Category Archives: Politics of Development: issues

Development, Politics of Development: issues

The resource curse:

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                                                                                                  The resource curse

By D.A Parker

Is an abundance of natural resources   an  impediment to Development?

Introduction
This paper argues that resources are not in themselves an impediment to development but over reliance on them and bad management is. There is an on-going debate amongst academics and political figures about the actual cause of the’ resource curse’. Using Botswana as an example of success contrasted against those that have fared less well it can be shown that for many people, even in the most successful resource dependent economies that have shown unparalleled development and economic growth, abundant resources can still be an unavoidable curse.
The resource poverty conflict Trap
An abundance of resources should be a blessing to a developing country however, for much of the developing world they have proved to be more of a curse than a blessing, doing more harm than good. Many parts of Africa and Asia find themselves in constant cycles of under-development, poverty and conflict (Collier, 2007).

The abundance of natural resources has been an aggravating factor against lasting peace and stability. Constant conflicts occur across the undeveloped world. Political and quasi-political forces struggle to control both extraction and supply or natural resources to finance their struggle against oppositional forces. Volatile situations arise which often involve several warring factions within a single region all fighting for autonomy over resources. Resources finance their struggles for identity, sovereignty, or political power over the whole country or specific region. Increasingly contemporary conflicts are over religious ideology. It is the natural resources that are financing these conflicts and it is the rest of the world mainly the west and increasingly China, that are buying them (Velleng, F, 2006: et al). A group that controls the resource’s and has ability to sell or trade them for arms can gain the upper hand with the obvious effect of prolonging the conflicts.

Contemporary conflicts are no longer a simple struggle between two opposing forces culminating with a single victor. Modern day conflicts involve many sides with varying ideals and philosophies often with more than just sovereignty at stake. An abundant resource adds yet another layer of complexity to theses struggles. After the fighting is over in many in cases the warring factions have to go on living side by side long after the violence subsides. To obtain any lasting peace involves a long process of negotiations, reconciliation and development. Sudden discoveries of resources have the tendency of negating efforts of reconciliation by attracting opportunist and rekindling old conflicts.

Africa is a rich and diverse continent with an abundance of natural recourse buried beneath the ground, yet it is also the poorest continent and the most violent, conflicts and tyranny reigns from the north to south. Amongst all the turmoil there are glimmers of hope, countries like Botswana for example doing considerable well out there natural resources presumably escaping the resource curse? At least that is the image that the country likes to portray to the rest of the world. However, the truth is far from that of the corporate image they portray. For the San Bushman diamonds are as big a curse as in the Congo or Liberia. For the Bushman there is as much blood on Botswana diamonds as anywhere else where resource conflicts exists, despite how much wealth the rest of the country may accumulates or spend(Good, 2005).So can Botswana truly be considering a success story or do we just forget about the Bushman and say it is?

So why do so many resources rich countries fail whilst others do apparently well. One argument blames “Dutch disease” (Ross, 1999: p8-10: Collier, 2007 : p40-42: et al). Dutch disease happens when a government fails to invest in other areas of the economy and rely too heavily on the resource. This has the effect of making other areas of the economy too costly and unprofitable. Dependency theory such as Raul Prebisch (1950) & Singer (1950) et al, (cited:Frankel, 2010: p5), suggest that over reliance on a single commodity or on natural resources means that the economy is open to market fads and fluctuations in the market mechanism. Meaning that when the international commodity prices fall the economy with too great a reliance on a single resource will fail. This as Collier (2007) suggest is part of the boom and bust cycle that many underdeveloped countries face creating cycles of peace, prosperity, poverty, and war.

Another problem suggests Collier (2007), is when a poor country suddenly discovers an abundance of resource, it is only natural that they borrow heavily and to invest in its extraction. This sudden growth in Government coffers can be another trap. For many, as in the Congo and Liberia for example, it can be seen by political opposition groups as a honeypot and an opportunity, this can lead to conflict before extraction of resource even starts.
As Kolstad and Rosser (2009) argue that it is the type and availability of the resource. The easier it is to extract the more open it is to exploitation. Comparing the Congo’s surface diamonds to Botswana deep diamonds is possible evidence for this argument. This is considered as rents the higher the cost of extraction the less likely rebel groups will invest in its extraction. Rebel groups are opportunist when it comes to gaining wealth to finance their wars; consequently they are less likely to invest in extraction technologies. Likewise oil that is onshore is harder [but not impossible], to exploit than oil found inland (Kolstad and Wiig, 2009). “The key idea in this class of explanation is that easy money corrupts”… (Sandbu, 2006: p1155). The Nigerian scenario is case in point, where whole regions are be plundered and exploited by both the corrupt government, privateers and gangs alike, with little returns going back into the state coffers, or used for further development. This along with chronic poverty and immense corruption and violence in most other areas of business leaves Nigeria and especially Lagos the capital amongst the top most dangerous places in the world to live in (Meredith, 2005).

Mineral- rich Government’s enjoying high revenues from resource exports “generally spend unusually large sums on their military forces” (Ross 2003:p25: cited: Good, 2005: p 7). This is no different of peaceful countries either. In Botswana for example, military spending increased significantly in Botswana during 1990s, rising from “P214 million (Pula) in 1992 to P625 million in 1995, representing slightly less than 5 per cent of GDP” (op. cit.). This

amount is not only higher than in any of its neighbouring countries, but is also “bigger than the United States” (ibid). Botswana is considered a peaceful country that has never been to war, perhaps it is paranoia having strong neighbour’s on one side like South Africa and weaker unstable neighbours like Zimbabwe on the other side, that makes them want to spend so much on military. As s(Rosser, (2006 ) suggest ‘resource abundance, authoritarianisms, despotism, military expenditure and civil war go hand in hand although this has yet to be fully proven it appears likely. As (Sandbu, (2006) ) suggest that by using economic measures that properly reflects the countries reliance on natural resources, rather than using absolute measure such as gross domestic product (GDP) or other percentile growth figures, there is ‘clear evidence of a resource curse’ “It manifests itself not only in slower economic growth, but also in higher risk of violent conflict” (Collier & Hoeffler, 1998: Fearon & Laitin, 2003 cited Sandbu, 2006: p1154).

So it would appear that even successful resource rich countries have blood on their hands in one way or another. Non- have completely escaped from the curse of buried wealth, not even the countries that have succeed in developing their economies and remained apparently peaceful like Botswana. The exploitation and inhumane treatment of indigenous communities by forced resettlement and pollution of their lands in order to get at and extract resource is not restricted to Botswana. In fact in most resource rich regions of the world similar treatment to that of the Bushman can be found. In Mexico, Brazil, Ecuador for example and many other parts of South America, Africa and China, blatant abuse of human rights in order to extract resources can be found. The new battle field is the Artic and the extraction of ‘oil tar sands’

concomitantly with the destruction of the environment and the miss treatment of the Inuit people and destruction of their culture; the whole of the region is under threat. The fact is that even for the most successful economies wherever there are resources, there will be found Human exploitation, environmental devastation or even war, no one place escapes these facts.
Some success
If we put aside the Bushman for one moment and consider Botswana as the success story that it is in economic and development terms, we find several factor that have boosted its development. Botswana government has made sound reinvestment into infrastructure and education some 80% of Botswana population are literate. The government has also invested heavily in roads power and water supplying remote villages and farming communities with much needed bore holes for water. They have built hospitals that supply affordable health care for all ‘Batswana ’. They have a second to none, in Africa, telecommunications network and postal service. The government encouraged diversification into other industry although they have still a long way to go. Botswana remains an exemplar for the rest of Africa on how to manage resources properly through good governance and sound partnerships.
Botswana created sensible partnership with international partners such as DeBeers rather than selling the rights and relying on taxation and ‘rents’ for wealth creation. This also involved training and education in appropriate technologies thus creating a valuable skills base for their budding industries, they are now cutting approximately 40-50% of all diamonds

