Laura Noonan, MPA
Since the inception of Occupy Wall Street (OWS) in September, critics and commentators have questioned both the motives and tactics of the populist movement. Perhaps the most common objection is that OWS protestors have failed to focus on a single, unifying demand. To be sure, their concerns are broad, and even at times seemingly conflicting. Issues that have been voiced include protesting social and economic inequality, high unemployment, corporate greed and corruption, and the undue influence of corporations – especially financial services firms – on the political process.
The fact is, their demands are far from simple. While some are fairly tangible (e.g. more progressive tax policies), others (like reducing the influence of Wall Street and corporations on the political process) are much more complex, requiring the overall of deeply-embedded systems.
For that reason alone, it was ultimately beneficial for the OWS movement that protestors were recently forced out of Zuccotti Park in New York City and other locations across the country. While an aggressive tactic such as ”occupation” was perhaps necessary to draw initial attention to their cause, over time it was bound to became a war of attrition, one that would be nearly impossible for the protestors to win given the lack of clear solutions to the issues they are protesting.
Semi-permanent encampments also require intense dedication from protestors, tending to draw a higher proportion of the more extreme (less understood, more easily attacked) supporters, while potentially scaring more moderate compatriots away. I, for instance, care deeply about economic and social inequality, but chose for various reasons not to join the protests. To be ultimately successful, the movement of the 99% must gain more support from the 99% of Americans they claim to represent.
In addition, to make changes within our current political system, the movement would be wise to make the distinction that they are protesting against policies which serve to protect the rich at the expense of the rest of us, not the rich themselves. Warren Buffett, who has come out against regressive tax policies, should serve as an example that the wealthiest 1% of Americans are not always the enemy.
The OWS movement does seem to be moving towards more mainstream acceptance, and is now publicly supported by a coalition of more than 70 liberal organizations, including MoveOn.org, several large labor unions, and Planned Parenthood, as well as hundreds of prominent and influential individuals. This could help to provide additional resources, legitimize the movement, and ultimately force a prioritization of demands.
It remains to be seen, however, whether the Occupy Wall Street movement will be able to have the electoral impact needed to achieve many of their stated goals. The Tea Party, a similarly ambitious and unfocused movement, was able to successfully attract candidates to run on a platform representing the movement, and to shift mainstream Republicans’ campaigns in an effort to please Tea Party constituents.
While the long-term impact of the OWS movement is still unclear, it has in many ways already been successful, primarily by starting to reframe the public discourse on inequality.
The top 1% of the individuals in the American economy take home 25% of total income, and own 40% of the wealth. Research has shown that most Americans support a much more equal distribution of resources, but are also optimistically ignorant of the level of inequality that currently exists. But this may be changing as more and more attention is drawn to the issue. The term “income inequality” is appearing more and more frequently in the media, rising from 90 mentions in the week before the protests started to nearly 500 by mid-November.
And while most Americans still think of the United States as a land of opportunity, a 2006 report from the Center for American Progress showed that among high-income countries, only the United Kingdom has a lower rate of intergenerational economic mobility than the United States. For example, children from low-income families in the US have only a 1% chance of reaching the top 5% of the income distribution, versus children of the rich, who have about a 22% chance of doing so. Simply bringing awareness to the current reality has the power to subtly change public opinion that may be based on rosier assumptions.
Getting Americans to understand current social and economic inequalities of opportunity would be an important accomplishment. Whether policies ultimately change to prevent them, however, will depend on whether the country as a whole decides that they no longer find them acceptable.
Showing posts with label Field IV (Economics). Show all posts
Showing posts with label Field IV (Economics). Show all posts
Thursday, December 8, 2011
Friday, November 18, 2011
The Dragon has been Domesticated: A benign view on the rise of China
Ankit Panda, BA
As early as 1941, historian Henry Luce controversially called the 20th century the “American Century.” And today, just 11 years in, many are ready to bestow the 21st century honors to China. In retrospect, one may argue it makes sense to dub the previous century an “American” one because the United States did, in a sense, singlehandedly drive the normative alignment of modern international institutions and norms, albeit only after Luce’s declaration. So China’s impressive growth and greater face on the international stage should cause at least some change, right? Conventional realist wisdom would have us think so, but there is good evidence that the People’s Republic, and the Chinese Communist Party, have neither the interest nor the ability to do so.
Under any regime of international law (institutional or treaty-based), states have options to 1) comply with statutes and norms, 2) create statues and norms, and 3) “evade” statutes and norms. Starting with the leadership of Deng Xiaoping, the PRC has moved more from a rule-evading country towards one more interested in complying with existing institutions. Although conventional wisdom and the media might paint a very different picture of Chinese compliance, a quick look at China’s record at the World Trade Organization and the International Monetary Fund (IMF), in addition to its response to the 2008 financial crisis, provides strong evidence to believe otherwise.
At the IMF, the PRC, once chastised for its stalwart rule-evading (and frankly, rule-ignoring) behavior, has moved towards greater compliance. While the ongoing Article IV consultations on China’s controversial monetary policy and the depreciation of the renminbi remain a source of friction, notably, Chinese rhetoric in defense of this policy emphasizes mutual interests (between the West and China) and demonstrates a real stake in the continued “success” of the global financial system. Similarly, China’s reaction to the financial crisis in 2008 was swift and in line with systematic recommendations from the IMF and the US – a $580 billion asset-relief program similar to TARP in the US. Furthermore, Chinese support of the Eurozone during its sovereign debt woes demonstrates a further willingness to take a stake in the success of the status quo (although this final point may be more politically-motivated than I’m willing to admit in this short post).
The PRC’s short history at the WTO so far also demonstrates a mixed compliance record trending towards greater compliance over the years. Initially, Chinese accession encountered several obstacles, but it ultimately managed to convince the organization that without China, the WTO wasn’t truly a “world” trade organization. The WTO is struggling with China, which, as a mechanically-complex economy based on a particular set of normative principles, refuses in several cases to acquiesce to the exogenous and incompatible norms of the institution. On the other hand, China's victory over the European Union in a December 2010 case demonstrates an example of Chinese rule-taking and compliance with the WTO. Granted, this paints China as a rule-taker when the rules enforce its self-interest. Such victories come at the cost of leverage for the West, but bring with them greater Chinese stakes in the success of the rules-based order. The liberal international order is slowly beginning to accommodate China.
While experts like Robert Kaplan and C. Fred Bergsten may identify the many political and security threats that result from a stronger China, it’s important to consider the less-exciting but equally important economic perspective. It’s difficult to say definitively that there is one lens through which we should view China – frankly that would be an oversimplification – but overall, it’s important to recognize that China has been accommodated into the current system of international political economy and that this accommodation has made it an important stakeholder in the success of that system. Unfortunately for the US, even the liberal international order will move us away from the “American Century” towards a more complex and multi-polar global order.
As early as 1941, historian Henry Luce controversially called the 20th century the “American Century.” And today, just 11 years in, many are ready to bestow the 21st century honors to China. In retrospect, one may argue it makes sense to dub the previous century an “American” one because the United States did, in a sense, singlehandedly drive the normative alignment of modern international institutions and norms, albeit only after Luce’s declaration. So China’s impressive growth and greater face on the international stage should cause at least some change, right? Conventional realist wisdom would have us think so, but there is good evidence that the People’s Republic, and the Chinese Communist Party, have neither the interest nor the ability to do so.
Under any regime of international law (institutional or treaty-based), states have options to 1) comply with statutes and norms, 2) create statues and norms, and 3) “evade” statutes and norms. Starting with the leadership of Deng Xiaoping, the PRC has moved more from a rule-evading country towards one more interested in complying with existing institutions. Although conventional wisdom and the media might paint a very different picture of Chinese compliance, a quick look at China’s record at the World Trade Organization and the International Monetary Fund (IMF), in addition to its response to the 2008 financial crisis, provides strong evidence to believe otherwise.
At the IMF, the PRC, once chastised for its stalwart rule-evading (and frankly, rule-ignoring) behavior, has moved towards greater compliance. While the ongoing Article IV consultations on China’s controversial monetary policy and the depreciation of the renminbi remain a source of friction, notably, Chinese rhetoric in defense of this policy emphasizes mutual interests (between the West and China) and demonstrates a real stake in the continued “success” of the global financial system. Similarly, China’s reaction to the financial crisis in 2008 was swift and in line with systematic recommendations from the IMF and the US – a $580 billion asset-relief program similar to TARP in the US. Furthermore, Chinese support of the Eurozone during its sovereign debt woes demonstrates a further willingness to take a stake in the success of the status quo (although this final point may be more politically-motivated than I’m willing to admit in this short post).
