Paul Collier
Click here to discuss this article at First Drafts, Prospect’s blog
Richard Dowden closed his article on African politics ( Prospect, September) with the sentiment: “it could hardly be worse.” Even since he wrote, however, there have been two major changes. In Zimbabwe, Mugabe has made the sort of precarious deal that Dowden favours. In South Africa, which Dowden regards as the only African country to have evolved an appropriate political culture, Jacob Zuma has won the power struggle against Mbeki, who was forced to resign after the courts stopped the Zuma corruption trial. Are these events further setbacks, or is Africa on the turn?
The continent’s deteriorating political fortunes have been at odds with its economic ones. After decades of stagnation, Africa is growing, due to a combination of economic reforms and the booms in the region’s many commodities, such as oil, gold and rhodium. But will the region’s politics scupper this opportunity?
Read more »
Mary Fitzgerald
During the latter half of the last decade, Ireland boasted the fastest-growing economy in the developed world. Grafton Street, Dublin’s main shopping thoroughfare, now charges the sixth highest rental yields of any street on the globe—€4,496 per square metre—and one third of all houses in Ireland were built in the last ten years. But this façade of economic health hides a lingering malaise.
Ireland may have become wealthier, but the gap between the new “super rich” John Murray Brown describes in his January cover story for Prospect and those who live at the other end of the scale has widened dramatically. According to the charity Connect-World, one in ten children in Ireland lives in consistent poverty, and Ireland’s poverty rate in the developed world is second only to the US. The Irish government’s own statistics reveal that 17 per cent of the population lives at risk of poverty.
And the financial security of the “newly affluent” middle classes is dangerously dependent on the value of property—national house prices have risen 270 per cent in the last decade. “Ireland has experienced a sudden, heady feeling of being rich, but most people are not actually rich,” says social commentator Fintan O’Toole. “It’s a dangerous illusion of personal wealth.” Over 1.5m people—roughly a third of the population—earn less than €38,000 (£28,000) a year. This may sound good, but does not go far when average household costs are 46 per cent higher than in Britain, and the average price tag of a house in Dublin is €403,233 (£304,239).
Read more »
Chakravarthi Ram-Prasad
Discuss this article at First Drafts, Prospect’s blog
Replies from Ashish Bhatt, Yasmin Khan and Dhiraj Nayyar.
Jaya Mary is a cleaner. Tall and thin, with some English, and at least two Indian languages, she quietly challenged her main employer, a medium-sized company, when it recently threatened to fire her without the pension to which she is entitled. When she works in a private house, she has no contract, and depends on the goodwill of the householder. She is a Christian, but also adheres to many cultural expressions of Hinduism. Her husband left her with two small children, and she relies on the support of her mother and brother. Her boy is in a local-language state school, but her clever daughter is in a private English-language school, which costs Jaya 20 per cent of her income. She has an empty bank account, but acquired a mobile phone from her scooter-driving brother (whose wife, a sworn enemy of Jaya, has just left him). Languages, religions, integrity, suffering, family stresses and ties, education, dependence, global aspiration—she encompasses them all, she is a Mother India. (And she is a very real person.)
As the actual Mother India celebrates the 60th anniversary of her independence, there is—as in Jaya Mary’s life—both surging optimism and crushing despair about her future. As the saying goes, everything and its opposite is true in India. The seven Indian Institutes of Technology rank near the top of global surveys, and job offers to graduates from the Indian Institutes of Management rival those to graduates of the famous US business schools; yet a third of the country is still illiterate. Three hundred million Indians live on less than $1 a day—a quarter of the world’s utterly poor—yet since 1985, more than 400m (out of a total population of 1bn) have risen out of relative poverty—to $5 a day—and another 300m will follow over the next two decades if the economy continues to grow at over 7 per cent a year. Population growth, even at a slower pace, will mean that there will still be millions below the poverty line, but the fall in number will be steady. At the other end of the scale, India has the largest number of dollar billionaires outside the US and Russia.
Read more »
Ha-Joon Chang
Discuss this article at First Drafts, Prospect’s new blog
Once upon a time, the leading car-maker of a developing country exported its first passenger cars to the US. Until then, the company had only made poor copies of cars made by richer countries. The car was just a cheap subcompact (”four wheels and an ashtray”) but it was a big moment for the country and its exporters felt proud.
