Effective Tuition Fees

Now this is very sad, I know, but I thought I'd make a table comparing the different tuition fee systems. A lot has been made of how most people won't actually pay back most of their debt- so what fees are they effectively paying, then? I've worked out these effective yearly tuition fees for people on different salaries in today's money with monthly payments in brackets.

Salary	Old System	New System	6,000 fees
<15,000	Free education!	Free education!	Free education!
16,000	900 (7.50)	Still free	Still free
18,000	2,250 (22.50)	Yep, free again	Free
20,000	3,300 (37.70)	Free	Free
25,000	3,300 (45)	3,600 (30)	3,600 (30)
30,000	3,300 (75)	8,000 (67.50)	6,000 (67.50)
35,000	3,300 (112.50)	9,000 (105)	6,000 (105)

It seems that the new system is good for anyone earning less than 24,000 as a graduate- that's a good bit over the median salary of 20,000. The new fees suck if you earn more than that and the 6,000 fees proposed by Labour only benefit those earning over 27,000. Monthly payments are easier for everyone on the new system.

That's right, the Tory system is good if you're poor, the old Labour one good if you're richer than average and the proposed Labour one good if you're really rather richer than average. It's a topsy turvy world...

Against Aid

This post was published on Slugger O' Toole.

Walking by a lake you see a child drowning. There is no one else around- what should you do? The clear moral answer is to jump in and pull the child out without sparing a thought for potential inconvenience. It has long been argued that the same moral reasoning applies to world poverty- we must intervene to help the world’s poorest. The widely held view is that this help should be aid.  But does sending aid make the difference it is supposed to- what if we were offering our metaphorical child little more than a faulty life ring? Or worse still- is our aid merely dragging her down?

I came across a few articles this week about the money sent by wealthy countries to poor to assist development. The verdict wasn’t good. One was an article in Thursday’s Guardian showing how Somaliland, unable to receive international aid for legal reasons, had become more democratic and, ultimately, wealthy as a result. The other was a report by New York University (NYU) which found that billions of dollars of US military aid sent to Columbia had only worsened drug problems there. Depressingly, the articles argued, it seems that aid just doesn’t work.

This isn’t a popular idea, or an obvious one. Ireland especially is renowned for the difference its international assistance makes to the world’s poorest countries. Untainted with the guilt of empire (unlike Britain) and unconcerned with promoting ulterior political or economic goals (unlike the US) Ireland has been uniquely free to focus its development program on simply making a difference to those who need it most. The Irish aid budget is over 600 million euro per year and outside of government, Ireland is home to many large aid organisations such as Concern and Trocaire, working in dozens of countries worldwide. For a once poor country, this has been a source of pride for many.

But could this pride be misplaced? I want to discuss here the arguments against aid- the belief that poor countries are actually much better off without our financial support. This is obviously controversial, not least in the midst of a famine in Somalia and a global financial downturn that has hit the poorest the hardest. But if aid is in fact hurting these countries, this is an important debate to be had. The charges made by the sceptics against aid can be summarised as follows- removing democratic accountability, killing exports and rewarding tyrants.

Removing Accountability

America was founded on the principle of ‘No taxation without representation’; in international development the reverse is equally true- no representation without taxation. If poor countries become dependent on wealthier ones for providing basic services instead of taking taxes from individuals and local businesses, the need to remain accountable to one’s citizens is reduced and corruption and inefficiencies sink in. Somaliland provides an excellent example of this- it was forced into democratic reforms when port companies refused to pay taxes. Aid money would have significantly reduced the clout of these merchants.

Dutch Disease

Dutch Disease is a phenomenon named after the discovery of oil in Holland in the 1950s. The sudden influx of foreign money pushed up the relative value of local currency, devastating the country’s manufacturing industry, which had relied on exports. The same can occur with aid, which is also a sudden influx of foreign money. Exporting has been the key to growth for so many booming countries such as China, India, Japan and South Korea- aid may well keep this opportunity away from its recipients, damning them to poverty.

Rewarding Tyrants

Many of the world’s poorest countries also have the most reprehensible leaders and yet still receive aid. Mugabe’s Zimbabwe is a clear example of this, with aid essentially keeping the regime afloat. According to Professor Paul Collier, director of the Centre for the Study of African Economies at Oxford University, as much as 40% of African military spending is funded accidentally by aid.

This week’s NYU report found that US military aid found its way into the hands of the very drug barons they were targeting, due to corruption.

