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Economic Humour: 11 Funniest Papers in the History of Economics August 27, 2014

Posted by OromianEconomist in Economic Humour, Economics.
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Top  11 Funniest Papers in the History of Economics

By  Yoram Bauman

http://250words.com/2014/06/top-11-funniest-papers-in-the-history-of-economics/

Yoram Bauman, Ph.D., is the co-author of the Cartoon Introduction to Economics (volumes I & II) and the just-released Cartoon Introduction to Climate Change (see below)You can find Yoram at www.standupeconomist.com. This post is adapted from New Developments in Economics Education.

This list is naturally a subjective endeavor, so readers are welcome to fault me for selecting one of my own articles for the list. Many of these articles are from the Miscellany section in the Journal of Political Economy from the days when George Stigler was the editor, or a similar section in Economic Inquiry., which I oversee. Many of them are in the compendium of economics humor that I maintain on my website or in Caroline Postelle Clotfelter’s 1997 book On the Third Hand: Wit and Humor in the Dismal Science. Clotfelter is one of the few women engaged in the field of economics humor, and I have high hopes that women will be more prominently features in future Top Ten lists of economics humor.

1. “Life among the Econ” (1973) by Axel Leijonhufvud

I have hopes that Economic Inquiry will republish this article on the 40th or 50th anniversary of its original publication.

[S]tatus is tied to the manufacture of certain types of implements called “modls.” The status of the adult male is determined by his skill at making the “modl” of his “field.” The facts (a) that the Econ are highly status-motivated, (b) that status is only to be achieved by making “modls,” and (c) that most of these “modls” seem to be of little or no practical use, probably accounts for the backwardness and abject cultural poverty of the tribe.

The dominant role of “modl” is perhaps best illustrated by the (unfortunately very incomplete) accounts we have of relationships between the two largest of the Econ castes, the “Micro” and the “Macro”… If a Micro-Econ is asked why the Micro do not intermarry with the Macro, he will answer “They make a different modl,” or “They do not know the Micro modl.”

It would be to fail in one’s responsibility to the Econ people to end this brief sketch of life in their society without a few words about their future. The prospect for the Econ is bleak. Their social structure and culture should be studied now before it is gone forever.

2. “The theory of interstellar trade” (1978/2010) by Paul Krugman

The paper might have disappeared had it not been for Joshua Gans. Gans told me that he was Krugman’s TA in 1993 and ended up with a paper copy of the article, which came up “in 2008, [when] a discussion arose on the Internet about interstellar trade.” Gans sent Krugman a scanned version of the article, which Krugman posted online, noting that “Thirty years ago I was an oppressed assistant professor, caught up in the academic rat race. To cheer myself up I wrote — well, see for yourself.”

This article extends interplanetary trade theory to an interstellar setting. It is chiefly concerned with the following question: how should interest charges on goods in transit be computed when the goods travel at close to the speed of light? This is a problem because the time taken in transit will appear less to an observer traveling with the goods than to a stationary observer. A solution is derived from economic theory, and two useless but true theorems are proved.

Many critics of conventional economics have argued, with considerable justification, that the assumptions underlying neoclassical theory bear little resemblance to the world we know. These critics have, however, been too quick to assert that this shows that mainstream economics can never be of any use. Recent progress in the technology of space travel… make this assertion doubtful; for they raise the distinct possibility that we may eventually discover or construct a world to which orthodox economic theory applies.

3. “The effect of prayer on God’s attitude toward mankind” (1980/2010) by James Heckman

Heckman wrote this paper in 1980  was not published until2010. (It is unknown if Heckman ever submitted it for publication in 1980.)

This article uses data available from the National Opinion Research Center’s survey on religious attitudes and powerful statistical methods to evaluate the effect of prayer on the attitude of God toward human beings.

The technique—due to Singh (1977)—is briefly described here. Let Y be God’s attitude arrayed on a scale ranging from 0 to 1. This is an unobserved variable. Let X be the intensity of prayer in the population. It too is scaled between 0 and 1. The population density of prayer is summarized by a univariate density f(X), which has been estimated by Father Greeley (1972).

The empirical conclusion from this analysis is important. A little prayer does no good and may make things worse. Much prayer helps a lot.

4. “The conference handbook” (1982) by George Stigler

There is an ancient joke about the two traveling salesmen in the age of the train. The younger drummer was being initiated into the social life of the traveler by the older. They proceeded to the smoking parlor on the train, where a group of drummers were congregated. One said, “87,” and a wave of laughter went through the group. The older drummer explained to the younger that they traveled together so often that they had numbered their jokes. The younger drummer wished to participate in the event and diffidently ventured to say, “36.” He was greeted by cool silence. The older drummer took him aside and explained that they had already heard that joke. (In another version, the younger drummer was told that he had told the joke badly.)

Economists travel together a great deal, and there is no reason why the discussions which follow the presentation of papers should not utilize a handbook of commentary. The following is a preliminary list of numbered comments, which itself will cover a large share of the comments elicited in most conferences.

  • I can be very sympathetic with the author; until 2 years ago I was thinking along similar lines.
  • This paper contains much that is new and much that is good.
  • Theorizing is not fruitful at this stage: we need a series of case studies.
  • Case studies are a clue, but no real progress can be made until a model of the process is constructed.
  • The conclusions change if you introduce uncertainty.
  • The central argument is not only a tautology, it is false.

5. “Macroeconomic policy and the optimal destruction of vampires” (1982) by Dennis Snower

Although human beings have endured the recurring ravages of vampires for centuries, scarcely any attempts have been made to analyze the macroeconomic implications of this problem and to devise socially optimal policy responses.

Over the past few centuries, a number of prominent investigators… have suggested that all vampires should be destroyed… [We show that] such a policy would not be socially optimal.

Untitled

6. “American economic growth and the voyage of Columbus” (1983) by Preston McAfee

Since the imaginative, pathbreaking, inventive analysis of Robert Fogel (1962), the counterfactual analysis has intrigued and scintillated a generation of economists. Fogel considered the state of the American economy in 1890, had the railroads never been invented. He found that less than 10 percent of the American output could be attributed to the single innovation of railroads, thus demonstrating irrevocably that the loss of trains would not derail the American economic juggernaut.

In order to perform a valid test of the invincibility of the American economic cornucopia, the counterfactual must predate the development of the celebrated entrepreneur and the waves of immigrants whose sweat was an important input into the production process. Consequently, it is hypothesized that, rather than stumble upon the two American continents, Columbus fell off the edge of the earth. Certainly this is a valid test, for if America were to be virtually unchanged, despite not being discovered, certainly the “American century” was inevitable. I choose the year 2000 as a target date, and compare America as it will be in the year 2000 to the way it would have been then, had Columbus fallen off the edge.

7. “Mankiw’s ten principles of economics, translated” (2003) by Yoram Bauman

This paper, which launched my own career as “the world’s first and only stand-up economist”, was written during my graduate school days at the University of Washington in Seattle and eventually published in AIR. (Also available on YouTube.)

The second table below summarizes my attempt to translate [Gregory] Mankiw’s Ten Principles into plain English, and in doing so to provide the uninitiated with an invaluable glimpse of the economic mind at work. Explanations and details can be found in the pages that follow, but the average reader is advised to simply cut out the table below and carry it around for assistance in the (hereafter unlikely) event of confusion about the basic Principles of Economics.

Mankiw

8. “Can financial innovation help to explain the reduced volatility of economic activity?” (2006) by Karen E. Dynan et al.

This paper was not meant to be humorous. But given how financial innovation has increased economic volatility since the Great Depression, it arguably deserves a place in this list. It is a modern equivalent of Irving Fischer’s proclamation three days before the 1929 stock market crash that “Stock prices have reached what looks like a permanently high plateau.”

The stabilization of economic activity in the mid-1980s has received considerable attention. Research has focused primarily on the role played by milder economic shocks, improved inventory management, and better monetary policy. This paper explores another potential explanation: financial innovation. Examples of such innovation include developments in lending practices and loan markets that have enhanced the ability of households and firms to borrow and changes in government policy such as the demise of Regulation Q. We employ a variety of simple empirical techniques to identify links between the observed moderation in economic activity and the influence of financial innovation on consumer spending, housing investment, and business fixed investment. Our results suggest that financial innovation should be added to the list of likely contributors to the mid-1980s stabilization.

9. “Japan’s Phillips Curve looks like Japan” (2008) by Gregor Smith

Smith’s webpage used to link to a version of the paper with this note: “The title is also the abstract and, frankly, most of the text.”

Japan’s Phillips Curve is shown in the right-hand panel of Figure 1. The data are monthly from January 1980 to August 2005.

For ease of viewing, the left-hand panel of Figure 1 rotates the Phillips Curve around the vertical axis so that minus the unemployment rate now is on the horizontal axis. Clearly visible are the islands of Hokkaido and Honshu, though it is somewhat difficult to separately distinguish the southern islands of Kyushu and Shikoku. The Noto-Hanto Penninsula is evident to the north of the southern end of the main island of Honshu. Tokyo Bay is also visible. The data point to the far left in Figure 1 is the island of Fukue-Jima.  

Japan

10. “On the efficiency of AC/DC? Bon Scott versus Brian Johnson” (2009) by Robert Oxoby

Unfortunately, Steven Levitt failed to get the joke, prompting him to post on the Freakonomics blog that “This is what happens to people who listen to too much AC/DC… I hope for this guy’s sake he has tenure.” Oxoby wrote in the comments that “I have tenure” and added some details on the paper: “The paper was written using old data from a grad student studying the effects of different genres of music on behavior (following previous research identifying the effect of different genres on heart rate, etc.; her original interest was on the use of music in behavior therapy). She abandoned the project and has since disappeared from her program. The AC/DC spin was due to a mistake in the protocols: different songs were played in two sessions.” The next day Levittacknowledged that “There is hope for economics: The AC/DC paper was a joke”:

Abstract: We use tools from experimental economics to address the age-old debate regarding who was a better singer in the band AC/DC. Our results suggest that (using wealth maximization as a measure of “better”) listening to Brian Johnson (relative to listening to Bon Scott) resulted in “better” outcomes in an ultimatum game. These results may have important implications for settling drunken music debates and environmental design issues in organizations.

