Posts Tagged ‘financial crisis’
The concerns about recession and its impacts on poverty are seen commonly as a question mark over household incomes, over food security and often involve debates about social protection. An aspect that all too often gets ignored in this equation – no doubt because of its complexity – is health and in particular the health of women and children.
This is linked very closely to poverty, however we measure it, and the conditions that either cause poverty to persist (leading to chronic poverty) or cause households at risk to lapse into poverty every now and then (shock). The human development index methodolgy, which is from this year using multi-dimensional indices for poverty for the first time, helps us link health, poverty, income and economic growth (or its opposite).
The question is: is this new understanding, which is more in tune with the way households actually carry on with their lives and are actually affected by wider trends concerning economy, helping integrate the connections? If there is one good reason to ask this question, it is the new study on ‘Neonatal Mortality Levels for 193 Countries in 2009 with Trends since 1990: A Systematic Analysis of Progress, Projections, and Priorities’.
[The World Health Organization (WHO) has a report and summary of the study on this page – ‘Newborn deaths decrease but account for higher share of global child deaths’]
[The full study is available on PLoS Medicine, 1 August 2011 (Volume 8, Issue 8)]
This has shown that every year, more than 8 million children die before their fifth birthday. Most of these deaths occur in developing countries and most are caused by preventable or treatable diseases. In 2000, world leaders set a target of reducing child mortality to one-third of its 1990 level by 2015 as Millennium Development Goal 4 (MDG4). This goal, together with seven others, is designed to help improve the social, economic, and health conditions in the world’s poorest countries. In recent years, progress towards reducing child mortality has accelerated but remains insufficient to achieve MDG4.
“In particular, progress towards reducing neonatal deaths – deaths during the first 28 days of life – has been slow and neonatal deaths now account for a greater proportion of global child deaths than in 1990. Currently, nearly 41% of all deaths among children under the age of 5 years occur during the neonatal period. The major causes of neonatal deaths are complications of preterm delivery, breathing problems during or after delivery (birth asphyxia), and infections of the blood (sepsis) and lungs (pneumonia). Simple interventions such as improved hygiene at birth and advice on breastfeeding can substantially reduce neonatal deaths.”
The researchers used civil registration systems, household surveys, and other sources to compile a database of deaths among neonates and children under 5 years old for 193 countries between 1990 and 2009. They estimated NMRs for 38 countries from reliable vital registration data and developed a statistical model to estimate NMRs for the remaining 155 countries (in which 92% of global live births occurred).
They found that in 2009, 3.3 million babies died during their first month of life compared to 4.6 million in 1990. More than half the neonatal deaths in 2009 occurred in five countries – India, Nigeria, Pakistan, China, and the Democratic Republic of Congo. India had the largest number of neonatal deaths throughout the study. Between 1990 and 2009, although the global NMR decreased from 33.2 to 23.9 deaths per 1,000 live births (a decrease of 28%), NMRs increased in eight countries, five of which were in Africa. Moreover, in Africa as a whole, the NMR only decreased by 17.6%, from 43.6 per 1,000 live births in 1990 to 35.9 per 1,000 live births in 2009.
To return to my question concerning the understanding of economics, income, health and poverty, does most current analysis see to integrate these elements, or is it still GDP-income driven? A new (2011 May) paper released by the Brookings Institution indicates that the GDP-income route is still favoured. The paper, ‘Two Trends in Global Poverty’, Geoffrey Gertz and Laurence Chandy, has said that while the overall prevalence of poverty is in retreat, the global poverty landscape is changing. “This transformation is captured by two distinct trends: poor people are increasingly found in middle-income countries and in fragile states. Both trends – and their intersection – present important new questions for how the international community tackles global poverty reduction.”
“The increased prevalence of poverty in middle-income countries is in many ways a trend of success. Over the past decade, the number of countries classified as low-income has fallen by two fifths, from 66 to 40, while the number of middle-income countries has ballooned to over 100. This means 26 poor countries have grown sufficiently rich to surpass the middle-income threshold. Among those countries that have recently made the leap into middle-income status are a group of countries - India, Nigeria and Pakistan – containing large populations of poor people. It is their “graduation” which has brought about the apparent shift in poverty from the low-income to middle-income country category.”