These are powerful arguments- aid can make a country less democratic, less competitive and more violent. Of course it is hard to argue against aid for emergency relief during a famine or earthquake but the larger argument that aid provides a clear path for a poor country’s economic development seems shaky at best. It seems clear that aid, as it is, is not working. The question for Ireland and the rest of the world is- will we continue dodging difficult questions or can real reform take place? Or is reform not enough; is now the time to make charity history?

Freefall- a manifesto for economic change

As markets tumble in Europe, America and across the globe, the world is waking up to reality: the recession is back. Indeed it never really went away. How much of this can really be a surprise? We have more or less the same economic system today as that which brought the economy to its knees just three years ago. In 2008 policy makers could at least plead naivety. Who could have seen the sudden collapse of the world’s largest banks? And who could have known just how interconnect companies and countries had become?

But these rhetorical questions do in fact have answers: Joseph Stiglitz, professor of economics and Nobel laureate, was our Cassandra.  He was preaching long before the housing bubble and credit default swaps of the inherent dangers posed by lax legislation and misaligned incentives. His 2010 book Freefall, recently updated, is his victory lap. But more than “I told you so”, Stiglitz offers a way out of the mire. Politicians would do well to head his advice.

Market Failure

Stiglitz lays the blame for the crisis squarely, triangularly and circularly at the feet of free markets and their ideologue proponents. I’ve blogged before about my own flirtatious relationship with free markets and identified some of their key failings. One failing I didn’t mention was externalities, which was a failing central to the near collapse of the financial system and one which Stiglitz emphasises.  Externalities are by-products of business where there is no market mechanism to account for them- sometimes positive, sometimes negative. If I own a bee farm and an orchard sets up next door, the orchard benefits significantly from my bees’ polination without affecting me. But should the orchard owners not pay for this privilege? This is an externality- the market provides no way of paying me. A negative externality would be global warming- harm is caused by business but not in a way penalised by the markets. 

Stiglitz argues that banks, with their light touch regulations, posed huge negative externalities on the economy as a whole in a number of ways: the misunderstanding of risk, performance related pay and implicit government subsidy.

Risky business

Before making a loan, banks need to understand the risk associated with the borrower defaulting and adjust the interest rate accordingly. But to further decrease risk, banks started to package loans together with assumption that the more loans one had, the more the risk was spread out. This was fine, provided defaults weren’t correlated. But when house prices started to fall across the country, defaults became very correlated indeed. Because many of these loans had been packaged together in highly complex ways, banks suddenly realised that they couldn’t really tell which loans were safe and which weren’t. They also couldn’t trust the safety of other banks and so stopped lending to each other, resulting in the credit crunch. Stiglitz verdict is clear- commercial banks shouldn’t be allowed to create products they don’t fully understand. As US Treasury Secretary Henry Paulson quipped, “the only useful financial innovation in recent decades has been the cash machine”.

Performance related pay and other oxymorons

Performance related pay was abandoned by most professions when it became clear that it rewarded quantity, not quality and encouraged short term results. These are precisely the problems plaguing modern banking. Bonuses are paid for gains but not removed for losses, promoting excessive risk taking as bankers just couldn’t lose. Mortgage vendors were rewarded according to the number of mortgages issued, not their quality, leading to the phenomenon of “liar loans” for which borrowers required no proof of income. Even after the Crunch, the flow of bonuses continued, making a mockery of the claim that they were performance based.

Bankers on benefits

But perhaps the strongest externality was the implicit guarantee that the government would always save the biggest banks to protect the rest of the economy. This safety net enabled banks to take much greater risk at much lower interest rates- a subsidy of billions of dollars, greatly distorting the market. When the bailouts were received, very little was loaned on to small and medium sized business, the risks of speculation were still too tempting.

What’s to be done?

Stiglitz is no communist and recognises the importance of markets- the key is regulation. As the world sits on the brink of what may well be a double dip recession, here are his suggestions for policy changes to make a difference-

1.    Separate commercial banks from investment banks- banks shouldn’t be taking huge risks with ordinary households’ money.
2.      Require banks to keep some of the mortgages they sell on their books to ensure they have a vested interest on providing loans to those how can afford them.
3.     Give share holders greater say over executive pay and stop payments in stock options- they encourage short-term thinking.
4.     Require bailout funds to go to small and medium sized business. Much of it is their money, after all.

This is Stiglitz’s manifesto for change. Free markets have failed but markets can still work within sensible rules.  Failure to change in 2008 brought around the current difficulties. The world cannot afford to make the same mistake twice.

Jersy Shore and More

Two weeks of blog silence and American madness- Jersey shore, NYC (twice), charismatic churches and generally being awesome in Philadelphia.

