Posts tagged with: world bank

Last summer, Acton’s PovertyCure team traveled to Ghana to meet with its economists and entrepreneurs — the men and women who are helping the country develop. It just so happens that they also met briefly with Peter Cardinal Turkson, president of the Vatican’s Pontifical Council for Peace and Justice and co-author of the note released yesterday that has stirred up a global controversy.

Cardinal Turkson, a native of Ghana, calls for the establishment of a central world bank in his note to the G-20, published in anticipation of next month’s summit in Cannes. Drawing from the first world’s obligation in solidarity to the developing world, he says:

Specific attention should be paid to the reform of the international monetary system and, in particular, the commitment to create some form of global monetary management, something that is already implicit in the Statues of the International Monetary Fund. It is obvious that to some extent this is equivalent to putting the existing exchange systems up for discussion in order to find effective means of coordination and supervision. This process must also involve the emerging and developing countries in defining the stages of a gradual adaptation of the existing instruments.

On that trip to Ghana, PovertyCure sat down for an interview with entrepreneur Herman Chinery-Hesse, a Ghanaian software developer who writes programs that can handle frequent power outages and primitive technology. (“Everybody builds Rolls Royces, but we’re in Africa; we build Land Rovers,” he explains.) His experience with a heavily nationalized economy that is dependent on foreign aid has taught him much:

I have never heard of a country that developed on aid. If you have heard of one, let me know! I know about countries that developed on trade, and innovation, and business. I don’t know of any country that got so much aid that it suddenly became a first world country. I have never heard of such a country.

Chinery-Hesse has plenty of experience with engines of economic progress created by well-meaning Western nations:

You cannot imagine how petty the political parties could get [in Ghana]… and they can do this because they are not depending on tax revenue. They are more interested in a smile on the World Bank country director’s face than the success of my business.

A truly human program of development must take into account the fallen nature of developing countries’ rulers — they’re human too, after all. The World Bank is disruptive enough as it is: ask Herman Chinery-Hesse whether Ghana would improve if we merged it into a behemoth financial overlord.

Samuel Gregg is quoted in today’s New York Times story about the Vatican note calling for a central world bank — he gives the final word on the document. The “politically liberal Catholics” quoted before him reveal that they have missed a crucial distinction in the document produced by the Pontifical Council for Peace and Justice. Gregg, of course has picked up on that distinction; he wrote yesterday:

Putting aside doctrinal questions, this text also makes claims of a more strictly economic nature…. The text makes a legitimate point about the effects of a disjunction between the financial sector and the rest of the economy.

Unfortunately, many of its authors’ ideas reflect an uncritical assimilation of the views of many of the very same individuals and institutions that helped generate the world’s most serious economic crisis since the Great Depression.

The academics and activists who see in the document a way forward to socialism have missed the split between the note’s diagnosis of the world economy, and its proposed economic reforms. I cannot resist quoting G.K. Chesterton: “The reformer is always right about what is wrong. He is generally wrong about what is right.”

To say that “the time has come to conceive of institutions with universal competence,” as PCPJ President Cardinal Turkson did yesterday, is all well and good, but the possibility of such institutions running effectively is another matter.

Indeed, Kishore Jayabalan, the director of Istituto Acton and a former staffer at the Council, asked the National Catholic Reporter, “What makes the [Council] think that ‘global’ leaders will succeed where so many national ones have failed? It is a shame this document is based more on sentimental political hopes for world government than on actual experience and expertise of financial markets.”

Blog author: jballor
Friday, May 20, 2011

Over at the Comment site, I review Dambisa Moyo’s How the West was Lost: Fifty Years of Economic Folly—and the Stark Choices Ahead. In “War of the Worldviews,” I note that the strongest elements of Moyo’s work are related to her analysis of the causes and the trends of global economic power. “Faced with the combined might of the Rest,” writes Moyo, “the West is forced to grapple with a relentless onslaught of challengers from all corners of the globe. And all these countries are growing in confidence, gaining in competence, and jockeying for a frontline position in the world’s economic race.”

A recently released World Bank report echoes Moyo’s sentiments, which are broadly shared by many forecasts. As Motoko Rich at the NYT Economix blog summarizes, “A new report from the World Bank predicts that by 2025, China, along with five other emerging economies — Brazil, India, Indonesia, South Korea and Russia — will account for more than half of all global growth, up from one-third now.”

