Our Word is Our Weapon

A while ago, I mentioned the Chronic Poverty Report, which I said was published by the World Bank. It was not - it was published (and clearly marked as such) by the Chronic Poverty Research Centre, as one of their researchers has helpfully pointed out to me. The report had nothing to do with the World Bank, but I think I may have followed a link to it from the WB site - otherwise I just made up the connection myself.

A bit more about the CPRC: Based at the University of Manchester, it is an independent international partnership of universities, research institutes and NGOs. It was established in 2000 with some funding from the UK’s Department of International Development. And it is not part of the World Bank.

Apologies all round for the carelessness.

From our Dublin correspondent …

At the UN Millennium Summit in 2000, Bertie Ahern committed Ireland to reaching by 2007 the internationally agreed target of giving 0.7% of national income in overseas aid. This commitment was then included in the Programme for Government and Sustaining Progress (p. 55), the Irish social partnership agreement. An interim target of 0.45% by 2002 was also made, but missed. The whole point of these commitments was to protect our aid commitments from “annual estimates wrangle[s]”. Basically, to insulate it from politics to make long-term planning in developing countries more reliable effective.

Only a few hours into his new position as Minister of State for Overseas Development, Conor Lenihan remarked on Irish TV news last Wednesday that he thought the commitment to reach 0.7% by 2007 was ‘unrealistic’.

Lenihan knew that Development Co-operation Ireland’s (DCI) 2003 Annual Report would reveal that Ireland’s aid spending fell back to 0.40% in 2003. While the year-on-year volume has continued to increase (at a decreasing rate), Ireland’s ODA slipped back relative to economic growth from its sustained 0.41% height since 2002.

This still keeps Ireland way above the DAC average of 0.23%, and a good bit better than the EU average of about 0.33% GNP. To get back on track, the government needs to increase DCI’s budget by €150 million for 2005.

Irish development NGOs went mental on hearing Lenihan’s comments. Christian Aid Ireland and Dóchas accused Lenihan of setting a bad precedent, failing to defend his own corner at exactly the time he should be fighting for more money from the Department of Finance. Hans Zomer, Director of Dóchas, said failing to get back on track would “damage Ireland’s international reputation”.

The Government’s response did nothing to clarify matters. Speaking on the day of Lenihan’s remark, Tanaiste Mary Harney told the Dail that the Government “remains committed to the target of devoting 0.7% of GNP to overseas development aid by the year 2007″. A few days later, at the launch of Development Co-operation Ireland’s (DCI) Annual Report, Lenihan mentioned the Government’s commitment but seemed to leave some room for manouvre/retreat:

While the rate of the increases slowed over the past two years, similar to all Government Departments, as a result of more stringent budgetary conditions, Minister Ahern [the Foreign Minister] and I will be making a strong case in the upcoming budget discussions to push for greater resources to further develop and expand what is now considered by our international peers as one of the most progressive development assistance programmes in the world.

There are a few interesing things at work here.

Firstly, reaching the 2007 commitment will require Ireland’s ODA to double over the next three years (2002-2003 only saw a €25 million increase). That’ll bring Ireland’s ODA budget to US$ 1 billion. The problem is that the Ministry of Finance has capped departmental spending increases to well below this level. The 2003 OECD DAC Peer Review has identified organizational capacity to be the biggest obstacle to DCI’s budget and programme expansion, and to expand its programmes DCI would have to hire more people and invest in improved organisation. Lenihan subtly defers part of that problem to former Finance Minister McCreevy, who has also restricted civil service recruitment despite continued economic growth.

Secondly, Lenihan’s comment is an indication that there’s not enough policy coherence between the Ministry of Foreign Affairs and DCI - while Dermot Ahern, in the same week, announced that tackling Africa’s AIDS crisis was a top foreign policy priority, Lenihan was (initially at least) reneging on Ireland’s internationally agreed foreign aid commitment.

