Our Word is Our Weapon

A new briefing from the Center for Economic and Policy Research shows that the IMF has been systematically overestimating future growth in Latin America for most of the last 17 years. The average overestimate of growth during this period was 1.6% for the whole region.

At the political level, this optimism bias makes it easier for the IMF to sell its programmes to developing countries. In terms of policies, it makes the typical IMF prescription of reduced public spending and higher budget surpluses more attractive to the recipient government, since these are usually expressed in IMF deals as percentages of revenues or GDP - if the economy is expected to grow strongly, so will revenues, so cutting spending as a percentage of revenues in order to run a surplus doesn’t sound all that bad. What tends to happen is that the higher growth doesn’t materialise, revenues stagnate, and the government finds itself committed to spending a smaller slice of a not very big cake. This, of course, has direct consequences for the people who rely on public services, but on the larger scale tighter fiscal policy or higher interest rates than are appropriate can seriously hold back a country’s development.

The paper’s authors comment that

In the long-term, overly optimistic growth projections may lead countries to
follow paths that they would recognize as unfeasible, if they had more realistic
growth projections. For example, Brazil’s current debt burden is likely to prove
unsustainable if its growth rate ends up being 1.6 percentage points below what
the IMF has projected. (It could prove unsustainable even if the IMF growth
projections are accurate.) If Brazil’s government had access to unbiased growth
projections, it might opt to follow a different course in dealing with its debt.

For example,

Suppose a country like Brazil tries to chart a fiscal course that is consistent with
meeting its debt service obligations. Brazil has a debt-to-GDP ratio of approximately 60
percent and faces a real interest rate of approximately 12 percent. If the IMF projects
that Brazil’s economy will grow 3.5 percent annually, then this means that Brazil can
keep its debt to GDP ratio constant if its government runs a primary budget surplus (net
of interest payments) equal to 5.1 percent of GDP.

However, if Brazil’s economy only grows by 2.0 percent, which would be
expected given the bias in IMF projections, then a primary budget surplus of 5.1 percent
of GDP would be insufficient to keep the debt-to-GDP ratio constant. In this scenario, the
debt to GDP ratio would continue to rise, even if Brazil ran a primary budget surplus
equal to 5.1 percent of GDP. After one year, the debt-to-GDP ratio would have risen to
60.9 percent of GDP. This rise in the debt-to-GDP ratio would require an even larger
primary budget surplus the following year. However, if the target is again based on an
overly optimistic projection from the IMF, then the surplus would still be insufficient to
stabilize the debt-to-GDP ratio. If Brazil continued to set surplus targets based on overly
optimistic growth projections, then each year its debt to GDP ratio would rise, as would
its primary surplus target. After ten years, its primary surplus target would reach 5.9
percent of GDP, and after twenty years its surplus target would hit 6.7 percent of GDP …
This surplus would be the equivalent of the U.S. government running
an annual primary budget surplus of $737 billion.

In short, Brazil would be forced to run every-higher budget surpluses - a huge drain on the economy - just to keep its debt from rising.

As it is, Brazil’s situation does not realistically look like improving any time in the near or medium future. The only reason it has not defaulted on its previous loans is that that the IMF keeps throwing new ones its way. This is not a plan or strategy of any kind, just an attempt to defer the eventual default for as long as possible. It also, as James K. Galbraith points out in The Brazilian Swindle and the Larger International Monetary Problem, allows the IMF to maintain its grip on Brazilian economic policy, notwithstanding the recent election of left-wing President ‘Lula’ Da Silva. Lula may have got more votes than George Bush, but he’s not allowed decide his own country’s economic policy.

Galbraith also argues that another purpose of the IMF bailouts is to cover foreign lenders potentially ‘exposed’ by loans to Brazil:

Nothing here holds out any hope that Brazil’s high indebtedness and interest obligations can be reduced. There is no amortization plan. Therefore, unless something does turn up (for instance, massive price increases for orange juice and coffee, which are not very likely), the outlook is for another IMF loan, and another, and another, into the indefinite future, until the private foreign sector is safely divested of its Brazilian holdings.

