Where do the poor live, and how do we make them become middle class?

The Economist reports:

“WHERE do the world’s poor live? The obvious answer: in poor countries. But in a recent series of articles Andy Sumner of Britain’s Institute of Development Studies showed that the obvious answer is wrong. Four-fifths of those surviving on less than $2 a day, he found, live in middle-income countries with a gross national income per head of between $1,000 and $12,500, not poor ones. His finding reflects the fact that a long but inequitable period of economic growth has lifted many developing countries into middle-income status but left a minority of their populations mired in poverty. Since the countries involved include giants like China and India, even a minority amounts to a very large number of people. That matters because middle-income countries can afford to help their own poor.”

The article raises important issues that inform the debate on how to tackle problems of poverty and underdevelopment – is it all about politics & governance or all about economic expansion? The answer, of course is that it is a moderate mix of both.

But since political realities often force governments to concentrate on one or the other, a responsible answer is that it is all context-dependent; some places need strong economic expansion first, before political reforms can be anchored in society. In others, political change should be top of the checklist.

The Botswanas and Singapores of this world are lucky in that their leaders were smart enough to know what their countries needed and pursued it with singular ambition, despite the unavoidable mess that came with the choices they made.

This of course goes against the received wisdom among academics (me included) who believe in the strong power of the right types of (liberal, in the classical sense) institutions to put countries on the path to becoming Denmark. The problem with this approach is that it does not tell us how to compress the more than 600 years that transpired between the Magna Carta and the voting reform legislations in England in the latter part of the 19th century. Lest we forget, England (which is every scholar’s favorite source of empirical conceptualization of institutional development) has not always had good institutions.

Institutions take a lot of time to build. A lot more time than the average human life span.

So the question still stands: How do we get the most number of people out of poverty in the least amount of time with the least harm to their political and human rights?

More on this here.

Meles Zenawi, Prime Minister of Ethiopia, is dead at 57

The BBC reports:

Ethiopian Prime Minister Meles Zenawi has died at the age of 57, state media say, after weeks of illness. A government spokesman said Mr Meles had died in a hospital abroad – but did not say exactly where or give details of his ailment. Speculation about his health mounted when he missed an African Union summit in Addis Ababa last month.

Mr. Zenawi is believed to have died in a Belgian hospital – the Saint-Luc University Hospital in Brussels (where he was allegedly receiving treatment for an acute case of hematologic cancer). The last time he was seen in public was on the 19th of June 2012 at the G20 summit in Mexico.

For now the leadership transition in Ethiopia, Sub-Saharan Africa’s second most populous country, appears to have gone smoothly. According to the BBC report, the deputy Premier – Hailemariam Desalegn – will take over.

Mr. Desalegn is from the south of Ethiopia, away from the political centre of gravity of the country, which for centuries has been to the north – in Tigray and Amhara dominated areas.  

It is not yet clear if the smooth transition will stick. As the Economist reported a couple of weeks ago:

“power [in Ethiopia] has still rested with a clutch of Mr Meles’s comrades from his home area of Tigray in northern Ethiopia, many of them once members of a Marxist-Leninist group that used to admire Albania’s long-serving Communist leader, the late Enver Hoxha. This hard core, including the army’s chief of staff, General Samora Younis, retains a “paranoid and secretive leadership style”, according to a former American ambassador to Ethiopia, David Shinn. Were Mr Meles to leave in a hurry, relations between the young modernisers and the powerful old guard might fray.”

Under Mr. Zenawi (May 1991- Aug. 2012) Ethiopia was a mixed bag. His rule was characterized by one of the worst human rights records in the world. But he also brought some semblance of stability following the misguided and murderous Marxist-Leninist dictatorship of the Derg under Mengistu Haile Mariam; and presided over an economy with one of the fastest growth rates on the Continent.

It is also under Meles Zenawi that Ethiopia invaded Somalia to rid it of the Islamic Courts Union (ICU) which was beginning to spread Somalia’s chaos into Ethiopia’s Ogaden region (it helped that the U.S. also wanted the ICU ousted from Mogadishu because of their alleged links of al-Qaeda).

