Development Economics

The Rise of Asia’s Middle Class

Every good ex-pat reads the local national newspaper to understand both what is going on in the country and what is important.  In yesterday's Philippine Inquirer, Jong-Wha Lee, the chief economist for the Asian Development Bank, penned an op-ed discussing an alternative way of looking at the problem of poverty in Asia.  In the opening paragraphs, he explains the issues:

THE MANTRA across developing Asia since the 1960s has been poverty reduction. Huge strides were made during the Asian “miracle.” Yet two-thirds of the world’s poor remain in Asia. More needs to be done, but how? Perhaps we need to flip the coin. Instead of just “pushing” people out of poverty, we should also aim at bolstering the rapid expansion of the middle class as a magnet to “pull” people out of poverty, providing an anchor for sustained and more inclusive economic growth. This is good global economics as well. As households in advanced economies get a handle on excessive debt and start to save, developing Asia’s rising middle class holds the key to rebalancing the region’s economies more toward consumption. Asia’s emerging consumers are likely to assume the traditional role that the US and European middle classes played as global consumers.
The rationale behind this theory, as I understand it, is that a rising tide lifts all ships.  (more…)

Development Economics

Introduction to a Series of Essays

I am in my final month here, coming to the end of my road after a long trip.  I spent 7 months in the Philippines, two weeks each in Cambodia, Thailand, and Burma, a week in Vietnam, four days in Hong Kong, and an afternoon in Japan.  I am taking time to reflect on my time here and pull together everything I have learned into a set of coherent ideas of what it all means. I arrived in December of 2009 knowing next to nothing about microfinance, economic development, or the issue of poverty in developing countries.  I understood these things on a conceptual level, but, as faithful readers of this journal know, my views on what it is and what it does have changed with time. I have come to the conclusion that poverty is a limitlessly nuanced and complex topic that only becomes more confusing as your understanding of its causes deepen.  It is the product of an interrelated confluence of factors that enable and exacerbate one another.  Everything is a chicken-egg situation.  Because there are no levers to pulls, there is no such thing as a silver bullet to end poverty, despite what some might have you believe.  Microfinance addresses a specific deficiency by increasing access to financial services for the poor.  Microfinance institutions use their position and reach to offer other services – healthcare, education, energy, etc. – but are limited in their ability to really make an impact in these areas.  That is because these services are the province of the state, and their deficiency is due to the failings of the government, whose politicians are democratically elected, but neglect to fulfill their promises of reform and development in the face of the promise of wealth.  Corruption is so deeply entrenched in the bureaucracy that it is immutable in the status quo. (more…)

Foreign Policy

The Blame Game in Manila

One surefire way to get respect from the international community is to admit to your mistakes and take the blame failures.  But while Hong Kong breathes fire just thinking about the incompetence of the Filipino police and the weak national government, the current president, Noynoy Aquino, and the previous president, Gloria Macapagal-Arroyo, are pointing fingers at one another.  From today's Philippine Inquirer:

Malacañang [the equivalent of the White House] indicated on Thursday that the administration of former president Gloria Macapagal-Arroyo was also to blame for the bloody end of Monday’s hostage-taking drama at Rizal Park in Manila. "I would like to point out that the administration of Benigno Aquino III is just 55 days old while Arroyo's administration lasted for nine years. We just inherited the state of the Philippine National Police,'' Secretary Herminio Coloma of the Palace communications and operations office told the ABS-CBN morning news program "Umagang Kay Ganda.''
"The previous administration should also answer for what they did [for the police]. Did they provide enough funds for the modernization of the PNP or did it waste funds for cases like the euro-generals and other corruption cases?'' Coloma also said. It was the first time that the Palace sought to blame the previous administration for the bloody end of the 11-hour standoff that claimed the lives of eight Hong Kong tourists and the hostage-taker, dismissed Senior Inspector Rolando Mendoza.
That is from the current administration.  (more…)