There is also nothing in the loan that holds out the prospect for economic progress in Brazil itself. Neither increased public spending nor increased imports can be financed from it. Hence the loan represents no new money that would benefit Brazilians, except to the extent that wealthy Brazilian nationals also transfer their assets abroad, and that locals purchase durable imports while they can. It is a standstill, not a progressive package, whose purpose is to keep the wheels of finance spinning, aimlessly, on the Brazilian beach.

Who benefits? In the first place, private holders of Brazilian assets, who have an opportunity to escape before a severe devaluation. In the second place, foreign bankers, whose loans will receive interest longer than would otherwise be the case. And in the third place, domestic political forces inside Brazil that oppose growth in public services and social reform.

It’s hard to see what Lula’s government has to gain from this state of suspended animation - wouldn’t he be better off bringing the inevitable debt default to a time of his own choosing?

[The whole Galbraith article, incidently, is well worth reading, offering an insightful overview of post-WWII financial globalisation, the rise of debt as its defining feature, imbalances caused by the massive debt and deficits accumulated by successive US governments, and the consequences of the inevitable adjustments].

Further to my below post raising issues with Computable General Equilibrium (CGE) models of world trade, there’s this paragraph from the CEPR’s paper on ‘The relative impact of trade liberalisation developing countries‘:

These models also include an unrealistic assumption about the replacement of lost tariff revenues. They assume that the tariff revenue lost as a result of trade liberalization will be offset by increasing lump sum taxes. Lump sum taxes are an artificial construct. They effectively imply that tax revenues are just sucked out of the economy—they are not taxes on specific items like capital or labor income. From the standpoint of these projections, the modeling of an artificial lump sum tax, rather than real world taxes, leads to an overstatement of the gains from trade. Any real world tax will lead to economic distortions, reducing the projected gains from trade liberalization.

Switching taxes from one area to another is no simple matter: ratchet up your country’s income or sales taxes and you might inadvertently increase the size of it’s informal sector (black market), for example. And raising taxes is always extremely politically difficult.

During the run-up to the stalemated WTO talks in Cancun, news sources all around the world repeated pretty much uncritically the World Bank’s assertion in it’s latest Global Economic Prospects report that “a “good” WTO agreement could produce about $290 billion-$520 billion in income gains to both rich and poor countries, lifting an additional 144 million people out of poverty by 2015″.

Several points need to be made here. First of all, the World Bank’s staff made up the eventual tariff rates for this hypothetical ‘good’ WTO agreement off the tops of their heads: rich countries would have maximum tariffs of 10% in agriculture and 5% in manufactures, while developing countries would have maximums of 15% in agriculture and 10% in manufactures. This bears no resemblance to anything that was proposed at Cancun - it is a far deeper, faster and more universal programme of tariff cuts than anyone expects to see any time soon.

Secondly, some of the hypothesised gains reported in the press are more hypothetical than others. The GEP model predicts ’static’ and ‘dynamic’ gains, the first being pretty much the stuff of speculation, and the latter somewhat less reliable. The ’static’ gains predicted for developing countries (in increased income in 2015) are $150bn, an increase of about 1.5% over the ‘baseline’. For such a massive (and massively unlikely) liberalisation programme, this doesn’t seem all that high, and is nowhere near good enough to enable developing countries to achieve the Millennium Development Goals if everything else is business as usual.

Thirdly, there are issues surrounding the methodology of these trade calculations, called Computable General Equilibrium (CGE) models.. In a submission to the UK’s International Development Committee, the World Development Movement have commented that

The assumptions on which these models are based render their results highly inaccurate. In order for CGE models to work, they have to hold various factors constant, and make a range of assumptions to avoid dealing with the chaos of real economies. The standard assumptions used in models produced by, for example, the World Bank and UNCTAD include:
• Perfectly competitive markets: this involves, for example, everyone having access to perfect information, producers having no influence over prices and cost-free entry into markets.
• Consumers all having exactly the same tastes.
• Perfect substitution of capital: in other words, a set of ploughs can be effortlessly converted into a textile mill which can effortlessly be turned into a tomato canning
factory which can effortlessly be converted into an office producing computer software.
• No ‘supply side constraints’ (e.g. perfectly functioning transport infrastructure).
• Full use of factors of production (e.g. land, labour and capital are all fully employed).

