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07/11/2005

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Corey

In reference to India and China, it is informative to look at how much of the growth in the 90s was fueled by remittences from Indian and Chinese citizens working in the US, UK, and other G8 countries.

Once the Indian and Chinese education systems were developed to be competitive enough to send graduates to top global schools, and workers to developed countries, they did so in large numbers. The system began to feed back on itself and further improved education and the economy back home. (As students moved back or sent $$ home)

This is important, because both India and China pursued isolationist, planned economy systems for a long time after expelling the colonials and before before opening up to the global "free market." Most of Africa did not manage to keep foreign investors and capital flight at bay like this until its education system was on its feet. As a result, there is a much greater built in imbalance whenever African countries try to participate in the world market.

Opening up a country economically before the social and political environment is mature enough to be competitive leads directly to exploitation and neo-colonialism. The country in question does NOT benefit.

Larry

Exploitation and neo-colonialism is just name-calling. It's merely free trade and investment, and it helps dig poor countries out of poverty. If Africa actually received what he mistakenly thinks is exploitation and neo-colonialism, their lot would improve greatly--it would help bring capital in industry to their countries, as well as help on the way to a rule of law.

Palooka

"This is important, because both India and China pursued isolationist, planned economy systems for a long time after expelling the colonials and before before opening up to the global "free market."

Yes, and we all know how well those policies worked our for them, right?

"Opening up a country economically before the social and political environment is mature enough to be competitive leads directly to exploitation and neo-colonialism."

OK, let me get this right. Investing in Africa would be "neo-colonialism" and "exploitation"? Free trade is the greatest thing to happen to the developing world, without question. A country does need some requisite level of stability to attract foriegn capital (or prevent domestic flight of capital), which many countries in Africa do lack, but I don't see how you can claim that foriegn investment, if a country is lucky enough to receive it, is "exploitation" and "neo-colonialism."

Hesh

"As the Indian example (and Chinese example as well) indicates, sustained growth requires economic reforms toward freer markets in a political environment that is not clouded by civil wars and uncertain property and legal rights."

Here is a small explanation from the Indian side.
After Independence in 1947 and before the 1990 reforms, India had a strategy to avoid famines (courtesy: socialist leaders of then India) and to make the country food self-sufficient. Under the protectionist cover (and Green Revolution), the farmers thrived. Well, atleast until the 1990 reforms!! India now has 600 million farmers (one of out of every 4 in the world) and I know for a fact that most of them are just not happy the way things have turned out for them after 1990 (not when one kilo of rice is 2.50 pounds in the UK while the same money fetches 20 kilos of rice in India). While the developed countries provide a cushion for their farmers, with the trade imbalance in place, farmers in developing countries remain poor and the country is importing food from across the waters. Not really good for a predominantly agrarian society!! The state of Andra Pradesh in South India is usually in the news for its e-governance and IT development (Microsoft, etc.) but it also has the highest number of farmer suicides. Markets maybe ready for these farmers, but I am not sure if they are ready for the markets or atleast their government has not made it feasible enough as the world may think. Even with all the mobile phones and computers, farmers still have to produce and sell for a profit to even 'afford to live under the poverty line'.


Corey - Remittances doesn't have any considerable real impact in India even at $24 billion this past year because most of this money goes to families or fixed assets unlike in Taiwan where it was invested into the economy to create jobs.

richard

unless you give the problem its proper name then this coyness will condemn sub-saharan africa for all time.the proper name is cognitive ability.china in particular and india have no such problems.these two great nations remained backward because of their political systems.
africa has a huge problem with cognitive ability.
it will only advance when outsiders are appointed to run their civil services.these appointments would be backed by the authority of the united nations. appointees can not be thrown out by dictators.
i understand that anybody giving such advice is seen to be not domesticated.
however all other solutions come from either ignorance or what is worse hypocrisy.for more details see richard hernstein's bell curve

oliver cromwell

Debt cancellation is great, more aid must be structured differently as the IMF/WB realized when it revised the HIPC initiative. Just to get some numbers out there for people who point out how much "aid" has been squandered, most of the "aid" was loans that either should not have been made in the first place, or were odious (e.g. Saddam Hussein, Mugabe style leaders borrowing money and looting it).

