Owen abroad

Archive for March, 2005

The allocation of EU Common Agricultural Policy subsidies has been released, under the Freedom of Information Act. Who get’s the money? It turns out that the money is not being used to support struggling farmers and preserve a rural way of life. A large chunk supports big agri-business. And top of the list is Big Sugar. I am not a fan of the sugar industry. As I explained in this post, they are cynically poisoning us. They are not very different from the pusher handing out heroin at the school gates. According to the Scotsman, Phil Bloomer, head of Oxfam’s Make Trade Fair Campaign, said:

Export subsidies, like those paid to Tate & Lyle, are the worst of all. They bridge the gap between the EU price and the world price and thereby enable Europe to dump its unwanted produce overseas, undercutting local farmers. In Mozambique, Malawi and Ethiopia, farmers and their families are struggling to survive because of the distorted EU regime.

Living in America, I am fortunately spared all but the worst excesses of the British election, which seems to be in full swing despite not having been formally declared. Even at this distance, the Tory posters – "are you thinking what I’m thinking" – hadn’t passed me by altogether. So I enjoyed the Pseudo Magazine’s entry about the idiotic nature of some of the posters. Here’s a bit to tempt you:

Another poster campaign is in order — and if he’s looking for a copywriter, I might just be his man: "I mean, how hard can it be to get those Colombian drug barons to stop shooting each other?" "I mean, that scientist geezer who looks like the lovechild of Seth from Emmerdale and Albert Einstein, he must be some kind of idiot — how hard can it be to land a beagle on Mars?" "I mean, nuclear fusion, it’s just the opposite of fission, isn’t it — how hard can it be?"

Spare a thought for 1.1 billion people – 1 in 6 of the world’s population – who do not have access to safe drinking water.

Donor agencies have tried to measure the rates of return on investment in individual, aid-financed projects, and have typically estimated ex post rates of return ranging from 10 to 30 percent. Studies of the macroeconomic impact of aid up to now have run growth regressions in which aid is one among many explanatory variables for growth. This gives a measure of the overall impact of aid on the economy, but it does not provide estimates of the rate of return of aid investments in their own right. (There are lots of reasons why there might be differences – in either direction – between the rate of return on the individual investments and the impact on the economy as a whole – for example, if there are crowding in effects or positive externalities from aid-financed investment on other investments, or conversely if there are crowding out or dutch disease effects.) See here for a separate analysis of the overall impact of aid on growth. A new study by Carl-Johan Dalgaard and Henrik Hansen (both at the Institute of Economics, University of Copenhagen) fills this gap with a new approach. It estimates the return on investments financed by foreign aid as well as by domestic resources, using crosscountry aggregate data. The paper’s principal finding is remarkably robust: the average aggregate gross return on aid-financed investments (in physical capital) is in the range 20-30 percent range. This finding is well in accord with micro estimates of the economic return to aid. It turns out that the estimated rate of return is roughly the same as the return on investments funded by other sources than aid. This is an interesting new approach, which opens the door to a range of further work – for example, looking at the returns to investment in human capital (eg health and education spending) as well as physical capital; and investigating the differences between countries and over time in rates of return, to give us a better handle on when aid is, and when it is not, effective. These results suggest that evaluations of project level investments are not overstating the effectiveness of those investments, and that aid-financed investments do indeed earn a high rate of return. The similarity of the aid-financed and domestic-financed estimates suggest that aid-financed investments are as productive as private investments. The comparison between the micro estimates and macro estimates suggest that there is neither a strong crowding in, nor strong crowding out, of private investment.

We’ve all been amused by former Enron Chief Executive Ken Lay trying to present himself as a regular guy who did not understand technology and did not understand finance. The court didn’t believe him and has sent him to prison.

