The rising price of food has been a subject of many news stories over the past few months, with the intensity of attention ratcheting up recently upon news that the FAO’s food price index has just surpassed its 2008 peak. Stories about this issue – well, at least the good stories – point out the highly variable way in which this increase in the price of food has played out in different places. One good example of this sort of reportage is from Saturday’s Washington Post.
This variability, however, tends to be illustrated instead of interrogated, with explanations remaining remarkably shallow (see my earlier complaints about how explanations related to “local specificity” and “cultural difference” tend to obscure important processes and blame the victims of larger processes). However, a quick examination of the information we have about food prices and their impacts points to the fact that global food prices are not all that useful for understanding the variable food outcomes we see in the Global South. First, we have to understand that the increase everyone is talking about is in an index of food prices – that is, the price data drawn from a number of different foods. Though the index is going up, this does not mean that the prices of all foods are rising equally. As the WaPo and others have noted (and is quite clear in the FAO presentation of the data), when you disaggregate the crops and their prices, the biggest increases globally are in sugar, cooking oils and some fats (there are, of course, local surges in price for particular crops, but those are often independent of the larger global markets). While cereal prices are increasing, they are not rising as quickly as these other foods, and they remain below 2008 levels. So who is hit by these prices has a lot to do with who consumes sugar, or products heavily constituted by sugar and oils. Oils are widely distributed in diets, but sugar is not – the poorest tend to have the least access outside the Global North (ironically, this is reversed in the Global North, as noted by Fast Food Nation and Morgan Spurlock’s Super Size Me). Meanwhile, staple crop prices are not rising anywhere near as rapidly. So the principal drivers of the rising price index are not a huge portion of the diets of those in Global South . . . with one key exception: urban populations. More on that in a second.
Second, who is hit by these prices has to do with the degree to which producers and consumers are linked to global markets. Many rural producers are consumers of their own produce, or the produce of their neighbors. As a result, they are somewhat insulated from shifts in commodity prices. I’ve seen this at work in Ghana firsthand – it is a disaster for incomes in these areas, but not for food security. Instead, people just eat the crops they might otherwise have sold at market. Of course, this comes with other costs, such as in terms of the purchases of needed household goods, and sometimes in terms of children’s education (in places where school fees are still charged). But in terms of food security, not so much. FEWS-NET has offered this same interpretation of the impact of rising food prices on the countries in which it operates, arguing that this increase in this index is not as worrying as what we saw in 2008. This is one of those instances where integration with global markets, long seen as a goal of development programs and a clear pathway to prosperity, can also produce significant new challenges for the global poor . . . or at least that segment of the rural poor whose livelihoods and production are highly integrated with global markets.
So, where people are dependent on global commodities that are internationally sourced for their food or incomes, shifting global food prices are more likely to result in direct shocks to their food security. While there are certainly rural populations that fit this description, once again it is the urban poor who are most generally and directly exposed to this challenge. With little food production of their own, they are dependent on purchased food that has passed through one or more middlemen from the source of production. By definition, their food supply is more commodified, and more connected to global markets, than most of their rural counterparts.
Therefore, there isn’t a whole lot of point to looking at global price indexes to understand the relationship between these prices and food insecurity. Instead, we have to look at who is affected by these prices, and how – the connections are complex and often involve tracing what appear to be unrelated factors as they radiate out from these price changes. This is the only way to appropriately design interventions to address these issues . . .
Don’t tell us that the food price index is rising – tell us why it is rising . . . then we can do something about it.
Category: development
From the aid/development divide to the climate change/development divide
I’ve been going on quite a bit about how we envision the relationship between aid and development – or perhaps more appropriately, how we do not really envision that transition, but assume that it simply happens – quite a bit lately. But pressing on my mind during my work life is the relationship between climate change and development – how do mitigation and adaptation efforts relate to development? The answer, of course, is that they relate to development in many different ways. For example, mitigation efforts include things like land use, which can impact existing agricultural practices, and constrain (or sometimes enable) the options available to the designers of agricultural development projects. Adaptation efforts emphasize the prevention of negative outcomes, a form of coping, but unless this relationship is explicitly considered they do not necessarily rhyme with development projects that seek to build on existing resources and capacity to improve people’s situations.
