Sunday, March 30, 2008

Hugo Chavez -- Not Helping the Poor that Much?

Following on from the previous post about inequality, here's an interesting article in Foreign Policy by Francisco Rodriguez, chief economist to the Venezuelan National assembly from 2000-04. Rodriguez deconstructs the belief, prevalent among not only Hugo Chavez supporters but also his critics, that Chavez has redistributed resources to the poorest in Venezuelan society.
Certainly, there is a wide range of different opinions of Chavez and his government, which we might summarise as follows:

a) Chavez is a dictator who is buying support by redistributing the oil wealth. He will eventually make himself president for life, let all the terrorists camp out in his back yard and form some kind of nuclear alliance with Iran
b) Chavez is popular among many in Venezuela because he has used the oil price boom to establish promising though rather haphazard social programes for people who have always been marginalised. He's an annoying (though occasionally amusing) demagogue who has authoritarian tendencies and but has won his elections fair and square
c) Chavez is the reincarnation of Simon Bolivar and Che Guevara combined, a charismatic leader who is righting the wrongs of centuries and setting a model for 21st century socialism.

What supporters and opponents alike (I'm more or less category B) agree on is that Chavez has redistributed wealth and prioritised helping the poor. Yet this orthodoxy is precisely what is questioned by Francisco Rodriguez. Having worked closely with the Venezuelan adminstration, Rodriguez argues that the perception that Chavez has done a lot for the poor is mainly the product of good public relations campaigns.

Although poverty in Venezuela was reduced from 53 to 27 percent between 2003 and 2007, Rodriguez claims this is almost entirely due to rapid economic growth in the wake of the oil boom. The one percentage point reduction in poverty for every point of GDP growth is a poor return, says Rodriguez, compared with other (unnamed) developing countries which have managed two points of poverty reduction per point of GDP growth. In addition, he says:

The average share of the budget devoted to health, education, and housing under Chávez in his first eight years in office was 25.12 percent, essentially identical to the average share (25.08 percent) in the previous eight years. And it is lower today than it was in 1992, the last year in office of the "neoliberal" administration of Carlos Andrés Pérez -- the leader whom Chávez, then a lieutenant colonel in the Venezuelan army, tried to overthrow in a coup, purportedly on behalf of Venezuela's neglected poor majority.

The further statistics Rodriguez cites include:

-- the Gini coefficient (a way of measuring income inequality, the higher the worse) increased from 0.44 to 0.48 between 2000 and 2005
-- infant mortality has dropped, but at the same rate (3.3 percent per annum) as the previous nine years, and much less quickly than in Argentina, Chile and Mexico (5.2--5.5 percent per annum)
-- the percentage of underweight babies, percentage of people without access to running water, and percentage of people living in house with earthen floors all slightly increased between 1999--2006
-- the much vaunted Robinson literacy programme shows "little evidence [of having] had any statistically distinguishable effect on Venezuelan illiteracy"

The most notable policies of the Chavez administration, according to Rodriguez, have in fact been its nationalisations and expansion of state economic (rather than social) activities. These appear to be leading to a re-run of the 'macroeconomics of populism', a particularly Latin America affliction where expansionary government policies eventually lead to balance of payments problems, spiralling inflation, and a decline in real wages (Alan Garcia's 1985-90 mandate in Peru perhaps winning the prize for the most disastrous example of this cocktail).

His concluding paragraphs strike me as rather wise and, for those who've paid attention to any of my previous posts, run along similar lines to other conclusions I've favoured:

It would be foolhardy to claim that what Latin America must do to lift its population out of poverty is obvious. If there is a lesson to be learned from other countries' experiences, it is that successful development strategies are diverse and that what works in one place may not work elsewhere. Nonetheless, recent experiences in countries such as Brazil and Mexico, where programs skillfully designed to target the weakest groups in society have had a significant effect on their well-being, show that effective solutions are within the reach of pragmatic policymakers willing to implement them. It is the tenacity of these realists -- rather than the audacity of the idealists -- that holds the greatest promise for alleviating the plight of Latin America's poor.

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Friday, March 21, 2008

Thoughts for Food

Writing in Dissent Magazine, Thomas Pogge takes on the complex issue of international economic growth and inequality. His main aim is to take issue with the idea that 'first we've got to grow the cake before we share it out' and the assumption that the best way to reduce poverty is through all-out economic growth that will benefit all through trickle-down processes. Instead he suggests that more equitable economic growth may be of much greater benefit to the poorest, even if it's a little slower, at a very small opportunity cost to the richest.