they export. As Kolstad (2009), argues that it’s the ‘rents’(costs), that cause the problems attracting opportunist where low rents apply, due ease of extraction and access promising get rich quick opportunities to fuel wars and conflict. Whilst rents become a stabilising factor when they are high and where high tech extraction methods are required.
Having good neighbours goes a long way to help with developmental success. However for Botswana this had a twofold effect. When Botswana attempted to create an automotive assembly industry in partnership with Hyundai it failed because of South Africa that ironically became the impediment to Botswana industrialisation program not the reliance on resource (Good, 2005). South Africa implemented tariffs restricting shipping and importation on vehicles and goods assembled in Botswana. They attached duties and point of sale on imported goods that are also made in South Africa, thus protecting South Africa’s own automotive manufacturing industries. Success full neighbours can have twofold effects of being both good for exporting raw materials but bad for creating a manufacturing industry, because of increased competition and unfair goods transfer practise, this can hinder the development of a local manufacturing base and increasing the reliance on natural resources(op. cit.).
Being a landlocked country Botswana seemingly negates the landlocked argument held by many. More importantly it is having good relations with neighbours that allow unrestricted access to ports and transportation system goes a long way towards lifting the resource curse, as in the Botswana, South African relations. Although this is not an altogether complete reason for their success and has had some negative effects it has certainly helped their rapid

growth (Good, 2005). Despite there being a “broad agreement that the resource curse operates through causal mechanisms that are political in nature” (Ross,1999:p 558), as yet there is no common consensus about which of the particular “political mechanisms are [the] most important” (op. cit.).
Conclusion
This paper has highlighted some of problems caused by natural resources abundance. Countries that have resource abundance without strong state apparatus often end up in conflict. Resources can add another layer of complexity to already unstable political situations.
Botswana success is down to good governance with sound partnerships and a strong reinvestment policy into infrastructure health and education. Botswana is now one the leading economise in Africa despite being a resource dependent economy. However it is not without its victims in this case it is the San-Bushman.
Over reliance on resources can leave the economy susceptible to market fluctuations and presents a high risk familiar, this often leads to conflict. Most rebels are opportunist the easier the resource is to extract more chance there is of rebels exploiting it for their own needs.
Having resources abundance without a strong state leadership and good governance can lead to the exploitation of people and the detraction of the environment. This is perpetuated still further by the richer countries who insist on paying the cheapest possible prices for reassures without concern for the environmental or human cost involved.

Bibliography
Bannon, I. and Collier, P (2003) Natural Resources and Violent Conflict, Washington,
DC, The World Bank
Collier, P., Goderis, B, (2007) Commodity prices, growth, and the natural resource curse: Reconciling a conundrum, Paper 274, The Centre for the Study of African Economies Working Paper Series, Oxford University.
Collier, Paul (2007) The Bottom Billion : Why the poorest countries are failing and what can be done about it, Oxford, Oxford University Press.

Frankel, Jeffrey A. (2010) The natural resource curse: A survey. SSRN eLibrary.

Good, Kenneth (2005) Resource dependency and its consequences: The costs of botswana’s shining gems. Journal of Contemporary African Studies, 23, 27-50.

Kolstad, Ivar & Wiig, Arne (2009) It’s the rents, stupid! The political economy of the resource curse. Energy Policy, 37, 5317-5325.

Meredith, Martin (2005) The state of africa : A history of fifty years of independence, London, Free.
Prebisch, Raul,(1950), The Economic Development of Latin America and Its Principal Problems (New York).
Ross, Michael L. (1999) Review: The political economy of the resource curse. World Politics, 51, 297-322.

Rosser, Andrew ((2006) ) The political economy of the resource curse: A literature survey,. Brighton: Institute of Development Studies,, IDS Working Paper Number 268.
Sandbu, Martin E ( (2006) ’, ) ‘Natural wealth accounts: A proposal for alleviating the natural resource curse. World Development,, 34 (7) 1153-1170., 1153-1170.

Singer, Hans W, (1950) “US Foreign Investment in Underdeveloped Areas: The Distribution of Gains between Investing and Borrowing Countries,” American Economic Review, Papers and Proceedings, 40, May: 473-485.

Velleng, Frank (2006) Africa: War is business, film festival Netherlands available on line from http://www.cultureunplugged.com/play/4316/Africa–War-is-Business, accessed 12/05/2011

Politics of Development: issues

Does institutional variety matter ?

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By D. A. Parker

Introduction
Does institutional variety matter in the contemporary global political economy (GPE)? This paper explores the Neo-institutionalists claim that they do by starting with an explanation of what institutions are and how they are formed, then leading onto a summary of what function neo- institutionalists think institutions perform.
Why are there so many institutions, discussed under this heading, shows that varieties of institutions in the GPE are an inevitable consequence of the heterogeneous nature of the societies in the world; and for this reason we get variety? This concept is further discussed under the heading of, “why varieties matter: the responsibility of the state as an institution” is used as point of reference to study the neo-institutionalists claim in which the role and responsibly of the state as representatives of society in the global market is explored.
In conclusion the claims of the neo-intuitionalists that variety matters is verified as the positive and correct assumption, however, the roles and ever increasing responsibility of new institutions is discussed and highlighted.
What are institutions?
Institutions can start in the family home; they begin with simple rules that over a life time build in to the more complex structure of the family’s life. The institutional rules of the family, however uniquely apparent to the individual family, are nether the less, products of the social norms that are presented by the historical placement of the family in that time. These rules are then taken back out of the home and into the work place, and into deeper society by and adding to or taking from the cultural norms of the time.
We live in a hierarchical world, that is being constantly recreated through human action; institutions cannot be separated from this. Human action creates institutions; concomitantly, institutions also governs action and  form naturally in all societies primitive or otherwise.

