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 http://www.lac.ox.ac.uk/caf-oxford-conference-emerging-middle-class-latin-america-causes-challenges-and-opportunities.

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

Thursday, October 16, 2014

Oxfam on inequality

Two interesting posts on inequality from Oxfam minds here and in a new blog on the subject here.  I was surprised by the blog entry Ducan Green refers to: the idea that we don´t know much about the poor is rather surprisingly (hasn´t Claire Melamaid seen this book for example?).  The problem is that, despite Piketty and all, we still know very little about the global rich: who they are, where they invest, how do they relate to the rich in other countries and how they influence the political process.

More importantly, there are many ways in which policies to reduce inequality at the top will benefit the people at the bottom in many, many countries.  Just three examples: (a) the most obvious is taxation: while it is true that taxing the rich may not benefit automatically the poor... it is clearly a necessary condition.  Latin America could not have expanded social policy in recent years if it was not because of higher rents from oil and natural resources which no longer go to the very rich.  (b) More interestingly, weakening the rich will also reduce their political influence, therefore improving the quality of democracy in many countries.  To use the terminology from Acemoglu and Robinson (even if it is always rather problematic), extractive institutions are to a large extent reproduced by the rich... and have high costs for the poor.  (c) More significantly and more connected to the work I am doing with Juliana Martínez Franzoni (see, for example, this paper), universal social policy will favour the poor and the middle class and, by promoting cross-class alliances will create pressures to increase taxes for the rich.  This is why true universalism (which is defined by similar, high-quality services for all) should be at the heart of an equitable development agenda.

The rich American know that inequality is too high but nothing should be done about it

There are now a growing number of webpages and projects on inequality, particularly on the US. One of the most interesting is Equitable Growth.  In their blog, there is today three useful entries on the evolution of income at the top.  Two of the articles are interesting but do not say much new.  The third is actually quite striking.  Fiona Chin from Northwestern University has interviewed a group of very rich Americans and concluded that " The wealthy know that economic inequality is rising, but they do not agree that anything should or can be done to reverse the trend".  Is this the vision of the rich in all parts of the world like Latin America?  Probably yes.  The question is: will the situation stay the same if nothing is done?  Or are they being a little too naive? 

Economics by definition requires maths and econometrics

At the end of his interview with the FT, Jean Tirole makes an unsurprisingly but frustrating statement.  He not only argues that economics is about mathematical modeling and statistical testing, but he then (implicitly) equates this to being a science.  There is little doubt that the type of modelling most economists forces clarity and helps to establish causal chains.  Yet the idea that this is the only way we can discuss economic problems continues to be really questionable for two reasons. First, you can be clear about your causal model with words.  Tirole recognizes that economic ideas have to be translated into words to get to the general public but, following his reasoning, you will lose clarity in that process.  Second, there are many economic issues (e.g. the role of the elite) where there is not enough data available and there are "qualitative" processes to consider... surely we need to consider those processes and surely they are economic in nature.

Tuesday, October 14, 2014

Back to the blog... with inequality

After months without writing anything, the beginning of a new academic year at Oxford is a great reason to get back to writing.  George Gray Molina, an alumni from Oxford and new Chief Economist for Latin America at UNDP, has an interesting article on the Guardian. The reduction of income inequality that took place in Latin America since the early 2000s has stagnated; in countries like Brazil, the Gini coefficient has actually increased in the last two years.  It is hard to know exactly why, but it was clear that the current strategy had its limits.  Unless the region develops a more dynamic economy--something that may need more creative answers that more liberalization--we may not witness further improvements in the region.

Sunday, April 27, 2014

Cities vs countries

Another interesting article on the power of cities and its growing political and economic influence.  According to its author, Arif Naqvi, "This shift means that nearly half of the economic growth expected over the next decade will take place in just 400 cities in the world’s global growth markets."

The growth of cities can be extremely important for poverty reduction and the expansion of social services.  We know that providing health care and education and even organizing cash transfers is much easier in cities, where government officials are concentrated and civil servants want to live.  When cities growth, opportunities to provide services grow as well.

The growth of cities could also contribute to make inequality a more salient political issue.  In the cities it is easier to see how others live and to protest against the concentration of income, wealth, infrastructure, etc.

Yet the argument that we are replacing a world of nations with a world of cities seems totally unconvincing. The state still has a national presence and governments are particularly successful when they are able to be present in the whole territory.  In fact, the big challenge in the future will be how to link leading geographical spaces and leading sectors with the rest of the economy.  And this is a national challenge that can only be successfully met with powerful central administrations.