Daniel Kaufmann and Mushtaq Khan talk about corruption in the latest edition of Development Drums.
Though they come from quite different points of view, there is quite a lot of convergence between them. They agree that there is much more corruption in poor countries than in rich countries; that nobody should put too much faith in econometrics to decide whether corruption is a reason that poor countries remain poor; and that you do not fight corruption by fighting corruption. But whereas Daniel Kaufmann believes that you have to tackle corruption to create the conditions for markets to work and to to create economic growth and prosperity, Mushtaq Khan believes that you should focus on policies to promote growth and that a certain amount of corruption is an inevitable (albeit undesirable) corolloray of the transition to a capitalist economy. I hope you find the discussion between them as interesting as I did.
What strikes me about all this is that this is a topic on which there is a serious gap between mainstream public opinion and the opinion of many (but by no means all) development “experts”. Most people believe that corruption is a one of the most important reasons why poor countries remain poor; and yet a lot of people working in development seem to be willing to tolerate some corruption as an inevitable fact of life in poor countries. My view is that this is a topic on which we need to see much more convergence of thinking, based on sound evidence and analysis, and that this is an important step if the development business is to regain and retain the trust of the people paying for development assistance.
Where do I come down? I guess somewhere in between. Corruption is clearly a very serious problem which robs the poor most of all, and deprives millions of people of access to service and of the opportunity to earn a living. In some countries, it is a major obstacle to economic growth (I think Nigeria is such a country). But there are many different causes of poverty, and there are some poor countries that have very little corruption (Ethiopia, where I live, is such a country). And there are striking examples across history of countries that have experienced rapid industrialisation despite having quite high levels of corruption at the time (including Indonesia, Thailand, Korea, Japan) – in many cases, corruption is something that is tackled after the establishment of an industrialised capitalist economy with a strong middle class, not before.
I do think that many people working in development are too complacent about corruption. The poor, like all of us, have dreams of a better life, and they are not helped by a poverty of aspiration on our part.
There are some countries – such as Nigeria – in which corruption is clearly a major obstacle to investment and growth. There are other countries – such as Ethiopia – in which there is very little corruption which are nonetheless very poor, so it cannot be the case that eliminating corruption is the main driver of development. And a lot of industrialized countries had long periods of rapid economic growth despite widespread corruption – which in many cases they sorted out after they became rich, not as a pre-requisite to growth.
On the first World Pneumonia Day, spare a thought for the mothers and fathers of the five thousand children who will be killed today by pneumonia.
Pause for a moment in silent thanks to the staff of the GAVI Alliance which works to get immunisation to children in developing countries.
If you pay taxes in Italy, the UK, Canada, Norway, or Russia, pat yourself on the back. Your government has contributed to a market-based financing mechanism called the Advance Market Commitment, or AMC. This provides an incentive for vaccine makers to produce suitable vaccines in the necessary quantities at an affordable price for developing countries. The result is that GAVI has been able to reduce the current price of existing pneumococcal vaccines by up to 90%.
In the past, it often took 15 or 20 years before vaccines developed for rich countries were sold at affordable prices in developing countries. Because of the Advance Market Commitment, four vaccine suppliers are now offering pneumo vaccines, specifically developed for the the developing world at affordable prices.
This is aid at its best: creating financial incentives for companies to bring their expertise and innovation to the table to solve some of the world’s most pressing problems. Donors only pay for vaccines that actually get delivered and used. This money will save the lives of about seven million children over the next 20 years.
We owe a debt to Michael Kremer and Rachel Glennerster for the idea, to the Center for Global Development (especially Ruth Levine) for developing a practical proposal, to Carlos Monticelli from the Italian Finance Ministry who steered a group of donors to make it happen, to the Bill and Melinda Gates Foundation for paying for background research, to Orin Levine, Gargee Ghosh, Amy Batson, John Hurvitz, Andrew Jones, Susan McAdams, and many others for making it happen.
And to the countless bureaucrats and nay-sayers who thought it could never happen: yah-booh-sucks.
Not according to Michael Clemens at the Center for Global Development. Read his “Think Again” piece in Foreign Policy.