(I confess that I am deeply concerned that development is rapidly being subsumed under adaptation in some quarters, which is a real problem as they have two different missions. To refocus development projects on adaptation is to shift from an effort to improve someone’s situation to an effort to help them hang on to what little they might have. But this is a post for a different day.)
There is a danger, in this era of enhanced attention and funding toward climate change, of using climate change funds to continue doing the same development work as we were doing before, only under a new label (i.e. calling agricultural development “agricultural adaptation”, then using climate change funds to support that program even though nothing about it has really changed). It is an annoying habit of people in agencies, who are often cash- and personnel-strapped, to try to use new initiatives to support their existing projects. There is also a danger, in places where climate change has a greater emphasis than development, that development dollars aimed at particular challenges will be repurposed to the end of addressing climate change, thus negatively impacting the original development goal. A year ago, Bill Gates wrote warned against just such an outcome in his 2010 Annual Letter as co-chair of the Gates Foundation. On first read, it is a reasonable argument – and one that I largely agree with. We live in a world of finite donors, and new dollars to address climate change often have to come from some other pot of money funding another project or issue. These are difficult choices, and Gates has every right to argue that his pet interest, global health, should not lose funding in favor of climate change related efforts. However, his argument sets up a needless dichotomy between development/aid (in the form of public health funding) and efforts to address the impacts of climate change:
The final communiqué of the Copenhagen Summit, held last December, talks about mobilizing $10 billion per year in the next three years and $100 billion per year by 2020 for developing countries, which is over three quarters of all foreign aid now given by the richest countries.
I am concerned that some of this money will come from reducing other categories of foreign aid, especially health. If just 1 percent of the $100 billion goal came from vaccine funding, then 700,000 more children could die from preventable diseases. In the long run, not spending on health is a bad deal for the environment because improvements in health, including voluntary family planning, lead people to have smaller families, which in turn reduces the strain on the environment.
Well, sort of. I could make a pretty brutal counterargument – not spending on health, such as HIV/AIDS leads to a lot of deaths in the productive segment of the population pyramid, leaving a lot of fallow land to recover its nonagricultural ecological functions. This sort of land use change is actually visible in places like Swaziland, but very hard to quantify because the studies aren’t there yet – nobody wants to be seen as potentially supporting this sort of nightmarish conservation argument. I certainly don’t – but that is not my point. My point was that Gates’ argument is pretty thin.
In making a political point, Gates is being a bit selective about the relationship between climate change and health. What he is completely ignoring is the fact that mitigation efforts might limit the future range of disease vectors for any number of illnesses, thus saving tremendous numbers of lives. This is especially true for diseases, like malaria, where a vaccine has proven elusive. Further, he ignores the ways in which coherent, participatory adaptation programs might address health issues (by managing everything from nutrition to sanitation) in an effective manner. While I am not arguing that mitigation and adaptation efforts could completely address the impacts caused by the loss of $1 billion in vaccination funding, his argument for 700,000 extra deaths* rests upon the assumption that nothing in the climate change portfolio will address the causes of such deaths through other means. He’s creating an either/or that does not exist.
Again, Gates is making a political point here – which is his right. But that political point sets up a false dichotomy between aid/development and efforts to address climate change that even Bjorn Lomborg has abandoned at this point. We can argue in the interest of our agencies and organizations all we want, but the problems we are trying to address are deeply interlinked, and in the end creating these false dichotomies, and claiming that one issue is THE issue that must be addressed, shortchanges the very constituencies we claim to be working with and working for.
*I must admit I loathe this sort of quantification – it is always based on horribly fuzzy math that, at best, is grounded in loose correlations between an action and a health outcome. I raise this issue and take it apart at length in my book . . .
Blogging gone wild
Rick Rowden wrote an article.
I wrote an 800 word response.
Rick wrote a 1000 word response to my response (the first comment).