But the collapse of Enron and of Worldcom should make us wonder what we are paying stock market analysts and traders to do all day. Well functioning financial markets are hugely important. We need to channel capital efficiently to the most profitable businesses, to enable them to invest and grow. That benefits all of us, as customers of those goods and services, and it is good for everyone with savings and pensions. I thought the reason we pay huge salaries to people who work in financial services – such as traders and analysts, some of whom are earning several million dollars a year – was that they are very good at doing this. The story is that they understand the market, they understand the numbers, they understand each firm – how it is managed, its strategy, its customers, and its prospects – and they invest our money wisely to earn the best return. If they do all this well, then I for one do not begrudge them large salaries, big houses and lavish lifestyles.

But the Enron and Worldcom scandals tell us that none of these people can tell the difference between a company with sound business, and a financial house of cards. For example, in July 2001, Ronald Barone, a "natural gas/energy convergence" analyst with UBS Warburg in New York – now a managing director at S&P (!) – lowered his price target for Enron from $102 to $70. (Of course, the company turned out to be worthless.) My friends from the City tell me they are not to blame: the accounts were falsified, the auditors were not doing their job. This is true, of course. But if analysts and traders are merely reading the accounts and investing our money on the basis of what they see there, then we don’t need to pay them all that money for their alleged expertise. Any fool can read the annual accounts and invest in the companies making the biggest profit. We pay these people for their insights over and above what we can all see in the accounts, for their intimate understanding of the markets and businesses in which they invest. Their excuses are no more credible than Ken Lay’s defence: if they don’t know about the businesses, what on earth are we paying them for? If all it cost us was the astronomical salaries we pay them, then perhaps it might not matter much. But hundreds of thousands of people have lost a lot of money – in some cases, their entire savings or pension – because of the incompetence of the people paid handsomely to make sure that our savings are invested well. It is like a newspaper paying an expensive wine critic, and then finding that in a blind tasting, the critic can’t tell the difference between red wine and white wine.

I have little sympathy for Ken Lay: he is a conman who made himself rich at our expense. But in my view, the real scandal is the tens of thousands of people in the financial services industry creaming off a very nice living from our savings, on the pretense that they are making subtle, finely-tuned decisions about the value of different businesses, when the reality is that they cannot tell the difference between a company with a sound, profitable future and a company that has no customers, no revenues, no profits, and no prospects.

Paul Krugman made an interesting observation in a talk at Berkeley, which is becoming something of a meme. Apologies to those for whom this is obvious, but it was new to me. He pointed that we should distinguish between balance and objectivity in our media. Let me give an example. Evolution is a scientific theory which has a great deal of supporting evidence – possibly as much evidence as almost any scientific theory. (I agree with Karl Popper that scientific theories are disproven, not proven, so I won’t say it has been proved.) There are, however, many people in the world who believe various creation myths for which there is no evidence. The Miao people of China, for example, believe that a God made the earth and people from spitting and clapping. There are other people who believe that God made the earth in six days, and rested on the seventh. When the media report a story that refers to evolution, they can be objective or they can be balanced. If they are objective, they will report evolution as the correct explanation of how we came to be; and they do not need to refer to any or all of the hundreds of creation myths that exist out there (unless these are in some way relevant to the story). But balance, by contrast, requires that they give some – perhaps equal – airtime to these other explanations, even though they are nothing more than superstitions. The problem is that the media has been cowed into believing that it must be balanced, instead of objective. As Krugman puts it:

The media are desperately afraid of being accused of bias. And that’s partly because there’s a whole machine out there, an organized attempt to accuse them of bias whenever they say anything that the Right doesn’t like. So rather than really try to report things objectively, they settle for being even-handed, which is not the same thing. One of my lines in a column — in which a number of people thought I was insulting them personally — was that if Bush said the Earth was flat, the mainstream media would have stories with the headline: ‘Shape of Earth–Views Differ.’ Then they’d quote some Democrats saying that it was round.

I’m not sure Krugman is right that the problem is mainly fear. I suspect that it is also laziness: it is a lot easier to put up two opposing points of view, in the interests of balance, than it is to take the time to weigh up the evidence and decide what an objective account should be. Whatever the reasons, I found this a useful distinction.