Here’s a sample:
This common idea that skilled emigration amounts to “stealing” requires a cartoonish set of assumptions about developing countries. First, it requires us to assume that developing countries possess a finite stock of skilled workers, a stock depleted by one for every departure. In fact, people respond to the incentives created by migration: Enormous numbers of skilled workers from developing countries have been induced to acquire their skills by the opportunity of high earnings abroad. This is why the Philippines, which sends more nurses abroad than any other developing country, still has more nurses per capita at home than Britain does.
There are bad reasons and good reasons for supporting the use of innovative finance for development. Unfortunately, some development advocates seem williing to back any proposal that they think might raise more money for development, instead of focusing on mechanisms that will improve the way that money is used.
When is innovative finance good?
Innovative finance can improve the effectiveness of aid spending. There are at least four ways this can work.
First, innovative finance can improve intertemporal optimisation. Aid budgets are often given from year to the next, which makes it difficult to spend the money at the best time. For some spending, it makes sense to spend today to save money tomorrow (for example, spending money to eliminate smallpox reduced the need for health care spending later on). It is not always sensible to bring forward spending – particularly if you believe that there are diminishing returns to some kinds of aid spending. The International Finance Facility for Immunisation is a good example of how spending tomorrow’s aid today can be sensible, because future generations benefit from the increase in herd immunity in today’s beneficiaries.
Second, innovative finance can create a commitment technology. There are many benefits to being able to make commitments – which is why in normal life we have mechanisms such as contracts and warranties. We need commitments to deal with dynamic inconsistency and to allocate risks. But constraints on aid agencies make it very hard for them to make commitments about aid. A good example of an effective forward commitment is the Advance Market Commitment, which guarantees manufacturers a more lucrative price if they develop and produce a new medical product for developing countries. Forward commitments enable governments to invest in reforms which have costs over several years, or firms to invest in new products for developing countries.
Third, innovative finance can change incentives both for donors and recipients. For example, funding schemes that link payments to results may reduce the incentives of donors to micromanage the way aid is used. If payments to organisations are linked to demand (eg through a virtual voucher scheme) they may improve their services for beneficiaries.
Fourth, innovative finance can improve the allocation of risk. Insurance pools may diversify risk, and permit rapid increases in funding in the case of disasters. We can pool medicines, for example, so that they are available to whoever needs them first. Stabilization funds with automatic disbursement criteria can ensure that finance is rapidly available, without strings, where and when it is needed.
In each of these four cases, well-designed innovative finance can increase the productivity of aid spending. As aid becomes demonstrably more effective, so in the long run we can make the case for greater investment.
When is innovative finance not good?
While there are excellent reasons to identify innovative ways to give aid, the need to increase funding is not one of them. I am in favour of a large increase in aid, but not in favour of achieving it by distorting rational decision-making on taxation and spending. Many development advocates support schemes to tax financial transactions (a so called “Tobin Tax”) or airline tickets, or a new global lottery (a tax on the poor), if these are used to pay for increased foreign assistance. I understand the desire to get aid any way we can, but I don’t respect this kind of opportunism.
We should determine the structure and level of taxes on the basis of evidence about the most effective (or least damaging) ways of raising the revenues we need; and we should decide the level of spending on the public’s various priorities based on how we will do the greatest good. Linking a particular kind of spending to a particular revenue cannot improve choices about spending or tax, and may unnecessarily constrain them.
Conclusion
Some particularly misguided proposals involving introducing taxes on goods or services we would not normally considering taxing (such as investment in information technology). By linking these proposal to the (rightly appealing) goal of increasing aid spending, we are in danger of being seduced into doing the wrong things for the right reasons.
Innovative finance holds rich possibilities for accelerating poverty reduction by making aid money work better. If we can find ways to relax the institutional constraints on spending money at the right time, or increase our ability to make rational commitments, we can make aid money work harder. In time, this may mean that taxpayers and donors are willing to spend more. But we should not invent mechanisms whose main effect is to bypass our existing processes for making sensible decisions about tax and spending.
I’ve just watched Steve Jobs at the Apple event today. I was glad he paid tribute to the man whose liver he received, and that he called on others to register as organ donors.
