Create value. Make stuff if necessary

I'm often confused why we celebrate manufacturing as much as we do. The goal is to "create value" for other people as I blogged about yesterday - to serve in meaningful ways. Some services are more urgent than others, some more luxurious, some more faddish, and some of them involve turning one thing into another thing someone wants more than what it used to be. I turn ingredients into restaurant meals, I'm classified as a service worker. I turn metal into injectors, I'm classified as a manufacturing worker. The point is still the same - create value for fellow human beings. Why do we love manufacturing?

An Atlantic article on manufacturing in America has some very intelligent discussion, some of which tries to help me answer this. From the 1940s to 1970s, manufacturing was a pathway forwards and that got embedded into the psyche:

All came to work unskilled, at first, and then slowly learned things, on the job, that made them more valuable. Especially in the mid-20th century, as manufacturing employment was rocketing toward its zenith, mistakes and disadvantages in childhood and adolescence did not foreclose adult opportunity.

But now a hefty part of the growing inequality in the US is from opposing forces:

Catching Up: Globalization and WalMart

New research finds that the more globalized a country or an individual is, the more likely they are to favor globalization. Globalization may itself help create the global public goods we need to govern globalization. The shocking part to me is that it’s Bourdreaux linking to a piece supporting global public goods when I’ve heard him speak out against the very notion.

A defense of globalization in mitigating famine.

A defense of WalMart

Wal-Mart makes downtown areas more diverse and lively. … This happy effect of Wal-Mart first dawned on me back in the mid-1990s when I lived near Greenville, SC.  Many of my older friends in South Carolina … described the hardware store that no longer exists on Main St., as well as the barber shop, the mom’n'pop grocery store, the diner, and the pharmacy.  But the Main St. in Greenville that I knew (having moved to South Carolina only in 1992) was booming and lively with fusion restaurants, art galleries, wine bars, and up-scale gift shops.

In chatting with a friend about this proposed effect, we wondered what coordination effects were necessary for this happy outcome instead of the sudden death of an area that becomes unrecovered urban blight. Would a study to evaluate under what conditions WalMart produces blight or upscale neighborhoods be best done by its critics or its proponents? Which would be more readily believed?

Speaking of WalMart, in a piece that is more optimistic that M. Nestle’s thoughts, WalMart’s moves to improve the nutrition of the foods it offers is seen as part of a greater trend in our more highly concentrated food market. The larger firms become, the greater a difference their individual impacts have. This increases the moral salience of their choices and so they will continue to internalize their externalities. This impact is independent of third-party monitors and culture.

Food Security in Bhutan

IFPRI ran a conference on food self-sufficiency and security in Bhutan, with a number of short papers available here. The conference was called in order to compare food self-sufficiency and food security as goals. Census and survey data found that "food self-sufficiency is negatively correlated with all four indicators of food security," as is self-sufficiency in cereals.

The implication of these findings is some households may be forced into food self-sufficiency by lack of market opportunities, but encouraging household food self-sufficiency is not a useful strategy for achieving food security or reducing poverty.

In order to achieve rice self-sufficiency, it is estimated that Bhutan would need a tariff of 150%, which would also increase the price of rice by 150%. This would increase rice farmer incomes by 2.3 billion Nu/year while costing rice consumers 3.7 billion Nu. Investments that doubled rice productivity, however, would not harm consumers while increasing farmer incomes by 1.3 billion Nu.

They further estimate that current trends in production, land use, yield growth, consumption, and population and income growth would tend to decrease rice self-sufficiency until 2015 when diet transition catches up so that demand begins shrinking again. Bhutan would be 64% rice self-sufficient by 2050, up from 49% today and 43% by 2015.

The other papers provide a decent summary of the state of Bhutan's agriculture, further summarized below the fold:

Five Second ... Rodrik: One Economics, Many Recipes

Though it's largely a reprinting of a group of previously published essays that fit well together, One Economics, Many Recipes: Globalization, Institutions, and Economic Growth by Dani Rodrik helped me understand how he would apply his principles of "diagnostic development." The first section (3 chapters) lays out the case that successful countries develop using different strategies that may or may not follow standard prescriptions, with the emphasis on NOT. This sets up the second section (2 lengthy chapters plus a very short summary) on what industrial policy and governance institutions look like in the context of diagnostic development. The final section - a little less-well integrated with the other two - expounds on the lessons of different policies for the case of globalization.

