Friday, August 7, 2015

Central America's supposed bad performance

I am currently working with Juliana Martínez and Salvador Martí on a project for CEPAL on social policy in El Salvador, Guatemala and Nicaragua. I just calculated growth rates for the last 25 years and was surprised once again by one fact: Central America has not performed any worse than the rest of Latin America. Of course, this is still disappointing as this means that two of the countries have not been able to catch up with the regional average. Nevertheless, I think the idea (which I have also written about) that the last few years were much better for commodity exporters than for the rest may not be totally warranted. Just a thought based on this table: Annual average rate of growth. GDP per capita (dollars 2005), 1990-2014

Friday, February 20, 2015

The problems with the term human capital

Branko Milanovic rightly critisizes the concept of human capital here and further develops his criticisms here. By equating labour and other forms of capital, the term leads to a terrible misunderstanding. As Milanovic explains, to "“human capital” differs from all other forms of capital, because for all other forms, one’s ownership of that capital guarantees income as such, that is income without work. This is true for financial capital, ownership of an apartment, patent, land or whatever else. Only, for “human capital”, one needs to exercise himself/herself, that is to work, in order to get an income." This is not just a theoretical debate but one that we all experience in our own lives: having 100 pounds in the bank is very different to accumulating knowledge (whatever that means) for an equivalent amount. By not recongnising it, we are failing to understand much of what happens at the microlevel in our lives and much of what happens at the macro-level in all societies. Unfortunately, the confusion remains. See, for example, the treatment of human capital that David Weill does in an otherwise interesting critical review on Piketty´s Capital in the 21st century: "One of the central objects of Piketty’s concern is the split in national income between payments to capital and payments to labor. The missing piece of this story is the change in the nature of payments to labor, and in particular, the increase in the fraction of such payment that represent payments to human capital. In the world of 1700, most wages were compensation for the raw 9 labor that workers supplied; today, a large fraction of the wage bill represents payment for skills acquired through education and training" Again, the point is not that skills and knowledge are not useful and increasingly important in most countries. The point is that for both the way we life, for our own security and for the reproduction of society, they have a very different impact than real capital. The whole debate, of course, reminds us of Polanyi and his criticisms to the commodification of labour.

Monday, February 16, 2015

Great video explaining inequality in the US... why don´t we have something similar for others?

Great video (via Duncan Green) on wealth inequality and its costs in the US. I am note sure that the ethical difference between income and wealth inequality is as large as they argue, but it is still a great explanation of the the size and importance of the problem. Every time I see a video like this I wonder why there is fewer discussions of inequality in Europe within the press and the blogosophere. And there same could be said about Latin America (and other parts of the developing world): we know that there the concentration of income and wealth is as bad as in the US if not worse... but popular debates and useful information about it is much scarer!

Friday, February 6, 2015

Minimum wages and what being modern means

Juan Carlos Moreno-Brid and Stefanie Garry build on this graph to show the problems of having such a low minimum wage. This policy has all kinds of problems, including its negative effect on aggregate demand and productivity. Yet they point out something which is almost as important. Having a sufficiently high minimum wage that is also consistent with legal commitments should be considered part of being modern and developed--a member of the OECD. Too many times, neoliberal economists have dominated the debate on modernization, equating it to free markets and limited rights. It is time that we actually start arguing that meeting the requirements of the ILO and building social institutions is actually a central part of being a modern society in a global context.

Towards a better way of doing Economics

Yesterday I was invited to give a talk on Latin America within a seminar series on The Future of the Neoliberal Society that a great group of graduate students is organising in Cambridge. Over dinner with three students, we discussed their efforts to change the way Economics is taught and, more broadly the best way to do research in Development Economics/Political Economy. All of this resonated when this morning I read Piketty's new great reflections on his book. Even if all his thinking is based on neoclassical models (which many heterodox economists have criticise, see here and here ), I think it is excellent on so many accounts: a. It shows the role of economic models as a baseline through which to think about other processes. The relationship between g and r should be seen as a general pattern that is then shaped and reshaped by institutional, political and social processes that evolve over time. "Models can contribute to clarifying logical relationships between particular assumptions and conclusions but only by oversimplifying the real world to an extreme point. Models can play a useful role but only if one does not overestimate the meaning of this kind of abstract operation. All economic concepts, irrespective of how “scientific” they pretend to be, are intellectual constructions that are socially and historically determined, and which are often used to promote certain views, values, or interests. Models are a language that can be useful only if solicited together with other forms of expressions, while recognizing that we are all part of the same conflict-filled, deliberative process." b. Economics is presented as a discipline grounded in history and aware of the role of social and political processes. c. For the study of many dimensions of inequality, cross country econometric studies will be less useful (not useful at all?) than case studies: "In my view, a more promising approach—on this issue as well as on many other issues—is a mixture of careful case studies and structural calibrations of theoretical models." d. Institutions are central to our understanding of economic changes, but should be studied in particular historical contexts and centred on struggle. In doing so, he criticises approaches a la Acemoglu and Robinson which, while illuminating on some key patterns, are too ahistorical and abstract. So right! "In their fascinating book Why Nations Fail, they develop a broader view of institutions and stress the distinction between “inclusive” and “extractive”.This broad concept might certainly include the type of institutions and policies on which I focus upon, including progressive taxation of income, wealth, and inheritance, or the modern welfare state. I must confess, however, that seeking to categorize institutions with broad terms like these strikes me as maybe a little too abstract, imprecise, and ahistorical. I believe that institutions like the welfare state, free education, or progressive taxation, or the effects of World War I, the Bolshevik revolution, or World War II on inequality dynamics and institutional change, each need to be analyzed in a precise and concrete manner within the historical, social, and political context in which they develop." I realise that many of these arguments have been developed by structuralist economists forever (see much of the work of Lance Taylor, for example). Yet the fact that one of the most influential economists in today's world is stating them so clearly is a great opportunity to think about a new economics that creates more conversation with qualitative researchers and accepts all kinds of useful evidences for the study of social, economic and political struggles.

Wednesday, December 31, 2014

We need more rigour in the evaluation of Petrobras

There is little douhttp://latinamericandevelopment.blogspot.com/bt 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.