But it is less impressive to see people come to this issue only after they themselves need an organ. I don’t recall Mr Jobs using his celebrity to promote this issue before.
I think it would be a good idea to introduce the presumption that people who register as organ donors will jump the queue if they themselves subsequently need an organ. Perhaps that would focus some minds.
For the record, if I should die, please use anything that still works; and sent the rest to med school for dissection training or whatever they do. I won’t care then, and as a person living today I like to think that I might be useful.
Over on Huffington Post, Seth Berkley and Orin Levine make a plea for the United States to consider an Advance Market Commitment for an AIDS vaccine:
Traditionally it has taken up to 20 years for new vaccines to reach children in developing countries. The AMC can fix this inequity. Through the pneumococcal AMC, and with the support of the GAVI Alliance which administers it, children in Rwanda and the Gambia are benefiting from pneumococcal vaccines even before children in wealthy countries such as Austria and Japan. What’s more, the mechanism is spurring development and deployment of two newer vaccines that extend protection against strains of pneumococcal disease most common in the developing world. Thanks to such advances, the accelerated use of pneumococcal vaccination is projected to save 5 to 7 million lives by 2030.
The idea (which is mainly down to Michael Kremer at Harvard) is simple: donors promise in advance that if somebody invents and delivers a vaccine that meets certain requirements, then donors will pay for it to be bought in large quantities. That promise may provide sufficient certainty for the private sector to invest in developing new products, and to build large-scale manufacturing facilities. Take a look at this video to see what a difference Michael’s idea is already making.
From a public policy point of view, a nice feature of this schemes is that if it doesn’t work, it doesn’t cost anything. If you make a promise to purchase an AIDS vaccine when one is developed, but scientists are unable to crack the puzzle, then you have not spent a dime. You are only committed to buying an AIDS vaccine when it is developed – which, let’s face it, you would have done anyway. By making a firm commitment in advance, you change the incentives for the private sector. (The economics is set out here in an article in The Economists’ Voice.)
This scheme is designed to tackle an economic problem that runs deep in most market economies. We typically set up incentives for firms to innovate by promising them a temporary monopoly (through patents) if they are successful. This enables a firm to charge a premium for a limited period to recoup its investment and to compensate it for the risk it has taken. But this scheme only works if the consumers are willing and able to pay that premium. (And even then, it has a social and economic cost because it excludes consumers too poor to pay the premium). The scheme doesn’t work at all for products most of whose consumers are very poor – such as people who get malaria or who need cassava plants that are resistant to attack by the mosaic virus. That’s why firms spend ten times as much hunting for a cure for baldness as they do hunting for a cure for malaria. The Advance Market Commitment makes investment in those products much more attractive to the private sector, because now there is an opportunity to charge a premium (paid by the donors) even though the ultimate consumers are poor.
We will be in a better position to judge the effectiveness of the pneumococcal AMC when kids are actually getting injections paid for under the AMC. An important test will be whether we see pharmaceutical firms returning to the development and large-scale production of vaccines for developing countries (and there are some early signs that this is happening).
But the Pneumococcal AMC has already taught us that it is possible to navigate the legal, financial, commercial and political waters to put in place a legally-binding multi-donor commitment to buy a future product. This is the result of outstanding work done by the Center for Global Development (in which I am proud to have played a small, walk-on part). Early nay-sayers complained that an AMC was theoretically attractive but impossible in practice. CGD played a critical role by developing a practical way of implementing the idea, which opened the door to the implementation of the pneumo AMC.
