Archive for the ‘Growth and development’ Category

Italy joins China’s Belt and Road Initiative – here’s how it exposes cracks in Europe and the G7

March 25, 2019

Winnie King, Teaching Fellow at University of Bristol explains:

While the current Italian government has not been fully unified toward China, a severe economic downturn has made the world’s second largest economy look more appealing to it. Alberto Bradanini, Italy’s former ambassador to China, has stressed that Europe’s own indecision and inability to tackle trade deficits with China (of which Italy contributed approximately €176m, or an eighth of the EU’s total trade deficit) is a key motivator behind this decision.

Italy wants to enhance its “Made in Italy” brand through increasing trade – especially in the form of exports – to China. The BRI is seen as a vehicle to achieve this. Italy offers goods (in particular luxury goods and foodstuffs) that are attractive to China’s growing middle class and increasingly affluent population.

China is also interested in investing in Italian firms. More significant, however, are Italy’s key infrastructure assets. This would enhance the transport and trading network of the BRI, giving it strategic access to Europe. Less than 2% of Italy’s sea imports come from China so there are substantial prospects for growth in that area.

A deal between Genoa’s port authority and shipping firm China Communications Construction Company (CCCC) has already been approved by the Italian government. And the port city of Trieste hopes for something similar. This would offer China and the BRI a more direct route to move goods onto the European continent and an ideal hub for accessing new rail lines and transport networks to Germany, Austria, Slovenia and other regional economies. By giving China access to its ports, Italy is hoping for infrastructure investment from China’s Asian Infrastructure Investment Bank (AIIB) – something the Italian government is trying to link to its role in the BRI.

Interesting! The game of power ensures there are no permanent allies and enemies.

Italy’s status as a G7 country is a coup for the Chinese leadership and the legitimacy of the BRI. While the prospect of Italy’s participation underscores growing fault lines in the EU’s joint approach to China, China has also been effective at dividing and conquering EU member states by targeting them individually.

So Italy’s decision to join the BRI is significant. But four years ago we saw Italy, France and Germany join China’s AIIB, contrary to US wishes. Therefore, Italy is neither the first, nor will it be the last European economy that will “go rogue” and follow its own national interest with regard to China.

 

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Bretton Woods at 75: History and current relevance

March 25, 2019

In July 2019, BW will mark its 75th anniversary.

Arminio Fraga, a former president of the Central Bank of Brazil (1999-2002) has a piece on its history and current relevance:

So, what can we say about Bretton Woods in a world in transition?

First, with the US less dominant and less willing to provide global economic and financial leadership, systemic instability is likely to increase. As the American economic historian Charles Kindleberger famously warned, this typically occurs in transitional moments when a global hegemon is absent. Some signs of this are already visible in trade and regional tensions, growing leverage, and rising nationalism.

Second, “Bretton Woods” should now be seen to include not only the original institutions, but also more recently established global forums and regional arrangements. These mechanisms of cooperation constitute a realistic practical response to current challenges.

Third, one must ask whether developing countries will continue trying to converge with more advanced economies, and whether the expanded Bretton Woods family of institutions can remain meaningful stewards of global progress. My answers tend toward yes to both, if one takes a long-term view. Developing countries will aim to emulate the earlier successes of the Asian Tigers and Eastern Europe. And countries will prefer dialogue and cooperation to the failures of those such as Venezuela and North Korea that opted out of the global system.

Lastly, this hopeful vision may now be under threat from the disturbing shift toward illiberal and populist political regimes around the world. But history shows that liberal politics and economic policies have undoubtedly delivered more progress and peace than any other system.

Seventy-five years ago, economic policymakers gathered at Bretton Woods to create a new financial order for the postwar world. Today, their successors can still draw on some of these achievements in designing a global economic governance system for the twenty-first century.

Hmm..

Building a gender inclusive economy: Case of Iceland..

March 22, 2019

Katrin Jakobsdóttir, Prime Minister of Iceland has an interesting article in IMF’s F&D (Mar-2019 theme is Women and Growth).

