Paul Krugman makes a case for a new fiscal stimulus and why we should worry more about decreasing unemployment rather than debt.
Right now the risks associated with additional debt are much less than the risks associated with failing to give the economy adequate support.
My latest op-ed (Views from the bottom) is based on ODI Working Paper#301 (Governance and citizenship from below: Views of poor and excluded groups and their vision for a New Nepal). There is a lot more to write about the voices of the poor, the evolution of their relation with the local administration officials, their assimilation in the ‘mainstream’ society, and what they think are their priorities to solve the problems plaguing their progress in the society. I will discuss these issues in greater detail in blog posts later this week. For now, I think it is worth posting the whole article below.
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Politicians and policymakers argue that they are working on to ensure that in “New Nepal” poor people and marginalized classes will have adequate representation and say over things that matter to them the most. On a regular basis, we hear politicians bragging about the work they do in favor of poor people, even if the policies they advocate have little to do with priorities of poor people. What exactly are the priorities of poor people and excluded groups and what do they think about the evolution of local power relations between citizens and state in the post-revolution era?
The findings of a recent study on national participatory governance show considerable differences in priorities identified by poor people and policymakers. The voices (published as a report by Overseas Development Institute (ODI), Working Paper #301) of people at the bottom of income and social strata indicate the level of disconnect between state and its citizens. “A poor Bahun/Chhetri squatter settlement in Kanchanpur district emphasized that they had never been visited by government, NGOs, donors or the media, while a Dalit community in Bhaktapur asked the telephone number of the National Planning Commission in order to follow-up once the study report is released,” the report, which is based on research carried out in 21 communities in 10 districts, notes.
It is not surprising that the priorities of communities across the country are not homogenous and are often hinged on religious, gender, economic and social issues. For instance, Gurungs in Tanahun wanted a Buddhist temple while Mushar Dalit community in Siraha wanted a community house to conduct community activities and to house guests. Meanwhile, women in Western mountain districts aspired for an access to a flour mill and smokeless stoves. For some communities in Makawanpur, control of soil erosion and bridges were the most important priorities.
That said, on major issues there are commonalities in priorities, which are often missed by politicians and policymakers “working” for them from the capital. The major (tangible) priorities, in descending order, outlined by the poor and marginalized people are roads, education, health, water, electricity, irrigation, land, toilet and veterinary services. Their priorities are as simple as it could get and don’t require a grand, multi-year project to initiate them.
People wanted roads in order to establish connection between markets and production sites, to overcome geographic isolation and to promote local destinations as tourist attraction. They wanted removal of user fees in health services and public education as well as an end to unequal access to scholarships and an expansion of range of treatment and medicines.
Meanwhile, Dalits – who make up 13 percent of the population – not only yearned for expansion of access to water services but also an end to discrimination and humiliation in the usage of water and an end to vulnerability caused by land insecurity. For instance, due to ownership of scattered land plots among ‘upper caste’ in Achham, in the case of a Dalit’s death, families were forced to take “a long circuitous route through the hills to avoid sullying ‘upper caste’ properties.”
Furthermore, poor people felt a sense of deprivation and inconvenience to use kerosene in the absence of electricity. The study states, “The demand for electricity was linked to a sense of frustration at the inefficiency of government—in many places poles had been erected a number of years earlier, symbolizing the promise of electricity, but the wiring had never been provided. Even in cases where lines came, house connections were often beyond the financial means of poor households.”
Partly because of their willingness to freely assimilate with Dalits, the Maoist party had more supporters from Dalit community in Pyuthan. Still now ‘lower castes’ such as Sarkis and Dalits are forced to use separate sitting arrangement and utensils in local tea shops and hotels in the name of preserving ‘ritual purity’. Note that though discrimination against Dalits was outlawed in 1960s, it is yet to be reflected in practice.
Rural communities were concerned about augmenting production through better irrigation and expanded veterinarian services for their livestock, which is an important domestic business for some households. For instance, the report notes that poor Bahun/Chhetri community in Achham district refused to cooperate unless the researchers were connected to irrigation service providers. This depicts the level of disconnect between policymakers and poor people.
In some districts, poor people were resorting to illegal occupation and smuggling in the absence of income-generating opportunities and microcredit services. A Mushar community in Siraha resorted to illegal timber collection while some households in Kanchanpur involved in smuggling goods from India to sell at lower prices in the local market.