I spent the second last weekend of July with the lovely Angud family in New Jersey, the idea being to let me experience a proper American family. The Saturday was the hottest day in 7 years, an impressive 110 Fahrenheit, which meant that going outdoors with Irish skin (which I happened to have on at the time) was a no no. So the afternoon was spent on XBox Kinect, which is amazing, followed much later in the afternoon by a go in the outdoor swimming pool with my abs glistening in the hot Jersey sun. James, Jarren and their family were incredibly welcoming and took me out for a chinese afterwards- the first American sized portions I've managed to get through so far. I went with them to Pentecostal church that Sunday and the next Sunday went to a Baptist church. Those will get their own blog post. 

The idea of the family stay was to introduce as a bit more to American culture and introduce me they did- I've now finally seen Jersey Shore and the South Park episode on N. Jersey. Many of the trials and tribulations of Snookie, "The Situation", Pauly D and friends touched my heart and moved me to my very core. Also, I wanna hot tub.

Next weekend was a busy one. Friday saw us head to NYC for a tour of the UN (with a lecture from an indigenous rights guy) followed by roaming around the city, walking from Times Square to the Brooklyn Bridge. Dem buildings is tall. One important lesson was learnt: don't wear a thin white shirt when there might be rain acomin'. Its crazy how easily things get transparent and how much of New York has now seen my nipples. 

Saturday was a chance to hang out chez Snookie- a trip to the Jersey shore itself, albeit the wrong end. Definite highlight was the giant inflatable pretzel which bore us many dozens of metres out to sea. I think we managed to fit 6 peeps on it at one stage. Amazingly, I didn't get sunburnt. A small victory for Gringos everywhere. 

Then this weekend was spent in NYC again! This time outside of the program so were free to do as we wished, staying from Friday through Sunday in an awesome apartment just 15 minutes from the Empire State building and 20 minutes from Time Square. Spent all of Saturday in Central Park having seen the main sites during the last two visits. The park is HUGE with musicians, artists and rollerbladers all over the place. Then back to Philly on Sunday morn' to go the a bbq chez Anguds, with the best bbq pork I've ever had plus more swimming and the annual intra family volleyball match with the rest of the clan. Then I got my very own Phillies baseball tshirt. Awesomes.

Just one full day left in Philly! Then a couple of days in DC, giving a presentation on the program at the State Department, no less. What a terribly gangster lifestyle I lead.

Science Be Praised!

Today I felt very much the scientist of the group following our first presentations in the public speaking class. The presentations (mine, of course, humbly excluded) were great both in content and delivery. The topics covered were anarchy (= good), the purpose of law, terrorism in literature, activism in cinema and Catalan independence. My own topic was intended as a middle finger of sorts to these kinds of areas. That middle finger served to shout, “You’re messing up, socially minded emotional people. Lend me your ears that I might fill them with science.” (What do you mean fingers can’t talk? Derrick’s helped me through some tough times...) Because while I focussed on the failings of international aid, the speech could just have easily been about any other area of policy; scientific reasoning makes the difference.

Much as I respect political ideas, they just won’t make the same difference as those of science. Will any of the other speakers’ proposed solutions (anarchy, strong laws, free Catalans and Al Qaeda does Pride and Prejudice) ever make the same difference to people’s lives as the discovery of penicillin? If we could pass on just one idea to a post- apocalyptic society (and ideally not one destroyed by nukes, point taken) I should chose the scientific method over any of the other stuff, even free speech and equality. Before you assault me with organic beans, remember that a man in West Philadelphia can expect today to live longer than a king did 300 years ago. I don’t remember reading that in any constitution. I don’t recall seeing that in any revolutionary text. It was science wot done it.

This isn’t to say that the other stuff isn’t important, but scientists probably deserve a tad more recognition than presently received. “We murder to dissect”? Just you say that to my face, Mr Wordsworth.

PS why not have a looksie at my article on Slugger O' Toole?

Rockin Rocky

Wowz so a lot’s happened since last we spoke. Sorrys for the lateness.

We’ve started working for a few hours on a Wed morning at the West Philadelphia YMCA, lending a hand at a summer scheme there and nearly drowning in the process. Every single child there is black except for one, (on closer inspection he’s actually albino). This stands in sharp contrast to Drexel University, our hosts, where most students are white. From first impressions, America really does seem much more racially divided than Europe and the fact that West Philly is the poorest part of the city doesn’t help.

