Category Archives: Foreign Policy

Are Conditional Cash Transfers Really the Answer?

Genius

A while back I wrote about conditional cash transfers, which are the next biggest thing in development, in a post called “Where’s My Money, Fool,” titled so as an homage to the curler-wearing drug dealer Big Worm in the movie “Friday.” The most successful example of a good CCT program is Bolsa Familia, a government program in Brazil which has helped to increase incomes for poor families by 7 times as much as incomes for the rich (albeit, off a lower baseline).  Brazil has seen its poverty level drop faster than Snooki inside a plastic Zorb-like ball in the Jersey Shore on New Years Eve.  Specifically, the number of people living in poverty has dropped from 22% to 7% over the last decade.

The theory behind conditional cash transfers is simple.  The government pays poor families for meeting certain requirements.  Attendance in school and maintaining standards of healthcare are rewarded with monthly payments.  As long as the family achieves the targets of the program, they are eligible for a payout.  The outcome is two-fold.  First, the family gets immediate relief in the form of cash payments from the government, which can be put toward food and education.  Second, the underlying conditions that cause the unbreakable cycle of poverty to unbroken – lack of education due to the demands of meeting financial needs for the household – are addressed, as financial incentives eliminate the need to pull kids from school to help their parents earn income for the family.  An explanation from the New York Times:

The program fights poverty in two ways.  One is straightforward:  it gives money to the poor.  This works.  And no, the money tends not to be stolen or diverted to the better-off.   Brazil and Mexico have been very successful at including only the poor.  In both countries it has reduced poverty, especially extreme poverty, and has begun to close the inequality gap.

The idea’s other purpose — to give children more education and better health — is longer term and harder to measure.  But measured it is — Oportunidades is probably the most-studied social program on the planet.  The program has an evaluation unit and publishes all data. There have also been hundreds of studies by independent academics. The research indicates that conditional cash transfer programs in Mexico and Brazil do keep people healthier, and keep kids in school.

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Cote D’Ivoire and the “Big Man” in African Politics

The big news in West Africa (and the rest of the world) is the election crisis in Cote D’Ivoire, the next-door neighbor of Ghana. I have talked to a lot of people about what’s happening and have tried to learn as much as I can about the issue. Basically, Cote D’Ivoire recently held a presidential election. The incumbent, Laurent Gbagbo, is a former history professor who took became president in 2000 in a contested election. Despite losing the most recent election to Alassaine Ouattara, a technocrat and economist from the predominantly Muslim north, Gbagbo is refusing to step down. Both men have been sworn in as president, though Ouattara is holding court in a hotel surrounded by 700 UN peacekeepers. Meanwhile, the entire world has condemned Gbagbo and called for him to step down. Gbagbo, the consummate “big man,” has no intention of leaving anytime soon. Most recently, the new Ivorian UN ambassador (appointed by Ouattara) told the international community that Cote D’Ivoire is on the brink of genocide. 173 people have already been killed, and, unfortunately, that is probably just the beginning.

My first reaction was that what is happening in Cote D’Ivoire is, for lack of a better word, cliche, given the historical precedent of tainted democratic elections in Sub-Saharan Africa.  The more I read, the it became clear that I am not alone.  There are exceptions to this rule, of course.  Ghana is a great example of a stable democracy.  So much so, in fact, that President Obama chose Ghana as the site of his first speech to Africa.  But why don’t these proverbial big men just step aside?  The whole world is against you, you are broke and hanging on by a very thin thread, and refusing to capitulate to the will of your own people will likely result in the deaths of thousands of your people and will set the development your country back decades.   So why not step aside?

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Crisis in Cote D’Ivoire: How Political Instability Alters Trade Patterns

The big news in this part of the world (West Africa) is the recent democratic election in Cote D’Ivoire, which saw the anointing of not one but two presidents.  The incumbent president, who has led the country for 10 years and is constitutionally barred from seeking a third term in office, is refusing to step down after a decisive 54-46 loss to Alassane Ouattara, an economist and technocrat who also happens to be both a Muslim and a leader of the rebel groups in the north.  The international community has unanimously rallied behind Ouattara and called for Gbagbo to step aside.  The World Bank has suspended aid to the country, and Ouattara has called for the Central Bank to stop releasing money as a way to “starve the beast,” and turn hungry soldiers against the incumbent president. Unfortunately, with 173 people killed so far in the post-election violence, analysts are predicting the country is going to slide into another civil war.

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The Dark Realities of Agriculture Economic Development

The ADVANCE project, which I am currently working on, seeks to “improve Ghana’s agricultural sector by increasing competitiveness in domestic, regional and international markets.”  The way to do this is to give smallholder farmers (defined as those with 1-2 hectares of land, or renters) better access to fertilizer and chemicals, better access financing and seed varieties that the market demands, and more efficient machinery.  This process is called “upgrading,” and it is the key to import-substitution for the rice, and export competitiveness for soya.  The end goal is food security, and the means is the commercialization of the agriculture sector.

