Development Economics

[Nick]

In the economics thread, in the science section, Alan H posted this (on 18th December 2010) in response to a discussion about bankers, recession and economics. I had sought to show how bankers were part of the economy which had brought us prosperity. Certainly there have been problems which need addressing, but their function as a whole was useful too, and Alan H also benefitted from them indirectly.

Undoubtedly. And I certainly enjoy the benefits. However, there are many others who not only haven't enjoyed the benefits, but who have suffered its consequences. I enjoy a reasonably comfortable lifestyle with access to technology and healthcare undreampt of a decade ago. Yet millions suffer and die in conditions where it's not technology or even healthcare that could save them - just life's basics of clean water and basic nutritional food.

It is they I am concerned about. And the question several of us are asking is this: the world is a very unequal place with people suffering dying daily from starvation while we look on from our affluent country (if you earn £14,000, you are in the top 4% earning bracket). We have the resources (and technology) to change that and make life far better for a great number of people. What is stopping us and what can we do to prevent that suffering and death? We see the current system (encompassing the bankers, governments, entrenched privileges, etc) as a barrier to changing anything. How and when can that be changed so we all share in the benefits - at least more evenly spread? There is no need for it and no justification for it continuing.

I have started this thread, not to push any particular ideology or agenda, (though I have my own ideas, of course,) but to explore the economics of how to bring about changes which (most of?) us humanists would like to see. Please jump right in with any comments, questions, queries etc., and let's see where we get to.

[tubataxidriver]

Remember Gordon Gekko in Wall Street:

Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A.

Defend this then, Nick.

[Dave B]

I often wonder about changing our tax laws to something similar to that the States have - you get tax concessions for setting up trusts to do research etc.

However, and I know nothing about this really, there seems to be some tie-in between this and the low public social services funding in the States. I wondered if this tax/trust combo was originally set up for doing "good works", a reward for being philanthropic. There certainly seems to be a strong tradition of philanthropy amongst the richest Americans. I know the Sainsbury family and others do offer lots of grants for science and the arts, but how many others and do they get tax breaks for this?

[Nick]

Remember Gordon Gekko in Wall Street:

Greed, for lack of a better word, is good. Greed is right. Greed works. Greed clarifies, cuts through, and captures, the essence of the evolutionary spirit. Greed, in all of its forms; greed for life, for money, for love, knowledge, has marked the upward surge of mankind and greed, you mark my words, will not only save Teldar Paper, but that other malfunctioning corporation called the U.S.A.

Defend this then, Nick

Why should I? For a start, I have said a number of times that I don't think "greed" is a useful concept in economics. Secondly, you seem to presuppose that I think Gekko's objectives are right, which I don't. Thirdly, it is not my intention in starting this thread to state what the objective or policy should be, but to explore how economics would impact on either of these two issues.

[Nick]

I often wonder about changing our tax laws to something similar to that the States have - you get tax concessions for setting up trusts to do research etc.

However, and I know nothing about this really, there seems to be some tie-in between this and the low public social services funding in the States. I wondered if this tax/trust combo was originally set up for doing "good works", a reward for being philanthropic. There certainly seems to be a strong tradition of philanthropy amongst the richest Americans. I know the Sainsbury family and others do offer lots of grants for science and the arts, but how many others and do they get tax breaks for this?

I think donations in the UK, to education in particular, are substantially lower than the US because there is a feeling that "the state" should pay. There is also a tradition in the US of tithing to churches. Grrr!

In the UK, relief against Corporation tax and personal income tax is given for qualifying donations to charities by companies and individuals respectively. There is also Inheritance Tax relief is given for donations too.

A simple change I would make would be the way in which tax relief is given. Suppose a donor can wants to donate £6,000. He writes a cheque for £8,000, the charity claims back £2,000 and the donor claims back £2,000. I think the donor would be chuffed if he could write a cheque for £10,000 and claim back £4,000 in tax relief. In a small way, this might encourage more donations, at no cost. I believe this is the way relief works in the US.

