Tag Archives: poverty

Rational Impatience and marshmallows (and development)

13 October 2012

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Back in 1972 Stanford psychologist Walter Mischel conducted experiments in which he claimed to show a correlation between patience and later success in life – in the experiment kids who could wait for 15 minutes before getting two marshmallows, instead of eating one immediately, were likely to be more successful and self-controlled later in life. Michel attributed patience and self-control to some of the kids’ innate capacities.

It turns out that that might not be the case after all. Researchers in Rochester revisited the experiment and show that kids’ choices over whether to wait or not are “moderated by beliefs about environmental reliability,” in other words, kids react rationally to the proposed deal based on prior experience.

According to Celeste Kidd (more on this here), a University of Rochester grad student and lead author on the study:

“Being able to delay gratification — in this case to wait 15 difficult minutes to earn a second marshmallow — not only reflects a child’s capacity for self-control, it also reflects their belief about the practicality of waiting,”

Adding that:

“Delaying gratification is only the rational choice if the child believes a second marshmallow is likely to be delivered after a reasonably short delay.”

This reminded me of the interesting works in economic history (gated, sorry) that try to tackle issues of culture and socialization and their role in economic development. The punchline from these works is that group-specific socio-cultural values have long-lasting effects on attitudes towards investment, saving, entrepreneurship and ultimately economic development (Think of the fabled frugality and self-discipline of Weber’s protestants). Putting some of the critiques of these works aside for a moment, they are a reminder of just how COMPLEX development is.

Because material conditions both shape and are a result of prevailing cultural norms and practices (both Marx and Weber were right!) it becomes difficult to change one thing while ignoring the other (And this is even before you open the pandora’s box, viz: POLITICS). To put it simply, you cannot increase the investment rate in a society simply by throwing money at people. They will spend it on a new shrine for their god or marry a third wife.

This is not to say that it is impossible to transform entire societies in a short while, just that it is not easy, and that we should be humble enough to accept this fact when thinking about how to promote economic development in the bottom billion societies of the world.

Re-assessing Africa’s Resource Wealth

21 September 2012

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Over at African Arguments Bright Simons tries to debunk the accepted paradox of African poverty in the middle of a natural resource glut. The post is definitely worth reading, and raises some salient questions regarding resource use and development policy in Africa – and by extension, the economic viability of some African states (thinking of Chad, Central African Republic and Niger….)

Of those few minerals that Africa is believed to hold globally significant or dominant reserves, nearly all of them are concentrated in 4 countries: South Africa, Angola, Democratic Republic of Congo and Guinea. When one computes the level of inequality of mineral distribution across different continental regions, Africa pulls up strongly, showing a far higher than average level of distribution ‘imbalance’ per capita or square mile. In very simple terms, it means that mineral wealth is more concentrated in a few countries in Africa compared to other continents. 

Adding that…..

with the exception of bauxite and petroleum, these minerals are not as widely used in industry (or in the same considerable volumes) as a number other minerals, such as tin, copper, nickel, zinc, iron, coal, and lead, that Africa does not produce in sufficient quantities. Indeed, of the top 5 metallic minerals which constitute 62 percent of the total value of global production, Africa is only a significant producer of one of them: gold. Africa has 8 percent of the world’s copper, 4 percent of aluminium, 3 percent of its iron ore, 2 percent of lead, less than 1 percent of zinc, and virtually no tin or nickel. To put these figures into perspective, recall that Africa has about 14.5 percent of the world’s population.

….. Africa’s low production of the ‘hard minerals’ minerals most intensely used in industry compared to the less widely used ‘soft minerals’ reduces its total take from the global mineral trade. But it also makes a nonsense of fashionable policy prescriptions that emphasise import-substitution strategies based on value addition to minerals, rather than export competitiveness through smart trade strategy and the deepening of the financial system to support entrepreneurs.

More on this here.

H/T Africa in Transition.