Acknowledgments: We thank Steven Levitt for his support and popularization of this research (see, for example, Levitt 2007). We thank Nathan Berg, Gary Charness, Bill Harbaugh, and Kendra McLeish for valuable suggestions and comments. We also thank a delayed Air Canada flight and a bar in the Vancouver airport for providing the time, space, and resources necessary to pursue this research. All errors are attributable to Air Canada.

11. “An option value problem from Seinfeld” (2011) by Avinash Dixit

Abstract: This is a paper about nothing.

In an episode of the sitcom Seinfeld (Season 7, Episode 9, original air date December 7, 1995), Elaine Benes uses a contraceptive sponge that gets taken off the market. She scours pharmacies in the neighborhood to stock a large supply, but it is finite. So she must “re-evaluate her whole screening process.” Every time she dates a new man, which happens very frequently, she has to consider a new issue: Is he spongeworthy”? The purpose of this article is to quantify this concept of spongeworthiness.

When Elaine uses up a sponge, she is giving up the option to have it available when an even better man comes along. Therefore using the sponge amounts to exercising a real option to wait and spongeworthiness is an option value. It can be calculated using standard option-pricing techniques. However, unlike the standard theory of financial or many real options, there are no complete markets and no replicating portfolios. Stochastic dynamic programming methods must be used.

– See more at: http://250words.com/2014/06/top-11-funniest-papers-in-the-history-of-economics/#sthash.x0l5GssQ.dpuf

Africa’s youth and the self-seeking repressive elites March 15, 2014

Posted by OromianEconomist in Africa, Africa Rising, African Beat, African Poor, Agriculture, Aid to Africa, Ancient African Direct Democracy, Colonizing Structure, Comparative Advantage, Corruption, Development, Dictatorship, Economics: Development Theory and Policy applications, Environment, Ethnic Cleansing, Facebook and Africa, Finfinnee, Food Production, Human Rights, International Economics, International Trade, Janjaweed Style Liyu Police of Ethiopia, Land and Water Grabs in Oromia, Nubia, Ogaden, OMN, Omo, Omo Valley, Opportunity Cost, Oromia, Oromia Support Group, Oromiyaa, Oromo, Oromo Culture, Oromo Identity, Oromo Media Network, Oromo Nation, Oromo Social System, Oromummaa, Poverty, Saudi Arabia, Self determination, Slavery, South Sudan, Specialization, State of Oromia, The Tyranny of Ethiopia, Tweets and Africa, Tyranny, Uncategorized, Youth Unemployment.
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Oijoolleeoromo

Africa’s youth will protest to remove self-seeking and repressive elites

 

“Some examples: authoritarian regimes, as in Ethiopia and Rwanda, are consolidating their positions. In Zambia, Angola and Mozambique, the press, civil society organisations and the opposition are under threat for demanding that the proceeds from raw material exports and billion dollar multinational corporate investments should benefit everyone. ….Short-term greed is, once again, depriving the African populations of the right to share in the continent’s immense riches. No-one can predict the future, but what can be said with certainty is that the possibility of a sustainable long-term and fair development that is currently at hand in Africa is being put at risk. The frustration that is fuelled among populations that are hungry and feel ignored by their rulers will bring about increasingly strident and potentially violent protest. In the near future, this will change the political climate, not least in urban areas. Utilising the internet and their mobile phones, Africa’s youth and forgotten people will mobilise and act together to remove self-seeking and repressive elites. But the situation is not hopeless, on the contrary. Civil society is growing stronger in many places in Africa. The internet makes it possible for people to access and disseminate information in an unprecedented way. However, I get really disappointed when I hear all the ingenuous talk about the possibilities to invest and make quick profits in the ‘New Africa’. What is in reality new in the ‘New Africa’? Today, a worker in a Chinese-owned factory in Ethiopia earns one-tenth of the wage of an employee in China. Unless African governments and investors act more responsibly and ensure long-term sustainable construction for people and the environment ‒ which is currently not the case ‒ we must all ask ourselves if we should not use the consumer power we all possess to exert pressure. There are no excuses for letting African populations and their environment once again pay for the global demand for its raw materials and cheap consumer goods.”  – Marika Griehsel, journalist, film-maker and lecturer

“Thousands of people are demonstrating on the streets to protest against low salaries, the highcost of living and an insufficient state safety net. A reaction to austerity measures in Greece? Or a follow-up to the Arab Spring? No, these are protests for greater equality in Sub-Saharan Africa, most recently in Burkina Faso. The widening gap between rich and poor is as troubling in Africa as in the rest of the world. In fact, many Africans believe that inequalities are becoming more marked: A tiny minority is getting richer while the lines of poor people grow out the door. The contrast is all the more striking in Africa since the poverty level has been at a consistently high level for decades, despite the continent’s significant average GDP growth. Some take a plane to get treated for hay fever, while others are pushing up daisies because they can’t afford basic malaria treatment.”

– Global Voices: http://globalvoicesonline.org/2014/03/11/reducing-the-gap-between-africas-rich-and-poor/

 

 

It is now evident that the African ‘lion economies’ have hardly even begun the economic and democratic transformation that is absolutely necessary for the future of the continent.

The largest movement ever in Africa of people from rural to urban areas is now taking place. Lagos, Nigeria, and Nairobi, Kenya, are among the world’s fastest growing cities.

The frustration that is fuelled among populations that are hungry and feel ignored by their rulers will bring about increasingly strident and potentially violent protest.

Soon, this will change the political climate, not least in urban areas. Utilising the internet and their phones, Africa’s youth and forgotten people will mobilise to remove self-seeking and repressive elites.

This piece was written in Namibia, where I was leading a tour around one of Africa’s more stable nations. There are several signs confirming the World Bank’s reclassification of Namibia as a middle-income country, which in turn means that many aid donors, including Sweden, have ended their bilateral cooperation.

I see newly constructed, subsidised single-family homes accessible for low-income families. I drive on good roads and meet many tourists, although this is off-season. I hear about a growing mining sector, new discoveries of natural gas and oil deposits. I read about irregularities committed by people in power, in a reasonably free press whose editors are not thrown into jail. There is free primary level schooling and almost free health care.

Most people I talk to are optimistic. A better future for a majority of Namibians is being envisaged. This is in all probability the result of the country having a small population ‒ just above 2 million ‒ and a functioning infrastructure despite its large area.

In Namibia, economic growth can hopefully be matched by implementing policies for long-term, sustainable social and economic development that will benefit more than the élite.

But Namibia is an exception. Because it is now evident that the African ‘lion economies’ have hardly even begun the economic and democratic transformation that is absolutely necessary for the future of the continent.

Some examples: authoritarian regimes, as in Ethiopia and Rwanda, are consolidating their positions. In Zambia, Angola and Mozambique, the press, civil society organisations and the opposition are under threat for demanding that the proceeds from raw material exports and billion dollar multinational corporate investments should benefit everyone.

The International Monetary Fund, IMF, predicts continued high growth rates across Africa with an average of over 6 per cent in 2014. That is of course good news for the continent. Perhaps the best, from a macroeconomic viewpoint, since the 1960s, when many of the former colonies became independent. This growth is mainly driven by the raw material needs of China, India and Brazil.

Meanwhile, the largest movement ever in Africa of people from rural to urban areas is now taking place. Lagos, Nigeria, and Nairobi, Kenya, are among the world’s fastest growing cities. But, in contrast with China, where the migrants from the rural areas get employment in the manufacturing industry, the urban migrants in Africa end up in the growing slums of the big cities.

In a few places, notably in Ethiopia, manufacturing is beginning to take off. But the wages in the Chinese-owned factories are even lower than in China, while the corporations pay minimal taxes to the Ethiopian state.

Short-term greed is, once again, depriving the African populations of the right to share in the continent’s immense riches. No-one can predict the future, but what can be said with certainty is that the possibility of a sustainable long-term and fair development that is currently at hand in Africa is being put at risk.

The frustration that is fuelled among populations that are hungry and feel ignored by their rulers will bring about increasingly strident and potentially violent protest. In the near future, this will change the political climate, not least in urban areas. Utilising the internet and their mobile phones, Africa’s youth and forgotten people will mobilise and act together to remove self-seeking and repressive elites.

But the situation is not hopeless, on the contrary. Civil society is growing stronger in many places in Africa. The internet makes it possible for people to access and disseminate information in an unprecedented way. However, I get really disappointed when I hear all the ingenuous talk about the possibilities to invest and make quick profits in the ‘New Africa’.

What is in reality new in the ‘New Africa’?

Today, a worker in a Chinese-owned factory in Ethiopia earns one-tenth of the wage of an employee in China. Unless African governments and investors act more responsibly and ensure long-term sustainable construction for people and the environment ‒ which is currently not the case ‒ we must all ask ourselves if we should not use the consumer power we all possess to exert pressure.

There are no excuses for letting African populations and their environment once again pay for the global demand for its raw materials and cheap consumer goods.
Some examples: authoritarian regimes, as in Ethiopia and Rwanda, are consolidating their positions. In Zambia, Angola and Mozambique, the press, civil society organisations and the opposition are under threat for demanding that the proceeds from raw material exports and billion dollar multinational corporate investments should benefit everyone.

http://naiforum.org/2014/03/africas-youth-will-protest/

The World Bank paints an optimistic picture of African potential, but warns against persistently high inequalities:

Economic growth in Sub-Saharan Africa (SSA) remains strong with growth forecasted to be 4.9% in 2013. Almost a third of countries in the region are growing at 6% and more, and African countries are now routinely among the fastest-growing countries in the world […] [however the report] notes that poverty and inequality remain “unacceptably high and the pace of reduction unacceptably slow.” Almost one out of every two Africans lives in extreme poverty today.

