PSD Blog - The World Bank Group

Friday short stories

News items of varying interest for your perusal...

• Transparency International will report on Wednesday that companies from Brazil, Russia, India, and China are most prone to paying bribes. (via FT)
• Rupert Murdoch to make News Corp carbon neutral. (via FastCompany)
• Increased labor mobility would bring greater benefit than full trade liberalization, foreign aid and debt relief combined, according to new CGD book by Lant Pritchett.
• Action for Enterprise has a website that allows wholesale buyers around the world to view handicrafts available for export from Mali. My pick: the textiles. (via Timbuktu Chronicles)
• Rwandan government hopes coffee plantations will ease ethnic tensions. (via Stationary Bandit)
• Two notes on India: 4 government-owned insurers will begin offering microinsurance, and remittances to India could hit $27 billion by 2007 (up from about $23 billion today).
• The Economist on why emerging economies "will provide the biggest boost to the world economy since the industrial revolution".

Capturing Value contest winners

Through this seed funding we are hoping to break a chicken-and-egg situation where investors will not invest in emerging markets for lack of information, and research providers will not enter the market for lack of demand. The object of the competition is to lead the market and to provide tools to a mainstream investment audience.

That's PSD Blogger Rachel Kyte on the IFC's research competition Capturing Value. Winners were announced last night in Zurich. Congratulations to both winning teams - CRISIL, Standard & Poor's and KLD; and Trucost and CLSA - who will split a $500,000 grant to study environmental, social and corporate governance data for emerging market equity investors. For details, see the press release.

Global Competitiveness Report's new methodology

As you've probably noticed, the World Economic Forum's Global Competitiveness Report 2006-2007 is out. Am I the only one who finds the ‘stages of economic growth’ component of the new methodology to be a bit odd? From Chapter 1.1 (emphasis mine):

Specifically, we separate countries into three stages, based on the idea that as countries move along the development path, wages tend to increase, and that in order to sustain this higher income, labor productivity must improve. We integrate this concept into the index by attributing higher relative weights to those pillars that are relatively more relevant for a country given its particular stage of development.

Mexico's favorable investment climate

Forbes publisher Rich Karlgaard thinks it's time to invest in Mexico. He cites its solid economic performance (3.5% growth this year), favorable demographics (lots of brand-new workers), consumer credit growth of 400% since 2000 (signaling a healthy middle class, and room to grow in the stock market (currently trading at just 37% of GDP).

On top of all that, Mexico was ranked the 3rd best reformer in the recent Doing Business report. Why? Reforms in business entry, protecting investors and paying taxes. The corporate income tax rate is down to 29%, and a new securities law clarifies the obligations of company directors. For more, see my previous post or an online discussion on the report.

Joseph Stiglitz on globalization

If it's possible for an economist to keep a roomful of people on the edge of their seats, Joseph Stiglitz came reasonably close yesterday. He presented his newest book, Making Globalization Work, to a packed house at the World Bank. (By packed, I mean that seats in the overflow room went so quickly that well over 100 people were standing in the back.)

The theme was the ways in which globalization has contributed to rising inequality, both across and within countries, and what to do about it. Rather than a rising tide to lift all boats, globalization is better described as "a riptide that can destroy lots of small, unprepared boats". Plenty has already been written about the book (see openDemocracy, Pienso, and Poverty and Growth Blog), so I'll just pull out a few of his comments:

• The global intellectual property regime is a matter of life and death for developing countries. Negotiators of the Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) "signed the death warrants for thousands of people in Sub-Saharan Africa”, by denying them access to lifesaving medicines. The current US-imposed regime is bad for US science, but even worse for the global practice of science and innovation. The book describes his suggested alternative to TRIPS, a global prize fund to compensate researchers based on the importance of the drugs they develop. Malaria will presumably rank higher than male pattern baldness. A competitive market would then become the distribution system. (See discussion on the prize fund idea at Marginal Revolution.)
• Water is indeed flowing uphill, as we watch money flow from poor to rich countries. We observe a proliferation of countries with overbearing debt problems, not just one or two profligate spenders. Despite sophisticated derivative markets, developing countries still bear a disproportionate share of global risk.

Calling Tim Harford fans...

PSD Blog co-founder Tim Harford tells me that the Financial Times is now posting his columns, both Undercover Economist and Dear Economist, free of charge. You can also sign up for the RSS feed. Perhaps an action figure will be next?

Two weeks to go...

The Nobel Prize for Economics will be announced on October 9. Greg Mankiw prompted a lively discussion on possible winners when he linked to Thomson Scientific's predictions:

• Jagdish Bhagwati / Avinash Dixit / Paul Krugman
• Dale Jorgenson
• Oliver Hart / Bengt Holmstrom / Oliver Williamson

The Thomson Scientific readers' poll puts the first group ahead with 40% of the vote. Any armchair economists care to hazard a guess?

Update: And Ned Phelps is the winner!

Autos and global warming: a perfect storm

Ever since the book (and subsequent film) came out, the 'perfect storm' analogy has become rapidly cliche, but events this week bring it to mind. The State of California files a lawsuit against the six largest US and Japanese automakers, claiming damages for their contribution to global warming. The Alliance of Auto Manufacturers retort that the State approves all vehicles sold - so who is responsible?

Over in Europe, the Secretary General of the European Automobile Manufacturers Association (among others) complains of over-regulation and excessive attention to environmental issues during a workshop on the one year anniversary of the EU integrated industrial policy. A tip from me to Hungarian MEP (that's Member of the European Parliament) Edit Herczog, who spoke at the workshop: defending business against green critics with analogies to melting icebergs is probably not the way to go these days.

So lots of finger pointing (in opposite directions). Will no one make the business case for sustainability? Thank you Richard Branson, who came forward at the Clinton Global Initiative to announce the funding mechanism of Virgin Fuels, which will focus on commercial opportunities for cleaner fuels and renewable energy.

Why the defensive tone?

After reading Michael's post about the Singapore Annual Meetings seminar on "Raising the Stakes: New Frontiers for the Private Sector in Development", I thought I'd share a series of troubling and probably perverse questions that crossed my mind at the same event.

From my high-tier seat at the Suntec Theater, I listened to the informative and brilliant discourse coming from the brightly lit stage with its panel of seven notables (plunked on seven plush, over-sized, black leather 'Big Boy' executive swivel chairs). As Michael has already mentioned several of the speakers and the substance of the panel, I'll go straight to my questions.

Why the faint but persistent defensive tone that seems to ring in the background of this conversation? Why do we feel this need to defend, to provide evidence for the social value of private enterprise? Why is it not obvious that - when supported by an appropriate bodyguard of institutions, laws and shared moral values - private enterprise will, for the most part, of course generate rising prosperity for the mass of people, as most historical evidence suggests? (These preconditions are mainly institutions that foster vigorous competition and the free flow of information, while suppressing deception, fraud and theft. Oh all right, let's include public policies to mitigate the most egregious market and coordination failures, for example by putting up relevant chunks of public infrastructure.)

New blogger: Milan Brahmbhatt

It is my pleasure to introduce Milan Brahmbhatt, PSD Blog's newest contributor. Milan is an analytical economist with a broad range of intellectual interests. He's currently a lead economist for the World Bank's East Asia and Pacific Region and editor of the twice yearly East Asia Regional Brief. He'll be sharing stories of private sector development in the region, plus broader commentary from his unique, generalist perspective.