Truck and Barter

“America faces decades of red ink”

“The nearest thing to eternal life we’ll ever see on this earth is a government program.”
- President Ronald Reagan

I wonder why Americans politicians are not listening to their Comptroller General. Following are excerpts from a recent speech David Walker gave World Future Society conference (emphasis mine);

“But, first, I think it’s important to understand how myopia or shortsightedness can undermine a nation’s willingness and ability to act. In the case of the United States, strong economic growth, modest inflation levels, relatively low interest rates, and our current superpower status have given many policymakers and the American public a false sense of security about our nation’s current position and future prospects. Even though we know a demographic tsunami is building silently offshore—I’m referring to the impending retirement of our baby boom generation—America continues to party on and pile up record levels of debt….

In this spirit and in an effort to lead by example, GAO has published an unprecedented report called “21st Century Challenges” that asks a series of probing, sometimes provocative, questions about current government policies, programs, and operational practices. The report brings home how much of the U.S. government reflects organizational models, labor markets, life expectancies, transportation systems, security strategies, and other conditions that are rooted in the past…

The same goes for many tax policies. For example, just this summer, the U.S. government announced it will stop collecting a 3-percent tax on long-distance telephone calls. This doesn’t seem particularly startling until you realize that the tax had been introduced in 1898 to help pay for the Spanish-American War—a war that lasted only a few months!..

To better meet Congress’ information need on these emerging issues, GAO has developed an approach we call “grounded foresight.” We believe that to be credible, foresight work must have a strong factual and conceptual basis. Such work needs to ground all trends in evidence. After all, everyone’s entitled to their own opinion but not to their own facts! At the same time, such work also needs to clearly convey the uncertainty that’s inherent in foresight analysis.

Several key tools are available to encourage a forward focus. These tools include strategic planning, key national indicators, and scenario planning. Unfortunately, not all governments, including my own, have taken full advantage of these tools…

So what themes or trends does GAO expect to concentrate on in the coming years? Perhaps the most urgent issue is America’s worsening financial condition and growing long-term fiscal imbalance. Long-term fiscal analyses by GAO and our sister agency in the legislative branch, the Congressional Budget Office, show that federal deficits will grow to unsustainable levels in as little as two decades. At that point, without significant policy changes, federal deficits could reach 10 percent or more of our economy. States and local governments face increasing future fiscal pressures as well. Largely because of our aging population, rising health care costs, and relatively low revenues as a percentage of the economy, America faces decades of red ink.

Clearly, a crunch is coming and eventually all of government will feel its impact. If America continues on its current course, it’s only a matter of time before our ship of state hits the rocks. To put us on a more prudent and sustainable long-term path, the federal government must begin to make tough choices in connection with budget systems, legislative processes, entitlement programs, spending patterns, and tax policies. There’s no way we will grow our way out of our fiscal hole. The sooner we begin to act, the better because, as the world’s largest debtor nation, time is working against us.

As a citizen, a senior government official, and a father and grandfather, I take America’s fiscal imbalance very seriously. It’s not just a matter of numbers, it’s also about values. It’s easy to forget that deficits eventually have real-life consequences for real people, including our own children and grandchildren….

In the 21st century, an effective governance structure recognizes that more and more policy challenges require multilateral action. We’re also going to need greater coordination among various levels of government and the private and citizen sectors both domestically and internationally. The plain but simple truth is that no nation in today’s world, including the United States, can or should go it alone.

Beyond changing our governance approaches, we also need to consider how we keep score. In my view, key national and outcome-based indicators can help policymakers better assess a nation’s status, its progress over time, and its position relative to other nations on issues like public safety, health care, housing, education, and the environment. Such indicators can help guide strategic planning, facilitate foresight, inform agenda setting, enhance performance and accountability reporting, and encourage more informed decision making and oversight, including much-needed and long-overdue efforts to reengineer the base of our federal government….

If we expect to successfully tackle the tough issues I’ve described tonight, we’ll need more leaders in the United States and elsewhere with four key attributes. These attributes are courage, integrity, creativity, and stewardship.

