Globalization necessiates greater government intervention

The UN calls for greater government intervention to moderate the severe, unavoidable economic swings and inequalities brought about by increasing globalization. More here from the Washington Post:

Pointing to food riots in dozens of poor countries whipsawed by soaring prices for wheat and other staples, and to the rising income inequality that has become a too-common feature of economies in the developed world, the report says that no one is immune from the sometimes cruel consequences of global economic forces. But governments should do more, both individually and collectively, to protect people from their harshest impacts, it says.

The U.N.'s 2008 World Economic and Social Survey calls for greater regulation of international capital flows, more generous foreign aid and perhaps the guarantee of a minimum income to the world's poorest residents. Domestically, countries should do more to cushion their citizens against economic changes that have left them less secure. In poor countries, the insecurity can take the form of hunger and food shortages; in developed nations it often means stagnating wages and growing income inequality.

"Markets cannot be left to their own devices in respect of delivering appropriate and desired levels of economic security," the report says.

Global competition, which erodes the security of businesses, unstable capital flows, which crimp investment and growth, and food shortages are sometimes viewed as beyond the ability of governments to control. But the report says that is the wrong response. What is needed, it says, is "more active policy responses to help communities better manage these new risks."

The U.N. report calls for a range of interventions to provide support, including greater public investment in agriculture for poor countries and "a better balance of economic and social policies." It also said that even during economic booms governments should remain mindful of the downturns that can strike quickly, and set aside money to deal with them

Markets are good (probably the best system we can have) but we need to realize that it is imperfect and while it takes on the path to perfection, many more lives might be ruined if not intervened by the government or some other powerful bodies. Download the full report here (Sustaining Growth and Sharing Prosperity).

Some useful figures from the report:

Interventions for improving livelihoods in SSA

Intervention in the water sector is needed because its access (and cleanliness) has direct relationship with poverty rates and poverty incidence. Here is a report (Water and the Rural Poor: Interventions for Improving Livelihoods in sub-Saharan Africa) from the FAO. This form of intervention works because it is context-specific and is a livelihood-centered approach to poverty reduction in rural areas. Experimentation with these kinds of programs have been usually successful.

The report argues that the likelihood of implementing successful interventions in the water sector varies according to the main sources of livelihood of rural populations, dictated in large part by the predominant farming systems, themselves closely related to agro-ecological conditions. Understanding the geographical distribution of the rural poor and their relation to livelihood zones therefore helps in designing intervention strategies to improve water management and increase both the resilience and productivity of agriculture, as well as agricultural incomes.

The report proposes a method for identifying the locations where water constraints are a major factor in determining poverty and where interventions can be made that would take large numbers of poor farmers out of poverty. It identifies and maps 13 major "livelihood zones" in SSA, each of which offers distinct opportunities for livelihood sustenance and development, has different agro-ecological conditions, and shows different angles for water-related investments for poverty reduction.

The report stresses that the choice of interventions at different scales should be taken from a non-prescriptive menu of appropriate options and based on an understanding of the particular context and target group.

The report concludes by discussing a set of typical water intervention options, and analyses their range of application and potential for poverty reduction according to the various livelihood zones. Six categories of possible interventions are discussed in view of their poverty-reduction potential:

• better management of soil moisture in rainfed areas
• investment in water harvesting and small storage
• small-scale community-based irrigation schemes
• improved water access and control for peri-urban agriculture
• development of water supply to meet multiple water uses
• an environmentally-aware system of improved water access for livestock in arid and semi-arid areas.

Most Powerful Development NGOs in the world

This is a ranking from FP magazine:

1. Bangladesh Rural Advancement Committee (BRAC)... major operations in microcredit and poverty alleviation
2. Bill & Melinda Gates Foundation (major operations in improving global health, eradicating poverty, improving American education)
3. World Vision (major operations in food aid and emergency assistance)
4. Oxfam International (major operations in poverty alleviation and debt relief)
5. Doctors Without Borders (Medecins Sans Frontieres)...major operations in establishing healthcare services in poor countries and providing emergency medical care

I am pretty much surprised that a NGO from Bangladesh is the most powerful development NGO in the world (or may be I have not heard about its good deeds!). A little bio about BRAC:

Founded in 1972 to assist refugees after Bangladesh’s war of liberation, BRAC, formerly the Bangladesh Rural Advancement Committee, is the world’s largest nongovernmental organization. It boasts a $4.6 billion portfolio in microloans, an army of healthcare volunteers providing care to 80 million Bangladeshis, and a network of 52,000 schools serving 1.5 million students. As one of Bangladesh’s largest single employers, BRAC is often referred to as a minigovernment, responsible in part for many of the country’s economic and health gains. It is estimated that, coupled with a government immunization drive, the organization’s antidiarrhea efforts in rural Bangladesh have helped cut child mortality for children under 5 from 25 to 7 percent over the past three decades. Its contraception drives and pioneering microlending have also been credited with lowering fertility rates and reducing poverty. Inspired by these results, BRAC recently extended its programs to sub-Saharan Africa and Afghanistan.

