Lake from quake!

In this photo released by China's Xinhua News Agency, partially submerged Yuli Town of worst-hit Beichuan County, southwest China's Sichuan Province is seen Wednesday, May 28, 2008. More and more buildings and roads of Yuli Town were submerged because of the swollen Tangjiashan quake lake, Xinhua said. (Source: AP)


An aerial view shows the landslide mud that formed the Tangjiashan quake lake near Beichuan county, Sichuan province, May 26, 2008, in this picture distributed by China's official Xinhua News Agency.

This combination picture of satellite images taken by Taiwan's National Space Organisation (NSPO) shows a lake being formed by landslides caused by the recent earthquake in Beichuan county, Sichuan province, China. The top picture shows the river in 2006. The second and third image show the lake after the quake. (Formosat image © 2008 Dr. Cheng-Chien Liu, National Cheng-Kung University and Dr. An-Ming Wu, National Space Organization, Taiwan/Reuters)

WEF Report: Africa @ Risk 2008

World Economic Forum (WEF) has published a report on Africa highlighting four key risks for Africa: food security, geopolitical instability, economic shocks and climate change. It says that the prospect of sustaining 5% growth rate is credible, but a number of risks loom large, threatening future development and stability.

1. Food and Freshwater Security – How best can Africa cope with increasing food and freshwater insecurity? What are the risks and opportunities for the region?

2. Geopolitical Instability – Can Africa sustain and consolidate progress on transparent and democratically accountable governance? Can it increase its institutional capacity to prevent, manage and resolve both intrastate and interstate conflict?

3. Economic Shocks – Can African resource-rich countries reduce their commodity dependency by diversifying their economies? How can wealth be better distributed? How can African countries increase their trade benefits?

4. Climate Change, the Environment and Challenges to Africa’s Development – How will global warming affect Africa? How best can the region, countries, businesses and communities adapt to mitigate its effects?

Urgent collective action is required, including raising agricultural productivity, strengthening local adaptation to climate change, improving governance and enhancing economic resilience through diversification. Decision-makers cannot assume that tomorrow’s growth story will read like today’s. The economic fundamentals are in place, but political dynamics and the scope of structural reforms are more likely to shape the next chapter. The report concludes that for Africa – a continent characterized by huge opportunities and ever-increasing regional and global interdependence – the imperative is for collective action to mitigate these shared risks.

Easterly on The Growth Report

Easterly loathes planners. This time he blasts Michael Sepence and his team their their two year long research on finding the sources of growth. He argues that the outcome of $4m investment on Commission on Growth and Development is an inconclusive big report; their answer to high growth, as Easterly reads the report, is: "we do not know, but trust experts to figure it out."

[...]This conclusion is fleshed out with statements such as: “It is hard to know how the economy will respond to a policy, and the right answer in the present moment may not apply in the future.” Growth should be directed by markets, except when it should be directed by governments.

My students at New York University would have been happy to supply statements like these to the World Bank for a lot less than $4m.

[...]The Growth Commission correctly pointed out that such an attempt to find secrets to growth has failed. The Growth Commission concluded that “answers” had to be country specific and even period specific. But if each moment in each country is unique, then experts cannot learn from any other experience – so on what basis do they become an “expert”?

[...]The commission made the common mistake of anointing high growth rates as the measure of success, whereas high growth mysteriously comes and goes. Indeed, only two of the 13 high-growth episodes the commission studied were still going at the time of the study. Yesterday’s growth failures (for example India) are today’s successes and yesterday’s growth successes (for example Brazil) are today’s failures. Much of this volatility is inexplicable and unpredictable. To give credit to whatever leader happens to be in power during a burst of high growth is just circular reasoning (How do we know they were a great leader? Because there was high growth!).

As always Easterly blasts the WB and similar 'development expert' models. He argues that growth is accidental and unpredictable by bringing in Hayekian perspectives of serchers and spontaneous order.

