’s position has always been that crisis in a country can be resolved through fiscal contraction which would minimize interference by the government and, thereby, allow the market to find the best solution. That the fund is recommending fiscal expansion is, quite frankly, groundbreaking. Strauss-Kahn on 10 December (2007) noted that it had “plenty of funding” to aid countries in creating these expansionary policies, and the world of development financing shook. The question is this—why is the IMF changing its opinion so drastically and does it have any substance?

Dominique Strauss-Kahn announced the supposed U-turn

Countries in a financial crisis are usually able to borrow money from the IMF as long as they agree to a set of conditions, generally within the scope of the “Washington Consensus”. These conditions tend to include liberalizing financial markets, privatizing public companies and reducing fiscal expenditure. The IMF has always implemented these policies – especially fiscal cutbacks – with ruthless efficiency, often by making new legislation a requirement for loans.

This was seen in Thailand, after the 1997 crisis, where IMF loan conditions were passed into law by the National Assembly through four emergency decrees without parliamentary debate. South Korea had an election as the IMF put forward its recommendations, which included one particular condition to reduce the (soon to be privatized) banking sector’s workforce by 50%. IMF flatly refused to release any funds until all presidential candidates agreed—in writing—to abide by all IMF conditions, even if the candidates ran on an anti-IMF platform. Across the board, these conditions called for liberalizing capital markets and fiscal contraction in the face of recession.

The IMF is now getting ready to recommend the polar opposite. Governments should intervene in financial markets on a national level, according to a new policy paper due in 2009, and IMF is publicly recommending the injection of 2% of global gross domestic product (GDP)—$1.15 trillion—through national fiscal stimulus packages. But why?

The most obvious reason for these announcements is that IMF has been losing trust as well as business across the world since 1997. Consider that disbursements by IMF have fallen by 90% since 1995, when it disbursed twenty seven billion U.S. dollars globally, to only two billion dollars in 2007. Even the IMF’s own Independent Evaluation Office concluded that trust had been lost as the conditions on the 1997 crisis loans had been “ill-advised…(and) not critical to resolving the crisis”.

So, to rebuild its image as a responsible policy maker, IMF appears to have jumped on the fiscal spending bandwagon which started with the US bailout package and spread to the UK and EU. That IMF should support the actions of the majority of its donors and its current president’s home should come as no surprise, but will it recommend the same action for its borrowing clientele?

This is where IMF’s rhetoric comes undone. It has recently approved four financial crisis packages to Hungary, Iceland, Ukraine and Pakistan, and across the board it is advising cuts to the public budget. Ukraine is expected to cut its fiscal deficit by 5% of GDP in a single year through public expenditure reductions and higher energy taxes. Hungary must reduce the “overall government wage and pension bill. Nominal wage adjustments will be postponed and pension bonuses suspended”. Iceland has been spared fiscal cuts until early 2010, but is already in a recession, so IMF has liberalized Iceland’s current account while recommending higher interest rates. Pakistan, in turn, must cut public expenditure and tighten monetary policy to collect its loan.

The most recent package, approved for Latvia on 23 December 2008, calls for “substantial fiscal policy tightening” and the fund will not take a decision on El Salvador’s request for crisis funding until after the El Salvadorian election. The local mission chief, Alfred Schipke, has already met the main presidential candidates and ensured all of their endorsement of the IMF plan, which is “anchored on maintaining a prudent fiscal stance in 2009”, so at least one lesson from South Korea has been learnt.

It turns out that IMF’s recommendation for government to intervene in the financial markets is nothing new. It discourages capital controls and government involvement, supporting transparency of transactions—a standard Washington Consensus governance requirement.

Moreover, the suggestion to spend your way out of a recession will not be supported in countries which are deemed to have “high levels of debt” or which have budget deficits. These are, of course, the two main symptoms of suffering from the current crisis, so if financial crisis is the disease, fiscal stimuli is not the medicine IMF will distribute.

Strangely, the fund sees no contradiction in publically pushing for global fiscal expansion while simultaneously calling for fiscal contraction in every client country where it has policy influence. The IMF and Strauss-Kahn’s announcement is sadly nothing but empty rhetoric, aimed at building goodwill and maybe entice “some large emerging economies” (read China and India) to take up a loan with the new and friendly IMF. Buyer beware, it is the same old thing.

This opinion piece was previously published in The Mint newspaper, on 1 January 2008.

The Development Orthodoxy

by NSER Editorial Board on January 14, 2009

This paper traces the history and current state of international economic development through its institutions and attempts to reassess these institutions and their processes in a heterodox manner. There are many stereotypes and clichés to the foreign assistance industry: that it takes from the poor in rich countries and gives to the rich in poor countries; that it provides laboratories for economists and other social scientists to apply theories abroad that they would never attempt at home (the most obvious examples of these are population control programs and the privatization of pension funds); and that development creates “brain drain” from indigenous institutions to the very institutions of development itself. Although a brief summary of the major research programs in development is given, the paper does not attempt to disprove or confirm any of these or other research programs and their corresponding policy recommendations. The purpose of the paper is to question the very nature of international economic development through a historical and philosophical re-examination of its institutional constructs. The Hegelian dialectical method of analysis is applied to the institutions of economic  evelopment and is used to ask, “what next and why?”

Download full paper here

Weber, Cameron and Matthias Thiemann. 2007. “Questioning Development Orthodoxy.” New School Economic Review 2(1): 5-22