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Developing countries - Money Whither

An economic whimsy

April 22nd 2011 22:08

“I find you impossible to follow,” said my dinner guest. “One moment you are bleating like a socialist, the next you are bellowing like a capitalist. Which are you?”

“I am neither a bleater nor a bellower,” I said.

“Then you’re a nothing. You have to be believe in one or the other.”

“Why must I believe in one or the other?”

“Because otherwise you are a fence-sitter, a man of no convictions, a leaf blowing in the wind. You can’t expect to sway opinion, to motivate people, to get things done, if you don’t have firm convictions.”

“It seems to me that firm convictions of the writ-in-stone kind you propose achieve little except lively dinner party conversations. My convictions are based on the practicalities of current circumstances, not the ideologies of ivory tower generals.”

“Then you are looking at the small picture. You don’t understand that ideas motivate masses. Therein lies real power.”

“And you don’t understand how much damage that mantra has wrought. You think as a politician, not an economist. An economist can be both a capitalist and a socialist.”

“And achieve nothing.”

“On the contrary. It is the people who insist on promoting only one side of a two-sided problem – and most problems are two-sided – that achieve nothing, unless you count notoriety. The real achievers are the pragmatists and negotiators, people more interested in outcomes than ego.”

“Those people work for me, and if they know what’s good for them, they will do as they are told.”

“The implication being that what’s good for them is what’s good for you. I prefer economic definitions of wellbeing.”

“That figures,” said my guest and, laughing at his own joke, poured some more of my wine.

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Posted By: Chris Champion - Category: Developing countries

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Putting some spice into economics

September 26th 2010 11:26

The word economics comes from the ancient Greek word oikonomia, which means "management and administration of a household", and economics today is often defined as the social science that studies the production, distribution and consumption of goods and services.

Sometimes, however, the best definition is demonstration, and one of the best demonstrations of the principles of economics can be found in the streets of Mumbai, India. Let us take you on a trip, a journey of economic discovery.

In the crowded streets of Mumbai, India's most densely populated city (with more than 19,000 people per square kilometre), can be found a complex, sophisticated and extraordinarily efficient delivery service. Let us enter the world of the dabbawala.

A dabbawala is, literally, a person with a box. That person will by extension be in Mumbai, because the dabbawala service exists nowhere else. He is employed in a unique service industry whose primary business is spreading through the suburbs each morning to collect boxes containing freshly cooked lunches, delivering those boxes to the respective desks of office workers, and then returning the empty boxes again to workers' homes.

The contents of the box are often referred to as "tiffin", which is a light lunch or afternoon snack, and the word is sometimes also used for the box in which the food is carried. The dabbawalas are therefore also sometimes called tiffin wallahs.

It was the British who brought the word tiffin, and it was they who started the dabbawala concept. The Brits who came to the colony had trouble adjusting their palates from kippers and tea to dahl and lassi, and so established a service to bring lunch from their homes to their places of work. Today, Indian business people are the main customers for the dabbawalas but, increasingly, affluent families are employing them to deliver lunches to their children at school as well.

A collecting dabbawala, usually on bicycle, collects dabbas from homes, or sometimes from special dabba makers, then takes them to a designated sorting place, where he and other collecting dabbawalas sort (and sometimes bundle) the lunch boxes into groups. The grouped boxes are put in the coaches of trains, with markings to identify the destination of the box (usually there is a designated car for the boxes). The markings include the rail station to unload the boxes and the building address where the box has to be delivered.

At each station, boxes are handed over to a local dabbawala, who delivers them. The empty boxes, after lunch, are collected and sent home by reversing the process.

This service started in 1880. The first collective was formed in 1890 with about 100 men. An attempt to unionise the dabbawalas was made in 1930, and in 1956 a charitable trust was registered under the name of Nutan Mumbai Tiffin Box Suppliers Trust. The commercial arm of this trust was registered in 1968 as Mumbai Tiffin Box Supplier's Association. Nowadays, the service often includes cooking of foods in addition to the delivery.

An estimated 175,000 to 200,000 lunch boxes get moved every day by between 4,500 and 5,000 dabbawalas, all with an extremely small nominal fee and with amazing accuracy and punctuality. A recent survey found an average of one lost or misdirected tiffin box for every 6,000,000 deliveries.

No wonder the dabbawala business is booming (The New York Times reported in 2007 that the industry continues to grow at between 5 and 10 per cent per year).

The British Broadcasting Commission has produced a documentary on dabbawalas, and Prince Charles, during a visit to India asked to meet some of the. He did, although the heir to the British throne had to fit in with the schedule of the dabbawalas as their timing was too precise to permit any flexibility.

As the dabbawala business has grown, and as its complexity and efficiency have become known, it has come under scrutiny from business analysts and teachers, and economists. Dabbawala organisers have been invited give guest lectures at top business schools of India.

