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From substinence farming to prosperity?

Paul Romer

For several years I’ve been writing about the development challenge — what policies are the most effective to help Paul Collier’s “Bottom Billion (TED Talk)” escape from poverty to our world of prosperity? There are a number of central ideas which I think of in a rough, non-linear relationship: (Industrial agriculture, urbanization, cities) => (Ideas, innovation, economic growth) => (Women control their own fertility, women’s education, population growth stabilizes). Zero-carbon energy that is cheaper-than-coal has to be the foundation of that pyramid.

The purpose of this post is to pull together some recommendations for print, audio and video resources on these topics.

A good place to begin is Steward Brand’s Rethinking Green (video, SALT lecture). For an overview of agricultural reform try Pamela Ronald, Raoul Adamchak’s “Organically Grown and Genetically Engineered: The Food of the Future” [video of their SALT talk], [the book at Amazon]. On agriculture and urbanization, try Why big dams and big ag are good for the poor (text interview with Harvard’s John Briscoe) .

On cities: ideas come from places where people congregate – in particular cities. Innovation comes from banging ideas against each other. And the central engine of economic growth is innovation – both in the form of new technologies and new institutions (or rules). This is one of the insights that have made Paul Romer one of today’s most influential economists. Romer’s “endogenous growth theory” or “new growth theory” is sure to win him a much-deserved Nobel Prize. From Dr. Romer’s Stanford biography:

(…) The contrast between the economics of objects and the economics of ideas is the thread that runs through my work. In graduate school, I wondered why growth rates had been increasing over time. Fresh from cosmology, I was not motivated by policy concerns. It just seemed like an important puzzle. Existing theory suggested that scarcity combined with population growth should be making things worse, but they kept getting better at ever faster rates. New ideas, in the form of new technologies, had to be the answer. Everyone “knew” that. But why do new technologies keep arriving at faster rates? One key insight is that because ideas are nonrival or sharable, interacting with more people turns out to make us all better off. In this sense, ideas are the exact opposite of scarce objects. (See my recent paper with Chad Jones for more.)

For an introduction to Romer’s growth theory I recommend Paul’s chapter “Economic Growth” inThe Concise Encyclopedia of Economics, and the Econtalk interview “Romer on Growth” (if you prefer to read, see the full transcript).

Paul Romer’s current project is Charter Cities, a pragmatic scheme to overcome the development bottleneck of bad rules (for examples of bad rule systems think of Haiti, Zimbabwe, North Korea). I am convinced that the Charter Cities concept will work, and continue to find every Romer presentation fascinating. There are two TED Talks so far: Paul Romer’s radical idea: Charter cities (2009) and Paul Romer: The world’s first charter city? (2011 regarding Honduras).

“When ideas have sex” is a key theme of Matt Ridley’s 2010 book The Rational Optimist. I do not agree with all of Ridley’s themes. But his riff on ideas is good – sample his TED Talk When ideas have sex. I also recommend the longer Ridley lecture/discussion titled Deep Optimism at Stewart Brand’s Seminars About Long Term Thinking (SALT).

For a 2011 look at cities as idea- and hence prosperity-generators, Harvard’s Ed Glaeser is getting a lot of favorable comment on his 2011 book Triumph of the City: How Our Greatest Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier. Glaeser is the subject of an excellent Freakonomics Radio podcast [MP3], and the London School of Economics lecture of the same title. See also the LSE review of Triumph of the City.

More on cities, ideas and growth: why do cities seem to be able to keep growing while most corporations die? Geoffrey West and colleagues at the Santa Fe Institute have been searching for a common theory which might answer that question. Geoffrey recently gave a thoughtful lecture at the Long Now Foundation (SALT).

Lastly, on the same theme, Steven Johnson’s 2010 book Where Good Ideas Come From: The Natural History of Innovation is summarized in his TED Talk: Where good ideas come from, and in his recent RSA Animate lecture of the same title.

Enjoy!

Fertility and poverty

Published August 17, 2011 Development Closed

Harry responds to the BNC comment by Jess, on 16 August 2011 at 2:08 AM said:

1. How rapidly can we lift the poorest to a level where population growth is curtailed? Obviously the sooner we achieve this, the lower the peak.