There is public debate about abortion again in the UK. Rowan Williams, the Archbishop of Canterbury, says in today’s Sunday Times that he hopes that questioning candidates could prompt a wider debate. First, on the merits of the issue itself, as I argued here in 2003, there is no case for adjusting the time limit on abortion as scientific progress makes it increasingly likely that foetuses can survive outside the womb. The viability or otherwise of the fetus has no bearing on its moral status. I’m in favour of a woman’s right to choose, and people who are concerned about avoiding late abortions should support those of us who believe that women should have much easier access to abortions in the early stages of pregnancy. But what about the idea that abortion is a "matter of conscience", should be the subject of a "free vote" and "should not be an election issue"? This argument appears to evolved a little in the last few months. All three of the main political parties in the UK choose not to have a party policy on abortion, allowing MPs a "free vote" on the issue if and when it is debated in the House of Commons. This approach was adopted on the basis that it would be wrong to ask an MP to vote in a particular way on abortion, because that might create a conflict with their conscience. More recently, this view has taken a stronger form. Some people (including the Prime Minister) are arguing that, because it is a matter of conscience, it is should not be a topic of political debate in the run-up to an election. I’m not at all persuaded by this. First, I don’t agree that that some issues are too important for democracy to handle. Abortion is an important moral issue: and that is precisely why it is important that MPs represent the views of their constituents about it. (I am reminded of the title of a book by Ken Livingston: "If democracy changed anything, they would abolish it."). There is an implicit, but nonetheless unpleasant, elitism in this idea: we should leave the really tough moral issues to MPs and trust them to take the right decison on our behalf. Second, there are many important moral issues to which we do not apply this test. Three million children die each year of vaccine-preventable diseases across the world; by refusing to provide the relatively small sums of money needed to buy and deliver vaccines, we are allowing them to die. How is that not a "moral issue"? Twenty thousand people die each day unnecessarily as a result of extreme poverty. Why do we not have a "free vote" on the international development budget? Some people have expressed concern that we might "become like America" if we allow social issues such as abortion, death penalty, euthanasia, gay marriage and stem cell research to become factors in our political life. The Economist put it like this:

To Europeans, religion is the strangest and most disturbing feature of American exceptionalism. They worry that fundamentalists are hijacking the country. They find it extraordinary that three times as many Americans believe in the virgin birth as in evolution. They fear that America will go on a “crusade” (a term briefly used by Mr Bush himself) in the Muslim world or cut aid to poor countries lest it be used for birth control. The persistence of religion as a public force is all the more puzzling because it seems to run counter to historical trends. Like the philosophers of the Enlightenment, many Europeans argue that modernisation is the enemy of religion. As countries get richer, organised religion will decline. Secular Europe seems to fit that pattern. America does not.

I subscribe to the European view as described by The Economist: I do not believe that fundamentalist religious beliefs should be allowed to restrict our freedoms (nor, incidentally, do most Americans). But the way to ensure that, as a society, we embrace our freedoms and rights, and protect ourselves from from religious bigotry, is to put these issues front and centre in our political discussions and win the argument. For us to say that our best protection against religious fundamentalists is to insulate key issues from the democratic process is to claim that we cannout rely on democracy to protect our freedoms; and that we should instead entrust these issues to an elite who, on these issues, should not be democratically accountable. (This would presumably be the same elite which has just removed our ancient right, granted under the Magna Carta, not to be detained without trial.) I would not want to vote for an MP who wanted to limit a woman’s right to choose an abortion, who did not support equal rights for gay people, who was opposed to stem cell research, or who supported the death penalty, just as I would not want to vote for an MP who was in favour of the war on Iraq, or opposed to spending more on international development assistance. These are all moral issues that ought to be at the heart of politics, including party politics and electoral politics.

The good news is that 83% of the world’s population now has access to safe drinking water. But the bad news is that, despite good progress, there are more than 1 billion people without safe water and 2 billion people without sanitation.

