Life in Mogadishu, the capital city of Somalia (Photo credit: Sudarsan Raghavan / Washington Post)

In the last post, I explained the concept of “least developed countries” and discussed some of the characteristics shared by the 48 countries that bear the label. In this post, I’ll review a few different theories for why some countries are so much poorer than others.

In Why Nations Fail, Daron Acemoglu and James A Robinson, economists at MIT and Harvard, respectively, argue that the key to prosperity are strong institutions. This is a common refrain among a lot of economists, and certainly rings true in a lot of cases. Here at Develop Economies, your humble correspondent wholeheartedly subscribes to the premise, and has written about it extensively in the past. In a previous post titled “The Convergence: America’s Long Arc of Development”, I explain some of the same concepts and apply them to the example of the United States.  For a time, international organizations, like United Nations, the World Bank, and the IMF, and donor nations demanded reforms in governance in exchange for loans, aid, and other resources. According to the authors, stronger institutions enable countries to grow.

Specifically, economic institutions, like property rights, enforceable contracts, a functional legal system, and an overall business climate that promotes competition, create incentives for individuals to invest in the future. Conversely, economic institutions enrich a wealthy political elite at the expense of the masses. These weak economic institutions are ultimately a function of what the authors call “extractive” political institutions, which effectively rig the system in favor of the elite. Seeking onerous rents, they exploit the system to their benefit, leaving the nation paralyzed economically, with few prospects for growth. Inclusive political institutions, on the other hand, promote growth by creating the economic institutions that enable creative destruction, and, therefore, progress.

A helpful (or confusing) chart explaining the why nations fail

Acemoglu and Robinson focus on the political failings of LDCs as an explanation for their condition, and provide a lot of good examples of the theory in action. While most people agree that inclusive political institutions are key to a country’s success, many dispute the idea that they are elemental. What I mean by this is that strong institutions are a prerequisite for prosperity, but their absence is not the root cause of why some countries are so poor.

Rather, the physical attributes of a nation – its geography, climate, and soil content, and whether it has depleted its natural resources through deforestation and other environmental degradation – ultimately determine a country’s fate. This is an idea Jared Diamond lays out in Collapse: How Societies Choose to Succeed or Fail, and it stands in contrast to the theory of institutions put forward by Acemoglu and Robinson.

Unlike Acemoglu and Robinson, Diamond is scientist and historian famous for examining trends in human history through a lens of geography, science, and culture. While Collapse deals with the decline of once-great societies, his borderline deterministic view on what makes countries succeed or fail places much of the blame on environment rather than governance. In a review titled “What Makes Countries Rich or Poor?”, he delivers a rejoinder to the institutions theory, attributing success to location instead. While he acknowledges the importance of strong institutions, he is not convinced that they provide the whole story:

While institutions are undoubtedly part of the explanation, they leave much unexplained: some richer temperate countries are notorious for their histories of bad institutions (think of Algeria, Argentina, Egypt, and Libya), while some of the tropical countries (e.g., Costa Rica and Tanzania) have had relatively more honest governments. What are the economic disadvantages of a tropical location?

The answer, according to Diamond, is twofold: prevalence of disease and agricultural productivity. First, the tropics are notoriously unhealthy because, unlike in temperate climates, bacteria and parasites thrive year-round. In addition, they are far more numerous in the tropics, evolving at a faster pace without the threat of dying off in the winter. This public health challenge saps the productivity of people living in the tropics, hindering economic growth. Second, agricultural productivity in the tropics is lower for a variety of ecological and geological reasons, including glacier mass, energy content, soil fertility and more. If you are interested in learning more, read the review, because it is far too dry to talk about here.

A sampling of the poorest countries in Africa, with the least developed in red.

