Our Word is Our Weapon

After yesterday’s post on the rhetoric coming out of the World Bank, today I’m going to look at WB President James Wolfensohn and UK Chancellor Gordon Brown’s Guardian piece last week on “a new deal for the world’s poor”.

A reminder of the challenge we’ve set ourselves:

Five years ago, every world leader, every major international body and almost every single country signed up to eight millennium development goals - at the heart of which is a definitive commitment to ensuring education for every child, the elimination of avoidable infant and maternal deaths and the halving of poverty.

Keep in mind that the Millennium Development Goals (MDGs), if achieved, would represent probably the greatest single leap forward in development in history. I know that’s not saying much, but still.

Brown and Wolfensohn are worried the world will fail to meet the challenge:

But by next year, the first goal, for girls’ education, will go unmet - and world leaders face a stark choice. Either resources are made available now to tackle poverty, or targets set in a fanfare of publicity will once again be missed and the world’s poor left further behind. Seventy countries will have failed to achieve universal primary education by our target date. Yet the promise we made on education for sub-Saharan Africa was to be met by 2015 - not, as now predicted, 2129. Instead of cutting child mortality by two-thirds by 2015, 30,000 children continue to die unnecessarily each day from avoidable diseases. Yet the promise we made on child health for sub-Saharan Africa was to be achieved in 2015, not - as it now looks - 2165

So the world made serious commitments to meeting these targets, and now it looks like they’re going to be missed, and it’s not even going to be close. At present rates of progress, it’s going to be over a hundred years before Sub-Saharan Africa reaches the required level. And that’s making the rather optimistic assumption that nothing goes unexpectedly wrong in Africa in the meantime. To me, the obvious conclusion is that business as usual is simply not an option - today’s ’system’ is drastically unsuited to meeting the MDGs.

It looks like Brown & Wolfensohn agree: “To have a chance of meeting the millennium goals, a new deal between developing and developed countries must be forged”. Great! Let’s hear it, then.

It is in the interests of developing countries to tackle corruption and undertake a sequenced opening up to the investment, trade and growth that will provide jobs. And working with the World Bank and the IMF, developed countries must improve the quantity and quality of development aid. Our offer should be that countries willing to reform will have the resources they need to tackle illiteracy, poverty and disease.

Run that last bit by me again? “Our offer should be that countries willing to reform …”. Our offer? A minute ago it was the world’s greatest scandal that the MDGs were going to be missed, a scandal that can be put down almost entirely to the failure of rich countries to increase their levels of aid as promised again and again. We have no right whatsoever to make these kind of inordinate demands of developing country governments, and I mean demands for policies that we would not implement ourselves in their position. We have already used the IMF and World Bank to force open African economies for our benefit alone, and the benefits for them have been minimal if any. Now we’re just using the MDGs for the same purpose.

But the MDGs are not some handy lever we can use to extract economic concessions out of trading partners. If the promises our government made are to have any meaning then the world must do whatever it takes to meet the MDGs. Everything else is secondary - ’sustainable’ debt, ‘free’ trade, our own views on how Africans should run their own democracies. But with their attempted use of the MDGs as a trojan horse to fulfil our own policy objectives, Brown and Wolfensohn are saying that it is the MDGs which are secondary. They still don’t realise that we are failing the development challenge because we’re refusing to let it stop us from trying to get something for nothing. This manipulative attitude will ensure business as usual, and that will ensure that the MDGs aren’t met, and everyone will see that the rich world doesn’t keep its promises and doesn’t care.

The details of Brown and Wolfensohn’s ‘new deal’ are depressingly familiar - they contain no departure whatsoever from previously announced policy. World trade liberalisation will lift millions out of poverty, apparently - a contentious argument at best. Secondly, “so that all highly indebted poor countries shed the burden of unsustainable debt, the next stage of debt relief must be properly financed”. Er, correction: the first stage of debt relief must be properly financed, then we can move on to the second. And thirdly there’s Brown’s fabled International Finance Facility, which if enacted will enable rich countries to look like they’re giving more aid to the poor without having to actually do so (see next post for an analysis of the IFF).

