Seriously? David Steven

William Hague’s (alleged) advice to David Cameron ahead of the euro summit:

If it’s a choice between keeping the euro together or keeping the Conservative Party together. It’s in the national interest to keep the Conservative Party together.

December 21, 2011 at 12:28 pm | More on Cooperation and coherence, UK | Comments Off

Britain and Europe after the veto David Steven

What a day. Five observations:

1. My initial reaction this morning: On a sinking Titanic, the UK is lobbying to avoid further damage to the iceberg.  If David Cameron was motivated mostly by his wish to suck up to the City (and to his backbenchers), then he deserves all that fate can throw at him. He has transformed eventual British exit from the EU from Eurosceptic fantasy to the new conventional wisdom in just 12 hours. Quite a feat.
2. But maybe… his government has decided that the euro is now doomed and has made a rational decision to swim as far from the vortex as possible. Many believe that a disorderly break up of the single currency has become more likely than not. That would probably cost the UK 10% of GDP and make British default a near certainty. But if that’s what’s going to happen, then we better knuckle down to being as resilient to the shock as possible.
3. The British veto makes euro failure more, not less, likely. In theory, agreement between a core group is easier than having all 27 countries in the room, but the legal complications of conjuring a new set of institutions from thin air are daunting. Also, expect the core to shrink as the summit’s aspirations are chewed up by domestic politics. Each defection will provide a potential trigger for wider breakdown – probably when a group of the strong decide all hope is lost, and make a collective rush to the lifeboats. By being the first to desert the ship, Cameron has made it much easier for other European leaders to follow.
4. Contingency planning must now go much deeper. Behind the scenes, governments are playing out failure scenarios, and most big businesses have some kind of post-euro plan in place. Much of the thinking is still pretty rudimentary, however. The eurozone countries can’t risk letting markets see them flinch and have to put a brave face on their prospects, but the UK no longer needs to have such scruples. What exactly would we do if the euro goes down? What would be thrown overboard? What, and who, would be saved? How can the government organise effective collective action as the catastrophe hits?
5. Nick Clegg is dead, politically. That was already true, but I can’t imagine even Miriam González Durántez now plans to support her husband at the next election. Paradoxically, accepting his terminal status could give Clegg new freedom of action. Instead of continuing to play the role of coalition gimp, he should offer leadership to those keen to explore what comes after the storm. Politicians with proper jobs – Cameron, Osborne, even Cable – are going to be overwhelmed by events throughout this parliament, even in the best case where Europe struggles back onto its feet. Clegg, though, has an opportunity to focus energy on the longer term. He’ll still lead the Lib Dems to electoral Armageddon, but catalysing a vision for renewal might make posterity a little kinder to the poor man.

December 9, 2011 at 7:19 pm | More on Economics and development, Europe and Central Asia, Global system, UK | 3 Comments

Newt Gingrich – climate change hero David Steven

I can see why the world is warming to Newt. He talks a lot of sense on climate change.

My message is that the evidence is sufficient that we should move towards the most effective possible steps to reduce carbon loading in the atmosphere… and do it urgently.

Let me explain why this is a very challenging thing to do if you’re a Conservative. For most of the past thirty years, the environment has been a powerful emotional tool for bigger government and higher taxes. Therefore if you’re a Conservative, the minute you start hearing these arguments, you know what’s coming next. Just bigger government and higher taxes. So even though it might be the right thing to do, you end up fighting it because you don’t want the bigger government and the higher taxes. And so you end up in these cycles…

I think there has to be a green Conservatism. There has to be a willingness to stand up and say, “here’s the right way to solve these [problems] as seen through our value system. And now have a dialogue about what’s the most effective way to solve it, rather than get into a fight about whether to solve it. When I was speaker, on a whole range of biodiversity issues, I intervened again and again on the side of the environment. I really do believe [in the environment].

I would be delighted to see open ended hearings – not in time, but in terms of the topic – that started and said: “If we’re serious about a dramatic global reduction in carbon loading over the next twenty years – starting immediately – what are the different models that might work? Are there incentive based, market-oriented models that might work as well or faster? And is there a chance that they would produce the technology that would make it easier  for India and China to decide you can have green prosperity?”

Because if you can develop green prosperity, you change the entire trajectory for the planet, not just for the US… I would love to see hearings that didn’t start with a fight over cap and trade… which I don’t think is the way to start. The way to start is to ask what the optimum choices we can make strategically to minimize carbon loading in the next twenty years.

I believe we can bring a science, technology, and entrepreneurship/incentive-based model that would at least be worth being considered seriously by the House and Senate.

Two minor caveats. First, I don’t think  Gingrich ever developed his idea for an incentive-based model that wasn’t cap and trade. And, of course, this is from back in 2007. I hear the ex-Speaker’s position has evolved been more intelligently designed since then. Here’s the 2011 version:

Remember, in the mid-1970’s there was a cover of Newsweek and Time that says we’re in the age of a brand new glacial period and they had a cover of the Earth covered in ice. This is the 1970’s. Now many of those scientists are still alive and they were absolutely convinced. I mean, if Al Gore were able to in the 1970’s we would build huge furnaces to warm the planet against this inevitable coming Ice Age.

I’m not disputing or discrediting the National Academy of Sciences, I’m saying a topic large enough to change the behavior of the entire human race is a topic that is more than science and deserves public hearings with very tough minded public questions and we’ve had almost none of that on either side.

The ‘more than science’ hearings should be fun! Perhaps Newt will explain what happened to evidence that was sufficient to demand urgent action just four years ago…

December 5, 2011 at 6:49 pm | More on Climate and resource scarcity, North America | Comments Off

Balls the new Brown David Steven

Remember how Gordon Brown used the Treasury to keep the rest of the Cabinet on a short leash? Seems like Ed Balls is up to the same trick:

It’s almost cliched to paint Balls as the the crudest of tax and spenders, throwing money at a failed system in a desperate attempt to turn the ship around. To read much of the media coverage around the shadow chancellor (and for that matter, the Labour leader), you’d presume they long for nothing more than another spending binge.

