A Brief Insight on the British Industrial Revolution

         Technological transfer of advanced agricultural techniques used in the Netherlands in the 18th century, the most advanced country by then but at the same time a land scarce one, to England, a poor and land abundant country, helped the latter generate agricultural surpluses (of labor and output) that allowed for investment in the labor intensive industrial sector. 

       The magnitude of this surplus allowed England to invest enough to quickly displace the Netherlands as the world's industrial powerhouse.

        The fact that potential real appreciation, explained by the massive increase in agricultural exports, did not hurt the export performance of England, could be explained by high Dutch export prices. One could argue that such prices should have been high because the Dutch were collecting temporal rents caused by the fact that they didn't have international industrial competitors at the time.

Who's Who in Development Economics: Alice Amsden

I'm starting this series of Who's Who in Development Economics because it's always good to have heard about the important names in the field we're interested in.

Dr. Amsden got her PhD at the London School of Economics and was awarded in 2002 the Leontief Prize, conjointly with Dany Rodrik. She's a specialist on East Asian late-developers and author of the influential book The Rise of "The Rest": Challenges to the West from Late-Industrializing Economies (2003). In it she gave a simple but meaningful definition of economic development by saying that it's "a process of moving from a set of assets based on primary products, exploited by unskilled labor, to a set of assets based on knowledge, exploited by skilled labor" (p. 2).

In that book one can also learn about the outstanding performance of the Brazilian Development Bank, BNDES, as an example that not all government agencies in that country fall under the Neoliberal view of rent-seeking and corruption.

Her latest book was published in 2007 and it's called Escape from Empire: The Developing World's Journey through Heaven and Hell

Can the Resource Curse Hypothesis Explain Regional Disparities?

Apparently it does, at least that's Ms. Li's explanation for regional disparities within China. In a nutshell she argues that the reason why the western regions of China are poorer is because they have been resource-reliant economies.

Although this fact might explain to certain degree why these regions are poorer, perhaps one should not forget that the richest regions of the east, that are not so well natural-resource endowed, have a much better location for when it comes to international trade, i.e. they are closer to the coast.

If we consider that we are living in the "ocean age", according to Liang Qichao's historical ages, in which trade is mainly maritime, maybe this locational fact is as or even more important for determining regional development disparities within a country than resource endowments.

"In 10 years time Ghana will be a very prosperous nation"

According to Ghana's finance minister, Mr. Duffuor...

This is type of enthuiasm authorities in that country give to the recent discovery of offshore oil reserves. This type of optimism is further sustained when the minister argues:

"...We've seen what others that have found oil have gone through and we've looked at their mistakes..." (BBC, 3 June 2009)

One could argue that these type of bold arguments is what fuels the general public hope for a radical and sudden quality of life increase that will precisely play against any type of policy preventing Ghana to be another example of the resource curse. Better argue that in 2020 Ghana's development level will reach that of Nigeria or Côte d'Ivoire's, countries that are richer now than Ghana in terms of GDP per capita, so people will actually know what to wait of this oil discovery in the short run, i.e. almost nothing. That was the case of Norway when it discovered its oil fields in the 1960s. The main challenge the country faces now, if it really wants to be prosperous in the medium run, is not to loose its non oil export sectors. If oil exports increase so fast that they crowd out the rest of the exporting sectors, the long term growth perspectives in Ghana will be seriously endangered.

Ghanaian Policymakers Beware of the Dutch Disease!

An excellent account, done by Nana Adjoa Hackman, on how to prevent Dutch Disease problems that can arise from the recent discovery of an offshore oil reserve of more than 3bn barrels in Ghana is available here.

Probably the most important reminder of the article is that the "...government would have to come up with proactive policies to promote industrialization and diversification to ensure that the local economy can obtain maximum benefit through backward and forward linkages with the new industry..."

Do you think that Ghana will be up to the challenge and join the list of resource curse escapers? My guess is that if Ms. Hackman's pledge is followed by Ghanaian policymakers, then the country has a chance.

Financial repression and furniture

Many people take for granted that when they are going to the bank to open a savings account, of whatsoever type, the interest rate that its investment will yield won’t be inferior to the rate of inflation. This would at least assure the savings’ purchasing power over time. Another thing that many take for granted is the fact that from time to time some neighbor can leave furniture or a house appliance in the street -because she moved and couldn’t take it with her, couldn’t sell it or has bought something newer and no longer it needs it- hoping that other person that could need it will take it.