Revenue inequality in African towns via French documentation - Public domainhttp://globalvoicesonline.org/2014/03/11/reducing-the-gap-between-africas-rich-and-poor/

The Status of Africa’s Economy and Its Underlying Structural Weakness March 10, 2014

Posted by OromianEconomist in Uncategorized.
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East Asian countries grew rapidly by replicating, in a much shorter time frame, what today’s advanced countries did following the Industrial Revolution. They turned their farmers into manufacturing workers, diversified their economies, and exported a range of increasingly sophisticated goods.
Little of this process is taking place in Africa. As researchers at the African Center for Economic Transformation in Accra, Ghana, put it, the continent is “growing rapidly, transforming slowly.”
In principle, the region’s potential for labor-intensive industrialization is great. A Chinese shoe manufacturer, for example, pays its Ethiopian workers one-tenth what it pays its workers back home. It can raise Ethiopian workers’ productivity to half or more of Chinese levels through in-house training. The savings in labor costs more than offset other incremental costs of doing business in an African environment, such as poor infrastructure and bureaucratic red tape.
But the aggregate numbers tell a worrying story. Fewer than 10% of African workers find jobs in manufacturing, and among those only a tiny fraction – as low as one-tenth – are employed in modern, formal firms with adequate technology. Distressingly, there has been very little improvement in this regard, despite high growth rates. In fact, Sub-Saharan Africa is less industrialized today than it was in the 1980’s. Private investment in modern industries, especially non-resource tradables, has not increased, and remains too low to sustain structural transformation. The underlying problem is the weakness of these economies’ structural transformation.
As in all developing countries, farmers in Africa are flocking to the cities. And yet, as a recent study from the Groningen Growth and Development Center shows, rural migrants do not end up in modern manufacturing industries, as they did in East Asia, but in services such as retail trade and distribution. Though such services have higher productivity than much of agriculture, they are not technologically dynamic in Africa and have been falling behind the world frontier.
Consider Rwanda, a much-heralded success story where GDP has increased by a whopping 9.6% per year, on average, since 1995 (with per capita incomes rising at an annual rate of 5.2%). Xinshen Diao of the International Food Policy Research Institute has shown that this growth was led by non-tradable services, in particular construction, transport, and hotels and restaurants. The public sector dominates investment, and the bulk of public investment is financed by foreign grants. Foreign aid has caused the real exchange rate to appreciate, compounding the difficulties faced by manufacturing and other tradables.
None of this is to dismiss Rwanda’s progress in reducing poverty, which reflects reforms in health, education, and the general policy environment. Without question, these improvements have raised the country’s potential income. But improved governance and human capital do not necessarily translate into economic dynamism. What Rwanda and other African countries lack are the modern, tradable industries that can turn the potential into reality by acting as the domestic engine of productivity growth.
The African economic landscape’s dominant feature – an informal sector comprising microenterprises, household production, and unofficial activities – is absorbing the growing urban labor force and acting as a social safety net. But the evidence suggests that it cannot provide the missing productive dynamism. Studies show that very few micro enterprises grow beyond informality, just as the bulk of successful established firms do not start out as small, informal enterprises.
Optimists say that the good news about African structural transformation has not yet shown up in macroeconomic data. They may well be right. But if they are wrong, Africa may confront some serious difficulties in the decades ahead.
Half of Sub-Saharan Africa’s population is under 25 years of age. According to the World Bank, each year an additional five million turn 15, “crossing the threshold from childhood to adulthood.” Given the slow pace of positive structural transformation, the Bank projects that over the next decade only one in four African youth will find regular employment as a salaried worker, and that only a small fraction of those will be in the formal sector of modern enterprises.
Two decades of economic expansion in Sub-Saharan Africa have raised a young population’s expectations of good jobs without greatly expanding the capacity to deliver them. These are the conditions that make social protest and political instability likely. Economic planning based on simple extrapolations of recent growth will exacerbate the discrepancy. Instead, African political leaders may have to manage expectations downward, while working to increase the rate of structural transformation and social inclusion. – Dani Rodrik,  Africa’s Structural Transformation Challenge

Read more at http://www.project-syndicate.org/commentary/dani-rodrik-shows-why-sub-saharan-africa-s-impressive-economic-performance-is-not-sustainable#eEBha6QifdDMgWE5.99

Related Article from the Economist:-

EVERY boom has its boosters and detractors. So it is with sub-Saharan Africa’s economic advance in the past 15 years. GDP across the region has risen by an average 5.1% a year. The IMF forecasts further growth of almost 6% this year and next. Optimists say growth now has an unstoppable momentum. But naysayers point out that a similar spurt in the 1960s and early 1970s gave way to two decades of stagnation. How can Africa make sure it does not repeat that dismal pattern?

A version of this question was posed by Yaw Ansu, chief economist of the Africa Centre for Economic Transformation (ACET), an Accra-based think-tank, as he unveiled a detailed report on Africa’s progress and prospects. The answer from Mr Ansu, who worked for 26 years at the World Bank before joining ACET, is that Africa must focus on “economic transformation” or put more simply “growth built on solid grounds”. His study draws on the experience of eight middle-income countries (six from Asia plus Brazil and Chile) that were as poor 30-40 years ago as Africa is now. The lesson is that GDP growth is not enough. For prosperity to last, economies must also become more diverse, export-oriented and constantly upgrade their technology.

This is a familiar wish-list. But unlike many development blueprints, the ACET report is grounded in economic reality. The road out of poverty, it says, must be linked to Africa’s endowment of abundant cheap labour, land and minerals. For instance the way to ensure that oil, gas and metal deposits are a blessing and not a curse, says ACET, is first to be sure to get the best deal for exploiting minerals and then to use the money well. That means countries should invest in geological surveys so they know as much about their mineral deposits as prospectors do. Cutting a back-room deal for a mining concession is to invite a rip-off. So rights should instead be sold by auction. Countries such as Norway and Chile can be tapped for their know-how in collecting mineral revenue and salting it away.

All too often a natural-resource boom works against lasting development. The mining industry uses lots of machinery and creates relatively few jobs. In good times the foreign earnings from mineral sales push up the value of the local currency making it harder for other kinds of exporters to survive. And mineral-rich countries can become too dependent on a few sources of income which can dry up when world prices suddenly change. A lack of diversity in earnings is a big concern for Africa. The ACET report shows that five exports account for 64% of all exports in Africa compared with an average of 44% in the eight middle-income countries used as a benchmark.

A strong message from the ACET report is that Africa needs more factories if it is to keep up its progress. Manufacturing has greater spillovers for the rest of the economy than mining does and gives variety to export income. While there are gulfs between Africa and richer countries in a wide variety of indicators, the lack of manufacturing muscle is one of the largest. Its share of Africa’s GDP was around 9% in 2010 compared with 24% among the eight middle-income countries.

Africa has lots of surplus labour. What it needs are jobs-intensive industries, such as garment-making and component assembly, to soak it up. The growing middle class in Africa should make this an easy sell to multinational firms. A businesses would be “crazy not to consider building a processing plant in Africa just to supply the local market demand,” says one of the executives surveyed by ACET. Indeed there are recent signs of a manufacturing revival in Africa. But the same executive goes on to say “the challenges are too large for us to be comfortable to invest.”  Business folk surveyed by ACET spoke of unhelpful policies, shortages of skills and the small size of markets as particular barriers.

Among the fixes for these ills suggested by ACET are special economic zones (in which some rules are relaxed); training colleges to cater to specific company’s needs, such as the ones run in Kenya and Nigeria by Samsung, an electronics giant; and more effort to cut tariffs within Africa’s regional trading zones. Indeed there is no shortage of advice for Africa’s would-be lions. The lessons from the success of Asia’s tigers are fairly well understood. The tricky part is to implement them.

http://www.economist.com/blogs/baobab/2014/03/development-africa?fsrc=scn/tw_ec/how_to_make_it_last

Economy: South Africa At Top Of wealth List For Africa, Ethiopia At Very Bottom January 8, 2014

Posted by OromianEconomist in Africa, Aid to Africa, Colonizing Structure, Corruption, Development, Dictatorship, Domestic Workers, Economics, Economics: Development Theory and Policy applications, Knowledge and the Colonizing Structure., Oromummaa, Self determination, The Colonizing Structure & The Development Problems of Oromia, Tyranny, Uncategorized, Warlords.
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Ethiopian is among the poorest  in Africa, while South Africa tops the continent’s list of wealth per capita, a new survey released on Tuesday showed.

South Africa’s wealth per person last year was $11,310, according to research by consultancy New World Wealth, which has offices in the UK and South Africa. South Africa’s wealth per person grew 169% from $4,200 in 2000. Ethiopia’s wealth per capita last year stood at $260.

This was  very far lower than that of Zimbabwe ($570), Tanzania ($450), Mozambique ($430) and Uganda ($360).
Wealth per capita is a measure of the net assets held by individuals including real estate, shares, business interests and intangibles, while excluding primary residences, according to the research released on Tuesday.

Libya ($11,040 wealth per capita), Tunisia ($8,400), Algeria ($6,250), Morocco ($5,780) and Egypt ($4,350) rank high on the list. Namibia, with per capita wealth of $10,500, and Botswana at $6,580 were among the top-ranked countries in Africa last year. This was, however, well below the global average of $27,600 and a fraction of that of the top-ranked countries such as Switzerland and Australia with wealth per capita of more than $250,000. When it comes to fastest-growing countries by economic growth per capita from 2000 to 2012, Angola tops the continental list, followed by Ghana and Zambia.

http://www.bdlive.co.za/economy/2014/01/08/sa-at-top-of-wealth-list-for-africa-zimbabwe-near-bottom

https://oromianeconomist.wordpress.com/2013/10/29/ethiopiathe-precarious-balance-of-economic-productutivity-and-corrupt-governance-ethiopia-amongst-worlds-least-competitive-countries/

http://www.economist.com/blogs/graphicdetail/2014/01/daily-chart-3?fsrc=scn/fb/wl/dc/vi/topgrowers2014

http://issuu.com/world.bank.publications/docs/9780821396162

Copyright © Oromianeconomist 2014 and Oromia Quarterly 1997-2014. All rights reserved. Disclaimer.