Yet tell that to the shadow cabinet, many of whom feel stymied in their attempts to even float potential new policies (nevermind make concrete spending commitments) by the strict control Balls’ office has maintained over even potential spending commitments. Nothing that could even notionally impinge on economic policy is put forward without the explicit say so of the shadow chancellor – a cause for silent frustration for many seeking to make their mark around the shadow cabinet table.

I am sure Ed Miliband is enjoying this as much as Tony Blair did.

December 5, 2011 at 1:45 pm | More on UK | Comments Off

How close is the UK to the edge? (updated) David Steven

In his autumn statement, George Osborne warned that, without his programme of fiscal consolidation, “Britain would have borrowed an additional hundred billion pounds in total [by 2014/15]. If we had pursued that path, we would now be in the centre of the sovereign debt storm.”

But how confident can we be that that storm has been averted? In the city, sovereign risk and an economic downturn are seen as the most important threats to the UK financial system. An economic downturn now seems more than likely, and will be savage if efforts fail to shore up the euro.

What about a sovereign debt crisis in the UK? When asked to name the most important current threat, risk managers for around 70 UK financial institutions now put debt at the top of their list.

I think they’re right to be worried. Even after this week’s downward revisions, the Office of Budget Responsibility expects tax revenues to grow rapidly over the next two financial years – but there’s little prospect of that happening if there’s a sharp downturn.

Imagine, instead, if the government’s income declined in the same way it did after 2008 – that would mean more than £150bn less revenue than expected over two years (a ‘taxation double dip’). Following the Chancellor’s logic, that would be enough to steer the UK straight into a debt storm.

Now you could argue that revenue will prove more robust than it did after 2008 and that’s probably true if the UK sees ‘normal’ economic underperformance. But euro breakup – accompanied by an inevitable banking crisis, massive disruption of exports, lower oil revenues etc. – would take us far beyond normal.

Bottom line: if the euro goes, it probably takes the British government with it. Happy days.

Update: Duncan Weldon has an IMF chart that shows the disproportionate contribution loss of tax revenues has made to driving up UK debt over the past four years.

December 2, 2011 at 3:10 pm | More on Economics and development, UK | 1 Comment

Mortgage subsidies – it’s not the young who win David Steven

“It is disappointing that the country cannot liberate itself from the desire to subsidise borrowing to finance house purchases,” complains Martin Wolf in his review of George Osborne’s autumn statement. “Why should the government subsidise people to speculate on property prices?”

Wolf fails to understand the logic of the new policy. It’s not the first time buyer who is really being subsidised by mortgages backed by the British government. They are simply entering an overpriced market, and taking on debt that will strangle some of them in what Wolf expects to be a ‘lost decade’.

Instead, it is those who are exiting the market who will benefit if the Chancellor’s largesse succeeds in propping up prices – that’s the elderly who are dying and passing on the proceeds from a house sale to their children (who tend to be in late middle age), or the baby boomers themselves as they downsize in preparation for retirement.

Any government policy that keeps house prices artificially high benefits the old not the young. Of course, banks will do quite nicely from government-backed 95% mortgages as well – they can relax lending standards and we all know where that leads.

November 29, 2011 at 8:32 pm | More on UK | 1 Comment

Office of Budget Responsibility – laughing stock David Steven

I remember being astonished by the rose-tinted specs donned by the UK’s Office of Budget Responsibility (“independent and authoritative analysis of the UK’s public finances”) as as it was created in the run up to the 2010 budget:

We expect the economic recovery to strengthen in 2010 and beyond, as private sector demand continues to pick up. We estimate that trend output will grow at just over 2¼ per cent over the next three years…

From 2011 onwards, GDP is expected to grow at an above-trend rate as the economy rebalances away from consumption towards investment and net exports.

That worked out well, didn’t it? Here’s a graphic showing how badly the OBR got it wrong (Datablog has an interactive version).

Each of the OBR’s forecasts – including the one released today for George Osborne’s autumn statement – has been markedly less optimistic about the near term than its predecessor, while continuing to be sure things will look a lot better in just a few years’ time.

Initially, I put the OBR’s eagerness to please the government down to weak leadership and expected things to improve when the fearsome Robert Chote took charge of the new body. But, if anything, they have got worse. Here’s the OBR’s latest fan chart which shows how bad (good) things could be fir the UK economy, based on errors in previous Treasury forecasts. Looking at it and you’d conclude that – worst case – the UK might lose 2% of GDP next year (dreadful, but nothing like as bad as 2008):

The OBR also makes a big deal of how important it is to “recognise uncertainty” and to “stress test” its assumptions. One stress is (surprise, surprise) further turbulence in the eurozone:

Our central forecast is predicated on the euro area finding a way through its current difficulties, with the effect on confidence, credit conditions and economic activity taking some time to unwind, but with the financial sector returning to a stable position by the start of 2014. In this scenario we consider the implications of the financial sector taking longer to normalise (for reasons either to do with events in the euro area or with domestic factors).

The central prediction, then, is for a two-year quick fix for the euro, which seems highly implausible to me. What about the downside? All we get is a scenario that models “persistent tight credit conditions… for reasons either to do with events in the euro area or with domestic factors.” And that leads to… a blip. Growth is totally unaffected next year (GDP up 0.9%) and is only very slightly lower in the next two years (GDP up 1.6% and 2.3%). After that, life is back to normal.

At a time of maximum danger for the UK economy, we have a fiscal watchdog whose ‘stress’ tests are ludicrously unstressful, because anything harsher “is impossible to quantify in a meaningful way.” It’s like a doctor who suspects her patient is dying of cancer, but focuses on his ingrowing toenail because it’s “easier to see.”

George Osborne promised us a body that would reassure the public. Instead, the OBR has persistently failed to model the forces tearing the British economy apart. His new creation risks becoming a laughing stock if it doesn’t quickly mend its ways.

