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.
One of Tony Blair’s blind spots – as I think he would be among the first to admit – is that he has tended to underestimate the importance and value of effective and lasting institutions. As he contemplates his legacy he seems now to be coming round to understanding this.
Looking back at the successes of previous governments, we remember mainly the institutions they built as their lasting legacies. Lloyd George gave us national insurance; Clem Attlee gave us the National Health Service. We don’t remember Andrew Bonar Law much, because he built nothing. Harold Wilson famously cited the creation of the Open University as his greatest achievement.
This Government’s most notable institutional changes have been devolution, the independence of the Bank of England and the partial reform of the House of Lords: planned in opposition and implemented soon after the 1997 election. In Government, the PM has taken the view that the priority is to put in place the right people to take the right decisions. I think this is a manifestation of New Labour’s philosophy that they would go with “what works”. They would govern with pragmatism, not ideology; and that meant appointing the right people and getting on with it rather than constructing effective and long-lasting institutions that might limit their discretion.
In that context, the Prime Minister’s speech on 27 January in Davos made interesting reading, because it is all about the need for more effective international institutions:
This is my major reflection on 10 years of trying to meet these challenges, 10 years in which, as a deliberate policy, Britain has been at the forefront, for better or worse, of each of these major global issues. Interdependence is an accepted fact. It is giving rise to a great yearning for a sense of global purpose, underpinned by global values, to overcome challenges, global in nature.
But we are woefully short of the instruments to make multilateral action effective. We acknowledge the interdependent reality. We can sketch the purpose and describe the values. What we lack is capacity, capability, the concerted means to act. We need a multilateralism that is muscular. Instead, too often, it is disjointed, imbued with the right ideas but the wrong or inadequate methods of achieving them.
None of this should make us underestimate what has been done. But there is too often a yawning gap between our description of an issue’s importance and the matching capability to determine it. … Global purpose, underpinned by global values requires global instruments of effective multilateral action.
This emphasis on the need for more effective multilateral institutions is both right and important. As the world become more interdependent, there are more and more choices that we need to make collectively. These include the provision of global public goods, collective security, and mechanisms to ensure that the benefits of globalisation are fairly shared so that progress can be sustained. As I think the Prime Minister is now saying, if we do not have legitimate and effective institutions to take these decisions, we will find that we have no way to meet these needs and aspirations, nor to resolve the world’s tensions.
Britain has quite a specific long-term interest in this too. We are witnessing the rise of new world powers such as China, India and Brazil. I personally welcome this, though there is a lot of angst around about what it means for us. One thing it almost certainly means is that in 20 years time, Britain will no longer be a major world power with the same amount strategic influence at the most important forums such as the G8 and the Security Council. If and when that happens, we will depend on the existence of effective multilateral institutions to protect our interests, and those of other middle-ranking powers. It seems to me that we should be using the power that we have today, while we still have it, to put in place those institutions and build them up so that they are effective and legitimate in the future. That is a legacy for which future generations in Britain may well thank us.
The Government has consistently refused to set up a statutory inquiry into the way that many thousands of haemophiliacs were put at risk by the supply of contaminated blood products. (The new inquiry by Lord Archer of Sandwell is an independent inquiry, not a government inquiry, and has no powers to subpoena witnesses or evidence.)
But it announced yesterday that there will be an official inquiry into the alleged removal of human tissues from the bodies of former Sellafield employees.
I just don’t understand this obsession with the treatment of dead bodies. Dead bodies don’t have rights. I really don’t care if human organs are taken out of dead bodies. What’s more, if these body parts can be used to identify causes of and cures for disease, then I think we should encourage scientists to use them.
How can we possibly think it is more important to investigate what happened to dead bodies than to find out whether somebody has negligently infected living people?
The Economist highlights the importance of improving the way aid is given:
Because the aid they receive is such a capricious, volatile commodity, governments dare not make full use of it. They could hire legions of extra teachers, clinicians and civil servants, but only if they are prepared to fire them when the aid spigot is closed. They could put AIDS-sufferers on anti-retroviral therapies, but only if they are willing to discontinue treatment once the money stops.
The article explains why the Paris Declaration on Aid Effectiveness is such an important step towards reducing the costs of aid to beneficiaries and donors alike, and so greatly improving the effectiveness with which aid is used.
It is a rare pleasure to read this well-informed comment about the need for donors to align their aid with the systems they are trying to support, to make aid more predictable, less likely to undermined domestic accountability and to duplicate each other less.