Brown and Wolfensohn finish up by saying that it is “morally right” to act now. If that is the case, then why are we sticking with business as usual and trying to impose unnecessary (and arguably counterproductive) conditions on countries before we deign to give them extra aid? If it is “morally right” to give the aid necessary to meet the MDGs, it is morally right to do so whether or not we can use the opportunity to make African countries jump through hoops for our amusement.

This moralistic tone is particularly inappropriate coming from the UK, a country with an indifferent record in supporting development. Anyone would think to hear Brown talk (”we must yet again awaken the conscience of the world”) that the UK was somehow at the forefront of enlightened development policy delivery. But we’re not - we’re somewhere in the middle, not as helpful as the Dutch or the Danes and not as indifferent as the Japanese or Americans.

Sorry if this post comes across as excessively cynical, but I’m sick of politicians like Brown and Blair coming across as crusaders when they are refusing to go significantly out of their way to take the steps necessary for actually fulfilling their own promises. If and when they go beyond fine words, I’ll be there clapping them on. For now, Mr Brown’s proposals are more ‘big deal’ than ‘new deal’.

In the next three posts I’ll be looking at a series of recent articles and announcements on the subject of financing for developmetn from James Wolfensohn and Gordon Brown. First off, let’s look at what Wolfensohn’s been saying.

For the last year or so, James Wolfensohn has been shouting as loudly as possible about the need for real action to be taken to address the real preventable tragedies of poverty happening around the world and to reduce the real risks of greater instability and violence in a world joined together by globalisation and torn apart by inequality and injustice. And it is not his own fault that he has seemed an ever more forlorn figure as global poverty has been wiped off the agenda by Iraq and the lack of photogenic ‘anti-globalisation’ riots in European capitals. Indeed, he just seems to be getting angrier.

On February 11th he told Jyllands-Posten of Denmark that failing to alleviate poverty “will create instability, conflict and possibly terror”. The most important thing, he said, “is to give people possibilities and hope by solving the problem of poverty. And I don’t think that problem can be solved with security and military power. Of course that is also necessary, but in order to make a long term strategy, it needs to encompass poverty alleviation.”

Writing on February 12th in The Australian, he said that “The fault-line imbalance of our time is the great divide between rich and poor”. Want some facts?

In our world of 6billion people, 1billion own 80 per cent of global wealth, while another 1billion struggle to survive on a dollar a day. Two billion people have no access to clean water; 150million children never get the chance to go to school; more than 40million people in the developing countries are HIV-positive, with little hope of receiving treatment for this dreadful disease.

Demography is another source of imbalance. Over the next 25 years, about 2billion more people will be born - but only 50million of them will be in the richer countries. The vast majority will be in the poorer nations: born with the prospect of growing up into poverty and unemployment - and disillusioned with a world that they will inevitably view as inequitable and unjust. Terrorism is often bred in places where a burgeoning youth population sees hope as more of a taunt than a promise.

After all, he says, we can’t afford to simply ignore this kind of thing anymore. Not only are more young people growing up “disillusioned with a world that they will inevitably view as inequitable and unjust”, they now are finding it much easier to travel to places where they can take out their feelings on an appropriate target. Even in the absence of terrorism, global poverty must still mean more to the rich in an increasingly interconnected world - it’s no good complaining about the amount of people trying to get into our country from outside when we refuse to give them a reason to stay where they are.

In a later speech in Australia, Wolfensohn went further. He described how governments around the globe are plowing $1 trillion US a year into defence, up from $800 billion in 1999, while spending only $50 billion on development. “This is madness,” he said. “We’re spending 20 times the amount on military expenditure than we’re spending on trying to give homes to people.”

Then it’s off to France, where he really cut loose, returning to his theme of the ‘ticking time-bomb’ of the young, poor and desperate. “The efforts undertaken to give these young people hope are ridiculous”, he told the fifth annual conference of the Parliamentary Network on the World Bank. “At this rate, the Millennium Development Goals (MDGs) will never be reached”. There needed to be “ten times, a hundred times more” schools, roads and power plants built in the Third World (with an approving nod towards China’s efficiency at knocking out big projects of this sort).