November 29, 2011 at 7:50 pm | More on Economics and development, UK | Comments Off

Daily Mail in love with Human Rights Act David Steven

Back in 2007, Paul Dacre – editor of the Daily Mail – told a House of Lords Select Committee “in the editorial line and in terms of the leader column, we are consistently against the Human Rights Act.” I think we’ll all agree that Dacre has been true to his word – the paper’s opposition has been remorseless and unyielding ever since.

Apart, that is, from when it wants to bully the Leveson Inquiry – and those witnesses who suspect (quite rightly) that they will be hunted down for all eternity if they testify against the tabloid press. Then human rights – for newspapers, at least – are fine and dandy:

Associated Newspapers is seeking a judicial review of Lord Justice Leveson’s decision to allow witnesses including journalists to give anonymous evidence to his inquiry into media standards.

The Daily Mail publisher wants to reverse a decision Leveson made following approaches from a number of individuals who claimed they wanted to give evidence anonymously without fear of reprisal.

In a claim form issued to the high court, Associated cites four legal reasons to overturn the anonymity ruling.

The publisher said it “fails to give effect to the principle of open justice”; that it would “contravene the principles of natural justice”; and that it infringes the rights of the newspaper group and others under article 10 of the Human Rights Act, which gives the right to free expression. It also argues that Leveson fails to identify a public interest to justify his decision.

Good, also, to see the Mail’s owners ticking off Leveson for not acting in the public interest – which Dacre defines as the freedom for newspapers to “publish what they believe is best for their markets” and “the freedom to identify those who have offended public standards of decency… and hold the transgressors up to public condemnation.”

So let us all join in defending Dacre’s human right to pillory us miserable sinners. After all, it’s good for us and it sells newspapers.

November 27, 2011 at 2:33 pm | More on UK | Comments Off

Romney: the common interest doesn’t exist David Steven

Under President Romney, 310m Americans won’t have any shared interests with any of the 6.7bn other people who insist on living in less exceptional countries:

I believe America is an exceptional and unique nation. President Obama feels that we’re going to be a nation which has multipolar balancing militaries. I believe that American military superiority is the right course.

President Obama says that we have people throughout the world with common interests. I just don’t agree with him.

Mitt – the man who would say anything to be President.

November 23, 2011 at 4:10 pm | More on Cooperation and coherence, Influence and networks, North America | Comments Off

Has Will Hutton gone mad? David Steven

Over the weekend, Will Hutton offered a ‘modest proposal’ so bizarre that it must have left his colleagues at the Observer fearing for his sanity.

David Cameron, he suggested, should…

… travel to Germany and make a speech in German – however embarrassing – spelling out the choices. If Germany is unprepared to accept them, he should argue that the least bad option is not for Greece to leave the euro – but for Germany, whose economy is strong enough to take the shock, to do so.

He should say that while it was right for Britain not to join the single currency as it was previously constructed, if Germany were to act responsibly, Britain would peg sterling to a reformed euro and in the long run even consider joining the regime. Moreover, Britain would do this either way, he could argue – eventually joining a single currency in which Germany accepted its responsibilities or a single currency without Germany.

Now the idea that Cameron should offer to swap places with Angela Merkel at the heart of the Euro meltdown is, without doubt, genius. The Germans, I am told, feel cursed to stagger on endlessly chained to the corpses of weaker European nations. So… why not help out? Strap them to the UK instead!

But it’s Hutton’s tactics I worry about. Year after year, with consummate skill, he’s been inching [sorry, centimetring] Britain towards Euro membership.

Who can forget his moving plea from ’99 that the UK adopt the single currency because “we read the same bible, drink the same wine, haunt the same discos, play in the same Champions League” as our European neighbours?

Or his reassurances from 2002 that fears the Euro could crack were ‘scaremongering’ and ‘wishful thinking’? Or his masterful solution for the problem of one-size-fits-all interest rates (in a crisis, European countries survive by running up bigger deficits!)?

Or from November 2008, his Cassandra-like insight that only through immediate Euro entry – now, this minute – could the UK avoid ‘national bankruptcy’ and the ‘clutches of the IMF’?

Or perhaps most prophetic of all, his essay from just a fortnight ago, hailing European leaders for taking an ‘inspiring leap’ towards financial stability, by creating “a self-help club” in which every European country could be both strong and free?

But it’s the language thing that makes me fear Hutton is losing his marbles. Our PM may not be able to speak a word of yer’actual German, but he can do a hilarious German accent (this is taught to all boys as part of the British national curriculum). He even whipped it out on the campaign trail:

What’s more, he’s almost certain to push things too far by borrowing a costume from Prince Harry to make his big day in Berlin memorable for all concerned. The likelihood of embarrassment is overwhelming! He’s sure to come across more John Cleese than JFK.

No – what Cameron should do, obviously, is resign forthwith and allow Nick Clegg a fluent German speaker to take over. Clegg could then appoint a government of technocrats to prep the UK for Euro membership. I nominate one Hutton, W as our next Finanzminister….

November 15, 2011 at 3:49 pm | More on UK | 1 Comment

The delicate machine we do not understand David Steven

Quote for the day:

The world has been slow to realize that we are living this year in the shadow of one of the greatest economic catastrophes of modern history. But now that the man in the street has become aware of what is happening, he, not knowing the why and wherefore, is as full to-day of what may prove excessive fears as, previously, when the trouble was first coming on, he was lacking in what would have been a reasonable anxiety. He begins to doubt the future. Is he now awakening from a pleasant dream to face the darkness of facts? Or dropping off into a nightmare which will pass away?

He need not be doubtful. The other was not a dream. This is a nightmare, which will pass away with the morning. For the resources of nature and men’s devices are just as fertile and productive as they were. The rate of our progress towards solving the material problems of life is not less rapid. We are as capable as before of affording for everyone a high standard of life—high, I mean, compared with, say, twenty years ago—and will soon learn to afford a standard higher still. We were not previously deceived. But to-day we have involved ourselves in a colossal muddle, having blundered in the control of a delicate machine, the working of which we do not understand. The result is that our possibilities of wealth may run to waste for a time—perhaps for a long time.