Depending where one lives these facts can sound not so familiar. In many countries, in where some form of financial repression exists, savings accounts generate interests almost always below the rate of inflation. It is then when the options of saving for the poor and middle segments of society tend to depart from what financial institutions offer. This is so common that many persons live their entire life without a savings account, although they have saved.

I proceed to present some modalities of saving in urban zones. In countries with this problem there’s usually an informal dollarization, that’s why the first option for saving tends to be the purchase of the North American currency to keep it at home, commonly underneath the mattress. When one has saved enough, one can embark in the following alternative for saving, i.e. buying house appliances or furniture. Chairs, tables, refrigerators, music systems, television sets and other articles in good state will almost never be found laying in the street so that some other person can take them for free because these goods are means for saving and will be sold to the maximum possible price when liquidity is needed. The following stages for saving are buying cars (without concerning the antiquity or state) and finally real estate (even the humblest hut can be bought for this purpose). Only the well off segments of society will be able to escape from the financial repression saving in foreign accounts.

Technorati Tags: Dollarization, Financial+Repression, Inflation, Interest+Rates, Less+Developed+Countries, Liquidity, Savings

Two countries, two types of poverty

In these times in which World Bank researchers have proposed an adjustment to the famous international poverty line of $1 (€0,74) a day and per person to $1.25, it’s interesting to make a comparative analysis of the national poverty line of a developed country, Germany, and that of a less developed country (LDC), Venezuela.

Let’s begin by the German case. Since in most countries of the European Union the problem of absolute poverty - which one could vaguely consider as a state in which the basic necessities to have a decent life are not satisfied- is quite rare, national statistical agencies are more concerned about measuring poverty in relative terms. The poverty line is then calculated from the median “equivalent income”, i.e. the equivalent income of the person who is just in the middle of the equivalent income distribution of the country, when these are ordered from the lower to the greater. The equivalent income is a scale developed by the Organization for Economic Co-operation and Development that allows comparing the income of households with different amount of members. To obtain this equivalent income a weight is given to each member of the household and its total income is then divided by the sum of the weights. The main income earner has a weight equal to 1, the spouse or children older than 13 have a weight of 0.5 and that of children younger than 14 is 0.3. The poverty line is defined as a level of equivalent income of 60% of the median one. For Germany in 2005 that line was located around €850 ($1,148) monthly. The percentage of the population living in conditions of poverty in that same year was 13.2%.

In the Venezuelan case, like in most LDCs, the type of poverty measured is the absolute one. In order to construct an absolute poverty line, a basic consumption basket is defined that assures a sustainable life condition. In Venezuela, the basket is constructed under the assumption that a person needs to consume at least 2,200 calories per day of food. On the basis of household surveys, the cost of a food basket, that covers the specified amount of calories and is composed by the staple foods of the country, is calculated. Thanks to the same household surveys, it is known that the expenses on goods and services different from food are almost the same as the expenses on food in population groups that have a food consumption around the 2,200 daily calories. The basic basket of consumption, or the poverty line, is then defined as the double of the cost of the food basket. The monthly poverty line per capita in 2005 was of BsF 74.23 ($27.49-34.53; €23.3-29.26). Under this poverty line lived between 37.9% and 43.7% of Venezuelans in that year.

Language and development

We can argue that the relation between language and development is technology, a key factor of development, because it comes codified in a language. Since western languages (mostly English) are dominant in technological matters, does this justify the existence of educative systems based in these languages in countries where they are not the native ones? I a have in mind the cases of Asian and African countries where the solution given to the existence of diverse local languages was to make English or French the language of their education system although the greater part of the population does not speak those languages at home. Moreover, this problem could also be applied to the Latin American case in those countries where indigenous populations don’t have access to an educative system in their native languages.

I think that this situation is only justified at the first stages of a country’s development process, when it’s still impossible to produce text books in the local language. This capacity should be developed soon first through translations of foreign texts and then with publications of text books of their own that would be better adapted to the reality of each country, always taking into account the criteria of educative quality. Learning other languages shouldn’t be neglected, of course. But it should not be focused only in learning one, which in most of the cases is English. Another language should be added to the curriculum. It could be another language spoken in the country or a foreign language spoken in some of the more important commercial partners of the country. This would not only promote cultural integration within the country or with neighboring countries but it would limit the technological-cultural dependency towards a single language.

