Alternatives to GDP – Its up to us !

Much is made every three months about the GDP growth of countries, especially now during a time of economic downturn in Europe. In short, if you don’t know, GDP is the total value of transactions that occurred in a country in a certain space of time – generally every quarter or every year. A positive figure means that the economy is growing and a negative figure means the economy is contracting. Generally a lot is made in the news media about GDP figures and quite often people in the street do not see the repercussions of these positive figures. On the other hand they almost always feel the effect of a negative GDP change. So why is that ? 

The answer is simple. At times of negative GDP change, the media usually make a big deal of it. Moreover at times of belt tightening the government tends to share the pain equally but at times of positive gains the share of wealth tends not to be equal. Why not equal? Well mostly because of inequalities within a country – unequal pay etc…  Therefore at times of economic growth (positive GDP) some people may not see the gains so easily apart from hearing it in the news. There is a dysfunctional mechanism between GDP figures and the perceived reality of the economy or one’s financial situation. 

The criticism of the GDP as the sole measure of economic well being do not date back to yesterday. Such criticisms have started way back in the 1960′s with Kuznet. The GDP can be criticized on different levels most notably that it does not take into account quality* of economic growth and it doesn’t take into account distribution of wealth. For example GDP doesn’t take into account environmental degradation – that is a country  could be having high growth rates but also polluting a lot causing other unwanted effects. 

So what has been done? Surprisingly many democratic parliaments have long asked for expert reports on alternatives to GDP. As far back as 2000 the Canadian parliament published a report on the matter. More recently the French have published their own report in 2009 and the Scottish parliament has touched on the subject earlier this year. So the theories exists and the political will also look to have the initial seed at least to do something about the GDP. While there is a lot to applaud at the fact that politicians have gotten interested in the matter, little has been done apart from reports. Why? 

The possible answers are long. It is generally in the interests of politicians to talk about the GDP. Its a simple concept that most of the voters can understand. Its just one figure whereas the most plausible alternatives only offer a wide range of figures each measuring a specific criteria of economic well-being. So a better educated population might well understand these figures and because of new concepts such as sustainability have entered the media language, such things as environmental degradation have been better understood by the population. So both education and the media have their role to play if alternatives to GDP are to be implemented. 

Secondly publishing a wide range of figures about economic well-being might well be against the interest of politicians in power as it might show they haven’t done well in decreasing inequalities. It would also be harder for them to have one simple slogan for an election.  So the political calculation has somehow stopped the progression of alternatives to GDP. 

So if we are to have alternatives to GDP it has to start from the root of the population and up to the politicians not the other way round. As mentioned above this can only be done with education and via the media – mostly social media I would suspect. 

Economic woes in Europe can be painful financially but it also offers us an opportunity for a better future. 

Much credit goes to Joseph h Stiglitz for advocating for that issue relentlessly. 

*Simon Kuznets. “How To Judge Quality”. The New Republic, October 20, 1962

 

Road Accidents in Mauritius

On Friday 3rd May 2013 a bus from the National Transport Corporation lost its breaks which resulted in 10 deaths and many injured. A similar incident occurred in 2009 and as such a common belief has grown in the media and the population that servicing of the buses was the cause.  Others thought it was the portion of the road that had been badly designed.

 Initially I thought that by looking at the statistics some sort of conclusions could be drawn about the hypothesis of maintenance of the buses but there are too many aspects that I don’t know to make such a conclusion with certainty.

Anyway (if you are still reading…) this post looks at the road accident statistics for buses and private cars for the past few years and some interesting facts can be noted. 

- As of 2011 there were more than 400 000 motor vehicles on the road. Private cars accounted for more than 33% but surprisingly buses accounted for only 1% (around 3000 in total)

- The number of casualties from accidents has risen from 3000 in 2002 to close to 4000 in 2011. That’s a 26% increase over a decade. By comparison the number of motor vehicles on the road has increased by 45% in that same period.

- The government has over the years produced two analysis of the road statistics data that I could find published online. In one done in 2006 by the Ministry of Public Infrastructure it came to the conclusion, based on the number of vehicle type on the road as compared to the number of casualties in which a particular type of motor vehicle was present,  that buses were the highest likely to be involved in  an accident which causes casualties. 

- The number of buses on the road has increased by 18% from 2002 to 2011. However the most telling fact is that the kilometers traveled by a bus per day on average has increased from 157 km in 2003 to 176 km in 2011 (see graph below). 

- Where I disagree with these findings is that if a simple calculation is done a bus on average traveled in 2006 (167*365)  more than 60 000 km a year. If one assumes that on average a private car travels about 50 km per day, that’s about three times less than a bus. So conclusion such as those formulated in that report cannot be based on the number of vehicles on the road alone. It has to take into account other factors such as distance traveled and the age group driving these vehicles because no nineteen year old drives a bus. 

- Data about road accidents are not so easy to collate and thus any analysis has its limitations. This report outlines the limitations to data collection.

  1. Not all accidents are reported to the police

  2. Classifying the severity of  accidents is not always easy as records on injuries vary between hospital and police records.

World Trade and the financial crisis

Back in 2010 there was much talk about an export-led recovery championed by President Obama. Lately reports have emerged about Portugal’s export led recovery.  There’s also been talk of how the current UK regime pursuing the wrong type of growth strategy and not taking advantage of the fact that the UK has its own currency – something the Tories have been lauding since some time. All this got me thinking – Was a US led recovery at the expense of the European ?

I looked at the date from the International Trade Centre which is a joint agency of the WTO and the UN.