Persistence of Culture (and Institutions)

6 September 2012

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“How persistent are cultural traits? Using data on anti-Semitism in Germany, we find local continuity over 600 years. Jews were often blamed when the Black Death killed at least a third of Europe’s population during 1348–50. We use plague-era pogroms as an indicator for medieval anti-Semitism. They reliably predict violence against Jews in the 1920s, votes for the Nazi Party, deportations after 1933, attacks on synagogues, and letters to Der Sturmer. We also identify areas where persistence was lower: cities withhigh levels of trade or immigration. Finally, we show that our results are not driven by political extremism or by different attitudes toward violence.”

That is Voigtlander and Voth writing in the Quarterly Journal of Economics.

Their paper speaks to my previous post on the challenges of institutional engineering given the stickiness of institutions (and by extension the cultures that create and then reinforce them). Of course culture is a dicey subject that is often misused to explain economic and social outcomes. Instead of using the amorphous term “culture” I prefer to hear more about the reward systems that make it beneficial for individuals and communities to engage in certain cultural practices.

On a more positive note, the paper provides some evidence of the power of economic opportunities to dis-incentivize engagement in hateful cultural practices:

“Instead of reinforcing persistence, we argue that economic factors had the potential to undermine it…… Our results also lend qualified support to Montesquieu’s famous dictum that trade encourages ‘‘civility.’’

On Industrial Policy (In which I concur with Blattman 1001%)

7 May 2012

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I have made the case before here, here and here.

For more here’s Blattman, commenting on Industrial policy:

“You can’t pick winners” is the knee-jerk retort to the mention of anything that even rhymes with industrial policy. I would call it the triumph of ideology over evidence, except that even “ideology” feels like a generous term. Lazy thinking might be a more accurate description. Some have given the question a great deal of thought, but most have not.

I’m not suggesting that the paper above has the right answer (odds are, like most papers, it does not). I’m also not suggesting that governments can pick winners (probably they can’t). Nor am I forgetting that industrial policy is easily politicized and distorted (as surely it is). So what am I talking about?

More on this here.

Big vs. Small Development

16 April 2012

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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.

Talking real development

20 July 2011

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It is an upper-middle-class, industrialized-country fiction to romanticize life on a small farm. Economic development and food security lie in industrialized agriculture, and this is why I continue being interested in agricultural value chains. My thinking on this has also been reinforced by my recent reading of Jane Jacobs’ The Economy of Cities, in which she posits that agricultural development came as a consequence of urbanization, and not the other way around.

That is Marc on his blog here.

Reading Marc’s post reminded me of my beef with anti-poverty development as it is currently practiced. For instance, the humanitarian instincts behind giving poor slum dwellers loans to start businesses may be noble, but the impact of these projects are ambiguous (Not forgetting the recent trends in Venture Capital firms making money from high interest rates on the poor).

Such projects, for the most part, serve little more than giving the poor comfort in their poverty. Yes, there are a few success stories, but for the vast majority life remains precariously close to abject destitution. Self-employment is a risk that should not be forced on those at the very bottom of the economic ladder in developing countries.

Such palliative measures should never distract from the main task of long-term job creation.

The growing disillusionment with the long-term developmental effects of micro-finance should force development experts to think of creative alternatives.

What could be an alternative?

Well, for starters it might be more beneficial to boost the capacity of banks to give loans to mid-size businesses that have the technical and managerial capacity to scale up their operations and thus create more jobs. Corporate finance in most of the developing world has no “middle class.” Nearly all the players are big firms. Mid-size firms simply cannot keep up with the high interest rates and collateral requirements. Yet these are the firms that have the potential to grow and create more jobs.

This move smells of trickle down economics, but it is not. Poverty alleviation requires massive amounts of job creation. Making the poor self-employed distracts from the bigger problems of non-industrialization and lack of formal-sector jobs.

It is also bad for political development because it provides Hirschman’s exit option for millions of economically disaffected citizens of the developing world.

