Our Word is Our Weapon

The US Census Bureau has just released its annual report on Income, Poverty and Health Insurance coverage. Here’s some rather notable results:

One in eight Americans now live in absolute poverty as defined by the Census Bureau.

That’s four million more than in 2000, with the rate climbing from 11.3% in 2000 to 12.5% in 2003, after seven straight years of decline under Clinton.

The median income of the poorest 20% and the poorest 40% and the poorest 60% all dropped.

But hey, it wasn’t bad news for everyone: the median income of the richest 40%, the richest 20% the richest 10% and the richest 5% all went up.

This means that the poor got poorer during a supposed economic recovery, with US GDP and productivity rates both up strongly.

Maybe we need a new theory to account for the miracles Bush has wrought: ‘trickle-up economics’, perhaps?

An interesting piece of research from the Center for Global Development: Counting chickens when they hatch: The short-term effect of aid on growth, by Michael A. Clemens, Steven Radelet, Rikhil Bhavnani. Here’s an abstract extract:

Past research on aid and growth is flawed because it typically examines the impact of aggregate aid on growth over a short period, usually four years, while significant portions of aid are unlikely to affect growth in such a brief time. We divide aid into three categories: (1) emergency and humanitarian aid (likely to be negatively correlated with growth); (2) aid that affects growth only over the long term, if at all, such as aid to support democracy, the environment, health, or education (likely to have no relationship to growth over four years); and (3) aid that plausibly could stimulate growth in four years, including budget and balance of payments support, investments in infrastructure, and aid for productive sectors such as agriculture and industry. Our focus is on the third group, which accounts for about 45% of aid flows. We find a positive, causal relationship between this “short-impact” aid and economic growth (with diminishing returns) over a four-year period. The impact is large: at least two-to-three times larger than in studies using aggregate aid. Even at a conservatively high discount rate, at the mean a $1 increase in short-impact aid raises output (and income) by $8 in present value in the typical country.

Here’s the pdf of the whole article.

Blundering hospitals ‘kill 40,000 a year’, said Friday’s Times. Medical errors, the story says, have now become Britain’s fourth biggest killer. It’s a shocking statistic, and the Adam Smith Institute unsurprisingly wastes no time in pointing the finger - ’socialized medicine’ is to blame.

Is this fair? In a word, no - in fact, the rate of preventable deaths seems to be higher in the decidedly un-socialized USA. But let’s start with that 40,000 figure, which turns out to have quite a convoluted history.

The story in the Times refers to this item in the British Medical Journal, a ‘case note’ by the independent medical research organisation Dr Foster. Strangely, the Dr Foster piece doesn’t back up the ‘40,000 deaths a year’ claim except for a reference to this presentation by Stuart Emslie of the Department of Health, which in turn sources the figure to - you’re going to love this - the Sunday Times!

But that’s not the end of it. The story in question dates from 1999: ‘ Blunders By Doctors Kill 40,000 people a Year In Britain’ (sounds familiar). The article refers to an investigation into deaths from medical error by Charles Vincent of University College London. Here’s an excerpt:

Vincent’s estimate of 40,000 deaths comes from studies showing that 3-4% of patients in the developed world suffer some kind of harm in hospital. For 70% of them the resulting disability is short-lived, but 14% subsequently die … Britain’s death rate is comparable to that in America …

And there you have it. The 40,000 figure quoted by the Adam Smith Insitute does not seem to be based on a study of the NHS at all, but developed countries in general. And it explicitly says that the death rate in ’socialized’ Britain is comparable to that in ‘un-socialized’ America.

End of story? Not quite. In 2001, Vincent and his colleagues published the results of their pilot survey. The study examined 1014 admissions records and found that 11% of patients experienced an ‘adverse event’. Of these, nine died (almost 1% of the sample). The researchers estimate that “overall, 53 (48%) [of] adverse events were judged preventable”. So it seems reasonable to say that there were 4.5 preventable deaths out of 1014, a rate of 0.44%. Since these findings were arrived at by independent and experienced researchers, there’s no reason to believe the final figures were under-reported.

Now, applying that figure to the 8,500,000 hospital admissions in the NHS a year, we get around 38,000 preventable deaths a year. So the 40,000 figure may be accurate after all, although this result should be treated with caution due to the small sample size in Vincent’s study.

Small sample size is not a problem in a brand new study into medical error from the US. ‘Patient Safety in American Hospitals, by HealthGrades, comprises the most extensive survey yet in America, and the conclusion is that there are 195,000 preventable deaths from hospitalizations in America every year. In addition, the says that “Lack of health insurance causes roughly 18,000 unnecessary deaths every year in the United States.” This gives a total of 213,000 preventable deaths a year caused by the US health system, bearing in mind of course that HealthGrades say “believe that our findings underestimate the true rates and associated costs of patient safety incidents in American hospitals” because of under-reporting. 213,000 out of an estimated 27million hospitalizations in America every year gives a rate of about 0.8%, much higher than the UK rate derived above. This empirical finding receives some support from a Commonwealth Fund report which finds that people with health problems in the US are twice as likely as those in the UK to report a ’serious problem’ caused by medical error. The same survey finds that sick Americans are seven times more likely to avoid seeking medical care because of the cost involved.

