By Farwa Sial and Carolina Alves
In a recent article in the New York Times, the development economist Seema Jayachandran discusses three studies that used Randomised Controlled Trials (or RCTs) to understand the benefits of enhancing the self-worth of poor people. Despite wide differences in context, all the cases explore the viability of ‘modest interventions’ to ‘instill hope’ in marginalised communities, concluding that ‘remarkable improvements’ in the quest for poverty reduction are possible.
One of the studies from Uganda, for example, argues that “a role model can have significant effects on students’ educational attainment,” so the suggestion for policy-makers might be “to place more emphasis on motivation and inspiration through example.” Another case study of sex workers in Kolkata Brothels argues that “psychological barriers impede such disadvantaged groups from breaking the vicious circle and achieving better outcomes in life,” so small but effective changes that address these psychological constraints can alleviate the effects of poverty and social exclusion.
The underlying theme of these studies is that individuals can surmount the structural challenges of poverty through their own efforts using tools like ‘effective role models,’ the generation of ‘more hope,’ and the ‘improvement of their mental health.’ Positive psychology of this kind and an emphasis on behavior change to meet the goals of individuals have been around at least since the 1950s, first in the popular literature of self-help books and now in academia, where they form part of an increasingly fashionable trend to ‘do poverty reduction differently.’Read More »
The concept of secular stagnation, first propounded by Alvin Hansen in the 1930s, has enjoyed an academic – and mainstream – resurrection thanks to Lawrence Summers (2014, 2016), who first advanced the theory as an explanation for the subdued recovery and anaemic growth prospects of advanced economies. A surprising criticism recently came from Joseph Stiglitz (August, 2018), who believes that the theory offers a convenient escape away from assuming responsibility for failed policy during the crisis. An acrimonious debate between Summers and Stiglitz followed.
On the face of it, Summers – and Gauti Eggertson – are right: the modern theory of secular stagnation does see a central and substantial role for fiscal policy. The problem, however, lies in the fact that a short-term fix for aggregate demand shortfalls – fiscal policy – is being advanced as a long-term solution of the problem of reduced growth prospects. The central question of what drives investment in a capitalist economy is not addressed.Read More »
Earlier this month the final deadline arrived for political parties in Brazil to register their candidates for the presidential election in October 2018. The official launch of candidates allows us to discuss more concretely the political forces and players that will be shaping the election. It means that coalitions, alliances, and vice-president choices have taken place. So we asked, what can be said about the first candidates leading the polls? What are the main political forces underlying this election?
The Brazilian political landscape has been extremely polarised since the impeachment of president Dilma Rousseff in 2016. If the left-right dichotomy has recently been considered blurry or outdated, in Brazil one can argue that, due to the impeachment, this dichotomy has a new face, with the coup winners on one extreme and the coup losers on the other.
The nuances between right and left on the political spectrum have largely been overshadowed due to this dichotomy, with one side leading a moral crusade for a clean and corruption-free country and the other side highlighting the ongoing attack on democracy. The political mayhem reached its peak with Lula’s trial and conviction in April, which has led to a great deal of uncertainty over this period (see recent Lula’s Op-Ed from prison in the NYT).
President Termer may have been able to “keep the markets calm in” throughout such political instability, but Brazil’s economic recovery has been weaker than expected, hardships for many families have increased (see IBGE indicators for increases in income inequality, poverty, unemployment and insecurity) and the country has just set a new record for homicides at 63,880 deaths in 2017, with violence against women also increasing. There is a lot at stake in this election.Read More »
Behavioral approaches to development economics and policy have gained momentum in recent years. A growing number of papers studying behavior of people in poor countries have been published in top journals, accompanied by the rise of randomized controlled trials (RCTs). In 2015, the World Development Report was dedicated to behavioral and cognitive research and policy. Papers studying how to nudge farmers to use fertilizers or increase savings have become classics in the field. Lots of hope has been placed into social experiments and behavioral policies to fight global poverty.