Corruption in water sector

From Transparency International's Global Corruption Report 2008:

Water crisis is undeniable and the corruption challenge it faces is urgent. More than 1 billion people worldwide have no guaranteed access to water and more than 2 billion are without adequate sanitation.

When corruption is part of the equation, the consequences for development and poverty reduction are dire. Corruption can increase the cost of connecting a household to a water network by more than 30 percent, raising the price tag for achieving the Millennium Development Goals for water and sanitation by a staggering US $48 billion.

Corruption in the water sector casts a wide and destructive net. Households pay with their health, as poor quality or non-existent water supplies increase their vulnerability to deadly diseases: in developing countries 80 percent of health problems can be linked to inadequate water and sanitation.

Corruption opens water policies to manipulation by powerful stakeholders. Bid-rigging and kick-backs inflate the cost of water infrastructure, bribery and embezzlement divert irrigation water away from small farmers and drain irrigation budgets. Corruption leads to unchecked water pollution and overuse, putting water supplies at risk – today and for future generations.

So what's the implication for the Nepalese economy? Note that water sector is one of the most easy breeding grounds for corrupt officials. Here is an article from The Kathmandu Post:

Nepal's development hangs on the proper utilization of its water resource. Water is the only resource that is abundantly available in Nepal and it is the resource that has less been under utilized. With around 77 percent of the population having access to some basic drinking water facilities and 46 percent having sanitary services; 49 percent served by electricity and 68 percent of the land having some access to irrigation facility, the potentiality for realising water sector is immense. If these figures are mind boggling, how about 78,000 Nepali children, including 50,000 girls, engaged in fetching water? Besides economics, fighting corruption in water sector is also a moral issue.

With so much leakage in the supply of electricity and drinking water, combating corruption in water sector is a huge challenge for Nepal. Due to corruption, waste and inefficiency, we have the most expensive supply of electricity and water.

Links of Interest

Seven Questions: Paul Wolfowitz

The World's top 20 intellectuals (two economists make into the list--Mohammad Yunus and Amartya Sen)

From Poverty to Power: How Active Citizens and Effective States Can Change the World? (full book by Oxfam link here and interview with Head of Research at Oxfam GD, Duncan Green here )

Five steps to sustainable governance in Africa (interview with Paul Collier)

Does professor quality matter? (via Chris Blattman)

Gates' Misguided Capitalism (by Easterly...Check out this blog where heavyweights of economics ranging from Becker to Clark to Easterly to Reich to Posner blog)

Who demands reservation?

Indian inflation at record levels

Negroponte talks about OLPC once again

Nicholas Negroponte talks about how One Laptop per Child is doing, two years in. Speaking at the EG conference while the first XO laptops roll off the production line, he recaps the controversies and recommits to the goals of this far-reaching project.

Rising price level in Nepal

GDP growth rate is around 5% (for this year), population growth rate is above 2.1%, and now CPI is 9.2%. Nepalese economy is getting worse or better? It is affecting exports (fell by 2.1%) as Nepal lost price competitiveness in the international market. On a positive note, remittances grew by 35.3% (to Rs 108.64 billion), leading to increase in foreign exchange reserve by 19.3% to Rs 197.03 billion. Sterilization is in upward trend.

...Fresh data released by the Nepal Rastra Bank (NRB) shows that the inflation based on the consumer price index rose to 9.2 percent in mid-May, the tenth month of the current fiscal year, up from 4.6 percent of the same time last year.

The central bank said the rising prices of food items led to the rise. Still, the inflation based on wholesale price index increased to 10.1 percent. 

NRB officials said inflation would further rise in the coming months, as the recent price hike of petroleum products would have to be considered. 

On the import front, a rise of 21 percent was seen as people consumed more on the back of healthy inflow of remittance. 

NRB said there had been significant rise in import of petroleum products, MS billet, vehicles and spare parts, gold, telecommunication equipment, videos, television and parts.

...the government budget deficit was Rs 6.4 billion during that period, compared to a surplus of Rs 2.86 billion. To meet the growing requirement of Indian currency, NRB purchased the Indian units worth Rs 77.27 billion through a sale of US$ 1.21 billion.

Here is more.