WHy The Aid To Africa Has Failed? December 1, 2013

Posted by OromianEconomist in Africa, Aid to Africa, Corruption, Development, Dictatorship, Economics, Economics: Development Theory and Policy applications, Oromia, Oromiyaa, Oromo, Oromo Culture, Oromo Identity, The Colonizing Structure & The Development Problems of Oromia, Uncategorized.
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“Never mind that Africa receives roughly $50 billion in aid annually from foreign governments, and perhaps $13 billion more from private philanthropic institutions, according to Penta’s estimate. Never mind that Angola’s oil revenues are around $72 billion, and Nigeria’s $95 billion; that Africa boasts at least 55 verified and somewhat detached billionaires. I can testify that Africa is much worse off than when I first went there 50 years ago to teach English: poorer, sicker, less educated, and more badly governed. It seems that much of the aid has made things worse.” 

Here is in the following the renowned author  Paul Theroux  discusses why Africa’s aid industry is in a mess. For the details and original source please refer to:

http://online.barrons.com/article/SB50001424053111903747504579185800700741812.html#articleTabs_article%3D1

‘In its naked reality, Africa, the greenest continent, is still the most beautiful, the least developed, the wildest on earth. Vast plains, big animals, hospitable people, who have been enslaved, sidelined, colonized, and converted willy-nilly either to Christianity or Islam. This receptive amphitheater of goodwill and big game, inspires megalomania among its foreign visitors who strut upon it — it has always done so, for those who seek the singularity of a little excitement and glory. I sometimes think that if the poorer counties of America’s Deep South had rhinos and elephants, instead of raccoons and possums, the philanthropists might direct their attentions to those parts, too.A rich white donor in black Africa is a study in high contrast that puts one in mind of the gallery of role models: Tarzan, Mr. Kurtz, King Leopold, Cecil Rhodes, Livingstone, Mrs. Jellyby, Albert Schweitzer, Hemingway, Henderson the Rain King: the overlords, the opportunists, the exploiters, the visionaries, the hunters, the care-givers, the baptizers, the saviors, all of them preaching the gospel of reform and seeking a kingdom of their own, if not an empire.Henry David Thoreau, the 19th-century American author, believed that all such outgoing people had something discreditable in their past that through giving they aimed to expiate. And all are characterized by the rather touching innocence of a billionaire faced with the brutal truth that the relative simplicity of acquiring wealth is nothing compared to the extreme difficulty of giving money away, for the common good.’

‘The real helpers are not the schemers and grandstanders of the eponymous family foundations or charities; they are nameless ill-paid volunteers who spend years in the bush, learning the language and helping in small-scale manageable projects, digging wells, training mid-wives, teaching villagers that unprotected sex spreads HIV; and among these stalwarts are the long-serving teachers who have liberated Africans by simply teaching them English, and are still doing so, even as they make the local governments lazier. The so-called White Fathers (the Society of Missionaries of Africa) I met in Malawi who ran upcountry clinics used to say, “I guess I’ll be buried here.” No one ever says that now, and significantly none of the people I spoke with for this piece ever expressed a wish to spend any serious length of time in Africa. None speaks an African language. To the detriment of their aims, they are on better terms with the African politicians than the common ruck of African people. Years living simply on the ground in Africa convinced me that there was more for me to learn from Africans than to teach. I saw there were many satisfactions in the lives of people who were apparently poor; many deficits in the lives of the very wealthy. I saw that African families were large and complex and interdependent; that old age was revered, that Africa’s link to the distant past — to the dawn of the world — was something marvelous and still intact in many places. Most of all, I was impressed by the self-sufficiency of ordinary people. Without much in the way of outside help, the people in the countries I knew managed to endure, usually through the simplest traditional means, and finally to prevail. Africa has the schools, the money and the resources to fix its own problems; it’s appalling to think of donors telling them otherwise, of the whole continent terminally indebted and living on handouts.’

‘Never mind that Africa receives roughly $50 billion in aid annually from foreign governments, and perhaps $13 billion more from private philanthropic institutions, according to Penta’s estimate. Never mind that Angola’s oil revenues are around $72 billion, and Nigeria’s $95 billion; that Africa boasts at least 55 verified and somewhat detached billionaires. I can testify that Africa is much worse off than when I first went there 50 years ago to teach English: poorer, sicker, less educated, and more badly governed. It seems that much of the aid has made things worse.   I am not alone observing this fact. In his new book, The Great Escape: Health, Wealth, and the Origins of Inequality, economist Angus Deaton questions the usefulness of all aid, and describes how the greater proportion of the world’s poor are found not in Africa but in the booming, yet radically unequal, economies of China and India. Zambian-born economist Dambisa Moyo calls aid a “debilitating drug,” arguing that “real per-capita income [in Africa] today is lower than it was in the 1970s, and more than 50% of the population — over 350 million people — live on less than a dollar a day, a figure that has nearly doubled in two decades.” The Kenyan economist James Shikwati takes this same line on aid, famously telling the German magazine Der Spiegel, “For God’s sake, please stop.” There have, of course, been a few successes. For all his faults, Bill Clinton’s strong-arming of pharmaceutical companies to lower the price of one-a-day AIDS medications, to less than a dollar per pill, has delivered real relief to Africa’s most vulnerable. But we also need to be honest about such grandiose ambitions: Most fail. (For lessons on what to avoid and what to do in order to execute effective philanthropy in Africa, see the box at end of story.) The most recent example of a Westerner running amok in Africa appears to be the celebrity-economist Jeffrey Sachs and his $120 million effort to end extreme poverty there. Nina Munk documents in her book The Idealist (see Penta Sept. 12) how, among other things, Sachs’ Millennium Villages Project poured $2.5 million over three years into a sparsely populated community of nomadic camel herders in Dertu, Kenya, and trumpeted its success. In actual fact, the charity’s paid-for latrines became clogged and overflowing, the dormitories it erected quickly fell into disrepair, and the livestock market it built ignored local nomadic customs and was closed within a few months. An incensed Dertu citizen filed a 15-point written complaint against Sachs’s operation, claiming it “created dependence” and that “the project is supposed to be bottom top approached but it is visa [sic] versa.” ‘

African Philanthropy Done Right

Foundation Source is the philanthropic advisor and partner to over 1,100 family foundations. Penta asked the organization’s chief philanthropic officer, Page Snow, to provide some basic guidelines on how to successfully execute philanthropic projects in Africa. Her advice:

“Beware the panacea. Millions of dollars are wasted on overly ambitious projects claiming to be a ‘killer app.” Projects that employ tried-and-true interventions, narrower in scope, usually have far greater impact. Demand responsible management. Ask tough questions if money is flowing into a charity, but isn’t flowing out to charitable causes. Avoid duplication. Be aware of other efforts already on the ground and make sure that your program isn’t a wasteful repeat but, preferably, leverages off what’s there. Support local, sustainable solutions. Avoid short term fixes by always seeking input from locals; plan for them to run the project on their own in the long-run. Beware of poor infrastructure projects. Make sure wells are dug where they’re actually needed, that the bridges and roads are integrated into existing plans by government or other NGOs.Use technology intelligently. Over 90% of households across sub-Saharan Africa don’t have access to electricity for their everyday needs, let alone power for laptops. Make sure locals have the skills, resources, and necessary tools to keep tech-dependent elements of your philanthropic project running. Be prepared to face corruption. Even when a project has been granted governmental approvals, there’s no guarantee of official cooperation; corruption and regional conflicts pose considerable challenges. Be culturally appropriate. Put on your anthropologist’s hat. Africans have their own process for dealing with grief and loss; Western-style grief counselors following a natural disaster or war aren’t appropriate.”

http://online.barrons.com/article/SB50001424053111903747504579185800700741812.html#articleTabs_article%3D5

Copyright © Oromianeconomist 2013 and Oromia Quarterly 1997-2013. All rights reserved. Disclaimer.

Research Validates The Popular Skeptcism About The Africa ‘Rising’ Narrative November 3, 2013

Posted by OromianEconomist in Africa, Corruption, Development, Dictatorship, Economics: Development Theory and Policy applications, Oromia, Oromiyaa, Oromo the Largest Nation of Africa. Human Rights violations and Genocide against the Oromo people in Ethiopia, Self determination, The Colonizing Structure & The Development Problems of Oromia, Theory of Development, Uncategorized.
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Opoor infrustructureEthiopia Least competetive GCI 001

Afrobarometer  which is  a research project that has been coordinated by institutions in African countries and with partners in thirty-one countries. In its  recent  survey of public opinion across thirty-four African countries in the continent it validated the popular skepticism about the “Africa Rising” narrative.

In its  1st October 2013 research out come  report, Afrobarometer’s data show that 20 percent of Africa’s population often goes without food, clean water, or medical care. More than 50 % of those surveyed think that economic conditions in their country are bad or “very bad.” Some 75% thought their government was doing a bad job in closing the gap between rich and poor. ‘John Allen, writing on AllAfrica.com, suggests that the results indicate that higher benefits of growth are going to a wealthy elite or that official statistics are overstating growth, or possibly both. Morten  Jerven, in his recently book Poor Number, has shown the shortcomings of African statistics. In its report on the Nigerian economy, the World Bank observed that Nigeria’s high growth statistics could not be squared by increasing rates of poverty. These, and other inconsistencies, make Allen’s hypothesis on where the majority of Africa’s wealth is directed, look credible.’ For further readings refer to the following  original sources:

http://blogs.cfr.org/campbell/2013/10/31/afrobarometer-poll-questions-the-africa-rising-narrative/

http://www.csmonitor.com/World/Africa/Africa-Monitor/2013/1101/Everyone-says-Africa-is-rising.-An-Afrobarometer-poll-questions-that

Prosperity Index 2013
Ethiopian: 126/142.
75.6% say gov’t is corrupt.
Satisfaction with gov’t efforts to address poverty: 21.2%.
The Governance sub-index dropped two places, to 118th, because of decreases in political rights, political constraints, the rule of law, and regulatory quality.
http://www.prosperity.com/#!/country/ETH

http://nai.diva-portal.org/smash/get/diva2:589071/FULLTEXT03.pdf

 It Is Not Only Ethiopia Madagascar crisis Also forces girls into sex work

Economic hardships prompt girls to take desperate measures with some deciding to sell their bodies.

