Our Word is Our Weapon

Just to let you know, I´m on holiday at the moment and won´t be able to respond to any comments here or elsewhere until next Tuesday at the earliest.

Stephen Pollard says:

The aim of the Make Poverty History campaign is, of course, laudable. There is, however, one problem. The sheer wrong-headedness of the campaign’s proposals to eliminate poverty leads one to think that Moss, Clooney et al are not mere adornments but have been responsible for the analysis underpinning them. The campaign could more accurately be renamed Make Poverty Permanent, such would be the effect of its proposals being implemented.

The group’s manifesto has three aims: “trade justice”, “drop the debt” and “more and better aid”. They are, respectively, dangerously misguided, pointless and counterproductive.

And he goes on to show his complete ignorance on each one. Here’s how:

Trade. Pollard says:

It might seem sensible at first glance to argue that nascent industries in developing countries need to be protected so that they can withstand competition from rapacious multinationals. But the evidence shows the opposite. The engine of growth, without which countries remain in poverty, is trade. Tariff protection keeps resources in unproductive, low-return activities such as the type of farming which Make Poverty History seeks to entrench. Free trade shifts resources to more productive uses. Take Malaysia, Singapore, Thailand, South Korea and India: while they maintained their tariffs, they remained stuck in poverty, the only thing which tariffs protect. As recently as the early 1980s they were poor countries. Their incomes per head ranged from $700 (£350) to $7,000. Today they range from $2,000 to more than $21,000.

The argument, such as it is, seems to be that these countries are now better off than they once were, and their trade barriers are lower than they once were, therefore lower trade barriers must have caused their higher standards of living. And, er, that’s it. The idea that there might be other factors involved doesn’t seem worthy of consideration. Nor has the thought occurred to Pollard that these countries might have liberalised during or even subsequent to the onset of high growth, as seems to have been the case in India.

Nor is Pollard aware that countries that liberalised quickly seemed to have lower growth (page 132 in this Oxfam report) and lower poverty reduction (page 115 in this UNCTAD report). Or that Western countries were protectionist (by the standards of today’s developing countries) when they were at the ‘developing’ stage.

Finally, if he is right that trade liberalisation is the road to riches, wouldn’t we expect the Third World region with the most liberalised trade policy to be the richest? But which one is the most liberalised? According to the World Bank, that would be Sub-Saharan Africa.

So, on trade at least, Pollard doesn’t have the first clue what he’s on about.

Debt and Aid. Here’s our man again:

The abolition of debt and an increase in aid — in effect the same thing — are red herrings. Far from rewarding governments for the disastrous policies that have kept their populations in poverty by handing over more aid for them to siphon off, a campaign to make poverty history would champion open trade, reduced regulation and, critically, property rights.

The logical implication here is that we should cut off aid and stop debt relief. In fact, it looks like Pollard feels we are not taking enough money from people in poor countries. He seems to neither know nor care that one-fifth of all developing country debt consists of loans given to prop up compliant dictators such as Mobutu, Marcos and Suharto. Yet we still demand that the people who have got rid of these dictators reimburse us for the costs we incurred trying to keep them in power. I wonder if Pollard feels, for example, that today’s Iraqis should have to pay back every penny of the debts accumulated by Saddam. If not, he might want to re-examine his views for just the slightest hint of inconsistency.

Like I said, the logical implication of his views on debt is that current efforts at debt relief should be stopped, for example the major debt relief programme at the moment, HIPC (for Highly Indebted Poor Countries). Debt relief under HIPC has enabled the ten countries that have completed the programe and for which data is available to increase by 70% the amount they spend on health. Presumably Stephen Pollard would like to see the hospitals funded by this money torn down, the doctors and nurses sacked and the medicines snatched from patients’ hands. The ten countries also went from spending more on debt service than on education to spending more than twice as much on education as on debt. Uganda, Malawi, Zambia and Tanzania all abolished fees for primary school education. Again, Stephen Pollard presumably sees this as a ‘reward’ for corrupt governments which must be stopped. So let’s shut those schools down too.