The more complex a society the more complex are the institutions needed to govern and operate the society. Thus the actions of the individual are held to account only through the power of institutions, this can work for or against an individual depended on which side of the institution (law) he finds himself. In the same way this can be reversed and institutions can find that it (the institution) is being held to account for its actions against or for a particular grievance towards an individual or a group of individuals. This conception is carried forward on national and international level through society, governments and other state institutions, and more recently through transnational corporations. Human Rights, law, order, contract, ownership, private, commercial and mercantile laws are maintained and upheld through the power invested in institutions, this being one of the basic principle of conception for neo-institutionalism. Institutions become facilitators serving the needs of society through group actions and decisions that lead to regulation.
There are three main varieties of neo-institutionalism that came out of the 1960s and 1970s in response to the Behavioural models that were on offer at the time, they are; historical institutionalists who tend to conceptualise the relationships between institutions and individual behaviour, they also emphasize asymmetric power relations within the operation and development of institutions (Hall and Thelen, 2009b). Rational choice institutionalism that assumes all actors to be rational utility maximises therefore they will make the most economically rational choice thus translating to predictable patterns of behavior that institutions can capture and plan for; and finally the sociological institutionalists who argue that institutions should be seen as ‘culturally-specific practices’ (Hall and Taylor, 1996: p 16) that are created out of cultural necessity.
Why so many institutions?
Institutions are created from habits and rules, through leadership, from the family and in society or from the state, they are differentiated through traditions and cultures working habits as well as other forms, on global scale by interrelations of businesses and consumers and states, by actions of actors in the GPE. Douglas North (1999) argues that the importance of domestic political institutions as determinants of economic growth. For North, institutions comprise both sets of formal rules, like constitutions, and informal norms of behaviour. For Michael Aglietta it is the process of mediation that is important. Doulas North also argues that in an increasingly specialised world with compartmentalized production and increasing divisions of labour, institutions are necessary to mediate the complex relationships involved in this process and to ‘reduce uncertainties’ (North, 1999: p 49) in the market.
The model of individual behaviour espoused by neo-liberals is too narrow according to Chang. The neo-liberal model assumes a sort of selfish utility maximization whilst he argues that other motivations drive individuals within institutions and thus shape the way institutions affect socio-economic structures. ‘Contrary to the neo-liberal assumption, self-seeking is not the only human motivation even in the ‘private’ domain of the market, and that people do not operate with the same degree of selfishness in the public domain as in the private domain’ (Chang, 2002: p 549).
The neo-liberal approach could be viewed as the opposition to institutionalism with its emphasis on the individual. However even in neo-liberalism institutions still matter in political economy but there affects are seen as negative because the neo-liberals focus on state institutions distorting the free market. Chang challenges neo-liberalism on the grounds that individuals have many differing motives and that the attack on institutions of state is misplaced, ‘Once this assumption of pure self-seeking is dropped, the anti-statist conclusions of neo-liberalism need to be seriously modified’ (Chang, 2002: p 549). An example of this would be the state regulating pharmaceuticals they don’t do it for profit they do it for the public good, if they were to deregulate and let inferior products onto the market thus gaining more revenue from Tax rather than setting medical safety standards, would be of interest to the state budget yet a contradiction of the states responsibility.
Moreover even the free market is the interaction of many institutions: organisations of many individuals in areas of economic production which is where Chang criticizes neo-liberalism. The neo-liberal myth of individuals in a barter style economy thus they fail to identify productive organisations as institutions; ‘In this world, even the firm exists only as a production function and not as an “institution of production” ’ (Chang, 2002: p 545).
The idea of an unregulated laisez-fare free market is a myth. The market after all is a conceptualisation of the state and thus cannot be separated from the state. The responsibility of the state is to regulate the chaos that a free market creates and to create parsimony. It is necessary to co-ordinate the free market in order to do this, it is the ‘liberalization’ process that is undermining the ‘coordinated market” (Hall, et al, 2009b: p 15).
The study of institutionalism suggests, all the socio-economic structures are examples of institutions, even the “free market” itself, is an institution in a series of complex interactions with other institutions, state and non-state actors. ‘The capitalist system is made up of a range of institutions, including the markets as institutions of exchange, the firms as institutions of production, and the state as the creator and regulator of the institutions governing their relationships… as well other informal institutions such as social convention’ (Chang , 2002: p 546). This does not mean that free markets are totally downgraded in institutionalism; free markets are intermediate institutions of exchange and communication.
The varieties-of-capitalism approach distinguishes between two main modes of organization. One; ‘firm’s co-ordinate with other actors primarily through competitive markets, characterized by arms-length relations and formal contracting’ (Hall and Gingerich, 2009a: p 452). And In addition to this institutionalists that use rational choice modeling, as neo-liberals often do, combined with the coercive ability and the power of the institutions, for better or worse, forms the environment in which economic transactions takes place. ‘Firms co-ordinate with other actors through processes of strategic interaction of the kind typically modeled by game theory here, equilibrium outcomes depend on the institutional support available for the formation of credible commitments’(Hall, et al, 2009a: p 452), they do this in attempt to more effectively share information, monitor and sanction, actors actions and, to support more effective deliberations.
Apart from state institutions in neo-liberalism, all institutions are seen as negative in other streams of thought such as postmodernism. Crane & Amawi in describing Foucault’s work stress the need of individuals and smaller groupings of individuals to counter institutions, ‘the cultivation and enhancement of localized resistance to the institutions, techniques, and discourses of organization’ (Crane and Amawi 1997: p 303).
In this way there is a dialectical exchange between the institution as the family and the greater societal and cultural institutions like state institutions, companies, unions etc that make up the rules or norms of everyday life and necessary social functions. Therefore, there is no way to avoid the affects of institutions, but, are they good or bad for us or are they just a pest that can’t be effectively exterminated as neo liberal and many postmodernist would wish, however, their emphasis on the individual is unrealistic.
Varieties matter:

The responsibility of the state as an institution
What is important to understand is that you can’t create or make institutions; organisations, corporations, rules regulations and generally the way of doing things become institutionalized over time. Consequently different societies have different ways of solving problems and hence different intuitive institutional behavior.
Because of the heterogeneous nature of societies it becomes impossible to model accurately this is the failing of rational institutionalism as it relies on game theoretical theory and on the ‘Nash equilibrium’(Hall, et al, 1996: p 940) as it fundamental interpretive tool for understanding and interpreting institutional behavior, which is too rigid a system for accurate analysis. This also highlights the reason why different institutions are needed, because of the heterogeneous nature of the GPE. Furthermore, as Polanyi (1994, Cited; Hodgson, 1996: p 403)‘would argue all markets are themselves socially and culturally embedded’.
Because of the uniqueness of each nations or societies requirements and because of the competitive necessity that is inherent in all forms of capitalism ‘Nation-states are required to redefine which social rights are truly fundamental and to strengthen the collective bases of their competitiveness’ (Aglietta 1998: p 64) in the GPE. It is the duty of the state to represent the best interests of the nation in the global market. When discussing capitalism we must refer to varieties of economic systems; what’s more economic systems are in themselves a ‘trans-historical concept’ (Hodgson, 1996: p 40) thus are institutionalized rational that influence behaviour.
The job of institutions is to regulate and mediate between actors in the local, national and GPE however, ‘analysis of any given system cannot and should not be based on universal concepts alone’ (Hodgson, 1996: p 4120). Institutions are incentive systems that encourage honesty and punish cheating. In this way they can have influence on the outcome of policy and enforce behaviour patterns. There exists a hierarchy between powerful and less powerful institutions that is reflected in the interests and behavior of the state as a set of institutions. ‘Structures and superstructures from an ‘historic bloc’, that is to say the complex contradictory and discordant ensemble of the superstructures is the reflection of the ensemble of the social relations of production (Gramsci, 1971: p 336, cited, Cox and Sinclair 1996: chp 2, p 56).
The more powerful the state institutions, the greater the coercive power that the particular state has over institutions in the global political economy. The relative power of individual states is mirrored in their hierarchical position and influence within the global institutions of political economy like the United Nations and the World Trade Organisation. Thus more powerful states can then influence the behavior and the benefits received by less powerful states. Thus the dialectical relationship between the institutions and the state create a synergy within society.
The behavior of more powerful states like the US and global institutions effectively determines and controls the well-being of less powerful states by determining their access technology and trade thus dictating socio-economic growth and social change, especially as these powerful states and institutions work within and impose neo-liberalism as a hegemony to which less powerful states have to adhere to or lose benefits or incur penalties.
Some authors see that even individuals attempting to change global political economy have their attempts ameliorated by the socially formative powers of global institutions maintaining the global status quo and only extracting marginal benefits to dis-empowered or peripheral nations. ‘Individuals from peripheral countries, though they may come to international institutions with the idea of working from within to change the system, are condemned to work within the structures of passive revolution. At best they will help transfer elements of “modernisation” to the peripheries but only as these are consistent with the interests of established local powers’ (Robert Cox, 1996: p 63).
Why neo-intuitionalists say variety matters:
Institutions  essentially help form the beliefs and behavior of individuals,not just as limiters of innate individual nature, ‘Seeing institutions not simply as constraints on the behaviors of the pre-formed and unchanging individuals … but also as shaping individuals themselves’ (Chang 2002: pp 551-552).
As well as shaping the individuals within them, institutions then subsequently shape the nature of politics, its actions, limits and culture are thus crucial to political economy. ‘Politics is an institutionally structured process, not only because institutions shape people’s political action… [and],because they influence people’s perceptions of their own interests, of the legitimate boundary of politics, and of the appropriate standards of behavior in politics’ (Chang, 2002: p 556).
Society is thus the outcome of the nexus of interacting institutions. The more heterogeneous the range of institutions in the global political economy the more heterogeneous the societies, or to contrast this with the more homogenous the institutions in the global political economy the more homogeneous the global political economy is, which is exactly happened with the ascendance of neo-liberalism; which attempts to enforce uniformity in global polices and politics, however, it hasn’t fully succeeded.
The neo-institutionalists claim that institutions matter is correct. The relationship between institutional behaviour in the global political economy can dictate the societal mobility of less developed nations, is a case in point. By changing institutional behavior from the imposition of capitalist free market ideals to a behaviour that engendered more equitable outcomes, fairness and encouraged the dissemination of technologies, a greater degree of social advancement would occur.
Whether institutions form the power structure of GPE is debated amongst many authors but to Marxists like Gramsci they do. ‘Do international relations precede or follow (logically) fundamental social relations? There can be no doubt that they follow. Any organic innovation in the social structure, through its technical military expressions, modifies organically absolute and relative relations in the international field too’ (Gramsci, 1971: p 176, cited, Cox and Sinclair 1996: chp 2, p 58), however this does not mean that they are homogenous in their outlook. In a sense the heterogeneous nature of institutions, characterises and is reflected in, the global political economy; despite the apparent dominance of neo-liberalism. It is for this reason that institutions have ever increasingly important role to play in the mediation of the globalisation process that is currently accelerating at a rapid rate.
In the contemporary climate institutions can be used for good or for ill. Many thinkers in political economy like Michael Hardt (2005) for example, call for more institutions and increased institutional powers in the global political economy. Institutions are good for wielding both soft and hard power although soft power remains the best option he claims. Without institutions the world would certainly be in a lot more chaos than it is currently, there is a call for more institutions on climate change, greater regulation for banking institutions and for health, poverty; the list goes on. Perhaps with all these institutions there should be better representation for the weaker players in the market, however, in the real world thus far this has not really happened yet.
The good that some institutions do is mostly watered down by the damage that the bad ones create. The United States is a case in point, with its democratisation policy and hegemonic behaviour concomitant with its coercive behaviour enforced through institutions is threatening the global power balance. Meanwhile China and India are waiting in wings to claim the prise of global leader for themselves. However, whatever becomes of the future GPE one thing is assured and that is, for good or bad new institutions will be born.

