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.

Links of Interest

How to see world economy through two crises

The machine that spun the world around

Paths out of Zimbabwe's dead end

Ways to stem the drift into protectionism

Boy rescues toddler trapped in gorge; Professional rescuers unsuccessful

Lessons for Africa from China's success against poverty

China's success against poverty is probably one of the most important economic phenomena/developmental success in a period of three to four decades since the Industrial Revolution. There are many explanations for the success of China's fight against poverty (usually ascribed to household responsibility system, township and village enterprise, market-based incentive fostering policies, strong leadership, increase in FDI, etc). There is no doubt that China's economic system was the one with heavy public involvement in creating a market-based/incentive fostering system. While China has been able to decrease poverty by astounding figures, Africa's progress is dismaying. In 1981, China's poverty to Africa's poverty was 4:1, but by 2004, 500 million fewer Chinese lived under a dollar a day than in 1981, while in Africa, the number of poor people rose by 130 million in the same period. Why is there such a divergence? What lessons can we learn from the success of China's fight against poverty? Is similar model applicable in Africa?

Martin Ravallion, director of the WB's Development Research Group, in a policy research working paper titled "Are there lessons for Africa from China's success against poverty?"argues that despite differences in constraints faced by Africa, two lessons clearly stand out:

The first is the importance of productivity growth in smallholder agriculture, which will require both market-based incentives and public support. The second is the role played by strong leadership and a capable public administration at all levels of government.

He warns that advocating successful policies tested in the East for implementation in Africa without heeding to constraint would not produce the intended results. African now has different characteristics (higher income inequality, lower population densities, and higher dependency rates) than China had when it embarked on market-based economic reforms.

...China’s success illustrates the generic point that freer markets can serve the interests of poor people...Chinese farmers responded dramatically to market incentives, and African farmers are unlikely to be any different in this respect—but there’s far more behind China’s success than just letting markets do their work.

...With Africa’s levels of poverty and relatively abundant supply of land, and with today’s high food prices, an agriculture-based strategy must be at the center of any effective route out of poverty.

Ravallion rightly argues that Africa should learn from Chinese agricultural reform and focus on increasing productivity of small farmers by concentrating policies on fostering rural economy. Most people think that the Chinese success is due to increase in FDI and open markets. However, it should be noted that the boom in FDI occurred only after 1990s, i.e. after China substantially reduced extreme poverty though closely monitored agricultural policies centered at household responsibility system and TVEs (or decollectivization). In fact, Ravallion argues that growth in agriculture over 1981-2004 had about four times the impact on national poverty as growth in manufacturing or services. This should be sufficient to realize that Africa needs to develop small scale farming and increase productivity from these farmings to fight best against extreme poverty. This carries more weight in the wake of recent rise in global food prices. Small scale farming could earn higher income for households if policies are focused on fostering agricultural productivity.

While growth in manufacturing helped reduce poverty in the 1990s by absorbing surplus rural labor, it’s important to note that the “heavy lifting” in reducing poverty took place in the early 1980s, in the wake of China’s rural economic reforms.

...Impatient governments often try to “jump start” the (mostly urban) industrialization process, often by-passing the pressing needs of their rural poor. Arguably even China may have tried to industrialize too quickly. Here, there are useful lessons for Africa from Vietnam, which maintained a more enduring sectoral emphasis on agriculture and rural development than China.

Policy lessons for Africa:

• Freer markets can serve the interests of poor people.
• Market-oriented reform must be complemented by strong state institutions.
• Policies must avoid doing harm to poor people.
• Macroeconomic stability is crucial.
• Internal market integration should not be neglected.
• The agricultural sector should be given high priority.
• China can help Africa build up agricultural research and extension systems.
• Industrialization should not take precedence too rapidly.
• Rising inequality is not an inevitable outcome of higher growth and less poverty.

These lessons come from the assumption that the African people would also respond to market-based incentives as the Chinese people did when their economy was opened up to markets and trade. Moreover, it also argues that the African states should implement supportive policies and invest in the economy (i.e. more public investment and a constructive role for the state). An informative paper...good to read!

Global food crisis and the Doha Round

Jagdish Bhagwati and Arvind Panagariya write in FT (always for trade liberalization, no matter what!):

[...]instead of our being able similarly to exploit the food crisis to push for trade and globalisation, many people and some governments wrongly blame the crisis itself on trade and globalisation.

