The aid agency nobody knew existed is even worse than nobody realized

Aid Watch
Just Asking that Aid Benefit the Poor

The aid agency nobody knew existed is even worse than nobody realized

by William Easterly

I recently saw a June 2009 World Bank (Independent Evaluation Group) evaluation of the Global Forum for Health Research, an 11-year-old international organization that had received $56 million (through 2007) in official aid funding, about half from the World Bank. The Global Forum’s mission is “demonstrating the essential role of research and innovation for health and health equity, benefiting poor and marginalized populations.”

Trilemma

This is a technical paper - but the issue of "trilemma," or "impossible trinity" -- a country simultaneously may choose any two, but not all, of the three goals, monetary independence, exchange rate stability and financial integration is important.

Click here.

Anarchy and Development: An Application of the Theory of Second Best

Anarchy and Development: An Application of the Theory of Second Best

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Sweatshops

This great post by Don Don Boudreaux

I'm surprised by the number of commenters who write as if harsh working conditions of the sort found in sweatshops are something exceptional, something visited upon people in developing countries by we rich folk in developed countries, something crying out for an explanation.

In fact, such conditions have been the norm throughout human history. Life on subsistence farms - which was the lot of the vast majority of our ancestors for the past 10,000 years - was grueling, dreary, and dangerous. And the material returns eked out from the work effort were, well, subsistence - except in the bad times, of which there were many, when these returns were at less than subsistence level. People then literally starved to death. (Indeed, compared with working in subsistence agriculture, working in a sweatshop is surely better - which is one important reason why so many people, today as in the past, have chosen to leave their bucolic hells for cities and towns.)

From Cafe Hayek - Why Trade Matters

Travels of a T Shirt in the Global Economy - Part 2

In a previous post I referred to my use of Rivoli's Travels of a T Shirt as a text for The World Economy at MCC. Below is part 2 of the excellent NPR podcast.

The World in a T-Shirt

U.S. Town's Economy Shifts Away from T-Shirt Business

by Adam Davidson

Until recently, Florence, Ala., considered itself the T-shirt capital of the U.S. That was a few years ago, prior to a surge in cheap imports from China and other countries. Today, the T-shirt mills are all gone, along with all the jobs they once provided.

Travels of a T Shirt in the Global Economy

I am using this book in my World Economy class this summer. NPR has an outstanding resource site - below is the a sense of the information from Part 1 of the book.

After 200 Years, U.S. Remains King of Cotton

April 26, 2005 · Much of the world's cotton comes from Texas, even though it's not a particularly great place to grow the crop. Big subsidies and heavy technology and R&D spending have helped the United States dominate the global cotton trade for two centuries.

Impact of trade

Mark Thoma summarizes the ongoing debate over the impact of trade over on Economist's View. His post "Why Large American Gains from Globalisation are Plausible" is an excellent point to enter the discussion.

This post touches on the related issue of inequality - a topic that seems to lie at the heart of a great deal of angst in both academic and popular circles.

I recommend a read of the post over on Thoms'a blog (a portion of which can be found below.)



Thoma makes presents the conventional view of trade as he writes:

You can read Dani Rodrik if you want to know "under what conditions will trade liberalization enhance economic performance?" ... Whatever the theory says, the evidence in this paper and the evidence more generally is pretty clear, globalization has large net benefits.

Much of the discussion in this blog post revolves around the potential impact of trade on the US economy. For example:

The Bradford et al. study argues that removing all remaining barriers to trade would raise U.S. incomes anywhere from $4,000 to $12,000 per household (or 3.4-10.1% of GDP). That is a whole chunk of change!

Why large American gains from globalisation are plausible, by Gary Clyde Hufbauer and Matthew Adler, Vox EU: The Peterson Institute calculates that the US economy was approximately $1 trillion richer in 2003 due to past globalisation – the payoff both from technological innovation and from policy liberalisation – and could gain another $500 billion annually from future policy liberalisation (Bradford, Grieco, and Hufbauer 2005). Past gains amounted to about 9% of GDP in 2003, and potential future gains constitute another 4%.


However, empirical research on the American economy does not support the contention that income distribution has been strongly affected by international trade and investment. The forces of technology, education, and immigration are much stronger (Lawrence 2008). Also see the WSY online: Technology, Not Globalization, Feeds Income Inequality

Critics of globalization often cite increasing income inequality in their opposition, but a new study suggests that technological advances, not globalization, is responsible for an increase in the gap.


