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Oromo: From Cab Driver to CEO: An Immigrant’s Drive for School Bus Success July 10, 2017

Posted by OromianEconomist in Business and Economy.
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From Cab Driver to CEO: An Ethiopian Immigrant’s Drive for School Bus Success

By Nancy Kirk,  School Bus Fleet, 26 June 2017

The transition from Ethiopian culture to that of the U.S. may have been drastic, but for Metropolitan Transportation Network (MTN) Inc. President and CEO Tashitaa Tufaa, an Ethiopian of the Oromo ethnic group who immigrated here in 1992, adjusting to baseball-consumed television and the occasional unrelenting Minnesota snowstorm was a small price to pay for a life of security.

“Let me put it this way: Whatever I did not have back in Ethiopia, I have it now through my freedom,” Tufaa says. “If you are free, then your mind is free, and you can use your talent wherever you want to go.”

While Tufaa’s talent eventually brought him to own and operate MTN —  a school bus company based in Fridley, Minnesota, that provides student transportation for dozens of local public, private, and charter schools and owns more than 300 vehicles — the road to success was windy and unpaved. Although he majored in political science and diplomacy, he couldn’t legally work for the U.S. State Department because he wasn’t yet a U.S. citizen, so he started working a civil service job with the Minnesota government.

Tufaa’s drive to drive
Tufaa wasn’t earning enough to pay his mortgage, so he started working nights and weekends as a driver for Metro Mobility, a Minneapolis-area transportation provider for people with physical and mental disabilities. There, he discovered an unexpected passion.

“I fell in love with driving, really,” he says. “It’s very flexible and there’s fresh air, and instead of being in the office, you go to the parks and drive around with open windows. There are so many different things to love about it.”

Desiring more flexibility and hoping for higher pay, Tufaa left Metro Mobility and started driving a cab, where, he says, “I would drive drunk people from the bar, people coming from work, and everyone else.”

Despite his formal education and his urge to succeed, Tufaa struggled to hold these jobs. Unsatisfied with unsteady employment and energized with his newfound craving to get behind the wheel, Tufaa was determined to dive into the city of Osseo’s school transportation scene.

“In the summer of 2003, I started actually writing letters and delivering them to the school districts, offering them services that weren’t around,” Tufaa says. “Many of them made fun of me, but there was one transportation director who was willing to give me a chance because I had been bothering him so much.”

“We put ourselves in our customers’ shoes, and we listen to the feedback we receive. As a result, people want to do business with us, and we don’t turn our backs.”
Tashitaa Tufaa, president and CEO, Metropolitan Transportation Network

Expanding the business
Because of his persistent effort, Tufaa was awarded a single opportunity to transport three homeless children to school with the van he owned, a task that he says he succeeded at, receiving no complaints. From there, the director started offering him more consistent work, and this one-time errand steadily matured into a full-blown company that he now conservatively estimates to be worth $35 million. Today, Tufaa employs over 400 people who transport more than 15,000 K-12 students to school every day across the Twin Cities metropolitan area.

Fleet Facts
Headquarters: Fridley, Minnesota
Vehicles in fleet: Over 300
Fleet mix: IC Bus, Thomas Built Buses
Fueling mix: Diesel, CNG
Service area:Metropolitan Twin Cities area
Routes serviced daily:Over 400
Drivers: 275 and 125 contracted
Staff members: 30
Students transported daily: Over 15,000

“I did see a need here in the school bus industry for a contractor that was dedicated, that was doing business wholeheartedly,” he says.

Tufaa capitalized on this recognized need and founded MTN in 2004. More recently, MTN’s expanding customer base inevitably resulted in the need for a space about 30% larger than the existing one. The new facility is expected to be ready in July. The redevelopment will cost about $2.7 million and is being handled by Thor Companies, a real estate development and construction company that is also based in Fridley.

“It will have corporate offices, a break room where drivers can enjoy themselves, a fleet maintenance shop, and parking storage inside for the buses,” Tufaa says. “It’s a much better and newer space — a good image for both our customers and those who work here.”

The majority of updates will focus on the exterior site improvements, such as landscaping, a complete resurfacing of the asphalt parking lot, and enhancements to the security systems.

Top-notch equipment
Because the agency is responsible for the well-being of thousands of students, Tufaa says he ensures that each bus is equipped with top-notch technology, from two-way radios to GPS to surveillance camera systems.

“We want the maximum safety possible in all of our buses in order to protect the families and children that we service,” he says. “Safety is number one.”

He recounts an instance where a driver’s bus had broken down and hisradio had stopped working. Fortunately, the team realized it had broken down because of its lack of movement on the GPS system. Sure enough, upon physically locating the bus through the ground tracking system, Tufaa and his team found it immobile and were able to service it.

Because Metropolitan Transportation Network transports more than 15,000 students daily, Tufaa says he ensures each bus has quality safety equipment, such as two-way radios, GPS, and surveillance cameras.
Because Metropolitan Transportation Network transports more than 15,000 students daily, Tufaa says he ensures each bus has quality safety equipment, such as two-way radios, GPS, and surveillance cameras.

Leadership style
Tufaa calls himself a “field guy,” meaning he does not like to remain in the office. In fact, despite MTN’s recent expansion, Tufaa decided not to build himself a personal office. Instead, he works in available desk spaces when necessary and still drives buses every day.

“I don’t want to be a guy who just stays inside. I want to be out there in the field,” he says. “I sit with the drivers and I listen to them. I listen to their stories in the morning and the afternoon, and then I drive the bus to see what the issue is. This way, instead of someone reporting to me, I see it firsthand.”

Tufaa attributes his leadership style to his perilous upbringing in Ethiopia. Because he spent many years of his life in danger, he’s able to more easily adapt to everyday business challenges.

“We put ourselves in our customers’ shoes, and we listen to the feedback we receive. As a result, people want to do business with us, and we don’t turn our backs,” he says. “In Ethiopia, I was raised in harm, and so it’s easier for me to understand where people come from, whether it’s with our customers or our employees.”

MTN is undergoing a $2.7 million expansion, which includes renovated corporate offices, a fleet maintenance shop, a break room, and parking inside for the buses.
MTN is undergoing a $2.7 million expansion, which includes renovated corporate offices, a fleet maintenance shop, a break room, and parking inside for the buses.

Employee appreciation
Appreciation for MTN employees stands tall on Tufaa’s priorities as a business owner. Every year, the company holds an employee appreciation banquet where everyone, from the human resources team to the workshop mechanics, is invited to mingle with their peers, along with their plus-one.

“We want to show our employees that we value them,” Tufaa says. “We are a family, and the MTN family gets together once a year, every year, to enjoy this classy corporate-style dinner.”

Other MTN-planned gatherings that aim to boost company morale include a monthly bulletin that informs the team about company happenings and employee birthdays, as well as weekly prepared breakfast for drivers, blood drives, summer barbecues, and day trips to support the local pro baseball team at the Minnesota Twins stadium.

Sometimes the recognition goes beyond simple social events, like when Tufaa expressed his gratitude by naming a newly built site the Iverson Terminal, after the last name of a driver who had suddenly passed away.

“We named it after her because our drivers have an ownership in our company,” he says. “We don’t want to be just another corporation.”

Challenges, rewards
Tufaa’s triumph does not come without its challenges. As with school bus contractors and districts across the U.S., he has been affected by the widespread driver shortage, and he worries about Minnesota’s slippery roads in the winter. He’s also had to forgo significant family events in order to keep his business afloat, especially while it was just getting started.

“There are some things I’ve had to compromise to get where we are as a business, but as long as my wife and family understood me, that was all that mattered,” Tufaa recalls. “I had to work extremely long hours in the beginning, and sometimes it came down to paying the people who were working for me before being able to pay myself.”

Eventually, the achievements overcame the hardships, and now Tufaa and the whole MTN team work fervently to transport the community’s youth to their daily education.

“As a contractor, it’s important to love what you do,” he says. “I still drive, and I love taking those children to school.”

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Mass Human Labor is No Longer Needed. Where Do We Go From Here? July 1, 2017

Posted by OromianEconomist in Uncategorized.
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In an admittedly non-conventional manner, we view the global economy via two interconnected lenses. The first lens is a combination of two practical foundations of economics: (a) based on observations made by economists Colin Clark and Jean Fourastié in the 1940s that technology has persistently replaced the need for human labor throughout increasingly widening sectors of the economy (see chart below). We can now observe that the services sector, now comprising over 72% of the economy has reached a tipping point where technology is increasingly replacing the need for human labor to the extent that increasingly wider sections of the population no longer seem to possess assets to contribute to the production of economic activity.

Colin Clark and Jean Fourastié
Colin Clark and Jean Fourastié

And (b) In 1979, the world’s economic systems discontinued using gold as a method of creating and valuing currency, and thus, ended the process of what is called ‘fractional reserve banking’ (where banks are able to lend more than they have on deposit). Fractional reserve banking was replaced by fiat currency, where local commercial banks create new currency when real estate loans are created.

From the convergence of these two practical foundations of economics—technology replacing mass labor and fiat currency created from real estate lending—we can now observe that the conventional metrics used by political institutions and banking systems the world over in determining the relationship between commercial real estate and residential real estate are no longer viable. Banking systems have self-evolved to move away from market lending to creating financial instruments that are traded exclusively between the banks themselves (this is referred to as the ‘shadow banking system’).

Government institutions, however, have not evolved… and thus have essentially become irrelevant in terms of managing affairs of economics.

The second lens with which Wealth Beyond Nations views the global economy is a moral and philosophical view of how and why individuals and groups interact with each other. Prior to Adam Smith’s Wealth of Nations in 1776, the benefits of economic activity were in the main enjoyed by elites (the aristocracies, monarchs, and churches, which were all prone to violent upheavals). Smith’s blueprint provided a process by which the masses could both contribute and benefit from participating in what he referred to as ‘a commercial society’, and it was this commercial society which self-maintained social order.

But in modern circumstances where economic production no longer needs the masses to contribute to production, how can the masses expect to participate in such a commercial society?

But even deeper, we observe that societies across the world are constructed upon a foundation of consuming material things that merely contribute to their sense of self-aggrandizement (and most often, not to their overall well-being). John Kenneth Galbraith’s seminal work in 1958, The Affluent Society, already observed that this foundation was simply unsustainable.

Consequently, if it is true and accurate to restate the central problem underpinning the global economies as being: contributions to economic production by the human masses is no longer the glue that holds societies together, as well as the observation that almost everyone on the planet is operating from outdated knowledge of how economic markets operate… then, and only then, can we begin to grasp the severity of the real problem. Then, and only then, can we begin to grapple with exploring real solutions to the real problem. Click here to read more..

FT: Ethiopia’s mythical manufacturing boom: The sector shrinks in importance despite heavy Chinese investment June 16, 2017

Posted by OromianEconomist in Uncategorized.
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Ethiopia: “There’s been a brilliant PR campaign on its part to sell a story that does not really exist.”


‘Yet the data show that manufacturing now accounts for a smaller slice of Ethiopia’s economy than at almost any point since the early 1980s.In 2015, the sector accounted for just 4.1 per cent of Ethiopia’s gross value added, well below the peak of 7.8 per cent in 1997, according to data from the World Bank, as the second chart shows. Moreover, manufacturing accounts for a smaller share of Ethiopia’s economy than that of virtually any other country in sub-Saharan Africa.

South Africa, Kenya, Ivory Coast, Cameroon, Benin, Malawi, Mozambique and even Zimbabwe all generate at least 10 per cent of their gross value-added from manufacturing, with the likes of Nigeria and Uganda not far behind, as the third chart shows. Across sub-Saharan Africa as a whole, 10.6 per cent of continental GVA emanates from the sector, according to the World Bank, raising the question as to why Ethiopia is seen as one of the few African nations to have made a go of manufacturing.

“Ethiopia has the smallest manufacturing share of any of the African countries we look at,” says Charles Robertson, chief economist at Renaissance Capital, a Moscow-based investment bank with a focus on emerging markets. “There’s been a brilliant PR campaign on its part to sell a story that does not really exist.”

John Ashbourne, Africa economist at Capital Economics, a consultancy, adds: “Media coverage of Ethiopia’s manufacturing sector sometimes exaggerates its economic importance. A close look at the country’s economy shows that it is much more similar to its African peers than leaders in Addis Ababa would like to admit.”

Despite the hype, Ethiopia exported just $44m worth of shoes in 2015, for example, 0.25 per cent of those exported by Vietnam and less than the footwear exports of the cordwaining powerhouse that is El Salvador. The east African state’s entire exports of clothing and textiles are worth just a tenth of its coffee exports.’ FT


Ethiopia’s mythical manufacturing boom

The sector shrinks in importance despite heavy Chinese investment

Ethiopia’s success in attracting foreign manufacturers is often held up as a beacon of hope that sub-Saharan Africa, by far the poorest region on the planet, can follow the well-trodden development model that has allowed the rest of the world to become richer.

Industrialisation has largely been the key to development elsewhere, allowing relatively unproductive subsistence agricultural workers to be absorbed by a rapidly growing manufacturing sector boasting far higher productivity.

With China now slewing off lower valued-added manufacturing jobs in sectors such as textiles and basic electronics as wages rise rapidly in the Middle Kingdom, low-wage Africa has long been seen as a potential rival to the likes of Bangladesh and Vietnam for such jobs, as suggested by the first chart.

While this has yet to happen on any meaningful scale — the continent accounts for just 1 per cent of global manufacturing output — Ethiopia has won plaudits for attracting Chinese, Turkish and US investment into garment and shoe factories, notably from Chinese shoemaker Huajian Group, which employs 4,000 people in an industrial park outside Addis Ababa, the capital.

This had led to the country being described as a regional manufacturing powerhouse. Yet the data show that manufacturing now accounts for a smaller slice of Ethiopia’s economy than at almost any point since the early 1980s.

In 2015, the sector accounted for just 4.1 per cent of Ethiopia’s gross value added, well below the peak of 7.8 per cent in 1997, according to data from the World Bank, as the second chart shows.

Moreover, manufacturing accounts for a smaller share of Ethiopia’s economy than that of virtually any other country in sub-Saharan Africa.

South Africa, Kenya, Ivory Coast, Cameroon, Benin, Malawi, Mozambique and even Zimbabwe all generate at least 10 per cent of their gross value-added from manufacturing, with the likes of Nigeria and Uganda not far behind, as the third chart shows.

Across sub-Saharan Africa as a whole, 10.6 per cent of continental GVA emanates from the sector, according to the World Bank, raising the question as to why Ethiopia is seen as one of the few African nations to have made a go of manufacturing.

“Ethiopia has the smallest manufacturing share of any of the African countries we look at,” says Charles Robertson, chief economist at Renaissance Capital, a Moscow-based investment bank with a focus on emerging markets. “There’s been a brilliant PR campaign on its part to sell a story that does not really exist.”

John Ashbourne, Africa economist at Capital Economics, a consultancy, adds: “Media coverage of Ethiopia’s manufacturing sector sometimes exaggerates its economic importance. A close look at the country’s economy shows that it is much more similar to its African peers than leaders in Addis Ababa would like to admit.”

Despite the hype, Ethiopia exported just $44m worth of shoes in 2015, for example, 0.25 per cent of those exported by Vietnam and less than the footwear exports of the cordwaining powerhouse that is El Salvador. The east African state’s entire exports of clothing and textiles are worth just a tenth of its coffee exports.

Slightly more charitably, Mr Ashbourne does suggest that part of the “Ethiopia story” is that it has been more successful than many of its regional peers in attracting investment from “big brand names” from overseas.

Moreover, while in some African states a fair chunk of manufacturing activity may be a byproduct of those countries’ primary sectors (eg oil refining in Nigeria, processing and packaging of agricultural products in Kenya), Ethiopia is instead producing “relatively high quality goods that are exported”.

“It’s being pulled into these global supply chains, which is not common across Africa and is impressive. Exports have risen sharply, [Ethiopian manufacturing] does employ more people than it used to,” Mr Ashbourne adds, even if job growth since the turn of the century has been faster in areas such as construction, mining, transport and the public sector.

Mr Robertson believes it is Ethiopia’s close links to China that has captured the world’s interest. This extends beyond investments such as that of Huajian and China’s funding of a $4.2bn, 470-mile rail line from Addis Ababa to the port of Djibouti, which opened this year.

More fundamentally, Ethiopia is following the state-led, investment-heavy development model so successfully blazed by China

“What has captured the interest is this comparison with China,” says Mr Robertson. Whereas most African countries are pursuing a private sector-led development model, “Ethiopia has adopted the five-year plan, top-down approach that we have seen in China,” which focuses on rolling out infrastructure such as electricity provision first, then developing light manufacturing, followed by heavy industry.

“People are saying China has grown for 30 years at a very fast pace with a top-down programme. Ethiopia has grown very fast for 10 years [around 11 per cent a year] with a top-down programme. [People] are jumping to the conclusion that Ethiopia is following [in terms of manufacturing growth] when it’s really not,” he adds.

Ethiopia’s rapid economic growth since 2004 does, though, raise the question as to whether other sub-Saharan states, with their private sector-led, bottom-up development models, could or should follow its lead.

Mr Robertson, for one, does not believe the likes of Nigeria would be well suited to the Ethiopian approach. Firstly, Ethiopia can manage a state-led process because it has a strong bureaucracy, something that is lacking in much of Africa but has developed in Ethiopia because the country “has a long history of relatively stable government dating back to 1270,” Mr Robertson says.

Secondly, Nigerians are wealthier than Ethiopians and are used to far more freedom than a government-led, top-down economic model would permit, he argues.

“It is being used as an example in Nigeria but I don’t think it will fit. [Nigerians] are too democratic, too free, too opinionated. Ethiopia has had this regime in place for 30 years and it’s working and they have shown a commitment to relatively low corruption.

“In Ethiopia nobody has anything. Nigerians are three times richer and I just can’t see them being put into the communist box. Ghana, Senegal and Kenya have all moved beyond that stage.”

WEF: Africa doesn’t need charity, it needs good leadership May 27, 2017

Posted by OromianEconomist in Africa, Aid to Africa.
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Incompetence in leadership in most African countries is not only the problem of people who occupy positions in government; it is a reflection of the leadership culture. We’ve had different leaders with the same results for decades. The power distance that exists between leaders in government and citizens is also reflected in organizations and families. In such a structure, leaders don’t serve; they are served, because occupying leadership positions make leaders superior and unaccountable to the people they lead. Africa needs leadership development systems, and it is incumbent on development partners and global leaders to understand how cultural differences affect these.

 

It has become obvious that it is politics that drives the economies of nations. Acemoglu and Robinson assert in their seminal book Why Nations Fai’ that the major difference between developed countries and developing countries is in their political evolution. Developed countries have political and economic systems that are inclusive and offer opportunities for most people to create wealth.