From 1990 to 2002, the proportion of the world’s population with access to safe drinking water was increased from 77% to 83%. Over the twelve years, about 1.1 billion people gained access to improved water.

Within this, progress has been particularly impressive in South Asia and in sub-Saharan Africa. In Africa, where much of the progress has been financed by foreign assistance, coverage has increased from 49% to 58%.

Some improvements in access to safe drinking water in Africa

More bad news: more than 2.6 billion people – 42% of the world’s population – does not have access to adequate sanitation – not even a basic pit latrine. But also some more good news: over the same period, 1990 to 2002, the proportion of people with access to sanitation has increased from 49% to 58%. Coverage in sub-Saharan Africa increased from 32% to 36%.

Some improvements in access to sanitation

Source: OECD DAC
Aid to the water sector has averaged about $3 billion a year in recent years (including bilateral and multilateral aid); of which about three quarters is spent on access to safe water and sanitation. But this is not something that can or should be financed only, or even mainly, by aid. In fact, donor support makes up about 16% of the $14 billion which is spent each year in developing countries on drinking water, sanitation and hygiene. About 70% is provided by the domestic public sector, and the rest comes in the form of private sector investment (two thirds of which comes from foreign investment).

Which means that about $35bn of aid has contributed to more than 1 billion people getting access to safe drinking water, and more than 1.5 billion getting access to sanitation. At around $30-$40 a head, that sounds like a good deal to me.

According to UNICEF, and based on actual experience in delivering water and sanitation, it would cost a total of about $100 billion to meet the Millennium Development Goal to halve the number of people without access to safe drinking water by 2015 – an average of about $6.7 billion a year. If this seems like a lot of money, put it in perspective: Europe and the US spend $17 billion a year on pet food.

What this means for ordinary people

According to the World Health Organization, some 3,900 children die each day because of dirty water or poor hygiene.

Over at OurPlanet, you can read about how this investment in water has affected the life of a particular village in Kenya.

Drilling the boreholes – the greatest expense, at a cost of $2,000-3,000 a time – is done by the Kenyan Water Ministry, while KWAHO provides the pumps. The community has to find the maintenance cost, around $12 per pump. As a single pump serves an average of 250 people and lasts about 10 years, each family may pay 6 US cents per week.

… Health has improved. Mwanaisha Meropia, a mother of six, who lives in Mwabungo village says that her cough gradually disappeared and a pain in her chest stopped troubling her after the pump was installed. There has been a marked decline in water-related diseases and hygiene standards have risen.

The Task Force on Water and Sanitation details some case studies of what has been achieved and how.

You can read about how UNICEF has helped to provide clean water in South Korea here.

The Daily Show has a very funny piece on why Paul Wolfowitz is the right man to be President of the World Bank.

Over at Our Word is Our Weapon, Jim has done a good job in explaining why Bill Easterly’s critique of Jeff Sachs’s new book, The End of Poverty, is not up to Easterley’s usual standards. I’m thought Bill Easterly’s book, The Elusive Quest for Growth, was excellent. Indeed, one lesson I thought I learned from it was Easterly’s point that poverty can be caused by a vicious circle – a poverty trap – which required action on a range of fronts to break out of. I was therefore very surprised by his criticism of Sachs for being insufficiently piecemeal in his approach. I’m only part way through Sachs’s book, so it is too early for me to comment thoughtfully on the substance. But I find the style profoundly irritating: self-centred, self-contratulatory and arrogant. The fight against poverty is a shared endeavour.

The report of the Africa Commission, whose members include Tony Blair and Gordon Brown, said just 5 days ago (p75) :

Appointments of the heads of international institutions should be decided upon by open competition which looks for the best candidates rather than by traditions which limit these appointments by nationality.