Lenihan does indicate his and Dermot Ahern’s commitment to ‘work together’ to secure the ODA increase (most likely tokenistically) when they meet to discuss DCI’s funding arrangements for 2004-2007 with Brian Cowen, the Minister of Finance.

It won’t be too surprising to see an announcement in the near future putting the deadline back to 2010. Finland, a donor similar to Ireland in many ways, made this decision last year.

Reading the conclusions of David Dollar’s “Globalization, Poverty and Inequality since 1980″, you would be forgiven for thinking that
(a) Things are going fine: world poverty has just fallen for the first time in history, and poor countries are generally catching up to the rich;
(b) Things would be going even finer if more poor countries would just “integrate with the global economy”, following the example of those who have grown fastest.

In fact, what the evidence he cites (and some he doesn’t cite) shows is that
(a) Things are not going fine. The reduction in world poverty since the early 1980s, which was not the first such major fall in history, was largely due to China halving its poverty rate, progress which has since slowed to a crawl. The average growth rate of poor countries since 1980 is zero. Sub-Saharan Africa is gettting poorer.
(b) “Integrating” with the world economy is not guaranteed to reduce poverty (and even so is not so much a choice, as Dollar presents it, as an outcome). Dollar implies that integration comes through trade liberalisation, but most poor countries which have liberalised have seen few benefits as a result. The very poorest countries are more liberalised than other developing countries, and are actually more ‘integrated’, using Dollar’s terminology, than rich countries. China halved its poverty rate well before it reduced trade barriers significantly.

Dollar identifies five main trends in globalization, poverty and inequality since 1980. The first is that “Poor country growth rates have accelerated and are higher than rich country growth rates – for the first time in modern history”, as displayed in this chart:

Now, this “phenomenon of the fastest growth occurring in the poorest countries” really makes it sound like the average poor country is growing faster in the 1990s than they did before, and catching up to the rich countries. But if you thought that, you would be wrong. Dollar admits on the next page that “If you ignore differences in population and just take an average of poor-country growth rates, you will find average growth of about zero for poor countries in the 1980-2000 period”. That’s zero.

The thing is that China, which accounts for about a quarter of the population of all developing countries, skews the figures massively. It’s growth was low in the 1970s but rose to an annual rate of about 8% per capita in the 1980s and somewhat higher in the 1990s. Most other poor countries grew much less or not at all. And it’s not unfair to weight countries equally: looking at real per-person averages is fine if you want to examine global trends, but if you want to suggest policy lessons, which Dollar clearly wants to do here, researchers generally look at per-country averages.

The second trend identified by Dollar is that “The number of poor people in the world has declined by 375 million, the first such decline in history”.

I really don’t know how he can say this with a straight face, unless he’s using some personal definition of “such”, for example. Dollar’s illustrative chart is as below.

The first thing to note is that he is simply combining two bits of work (Bourguignon and Morrisson 2002, and Chen and Ravallion 2004) with completely different methodologies. This is extremely dodgy, but since he’s done it we’ll go along with it for a while (and in the following discussion I’m assuming that the available data on poverty levels is accurate, which some would contest).

To me, Dollar’s own chart seems to disprove the claim that the reduction in poverty since the early 1980s is “the first such decline in history”, as Bourguignon and Morrisson’s data shows a sharp decline from 1950 to 1970. This is even more apparent if you construct a chart based not on numbers but on poverty rates, as I have done below.

I had to combine nearby years into one, and there’s a small differences in the PPP dollar rate used, but you get the idea - if we combine the two studies (as Dollar is happy to do), we see that the poverty reduction since the 1980s is pretty much a continuation of a trend that seemed to kick off in earnest in the 1950s.

If you decide that Bourguignon and Morrisson’s work is not comparable to Chen and Ravallion’s, then there is no way of knowing what happened to world poverty before 1981. If you allow the comparison, then the drop since the 1980s is, on the global level, pretty much a continuation of a long-term historical trend. Either way, Dollar simply should not be claiming that the drop since 1980 was the ‘first in history’.