It’s about 30 years from the point of universal education for woman coupled with opportunities to have a value to society other then producing children(I.E. gainful employment) that fertility rates begin to drop.(The Saudi Experience) Then it’s another 60 years from the point fertility rates drop until population levels off.

Can you get rich without democracy?

Published August 7, 2011 Democracy , Development Closed

Dani Rodrik:

Yes if you are an individual, but probably not if you are an entire country. As the figure below shows, there are very few countries that have developed beyond $5,000 in 2005 PPP dollars without becoming democracies somewhere along the way (unless they are an oil economy).

This scatter plot covers all countries with population larger than 1 million and with fuel exports less than 50% of export revenues. (Democracy is measured by the Polity score, which runs from -10 to +10).

The exceptions in the chart are interesting. Singapore is the most intriguing, of course, as one of the richest countries in the world, but with what Polity considers an authoritarian regime. Belarus is one of the Soviet-era holdovers. Tunisia and Jordan – well, we know what has happened recently in that part of the world.

Which leaves China. Will China remain an exception and develop into another Singapore? Or will it go in Tunisia’s direction?

My guess is that this question will leave a larger imprint on the world economy than the double-dip we seem to be entering at present.

[From Can you get rich without democracy?]

Poverty: New ideas about an old problem

Published April 23, 2011 Development Closed

Poor Economics: A Radical Rethinking of the Way to Fight Global Poverty. By Abhijit Banerjee and Esther Duflo.

At Free Exchange there is a series of commentaries on the new book. E.g., “Health: unpicked low-hanging fruit“. There are some findings here that are sincerely new in development economics. We know of course that “incentives matter”. So what do you do when the rural parents of Rajasthan do not take their children for free immunizations? Well you could offer a small bag of lentils as a ‘reward’:

(…) The authors recount an absolutely fascinating series of experiments designed to get more people to immunise their children in rural Rajasthan. Again: hugely beneficial action, and thanks to the NGO they worked with, readily and freely and reliably available. But also something with a small cost—perhaps a couple of hours off work and the trudge to the clinic, and benefits that are intangible and lie in the future. Result: abysmal immunisation rates.

Their idea: a small bag of lentils given as a sort of “reward”. This was opposed by public health officials, who thought “bribing” people to do what they should do anyway was a bad way to go. Yet it had a dramatic effect—and actually reduced the cost per immunisation to the NGO, because the nurses who had to be paid for the whole day anyway were now busier. Yes, convincing people of the benefits is probably useful in the long run, but this does the trick much better and more quickly—and, possibly, experience with immunisation is a pretty valuable kind of “convincing”. And yes, it’s paternalistic. But a whole host of things are essentially done for us—often by a paternalistic state, which purifies our drinking water and provides sewage systems and so on. There are many, many areas where we simply do not have to take responsibility because stuff is done for us, or made incredibly easy. But the poor must actively decide to “do” them.

The Economist review – excerpt:

The two economists made their names (and remade their discipline) by championing randomised trials. These trials test anti-poverty remedies much as pharmaceutical firms test drugs. One group gets the remedy, another does not. The two groups are chosen at random, so the remedy should be the only systematic difference between them. If the first group does better, the benefit can be attributed to the project and not the many other factors that might otherwise obscure the result.

These trials proved immensely appealing. They promised to sift nuggets of truth from the slurry of received wisdom and wishful thinking that characterises much aid-talk. The hope was that once a trial proved the worth of a project or programme, governments and donors would back it and prescribe it more widely.

A Quick Case for Charter Cities: Memo to the Gates Foundation, by Bryan Caplan

Published March 24, 2011 Development Closed
Tags: CharterCities

Holding workers’ traits fixed, moving a Haitian from Haiti to the United States increases his wage about ten times – a gain of 900%. The lesson: Third World workers are less productive than First World workers largely because they live in the dysfunctional countries. — Bryan Caplan’s summary of the Place Premium [PDF].