On a more upbeat note, we went to New York City on Saturday which was HellaBallsToTheWallsAwesome (I think that’s a French word) and definitely an improvement on the original York. Touristy sightseeing was the order of the day, taking in Liberty, Wall Street and Ground Zero. We’ve a couple more trips up there to come. Good times.

Trips to the National Constitution Center, Independence Hall and Liberty Bell on Friday were also pretty cool, along with a visit to the Philadelphia Museum of Art on Sunday, of Rocky fame. Every American history museum we’ve seen so far has been incredibly patriotic in its presentation of the facts, which makes things more interesting but a bucket load of salt is also required (or saline equivalent: the average US pretzel). The ‘Freedom Rising’ presentation at the Constitution Center especially is just tear- jerkingly patriotic. The Constitution for Americans was presented like the Resurrection for Christians- a woman bounces about the stage expounding American Colonial history (following the subtle historical philosophy of TheBritsAteBabies-ism) as four giant screens descended from the roof to completely surround her with flames followed by images of the Apollo Moon landings, fall of the Berlin Wall and the Civil Rights movement. How much of that is contained within the Constitution I’ll leave to you to decide...  But the patriotism was still sweetly endearing and if you can’t be proud of your country at a museum dedicated to its founding, something’s clearly up. I’d certainly like to have bits of the US Constitution in the UK I s’pose.

Otherwise, the work’s heating up, as is the weather. We’re in for 105 degrees tomorrow. Somehow three hours of class today was spent scaling a climbing wall and last night we were round a professor’s house for a screening of Rocky in his back yard. Surreal but awesome. Staying with an American family for the weekend, they have a swimming pool and XBox Kinect. So many levels of win.

Stay tuned.

Diffusing the Population Bomb

(This blog was also posted on Slugger O' Toole)

There was an article in today’s Guardian which struck me. Actually, it annoyed the hell out of me. The article was announcing a recent UN report that world population will hit 7 Billion on Halloween this year. But rather than simply report this fact, the article insisted on propagating a tired, disproved and altogether ignorant message: there are too many of us on this planet.

The obsession with population found its most popular spokesperson in the form of Rev. Thomas Robert Malthus who, in the late 18^th Century, argued that if the poor of the world kept reproducing at a high rate (and the poorest tend to have the highest birth rates) then the only possible result in a world of limited resources will be mass starvation. It was in part due to such ideas that the Irish famine was allowed to run its terrible course. There is indeed some evidence to suggest that nature provides mass population reduction as a way of benefiting those left behind: incomes rose significantly in Britain following the devastation of the Black Death, leaving one person in three dead.

World population has skyrocketed since the days of the Plague and Famine, leading academics to postulate that the next Big Disaster could well eclipse all those that went before it. The 20^th Century anti population movement reached its zenith in 1968 with the publication of Stanford Professor Paul Ehrlich’s The Population Bomb. The book brought home to non academic readers the potential horrors of overpopulation with the prediction that hundreds of millions of people in developing countries would perish to hunger in the coming decades. Its front cover loudly proclaimed “While you are reading these words four people will have died from hunger”.

Well, those decades have passed and 2.8 billion extra people now walk this Earth, an increase greater than that anticipated by Ehrlich. And the result? In the last 50 years, world population may have doubled but agricultural production tripled. Daily food supply per person has increased by around 25%. But the news is even more positive; population growth is beginning to tail off. As people get richer, despite being more able to afford more children, they by and large choose to have fewer. Better job opportunities cause people to focus more on their careers and improved child mortality means fewer children need be born in the first place. The average world birth rate declined from 5.3 births per woman in 1960 to 3.0 in 2006. It is true that these are just averages and some regions have gotten significantly worse. But these are countries such as North Korea and Zimbabwe and clearly due to political circumstances. The data paint a clear picture- increasing global population is not leaving people worse off and is anyway reaching equilibrium, not exploding.

But while Ehrich’s theory seems disproved, many modern environmentalists point to Malthusianism in a new form- global warming. The increased emission of CO2 that growing population creates is endangering the very people who, by being born, create it. This was certainly the message of the Guardian article: more people= more warming. Nonsense. More consumption= more warming, regardless of the number of people creating it. I fail to see how a moral person can worry about the existence of a child in a large family in rural Africa who burns a little wood for cooking while we enjoy CO2 intensive Western lifestyles over here.

Here’s a statistic that every such person should read: doubling the incomes of the world’s poorest 650 million people would take the same resources as a bit less than 1%  of those of the world’s richest 650 million and income means carbon. Concerned about global warming? Great, hand out condoms to bankers, not Bangladeshis. It’s time to put the population myth to rest.

