Economists are stingy

A new study entitled "Why Are Economics Students More Selfish than the Rest?" suggests that economists are less likely to donate than other students. Maybe time to introduce Adam Smith's Theory of Moral Sentiments over and above the much more widely read Wealth of Nations.

The abstract of the study:

A substantial body of research suggests that economists are less generous than other professionals and that economics students are less generous than other students. We address this question using administrative data on donations to social programs by students at the University of Washington. Our data set allows us to track student donations and economics training over time in order to distinguish selection effects from indoctrination effects. We find that economics majors are less likely to donate than other students and that there is an indoctrination effect for non-majors but not for majors. Women majors and non-majors are less likely to contribute than comparable men.

Green fiscal stimulus

A new paper Global Governance: The G20 and a Global Green New Deal analyses the worldwide green fiscal stimulus. South Africa's green stimulus as percentage of the total fiscal stimulus of $7.5bn was 10.7%, compared to the UK's 10.6%, the US's 12%, China's 33.4% and South Korea's 95.2%.

Abstract

As the world recovers from the worst economic crisis since the Great Depression, the international community should promote a mix of policies to sustain this global recovery and create jobs through reducing carbon dependency, ecological degradation and poverty. Such a Global Green New Deal (GGND) requires a long-term commitment to implementing and coordinating “green investments” by the Group of 20 (G20), who should also adopt complementary pricing policies and foster international aid and other actions in support of the GGND. Developing economies should provide clean water and sanitation for the poor, create safety nets, invest in heath and education, and target energy and water poverty. Such a global strategy can revive economies, create jobs and improve the sustainability of world development.

Full citation: Edward B. Barbier (2010). Global Governance: The G20 and a Global Green New Deal. Economics: The Open-Access, Open-Assessment E-Journal, Vol. 4, 2010-2. http://www.economics-ejournal.org/economics/journalarticles/2010-2.

Zimbabwe: Beauty, destruction and surprise

No country has had so much bad press as Zimbabwe in recent years. No country's leadership deserves any less to be frank. In the last few days I had the opportunity to visit this country of destruction and beauty. In the process we had a few very positive and very negative surprises.

"From Zambezi to Limpopo

May leaders be exemplary;"

Our purpose was to visit Chimanimani National Park, a piece of paradise in the eastern highlands of Zimbabwe. It is a rugged and pristine wilderness area catered for the self sufficient hiker. It was 19 years since we have been there and little has changed. The views are stunning, the waterfalls crystal clear and the air so pure that it cures an otherwise chronic sinusitis in a few days.

"Oh lovely Zimbabwe, so wondrously adorned

With mountains, and rivers cascading, flowing free;"

The serenity of this place stands in stark contrast to the course the country has taken in the last decade or so. The disastrous consequences of Zimbabwe's land reform process is evident everywhere. Production of foreign exchange earning commodities such as sugar cane and tobacco have fallen drastically, while maize production has also more than halved over the period 2000-2007 (see FAO Stats). My own information is that an estimated 200 white farmers are left in Zimbabwe. This compares to 280 white farmers in June 2008 as reported in the Daily Telegraph. Despite these disastrous developments, according to the FAO undernourishment in Zimbabwe remained relatively constant at around 40% of the population. We have witnessed many fields planted with maize and other crops in the rural areas and saw trucks delivering bags of food to remote areas. The question is how sustainable this situation is and whether these rural households are able to withstand any further shocks to their already frail economy.

"May rain abound, and fertile fields;

May we be fed, our labour blessed;"

In Africa one can expect anything. We did experience a few surprises ourselves.

The border post at Beitbridge is a cocktail of diesel, dust and queues. It takes anything between 1.5 and 8 hours for a car to pass the border and it is worse coming back into South Africa. The sheer volume of trucks and people passing into Zimbabwe bodes well to the economy of this beleaguered nation, but do not jump to conclusions before one has seen the queue of Zimbabweans joining the estimated 3 million refugees in South Africa already. The situation may be improving slightly, but it seems as if many Zimbabweans are still choosing a xenophobic South Africa above their own country. For us the place has a new Afrikaans name: "Vasbytbrug", or roughly translated: a bridge where one has to really hang on tightly.

The feared police roadblocks is one of those popular travel myths. We have encountered 20 odd of these roadblocks, but in most cases the Zimbabwean police were friendly and professional. The only two attempts at bribery were easily thwarted by steering the conversation towards more desirable goals, such as the soccer World Cup 2010 or the country's exceptional beauty.

The roads are generally in reasonable condition, that is if one is not too fussy about road markings, road shoulders, cat's eyes and some potholes. It is not a good idea to drive at night though. We have tried it in a dark 100km/h rush towards Beitbridge competing with trucks, taxis, and overloaded bakkies for a slim piece of tar. Not a good idea.

Money remains a challenge though. The country's economy runs on Rands and US dollars, but it gets a bit tough when R/$ conversions come into play. Zimbabwe National Parks, at least in Chimanimani, is still working on a rate of R10 = 1USD (official rate is closer to R7.50/1$). That puts a handsome R2.50 to the dollar into some pocket somewhere!

