More on inequality

A new policy brief from Oxfam provides striking numbers on the extent of inequality at the top in the global economy and in a few countries like the US. Much of all the data we use is questionable, but it is still clear that we are moving to a world of super-rich and everyone else.  Here some the information they provide:

·         "Almost half of the world’s wealth is now owned by just one percent of the population.

·         The wealth of the one percent richest people in the world amounts to $110 trillion. That’s 65 times the total wealth of the bottom half of the world’s population.

·         The bottom half of the world’s population owns the same as the richest 85 people in the world.

·         Seven out of ten people live in countries where economic inequality has increased in the last 30 years.

·         The richest one percent increased their share of income in 24 out of 26 countries for which we have data between 1980 and 2012.

·         In the US, the wealthiest one percent captured 95 percent of post-financial crisis growth since 2009, while the bottom 90 percent became poorer."

The real question, however, is whether any of this will truly feed into the political agenda and where.  Nothing significant is likely to happen in much of Latin America... or in Spain for that matter.

Central America: growing violence and persistent economic problems

The AECID (the Spanish cooperation agency) organized last week an interesting conference in Antigua (Guatemala) on the changes in Central America in the last 25 years and the challenges for the future.  The conference highlighted many of the improvements but also challenges discussed in the Handbook of Central American Governance we recently published.  Four are particularly important:

a. The growing costs of violence, which is now almost an epidemic in Central America. Carlos Dada, director of the great daily El Faro, gave an insightful talk on the failures of recent policies to prevent crime. He highlighted the costs of inequality and the lack of young people´s opportunities in the labour market.  He also explained why "mano dura" proposals tend to be so popular: they at least respond to poor people´s anxieties when they lose a member of their families or are victims of crime.

b. The difficulties that the region has to transform its economic model.  Several participants still hope that regional integration can help to promote economic growth and trigger a process of economic transformation.  Will this really be the case? Can small and medium firms (the main source of employment in the region) build links with regional partners?

c. The weakness of the state. Talking about new social policies or industrial policy (and, fortunately, there was a lot of talk about both) is useless unless we are able to improve the quality and autonomy of the bureaucracy and make the state stronger and more responsive in all countries.

d. The central role of the elite.  As I discussed with my friend and colleague Salvador Martí i Puig, we need to know much more about the elites: who they are now? How they operate? What are their everyday practices? And how the old and new elites interact with each other?

New LAC Working Papers in Political Economy

I am happy to announce that the Latin American Centre at the University of Oxford is launching a new working papers series in political economy.  Supported by CAF-Development Bank of Latin America, the working papers aim to publish high quality research on political economy and economic issues that deal with the region.  This will include the annual working paper from the CAF Visiting Fellow.  You can find the new webpage here.

I am particularly happy because the first paper we publish has been written by Jorge Katz, formerly at ECLAC and now at the University of Chile.  Jorge is not only one of the best specialists on innovation in Latin America, but also a great teacher and colleague.  In this paper, he elaborates a great critical account of growth theories with examples from the region.

Five reasons why Latin America is important for debates on development

Paul Collier has famously argued that development debates should focus on the "bottom billion"--the poorest countries in the world--and should ignore regions like Latin America. The region is too rich, too modern and, for others, too unimportant from a geopolitical perspective.

 This kind of approach--which is becoming increasingly dominant in the UK--does not make much sense. There are many reasons why the region offers important lessons and illuminate many debates in development studies. Here you have five (a catchy number!):

 1. For at least a century, Latin America has been one of the most (if not the most) unequal region in the world, but many Latin American countries (led by Brazil) are now reducing inequality faster than ever.

2. Many Latin American countries have relatively well-functioning states capable of implementing industrial and social policies... but without the autonomy and capacity to do so effectively. 

3. Their shift in economic policies across history has probably been more radical than in any other region: from an export-led liberal model to import substitution to neoliberalism (see Rosemary Thorp's full book in the web for a great illustration) and to the current rich debates on post-neoliberalism and the left today.