[...]Agricultural liberalisation in the European Union and the US is good for several reasons, but it will not help moderate the food crisis. A key component of the proposed Doha agreement is a substantial reduction in agricultural subsidies. This would reduce the supply of grains from some countries that subsidise them and increase it from other countries, especially in the Cairns group. The net effect on supply would be negative.

[...]But now that food prices have risen dramatically, the payouts to US farmers will be almost negligible since they vary inversely with market prices. High prices are expected to continue, so the need for subsidy will also remain negligible. It should therefore be possible to soften significantly US opposition to restricting post-Doha agricultural subsidy payments to lower levels, making it likely that India would respond and making Doha success possible.

Pariah for couple of days:Taboo that needs abolition

A Maoist worker in menstruation, from Bhairavsthan VDC in remote Achham district, living in isolation in a makeshift tent near her house, Friday. This practice known as Chhaupadi is widely condemned by women’s rights groups as inhuman. In this part of Nepal, women are considered impure for 11 days after childbirth and four to seven days during menstruation and kept in isolation. (Source: The Kathmandu Post, June 21)

Easterly ranks aid agencies

Always critical of aid agencies, Easterly has now come up with his own raking of aid agencies. Starting his assumptions from a distrust on aid agencies, of whatever nature they are, he focuses on the difficulties faced by aid agencies because "they are typically not accountable to their intended beneficiaries." He considers dimensions of aid practices like transparency, specialization (the degree to which aid is not fragmented among too many donors, countries, and sectors), selectivity (the extent to which aid avoids corrupt autocrats), use of ineffective aid channels such as tied aid, food aid, and technical assistance, and the overhead costs of aid agencies.

Among the 48 aid agencies he looked at, the World Bank's IDA, of which he is always critical of, is in the first place. Here is the full ranking

The first five on the list are: International Development Assistance (IDA), Department of International Development (DFID), African Development Bank, Asian Development Bank, and Inter-American Development Bank. The IMF is ranked in 26th position, which is worse than USAID's 16th position.

Easterly said that he was surprised by the performance of the World Bank: “The World Bank is seen as professional and staff is chosen on the basis of merit." Meanwhile, the UN agencies have performed poorly in his list. I am surprised that UN WFP is third from the last in his list. UNHCR is in the last. Easterly argues that this happened because these agencies are considered "bloated and politicized." He is also unhappy with limited information disclosure from WFP. This might have skewed the results further because it is unbelievable that WFP and UNHCR are in the bottom of the list. These agencies conduct targeted aiding in the most difficult places in the world. And, the outcome is generally positive. Food aid directly given to the most affected people, be it in an in a country run by an autocrat or in a democratic country, should not be viewed differently. Targeted food aid is for survival and WFP's work in the despot states should not be viewed negatively, thus affecting its ranking. Easterly explains that the data are incomplete, which means that the ranking is just another ranking with doubts in its findings.

The main conclusions of our paper appear somewhat contradictory: (1) the data are terrible, and (2) the pat- terns the data show are terrible. If the data are terrible, how do we know the patterns they seem to show hold true? Still, we remain convinced that some data is better than no data. Also, we hope that as researchers publish findings based on the currently available fl awed data, additional data collection and quality improvement will take place. The data situation among aid agencies, such as the murky data available on operating costs of aid agencies and the non-reporting of essential items like aid tying and sectoral shares of aid spending, would be unacceptable in most areas of economics in rich country democracies. It is particularly sad in an area where the objective of these agencies is helping the poorest people in the world, and where one of the few mechanisms for accountability is for outsiders to check what they are doing.

Our findings on aid best practice tend to confirm a number of long-standing complaints about foreign aid. The aid effort is remarkably splintered into many small efforts across all dimensions—number of donors giving aid, number of countries receiving aid from each donor, and number of sectors in which each do- nor operates. A lot of aid still goes to corrupt and autocratic countries, and to countries other than those with the lowest incomes. Aid tying, the use of food aid-in-kind, and the heavy use of technical assistance continue to persist in many aid agencies, despite decades of complaints about these channels being ineffective. In addition, some agencies have remarkably high overhead costs. The broad pattern that emerges from our evidence is that development banks tend to be closest to best practices for aid, the UN agencies perform worst on these dimensions, and the bilaterals are spread out all along in between. Explaining why each of these patterns persists over time raises an interesting agenda for research in political economy