From the table above, the following points can be noted

1. The US and EU 27 export as a percentage of World Trade have followed similar paths since 2007. Both have had drops in 2008 and a recovery in 2009 and further drops from 2010 – 2011.

2. The BRICS have been on an increasing trend since 2001. The highest increase year on year have occurred in 2005 and 2010 (1.24% and 1.23% respectively). On average the increase has been 0.82

3. It should be noted that 2009 had seen a sharp drop in World Trade. As a result these increases in share of world trade for the US and EU 27 should not be taken at  face value. A more realistic comparison would be between 2008 and 2010 when World Trade has been at roughly the same level. From that it can be seen that the US and the BRICS have increased their share while the EU 27 lost ground. In short, despite the fact that the US, the BRICS and the EU 27 all had increased their exports in value, as a share of World Trade the EU 27 could not keep up with the increase in World Trade meaning they lost ground. The US lost ground in 2011, a year later than the EU.

In terms of Products exported as a percentage of Word Trade, it can be seen that the BRICS have continued to increase their share while the US has been losing ground since 2001. The EU 27 have increased their share up to 2003 and since then have lost ground. As mentioned above the year 2009 is only a mirage as the volume of word trade fell considerably that year.

In terms of Services exported, the BRICS have continued on their increasing trend. The EU 27 have recorded an increased in 2011 but are still below pre-crisis level ( in terms of percentage of world trade). The US has seen its share decrease and settle around the 14% mark. Surprisingly France’s share has increased underlining the fact that France’s problems lie in a decrease in its product export sector. If it manages to stop that slump and continue its increase in services export and gain new markets, France should then go back to 1-2% GDP growth per year. The UK’s service sector too is showing signs of recovery and I think that once these financial problems with the banks are sorted out, the picture in terms of share of world trade should then be clearer and a fuller conclusion as to whether the US and EU have lost ground to the BRICS and other countries. (Note because of  gaps in the data, countries like Australia could not be included)

All the raw data can be found here: world trade data

” Scarce Resources ”

While reading a year 10 Economics textbook I came across something that bothered me. It read as follows : “Rapid population growth is also a feature of many less-developed economies and places further pressure on their scare resources”

What bothers me is the idea that still in 2013 the distorted idea that a large population cannot feed itself and even more alarming is the linkage of “poor country” with scare resources.

First thing first. Amartya Sen has shown since 1994 that just linking population growth to starvation is an all too easy idea. The reasons for starvation are more complex than that. One must consider food prices and government policies of wealth distribution. This Malthusian idea has been proven wrong yet still taught.

Secondly I went to a Paul Collier lecture last year and he talked about the idea that if one looks at the distribution of natural resources around the world, it must follow a normal distribution curve meaning that a lot of natural resources have yet to be uncovered in Africa and Latin America. Putting the seed in young kid’s brains that Africa’s problem is “scare resources” hence its poverty is not only false but hypocritical. Multinationals have almost exclusive access to most of Africa’s natural resources and through corrupted politicians and  Africa’s colonial history the wealth from these resources are UNEVENLY shared.

The book if you are wondering is : Complete Economics for Cambridge IGCSE & O Level, Second Edition by Dan Moynihan and Brian Titley.

Ever wondered what may be under soil instead of feeling sorry for the tree with no leaves and in a desert ?

The Media’s Mirage

A recent paper by Julien Mercille from the University of Dublin looks at the role of the media in sustaining the housing bubble from 2000-2007. What he basically did was to analyze mentions of the housing market in the media and put them in two categories: those denying signs of the housing bubble and (2) those announced the housing bubble. Interestingly 0.2% of Irish times articles talked about a bubble while 1% of tv shows followed suit. Mercille list four possible reasons why that happened: The Media

(1) are controlled by big establishments

(2) hold a neoliberal ideology

(3) can’t go against their real estate clients for advertising

(4) the “experts” who advised them were dead wrong.

These hypothesis could further be strengthened by the events in the UK whereby the Murdoch newspapers campaigned for the conservatives and the strong opposition to the media ethics committee suggestions relating to the hackings etc…

There is another way of thinking about a housing bubble. One can think of it as a ponzi scheme. let me explain. Ponzi schemes are based on one major characteristic which is that the hype about it is beyond reasonable. It is aimed at a niche market and a buzz is created around it. Like its a cool thing to do. If you don’t invest in such and such company you are basically a loser (that’s if you have the money of course). That is what Madoff did. He sold his toxic investments only to a select few. Hence creating a mirage.

Now let’s think of the housing bubble. What the media did, if one follows Mercille’s conclusion is to create a mirage with the complicity of the banks. Who advises the average person about investments? Financial analysts of course – bankers in short.

Where I think Mercille could have further added to his work is to show the mechanism behind such bubbles. I.e. the banks, the media, the academic world all working together to create such mirage.

Picture from: http://www.freedomsphoenix.com

We have the goo…

We have the good fortune to live in democracies, in which individuals
can fight for their perception of what a better world might be like. We as academics have the good fortune to be further protected by our academic freedom. With freedom comes responsibility: the responsibility to use that freedom to do what we can to ensure that the world of the future be one in which
there is not only greater economic prosperity, but also more social justice “

From Stiglitz Price Lecure (2001)

Three thoughts

1. I am currently listening to the Prize Lecture of Joseph Stiglitz in 2001. It seems to me that the best way of practicing economics is not just looking at the books and the theories and thinking in theoretical terms alone. The observations of people’s everyday life plays an essential role in the development of policy and also is the basis of theoretical development that leads to meaningful theories. Stiglitz went to Kenya and Yunus was in Bangladesh.

