Ghanaian Elections 2012

           After reading Annelise’s paper for the peer critique and seeing Ghana’s election results today, I couldn’t help but notice how relevant her argument is to Ghana’s current situation, and how my previous post about Ghana’s global rise and its label as the fastest growing economy in 2011 (TIME) are highly applicable. There is an interesting dichotomy in Ghana’s elections, because they are democratic and there are two predominant parties, NDC and NPP, which makes the political sphere very modern, but the elections are centered on controlling the oil revenues, which makes it somewhat rudimentary. The combination of being one of the world’s fastest growing economies and being Africa’s most stable democracy (BBC) presents a unique reality, as the growth is currently from the resource sectors, but it said to be invested in sustainable infrastructure and economic growth.

            Much talk on natural resources centers around the natural resource curse that Paul Collier speaks of, and we have seen many countries fail with the economy of natural resources as their foundation, such as Chad and Nigeria. In response, there are many different arguments regarding natural resources. Some advocate to not invest in oil extraction, others say that investment must be conditioned with policies, etc. However, Ghana presents a condition that other African countries do not have: it has a high-quality government that is capable of handling resource rents. These rents often force other countries to succumb to resource dependence, as Nigeria discovered oil many years ago, but it has failed to develop and many of its citizens still live on $1.25 a day (Oxford).

            Ghana not only has the potential, but also the political will to circumvent this resource curse and handle its revenues well. John Mahama of the NDC (who just won the election) has promised that his long-term investments in infrastructure will fuel long-term growth for Ghana and enable them to escape reliance on the resource sector (Madison), while Akufo-Addo of the NPP claimed that he would use resource wealth to offer free education. Recent news claims that the NDC has secured the election with 50.7% of the vote (ModernGhana), which, according to statements made by both candidates, will ensure that oil revenue is invested well.

            However, news also states that because of the extremely close election, there is much tension in the country (ModernGhana). This presents another interesting dichotomy, because although Ghana is considered to be Africa’s most stable democracy, high tensions over this election could potentially lead to some destabilization. While it is a positive thing to have high voter participation and civic engagement, this election had an 80% voter turnout (BBC), so citizens are extremely impassioned about the election results and could become violent, according to some. This high civic participation does indicate that citizens are concerned about government action and also have a say “in how government will use oil revenues in the future” (Madison), so the Ghanaian government is held accountable to citizens.

            This fact alone prevents the natural resource curse, because in authoritarian regimes with resource rents, political leaders are not held accountable to citizens, but in the Ghanaian democracy, citizens and leaders hold each other accountable. Despite the fact that there is raising tension surrounding these elections, both parties claim that they will use oil revenues for investment in a sustainable economy. The elections may produce short-term unrest, but as long as the resource industry is still utilized to produce a sustainable economy, Ghana will remain to be a predominant African success story.

http://www.modernghana.com/news/435039/1/npp-protests-ghana-2012-elections-results.html

http://www.bbc.co.uk/news/world-africa-20660228

Hope, Doubt, or Both?

I am always intrigued by The Economist’s thoughts on development of Africa (as if I hadn’t made this obvious already), but statements made in a recent post on the hope of the Sahara startled me. The article begins in the fashion of most, discussing the lack of political sovereignty of African states. However, it does state that the practices of “free and fair elections” are more commonly practiced than in the past. While some governments seem to be developing more justifiable systems, such as that of Ghana, elections in eastern Africa are causing much rebellion and unrest, so I find this statement somewhat contradictory. While some states are practicing better governance, some are only getting worse.

The article addresses that the countries typically rely on resource wealth, and with a very large young generation coming into the workplace, new industry must be created. This is true, as primary commodities are now 80% of sub-Saharan Africa’s commodity exports (Carmody, 39), and this is not at all a sustainable industry. Ghana specifically had a “growth rate of 13.4 per cent in 2011” (Ghanaweb) and 39% of their population is under age 15 (prb), so this is an African example for true potential. However, most countries have this large percentage of a young population without a high growth rate to match.

The article addresses that this century could turn out to be Africa’s century instead of Asia’s, but this can only occur if Africa is given the opportunity to achieve success with a sustainable economy and polity. Currently, Ghana is the best example of this, but no African country is on their way to beating out Asia any time soon. Asia took advantage of globalization in the 1980’s, so they have over a 20-year head start on Africa and have already developed a significant price gap between the two continents. “China didn’t have to compete with China” (Carmody&Hampwaye, 97), so claiming that Africa can succeed by simply developing industry is only skimming the surface of the problem.

The article then introduces a peculiar fact, that the “population is becoming increasingly urbanized.” The author claims that this will make citizens petition for better governance. However, I don’t entirely buy into this. A country becoming urbanized does not necessarily mean that the citizens will become more informed and even if they did, neopatrimonial leaders are usually not responsive. Also, an urbanization involving working, middle-class citizens that usually are involved in government requires industry to draw people to the cities. However, in reference to the author’s earlier mention of Africa’s dependence on natural resources, this doesn’t add up. People will not move by the masses into a city if there are no industries.

