How Demographic Change can Bolster Economic Performance in Developing Countries
Falling mortality rates spurred by medical, nutritional and lifestyle changes have
spurred a ‘demographic transition’ in a majority of the world’s countries. As couples
realize their children are more likely to survive, they need, and eventually have,
fewer of them to attain their desired family size. In addition, desired fertility
tends to decline as earnings opportunities improve since forgone income is such a
large portion of the cost of childrearing. In the lag between mortality and fertility
declines, a ‘boom’ generation is created, which is larger than both preceding and
successor cohorts. As this boom generation reaches working age, the combination
of a greater supply of workers and fewer dependents to support gives countries
the opportunity to collect a ‘demographic dividend’. If an appropriate policy
environment is in place for making the most of this opportunity, the economic
benefits can be, and in many cases have been, great.
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Exchange Rate RegimesThis paper argues that (a) for many developing countries, the optimal external
payments regime would be a combination of an intermediate exchange rate with
capital controls and (b) the policy stance and advice of the IMF should reflect
this judgement. The paper uses India as a case study to illustrate its argument.
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China’s Capital MarketThroughout the 1990s, China’s stock market was developed as a tool of industrial
policy. It was used to supply capital to state-owned enterprises (SOEs) that
remained controlled by the state and whose performance usually declined after
listing. Secondary market trading was poorly regulated, again partly for political
reasons. As a result, the market has become infamous for extreme volatility, price
manipulation and grossly unreliable accounting. This is a problem for the
government since the stock market is ill-equipped to support the government’s
other increasingly important economic priorities. The government now needs to
improve the efficiency of industry in order to sustain employment creation, to
raise capital to finance its own liabilities and to put into place a modern pension
system. As a result, China’s stock market is being slowly reformed. Listed
companies are quietly being allowed to privatise. The regulatory framework has
been rationalised. The empowered China Securities Regulatory Commission is
pushing forward with a range of policies aimed at improving corporate
governance. Shareholders have been allowed to pursue civil compensation claims
against firms in the courts. Financial intermediaries are being privatised, the fund
sector is being rapidly expanded and foreign investors are gradually being
allowed in. These changes, although deeply unpopular among some important
groups, will mature the market over the next decade.
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Opening Up Trade in Higher EducationInternationalisation of higher education is too often treated as an issue for
universities and national governments alone. The expansion of trade in HE
services is part of a wider picture. The demand for liberalisation of world trade in
all types of services has led to the creation of the General Agreement on Trade in
Services (GATS). This article outlines the GATS processes, notes the scale of
trade in higher education and considers the existence of barriers to its further
expansion. The case for and against greater liberalisation is discussed, concluding
that issues raised by GATS will not go away and are likely increasingly to affect
the domestic HE agenda.
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The Costs of Violent CrimeThis paper reviews a number of studies that have sought to estimate the
economic costs of criminal offending and, more specifically, violent crime. Firstly,
it discusses those approaches that have sought to describe the ‘big picture’ by
calculating the aggregate burden of all crime. These studies yield useful overall
summaries about the magnitude of the crime problem but also reveal how little is
known about the value of the ‘intangible’ effects of violent crime (e.g. the
anxiety suffered by potential victims or the pain and suffering imposed on actual
victims). Secondly, the authors review the growing number of contributions that
have begun the process of filling this gap through novel applications of nonmarket
valuation methods in a crime context. In particular, the findings of a
recent attempt to estimate the costs of categories of violent crime (of varying
levels of severity) in the United Kingdom using the contingent valuation method
are discussed. Whilst valuing the intangible costs of violent crime is a challenging
task, a more explicit assessment is needed not just to improve the transparency of
public decision-making but also to ensure that policy benefits of crime
prevention can be compared directly with the costs of implementation.
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Back to the Future Author: An interview with introduction by Brian Snowdon, December 2003
Jeffrey Williamson is a leading authority on the economic history of the
international economy. His interests cover a wide area within the field of
economic history and include research on international economic development,
the industrial revolution, industrialisation and de-industrialisation, tariff policy,
factor price convergence, demography and economic development, and
international labour migration. Since the early 1960s he has been a major
contributor to the ‘cliometric’ approach to economic history and his research
illustrates how history is particularly relevant to the modern debate on
‘globalisation’. In this interview Brian Snowdon discusses with Professor
Williamson his more recent research relating to the global economy in
historical perspective.
