30 May 2017

Does improved irrigation technology save water? (No)

I highly recommend this FAO report by Chris Perry et al.

Abstract: Unsustainable water use (over-drafted aquifers, seasonally dry rivers, disappearing lakes and wetlands) is a problem across the world. This is especially true in the NENA region, which includes many of the most water-short countries in the world. This review indicates that there are rather few examples of carefully documented impacts of hi-tech irrigation, while there are many examples of projects and programs that assume that water will be saved and productivity increased. The conclusion of this report is that restoring a balance between sustainable supply and consumption of water requires first physical control of the water resource by government or other agencies responsible for sustainable use, followed by interventions to reduce allocations. Within the allocated and controlled quotas, hi-tech irrigation will evolve and spread to the extent that it makes sense for the farmer who wishes to take advantage of the various benefits of hi-tech irrigation.

Why are carbon taxes so hard?

A few weeks ago, I participated in a really great panel discussion on EU investment in green technologies. I recommend the entire video for those who are interested in these topics, but here's a short excerpt on why -- in my opinion -- it's hard to get a carbon tax:

Addendum: Read this paper on the advantages of carbon pricing and this one on the domestic politics of distributing carbon tax revenues.

29 May 2017

Monday funnies

Trump makes sense after watching this.

Time for a new word for the idiocy of Trump (a la Santorum)? How about Trump, as in "that was a fucking Trump move, idiot!" or "A 4,500 year old earth? What do you think I am? A Trump?"

26 May 2017

How will we live in a climate changed world? (Part 2)

Last year, I crowdsourced 29 visions of life in a climate-changed world from 27 authors. Those visions were published on the Life plus 2 meters website as well as in a book, Life Plus 2 Meters, volume 1, which is free to download or cheap to buy.

Now I'm back for a bigger and better volume 2. The first goal is to raise $600 (at least!) to award prizes to authors with the best visions. The second goal is to get a lot of submissions from around the world.

Here's the promo video:

To learn more about the fundraising, please visit the Kickstarter campaign here. The deadline is 25 June, but pleas contribute early (and often!)

To learn more about contributing your vision (there are prizes for best storyteller, practitioner, under-25, and from lower-income country), then please go here. The deadline for submissions is 31 July.

You can follow the project by subscribing to the newsletter or on twitter :)

Friday party!

Death is inevitable; sadness is not.

25 May 2017

Unexpected water reallocations

Damian used to blog with me here. He just published a paper that's worth your time
Park, Damian (2017) "California water reallocation: where'd you get that?" Natural Resources Journal 57:183.

Abstract: When thirsty, Californians often avoid going to the market for more water. Instead, they might borrow some from their rich neighbors, they might sue them or more commonly, they simply take more from users without much of a voice (e.g. the fish or future generations). These alternatives are often superior to using markets.* Within markets, a surprising detail emerges – it is uncommon for farmers to fallow fields in order to sell water to another user. Rather, many water transfers are structured so sellers can have their cake and eat it too. While some of these transfers rightly bring about jealousy and criticism, they likely do facilitate efficient water use. In discussing these points, I provide a more holistic description of how water users reallocate water as well as a richer understanding of how California’s water market actually works.
* My interest in this paper comes here, where you see that political feasibility trumps economic efficiency and/or social justice. That's a major point in my paper on desalination.

23 May 2017

So what would a carbon tax really cost?

While writing my paper on the tragedy of the commons and desalination, I was a little shocked to see that the cost of paying for CO2 permits -- or even the much higher social cost of carbon -- was actually quite small, i.e., the cost of offsetting carbon emissions at $12/ton would be roughly $3.60 per San Diego resident* -- a number that's a tiny fraction of people's water costs (let alone their latte budgets). Increasing the cost to $30/ton CO2e (one estimate of the social cost) would mean that San Diegans could offset the GHG-cost of 100 percent desalinated water for only $9 per year, which is about equal to the price of one hour of downtown parking.

This situation was interesting to me because it -- like the example of running a pig farm to meet clean water codes (most violate many of them) at an additional cost of $0.035/kg -- shows how absolutely CHEAP "doing the right thing" really is. If you listen to politicians, talk radio hosts and lying lobbyists, you'd think that a carbon tax (or the cost of cleaning water) would put your parents on the street, your ancestors' headstones for sale, and your kids into prostitution. But the cost is really just a tiny amount of money.

How can that cost be so low and why are people so opposed to it if it is?

The first answer is that a little cost can have a big effect if its spread across enough people. Wal-mart regularly breaks conservation records by shaving 0.2 percent off its shipping distances or packing weight. Five cent charges for plastic bags have dropped use by 50 percent or more in many cities. So the key is the total effect, not the lack of effect on you or small effect with any given person.

Second, the people who oppose these moves often face a much higher cost than the average person because they are in the oil selling, pig selling or bottled water selling business. We know about oil and pig lobbyists, but I am just as sure that Nestle, Pepsi and Coke are ALL opposed to (refundable) deposits on plastic water bottles because they do not want to raise the price of their product from $1.00 to $1.05 per liter (for example) because such a move might remind consumers that they can switch (in many places) to "practically free" tap water.

So those are the theories, but let's look at how much more things would cost (spreadsheet with numbers and sources) if we added a carbon tax of $30 per ton of CO2 (double the costs below if you're feeling a sense of urgency).

A gallon (liter) of gasoline would cost $0.27 (€0.06) more
NB: Gasoline in the Netherlands now costs €1.64/liter, which is $5.65/gallon**

One thousand cubic feet (one cubic meter) of natural gas would cost $1.59 (€0.06) more
NB: Our household uses about 30m^3 per month, so our bill would rise by €1.80 per month

One kWh would cost $0.012 (€0.011) more***
NB: Our household uses about 139 kwh per month, so our bill would rise by €1.50 per month

"Typical" meat, vegetarian, or vegan diets would cost $79, $42 or $32 per year more.

Looking into individual food prices:
  • Beef would cost $0.37/pound (€0.74/kg) more.
  • Cheese would cost $0.18/pound (€0.37/kg) more.
  • Chicken would cost $0.09/pound (€0.19/kg) more.
  • Eggs would cost $0.07/pound (€0.13/kg) more.
  • Rice would cost $0.04/pound (€0.07/kg) more.
  • Tofu would cost $0.03/pound (€0.05/kg) more.
Bottom Line: The "right price of carbon" would add trivial costs to the cost of living in richer countries, but it would do a lot to encourage changing consumption habits at the aggregate level (and changing production patterns at the corporate level). Too bad politicians seem more interested in listening to fossil-fuel lobbyists than to economists (and others) urging price signals as a cheap way to mitigate carbon emissions and the dangers of climate change.

* I assumed the same emissions for supplying desalinated water to ALL citizens, not just the 7 percent the plant can now supply.