However, I found the last paragraph of the article to be the most contradictory. Mo Ibrahim, a Sudanese billionaire offers a $5 million prize to “a democratically elected African leader who has governed well, raised living standards, and then voluntarily left office.” The article concludes with the hope that maybe this will happen soon. While having leaders like this in Africa would be highly beneficial and a drastic change from precedent, the incentives are just those that are perpetuating corruption now. Leaders are not held accountable to their citizens and receive mass amounts of wealth, so their actions are driven by their greed. Leaders often promise reform and don’t follow through to receive funds for themselves. While this incentive does guarantee good policy, the draw to a large amount of money worries me in that it could still attract crooks. Offering good governance with an extensive monetary reward is not creating new social norms or instilling better values; it is only perpetuating inequality and neopatriotism.

I agree that Africa has many reasons to both hope and doubt its future, but placing its hope in the fact that Africa will outrun Asia and good governance will come from monetary incentives doesn’t sound promising. Sustainable industry must take top priority if true reform is going to take place.

http://www.economist.com/blogs/theworldin2013/2012/11/africas-future

Ghana on the Rise

            In response to Annelise’s most recent blog post, I also found it refreshing to hear African leaders and political figures speaking against government corruption and in favor of distributing their natural resource wealth. Throughout the semester in my research, I’ve repeatedly come across the ramifications that corruption and the natural resource curse create in Africa. As Ghana had the fastest growing economy in the world last year, having good governance is absolutely crucial if they are to stay on the rise.

            As Annelise points out, Akufo-Addo says that he will make secondary school free with the funds from the booming oil industry. This directly correlates to the TIME article, as the population in African countries is very young. While many take this as an indicator for success, unless funds are invested in education and industry, the young population will not be able to develop Africa as is currently hoped. Once the booming oil industry is handled correctly, Africa has a much better hope of developing although most countries are not making these claims of better investment strategies. Furthermore, Paul Collier points out that African countries must only promise political and economic reform to gain support and attract investors, so we must still be wary that all Ghana is promising will become a reality.

            Annelise also says that Ghana is “encouraging foreign extraction companies to buy products from Ghana and employ Ghanaians,” which I fully support, but can’t help but wonder how they are doing this. As African countries typically have little say in global governance and FDI implications, I’m not sure that only encouragement will work. In addition, these claims were made in debates, so could it just be rhetoric? While I do believe that Ghanaians and their politicians truly want development to occur, as we have recently seen in the natural resource sector, I question whether they have the means to redirect foreign investment.

            Nonetheless, when looking at the Economist article that Annelise refers to, there are multiple remarks about good governance. Mr. Rawlings is “rallying against corruption” and Vitus Azeen of the Ghana Integrity Initiative challenges the people to “take action against those who are alleged to be responsible for corrupt acts” especially in the political party. The convicting words of Ghanaian leaders do give more hope than Collier gives to most African economies. Their challenge to the people and politicians implies that Ghana may hold itself and its citizens accountable for their actions unlike previous African states have.

            While Ghana will have many more hurdles on its path to development, establishment of a just oil industry, and creating opportunities outside of natural resources, it is well on its way with the foundations it is currently setting. If these statements prove to be more than politician’s rhetoric, Ghana has a much better change of continuing its massive GDP increase of 2011 and not become another natural resource curse failure. 

Africa: Rise or Uprise?

While at home for Thanksgiving, I flipped through the newest TIME magazine and stumbled upon a two-page spread with only the words “Africa Rising”; this caught my attention. The following page begins with the story of Boniface Mwangi, a previous photographer turned guerrilla art attack leader in Kenya. He realized that he was creating his wealth from capturing the corruption and failed promises of Kenyan leaders, so began to rebel across Nairobi. His actions directly parallel Paul Collier’s depiction of Africa. He claims there is bad governance and that the region has succumbed to many curses, and one of the best things for industrialized nations to do is support the rebels, such as Mr. Mwangi. Rebels and other African citizens are walking a fine line between “Africa rising and Africa uprising,” as they endeavor to develop Africa and escape the abject poverty that many currently live in.

            However, although there is much turmoil in the country, the article points out that in the past decade, “six of the ten fastest-growing countries in the world were African,” and that 5 African countries are expected to outgrow China this year. This is not only startling in relation to the stigma of the African economy, but for my research paper I have been exploring this very thing. I have found that Africa lags behind China and Asian success is the exact reason for this. The sources I am using are predominantly from 2007-2010, possibly exhibiting how quickly and drastically Africa has been on the rise. On the other hand, this drastic growth could continue to be from oil and other natural resource revenue, something that I wouldn’t exactly indicate as sustainable growth.

            The article readily addresses this, specifically by returning to the “predatory inequality and clownish tyranny” that Collier addresses in his book. The article claims that rulers are now held less accountable than they were in the past to good governance because of their material improvements. Because the numbers show growth, political deterioration is often overlooked. In response to this, Africa’s best hope may not be through current rebel groups, but from its extremely young population. “The average African is 19” and because of foreign aid, 108 million more African school age children are expected to be educated in the next decade. Because of the current corrupt political regimes, I am assuming that this aid is conditioned or given in the form of education rather than purely cash money.

