Is the current Doha Round favorable to the developing countries?

No, says a new RIS policy brief. The authors argue that the earlier estimates on the benefits of trade - that a pro-poor Doha Round could increase global income by as much as $520 billion and lift an additional 144 million people out of poverty- from the WB was based on old data and faulty model, which had unrealistic assumption of full global liberalization. But, since this is not possible in reality, a revised estimate with the assumption of "partial liberalization" scenario shows that gains for the developing countries is near-insignificance. Global gains projected for 2015 are just $96 billion, with only $16 billion going to the developing countries.

Worse, half of all the benefits are expected to flow to just eight countries: Argentina, Brazil, China, India, Mexico, Thailand, Turkey, and Vietnam. The benefits do not go to the places where it is required the most, mainly Sub-Saharan Africa and South Asia (excluding India). Even worse, earlier poverty reduction projections was 144 million of the world's 622 million poorest people but not it has been revised to just 2.5 million.

As rich country leaders try to rally negotiators for yet another “make-or-break” deadline, in what has become the most imminent agreement in history, developing country negotiators should remember why the proposals on the table deserve to be sent back to the drawing board.

The economic projections, from the World Bank and other institutions, show how limited the gains are for most developing countries and how high the hidden costs of an agreement could be. With projected gains of less than 0.2% of GDP, poverty reduction of just 2.5 million people (less than 1%), tariff losses of at least $63.4 billion (almost 4 times the level of benefits), and projected declines in the relative value of exports, developing countries have little to gain from rushing to conclude Doha.

How small is $16 billion?

• The developing country benefits are just 0.16 per cent of GDP.
• In per capita terms, that amounts to $3.13, or less than a penny per day per capita for those in developing countries.
• For a poor worker or farmer earning $100/ month, that represents a raise of just 16 cents in 2015.
• In this supposed “development round,” rich countries were projected to see per capita income gains 25 times those in developing countries.
• Developing country gains from “likely” agricultural reforms amount to less than 0.1 per cent of GDP—just $9 billion.

That is a reduction of less than one-half of one per cent in the year 2015 in the number of people living on less than one dollar per day.In Sub-Saharan Africa, just half a million people out of the region’s 340 million poor would move out of extreme poverty with a successful negotiation, barely one-tenth of one per cent. Moreover, as many have pointed out, moving from $1.00/day to $1.10/day might get you above the world’s current standard for extreme poverty, but it certainly doesn’t get you out of poverty.

Links of Interest

Lula for Moderate, Lasting Economic Growth

The dragon awakens: China, how did it happen?

EU reaffirms support for Africa's economic growth

Focus on the female talent in the backyard

Diesel crisis affects farmers

 

Red Watch: CPN(M) second-in-command Bhattarai speaks tough (leftist) economics

Pretty good interview but seems that Nepal's economy would definitely slide towards the left. The leftist jargons- bourgeois, proletariat, land reform, socialism, redistribution, absentee landlordism, land to the tiller- are already popular in the Maoist's circle. Their land reform plan looks pretty scary. I hope this one would not turn out to be yet another repetition of the infamous Zimbabwean land reform. The Maoists want "New transitional economic policy," which basically is "development of industrial capitalism oriented towards socialism." I don't quite fathom what this really means. Is it close to the Nordic model or post-1990 Russian model or the recent Latin America model led by Chavez? Read the full interview here.

How are you dealing with the challenge of bringing in international capital and retaining domestic capital within the country, in a way that is in keeping with your own economic policy?

