Goods and Bads
There is a high degree of symmetry between economic goods
and economic bads. Snow, litter and street mud are cited as examples. Economic growth obviously results in an increase in the supply of bads as well as goods.
In addition, however, because it raises the value of time it can turn goods into bads and it can result in an end to the transformation of bads into goods. This is illustrated in some detail by two case studies for nineteenth century London, relating to domestic refuse and to horse manure. As a result of economic growth, horse manure had almost ceased to be an economic good and had become an economic
bad by the end of the century.
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Sending the Herd off the Cliff EdgeIn the international financial arena, policy makers chant three things: market-sensitive risk-management, transparency and prudential standards. The message is we do not need a new world order, just to improve the workings of the existing one. While many believe this is an inadequate response to the financial crises of the past two decades, few argue against this line. Perhaps more should. There is compelling evidence that in the short run, markets find it hard to distinguish between the good and the unsustainable, market players herd and contagion is common. In this environment, market-sensitive risk management and transparency can destabilise markets.
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Demographic Risk in Industrial SocietiesThere is a growing awareness of the aging of populations around the world and the implications for national retirement programs. In most cases, estimates of population aging are based on fixed assumptions about fertility, improvements in life expectancy, and immigration. In most countries, however, these factors have varied considerably in recent decades. In this analysis, the authors use population projections in the G-7 countries that capture historical patterns of fertility, longevity, and immigration and variability in those patterns over time. They find that many developed countries may be underestimating the extent of population aging they are facing and the policy changes necessary to deal with it.
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Hardship and HappinessThis paper focuses on an age-old puzzle: why some societies peacefully tolerate high levels of inequality and others do not. The authors posit that opportunity and mobility over time are as important as current distributions are to the explanation. Assessments of past mobility and future expectations are as important as objective trends. An analyze of data for Latin America compares subjective assessments with objective trends during a period of volatility and policy change.
It was found that relative incomes matter as much as absolute ones. Expectations of future upward mobility were higher in countries with more inequality. Upwardly mobile people were more critical in their self assessments than were less mobile people. Collective memory of macroeconomic volatility was critical to subjective assessments of future prospects: those countries with recent crises and reforms had the highest levels of support for market policies. The effects of expectations on self-assessments have methodological and analytical implications for political economy research.
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From Rags to RichesThis article explores the factors behind the Irish
economic renaissance of the 1990s. These include the fiscal correction of the 1980s, the availability of an ample supply of well-educated labour, a
competitive exchange rate, and the inflow of EU aid. The reintroduction of ‘social
partnership’ is credited with maintaining a moderate rate of wage inflation
and facilitating the exceptional growth of employment. The dominant role played
by a steady inflow of high tech FDI is acknowledged. The reasons for the Irish
success in attracting foreign investment and the role of industrial policy in
transforming the economy are discussed. The article concludes with an appraisal
of the current concern over rising inflation and fear of a hard landing.
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Why Did the Protected Areas Fail the Giant Panda?Most biodiversity lies within the developing world, and much of it is under threat because of forces for change within these countries. In order to be effective, biodiversity conservation must be viewed as a development opportunity, rather than as a constraint on development. This implies management for the purpose of harnessing all of the values of biodiversity and the organization of national management to make this possible. This general proposition is illustrated in a case study demonstrating how one celebrated species, the Giant Panda, is able to generate substantial flows of revenues, thereby creating the incentives for the conservation of its own habitat. The study focuses on the Wolong Panda Reserve, one of the most important panda reserves, located in Sichuan Provinces China. The study demonstrates that the proper management of the Giant Panda Reserves in Sichuan province should be able to generate an estimated $100 million per annum for the Wolong Reserve. This stands in contrast to the $250 thousand currently being allocated to reserve management. If a small proportion of this value were appropriated and then channeled to the local peoples, this would dramatically alter the incomes of hee local communities and their perceptions of the value of the Giant Panda and its reserves. The “opportunity cost” of allowing the continuing demise of the species, by reason of the continuation of conflicting uses and activities within the Reserve, is the loss of these natural values.