            Over the last few years, aid has surprisingly been outpaced by investment, and in 2012 investment now doubles aid in Africa. While this investment is in the business sector, there is also a “concurrent interest in Africa’s natural resources, led by China,” so an unstable economy may still come from all of the current hype on Africa’s rise. There are a lucky few who have entered the business world and given Nairobi the nickname of the “Silicon Savanna,” but most are not so lucky. With the substantial increases in revenue from investment, mainly in oil and other resource sectors, “governments are failing to convert growth into jobs” which presents a huge problem for this rising, young population once they aren’t school age, but working age.

            The article correctly states that “the answer lies less in Africa’s traditional extractive industries,” as these often feed more corruption and inequality and discourage investment in education and trades. However, if this is not explored the “disconnect between government and people” could prove devastating, paving the way for an uprising destined to happen if nothing is done. Marginalization is an area I’ve explored in my essay, something Padraig Carmody and Collier both readily address, but mostly from an economic perspective. The article addresses the inequality it creates, but it also explores how it aggravates existing “tribal, racial, and religious fault lines,” thus tying in the social issues with political and economic ones.

            The article then takes a twist, as it shifts towards the entrepreneurial spirit that Africans exhibit, as well as outside governments looking in. China indeed taken the lead in Africa, specializing in “infrastructure-for-resource swaps” while other countries are usually interested only in natural resources. However, it seems to paint China is too good of a light for my liking. While China does invest more in infrastructure than many other countries, it still enacts the marginalization and extraction that the article spoke of earlier. Countries are predominantly self-interested, and as China continues to be on the global rise, it attempts to better its own standing, which means exploiting Africa and its week states.

            Carmody speaks of the scramble for Africa happening again, this time in a scramble for natural resources. Carmody and other authors are wary of this scramble and the possible re-colonization it could cause, as Africa is being taken advantage of once again. However, the article stresses that this scramble “should leave Africa as the big winner” because Africa has things other countries need. However true this is, the first scramble for Africa also needed things in Africa and that didn’t exactly leave the continent prospering. The article correctly states soon after with the right governments, Africa has opportunity for success, and this would make their previous statement true. However, little is currently being done by Africa or other entities to better the governance of Africa and its countries.

            Africa possibly has the most hope right now of all the continents, with Ghana even having grown 14.4% in 2011 and Kenya exhibiting a mobile banking boom, but this alone is not indicative of growth. Africa may have an entrepreneurial spirit and many possibilities with a young, educated population, but unless countries start investing in industry and not natural resource extraction and African states starting putting more emphasis on non-extractive industries, Africa will be on the path for an uprising and not a rise. 

Incumbency Implications for Trade

In a recent article by the Economist, the reelection of President Obama is questioned as to what this means for future trade policy. On the one hand, “there are hopes that a second-term president might inch closer to European views on the Middle East or climate change” because incumbents no longer have to put on a façade to keep the voters happy.  However, they address that Europe’s supposed declining status could put a damper on things. If Obama claims that sanctions have failed in the Middle East, as we discussed in class earlier in the term, he may not have enough support from Europe to become even tougher. The situation is similar in China, as the US may not have support from Europe to enact its intended policies.

            Regarding Europe specifically, the article urges European countries to “refrain from throwing Greece out of the Euro and move towards deeper integration,” thus making things even tougher on Germany, as we discussed today in class. President Obama does not advocate for “everlasting austerity” domestically or internationally, which is, I think, an interesting application considering most austerity we have spoken of involves development. It is obvious that austerity can be applied amongst developed countries, but it takes a slightly different connotation in this light, as it is more a matter of cooperation and good relations than the survival of a country.

            Setting aside their disagreements, America and Europe still maintain the “closest and richest” relationship in the world, accounting for almost half of global GDP and almost 1/3 of trade. This being said, their alliance is critical, and the Economist pushes for a “free-trade agreement” between the two entities. The European Commission indicates this would increase trans-atlantic trade by almost 50% even though tariffs are already very low.

            First off, this raises the question of non-tariff barriers, which the Economist addresses, but is very dismissive about. Non-tariff barriers were addressed extensively in the Coughlin reading, and regulations specifically would be a major setback if trying to establish free trade.

            However, the biggest concern this raised for me was one of morality. I’m not entirely sure the process countries go through when establishing free trade, but it seems as though our country’s efforts and funds would be better spent towards developing countries. If President Obama is truly not practicing austerity, the government should redirect its attention to lessening austerity on underdeveloped areas. The US is obviously aware of the current success of China and the setbacks it has created for the underdeveloped world, and the US and Europe both have the capacity to lessen this enormous gap in development. While we should not swoop in to save these countries, we must give them the opportunity for success. Now that it is Obama’s second term in office, he does have more leeway in his actions and has the opportunity to focus on international issues on a larger scale. As he does so, I can only hope he doesn’t get completely caught up in European agreements and sets some of his efforts aside towards countries that would benefit much more from free-trade or simply lower tariffs than the most developed nations in the world. 

The Developed and Developing Flip-Flop

Today’s headline for UN wire is “Developing Economies to be Bigger than Developed in 50 Years,” a striking title to say the least. They claim that China will become the world’s largest economy in the next four years, setting the stage for developing countries to surpass developed countries. They also anticipate the incomes of citizens in developing countries to quadruple. The OECD claims that inequality will persist, as  “living standards in the emerging countries will still only be 25%-60% of the level enjoyed by those in the US.” This is still significant, as many underdeveloped countries exhibit negative absolute growth rates; their relative growth rates are simply plummeting.

