Review of Sach's Common Wealth

Review Sachs will (not) like:

Sach’s essential thrust is how to eliminate poverty, indeed a noble goal, and to do so with our most “important responsibility [being] a commitment to know the truth as best we can, truth that is both technical and ethical.” One needs to add complete, for in discussing the global situation in relation to poverty, the distribution of wealth, the unequal relationship between the haves and have-nots, he covers much valid territory but no work on global economics can be fully valid, can fully argue about poverty and its causes, effects, and cures without including to a fairly large degree significant information on two parameters: militarization and corporate power.

[...]Sachs on occasion mentions these various organizations in passing but only the World Bank receives a spot in the index, with four mentions that are nothing more than passing references and have no influence on his arguments. The WTO, OECD, and IMF receive no index listing and only minimal passing mention in the text, an error of such huge proportion for the knowledgeable reader that it essentially destroys his arguments and perspectives however logical and rational they might seem at first.

To ignore the effects that the WTO and IMF have had in restructuring global economies by their imposed rules of engagement (while not necessarily ‘forced’ onto the countries involved, there is much in the way of coercive threats that can be intimated or stated to make ‘compliance’ much easier) with the result of large agricultural losses (consider Haiti and its loss of rice production, similarly in Mexico with its loss of corn production – with other factors involved to be sure) as the involved countries are forced to pay back huge debts at the expense of their own people. That includes the loss of community social services, education, health and welfare, job safety and other factors that Sachs argues for in his presentation.

[...]So this poverty and all the poor youth it creates leads to “state failure”. But now look at the main failed states that are presented: Afghanistan, Iraq, Somalia, Pakistan…oh my gosh…all the countries that have been invaded, attacked, occupied, and otherwise abused by the United States and earlier imperial powers! For ending the poverty trap he then has the audacity to use Afghanistan as the example, as it “exemplifies the end of the line for desperately poor countries when poverty, overpopulation, and environmental degradation are allowed unchecked for decades.”

For a supposedly intelligent man, this is an incredibly stupid statement!!!

More here.

Red flag on red!

I can't figure out what the Maoists' economic policy would be after they take over power in Nepal. This one is definitely not business friendly- they murdered a local businessman.

Enraged by the abduction, torture and murder of businessman Ram Hari Shrestha, locals, relatives of the victim, members of the business community and sister organizations of various political parties on Saturday demanded formation of a high level probe into Shrestha's death.

They also demanded stringent action against the perpetrators of the heinous crime and asked the CPN (Maoist) leadership to immediately halt their "excesses".

Expressing solidarity against the brutal murder of the capital-based businessman, the sister organizations have also demanded guarantee of people's security, a public
apology from PLA supremo Pushpa Kamal Dahal and a pledge from the Maoists to
make public the murdered man's body.

After abducting Shrestha and inflicting extreme torture on him during his captivity of over two weeks, PLA commander at Shaktikhor Kali Bahadur Magar a.k.a. Bibidh admitted that his men had killed the man.

More here

Reinventing Foreign Aid by Easterly

New book "Reinventing Foreign Aid" by Easterly. I am eagerly waiting to get one copy for myself on July.

The urgency of reducing poverty in the developing world has been the subject of a public campaign by such unlikely policy experts as George Clooney, Alicia Keyes, Elton John, Angelina Jolie, and Bono. And yet accompanying the call for more foreign aid is an almost universal discontent with the effectiveness of the existing aid system. In Reinventing Foreign Aid, development expert William Easterly has gathered top scholars in the field to discuss how to improve foreign aid. These authors, Easterly points out, are not claiming that their ideas will (to invoke a current slogan) Make Poverty History. Rather, they take on specific problems and propose some hard-headed solutions.

Easterly himself, in an expansive and impassioned introductory chapter, makes a case for the "searchers"--who explore solutions by trial and error and learn from feedback--over the "planners"--who throw an endless supply of resources at a big goal--as the most likely to reduce poverty. Other writers look at scientific evaluation of aid projects (including randomized trials) and describe projects found to be cost-effective, including vaccine delivery and HIV education; consider how to deal with the government of the recipient state (work through it or bypass a possibly dysfunctional government?); examine the roles of the International Monetary Fund (a de facto aid provider) and the World Bank; and analyze some new and innovative proposals for distributing aid.

Contributors:
Abhijit Banerjee, Nancy Birdsall, Craig Burnside, Esther Duflo, Domenico Fanizza, William Easterly, Ruimin He, Kurt Hoffman, Stephen Knack, Michael Kremer, Mari Kuraishi, Ruth Levine, Bertin Martens, John McMillan, Edward Miguel, Jonathan Morduch, Todd Moss, Gunilla Pettersson, Lant Pritchett, Steven Radelet, Aminur Rahman, Ritva Reinikka, Jakob Svensson, Nicolas van de Walle, James Vreeland, Dennis Whittle, Michael Woolcock.

Partial respite for the Nepali garment sector

The Nepali garment, which has been on decline especially after the end of MFA in January 2005, has finally got a market, India. More here.Yes, yes, India borders Nepal but the latter has not been able to realize the huge market potential there. Now, as abroad market is being taken over by competitors from Bangladesh, Sri Lanka, Cambodia, and Vietnam, Nepal has focused on catering to the nearby Indian market. This is a classic case of comparative advantage in labor (labor cost in Nepal is 30% cheaper than in India). India is one of the countries who have been eating up Nepali garment market in the US and the EU. Despite having cheaper labor, Nepali garment market is lagging behind because of high transportation cost. Nepal is landlocked and freights have to be transported via road to the nearest India port. In terms of markets abroad, India has a comparative advantage.

