Well-being and development

Yesterday I attended the London launch of the annual UNDP Human Development Report – the title this year is . The report notes the combination of advances in human development over the years – for most people in most countries – with a strong sense of precariousness in many places. This is not only because of economic uncertainty but also the risk of natural disasters, violence, corruption, ill health, industrial accidents. Poverty leaves people ill-equipped to respond to any of these shocks, and some groups such as the very old or young, or women or minorities, are particularly vulnerable.

One of the panellists was Richard Layard, talking about his new co-authored book , which emphasises mental health as an over-looked but vital issue for people’s well-being. In his comments he said mental ill-health was responsible for more misery than unemployment or poverty in the rich countries, and possibly in poor countries too (although I think they are correlated). He described  as “an appalling concept”: a sense of meaning in life is more fundamental than material needs, according to Lord Layard.

He went on to claim that recent well-being research in China shows that the least happy people are those who move from countryside to town, and seemed to be saying this should call into question China’s emphasis on economic growth. While China has certainly paid a high environmental price for industrial growth, and is characterised by great inequality and authoritarian politics, I would certainly challenge the Layard argument at this point. As Khalid Malik, the Director of the HDR pointed out, those discontents who move from countryside to town, to those grim-seeming jobs in factories, don’t want to return to the village.

What’s more, traditional rural societies usually have a gender hierarchy that makes towns far more attractive for women. This point emerged in the recent thoughtful BBC2 programme on garment manufacture in Bangladesh, Clothes to DIe For. Despite the Rana Plaza tragedy, young women still wanted factory jobs.

So why the higher self-reported dissatisfaction by Chinese urban migrants? I don’t know whether the research was able to rule out causality issues like whether the individuals were more dissatisfied and restless to start with, or whether there is something subtle going on with their answers to survey questions.

Of course one of the key attractions of the HDR is that the Human Development Index is exactly a measure that reduces the focus on GDP in favour of an indicator based on , the resources and attributes needed to live a fulfilling life. The top five countries this year are Norway, Australia, Switzerland, Netherlands and the US. If you adjust for income inequality, the US slips 23 places and Germany becomes number 5. The expected quintet of sub-Saharan African countries (Niger, DRC, CAR, Chad and Sierra Leone) are ranked bottom. (Somalia, South Sudan and North Korea would be down there if there were data available.)


Corruption and consumption

Teju Cole’s  is an absolutely terrific book – his  is now on my wish list. It is a portrait of Nigeria – Lagos, rather – by a returned Nigerian. One of his main preoccupations is the absolutely pervasive bribery, which he tries to resist but rarely successfully; another the texture of institutional failure and what that means for the country – and how it is linked to the absence of a sense of why history is important. Highly relevant reading for anybody interested in development economics, not to mention a wonderfully written, moving, fascinating book.

[amazon_image id=”0571307922″ link=”true” target=”_blank” size=”medium” ]Every Day is for the Thief[/amazon_image]

Cole writes: “For many Nigerians, the giving and receiving of bribes, tips, extortion money or alms – the categories are fluid – is not thought of in moral terms. It is either seen as a mild irritant, or as an opportunity. It is a way of getting things done, neither more nor less than what money is there for.”  This is subtly different from Katherine Boo’s explanation for corruption in her book in life in an Indian slum, , where she shows that people are too poor to give up any opportunity to make some money.

Other snippets from : “One goes to the market to participate in the world. As with all things that concern the world, being in the market requires caution. The market – as the essence of the city – is always alive with possibility and danger. Strangers encounter each other in the world’s infinite variety, vigilance is needed. Everyone is there not merely to buy or sell but because it is a duty.”

