Tag Archives: poverty

A GLOBAL COMPACT TO END POVERTY

A GLOBAL COMPACT TO END POVERTY

J. Sachs

Chapter 14 The End of Poverty: How We Can Make It Happen In Our Lifetime

 A Summary

In a nutshell: a global deal to end poverty. The two sides of the bargain are that poor countries take ending poverty seriously by devoting more resources to this goal; the rich countries in turn make a serious investment in terms of aid. The basic targets that are to be met are the Millennium Development Goals (http://www.un.org/millenniumgoals/)

 Why? Progress is much slower than it seems – in public IMF says how well e.g. Ethiopia is doing whilst in private they admit there is not enough money for health care etc. (health care seen as luxury of development [Sen disagrees here]).

 How? A big push of aid and technology transfers. In order to obtain extra funds we must start being honest with the real state of development in the poorest nations and donors should then realise what their duty is.

 The details

  • Poor countries have no “right” to reach the MDGs – in order to earn the right they must commit to a programme of good governance. For authoritarian and other such regimes “the consequences for the population are likely to be tragic, but the responsibilities of the rich world are also limited” [compare with Collier interventionalist stance]
  • Rich countries must prove they are willing to help well governed countries by providing sufficient aid and other assistance.
  • The Secretary General of the UN must oversee all development, i.e. top down development planning. Individual countries will create a poverty reduction strategy based on the MDGs (such as Ghana and other countries already have – but they are chronically under-funded http://planipolis.iiep.unesco.org/upload/Ghana/PRSP/Ghana%20PRSP%20June%202006.pdf)
  • Currently there is no consultation with the recipient countries as to how much aid they need. They are presented with a figure and told to work with it. When Ghana wrote its PRS it requested $8bn ($75 per person per year) which would enable to meet the MDGs. They were told this was unrealistic and they had to re-draft and re-draft until the figure was down to the $2bn figure that had in fact already been decided upon. With that plan reaching the MDGs is not possible.

 An MDG based PRS

           Differential Diagnosis – identifies investments and policies to achieve MDGs

  • Investment Plan – shows costs, timing and size of investments. [How exactly is a country supposed to write a plan to address all of the MDGs i.e. addressing health, education, poverty, hunger etc? This idea starts from the premise that we know what is wrong with the systems in a country, we know how to solve them, and we will be able to do so for all such defective systems simultaneously. Is this realistic?]
  • Financing Plan – how it is to be paid for, including the funding gap which must then be filled by donor aid.
  • Donor Plan – gives details of donor commitments.
  • Public Management Plan – outlines mechanisms of governance and administration. 
  • By changing planning from year to year to a long term view we can change the world e.g. in two years we can train community health care workers and doctors can be attracted by raised salaries. With 5 year plan med schools can be enlarged. With 10 year plan new schools can be built etc. and health care has been dealt with. I.e. there is sufficient absorptive capacity (ability to use large amounts of aid) in developing countries, but a long view must be taken. [This does not seem to allow for a plan for eventual non-reliance on aid. How is this to be financed after 10 years?]

 The Donor Commitment

    Magnitude – aid must be sufficient to finance the PRS. At present this is not the case.

  • Timing – unlike current methods aid should be given in long term patterns to allow for a 10 year plan to be enacted.
  • Predictability – aid must be delivered in predictable manner, as sudden cessation of aid in countries where it may make up to 30% GDP per year will have serious macroeconomic consequences.
  • Harmonisation – rather than a score of small “pet” projects all aid should be directed through a single agency that provides all bilateral aid.

 Regional Groupings

  • Currently not enough work done on multi-country programmes. E.g. the road that connects the port of Mombassa with the rest of Kenya/Uganda/Rwanda/Burundi. Maintenance is piecemeal whereas the response should be co-ordinated to incorporate all 4 countries.
  • The motive for such collective response is that it increases efficiency, and such projects increase “peer review” and collective pressure for good governance.

 Global Policies for Poverty Reduction

  1. Debt – grants, not debt. Once it became clear the developing world was saddled with too much debt, the payments should have been cancelled. We must make grants (like the Marshall Plan post WWII) as the developing economies are too fragile for huge debt.
  2. Global Trade Policy – developing countries must increase exports to earn forex for imports of capital goods. Trade + aid, (vs. Trade not aid). Trade alone is insufficient as the benefits tens to accrue largely to the rich economies. Agricultural trade specifically must be liberalized (but this will not solve everything as Africa is a net importer of food).
  3. Science for Development – technology needs to be developed and distributed to stop some of the causes of poverty. E.g. disease prevention, new seed crop development, water-management, climate predicting and warning technologies. $7bn a year is needed for R&D.

 Who Administers the Aid?

  • This should be in the hands of the secretary general of the UN as he is best placed to coordinate all the various other agencies.
  • Each country to have a dedicated UN development team.
  • This is because at present the burden of too many agencies at work in each country (and all the paperwork that entails) is too great on the developing world. The agencies do not coordinate and are not providing a targeted response to poverty.
  • It must be the UN as the IMF and World Bank are controlled by the rich (as $1 contribution gets 1 vote, so USA etc. have majority control and the process is not democratic.
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INTERNAL INCONSISTENCIES: LINKING THE WASHINGTON CONSENSUS AND POVERTY IN LATIN AMERICA

INTERNAL INCONSISTENCIES: LINKING THE WASHINGTON CONSENSUS AND POVERTY IN LATIN AMERICA

 

Rory Creedon LSE MPA (ID)

GV444

 Follow this link for the full essay: POVERTY AND THE WASHINGTON CONSENSUS

In what way did the Washington Consensus affect poverty in Latin America?