The PRC’s short history at the WTO so far also demonstrates a mixed compliance record trending towards greater compliance over the years. Initially, Chinese accession encountered several obstacles, but it ultimately managed to convince the organization that without China, the WTO wasn’t truly a “world” trade organization. The WTO is struggling with China, which, as a mechanically-complex economy based on a particular set of normative principles, refuses in several cases to acquiesce to the exogenous and incompatible norms of the institution. On the other hand, China's victory over the European Union in a December 2010 case demonstrates an example of Chinese rule-taking and compliance with the WTO. Granted, this paints China as a rule-taker when the rules enforce its self-interest. Such victories come at the cost of leverage for the West, but bring with them greater Chinese stakes in the success of the rules-based order. The liberal international order is slowly beginning to accommodate China.
While experts like Robert Kaplan and C. Fred Bergsten may identify the many political and security threats that result from a stronger China, it’s important to consider the less-exciting but equally important economic perspective. It’s difficult to say definitively that there is one lens through which we should view China – frankly that would be an oversimplification – but overall, it’s important to recognize that China has been accommodated into the current system of international political economy and that this accommodation has made it an important stakeholder in the success of that system. Unfortunately for the US, even the liberal international order will move us away from the “American Century” towards a more complex and multi-polar global order.
Friday, November 11, 2011
Vying with Velker: RCTs reconsidered
Shawn Powers, MPA ’11
In “Randomized Controlled Trials on Trial,” Jake Velker proposes several reasons to be skeptical of randomized controlled trials (RCTs) as a method of program evaluation. While Jake makes some good points, as a “randomista” I think the picture he paints of the RCT movement is far too pessimistic. I will consider each of his arguments in turn.
1. External validity
Jake first takes up the critique, championed by Princeton’s Angus Deaton, that RCTs suffer from external validity problems—in other words, the results of an evaluation may not generalize well to other contexts. While the criticism is frequently leveled at RCTs, the question of external validity applies to all empirical work. In general, I find these discussions about the differences between Deaton and RCT proponents a bit overblown. Perhaps this is because everyone loves a good spat between high-profile intellectuals (see also: Sachs and Easterly). In reality, according to the profile of Esther Duflo in The New Yorker that Jake references, Deaton has described his criticisms “as more in the form of an amicus brief than an attack." The arguments raised by Deaton and others are having an impact, as Jake acknowledges, and RCTs increasingly are testing rich behavioral hypotheses. The incentives of academic publication are also moving RCTs toward greater theoretical sophistication. Gone are the days when a randomized design was a novel enough identification strategy that it could propel a study to publication in a top economics journal.
Considerations of theory aside, whether or not a particular result generalizes is itself a testable, empirical question. We cannot—and should not—test everything everywhere, but if a particular approach proves effective in multiple contexts, our confidence in its “generalizability” should increase accordingly. Replication studies can also test variations in the length or intensity of treatment, disentangle the impact of different components of a program, or test how a small-scale intervention performs as it is scaled up.
If the goal is to achieve certainty that intervention X will achieve result Y in context Z, we will never achieve it, with RCTs or any other method. However, considering evidence from even one rigorous evaluation is a big improvement over flying blind. As we consider multiple evaluations, together with insights from theory and other empirical work, the picture becomes that much clearer.
2. Institutional constraints
Jake’s main criticism is that economists conducting RCTs “have been accused of ignoring the institutional constraints against which their interventions would inevitably contend if scaled up.” He cites corrupt bureaucracies, weak institutions, a lack of (or perverse) performance incentives, and budgetary problems as barriers to successful replication of programs found to be effective. The underlying message seems to be that if the RCT movement wants to influence policy successfully, it cannot just publish research findings and hope for the best.
I could not agree more with this last point, but the RCT community is much farther along on this front than Jake suggests. Both J-PAL and our sister organization, Innovations for Poverty Action (IPA), have policy staff dedicated to bringing research findings to bear on the often-messy world of policymaking. While our academic affiliates are involved with policy outreach, non-academic policy staff help extend the reach of their research findings. This process is never easy and not always successful, for all the reasons Jake mentions, but we have found that it is possible to improve policy even in very constrained environments.
As an aside, Jake also suggests that governance in developing countries is not amenable to quantitative study. I would have thought the same before I started with J-PAL, but in fact, J-PAL affiliates currently have at least 42 completed or ongoing evaluations in political economy and governance, including many that address precisely the issue he raises of the incentives of government officials and service providers.
3. Do we already know what works?
Finally, Jake entertains the idea that perhaps we already know what works, since “many of the most celebrated finds of the RCT movement are relative ‘no-brainers’.” I find this argument troubling for two reasons. First, we have been following our intuition about what works in development for decades, with not a lot to show for it. What we have seen is succession of fads, with decidedly mixed results in terms of reducing poverty. There was a time when infrastructure was the “no brainer,” later it was basic needs, still later the focus turned to sustainable development, and today infrastructure seems back in vogue. To suggest that we already know what to do invites just this kind of intellectual drift.
Second, while it may be true that many RCTs report seemingly obvious findings, some of them surprise us—and we never know in advance which those will be. For example, a number of NGOs and opinion leaders have championed the idea that distributing sanitary products to adolescent girls will remove a barrier to female education. The underlying common-sense assumption is that menstruation causes many missed days of school. However, a randomized evaluation of a program that distributed an easy-to-use sanitary product in Nepal found no significant effect on school attendance (although the girls used, and liked, the product). As always, we should avoid over-generalizing from one study, but at minimum these findings suggest that proponents of this approach should adjust their expectations about what it can deliver. In other cases, RCTs have contributed clear evidence to debates where both camps have common-sense arguments on their side, such as the vexed issue of whether, and how much, to charge poor people for basic health and education products and services. Finally, even if the qualitative findings of an RCT seem to confirm common sense, policymakers may still want to know how an intervention stacks up quantitatively against other interventions with the same goal, in terms of both raw impact and cost-effectiveness.
RCTs are no more a panacea for development than anything that came before them. But as long as there is more ideology and wishful thinking in development policymaking than evidence, I believe that the continuing growth of the RCT movement is a welcome trend.
Shawn Powers is a Policy Manager at the Abdul Latif Jameel Poverty Action Lab (J-PAL). The opinions expressed here are his own.
In “Randomized Controlled Trials on Trial,” Jake Velker proposes several reasons to be skeptical of randomized controlled trials (RCTs) as a method of program evaluation. While Jake makes some good points, as a “randomista” I think the picture he paints of the RCT movement is far too pessimistic. I will consider each of his arguments in turn.
1. External validity
Jake first takes up the critique, championed by Princeton’s Angus Deaton, that RCTs suffer from external validity problems—in other words, the results of an evaluation may not generalize well to other contexts. While the criticism is frequently leveled at RCTs, the question of external validity applies to all empirical work. In general, I find these discussions about the differences between Deaton and RCT proponents a bit overblown. Perhaps this is because everyone loves a good spat between high-profile intellectuals (see also: Sachs and Easterly). In reality, according to the profile of Esther Duflo in The New Yorker that Jake references, Deaton has described his criticisms “as more in the form of an amicus brief than an attack." The arguments raised by Deaton and others are having an impact, as Jake acknowledges, and RCTs increasingly are testing rich behavioral hypotheses. The incentives of academic publication are also moving RCTs toward greater theoretical sophistication. Gone are the days when a randomized design was a novel enough identification strategy that it could propel a study to publication in a top economics journal.
Considerations of theory aside, whether or not a particular result generalizes is itself a testable, empirical question. We cannot—and should not—test everything everywhere, but if a particular approach proves effective in multiple contexts, our confidence in its “generalizability” should increase accordingly. Replication studies can also test variations in the length or intensity of treatment, disentangle the impact of different components of a program, or test how a small-scale intervention performs as it is scaled up.
If the goal is to achieve certainty that intervention X will achieve result Y in context Z, we will never achieve it, with RCTs or any other method. However, considering evidence from even one rigorous evaluation is a big improvement over flying blind. As we consider multiple evaluations, together with insights from theory and other empirical work, the picture becomes that much clearer.
2. Institutional constraints
Jake’s main criticism is that economists conducting RCTs “have been accused of ignoring the institutional constraints against which their interventions would inevitably contend if scaled up.” He cites corrupt bureaucracies, weak institutions, a lack of (or perverse) performance incentives, and budgetary problems as barriers to successful replication of programs found to be effective. The underlying message seems to be that if the RCT movement wants to influence policy successfully, it cannot just publish research findings and hope for the best.
I could not agree more with this last point, but the RCT community is much farther along on this front than Jake suggests. Both J-PAL and our sister organization, Innovations for Poverty Action (IPA), have policy staff dedicated to bringing research findings to bear on the often-messy world of policymaking. While our academic affiliates are involved with policy outreach, non-academic policy staff help extend the reach of their research findings. This process is never easy and not always successful, for all the reasons Jake mentions, but we have found that it is possible to improve policy even in very constrained environments.