As I mentioned above, when Dollar talks about the drop in the numbers of the ‘poor’, he is treating only those who live on less than one $1 a day as ‘poor’. Well, fine, but most people would also think that anyone living on less than $2 a day is poor too. By this definition, the number of poor people in the world has gone up by around 300 million since the early 1980s. Of course, $2 a day poverty has fallen in percentage terms, but again this is a continuation, with maybe a slight acceleration, of a long-term trend.

When I look at the figures Dollar uses, I’m far more pessimistic than he is. The reason is that the fall in global poverty since the 1980s was to a great extent an internally-driven Chinese phenomenon which now seems to have run its course. Look at the two graphs below, which show poverty rates using the $1 a day and $2 a day lines.

Including China, $1 a day poverty fell from 40% in 1981 to 21%, faster than the long-term trend implied by Bourguignon and Morrisson, but excluding China it fell from 32% to 23%, slower than that trend. It’s a similar story for the $2 a day rate, which excluding China hardly fell at all over the 20 years.

I’ve previously discussed how China’s poverty reduction does not seem to have anything to do with trade liberalisation, since its trade barriers were very high well into the 1990s. So was it down to ‘integrating’ with the world economy? It seems not: in another paper looking in great detail at China’s economic performance since the late 1970s, Chen and Ravallion argue that “the experience of 1981-2001 does not provide support for the view that China’s periods of expanding external trade brought more rapid poverty reduction”. Their analysis is as follows:

The country’s success against extreme poverty came in no small measure from picking some “low-lying fruit,” stemming from special historical circumstances. The Great Leap Forward and the Cultural Revolution had clearly left a legacy of pervasive and severe rural poverty by the mid 1970s. Yet much of the rural population that had been forced into collective farming (with weak incentives for work) could still remember how to farm individually. So there were some relatively easy “win-win” gains to be had by undoing these failed policies — by de-collectivizing agriculture and shifting the responsibility for farming to households. This brought huge gains to the country’s (and the world’s) poorest. But it was a one-time reform.

What can we expect in the future? China’s progress against poverty seems to be faltering and, if the latest figures for the most extreme poverty (less than $77 a year) are any indicator, may even have stalled completely.

If China isn’t reducing poverty anymore, is anyone else? I think India may take over as the main driver of poverty reduction, as around a third of its population still live on less than $1 a day (for a discussion of India’s performance which similarly comes down against trade as a prime driver in its impressive poverty reduction, see Rodrik and Subramanian). For that reason, global poverty rates will still probably continue to decline, though probably slower than the historical trend. And there seems to be no good reason to expect the astronomical level of poverty in Africa to fall. The least developed countries in the world are more ‘integrated’ into the world economy than the richest, using Dollar’s measure of trade over GDP (see p. 5 here.), but remain nevertheless desperately poor.

Contrary to Dollar’s analysis, it seems to me that the reduction in world poverty since the early 1980s had little to do with increased trade and nothing to do with trade liberalisation in poor countries. I am certainly not arguing that less trade will reduce poverty faster or that, for example, rich countries should not open up their markets more. What I am arguing is that the international economic system is not contributing significantly to poverty reduction, and if we want to eliminate the worst kinds of poverty, that will have to change.

[Edit: reading over this again, I think it was an over-generalisation to say that “most countries which have liberalised have seen few benefits”. It’s more like “most poor countries which have liberalised have seen few benefits as a result”, and I’ve changed it accordingly.]

The Adam Smith Institute, never afraid to repeat itself in the name of fresh copy, is sneering again at ‘non-jobs’ in the public sector. “Taxpayers and small businesses”, smirks Madsen Pirie, “will be enthralled yet again to see the creative use which government makes of their money”.