“The oil and gas business rakes in lurid profits, there has been a great increase in cellphone use, and the banking sector is frenetic. The newspapers are full of mergers and acquisitions. These are the limits of the boom. It is good news in the sense that increased commerce is creating jobs, that the economy is active, and certain practical needs of the people are being met. Things are not as stagnant as they were in the dark days of the early and mid-90s. But there are now mores erious discrepancies in income levels, even among people with comparable educational qualifications. There is little incentive for people to go into professions that are not lucrative. Consumption, among those who can afford it, is conspicuous.”

And you ask, as I suppose you are meant to, who are the thieves.


Taking information seriously in economic policy

Earlier this month I wrote about Joe Stiglitz’s Jean-Jacques Laffont speech at the Tiger Forum, which was based on his new book with Bruce Greenwald, .

[amazon_image id=”0231152140″ link=”true” target=”_blank” size=”medium” ]Creating a Learning Society: A New Approach to Growth, Development, and Social Progress (Kenneth Arrow Lecture Series) (Kenneth J. Arrow Lecture Series)[/amazon_image]

Stiglitz won his Nobel Prize for his massively important work on asymmetric and missing information – how this shapes institutional structures, including markets. His Nobel Lecture is well worth the read.

This book builds on the information-based approach, and links it to other work on endogenous growth theory, which sees the process of growth as a cumulative process in which knowledge builds on earlier knowledge. This makes ideas (including those formalized as ‘intellectual property’) and people (to whom ideas are attached) the key to economic development. Stiglitz and Greenwald introduce industrial policy to endogenous growth models. They cover, among other areas, trade policy, intellectual property regimes, industrial strategy, and competition policy. It’s a somewhat technical book – there are quite a few equations and models at I would say advanced undergraduate level –  although one could skip those bits and still follow the argument.

I agree with the authors’ motivation for this book. They write: “Everyone today speaks of the innovation economy or the knowledge economy, and there have been important advances in the analysis of, say, patents and patent races, and network externalities, to take but two examples. But the full implications …. for the neoclassical model have still not been taken on board. And the implications for policy have been even less absorbed into mainstream thinking.” They go on to point out that it is 40 years since Stiglitz’s work on information questioned fundamentally standard economics results such as the existence of equilibrium, or the uniqueness of equlibrium, but little has changed in the standard approach. I doubt that any ‘mainstream’ economist would challenge the importance of the results on asymmetric information, non-linearities in growth and so on, so it is a puzzle that so few have taken the implications seriously. No doubt the answer lies in the sociology of the profession and academic incentive structures. My sense is that this is now changing.

This book takes the implications of information externalities forward into specific policy areas. It argues that not only can we not presume that a market economy is efficient, but also that industrial and trade policies can demonstrably increase social welfare. “Learning externalities are pervasive and it is a mistake not to take them into account.”

While not agreeing with every specific policy prescription they make, information, knowledge, learning – whatever you want to call it – definitely does change the prism for assessing structural economic policies. Maybe Prof Stiglitz will next write the popular book that makes this shift in perspective accessible to the policy world.

Prof Stiglitz and me at the TSE TIGER Forum


Economists and experts

There was another favourable review of Bill Easterly’s in The Observer yesterday – it doesn’t seem to be online, but here is the FT’s from a few weeks ago.

[amazon_image id=”0465031250″ link=”true” target=”_blank” size=”medium” ]The Tyranny of Experts: Economists, Dictators, and the Forgotten Rights of the Poor[/amazon_image]

I will read it soon. Meanwhile, it reminded me of a passage in Jeremy Adelman’s fabulous biography of Albert Hirschman, . Hirschman was working in Colombia in the early 1950s on a World Bank project, one of its first big country ‘surveys’, led by Lauchlin Currie.  Currie was allowed to turn a survey into a general development ‘master plan’, “Laying the tracks for a problem regarding the place of local knowledge in the business of economic missionizing.” Adelman writes that the plan was, “Coded in the scientific rhetoric of economic missionaries.” Hirschman clashed with Currie in terms of both personalities and ideas. The hallmark of Hirschman’s approach to economic development was exactly the importance of the specifics and local knowledge.