Now that it has been shown that an AMC is technically possible, we should be looking at:
- designing an AMC for an “early stage” vaccine such as AIDS;
It is occasionally said that an AMC works for a late stage product – ie one that has already been largely developed but needs incentives to get it produced – but that it would not be appropriate for products still requiring substantial research and development. There is no logic to this argument. The original modelling for an AMC was done for an early stage vaccine, and I have never seen a cogent case against using the approach (alongside conventional government funding for basic research) for products at an early stage of development. - how to get the United States involved
This approach – of providing incentives for private sector entrepreneurship and risk taking to be involved in products for developing countries – ought to appeal to US policy-makers, and I have never understood why the US stood aside from the first AMC. There are some technicalities involved making commitments in the US budget process but these are not insurmountable. Let’s hope the US will be part of the next AMCs. - using the AMC approach for other health products
In principle, the AMC could be used to encourage the development and manufacture of a range of other health products such as drugs, diagnostics and surgical instruments - using the AMC to promote other forms of other research and development
we should consider whether the AMC might be a good approach for donor funding of other forms of research and development for products mainly used in the developing world, such as new agricultural varieties, solar energy products, and ways of providing clean water. - the possibilities for other forms of “pull” incentive for research and development
The AMC is not the only possible pull mechanism to incentivise research for products needed in developing countries. For example, donors might set up schemes to buy out patents, prizes or other rewards for success (e.g. payments linked to DALY’s averted or social rates of return). We should look again at the costs and benefits of these different ways of getting the private sector involved.
I love this idea for making money from people who believe that the rapture is coming:
We are a group of dedicated animal lovers, and atheists. Each Eternal Earth-Bound Pet representative is a confirmed atheist, and as such will still be here on Earth after you’ve received your reward. Our network of animal activists are committed to step in when you step up to Jesus. We are currently active in 20 states and growing. Our representatives have been screened to ensure that they are atheists, animal lovers, are moral / ethical with no criminal background, have the ability and desire to rescue your pet and the means to retrieve them and ensure their care for your pet’s natural life.
I wonder if anyone is actually buying this insurance?
It worries me that people who are interested in reducing world poverty leap so readily on the Tobin Tax bandwagon.
There are three questions to answer:
- should we spend more on reducing global poverty?
(my answer: yes, if we have to) - should we tax transactions in financial markets?
(my answer: maybe, though I am not persuaded) - should we link aid budgets to revenues from such a tax?
(my answer: definitely not)
My answers are explained below the fold.
I can see why some people are attracted by a combination of extra money for the world’s poor and a poke in the eye for the unacceptable face of capitalism. But to support the Tobin Tax on these grounds is at best opportunism, and at worst reveals a hostility to the functioning of markets which will, in the end, not serve the poor.
Adair Turner, Chair of the Financial Services Authority, says that the FSA should not be expected to curb city bonuses:
Lord Turner, head of the Financial Services Authority, said it was “economic illiteracy” to expect his organisation to be able to dictate to banks what they paid their staff.
He complains that is is beyond the remit of the FSA:
“My message was . . . stop telling the FSA to go beyond its remit and to start imposing limitations on the level of bonuses, which it is neither within our legal power or our practical ability to do,” he said.
Well, up to a point, Lord Copper.
It all depends on why you want to curb city bonuses:
- concerns about social inequality
If inequality is your motivation, Adair Turner is right. This is for the Government to sort out, not the FSA. - concerns about the cost to the banks
If you are worried about the cost of salaries, this is for the shareholders to sort out. Again, since the Government is a big shareholder in a number of the banks, the Government could take steps to address it. - concerns that bank staff have incentives to take unnecessary risks
But this is squarely the business of the regulator. If you think that the bonus culture leads city folk to take risks with our money because the bonuses reward short term payback and do not sufficiently penalise long run losses, then this is something the FSA should sort out.
So it is not economically illiterate to think that the FSA should look at city bonuses, if there are concerns that they might create incentives for risky behaviour that we want to avoid. (I have no idea whether the FSA the legal powers to do so: but that is a different point.)
Tim Harford has an interesting article in this weekend’s Financial Times about private health and education in developing countries:
Imagine that your daily earnings were less than the price of this newspaper. Would you consider buying private education and private healthcare?
Before you make up your mind, here are a few considerations: government healthcare and primary education are free; the private-sector doctors are ignorant quacks and the teachers are poorly qualified; the private schools are cramped and often illegal. It doesn’t sound like a tough decision. Yet millions of very poor people around the world are taking the private-sector option. And, when you look a little closer at the choice, it’s not so hard to see why.
Now there is a dilemma here.