However, most developing economies have political and economic systems that are extractive. Those in the ruling class have a strong hold on political power, and use it to channel economic resources to benefit themselves and those close to them. Foreign aid, when channelled through such extractive systems, almost never reaches the most vulnerable in society. We need to rethink the form of aid Africa needs and the platforms for distributing or offering it.


African National Congress Youth League members interrupt a memorial service for anti-apartheid activist Ahmed Kathrada in Durban, South Africa, April 9, 2017.

Image: REUTERS/Rogan Ward


There is an ongoing discussion on the effectiveness of foreign aid in helping the economic development of Africa. One thing is obvious: the results are not exactly what Africa’s development partners have expected, and the reasons are not far-fetched. Dambisa Moyo, global economist and author, contends in her book Dead Aid that while foreign aid that addresses humanitarian needs caused by drought and conflict is helpful, most of the aid given to African countries is rather harmful. The OECD provides comprehensive statistics on the kinds and volume of aid received by the continent up until 2015. Moyo lists the problems enhanced by aid to include corruption, civil conflict, shrinking of the middle class, and the instilling of a culture of dependency. All of these combine to make Africa unattractive to global investors.

It has become obvious that it is politics that drives the economies of nations. Acemoglu and Robinson assert in their seminal book Why Nations Fai’ that the major difference between developed countries and developing countries is in their political evolution. Developed countries have political and economic systems that are inclusive and offer opportunities for most people to create wealth.

However, most developing economies have political and economic systems that are extractive. Those in the ruling class have a strong hold on political power, and use it to channel economic resources to benefit themselves and those close to them. Foreign aid, when channelled through such extractive systems, almost never reaches the most vulnerable in society. We need to rethink the form of aid Africa needs and the platforms for distributing or offering it.

Also, globalization is the reality of our day and age. There is increasing economic, social, technical, cultural and political interdependence between nations. People are more inter-connected now than ever before. The availability of worldwide communication systems through rapid improvements in communication technology and the internet has led to more international trade and cultural exchange. But globalization does not appear to be hastening Africa’s development. The problem is also rooted in the political structure and the leadership culture prevalent in Africa.

The problem is leadership

Some years ago, I had a discussion with Donald Duke, former governor of Cross River State in Nigeria. I commended his vision for a plan to attract large numbers of tourists from around the world, impacting positively on the economy of the state and the nation. I observed that a large number of leaders in Nigeria can’t envision Nigeria as a developed nation, and talk more of mobilizing citizens to actualize the vision. He replied with an illustration: Nigeria, he said, is like an aircraft that is being flown by pilots that did not go to flying school. He added that when the plane crashes, everyone blames the pilot. The question therefore is: where are Africa’s leadership “flying schools?” How and where do Africans acquire sophistication in the leadership skills required to guide the continent into development?

Children return from school in the mid-morning, in Ikarama village on the outskirts of the Bayelsa state capital, Yenagoa, in Nigeria's delta region October 8, 2015. Tensions are building in the swampland of the Niger Delta as an amnesty that aimed to bring stability to Nigeria's volatile southern region is due to expire at the end of the year. While the region's towns and cities are mostly calm, local residents say kidnappings and armed robberies are on the increase in the mangrove swamps, where most oil wells are located. Former military ruler and Muslim northerner President Muhammadu Buhari said in his inauguration speech in May that he might

Image: REUTERS/Akintunde Akinleye

The cultivation of leaders with exceptional character and skills is critical to Africa’s development. Africa’s development partners should recognize that it is too late to teach someone who occupies a high position in government how to lead during side talks at global events. They should also bear in mind that there has to be alignment between the sense of identity of the leader and that of the followers for leadership to work.

Incompetence in leadership in most African countries is not only the problem of people who occupy positions in government; it is a reflection of the leadership culture. We’ve had different leaders with the same results for decades. The power distance that exists between leaders in government and citizens is also reflected in organizations and families. In such a structure, leaders don’t serve; they are served, because occupying leadership positions make leaders superior and unaccountable to the people they lead. Africa needs leadership development systems, and it is incumbent on development partners and global leaders to understand how cultural differences affect these.

Wanted: effective leadership development systems

Opportunities for developing leaders have never been greater in our increasingly complex world. Diagnosing leadership development needs, especially in Africa, requires an assessment of the entire leadership culture. For example, the GLOBE project, conceived of by Robert J. House of the Wharton Business School and conducted on organizations and middle-level managers around the world, describe countries in sub-Saharan Africa as scoring high in power distance and in-group collectivism, but low in performance orientation. Leaders do whatever it takes to produce results in such a leadership culture, and they usually position themselves and their cronies above the law. Most of the citizens have leadership potential, but several factors inhibit their leadership development, such as bad governance, poverty, corruption and religious bias. Most young people in Africa are hungry to learn and to realize their potential. They seek respected mentors and resources to help them navigate the complex life challenges they face. However, there is a dearth of institutions and curricula to help them realize such desires.

A broader view of leadership development provides insights into why some initiatives are more successful than others at generating change in individual behaviour. To have an impact, the capabilities being developed in the individual need to mesh with the leadership culture in which the leader is embedded. Most of the leadership development curriculum developed in Western countries may not particularly address individual situations, especially youth in developing parts of the world, who have little education as a foundation, and who are distracted by the struggle for survival occasioned by rampant poverty.

According to the GLOBE studies, emerging leaders in some developing countries approach foreigners cautiously; that’s because they’re not used to participative styles of leadership, and prefer bold, assertive styles of leadership. The notion of fear is high due to the conservativeness in the culture, and most people have not been trained to be independent thinkers that are willing to step outside their ‘boxes’ unless directed to do so by leaders. They have developed a learned state of helplessness, with the overwhelming feeling that they cannot change their circumstances. The culture is permission seeking. Unfortunately, the ruling class is not interested in granting permission for the mass of the people to be admitted into its cadre. In such a culture, the community dominates the individual, and women are hardly empowered.

Change is possible

Africa’s large youth population presents a great opportunity to influence the emergence of a new generation of leaders. The reality, though, is that the elite class on the continent tends to appropriate the existing curriculum for leadership development in expensive executive education programmes in business schools, whose fees are beyond the capabilities of the major part of the population. There is a need to democratize the leadership development process in the developing world. The high rate of infusion of mobile technology could be an advantage. This will make formal and informal leadership development an inclusive process that will reach people at all levels of society.

Africa needs cultural change agents that will leverage both business and non-profit platforms to offer leadership development training to a large proportion of the population. Such agents must have experienced a change in their own mind-sets. Development partners around the globe who genuinely seek Africa’s transformation should appreciate that the extractive leadership structures in that part of the world will not allow the intellectual, material and financial resources they distribute to create any meaningful and lasting change on the continent. They should cut down on the volume of financial aid, while partnering with cultural change agents who are democratizing the development of leaders at all levels, enhancing the evolution of inclusive political and economic structures.


 

WEF: Build a ‘human economy’. It could help Africa to fight extreme inequality May 25, 2017

Posted by OromianEconomist in Uncategorized.
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Putting people before GDP: Policymakers and leaders across the continent can tackle the issues of poverty and inequality if they take a “human economy” approach. This means focusing on “what works for the majority of African people” rather than measuring growth solely by GDP.

Build a ‘human economy’, says Oxfam. It could help Africa to fight extreme inequality

By Joe Myers, WEF, 4 May 2017

A gold miner uses a bicycle to transport a sack of sandy soil from a small scale mine in Bugiri, 348 km (216 miles) east of Kampala, Uganda's capital February 5, 2013. REUTERS/Edward Echwalu (UGANDA - Tags: ENVIRONMENT BUSINESS EMPLOYMENT COMMODITIES) - RTR3DE5Z

Seven of the world’s 20 most unequal countries are in Africa.
Image: REUTERS/Edward Echwalu

Strong GDP growth in Africa is a good thing, right? Not if the benefits aren’t shared equally, argues a new Oxfam report.

Africa has experienced a decade of significant growth – at one point, six of the 10 fastest growing global economies were on the continent – but the proceeds haven’t been evenly distributed.

Millions have been left behind, and to make matters worse, slowing growth could increase poverty further, says Oxfam. The most pessimistic forecasts suggest 250 to 350 million more people could be living in extreme poverty in the next 15 years.

There is a solution though: the human economy.

Extreme economic inequality

Seven of the world’s 20 most unequal countries are in Africa, with Swaziland the most unequal, followed by Nigeria, Namibia and South Africa.

In South Africa, the richest 1% owns 42% of the country’s total wealth and three billionaires have the same wealth as the bottom 50% of the population, according to Oxfam.

Image: Oxfam

Why is inequality so high? The impact of colonialism lingers, and the structure of many African economies means the benefits of growth have not been shared, according to the report.

Inadequate investment in agriculture, large informal sectors and over-reliance on extractive industries have exacerbated inequality.

The hardest hit are young people and women, particularly in rural areas. Ignoring their potential is having a major impact on African economies. Gender inequality costs sub-Saharan Africa more than $90 billion every year. Meanwhile, better policies and investment in young people could be worth up to $500 billion every year for 30 years.

With Africa’s large – and growing – youth population, there is an urgent need for action.

Image: United Nations

Putting people before GDP

The legacy of colonialism and current policies can be overcome, argues the paper.

Policymakers and leaders across the continent can tackle the issues of poverty and inequality if they take a “human economy” approach. This means focusing on “what works for the majority of African people” rather than measuring growth solely by GDP.


 

Aid: World is plundering Africa’s wealth of ‘billions of dollars a year’ May 25, 2017

Posted by OromianEconomist in Africa, Africa and debt.
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African countries received $162bn in 2015, mainly in loans, aid and personal remittances. But in the same year, $203bn was taken from the continent, either directly through multinationals repatriating profits and illegally moving money into tax havens, or by costs imposed by the rest of the world through climate change adaptation and mitigation. This led to an annual financial deficit of $41.3bn from the 47 African countries where many people remain trapped in poverty. – Honest Accounts 2017.

World is plundering Africa’s wealth of ‘billions of dollars a year’

Research by campaigners claims aid and loans to the continent are outweighed by financial flows to tax havens and costs of climate change mitigation

The headquarters of the African Union in Addis Ababa, Ethiopia
The headquarters of the African Union in Addis Ababa, Ethiopia. Campaigners said illicit financial flows account for $68bn a year. Photograph: Sean Gallup/Getty Images

More wealth leaves Africa every year than enters it – by more than $40bn (£31bn) – according to research that challenges “misleading” perceptions of foreign aid.

Analysis by a coalition of UK and African equality and development campaigners including Global Justice Now, published on Wednesday, claims the rest of the world is profiting more than most African citizens from the continent’s wealth.

It said African countries received $162bn in 2015, mainly in loans, aid and personal remittances. But in the same year, $203bn was taken from the continent, either directly through multinationals repatriating profits and illegally moving money into tax havens, or by costs imposed by the rest of the world through climate change adaptation and mitigation.

This led to an annual financial deficit of $41.3bn from the 47 African countries where many people remain trapped in poverty, according to the report, Honest Accounts 2017.

The campaigners said illicit financial flows, defined as the illegal movement of cash between countries, account for $68bn a year, three times as much as the $19bn Africa receives in aid.

Tim Jones, an economist from the Jubilee Debt Campaign, said: “The key message we want to get across is that more money flows out of Africa than goes in, and if we are to address poverty and income inequality we have to help to get it back.”

The key factors contributing to this inequality include unjust debt payments and multinational companies hiding proceeds through tax avoidance and corruption, he said.

African governments received $32bn in loans in 2015, but paid more than half of that – $18bn – in debt interest, with the level of debt rising rapidly.

The prevailing narrative, where rich country governments say their foreign aid is helping Africa, is “a distraction and misleading”, the campaigners said.

Aisha Dodwell, a campaigner for Global Justice Now, said: “There’s such a powerful narrative in western societies that Africa is poor and that it needs our help. This research shows that what African countries really need is for the rest of the world to stop systematically looting them. While the form of colonial plunder may have changed over time, its basic nature remains unchanged.”

The report points out that Africa has considerable riches. South Africa’s potential mineral wealth is estimated to be around $2.5tn, while the mineral reserves of the Democratic Republic of the Congo are thought to be worth $24tn.

However, the continent’s natural resources are owned and exploited by foreign, private corporations, the report said.

Bernard Adaba, policy analyst with Isodec (Integrated Social Development Centre) in Ghana said: “Development is a lost cause in Africa while we are haemorrhaging billions every year to extractive industries, western tax havens and illegal logging and fishing. Some serious structural changes need to be made to promote economic policies that enable African countries to best serve the needs of their people, rather than simply being cash cows for western corporations and governments. The bleeding of Africa must stop!”

However, Maya Forstater, a visiting fellow for the Centre for Global Development, a development thinktank, said the report did not provide a meaningful look at the issues.

Forstater said: “There are 1.2 billion people in Africa. This report seems to view these people and their institutions as an inert bucket into which money is poured or stolen away, rather than as part of dynamic and growing economies. The $41bn headline they come up with needs to be put into context that the overall GDP of Africa is some $7.7tn. Economies do not grow by stockpiling inflows and preventing outflows but by enabling people to invest and learn, adapt technologies and access markets.

“Some of the issues that the report raises – such as illegal logging, fishing and the cost of adapting to climate change – are important, but adding together all apparent inflows and outflows is meaningless.”

Forstater also questioned some of the report’s methodology.

The coalition of campaigners, including Jubilee Debt Campaign, Health Poverty Action, and Uganda Debt Network, said those claiming to help Africa “need to rethink their role”, and singled out the British government as bearing special responsibility because of its position as the head of a network of overseas tax havens.

Dr Jason Hickel, an economic anthropologist at the London School of Economics, commenting on the report, agreed that the prevailing view of foreign aid was skewed. Hickel said: “One of the many problems with the aid narrative is it leads the public to believe that rich countries are helping developing countries, but that narrative skews the often extractive relationship that exists between rich and poor countries.”

A key issue, he said, was illicit financial flows, via multinational corporations, to overseas tax havens. “Britain has a direct responsibility to fix the problem if they want to claim to care about international poverty at all,” he said.

The report makes a series of recommendations, including preventing companies with subsidiaries based in tax havens from operations in African countries, transforming aid into a process that genuinely benefits the continent, and reconfiguring aid from a system of voluntary donations to one of repatriation for damage caused.


 

QZ: Creativity will be the source of our next industrial revolution, not machines May 20, 2017

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Quartz: COMPETITIVE ADVANTAGE: Creativity will be the source of our next industrial revolution, not machines


Growth in the first industrial revolution was driven by engineering, the second through electricity and production lines, and the third by technology and information. The modern economies that will undergo a fourth industrial revolution will not be those that worship machines, but those that support human creativity. When we understand how people think and work best, we will be compelled to put our workers’ well-being first in the name of both health and economic productivity.

For centuries, human health has been systematically traded for economic growth. The word labor originated in medieval Europe during a decline in slavery and widespread adoption of money, and symbolizes the monetization of human skill: “productive work, especially physical toil done for wages.” Its modern definition, and how we perceive productivity, came about through the process of industrialization.

The first, second, and third industrial revolutions

In the mid-17th century, the nature of work changed when rural, agrarian societies shifted to become urban and industrial. Economic growth meant going underground for energy and into factories for manufacturing. The detrimental effects to workers’ health in these industries are well documented: In the name of financial gain, miners and factory workers were subject to hazardous conditions that often resulted in illnesses, physical pain, and early death.

The first industrial revolution presented economic opportunities fraught with dangerous labor. The tradeoff of well-being for economic benefit was clear: Employers knowingly ran businesses that paid workers not just for their time, but also for their health.

 Employers knowingly ran businesses that paid workers not just for their time, but also for their health. Over time, machines took over from humans in dictating the pace of production, and working hours soared. Rising demand outpaced supply, meaning that businesses could maximize profits by manufacturing around the clock. An extensive study by the International Labour Organization (ILO) into working hours explains how the concept of “working time” in early industrialization was based on the perception that hours spent outside work were regarded as “lost time.”

Through these developments, the perceived dichotomy of work and life emerged: Work is the time dedicated to economic gain, while life is the time spent on our mental and physical needs. Four hundred years later, our contemporary culture of “living for the weekend” is a reflection of how this form of exchange became an accepted aspect of our existence.

The fourth industrial revolution

Western countries now firmly in throes of the third industrial revolution successfully shifted from manual to skilled labor. Yet the mentality that time spent outside work is “lost” hasn’t changed. The ILO study points out that even a recorded decrease in working hours is shaky because of the institutionalization of overtime and out-of-office work, such as mindlessly replying to emails on your phone.

One example of how businesses and organizations are trying to create a more effective workforce is not actually based in work, but in the office spaces in which it is conducted. The new wave of “fun” workplaces that are now standard in high-tech companies is a continuation of finding solutions to the wrong problem; the aim of such designs is often to encourage longer work hours and company loyalty. Facebook went as far as offering workers $10,000 to live closer to the office.

However, the link between an employee spending more time in the office and being more productive with their time is rather tenuous. Workers might clock more hours and stay longer at a company if the surroundings are comfortable, but the assumption that this makes them better at what they do is unfounded.

Another design-based example is open-plan offices. In the push to lower overheads—and under the false assumption that it would encourage better working practices—private rooms were traded for non-divided workspaces. This resulted in environments that increase stress, particularly due to noise. Stress has become the dominant cost to human health at work. A 2016 report found that stress accounted for 37% of all work-related ill-health cases in the UK and 45% of all working days lost due to ill health.

Studies carried out as early as the 1970s have shown that stress can be beneficial for performing simple or familiar tasks, but detrimental to ones requiring complex, flexible thinking. The prefrontal cortex is an area of the brain associated with executive function, which contributes to decision making, predictions, and many of our highest cognitive processes related to learning and imagination. Increased levels of catecholamine released during stress harms the performance of the prefrontal cortex, including persistent loss of these functions from chronic stress. Naming just one aspect of how working conditions affect us cognitively, there are many more that stem from our environmental and social context.

As robots increasingly take on manual labor, we will need to foster what differentiates human from machine (at least for now): creativity. Evidence that psychological and physical well-being is paramount to creative thinking will turn the historic exchange of human health for economic growth on its head. As Klaus Schwab, founder of the World Economic Forum writes, “I am convinced of one thing—that in the future, talent, more than capital, will represent the critical factor of production.”