What to do in a world of such unpredictability? There are some general principles and they do not require experts. Another Nobel laureate gave the crucial insight a long time ago – the answer is freedom for multitudinous individuals to figure out their own answers. Friedrich Hayek said: “Liberty is essential to leave room for the unforeseeable and unpredictable; we want it because we have learned to expect from it the opportunity of realising many of our aims. It is because every individual knows so little and ... because we rarely know which of us knows best that we trust the independent and competitive efforts of many to induce the emergence of what we shall want when we see it.”

The evidence for this vision is not found in those baffling fluctuations of growth rates, it is in the levels of development attained in the long run. Confirming Hayek, systems that give more liberty to individuals – featuring both more economic and political freedoms – are associated with much less poverty. The evidence for this comes from both history (for example old, despotic, poor Europe compared with modern, free, rich Europe) and cross-country comparisons (for example South Korea compared with North Korea, former West Germany compared with East, New Zealand compared with Zimbabwe). This alternative paradigm has a much smaller role for experts, because experts cannot direct or impose freedom from the top down (or else it would not be freedom).

I do not totally agree with Easterly and think that industrial policy and highly specific government intervention can work to rectify market failures. More here and here. More on the Growth Report here and here.

Nepal becomes a Federal Democratic Republic

Today Nepal became the newest member of the federal republic clubs. Nepal was declared Federal Democratic Republic today by first meeting of the Constitution Assembly. With this comes the ending of centuries old monarchy in Nepal. More here. More from BBC News.

To loud cheers and resounding handclaps, the first sitting of the Constituent Assembly (CA) unanimously declared the country a republic late on Wednesday night, with only four votes against. The much-anticipated meeting took the decision late on Wednesday night after a nearly ten-and-a-half-hour delay, effectively ending the 240-year-old institution of monarchy and making the king an ordinary citizen.

The Chairman of the CA KB Gurung announced that the proposal to declare the country a federal democratic republic which was tabled at the CA meet was passed with a majority vote on Wednesday at the historic meeting held at the Birendra International Convention Centre (BICC) in the capital. Out of a total 564 votes, the proposal garnered 560 votes in its favour, while only four votes were cast against the proposal.

“In the context of implementing a republic in the country, the CA meeting directs the now then King residing at the Narayanhiti palace and the private secretariat structure concerning him to leave within fifteen-days,” said Gurung reading out the government’s decision. He also directed the Nepal government to immediately control and manage the Narayanhiti palace which has now become a national property.

Home Minister Krishana Prasad Sitaula, on behalf of Prime Minister Girija Prasad Koirala, tabled the proposal for the implementation of a federal democratic republic at the CA meeting before the final votes were cast.

The CA, elected through the landmark election held last month, formally passed the proposal, bidding farewell to the only Hindu King of the world.

Emerging from the meeting, NC leader and Minister for Peace and Reconstruction Ram Chandara Poudel said,” Today we have agreed to transform the country into a federal democratic republic and oust the king and replace it with a presidential system.” Poudel added that the cabinet will sort out all the remaining issues such as the powers and duties of the president and the Deputy-President. In a meeting held at Baluwatar in the run-up-to the first CA sitting, the ruling Seven-Party alliance (SPA) agreed on a provision of a constitutional president who will execute his duties on the recommendations of the cabinet. However, in what appeared to be an eleventh-hour syndrome, the major constituents of the CA failed to reach a common agreement on other key issues until late Wednesday evening.

The 601-member CA is assigned with the responsibility of writing a new constitution and ushering the country into a new era.

On Tuesday, a total of 568 CA members took the oath of office and secrecy after being elected in the landmark CA polls conducted under First-Past-the-Post and Proportional Representation electoral systems in April.

The former rebels CPN-Maoists won 220 seats in the April 10 ballot, Nepali Congress won 110 seats, while the CPN -UML secured 103 and the newly emerged party Madhesi People’s Rights Forum (MPRF), representing Madhes the country’s southern plains along the Indian border, won 52 seats.

Amartya Sen on rising food prices

Nobel laureate Amartya Sen writes in the NYT that the demand driven food crisis would eventually end:

[...]It is a tale of two peoples. In one version of the story, a country with a lot of poor people suddenly experiences fast economic expansion, but only half of the people share in the new prosperity. The favored ones spend a lot of their new income on food, and unless supply expands very quickly, prices shoot up. The rest of the poor now face higher food prices but no greater income, and begin to starve. Tragedies like this happen repeatedly in the world.