Interestingly, Wolfensohn then declares that “the real drama [is] that not a word [will] be said about the fight against poverty in the US elections. There will be talk about Iraq, terrorism, but no one will link these issues to that of poverty. And all it takes is a snap of fingers in Washington to cancel Iraq’s debt, to obtain billions of dollars, while Africa is dying unnoticed.”

It’s hard to decide whether these are just rants born out of increasing marginalisation by the powers that be, or a planned strategy with some feasible end in sight. It’s heartening to see someone in a position of genuine power be so spot-on about the consequences of the rich world’s complete indifference towards the poor, but I wonder what this means for the World Bank. After all, in arguing for greater debt relief for poor countries, Wolfensohn must surely be aware that his own organisation is stalling [pdf] on billions of dollars worth of desperately needed relief.

The impression I get is that of two World Banks. One is led by Wolfensohn and is desperate to make a positive difference and shake off the stigma of the years spent forcing the Washington Consensus onto an ungrateful South. This World Bank has a wealth of experience and analytical expertise - it knows what needs to be done and it just wants its hands untied to it can get to work.

The other World Bank consists of the member countries who dominate its executive board. Since power is divided on the basis of one vote for one dollar of funding, the US has a veto on the important decisions and easily blocks - usually with the help of the UK, Japan, etc - anything which is not obviously in its own direct interests. This World Bank sacked Joseph Stiglitz when he forgot which World Bank paid his wages. This World Bank doesn’t really care what the other World Bank thinks.

Noam Chomsky, writing in the New York Times, says that the ‘peace wall’ being erected by Israel - along and beyond its internationally recognised boundary with the West Bank - is designed to take Palestinian land. This should not be controversial - the wall is basically being used as a tool to redefine the extent of the Israeli state and the Palestinian non-state, and also to make any future Palestinian state less viable by removing access to valuable land and water resources. It is non-violent aggression, as the journalist Amira Hass says in Chomsky’s piece, “Drop by drop, unseen, not so many that it would be noticed internationally and shock public opinion.”

This Garticle from the end of January says that “Tony Blair is to head a new,
British-inspired investigation into the causes of Africa’s abject poverty”. I
suppose his logic is that it can’t possibly be much harder than getting
agreement on tuition fees, and anyway all he has to do is travel around the
tropics looking concerned and mouthing platitudes about ‘good governance’,
whatever that means. So what can we expect of the ‘Blair Report’?

I’d be surprised if Blair was very interested in delving into Africa’s rather
messy past. Hey, let’s keep positive here! History’s for books, man. But if
someone with a bit more sense manages to steer the commission towards a more
long-term perspective, they couldn’t avoid concluding that Africa’s problems are
deeply rooted in its inheritence from the near and distant past. Trade, slavery
and colonisation made Africa successively more unequal and robbed it of vast
quantities of people and resources. Canny foreign rulers exploited tribal
factions and left behind absurdly artificial constructs to find their way as
‘nations’, with frequently terrible results. Tribalism, arbitrary boundaries and
disengaged elites combined to undermine the development of proper political
systems, let alone true democracy. Foreign superpowers fought devastating proxy
wars. Economic growth rarely took off due to sparse populations and a lack of
infrastructure and investment capital. Concentrations of vast wealth in natural
resources caused conflict and kleptocracy. The US-engineered debt crisis was
allowed play out to its full catastrophic extent, and continues to rob the
continent of huge chunks of income every year. Stolen billions were funnelled
abroad with the connivance of foreign bankers. AIDS had gouged out the
productive heart of countries across the continent and dragged down life
expectancies, landing those who can still work with the care of the sick and
dying. And living in a great big malaria zone didn’t help.

Seriously, how do you think we would have done?