Safety remains an issue. Despite assurances that Zimbabwe is safer then South Africa, we were the victims of opportunistic theft while hiking in the mountains. According to the authorities, this was the first ever incidence of this nature in the Park. We were quite positively surprised by the response of the authorities. The incidence was treated as a serious transgression and a well-armed search party of National Park rangers, supported by the local police, were on their way in a matter of hours. It is clear that Zimbabwe wants to benefit from the 2010 World Cup and no crimes on visitors will be tolerated.

Note: Lyrics from the national anthem of Zimbabwe

Image: Wikipedia

Hunger and climate change in SADC - summarised

After a few months of data analyses and literature review, a cautious conclusion on hunger in SADC:

In summary, the main threat to undernourishment in SADC is a lack of food consumption. This is mainly influenced by a lack of own production, erratic local prices, a weak spatial integration of food markets, and very low penetration of average income growth to poorer household economies. The additional risks of climate change and competing land use for biofuels increase the vulnerability of the system, most directly on a household level. Direct response options to support farmers and households are important, but not sufficient. Broader reforms in regional and international trade, as well as a focus on socio-economic and political factors, are needed to improve the overall food system in SADC.

Water: Tough trade-offs and a call for economic management

The management of water resources is an economic problem. The Water Resources Group 2030, consisting of the International Finance Corportion, McKinsey & Co and an extended business consortium has, in a new report, drawn attention to water scarcity and the need for economic management and further investment in this valuable resource.

A key argument is that current supply will be inadequate, but that meeting increasing demands is possible at a reasonable cost:

After careful quantitative analysis of the problem, this report provides some answers on the

path to water resource security. It first quantifies the situation and shows that in many regions, current supply will be inadequate to meet the water requirements. However, as a central thesis, it also shows that meeting all competing demands for water is in fact possible at reasonable cost. This outcome will not emerge naturally from existing market dynamics, but will require a concerted effort by all stakeholders, the willingness to adopt a total resource view where water is seen as a key, cross-sectoral input for development and growth, a mix of technical approaches, and the courage to undertake and fund water sector reforms.

South Africa was one of the case studies . The report indicates that South Africa will have to resolve tough trade-offs between agriculture, key industrial activities such as mining and power generation, and large and growing urban centers.

A winning conclusion

Partha Dasgupta reviewed the interface between ecological economics and economic development in a new working paper "The Place of Nature in Economic Development". His conclusion wins the Sustainable Options Winning Conclusions Award for this week*:

Development policies that ignore our reliance on ecological capital are seriously harmful - they

don't pass the mildest test for equity among contemporaries, nor among people separated by

time and uncertain contingencies.

* A completely random award to all working on interesting issues spanning from Africa's development challenges to the beauty of sea horses in the Knysna lagoon. In the spirit of the Mo Ibrahim prize it may or may not be awarded.

Southern African Regional Climate Change Programme

Africa is expected to bear the brunt of climatic changes (see earlier blogpost The IPCC on Climate Change in Africa). Now there is a new regional Southern African programme to deal with the effects of climate change on the largely poor and malnourished populations in this often forgotten part of the world. With so much anxiety on the success of the Copenhagen talks, this rings at least as a step in the right direction.

From the RCCP website:

"It is in the interests of both the developed and the developing world—North and South—that the impact of climate change on poverty be contained. The Regional Climate Change Programme (RCCP) has been established to help the whole region adapt to climate change. Extending its reach beyond political borders, the RCCP is furthermore committed to helping level the playing field with regard to equitable access to climate funding.

Future life in Southern Africa will depend on the ability of both the environment and the population to adapt to warmer temperatures and greater unpredictability in weather patterns. This variability is already having a negative impact on progress toward the Millennium Development Goals of water, agriculture, health and energy."

Read full story and much more about the programme here.

Africa's Infrastructure Challenge

The IBRD and World Bank released a report entitled "Africa's Infrastructure: A Time for Transformation", estimating that the cost of addressing Africa's infrastructure challenge is $93bn per year, one third of which is for maintenance alone.

Other main findings are that infrastructure has been responsible for more than half of Africa's recent improved growth performance, that infrastructure networks are lagging behind other developing countries, that infrastructure services in Africa are twice as expensive as elsewhere, and that infrastructure in Africa is mainly financed by central governments.

For more findings and well-researched discussions read the full report here.

H/T: Polity

Image: WikiMedia

On access to electricity and higher education in SA

A beautiful graph from GapMinder showing the relationship between access to electricity and higher education for South African municipalities.

A few observations:

- Access to electricity increases markedly over this time period

- The percentage of with higher education increases up to 2000, and started decreasing since then, but with some notable exceptions

- The curve is pulled back towards the left-hand corner as time progresses; improved access to electricity without corresponding gains in higher education.