On the one hand, we know that charging even a very small amount massively reduces the take-up and impact of services such as health and education. (This survey by Holla and Kremer summarises the evidence.) So charges excludes many people from access, and it seems likely that the poorest and most vulnerable will be excluded most of all.
On the other hand, we know that public services in developing countries are often poorly managed and badly delivered. That’s why, as Tim points out in his FT article, many of the very poorest people choose to go private instead.
Apologies if this is anecdotal, but I see this dilemma in practice every day. My partner works for Marie Stopes International, which operates 21 clinics for women (providing contraception and abortion) here in Ethiopia. They charge their clients for services – a small amount which is just enough to pay for the cost of running the clinics. The result is that they are very focused on delivering services that will bring their clients into the clinics every day – that is, services that they actually need, at a price they can afford. My feeling is that, as a result, they are more focused on their customers than most public services in developing countries, and indeed in some developed countries, whether financed by aid or by taxation.
So how can we disentagle ourselves from the horns of this dilemma? Here are three thoughts:
- First, we should take seriously Tim’s observation that “a little accountability goes a long way” and think much harder about how we can make public services more acountable. You have probably heard about the way more funding reached Ugandan schools as a result of greater transparency (though the details have been disputed (pdf)). The work of my team on aid transparency is a modest contribution to this effort.
- Second, we should not be ideological about whether the public or private sector actually provides services, as long as the government takes steps to ensure that there is universal access. For example, governments (with the support of donors) might issue vouchers to the poorest, enabling them to choose for themselves whether to use public or private services.
- Third, in the long run this problem will be reduced if and when there is equitably shared economic growth which gives people sufficient incomes for these kinds of choices to be more reasonable.
Danny Finkelstein in The Times sticks up for Special Advisers. Alex Evans, who was a Special Adviser in DFID, tells a funny story about being put at the end of a corridor
I returned from leave to discover that my office had halved in size: the wall had been moved six feet. To create a new meeting room for the Permanent Secretary on the other side.
For the first time I can remember, I agree with Danny Finkelstein (and, less unusually, with Alex). We need special advisers; and if anything we need more of them, not fewer; and we need to give them proper power and authority.
I say this partly for the reasons that Danny gives: we should be glad to have a diversity of ideas and advice to Ministers. If civil servants can’t stand that heat of competition, they should get out the kitchen. And as Danny says, the special adviser network can actally enhance effective Cabinet Government, by maintaining political conversations between government departments that do not work as well through the civil service networks.
But there is one other reason why civil servants should be in favour of having more special advisers: they help to prevent politicisation of the civil service. For as long as we have sufficient, high qality special advisers, they can write speeches, brief journalists, write political strategies, liaise with MPs and the more political lobby groups – which prevents Ministers from having to ask civil servants to perform tasks which brings them into the gray areas at the margins of political neutrality. So a greater number of Special Advisers does not imply an increasing politicisation of the civil service, as is sometimes claimed, but rather a protection against it.
I have worked closely with many special advisers, some of whom are now quite well known (whatever happened to David Cameron, John Bercow, David Milliband and James Purnell, I wonder?) and I found most of them to be extremely smart, productive, and responsible. Working with special advisers helps civil servants to understand the political context of their advice better. A good partnership between civil servants and special advisers enables them to design policies and explain them in ways that are politically attractive, helping to introduce better policies which might otherwise be ruled out on political grounds.
I’d like to think that the Yes, Minister days are behind us, but Alex’s recollections suggest that, at least unconsciously, those civil service attitudes are not yet entirely in the past.
The New York Times describes what happens if women do not have access to safe abortions:
Worldwide, there are 19 million unsafe abortions a year, and they kill 70,000 women (accounting for 13 percent of maternal deaths), mostly in poor countries like Tanzania where abortion is illegal, according to the World Health Organization. More than two million women a year suffer serious complications. …
Here in Ethiopia around a third of maternal deaths are the result of unsafe abortions.
Well done to the New York Times for addressing this. Too often this problem is swept under the carpet.