If Tony’s more comfortable looking to the future, there’s plenty that he and the
rest of the rich world could do right away. Cancel all odious, illegitimate and
unsustainable debt, for one thing. And let’s not make them get on their knees
before we cancel it - or make them open up their economies for our benefit.
Speaking of which, let’s stop forcing them into policies we wouldn’t dream of
imposing on our own countries - compulsory budges surpluses, privatisation of
everything in sight, actual free trade, that sort of thing. Why not let them try
the policies that worked for us, for the US, for post-war Europe and East Asia
and for just about every other now-developed country?

Let’s see, what else? Oh yes, abolish all barriers to their imports so that they
can fairly compete in our markets. Eliminate right away every
single one of the indefensible export subsidies that push down world prices of
their specialist produce and keep millions of them mired in poverty. Increase
the amount of development aid we send them, like we keep saying we will, because
otherwise they won’t be able to meet the targets we promised we’d help them
meet, targets like cutting poverty in half, ensuring universal primary education
and cutting child mortality and death during childbirth. We could also help them
track down and return the billions of dollars stolen by kleptocratic rulers and
their cronies and stashed away in our banks, and stop the ongoing attempts to
continue this tradition. Lastly (for now), if we’re really bothered we could
come up with a new way to raise money for development in Africa and elsewhere,
such as a small tax on pointless or even harmful activities such as currency
exchange and the arms trade.

So there’s huge scope for realistic analysis and decent, effective remedies. And
there’s just as much opportunity for hand-wringing and ineffectual blathering
about how the Africans must jump throgh hoops to show they deserve our fine
words and moon-pies. Tony Blair is the man who either lied or sleepwalked his
way into the Iraq war, and also the man who has pledged to eradicate child
poverty in Britain by 2020. Which way will he jump?

Two pages of charts from the OECD demonstrate that it’s not just how much
development aid that a country gives which is important - it’s who it gives it
to. The top ten countries Ireland gives aid to are, Uganda (top), Mozambique, Ethiopia,
Tanzania, Zambia, Lesotho, South Africa, Afghanistan, Kenya, then ‘Palestinian
Administrative areas’. Uganda gets $30m, with a fairly smooth curve down to PAA
at $3m. This all seems pretty reasonable - those are all very poor places and
it’s hard to argue that there’s many who need the cash more.

Who do the US give their development aid to? From the top, it’s
Egypt, Russia, Israel, Pakistan, Serbia and Montenegro, Colombia, Ukraine,
Jordan, Peru, and Afghanistan. Hmmm. I think the US might have different
priorities, don’t you?

Changes in the accounting rules set by the EU’s Eurostat agency mean that
governments who like giving money to the private sector through ‘private finance
initiatives’ will find it much easier now because it won’t count as public
borrowing. You can almost see their point: real public borrowing is cheaper and
doesn’t involve the private sector making massive profits out of state projects.
PFI, on the other hand, actually is public borrowing (you get money
now, you pay it back later) but is more expensive. It’s like saying that loans
above a certain interest rate don’t count. Eurostat and the Irish government
will try to justify their love of PFI with some bollocks about how the private
sector ‘takes on more risk’ through PFI. Experience in the UK shows how untrue
this is - when the project in question is as big and important as, say, a
new Metro line, the government is hardly going to let it go under. If the
company says it needs more money to complete the job, that’s exactly what it
will get. Naturally, Irish transport Minister Seamus Brennan is wetting his
pants at the prospect of getting so much cash which he probably believes is
actually free, and is either forgetting or choosing to ignore that future Irish
governments and tax-payers will be paying the whole lot (and much, much more)
back for decades to come.

I’ve made a Favicon for this site - a little 16×16 pixel image that should appear in your address bar instead of Microsoft’s ‘E’ logo or whatever your own browser puts there. Here’s the little fella (enlarged, obviously):

I think I’ve managed a pretty passable likeness of Subcomandante Marcos there, without actually trying to. Anyway, if you can’t see the icon in your address bar, that’s just one more very good reason to download Mozilla’s Firefox browser, which does this and everything else many times better than Internet Explorer.