As an aside, Jake also suggests that governance in developing countries is not amenable to quantitative study. I would have thought the same before I started with J-PAL, but in fact, J-PAL affiliates currently have at least 42 completed or ongoing evaluations in political economy and governance, including many that address precisely the issue he raises of the incentives of government officials and service providers.
3. Do we already know what works?
Finally, Jake entertains the idea that perhaps we already know what works, since “many of the most celebrated finds of the RCT movement are relative ‘no-brainers’.” I find this argument troubling for two reasons. First, we have been following our intuition about what works in development for decades, with not a lot to show for it. What we have seen is succession of fads, with decidedly mixed results in terms of reducing poverty. There was a time when infrastructure was the “no brainer,” later it was basic needs, still later the focus turned to sustainable development, and today infrastructure seems back in vogue. To suggest that we already know what to do invites just this kind of intellectual drift.
Second, while it may be true that many RCTs report seemingly obvious findings, some of them surprise us—and we never know in advance which those will be. For example, a number of NGOs and opinion leaders have championed the idea that distributing sanitary products to adolescent girls will remove a barrier to female education. The underlying common-sense assumption is that menstruation causes many missed days of school. However, a randomized evaluation of a program that distributed an easy-to-use sanitary product in Nepal found no significant effect on school attendance (although the girls used, and liked, the product). As always, we should avoid over-generalizing from one study, but at minimum these findings suggest that proponents of this approach should adjust their expectations about what it can deliver. In other cases, RCTs have contributed clear evidence to debates where both camps have common-sense arguments on their side, such as the vexed issue of whether, and how much, to charge poor people for basic health and education products and services. Finally, even if the qualitative findings of an RCT seem to confirm common sense, policymakers may still want to know how an intervention stacks up quantitatively against other interventions with the same goal, in terms of both raw impact and cost-effectiveness.
RCTs are no more a panacea for development than anything that came before them. But as long as there is more ideology and wishful thinking in development policymaking than evidence, I believe that the continuing growth of the RCT movement is a welcome trend.
Shawn Powers is a Policy Manager at the Abdul Latif Jameel Poverty Action Lab (J-PAL). The opinions expressed here are his own.
Thursday, October 27, 2011
What Do We Do With Data Soup?
Katherine DiSalvo, MPA
As policy professionals, we’re likely to encounter messes of contradictory findings more and more throughout our careers.
There is contradictory data on important issues like the real level of US poverty, whether moving people out of a neighborhood of concentrated poverty improves their chances in life, the success of charter schools, or the effectiveness of giving away free bed-nets to combat malaria.
Do you know what to do with data soup? At the Woodrow Wilson School, I don’t think we students learn this sufficiently.
According to R. Kent Weaver, in Ending Welfare as We Know It (Brookings, 2000), the 1980s and 1990s saw a “multiplication” of policy research with “differing assumptions and conclusions.” Simultaneously, interest groups were adopting social science techniques and creating “a welter of conflicting findings.” In a separate article Weaver and a colleague assert that this may result in the “devaluation of the currency” of policy research. Weaver argues that it may “cause legislators to simply dismiss all evidence that does not fit their personal or constituency preferences.”
Devaluation of policy research is becoming commonplace. Even in the era of “data-driven” education leadership, Brenda Welburn, the head of the National Association of State Boards of Education (NASBE), recently told a WWS workshop team researching “School Choice and Impacts on Cities” that State Boards of Education members don’t know whose data to trust. As board members attempt to make state education policy and funding decisions, sometimes they don’t know how to do it with facts. “We [at NASBE] are dealing with perceptions, often,” Welburn said.
I don’t think it’s easy to digest data soup, and I think the Woodrow Wilson School needs to do more to help its students develop this ability. You may scoff and tell me you know how to wade through the stew. You know statistics! You know what research methods matter!
I don’t think any policy professional can rely on statistical prowess alone. The statistics program at the Wilson School is strong, and its decision to expand statistics requirements was a good one. However, with our limited time we students (not to mention professionals) cannot dig into data sets, look at assumptions, and evaluate every conclusion we read for ourselves. While some such analysis might be possible before an important policy decision or publication, we consume too much information to scrutinize it all.
The best proof that policy students won’t always use technical skills to sort through conflicting data professionally is that Woodrow Wilson students don’t always do so here! When I encounter conflicting data in classes, I’m too often told we students should dig deeper and decide who’s right…later.
We can’t rely exclusively on the “the gold standard” professors teach us to love: data generated by randomized control trials (RCTs). This creates an easy top tier of information on too few topics. Additionally, all the emphasis we hear on the “gold standard” may lead us to trust in RCT-based research too easily. The best part of the WWS course on data-based decision making is hearing Professor Lorenzo Moreno talk about how complicated it can be to do the right thing in the evaluation field. All that glitters…
We policy students need more practice criticizing questionable research. We need more practice wading through data mess and taking and defending a stand – not on politics, as we do in the introductory 501 course, Politics and Public Policy, but a stand on what we think is the truth. We need more sophisticated conversations about what data to trust and about how to evaluate vendors of policy research when we cannot evaluate each product. We need more shorthand than one “gold” standard.
We also need to talk about making policy in a world where different “facts” are consumed by different constituencies, and the truth is always up for debate. It’s the world in which we live, and it’s likely to get worse. If the Woodrow Wilson School could prepare us to digest data soup and to help change these cooking trends, that would truly be in the nation’s service and in the service of all nations.
As policy professionals, we’re likely to encounter messes of contradictory findings more and more throughout our careers.
There is contradictory data on important issues like the real level of US poverty, whether moving people out of a neighborhood of concentrated poverty improves their chances in life, the success of charter schools, or the effectiveness of giving away free bed-nets to combat malaria.
Do you know what to do with data soup? At the Woodrow Wilson School, I don’t think we students learn this sufficiently.
According to R. Kent Weaver, in Ending Welfare as We Know It (Brookings, 2000), the 1980s and 1990s saw a “multiplication” of policy research with “differing assumptions and conclusions.” Simultaneously, interest groups were adopting social science techniques and creating “a welter of conflicting findings.” In a separate article Weaver and a colleague assert that this may result in the “devaluation of the currency” of policy research. Weaver argues that it may “cause legislators to simply dismiss all evidence that does not fit their personal or constituency preferences.”
Devaluation of policy research is becoming commonplace. Even in the era of “data-driven” education leadership, Brenda Welburn, the head of the National Association of State Boards of Education (NASBE), recently told a WWS workshop team researching “School Choice and Impacts on Cities” that State Boards of Education members don’t know whose data to trust. As board members attempt to make state education policy and funding decisions, sometimes they don’t know how to do it with facts. “We [at NASBE] are dealing with perceptions, often,” Welburn said.
I don’t think it’s easy to digest data soup, and I think the Woodrow Wilson School needs to do more to help its students develop this ability. You may scoff and tell me you know how to wade through the stew. You know statistics! You know what research methods matter!
I don’t think any policy professional can rely on statistical prowess alone. The statistics program at the Wilson School is strong, and its decision to expand statistics requirements was a good one. However, with our limited time we students (not to mention professionals) cannot dig into data sets, look at assumptions, and evaluate every conclusion we read for ourselves. While some such analysis might be possible before an important policy decision or publication, we consume too much information to scrutinize it all.
The best proof that policy students won’t always use technical skills to sort through conflicting data professionally is that Woodrow Wilson students don’t always do so here! When I encounter conflicting data in classes, I’m too often told we students should dig deeper and decide who’s right…later.
We can’t rely exclusively on the “the gold standard” professors teach us to love: data generated by randomized control trials (RCTs). This creates an easy top tier of information on too few topics. Additionally, all the emphasis we hear on the “gold standard” may lead us to trust in RCT-based research too easily. The best part of the WWS course on data-based decision making is hearing Professor Lorenzo Moreno talk about how complicated it can be to do the right thing in the evaluation field. All that glitters…
We policy students need more practice criticizing questionable research. We need more practice wading through data mess and taking and defending a stand – not on politics, as we do in the introductory 501 course, Politics and Public Policy, but a stand on what we think is the truth. We need more sophisticated conversations about what data to trust and about how to evaluate vendors of policy research when we cannot evaluate each product. We need more shorthand than one “gold” standard.
We also need to talk about making policy in a world where different “facts” are consumed by different constituencies, and the truth is always up for debate. It’s the world in which we live, and it’s likely to get worse. If the Woodrow Wilson School could prepare us to digest data soup and to help change these cooking trends, that would truly be in the nation’s service and in the service of all nations.