Our main emphasis will be mobilizing internal resources.  Until and unless we can mobilize internal resources, at least for basic needs, then we'll always be blackmailed by the international capital. So our first priority would be to mobilize our internal resources.  But even then, in the immediate sense, we'll need some foreign capital.  At least for long term economic development we have to make investment in basic infrastructure, and so on, using international capital.  For that we're trying to re-negotiate with the international agencies.  Of course they will try to put pressure.  But we are already in contact with some of them.  And they also have their own compulsions, you see.  If they don't cooperate, they will also face the resistance of the people.  They all have their strategic interests.  Nepal being located in a very strategic place between China and India, and these forces, I think they have their eyes on the big markets of India and China, and if there is not a favorable situation in Nepal, they will be hurt, you see -- not immediately, but in the long term strategic sense.  In that way they also have their certain interest in Nepal.  So that, if we negotiate very carefully, though they will try to bring pressure -- we know it, this is the nature of international capital, to twist the arms of the poor countries and poor people -- even then, I think if we move very carefully, we can take some liberties out of that.

Moving back to labor issues again, how are you involving the working class and in particular your unions in the economic policy of the country?

Our unions are the strongest in Nepal.  We came into this [peace] process two years ago.  In almost all the factories and workplaces, we have organized the workers, and our trade union is the strongest in the country.  Wherever there have been [union] elections, we have won almost all of them.  It may sound anachronistic, but just to give you an example, in the 5 star hotels where there were elections, we won all of them.  Our trade unions got strong because they bargained with the management for the rights of the workers.  To increase pay and provide benefits and facilities according to law.  They were not paid earlier, and they were not provided with facilities.  So the management were forced to pay.  And there was a lot of attraction of workers to our trade unions.  But on the other side, the reactionaries are instigating the management, saying that the Maoist trade unions are putting undue pressure, so there is no conducive environment for investment, and in this way they're encouraging capital flight.  Some capital has fled also, so we have to make that [. . .].  Just the other day we were at a gathering of nationalist [capitalists] and traders and we tried to show them that our main focus right now is to do away with feudalism and do away with the feudal relations of production, and the very dependent capitalism, not national and international capitalism.  So we try to distinguish between these.  Firstly, we want to do away with feudalism.  Then we want to develop our productive investment capital, not the very parasitic capital we have right now.  This is what we call comprador and bureaucratic capitalism which doesn't promote production, and doesn't promote employment.  It is only that type of distorted, dependent capitalism, which is developing in the country, that we are against.  We are not against productive and industrial capitalism, you know, which provides goods, provides jobs, creates value within the country, and at least resists the imperialist interventions within the country.  That type of national capitalism we promote.   We tried to convince the nationalists and traders that we'll create a favorable environment.

What's your position on Nepal's WTO membership in this context?  There are a lot of conditions within the WTO membership that preclude some of the things you're saying.

Yes.  That problem is there.  It's very difficult to totally come out of the WTO.  You can't be within the WTO, you can't come out of it.  That dilemma is there.

Following up on the role of the trade unions, theoretically in communism and socialism the working class are the rulers.  So how do the trade unions insert themselves into the party policy and your state policy?

So far, our trade unions are highly politicized.  Our workers have very good political consciousness.  When they put demands, for the most part they know they are fighting for political and state power.  We have tried to inculcate in the working class that unless and until you have state power in your hands, whatever economic gains you get, you won't be able to defend.  It is the first thing we try to inculcate in the working class.  So the trade unions are highly politically conscious.  But apart from that we have to make a balance also, because if we don't make economic demands then a large section of the working class wouldn't attain a very high level of political consciousness -- they won't be organized.  So that balance we have to make, between political and economic demands.  We are trying to create a balance.  And within the factories we try to create -- though we haven't called the system a soviet formally -- but in general since most of the workers, the majority of the workers are organized in our trade unions, they've been able to assert their position within the factories, so the management is forced to take the working class into confidence while making big policy decisions.  So that has been achieved.  Not formally in the sense of a soviet -- we haven't been able to organize as a political power in the factories.  But because of their strong presence, they have been quite successful in exerting pressure and influencing the decision making within the factories.

At the same time , now there are pressures and promises about returning property seized during the armed struggle, and your party has also made some [post-election] statements about carrying through with land reform.