Another unfortunate characteristic of many LDCs is lack of access to oceans. This is something I saw firsthand in East Africa, which is home to quite a few landlocked nations, like Uganda, Rwanda, and Burundi. Diamond explains the challenge for these countries:

It costs roughly seven times more to ship a ton of cargo by land than by sea. That puts landlocked countries at an economic disadvantage, and helps explain why landlocked Bolivia and semilandlocked Paraguay are the poorest countries of South America. It also helps explain why Africa, with no river navigable to the sea for hundreds of miles except the Nile, and with fifteen landlocked nations, is the poorest continent. Eleven of those fifteen landlocked African nations have average incomes of $600 or less; only two countries outside Africa (Afghanistan and Nepal, both also landlocked) are as poor.

So, rather than purely a failure of institutions, Diamond attributes perhaps 50% of the LDCs misfortune to something other than institutions – whether location, environmental degradation, or something else. The authors of Why Nations Fail disagree with his conclusion, and, if you are really into it, read Acemoglu and Robinson’s response to Diamond.

In the third and final book, The Bottom Billion, Paul Collier, a development economist at Oxford, puts forward another theory (or, more specifically, a suite of theories) explaining just why these countries are in such rough shape.  According to Collier, there are four key explanations for the state of the 60 poorest countries in the world (he adds a few more in addition to the LDCs), which are overlap with the institutional theory of Acemoglu/Robinson and environmental theory of Diamond:

1. The conflict trap
2. The natural resource trap
3. Landlocked with bad neighbors
4. Bad governance in a small country.

The conflict trap refers to civil wars and the political, economic, and social toll they take on countries. At a cost of $64 billion each, civil wars unwind any progress and plunge the countries back into misery. Think of Sierra Leone, Liberia, Rwanda, Somalia, Cambodia, Myanmar and others. What makes conflicts particularly pernicious is that, with every successive conflict, the likelihood of devolving back into civil war increases, continually threatening any progress going forward.

A child solider in the Congo in 2003. A sad product of the conflict trap. (Photo credit: Evelyn Hockstein)

The natural resource trap, also known as the natural resource curse, explains why, somewhat paradoxically, natural resources can make ill-prepared countries worse off. Collier explains why this is the case:

• Resources make conflict for the resources more likely.
• Natural resources mean that a government does not have to tax its citizens. Consequently, the citizenry are less likely to demand financial accountability from the government.
• The exploitation of valuable natural resources can result in Dutch disease, where a country’s other industries become less competitive as a result of currency valuation due to the revenue raised from the resource.[4]

I described the problem of being landlocked above, and, of course, Acemoglu and Robinson spend an entire book explaining by why bad governance is a real deal-killer for the LDCs.

Collier’s assessment takes elements of all the theories and mashes them up in to one big super-theory. The book was well-received by critics, in no small part to the fact that, unlike a lot of books about development economics, like Bill Easterly’s White Man’s Burden and Jeffrey Sachs’ The End of Poverty, he offers some feasible solutions to the problems. It is perhaps more centrist than the others, trying to find a middle ground Easterly’s bottom-up approach and Sachs’ top-down one. For a review of his policy prescriptions, you can check out this review from Michael A. Clemens in Foreign Affairs.

So, those are some of the many theories about why LDCs are so poor. But what does it all mean? Is there hope for these countries. According to Clemens in the same review, the answer is a quite pessimistic and very sad, “no.” In response to Jeffrey Sachs’ proposal for what he calls “clinical economics,” Clemens lays out some harsh realities:

The problem of the bottom billion, however, is not that they live in places where functioning modern economies have become sick and require a doctor. It is that they live in places where there have never been functioning modern economies. Development assistance began as an effort to rebuild Europe after war — indeed a case of helping a sick patient become healthy once again. In countries of the bottom billion, there are not and never have been preexisting healthy economies to which to return. There is, in the medical metaphor, simply no patient. As interesting and correct as it may be to list self-reinforcing “traps” that prevent an absent organism from existing, this exercise tells us nothing about how to fabricate the body from scratch.

Unfortunately, in the unforgiving realpolitik world of global development, realities are, more often than not, harsh. While I am not sure I share the fatalistic views of some, I agree with Clemens’ assertion that we will be unlikely to see any of the LDCs or other bottom billion countries graduate from their moribund status in our lifetime. This does not, of course, mean that we can’t do everything we can to help ease the suffering of those struggling to survive. But, regardless of the reasons for their misfortune, these countries have never quite caught a break, and, in all likelihood, never will.