Last week (11th Feb) I attended a lecture given here in London by Bob Sutcliffe, a writer on development who provided some of the original inspiration for this site and who I quoted approvingly in my first post almost a year ago. It was a great lecture, made all the more special as it may have been Sutcliffe�s last before he retires.

Below are some notes on the lecture and inequality in general.
(more…)

First of all, I’d like to have some readers. Then I’d like to have readers like Brad De Long has.

A short lesson in the value of a good weblog: Brad De Long, respected economist and , posts expressing his annoyance at the press and politicians attacking White House economist Gregory Mankiw for his attitude to free trade and job losses. Mankiw says jobs lost to outsourcing are no big deal, as everyone eventually benefits from more free trade. De Long criticises the ‘fools’ who attacked Mankiw for his comments, and adds

What trade does is to shift jobs, shift the composition of American employment: people in import-competing industries lose jobs, while people in export industries (or, with the capital inflow, construction and investment goods industries) gain jobs. Economists have lots of good reasons for believing that the jobs gained are better jobs than the jobs lost, and that there are more and bigger winners from expanded international trade than there are losers.

So there. Ah, but readers of De Long’s blog tend to expect a higher standard of explanation, and the comments page has since filled with dozens of complaints and questions. They’re mostly a well-spoken bunch, and there’s some good points in there:

On economic explanations:

To a physicist, the world economy appears to be a very complex, highly non-linear system. I know how hard it is for physicists to really understand the behavior of systems that are much simpler than the economy - even when they KNOW the equations that govern or when they can DO real experiments. Often, in complex non-linear systems, one observes strange and unexpected behavior.

Now economists don’t know the right equations (if they even exist), and they can’t do real controlled experiments, and they are dealing with systems that are much much more complex. How can they be so SURE? I know the standard comparative advantage argument, but I hope that this by itself is not the foundation of their belief (it makes too many unrealistic assumptions). Don’t get me wrong. I’m not bashing economists. I’ just very very skeptical that they know as much as they think they do (not because they’re stupid, but because the systems are just too difficult for anyone to understand with condfidence).

On cost distributions and empathy:

The problem here isn’t simply the hard-heartedness about structural unemployment; it’s the failure to consider that job losses rend the social fabric as well. Job losses and job gains may indeed cancel each other out across a huge economy like that of the US; but they tend to distribute those losses unevenly across the landscapes in which people actually live. People depend on jobs not simply to pay the bills, but to underwrite a way of life that’s frequently rooted in place–in family and community. Economists–operating as they do in a footloose national and even international labor market, and identifying themselves in relation to colleagues linked across cyberspace, do not, in my experience, quite understand that–or … are downright contemptuous of it.

On what you might call the political economy of ‘job shift’:

Even on the terms of the standard account, the costs of trade are often concentrated, while the benefits are diffuse. Is it always better to suffer the concentrated costs rather than adopting limited, targeted, protections? I would think that depends on many things, such as: the relative size of the costs and benefits; how easy it is to recover from the costs; how likely it is that “targeted” protections would expand to cover lots of things. I expect economists like to hold to a simple line on this question because they expect that protections actually can’t easily be limited. It’s better to oppose them all. The problem is that this slogan is vulnerable in present conditions, where people without skills continue to go without wage increases, and in many cases go without jobs. For sure, trade is only a small part of their woes; there’s the familiar litany of causes, from the decline of the union movement, to shifts in production methods, to newfound assertiveness on the part of management.

So, what do you tell people who face these conditions? Is it: sorry, trade’s not your problem. Can’t say what we’ll do to help you, of course. Just don’t vote for politicians who promise to protect your jobs, ok? Frankly, I think that a forty-five year old steelworker would have to be irrational to accept this line. What should he say? Oh, yes, you’re right. I see now that trade benefits the country as a whole. Of course, the people who enjoy those benefits aren’t going to share them with me, to help me get past my loss. And, I’ll also lose a chunk of my personal identity and self-worth, which was tied up in being a good provider for my family. But by all means, don’t let me hold you back! Heck, don’t worry about me at all.

