development is local

The World Bank is slowly publishing a series of books on the subject of “Moving Out of Poverty;” while the subject isn’t novel, the incredibly rich data set that underpins the series certainly is. The World Bank study included 60,000 interviews in 15 countries, with the purpose of explaining how and why households move out (and in to) poverty. I am working through the online samples while waiting for the price to come down on “Moving Out of Poverty, Volume 2: Success from the Bottom Up,” by Deepa Narayan, Lant Pritchett, and Soumya Kapoor. For a rundown of the book, check out Duncan Green’s post from last year.

The breadth and depth of the data set powers some startling factoids.

Filed under: General Welfare, World

development without aid in Somaliland

In “Peace-Building without External Assistance: Lessons from Somaliland,” Nicholas Eubank explores the second-order effects of state-directed foreign aid on political and economic development. Because foreign aid has worked its way into nearly ever corner of sub-Saharan Africa, there are few controls available to estimate these effects. Eubank isolates one such control in Somaliland, which has remained untouched due to the international community’s decision to make the state ineligible for aid after its unapproved secession from Somalia in 1991.

Eubank posits that because the Somaliland government did not benefit from aid revenues, it had greater incentive to reconcile with the local commercial interests, which, in turn, had a vested interest in peace and stability that served the country well. Somaliland indeed appears to have taken major steps forward since its decimation by civil war, rebuilding cities and towns, and increasing schooling and commercial activity. A UNDP/World Bank survey finds that Somaliland has significantly higher average income than Somalia proper, a reversal of the prewar distribution, with superior health statistics as well.

Filed under: General Welfare, World

help haitians (and haiti) through immigration

In the past, I have covered Lant Pritchett’s wonderful book on immigration, “Let Their People Come: Breaking the Gridlock on Global Labor Mobility.” In those posts, I addressed the morality, the positive development implications, and the benefits to host nations of increasing work visas. The tragedy in Haiti has pushed the question to the forefront, thanks in no small part to the work of folks like Michael Clemens (whose article includes many of the numbers included below).

Visa expansion is competing for airtime with debt forgiveness and disaster relief, and it’s worthwhile to restate the human value of greater immigration. As Michael Clemens and many others have reported, 50% of Haitians wanted to leave Haiti before the disaster. Last year, following an earlier natural disaster, the US refused to grant temporary protected status to Haitian immigrants and proceeded with deportation hearings. Thankfully, the US has granted TPS to immigrants in the wake of the latest disaster.

Yet the US could do significantly more good by taking the next step and opening its doors, even if on a temporary basis, to Haiti’s poor and huddled masses. Such a policy may even find broader support than TPS, which touched on the political nerve of protecting immigrants in the country illegally.

Filed under: Economic Policy, General Welfare

why the welfare state needs foreign labor

Continuing on the Breaking the Gridlock kick, foreign labor opponents are keen to depict foreigners as a threat to the host nation’s economic self-interest. At their most beneficent, opponents argue against an influx of unskilled labor, which would hurt unskilled labor currently in the country. In theory, this argument is valid. As Lant Pritchett notes, however, evidence suggests the impact is marginal:

The evidence of the Mariel boatlift of a huge influx of workers into a single labor market (Miami) shows little impact on employment or wages (Card 1990). Even Borjas’s (1999) regression evidence that the labor movement of nationals is affected by the patterns of migration and hence the impact on the national labor market needs to be considered shows that only 4 percent of the decline in the real wage of high-school-educated workers can be attributed (and the cross-state regression evidence was apparently driven by the experience of California).

Given that national legislation involving a similarly “huge influx of workers” is politically impossible, the economic fate of low-skilled nationals will not be much affected by foreign labor for the foreseeable future. For those whose concerns stand unabated, Pritchett takes another tact:

The economists’ usual response to distributional arguments against efficient policies is “instruments to targets,” and for economists to resist migration on this ground while advocating free trade is intellectually inconsistent.

For fear of some anti-free traders remaining unimpressed, I would add that we also don’t allow distributional considerations to take precedence over more efficient technological innovations.  I don’t expect this counter-argument to impress anti-free traders in isolation, but free labor has the advantage over free trade in that the direct benefits accrue to those most in need; folks against an unskilled labor influx out of a concern for distributional effects would do well to consider Pritchett’s points in the previous post on the morality of labor mobility.

It would do the case for labor mobility a disservice, however, to simply argue that it wont harm national interests. I won’t waste kilobytes on the obvious benefits of allowing in more labor that firms want to pay to create products, but Pritchett does offer useful clarity on foreign labor as a way to address the problems facing aging industrial countries:

The populations of Germany, Japan, and Italy have already begun to shrink and, for Italy and Japan, are projected to be only 60 percent of their 2000 size by 2050. France and the United Kingdom will remain roughly the same size during the next fifty years. Among large industrial countries, only the United States is expected to continue to experience sizable population growth (these projections already assume some level of migration).
…
Current projections show support [to retiree] ratios falling in Germany from 4 to 2, and in the more dramatic cases of Italy and Japan they fall to about 1.5—only 1.5 workers for every retiree. The systems of social transfers in Europe can be sustained only with very high tax rates even at current support ratios and program design parameters (which include a combination of tax rates, ages, benefits, and so on). But if support ratios fall to anything like projected levels, then it is not clear that there are politically feasible combinations of design parameters that can make the systems solvent—either tax rates need to be too high or retirement benefits drastically curtailed.