Rising Income Inequality: Technology, or Trade and Financial Globalization?
Prepared by Florence Jaumotte, Subir Lall, and Chris Papageorgiou

Estimates using a new and more reliable dataset on inequality and detailed measures of globalization suggest that the observed rise in inequality across both developed and developing countries over the past two decades is largely attributable to the impact of technological change. The contribution of increased globalization to inequality has in general been relatively minor. This reflects two offsetting effects of globalization: while increased trade tends to reduce income inequality, foreign direct investment tends to exacerbate it. Both globalization and technological progress tend to increase the relative demand for skills and education. While incomes have increased across all segments of the population in virtually all countries in the sample, incomes of those who already have higher levels of education and skills have risen disproportionately more.

The implication of these findings is that broader access to education will allow a greater segment of the population to take advantage of the opportunities from globalization and technological change. While these changes have increased incomes across countries and helped reduce poverty, the benefits would be even greater, allowing for a faster reduction in poverty, if the distribution of skills became more equal. This suggests that the returns to investment in education for all countries has risen in the recent era of globalization.

Agricultural Subsidies

The impact of agricultural subsidies on welfare, both domestically and internationally, was a key topic discussed May 2-4, 2008 at The Understanding Liberty and Choice: Free Trade, Globalization, and Economic Development. This joint FTE and Liberty Fund colloquium discussed the neo classical view of trade as well as contemporary views of trade. Two of the texts - In Defense of Globalization and The Travels of a T Shirt in the Global Economy included analysis of the impact of subsidy in the agricultural sector.

This analysis was extended on the Becker-Posner Blog. On May 4, Posner wrote:

There is no justification for the Farm Bill in terms of social welfare. The agriculture industry does not exhibit the symptoms, such as large fixed costs, that make unregulated competition problematic in some industries, such as the airline industry, about which Becker and I blogged recently. It is true that crops are vulnerable to disease, drought, floods, and other natural disasters, but the global insurance industry insures against such disasters, and in addition large agricultural enterprises can reduce the risk of such disasters by diversifying crops and by owning farm land in different parts of the nation and the world. If a farm enterprise grows soybeans in different regions, a soybean blight in one region, by reducing the supply of soybeans, will increase the price of soybeans, so the enterprise will be hedged, at least partially, against the risk of disaster. Supply fluctuations due to natural disaster create instability in farm prices, but farmers can hedge against such instability by purchasing future or forward contracts. There is no "market failure" problem that would justify regulating the farm industry. All the subsidies should be repealed.

http://www.becker-posner-blog.com/archives/2008/05/the_outlandish.html

Becker responded:

Posner presents evidence on the sizable subsidies received by American farmers from the federal government of the United States. However, the US is not unique, for every rich country including France, Germany, Great Britain, and Japan, heavily subsidizes their farmers, no matter how small the agricultural sectors. In fact, some of these other countries subsidize farmers more generously than even the United States. On the surface, this universal tendency for rich countries to subsidize farming, no matter how different are the details of their political systems, is a paradox. For since only a small fraction of the populations of these countries work in agriculture, farmers cannot contribute much to any majority voting coalition.

http://www.becker-posner-blog.com/archives/2008/05/farm_subsidies.html

CULTURE, VALUES, AND ETHICS IN A GLOBAL ECONOMY

As part of my continuing professional development this summer I will be completing 3 online graduate classes - one of which is BU 650 CULTURE, VALUES, AND ETHICS IN A GLOBAL ECONOMY. My first assignment in this class is a summary of Social Responsibility in a Global Economy.

The following sources will be consulted:

The Academy of Management Review (AMR)
	Issue:	Volume 32, Number 3 / 2007
	Pages:	946 - 967

Why Would Corporations Behave in Socially Responsible Ways? An Institutional Theory of Corporate Social Responsibility

John L. Campbell

http://www.dartmouth.edu/~socy/pdfs/Why%20Would%20Corporations%20Behave%20Badly.pdf