[Lifelinking]

Nick, would another way of framing this discussion be, how do we inject an ethical dimension into the way the market deals with developing countries? Very good idea for a thread by the way. I may not have been contributing much to the other economics thread but I have been lurking like mad, developing a few ideas of my own.

[Nick]

Is what you are proposing the other side of the same coin? Hmmm... Dunno. By all means give it a go, Lifey, and let's see what arises.

[anaconda]

Nick, Ive been reading Robert Pestons book 'who runs Britain'. Its a lousy title but useful for a relative novice like me to get a handle on what caused the recent problems.

Peston goes on several times to point at personal and institutional greed as a key factor. If greed is a big component of human nature (??.....even if it is 'nurtured' it has been shown to be intoxicating ) and the rewards so huge for being greedy then I see no end to this financial cycle or way of operating. Weve had a major economic event yet despite government interventions there seems no evidence of any reduction in reward or clear sign of different behaviors or ways of doing business. Government has bailed banks out but in reality has played around the fringes as far as regulation is concerned. The point being that this is where we are and where we will stay. This is depressing because it perpetuates the global inequalities that others have pointed out, and it retains the status quo which devalues everything else disproportionately.

Id love to see enviromental and in particular social value being reported in the same way that financial stats are reeled out, as if they were the only measure of success. So at the end of news reports we have some indication of how we all are, a hapiness indicator. Im not being flowery about this and I fully understand the need and desirability of a stable economy but Id love a re-evaluation of all this stuff. The media could do it, and would have the influence to change the way we think about things. This also needs to work bottom up so for example Id like to see care work rewarded appropriately and the localisation agenda organised and funded properly.

[Nick]

Hi John,

Having only just said I don't think greed is a useful word for examining the economy, you promptly bring it up again. . I don't think 'City greed' is a significant factor in development economics, but you have raised some issues which interest me greatly. If you'll excuse me, I'm going to paste your answer in the economics thread in the science forum and reply further there, to keep this thread concentrating on development economics. I hope you don't mind.

[animist]

I agree with Nick that, paradoxically, greed is not really an economic concept - though I think it does relate to the philosophy of economics, and maybe deserves a new thread (for instance, as one of the "humanist deadly sins" - I may start this off). I don't think you should feel the need to defend economics, Nick, against charges of not being a "science" - so what? Any study which deals with human behaviour is unlikely to meet the requirements of paradigm "science", and economics is certainly near this paradigm than most other human-related studies (maybe psychology is closer, but then this has a strong biological component).

[Dave B]

Anaconda said:

Id love to see enviromental and in particular social value being reported in the same way that financial stats are reeled out, as if they were the only measure of success.

Does this imply that year end balance sheets should also have figures as to the effect of that company on the environment and what direct value its work has been to society?

If so I love that idea, but wonder who would act as the objective "auditors" of such qualities.

I fell out with a city dealer who got a large bonus and other benefits for gaining her client millions in such a way that it made things worse for society in general (during the famous "Black Friday" period.) She simply would not agree that her actions did damage to her friends in terms of rising prices due to the fall in the value of the pound. Nor could she see that the commodity markets simply shovelled money into the pockets of a few at the expense of the many, especially the poorer farmers in developing countries at that time.

[Nick]

Anaconda said:

Id love to see enviromental and in particular social value being reported in the same way that financial stats are reeled out, as if they were the only measure of success.

Does this imply that year end balance sheets should also have figures as to the effect of that company on the environment and what direct value its work has been to society?

If so I love that idea, but wonder who would act as the objective "auditors" of such qualities.

Hmmm... I don't think you have a prayer of that making any difference. What might be more effective is some sort of "charter mark" or marketing differentiation, or alternatively some sort of 'social tax', which would translate social value into cash values. The major problem with that is a) raised prices b)foreign competition c) EU competition rules. Also how do you measure "social value?"

I fell out with a city dealer who got a large bonus and other benefits for gaining her client millions in such a way that it made things worse for society in general (during the famous "Black Friday" period.) She simply would not agree that her actions did damage to her friends in terms of rising prices due to the fall in the value of the pound. Nor could she see that the commodity markets simply shovelled money into the pockets of a few at the expense of the many, especially the poorer farmers in developing countries at that time.