Let’s start with China and India, countries many of our readings have been focusing on. These two countries benefitted greatly from the 1980’s surge in globalization and are now taking over the economies of previously developed areas. China is expected to surpass the US by 2016 and India is well on its way to surpassing Japan and is “forecast to pass the eurozone in about 20 years.” China’s world GDP as of 2011 was 17% and is expected to grow to 27.8% by 2060; India’s was 6.6% and is expected to grow to 18.2%. The guardian takes the claims of the UN even further, claiming that China is on the rise now, but India and Indonesia will have the highest growth rates by 2020. Productivity is the main driver of this growth, as technology and human capital is spreading rapidly.

In light of Collier’s, The Bottom Billion, he claims that for underdeveloped countries to truly benefit from the current surge of globalization, they need conditioned protection from Asia (similar to the infant industry argument that Crystal and Wood advocate against). If China and other areas in Asia truly are growing at these unprecedented rates, the price gap will form that Collier states is necessary. Once this price gap is created, underdeveloped countries such as those in Africa, Latin America, and Southeast Asia will have the opportunity and capability to develop their economies. However, unless Asia provides some protection for these areas, the price gap they create may not be enough to create the massive rise in economies that the UN, OECD, and the guardian anticipate.

If the increase in productivity actually does occur in underdeveloped areas (indicating developed economies), trend unemployment is expected to return to pre-crisis level and global growth is expected to be about 3% per year. We must keep in mind though that this positive number must be taken in consideration with the very high numbers that China and India provide; we cannot assume that sustainable growth will be occurring in all developing areas. This makes me wonder how prevalent Professor Anderson’s talk is to this situation. He claims that the percentage of Chinese in a country is a large indicator of their economic growth, so I question whether the rise in China’s economy will have multiplied effects on areas with a large percentage of a Chinese population or if the relative success of China does not effect the Chinese diaspora abroad.

As the Chinese continue to have near exponential growth, we must closely watch and monitor underdeveloped areas and we cannot assume that they will experience the four-fold growth the guardian speaks of. The success of China will undoubtedly create the opportunity for growth, but without some protection and global governance, the corrupt regimes and natural resource dependence that is indicative of many stagnant areas will prevent sustainable development.

http://www.guardian.co.uk/global-development/datablog/2012/nov/09/developing-economies-overtake-west-2050-oecd-forecasts

http://www.smartbrief.com/getLast.action?mode=last&b=un_wire

Your Next Language: Spanish or Chinese

After speaking with and listening to Steve Vetter, I have been presented with some striking stories and career path proposals regarding immigrant and international development. Experientially, Steve has worked extensively with the immigrant population from Latin America in Annapolis, Maryland and he shared a disheartening story of an immigrant man he works closely with at home. To make a long story short, the man came to America for hope for his family back home, sent $.85 of every $1 he made back to his family, and returned home with $1,700. By the time he reached his home, his $1,700 had reduced to $200 by whom he referred to as “his own people.” Mexican citizens had bribed him $1,500 to return home. He then made the decision to enter back into America, in which he was beat and forced into indentured servitude before miraculously returning to Maryland. When asked about immigration reform, Steve gave a surprising response: he did not explicitly advocate for it. He takes the practical approach that immigrant reform is unlikely in the next 4 years regardless of the party elected, and he also advises that the visitor’s proposition creates a second-class citizen and is somewhat counterproductive.

He instead proposes international action in the places these immigrants are coming from, something I’m specifically interested in. He engages with specific communities in Latin America to build life skills through interests, such as soccer. Instead of placing people back in dysfunctional schools and job opportunities, he emphasizes building up soft skills and creating capability. By focusing on this type of international action, we do not solve the issue of immigration, but we lessen the need for family members (particularly husbands) to move to the United States in order to simply provide food for their families.

            On a slightly different note, when I met with him individually, he emphasized the importance of international development in Latin America specifically. This is undoubtedly his region of expertise, and he is passionate about this life skills approach that we should take to Latin America. However, in addition, he told me that I do not only need to learn Spanish, but Chinese as well. Yet again, the archrival of the US has entered into discussions of international development. He emphasized the importance of China in current development strategies, something Collier speaks of, and as do authors we have read for IPE. Asia (well parts of it) took advantage of globalization in the 1980’s and is now vitally important in development ventures. As we continue to invest in Latin America, Africa, and other underdeveloped areas, mediators are needed that can communicate in Chinese. China’s presence cannot be underestimated, and when talking of different languages critical to know in our current global undertakings, Chinese has become prominent. 

The Bottom Billion

            Paul Collier, the director of the Center for the Study of African Economics at Oxford, takes an unprecedented twist on the ‘white man’s burden’ in his book The Bottom Billion. He does not target the sentiments by rendering Africa hopeless and victimized, nor does he claim that their setbacks are simply their mistakes. He takes a nuanced approach: “change in the societies at the very bottom must come predominantly from within,” (xi) and industrial nations must strengthen their efforts. Collier holds the opinion of many other development specialists: aid agencies aren’t exactly doing their job. They are focusing on middle-income countries. For example, The World Bank doesn’t even have a single staff member in the Central African Republic, so they are neglecting those who actually need their help. The world has fallen into mayhem over the Chinese stealing intellectual property, but no one has heard of anyone entering crisis mode over Chad. The conception of the developing world is backdated a few decades, and, as Collier claims, the bottom five billion do not need our help. They are doing just fine; it is the bottom billion that are falling apart.