She writes on how Iceland has tried to make women participate in their workforce:

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Interview of Deirdre McCloskey

March 22, 2019

This interview of Prof McCloskey appeared a month earlier:

She says liberalism should not be adopted selectively but comprehensively:

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Can Economics Shake Its Shibboleths and move to a bolder economics?

March 15, 2019

Two related pieces:

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11 economic stats that sum Venezuela’s misery

March 12, 2019

Jon Miltimore in this piece:

A tragedy common to human history is unfolding in Venezuela. It’s impossible to predict how it will end or what the human toll will be.

As we watch events and hope for a peaceful resolution that restores liberty in Venezuela, here are some noteworthy facts about the Land of Grace.

    1. Venezuela has the largest oil reserves in the world. While the US is the top producer of oil, its total reserves represent a mere fraction—roughly 10 percent—of Venezuela’s 300-plus billion barrels of oil. (Source: UPI)
    2. In Venezuela today, the median monthly income is $8. (source: FEE)
    3. A two-pound bag of onions currently costs about $2 in Venezuela. (source: FEE)
    4. In 2016, the price of a gallon of gasoline in Venezuela was less than one cent per gallon. (source: Washington Post)
    5. Roughly 90 percent of Venezuelans today live below the poverty line. (source: The Borgen Project)
    6. In 1950, Venezuela ranked among the top ten most prosperous nations in the world. (source: Human Progress)
    7. In 2018, inflation in Venezuela topped 1 million percent. (source: Reuters)
    8. Economic projections show inflation in Venezuela is expected to hit 10 million percent in 2019. (source: Miami Herald)
    9. In 1959, the Venezuelan GDP per capita was 10 percent higher than America’s. (source: Human Progress)
    10. As of June 2018, about 2.3 million people had emigrated from Venezuela following its economic collapse, or 13 percent of its population. (Source: The Panam Post)
    11. When Hugo Chavez came to power in 1999, the Venezuelan GDP per capita was 27 percent higher than the average in Latin America. (source: Human Progress)

Italian Opera, World Fairs and Innovation

March 4, 2019

Prof Petra Moser of NYU has done some fascinating research on the topic.

IMF Podcast interviews her over the research findings.

The effects of copyright and patent laws on artistic creativity and technological innovation are gaining more and more significance in today’s economy driven to a large part by content. Economic historian Petra Moser uses data from 19th century Italian operas and world fairs to examine the economic implications of basic copyright and patent protection for innovators. In this podcast, Moser describes how Napoleon’s military victories in Italy in the late 1700s changed the copyright landscape and created an excellent model to study the effects on Italian opera composers.

 

Universal Basic Income in the Developing World

March 4, 2019

Two interesting articles on UBI.

First is this new NBER paper by Abhijiet banerjee, Paul Niehaus and Tavneet Suri:

Should developing countries give everyone enough money to live on? Interest in this idea has grown enormously in recent years, reflecting both positive results from a number of existing cash transfer programs and also dissatisfaction with the perceived limitations of piecemeal, targeted approaches to reducing extreme poverty. We discuss what we know (and what we do not) about three questions: what recipients would likely do with the incremental income, whether this would unlock further economic growth, and the potential consequences of giving the money to everyone (as opposed to targeting it).

Bottom line:

First, the benefits of targeting may be overestimated by analyses that do not take into account the incentives it generates or the realities of implementation on the ground. Universal or near-universal approaches deserve more consideration than they often receive.

Second, the kinds of targeting that will make most sense will often be relatively simple, such as geographic targeting. Designers should guard against creating too much discretion for the front-line staff who implement targeting, including the implicit discretion that is created when a policy is too
complicated for beneficiaries to understand it and hold local officials to account. However, these targets may perform extremely poorly in reaching the poor.

Third, it may be possible to build small ordeals into the design of programs to create some targeting by self-selection and hence make programs more progressive. For example, if a government offered a small basic income to everyone but with some hassle costs involved in collecting it (e.g.
a weekly trip to an ATM), then the wealthier households might simply not bother to participate. The danger here of course will be to not exclude those for whom the ordeals are simply too difficult (e.g. the disabled) and so special provision should be made for them.

