PSD Blog - The World Bank Group

Big guy, little guy: Who suffers more from crime?

At first you might guess that it’s the big firms that make an easy target. But we need to do more than guess—the policy implications are quite different if the answer is “big” or “small.” If large firms are more efficient and do more R&D and export to other countries, then crime can be more harmful to the economy when directed against such firms. However, compared with large firms, wages and profits may be lower in the smaller firms. Crime directed against small firms can therefore be regressive (causing more harm to the relatively worse-off).

It turns out that getting to the bottom of this question requires drawing a careful distinction between two concepts: the incidence and burden of crime.

Should a one-time entry cost matter?

As I mentioned in my previous post, some critics have argued that too much attention is paid to the costs of starting a business. One way of stating the critique is that a cost that has to be paid only once ought not to have a big effect on a firm’s decisions. Arvind Panagariya of Columbia University makes this argument in his opinion piece for the Economic Times. He states:

…even within the narrow confines of regulatory regime, some policy dimensions emphasised by the index are of questionable value. For instance, the index attaches great importance to the costs incurred and time taken in starting a business. But when firms are entering a market with a horizon of several decades, does it matter whether it costs $500 rather than $5,000 and takes 20 rather than 200 days to start the business?

Do we need to worry about enforcement of laws?

It goes without saying that rules, laws and regulations are meaningless if they are not enforced. Yet, the bulk of the literature on the effects of various laws is completely silent on the enforcement issue. The implicit assumption is that measures based on laws on the books are a reasonably good proxy for actual enforcement of laws and so an explicit reference to enforcement is not required. Is there any reason to think this is a plausible assumption?
 
A handful of studies that focus on enforcement suggest the answer is no. For example, Ben-Bassat and Dahan (2008) look at constitutional commitments to social rights in 68 countries. The rights studied include the right to social security, education, health, housing and workers’ rights. The study finds that commitments are binding on public policy only for social security and not the rest. While the study does highlight the gap between laws on the books and their enforcement, it is difficult to infer if the gap is due to enforcement constraints per se or simply cheap talk by politicians with no intention to enforce, ex post.

Blogging by fiat

Is it possible to blog by fiat? It looks like Kazakhstan is giving it a try. In January Prime Minister Karim Massimov ordered his ministers to start blogging. (Check out the blog here.)

(Thanks to Giulio Quaggiotto for the pointer.) 

Corporate debt in Eastern Europe

Bloomberg reports:

OAO United Aircraft Corp. will help its Finance Leasing Co. unit repay $250 million to bondholders after it became the first state-run Russian company in more than a decade to default on a foreign-currency coupon payment, Deputy Prime Minister Sergei Ivanov said.

Bloomberg also reports that Russian companies owe some $100 billion in foreign-currency debt due in 2009. Estimates for all emerging market corporations in 2009 range from $1.25 to $2 trillion.

Private sector finance in Asia

The Asian Development Bank (ADB) has taken a real interest in private sector finance, releasing a publication earlier this year called Private Sector Finance: Catalyzing Private Investment in the Asia and Pacific Region. The ADB argues that a lot of their work revolves around building confidence:

...financial institutions across Asia are awash with liquidity. This is a situation that evokes an underlying problem—the absence of investor confidence. The absence of investor confidence continues to ail most developing economies, as investors remain wary of risks that abound across the region. This is where the strategic role of ADB lies.

They have their work cut out for them. The Institute of International Finance has some harrowing predictions for private capital flows to emerging Asia - a falloff to $64.9 billion in 2009 from $314.8 billion in 2007, a drop of nearly 80% in two years. This places it behind only emerging Europe in percentage terms.

Mass privatization and mortality

This January the British medical journal the Lancet caused a kerfuffle with an article that claimed that privatization in post-communist countries was responsible for massive numbers of deaths. The authors of Mass Privatisation and the Post-communist Mortality Crisis argued that privatization resulted in massive layoffs, which in turn resulted in a staggering increase in mortality rates, particularly in Russia. Could it possibly be true that privatization is that bad for the health? The Economist was quick to rebut the argument, pointing out both that correlation is not causation and that countries such as Poland that implemented shock therapy did not experience the rise in mortality that Russia did.