Unfortunately, the car failed. Most people thought it looked lousy, and were reluctant to spend serious money on a family car that came from a place where only second-rate products were made. The car had to be withdrawn from the US. This disaster led to a major debate among the country’s citizens. Many argued that the company should have stuck to its original business of making simple textile machinery. After all, the country’s biggest export item was silk. If the company could not make decent cars after 25 years of trying, there was no future for it. The government had given the car-maker every chance. It had ensured high profits for it through high tariffs and tough controls on foreign investment. Less than ten years earlier, it had even given public money to save the company from bankruptcy. So, the critics argued, foreign cars should now be let in freely and foreign car-makers, who had been kicked out 20 years before, allowed back again. Others disagreed. They argued that no country had ever got anywhere without developing “serious” industries like car production. They just needed more time.
Read more »
Paul Collier
Over the past two centuries, quite staggering differences in income have opened up between countries. Understanding why this has happened, and what can be done to reverse it, is the most important project in social science. Although the phenomenon is evidently economic, the discipline of economics has not so far provided a compelling account. The resulting vacuum has attracted other approaches, some from the other social sciences and some from non-mainstream economists. Two recent books, Lawrence E Harrison’s The Central Liberal Truth: How Politics Can Change a Culture and Save it From Itself (OUP) and Erik Reinert’s How Rich Countries Got Rich, and Why Poor Countries Stay Poor (Constable & Robinson), are, respectively, examples of these variants. They both neglect recent mainstream analyses, but would probably disagree even more strongly with each other than with the mainstream economics they criticise. While they cannot both be right, they can both be wrong, and I think that they largely are. However, each contains enough painful truths to be discomforting for conventional thinking.
Harrison pins the blame for economic divergence on culture, while Reinert blames trade liberalisation. By contrast, in recent years the mainstream contenders have been geography, institutions, and leadership. The geographical thesis has two variants. One emphasises intrinsic differences: for example, being landlocked and being prone to malaria are seen as major obstacles to development. The other variant emphasises differences that arise because some countries develop before others; in traditional economics, late starters should catch up, but according to the “new economic geography,” a country that gets ahead then gets further ahead. The institutions thesis, meanwhile, following the work of Douglass North, sees institutions as setting the rules of the game, in particular shaping the incentives for investment. The most celebrated, and contentious, variant of the thesis is that institutions came with European settlers. Colonies that got a lot of settlers got good institutions and these have persisted, accounting for subsequent success. At the other extreme are colonies that got extractive industries without settlement, such as the Belgian Congo, so that good institutions never got established. Finally, the work on leadership proposes that individuals make a big difference to national economic performance.
I am reasonably confident that we will eventually conclude that geography, institutions and leadership are all important in particular contexts: we will not find one single explanation for the many failures in the development process. Institutions and good leadership are probably substitutes: only in the context of bad institutions is there a real difference between having a good leader and a bad one. Both institutions and leaders are only likely to matter where geography is conducive to development: some geographic configurations will frustrate the best human endeavours.
Read more »
Jack Thurston
Who Owns the World by Kevin Cahill
(Mainstream Publishing, £25)
When William the Conqueror commissioned the Domesday Book at Christmas 1085, he instructed his emissaries to find out “what or how much each landholder had in land and livestock, and what it was worth,” so he could properly tax his new kingdom.
According to Kevin Cahill, who has set out to compile a modern Domesday Book on a global scale, the British monarch’s pre-eminence in absolute land ownership has grown over the centuries and the Queen remains by far the world’s biggest landowner, today owning a sixth of the earth’s land surface. This may be a bombshell headline, but it is also pretty meaningless, since Cahill rests his argument on the absurd notion that the Queen not only “owns” the entire United Kingdom and its dependencies and territories, but also Canada, Australia and New Zealand.
Read more »
Will Wilkinson
David Cameron says, “It’s time we admitted that there’s more to life than money, and it’s time we focused not just on GDP, but on GWB—General Wellbeing,” by which he means happiness. With Cameron’s endorsement, the cockle-warming politics of happiness has officially become a multi-partisan affair, no longer the property of Labour peer Richard Layard and other social democrats. And why shouldn’t it be? Certainly no one disputes that there is more to life than money, or more to politics than the size of the economy.
However, Cameron’s contrast implies that increased GWB might have to come at the expense of GDP growth and economic liberalisation. Yet if you really profess to care about happiness, you must care about economic freedom and economic growth too. Our happiness depends on them more than almost anything else.