** This price reflects existing "green taxes," which makes me wonder how much Dutch prices would change -- if at all -- under a carbon pricing scheme. I guess that it would have a low impact on households that already pay such taxes (as we do on electricity and natural gas) but a bigger impact on farmers and industry that are usually exempt from "anti-competative" or "job killing" taxes (see the pig example above for the truth in that lie!)

*** US Energy Information Agency data are very difficult to understand so I used EU data.

22 May 2017

Monday funnies

If you understand this figure, then you can make fun of people who fear sharks more than horses:

18 May 2017

So here's what I am thinking after 6,000 posts

Aguanomics was the only living child of Sex, Drugs and Water Utilities, which was upwardly mobile child of the short-lived Another Brilliant Idea. When I began Aguanomics in March 2008, I imported about 150 posts from the SD&WU that were water-related. After that beginning, I blogged a lot more on water because (1) I was excited to talk about all the "new" topics, (2) I got a postdoc that left me with no time obligations, and (3) blogging was an amazingly helpful and productive activity for me (and perhaps some readers).

Several years and thousands of posts later (around 500 of them guest posts!), I see many topics as old or known but often unresolved due to governance issues, public indifference, and unimaginative or exploitative stakeholders. I also have less time due to my teaching duties joys! and other projects. Those reasons explain why I have not been blogging so much, but there third reason -- the productive joy -- is as strong as ever. I now have a queue of 40-50 topics that I need to write out. (Go ahead and suggest more!)

This graphic captures my posting frequency over the years, but it also gives you an idea of my cumulative satisfaction :)

Bottom Line: Don't blog to succeed. Blog to share.

17 May 2017

Links worth your time

  1. Do you like learning as much as sex?
  2. Spot fake Amazon/Yelp reviews with Fakespot or ReviewMeta
  3. An incredible investigation into Soma water filters (they're worthless)
  4. How trolls stopped google (and authors) from putting millions of books online
  5. Fórum Paralelo Mundial da Água ("Parallel to World Water Forum") is where protestors against the goals of the 2018 World Water Forum will meet
  6. Instead of helping the world communicate, Twitter turned to advertising (fail analysis)
  7. "How To Invest In Yourself" (set 100 goals then do them)
  8. "Screw finding your passion" (more good life advice)
  9. Silk Road was a hot start-up, but illegal. Silicon Valley does drugs and murder.
  10. Scientists measure Alberta oil sands pollution as 2-4x worse than reported. Industry says "definitely listening and looking for better way to measure pollution" (get back to you in 2025?)

16 May 2017

Links worth your time

  1. A really interesting proposal on how to fix incentives in the US health care "system"
  2. We have no idea how badly cybercrime is going to harm us (it's already bigger than "real" crime but hard to spot)
  3. How to be your own investment manager
  4. How will we stay busy when the bots take over? Religion.

Know anyone in Flint, MI or Galway, Ireland?

The City Water Project (an effort by me and some students) wants to hear residents' opinions on water quality. Please forward this post (or the survey link!) to anyone you know!

(The survey closes FRIDAY, so please hurry!)

Flint, Michigan:

Flint survey: https://goo.gl/forms/C5Abiq11nh2RhxK92

Galway, Ireland:

Galway survey: https://goo.gl/forms/FKo3QksgtMHyReHz2

Here's my goodbye from Den Haag/The Hague and here's a link to the blog posts on what we (didn't) find.

People on mobiles be like

...zombies -- staring at the screen and stumbling as they wonder, with a feed tube of distractions crippling their brains.

15 May 2017

Monday funnies

MV sent me this example of (empty) corporate braggadocio:*
Press Release: Nordic brands saved almost 7 billion liters of water, enough for daily needs of 134 million people... Factories supplying H&M, IKEA, Filippa K and 20 other Nordic brands saved more than 6.7 billion liters of water since STWI initiated its work with the factory base in 2012. This cumulative result equals the annual need of more than 360,000 people, or one day’s need* of 134 million.
Besides the obvious point (their saved water won't create or operate a drinking water system in another country), this PR is even more meaningless...

As you can read in the release (but not the headline), they saved enough "for the daily needs of 134 million people" for ONE DAY. How about 360,000 people for a year? No way... as "water" is only component in a water system. You also need things like "pipes", "energy", "personnel" etc.

Bottom Line: The marketing team needs to drink a little less koolaid and more water.
* Addendum: The example was so good that I blogged on it twice (whoops!)

12 May 2017

Don't let Google help you get dumber

I wrote a paper [pdf] about 10 years ago that discussed the "negative, second-order effect" of using Google to find anything from music tracks to teaching presentations. My observation is that Google's ease of use (a good thing, i.e., "a positive, first-order effect") makes it easier for us to be lazy in terms of researching, mastering ideas or working to present them.

I see many signs of this effect around me, i.e., when spell-checkers fix our typing, translators give us some but not all of the meaning, or when students cite others' ideas based on a googled snippet, rather than the memory from reading broadly or for comprehension (the ctrl+F problem). These stages are merely the most recent in an evolution that began thousands of years ago, when homo sapiens were able to share collective knowledge to overcome the larger-brained (smarter) homo neanderthalensis, which had weaker social organization.

Russ Roberts and Tyler Cowen discuss these ideas -- among others -- in this podcast on Cowen's book, The Complacent Class (start around 40 minutes in). I recommend that you listen to the podcast if you want to think differently about how you might retain some knowledge in a world where bots and automation are increasingly dominant.

Bottom Line: It's nice to benefit from "collective knowledge" but be careful when that knowledge is controlled by corporations.

11 May 2017

NAFTA’s impact on Mexico’s working women

Esmée writes:*

On January 1 1994, the North American Free Trade Agreement was signed by Canada, Mexico, and the United States. It consists of two parts: the North American Agreement on Environmental Cooperation and the North American Agreement on Labor Cooperation. It was aimed at increasing trade between the three countries by creating a trilateral trade bloc. Free trade is a well-known driver of economic growth. However, contrasting empirical evidence exists on NAFTA’s impact on Mexico’s development. Mark Weisbrot, for example, argues that the agreement has tied the country’s economy even closer to the US economy, led to the displacement of many small Mexican corn farmers, and failed at reducing poverty in the country. On the other hand, Steffan argues that NAFTA has triggered a process of democratic transition in Mexico by reducing the power of the presidency and removing authoritarian legacies.