A new paper from John Earle, a Professor of Economics at the Central European University and a Senior Economist at the Upjohn Institute, extends the rebuttal much further. Earle points out that a very basic link in the chain of reasoning of the Lancet authors is missing - namely, mass privatization did not lead to substantial job loss. In fact, the effects on employment were typically neutral or positive (click on Figure 1 below). For the full argument, check out Mass Privatization and Mortality: Is Job Loss the Link? It's quick but well worth the read.

A lottery to beat all lotteries

The Armenians have gotten creative. It's no secret that many post-communist countries suffer from high rates of tax evasion. How can a government promote tax compliance without being too heavy-handed with small businesses? The answer: print lottery numbers for a state-sponsored lottery on the back of store receipts. That way consumers demand receipts and merchants are obliged to print them (conveniently leaving a paper trail for the tax office). From Notes from Hairenik:

On the back of each check is an eight-digit number which ends with an Armenian letter. Apparently at some time in the near future these numbers will be called, like in a lottery, and if the number called matches the one on your receipt you can win money–up to $16,000 if you're lucky enough… I am not ashamed to admit that I am indeed saving all the receipts that I receive, in case I happen to win enough cash to put down towards the payment of an apartment. You never know...What's the excuse of thousands of citizens who make money but refuse to pay [taxes]?

(Hat tip: Global Voices Online)

Up becomes down

And Moldova becomes one of the world's most stable economies. That, at least, is the world according to The Banker magazine, which recently ranked countries based on how protected they are from the global slowdown:

Moldova has been ranked fifth, well ahead of powerhouses like Japan and the United States, in an index compiled by London-based magazine The Banker that rated countries on how well-protected they are from the slowdown.
 
The index concluded that the very reasons that have made Moldova an economic laggard — a primitive financial system, low levels of lending and an economy based on farming — now make it well-placed to withstand the slump.

(Hat tip: Eternal Remont) 

Income (in)equality among the professoriate

“Salary progression”—the difference in salary between junior and senior professors—in general appears modest compared to the situation in the professions outside academe. According to our research, for most of the 15 countries in the study, salaries seldom doubled between entry level and senior ranks. The major industrialized countries (including Germany, France, Canada, the United States, and the United Kingdom) stood at the bottom, in terms of variations between junior and senior ranks, and the developing countries (such as China, South Africa, Argentina, and others) at the top. India ranks poorly on both progression and on basic salary. The lack of possibilities for improved salaries is a problem for the profession in general, but it is particularly damaging for the most productive academics. The latter are the most likely to leave academe or to go to countries with higher salaries.

That is from a new article by Philip Altbach, Director of the Center for International Higher Education, called The Intricacies of Academic Remuneration. Of course, we must take into account the many types of non-income remuneration that academics receive. But still I wonder - what are the chances that the professiorate (or Ministries of Education) would permit the kind of income dispersion that is normally seen in the (purely) private sector? I'm not holding my breath. 

P2P lending, coming soon to an OECD country near you

It looks like person-to-person (P2P) lending is no longer just for the developing world. Kiva, the originator of the P2P model, now has at least one imitator in an OECD country. Smava, a German-based company, now offers P2P lending in Germany and starting this year in Poland as well. Perhaps finally the financial crisis will stimulate a bit more of the 'creative' side of creative destruction. 

Oligarch, ahead of his time

Russia's oligarchs have been suffering through the financial crisis. (It must be hard having to give up the chateau in France and the penthouse in London.) But one oligarch already pointed the way years ago. German Sterligov, the man who set up Russia's first commodities exchange after the fall of communism, gave up the oligarch's life for that of a peasant some years ago. He lives on a farm with his family outside Moscow, where, reportedly, "old-fashioned tutors visit their home to teach them maths, history, Russian and hand-to-hand combat."

And for those of us suffering through the financial crisis, Sterligov offers a bit of peasant wisdom: "Not just for my oligarch friends but for everyone in this crisis - buy products, flour and salt and sugar. All of you. You will need them."

(Hat tip: Eternal Remont) 

Permits in everything, Christmas edition

Apparently, Moldovan police have "arrested" a Christmas tree intended for Chisinau's main square. Why, you ask? It did not have the appropriate permits:

Moldovan police have demanded that the driver of a vehicle carrying the city government’s Christmas tree to the main square, produce a license to purchase fir trees as well as a permit from the State Environmental Inspectorate... Representatives of the country’s Forest Management Association, however, say there is no need for such a permit in this case. But police detained the vehicle nonetheless and then said the fir tree is ‘under arrest’.

