Our Word is Our Weapon

Warming to his theme of uninformed attacks on the planning system and housing policy in general, Tim Worstall notes Nick Cohen’s column in last week’s Observer and asks me, “now that this criticism is coming from the left, rather than deranged libertarians such as myself, do you think it has a little more validity?”

Well, no. For one thing, Cohen’s argument is completely different from that of Boris Johnson, which Tim has previously cited approvingly and which was itself completely different from Tim’s own. Boris wants developers prevented from building anywhere in the English countryside, Nick wants them prevented from building high-density housing but wants more housing built in the countryside, while Tim wants any and all such restrictions removed. So it’s hardly the same criticism at all.

Let’s look at Cohen’s article in a bit more detail. Basically he is saying that the bad old days of cramming families into high-rise tower blocks of social housing - which helped give us the crime-ridden sink estates we know and fear - are back, because Labour has been conned by greedy developers and pseudo-environmentalist Nimbys into demanding high-rise housing wherever possible. In London, for example, Mayor Ken Livingstone “wants giant tower blocks to march along the banks of the Thames”. Cohen cites the example of the Packington Estate in Islington, a collection of six-storey blocks which is to be torn down and replaced, contrary to tenant wishes, not with low-rise Victorian terracing including private gardens, but with “eight-storey slab blocks”.

Almost none of this is true.

The Packington Estate will indeed be redeveloped, but according to the adopted planning brief, amended by a January 2005 council meeting (Word document), “the predominant scale of the redevelopment will be 3 - 5 storeys”. One part of the estate will be developed to 8 storeys, but the upper floors will be filled by small households without children, and by the private sector buyers who will cross-subsidise the whole project. What’s more, the planning brief requires that “Gardens should be provided for all family dwellings”. So unless I’m missing something, the redevelopment will deliver exactly what Cohen seems to be demanding - more low-rise housing and more private gardens. The council website also claims that the redevelopment was guided and approved by a residents group. It wouldn’t surprise me if that’s not quite the whole story, but if Cohen says different he needs to tell us more.

Secondly, Ken Livingstone does not, as far as I can see, want “giant tower blocks to march along the banks of the Thames”, and certainly doesn’t want to cram poor families into high-rise council housing. His policy is that “Lower density developments lend themselves more, though not exclusively, to family housing. This may tend to make them more appropriate for higher proportions of social rented affordable housing, which in turn will increase the requirement for open areas and play space”. He does want the density of new developments for the market to increase, but that’s because:
(a) Densities in many parts of London are very low, which makes bad use of valuable space, especially given the present shortage of housing;
(b) Higher densities means higher housing supply, which should help reduce the upwards pressure on prices, which in turn should help make renting cheaper and give more people access to the market, reducing the need for subsidised housing;
(c) The more market housing is delivered on a site the more affordable housing (i.e. ‘council’ housing) can be demanded from the surplus, which is good news for the 67,000 homeless households and 61,000 severely overcrowded households in London.

Cohen’s example of Ken’s mania for towers flanking the Thames is the Lots Road development. Here’s a picture of what it will look like: two towers, near an old power station, but hardly blotting out the skyline. And of course, the towers will be mostly market housing, so again this is really not a case of stuffing hundreds of poor families into ‘cities in the sky’.

So what about the central government’s lust for more high-rise housing? Here it seems to be a case of Cohen either getting his facts wrong or simply trying to deceive his readers. He refers to “an obscure document - Government Planning Guidance (PPG3) - which announced that increasing housing density was a national priority”. You can read PPG3 here. Paragraph 58 is the relevant section; it says that local authorities should “avoid developments which make inefficient use of land (those of less than 30 dwellings per hectare)” and encourage developments of between 30 and 50 dph.

What Cohen doesn’t seem to realise is that 30 dwellings per hectare is not high density, and is certainly not high-rise. Actually, the Victorian terraced housing he loves so much is generally significantly higher in density than 30 dph. Some of the best housing in London reaches 100 dph, and the average density of all new developments in Islington is around 90 dph. I’d be willing to bet that Nick Cohen’s own home in Islington is in the kind of neighbourhood which, by his own stupid logic, he would have to describe as ‘high-rise’. The Government’s floor target of 30 dph is designed not to force high density housing on everyone but to reduce the kind of sprawling, wasteful developments that you still get in affluent areas of London like Bexley and Bromley (average densities of new developments in each are about 30 dph), but which are surely unacceptable when there are such vast unmet housing needs in the rest of the city.