Apart from these more general findings, another, less researched impact of the agreement exists: Its impact on Mexico’s women, through the increased amount of Maquiladoras. These are foreign-owned manufacturing plants that assemble duty-free imported components/materials/equipment for export. The Mexican government initially implemented the Maquiladora program to boost industrial growth in Northern Mexico and slow down labor migration to the US. Sixtypercent of the 1.3 million workers in Mexico’s 4000 Maquiladoras are women [pdf]. They are mostly young and uneducated. They work around 50 to 80 hours a week and earn 56 cents an hour. With the implementation of NAFTA, Maquiladora workers expected a rise in wages, job growth, and improved working conditions. However, not all these promises were realized. As a result of the trade agreement, Mexico became attractive for multinational corporations looking to cut costs, and the amount of foreign-owned maquiladoras doubled.

Comparing current female labor force statistics to the ones prior to the implementation of NAFTA, research indicates that in general, this trade liberalization has improved women’s labor outcomes. According to Aguayo-Tellez et al. [pdf], Mexican women’s relative wages increased by 2.7 percentage points during the period after NAFTA. They also found that there has been a declining share of agricultural employment since NAFTA, and that at the same time female intensive sectors such as clothing and electronics have grown. Additionally, according to the World Bank, Mexico’s female labor participation rate has increased from 34% to 45% from 1990 to 2016.

Now this may seem like a generally positive result. However, Mexico’s pollution regulation, labor rights enforcement, and corruption enforcement have been lax. Human Rights Watch has reported forced pregnancy testing and deteriorated health and safety conditions in the factories, as well as public health problems related to pollution/toxic chemicals exposure, such as miscarriages and fainting spells. Women rights organizations have claimed that all this has contributed to the reinforcement of gender inequality. Unfortunately, Mexico’s institutions are not designed to prevent these negative impacts from happening.

When looking at the alternative path that Mexico might have been on without NAFTA, we can thus conclude that considering job creation and wages, Mexico’s female labor force is probably better off now than it was 25 years ago. However, the trade liberalization has had a neutral or even negative impact on women labor rights, through a lack of efficient institutions in Mexico. Now that US President Donald Trump is arguing for a renegotiation of NAFTA, taking into account women labor rights in Mexico in such a renegotiation would thus be crucial. However, considering Trump does not seem to care a lot about women in general, assuming he will care about Mexican women is probably highly unrealistic.

Bottom line: The NAFTA agreement was designed to increase the economic growth and development of all three involved countries, including Mexico. However, NAFTA has been problematic for Mexico’s female labor force, due to the increased amount of Maquiladoras in the northern part of the country. Despite increased wages and job creation, instead of raising Mexican women’s standard of living, NAFTA has led to greater gender inequality and health problems.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

Greening economic growth and development

Anniek writes:*

Economic growth and development are two key terms that governments strive for. But given rising environmental challenges, where does the green economy fit in? The World Economic Forum (WEF) believes that slowing down climate change could add $19 trillion to the global economy and increase global GDP with 0.8% by 2050. So what is preventing governments from greening the economy and achieving green growth?

Lets first briefly revisit the green economy. The green economy refers to the results in improved human well-being and social equity, while significantly reducing environmental risks and ecological scarcities. In doing so, it shifts traditional economic growth and development towards green growth and sustainable development. The former refers to the fostering of economic growth and development while ensuring that natural assets continue to provide the resources and environmental services on which our well-being relies. Whilst the latter refers to development that meets the needs of the present without compromising the ability of future generations to meet their own needs.

The WEF believes that tackling global warming will result in an economic boost, thereby adding $19 trillion to the global economy and increasing global GDP with 0.8% by 2050. A green economic transition is thus good for the environment, through low carbon, but also good for the economy through investment and the creation of 6 million jobs.

Despite the WEF’s estimate, there is no indicator to illustrate the socio-economic and environmental benefits of a green growth. Hence, many politicians and policy makers remain skeptical and believe that decarbonizing the economy through leaving oil and gas in the ground would present significant costs to the economy. Even though this is a factor to consider, the WEF believes that this loss would be compensated by the offset of new sectors and the creation of employment.

Many Nordic countries like Iceland are transitioning towards a green economy; however, numerous countries are still lagging behind. One example of such a country is the United States, where President Trump even overturned Obama’s policy to reduce emissions, and may potentially even exit from the Paris agreement.

Even though existing indicators of economic growth (Gross Domestic Product) and development (Human Development Index) already exist, these do not represent green growth. Thus, a new indicator has to be established in order to show politicians and policy makers the vast socio-economic as well as environmental benefits associated with green growth.

Such an indicator should further frameworks already presented by the the Organization for Economic Co-operation and Development and Green Knowledge Platform thereby helping countries to assess and compare their green growth progress.

Bottom Line: The WEF believes that slowing down climate change could add $19 trillion to the global economy but many countries like the US remain skeptical given the void of a green growth indicator. So we will not get green growth until we measure it.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

10 May 2017

Links worth your time

  1. How development aid's "appeal to pity" undermines aid
  2. A basic income trial begins in Uganda. First reports are promising.
  3. Jihadis are just another flavor of millennial
  4. Some notes explaining the form of Chinese writing
  5. The ultimate means of building community: baby swaps
  6. "What I learned about life by becoming a landlord"
  7. The Economist on Saudi Arabia: "In a kingdom which acts like a (heavily armed) charity doling out cradle-to-coffin welfare, few see a reason to upset the felafel stand. Two-thirds of Saudi Arabia’s 21m citizens are employed by the government and expect annual pay rises whether working or not." A witty way to talk about a confusing country (water prices will still rise).
  8. "The 5 Elements of a Brilliant Sales Narrative" -- worth a read for EVERYONE.
  9. Palliative care may be better (live longer and more comfortably) than conventional treatment for terminal cancer patients
  10. "Which countries destroy the environment the most (and least)?"

The Bengali pro-poor policy paradox

Kristine writes:*

During recent years, Bangladesh has experienced an increase in human well-being and economic growth. The state is amongst the most densely populated in the world, with 161 million citizens inhabiting an area slightly smaller than Florida. The improvements in living standards are a result of policies and programmes implemented by the government and NGOs within Bangladesh. This is puzzling, as the development emerged from a political system hallmarked by powerful economic and political elites. This is what some, including the World Bank, have referred to as a “paradox” [pdf].

Since the mid-1960’s the Bangladeshi fertility rate has dropped steadily, and is currently at 2.1 children per woman. Also, the numbers of years of expected schooling has increased to more than 10 years on average. Interestingly, the number of expected years of schooling for girls (10.4 years) has exceeded the number of expected years of schooling for males (9.9 years) which is likely due to a government and NGO focus on female education; often offering payment to rural families sending girls to school. The significant improvements in the well-being of Bengalis citizens beg the question of why Bangladesh's political elites have provided more public goods.