Friday, September 23, 2011
"Randomized control trials" on trial: Evaluating the efficacy of RCTs
Jake Velker, MPA
Are randomized trials the way to finally start making a dent in reducing poverty, after years of hopeful thinking and disappointing results? Does this tool for evidence-based policymaking hold the key for practitioners to determine which poverty reduction programs work and which don’t? These questions motivate two recent books published by researchers who are at the vanguard of the randomized control trials (RCT) movement: More Than Good Intentions by Dean Karlan and Jacob Appel of Innovations for Poverty Action (IPA) and Poor Economics by Abhijit Banerjee and Esther Duflo of the Abdul Latif Jameel Poverty Action Lab (J-PAL). They deliberately introduce randomization in the implementation of anti-poverty measures to provide confidence in the programs’ efficacy (or lack thereof).
The results thus far have been dramatic and not always intuitive: microfinance is less effective than we hoped [1]; free bed nets are used more often (and prevent more malaria) than those that cost money.[2] IPA and J-PAL are currently involved in dozens of trials and are generally credited with bringing an unprecedented level of rigor to the evaluation of development—a field normally dominated by grand theories and polemics.
Enough praise has been heaped on the “randomistas” that I feel confident I can focus on the criticisms of their methodology without sounding uncharitable.[3]
The first criticism—leveled forcefully by Princeton’s Angus Deaton—is that randomized trials do not help us in any systematic way to gain an understanding of why interventions work.[4] In this sense, IPA and J-PAL are part of a broader trend in economic research that eschews theory in favor of real-world applications and problem-solving. This is irksome for many economists, particularly those who believe that poverty cannot be solved without a broader accounting of the mechanisms that keep people trapped in poverty. Randomized trials are beginning to test theoretical frameworks more directly, but there is still much progress to be made.
The most relevant criticism, however, is political. IPA and J-PAL economists have been accused of ignoring the institutional constraints against which their interventions would inevitably contend if scaled up. Often, research from randomized trials offers a conclusion like “we find that intervention X lowers Y disease transmission by Z percent.” While it is extremely helpful to have confidence in the efficacy of a treatment, glaring questions remain. Does the program work when it is implemented by a weak bureaucracy, rather than university-trained researchers? At scale, who will be responsible for administering the recommended program? What are their incentives to perform? Where will the money come from? If the intervention is so successful, were there good reasons it wasn’t tried before?
A troubling case in point involves one of the most heralded studies from the RCT movement to date. Working in Kenya, economists Michael Kremer and Ted Miguel found that providing de-worming medicine to students boosted school attendance cost-effectively.[5] Spurred by their research, the Kenyan government committed to making de-worming medicine available to more than 3,000,000 of its primary school children in 2009. But the policy was recently discontinued due to a dispute between the Kenyan government and international donors over corruption and the administration of education funding.[6] It should go without saying that for the ultra-poor, these sorts of bureaucratic obstacles are the norm, rather than the exception.
If economics is just supply and demand, the work of IPA and J-PAL has focused thus far mostly on demand. It is difficult to quantitatively study governance—imagine what an RCT studying a poor country’s provincial governance, for example, might look like—and even harder to actually improve the quality of basic services in developing countries. So many of the interventions RCTs have found to be effective involve classic public goods, which by definition remain under-provisioned by private markets. But the bureaucracies of developing countries are generally ineffective, if not downright corrupt. This is where economics loses its relevance and institutions and leadership rear their ugly heads.
These problems have not been amenable to ever-more creative randomized trials. In fact, many of the most celebrated finds of the RCT movement are relative “no-brainers.” Who, after all, would argue against treating poor school children for intestinal worms? Esther Duflo and her colleagues have said that we do not know what works. Many would respond that we know perfectly well what works; but do not know how to do it. Perhaps the real questions start once an intervention has been proven to work.
Randomistas respond to this critique as follows. First, it was never their ambition to overhaul the political economy of the developing world. The fact that they have found real evidence of effective interventions is in itself a major accomplishment. They believe that their approach can improve lives even in discouraging political settings. They are not promising a sweeping social revolution, but rather a “quiet revolution” of incremental gains. And even critics will concede that though the modesty of this approach may be unsatisfying, it is nonetheless an improvement on the empty promises all too frequent in the development world.
------------------------
References
[1] Abhijit Banerjeey, Esther Duflo, Rachel Glennerster, and Cynthia Kinnan, “The miracle of microfinance? Evidence from a randomized evaluation,” Working Paper (unpublished), May 2009.
[2] Jessica Cohen and Pascaline Dupas, “Free Distribution or Cost-Sharing? Evidence from a Randomized Malaria Prevention Experiment,” Quarterly Journal of Economics, Vol. 125:1, 2010.
[3] For examples of such praise, see: Ian Parker, “The Poverty Lab: Transforming development economics, one experiment at a time,” New Yorker, May 2010; James Crabtree, “Attested Development,” Financial Times, April 2011; William Easterly, “Measuring How and Why Aid Works – or Doesn’t,” Wall Street Journal, April 2011; Ben Goldacre, “How can you tell if a policy is working? Run a trial,” The Guardian, May 2011; and Nicholas Kristof, “Getting Smart on Aid,” New York Times, May 2011.
[4] Angus Deaton, “Instruments, Randomization, and Learning about Development,” Journal of Economic Literature, Vol. 48:2, June 2010.
[5] Edward Miguel and Michael Kremer, “Worms: Identifying Impacts on Education and Health in the Presence of Treatment Externalities,” Econometrica, Vol. 72: 1, January 2004.
[6] Justin Sandefur, “Held Hostage: Funding for a Proven Success in Global Development on Hold in Kenya,” Global Development: Views from the Center blog, Center for Global Development, April 2011.
Are randomized trials the way to finally start making a dent in reducing poverty, after years of hopeful thinking and disappointing results? Does this tool for evidence-based policymaking hold the key for practitioners to determine which poverty reduction programs work and which don’t? These questions motivate two recent books published by researchers who are at the vanguard of the randomized control trials (RCT) movement: More Than Good Intentions by Dean Karlan and Jacob Appel of Innovations for Poverty Action (IPA) and Poor Economics by Abhijit Banerjee and Esther Duflo of the Abdul Latif Jameel Poverty Action Lab (J-PAL). They deliberately introduce randomization in the implementation of anti-poverty measures to provide confidence in the programs’ efficacy (or lack thereof).
The results thus far have been dramatic and not always intuitive: microfinance is less effective than we hoped [1]; free bed nets are used more often (and prevent more malaria) than those that cost money.[2] IPA and J-PAL are currently involved in dozens of trials and are generally credited with bringing an unprecedented level of rigor to the evaluation of development—a field normally dominated by grand theories and polemics.
Enough praise has been heaped on the “randomistas” that I feel confident I can focus on the criticisms of their methodology without sounding uncharitable.[3]
The first criticism—leveled forcefully by Princeton’s Angus Deaton—is that randomized trials do not help us in any systematic way to gain an understanding of why interventions work.[4] In this sense, IPA and J-PAL are part of a broader trend in economic research that eschews theory in favor of real-world applications and problem-solving. This is irksome for many economists, particularly those who believe that poverty cannot be solved without a broader accounting of the mechanisms that keep people trapped in poverty. Randomized trials are beginning to test theoretical frameworks more directly, but there is still much progress to be made.
The most relevant criticism, however, is political. IPA and J-PAL economists have been accused of ignoring the institutional constraints against which their interventions would inevitably contend if scaled up. Often, research from randomized trials offers a conclusion like “we find that intervention X lowers Y disease transmission by Z percent.” While it is extremely helpful to have confidence in the efficacy of a treatment, glaring questions remain. Does the program work when it is implemented by a weak bureaucracy, rather than university-trained researchers? At scale, who will be responsible for administering the recommended program? What are their incentives to perform? Where will the money come from? If the intervention is so successful, were there good reasons it wasn’t tried before?
A troubling case in point involves one of the most heralded studies from the RCT movement to date. Working in Kenya, economists Michael Kremer and Ted Miguel found that providing de-worming medicine to students boosted school attendance cost-effectively.[5] Spurred by their research, the Kenyan government committed to making de-worming medicine available to more than 3,000,000 of its primary school children in 2009. But the policy was recently discontinued due to a dispute between the Kenyan government and international donors over corruption and the administration of education funding.[6] It should go without saying that for the ultra-poor, these sorts of bureaucratic obstacles are the norm, rather than the exception.