John Maynard Keynes – The Great Slump of 1930.

November 15, 2011 at 12:09 am | More on Economics and development | 1 Comment

Cheap food: bad. Expensive food: terrible. Why the FAO’s glass is always empty David Steven

It’s interesting to look back a few years – to when the world was worried that food was too cheap, not too expensive.

In 2004, the UN Food and Agricultural Organization looked back on a long bear market for food: forty years in which real prices of agricultural commodities had fallen 2% per year, or 50% between 1961 and 2002.

Innovation had driven up yields and productivity; growing numbers of suppliers had flooded onto global markets; and subsidies were keeping production levels artificially high. It was good news for consumers, but bad news for farmers and for poorer countries reliant on food exports, where low prices had “battered income, investment and employment.”

In his introduction to the State of Agricultural Commodity Markets 2004, the FAO’s director general, Jacques Diouf, delivered a homily on the chronic oversupply of food. Prices in the mid-1990s were lower than at any time since the Great Depression, he complained, eroding the viability of rural communities and fuelling migration to cities.

There were winners and losers of course, but more of the latter than the former:

The main beneficiaries of lower food prices have been consumers in developed countries and in urban areas of developing countries.

However, for the vast majority of the world’s poor and hungry people who live in rural areas of developing countries and depend on agriculture, losses in income and employment caused by declines in the prices of the products they market generally outweigh the benefits of lower food prices when commodity prices fall.

FAO wanted the problem of oversupply fixed. It called for rich countries to cut subsidies and take land out of production. Poor countries needed to stimulate demand for food, it said, and equip their farmers to export cash crops – preferably processed ones – to the West.

The next State of Agricultural Commodity Markets came out in 2006, by which time the FAO could see that times were a-changing. In real terms, food prices had bottomed out in May 2002, and had jumped 34% by the end of 2005. Good news? Well, no.

Oversupply had not been tackled as the FAO had recommended. “Concern is rising among [food exporters] about the short-term sustainability of the current market situation,” it warned, “for market analysts anticipate that the price bonanza may not continue.” (In his preface to the volume, Dr Diouf did not mention prices at all, but stuck to safer ground: how to make a success of the Doha trade round.)

The price bonanza not only continued, however, it intensified. Prices peaked in June 2008 – 2.6 times higher than they were in 2002 and at the highest level for thirty years. The result was a catastrophe. In his foreword to the 2009 State of Agricultural Commodity Markets (understandably, the publication had skipped a year), Dr Diouf instructed us to:

Imagine the impact on the poor in developing countries who were already spending, in some cases, up to 80 percent of their meagre incomes on food. FAO estimates that soaring food prices pushed another 115 million people into chronic hunger in 2007 and 2008. This means that today the world has nearly one billion hungry people.

Now, leave aside the fact that we know these numbers to be pretty shaky, surely by Diouf’s own logic, there should have been some upside (“for the vast majority of the world’s poor and hungry people who live in rural areas of developing countries and depend on agriculture,” for example.)

Unfortunately, not. “High food prices were not an opportunity seized by the majority of poor farmers in developing countries,” the FAO informed us. “Their supply response was limited in 2007 and virtually zero in 2008.”

So for the rural poor, it was all downside when prices fell for forty years and all downside when much, but not all (see graph) of that fall was wiped out in just six years. How so? The FAO gives two reasons.

First, it simply reversed its position from 2006 that declining commodity prices ‘generally outweigh’ the benefits of cheaper food for the rural poor:

The evidence suggest that most households in the developing world and especially the poor are net buyers of food, and this holds even for rural households that are mostly engaged in agriculture.

For net sellers of food in rural areas, “the impact could in principle be positive” (note the weak formulation). But for net buyers, including those in rural areas, “the impact is unequivocally negative” (no doubt there, then).

Second, it found that, while a few large landholders had benefited from higher prices, the majority of developing country farmers had not. The expected supply response had not materialised, with cereal production up only 1% in 2008 in developing countries and most countries cutting production.

FAO gives a number of reasons for the lack of a supply response. Across the developing world, smallholders are isolated from global and regional markets, with price increases at these levels having ‘no effect’ on them. Input prices had risen as fast as food prices – and these are passed on ‘fully and quickly’ to producers.

The situation was bleakest in Africa (as always). Farmers tend to be “elderly with little or no knowledge of farming practices”, lack access to credit, and to make “minimal use of inputs (including fertilizers)”. They also are suffering from decades of underinvestment in technology and infrastructure.

Now, it is hard to resist poking fun at FAO’s prophetic abilities. I especially enjoyed Dr Diouf slapping himself on the back for warning of impending crisis “as early as July 2007”. Prices, after all, were already up by 88% by then.

But there’s a more serious point. Was FAO wrong when it decried low prices as a disaster for the rural poor? Or will a shift to somewhat higher prices indeed have a medium-term benefit for rural areas?

It is easy to accept that, in the short term, a price spike is mostly a bad thing (people who have very few reserves are left with little or no time to adjust). However, I am less convinced by the relentlessly negative slant of FAO’s argument.

I find it hard to believe there won’t be a supply response. Indeed, we are already seeing one. The FAO made much of only seeing a 1% increase in cereal production in developing countries 2008, but there have been big changes since then. Crops were 6% higher in 2010 than the average for 2007-2009, with another 2.3% increase projected for 2011. African cereal production was up a whopping 13% in 2010, although a 1.5% decrease is projected for 2011. It’s hard to be sure whether this is a long-run trend (although FAO had no such scruples in 2009), but the results seem encouraging. And it’s developing countries that have benefited. Rich world cereal production is flat or falling.