However, in terms of satisfying Indian domestic market, Nepal has a comparative advantage because the transportation cost (plus taxes) is lower if Nepali producers focus exclusively in the Indian market. Making customized products that are consistent with the purchasing power of the emerging Indian middle class and lower middle class would help Nepali garment sector to once again resurrect and contribute foreign exchange as it had done before 2005.

At a time when Nepal's worldwide garment exports are experiencing a massive downturn, India has emerged as one of its largest buyers with an import volume almost matching that of the USA, the number one customer.

Due to comparative advantages in terms of production costs and geographical proximity besides a vast market, the export of Nepali garments to India has shot up in recent months despite a 30 percent fall in overall exports during the first four month of the current fiscal year.

Prashanta Pokhrel, president of the Garment Association of Nepal (GAN), said exports to the southern neighbor had surged with major Indian retail chains outsourcing and placing orders for more Nepal-made apparels.

“We estimate that garment exports to India in the last four months of 2008 are in the same quantity as our shipments to the US which imported clothes worth around US$ around US$ 7 million during the period,” Pokhrel told the Post.

“India has become a lifeline for Nepal's garment industry which would have collapsed hadn't it emerged as an alternative to the US market,” he added.

Links of Interest

Poverty tops list of severe effect on child's health

In place of drums and samosas

Scrabulous, Scrabble, and Economic Development in South Asia

Is It Africa's Turn? Progress in the world's poorest region

States must act locally in a globalised world

Does the food price crisis enhance the case for self-sufficiency?

Food Crisis: Rising affluence and rising demand or inefficient use of food grains

There has been a lot of buzz about the rising affluence and rising demand of food from the emerging economies, particularly India and China as causes for the rising food prices. Is this true? Well, Daniel Ben-Ami argues that the real culprit is inefficient use of grains in biofuel production and weakening dollar. He argues that we should not be alarmed by rising demand, which can be taken care of by improving infrastructure and bolstering technology development. Read the full article here.

Probably the most striking thing about the discussion of rising food prices is that it is transparently wrong.

The most common explanation for the surge in food prices is that developing countries are becoming more populous and more affluent. A spectre of the Chinese and Indians devouring food like locusts is routinely conjured up. It should be apparent that such images, apart from being insulting, are fundamentally flawed.

If it was simply the case that rising demand could push up food prices then they would constantly increase. Humanity has grown steadily in population, affluence and meat consumption since at least the Industrial Revolution. Yet over the past two centuries the trend is for food prices to plummet in real terms rather than to rise. Indeed, it is an achievement that, for the first time in history, large sections of humanity are not threatened by famine. The 45% increase in food prices since the end of 2006 cannot be explained in relation to long-term trends (see graph, page 29).

It is necessary to examine supply in relation to demand. Rising demand is not a problem if it can be counter-balanced by an increase in supply. The reason the Malthusian nightmare of mass starvation has failed to materialise is precisely that food supply has outstripped rising demand in the longer term (see 1st box below). Despite a steadily rising world population the amount and quality of food consumption per head has risen.

Of course the more sophisticated proponents of the threat of imminent food shortages acknowledge that supply plays a role. They talk about such factors as adverse weather, worsened by climate change, and land shortages. But even here there is a tendency to exaggerate rising demand and understate the potential to increase supply.

To understand the trend in food prices it is vital to take a systematic approach. Short-term and long-term factors must be separated. The reasons prices have surged are not necessarily indicative of the secular trends in food production and consumption. It is then necessary to examine the interaction between the supply and demand of food, rather than simply consider each in isolation. Finally, it is worth questioning why the popular view on the food crisis emphasises consumption in such a one-sided way.

Larry Summers questioned!

Larry Summers is being charged of floating incoherent arguments about globalization by three researchers in a column published in the Financial Times. They argue that Summers is viewing the pace and fruits of globalization from the US perspective, i.e. if the US loses, it is bad and if it wins, it is good. They question Summers' recent argument that the middle class income stagnation (or decrease) and job losses in the US is a product of globalization.

The terms of what constitutes just globalisation cannot be determined unilaterally from the standpoint of the gains and losses within the US. It has to be determined co-operatively, involving discussions over the costs and benefits to all, especially those least able to defend their interests in both rich and poor countries.

The problem Mr Summers identifies, the hyper-mobility of capital, was an outcome that he and the US actively promoted. Attracting foreign capital was one of the raisons d’être of the Washington Consensus-based reforms. Developing countries were forced to change their intellectual property laws. At the US Treasury, Mr Summers was a leading proponent of capital account liberalisation by developing countries. Having swallowed those bitter pills of intellectual property protection and capital mobility as a necessary price for a better future, developing countries are now told that those medicines cause problems that need more – in this case protectionist – medication.

It is undeniable that the best line of defence for protecting workers has to be overwhelmingly domestic – through progressive taxation, improving education, strengthening the bargaining position of labour and improving the safety nets. Since the Ronald Reagan years, the headlong embrace of market solutions has systematically undermined each of these policy responses.