If economics is just supply and demand, the work of IPA and J-PAL has focused thus far mostly on demand. It is difficult to quantitatively study governance—imagine what an RCT studying a poor country’s provincial governance, for example, might look like—and even harder to actually improve the quality of basic services in developing countries. So many of the interventions RCTs have found to be effective involve classic public goods, which by definition remain under-provisioned by private markets. But the bureaucracies of developing countries are generally ineffective, if not downright corrupt. This is where economics loses its relevance and institutions and leadership rear their ugly heads.
These problems have not been amenable to ever-more creative randomized trials. In fact, many of the most celebrated finds of the RCT movement are relative “no-brainers.” Who, after all, would argue against treating poor school children for intestinal worms? Esther Duflo and her colleagues have said that we do not know what works. Many would respond that we know perfectly well what works; but do not know how to do it. Perhaps the real questions start once an intervention has been proven to work.
Randomistas respond to this critique as follows. First, it was never their ambition to overhaul the political economy of the developing world. The fact that they have found real evidence of effective interventions is in itself a major accomplishment. They believe that their approach can improve lives even in discouraging political settings. They are not promising a sweeping social revolution, but rather a “quiet revolution” of incremental gains. And even critics will concede that though the modesty of this approach may be unsatisfying, it is nonetheless an improvement on the empty promises all too frequent in the development world.
------------------------
References
[1] Abhijit Banerjeey, Esther Duflo, Rachel Glennerster, and Cynthia Kinnan, “The miracle of microfinance? Evidence from a randomized evaluation,” Working Paper (unpublished), May 2009.
[2] Jessica Cohen and Pascaline Dupas, “Free Distribution or Cost-Sharing? Evidence from a Randomized Malaria Prevention Experiment,” Quarterly Journal of Economics, Vol. 125:1, 2010.
[3] For examples of such praise, see: Ian Parker, “The Poverty Lab: Transforming development economics, one experiment at a time,” New Yorker, May 2010; James Crabtree, “Attested Development,” Financial Times, April 2011; William Easterly, “Measuring How and Why Aid Works – or Doesn’t,” Wall Street Journal, April 2011; Ben Goldacre, “How can you tell if a policy is working? Run a trial,” The Guardian, May 2011; and Nicholas Kristof, “Getting Smart on Aid,” New York Times, May 2011.
[4] Angus Deaton, “Instruments, Randomization, and Learning about Development,” Journal of Economic Literature, Vol. 48:2, June 2010.
[5] Edward Miguel and Michael Kremer, “Worms: Identifying Impacts on Education and Health in the Presence of Treatment Externalities,” Econometrica, Vol. 72: 1, January 2004.
[6] Justin Sandefur, “Held Hostage: Funding for a Proven Success in Global Development on Hold in Kenya,” Global Development: Views from the Center blog, Center for Global Development, April 2011.
Friday, April 15, 2011
Tirade for a smoggy day: The hidden costs of endless consumption
Katherine Manchester MPA
The psychoanalytic term “cathexis” refers to a process of attachment where we come to think of material goods as extensions of ourselves. Today’s American consumer culture – where even national parks are commodities for those vacationers who can afford them – might be described in this way. Starting in the 1950s, when wartime efficiency in manufacturing turned from supplying military needs to supplying civilian wants, government policies have intervened to make sure that demand keeps up with supply. Financial incentives subsidize the cost of housing, cars, and household appliances, recasting consumption as patriotic and necessary for economic growth, while allowing industrialists to engineer built-in obsolescence into their products.
With increased consumption and disposability comes increased pollution: the average American is now responsible for 20 tons of carbon dioxide emissions annually, five times the emissions of the average person on the planet. The impact of American consumption habits on the world is two-fold: (1) affecting the global environment through disproportionately heavy resource use, of which most of the resulting pollutants are externalized; and (2) modeling an affluent lifestyle that we admit is unsustainable on a global scale, yet while refusing to alter our own behavior.
On one hand, the nature of American production systems makes it all too easy for decision makers to ignore many of their environmentally harmful impacts.* On the domestic level, having power plants physically removed from urban areas, combined with utility subsidies and electricity’s “clean” appearance at the point of consumption, propagate misconceptions about the abundance and low price of using fossil fuels. On the international level, increasingly globalized production chains disguise the real costs of manufacturing these products.
On the other hand, even when we are aware of industry’s impacts, we are more than willing to defray those costs to the developing world. In a leaked memo in 1991, the ever-quotable Larry Summers, then chief economist for the World Bank, mused over the “impeccable economic logic behind dumping a load of toxic waste in the lowest wage country.” Why, he questioned, should toxic chemical waste not be disposed of in “under-polluted” regions such as Africa? Couldn’t that serve as their comparative advantage in global trade? Attitudes of this sort within the leadership hamper the realization that the United States exists within a closed system of finite resources, and that significant changes are needed to maintain a comfortable standard of living in the long term.
Inspired by our terrible example, many in the developing world are striving to reach such a quality of life. Over one billion people from developing countries, 41% of them in China and India, have recently joined the ranks of established OECD consumers. These new consumers own virtually all of their respective countries’ cars and are adopting resource-intensive preferences such as a meat-heavy diet and increased use of electricity. These preferences have already had global impacts, such as the recent increase in the price of grain due to pressure on international markets.
Granted, a major difference between consumption in the 1950s and today is the contribution of technological innovation for increased production efficiency. But even as energy intensity has fallen, consumption in absolute terms has soared, with worldwide emissions of carbon dioxide growing at an average of 3% annually since 2000. Yes, technological efficiency must continue to play a vital role in cutting down the rate of dangerous emissions, but a simultaneous, absolute reduction in resource consumption seems unavoidable. Agriculture land already takes up 40% of the earth’s ice-free lands; urban areas, roads, and airports take up another 2% of land area; forest coverage has decreased by 50 million square kilometers and deserts have expanded by almost 10 million square kilometers.
To achieve lower consumption patterns, the United States will have to invest in expensive structural and institutional changes, including revamping public transport systems and providing economic incentives for retrofitting housing, offices, and factories. Greater investment is needed for research into renewable energies, and for helping farmers convert to environmentally responsible crops. These are politically unpopular proposals to be sure, but the wave of consumerism that began in the 1950s – created by government policies, corporations, and individuals - could be similarly reversed if these same actors put their minds to it.
*This is not so true for low-income and minority communities which, despite great progress made by advocates for environmental justice, are disproportionately burdened with the likes of garbage incinerators, landfills, and power plants.
----------------
Sources:
1. “Furor on Memo at World Bank,” The New York Times, February 7, 1992.
2. Ramachandra Guha, “How much should a person consume?” in How Much Should a Person Consume? Berkley: University of California Press, 2006.
3. John Holdren, “Science and Technology for Sustainable Well Being,” Science 319:5862, January 2008.
4. Norman Myers and Jennifer Kent, “New consumers: The influence of affluence on the environment,” Proceedings of the National Academy of Sciences 100:8, 2003.
5. Heather Rogers, Gone Tomorrow: The Hidden Life of Garbage, New York: New Press, 2005.
The psychoanalytic term “cathexis” refers to a process of attachment where we come to think of material goods as extensions of ourselves. Today’s American consumer culture – where even national parks are commodities for those vacationers who can afford them – might be described in this way. Starting in the 1950s, when wartime efficiency in manufacturing turned from supplying military needs to supplying civilian wants, government policies have intervened to make sure that demand keeps up with supply. Financial incentives subsidize the cost of housing, cars, and household appliances, recasting consumption as patriotic and necessary for economic growth, while allowing industrialists to engineer built-in obsolescence into their products.
With increased consumption and disposability comes increased pollution: the average American is now responsible for 20 tons of carbon dioxide emissions annually, five times the emissions of the average person on the planet. The impact of American consumption habits on the world is two-fold: (1) affecting the global environment through disproportionately heavy resource use, of which most of the resulting pollutants are externalized; and (2) modeling an affluent lifestyle that we admit is unsustainable on a global scale, yet while refusing to alter our own behavior.
On one hand, the nature of American production systems makes it all too easy for decision makers to ignore many of their environmentally harmful impacts.* On the domestic level, having power plants physically removed from urban areas, combined with utility subsidies and electricity’s “clean” appearance at the point of consumption, propagate misconceptions about the abundance and low price of using fossil fuels. On the international level, increasingly globalized production chains disguise the real costs of manufacturing these products.
On the other hand, even when we are aware of industry’s impacts, we are more than willing to defray those costs to the developing world. In a leaked memo in 1991, the ever-quotable Larry Summers, then chief economist for the World Bank, mused over the “impeccable economic logic behind dumping a load of toxic waste in the lowest wage country.” Why, he questioned, should toxic chemical waste not be disposed of in “under-polluted” regions such as Africa? Couldn’t that serve as their comparative advantage in global trade? Attitudes of this sort within the leadership hamper the realization that the United States exists within a closed system of finite resources, and that significant changes are needed to maintain a comfortable standard of living in the long term.