It’s unsurprising to see a lag before the supply response kicks in. Agricultural markets have always been bedevilled by the time it takes for supply to match demand. Less sophisticated producers are also likely to react more slowly than sophisticated ones, for all the reasons FAO cites (weaker connection to markets, less credit, etc.). But that doesn’t mean the price signal won’t get through eventually – especially if prices stay high for longer periods. As Africa has the most potential to increase yields (and the most available land), its medium or long-term gains could be the greatest.

Not all the impacts on the rural poor can be negative. Higher prices could be good for agriculture in Africa and other poor countries, but still have a net negative impact on poverty. Even here, I am not fully convinced by the FAO’s case, which relies heavily on (and sometimes stretches the findings of) a 2008 working paper by its in-house economists.

The paper explores the impact of rising prices on the poor in eleven countries (four in Asia, three in Latin America, and two each in Africa and Eastern Europe/Central Asia). It finds that between 7.2% (Malawi) and 67.9% (Vietnam) of rural households are net sellers of the three main tradable food staples in each country.

Broadly speaking, households with land, and those that use more fertilisers and other inputs, do well when food prices go up; poorer households, the landless, and large, poorly educated families are the least likely to benefit.

There are a few caveats in the way that this paper has been interpreted, however:

• It excludes all farmers who don’t grow one of three tradable crops. Net consumers of food must be earning money from somewhere. Presumably some, at least, are selling cash crops and buying staples.
• It also excludes the impact of rising wages. A landless labourer may spend more on food, but this could be fully or partially offset if rural wages increase, which is plausible if agricultural economies are expanding.
• It careful to limit its conclusions to the very short term. Its findings are only relevant to a price shock. None of its finding exclude the possibility that rural areas will become richer if the long slump in agricultural commodities is indeed over, not that this would benefit the rural poor over time. The trend could be positive, in other words, even if the shock has been catastrophic.

There are two bigger questions:

• What is the right price for food? Would a return to very low prices for commodities (and for oil-based inputs) be more likely to feed eight and nine billion people (and to do so sustainably)? Or are somewhat higher prices required to drive the investment this is going to need (with more efficient use of inputs as well)?
• How do we increasing resilience to price shocks? It is important to disentangle long-term price trends from sudden price movements. How can the losers from volatility be best protected? We also need to discuss both growth and poverty. Higher prices could be very good for Africa’s economic prospects, even if the poor suffer in the short term.

The FAO’s next report on the State of Agricultural Commodity Markets should be with us before the end of the year. It has moved from depression about low prices in 2004, through confusion in 2006, to even despair about high prices in 2009. I wonder what its mood will be like in 2011.

November 9, 2011 at 10:58 am | More on Economics and development, Key Posts | 8 Comments

How many people are hungry? David Steven

The good news: poverty is in retreat. The bad news: hunger isn’t.  That’s the headline finding for the first Millennium Development Goal , which aims to halve the proportion of people living on less than $1.25 a day and the proportion of people living in hunger between 1990 and 2015.

Great strides have been made on poverty, as I explained in a recent post, with the proportion of the poor projected to fall to 14.4% of the population of developing countries, from 41.7% in 1990. But what about hunger?

According to the UN’s 2011 assessment of the MDGs, the news is not good. In 1990, 828m people were hungry or 20% of the population of developing countries. Progress has been very slow since then:

The proportion of people in the developing world who went hungry in 2005-2007 remained stable at 16 percent [837m people], despite significant reductions in extreme poverty. Based on this trend, and in light of the economic crisis and rising food prices, it will be difficult to meet the hunger-reduction target in many regions of the developing world.

But hang on a minute. Why is the UN trotting out data for 2005-2007? That’s before the global food crisis, which hit at the same time as the financial crisis and has been just as slow to go away.

Food prices hit rock bottom in 1999, but then rose quickly with vicious increases in 2007 and 2008 (20% and 18%) and 2010 and 2011 (17% and 28%) as illustrated in the chart below.  Yet we’re still relying on data from five years ago to estimate hunger.

The UN reported ‘dire’ news of a spike in its 2009 and 2010 MDG reports, with an estimate of more than 1 billion people hungry by 2009. But then it backed off in 2011, simply reporting the old data (which, oddly and without explanation, had been revised up slightly for all years, including 1990).

What gives? The problem is that our data on hunger are extremely patchy and rely on assumptions so heroic that I am left wondering if we are currently able to say anything useful about global hunger at all.

Here’s how it works at the moment. The target on food was set at the 1996 World Food Summit and predates the MDGs. The UN Food and Agriculture Organisation (FAO) has been measuring progress since 1999. Its measurement system has four steps:

• First, it estimates the minimum energy requirement for each member of a population, based on a complex algorithm that takes age, sex, weight, and height into account (with an added allowance for pregnant women).
• Second, it works out how much food is available for human consumption, based on a country’s Food Balance Sheet, which provides an estimate for how much food is available for each person, and how many calories, protein, and fat that food contains.
• Third, it uses household surveys – where they are available – to estimate how evenly food is distributed.
• Finally, it plugs numbers into a formula that estimates the proportion of the population below the minimum energy requirement cut-off point.

There are many problems with this methodology including:

• Micronutrients are left out entirely even though they play a huge role in nutrition, especially for the normal development of young children.
• We often don’t really know how much food a country has available – Food Balance Sheets are poor at capturing data on non-commercial food production; and at estimating how much food is being used for animals, is being stored in reserves, or is wasted.
• People aren’t that good at estimating their own food intake when asked in a household survey (let alone that of family members), while countries do surveys infrequently, if at all. As a result, estimates of the distribution of food are, at best, educated guesses.  Moreover, and as far as I can tell, FAO has not been good at documenting which countries have surveys, or from when.
• It’s hard to know how much food people need – especially as they’ll become less active as their food gets scarce (thus burning less energy).
• In countries where many people go hungry, a large proportion of the population hovers just above and below the minimum energy requirement, making estimates of hunger extremely sensitive to small changes in underlying assumptions.
• Perhaps most importantly for the current crisis, price is not fully considered. As staples become more expensive, presumably the poor consume less and the distribution of food changes markedly.  Hunger may therefore grow much faster than suggested by the fall in average food consumption. Surveys have no hope of capturing the impact of volatile prices.

