Wednesday, December 31, 2014

We need more rigour in the evaluation of Petrobras

There is little dou that Petrobras is in trouble. The current government (and previous administrations?) most likely used it to secure political funding and other corruption activities. This is unfortunate for many reasons, including that it hurts the credibility of one of the best public companies in Latin America. Yet in considering Petrobras´s current situation, we should distinguish more clearly between what we know and what we don´t know and stop mixing things up. The problem of corruption is quite different to the potential existence of productive inefficiencies or to the use of Petrobras as an instrument of industrial policy. Petrobras may still be a useful instrument for industrial policy (I have not seen any evidence to the contrary yet) even if there is corruption at the same time. Unfortunately this is not the way the mainstream press (and many mainstream economists) analyze the situation. Take a recent FT article here. . In describing the current situation, an opposition observer argues that "“At the end of the day, all of this is happening because the PT (Workers’ party) has fostered monopolies and, to a certain extent, cartels which generate inefficiencies and an atmosphere that is conducive to corruption". Yet there is no evidence that this is the case, that is, using Petrobras as a monopolistic instrument of industrial policy has nothing to do with corruption. You can do one without the other. In fact, I am still hopeful that the policies of local content requirements that Petrobras have used end up being successful.

Wednesday, December 24, 2014

Universal Health Coverage

Two weeks ago we celebrated the universal health coverage day, an important initiative given the importance of securing health care for all. An article by Sir David Nicholson (former NHS boss) discusses the advances in this area in many countries, with interesting efforts to fund basic health care for all. Yet, as Juliana Martinez Franzoni and I have argued in much of our work (see, for example, this working paper) universalism should not just be about coverage but also about quality and equity: we should try to offer as much as we can for everyone in the same way. This will be a powerful way to improve health outcomes but also improve social cohesion and reduce inequality. Moreover, securing universalism over the long run will require more than quick, short term responses: you need to develop a stable policy architecture that secures funding and manages competition from the private sector as well.

Latin America under threat?

Many of us have worried about this moment when commodity prices would decrease and the Chinese economy slow down. Eduardo Portes has a great article at the NYTimes explaining the negative consequences that are already materialising. It is clear that at the macro-level the region will have to readjust, yet many questions still remain: a. What will happen with exchange rates? And will non-commodity exports react to any depreciation of the exchange rate? This may depend on what happens with capital inflows, which are decreasing in several countries. b. How should countries react to these changes? Do they have space now to do new production policies? Which countries need to adjust their fiscal policy to the new conditions and which countries have a more diversified tax structure? c. One thing that I don't buy is that countries cannot do any reforms in social policy. Quite the contrary, reforms are even more important now that reforms are more scarce and there are many regulations that can be introduced: restrictions on the private sector (what Juliana Martinez Franzoni and I call the "outside option"), improvements in how the services are delivered, etc.

Wednesday, October 29, 2014

Back to the future regarding Central Banks?

There are several aspects of the recent elections in Brazil that I find surprising.  One is the excessive concern about the opinion of foreign investors and the need to do policies that they find attractive. Here is a good criticism from an Indian newspaper  (even if the comparison between India and Brazil in terms of political options is probably misplaced).  Another is the whole debate about the autonomy of the Central Bank.  I realize that only two decades ago Brazil was suffering from hyperinflation and that the risks of new problems is always present. Also, the minimum wage policy is great in many ways--particularly its role on income distribution--but without productivity growth it can fuel inflation even more. 

And yet the risk of high inflation is still low and the claim that the PT has been to loose in this area totally unproven.  It is just rather surprising that even sensible Brazilian observers are calling for further Central Bank autonomy.  Why is that needed?  How much has the government truly influenced monetary policy?  And after all the recent problems in Europe, shouldn´t we abandon the technocratic dream of an independent and almost apolitical monetary policy?

Wednesday, October 22, 2014

Prebisch at ECLAC

ECLAC has produced an interesting project on Prebisch in the past and today.  Although most of the resources are in Spanish, it explains key concepts well and it clearly signals how ECLAC has tried to recuperate key concepts from traditional structuralism, including structural hetegoneity and the role of industrial policy.

I only miss a little more discussion of the political economy behind the recommended policies.  Asking for industrial policy and for a compensation of the deteriorating of the terms of trade is meaningless without some thought of who is going to drive the new policies and how they are going to be effective.

Saturday, October 18, 2014

Conference on the new middle class in Latin America

As part of the ongoing collaboration between our Latin America Centre (University of Oxford) and CAF-Development Bank of Latin America, we are organizing the second international conference on 31 October in Oxford.  The title is "The emerging middle class in Latin America: causes, challenges and opportunities".  It will be a great opportunity to explore the extent to which the emerging middle class is truly new, truly part of the new middle class and to discuss its economic and political impacts. One of the many things that makes the event exciting is the mix of policymakers (including former Ministers of Colombia, Peru and Costa Rica) and academics.   More details, including how to sign, at

If you are a student in the UK, we have bursaries of up to 100 pounds to attend the conference.

More on inequality

Two interesting videos illustrate the extent of wealth inequality in East Africa and in the world.  They are worth watching and the data is as always striking: half of all East Asians own less wealth valued at less than £500. This is equal to the combined wealth of the richest six people in the region.  Six people have as much as 66 million!!!! More broadly, 2% of the world population controls half of the total wealth, which makes calls for redistribution rather obvious.

What is the situation in Latin America?  We should do similar videos and the numbers will be as striking or not more.  This is clear when consider the limited research on inequality at the top.  See, for example, this paper on Chile by López, Figueroa and Gutiérrez.  This graph, in particular, shows that according to their estimations, the income share of the top 1% in Chile is significantly than the US--which has become model of inequality:

The situation in terms of wealth is likely to be even more dramatic