I wrote a 1200 word response to Rick’s response (my response is directly below his comment).
It’s like an intellectual arms race, only with really, really tiny stakes. But I think it is educational for those who wonder where modernization theory went, and why nobody has warmed it over yet.
UPDATE 1-12-11
Rick comes back with 1450 words (second comment).
We are starting to agree on a few things, at least.
Stop the madness.
Poverty reduction and development: it's not either/or
A piece on the Guardian‘s Poverty Matters Blog today sets up one of the oddest, and most pointless, dichotomies I’ve seen in a discussion of development. To summarize, the post by Rick Rowden argues that a focus on aid effectiveness and poverty reduction
perpetuates a bloated aid industry that doles out millions of dollars each year to legions of contractors and NGOs to carry out projects in dozens of poor countries.
What it does not do, apparently, is work toward any definition of development
In recent decades, earlier notions of development economics have been replaced with meeting the MDGs. But poverty reduction is not development. We seem to have suffered collective amnesia about the history of development, which used to be widely understood as industrialisation – in which poor countries undergo a transformative process out of primary agriculture and extractive industries into manufacturing and services industries with higher value-added over time.
First, this is an absurdly reductionist definition of development. If Rowden wants to talk down to his readers about the history of development, he’d do well to note that his particular take fell out of currency in the late 1960s because IT DIDN’T WORK. There is a reason modernization/big push theories fell out of favor (unless you are Jeff Sachs, and then you are forever reviving the corpse of the big push at the community level via the MVP. Then again, Sachs doesn’t seem to read development history, either). In short, the borrowing required for industrial ramp-ups almost never paid off with enough revenue to pay off the loans. To understand why this happened is to understand the country-specific interplay of three key factors. First, there were (and still are) structural issues in world trade that locked much of the developing world out of key markets. Second, these policies failed because markets were dominated by large corporate entities operating with very small margins because of their huge economies of scale, basically undercutting any new competitors on price because they had the advantage of a huge head start provided by colonialism. Third, massive corruption within countries drained the productive capital out of these loans, dooming the projects there were meant to fund. Countries had to address either two or three of these factors, in varying ratios, at different times. Modernization theories pushing industrialization had little to offer in addressing them. This is why we eventually saw the rise of an attention to institutions and governance in development – not just at the level of the state, but also in markets and broader trade arenas. It is also why so many countries in the Global South found themselves saddled with crushing debt at the end of the last century – many of those debts were the original loans and continued accumulation of interest tied to these failed policies.
The other issue is that industrialization requires resources (to make products) and consumption (to sell them). At a time when our demand on the natural environment is already beginning to overshoot its capacity to serve our needs, asking countries to take on even more unsustainable activities is an absurdity that will end in failure. There is nothing sustainable in this pathway – and if you look at the post, you will see that the entire argument is framed in an unlimited world, where the only constraint on development is growth:
If countries are unable to use the industrial policies they will need to transform their domestic industries, diversify their economies and build up their own tax bases over time, how will they ever get off the foreign aid bandwagon? Here the “poverty reduction” discourse is misleading; it neglects to ask how countries are supposed develop without industrialising.
Well, that isn’t totally true unless you take a very, very narrow reading of the poverty reduction discourse. A lot of us are working in this space to imagine alternatives. Indeed, there are community level projects that, while not elevating people to the standards of living seen in the Global North, have created sustainable, substantive changes in the quality of residents’ lives. The examples are out there if people want to look.
Beyond all of this, though, is the larger issue – Rowden clearly has no idea what he is talking about when it comes to development when he dichotomizes poverty reduction and development. Even if we saw economic growth as the be-all, end-all of development, there is a lot of work out there arguing that endemic poverty is a huge drag on economic growth and therefore has to be addressed as part of a growth package (see the OECD Observer here). So even in a fairly reductionist view of development, you need poverty reduction . . . and I don’t know anyone who believes that growth adequately addresses poverty. Not even at USAID. Really.