Of course, ‘only’ 40,000 preventable deaths a year is nothing to be proud of. But it is not so high because we haven’t privatised our health system enough.

A couple of weeks ago negotiators from World Trade Organisation member countries agreed a new ‘Framework text‘ for the so-called ‘Doha Development Round’ of trade negotiations, which is already nearly three years old and going nowhere fast. It’s about time I had a closer look at it and what it means for the WTO and development in general, so here goes.

I’ve not actually read the text itself, so I’ll rely to a large extent on the excellent Peter Gallagher, who has. Gallagher seems to feel the framework is better than nothing, but he is still unimpressed:

… there is no overall ambition: the Framework does not tell us by how much the detailed agreements still to be reached will cut barriers to world agricultural markets or reduce trade-distorting payments such as those on Cotton.

The Framework text is mostly concerned with agriculture, which has been the point of most disagreement throughout the talks so far. What was agreed, then, on agricultural export subsidies?

All forms of trade distorting government support for exports of agriculture (subsidies, subsidized export credits, subsidies delivered through state-sponsored export trading companies, food aid that has a commercial aspect) will be eliminated in (possibly un-equal) annual steps by a “credible end date.” This latter phrase suggests that the end for all subsidies may be further off, for example, than the end of the implementation period for market access cuts.

So far, so vague, but there is at least that commitment to eventually end these subsidies. Gallagher, incidentally, is annoyed that there is more movement on eliminating export subsidies than there is on lowering tariffs. But the removal of export subsidies is an essential pre-condition of a liberal trading regime – as long as they exist, trade will be neither free nor fair, no matter what happens to tariffs. As they disappear, so too will some of the rationale and the political support for high barriers to market access.

So what does the Framework text say about lowering barriers to agricultural trade?

The Framework repeats the commitment of WTO member countries at Doha to ‘substantial’ improvements in market access, but it’s still not clear what that means. All that the Framework does is lay down a way eventually to implicitly define ‘substantial’, but in doing so it’s much more concerned with maintaining protection for certain highly protected markets than with creating new opportunities for healthy competition in world food trade.

Protection will be maintained by virtue of the different treatment for three categories of agricultural good identified in the text:

1. tariff protection for normal products will be cut ‘substantially’ by a method that cuts highest tariffs by more than lower tariffs. This is the ‘harmonization’ approach I described in the first version of the Frameork. The Framework doesn’t say how big the cuts will be nor what a high tariff is or what a low tariff is. It does not mention the possibilty of expanding any tariff quotas applied to ‘normal’ products, so the cuts to higher tariffs could well do no more than take out the “water” from some high tariffs, having no impact at all on import competition
2. Members may designate a number (to be agreed) of sensitive products on which they will have to achieve ‘substantial’ but somehow less substantial cuts in border barriers. They will do this by a combination of tariff cuts and expansion of tariff quotas; the Framework suggests that the smaller the tariff cut, the bigger the expansion of tariff quota
3. So-called special products are a number (to be agreed) of product lines nominated by developing countries that will enjoy still greater ‘flexibilty’—that is, even less danger of facing additional import supply. Developing countries will also access a ‘Special Safeguard Mechanism’ that will allow them to temporarily reduce imports into any agricultural product market.

We can confidently expect the rich countries (and the developing countries) to drive coaches and horses through these rather gigantic loopholes. It is significant that the Japanese immediately took the opportunity to announce how unbothered they were by the threat posed to their incredibly high rice tariffs. Similarly, the US apparently intends to designate sugar a ’sensitive’ product, thus protecting that bloated but valuable sector from real competition. And once rich countries actually commit on the detail of how to free their agricultural trade, there will still be lengthy implementation periods in which to do so.

As for non-agricultural market access, ActionAid claim that “The proposals of the EU, US and Canada have been incorporated wholesale into the framework on industrial tariffs, leaving little space for further negotiation”.

To sum up, I would say that the rich countries have agreed to do not very much, and the developing countries have agreed to do even less. What they have agreed is a framework for talks about modalities for commitments to eventually do something, maybe. More than anything else, it was a face-saving excercise: the important thing was for the WTO to seen to have accomplished something apart from engineering its own obsolescence, and to postpone yet again a real engagement with some pretty intractable positions. Overall, there is still plenty of scope for brinkmanship, impasse and even bringing down the negotiations completely, if that’s what certain powerful players decide they want.