But there is another way of achieving this end, and, unlike a market facilitation approach like that of ADVANCE, it is decidedly not good for the poor:

Across Africa and the developing world, a new global land rush is gobbling up large expanses of arable land. Despite their ageless traditions, stunned villagers are discovering that African governments typically own their land and have been leasing it, often at bargain prices, to private investors and foreign governments for decades to come.

Organizations like the United Nations and the World Bank say the practice, if done equitably, could help feed the growing global population by introducing large-scale commercial farming to places without it.

But others condemn the deals as neocolonial land grabs that destroy villages, uproot tens of thousands of farmers and create a volatile mass of landless poor. Making matters worse, they contend, much of the food is bound for wealthier nations.

Ever since the 2008 world food crisis, wealthy nations have seen the dangers in becoming reliant on other countries for food production and, in anticipation of the next one, have begun scrambling to buy land in Africa.  Likewise, hedge funds see the writing on the wall and are participating in the feeding frenzy too.  The concern is that people will be displaced en masse from their lands and left with nothing to show for it.  On the other hand, many of them are technically squatters, with the actual deed for the land belonging to the government or a major landholder.  Then again, one might find it difficult to impress this on a third-generation farmer living on the same piece of land as his grandfather.

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An aggressive and pernicious economic competitor with no morals

I am still uncertain on where I stand regarding Wikileaks, but the most interesting releases so far have been the diplomatic cables, which are basically individual case studies in geopolitical dynamics.  The ones regarding Africa policy have been particularly fascinating.  Take this one from the U.S. Assistant Secretary of African Affairs, Johnnie Carson, about China’s role in Kenya:

The U.S. is closely monitoring China’s rising influence and engagement in Africa, according to U.S. diplomatic cables released by WikiLeaks, a nonprofit media organization that specializes in leaking classified government information. The U.S. believes the emerging Asian donor is in Africa primarily for its own interest, one of the leaked cables said.

“China is a very aggressive and pernicious economic competitor with no morals. China is not in Africa for altruistic reasons. China is in Africa for China primarily,” a February 2010 cable from the U.S. embassy in Lagos, Nigeria, said.

The cable also stated that China is using its engagement in Africa to “secure votes in the United Nations from African countries.”

This gets to the heart of the debate about China’s role in developing nations.  The United States and the West are often very critical of China’s economic interest in Sub-Saharan Africa and their “ask no questions” approach to dealing with certain nefarious figures in African politics.  Supporters would say that China is actually treating Africa as a partner in development, offering countries an opportunity to grow based on mutual economic benefit through bilateral trade.   Continue reading

The Development Matrix: Wake Up

Two World Bank economists scientifically prove that first-world countries pay more than third-world countries:

Ask most people to name the most effective means of raising incomes of people in poor countries, and what would they say?

Microfinance? Perhaps not after the recent experimental assessments.

Deworming? It increased primary school participation and improved health, but in the short-term at least seems unlikely to raise household income.

Conditional cash transfers? This might be a popular answer, with evidence from a number of countries that they have increased household expenditure , schooling, and health outcomes. But even though Governments devote significant resources to such programs, the absolute annual increases in household income and expenditure are still at most US$20-40 per capita for participating households.

I bet that facilitating international migration is not very high up the list of interventions people think of. But it should be. In a new working paper, John Gibson and I evaluate the development impacts of New Zealand’s new seasonal worker program, the RSE. The figure below compares the per-capita income gain we estimate to those from microfinance, CCTs, and from my previous research giving grants of $100-200 to microenterprises. It is simply no contest!

Really?  The finding here is that seasonal migrant workers who move to developed countries make much more money than they could were they to participate in economic development projects?  The fact that this is even worth the ink it is printed on seems crazy to me.   Continue reading

Realpolitik, Capitalism, Wikileaks, and Nigeria

Jesus:

Cables from Nigeria show how Ann Pickard, then Shell’s vice-president for sub-Saharan Africa, sought to share intelligence with the US government on militant activity and business competition in the contested Niger Delta – and how, with some prescience, she seemed reluctant to open up because of a suspicion the US government was “leaky”.

But that did not prevent Pickard disclosing the company’s reach into the Nigerian government when she met US ambassador Robin Renee Sanders, as recorded in a confidential memo from the US embassy in Abuja on 20 October 2009.

At the meeting, Pickard related how the company had obtained a letter showing that the Nigerian government had invited bids for oil concessions from China. She said the minister of state for petroleum resources, Odein Ajumogobia, had denied the letter had been sent but Shell knew similar correspondence had taken place with China andRussia.

The ambassador reported: “She said the GON [government of Nigeria] had forgotten that Shell had seconded people to all the relevant ministries and that Shell consequently had access to everything that was being done in those ministries.”

Nigeria is Africa’s leading oil producer and the eighth biggest exporter in the world, accounting for 8% of US oil imports. Although a recent UN report largely exonerated the company, critics accuse Shell, the biggest operator in the delta, and other companies, of causing widespread pollution and environmental damage in the region. Militant groups engaged in hostage-taking and sabotage have proliferated.

