Collaborative Development

One of your colleagues who attended Nestle's conference on Creating-Shared Value last week would like to share some thoughts with those of you who were interested, but did not manage to attend. Please read Ankit's notes that are now posted to Moodle. The conference seems to have proposed a new notion of "collaborative development", based on strong partnerships between the government, the private sector and the non-profit sector.

The shape and form of these partnerships should be the matter of further experimentation. We still know very little about what partnerships (if any) work, under what circumstances and for how long... Here is a vivid example from Haiti on how difficult it is to engender these relationships from scratch.

Conspiracy theories and development

A recent talk this week at the LSE on climate change denial and conspiracy theories by Stephan Lewandowsky has had me thinking about conspiracy theories more generally. The speaker made a rather striking claim that 'the capitalist individualist economy' encourages this kind of thinking, a claim which I find (without any evidence) to be absurd. I've never heard more conspiracy theories than I did in Egypt, and today in the NYT this article reports on the phenomenon in Pakistan. Are these kinds of widespread (mis)beliefs the result of analytical illiteracy, poor journalism, authoritarian government, or something else? Are they damaging economically or politically? Is this a reasonable topic for more research?

Coming soon ... Enhanced Bailout ..?

The recent global financial crisis and related euro/Greek crisis have proven a goldmine for thinking about high discount rate behaviour, moral hazard, time inconsistency and the importance of credibility for policy effectiveness. Now comes Obama's pledge to end bank bailouts 'once and for all.' Whether or not this is a good idea, is it a credible threat? Can the U.S. government pull it off? Could the EU pull it off? If it becomes U.S. law personally I actually think it might be a fairly strong and reasonably credible threat (hence all the banks' jitters at the thought!), at least over the medium term, but perhaps I am naively confident of my own government (question: what is required for credibility: that in fact they will hold steady, or that people simply believe they will hold steady...). What about the UK and EU? Would similar threats be credible from them? How does the heterogeneous credibility shape the international financial and economic landscape?

Endogenous political power

Why do some groups of people, and some countries, have more political power than others? Is the relative wealth of the more powerful a consequence, or a cause, of that power? Should we take relative political weight to be an exogenous factor when analyzing policy? Is there a difference between the micro cases and the macro, the short run and the long run? The recent global financial crisis and immediate euro-zone crisis provide an interesting real-life and up-close view of changing balances in political and economic power that may persist (or not!) for some time, long after these immediate events have faded from memory. An op-ed in the Financial Times today provides one interpretation of those shifting seats of power. Only time will tell if the writer is correct ...

Measuring progress and human well being

The GDP is by far the most common measure of economic well-being, and there are many good reasons for this. But as we have discussed this year, it also has a number of shortcomings. An article in this week's New York Times Sunday Magazine examines some of these criticisms (excerpt: “The main barrier to getting progress has been that statistical agencies around the world are run by economists and statisticians...”) and discusses a few interesting alternatives, including a new database on 'The State of the USA' coming online soon.

Doing charity is more difficult than we think...

In 2004, the end of the WTO's Multi-Fibre Agreement flooded world markets with Chinese textiles. This accelerated the decline of the textile industry across the African continent, posing great challenges to countries that were becoming fairly competitive in the export of garments like Madagascar, Lesotho and Kenya (at least in the short-run!). A couple of years later, a well-intentioned charity is heavily criticized for trying to do the same. This is the latest installment in the debate about aid in the developing world.

While careful economic analysis could have saved Sadler some grief, the interesting part was that this whole story unfolded very quickly under the scrutiny of many. Sadler's attempt to ship used t-shirts to Africa drew the ire of economists, bloggers and aid experts. Faced with such scrutiny and criticism, he backed down, suspended his efforts and decided to harness the power of networks and social media to save face and re-invent his charity. What then, he asked, should he be doing to help Africa? Let's keep an eye out to see how this story ends.

Coming soon to an auditorium near you

Next week will bring to LSE two heavyweights in their respective fields who have been dubbed the profits of doom. Nouriel Roubini was one of the few economists to warn about the impending financial crisis while Bill Easterly never misses an opportunity to tell us how the aid industry can doom development if it continues on its current path.

While Bill shares some of Angus Deaton's concerns about the merits of experiments, his scientific and methodological approach to development economics and policy is actually not that different from that of Duflo et al. He refutes top-down policy-making arguing instead for decentralized experimentation to find out what really works in development. And yet conformity rents are pretty low in the scholarly profession (why?) so if asked, I bet he would not see it this way....

His nemesis will stop by later in the month as well. Busy times!

A household name for DV409

Here is the latest talk by Esther Duflo on how to improve development policy. She is this year's winner of the Clark medal and last year's winner of a MacArthur Genius Grant. A sign that the gap between scientific research and public policy is slowly being bridged.

HIV/AIDS and international aid effectiveness

The last post presented some optimistic data suggesting that many of the world's poor are better off. An article in today's New York Times, however, paints a more disturbing picture when it comes to HIV/AIDS in Africa.

Beyond the immediate human tragedy of the illness, the article raises a number of very difficult questions about the role of international aid. Currently the world (mostly the U.S.) spends about $10 Billion on HIV/AIDS, whereas it would cost more than twice that to control the epidemic. Given the heartbreaking scenes described in the article, this seems like the right thing to do. But is it? It costs about $11,000 to save the life of an African with HIV, but...

"Donors have decided that is too much, that more lives can be saved by concentrating on child-killers like stillbirth, pneumonia, diarrhea, malaria, measles, and tetanus. Cures for those killers, like antibiotics, mosquito nets, rehydration salts, water filters, shots and deworming pills, cost $1 to $10."

So there are trade-offs; if the objective is to save the most lives for a given budget, how should the money be allocated?

The debate also touches on questions of aid effectiveness. In DV409 we found that there was no robust macro-econometric evidence that aid increases economic growth. However from the descriptions in the article of the millions of Africans benefiting from HIV antiretrovirals financed through international aid, this would seem to be a straightforward case of aid really making a big difference.

Or is it? What might have happened in the absence of that aid? Once the price of drugs had fallen, would the recipient African governments have stepped up to fund treatments for their own citizens themselves? To what extent is aid fungible and to what extent could aid flows be subsidizing other spending on not-so-laudable priorities? These are counterfactual situations that can only be speculated on, but the article hints at an underlying situation that is complex and difficult to control:

"United States Embassy officials debated adding $38 million, he said, but cabinet-level Ugandan ministers had been caught stealing from other donors and, though forced to repay the money, were not jailed. The government “hasn’t shown the leadership or commitment to transparency to earn additional funds,” the official added.

Also, he said, Uganda contributes too little. Oil was recently discovered near Lake Albert and the government promised to spend the royalties on roads and electricity, but did not mention AIDS.

“And now the paper says they’re buying Russian jets,” another official added with obvious disgust. Uganda is negotiating for a $300 million squadron of Sukhoi fighter-bombers. "

The article really paints a picture of the international aid community stuck between the proverbial rock and a hard place - What do you think?