The Harvard Crimson has a story today about the Hirschman prize, the first of which was recently announced by the Social Sciences Research Council. The prize recognizes "outstanding contributions to international, interdisciplinary social science research, theory, and public communication, in the tradition of Albert Hirschman." The official SSRC announcement is here. It is a pity that today's graduate students in economics do not read Hirschman much--he is one of the most original and creative minds of the century. I won't tell you who the recipient is, except to say that I do not agree with everythng he has written.
I knew something was up when I saw this morning that the number of visitors to my blog had shot up all of a sudden. It is thanks to a plug from Greg Mankiw, who frets (tounge-in-cheek, no doubt) about the increased competition.
My student Jason Hwang successfully defended his dissertation this morning. Probably the most important and interesting of his findings is that countries converge to the global productivity frontier in individual products unconditionally. A country that exports, say, color TVs, will eventually and as a matter of course catch up with unit values of the richest countries that produce the same good, and will do so at a relatively rapid rate of 5% per year. This is to be contrasted with convergence at the economy-level, which happens only conditionally--i.e., after a long list of prerequisites are satisfied--and much more slowly. Rapidly growing countries are those that are, counterintuitively, farther away from the productivity frontier of the goods that they export. Diversification of production acts like a convergence machine: it enables countries to get into the lower rungs of taller ladders. This is fascinating stuff, and opens up really new ways of looking at the links between structural change and economic convergence.
It is hard to see how, especially after the World Bank's own Independent Evaluation Group has sharply criticized him. It is in fact remarkable that the IEG's normally mild-mannered director, Vinod Thomas, has come out so strongly against Wolfowitz. Meanwhile, Wolfowitz seems to be digging in his heels, and is reported to have hired the lawyer who defended Clinton against sexual-harassment claims. There is a silver lining in all this, I think. The longer it takes for Wolfowitz to resign or be removed, the more likely it is that an enraged world will prevail on the U.S. to accept a more sensible method of selecting the next World Bank president. I will be rooting for Kemal Dervis when that happens. Or am I too much of an optimist?
Mexican coffee farmers in Chiapas have raised their incomes while enhancing the environment thanks to "fair trade," according to the NYT. Meanwhile consumers can sip their coffee knowing that they are contributing to alleviating poverty and safefguarding the environment. Seems like a win-win, right? Yet, I can't stop myself thinking that there has to be more to the story. We know that labeling products (e.g. "fair trade" coffee) is in general a good idea when consumers have a preference for improved labor practices or for environmentally-friendly production methods. In principle, consumers who are willing to pay a higher price for these can thereby induce producers to adopt the production practices that the consumers value. While this increases economic efficiency, it is not clear that it makes the growers better off by all that much. After all, the increased price simply compensates the growers for the added production costs incurred.
So for fair trade to have a real impact on poverty, there needs to be an added element: multinationals must be willing to transfer a larger part of their sales revenue to the farmers--but this is something that could be done by multinationals in any case, without the ruse of "fair trade." Perhaps the quid pro quo is this: "fair trade" increases consumer demand and therefore profits; in return firms pass on a higher price to the growers. This kind of "rent-sharing" assumes of course that companies like Starbucks are making excess profits. Otherwise, there would be no rents to share.
This helps resolve another puzzle I have been thinking of for a while. At the cafeteria in the Kennedy School, "fair trade" Starbucks coffee sells for the same price as other types of Starbucks coffee. This is of course inconsistent with the standard labeling story under perfectly competitive conditions. So either Starbucks is pulling a quick one over us, or it is able to make excess profits (i.e., gouging consumers). If the latter, "fair trade" is just a means of increasing Starbuck's profits. It would be interesting to know how much of that really trickles down to the growers.
In any case, it would be good to have a serious industrial-organization analysis of the whole "fair trade" business. Does anyone know of something along these lines?
Today's NYT magazine has a long, touching story on migration and remittances, focusing on the experience of the Philippines. While acknowledging the huge material gains migration generates, the article emphasizes the human costs--broken families, left-behind kids.
Off the sala is a guest bedroom with a large framed photograph of Rosalie, taken on her wedding day. The woman in that picture shows no trace of a birthright of poverty. She turns to the camera wearing an enormous gown and a confident face. Two generations of labor migration have given her more education, more money and more power and prestige than her mother could have dreamed of on her own wedding day. Precious Lara rarely plays in that room and hardly knows the face, much less the sacrifices her mother has made for the blessings of a migrant’s wage.
What the article makes clear to me is that we have not yet figured out how to make international labor mobility a true contributor to economic development.
Not at all clear, according to Guillermo Calvo. I am sitting at a colloqium on Argentina organized by my colleague Federico Sturzenegger. Argentina has recovered nicely from its crash and has been growing at Asian rates since. Calvo thinks this is just a process of recovery: the country is only making up for lost time. But could this time be different? What is encouraging is that this recovery is export and investment- led, and investment focuses on tradables instead of nontradables. The government has had an active policy of keeping the currency undervalued. So an alternative, more optimistic view would be that Argentina is turning itself into an Asian country. But there is a long way to go...
I have been spending much of this week (well sort of; those who know me better know that I have had much more important things to take care of this week...) teaching in an executive program that the Center for International Development at Harvard runs for economists at the World Bank and other multilateral organizations. Ricardo Hausmann, Rohini Pande, Chuck Sabel (from Columbia), Abhijit Banerjee, and Sendhil Mullanaithan are some of the other faculty who teach in this weeklong program. The attendees are fairly senior people, so the discussions are lively. I am amazed at how some of the new thinking on self-discovery, growth diagnostics, binding contrains, and experimentation is being absorbed within the World Bank and the donor community more generally. But the question is: can you really practice "different strokes for different folks" in institutions that are used to uniformity?