So asks Simon Maxwell at ODI. His conclusion is that DFID is pretty good.
In our own work on aid architecture, we asked developing country aid practitioners from 27 countries to rank donors and comment on their strengths and weaknesses. DFID outranked other bilateral and multilateral donors. DFID scored especially highly on efficiency, flexibility, speed of disbursement and alignment with country priorities.
The conclusion to draw from this: ‘don’t panic!’.
Thanks Simon. It is good to have support from such a reputable and independent source.
Just one quibble. Simon says:
Some of these contributions have a whiff about them of competition between DFID and the Foreign Office, which is unfortunate.
That would indeed be unfortunate. I don’t know if there is any Whitehall briefing going on; but if it is, then it all seems to be going one way. There is nothing in the papers to suggest DFID briefing negatively about the FCO. And a good thing too. We are above that kind of thing.
One of the unconscionable practices in international aid is the “mission” – a team of experts from donor countries who fly out to the developing country to supervise the way that aid is used. For large aid projects, these mission teams – sometimes composed of eager but inexperienced development workers – will demand meetings with senior officials from the recipient country government, often including Cabinet-level ministers.
These missions are a major burden on developing countries. Each mission ties up many hours of ministerial and official time. The policies pressed on governments are often contradictory, lack evidence and have little or no legitimacy in local policital processes. That is why donors promised in the Paris Declaration on Aid Effectiveness to reduce the burden of missions.
Yet in the 18 months since that declaration there were 11,000 missions to 31 countries surveyed by the OECD – an average of about 350 missions per country per year. Each mission lasts about a week, so on average each country will have about 5 donor missions in country at any one time. This is a huge cost to the scarce administrative capacity of developing countries: costs which are imposed by well-meaning donors but borne by the recipient government.
The costs of missions can be thought of as a negative externality – which suggests that developing countries should adopt the polluter pays principle as a way to control the burden. Using the analogy of cap-and-trade in environmental pollution, developing countries could issue tradable missions permits. Here is how it could work:
- Developing countries would each decide how many donor missions they can absorb in total each year. Suppose that a country decides to accept 50 donor missions a year (a seventh of the number they now receive on average!). The government would then issue 50 tradable missions permits, which they would sell to donors in an online auction.
- Development agencies designing aid programmes that require a donor mission would have to include in their budget the cost of buying one of these permits, either in the auction or in a secondary market. This would mean that the budget of the aid project would include explicitly not only the cost to the donor of providing the resources, but also the cost to the recipient that the project will impose. The donor thus bears the full cost of its decisions.
- Donors would have an incentive to coordinate their programmes and send joint missions, since they could then share the costs of mission permits.
- Donors would also have a financial incentive to decentralize their operations to resident staff, rather than sending missions from HQ.
The key to making this work would be for developing countries to be rigorous in limiting donors’ access to ministers and officials to teams holding a mission permit. There would be strong pressures – including financial – on them to accept an additional meeting without a mission permit. This could be avoided to some extent through the visa regime (visiting staff from donor agencies would have to quote their mission permit number), but to some extent the donors would need to police the system themselves.
In general, it seems to me that many of the challenges in the development industry relate are the consequence of negative externalities of donor decisions. As the number of donors increases, the prospects for solving these problems through coordination and committees seem more and more remote – and we should look instead to decentralized, market-based mechanisms to align incentives to deliver better results.
Take a look at Clive writing about Food Miles:
Food miles are useless. There is no doubt that transport intensity in the food supply system has been increasing – driven by forces of globalisation, consolidation in retailing, larger shops with more choice meeting demand for year-round supply, car-based shopping etc. But “food miles” are barely useful in capturing or articulating any of this interesting complexity.
Absolutely.
A new, open source, distributed identity management service called OpenID is making waves in the online community. We need user-centric, trusted identity management system, and this could be it.
I have just learned from DFID’s Chief Economist, Tony Venables, that the grain required to fill a 25-gallon SUV gas tank with ethanol will feed one person for a year.
The British High Court has ruled that Zambia has to make substantial payments on its debt now held by Donegal International, based in the British Virgin Islands. Donegal International is a so-called vulture fund – that is, a financial organization that buys at a discount bonds that are very unlikely to be repaid, and then tries to sue the issuer for the full amount.
Ordinarily, I would be in favour of allowing markets to trade securities, and for companies to be able to enforce contracts against governments. Well-functioning and liquid secondary markets help to reduce the cost of capital when it is originally borrowed, and the subsequent trading at below par enables debt and risk to be priced.