This categorisation of middle, low and high income was to an extent useful in the 1970s, when the idea of a human development index was being discussed, but we’ve come a long way since. We know that even in smaller countries (rather, countries with populations that are relatively small compared to those whic bear the sort of burdens studied in the PLoS Medicine research) there is a great deal of income disparity. ‘Income’ itself is a condition with a bewildering number of inputs – social science is quite inadequate to the task of being able to recognise all of these, let alone quantify them and rationalise them across countries and regions – which is exactly what studies like this try to do unfortunately.
“In 2005, when more than half the world’s poor lived in such countries, it made some sense to think about fighting poverty in terms of a single developing country paradigm, based on what worked in countries such as Ghana, Tanzania, Mozambique or Vietnam,” Gertz and Chandy have said. “This logic was evident in two of the major events of that year which continue to shape today’s development agenda: the G8 meeting at Gleneagles and the High Level Forum on Aid Effectiveness in Paris. It was also apparent in Jeffrey Sachs’ influential 2005 best-seller, ‘The End of Poverty’. The legacy of these ideas is scattered throughout the work of the international development community in the design of traditional aid instruments and the standard methods of country engagement.”
The authors of the Brookings paper have said that this approach remains relevant for some countries, but with 90 percent of the world’s poor living in different settings today, its broader application can no longer be justified. Yet they have found that such an admission poses a dilemma. The dilemma exists because one of the reasons the stable low-income paradigm has persisted is because it characterizes an environment in which the international development community feels most comfortable and has the most experience. “The role of external actors in supporting poverty reduction in stable low-income countries is well understood and the standard tools of external assistance – financial and technical assistance – are well suited to them.”
What does this mean? Does it give us a hitherto obscured insight into the inner world of aid agencies and international development departments and how they see ‘poor’ countries’ populations? Does it mean that we are burdened with three decades worth of simplistic labelling of populations at risk simply because labelling them any other way makes it difficult to help them? That’s what it looks like to me and I’d like to thank Gertz and Chandy for revealing this. But it’s way past high time this sort of categorisation was ditched, once and for all. It would do us and the battalions of development professionals a huge amount of good to simply be able to say, every so often, “we don’t know enough”.
It is worth being honest about the state of our knowledge concerning the lives of the the majority of households in ‘developing’ countries. Some of the reasons why such honesty will help in the long term are contained in a thoughtful new publication from the World Bank (whose army of development professionals will benefit from its reading). This collection is entitled ‘No Small Matter: The Impact of Poverty, Shocks, and Human Capital Investments in Early Childhood Development’ (The World Bank, 2011) and it has said that, as the 2008 global financial crisis has again demonstrated, economic crises are an unfortunate recurring event in the world and can have severe consequences for household livelihoods.
‘No Small Matter’ defines economic crises as sharp, negative fluctuations in aggregate income, these being especially common in developing countries, and the frequency with which they occur has been increasing in recent history. We know that declines in household and community resources are not the only risks that arise from an economic crisis because of its aggregate nature. We also know – from fieldwork and by hearing those whom we would wish to help – that at the same time as households cope with the possibility of reduced income from aggregate economic contractions, vital public services may also experience a decline in quality or availability, which in turn may have an additional impact on skill development among children. This is happening now, in more countries than ever before. The economic crisis that hit Latin America in 1982 led to a decrease in public health spending and had a disproportionate effect on the poorest groups. In 2011, the decrease in public health spending exists in many more countries.
A chapter in ‘No Small Matter’, ‘The Influence of Economic Crisis on Early Childhood Development: A Review of Pathways and Measured Impact’, by Jed Friedman and Jennifer Sturdy, is particularly useful.
This has said that “conservative estimates suggest that over 200 million children under five years of age living in developing countries fail to reach their cognitive development potential because of a range of factors, including poverty, poor health and nutrition, and lack of stimulation in home environments”. It is possible, the chapter’s authors have said, that this burden increases during times of crisis as poverty increases and food security is threatened. However, to investigate this claim more carefully it is necessary to understand the pathways through which poverty influences skill acquisition in children.
“The most severe condition affecting ECD (Early Childhood Development) is infant and early child mortality. Sharp economic downturns were associated with increases in infant mortality in Mexico, Peru and India. The mortality of children born to rural and less educated women is more sensitive to economic shocks, which suggests that the poor are disproportionately affected during most economic crises, and perhaps the poor face important credit constraints that bind in tragic ways during large contractions.