Understanding Neoliberalism: A Marxist Analysis May 13, 2017

Posted by OromianEconomist in Consumersim, Development & Change, Development Studies, Economics, Free development vs authoritarian model, Globalization, Growth and Inequqlity, Neoliberalism.
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Neoliberalism, Harvey writes, is “a theory of political economic practices that proposes that human well-being can best be advanced by liberating individual entrepreneurial freedoms…within an institutional framework [of] strong private property rights, free markets, and free trade” [8]. He goes on to write that neoliberalism “seeks to bring all human action into the domain of the market” [9]. In short, neoliberalism offers a set of market-based solutions to social ills. It supposes that problems experienced collectively can be conquered by individuals. An important aspect of this an antipathy to state intervention. The state, in the neoliberal understanding, only gets in the way of individual entrepreneurs who want to alleviate problems. Hence, deregulation is a prime aspect of neoliberal practice. To quote Steger and Roy in Neoliberalism: A Very Short Introduction, “the state is to refrain from interfering with the economic activities of self-interested citizens” [10]. Neoliberalism presents a profound hatred of collective action in favor of individual motivation. This does not mean, however, that the state under neoliberalism is impotent, ineffectual, or meaningless. On the contrary. Although the regulatory and public service components of the state will be stripped bare under neoliberalism (we will examine this in more detail later), the military and police-the repressive state apparatus-will be inflated to new heights. Harvey writes that the state must “secure private property rights and…guarantee, by force if need by, the proper functioning of markets. Furthermore, if markets do not exist [in water, healthcare, and education, for example] then they must be created, by state action if necessary” [11]. Neoliberalism, then, is not against the state. It is against the state when it interferes with market mechanisms, but is perfectly happy to lean on the state when the neoliberal order is resisted or challenged. Under neoliberalism, the state must protect the interests of the aforementioned entrepreneurial individuals (the capitalists). It will not hesitate to use violence to do this.

It should be noted that this process of violent state intervention has been common, literally, since the very beginning of capitalism. An important part of the development of capitalism in England, for instance, was the land enclosure.  rich landowners used their control of state processes to appropriate public land for their private benefit. This created a landless working class that provided the labor required in the new industries developing in the north of England. EP Thompson writes, “in agriculture the years between 1760 and 1820 are the years of wholesale enclosure in which, in village after village, common rights are lost” [12]. He goes on to say,  “Enclosure (when all the sophistications are allowed for) was a plain enough case of class robbery” [13].

Click here to read more at  Write To Rebel: Understanding Neoliberalism: A Marxist Analysis

Economy for the common good: Redesigning economics based on ecology May 7, 2017

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What would an ‘economy for the common good’, an ‘economics of happiness’ and a ‘sacred economics’ look like in our community and how do we co-create them?


As human beings, we are in our very nature compassionate and collaborative, but our current monetary and economic systems are based on the narrative of separation that creates and encourages competition. For too long, we have told a story about nature ‘red in tooth and claw’ and excused the worst of human behaviour as natural. Scarcity is primarily a mindset and lack of collaboration not a biophysical reality! Competition creates scarcity, which in turn is used to justify competitive behaviour (a vicious circle).

The natural limits of bioproductivity and healthy ecosystems functions don’t create scarcity as such. Collaboration can turn these natural planetary limits into enabling constraints to create abundance for all within healthy ecosystems and a healthy biosphere. Collaboration creates shared abundance, which in turn invites more collaboration (a virtuous circle). We choose which world we want to bring forth together! – Dr. Daniel Christian Wahl

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WEF: Five measures of growth that are better than GDP April 20, 2017

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Good jobs.  Wellbeing.  Environment. Fairness.   Health.


It is, of course, entirely possible for an economy to go faster and faster without getting closer to meeting these goals – indeed, while heading in the opposite direction.

World Economic Forum: Five measures of growth that are better than GDP


GDP is like a speedometer: it tells you whether your economy is going faster or slower. As in cars, a speedometer is useful but doesn’t tell you everything you want to know. For example, it won’t tell you whether you are overheating, or about to run out of fuel.
 Above all, the speedometer doesn’t tell you whether or not you’re going in the right direction. If you suggest to a car driver that you might be on the wrong road, and the response is “then we must go faster”, you might think that’s pretty stupid. Yet this is what happens whenever complaints about the state of the economy elicit a commitment to boost growth.

So what is the right direction for a modern economy? That’s a relatively easy question to answer: when you ask people, they say much the same things. A good economy meets everyone’s basic needs. It means people are healthy and happy with life. It avoids storing up potential sources of long-term trouble, such as extreme inequality and environmental collapse.

It is, of course, entirely possible for an economy to go faster and faster without getting closer to meeting these goals – indeed, while heading in the opposite direction.

Now the trickier part. What would be the economic equivalent of a compass? We need to measure the direction of economic travel in a way that’s comparable to how GDP measures its speed – easy to communicate, and amenable to being influenced by policy decisions.

The New Economics Foundation (NEF), where I was the Executive Director until December 2015, proposed five indicators in an October 2015 report. Imagine them arrayed like dials on a dashboard that you can glance at for an overall picture, as well as study in more detail if you want. Why five? It’s hard to capture everything that matters in one metric, and psychological research demonstrates that people struggle to hold more than five things in their heads at once.

1. Good jobs. Employment statistics tell us what proportion of people have jobs. They don’t tell us what proportion of those with jobs are paid too little to afford a decent standard of living, or worry about whether they’ll still have work next month.

According to UK government figures, 94% of people were in work in 2014 – up nearly two percentage points in four years. However, the NEF calculated that only 61% were in secure jobs paying a living wage – down a similar amount in the same period.

2. Wellbeing. A growing economy is not an end in itself – it’s a means to improving people’s lives. Few would disagree that the ultimate aim of public policy is wellbeing; we care about GDP because we assume it means more wellbeing. So why not also measure wellbeing directly?

The validity of research into measuring wellbeing, by asking people about their life satisfaction, is now widely accepted. Such measures capture a range of things that people care about and that policies can influence – from income and health to housing and social connections.

Some governments do measure life satisfaction, including the UK (it increased from 7.4 to 7.6, on a scale of 0-10, in the four years to 2014). However, it remains at the margins of policymaking.

3. Environment. The NEF propose a national indicator of lifestyle-related carbon emissions, relative to an allocation calculated from global targets for avoiding dangerous levels of climate change.

In four years, the UK’s position deteriorated from using 91% of its allocation to 98%. As climate is a global problem, this indicator is effectively a measure of responsible global citizenship.

4) Fairness. Research increasingly shows that high income inequality has negative social consequences, while casting doubt on the idea that it incentivises hard work.

Comparing the average incomes of the top and bottom 10%, inequality in the UK has been worsening by an average of 0.8% a year for the last four years.

5) Health. The NEF proposes “avoidable deaths” as a simple, easily-understandable measure that captures the quality of health interventions – not only treatment, but also prevention.

Here, the UK shows a positive trend, but with plenty of room for further improvement – the latest figures suggest 23% of deaths need not have happened.

Image: New Economics Foundation (NEF)

The NEF designed these measures with the United Kingdom in mind, working with the UK’s Office of National Statistics. But they are, in principle, just as meaningful for other countries.

The shortcomings of GDP, as a measure of what we want from an economy, are not a new discovery. The NEF and others have been making the case for years. But while various proposals for alternatives have engaged the interest of policymakers and technocrats, they have not yet taken hold among politicians.

That’s understandable: any politician who suggests new ways to judge their performance is also creating new ways to fail, and many policies that will pay long-term dividends on these indicators will also impose short-term costs.

More broadly, there remains a reluctance to move away from viewing economics as a hard, mathematical science, and accept the need to incorporate more of a social science mindset. In effect, we need another value shift in economics, comparable to those that shaped the last century – Kenyesianism and neoliberalism.

However, while the problems with the current economic system are increasingly widely appreciated, we still lack a compelling, coherent, simple alternative narrative. I hope these indicators can help that narrative to develop.


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World Atlas: Countries With The Lowest Income In The World April 16, 2017

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Countries With  Very Low per Capita GNIs: Malwai, Burundi, Central African Republic, Liberia, the Democratic Republic of Congo, Niger, Gambia, Madagascar, Guinea, Guinea-Bissau, and Ethiopia are all struggling with extreme poverty. Within them, GNI per capita rates vary from 250 to 550 international dollars. This often becomes even more concerning when considering that income disparities often leave the general population in an even poorer state the already bad numbers would suggest. Collectively, these countries need strong economic reforms to begin to fight poverty and increase the welfare of their citizens and secure stronger standings on the global economic scene.

Countries With The Lowest Income In The World

These following countries have the smallest Gross National Income (GNI) per capita worldwide.


The Gross National Income, or GNI, represents the sum of a nation’s Gross Domestic Product (GDP) plus any other net income received from overseas. Therefore, the gross national income measures both the domestic income of a country and the income it receives from abroad.The GNI per capita measures the average income earned by a person in a given country and is calculated by simply dividing the total GNI of the country by the total size of the population. Generally, GNI per capita is used to compare the state of wealth of a population and the standard of living in a country with those of other nations. GNI per capita is expressed in international dollars, and is based on Purchasing Power Parity (PPP), how far the money will go in buying commonly purchased goods in relation to that money’s ability to do the same elsewhere on the planet. When determining a country’s development status, GNI becomes an important economic factor. Taking into account all the considerations listed above, it becomes quite easy to understand why the countries with the smallest GNIs per capita tend to be developing countries which struggle with poor Infrastructure in terms of social welfare and economic development alike.

Malawi’s Economic Issues

According to World Bank data, the country with the smallest GNI per capita is Malawi, with 250 international dollars of income per person. Although the country enjoys a democratic and stable government, the economy continues to operate within a poor fiscal environment, characterized by the country’s high debt levels. The social environment is characterized by a proliferation of inequality and poverty, with over a half of the population being considered as poor, and one-quarter of it living in extreme poverty. The low agricultural productivity is one of the main obstacles in reducing the poverty, further worsened by increasing erratic weather patterns.

Post-Conflict Poverty in Burundi

Burundi, with a GNI of 270 international dollars, is the country with the second smallest GNI per capita. Even if the country is in the process of transitioning from a post-conflict economy to a stable, peacetime economy, poverty remains at troublingly high levels. The country is focusing on developing its basic social services, modernizing the public finance sector, and upgrading institutions and infrastructure across the board. Though it possesses a modernized industrial establishment, it above all relies on the agricultural sector, energy production, and mining for the majority of its revenues. The growing economy will increasingly offer more employment opportunities, and hopefully improvements in the standard of living will be quick to follow.

Underdeveloped Resources in the Central African Republic

The Central African Republic has the third-smallest GNI per capita value (330 international dollars). While it’s true that the country has recently been devastated by a political crisis, the Central African Republic was among the countries with the highest poverty rates well before the recent tumultuous events. The country possesses abundant natural resources but, unfortunately, they are generally very underdeveloped. Subsistence agriculture represents almost one-third of the gross domestic product. Exports of diamonds and wood, while relatively significant domestically, have clearly not been enough to raise the economy to the level of a major global power.

Liberia’s Epidemic

Liberia’s economy was gravely affected by the Ebola crisis that swept Africa for much of the new millennium. Indeed, the outbreak essentially reversed many of the important gains the country has made in the fights against political and economic insecurity and poverty. The quarantines implemented due to the Ebola epidemic affected the production and exports of rubber as workers were restricted in their daily travels, and contamination from African goods became a global concern. The weak business environment constrains the growth of manufacturing industries, and most of the important sectors suffered production disruptions due to the epidemic. The economy of Liberia definitely needs effective implementation of an economic recovery plan

Other Countries With Low per Capita GNIs

Besides these countries, the Democratic Republic of Congo, Niger, Gambia, Madagascar, Guinea, Guinea-Bissau, and Ethiopia are all struggling with extreme poverty as well. Within them, GNI per capita rates vary from 380 to 550 international dollars. This often becomes even more concerning when considering that income disparities often leave the general population in an even poorer state the already bad numbers would suggest. Collectively, these countries need strong economic reforms to begin to fight poverty and increase the welfare of their citizens and secure stronger standings on the global economic scene.

Gross National Income (GNI) per Capita

Rank Country GNI Per Capita (USD)
1 Malawi $250
2 Burundi $270
3 Central African Republic $320
4 Liberia $370
5 Congo, Dem. Rep. $380
6 Niger $410
7 Madagascar $440
8 Guinea $470
9 Ethiopia $550
10 Guinea-Bissau $550
11 Togo $570
12 Mozambique $600
13 Mali $650
14 Uganda $670
15 Afghanistan $680
16 Burkina Faso $700
17 Rwanda $700
18 Sierra Leone $700
19 Nepal $730
20 Comoros $790
21 Haiti $820
22 Zimbabwe $840
23 Benin $890
24 Tanzania $920
25 South Sudan $970

The inconvenient truth about foreign aid: The aid system colludes in redistributing wealth from poorer to richer. Under an aura of beneficence, aid is harnessed to self-interest. February 9, 2017

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Odaa OromooOromianEconomist

The inconvenient truth about foreign aid

For recipients aid has been a very mixed blessing, but for donors it’s been a bonanza.

Credit: Flickr/DFID. Some rights reserved.

It’s astonishing when you think about it. Why should an old and poorly-performing industry carry on, burdened with even more tasks, and provided with yet more money? I’m talking about foreign aid, whose mixed results have been reconfirmed countless times in the last 70 years.

For aid’s backers, such skepticism is unfair or at best premature. Successes, from combating diseases to promoting the ‘green revolution,’ are held as self-evident. With new, smarter policy formulas and management focused on results, failure is soon going to be minimized. Across most of the Left-Right spectrum, aid still enjoys political backing. Western spending continues largely upward. New aid donors from Turkey to Thailand are joining in. And tasks are expanding.To achieve the 169 targets of the world’s 17 Sustainable Development Goals by the year 2030, global leaders concur that foreign aid is vital.

For aid’s critics, however, ‘mixed results’ is a euphemism for badly designed, poorly-managed efforts guided by donor hobbies and flip-flopping policies that ignores the graveyards of failed programmes, the histories of waste, and the sometimes toxic outcomes of aid born of coercion and incoherence. China and Vietnam reduced poverty significantly with almost no Western aid, while aid-dependent countries like Malawi and Timor-Leste have fared badly—in which case why does the aid industry keep on prospering?

To answer that question we have to look at the drivers and navigation systems at work upstream in the system where the captains of the aid industry confer. These drivers get little serious probing, but the knowledge we do have points to an inconvenient truth: the main systems of development aid chiefly serve the donors. The aid system colludes in redistributing wealth from poorer to richer. Under an aura of beneficence, aid is harnessed to self-interest.

Here’s how.

To buy goodwill from others or coerce them, aid provides a classic tool of statecraft. For the biggest donors it can buy votes at the United Nations, keep client regimes ‘onside’, punish troublemakers and open doors to powerful people. As a former senior US aid official put it, “Foreign aid … is like political campaign contributions:  it can facilitate the access of those providing it to those receiving it.” Giving aid helps governments to look good in diplomatic forums while encouraging taxpayers to feel good about their generosity.

In addition, ‘our security’ is at stake. Since 9/11 development and humanitarian aid has increasingly been subordinated to hard power aims—that is ‘securitized.’ European aid, for example, is now supposed to help curb irregular migration from Africa.  Meanwhile, military doctrine and operations have become ‘developmentalized,’ complementing older practices in which aid lubricates access to strategic assets as in Kyrgyzstan, where western aid was exchanged for use of an airbase serving NATO operations in Central Asia.

Boosting exports and investments are major objectives of aid providers. A scholarly consensus, backed by many studies, holds that the mercantile interests of aid givers usually enjoy priority over the interests of aid recipients. For donors the pay-offs are many. For example, for every €10 the Dutch provide in bilateral aid to an average recipient country, Dutch exports to that country increase in the short run by €7 to €9. In the longer run, as goodwill and force of habit take hold, aid-induced sales then become even more lucrative. In the period 1988-2004, each dollar in Western bilateral aid yielded 2.15 dollars in additional exports of goods and services by Western businesses.

Donors use aid to gain footholds for their industries, like Japanese fishing fleets in the South Pacific, French uranium mining in Niger and oil and gas companies in emerging producers of hydrocarbons. Aid providers work assiduously to lower costs and risks for their business investors using subsidies like low-cost loans, insurance and market advice. In recipient countries they add to physical infrastructure and occasionally skilled-up workforces. But the aid system’s most powerful contributions involve the transmission and enforcement of ‘sound policy’, meaning policy that is suitable for investors.The formulas are well-rehearsed: sell-offs of public property; weaker protection of labour rights and environmental safeguards; and taxes shifted from foreign flows to domestic sources.

Under the World Bank’s ‘competitive cities’ approach, municipalities are pushed to compete for outside investment by offering tax ‘sweeteners’, land and other subsidies. With the rise of financial sector power, donors have facilitated the growth of stock markets and hot money flows. Key to these investor-friendly climates has been austerity—driving down public spending in recipient countries.

Acting almost as bailiffs, donors also help to extract payments to big pharmaceutical and software firms who own patents, copyrights and other kinds of ‘intellectual property.’ In the years 2012-2015, sub-Saharan African countries together paid about $10 billion to these private interests, up from about $8.7 billion in the years 2007-2010. But because rich country tax laws allow firms to hide profits, these World Bank data may actually understate the true scale of extraction.

Under vigorous donor pressure, poorer countries have poured trillions of dollarsinto Western banks under a rationale of self-insurance. As the economist C. P. Chandrasekhar has pointed out “This reverse flow of capital essentially means that excess savings in emerging markets are being ‘recycled’ in ways that put the responsibility of allocating that capital in the hands of a few financial decision makers … sitting at the apex of a concentrated global financial system.”

Consistent with their promotion of rent-seeking from ‘intellectual property’, donors show almost no interest in curbing cartels and other anti-competitive practices by transnational firms. Research is scarce, but it points to massive losses for poorer countries. One study estimates that annual losses are equivalent to at least 50 percent, and could equal as much as 300 percent of aid disbursed.

Donors have also invested in knowledge, but gains can flow back disproportionately to themselves. Aid for the ‘Green Revolution’, for example, helped boost crop yields in poor countries, but major beneficiaries have been western agribusinesses. Up to the early 1990s, estimated returns to such firms were forty times the amount of aid paid out originally by the US for research and development of the ‘Revolution’s’ higher-yield technologies.

Contrary to the belief that aid-financed programmes target diseases that mainly affect people in the tropics, research shows that “development aid is intended to alleviate the threats to populations within the donor state.” And since the 1960s, foreign aid has brought hundreds of thousands of students from poorer countries to study at universities in Europe and North America. Today, student fees and expenses annually absorb more than $3 billion in aid—virtually all of it spent in donor countries.  Where the longer-term benefits from aid-funded scholarship programmes go isn’t known with much precision, but there is some evidence that former scholarship holders from Africa tend to stay in richer countries, or to work abroad in Western firms and other organisations.