Finally, we note that the per-person costs of delivering transfers are falling rapidly in many places due to advances in last-mile digital payments infrastructure. All else equal this will tend to further increase the appeal of broad or universal targeting.

Hmm..

Mint features this interview of Prof Guy Standing of  School of Oriental and African Studies, University of London. He says instead of spending billions on subsidies and government programs, one should just transfer a basic income universally:

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Econfip: A network of academic economists committed to an inclusive economy and society..

February 25, 2019

Interesting initiative by a team of economists. It is named Econfip or Economists for inclusive prosperity.

We live in an age of astonishing inequality. Income and wealth disparities between the rich and the poor in the United States have risen to heights not seen since the gilded age in the early part of the 20th century. Technological changes and globalization have fueled great wealth accumulation among those able to take advantage of them, but have left large segments of the population behind. Advances in automation and digitization threaten even greater labor market disruptions in the years ahead. Climate change fueled disasters increasingly disrupt everyday life.

This is a time when we need new ideas for policy. We think economists, among other social scientists, have a responsibility to be part of the solution, and that mainstream economics – the kind of economics that is practiced in the leading academic centers of the country – is indispensable for generating useful policy ideas.

Much of this work is already being done. In our daily grind as professional economists, we see a lot of policy ideas being discussed in seminar rooms, policy forums, and social media. There is considerable ferment in economics that is often not visible to outsiders. At the same time, the sociology of the profession – career incentives, norms, socialization patterns – often mitigates against adequate engagement with the world of policy, especially on the part of younger academic economists.

We believe the tools of mainstream economists not only lend themselves to, but are critical to the development of a policy framework for what we call “inclusive prosperity.”

While prosperity is the traditional concern of economists, the “inclusive” modifier demands both that we consider the interest of all people, not simply the average person, and that we consider prosperity broadly, including non-pecuniary sources of well-being, from health to climate change to political rights.

Hmm…Surprised that something like this has come so late…

There are policy briefs on different topics as well on the website.

 

How the great fire of London created the insurance industry…(and moving towards a creative economy)

February 25, 2019

As usual good speech by Andy Haldane of Bank of England.

The key to his speech is that humans have managed to be very creative in response to the several challenges posed to them. The same approach is needed to the challenges posed by the 4th industrial revolution.

He points how humans reacted creatively to the Great Fire in London. There were 3 responses:

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Poland is Europe’s growth champion. What explains its success and can it continue?

February 20, 2019

Marcin Piatkowski has recently written a book on Poland growth story.

In this column he writes on the Poland growth story and gives a preview of his book.

Amidst all the current political hoopla, the key story concerning Poland’s path over the past 30 years is not receiving the attention it deserves. The country has been recording high levels of growth since 1989 and is making strides in catching up with Western Europe.

The Polish economy has become a key European success story. Since 1995, Poland has also become the fastest-growing large economy in the world among large countries at a similar level of development. It is beating even the Asian tigers such as South Korea, Singapore and Taiwan.

Historically, Poland has always done badly:

To get a sense of the historic achievement, it is worth recalling that, for most of more than a thousand years of its history, Poland (along with the rest of Central and Eastern Europe) was a perennial economic underachiever.

The country was essentially stranded on the periphery of the European economy. Internally as well, Poles never managed to pull together enough social consensus to create a dynamic economy.

Adam Smith, the venerable voice of market thinking, had derided 18th century Poland for not being able to produce “any manufactures of any kind, a few of those coarser household manufactures excepted, without which no country can well subsist.”

It is no surprise under those circumstances that Poland’s per capita GDP, measured on a purchasing power parity basis, from the start of the 17th century until very recently, almost never exceeded half of the average level of Western Europe.

And as recently as 1991, at the bottom of the post-communist recession, the average income of Poles plummeted to less than one-third of the real income of an average German (and to less than one-tenth in nominal terms).

At the time, Poles even earned less than the citizens of Gabon, Ukraine or Suriname. In 1989, there were hardly any experts who would bet any money on Poland’s future economic success.

And yet, almost 30 years later, Poland has become by far the most successful economy in Europe. Since 1989, it has increased its GDP per capita by almost 150%, more than any other country on the continent.