These reforms in the educative system would promote the development process thanks to the strengthening of the local technological capacity. At the beginning what would be stimulated would be the adaptation of foreign technologies. Simple examples of this would be the capacity and the desire of the population (creating a demand for this) in general to have manuals of equipment and machines in their own language. The same could also happen with scientific publications or even with novels and audio-visual material (films, TV programs or Internet sites). This would produce among the population a sensation of empowerment of the technological phenomenon and it would stimulate, along with other public policies of course, the creation of an independent technological capacity, which is a key factor to achieve the industrial transformation that a country needs to undertake in order to develop.

The housing problem and the rental market

In most western countries it is obvious that even the lowest wages paid to workers should make them able to provide a roof, food and other basic necessities to their family. Let’s focus in the ability of low income households to solve their housing problem. Those of you with experience in less developed countries know that workers with low earnings, in urban and in rural areas, have to settle most of the time in slums and shacks or huts.

One reason that explains this situation is the performance of the housing rental market. Let’s take as a reference to what happens in Germany. Most of the people in this country live in a rented room, apartment or house. The German state intervenes in the housing rental market by providing apartments with subsidized rents to low income people. If you look at most Latin American countries, the percentage of households renting their home falls bellow 15%, reflecting a small rental market. This market is also quite dualistic. This means that rent options often lie in two extremes, luxurious or shack-type housing. Because of the very bad conditions of slum dwellings it is obvious that the state should subsidize rents intended to allow poor households to live in a decent dwelling. But as the rent market for middle income families barely exists, the state should also intervene to create or promote this market. The lack of renting options for middle income families is a market failure that justifies this type of intervention. Back again to the case of western Europe, the state could provide low rent apartments by giving subsidized credits to construction companies that would build and then administrate apartment buildings. A policy like this would incentivize the housing market in general, increasing the investment rate of the economy and boosting job creation.

Another reason could be the willingness of households to live in a rented dwelling or of landlords to rent their property. One could argue that low levels of willingness from both sides could be due to the law regulating this market and whether it is respected or not. The amount of protection to the tenant doesn’t necessarily curb the rental market. Taking again the case of Germany, arguably the law in this country protects the tenant more than in the USA and still the amount of households that live on a rented property in Germany is much higher. The main problem that should be solved then should be diminishing transaction costs and ensuring an effective enforcement of the law.

Apart from wide slums around big cities, other indicator that could reflect a problem in the rental market is the fact that extended families live together in the same dwelling, as actually happens in many Third World countries. One might think this is due to cultural reasons, but in some countries this could well be due to the lack of rental options.

Mentalities should change and one shouldn’t believe that the ideal society is one in which every household is owner of its dwelling. This type of thinking is what has lead to households building shacks whenever they can and to states not being able to hold their promises of ensuring decent dwellings for everybody. An ideal society should be one in which every household has a decent dwelling, of his property or rented. Since many people won’t be able to buy a dwelling with their low or middle income and it costs less to the state (and the society in general) to subsidize rents than to give away homes for a heavily subsidized price, the rental market should be promoted in countries with high percentage of the population living in shacks and slums.

The virtual line and waiting rooms

Something that most people dislike is to run errands in public offices. Short hours of attention, crowded rooms, personnel mistreatment and lack of information are some of the things that come to my mind when I think about having to run an errand at public offices.

Although I continue to be not very excited when I have to run some errand in a public office in Berlin, I think that it’s worth to communicate common practices done here so that everything goes quicker and not so tiresome. In every public office there’s a receptionist that asks us what errand we need to run. With that answer in mind this person gives us a ticket with a number and indicates us to which waiting room we must go. When we arrive to the waiting room we always find enough chairs for the amount of people that usually have to go to the office, sometimes there are even tables that enable people to do some work while waiting. When our turn arrives, the employee of the room where we’ll be served calls out our number. Of course, there are offices where the process is completely automated. The receptionist is replaced by a machine that gives numbers depending of the errand to run and an electronic display screen shows the following number to be served and the number of the room where the person must go. There’s always some employee close to help whoever doesn’t know how to use he machine that gives you the tickets.

Other things that are always near the waiting rooms are copy machines that accept coins so that one self can use make copies. Other services that some public offices offer are appointments fixed by telephone and attention on Saturdays. The opening hours tend to cover the early morning hours some days and the late afternoon hours other days so that the people with different working hours can run errands at public offices without the need to hire or to ask another person to run the errand for them.

