In IB Economics unit 5, Development Economics, several strategies for achieving improvements in the welfare of the world’s poorest people are investigated. Foreign aid has been one of the main focuses of economic development strategies over the last several decades. But is aid in the form of development loans and grants from international organizations and foreign governments always beneficial to those who receive it in the poorest countries (the bottom billion as described by development economist Paul Collier)?

In the discussion that follows, Paul Collier of Oxford and Zambian economist Dambisa Moyo argue that the developed world’s focus on aid to Africa, resulting in a trillion dollars in loans and grants over the last 50 years, has missed the mark and completely failed to achieve meaningful economic development. The focus must therefore shift to opening markets, improving governance, achieving security and creating jobs for the poorest people on the African continent. Watch the two videos below, and respond to the discussion questions that follow. [the time in the video where the question is discussed is in brackets]

Part 1:

Part 2:

Discussion Questions:

Part 1:

1. What factors does Paul Collier point to that contribute to the “poverty traps” many African nations find themselves in? [3:07]
2. What have the two main goals of foreign aid policy been over the last 50 years, according to Dambisa Moyo? [4:45]
3. What are the “four horsemen of the African apocalypse?” How does Moyo think these four obstacles to development can best be overcome? [5:14]
4. What is Paul Collier’s opinion of the role of free trade in promoting human and economic development in Africa? What does he think about Africa’s traditional dependence on primary products and commodities? [7:45]
5. Before economic growth and development can occur, security must be achieved. Why is security, according to Collier, the number one obstacle to achieving meaningful development in Africa? [8:30]
6. In a dissenting view, Dr. Jeffery Sachs argues for more aid to Africa. What types of aid does Sachs believe is absolutely crucial for Africa to continue to receive? [10:39]

Part 2:

1. Collier makes the claim that aid may create “moral hazard” in Africa. What is moral hazard and how could reducing aid to African governments actually “force good governance”? [5:30]
2. Is there any historic record of aid working? What strategies accompanied foreign aid that contributed to its greatest historical success? [8:10]
3. What’s the main difference between Europe’s economic successful development during the second half of the 20th century and Africa’s unsuccessful experience during the same period? [9:00]

Teaching at an international school affords me the privilege of encountering and learning from truly unique and diverse individuals. Last week, my Economics classes were lucky to have as a guest speaker one very interesting and inspirational young man named Andrew Cunningham. Andrew, originally from Vermont, graduated from Duke University in 2008 and has helped co-found a development NGO in Kenya. WISER (Women’s Institute for Secondary Education and Research) serves a community of 35,000 in Kenya’s Muhuru Bay, an area where the per capita income is around $1 a day and 38% of the population is HIV positive.

Traditionally, less than 5% of young girls complete primary school in Muhuru Bay. In the town’s history, only ONE girl has ever gone to university (she would become the only Muhuru Bay native to complete her PhD and would eventually co-found WISER with Andrew). A combination of tradition, culture, and most importantly poverty had prevented improvements in the plight of woman in this poor corner of Africa. What was needed, decided Andrew and his founding partners, was an all-girls boarding school where opportunities for young women were promoted and academic achievement encouraged and fostered. WISER will open the community’s first all-girls secondary school this January and welcome 130 girls who have successfully competed primary school, an event representing a major step in the reduction of poverty in Muhuru Bay.

Beyond female education, Andrew and WISER have embarked on several other development projects in the last year and a half. In his visit to our IB Economics class last week, Andrew told the story of human development in Muhuru Bay as occurring primarily in three realms. Education, health, and entrepreneurship. Andrew is an amazing, dynamic, inspirational speaker, and his lectures in my class cannot be done justice in a blog post; but the lessons learned during his visit are worth recording here for others to learn from and to document for future use in my own classes. I will briefly summarize the three main development strategies Andrew and WISER have employed in Muhuru Bay, starting with education.

Education as a development strategy:

It should come as no surprise to this blog’s readers that education is a primary and fundamental strategy for eradicating poverty. A nation’s human capital is its most vital resource, and the road to prosperity requires an effective education system that does not discriminate based on race, gender, or socioeconomic status. In Muhuru Bay, which is 14 hours by car across un-paved roads from the Kenya’s capitol, the education system had failed to achieve meaningful results, both for boys and girls. Student performance on national examinations across the primary grade levels had historically averaged around 11% passing rates. Boys out-performed girls, but as a whole only about one in ten Muhuru Bay children passed the examination required for admittance to secondary school in Kenya.

Andrew and WISER needed to improve this dismal statistic. If they were going to build a secondary school for girls, they would need to first get girls to pass the national exam for entrance to secondary school, or else their new building would be full of empty desks. Andrew first talked to my class about the traditional development community (think World Bank, UNICEF, USAID) approach to promoting education in Africa. You are probably thinking the way to help these kids is to give them resources to improve their education. Build better schools, give them textbooks and school supplies, maybe uniforms, build a library, electricity in the classroom, chalk boards, heck, how about we give them laptop computers! All of these ideas represent the traditional development community’s approach to improving education in poor countries. The problem, according to Andy, is that these strategies focus only on the inputs into education, and completely fail to look at the output.

