Whatever became of the anti-globalization movement? I learn from Robin Broad and John Cavanagh's latest book, Development Redefined, that it is alive and well and now called the alter-globalization movement (for "alternatives to globalization").
John Cavanagh directs the Institute for Policy Studies and has long been a thorn in the side of globalization's cheerleaders. I like him for many reasons, not the least because he got me my first job in development: it was his contacts at UNCTAD in Geneva that landed me a summer internship there between my first and second years at the Woodrow Wilson School. I also overlapped with Robin Broad at Princeton. I have fond memories of many discussions with Robin, who happens to be John's wife, on development issues.
As one might expect, the book takes swipes at the usual suspects: the Washington Consensus, the IFIs, the MNCs, Tom Friedman, and Jeff Sachs. Against the growth-focused and globalization-centered views of these institutions and commentators, Robin and John argue for a localized, community-based, self-sufficient model of development. What many others would celebrate as real development (for example the spread of commercial farming for export in the Philippines) they see as the destruction of local communities. They write: "We stand at a moment marking the end of what may well be the most destructive development era of modern history."
Can we be talking about the same era during which, according to World Bank calculations, the number of people in extreme poverty fell (in absolute terms!) by 400 million people? Broad and Cavanagh don't pay much attention to such figures because they seem to have a somewhat romantic view of the lives of rural poor, who apparently have a relatively decent quality of life until market forces in the form of international trade and MNCs encroach upon them.
Duncan Green, Oxfam's head of research, maintains an interesting blog, with commentary on development issues of the day. Here is his take on the Doha trade round, from one of his recent entries:
If the WTO were a football team, its record of lost 3 (Seattle, Cancun, Geneva), drawn 1 (Hong Kong) and won 1 (Doha) would lead to calls for a change of manager. In this case, the manager is effectively the entire world, however, and the world needs a multilateral trading system in which rules place at least some curbs on abuses by the powerful players. Perhaps the best thing would be for the WTO’s members to, in the words of the Financial Times, ‘let it go’, declare the round closed, and get back to the WTO’s core business of monitoring and regulating world trade on the basis of its existing agreements, however flawed (much of the developing country agenda in Doha was a doomed attempt to correct such flaws). Freed from the intellectual and political straitjacket of the Doha round, it might then be possible to think more creatively about how to ensure trade works for development in a carbon-constrained world.
I am drawn to this position not just because of the football analogy, but because it makes total sense.
Few things motivate finance ministers in emerging markets more than becoming attractive to international capital markets. Attaining investment-grade rating, as Brazil did earlier this year, is often cause for national celebration. The expectation is that capital inflows will reduce domestic costs of borrowing, boost investment, and raise growth.
But what really happens when you are the beneficiary of a sudden increase in capital inflows? In a new paper, Carmen and Vincent Reinhart look at the experience of 181 countries from 1980 to 2007 and document some very interesting findings.
They find that capital inflow bonanzas have become more frequent as restrictions on international capital flows have been removed, that these episodes can last for quite some time (lulling policy makers into thinking that they are permanent), that they end with an abrupt reversal "more often than not," that they are are associated with greater incidence of banking, currency, and inflation crises (except for in the high income countries), and that economic growth tends to be higher in the run-up to a bonanza and then systematically lower. As the authors note, with significant understatement, "a bonanza is not to be confused with a blessing."
What lesson should domestic and international policy makers take from these facts? The standard response is that what is needed is more vigilance on the part of the authorities: do not pursue pro-cyclical fiscal policies, improve your banking supervision and prudential regulations, enhance your institutions all around. The paradoxical nature of these policy conclusions is that they turn capital inflows into an imperative for even deeper reform, instead of treating them as a reward for good behavior. It is a topsy-turvy world.
I learn from Chris Blattman's indispensable blog of a new ranking of economic blogs. Yours truly is ranked 12th overall, which is a lot better than what I would have thought. According to the source, "rankings are based on the number of incoming links from other indexed economics blogs and some secret Econolog sauce. Only links from the past ninety days are counted."
Here is the thing. I have posted no more than two or three entries over the past ninety days (excluding the last couple of days, which presumably don't figure in the calculations anyhow). So this "sauce" in question must be pretty potent stuff.
