Institute Notes: A Dialogue on Overcoming Hunger and Poverty

Surprising Success at the G20

The conclusion of the G20 seems, at first blush, to provide a great deal of positive news for developing countries. The official Communique begins with the recognition that

prosperity is indivisible; that growth, to be sustained, has to be shared; and that our global plan for recovery must have at its heart the needs and jobs of hard-working families, not just in developed countries but in emerging markets and the poorest countries of the world too; and must reflect the interests, not just of today’s population, but of future generations too.

To achieve financial stability and promote a return to trade and economic growth, G20 leaders had to act boldly, and it appears they have.

Economics 101

For those of us who struggle to understand the complexities of economics, I found David Korten’s recent article “After the Meltdown: economic redesign for the 21st Century" very informative.  He compared economic thinking of Jeffery Sachs, James Gustave Speth, and Kevin Pillips.  Whether you agree with anything Korten says, he gives a lot of food for thought.

The G 20 Comes to Town

The G 20 came and went here in Washington this past weekend without much apparent impact: There were some street closings, a few protests, some press briefings. The Washington Post had a front page story and a lead editorial on November 17, but  -- given the parlous state of the global economy -- all in all it was remarkable for its lack of attention and public follow-up. Those who had modest expectations going in were not surprised or disappointed.

Some – President Sarkozy of France, for example -- apparently came into the meeting with an expansive agenda – almost a rethinking global capitalist system. More modest objectives included modified governance for the Bretton Woods Institutions (the World Bank and IMF), improved supervision and controls on financial flows, re-commitment to trade liberalization and open markets and fiscal stimulus measures to address the gathering global recession.

One of the principal reasons, of course, for the low expectations was the lame duck status of the President Bush.  It’s asking a lot of world leaders to commit to actions that may not survive the change in administrations. The president’s generally low credibility as an “internationalist” and his basic ideological commitment to market-based solutions served to further undercut the possibility of major reform commitments at this time.

Progress in Africa

There are a couple of stories this week that serve as a reminder that progress can be made under challenging circumstances--Time and CNN report that many African countries are experiencing strong economic growth and steady improvements in governance. Good news is indeed a rare commodity these days but I'll take it! The financial crisis is taking up much of the oxygen and understandably so. But as my colleagues Eric Munoz and Charles Uphaus have noted in recent blog posts that developing countries are especially at risk in this crisis, both in terms of access to the financial resources needed for development and because of the impact of slower growth in rich countries on exports from developing countries. An unintended consequence of this financial crisis, coming on the heels of a surge in food and fuel prices, may be a growing setback in the progress against poverty that we have seen in recent years. It is absolutely clear that if the global community doesn't step in, the gains we have made will be lost.

Curtains for the Washington Consensus?

Two stories in the October 1 Washington Post expand on the recent Institute Notes, with special focus on Latin America. One discusses the effect on remittances of the U.S. economic downturn; the other describes how the financial system collapse is playing out in regional politics. 

According to the first story, when adjusted for inflation and exchange rates, the volume of remittances – projected at $67.5 billion for this year -- will actually decline for the first time since records have been kept. A slowdown is important, because remittances constitute a significant portion of national income for some Latin American countries -- 18 percent for El Salvador, 12 percent for Guatemala – and provide a means for poor families to expand their economic horizons.

The second story features the speech by Brazilian President Luiz Luna de Silva to the U.N. General Assembly, in which he pointedly criticized the “boundless greed” of U.S. bankers and fingered the U.S. financial sector for any consequent global impact: “This crisis belongs to the American bankers, the European bankers . . . It’s not fair for Latin American, African and Asian countries to pay for the irresponsibility of the American financial system.”

A quick news round up

There are a few articles that I think are worth calling attention to:

There are signs that farmers in India, China, Australia and other parts of the world are beginning to respond to higher food prices by planting more food crops. This will certainly ease pressures on the record high prices that we have seen in the last 18 month--but particularly in the last six months. This is good news for consumers. The story suggests that rice and grain prices have not come down as much as wheat and soybean. A WSJ article and reports from the World Bank and USDA suggest that while prices have and will continue to decline in coming months as a result of a supply response, it is unlikely that they will go down to pre 2004 levels, when they were quite low. Grain prices in particular will remain high because of the ethanol mandates and subsidies in the US that are diverting corn and land away from food and feed production. For people living in extreme poverty and hunger, an easing of food prices may be of some comfort but they are still very vulnerable to even the slightest fluctuations and will continue to face enormous challenges feeding their families. They need the skills, tools and physical strength to lift themselves out of poverty once and for all and that is where development assistance, trading opportunities, and good governance come in.