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Biodiversity in the MarketplaceWhat is the nature of biodiversity as an economic commodity and why does it matter? How would its conservation contribute economically to our well-being? In this article, Geoffrey Heal considers three issues: Why is biodiversity important from an economic perspective? What kind of commodity is it? Does our usual economic mechanism, the market system, have the capacity to appreciate the economic value of biodiversity? The author first tries to characterize biodiversity from an economic perspective, and then considers the capacity of our main economic institutions to realize the value of biodiversity and ensure that it is treated in a way commensurate with its importance.
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How Much Damage Will Climate Change Do?Two reasons to be concerned about climate change are its unjust distributional impact and its negative aggregate effect on economic growth and welfare. Although our knowledge of the impact of climate change is incomplete and uncertain, economic valuation is difficult and controversial, and the effect of other developments on the impacts of climate change is largely speculative, the authors find that poorer countries and people are more vulnerable than are richer countries and people. A modest global warming is likely to have a net negative effect on poor countries in hot climates, but may have a net positive effect on rich countries in temperate climates. If one counts dollars, the world aggregate may be positive. If one counts people, the world aggregate is probably negative. Negative impacts would become more negative, and positive impacts would turn negative for more substantial warming. The marginal costs of carbon dioxide emissions are uncertain and sensitive to assumptions that partially reflect ethical positions, but are unlikely to be larger than $50 per tonne carbon.
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The Market for Olympic Gold MedalsFrom a national perspective the Sydney Olympics were almost completely predictable. Statistical modelling shows that population size and income per head provide an almost faultless method for identifying medal totals.
However, it is probably the discrepancies that are most interesting– why do some countries outperform and others underperform? Cheating, through drug abuse, is one possible explanation considered in this article.
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False AttackIn this rejoinder to David Henderson’s article "False Perspective: the UNDP view of the world" (World Economics Vol 1 No 1 January-March 2000), Richard Jolly, former special adviser to the Administrator of the United Nations Development Programme, argues that Henderson’s criticisms of the UNDP’s Human Development Report 1999 are both misguided and misdirected, are dangerously complacent in suggesting that global governance needs no reforms, and take little account of the Report’s wider perspectives of human development and globalisation.
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Sins of the CommissionIn the aftermath of the East Asian financial crisis there has been much discussion of a new international financial architecture. A significant contribution to this debate is the Report of the International Financial Institution Advisory Commission, sponsored by the US Congress, which was chaired by Allan Meltzer and published in March 2000. The Commission makes a number of radical proposals for reform. Professor Bird argues that unfortunately the analysis underlying many of them is flawed, or at least highly dubious. Reform based on the Commission’s recommendations would therefore be largely ill-directed; it would be bad news for developing countries and countries in transition, and could lead to greater global instability. An alternative approach to reform exists which attempts to modify the IFI’s operations in ways that build on the lessons of experience rather than simply discontinues them, as the Meltzer Commission recommends.
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Response to Professor BirdAllan Meltzer responds to Graham Bird’s article "Sins Of The Commission: The Meltzer Report On International Financial Institutions" [World Economics, Vol.1, No.3, July-September 2000]. In that article, Bird argued that the International Financial Institutions Advisory Commission’s conclusions and recommendations for reform focused on the wrong issues, were unfairly critical of the IFI’s and their policies over the last 25 years and if implemented as policy would seriously detract from the development of the institutions and damage efforts to develop the world’s poorest countries. In his reply to Bird’s criticisms, Allan Meltzer, Chairman of the Commission, says the belief of Commission members was that a different framework with new approaches is necessary for the institutions to be more effective and that the need for change is evident, including greater weight on crisis prevention. Meltzer charges that Bird in his article has not addressed the facts that since 1982 the institutions have not prevented one financial crisis following another, recent crises have threatened the stability of the global financial system and poor countries have got poorer, and that he has offered no evidence to refute the Commission’s criticisms of the institutions’ policies and poor performances.
