Should aid practitioners really worry about economic inequality?

The slides and references associated with a talk I’m scheduled to give about this subject can be downloaded here. Note if you download the slides prior to 5 June, they may change if I tinker with them.

Great Reference on Inequality…

Do you think inequality is probably important? But are you also not wholly convinced by the Spirit Level? Are you an empiricist? Are you irritated by your (fellow) left wing friends who now somehow know post Spirit Level that inequality is the most important thing there is? Do you crave evidence? This website is almost certainly going to help.

Violence in Venezuela

I’ve blogged before about what I call the Hugo Chavez Polarity Inversion Level (the Hug-PIL!)- that is, the strange, differentiated effect Chavez has on almost everyone’s thinking. To the right of a line that falls somewhere amongst left liberals and in a portion of the political sphere that includes most liberals (in the American sense of the term) and definitely all conservatives, Chavez is a Really Bad Dude, a despot in disguise who is ransacking his country’s economy and who can not possibly be doing anything good. Nothing. To the left of the line, amongst lefter left-liberals, socialists and the like, Chavez is a Very Good Guy, the future of anti-capitalism, a model for us all, and a man who can do no wrong.

This frustrates me – by inclination I suspect that not all of what he does is great, and not all of what he does is bad. And it would be very helpful to separate the good from the bad, and the successful from the unsuccessful. And then, who knows, maybe we might learn a bit. It wouldn’t be as exciting as re-staging the cold war, but it would be useful from a development perspective.

And so: if you know of any impartial and intelligent writing on Chavez which attempts to do this please do let me know.

Also, if you’re a Chavez fan, have a crack at explaining the following:

Venezuela’s homicide rates are among the highest in the hemisphere — twice those of Colombia and three times those of Mexico — despite largely escaping the world’s attention. Rates were rising even before Hugo Chávez assumed power. But under his 12 years they have skyrocketed, from 4,550 in 1998 to 17,600 last year. The victims are predominantly poor young men — killed for as little as a mobile phone, caught in gunfire between gangs, or even subject to extrajudicial killings by security forces. (from here)

How can this be commensurate with the rise of socialist utopia? And how can criminal violence be rising amidst social progress and falling inequality?

If there is a good explanation I am genuinely interested in hearing it.

A treasure trove…

…of research on inequality, and a great dataset, can be found Frederick Solt’s academic webpage.

Meanwhile on the left-most edges of the Lunisphere…

George Monbiot catches and dispatches left-wing genocide denial by Edward S Herman, along with tacit endorsement from Noam Chomsky and John Pilger. What is with these guys?

I’m more sympathetic to radical left-wing thought than most liberals. I can see the need for it. By any measure (be it utilitarian or justice based) we live in a radically unethical world. Injustices occur all the time and the potential for raising welfare through tackling inequality is considerable.

And yet I find the radical left pretty unconvincing. For three reasons:

First, the alternatives they propose to capitalism tend to strike me as improbable given human nature and the challenges of large scale collective action. And, similarly, I don’t find very convincing their answers to questions along the lines of ‘ok so that sounds plausible, but how do we get there from here?’

Second, much of the radical left is simply disingenuous in the extent to which it plays down differences between the centre-left and the right. Obama may not be great but you-have-got-to-be-fucking-dreaming if you think there is next to no difference between him and the Republican Party in its current permutation.

Third, too many radical left-wing thinkers seem to need to justify their world view through bizarrely one dimensional interpretations of events. People like Chomsky and Pilger often do great work putting paid to the myths of benign Western Foreign policy. That’s great. But it’s hard not to want to part company with them once they start downplaying the crimes of our official enemies, as is occurring in the case of the Herman book. Thoughts with as much nuance as, “we’re pretty bad a lot of the time, yet there are also people out there even worse, and sometimes our foreign policy interventions aren’t totally evil and may have some benefits” too-often seem beyond them.

Of course, the problem doesn’t afflict everyone on the radical left: there’s a tradition including Orwell and people such as Monbiot himself, which is much more consistent in its critique of atrocities. There is also, as Monbiot also points out, plenty of denial on the right too. And, despite their shortcomings, people like Pilger and Chomsky still deserve to be listened to; at times they are bang on. But me personally, ultimately, I find their myopia frustrating.

Of course, to put this in perspective, there are far bigger problems with the world than a few members of the left leaping off into the lunisphere, or the shortcomings of the radical left more generally. But, for what it’s worth, it still bugs me. The radical left ought to have a lot more to offer.

Baring one’s bottom (billion)

I haven’t listened to it yet (I’m saving it for Tuesday’s trip home, or driving over the Wairarapa somewhere) but Owen Barder’s got a new Development Drums up (the series consistently keeps churning the best available development podcasts – it’s a must follow). This time they’ve got Andy Sumner on discussing his New Bottom Billion thesis (this paper). Which reminds me, also worth listening to is the IDS podcast of the debate between Sumner and Paul Collier.