By courage, I mean people who state the facts, speak the truth, and do the right thing even if it isn’t easy or popular. By integrity, I mean people who practice what they preach and lead by example. People who understand that the law and professional standards represent the floor of acceptable behavior. People who set their sights higher and strive to do what’s right. By creativity, I mean people who can think outside the box and see new ways to address old problems. Individuals who have foresight and can help others see the way forward. Finally, by stewardship, I mean people who don’t just generate positive results today but who also leave things better positioned for the future when they depart their jobs and this earth. That’s what real stewardship is all about, and we don’t have enough of it today.”

I think the Mr. David Walker should be invited for next year’s TED conference. Going over the World Future Society’s website I wasn’t impressed. They can learn a thing or two from the TED conference.

Related;
World Future Society conference review
Top 10 Forecasts from Outlook 2006
Why Sustainability, not Terrorism, Should Be Our Real Security Focus

Child genius Sirena Huang

On TED Blog.

(Note -- KB: Apologies to TED for not using the standard code to run the video, but it doesn't work on T&B.)

The Future of Aid

“The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” - Fredrick Hayek, 1988

The plenary session of the WIDER conference on Aid is available online. My recommendations are Easterly’s presentation and that of Peter Heller.

Easterly’s presentation is almost the same as his discussion at CGD recently.

Related;

The Future of Aid – presentation by Richard Manning, Head of DAC, OECD.

On Jeffrey Sachs by Mankiw

The End of Poverty- a profile of Jaffrey Sachs

The Man Without a Plan- a review of Easterly’s book by Amartya Sen

Foreign aid face-off; Can we end poverty with wads of cash?

Earlier blog posts; A Shocking Fact about Sub-Saharan Africa, Removing binding constraints to growth?

Britain can be gateway to Islamic finance- Gordon Brown

Some highlights from Gordon Brown’s speech at Islamic Finance and Trade Conference, London;

“Already, Britain is the largest European trader with many Islamic countries - the largest European investor in Oman, the largest non-Arab investor in Egypt, and second largest global investor in Pakistan and Saudi Arabia;

Second, the foundation for making Britain the gateway to Islamic trade, is to make Britain the global centre for Islamic finance.

Today British banks are pioneering Islamic banking - London now has more banks supplying services under Islamic principles than any other Western financial centre.

And I want to thank also the Muslim Council of Britain and the many of you here who have worked with the Government through our tax and regulatory reform to support the development of Shari’a compliant finance:

- first, three years ago, for mortgages, enabling the expansion of the Islamic mortgage market to over half a billion pounds - growing by almost 50 per cent in the last year alone;
- then last year, for savings and borrowing and providing proper consumer protection for Ijara products;
- this year, for business finance, with last week Parliament approving measures in the Finance Bill for diminishing musharaka and wakala;
- and now, working with us, to look at international finance, Islamic securitisation and sukuk - and I am pleased that London was the financial centre chosen recently to advise on one of the largest sukuk deals ever done.

All of us are facing up to the challenges of globalisation, to the rise of Asia – one million manufacturing jobs lost from America, Europe and Japan, one quarter of a million jobs offshored, oil prices rising not least because Asia now takes up 30 per cent of demand.

To secure a world trade deal, heads of government should stand ready to use all the resources of leadership and statesmanship. The prize is a 50 per cent increase in world trade - and specifically the World Bank estimates a deal could bring $14 billion increased prosperity to the Middle East and North Africa and a further $2 billion to Indonesia alone.

I am aware of the importance Islam places on education, through the hadith such as: "Seek knowledge from the cradle to the grave" and "Verily the men of knowledge are the inheritors of the prophets."

I was shocked to learn that while Muslims constitute 22 per cent of the world's population, almost 40 per cent of the world's out-of-school children are Muslims. In Pakistan alone there are nearly 8 million children not in school, in Bangladesh nearly 4 million, and over one million in Mali, a total of more than 40 million Muslim children who do not go to school

So I know you will agree with me that it is one of the world's greatest scandals that in total 110 million children do not go to school.