            Collier points to four traps that make the bottom billion the bottom billion. The first is the conflict trap; if a country has low per capita income, they are more likely to fall into civil war and “the lower a country’s income at the onset of conflict, the longer the conflict lasts” (26). Collier emphasizes a vicious cycle: if countries anticipate civil war, economic decline occurs, and once one civil war occurs, countries are much more vulnerable to future wars. The second trap Collier presents is the natural resource trap. Dependence on natural resources prevents a normal economy from forming and results in what Collier deems “survival of the fattest.” The natural resource trap is accentuated by being landlocked (trap number three), as many Sub-Saharan African countries are. Here we have another cycle. There is less inherent capability by living in the middle of a desert, so countries are doomed to rely on natural resources. The final trap is surprisingly given the same substance as the previous one: the trap of bad governance. When a country is not developed and receives aid, “government must transform its money into public services” (66); welcome to yet another vicious cycle.

            Well how do these cycles end? Many development specialists think Western countries determine the fate of the bottom billion, but Collier targets a different geographical area: Asia. While China is a hot debate topic in the 2012 election, Collier suggests it is those receiving austerity and toughness that are important to development. Asia benefited from an earlier boost of globalization. Now the rest have to wait “until development in Asia creates a wage gap…similar to the gap…between Asia and the rich world around 1980” (86).

            Don’t worry, Collier doesn’t say Asian price gaps are the answer. He goes on to explain how industrialized nations can change their current help mechanisms to actually work. Intuitive changes need to occur to fit countries in traps; conditionality must happen. He presents the time consistency problem, specifying an inherently broad concept. To prevent problems we must invest in projects. To turn around states, we must ensure political opportunity, and to sustain growth in post-conflict situations, we must provide long-term financial aid. Aid cannot be solitarily determined by quality of the government or reputation of the state. It must be time consistent.

            Collier presents the conception of laws and charters next, but they seem to go hand-in-hand with aid. Aid must ensure it will increase investment to indicate growth, so international charters need to be made for this reassurance. Collier specifies charters for different circumstances, but it can be put pretty simply: transparency. Transparent auction, payments, spending, and budgeting are necessary for charters to work. Investment charters must be a long-term commitment and apply to both domestic and foreign governments. The Westerners aren’t coming to the rescue any more; domestic governments must take responsibility. Collier emphasizes that “the whole point of an investment charter is for newly reforming governments” (155), so support must be given to rebels while still holding them accountable.

            Collier presents another cycle: trade policy. Rich countries have subsidies and escalated tariffs while undeveloped countries are protected. With liberalized trade, countries need to diversify their exports, which is made possible when using aid on import supply. To make this feasible, the bottom billion “need temporary protection from Asia” (167) to pay lower tariffs and generous rules of origin.

            All trapped countries will continue their struggle and each need to be catered to specifically by Collier’s varied solutions. Instead of the aid argument that is hyped up by many economists, Collier presents the concept of laws and charters to be more crucial. Nigeria or Angola cannot be forced to take aid and invest it well, but by presenting them with laws and charters, they will be given the groundwork for reform that is not subject entirely to neopatrimonial states.

            Collier’s emphasis on precedents set internationally, protection by Asia, and poignant references to individual country’s success and failures-“less than 1 percent of [money intended for rural health clinics in Chad] reached the clinics” (66)-creates an enticing and convicting read. He is informative yet unique in his approach, but his solutions raise a couple of hesitations. First, his solutions harp on how the G8 must reconsider aid strategies to help reformers, but then he switches to focus on Asia as the most important actor. The majority of his book focuses on the traps countries are in and the measures that need to be taken by Western, industrialized countries and the bottom billion themselves. However, towards the end he throws in that Asia is the place these countries need to turn to. If both are needed, Collier then becomes hypocritical. If the bottom billion need support from Eastern and Western hemispheres and they need international laws and charters, shouldn’t there be some between the US and Asia in the first place? Collier claims the bottom billion must be held accountable in their domestic and international spheres, but how can they be expected to do that if both domestic political parties are debating which one can be tougher on China? This has to do mostly with US-China relations, but if we don’t enter into cohesive charters with Asia, we cannot expect underdeveloped countries to do so. This being said, if Collier redefines the notion of rich countries from Europe and the US to include Asian markets (specifically the ones benefiting from globalization), his argument becomes much stronger. At the end of every section he states what his argument implies for the G8, but China isn’t in the G8 (Japan is the only Asian country). Once more of Asia is considered, the coordination of rich countries and aid agencies within themselves and between each other will have much larger implications. Collier is correct that reform must come from within, but unless reform is properly facilitated, and “we” is redefined to mean the West and Asia, their struggle will prove indefinite.

           

Collier, Paul. The Bottom Billion. New York: Oxford University Press, 2007. Print.