Inspired by our terrible example, many in the developing world are striving to reach such a quality of life. Over one billion people from developing countries, 41% of them in China and India, have recently joined the ranks of established OECD consumers. These new consumers own virtually all of their respective countries’ cars and are adopting resource-intensive preferences such as a meat-heavy diet and increased use of electricity. These preferences have already had global impacts, such as the recent increase in the price of grain due to pressure on international markets.
Granted, a major difference between consumption in the 1950s and today is the contribution of technological innovation for increased production efficiency. But even as energy intensity has fallen, consumption in absolute terms has soared, with worldwide emissions of carbon dioxide growing at an average of 3% annually since 2000. Yes, technological efficiency must continue to play a vital role in cutting down the rate of dangerous emissions, but a simultaneous, absolute reduction in resource consumption seems unavoidable. Agriculture land already takes up 40% of the earth’s ice-free lands; urban areas, roads, and airports take up another 2% of land area; forest coverage has decreased by 50 million square kilometers and deserts have expanded by almost 10 million square kilometers.
To achieve lower consumption patterns, the United States will have to invest in expensive structural and institutional changes, including revamping public transport systems and providing economic incentives for retrofitting housing, offices, and factories. Greater investment is needed for research into renewable energies, and for helping farmers convert to environmentally responsible crops. These are politically unpopular proposals to be sure, but the wave of consumerism that began in the 1950s – created by government policies, corporations, and individuals - could be similarly reversed if these same actors put their minds to it.
*This is not so true for low-income and minority communities which, despite great progress made by advocates for environmental justice, are disproportionately burdened with the likes of garbage incinerators, landfills, and power plants.
----------------
Sources:
1. “Furor on Memo at World Bank,” The New York Times, February 7, 1992.
2. Ramachandra Guha, “How much should a person consume?” in How Much Should a Person Consume? Berkley: University of California Press, 2006.
3. John Holdren, “Science and Technology for Sustainable Well Being,” Science 319:5862, January 2008.
4. Norman Myers and Jennifer Kent, “New consumers: The influence of affluence on the environment,” Proceedings of the National Academy of Sciences 100:8, 2003.
5. Heather Rogers, Gone Tomorrow: The Hidden Life of Garbage, New York: New Press, 2005.
Wednesday, April 6, 2011
Between North and South: Reorienting Mexico’s trade posture
Héber M. Delgado-Medrano, MPA
In recent years, perhaps for the first time in its history, Mexico saw itself and its northern neighbors in a weaker economic position than its South American counterparts. As the US sank deeper and deeper into a recession, Mexico was brought along for the ride, which culminated in a spectacular contraction of almost 7% of Mexico’s GDP in 2009. As a result, many Mexican intellectuals and policymakers have begun to ask themselves whether Mexico’s prospects in North America are still better than elsewhere. Some go so far as to suggest that Mexico should simply reorient its economy entirely towards the South. And yet others exhort Mexico not to turn its back on the NAFTA project just yet, claiming that further benefits from North American integration are still to come and that further unification with the North is the answer, not less.
Based on these arguments, Mexico faces a stark choice: look either towards the North or the South, but not both. But the sensible course of action, I believe, lies somewhere in between. Mexico can neither ignore the benefits of its privileged—though admittedly oftentimes troubled—relationship with the US, nor can it overlook the opportunities waiting for Mexico in South America, which are real and in many ways are already materializing. Instead of burning bridges to build others or cementing old relationships while disregarding new opportunities, Mexico should establish an explicit policy that seeks to convert it into a critical link connecting the diverse economies of all of the Americas.
In the past 15 years, mostly as a result of the implementation of NAFTA, Mexico has reached an extraordinary degree of economic integration with the US and—to a lesser degree—with Canada. Today, 80.5% of Mexico’s exports end up in the US, while the most dynamic and critical sectors in the Mexican economy—export-oriented manufactures and tourism—are highly dependent on foreign direct investment (FDI) and consumption from the US. NAFTA in many ways remains incomplete and many gaps remain to be filled, but as we saw just a few weeks ago when presidents Obama and Calderon (partially) settled a long-held dispute regarding the access of Mexican trucks into the US, there is still enough goodwill between both nations to continue along the slow but constant path towards further economic integration.
This is evident in both countries today. Visitors to Mexico City are amazed—perhaps disappointed—by the seemingly endless supply of Starbucks they encounter along Paseo de la Reforma. Northern cities like Chihuahua that have been invaded by American chains and are now crisscrossed by American-style superhighways are looking more and more like El Paso, Texas or Phoenix, Arizona. Wal-Mart, too, today is ubiquitous throughout Mexico, as one of the largest businesses and employers in the country. In the US, you also see a stronger, albeit more subtle, Mexican presence: has anyone else noticed that Mexican glass-bottled Coca-Cola is now offered in many convenience stores across the US?
But the weaknesses of this economic marriage (made nowhere near heaven) were crudely exposed during the last recession: when the US faltered, the effects were greatly amplified in Mexico. Mexico was by far the hardest hit Latin American country during the 2009 recession. Given that states like Brazil, Chile, and Colombia fared much better, it begs the question: is Mexico now facing the consequences of putting all its eggs in one basket? Should Mexico therefore rethink its commercial orientation?
North Americanistas like NYU professor and former Mexican secretary of foreign affairs Jorge Castañeda begin by highlighting the incontrovertible benefits that have accrued to Mexico as a result of NAFTA and point out Mexico’s solid economic recovery as the US lifts itself out of the recession: 5.5% growth in 2010 and projected 4.0-5.0% growth for 2011. Further, Castañeda and others who share his view claim that in order to prosper Mexico needs to tighten the gap between itself and its North American neighbors by pushing for deeper economic, political and social integration with the North. From this point of view what Mexico needs to do is not turn its back on the US but to pursue a tighter relationship with the North that eliminates the loopholes and imperfections still plaguing NAFTA. Castañeda thus calls for a liberalization of the labor markets between the three countries, further and more serious cooperation on security issues, and even a North American economic union in the long run.
The Latin Americanistas on the other hand, which to my knowledge are not unified under the aegis of any particular individual, begin by questioning whether the United States will ever once again become the economic dynamo it was during the 20th century and whether Mexico has greater prospects for growth by integrating with the rapidly-growing economies of South America. They remind us that Brazil, Argentina, and Colombia have large consumer markets with increasing purchasing power and that Mexico is already well-positioned to enter and even dominate many industries within these markets. Mexican firms in telecommunications, mining, services, food processing and distribution, cement, and other key sectors are oftentimes larger and more productive than their Latin American counterparts. Already, Mexican business magnate Carlos Slim has extended his tentacles to every corner of Latin America with his telecom giant Telmex (known as Claro in some countries), which is now the leading player in countries as wide-ranging as the Dominican Republic, Colombia, and Chile. Other companies like Cemex, Bimbo (the largest bakery in the world), and even FEMSAS’s Oxxo convenience stores are also rapidly growing in South America. Moreover, many economic analysts are asking themselves why Mexico can’t export to Brazil and other countries the high-tech goods and consumer durables it exports to the US that are not produced elsewhere in Latin America: smartphones, plasma televisions, refrigerators, etc. Finally, economic integration between Mexico and the rest of Latin America is already on the table: just last week, Peruvian president Alan García announced in Bogotá that Mexico, Colombia, Peru, and Chile are planning to form an economic bloc to strengthen integration between the four countries and promote a common cross-continental trade agenda.
Certainly both of these views have their advantages, but they each flatly ignore the drawbacks of their own recommendations. Further economic, political, and social integration with North America will be anything but easy. Immigration policy in the US is becoming tighter, not laxer, and the political climate in the US may resist further liberalization in the labor markets for some time. Similarly, simply mentioning the prospect of a North American economic union in the US elicits passionate and—more often than not—negative responses, particularly as the world continues to witness how the European Union struggles to keep Greece and Portugal afloat. And perhaps more importantly, we cannot ignore the fact that Mexico needs to hedge its risks. Having a globalization and trade strategy that is contingent on the economic fates of only two countries is simply irresponsible.
On the other hand, despite appearances Latin America is not all fun and games. The spectacular growth of countries like Peru, Brazil and Argentina in the past few years has relied to a large extent on their exports of raw materials and commodities to China and other countries around the world. It is unlikely that these high rates of growth will continue forever, particularly if further economic reforms are not pursued in these countries. It is therefore not clear whether these economies will continue to mature at the same high rate or whether and how fast they will grow into the large and wealthy consumer markets they are expected to become. More importantly, South American economies are becoming increasingly competitive as well and they may be able to service their own markets before Mexico or other large players in the region may arrive to satisfy the needs of local consumers.