A recent profile in the Atlantic summarizes it all:

“for every Muammar Qaddafi there’s a Meles Zenawi, the shrewd, technocratic Prime Minister of Ethiopia. Inside of the country, he’s known for imprisoning his political opponents, withholding development assistance from restive areas, stealing elections, and cracking down on civil society NGOs. In the rest of the world, he’s often praised for his impressive economic record, though not for his human rights. Zenawi has attracted Western support by being a responsible steward of aid money, a security partner in a rough region, and a G20 summit invitee.”

I remain cautiously optimistic that the Ethiopian ruling elite will pull through the rocky transition period. The next elections are due in 2015. In the current parliament the ruling party, the EPRDF, and its allies control nearly all of the 547 seats.

Beyond Ethiopia’s borders, the absence of Mr. Zenawi will certainly be felt in Somalia (which is presently struggling to get on its feet after decades of total anarchy and whose government partly depends on Ethiopian troops for security) and South Sudan (where Addis Ababa has been a broker in past conflicts between Khartoum and Juba). Ethiopia’s hostile relationship with Eritrea might also experience some change, most likely for the worse as whichever faction emerges victorious in Addis engages in sabre rattling in an attempt to prove their hold on power.

Big vs. Small Development

The Economist raises an interesting question regarding approaches to “development,” claiming that the recent race for the World Bank presidency represented a contest between two broad approaches:

Michael Woolcock, a World Bank staffer, suggests that two rather different models of development have been pitted against one another in the contest for president. On the one hand is what he calls Big Development, whose aim is the transformation of entire countries through investments in national education, justice and public health. Governments are essential to Big Development because they are responsible for the overall policy. And the World Bank is pre-eminently a Big Development institution.

On the other hand is Small Development. “Inspired less by transformational visions of entire countries,” Mr Woolcock argues, “and more by the immediate plight of particular demographic groups (AIDS orphans, child soldiers, ‘the poor’) living in particular geographic places (disaster zones, refugee camps, urban slums), Small Development advocates focus not on building systems in the medium run but on compensating for the failure of systems in the short run. ‘Development’ thus becomes an exercise in advocacy, in accurate targeting, in identifying particular ‘tools’ that ‘work’”.

In this scheme of things Mrs Okonjo-Iweala, the former finance minister, represented Big Development; Dr Kim, a public-health advocate, Small. Dr Kim was almost certainly picked because of his passport. But if his background is any guide, his tenure as chief is likely to shift the bank more towards Small Development. Whether that is a good thing on balance remains to be seen.

I take the side of Big Development (if such a dichotomy actually exists) because of my beef with “pro-poor development” as it is currently practiced  (more on this here).

Development is a giant coordination game with a million moving parts. This makes it much harder to coordinate on “scalable” “tools that work” at the micro-level. Indeed, no one has any idea what these tools really do. In addition, focus on “tools” casts the problem of underdevelopment as a technical one that can be fixed by “experts.”

This approach misses the point by miles.

This and this (highly recommended, a cogent critique of Big Development) and this are some of the reasons wby.

Beating the drum for Ngozi

The Economist has joined a string of internet commentators in endorsing Nigerian Minister of Finance to become the next president of the World Bank. Contrasted against the resume of Obama’s choice for the Bank, Ngozi wins. By miles.

According to the Economist:

The World Bank is the world’s premier development institution. Its boss needs experience in government, in economics and in finance (it is a bank, after all). He or she should have a broad record in development, too. Ms Okonjo-Iweala has all these attributes, and Colombia’s José Antonio Ocampo has a couple. By contrast Jim Yong Kim, the American public-health professor whom Barack Obama wants to impose on the bank, has at most one.

However, it is interesting that in all the debate no one has talked about HOW Ngozi will change the Bank’s operations, besides insinuations that she has hands on experience in transforming Nigeria’s public finances, coupled with her previous experience at the Bank.

More importantly, what would be the cost to Nigeria if they lose Ngozi? Is this important at all?