Develop Economies’ Music Recommendation

On Sunday, I leave Nairobi for Thailand, where I will spend a month visiting various beaches and diving various reefs.  Of the many transitions I have documented on this blog, this one is most significant, as it is the most final.  After Southeast Asia, I return to the United States for the foreseeable future, embarking on the next phase of my career as an MBA student at MIT.  Right now, from the Flamingo Cafeteria in the Julius Nyerere International Airport in Dar es Salaam, Tanzania, waiting for the second leg of my flight to Nairobi from Zanzibar, where I spent the last four days SCUBA diving and lounging on the beach with a new group of multicultural friends, I will begin the long process of trying to make sense of my three years working abroad in international development.

By way of background for those who do not know the history of Develop Economies, I left my job as a strategy consultant in Boston three years ago to work with Kiva, a microfinance funder, in the Philippines.  After the better part of a year, I moved to Ghana to work with Technoserve, a non-profit focused on market-driven economic development.   Six month later and one year ago to the date, I moved to Nairobi and found employment as a business analyst with Bridge International Academies, a chain of low-cost private primary schools serving slums in Nairobi.  When I arrived, we had 15 schools in Nairobi.  Today, we have 73 throughout Kenya.  Next year, Bridge will have hundreds more around the world.

In addition to working, I have found time to travel here and there, squeezing in six months of independent travel in six countries Asia and another seven in East and West Africa.  I have met thousands of interesting people from all over the world.  To illustrate the point, I spent the last three days with a group of Dutch medical students, a Moroccan working in Paris, an Austrian on working at the embassy in Nairobi, two Germans living with nuns in rural Uganda and Tanzania, and an Australian physiotherapist on loan from the International Olympic Committee to the government of Zambia, tasked with preparing their athletes for the 2012 games.  More substantively, I have forged strong relationships with friends and colleagues during my time living in the Philippines, Ghana, and Kenya.  To write a series of posts summarizing the lessons of the last three years without discussing the people would be incomplete.

Before I arrived, I understood very little about the theory of international development and even less than the practice.  Fortunately, I have found valuable mentors to provide advice and guidance in navigating this complex world.  The validity of the business adage that it is not what you know but who you know that matters can be debated, but, in my case, knowing people has helped tremendously in not only finding jobs, but adjusting to new environments, making friends, and learning about new things.

Today, I understand much more about development, in part from my work, research, and writing, but also because of the conversations I have in my living room, or on a bus in Rwanda, or a train to Mombasa on the coast of Kenya, or in an email I received from someone I met a few times about what they are studying and reading.   The entire experience has made me smarter and more knowledgeable.  And trying to parse the source of it all is challenging.

While I may not be able to completely break down my experience and pinpoint the source of this professional and, more importantly, personal growth, I can begin to catalog the lessons from the experience.  And with that in mind, I will be writing a series of posts to wrap things up.  In the next two posts, I will talk about how I got into this work and give some advice for anyone thinking of doing it themselves.

For months – no, years – Develop Economies has been shouting it from the rooftops.  From a foreign policy perspective, the strategic value of Burma is undeniable.  It is the only country in the world (besides Pakistan, which is strategic for different reasons) that shares a border with three of the four BRIC countries (Russia, India, and China).  But now, in light of several major non-symbolic gestures by the ruling military junta in Burma, the U.S is finally dropping its ideological opposition to an incomplete democracy and, as of a few days ago, has decided to ease sanctions on the country.

A foreign policy piece from the New York Times explains the decision:

As Myanmar loosens the grip of decades of military dictatorship and improves ties with the United States, China fears a threat to a strategic partnership that offers access to the Indian Ocean and a long-sought shortcut for oil deliveries from the Middle East.

With the United States reasserting itself in Asia, and an emboldened China projecting military and economic power as never before, each side is doing whatever it can to gain the favor of economically struggling, strategically placed Myanmar.