The prudent course of action is therefore not one that chooses one region over the other, but rather one that (1) explicitly recognizes the risks of concentrating all of Mexico’s commerce in one region, and (2) seeks to establish and strengthen its ties with both North and South America by (3) promoting further integration with the North and (4) fostering trade with the Caribbean and Central and South America. Specifically, as Mexico continues to promote its integrationist agenda with North America—particularly with regards to labor migration, security issues, and correcting the deficiencies of NAFTA—it should assist competitive Mexican businesses in accessing southern markets by negotiating lower barriers to trade and more actively promoting their entry into those markets. Additionally, Mexico should establish policies that continue to attract FDI from the US and Canada, but also from strong South American economies like Brazil and Chile and even Colombia and Peru. Finally, Mexico should create incentives for foreign investors to export from Mexico to Latin American countries in addition to exporting to the US and Canada.
All of these things are easier said than done, but they are feasible and in some respect already happening. The Mexican government now needs to define a unified North-plus-South trade policy explicitly and work with the private sector in defining goals and strategies to support them on ventures between Mexico and its neighbors on both poles of the hemisphere. If it plays its cards right, rather than having to gamble on one camp or the other and risk losing it all, Mexico could become the pivotal player that holds together the economies of the Americas, North as well as South.
In recent years, perhaps for the first time in its history, Mexico saw itself and its northern neighbors in a weaker economic position than its South American counterparts. As the US sank deeper and deeper into a recession, Mexico was brought along for the ride, which culminated in a spectacular contraction of almost 7% of Mexico’s GDP in 2009. As a result, many Mexican intellectuals and policymakers have begun to ask themselves whether Mexico’s prospects in North America are still better than elsewhere. Some go so far as to suggest that Mexico should simply reorient its economy entirely towards the South. And yet others exhort Mexico not to turn its back on the NAFTA project just yet, claiming that further benefits from North American integration are still to come and that further unification with the North is the answer, not less.
Based on these arguments, Mexico faces a stark choice: look either towards the North or the South, but not both. But the sensible course of action, I believe, lies somewhere in between. Mexico can neither ignore the benefits of its privileged—though admittedly oftentimes troubled—relationship with the US, nor can it overlook the opportunities waiting for Mexico in South America, which are real and in many ways are already materializing. Instead of burning bridges to build others or cementing old relationships while disregarding new opportunities, Mexico should establish an explicit policy that seeks to convert it into a critical link connecting the diverse economies of all of the Americas.
In the past 15 years, mostly as a result of the implementation of NAFTA, Mexico has reached an extraordinary degree of economic integration with the US and—to a lesser degree—with Canada. Today, 80.5% of Mexico’s exports end up in the US, while the most dynamic and critical sectors in the Mexican economy—export-oriented manufactures and tourism—are highly dependent on foreign direct investment (FDI) and consumption from the US. NAFTA in many ways remains incomplete and many gaps remain to be filled, but as we saw just a few weeks ago when presidents Obama and Calderon (partially) settled a long-held dispute regarding the access of Mexican trucks into the US, there is still enough goodwill between both nations to continue along the slow but constant path towards further economic integration.
This is evident in both countries today. Visitors to Mexico City are amazed—perhaps disappointed—by the seemingly endless supply of Starbucks they encounter along Paseo de la Reforma. Northern cities like Chihuahua that have been invaded by American chains and are now crisscrossed by American-style superhighways are looking more and more like El Paso, Texas or Phoenix, Arizona. Wal-Mart, too, today is ubiquitous throughout Mexico, as one of the largest businesses and employers in the country. In the US, you also see a stronger, albeit more subtle, Mexican presence: has anyone else noticed that Mexican glass-bottled Coca-Cola is now offered in many convenience stores across the US?
But the weaknesses of this economic marriage (made nowhere near heaven) were crudely exposed during the last recession: when the US faltered, the effects were greatly amplified in Mexico. Mexico was by far the hardest hit Latin American country during the 2009 recession. Given that states like Brazil, Chile, and Colombia fared much better, it begs the question: is Mexico now facing the consequences of putting all its eggs in one basket? Should Mexico therefore rethink its commercial orientation?
North Americanistas like NYU professor and former Mexican secretary of foreign affairs Jorge Castañeda begin by highlighting the incontrovertible benefits that have accrued to Mexico as a result of NAFTA and point out Mexico’s solid economic recovery as the US lifts itself out of the recession: 5.5% growth in 2010 and projected 4.0-5.0% growth for 2011. Further, Castañeda and others who share his view claim that in order to prosper Mexico needs to tighten the gap between itself and its North American neighbors by pushing for deeper economic, political and social integration with the North. From this point of view what Mexico needs to do is not turn its back on the US but to pursue a tighter relationship with the North that eliminates the loopholes and imperfections still plaguing NAFTA. Castañeda thus calls for a liberalization of the labor markets between the three countries, further and more serious cooperation on security issues, and even a North American economic union in the long run.
The Latin Americanistas on the other hand, which to my knowledge are not unified under the aegis of any particular individual, begin by questioning whether the United States will ever once again become the economic dynamo it was during the 20th century and whether Mexico has greater prospects for growth by integrating with the rapidly-growing economies of South America. They remind us that Brazil, Argentina, and Colombia have large consumer markets with increasing purchasing power and that Mexico is already well-positioned to enter and even dominate many industries within these markets. Mexican firms in telecommunications, mining, services, food processing and distribution, cement, and other key sectors are oftentimes larger and more productive than their Latin American counterparts. Already, Mexican business magnate Carlos Slim has extended his tentacles to every corner of Latin America with his telecom giant Telmex (known as Claro in some countries), which is now the leading player in countries as wide-ranging as the Dominican Republic, Colombia, and Chile. Other companies like Cemex, Bimbo (the largest bakery in the world), and even FEMSAS’s Oxxo convenience stores are also rapidly growing in South America. Moreover, many economic analysts are asking themselves why Mexico can’t export to Brazil and other countries the high-tech goods and consumer durables it exports to the US that are not produced elsewhere in Latin America: smartphones, plasma televisions, refrigerators, etc. Finally, economic integration between Mexico and the rest of Latin America is already on the table: just last week, Peruvian president Alan García announced in Bogotá that Mexico, Colombia, Peru, and Chile are planning to form an economic bloc to strengthen integration between the four countries and promote a common cross-continental trade agenda.
Certainly both of these views have their advantages, but they each flatly ignore the drawbacks of their own recommendations. Further economic, political, and social integration with North America will be anything but easy. Immigration policy in the US is becoming tighter, not laxer, and the political climate in the US may resist further liberalization in the labor markets for some time. Similarly, simply mentioning the prospect of a North American economic union in the US elicits passionate and—more often than not—negative responses, particularly as the world continues to witness how the European Union struggles to keep Greece and Portugal afloat. And perhaps more importantly, we cannot ignore the fact that Mexico needs to hedge its risks. Having a globalization and trade strategy that is contingent on the economic fates of only two countries is simply irresponsible.
On the other hand, despite appearances Latin America is not all fun and games. The spectacular growth of countries like Peru, Brazil and Argentina in the past few years has relied to a large extent on their exports of raw materials and commodities to China and other countries around the world. It is unlikely that these high rates of growth will continue forever, particularly if further economic reforms are not pursued in these countries. It is therefore not clear whether these economies will continue to mature at the same high rate or whether and how fast they will grow into the large and wealthy consumer markets they are expected to become. More importantly, South American economies are becoming increasingly competitive as well and they may be able to service their own markets before Mexico or other large players in the region may arrive to satisfy the needs of local consumers.
The prudent course of action is therefore not one that chooses one region over the other, but rather one that (1) explicitly recognizes the risks of concentrating all of Mexico’s commerce in one region, and (2) seeks to establish and strengthen its ties with both North and South America by (3) promoting further integration with the North and (4) fostering trade with the Caribbean and Central and South America. Specifically, as Mexico continues to promote its integrationist agenda with North America—particularly with regards to labor migration, security issues, and correcting the deficiencies of NAFTA—it should assist competitive Mexican businesses in accessing southern markets by negotiating lower barriers to trade and more actively promoting their entry into those markets. Additionally, Mexico should establish policies that continue to attract FDI from the US and Canada, but also from strong South American economies like Brazil and Chile and even Colombia and Peru. Finally, Mexico should create incentives for foreign investors to export from Mexico to Latin American countries in addition to exporting to the US and Canada.
All of these things are easier said than done, but they are feasible and in some respect already happening. The Mexican government now needs to define a unified North-plus-South trade policy explicitly and work with the private sector in defining goals and strategies to support them on ventures between Mexico and its neighbors on both poles of the hemisphere. If it plays its cards right, rather than having to gamble on one camp or the other and risk losing it all, Mexico could become the pivotal player that holds together the economies of the Americas, North as well as South.