Since the Bangladeshi democratisation, in the early 1990’s, its political system can be classified as a vulnerable limited access-order [pdf], where the political costs of depriving Bengali citizens of their liberal rights are low, and political support is gained through patron-client relations. If Bangladesh has a limited-access order, then why do self-interested elites provide public goods? Many, including Hans Rosling, argue that the incentive for lowering fertility rates and bettering education is to create a more economically prosperous population (boosting the economy). I find that this argument has its drawbacks, as it does not consider the costs of elites losing political and economic power. One would expect the elite to have little incentive to change the institutional framework and increase the well-being of the citizens, because this ‘opens up’ the political and economic sphere to non-elite members, and disrupts the elite's rent seeking.

Therefore, I propose that there are three main incentives for the government and NGOs program and policy intervention. Firstly, the vulnerability of Bangladeshi political institutions may incentivise politicians to comply with some public requirements. Secondly, despite the clientelistic characteristic, the system is democratic. Although there is too little space and time to elaborate why elites are competing, suffice it to say that they do. As Kitschelt argues, increased competition between politicians leads to increases in the supply of public goods. This is because competition increases the number of citizens needed to win an election; making the provision of public goods (non-excludable and non-rivalrous) more efficient than the provision of private goods (excludable and rivalrous). Nonetheless, this does not explain why governments (actually) implement policies and support NGO intervention.

The last incentive may explain this. The level of corruption and strong-economic ties between elite members impacts political decisions. It is clear that many policy programmes are profitable. As such, many NGO’s are ‘loyal’ to political elites. In other words, the incentive to contribute to human development may be driven by the benefits derived from lucrative project initiatives. This means that the limited access-order might still be thriving on rents, and the improvements in life-quality is not as good as it could have been with a different political structure.

Bottom line: The decline in poverty and progress in human development in the absence of liberal democracy, is likely due to three factors: regime instability, political competition leading to the provision of more public goods, and the rent-seeking opportunities created by the government and NGOs. As such, Bangladeshi growth and development is not a paradox; however, the development programmes and policies are not implemented efficiently.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

The WCA: Whose fault is it anyway?

Charlotte writes:*

Between December 2011 and February 2014, 2.380 people in the UK died after a work capability assessment (WCA) found they were fit for work, hence ending their employment and support allowance (ESA). ESA is the main benefit for the long-term sick and disabled in the UK. If a claimant’s ESA is discontinued after being found fit for work, they will either receive jobseeker’s allowance, or no benefit at all. Many disabled people rely on ESA to pay for necessities, and the ineffectiveness of the WCA is toying with their potential standard of living. Although overseen by the Department for Work and Pensions (DWP), the WCA is administered by private firms who earn huge sums of taxpayers’ money, therefore benefitting from continuing to carry out these controversial disability assessments.

The British government - whilst supposedly ‘watching the watchmen’ (i.e. the private firms) - is actually legitimising the private firms’ actions through continuing to use outsource providers. Outsourced providers also allow the government to place blame on the firms and their shortcomings, meaning that less attention is paid to the WCA being ineffective - despite the Assessment itself being the root cause of the problems. However, regardless of attempts to shift the blame, the facts speak for themselves. Atos, one well-known contractor, chose to withdraw from a contract worth millions of pounds due to the damage the WCA was causing to the firm’s reputation. If such a lucrative deal can be outweighed by this, it is clear that there is a serious situation at hand. The numerous protests in the UK against contractors such as Atos only further illustrate this point.

Regardless of whether private firms should be able to capitalise on the suffering of others, it is clear from both individual stories and aggregated data that, with regard to the WCA, contractors simply don’t do the job to decent standards. The focus is wrongly on getting the assessments done quickly, rather than making the right decisions. There is a clear quality/ quantity trade-off here. However, unlike most situations where those adversely affected cannot easily challenge the company, the incorrect decisions regarding the WCA can be directly appealed - an option which many former ESA-claimants have opted for. The appeals process means that the lack of quality in the decisions can actually be challenged and the outcome can be reversed. With this in mind, one would assume that the firms have strong disincentives regarding rushing the job to save money and time, given that more appeals mean increased burdens. Yet so far, this basic logic has not been seen. Perhaps future reforms should involve stronger (dis)incentives for the individual firms, so that there is more pressure to actually do the job right.

In a 3-month period in 2016, 2.000 people were wrongly found fit for work; in June 2016, 56% of appeals were upheld. How can this system be viewed as anywhere near functioning, when over half of its decisions are proved wrong? Not only is this traumatic for those being tested - who run the risk of losing the ESA benefit that they so often rely on for basic needs -, but processing so many appeals means digging deeper into taxpayers’ pockets. So much for the claim [pdf] that the WCA would save loads of money...

So, whose fault is it anyway - the DWP for relying on private firms on such sensitive matters, or the contractors themselves for doing an inadequate job? An independent review suggested 37 changes to the system, 32 of which applied to the DWP. It is surely worrying that a system in place for years still needs so much adaptation. Nevertheless, such reviews highlight the urgent reform needed, as well as the responsibility of the DWP to fix the mess they originally created. It is difficult to claim that the DWP could find a better solution, given the many limitations of counterfactuals. But I would sincerely hope that this is not the best the British government has to offer. With the upcoming snap election, I’ll be interested to see how significant the WCA is in the political arena.

Bottom line: The WCA is an ineffective tool for judging who is (not) fit for work and the DWP and outsourced providers are both somewhat accountable for the many mistakes made. A major overhaul is well overdue; hopefully, the General Election in June 2017 will increase the speed of this process.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

9 May 2017

Food waste reduction - an economic perspective

Jan writes:*

In the past decade public perception on the unsustainable nature of Western European consumption has been on the rise. One such specific area that has been receiving attention by the public and policymakers alike is food consumption and its related waste. France, for instance, has just passed a law forcing supermarkets to donate unsold produce to food banks. Other countries have attempted to tackle the problem by offering unspoiled passed sell-by-date products at a large discount. However, food waste is often criticized from an environmental point of view whilst its economic impacts remain remarkably under discussed. This is a big shame as there are many economic benefits to ameliorating European food waste.

Scope of the problem
In 2016 the Economist published an article stating that we globally waste as much as one third of the world’s food on a yearly basis; this equates to roughly $750 billion dollars (1.3 billion tonnes). From an environmental point of view food waste creates 3.3 billion tonnes of greenhouse gasses due to the energy lost producing it. The Economist states that if these emissions were to be compared to countries, it would be the third biggest polluter in the world, with the United States and China topping the rankings. Within this global picture of food waste Europe is a big sinner, wasting roughly $160 billion of food (88 million tonnes).

If food waste is bad why is it happening in the first place? From the supply side food gets wasted in transport and production, and due to consumer preferences. A lot of fruits and vegetables get wasted as they do not visually meet consumer standards, even though they are perfectly edible. From the demand side food gets wasted due to consumer behavioral patterns. First, people have the erroneous idea that expiration dates are an indication of edibility. Second, Porpino states in his paper that over-preparation and buying too much food “are embedded in cultural practices such as hospitality, the good mother identity, taste for abundance, and food seen as wealth”. These factors are the main drivers of food waste.