Inputs and outputs are common topics of discussion in any Economics class. To produce anything, three resources are required: land, labor, and capital. The traditional approach to improving education in Africa focused primarily on the land and capital. Things such as pens, notebooks, laptops, and new libraries are great, but they have little actual impact on what gets learned in a school. The neglected factor was the labor (i.e. the teachers!) In Muhuru Bay, teachers were paid so miserably and worked in such dismal conditions that the incentive to actually improve their students’ results was just too weak! With passing rates at 11% on national exams, Andrew and his team set about figuring out how to use incentives to improve the outputs of education in Muhuru Bay.

A simple and relatively low-cost plan was put into action. Teachers were told that if their students’ scores increased by only 15% on the exams, they would receive a 100% increase in their salary. Andrew and WISER worked with the national education ministry to develop interim exams that could be given quarterly to help the teachers measure their students’ improvement before the annual national examination. Wouldn’t you know it, with only minimal investments on the land and capital resources (i.e. textbooks and classroom materials) in Muhuru Bay schools, and by spending less than $10,000 on teacher raises, the passing rate among Muhuru Bay schools increased this year to 36% from last year’s 11%. Hundreds of students, boys and girls, who would not have been able to enter secondary school the previous year, instead passed the exam and were eligible for a secondary education, a crucial step towards a better future!

The teachers’ incentive pay program was such a success in Muhuru Bay last year that the state government has taken notice and intends to implement it in other rural communities throughout Kenya. By focusing on the outputs (student learning), rather than the inputs (classroom resources) Andrew and WISER have assured that when their all-girls school opens in January, its seats will be filled with qualified students who successfully completed their primary education.

Health as a development strategy:

The second topic of Andrew’s discussion with my IB Economics classes focused on health and sanitation, specifically solving the problem of open defecation (“OD” is a technical term used in the development community referring to the fact that in many poor communities basic latrines are non-existent, and therefore people shit in the open). OD in Muhuru Bay contributed to the poor health and low life expectancy of locals; According to Andrew an estimated 60 people have died this year of cholera, a disease spread via human waste.

In the health realm of development, the same basic dilemma between focusing on the inputs or the outputs had stymied previous attempts to reduce OD in Muhuru Bay. Recently, an outside aid organization had made loans to the community to build 30 public latrines. Within a year, however, the latrines had fallen into disrepair and were essentially useless. When Andrew and his team asked the community members why they had let the latrines fall into such a poor state, their answer was predictable. These were not their latrines, they belonged to the aid organization that had built the latrines… If they were broken, the aid organization could fix them! Such logic reflects a common problem in economics, that of the tragedy of the commons. Because the latrines were public, no one owned them. Because no one owned them, no one cared for them. When the latrines fell out of repair, people quickly reverted back to OD, and instances of cholera and other diseases increased once more.

Andy and WISER decided to tackle this problem using a similar approach as the one used to fix primary education in Muhuru Bay, by focusing on the output, rather than the inputs. In this case, the goal was simple: create incentives for people to build their OWN latrines, which they would then have an incentive to take care of and use. The strategy for promoting personal latrines they decided to employ is one that has been successfully implemented throughout the developing world, and is now funded by UNICEF, which trains facilitators to go into a community and in a very short time, and at a very low cost, incentivize the locals to take sanitation into their own hands and build their own latrines.

Community Led Total Sanitation (CLTS) is a mind-blowing and shockingly blunt way to promote sanitation. Rather than spending thousands of dollars to build public latrines, the CLTS approach brings community members together for an afternoon of discussion and education about sanitation issues. Locals are asked to take an index card and go to “where they shit” and collect a sample of their own waste. A large pile of shit is placed on a table in front of a room full of locals right next to a large selection of delicious foods. The facilitator then goes about discussing basic facts related to shit in the community, such as “If you added up all the shit your community produces in a year, how many donkeys would it weigh as much as?” or, “How many bags of rice would you have to eat to create this much shit?” In the mean time, of course, hundreds of flies have descended on the pile of shit in the front of the room, and the community members look on in utter disgust as the flies jump from the feces to the food and back again.

At the end of the lecture, the facilitator turns to the food and says, “Well, it’s time for lunch, who’s hungry?” In utter disgust, the locals ask the facilitator if he has gone mad. The lesson, of course, is that the food and water the community consumes is most likely being contaminated by the shit they produce and deposit in the open around their village. Within a few weeks of the CLTS project in Muhuru Bay, 256 new latrines were built by the community members themselves. Whereas previously, only around 15% of the locals used latrines regularly, after the CLTS project around 75% had access to the “facilities”.

The total cost of the CLTS sanitation project? Around $55, a tiny fraction of the cost of building the public latrines that had previously been neglected by the community. By focusing on the outputs rather than the inputs, real development in the health of the community was achieved at a very low financial cost.