The Gates Foundation asked Bryan to write a memo on Charter Cities.

It would be wonderful if the implementation of the first charter cities could be accelerated with cash. But it’s not clear to me how a big investment in the Charter Cities project would be effective. Brandon Fuller at Charter Cities wrote a nice post interpreting the Caplan memo — including this clarification — they were not looking for money:

Though we’ve had good discussions with people at the Gates Foundation about urbanization in general and the charter cities proposal in particular, we have not asked for their financial support.

Here’s an excerpt from Bryan’s post on Econlog:

The Bill and Melinda Gates Foundation has an interesting accountability mechanism. After they make a major funding decision, they solicit pro and con memos on “roads not taken” – other ways they could have spent their money. Since the Gates Foundation recently decided not to back charter cities to help reduce global poverty, they asked me to write a memo to explain why they made a mistake. Here’s the full text of my memo, reprinted with permission:

To: The Bill and Melinda Gates Foundation

From: Prof. Bryan Caplan

Re: The Case for Charter Cities

Anyone serious about reducing world poverty must come to grips with a single key fact: Redistribution from rich to poor has not and cannot solve more than a tiny fraction of the problem. Even if you could perfectly equalize income in Third World nations with zero effect on production, the citizens of Third World countries would remain mired in poverty. Take Bangladesh. With a GDP of $256B and a population of 164M, equalization would at best give each citizen an income of $1561 per year – about $4 a day. Countries do not overcome poverty by sharing production more equally. They overcome poverty by increasing production – what economists call “economic growth.”

At first glance, increasing production seems extremely slow and difficult, requiring decades of investment in education, infrastructure, political reform, and who knows what else. But there turns out to be one foolproof way for people from the Third World to drastically increase their production overnight: move to the First World. “The Place Premium,” an important paper by the Center for Global Development’s Michael Clemens, Claudio Montenegro, and Lant Pritchett[1], offers the most precise estimates of the benefits of migration. They find that the effect of country of residence on income dwarfs the combined effects of poor education, poor health, poor work habits, and all the other defects commonly ascribed to Third World labor. Holding workers’ traits fixed, moving a Haitian from Haiti to the United States increases his wage about ten times – a gain of 900%. The lesson: Third World workers are less productive than First World workers largely because they live in the dysfunctional countries.

The first-best solution to global poverty, therefore, is for the First World to allow much higher levels of immigration. Unfortunately, despite its low absolute level (annual U.S. immigration is well under 1% of its population), immigration is already extremely unpopular. For the foreseeable future, significantly more open borders – not to mention truly open borders – seem politically impossible. The challenge, then, is to figure out a close substitute for free migration from the Third World to the First. This is the challenge that Paul Romer’s increasingly influential “charter cities” proposal tries to meet.

(snip)

Another upside of charter cities is that there is virtually no downside. A charter city begins on empty land. It can only grow by voluntary migration of workers and investors. If no one chooses to relocate, they’re no worse off than they would have been if the charter city had never existed. If efforts to start charter cities fail, at least they won’t harm the very people they’re intended to help.

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Read the whole thing »

The unsung development miracles of our time

Published November 15, 2010 Development Closed

Harvard economist Dani Rodrik has a surprise for us this morning.

Which are the countries that have improved their human development indicators the most since 1970 relative to their peers? You’d be surprised, as I was, to find that the top 10 is dominated not by East Asian superstars, but by Moslem countries: Oman, Indonesia, Saudi Arabia, Tunisia, Morocco, and Algeria. This year’s Human Development Report is full of neat analysis and results, including this one.

Leaving aside the oil exporting countries, the North African cases are particularly interesting. As Francisco Rodriguez and Emma Samman, two of the report’s authors, note, Tunisia, Morocco, and Algeria have experienced remarkable gains in life expectancy and educational attainment, leaving many Asian superstars in the dust. Only Tunisia among the three is a high growth country, underlining one of the report’s main findings that economic growth and human development often diverge significantly, even over as long a time frame as 40 years.

(…)

What is somewhat puzzling, as Rodriguez and Samman also note, is that these countries have not made nearly as much progress in democratization.