2. I have glanced at the Copenhagen Consensus 2012 papers on Education. It seems to me that sadly most of the research have yet again focused on “returns”  albeit the idea of quality got into the discussion. My main criticism of these research is that for the past two-three decades most papers have focused solely on “returns”. We have enough understanding of that particular sub topic and policies attached to them. Many papers of the years have also criticized ”returns” based papers. Instead economists, I think, should focus on other aspects of education such as designing better educational programs with a mix of all the research available from psychology and other fields. I shall write more about this in another post – once Ive read all the papers in greater detail.

 

3. Going through the stats of people viewing this blog, it is clear that the post about European Integration is by far the most viewed post. This could be explained by in two ways. Either there is a genuine desire of people to read about the debate on European Integration and this could be further supported by all the political talks in European countries on the matter. Or it is the Google algorithm that is  playing tricks on the data by giving higher preferences to key words of the moment – i.e. in the news.  If that was to be the case, then it would be a very dangerous thing as google search would then create a feedback mechanism governed by the news. Let me explain: the news of the day would create key words which would then be fed to the google algorithm which would further direct all searched to these key words – be it youtube or google images. This would then lead to a bias towards these key words and hence discriminating against the other smaller news. Now there would be no problem if the news media were impartial but sadly they are not. And so it seems that one’s google searches are distorted.

Mohammad Iqbal a son fils

This is an extract from a book called “Le Livre de l’Éternité”.  It contains very deep meanings: The very essense of cultivating the soul to go up the ladder of maturity and getting a bird’s eye view as compared to a worm’s eye view.  The philosophy behind this is the idea that all matter is some form of energy.

J’ai peur de cette époque qui t’a vu naître; elle est noyée dans la matière, et sait peu de chose de l’âme. Comme le corps perd sa valeur quand l’âme en est absente, l’homme de Dieu se cache en lui-même. La recherche ne réussit pas à le trouver, bien qu’elle le voie face à face. Ne renonce pas au goût de la recherche, même si cent difficultés arrivent dans ta vie. Si tu ne trouves pas la compagnie d’un homme sage, prends de moi ce qui me vient de mon père et de mes ancêtres. Choisis mon maître Rûmî comme compagnon de route, afin que Dieu t’accorde le désir et la ferveur; car Rûmî distingue et connaît l’écorce et le noyau. Son pied se pose fermement sur la route qui mène à l’Ami. On a donné sur lui bien des explications, mais nul ne l’a vraiment compris. Son véritable sens nous a échappé, comme la gazelle. Les hommes ont appris à danser, avec leur corps, en récitant ses paroles, mais leurs yeux ne se sont pas ouverts à la danse de l’âme! La danse du corps fait tourbillonner la poussière, la danse de l’âme bouleverse les cieux; la science et la sagesse proviennent de la danse de l’âme, la terre et le ciel proviennent eux aussi de cette danse. Elle procure à l’individu le ravissement de Moïse; et grâce à elle la communauté devient l’héritière du Royaume! Apprendre la danse de l’âme, voilà ce qui importe; brûler tout ce qui n’est pas Dieu, cela importe seul. Tant que le coeur est enflammé de cupidité et de soucis, l’âme ne parvient pas à danser, ô mon fils! Le souci, c’est la faiblesse de la foi et la mélancolie; ô jeune homme, «le souci est la moitié de la vieillesse »! Le sais-tu? La cupidité « est la pauvreté présente ». Je suis l’esclave de celui qui sait se dominer lui-même. 0 toi qui es la paix de mon âme impatiente, si tu prends part à la danse de l’âme, je te dirai le secret de la religion de Mohammad; pour toi, jusque dans ma tombe, j’adresserai à Dieu des prières!

Picture from: http://1.bp.blogspot.com/-8IazbG8hGJg/Tz0MY5BefrI/AAAAAAAAAV4/4R-DOsvUBMg/s1600/Iqbal.jpg

Light & Economics

Light. Just meditate on it for one moment. Without light human activity would have probably not developed as much as we know it today. Perhaps our eye as an organ would have been different if there were no light. Our so called “evolution” would have taken a different path. Just a few years ago still, scientists believed that no creature could live without light. Boy …. they’ve been proven wrong!

Now think of how light fits our everyday capitalistic world. The intensity of light creates atmospheres in story books. Different patterns of light gives an image and a continuously changing pattern of light gives a video. Light has even entered the lyrics of hit songs – Ellie Goulding.

“You show the lights that stop me turn to stone

You shine it when I’m alone”

Light is a source of strength. When there is light, there is hope.

So how does light fit with economics?

A number of studies have used light patterns from space to calculate economic activity or as a proof of economic development. Recently I stumbled on a paper published by Vernon Henderson, Adam Storeygard and David N. Weil. They attempted to find GDP growth rate based on growth in lights. What they found is that growth in light is not always in line with official GDP growth. That is to be expected since GDP is not an accurate measure of economic development as they authors argue. Which brings me to the points I want to make.

1. Using light as a measure of economic development also has its flaws. It does not take into account all the economic activities that occur and assumes that the more light there is the more economic activities there are. Which would be wrong considering in some countries – such as Saudi Arabia – houses are illuminated with a thousand bulbs. Whereas the Nordic countries tend to be more conservative on turning the lights at home – probably cause its too cold to go out at night. So that doesn’t mean Saudi Arabia is a more developed country than say Sweden.

2. Instead of trying to build sophisticated models to determine economic development using light as a variable, why not just accept that this road is a dead end and instead focus on the patterns of light.  Light is a source of hope. So if there is a light at night means there are some human activities there during the day. As such in remote areas human activities could be pinpointed and explanatory maps could be drawn to give an idea of the economic networks that exists in these areas. I.e. Which village trade with which village. Or how farmers who live close to solitary lives trade their products. In short economic network maps could be drawn. And these could be used to better develop transport networks to expand economic activities further. This approach still recognizes that a light at night may signify a source of economic activity during the day but instead of calculating, it seeks to improve the efficiency of economic activities and give them opportunities to expand.