One international appointment of enormous significance to the nations and people of Africa is the President of the World Bank. Whatever you think of the merits of the nomination today of Paul Wolfowitz for this position, it would be hard to argue that the process is consistent with the Africa Commission’s recommendation for an open competition. In his speech to launch the report, Tony Blair said:

All this is possible. Whether it happens, as this report demonstrates, is down to all of us. It needs a new partnership: A partnership, between the developed world and the continent of Africa that goes beyond old donor/ recipient relations….The report itself is only a first step – it is nothing if we don’t use it to achieve change. …Success is in our hands. If we resolve to act, we will succeed.

Quite so. For the vision set out in the report to succeed, we are going to have to start to take decisions which reflect our long term interest in reducing poverty in Africa, and not just our short term political and commercial interests. The Commission has set out clearly and persuasively what those decisions need to be, including ensuring that international organisations are well led, and seen to be more responsive to the needs of all their members. President Bush’s announcement of his nomination of Paul Wolfowitz lays down the guantlet. The nomination was made with no competition, and as far as we know, little consultation. To accept this appointment without an open, transparent and consultative process is therefore to ignore the recommendation of the Africa Commission. As I mentioned in my earlier post when Wolfowitz’s nomination was first rumoured, the US has only a minority of votes on the board of the World Bank. The Europeans could veto this appointment, just as the US prevented the appointment of Dr Koch-Weser to be Managing Director of the IMF five years ago. Shall we put our traditional alliances and short term strategic interest ahead of Africa’s needs yet again, or shall we live up to the recommendation in the Africa Commission report? We will see.

Some statistics comparing Iraq, where we have intervened, and Darfur, where we have not intervened.

I’m happy to take corrections, or suggestions for additions.

It was announced today that the US plans to nominate Paul Wolfowitz. So I was wrong in my earlier prediction that Randall Tobias would be nominated to be President of the World Bank. I’ll be interested to see what the reaction of the Europeans is to this proposal (which is all it is, at this stage). If they are not happy, then this may just blow apart the system of controlled appointments to international insititutions – which may not be a bad thing.

This guy rescues an injured rabbit; and then creates a website saying that, unless he receives $50k in donations or merchandise purchases by June 30th 2005, he is going to eat the rabbit. The site has lots of cute photos (including one of the rabbit in a cooking pot) and there are plans to include tasty recipes. Sick, and yet very funny. Tip of the hat to John Naughton for the link.

The bad news is that over half a million children still die of measles each year, even though we can save these lives for less than a dollar each, using the measles vaccine. The good news is that, since 1999, the number of children dying of measles in Africa has been reduced by 46 percent. Globally, measles deaths have fallen by 39 per cent. Launched in February 2001, the Measles Initiative has so far vaccinated 160 million children in Africa. A further 51 million children under the age of 5 in 13 countries will be vaccinated in 2005. This extraordinary improvement is the result of cooperation between the American Red Cross, United Nations Foundation, Centers for Disease Control and Prevention (CDC), United Nations Children’s Fund (UNICEF), the World Health Organization (WHO) and the International Federation, which supports the national Red Cross or Red Crescent Societies in the country in which a campaign occurs, as well as coordinating the activities of donor national societies. I’m so fed up of being told that aid goes down the drain. If we had more funds, we could do more of this.

According to Ireland Online, Bob Geldof has asked Tony Blair and Gordon Brown to be robust when they ask President Bush to increase aid to help to reduce poverty. At the launch of the Africa Commission report, Geldof said:

Tony and Gordon have to prepare to ring up George and say, ‘Do this, George, do this one thing for me, it’s going to cost you fuck all, do it for me.

Brad DeLong rightly attacks Supreme Court Justice Nino Scalia for saying that "government comes from God". As DeLong says

Nino Scalia’s views on this are profoundly–there is no other word for it–UnAmerican. Here in the United States, we are all children of Thomas Jefferson. God does not give us rulers. Instead, God gives us rights: to life, liberty, and the pursuit of happiness. We then institute governments to secure these rights, and they derive their just powers from our consent, not from God’s decree.

Amen.

Dr Charles Townes was on National Public Radio yesterday, because he has been awarded the Templeton Prize for progress or research in spiritual matters. Dr Townes won the Nobel Prize for physics for inventing the laser, and is Professor here at Berkeley.