The second meeting of the Brookings Panel on Economic Activity under new leadership started Thursday, with some interesting papers on the housing and financial crises. Rarely do you get an academic meeting that is so timely: in attendance were anxious Treasury and Fed officials checking Lehman's stock price on their Blackberries. But there were also other interesting papers. The LaPorta and Shleifer paper on the informal sector goes straight into my development syllabus for the Spring. And oh, there was also a paper on real exchange rates and growth, which one of the distinguished panelists said would put the entire economics profession on the wrong side of 200 years of history if correct. Ho-hum.
My colleague Ricardo Hausmann along with two co-authors (Bailey Klinger and Rodrigo Warner) have just put up an interesting essay on the practice of growth diagnostics (GD). Ricardo calls this a "mindbook"--i.e. a manual on getting your mind around GD. It is chock-full of illustrative examples, and also discusses some common misunderstandings.
Here is the kind of insight you will get from the piece:
Suppose you were asking: what is the binding constraint to animals thriving in the Sahara desert? This is not unlike the question of what limits economic growth in a country. However, in the Sahara, it is instructive to note that of those few animals that do thrive in that environment, a very large proportion are camels and a very small proportion are hippopotamus. The fact that the animals most intensive in the use of water, hippopotamus, are scarce while the animals least intensive in the use of water, camels, are thriving suggests that the supply of water may be a binding constraint to the spread of animals in the Sahara.
In general, the idea is that looking at the nature of the most successful parts of the economy can be informative of the constraints that affect others. We would expect to observe that those who are either structurally less intensive in the constrained factor, or at least more able to bypass it, will be doing comparatively well. Conversely, those sectors most intensive in the constraint will be doing relatively poorly.
A very simple principle, but it can be surprisingly powerful in practice. For example, it suggests that asking successful firms what are the main problems they face--a very common strategy both in business consulting and in country analysis--is not only uninformative about the binding constraints of the economy, it may lead the analyst precisely in the wrong direction. After all, successful firms are successful (relative to other firms) because they have been able to surmount the binding constraints. So they are least likely to complain about the blockages that are holding the rest of the economy back.
This has been a summer of e-reading for me. A combination of being away from Cambridge with too few books alongside, receiving the Amazon Kindle as a birthday present from my wife, and the upgrading of iPhone software has meant that I have spent far too many hours reading electronic books--first on the iPhone and then on the Kindle.
The experience was surprisingly positive. OK, the iPhone has a great screen, but it was still a surprise to find out that it can be a good medium for reading for hours on end. I use eReader, which makes it easy to download books and has a simple interface. The limitation is that there are far too few books for download. The non-fiction collection is especially poor, unless you are looking for older books with expired copyrights.
The Kindle of course gives you access to a much larger collection of books, and has the great virtue that you can download books directly onto the device (in the U.S.), and do so within a few seconds. You can browse the Amazon bookstore on the Kindle, and download whatever grabs your interest right there and then. This instant gratification is quite unlike any other shopping experience. With one-click shopping, it can also be quite expensive. I am carrying many many more books on the device than I can possibly read. I think Jeff Bezos somehow knew this...
But the ergonomics of the Kindle are a disaster. It is awkward to hold, with or without the case, and it is virtually impossible to use without pressing on the wrong buttons. The screen also took a while to adjust to. Not being backlit, it is obviously not as bright as the iPhone, but it doesn't quite feel natural either. And tables and figures are virtually illegible on the Kindle, as they cannot be enlarged (unlike the text size).
So what did I read? The book I enjoyed the most was Netherland: A Novel by Joseph O'Neill, even though I know even less about cricket than I do about baseball. I also liked Martin Amis' House of Meetings, which is a couple of years old. I had sort of given up on Amis after finding his other recent stuff close to being unreadable, but this one is really good. My Name Is Will: A Novel of Sex, Drugs, and Shakespeare by Jess Winfield was also a lot of fun. Being restricted to the fiction available on eReader (before I received my Kindle) meant that I also read (or re-read) some old favorites from John Le Carre and Martin Cruz Smith.
Orhan Pamuk's latest novel came out the day before I flew back to the States. Alas, it is not available electronically (nor has it come out in English as far as I know), so I had to lug it along with me. And it is a big, thick book--the longest to date among his novels. But I don't know what it is with his novels. I just cannot finish them. I really enjoy reading the first half or so, but then I feel like I am being led in circles, over and over again. At some point, I give up and stop reading. This one was no different. It is probably more a reflection on me than anything else... (His book of memoirs on Istanbul, by contrast, was quite different: I read it in its entirety virtually in one sitting.)