FAO’s figures have faced sustained criticism for at least a decade. Back in 2004, a somewhat huffy note from a FAO statistician defended its methodology as ‘the best available’ and dismissed various ‘methodologically incorrect’ alternatives.

More recently, however, the damn has burst, with FAO sent back to the drawing board in 2010, by the Committee on World Food Security.  We are promised revised statistics that will improve modelling of the impact of price increases and income shocks, strengthen food balance sheets, integrate more household surveys, and include micronutrients and other factors in the mix.

But in the meantime, the presentation of data is suspended. Estimates for the number of undernourished people in 2009 and 2010 have been withdrawn, and no figures for 2011 have been prepared.

In the midst of the first ever global food crisis, in other words, the lights have been turned off. 837m people were probably hungry four to six years ago. Maybe. That might have gone up above a billion, or perhaps it didn’t. Hunger is either resurgent or it isn’t.

Of course, leaders are using the old figures without too many scruples. Here’s Ban Ki-Moon from just last month:

Even before the food crisis began, eight hundred million people were going to bed hungry at night. Now, a staggering nine hundred and twenty-three million people suffer from chronic hunger and under-nutrition.

But I think it’s pretty clear that, until the FAO comes back with new and better data, the ‘correct’ answer to the question ‘how many people are hungry?’ is – ‘we simply don’t know’. Apparently, the matter will be considered at an International Scientific Symposium in Rome in January next year.

Let’s hope FAO pulls its finger out and we don’t go that much longer without any data.

November 4, 2011 at 10:31 am | More on Economics and development, Key Posts | 3 Comments

“Freeing the entire human race from want” David Steven

The MDGs are so over

Having just been rude about one World Bank report, here’s a positive review of another – the Global Monitoring Report 2011, which the Bank produces jointly with the IMF.

The GMR updates progress against the Millennium Development Goals – targets that were set as the culmination of a push throughout the 1990s to take poverty to the centre of the international agenda.

For a long time, it seemed that the MDGs were going to be an embarrassing failure. In 2009, as the UN prepared for the 2010 MDG review conference, Kofi Annan rang the alarm:

We have been moving too slowly to meet our goals. And today, we face a global economic crisis whose full repercussions have yet to be felt. At the very least, it will throw us off course in a number of key areas, particularly in the developing countries. At worst, it could prevent us from keeping our promises, plunging millions more into poverty and posing a risk of social and political unrest. That is an outcome we must avoid at all costs.

The MDGs’ many critics felt vindicated. In particular, Bill “just asking that aid benefit the poor” Easterly was over the moon. “Let’s face it: it’s over,” he wrote. “The MDGs will not be met.” Idealistic development campaigners had wasted their time on a set of arbitrary and poorly designed goals. Africa had been deliberately made to look like a failure, in what was an unforgiveable set up.

The 2010 MDG summit was a somewhat sombre affair. Sir Bob Geldof (seen saluting the troops, above) demanded that all 189 leaders who agreed the Millennium Declaration should be pulled out of retirement (or the ground, if applicable) to issue a personal apology to him, and the world’s poor. [OK – I made that bit up.]

But wait a minute…

Then something unexpected happened. The Great Recession largely spared the developing world (so far at least) and, far from slowing down, the decline in poverty accelerated. According to the GMR, the headline target – halving the proportion of people living in poverty by 2015 – is not just going to be met, it’s going to be smashed.

In 1990, 41.7% of the world’s population lived on less than $1.25 a day (this figure has been endlessly restated, which is a story in and of itself – see graphs below). That’s dropped to 25.2% in 2005, less than five percentage points above the 2015 target of 20.9%. By 2015, the IMF and World Bank project it will be down to 14.4% – a reduction of nearly a third.

At this point, it’s more or less obligatory to point out that this is all down to China (with a small contribution from India), and that ‘real’ poverty – in Africa – hasn’t been touched. Except that’s not the whole story.

China has seen an astonishingly rapid progress – poverty was down almost fourfold by 2004, and is projected to be cut 12.5 times by 2015. India is also seeing accelerating improvements and is projected to have reduced poverty by more than half by the target date.

But Africa isn’t expected to do as badly as many people think. Its poverty rate was 57.6% in 1990, had fallen to 50.9% in 2005, and is projected to be 35.8% in 2015. That’s still ten percentage points above the target, but if attained, it would be far from an abject failure (180m fewer Africans in poverty in 2015 than would have been the case with no reduction in the proportion of the poor).

Progress on non-income MDGs has been much less impressive. In 2009, hunger was down only 4 percentage points (to 16%), and seems highly unlikely to halve by 2015. In the same year, 11% of kids were not in primary school, against a universal enrolment target for 2015.

The news on health is a bit better. Infant mortality was down by a third in 2009, when it is supposed to drop by two thirds. And maternal mortality has fallen by 35% when the target is three quarters. But, over the past few years, the corner seems to have been turned on HIV/AIDS, TB, and malaria – with deaths from all three diseases now past their peak.

Ending Poverty

But let’s go back to the poverty MDG. In 1990, there were 1.8 billion poor people (in a world of 5.3bn people). If the IMF/Bank projections pan out, by 2015, there’ll be 882.7m poor people left (in a world of 7.3bn). That represents real progress in both relative and absolute terms.

Here’s a thought. In the debate about what should succeed the MDGs, one obvious option is simply to extend the current set of goals and focus harder on the challenges facing the 15% of the world’s population that will still be below the poverty line in 2015.

If poverty does indeed fall by a billion between 1990 and 2015, then there’s no reason why it shouldn’t fall as fast over the next fifteen years, even as the global population grows by another billion. In other words, having halved absolute poverty, leaders could commit to abolishing it by 2030.

Here are some thoughts on the implications of an attempt to abolish poverty.