By comparison, per capita incomes in the Czech Republic increased by only three-quarters, in Hungary by barely half, while the Eurozone’s performance improved by less than 40%. In purchasing power terms, Poland’s GDP per capita grew even faster from $10,300 in 1990 to more than $28,000 in 2018 (in 2011 constant dollars).

In 2018, the average level of income in Poland exceeded two-thirds of the average level of the Eurozone. That is an impressive achievement for a country that only entered the EU in 2004 and had to shed the painful legacy of decades of Communist rule (See Figure 1 below).

What explains Poland’s success? Good economic policies!

In a new book, I argue that after 1989 Poland was successful for the first time ever because it adopted good economic policies, including a deep economic reform in 1990-91, fast institution building, foreign debt restructuring, a boom in education as well as an open and transparent privatization process.

Crucial as well has been the fact that Poland, unlike most other Central and East European economies, did not produce oligarchs. At the beginning of the post-communist transition, it did not matter what last name one had, where he or she was from or what parents someone had. All of today’s billionaires in Poland are market-based and self-made.

What drove good economic policies? Good economists as policymakers.

Of course, the key question is this: If good economic policies drove good economic outcomes, then what drove good economic policies?

For most of its history, Poland was a perfect illustration of an extractive society. It was the Second World War and – above all – the shock of communism that demolished the old, feudal, pre-modern and harmful social structures, opening up society.

This newly emerged, socially inclusive society was not visible until 1989. It was buried under the distortions, dysfunctions and absurdities of a planned economy. But when real socialism collapsed, it established the foundations for the subsequent economic miracle.

And yet, this element should not make Poland’s performance so different to that of similar countries like the Czech Republic and Hungary, where people had been better off than Poland in Communist times.

Needless to say that all these countries, as well as the other ex-Warsaw Pact countries, shared a strong social consensus that their respective country should become like Western Europe and meet all the conditions to accede to the European Union as quickly as possible.

This is where the second – and perhaps decisive – element explaining Poland’s success comes in. Almost the entire transition period, including those 17 different governments, was based on the high quality of policymaking elites, especially finance ministers and central bankers.

Unlike their Eastern peers in Ukraine or Russia, for instance, Polish officials, even while representing quite different parties, knew exactly where they needed to be going.

It helped that almost every single economic policymaker in Poland after 1989 had studied in the West, learning modern economics. In contrast, until 2002, no Bulgarian minister of finance even spoke English, to give but one example.

Hmm…This reads too simple.

Will it continue?

In many ways, key elements of the Polish success story resemble that of the German post-war economic story, especially if one thinks of social and economic inclusiveness as a key driver of economic success.

Thankfully, the dynamics of economic history do not just move in one direction. For that reason, it is relevant to ask what lessons Poland’s recent experience and current performance now holds for the German and the Western European economy.

One key lesson is the importance of education: Today’s 15-year old high-school students in Poland are as well educated as their German peers, even though Germany spends more than 60% more on each student (in PPP terms, see Figure below).

Over the last 20 years, more young Poles have also studied at the university level than in Germany (see Figure 3 below).

The other lesson is the importance of investment in modern infrastructure: The level of Poland’s mobile broadband penetration, for instance, is higher than in Germany (Figure below) and the speed and the costs are lower, too.

The third lesson is the importance of open markets: Poland’s economic success is a blueprint for the win-win benefits of the EU single market. German exports to Poland are now more than twice as high as exports to Russia.

The benefits of open markets, supported by good economic policies, are also larger than the benefits of public subsidies: Eastern Germany, despite having received more than one trillion euro since the unification, has caught up on Western Germany less than Poland did with much less money (since its EU accession, Poland has received slightly more than 100 billion euro from the EU funds).

Hmm.. Impressive.

Risk? EU

But the key risk to Poland’s future is the weakening of the European Union. Without the EU, Poland would revert back to the dark periods of its history and be relegated again to the periphery of the European continent, where it has languished for long centuries in the past.