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Information Technology and the G7 EconomiesA powerful surge in investment in information technology and equipment after
1995 characterizes all of the G7 economies. This accounts for a large portion of
the resurgence in US economic growth, but contributes substantially to economic
growth in the remaining G7 economies as well. Another significant source of the
G7 growth resurgence after 1995 is a jump in productivity growth in IT-producing
industries. These findings are based on new data and new methodology for
analyzing the sources of economic growth. Internationally harmonized prices for
information technology equipment and software are essential for capturing
differences among the G7 nations.
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Blueprint for Public Company ReformThe crisis of confidence in corporate governance and the opacity of public
company reporting are growing concerns. These flaws in the market system have
been highlighted by the stock market bubble and pose a threat to orderly capital
flows. Reform is needed, but legislation may have little effect and can carry
unintended consequences. Better solutions can be found by examining the way
in which private companies are directed and the type of financial and operational
reports they use for budgeting and control. Institutional investors, bankers,
professional advisers and Boards of Directors can implement the changes needed
to provide more reliable information for valuation of public company securities
and to counteract the casino mentality that infects capital markets.
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The Undivided CityTwo billion people are set to flood into the already crowded cities of the
developing world over the next twenty-five years, mainly to live in the squalid
surroundings of a slum or a shanty town and to endure the consequent effects of
social injustice and division. James Wolfensohn, President of the World Bank,
addresses the problem of urban poverty and describes initiatives for change that
build upon a new recognition throughout the developing world that the urban
poor have rights, and an essential part to play in building the cities of tomorrow.
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Leadership and ProgressWhen World War II ended, the United States took the lead in providing political
stability, rules for freer trade, and international financial stability. The ‘Pax
Americana’ worked extremely well. During the postwar years, more people in
more countries increased their living standards by larger amounts than in any
period in recorded history. In order to continue the global growth, increased
liberty and human progress of the last 60 years, Allan Meltzer argues that new
arrangements are called for to provide the public goods that progress requires.
Developing these new arrangements is the major challenge to US leadership as
the engine of world progress in the new century.
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The Outlook for World TradeThe former GATT and World Trade Organization Director-General (1993–1995)
defends the multilateral trade system—“If goods do not pass frontiers, armies
will”—and describes the challenges facing the World Trade Organization
particularly in meeting the Doha Development Agenda. He responds to critics
whose beliefs about globalisation and the role of the WTO he says are based on
muddled thinking, and addresses trade-related issues including global
governance and the situation of the developing countries in the global economy.
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Is Economic Growth Good For Us?This article reviews Britain’s experience of economic growth in the twentieth
century. It argues that average living standards have risen much more rapidly than
is generally appreciated. The main reasons for this include increased life
expectancy which is highly valued by the public and downward bias in
conventional estimates introduced by traditional price deflators which do not
measure the true cost of living. The main policy implication of this analysis is the
need to think about the value of outcomes if appropriate public expenditure
policies are to be implemented.
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In Search of the Holy Grail Author: An interview with introduction by Brian Snowdon, September 2003
Having conducted extensive research in the field of economic growth and
development, William Easterly has broad knowledge and expertise on the
problems facing developing countries. While working for the World Bank, he
travelled extensively in Africa, Latin America and Asia, and is well placed to
comment on the key issues and debates surrounding the question of how best to
promote increased well-being in the poor countries of the world. In this interview
he discusses with Brian Snowdon several of the key controversies that have
recently attracted the attention of scholars of economic growth and development.
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Five Centuries of Energy PricesConcerns about rising energy prices tend to occur in times of economic
expansion, to disappear in times of recession. A recurring fear is that, in the long
run, real energy prices will trend upwards. This paper presents evidence from
five hundred years of prices of energy sources for the United Kingdom. Over this
time period, there is little support for any general trend of rising fuel prices—and
some evidence of significant declines. Using this information on prices and
consumer expenditure to weight the series, an ‘average price of energy’ series has
been created. Reflecting the substitution away from more scarce fuels (driving
prices down) and towards more valuable ones (driving prices up), over more than
five hundred years—and albeit with significant long-lived fluctuations—there
seems little evidence of a rising long-run trend in the real price of ‘energy’.