This morning's New York Times has a piece by Roger Cohen about Ghana--the kind of story you don't see much in our media about Africa or anywhere in the developing world quite frankly. But many developing countries are making progress, leap frogging technologies, facing up to challenges and there is an energy and intensity about the changes that is quite enticing. Of course there are a great many challenges, far too many people (862 million) go to bed hungry but as Cohen acknowledges, very few of these type of stories make the papers.

Thoughts on the global food crisis on Earth Day

It's Earth Day, an annual reminder--it's amazing to me that we need one--that we must protect the environment. This year it falls in the middle of a global food crisis, raising so many questions about our management of the Earth's resources and how we will meet future needs.  The UN's Food and Agriculture Organization estimates that before the food crisis 854 million people faced hunger--a staggering number but a vast improvement from just a decade earlier. The current crisis threatens that progress and could set back development efforts substantially. According to the World Bank and the World Food Program, we face the devastating prospect of an additional 100 million people going hungry because they are unable to afford food at the current high and rising prices. The numbers are unfathomable but there is much that can be done in the short and long term.

With all likelihood that food prices will continue to rise for the foreseeable future (for more on this see here), the international community must begin to think very differently. Rising demand for diversified foods as a result of growing prosperity in parts of the world that have seen a dramatic fall in extreme poverty rates in recent years (most notably, China and India) is to be celebrated. But it also requires us to plan for how we meet this demand and because population growth will continue to put pressure on resources.

Climate change is and will affect food production. Australia, a large wheat producer and exporter, is in the tenth year of a drought. Floods, droughts and changing weather patterns all over the world will make

Offical Development Assistance on the Decline

On Friday, April 4th, the Development Assistance Committee (DAC), the independent research arm of the Organization for Economic Development & Cooperation (OECD) released the 2007 Official Development Assistance numbers.  The OECD is a membership organization of the governments of countries committed to supporting democracy and the market economy.  According to the report, aid from the 22 member countries of the OECD to developing countries fell by 8.4% in 2007 to $103.7 billion.  However, this decline was anticipated as ODA in the previous two years was exceptionally high due to large debt relief operations, especially in Iraq & Nigeria.  If debt relief efforts from 2006 are excluded, assistance rose by 2.4%.

The United States continues to be the largest donor, contributing $21.753 billion in 2007.  This is a 9.9% decline over the previous year, mostly due to a slowing of reconstruction efforts in Iraq.  ODA from other donor countries fell sharply as well.  France’s contributions declined by more than 15% and the United Kingdom gave 29% less than it had in 2006.

In proportion to our national wealth, the U.S. now shares the bottom position with Greece, giving just 0.16% of our GNP to ODA.  This falls below the OECD average of 0.28% and the 0.7% goal expressed in the Monterrey Consensus.  Only 5 of the 22 OECD member countries contribute 0.7% or more of their GNP to ODA.

This year, U.S. appropriators will have some difficult choices to make as they determine the funding priorities of the United States for 2009 and the next administration.  In the midst of an uncertain national and global economy, how will Congress respond to the unmet needs around the world and unfulfilled commitments?  Will the U.S. continue make promises to our neighbors around the world that it won’t fully finance?  How can we lead the world in development and poverty reduction or expect our partners to meet their commitments if we don’t lead by example?

Hayekian Insights on Economic Development

On Wednesday the CATO Institute hosted an event on Hayekian Insights on Economic Development. The presenters’ were the well known economic development expert William Easterly and Arvind Subramanian. Drawing insights from Nobel Prize winning Economist Friedrich Hayak’s work, the two presented differing views on paths to economic development. Easterly and Subramanian focused the majority of their remarks on the clarifying the nature and role of government in economic development.

Easterly’s work is widely known and his discussion at CATO followed his recent writings (in the White Man’s Burden for example). He reiterated his opposition to the role of governments in seeking to direct economic development and in providing foreign assistance. He spoke in favor of decentralized decision-making to discover what works best in the market and in public policy; and the need to rely on dispersed and local knowledge, rather than government planning, for poor countries to achieve growth. Drawing from Hayak’s view of free market, Easterly highlighted the helpful observation that there is no secret to development and attempts to locate a secret to development will remain fruitless. Freedom (to act, to explore, to fail) was the watchword of his remarks.   

Consumption Factor Versus Living Standard

A couple of recent stories on consumption and development are worth noting. Michael Gerson writes in The Washington Post,

It is often recounted, in fits of prosperous self-hatred, that America has only 5 percent of the world population while consuming 30 percent of global resources. But this comparison is misunderstood. The rest of the world has been underconsuming, because too many have lived in poverty.

This observation gave me serious pause over my morning cup of coffee.

I couldn’t quite pin down what about this made me so squeamish until I went back and re-read this piece by Jared Diamond in the New York Times. Diamond begins with the same broad observation made by Gerson, namely that a massive gulf exists between the world’s top consumers – people in developed countries – and those who consume the least – people in developing countries. But Diamond goes on to observe,