Benefits of food waste reduction
Wageningen University recently published an article that stated that if Europe would be able to reduce its food waste in the retail sector and private households by 40%, €75.5 billion would be saved. This would mean €123 saved annually per person in the EU, bringing us to the first benefit of reducing food waste. An increase in capital for individuals would mean that they could spend this on their welfare. This would further be increased by the fact that food prices would drop as a result from a decrease in demand.

Wageningen University went further to state that with a 40% reduction in food waste, and said decrease in demand there will be less land needed for agricultural use. We are talking about a very large amount of land; 28,940 km2, roughly the size of Belgium. This ‘freed’ agricultural land could potentially be used for the growth of biofuels, thus further reducing Europe’s environmental impact and energy dependence problem.

If opted not to reduce farm land Europe could deal with the problem it faces due to being fed by the rest of the World. By having more agricultural land Europe could use this to become less dependent on food imports. Between 2001 and 2010 the EU imported 59 billion tonnes of food, roughly the same as the continent of Africa. By becoming less dependent on imports Europe will be able to reduce the costs of food associated with taxation and transport (good for the environment too). From a long term perspective the reduction of food waste will save Europe vast amount of money tackling the looming environmental issues due to pollution.

Bottom Line: There are a multitude of economic and welfare benefits that Europe can gain from reducing its food waste. Maybe by highlighting these more prominently (instead of mainly the environmental perspective) we can better motivate or incentivize food waste reduction, especially as the biggest contributor to food waste are consumer preferences and behavior.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

GNH as a development index in Bhutan

Krisna writes:*

Bhutan, located in the Himalayas between China and India, did not open its borders for foreign influences till the 1960s. From this point onwards, the king of Bhutan was careful in not repeating the mistakes other developing countries made, including economic, political, social or cultural disruption [pdf], and decided to slowly assimilate the country to foreign influences and technologies, while maintaining their local system of values. This development was facilitated by using gross national happiness (GNH Index) as an economic measure from the late 1980s. GNH has its focus on the happiness, or emotional well-being of the population, unlike the usual economic goals associated with GDP. Although GNH may seem like a wonderful measure of development, its shortcomings are worth discussing, but first, the method of measurement will be shortly described.

The nine components of the index, each equally weighted, are: psychological well-being, whether individuals feel like they have enough time to do non-work related activities, the strength of community relationships and interactions, diversity and resilience of cultural traditions, health, education, environment, living standards, and governance (rested on transparency, equity and quality). Bhutanese people fill in surveys based on these components, and their happiness is measured through a system in which there are two thresholds [pdf]: the first at which a person can be considered to enjoy sufficiency, and the second at which the person can be considered happy. This system can in a way provide similar insight as the economic function of decreasing marginal utility (see image). This is because it highlights that any resources that will lead to ‘extra’ happiness of a person that has already surpassed the second threshold, can better be allocated to another person who has not reached this threshold (yet), because it will have a higher utility there. Therefore, any large shortcomings in any aspect are weighed more heavily than small shortcomings.

The general critique for any indices, and therefore also for GNH, is the danger of aggregating factors or values, which can cause political decision makers to overlook certain issues in a country. For example, although the aspect of good quality governance would generally be perceived as important to include, the problem in Bhutan is that many are not yet involved in decision making processes (especially the rural communities). Furthermore, the issues with assessing ‘psychological well-being’ is that this is easily subjected to temporary emotional states, as well as adaptive preferences [pdf] or expectations, in which an individual chooses to be mentally content because they are habituated to their situation, but relatively may not have access to resources such as health care facilities. A special case of this can be applied to regions with a strong religion or belief. Especially Buddhism encourages the acknowledgement of emotions and letting them go. Lastly, a major critique rests on the ethnic tensions in Bhutan, and the absence of guarantees for human rights which caused thousands of ethnic Nepalese to flee to Nepal in 1990. This is not included in the index, and therefore in this aspect, does not provide a good representation of the well-being of the population as a whole.

These issues can be placed under one umbrella which criticizes the method of measurement of GNH. Since there is no clear agreement on how to measure happiness, GNH can easily be used to simply speak of striving for happiness of the Bhutanese people, but at the same time not actively tackle issues hindering Bhutan’s development. Tshering Tobgay is the current Prime Minister of Bhutan since 2013, and is distancing Bhutan from GNH, contrary to the former prime minister Jigmi Thinley who strongly advocated it. Mr Tobgay reasoned the following: “If the government of the day were to spend a disproportionate amount of time talking about GNH rather than delivering basic services then it is a distraction”.

In the end, no matter how great GNH sounds as an economic indicator, it still falls under a political agenda, especially since the main objective of the country is to maintain its sovereignty. So through aggregation, the true measure of some values, or even the shortcomings of another, can mask the quality of life of the Bhutanese people. However, it should be acknowledged that it does a better job in indicating development than the commonly used GDP which is focused on production in a country, and not on the well-being of individual citizens. Another strength also lies in the afore mentioned minimal level of conditions that must be met before a citizen is considered happy. However, this ‘level’ can also be debated.

Bottom Line: The strength of GNH lies in its ability to partially measure population well-being but it remains subject to political implications due to its characteristic to aggregate components, like any index, which can mask the areas where Bhutan requires prioritized reforms.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

8 May 2017

Making the healthcare system great again

Ana writes:*

Waste is one of the leading issues in the healthcare system of the United States. How is the United States one of the top spenders in healthcare but have one of the highest mortality rates amongst developed nations? Where is this money going to? Statistics show that for every dollar spent on medical care, thirty cents are wasted which results in 750 billion dollars [pdf] wasted on health annually in the U.S. These costs include excessive administrative costs, unnecessary services, increased prices and medical fraud. Moreover, basic medical gear such as a liter of normal saline reaches 546 dollars but its cost of production is 44 cents [pdf]. However, after the product is made and before it reaches the hospital, it passes through various middlemen. However, no one fully understands exactly how the price of this product is determined [pdf]. Even though U.S. citizens pay 1.5 times more for health than any other taxpayer in the world, the country is still ranked 50th in life expectancy and 47th in child mortality. It is clear that in this situation, the costliness of the system does not lead to a higher quality. The U.S. healthcare system is still falling short in
quality, results and equity [pdf]

Fraud is very common in the medical sector in the U.S., pharmaceutical companies being one of the most corrupt actors in this business that has become the American healthcare system. None of the healthcare system’s actors have strong incentives to economize the system since they are benefitting more from charging excessive amounts for products. This implies that the healthcare system’s actors are unmotivated to economize the system, since they are currently profiting highly from it. Doctors are another important key actor in this medical fraud. They do not impose the concept of rationing when they assign treatments to their patients [pdf]. This in combination with the uncertainties that result from insurance policies result in overscreening and overtreatment of patients Health insurers also play an important role in contributing to the overpriced health system. They take a long time to reimburse health care spending to the citizens which eventually results in customers having to pay higher premiums a month for their insurance.

