Not All Manufacturing Is Created Equal

Developing country governments typically want to promote manufacturing and de-emphasize agriculture. One of the concepts I teach in my development classes is the importance of backward and forward links.  For example, the creation of a railroad may have positive spillover effects on anything from commerce & transportation (forward links) to steel manufacturing (backward link).  If a government wants to promote a particular industry, it is wise to look for one that has widespread potential links, because not all manufacturing is created equal.

This was brought home to me recently by the great satirist Elnathan John, who regularly excoriates the Nigerian government (as well as many others).  He tweeted:

Screenshot 2015-10-29 08.16.01

I can tell you from experience that Import Substitution Industrialization is not a subject that is ripe for comedy, so kudos to Elnathan John for this.  I can think of some positive backward links to creating arms but not many good forward ones!

p.s. This reminds me of an instance when I asked students once on a midterm to choose an industry that would likely have a lot of links to other sectors and one student chose the unlikely industry of fighter jets.  Again, the backward linkages are clear (steel, airplane part manufacturing, aviation schools) but the positive links…not so much.  Not all midterm answers are created equal either!

“A Billion Lives Are at Stake!”

Every few years I teach a class at OU called Comparative Economic Systems. One of the things that often surprises students is the fact that many countries still have industrial planning, and that this wasn’t solely the reserve of the communist world.  Advocates for this type of planning (called indicative instead of command) argue that it is the process of creating the plans that is important, that there is value in having prolonged discussions between government, employers, labor unions, and farmers about the state of the economy and where it should go.  The claim is that whether the economy actually moves in the direction of the plan is somewhat irrelevant.  I’m not convinced by this argument but it came to mind when I saw the following video from the Chinese government about their new 5 year plan:

This video is amazing in so many ways that it is hard to know where to start, so here are just a few thoughts:

a.  The Chinese 5 year plan is much more indicative than command like it was in the past.  You can see how they trumpet the participation of all levels of government and all types of people in the discussion process. The big question is who they are trying to convince.  Anyone who knows about 5 year plans is already pretty cynical about how they really work (or don’t as the case may be).  This video, with its animation, upbeat music, and breathtaking idealism, seems aimed at young students, but again, which students?  The video is in English, so are they trying to create a gentler, softer image of industrial planning among the minds of American students (and do American students have any image of industrial planning to begin with?)

b.  I’ve seen communist countries promote 5 year plans with brutal slogans about the Year of Working Hard, etc. but I’ve never seen a country try to take this route:  of making economic planning seem both fun and totally successful and also vitally important.  There is an actual line in the video about how a billion lives are at stake with the planning process. Wow, that is some hubris!

c.  While the video is easy to mock, it is at least a lot more catchy and slick than the ham-fisted and embarrassing promotional video the Mexican government aired recently.

Administrative Data Rulz, Survey Data Droolz!

People, did you know that the US uses the Current Population Survey (CPS) as the source for our official poverty and inequality statistics?

I did not.

And that was only one of many things I learned from the abstract of this fascinating new NBER working paper ,”Using Linked Survey and Administrative Data to Better Measure Income: Implications for Poverty, Program Effectiveness and Holes in the Safety Net”

I can’t find an ungated version of the piece, the gated one is here, and here is the abstract:

“We examine the consequences of underreporting of transfer programs for prototypical analyses of low-income populations using the Current Population Survey (CPS), the source of official poverty and inequality statistics. We link administrative data for food stamps, TANF, General Assistance, and subsidized housing from New York State to the CPS at the individual level. Program receipt in the CPS is missed for over one-third of housing assistance recipients, 40 percent of food stamp recipients and 60 percent of TANF and General Assistance recipients. Dollars of benefits are also undercounted for reporting recipients, particularly for TANF, General Assistance and housing assistance. We find that the survey data sharply understate the income of poor households. Underreporting in the survey data also greatly understates the effects of anti-poverty programs and changes our understanding of program targeting. Using the combined data rather than survey data alone, the poverty reducing effect of all programs together is nearly doubled while the effect of housing assistance is tripled. We also re-examine the coverage of the safety net, specifically the share of people without work or program receipt. Using the administrative measures of program receipt rather than the survey ones often reduces the share of single mothers falling through the safety net by one-half or more.”