Modern Farming Methods Have Slowed Global Warming, Study Says

Published July 11, 2010 Development Closed

Yale Environment 360 recognizes the dramatic benefits of the evil GMO (evil according to the EU, Greenpeace, FOE, etc. The GMO’s of course are funded by rich people, so they do not have to live in Africa):

High-yield farming methods that use fertilizers, hybrid seeds, and pesticides have “massively slowed” global warming by enabling farmers to grow more food per hectare and thus avoid far worse deforestation than has already occurred, according to a new study. Researchers from the Carnegie Institution calculated that the green revolution has saved 1.5 billion acres of forests — an area one-and-a-half times the size of the U.S. — from being chopped down in recent decades. Preserving that forest has kept the equivalent of 600 billion tons of carbon dioxide out of the atmosphere — roughly a third of all human greenhouse gas emissions from 1850 to 2005, the study said. Lead researcher Steven Davis said the use of petroleum-based fertilizers and other emissions from the green revolution “are outweighed by the indirect emissions avoided by leaving unmanaged lands as they are.” Critics of the study contend, however, that it did not take into account the environmental harm caused by intensive use of pesticides, fertilizers, and industrial farming techniques. [From Modern Farming Methods Have Slowed Global Warming, Study Says]

Natural Resource claims

Published June 9, 2010 Development 2 Comments

I’ve been looking for maps that show all the geographic rights or treaties for the world fisheries. Along the way I came across this remarkable map resource, thanks to New Security Beat blog. Theo Deutinger’s map shows the surprising extent of ocean claims, but doesn’t incorporate open ocean treaty coverage.

As burgeoning populations and growing economies continue to strain natural resource stocks around the world, countries have begun looking to more remote and difficult-to-access resources, including deep-sea oil, gas, and minerals. The UN Convention on the Law of the Sea (UNCLOS) guarantees exclusive access to these resources within 200 nautical miles of a nation’s sovereign territory – called an exclusive economic zone (EEZ). TD Architects’ “Exclusive Economic Zone” map illustrates this invisible global chessboard and highlights some examples of disputed areas, such as the South China Sea, the Mediterranean, the Falkland/Malvina Islands, and the Arctic.

The creator of “Exclusive Economic Zone,” Theo Deutinger, points out “that if a country owns a minuscule rock somewhere in the ocean, this rock’s exploitable surface increases from almost zero on-shore to 430,000 km² offshore.”

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Photo Credit: “Exclusive Economic Zone” courtesy of Theo Deutinger and TD Architects.

Please continue reading…

The Plundered Planet: how to reconcile nature with prosperity

Published June 9, 2010 Development , Economics Closed

Yesterday I listened to the podcast of Paul Collier’s lecture at LSE (London School of Economics) (MP3). Paul is promoting his new book The Plundered Planet. I have to say that this is probably the most important book/lecture we have encountered for some time. Paul’s The Bottom Billion was brilliant — the new book builds on Paul’s earlier work, constructing a policy manual on effective development strategies.

A central theme is the idea that Africa has a chance at shifting onto a growth track if they can organize to exploit new resource discoveries for the benefit of the people (which has never happened before in Africa). To frame the size of the opportunity Paul asked the audience which has more natural resources to exploit OECD or Africa? This is a trick question because the only data we have is on proven reserves. The OECD has about $300 million value underneath the average square mile of territory. Africa has about $60 million. “Why is that? Does God hate Africa?” Paul asks.

In fact Africa has small proven reserves because there has been very little exploration there. While we don’t know what will ultimately be found, we have no reason geologically to think that the African continent is dramatically different than the rest of the world.

So Paul’s framing is to think of a multiple of five as exploration in Africa catches up. He seems to be reasoning from a belief that commodity prices are on a “high trend line”, positing that there will be a massive increase in extraction over the next few decades. If the same political/economic mistakes are repeated, then Africa will have missed a big chance for jumping off the poverty track onto the growth track.