Entrepreneurship and micro-lending as a development strategy:

The final approach to human development in Muhuru Bay Andrew discussed with my classes focused on the economic empowerment of community entrepreneurs. Micro-lending is a much talked about and widely used development strategy that provides financial credit or technology loans to entrepreneurs in poor communities to create small businesses, ideally ones with a socially beneficial purpose. In Muhuru Bay, the micro-lending scheme Andrew has pioneered involved not financial capital, but physical capital (i.e. technology).

Andrew was able to secure several technology donations, including a copy machine, several laptop computers with cellular internet connections, a foot pump for water, and a digital LCD projector. WISER then solicited loan requests from several “young entrepreneurs”. Young men and women wrote business plans outlining how they would use the technology loans to generate income for themselves and the community, and provide services that would benefit others in the Muhuru Bay community. The technology would not be donated to the recipients; rather they would be required to pay back the value of the capital through their business revenues.

It is simply amazing how a few pieces of second-hand technology, items that we in the rich North would take for granted as relatively common and thus of very little social or economic value, can completely change a poor community in Africa for the better. Here’s how some of the capital Andrew and WISER loaned to young entrepreneurs were put to use to achieve meaningful development in Muhuru Bay:

• The copy machine was installed and powered by a generator. It was the first such machine ever installed in Muhuru Bay. Local businesses, students, job seekers and other could now, for a few cents, photo-copy their documents locally, avoiding the two hour drive previously required for such a service.
• The laptops were installed in an internet café and made available to local students and businesses. Farmers and fisherman could check product prices in the cities hours away, increasing efficiency and bargaining positions when middle men came to town to buy their produce. Job openings in the city newspapers’ classifieds could be printed and posted for the local community to see, improving information symmetry between the poor countryside and the cities where job opportunities existed. The cost of access to these services was cheap, yet the entrepreneurs who were granted the laptop loan were able to pay back the cost of the technology in no time at all, and the community as a whole benefited from their existence.
• My favorite entrepreneurial venture involved the LCD projector. This piece of technology, which now hangs from the ceiling of thousands of classrooms around the rich world, had never before been seen in Muhuru Bay. You may think it ended up in a classroom or in an office building, but no; the entrepreneurs who received the projector hooked it up to a satellite dish which captured and projected English Premier League football matches onto the wall of a large room in a local building. The business was to sell tickets to local football fans who were more than happy to pay and watch English football matches in full color on a wall-sized screen. Before the projector, dozens would have huddled around a tiny, ancient television with poor reception to watch football matches. The “football theater” business was the most successful of all, and paid back its loan fastest.

All three of these entrepreneurial endeavors were very low cost, using donated technologies. The reason for their successes, however, must be attributed to the model for implementation. They were not simply “given” to the community. Such a strategy would certainly have led to the same “tragedy of the commons” experienced when the outside aid organization funded the construction of public latrines. The capital would have been neglected and fallen into disrepair. By lending the technology to businesses, however, the incentive for innovative and socially beneficial ventures was created, and a business model was developed to best utilize the resources in a profit-earning, sustainable manner. With very little inputs, fantastic outputs were achieved, enriching not only the entrepreneurs, but the entire Muhuru Bay community.

Economic Development the WISER Way:

Andrew’s visit to Zurich International School was eye-opening in many ways. He brought to light both the successes of WISER and other community projects in rural Kenya, but also shined a light on the failures of the traditional development community’s agenda. When I think about the hundreds of billions of dollars that have been committed to economic development in Africa over the past decades, and on into future decades, I wonder whether the diplomats and the politicians in the “aid community” have any idea how much has been accomplished on the ground in places like Muhuru Bay thanks to community service leaders like Andy Cunningham.

With so little, so much can be accomplished. The poor of Africa and the world need resources, but more importantly they need education, health and sanitation, and business opportunities so that they can enjoy the benefits of development from the bottom up. Development aid, as it has traditionally been distributed, comes from the top down, through national governments. Waste and corruption are rampant, and typically only a fraction of what has been given ends up on the ground in places like Muhuru Bay. Even when it does, the tragedy of the commons often results in inefficiency and waste, as the “inputs” are managed and distributed from the top down, leading to uncertainty of ownership and misaligned incentives once the resources are on the ground. Perhaps aid from the outside is still needed, but Andy’s visit showed me and my students that something much more basic lies at the core of successful economic development. Education focusing on outputs rather than inputs, sanitation focusing on outputs rather than inputs, and entrepreneurship that empowers business leadership, have improved the lives of thousands in one Kenyan community. What could such a re-thinking of development strategies do for the rest of Africa and the developing world?

World Habitat Day – Social Media News Release.