3. I recently watched a french documentary called Thalassa. In the show,  a man made a simple point: Nowadays governments following IMF policies always seek to have more lights at night and of different colours. That creates an ambiance at night of economic development, of happiness in the country. Light is also a political tool ! And he is correct. In  Mauritius the current government has built a lot of infrastructure and recently a bridge on one of the business highway. They made sure the bridge was well lit at night. So are all the new roads.

Photo from: http://www.freeimageslive.co.uk

How much of Europe’s problems are due to European integration ?

At a time when Europe’s leaders are calling for more European Integration, it is worthwhile to stop for a minute and ask the following question : How much of integration is due to Europe’s economic problem ?

For a start, Europeans are obsessed with integration, so much so that they even have their own academic journal of European Integration – currently in its 16th Volume. The word integration has played an integral part in all the debates and projects upon which Europe is built upon. And like many other things, there are people for it and people against it (For example the UK conservatives). During the past 2-3 years of elections in European countries, the idea of basing everything bad that is happening in Europe on the Euro and European integration has been a constant theme and often at the heart of any debate. To add to it, it only seems fair to look at the question in a hypothetical way.

In answering the question laid above, I am going to proceed in the following way. First I will first attempt to draw a picture of how Europe would be if there were no integration. Second I will look at past economic crisis where there were no form of regional integration. And lastly I will conclude by answering the question.

In a fictional world, Europe today without integration would be less prosperous and probably less rich too. Let us not forget that the European idea of integration was  first born because of the happenings of World War 2. It was and remains seen as a common project to reduce frictions between European states and as a guarantee to the USA that it would not have to be involved in another war in Europe again.  Thus integration was first a political idea before it became an economic one. Looking at the economic side, without integration products across Europe would probably be more expensive than they are today. There would also be less consumer protection and more uneven economic growth across European countries. Levels of debts across countries would be probably higher too as less common projects would be undertaken. Hence probably meaning that taxes would be somewhat higher.

Looking at the current economic crisis, which as President Barroso rightly stated started in the USA, it seems clear that accepting Greece within the European Union and the Euro was a bad idea. These are for not so well publicised reasons that Greece faked its government accounts for some years.  So if Europe was less well integrated, how would the US financial crisis have spread across a non integrated Europe ? Firstly without the EU, the USA would have been the biggest single market of the world. Hence meaning that there would have been more trade between each single European country with the USA than there is today. In other words, European countries would have been more dependent on the USA economically. Therefore, a financially hit USA would have caused more damage to each single European country as their level of export drop. Secondly each central bank of each European country would have been able to print more money to finance their own debt. So the level of lending from other central banks would been lower. Printing money also mean higher inflation,which means that the average inflation rate across european countries would have been higher than it is today. Lastly as the picture looks bleak, unemployment would be higher generally. It is also worth noting that without integration hot tourist destinations within Europe would not have suffered from a crash of their housing market as Spain and Ireland are currently experiencing. With less integration, there would have been less housing bubble within Europe which means that each single European country would have had to find other strategies to fuel their growth. Moreover drug smuggling and the underground economy would have probably been less spread and more concentrated to a few countries. So integration has also allowed the underground economy to flourish, spread across countries and be less concentrated. Europol too would probably not have existed. Finally with less integration there would have been fewer common scientific and space exploration projects. As a result Airbus would probably be owned today by only the French and Germans. And scientific expertise would have been more specific to each country and at a lower average level within all countries.

Now let us look at two major economic crisis within the past two decades. First there was the 1997 Asian Crisis and second the Argentine economic collapse between the year 1999 and 2002.  The 1997 Asian crisis started with Thailand and spread across other Asian countries. The reason for the propagation of the crisis was that the debts owed by Thailand were to other Asian countries mostly. A bit like Europe today whereby all major European countries lent money to Greece. The Argentine crisis on the other hand was different as most of its debt were owed to the World Bank. In that case the crisis remained within Argentina only and only affected other South American countries on a limited basis whereby there was a drop in trade quantity.

So in answering the question of how much of integration is due to Europe’s problems there are many aspects to be taken into account. It is true that European integration allowed the economic crisis to spread faster and to more countries. But on the other hand had there been no integration, the crisis would have probably spread at a slightly lower pace and its consequences probably limited to a few countries in terms of banking difficulty which would have been solved by printing more money. Generally all of Europe would still have suffered from a drop in exports and export oriented economies would have been the harder hit. And in a hypothetical non integrated Europe, there would have probably been louder calls for more integration today. So whether some people like it or not, European integration would have been a reality at some point or another. Its just that Europe has gained 50 years instead of being 50 years late.

Other conclusions that may be drawn is that more regulation of the financial market need to be adopted – something that the republicans in the Congress have been blocking. Regulations alone cannot prevent a bubble from starting. But the extent of the economic bubble would have been less.

Also Europe needs to learn from the Argentine crisis. One proposal that could be drawn from it is that all European countries should borrow from a single institution – a bit in the form of the World Bank. The European Central Bank currently plays this role, but lends mostly to banks and not states. There also need to be less inter-state lending. European states need to cap the level of other states’ debt that they have. Hence backing Hollande’s idea of some form of eurobonds.