In sum, poorer countries routinely put more resources at the disposal of donor country interests than they receive in foreign aid, yet it isn’t easy to demonstrate this inconvenient truth conclusively. Estimating the extent of the aid system’s collusion in ‘perverse’ aid is often guesswork because the system’s upper reaches lack transparency. Laws, rules, political agreements and sheer inattention shield many counter-flows from public view. Every year, thousands of evaluations of aid’s ‘downstream’ activities take place but I know of no formal evaluation of aid mechanisms ‘upstream’ that would indicate with precision who benefits and by how much.

Does it have to be this way?

In 1943, at a time of enormous human suffering, one of the 20th century’s greatest activist-philosophers, Simone Weil, wrote about the characteristics of practical compassion for others.  She insisted that help must be concrete and authentic: “All human beings are bound by identical obligations, although these are performed in different ways according to the circumstances…. The obligation is only performed if… expressed in a real, not a fictitious, way.” Today, in framing debates about obligations across borders, that plea has lost none of its relevance.  It calls for lucidity, and hence the rejection of pseudo-solutions promoted through the foreign aid system.

Activists, academics, journalists and NGOs in a number of fields are already focusing on counter-flows and the legal gimmicks and non-transparency that promote them.  Although based outside the mainstream aid system, these initiatives are getting respectful attention from some donors, notably in Norwaybut also in a few knowledge centres of the United Nations. A prime example is the movement for tax justice.These combined efforts have begun to pay off as better tax enforcement and new rules yield more revenues for public purposes. Meanwhile a bloc of non-Western governments at the United Nations led by Ecuador is pressing to create a global tax body.

A system of global taxation won’t be with us soon, but as this idea gains traction it may open up a pathway towards an authentic system of redistribution across national borders. In so doing it could help to replace today’s machinery of upward redistribution, re-build decent social contracts, and ultimately sideline foreign aid as we know it.

Causes and Effects of Land Size Variation on Smallholder’s Farm-Income: The Case of Kombolcha District of East Hararghe, Oromia, Ethiopia February 5, 2017

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Odaa OromooOromianEconomist

 


Causes and Effects of Land Size Variation on Smallholder’s Farm-Income: The Case of Kombolcha District of East Hararghe, Oromia, Ethiopia

By Abera Gemechu Doti, Open Access Library Journal (OALib Journal) DOI: 10.4236/oalib.1103312, PP. 1-17


Abstract

For farmers, farmland is a basis of their livelihood and the basic agricultural resource and is now becoming a constraint in agricultural production. This study was carried out in Kombolcha district of Oromia National Regional State. The specific objectives of the study were to identify the factors affecting size of landholding and to analyze the effects of land size variation on farm income. To address these objectives a two-stage random sampling procedure was used to select 5 peasant associations and 110 sample respondents from a total of 19 peasant associations found in the district. Multiple linear regression and Cobb-Douglass production functions were used for analyzing the cause of land size variation and effects of land size variation on farm income respectively. Accordingly, age of the household head, agro ecology, family size and land availability in PA were found to be the significant factors in causing variation in size of land holding in the study area. The regression coefficients of the Cobb-Douglass production function indicate that the size of cultivated land, average land productivity, livestock owned and non-farm income were statistically significant factors in explaining variation in farm income among farmers. Therefore, there should be urgency of devising means and ways to improve the farm income through strengthening the production of cash crops. Besides this, productivity of land should be increased through the introduction of high yielding varieties of crops. And there should be strategy to create non-farm income sources for the smallholder farmers.


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Cite this paperDoti, A. G. (2017). Causes and Effects of Land Size Variation on Smallholder’s Farm-Income: The Case of Kombolcha District of East Hararghe, Oromia, Ethiopia. Open Access Library Journal, 4, e3312. doi: http://dx.doi.org/10.4236/oalib.1103312.

References

[1] MOFED (Ministry of Finance and Economic Development) (2010) Ethiopia: (Sustainable Development and Poverty Reduction). (Draft). Addis Ababa.
[2] MOFED (Ministry of Finance and Economic Development) (2003) Challenges and Prospects of Food Security in Ethiopia. Proceedings of Food Security Conference2003, Professional Associations Joint Secretariat, Addis Ababa.
[3] EEA (Ethiopian Economic Association) (2002) A Research Report on Land Tenure and Agricultural Development in Ethiopia, October 2002, Addis Ababa.
[4] Mariam, M.W. (1999) Land and Development in Ethiopian. Economic Focus, 2, 12.
[5] Kebede, B. (1998) Agricultural Credit and Factors Impeding Loan Repayment Performance of Small-Holders in Central Highlands of Ethiopia: The Case of Alemgena District. Unpublished M.Sc. Thesis, AUA, Ethiopia.
[6] Rahmato, D. (1998) Land and Rural Poverty in Ethiopia. A Paper Presented on Forum for Social Studies, Addis Ababa (Unpublished).
[7] Joshi, M.R. (1990) Status and Agro Forestry Opportunities. In: Agro Forestry in the Taria. Seminar Proceedings. U.N, Food and Agricultural Organization and the Department of Forestry and Government of Nepal, Nepal, 5-11.
[8] West, H.W. (1982) Land Tenure, Policy and Management in English Speaking African Country. The United Nation University, Rome.
[9] CSA (Central Statistical Authority) (2007) Populations and Housing Census of Ethiopia: Results for Oromyia Regional National State. Addis Ababa.
[10] Sankhayan (1998) Introduction to the Economics of Agriculture of the Agricultural. New Production Delhi, Prentice-Hall of India Private Limited.
[11] Koutsoyiannis, A. (1973) Theory of Econometrics. An Introductory Exposition of Econometric Methods. The Macmillan Press Ltd, London, UK.
[12] Tesso, G. (2003) Variation in Land Size and Its Effects on Farmers’ Income. The Case of Qarsa Qondaltiti District. Unpublished M.Sc. Thesis, AUA, Alemaya Ethiopia.
[13] Adnew, B. (1992) Analysis of Land Size Variation and Its effects: The Case of Smallholder Farmers in the Hararghe High Land. Unpublished M.Sc. Thesis, Alemaya University.
[14] Gujarati, D.N. (1995) Econometrics. 3rd Edition, McGraw-Hill, Inc., New York.

How and why we are moving beyond GDP as a measure of human progress January 13, 2017

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Odaa OromooOromianEconomist


How we track our economy influences everything from government spending and taxes to home lending and business investment. In our series The Way We Measure, we’re taking a close look at economic indicators to better understand what’s going on.


Ever since 1944, Gross Domestic Product (GDP) has been a primary measure of economic growth. It’s in the news regularly and, even though few can define what it means, there is general acceptance that when GDP is growing, things are good.

There are problems with this simplistic formulation.

GDP measures production only. It does not capture collapsing fish stocks, increasing obesity and diabetes, or new types of synthetic drugs. When people choose to work part-time to have a better work-life balance, GDP actually goes down.

This narrow focus distorts our perception of progress. It guides our representatives to focus only on certain things – what is measured – and allows them to ignore what isn’t quantified and regularly reported.

But a new set of measures is slowly being established, which aims to capture a wider range of human experiences and reset our idea of “success”. Called the UN Sustainable Development Goals (SDGs), these aim to include all the main pillars of a progressive society, from physical safety through to economic opportunity and good health.

SDGs will force action by highlighting what is currently covered up by the narrow measures of how our economy and society are faring.


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Made in China: Once known for cheap knockoffs, Chinese companies are now the world’s innovators — Quartz October 30, 2016

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Most of us use products made in China every day and are aware of its growing economic power as a factory to the world. But China intends to become a developed nation by mid-century, and integral to this ambition is its intense focus on innovation. In a few decades, Chinese companies have evolved from imitators…

via Made in China: Once known for cheap knockoffs, Chinese companies are now the world’s innovators — Quartz

Tour operators cancel holidays as unrest tightens grip on Ethiopia. #OromoProtests #OromoRevolution October 29, 2016

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 By Hugh MorrisThe Telegraph, 28 OCTOBER 2016

Saga Holidays is among a number of major UK tour operators to cancel trips to Ethiopia as a wave of unrest spreads across the African country.

The Foreign Office (FCO) is advising against all travel to some regions in the east and all but essential travel to central parts that include places such as Lalibela, popular with tourists for its rock-cut churches.

Saga, Kuoni and Cox and Kings are among those to have cancelled tours for this year, offering refunds or alternatives to customers.

The Ethiopian government this month declared a six-month state of emergency and arrested more than 1,600 people as the FCO warned of clashes between protesters and security forces. Protests have been most fervent in the Amhara and Oromia regions.

In August, some 90 people were believed to have been killed after police used live bullets on protesters chanting anti-government slogans and waving dissident flags.

Foreign Office advice Ethiopia
The Foreign Office has different advice for different parts of the country CREDIT: FOREIGN OFFICE

“Demonstrations have been taking place in the Oromia and Amhara regions in 2016 and further protests are likely,” the Foreign Office said.

“Tensions in Oromia have significantly risen since October 2 when up to 100 people died during a stampede at the Irreechaa religious festival.

“There has been widespread disruption to road travel across Ethiopia. Unauthorised and official roadblocks can appear with little or no warning.”

The country had recently been experiencing a boom in its tourism industry, thanks to its unique mix of history, wildlife and culture. Last year, the country was praised by the European Council on Tourism and Trade for its “excellent preservation of humanity landmarks”.

Beside the rock-hewn churches of Lalibela, other draws include the Simien Mountains National Park, Lake Langano, and the Danakil Depression, one of the hottest places on earth.

A spokesperson for Kuoni, which offers a tour of the highlights of Northern Ethiopia, said it had stopped selling the trip and would be monitoring the situation.

A spokesperson for Saga, too, said all 2016 departures had been cancelled, adding: “The initial change to FCO advice was that some areas should be avoided. As a result tours were amended to ensure that our holidaymakers were nowhere near those areas. However… the advice changed again and advised against all but essential travel to certain regions of Ethiopia. As a result we took the decision to cancel all 2016 departures.”

Cox and Kings said it would only be able to resume its trips should the FCO advice change.

Responsible Travel, which hosts a number of tour operators on its website running trips in Ethiopia, said some of its clients are continuing to offer tours.

“Several of the holidays we market in Ethiopia are run by local tour operators, who will continue to offer and run the same trips as they always have done,” said marketing manager Sarah Faith.

“It is then up to each individual traveller to consider the FCO advice and to purchase insurance that will cover them given the FCO warnings.

“Our local operators in Ethiopia are extremely well-placed to understand the day-to-day situation on the ground in the country.”


Click here to read related article: Financial Times: Ethiopian unrest triggers collapse in tourism. #OromoProtests #OromoRevolution

Financial Times: Ethiopian unrest triggers collapse in tourism. #OromoProtests #OromoRevolution October 27, 2016

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Odaa OromooOromianEconomist
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Ethiopia:“Things are effectively on hold,” said Jim Louth, owner of Undiscovered Destinations, a UK travel company. “If anyone inquires, our policy is to say people are being advised not to go.”  Financial Times

#OromoProtests: “Strikes, ‘ghost town days’ and non-violent protests are more common now because they’re so much harder to police, even under the state of emergency.”  Financial Times


Ethiopian unrest triggers collapse in tourism

Protests and state of emergency see bookings to historic sites grind to a halt


orompoprotests-picture-from-the-economist-13-october-2016
oromoprotests-image-from-financial-times
A wave of anti-government protests has caused a collapse in tourist bookings to Ethiopia 

A wave of anti-government protests and the imposition of a state of emergency has triggered a collapse in tourism bookings in Ethiopia, underlining the effect the unrest is having on one of Africa’s best-performing economies.

As the demonstrations spread across the country, governments, including the US, UK, Australia, Canada and Ireland, have advised their citizens against all non-essential travel to the country or Amhara and Oromia regions at the centre of the instability.

Hailemariam Desalegn, Ethiopia’s prime minister, has said the death toll from the demonstrations, which began last November and have been exacerbated by the authoritarian regime’s brutal crackdown on protesters, could be as high as 500. Thousands of people have been arrested and the government imposed a state of emergency as it grapples with the biggest threat to the Horn of Africa nation’s stability in years. The protests originally began over land disputes, but the state’s harsh response caused them to spiral into broader protests against the government.

An American woman was killed after being caught up in a protest on the outskirts of Addis Ababa, the capital, this month.

Travel companies said bookings to the country — home to ancient Christian sites and spectacular highlands — have virtually ground to halt as the unrest and travel warnings keep visitors away.

“Things are effectively on hold,” said Jim Louth, owner of Undiscovered Destinations, a UK travel company. “If anyone inquires, our policy is to say people are being advised not to go.”

Tourism has become an important part of the economy, which has been growing at an annual average of about 10 per cent over the past decade as Ethiopia has attracted increasing levels of foreign investment.

The government estimates the sector contributes about 4.5 per cent of gross domestic product, or $2.9bn. The indirect contribution, through investment, is the same, while about 1.5m people are thought to earn their living from the industry.

More than 750,000 foreign tourists visited Ethiopia last year, with the US by far the largest country of origin, followed by China, Britain and Germany, according to government data.

oromoprotests-and-fascist-tplfs-human-rights-violations-anaginst-civilians-2016-bbc-sources

The blow to tourism comes amid rising investor uncertainty as foreign companies, particularly flower farms and textile factories, have been targeted in a string of attacks that have caused tens of millions of dollars of damage.

The International Monetary Fund warned just before the state of emergency was imposed this month that attracting foreign investment will be crucial to sustaining the high growth rates.

Some travel companies said one problem is that while some of Ethiopia’s most popular sites — such as the city of Aksum — are not located in Amhara or Oromia, people have to travel through those regions to reach them.

“People on their first visit will want to go to the main sites and not be stressed,” said the UK-based Ultimate Travel Company. “More adventurous travellers might still go to places like the Omo valley that haven’t been affected, but most people will simply wait.”

The Ethiopian Tourism Organisation, a government body, insisted that “all tourist areas of the country are safe”.

“It is as safe now for tourists and business visitors to travel in Ethiopia as it has been for the last 22 years since the new constitution has been introduced,” it said in a statement.

Kiros Mahari, the general manager of the Ethiopian Tour Operators Association, said that “while there has been some unrest for a while, the situation has been restored back to normal”.

Emma Gordon, an analyst at Verisk Maplecroft, a risk consultancy, said such statements “come across as unbelievable”.

“The situation is quieter now than a few weeks ago, but the protests have not stopped,” she said. “Strikes, ‘ghost town days’ and non-violent protests are more common now because they’re so much harder to police, even under the state of emergency.”

Ms Gordon predicted that once the protesters had worked out how to cope with the state of emergency, which bans all protests, political communication on social media, and political gatherings, “there will be an upsurge in unrest”.


 

#OromoProtests, #OromoRevolution: The point of no return in Ethiopia

Ethiopia Ranked 4th Most Fragile State

 


The Indian Economist: Behavioural Economics, Psychology and Free Trade August 17, 2016

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Odaa OromooOromianEconomist

 

The transaction “utility” (economists’ term for satisfaction) compares the price one thinks is justified (the “reference price”) to the actual price they have to pay. If reference price is less than or equal to the actual price, humans get satisfied.

For free-trade skeptics, buying a relatively varied and less expensive basket of commodities is an alluring development. However, the transaction utility (satisfaction) is severely negative. This is because they are not willing to pay the price of substantial layoffs and unemployment at home (incidents that they perceive chiefly stem from globalisation) in order to get the goods for cheap.

Whether they are right or wrong is another matter, but the heavy moral cost they face because of perceived guilty conscience is too high. This results in a dissatisfaction with the current state of free trade and borderless transactions. In short, they suffer from a negative overall utility.

read more at:-

http://theindianeconomist.com/behaviour-economics-psychology-free-trade/

How fast fashion has made some of the richest men on Earth August 2, 2016

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Odaa Oromoo

When you think of the industries that allow a person to acquire a massive fortune—the kind that makes them the wealthiest person in a country, or continent—your mind probably goes to fields such as technology, or oil. But clothes, and especially cheap clothes have turned out to be a surprisingly good route for many of…

via Fast fashion has made some of the richest men on Earth — Quartz

The Irrationality of Rationality July 19, 2016

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Odaa Oromoorational constrained choice


The confined view of rationality regarding humans has strong relevance while carrying out activities like trade and exchange. Although rationality must not be ignored, understanding other key drivers behind transactions could widen our approach to comprehending and applying economics.

For instance, why do some universities conduct exams without an invigilator? Or why do most people value products they use beyond their monetary value (such as a coffee mug or passes for a cricket match)? Or even with no waste bins, why do some roads stay significantly cleaner than the others?

To answer the above questions, one would have to move away from the usual notion of maximising self-interest. Much literature has come to light during last few decades by behavioural economists and psychologists such as D. Kahneman, A. Tversky and others, in the field of psychological sensitivity. They suggest that various characteristics determine the choices that one makes. Most importantly, they point out that these reasons are beyond the maximisation of self-interest of the individual. Some of these characteristics include attitudes of people, such as higher aversion to losses of wealth and possessions than to identical amounts of gains, or a bias towards an unlikely or a rare event, or any limitation of memory due to biological factors……. Read more at:-

http://theindianeconomist.com/the-idea-of-rationality-2/


 

Really radical economics April 24, 2016

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Odaa OromooTrickle down economics

 

 

At its root the economy is a living, complex organism. Rather than envisioning economic transformation as akin to overturning an unresponsive juggernaut, it may be more productive to see it in terms of tending to a fragile body. Avoiding drawing “us” versus “them” battle lines, and acting on the transformational potential that exists within the economy as it is right now, opens up new arenas for constructive action.  Now that would be radical.

 

Transformation doesn’t require an alternative “social economy,” because the economy we have is already social. We just need to recognize and act on that fact.

Source: Really radical economics

Economics: Traditional & Behavioural: System Thinking 1 &2 April 12, 2016

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Odaa OromooTraditional  and  Behavioural Economics, System Thnking 1 and 2

 

Traditional economics views humans as robotic machines who make calculated decisions based on logic. In contrast, behavioural economics views humans as irrational and emotional beings who are influenced by biases and experience when making decisions. This infographic takes a closer look at just what behavioural economics is and how it can be used.

Read more at:- https://www.b2binternational.com/publications/what-is-behavioural-economics/

 

Related:-

10 key economic concepts

10 key economic concepts

Ethiopia: The failed State’s Collapsing Economy April 8, 2016

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Odaa OromooThe TPLF Corruption network

Ethiopia: Double Digit Growth or Collapsing Economy?