The mortality of girls is also significantly more sensitive to aggregate economic shocks than that of boys. This gender differential exists even in regions such as Sub-Saharan Africa that are not particularly known for son preference and indicates a behavioral dimension where households conserve resources to better protect young sons at the expense of daughters.”
Finally, a further note about the extremely valuable PLoS Medicine study ‘Neonatal Mortality Levels for 193 Countries in 2009 with Trends since 1990: A Systematic Analysis of Progress, Projections, and Priorities’. The authors are: Mikkel Zahle Oestergaard1, Mie Inoue1, Sachiyo Yoshida, Wahyu Retno Mahanani, Fiona M. Gore1, Simon Cousens, Joy E. Lawn and Colin Douglas Mathers (on behalf of the United Nations Inter-agency Group for Child Mortality Estimation and the Child Health Epidemiology Reference Group – World Health Organization, Department of Health Statistics and Informatics; World Health Organization, Department of Child and Adolescent Health and Development; London School of Hygiene & Tropical Medicine; Saving Newborn Lives/Save the Children).
The study found that of the 40 countries with the highest NMRs in 2009, only six are from outside the African continent (Afghanistan, Pakistan, India, Bhutan, Myanmar, and Cambodia). Among the 15 countries with the highest NMRs (all above 39), 12 were from the African region (Democratic Republic of the Congo, Mali, Sierra Leone, Guinea-Bissau, Chad, Central African Republic, Burundi, Angola, Mauritania, Mozambique, Guinea, and Equatorial Guinea), and three were from the Eastern Mediterranean (Afghanistan, Somalia, and Pakistan). Throughout the period 1990–2009, India has been the country with largest number of neonatal deaths. In 2009, the five countries with most deaths accounted for more than half of all neonatal deaths (1.7 million deaths = 52%), and 44% of global livebirths: India (27.8% of deaths, 19.6% of global livebirths), Nigeria (7.2%, 4.5%), Pakistan (6.9%, 4.0%), China (6.4%, 13.4%), and Democratic Republic of the Congo (4.6%, 2.1%). The top five contributors to the 4.6 million neonatal deaths in 1990 were: India (29.5% of deaths, 19.8% of global livebirths), China (12.3%, 18.0%), Pakistan (5.4%, 3.4%), Bangladesh (5.0%, 2.9%), and Nigeria (4.8%, 3.3%).
As the risk of children dying before the age of five has fallen, the proportion of child deaths that occur in the neonatal period has increased. This increase is primarily a consequence of decreasing non-neonatal mortality in children under five from infectious diseases such as measles, pneumonia, diarrhea, malaria, and AIDS. Globally, 41% of under-five deaths now occur in the neonatal period. Over the 20 y between 1990 and 2009, the proportion of global neonatal deaths that occurred in Africa increased. Although Africa is now the region with the highest NMR, the proportion of under-five child deaths that are neonatal remains relatively low in Africa—the fraction increased from 26% to 29% between 1990 and 2009. This apparent anomaly reflects the fact that Africa accounts for approximately 90% of child deaths due to malaria (0.7 million under-five deaths) and HIV/AIDS (0.2 million under-five deaths), resulting in relatively higher post-neonatal child mortality than other regions.
From ‘India and the Global Financial Crisis What Have We Learnt?’, by Dr Duvvuri Subbarao, Governor, Reserve Bank of India, as the K R Narayanan Oration, at the South Asia Research Centre of the Australian National University, Canberra on June 23, 2011.
A few months into the crisis [the 2008-09 financial crisis], the Queen happened to be at the London School of Economics and asked a perfectly sensible question: ‘how come none of the economists saw the crisis coming’. The Queen’s question resonated with people around the world who felt that they had been let down by economics and economists. As economists saw their profession discredited and their reputations dented, the economic crisis soon turned into a crisis in economics.
What went wrong with economics? It now seems that by far the most egregious fault of economics, one that led it astray, has been to project it like an exact science. The charge is that economists suffered from ‘physics envy’ which led them to formulate elegant theories and models – using sophisticated mathematics with impressive quantitative finesse - deluding themselves and the world at large that their models have more exactitude than they actually did.