Bibliography
Aglietta, Michel (1998) Capitalism at the Turn of the Century: Regulation Theory and the Challenge of Social Change, New left review, vol 232, p 41-90. 6 Meard Street, London 232:41-90
Chang, Ha Joon (2002) Breaking the mould: an institutionalist political economy alternative to the neo-liberal theory of the market and the state, Cambridge Journal of Economics 26(5):539-559.
Cox, Robert W. and Timothy J. Sinclair (1996) chp 2, Approaches to world order, Cambridge: Cambridge University Press.
Crane, George T. and Abla Amawi (1997).The theoretical evolution of international political economy: a reader. 2nd Ed, New York; Oxford: Oxford University press.
Hardt. Michael (2005) Love, Democracy and Globalization, The European Graduate School Video available at, http://www.egs.edu/faculty/michael-hardt/videos/love-democracy- and-globalization (last accessed on 16/12/2010).
Hall, Peter A. and Daniel W. Gingerich (2009a) Varieties of Capitalism and Institutional Complementarities in the Political Economy: An Empirical Analysis. British Journal of Political Science 39(03):449-482.
Hall, Peter A. and Rosemary C. R. Taylor (1996) “Political Science and the Three New Institutionalisms, Political Studies 44(5):936-957.
Hall, Peter A. and Kathleen Thelen (2009b) “Institutional change in varieties of capitalism, Socio-Economic Review 7(1):7-34.
Hodgson, Geoffrey M (1996) Varieties of Capitalism and Varieties of Economic Theory. Review of International Political Economy 3(3):380-433.
North, Douglass C. (1999) Chapter 3: Institutions and Economic Growth: A Historical Introduction, In International Political Economy: Taylor & Francis Ltd / Books.

Development, Politics of Development: issues, Poverty

Poverty and the Kalahari Bushman: Advancing the Conceptualization of what it means to be poor.

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Poverty and the Kalahari Bushman:
Advancing the Conceptualization of what it means to be poor.

By D.A.Parker

Introduction
The purpose of this literature review is to gain a fuller understanding of the current debate and views on conceptualising poverty in the contemporary world.
The first part of this paper explores the development of the Orshansky Threshold leading up to the creation of the dollar a day poverty line the standard measure of poverty promoted by the World Bank. In the next section, the paper contrasts this approach with the constructivist approach of Sen and the development of his entitlement theory.

Part two examines the plight of the Kalahari Bush and assesses the usefulness’ of both these theories. And finally in conclusion suggest where things could be improved.

The Orshansky threshold
Two approaches are evident in the poverty debate today. The positivist approach favoured by Dollar and Kraay of the World Bank, described as lacking rigor by Sumner (2004), usually relies on ‘large scale random sample households surveys, with a preferences for consumption expenditure over income, as being more stable over time’ (Wrattern, 1995 cited,Moser,2003 pp114:Woollcock, 2007,pp01). The roots of this approach can be traced back to the advent of the ‘Orshansky threshold’ (Barrington,1997).

In 1963 Mollie Orshansky [1915 – 2007] created the ‘seminal US poverty line’ (Barrington 1997, p. 1) that has since become known as the Orshansky threshold. The Orshansky threshold is a poverty base line that relates to a basket of goods commonly consumed by the average non farming family household in America (Barrington,1997).

This basket has a Dollar value that is multiplied by three to give the minimum income needed for survival, of the average family in America in times of crises or food shortages (Hauver, et al., 1981). This system was later adopted by dollar and Kraay and modified to fit the developing world, which led to the creation of the dollar a day; the standard measure of poverty favoured by the World Bank. The data Mollie used to create this system was taken from the US department of agriculture who had gathered the data on nutrition and consumption for an emergency food plan (ibid).

The ineptness of this measure is clear to see in this extract from the New York Times (2003) ‘In Vietnam a dollar buys half a pound of rice, half a pound of potatoes and a third of a pound of ground beef’ reported Daniel Altman (2003) of the New York Times, ‘In Mexico a dollar buys a pound of rice, a pound of beef and, half a loaf of bread’ (ibid). Because of unequal distribution the buying power of the dollar can vary considerably.

Yet For the World Bank and the United Nations and many other Neo-liberal thinkers this dollar is the dividing line between being rich or poor suggest Altman (2003). However, it is easy to see from this report that in the real world it has little value in real terms.

The second approach that is prevalent in the poverty debate is the ‘Narayan approach’ (McGregor and Cantley,1992) of the constructivists favoured by Amartya Sen et al (1999) and Andrew Sumner (2004) this viewpoint ‘rejects the income/ consumption perspective as being too narrow and reductionist, serving the technocratic needs of development professionals, rather than seeking to understand the complexities and diverse local realities in which the poor live’(Chambers 1995, cited Moser 2003, p. 114).

Amartya Sen is one of the most influential thinkers in the field of development today has developed his ‘Entitlement theory’ (Sen, 1981: Sen. and Drèze, 1999) out of his study of famines both in India and Africa and born through his whish to improve conditions in his home country India. Whilst working for the United Nations Development Program he was instrumental in creating the human development index that was adopted by the UNDP in 1990 (Noorbakhsh,1998).

The change in debate that has taken place over the last decade centres around two main approaches to the conceptualisation of poverty as identified by Maxwell (1999). These approaches being the quantitative approach favoured by the World Bank and David Dollar, that recognises ‘income and consumption patterns as the as the best proxies for poverty’ (Moser 2003) and the qualitative, a more humanistic approach (Moser and McIlwaine, 2003, pp. 114-115). This approach takes into consideration basic human needs, rights, freedoms as well as considering access to entitlements and opportunity (Sen 1981). ‘Both systems use multiple subjective indicators of poverty status’ (Moser and McIlwaine, 2003).

This change in thinking has been heavily influenced by Sen’s work has led to the creation and adoption of the Millennium Development Goals. This represents an important shift away from the static poverty lines approach, moving towards an approach that recognises the ‘multidimensionality of deprivation though the analysis of assets and vulnerability’ (Moser, 1998; Maxwell, 1999).

Development and Freedom
In his book Development as Freedom Sen argues that ‘freedom is the both the primary end and the principle means of development’ (Sen, 1999, p. 31) taking this stand point Sen argues that the developing world suffers from various forms of un-freedom that restrict the process of development, this traps them in to cycles of development and un-development.

This concept is repeated in Professor Colliers (2007) book The Bottom Billion in which he argues that, for the bottom billion developments is likened to a game of snakes and ladders with the rules slightly changed hence, ‘Snakes & chutes’(Collier 2007; pp05) meaning there are considerably more ways down than there are up.

Both Sen (1999) and Collier (2007) would argue that the economic division between the rich and poor is increasing and for the people in the bottom billion, conditions have not improved much over the last decade. These people in the bottom billion are getting left behind because they are stuck in cyclic poverty traps.