Analysis by  Andualem Sisay,  All Africa, 8 April 2016


 

Ethiopian government’s increasing reliance on foreign loans is posing a serious risk of economic collapse, a renowned economist has revealed.

“Take for instance China, which has loaned over $17 billion to the Ethiopian government for infrastructure projects. Our total investment is 40 per cent of the GDP. Our saving is between 10-20 per cent of the GDP.

“We import $13 billion and export $3 billion. They are the ones who are filling all these deficit gaps,” said Dr Alemayehu Geda.

The Addis Ababa and London universities don was presenting his paper on Foreign Direct Investment (FDI) in Ethiopia and Credit Financing.

“What will happen if they stopped such financing tomorrow? What if, for instance, the Chinese government tomorrow says sell for me Ethio Telecom or sell to me Ethiopian Airlines or give me some share or buy my aeroplanes, or I will stop such credit financing?

Strategic items

“The country will collapse, I guarantee you,” he said.

Dr Alemayehu went on: “About 77 per cent of our imports are strategic items. Fuel only has 25 per cent share of the total import. As a result, even if we want to reduce these imports, we can’t. Ethiopia needs to minimise strategic vulnerability.”

The don elaborated giving the example of how the Koreans mitigated against such dependency risks when they used to source 75 per cent of their imports from the US some decades ago.

Dr Alemayehu presented his paper in Addis Ababa at the launch of a two-year 12 series of public dialogue by the Forum for Social Studies – a local civil society, partially financed by the UK’s Department for International Development (DfID).

 

“The Koreans came out of such vulnerability risk after analysing their situation properly, discussing the issue with their intellectuals and setting long term plans,” he said, advising the Ethiopian government to invest in quality education, skilled labour and improve the negotiations capacity as well as have in place a well-designed policy.

Last decade

Official estimates have shown the Ethiopian economy growing by double digits annually for about a decade now, a figure that has highly been doubted by independent scholars.

The Addis government has been applauded for growing the country’s GDP by around 10 per cent per year for the last decade.

In his paper, Dr Alemayehu indicated that Ethiopia’s external loan included $17.6 billion from China for various infrastructure developments, around $3 billion from Turkish and close to $1 billion from Indian governments.

The World Bank’s data shows that from 2012 – 2016, Ethiopia has taken a total loan of close to $6 billion from the global lender. Last year, Ethiopia for the first time, joined Euro Bond and accessed $1.5 billion.

In addition to loans, reports show that some $3 billion annually came to the country in the form of aid from donors.

Have declined

Ethiopia’s exports have declined from around $3 billion last year to around $2.5 billion this year, as revealed in the recent six-month report of the prime minister to the parliament.

Even though tax collection has been growing by an average of 20 per cent annually over the past five years, Ethiopia’s tax to GDP ratio still stands at 13 per cent, which is less than the around 16 per cent of the sub-Saharan average.

Last year, Ethiopia collected around $6 billion from tax, including $25 million recovered from contraband traders. The figure could have been raised by at least $3 billion had it not been for the generous tax incentives the country has provided to investors, according to latest report of the Ethiopian Revenue and Customs Authority (ERCA).

In only nine months of Ethiopia’s last budget (July 8, 2014 – July 7, 2015), the country provided tax incentives of around $2.4 billion to investors, by exempting them from customs and excise duties and withholding, VAT and surtaxes, according to ERCA’s report.

Financial integrity

A financial integrity report last December indicated that around $2 billion was leaving Ethiopia every year through mis-invoicing and other tax frauds.

When it comes to the FDI coming from China, India and Turkey, close to 71 per cent of their investments in Ethiopia were in the manufacturing sector.

However, job creation, technology transfer and export contribution were insignificant for Ethiopia, which has over an 90 million population dominated by the youth. The country has about 16 per cent unemployment rate, according to Dr Alemayehu.

Between 2003-2012, there were 93 Chinese companies that had reportedly invested $600 million, creating around 69,000 permanent and 79,000 temporary jobs for Ethiopians. There was little contribution to technology transfer and foreign currency generation through the exportation of their products.

According to Dr Alemayehu’s paper, during the same period, Indian investments in Ethiopia created 24,000 and 26,000 permanent and temporary jobs respectively, while 341 Turkish companies operating in Ethiopia created a total of 50,000 jobs.

Though much was being talked about Chinese investments growing in Africa, the Asian giant had less than 4 per cent of total share of FDI on the continent, out of the total stock of $554 billion worth in 2010. Most of the investments in Africa were still dominated by the Western companies, according to Dr Alemayehu.

Prime Minister Hailemariam Desalegn recently told the local media that Ethiopia’s GDP growth was not expected to record a double digit this year and would likely drop to around 7 per cent.

However, his special economic adviser with a ministerial docket, Dr Arkebe Equbay, reportedly told Bloomberg media that the economy was expected to grow by 11 per cent this year.

Foreign debts

The government was now expected to deal with puzzles such as why the economic performance was not as good as in the previous years, with all the generous incentives to investors and huge infrastructure investments mainly dependent on local and external loans?

How to repay its local and foreign debts before the lenders force the government to cede shares in its highly protected businesses, such as, Ethio Telecom, Ethiopian Airlines, the Commercial Bank of Ethiopia, the Ethiopian Insurance Corporation and Ethiopian Shipping Lines is, for sure, the elephant in the room.

But the big question is: How soon will these issues get the attention of a government pre-occupied with trying to feed about a dozen million people affected by drought and dealing with political unrest and conflicts mainly in Oromia and Gondar area of Amhara Region?


 

http://allafrica.com/stories/201604080259.html

THE ANIMAL SPIRITS February 28, 2016

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Odaa Oromoo

INTRODUCTION

 

The resources are scarce in comparison to our never ending wants andEconomics is concerned with the ‘rational’ management of these resources that have alternate uses to maximise the gains at both micro-macro level.

There are several economic models that have been developed that have distinct characteristics and unique features. Adam Smith’s Capitalist model, the one where the market forces of demand and supply move freely to determine the Equilibrium level represents an ideal system of want origin and its satisfaction in the perfect sense. Any extension of demand will shift the Equilibrium price upwards and this in turn, will motivate the ‘rational’ producers to supply more to the market at the increased price to maximise their profits. This will eventually stabilise the price and eventually Equilibrium will be restored in the market. How simple is that! This model seems stable and logical in every sense, doesn’t it?

Source: THE ANIMAL SPIRITS

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Econometrics Course Notes February 7, 2016

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Odaa Oromoo

Econometrics – the most practical part of any Economics course. Combining regression analysis with economic theory using real world data sets! This is what applied econometrics is all about!Feel free to download and share my course notes from EC2020 Elements of Econometrics.

https://powerofprice.wordpress.com/2016/01/27/econometrics-course-notes/

Source: Econometrics Course Notes

Markets, policy and sociology of economic immorality January 16, 2016

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Odaa OromooTrickle down economicsEconomic performance and size of government

 

 

In a society in which the money-maker has had no serious rival for repute and honor, the word ‘practical’ comes to mean useful for private gain, and ‘common sense,’ the sense to get ahead financially. The pursuit of the moneyed life is the commanding value, in relation to which the influence of other values has declined, so men easily become morally ruthless in the pursuit of easy money and fast estate-building…
A society that is in its higher circles and on its middle levels widely believed to be a network of smart rackets does not produce men with an inner moral sense; a society that is merely expedient does not produce men of conscience. A society that narrows the meaning of ‘success’ to the big money and in its terms condemns failure as the chief vice, raising money to the plane of absolute value, will produce the sharp operator and the shady deal. Blessed are the cynical, for only they have what it takes to succeed.” – (C.Wright Mills 1956).   Source:  Markets, policy and sociology of economic immorality by Oleg Komlik

TPLF/EPRDF Ethiopian Regime is a Contra to a Developmental State January 12, 2016

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Odaa OromooThe TPLF Corruption network

 

TPLF/EPRDF Regime a Contra to a Developmental State

By Dr Barii Ayano, Economic Thinker

 

Introduction

One of the catchy phrases the TPLF/EPRDF regime leaders and their cadres often use to describe the regime is “limatawi mengist” or “developmental state”. However, the TPLF/EPRDF regime is not pursuing a development state economic model since the regime’s economic system does not meet standard features of a development state. Actually, the regime’s economy and its rhetoric are in contradiction with the conventional features of a developmental state enshrined in nation building and economic nationalism that unify a nation. There is difference between state-led developmental state and state-controlled and state-owned economy of TPLF-led regime. The regime’s rulers and bureaucrats have predatory and kleptocratic motives, which are fed by structural and institutional corruptions and rentseeking. Unlike a developmental state, which builds foundations for private entrepreneurship and innovative enterprises, Ethiopia’s monetized economy is dominated by interest groups affiliated or aligned with the regime such as REST. The regime marginalized and displaced most of the traditional entrepreneurial and business class. The foundation of Ethiopia’s economy under the current regime is not entrepreneurial or business skill but alliance with TPLF leaders. The leaders of the TPLF/EPRDF regime and interest groups aligned with them designed get-rich-quick schemes based on land grabs and cronyism, which have nothing to do with economic efficiency, entrepreneurship, innovative value adding, business acumens, etc. of a developmental state. Therefore, the regime’s leaders and their cadres use of the phrase ‘developmental state’ to the describe economy is similar to the regime’s leaders and their cadres use of the word ‘democracy’ to describe the current political system. It is also important to note that a developmental state is not always synonymous with authoritarianism and dictatorship, but many Asian states have been authoritarian to a degree, particularly at the earlier stages of development.

What is a Developmental State?

A developmental state is a term coined by Chalmers Johnson that is used to describe states which follow a particular model of economic planning and management. It was initially used to describe post World War II Japan and its rapid modernization and economic growth. It is the developmental state of Japan that led to innovative creation of world renowned Japanese brands such as Toyota, Honda, Mazda, Mitsubishi, Nisan, Sony, Toshiba, etc. Other examples often cited as developmental states include Singapore, Thailand, Taiwan, Malaysia, South Korea, and Indonesia. In terms of an economic jargon, a developmental state is a state where the government is intimately involved in the macro and micro economic planning in order to grow the economy whilst attempting to deploy its resources in developing better lives for the people. Developmental states invest and mobilize the majority of capital into the most promising sector of an economy that will have maximum spillover effect for the society and reduce the dislocations caused by shifts in investment and profits from old to new sectors. Such state plays the social engineering role to restructure the national economic system for promoting long-term (industrial) development. Thus it is based on combinations of nurturing innovative private enterprises as the key owners and the positive role of government via an ambition use of the interventionist power of the state and its fiscal and monetary policy to guide investment in a way that promotes economic solidarity of different interest groups based vision for national economy and its growth.

Key Features of a Developmental State

In order to understand the concept of a developmental state, it is important to highlight some of the characteristics of a developmental state. Although dictators pursuing developmental states generally believe that they will attain state legitimacy through delivery of services to citizens rather than through the ballot, they use economic nationalism to unify the nation based on a collective goal of economic development. Developmental states hugely invest in quality education, especially in technical fields in both domestic universities and overseas scholarship. This leads to the emergence of bureaucratic layers populated by extremely educated people, who have sufficient tools of analysis to be able to take economic leadership initiatives, based on sound scientific basis, at diverse levels of decision making within the government structure. Moreover, developmental states have been observed to be able to efficiently distribute and allocate resources and, therefore, invest optimally in critical areas that are the basis of growth such as education, research and development, infrastructure, etc. It is this ideology-structure nexus that distinguishes developmental states from other forms of states. Let me elaborate the ideology-structure nexus of a developmental state in two areas.

1. Economic Nationalism as an Ideology

The successful developmental states are based promoting economic nationalism as a unifying ideology. The state promotes economic nationalism as an essential keystone, which unifies different interest groups. A developmental state conceives economic development as its national mission and the mission of the country at large. Although a development state establishes its principle of legitimacy as its ability to promote sustained development, it does not alienate experts of diverse interest groups and political views in participating in economic nationalism since real development requires expertise for steady high rates of economic growth and structural change in the productive system, both domestically and in its comparative competition in the international economy. In spite of dictatorial development states control of political sphere, there is economic freedom where experts of diverse professions are able to establish an “ideological hegemony” based on economic nationalism to which key actors in the nation adhere voluntarily in order to contribute towards economic development for the benefits of their country. The main force behind the developmentalist ideology has usually been economic nationalism, inducing nations to seek to “catch up” with countries considered as more developed. It is essential to stress the ideological underpinnings of state policies knit together the ruling class and the ruled class of a country with economic nationalism as a unifying factor. In other words, the centrality of economic nationalism as an alternative ideology points to de-politicized national quest for economic development, which is driven by professional expertise with the help and support of a developmental state. The economy falls under some kind of technocratic governance of the best and the brightest a country can offer for economic development to carry out state policies that are good for the nation without focusing on cronyism and self-serving profiteering of politicians and their relatives. The TPLF-led regime does not function in this mindset. Economic development is not only a central preoccupation for political leaders but also by professional technocrats of a developmental state. Nationalist-cum-developmentalist ideology is used for both unifying nation building and economic development. Economic nationalism ideology is used to rally the masses for national unity and economic development. The centrality of economic development was such that it acquired the status of an ideology (“developmentalism”) national ideology, which seeks to subordinate the energy of the people behind a single national goal. Among others, the role of the government is maintaining public investment in infrastructure, research and development, and education to stimulate private investment, create skilled labor force and entrepreneurial class, etc. In the politics of nation building, the developmental state leadership focuses on the economics of nation building. In dictators-led developmental state leaders swear by economic growth and seem to view good growth indicators as the main source of their legitimacy. The developmental state is also committed to resolving conflicts in the on-going process of social restructuring as it tends to induce winners and losers in economic development. Conflict management in this regard involves ensuring that the benefits, expected benefits, of the growth process are widely shared and discussed among politicians, experts and the public. The developmental state is understood to be identified with its actual achievement of economic  growth, since its legitimacy stems from the significant improvement in standards of living for a broad cross section of society. Thus economic nationalism can include political interest groups molded into a developmental coalition for a common goal.

2. Developmental State-Structure: Professional Capacity Building

The state-structure of a developmental state emphasizes building structural capacity to implement economic policies sensibly and effectively. The capacity is determined by structural, institutional, technical, administrative, and political engagements and professional bureaucrats. Undergirding all these layers is the autonomy of the state from social forces so that it can use these capacities to devise long-term economic policies unfettered by private interests of corrupt politicians and unprofessional bureaucrats. The quest for a “strong state” in the development process is aligned with building administrative capacity more than the political ability to push through its developmental project using political power. The developmental state has some social anchoring that prevents it from using its autonomy in a predatory manner and enables it to gain devotion of key social actors. It does not rely on asymmetric nature of centre-periphery power relations, which tend to produce various class structures. Rather, it focuses on building capacity for appropriate state structures and functions that effectively promote development as a national goal. (See “a” and “b” below) The foundation to building a developmental state is to develop an educated population and a knowledgeable society with high levels of scientific literacy in building a knowledge economy based on professional business people and entrepreneurship. Economic nationalism leads to a harmonious society with a strategic partnership amongst labor, government, industry and society, which leads to a society that efficiently allocates and distributes resources.

a. Competent and Efficient Bureaucracy

It goes without saying that cooperation between state and major industries is crucial for maintaining stable macroeconomy since policies decided at the top levels of government are administered by middle-level bureaucrats. One of the main characteristics of a successful developmental state capacity building is creating an extensive bureaucratic layer consisting of mainly professional technocrats with highly developed economic and innovative visions, who are able to plan in large cycles that extend over long time periods. The bureaucrats also pay special attention to reconfiguring the social sphere so that the culture of appreciating the value of education is entrenched since technical education is the driver of increasing developmental capacity. For instance, in East Asia, the developmental state’s bureaucracy has several important characteristics. There was an extensive discourse on ‘developmentalism,’ the necessity of industrialization and of state intervention to promote it. The professional bureaucracy in Asia has a powerful social group of highly educated bureaucrats with predictable and coherent national interests. Thus, the public-private cooperation between the bureaucracy and business sector has been developed and refined through institutional adaptation over time, and responds flexibly to changing new realities in the respective country and international economic conditions. By and large, the behavior of Asian bureaucrats has been bound to the pursuit of collective goals rather than individual opportunities presented by the market, allowing the state to act with autonomy from certain societal pressures. The fact that formal competence, as opposed to clientelistic ties or loyalties, is the chief requirement for entry into the bureaucratic network makes it all the more valued among people. A competent and efficient bureaucracy dedicated to devising and implementing a planned process of economic development is central role of a developmental state. Developmental states staff the bureaucracy by the respective countries best human resources, who are charged with the task of directing the course of their countries’ development. Thus the chance to join the state bureaucracy has a high degree of prestige and professional legitimacy. This allows a developmental state not only to continue recruiting outstanding personnel, but also to utilize policy tools that tend to give them additional authority. As a result, the developmental state economies have developed the greatest state capacity not only to formulate development policies but also to implement them effectively to promote economic development. The TPLF-led regime has never nurtured bureaucratic professionalism but bureaucratic clientelism of loyal servants.

b. Embedded Autonomy of Professional Bureaucrats and Entrepreneurs

A competent and efficient bureaucracy under a developmental state is able to maintain effective relationship, especially regarding the direction and funding of investment projects, with the domestic business sector without direct intervention of the central government. Thus, the professional bureaucrats, entrepreneurs and the business sector have “embedded autonomy” when it comes to the relationship between the developmental state and the business sector. A successful developmental state needs to be sufficiently embedded in society so that it can achieve its development objectives by acting through “social infrastructure”, but not so close to business sector that it risks ‘capture’ by particular interest groups, which tend to lead to entrenched corruptions and rent-seeking. This no demarcation between the TPLF-led regime’s politics and the economy since politics and economy, including dominating economic ownership, are meshed together in Ethiopia-politics is economy; economy is politics.