Current aid goes to servicing past debt. Most of these countries spend 1/2 of their income on debt servicing. What debt cancellation does is it frees up that other 1/2 of a country's income to focus on essential social services like roads and education. If you visit the IMF site you can see the numbers yourself on the success that Uganda (which has unfortunately relapsed) had in improving literacy and controlling AIDS once it had meaningful debt relief under teh revised HIPC initiative.

On the topic of further aid, I believe that if more of that money is dispersed on a small scale it will do more good. I was in Kenya in March on 2004 and without fail the citizens there did nt trust the government to allow aid to make its way down, and Kenya had just gone through major reforms, e.g. sacking a corrupt judiciary.

Micro-loans are one way to do this, through lending institutions like Grameen, Women's World Bank, etc. If you are not familiar with micro-loans do a quick search, but they are generally less than $100 in Africa and allow a person (generally a woman because unlike the men they do not default at >80% rate)to start a small business that will supplement her family's income. It is an amazingly transformative process that helps acheive many of the UN's MDG's.

Beyond that, what is required is direct foreign investment and meanigful free trade. Larry, when critics use terms like colonialism in this context what I think they often mean is that through protectionist trade policies the Global North denies the South real access to markets. Generally, the South can only competitively export raw goods to the North because of protectionist tariffs on finished goods. Cote de Ivorie (sp?) can send raw cocoa, but tariffs make it impractical to export finished chocolate bars. No industry can be built up, no direct foreign investment attracted. Then, to top it off, the North engages in dumping its subsidized agri-products (until recently, cotton was the mot egregious example).

My own two cent plan:

1) debt relief (multi-lateral and bi-lateral)
2) decrease/eliminate agri-subsidies in the North
3) decrease/eliminate tariffs in the North (there are some bilateral trade agreements to this effect)
4) increase, protect, and normalize private land ownership by African citizens as a part of creating a legal and economic framework (see especailly the works of Hernando de Soto).

Sorry for the length

Sam

About Posner's posting:
It is not clear to what extent cheaper AIDS drugs encourage risk taking behavior (unless you can refer me to economic papers that have analyzed this issue).
I agree that educating men and women on how to avoid contracting AIDS in the first place is crucial but, when talking about economic growth, a longer life expectancy is also important in determining investment rates, especially investments in Human Capital! So I believe giving them easier access to drugs that can extend their working lives can make a significant difference in their economic development.

Corey

"africa has a huge problem with cognitive ability... for more details see richard hernstein's bell curve"

Oh, so we have attracted the racists to this forum now.

"I don't see how you can claim that foreign investment, if a country is lucky enough to receive it, is "exploitation" and "neo-colonialism." "

Two points. 1) Economic Growth is neither the ultimate end goal of all human endeavors nor the only/best indicator of the health of a society. You can double the wealth of the evil dictator and it looks like economic growth, even though only one person in the society actually benefitted. Foreign companies can export more billions in raw goods, it looks like the economy (GNP) grew, but no one INSIDE the country actually saw any of the $$ (above the slave wage they got paid.) Growth is NOT a per se good! The inquiry does not end once you see a factory being built in Nigeria. Responsible people will ask, is it a child-labor using sweat-shop? Do any of the profits return to the community? Is there protectionist behavior (tariffs and dumping) relative to home-grown products and services?

2) Investment is only a good to Africa if it significantly benefits the country invested in. Many US client governments enact laws that exempt foreign investors from local laws, taxes, or any social responsibility, often as a result of IMF pressure, and often accompanied by large bribes to corrupt officials. As a result, Shell Oil can employ locals at a wage that doesn't even cover necessities while taking all of their work product home to the G8. That is exploitation.