Rio+20 failures

All journalists and ecologists are saying it. Rio+20 is a failure even before it started. Obama not attending speaks for itself. The failure of the summit is not due to ignorance by people. The last 20 years have been successful in that sense. People (at the exception of some republicans) are aware that global warming is a reality. All projects today have some dose of sustainability to it. You would have understood it. The problem has nothing to do with a lack of will, or an environmental problem or even a financial problem. There is an economic crisis in the western world and the solution to economic growth would be more investment and jobs in the green sector. Yet nothing is being done. Why?

The real problem is a geo-political problem.The way that geo-politics has been formed for the past 50-60 years, the key to anything being done on a global scale has to do with the strengthening of global power. That comes not from a liberal ideology but from a realist one. All the geo political analysis that are done are based on one simple fact. That fact is that the world is a chaotic place. A world where all states will unleash themselves and fight till death. Thats the simple assumption on which geo-political analysis is done. Of course, after that comes the idea of competition. Whether in a free market or in a free world, competition will always end up with a monopoly and some weaker players dependent on that monopoly. (Explaining that idea will be left to another post). And what the environmentalist and ecologist want to do [whether they realise it or not] is to create a new world order. One in which competition would be redefined.  Let me explain myself. If all the countries are to go green. I.e. Save the forest, redefine the mining techniques, the mining contracts etc… it will render the poorest countries of the world with much more geopolitical and financial power. It would be a transfer of power. Or who, in a position of leader, would want to transfer its power to other players? No one. That is what ecologists are asking for. And no wonder some republicans deny global warming. Its perfectly in their interest.

These failed summits each year have to stop. There should be no summits at all. Another strategy need to be thought out. Whether accepting geo-politics as it it or redefining a world order.  One way or another a choice has to be made. Its only then that a proper strategy can be drawn out.  Until the “summit people’ realise that, they are all wasting their time and money.

Wald Test score : N/A

Essay on Biotechnology

In this essay, I will investigate the use of biotechnology as a mean of alleviating food shortages and enhancing food security. I argue that with the current situation, biotechnology will do more to consolidate the profits of multinational corporations than to solve the food insecurity problem.

According to the Food and Agriculture Organization of the United Nations (FAO) the number of undernourished people around the world has declined from 1990-1997 and since the year 2000, the number has risen to about 850 million people. It is no surprise then that the first of the Millennium Development Goals is to eradicate hunger and poverty by 2015. However like most of the other goals, it will most probably not be met in many countries by the target year mostly because progress has been to slow. The 850 million people are just an example of extreme food insecurity. Food insecurity exists not only in developing countries but also in developed countries [2] and all governments are scrambling to find ways to secure food supplies [3]. In this new millennia, despite all the progress of science, food security remains an uncertainty for many nations and has become the new battle ground of geopolitics.

Biotechnology: the prelude

The solution, some claim, might lie in biotechnology. Big multinational corporations are investing heavily in biotechnology to produce food products that may solve the food insecurity problem. But is it really the answer to solve hunger? What is its potential that makes people and scientist believe that it is the solution? What are the political and monetary forces behind it?

In 1996, the World Food Summit defined food security as “existing when all people at all times have access to sufficient, safe, nutritious food to maintain a healthy and active life.” [4] This definition has been expanded by the FAO to include the social, physical and economic components of accessing food. This expanded definition still lacks one last aspect, which is provided by M.S Swaminathan. He defines food security: “the food originates from efficient and environmentally benign production technologies that conserve and enhance the natural resource base of crops, animal husbandry, and forestry, inland and marine fisheries.” [5]

Areas for mitigation


Obviously the depletion or contamination of natural resources reduces the food supplies considerably. Over fishing perfectly illustrates this as in many parts of the world fish queries have decreased. Depletion of soil nutrients is another major issue. In the last thirty years African soil has actually lost its richness [6]. The third problem is drought or flood. Both extremes cause either destruction of plantations or no plantations at all. Biotechnology could actually solve these problems by producing plants that require low water consumption or crops that could grow in nutrient deficient soils.

Status quo debate


The argument for or against biotechnology have been mostly centered around the safety of the products but also on the ethical issue of altering the genetics of plants and animals [7]. One aspect, though, that has not been widely discussed is the economic and political forces behind the drive for biotechnology as a solution to alleviate poverty. Although the debate about safety issues is a different story, there are two points worth noting. Firstly, no products whether from biotechnology or from natural farming, will ever be a hundred percent safe irrespective of research and precautions undertaken [8]. Second point to be noted is the ethical issue and political governance. Not everyone will have the same ethical conception on biotechnology. The question hence arising is with consideration of the possibility of genetic contamination, will every person’s right of not eating genetically modified food (GM) be respected? How many governments will consult their population before implementing laws allowing for GM food? In a book The GM debate: Risk, Politics and public engagement written on the matter, the authors found out that40% of the people queried thought that the British government would still have gone ahead with implementing GM agriculture, regardless of the public opinion [9].Literature on biotechnology mentions the “Green Revolution.” That is no coincidence. Their similarity is the fact that both promise to solve world hunger. Of course we cannot deny that the “Green Revolution” has failed to keep that promise. What decides on its success is the political and economic mechanism behind each. While the Green Revolution was mostly financed by public money, biotechnology is driven almost entirely by the private sector [10]. Only five multinationals control almost entirely the biotechnology market [11]. Hence the eternal question of private good or the common good. Making private profits for already food-secure people or solving hunger? The choice is an easy one to make for them.

Multinationals: Humanity or money?