Utilitarianism
In contrast to this the institutional concept of poverty expressed by Dollar and Kraay (2002) appears very different. The neo-liberal view of the World Bank as expressed by Dollar and Cray (2002) see the undeveloped world suffering in a ‘low-equilibrium trap’ (Nelson, 1956). This means that the capital stock accumulation is raising at the same rate as population growth, thus, income per worker is not increasing meaning zero per capita growth, the economy suffering from stagnation and zero economic growth (Nelson, 1956).

Not withstanding this trap David Dollar (2002) argues that the poverty gap is not increasing but decreasing with integration in the global economy. He argues that this is spreading of the wealth, a kind of trickle down affect. He goes onto suggest that it is only a matter of time before the rest catch up. He leans heavily on China for statistics to back up these claims.

The utilitarian approach of Dollar and Cray uses hedonic calculus when obtaining and manipulating data statistics. This limits itself by being concerned only with the sum-total and does not included minority or individual sufferance (Sen 1999).

There appears to be general consensus among ‘scholars and practitioners alike that the causes, manifestations and consequences of poverty are multidimensional’ (Sen 1999: Cited, Woolcock 2007, p. 1), meaning that poverty can not be defined by income alone. Although there appears some agreement between the constructivists and the positivists in that they both see poverty as multi-dimensional however, it is the nature of these dimensions that is at question.

Poverty and the Kalahari Bushman
So far this paper has examined conceptual theories that assume the standard classical economic model as conditions or preconditions required for integration into the capitalist economic system. None of these concepts discussed so far has catered for populations that choose to live outside of this system.

There have been several failed attempts to integrate the Bushman of the Kalahari into the modern world. Guenther (1977) writes of the rich white farmers of northern Botswana, who inhabit vast areas of the most fertile land in the country. The white people acquired there land around the turn of last century from the Bantu-speaking Tawana. Prior to the Tawana settlers the land was inhabited solely by the San Bushman the Tawana laid claim to the land and sold it to white settlers with no consultation to the San people. Historical evidence shows that Bushmen communities have always lived in the desert regions of the Kalahari.

The early attempts by the new settlers to employ the Bushman as farm workers all but failed from the outset. The Bushman are a nomadic people and never stay in one place for to long. Also the low wages that the new settlers paid the bushman meant that they had to supplement there income with hunting. Often after a hunting trip they would return to find no jobs as the farmer would have employed a new group of workers. Thus the cycle begun again with the new group, they never stayed long enough to learn the skills required to work on a farm (Guenther,1977).

This was the first attempts to integrate the Bushman hunters in to modern society. Unsurprisingly they clearly had no inclination to adopt a settled life style and the conditions offered by the white farmers where far from favourable they had a much better opportunity remaining as they were.

The San are but one of a number minority groups in Botswana and represent a relatively small proportion of the total population. Accurate data of the precise numbers are hard to find, with figures varying from as little as 3% (Hitchcock, 2002) up to 10% (US Bureau of African Affairs, 2007).

The people of the Kalahari have survived forced removal from there lands and found themselves for the first time in there history suffering the inflictions of modern life. Survival International reports that for the first time they now have Aids and other sexual transmitted dieses in the community and many are becoming alcoholics, inflictions that have never been seen by these people before (Survival-international 2008).

Poverty has finally overcome these people ‘In many ways, they are at the bottom of the Botswana socio-economic system. A sizeable proportion lives below the poverty datum line. They exhibit some of the highest rates of infant mortality alongside the lowest living standards and literacy rates, and in many cases have insecure access to land and resources’ (Hitchcock, 2002). Over the years the Kalahari Bushmen have remained in poverty where their richer neighbours denied them rights to the land, in both Botswana and Namibia, they have found their territory drastically reduced.

Most livelihoods approaches such as Sen’s ‘Entitlement theory’ (Sen,1981) tend to focus on economic and social aspects rather than physical dimensions such as personal safety. The concept of security itself is mostly associated with national and international territorial disputes’ only recently have there been efforts to broaden this to incorporate notions of human security focusing on basic needs and human dignity (United Nations Development Programme (UNDP), 1994: World Bank, 2000) perhaps this why tribes like the Bushman are getting left behind. Simply there is no system that caters for their specific needs.

There has been renewed attempt recently to bring the bushman into the modern world. The self stared NGO, The first People of the Kalahari, (TFKG) set up by the san peoples in order to unify and take control of the Bushman’s knowledge and fight for land rights as well as control their wealth. With the discovery in 2002 of a plant that helps combat obesity and only grows in the Kalahari Desert region, suddenly there knowledge is of some value and attempts are being made to profit from it. Coincidently Shiva Vandana has been advocating saving and protecting indigenous cultures for many years for this very reason. In order preserver diversity it is the indigenous people who hold the key, suggests Shiva (Shiva,1991).

Another attempt to integrate the Bushman them into the economy is being made by the organisation for Information and communications technologies for development (ICT) a subsidiary of the NGO Development Gateway Foundation, who suggest that the ‘Kalahari Bushmen, have become a depressed and marginalised community, excluded from their traditional nomadic range by the good intentions of those who have fenced it into national wildlife parks in which there is no place for humans, and certainly no place for those who treat these preserves of endangered species as a larder. In the past the San people’s understanding of their environment was everything they needed, but as the fences went up, that understanding became irrelevant; they lost everything and fell into poverty’ (ICT 2003). Suddenly their knowledge is of value.

Conclusion
Although there has been a lot written about the Bushman of the Kalahari, however, there is little actual evidence to be found of the extent of poverty in which they live. The reason for this must partly be because they have lived predominantly outside of the economic system. Concomitant with this the attitude of the Botswana Government has not provided for a fair assessment of the situation.

Until recently they have been consider to have no economic value other than a tourist attraction. In fact on the contrary the government has viewed these peoples as a hindrance to development and in the way of progress and diamond extraction.

This study clearly shows the need for a way of measuring the extent of poverty that these peoples endure. The pressure of modernisation and development are forcing these people into lives of hardship and poverty as before they have never seen or experienced.

Recent events with the discovery of medicinal plant that can be used in the west high lights the need to preserver these people’s knowledge customs, as well as showing their economic worth. 80% of all medicines know today originated from plants out of the rainforest and have used by indigenous tribes foe centuries (Shiva, 1991).
This paper has highlighted’ a gap in the thinking of economic theorist when it comes to conceptualising the poverty of indigenous populations. The systems that they conceptualise do not on the whole, consider the indigenous culture that live out side of the normal economic system; this paper has also shown the reason why we need to include these people in the poverty calculation.

The constructivist approach of Sen is the closet tool available to measure the poverty of these people. This approach needs to be expanded so that measuring the depth of poverty of indigenous culture that live outside the system can be achieved.

References
Barrington, L. (1997) Estimating Earnings Poverty in 1939: A Comparison of Orshansky-Method and Price-Indexed Definitions of Poverty. The Review of Economics and Statistics, 79 http://links.jstor.org/sici?sici=0034-6535%28199708%2979%3A3%3C406%3AEEPI1A%3E2.0.CO%3B2-J

Guenther, M. G. (1977) Bushman Hunters as Farm Labourers. Canadian Journal of African Studies / Revue Canadienne des Etudes Africaines, 11 http://links.jstor.org/sici?sici=0008-3968%281977%2911%3A2%3C195%3ABHAFL%3E2.0.CO%3B2-I

Hauver, J. H., Goodman, J. A. & Grainer, M. A. (1981) The Federal Poverty Thresholds: Appearance and Reality. The Journal of Consumer Research, 8 http://links.jstor.org/sici?sici=0093-5301%28198106%298%3A1%3C1%3ATFPTAA%3E2.0.CO%3B2-1

Hitchcock, R. K. (2002) ‘We are the First People’: Land, Natural Resources and Identity in the Central Kalahari, Botswana. Journal of Southern African Studies, 28 http://links.jstor.org/sici?sici=0305-7070%28200212%2928%3A4%3C797%3A%27ATFPL%3E2.0.CO%3B2-V

Maxwell, S. 1999: The meaning and measurement of poverty. ODI Poverty Briefing
, London: Overseas Development Institute http://www.odi.org.uk/briefing/pov3.html; (accessed3 December 2002)

Mcgregor, P. & Cantley, I. (1992) A Test of Sen’s Entitlement Hypothesis. The Statistician, 41 http://links.jstor.org/sici?sici=0039-0526%281992%2941%3A3%3C335%3AATOSEH%3E2.0.CO%3B2-6 (Accessed 10/09/2007)

Moser, C. O. N. & Mcilwaine, C. (2003) Encounters with Violence in Latin America : urban poor perceptions from Colombia and Guatemala, London, Routledge.