So-called “happiness research” is conducted mostly with surveys that simply ask people how happy they are, and those answers are related to others about income, family situation, jobs and more. The most widely reported result is this: although average real income has more than doubled in developed countries since mid-century, average self-reported happiness has barely budged. Yet despite the flat happiness trend over decades, at any given time the wealthy are more likely than others to report themselves “very happy,” which has led a number of researchers to conclude that people care more about their relative position on the income ladder than their absolute level of wealth. Since the heartless laws of mathematics guarantee that no more than 20 per cent of the population can squeeze inside the top quintile of the income distribution, no matter how large the economy, it is tempting to think that the size of the economy, or its growth, don’t matter.
Read more »
Philippe Legrain
Globalisation isn’t working, according to Robert Wade (July). If you exclude China—a mere 1.3bn people—it has not made much of a dent in global poverty or inequality, he claims. And if you ignore the boom years since 2000—why bother using up-to-date statistics?—it hasn’t delivered faster growth either. This is a weak argument, which appears to stand up only by excluding evidence that contradicts it—but even on its own terms it isn’t correct. In fact, developing countries that have embraced globalisation are growing faster than before; so fast that they are closing the gap with rich countries, slashing poverty and reducing global inequality for the first time since the industrial revolution catapulted Europe forward. Globalisation is working.
Wade claims that, “If the liberal argument holds, we would expect the global shift towards free markets in the past 25 years to have raised the rate of world economic growth. Instead, there has been a slowdown in developed and developing countries. Between the era of managed capitalism (roughly 1960-78) and the era of globalisation (roughly 1979-2000), the growth rate of world output fell by almost half, from 2.7 per cent to 1.5 per cent.”
Not so. According to the latest IMF figures, the world economy grew by 3.3 per cent a year from 1986-95 and by 3.9 per cent a year from 1996-2005. Better still, while in 1986-95 emerging economies grew only fractionally faster than advanced economies (3.7 per cent a year compared with 3 per cent), in 1996-2005 they grew over twice as fast (5.5 per cent a year compared with 2.7 per cent). Far from stagnating, the world economy is booming—and developing countries are outpacing developed ones.
Read more »
Robert Wade
According to the mainstream liberal argument in most developed countries, public policy should try to increase social justice by evening up opportunities—equity—but should not try too hard to reduce income inequality. The exception is at the bottom: public policy should try to eliminate extreme poverty. For the rest, income inequality is the price that has to be paid for a dynamic and flexible economy.
In the liberal perspective, equity and efficiency turn out to be complements; the key to both is free markets and competition. Applied to the international economy, this approach says that aid may be appropriate for the poorest countries, but for others, what matters is open trade, open investment, and free capital movement, so that the country’s producers have a level playing field with producers elsewhere. Insofar as the world adopts liberal market policies, growth in the poorer countries will be higher than otherwise, and high enough for many of them, over time, to catch up with living standards in the rich countries.
Martin Wolf, in Why Globalisation Works, puts it this way: “What the successful countries all share is a move towards the market economy, one in which private property rights, free enterprise and competition increasingly took the place of state ownership, planning and protection. They chose, however haltingly, the path of economic liberalisation and international integration. This is the heart of the matter. All else is commentary.”
Read more »
Lynsey Hanley
My husband and I were walking in circles around Regent’s park the day after the May local elections, having the same conversation we have when we’re walking, drinking in the pub, or having dinner at home: the one about the workers. About how we hold such high hopes for the people we grew up among, and how they always, ultimately, disappoint us. About how we both feel a tangled mix of shame and pride in our origins, combined with guilt and pleasure at having escaped them.
That day, the BNP had won its first Midlands council seat outside the Black Country, in the ward that comprised the council estate where I spent 17 of the first 18 years of my life. To say I was disappointed is like saying I was “disappointed” to see Birmingham City get relegated from the Premiership. I was hysterical: despite the fact that I left the estate 12 years ago, it has cast a long shadow over my adult life. I felt soiled and humiliated and, for some reason, implicated in a result that was decided by just over 700 people among several thousands (the desire to exercise one’s vote on this estate has never been particularly strong), in a place where I no longer lived.
“It’s not your fault,” said my husband, clearly feeling the need to state the obvious.
Read more »
Post a comment »