4. Latin America has benefited from some of the best economic thinkers in the developing world (including Raul Prebisch) and some of the most dynamic international organizations.

 5. Latin America is probably the region with most ecological wealth and diversity in the planet and with more creative debates about the conflicts between development, the environment and human rights. What (many) other reasons am I missing?

Los problemas de España: siempre acabamos perdonando a la elite económica

El profesor Luis Garicano de la London School of Economics ofrece un diagnóstico interesante, aunque también bastante repetido, sobre los problemas políticos y económicos en España en una entrevista en El País. Como ha sucedido tradicionalmente en América Latina, el problema es que los empresarios tienen más probabilidades de éxito si cultivan relaciones con los políticos encargados de la regulación que si crean nuevos procesos productivos y nuevos productos. En otras palabras, es más provechoso ser Paco el Pocero que Bill Gates. Además, la atracción por convertirse en funcionario después de años de estudiar una oposición es mayor que el de crear e innovar. Todas ideas que se asemejan mucho a los argumentos de Acemoglu and Robinson en Why Nations Fail. No dudo que hay mucho de verdad en esta interpretación de los problemas españoles y que Garicano los explica muy bien. Sin embargo, me preocupa siempre el excesivo acento que se acaba poniendo en el Estado. Aunque se habla de que hay un problema institucional, en realidad se está diciendo que hay un problema con los partidos políticos y con la forma de gestionar el Estado. Ello contribuye a perdonar bastante a la élite económica (y con ello no me refiero a los pocos empresarios que han salido de la nada para crear las Zaras del país sino el entramado de familias que se sientan en los Consejos de Administración de bancos, constructoras, Telefónica y las otras grandes empresas). Su poder, su influencia y la falta de control sobre ellos es tan problemática como los otros chanchullos de los que habla Garicano. Sin embargo, no sólo no se mencionan sino que acaba por decir que "las empresas internacionalizadas [pregunto yo: ¿los grandes bancos? ¿Sacyr?] ya van por otro camino".

Readings on time management and similar topics for graduate students

In Inside Higher Education, Kaitlin Gallagher offers some book recommendations for graduate students. I have taken a quick look at them and they all look useful to organize our time better and to have a more positive state of mind in dealing with theses and exams. Yet I always find the concept of success in this kind of book troublesome and contradictory. Success is about happiness and fulfillment but at the same time about having powerful management roles and playing an important role in society. Do these two definitions always go hand in hand? And isn´t part of our problem that we hope to have it all at the same time?

How to understand Cuba

John Paul Rathbone traveled to Cuba and has an interesting article on the FT. He begins with a striking piece of data: "in a dusty Havana parking lot, a group of Cubans examine the prices of the modern cars they can now buy from the state for the first time: $263,000 for a 2013 Peugeot saloon that retails in Europe for $30,000". Yet his overall interpretation may not be the most accurate. According to the mainstream view on Cuba that he shares, Cuba is moving to slowly and timidly. Many liberalization reforms do not work because they are reversed or implemented too slowly. This type of approach assumes that a fully functioning market economy should be the ultimate goal and the faster you move to it the better. Yet Emily Morris, a UCL researcher,in her dissertation (and upcoming book) calls for a very different interpretation of Cuba. Using evolutionary economics, she shows how the Cuban government has always adopted a pragmatic strategy of "trial and error" and gradual adaptation. The issue is how to confront the problems of the present and gradually improve productivity, but without creating major disturbances or questioning the major objectives of the overall model (some level of equity and social provision for the whole population). Of course, this approach is not always the most efficient in economic terms but may be the most successful and politically savvy in the long run. In conclusion, we should evaluate Cuba in its own terms and considering the political constraints and development goals as a central component of the process and not simply as obstacles to a more market-friendly environment.

