Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

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Monday, June 30, 2008

Collier and Sachs

Posted by Simon Halliday | Monday, June 30, 2008 | Category: |

I had a read of a recent Jeffrey Sachs article from Project Syndicate. This spurred a spate of reading/watching/listening of his and of one of his counterparts Paul Collier.

Have a listen to this interview with Paul Collier from EconTalk, and to this interview with from Radio Economics. I prefer Russ Roberts (EconTalk) mode of interviewing to that of James Reese (Radio Economics), but that could just be me. I prefer Roberts's mode of inquiry, though I often disagree with his opinions.

Then, of course, there's the recent Ted Talk with Paul Collier.

And to top it off a conversation between Charlie Rose and Jeffrey Sachs.

Here's a link to Collier's book, The Bottom Billion. And to Sachs's books, The End of Poverty and Common Wealth.

The main reason that I am blogging about this is because, as always, these guys are in the media. Moreover, people take their opinions as gospel. Personally, I probably feel a greater affinity (ish) for Sachs than I do for someone like Easterly, and I think that a lot of Sachs's ideas coupled with ideas from Collier could result in fantastic improvements (or at least so I hope). In fact Sachs and his wife wrote a really cool and interesting article which I read during my Masters, and I will try to find. Ahh, here it is, I think, if my foggy, course-content filled memory serves.
Bottom Billion Why the Poorest Countries Are Failing and What Can Be Done About It
I will attempt basic summaries of some of their arguments and make some comments.

Collier argues that there are 4 main problems for the bottom billion.
1) Conflict
2) Having natural resources
3) Being landlocked
4) Being really small

He argues that "Change must come from within...", which I think is justified, and moreover that "much more should be done to strengthen the hand of the reformers" in those countries that need assistance. Such as Okanja-Iweala below.
He says that international standards, say for resource revenues, are crucial. Commenting on whether resources are being save, or used for investment in capital in the country of their origin. In order to ensure that this occurs the governments in charge must curb corruption. The money from the resources should not be frittered away on white elephants. Moreover, there should be international standards on conducting elections, backed by enforcement (sanctions) through multilateral agreements. The current state of Zimbabwe comes to mind (this does however beg the question, as always, as to whom is actually hurt by sanctions, the innocent or the big boys, I think the former probably). Collier argues furthermore that trade policy should be improved, which is particularly relevant for countries like Kenya that aren't endowed with crazy amounts of natural resources.
In his Ted Talk, Collier highlight compassion (to get started) and enlightened self-interest (to get serious). He compares what is required today to save the bottom billion is the equivalent of what happened post WWII. I don't know if I agree with his whole Marshall Plan comparison, his argument though was that it was about reversing trade policy (US changed from isolationist to open) and reversing security policy from being isolationist (not sure what he thinks the armed forces should do though). He also argues that national sovereignty is overrated, and that the OECD, and other institutions that came into being post-WWII were crucial for the flourishing of those countries and assisted the operation of governance institutions.

"Aid, trade, security, governance." In the talk Collier highlights the role of governance and that it is 'enormously important' and needs to be upgraded dramatically throughout the governments of the bottom billion. He discusses the role of the commodity boom and how this this assisted and hindered development. This has led to a discussion of the 'resource curse' as a consequence of low levels of initial economic governance. If you have good enough governance then you go up in short term and stay there if you have resources, the converse if you have poor governance. Resource cursed countries do well in the short run, then shut down (military coups, corruption, etc).

Oddly enough, within this framework democracies make even more of a mess. But, there are two distinct aspects of democracy; electoral competition and 'checks and balances'. Electoral competition does damage, whereas checks and balances make resource booms good. African countries have had sudden democracies (post glasnost and perestroika), but they did not have the framework to govern and to use constructively the resources that they have. He argues again for the use of international Standards, for example the Extractive Industries Transparencies Initiative - adopted by reformers in Nigeria (more below). He comments that institutional transparency is crucial and can allow a country to move beyond a system of poor governance to one in which there is far better governance. Maybe this offers hope for poor African countries, commensurate with this are policies in which there CANNOT be corrupt relations, such as through the adoption of verified auctions, witnessed by international observers and subject to said international standards.

Collier argues finally that 'we' need a critical mass of informed society in the developed world, otherwise what politicians (in the developed world) do will just be gestures. Therefore, it is crucial that an informed citizenry is built up by people in the know, which is why Collier believes that he must participate in this process through the work that he has done.

One of the things that I think it is important for us not to do is to try to do is the 'let's place them (Collier & Sachs) on a (left-right?) continuum' thing. What many people do is put Sachs on the end of optimism, Easterly on the end of pessimism and Collier somewhere in the middle. I don't think that Easterly is anywhere is always correct (some insights are valid, others not), but I do think that paternalism can be problematic which is where the discussion with Sachs comes in.

One must emphasise though one strong difference between Sachs and Collier. Sachs focuses to a dramatic extent on subsistence farmers and what they need simply to make enough food to survive and eventually to enable them to go to the market. His argument is that improved fertilisers, improved seeds and and educating farmers such that they are better able to use their skills is important. Moreover, the 'free market reform' that so many promote as a 'solution' to Africa's problem just wouldn't have any impact on these guys. They don't have enough money to buy seeds, to make their own food, let alone access to credit to get more land, more seeds and 'be entrepreneurial'. This is where I think that much of the criticism of Sachs is misplaced they argue that he is anti-market, he isn't anti-market, he is pro-market, but he wants people to understand that a market will not exist in some of these places, ever, unless people stop dying and are able to make enough money to actually create a market system.

Collier wants to focus on greater reforms, to natural resources, trade and to political systems in general. He also makes strong arguments for specific institutions, such as the existence of ruleNgozi Okonjo-Iweala of law and of methods to assist countries that are resource rich to get the institutions that they did not have prior to finding the resources. He argues further for interventions, such as voluntary charters to which governments can sign and which pressure groups can try to get them to sign, such as transparency agreements for use of natural resources. He comments on an interesting attempt at publishing data in Nigeria, which resulted in death threats to the minister (Okonjo-Iweala - Right) who insisted on it, which probably means it was a good thing (she has since resigned her position in the Nigerian government and is back working with the World Bank where she held a position prior to working with the Nigerian government).

Ok. This has already become longer than intended and I haven't commented anywhere near as much on Sachs as I would have liked to. I think that he makes some good points, such as those about research and development in alternative sources of energy, to the possibilities of new technologies in the developing world by assisting through provision of credit. All of this is particularly valuable. One of the things though which it is also important to emphasise is that he almost always wants to get money to the people who need it directly, either through NGOs or possibly through government systems. He doesn't want a system (does anyone really?) in which corrupt relationships take away the money. He is concerned with the dying and the abjectly poor.

Anyway, here's a recent (HPR) comment on Sachs's End of Poverty.

Jagdish Bhagwati commented on some of these problems late last year. Offering a "plague on both your houses" to William Easterly and to Jeffrey Sachs. He thinks that Easterly is wrong in thinking that foreign aid is entirely ineffectual, but he also thinks that the paternalism of Sachs is somewhat nauseating. lol.

Images from BBC, wikipedia, Amazon and farmers helping farmers.

Currently have 1 comments:

  1. Good post. I'm a huge fan of Collier's work - I read in a bunch in the Eco probs of Africa course. Sachs I'm not so keen on...