Magdalena Kropiwnicka wrote “Biotechnology and food security in developing countries” which is a radical view against private firms and the use of patents (IPRs). She argues that IPR is merely a tool to “control the market place” and its use is doing more harm than it is good to developing country farmers. Even though her ideas are a bit extreme; she nevertheless makes an important point. Herbicide resistant crops and crops engineered to produce their own insecticide are the most widely researched areas [12]. As these firms also produce insecticides and other agro-chemicals, it is legitimate to question where their real intentions are. Most malnourished people are located in semi-arid or arid areas of the planet. It should make sense to invest in crops that are adapted to these areas; but it is not the case. The USA has the most patents in biotechnology which means big leverage in terms of foreign policy. This means that the USA will only transfer technology or give monetary aid only if the recipient country is in line with foreign policy. That would potentially exclude many poor African countries, such as Somalia where food security is at its worse. One of the main arguments used by multinationals to promote the use of biotechnology to solve food insecurity is this idea that the world population is growing at such a pace that food production is not keeping up with it [13]. This idea is further amplified by many papers and book written on the subject, but far from reality.

The heart of the problem
The FAO statistics clearly show that food production and population growths have been going hand in hand. This has also been proven many times by Amartya Sen [14]. He has also shown that even at times of increased food production, famine is still possible (e.g. Bangladesh 1976). The problem is not population growth, but rather food distribution. Simply put, food cannot reach the target population because the transport infrastructures are so bad and hence make the cost of transport too high or it is the unequal share of wealth that makes people so poor that they cannot afford to buy food. Still today more than a billion people live on less than $1.25 per day. So food insecurity is not only an agricultural problem, but a development one. The need to invest in infrastructures is clear. Making GM food that would be imported would still come up with the same problem regarding distribution.

 

Genuine pro-activeness


One initiative that is going in the right way in increasing food security is the Indian Food Security Bill 2011. It is currently in its final stages of preparation before it will be presented to the Indian Parliament for approval. Aimed at providing at least one meal to every child, poor person, or pregnant lady [15], this initiative will dramatically improve the life of Indian Citizens. The bureaucratic process and corruption fears may be some obstacles. Nevertheless, the bill poses a number of questions regarding food security. Based on the fact that no person is to be left hungry, it points to a number of UN articles and Indian Constitution articles to back its claims [16]. Can other governments that do not pursue a policy of national food security and alleviation of hunger be sued for their failings on that basis (on the basis of the UN articles and charters)? Mr Martin Niessen of the German embassy in France certainly thinks so. In a presentation given at the Right to Food Forum in Rome, he said “I want that governments can be sued for necessary action to use internationally proven tools to prevent hunger in their country.Hence the India Security Food Bill proves that political will can enhance food scarcity. The share of work load for fighting food security has been taken by non-governmental organizations (NGOs). The Gates Foundation is probably the most successful, after the UN. The Foundation has invested in an initiative called the BioCassava plus. They target the use biotechnological techniques to produce Cassava (A crop widely used in Africa for main dish) that would provide essentially all the nutrients a human being would need. In a lectureat the Oregon State University in October 2010, Dr. Mark Manary talked about the success of the program and their future aims. In all it shows that biotechnology works, but only when the aim is right. No similar success stories are reported by any of the five multinational corporations in biotechnology or by any governments.

Removing thorns


The lack of public funding plays a very negative role in fuelling food insecurity. Liberalization of the agricultural sector in many countries has resulted in the collapse [19] of the seed industry. The private market replacing it is often inaccessible to the poor farmers because the prices of the seeds are often too high. Therefore introducing biotechnology will still face the same structural problems and be ineffective. Even if there is public funding, it takes places only in rich countries or advanced developing countries such as Brazil, but these countries are food secure to a certain extent. The State of Food Insecurity in the World 2003 report by the UN estimates from FAO sources that between 1992 and 2003 close to 60% of food emergencies were nature related (mostly drought). Climate change does have a negative effect on food security. Part of countries like Bangladesh and the Maldives will be flooded and land will be lost. Currently, there is the COP-17 in Durban to find a new protocol to combat climate change and again there seems likely that very little will be achieved. Even though biotechnology could potentially help to make crops that stand more extreme weather patterns; how far it will be successfully implemented? The results of GM products have themselves been questioned before by the US Department of Agriculture (USDA). In 1997 and 1998 several studies were conducted and their results show that yields from GM crops may not necessarily be as high as some multinational corporations suggest. Nevertheless, all new technologies will take time to produce results and reach their full potential. It will be no different for biotechnology.

The fact that the EU has now set up a clear plan for the development of biotechnology in agricultural setting suggests that the technology does have a huge potential to be exploited. Bio4EU –a study in 2007- has concluded that biotechnology does have an important role to play in the EU. Moreover, the Lisbon Strategy plan specifically mentions biotechnology as a future source of growth and jobs for European countries. Even then the EU clearly wants a more conservative approach to the subject, compared to the USA. The dispute that arose in 2003 between the EU and the USA, Canada and Argentina was due to a moratorium by the EU on biotechnology products. The dispute settled in 2007 via the WTO did not help the approval process of biotechnology products in the EU which remains slow and very methodic. What separates both is the difference in preferring one strategy over another. Clearly the USA has a more liberal approach compared to the more conservative approach by the EU. It also has to be noted that the dispute arose because the USA was losing an estimated USD 300 million in corn exports [20].

Biotech in the Third World


As Kropiwnicka says, both developing and developed countries aspire to economic growth and to enhance food security, while at the same time managing natural resources and allowing the biggest number of people to benefit from any economic activity. In that sense, Sakiko Fukuda-Parr argues that GM crops could allow developing countries to take part in cutting edge science, be competitive, have economic growth, have increased exports, reduce poverty and increase farm yields and decrease the use of pesticides and other chemicals [21]. However his case studies have concentrated only on advanced developing countries. Maybe in the long run such aims could be achieved. Poverty and hunger still lead to deaths and sorrow. These people cannot be allowed to suffer while waiting for biotechnology to mature into a viable and widely available technology.