Development Economics

An Unfortunate Black Mark for the Philippines

By and large, the Philippines is a peaceful and safe place for tourists.  As long as foreigners like myself stay away from the parts of Mindanao controlled by Islamic fundamentalists like Abu Sayyaf and separatists like the Moro Islamic Liberation Front (MILF), the most you will have to worry about is getting your wallet pinched in a marketplace.  In the last two days, that reality has been overshadowed by an isolated act of one disgruntled sociopath who hijacked a bus of tourists from Hong Kong, killing 8 of them before being taken out by a sniper.  It is a tragedy for a lot of reasons, and it is going to have some sad implications for the country. (more…)

Development Economics

Defining Poverty in the United States

[caption id="" align="alignright" width="336" caption="Camden, New Jersey"][/caption] People ask me all the time about whether the United States has any poor people.  When I tell them that 15-20% of the country lives below the poverty line, they can’t believe it.  That is because the federal poverty line of $22,050, which is the amount for a family of four to live reasonably, is much higher than the comparative number in other places.  This is called “absolute poverty,” and is one of the measures of poverty in the U.S.

The "absolute poverty line" is the threshold below which families or individuals are considered to be lacking the resources to meet the basic needs for healthy living; having insufficient income to provide the food, shelter and clothing needed to preserve health.
The system by which the U.S. defines and measures poverty in the United States hasn’t really changed in the last half century.  There has been a lot of criticism over the way it is measured, which is based on a threshold that was defined in the 50’s.  (more…)

Development Economics

Democracy in Africa: One Step Back, Two Steps Forward

According to the Economist, the growing sophistication of election rigging dictators is a good sign:

Citizens plainly like to vote. Even the most authoritarian leaders now feel obliged to hold elections. Presidents Bashir and Mugabe, as well as Meles Zenawi, the prime minister of Ethiopia—none of them natural democrats—have all had to hold elections in recent years. Only a decade ago countries such as Sierra Leone and Liberia were bywords for anarchy and bloodshed. Now their people vote enthusiastically. It will be hard even for dictators to take that right away altogether, for the experience of elections, even flawed ones, seems to help embed democracy. Ghana, for instance, which reverted to civilian rule only in 1992, has twice changed governments after tight elections. This month the incumbent in Somaliland, a nation-in-waiting, conceded electoral defeat. In Nigeria the ruling party, despite efforts to snuff out democracy, is having to concede improvements that should make for a better vote next year. (more…)

Development Economics

Factories in Africa and China’s Special Economic Zones

Magatte Wade, an African entrepreneur and columnist for the Huffington Post, has a vision for the future of Africa that entails becoming a manufacturing powerhouse.  African countries have abundant human capital and low-cost labor.  The current manufacturing giant, China, has recently seen an uptick in labor strikes, with workers gaining more bargaining power, which will ultimately drive up wages.  Here she explains her vision:

My vision for Africa is one in which it becomes the first region of the world to create a socially and environmentally responsible manufacturing base. But key to that vision is that Africa does create a manufacturing base. Because we will never be helped by those Americans who are strictly selfish and self-indulgent, I am appealing to those Americans who want to help to transcend their romance with foreign aid and microfinance, and begin to take seriously investing in African manufacturing and purchasing products made in Africa. Yes, pay attention to the kind of manufacturing that produces the goods you buy. But also remember that we Africans deserve the same respect and quality of life that you have. Microfinance and arts and crafts alone will not get us there.
The article is worth reading in full, as are most of her columns.  She hates Jeffrey Sachs and Bono, the two lightning rods of criticism for the counter-productive aid approach to development, and her screeds are a good read.  But back to the topic at hand.  (more…)

Development Economics

The Aid Paradox Explained

In his review of Dambisa Moyo's opinionated book Dead Aid, economist Jagdish Bhagwati describes the history of aid policy over the last half century and explains why, despite good intentions, it has probably done more harm than good:

Many activists today think that development economists in the past neglected poverty in their quest for growth. But what they miss is that the latter was seen as the most effective weapon against the former. Poverty rates in the developing countries did indeed rise during the postwar decades, but this was because growth was sporadic and uncommon. And that was because the policy framework developing countries embraced was excessively dirigiste, with knee-jerk government intervention across the economy and fears of excessive openness to trade and foreign direct investment. After countries such as China and India changed course and adopted liberal (or, if you prefer, "neoliberal") reforms in the last decades of the century, their growth rates soared and half a billion people managed to move above the poverty line -- without question, the greatest and quickest progress in fighting poverty in history. (more…)