Nelson, R. R. (1956) A Theory of the Low-Level Equilibrium Trap in
Underdeveloped Economies. The American Economic Review, 46 http://links.jstor.org/sici?sici=0002- 8282%28195612%2946%3A5%3C894%3AATOTLE%3E2.0.CO%3B2-O

Narayan, D. 1997: Voices of the poor: poverty and social capital in Tanzania.
Environmentally and Socially Sustainable Development Studies and Monograph Series 20, Washington DC: World Bank.
Noorbakhsh, F. (1998) A Modified Human Development Index. World Development, 26 http://www.sciencedirect.com/science/article/B6VC6-3T0T9BG-C/2/382ebf5db99a79091602844392bc903e

Woolcock, M, 2007 Toward an Economic Sociology of Chronic Poverty:
Enhancingthe Rigor and Relevance of Social Theory, CPRC Working Paper 104. Brooks World Poverty Institute University of Manchester Humanities, Bridgeford Street, Manchester M13 9PL. http://www.chronicpoverty.org/pdfs/104Woolcock.pdf

Sen, A. (1981) Poverty and famines : an essay on entitlement and deprivation, Oxford, Oxford University Press.

Sen, A. & Drèze, J. (1999) The Amartya Sen and Jean Drèze omnibus : comprising, Poverty and famines, Hunger and public action, India: economic development and social opportunity, New Delhi ; New York, Oxford University Press.

Shiva, V. & World Rainforest Movement. (1991) Biodiversity : social & ecological perspectives, Penang, Malaysia, World Rainforest Movement.

Other Online sources used
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The US State Department, Bureau of African Affairs (2007) available at,
http://www.state.gov/r/pa/ei/bgn/1830.htm (accessed 10/05/2007)
Minutes of the Panel Meeting on Global Poverty Measures and
International Comparisons (New York, Tuesday, 3 February 2004 – 10:00 a.m. to 1:00 p.m.) http://unstats.un.org/unsd/methods/poverty/minutespanelmeetipdf

Politics of Development: issues

Trade, Growth and Poverty in the developing world.

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Trade Growth and Poverty In the developing world

By D.A.Parker

Introduction

When considering Trade in today’s economically integrated world, it is important to consider the terms of trade (TOT) as a primary concern. The TOT defines the nature of trade and controls the direction of benefit. This paper will examine and evaluate the conditions of trade, imposed upon the developing world and assess the usefulness and effectiveness, of global TOT, towards poverty reduction and growth.

The Global market an unequal opportunity

Countries that have integrated in to the Global economy have experienced rapid growth over a sustained period and have considerably reduced poverty along the way. It would appear obvious, that if these countries should be able to adapt to the global market that there would be no reason why another country could not do the same. Unfortunately, however, many undeveloped nations do not have the technological know-how, infrastructure or political and economical policies to warrant competing in the first place. Along with these conditions many LDC face fiscal inadequacies, burden of debt, trading restriction and structural adjustment policies (SAP) enforced by donor countries and financial institutions, that restrict the growth and development of low income countries, e.g. the World Bank and the IMF. According to Schuurman (1993) the problem of introducing the developing World into a ‘World System’ is that “underdevelopment occurs in countries that are subject to trading in an unfair, unequal, ‘world-market’, where high trading tariffs and restrictions are imposed”.

TOT (Terms of Trade)

Diminishing returns and unequal exchange, clearly the developing world is in deep trouble. On One-hand the Neo-Ricardian economist struggle with exchange and barter value, in an ever changing commodity market, with fluctuating prices and import deficits, concomitant with Neo-liberal growth centered capitalist, pushing for trade liberalisation and a free market to exploit.

Free Trade ISI and SAP

Considering the juxtaposition presented by the Brant and Berg reports, which came out of Bretton Woods; it became obvious that a compromise in principle was needed when considering ‘Third World Development’ (TWD). The problem is that post war modernisation economist and capitalist governments’ rejected any kind of state intervention as this conflicts with free market ideology and was considered socialist.

Introduced by Singer (1950) the IMF offered the solution, in the form of “Import substitution, industrialisation” (ISI) (Begg & Fischer et al, 1991:639); ISI could be considered the fore runner – or ancestor – of structural adjustment policies (SAP), What ISI meant, was that the capitalist governments could manipulate and control the industrial development process of the TW countries, in order to suit their own economies.

Consequently subsidisation of favoured industries, led to heavy investment in some sectors, whilst, stunting growth or closing, other sectors of the economy; whilst maintaining control over export and import, tariff’s and taxis (see 1991). The ‘Developing World’ entered an era of dependent industrialisation, only obtaining economic favour from the west as long as they kept to capitalist ideologies and vagary.

TW industrialisation, along with the change from food to cash cropping in agriculture, has increased reliance on importation of food and other basic essentials exponentially. The industrialisation process also means that they have become increasingly reliant on energy importation for fuel and power (Beaud M, 2000: 290-301). “The increasing reliance of the TW on the west can be clearly observed, through study of the modernisation process” (Kiely R 2003).

Results of unequal Trade

A recent World Bank report (2007) on trade in Africa clearly shows the failing of liberalisation and trade policy in the African continent. The report states that, “Over the past three decades Africa has become ever more marginalized from trade at the global level” (ibid). “Africa’s share of world exports has dropped by nearly 60 percent, a staggering loss of $70 billion annually, equivalent to 21 percent of the region’s GDP and more than five times the $13 billion in annual aid flows to Africa” (ibid).

Solutions or Problems

Dependency theorists such as Frank and Prebisch would suggest nationalisation to hold back the flood of multinationals and encourage local business and industries. To support this nationalisation they suggest high import tariffs and control of exports along with tight foreign exchange policy; remarkably similar to ISI imposed by the IMF after Bretton Woods.

Reinforcing the opinion that state intervention is beneficial for struggling LDC economies, is a study undertaken by Steve Dowrick and Dr Jane Golley (2004) entitled, Trade Openness who Benefits? In order to assess the validity of a report by Sachs and Warner, on the benefits of free trade, it interestingly uncovers that, “free trade has no effect on developed economies, negligible if no effect on less-developed economies, and a negative affect on undeveloped economies” (2004). This seemingly backs up the argument for dependency theorists such as Frank and Prebisch who say suggest that free trade is bad for TW development. The other side to this argument is the opinion that growth of industrial development has brought nothing but “hostility, suffering and dehumanisation too many along with rapid urbanisation and poverty. The unequal division of wealth created by nationalist doctrines in order to protect and enhance the nation states power and independence [can only create more poverty]” (Kitching, 1982) .

The right conditions

Having the right conditions for trade to be effective towards poverty reduction is clearly the key, but then the questions must be asked, what are the right conditions and can they be created? Ghatak (2003) argues that, “if free trade does not allow a countries true comparative advantage situation to develop, owing to the difference between marginal social and marginal private cost, then trade should be temporarily protected during its initial high cost period” (2003;193), or until, “specialisation is established” in the international economy. This is the same route that many of the successful Asian Tigers have used to gain comparative advantage in the world market. Ghatak (2003) goes on to express that in order “to increase social welfare the infant industries must grow up to be able to compete on equal terms with foreign producers in domestic and world markets” (2003;193). This concept should be applied both locally and nationally and across the entire African continent and other LDC, for trade to be of any benefit towards long term poverty reduction on a global scale.

Free Trade & Liberalisation

The conditions for effective trade are according to Ha-Joon Chang trade policies that are “based on neoclassical trade theory: Free trade promotes the optimal allocation of resources” according to Chang “except when a country has a monopoly in trade” (Chang, 2004: 292). These assumptions Chang argues are, “based on stringent assumptions”, including “identical technologies across countries a ‘well behaved’ production function, full information, no learning cost and no risk” (ibid), these assumption are clearly false when considering present day conditions in the developing world; the problem of trading on these terms has got to severally hinder growth and poverty reduction throughout the developing world.