But there is an obvious market failure here: it is the collective action problem of dealing with defaults. We have a solution for companies: when a company can no longer meets its debts, it goes bankrupt. This is an orderly procedure to ensure that the creditors receive their share of the debtor’s assets. In particular, bankruptcy prevents free riders from holding out for full repayment of their debts once other creditors have settled. But as Walter Wriston famously remarked, countries don’t go bust. Once a country’s debts become unsustainable, it is in everyone’s interests to restructure those debts. If there is no collective mechanism for restructuring, then creditors will scramble to be repaid at the first sign of trouble, which is in nobody’s interest. And if free-riders hold out for full repayment, then there will be less money for the other creditors and less prospect of an equitable and sustainable settlement. That is why we have the London Club (for private creditors) and Paris Club (for public creditors). But the Vulture Funds hope to free-ride on these collective mechanisms, and seek the repayment of debts in full once the other creditors have bailed out the country and restructured its debts.
There is a possible solution to this, which is related to the idea put forward by Michael Kremer and Seema Jayachandran. First, laws in creditor countries such as the UK and US could be changed to disallow seizure of a country’s assets for non-repayment of so called ‘odious debt’. In other words, we could change the law so that odious debt contracts are legally unenforceable. Second, foreign aid to successor regimes could be made contingent on non-repayment of odious debt. This would encourage successor governments to repudiate odious loans, which will encourage banks to refrain from originating them.
Who would determine what debts are odious? Kremer and Jayachandran suggest that we give a mandate to an international institution such as the UN or the IMF to declare a regime odious. For example, Mr Mugabe’s government in Zimbabwe would be declared odious. Any organization considering lending money to that government would know that the debts would be legally unenforcable. In addition, I suggest that we agree that any outstanding sovereign debts of a country that receives HIPC debt relief would also be automatically declared to be odious. This would mean that lenders today would be wary of making any sovereign loans to a country that might in the future run into a debt crisis.
An automatic mechanism to make debts unenforcable if they were lent to a government that was corrupt or incompetent, or if they contributed to a debt crisis, would impose a much stricter market discipline on lenders to make them think twice before making such loans; and it would also close down the free-riding activities of vulture funds.
Romania lent $30m to Zambia in 1999, when Frederick Chiluba was President of Zambia. Chiluba is under multiple charges of corruption and bribery. If those charges are made to stick, then the country’s debts which were incurred under his regime should, in my view, be declared odious and unenforcable in international courts. And that would mean that the vulture funds would not get paid.
I heard Des Smith on the BBC this morning. He said:
“I was literally hung out to dry by Tony Blair”
It seems he said the same to the Scotsman.
I find it hard to believe that he was literally hung out to dry. Metaphorically, perhaps?
You would think a former head teacher would know what ‘literally’ means.
The Financial Post reports that the Canadian Senate has challenged the future of the Canadian development agency
“Given the failure of the Canadian International Development Agency (CIDA) in Africa over the past 38 years to make an effective foreign aid difference, the government of Canada should conduct an immediate review of whether or not this organization should continue to exist in its present non-statutory form,” says the Senate foreign affairs committee in a report that was two years in the making and heard from hundreds of witnesses. …
The report’s top recommendation is for the government to create an Africa Office that would include aid workers, diplomats and security staff with the goal of stimulating economic development. Unlike the current distribution of labour, 80 per cent of its staff should work in Africa.
The Senate recommends that if it continues to exist, CIDA needs clear objectives that can be monitored.
Over at The Guardian, David Hencke draws attention to a consultation about possible proposals which would restrict the use that can be made of the Freedom of Information Act:
what ministers want to do is to restrict any individual or organisation from asking more than four detailed questions a year – severely limiting the opportunity for the most socially active to get stuff from their local council or government department. The second, more subtle restriction aims to load extra costs against a £600 notional fee (£450 for local councils) – used as a cut-off point by bureaucrats to say it is too expensive to get the information. Basically, the new charges cover time spent reading the information to see if it can be released and time spent by ministers consulting with each other and lawyers on whether to release the information. As you can see, the more contentious the information requested, the less likely it is that it will now be released. And major advances in the release of information – such as the disclosures of the huge agricultural subsidies received by Tate and Lyle and the royals – would never have been released under these regulations. Nor would all the new details of MPs' expenses either.
Hencke urges his readers to respond to the consultation to express their views about this change.