Admittedly, in a limited sense there may be some parallels between economics and physics. But similarity in a few laws does not mean similarity in the basic nature of the academic discipline. The fundamental difference between physics and economics is that physics deals with the physical universe which is governed by immutable laws, beyond the pale of human behaviour. Economics, in contrast, is a social science whose laws are influenced by human behaviour. Simply put, I cannot change the mass of an electron no matter how I behave but I can change the price of a derivative by my behaviour.
The laws of physics are universal in space and time. The laws of economics are very much a function of the context. Going back to the earlier example, the mass of an electron does not change whether we are in the world of Newton or of Einstein. But in the world of economics, how firms, households and governments behave is altered by the reigning economic ideology of the time. To give another example, there is nothing absolute, for example, about savings being equal to investment or supply equalling demand as maintained by classical economics but there is something absolute about energy lost being equal to energy gained as enunciated by classical physics.
In natural sciences, progress is a two way street. It can run from empirical findings to theory or the other way round. The famous Michelson-Morley experiment that found that the velocity of light is constant led to the theory of relativity – an example of progression from practice to theory. In the reverse direction, the ferocious search now under way for the Higgs Boson – the God particle – which has been predicted by quantum theory is an example of traversing from theory to practice. In economics, on the other hand, where the human dimension is paramount, the progression has necessarily to be one way, from empirical finding to theory. There is a joke that if something works in practice, economists run to see if it works in theory. Actually, I don’t see the joke; that is indeed the way it should be.
Karl Popper, by far the most influential philosopher of science of the twentieth century, propounded that a good theory is one that gives rise to falsifiable hypotheses. By this measure, Einstein’s General Theory was a good theory as it led to the hypothesis about the curvature of space under the force of gravity which indeed was verified by scientists from observations made during a solar eclipse from the West African islands of Sao Tome and Principe. Economics on the other hand cannot stand the scrutiny of the falsifiable hypothesis test since empirical results in economics are a function of the context.
The short point is that economics cannot lay claim to the immutability, universality, precision and exactitude of physics. Take the recent financial crisis. It is not as if no one saw the pressures building up. There were a respectable number of economists who warned of the perilous consequences of the build-up of global imbalances, said that this was simply unsustainable and predicted a currency collapse. In the event, we did have the system imploding but not as a currency collapse but as a melt down of the financial system.
We will be better able to safeguard financial stability both at global and national levels if we remember that economics is a social science and real world outcomes are influenced at a fundamental level by human behaviour.
In the 2011 May issue of Le Monde Diplomatique, the comment ‘Immune and all-powerful’ by vetern observer of 20th century absurdity, Serge Halimi, is short, blunt and a new indictment of the global financial mafia. This mafia is represented on governments by its criminals-in-chief: Goldman Sachs, Morgan Stanley and J P Morgan. There are more such criminals-in-chief of course, and some are regional (in Russia, China, India, Brazil) as they preside over the movements of capital and the passing of legislation to disempower, impoverish and enslave tens of millions around the developing world.
It is in the interests of these folk, the humble wage earners in field and in the slums, that Halimi has written this cameo. He has pointed out that the International Monetary Fund has just admitted that “nearly four years after the start of the global financial crisis, confidence in the stability of the banking system as a whole has yet to be fully restored”. He then quotes US Federal Reserve chairman Ben Bernanke who described it as “the worst financial crisis in global history, including the Great Depression” but has reminded us that no-one in the US (or in its client and comprador countries for that matter) has been charged with any crime. [Bernanke was quoted by Jeff Madrick in “The Wall Street Leviathan”, The New York Review of Books, New York, 28 April 2011.]
Goldman Sachs, Morgan Stanley and J P Morgan all stood to gain by the collapse of the high-risk investments they warmly recommended to their clients. They got off with a fine at worst; more often they got a bonus. In fact Halimi is needlessly polite, for the criminals-in-chief have not only got off with bonuses, they have continued to be permitted to ply their destructive trade in developing countries and in the commodity trading arenas.