Ngozi leading the bank will probably make a difference. However, I think that support for her candidacy has thus far been too one-sided. Nigeria, like much of the developing world, does not have much influence on the Bank’s board. Nigeria also stands to lose one of its ablest technocrats just when it is striving to reform its public finances. These considerations should matter too, I think.

Just for the record, I am one of those who think that it would be really cool to have Ngozi lead the Bank (despite the fact that she probably will not).

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Update: I just came across some interesting thoughts on Ngozi’s nomination over at Africa is A Country (H/T Chad).

Africa’s Singapore or Uganda waiting to happen?

Yet Rwanda has one huge advantage: the rule of law. No African country has done more to curb corruption. Ministers have been jailed for it. Transparency International, a watchdog, reckons Rwanda is less graft-ridden than Greece or Italy (though companies owned by the ruling party play an outsized role in the economy). “I have never paid a bribe and I don’t know anyone who has had to pay a bribe,” says Josh Ruxin, one of the owners of Heaven, a restaurant in Kigali, the capital.

The country is blessedly free of red tape, too. It ranks 45th in the World Bank’s index of the ease of doing business, above any African nation bar South Africa and Mauritius. Registering a firm takes three days and is dirt cheap. Property rights are strengthening, as well—the government is giving peasants formal title to their land.

That is the Economist on Rwanda. I remain cautiously optimistic about Kagame’s brand of effective authoritarianism. I just hope that he will not be tempted to degenerate into the Musevenis of this world.

Quick hits

Follow the goings on in the DRC (especially this election season) over at Alex Engwete’s blog.

Living under the shadow of Kony and his men in Eastern CAR.

On a related note, the Ugandan army’s dirty war in the Congo and CAR.

Shame on the ANC. But there is still hope for cleaner politics in South Africa. The ANC is an over-size coalition with a high chance of internal breakup in the not so distant future. It might even occur sooner, over the Zuma succession. And this time it might not be a rather benign COPE affair. You can read more on the controversial bill over at the Economist.

Trying God? Churches claim to have cured HIV positive congregants. This goes beyond faith, it is naked exploitation. And a call for government involvement.

And lastly, a very dictator Christmas (via Blattman)

What does a Sata Presidency Mean for Zambia?

UPDATE:

For a closer take on the Sino-Zambian connection check out Louise Redvers’ piece for the BBC.

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So the Economist beat me to writing about what a Sata presidency means for the Zambian economy, especially with regard to foreign investment.

For the two of you out there who are not conversant with the campaign details in the Zambian election, Mr. Sata’s main campaign strategy involved characterizing incumbent President Banda as someone who was out to mortgage Zambia’s future to foreign investors, and especially China.

Here is what the Economist had to say:

“He is too savvy a politician not to realise how much this impoverished country of 13m people needs China’s cash. Over the past decade, the Chinese have invested over $2 billion in Zambia, the GDP of which is only $16 billion. More than half of that came in last year. And China is committed to pouring in billions more. There are now about 300 Chinese companies in Zambia, most of them privately owned, employing around 25,000 locals. Standards differ: some companies treat their workers badly, but most of the big state-owned companies genuinely seek to respect local labour laws.”

The long and short of it is that Sata will definitely kick out a few shady companies that were operating outside the law – and these are not just Chinese firms; the South Africans and Australians also have some shady businesses in Zambia. The former, especially, have a lot of money-laundering operations.

More on this here and here.

On the democracy and governance front, things won’t change much. President Sata’s camp is full of recycled UNIP veterans. UNIP was the independence party that ruled Zambia between 1964 and 1991. Mr. Sata, however, could surprise us by finally passing through a new constitution for Zambia. The last parliament killed the proposed constitution.

One Day I Will Right About This Place: A Memoir

After reading the Economist’s rather harsh review of Binyavanga’s new book I decided to order it on Amazon. I was not disappointed (although I must admit that the Economist was right as far as editing goes. They could have done better).