TPLF-led Regime: A Kleptocratic State

The TPLF/EPRDF regime vividly lacks an ideology of development anchored in some form of economic nationalism that unifies Ethiopia as a collective goal. The government has not attempted to build national consensus on economic development of different interest groups with the exception of the Grand Ethiopian Renaissance Dam (GERD). Some argue that the GERD campaign by the regime is more for finance and political expedience than unifying the people under a national project. Economic growth rhetoric is sold as the domain and monopoly of the regime whereas the general public is ridiculously divided into “pro-development” and “anti-development”. And the opposition groups, by and large, fall under the category of “anti-development”. Surely, this is anti-thesis to a developmental state’s theme of building economic nationalism, which binds different interest groups of a country so that they all accept and take part in it as a collective national goal. Abay Tsehaye, in one of his interviews, clearly stated the economic goal of the regime in the long run. He stated that the regime has the agenda of creating an economically empowered class, which will control the economy and lead politics. This agenda has nothing to do with a developmental state agenda founded on building national consensus and economic nationalism as an ideology. The regime’s economic agenda is aligned with “divide-and-rule” and long term goal to lord over Ethiopia. Like the political goal of the regime, the economic agenda is also inherently discriminatory in its nature. In the lack of nurturing national development ideology and intrinsic one-party rule, loyalty to the regime easily overrides societal development goals. Individuals aligned with the regime often hold highly idiosyncratic mindset that they flout with impunity and with no moral qualms in politics, the economy and their general interaction with the business sector and the society at large. Consequently, TPLF/EPRDF regime’s leaders have no moral basis on which they could demand enthusiastic and internalized compliance to whatever “national project” they launch due to the lack of ideology of development, which addresses the public demand and national economic interests shared by all interest groups. Unlike the developmental state, the central political stage and layers of bureaucracies of the regime are not occupied by well educated professionals, who are guided by the aspirations of nation building and economic development. Loyalty is the major factor in bureaucratic appointments from top to the bottom, and hence most of the regime’s bureaucrats are less merited to occupy their offices. Rather than being competent and efficient bureaucracy, the processes of appointing less qualified individuals based on loyalty has led to an inescapable “development of underdevelopment” in Ethiopia’s bureaucracy, which in turn produced a series of political and economic contradictions and bureaucratic cronyism. Moreover, unlike a development state, the TPLF/EPRDF regime portrays foreign dependence syndrome, with a significant part of the regime’s budget covered by international budgetary aid. Externally dependent growth is not conducive for dynamic capital accumulation, which builds basis for a development state economy. Thus, even accepted at face value, equating the regime’s claimed booming economy of Ethiopia with a developmental state becomes problematic since the economy heavily depends on external factors, such as export of primary products and aid inflows.

TPLF-led State Controlled and Owned Economy

The institutional and economic structures of the regime are reinforced and constructed by political power to control the economy rather than developing national economic ideology or creating discourses with interest groups. Structural aspects of the regime’s economy include mass dislocation of society without offering alternative settings or means of survival. This kind of economic structure resembles settler colonial economy much more than a development state. This is most apparent in land-grab and the privileging of elements of the regime, their families and supporters. Access to politicians paves way for getting rich much more than individuals’ entrepreneurial and business skills. Large chunk of renowned entrepreneurs and business people have been forced to leave Ethiopia and migrate to other countries. The economic system and its bureaucracy are structured as a predatory state, where top rulers and layers of bureaucracy have predatory motives, and hence less willing to part with corruptions and rent-seeking. The aim of regime is to exploit the physical, human, and economic resources for the benefit the leaders of the regime and few others aligned with them. The economic goals of regime are simple. It is to provide maximum economic benefit to the individuals in power at the expense of the majority. Like colonial settlers, the individual needs of their subjects are neither important nor part of their economic goals. The imposition of economic policy is often arbitrary and unrelated to any real need of the majority of the people. This led to inadequacy of the food entitlements and chronic malnutrition and famine. Unlike a development state’s national development driven by all-encompassing economic nationalism, the TPLF/EPRDF regime’s economic agenda is more about economic subjugation and about the regime’s ability to control of the economy. Improving the production methods and strengthening national economy for all people are not the priorities. It’s all about empowering the likes of REST to be unchallengeable economic giants of Ethiopia. There is a crystal clear lack of autonomy of the business sector due to the unholy relationship of state-society and state-business under the TPLF-EPRDF regime. There is bureaucratic malaise into both market and state structures and it has eaten into the very core of the edifice of modern administration rendering it both weak and incoherent, at best. Mired in clientelism, the state has not been able to provide the bureaucratic order and predictability that business sector and entrepreneurs need to engage in long-term investment and contribute to long-term national development. TPLF-led regime is literally driven interest groups and mired in state-clientelist relationships. And hence it is even lacking in “stateness” in a strict sense of the word. Self-interest groups which control the state adopt policies that generated rents for them. The TPLF/EPRDF state is essentially a rent generating institution that inhibited efficient allocation of resources. Rent seeking usually involves redistribution of income from one group to another, and in Ethiopia, it is redistribution from poor to the rich through corruptions and rent-seeking. Let alone being a development state, the regime cannot pursue the collective task of development in the long run. It has crushed most of the strategies and institutions that build a solid foundation for development. State-society relationships are inherent to national development, and mistrust runs both ways-the regime does not trust the people and the people don’t trust the regime.

 Conclusion

The developmental state refers to the collective economic and human development via state’s essential role in harnessing national human, financial, etc. resources and directing incentives through a distinctive policy-making process. The foundation for building a developmental state is the ability to establish nationalist educated population by creating a harmonious society with strategic partnerships amongst labor, government, industry and society as well as efficiently allocating and distributing resources. The success of the developmental state also stems from the ‘embedded autonomy,’ in which the developmental state is linked intimately with the private sector but preserves sufficient distance for the renegotiation of goals and policies when capital interests are inconsistent with national development. The key government actors under the TPLF-led are irredeemably greedy, corrupt and captured by rent seekers and economies of personal wealth accumulation, and hence focus on promoting vested interests over national development. They don’t think creatively of modes of social organization at both macro and micro level that can extricate Ethiopia from poverty and lead it to the long term path of development. Appropriate institutional structures do not exist in Ethiopia to socially engineer a developmental state since a development state is a social construct consciously brought about by a state, its bureaucracy and societies. Economic nationalism of a developmental state cannot take root. We cannot draw parallels between TPLF-led regime and developmental states implemented in Asia. Unlike TPLF, Asian dictators were/are very nationalist with the goal to change the living standard of their people and promote their countries in the world. TPLF leaders have beef with most of the people in Ethiopia such as Oromos and Amaras. TPLF’s governance resembles settler colonialism of the apartheid system in South Africa and British land-grab system in Rhodesia (now Zimbabwe) much more than the developmental state systems in Asia. The regime does not pursue collective economic empowerment agenda. In dictatorial developmental states, even where was no political freedom but people had economic freedom. Under the TPLF/EPRDF regime, there is neither political nor economic freedom. Discriminatory economic policies, with enclave economy nature, are more aligned to colonial policies. TPLF governance is unequivocally becoming ethnic apartheid in political, economic, etc. fronts. Its policies are designed to marginalize dissenting people from economic benefits and then to impoverish them for long term political and economic control whereas the leaders and their relatives profiteering through deeply entrenched cronyism. Developmental state dictators in Asia were not consumed by self-enriching schemes via corruptions and rent-seeking. Actually, the Asian dictators were very tough on corrupted individuals, politicians, etc. Although they did not stop it, corruption leads to very long imprisonments. But people join the TPLF/EPRDF regime to get license to be corrupt and rent-seeker without any repercussion. The TPLF –led regime is structurally and institutionally corrupt, which was not the case under Asian developmental state system. Finally, the TPLF-led regime is weak, over-extended, and interfere with the smooth functioning of the markets with its repressive characters and draconian policies. It heavily depends on foreign powers for its existence. Therefore, it is not an example of a developmental state by any account. I think phrases like the “rentier state”, the “overextended state”, the “parasitical state”, the “predatory state”, the “crony state”, and the “kleptocratic state” better fit the TPLF/EPRDF regime. I think it is a kleptocratic state/autocracy (rule by thieves) made up of very greedy individuals addicted to personal wealth accumulation through structured and institutionalized corruptions and rent-seeking.

The article is originally published at:-

TPLF-led Regime is not a Developmental State

 

Related article:

https://oromianeconomist.wordpress.com/2014/08/14/the-conflict-between-the-ethiopian-state-and-the-oromo-people-by-dr-alemayehu-kumsa/

 

 

 

 

 

 

 

 

 

Ethiopia: Forex Crunch Choking Businesses in the Country January 10, 2016

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Odaa OromooEconomic performance and size of governmentThis is the Ethiopian capital Addis Ababa (Finfinne) where the population of the early morning standing in long lines under the blazing sun (Sunday August 2015) for the purchase of sugar, oil and other basic goods

(Addis Fortune) — Ethiopia’s foreign currency supply available for importers and travellers alike is increasingly facing chronic shortages, claims an importer engaged in trading of household appliances from Asian countries, while opting to speak to Fortune on conditions of anonymity. As the country’s foreign exchange provision plummets into a whirlpool, the parallel or black market for hard foreign currency (which has become a rare commodity), is thriving in the country.

The forex shortage is so critical that opening a Letter of Credit (LC) takes as long as one year or even more, and even then, there is no guarantee that the requested amount of foreign currency will be availed, the importer complained.

His is not the sole voice of concern with the increasing scarcity of foreign currency in Ethiopia, as his view is also shared by a senior executive of a private bank and an economics lecturer, who also chose to speak anonymously to Fortune. They argue that basic economic principles of supply and demand suffice to explain the ongoing critical shortfall of forex in Ethiopia.

Both the banker and economist posited three basic factors: global economic slowdown, Ethiopia’s mega projects consuming huge loads of hard currency and the country’s widening trade balance, as the genesis of the shortage.

As the world still reels from the financial meltdown of 2008 and the subsequent global economic slowdown, it has negatively affected and upset long term foreign investment in the country, the banker and economist argued. However, a recent study by the United Nations Conference on Trade & Development (UNCTAD) discovered that Ethiopia is actually the third largest recipient of Foreign Direct Investment (FDI) in Africa, with inflows of 953 million dollars in 2014 and 279 million dollars in 2013, highlighting a rapidly rising trend.

Ethiopia’s mega projects in hydroelectric generation, sugar production, and rail transport, continue to drain the country’s hard currency reserves, with high demand for public investment, the experts argued. Import of capital goods and construction-related services increased sharply in Ethiopia according to a June 2015 IMF report, utilising large sums of hard currency.

In line with the country’s development endeavours, the National Bank of Ethiopia (NBE) has a policy of prioritising provision of foreign exchange for selected goods and services based on a designated priority, which shuns other imports, the banker explained. The mega projects top the priority list and drain the country’s forex reserves.

In addition to the impact of the country’s mega projects taking a rather large chunk of the highly limited forex reserve, Ethiopia’s trade balance is also one of the major factors affecting the availability of hard currency.

Though Ethiopia’s exports have registered growth over the past years, the growth rate of its imports has been at a much faster pace, resulting in an ever widening gap in the overall trade balance of the country.

Reports by NBE indicate that though the country’s export trade has been registering steady growth in the recent past, with exports worth roughly two billion dollars in 2009/10, increased to 3.25 billion dollars in 2013/14 and more than 1.6 billion dollars in the first two quarters of the current fiscal year, the country’s imports have skyrocketed at an alarming rate.

NBE’s data show that Ethiopia’s imports have maintained a robust course of growth over the years as the country imported goods worth roughly 8.27 billion dollars in 2009/10, increased to 13.72 billion dollars in 2013/14 and well over eight billion dollars in the first two quarters of the current fiscal year.

The national bank’s data also highlight the distressingly widening trade imbalance which continues to haunt Ethiopia’s balance of trade. As such, the trade deficit was put at an estimated -6.27 billion dollars in 2009/10, -10.47 billion dollars in 2013/14 and roughly -6.6 billion dollars for only the first two quarters of 2015.

This imbalance has partly been caused as a result of slow-evolving export growth rates with falling commodity prices and lack of diversification in exports, loopholes underscored by the International Monetary Fund’s (IMF) report.

But beyond the basic economic principles of demand and supply used as tools to explain the shortage of forex, other variables are worth exploring to get the picture of the problem in its entirety.

One important aspect is the proliferation of the black market and shady business deals between businesspeople and bankers. As anxious importers are willing to pay whatever cost they are made to pay to avoid penalties during delivery of imported goods, and as some corrupt bank staff and managers take advantage of the situation, the forex shortage has worsened.

Fortune spoke to a dealer, who, on conditions of anonymity, explained some of the processes in which brokers, importers, exporters and bankers engage, to facilitate the provision of forex at a faster time interval than normal. He stated that the deals take place underground but strictly follow legal procedural steps. This makes the whole process virtually undetectable by regulations of the national bank.

At the current going rate, a person who wants to get forex ahead of the pack, has to pay as much as three Birr for every dollar they request in their LC, the dealer told Fortune. His job is to bring together the bankers and the importers and the deal will be done. He also explained a different, still illegal, mode of acquiring forex employed in the context of secret partnerships between corrupt importers, exporters and bankers.

In this case, the dealer negotiates a proposal between an exporter and an importer where the latter will make use of the export earnings of the former, by paying the current going rate for every dollar used. The dealer once again negotiates the proposed scheme with the bankers and once on board, they jointly facilitate the importers’ access to hard currency.

The lack of transparency in opening LCs has cast an ominous shadow on the industry, according to several importers and the banker who spoke with Fortune. NBE recently took a highly publicised measure against the Cooperative Bank of Oromia for alleged mishandling of forex involving LCs.

One importer noted that a growing number of suppliers in Asia are now rejecting LCs opened in certain banks from Ethiopia, due to unpaid credits, emboldening his opinion that unless the regulatory state apparatus takes a serious overhaul at the forex provision, darker days are yet to come.

Travellers are also feeling the brunt of the forex crunch. As one traveller put it, she considers herself lucky if she can get 500 dollars from banks for a travel visa. The chronic shortage, she adds, has fed the parallel market for forex and its proportions and ramifications on the country’s economy are growing daily.

The CIA’s Factbook showed Ethiopia’s reserve of foreign exchange and gold was 3.785 billion dollars at the end of 2014. International financial institutions such as IMF have stated that they support the national bank’s objective of having foreign exchange reserves to cover three months of imports – but the central bank has so far, failed to respond to any of the questions Fortune had regarding the overall forex shortage in the country, including the state of forex reserves.

In addition to racking up the reserves, NBE should proactively counter all the shady business deals now widespread in the banking sector to cut the business community and the overall economy of the country, some slack.

Related:-

Ethiopia: The chronic shortage economy: What is the price and utility of a kilo of Sugar in Finfinnee (Addis Ababa) in terms of never ending queue?

https://oromianeconomist.wordpress.com/2015/08/27/ethiopia-the-chronic-shortage-economy-what-is-the-price-and-utility-of-a-kilo-of-sugar-in-finfinnee-addis-ababa-in-terms-of-never-ending-queue/

Ethiopia’s fake economic growth borrows from ENRON’s accounting December 28, 2015

Posted by OromianEconomist in Uncategorized.
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Odaa Oromoo

the-grim-reality-behind-ethiopia-rise-hype1ethiopia_03Dounle digit EthiopiaEthiopia is the one of the lowest in social Progress 2015

Ethiopia’s fake economic growth borrows from ENRON’s accounting

J Bonsa analyses Ethiopia’s economic growth over the last ten years.  Africa At LSE

More than 70 people have been killed and dozens wounded in an ongoing crackdown on peaceful protesters in Oromia. One of the underlying causes of the prevailing tense political situation is Ethiopia’s bogus claim about “miraculous” economic growth in the last decade.

The youth is not benefitting from the country’s supposed growth and doesn’t anticipate the fulfillment of those promises given the pervasive nepotism and crony capitalism that underpins Ethiopia’s developmentalism.

Courtesy: OPride

Courtesy: OPride

The ruling Ethiopian People’s Revolutionary Democratic Front (EPRDF) came to power in 1991 and briefly experimented with democratic transition. However, a little over a decade into its rule, the party’s former strongman, the late Meles Zenawi, realized that their pretentious experiment with liberal democracy was not working. Zenawi then crafted a dubious concept called, “developmental state.”

Stripped of the accompanying jargon and undue sophistication, Zenawi was simply saying that he had abandoned the democratic route but would seek legitimacy through economic development guided by a strong hand of the state. This was a ploy, the last ditch attempt to extend EPRDF’s rule indefinitely.

Using fabricated economic data to seek legitimacy and attract foreign direct investments, the regime then advanced narratives about its double-digit economic growth, described with such catchphrases as Ethiopia rising, the fastest growing economy in the world and African lioness. The claims that EPRDF has delivered economic growth at miraculous scales has always been reported with a reminder that it takes several decades to build democratic governance. The underlining assumption was that, as long as they deliver economic growth, Ethiopia’s leaders could be excused on the lack of democracy and human rights abuses associated with the need for government intervention in the economy.

EPRDF spent millions to retain the services of expensive and well-connected Western lobbying firms to promote this narrative and create a positive image of the country. These investments were also accompanied with a tight grip on the local media, including depriving foreign reporters’ access if they cross the government line. Ethiopia’s communication apparatus was so successful that even serious reporters and analysts started to accept and promote EPRDF’s narrative on rapid economic growth.

However, a few recent events have tested the truthfulness of Ethiopia’s economic rise. Drought and the resulting famine remain the Achilles heels of the EPRDF government. The government can manipulate data on any other sector, including the aggregate Gross Domestic Product, and get away with it, but agriculture is a tricky sector whose output is not so easy to lie about. The proof lies in the availability of food in the market, providing the absolute minimum subsistence for the rural and urban population.

The sudden translation of drought into famine raises serious questions.  For example, it is proving difficult to reconcile the country’s double-digit economic growth with the fact that about 15 million Ethiopians are currently in need of emergency food aid.

Rampant famine

Except for some gullible foreign reporters or parachute consultants, who visit Addis Ababa and depart within days, serious analysts and students of Ethiopian economy know that authorities have often fabricated economic statistics in order to generate fake GDP growth.  To the trained eye, it does not take a lot to find inconsistencies in the data series. In fact, Ethiopia’s economic growth calculus is so reminiscent of Enron accounting.  (See my recent pieces questioning EPRDF’s economic policies, including anomalies in the alleged achievements of millennium development goals, crony businesses, devaluation, external tradeand finance.)

The tacit understanding in using GDP as a measure of economic growth is that responsible governments generate such data by applying viable international standards and subjecting the data to scrutiny and consistency checks.

Unfortunately, these standards are not foolproof; irresponsible governments with mischievous motives can abuse them. There is credible evidence that shows Ethiopian authorities deliberately inflated economic statistics to promote feel-good, success stories.

Let’s take the agricultural data, which is timely and topical given the ongoing famine. This came to light recently as the European Union tried to understand anomalies in Ethiopia’s grain market, particularly persistent food inflation which the EU found incompatible with the agricultural output reported by the Central Statistical Authority (CSA) of Ethiopia.

The EU’s Joint Research Centre (JRC) then developed the technical specification for studying the scope of the Cereal Availability Study in order to account for the developments in the Ethiopian cereal markets. The International Food Policy Research Institute (IFPRI) was selected to carry out the study.

ethiopiagraph_images_growth1Figure 1 (above) compares the EU-sponsored survey and the Ethiopian government’s survey produced by the CSA. I am using the data for 2007/08 for comparison. The negative numbers indicate that the IFPRI estimates were consistently lower than the CSA data. For instance, CSA overstated cereal production by 34 percent on average.  This ranged from 29 percent for maize to 44 percent for sorghum. The actual amount of Teff produced is lower by a third of what’s reported by the CSA.