(Hat tip: Eternal Remont)

Smiley face, you are doomed

Avid users of instant messaging, beware! Your habit is about to become very expensive. Well, at least if you live in Russia. Apparently, the Russian patent agency has awarded a patent on the ";-)" emoticon to a Russian businessman. (I wonder if they will charge me for this blog post?) Eternal Remont reports:

Russian businessman Oleg Teterin now claims he owns the tradmark to an emoticon:

;-)

That's right people. "Teterin said in an interview with Russian TV channel NTV this week that Russia's patent agency had granted him the trademark to ;-)." He promises to only go after companies, rather than individuals, which use the symbol...for now.

I would normally assume this is a hoax, but having lived in Moscow for a summer, I'm inclined to believe it.

(Hat tip: Veronica Khokhlova at Global Voices Online)

Eurovision vs. financial crisis

As an American, I have to confess bewilderment at the amazing annual spectacle that is Eurovision. Unfortunately, for one nation the current economic environment is creating some tough choices concerning the event. Blogger Ali Novruzov discusses Azerbaijan and Eurovision 2009:

For me personally, it is not a big problem who would represent Azerbaijan in Eurovision 2009 - but what really concerns me are these three things...Not to use our public money for [a] maybe million-dollars-worth Resurrection Mission. [The] World Economic Crisis is already threatening to empty our coffers, and Azerbaijan can't afford another costly Eurovision Adventure.

As econ 101 teaches us, we live in a world of scarcity. I'm just sorry that may mean less Eurovision for all of us. Isn't this a public good worth investing in?   

The financial crisis and migration

With a slowdown in the rich economies (particularly in the housing sector in some countries), might we see large numbers of migrants returning to their home countries? It looks like Poland, at least, is making plans. According to the Polski blog, Poland's government is trying to help:

Polish PM Donald Tusk was in London yesterday. He was supposed to try and convince Poles living here to come back to Poland, by asking “Do you have a return PLan?’ (PL stands for Poland, of course). All that because the Polish government has launched a special site, where Poles living in the UK can get advice regarding moving their lives back to Poland.

Of course, the financial crisis might have the opposite effect in some cases. Trinidadian blogger Coffeewallah remembers the 1980s:

I well remember the eighties and the recession where people dropped their house keys off at banks and fled the country to escape loans.

(Hat tips to Nicholas Laughlin and Veronica Khokhlova of Global Voices.)

Web 2.0: Ignore it at your peril

As the Global Environmental Management Initiative releases its Guide to Successful Corporate-NGO Partnerships, the Economist recently reminded us that in a Development 2.0 world, the balance of power in environmental campaigning is shifting. Thanks to the viral nature of tools such as blogs and Youtube, local issues can gain visibility and quickly become global. Here's my favourite example from the Economist article, Revolutions Coloured Green:

Take the fallout from a deal between the Russian aluminium concern Rusal and the government of Guinea to mine bauxite. Green protests were the last thing Rusal expected. But Kamara Secu, a leader of the Guinean community in Russia, was undaunted. He rang Rusal’s press officers and taped their response; they were dismissive and mocked his accent. Mr Secu then posted a recording of the exchange on YouTube, the video-sharing site; it was picked up by green bloggers, and helped to rally support for a demonstration against Rusal.

Armenia as regional financial center

Armenia, like many post-communist countries, faces a serious threat from the global slowdown. Flagging demand for exports and a slowdown in remittances will likely take a toll on the economy. Haroutiun Khachatrian at the CACI Analyst reports on the measures the Armenian government is taking to deal with the threat. Among the measures are increased support for infrastructure projects and steps to improve the business environment for small and medium enterprises. (The folks at Doing Business will undoubtedly approve.)

One other initiative is, however, a little less orthodox. According to Khachatrian, the government wants to turn Armenia into a regional financial center:

The hidden side of globalization

In debates over globalization, much attention is given to so-called 'North-South' relationships. Often, data on 'South-South' exchanges it too limited to say much. A new paper on Global Migration of the Highly Skilled by Theo Dunnewijk of United Nations University helps shed some new light on 'South-South' brain drain/brain strain/brain circulation (Hat tip: Giulio Quaggiotto). Previous datasets had overlooked diasporas of highly skilled workers in these countries:

• South Africa originating in Zimbabwe, Botswana, Namibia and Lesotho;
• Russia from Kazakhstan, Ukraine and Belarus;
• Ukraine, from Brunei Darussalam;
• Czechoslovakia (former) from Iran;
• Malaysia from China and India;
• Latvia from Israel;
• Romania from Moldova;
• Jordan from Palestine Autonomous Region;
• Tajikistan from Uzbekistan;
• Bulgaria from Greece

Is this brain drain, brain strain, or brain circulation? Dunnewijk doesn't tell us - a topic for another paper, perhaps.