http://www.aljazeera.com/video/africa/2013/11/madagascar-crisis-forces-girls-into-sex-work-20131138172064408.html

The recent and frequent reports on outstanding economic growth in Africa have quickly turned this into mainstream ‘knowledge’, but African economic statistics are very weak. Growing inequality is a key issue that needs to be in focus if all of Africa is to enjoy ‘growth’. Links between social, environmental and economic development are being downplayed. A key issue in today’s discussion on land is that governments consider unfarmed lands to be ‘unowned, vacant, idle and available’, which is completely misleading. Small scale farming in African countries has been persistent, despite efforts to replace it with ‘more efficient’, large scale agriculture.

http://naiforum.org/2013/11/beyond-african-growth/

Another example of the tplf-EFFORT over reach

The Endowment Fund for the Rehabilitation of Tigray (EEFORT) is known for its over reach way beyond its regional government borders and micro managing and being the exclusive beneficiary of the major resources of the empire.

http://wordpress.com/tag/oromia/

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Enemies of Human Development: Structural Injustices, the Lack of Social Competence and Human Insecurity March 15, 2013

Posted by OromianEconomist in Uncategorized.
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http://en.wikipedia.org/wiki/List_of_countries_by_Human_Development_Index#Africa

‘The political problem of mankind is to combine three things: Economic Efficiency, Social Justice and Individual Liberty.’ John Maynard Keynes

‘The traditional agendas for reducing poverty recognize but inadequately address its structural sources. Contemporary interventions to promote inclusive growth have tended to focus on the outcomes of development through expanding and strengthening social safety nets. While such public initiatives are to be encouraged, they address the symptoms of poverty, not its sources. The results of such restrictive interventions are reduction of income poverty to varying degrees and some improvement in human development. But across much of the South, income inequalities have increased, social disparities have widened and injustice remains pervasive, while the structural sources of poverty remain intact. Any credible agenda to end poverty must correct the structural injustices that perpetuate it. Inequitable access to wealth and knowledge disempowers the excluded from competing in the marketplace. Rural poverty, for example, originates in insufficient access to land and water for less privileged segments of rural society. Land ownership has been not only a source of economic privilege, but also a source of social and political authority. The prevailing structures of land ownership remain inimical to a functioning democratic order. Similarly, lack of access to capital and property perpetuates urban poverty. Unequal participation in the market With the prevailing property structures of society, the resource-poor remain excluded from more-dynamic market sectors. The main agents of production tend to be the urban elite, who own the corporate assets that power faster growing economic sectors. By contrast, the excluded partake only as primary producers and wage earners, at the lowest end of the production and marketing chains, leaving them with little  opportunity to share in market economy opportunities for adding value to their labour. Capital markets have failed to provide sufficient credit to the excluded, even though they have demonstrated their creditworthiness through low default rates in the micro credit market. And formal capital markets have not provided financial instruments to attract the savings of the excluded and transform them into investment assets in the faster growing corporate sector.

Unjust governance:This inequitable and unjust social and economic universe can be compounded by unjust governance. Often the excluded remain voiceless in the institutions of governance and thus underserved by public institutions. The institutions of democracy remain unresponsive to the needs of the excluded, both in the design of policy agendas and in the selection of electoral candidates. Representative institutions thus tend to be monopolized by the affluent and socially powerful, who then use office to enhance their wealth and perpetuate their hold over power. Promoting structural change to correct these structural injustices, policy agendas need to be made more inclusive by strengthening the capacity of the excluded to participate on more equitable terms in the market economy and the democratic polity. Such agendas should reposition the excluded within the processes of production, distribution and governance. The production process needs to graduate the excluded from living out their lives exclusively as wage earners and tenant farmers by investing them with the capacity to become owners of productive assets. The distribution process must elevate the excluded beyond their inherited role as primary producers by enabling them to move upmarket through greater opportunities to share in adding value through collective action. Access to assets and markets must be backed by equitable access to quality health care and education, integral to empowering the excluded. The governance process must increase the active participation of the excluded in representative institutions, which is crucial to enhancing their voice in decision making and providing access to the institutions of governance.

Social competencies, human development beyond the individual: Individuals cannot flourish alone; indeed, they cannot function alone. The human development approach, however, has been essentially individualistic, assuming that development is the expansion of individuals’ capabilities or freedoms. Yet there are aspects of societies that affect individuals but cannot be assessed at the individual level because they are based on relationships, such as how well families or communities function, summarized for society as a whole in the ideas of social cohesion and social inclusion. Individuals are bound up with others. Social institutions affect individuals’ identities and choices. Being a member of a healthy society is an essential part of a thriving existence. So one task of the human development approach is to explore the nature of social institutions that are favourable for human flourishing. Development then has to be assessed not only for the short-run impact on individual capabilities, but also for whether society evolves in a way that supports human flourishing. Social conditions affect not only the outcomes of individuals in a particular society today, but also those of future generations. Social institutions are all institutions in which people act collectively (that is, they involve more than one person), other than profit-making market institutions and the state. They include formal non-governmental organizations, informal associations, cooperatives, producer associations, neighbourhood associations, sports clubs, savings associations and many more. They also consist of norms and rules of behaviour affecting human development outcomes. For example, attitudes towards employment affect material well-being, and norms of hierarchy and discrimination affect inequality, discrimination, empowerment, political freedom and so on. To describe what those institutions can be and do, and to understand how they affect individuals, we can use the term social  competencies.Central to the human development perspective is that societal norms affect people’s choices and behaviours towards others, thus influencing outcomes in the whole community. Community norms and behaviours can constrain choice in deleterious ways from a human development perspective—for example, ostracizing, or in extreme cases killing, those who make choices that contravene social rules. Families trapped in poverty by informal norms that support early marriage and dowry requirements might reject changes to such entrenched social norms. Social institutions change over time, and those changes may be accompanied by social tension if they hamper the interests of some groups while favouring others. Policy change is the outcome of a political struggle in which different groups (and individuals) support or oppose particular changes. In this struggle, unorganized individuals are generally powerless, but by joining together they can acquire power collectively. Social action favouring human development (such as policies to extend education, progressive taxation and minimum wages) happens not spontaneously, but because of groups that are effective in supporting change, such as producer groups, worker associations, social movements and political parties. These organizations are especially crucial for poorer people, as demonstrated by a group of sex workers in Kolkata, India, and women in a squatter community in Cape Town, South Africa, who improved their conditions and self-respect by joining together and exerting collective pressure. Societies vary widely in the number, functions, effectiveness and consequences of their social competencies. Institutions and norms can be classified as human development–promoting, human development–neutral and human development–undermining. It is fundamental to identify and encourage those that promote valuable capabilities and relationships among and between individuals and institutions. Some social institutions (including norms) can support human development in some respects but not in others: for example, strong family bonds can provide individuals with support during upheavals, but may constrain individual choices and opportunities. Broadly speaking, institutions that promote social cohesion and human development show low levels of disparity across groups (for example, ethnic, religious or gender groups) and high levels of interaction and trust among people and across groups, which results in solidarity and the absence of violent conflict. It is not a coincidence that 5 of the 10 most peaceful countries in the world in 2012, according to the Global Peace Index, are also among the most equal societies as measured by loss in Human Development Index value due to inequality. They are also characterized by the absence of discrimination and low levels of marginalization. In some instances antidiscriminatory measures can ease the burden of marginalization and partially mitigate the worst effects of exclusion. For instance, US law mandating that hospital emergency rooms offer treatment to all patients regardless of their ability to pay partly mitigates the impact of an expensive health care system with limited coverage, while affirmative action in a range of countries (including Brazil, Malaysia, South Africa and the United States) has improved the situation of deprived groups and contributed to social stability. The study of social institutions and social competencies must form an essential part of the human development approach—including the formation of groups; interactions between groups and individuals; incentives and constraints to collective action; the relationship among groups, politics and policy outcomes; the role of norms in influencing behaviours; and how norms are formed and changed.

The 1994 Human Development Report argued that the concept of security must shift from the idea of a militaristic safeguarding of state borders to the reduction of insecurity in people’s daily lives (or human insecurity). In every society, human security is undermined by a variety of threats, including hunger, disease, crime, unemployment, human rights violations and environmental challenges. The intensity of these threats differs across the world, but human security remains a universal quest for freedom from want and fear.Consider economic insecurity. In the countries of the North, millions of young people are now unable to find work. And in the South, millions of farmers have been unable to earn a decent livelihood and forced to migrate, with many adverse effects, particularly for women. Closely related to insecurity in livelihoods is insecurity in food and nutrition. Many developing country households faced with high food prices cannot afford two square meals a day, undermining progress in child nutrition. Another major cause of impoverishment in many countries, rich and poor, is unequal access to affordable health care. Ill health in the household (especially of the head of the household) is one of the most common sources of impoverishment, as earnings are lost and medical expenses are incurred. Perspectives on security need to shift from a misplaced emphasis on military strength to a well rounded, people-centred view. Progress in this shift can be gleaned in part from statistics on crime, particularly homicides, and military spending.’

According to  the United Nations Development, despite the much exaggerated  recent economic growth data, Ethiopia is still near the bottom of  in its Human Development  Index 2013.Ethiopia ranks 173 out of 187 countries in the Human Development Index 2013 compiled by UNDP. The Index is part of the Human Development Report that is presented annually and measures life expectancy, income and education in countries around the world. Since 2000, Ethiopia has registered greater gains than all but two other countries in the world – Afghanistan and Sierra Leone. But it still ranks close to the bottom of the Index. Ethiopia is one of the countries that are  known in human rights violations, government waging war against its people, marginalizing communities, political and social discrimination and where the system of structural injustices are the norms than exceptions.

http://hdr.undp.org/en/media/HDR_2013_EN_complete.pdf

http://maddawalaabuupress.blogspot.co.uk/2013/03/ethiopia-ranks-173-out-of-187-countries.html?spref=fb

http://hdr.undp.org/en/media/HDR_2013_EN_complete.pdf
hdr.undp.org

http://hdr.undp.org/en/media/HDR_2013_EN_complete.pdf

http://www.thisisafrica.me/opinion/detail/19841/the-oromo-and-the-ethiopian-

http://thinkafricapress.com/ethiopia/business-usual-after-meles-human-rights-gambella-world-bank

Copyright © Oromianeconomist 2013 and Oromia Quarterly 1997-2013. All rights reserved. Disclaimer.