What about aid? Well, the evidence is that aid is good for growth and good for investment in poor countries. And as Owen Barder points out, aid has helped finance the eradication or significant reduction of major diseases and has brought safer drinking water to millions. But Stephen Pollard tells us that aid is wrong, so he must be against disease eradication, safer drinking water and economic growth.

The thing is, I can sort of see why he said what he did about trade - it’s not a particularly easy subject to understand, the free trade ideology is superficially attractive, and when you’re an idiotic hack columnist you don’t stop to check your facts against, say, the available academic literature. But his comments on aid are not just smug and flippant, they are clearly, demonstrably incorrect. He blithely accuses MakePovertyHistory of not caring about development while advocating policies - the abolition of life-saving aid and debt relief - which would literally kill massive numbers of people and condemn whole countries to even worse poverty. Here he is not just ignorant, he is also contemptible.

MakePovertyHistory are quite right to call for more aid and debt relief, and I think they deserve the support of anyone interested in development for that. But they also deserve our thanks for performing another valuable public service - provoking cretins like Stephen Pollard (and his fans) into shooting their mouths off and reminding us exactly what we’re fighting against.

It’s not all bad news in Africa at the moment. Eveline Herfkens of the Millennium Campaign says there are “a lot of success stories there”:

Ten countries are on track to get all children to school by 2015, she said. Uganda has reversed the spread of AIDS. Mozambique is on track in meeting the target to curb child mortality, Tanzania is on track to provide safe water for all. “Sub-Saharan Africa is today better governed than ever before in its history,” she said. “There are less civil wars than there used to be. Big problems like Congo and Sudan are closer to being solved than ever before. Fifty percent more kids go to school than ever before.”

Two recent reports from the IMF and the OECD back up the picture of limited but significant progress. So what’s causing it? The OECD report (according to the BBC) says its a combination of factors: high oil and commodity prices, “prudent economic policy”, recovery in agricultural production after widespread droughts, political stability (including a fall in conflict), and higher aid and debt relief. Debt relief was also identified by the IMF report as a major spur to growth and in particular spending on health and education.

This is pretty encouraging, but it’s fragile progress and it could be a lot better. The rich countries can do their part this year by agreeing much more (and better) aid and debt relief for Africa, and by opening our markets to Africa’s exports.

Tim Worstall attacks “fair trade” on the grounds that “We do not, and cannot, know enough” about the production processes of products we in the rich world buy to be able to allocate “fairness”.

Actually, I think Tim has inadvertently hit on the exact reason why “fair trade” appeals to people and is economically efficient. It’s true that the majority of consumers are uninformed about the conditions and earnings of everybody involved in producing, say, a cup of coffee. But the growth of fair trade shows that at least a sizable majority want to be more informed. In particular, many are concerned that the people - typically very poor farmers - at the very beginning of the production chain are not well paid. And many of them would like to know that these farmers are receiving what they (the consumer) think is a “fair” return.

But ordinary coffee suppliers can’t or won’t satisfy either of these consumer desires - for information and for reassurance of a “fair” price being paid to farmers. Fair trade firms, though, do, and that’s why they’re increasing their market share. One very positive aspect of globalisation has been this increasing concern of people in rich countries for workers in poor countries, and it’s the companies who have chosen to address those concerns - whether it’s firms selling fair trade coffee or clothing companies who have cracked down on sweatshop conditions in their factories exposed by campaigners - who are making the most of it, because they are able to reassure the concerned consumer.

I’m not quite sure what Tim or other anti-fair trade people are actually proposing. Are they suggesting that consumers should be prevented from knowing how much the farmers who grow their coffee are paid? Sure, if you somehow succeed in keeping everyone in the dark, then I suppose it’s true that there would be no way of telling how to “allocate fairness”, but that would have to involve some kind of interference in the market, and I’m sure Tim can’t be suggesting that.

One last point. Tim asserts with a complete lack of supporting evidence that ‘economists oppose “fair trade”‘. What, all of them? Most of them, even? I doubt it. The fair trade system addresses precisely the market failure that Tim highlights, so I think most sensible economists would see the benefits. Of course, people like the Adam Smith Insitute and Globalization Institute hate fair trade, but then they’re neither sensible nor economists.