Check out Blattman’s blog on a related post on NGO activism in the developing world.

double standards

30 May 2011

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The Times has a nice story on Obiang’s Equatorial Guinea that is worth reading:

Officially and unofficially, Americans do business with one of the undisputed human rights global bad boys, Equatorial Guinea, Africa’s fourth biggest oil exporter. Its widely criticized record on basic freedoms has offered little barrier to broad engagement by the United States, commercially or diplomatically.

American oil companies have billions of dollars invested here. One American diplomat, using language that makes human rights advocates fume, praised the “mellowing, benign leadership” of the dictator in power for more than 30 years, Teodoro Obiang Nguema Mbasogo, in 2009 cables released by WikiLeaks. And a leading American military contractor with strong Pentagon ties has a multimillion-dollar contract to protect his shores and help train his forces.

You may recall that Obiang’s son was recently reported to have ordered a $380M luxury yacht. The Obiang’s and their backers continue to run the central African country like a personal possession.

According to the Guardian:

President Obiang, who has ruled since seizing power in 1979, has decreed that the management of his country’s $3bn a year in oil revenues is a state secret. That is why it is difficult to say for sure exactly how he comes to have about $700m in US bank accounts. But the president’s son gave an insight into his salary in an affidavit filed with the Cape high court in South Africa in August, as part of a lawsuit against him over a commercial debt.

On paper Equatorial Guinea is richer than most middle income countries. In reality, however, most of the 676,000 Equatorial Guineans live in poverty. The story of Equatorial Guinea is almost personal. Every time I post on Obiang’s inept rule I can’t stop wondering: How hard can it be to run a country of only 676,000 with over 3 billion in annual revenue?

Like the Times article points out, outsiders like the US government and foreign oil companies deserve to be called out over the goings on in Equatorial Guinea.

That said, the lion’s share of the blame is on Obiang’ and his backers. As far as I know none of the foreigners involved in the country held a gun to his head and asked him to siphon off billions of his country’s revenue to foreign bank accounts.

More on the Times story here.

 

second hand clothes

15 February 2011

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Thanks to a view from the cave I just found out that there is an Oxfam study out there on the effects of second hand clothes (SHC) in the African markets. The findings are largely predictable: the poor benefit from the trade, the trade has created opportunity for fraud and most importantly, it has contributed to the death of local textile industries. The big question then is how to transition from the over-reliance on SHC.

In my view textiles is a sector in which countries would be justified in going nationalist and financing or facilitating the financing of local firms and industries. It is unacceptable that up to 90% of Ghanaians buy second hand clothing despite high unemployment and abundant cotton in the West African region.

Here are some snippets from the Oxfam paper:

The trade has clear consumer benefits. This is especially in countries with low purchasing power, and for poorer consumers, though in many sub-Saharan African countries it seems that almost ALL socio-economic groups are choosing to buy SHC. …. over 90% of Ghanaians purchase SHC.

The trade supports thousands of livelihoods…. These include jobs in trading, distributing, repairing, restyling and washing clothes. Oxfam’s research in Senegal estimates that 24,000 people are active in the sector in that country…. 1,355 people work in formal sector textile/clothing in Senegal.

SHC trade in recipient countries is mainly informal and is poorly regulated. In some instances it has facilitated considerable customs fraud, as new clothing imports have been passed off as used clothing.

A note on economic development

3 February 2011

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“I think we have gone too far in the pro-poor direction…… we don’t necessarily have trade-offs. Factories are pro-poor.” Chris Blattman, Yale University

I am on record as not being too enthusiastic about “pro-poor growth” as it is currently practiced. Loans to the poor and other approaches that completely bypass those with a higher probability of succeeding at creating big business – the educated and middle class – will at best only keep the poor afloat and at worst divert resources from much needed long-term investment. I am not saying that the educated have a monopoly on entrepreneurship. All I am saying is that what we want is to create sustainable jobs. This requires scale. And scale comes with big business and industry.

Blattman neatly summarizes this point:

The difference between a country with $1,500 and $15,000 of income a head a head is simple: industry. All the microfinance and microenterprise programs in the world are not going to build large firms and import technology and provide most people with what they really want: a stable job, regular wages, and a decent work environment.

More on this here.