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The International Economic System in the Twentieth CenturyThis wide-ranging discussion takes in globalisation, the causes of the Great Depression (and the likelihood of future recurrences), the Marshall Plan and post-war European recovery, growth in the 1950s and 60s followed by the problems of the 70s, and the strengths and weaknesses of the current international financial system, among other subjects. It provides a stimulating introduction to factors underlying important events in the history of the twentieth century and prospects for the century we have just entered.
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Save the Planet: Sell CarbonThis article examines the political economy of agreements on global greenhouse emissions reduction. The author explains the complex emissions trading mechanisms set up under the 1997 Kyoto Protocol and considers the likely size and structure of a future market for emissions credits.
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Technical Progress and Global WarmingThe case is argued for a larger and more explicit role for technology policies in responding to climate change. Policies and institutions set up during the Cold War arms race could be reformed and redirected towards the goal of making renewable energy a viable competitor to carbon-emitting fuels. Putting more resources into such projects would not only reduce their cost through economies of scale and scope, but could raise the possibility of a technological shock which meant that the cost of transition to “non-net-carbon-emitting” technology could actually be negative. Anderson argues that in any case the transition costs would probably be small, and that the process would be to the advantage of developing countries, who typically have a five to one cost advantage over the developed world in non-carbon-emitting energy production.
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Market-based InstrumentsEconomists have long recommended market-based instruments for efficient environmental policy-making – taxes, tradable permits, auctions of property rights, etc. So why is progress on them so slow? The reality is that any environmental policy faces many political, institutional and technical obstacles, but market-based instruments face more than most. Many relate to false perceptions, although some are real. Most have solutions, some do not.
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Can Agriculture Become an Environmental Asset?Traditional treatments see agricultural practices as inimical to many environmental attributes in rural areas. In the policy arena, farmers and environmentalists often clash over land-use practices, crop monoculture, animal wastes, and the application of chemicals – the residues of which are said to contaminate the environment and threaten human well-being. The existence of agricultural abundance in the OECD countries provides an opportunity to rethink old beliefs and attitudes, as well as to reformulate traditional policy approaches to agriculture-environment interactions. This requires seeing agriculture as a land-management activity, with production of food and fibre taking a secondary role. Economic incentives and property rights issues will require reconsideration.
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A Multi-coloured GDP -or No New GDP at All?This is a reply to Giles Atkinson’s article ‘Re-thinking Economic Progress’ that appeared in the first issue of World Economics (Vol. 1, No. 1, January – March 2000). Atkinson discussed proposals for the construction of ‘green’ alternatives to Gross Domestic Product (GDP). In the same issue, Amanda Rowlatt in her article ‘Extending the UK National Accounts’, discussed the role of ‘satellite accounts’, including measures of effects on the environment. Professor Zimmermann’s contention is that the concept of a ‘green GDP’ would lead to a one-sided measure which cannot be used for the many purposes for which normal GDP as a comprehensive measure can be used. A GDP corrected for depletion of environmental stocks would have to be supplemented by one corrected for changes in human capital, another one dealing with health capital, etc. Completing the set leads to the older concept of Net Economic Welfare or something similar. Only this would again be a comprehensive measure and could replace GDP.
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Reply to Professor ZimmermannGiles Atkinson replies to Professor Zimmermann’s "A Multi-coloured GDP -or No New GDP at All?"[World Economics, Vol 1 No 3 July-September 2000]
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Owner-occupiers and the Price IndexThe treatment of owner-occupied dwellings in Consumer Price Indexes varies between countries and is the subject of continuing controversy. Ralph Turvey explains the alternative possible treatments and reasons for disagreement.
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Housing in the South East of EnglandPlans recently unveiled by the UK government will, if implemented, generate a
major increase in new housebuilding in one of the most crowded and congested
parts of the UK. The plans fail to take account of the impact on people living in
London and the South East—and in the rest of the UK—of such a policy. The
policy is based on a simplistic view of how demographic change affects the
housing market and it reflects a misunderstanding of economic forces and a
failure to think about impacts outside the South East. More seriously it reflects a
form of central planning that is insensitive to the real needs of people.