The comments are pretty interesting. A couple of civil servants there (under the names BackOfTheNet and RobertPeel01) say that the Freedom of Information Act is a huge waste of time for civil servants. I just wanted to say that, as a civil servant myself, I don't agree with them: I am in favour of as much freedom of information as possible. The government and public servants should be accountable to the citizens (as voters as well as taxpayers) and the public is entitled to know what is being done in their name and with their money. Transparency also leads to better policy-making. The additional burden on civil servants is a small price to pay.
Hilary Benn says that we should buy flowers imported from poor countries, even if we are concerned about the environment:
some recent research by Cranfield University – who compared the emissions from producing 12,000 rose stems in Kenya with those in Holland, including transporting them to Hampshire – and found that the emissions produced by Kenyan rose and flying them here can be less than a fifth of those grown in heated and lighted greenhouses in Holland. Why? Because Kenya is warm and sunny, and heating greenhouses in Holland uses enormous amounts of fossil fuels.
Furthermore, even if it were not better for the environment to buy African flowers rather than Dutch flowers, we should still consider buying flowers, fruit and vegetables from Africa:
people living in the vast majority of African countries are responsible for a tiny amount of carbon emissions. In Kenya, carbon emissions are 200 kg a head; here it is fifty times that. We should bear that in mind when making our choices.
This is social justice on a global scale. If we boycott their goods that are flown to the UK we deny our fellow human beings their chance to grow; their chance to reduce poverty. It’s like saying, we messed this planet up, but you can take the consequences.
So do the right thing on Valentines Day: buy flowers from Africa.
I am in Rome, at the launch of the Advance Market Commitment. Under this scheme, a group of donors is promising to use $1,500 million to buy a new vaccine, if it is developed, which protects against the strains of pneumococcal infection that are common in the poor countries.
This is important because nearly 2 million children die of pneumo-related illnesses each year. Children in rich countries are routinely vaccinated against these diseases. But there is no vaccine for poor countries, for two reasons. First, the vaccine has been developed to protect against the strains of the disease that are common in North America and Europe, and it is much less effective in poor countries. The vaccine has not been extended to cover the strains of pneumo common in poor countries because the market is not big enough to warrant the R&D needed. Second, even if such a vaccine existed, the market is too small and unreliable for firms to invest in the high volume mass production that is needed to supply large volumes at low costs to cover the developing world. The commitment made yesterday by rich countries to buy a suitable vaccine, meeting internationally recognized standards for efficacy and safety, could transform the economics of development of new vaccines.
Pause briefly on how radical this policy is. There is a social need for extra R&D and investment in production facilities. But instead of paying researchers to do that research – which might or might not succeed, they are creating market incentives and allowing competition to do the rest. The donors create a reward for the private sector – the prospect of a lucrative market for vaccines – which enables firms to invest in developing and producing the needed vaccines. But if the research fails it will cost the donors nothing. The taxpayer will only have to cough up if the vaccines are actually developed and used. And if the vaccine is used, it will save more than 5 million lives over the next quarter of a century – at $300 per life saved, a bargain in development terms. For firms, this is attractive because it creates a whole new market for their products, and enables them to serve poor country markets on a commercial basis, rather than as an act of corporate social responsibility. And for developing countries, they have the prospect of access to new vaccines, which in the past have taken 15-20 years to be mass produced cheaply enough for them to be widely used in developing countries. So this is an results-based, market-oriented, hard-headed partnership between donors, developing countries and the pharmaceutical industry which, if it works, will
solve one of the most important health challenges on the planet.
This scheme was the idea of a brilliant economist, MIchael Kremer, who is an economics professor at Harvard. (He is pictured to the right, at the launch yesterday in Rome). Michael is unusual in developing economic ideas with important real-world application.
Michael's idea was developed into a policy proposal by a working group convened by the Center for Global Development (where I used to work).
What was special about that group was that it brought together people from academia, development, industry, and the non-profit sector, and professional backgrounds including economics, law, public health and public policy.
No individual member of that team could have devised the programme that they came up with together. The interaction of public health expertise, economic theory, practical industry experience, and public policy lead to a proposal that addressed the possible challenges of this idea, and forged a strong shared understanding of how this proposal could work.