A shorter version could be Administrative Data Rulz, Survey Data Droolz!

If these findings hold up under the peer review process, it’s a really big deal. Assistance is under-reported, poverty is over-reported and the safety net catches a lot more people that the official statistics report.

Hat tip to Scott Winship.

The importance of the Political in Political Economy

I’ve always been more interested in political economy than economics as a stand alone discipline.  Perhaps because my undergraduate degree was in Political Science and I recognized early on that it didn’t matter how good your economic policies were–if you couldn’t convince the electorate of that fact, you were unlikely to be able to pass said policies.  And if you did, it would be hard to build much public enthusiasm for them.  I try to teach my students how important it is to understand both the politics and the economics of a certain situation because understanding one without the other will be less than useful.  To wit, I once had an undergraduate student many years ago suggest the world would be a much better place if there were economist dictators in each country.  It was hard to keep a straight face on that one and it was also hard to know where to start on the many things wrong with that argument.

Anyway, I’m thinking of these things today because of the Mexican government’s almost ludicrous inability to sell their economic reforms.  I’ve railed before about EPN’s crack PR team that seems to know absolutely nothing about PR.  Here is another instance where I think a tiny drop of common sense would tell a PR person (or anyone actually) that the following TV advertisement is *not* how to sell the government’s economic reforms.  Dios mio, check it out for yourself. Note that it has no English sub-titles, understandably given its target audience, but I think you’ll be able to get the drift even if you don’t speak Spanish.  Strangely, it does have Spanish subtitles, which seems off putting and insulting.  (there is that PR team working overtime again).

Unsurprisingly, the reaction on social media has been scathing  Here are a few reactions:

a. “anuncio imbécil”  (Idiotic ad)

b. ““Nos quieren quitar hasta la libertad de quejarnos.” Ese anuncio es poco convincente, almidonado y construido sobre uno de los estereotipos sociales más humillantes: el del “mexicano humilde.”  [roughly translated:  they even want to take away our freedom to complain.  The ad is unconvincing, stiff (stilted), and based on one of the most humiliating social stereotypes, that of the humble (poor) Mexican.

As the article rightly points out, for a government with such low popularity and credibility to design a campaign arguing that people should shut up and stop complaining is really something. One of the actors in the spot actually says “Ya chole con tus quejas,” which means “enough already with your complaints.”   Hmm, I wonder why their polling numbers are so low?

Potemkin Cotton

The Guardian has word of a new twist on the Potemkin villages common in the Soviet era.  This time it involves Uzbekistan and it’s most important export:  cotton.  The PM’s motorcade was going to pass through some poor village that had made the mistake of actually picking the cotton when it was appropriate.  I don’t know a lot about cotton, but I do know the window of opportunity for picking it is small.

But what would the PM think when he whizzed by in his fancy car and there was no cotton on the bushes?  I would think any halfway intelligent PM would think “Hmm, they must have already picked the cotton” or “I wonder what’s for lunch?” but oh no, the PM’s handlers fear he might think the worst, that there was no cotton this year and Uzbekistan’s economy would be in the toilet.

So what do said handlers decide to do?  Force those poor cotton farmers to glue the cotton back onto the bushes!  Seriously.  Again, I’m no cotton expert, but I’m pretty sure that would then ruin said cotton.  Plus, I think the only thing worse than picking cotton would be un-picking it.

The article reports that “some 400 men and women in the village of Shaharteppa in Ferghana province were reportedly pressed into service along the main road where the official convoy was expected to pass. ‘Some of them were applying glue inside the bolls and others were putting cotton on the bolls, while another group was attaching cotton capsules onto stalks in the front rows of the cotton field,’ a resident, who spoke on condition of anonymity.”