So poverty reduction and development are not an either/or proposition, from any reasonable perspective on development. Rowden’s piece would have been interesting . . . in 1960. I have no idea what the point was in publishing it today.
Development isn't impossible, just hard to understand
A few comments on the blog related to some earlier posts on a Grand Challenge for Development have gotten me thinking a bit about development (the concept and the project) and if it is achievable. There are those who would argue it is not, that development is an ill-conceived idea that invokes pathways of change that are now closed due to the changing global political economy, and treats life in the advanced economies as the apotheosis of human existence toward which everyone else is (and should be) marching. To the extent development is taken to mean this sort of change, I agree completely – development is unattainable and meaningless. There are not enough resources on Earth to allow everyone to live the way we do in the advanced economies, so the idea of a march toward that standard of living as a goal is gone regardless of how one might feel about it morally/ethically/etc.
But that does not mean that change cannot happen, that things cannot improve in a manner that is appreciated by people living in particular places. Certainly, a shift from a post-subsistence income of $1 a day to $5 a day is a huge change that, in many parts of the world, would enable very different standards of health, education and well-being. Surely this is worth striving for – and certainly, the people with whom I have worked in Ghana and Malawi would take that kind of a change over no change at all – and they would much rather than kind of change, than endless, pride-killing aid dependence. There is no doubt that this sort of change can be attained in many, if not most places. Indeed, it has been accomplished. Further, there are places where life expectancy has risen dramatically, infant mortality has fallen, nutrition and education levels have improved, and by any qualitative measure the quality of life has improved as a direct result of aid interventions (often termed development, but this should only count as development if the changes are sustained after the aid ends). The real question at hand is not if it can be done, but why the results of our aid/development efforts are so erratic.
You see, for every case of improved life expectancy, there is the falling expectancies in Southern Africa. For every case of improved nutrition and food availability, there are cases of increasing malnutrition and food insecurity (such that in sub-Saharan Africa, the balance has tipped toward less food availability per capita than two decades ago), and so on. What works in one place often fails in another. And the fact is that we don’t understand why this is in a systematic way. I am a geographer and an anthropologist, so I am quite sympathetic to the argument that the local specificity of culture and society have a lot to do with the efficacy of particular interventions, and therefore explain a lot of the variability we see in project outcomes. However, “local specificity” isn’t an answer, it is a blanket explanation that isn’t actionable in a specific way. We persist in this answer because it pushes development (and aid) failure into the realm of the qualitative, the idiosyncratic. And this attitude absolves us, the development community, from blame when things don’t work out. Your project failed? Ah, well, who could have known that local land tenure rules would prevent the successful adoption of tree crops by women? Subtly, we blame the victims with this mentality.
What it comes down to, I think, is a need to admit that we have at best a shaky idea of what works because in many areas (both geographic and technical) we really don’t understand what it is we are trying to transform when we engage in aid and development work. We are better in some areas (health) because, frankly, they do a better job of gathering data and analyzing it than we do in, say, rural development (hey, don’t take my word for it – read some Robert Chambers, for heaven’s sake!). But, in the end, we are driven by our myths about how markets and globalization work, how development/aid is linked to change, and how the problems we claim to address through development and aid came about in the first place. This argument is the heart of my book (Amazon link here) – and I spend the first half using the story of two villages in Ghana to lay out how our assumptions about the world and how it works are mostly wrong, the next quarter explaining why this is a major problem for everything from economics to the environment, and the last quarter thinking about how to change things.
My take is but one take – and a partial one at that. We need more people to think about our assumptions when we identify development challenges, design programs, and implement projects. We need to replace assumptions with evidence. And we need to be a lot more humble about our assumptions AND our evidence – so we stay open to new ideas and evidence as they inevitably flow in.
Is the Aid/Development divide the Grand Challenge for Development?
A few conversations on the blogs over the past two weeks have me thinking about the divide between aid/relief work and development – one of those minor issues I am supposed to be addressing in my current job. I am nothing if not ambitious. However, as folks have tried to clarify the difference between aid and development, I’ve become more and more uncomfortable because I really think these two areas need more blending, not more distinction.