Beyond corporate social responsibility:
minnows, mammoths and markets
Deborah Doane*
New Economics Foundation, 3 Jonathan Street, London SE11 5NH, UK
Available online 30 July 2004
Futures
Volume 37, Issues 2-3,Pages 215-229

http://www.corporation2020.org/documents/Resources/Doane_CSR.pdf


Publication: The Journal of Corporate Citizenship
Publication Date: 22-MAR-02
Delivery: Immediate Online Access
Author: Ruggie, John Gerard

http://www.greenleaf-publishing.com/content/pdfs/jcc05rugg.pdf

Article Excerpt
Under the leadership of Secretary-General Kofi Annan, the United Nations has played an active role in promoting corporate social responsibility as one means to respond to the challenges of globalisation. The Global Compact has been Annan's major initiative in this domain. It has explicitly adopted a learning approach to inducing corporate change, as opposed to a regulatory approach; and it comprises a network form of organisation, as opposed to the traditional hierarchic/bureaucratic form. These distinctive (and, for the UN, unusual) features lead the Compact's critics to seriously underestimate its potential, while its supporters may hold excessive expectations of what it can deliver. Because organisational issues of this sort will continue to confront the search for viable global governance mechanisms for many years ahead, this paper spells out both the advantages but also the inherent limitations of the `learning networks' approach.

**********

UNDER THE LEADERSHIP OF SECRETARY-GENERAL KOFI ANNAN, THE UNITED Nations has played an active role in promoting corporate social responsibility as one means to respond to the challenges of globalisation. `You do not need to wait for governments to pass new laws,' Mr Annan has said to business groups. `You can and should act now, in your own self-interest. The sustainability of globalisation is at stake.'

The Global Compact has been Annan's major initiative in this domain. It has attracted considerable acclaim in the world's press. In the United States, it was praised editorially by the venerable Washington Post while the Christian Science Monitor lauded it as Annan's `most creative reinvention' yet of the United Nations. At the same time, the Global Compact has generated suspicion and in some instances sharp criticism in parts of the NGO (non-governmental organisation) community and from various anti-globalisation activists. Part of the difference is explained by differing attitudes towards globalisation. Thus, what the mainstream press views as an innovative practical response to some of its challenges, critics decry as `bluewash': providing an opportunity for the private sector to drape itself in the UN flag without really mending its ways. (1)

But even more fundamental issues are at stake. The Global Compact has explicitly adopted a learning approach to inducing corporate change, as opposed to a regulatory approach; and it comprises a network form of organisation, as opposed to the traditional hierarchic/bureaucratic form. These distinctive (and, for the UN, unusual) features lead the Compact's critics to seriously underestimate its potential, while its supporters may hold excessive expectations of what it can deliver.

Because organisational issues of this sort will continue to confront the search for viable global governance mechanisms for many years ahead, it is worth examining the Global Compact more closely as a case of things to come, spelling out both its advantages and its inherent limitations.

Below, I describe the Compact's organisational forms and the rationale behind them. But, first, I briefly place the current debates in their broader historical context.

Tina redux?

The globalisation mantra in corporate circles, at least until very recently, was the so-called `Tina' hypothesis: `There Is No Alternative'. But there is: Tina may prevail in the long run, but the road from here to there can be unacceptably rough.

History doesn't repeat itself; only historians do. But there is still great merit in the dictum that those who refuse to learn from the past may be condemned to repeat its errors. That is certainly true of globalisation and its consequences. Let us begin with some basic facts.

The speed and costs of global communications are plummeting to a fraction of what they were a decade earlier. The Internet? No, the laying of the transatlantic cables in 1866, which reduced the time it took to communicate between London and New York by 99.9%, from a week to a matter of minutes.

The ease of global transport is increasing by orders of magnitude. The latest Boeing or Airbus? No, the opening of the first Alpine tunnels, the Suez Canal and the Panama Canal in the late 19th/early 20th centuries.

Foreign trade accounts for a third or more of national product. Japan in the 1980s? No, Britain a century earlier. Emerging economies booming and global markets integrating, thanks to massive flows of foreign investment? Been there, done that, too, as European capital built railroads in the US, Canada, Australia and Argentina more than a century ago, and as raw materials, beef and agricultural products were shipped back to feed the industrial machines, and the stomachs, of Europe.

The era from 1850 to 1910 was the first `golden age' of globalisation. Travellers required no passports or visas and capital flowed freely. Even more impressive, 60 million people left Europe between 1850 and 1914 to seek new economic opportunities and political...

NOTE: All illustrations and photos have been removed from this article.

International Economics and Trade

As part of my continuing professional development this summer I will be completing 3 online graduate classes - one of which is BU 631 International Economics and Trade. My first assignment in this class is a summary of Ricardo's Comparative Advantage.