"Remittances doesn't have any considerable real impact in India even at $24 billion this past year because most of this money goes to families or fixed assets unlike in Taiwan where it was invested into the economy to create jobs."

Whatever! $24 Billion in the hands of Indian citizens is $24 Billion for buying food, necessities, health care, education, etc... Just because it isn't on the G8 "economic-development-uber-alles" model doesn't mean it is illegitimate. Give money to Indians and they buy local goods, which creates jobs producing local goods.

Of course the G8 would rather see $24 Billion go into "the economy", meaning into international production to which they have capital access, because then the G8 can skim profits. To the G8, a prefered "job" for an Indian is one providing raw goods or services to the more developed world. An Indian might prefer for local markets to develop such that they can sell locally with less overhead.

Corey

"But it has to be the Kenyans themselves who help these people."

OK, so you are opposed to foreigners giving aid because you want to encourage local responsibility... a perfectly reasonable side to take. (One I believe is misguided, but reasonable minds can differ.)

Are you also similarily against foreigners locating factories and oil refineries in Kenya? Do you support the effort to establish a viable Kenyan (state or locally owned) oil and manufacturing industry? One in which most or all
of the profits are returned to Kenyan nationals? One in which goods are sold to the G8 at fair market prices? What do you think of OPEC? Does it make you mad?

The fact is, most people who like to talk about letting Africans help themselves are also strongly for foreign investment and the resulting capital flight. They want G8 multinationals to be able to operate in Kenya without having to provide health insurance, retirement benefits, worker's comp, support for universities, and all the other expensive "overhead" that the multinational would face if the same operation was located inside the G8.

Kenya cannot build infrastructure unless is has access to its own resources and a labor tax base. Foreign investment almost never provides that, it isn't designed to. Multinationals want to pay workers just barely enough to keep them fed and productive, with surplus diverted to the "First World". In some cases where the labor pool is large, multinationals don't even bother to feed and house their slaves properly. Oh, I'm sorry, did I say slaves... I meant free market workers...

Corey

"it will only advance when outsiders are appointed to run their civil services.these appointments would be backed by the authority of the united nations. appointees can not be thrown out by dictators."

Neo-colonialism backed by UN military might. Thanks richard for the primer on that. Its been a long time since 1860, some people aren't so familiar with your rationale.

Palooka

I am in much agreement with both Becker and Posner on these latest posts. With respect to the AIDS issue specifically, I find myself in some disagreement with Posner.

Though I agree that providing free AIDS drugs may in fact increase the prevalance of infection, it does not follow that we should not provide it. If the inreased prevalence of AIDS resulted in not only greater infection rates but also lower average life expectancy, then I would concur with Posner's view of witholding AIDS drugs. Because providing it would result in more death, and lower average life expectancy, therefore worsening the problem significantly. However, that is far from certain. It is entirely possible that providing AIDS relief to Africa will cause BOTH infection rate to decrease and average life expectancy to increase. If we're interested in prolonging and saving lives, then providing AIDS relief to Africa makes sense, even if it increases the prevalance of AIDS infection.

Palooka

CORRECTION:

Originally read:

It is entirely possible that providing AIDS relief to Africa will cause BOTH infection rate to decrease and average life expectancy to increase.

Corrected:

It is entirely possible that providing AIDS relief to Africa will cause BOTH infection rate to increase and average life expectancy to increase.

Cicero

Good choice of topic. Thanks.

richard

corey my comments about cognitive ability are main-stream science.check with your nearest university.
smugness and self-righteousness will not help africa.people like you intimidate and threaten rational debate.scholars in the universities are scared out of their wits by your taunts and so will not present the facts in open discussion.they are too afraid of losing their jobs.they are also afraid of your insults.
the result is you can continue to be self-righteous and the solution to africa's problems is no nearer.
i do not know you but i am willing to bet that you care not a fig about africa.you are concerned with appearances.

Corey

"my comments about cognitive ability are main-stream science.check with your nearest university."