On October 5th the world will celebrate World Habitat Day. The purpose of this day, declared by the United Nations, is to raise awareness about the dire need for adequate housing among hundreds of millions, even billions, of the world’s poor. According to Habitat for Humanity:

Worldwide, more than 2 million housing units per year are needed for the next 50 years to solve the present worldwide housing crisis. With our global population expanding, however, at the end of those 50 years, there would still be a need for another 1 billion houses. (UN-HABITAT: 2005)

Raising awareness and advocating for change are the first steps toward transforming systems that perpetuate the global plague of poverty housing. World Habitat Day serves as an important reminder that everyone must unite to ensure that everyone has a safe, decent place to call home.

The U.N. further states that both developed and developing countries, cities and towns are increasingly feeling the effects of climate change, resource depletion, food insecurity, population growth and economic instability.

Rapid rates of urbanization cause serious negative consequences – overcrowding, poverty, slums with many poorly equipped to meet the service demands of ever growing urban populations.

With over half of the world’s population currently living in urban areas the U.N. believes there is no doubt that the “urban agenda” will increasingly become a priority for governments, local authorities and their non-governmental partners everywhere.

Global poverty facts

• By the year 2030, an additional 3 billion people, about 40 percent of the world’s population, will need access to housing. This translates into a demand for 96,150 new affordable units every day and 4,000 every hour. (UN-HABITAT: 2005)
• One out of every three city dwellers – nearly a billion people – lives in a slum. (Slum indicators include: lack of water, lack of sanitation, overcrowding, non-durable structures and insecure tenure.) (UN-HABITAT: 2006)
• UN-Habitat has reported that because of poor living conditions, women living in slums are more likely to contract HIV/AIDS than their rural counterparts, and children in slums are more likely to die from water-borne and respiratory illness. (UN-HABITAT: 2006)
• Housing formation generates non-housing related expenditures that help drive the economy. (Kissick, et al: 2006)
• Investing in housing expands the local tax base. (Kissick, et al: 2006)

The facts are undeniable. Housing for the poor is one of the basic necessities that is simply not being met, both in developed and developing countries.

Today I live in Switzerland, but during my first several years as a teacher, as well as during my own high school life, I lived in Asia, where poverty is far more visible than here in Europe. At my last school, I was able to participate in a Habitat for Humanity trip myself, to Lucena City in the Philippines. The week I spent building a house with my 20 students was one of the greatest weeks of my career as a teacher. Below is the album from that amazing week in a small village in the Philippines:

Shanghai American School, Habitat Philippinese 2007 – Lucena City

In Bangkok, where I had my first teaching job, the problem of urban poverty was visible on every street corner. As part of a senior course I taught on Service Learning, I used to take upper class international school students into Bangkok’s poorest slums to learn about the challenges faced by the city’s poor. The most obvious challenge, visible everywhere in the city of 12 million, was lack of adequate housing. I made the video below to document my students’ “Urban Plunge” into the Bangkok slums, and to raise awareness of the issues faced by Thailand’s poor:

In a few days the world will acknowledge World Habitat Day. Take a moment, follow the link at the top of this post. Read about the issues faced by nearly a third of the world’s population, and see how you can get involved. Oh, and if you have the chance to participate in a Habitat build through your school or community, do it! I promise you, the experience will change your life, but more importantly, it will help improve the life of someone in need of one of life’s most basic necessities, safe shelter, a HOME!

Switzerland “could become a feudal state” claims an economist. – swissinfo

One Zurich economist thinks so:

In Switzerland 71 per cent of the wealth is concentrated in the hands of just ten per cent of the population – a figure that economist Hans Kissling finds alarming.

Kissling tells swissinfo that the gap between the rich and everyone else is growing and that this could threaten traditional Swiss democracy and the economy. He makes a call for an inheritance tax for the wealthy.

Statistics show that the 300 richest people have become 40 per cent wealthier in the past eight years, whereas most of the population has a lower income than at the beginning of the 1990s

Kissling has nothing against wealth, he just thinks that if someone did not earn their wealth but inherited it instead, they should have to share a bit with the rest of society.

I call for a tax on very high inheritances, from SFr1 million ($900.000) upwards, and only on the excess value of that. I certainly don’t want people to think that they can’t pass on their family home to the next generation.

I’m only interested in trying to stop any creeping feudalisation, to avoid having huge clans like in South America, which threaten the economy and the political world

He’s most concerned that if the gap between rich and middle class continues to widen and the middle class of Switzerland don’t start benefiting from the country’s growing wealth, there could be a dangerous backlash against the free market system.

…the richest one tenth of a percent in Zurich – there are no full Swiss statistics – had 677 times more wealth than an average citizen in 1991. By 2003, 12 years later, the richest one tenth of a percent had 1,027 times more wealth. So the gap has really grown.

The middle classes, unlike the lower classes, have not benefited from any concessions, such as health insurance or childcare allowances. Here they have to use up all their assets before they receive any support. The lower classes have help from the beginning. This is why the middle classes are threatened

Discussion Questions:

1. Why does a growing gap between rich and middle class threaten social stability in Switzerland?
2. What would advocates of socialism propose in order to avoid future struggles between the rich and the middle class?
3. What kind of tax system would help re-distribute the wealth of Switzerland and narrow the enormous gap that exists here?