Ethiopia: The Last Two Frontiers May 3, 2012

Posted by OromianEconomist in Uncategorized.
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Front Cover

ISBN-10: 1847010334 | ISBN-13: 978-1847010339

‘Provides the gist of one scholar’s knowledge of this country acquired over several decades. The author of numerous works on Ethiopia, Markakis presents here an overarching, concise historical profile of a momentous effort to integrate a multicultural empire into a modern nation state. The concept of nation state formation provides the analytical framework within which this process unfolds and the changes of direction it takes under different regimes, as well as a standard for assessing its progress and shortcomings at each stage. Over a century old, the process is still far from completion and its ultimate success is far from certain. In the author’s view, there are two major obstacles that need to be overcome, two frontiers that need to be crossed to reach the desired goal. The first is the monopoly of power inherited from the empire builders and zealously guarded ever since by a ruling class of Abyssinian origin. The descendants of the people subjugated by the empire builders remain excluded from power, a handicap that breeds political instability and violent conflict. The second frontier is the arid lowlands on the margins of the state, where the process of integration has not yet reached, and where resistance to it is greatest. Until this frontier is crossed, the Ethiopian state will not have the secure borders that a mature nation state requires.’ Amazon Books &
 — At Finfinnee, Oromian Young Generations Literally Collections.
http://ayyaantuu.com/horn-of-africa-news/oromia/prof-john-markakis-challenges-ethiopian-ruling-elites/
http://books.google.co.uk/books?id=yckMyLVh3oYC&pg=PA1&source=gbs_toc_r&cad=3#v=onepage&q&f=false
Copyright © Oromianeconomist 2011 and Oromia Quarterly 1997-2012. All rights reserved. Disclaimer.

Methodological Individualism as a development Model and its Critics June 27, 2011

Posted by OromianEconomist in Economics: Development Theory and Policy applications, Temesgen M. Erena.
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2 comments

JEL: A11, A23, B13

Methodological Individualism as  a development Model and its Critics

Temesgen M. Erena (DPhil), Economist

The orthodox (neoclassical) world view comprises research programmes that are basically concerned with applying the tenets of neoclassical economics to the study of developing economies. From such a perspective, the principles underlying the economics of developing economies are the same as, or can be considered extension of those governing the economics of developed nations. This implies that meaningful epistemological activities within the development economics cannot be conducted without first determining its inextricable intellectual and analytical ties to mainstream economics.

According to Rostow (1960), the critical intention of development  has been seen as the achievement of ‘high mass consumption society’ that can be measured by the level of per capita income.  In this context, the inherent aim of development seems to materialise a society that reproduce  the political economic system of the western Europe  and North America, i.e., a competitive private enterprise  based on the foundations of   free market economy and a representative and democratic political system. Rostow (1960) has detailed this historical process of development in his schema of   stages-of- growth model. Charles K. Wilber (1988)  argues that  the application of this model as centre of assay  of the course  of development  supposes that  present day developing countries  reckon  to the ‘traditional society’  stage  or at the ‘preconditions’ stage in relative to the present stages of western developed countries. Like so, the contemporary developed countries were formerly underdeveloped,  hence, all countries  progress in the course of  these stages.

In the extreme, the Orthodox (Neoclassical) strand theorises that since principles of economics are universal, there is but one economics, whose basic tenets are equally valid for both developing and developed economies, David (1986). In other words, it is considered inappropriate to speak about two distinct economics- one for developed countries and the other for developing countries. In this case, the, the dominant interpretive model of thought is based on a ‘universalist’ epistemology or ‘one world’ ideology and ‘aesthetic’, which assumes the existence of a continuous and homogenous world, David (1986). Contextually, knowledge and society are viewed in terms of discrete individual elements that become the continuous and homogenous phenomena of economic and social life through a process of aggregation.

The neoclassical paradigm stands on universalist, rationalist and positivist methodological pillars. In addition to the influence  of positivism and other rationalist  patterns of reasoning, neoclassical economic thinking  also makes heavy use of the concept ‘mechanical equilibrium’, which is explained by the self-regulating operation of equilibrating forces. Such forces, it is argued, not only tend to maintain equilibrium of the economic system but also to restore this equilibrium once it has been disturbed by external forces.

In its evolution, the concept of equilibrium has had to be based on some conception of the economic system. Accordingly, it was thought that the evolution of any logically consistent economic order required some institution of private property as well as a sharp conceptual distinction between the economic system and other aspects of social reality, David (1986). This led to an emphasis on capitalistic, free enterprises ethic based on the principle of individualism. In the conception, individuals are considered to be at liberty to organise their social relationships in accordance their own interests, cole, etal (1991). Society hence, becomes no more a collection of individuals, and an individual behaviour, the goal and standards of moral behaviour.

The neoclassical paradigm is based on individualistic and libertarian philosophy. The philosophy postulates that the ultimate constituents of society are individual people who act appropriately in accordance with their own dispositions. In other words, the argument is that no social tendency exists that theorising about classes and other activities can only be represented by mental constructs, which are abstract models for interpreting certain relations among individuals. One implication is that it is impossible to have laws about society. Another is that the good of individuals is primarily objective of society as opposed to the neo-Marxist which emphasis that of the society as whole, Cole etal (1991).

Economic models, theories, and conceptual systems should be considered as device that merely helps the analysts to remember certain predictive regularities in observed phenomena, David (1986).

A related implication follows from the widespread acceptance of the “science as science” methodology. These are based on the claim that search for knowledge should be governed by scientific objectivity and the commitment to universal values that cut across national frontiers. Adherence to universal epistemological principles implies that there are common standards of scholarship and, as others argued there cannot be Chinese, Nigerian or Egyptian criteria for truth and validity. Commercial farms can be nationalised, criteria for truth cannot.

The universality epistemology finds a foremost representation in the study of resource allocation. The underlying principle that all societies must make decisions about the degree of sacrifice that must be made if resources must be allocated efficiently. This is based on the assumption of the universal scarcity of resources relative to human needs.  Given scarce resources, it is impossible to satisfy all of the society’s goals simultaneously. Therefore, if scarce resources are to be efficiently utilised, they must be properly allocated.  The possibility of deriving meaningful benefits from the use of these resources is therefore forecasted upon the nature of sacrifice. The problem of economic decision making in conventional economics is therefore coined in terms of a “cost-benefit” calculus. The neo-classical approach to this problem emphasise the need for rational choice in the use of scarce resources. The basis of this approach is that if the alternatives presented to us are not rationally chosen, resource scarcity is likely to increase within the passage of time, hence, impairing current standards of living and decreasing the possibility for future economic growth, David (1986). In this regard, the neo-classical, explanation of economic behaviour tends to rely heavily on competitive equilibrium, which assumes  that the behaviour of free markets and prices provides the necessary conditions for individual economic agents to achieve maximum economic welfare and personal liberty, Todaro (1991)|.It is based on the methodological individualism mentioned previously, the implication being that individual economic decision-making units (household), firms, national governments, and so on)| are free and rational actors whose behaviour is guided by harmonious equilibrating force, David (1986)|.

The whole economy is assumed to consist of a large number of interacting markets that have a tendency to clear, that is, reach equilibrium, with the latter defined in terms of equality between demand and supply, and price. (These conditions are assumed to take place for individual markets, that is, partial equilibrium, or in other aspects where there is a set of relative prices for all goods and services, resulting in a simultaneous clearing of all markets that is general equilibrium. Given the quantities of resources of all kinds available to economic agents, consumer tastes and preferences, and production technology, the problem of general equilibrium revolves around the determination of the relative quantities of goods of all kind that will be produced and consumed, the prices at which they will be exchanged and how the earnings derived from resource utilisation will be distributed, Cole et al (1991)|.

Income distribution is thus treated as a special case of the general theory of price relations. The over all argument is that it is possible for self-interested individuals in a market-oriented economy to strive for and receive, their fair share of income and wealth created by the competitive process. In this context, the neo-classical model indicates that the marginal productivity forms the basis for payments to all factors of production. The assumption is that individuals have at their disposal a set of factors endowments and that income merely represents the sum of the product of these factors and their marginal products. The evolution of factor shares and incomes over times thus depends on factor prices and quantities, the elasticity of substitution among factors, changes in demand patterns, and the capital or labour savings bias of technological change.

It is therefore assumed that, given completive conditions and perfect information, resources will be efficiently allocated. Adjustment in factors prices are expected to bring equality in factor shares, with each factor receiving its ‘just’ or equitable reward. Under the circumstances, any attempt to enforce equality in the prevailing pattern of income distribution is considered inimical to economic growth and efficiency. To the extent that inequalities exist, they should be considered necessary for guarantying productivity levels, David (1986)|.

The implications of the marginal productivity theory of income distribution can be further explained by considering the distribution of labour and capital incomes. In the case of returns to the human factor (wage and salaries), the theory suggests that differences in marginal productivities can be explained by differences in both innate and acquired abilities. These differences tend to be particularly acute in those societies, for example, developing economies where highly skilled labour is in short supply relative to the large supply of unskilled labour. The argument, as is that individuals with relatively scarce skills would receive quasi-rents. These rents and other payment differences would disappear as more people acquired skill through education and training, David (1986). Hence, they argue that any attempt to equalise wages and salaries would prove to be inefficient. The implicit assumption is that pay differentials  not only reward those with superior natural abilities  but also serve as an incentive to those not so blessed to acquire skills to increase their productivity  and efficiency, Hunt (1989). Given a set of competitive prices, the actions and reactions  of individual economic agents will determine the quantities of goods and services demanded, and these will be matched with the quantities supplied in the various markets of the economy, David (1986). The achievement of such an over all equilibrium requires two sets of conditions.  First, these is a subjective one in which the individual pursues the goal of maximum income satisfaction. The second is an objective one in which the market provides for these incomes and wants based on the maximum profit goals of business people. Thus, through the equilibrium between demand and supply, with all markets cleared, the optimum economic position reached by each individual economic agent becomes compatible with that attained by others.