And led by Hilary Benn, our Secretary of State for International Development, we will enter into 10 year agreements with countries to finance their 10 year plans, in total committing at least $15 billion over the next ten years - four times as much as the $3.5 billion of the previous ten years. In Singapore in September, I will press other G8 Finance Ministers to commit to their share..."

Related Links;

The Design of Instruments for Government Finance in an Islamic Economy

Islamic Finance Gears Up

Islamic Financial Systems

Islamic finance in the United States: A small but growing industry

Regulation and Supervision of Islamic Banking in the United States

Heard of Islamic micro-banking?

More links on the topic.

A Tipping Point for Infrastructure in Latin America

Some statistics on the state of infrastructure in Latin America from the latest edition of The Economist;

“In Mexico, public spending on infrastructure—electricity generation, roads, railways, water plants and the like—was a third lower in 2004 than a decade earlier, according to a report by Merrill Lynch, an investment bank. The World Bank describes two-fifths of the country's motorways as “pre-modern”. Nevertheless, the government has found the money to spend 0.7% of GDP on subsidising the electricity that is consumed—which does nothing for the poorest, who live in the dark in rural areas…Between 1990 and 2003, Latin America accounted for half of total private-sector participation in infrastructure in developing countries.

In recent years, total spending in the region on infrastructure has averaged less than 2% of GDP. It is not enough. According to the World Bank, 58m Latin Americans lack access to potable water and 137m lack sewerage. In Brazil and Peru, less than a quarter of the main highways are classified as good. In surveys by the bank, 55% of businessmen consulted in Latin America cite infrastructure as a serious problem compared with just 18% in East Asia. The bank says the region will have to double or triple its current spending to bring its infrastructure up to the level of that in East Asia's fast-growing economies.

Chile- the exception…Now the roads that whisk the traveller into Santiago, the capital, from the airport are privately run, as are most other motorways and the airport itself. Nearly all Chile's water is supplied by private companies. Long-term “infrastructure bonds”, denominated in inflation-adjusted pesos, have financed much of the $8 billion investment in roads, airports and the like. Chile is planning to issue contracts for private investors to build and maintain public hospitals.

Brazil,…Infrastructure will be “a point of strangulation”, holding the rate of economic growth to less than 4%, predicts Adriano Pires of the Centro Brasileiro de Infra Estrutura, a consultancy. The federal investment budget is just 0.5% of GDP. Add in lower levels of government and state companies, and public spending on infrastructure totals about 2%—probably not enough to maintain the stock of infrastructure….Since Brazil has little scope for raising taxes and debt and cannot easily re-allocate spending, it will have to rely on the private sector over the next few years, believes Paulo Correa, co-author of a forthcoming World Bank report on Brazilian infrastructure. ..In Brazil 36% of concession contracts have been renegotiated, usually at the instigation of the government—above the regional average of 30%. All but the most profitable investments have been deterred by the high—though now falling—cost of capital.”

Related:

ABCDE Tokyo 2006- Video

A Primer on Risk Management: Applications to Latin America and the Caribbean

Mexico - Infrastructure public expenditure review

Ranking economic policies ($ required)

Asian Highway network gathers speed

Corruption in Infrastructure

“A very promising research area is the use of randomized field experiments. A recent paper by Olken (2005) reports the results of such an experiment in Indonesia which measures missing expenditures in over 600 village projects. To do so, the author relied on a comparison of the villages’ official expenditure reports with estimates of the prices and quality of all inputs used in road construction and maintenance, each made by independent engineers. This approach allows a separation of the sample into sub-samples designed to test the effectiveness of various types of policies in reducing corruption.