The research team sought to explain this “puzzle” by examining the sources of the confusion, the methodological flaws that might have led CSA to generate such exaggerated economic data. Toward that end, they compared CSA’s crop yield estimates with comparable data from three neighboring countries:  Kenya, Tanzania, and Uganda (see Figure 2).

ethiopiagraph_images_growth2

From 2000 to 2007, the average increase in cereal yield for these countries, including Ethiopia, was 19 percent. Yet the CSA reported a whopping 66 percent for Ethiopia’s yield growth. The country was not experiencing an agricultural revolution to justify such phenomenal growth.  It is unrealistic that Ethiopia’s yield growth would be greater than the neighboring East African countries, particularly Kenya, where the agricultural sector is at a much more advanced stage. If anything, the reality in Ethiopia is closer to Uganda, which did not report any yield increase during that period.

This reveals the extents of data manipulation by Ethiopian authorities to create an inexistent economic success story and seeks political legitimacy using a bogus record. We now know the widespread distortions in official statistics on cereal production thanks, in no small part, to EU’s intervention in sponsoring a study and explaining the disparities. Cereals represent only a sub-sector in the agricultural realm. It is likely that worse distortions would be revealed if similar studies were done on Ethiopia’s growth statistics in other sectors, including manufacturing and service divisions.

‘Poverty reduction’

The IMF has praised Ethiopia for achieving accelerated growth with a focus on equity and poverty reduction, a challenging dilemma for most countries. However, a closer look at three interconnected facts turns this claim on its head.

First, as noted above, Ethiopia’s agricultural output has been inflated by 34 percent on average. Second, a33 percent poverty reduction since 2000 is widely reported. Third, there is a consensus that poverty reduction has happened mostly in rural Ethiopia. Now we put these three facts together and apply a simple logic to establish that the 33 percent poverty reduction is explained by the 34 percent exaggerated agricultural outputs. Notice that it is not by accident that the two percentage points are almost identical. Therefore, the ups and downs cancel each other out. In the best-case scenario, poverty rate must remain at the same level as in 2000.

The World Bank, IMF and other donors have often anchored their conclusions on poverty reduction on alleged changes in the agricultural sector, where the bulk of the poor live and work. Little do they know that the data they used to compute the poverty index comes from agricultural statistics with hugely inflated yield assumptions as shown above.

This raises the question: where has the billions of dollars in bilateral and multilateral aid pumped into Ethiopia in the name of poverty reduction and the millennium development goals gone?

‘The enclave economy’

The ‘Ethiopia rising’ storyline is a standard set by foreign correspondents who often repurpose official government press releases, or reports based on the construction projects in the capital, Addis Ababa.

For example, Bloomberg Africa’s William Davison, often uses the proliferating high-rise buildings in Addis Ababa as tangible evidence of Ethiopia’s double-digit economic growth. In his latest whitewash, Davison writes, “such growth is already visible in parts of the capital, where shopping malls and luxury hotels are sprouting up.” That a veteran reporter for a business website unashamedly passes judgment on economic success by referring to heights and width of buildings underscores his shallow understanding of the country’s social and political fabric.

Here are some of the questions that reporters aren’t asking and seeking answers for:  Who owns those building?  Where did the investment money come from?  Are there any firm linkages between these physical infrastructures and the rest of the Ethiopian economy? I have partially answered some of these questions in a previous piece and will soon provide additional insights.

For now, I would like to draw attention to the existence of an “enclave economy” within the mainstream Ethiopian economy. This enclave is made up of highly interconnected crony businesses, which are owned and operated by Tigrean elites, who also have a tight grip on the political and military command structures. Take, for example, the Endowment Fund for Rehabilitation of Tigray (EFFORT), a business conglomerate affiliated with the Tigrean People’s Liberation Front (TPLF). EFFORT has its humble origin in the relief and rehabilitation arm of the TPLF. However, it has undergone amorphous growth and now controls the commanding heights of the Ethiopian economy. By some estimates, EFFORT now controls more than 66 business entities.

The EFFORT controlled enclave and related military engineering complexes have created a semi-autonomous economy in Ethiopia. They made smart choices and specialized in engineering and construction businesses. This means they do not have to rely on the Ethiopian public for their products; instead, each specialize in separate industrial branches and buy from each other and also sell to the government, which is also in their hand. The huge government infrastructural projects necessitated by the “developmental state” model create business opportunities for these engineering companies.

The enclave economy is only loosely linked to the mainstream economy and it does not benefit the bulk of the Ethiopian people in any meaningful way. The luxury hotels and supermarkets that Davison refers to cater for the needs of the affluent business classes, their families, and the expatriate community.

In other words, Ethiopia’s miraculous economic growth, if it in fact exists, must have happened only in the enclave economy. Statistically, it is possible to generate a double-digit economic growth at the national level through a combination of some real astronomical growth in the enclave component and stagnation or declines hidden, through some accounting tricks, in the rest of the economy.

Lock-in style of reporting

Unfortunately, the unquestioned reporting on Ethiopia’s economic success has continued. Even the EU study appears to have been shelved, or deliberately ignored despite the significant findings. Even as a fifth of the population is in need of emergency aid, the World Bank is sticking with the outdated data and has recently released a sensationalized report entitled “Ethiopia’s Great Run: the growth acceleration and how to pace it.”

The ensuing famine has shaken the foundation of Ethiopia’s growth narrative, yet western NGOs and media outlets appear to suffer from the lock-in effect in adopting consistent storylines. They continue to link and refer to the World Bank, IMF and others reports and indexes by multilateral organizations.

That’s why we continue to see comical headlines such as “Ethiopian Drought Threatens Growth as Cattle Die, Crops Fail,” which assumes that Ethiopia’s growth is actually occurring. This acquiescence does not only display ignorance, but it also underscores an effort to evade accountability for previous mistakes and failure to report accurate information.

In a recent interview with The Ethiopian Reporter, Prime Minister Hailemariam Desalegn made a rare and fateful admission: “if we crave for too much praise for our achievements, we might run the risk of undermining the challenges we are facing. These challenges could grow bigger and become irreversible and that would be detrimental.”

Over the past 25 years, the EPRDF worked tirelessly to create a distorted image of the country and began craving and lobbying foreigners for praises.

Enron’s success involved an elaborate scam, but the firm was named “America’s Most Innovative Company” for six consecutive years. This fame did not stop Enron from crumbling. EPRDF’s fate will not be any different. The Oromo uprising has already started the unraveling of its elaborate scams devised to attain legitimacy on the back of non-existent economic and democratic advancement.

 J. Bonsa is a researcher based in Asia.

 

This article was first published on OPride.

 

http://blogs.lse.ac.uk/africaatlse/2015/12/24/ethiopias-fake-economic-growth-borrows-from-enrons-accounting/

Childhood Education and the Rates of Returns to Human Capital Investment: How your early childhood shapes your brain December 11, 2015

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How your early childhood shapes your brain

Did you know that investments in early childhood are crucial for achieving the brain’s full developmental potential and resilience?

Jim Heckman, Nobel Laureate in economics, and his collaborators have shown that strong foundational skills built in early childhood are crucial for socio-economic success. These foundational skills lead to a self-reinforcing motivation to learn so that “skills beget skills”. This leads to better-paying jobs, healthier lifestyle choices, greater social participation, and more productive societies. Growing research also reveals that these benefits are linked to the important role that early foundations of cognitive and socio-emotional abilities play on healthy brain development across the human lifespan.

Brain complexity –the diversity and complexity of neural pathways and networks— is moulded during childhood and has a lasting impact on the development of cognitive and socio-emotional human abilities.

151204-early childhood development return on investment
Early life experiences affect childhood development through changes in brain structure and function

The first one thousand days of a person’s life is a window of opportunity for investments that will lead to health and productivity. The quality of nurturing environments, in particular, preschool experiences and the interactions with adults and peers during childhood, shapes cognitive and socio-emotional skills.

Childhood cognitive abilities provide a foundation for adult cognitive functions. This means that successful brain development ensures that children develop basic cognitive abilities. The so-called “fluid abilities” (such as memory, reasoning, speed of thought and problem solving ability), which underlie high-level cognitive processes, are used to acquire new knowledge, tackle novel problems, and reasoning.

Fluid abilities tend to correlate with each other (i.e. individuals who perform well in one domain have a tendency to perform well in other domains) and intertwine to form a person’s general cognitive ability or intelligence. While there are substantial individual differences in cognitive functioning across the life-span, on average, knowledge-based abilities remain relatively stable into late-life. In addition, fluid abilities start to decline in mid-life and more so during advanced aging.

We are more likely to develop pathologies (diseases) with aging

Aging erodes structural and functional brain integrity.  One such cognitive disorder of the aging brain is dementia, the incidence of which increases exponentially with age. It is the leading cause of loss of independent functioning and requirement for institutional care in old age.

Alzheimer’s disease is the most common cause of dementia. The number of people living with dementia worldwide is currently estimated at 47 million –nearly 60% of cases occur in low- and middle-income countries — and is expected to triple by 2050 with increasing life expectancies around the globe. Some of the mainchallenges associated with dementia are the economic impact on families, caregivers, and communities, associated stigma, and social exclusion.

An adequate early childhood environment and strong foundational cognitive abilities protect against the risks of the aging brain. A healthy and active brain, shaped byadequate nutrition and safe and enriching environments in early-life, enables the retention of brain functions across a lifespan.

The peak level of fluid cognitive abilities is shaped, in part, by early childhood cognition and is one of the major factors in determining cognitive aging trajectories. Multiple complex pathways underlie this association, which also explains why childhood cognitive abilities provide, partly via higher educational achievement, entry into better jobs and healthier environments.

The resilient brain

Optimal brain development provides an individual with a greater number of neurons, more synapses (neural connections), and multiple pathways to perform any given task. Such “neuronal redundancy” comes in handy when a person is faced with deleterious brain aging.

More importantly, an increasing number of studies suggest that early childhood interventions targeting mental domains might increase maximum life-time cognition, potentially reduce the trajectory of cognitive decline in late-life, and even postpone the point at which cognitive deficits first appear.

Evidence from this research is inspiring innovations to make brain development a central element in early childhood programs in developing countries. In Colombia, a World Bank pilot program showed caregivers how to stimulate young children using play and talk. A rigorous evaluation shows that it improved their ability to understand and process what they hear or read. A follow up study is being planned to see if the gains have been sustained over the medium term.

In Kenya, researchers are studying whether giving storybooks to poor households helps improve children’s readiness to succeed by stimulating visual and cognitive brain development. In Bangladesh, another study examines whether getting parents to play and sing to their young children helps their brain development by building positive bonds with them.

Studies and increasingly interventions across several disciplines – neuroscience, health, education, economics, and psychology- provide evidence that early and sustained investments in human development are key for our neurons, our brains, for us as individuals, and for our societies. They lay the foundations for our capacity to achieve and to function well despite social or even biological obstacles throughout one’s life course.

Is there a link between the early foundations of brain development and the capacity to recover from adversity? What is the role of socio-emotional development? Advances in the brain sciences show that, indeed, individuals with a good head start in brain development are more resilient to potential mid-life adversities and the aging process.

In our next blog, we will look into new evidence from the fields of neuroscience and psychology. We will write about ‘resilient brain aging’ and the catalytic role of an adequate early-life environment for developing full brain potential.  Please check back next week to find out more about the link between socio-emotional abilities and the resilient brain.

 

Author: Dorota Chapko is a PhD candidate in Public Health at the University of Aberdeen. Omar Arias is acting sector manager and lead economist in the Human Development Economics Unit for the World Bank Europe and Central Asia region

https://agenda.weforum.org/2015/12/how-your-early-childhood-shapes-your-brain/?utm_content=buffer8f58b&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

Aggregate Demand and Spending Decision November 29, 2015

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Odaa OromooThe economic (business cycle)

Aggregate demand is the total amount that consumers, businesses, government, and foreigners are willing to spend on all goods and services in the economy. Changes in aggregate demand occur when any or all of these groups expand or cut back their spending plans. These changes range from:

An increase in consumption that may be caused by

  • a rise in income levels,
  • a decrease in interest rates,
  • a house price inflation.
  • a rise in the level of government spending.
  • a balance of payments surplus.

What Happens If An Increase In Aggregate Demand Occurs?

Suppose that the economy is in “normal times,” neither in a recession nor in a boom, so that real GDP equals potential GDP. In theory, firms could respond to the greater demand for their goods either by expanding output or by raising prices. In practice, firms do not raise prices in the short run. Instead, they expand output, and the economy enters a boom.

But prices are not fixed forever. Over time, if demand stays high, firms raise their prices and the boom ends. If aggregate demand falls, the reverse occurs. In the short run, firms lower output instead of cutting prices, and the economy enters a recession. Over time, if demand stays low, prices fall and the economy recovers. Read more at:-

Source: Aggregate Demand and Spending Decision

Why trickle-down economics won’t eliminate poverty November 23, 2015

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Odaa OromooTrickle down economicsEconomic output and global creative index

 

When it comes to eliminating poverty, the degree to which the benefits of growth are shared can have a significant impact on outcomes. According to Martin Ravallion, the former head of research at the World Bank, as cited in The Economist, a 1% increase in incomes in the most unequal countries produces a mere 0.6% reduction in poverty; however in the most equal countries, it yields a 4.3% cut. In other words, societies can get much more ‘bang from a boom’ if they ensure benefits are more widely shared.This brings us to the point at which trickle-down theory ends and inclusive growth begins. According to the Organisation for Economic Cooperation and Development (OECD), inclusive growth is “a new approach to economic growth that aims to improve living standards and share the benefits of increased prosperity more evenly across social groups”.Inclusive growth refers to both the pace and pattern of growth, which are considered interlinked and therefore need to be addressed together. Inclusiveness represents equality of opportunity in terms of access to markets, resources and an unbiased regulatory environment for businesses and individuals. In a nutshell, it is not just about the quantity of growth within our economies and societies, but also about its quality.

Source: Why trickle-down economics won’t eliminate poverty

The 2015 annual Prosperity Index:Ethiopia ranks 126, coming in at 17 of the bottom 20 least most prosperous countries, and 137th in a sub-category that measures Entrepreneurship & opportunity. Theranking has named Norway as the world’s most prosperous economy. November 5, 2015

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???????????Legatum prosperity index 2015Legatum prosperity index 2014 bottom 20

 

Ethiopia ranked 126 out of 142 countries on a new prosperity index, and  137th in a sub-category that measures Entrepreneurship & opportunity. The index ranked Ethiopia 132nd in education.

The index was released by the London based  The Legatum Institute on 2nd November 2015. According to the institute, the index assesses how prosperous an economy is based on more than just macroeconomic factors – it also takes into account wellbeing. Using rigorous research and in-depth analysis, the Index ranks countries based on their performance in eight sub‐indices—Economy, Entrepreneurship & Opportunity, Governance, Education, Personal Freedom, Health, Safety & Security and Social Capital.

The Index assesses 142 countries, representing more than 96% of the world’s population and 99% of the world’s GDP.

The latest ranking has named Norway as the world’s most prosperous economy. Norway topped the list for the seventh consecutive year. Along with Norway, three other Scandinavian countries (Denmark, Sweden, and Finland) made the top 10, and Iceland (another Scandinavian country) coming in at number 12, behind the United States, in the top 20.

Ethiopia ranks 126, coming in at 17 of the bottom 20 least most prosperous  countries. Ethiopia is ranked between Nigeria (125th) and Republic of Congo (127). The bottom 20 nations are mostly  sub Saharan African countries, with the exception of  countries like Afghanistan (141), Syria (136), Yemen (135), Pakistan (130), and Iraq (123).

The least prosperous nation of all the 142 nations sampled for the second year in a row is the Central African Republic.

In terms of specific sub categories of performance, the following countries were ranked number 1 in the world:

1. Economy: Singapore

2. Entrepreneurship & Opportunity: Sweden

3. Governance: Switzerland

4. Education: Australia

5. Health: United States

6. Safety & Security: Hong Kong

7. Personal Freedom: Canada

8. Social Capital: New Zealand

 

 

See interactive rankings table in the following link:-

http://prosperity.com/#!/ranking

In drought (famine) ravaged Ethiopia there is a thin line between life and death. The last decent rains fell here two years ago. Families watch their animals die and wonder if they are next. October 22, 2015

Posted by OromianEconomist in Famine in Ethiopia, Food Production, Free development vs authoritarian model, Illicit financial outflows from Ethiopia, Land Grabs in Africa.
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???????????Famine in Ethiopia 2015povertyAfrica is still struggling with povertyTPLF Ethiopian forces destroyed Oromo houses in Ada'a district, Central Oromia, July 2015Tigrean Neftengna's land grabbing and the Addis Ababa Master plan for Oormo genocide

“…UN now warning that without action some “15 million people will require food assistance” next year, more than inside war-torn Syria.  ….Hardest-hit areas are Ethiopia’s eastern Afar and southern Somali regions, while water supplies are also unusually low in central and eastern Oromo region.” Unicef

Millions hungry as Ethiopia drought bites

(Unicef,  News24, October 22,  2015): The number of hungry Ethiopians needing food aid has risen sharply due to poor rains and the El Nino weather phenomenon with around 7.5 million people now in need, aid officials said on Friday.

That number has nearly doubled since August, when the United Nations said 4.5 million were in need – with the UN now warning that without action some “15 million people will require food assistance” next year, more than inside war-torn Syria.

“Without a robust response supported by the international community, there is a high probability of a significant food insecurity and nutrition disaster,” the UN Office for the Coordination of Humanitarian Affairs, OCHA, said in a report.

The UN children’s agency, Unicef, warns over 300 000 children are severely malnourished.

The Famine Early Warning Systems Network (FEWS NET), which makes detailed technical assessments of hunger, predicted a harvest “well below average” in its latest report.

“Unusual livestock deaths continue to be reported,” FEWS NET said. “With smaller herds, few sellable livestock, and almost no income other than charcoal and firewood sales, households are unable to afford adequate quantities of food.”

Ethiopia, Africa’s second most populous nation, borders the Horn of Africa nation of Somalia, where some 855 000 people face need “life-saving assistance”, according to the UN, warning that 2.3 million more people there are “highly vulnerable”.

El Nino comes with a warming in sea surface temperatures in the equatorial Pacific, and can cause unusually heavy rains in some parts of the world and drought elsewhere.

Hardest-hit areas are Ethiopia’s eastern Afar and southern Somali regions, while water supplies are also unusually low in central and eastern Oromo region.