Eight hundred bankers were prosecuted and jailed after the fraud-related US Savings and Loans failures in the late 1980s, said Halimi. “Now the power of the banks, increased and concentrated by restructuring, is so great that they seem immune to prosecution in any state impeded by public debt. Future White House candidates, including Barack Obama, are already begging Goldman Sachs to fund their election campaigns; the head of BNP Paribas has threatened European governments with a credit squeeze if they make any serious attempt to regulate the banks; Standard & Poor’s, the agency that awarded its highest rating of AAA to Enron, Lehman Brothers, Bear Stearns and many junk bonds, plans to downgrade the US rating if Washington fails to deliver public spending cuts.”
So, it is not only immunity. The criminals-in-chief are revealed as actually dictating social policy to the countries of the developed world. In France, the Socialists complain that “governments devoted more resources to rescuing the banks and financial institutions in the year after the subprime crisis than the world spent on aid to third world countries over 50 years” [this was in L’hebdo des socialistes, 16 April 2011].
But the remedies they propose are pathetic (a 15% bank surcharge) or pious hopes (abolish tax havens, establish a public rating agency, tax financial transactions), which rely on unlikely “joint action by the member states of the European Union”.
What should have been a crisis too far came to nothing, Halimi has concluded. He has quoted Andrew Cheng, chief adviser to the China Banking Regulatory Commission, as having said that this passive attitude is connected to a “capture problem”, which is states in thrall to their financial system [“Big Winners in Crises: the Banks”, International Herald Tribune, 13 April 2011]. Too often political leaders behave like bankers’ puppets, anxious not to spoil the party. I would have expected Monde Diplo to show some teeth here, for this is in most democracies called treason, and the punishment must match the crime.
The finding that China has loaned more money to developing countries than the World Bank in the past two years is being widely reported worldwide. Using phrases like “the economic might of the world’s most populous country will only grow stronger in the years to come” the daily news media has reported on the new reach of the yuan in two distinct tones.
One, from China itself, by its news agencies and news media, is a pragmatic tone which discusses the use of loans and financial aid as a primary tool of international relations. Two, from the West, is a simultaneously fascinated and worried tone, which does not hide an alarm over the growing influence of China on the developing South, and which bemoans the helplessness of western governments and financial systems to counter Beijing’s effortless reach.
What is the data? The China Development Bank and China Export-Import Bank agreed to lend at least US$110 billion to governments and companies in developing countries in 2009 and 2010, according to an AFP story citing research from the Financial Times. From 2008 to 2010, the World Bank handed out US$100.3 billiion in response to the global economic crisis.
The brief FT report says: “The volume of overseas loans by the two banks indicates how Beijing is forging new patterns of China-led globalisation, as part of a broader push to scale back its economic dependency on western export markets. The financial crisis allowed Beijing to push the commercial interests of its energy companies by offering loans to producer countries at a time when financing was hard to come by. The agreements include large loan-for-oil deals with Russia, Venezuela and Brazil, as well as loans for an Indian company to buy power equipment and for infrastructure projects in Ghana and railways in Argentina.”
“The statistics were collected by examining public announcements by the banks, the borrowers or the Chinese government. An adviser to CDB said the volume of lending suggested by public statements understated the real level of the bank’s new loan commitments to developing countries. CDB and EximBank provide more preferential terms than the World Bank and other lenders for certain deals that are strongly supported by Beijing, but offer terms that are closer to international standards for less politically sensitive deals. They also tend to impose less onerous transparency conditions.”
There has been evidence enough over the last five years that Chinese investors turn into bargains everything from distressed US real estate to African and Brazilian oil fields to European debt. China’s foreign exchange reserves stand at US$2.85 trillion (more than double that of the country with the second largest reserves, which is Japan).
The bottom-line is that China has lent more money to other developing countries over the past two years than the World Bank, as the FT is reporting, a fact that underlines the scale of Beijing’s economic reach and how it is forging new patterns of global trade and development. China Development Bank and China Export-Import Bank gave loans of at least US$110bn to other developing countries in 2009 and 2010. The equivalent arms of the World Bank made loan commitments of US$100bn from mid-2008 to mid-2010.
How does this activity fit in with the news, usually filtered and sometimes misunderstood, that China will progressively make its currency convertible on the capital account in the next five years amid its push for the deeper internationalization of the yuan? “The overall strategy for the reform of China’s foreign exchange management system is to achieve the convertibility of the yuan on the capital account progressively, as this will make trade and investment more convenient and boost the development of the foreign exchange market,” said Yi Gang, head of the State Administration of Foreign Exchanges (SAFE), in a signed article published on the SAFE website.