First, much depends on whether the Bank and IMF’s projections hold up for the speed of poverty reduction between now and 2015. The key factor is the speed of growth we see between now and then. The GMR expects 6-7% annually in emerging and developing economies between 2012 and 2014, including 5.7% annually in Africa.

There’s no reason for this not to happen. The Bank and IMF continue to be confident that the twin track recovery (boom times everywhere but in the West) will continue. I am less sure, though, that developing countries can avoid trouble indefinitely if Europe and America continue to head deeper into the mire.

Second, much will depend on the nature and quality of growth that is generated, and whether we will continue to see the worrying divorce of income growth from human development (health, education, gender, etc.).

The GMR has an interesting box on poverty in Brazil, which was one of the most unequal countries in the world in 1990, but has seen both growth and a sharp decline in inequality since 2003:

The 1990s marked the expansion of social safety nets in Brazil. Public social expenditure, including conditional cash transfers such as the Bolsa Família, targeted to poor families rose from 17.6 percent of GDP in 1990 to 26.0 percent of GDP in 2008—an increase of almost 50 percent in education, health, housing, and social security. Recent evidence suggests that this increase in social spending and better targeting contributed much to reducing poverty and inequality.

The Bank and IMF believe that these policies took an additional 17.5 million people out of poverty, bringing the absolute poverty rate down by 9 percentage points more than if inequality had stayed high.

Back in 1990, the World Development Report started the push to put poverty at the top of the international agenda. It said there were two secrets to effective poverty reduction: labour intensive growth and greater investment in the provision of basic services to the poor.

That was true then, and it’s true now. That’s why we need a big push on the non-income MDGs in advance of 2015, and extensive use of social protection is needed to boost the impact of growth on the quality of life of the poor.

Take education – 67 million children are still out of primary school and 70% of them live in just 10 countries. With political will, this is a relatively easy problem to fix, and in a way that improves quality, rather than eroding it. It’s also a vote winner, if politicians can be persuaded that they’ll see results within an electoral cycle.

Third – and assuming, we’re down below 900m poor people in 2015 – a great deal will ride on what happens in Africa, which will be home to 40% of the poor (another 30% will live in India).

I am quite bullish about Africa’s prospects. After 50 years of terrible demography (loads and loads of children), Africa is now swimming with the demographic tide, as its baby boom generation hits the workforce in larger numbers, and its dependency ratio drops (more adults relative to children and young people).

With similarly favourable demography, Asia has seen strong growth as more adults support children and the elderly. In the 2020s, we could be talking about an African ‘economic miracle’, but only if the continent creates jobs for the 7-10 million young people entering its labour market each year, and makes sure that at least some of them have skills tailored to the continent’s comparative advantage.

There are obvious bear traps. Unemployment and underemployment are already far too high. At the moment, the average Nigerian only produces more than he or she consumes for an average of 30 years of their life, compared to 34 years in Indonesia, 35 years in India, and 37 years in China. This intensifies the need for a greater focus on human development and on the distribution of growth.

Fourth, political instability – and, above all, conflict – will be obvious deal breakers for the post-2015 poor.

Unsurprisingly, lower income countries are making the slowest progress on poverty. While two thirds of countries are on target, or close to target, for all MDGs, only six out of forty LICs are on track to meet MDG1 (poverty) and just one is on target to meet MDG5 (maternal mortality).

Almost all of these countries have very weak institutions, and many of them have experienced repeated cycles of conflict. Although the number of civil and interstate wars has fallen in recent decades, many countries remain locked in cycles of repeated violence.

According to the 2011 World Development Report, “for every three years a country is affected by major violence (battle deaths or excess deaths from homicides equivalent to a major war), poverty reduction lags behind by 2.7 percentage points… fragile and conflict-affected states and those recovering from conflict and fragility, account for 47% of the population [of developing countries], but they account for 70% of infant deaths, 65% of people without access to safe water, and 77% of children missing from primary school.”

This is not just a problem for the poorest countries, of course, but for highly unstable middle income countries such as Pakistan and Nigeria, which are guaranteed to be on the frontline of the fight against poverty post-2015.

Fifth, an attempt to abolish poverty will become harder as it progresses, not easier, as poor people are targeted who face multiple obstacles preventing development.

Despite all the money that is spent on international development, we still know far too little about poverty in countries where problems are most deep-seated.

In Africa, 2005 poverty estimates were based on data for less than 70% of the population. Many countries have either not completed household surveys in recent years, or have not collated the results.  It is still common to find donors supporting huge programmes in countries where they cannot even be sure, say, how many children are not in school.

Voices of the Poor – the World Bank’s survey of 60,000 poor people is still spoken of with reverence, but it’s over ten years old. Few countries have the detailed, shared data sources – and accompanying analysis – on the drivers of poverty that are needed to underpin any effort to reach the poorest.

And sixth, much will depend on how resilient developing countries prove to a range of new threats.

Resource scarcity is clearly a game changer, both for poor countries that have extensive natural resources, and which risk an intensification of their ‘resource curse’, and for those that don’t.

Food and energy inflation has a disproportionate impact on the poor, as incomes grow but fail to keep pace with the cost of living. Progress against hunger was stalled even before the food crisis. The IEA projects no decline in energy poverty levels (cooking on biomass and/or no electricity) by 2030.

The poor also have few reserves in the face of famine, floods, droughts, earthquakes, etc. 20-40% of GDP of African countries comes from agriculture – every percentage point loss in the sector due to a natural disaster knocks off a quarter of percentage point, with a more pronounced impact on poor households.  Population pressures, and climate change, will intensify these risks.

The news here is not necessarily bad. In an era of higher food prices, a rural renaissance is possible, if agricultural investment gets down to the grassroots and those living in the countryside are rewarded for the ecosystem services they provide.

Ideally, urban and rural development policy need to be rethought together. All population growth is now in the towns and cities of the developing world, which will struggle to secure the resources they need to support their populations.