The Obama administration would like a swift foreign policy success in an election year. Having another country move from dictatorship toward democracy on Mr. Obama’s watch would be a political achievement; having a friendly country on China’s border would be a strategic one.

Before, the United States and, specifically, the Obama administration were hamstringed from extending an open hand completely by serious economic sanctions on the government.  These sanctions really only hurt the people of Myanmar, as other countries – specifically China, South Korea, and even France – had major natural resource deals in place that lined the pockets and secured the ruling position of the military elite.  Now that they have been lifted – or are at least close to being lifted – the U.S. can start to influence the country in a way never before possible.

The opportunity to guide a high-potential country with major strategic geographical interest in a region where the U.S. has had declining influence over the past decade is exciting indeed.   And, not to mention, the real beneficiaries of this opening up will be the people of Myanmar, who will be exposed to another world, both socially and economically.

When I moved to Nairobi, I did not really know what to expect.  I’d been here once before and moved on a whim.  Fortunately, in the first week, I discovered the iHub.  The iHub was started a few years ago by Eric Hersmann, the founder of Ushahidi, a crisis mapping organization whose roots can be traced to the post-election violence that rocked Kenya in 2008, and a TED Global fellow.  It is a co-working space for software developers, entrepreneurs, researchers, and others who want to utilize the space.  More importantly, it is a vibrant community of innovators, technologists, and ambitious folks who like being surrounded by a fast-moving and intellectually-stimulating environment.

After working at the space for a few months, I was lucky enough to be accepted as a green member, allowing me to use the space whenever I want.  Today, on a Saturday morning, I came to the iHub to sit at the Pete’s Coffee bar and crank out some work.  And I was pleasantly surprised to see a group of speakers leading a workshop on “Design for Social Innovation,” a topic I find interesting.  The speakers included Cheryl Heller, a communication design strategist, Just a Band, a super-creative Kenyan house/funk/disco band, and others.  The topic du jour was how to apply design thinking to innovate in the social sector.

Design thinking is sort of a nebulous concept.  Here is how Wikipedia describes it:

Design Thinking refers to the methods and processes for investigating ill-defined problems, acquiring information, analyzing knowledge, and positing solutions in the design and planning fields. As a style of thinking, it is generally considered the ability to combine empathy for the context of a problem, creativity in the generation of insights and solutions, and rationality to analyze and fit solutions to the context.

I actually think that these principles are not only intuitive, but really fundamental to solving any problems.  In a social innovation context, the most basic example of how design thinking is not applied is in stereotypical top-down development projects that seek to apply theoretical generalities in addressing a problem, while ignoring the local context.  Some might claim that Millennium Villages project is the ultimate example this concept:

It is an approach to ending extreme poverty and meeting the Millennium Development Goals–eight globally endorsed targets that address the problems of poverty, health, gender equality, and disease. Initiating a paradigm shift, the Millennium Villages promote an integrated approach to rural development, using evidence-based technologies and strategies in each sector, with sufficient investment over a sufficient period. This approach also combines a critical cost-sharing and planning partnership with local and national governments, and rural, African communities, while focusing on capacity building and community empowerment. By improving access to clean water, sanitation and other essential infrastructure, education, food production, basic health care, and environmental sustainability, Millennium Villages ensures that communities living in extreme poverty have a real, sustainable opportunity to lift themselves out of the poverty trap.[1]

The idea is good in principle, but, in practice, there are a lot of idiosyncrasies about community dynamics and macro-economic factors that lead to unintended consequences.  So you can invest in training people and giving them skills, like sewing or carpentry, to become an entrepreneur.  But without a market for their products, they won’t be able to monetize those skills.  This is a classic example of applying a solution to problem without actually thinking through the consequences.

Design thinking is similar to systems thinking, which entails looking at individual problems and components as part of a larger system:

Systems Thinking has been defined as an approach to problem solving, by viewing “problems” as parts of an overall system, rather than reacting to specific part, outcomes or events and potentially contributing to further development of unintended consequences. Systems thinking is not one thing but a set of habits or practices[2] within a framework that is based on the belief that the component parts of a system can best be understood in the context of relationships with each other and with other systems, rather than in isolation. Systems thinking focuses on cyclical rather than linear cause and effect.