[...]Much discussion is rightly devoted to the division between haves and have-nots in the global economy, but the world’s poor are themselves divided between those who are experiencing high growth and those who are not. The rapid economic expansion in countries like China, India and Vietnam tends to sharply increase the demand for food. This is, of course, an excellent thing in itself, and if these countries could manage to reduce their unequal internal sharing of growth, even those left behind there would eat much better.

But the same growth also puts pressure on global food markets — sometimes through increased imports, but also through restrictions or bans on exports to moderate the rise in food prices at home, as has happened recently in countries like India, China, Vietnam and Argentina. Those hit particularly hard have been the poor, especially in Africa.

There is also a high-tech version of the tale of two peoples. Agricultural crops like corn and soybeans can be used for making ethanol for motor fuel. So the stomachs of the hungry must also compete with fuel tanks.

[...]The global food problem is not being caused by a falling trend in world production, or for that matter in food output per person (this is often asserted without much evidence). It is the result of accelerating demand. However, a demand-induced problem also calls for rapid expansion in food production, which can be done through more global cooperation.

[...] While population growth accounts for only a modest part of the growing demand for food, it can contribute to global warming, and long-term climate change can threaten agriculture. Happily, population growth is already slowing and there is overwhelming evidence that women’s empowerment (including expansion of schooling for girls) can rapidly reduce it even further.

What is most challenging is to find effective policies to deal with the consequences of extremely asymmetric expansion of the global economy. Domestic economic reforms are badly needed in many slow-growth countries, but there is also a big need for more global cooperation and assistance. The first task is to understand the nature of the problem.

Links of Interest

The Festival of Economics: An Antidote to Fear

Special Report: China In Africa

China strengthens rail link with Nepal

Google, Yahoo, Microsoft: antitrust confusion

Narayanhity royal palace to be turned into national museum

CA members sworn in at BICC

Oil exporters lead continent's strong economic growth

Nepal requests India to waive duty on steel

The Growth Report on Asia

• Nine of the 13 countries that have been successful in achieving sustained high growth are from Asia: China, Hong Kong (China), Indonesia, Japan, Korea, Malaysia, Singapore, Taiwan (China) and Thailand.
• These nine high-growth countries all share common characteristics: engagement with the global economy, macroeconomic stability, high rates of saving and investment, the market allocation of resources, and credible and capable governments.
• Many of these Asian economies (Hong Kong, Japan, Korea, Singapore, and Taiwan) grew all the way to high-income levels.
• The region seems to be able to anticipate and change its policies on growth, Korea’s evolution from labor-intensive manufacturing to a more knowledge-based and capital-intensive economy being one example.
• Asia’s saving rates are seen as a strong engine for growth, with many Asian countries having saving rates 20 percentage points higher than Latin American countries, for example.
• High savings rates in Asia are due to macroeconomic stability, fewer dependents to take care of, and more direct measures, such as mandatory saving schemes.
• Foreign Direct Investment and the transfer of knowledge are very successful in Asia, one example being Malaysia, which has attracted multinationals to its three electronics clusters.
• Public investment in infrastructure is also viewed as a hallmark of many Asian economies accounting for 5 to 7 percent of GDP or more.
• Resource mobility is also seen as key, with governments not resisting the market forces that pull people into the urban areas. In Malaysia, agriculture’s share of employment fell from 40% in 1975 to 15% in 2000.
• Growth requires committed, credible and capable governments. Reform teams in countries, such as Singapore, Japan and Korea, were able to chart a program for growth.

Recommendation for Asia:

• Establishing a mechanism to coordinate policies of the growing number of influential countries – particularly in Asia - and to safeguard the stability of the global financial system.

There is good event on discussion about about the report at PIIE (organized by CGD). The full report is here. It would be interesting to hear what Hausmann and others have to say about this big report. Here is what Larry Summer has to say about similar report launched earlier.