Monday, November 29, 2010

Diagnosis before presumption!

Development economics has evolved over the last 30 years. The "new school" has been shifting from the free market, or, market sensitive ideology of economic development and more towards the development of individuals from a structural standpoint. In this vein, the view is that markets don't make people- people make the markets and hence a focus on people, is vital.

The reason why economists are now taking the development agenda to another height, is because of the obvious fact that unfettered free markets, without social responsibility or human development components built in with them, leads to instability if safety measures aren't put in place to protect market participants from fraud, malfeasance, external shock to the system or the loss of confidence in the market and its actors, which will result in it inhibiting trade and commerce- just as we have seen the system collapse under the previous global crisis. All of which has cost taxpayers trillions of dollars world wide, reduced productivity and retarded civilization.

Under any circumstance, the market can and will be controlled, massaged or shocked by an actor or actors, which in a sense is the logical first effect out of any earthly circumstance. This, in the most direct sense, means that actors, from all sides, whether they are private developers, consumers, the government or welfare recipient, all play a part in the system and a system which is shaped by their attitude and behavior.

However, structural developmental approaches to the economy isn't without its critics. Some say that market forces rule and should not be ignored. Yet still, the argument that markets rule, emanates from proponents that, ironically, do more to make the market move- especially when money talks. Some also would argue that people are better off to themselves- if this would be the case, we would not need laws, rules, regulations in the market or in society. So, the arguments against incorporating a more people approach, are left wanting at their fundamental core- who else would make changes, keep order and ensure things go smoothly, if not people.

To be quite candid: there is not, never was and never will be a free market in the truest sense. Subsequently, there is not and never will be effects caused by trickle down in the truest sense, without intervention. The market is nothing without the actors. And, with regard to trickle down economic theory- which many authors have unconvincingly, to this author, argued their theoretical understandings on why they adhere to the trickle down effect- it never is trickle down. In fact, the trickle down, happens after an actor, or, actors, have loosened the pump to allow water to flow- to be as poetic as I can possibly be.

To go even further with regard to trickle down theory: actors not only have to first loosen the pump for trickle down to even begin to, in fact, "trickle down", but also, persons, to whom this trickle down is presumed to be trickling, must be in a position to catch the water that is supposed to be trickling. What use is it to give a man a hammer, if he knows not to use it? What good is it to give a woman an apron, if she knows not where the apron is to be used? What good is it to open a door, if the person knows only to enter in through the window? What good is it to assume or presume that the allocation of any benefit or entitlement, would go towards the best suited purpose? Under which theory, will there be a setting, or, set, of indicators and variables, where it is decided that this is and will be the best fit for one and all? There isn't any. Just ill fitting presumptions, assumptions, catch phrases, idioms and "well established facts" to bolster misplaced conventional wisdom in an evolving world.

This fundamental underpinning of market economics and as a result, development economics, is the challenge of the new century for developing nations and the under served in emerging markets and developed markets- i.e., the overall challenge of having all parties, from all sides of the spectrum, understand their role in the scheme of things from the position that they make the market and not the other way around.

To segue: Keynes and his work on demand side economics, after long hours of intensive analysis, made his position clear when his idea by blatantly speaking to, at least, government led intervention in the economy to spur growth.

The mixture of private sector innovation, government intervention, support, the level of market closure, investment incentives or socio-economic programming and policy making, is where the test of a market system and its resilience becomes a matter of ideological importance. In addition, what information and salient idea should take form, at what time, when, where and how it will be administered under it's best fitting relative purpose- after variables have been delineated for a particular outcome- should also be of critical importance. To this extent, diagnosing the nature of the problem as well as prescribing solutions that affect a desired, positive, outcome, in addition to it not doing damage to the existing structural successes, is also vitally important.

Being diagnostic rather than presumptive should be the first thought of approach when dealing with structural development matters. But, how do you ask a policy maker to diagnose a problem where he feels that it is not his position to be in the diagnostics business? How do you impress that the "well established facts" are irrelevant to what folks are dealing with today, during an economic downturn, or, worse, when things are "good"- especially under the pretense of market forces led laissez faire?

It comes down to the mode, thinking and ability of the actors in the system to always have in mind ways of removing binding constraints from the system, increasing the market share for a greater amount of persons entering the marketplace as active participants and taking all parties involved to make the right determinations on what fits best for persons to have an opportunity at a larger piece of the pie.

Technical expertise is valuable at all times. Knowing that you have to diagnose the problems, knowing what tools to use out of your diagnostic kit and then having the will and wherewithal to sustain continual diagnostics and act upon all first best information, is no easy task- probably why the presumptuous of us prefer to just assume things will happen as it "always" has. However, putting ourselves in the right frame of mind to have the confidence to attempt it, is critical even at this juncture where thought on what's right and presumptions on conventional wisdom seems to be popular again.

Sunday, November 28, 2010

Ireland gets Financial Aid...

Well, the stabilisation of the weaker EU countries has begun. See here an article from the Business Week online Magazine on how Ireland has just now won a financial aid package from the EU and IMF to the tune of 85 billion Euro's-- just over 113 billion USD. Business Week article

The fear is the contagion of the financial crisis. As you well know, contagion risk after the first financial crisis, brought on by the USA, was not seen as quickly and hence, the current global recession was deeper and more severe.

Ireland is no where near the level of the USA in terms of financial clout, or interconnectivity throughout the world, but it may seep slowly in through to other, relatively, smaller EU countries and emerging markets that dabbled in Irish markets- particularly with sovereign bonds.

Ireland was not on the same stabilisation package as Britain was during the onset of the US led financial crisis. So, help reaching Ireland was late and was not an option at the time- as the thought was that their impact and contagion would be minimal.

However, fears over spread of contagion is evident, by at least IMF and EU leaders.

Tuesday, November 16, 2010

Cholera epidemic in Haiti..

Over 10,000 people are suspected to have Cholera in Haiti. This is a serious concern. The news broke a while ago, but it is worth repeating. As you know, the Bahamas has more than their fair share of Haitian immigrants that come to the Bahamas-- an epidemic in Haiti, may mean a spread of the disease in the Bahamas.

At the very least, we should all be concerned about Haiti, overall. As you would be well aware, the earthquake last year in Haiti, still has the country on it's knees. Development Aid is still hard to get to the areas that need it the most. And, with a major disease outbreak, things may get more difficult and hard to manage. See attached a video from the UN on the seriousness of the outbreak.