Monday, 30 March 2009

Clowns in the DR Congo

Here's a lighthearted story in time for April Fools' Day. The event is real.

A team of clowns is bringing laughter to children in eastern DR Congo by performing in refugee camps, courtesy of the Spanish Clowns Without Borders organisation. The story is here.

Clowns get a bad press in horror films, but myself, I like them tonnes.

Intrinsic properties of a technology influencing its spread

I have been looking at factors that influence the spread of a technology. My emphasis has been different from most studies, in that it concentrates on intrinsic properties of the technology rather than external factors such as the intellectual property regime. The work is aimed at innovators wanting to ensure a wide diffusion of their individual technology, rather than at policymakers wanting to encourage broad technology diffusion. The intrinsic and external factors interact closely, so much of the reasoning overlaps.

The intrinsic factors are:
1. How much information is embedded, that is, being used by virtue of the content of a capital good rather than explicit knowledge of users
2. How much information is codified, i.e. available in a code of operation, and how much of the codified information is written
3. What the capital requirements are
4. What the performance is as expertise in use varies
5. What the size of the market is
6. Whether the produced good is used as an intermediate or final good
7. Who owns the technology
8. Where the technology is being developed or used

The list captures most of the themes in the literature.

Thursday, 26 March 2009

US dollar devaluation?

Should the dollar be devalued by deliberate US Government policy? There have been recent discussions among economists and in the media about the benefits and problems associated with the dollar having a weaker role in the international economy. Here's a report coming out of Russian media today, for example.

Devaluation would probably not be a matter of deliberate exchange rate fixing by the US government, but rather taking measures to make the currency less valuable, such as inflating the domestic economy by expanding the money supply with national output growing more slowly. Then the currency would be less valuable against other currencies and US exporters would find that their prices are lower when denominated in foreign currencies.

Devaluation could also increase welfare if there is monopolistic competition in international product markets. Under monopolistic competition, the market structure and profit maximisation motivations of companies combine, and products which could be sold profitably are not produced. Slight one-sided changes in exchange rates correct for the deficit if the companies are reluctant to adjust their prices in the face of small changes caused externally.

Devaluation has a bad reputation from the 1930s, as repeated competitive devaluation across countries is asserted to have contributed to collapses in trade. Some economists have claimed on the other hand that the devaluations in fact had small effects on trade in reality. Still other economists have asserted that it is not the actual devaluation or trade falls that primarily lead to the problem, but rather the discouragement to investment which they represent that leads to greater economic damage.

Whatever the merits of devaluation, the US Government may not actually have to undertake any active policy to devalue the currency if the implicit or explicit debates continue, since the worries about potential devaluation may lead to a small flight from the dollar and a small devaluation, which may be optimal from the US Government viewpoint.

Well and pump deterioration in Africa

Here's a briefing paper from the IIED on water provision maintenance in rural Africa. It asserts that tens of thousands of water supply points have fallen into disrepair, wasting hundreds of millions of development dollars.

The paper was highlighted on the UN IRIN news service here. If ever proper management of development monies was a concern associated with a certain political viewpoint, it is a mainstream concern today.

Sunday, 22 March 2009

Cote d'Ivorian heads leading UK financial services company

An Ivorian is reported here to be the first black person to head a FTSE 100 company.

In my (admittedly not vast) experience, it is not very unusual to find an African expat at senior levels in European financial services, whether in managerial or consultancy roles.

Keeping a perspective on the global recession

There has been much attention on the global economic recession from the media, government, and international agencies. The recession in developed countries is disruptive, but not an enormous catastrophe.

The IMF is predicting a decline of around 3.5 percent on average in the world's leading economies next year. The fall is large, and puts the economy back to where it was three years ago. If governments or banks are guilty of incompetence they have lost three years of potential growth for everyone. There will be disruption and some people will have greater difficulties than average.

A three percent downturn would put the developed economies back to where they were in 2006, or to put it another way, in the third richest year in human history. Even if the economy contracts 25 percent - ie, goes through a Great Depression - the developed economies would still be in their tenth richest year in history.

Here's a satire pointing out the difference between current and past downturns.

Thursday, 19 March 2009

Warnings of resource demand crises

The UK Government's Chief Scientist is warning of sharply rising global demand for food, water, and energy at the same time as climate change continues. He speaks here.

I am glad that scientists are keeping climate change and resource declines on the public agenda. The long-run effects do not always produce immediate headlines, so they have to be kept in the news in other ways.