So overall, Cohen is not just uninformed, he is attacking the kind of progressive policy I would have hoped that he would support: these kinds of densities are not inimical to good housing, but they are absolutely necessary to reduce the pressure on the overall housing market in London and provide homeless and overcrowded families with the quantity and quality of housing they need.

I do agree with him, though, when he says that “it is far from clear that the green belt is worth protecting”. Unfortunately, Labour have signed up to protect at all costs the sanctity of the green belt (much of which is not particularly green) under pressure from Nimby interests and Tory demagogues like Boris Johnson. But even if we could build on some of the green belt, we would still need a lot more of what Cohen thinks is ‘high density’ housing in London.

For some reason the layout of comments at the end of individual entries has become unreadable. I’ll see what I can do about it at lunchtime today. In the meantime, you’ll be able to read comments by themselves by clicking on the ‘Comments’ link at the bottom of individual entries, like this one.

[Update: Ah, fixed it now. A case of too many divs …]

William Easterly reviews Jeffrey Sachs’s “The End of Poverty” (extract here in Time). Easterly seems to want us to think that Sachs’s proposals are in essence no different from Communist-style society-wide planning at the barrel of a gun. That’s why he refers to them as “a sort of Great Leap Forward”, “utopian”, “a detailed Big Plan that covers just about everything”. He puts everything in capitals and scare quotes, like this:

The world’s rich countries would pay for a large share of the Big Plan — somehow doing an exact financial “Needs Assessment,” seeing how much poor country governments can pay and then having rich donors pay the rest. The donors will fill what he calls the “financing gap” by doubling donor-nation foreign aid in 2006, then nearly doubling it again by 2015.

But what exactly is so weird about a needs assessment, or the concept of a financing gap? Nothing, really. Here’s some shocking news for you: the world’s rich countries already pay over quite a lot of aid to fill “gaps” in the “financing” for addressing the “needs” of poor countries as “assessed” by the countries themselves and Easterley’s former employer, the World Bank. Here, Easterly is not really putting forward any arguments worthy of the name against Sachs’s propals - instead he’s just using Dumb Scare Tactics. Well, to see someone who has previously made such significant contributions to development economics produce such a shoddy hatchet-job is kind of scary, but not for the reasons he thinks.

Easterly does propose an alternative approach of sorts, which he calls ‘piecemeal reform’. In contrast to “Big Plans”, piecemeal reform “motivates specific actors to take small steps, one at a time, then tests whether that small step made poor people better off, holds accountable the agency that implemented the small step, and considers the next small step”. But hold on: ’small steps’ is exactly what the Sachs-led Millennium Project is proposing - among their ‘Quick Wins‘ they list things like more fertiliser for farmers, free school meals to children, deworming tablets, insecticide-treated bed-nets, contraception and low-cost housing. And another recommendation explicitly stipulates community-level monitoring of the effects: “Monitoring should focus on measuring the impact of investments and tracking the flow of funds. Communities are ideally positioned to report on both. To reduce graft, district governments and local authorities should make funding flows transparent to community members”.

Easterly’s next tactic is to attack the very idea of aid itself:

Spending $2.3 trillion (measured in today’s dollars) in aid over the past five decades has left the most aid-intensive regions, like Africa, wallowing in continued stagnation; it’s fair to say this approach has not been a great success.