OK... I will do that... google for "richard herrnstein bell curve Indiana University"... OK... well look, here is a summary of the book with... 10 pages of criticism from prominent professors! Sorry richard, my nearest university thinks your source is debunked pseudo-science.

http://www.indiana.edu/~intell/bellcurve.shtml

"Disturbing as I find the anachronism of The Bell Curve, I am even more distressed by its pervasive disingenuousness. The authors omit facts, misuse statistical methods, and seem unwilling to admit the consequences of their own words" -- Steven Jay Gould, Harvard

"they are also afraid of your insults."

Oh yeah, I am pretty scary! OOOOOOOOOOH,
don't be racist or the Corey will get you!

If you want to advocate 300 year old racist justifications for slavery as "mainstream science" based on one discredited book written by authors who had never published in that field before, and then use them to argue that white people should be sent to Africa to run things... well, some rational debaters are going to wonder if you are a nazi. You see, last time eugenics as a justification for colonialism had widespread propaganda coverage was Germany in 1938.

Go ahead and feel persecuted if it helps you sleep. Tell yourself that the silence of your peers is caused by their fear of agreeing with you.

N.E.Hatfield

Is the continent of Africa becoming the classic example of the "Malthusian Catastrophe" or is the problem more systemic? I think it's more a case of the latter. The current round of economic help provided by the G8 at Gleneagle is a noble gesture, but as has oft been said, "the road to Hell is often paved with good intentions." Shikwati in his interview seems to be of this opinion.

It would be of great interest to see an actual accounting for that 500 billion or so that seems to have diappeared down a black hole. If an accoounting was done it would be enlighting to see what percentage was skimmed of the top and ended up in private Swiss Bank accounts. What percentage disappeared into the hands of the international arms merchants. What percentage went into industrial development (and I don't mean the building of Ak-47 plants by the Chinese or the like). What percentage went into health care development. What percentage went into agricultrual development (and I don't mean ethnic cleansing or genocide as a type of land reform or agronomy. And the list goes on ....

If this type of an accounting was done, we might actually see a clearly picture of the problems. Coming to the realization that economic modeling and theorizing is really an effort in futility when confronted with the reality of Realpolitik.

Ta-Ta Darlings! I'm off to a champaign and cavair party at the U.N. ;)

Eric Rasmusen

(1) If the idea that development aid could actually slow a country's growth seems strange, ask yourself this: Would increasing foreign aid to North Korea now result in higher incomes 10 years from now, or lower? I would think that by prolonging the life of the current regime, it would hurt.

(2) Someone referred to Indiana University on The Bell Curve book. I wondered if that was a reference to me, since I've posted the Murray-Herrnstein data at

http://www.rasmusen.org/pacioli/bellcurve/bellcurve.htm

It seems there is also an attack page on The Bell Curve at IU. But none of it is all that relevant to Africa. The Bell Curve is about the importance of IQ in predicting thinks such as income in the US, and it is far from clear that IQ would have a similar impact in an undeveloped country, especially in the absence of education, an input complementary to IQ.

A more relevant book, about international comparisons, is

IQ and the Wealth of Nations
by Richard Lynn, Tatu Vanhanen

I don't know its quality, but it does tackle the question head-on.

Wes

Indeed, general aid might delay the reforms necessary for growth because it can take away the crisis mentality that appears crucial to galvanizing the political will necessary to implement radical economic reforms.Economic crisis doesn't necessarily lead to positive reforms. Germany in the 1930's would be an obvious example of this. Furthermore, if mild economic crisis resulted in reform then most countries in Africa would have been undergoing continuous reform for most of the last few hundred years.More broadly, a popular viewpoint these days is that suffering makes the world a better place or, more specifically, that hurting people makes the world a better place. While there are certainly specific cases where this is true, this viewpoint is troubling in cases where the link between the suffering and the benefit is only speculative.Suppose, for example, there is a village where people have to walk miles every day with buckets on their heads to get the water they need for daily living. Additionally, suppose the G8 nations were to fund and administer a project to install a well locally in the village. It is, admittedly, not clear what the long term effect on the village's economic growth would be.It is clear that the people in the village would have more time available to do things besides get water. It is not clear, however, whether the people would use that time to increase the economic output of the village. They might just spend more time lounging around the village. It is also not clear what effects, if any, there would be on the economic or political structure of the country as a whole.The thing is, in this case the people in the village aren't being forced to do anything. They are presented with an opportunity and they can choose for themselves whether or not to take it. If they want they can still walk miles every day to get water (assuming the project was done correctly). Ultimately, they are free to make their own decisions.On the other hand, most solutions to world problems that involve hurting people are trying to force people to choose a particular course of action. In cases where it's perfectly clear that hurting people is necessary and sufficient to solve a problem, then it may be acceptable. On the other hand, when the necessity or sufficiency of hurting people is only speculative, then it is most definitely not acceptable.