Full of Philly

A jet- lagged hello from Philadelphia! Arrived on Sunday and staying in dorms over looking the city giving an amazing view from my 9th floor room. Excitement, excitement EXCITEMENT.

These Fulbright guys really don’t want us to pay for anything. Two days into Philadelphia we’ve already been given mobile phones, loaded with $30 credit, transport passes and all our meals covered. And next week we get a cheque for $750 for whatever other expenses we might have. This is good.

I don’t normally like to start the day with an offensive self- stereotype but having Lucky Charms for breakfast was too hard to resist, especially when someone actually tracked me down to show me them. Food here is all you can eat, which so far has entailed ‘more than you really should’, which I understand is an ancient American tradition.

Classes started today, general introductions all round. Worryingly for a physics student, it seems I’ll have to talk about my ‘feelings’ and other awful, unquantifiable stuff. We’ve essay and research based classes on American society which entail reading Why We Can’t Wait by MLK, Dreams From My Father by Obama and The Soloist by Steve Lopez plus going on cultural trips for ‘research’. This weekend that means heading up to New York to see the Statue of Liberty and Ground Zero on Saturday, followed by the Philadelphia Museum of Art on Sunday. This is also good.

We also have classes on ‘Social Issues in America’ which are part sociology, part service projects. Today we had a talk from the service head of the Penn Charter School who seems to have founded a hundred NGOs and tomorrow morning we’ll be helping out at a summer camp for disadvantaged youth at a YMCA in West Philadelphia (born and raised...). Most interestingly, we also have classes on public speaking by the most enthusiastic professor I’ve ever met. We’ll suffer the indignity of having our speaking filmed and played back to us. I tend to move my hands like a puppet on speed, so this should make for painful viewing.

Otherwise, this city is hot (with a capital HOT). I really don’t see how the first Irish immigrants coped without AC. Perhaps that explains the alcoholism (and, btw, I haven’t touched a drop of the stuff, despite spotting 5 Irish pubs so far). It’ll be very interesting to see the contrasts between the European and American outlooks. When in Sociology we Europeans were asked to state our religious beliefs, only two out of 17 were religious so it’ll be interesting to see how the YMCA find that.

Over and out.

Rory

Trying to be Less Evil

I have a confession to make. Over the last year or so, I’ve been really quite evil. I really never meant to be, but there it is. Evil as a doorknob. Like many of my ilk, I can pin point the exact day the evil started, it was in November 2009 and I was in the Felix office, chatting to the business editor (you know who you are!). The chat went something like this,

Moi: The government should really pay for education/ health/ hash brownies for the poor.

Satan: Well, if it’s such a good thing, why don’t richer people just pay for it for them anyway? Can’t people just be charitable, or are you saying the government is more moral than everyone else?

And there the bastard had me. Wouldn’t it be a whole lot better if people just came together themselves and sorted out each other’s difficulties? What was it that made government intervention so much better than private action? This got around a WHOLE load of issues too. Want your child to learn evolution? Set up a school that does it. Want poor kids to learn about evolution? Set up a school for them too. Is it really that different from the government doing it? In fact, it should be better- being controlled from near, not Whitehall, means better efficiency and accountability. On top of that, surely the freedom to teach as you wish has a moral value to it? It’s not like current state schools are anything to write home about. Assuming you can write, that is.

I started to see the benefits of privatisation everywhere. I didn’t believe that cuddly services such as health and education should be run purely in pursuit of profit, rather that the freedom should be given to professionals, patients and parents to make their own decisions about services and this freedom comes from privatisation. Every time someone complained that the government should do more for such and such I’d think, “Why don’t you just go ahead and do it, or convince professionals to?” At every stage this was my outlook. How on earth could the government do something better than its citizens, I thought. Yes, most of us don’t have the expertise to set up a school, but neither do most politicians. They hire professionals with our money, why not cut out the middle man and hire them ourselves?

But I wasn’t an evil voice in the wilderness, I had my Gospel and I really did read it religiously; The Economist magazine. You really have to read the thing to understand its allure, but basically it kept me in market- loving, unions- hating rapture for hours on end every week. And when my sister got me a Kindle subscription for Christmas? In the Holy Name of Friedman, I just didn’t stand a chance.

It all reached its zenith when, one fateful May morning, I put an x beside the name of Sir Malcolm Rifkind, Conservative MP for Kensington, my constituency. Yes, that’s right. I’m Rory the Tory. Rory the Milk Snatcher. The Sheriff of Ror-ingham.