I find myself in large agreement with the overall diagnostic principle, which says that we as economists should identify the most binding constraints on an economy's growth and develop context-appropriate policies to deal with that particular constraint. He argues that one of three basic problems likely to lead to low investment: low social returns, low private appropriability of those returns, or high costs of finance. Each of these might have several causes. You go through the country's (or sector's) statistics to determine where the constraint is likely to be. If interest rates, capital account deficits, and the returns to investment are very high, like Brazil, it's probably the high cost of finance. He narrows it down further to the low availability of domestic savings. In El Salvador, on the other hand, interest rates and returns to human capital are low, taxes and corruption are low, there's macro stability and good property right protection ... leaving by a process of elimination that there is a lack of entrepreneurship and new ideas that is inhibiting growth there.

I'm more reticent to accept his push for industrial policy, however. While he can cite a number of successful cases where direct government support of a sector paid large developmental dividends, it seems as a practice to have as many failures as the Washington Consensus. In part he calls this a virtue: a government that has only successes probably hasn't been doing enough, he claims. I'm less convinced.

Among the things I liked from his discussion were the institutions that need to be in place in order for good outcomes to be more likely: "Effective industrial policy is predicated less on the ability to pick winners than on the ability to cut losses short once mistakes have been made," addressing bureaucratic capacity as a scarce resource (which is just as scarce a resource for employing Wash. Cons. reforms too), and an acknowledgement that this is not a story of "omniscient planners ..., but of an interactive process of strategic cooperation between the private and public sectors that ... elicits information on business opportunities and constraints and ... generates policy initiatives in response." He puts a large premium on transparent, accountable, participatory governance, another point in his favor. Since he argues throughout that higher-level economic principles do not translate obviously one-to-one into particular institutional frameworks -- multiple institutional arrangements can generate substantively similar results -- he focuses on those higher level principles ... and then oddly enough spends a large chunk of the chapter on cross-country large-n regressions, which are nice and supportive but perilous, particularly when he criticizes similar work by other high-caliber economists (Jeff Sachs and Daron Acemoglu and their co-authors, for instance).

His discussion of globalization largely focuses on preserving policy space for countries that want to use industrial policy or other heterodox methods, and the difficulties (he says impossibilities) of simultaneously preserving national sovereignty, mass politics, and global economic integration. There's a brief plug for expanded migration as part of a multilateral framework.

The globalization section shines in discussing the international governance architecture. 1) Instead of trying to maximize trade, put the emphasis back on maximizing economic growth and poverty reduction; 2) Instead of trying to harmonize (i.e. make uniform) trade, finance, etc. policies, the global institutions should preserve nations' policy space while reducing the transaction costs between them.

Things I thought were missing: aid institutions, more discussion of when Washington Consensus reforms are likely to be the binding constraints, doing more to answer why import substitution industrialization largely failed (he just asserts it worked and is done). He lists 83 episodes of sustained growth spurts, and I would have liked more information about more of them, particularly in Africa.

Big Bag o Blog Links

Wall Street reform is more likely as the political winds shift. Then there's Cowen's excellent example of math voodoo in this regard.

How to spend $1 billion dollars the Yglesias way: buses. "It's rare that you have a policy issue that can be solved by throwing more money at the problem..." but he thinks buses will do the trick. As a development economist, my respect for him just lowered one tiny notch. However, he does make some excellent points about trying to tell the difference between hedging, betting, speculating, and risk management.

Ravi Kanbur offers that developmentalists ought to walk a mile in the poor's shoes, at least for a few days every 12-18 months. And, speaking of cast-off clothing, how about 1 million kittens for Africa?

The perils of laptops and the benefits of doodling in class and seminars. And, while most of the time bemoaning the lack of context in news reports of Africa, here is one reason why less is more in other areas.

The fatal turning-point in the modern development was when the great movement which can serve its original ends only by fighting all privilege, the labor movement, came under the influence of anti-competitive doctrines and became itself entangled in the strife for privilege. - F.A. Hayek, The Road to Serfdom, p. 207

The people in tragedies, according to Aristotle, are better than the rest of us, while the people in comedies are worse. In a certain kind of modern comic romance, though, the two primary stipulations are that the main characters be better-looking and duller than the audience, which produces a self-canceling wash of emotions. No cathartic tears or therapeutic laughter, but instead a mild, smiley stupefaction. --A. O. Scott, NYT, on the plight of the contemporary romantic comedy.

Dani Rodrik:

“the political trilemma of the world economy”: economic globalization, political democracy, and the nation-state are mutually irreconcilable. We can have at most two at one time. Democracy is compatible with national sovereignty only if we restrict globalization. If we push for globalization while retaining the nation-state, we must jettison democracy. And if we want democracy along with globalization, we must shove the nation-state aside and strive for greater international governance.