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Hydropower in Bhutan and NepalBhutan and Nepal have followed differing hydropower development strategies.
Bhutan has co-operated with India and power export earnings have helped fund a
broadly successful economic, environmental and social programme. In contrast,
Nepal turned to the World Bank and other donors to fund its power projects.
When World Bank funding for Arun III was withdrawn in 1995, its programme
was thrown into disarray and it remains to this day a net power importer. Nepal’s
current economic, environmental and social malaise can in part be attributed to
these past decisions in the power sector by the Government and World Bank.
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The Economics of the Kyoto ProtocolThis paper surveys economic aspects of the Kyoto Protocol, the Treaty adopted
to control emissions of the greenhouse gases that contribute to climate change.
The first part focuses upon the structural aspects of the agreement, with
particular attention to the long-term conception of the Treaty and its use of
market-oriented instruments unprecedented in an international treaty of this
scope. The second part then examines the actual commitments adopted for the
first period, and the impact of US withdrawal upon the economics of these
commitments as mediated through the ‘flexible mechanisms’. It is noted that the
emerging behaviour of states under Kyoto is very different from that assumed in
economic modeling studies—countries are focusing first upon domestic action
and will resort to the mechanisms mainly as a fallback option to secure
compliance, not as a route to minimizing costs irrespective of other
considerations. This may have important implications for understanding the
practical economics of designing international market mechanisms, and for the
next steps that might be considered under Kyoto.
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The Morality of Market Mechanisms to Control PollutionThe use of pollution charges or tradeable permits to reduce pollution has been
condemned by many environmentalists and some philosophers on the grounds
that (i) pollution is inherently immoral; (ii) environmental assets are not
appropriately valued in monetary terms; and (iii) the sale of ‘environmental
indulgencies’ is inequitable since it unfairly favours the rich. In this article it is
argued that all these arguments are invalid.
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CartelsImprisonment of directors and employees for taking part in cartel activity is
becoming an increasingly common penalty in western jurisdictions. Generally it
is the only competition law offence that attracts a criminal sanction either as a
matter of law or practice. This article examines the evidence in support of the
alleged “harm done” by cartels, which it finds insubstantial, and refers by
contrast to the limited academic literature available which suggests that generally
cartels may be relatively ineffective and probably less damaging than other
competition offences such as monopoly pricing or exclusionary behaviour.
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Congestion ChargingThe debate about road use charging continues. No simple and effective proposal
to limit center-city congestion has attracted popular support. The economic case
for reducing vehicle congestion in towns and cities is indisputable, as shown in
the recent article by Begg and Gray, but their solution could take a generation to
implement. The present article proposes using existing infrastructure to create a
low-tech, flexible and country-wide method of limiting the use of automobiles in
the centers of cities at specified times and in easily defined areas.
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Are Multinationals Really Bigger Than Nations?Multinational corporations are increasingly seen as excessively big and powerful,
and as having dramatically increased in size and power. This perception has led
to the view that the big corporations are threatening democratic institutions of
the nation-states and that they pervert the cultural and social fabric of countries.
In this article the authors analyse the size of large corporations and the recent
trends in this size. Using value-added data (instead of sales) they find that
multinationals are surprisingly small compared to the GDP of many nation-states.
They find no evidence that the size of multinationals relative to the size of
nations has tended to increase during the last 20 years and argue that there is
little evidence that the economic and political power of multinationals has
increased in the last few decades.
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Weapons ExportsThe commonly held view that an ethical approach to arms sales is desirable but
‘unaffordable’ because jobs and exports are at stake is challenged by Samuel
Brittan. He argues that it arises from a failure to understand the circular flow of
income, the fallacy of a ‘lump of labour’ and a long discredited mercantilist view
of trade. The author contends that on moral and economic grounds, arms sales
should not be subsidised or officially promoted in any way, and governments
should be much stricter in enforcing bans on sales to dubious regimes.
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Does Britain Need More Immigrants? A DebateIn this debate, Nigel Harris and David Coleman discuss the pros and cons of
migration. Taking the case of Britain, they address issues such as the desirability
or otherwise of migration controls, gains and losses from migration, the ‘optimum’
size and composition of the country’s workforce, and the demographic, social and
political consequences of migration.