Collier doesn’t exactly come across as gracious, and the debate is made more complicated than it needs to be by discussions of discounting (which, when we’re talking about inter-generational issues, are something best left to political philosophers not economists), nevertheless  the argument is informative.

Sumner argues that the majority of the world’s extremely poor don’t actually live in the world’s least developed (and slowest developing) countries, rather they’re to be found in parts of the world such as China and India. Which is hardly surprising given their size. From this he concludes that development thought and work shouldn’t just focus on the LDCs, and that we need to remember that poverty is also a distributional issue as well as a developmental one.

For Collier this is poppycock. He argues we needn’t concern ourselves with the poor in states such as India and China because the rapid growth of these countries means that extreme poverty will be eliminated within a generation or two by force of their development trajectories alone.  To Collier the focus needs to be firmly on countries where development has stalled, or gone backwards, for significant periods of time. This is where the real development need is. Because if something doesn’t change in these countries, extreme poverty will continue for the foreseeable future.

If one was so inclined, one could, I think, quibble with Collier on three points. First, his argument is predicated on China and India’s (and Indonesia, and etc’s ) development trajectories of today continuing into the future. This seems likely but not guaranteed. Second, it aggregates to the state level, which may be mistaken: I think it’s plausible to argue that somewhere like Bihar, while being set amongst growing India, has most of the problems to be found in Collier’s Bottom Billion states. Third, it’s possibly too pessimistic about the countries of the Bottom Billion (see for example: Africa’s Turn?)

Still, I think case is fairly persuasive. Although, importantly, if we limit our thinking for the time being to aid, it doesn’t necessarily follow from Collier’s argument that aid should flow to the Bottom Billion countries instead of, for example, places like India. This would only be the case if we were certain that aid could actually help spark development. And this is still far from clear. A far safer conclusion about aid is that, given well, it can improve people’s welfare — provide them with health care, and education and the like. Even if it can’t transform countries or dramatically alter their growth trajectories this is still a worthwhile outcome. And if this is the case, then really where you focus aid doesn’t depend on Bottom Billion arguments at all. Instead it depends on need (where people are, today, most poor) and efficacy (where it’s likely to work). This might be in Bihar or Bogota or Burkina Faso, or where ever. The point is Bottom Billion Debates won’t help us figure out where. Which isn’t to dismiss them — they are important for issues other than aid. But in aid’s case we’re far better not to let ourselves be guided by global arguments du jour but rather by careful assessment of context and the possible.

Whole-lotta-links

Ok so I missed Friday but here goes…

The Guardian covers recent criticism of Wilkinson and Pickett’s book the Spirit Level, while the authors have a page devoted to responding to the critiques.

Meanwhile, the British Medical Journal has a meta-review of studies of the impact of inequality on health. Summarised conclusion:

The results suggest a modest adverse effect of income inequality on health, although the population impact might be larger if the association is truly causal. The results also support the threshold effect hypothesis, which posits the existence of a threshold of income inequality beyond which adverse impacts on health begin to emerge.

On the subject of inequality, and following from my earlier post on inequality in Latin America, Arthur Ituassu has an interesting article at OpenDemocracy in which he examines the relationship between Brazil’s falling inequality and its rising democracy.

Speaking of democracy, Dani Rodrik a does good job of summarising the economic case for democracy at Project Syndicate.

And at VoxEu John Gibson and David McKenzie examine the economic consequences of migration, in particular the dreaded brain drain. Their conclusion:

Our findings question both the pessimistic view that high-skilled migration hurts development, and the optimistic view that most countries can benefit to the extent Taiwan, China and India have from trade and investment flows. For most countries, the first-order effects are mostly an individual phenomenon – individuals stand to gain a lot from migration, and the second-order effects on others are small in comparison and seem to at least balance one another out if not also be a net positive. In the absence of compelling evidence for massive externalities from their presence, we argue governments should not be so concerned about high rates of skilled emigration, but focus instead on the basics of providing the policy environment needed to foster growth and innovation at home.

On to aid, and a blast from the past in the form of a 1997 Foreign Affairs review by David Rieff of Michael Maran’s book the ‘Road to Hell’. No surprise to discover that people have been launching polemics at aid for a very long time. Rieff’s review is well worth a read both because, depressingly, many of the issues covered remain with us, but also because its evenhanded on the aid industry, criticising where it’s fallen short but also acknowledging the real dilemmas the aid workers face.

I wrote a while ago on the challenges for aid agencies when it comes to admitting they got it wrong. Meanwhile Johann Hari tries to do this on a personal level.

On Melanesian Politics, Phil Twyford writes of his time as an election observer in Solomon Islands, and in doing so provides a handy summary of Solomons politics.

And finally, Our Word is Our Weapon, one of the first blogs I encountered writing regularly about aid, is back. Or maybe it never went away and I just had the URL wrong? Still mostly only posting links; interesting links mind you…

Inequality in Latin America

Some time ago I took a dig at uncritical supporters of Hugo Chavez, arguing on the basis of a chart from VoxEU, that Chavez was a relative under-performer when it came to reducing inequality.