One way of understanding these trends is that it is simply what you get in an age of global competition. Nations like China, India, and Brazil are increasingly able to make sustained GDP gains because of increased access to global markets, particularly the US. And the US is forced to adapt to remain competitive, and in many cases this hasn’t happened. It’s not clear at all why all this is such a bad thing. After all, it’s not that the US will cease to be affluent in the foreseeable future. It’s just that other nations won’t be as relatively poor.

Even so, Moyo can’t help but cast these developments in negative terms for the West: “…even while globalization could contribute to a rising tide for all boats, it is clear that the relative quality of life will almost certainly have to decline in the West to accommodate a rise in the Rest.” Thus the relatively greater quality of life enjoyed in the West will decline compared to the Rest. But why must this be so dire for the West?

The weakest part of Moyo’s project comes through in her attempts to provide prescriptive guidance for the West to avoid this “precarious path of forecast decline.” All you really need to know about her suggestions appears in this line: “there is, after all, nothing inherently wrong with a socialist state per se if it’s well engineered and designed and can finance itself.”

Moyo wants the US to adopt the Chinese model of state-directed markets because of the “the speed with which policies can be taken and implemented.” Deliberative democracy is just too slow, too cumbersome, and too captive to special interests. We need a lean, mean set of government committees to run the economy properly and efficiently.

What’s difficult for me to understand is why, given the West’s historical success by embodying “a fully fledged capitalist society of entrepreneurs,” we should abandon that model. Moyo should instead be calling the West back to its strengths, its foundations in “democracy and the sanctity of the rights of the individual elevated above all else,” instead of issuing the siren song of state-driven capitalism. If it is really a competition between state-run and entrepreneurial “capitalism,” it’s not clear at all (as Moyo seems to think) that the statists will win.

It seems to me that the West will only truly be “lost” when we give up our commitments to the inherent dignity and rights of the individual, the rule of law, freedom of association, exchange, religion, and expression. The thrust of Moyo’s book is a classic, “It became necessary to destroy the West to save it,” project, and that’s one that’s simply not worth fighting for.

Blog author: lglinzak
Thursday, March 31, 2011

To provide water for people, communities have usually turned to  two different options: public or private utilities. However, if Bolivian President Evo Morales, leader of the Movement Towards Socialism Party, gets his way, the United Nations will pass a resolution blocking the sale of public water utilities to private companies. If adopted, this resolution will cause problems for many nations, especially the undeveloped countries receiving support from the U.N. that will be forced to abide by one option—public supply of water—instead of being permitted to consider privatization which may be more efficient and cost effective.  The makes the global water crisis much worse.

It will not help any country to limit its options when searching for the most efficient and cost effective solutions for providing a clean, sanitary, and abundant source of water.

Theories and examples in support and against both private and public water utility systems are numerous. A study conducted by the University of Michigan showed that water prices, in general, are too low. The study explains that direct and indirect subsidies, in both developed and undeveloped countries, have caused low prices, resulting in water waste. Furthermore, the study argues that if the subsidies are removed, the price of water will increase and provide an incentive for those utilizing water to not waste it. This, in turn,  will result in the investments that are needed to develop more efficient technologies. If subsidies are removed, then a lighter burden is placed on public funds.

Lending support to the findings of the University of Michigan study, a survey conducted in 2004 by Global Water Intelligence found that the under-pricing of water is widespread. The study analyzed the prices charged by water utilities in 132 major cities worldwide and found that 39 percent of water utilities had average tariffs that are set too low to cover basic operation and maintenance costs. Some 30 percent had tariffs that are set below the level required to make any contribution toward the recovery of capital costs.

Changing the price system may be a solution. Some argue for a metering that charges water users based on consumption. However, while subsidies are proving to be largely inefficient the question must be asked: Can those in undeveloped countries, who are already living in a state of grave poverty, afford increased prices on water?

The International Development Association and the World Bank are quick to point out the success of private water utilities. Examples can be found in Rwanda and Mozambique where the private sector helped provide, improve, and/or expand the water supply. The U.N. has acknowledged five reasons to pursue private sector partnerships.