UN population growth projections

The United Nations has published its estimates of world population growth and related statistics here (World Population Prospects: The 2008 Revision). The overall world population is projected to rise on a medium basis to 9.1 billion in 2050 from 6.8 billion today. The low to high range is 8.0 to 10.5 billion.

Africa’s largest countries (Nigeria, Ethiopia, DR Congo) are projected to become colossal – for example the medium projection for Nigeria puts it at 289 million people by 2050. I am not sure whether allowance has been made for resource scarcity and global warming.

HIV prevalence is projected to remain high in 2025 in many African countries. The figure is projected to be almost a quarter of the sample population in Swaziland, for example. I am not sure if the sample population is adults in an age range or the whole population.

Infant mortality rates are projected to remain high too. For example, almost one in ten children are still expected to die before age five in Mali in the period 2045-50. These latter figures look like they are subject to considerable uncertainties, being dependent on the state of African economies.

Sunday, 15 March 2009

Technology transfer maximisation under different diffusion methods

I have been trying to write a research paper in the last two weeks on the post topic. The direction taken left the paper looking a bit odd, like nothing else published elsewhere, so I have shelved it. Marginal gloom descends.

Some of the ideas are not bad. Technology spread is compared for a profit maximising owner able to change their behaviour at every time period, to a company that always undertakes FDI, to a company that always licenses, to a company that doesn't change its methods once it has initially committed, to an owner that wants to spread the technology and has a limited budget to do so, and a few other types of owner. The recipients are profit maximisers. The resulting optimising equations for the owner are cubics and quadratics. The basic model is both simpler and wider than many existing models.

I am taking a different direction with the technology papers now, and will post anything of interest here.

Innovation as a rearrangement of ideas

Here's a half-baked idea on innovation. Innovation is rearrangement of existing ideas into a new form. I think that logically the definition can be shown to be robust. The rate of innovation can be written as I=I(labour, available ideas, factors influencing the rearrangement). The representation has the advantage of making innovation a mundane outcome of other inputs, which allows it to be made an endogenous variable in a model easily.

The idea may stay half-baked, or it may be cooked with a cherry and candles some day.

Science websites that have caught my attention and will be useful when I get familiar with them

Regular readers will know I am a science fan. The following websites caught my attention for their interest or presentation:

The cat genome
The dog genome
I wrote about the greater variation in dog and cat breed appearances in this post. The genomes presented here should help me answer the question, eventually.

Wikipedia page on possible non-DNA life
I asked about non-DNA life in the previously mentioned post.

An atlas of the universe
I observed that there seems to be a cluster of galaxies in the night sky just north of the Moon. Readers in less light polluted parts of the world may be able to see the dim clustering themselves; in London light pollution means that only the star Sirius and a few others are routinely visible, so I have to rely on other people's sky maps for the information. Anyway, I thought that either the earth was heading in that direction so that these galaxies are closer and brighter than others, or the universe tends to cluster galaxies together. This site asserts there is, and gives information about superclusters of clustered galaxies. I don't have any evidence to support the theory, beyond it explaining my base observation. Pretty, though.

Thursday, 12 March 2009

One last point on Nyerere's global impact

I missed one of Nyerere's global impacts: he helped to create a country, Tanzania, from Tanganyika and Zanzibar. One can only conjecture how influential he would have been if he had been active in one of the world's larger countries in their critical periods.

Enough about Nyerere, it is making me feel inadequate. Let's talk about me...

History's greatest Africans

There has been an outbreak in the last decade of television shows called "History's Greatest People" from such-and-such country. The South African list is here, with Nelson Mandela at the top. I am not sure if other African countries have got round to it yet. I reckon that I could produce a top five quickly for South Africa, Kenya, Senegal, Ghana and Nigeria, and with a bit more consideration for DR Congo, Uganda, and Tanzania.

Most Sub-Saharan countries have a disadvantage for the lists in that they became independent only in the 1960s and achievements in pre-colonial history are not extensively recorded or valued. It is entirely possible, even likely, that a seventeenth century community in Central Africa had the same rate of intellectual innovation as Ancient Greece, but its absolute achievements were lagged behind the Western world so valued less. A mediaeval Burundian Archimedes would not register on almost anyone's scale today. And many Africans have been too disadvantaged to achieve their full possibilities.