As shown by the image at right, fraud is not the only aspect of the healthcare system that leads to waste. The waste resulting from inefficient clinical practices that been constantly implemented in the health sector, the elaborate administrative process that is associated with medical insurances and the excessive prices of products sold to consumers have also been drivers of the healthcare sector’s waste. This waste results from both the supply and demand side of the healthcare system. On the supply side, providers of the good are not paid in terms of the efficiency of their services, therefore, they have no incentive to charge people based on the effectiveness of their treatments. This increases the product’s prices drastically for consumers. Moreover, asymmetric information dominates the demand side, which implies that consumers do not have enough information to purchase appropriate healthcare for their budgets.

Bottom line: The key actors in the American healthcare system do not have an incentive to break the vicious cycle that has formed, that will lead to its self destruction, as waste from the different sectors has been increasing throughout the years. It is a system with a large gap between price and quality of its services.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

Inequality: A necessary evil or a real problem?

Charlotte writes:*

In 2006, Uganda experienced a record growth rate of more than 10 percent. Although we may be happy with this result, it is wise to consider that whilst this was happening, Uganda scored around 0.5 on the Gini Index, meaning that it was suffering from high levels of income inequality. Furthermore, it ranked 152th on the Human Development Index, suggesting that its population had low levels of development (i.e., low life expectancies and levels of education). I ask myself: Is economic growth paired with high inequality acceptable for a country?

Many scholars would say yes – to them, income inequality is seen as the necessary-evil to economic growth. A belief, which is grounded in a misguided trust in the existence of the Kuznets curve. The thought behind this idea, is the belief that entrepreneurs would not invest in an economy, if there are no prospects for “large financial rewards”. In this view, income inequality is needed as it creates the opportunity for the rich to get richer. Equality will, at some point, follow.

Yet, some scholars are starting to disagree with this line of thinking, as they realize that inequality can be expensive. To see why, let’s first carefully distinguish economic growth from equality. Economic growth measures the overall economic well-being of a market by tracking changes in a country’s GDP. Equality, on the other hand, looks at the distribution of resources, which are not necessarily material. Equality would also take into account, for instance, healthcare and education, which are excluded from a country’s GDP.

An emerging strand in literature is arguing, that this underlying inequality can harm the economic growth it, arguably, set into motion. A recent IMF study [pdf] found, in fact, that whilst an increase of 1 percent in income of the bottom 20 percent of people in a country, would lead to a 0.38 percentage point higher growth in the next five years, that same income increase of the top 20 percent would lead to a 0.08 decline in economic growth. The mechanisms at play are threefold. It is argued, that income inequality ((1) leads to political and economic instability with reduced investment as a consequence, (2) negatively affects the social consensus needed to deal with shocks, and (3) harms the poor’s access to healthcare and education, thus undermining human capital potential and labor productivity [pdf]. Therefore, non-inclusive growth can make a country’s growth spell unsustainable [pdf]. The underlying details to economic growth, which GDP does not reflect, thus matter.

In Uganda, we can clearly see the problems of non-inclusive growth. The economic growth in Uganda was largely driven by the expansion of some sectors of the economy, such as industry and services, whilst agriculture was mainly left behind [pdf]. However, it is exactly this sector that employs about 75 percent of the Ugandan population. This has meant that only a small part of the population is benefitting from economic growth. As a consequence, Uganda has experienced large political and economic instability, resulting in negative consequences to economic growth, such as capital flight [pdf]. It thus seems of little surprise that from 2006 onwards, Uganda’s economic growth has been inconsistent, going from high peaks to economic declines.

Bottom line: Economic growth may be a popular goal to strive for, but if it is not inclusive, then it can do more harm than good as large parts of the population are left behind. The resulting costs can make economic growth unsustainable.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

5 May 2017

Friday party!

Hydrophobic sand

Hydrophobic Sand

The alignment of formal and informal institutions

Abdel writes:*
“The complex ways that societies structure human relationships – the institutions that shape economic, political, religious, and other interactions – appear to be the key to understanding why some societies are capable of sustained economic and political development.” -- Douglass C North, John Joseph Wallis & Barry R. Weingast
It was stated by the editor of this blog [that's me, David] that the productivity of any person could go up by a factor of five [or 10] simply by putting them in a different institutional environment. This may sound unbelievable at first, but think of the following example. A wealthy (yet undeveloped) student studies at a posh university with the goal of acquiring a degree. We express his productivity in units of acquired knowledge. At the posh university he is able to buy good grades and doing so he “earns” his degree without learning too much. Now, however, we transfer this student to another identical university, with one difference: buying good grades is prohibited and anyone who tries gets kicked out of school. Although the resources, the building, the students, and the teachers have not altered, this student’s productivity increases enormously as he now has to study for his degree. Simply by change a single rule, a single institution.

The question arises whether the opposite is true as well? What if we do not transfer the person to a different institutional environment, but bring the institutional environment to the person? A possible example thereof would be to copy the constitution of any high-income country in the West, say France, and apply it to an African state, Mauritania, for instance. Mauritania, as many African states, is a former French colony and until 1959 the French constitution was indeed its constitution. The constitution adopted after independence was heavily inspired by the French constitution. Nonetheless, not many people would claim that Mauritania has a similar level of development as France.
One aspect of the puzzle of institutions and development is the distinction between formal and informal institutions. By replacing a country’s constitution one changes the formal institutions, but what if the informal institutions do not align with the formal institutions? What if they compete with the formal institutions?

The result can be illustrated by returning to the example of our wealthy student. At his new university buying off teachers is formally forbidden. However, as indicated, the teachers are identical to his former teachers and therefore are willing to accept a bribe. Is adding a written rule to the school’s regulations sufficient to prevent the teachers from accepting a bribe? Not if accepting bribes is an informal institutions in the school. Teachers could receive informal sanctioning when they do not accept the bribe. If a teacher knows that all of his colleagues including the headmaster willingly accept bribes would he have an incentive to report to them that a student has attempted to bribe him? Probably not, as the other colleagues would suspect this teacher for reporting their involvement in the bribing business as well. In fact this may be the end of this honest teacher’s career.

Bottom line: Institutions are important and have the potential to significantly increase productivity. However, copying written rules and applying them to a different environment is unlikely to be effective and may have perverse effect when formal institutions do not fit their new (informal institutional) environment.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

How education drove Singapore’s development

Markéta writes:*

Singapore’s ability to grow from a third-world country to one of the most developed countries in the world [pdf] might sometimes be (by mistake) only attributed to the Singapore’s ability to generate economic growth. Although, the economic growth played a crucial role in Singapore’s success, the role of education should not be underestimated.