I must say I’m surprised to see Easterly trotting out this line. For one thing, he knows fine well that a big chunk of that $2.3 trillion was never intended as aid for development: donors forked it out to prop up their favoured dicators, well aware that it wouldn’t get spent where it was needed. He also knows that because of political or strategic concerns in donor countries, much aid is misdirected towards middle-income countries rather than the low-income countries with greatest needs. Thirdly, he should know that some of that aid was instrumental in the 20th Century’s most remarkable development success story: South Korea received nearly $100 per person (in today�s dollars) in annual aid between 1955 and1972 (compared to an average of about $28 per person in Sub-Saharan Africa today). Lastly, he knows (or should know) of some research showing that aid works: “every dollar in growth-oriented aid added $1.64 on average to the incomes of recipient countries“, and that’s just short-term aid. He should know this because the research in question was produced by the Center for Global Development; after all, he does work there. On the subject of Africa, the CGD research notes that “while Africa’s growth performance has been disappointing, it would have been much worse in the absence of aid”.

Easterly knows or should know all of this, and yet he mentions none of it, choosing instead to imply that aid has all been a big waste. To me, that seems downright dishonest.

At this stage, Easterly’s review becomes (in my opinion) a bit incoherent. He says that “Aid projects have probably helped increase access to primary and secondary education, clean water and sanitation”, and admits (in brackets) that “Many of Sachs’s specific recommendations might make sense as piecemeal reforms — i.e., if done one at a time in small steps, with subsequent evaluation and accountability”. Well, yes - this is precisely the point Sachs and his team make.

So what, exactly, is Easterly’s problem? Partly, he bristles at what he sees as Sachs’s hubris. Rightly enough, he criticises Sachs for declaring that “Success in ending the poverty trap will be much easier than it appears”, which is the kind of impressive but vague statement that you can imagine infuriates development economists. I think Sachs may have taken a leaf out of his mate Bono’s book and decided that he doesn’t mind looking ridiculous if he gets his message - that we easily can and should do more to reduce poverty - across (Easterly seems willing to allow this too: Sachs, he says, “was born to play the role of fundraiser”).

Easterly ends with a warning: “The danger is that when the utopian dreams fail (as they will again), the rich-country public will get even more disillusioned about foreign aid”. So, if Sachs is wrong, will he have fatally undermined faith in aid and in development in general? I tend to think not - by the time we know whether he was right he may have been largely forgotten, and I think it’s unlikely that even if aid does increase significantly it will reach the levels he’s proposing, so there’ll always be a get-out clause. But I’d like at least to try to find out if he’s right, and I fear that attacks like Easterly’s will ensure that we never get even that far.

[Note: The Glittering Eye has a good summary of the ‘Blogospheric reaction’ to the Sachs article in Time]

[Update: fixed some links, 20/03/05]

A headline from Reuters today: IMF says Africa cannot absorb more donor aid.

Wow, really? Africa cannot absord more aid? The IMF said that?

No, not really. The full story is here. What IMF Africa Department director Abdoulaye Bio-Tchane actually said was

You have clearly some capacity constrains or (lack) financial capacity to increase and absorb aid and you need to work on those issues. You need also to look at governance issues.

Further down in the story, Leslie Lipschitz, an economist and director of the IMF Institute, says (all grammatical and spelling mistakes are in the original, by the way)

There are some countries where you can double aid tomorrow and you could have beneficial affect. There are some other countries where if you try to double aid they would not be able to absorb without creating inflation and (other) problems.

There’s nothing new here - some countries have a lot of absorptive capacity for extra aid, some have very little. Some may even have none, though I can’t recall anyone actually naming such a country. No, there’s nothing new here except some slightly incompetent sub-editing at Reuters.

And of course, the Globalization “Institute” thinks this is Big News.

One tends to hear a good bit about how Sweden’s economic fortunes have hit the skids, and it’s often put down to its supposedly over-onerous welfare state. The moral of the story seems to be that ‘paternalistic’ welfare states are bad and free markets and low taxes are good, m’kay?

Valerie Cerra and Sweta Chaman Saxena of the IMF beg to differ. Two main factors, they say, account for the fall in Sweden’s income relative to other OECD countries in the last couple of decades: a higher proportion of working-age people in the post-war era and a lower proportion in recent years (mostly due to avoiding the worst of the second world war) and a severe banking crisis in the early 1990s.