A private sector supply of water can be more efficient and cost effective. According to the World Bank, it is estimated that in the United States each dollar of public funds raised for utilities has an opportunity cost of $1.30 of private consumption, and the average opportunity cost for each dollar of tax revenue raised is $1.17 for 38 African countries.

Critics of the privatization of water argue that while it is more efficient and cheaper, the private systems fall short of social equity in supplying water and charge higher prices. While there have been unsuccessful stories of privatization, the aforementioned examples in Rwanda and Mozambique are a just a few of the many success stories, and, as The Economist notes, when private utilities charge higher prices, that often corresponds to higher rehabilitation investments, better water quality, and better service.

Privatization will also promote the decentralization of  government, and in the case of many developing nations, remove the control of water out of the hands of corrupt bureaucrats. A large overarching centralized government is not needed. Instead, the principle of subsidiarity should be applied.

Private entities are able to supply an efficient and cost effective supply of water. Privatization is an effective solution, and its ability to meet the needs of consumers has improved. As a result, water supply can follow the principle of subsidiarity by utilizing other alternatives to supply water instead of through a system brought forth by a centralized government.

It is important to note that just as public utilities are open to corruption, inefficiencies, and poor management, so is privatization. Privatization can fall subject to a corrupt government. The example of Detroit is instructive here. For example, when a government decides to contract a private utility to supply water, instead of having an open bidding process, the government accepts no outside bids and picks a company that is owed a political favor. If privatization is to succeed government must take the appropriate actions to allow it to succeed and also nurture an environment that is open to decentralization, promoting business without unnecessary government interference.

Also this week in Acton Commentary, Acton Research Director Samuel Gregg observes that “Europe’s declining birth-rate may also reflect a change in intellectual horizons.”

Europe’s Choice: Populate or Perish

If there is one thing the global economic crisis has highlighted, it’s the need to make choices—sometimes very difficult choices. At the June G-20 summit, for example, several European governments made it clear to the Obama Administration that they do not believe you can spend your way out of recessions. Unlike America, countries such as David Cameron’s Britain and Angela Merkel’s Germany have chosen the politically-risky but economically-brave path of austerity and public-sector spending cuts.

In some instances, these measures may not be enough to prevent countries such as Greece and Portugal from sovereign-debt defaults. Still, the alternatives are ever-rising government debt-to-GDP ratios (which invariably prolong stagnation as has occurred in Japan since the 1990s) or attempts to simply inflate the debt away (thereby risking the terrible experience of 1920s Germany or America’s 1970s economic malaise).

In the end, however, escaping the Great Recession’s effects is going to require more than spending cuts. The only long-term way out is economic growth. Here, however, much of Europe faces a problem that most non-European countries do not. The challenge is one of an overall population decline and an aging population. As stated in a 2006 IMF report, “The population of the 25-member European Union in coming decades is set to become slightly smaller—but much older—posing significant risks to potential economic growth and putting substantial upward pressure on public spending.”

However one examines the statistics, the demographic picture for Europe—including Eastern Europe and Russia—is bleak. Statistically-speaking, the numbers of births per woman required merely to maintain a population’s size is 2.1 children. Not a single European country meets that figure today. Germany’s birth-rate, for instance, is 1.38. Italy’s is 1.41. Spain’s is 1.39. France and Britain are doing comparatively well at 2.0 and 1.94 respectively, but—you guessed it—Greece is the lowest in the EU.

Nor is any consolation to be found in the aging statistics. In Belgium, the percentage of the population over 65 will increase from 16 percent to 25 percent by 2050. In 2007, a World Bank document stated that by 2050 approximately half of Spain’s population will be 55 or older.

The reasons for these trends are many. The twentieth century’s two world wars tore large generational holes in Europe’s demographic landscape. Women are also having children later in life. There also seems to be a broad correlation between increasing material prosperity and diminishing population growth. Then there is the greater access to contraception from the 1950s onwards.