Milk for Free

Posters seem to have evolved a policy of not responding to Corey, but:

"The fact is, most people who like to talk about letting Africans help themselves are also strongly for foreign investment and the resulting capital flight. They want G8 multinationals to be able to operate in Kenya without having to provide health insurance, retirement benefits, worker's comp, support for universities, and all the other expensive "overhead" that the multinational would face if the same operation was located inside the G8."

Make no mistake: if companies in G8 countries wanted to pay G8 wages and G8 benefits, they'd locate in the G8. They aren't selling to Kenya. Although it is hard not to see some overseas working conditions as brutal, it is inevitably true that 1. the conditions/pay balance is better than whatever other jobs are available locally (I recall a Nicholas Kristof article about a big "industry" in Cambodia - scavenging for refuse) and 2. offering a high factory wage in developing countries can actually end up hurting the poorest of the poor, when more skilled workers apply and get the jobs. The Living Wage movement has run into this problem in the US - where they have succeeded, as in numerous universities, the higher wages have meant that more college grads than high school grads are hired, more high school grads than high school dropouts, hurting the latter, who have few other career choices.

Wes

Posters seem to have evolved a policy of not responding to Corey, but:That deserves a "+1 funny" Slashdot moderation(although I'm not entirely sure the sarcasm was intentional).

Corey

No Prof. Rasmusen I was not refering to you, I was attempting to counter the assertion that The Bell Curve was, as Newsweek originally claimed, "mainstream science" by pointing out some of the myriad criticisms of the work.

"It seems there is also an attack page on The Bell Curve at IU."

One man's critique is another man's attack page.
Some very credible refutations have been leveled at the conclusions drawn from that data. I agree that the scope of the work is not relevant to Africa with its education problems. That however does not stop people from using the work as evidence of some mythical "inferior cognitive ability" that they hope will justify their racist and paternalistic policy goals.

As to the wage imbalance between the G8 and the foreign workers who supply it:

"1. the conditions/pay balance is better than..."

So, $2 a day is better than $1 a day, but they are both slave wages. If someone mugs you, it is better that they take only your wallet rather than shoot you, but both are crimes.

"2. offering a high factory wage in developing countries can actually end up hurting the poorest of the poor, when more skilled workers apply and get the jobs."

That argument is a non-starter, because the whole point of "developing" a country is to encourage people to develop more valuable job skills. If people are paid a living wage, they will be able to help organise their own social welfare and education systems to support the poorest of the poor.

In fact, better wages at G8 offshore plants are a far superior method of sending $ into a developing country, because they go in dispersed and it is much harder for corrupt officials to skim from. It is interesting that G8 countries would vote 25 Billion in "targeted" aid rather than pass living wage legislation. Perhaps it is the classic paternalist "I will give you my lunch but I won't trust you with $5 because you might buy booze" at work on a national scale.

Matt Burgess

Corey -
"Economic Growth is neither the ultimate end goal of all human endeavors nor the only/best indicator of the health of a society."
Yes, but poverty and income are negatively related, for obvious reasons, so one is a good proxy for the other in formulating policy. Questions about distribution while important are secondary and should not generally be used as an excuse to prevent income-raising reforms.