Does trade reduce poverty?

In 2005 the UNDP reported that 1 billion people in the ‘Third World’ are living on less than $1 a day, today’s conditions are not much different. The millennium goals for development and poverty reduction proposed by the World Bank and IMF appear to be helping somewhat, though clearly, there is still along way to go, (see fig 1).


“The global politics of trade” – therefore TOT- according to Preston (2005) are “conducted wholly within the framework of the WTO” (2005:196). Consequently the policy that these organization pursue are heavily influenced by TNC and multinational corporations.


David dollar and Aart Kraay (2001) of the World Bank in their report on Trade Growth and poverty, report that, “A key issue today is the effect of globalization on inequality and poverty” they go further to state that “evidence from individual cases and from cross-country analysis supports the view that globalization leads to faster growth and poverty reduction in poor countries” (2001). This contradicts findings made by Oxfam expressed in their paper entitled Rigid Rules Double Standards (2002) in which they clearly show that free trade liberalisation without tariffs and controls severely hinder growth of poor countries whilst subsidisation and tariffs have shown to be beneficial to underdeveloped economies (Oxam,2002: chp 3). The report goes on to show that globalisation and free trade has in some cases increased poverty despite apparent Growth (2002.chp 9), undermining that there is no apparent link between growth and poverty reduction.

Conclusion

It is seemingly clear and well understood that trade is good for growth. However, evidence would suggest that this does not necessarily mean that poverty reduction will automatically follow. The problem of poverty reduction is more complicated than just jumping into a global market. The Asian Tigers such As china and North Korea, have shown that it takes time, careful planning, and control to be successful in the global market. Trade done properly and fairly under the right conditions can be beneficial to poverty reduction. On the other hand if the rules are unfair or not followed trading in the global economy can only bring further poverty and growth reduction.

 

Bibliography

Dorwick S & Golley J (2004) Trade openness and Growth: Who Benefits, available at http://oxrep.oxfordjournals.org/cgi/reprint, also available on the Athens web, accessed on 10/04/2007.

Dollar D Kraay, (2002) Trade Growth and Poverty, available at,

http://rru.worldbank.org/Documents/PapersLinks/442.pdf, accessed on 12/04/2007.

Ghatak, S, (1995) Introduction to Development Economics, Industrialisation, Protection and Trade Policies.

Ha-Joon Chang (2001) Rethinking Development Economics, Wimbedom publishing company, London.

Kiely R, (2003) Sociology and Development, The Impasse and beyond, Routledge, 11 New Fetter Lane London EC4P 4 EE.

Kitching G. N, (1982) Development and underdevelopment in historical perspective populism, nationalism, and industrialization. London, New York, Methuen.

Oxfam (2002 ) Rigid Rules Double Standards, available at http://www.maketradefair.com/en/index.php?file=26032002105549.htm,acessed on 10/04/2007.

Payne, A. (2005) The Global Politics of Unequal Development,

Schuurman F J (2004) Beyond the impasse, zed Books Ltd London.

World Bank (2007) Trade, available at
http://web.worldbank.org/WBSITE/EXTERNAL/COUNTRIES/AFRICAEXT/EXTAFRREGTOPTRADE/0,,menuPK:502475~pagePK:34004175~piPK:34004435~theSitePK:502469,00.html

World Bank (2002). http://rru. org/Documents/PapersLinks/442.pdf
http://siteresources.worldbank.org/INTGDF2002/Resources/FullText-Volume1.pdf

Development, Politics of Development: issues

Foreign direct Investment and poverty reduction By D.A.Parker

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Introduction

In order to assess whether Foreign Direct Investment (FDI) has been good for poverty reduction or not, this paper will use Botswana as a micro illustration were FDI has been considered successful. FDI in Botswana has effectively contributed towards increased per capita gross domestic produce (GDP). The example used, shows continued growth and a stable economical climate over a number of years, and has attracted good FDI. This coupled with a sound reinvestment program has stimulated Botswana’s economy into being one of the most secure reliant investment opportunities within the SADC region (southern African development council).

This paper will go on to show that it takes more than FDI to reduce poverty, whilst simultaneously highlighting the fact, that the way we measure poverty, based on one dollar or two dollars a day, is in fact inaccurate. The second section of this paper will use Vietnam as an example, to demonstrate the difficulties faced and the often poverty generating policies, that pre-industrial or semi-industrialised countries use in attempts to create the right economic environment to attract FDI into the country.

A success story: FDI and Good Governance

  There are several unique factors that enabled the success of FDI in Botswana; Firstly Botswana had a clear social good governmental policy in place prior to investment. The government was dedicated to a fully democratic system of rule with a just and fair legal system. What makes Botswana’s system unique is, the incorporation of the House of Chiefs, to represent the clearly demarcated wards within the country and consider the existing tribal heritages and land ownership rights. However, until recently this did not include the indigenous population living within the Kalahari Desert region.

Since independence in 1966 Botswana’s policies have created a stable and attractive investment climate, for would be investors. Subsequently when diamonds of quality were discovered in Botswana, a mutually beneficial and fair (FDI) opportunity was created, leading to the formation of The De Beers Botswana Mining Company on 23 June 1969 (De Beers Group, 2007 a). In 1991 the company changed its name to Debswana, which is owned in equal share by the Government of Botswana and De Beers Centenary AG (2007a). Botswana has enjoyed uninterrupted economic growth and soaring per capital incomes in most years since diamond mining began in ‘1971’ (2007a). The diamond industry transformed Botswana from an agriculture-based economy to one in which diamonds account for ’80 percent of exports and 50 percent of government revenue (see fig1). By value, Botswana is the largest diamond producer, in the world; Debswana produced approximately 28,4 million carats in 2002 (ibid).


Figure 1 (source, IMF: 2006)

Sir Seretse Karma, the first president of Botswana laid the foundation of a moral socially conscious government that has a zero tolerance policy towards corruption, along with a sound Development policy. Botswana is now the leading African state that has never had a war or been victim to political violence or upheaval. The country is presently positioning itself to be the “Banking and Finance centre for African investment” through the creation of the ‘Botswana international finance service centre’ (2007b) and the ‘Botswana stock exchange’ (IFC 2007C www.ifsc.co.bw).

The Botswana exemplar proves that by creating the right climate for investment to happen, along side a sound governmental policy and a solid development strategy, Concomitant with, the will to reinvest and allow the local economy to grow organically, growth will follow. This example offers a glimmer of hope and sets a precedent for the rest of sub-Saharan Africa to follow. However, the unique position Botswana found it self in after independence in 1966, most certainly gave the country a comparative advantage. ‘Debswana’s mining operations have been chiefly responsible for transforming Botswana from an agriculturally based economy in the 1960s to a country that has subsequently and consistently displayed one of the highest economic growth rates in the world’ (DE Beers 2007a: Bureau of African Affairs ,2007b)

The per capita GDP of Botswana has been growing at a steady rate since diamonds were discovered (see fig 2). The US sate department (2007b) places Botswana ‘per capita nominal GDP in 2004/5 at $5,336’ (Bureau of African Affairs, 2007b). This clearly shows that the right climate can attract investment, this together with a comparative advantage and a sound reinvestment policy a can improve per capita GDP, but, does this mean that poverty has consequently been reduced?


Figure 2 (source Earth trends 2003)

Along side the diamond industry, the Botswana government has been following a strategy to diversify their economy (see fig 3). To date there are over 22 FDI investors. Theses include the U.S. Overseas Private Investment Corporation, performing methane extraction, BCL running the Soda Ash operations and in other sectors, Kentucky fried chicken running franchises, Hyundai by direct FDI, H.J. Heinz direct FDI, Volvo Trucks & busses, international private company, to name but a few of the investor in the country (2007b: goliath.2007d).