Yes, this is one of the sticking points in the peace process, because the landlord's lands were seized by the peasants during the People's War.  In the peace accord, there was quite an ambiguous provision.  The land which was seized unjustifiably, that will be returned.  This is the word -- 'unjustifiable', 'unjustifiably'.  It is very ambiguous.  That is why it has not been resolved.  This has been the sticking point.  Our peasants are not returning the land because they think it is rightful seizure, because the landlord had in fact always seized it from the peasants, you see.  So they have seized it back.  This is the argument of the peasants.  And on the landlord side, they would say it is the right to private property, so that is the encouragement of the democratic [bourgeois] sides.  So that type of struggle is going on.  But in the interim constitution we put a provision for making scientific land reform.  Though we wanted to put the word 'radical' or 'revolutionary', we had to compromise on the term 'scientific' land reform.  So there is again an ambiguity there -- what do we mean by 'scientific land reform'?  Our interpretation is revolutionary land reform based on the principle of land to the tiller.  Those who are actually tilling the land should own the land.  This has been our interpretation.  The other side is trying to interpret it differently.  So there is also contention going on over this issue.

And this mandate for change has been taking the form of the slogan of a "New Nepal".  What exactly is meant by that and how is it expected to come about?

Yes, "New Nepal" has been a very effective slogan given by our party during the election.  "New thought and new leadership for a new Nepal," that was our basic slogan.  And I think that people took it very well, and that is why they voted for us.  So by New Nepal, what we mean is, first, politically, we want to dismantle all the feudal political, economic, social and cultural relations.  That will be one aspect of New Nepal.  The other aspect of New Nepal will be making drastic socioeconomic transformation in a progressive way.  The one is destruction of the old, the other will be construction of the new.  There will be two aspects.  And our basic focus will be on economic activities: the transforming of the agriculture sector, and then developing productive forces, industrial relations, so that the workers and the youth will be provided employment.  And that will create a basis for going toward socialism.  Our economic slogan that we gave was: "New transitional economic policy."  That means industrial capitalism -- development of industrial capitalism -- oriented towards socialism.  This has been our work for the interim period.

So now in thinking about transforming agriculture, which is one base of the economy, what kinds of things would you be concentrating on now?  Say you can take power in the government and set agricultural policy, what are your top three moves?

Well firstly, in the agricultural sector, we are going to change the production relations, and land-holding patterns we want to change.  Especially in the plain areas; landlordism is there.  The absentee landlords who own land, thousands of hectares of land they would own: they live in cities, they don't invest, they don't manage the production, so that way they exploit the poor peasants who till the land.  The peasants are exploited and the productivity is also very low.  So we want to abolish that type of absentee landlordism and enforce the principle of land to the tiller.  That land which is tilled will be redistributed.  So we will put a ceiling, say of some four or five hectares and above that land will be confiscated and redistributed to the peasants.  So this is one aspect of land reform.  The other will be that we are going to organize the poor peasants, because many of them will be very small landholders.  I've already told you, less that 0.5 hectares.  And they engage very much in subsistence farming.  So with that individual cultivation and farming, they can never improve their economic lot.  We want to organize these poor peasants into cooperatives.  That is the second aspect.  And thirdly, we want to modernize agriculture -- mechanization, modern irrigation, and so on.

And on the question of agriculture that is focused on food security within the country versus export economy agriculture, what's your view?

Our emphasis will be different from the economic policy determined by the World Bank and FAO, which has been export oriented, and peasants are not encouraged to produce food crops, they have been encouraged to produce cash crops for export.  The dependency has been increased, the food security has decreased, so you see the food crisis increasing.  This is one of the consequences of the World Bank policy -- wrong policy.  So we wouldn't like to just blindly follow that policy.  Firstly, the peasants' food security will be given high priority.  They should produce food and cater to the needs of the internal market.  And then secondly only, they can produce for export.  So that will be our priority.

We know that you have to go.  Is there anything you want to say to the Left in North America?