(…) There’s been, until recently, very little search and discovery in the countries of the bottom billion. So, they’ve got to be found. The challenge is then to stop them from being plundered and why they’ve been plundered in the past? Because it’s been so easy to plunder. In order to extract the resources in the first place, most of these societies need foreign technologies, so foreign companies come in. The temptation for the foreign company is then to get permission to extract by doing a deal with a couple of powerful politicians, and they strike a deal which is good for the politicians, good for the company, and lousy for the country.

The Oxford University Press blog has a 5-segment interview with Collier on The Plundered Planet. I found the interview to be a good précis of the key points of his LSE speech. In particular here is the segment which relates to Paul’s lecture commentary on “why I wrote this book — to encourage young people to change their perspective, to get on the right side of history”:

Michelle Rafferty: I was wondering if you can tell us how you think young people—who have a huge influence on the sustainability movement—can come into play and what concessions you think they might have to make?

Paul Collier: They need to get on the right side of history.

There are two big issues that face the world. One is indeed the protection of the planet, but the other is the escape from poverty. There’s still a billion people living in societies that are not offering credible hope to their citizens. And we mustn’t get into a mindset in which we have to sacrifice the interest of the poorest people on earth in order to protect the planet. And so, I invite young people to come up with a shared agenda of poverty alleviation and protection of the planet. The book could be sub-titled “how to reconcile nature with prosperity.” That’s the theme. The energy, passion, intelligence of young people needs to be harnessed for that dual agenda—of a genuine ethics of nature, which is not the same as a romantic attachment to preservation at all costs.

Rafferty: So what kinds of things can young people be doing to help fix this problem?

Collier: They can do a lot. They can do more than I can because what the book argues is that ultimately the solution is to build a critical mass of informed opinion, society by society. That’s why I wrote The Plundered Planet—it’s to get that process started of building a critical mass of informed opinion. But young people are much more familiar with the new technologies of how to communicate with other people than I am. One of the famous ideas is that there are only 6 degrees of separation between any two people on earth. We’ve suddenly got the technology which enables us to leap through those 6 degrees of separation very, very fast.

One of the ideas that I put out in The Bottom Billion is called Natural Resource Charter—get a website which explains the decision chain in harnessing natural assets. The Plundered Planet describes how citizens around the world came together and did that. That website now exists. So what we need now is to take that website out and its information out to ordinary citizens in the low income resource rich countries. One of the first talks I gave on this, a young woman came up and said, “Well I hope you put it on YouTube.” I hadn’t thought of it now. She sent me an e-mail the next day, she says, “It’s on there now.” So, all the things that are natural, come naturally to young people, are not natural to people like me. You are in a better position than I am to ignite the process that builds this critical mass of informed opinion.

Paul’s presentation is optimistic, especially w/r/t the challenge of achieving a critical mass of informed opinion in each of Africa’s 67 nations. And of course in the OECD. But no successful development approach can be delivered from the outside. The people have to enforce their demands on their politicians. Some of his optimism seems to come from a conviction that technology is now reaching the African public sufficiently to allow exploitation of non-government, non-elite communications. I hope he is right. Then I look at Mugabe and Zimbabwe and wonder.

UPDATE: The Woodrow Wilson International Center for Scholars hosted an event for Paul Collier and Plundered Planet. They will have video uploaded to that page “soon”. Their summary of the lecture is good, including this important segment:

Why have we largely plundered, rather than invested in, our resources thus far? What can be done to change the current principles of resource management? Collier’s short answer: governance.

For the poor countries in the “bottom billion,” Collier said the “broken decision chain” must be mended. The chain has six steps:

Discovering natural assets;

Avoiding appropriation by a few at the expense of the many;

Ensuring local inhabitants receive generous compensation for unavoidable environmental damage;

Consuming in a way that benefits both the present and the future;

Investing in the absorptive capacity of government; and

Investing in domestic development.

Transnational resources–such as fish, air, and deepwater discoveries–need intelligent regulation. “We’re actually subsidizing the plunder of the fish market,” said Collier, effectively giving the fishing industry $30 billion a year–nearly half of its $80 billion annual worth–to deplete fish stocks below sustainable levels. As a rule, he recommended removing subsidies and reforming tax practices.

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