An example of China’s yuan reach is the reporting, from Angola in November 2010, of vice-president Xi Jinping’s visit there. The China Development Bank is to follow the official visit and “further strengthen cooperation” with Angola in mineral prospecting, staff training and municipal planning. “In addition, CDB will unleash its leading role in developmental finance to step up fostering and development of Angolan markets and finance for the country’s post-war rehabilitation, rendering substantial financing support in the process”, as Xinhua News Agency reported on 21 November 2010. During the Angola visit the CDB entered into a US$400 million loan agreement with the Ministry of Finance of Angola to address food security issues and promote urban infrastructure construction in the country. Moreover, the CDB and Angola’s African Investment Bank signed a US$100 million SME loan agreement.
This eclectic selection of reports does have one common theme. And that is a measure of desperation. The global triple crisis – that of finance and credit, of climate change, and of food and hunger – has pushed the poor to desperation, but it has also pushed companies and institutions to desperation. Desperate measures is what links the stories of a floating supermarket in Brazil, normally safe microloans going bad, fertiliser overuse in north India and Chinese tomatoes in Italy.
1. Nestlé’s ‘floating supermarket’ makes its voyages under Amazon skies. The ‘Terra Grande’ vessel is an investment by the Swiss food group designed to reach isolated riverside communities in the Amazon region. The vessel is designed to enhance Nestle’s reach among the lower income consumers that make up a core part of its market. The company has been in Brazil for 89 years and products like its powdered milk are staples among Brazil’s poorer consumers. As the economy continues to grow quickly, Nestlé is hoping that rising incomes among the poor will bring its higher priced goods within their reach, too.
2. Microfinance markets in Nicaragua, Morocco and Pakistan have seen default levels climb to more than 10 percent, the threshold that marks a “serious repayment crisis,” according to a February report from Washington, D.C.-based policy and research firm Consultative Group to Assist the Poor. Delinquencies in Bosnia and Herzegovina stayed below that level only because of “aggressive loan write-offs,” the report said. While there has been no evidence of a “widespread repayment crisis” in India, “a number of industry analysts have highlighted industry vulnerabilities,” the report said.
Here is a slice of Bloomberg’s reportage on the problem in India: “Savita Ramesh Rathore stood at the door to her dimly lit workshop in Mumbai’s Dharavi slum, filled floor-to-ceiling with bundles of old clothes, and tallied up the cost of her son’s wedding last year. ‘Jewels, clothes, food, the town hall,’ said Rathore, 50, who makes towels from discarded clothes. She borrowed 30,000 rupees ($645) from moneylenders charging 60 percent interest and took additional loans from friends to pay for the wedding. Three months ago, she got a 10,000 rupee loan from urban lender Hindusthan Microfinance Pvt. to repay some of that debt.”
3. A new study by Greenpeace Research Laboratories shows that agriculture in Punjab is on the brink of an ecological catastrophe, the result of the overuse of highly-subsidised synthetic nitrogen fertilisers by farmers striving to step up their output. Dr Reyes Tirado, a scientist from the University of Exeter, sampled wells in 50 villages in the areas of Muktsar, Bhatinda and Ludhiana, and found that 20 per cent had nitrate levels above the World Health Organisation recommended safety limit of 50 mg per litre.
Farmers are aggressively using the nitrate fertilisers with the aim of boosting their annual yield. But scientists warn that this overuse is gradually exhausting the soil, which will eventually leave it unfit for food production. PepsiCo, the cola company which also makes potato chips, sources potatoes from farms in Ludhiana, and lost no time in claiming fatuously that it encourages its agricultural suppliers to use less nitrogen-based fertilisers.
4. Italy’s agriculture minister declared “We will defend the Italian tomato” in response to reports by Coldiretti, an agricultural association, that Italian imports of Chinese tomatoes had soared by over 170 per cent in the past year and now made up 10 per cent of the country’s processed tomato market. Chinese tomatoes are being imported into Italy for processing into paste and then re-exported with an Italian label to countries like Ghana which buys about 28,000 tonnes from Italy each year. Chinese exports of food and drink to the EU have doubled over the past decade, reaching 3.2bn euros in 2009.