U.S. food stamp use up sharply, sign of hard times (Reuters) by Charles Abbott

Shanghai American School AquaEagles – World Swim Against Malaria

Students, teacher, parents, readers… here’s a good opportunity to spread good will and support students who truly care and want to make a difference in the world. The SAS swim team has organized a “World Swim Against Malaria” swimathon on Friday, April 18. The Aqua Eagle have set up a website where anyone can go and make a donation, small or large, $1 to $100, anything you can offer is welcome!

The money raised will go straight towards buying mosquito nets for residents of sub-Saharan African countries. A mosquito net costs $5 US, or roughly 7 days wages for a Malawian worker. One to three million die of malaria each, year, 70% of whom are children under five. Today alone, seven jumbo jets could be filled with the corpses of malaria victims.

Malaria is a disease of those in poverty. The simple solution to this disease is providing access to the simplest of technologies: a mesh bed net.

For each $100 the swim team raises, 20 nets will end up over the heads and beds of children in Africa. $100 could potentially save 20 lives right now. If you want to help out, follow the link above and make your donation now!

Bill Gates Issues Call For Kinder Capitalism – WSJ.com

“We could make market forces work better for the poor if we could develop a more creative capitalism…” – Bill Gates at the 2007 Harvard commencement address

Is capitalism capable of lifting the world’s 4 billion poor people out of poverty? Bill Gates, the world’s greatest beneficiary of capitalist markets, thinks the system that forms the foundation of our market economy requires some re-thinking. Gates is calling for “creative capitalism” in which firms respond to incentives aimed at developing technologies that serve the world’s poor.

Gates first expressed his interest in a capitalist system with a focus on helping the poor in his Harvard commencement address last year, and reiterated his vision last week at the World Economic Forum in Davos, Switzerland. Gates envisions a future where profits will motivate industies to create goods and services not just for the top 20% of the world’s income earners, those in the rich countries of the OECD (the “country club of the UN” as Hans Rosling calls it), but by developing products that are meant to benefit the world’s poorest people, those in the bottom 20%, who suffer most from poverty.

Watch the videos below and discuss the prospects of Gate’s vision becoming a reality.

June 2007 at Harvard

and January 2008 at Davos

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Today in IB Economics, as part of our unit on Economic Development, our class had an interesting discussion about the barriers developing countries face in improving the lives of the average citizen.

One obstacle persistent in many poor countries is the average citizen’s lack of access to a dependable banking system. Entrepreneurs interested in getting financing for a business endeavor may find themselves unable to access credit, as domestic banks may be unwilling to loan small amounts of money to individuals without a credit history or even any formal education or training. Meanwhile, international banks operating in developing countries are often there only to serve international investors and corporations that want to open up shop in the country. These banks may not even allow a common citizen of the developing country through its doors, much less consider giving them a loan.

Marco, a student in my class, mentioned an organization he’d heard of that allowed citizens from the developed world to log in and make loans directly to entrepreneurs in the developing world. The very concept of this variety of micro-lending seemed so straightforward and ingenious that I had to fine out more. Luckily, Marco found the website and this video about the organization, which goes by the name Kiva.org. From their website:

Kiva lets you connect with and loan money to unique small businesses in the developing world. By choosing a business on Kiva.org, you can “sponsor a business” and help the world’s working poor make great strides towards economic independence. Throughout the course of the loan (usually 6-12 months), you can receive email journal updates from the business you’ve sponsored. As loans are repaid, you get your loan money back.

Discussion Questions:

1. Why is investment necessary for economic development to occur?
2. What institutional factors exist that prevent improvements in human capital in some developing countries?
3. I micro-lending in general and Kiva.org in particular a realistic solution to the problem of poverty in developing countries?

Grinding poverty defies China’s boom – International Herald Tribune

Here at SAS my year two IB Econ students have started off the new year with a new unit: Economic Development. So far in the semester we’ve learned about what makes economic development different than economic growth. While gross domestic product may offer an indication of a country’s level of economic activity and output, it says little about the reality of life for the common person of developing countries.

To offer a more rounded figure for determining the level of economic development, the United Nations Development Program has created an alternative to GDP, the Human Development Index. The HDI accounts for the GDP per capita, the average level of primary and secondary education attained, literacy rates, and the life expectancy of citizens, to offer a glimpse into the reality of not just material wealth, but health and education in developing countries.

Continue Reading »

The Nano comes with its own moral dilemma. – By Anne Applebaum – Slate Magazine

Tata Motors of India recently launched the world’s cheapest automobile, the Nano.