Muslims, who comprise 4.3 percent of the total population, felt vulnerable to multiple and overlapping sources of exclusion based on religious identity, status as minority language speakers, and identity as Madhesis when dealing with government officials from the hilly region. This is sensitive and alarming issue because “religious tensions exist beneath the surface”. There should be a measured monitoring of this sensitive issue. Note that Muslims had the lowest drop in poverty rates (6 percent) as opposed to Bahun/Chhetri (42 percent) and Dalits (21 percent) between 1996 and 2004, according to National Living Standard Survey II.
The study also identifies key supply-side constraints such as corruption (local administration officials explicitly demanding bribes to register deaths and births in VDCs), limited information flows about public services and development programs, lack of consultation, capture of community user groups by elites, human rights abuses by government agencies, lack of knowledge about legal rights and communal unity fractured by caste-based alliances with varying interests that constrain effective interaction between poor people and local administrations. How to break these constraints? The poor people and excluded groups offer solutions as well – there needs to be equal treatment with respect while seeking public services, improved communication and access to information, larger role for supportive brokers between different groups and local administrations, and increased representation in public offices.
The poor people and marginalized groups need a workable idea that addresses their immediate needs and helps them not only become financially stronger but also gives an opportunity to break socio-economic barriers and engage in state building. This does not require lengthy assessment by experts and grand ideas dogged in an established ideology. It requires listening to the grievances of the poor people and workable ideas proposed by them. The tarnished credibility of politicians and the effectiveness of aid industry would improve if they actually listen to the voices of the poor people and marginalized groups.
(Republica, July 1, 2009)
Watch Paul Krugman and John Taylor argue about fiscal stimulus, debt, inflation, interest rates, healthcare and more…
Degol Hailu argues that policy responses to the economic crisis is turning Indonesia into a developmental state. I think the same can be said about pretty much every country that initiated some trade restrictions and implemented fiscal stimulus in the past two years. We are becoming more Keynesian than ever!
In the first quarter of 2009, rubber exports fell by 32 per cent. Farmers have suffered most. In some provinces tapping has completely ceased. The policy response was to cut shipments of rubber exports by 700,000 tons, a cartelist measure that was taken in concert with Thailand and Malaysia. The hope is to keep prices high and maintain constant income levels, just as the Organisation of Petroleum Exporting Countries (OPEC) does.
The price of tin, another major Indonesian export, fell from US$23,595 per ton in July 2008 to US$12,355 in April 2009. The government suspended the quota system that set minimum limits on tin exports. When prices were high, provinces such as Bangka Belitung and the Riau Islands were required to export at least 90,000 and 15,000 tons of tin, respectively. By suspending the minimum quota, the government is encouraging producer to cut their output and keep prices stable in the face of slow global demand. As a result, tin production fell from an average of 120,000 tons between 2005 and 2007 to 80,000 tons in 2008.
The target for the footwear and textile industry is to switch the above percentages: 60 per cent for domestic consumption and 40 percent for exports. As part of its stimulus package, the government is providing direct subsidies for the purchase of machinery under the Machinery Revitalisation Programme.
Rcently, the footwear industry received a cash subsidy of US$5.17 illion, and US$22.1 billion was provided to the textile industry. The government stepped in and launched a scheme to increase cotton output to 48,000 tons in the next few years, and to double the area under cultivation to 40,000 hectares. The provision of subsidised seeds and farm inputs has already started in Gunung Kidul, Yogyakarta, Pati, Kudus, Blora, East Java, and South Sulawesi provinces.
The government’s response to the crisis has also included macroeconomic policy changes. The interest rate was cut to 7.8 per cent in 2009 from 9.5 per cent in 2008. A fiscal stimulus of US$7 billion, or 1.4 per cent of GDP, has also been announced. The stimulus comes in the form of tax cuts (76.5 per cent of it), infrastructure expenditure (16.8 per cent) and direct subsidies (6.7 per cent). Fortunately, 2009 started with a fiscal deficit of 1.2 per cent of GDP, which gave the government room for deficit financing.