The book is vintage Binyavanga, a fast paced read with insertions of commentary hear and there. The political commentary could have been done better – but that might just be the Political Scientist in me wanting more. I also felt like Binyavanga could have done more telling of the struggles of a young writer. How many manuscripts got rejected? How exactly did he discover his calling to become a writer? (he talks a bit about how he loved reading and hated other subjects in school but it would have been nice to know how as an adult this happened).

The book is great in many respects, but for me what did it was the combination of witty political commentary and a narration of a struggle against family expectations and personal failures.

I highly recommend it.

The decline of odious ODA?

The Economist has a piece outlining the paradox of Indian overseas development assistance (to the tune of 11 billion over the next 5-7 years). With figures from the CIA factbook I have calculated that about 300 million indians live below the poverty line. The Economist piece also touts the emergence of middle income donors, especially among the BRICs.

In this world Europeans and Americans no longer dominate aid. China is the biggest source of investment in Africa and the Gates Foundation is as important as many donor governments (and much more innovative). Private capital flows to Africa outstrip aid flows, contradicting an old justification that aid is necessary because investors hold back.

For the poorest, the new donors are more important because Western aid is shrivelling. Congress is proposing to chop American aid by a fifth. Brazil is giving more to the Somali famine than Germany, France and Italy combined. There are exceptions: Britain and Australia promise to boost aid spending. But they seem like a last hurrah of Western generosity.

Adding that:

In this new world the justification for aid and the behaviour of donors must change. For India and others, it is far from clear why the government should send aid abroad when it has so many poor people at home. No doubt, aid will be defended as a boost to global influence. The risk for India is that, just like the West did in the 1960s, it will pour money into grand projects which fail—and encourage bad government.

I disagree with this latter assessment. It is not aid per se that caused the epic governance problems facing most of the low-income countries of the world. Sure it stunted the co-evolution of accountable government and domestic revenue generation. But the biggest failure of aid was what it was spent on.

Aid being highly fungible meant that most of the money wound up in the private accounts of venal leaders and gun-runners.

Things have since changed a bit. For instance, China’s resources-for-infrastructure deals can be a model for Aid 2.0 (this no doubt needs some tweaking too, as this damaging expose on Sino-Angolan oil deals shows). Plus this time the infrastructure investments are different. In an earlier period most of the investments were overtly white elephant projects (like Moi’s infamous hydro-electric dam in Turkwel). Most of the current projects are in roads, telecoms, and to some extent agriculture – investments that will have a much bigger impact because of their broader reach.

You can find a related earlier post here.

Quick hits

Guide to arguing on the internet (HT Lauren).

Speaking of arguing on the internet, I like the drama that is spats between economists and other academics on their respective blogs.

The Economist presents the faces of famine in the Horn. It is beyond sad that so many people should be condemned to suffer this man-made tragedy.

Brett Keller has posts here and here on Sam Childers (a.k.a. machine gun preacher), a gun-runner into the habit of doing morally and ethnically dubious things in the name of God. Keller says that Childers is “stockpiling arms at his orphanage and has admitted to selling weapons to unnamed armed factions in Sudan, Uganda, and Rwanda.”

In Zambia (where I shall be for the elections in Sept.) the politics of citizenship and belonging are yet to be settled 50 years after independence. We recently witnessed the dangers of de-legitimizing whole sections of countries as outsiders in Cote d’Ivoire. I hope that if Sata ever wins he will not do what incumbent Ivorians did to ignite a rebellion in the northern reaches of their country. For more on this check out this great book on the Ivorian collapse. I have read it and absolutely loved it.

A muddy few months ahead for the South African government. Infighting with the ANC top brass might mean an early exit for President Zuma. With over 60% of the votes in the last election, the ANC is essentially an oversize coalition prone to internal wrangles. It will be interesting to see how Zuma weathers the storm in the midst of challenges from both COSATU and Malema.

Lastly, the current issue of the Journal of African Economies looks at the impact of higher education in Africa. The main takeaway is that the low quality of education at lower levels (primary and secondary) has meant that the biggest bang for the buck on the Continent, as far as education is concerned, only comes with higher education. Too bad that many of those that get higher education are underpaid or out of the Continent all together.