Well There Aren't Many Chinese In Africa

In reference to Professor Anderson’s talk, I was intrigued by the same points that Mark was regarding the width of borders and the effect of the percentage of Chinese population on growth. Borders do indeed disrupt markets, as Canada trades between provinces 22 times as much as it trades with the United States. With less distance to trade, there are fewer gaps in prices, creating what Professor Anderson called the “border effect.” I don’t doubt that this effect is evident, but we must account for other variables (which Professor Anderson did, but very briefly). He stated that economic size and free trade are also determinants, but he spent much more time on distance and the presence of borders. In Collier’s The Bottom Billion, he emphasizes the border effect as well, but a border is not the only prime factor that prevents trade.

In developed nations, the presence of borders takes precedent over many other factors, but in developing and third-world areas, even the rise of regional trading wouldn’t do much good. When all economies in surrounding areas are very small none can produce more than raw products (as manufactured products often have an extremely high tax), and many are landlocked, true global trade is needed.

Professor Anderson also claims that the number of people in the world living on $1.25 a day or less has decreased significantly; the poor must be better off. This comment made me pretty uneasy, as it is only a small fraction of the story. I am not an export on the topic in any sense, but I do know that globalization has benefited those in developed countries far more than those in Sub-Saharan Africa and South East Asia. While the number of people living on this amount of money has decreased, those that have jumped above this level have barely done so. However, those in developed countries have drastically increased their wealth by globalization. The most holistic trade agreements exist between developed nations, and we don’t see our trade agreements with Botswana being broadcasted in the upcoming election. Developing countries, if in trade agreements with the global powers, are not in many and there are not always beneficial to developing nations as a whole. This being said, we cannot simply take the fact that less are living on $1.25 a day and call globalization a success. Professor Anderson also emphasized that the informal environment is very important when the formal environment is weak, but developing areas have a much lower chance of success when we rely on their informal environments for much of anything.

While I was shocked the most (at first) by Professor Anderson’s claim that the share of the Chinese population in any country determines trade (although I was convinced by it), the more I thought about it, the more I realized developing nations are often thought of in absolute terms to churn out positive numbers. Then again, the Chinese population in Africa is very low, so maybe this claim can be used in absolute terms to give a correct answer for Africa.

Austerity for Africa

In response to Annelise’s post on Kenya’s public debt, I fail to see the IMF’s justification for practicing austerity for a developing country in the midst of building up infrastructure. I understand Rogoff’s point that countries turn to the IMF as a vendor of last resort once they are in financial crisis, but if the IMF continues to hand out aid this sparingly, it will only be perpetuating the problem; Kenya will be unable to develop and rise out of third-world status.

In light of Collier’s book The Bottom Billion, countries like Kenya are severely underinvested in, resulting in Africa having twice as much public capital as private capital. This should, in theory, result in a high inflow of private capital because returns on capital would be extremely high, but “the perceived risk of investment in the economies of the bottom billion remains high” (Collier, 88). This means Kenya and other African countries are receiving little private investment, so they must rely on public investment and international aid from the IMF; additionally, lack of private capital produces extreme capital flight. “The most capital-scarce region in the world exported its capital” (Collier, 92). This being said, austere measures by the IMF will only worsen Kenya’s situation and even if it results in a positive current account balance, it will be virtually zero.

This does not mean the IMF and other agencies should simply give developing countries large amounts of money; that is possibly worse than austerity. However, if given with conditionally and increased international governance, as Stiglitz suggests, developing countries will become less reliant on public aid in the long run. Part of the IMF’s argument is that other government policies can adjust to fiscal austerity, but when domestic governance is corrupt and of low quality, taking away conditioned aid will only lead to a worse economic situation. I agree with Annelise that the IMF is only thinking in the short-term; they are not considering the repercussions that come from austerity.

The IMF and other international agencies must continue to invest heavily with the aim to increase Kenyan infrastructure further to build a sustainable economy. Once this happens, Kenya and other developing areas will raise their income to a point to where citizens have an incentive not to emigrate, government cannot take advantage of it’s people and it’s economy (or lack thereof), foreign private investment will be attracted, and they will become independent of the IMF’s aid. 

Is Friedman Right?

In a recent article by the Economist, the currency manipulation of China was brought up; a recent topic of discussion in IPE and the presidential debate. The candidates have been debating who would be tougher on China (although Romney has flipped-flopped yet again), by insisting that after being elected they would place restrictions on Chinese products. Krugman refutes this by claiming in the past two years, China has undergone inflation and their currency has appreciated relative to the dollar. Because of these statistics, the famous claim that China is undervaluing its currency to benefit its export market and harm the export markets of other industrial countries is faulty.

The article goes a step further and counters the claim that we even needed to be tougher than we were on China during the Obama administration. He claims that being even tougher would have been counterproductive and harmed us more. This could have perhaps been true, as China could have reacted by stopping the purchase of US bonds, thus raising the price of our borrowing and the interest rate we would have to pay lenders. This raises a peculiar situation, as we cannot upset China too much or else we will lose an incredibly large lender, but to what extent should we stand for China’s currency manipulation?

