Ferraris for all

Gregory Clark, the author of A Farewell to Alms (see 7 August and 10 August posts), has written an article in the New York Sun on Africa. He argues the continent is caught in a “Malthusian trap” in which rising living standards lead to population growth which in turn puts pressure on fixed resources and then depresses living standards. The problem with this perspective is that it naturalises underdevelopment: in other words it misses the broader economic and social barriers to development.

However, Clark does call for industrialisation as a way of breaking out of the Malthusian trap and promoting development. In this he is way ahead of most other development thinkers nowadays.

Labels: Africa, book, development, economics

My review essay on “Towards an age of abundance” has made it onto the Arts & Letters Daily website.

Labels: book, media appearances, review, spiked

The Library of Economics and Liberty has published a podcast by Paul Romer, one of America’s leading experts economists, on economic growth. The webpage from which it can be downloaded includes lots of useful links including a defence of Thomas Malthus.

Romer is the leading advocate of new growth theory - also called endogenous growth theory - which emphasises such factors as technological change and ideas in the growth process. It is a move away from the focus on physical capital which previously dominated economics.

Labels: America, economics, growth

Growth sceptics sometimes make the point that life expectancy in America is lower than in many less rich countries. The implication is that countries stop benefiting from greater wealth beyond a certain point. But an article in Real Clear Politics by John Stossel throws a different light on this discussion. He argues that factors such as America’s high murder rate and the high number of car accidents – in other words factors not related to affluence – skew the statistics for American life expectancy.

Stossel’s concern is to defend America’s health care system. But there is a case for looking at the relationship of life expectancy and affluence more generally.

Labels: America, health

My review essay on “towards an age of abundance” is the lead article in this month’s spiked review of books. It discusses four recent American books on the theme of growth scepticism.

Labels: book, review, spiked

The Asian Development Bank (ADB) has published a special report on inequality in Asia. It argues that general trend has been for inequality to widen but overall living standards have improved too.:

“The overall pattern that therefore emerges is one where a majority of developing Asian countries have seen increases in inequality .... By and large, however, increases in inequality are not a story of the 'rich getting richer and the poor getting poorer'. Rather it is the rich getting richer faster than the poor.”

Overall inequality levels remain lower than Latin America and sub-Saharan Africa.

Material from the report is available on the ADB site.

Labels: Africa, Asia, inequality, Latin America

One of America’s most prominent economists has questioned China’s rapid growth rates. Lester Thurow, a professor at the Massachusetts Institute of Technology, argued in yesterday’s New York Times that China is growing at less than 4% a year rather than the 10% official figure.

He gives three reasons to support his argument:

* Official figures show that the countryside is not growing at all.

* Chinese statistics contradict those from Hong Kong.

* If China’s economy was growing as fast as claimed its electricity use would be growing even faster than it is.

Today Capital Economics, a respected consultancy based in London, put out a paper countering Thurow’s claims. Taking each in turn it argues that:

* Thurow is simply wrong on the rural growth figures.

* There may be some merit in Thurow’s second point.

* Thurow’s point on electricity ignores that fact that China has shifted from a centrally-planned industry to more efficient manufacturing and services.

Labels: china, development, economics

The Daily Mail, a British tabloid newspaper, leads today with the strange headline: “Blood pressure epidemic spiralling as doctors warn our lifestyle is killing us”. Although it may be true that the number of Britons with high blood pressure is soaring the article clearly lacks perspective. It remains the case that life expectancy is rising overall. So it is hard to see how the headline can be true except in the obvious sense that most of us could be said to have a modern lifestyle and we all eventually die.

As it happens the Lancet, a British medical journal from which the Mail drew its material for the article, does argue that hypertension is becoming more of a problem. However, it also points out that there are very effective and cost-effective treatments available.

To the extent there is a problem it needs to be put in its proper context.