What do these studies show? Most of the evidence confirms the expectations. First, the basic data analysis from the Global Competitiveness report suggests that the frequency with which firms have had to make undocumented extra payments or bribes to get connected to public utilities or to gain public contracts is, on average, negatively correlated with the income of the countries. These responses suggest that the poorer a country is, the bigger the corruption problem in infrastructure. While useful these data are also far from being precise. They are based on executive surveys which are known to have their share of problems. More importantly, it tells us little about what the government or the residential infrastructure users think about corruption. Second, corruption can be tracked to greater constraints on utility capacity and lower competition among utilities. This is found by Clarke and Xu (2004) for 21 Eastern European countries. They also find that public ownership in that region is more correlated with corruption than private ownership of utilities. Third, corruption can be associated with higher than expected costs. The most detailed studies ( Flyvbjerg and various colleagues) show that excess costs can be attributed to procurement rules that give bidders an incentive to announce low costs to increase their chances of winning projects, then renegotiate….

What can we do to reduce corruption in infrastructure? There are basically four main directions in which theoretical researchers have been pushing for over 20 years: (i) privatization, (ii) regulation and related processes, (iii) increased decentralization, and, (iv) adoption of participatory process in the selection, implementation, and supervision of projects. Since many countries have tried these recommendations, we now have enough new facts to analyze. This analysis is still very young but already yielding interesting results.”

Infrastructure: A survey of recent and upcoming issues

The paper comes from the Annual Bank Conference on Development Economics - ABCDE Tokyo 2006.

Here’s a podcast overview and a video of the opening session.

A related conference in South Africa- see especially the paper 2010 World Cup- Infrastructure Challenges.

PSD Blog has more on corruption.

Ten Reforms to Make the World More Conducive to Development

1. A “development box” in the WTO that legitimizes the use of trade and industrial incentives (including export subsidies) for developmental purposes (with burden of proof on those that argue the intervention is not developmental.

2. A recognition by the US, in particular, that prudential restrictions on capital flows (“capital account management”) in the developing world is an integral part of a development agenda.

3. Preparation of a “developmental impact statement” as a necessary requirement for any international agreement (including the costing out of the financial implications for LDCs, and laying out the modalities of how these will be financed).

4. Adoption of the “odious debt” notion, whereby debt contracts signed by oppressive regimes are no longer enforceable in Northern courts.

5. A 0.10% financial transaction tax on foreign currency transactions, with proceeds spent on global public goods.

6. Willingness to share information with LDC governments on Northern bank accounts held by LDC residents.

7. A temporary work permit scheme that allows workers from developing nations to spend 3-5 years in the advanced countries. (Revolving pool of workers; low and high skill; return important)

8. A multilateral agreement that disciplines the subsidization of DFI. (The only significant form of industrial policy that (a) is not banned; and (b) clearly transfers resources from developing to developed countries.)

9. Ending the monopoly of the World Bank in generating and disseminating policy ideas, particularly in the lowest income countries, by breaking it up into a number of competing agencies.

10. Moving the IMF’s Policy Development and Review (PDR) Department (and its staff) to a developing country, and rotating it in, say, among different African capitals every five years.

Those are list from Dani Rodrik.

See the rest of papers from the conference- Equality and the New Global Order, especially the one by Branko Milanovic.

Summary of Milanovic’s presentation by Jon Mandle at Crooked Timber;

“Does concern with global inequality require a different approach to international aid?
This presentation was very heavily empirical and gave an interesting insight into the theoretical difficulties of measuring inequality. He began by talking about the significance of the Gini coefficient and the extent of global inequality in income. But, he observed, any such measurement involves aggregation. So, if members of a wealthy country contribute to a poor country, it might turn out that some poor members of the wealthy country are subsidizing wealthy members of the poor country who are better off than they are. (See Rodrik’s example, above.) For many pairs of countries, this would be very unlikely to happen – there are few people in the poor country that have higher incomes than anyone in the rich country. But sometimes it might. For example, the wealthiest 15% of Chinese have a higher income than the poorest 5% of Germans. If we want truly progressive redistribution, we should have a way of measuring this likelihood. So, we need to take the internal distribution of a country into account. A progressive redistribution between countries should minimize the likelihood of regressive transfers. Furthermore, such redistributions should not make the national distribution more unequal. For example, even if the poor in a rich society are better off than the rich in a poor society, transferring from the former to the latter, although progressive, would increase the inequality within each country. The bottom line is that not only the richer, but also the more unequal a country is, the more it should contribute to the relief of global poverty.”