You see the crisis is international in scale: there is a direct fight between the proletarian ideology and  imperialist ideology.  This is in the whole of this so-called globalization.  Globalization has given this sharp class contradiction, of two classes.  So North America being the center of imperialism, the working class and Left forces there, I think they should organize themselves and the stronger the movement against imperialism there, that will be helpful for the Left and proletarian movement in the Third World countries, because the Third World countries are the most oppressed by imperialism.  If there is a strong working class movement and Left movement in the imperialist countries, that will directly help the revolutionary movement in the Third World countries.  That way we appeal to our friends in North America.  They should sharpen their struggle against imperialism.  That will help our movement in our countries.

Higher returns from slowest-growing economies?

The Economist reports, based on a research done by LBS, the slowest-growing economies had higher return to investment than from the emerging economies. The article implicitly assumes that emerging markets have high growth rates and lagging economies have slow growth rates. This is definitely a unexpected and interesting finding. I was wondering whether it is just the volume of return or rate of return? The explanation is mainly focused on returns from the stock market, which is obviously very immature in the developing countries. One can generate high return from an immature market either by working around regulations or by being a little more smart in comprehending weak financial regulations in countries that are opening up shares of public companies to the public. Or am I missing something here?

Faster economic growth means higher returns for investors. That is a big part of the rationale for investing in emerging markets.

The problem with this argument is that it is not true. Research by the London Business School looked at 17 countries over 108 years. The countries with the slowest-growing economies (as measured by GDP growth over five-year periods) returned 8% a year; the markets in the fastest-growing economies, by contrast, returned just 5% a year.

When a broader group of 53 economies, including many emerging markets, were examined, the tortoises beat the hares by a wider margin—12% to 6-7%. James Montier of Société Générale found that the slowest-growing emerging markets have delivered higher returns than the fastest growers over the past 20 years.

...The booms in India and China will have enormous effects on everything from the wages of unskilled labour to the price of commodities. But the simple equation that more growth equals more profits for investors is simply not borne out by history.

P.S.: Check out the Economist's new website, which looks much more better than the previous one.

Does microfinance directly help reduce poverty?

Ummm. No, says Severino, CEO of the AFD. Rather the effect is kind of indirect- microfinance helps bring about changes conducive to poverty reduction but it directly do not eradicate poverty. More here:

...It is important to see microfinance for what it is: a tool that has proven its remarkable efficiency in reducing financial vulnerability but that cannot, on its own, eradicate poverty - and that is often used with a more social than purely productive end. It efficiently supports the sense of creativity and initiative of the poorest, women in particular, but cannot generate the conditions for this sense of initiative, offer opportunities for investments when those do not exist, nor overcome by its own the huge physical, political and cultural obstacles that development countries are facing in their quest for economic wealth. As Pr. Yunus advocates, microfinance can contribute to change the structures of capitalism. But it cannot be a substitute for investment in sectors such as education or health. It should therefore be used as part of a global public policy to develop finance, services, infrastructure and more broadly bring new opportunities for the poorest.

...Overestimating the impact of microfinance could lead to a situation where its real benefits are overlooked.

...Promising new projects are being developed, such as the “mobile banking” project in Kenya and South Africa, or micro-insurance systems (protection against climate risk for farmers, health coverage for the poorest groups). Any further growth should, however, imply better structuring and regulation of the sector, including the introduction of monitoring systems and effective guarantees against risks

Stiglitz argues against inflation targeting

Joseph Stiglitz argues against inflation-targeting and as always shows skepticism over the prospect of free trade, especially due to the existence of farm subsidies and other price distortions in the West.

Advocates of trade liberalisation touted its advantages; but they were never fully honest about its risks, against which markets typically fail to provide adequate insurance. Over a quarter of a century ago, I showed that, under plausible conditions, trade liberalisation could make everyone worse off. I was not arguing for protectionism, but rather sounding a cautionary note that we must be aware of the risks and be prepared to deal with them.