Some of the world’s biggest cities look pretty fragile to me (Karachi, for instance – 15 million people in 2015, probably 20 million by 2030), while I also wonder whether trouble is growing in the ‘long tail’ of countless smaller towns where roughly a quarter of the world’s population resides.

Post-2015 Development

If we take out the crystal ball, what are the prospects for development post-2015? We could categorise countries according to the challenges ahead of them (and the poverty reduction strategies that will be most effective).

(i) Development’s A-List: stable middle income countries with a reasonable or strong commitment to inclusive growth, investment in social development, and other pro-poor policies.

(ii) Rising stars: Low income countries with comparatively strong institutions and increasing growth and poverty reduction potential.

(iii) Tough nuts: Middle and low income countries with fragile and/or failing institutions, and endemic problems with conflict/violence.

I then see three broad scenarios post-2105, all of which assume that the Bank/IMF projections hold out for the new few years (this is a big if).

• More of the same: progress on poverty is concentrated in less fragile states. The proportion of the poor continues to drop, but absolute numbers fall slowly, if at all.
• Backwards step: conflict, macroeconomic or political instability, or new risks (scarcity) see one or more large countries drop out of the A-list.
• Tough nuts cracked: progress accelerates in a growing number of fragile states, while more inclusive growth reaches the poorest in all poor and middle income countries.

I’d also expect (or hope) to see:

• An early commitment from governments to ending poverty, allowing development of a roadmap for ending poverty that can be implemented from 8 September 2015, the anniversary of the Millennium Declaration.
• The commitment to ending poverty to be part of any broader package of sustainable development goals, but in a way that ensures resources are ring fenced and the post-2015 poverty agenda is insulated from the (likely) failure to agree SDGs.
• Tailored strategies for ending poverty in key regions (Africa) and groups of countries (e.g. conflict-afflicted), for achieving results on specific MDGs (e.g. the 10 countries where 70% of the kids out of school live), and for an integrated response that releases the potential of catalytic groups (e.g. women).
• A renewed commitment from international development agencies to focus on the very poorest, and to bring together disparate existing bilateral and multilateral development strategies into an integrated approach to the post-2015 agenda.
• Development assistance (and especially development expertise) to be very heavily focused on the ‘tough nuts’, with upwardly-mobile middle income countries largely left to fend for themselves (and to export their models to poorer countries), and a continued provision of budgetary support to any ‘rising star’ able to cope with it.

Conclusion

In the Millennium Declaration, the world’s leaders described the world’s central challenge as ensuring “globalization becomes a positive force for all the world’s people” and promised to “spare no effort to free our fellow men, women and children from the abject and dehumanizing conditions of extreme poverty.”

They were committed, they said, to “freeing the entire human race from want.”

With poverty in retreat, I think we should be doubling down on that commitment, and moving from halving poverty by 2015, to ending it by 2030. It’s a stretching target, especially if contagion from the economic crisis finally hits developing countries, and especially as the last of the poor will find it hardest to escape from poverty.

But it also seems to be a target that could be achieved. What do you think? Am I wrong?

November 1, 2011 at 5:04 pm | More on Economics and development, Key Posts | 2 Comments

Let the Little Boys Die II – WHO cares? David Steven

It’s not just the World Bank which believes that the health of baby boys matters less than girls. Here’s the World Health Organisation:

• “While women and men share many similar health challenges, the differences are such that the health of women deserves particular attention.”
• “Every year some nine million children under five years, including 4.3 million girls [48% of the total], die from conditions that are largely preventable and treatable… Globally, girls are not more likely to die under the age of five years than boys are. In fact, girls may have a certain advantage.”
• “The health and development of… children is a prime concern for all societies. The health and wellbeing of young girls is of particular concern because of their future reproductive roles and the clear intergenerational effects that poor maternal health has on the health and development prospects of their children.”

So… boys die more than girls, and are sicker. The overwhelming majority of these deaths (95+%) could be prevented easily and cheaply. But the health a boy is worth less than that of a girl, because mothers will go on to play a greater role in the lives of their children than fathers.

I still think this is a morally repugnant argument, especially when WHO (like the Bank) can find no evidence of sexual discrimination in child or healthcare. There’s “no overall systematic bias against either boys or girls” in access to immunization, for example. Furthermore, “boys are more likely to suffer from severe malnutrition (stunting) than girls are.”

But let’s explore WHO’s instrumentalist approach a little further. It’s widely accepted, of course, that more educated women have healthier families. Their own health as children presumably has an impact on their ability to stay in school and learn, and thus on the role they’ll play as mothers.

But causation runs the other way, as well. As children become healthier, families tend to choose to have fewer children, and to invest more in them. This has a huge impact on the health of women and on the lives they lead. The health of all children has instrumental benefit, therefore.  If anything, parents may be especially sensitive to male infant mortality, given the preference of many to have at least one son.

Also, as wealth is the most important determinant of health, men’s role as breadwinners – they make up 60% of the global workforce – cannot be totally ignored. There may be greater return on investment in the health of a young girl (although I haven’t seen research proving this), but a boy’s expected lifetime earnings, and the impact these will have on his children, remain important.

What is galling is how threadbare the evidence base is – even after years of ‘mainstreaming’ gender into health. The WHO has run an awful lot of gender workshops in recent years, but its network on Gender, Women, and Health (interesting name), displays remarkably little curiosity as to why women are healthier than men. The anodyne verdict –“probably due to a combination of… genetic and behavioural facts” – is backed up with just four references to the academic literature.

In its research into men and boys, it simply indulges in the usual lazy speculation about men’s risk-taking and failure to take care of themselves, before turning attention to strategies to “encourage men to take responsibility for advocating agendas of gender equality, including policy initiatives for women’s rights.”

“What gets measured gets done,” says WHO’s Director-General, Margaret Chan, explaining why she commissioned a report to “gather a baseline of data about the health of women and girls throughout the life-course, in different parts of the world, and in different groups within countries.”

Perhaps it’s time for her to do the same for the other – sicker – sex.

October 31, 2011 at 2:57 pm | More on Economics and development | 1 Comment