These assumptions are a major abstraction from real world conditions. Markets are
far from being ‘perfectly competitive’; consumers do not all have the same tastes and
so do not allocate their income in the same way; changing the way capital is used
does incur costs; developing countries often face major ‘supply side constraints’; and
factors of production are rarely, if ever, fully employed. Assuming away these facts of
life means the estimates produced by CGE models are likely to be significantly
inflated. At best, therefore a CGE model can provide an indication of the direction of
benefits (i.e. positive or negative). But to trust the figures as some sort of accepted
truth – and more importantly to base policy on them – is highly irresponsible.

Fourthly, examination of similar CGE exercises carried out during the WTO’s ‘Uruguay Round’ of the early 1990s does not inspire confidence. Comparing several such models in 2000, John Whalley shows that “there are substantial, and at times hard to explain inconsistencies across model results. One model shows most of the gains come from agricultural liberalization, another from textiles, and yet another from tariff cuts. One model shows developing countries account for around 10 per cent of the total gain, another shows them to gain over 50 per cent”.

Finally, do these models take account of the fact that revenues from tariffs are very important to some poor country governments? Even if revenue losses from reduced tariffs are factored into the models, the sudden onset of these losses and the resulting budgetary turbulence would in themselves be very costly for some countries. There are significant economic, social and environmental costs associated with any sudden upheaval in a nation’s economy, but the World Bank seems relatively sanguine about a scenario that could lead to massive rural depopulation and consequent urbanisation across the developing world.

I’ve had to make some changes to my links to other blogs. Martin Stabe goes, partly because he hasn’t updated since July, partly because his blog seems to have disappeared. But there are additions: Brad DeLong, because he’s a bright, fearsomely productive and non-dismal economist, and Scott Sasaki because I can, and because he is TheGood.

Freeing world agricultural trade will allow developing countries to trade their way out of poverty, right? Michael Lind in the New York Times begs to differ:

Ending subsidies, if it leads to the modernization of agriculture in the developing world, is likely to destroy the very sorts of communities the pro-trade left seeks to support. The high-tech farming of the global north uses machinery instead of human labor, along with huge quantities of fossil fuels and artificial fertilizers and pesticides. If the third world becomes as attractive to agribusiness as the first, then machines will replace family farmers, who will become as rare in Thailand as they are in the United States.

Technological displacement has the potential to produce social disasters. Many of the inner-city poor of the United States descend from farm laborers and tenant farmers displaced by the mechanization of agriculture in the South a few generations ago. Those who joined the middle class did so because they were able to find work in the expanding industrial and service sectors. But such opportunities are scarce in the developing world. For better or worse, the anti-subsidy movement, if it succeeds, is more likely to eliminate developing world farmers than to enrich them.

It’s an interesting perspective - that the developing world’s comparative advantage in agriculture could prove to be its undoing. The alternative theory is that the extra revenues from increased exports will be used to fund investment in more value-added industries. But if more developing countries are exporting more food, prices will continue to fall.

Does it necessarily follow that agricultural liberalisation in the North will lead to agricultural ‘industrialisation’ (ie consolidation, disappearance of small farmers) in the South? I don’t know. And what will the effects be in the North? If OECD countries simply continue with the same farm support system but with less funding, only the largest, strongest, most industrialised farms will survive, with dire consequences for rural life. But if they seize the opportunity to divert funding away from the agroindustrialists and towards, say, small-scale organic farming, they could end up with a productive, labour-intensive, sustainable agricultural sector again.

Some argue that all agricultural subsidies in the North should be done away with, but arguably countries should be free to subsidise whatever they feel like as long as they don’t harm the interests of others. So if Norway wants to keep its fishing villages and feels like coughing up the millions of kroner a year it costs, why shouldn’t it, as long as subsidised Norwegian fish don’t get dumped on the cheap on world markets? Agriculture is a special sector, it does play a unique role in every society, and many of us want to see the right kind of agriculture survive.

The first few days of the World Trade Organisation Ministerial Conference at Cancun has seen some remarkable developments that promise that will probably either herald a genuinely pro-development breakthrough in multilateral trade negotiations or begin the organisation’s slide into obsolescence.