Compromising?


Having said that, biotechnology can play a leading role where green revolution methods have reached their peaks and so it does make sense for the USA and EU to invest in such technology as it will alleviate food shortages in their respective countries. Moreover, due to fact that commodity prices are subject to demand and supply, increasing the supply via the use of biotechnology may curb prices to a certain extent. Food security cannot be solved by one party or a group of parties. All countries will have to collaborate on a framework to enhance food security and at the same time alleviate hunger. The facts however do not seem to be pointing in that direction. In an ever more competitive economic world, securing food supplies for some countries has become paramount. Saudi Arabia, South Korea and China are deficient in their food production and are scrambling worldwide to make deals to secure land to grow their food that will be exported back to their home country [22]. These secretive deals tend to be made between governments and when they come to public knowledge it usually creates uproar.

The story line


In sum, the lack of political will to cooperate amongst countries to find solutions for the common good, not for private interests is leading to an increase in food insecurity and could potentially lead to the failure of biotechnology achieving its full potential. Biotechnology itself presents a formidable potential to increase food yields where it has reached it maximum with conventional methods developed during the Green Revolution. This will help to increase the food security of rich nations and advanced developing countries such as Argentina and Brazil. As it is always the case, these technologies will then become cheaper with time and run down the ladder to poorer countries.

Do not put the cart before the ox


To say that biotechnology will solve world hunger is however far from becoming a reality. There are much cheaper ways to solve hunger and provide food security to poor people. It has been done before and with political will and proper funding it can be done again. The sole responsibility should not rest entirely on NGOs such as the Gates Foundation. It should be a common effort involving all governments working together for the sake of the common good, and not for geopolitical interests. Sadly biotechnology has fallen into the trap of private interests and for that reason, in the current political and economic climate, biotechnology will not solve food insecurity or alleviate food shortages.

Written by W. Jhumka
This essay was submitted for my political economy class (Fall 2011) and later edited for this blog.

[3] Foreign Policy 186 (May/June 2011); The New Geopolitics of Food; Brown,Lester, pg 54-62

[4] Journal on Science and World Affairs; Vol 1, No.1. 2005;Biotechnology and food security in developing countries; Madgalena kropiwnicka; pg 45-60

[5] Ibid

[6] The Development Econoimics Reader; Edited by Giorgio Secondi; pg 359; The next green revolution by Norman E. Borlaug

[7] Journal on Science and World Affairs; Vol 1, No.1. 2005;Biotechnology and food security in developing countries; Madgalena kropiwnicka; pg 45-60

[8] One hundred percent safe? GM food in UK; Vivian Moses and Michael Brannan; December 2001

[9] The GM debate: Risk, politics and public engagement; Tom Horlick-Jones, John Walls. Gene Rowe, Nick Pidgeon, Wouter Poortinga, Graham Murdock and Tim O’Riordan; pp 166

[10] Journal on Science and World Affairs; Vol 1, No.1. 2005; Biotechnology and food security in developing countries; Madgalena Kropiwnicka; pg 45-60

[11] Ibid

[12] Ibid

[13] Ibid

[14] Ibid

[19] Genetically Modified Food, Edited by Michael Ruse & David Castle; pg 302 – Biotechnology and resource poor farmers by Robert Tripp

[20] Congressional Research Service; Agricultural Biotechnology: The US-EU dispute; Charles E. Hanrahan, April 2010

[21] The gene revolution, Sakiko Fukuda-Parr, pg 222.

[22] Foreign Policy 186 (May/June 2011); The New Geopolitics of Food; Brown, Lester, pg 54-62

Not so clean tax revenues

The preachers of the neoliberal ideology have since a few years, via the international institutions such as the IMF and World Bank, pursued a policy of encouraging governments to find new tax revenue streams. This has allowed the creation of new sectors and legalization of activities that were forbidden before. I focus on the proliferating prostitution and gambling  industries which label themselves under the service sector.

Case Study 

Southern European, South American, ex Soviet and rapidly emerging countries have seen a huge growth in their casino and illegal/legal prostitution industries. In most cases where prostitution has been legalized, it has been on the basis that government would be allowed to tax this activity and regulate it to some extent. The gambling industry is the highest taxed industry in most countries and these values go as high as 50-75%. The high tax rate here applies to a simple idea – that is, just like cigarettes and alcoholic beverages, the products offered by these industries have an inelastic demand: which mean no matter how high the tax rate, people will still buy it. 

I have researched into the tax revenues of countries such as Spain but I could not find the specific contribution these industries make to the government revenue mostly because they are listed in a larger group or are broken down into sub groups. However, due to the high tax rate and a continuous demand, it is easy to estimate that these two sectors make up a large portion of the government revenue – about 30-40%.

Conclusions

Firstly the acceptation on the part of the government that the real economy (that is manufacturing, agriculture and other service based industries) cannot generate enough profit to pay enough taxes to make up the portion needed for the government to function. Secondly are the benefits of legalizing such activities and the revenue streams they bring in more than the damages (moral wise, health wise etc..) they do?
Thirdly were such policies listed in these government’s manifestos- for which people have voted- and did they state clearly that it was going to be for such purpose?

I let you decide on these conclusions/observations.

For my part I think that these two sectors will continue to grow and they might attain such an economic importance that their lobby on the government will be too high to counter them. I also think that these two industries don’t create real wealth – only an illusion of wealth. By this I mean no new technology will come out of it nor it could be sustainable in the very long run. Moreover these two industries are based on the idea of quick and big profits.