 

Capitalism with Scandinavian Characteristics

February 20, 2019

Nice piece by Prof Timothy Taylor on Scandinavian economies:

It is a truth universally acknowledged that arguing about the definitions of terms like “capitalism” and “socialism” is a waste of time. So I will simply assert that the world has many flavors of capitalism — U.S./British, Japanese, Scandinavian, German, French/Italian/Southern European and others.

I’ve known some genuine socialists who favor outright government ownership and control of the means of production, which necessarily means government making all the decisions about what is produced, where it is produced, how it is priced, who gets hired and how much workers get paid.

But most people who talk a socialist game, when asked for real-world examples, tend to sidestep the more extreme (and less attractive) possibilities and point to European countries — in particular, to Northern European countries like Sweden, Denmark, Norway and sometimes Finland. The genuine socialists I know view these countries as sellouts to capitalism. The Scandinavians themselves are quick to deny that they are socialists, too. 

There are higher taxes and more equality in lower income percentiles compared to US:

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Breaking Germany’s coal addiction….

February 19, 2019

Nice bit by Johan Rockström and Owen Gaffney.

It is scientifically well established that if the world is to keep the average increase in global temperature “well below” 2°C relative to pre-industrial levels – the “safe” limit enshrined in the 2015 Paris climate agreement – no more than another 500-800 billion tons of carbon dioxide can be emitted. On current trends, this would take just 12-20 years.

Instead, the world needs to follow a trajectory called the “carbon law,” which requires reducing CO2 emissions by half each decade until, 30-40 years from now, we have achieved a carbon-free global economy. Growing evidence shows that adhering to the carbon law is technologically feasible and economically attractive. In this process, coal – the most polluting energy source – must be the first to go, exiting the global energy mix entirely by 2030-2035.

This will be particularly challenging for Germany, which, despite its reputation as a climate leader, has long had a dirty secret: the most polluting type of coal – lignite – remains the country’s single biggest source of electricity. Although renewables have penetrated 40% of the electricity market, coal still accounts for 38%.

A decision to phase out nuclear power, spurred by the 2011 Fukushima disaster, left Germany with a significant energy gap, filled partly by coal. Germany has built ten new coal-fired power plants since 2011, bringing its total to about 120. As a result, it is set to miss its 2020 emissions goal (a 40% reduction, compared to 1990), and, barring decisive action, it could miss its 2030 target (a 55% reduction) as well.

One always thinks Germany to be efficient in whatever they do. Didn’t know this bit on its coal reliance.

Is the Indian Ocean economy a new global growth pole?

February 5, 2019

Interesting paper by Ganeshan Wignaraja, Adam Collins and Pabasara Kannangara of Lakshman Kadirgamar Institute of International Relations and Strategic Studies (LKI) in Colombo.

This paper examines whether the Indian Ocean economy–comprising 28 states across three continents–can become a growth pole for the global economy. It considers initial conditions, recent trade-led growth, portrays the near and medium context and various policy challenges. It finds that the strategically located Indian Ocean economy has become a pivotal global shipping hub. Its trade and Gross Domestic Product (GDP) have grown faster than the global
economy in recent years. Projections suggest that the Indian Ocean economy will likely account for over 20% of global GDP by 2025 and its GDP per capita is expected to almost double to USD 6150. However, realising this outlook will depend on tackling several pressing policy challenges including improving port quality and logistics, lowering barriers to trade and investment, narrowing development gaps and strengthening the regional economic governance.
Tackling these challenges requires a combination of coherent national and regional policy measures.

How the tides keep changing. It used to be Indian Ocean for a long time before Atlantic Ocean took over. Now back to Indian Ocean.

The economic geography of transition countries: Winners, losers and future prospects

February 5, 2019

Group of researchers (Klaus Desmet, Dávid Krisztián Nagy, Dzhamilya Nigmatulina and Nathaniel Young)

The economic geography of transition economies has changed dramatically over the last quarter century, with large urban areas growing fast and many smaller places facing declining populations. Using a high-resolution spatial growth model, this column projects the transition economies as a whole to perform economically well over the next decades, especially the region’s densest places. Large-scale infrastructure projects such as the Belt and Road Initiative will have a positive impact, but not more so than modest reductions of general trade frictions. 

….