Figure 3 (source earth trends 2003)

Despite all this FDI and growth according to world standards, Botswana still has an unacceptable amount of people living in poverty or relative poverty. According to Earth Trends (2003: p2) the percentage of the population living on less than a $1 a day in Botswana is ‘33%’ (2003) and ‘61.4 %’ on less than $2 a day’ (ibid). Assuming these figures are correct, clearly Botswana’s money is not making it into the majority of the population’s pockets. Why is it that, after almost thirty years of independence approximately ‘64%’ (2007b) of the population remains in so-called poverty? Perhaps we should consider the demographic make up before we attempt to answer that question by normative dollar a day calculation.

It must be considered that the people of the Kalahari, (excluding the Tswana), the Kalanga, Kgalagadi, Herero, Bayeyi, and Hambukush – some of whom have fought over a 20 year long, court battle to be able to return to the desert after being banned from their land due to mining activities. These people represent the traditional inheritors of Botswana; a view the current constitution strongly apposes. These people of the desert, who choose not to be in the towns or cities, having little need for a dollar a day and very little interest in industrialisation, collectively account for around an estimated 11% of the indigenous population. These people along with the traditional cattle herding communities, who incidentally consider cow more valuable than money and who collectively account for around 40% of the population (2007b), represent 51% of the population that live in the rural regions of the country.

The US State department states that that ‘More than one-half of the population lives in rural areas and is largely dependent on subsistence crop and livestock farming. Agriculture meets only a small portion of food needs and contributes a very small amount to GDP – primarily through beef exports – but it remains a social and cultural touchstone. Raising Cattle dominated Botswana’s social and economic life before independence. The national herd is estimated between 2 and 3 million head, however, the cattle industries are experiencing a protracted decline’ (2007b. This seemingly supports the figures quoted earlier this paper. For some of these people, the choice is to live rural lives. The city is often not far away and there is work, thanks to FDI and good governance. However, they choose to stay on the cattle post or wander the desert, and, when considering PPP, two dollars a day would be more than adequate for some of these rural communities. In Botswana ‘literacy rate is ‘80%’ (2007c: 2007b) so choice is almost certainly the reason for staying on the cattle post not ignorance. With all these factors in mind, should all these people still be considered to be living in poverty and therefore be included in the poverty calculation based on a dollar a day? Or should the poverty calculations include and value alternative ways of living?

The Disadvantages

The myth of the trickle down effect: FDI and the increasing poverty gap

The trickled down effect is a presumptuous theory that does not happen. Invented by classical neo-liberal economist, indisposed to admit that it is a sham. What is well known to economist is that as wages increase by one percent, spending increases by only a half of a percent, so trickle down is virtually non existent,. Ricardian economists call this diminishing returns. Similarly, FDI brings fiscal wealth into the economy; this has an affect of bringing about a wider variety of imported goods to local market, corresponding with the increase in wealth and consequent liberalisation. The effect this has on the economy is that the imported goods compete with locally manufactured goods. What is often the case is that, the imported goods are cheaper than locally produce ones. This has a potentially devastating affect on the local economy and in some instances can completely kill local capability.

Vietnam faced this problem with the importation of cheap motorcycles and bicycles from china.
A report produced by Oxfam (2002) ‘Rigid rules double standards’, reports the Vietnamese case, which shows the effects of introducing importation tariffs, whilst simultaneously, highlighting the effects of liberalisation. Not surprisingly both these strategies have their failings. For example the Vietnamese government introduced tariffs as ‘high as 50 and 60 percent’ (2002: 63) on bicycles and motorbikes respectively, in order to protect local industry. The average cost of bicycles is nearly ‘twice the average monthly income of people living in rural communities’ (ibid), Where bicycles are principally essentials for transportation of goods to markets. the average price of a motorbike according to the Oxfam report (2002) cost a ‘minimum of VND 8 million’ (ibid). This effectively puts them out of reach of the majority of people. When considering that approximately a ‘100,000 people’ (2002:63) work in state owned industries, manufacturing bicycles and motorbikes, for an average income of ‘between, VND 500,000 and VND 700,000 per month'(ibid) for bicycle workers; whilst motorbike assemblers can ear as much as ‘VND 1million per month’(ibid). It is easy to understand why the governments introduced tariffs. Unfortunately when they tried to protect local manufacturing, it is the people themselves who suffered the consequences, of paying higher prices for essential commodities. On the other hand as the Oxfam report suggest, if the Vietnamese government where to drop tariffs – here again lies a paradox – local industries might have a problem competing with cheap imports again, therefore jobs would be lost in the ensuing cut backs, that would be necessary in order to compete. Oxfam suggest that there may be some consolation for local industries in that consumers may wish to continue paying higher prices for locally manufactured goods, due to possible quality deficits in imported ones (Oxfam 2002). This clearly shows the difficulty LDC countries face, when trying to create the right economic climate in-order to attract FDI.

What is interesting to note at this point, is that both the USA and the European neo-liberals are pushing the LDC countries into liberalisation, whilst, they themselves have tariffs and quotas in place, as well as subsidised industries. It is all so a fact that out all the so called “Asian tigers” as well as the Europeans and Americans history of development, few of them succeeded without imposing importation tariffs and quotas during their early stages of their respective development histories.

What governments do, when allowing FDI in the form of industrialisation investment, is effectively, give away a sector of their economy to an outsider; who, unless managed correctly as in the Botswana exemple, will export most if not all profits whilst maximising workforce output, often by exploitative means. This may make GDP look good, however, in reality; it has very little if no effect on poverty reduction or “real” per-capita income augmentation. Taxation, a way gaining some revenue from foreign investors, is usually very low, due to concessions offered prior to investment in order to make investment look attractive in the first instance.

Does FDI Reduce Poverty?

When considering these two examples as a micro view of the affects of FDI towards poverty reduction, it becomes immediately clear that it takes more than FDI to reduce poverty. Taking the Botswana as an ideal candidate model for FDI, what can be seen is that over a prolonged period FDI can improve growth in all economic sectors and therefore per-capita GDP if properly reinvested. When considering the effects this has on poverty reduction we immediately run into problems. Using the Dollar a day to measure poverty, 64% of Botswana’s population still live in poverty. However, we know that, at least 15-20% of people included in these figures have no need for a dollar a day, Leaving at least 30% that have chosen the traditional life style, of herding cattle and living on the cattle post. The remaining conservative estimate of 14% reserved for children, street children, and, unemployed people in the towns and cities, as well as the sick, lame and elderly. (Possibly a small percentage of the above 30% mention could also include elderly retired ex-city folk). It is clearly obvious from these figures that the Dollar day measurement is implicitly wrong (demographic sources; US State Department 2007b: earth Trends 2003: et al)

The Vietnam model clearly shows the difficulties that LDC countries face, whilst trying to create the right economic climate to attract FDI. What Vietnam shows is that there is a clear need to balance social as well as economic needs, whilst trying to attract FDI. The Vietnamese model also highlights the need to address the effects of trade liberalisation, as a method for FDI attraction, – a pre-requisite for the WTO, GAT to name but a few- which can have a severe negative effect, on the local industry and economy.

Taking these two examples as a snap shot of FDI as working strategy for poverty reduction, it is difficult to assess the affects. From the Botswana example it is clear that more is needed than just FDI. Even along with a sound development reinvestment program and good governance, using the current method of measuring poverty, a clear reduction is not evident. From the Vietnamese point of view it is clear that the methods used in order to look attractive for FDI can actually increase poverty.

Conclusion

In conclusion it would seem that in order to answer the question “to what extent has FDI been good for poverty reduction”, firstly the way poverty is measured needs to be addressed as the current method of a dollar a day is implicitly incorrect. Secondly the damage limitation on poverty must be taken seriously when trying to attract FDI. The finding of this paper concludes that there is no clear evidence to suggest FDI reduces poverty or not. The main reason that little or no evidence can be gained, clearly lies with a fault in the way in which we measure poverty. Another reason is the liberalisation strategies that are favoured by the TNC, Multinational’s and most western governments, actually help increase poverty. Until these issue can be addressed from the recipient perspective, poverty will increase no mater how much FDI is thrown on the table, and, the question of the effectiveness of FDI towards poverty reduction will remain unanswered.

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