Firstly, the so-called G21 group of developing nations has emerged in opposition to the previously dominant ‘Quad’ (US, EU, Japan and Canada). This group, headed by China, India and Brazil, has produced its own draft text on agriculture, rejecting both the text produced by the US and EU and that sent to the ministerial by the WTO. The text calls for the elimination of all rich-country export subsidies on farm products, reductions in other subsidies, and sharp reductions in agricultural import duties.

It’s not hyperbole to say that years of frustration and poverty in the developing countries, and years of argument and campaigning - all those ActionAid leaflets, CAFOD books and Oxfam t-shirts - in the developed world, have been leading up to this moment. The G-21 countries comprise 51% of the world’s population and 65% of it’s farmers, and they are on a direct collision course with the EU, US and Japan, who have previously rejected any further liberalisation of their agricultural practices. If accepted, the proposals would revolutionise world trade in agriculture and precipitate huge social change in rich and poor countries alike. Decisions taken at the WTO have had huge ramifications for livelihoods before, but this is really the first time that poor countries and development campaigners have felt like they have the upper hand, like the WTO could actually be made to work in their favour.

That’s why this is such a dangerous moment. There’s a chance that the powerful countries who set up the GATT (predecessor to the WTO) and have run it along the lines of a private club ever since, will simply walk away rather than accept the turning of the tide. Now that the world’s silent majority has begun to use its voice, the suddenly isolated rich countries may abandon the experiment and switch to negotiating one-on-one trade deals. It could really go either way, or perhaps most likely, no way at all - maybe nothing will happen, and history will be postponed for a little while longer.

Other developing country coalitions have sprung up in opposition to negotiations on the Singapore Issues (especially investment) and calling for greater allowances for food security and special treatment for the poorest nations. The first group looks to have succeeded, as apparently the EU has dropped its insistence that agreements on investment and competition be included. More details on all this can be found here.

From the World Bank’s DevNews service:

“On the eve of global trade talks, a bloc of the world’s most populous developing nations including China, India and Brazil threatened Tuesday to block any new trade accord unless wealthy nations open their markets to poor countries’ farm products, the Los Angeles Times reports.

At a news conference ahead of today’s opening of the WTO ministerial conference, the “Group of 21″ developing nations also announced an alliance with Oxfam, the international humanitarian aid and development group, in a bid to rally support from globalization opponents. The announcement amounts to a bold challenge to the hegemony of the US and EU in setting the world’s trade rules and agenda. The developing countries maintain that they have popular support on their side, as their group represents more than half the world’s population and two-thirds of its farmers.

“Only the full consideration of the developing members’ proposal will mean success for the conference,” said China’s agriculture minister, Du Qinglin. The emergence of a coalition that includes China and India—longtime rivals on the global stage—represents a significant step, China experts said. Still, there was skepticism among analysts that the new Group of 21 alliance could hold in the face of economic pressure that the United States and the EU were sure to apply. The wealthy countries hold the upper negotiating hand simply because their markets, even if only partially accessible, are essential to the poor countries’ economies.”

Made any plans for 2030? You might want to reconsider. In The 2030 Spike: Countdown to Global Catastrophe, Colin Mason argues that “within 30 years six powerful ‘drivers’ [fuel scarcity, population and poverty growth, climate change, famine and water shortages], will converge with unprecedented force in a statistical spike that could tear humanity apart and plunge the world into a new Dark Age”. Helpfully, he also presents detailed policies that can avert the disaster. Which is not to say that we can rest assured that things are being taken care of. The point of the book is to switch us into ‘crisis mode’, to make us realise that we almost too late to do anything about these various, er, crises.

In an article on OpenDemocracy.net, Ann Pettifor of Jubilee Research argues that “The reckless financial policies of leading western powers in the last two decades make it likely that the next seismic debt crisis will be in America, not Argentina … On a global level, there is $100 trillion of debt outstanding, but only $33 trillion of income with which to repay those debts. Even the drastic recent stock market falls have barely dented the credit superstructure. When this credit bubble bursts in the United States and Britain, it will be middle-class consumers that will first bear the brunt of the financial crash”.