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Monetary PolicyA growing challenge for central banks is to secure monetary and financial stability
simultaneously. Indeed, somewhat paradoxically, success in controlling inflation
can sometimes contribute to the development of imbalances that ultimately lead
to financial stresses, with potentially serious macroeconomic consequences. And a
monetary regime that does not take these imbalances into account may unwittingly
accommodate their further build-up. Accordingly, despite the difficulties
involved, it may be desirable, in some circumstances, for monetary policy to be
used to contain financial imbalances before they grow too large, even if the
imbalances pose no immediate threat to inflation. Justifying such a response
would not require redefining the ultimate objectives of monetary policy. It would,
however, arguably call for adopting longer policy horizons than are commonly
used and paying greater attention to the balance of risks facing the economy.
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Valuing the FutureOne of the most controversial areas of economics is the practice of discounting:
attaching a lower weight to future costs and benefits than present costs and
benefits. Discounting appears to offend notions of sustainable development and
the interests of future generations. Recent advances in the theory of discounting
hold out strong hope that the ‘tyranny of discounting’ can be avoided through the
use of time varying discount rates (TVDRs). This paper reviews the recent
rationales for TVDRs and applies the results to issues such as nuclear power and
global warming control.
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The Impact of Globalization on Rural PovertyThe paper first reviews the meaning and causes of globalization. It indicates that
globalization is not a new phenomenon in history, but the current phase seems to
have new elements that did not exist previously. Regarding the consequences of
the various aspects of globalization at the national level, it is shown that there can
be both positive and negative aspects in the short and long runs. However,
empirical investigations seem to suggest largely positive implications. The
structure of poverty in rural areas is subsequently discussed, and it is shown that
rural poverty takes very different forms in different parts of the world. Exploring
the various aspects of the incomes of the rural poor, reveals that there are both
opportunities, but also dangers of detrimental impacts from global integration. On
balance, it appears that globalization creates both opportunities as well as risks,
and the impacts on the rural poor will depend on the extent to which they
manage to seize the opportunities while managing the increased risks.
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An Economic Analysis of the MafiaThis paper reviews the current economic thinking on the Mafia phenomenon. It
distinguishes the Mafia from ordinary criminal gangs by the desire of the former
for the exclusive right to commit criminal acts. The existence of the Mafia in
particular locations at particular times is explained by the abdication of power or
by the state’s unwitting creation of illegal markets. The Mafia’s involvement in
the supply of illicit goods is due to its ability to prey on common criminals, while
its involvement in the supply of legal goods is in order to police anti-competitive
agreements amongst businessmen. Contrary to common belief, there may even
be instances in which the Mafia promotes public welfare. More research is
required to explain the continuing popularity of the Mafia and to identify the
social costs that make it worthwhile tackling the Mafia.
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Pride and PrejudiceEconomics is one of the most powerful of intellectual disciplines, applying
enlightened scepticism to human society. Its analytical rigour often makes
economists unpopular, but that ought to be a source of pride. Unfortunately, we
are all too often our own worst enemies, as the formal study of economics has
taken the scientific method to an unproductive extreme that is vanishingly rare
even in the natural sciences. The most interesting research in economics now—
looking at history or geography or institutions or psychology—is steering away
from this reductive blind-alley, but there is a long way to go before economics
returns to its fruitful intellectual roots.
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Speaking in TonguesOver the past half century, a global economic language—a vernacular—has
emerged. This vernacular, like any such language, has formed the foundation of
much of contemporary economic culture across nations, and has facilitated
communication on economics around the world. Two books have served as
particularly rich sources of this economic vernacular, Paul Samuelson’s Economics
(now with William Nordhaus), originally published in 1948, and Robert
Heilbroner’s The Worldly Philosophers, first appearing in 1953. Peter J. Dougherty
traces the history of these two modern classics and their influence—the former
on scientific understanding, the latter on critical perspective—on the millions of
students who passed through economic principles courses in the generations
since the post-war publication of these books.
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Capitalism and the End of HistoryIn this article Adair Turner explores the relative economic and social success of
different variants of capitalism, and considers how societies best reconcile the
objectives of economic dynamism with those of social inclusion and
environmental responsibility. He also addresses the wider issue of the
relationship between economics, politics and culture—the issue of whether we
are right to assume that any variant of capitalism, or indeed any model of society,
is a universal model.