Public transportation, democracy and equity

The former mayor of Bogotá, Enrique Peñalosa, has an interesting TED talk on the need for public transportation. He (rightly) argues that improvement in bus and bicycle lines not only benefit the poor but also strengthen equity between individuals. Urban development and public transportation is one of the paradoxical areas in development: the social costs (even without considering the environmental implications) of private transport are much higher: cars are costly, roads are costly, infrastructure building also leads to corruption. Yet at the end public transportation is concentrated in rich country cities and is seen as a luxury that should only come when countries are richer. This is particularly problematic in middle income countries like those in Latin America, where roads are over-crowded but investment in public transportation does not always increase. Public transport is one more area in which state weaknesses are more significant than income levels to explain current problems.

Guatemala maintains its high ranking in... low taxation

Guatemala´s tax burden in 2013 was lower than expected: less than 11% of GDP. With this level of public income, it is almost impossible to meet any of the key development challenges that a country like Guatemala has. yet the likelihood of significant increases in the tax revenue are almost zero, a point Aaron Schneider made clearly in his 2012 book . Yet what are the main challenges for next year according to the Minister of Finance? Fiscal consolidation and to guarantee the payment of the public debt!

More of the same: fear of the bad left

Costa Rica will celebrate elections in less than a month and the candidate from the left-wing Frente Amplio, Jose María Villalta is polling quite well. This could seem surprisingly, but it reflects how tired Costa Ricans are with the PLN in power and how weak is the traditional leadership of the opposition PAC. Costa Rica's main newspaper has become nervous and has responded with the traditional approach of the Latin American elite: warning again the evils of communist. Yesterday's editorial reflects the power of the traditional division between good and bad left and how Venezuela has become the old Cuba. It also reflects how difficult it is to create modern, progressive movements in Central America... even after Funes' experience in El Salvador. This type of approach weakens democracy and prevents serious discussion of alternative social and economic policies to take place.

Inequality is receiving more and more attention... but is too focused on the US

This blog called Inequality Matters is one more sign of the growing attention to inequality among policymakers, academics and the press. One striking characteristic of this new move is its focus on the US and, to a lesser extent, the UK. It is much harder to find good discussions about the increase of inequality in Spain or other South European countries. Moreover, there is also limited attention to what other high inequality contexts can teach about the economic and political costs of a worsening in the income distribution. This provides a great opportunity for Latin Americanists, who understand this problem quite well and have witnessed its negative consequences for quite some time.

How worried should be about Latin America's future?

Check the interesting article on Latin America's future at Vox written by World Bank experts. It offers a nice contrast with the Wall Street Journal article I mentioned last week, and reminds us that all is not bad in Latin America. Many of the countries in the region increased investment during the 2000s and were careful in the management of inflation, their budget and their foreign reserves. The data is fascinating and all the arguments interesting even if controversial: 1. As the article recognizes, the region has failed to undertake important reforms. By this we should read market-friendly reforms, but policy changes that could contribute to improve productivity and reduce structural heterogeneity. Education systems are still problematic and unequal, industrial policy insufficient and support to small, informal firms quite absent and disorganized. More importantly, these problems are as significant in Mexico or Peru as they are in Brazil or Argentina--there are no two Latin Americas there. 2. Notice the significant differences between Central and South America in the numbers. Central America still invests little and grows through remittance-fueled consumption and growing imports. The key division in Latin America takes place between countries North and South of Panama and not between "good" and "bad" countries. 3. With some exceptions (sadly, Venezuela comes to mind), a sudden financial crisis is unlikely to happen in the region. Yet what we still can have is a long period of low growth and stagnant income distribution--sometimes these lack of advance is politically more worrying than sudden crises.

The good and bad Latin American again

An article on the Wall Street Journal a week ago echoes the traditional division between a "good" Latin America (opened to the world, responsible, modern) and a "bad" Latin America (closed to the world, opposed to globalization, irresponsible). Unfortunately this is still the type of simplistic dichotomy that does not take us anywhere... even more when Brazil is included as part of the bad group. There are several problems with the article: a. Is any one calling China "bad" in terms of its policies? Is Brazil doing any different when protecting certain sectors and making (a weak and ineffective) effort to develop its national champions? b. How much longer will we evaluate the success of specific policies through the growth rate of a few months or a year? And is anyone really going to call Mexico´s current performance successful?