Subject to this caveat, a long list of (recent) History's Greatest Africans would still be possible. It could include those Africans who have made a global impact in their fields and would be contenders to break into a world top 100. Personally, I would avoid the political figures who tend to crop up in national lists because they are divisive and often morally ambiguous, they have an unfair advantage of a high profile, and every country has someone who wants to give other people orders no matter what their other qualities are. I am not knocking African politicians, there have been many admirable ones, but generally I would exclude them. I think that Julius Nyerere should enter a top ten, however, for three exceptional reasons that meet the global impact criteria: he was a developing country socialist who avoided bloodshed; he was an African leader who resigned without a struggle; he helped overthrow Idi Amin.

Away from politics, I think of Ousmane Sembene, a great author and (global impact criteria) a founder of African cinema; and some writers, scientists, social scientists, and sportspeople who have either been creators of their subjects in the continent or have advanced them globally. But the last group is not dead, so I won't mention their names yet, and leave it to television shows in fifty years time.

Getting the most out of private charitable donations

My last couple of posts concerned governments’ difficulties in allocating aid. It is worth noting that individuals will probably not encounter the same problems in their aid donations, as they do not generally deal with governments in developing countries and their separate donations are relatively small and most unlikely to create budgetary or macroeconomic distortions. There is an analogy from investment: because governments have some difficulties (and advantages) in running companies does not mean that no private investor should ever enter the stock market. Some investment methods are useful to individuals when deciding how to donate to charity, too. I’ve written a little about them in the past, and here is a recap and extension.

Diversification is important. It is the “don’t put all your eggs in one basket” principle, so that giving all one’s money to a single organisation or in a single region exposes the donor to the risk that the money will be squandered, or the government will take it, or a smooth criminal is using it to enrich themselves. If a donor splits their donations across a range of organisations, countries, and types of aid, then the risk of all of them being hopeless is very low. The likely outcome is that some will be poor and some will be good, so there is a reasonable overall performance. The major aid organisations such as Care International are large enough to perform some internal diversification themselves, so that a general donation to one of them will have some built-in diversification. They are like tracker indices on stock markets, getting a good if pedestrian overall return usually.

An individual may wish to vary from diversification if they want a high-risk, high-return strategy. They might fund a really great organisation which outperforms the charity sector average by miles, but are exposed to the risks mentioned.

There is a principle in investment which says “don’t pour good money after bad”, that is, if a company is underperforming sell your investment rather than invest more in the hope that your money will come good. I have no empirical evidence on whether this strategy is best for charities too, but on theoretical grounds it seems very sensible; the underperformance of a charity might be the only hard evidence on its managerial quality available, so ignoring it seems daft.

Any charity should be willing to provide information on its activities and performance. If they are not, it is suspicious enough to cut funding immediately in my opinion. There are plenty of other charities doing excellent, open work, and their value outweighs any sentimental attachment to a particular organisation. With information, a donor can compare charities and give their money to organisations which reflect their values and offer the best value for money. The donor can look at overheads (how much is being spent on administration) and the impacts of the money spent. The donor might be interested in the numbers of lives saved per $100 spent, or the number of pumps built, or the number of children educated. These measures can be crude, as they do not make allowance for the quality of the education and such like. There have been studies into alternative measures of quality; donors who do not want to immerse themselves in the theory can use their intelligence and scepticism in studying reports and numbers instead. Charities, like other organisations handing money, should be subject to auditing in some form. For Western organisations, this usually involves independent accountants. A donor may want to engage in reputation auditing– if the organisation is large, has been running for many years, and has associations with major bodies such as the United Nations it is likely to have some external review of its operations already and the cost of incompetence or theft to its reputation is likely to be large enough to act as a discouragement. A donor may also want to audit personally and informally if the charity is small, visiting its operations in person (not always viable, cheap, or safe) or by first hand testimony from other visitors, or meeting the administrators and checking their honesty (honesty can be simulated, so concrete questions about operations will help to determine their knowledge, which is much harder to simulate and can act as a proxy for personal involvement and enthusiasm).

Monday, 9 March 2009

Aid increases to SSA?

The IMF report mentioned in my last post suggests (page 43) that low income countries may require large financing increases to maintain a stable external position during the economic difficulties. The report is doubtful (page 29-30) whether aid will be forthcoming to support the financing.

In the face of possible aid increases, some economists have had increased profiles for their scepticism about aid's merits. Perhaps the most prominent runs a blog here, and has written on the subject from an academic viewpoint in pdf format here.