The general equilibrium analysis (Varian, 1990)  postulates that, in principle, the set of equilibrium prices tend to provide all the information that each individual economic agent needs to have in order to be able to co-ordinate its activities with those of all other economic agents in the economic system, Cole et al (1991). It is therefore, based on the assumptions of perfect competition and knowledge and foresight, and the absence of uncertainty. This ensures that the essential adjustments would take place of a disequilibrium situation were to arise.  Where prices diverge from their equilibrium values, inconsistencies will arise in the plans economic agents, and they will be forced to adjust to an equilibrium situation. The underlying  assumption is that the operation of the market is based on  a negative feedback mechanism that reduces differences to zero through iterative price adjustment processes are also assumed to be stable.  This means that once the system diverges from its equilibrium with a process of automatic readjustment would take place. Full employment is also implicitly assumed.  With demand for goods and services equal to their supply, labour market will also clear. Neoclassicals consider this equilibrium to be the most efficient one, and thus the standard against which particular sectors of the economy as a whole should be appraised. The reasoning is that when over all economic agent will have reached an ‘optimal position’, that is, one that it cannot possibly improve by altering its behaviour. This is the ideal state described by Pareto and also known as a Pareto efficient allocation. It is considered to be the most efficient state and implies that any attempt made to improve a given economic agent’s position would have to be at someone else’s expense (David, 1986, Varian, 1990).

The general framework outlined above is also replicated in analysis of international economic relationships. In this case, trade and exchange are considered to be two of the most effective weapons for promoting resources allocation, distribution, and growth. This follows from assumptions of harmony of interests among nation states, patterns of trade based on comparative advantage, an equitable distribution of the gains from trade, and the free international flow of resources. The same normative forces are assumed to operate both nationally and internationally, with the private market considered to be the most effective mechanism for allocating distributing resources in all spheres, Hunt (1989|).

Consequently, the  neoclassical (orthodox) school of thought attribute  problems of developing economies essentially to the ‘dirigiste dogma’ and the ‘denial of economic principle’  (Lal, 1988); to over extension of the public sector; to economic controls which distorts the market and have unexpected and undesirable side effects; and to an over emphasis on investment in physical capital (spending on lavish prestige projects such as sport facilities, conference centres, brand new capital city, roads leads to nowhere, irrigation schemes that damage soil) compared to human capital. And they have proposed these setbacks to be neutralised to overcome inadequate development, Toye (1987). They took the form of supply side macro-economics and the privatisation of public corporations and call for the dismantling of public ownership, planning, and regulation of economic activities. By permitting free markets to flourish, privatising state owned enterprises, promoting free trade and export expansion, welcoming  foreign investors, and eliminating the plethora of government regulations and price distortions in factor, product and financial markets, the neoclassical argue that economic efficiency and economic growth will be stimulated, Wilber (1988). Contrary to the claims of the political economy strands (neo- Marxist world views) which are subjects of subsequent discussions, the neoclassicals (Orthodox) argue that the third world are underdeveloped not because  of the predatory activities of first world and the international agencies that it controls, but rather because of the heavy hand of the state and corruption, inefficiency, and lack of economic incentives, Todaro (1991).

It is assumed that development  experience of western industrial countries is a model for the developing economies of today and therefore, neoclassical economics is universally applicable. It is held that the international capitalist economy does not discriminate against developing economies, but when conformed to it acts as an engine or motor of growth. What is needed, therefore, is not a reform of the international economic system or restructuring of dualistic developing economies or an increase in foreign aid or attempts to control population growth or amore effective central planning system. Rather, it is simply a matter of promoting free markets and laissez faire economics within the context of permissive government that allow the magic of market forces.  And the “invisible hand” of market prices to guide resource allocation and stimulate economic development, Todaro (1991). They are quoting to us the failures of the public interventionist economies of African countries, Toye (1987).

Neoclassical policy is based on  faith in  the price mechanism to bring about an equilibrium in the economy which maximises welfare and growth, (i.e. development by their terms), “Efficient growth… raises the demand for unskilled workers by getting the prices right… is probably the single most important means of alleviating poverty,” Lal (1983). This process of development raises the standard of living of the poor via the ‘trickle down’ effect. Intervention by the government is unnecessary as a measure to alleviate poverty and would retard growth by distorting the market mechanism, holding up sustainable development. According to Lal, government policies dealing with  basic needs, surplus labour, decreasing terms of trade, etc., are misleading and incorrect.  He argues that developing countries are following the same economic patterns of development as developed countries.  Therefore, the same economic rules and considerations apply. Both he and Bauer criticise ‘dirigistes’ for implying, by their policies, that people of developing countries are not rational that the ‘market decisions’ have to be made for them. That would suggest Toye’s argument- governments fulfilling the desires of frustrating individuals has some validity. Being rational does not necessarily make people able.  It is within this context that the planning, growth with equity approach and a social market economy operation have come into considerations. However, such interventionist approach have been criticised by laissez faire economists as a reaction to far a recipe to failure. Lal (1988) points out that inefficient and incompetent bureaucracy as a cause of government failure. Attempts to intervene in imperfect markets serves to make things even further from the equilibrium of maximum efficiency and welfare. This is an over-sight, a generalisation which dismisses all past, present and future government intervention to make influence on disparities in income and accelerate development, as ineffective. This is clearly not the case.

The rapid development of South Korea and Taiwan in both intervening for growth and equity demonstrate this. Government policies concentrated on rural development, export oriented industrialisation were directly and indirectly dealing with inequality and poverty whilst promoting growth. It would be argued that all government intervention is not good. As is clear, some government intervention is and has bee ill advised- for example ‘the white elephants.’

But what is also becoming increasingly apparent is that the neo-liberal (Washington consensus) policies of liberalisation which the IMF and World Bank have made conditions for accepting loans have also created many problems. Not only have they quite often caused increasing inequalities in income distribution, but they have also failed to encourage growth in these countries. In many countries they have led to near chaos and crisis, in the economy as in many African countries, Lawrence (1986).  External influences, such as increasing oil prices, MNC transfer pricing, increase in debt burdens, increased protectionism  by developed economies, etc, mean that following free market principles lead to decreasing  terms of trade and created economic problems within the countries. D. Lal (1983) would say that this is acceptable because it is a step in the right direction towards free market economies. Toye (1987)  believes the neoclassical  approach neglects the issues and treats  and treats  the solutions, In a reductionist manner, over looking  the complexity of the issues and gives an over simplified solution.” Lack of past successes cannot simply be blamed on government interference with the price mechanism to account for the relatively poor performance of these economies would require a very detailed historical analysis of class forces and class struggle within these countries, of the effects of international strategic and geo-political factors as well as the effects of drought other climatic/ecological disasters, Sender et al (1986).

Neoclassical according to Sender and Smith, have paid too much attention to anti-interventionism- when it would be more beneficial to concentrate on improving what intervention is necessary. It is harmful for economists to adhere to policies which can only be relevant in a hypothetical ‘perfect market’ economy. The post- colonial period has been characterised by an astonishing absence of any coherent, analytical/ideological framework within which to formulate state intervention of an effective and suitable kind,” Sender et al (1986). Neo-classicalists need to address the conclusive historical evidence concerning the role of the state in all late industrialising countries in considering policy formulation.

The laissez faire economists edge on economic growth through the operation of the market mechanism (Adam Smith’s the famous invisible hand) as the key to development. There are also economists  who emphasised planning (government intervention) to supplement or supplant the market. As in the former, the latter  and economic growth has been taken as the essential of development. Meanwhile, the growth with equity economists contemplate on the distribution of the remunerations  of growth to the deprived.

Neo-Marxist  and dependency theorist, two main school of thoughts in the  Political economy paradigm,  are broadly apprehensive of the nature of the progression by which development is attained, Wilber (1988).

Classical Marxism was always, of course, a theory of development, i.e., of capitalism and its development, and transition to socialism. The theory was never adequate, however, in dealing with development problems of third world especially underdevelopment issues. Classical Marxists, after all, consider capitalism as historically progress, in every way an advanced over previous production systems, even if it is to be replaced by socialism one day. “ Imperialism was the means  by which techniques, culture, and institutions that had evolved in western Europe over several centuries… sowed their revolutionary seeds in the rest of the world,” Warren (1980).

Seers (1987) argued that Marxism thus arrived at conclusions similar to those of many neoclassical economists, since both derived from Smith and Ricardo and the economics of the 19th century. He further pointed out that both doctrines assume competitive markets and the overriding importance material incentives. They are both basically internationalist and also optimistic, technocratic and economist. In particular, both treat economic growth as development and due primarily to capital accumulation.

According to Hunt (1989), the neo-Marxist paradigm derives from an attempt to develop and adapt classical Marxist theory to the analysis of underdeveloped economies. The paradigm gained widespread influence in the late 1960’s, providing an ideological and analytical framework for radical critiques of contemporary theories. Drawing their inspiration from the ideas of Marx and Lenin, and influenced also by other early Marxists, particularly Rosa Luxemburg, the neo-Marxists set out to investigate a problem that Marx himself had touched on only briefly- the process of economic change in the economies of Asia, Africa and Latin America.

With respect to the third world, the primary concern of the neo-Marxists is with what is happening to national output and to its distribution, and why. Particularly in the 1950s and 1960s there was little concern on the part of leading neo-Marxists to explore the essential  nature of the models of production  that prevail within the periphery. Instead the emphasis was on the economic and political relations between the ‘centre’ and the ‘periphery.’ In the analysing these issues the neo-Marxists use a terminology for the key concepts in their analytical framework that appears to drive from Marxism with different interpretation to certain concepts.