What shocked me was that Dr Townes said that he thought that complexity of the universe, arranged in a way that permits life, while not conclusive, was at least suggestive of the existence of God. This is known as the argument from intelligent design. The argument runs as follows. A vast array of different things need to be in place for life to exist on earth, ranging from the Earth being just the right distance from the Sun, the existence of water, to the immense complexity of our biochemical structure. The chances of each of these things is very small; the chance of them all coming together are very small indeed. So, the argument goes, it seems more likely that some "intelligent design" is behind the this set of circumstances.

This argument may sound convincing at first, but it is stastical nonsense. Suprisingly, a quick trawl of Google did not turn up any simple or clear critiques of the argument.

To see why this is a fallacy, keep in mind that for evidence to be useful in distinguishing two theories, an observation must be more likely under one theory than the other. For example, if you drop a heavy object and a light object from the Leaning Tower of Pisa, then if you believe Galileo they should hit the ground at roughly the same time. If you believe an alternative theory – say, that heavier objects fall faster – then they should hit the ground at different times. If we observe two objects landing at the same time, then we can say that this is evidence against the alternative theory, because that theory suggests that this observation is very unlikely. This would strengthen your belief in Galileo’s theory, which predicts that this is likely. But if two theories both predict that the objects would hit the ground at the same time, but differ in some other way (eg in their prediction of how fast the objects would be going at that time), then your observation would not help you to distinguish between those two theories.

Let us apply this to the observation that the universe has the characteristics necessary to support life. If the theory of intelligent design were true, what are the chances that we would look around us and observe a universe with the complex characteristics needed to support life? The answer is 100%. If the theory of intelligent design were not true, what are the chances that we would look around us and observe a universe with the complex characteristics needed to support life? The answer is 100% again. The point is, if we are able to look around us, we MUST be in a universe that is capable of supporting life. So both theories predict this observation with exactly the same probability. The observation provides absolutely no evidence for or against the theory of intelligent design.

Another way to think of this is that it is a bit like being dealt a good hand in a game of cards. In Bridge, the odds against being dealt any particular hand are about 13 billion to one. But when you are dealt your hand and you look at your cards, do you conclude that the dealer is cheating because the chances of having been dealt just that hand are so infinitesimally small?

Just to be clear: I am not saying that the argument from intelligent design is merely weak because the chances of life developing are less unlikely than they might first appear (though this may also be true).

The argument is logically invalid: because the observation is equally likely under either hypothesis, it tells us absolutely nothing about which we should believe. It seems strange to me that an eminent academic physicist should fall into this trap.

In 2001, using the resources released by debt relief, Tanzania increased the education budget by 130 percent and eliminated school fees, with the aim of reaching universal basic education by 2006. Almost overnight, an estimated 1.6 million kids returned to school.

By 2004, the number of children in primary school had increased by 50 percent. Net enrollments have risen from 59 percent to nearly 90 percent of children. There are as many girls enrolled as boys. More than 30,000 new classrooms have been built. About 18,000 new teachers have been recruited. And more than 9,000 science-teaching kits have been supplied to schools. This example shows what can be achieved with:

• good policies – Tanazania chose to eliminate school fees, upgrade human resources and invest in infrastructure;
• the benefits of debt relief, which were used to pay for the 130 percent increase in total spending;
• predictable, long term aid commitments, which enabled Tanzania to embark on a long term reform program;
• coordination by the Government of government agencies, community organizations, international donors, and the private sector.

The Dutch Health Minister has proposed a system under which people who sign organ donor cards would receive points which would raise them on the waiting list should they one day need an organ. That’s a good idea. I’d also be in favour of an "opt-out" system, in which everyone is assumed to consent to being an organ donor after their death unless they have explicitly chosen not to. Hundreds of people die unnecessarily each year, and many more suffer a burden of disease which we could easily lift, just because we do not do enough to ensure that organs are made available.