Sensitive issue

Food insecurity is a sensitive issue in Ethiopia, hit by famine in 1984-85 after extreme drought.

Today, Ethiopia’s government would rather its reputation was its near-double-digit economic growth and huge infrastructure investment – making the country one of Africa’s top-performing economies and a magnet for foreign investment.

Still, nearly 20 million Ethiopians live below the $1.25 poverty line set by the World Bank, with the poorest some of the most vulnerable to weather challenges.

Ethiopia’s government has mobilised $33m in emergency aid, but the UN says it needs $237m.

Minster for Information Redwan Hussein told reporters at a recent press conference that Ethiopia is doing what it can.

“The support from donor agencies has not yet arrived in time to let us cope with the increasing number of the needy population,” he said.

http://www.news24.com/Multimedia/Africa/Malnutrition-in-Ethiopian-children-20110916

http://www.news24.com/Africa/News/Millions-hungry-as-Ethiopia-drought-bites-20151002

Related:-

Jiraattonni aanaaAdaamii Tulluu , gargaarsa dhabanii beelaan miidhamaa jiru.

OMN:Oduu Onk. 21,2015 Beelli godinaalee Oromiyaa hedduu miidhaa jiru, gara godina Shawaa bahaa aanaa Adaamii Tulluu Jidduu Kombolachaa jedhamutti, babaldhatee akka jiru himame.

Jiraattonni aanaa kanaa, gargaarsa dhabanii beelaan miidhamaa jiraachuu isaanii dubbatan.

Beelli Oromiyaa godinaalee adda addaa keessatti bara kana namootaa fi loon miidhaa jiru, ammas kan hin dhaabbanne ta’uun himamaa jira.

Haaluma kanaan gara godina Shawaa Bahaa aanaa Adaamii Tulluu Jidduu Kombolchaatti babaldhatee akka jirullee jiraattonni dubbatan.

Jiraataan aanichaa tokko OMN f akka himanitti, rooba dhabameen wal qabatee, hoongee uumameen, namoonni hedduun araddaalee gara garaa keessa jiraatan, beelaaf saaxialamanii jiru.

Bara kana keessa bokkaan si’a lama qofa reebe kan jedhan namni kun, sababa kanaan namoonni midhaan facafachuu qaban, nyaataaf oolfataniiru.

Kan hafe ammoo kafaltii xaa’oo akka baasaniif wayta mootummaan dirqisiiseetti, midhaan facafachuuf qopheeffatan gurguranii baasiif kennanii jiru.

Namoonni hedduun qabeenya harkaa qaban waan fixataniif, beelaaf saaxilamuu danda’aniiru jedhan.

Akka namni kun jedhanitti, namoonni hedduun baadiyaa keessa jiraatan, beela sukaneessaa isaan miidhaa jiru jalaa, qe’ee isaanii dhiisanii gara magaalatti deemaa jiru.

Namoota gara magaalatti deemaa jiran keessaa manguddoonni humna dhabeeyyi ta’anis ni jiru.
Erga magaalaa gahanii booda, lubbuu ufii jiraachisuuf jecha, hujii humnaa olii hojjatanii jiraachuudhaaf dirqamanii jiran.

Hujii humnaa kana hojjachuudhaaf kan dirqaman, lubbuu ufii du’a irraa hambisuuf kan jedhan namni kun, beelli bara kana aanaa isaanii muudatee jiru, haalan yaddessaa ta’uu dubbatan.

Namoota beela kanaan miidhamanii asii fi achi deemaa jiran kana, gama mootummaa biyya bulchaa jiruun, haga ammaatti birmannaan taasifameef tokkollee akka hin jirre namni kun dubbatan.

Namoonnii baay’een daa’imman isaanii waan nyaachisan dhabanii rakkataa jiru. Loon ammoo marga dheedan dhabuun du’aaf saaxilamaniiru jedhan.

Rakkoo kanaan dura muldhatee hin beekne kana, mootummaanis gargaaruu dhiisee caldhisee ilaalaa jira kan jedhan namni kun, sababa kanaaf haalli ammaan kana jiru garmalee yaaddessaadha.

Mootummaan humanan taaytaa qabatee jiru, diinaggeen biyyattii dijiitii lamaan guddatee jira jechuun wayta faarsaa jiru kanatti, lammiileen biyyattii hedduun beelaan saaxilamuu isaanii midiyaalee gara garaa gabaasaa jiraachuun ni yaadatama.

Usmaan Ukkumetu gabaase.

https://www.oromiamedia.org/2015/10/jiraattonni-aanaaadaamii-tulluu-gargaarsa-dhabanii-beelaan-miidhamaa-jiru/

https://www.oromiamedia.org/2015/10/omn-oduu-onk-21-2015/

Why is Ethiopia hungry again?

https://oromianeconomist.wordpress.com/2015/10/20/why-is-ethiopia-hungry-again/

The Cause of Ethiopia’s Recurrent Famine Is Not Drought, It Is Authoritarianism

https://oromianeconomist.wordpress.com/2015/08/27/the-cause-of-ethiopias-recurrent-famine-is-not-drought-it-is-authoritarianism/

Drought, food crisis and Famine in Ethiopia 2015: Children and adults are dying of lack of food, water and malnutrition. Animals are perishing of persisting drought. The worst Affected areas are: Eastern and Southern Oromia, Afar, Ogaden and Southern nations.

https://oromianeconomist.wordpress.com/2015/08/14/drought-food-crisis-and-famine-in-ethiopia-2015-children-and-adults-are-dying-of-lack-of-food-water-and-malnutrition-animals-are-perishing-of-persisting-drought-the-worst-affected-areas-are-e/

The tale of two countries (Obama’s/TPLF’s Ethiopia and Real Ethiopia): The Oromo (Children, Women and elders) are dying of genocidal mass killings and politically caused famine, but Obama has been told only rosy stories and shown rosy pictures.

https://oromianeconomist.wordpress.com/2015/08/02/ethiopia-the-oromo-children-women-and-elders-are-dying-of-genocidal-mass-killings-and-politically-caused-famine-but-obama-has-been-told-only-rosy-stories-and-shown-rosy-pictures-africa-oromia/

What are the 10 most competitive economies in sub-Saharan #Africa? October 8, 2015

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???????????Ethiopia Least competetive GCI 002

What are the 10 most competitive economies in sub-Saharan Africa?

By  Caroline Galvan, World Economic Forum, Sep 30 2015

https://agenda.weforum.org/2015/09/what-are-the-10-most-competitive-economies-in-sub-saharan-africa/?utm_content=buffercdfaa&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

Despite growth averaging more than 5% a year since the turn of the century, sub-Saharan Africa’s economies remain largely noncompetitive: only three of the region’s countries – Mauritius (46th), South Africa (49th) and Rwanda (58th) three – rank in the top half of the 2015-2016 edition of the Global Competitiveness Index, and they occupy 15 of the bottom 20 places.

In general, the region has made progress in efficiency-enhancing market reform, especially in goods market, but has much more to do to improve its institutions, infrastructure, and health and education sectors, all areas in which reforms will take time to reap benefits. With a coming youth bulge – by 2035, more people will be reaching working age in sub-Saharan Africa than in the rest of the world put together – the need to improve education systems is especially urgent.

The recent fall in commodity prices, putting more pressure on many countries in the region, has also accentuated the need to prioritize competitiveness-enhancing reforms.

Mauritius. Although still the top-ranked country in sub-Saharan Africa, Mauritius dropped seven places to 46th (out of 140) in the overall rankings this year – the first fall down the Index after a decade of improvements. This is accounted for important drops in three of the 12 pillars (overall six pillars are losing places) on which the Index is based, labour market efficiency, financial market development and market size. Still, some fundamentals remain strong: Mauritius has the region’s most efficient goods market, best infrastructure and most healthy and educated workforce. To move further up the development ladder it particularly needs to improve the quality of higher education, the rate at which it adopts new technologies and its capacity to nurture innovation.

sub-saharan-african-top-10

South Africa. Moving in the opposite direction to Mauritius, South Africa climbs seven places to 49th. It has improved year-on-year in its uptake of ICTs and established itself as the region’s most innovative economy. South Africa also tops the region for the efficiency of its financial markets, a pillar on which it ranks 12thglobally. It performs reasonably strongly on the pillars of infrastructure and institutions, although corruption and security remain concerns, but needs to make progress on health and education.

Rwanda. Advancing four places for the second year in a row, Rwanda’s overall position of 58th reflects improvements in the financial development pillar – especially regulation of securities exchanges – and business sophistication. It scores 8thglobally for labour market efficiency, thanks in part to the third-highest female labour participation rate in the world, and 17th globally for the strength of its public and private institutions. However, improvements are needed in some fundamental areas of competitiveness including infrastructure, health and higher education.

Botswana. Up three places to 71st, Botswana posts a top-10 score globally for the stability of its macroeconomic environment. It also boasts relatively strong rankings on institutions and labour market efficiency. Despite some improvements in the last year, however, the health and primary education pillar remains its weakest, with the impact of HIV/AIDS and tuberculosis contributing to the second-lowest life expectancy among the 140 economies surveyed.

Namibia. Advancing for the third year in a row, Namibia gains three places to rank 85th in the global Index. It registered year-on-year improvements in nine of the 12 pillars, most notably business sophistication and innovation – albeit from a low base. It improved its score on its strongest pillar, institutions, but slipped back on its weakest, health and primary education; as in Botswana, tuberculosis and HIV/AIDS remain among the biggest concerns.

Cote d’Ivoire. Leaping 24 places in the last year alone to reach 91st in the overall Index, Cote d’Ivoire has now progressed 40 places in the last three years. It has improved year-on-year on every pillar except for the macroeconomic environment, posting its biggest gains in areas such as innovation, financial market development and institutions – all pillars on which it scores in the top half globally. Despite progress also in health and primary education and higher education and training, they remain its weakest area.

Zambia. Although occupying the same position in the Index as last year, 96th, Zambia has noticeably progressed on some pillars while regressing on others. It has improved its score on macroeconomic stability, for example, with progress on the government budget balance – albeit from a low base – and public debt. However, it drops heavily on the pillars of business sophistication, goods market efficiency and financial market development.

Seychelles. Despite being considerably wealthier than the seven countries in the region that rank as more competitive, the Seychelles loses ground for the third year in a row, dropping five places to 97th overall. The country’s competitiveness is held back by a small market size, scoring bottom globally on this pillar. However, it still ranks in the top half globally on seven of the 12 pillars, with its strongest performances coming on infrastructure (2nd best in the region) and labour market efficiency. It also does well on technological readiness (71st, although low performing second in regional comparison).

Kenya. After two years of forward movement in the Index, Kenya slips nine places to 99th with regressions on three pillars in particular: goods market efficiency, financial market development and institutions. Corruption remains the top concern about doing business in the country, according to executives who took part in a survey which forms part of the Index calculations. Despite the decline, financial market development remains one of Kenya’s three strongest pillars, along with innovation and labour market efficiency; its weakest are the macroeconomic environment and, despite a small improvement in the last year, health and primary education.

Gabon. Improving slightly to 103rd overall, Gabon’s main strength is its macroeconomic environment, which is rated among the world’s top 20 thanks to a positive budget balance and low levels of government debt, reflective of its resource-driven economy. However, this is the only pillar on which Gabon ranks in the top half globally, and it ranks among the world’s bottom 20 on four pillars: goods market efficiency, higher education and training, business sophistication and innovation. To diversify its economy, it needs to invest in productivity-enhancing reforms across the board.

https://agenda.weforum.org/2015/09/what-are-the-10-most-competitive-economies-in-sub-saharan-africa/?utm_content=buffercdfaa&utm_medium=social&utm_source=twitter.com&utm_campaign=buffer

The Global Competitiveness Report 2015-2016 is available here

Making the rich richer doesn’t necessarily make the rest of us richer September 24, 2015

Posted by OromianEconomist in Economics.
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???????????Trickle down economics

The Political Economy of Development

ha-joon-changHere is an insightful video interview with Cambridge economist Ha-Joon Chang, exploring three ideas from his very readable book ’23 Things They Don’t Tell You About Capitalism’.

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The Real Reason Economic Growth Is Considered Important September 19, 2015

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All For Israel

Economic growth is not fundamentally important.  For example, perfect egalitarian societies like many hunter-gatherer clans or the Hakka societies occupying the Fujian Tulou could experience zero economic growth and still be absolutely fine as long as they maintain the same standard of living from year to year.

Economic growth becomes far more important for backward societies that function off of hypocritical elitism, oppression, enforced poverty, and some form of forced labour.  These are the qualities of inverse civilization which includes all slave-making civilizations.

Within slave-making societies, the easiest and most convenient position is to be a slave-maker.  As long as you force others to work and keep others constantly oppressed, you get to climb to elite ranks, don’t have to do much work yourself and can get away with it because everybody else is so tired and desperate for any crumb you throw at them that they can’t rebel against you.

Inverse

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Time: Are markets irrationally exuberant? Nobel Prize winning economist Robert Shiller believes they are. September 14, 2015

Posted by OromianEconomist in 10 best Youtube videos, 25 killer Websites that make you cleverer, Economics.
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Shiller, a behavioral economist, closely tracks investors’ feelings about the market. He believes that emotions can hold the key to market movements. When I saw Shiller late last week for an interview about his new book on the economics of deception (“Phishing for Phools,” written with Fed Chair Janet Yellen’s husband George Akerlof), he told me more investors are worried that the market is over-valued than at any time since the peak of the dotcom bubble in 2000.

“Interest rates have been at zero” for a long time, says Shiller. “The economy has been viewed as sluggish, and yet [corporate] earnings have been growing and prices have been growing at a rapid pace.” That kind of “irrational exuberance,” says Shiller, is exactly what bubbles are made of.

So, why haven’t we seen a major sell-off, one more lasting than the dip we saw a few weeks back, after which the markets quickly rebounded? Because, says Shiller, investors are caught between two dueling narratives about the market.

First, there’s the “New Normal,” story, which is that we’re in a period of low interest rates that will last a long time, and that’s what’s kept markets up. This creates a sense of unease that our recovery isn’t real, but has somehow been genetically modified by central bankers.

“The aggressive monetary policy, which developed as kind of a new approach to managing [the economy] and was largely international, brought us these very low interest rates,” says Shiller. What’s more, “long rates are low, which represents some kind of public attitude that this [new normal] is going to go on for a long time.” As I have written many times, long periods of easy money always create bubbles. Meanwhile, says Shiller, “there’s another not so commonly-raised factor in connection with understanding the market: concern about inequality, which is rising, and also related to that a concern about information technology replacing jobs.”

Both of those things add to the sense that there is bad news lurking underneath those seemingly strong corporate earnings data of the last several years. That makes investors jittery.

But there’s another narrative. America is still the prettiest house on the ugly block that is the global economy. Where else can people park their money, if not in U.S. blue chips? Shiller adds that the growing sense that bad news may be looming can also “encourage people to accept high prices for houses and the stock market because they need to have something for the future.” Rising markets are supported by investors and consumers whoneed them to rise, because it makes them feel richer. “And they’re not going to say, “Oh, this price is too high, I’m going to consume this,” says Shiller. Rather, they accept the higher and higher asset prices – until they don’t anymore. That’s when the bubble bursts.

Those two dueling narratives may be one reason that markets have been volatile of late. People who hold equities have earned a lot of money — the stock market has gone way up. You could conclude, says Shiller, “I’ve got so much money, let’s go on a cruise! Let’s have a lark.” That sentiment drives consumer spending at the higher level. “But maybe you don’t because you’re worried. You have the sense that [things could change] — or maybe you’re worried about your children,” says Shiller. “In 20 or 30 years, I don’t know what they’re going to be doing. I’m just worried. Or maybe they’ll be doing horribly. So let’s keep that stock.” That in turn buoys markets. It’s a somewhat bipolar cycle that fits with the level of volatility we’ve seen all this year, which is much higher than last.

So what happens now? At some point, the market will receive some important new signal. It could be a rate hike from the Fed this week. Or it could be another raft of bad news from China. At that point, we’ll likely see another sell-off. The question then is whether it becomes a stampede. There’s no metric that will answer that question for sure. Emotions, as much as data, hold the key to what the markets will do. No wonder Shiller won the Nobel for saying as much.

How Emotions Are Affecting the Stock Market

The alienated consciousness, dehumanized human nature and capitalism September 11, 2015

Posted by OromianEconomist in Uncategorized.
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Economic Sociology and Political Economy

alienation work“The alienated consciousness is correlative with a money economy. Its root is the compulsion to work. This compulsion to work subordinates man to things, producing at the same time confusion in the valuation of things and devaluation of the human body. It reduces the drives of the human being to greed and competition… The desire for money takes the place of all genuinely human needs. Thus the apparent accumulation of wealth is really the impoverishment of human nature, and its appropriate morality is the renunciation of human nature and desires – asceticism. The effect is to substitute an abstraction, Homo Economicus, for the concrete totality of human nature, and thus to dehumanize human nature. In this dehumanized human nature man loses contact with his own body, more specifically with his senses, with sensuality and with the pleasure-principle. And this dehumanized human nature produces an inhuman consciousness, whose only currency…

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Ethiopia: The chronic shortage economy: What is the price and utility of a kilo of Sugar in Finfinnee (Addis Ababa) in terms of never ending queue? August 27, 2015

Posted by OromianEconomist in Economics, Famine in Ethiopia.
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Economic performance and size of government

In the midst of fastest growth hype and official statistical lies,  Ethiopia has been plagued by high rocketed prices for basic goods,  intensive and chronic shortages in all sectors of  economy. This is the situation of  TPLF ( fascist government and monopoly)  controlled economy experiencing declining production (supply deficit)  relative to  citizens demand for basic necessities. In dealing  with bureaucratic corruption that tinkers with distribution,  citizens are experiencing  long queue (disutility) in cities  for basic goods  for which  very limited  supply is  available. They may be approved or disapproved to get access to the purchase  by TPLF local cadres decisions. It has been reported that Ethiopia’s rural areas are in catastrophic famine. Widespread shortages, spiraling inflation and famine  are fueling humanitarian crisis.

This is the Ethiopian capital Addis Ababa (Finfinne) where the population of the early morning standing in long lines under the blazing sun (Sunday August 2015) for the purchase of sugar, oil and other basic goods

This is the Ethiopian capital Addis Ababa (Finfinne) where the population of the early morning standing in long lines under the blazing sun (Sunday August 2015) for the purchase of sugar and oil. Cars, children, women, old and adult, all are in never ending line. Source: http://www.ayyaantuu.net/addis-ababa-this-is-eleven-percent-yearly-growth-in-ethiopia-endless-lines-for-sugar/