[amazon_image id=”0691163499″ link=”true” target=”_blank” size=”medium” ]Worldly Philosopher: The Odyssey of Albert O. Hirschman[/amazon_image]

I don’t know whether Easterly’s book cites Hirschman, or , who had somewhat similar views and insisted on the importance of historical specificities, but it sounds like their approaches are in sympathy.


Reasons to be cheerful – even if American

A few days ago I reviewed Josef Joffe’s new book, . It’s partly a history of declinism in the US and partly an argument about the near future based on a compare and contrast between the US and (mainly) China. The new insight I took from it was about the way the threat of decline is used as a promise of political redemption in election campaigns.

In a mildly random way, I followed it up with Charles Kenny’s . I thoroughly enjoyed his previous book, , a cheerful survey of the many ways and many places things (life expectancy, incomes, access to technologies, women’s emancipation….) have improved in many countries in recent decades. There is a similar chapter in the new book, and it made for equally uplifting reading.

[amazon_image id=”0465064736″ link=”true” target=”_blank” size=”medium” ]Upside of Down[/amazon_image]

One of the most telling sections looks at the Democratic Republic of Congo. As Kenny reminds us, it was the setting for Conrad’s , having suffered the depredations of Belgian colonial rule (now there’s a real example of decline from imperial might!). DRC suffered through Mobutu’s rule and a decade-long civil war that killed millions of people. Rape was rife, HIV infection ran amok. This is not a good news story. Even in DRC, though, infant and maternal mortality rates of declined, as has the prevalence of HIV. Two-thirds of children have been vaccinated against diptheria, pertussis and tetanus, and about 40% with symptoms of malaria or pneumonia get medication. School enrollment has risen to match the 1980s level in Kuwait or Honduras. All this on public spending on health and education of $9 per person per year.

The rest of the book moves from the evidence of progress around the world to consider its implications, especially for “us” in the old west. Kenny wants to persuade others that the march of progress is a positive sum game, not least because of the self-fulfilling nature of global economic relations – the belief that flows of goods, capital and people are mutually beneficial is part of what makes them so. I for one agree that we need to think about the global economy in this dynamic, interlinked, increasing returns, non-linear manner, where the choice is broadly speaking between joint contraction and joint expansion over time. So it wasn’t hard for the book to persuade me that western economies will benefit from growth in emerging markets or BRICs, or of the “Folly of Fortress Thinking”, to cite one chapter title. No doubt other readers will be nore inclined to stick with the global race metaphor, where your country is a winner or loser.

I had the most doubts about the chapter on the environmental impact of global growth. The conclusion is upbeat: “With bold but plausible and affordable action, the planet can enjoy continued global growth, convergence in living standards, and two billion more people, all while preserving the global commons.” The chapter ticks off one by one potential environmental limits, and some are less worrying than others. The depletion of minerals for instance, or the scope for agricultural productivity gains and cutting meat consumption. But, thinking back to Mark Lynas’s , I think Kenny skates over the question of water too quickly, and is just a bit too cheerful about climate change risks. Of all the environmental questions economics needs to address, the interaction between energy and growth is surely the key one. One aspect of this chapter I did enjoy, though, was the mischievous characterisation of environmentalists: “Once you’ve convinced yourself that the world is on an inevitable course to disaster if … India builds another car factory, then the only logical thing to do … is to sit back, put your TOMS-shod feet up on the couch, and drink microbrewed herbal tea until civilisation collapses.” Fun – but maybe too dismissive of some genuine concern.

Will either this book or Joffe’s persuade Americans and other westerners not to be pessimistic? Doubtful. The emotional power of the narrative, and perhaps its political usefulness as Joffe argues, will sustain the declinists. I’m sure people will read  but often to argue with it – the narrative of Anglo-Saxon cheerfulness when the dynamism in the world has moved to Asia has an uphill struggle.