In their words:

One of the reasons underlying Sweden�s relative decline in the OECD�s ranking by per capita GDP may be that the demographic shock of an aging population hit Sweden well before other countries. This was the consequence of the earlier rapid expansion, which was boosted by the relatively young population after World War II, which, unlike in other European countries, was not decimated by the war.

Sweden’s income per capita fell sharply to roughly the OECD average after the banking crisis, but income per working-age person remained higher, as the below chart shows.

But here’s the really interesting bit:

Since the OECD average includes a number of other ountries in Scandinavia and continental Europe that also maintain large welfare states, we compare the pattern of income growth with that of the following OECD countries: Australia, Canada, New Zealand, the United Kingdom, and the United States. This comparator group has a relatively smaller tax-transfer system …

This chart shows the results:

As the authors put it,

Swedish growth rates of output per working-age person compare well with those of the United States and with the average for the comparator group. Even accounting for the decline in the early 1990s, Swedish growth outpaced the average for the comparator group over the sample, moving income per worker from below the average in 1960 to above it in 2003.

To put it another way, Sweden not only did not perform worse than countries with smaller welfare states over the last four decades, it actually overtook them when you adjust your measure for demographic trends. Interesting, eh?

Forgot to mention in the previous post that Owen Barder has begun what looks like a very interesting series pulling together the evidence for the argument that aid works. See here for a very good post on the eradication of smallpox.

To his credit, Tim Worstall responds to criticism from myself and Owen Barder of his previous pronouncements on aid with a detailed post taking issue with this paper from the Center for Global Development, put forward by Owen (who works at the CGD) as persuasive evidence that aid works.

Tim’s objections are mostly unfounded however, as I argue in comments over there. I think his argument can be summed up in the following five points:

1. The study only looks at the short-term effects of aid.
2. Aid-funded spending is equivalent to governments running a deficit.
3. Deficit-funded government spending eventually runs up against capacity constraints - without ’supply-side reform’ [which for Tim appears to mean privatisation and liberalisation] the result is inflation rather than growth.
4. The aid is being spent by governments. Even in the best run states in the world there is little or no evidence that government spending boosts growth rates more than an equivalent amount of private spending.
5. The CGD paper implies that without aid several Sub-Saharan African countries would have growth rates of minus 8%-15%.

I’ll take these in turn.

1. The study only looks at the short-term effects of aid. It’s true that the CGD paper (by Michael Clemens, Steven Radelet and Rikhil Bhavnani, incidentally) looks mainly at the short-term effects of aid. However, particular results from the battery of statistics in the paper indicate that short-impact aid has long-term positive growth effects (”lagged aid is never negatively correlated with current growth, suggesting that indeed the effects of short-impact aid last beyond the current period”) AND that ‘long-impact’ aid (e.g. investment in health and education) has long-term positive growth effects (”the results in Table 5 do suggest an important long-run positive impact on growth from long-impact aid, but this study does not intend or attempt to quantify it”). So the study is saying that aid is definitely good for growth in the short-term and very probably good for growth in the long-term.

2. Aid-funded spending is equivalent to governments running a deficit. Not so. As Owen points out in comments, “The crowding out effects, which reduce or eliminate the long term effect of an expansionary fiscal policy, come about because the Government has to borrow or print money to finance the deficit, and/or raise taxes in the future to repay the borrowing. This offsets the expansionary effect of the policy. But in the case of aid-financed financed expenditure, the recipient Governments don’t have to borrow or tax to pay for it.”

3. Deficit-funded government spending eventually runs up against capacity constraints - without ’supply-side reform’ the result is inflation rather than growth. Aid can and does reduce capacity constraints, by funding investment in physical and social infrastructure. That’s a major role of public spending in any country. There’s more to ’supply-side’ reform than privatisation.

4. The aid is being spent by governments. Even in the best run states in the world there is little or no evidence that government spending boosts growth rates more than an equivalent amount of private spending. Firstly, this is just another unsupported assertion. Secondly, a lot of aid finances public goods. Tim’s old friend ‘basic economics’ should tell him that the private sector tends to be pretty bad at investing in these. Thirdly, it is the poorest countries in particular that lack private sector investment in large part because of too little public investment in infrastructure, health and education, which is precisely what aid is meant to pay for.