My certainty on such a claim was shaken by this post at Duncan Green’s blog, which seemed to show the opposite, that Venezuela was doing particularly well at reducing inequality. Green then argued that, say what you might about Chavez, he should be given some credit for his achievements in this area.

Was I wrong?

The first thing I noticed was that Duncan’s post was based on data that spanned from 1990 to 2008. Possibly, I thought, he was giving Chavez credit for inequality which had declined before his time in power. Nevertheless, in penance for my original smearing of the Great Socialist Hope, I decided to devote an afternoon up to my arms in World Bank data to see what was actually going on with inequality in Latin America.

In a moment, I’ll tell you what I found, but first, let’s recap: what’s actually wrong with inequality?

First, everything else being equal, inequality is bad simply because, for any given level of national income, a more unequal country will do a worse job in lifting it’s people out of poverty than a more egalitarian country on the same income level. Of course everything else isn’t equal and a key way that people are lifted out of poverty is through economic growth (growing national income effectively). And it’s always possible that higher inequality might be more conducive to higher growth and, over time this will lead to lower levels of absolute poverty in poorer countries.

However, there’s also some pretty good research to suggest that high levels of inequality actually undermine economic growth. Seminal papers by Engerman and Sokoloff (see here and here) as well as research by William Easterly, point to this being the case. Of course, this doesn’t mean that absolute equality will be optimal for growth or that all attempts to reduce inequality will help growth. However, the evidence does seem to show that high inequality is not good for economic development.

On top of that, there is evidence best summarised by Richard Wilkinson in his book The Impact of Inequality (which is more statistically rigorous, albeit duller, than his other book Spirit Level) to suggest that more unequal societies are beset by all manner of problems including worse crime, lower levels of trust, and worse health outcomes. Wilkinson’s work is most emphatically not beyond critique (as David Runciman points out he’s stretching it a bit to suggest everyone will be worse off in unequal countries; while Claude S Fischer offers excellent critique in the Boston Review). Quite possibly the biggest flaw is that Wilkinson does not, from my recollection, convincingly cover for omitted variables in his analysis – for example: perhaps it’s poor governance that causes countries to both be less trusting and more unequal. Inequality might merely be an effect not a cause. Nevertheless, there remains enough evidence in Wilkinson’s work to at least plausibly suggest that high inequality leads directly to social harm.

Finally, if you’re not a Consequentialist you might also object to high levels of inequality because they seem patently unjust.

To me, the above reasons are, one way or other, good cause to think that reducing inequality (so long as you don’t resort to draconian measures or ransack your economy to do so) is a good thing. So, has anyone being doing this in Latin America?

First, let’s show the obvious: Latin America is a very unequal part of the World (all inequality information in the following charts is in the form of a Gini Index (Gini coefficient * 100)). All numbers come from World Bank data, except those numbers for Sweden, the UK, the USA, and Australia, which come from the CIA World Fact Book; and the figure for New Zealand, which is from New Zealand’s ministry of social development.  Please bear in mind that there are other ways of measuring inequality (such as decile ratios) which might return different results, and that my numbers here are only as good as their imperfect source data.

Inequality 2006 Selected Countries

The Latin American countries on the chart are all significantly more unequal than my selection of developed countries (the difference between Colombia and Sweden is staggering!), with the only exception being the USA, which actually (according to the CIA World Fact Book) was more unequal than Venezuela in 2006. However, it’s worth noting that, according to the OECD, the Gini index for the USA is actually 38, not 44. If this is right, then the US remains more equal than Venezuela.

So much for today’s figures, what about trends.

Inequality Selected Latin American Countries 1980 to 2006

That’s quite a ride for a number of the Latin American Nations. For simplicity’s sake let’s look at more recent years.

Inequality in Selected Latin American Countries 1990 to 2006/7

A few interesting points to notice: Brazil has seen a steady decrease in inequality since democractisation, with good progress in the Lula years. It’s to early to really tell the impact of Morales in Bolivia and Correra in Equador (although it seems positive for Morales). In general in the countries on this graph at least the current millennium has been one characterised by falling inequality, with the big exception being Columbia.

And as for Chavez, yes, he has presided over a good fall in inequality (the change in trend may have predated him perhaps but he deserves credit). That 2005/2006 change is especially impressive, assuming it’s correct and that it’s not just the result of the wealthy freeing the country. Quite possibly the VoxEU chart that I linked to didn’t have 06 info in it, which might explain Venezuela’s poor performance in it.

Finally, two charts showing change as columns, the first from 1990 (or closest year) to 2006 (or closest year), the second from 2000 (or closest year) to 2006 (or closest year).

Change in Inequality Selected Latin American Countries 1990 to 2006

Change in Inequality Selected Countries 2000-2006

To conclude: from the numbers I have, Chavez seems to have done a pretty good job in reducing inequality in Venezuela. I think a lot of what he is doing is very questionable, but in this area at least the results to-date fall in his favour. As, it should be said, do they fall for a number of left-wing reforming regimes in Latin America, such as those in Chile and Brazil over the time studied.