I’m not trying to say that any of these practices are applied in the Latin American countries that I have visited or lived in, but the most basic ones, that would provide a minimum of order, as a ticket with a number (virtual line) and the existence of a waiting room, unfortunately are not always there. Among the experiences that I have lived I can recall that there are too many offices without the virtual line system where one must make standing lines for hours, often outdoors. Sometimes if you are “lucky” there are chairs, by which one has to stand up and sit in the next one to advance until it is our turn to be served. Other times although numbers are given, there are no chairs in the waiting room.

Techniques to increase productivity, measured in terms of persons served per day, must be applied continuously in public offices to reduce to the minimum expression the lost work hours of all those people who must run their errands. This also contributes to that other development, beyond economic conceptions, that is reached when the civil servants make an effort to offer the best service to the citizens.

Berlin’s public transport system

Berlin’s public transport system consists on a quite dense network of public transport that allows people to be able to have a high quality of life without the need of having a car.

The core of the system is formed by the underground train (called in German U-Bahn) and the urban train (S-Bahn). Both train systems can be considered what in the English speaking world is known as the “subway”. Nevertheless each one has a slightly different function. The trains of the U-Bahn are smaller and their stations are nearer to each other than the S-Bahn’s. The U-Bahn lines are concentrated in center of the city, or the zone A of public transport that is bordered by a circular line of the S-Bahn. The S-Bahn lines connect Berlin’s downtown with its outskirts, zones B and C, and, aside from the circular line or Ringbahn, the system is designed has a north-south and a east-west axis.

The tram and bus lines complement these train systems. In the centric zones these trams and buses have a frequency of passage of 10 min. in average and the outskirts of 20 min. Like support services to the public transport network are the taxi operators located in the proximity of many stations and stops, the channels to circulate with bicycle and the provision of parking facilities for bicycles in most of the stations. The trains, trams and buses are suited to transport bicycles (not the buses), baby carriages and wheelchairs. The city has public transport the 24 hours to the day thanks to night lines of buses and to the fact that almost all the system works 24 hours on holidays and weekends. This system, combined to a unregulated fuel price (that at the present time is around €1.5 ($2.2; £1.21) by liter), makes Berlin a city without any major traffic problems.

All this system is in hand only of two companies that work in collaboration, the S-Bahn Berlin (subsidiary of the railroads state company Deutsche Bahn) and the BVG, property of the State of Berlin. The first company is only in charge of the network of the S-Bahn whereas the BVG is in charge of operating the rest of the network. The two companies offer the possibility of buying tickets that work in the entire network. The individual ticket costs €2.1 ($3.09; £1.7) and is valid in any means of public transport during two hours. The monthly ticket costs €72 ($105.8; £58.24). These companies also collaborate to offer, through their respective Web sites, an information system that allows the user to know what route he/she will have to take and how long it will take him/her to arrive at his/her destination just by writing his/her departure arrival directions.

When I compare this system with the one of congested the great Latin American cities (or in other Third World areas) in where the subway system, and its lines of buses, does not cover many parts of the city and coexists with infinite private lines of buses without stops correctly signalized nor routes available in any written format, I see one of the reasons that explain our smaller productivity and development. While many Latin Americans (Africans, or Asians) are commuting, the Berliner who lives at a similar distance from his/her workplace has already began to work and could rest more because he/she didn’t have to wake up so early to get to work on time.

Rents in Berlin

One of the good reasons to live in Berlin is that it’s a city of low rents, comparing it with other German or European cities. By about € 400 ($ 622, £ 315) a month it is very probable to rent small apartments in centric zones.

What can explain these low prices? If we analyze the history of the city we find that the rents of East Berlin apartments, at the time of the German Democratic Republic (GDR), were highly subsidized. For instance, in the 1980s small apartments could be rented in this side of town by about € 20 ($ 31, £ 16) a month. These low prices continued after the German reunification, until the mid 1990s. From then the prices have been increasing more rapidly than inflation.

Until which level can rents keep increasing? The restriction of this increase of prices comes by the side of the demand. Berlin is a city with one of the greater levels of unemployment of Germany. This year it’s around 16%. It is a very high level if one considers the levels of full employment (around 4%) in southern cities like Stuttgart and Munich. The effect that has high unemployment on the apartment renting market is the one of an insufficiency of the demand that depresses the equilibrium rents. Thus the acceleration of the increase of rents must be very correlated with economic growth as long as the supply stays constant.