On the inadequacy of “but trade boosts growth” explanations:

In a world where capital flows freely, and where there are huge disparities in income and wealth, I very much doubt that anyone will be able to show, or even convincingly argue, that a particular set of people (US workers) will be better off if trade is more free rather than less.

As many people have commented above, all that economists might be able to show is that free trade increases the total wealth of the world, rather than the wealth or income of a particular set of people - like US workers. And even this increased wealth are likely to be chimerical, when you factor in environmental and human “externalities”.

The discussion gets a bit tired after that, but the basic point remains: Neither Brad De Long or anyone else has managed to give a satisfactory explanation for why “the jobs gained [through more trade] are better jobs than the jobs lost”. I don’t think there is one. Maybe in the long run, but the long run is simply not as important. In the short run, people are unemployed, indebted and uprooted, and the short run can last a very long time. Years of education can go down the drain: even if there are new jobs and they pay more, only those with the right skills will be able to access them. The higher the rate of job losses the more unemployed people you will have at any one time and the less likely the unemployed are to have the skills necessary for new higher paid jobs.

In America at the moment, exports are rising, the economy is growing, but employment and real wages are stagnant. I’m not convinced we will look back at this conjuncture as all that exceptional: a previous post described how offshoring jobs benefits capitalists first and foremost with no net gain for labour. Increasing global competition may mean growth of the ‘reality TV’ kind: an economic boom that is happening, but to someone else someplace else.

Speaking of wealth transfers, the Barker Review of housing supply in the UK estimates that the failure of the UK’s housing market has effectively transferred tens of billions of pounds to property owners from those seeking to buy a home. And as prices have increased, the importance of parental gifts or loans as part-payment for a new house has also grown, a clear example of asset wealth in one generation translating into unequal opportunity for the next.

I may be reading this wrong. But don’t these stats from the Inland Revenue show that the UK is more unequal in terms of wealth only than any other country in the world (except Namibia) is in terms of income only? Since the wealth inequality of one generation is more likely than income inequality to influence the inequality of the next generation, the sharp increase in the GINI coefficient since 1995 is pretty worrying.

I wrote some time ago about my concerns that the American occupiers of Iraq would botch its reform of the country’s agricultural sector (which accounts for half the labour force) because of conflicts of interest and a misplaced faith in free markets.

A story in the Washington Post doesn’t provide much comfort. Under Saddam Hussein’s government, Iraqi farmers were provided by the state with “seeds, fertilizer, pesticides, sprinklers, tractors and other necessities … at a low cost, often a third or even a fourth of the market price”. Now, “The Coalition Provisional Authority is determined to change that and create a capitalist economy where the state provides little, if any, support, except to the neediest”.

Surely this position is a tad hypocritical, considering that the US funnels tens
of billions of dollars a year in tax-funded supports to domestic farmers, a
system which floods world markets with cheap food and undermines more efficient producers around the globe?

Ah, but no. The US system is in fact the model for the CPA’s reforms. While
reducing subsidies on inputs, they are significantly increasing those on
outputs, upping the recommended price for wheat from $105 per ton to $140.

The likely effect, of course, is that the small farmers who benefited most from
subsidised seeds, pesticides and tractors will be unable to compete with the big
farmers, who already benefit from economies of scale and who will eat up the
lion’s share of output subsidies. Iraqi farmers are well aware of the dangers:
Mohammed Abdul Hussein, director of the Kut chapter of the General Federation of
Iraqi Farmers, said reduction of subsidies will force people to abandon agriculture. “If the government will not supply seeds and fertilizer, the farmers, they will not farm,” he said.

It’s not a foregone conclusion. The economists employed by the CPA think that
switching to a free-market system straight away must be the best possible move
because, look, it says so in this textbook. But as usual, people who live in the
real world beg to differ. In this case, it’s the US military staff who are balking: they worry that “yanking subsidies too soon could lead to social unrest, which would further destabilize the country”.

I think military pragmatism will win the day. What free trade economists
rarely realise is that security matters and ’short-term adjustment’ to market
conditions is usually much worse than it sounds. But because they�re never at
the sharp end of the �adjustment period� themselves, they don�t care.