The neo-Marxist school which is tracing back to the  work  of Paul Baran, differs from Marx in arguing  that capitalism will not be spread  from the ‘centre’ to the ‘periphery’  but rather that existing underdevelopment  is an active process linked to  the development of the centre by the transfer of the surplus, Baran (1957, 1988). As economic surplus was extracted, capital accumulation stopped, and budding industries were killed off by ‘centre’ competition. Development in colonies was forced off its natural course and completely dominated by imperial interests. The colonies stagnated between feudalism and capitalism  or the mix of both systems.

For Baran (1957) the real problem  in developing economies is not the presence of  the vicious circle- a phenomenon  whose existence  is acknowledged – but the lack of  a significant stimulus to development aggravated by the surplus drain.  Here again  we have  a polar view she said, something like a zero-sum game, in which the continuing primitive accumulation by the ‘centre’ implies a simultaneous negative accumulation for the periphery.  Surplus then, generate and maintain underdevelopment in the developing economies, a phenomenon whose existence is acknowledged – but the lack of a significant stimulus to development aggravated by the surplus drain. As Frank (1988) (dependency scholar) has called this leads to “the development of underdevelopment.”

Amin, too, adopts Frank’s Motto, but with an altered meaning; for Amin, it means a “dependent development,” that, is, an inappropriate pattern of growth imposed upon the country through its ties with the centre-  literally, through its being included in the world capitalist system. This view in turn allows for the possibility of growth aggregate income, an observed fact in many developing economies, Hunt (1989).

The crucial problem of how the available surplus is utilised in developing economies leads the political economy worldview to the examination of local elites. Writers like Baran and Sweezy argue that no local development is to be expected from such elites. On the contrary, the elites are by their very nature a factor contributing to underdevelopment.  The analysis is based on the “objective function” in which these elites find themselves. Their economic behaviour- conspicuous consumption, investments in real estate and extreme risk aversion, the export of their savings to be deposited with foreign banks for security, their avoidance of investments in industry- is, from the sand point of private advantage, essentially a rational response to the circumstances in which they find themselves. Their fear of foreign competition where they to invest in more productive activities is seen as fully justified. They argued that most elite members lack the capital retained for the establishment of enterprises able to compete with foreign oligopolies. Also lacking are entrepreneurial skills and attitudes to work and innovation conducive to growth, see Wilber (1988).

Amin offers the view that many members of the developing economies elites profit, too; from foreign activities in their country. What enables Amin to say this is his adoption of Emmanuel’s theory of unequal exchange, in which the level of wages is the major determining factor. That wages are lower in developing economies means that the labour force of these countries carries the burden of exploitation both by its local capitalist class and by the capitalist class at the centre. It is burdened by the “regular” exploitation of the home capitalists and the “primitive accumulation” of the capitalist class at the centre. The higher wages that the centre’s working class enjoys are in turn attributed not solely to its higher productivity; it does not partake of the proceeds of the continuing primitive accumulation, Todaro (1991).

That there is also a disheartening lack of entrepreneurial and administrative talent in the countries of the third world that the neo-Marxists do not deny. But they view those who place this fact at the centre of their explanations of underdevelopment as being eclectic and arbitrary. The claim that entrepreneurial and administrative skills will make their utilisation possible and necessary appears- conditions that cannot exist in an environment of dependence. This problem, they claim, is secondary: It is consequence of the fundamental problem, which is the discouragement and systematic sabotaging (or, for Amin, the guiding into incorrect path), of the local development efforts by the centre, Todaro (1991).

They recognise the existence of a ‘comprador states’ or class and bourgeoisie classes in developing countries but they maintain that their positions are solely dependent on the advantages they give to an imperialist power- not exist in their own right.

So the main consideration for government intervention would be, for neo-Marxists, the ability to make a complete and absolute change “the third world was and is an integral and destined to play a major role in the attempt of capital in the world capitalist economy to stem and reverse the tide of growing economic crisis, “Frank (1981, 1988). This is manifested in increasing repression of the workforce in developing countries, not increasing equality, or alleviating poverty. So in order to achieve sustainable development with equality it would be necessary for a developing country to withdraw from the world capitalist system. The present system only maintains present inequalities due to the interest characteristic of capitalism. They would advocate complete autarky facilitated by a socialist movement.

Generally, the political economy school advocate equity oriented development. The fundamental assumptions of this perspective regarding capitalism and international capitalist economy are essentially opposite to those of neo-classical economists. They not only believe that international capitalist economy discriminates against developing economies, but that is directly responsible for their dire condition. Thus any solution to the poverty predicament requires a fundamental break from the international capitalist economy. A distinction here, more for historical relevance than for the logic of the argument should be made between neo-Marxian and the Marxian of Marx, with (Marx) essentially regarded the capitalist commodity production process as progressive, in that it was required for the realisation of the ultimate inevitable tools of communism. Thus, capitalism for Marx is a necessary phase of societal change. Furthermore, for Marx the capital commodity production process is universally applicable.

The other fundamental disagreement these theorists have with neo-classical school concerns ethics. Equity, for these theorists is an ethical ideal, an end by itself. The logical extreme of this view is that equality must remain the primary objective, even at the cost of efficiency.

It is argued by this perspective that it is contrary to the interests of the international capitalist commodity process, which is essentially and exclusively concerned with maximisation of profit, to redistribute wealth. Instead of a y ‘trickle -dawn’ tendencies, the inner- logic of capitalism with only lead to greater accumulation, and concentrate of wealth. Thus, it is imperative for any comprehensive development effort to break with the internationalist political economy. Since weak political position of the poor prevents them from changing the system, empowering the poor becomes the means to meaningful development. These theorists contend that attacking the symptoms of poverty with basic needs provisions, or welfare laws will not suffice, it is crucial to attack its cause. The answer is the empowerment of the poor.

The general tendency is towards the satisation of the modes of production, at least those sectors of the economy that are essential to the public goods. Thus, only the intervention of a populist state, resulting on the commanding heights of the economy can restructure the relations of production that benefit  not a privileged few, but the unprivileged many.

This perspective defining the ‘left’ contours of the continuum in its logical extreme are diametrically contradicts the neo-classical perspectives.The obvious point of departure on the debate on development between the neo-classical and the political economy  strands  must be a definition  of development. This is inescapably a normative exercise, but one that should not be avoided  for this the reason. Development, by the very meaning  of the word, can only be a process  of the ‘becoming’.  The argument holds regardless of whether the tendencies are rectilinear, cyclical or both (or neither).  According to orthodox school sometimes implicitly  and sometimes explicit value judgement in the definition of development has been westernised. This tendency has been challenged  by the ‘development of another civilisation in East Asia, that is quickly achieving standard of  living comparable to the west. One conclusive inference that can be drawn from the experience of  Japan, China and the Asian Tigers is that a protestant ethic or generally a western social arrangement  or socialist revolution of neo-Marxist is not a prerequisite for economic development.

http://rodrik.typepad.com/dani_rodriks_weblog/2013/05/what-is-wrong-and-right-in-economics.html

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Theorizing Development June 8, 2011

Posted by OromianEconomist in Economics: Development Theory and Policy applications, Temesgen M. Erena, Theory of Development, Uncategorized.
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JEL: A11, A23, B13, D2, D6, O1, O5

Theorizing Development

Temesgen M. Erena (DPhil), Economist

From historical perspectives, the urgency underlying the contemporary development quest of developing economies has been recognised for the last seven decades. Of course, this should not be considered as that there were no problems of development prior to 1940’s.  However, paralleling the increasing for economic self-determination and development of developing economies, there has been a tremendous growth in intellectual activity concerning the development problems.

The past 70 years have also witnessed a gluttony  of models, theories, and empirical investigations of the development problem and the possibilities offered for transforming Asia, African, Latin American, and Caribbean nations. This body of knowledge as come to be known in academics and policy circles as development economics.

In these perspectives development is discerned in the context of   sustained rise of an entire society and social system towards a better and ‘humane life’. What constitutes a better and humane life is an inquiry as old as humankind. Nevertheless, it must be regularly and systematically revised and answered over again in the unsteady milieu of the human society. Economists have agreed on at least on three universal or core values as a discernible and practical guidelines for understanding the gist of development (see Todaro,1994; Goulet, 1971; Soedjatmoko, 1985; Owens, 1987).  These core- values include:

Sustenance:

 the ability to meet basic needs: food, shelter, health and protection. A basic function of all economic activity, thus, is to provide a means of overcoming the helplessness and misery emerging from a lack of food, shelter, health and protection. The necessary conditions are improving the quality of life, rising per head income, the elimination of absolute poverty, greater employment opportunity and lessening income inequalities;

self-esteem:

which includes possessing education, technology, authenticity, identity, dignity, recognition, honour, a sense of worth and self respect, of not being used as a tool by others for their own exigency;

Freedom from servitude:

 to be able to choose. Human freedom includes emancipation from alienating material conditions of life and from social servitude to other people, nature, ignorance, misery, institutions, and dogmatic beliefs. Freedom includes an extended range of choices for societies and their members and together with a minimization of external restraints in the satiation of some social goals. Human freedom embraces personal security, the rule of law, and freedom of leisure, expression, political participation and equality of opportunity.

Sustained and accelerated increase and change in quantity and quantity of material goods and services (both in absolute and per capita), increase in productive capacity and structural transformation of production system (e.g. from agriculture to industry then to services and presently to knowledge based (new) economy), etc. hereinafter economic growth is a necessary if not a sufficient condition for development.

As elaborated in Hirischman (1981) and Lal (1983), this corpus of thought and knowledge denotes economics with a particular perspective of developing nations and the development process. It has come to shape the beliefs about the economic development of developing countries and policies and strategies that should be followed in this process. While development economics goes beyond the mere application of traditional economic principles to the study of developing economies, it remains an intellectual offspring and sub discipline of the mainstream economics discipline. The growth in economic knowledge and the corresponding intellectual maturation of development thought and policy debate has led to the appearance of various perspectives of thought on the theory and reality of development and underdevelopment within the same discipline of development economics. The two  main paradigms are neo-classicals (orthodox), and Political economy (neo-Marxists). There are also eclectics.

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