And so now I am wondering if, in fact, the gap between aid and development is part of the reason so many “development” projects don’t work out. I put development in quotes there for a reason – most of these projects never actually get to the development phase. Take my ongoing rants about the Millennium Village Project. Here is an ambitious program of interventions that is meant to be a development project. However, at this point it is really an aid project – at least by the definitions I am seeing circulate. The MVP is still completely dependent on external interventions and expertise for its outcomes. Where it seems to me the MVP falls down is in the transition from the aid phase to the development phase, when these changes in people’s lives become self-sustaining, and engender new changes that do not require any sort of external intervention. In short, the MVP seems to assume that with enough aid over enough time, change becomes self-sustaining and the processes necessary to bring about well-being spontaneously emerge. This is what I like to call the “then a miracle happens” moment. As in:
Dump money, aid and material into a place over a series of years –> then a miracle happens –> change is self-sustaining
The MVP is hardly the only project guilty of this – hell, this thinking is endemic to development. We can back up to Rostow’s Stages of Growth in the 1950s (at least) and find the exact same fallacy. Big push/modernization theories, the Washington Consensus, basically every program founded on the core idea that economic growth drives everything else, they all suffer from this fallacy. This, ladies and gentlemen, is your grand challenge for development – the “big question” that could really change how we do what we do. We need to articulate how our initial interventions, our “aid”, is/can be transformed/built upon/leveraged/instrumentalized/whatever to result in the self-sustaining changes we see as development.
Challenging development dogma
On his blog Shanta Devarajan, the World Bank Chief Economist for Africa, has a post discussing the debate about the performance and results of the Millennium Villages Project (MVP). The debate, which takes shape principally in papers by Matt Clemens and Gabriel Demombynes of Center for Global Development and Paul Pronyk, John McArthur, Prabhjot Singh, and Jeffrey Sachs of the Millennium Villages Project, questions how the MVP is capturing the impacts of its interventions in the Millennium Villages. As Devarajan notes, the paper by Clemens and Demombynes rightly notes that the MVP’s claims about its performance are not really that clearly framed in evidence, which makes it hard to tell how much of the changes in the villages can be attributed to their work, and how much is change driven by other factors. Clemens and Demombynes are NOT arguing that the MVP has had no impact, but that there are ways to rigorously evaluate that impact – and when impact is rigorously evaluated, it turns out that the impact of MVP interventions is not quite as large as the project would like to claim.
This is not all that shocking, really – it happens all the time, and it is NOT evidence of malfeasance on the part of the MVP. It just has to do with a simple debate about how to rigorously capture results of development projects. But this simple debate will, I think, have long-term ramifications for the MVP. As Devarajan points out:
In short, Clemens and Demombynes have undertaken the first evaluation of the MVP. They have shown that the MVP has delivered sizeable improvements on some important development indicators in many of the villages, albeit with effects that are smaller than those described in the Harvests of Development paper. Of course, neither study answers the question of whether these gains are sustainable, or whether they could have been obtained at lower cost. These should be the subject of the next evaluation.
I do not, however, think that this debate is quite as minor as Devarajan makes it sound – and he is clearly trying to downplay the conflict here. Put simply, the last last two sentences in the quote above are, I think, what has the MVP concerned – because the real question about MVP impacts is not in the here and now, but in the future. While I have been highly critical of the MVP in the past, I am not at all surprised to hear that their interventions have had some measurable impact on life in these villages. The project arrived in these villages with piles of money, equipment and technical expertise, and went to work. Hell, they could have simply dumped the money (the MVP is estimated to cost about $150 per person per year) into the villages and you would have seen significant movement in many target areas of the MVP. I don’t think that anyone doubts that the project has had a measurable impact on life in all of the Millennium Villages.