WIDER Panel: Summing Up

Richard Jolly of City University of New York
Margaret Kakande of Uganda Finance Ministry
Per Pinstrup-Andersen of Cornell
Gita Sen of Indian Institute of Management

WIDER Panel: Global Governance and the Triple Crisis

Charles Gore of UNCTAD: Global Governance - Development Finance for LDCs
Gerry Helleiner of U Toronto - "Some Elements of Improved Global Financial Governance"
Vladimir Popov on devaluation as successful industrial policy to promote growth - very interesting. I propose a question he answers.

WIDER Panel: Global Food Crisis and Response

Per Pinstrup-Andersen (yay!): The Political Economy of Food Price Policy (our next project)
The former and current heads of IFPRI largely agree on where the world is and is heading.
He references my work: almost all the increase in hungry people in Africa is from the Dem Rep of Congo
"I do not believe FAO's recent numbers."
Why? 1 - Price transmission from int'l to national is very low in countries with poor infrastructure and in China
US rice prices spiked highest for international Thai rice, 20% lower in Philippines and Egypt, 60% lower in India and China
But if prices didn't increase in China and India, the number of hungry people must have increased enormously in other countries based on FAO
Wheat prices went up more in Egypt than internationally. Maize prices went up in Kenya but didn't come down for national, not int'l reasons.
Global stock increase: 25% for rice and wheat
Terrible lack of commitment to putting plans into action. (more of my research behind that one)
Agrees with Fan's #1 Priorities. Priority #2: double public investment in ag to increase production sustainably: win-wins are possible
3 - incentives for private sector to invest in sustainable ag (saving and credit institutions for farmers, risk management, public goods)
Need to regulate land grabbing (and enforce them) and internalize environmental externalities (full-costing, PES, polluter pays)
Full costing will have to be international to be effective, and I'm not very optimistic if we can get the agreement.
He puts up our diagram of a modified environmental kuznets curve showing win-win-win: reducing poverty, hunger, and soil degradation at once.
"I'm probably the only one in the room who believes real food prices are going to continue down again. Please talk to me."

Alain de Janvry and Joachim von Braun below the fold

Triple Crisis Panel 1

I'm at the UNU-WIDER 25th Anniversary Conference, The Triple Crisis: Finance, Food, and Climate Change. This introductory panel sets the stage with an expert on each element of the triple crisis. Most of this was sent out on my Twitter account (derrillwat), which I normally use only sporadically.

Amar Bhattacharya (Forum on Debt and Development):
Before the crises: 96 countries were growing more than 5%, over 30 more than 3%
Developing countries have escaped recession faster on average than developed countries.
For the first time, Africa did not see decreasing GDP with global recession
Africa’s long-term growth prospects look better than Latin America
Estimates of cost to reduce climate change: 1) $9b 2) 20-80 billion 3) over 100 billion. Estimates grow as time goes by within this decade. (Translation 1: we have no clue; Translation 2: We're all going to die!)
New donors in Africa twice as important for infrastructure finance than traditional donors
World Bank cheered for extra $3 billion. Compared to private credit flows ($200-$500 billion), it's still 0

Shenggen Fan (IFPRI):
MDG on cutting hunger is not on track, but is still achievable
but only if we drop 69 million hungry people per year
Ethiopia, Chad, and Dem Rep of Congo the most alarming countries for hunger
Finance affects food security largely through capital flows
Climate change affects food security largely through changes in production
IFPRI has a new map of effects of #climatechange on #maize yield worldwide. Mostly bad in Africa, good in some of Asia & Latin America
1 - Improve smallholder productivity and access to markets (esp. inputs, extension services)
In 6/7 African and Asian countries, investments in Agriculture had highest returns. [See also Cases 9-1 and 9-2 for our upcoming food policy book]
2 - Scale up safety nets: conditional cash transfers, maternal and child nutrition, public works, insurance for the poor
3 - Keep trade open and reduce market volatility (national and regional food stocks)
4 - climate change adaptation and mitigation investment (ag research, irrigation)
5 - new partners (BRIC), more use of private sector and private charities

Jomo KS: UN Assistant Secretary-General for Economic Development
Markets alone won't solve climate change. Not that it has no role - the role is complementary rather than fundamental. This is a difference between UN and World Bank views.
Public investment to crowd in private investment on sustainable technology
Need a lot more emphasis on adaptation, particularly in developing countries.
References Clinton's mea culpa on Haiti trade as evidence that trade led to food crisis. Look for my upcoming case study debunking this.
cheap credit led to over-investment. With the current recession, this causes underutilized capacity, making the private sector reluctant to invest. Hence, we need cross-subsidized public investments to crowd the private sector in.