Labels: health

The image of the “overworked American” is misleading according to an article in the Boston Globe ( 12 August). It draws on academic work which argues that innovations such as vacuum cleaners and takeout food have yielded enormous time savings over the past 40 years:

“(T)oday, these scholars say, we spend far less time on work than Americans did four decades ago. From 1965 to 2003, according to one study published this month, the average American gained the equivalent of seven weeks of vacation -- in the form of extra leisure time spread throughout the year.

“Much of the time-savings comes from a source few people think about when they whine (or brag) about their workweeks: cleaning and cooking. We do much less of it than we used to, thanks to vacuum cleaners, takeout food, and other innovations. And the time-savings there more than offsets the extra time women now spend in offices, according to the study, which appears in the latest issue of The Quarterly Journal of Economics.”

However, other academics criticise the time diary methodology used in this study.

Labels: America, economics, work

The Economist challenges the common distinction between the diseases of the rich and the diseases of the poor in its current issue (9 August). Poor countries are increasingly suffering as a result of chronic diseases while infectious ones become relatively less important. The main reason for this shift seems to be rising life expectancy in the poorer countries – so in many ways the shift can be seen as a sign of success. But people in the poor countries tend to get chronic diseases earlier than in the rich ones and they have a more deadly effect.

“Heart disease—supposedly an illness of affluence—is by far and away the biggest cause of global mortality. It was responsible for 17.5m deaths worldwide in 2005. Next comes cancer, another non-infectious sickness, which caused more deaths than HIV/AIDS, tuberculosis and malaria put together (see chart 1). Chronic conditions such as heart disease took the lives of 35m people in 2005, according to the World Health Organisation (WHO)—twice as many as all infectious diseases.”

“If you look at lower-middle income countries, such as China, or upper-middle income ones, like Argentina, you find that what kills people there is the same as in the West (see chart 2). Four-fifths of all deaths in China are from chronic sicknesses. That is also true of countries as varied as Egypt, Jamaica and Sri Lanka.

"The main difference between these countries and rich ones is that chronic illnesses are more deadly there. Five times as many people die of heart disease in Brazil as in Britain, though Brazil is not five times as populous. Rich countries have become better at dealing with chronic conditions: death rates from heart disease among men over 30 have fallen by more than half in the past generation, from 600-800 per 100,000 in 1970 to 200-300 per 100,000 now.

"This has not happened in middle-income countries. In 1980 the death rate for Brazilian men was below the rich-country average (300 compared with 500-600). Its death rate has not changed—and is now higher than all but a few rich countries. Russia is worse off. In 1980 its death rate was 750 per 100,000. Now it is 900, about four times as high as most rich countries."

Only in Africa are infectious diseases killing more people than chronic conditions. But even among low income countries the balance is likely to shift over the next few years.

Labels: Africa, development, health

Clive Crook wrote a column in yesterday's Financial Times praising Gregory Clark¹s history of the world economy (see posts of 7 August 2007 and 1 August 2006). He contrasts Clark¹s work, which emphasises cultural factors, with that of Jared Diamond, who focuses on biology on geography.

Crook describes A Farewell to Alms as "bold" and "politically incorrect". But surely cultural explanations of underdevelopment are not that unpopular.

Labels: book, development, environment, progress

Brendan O’Neill has written a piece on Spiked about the extinction of the Yangtze dolphin in China. He makes the key point that, although the dolphin’s demise may be sad, it has to be set against the enormous advances to humanity from China’s economic development. From this perspective there is no contest: China’s increasing prosperity easily trumps the loss of biodiversity.

Labels: china, development, environment, spiked

The economic history of the world by Gregory Clark, a professor of economics at the University of California, Davis, is about to be published by Princeton University Press. When I first wrote about it in my post of 1 August 2006 the book was to be called The Conquest of Nature but the final version is called A Farewell to Alms.

According to the review in today’s New York Times the book argues against institutions as an explanation for the transition from poverty to wealth. Instead it locates the explanation for the change in shifting values: “The change was one in which people gradually developed the strange new behaviors required to make a modern economy work. The middle-class values of nonviolence, literacy, long working hours and a willingness to save emerged only recently in human history.” (Although this quote begs the question of why such values emerged).