But things have since changed. Let me be clear, I really didn’t mean to be evil. I honestly believed the in freedom, efficiency and accountability that letting the market into public goods would bring. I now realise I was mistaken. The purpose of this blog is to explain just why I was mistaken: why markets really aren’t as wonderful as free marketers such as my younger self might hope. Perhaps in the process some other poor devils might realise the errors of their market orientated ways, too.

Market Failure

Even in theory, markets can’t always work properly. A year ago, I’d have said that if there were a more efficient way of doing something, the market will always find it and adopt it, as otherwise businesses wouldn’t survive. Unfortunately, this isn’t the case and market failures can appear in two fundamental ways.

The problem of Lemons. Firstly, I have no problem with fruit and neither do markets. We’re talking about Lemons with a capital ‘L’; crap cars. It’s a well known fact that the very second you drive a new car out of the car shop, it drops fabulously in price in a way that doesn’t make perfect sense. It’s true that everyone likes the idea of being the first owner of a car, but not so much that they would insist on paying many thousands of pounds less just because someone had ‘her’ for a week. Instead, there’s a classic market failure operating.

Imagine you see an ad for a car. It’s almost new and so going for a price not too far off what it would have been hot off the shelves (that’s how a car shop works, right? Shelves and massive industrial trolleys?). It seems like a good deal, but something’s bugging you. If the car’s really so good, why is the guy trying to sell it? Sure you can give it a test drive and check out the MOT, but all that already takes up time and time is money, already making the car more expensive. And even if the MOT etc checks out you’ll still be left wondering why this car’s on sale- unless it’s faulty? Because you don’t know everything there is to know about the car, there’ll always be that doubt. Coupled with the extra money and time it takes to check the car out, this means that inevitably you’re going to offer a lower price than the seller should really get for the car, to compensate for the uncertainty.

But now look at it from the car owner’s perspective; he realises that if he tries to sell the car, the above reasons will mean he gets a poor price. Which means that unless there is an emergency (a new baby, unemployment) he has little incentive to sell a perfectly good car. Unless, of course, it’s faulty. Then he still has every incentive to get rid of the thing.

And now we can see that both buyer and seller will create a spiral; the buyer is scared of Lemons so he offers a low price, the seller doesn’t like the low price so he only sells if he has a Lemon which means even more used cars are Lemons which means the buyer will offer even less to compensate for  the risk and so on. This isn’t so bad when it comes to cars and manufactures now offer guarantees on used cars to alleviate this but it’s still an issue. The big problem is the exact same market failure exists in healthcare- just as Lemons are more likely to be put up for sale, sick people are more likely to take out health insurance. People getting lower prices than they would like for their cars is ok, but sick people finding themselves priced out of insurance really isn’t. There is a clear case for government intervention here. This leads us to the next market failure;

The prisoners’ dilemma. Thisun’s a nice economics parable. There are two recently arrested prisoners being interrogated separately by police. Whatever evidence the police have, it’s not enough for a conviction. The prisoners are each given a choice; either own up to what you and your friend did, in which case you get 2 years in prison and the other guy 10, or you can keep quiet but if the other guy ‘fesses up things are reversed, he gets 2 years you get ten. If you both confess, you get 5 years each. A confusing state of affairs, but it’s clear that the best result for both is to keep quiet. The problem is, since neither of them can be sure the other won’t say anything, the most rational move for each is to confess, rather than run the risk of being the only silent one. All things being equal, keeping quiet gets you an average of 5 years locked, speaking out gets you just 3.5. Two rational prisoners will always tell on each other, leaving both unnecessarily in prison.

There are many real world examples of this, an obvious one being hygiene. Sandwich shops, for example, would have no incentive to spend a small sum on making clean sandwiches if it means making them slightly less competitive than rivals, despite the fact that sandwich shops making people ill is bad for the industry as a whole. Clearly businesses need educated workers and yet it makes no sense for any individual business to invest in schools if those guys are just going to work for someone else. Again, there’s a clear case for government intervention here.

Halfway to Damascus

I was gradually convinced that markets, however rational, could never fully create the optimal outcome for everyone and, sadly, it’s the poorest who would lose out the most. I’m no commie, mind, but these are sensible reasons for a well regulated market system with social welfare and public goods. I haven’t changed altogether. In an election tomorrow, I would still vote Tory (they’re hardly full on free marketers these days) and I don’t necessarily support every last penny spent in the name of welfare. So I’m a long way from skipping down a small country lane with pretty petals in my hair nursing an injured baby rabbit, but the evil has rescinded, somewhat.

A blog for another time, perhaps, but how come nothing happened about the free market ideology that lead to the current recession...? Thoughts on a postcard please.

