Category: Public Policy

Secular Stagnation: Short-term Fixes for Long-term Problems

Rahul Menon1 Comment

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The concept of secular stagnation, first propounded by Alvin Hansen in the 1930s, has enjoyed an academic 鈥� and mainstream 鈥� resurrection thanks to Lawrence Summers (2014, 2016), who first advanced the theory as an explanation for the subdued recovery and anaemic growth prospects of advanced economies. A surprising criticism recently came from (August, 2018), who believes that the theory offers a convenient escape away from assuming responsibility for failed policy during the crisis. 听An acrimonious debate between followed. 听

On the face of it, Summers 鈥� and 鈥� are right: the modern theory of secular stagnation does see a central and substantial role for fiscal policy. The problem, however, lies in the fact that a short-term fix for aggregate demand shortfalls 鈥� fiscal policy 鈥� is being advanced as a long-term solution of the problem of reduced growth prospects. The central question of what drives investment in a capitalist economy is not addressed.Read More »

Brazil鈥檚 Election in the Shadow of the Impeachment

Carolina AlvesLeave a comment

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Earlier this month the final deadline arrived for political parties in Brazil to register their candidates for the presidential election in October 2018. The official launch of candidates allows us to discuss more concretely the political forces and players that will be shaping the election. It means that coalitions, alliances, and vice-president choices have taken place. So we asked, what can be said about the first candidates leading the polls? What are the main political forces underlying this election?

The Brazilian political landscape has been extremely polarised since the impeachment of president Dilma Rousseff in 2016. If the left-right dichotomy has recently been considered blurry or outdated, in Brazil one can argue that, due to the impeachment, this dichotomy has a new face, with the coup winners on one extreme and the coup losers on the other.

The nuances between right and left on the political spectrum have largely been overshadowed due to this dichotomy, with one side leading a for a clean and corruption-free country and the other side highlighting the . The political mayhem reached its peak with Lula’s trial and conviction in April, which has led to a great deal of uncertainty over this period (see recent Lula鈥檚 from prison in the NYT).

President Termer may have been able to 鈥渒eep the markets calm in鈥� throughout such political instability, but Brazil鈥檚 economic recovery has been , hardships for many families have increased (see IBGE indicators for increases in , , and ) and the country has just set a new record for homicides at in 2017, with violence against women also increasing. There is a lot at stake in this election.Read More »

Poor Behavior, Good Behavioral Policies? Double Standards for the North and South

Svenja Flechtner2 Comments

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Behavioral approaches to development economics and policy have gained momentum in recent years. A growing number of papers studying behavior of people in poor countries have been published in top journals, accompanied by the rise of randomized controlled trials (RCTs). In 2015, the was dedicated to behavioral and cognitive research and policy. Papers studying how to or have become classics in the field. Lots of hope has been placed into social experiments and behavioral policies .

Behavioral policies are of course not reserved for policy-making in poor countries. In fact, nudges became famous with a . Many behavioral instruments have been discussed and tested in and for rich countries. But there has been an important difference as compared to the debates in development economics: when debating behavioral policies in rich countries, scholars have also devoted lots of time to consider normative and ethical concerns. For example, following Thaler and Sunstein鈥檚 exposition of (see also ), a debate unfolded on whether nudges could be anti-libertarian (, , , or ). Implications of the use of nudges as a new form of government policy have been analyzed, for example, from a , or with a focus on . have been written about . The debate has reached a great level of differentiation, e.g. when authors argue that so-called (these are nudges that seek to stimulate voluntary cooperation in social dilemma situations) may be justified for different reasons than those targeting individual welfare. Overall, the debate has become really sophisticated, and the autonomy, welfare, and dignity of citizens in rich countries as well as consequences of the use of behavioral policies for these countries鈥� modes of government have received lots of careful scrutiny (recently again ).Read More »

Caveat emptor: the Graduation Approach, electronic payments and the potential pitfalls of financial inclusion

plbds2 Comments

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By Paulo L dos Santos and Ingrid Harvold Kvangraven

The Graduation Approach to poverty reduction is inextricably bound up with programmes promoting financial inclusion. Proponents for the approach see it guiding a series of interventions that encourage poor households to 鈥榞raduate鈥� into 鈥榤ainstream development programmes鈥� which are centred on the provision of credit and other financial services (). Indeed, the approach has been presented as a way to address the needs of those 鈥渢oo poor for microfinance services鈥� (). The presumption is that the development and poverty reduction needs of 鈥榞raduates鈥� will be well served by financial inclusion initiatives.Read More »

Small and Medium Enterprise Development: A Case of Hamlet without the Prince

Kagiso Zwane1 Comment

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Towards the end of 2016, something remarkable happened in the relationship between the private sector and state in South Africa. In an effort to keep the big three rating agencies from downgrading the country鈥檚 the sovereign credit rating to 鈥渏unk status鈥� the was convened at the request of the President and his Deputy and led by the then Minister of Finance. The initiative鈥檚 initial goals were to prevent a sovereign rating downgrade and to stimulate inclusive and sustainable growth. To achieve this, three work streams were established: a fund for small and medium sized enterprises (SME), a youth employment scheme, and an investment intervention team. This post critically assesses the theoretical basis for SME development as a tool for inclusive growth.Read More »

An Economic Strategy for The Gambia?