Criticism of aid is often based on a rejection of neo-classical macroeconomics in one form or another. If income is assumed to be equal to A*K^b, where A measures technology, K measures capital, and b is a constant less than one, then sending aid for investment should result in predictable increases in capital and income. Critics argue that b can be close to zero for large values of K or when K is increased by conventional aid. The precise reason for the argument can vary, and may involve rejection of the presumed income equation entirely. They argue that there are better ways of promoting growth than repetitive transfers of aid along traditional lines, for example by changing the forms of transfers to adjust not just capital but also technology and other inputs and using as much information as possible. They argue that the government-to-government route ensures limited information and vulnerability to fraud.

The criticism can be linked to the economics of information and technological diversity which emerged in the 1970s. Similar analyses could be applied to any country relying on large-scale, low-information capital accumulation as a means to growth, and the aforementioned author is indeed also well-known for writings on Soviet decline and East Asian growth.

IMF report on the global downturn's effect on LICs

The IMF has published a report on "The Implications of the Global Financial Crisis for Low-Income Countries", available in 0.5MB pdf format here.

The report links LICs' relative financial isolation to their protection from the initial world financial difficulties, and describes how the pursuant real economy effects are likely to impact them. The mechanisms involve reduction in demand for goods, reduction in remittances, declines in investment, and falls in aid. There are possible secondary financial effects that may adversely affect their economies, for instance through complex swap arrangements undertaken between domestic and foreign companies. A quantitative model is used to project changes in reserves and classify countries as having high, medium, and low vulnerability using the criteria.

Some of the incidental details surprised me: the good health of Ghanaian banks according to the measures shown, the small foreign involvement in Nigerian banking, the quite low level of remittances to Sub-Saharan Africa, and the extreme dependence of Great Lakes governments on foreign aid. The last point makes me uneasy as well as surprised; huge foreign government influence on Burundi, DR Congo, and Rwanda may be preferred even by their nationals to their worst past domestic governments, but seems unlikely to be preferred to true popular control in meaningful representative democracy.

Thursday, 5 March 2009

Applications for MA Economic and Governmental Reform at the University of Westminster

Here's another reminder about applying and getting funded for the MA Economic and Governmental Reform at the University of Westminster, starting in September.

I teach economics on a Master's course at the University of Westminster in London. The course title is MA Economic and Governmental Reform, and runs from September to September. We are presently recruiting for next year's course.

The course requirements are listed on its website (linked here), although there is some flexibility. Unavoidable ones are:

1. Reasonable English (or things won't make sense)
2. A first degree with some relevance to the topic, or a degree and relevant work experience
3. A job, or potential job, in government (people from NGOs have historically also performed well)
4. Willingness to work hard (or things will not be enjoyable)

African applicants are most welcome and have good performance records. Information on the course and obtaining funding is on the website. The course, like most in the UK, is expensive (£10,000), so students usually have applied for scholarships first. Early application is recommended.

How much of the economy can be considered variable?

In theoretical economics it is common to specify objective functions for optimisation, which are quantities dependent on certain values chosen by people or organisations. For example, a person decides how much of a good to buy to maximise utility, or a company decides on its prices to maximise profit, or a government decides on the interest rate to get inflation as close as possible to a target value.

The optimised quantity is likely to be influenced by values not chosen by the parties concerned. These values may be considered fixed or variable, and the assumption can affect the quantitative or qualitative validity of the model. For example, if there is assumed to be a trade-off between inflation and unemployment, an idea associated with the 1950s and 1960s, then the model implicitly assumes that major factors influencing inflation outside of the trade-off mechanism are held constant. For example, it is required that labour supply constraints do not change much, and oil prices do not undergo sustained increases.

The model may itself be considered variable. For example, governments may no longer wish to target inflation, or the supply (price-quantity) curve for a good may vary. In many cases, it may be possible to include model variability by adding new changeable values to the basic model.

Economic research often proposes models and estimates values without assessing how subject to human adjustment they are. The approach may be viewed as politically liberal, accepting people’s behaviour as a given and working around it. More controlling approaches, such as those adopted by several communist states in the 20th Century, take much more of the economy as variable. In some cases, even economists were taken as variables.

Even within liberal economics, assuming that certain quantities are variable or fixed is rarely politically neutral. An instance is in currency unions. Currency unions work best when capital, goods, and people can move easily and cheaply between different parts of the union. If it is observed that people tend to stay in their own region, we could say that the currency union will not work as well as it could. The position would be correct if people’s mobility is taken to be a constant, but their mobility could change if the union is put in place with sufficient commitment.