The Bottom Billion: A Review

International development is, as I said below, a rather murkier business than the rock concerts and emotional advertising would suggest. Eager to understand more I’ve been reading up on the issue and hope to use the summer to fully drown myself in development data and books. Last week I read Poor Economics, which was so good I want to read it again before reviewing it. Over the weekend I got through Paul Collier’s The Bottom Billion; billed as an explanation as to ‘Why the poorest countries are failing and what can be done about it’. That’s one helluva promise. But it really does (broadly) deliver.

What I love about this book is that it manages to be utterly devoid of ideology. It doesn’t even argue that fighting poverty is a moral issue, rather pointing out that the practical benefits more than pay for themselves. This absence of ideology is achieved through a technique after my own scientific heart; statistical evidence. Debate around development tends to be focussed on ‘poverty traps’. The Left believe that being poor to start with keeps you poor; you can’t afford anti- malaria medicine so you get sick which means you can’t work which keeps you poor which means you can’t afford the malaria medicine next time either. All the poor need, say the Left, is one Big Push to get them onto their feet, to buy medicine for them, to educate their children etc. The Right, on the other hand, deny the very existence of such traps with all the passion of Dawkins and his New Atheists. It is aid, they say, which keeps people poor by making them dependent on handouts and putting money in the hands of unpleasant politicians.

Collier, on the other hand, sits betwixt these positions, shaking his scarily educated head. Just look at the evidence, he implores. The Bottom Billion is just that; the evidence. And having been head of development research at the World Bank and now director of the Centre for the Study of African Economies at Oxford, he’s accrued quite a bit of evidence in his time, all of which has lead him to believe that yes there are some poverty traps. But they come in different forms and may be affecting a given country in different ways. These traps are; conflict, natural resources, being landlocked and poor governance.

Conflict

It’s pretty obvious that a country in the midst of a civil war is not going to develop very well economically but what Collier does is to quantify this truism. From the stats, a given failing state has about a 14% chance of civil war within a 5 year period. He finds that each percentage point knocks a percentage point off that risk. So a poor country growing at 2% will have the risk of civil war reduced to 12% whereas a country declining at 2% each year will have the risk increase to 16%. Of course you might think that the prospect of peace leads to greater spending and so peace causes growth and not the other way around but even when growth is caused by a rain shock (a flood, drought of very good rainy season), the same effect is found on the risk of conflict.

This might be hard for many to accept, as it is tempting to believe that rebels are fighting for some kind of cause, not simply because of a low growth rate and besides, isn’t much of Africa’s civil strife simply a result of the horrors of colonialism? But when Collier compared countries with varying levels of economic inequality and oppression of minorities as well as whether or not they had been colonised, he could find no clear evidence that these made countries any more conflict prone.

Never mind the human misery caused by civil war, the impact is economically devastating. Collier puts the economic damage due to civil war at $64 billion to both the country itself and its neighbours. Given that two civil wars on average start every year, that’s about $100 billion lost- more than the entire global aid budget.

So the poorer a country is, the more likely it is the fall into the very conflict that keeps it poor.

Natural Resources

Natural resources should be an easy route out of poverty and yet some of the world’s poorest countries have an abundance of the stuff, just think of Angola and the Democratic Republic of Congo. Natural resources feed into the conflict trap since they provide something clearly worth fighting over, as seen in the movie Blood Diamond set in Sierra Leone. But natural resources can damage any country because they reduce the treasury’s reliance on taxes, thus making politicians less accountable to their people. It is also much easier for politicians to embezzle money from natural resources and spend the money on simply bribing community leaders for their people’s votes.

What can be done?

Simply giving poor countries money is the obvious answer. But when used unwisely, aid can be counterproductive. When money flows into a country in the form of foreign currency (such as with aid) it needs to be converted into local currency to be useful. However, aid isn’t the only foreign currency that needs to become local; money generated from exporting goods also needs to be converted into local cash. So aid money actively competes with exports, reducing the value of engaging in the kind of trade which could pull the country out of poverty. Added to this, many poor countries place high tariffs on imported goods which makes it even less likely that citizens will want to purchase foreign currency; they have nothing to buy with it, reducing the exchange value of the aid.

It also isn’t clear that aid necessarily brings growth (as argued most strongly by NYU’s William Easterly, whose book The White Man’s Burden I roughly summarised here). Collier points out that a good natural experiment for an increase in aid money can be seen by the increases in the Nigerian governments revenues due to record oil prices; no additional growth followed. Not only can direct financial aid have this effect, so can the debt relief so loudly trumpeted by the Live 8 concerts. This doesn’t mean that aid is doomed to failure, rather that it can’t be seen as a magic bullet.