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An Economic Analysis of Campaign FinanceElectoral campaign finance is an important, and much debated, phenomenon in
democracies throughout the world. This article discusses a possible economic
model of campaign finance, which could be used for policy evaluation. At the
core of the model lies an asymmetry of information between lobbies and voters.
Lobbies know more than voters about the quality of candidates. Campaign
contributions constitute an indirect way to reveal lobbies’ information to voters.
However, this informational benefit comes at the cost of candidates deviating
from the median voter’s preferred policy in order to attract higher contributions.
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Welfare-to-work and the New DealWelfare-to-work is on trial in many countries. In Britain it has become the
government’s most important policy for lowering unemployment and expanding
labour supply. But can it work? And what lessons does Britain’s experience
provide for other countries? This paper argues that whilst the Welfare-to-Work
approach has the power to transform the lives of millions—by making them self-sustaining
rather than dependent—it requires extreme sensitivity. The help must
be of very high quality and the spirit of the policy must be visibly in the clients’
interest. The author concludes that the New Deal has been an extraordinary
success from that angle, with very high levels of client satisfaction. It is a good
example for other countries to follow. But each future step must be as sensitive as
the last.
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The Thirty-five Hour Working WeekThe introduction of a reduced working week (RWW) in France has been widely condemned as an arbitrary additional constraint in an already rigid labour market. This article explores the origins of the law, and the reasons for the negative appreciation by economists of this measure. However, it goes on to suggest that the concessions gained by the employers in terms of flexibility coupled with the
state aid involved have resulted in an increase in labour market flexibility in France. This may explain the fact that, contrary to the predictions of many economists, the French economy is now growing faster rather than slower as
compared to the period before the introduction of the legislation, and that unemployment is falling.
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Poles ApartAnalysis of labour market performance using individual level data can reach radically different conclusions to those provided by a household-based analysis, using the same source of information. In Britain and other OECD countries the number of households without access to earned income has grown despite rising employment rates. Built around a comparison of the actual jobless rate in households with that which would occur if work were randomly distributed, the authors show that work is becoming increasingly polarised in many countries.
Changing household structure can only account for a minority of the rise in workless households, so that labour market failure is the dominant explanation. Polarisation of work will have important welfare and budgetary consequences for any country.
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Understanding Labour Market InstitutionsLabour market rigidities are often considered to be responsible for high unemployment in Europe. This paper outlines a theory explaining why they may be supported by the political system, and where their support comes from.
Labour market rigidities are likely to arise as the outcome of microeconomic imperfections which allow incumbent employees to reap rents, and as a device to
alleviate redistributive conflicts among groups of workers. Their support depends on the employed’s exposure to unemployment, the degree of underlying inequality in skills, and the responsiveness of employment to labour costs. It is shown that different labour market institutions, such as employment protection, wage rigidities, and unemployment benefits, may mutually reinforce each other, so that we expect to observe them together. Also discussed are implications for the timing and design of reform.
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The US “Underclass” in a Booming EconomyThe main failure in the US economy in the 1980s through the mid 1990s was its inability to distribute the gains of economic growth to the bulk of the population. The traditional “rising tide lifts all boats” link between economic growth and poverty seemed broken, creating a large seemingly permanent underclass. To the surprise of many, however, the late 1990s boom has substantially improved the well-being of the disadvantaged and reduced underclass behaviour. Full employment has been a successful anti-poverty policy. But the US is taking a huge risk in placing all of its social policy eggs in the single employment basket. When there are no nuts squirrelled away for winter, one can only hope that the
good times will keep rolling.
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The Political Economy of SportThe political constitutions of both the US and Europe provide no guidance on the role of organised sport in society. Without a proper set of rules politicians are
finding sports issues increasingly hard to handle. In the US there is widespread concern at the commercial exploitation of major league sports, particularly through the relocation of franchises. In Europe there are anxieties about the increasing polarisation of wealth and the fear that traditions built up over a century will be lost. These problems are not only likely to grow, but a new dimension will develop as sports bodies seek international expansion. In the future sports businesses may become a source of trade friction between the US and the European Union.