This country-specific focus foretells of Pritchett’s final recommendations for bilateral labor agreements, which I’ll explore soon. More generally, it stirs a hope that the industrial nations will soon understand that it is in their economic interest to allow in young, tax-paying workers to correct their demographic imbalances.

Filed under: General Welfare, World, book byte

help people, not plots of land

Returning for another round (first round: the illiberal global labor market) of Breaking the Gridlock, Lant Pritchett attacks international organizations’ assumption that economic development should focus on the nation-state, rather than the national, as the primary unit of interest. This nation-centric perspective pervades most international institutions and frustrates support of labor mobility. If you didn’t know any better, you might believe that the primary objective is to increase the productive capacity of low-yield geographic areas rather than the economic well-being of the inhabitants. Still the perception of economic development as a national phenomena would be of little concern if it wasn’t often at odds with the interests of the nationals themselves. For example, the de facto measure of development progress, GDP, presents the migration of a productive national to another country for a better paying job as a loss. The real benefits of labor mobility are only apparent when development is centered on people, not arbitrary lines.

Filed under: General Welfare, World, book, book byte

the illiberal global labor market

Lant Pritchett concludes “Let Their People Come: Breaking the Gridlock on Global Labor Mobility” not by talking about amnesty, but bilateral temporary work agreements. In just 151 pages (available for free), Pritchett not only presents a convincing argument for the reduction of labor movement restrictions, but also thoughtfully and respectfully engages the anti-immigration ideas that keep labor mobility reform off the agenda. While unafraid to voice disagreement with these ideas, Pritchett is careful to acknowledge their political import, and -in a welcomed bow to pragmatism- produces his final recommendations in the context of these realities. This post will be the first in a series to explore Pritchett’s arguments, beginning with an introduction to the matter at hand and the morality of the foreign labor debate.

Filed under: General Welfare, Philosophy, book byte

complexity science, wow!

The current recession has induced a barrage of criticism of the economics profession for its failure to foresee the impending crisis. While these criticisms often aim to indict classical liberal economic thought, a more accurate analysis would not label this as a failure of economics, but as a blind spot to all disciplines: the crisis was just the most recent example of a “cascading failure,” a phenomena that no one has done a particularly good job of foreseeing or preventing. Wikipedia cites a few other examples of cascading failure -which the site defines as “a failure in a system of interconnected parts in which the failure of a part can trigger the failure of successive parts”- most appropriately, the power grid failures we’ve all come to know and love, as well as ischemia, a health event I’ve come to known from my time in health care.

I greatly enjoyed Melanie Mitchell’s overview (Complexity: A Guided Tour) of the current state of complexity science for the very reason that complexity scientists are exploring chaos, dynamic, and network theory, which are fundamental to better understanding the dark recesses that frustrate many disciplines. As Duncan Watts says, “Next to the mysteries of dynamics on a network – whether it be epidemics of disease, cascading failures in power systems, or the outbreak of revolutions- the problems of networks that we have encountered up to now are just pebbles on the seashore.”

Filed under: General Welfare

the prospect of institutional stagnation

Paul Romer explains the historical process of economic development as a product of technological discoveries — how to make more with less — and, in turn, argues that technological innovation depends on sets of rules and institutions that provide incentives to innovate. The rules and customs that govern a society are therefore crucial to the question of development. As Romer notes, China had all the component technological pieces a thousand years ago to grow beyond its European rivals, but the elites turned inward, and the innovations whithered away rather than fomenting further innovation and growth.

Filed under: General Welfare

odds and ends for development assistance

In what will be my final post (for more, see: the failure of supply-side (aid) economics, no wal-marts in malawi, the great quality of life convergence) based on selections from Charles Kenny’s draft of “The Success of Development,”  below are some of my favorite nuggets and takeaways from his work:

Sachs‘ Millennium Project produced a report Investing in Development, based on such ideas. New York University Economist Bill Easterly was outraged on reading Sachs‘ report and demanded that we―discard the Planners‘ patronizing confidence that the Planners know how to solve other peoples‘ problems better than the people themselves do. He contrasted the planning approach to that of a ‘searcher‘ who ―admits he doesn‘t know the answers in advance… believes that poverty is a complicated tangle of political, social, historical, institutional, and technological factors and ―only hopes to find answers to individual problems by trial and error experimentation.
…
If rich countries increased the size of their labor forces by only three percent through reduced restrictions on migrant labor, Lant Pritchett estimates that this would add $300 billion to the welfare of citizens of poor countries –roughly four times the magnitude of foreign aid flows.

Filed under: Economic Policy, General Welfare, World, book bytes

the failure of supply-side (aid) economics

I am currently re-reading Bill Easterly’s classic “The Elusive Quest for Growth,” and his chapter on the failure of education aid to generate increases in income or GDP hit home as I prepared this post.  Easterly interpreted the failure of education aid as demonstration that supply-side aid doesn’t work when consumers don’t see the payoff.  In “The Success of Development” draft, Charles Kenny finds that many attempts at providing health technologies, for example, largely fail because the demand for the products simply isn’t there:

Filed under: General Welfare, World, book bytes