Crunch time for microfinance - final thoughts

CGAP ran a virtual conference last week on microfinance and the financial crisis. (See their website for details and an earlier post on the first round of emails from the conference.) There was a ton of interest in this topic, reflected in the extraordinary volume of communication from all over the globe. To make things easy for you, I pored over the emails to bring you more highlights from the first half of the conference, which focused on MFIs and their clients:

Daniel Mensah from Ghana:

I am a member of the credit union movement in Ghana, West Africa. At a recent meeting of some of the credit union executives, it was reported that the number of members taking loans or withdrawing their savings is going up. Among the many reasons given was that the financial crisis has reduced the inflow of remittances from citizens/relations abroad and so many members now have to fall on their savings or take loans.

Congratulations to Slovakia!

A press release just yesterday announced that the Slovak Republic graduated from borrower status with the World Bank. The announcement is a welcome bright note in this dark economic environment. It is worthwhile to remember that not very long ago, Madeleine Albright referred to Slovakia as "the black hole of Europe." Just a decade later, Slovakia has seen impressive achievements in economic reform and growth in incomes.

Ján Počiatek, Minister of Finance of the Slovak Republic, had this to say:

Over the past 15 years, the World Bank has assisted us with complex reforms by providing financial, technical and know-how assistance, which was very important to us...Going forward, we would be interested in continuing technical cooperation with the World Bank, especially in human resources and institutional strengthening.

Congrats to Slovakia!

The private sector vs. poverty

The World Bank released the results of a global poll today about international development and the role that the World Bank should play in the world. Poverty was the top concern. I find it curious - but perhaps telling - to see how respondents thought that poverty could most effectively be addressed:

In an environment where poverty and growth are high priorities of the WBG and its clients, the poll explored with stakeholders their views on the most effective ways to solve these challenges. In East Asia/Pacific, South Asia, and Africa regions, agriculture productivity emerged as the most important area of development to reduce poverty. In Latin America and Middle East/North Africa, education is onsidered the key to poverty reduction, while in Europe/Central Asia, stakeholders identified private sector growth as the most important area to reduce poverty.

Europe/Central Asia has also consistently dominated the Doing Business report as the most active reform region. Two decades on, it is the post-communist world that is most supportive of the private sector.

Liberalization and inequality

The OECD has just released a massive report on inequality - see the press release, data and related materials, and the report itself, Growing Unequal? (gated). Now that a recession is beating at the gates of most of the rich countries, questions will undoubtedly be raised about how the pain is metted out to various income groups. Calls for re-regulation of many sectors of the rich economies will likely follow. And there's no doubt that financial sector regulation is due for a very close examination.

But it's worth looking at some of the countries that have liberalized the most in the past two decades to see what the consequences have been. Two things strike me in the figure below (taken from the report) concerning inequality in the post-communist countries of eastern Europe.

       

China is not the only one courting Africa

Turkey is making big strides in building relations with Africa. The Jamestown Foundation reports that:

Turkish interest in Africa is underwritten by soaring bilateral trade: while Turkey's trade volume with the entire African continent was $5 billion in 2003, Gul noted that with government encouragement, Turkish-African trade had been increasing annually by double digit figures since 2004 and exceeded $12 billion last year, a figure that his government hoped to increase to $30 billion by 2010.

The article also reports that Turkey brings a lot of agricultural expertise to bear. Perhaps this kind of partnership will bring more development benefits than the results reported by UNCTAD in Economic Development in Africa: 2008.

Stand to the right

Newcomers to Washington DC rapidly learn that to stand on the left-hand side of the metro escalator at rush-hour is to risk being run down by an impatient, backpack-wielding local. At an event today in Bishkek to celebrate the Krygyz Republic's appearance at #3 on the Doing Business 2009 list of top reformers, Minister of Economic Development and Trade, Mr Akylbek Japarov, compared reform to an escalator ride where you can choose to ride or to climb. Kyrgyz reformers want to climb. Less active reformers may want to stand to the right.