What you won’t find out by reading their blog is that the ASI itself receives millions of pounds in taxpayer money for the good cause of lecturing poor countries about privatisation. This money comes out of the aid budget, so we now spend more money supporting the ASI’s slavering Thatcherites than we do on many struggling African countries. Remind me - what was it Peter Bauer said about foreign aid being a transfer from the poor to the rich?

Government contracts now comprise over half of the ASI’s income, subsidising their bizarre (global warming isn’t a problem because David Bellamy says so) and downright fictitious (tax up from 35% to 50% of income!!) rantings against the very ideas of government, public services and redistribution. As George Monbiot has pointed out, the Adam Smith Institute “opposes government spending on everything, in other words, except the Adam Smith Institute”.

Hypocrites.

I had a look today at the Social Exclusion Unit’s recent report “Jobs and Enterprise in Deprived Areas” (big pdf file), and found its focus on ‘area effects’ particularly interesting:

The term ‘area effects’ refers to the effects (independent of a person’s characteristics) that living in an area with many other people out of work has on individuals’ outcomes – such as their chances of getting a job or leaving poverty.

For example,

British research has found some evidence of a ‘critical mass’, where people’s probability of leaving poverty falls steadily the higher unemployment is in their areas, but falls very sharply for the worst 5 per cent of wards (where unemployment is more than 23–24 per cent). This means that people in the worst 5 per cent of wards have an exceptionally small chance of leaving poverty compared to their counterparts living elsewhere.

The report states that “Area effects are likely to be strongest at a scale considerably smaller than the average ward”. But they may also be quite strong at the international scale, as Adam Smithee happens to be pointing out this evening. He links to a 1999 paper (”Weak States and Bad Neighbourhoods”) by Charles Kenny , who suggests that

Either regional (as opposed to state) characteristics account for a large percentage of the differences between the wealth of countries or the wealth of a country’s neighbours has a large impact on that country’s wealth.

This might be analagous to the two sub-types of area effects identified by the Social Exclusion Unit:

• place effects – arising from the characteristics of a place, such as its location, poor infrastructure, lack of transport, competition for limited job/training opportunities or variation in the quality of local services; and
• people effects – these relate to the damaging effect of living with many other workless people, for example limited information about jobs and area-based discrimination by some employers.

Here in the UK, Labour have long made much of the apparently yawning gap between the main parties on development. Where the Labour government has promoted debt relief, increased aid, pushed for a better international trade system and sought (limited) reform of the international financial institutions, the Conservatives have apparently been stuck in their old self-interested, uncaring ways.

Is this fair? The recent speech at the party conference by Conservative international development spokesman Alan Duncan should tell us. The full text is here here, and the following are a few quick thoughts.

Firstly, the focus on AIDS is welcome, but I’m not so sure about ring-fencing part of the Global Fund for research into a cure. Companies and governments in the rich countries are already spending billions searching for a cure for AIDS, while the Global Fund, which concentrates on treating those already infected, is severely underfunded.

Secondly, Duncan says that the Conservatives “have an outstanding record on debt relief”. That must be some kind of joke. Well, I suppose their record is outstanding in some ways: the Thatcher government was instrumental in denying the reality of the debt crisis in the 1980s, and the Conservative governments refused to countenance adequate relief even when the scale of the problem was clear to all.

On trade, Duncan says that “India and China have welcomed the free market and have opened up to global trade, and have experienced a huge and unprecedented reduction in poverty affecting the life of millions of people.” This demonstrates a complete misunderstanding of what has actually happened in India and China, who actually embarked on their high-growth paths behind very high trade barriers. It also fails to explain why Africa, which has liberalised just as fast as anyone else, has actually got poorer in the last 25 years. While the Conservatives’ opposition to the Common Agricultural Policy is welcome, their belief that “Open, free markets are the solution to poverty” is ideological and unrealistic.

One new policy is on emergency relief: “Governments in the developed world need to work together on a proper basis. So it is time to consider setting up a permanently structured international disaster relief capability, more efficient than the UN’s current arrangements, ready to go anywhere in the world at the flick of a switch, whenever disaster strikes.”

