Petrolheads

Two things to do with petrol.

1. Kevin Watkins has a great post up at the Guardian on a major, neglected development/health issue: the damage done by traffic.

2. Over at CGD, in a post posing some questions to the three World Bank presidency contenders, Nancy Birdsall enthuses thus about Ngozi Okonjo-Iweala:

She has practiced good economics in the hard soil of tough politics in Nigeria, fighting high-level corruption at personal risk, recently working to eliminate gasoline subsidies that benefit the car-owning rich while sapping the public budget of resources to serve the poor.

I live and work on the other side of the world so maybe I’m mistaken but, aren’t these the same subsidies whose elimination sparked wide scale rioting and protest across Nigeria?

If so, then the first question I would want to ask for this Ms Okonjo-Iweala would be something like:

Are you committed to economic purism? Or are you willing to accept the political economy and institutional constraints mean that almost all developing countries (not to mention much of the developed world) are examples of ‘second-best’ policy spaces, where sometimes interventions that offend the intuitions of economists are often nevertheless the best we can do?

This would be my burning question because, contra Birdsall, it wasn’t just the rich protesting the end of the subsidies – the poor were up in arms to. This was the case because the subsidy withdrawal impacted on everyone, not just car drivers. Everywhere on Earth we pay the price of transport in our lives, be it through bus fares, or transported goods. Transport costs affect everyone. The poor may not own cars but they are often the least able to afford the price hikes they experience nonetheless.

Which isn’t to say that the subsidy is ideal. There are probably many other interventions through which the same amount of money could better enhance the welfare of the poor (better funding for health clinics; a simply UCT etc.)

However, are any of these alternatives actually on the table in Nigeria? And, even if they are, is the government capable of introducing them, and running them in a way that doesn’t leak like a rusty old petrol can?

I could be wrong of course, it’s not a part of the world I’m familiar with. Maybe the brave Finance Minister talked down the protesters, implemented an excellent cash transfer scheme, and the poor are now much better off. This might have happened but I would be surprised if it has.

I think there’s a lot to be said for the insights that come from analysis inspired by simple economic theory. But it has its limits. And the last time economic purism ran riot in the Bretton Woods institutions it was disastrous for the poor. And I’m not really sure I want a leader of the World Bank who is economically tidy, but also prone to causing the odd riot.

Pragmatism over purity.

That would be a good motto for the World Bank, I think.

You know how those environementalists want to ruin teh economy…

via NBER

The Impact of Pollution on Worker Productivity
Joshua S. Graff Zivin, Matthew J. Neidell
NBER Working Paper No. 17004
Issued in April 2011
NBER Program(s): EEE HE LS PR

Environmental protection is typically cast as a tax on the labor market and the economy in general. Since a large body of evidence links pollution with poor health, and health is an important part of human capital, efforts to reduce pollution could plausibly be viewed as an investment in human capital and thus a tool for promoting economic growth. While a handful of studies have documented the impacts of pollution on labor supply, this paper is the first to rigorously assess the less visible but likely more pervasive impacts on worker productivity. In particular, we exploit a novel panel dataset of daily farm worker output as recorded under piece rate contracts merged with data on environmental conditions to relate the plausibly exogenous daily variations in ozone with worker productivity. We find robust evidence that ozone levels well below federal air quality standards have a significant impact on productivity: a 10 ppb decrease in ozone concentrations increases worker productivity by 4.2 percent.  gated

Death to the Guardian! Long Live the Washington Consensus!

Meanwhile at Aid Thoughts Matt has a go at whapping the Guardian:

OK – here we go again. Deborah Doane writes on the Guardian Poverty Matters blog about how we should uniformly reject all neoliberal policies. One of her examples?

“In fact, four of the five fastest growing developing countries in the late 1990s were those that rejected neoliberalism. After a severe famine in 2005, Malawi rejected IMF and World Bank prescriptions and subsidised fertiliser for poor farmers. As a result, during the 2007/08 food price crisis, Malawi was not only able to feed its population, but became a bread basket to the region.”

A seemingly simple story about a developing countries throwing off the shackles of structural adjustment in order to do the right thing? Maybe not – Ms. Doah has failed to do her homework on Malawi’s recent history with the IMF.

Let’s rewind a bit to the beginning of multi-party democracy in Malawi, which also introduce a surge in inflation…

Inflation is sometimes seen as a bit of a boogeyman, but there is very little that is pro-poor about a 40% annual inflation rate. It was only through the hard work of the Malawian government and the IMF (under the PRGF) that inflation was brought under manageable level, as was government spending…What’s the lesson here? Sometimes `neoliberal’ policies are beneficial and sometimes they aren’t. Blanket policies are not very useful in the post-crisis world, but neither are blanket condemnations.

I agree with Matt that there’s not much sense in critiquing neo-liberalism or the Washington Consensus in it’s entirety (it’s something I’ve mistakenly done in the past). What really needs to be done is to examine the constituent parts of neo-liberal orthodoxy and see which of them might be right and which might be wrong. After all, the economic order that neo-liberalism replaced wasn’t an unqualified success, so it’s reasonably likely that at least some neo-liberal prescriptions may actually have improved economic policy making in some ways.

The trouble with Matt’s analysis though, is that the success story he’s telling us with regards to Malawi, and inflation and government spending, doesn’t actually look that neo-liberal.

Most economists, of any ilk, would regard unsustainable deficits and an inflation rate of over 40% as a bad thing. What sets neo-liberals apart is that they think inflation needs to be kept extremely low — somewhere close to price stability. You can still see this in the inflation targets of central banks in countries such as New Zealand (approx 3% IIRC). This may or may not be a good idea but it’s not really relevant to the Malawi tale Matt tells us above. Why? Because, the graph shows (or at least appears to show) that current inflation levels in Malawi are close to 10%.

In other words Malawi’s recent economic success doesn’t actually appear to have anything to do with a neo-Liberal approach to inflation. I think the IMF deserves credit (at least based on the facts Matt has provided) for helping Malawi to an approach to public debt and inflation that makes simple economic sense (and would do so to almost any economist — including those not at all neo-liberal). And I think there’s possibly an interesting story to be told about how the IMF itself isn’t actually that neo-liberal itself these days. But what I really can’t see in Matt’s post is any evidence of a neo-liberal economic success in Malawi.

I’d call this one a win on points to the Guardian.