Weight-watchers in Tirana

Regulatory reform is like losing weight: with some focus and effort, losing the first couple of kilos is relatively easy. As soon as friends and relatives start to notice, they give compliments and encouragement - emboldening you to take it further. The hard part comes later: sustaining a healthy bodyweight over the years requires long-term efforts. Often, a lifestyle change is needed. Reforming a country's business environment is no different.
 
Last Thursday, September 18, 2008, the World Bank/IFC launched Doing Business 2009 in Tirana, Albania, the runner–up reformer this year. Between June 2007 and June 2008, Albania threw off excess weight in the administrative burdens that face small and medium entrepreneurs. The country made an impressive jump of 49 places on the Ease of Doing Business: from 135th last year to 86th this year. This was thanks to reforms in the areas of starting a business, access to credit, protecting minority investors and taxation.

The will to reform

What does it take to be a top ten Doing Business reformer? I just ran across a survey from World Public Opinion.org that might shed a little light on this question. The populations of both Azerbaijan and Egypt appear to be quite pro-globalization (or at least not very negative about the phenomenon):

 

Of course, there's always the question of cause and effect, but this is the third year that Egypt has been a top reformer. At the very least, it looks pretty likely that reform didn't turn them off from globalization.

Can Islamic Finance go micro?

With more than half-a-trillion dollars in assets and an annual growth rate that has outpaced conventional banks’ by nearly 50 percent, the Islamic finance industry is already making waves among investment fund managers. And this not only applies to the Muslim world: The Banker magazine recently named the United Kingdom to its list of the top 15 countries managing Sharia-compliant assets.

The new CGAP Publication Islamic Microfinance: An Emerging Market Niche argues that the Islamic finance industry, with its unprecedented popularity and growth, may be well-placed to address a critical need in microfinance: reaching the some 72 percent of people in Muslim-majority countries who do not use formal financial services.

Doing Business in Belarus

It's Tuesday, so this must be Minsk. The Doing Business 2009 roadshow is here because, while last year it took 231 days to transfer property in Minsk, this year it takes just 21 - as a result of comprehensive reforms including a one-stop shop for property registration, simplified procedures and computerization of records. This, together with reforms affecting 5 other DB indicators, made Belarus the #4 reformer in DB09, jumping 30 places overall (to the #85 spot) and a massive 81 places on the "registering property" indicator.

Doing Business in Azerbaijan

Doing Business 2009 launched last Wednesday. So Friday found us in Baku to celebrate Azerbaijan's place as DB09's top reformer. We determine top reformers by looking at countries that have reformed in at least 3 of the areas of business regulation measured by the DB project, and then looking at who jumped most in the overall rankings. Azerbaijan this year reformed in 7 areas - from cutting the red tape around business and property registration, to substantially strengthening protections for minority shareholders, and streamlining tax administration with an on-line filing and payment system. 

And these were big reforms:

• Time to register a business fell by half - generating a 40% increase in business registration in the first 3 months.
• Time to register property fell from 61 to 11 days.
• Time to file taxes fell by 500 valuable hours per year.

 

Doing Business 2009 - Five years of reforms

Doing Business 2009 is here! The sixth in the World Bank Group's annual series on business regulations, DB 2009 allows us to take a look at five years of reforms since DB 2004. But before I get to that, let me hit the highlights of DB 2009:

• This year's top reformer is...drum roll please...Azerbaijan! Azerbaijan improved on 7 out of 10 of the indicators tracked by DB and moved up 64 slots in the overall rankings.
• Two regions - Eastern Europe and Central Asia and Sub-Saharan Africa - accounted for 7 of the top 10 reformers: Azerbaijan, Albania, Kyrgyz Republic, Belarus, Senegal, Burkina Faso, and Botswana. The other top 10 were Columbia, Egypt, and Dominican Republic.
• Once again, Singapore tops the rankings, followed by New Zealand, the United States, and Hong Kong, China. 