“…meet the Nano, possibly the most significant new car of the decade. Small, cute, and snub-nosed, it fits four people and a duffel bag, has a single windshield wiper, travels at 60 mph, and it’s all yours for the princely sum of $2,500…”

Tata plans to build and sell 250,000 Nanos this year in India, spreading production to Africa, South America, and Southeast Asia. Clearly the company is targeting not the traditional auto markets of Europe and North America, rather the regions traditionally thought of as poor and thus not associated with auto sales.

What is the meaning of this “car for the masses”? At first glance, it looks like the perfect solution for bringing millions of the world’s poor (if not super-poor) closer to the dream of achieving a quality of life previously only accessible by the world’s middle class and rich. Great,  so what could possible be bad about fulfilling the dreams of so many of the world’s poor? The answer? Externalities…

“Though the small Nano uses less gasoline than many larger cars, the enormous potential numbers could mean an equally enormous environmental impact. Since it will be a long time before Nano drivers will be able to afford the $20,000-plus hybrids now on the market, let alone a Honda FCX Clarity, the prototype experimental hydrogen car thought to be worth as much as $10 million apiece, that means an exponential rise in carbon emissions as well as other kinds of pollutants. The United Nations’ top climate scientist, Indian economist Rajendra Pachauri—chair of the Intergovernmental Panel on Climate Change, which shared the Nobel Peace Prize with Al Gore—has said he is already “having nightmares” about precisely this scenario.”

Herein lies the moral dilemma of the Nano: where does society’s desire to improve the lot of the world’s poor come into conflict with society’s desire to to improve the environment and minimize the impact global warming?

What do you think? Do the social benefits of a $2,500 car exceed the social costs it will likely impose? Does the Nano’s $2,500 price incorporate the full costs that its existence places on society and the environment? Should we jump for joy at the thought of millions upon millions of the world’s poor finally having access to the convenience of automobile transport? Or should we pause with uncertainty to contemplate the effect on the environment and the social costs that millions of cheap cars will impose on the world?

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Meet Jasper. Jasper is a resident of Saint Dominic Village, a Habitat for Humanity community made up of 65 houses (eventually 92), one as of yet un-staffed community center, 200 children (the average family has about six kids), one playground with a few rusty swings and a teeter totter.

Among the 200 children in Saint Dominic Village, only a handful attend school regularly. Almost all of the younger children live on their own for most of their days, as their parents head to the city to find work. Teenagers in the village attend school sporadically, often choosing to hang out in the village smoking pot, or to find work in the city to supplement their family income.

A typical family in Saint Dominic village will earn between 3 and 6 dollars a day, but only when there is work to be found. Some of the common jobs here include “tricycle” driver (these are motorcycles with side cars used as taxis in this part of the Philippines), jeepney driver, charcoal salesman, seamstress, laundry service, handicrafts, and the odd factory job (although these are scarce in this area as there is very little capital investment). Continue Reading »

Shanghai American School Habitat for Humanity – Lucena City, Philippines. October 2007

This afternoon my wife and I returned to Shanghai after an amazing week in the Philippinese where we led 16 students on a Habitat for Humanity house building project on the island of Luzon (see map here). While this experience is still fresh in my mind, I wanted to share a few comments about how my thinking about Habitat for Humanity evolved over the last eight days.

A week ago right now, the 18 of us from SAS were bouncing scarily southward along Luzon’s main north-south highway, which is only a highway in the western sense for about 30 km outside of Manila, beyond which it turns to a two-lane, pot-holed, multi-use thoroughfare shared by buses, three-wheeled motorcycle taxis, lorries, a handful of personal automobiles and thousands of jeepneys. Three hours of nerve and bone rattling travel brought us to our lovely guest house near the southern Luzon city of Lucena, where we would spend five days building a house in a community on the outskirts of the city. Continue Reading »

How the World Works: Who Invented Calculus? – Salon.com

IB students, here’s a blog post you’ll want to read closely once we start studying economic development later this semester. Andrew Leonard at Salon.com refers to a study titled “Does Economic Growth Reduce Fertility? Rural India 1971-1999″.

Interesting stuff. Leonard points out a peculiar paradox of growth in India:

India’s Green Revolution has been criticized by those who wonder if an agricultural model reliant on large inputs of fertilizers and pesticides is environmentally sustainable over the long run. But if in the short run these spikes in agricultural productivity contribute to population stabilization, then we have a nifty paradox: a (possibly) unsustainable agricultural model contributing to (possibly) sustainable population levels.

This article and the study it refers to might make for an interesting commentary for your internal assessment, or as a source for an extended essay on growth and development. Any opinions on the supposed correlation between economic growth and decreased fertility?

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Cuba libre | Free exchange | Economist.com

Here’s a piece from the Economist’s blog about whether America removing its embargoes on trade with Cuba would have all that big an impact on the lives of the average Cuban.

Trade is, it goes without saying, wonderful stuff. But trade with America isn’t that marvelous. Cuba is, right now, free to trade with just about every other country in the world, yet it’s still a pit of economic misery for most of its citizens. Yes, shipping costs would be higher, stopping some trade from happening. But China is much farther from America than Cuba is from Europe; it still manages to run an enormous trade surplus with that country.