Instead, the whole point here is to figure out if what has been done is sustainable – that is the measure of performance here. Anyone can move the needle in a community temporarily – hell, the history of aid (and development) is littered with such projects. The hard part is moving the needle in a permanent way, or doing so in a manner that creates the processes by which lasting change can occur. As I have argued elsewhere (and much earlier that in this debate), and as appears to be playing out on the ground now, the MVP was never conceptually framed in a way that would bring about such lasting changes. Clemens and Demombynes’ work is important because it provides an external critique of the MVP’s claims about its own performance – and it is terrifying to at least some in the MVP, as external evaluations are going to empirically demonstrate that the MVP is not, and never was, a sustainable model for rural development.
While I would not suggest that Clemens and Demombynes’ approach to evaluation is perfect (indeed, they make no such claim), I think it is important because it is trying to move past assumptions to evidence. This is a central call of my book – the MVP is exhibit A of a project founded on deeply problematic assumptions about how development and globalization work, and framed and implemented in a manner where data collection and evaluation cannot really question those assumptions . . . thus missing what is actually happening (or not happening) on the ground. This might also explain the somewhat non-responsive response to Clemens and Demombynes in the Pronyk et al article – the MVP team is having difficulty dealing with suggestions that their assumptions about how things work are not supported by evidence from their own project, and instead of addressing those assumptions, are trying to undermine the critique at all costs. This is not a productive way forward, this is dogma. Development is many things, but if it is to be successful by any definition, it cannot be dogmatic.
On Aid and Development
An interesting post at Blood and Milk yesterday led a commenter to note that we shouldn’t use the terms “international development” and “aid” interchangeably – that the “real big story about development is exactly that it is NOT all about aid, but about domestic elites establishing pro-growth rules.”
For me, this raises two issues – the first is about the relationship between aid and development, and the second about the character of development itself. Alanna Shaikh, who writes the Blood and Milk blog, added a new post today that addressed the first. In this post, Shaikh argues “You can, and do, get development without aid. I’m pretty sure you don’t get it without economic growth.” Well, sort of. I currently work in one of the world’s largest development/aid organizations. I am the climate change coordinator for the Bureau most directly responsible for our aid activities (as opposed to our development activities). This puts me in something of an odd position – I am a development/environment person tasked with thinking and program-building for the long-term in an aid organization that is often reactive in its programming and its mandate. Why, then, did I take this position? Because of the need to better connect aid to development (and vice versa). Right now, aid and development exist in very different worlds – even in the same building, there is little communication or coordination between these two missions. This galls people on both sides of the divide, from leadership down the line. The vision of an agency like mine is that aid should transition to development, ideally seamlessly (though at this point we would take any sort of transition). Adaptation to climate change is one area where such transitions can be created out of existing programs – our aid teams work on hydrometeorological disaster risk reduction (DRR), and our development side works on adaptation to climate change. These are very similar areas of work, differentiated largely by timeframe. One of my jobs over the next few years will be to better connect our hydromet DRR and adaptation programming to build one connection between aid and development – a thread that we might use to close other aid/development gulfs (such as in food aid and agricultural development).
Aid may not be the same thing as development, but it should not be seen completely separately from development – my Bureau sees its constituency as that component of the population that is largely left behind by economic growth programming. Nobody debates that a significant percentage of the population slips through the cracks of economic development programming – our job is to ensure that those who slip through the cracks do not remain there, but have an opportunity to recover and participate in society, politics and the economy. So, when I hear someone argue that there can be development without aid, I strongly disagree – at least at the national scale (communities are a different issue). At the national scale, you cannot have socially or environmentally sustainable development that abandons a significant portion of society to its fate. Aid is critical to development – or it should be, if only we could better coordinate aid and development efforts.
Second, I am deeply concerned by the continued connection of development to economic growth. The linkages between human well-being and economic growth are shaky at best (most correlations can be readily challenged and dismantled) – largely because development, globalization and growth do not really work the way people seem to think they do (my book is an exploration of this point). Further, economic growth cannot be eternal. 3% growth per year for everyone forever is simply beyond the physical capacity of the planet. I’m pretty sure that development is going to have to detach itself from economic growth (ironically, this would mostly entail simply acknowledging the reality of what’s been happening around the world for the last 60 years) if it is ever to accomplish its end goal – the improvement of the human condition in this world.