David Ricardo in the preface to On the Principles of Political Economy and Taxation to writes:

"The real price of every thing," says Adam Smith, "what every thing really costs to the man who wants to acquire it, is the toil and trouble of acquiring it. What every thing is really worth to the man who has acquired it, and who wants to dispose of it, or exchange it for something else, is the toil and trouble which it can save to himself, and which it can impose upon other people." (http://www.econlib.org/library/Ricardo/ricP.html)

Ricardo goes on to develop one of the more profound contributions to social thought in his explication of value and the basis of exchange or the “toil and trouble which he can save to himself,” which is the famous comparative advantage. In chapter 7, Ricardo asserts the advantages of free trade in both the international and domestic arenas and them provides his numerical example, frequently included in introductory textbooks.

Analysis of comparative advantage over at 26econ


Other Resources

Larry Summers agrees with Jagdish Bhagwati

In the vein of Jagdish Bhagwati's book - In Defense of Globalization, Larry Summers writes today in the Financial Times:

America needs to make a new case for trade

By Lawrence Summers


While the financial crisis dominates current discussion on the US economy, questions regarding America’s future approach to globalisation are looming increasingly large.

Since the end of the second world war, American economic policy has supported an integrated global economy, stimulating development in poor countries, particularly in Asia, at unprecedented rates. Yet America’s commitment to internationalist economic policy is ever more in doubt. Even before the significant increases in unemployment likely in the months ahead, the indicators are all disturbing. Presidential candidates attack the North American Free Trade Agreement. The Colombian free trade agreement languishes. There are increasing attacks on foreign investment in the US, not to mention growing support for restrictive immigration policies.

http://www.ft.com/cms/s/0/0c185e3a-1478-11dd-a741-0000779fd2ac.html?nclick_check=1

Freer Trade Could Fill the World’s Rice Bowl

In today's NY Times:

By TYLER COWEN

Published: April 27, 2008

RISING food prices mean hunger for millions and also political unrest, as has already been seen in Haiti, Egypt and Ivory Coast. Yes, more expensive energy and bad weather are partly at fault, but the real question is why adjustment hasn’t been easier. A big problem is that the world doesn’t have enough trade in foodstuffs.

The damage that trade restrictions cause is probably most evident in the case of rice. Although rice is the major foodstuff for about half of the world, it is highly protected and regulated. Only about 5 to 7 percent of the world’s rice production is traded across borders; that’s unusually low for an agricultural commodity.

Trade and the impact of change

In preparation for the joint FTE/Liberty Fund conference - Free Trade, Globalization, and Economic Development I have been rereading Dr. Rivoli's The Travels of a T-Shirt in the Global Economy in which she cites her colleague:


"Does the world really need another book about globalization?" Jagdish Bhagwati asks in the introduction to his recent book on the topic.

The answer, in my view, is yes and in addition to Rivoli's book, we are reading Bhagwati's In Defense of Globalization.

Rivoli writes in the preface to her book:

Later writers -- perhaps most artfully Peter Dougherty -- have argued instead that "Economics is part of a larger civilizing project," in which markets depend for their very survival on various forms of the backlash. My T-shirt's story comes down on Dougherty's side: Neither the market nor the backlash alone presents much hope for the poor the world over who farm cotton or stitch T-shirts together, but in the unintentional conspiracy between the two sides there is promise.

My T-shirt's life suggests, however, that the importance of markets might be overstated by both globalizers and critics. While my T-shirt's life story is certainly influenced by competitive economic markets, the key events in the T-shirt's life are less about competitive markets than they are about politics, history, and creative maneuvers to avoid markets. Even those who laud the effects of highly competitive markets are loathe to experience them personally, so the winners at various stages of my T-shirt's life are adept not so much at competing in markets but at avoiding them. The effects of these avoidance maneuvers can have more damaging effects on the poor and powerless than market competition itself. In short, my T-shirt's story has turned out to be less about markets than I would have predicted, and more about the historical and political webs of intrigue in which the markets are embedded. In peeling the onion of my T-shirt's life -- especially as it relates to current debates -- I kept being led back to history and politics.

Economics of development

From Dani Rodrik's blog a reference to 4 excellent essays -

What should the World Bank know and think about governance?

You can read the four short essays on this question produced by Daron Acemoglu, Frank Fukuyama, Doug North, and myself here. There is much convergence of views in these essays, but also some disagreements. Daron and I disagree in particular on two issues: whether industrial policy makes sense or not (me: yes, Daron: no) and whether institutional reform should adopt a best-practice approach or not (me: no, Daron: yes). I take Doug North's views on the latter question to be much closer to mine than to Daron's--or at least they appeared to be so in the discussion following the presentations.