5. The CGD paper implies that without aid several Sub-Saharan African countries would have growth rates of minus 8%-15%. This is just plain wrong, as Tim has got his numbers all mixed up. According to the CGD paper (page 33),

“while average growth in Sub-Saharan Africa was -0.23%, it would have been 0.57% lower, or -0.80%, had the region received world average short-impact aid flows (2.70% of GDP) instead of the amount it actually received (5.33%). Conservatively, then, aid raised average annual per capita income growth in Sub-Saharan Africa by half a percentage point or more between 1973 and 2001. That is, while Africa’s growth performance has been disappointing, it would have been much worse in the absence of aid. Here, as elsewhere, we take no account whatsoever of any additional impact on long-run growth due to long-impact aid. Half a percentage point is thus a very conservative estimate of the total impact of aid on growth in Africa”.

To the burgeoning list of things Tim Worstall knows nothing about (which already includes statistics, housing, Latin American development and the history of free trade) we can now add aid and poverty.

First, aid. Decrying the lack of ‘economic logic’ displayed by Gérard Errera in his article on international aid, Tim declares:

there is as yet little evidence that official aid actually helps anything other than to salve the consciences of those who send it. Rather the opposite in fact, channeling money from government to government has been shown to be positively deleterious to those receiving it.

Impressive! And where exactly is this ‘fact’ ’shown’? I asked Tim in comments and the answer seems to be, er, nowhere. Instead, Tim appears to change his argument to something more specific like “aid doesn’t work when given to corrupt dictators” and then starts going on about the Iraq war. Now, maybe in the confusion he forgot to mention the empirical evidence he must have been drawing on when he made that sweeping remark. If so, I’d like to see it. If not, I think we can assume that this was just yet another case of him talking complete rubbish.

Which brings us on to poverty. Tim criticises Polly Toynbee (sorry, “Polly Pot”, ha ha) for using “the magic trick of referring to relative poverty rather than absolute”. Well, for one thing, lots of people take relative poverty seriously, so by simply dismissing it Tim is just ushering himself out of the argument. Nevertheles, he goes on:

if all the poor increased their incomes by 100% and the rich increased theirs by 110%, Pol Pot [that’s Polly Toynbee] would claim that poverty had increased….because her metric focuses solely on income differentials, not absolute incomes nor absolute poverty.

Now, the important concept here is something called the median, which is defined as “the number that separates the highest half of a sample or a population from the lowest half”. Think of it as the mid-point in the income distribution. In the UK the main poverty line is set at 60% of the median household income - households with income below this are officially ‘low income’. What would happen to the median income if ‘the rich’ (whether you define them as as the top, say, 2%, 20% or 40% of the income distribution) increased their incomes by 110%? Nothing. The mid-point in the distribution would still be the same, as only the incomes of those above it would have changed. So relative poverty would not have increased. Now what if the incomes of the ‘poor’ increased by 100%? Again, nothing unless the mid-point of the income distribution changes. But if anyone is moved over the poverty line set at 60% of median income, poverty is reduced. So it’s perfectly possible for the incomes of some rich portion of the population to increase their incomes by 110% and for some poor portion of the population to increase theirs by 100%, and for poverty to fall.

Tim then goes on to compare ‘relative poverty’ in different countries using the Gini coefficient. Again, this is just wrong, if poverty is defined as a fraction of the median. Two different countries could have very different Gini coefficients but the same relative poverty lines, if for example one has more individuals on very high or very low incomes.

I think another quote from Tim sums up his efforts best:

It’s a distinctly silly way of looking at poverty, of trying to measure it, and all and any conclusions reached by trying to do it that way are valueless.

This is very encouraging:

Britain is to announce that it will no longer urge poor countries to privatise large swaths of industry or open their markets to foreign trade overnight as a condition for receiving development aid.

The international development secretary, Hilary Benn, will announce the policy change at a high-level forum of the Organisation for Economic Cooperation and Development in Paris today on aid effectiveness.

He will not entirely remove conditions, as countries with high levels of corruption or human rights abuses will still struggle to receive British aid, but those with good governance and poverty reduction strategies will have much less trouble receiving money.