We hear a lot about the impact on carbon emissions and climate change of travel, especially by air, but very little about the impact of the livestock industry, which has been estimated to be responsible for 18% of all man-made greenhouse gas emissions, more than the total emissions from all sorts of travel put together.
I have a personal interest in this because I travel a lot by air (boo!) but I have not eaten meat for 25 years, nor do I own a car. I also live in a house that has neither any heating nor air conditioning; nor (unlike many ex pats in Addis Ababa) do we have a generator. So if we are fixated only on air travel, my carbon footprint looks horrendous; but it looks a lot better if you take account of other aspects of my lifestyle. I am sure I should do more, probably much more, to reduce the damage that I do to the environment: but let’s look objectively at the overall impact of a person’s lifestyle, rather than focus on any single measure.
The fixation with air travel annoys me because I think that there is public good in air travel. The world would, in my view, be a better place if more people were able to travel and meet people in other countries and learn about other cultures. We would have a stronger sense of solidarity with other people around the world and a greater willingness to act collectively to solve global problems. We would probably be more worked up about the need to tackle global warming if we saw first hand how it is already affecting communities affected by rising temperatures and rising sea levels. Air transport also enables farmers in Africa to grow flowers and beans for sale in Europe, with an overall carbon cost that is much lower than if these products were grown in greenhouses in Europe, and that trade provides livelihoods for more than a million people who desperately need it so that they can trade their way out of poverty.
I do not see a similar “public good” argument for eating meat. I did not become a vegetarian 25 years ago because of climate change, which hadn’t been invented then, but because I thought then and continue to believe that it is wrong to eat animals purely for pleasure. As well as being bad for the animals themselves, and for the climate, the meat industry is destroying our health and our countryside.
Yesterday Tristram Stuart Hunt in The Guardian calculated how much we should reduce our meat consumption:
Based on the global food production figures published by the FAO, I did a few preliminary calculations. Global average consumption of meat and dairy products including milk was 152kg a person in 2003. Average EU and US consumption, by contrast, was over 400kg, while Uganda’s was 45kg. In order to reach the equitable fair share of global production, rich western countries would have to cut their consumption by 2.7 times – and this doesn’t include the fact that the butter will have to be spread even more thinly if the global population really does increase by another 2.3 billion by 2050.
However, still further reductions would be necessary because global meat production is already at unsustainable levels. The IPCC among other bodies, has called for an 80% reduction of greenhouse gas emissions by 2050. Since high levels of meat and dairy consumption are luxuries, it seems reasonable to expect livestock production to take its share of the hit. For rich western countries this would mean decreasing meat and dairy consumption to significantly less than one tenth of current levels, the sooner the better.
So let’s try to focus less on air travel – which has positive benefits for the world – and more on changing our diet, which we should be doing even if there were no impact from livestock on climate change.
I suspect that the environmental movement focuses on air travel partly because it appeals to an instinct for class war. The kind of people who fly several times a year on long-haul flights are the kind of people we love to hate. This makes a campaign against air travel much more popular than criticising people for eating meat, which would mean taking on “ordinary” people.
Of course, as a vegetarian who flies a lot, I would say this, wouldn’t I?
David Roodman at the Center for Global Development has begun an “open book” about microfinance. He is publishing chapters as he goes, with space for readers to comment.
As well as an interesting way of working, this threatens to be a very interesting topic. David is not starry eyed about the role that microfinance (and other financial services for the poor) can play in development – he’ll bring an unsual degree of rigour and balance to this debate.
Willem Buiter on the Christmas message from the Pope
What is it about the Judeo-Christian-Islamic religious tradition that leads so many of its most prominent spokespersons to make hateful, bigoted, life-diminishing and personal security-endangering statements when it comes to human sexuality?
I know that it isn’t nice to laugh at the misfortune of others, but you’d have to have a heart of stone not to laugh at this.
First the religious right were asked to pray for rain during the Denver Democratic National Convention:
Stuart Shepard of Focus on the Family, one of America’s leading evangelical groups, was shown in a video filmed at Denver’s Invesco Field, where 75,000 are expected to cheer Mr Obama on Aug 28, asking Christians to pray for “torrential” rain.