The book also sounds like it has an interesting and closely related discussion of how humanity escaped from the “Malthusian trap”: “each time new technology increased the efficiency of production a little, the population grew, the extra mouths ate up the surplus, and average income fell back to its former level.”

Labels: book, economics, progress

There follows a comment by me on the debate about financial globalisation in the latest Fund Strategy (6 August). It refers to a cover story I wrote on the subject

There are more misconceptions about globalisation than most other areas. What is more the key features of the global markets and the global economy are little discussed.

Of course there are heated debates around aspects of globalisation. Some argue it should be welcomed while others see it as largely negative. There are also discussions about the best ways to regulate it.

But the substance of the notion of globalisation is generally left unchallenged. It is almost universally assumed that the increase in cross-border trade and finance inevitably means a decline in the power of the nation state.

Daniel Ben-Ami questions the orthodoxy in this week's cover story. He argues there are several reasons why the conventional view of global finance is flawed. For example, a crude use of statistics can exaggerate the size of the global financial markets relative to nation states. More fundamentally he argues, among other things, that the power of the state has increased at the same time as the world has gone more global.

Confirmation that the state's role is crucial in globalisation was apparent
last week in a new paper (PDF) published by the International Monetary Fund (IMF). Contrary to those who see globalisation as purely a market phenomenon it argues that complementary "institutions" are necessary for its success.

The World Bank has taken a similar view in relation to trade. A report published last year argued that state institutions were a key component of successful globalisation.

Such reports slightly redress the balance in the discussion but they do not go nearly far enough in recognising the state's role in globalisation. It is not a question of more state intervention, or better "institutions", being a desirable policy option. It is, rather, that the state is an inextricable part of the globalisation process.

Just as trade and finance have become more globalised the state has taken on a broader role in economic activity. Old-fashioned forms of intervention, such as exchange controls, have disappeared but new ones have emerged. For instance, financial markets are regulated by far more powerful regulators than in the past. Until the early 1980s the City of London was largely run as an old-fashioned gentlemen's club. Today the Financial Services Authority has enormous regulatory power.

It would be more accurate to describe today's markets and economy as international rather than global. The scale of cross-border trade and finance has become enormous but the state still plays a substantial role in economic activity.

Labels: finance, Fund Strategy, globalisation, trade

For anyone who has wondered why Denmark often comes top in happiness league tables a Times (London) article (31 July) by Barry Turner tries to explain it. The key factors he identifies are trust, a celebration of ordinariness and exclusivity. Politicians and employers are trusted to do the best for the country as a whole. Genuine poverty is rare and the super-rich keep a low profile. And, despite appearances, the Danes keep some distance between themselves and others.

The article concludes:

“So there it is. Happiness is having a comfortable lifestyle without being swept up by competitive consumption. It is a feeling of belonging, of knowing and accepting the rules of the club. It is realising that leisure is to be enjoyed and that work is not the sole purpose of life. It is a cold beer on a long, warm summer evening.”

I am not sure how far this goes in explaining the apparent happiness of the Danes but it merits further examination.

Labels: happiness

This week’s New Statesman (2 August), a British political weekly, includes several articles on India. The key piece on the Indian economy is a classic of growth scepticism. Randeep Ramesh, the Guardian’s South Asia correspondent, uses India’s massive inequality and poverty as a way of casting doubt on its rapid growth.

Using a common formula in writing on contemporary China and India the article proceeds as follows:

a)India is growing rapidly at present.

b)But the vast majority of the population is dirt poor.

Therefore the implication is:

c)Economic growth is not beneficial to the mass of the population and is quite possibly harmful.

Or to quote the article: “The puzzle is that India is economically confident, yet sunk in interminable poverty. This is because most Indians live in a vast rural, feudal darkness and only a lucky few are part of the shining new future.”

To be fair to Ramesh he does near the start say that: “There is little doubt that India is experiencing a rapid and sustained rise in living standards for the first time in centuries.” But this point is not explored in the rest of the article and often the thrust of the article seems to contradict it.

Labels: development, india, inequality