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From Socialism to Capitalism and Democracy Author: An interview with introduction by Brian Snowdon, March 2003
János Kornai is generally regarded as the world’s leading scholar on socialist
economic systems. In this interview, Professor Kornai discusses the evolution of
his thinking on the political economy of the socialist system, its characteristics,
reform, transition and future.
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Why The Five Economic Tests?Chief Economic Adviser to the Treasury, Ed Balls, sets out the government’s
approach to making the decision about British membership of a single European
currency in an historical context. The basis for deciding whether there is a clear
and unambiguous economic case to join the single currency is the Treasury’s
detailed assessment of the ‘five economic tests’. The tests are designed to avoid
past failures of politicians and policymakers who paid insufficient attention to the
economics in making key decisions affecting the national interest. Balls reflects
upon historical examples of such failures and lessons to be learned, with a
particular historical focus on 1925 and the decision to re-enter the Gold Standard.
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Some Lessons from a Single CurrencyThis article looks at the early experience of the Euro and argues that both the
original rules established for the European Central Bank and the Stability and
Growth pact need to be reconsidered. Failure to do so will result in the whole
European economy delivering less growth and prosperity. Without a selfcorrecting
mechanism like transfer payments, a single monetary policy is procyclical
and destabilizing. Countries growing fast and in danger of over-heating
face low or negative real interest rates. Countries in recession face too high real
interest rates and are pushed further into sub-potential growth. The Stability and
Growth pact further restricts policy options.
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How to Reform Europe’s Fiscal Policy FrameworkThe current budgetary problems of some EU member states have intensified the
debate on Europe’s fiscal policy framework. It is not enough to change the
interpretation of the Stability and Growth Pact. More fundamental revisions of
the EU Treaty are needed in order to strike a reasonable balance between longrun
sustainability and short-run flexibility. The ceiling on budget deficits should
be conditioned on the government debt level, such that the scope for stabilisation
policy in downswings is increased in low-debt countries. In addition, the enforcement of the rules should be depoliticised: decisions on sanctions against
states violating the rules should be transferred from the political level of the
Council of Ministers to the judicial level of the European Court of Justice.
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Demographics and Pension Reforms in the Major Central and Eastern European CountriesToday in the Central and Eastern European (CEE) countries there are barely 30
pensioners for every 100 persons of working age. By 2050, the number could rise
to almost 80 pensioners. So far Poland has responded the most rigorously to the
challenge, establishing a modern three-pillar pension system. The new second
pillar forms the core of the bulwark against future demographic strain, with
private savings being accumulated in personal accounts kept at private pension
funds. Hungary has also established a second pillar of private pension funds, but
the necessary restructuring of the state pension scheme is not proceeding fast
enough. In the Czech Republic, a three-pillar system thus far exists only on
paper.
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Global Challenges of Providing Water and Wastewater ServicesA key problem of water is the provision of a safe water supply for domestic use.
Given the characteristics of water as a commodity, the general misuse of the
pricing mechanism, and the economics of developing and operating water and
wastewater systems, governments are faced with the challenge of organizing
operating systems. The goal is to maximize connections at a reasonable cost and
acceptable quality. Developing countries, especially in Asia and Africa, have
much work to do to achieve modern water systems. Effective utilization of
private water producers may be the most cost-effective approach for many
countries.
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Some Proposed Methodological Developments for the UK Retail Prices IndexThe Retail Prices Index (RPI) is one of the UK’s most important macroeconomic
indicators, as well as being used for indexation/adjustments for inflation
to wages and benefits. This paper argues that the dynamic changes in product
markets and consumers’ responses to price changes need to be incorporated into
the RPI if it is to effectively measure changes in the cost of living. The quite
positive and innovative work undertaken by the Office for National Statistics
(ONS) is acknowledged. However, the basis of the RPI, in measuring the price
changes of a matched, fixed basket of goods, is considered inappropriate to
modern markets. Some proposals are made.
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Measuring Consumer Inflation in the United KingdomResponding to Mick Silver’s proposals regarding the RPI, David Fenwick of the
ONS summarises some of the issues that confront compilers of price indices.
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