Is it what we really want our economies to be based on ? 

The Economics of the Earth Sciences

I have just finished watching David Attenborough new TV series – Frozen Planet. The pictures are breath taking and describing it as an eyes feast would be an understatement. While watching it, being an economics student, I was trying to find a link of economics with the antarctic or arctic.  with the little economics knowledge that I have and for the most part I struggled with one question: How then is it possible to apply economics where there are no human activity? The idea of natural resources come quick in mind – exploiting any resources we can find in the arctic or antarctic; but being environmentally conscious, that idea went away as fast as it came as exploiting these resources would certainly destroy the beauty of these places.
The answer to my question came towards the end of the movie from David Attenborough himself. He said “what ever happens here (arctic) affects everyone of us no matter where we live on this planet.” And he is damn right. Forget climate change. Think of the world weather system as it would have functioned before the industrial age. The icebergs born from Iceland and the antarctic would affect sea currents which in turn would affect fish migration and in turn affect the catch of a fisherman off the cost of Sri Lanka. That is just one example, but if we could build models of these linkages accurately with the help of biologist, weather meteorologist and any other scientist, we could predict quite accurately when and where to fish – just like the migrating birds, sea whales etc know at what time to be at a specific place to have the maximum amount of food available to them. Smart fishing would not only allow fresher food to a greater extent but also manage our world resources and live in harmony with nature just like the animals have learnt to – or to be exact how nature forced them to evolve to adapt to the former – meaning that our over capacity to exploit nature is ruining it.
The financial crisis has showed us that we may be linked more than we think to one another; and this is exactly how we should view the world – as a web of unlimited linkages. So linking economics models with weather forecast models and animal migration models can only make sense as it would go a long way in understanding these linkages better and how they affect us human beings in our decisions.

TAX HAVENS

This is a website to bring together different organizations fighting against tax heavens. The original idea and founder of this movement is John Christensen. He is an economist and has worked for a big bank on the island of Jersey – which is a major tax heaven – and has acquired a deep knowledge of the inner workings of these banks and trust funds. A tax heaven is not only a state which allows evasion of government taxes in other states but also a way to whiten black money.

Combating tax heavens will go a long way in resolving not only the current recession in developed countries but also in alleviating poverty around the world and allow a better reparation of the wealth of the planet.

Twitter

I have been on twitter for nearly two weeks now and already I am pondering about the opportunity cost of not having signed up earlier. Making smart choices and following the right people, one can learn a lot via twitter and get exposed to new ideas.

Twitter, just as Facebook, connects people but it does so in a much more controllable way for the user and his privacy. Twitter also brings something new and I think its something that has yet to be tested or is being tested – that is the political dimension of it. Twitter is like observing a hive. That is, with the right mathematical tools and models, twitter can be used to measure or approximate the tendencies within a society – a bit like polls and I think it can give a much accurate prevision than phone polls or street polls and much quicker too.

One more potential of twitter, for political scientist or economists to exploit, is to study the propagation of information and technological spill overs – to see how ideas flow, and in which directions (i.e. from X country to Y country). Expanding on this idea it can be used to also study think tanks, academic institutions and individuals to investigate how ideologies/ideas influence people – that is the influential sphere of an ideology; to draw maps in a way.

Thirdly twitter, like Facebook, could be used as polling stations – but that would require a certain level of information security.

So in all twitter, I think, could be used as a controlled experiments for political scientists and economists. The degree of accuracy may not reach that of the natural science but it would go a long way in improving the accuracy of current date – be it from UN or wold bank or any institutions. That though is not going to happen today.

Explaining inequality (work in progress)

Here is an attempt to explain the growing inequality in income that can be observed in individual countries (poor and rich).

Assume in a country/economy there are only 5 people.

3 producers
- producer of wood
- producer of paint
- producer of lead
1 shopkeeper
1 consumer

Lets also assume that the producers and the shop keeper make 50% profit on their work (producing & selling). We’ll also assume that the producers sell their individual parts to the shopkeeper who will just make the pencil like a Lego toy by fitting all the parts together.
For our simple example, lets see the production of a pencil. First the woodcutter will go into a forest, cut down a tree and make the wooden part of the pencil. In all that costs him $1 to make that. And if he makes 50% profit, that means he sells it to the shopkeeper for $1.50. The same applies for the painter and the producer of  lead. So in all, the shopkeeper had to pay $4.50 for the pencil.
Now the shopkeeper sells the pencil to the consumer and if he is to make 50% profit too, that means the final price of the pencil is $6.25.
So the three producers all make $0.50 profits and the shopkeeper $2.25 of profit. That is a ratio of approx 4:1. That is what is happening in the world. The multinationals are making huge profits and local workers are making reasonable profits. That equilibrium works as long as the workers can sustain themselves with the level of their purchasing power. And if they cannot, the government taxes people so as to redistribute the wealth/income. That is why taxation plays a huge role in fighting inequality.
But what has been happening is a decrease in the purchasing power of the lower and middle class due to inflation. And more inefficient taxation systems have also been implemented. As such to stop the inequality, governments that decided not to tax, had to borrow money – hence their big debts pre-financial crisis period.
In summation, the components that make up the inequality of today are
1. purchasing power below the level needed to sustain one-self
2. unequal taxation system
3. governments with lower powers to reduce that inequality due to their high debt levels (makes future loans too expensive)

That example can also be used for the “de-globalization” debate. The way to fight the side effects of globalization is not to stop globalization and go towards protectionism again. But rather it is agreeing to redistribute the wealth created by globalization better.