Again, this is something that seems intuitive to me.  Nothing happens in isolation, so we should not try to solve problems in isolation.   Still, it is worth thinking about these principles when you are trying to develop solutions to difficult problems.

Cote D'Ivoire, one year ago.

According to the global thought leaders in finance, Africa is primed for growth.  McKinsey, the global management consultancy, released a report a few months ago titled “Lions on the Move” highlighting the collective buying power of the continent – $1.6 billion, or roughly equivalent to the GDP of Brazil or Russia – and its uniform growth, with 27 out of the 30 largest economies growing quickly.  The Economist is quick to point out that, in its projections, seven out of ten of the fastest-growing economies between 2011 and 2020 will come from Africa.  Africa, according to Citigroup’s managing director for Europe, Africa, and the Middle East, is becoming “more and more competitive.”

A confluence of inter-connected forces over the last decade explains the continent’s growth spurt.  Better leadership and more transparent governance have led to more effective allocation of resources and greater domestic investment.  Regional cooperation, in terms of labor, trade, and security, through economic blocs like ECOWAS in the West and the EAC in the East has created mutual benefits for markets.  Innovations in technology have improved communication and access to information by orders of magnitude.  Ten years ago, you were lucky to have a cell phone signal in a city in Africa.  Today, mobile phones are ubiquitous and the myriad technologies that have piggy-backed on their success, like mobile money and Internet, have changed the way people do business.  Lastly, in-kind infrastructure loans from China in exchange for access to minerals and other natural resources are changing transportation (roads, bridges) and energy (hydro-electric dams) on the continent.

These changes have not been lost on China and India, which see economic opportunity in Africa where others see conflict and disease.  Both countries have invested heavily in the continent, while the West has relied on foreign aid to build influence.  If Africa “is a wonderful place to make money,” in the words of entrepreneur Mo Ibrahim, then why do so few private equity firms and investment funds in the West have a presence here?  There are a few explanations – few viable investments beyond natural resources, too few mature companies to purchase.  But one main reason is political instability.  Let me explain.

I have lived in Africa now for a year and change.  When I lived in Ghana, I had friends to the West in Cote D’Ivoire who were evacuated after the election that saw Laurent Gbagbo unseated turned violent.  To the north, I had other friends who left Burkina Faso when riots erupted after President Compaore failed to quell a mutiny.  To the east in Nigeria, Boko Haram, the fundamentalist Islamist group began bombing churches in the Northern part of the country.  Since I moved to Kenya, 36 people were killed in an attack on a bar in Burundi, and violent protests marred the recent elections in the Congo.  And, in the coup de grace, the country in which I currently reside, Kenya, recently invaded Somalia, otherwise known as the most dangerous place on earth.

China’s state-run capitalism allows it to play the long game.  It has the size to negotiate with the worst dictators in Africa.  It doesn’t matter which party is in power – both have an interest in maintaining cordial economic ties with China.  A private equity firm, on the other hand, has no such clout.  Not even the oil companies have been able to find a way not to be nationalized (though Shell has come pretty close in Nigeria).  So, when there is a threat that they might not just lose their shirt, but their entire wardrobe, investors look for more stable risky plays in other parts of the world.

But now, there is a solution to that problem, compliments of the Overseas Private Investment Corporation, the development finance arm of the U.S. government.  Led by Elizabeth Littlefield, a veteran microfinance leader who I used to read and write about on this blog, OPIC has created a political risk insurance product for investors wary of the threats to their investments in historically unstable places, like Africa.  The East African has the story:

A new insurance product has been launched to cover private equity fund investments in Africa and other emerging markets against political risk.

It aims at shielding investors from the political uncertainty that characterises doing business in the emerging markets and damages arising from violence related to political activity.

East Africa has, in recent years, witnessed several incidents of politically instigated chaos leading to destruction of property.