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Reading: 11/14-11/20

1.  Foreign Aid for Scoundrels, William Easterly, New York Review of Books:  Government-to-government aid props up anti-democratic dictators to the detriment of the people.  Bono doesn’t want you to know how the sausage is made.

2.  Indian Microcredit Faces Collapse from Defaults, New York Times:  Irrational exuberance combined with dirty politics could spell disaster for microfinance institutions in India.  Perhaps a bubble in India is the first major milestone in the mainstreaming of microfinance

3.  Patient Capital for an Africa that Can’t Wait, Thomas Friedman:  The trademark pragmatism of Thomas Friedman is on display in this column about innovations in market-driven development in Africa.

4.  Local Capacity Building and Business Development at the Base of the Pyramid, Next Billion:  An interview with Simon Winter, senior VP of development with Technoserve, talking about smart and sustainable development.

5.  Haiti, Ten Months Later, The Boston Globe:  A photojournalist’s perspective of the staggering devastation that is still the norm in Haiti

6.  In Haiti, Can Microlending Save the Economy?, New York Times: The importance of microfinance institutions in post-disaster recovery efforts.  I discussed this topic in a post on the Kiva Fellows blog several months ago.

Do Elections Improve Economic Policy? Democracy in Burma

Today, the people of Myanmar for the first time in twenty years will elect a new government.  Actually, they will simply participate in a rigged election process that will legitimize the repressive military regime that has controlled the country by force for the past half-century.  Under pressure from the West and perhaps craving a bizarro sense of legitimacy, the military is holding elections for the first time in twenty years, yet it has effectively guaranteed that the country will remain under its control.  No matter what, the military will maintain 25% of the seats in parliament and will control three key cabinet posts (defense, interior, and border).  The two main political parties are offshoots of the military.  And the ethnic regions in the east and north will not even be given the chance to vote, as it is “too dangerous” to man polling stations in these regions.   No foreign journalists or elections monitors will be allowed in the country and the flow of information has been stifled as the Internet is all but crippled.   Not exactly ideal conditions for creating a fair and truly participatory democracy.

This is the reality of these types of elections.  But this kind of outrageous and brazen election-rigging is not uncommon in countries like Myanmar.  Unfortunately, holding elections in countries that are not ready to have them is a core component of our foreign policy.  According to the theory, when leaders are voted into office in free and consistently-held elections, they have greater accountability in terms of supporting sensible economic policies that benefit the country.  This theory is true…in theory, but not always in practice The belief that elections are a necessary tool for creating economic growth is too simplistic, and lacks an understanding of the institutions that make democracies successful.  In order for elections to actually translate into positive policy reforms and economic growth, a country requires a system of checks and balances that prevents the incumbent party from using illegal means to secure its place in government.  What is happening in Burma right now is a perfect example of how a country without these necessary checks and balances is basically f-ed.

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Rainfall as a Predictor of Democracy

Somewhere, Jared Diamond and his Amish beard are plotting their revenge.

From the National Bureau of Economic Research, an organization reviled by Fox News, comes a fascinating paper.  Two economists suggest that the volume of rainfall in a certain location determines whether a democratic government will be successful.  It is actually a fairly simple argument.   Success in agriculture allows specialization, which, in economic terms, refers to the production, distribution, and consumption.  When farmers produce more food, fewer people need to participate in agriculture, leading the greater economic diversity.  This, in turn, lays the groundwork for the components of democracy.  The dynamic is described below in the abstract of the paper:

Why have some countries remained obstinately authoritarian despite repeated waves of democratization while others have exhibited uninterrupted democracy? This paper explores the emergence and persistence of authoritarianism and democracy. We argue that settled agriculture requires moderate levels of precipitation, and that settled agriculture eventually gave birth to the fundamental institutions that under-gird today’s stable democracies. Although all of the world’s societies were initially tribal, the bonds of tribalism weakened in places where the surpluses associated with settled agriculture gave rise to trade, social differentiation, and taxation. In turn, the economies of scale required to efficiently administer trade and taxes meant that feudalism was eventually replaced by the modern territorial state, which favored the initial emergence of representative institutions in Western Europe. Subsequently, when these initial territorial states set out to conquer regions populated by tribal peoples, the institutions that could emerge in those conquered areas again reflected nature’s constraints. An instrumental variables approach demonstrates that while low levels of rainfall cause persistent autocracy and high levels of rainfall strongly favor it as well, moderate rainfall supports stable democracy. This econometric strategy also shows that rainfall works through the institutions of the modern territorial state borne from settled agriculture, institutions that are proxied for by low levels of contemporary tribalism.

I guess we can get out of Afghanistan and Iraq now.  A counterpoint is Zimbabwe, formerly known as the “breadbasket of Africa,” which has been ruled with an iron fist by Robert Mugabe, one of the most ruthless dictators in the world.  The baggage of colonialism probably laid the groundwork for Mugabe’s reign of terror.  Still, a very interesting concept.

(H/T Tyler Cowen)

Economists found no correlation between democracy and chocolate rain.