Just to get this straight All the days of the week are "Black" for someone. To me, "Black Friday" refers to the stock market "crash" of 1987, (even though the stock market ended the year higher than it began). Are you instead referring to (what I prefer to call) "White Wednesday", the day the UK fell out of the ERM?

Though, of course, a decrease in the value of the pound will raise the price of imports, it will equally generate jobs for UK workers and exporters and divert the purchasing pound to UK-produced goods. The profits your ex-friend made were generated by the political judgements of the (Tory) government of the day, which cost the tax-payer many billions (yes BILLIONS) in trying to buck the inevitable, which turned out to be the renaissance of the UK economy, kindly bequeathed to the spendthift Labour governemt in 1997.

In practice, I doubt it made any material difference to the third world, as the raw materials they are likely to be exporting are such a small part of the final price. There are far more important elements to helping the third world than the value of the pound.

[Alan H]

I fell out with a city dealer who got a large bonus and other benefits for gaining her client millions in such a way that it made things worse for society in general (during the famous "Black Friday" period.) She simply would not agree that her actions did damage to her friends in terms of rising prices due to the fall in the value of the pound. Nor could she see that the commodity markets simply shovelled money into the pockets of a few at the expense of the many, especially the poorer farmers in developing countries at that time.

It's too late to comment fully, but this is the issue. They are just gambling and moving money around without a care in the world or for the world.

[Nick]

....and the theatre is just shouting in the evening.

[Dave B]

"Black Friday" refers to the stock market "crash" of 1987

That's the one, Nick.

[Dave B]

If only we could divorce the economy, education, health . . . from the flip-flop of political dogma. But, then again, who could we really trust to run these things efficiently and honestly with a social perspective? Equally representative parliamentary committees with an academic type, sworn or contracted to be non-partisan, holding the casting vote?

edit: regarding recent indiscretions by a certain person (whom I previously had much more respect for) perhaps "industry" should be added to that list!

[Nick]

"Black Friday" refers to the stock market "crash" of 1987

That's the one, Nick.

I see. I didn't think currency variation was significant in 1987....? No matter.

In my planned response to Alan, I want to refer to the Industrial Revolution. As it happens, Melvyn Bragg's Radio 4 programme In Our Time is examining this subject today and next week. Amusingly, he got quite angry with one of the academics on the programme. It is available on Listen Again, if you are interested.

[Dave B]

"Black Friday" refers to the stock market "crash" of 1987

That's the one, Nick.

I see. I didn't think currency variation was significant in 1987....? No matter.

No, I did make a mistake, 1987 was the year that I moved from Surrey to Glos - it certainly was not that year. A little research gave me a black Wednesday in 1992, when Sterling was pulled out of the ERM and George Soros made megabucks out of selling sterling. I don't think my ex-friend's client made that much but if the bonus she crowed about, £10,000 for a single event, was anything to go by he or she made a lot!

[anaconda]

Nick/Dave

Id like to give a considered response/contribution to your latest posts re economics, social value, how you can measure it, greed (relevance or otherwise) and pursue this idea that other themes should be given greater value. However Im running around like the proverbial at the moment sorting xmas, so will rejoin soon.

cheers, best wishes

[thundril]

I have started this thread, not to push any particular ideology or agenda, (though I have my own ideas, of course,) but to explore the economics of how to bring about changes which (most of?) us humanists would like to see. Please jump right in with any comments, questions, queries etc., and let's see where we get to.

Nice one, Nick.
The disparity between the well-off countries and the so-called 'third world' is a problem worthy of some serious consideration, (followed by effective action), and economics is certainly an important area of enquiry for those of us seeking a way to improve the lives of the poorest people in the world.
Some relatively simple measures with economic dimensions are: clean water, basic education (particularly for girls),
fair prices for the raw materials, eg minerals, which we desperately 'need' and which this 'third world' so often supplies, and an end to farming subsidies in the rich world where this impacts on poorer countries. (Eg cotton, rice, etc)
My suspicion is that a purely capitalist world economy cannot 'do anything' about these inequalities.