Pogge's starting point is one of nifty dynamic graphs of international GDP per capita (at purchasing power parity) along the lines of those developed by and displayed on the
Gapminder website. This one was displayed in the March 2004 issue of the Economist as a piece of one-upmanship on market globalisation critics. Charted at country level, poorer countries have grown more slowly over the last twenty years than rich countries. However, when you account for each country's population (changing the size of the dots on the graph) , the slope of the trend is reversed, thanks to the success of China and India.

All very well, says Pogge. But this considers only one of the dimensions of inequality -- between countries. Also relevant is inequality within countries. Little can be inferred about the poverty-reducing effect of a country's growth in average wealth if all the extra income is going to the richest. For example, survey data indicates that the income of the bottom decile in the United States is not much more than that of the bottom decile in Hungary, and only half that of the bottom decile of Japan or Norway.

Pogge makes what I agree is the important point that the relative income share is also important to consider, because "many things money can buy are positional or competitive: political influence, for instance, and access to education and even health care depend not merely on how much money one has to spend but also on how much others are willing and able to spend on those same goods".

That is a point that can be disputed at an ideological level, and then we get into complicated debates about rewards and incentives. But even if we just stick to differences in absolute income levels, the situation is a lot more extreme when developing countries are considered. For example, the income of the poorest decile in Turkey is nearly three times that of Colombia's poorest (although the two countries have a similar GDP per capita at PPP), and the lowest decile in Colombia earns only 7.4% of the average national income. Even more strikingly, in Vietnam, which is only half as rich as Colombia, the poorest decile has an income more than twice as high as the poorest decile in Colombia.

Pogge goes on to consider China, the great poster child for development through maket globaisation. While he acknowledges that there have been large gains for Chinese, including the poorest, he wonders whether even greater reductions in poverty could have been possible with more equitable growth. Between 1990 and 2005, the national per capita Chinese income grew by 236 percent, but that of the bottom decile just 77 percent, while their relative share declined from 30 to 16 percent of the average. Had the relativities been retained, suggests Pogge, even at the expense of a couple of percentage points of growth per annum, the poorest 40 percent of Chinese would all be better off in absolute terms than they are today.

Finally, he considers inequality between human beings world wide. Here he suggests that China's success may have been at the expense of the global poor elsewhere. With only a limited amount of access possible to the still-protected markets of the rich and powerful nations, could China have crowded out the gains of other developing nations by winning the race to the bottom in terms of labor and environmental standards? It's a provocative thesis, but if valid, would be a caution against supposing that other nations can simply follow China's path.

Overall, comparing humans to other humans paints the most dramatic picture of all. Sticking to PPP terms, the poorest quintile of humanity controls just 0.4 percent of the world's wealth, while the richest 1 percent controls 31.6 percent. Doubling the wealth of the bottom two quintiles (40 percent) of the world's population would take just 1.5 percent of the wealth of the top 1 percent. Pogge concludes:

Most of the massive severe poverty persisting in the world today is avoidable through more equitable institutions that would entail minuscule opportunity costs for the affluent. It is for the sake of trivial economic gains that national and global elites are keeping billions of human beings in life-threatening poverty with all its attendant evils such as hunger and communicable diseases, child labor and prostitution, trafficking, and premature death. Considering this situation from a moral standpoint, we must now assess growth—both globally and within most countries—in terms of its effect on the economic position of the poor.

It's a good argument that helps cut through some of the ideological fog in all the contradictory statistics. But it still leaves the massive question of just how you do engineer economic growth with less inequality. If it requires 'more equitable institutions', what are these equitable institutions, and how should they work?

Wednesday, March 19, 2008

Modernisation, Shmodernisation

Excuse the potted summaries of my development studies lectures. They are part of my 'diary', which will contribute to a portion of my course work grade.

A couple of weeks into the lectures, we got to Modernization Theory, the starting point for any discussion of development theories. This comes from the period around the end of the Second World War, when there was a surge of interest in how the poor benighted masses of the world could improve their lives by becoming much more like us in the West.

On the one hand, getting the starving natives to the point of having a refrigerator and a car in the driveway would make them less susceptible to the Red Peril. On the other hand, if you were a communist, modernisation had to be part of the glorious dialectical march of history.

According to the standard view, modernisation happens along a number of different dimensions. To the uninitiated, a lot of this will look less like a theory than the set of assumptions we still go by most of the time.

Population -- high birth and death rates give way to a period of rapid population growth, then finally to a stabilising population with both birth and death rates low.