Behavioral policies are of course not reserved for policy-making in poor countries. In fact, nudges became famous with a US-American savings plan. Many behavioral instruments have been discussed and tested in and for rich countries. But there has been an important difference as compared to the debates in development economics: when debating behavioral policies in rich countries, scholars have also devoted lots of time to consider normative and ethical concerns. For example, following Thaler and Sunstein’s exposition of Libertarian Paternalism (see also here), a debate unfolded on whether nudges could be anti-libertarian (here, here, here, or here). Implications of the use of nudges as a new form of government policy have been analyzed, for example, from a Foucauldian perspective, or with a focus on institutional change. Books have been written about ethical concerns. The debate has reached a great level of differentiation, e.g. when authors argue that so-called social nudges (these are nudges that seek to stimulate voluntary cooperation in social dilemma situations) may be justified for different reasons than those targeting individual welfare. Overall, the debate has become really sophisticated, and the autonomy, welfare, and dignity of citizens in rich countries as well as consequences of the use of behavioral policies for these countries’ modes of government have received lots of careful scrutiny (recently again here).Read More »
By Paulo L dos Santos and Ingrid Harvold Kvangraven
The Graduation Approach to poverty reduction is inextricably bound up with programmes promoting financial inclusion. Proponents for the approach see it guiding a series of interventions that encourage poor households to ‘graduate’ into ‘mainstream development programmes’ which are centred on the provision of credit and other financial services (BRAC 2014). Indeed, the approach has been presented as a way to address the needs of those “too poor for microfinance services” (UNHCR 2014). The presumption is that the development and poverty reduction needs of ‘graduates’ will be well served by financial inclusion initiatives.Read More »
Towards the end of 2016, something remarkable happened in the relationship between the private sector and state in South Africa. In an effort to keep the big three rating agencies from downgrading the country’s the sovereign credit rating to “junk status” the CEO Initiative was convened at the request of the President and his Deputy and led by the then Minister of Finance. The initiative’s initial goals were to prevent a sovereign rating downgrade and to stimulate inclusive and sustainable growth. To achieve this, three work streams were established: a fund for small and medium sized enterprises (SME), a youth employment scheme, and an investment intervention team. This post critically assesses the theoretical basis for SME development as a tool for inclusive growth.Read More »
I was privileged recently to spend a little time in The Gambia, whose people recently overthrew a megalomaniacal, authoritarian and in many respects vicious President, Yahyeh Jammeh, in an extraordinary democratic moment, due to their courage and the timely supportive action of other countries in West Africa (and very little if at all due to support from major powers, apart from their role in placing some effective limits on prior abuses and eventually supporting a Security Council resolution that helped to legitimize the ECOWAS action).
I was able to observe a moving event in which members of the country’s diaspora, from Alaska to Taiwan and from Cape Verde to Sweden, most of whom were active in opposition (and quite a number of whom were highly educated professionals successful in the countries to which they have departed) assembled to meet the new President and to express their pleasure at the New Gambia as well as their sincere hopes for the future. Conversations with ordinary Gambians reveal general relief and enormous optimism. Arguably, the current juncture provides the first opportunity since the country’s independence in 1965 for a broad ranging public conversation on the ends and means of development.Read More »
by Silla Sigurgeirdottir and Robert H. Wade
Iceland is surfing a tourist boom. From 440,000 tourists in 2008, numbers started surging in 2011 to reach 1.3 million in 2015 and 1.8 million in 2016. The resident population is 330,000 in an area over 40% that of the United Kingdom. Having experienced the sharpest crash of all the OECD economies in 2008-2009 Iceland regained the pre-crash level of average income by late 2014. GDP grew super-fast at over 6% in 2016, and forecasts suggest annual growth of almost 5% between 2017 and 2019, one of the fastest in the OECD.
Pre-tax salaries rose nearly 10% a year in both 2015 and 2016. Foreign exchange reserves are ample. Inflation is low, at less than 2% through 2016. Household debt to income is low. The state is paying down public debt fast; the current level is around 50% of GDP. The banks have passed stringent stress tests, with unusually low leverage ratios, low loan to value ratios, strong liquidity positions (especially in foreign currencies) and high capital ratios (close to 30%). A repeat financial crash is very unlikely.
So what is not to like? Given what is happening in Europe and the United States, political leaders elsewhere would love to have Iceland’s problems. Still, those problems could develop badly for the population at large.Read More »