In another article by the Economist, an even more alarming view is presented by stating that “the dollar’s influence has declined in 38 cases” from 2005-2008, and these were pre-crisis years. They claim that East Asia is now on the yuan standard, their currencies adjusting similarly to the yuan, in the current economy. Other areas of the world still react more to the dollar, but the Economist claims that the Chinese currency will continue to increase “as its economy and trading activity grow in size,” and the Chinese currency will surpass the dollar by 2035.

This statement is pretty striking to me, and makes me question whether Friedman’s worries about Asia and other developing areas surpassing the US may be true on a financial level as well as a production level. Regardless of whether this statistic is accurate, East Asia is gaining influence quickly both in finance, manufacturing, service industry, and intellectual property. We may not need to panic just yet, but we must come to terms with the fact that we are not the unchallenged giant we like to think we are.

Sub-Saharan Africa Development: A Hope or Reality?

In response to Annelise’s post, it is personally shocking how quickly the status of Sub-Saharan Africa has flipped in relation to South Africa. In my book for class, The Bottom Billion, published in 2007, Collier emphasizes how Sub-Saharan African countries are in a stagnant existence of poverty and resource dependence. I’m not sure how drastically their status on development has turned around over the last few years, but if the Economist’s article is correct, they have made substantial progress.

I completely agree that the quality of governance has a large impact on the success of economies, and Africa has historically been the poster-child for bad government. While government may be becoming more legitimate as there is less dependence on natural resources, we cannot disregard that government in Africa is still of lower quality than developed countries. Additionally, governments may be becoming less corrupt in some areas, in Ghana especially, but in Eastern Africa, elections in Kenya and Tanzania still create mass uprisings and make these countries inherently unsafe to travel too. Collier emphasizes that most areas that are landlocked with few natural resources or access to industrial markets have failed to become independent countries, but in Africa, they have succeeded. Thus, many African countries started with a disadvantage for development, and they will need ample time to catch up; something we must take into consideration.

While the IMF and other international agencies are increasing their presence in Africa, as Annelise states, they are not consistently invested in. Collier explicitly notes this, as some African countries do not even have an IMF representative. Wolf and Stiglitz actually agree on this issue, by claiming that the IMF will not come up with a solution in African countries by visiting for merely 3 weeks; they must increase their investment here if they are to enhance the economic standing of African countries. Rogoff’s article indicates that the IMF has increased its communication and commitment to developing countries, but this must be taken in context with the reading of Stiglitz and Wolf; a 3-week visit does not mean investment.

Annelise also emphasizes investment confidence, a prevalent topic in Africa today. Wolf specifically emphasizes the need for foreign direct investment in today’s IPE. It is true that the IMF and other governing organizations may be too optimistic about Africa’s development, as investment without regulation can spur the wrong kind of development. This point directly relates to the moral hazard argument presented by many critics of the IMF; additional funds given to developing countries can be used unjustly. The aftermath of this can readily be seen in South Africa, as they are currently on the decline from a sub-par education system, high unemployment, and corrupt governance.

The best way to develop Africa is an unending debate that began in colonial times and will undoubtedly spread into the foreseeable future. The IMF and other international agencies should not merely visit these regions; they must actually invest in understanding the unique situation of each African country, as each has specific setbacks and resources. International loans are not inherently bad, but unless we increase regulation and the responsibility of lenders as well as borrowers, the hope for Sub-Saharan Africa’s development may not become a reality.

Freeman and Blinder Enter the Debate

In last night’s presidential debate, the candidates discussed the issue of outsourcing and what they will do to make the American economy an attractive venue for businesses. Romney emphasized how he will do this, but it is only possible if other nations play by the rules (aka China). He pinned them as a “currency manipulator,” by pegging their currency to the dollar, and advocated for placing tariffs on them. Obama said he would bring back US companies by closing loopholes that allow US companies to invest overseas and not having to pay taxes on their profit.

The most intriguing part of their debate was, to me, how they defined what jobs we should bring back to the US. Obama emphasized manufacturing jobs, which Romney then said were not high-skill, to which Obama replied later that we need high-skill and high-wage jobs like manufacturing. It seems to me that if we take out the political lingo and get down to the basic concepts, both want to bring back high-skill jobs to the US; the oh-so-comical jargon is preventing them from realizing their common goals.

In regard to manufacturing, I was reminded of Freeman’s article on factor price equalization in Beijing. In his article, US wages have gone down for manufacturing and we have a high opportunity cost for domestic production; a topic neither Obama nor Romney addressed. While both advocated for a reversal of outsourcing, they did not identify their methods for preventing this detrimental effect of the return of US jobs. Neither did they address the problem of offshoring people who are not in the manufacturing sector, as Blinder does in his article on the offshoring of jobs that do not demand personal relationships. He claims that with the rise of technology, more and more jobs will be transferred to the developing world and the US will not be prepared for “the coming industrial revolution.” To recap: neither candidate addressed the repercussions that bringing back manufacturing jobs will have on the US or the effect that offshoring service-oriented jobs is having.

Romney said that we will create new industry, but he did not say what this industry could possibly be. Obama said we need more engineers. In this context alone, Obama comes off as a Freidman supporter, who claims that we must create more engineers (and does so with an incredibly high level of urgency). If Romney would explain what this new industry could be, his argument would be more credible, and if Obama could explain why we need more engineers but not more people-oriented sectors, so would his. While both candidates addressed the problems of outsourcing, it seemed to be fairly inconclusive as to what will actually be done and how we will be prepared to handle any repercussions. 