 There is a wealth of qualitative evidence that links the increase in poverty seen in Latin America between 1980 and 2002 to the free-market reforms undertaken in that period. There is a particularly strong association between poverty and the negative effects on employment of sudden exposure to external competition.[1] Empirically however, the causal underpinning of this correlation is somewhat more controversial. Characteristic of the debate is the differing stance taken by Huber & Solt as against Walton. The former conclude that there is a clear statistical link between poverty and the reforms[2]  whereas the latter maintains that once other macro level variables are controlled for there is no statistically significant relationship.[3] These contradictory stances are evidence of the chronic endogeneity and omitted variable problems that plague macro level empirical analysis of this sort, and whilst it is prudent to be sensitive to these different debates, this paper starts from the non-controversial assumption that the policies of the Washington Consensus at best did very little to address the problem of poverty in Latin America, and at worst failed to prevent a large scale increase in the number of people living in poverty. This essay argues that this failure sprung from an internal inconsistency between the initial concept of the Washington Consensus as a short term plan for macroeconomic stabilization, and the policy tools recommended. Whilst certain of the policy tools were pertinent for addressing the severe hyperinflation and balance of payments problems faced by Latin American economies (particularly reducing fiscal deficits, and ensuring a competitive exchange rate), others (particularly trade liberalization) should have been part of a more comprehensive development strategy. This conceptual confusion led to implementation of long-term development strategy policies as though they were short-term macroeconomic policy programmes and this kept poverty extremely high in Latin America.


[1] SAPRIN The Policy Roots of Economic Crisis and Poverty (2002)

[2] E. Huber and F. Solt Successes and Failures of Neoliberalism  Latin American Research Review, Vol. 39, No. 3 (2004) pg.156

[3] M Walton Neoliberalism in Latin America: Good, Bad, or Incomplete? Latin American Research Review, Vol. 39, No. 3 (2004) pg. 174

INFORMALITY AND DISTRIBUTIVE POLITICS

INFORMALITY AND DISTRIBUTIVE POLITICS

Follow this link for full essay: INFORMALITY AND DISTRIBUTIVE POLITICS(final)

Rory Creedon London School of Economics (MPA ID)

 Introduction

An individual’s preferences regarding taxation may be derived from a number of sources such as the distance between his income and the average income[1] or notions of social justice. A further particularly salient source is that presented by Alesina and Rodrik [2]. Individuals, they argue, are endowed with labour, capital, or most likely a mixture of the two, whilst governments make productive investments financed by a tax on capital. The basic result of their model is that an individual who derives all of his income from capital will prefer the tax rate that maximizes the economy’s growth rate, whereas anyone who earns even part of his income by selling his labour will prefer a lower tax rate and a correspondingly lower growth rate.[3] To this insight I would like to add another: that the presence of a large informal economy will affect the preferences for taxation of both capitalists and wage earners.

The directional influence that a large informal economy will have on preferences for taxation is not discernable a priori. This is because the true nature of the key mechanism by which the informal economy affects preferences for taxation, namely the interaction between the informal and formal economy, is disputed. This essay analyses two major lines of thought on how the informal economy interacts with the formal economy. Dualists argue that the informal economy is a separate marginal sector not linked to the formal sector in any significant way. Structuralists on the other hand maintain that both the informal and formal economy are part of the same capitalist spectrum.[4] This essay does not assert the primacy of either of these views. Rather, within the stylized model presented by Alesina and Rodrik with the additional assumption of a large informal economy, I seek to emphasize that preferences over taxation will vary according to whether the true nature of the informal sector is closest to the dualist or structuralist tradition, thus reaffirming the importance of the debate. Arguments and examples are drawn largely from the literature surrounding the informal economy of Latin America as the extent of the informal economy in that region is such that it is impossible to ignore in terms of policy making and preferences over policy[5]. Additionally a particularly rich vein of scholarship has emerged in relation to the Latin American informal economy.


[1] A.H. Meltzer & S.F. Richard, A Rational Theory of the Size of Government The Journal of Political Economy, Vol. 89, No. 5, (Oct., 1981)  pp.916

[2] A. Alesina & D. Rodrik, Distributive Politics and Economic Growth The Quarterly Journal of Economics, Vol. 109, No. 2, (May 1994) pp. 465-90.

[3] Ibid. pg. 466

[4] M. Carr & M.A. Chen, Globalization and the Informal Economy: How Global Trade and Investment Impact on the Working Poor, ILO Employment Sector Working Paper on the Informal Economy, No. 1, Geneva, ILO pg. 5

[5] J.R. Franks Macroeconomic Policy and the Informal Sector in C. Rakowski (ed.) Contrapunto: The Informal Sector Debate in Latin America, New York: State University of New York Press (1994)