My initial reaction is that it sounds like unnecessary duplication, and that it’s probably better to properly fund the UN, who have the expertise and at least the basis for organisational .

Overall, not very impressive, and also pretty hypocritical. Duncan, for example, calls Blair’s Africa’s Commission a ‘pose’, without offering any concrete policies of his own, preferring instead to trot out the usual lines about corruption. He conspicuously fails to match Labour’s commitments to increase aid to 0.7% of GNP by 2013, or offer support to Gordon Brown’s debt relief strategy.

The Conservatives, on this evidence, are still a long way behind Labour on development. To talk about a ‘moral responsibility’ to help the poor while saying nothing of substance on increasing aid or debt relief is to adopt the very same empty poses they criticise Blair for.

Instead of trying myself to explain the potential for using the IMF’s gold reserves to fund debt cancellation, and probably getting a lot of it wrong, I would have linked, had I known of its existence, to this new report on the subject by Sony Kapoor for Debt and Development Coalition Ireland.

Also weighing in on the same topic last week were ActionAid and pals with their report, cleverly entitled Fool’s Gold.

If you’ve polished those off and still have time before the sun comes up, have a gander at UNCTAD’s sceptical overview of debt relief in Africa.

Here’s Tahari et al of the IMF on Sources of Growth in Sub-Saharan Africa:

Analysis of 1960-2002 data shows that average real GDP growth in sub-Saharan Africa was low and decelerated continuously before starting to recover in the second part of the 1990s. Growth was driven primarily by factor accumulation with little role for total factor productivity (TFP) growth. The recent pickup in economic growth was accompanied by an increase in TFP growth, namely in the group of countries whose IMF-supported programs were judged to be on track.

I’m not sure that the distinction between ‘on-track’ and ‘off-track’ countries is that useful, since ‘off-track’ countries by definition aren’t getting money from the IMF (and probably everyone else too, due to the IMF’s ‘gatekeeper’ role) and are more likely to be mired in conflict.

Perhaps more interesting comparisons are those between low and middle -income countries, and between oil producers and non-oil-producers. The following charts show trends in growth, TFP and savings rates for Sub-Saharan Africa as a whole, low-income countries, middle-income countries, oil producers and non-oil-producers. Note that these overlap: of the 44 Sub-Saharan countries studied, 35 are low income, 9 middle income, 6 oil-producing and 38 non-oil-producing.

Growth has indeed bounced back in the low-income group, but only after reaching terribly low levels in the 1980s and 1990s, and this group is still falling further behind middle-income countries, who have on average maintained growth rates above 4% since the 1960s. Meanwhile, growth in oil-producing countries has leaped ahead in recent years to over double that of non-oil-producing countries.

I don’t know much about total factor productivity apart from it being the counterpart in growth accounting to capital accumulation, so I’ll just note that TFP’s contribution to growth in the low-income and non-oil producing groups was negative from the 1970s through to the 1990s, while it was strongly positive in the late 1990s for middle-income and oil-producing countries.

Savings rates have plummeted across Africa, with the exception of oil-producing countries, where they have actually risen. Middle-income countries now have savings rates three times those of low-income countries, where they are heading for 5%, and that’s without adjusting for resource depletion.

The recent jump in growth rates in Sub-Saharan Africa is certainly encouraging, but the divergence in growth, factor productivity and savings between low-income and/or non-oil-exporting countries on the one hand, and middle-income or oil-exporting countries on the other, is very worrying.

[Update: Adam Smithee explains a bit more about TFP.]

Income affects our ability as consumers to access markets. Poor people tend to pay more and/or get less, resulting in a kind of compound poverty.

So says the National Consumer Council in a fascinating series of reports on ‘market-based exclusion’. According to the NCC, there are four main reasons why the poor pay more:

• How you pay – life on cash is more expensive.

