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.

All Roads Lead to Monopsony? Moyo on China’s Commodity Grab

Following the success of Dead Aid (which I enjoyed very much), Dambisa Moyo tried a repeat with Winner Take All – a book on China’s rising dominance of global commodity markets – with very little success.

The first half of Winner Take All is mostly a recount of statistics (most of which are already in the public domain) and general information on the state of the global commodity markets. It is not until the second half of the book that Moyo delves into the real issues regarding her subject matter – global commodities and China’s insatiable appetite for the same. But even then, the chapters are rather short on actual information on China and are instead full of comparative statics with the rest of the world (or more accurately, mostly the United States of America).

Moyo is not a China expert, and it shows in Winner Take All.

If you are looking for an indepth take of Chinese firms involved in the global commodity markets, their specific investments, strategies and relationships with the Chinese authorities, you will be disappointed. Moyo simply treats all of China as a single actor. There is no domestic politics. There is no discussion of redistributive concerns within China and how they will impact China’s economic performance. There is no nuance on the potential impact of China’s impending demographic decline (except in the concluding chapter). In the end the whole thing reads like it should be a special in the Atlantic Monthly rather than a stand-alone book.

The book, mistakenly, falls into the trap of Western declinism, suggesting that China will undoubtedly emerge to be the ultimate monopsonist in the global commodity markets (almost unchallenged). There is also loose talk of potential for conflict over resources – something that is contradictory to discussions in other sections of the book that emphasize the symbiotic relationship between China and the rest of the world.

The greatest strength of the book is its balanced take on the economic, political and social effects of the rise of China – especially with regard to Chinese investments in the rest of the world. The “Angola Model” of infrastructure-for-resources, discussed in the book, is far superior to the Swiss-accounts-for-resources model that has been the preserve of the West in many resource-rich developing countries over the last half century.

Winner Take All is a far cry from the provocative Dead Aid. It lacks a substantive discussion on the political economy of China’s economic rise (whether domestically or globally). Instead, it gives perspective (for those not in the know) of the implications of China’s economic rise.

Most importantly, it is also a welcome addition to the works of scholars like Deborah Brautigam who continue to remind us – and rightly so – that China’s economic adventures in the developing world have net positive benefits, despite the overwhelmingly negative press. For this reason I would recommend the book. 

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.

the lion meets the panda: China in Africa

So the Chinese, with their increasing hunger for raw materials, have been scouring the African continent looking for all manner of trade partnerships – all in an attempt to secure the supply of the essentials needed to fuel the East Asian monolith’s fast growth.

A stroll through many an African capital – at least in the East of the continent – will reveal a number of things Chinese. You won’t miss the Chinese workers laying out fiber optic cables or paving roads or even selling food in a Chinese restaurant. After years of living worlds apart, the lion and the panda have decided to become bosom buddies.

But is the relationship symmetrical? Can the panda and the lion cohabit in a sustainable and mutually beneficial manner? Many people have complained that the coming of the Chinese to the African continent will only serve to exacerbate the continent’s position as a mere source of raw materials. I beg to differ. This stance assumes that Africans and their leaders do not know what is good for themselves and are easily fooled – in the past by the Europeans and now by the Chinese.

The Africa that Europe encountered back in the nineteenth century is very different from the one that the Chinese are engaging with today. Furthermore, the Chinese are not here to merely take away things the way Western Europe did, they pay for the stuff they take. They may not pay well enough but the point is that they pay, plus there is no hand-chopping bula matari or a pontificating Smith Hempstone. On top of that the Chinese have created numerous jobs for the local people, be it in manual construction work or in higher level management and consultancy.

As the West continues to shy away from Africa because of the continent’s lack of or perceived lack of democratic institutions, the Chinese are taking advantage of the situation and reaping the benefits. The Africans are benefiting too.

It is high time the rest of the world took the pragmatic approach that China and increasingly India have taken in their relationship with Africa. Democracy and good institutions can only be supported by good economic outcomes and vise versa (Read scholars like Dahl, Moore, Przeworski, etc). The deepening of democratic beliefs and practices necessarily require economic development. Democracy’s proselytizers in Washington and Brussels should be informed that their lectures on liberties and human rights that are not backed by cranes, computers and jobs are akin to playing guitar to a goat.

So overall, I think that the new-found friendship between the lion and the panda is, at the macro level, a good thing. Darfur and other atrocities may tarnish this relationship but down the road we shall someday look back and with hindsight appreciate China’s contribution to Africa’s economic take-off. A word of caution for the panda though, the lion may seem lazy and unconcerned in the heat of the Savannah, but never take him for granted. He can pounce without warning and has the habit of switching lionesses with wanton abandon.