Sanjay G Reddy1 Comment

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I was听privileged recently to spend a little time in The Gambia, whose people recently overthrew a megalomaniacal, authoritarian and in many respects vicious President, Yahyeh Jammeh, in an extraordinary democratic moment, due to their courage and the timely supportive action of other countries in West Africa (and very little if at all due to support from major powers, apart from their role in placing some effective limits on prior abuses and eventually supporting a Security Council resolution that helped to legitimize the ECOWAS action).

I was able to observe a moving event in which members of the country鈥檚 diaspora, from Alaska to Taiwan and from Cape Verde to Sweden, most of whom were active in opposition (and quite a number of whom were highly educated professionals successful in the countries to which they have departed) assembled to meet the new President and to express their pleasure at the New Gambia as well as their sincere hopes for the future. Conversations with ordinary Gambians reveal general relief and enormous optimism. Arguably, the current juncture provides the first opportunity since the country鈥檚 independence in 1965 for a broad ranging public conversation on the ends and means of development.Read More »

Hazards of a Tourist Boom

黑料社区1 Comment

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by Silla Sigurgeirdottir and Robert H. Wade

Iceland is surfing a tourist boom. From 440,000 tourists in 2008, numbers started surging in 2011 to reach 1.3 million in 2015 and 1.8 million in 2016. The resident population is 330,000 in an area over 40% that of the United Kingdom. Having experienced the sharpest crash of all the OECD economies in 2008-2009 Iceland regained the pre-crash level of average income by late 2014. GDP grew super-fast at over 6% in 2016, and forecasts suggest annual growth of almost 5% between 2017 and 2019, one of the fastest in the OECD.

Pre-tax salaries rose nearly 10% a year in both 2015 and 2016. Foreign exchange reserves are ample. Inflation is low, at less than 2% through 2016. Household debt to income is low. The state is paying down public debt fast; the current level is around 50% of GDP. The banks have passed stringent stress tests, with unusually low leverage ratios, low loan to value ratios, strong liquidity positions (especially in foreign currencies) and high capital ratios (close to 30%). A repeat financial crash is very unlikely.

So what is not to like? Given what is happening in Europe and the United States, political leaders elsewhere would love to have Iceland鈥檚 problems. Still, those problems could develop badly for the population at large.Read More »

Is Competition Always the Answer? A Case Study of Vietnam鈥檚 Power Sector

nguyentueanh5 Comments

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Since 2001, the Vietnamese government has acknowledged the need to increase generation capacity in the electricity sector. With unprecedentedly , the electricity industry, however, commonly fails to deliver, especially during peak hours and dry seasons. It is reported that 鈥榠n the whole country there were 3,000 blackout incidents due to system overloading during the first 7 months of 2008鈥�, equivalent to 鈥�14 blackouts a day鈥� (). As a way to mitigate this chronic electricity shortage, the industry鈥檚 biggest player, Electricity Vietnam (EVN) has to buy in all that is produced domestically and import from neighbouring countries such as Laos and China. Yet, not only cannot EVN satisfy its primary objective of ensuring a secure electricity supply, but it also suffers significant annual financial losses of hundreds of million dollars. EVN claims that too low average pricing of electricity is the cause of this loss. In addition, audit reports reveal that EVN鈥檚 diversification policy had caused further losses.

The inefficiency in infrastructure investment and inadequacy in organizational management have caused anger amongst the public, creating an extremely negative attitude towards the traditional monopoly structure of the electricity sector. Utilising a popular measure, policy makers therefore choose to apply the 鈥榤arketisation鈥� or liberalization model that is, in theory, similar to the liberalization model that has been implemented in the UK and EU since the 1990s. The main reasons behind the policy are: 1) to assist the government in infrastructure investment; 2) to expose EVN to competitive forces through encouraging private and foreign investment which would force it to improve its financial and operational performance; and 3) to provide affordable and stably-priced electricity. These 3 major objectives are thought to be the outcomes of introducing competition to the traditional monopolistic market structure. This causal link is, however, usually assumed rather than discussed and tested.Read More »