In the debate here in the UK over trade justice versus free trade, it looks like Ghana has become everyone’s favourite hobby-horse. Our pals at the Globalization Institute seem particularly keen on selling Ghana as a liberalisation success story. Just how accurate is this?

Let’s start with some basic facts. Contrary to what the GI seems to believe, Ghana has not been growing “faster than any other West African country”, as a glance at the very IMF statistics they base this claim on will tell you. But they are right to point out that poverty in Ghana has fallen since the early 1990s, as this recent DFID paper points out. What doesn’t get mentioned is that while Ghana has indeed been growing steadily (but slowly) over the last twenty years, this came after a cataclysmic recession in the early 1980s, and per capita incomes have yet to return to the levels of the early 1970s. That DFID paper also points out, again contrary to what the GI seems to believe, that inequality has risen. This is very important, as it means that the incomes of the well-off have been rising faster than those of the poor, with the incomes of the bottom 20% growing by less than 2% a year (see chart below).

So it shouldn’t be that surprising that poverty in Ghana has not fallen across the board. Indeed, only two out of Ghana’s ten regions have actually seen statistically significant poverty reduction since 1991/92 (p. 18 of the DFID report). The picture is even worse if you look at the qualitative evidence: according to the DFID researchers,

there was a widely held perception that poverty levels had worsened … Urban communities considered that the initially beneficial effects of economic reform in the 1980s had not been sustained, while rural communities felt that the vulnerability of their livelihoods was increasing. A similar perception of living standards having worsened, this time over the last decade, was also reported by communities in the Voices of the Poor study conducted in 1999.

These subjective accounts may be picking up something that snapshots of absolute poverty cannot measure - an increase in social and economic insecurity and vulnerability. As Guillermo Cruces says, there is a disutility to income instability, and if liberalisation in Ghana has caused an increase in instability, then the ‘risk-adjusted’ incomes of ordinary Ghanaians may on average be even lower than before.

Still, some growth and poverty reduction is better than none. What can we say about the causes of Ghana’s recent growth? Here, Alex Singleton of the GI is unequivocal - it’s liberalisation (undefined, unmeasured) what done it. But this ignores the aid that the DFID paper he quotes cites as a major factor, propping up public investment to counter-act the “contraction of wage employment opportunities”. And while the DFID paper mentions the remittances (monetary transfers from Ghanaian emigrants), it doesn’t mention that they’ve rocketed in recent years, up to 13% of GDP from only 2% in 1990 according to this paper, which makes you wonder how Ghana would have done without such a boost.

Unevenly spread growth, heavily dependent on overseas finance - Ghana is hardly a shining example of the glories of liberalisation. Indeed, the authors of the DFID paper are worried:

There are though important questions about the sustainability of this moderate rate of progress, due to various factors including fiscal constraints, increases in inequality, increasing levels of domestic debt, and the fact that many of the benefits of the revitalisation of the cocoa sector may already have been realised. Future poverty reduction may be harder to achieve.

The main reason Ghana has come to prominence in the last few weeks is the re-ignition of a two-years-old debate about tariffs on imports on rice and poultry which the parliament agreed to impose, only for the executive to repeal (unconstitutionally, some say) after pressure from the IMF and World Bank. When the singer Chris Martin (speaking for Oxfam) pointed out the injustice of Ghanaian farmers put out of business by imports of heavily subsidised rice from Europe and the US, Alex of the GI responded that “Mr Martin’s protectionism might seem a way of fighting poverty: in practice it would cause the poorest to starve”. I wonder whether the sudden huge loss of income for many rice farmer households is more likely to bring on starvation than a rise in the price - after all, it’s not like rice is the only food available, but for many farmers it is the only product they have ever produced. Ghana was once a net exporter of rice, but the cut-backs under structural adjustment mean that government subsidies for farm equipment have dried up, making it doubly difficult to compete with heavily subsidised imports from rich countries, which have shot up in recent years .

While many producers are losing out, in the short run some families no doubt benefit from cheap rice - but the subsidies won’t last forever, and when they do end there may be no indigenous rice sector left to pick up the slack. And isn’t Alex’s celebration of subsidised rice is particularly odd given his condemnation of subsidised sugar only a week later?