And the real kicker is that the PM never showed!  He took another route and never got to see the bountiful glued cotton.  Dios mio!

Divine Intervention as a Development Strategy

First we had the mayor of Jackson, MS urging his constituents to pray that the numerous potholes in the city get fixed.


and now we have the President of Zambia calling for a national holiday for people to pray for the economy and the falling currency.  Ha–like the government doesn’t have anything to with either of these phenomena!

Bloomberg reports the following about the Zambian economy:

a.  The currency, the kwacha, has lost 45% of its value against the dollar in the past year.

b.  “Zambians have been forced to endure power cuts of as long as 14 hours a day in Lusaka as drought caused water levels to drop at Lake Kariba hydropower plants, which supply the nation with almost half of its electricity. Dry weather has also caused a 22 percent slump in production this year of corn, the staple food, boosting inflation.”

c. “Copper prices have dropped more than 20% in the past year, prompting companies such as Glencore Plc to consider shutting mines and fire thousands of workers. Zambia is Africa’s second-largest producer of the metal, which accounts for 70 percent of export income.”

d. “Since taking office in January following the death of his predecessor Michael Sata, Zambia has been beset by policy uncertainty and a weakening in spending controls that’s led to ballooning debt. The government has steadily raised its target for the budget deficit this year from 4.6 percent of gross domestic product to 6.9 percent.”

So what should a proactive and responsible government do when the economy is heading south?  Declare a holiday, urge people to pray for recovery, and make sure that no one works that day.  Hmm, economics is clearly not the president’s strong suit.  Here are some details:

Zambian President Edgar Lungu wants his people to pray for on a national day of devotion and fasting on Sunday to reverse a decline in the world’s worst currency and fix a litany of problems from plunging copper prices to electricity shortages.
All bars, nightclubs and entertainment venues have been instructed by the government to shut on the day, while the Football Association of Zambia has canceled domestic games.”

Just when you thought you had hit rock bottom with icon-based development…

“Icon-based development”

No I am not talking about what the WWE does with The Rock or The Beast.

I’m quoting BJP officials in Gujarat talking about their plans to build the world’s tallest statue.

For realz.

“a huge new monument set to rise on a rocky island in a river surrounded by jungle in western India will dwarf them all. When the planned 590-foot-high tribute is done, it will stand roughly twice as tall as the Statue of Liberty. The subject of this soaring veneration: the late Indian independence leader Vallabhbhai Patel.  Elevators will whisk up to 10,000 visitors a day to an observation deck in the statue’s chest, builders say. There are also plans for what local leaders call “icon-based development”—including helipads, research facilities for fish farming and educational institutions.”

Sure because what statue in an isolated area wouldn’t just automatically generate economies of scope with fish-farms and schools?

People, I have to really question the Indian educational system. Check how the BJP describes the genesis of this “development project”

“Our question was: What kind of monument can generate the most public welfare?” said K. Srinivas, the state’s top civil servant. “We started looking at the statue’s potential in a scientific and methodical manner.”

I also think they may be slightly overstating the tourist draw this colossus will be:

“Local bureaucrats in the Indian state of Gujarat—the spot where the monument is to be built—say the huge statue has the potential to draw 12 million tourists a year, about twice as many as the Taj Mahal.”

As of now, the public budget for the project sits at $530 million. All I can say is that if this the best way for the government to spend half a billion, Gujarat must be a lot richer that everyone seems to think!  At least in the US when we government boondoggle big sports stadiums in the name of development, we put them in already existing cities and we do it from a position of wealth far greater than that of the state of Gujarat (with a per capita GDP of around $2300 in 2014, it’s above average for india but desperately poor for the US. Mississippi is the poorest US state and its per capita GDP in 2012 was $33,000).