When Singapore gained independence, its prospects did not look good. Singapore was very poor, undeveloped with no natural resources (Ibid.). Moreover, approximately 40 % of the population was illiterate and still living in slums along the polluted river. Singapore’s first prime minister Lee Kuan Yew), early realized that Singapore’s success would rely on the capabilities of its population to effectively respond to the regional and global opportunities. Therefore, Lee Kuan Yew emphasized the importance of having educated and well skilled labor force [pdf]. In another words, he emphasized the importance of the provision of a merit good (education) that has a positive impact on the society as it generates positive externality of “consumption”. In the case of Singapore, the provision of education significantly contributed to the improvement of the quality of human capital, which ensured the Singapore’s ability to grow from the third world country to one of the most developed.**

Lee Kuan Yew was not worried about embracing elements from other school systems, which seemed as very effective. Thus, Singapore’s education was largely built on the British educational system that was introduced to Singapore during the colonial era in 1800. The success of the Singaporean educational reform was achieved through gradual focus] on the provision of education for all citizens and its emphasis on fields that supported the economic growth of the state. Furthermore, the provision of education in English in such diverse environment functioned as a bonding tool among the citizens.

In the 1960s-1970s, the government focused on the provision of primary education for all as there were many illiterate inhabitants. Later, in 1980s [pdf], the government started to emphasize the importance of secondary education with the main focus on science, mathematics, technology and engineering. Lastly, in the 1990s, Singapore experienced the boom of the tertiary education (universities) with the focus on the business education. Nowadays, Singapore continues to highlight the importance of education.

Bottom Line: Efficient provision of education can have a significant positive impact on the quality of human capital and thus can contribute to improvements in development.

Bottom Line

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

** In a figure:

Description: The Marginal Social Benefit (MSB) curve represents all the benefits enjoyed by the society from “individual’s consumption of education”, which is represented by demand curve D2. The Marginal Private Benefit (MPB) curve shows the private benefits that each individual enjoys from being educated, which is represented by demand curve D1. The difference between the MSB and MPB demonstrates the “size” of the external benefit which is imposed on the third party (MSB >MPB). The supply curve S1 represents both Marginal Private Cost (MPC) and Marginal Social Cost (MSC). The initial market equilibrium was at E1 at Q1P1, however the socially optimal equilibrium E2 was at Q2P2. By introducing the effective educational reform and governmental subsidies, Singapore generated new equilibrium E3 at Q3P3. It allowed Singapore to shift closer to the socially optimal quantity of education (Q2).

4 May 2017

The development and economics of airline networking

Arvid writes:*

Currently, all major airlines in the world have a home-base; an airport from which a majority of their flights operate from. For KLM this is Schiphol Amsterdam, and for American Airlines, this is Dallas/Fort Worth international airport. These main airports function as a hub and link with smaller airports called 'spokes'. This networking system quickly and unexpectedly developed from 1978 onwards after the deregulation of the airline industry in the US, but it was not incorporated by all airlines, and is contrasted by a different networking strategy called ‘point-to-point’ which is mostly used by budget airlines – which I will refer to as LCC; lower-cost-carrier – like Ryanair and Southwest Airlines. In this post I will discuss why the hub-and-spoke system developed in the airline industry, and explain the economics behind this system.

When in 1978 the ‘Airline Deregulation Act’ was introduced it was expected that the industry would keep developing a linear and point-to-point system as it had been operating under the regulation. However, relatively quickly almost all airlines developed a hub-and-spoke networking system (H&S), to capture the passenger from the origin to the destination. A lot of airlines that did operate a point-to-point network mostly failed. For a more extensive history on the development of the airline industry you should read Flying off Course by Rigas Doganis.

The concept of hubbing was developed for a more effective transportation of passengers. It requires that flights from different airports, which are at the spokes of a network, arrive at the hub at approximately at the same time. This enables passengers and baggage to connect with different flights in a relatively short time, after which all the planes leave in a wave of departures. This whole process is called a complex, and by timing a complex correctly it was possible to do multiple a day. American Airlines for example has around 8 complexes a day at Dallas-Fort Worth.

Figure 1: American Airlines's hub at Dallas-Fort Worth is obvious**
The economic benefit of the hub-and-spoke system is that it is optimized to cover a large geographical area. Passengers can travel between any two cities in the route system with one connecting stop at the hub. It enables a complete coverage of an entire network with the least amount of routes. For example if you have 10 destinations, with the H&S system you would only need 9 routes to connect all the airports, whereas an airliner would need 45 routes if it used the point-to-point system. This system also immediately has the added benefit of ‘economies of scale’ as explained in this great paper [pdf]. Because passengers arrive at the hub airport in waves, the airline can offer more seats per route which decreases the cost per seat. Second, there is also the advantage of density, due to this system of complexes routes can be served multiple times a day, with little down time on the ground. The benefits of density and scale according to Gerald N. Cook in this paper make it easier for airlines to add another connection because it requires only one extra route, and little extra capital cost.

Figure 2: Southwest Airlines does not use one hub and has more short routes**
However, the limits to the H&S system are becoming apparent with the rise of LCC’s. First, Gerald argues that a large amount of passenger have a hub airport already as their origin airport and therefore all the services that are in place to accommodate connecting passengers are an extra expense. Furthermore, extra stops at a hub are expensive due to extra ground time, landing fees. and a significant increase in fuel consumption during landing, taxiing, and take-of. Third, flights from hub airports are susceptible to delays due to capacity constraints and unpredictable circumstances such as a snow storm at Heathrow can delay a multitude of connecting flights.

Bottom line: The airline industry has developed two networking structures, with the hub-and-spoke system being the most prominent one. Although this system has the benefits of economies of scale and density, the limits and downsides are becoming more visible.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

** Source: Author-created in R using data from openflights.org

Save the mothers: Change Nigerian budget priorities

Lauren writes:*

Nigeria’s health care system is far from perfect. Whilst it has been praised for its polio prevention strategies and “managing” the outbreak of the ebola system, its maternal health rates are amongst the worst globally. To quote one of my professors who shall remained unnamed: “Health care is sh*t in Nigeria – but when it comes to maternal health care, the country reaches an absolute low”. Sometimes experts use child mortality rates as measures of development. If they would use this to measure development in Nigeria, the country would drop from place #152/168 on the Human Development Index to one of the second worst in the world, because Nigeria accounts for 14% of global maternal deaths [pdf].