Economy -- subsistence agriculture with little specialisation and exchange through reciprocity eventually sees production removed from consumption, a high degree of specialisation, and exchange through money rather than reciprocity.

Society -- tribal societies where kinship networks dominate and social status is inherited give way to meritocractic societies based on the nuclear family and a secular, scientific education. Class becomes a key organising factor of society.

Politics -- tribal groups with local control and close association between political and religious leaders give way to the modern democractic state with mass participation in politics based on political parties, separation of church and state, and mass communication through the media.

Geography -- modernisation diffuses through space, with transport, trade and urban centres hastening the process of modernisaton and vice versa. The spread of modernisation can be measured by things like kms of roads, telephone connections, kids in school, and newspaper circulation (and nowadays mobile phones and internet connections).

Although we are about to learn about all the critiques of modernization theory and how it has been superceded by theories that are more sophisticated or diametrically opposed, much of it clearly still drives how we think about the world. For example, a lot of people might have had deep reservations about the likelihood of the neoconservative dream of turning Iraq into a 'modern, secular liberal democracy' and thereby 'transforming the Middle East'. More people still rejected the means by which it was to be achieved. But there was certainly a general sense that it was a desirable goal.

Friday, March 14, 2008

Joe Stiglitz and His Discontents

Friday evening we went to see Nobel prize winner, former Clinton adminstration and World Bank honcho and best selling author Jospeh Stiglitz 'chat' with NZ-domiciled economic journalist Rod Oram as part of Readers and Writers week at the Wellington International Festival.

In the course of the hour or so of discussion we got for the $25 entry fee, Stiglitz:

--reiterated that 'there needs to be a balance' between the responsibilities of markets and government. He cited his own work on information asymmetries as demonstrating why markets aren't always efficient, and pulled out what was no doubt a favoured quote that 'the reason why the invisible hand is invisible is that in many cases it isn't actually there' .

-- heaped special praise on the the Scandinavian countries as having effectively struck that balance and having succeeded through 'investing in their young people' and being prepared to pragmatically review and revise policies.

-- stressed that governments need to implement redistributive policies to compensate those who lose out under international trade and globalisation. He (to my moderate surprise) slightly favoured Obama to achieve this in the US, but said that 'the policy differences between the two [Democratic candidates] are much less than those with McCain'.

-- argued that central banks should not be restricted to narrow inflation-only targets, but should also have economic growth and employment as objectives. He suggested that former Federal Reserver chairman Alan Greenspan bore some of the blame for the current credit crisis, by encouraging people to take out variable-rate mortagages.

-- in response to the inevitable 'but is economic growth sustainable' audience question, agreed that better measures of economic wellbeing and progress than simple GDP need to be developed, factoring in environmental degradation, resource depletion and so forth (check out the work of Partha Dasgupta for what these might look like).

When asked about whether he preferred a cap-and-trade system or carbon tax, he said that the two were near enough to equivalent if emission credits are auctioned. Giving away the emissions allowances -- as is set to happen in New Zealand -- he thought would 'give scope for corruption'. Ideally, said Stigliz, there should be a fully international auction of emissons permits.

Stiglitz came across as the atchetype sensible progressive, spontaneuously applauded on occasions by the 1,500 or so right-on middle class Wellingtonians. With his friendly-bear demeanour and softly gruff tones, he reminded me of another maverick New England academic, philosopher Daniel Dennett. As was the case when I watched Dennett tear apart creationists in front of a group of atheist or agnostic philosophy students, I thought it might be more fun to see Stiglitz put his well-reasoned messages to a crowded town hall in rural Texas, or maybe Te Kuiti.

Sunday, March 09, 2008

Development and Dependence

One of the recommended books to consult in our Development Studies course is a text of sorts called The Companion to Development Studies, edited by Vandan Desai and Robert Potter,

Heading straight for the bits on Latin America, I found confirmation that Eduardo Galeano's poetically fist-shaking The Open Veins of Latin America had its intellectual foundations in a body of work called dependency theory

As described in my review of Open Veins, Galeano describes an exploiting 'core', which dominates industrial production (and makes the decisions), and an exploited 'periphery', which provides raw materials and cheap labour. Core-periphery relations can exist between continents (eg, Europe--Latin America), between countries (eg, Brazil--Paraguay) and within countries (eg, Lima--Andean Peru)

Dependency theory originated with a group of Latin American economists who worked with the United Nations in the aftermath of World War 2 and came to present a peculiarly Latin American perspective on development. Dependency theory was notable in being the first body of thought on these issues that actually originated in the 'developing' world. It's easy to spot its origins in Marxism -- for many dependency theorists, the 'underdevelopment' of the third world periphery is a necessary correlation of the development of the rich countries. Exploitation is seen as inherent in the very nature of capitalism.