It doesn’t seemt that implausible. Pettifor also makes a more general but very important point about the widening class disparity not in terms of income but in terms of wealth and debt:

On the whole, it is the poor and the middle classes that rely on wages and salaries – while the rich derive their incomes from wealth. However, while the rich have been getting richer, they have not become indebted. Nor are they using these assets to spend and boost the economy. Instead, on the whole, they are standing by while their assets rise in value. The poor, by contrast, have watched as their wages and salaries declined as a share of GDP, and have had to borrow to compensate for these losses. By doing so, they are providing a service to the rest of the economy, and helping asset prices stay high.

So the poor and middle classes have been supporting the asset price inflation that has enriched the already wealthy, while exposing themselves even more to the eventual crash.

EU Member States have submitted their second ‘National Action Plans against poverty and social exclusion’. Each one contains a wealth of statistics and policy information, and they’re all available here.

Some background to the upcoming World Trade Organisation Ministerial Conference in Cancun

BBC special report;

Everything you ever wanted to know about the issues at Cancun;

The latest news from the trenches;

Corporate Europe Observatory: the European Commission’s Hall of Shame;

Draft cancun declaration (very provisional).

On the commute to work one day last week I listened to The Clash’s “London Calling”. It felt fresh and exciting, revitalising the soul and sharpening the senses. Reflecting on this effect, I knew it wasn’t just down to The Clash, or down to me. I give a lot of the credit for a deeper and broader enjoyment of music - and the life it connects to - to Ian MacDonald, the music journalist and author of “Revolution in the Head: The Beatles’ Records and the Sixties” and the more recent “The People’s Music”. I thought about writing to MacDonald, just to ask what he thought of the Clash. I often wonder what he would think of whatever band I’m listening to. I just learned this afternoon, though, that Ian MacDonald committed suicide in late August of this year after a long history of depression. This post, so, is a brief tribute to the man and his writing.

Both Revolution in the Head and The People’s Music are famous and popular works, but not because they were or are fashionable. In each book MacDonald explicitly asserts that the popular music - and by implication the popular culture and even the society as a whole - of the recent decades is of a significantly inferior quality to that of the 1960s. It’s easy to say this kind of thing, and many people say little else, but it’s far harder to get contemporary readers - especially young readers like myself who grew up in the 1980s and 1990s - to agree and understand why.

I won’t go too far into the reasons behind this thesis. The two books mentioned are long and detailed arguments in support of it, in which musical and cultural analysis are very usefully joined. The main thing I want to communicate is the freshness, quality and importance of the stuff he wrote.

For MacDonald nothing in the best music was completely accidental or insignificant. This is not to say that he thought everything the Beatles did was worthy - merely that it was significant or important in that it told us something about the men who embodied one social revolution and instigated another. So ‘Ob-la-di Ob-la-da’ is subjected to the same close critique as ‘I am the Walrus’, the better that we may know it to be rubbish. Every song the Beatles recorded gets an equal hearing in Revolution in the Head, and every mistake, accident and inspiration is pulled into the coherent narrative of four brilliant young men who set off a cultural avalanche. It’s a mark of his eloquence that the frequent passages densely packed with technical details in Revolution in the Head felt meaningful to even this musically-ignorant reader, and sometimes had a poetry of their own. It wouldn’t particularly surprise me to learn that Revolution in the Head was enjoyed by people who never listened to the Beatles. The same may go for his earlier book The New Shostakovich, which sought to understandd the Russian composer in the context of the society he lived in and which, according to one reviewer, “gets under the skin of Shostakovich and understands the perversity of the Soviet system and what it has inflicted on humanity”.

MacDonald admired genius but respected no reputation, writing with a natural understanding of human failings, so that even his sharpest (and funniest) criticims have an element of sympathy. When in The People’s Music he dismissesmuch of Marvin Gaye’s music as possessing a “supine coke-fuck aesthetic” which “will strike future listeners as decadent or prophetic, depending on how history proceeds”, it is with regret rather than pleasure.

The above quote is typical, as it moves surely from musical to social explanation. MacDonald had no time for modern sociology, but sociology could do with reading some MacDonald. Some passages in Revolution in the Head are filled with darkness, describing what MacDonald seemed to see as the slow and inevitable leakage of feeling and quality from the world as technological progress, social fragmentation and the expansion of the self-centred individualism sparked off in the Sixties took their toll. The challenge that he posed to social thought was pretty similar to the challenge that he posed to music writing, since it was based on a rejection of the postmodern relativism that bedevils both. MacDonald asserted that it IS possible to objectively judge the quality of music, and the quality of our society, our lives and our characters. What, then, does the decline of pop music (and jazz, and classical) say about us?