Related: World Inequality in the Second Half of the 20th Century

Globalization with a Chinese Face!

“I never think of the future. It comes soon enough”- Albert Einstein

Shell Global Scenarios to 2025 propose three possible political environments for business. The scenarios are based on the results of the interplay between three global forces identified as efficiency, social justice and security. They are:

“Low trust globalization”, in which globalization continues but an ongoing crisis of security and trust leads to a legalistic world of overlapping and conflicting laws with intrusive checks and controls.

“Open doors”, in which cooperation between governments, investors and civil society flourishes in a pragmatic fashion producing a more transparent world.

“Flags”, in which suspicion of outsiders and conflicts over values, religion and national preferences creates regulatory fragmentation, gated communities and a dogmatic world.

Canuckflack has more on the last year’s scenario.

Related;

- Managing Globalization- a blog Daniel Altman

- OECD Forum 2006- Balancing Globalization

European Engine is Sputtering

“The pressures from intensified global competition were mainly felt in two interconnected macroeconomic areas: output growth and unemployment. Output growth in the core of Europe, the Euro-area, has been well below that of the U.S. and Asia for some time now, including on a per-capita basis. This reflects especially slow growth in domestic demand where neither household consumption nor fixed investment have made a significant recovery. The flip-side of this weak growth, of course, has been high unemployment—in the 8-percent range in recent years, with only moderate improvement in sight. The picture looks even dimmer when one considers the related but more economically relevant concept of labor utilization, where the core of Europe is showing a steady decline in the number of hours worked per person, both in absolute terms and relative to the other two engines of world growth—the U.S. and Asia.

And there is some concern that Europe may respond to these pressures in the wrong way. Protectionism is an ever-present threat that comes in many guises. European agricultural and trade policies have not opened up sufficiently rapidly to the rest of the world, and the tribulations in the Doha round do not promise a significant turnaround in this respect. Stubborn restrictions on the free movement of labor is another example. Indeed, despite recent progress, the free movement of labor is not yet present throughout the European Community itself. This is clearly evident in the very difficult and protracted special arrangements remaining for workers from the new Eastern European member states. The fact, however, is that protectionism eventually is a self-defeating policy. In the case of labor protection, the more Europe is successful at preventing competitive labor from coming in, the more successful it will also be in motivating expensive capital to move out. Capital is increasingly mobile and will go where markets are most dynamic and where labor is relatively inexpensive. By erecting barriers in various ways (this could be for labor, goods, or services), domestic investment will remain weak and output growth will remain low.”

Takatoshi Kato, Deputy Managing Director of the International Monetary Fund at the 36th St. Gallen Symposium: Inspiring Europe

Related Links:

The podcasts from the symposium.

Radioeconomics interview with Francesco Daveri, Professor of Economics, University of Parma (Italy), onthe causes of productivity growth across industries in countries in Italy and Western Europe ($ required).

Europe's future; What is wrong with Europe? The main answer is, as it has been for some years, the economy. Especially but not only in the core euro countries of Germany, France and Italy, growth has been sluggish, at best. In many countries unemployment seems both high and stuck. The morosity that underlay the French and Dutch noes was primarily about growth and jobs.

Two working papers on intergenerational mobility-
American Exceptionalism in a new light: a comparison of intergenerational earnings mobility in the Nordic countries, the UK and the US and Nonlinearities in Intergenerational Earnings Mobility: consequences for cross-country comparisons; New research led by economists at the University of Warwick reveals that many Western societies that pride themselves on being lands of opportunity are anything but. The reality is that most countries show a strong connection between a father and son's earnings and this factor is more important in the United States than in any of the other country studied. Yet the curious thing is that European society—at least in the Nordic countries—is far less stable than America's. Two new research papers confirm that, if one compares the incomes of children with those of their parents, or considers how long people in one income group stay there, Nordic countries emerge as far more mobile than America. Britain shows more class stability than its northern neighbours, but it is still a lot closer to them than it is to America

Is the European Union Constitution Dead? Gianfranco Pasquino, professor of political science, University of Bologna