Wednesday, March 30, 2011
The relationship between property rights and economic growth
Ashok Ayyar, MPA
Locke argued above that personal property is antecedent to government, and its protection should be the principal function of government.[1] In his eyes, a state without fidelity for private property is no state at all, for it has violated the very social contract for which it was created.
Lockean thinking occupied the minds of political philosophers for nearly three centuries before recently migrating to economics. As if struck by lightning, development economists became enraptured by the idea of linking strong property regimes to GDP growth. Using conventional tools of the trade like cross-country regressions[2], instrumental variables[3], and more nuanced institutional economics methods[4], several well-cited studies have asserted the importance of private property (qua property rights, or as part of the bundle of values sloppily lumped into the “rule of law”) for growth.
Taking this one step further, economist Hernando de Soto put forth the boldest and most articulate version of the property rights claim: not only are stable, secure, and well-defined property rights incidental to growth, but they are necessary for it. Ever the gumshoe, De Soto supported his argument by gathering ground-level observations of how property rights actually operate in poor countries. His capstone result, The Mystery of Capital (2000), tells a plausible story: though capital is indisputably the engine of economic growth, it is not simply cash or machines. Capital is the “legal expression of an economically meaningful consensus about assets.”[5] Law converts the passive potential energy of raw assets into capital, transmuting dull lead into effulgent gold. It turns a parcel of land or an enterprise into a reservoir of surplus value that can again be harvested for profit. Where developing countries have stumbled, de Soto contended, has been in their failure to establish an ordered “system of rules” that facilitates this process. And what else is such a system but law?
A well-ordered property law allows ordinary people to: 1) fix the economic potential of assets, 2) integrate dispersed information about assets in one place, 3) make people accountable for their debts, 4) make assets marketable, and 5) connect assets beyond the informal networks of their owners.[6] While Western nations gradually acquired a property law with these characteristics, developing countries remain mired in a disjointed property system that, at best, converts assets into capital at a glacial pace. People in those countries spend months or years tangled in the web of red tape.
The property rights chorus now reverberates in the halls of the World Bank and other development agencies.[7] Though there are still some dissenting voices, their cautions are muttered sotto voce, far from any actual policy-making.
Yet, as policy students, we should question the wisdom of this (and other) accepted truths. Have de Soto et. al. really conquered their foes, and convincingly made the case for formal property rights? Or is this idea, like so many others in the kitchen-sink development literature, another paean sung to a false god?
I think de Soto’s camp has won the debate for now, both on its merits and by virtue of policy-world take-up. I am inclined to believe that secure property rights are, if not the silver bullet, instrumental to economic growth. Furthermore, growth theory today has zeroed in on “institutions” as the best explanatory variable for growth. Notably, property rights appear at or near the top of most clearly-defined lists of institutions.[8] Thus, whether standing bare, or dressed in the clothing of institutions, property rights as the road to growth commands great support – and deservedly so. Only time will tell if the resulting policy of property law reform pans out.
---------
References:
[1] Do not forget the founding fathers enshrined his thinking as the cornerstone of the new republic. See Richard Hofstadter, The American Political Tradition (1948), pp. 10-12.
[2] Robert J. Barro, “Determinants of Economic Growth: A Cross-Country Empirical Study,” National Bureau of Economic Research, Working Paper No. 5698 (1996).
[3] Ibid. See also Daron Acemoglu, Simon Johnson, & James A. Robinson, “The Colonial Origins of Comparative Development,” American Economic Review, Vol. 91 (2001).
[4] Oliver C. Williamson, “The New Institutional Economics: Taking Stock, Looking Ahead,” Journal of Economic Literature, Vol. 38 (2000).
[5] Hernando de Soto, The Mystery of Capital (2000).
[6] Ibid.
[7] At the Bank, the high priest of property rights is Phillip Keefer, and he seems to have won over his colleagues. See Stephen Knack & Phillip Keefer, “Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures,” Economics and Politics, Vol. 7 (1995).
[8] Take it from no less an authority than Douglass North. See Douglass C. North, Institutions, Institutional Change and Economic Performance (1990), noting the most important source of underdevelopment is because of the absence of stable property and contractual rights.
"[Government] cannot take from any Man any part of his Property without his own consent. For the preservation of Property being the end of Government, and that for which Men enter into Society, it necessarily supposes and requires, that the People should have Property, without which they must be suppos’d to lose that by entering into Society, which was the end for which they entered into it, too gross an absurdity for any Man to own." -John Locke, "On the Extent of Legislative Power," Second Treatise on Government (1689)
Locke argued above that personal property is antecedent to government, and its protection should be the principal function of government.[1] In his eyes, a state without fidelity for private property is no state at all, for it has violated the very social contract for which it was created.
Lockean thinking occupied the minds of political philosophers for nearly three centuries before recently migrating to economics. As if struck by lightning, development economists became enraptured by the idea of linking strong property regimes to GDP growth. Using conventional tools of the trade like cross-country regressions[2], instrumental variables[3], and more nuanced institutional economics methods[4], several well-cited studies have asserted the importance of private property (qua property rights, or as part of the bundle of values sloppily lumped into the “rule of law”) for growth.
Taking this one step further, economist Hernando de Soto put forth the boldest and most articulate version of the property rights claim: not only are stable, secure, and well-defined property rights incidental to growth, but they are necessary for it. Ever the gumshoe, De Soto supported his argument by gathering ground-level observations of how property rights actually operate in poor countries. His capstone result, The Mystery of Capital (2000), tells a plausible story: though capital is indisputably the engine of economic growth, it is not simply cash or machines. Capital is the “legal expression of an economically meaningful consensus about assets.”[5] Law converts the passive potential energy of raw assets into capital, transmuting dull lead into effulgent gold. It turns a parcel of land or an enterprise into a reservoir of surplus value that can again be harvested for profit. Where developing countries have stumbled, de Soto contended, has been in their failure to establish an ordered “system of rules” that facilitates this process. And what else is such a system but law?
A well-ordered property law allows ordinary people to: 1) fix the economic potential of assets, 2) integrate dispersed information about assets in one place, 3) make people accountable for their debts, 4) make assets marketable, and 5) connect assets beyond the informal networks of their owners.[6] While Western nations gradually acquired a property law with these characteristics, developing countries remain mired in a disjointed property system that, at best, converts assets into capital at a glacial pace. People in those countries spend months or years tangled in the web of red tape.
The property rights chorus now reverberates in the halls of the World Bank and other development agencies.[7] Though there are still some dissenting voices, their cautions are muttered sotto voce, far from any actual policy-making.
Yet, as policy students, we should question the wisdom of this (and other) accepted truths. Have de Soto et. al. really conquered their foes, and convincingly made the case for formal property rights? Or is this idea, like so many others in the kitchen-sink development literature, another paean sung to a false god?
I think de Soto’s camp has won the debate for now, both on its merits and by virtue of policy-world take-up. I am inclined to believe that secure property rights are, if not the silver bullet, instrumental to economic growth. Furthermore, growth theory today has zeroed in on “institutions” as the best explanatory variable for growth. Notably, property rights appear at or near the top of most clearly-defined lists of institutions.[8] Thus, whether standing bare, or dressed in the clothing of institutions, property rights as the road to growth commands great support – and deservedly so. Only time will tell if the resulting policy of property law reform pans out.
---------
References:
[1] Do not forget the founding fathers enshrined his thinking as the cornerstone of the new republic. See Richard Hofstadter, The American Political Tradition (1948), pp. 10-12.
[2] Robert J. Barro, “Determinants of Economic Growth: A Cross-Country Empirical Study,” National Bureau of Economic Research, Working Paper No. 5698 (1996).
[3] Ibid. See also Daron Acemoglu, Simon Johnson, & James A. Robinson, “The Colonial Origins of Comparative Development,” American Economic Review, Vol. 91 (2001).
[4] Oliver C. Williamson, “The New Institutional Economics: Taking Stock, Looking Ahead,” Journal of Economic Literature, Vol. 38 (2000).
[5] Hernando de Soto, The Mystery of Capital (2000).
[6] Ibid.
[7] At the Bank, the high priest of property rights is Phillip Keefer, and he seems to have won over his colleagues. See Stephen Knack & Phillip Keefer, “Institutions and Economic Performance: Cross-Country Tests Using Alternative Institutional Measures,” Economics and Politics, Vol. 7 (1995).
[8] Take it from no less an authority than Douglass North. See Douglass C. North, Institutions, Institutional Change and Economic Performance (1990), noting the most important source of underdevelopment is because of the absence of stable property and contractual rights.
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