Barriers to maternal and child health are wide-ranging and diverse. One barrier is cultural, like the lack of women empowerment, mobility and personal decision making in households, just as religious reasons not to go to a clinic. However, the largest barrier is political. In the past, maternal health was politically contested, also for religious reasons, or money spent on care went to HIV/AIDS instead of maternal health care. With a small increase [pdf] towards the Sustainable Development Goals from 2012 onwards, the budget was still lacking. However, the result of the recent elections seemed promising. The elected president had promised to allocate more budget and improve Nigeria’s health sector. This hope, however, does not seem to come true. The budget for health care is only increased with 0,17% and there do not seem to be large increases in maternal health care budgeted [pdf]. Furthermore, the allocation of the budget does not say that much about what’s actually released. Over the 2016 health care budget, only about 80% of the budget [pdf] was actually released. Added into that is a complicated structure where there is a lot of information asymmetry. The federal government is responsible for tertiary care, but the Local Government Authorities (LGA) for primary care, whereas the budget is drafted nationally. Essentially, it’s a recipe for disaster where the money just does not go to the places it should.

This is a classic case of government officials missing the incentives to allocate more care to the electorate. One way would be to improve the accountability of the national and local governments. However, in rural regions especially, that is not that high on the parents-to-be priority list. An expert I once spoke to when talking about this problem of accountability told me: “My neighbour gave birth on her own. She didn’t have time to leave her farm to go to our local doctor that lived a few houses away, let alone go visit an LGA to talk about setting up more clinics in the region.”

Therefore, allocating more budgets to maternal health care is not something that should happen top-down only, as currently there is not enough budget drafted. In return, the accountability of officials to actually release and spend that money is also something that cannot solely happen bottom-up. To start fostering development in several areas, of which maternal health care is but one example, the incentives for government authorities cannot solely be the electorate. Nigeria has to come up with some way to change their checks and balances for their development to foster.

Bottom Line: Nigeria needs incentivized government authorities and transparent institutions if they want to improve maternal health care.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.

3 May 2017

Read these articles!

  1. Berkeley's soda/sugar tax lowers consumption and raises $1.4 million for nutrition programs
  2. Civilization can collapse via environmental tipping points OR massive inequality. Choose one?
  3. Where is America's Deep State?
  4. How the Trump family makes environmental policy (satire sad)
  5. How do environmental economists think? Where do they (dis)agree?
  6. Ivanka and Jared "are accountable, complicit, and should be out"
  7. If you need a contract, then you've lost (agreed)
  8. "Why regulators should focus on bankers' incentives" and how (ongoing) banker bailouts help Trump and hurt Hillary
  9. "A $500 House in Detroit" is more about community than price
  10. "I've never seen good results from people trying to speak about things they don't know firsthand."

Weltwärts-volunteers: Asset or burden?

Lukas writes:*

"Learning through active help." This is the motto of the international volunteering-program weltwärts (lit. ‘out into the world’) sponsored by the German Federal Ministry for Economic Cooperation and Development (BMZ). This program stands out amongst many others because it is explicitly labeled a ‘developmental’ voluntary service. One of its main goals is “to make a contribution to support partner projects in terms of help for self-help and to strengthen civic structures in developing countries”. This implies the claim to contribute to the development of those countries.

However, I am quite skeptical of this proposition. In 2014/2015, I participated in weltwärts myself and volunteered at a grassroots-development organization in Rwanda for one year. I was only 19 years old at the time of departure and had only recently finished High School, just like the average weltwärts-volunteer. Most participants are this young, some even younger, and do not have any professional qualification whatsoever. This makes it highly doubtful that they can actually make a contribution to the development of their host countries. On the contrary, the employment of unexperienced volunteers might even do more harm than good and ultimately only benefit the volunteers themselves. So, what, if any, are the benefits that these volunteers bring for their host countries? And are they perhaps outweighed by their costs?

Benefits: Support in daily work and ‘eye-catcher’

Let’s have a look at the supposed benefits first. Some argue that weltwärts-volunteers directly add value to their host organizations’ work by supporting them with daily tasks, through the different cultural perspective they introduce, or by possessing useful skills, e.g. computer skills. A survey on behalf of BMZ in 2011 found that more than 80% of the weltwärts-host organizations confirmed this statement and consider the volunteers’ work as a contribution to the development of their projects. However, approximately one third could not confirm that volunteers possess the necessary knowledge to work with target groups. Furthermore, 36% indicated having problems finding tasks for volunteers and half of the organizations complained that volunteers could be better prepared. According to my own experience, I can only confirm these observations. For instance, I was able to support my host organization by translating project proposals to German. However, I could not communicate with target groups, such as rural cooperatives, during project visits, because I did not speak the local language Kinyarwanda.

Other common arguments for the direct benefits of weltwärts for host organizations include: Host organizations benefit from trainings financed by weltwärts as well as from networking opportunities [pdf]. Moreover, by employing volunteers host organizations gain in prestige, importance and reputation, which might be useful, for example with regards to their collaboration with authorities. Concerning networking, in the 2011-BMZ-survey, 76% of host organization reported increased dialogue with sending organizations in Germany, more than half of which made use of those organizations’ existing networks. Furthermore, more than one third could increase their cooperation with other weltwärts-host organizations as well as with other German and international actors. Regarding trainings, however, very few host organizations benefitted. Concerning reputation, on the other hand, more than two thirds of host organizations indicated increased visibility and reputation through their participation. Moreover, 31% of them made used of their increased reputation to sensitize political decision-makers and authorities and half of them for advertisement on behalf of their target groups.

Costs: Interference with labor markets and high opportunity costs

Thus far, it seems like there are indeed some benefits for host organizations. But at what costs do they come? First of all, weltwärts-volunteers are free labor and most of the time do not possess any skills which could not be sourced locally as well. Therefore, a volunteer might be doing a job which could also be done by a local. However, because the volunteer’s labor is free, employing a volunteer is cheaper than hiring and paying a local employee. Thus, weltwärts might interfere with local labor markets in host countries and contribute to unemployment. And indeed, according to the BMZ-survey, 31% of volunteers indicated that they are in fact replacing a local employee.

Furthermore, opportunity costs that accrue to host organizations due to their participation in weltwärts can be high. Every year, host organizations have to devote resources to integration and mentoring of new volunteers. This resource expenditure on volunteers could come at the expense of the organizations’ project work. According to the BMZ-survey, 40% of host organizations reported that their participation in the program meant devoting additional resources to the support of volunteers. In several cases, host organizations explicitly complained about the resource-intensive administrative tasks resulting from their participations. A few of them even indicated that these tasks come at the expense of their project work.

Bottom Line: This analysis represents only a very limited account of the impact of weltwärts. At the end of the day, to establish the actual net effects of the program, it requires a more rigorous and comprehensive assessment of its costs and benefits, including its indirect and long-term effects, their quantification, and the accumulation of more than merely observational and anecdotal evidence. This represents an important task for future research.

* Please comment on these posts by students in my growth & development economics course. It really helps if you highlight unclear analysis, alternative perspectives, better data, etc.