Our analysis suggests that the broad geographic changes occurring in Europe and the rest of the EBRD regions create opportunities for productivity growth and overall economic gains. The forces behind the evolving patterns of population concentrations across space are deep and pervasive. While overall positive in their effects, these changes also leave segments of the population behind in areas that become increasingly sparsely populated. As those areas lose density, their local opportunities recede as well. Policies to soften their landing, while attempting to ignite some of the agglomeration forces on which they’ve missed out, could be their best chance for achieving growth and maintaining well-being. Investments to improve local amenities such as the provision of water, healthcare and energy, and investments in local education opportunities may work well in these areas. Such policies must be implemented with caution, as they may have negative effects in the aggregate.  Alternatively, measures that incentivise geographic mobility may help to improve the opportunities of residents in left-behind places.

Hmm..

Lessons from East Asia’s Human-Capital Development

January 30, 2019

Prof Lee Jong-Wha of Korea University in this piece writes about human capital development at East Asian economies:

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NZ to present a “well-being” budget from 2019

January 25, 2019

After pioneering monetary policy and financial regulation, New Zealand wants to change and pioneer fiscal policy too.

In World Economic Forum, NZ’s cool Prime Minister Jacinda Ardern spoke about a new approach to their fiscal policy:

Jacinda Ardern has unveiled a new approach to running New Zealand’s finances.

“We need to address the societal well-being of our nation, not just the economic well-being,” she said during a Davos discussion on More than GDP.

This means that from 2019, her government will present a “well-being budget” to gauge the long-term impact of policy on the quality of people’s lives.

In practical terms, child poverty figures will be presented at every budget. The onus will be on ministers to show how spending proposals will benefit people, and work with other ministers across party lines to ensure they have a positive, long-term impact, Ardern explained.

“Our people are telling us that politics are not delivering and meeting their expectations. This is not woolly, it’s critical,” she said.

The larger discussion in which she talked about the new approach budget along with other participants.

Looking forward NZ…

India now faces its own version of Soviet Union’s scissors crisis

January 23, 2019

Mint newspaper and its website has done a makeover of sorts. Do take a look.

Anyways as long as columns from Niranjan of Cafe Economics continue in the paper, one is sure substance will continue as well.

In his recent piece, Niranjan compares the recent agri crisis to the one in Soviet Union 100 years ago:

Many who are interested in economic history may perhaps see the parallel between what is happening in India right now with what happened in a very different country around 100 years ago. This was the Soviet Union soon after the civil war that the communists eventually won. Political stability as well as the withdrawal of draconian controls over Russian agriculture led to a huge rise in food production. The weather also cooperated. Russia saw bumper harvests.

Food prices fell. The prices of industrial goods continued to rise. A graph of these two price trends resembled the two blades of a pair of scissors. Soviet commissars began to call it the scissors crisis. Farmers who were not getting enough for their output did not have money to buy what the factories were producing. Some farmers chose not to sell the crop at all. Soviet planners—in what Friedrich Hayek later described as a fatal conceit—tried to deal with this internal terms of trade problem with price controls on industrial goods.

The rest of the historical narrative is not important right now. What is important is the fact that India could now be facing its own variant of the scissors crisis—core inflation and food inflation are moving in different directions. Managing the relative price of food in terms of industrial goods will be one of the biggest policy challenges for the new government that will take charge of the country later this year.

One important response to the Indian scissors crisis will be to remove controls on Indian farmers—be it their ability to sell directly to consumers or the freedom to export. Modern rural supply chains could also help undermine the stranglehold of middlemen. Forward markets will reduce at least some of the price risk that farmers face. Data from recent years shows that Indian farmers facing high levels of uncertainty take cropping decisions based on past price trends rather than expectations of future prices, a pattern very similar to the cobweb model taught in introductory microeconomics courses.

However, the most potent solution to rural distress continues to be outside of agriculture. India needs to create jobs in productive enterprises so as to create opportunities for millions who seek to escape farming, where they are condemned to deal with the vagaries of the weather as well as wild fluctuations in prices.