Besides providing protection against such eventuality, the new product also targets offering cover from other unforeseen circumstances that may affect deals.

“For example, OPIC is developing insurance products for the renewable resources sector, specifically to protect investors against a government’s change in the feed-in tariff that the investor has relied upon to structure its project; and to cover investment in forestry projects, including Reducing Emissions from Deforestation and Forest Degradation (REDD) projects,” PIC said in a statement.

Now, funds can hedge against those risks by purchasing insurance.  This is great news from both an economic development perspective and that of the United States and its position in the world.  The longer the West delays, the more China will secure a political and economic foothold in the region.  And with more money flowing into the continent, the capital constraints that held back growth will be freed up.

Hopefully we will see a boom in investment from Western investment funds in Africa.  But, with ample untapped investment opportunity in Latin America, Southeast Asia, North Africa, and other regions, Sub-Saharan Africa may be at the end of a long line.

Develop Economies’ Music Recommendation

This graph is very interesting.  It tracks the degree of political polarization over time and plots it against the Gini coefficient, which is a measure of income inequality in a country.  Develop Economies frequently references the Gini coefficient when discussing repressive kleptocratic regimes in Africa like Equatorial Guinea.  Only recently, however, has he begun examining poverty in the United States.  And he is not alone – even the hippies have managed to put down their bongs long enough to protest rising inequality in the country in the Occupy Wall Street protests.

People typically think of developing countries as having extraordinary disparities between the rich and poor, simply because, in places like India, Africa, and Asia, the poor are actually very poor.  But in the United States, that gap is just as large or larger than some nations.  It only seems that we are more equal because, as the Heritage Foundation is quick to point out, 99.6% of the so-called “poor” in the United States have a refrigerator (and 27.5% have more than one VCR!).  Here is a more tangible example:

According to newly released data from the Census Bureau, greater Bridgeport has the widest gap between the rich and poor of 516 metropolitan and micropolitan areas included in the survey.

What does that mean in practical terms? The top 20 percent in the Bridgeport area — which includes Fairfield County, one of the wealthiest areas in the United States — took home nearly 60 percent of its income, while the bottom 20 percent took home 2.5 percent of the region’s money. In this nexus of billion-dollar hedge funds and bombed-out housing projects, the top 5 percent raked in a mean income of $685,000, while the bottom 20 percent’s mean income totaled less than $15,000.

To put that in perspective, if the Bridgeport metro area were a country, it would rank 12th from the bottom in the world for economic equality — lower than Mexico, Papua New Guinea and Zimbabwe.

The standard measure for comparisons is the Gini index — a 100-point scale where a 100 score indicates a country where all the income goes to one person and a zero score would be a country that divides up everything equally. Bridgeport’s Gini score is a 54, compared with 47 for the United States as a whole. By comparison, Russia’s score is 42, the United Kingdom’s is 34 and Germany’s is 27.

In other words, our poor don’t typically do not live in slums like Kibera without access to running water, toilets, electricity, or, in many cases, more than one room for entire families.  But that doesn’t mean that southeastern Connecticut isn’t more unequal than Robert Mugabe’s Zimbabwe (it is).

Income inequality is rising, and it is rising fast.  The Social Security Administration just released a report with a some alarming statistics:

The gap between the United States’ rich and poor continued to grow last year, according to new government wage data.

With pay down and fewer jobs available, the Social Security Administration’s figures highlight one of the major issues of the Occupy Wall Street movement – widening income disparity, the Associated Press reported.

The SSA said 50 percent of workers made less than $26,364 last year — and most Americans have fewer job opportunities available to them. But the wealthiest Americans are relatively unscathed, with those earning $1 million or more jumping 18 percent from 2009.

Total employment fell again last year, dropping from 150.9 million in 2009 to 150.4 million in 2010. And in 2007, at the height of the recession, there were still 5.2 million more jobs than in 2010, the AP wrote.

The average income for Americans was $39,959 last year, but the median wage was just $26,364. The SSA wrote that this shows “the distribution of workers by wage level is highly skewed,” the AP reported.