But more subtle cultural factors may also be at work. For one thing, it’s striking how many Europeans are reluctant to discuss the subject of their population decline. This may owe something to an association of calls to have more children with the population policies of totalitarian regimes such as Hitler’s Germany, Stalin’s Russia, Mussolini’s Italy, and Ceauşescu’s Romania. Another factor may be many Europeans’ susceptibility to population-growth alarmism, as manifested in many European governments’ aggressive promotion of population-control in developing countries (which strikes some as verging on neocolonialism).

At a deeper level, however, Europe’s declining birth-rate may also reflect a change in intellectual horizons. A cultural outlook focused upon the present and disinterested in the future is more likely to view children as a burden rather than a gift to be cared for in quite un-self-interested ways. Individuals and societies that have lost a sense of connection to their past and have no particular interest in their long-term destiny aren’t likely to be worried about a dearth of children. Here Europe’s generation of 1968—which promoted a radical rupture with the past and is intensely suspicious of anything that might broaden people’s outlooks beyond the usual politically-correct causes—has much to answer for.

Immigration is one way for European countries to escape these conundrums. After all, it has proved to be one of America’s engines of economic growth and continues to help the United States avoid the population trap in which Europe now finds itself. For decades, Western Europe relied on immigration, especially from Islamic countries, for cheap labor, especially for those unpleasant jobs some Europeans prefer not to do.

For the moment, however, increased immigration doesn’t appear to be an option for Europe. The policies of multiculturalism have failed and produced such deep fractures in many European societies that most European governments are presently reducing immigration from non-European countries.

Is demography destiny? It need not be. Demography is only one variable among many. Moreover individuals and nations can make choices, and choices change our future. Sometimes circumstances, such as the global economy’s present problems, can provide the incentive and opportunity to break away from apparently unalterable paths.

The clock, however, is ticking. The longer Europeans fail to address their demographic difficulties, the smaller becomes their room for maneuver, and the more likely Europe will be reduced to being a bit-player on the world’s political and economic stage.

The loss would be not only Europe’s, but ours as well.

Dr. Samuel Gregg is Research Director at the Acton Institute. He has authored several books including On Ordered Liberty, his prize-winning The Commercial Society, and Wilhelm Röpke’s Political Economy.

Last month the World Bank published a report titled, “Where is the Wealth of Nations?” (HT: From the Heartland). The report

describes estimates of wealth and its components for nearly 120 countries. The book has four sections. The first part introduces the wealth estimates and highlights the level and composition of wealth across countries. The second part analyzes changes in wealth and their implications for economic policy. The third part deepens the analysis by considering the importance of human and institutional capital, and by linking wealth to production. The fourth part reviews existing applications of resource and environmental accounting in developed and developing countries.

Also out recently is an index of the most globalized nations by Foreign Policy (HT: International Civic Engagement). The top ten, based on 2005 data, which claims to “measure countries on their economic, personal, technological, and political integration”:

  1. Singapore (252,607)
  2. Hong Kong (NR)
  3. Netherlands (421,389)
  4. Switzerland (648,241)
  5. Ireland (330,490)
  6. Denmark (575,138)
  7. United States (512,612)
  8. Canada (324,979)
  9. Jordan (31,546)
  10. Estonia (66,769)

In parenthesis after the name of the country in the top ten, I’ve placed the total wealth estimate for the year 2000 from the World Bank report (appendix 2 PDF).

Look at Estonia, for example. Even though its total wealth score is much smaller relative to other nations on the globalization list, the majority of its wealth score (41,802) in the World Bank report is garnered from “intangible capital,” which refers to, as the From the Heartland blogger put it, “the value of the nation’s economic and political institutions,” such as the rule of law. And now compare Estonia with the Republic of Congo, which has almost the same ratings in terms of tangible capital as Estonia, but whose -12,158 intangible capital rating keeps its total wealth score disturbingly low (3,516).

Clearly it isn’t the case that countries that only have rich natural resources have something to offer the international marketplace. Strong and responsible economic and political institutions can foster intellectual creativity, technological innovation, and social capital that more than makes up for deficits in natural resources.

Blog author: jspalink
Wednesday, June 20, 2007

As developing countries turn increasingly to private capital markets, the World Bank is facing not only a steep decline in demand for its loans but a crisis of relevancy. Sam Gregg looks at the changing market and how the rules of private lending might also provide a better check on corruption in the developing world. Adieu, World Bank?

Read the complete commentary here.