"...exempt foreign investors from local laws, taxes, or any social responsibility...As a result, Shell Oil can employ locals at a wage that doesn't even cover necessities..."
Leftist dogma. Multinationals must at least meet the market rate for labour to attract workers, and empirical evidence suggests foreign firms pay higher wages than local firms. Differences between first and third world wages primarily reflect differences in productivity. Equating wage rates with standards of living is therefore misleading. The experience in Asia is that as industrialization takes off and the supply of labour is exhausted, competition for labour forces wages to increase. In addition, workers in factories acquire skills and knowledge that facilitate economic growth. History suggests the exploitation of which you complain is a necessary stage in the transformation to a first world economy. The implied remedy -- forcing multinationals to pay higher wages -- may permanently impede this transformation by reducing or eliminating FDI, indefinitely consigning millions more to poverty.

Corey

"History suggests the exploitation of which you complain is a necessary stage in the transformation to a first world economy."

Oh, how wonderful for you all then, history says its OK, and the finest economic minds in the country can't see any reason to try and improve on the past. I suppose by that logic plantation slavery was a necessary stage in the "civilization" of the african-americans eh?

How has your "necessary stage" worked for Hispanolia? 500 years since Columbus showed up and started exploiting... should be pretty first world by now eh? What's that you say?

There is a wage above local "please sir, can I have some more" market rate but enough below G8 market rate so as to cover overhead and incent investment. Lets not pretend that multinationals aren't lobbying governments to apply regulatory schemes that help bottom out wages, or aren't moving when the workers begin to organize, they do that at HOME even.

"Differences between first and third world wages primarily reflect differences in productivity."

Based on what, the Bell Curve and "lower cognitive ability?" Do you think you could make shoes faster than an Indonesian Nike worker or her 13 year old daughter? Or are you comparing productivity of factory floor workers with Engineers from MIT and lawyers that bill at $400 an hour?

Differences between first and third world wages primarily reflect first world willingness to apply different laws and maintain a permanent underclass of people who don't live within our borders.

"Questions about distribution while important are secondary "

No, I think distribution is the PRIMARY question. That is the fundamental difference that puts me on the "radical leftist" side of every conversation here. But many here are concerned about distribution too. If the distribution is such that all aid goes into the pockets of Mugabe, then no one including me is behind it. If the distribution is such that an otherwise dead child gets to live to go to school, almost any one of us here will send our $9.95 a month.

Talking about growth without looking into the distribution (where in the class hierarchy growth occurs) is tacit endorsement of the status quo distribution and class hierarchy. Rightist dogma. Hence the term "economic conservative" I guess.

Go tell people in rural Kansas or Indiana that the economy is growing. They will laugh in your face. But things look great for professionals in NY or Chicago. Distribution at work.

Eric Rasmusen

In an earlier comment I referred to a page on the Bell Curve at IU as an "attack page". I didn't mean that pejoratively. We economists are blunter than most people. I just meant it was a page that attacks something else, which is quite a suitable purpose for a website. The attack page can even be one-sided and still be useful (e.g. the Krugman Truth Squad at http://home.pacbell.net/weidners/jottings2/krugman_index.htm,which does not try to point out occasions on which Krugman is right). As to the particular page's overall quality, I can't say.

I'm sorry if this comment is too off-topic, but I thought it might be useful in thinking about controversial topics.

richard

corey does not get replies because he uses canned dogma as a form of debate.he also brow-beats his interlocuters.
to get back to the issue.sub-saharan africa will be best served by outsiders running its civil service.i think that people of the calibre of david owen the former british foreign secretary would be ideal.
mr eric rasmusen is right about richard lynn's work.it is pertinent to the problems of sub-saharan africa.
i am saying nothing new.the world perfectly understands the problem but is too petrified to take a first step forward.so africa unfortunately will be left to fend for itself.
paternalism. if you live in the lap of a wealthy country that is the usa then paternalism is offensive.on the other hand paternalism can be a welcome helping hand to the poor of africa.

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