For those unfamiliar with statistics, the median is the middle number in a series – in this case, the median income is $26,364.  In a normal distribution, the median equals the mean.   So when the mean is nearly 33% higher than than the median, as it is in this case, you know that there are lots and lots of people struggling to get by while others continue to do extraordinarily well financially.

Image Credit: Damon Winter/New York Times

This is the issue at the heart of the Occupy Wall Street protests.  But, looking at the chart, the level of polarization in government began back in 1980, with the election of Reagan and the beginning of the conservative revolution.  So, while we are in the midst of an unprecedented failure of democracy, it seems to be precipitated by a lot of different factors that have played out over the last 30 years.  I am not sure why this has happened, but I will venture a few guesses.

Maybe this happened because, as the rich get richer, the plough more money into influencing the political process in their favor.  Lobbyists – an institutionalized and legal form of corruption – gain a disproportionate influence over policy-making, which creates a positive feedback loop of favorable legislation and tax loopholes for the certain industries – agriculture and financial services, to name a few.  But, in a democracy, the people should be able to speak their voice at the ballpt box and ensure that their interests are represented by the politicians they elect to office.  So how does such a small group of very wealthy individuals maintain their influence over the political process?

A few ways.  First and foremost is money.  You can bankroll legislation to marginalize voters, or give tons of money to political campaigns, which are increasingly expensive.  As candidates spend more and more, an arms race develops that gives money greater ability to influence elections.   In an op-ed titled “The Paradox of the New Elite,” Alexander Stille examines the relationship between inequality in the social and economic spheres, and how, in some senses, they are, if not mutually exclusive, at least move along a different trajectory:

Inequality has traditionally been acceptable to Americans if accompanied by mobility. But most recent studies of economic mobility indicate that it is getting even harder for people to jump from one economic class to another in the United States, harder to join the elite. While Americans are used to considering equal opportunity and equality of condition as separate issues, they may need to reconsider. In an era in which money translates into political power, there is a growing feeling, on both left and right, that special interests have their way in Washington. There is growing anger, from the Tea Party to Occupy Wall Street, that the current system is stacked against ordinary citizens. Suddenly, as in the 1930s, the issue of economic equality is back in play.

"You will vote for us."

When people are struggling financially, they tend to spread the blame across different groups – immigrants, minorities, labor unions on the right, and big business on the left.  These baser instincts can then be exploited.  That is why those at the top of the economic pyramid make social issues a part of the political package, bringing in the social conservatives who are unwilling to compromise on issues like abortion and gay marriage.

If you look at the most recent Republican presidents prior to 1980, they make today’s GOP politicians look like Barney Frank.  Nixon created the EPA, for Pete’s sake.  Reagan raised taxes 11 times during his administration.  In contrast, when presented with a deficit reduction bill with a 10:1 ratio of spending cuts to tax increases, not a single Republican candidate went for it.

But this marriage of convenience between social and fiscal conservatives was ill-fated.  As the social conservatives gained more power within the movement, they began to make their own demands.  And unlike other voters, they are unwilling to compromise on their core values.  Abortion is murder – period.  Two men getting married is like a man marrying his dog – period.  In an ad posted on YouTube, Bill Kristol posted an ad conflating anti-Semitism and anti-Israel sentiments with protests about income inequality.  If you oppose “too big to fail,” you are anti-Semitic, necessarily.

Abortion is, by far, the biggest political weapon in the arsenal.  The other day, Herman Cain, the hilarious frontrunner, in a moment of honesty, stated he was pro-choice.  12 hours later, he released a one-sentence statement:

I’m 100% pro-life.  End of story.

Even Reagan supported an amnesty policy for illegal immigrants who had made the United States their home for many years.  Today, the party of Reagan passed the harshest immigration law in Alabama in this country’s history.  And now, they are paying the price:

Farmers are already worrying that with the exodus, crops will go unpicked. Like much of the rest of the country, Alabama needs immigrant labor, because too many native-born citizens lack the skill, the stamina and the willingness to work in the fields — even in a time of steep unemployment.