Government Aid vs. Development

In response to Simone’s post titled “Austerity = Free Market Economy?” I would agree that free market economies are indeed indicative of global financial growth, thus they allow for financing and investment in the private sector.

However, even if investors do not care what the government supports, they are constricted (to varying degrees) of the government’s stance and involvement in the economy. We discussed this issue primarily with the contrasting views of Stiglitz and Wolf, concluding that investors and other private actors cannot function as they please without some influence of the government’s stance.

I do not believe that increasing governmental aid necessarily helps the economy, and it can create dependence and decrease output. If we do not rely primarily on aid but on sustainable economic development, I don’t think government intervention is automatically harmful. Aid within a country can create dependence just as it can when given to foreign states; the analogy that giving a man a fish is not nearly as productive as teaching him to fish holds in the international and state-based economy. We must not consider government aid as “handouts” to companies only although it could potentially take this form. Greece is undoubtedly suffering and there is dependence on the government, as many capitalists and entrepreneurs emigrated out of the country when or before the financial crisis hit. Continuing to give its citizens government aid will only exacerbate the problem, but that does not mean we should cut off all funds and let citizens fend for themselves. If we do not raise their capability and give high-quality government intervention, we cannot expect capitalist competition to emerge from nothing. Having the government run the economy is not at all what I am suggesting, but by completely isolating citizens and corporations from guidance and capability raising endeavors, we will see the same if not worse effects from giving them continued aid. 

Outsourcing as a Cause of Homelessness

Over Reading Days I went to Charlotte, NC for the Nabor’s trip and we worked with the Urban Ministry Center. The organization predominantly deals with homelessness, an issue we didn’t fully address when talking about off shoring. While different authors had varying opinions on what/whom off shoring would affect, they neglected to mention the possibility that outsourcing could go so far as to make more Americans homeless.

Wolf may be right that protecting US jobs could lead to less productivity, but that doesn’t mean we can simply account for these lost jobs in a statistic and move on unharmed. While sitting in on an information session our first morning there, the program director told us that a large number of people waiting for services have recently had their jobs outsourced. While the stigmas we typically attach to alcoholism, mental illness, and drug addiction are still prevalent, I had never thought someone would be homeless as a result of outsourcing.

As wages continue to decrease, as Freeman addresses, employees at the low-value level become more impoverished, and as jobs are outsourced, they simply lose their jobs all together. I’m not sure of the whole story for each person, but one man I worked with was trained in metalworking and utilities and had to work at a temp agency to find work. I for one don’t think it’s fair for someone who has learned a trade and constantly looking for work to find that he can work at maximum 3 times a week. IPE is often concerned with efficiency of the global market, but when we totally neglect fairness and accept homelessness as an expected outcome, I see a larger issue.

Some of the authors may be right and we may crease new needs for ourselves to fill the labor supply, but that does not mean that everyone who lost a job to outsourcing will be trained in the correct skill set for whatever industry we think of next. It is easy to discuss these issues in the classroom and analyze statistics, but it is another to see an endless line of people on the streets of Charlotte who possibly had steady jobs that weren’t lost to the “typical causes,” but to off-shoring to the third world. 

Sanction vs. Survival

Last night I only managed to catch the last half of the debate where Ryan and Biden repeatedly backstabbed each other, even when responding to a question regarding why this presidential election has been full of derogatory comments towards the opposing party. I now fully understand the comment in class about how much we learn from debates by simply watching their mannerisms, although Ryan’s profound widow’s peak was also distracting. This morning I turned to the New York Times to find some more substantial issues in the debate I had missed and found “Two Rivals Clash on Fiscal Affairs and Iran,” a topic much more prevalent to IPE than the abortion clip I tuned in on.

They brought up the cause of the sanctions, as we discussed in class, as being based in “Iran’s ability to obtain nuclear weapons.” Ryan continued to push that we aren’t tough enough in our sanctions, and that the administration is being too lenient. While I fully accept the argument that we must protect our nation from nuclear attack, there is a fine line between protecting our nation and forcing Iranian citizens to starve by not having access to food sources. Humanity trumps the definition of a nation-state, a concept that many politicians on both sides of the spectrum seem to neglect. When Ryan was asked if he would protect other nations for humanitarian reasons, he claimed he would only do so if it were in our national security interest. On another spectrum, the blog for the Council of Foreign Relations states “nearly all Americans agree that foreign policy issues are not important in this election.” While domestic policies are undoubtedly at the forefront of the elections, we cannot neglect foreign policy, as many are seemingly inclined to do.

One thing the candidates differ on only slightly are their beliefs on foreign policy (Washington Post) and both support the sanctions, and there is recent evidence that  “the sanctions are creating the kind of economic hardship that the Obama administration hopes will generate pressure on Iran’s government to give up its uranium-enrichment program.” While this was a wanted effect of the sanctions, it forces us to return to the humanitarian issue of the Iranian citizens. Again, while national security is vitally important, we cannot neglect humanitarian suffering that we are causing and we will not successfully combat these issues if both parties instinctively tear down the other to attract more voters.