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Proposals for a better International Financial SystemThis paper analyses three essential functions of global financial market management that currently are not properly met, and could best be met by new institutional developments: 1. prudential regulation; 2. provision of official liquidity to countries or markets in crises; and 3. emergency orderly work-out procedures. The paper reviews progress achieved regarding needed reform of the
international financial architecture since 1998. It concludes that, although important progress has been made, it is urgent for further necessary measures to be taken. This is because recent crises have had an unacceptably high cost, especially for developing countries, and have discouraged future private investment, both by national and foreign investors.
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Is there a Case for an Asian Monetary Fund?The East Asian financial crisis has spawned a number of proposals for institutional reform. Some envisage reforming existing institutions, particularly the International Monetary Fund (IMF), while others suggest that new institutions are needed. Amongst them is the idea of establishing an Asian Monetary Fund (AMF). Evaluating this proposal raises a number of complex issues. Its appeal hinges on whether it would be able to undertake some functions better than the IMF. To the extent that crises are regionally contained, there may be a case for mobilising finance to help deal with them at the regional
level. This could also take pressure off the constrained resources of the IMF. In as much as access to finance from an AMF would be conditional upon compliance with specified standards and policy guidelines, an AMF might also help to prevent a future financial crisis in the region.
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A Non-technical Introduction to Bargaining TheoryThis article presents some principles of bargaining theory in a non-technical language in order to make them accessible to people outside the academic community. These principles are presented keeping in view several real-life
situations confronting Presidents and Prime Ministers, policy makers and planners, executives, civil society and military leaders, and not the least, managers, be they of the government, households, NGOs or businesses, big or small. The author cautions that this is an introductory note aimed merely to facilitate an understanding of the main principles and to illustrate the scope for their application, with a potential which, if comprehended and harnessed fully, could contribute significantly to peaceful progress at all levels.
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From Big Macs to iMacsThe authors review recent international price comparisons to examine the veracity of claims about “rip-off Britain”. They reach three conclusions. First, methodologically, the data requirements for a meaningful price comparison are very demanding and most of the evidence does not meet these standards. Second, price differences within countries seem, in many cases, to be just as high
if not higher than price differences between countries. Third, for most goods, the difference between the UK and the rest of the EU seems to be minor relative to the difference between the EU and the United States. The real puzzle is the comparatively high prices in the EU.
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False Perspective: The UNDP View of the WorldDespite some searching and unanswered criticisms of its treatment of statistical evidence, the UNDP Human Development Report has become established as a widely-quoted and influential survey of the world scene. The 1999 Report, reviewed here, focuses on ‘globalization’. This is described as a dominant influence on the recent economic fortunes of developing countries in particular, and as a primary cause of continuing poverty and growing inequality in the world. The author argues that the Report provides neither argument nor evidence in support of this thesis; that it takes no account of other factors that have strongly influenced economic performance; that its main prescription for the world, of reforms in ‘global governance’, is largely beside the point; and that its whole approach is crudely anti-liberal. The author concludes by placing the Report, as also the economists who have aligned themselves with it, in the wider context of anti-liberalism today.
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Prophesies of Doom at the Turn of the MillenniumPredictions about the "end of work" are widespread. A growing body of literature argues that growth is destroying more jobs than it created. New technology and globalisation are syndicated as the causes of this development that in the long run will condemn the majority of mankind to exclusion and poverty. This article critically scrutinises the end-of-work creed. With the help of easily available statistics the main fallacies about the end of work are dismissed. The conclusion is that the new global economy, quite contrary to what the prophets of doom say, is offering unprecedented possibilities of progress to more and more people throughout the world.