The new law has also added frustrating layers of paperwork for Alabamans who must now prove legal status when enrolling schoolchildren, signing leases and interacting with government. After the law went into effect, the lines at the Department of Motor Vehiclesin Birmingham grew so long that officials had to bring in portable toilets.

Alabama’s reputation has also taken a huge hit just when it is trying to lure international businesses. No matter how officials may try to tempt foreign automakers, say, with low taxes and wages, the state is already infamous as a regional capital of xenophobia.

This trend exemplifies the counterproductive economic effects of socially conservative policies.  Who else is going to pick those onions – Herman Cain?  I don’t think so.

Not as a mobile as we thought

Another thought comes from Scientific American, which tries to understand why support for income redistribution has actually declined during the recession:

What might explain this trend? First, the change is not driven by wealthy white Republicans reacting against President Obama’s agenda: the drop is if anything slightly larger among minorities, and Americans who self-identify as having below average income show the same decrease in support for redistribution as wealthier Americans.

Our recent research suggests that, far from being surprised that many working-class individuals would oppose redistribution, we might actually expect their opposition to rise during times of turmoil – despite the fact that redistribution appears to be in their economic interest. Our work suggests that people exhibit a fundamental loathing for being near or in last place – what we call “last place aversion.” This fear can lead people near the bottom of the income distribution to oppose redistribution because it might allow people at the very bottom to catch up with them or even leapfrog past them.

That is interesting.  There are so many layers of this graph to unpack that I am not even sure what conclusions to draw.  But I chose to title this post “Up and Out” because the first thing I thought of when I saw this chart is the final scene of Charlie and the Chocolate Factory, when Willy Wonka tells Charlie to push the button labeled “Up and Out.”  The glass elevator then accelerates to incredible speeds and bursts through the ceiling and into the atmosphere.  I see the political discourse and income inequality in this country following a similar trajectory.  When does it plateau?  Does it ever plateau?  Have we entered a new era of globalization where 50% of the country is destined to earn less than $27,000 per year for eternity?  Or will we have some kind of revolution where the natural order is restored and we return to the times before what Paul Krugman calls “the Great Divergence”?

The other day, long-time reader Ed, who recently adopted a baby boy (congratulations), commented that I my posts have diverged from the more typical market-driven development topics I previously wrote about.  I certainly haven’t abandoned that angle – I hope to write many more posts about education, energy, microfinance, and social enterprise – but I am exploring other causes of poverty.  That is why my last few posts focused on foreign policy and its effects on the development of different regions of the world.  And the widening income gap in the United States also strikes me as an interesting case study in the role of government in reinforcing the poverty cycle.  Further down the rabbit hole, things get more and more complex.

By venturing into the political discourse, I risk showing my cards.  But these are important issues that fit in the broader context of this blog, which explores the root causes and, more frequently, potential solutions to poverty.  But, in deference to Ed and others, I will soon return to my bread and butter and talk about the role of primary education in expanding opportunities for the poor.

(h/t Andrew Sullivan)

DEVELOP ECONOMIES MUSIC RECOMMENDATION

For those who do not know, Kiva, the online microlending website, gave me my first shot at trying to improve the lives of the poor.  When I joined the Kiva Fellows program, I was placed with Negros Women for Tomorrow Foundation, a micofinance institution in the Philippines.  I loved it there, and loved the work.   I began to write a blog about microfinance in Southeast Asia, which expanded in scope as my interests broadened to agriculture, energy, education, and economic development.   Ultimately, that blog became this blog in its present incarnation.

Upon my graduation from the Kiva Fellows program, I was given a certificate, on which I spilled coffee, and a t-shirt.  For 6 months, it was my favorite t-shirt.  Then I lost it in Cambodia and was devastated.

But, now, if you click the link below and sign up for Kiva you get a FREE $25 to lend, and, if 5 people sign up, I get a free T-shirt.  Please, for the love of God, do it.  Not a day goes by that I don’t think about that shirt.

Click this link to sign up:

http://kiva.org/invitedby/josh5012