Integrating Eastern Europe's Roma

Communism failed to do it - can capitalism do any better? So far, the answer is not clear. I'm referring to the integration of the Romani minority into the mainstream of eastern Europe's transition countries. For those not familiar with this topic, 'Roma' is the polite term used in place of the more common 'Gypsy'. (The words themselves are laden with baggage - in English, Gypsy is tied to the pejorative verb "to gyp", while the Slovak version 'cigan' is tied to the verb 'ciganit', which means "to lie.") The approach of the authorities in most communist countries in the 1950s was to forcibly sedentarize the population, a nice term for shooting their horses and burning their wagons and most of their possessions. Many Roma were then forced into new industrial settings - for instance, thousands of Slovak Roma were required to move to northern Bohemia to work in factories. As an experiment in social engineering, it was a failure; social integration did not result.   

The spread of the staycation

The staycation - an ugly neologism for the decision of many American consumers to stay at home this summer, instead of heading to Disney World or some beach resort. Rising food and gas prices have led to hard times for much of America's tourism industry, as this article in Slate points out. But it looks like Americans aren't the only ones resorting to a staycation. A press release out today (in Russian) from the Levada Center reports the results of a survey of urban Russians on their summer actitives last year. It looks like some 43 percent of respondents said that they didn't take a vacation in 2007 ("не был(а) в отпуске").

Putin presses for small business reforms

While Russia has experienced sustained growth for years now, much of its economic success can be attributed to its energy resources. Sustained and equitable growth in the long run will depend on the development of other sectors of the economy - and Putin has decided to throw his support behind reforms to improve the business environment for small and medium enterprises. According to the Moscow Times:

The government spends nearly $7 billion per year investigating companies for procedural infractions, Prime Minister Vladimir Putin said Monday, calling on the government to change fundamentally its approach toward regulating business...

The origins of capitalism

I spent part of the weekend reading The Captive Mind, a noteworthy book by Czeslaw Milosz. Milosz was a Polish emigre and wrote this book in 1953 - also a noteworthy year, since both Joseph Stalin and Klement Gottwald died in 1953. It's a quick read on the plight of eastern European intellectuals during and after the Second World War, and well worth the investment of time.

There was one passage that particularly struck me that seems to give a bit of insight into what we might call the origins of capitalism. In a chapter entitled "Man, This Enemy", Milosz had this to say about the petty bourgeoisie in the people's democracies:

The petty bourgeoisie, that is the small merchants and craftsmen, cannot be taken so lightly. They constitute a powerful force, one that is deeply rooted in the masses. Hardly is one clandestine workshop or store liquidated in one neighborhood than another springs up elsewhere. Restaurants hide behind a sliding wall of a private house; shoemakers and tailors work at home for their friends. In fact, everything that comes under the heading of speculation sprouts up again and again. And no wonder! State and municipal stores consistently lack even the barest essentials...      

Coke vs. kvas

I suppose after the attention it got with the Big Mac Index, the Economist couldn't help but continue to rely on mass-produced food items as economic indices. In this week's Economist, there's an article that purports that Coke can serve as an index of happiness. In this case, the analysis is restricted to Africa. The Economist argues that "[a]t a macro-level, when Coke fails, the country whose market it is trying to penetrate usually fails too." By this measure, it predicts a bright future for Africa:

...if Coca-Cola's predications are anything to go by, Africa's future is mostly bright. The company expects sales in Africa to grow by an annual 10-13% over the next few years.

If we were to extend this index to other parts of the world, we'd find one country experiencing a troubling trend - Russia.

Real estate is booming - in Turkmenistan!

While real estate has been taking a hit in many parts of the world, there is at least one place that is booming - Turkmenistan. Sebastien Peyrouse, writing in the CACI Analyst, describes the scene in Ashgabat, Turkmenistan's capital:

In the city center, expropriations are continuing as former Soviet quarters are razed to make way for grand, green esplanades and new building-lined avenues. Apart from administrative buildings, dozens of residential buildings with marble facades have also materialized.

Richest man in Europe?

For a long time, the title of richest man in Europe fell to Ingvar Kamprad, the founder of Ikea. It seems, though, that his title may have been taken away. Rinat Akhmetov (pictured), a Ukrainian businessman, may now hold that honor, at least according to an article in the Korrespondent (Hat tip: Ukrainiana). According to the Korrespondent, Akhmetov is worth some $31.1 billion, while Forbes has Kamprad pegged at 'only' $31 billion. If it's true, this development would be consistent with a Merrill Lynch/Capgemini study showing that Western Europe is losing its share of the world's billionaires because of large gains in developing and transition countries. 