“I’m talking ‘umbrella-ain’t-going-to-help-you rain,” the former pastor and television meteorologist said. He explained on the video: “I’m still pro life, and I’m still in favour of marriage as being between one man and one woman. And I would like the next president who will select justices for the next Supreme Court to agree.”
Did it rain on Mr Obama’s parade? Did it heck.
But what’s this? Hurricane Gustav has prompted a rethink over the Republican convention. John McCain said:
“But you know it just wouldn’t be appropriate to have a festive occasion while a near-tragedy or a terrible challenge is presented in the form of a natural disaster. So we’re monitoring it from day to day and I’m saying a few prayers too.”
If the Big Guy is sending rain according to which side he’s on, then He seems to be a Democrat.
while Ms. Palin is perfectly entitled to believe that evolution is a myth, that women should be barred from choosing to have abortions, and that global warming has yet to be proven, these views all run counter to the views of mainstream America.
If we can’t get an agreement on cutting food tarriffs and limiting market-distorting agricultural subsidies now, while food prices are surging (see graph), then when we will ever?
I was pondering for a presentation on Thursday why it is that inequality between countries has grown so markedly over the last 100 years. There are many reasons why the richer countries have grown, but it is harder to explain why poor countries do not catch up as quickly as they did during the previous 2,000 years.
A candidate explanation of why poor countries catch up more slowly now is that rich countries have taken steps which slow down the transfer of technology. By tightening intellectual property rules and expanding those restrictions to an increasing proportion of economic value, rich countries are, in effect, yanking up the ladder behind them.
I see today that James Surowiecki makes a similar point in the May 14 edition of The New Yorker:
The great irony is that the U.S. economy in its early years was built in large part on a lax attitude toward intellectual-property rights and enforcement. As the historian Doron Ben-Atar shows in his book “Trade Secrets,” the Founders believed that a strict attitude toward patents and copyright would limit domestic innovation and make it harder for the U.S. to expand its industrial base. American law did not protect the rights of foreign inventors or writers, and Secretary of the Treasury Alexander Hamilton, in his famous “Report on Manufactures,” of 1791, actively advocated the theft of technology and the luring of skilled workers from foreign countries. Among the beneficiaries of this was the American textile industry, which flourished thanks to pirated technology. Free-trade agreements that export our own restrictive I.P. laws may make the world safe for Pfizer, Microsoft, and Disney, but they don’t deserve the name free trade.
Does this matter? I think it probably does. David Houle wrote last month about the growing economic importance of information in the value of economic production:
In 1975, at the very beginning of the Information Age, 16.8% of the market capitalization of the S&P 500 was from intangible assets. By 1995, that number had grown to 68.4%, and in 2005 it was up to 79.7%, where I imagine it will level off in the years ahead. In the historically short time of thirty years there has been a fundamental shift in the concept of value, not unlike the transition from the land values of the Agricultural Age to the production values of the Industrial Age.
The twentieth century has seen a new enclosure of the commons – robber barons have built fences around the key economic assets of the community, and they have got rich charging people for using them. In the past, when mankind learned how to get more food from the land (e.g. learning about irrigation, crop rotation or seed soaking) these ideas were not protected by patents. When we learned how to improve our health (e.g by improving access to clean water, or using antibiotics) these ideas were not protected by patents. When we learned how to organize factories, or build roads, or design windmills – all these ideas could be transplanted and adapted by poorer countries, so that they too could benefit from them.
Now at the start of the 21st Century, many of the key technologies that drive economic value are locked away by patents and intellectual property rights – agricultural technologies, business software, vaccines to prevent disease. As a result, the poor can no longer simply adopt these techniques and adapt them for themselves.
The cruel irony is that it would do us no harm to allow others to share in the benefits of our innovations. We worry about intellectual property rights because we want to protect our ability to recover the costs of innovation from the rich: the poor (who cannot afford to reward us for our cleverness anyway) are just innocent bystanders.
I’ve just heard Jack Straw tell the Today programme that one of Mr Blair’s great successes was to persuade the United States at Gleneagles to increase aid to Africa.
The transcript of the briefing by US officials on Air Force One going home from Gleneagles says different.
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