• How you buy – if you can’t buy in bulk, or afford a weekly shop, you pay more.

• How you access services – if you can’t get around, because
of a disability or limited transport, you can’t shop around. Also, access to some services - such as financial services, transport and telephone - depends on having access to others such as bank accounts or debit cards.

• Who you are – in some cases, such as credit, markets may not be competitive for those on a low income, because providers concentrate on the most profitable consumers. In others, such as financial advice, there are regulatory barriers standing in the way of innovation.

It took about seventeen hours of reckless tinkering and banging my head against the keyboard, but I finally managed to upgrade to MovableType 3.11 and so far it actually seems to be working. I’ve now got rid of all that spam and turned comments back on. So feel free to let rip.

How adept the G7 has become at delivering disappointment. This time they have abjectly failed to take the easy, obvious and sorely needed step towards more debt relief for the poor that so many were hoping for.

As Sony Kapoor of Jubilee Research has previously explained, a simple one-off revaluation of only a third of the 100m ounce reserves of gold held by the IMF could generate billions of dollars to pay off all the debts owed to the IMF by the poorest countries.

Gordon Brown and the Americans have apparently both been pushing for this kind of thing (Brown has also announced a £100m-a-year plan to fund the debt payments owed to the World Bank and African Development Bank by 32 least developed countries).

But the G7 couldn’t agree, instead lamely saying they would continue to look at “the sustainability of debt of the poorest countries by making progress on debt relief and grant financing”.

It looks like France, Germany and Canada were doing the blocking. Germany, shamelessly, seem to be simply claiming poverty, while Canada are worried about the effect on the market price of gold (an off-market revaluation shouldn’t significantly affect the market price). France, worst of all, seem to be simply opposed to debt relief, perhaps because they like the control over other countries that debt and aid conditionality give them. Their finance minister Nicholas Sarkozy said:

We think debt relief is not the only solution. What we want are real, supplementary ways to help these countries … and we especially want to give this money to the countries to form education programs and socialization programs and not simply give it to the banks.

Gordon Brown put a brave face on it all, having secured an agreement for “further work to be done” on the proposal. I still expect him to win the argument and an IMF revaluation to happen at some stage in the near future, but this constant foot-dragging is incredibly frustrating simply because it is costing so many lives.

As for Brown’s own plan for the debts owed to the World Bank and ADB, Jubilee Research welcome it but note with some disappointment that

the resources for this initiative will in fact be taken from the existing aid budget … is the 0.7% target now to be 0.7% plus £100m of debt reduction? Unless the answer … is “yes”, these resources cannot be considered to be genuinely additional.

They also make a point about ‘debt overhang’ I admit I don’t really understand:

it is disappointing that the debt reduction is to be phased over time, rather than unpayable debts being cancelled outright. This risks reducing the effectiveness of debt reduction, because as long as the debt overhang effect on private investment persists, it will stifle employment creation and economic opportunities, even if resources are not diverted from public spending to debt servicing. Rather than prolonging the debtor countries’ agony over yet another decade, we call on the Treasury to cancel these debts with immediate effect. The cost would be £1bn - but this is less than a quarter of this year’s shortfall from the 0.7% target for aid.

Nevertheless, Brown’s initiative is very welcome, and if he keeps the pressure up on the rest of the G7 we might see more following suit. But, as ever, they’ll take their sweet time.

I’ve been meaning to write something about the latest moves towards more debt relief and how, while welcome, they’re not enough. However, the World Development Movement has done it for me, at least on the UK side:

Gordon Brown announced on 26 September that the UK Government will meet the cost of cancelling its share of the remaining debt owed to the World Bank and African Development Bank. However, the Chancellor still needs to be pushed further. Our Government must take the lead in ensuring that all debts payable to the IMF are also cancelled and that cancellation is free from harsh economic conditions. Furthermore, funding for the proposed debt cancellation should not be found from the aid budget, which was increased earlier this year.