A simple solution to inflation

An increasing number of commentators have pointed worryingly at growing inflation in many emerging markets. Inflation is around 8 percent in China and 11 percent in India. Part of the problem is the rising cost of energy resources, but that's not the whole story since inflation is afflicting both net energy importers and exporters. Russia, for example, is facing an inflation rate of around 15 percent. According to an article today in the Financial Times:

A weighted average of consumer price inflation in the 20 largest emerging markets rose from 4.5 per cent in March 2007 to 6.9 per cent in March 2008...

What can be done about this worrying trend? Anders Aslund, a senior fellow at the Peterson Institute for International Economics, proposes a simple solution for the transition economies: let their currencies float. 

Russian CSR - no longer a contradiction in terms?

As average Russians have seen steady improvements in their income for almost a decade, they have gotten a taste for luxury goods - you can see many in Moscow flaunting their Gucci and Prada, recently returned from a trip to Milan. But this is not the only thing their improved incomes are buying, at least according to a recent article in the Moscow News:

Being socially responsible is not simply an act of selfless generosity but can also be an important PR device for companies. [Russian] consumers are now choosing brands depending on how socially responsible the company is.

However, the Moscow News article doesn't cite any hard evidence that Russians are really being persuaded they should spend their hard-earned roubles on socially responsible products. Another factor seems to be at play.    

Privatizing health care in Georgia

Big changes are underway in Georgia's health sector. The central government is taking steps to privatize both publicly owned hospitals and health insurance. As it stands, the public health care system inherited from the Soviet era is bloated - only about 30 percent of its hospital beds are being used, and many of the 250 hospitals need renovation. An article in Transitions Online cites the Minister of Labor, Health, and Social Affairs on the current state of things:

It is absolutely impossible for [a] state like Georgia to retain...254 publicy owned hospitals...Therefore, private medical insurance and [a] private hospital network [are] something that we think is the only way out of the situation.

The view from Russian business

If you want to learn about the real challenges faced by Russia, you could do worse then surveying its captains of industry. This is exactly what the New Economic School did earlier this year in cooperation with Vedomosti and the Ministry of Economic Development of the Russian Federation. The results appear in a report called Challenges 2020: The View from Russian Business. (An aside: One of the true success stories of private higher education in the transition countries is that of the New Economic School. If you're looking to hire a bright economist in the know about Russia, this is your go-to place.)

Russian FDI numbers debunked

In a recent article in gazeta.ru, Vladimir Milov takes a hard look (in Russian) at the amount of foreign direct investment (FDI) going into Russia (Hat tip: JRL). The official numbers coming from Rosstat indicate that about $28 billion entered Russia in 2007. This number is respectable when compared to many other markets, as outlined in this post on Russia vs. China. However, Milov discounts about $18 billion of this. He attributes about $13 billion of it to Royal Dutch Shell, which was forced to hand over its share in Sakhalin-2 to Gazprom. The rest of the $18 billion Milov attributes to Russian money coming from Cyprus—perhaps akin to money going into China from Hong Kong. He concludes that only $9.5 billion of 'real' FDI came into Russia in 2007. This certainly knocks Russia down a peg in global rankings of FDI recipients. 

Oil Prognostications

The sky is falling—or so the head of Gazprom, the state-owned Russian energy giant, would have us believe. Today’s FT reports that Alexei Miller has predicted oil will hit $250 per barrel in 2009. Should we believe such a prognostication? Before you throw all your money into investments in oil companies, let’s remember the backdrop for such a prediction: Russia is courting foreign investors concerned about the security of their investments at the same time as BP and a group of Russian shareholders are fighting over control of the TNK-BP joint venture oil company. Medvedev, Russia’s new president, has been attempting to convince foreign investors that Russia is a safe bet, but Russian shareholders in TNK-BP have been making this look questionable with the trouble they’ve been causing for BP (subscription required).

Risky Business

For a handful of countries, the rise in oil prices has proven a boon to economic development. Russia is perhaps the most notable example. Bucking the trend in much of the rest of the world, the sale of new cars in 2007 in Russia jumped by 36 percent as a result of large increases in income, according to the latest edition of the Economist. But net oil importers are increasingly faced with a hard set of decisions about how to respond to this difficult environment. A new note in the journal Public Policy for the Private Sector provides guidance on exactly this conundrum.

Companies Prefer Russia to China?

An article today in Bloomberg covering the St. Petersburg International Economic Forum begins with the following lede:

Russia is the most promising market for foreign investment, surpassing China and India, even though corruption remains a “major concern,” according to a survey of international companies for the Russian government.