One assumed at the time that someone who could write about social disintegration with such calm, self-possessed authority could handle such thoughts. Even now it’s not hard to dismiss the temptation to see him as a victim, because suicide is just one rational response to a world gone wrong, or indeed simply to unbearable depression.

He was not a detached academic, at least not always. In the early 70s he was assistant editor of the NME, helping to revolutionise its format and content, and presiding over a tripling in sales. He also dabbled in song-writing and even released an album, Sub Rosa, in 1990. Why did he choose to die now, even as The People’s Music was being so well received? Who knows - his obituary in the Times gives as some explanation for his suicide that “Over the past two years, he had fallen into a deep depression over the state of the world”. He was still thoughtful enough to leave a note on his front door asking the caller to contact the police.

Nothing I say can do justice to the quality of Ian MacDonald’s writing. It’s always thought-provoking, frequently funny, and has a habit of poking little shards of joy into the dullest day. Those with eyes to read, let them read.

Links:

Obituary

Tribute by Barney Hoskins

Autobiographical interview

Plaudits for Revolution in the Head

and for The New Shostakovich

Slightly disjointed interview given only three weeks before he died, illustrating his natural courtesy and indifference to both sociology and the movie ‘Ghost World’

I’m creating a new subject category called ‘Off-Topic’, for the (very) occasional post which is not about development, globalisation, public power, etc … The first post is above.

Typically, I did a great big long post on poverty while leaving out the story that prompted me to write it in the first place. a report by Save the Children, “a fifth of the worst-off families were those with adults in work rather than on benefits … children whose parents yo-yo between work and unemployment often live in worse conditions than those whose parents are constantly out of work”.

The problem is the lack of job security among the low-paid, and that while a job can be terminated or lost suddenly, benefits take longer to be reinstated. So from the perspective of someone who values a stable income more than a slightly higher but riskier one, such employment opportunities as there are can be pretty unappealing.

This is just one of the structural problems undermining the fight against poverty. The high cost of childcare is another, low pay another. The Institute for Fiscal Studies says the Government needs to give an extra five pounds a week to children in low-income families if the pledge of cutting child poverty by a quarter by 2005 (and the later targets mentioned below) are to be met.

To meet its own target, the Government thus needs to intervene positively in housing, employment, pay, childcare and welfare. For a regime ideologically committed to the free play of market forces, that could be quite a struggle.

Way back in 1999 Tony Blair pledged to halve child poverty by 2010 and eradicate it by 2020. If you want to judge Blair and New Labour on anything, judge them on this, as it is their most difficult and most potentially revolutionary policy, and the most fundamental to the unifying New Labour vision of ‘equality of opportunity’.

Most difficult because the pledge is to bring all children above the line of 60% of median income, a relative measure that has tended to keep rising since Blair made his promise. Most revolutionary because it cannot be met without significant redistribution, positive reform of the economy, better welfare and services, and significant erosion of social exclusion. And most fundamental to New Labour because, so far, ‘equality of opportunity’ has had only a rhetorical existence under New Labour, and their programmes of privatisation and deregulation have deliberately acted against it. To achieve the poverty pledge they will have to change their ways, and many will forgive them almost any past transgressions if they make it.

Anyway. There has been a flurry of activity on the poverty front recently, and we’re in a fairly good position to see how well Labour is doing. This post, though, will just look at a few indicative sources and draw the usual hasty conclusions.

First, there’s last month’s research, reported in the Guardian of August 5th which looks at poverty in terms of living standards rather than relative income and finds that “the government’s tax credits have been more effective than it thought in reducing extreme hardship”.

The key word is ‘hardship’. Alan Marsh and colleagues at the Policy Studies Institute took eighty items - family necessities such as hot meals, clothes and tv, and added in debts, overcrowding and housing conditions - and constructed a nine-point ‘hardship scale’ on which to measure a family’s ‘real’ poverty. 8,000 families were surveyed, making it the largest exercise of its kind. Overall, they found, “seven out of 10 British families in 2001 scored zero on the nine-point hardship scale, 23% registered one or two points and only 8% were in “severe hardship” (three to nine points)”. Capturing trends over a few years, the research reveals that “In 1999, 41% of out-of-work families were in severe hardship … [but] by 2001 this figure had dropped to 28% among lone parents and to 22% among out-of-work couples”.