Ruth Levine at CGD, in particular, is brilliant at bridging gaps in understanding, perspective and motive, and at forging agreement among diverse groups. John Hurvitz, a lawyer from Covington and Burling,, was able to translate between industry and activists, and his draft contract, which formed part of the CGD report, was the cornerstone of being able to show that it would be legally possible for donors to make this commitment. Amie Batson at the World Bank worked tirelessly against short deadlines to manage the technical work that donors required. Carlo Monticello at the Italian Finance Ministry led the work for G8 Finance Ministers, like the conductor of a huge, multinational orchestra. Orin Levine, who heads up the group responsible for building understanding of and demand for a pneumo vaccine, brings unrivalled technical knowledge, passion for the mission, and a self-exaggerated naiivety about the byzantine process of international policy-making. Andrew Jones, the urbane Canadian responsible for this work at GAVI, is ever-practical, looking for the way forward. And many other people worked round the clock to build this idea into a clear, practical idea.
Apart from agreement among this group of experts, the other vital ingredient was the vision of a group of political leaders. Finance Ministers are not known for their generosity – that isn't their job. But finance ministers from Italy – from both parties – and Gordon Brown from the UK quickly grasped the simple elegance of this solution, to harness markets and the profit motive to address a challenge of huge social importance. It was their leadership, more than anything, that focused everyone's minds and energies on how to make this happen.
I cannot think of any comparable examples of how an idea has been developed by a brilliant academic, worked up into a policy proposal, and taken up by policy-makers. I first heard of this idea in 1998, when Michael Kremer mentioned it to me over lunch one day. The simplicity of the idea – create incentives for the development of new vaccines by promising to buy them if they are developed – appealed to me then as it does today. Since then, I have watched the idea evolve and take a more defined shape. At times I have been partly involved in helping the idea along. It has been fascinating and illuminating to watch it grow from a simple idea to a pledge yesterday of $1.5 billion to buy a pneumo vaccine if one is developed.
Some of the team were here in Rome yesterday for the launch. We felt like a non-league side that has won the FA cup. It is a group of people that have argued, fought, laughed, cried, debated and persuaded amongst ourselves for three years. We agree about much, and bring much passion to what we disagree about. We have learned to trust each other. We have learned that each of us is as committed to the same goal – saving lives by getting the best possible vaccines to as many kids as possible as soon as we can. We have become great friends, across divides of geography, training, age and institution.
We sat together having a celebratory dinner in Rome last night, chattering about the excitement of the day and tryng to forget how much work there
is still to do on the nitty gritty of making this happen.
I realized then that the achievements I am most proud of in my life so far have all involved being part of a team. The budgets we put together, working late into the night in the Treasury; the new system of budgeting and public financial management we developed for Nelson Mandela's government in South Africa; even the races I have helped organize in London – in every case, it was the satisfaction of achieving something together, much more than any of us could dream of doing on our own, that has been the most rewarding and memorable part of the experience.
I will never have children, so I will never know what it is like to lose a child. My friends probably won't lose their children either, because we have developed and made available the vaccines for our own communities to protect against these common but preventable diseases. This new Advance Market Commitment for a pneumo vaccine will advance by ten years or more the speed with which vaccines will be developed and used in poor countries. Not just one but millions of mothers will be spared the anguish and pain of losing their child as a result of this decision.
So to the team who has developed this idea, and seen it through to the launch yesterday in Rome – and you know who you are – I thank you, for letting me be a part of something very special, and giving me something to be proud of.
Launch photos here
More from: the BBC, the Guardian, the New York Times, Forbes, Bloomberg, Reuters, my blog entry at CGD, Pharmalot, Marginal Revolution, Alex Tabarrok, Technology Health and Development, Stop Aids, PrairieWrangler, Pienso.
The Washington Post reports the death of Ryszard Kapuscinski:
Ryszard Kapuscinski a Polish writer and journalist who gained international acclaim for his books chronicling wars, coups and revolutions in Africa, the Middle East and other parts of the world, died of a heart attack, his literary agent said. He was 74.
His book The Emperor about Haile Selassie is one of the great studies of dictatorship; and the Shadow of the Sun is among the very best accounts of travelling in Africa.
Here is my ha'porth, for the record.
It is no excuse to say that your religion requires you to discriminate against gays. We would not tolerate the same argument to justify discrimination against people on grounds of race.
Nor is it a defence for the churches to say that it is OK for them to discriminate because there is another agency that does not. As somebody said, it is like telling Rosa Parks that she should get off the seats-for-whites-only bus and wait for the fully integrated bus coming along behind.
This is not mainly a point about public services and public funding. As Evan Harris MP points out, there is a problem with contracting public services out to "third sector" organisations if they then expect to be able to impose their prejudices on how those services are delivered. But even if the churches were delivering these services at their own expense, they should not be allowed to discriminate against blacks, gays or anybody else.
Frankly, I'm amazed that this is even a matter of public debate.

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