Hmm…

Gross National Happiness and Macroeconomic Indicators in the Kingdom of Bhutan

January 18, 2019

Sriram Balasubramanian (World Bank) and Paul Cashin (IMF) in this interesting paper:

This paper examines the origins and use of the concept of Gross National Happiness (or subjective well-being) in the Kingdom of Bhutan, and the relationship between measured well-being and macroeconomic indicators. While there are only a few national surveys of Gross National Happiness in Bhutan, the concept has been used to guide public policymaking for the country’s various Five-Year Plans. Consistent with the Easterlin Paradox, available evidence indicates that Bhutan’s rapid increase in national income is only weakly associated with increases in measured levels of well-being. It will be important for Bhutan to undertake more frequent Gross National Happiness surveys and evaluations, to better build evidence for comovement of well-being and macroeconomic concepts such as real national income.

Some history:

The most important element of the Bhutanese model of development has been the concept of Gross National Happiness (GNH), and the GNH index and tool which has been formulated alongside this philosophy. GNH was in Bhutan in 1972 by the Fourth King of Bhutan, Jigme Singhye Wangchuk, the father of the current king, Jigme Khesar Namgyel Wangchuck (see Government of Bhutan, 2015). He declared that “Gross National Happiness is more important than Gross Domestic Product”. The King had envisioned an economic development model which was based on the tenets of Buddhist philosophy and holistic development, which had its core functions preserving the environment and emphasizing the role of happiness and collective well-being in the lives of people.

This emphasis on happiness was to override the role of monetary incomes which was at the heart of the GDP driven global development model. With assistance from international organizations and bilateral development partners, the government also incorporated major development related
issues into its agenda such as sustainability, climate change and inequality. While GNH has evolved over time, in its quest to stay relevant, the role of GDP in Bhutan has also changed through the years. In the decades of the 1980s and 1990s, GDP was primarily used as a tool for Bhutan’s financial indicators and as a benchmark for access to international grants and loans from multilateral agencies. Even though publicly the primacy of GNH is being advocated by Bhutan, GDP measurements have thus also played a substantive role in the country’s development.

In this context, this paper will look at the relationship between the evolution of GNH and the evolution of GDP and other macroeconomic indicators.

Should read the whole thing..

Pakistan’s privatisation dilemma as it seeks IMF bailout: Lessons from its privatisation history

December 20, 2018

Interesting piece from Prof Kamal Munir (Strategy and Policy) of Cambridge Judge Business School.

Reluctantly seeking an IMF bailout for its balance-of-payments crisis, Imran Khan’s nascent government in Pakistan has already devalued its currency, hiked utility rates and imposed new taxes in an effort to be “ready” for IMF reforms. As if these measures were not enough to make the government sufficiently unpopular, it now faces demands to immediately privatise large loss-making state-owned enterprises.

For a few reasons, the government has so far been reluctant to sell these off. Two reasons stand out in particular. First, selling of these state-owned enterprises is likely to generate significant unemployment. Politically speaking, this would be a highly unpopular move, as Khan’s new government promised to create millions of jobs within five years. Second, given the outstanding debts of Pakistan’s state-owned enterprises, there will be few takers unless the government clears up the balance sheets first.

Whichever course the government takes, it would be foolish to ignore the lessons from Pakistan’s troubled history of previous privatisations – three spring to mind.

He points how the previous three privatisations – telecom, energy and banking – backfired. As there was limited competition in telecom and energy, all it did was to transfer a public monopoly to becoming a private monopoly. In banking, the banks made gains mainly by lending to government and not to other sectors.

The key lesson:

consistent with the general history of privatisation in Pakistan, banking privatisation was great for the new owners. Many got bargain basement deals – while doing little for the cause of national economic development.

Above all, the government should realise that in the absence of a broader national development policy, privatisations are not going to yield the desired benefits. Before contemplating any sell off, the government needs to first figure out the roles it needs various institutions to play and devise appropriate regulatory and monitoring frameworks.

Goals such as maximising the value of an enterprise before its sale or enhancing its profitability, should be supplanted by aims that are in line with a larger development plan. In order to avoid the mistakes of previous governments, longer-term goals must be prioritised.

Hmm..


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