As a recent feature in London's Independent newspaper said, "Logistically, what the dabbawala army achieves each day is nigh on impossible. A team of Harvard statisticians has proved as much. Without computers, pretty well without mobile phones, relying on a relay system fraught with the potential for dabbawalas being late, ill or even dying en route (two did last year), they weave across the city on a spider's web of routes."

The Harvard statisticians proved that Mumbai's dabbawalas should not be able to do what they do do. This is not, we suggest, one of the more radiant moments in the history of statistical endeavour. Which is why the economists are taking note and moving in to study the phenomenon.

Or perhaps they just want some tiffin, delivered reliably on time.

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Posted By: Chris Champion - Category: India, Developing countries, Economics

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The Washington Consensus

September 19th 2010 04:56

Winston Churchill: "Democracy is the best platform for economic development, except for whatever the hell it is they are doing in China at the moment.''

In 1989, America did a huge favour to the Third World by creating, and making available gratis to anyone in need of it, a blueprint for economic progress for underdeveloped nations. They called it the Washington Consensus.

It was in effect a 10-pronged economic plan laid out by by John Williamson, a US economist noted for his opposition to capital liberalisation. The blueprint was what Williamson considered should constitute a standard reform package for crisis-wracked developing countries.

It can be summed up as "stabilise, privatise and liberalise".

And there it was, primed, polished and ready to go just as the emerging super-economies-in-waiting, China, Brazil and India, were moving into a position where they would need it. What good fortune for them!

All of which led to a surprise for the Americans: China, Brazil and India ignored the Washington Consensus and went their own way, developing an economic model tailored to their own situation. In Brazil, their model became known as the Brasilia Consensus. The Chinese called theirs the Beijing Consensus. They copied the style of name, but little else.

So what was wrong with the American version that it should be so snubbed? And have the Brazilians or Chinese re-signposted the rocky path out of poverty and into the promised land of economic strength? Have the Chinese, indeed, finally answered Winston Churchill's famous lament that, "It has been said that democracy is the worst form of government except all the others that have been tried"?

Williamson's Washington Consensus has attracted rather more negative responses than positive. It has been attacked by some heavyweight names, including George Soros and Nobel Economics Laureate Joseph Stiglitz, by a swathe of Latin American politicians, and by pretty much every heterodox economist with a megaphone.

Objective criticism has followed the attempts by many countries which did implement components of the Washington Consensus reform package due to unclear results. One school of thinking claimed that the reforms, which were supposed to help stabilise economies, in fact led to destabilisation.

Things got really ugly when the Washington Consensus was directly blamed for the Argentine economic crisis of 1999–2002, for exacerbating rather than ameliorating Latin America's economic inequalities, and for being part of the evil axis which was socialism and/or anti-globalism. It didn't help when Harvard University's respected Professor of International Political Economy, Dani Rodrik, a scholar not associated with any of the above philosophies, published a paper entitled, "Goodbye Washington Consensus, Hello Washington Confusion".

Perhaps the final word of criticism should go to John Williamson himself, who has summarised the overall results on growth, employment and poverty reduction in many countries as "disappointing, to say the least". He attributed this limited impact to three factors: the Consensus did not emphasise mechanisms for avoiding economic crises; the reforms were incomplete; and the reforms were insufficiently ambitious in terms of improving income distribution.

In his paper, Professor Rodrik drew some fascinating comparisons with other models. Pointing to the processes being seen in India and China, he claims there is a factual paradox in that, while China and India moved to increase economic reliance on free market forces to a limited extent, their general economic policies remained the exact opposite to the Washington Consensus' main recommendations.

Both had high levels of protectionism, no privatisation, extensive industrial policies planning, and lax fiscal and financial policies through the 1990s. Had they been dismal failures they would have presented strong evidence in support of the recommended Washington Consensus policies. However they turned out to be successes.

According to Rodrik: "While the lessons drawn by proponents and skeptics differ, it is fair to say that nobody really believes in the Washington Consensus anymore. The question now is not whether the Washington Consensus is dead or alive, it is what will replace it."

It is a fair bet that, should North Korea or Zimbabwe, for example, acquire a benevolent leader, and should she cast around for guidance in starting the economic recovery process, she will be tempted to look very closely at the Beijing Consensus.

A detailed report on the Beijing Consensus by China watcher and former foreign editor of Time magazine, Joshua Cooper Ramo, suggests the Beijing Consensus is evolving, with "new attitudes to politics, development and the global balance of power".

This is being driven, he says, by a "ruthless willingness to innovate, a strong belief in sovereignty and multilateralism, and a desire to accumulate the tools of 'asymmetric power projection'."

Ramo argues that China offers hope to developing countries after the collapse of the Washington consensus, providing a more equitable paradigm of development that countries from Malaysia to Korea are following. His report, he says, "captures the excitement of a country where change, newness and innovation are rebounding around journal articles, dinner conversations and policy-debates with mantra-like regularity".

They never said nice things like that about the Washington Consensus.

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Posted By: Chris Champion - Category: Brazil, China, India, United States, Developing countries

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