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Values MatterHuman beings display a complex set of behavioural predispositions, including a strong inclination to pursue self-interest but also empathy, receptivity to norms of reciprocity, and an inclination to punish violators of such norms. Not only are workable economic arrangements constrained by the types of people a society shapes from the genetic material at hand, but also, the arrangements adopted will themselves strengthen or weaken dispositions towards reciprocity and other behaviors. Here the case is argued for considering the two-way interaction between institutions and values by discussing three examples: the workplace, the family, and social insurance systems.
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Achieving the goals of UK Pension ReformThere is an inevitable tension between the aim of providing enough income in retirement for those genuinely unable to build up a sufficiently large fund of their own and the aim of preserving people’s incentives to save for their own retirement. The author argues that if the current UK government’s proposals for pension reform are implemented, a significant proportion of the working population will have their incentives for retirement saving undermined and this situation will become a further hurdle in the way of successful pensions reform.
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The Public/Private Mix in UK Pension PolicyThe UK government aims to shift the balance between public (Pay-As-You-Go) and private (funded) pensions from 60:40 today to 40:60 by 2050 (UK DSS 1998). What is the economic rationale for this shift? Funding pensions may have a positive effect on economic growth and the long-term sustainability of the public finances, but such a move is only one of a menu of policies capable of achieving these outcomes. It follows that some other ratio between public and private provision would be possible, and there are a range of policy directions open to the government.
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Pension Reform in GermanyGerman public retirement insurance is in many respects an extreme example of the typical European pay-as-you-go pension system because almost 85% of retirement income stems from this system and only 15% comes from private sources such as funded pensions, labour income, and family transfers. Public retirement insurance has come under severe pressure from population ageing and incentive effects reducing labour supply. This paper argues that pre-funding a significant part of the German system will alleviate both pressures.
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European Pension ReformsAre the present pension systems in Europe substainable? Can the pensions time bomb caused by demographic changes be defused? This study describes developments in Europe, but the theory, the problems and the solutions are similar for most developed nations in the rest of the world. The combination of declining labour market participation rates–which magnifies the demographic ageing problem on public finances–and expectations of future ageing of the population will make most public retirement schemes expensive to run and major reforms are necessary. European governments have a number of options to compensate for the negative effects of ageing on pensions. The most effective strategy is to increase the effective and/or official retirement age. But only a combination of measures will be able to take away completely the negative financial effect of ageing on state pension schemes. What is clear from the study is that most measures to be taken to combat the situation will include some form of pain: the pensioner or the present generation of workers or governments’ finances or all of them together will suffer some negative consequences.
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Extending the UK National AccountsThe national accounts measure economic activity. The UK is developing "satellite accounts" which use the framework of the national accounts but aim to quantify other aspects of living standards. This article starts by comparing satellite accounts with the use of indicators to measure the quality of life. It then reports on progress with the UK environmental accounts, and with the household accounts, which measure the productive unpaid work done in the home. It concludes with a discussion of the scope for developing a wider range of satellite accounts for the UK.
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Re-thinking Economic ProgressMost national governments have pledged a commitment to sustainable development. The transformation of these pledges into policy is a formidable challenge. Of particular interest are proposals for the construction of green alternatives to Gross Domestic Product (GDP), which it is hoped will provide policy-makers with a consistent and summary signal of "true" trends in the economy both now and into the future. This paper reviews the green accounting debate over the past decade. the author argues that, while initial expectations have, at times, been overstated, there are encouraging signs for policy-makers attempting to make sense of their commitments to sustainable development. One such indication is the increasing emphasis on improved measures of saving, providing a better link between actions in the present and their implications for the future.
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The Black Economy - Benefit frauds or tax evaders?One answer to the question "How Rich are We?" is to compare levels of National Income either across countries or for a single country over time. However, the relevance of this approach depends on how accurately National Income measures the output of goods and services of a country. While it is difficult to measure, the Black Economy represents the output of goods and services that is not generally captured in the National Income Accounts. This article discusses the problems of measuring the size of the Black Economy and speculates on the questions of who is involved and how. The relative importance of Tax Evasion versus Benefit Fraud is discussed.
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