Finally, a thought on the two metastories of development that Shaikh raises at the end of her post. I agree that development is neither all success or all failure – it plays out differently in different places, and we have better understandings of why in some areas (health, for example) than in others (transportation development, for example). I would argue that this is a symptom of a larger problem – we really don’t understand what is happening in the Global South most of the time, and as a result we are often measuring and analyzing the wrong things when we do project scoping or evaluation work. Our assumptions about how the world works shape the way we frame our questions about the world, and the data we gather to answer those questions. The problem, simply put, is that we are often asking the wrong question. Sure, every once in a while our assumptions align with events on the ground, and a project works. But the rest of the time, our assumptions do not align with reality, and we run into difficulty understanding what is happening in particular places, and why particular projects fail. The end result? A seeming random set of project outcomes, where things work in one place but not another for reasons that seem hard to discern. There are more fundamental metanarratives of development out there than success or failure – they are narratives about how globalization works and how development works that shape our very ability to assess success or failure. And those narratives actually misinform many of our best efforts.
Where accountability goes to die
The subtle airbrushing of market manipulation out of the public consciousness continues apace. Despite clear evidence from IFPRI that market manipulation is creating the conditions of uncertainty that are driving up global food prices, nobody seems to want to address this in a forceful manner – and heaven forbid you raise this in any food security discussions in a development agency. People will blindly argue that there is no evidence (except, of course, there is), and then when confronted with the IFPRI study will make absurd arguments like the uncertainty is creating the appearance of manipulation because, you know, IFPRI wouldn’t bother to make sure they had the causality going in the right direction before they published.* So, we will just keep plugging away at the issues of supply to address global food issues, because why address the only factor that IFPRI could identify as having a causal effect on the rising food prices in 2008?
And now we see the same blindness spreading into our discussions of the financial markets. In the January issue of Wired Felix Salmon and Jon Stokes return to the Flash Crash, the sudden near-600 point drop in the Dow that occurred back in May. The regulatory agencies assigned to policing market manipulation more or less abdicated their responsibilities and absolved everyone of blame in their report. This was absurd, and doesn’t hold up to the slightest bit of logic. Now Wired is on board, running a “blame the algorithms” story that uses the flash crash as exhibit A. They argue that Waddell and Reed (the managers of the mutual fund that made the trade)
used an algorithm to hedge its stock market position. The trade was executed in just 20 minutes – an extremely aggressive time frame, which triggered a market plunge as other algorithms reacted, first to the sale and then to one another’s behavior
Sure – this is exactly how it played out. But the issue here is not that the algorithms themselves were to blame. Someone had the PROGRAM THE ALGORITHM FOR THE FIRST TRADE. The algorithm did not decide to dump all of those futures contracts in 20 minutes. The person who designed the algorithm (or, more likely, his/her employer) made that decision. Once set in motion, I have no doubt that this trade cascaded through other, more conventionally designed algorithms, triggering all sorts of “irrational” behavior as they tried to adjust to the rapidly-changing market conditions. I also have no doubt that whoever set up the original algorithm had some idea that this is exactly the sort of chaos that would ensure from their insane trade. Everyone is now focused on events after the initial trade, and how trading algorithms might need more controls or oversight. I think that is a reasonable position, but it does nothing to address the behavior of individuals willing to initiate market chaos by setting up insane trades.
Incidentally, nobody in their right mind would set up an insane trade for no reason. I wonder if the SEC spent any time looking into who was short on the Dow that day and made out big (including people who made out huge before a bunch of trades later in the crash were invalidated), and then examined the connections those folks might have had to Waddell and Reed. Then again, it seems few folks in major development agencies want to seriously examine market manipulation and its impact on food security.
At what point does willful obliviousness turn into criminal negligence?
*these were actual arguments raised when a colleague of mine attempted to address the issue of market manipulation at a meeting in one of our major development agencies. Really. How the hell, exactly, does uncertainty create the appearance of manipulation?
Measurement matters . . .