A carefully designed state-led agriculture subsidy program successful in Malawi:
The farmers’ success is not a coincidence: After facing a famine four years ago that threatened one-third of the country’s 13 million people, around half of whom live in poverty, tiny Malawi has utilized a $60 million policy of state subsidies for agriculture to become a net grain exporter. Malawi has transformed itself from a ward of the international community into one of the most successful agricultural economies in southern Africa: The landlocked, geographically diverse country, covered in green rolling hills and dotted with freshwater lakes, now exports thousands of pounds of corn to neighboring, starving Zimbabwe, a nation once known as the breadbasket of the region.
State agriculture subsidies are hardly what the doctor–or, in this case, the international aid community and the World Food Program–ordered. But Malawi triumphed precisely by ignoring the world’s leading pro-privatization agricultural experts. In fact, the "Malawi model" could turn out to be one of the only African success stories in recent years.
[…] Starting in 2004, it launched the nationwide Agricultural Inputs Subsidy Program, in which roughly half of Malawi’s small farmers were given coupons to buy fertilizer and seed at a rate far below the market price. Critically, the government focused the program not on the most destitute, but on the poor farmers who at least had some land and the ability to work the plots, thus guaranteeing a return on their investment in the form of more efficient grain output. At the same time, the government invested in training programs, helping farmers learn about new types of irrigation and management to improve their yields. And once the farmers produced, the Malawian government created funds designed to buy a percentage of the maize crop and store it for future emergencies. In this way, the state hoped to ensure that it would never be caught in a famine having to rely upon private traders to supply staple crops.
And, the danger of getting overly obsessed with “invisible hand” (liberalization and privatization) in vulnerable sectors, i.e. sectors whose performance would have a direct bearing on the very survival of poor people!
In many poor countries, when governments stopped handing out seeds and fertilizer, or providing warehouses to store farmers’ grain, the meager private sector was not equipped to fill the void. Unlike in the developed world, home to giant agribusinesses, in Africa the small private grain sellers and buyers have little capital or ability to raise money. And with little financing, it is nearly impossible for the private sector to develop large stocks of seed and fertilizer, or to build large warehouses necessary to store significant quantities of staple foods. Forced to rely upon the private sector, farmers in turn could not buy large quantities of seed, or store grain between harvests; and even if the resources were available, farmers often could not afford to buy fertilizer and seed. In many nations that had liberalized agriculture, crops simply rotted.
With private traders unable to store crops, governments selling off their warehouses to the private sector, and no one investing in agricultural research, developing nations have been left dangerously short of any food reserves. Yet for years, donor nations ignored the downside to privatization, even as country after country suffered through famines made worse by a lack of food stockpiles–and as rich countries, in a great irony, subsidized their own farmers. As former President Bill Clinton told a United Nations conference on food security last year, referring to wealthy nations’ push for agriculture privatization: "We all blew it."
A simulation of potential trade policy scenarios under the WTO showed that small country like Malawi would emerge as losers of agricultural trade liberalization. So, it does not make sense to argue for complete agriculture trade liberalization. Also, it does not make sense to blindly follow the market principles, though the best system if certain conditions are predetermined, and argue for full privatization, deregulation and liberalization of the agriculture market. Another relevant question here is: Would the developing countries lose or gain from agriculture trade liberalization (includes scrapping agriculture subsidies in the US, the EU, and Japan? Some say the developing countries would be worse off if agriculture subsidy in the West is eliminated. It really depends on if (households) a country is a net exporter or importer, its production and distribution cost structure, and demand of such goods in the global market, among other factors.
This one comes from Duncan Green’s blog post about summary of the development impact of the global crisis:
Unemployment (ILO)
Economic Growth (IMF / UN-DESA / World Bank)
Bank Bailouts (IMF / calculation for Oxfam by James Henry)
Fiscal Stimuli (ILO)
Poverty Impacts (UN-DESA)
Remittances (World Bank)
Trade Flows (Bloomberg / IMF / World Bank)
Foreign Direct Investment (Institute of International Finance / World Bank)
Vulnerable Countries (World Bank / IMF / Economist)
Food and Oil Prices (FAO)
A piece about Nepal’s banking sector on Bloomberg. The governor makes sense here--
Kshetry said he can’t lower interest rates to support economic expansion because of high inflation. Nepal’s inflation rate climbed to 11.9 percent in March from 9 percent a year earlier because of a shortage of food and fuel, Kshetry said.
The central bank raised the cash reserve ratio to 5.5 percent from 5 percent and the key bank rate to 6.5 percent from 6.25 percent in October 2008. It has kept policy rates unchanged since, Kshetry said.