When it comes to agriculture, developed countries, such as the US and European Union members, insulate both consumers and farmers from these risks. But most developing countries do not have the institutional structures, or the resources, to do likewise. Many are imposing emergency measures like export taxes or bans, which help their own citizens, but at the expense of those elsewhere.

If we are to avoid an even stronger backlash against globalisation, the west must respond quickly and strongly. Biofuel subsidies, which have encouraged the shift of land from producing food into energy, must be repealed. In addition, some of the billions spent on subsidising western farmers should be diverted to help poorer developing countries meet their basic food and energy needs.

Most importantly, both developing and developed countries need to abandon inflation targeting. The struggle to meet rising food and energy prices is hard enough. The weaker economy and higher unemployment that inflation targeting brings won't have much impact on inflation; it will only make the task of surviving in these conditions more difficult.

Food Crisis: Lessons from Uganda

Pascal Zachary argues for some form of protectionism to buttress domestic agriculture by giving an example from Uganda, which imposed restrictions on rice imports and encouraged domestic farmers to grow more rice. This has enabled Uganda to increase production, stabilize prices at a time when food prices are rapidly rising, and, most importantly, achieve self-sufficiency in a sector that would directly determine the scale of starvation and hunger. The secret of Uganda's rice farming, according to Zachary, is that it ignored neoliberal principles on trade openness and shunned Western advice in key sectors. But, taking this as an argument for protectionism at full scale is not well suited. Selective intervention in key sectors for a short period of time (until a project attains sustainability or is able to compete with market forces) is acceptable but intervention should not be dragged on and on. It breeds corruption, bad governance, and political instability. See this one as well.

Consider the case of Uganda. The country’s rice output has risen 2½ times since 2004, according to the Ministry of Trade. Rice production is expected to reach an astonishing 180,000 metric tons this year, up from 135,000 in 2006 and 102,000 in 2005. Consumption of imported rice, meanwhile, fell by half from 2004 to 2005 alone, and by half again from 2005 to 2007.

Uganda’s importers, seeing the shift, have invested in new mills in the country, expanding employment and creating competition for farmer output, thereby improving prices. New mills, meanwhile, lowered the cost of bringing domestic rice to market. While people in developing countries across the globe are clamoring about the sharp rise in food prices, Ugandans are still paying about the same for rice as they always have. And Uganda is poised to start exporting rice within East Africa—and beyond.

The secret of Uganda’s homegrown success? Ignoring decades of bad Western advice.

Embracing a new variety is only part of the working-smarter formula. Once rice output began to expand, Bukenya and other Ugandan politicians played another card: They stumped for a duty of 75 percent to be imposed on foreign rice. The legislature passed the duty, which stimulated domestic rice production further.

Uganda’s success in expanding its rice production is especially interesting because the people of sub-Saharan Africa spend nearly $2 billion a year on rice grown outside Africa. The amount Africans spend on rice alone equals the national budgets of the governments of Ghana and Senegal combined. With the help of wise policies, African farmers could grow much more rice on their own, maybe even enough to eliminate virtually all imported rice. Eliminating rice imports would benefit Uganda by ensuring a local supply as Asian rice is becoming less available and more expensive.

What Uganda recognized is that the world’s major rice exporters actually practice the opposite of what the World Bank and IMF preach. Much of the rice grown in Pakistan, Vietnam, and especially the United States is stimulated by subsidy payments to farmers. Then the rice is “dumped” into African markets at low prices—sometimes below the cost of production. These producers also maintain stiff duties against imported rice, contradicting free-market ideology but helping protect domestic farmers against global competition. And for good reason: Virtually every successful Asian economy was built on selective trade barriers—and in China and India, the world’s two fastest growing economies, such barriers remain in force. Even South Korea and Japan maintain massive duties on imported rice simply to protect the livelihoods of their own rice farmers. Rice duties are working in Uganda—and also in Nigeria, where rice output is also soaring. In both countries, the value of imported rice is declining and locally produced rice is winning the hearts and minds of ordinary consumers.