Count me among the unconvinced. Even if we assume the agency commissioned by the Russian government to carry out the survey was evenhanded, the methodology was clearly flawed. About 50 companies were polled, but they don’t look much like a random selection. The surveyed companies account for about 40 percent of FDI in Russia. Bias in the selection of companies makes it difficult to take anything meaningful from the data – other than that the companies that are already in Russia believe they should be there, despite the risk that corruption poses.

Property rights for all!

The Legal Empowerment of the Poor (Hat tip: CIPE Development Blog)

The Commission on Legal Empowerment of the Poor, co-chaired by Madeleine Albright and Hernando de Soto, just released this report on Tuesday. The report looks at creating property rights at the bottom of the economic ladder. From the executive summary:

…[I]t is not the absence of assets or lack of work that holds [the poor] back, but the fact that the assets and work are insecure, unprotected, and far less productive than they might be…In too many countries, the laws, institutions, and policies governing economic, social, and political affairs deny a large part of society the chance to participate on equal terms. 

Petrostate: Putin, Power, and the New Russia (Hat tip: Johnson’s Russia List)

On a very different note, author Marshall Goldman discusses his recent book on energy politics in Russia at an event today at Radio Free Europe/Radio Liberty. The book promises an interesting read on the corrosion of property rights at the top of the economic ladder. From the description:

The book provides an informative overview of oil in Russia, traces Vladimir Putin's determined effort to reign in the upstart oil oligarchs who had risen to power in the post-Soviet era, and describes Putin's efforts to renationalize and refashion Russia's industries into state companies and his vaunted "national champions" corporations like Gazprom, largely owned by the state, who do the bidding of the state.

Oil, oil everywhere…

In just the last two days, two articles have pointed to growing pressure for greater state control of energy resources. In Brazil, the state-owned oil company Petrobras (subscription required) has been pressuring the country’s Congress to change the rules of the game to its benefit. Currently, foreign oil companies bid in auctions for exploration rights, paying a combination of an upfront fee and royalties on any discoveries. However, a huge discovery last year by Petrobras has upped the stakes. Petrobras wants to force all new explorations to be carried out as joint ventures, a la Venezuela and Nigeria.

A case in Russia is also pointing to continuing pressure for state control of the energy industry (subscription required). TNK-BP, a joint venture of British Petroleum and Russian-owned Alfa-Access-Renova, has seen a falling out between its foreign and Russian shareholders. The details of the case are truly convoluted, but the main contention is this: The shareholders of Alfa-Access-Renova would like to sell their shares to one of the state-owned oil companies, but they need to achieve a takeover of TNK-BP before handing the joint venture over.

Cognitive surplus - the untapped potential of Development 2.0

New business models, crowdsourcing data, falling IT costs - all represent different facets of the potential for web 2.0 applications to the development sector.

In a recent seminar at the Bank, Dion Hinchcliffe pointed me to a new item to be added to the list, borrowed from Clay Shirky: namely, "cognitive surplus". Wikipedia is one example of the surplus in action:

So if you take Wikipedia as a kind of unit, all of Wikipedia, the whole project--every page, every edit, every talk page, every line of code, in every language that Wikipedia exists in--that represents something like the cumulation of 100 million hours of human thought. I worked this out with Martin Wattenberg at IBM; it's a back-of-the-envelope calculation, but it's the right order of magnitude, about 100 million hours of thought.

Now, what if you were to galvanise the equivalent of 100 million hours of thought for development purposes? Admittedly, this might be easier said than done. As Shirky points out, "the interesting thing about a surplus like that is that society doesn't know what to do with it at first" and the "physics of participation" is complex and unpredictable. But the development sector has a comparative advantage here given its skills in tapping into volunteer resources and dealing with complexity. What is often lacking, however, is project design that deliberately aims to exploit network effects and Reed's law - hence the "scaling up" dilemma.

Socialist legacy: aversion to equality?

A new paper titled, Attitudes to equality: the "socialist legacy" revisited, analyzes whether residents of post-socialist countries have "a preference for greater income equality, other things being equal, owing to the legacy of socialism." Surprisingly or not, the authors find little evidence that supports this claim.

The authors compared the preferences of former Soviet Union countries to those of other Eastern Europe and other groups of developed and developing countries. They found that as a group, there is a significant lower preference toward moving to greater income equality!