It seems to me that we have progressed a bit from Cancun, where no agreement was better than the one being offered, but I also worry that the rich countries will try to exploit every loophole and claw back every concession in the more technical discussions that lie ahead. The developing countries, having not committed to much in the first place, might find it hard to resist. This could be as good as it gets – the Development Round is unlikely to do much for development, for reasons that are inherent in the construction of the WTO.

The problem is that the WTO system uses a single mechanism – reciprocal commitments to reduce trade barriers – to solve two very different issues – optimum trade policy in rich countries and optimum trade policy in poor countries. The benefits to the poor of reform in the trade policies of rich countries are significant (though not necessarily all that huge), but the benefits of their own liberalisation are very questionable. Unfortunately the WTO’s system of bargaining ensures that the refusal of the poor countries to countenance another round of unnecessary and possibly counterproductive liberalisation lets the rich countries off the hook, reducing the pressure to get rid of the policies that the vast majority of observers agree are harmful to world development.

If we are to move towards what Dani Rodrik called ‘the global governance of trade as if development really mattered‘, the WTO needs to leave behind the old adversarial system of bargaining over who gets to liberalise least, and instead promote whatever policy reforms are necessary to promote development and eliminate poverty. The World Development Movement sum up the problem quite well: “The idea that poor countries should trade-off opening their own markets for agricultural subsidy reform by the rich is the flaw that lies at the heart of this trade round. Free trade will not lift people out of poverty. We need Trade Justice instead.” Trade Justice, they imply, involves more than just liberalisation in the rich countries - it can and should include a roll-back of liberalisation where necessary in developing countries.

An agreement to ‘fast-track’ cotton trade reform and bring some early relief to the millions of Africans impoverished by US subsidies would have been a welcome step towards a WTO that put development ahead of politics, but predictably this initiative was simply blocked by the US.

All in all, recent events paint a perfect picture of how completely unsuited the WTO system is to actually promoting development. It is a mechanism designed to do away with development policy, not improve it. Neoliberalism is dead as an economic doctrine, but nobody seems to have told the WTO.

It’s both interesting and worrying that personal bankruptcies seem to have reached record levels in both the UK and the US. In America, it’s estimated that in the next year “More adults will file for bankruptcy than will be diagnosed with cancer … [and] more people will file for bankruptcy than will graduate from college”.

From The Economist, June 17th:

America’s superior economic performance over the past decade is much
exaggerated. Productivity has grown just as fast in the euro area; GDP
per person has grown a bit slower, but mainly because Europeans have
chosen to take more leisure rather than more income; European employment
in recent years has grown even faster than in America; and America has
created some serious imbalances which could yet trip the economy up
badly.

See the article for the full analysis.

At least, that’s what John Quiggin says, after an analysis of the data behind the Fraser Institute’s ‘Economic Freedom Index‘.

This is not a surprising result. Rich countries are those where markets work best, and they tend to have far stronger and more effective governments than poor countries. Markets will thrive in the presence of a state that can effectively provide infrastructure, keep order, enforce contracts, stamp out business malpractice, resist corruption, promote research and innovation, keep the population healthy and raise the level of educational attainment.

The concept of ‘freedom’ promoted by the Fraser Institute is a rather limited one. It is ‘freedom from’ rather than ‘freedom to’, the freedom of the strong to do what they like rather than the the freedom of all to fairly engage in economic life. Left completely to themselves, markets have a tendency to become decidedly un-free and more like oligopolies. As Adam Smith noted, every businessman is always trying to widen the market and narrow the competition. Intervention to ensure at least a moderately level playing field is what keeps capitalist economies dynamic. JQ is right: “The mixed economy produces more economic freedom for the average person than does the minimal state.”

Here’s a few holiday snaps which turned out interestingly weird. Click on the thumbnail for the full image (large file sizes).

Cornwall: St Ives and the Eden Project

The first three are of the beach at Carbis Bay, near St. Ivest in Cornwall. The last two are of the Eden Project, also in Cornwall.

More tomorrow maybe …

As I’ve already mentioned, those freedom-loving folks over at the Adam Smith Institute have a habit of saying ridiculous things, but come over all censorious when somebody tries to point this out. This time it was Dr Madsen Pirie who, in the middle of a delightful rant against evil policies such as handgun bans and drink driving laws, declared that “There is no evidence that any deaths are caused by drivers with between 50 and 80 milligrams of alcohol in their blood.”

I pointed out that this was simply untrue, and mentioned the existing evidence which indicates that people with blood alcohol counts of 50-80mg cause around 80 road deaths a year in the UK. A legion of fairly misguided people weighed in to support Pirie, at which point I said that if they really thought that such drivers caused less than 80 deaths their problem was with the evidence; but if they thought (like Dr Pirie) that those drivers caused no deaths, their problem was with reality. Alas, this was too-much for the faint-hearted censor, who simply blocked the comment. So much for liberty.