They attribute these improvements directly to Labour’s introduction of the working family’s tax credit, and increased benefits for those out of work. Popular wisdom may tell us that ‘throwing money at the problem’ won’t work, but this shows that it’s not true that “if you give poor parents extra cash they will spend it on alcohol, cigarettes and lottery tickets … They spend it on food, children’s shoes and getting out of unmanageable debt”.

There are obviously still many families living in hardship, and the research finds concentrations of deprivation among larger families and those reporting long-standing health problems.

Released last year by the Greater London Authority, London Divided: income inequality and poverty in the capital shows how hard it will be to drag the ‘hard-core’ of very poor families above the poverty line. Inner London has especially high levels of poverty, unemployment and low skills, and this is compounded by the chronic housing shortage that results in unaffordability, homelessness, overcrowding, immobility and social exclusion. Looking only at income, 36% of children in Inner London live in poverty, compared with 21% in England as a whole. Add in housing costs, and suddenly 53% of Inner London’s children live in poverty. So far, New Labour has been unwilling to even fully acknowledge the contribution of inadequate housing supply to poverty, but if it wants to achieve its targets it will soon have no choice.

Moving on to employment recent report from the TUC shows that “More jobs and better jobs were created in the five years since 1997 compared to the previous five years, long-term unemployment fell steeply, and excluded workers have been brought back into work”. Lastly, let’s note that at the same time, crime has been falling.

So really Labour aren’t doing all that badly. The strange thing is that sometimes they seem to have stopped believing this themselves, hence ever more strident announcements about ‘getting tough’ on everything from beggars to dog poo. Getting tough on poverty tends to involve being a lot more generous, and that doesn’t sell many papers, but it may be the reason we end up loving New Labour after all.

Here’s a story (from the Financial Times of 19 August) about how the Americans seem to be bowing to the wishes of Iraqis and not trying to hijack their oil industry. Interestingly, it didn’t seem to get that much attention around the world …

Oil to Come Under Iraqi Control as US Fails to Form Advisory Board

The US has decided to leave the running of Iraq’s oil industry to Iraqis after failing to put together an international oil advisory board. The move is likely to boost non-US oil companies’ chances of winning lucrative investment contracts in the country.

Companies such as BP, Royal/Dutch Shell and Total have worried that US companies would be given preferential treatment in Iraq and some analysts have warned that companies from countries that had opposed the war against Saddam Hussein could be frozen out of making investments in Iraq. “In a way it’s reality catching up with them [the US],” said one executive.

The reversal in strategy came after the US faced resistance to its plans from Iraqis within the country’s oil establishment and a reluctance by Iraqi former international oil executives to join the international oil advisory board.

Instead, says Walid Khadduri, editor of the influential Middle East Economic Survey, the Americans are now considering a proposal for an oil ministry advisory board of nine Iraqis.

The group, which would include Iraqi government officials and oil experts from inside and outside the country, would oversee Iraq’s oil policy, help advise the oil ministry on its investments and any decisions on what kind of role the country would play within the Organisation of Petroleum Exporting Countries.

Mr Khadduri said that, while many Iraqis are reluctant to sell their oil reserves, they would be amenable to the idea of opening the industry up to foreign investment. The advisory group would help Iraqi oil officials with that task, which would represent a new departure after years of monopoly rule.Such a group would also be less likely to abandon Iraq’s membership of Opec, thus strengthening the hand of the oil producers’ group and in particular Saudi Arabia, which has steered many of its decisions.

Iraq’s temporary governing council is expected to announce a new oil minister soon. Barring compromises, Thamir Ghadhban, the US-picked head of the Iraq’s oil ministry, is expected to be named. It is still unclear whether the new oil minister would be deemed adequately representative for Opec to invite him to its meeting next month in Vienna. For now, Iraq could play little part in Opec’s production discussions because of its struggle to export significant, reliable volumes of crude oil. At the weekend, Iraq was forced to close its main export pipeline to Turkey when saboteurs blew it up.