A brief glance through the short articles in Desai and Potter told me that dependency theory has been critiqued from several quarters. There have been technical criticisms from within Marxism, which made me glaze over a little even in the one-paragraph versions. There have also been arguments that dependency theory requires excessive ad hoc adjustment to fit the very diverse kinds of economic relations that exist at different places and times.

With a bit more reading, I'm likely to agree with the latter views. However, as I noted in the review, it doesn't need to be a grand theory, and you don't need to be a Marxist, to find Open Veins a compelling historical account of Latin America's economic and political history that strikes to the root of the continent's problems.

As also noted, the book ends in the mid-70s, amidst a dark wave of miltary dictatorships but before the numerous economic crises of the 80s and 90s. The controversies resulting from these events suggest that the debate about dependency theory is far from dead. As I read further, I expect to hear more about how, as colonialism has ended and local democracy has strengthened, the power relations of core and perpiphery have been perpetuated through mechanisms such as debt and trade rules. I might even try to contribute some such thoughts myself.

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Tuesday, March 04, 2008

History Marching On?

One of the advantages of two-hour lectures is that you get potted summaries of frighteningly dense academic texts, which you later recall as actually having read.

Tonight we were introduced to the work of two historians called M P Cowen and R W Shenton, who, in a work of apparently monumental difficulty, tease out the difference between what they call 'immanent' and 'intentional' development.

According to the authors, 'immanent development' is the organic, undirected, potentially chaotic process exemplified by the Industrial Revolution. It involves rapid technological change, massive urbanisation, and the overthrow of old values and institutions, destroying while it creates.

'Intentional development' is the intervention of governments and other institutions to control and direct development. It aims to slow down urbanisation through favouring rural development, and preserving some parts of existing customs and institutions. Most of what we think of as 'development projects', by government agencies and NGOs, would fall into this category.

It helps to learn that Cowen and Shenton are Marxists, disapproving of 'intentional development' as a reactionary impediment to the glorious march of history. Seen in this light, their characterisation of 'intentional development' sounds similar to the attitudes of magazine Spiked, whose contributors like Frank Furedi and Brendan O'Neill are cuttingly scornful of the concept of 'sustainable' development and lambast the 'eco-miserabilists' that are pessimistic about human progress.

writers are contemptuous of the patronising do-gooding of western agencies who set African villagers' sights on a donkey-powered well, rather than a modern reticulated water system. O'Neill has launched an attack on the practice of offsetting carbon emissions by discouraging third-world farmers from using energy-intensive technologies -- something he calls 'eco-enslavement'.

The description of intentional development also sounded to me like Alan Garcia's slogan of 'responsible change' with which he carved out his position in the 2006 Peruvian elections. But if you look closely, here the concept described by Cowen and Shenton is flipped on its head. In Garcia's case, the 'change' didn't refer to development, but to redistributive policies and more help for the poor. 'Responsible' referred to not trying to regulate and redistribute too much -- i.e. not doing anything radical that might frighten investors and financial markets.

This suggests that, since the late 1980s, the dynamic march of global capitalism has come to be seen as the orthodox state of affairs, and upholding it is in effect the conservative position.
The 'immanent', grassroots tendency in many countries is to seek stability and security, and to oppose or put conditions on the unsettling flux of capitalism. This is now seen as radical.

Garcia's actual behaviour in government has been rather different from promised, with less 'change' and rather more 'responsibility' to the business elites that the likes of La Republica columnist Humberto Campodónico claim are his taskmasters. He has declared certain major mining projects as 'in the national interest' and called those who oppose them 'old communists'.

Pondering these paradoxes led me to wonder whether there aren't two conflicting kinds of 'intentional development'. Sure, the NGOs are squirreling away, trying to promote productive rural communities, just as Cowen and Stenton say. But they're overshadowed by the alliance between business elites and government, which pushes more rapid economic transformation than would occur naturally.

There's a name for this -- corporatism. It's at the heart of what Noami Klein is critiquing (in a sometimes overblown, but broadly effective style) in her book The Shock Doctrine. The 'creative destruction' of unfettered capitalism might have originally been an 'immanent' process driven by new technologies and organic social changes. But as Klein and others have argued, in recent times it has often been imposed from the top down.