The full policy paper is here (pdf). A bit more detail:

The circumstances in which the UK will consider reducing or interrupting aid are, therefore, if:
a) countries move significantly away from agreed poverty reduction objectives or outcomes or the agreed objectives of a particular aid commitment (e.g. through an unjustifiable rise in military spending, or a substantial deviation from the agreed poverty reduction programme); or
b) countries are in significant violation of human rights or other international obligations; or
c) there is a significant breakdown in partner government financial
management and accountability, leading to the risk of funds being misused through weak administration or corruption.

Seems sensible. Though I wonder if there are any countries out there who have been playing the conditionality game, and extracting a ‘price ‘in aid for ‘reform’ they would have undertaken anyway?

The Adam Smith Institute attacks FairTrade again.

* We do not have free trade in farming. Rich countries engage in unfree trade. Developing country farmers are held back by unfree trade, not free trade.

* Fairtrade appeals to a minority of buyers. Only 1% of the world’s coffee is Fairtrade. Most people buy according to price and quality.

* Fairtrade helps relieve middle-class guilt. By so doing, it takes the emphasis away from the real problem: Europe’s agricultural policies.

* Mechanization means that only a small proportion of the world’s coffee producers are actually needed. In Brazil five people and a machine produce the same amount of coffee as 500 people in Guatemala. We should help people adapt, not encourage them to stay in outdated jobs.

* Coffee prices are low because there is too much being produced, not because of the actions of multinational companies. Companies like Starbucks have helped increase consumption of coffee, which is good for producers.

* 25% of the world’s Fairtrade coffee comes from Mexico, a relatively affluent country where the average income is $9000 (compared with $700 for Ethiopia). Mexico enjoys free trade agreements with the USA and Europe, and most of its jobs are industrial and service sector jobs. By helping Mexicans stay in the market, the Fairtrade scheme keeps the world price of coffee down and takes business away from poor coffee producers.

* Markets convey information through prices. The low price of coffee tells producers to produce more cheaply or exit the market. At the end of the day, too much coffee is being produced.

I was going to respond in detail, but now I don’t have to, because Owen Barder has done an excellent riposte. Briefly, Owen argues that:

• It is entirely consistent to want to see the Common Agricultural Policy reformed or abolished, and to want to buy fair traded products.
• The relatively small size of the market (so far) is not a reason for consumers not to have this choice.
• By buying Fairtrade, consumers are demonstrating that they care whether farmers in developing countries get a decent price for their product, and so adding to the pressure to reform Europe’s agricultural policies.
• Buying Fairtrade gives developing country producers additional income which enables them to invest, in themselves and their children, and so provides opportunities for them to adapt.
• Fairtrade seeks to increase, not reduce coffee consumption. But it allows consumers to choose to buy and drink coffee that pays a fair return to coffee producers.
• It is economic nonsense to suggest that for consumers to be willing to pay more for coffee, in order to ensure a proper return for the producers, can somehow depress the world price of coffee.
• One piece of information that prices can convey is that some, though not all, consumers have a preference for products which have not been supplied at the expense of very low and uncertain returns to the producers. The Fairtrade scheme enables the market to translate this consumer preference into purchasing decisions. Without it, there would be no way for consumers to express this preference.

It’s interesting that the ASI makes no mention whatsoever of the remarkably uncompetitive nature of the world coffee market. As pointed out by ActionAid and Jacques Morisset of the World Bank, the gap between the price paid to coffee farmers and the prices paid by consumers has grown greatly in the last few decades, a process which can be largely attributed to the increasing concentration of market power among fewer and fewer giant firms at the processing and retail stages of the production chain. Farmers are faced with an oligopsony, and consumers with an oligopoly - with the net result of this grossly uncompetitive market being a great transfer of wealth from farmers and consumers to hugely profitable firms.

It is hard to imagine a market that Adam Smith could have found more objectionable - it’s like a giant invisible hand repeatedly slapping some of the poorest people in the world. Yet for some reason the Adam Smith ‘Institute’ doesn’t even find the total lack of competition worthy of comment, let alone criticism.