According to the CIA World Factbook, Cuba exports roughly $3 billion a year. Even assuming that the American embargo is so effective that it has slashed Cuba’s exports in half, that would give Cuba new gains from trade of only another $3 billion, or $272 for each of its 11 million citizens. (We assume for the sake of argument that Cuba is so true to the Socialist Revolution that elites will not appropriate a single extra dollar of the surplus to themselves, or to wastefully showy political projects.) It should be obvious from descriptions of Cuba that this will not be enough to lift Cubans out of the grinding poverty in which they currently live.

Trade can only make countries better off if they make something worth selling; Cuba largely doesn’t. Opening up trade with America, but not opening up the sclerotic state owned economy to internal change, would result i a little extra income on the margin, but it has no prospect of transforming the economy. Without little things like relative changes in price signals to allow inputs to flow to their highest valued uses, free movement of capital to profit opportunity, and incentives for higher quality work, trade cannot work any economic miracles.

Discussion Questions:

1. Based on what you read above, how much freedom do you think exists in Cuba’s economy? What type of economic system does Cuba have?
2. Besides free trade, what else must Cuba do to help its citizens to escape poverty?
3. Explain and discuss the following passage: “Without little things like relative changes in price signals to allow inputs to flow to their highest valued uses, free movement of capital to profit opportunity, and incentives for higher quality work, trade cannot work any economic miracles.”

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Design That Solves Problems for the World’s Poor – New York Times

It is a luxury right now to sit back and peruse articles about economic topics that interest me. Economic development has been a passion of mine yet I have not had the opportunity to share my passion about economic development with my current AP students. The AP syllabus does not cover this topic and the Lorenz curve is about the closest that my AP student came to learning about income distribution and poverty. This was not an authentic study of or discussion about effective economic development.

So, I was pleased to read the article by Donald McNeil in today’s (5/29/07) New York Times which highlighted a show at the Cooper –Hewitt Design Museum where designers displayed the products that designed to serve the needs of the world’s poor. These products were created to enhance the quality of life of poor people world wide. They were designed as products that would assist the world’s poorest people in climbing the “self sufficiency” economic ladder.

“A billion customers in the world,” Dr. Paul Polak told a crowd of inventors recently, “are waiting for a $2 pair of eyeglasses, a $10 solar lantern and a $100 house.” The world’s cleverest designers, said Dr. Polak, a former psychiatrist who now runs an organization helping poor farmers become entrepreneurs, cater to the globe’s richest 10 percent, creating items like wine labels, couture and Maseratis. “We need a revolution to reverse that silly ratio,” he said.

The designers created new ways to transport water, created human powered water pumps to enable planting during the dry seasons, and designed an apparatus to clean water for drinking as you sip it directly from streams, rivers and lakes. So many inventors spend so much time designing goods and services for the rich that if in this ‘new revolution” were to take hold, the world’s poor might just find ways to make themselves richer.

What I like about this approach to economic development is that it involves giving the poorest members of our world community the tools that they will need to become independent entrepreneurs who will build their own economic success. This is not a “give them some food to eat”, “give them a dam that they don’t need” or a give them some “charity” type of economic development. It is much more than that…The artists and inventors themselves knew that:

“Interestingly, most of the designers who spoke at the opening of the exhibition spurned the idea of charity.

“The No. 1 need that poor people have is a way to make more cash,” said Martin Fisher, an engineer who founded KickStart, an organization that says it has helped 230,000 people escape poverty. It sells human-powered pumps costing $35 to $95.

Pumping water can help a farmer grow grain in the dry season, when it fetches triple the normal price. Dr. Fisher described customers who had skipped meals for weeks to buy a pump and then earned $1,000 the next year selling vegetables.

“Most of the world’s poor are subsistence farmers, so they need a business model that lets them make money in three to six months, which is one growing season,” he said. KickStart accepts grants to support its advertising and find networks of sellers supplied with spare parts, for example”

Now that is the kind of economic development revolution that I want to be part of. For more information about a truly successful worldwide economic development program for woman, check out the Grameen Bank and/or the Grameen Foundation. Both programs combine the power of microfinance, technology and innovative solutions to defeat global poverty. They too put tools in the hands of poor women. The Founder, Muhammad Yunus just won the 2006 Nobel Peace Prize for his work and for his foundation. His work inspires me..

Gas hits record high price for eighth straight day – May. 20, 2007

According to CNN.com:

“The run-up in prices is a big concern for store chains, according to the retailers’ trade group. Its survey of consumers released early Friday found the average consumer believes that the price of gas will reach $3.32 per gallon by Father’s Day… As a result, 40.2 percent of consumers are taking fewer shopping trips, while 37.9 percent told the survey they plan to shop closer to home.”

“To offset the effects of higher prices, more consumers are giving their wallets a little extra cushion by cutting back on discretionary spending or choosing to frequent retailers closer to home.”"