Todd Moss at the Center for Global Development has a post about Ghana and the Millennium Challenge Corporation (MCC). Overall, he makes some good points about the purpose of MCC compacts, and whether or not it makes sense to re-up with Ghana in 2012 for a second compact. While Moss makes a number of good points in his post (including the fact that Ghana has a lot of capital incoming from oil, and a ready market for its debt, both of which seem to negate the need for continued grants), I was brought up short by one stunning statement:
Ghana is (suddenly) just barely “low income”. A recent rebasing of its GDP found the country was 63% richer than everyone thought. Ghana might still technically qualify for the MCC but the rationale for another huge compact drops pretty significantly.
Now, to be fair to Moss, he has an excellent post here on the implications of such rebasing. Importantly, the second lesson he takes away from this sudden revaluation of Ghana’s economy is:
Boy, we really don’t know anything. Over the past thirty years Ghana has been one of the most scrutinized, measured, studied, picked-over economies in Africa. (yes, I too did my PhD on Ghana…) Yet, we were all taking as gospel a number that was off by a tremendous margin. If we are nearly two-thirds wrong on Ghana’s GDP, what hope can we possibly have in stats for Chad? Everyone knows that data is dubious, but this seems to add a whole new level of doubt.
His fourth point is closely related:
I’m still confused… but it probably doesn’t matter. The Reuters article quotes the government statistician as estimating GDP per capita at $1318 instead of $753. This doesn’t add up to the total GDP figures also given since this implies a 75% increase. If the $1318 is correct, then that either implies that the government thinks there are only 19.4 million people instead of the normal estimates of about 24 million. Or, if the total GDP number of $25.6 billion is right, then per capita GDP is really $1067 per capita. (I think I’m already violating my lesson from #2.)
I have a chapter in my book dedicated to understanding why our measurements of the economy and environment in the Global South are mostly crap, and even when the data is firm it often does not capture the dynamics we think it does. I then spend a few chapters suggesting what to do about it (including respatializing data/data collection so that it can be organized into spatial units that have social, economic, and ecological meaning, and using basic crowdsourcing techniques to both collect data and ground truth of existing statistics). Even better, this is rooted in a discussion of Ghana’s economy. I give Moss credit for being willing to point out the confusing numbers, and acknowledge that they confuse him. They should.
But Moss gets it totally wrong here:
Ghana has long aspired to be a middle-income country by 2020, and this now seems like it will happen many years early. Accra certainly feels like a middle-income city.
This statement explains how he can label Ghana “barely low-income”, even after he has called the very statistics that make such a claim possible into question: he’s focused on Accra. Accra has very little to do with how the bulk of the Ghanaian population lives – and most of that population is very, very poor. Ghana is not barely low income – it is still quite low income, with some pockets of extreme wealth starting to distort the national statistics. It doesn’t matter how Accra feels – that city is home to at best 10% of the population. Kumasi is home to between 5-8% more. Generously including Tamale and Takoradi in the middle-income city categories (this is very generous) nets you probably 25% of the population – nobody else is living in a middle income country. Like Moss, I did my dissertation work in Ghana. I still work there. The difference is that I did my work in rural villages, and still do. $1 a day beyond subsistence is a common income in the rural areas of the Central Region, even now – and the Central Region has a lot more infrastructure than most of the Northern, Upper East and Upper West Regions. This population remains poorly educated – failed by poor rural schools. They cannot support a transformation of the Ghanaian economy. Most of Ghana is still a very low income country, not ready for any sort of sustained economic growth. The country has seen enormous success in recent years – I am stunned by what I have seen in the past 13 years – but the fruits of that success are not distributed evenly. While the cities have boomed, the villages are nearly unchanged. This is Ghana’s new challenge – to spread this new wealth out and foster a diverse, resilient economy.
This is not to say that an MCC compact is the right tool to foster this, or that Ghana is the best place to be putting MCC money. However, declaring “success” too soon creates its own set of risks – let’s use some nuance when considering how a country is doing, so we can identify the real challenges to overcome and successes to build on moving forward.