Support for the view that quantities are invariable may follow from several intellectual or ideological positions. The view may be based on empirical measurements, but as noted these are relatively infrequently made and are quite difficult to make too. The view may be rationalised by an assumption that short run behaviour and long run behaviour will be identical. The view may be founded on a liberal political view that political decisions should not substantially influence the behaviour of individuals. Ideology may encourage people to take some of these positions in the absence of compelling evidence.

Chinese and US military spending hikes

China is to increase its military expenditure by 14.9 percent this year, according to official sources. The US is increasing its military expenditure by a reported 7.5 percent, before allowing for Afghanistan and Iraq expenditures. The US's expenditure level is far higher than China's at the moment.

No other countries have the economic capacities to match these increases in the medium term, and in a recessionary world economy the increases show strong military commitment even on the part of China and the US.

Monday, 2 March 2009

Exporting technology: the 419 scam

The 419 scam is where someone sends an e-mail like this: "I wish to transfer €1 million to the UK but don't know how to. Please send me €5000 for expenses, and I will transfer the money to you until I get there. You can keep a third of it as payment." There are many embellishments: famous names, conspiracies, long stories of woe, that sort of thing. If anyone does as the scammer requests, they pay €5000 and do not get anything in return. There are many variants.

The scam was originally associated with Nigerian fraudsters, and the name "419 scam" is widely described as having arisen from a numbered section in Nigerian criminal codes corresponding to the fraud. However, the scam has gone worldwide. When I last found out where one of the 419 e-mails sent to me had originated (the response addresses can be checked here, for example), it was a city in north Iran.

The scam's spread can be represented in the theory of technological transfer. An innovator comes up with the idea, and shows it is profitable. To maximise profits they work internationally, increasing its exposure to potential imitators in doing so. They cannot protect the basic idea, so other people copy it and start to do the same thing. They "learn by doing", picking up the skills of handling potential victims. The spread is technology specific (the most widespread version of the scam uses computers), knowledge specific (literacy dependent for a start), and institution dependent (requiring a weak legal code).

The theory, like many in the economics of knowledge, could readily be devised by a non-academic examining their own relationship with technology and education.

Club convergence is a general property among open economies

Here is a short expression describing countries' tendency to form into different clubs, each with similar levels of income and growth. The situation is that growth is determined by the accumulation of a factor (capital, human capital, technology, or anything else, or an aggregate of the quantities) and when countries have a factor amount a little behind the level in another country they can receive further transfers of the factor from the other country. The situation might describe countries becoming increasingly technologically advanced and as a result becoming a target for foreign direct investment with high knowledge content. The analysis helps to examine convergence among large numbers of open economies, a subject on which I conjectured in this post.

Suppose we consider two countries closest to each other in the levels of an income-per-capita-determining factor K, and suppose that the leading country one has growth K1' of its factor K1. The apostrophe denotes time differentiation. Following country two has growth K2' + p.K1' of its factor K2, where p>=0 denotes the proportion of country one's growth that is transferred to country two, and K2' denotes the growth due to other factors (including internal accumulation and accumulation due to other countries' influences - we will abbreviate this to internal accumulation).

The ratio (K2' + p.K1')/K1' is greater than one if country two is catching up with country one in the factor and hence income. Rearranging, we have the condition K2'/K1'>1-p, ie the internal factor accumulation of K2 divided by the internal accumulation of K1 exceeds the proportion of K1's growth from which K2 does not benefit. For large K1', country one pulls away from country two. For other accumulation rates (1>K2'/K1'>1-p) a country could have lower internal accumulation than the leading country, but still be catching up by virtue of the transfer. Since the transfer (p>0) occurs only if two countries have factor amounts close to each other, this effect will occur only if K2 is sufficiently close to K1 to begin with, assuming that factor accumulation rises with the factor amount.

If K2'>K1', then country two will overtake country one at some point. Then, all accumulation effects from other countries are equal on both countries. If we take accumulation to be given by K1'=s1.f(K1).(other influences) and K2'=s2.f(K2).(other influences) for s1 and s2 scalars, then the condition for country one's catch up just as country two overtakes it is given by s1/s2>1-p, which is the loosest condition which will apply since f(K) is increasing in K so that if country two pulls away the ratio f(K1)/f(K2) is less than one, so s1/s2>(1-p).(f(K2)/f(K1)) is stricter (assuming other countries' influences are small on both countries or are larger on country two). All countries satisfying the condition s1/s2>1-p and with country two initially following country one tend to stick together in the income and growth rates. Given the importance of international transfers of capital and knowledge, p is plausibly quite large and the condition is weak. Greater openness should increase p and lead to increased sizes of clubs.