And aid money doesn’t necessarily go where the West might want it to go. Collier estimates that about 11% of aid is actually spent on the country’s army, representing 40% of military spending. Interestingly, Collier finds that the influx of aid increases the probability of a coup; to the victors, the spoils. Aid also reduces the need for economic reform, as it removes its urgency.

Given this, Collier’s conclusion is not that we should give up on aid, rather that it should be given when the time is right. Corrupt governments will only waste the stuff, but once a genuine reformer gets in they should received all the help they can get.

Military Intervention

This is undoubtedly the most controversial section in The Bottom Billion. Remember the $64 billion lost by each civil war? Collier argues that military intervention can prove to be one of the most successful forms of aid, provided intervening forces are prepared to take real risks unlike the infamous peacekeepers in Rwanda, who would only fire when fired upon, not when civilians were at risk. This seems to be an issue away from the main interests of this blog so detail can perhaps wait for another post, but I broadly agree with him here. The economic arguments make a novel addition to the tired (but compelling) moral ones.

Conclusion

Collier, in all, seems convinced that we can chip in. International regulation is his weapon of choice to tackle companies that pay bribes and provide a bench mark for reform minded politicians. His case for military intervention is definitely the most daring of his proposals and in a post Iraq world, the least likely to take place. Aid can make a difference when directed at the right time and at the right kind of investment (like infrastructure). The book is certainly very ‘big picture’ and a proper review of how aid works at the local level will have to wait for my rereading of Poor Economics. All in all, a worthwhile, interesting read.

Oh and the title of the book? Perhaps the most successful criticism contained within the book is contained within that title. It is time, Collier argues, to move away from seeing a world of 1 billion rich people and 5 billion poor when so many of those poor are pulling themselves out of poverty. The Millennium Development Goals make this mistake by bunching the world’s poor together. A new development strategy focussed less on booming China, India and Brazil could achieve a lot more the poorest billion who, so far, seem stuck at the bottom rung.

Beginings

So I’ll be doing this Fulbright summer course this year and they suggested I keep a blog about it. Not one to pass off a chance at self publicity, voila!

The course is entitled Civic Activism which not only covers a lot but also represents a pretty major departure from my physics MSci at Imperial, of which I’ve just finished my third year. But there’s method to the madness as I’m not really cut out for the world of physics research and am hoping instead to go into a rather different field; international development. This basically involves fighting poverty, corruption and crime and generally being a superhero. Or so I wished. Instead, it seems quite a murky, messy world but I’m hoping that a bit of hardnosed scientific method should shed some light in the form of Randomised Controlled Trials which I’m really excited about but will leave for another (lengthier) blog post. 

With departure just over two weeks away now, we (there are 12 of us from the UK on 4 different courses)’ve done quite a lot to get here. Applications are essay based (name a challenge you’ve overcome in life, why do you want to do the course etc) and successful folk are then invited to interview. In Newcastle. Newcastle, if you haven’t heard, has the climate of a Siberian Autumn. And I’m sure Newcastle could be lovely, if it had the good manners to come a little further down south to chill with us lovely guys in London, Bristol and so on. Instead it stubbornly remains up ‘North’ which meant a gruelling 3 hours train journey with intermittent mobile signal and just fifteen minutes of free onboard wifi. You weren’t there man. YOU WEREN’T THERE.

And all this for a twenty minute interview, which went ok.

Visa interviews come next, a short dash across Hyde Park to the US Embassy in Mayfair. I counted fully four bars of phone signal during the entire walk. Joy. Since Fulbright is organised by the State Department there was no need for the common-person 4 hour queue, which was rather gangster, to which three slices of cheesecake only added. Yes, gangsters eat cheesecake. Meeting m’ colleagues was a pleasure, 11 of the finest people this country has to offer, all looking rather dashing in smart- casual attire.

There will be three of us from the UK taking Civic Activism, I think about twenty students in all from across Europe. We’ll be the guests of Drexel University, Philadelphia, for 5 weeks until mid August. From what I’m told, Philadelphia has a large Irish- American population, so I’m hoping to wrangle me a free drink or two with the accent. I’m also gearing up for the legendary Philly cheese steak which just sounds dangerous.

Hopefully I'll be able to fill this blog in over the two weeks leading up to the US (the trials and tribulations of buying electric adaptors and more) and then when we're actually in the place, where we'll be given video cameras for even more professional updates.

Over and out.