And this is a bad thing? To big chain stores, perhaps, but what about the neighborhood businesses (are there still any of those?) that will benefit after years of losing business to big box retailers like Wal-Mart and Home Depot? Consumers driving less may harm major retailers whose stores tend to be clumped together in mega shopping strips on the outskirts of towns, but surely the benefits of less driving outweigh the costs.

Fewer cars on the road mean less traffic, less noise, more space for cyclists, less hazard to pedestrians and children playing ball in their yards, cleaner air and a deceleration of global warming, more customers at neighborhood businesses, and perhaps even more quality time with family and friends (if we can assume less time shopping means more time with each other).

So if high gas prices result in so many improvements in our environment, relationships, communities and health, why are they such a bad thing? Perhaps because higher gas prices overburden the poor. Since fuel makes up a larger proportion of a poor family’s budget than a rich one’s, higher gas prices put a bigger dent in the disposable incomes of the poor than the rich. Economic theory would indicate that the poor’s demand for gas is more elastic than the rich’s, meaning that price increases are met with a greater decrease in consumption than someone for whom gas makes up a relatively small part of their overall budget. This, again, may not be so bad. Perhaps the poor will begin limiting their outings to those that are deemed most necessary (such as to and from work, school, child care or clinic) and cut back on unnecessary trips (such as to mall, the movie theater, the go cart track or the Wal-Mart across town). Less consumption may not lower overall standard of living when we consider that much of the consumption going on by Americans (rich and poor alike) is frivolous and ostentatious.

Even acknowledging the regressive nature of the burden of high gas prices, it still seems to me that higher prices are necessary to achieving a cleaner, healthier, better functioning society. The problem is, if prices are kept artificially high through price gouging, as the Democratic leadership in Congress seems to believe, then the full benefits of higher gas prices are being passed on to oil companies rather than society, as could be achieved with an effective gas tax.

CNN presents their own solution to the problem of high gas prices:

From higher taxes to more drilling, ways to cut gas prices – May. 10, 2007

1- Pass a carbon tax
2- Increase efficiency
3- Push alternatives
4- Require oil companies to make more gas
5- Build a gasoline reserve
6- Drill more oil

It’s too bad my AP class has finished for the year. I think a great quiz would be to hand them this list and ask, “What’s missing?” Anyone who’s completed a semester in a Principle of Microeconomics course should be able to get an A on such a quiz. Can you tell what’s missing? If so, please post your comment here. (Hint- fill in the blank: Supply and ______?_______)

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Globalization for Whom? (July-August 2002)

Thanks to Katie Daily for posting the above article to the new Wikinomics page “AP Econ in the News”. Several very interesting articles were linked to this page over the weekend, but this one just jumped out at me as particularly interesting.

This piece looks at the question of whether globalization reduces poverty. Many critics of globalization (you know, those union members and see turtle costumed folks who protest at WTO and IMF meetings, and millions like them in the develop and developing worlds), claim that the record of the 1990s shows that a more integrated global economy does not necessarily mean less poverty in poor countries. The author here claims that while global poverty may not have been eliminated during this decade of global integration, this is only because some of the poorest countries have not yet become “globalizers”, rather have remained “non-globalizers”

“…countries that have the best shot at lifting themselves out of poverty are those that open themselves up to the world economy.”

The author points to several figures supporting the positive impact globalization has had on countries that have chosen to participate in the integration of global markets, such as China and India.

“By selling its products on world markets, China has been able to purchase the capital equipment and inputs needed for its modernization. And the surge in foreign investment has brought much-needed managerial and technical expertise. The regions of China that have grown fastest are those that took the greatest advantage of foreign trade and investment.”

Read: SHANGHAI folks. This article points perfectly to the phenomenal growth we’ve observed here in our own home. China’s decision in 1978 with Deng’s “Reform and Opening” to participate in, rather than isolate itself from the global marketplace has resulted in a doubling of life expectancy, a near doubling in literacy rates, rapid development of the country’s infrastructure and the emergence of China as a dominant and undeniable force in the economic and political landscape.

The author explores the idea that China’s (as well as its East Asian neighbors’) economic emergence may have been achieved by shunning free market principles and turning instead to protectionist methods such as quotas, tariffs on imports, subsidies to domestic producers, etc…

Perhaps China has unlocked a secret of successful integration in the global economy. Despite the West’s desire to liberalize and open the economies of all poor nations and their claim that this is the best means to eradicate poverty rapidly, China’s experience shows that a healthy dose of government control and protectionist policy may actually result in the greatest economic gains for the world’s poorest countries. I’m interested to know what students think about China in the world today. Does the high level of government control over the economy stifle further growth and prevent the total eradication of poverty? Or should the government continue to meddle in the market, protecting domestic industries and hope that its interference does not limit the country’s growth, thus halting continued improvements in standard of living experienced by the majority of Chinese over the last 40 years? This may be a good topic to bring up over dinner with your families this week! Share your thoughts here!

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