- A notable rebound effect from 2001 onwards - access to electricity still improved in most cases, but percentage of population with higher education starts to fall behind

This signals pressure on higher education, especially from 2001 onwards, that is not directly related to the lack of access to electricity. This failure is not uniform throughout the country though.

Increasing income, increasing waste

The generation of waste does not (yet) seem to follow the richer is greener, or Environmental Kuznets Curve theory. Even in the relatively rich EU25, rising incomes still mean rising amounts of municipal waste in landfills, but there is some good news, according to a new paper "Municipal Waste Kuznets Curves: Evidence of Socio-Economic Drivers and Policy Effectiveness from the EU": "elasticity to income drivers appears lower than in the past".

The full abstract:

Abstract Waste generation and waste disposal are becoming increasingly prominent in the environmental arena, from a policy perspective and in the context of delinking analysis. In general, waste generation is still increasing proportionally with income, and economic and environmental costs associated to landfilling are also increasing. This paper provides a comprehensive analysis of waste generation, incineration and landfill dynamics based on panel data for the EU₂₅, to assess the effects of different drivers (economic, structural, policy) and the eventual differences between Western and Eastern EU countries. We show that for waste generation there is still no Waste Kuznets Curve (WKC) trend, although elasticity to income drivers appears lower than in the past. Landfill and other policy effects do not seem to provide backward incentives for waste prevention, and in terms of landfill and incineration, as expected, they are respectively decreasing and increasing, with policy acting as a strong driver. Eastern countries appear to be performing generally quite well, thus benefiting from EU membership and related policies in terms of environmental performance. We can conclude that although absolute delinking is far from being achieved for waste generation, there are some first positive signs of an increasing relative delinking for waste generation and robust landfill diversion, and varying evidence of a significant role of the EU waste policies implemented in the late 1990s and early 2000s. Our evidence suggests that if while landfill diversion is currently associated to a delinking partly explained by EU policies, waste prevention must be the next objective of waste regulation efforts.

Online Materialism

The somewhat bizarre phenomenon that people spent real money on virtual goods is attracting attention. It may not be that bizarre after all..

People buy virtual goods for the same reasons as they buy material goods. In online spaces, virtual goods can function as markers of status, elements of identity and means towards ends in the same way as material consumer goods do in similarly contrived physical spaces, says Lehdonvirta, the author of a new Phd on the topic.

The good news?

From a macroeconomic perspective, it does not matter what consumers buy, as long as they keep on spending. Virtual consumption might offer an ecological way out of this consumer society's dilemma, says Lehdonvirta.

Increased consumption and less ecological impact? Enough to get me interested and to add the thesis on my pile of reading.

Read a summary on the website of the Helsinki University of Technology which also contains links to the full thesis.

H/T: World Future Society

A day of number crunching on hunger in SADC

The Southern African Development Community suffers from a food crises. The impact is certainly not uniform. On a country level both impact and direction of change is very different. Here are some facts:

- Hunger is a problem on an enormous scale: 95 million people or almost half the SADC population are undernourished. That is twice the number of people living in South Africa.

- Hunger tends to be more acute in certain regions. Almost half of undernourished people in SADC are in the Democratic Republic of Congo alone. Almost 84% of undernourished people in SADC are found in only five countries: DRC, Tanzania, Mozambique, Angola and Madagascar, 15% are in Zambia, Zimbabwe and Malawi and 1.5% in the rest of SADC.

- In absolute terms hunger is increasing, but the rate at which this increase is happening is slowing down. For the whole of SADC the rate of growth in undernourished people slowed down from 46% between the time periods 1990-1992 and 1995-97 (roughly 9% pa), to 10% between the time periods 2000-02 to 2004-6 (roughly 2.5% pa).

- There are mixed successes across the region in responding to the problem. Countries with large undernourished populations are either making good progress (Angola, Mozambique, Zimbabwe) or are making very poor or poor progress (DRC, Tanzania, Madagascar, Zambia).

- Early prognosis?: In the cases of countries with large undernourished populations, the scale of the problem is such that a normal business as usual approach will not eradicate hunger in the forseeable future.

For more read the latest FAO/WFP report on food insecurity in the world.

Comeback of the Commons

The 2009 Nobel Prize in economics went to Elinor Ostrom & Oliver Williamson. They pointed out that internal social control mechanisms regulate the use of the commons and that one does not have to resort to private property rights.

Here the award announcement:

“Rules that are imposed from the outside or unilaterally dictated by powerful insiders have less legitimacy and are more likely to be violated. Likewise, monitoring and enforcement work better when conducted by insiders than by outsiders. These principles are in stark contrast to the common view that monitoring and sanctions are the responsibility of the state and should be conducted by public employees.”

H/T: NY Times

Hunger in sub-Saharan Africa

The 2009 Global Hunger Index reveals the disturbing reality that hunger is on the rise again in the region. Although GHI declined overall in sub Saharan Africa, nearly all the countries in which the GHI rose since 1990 are in the region. Both in the DRC and in Burundi the GHI has reached alarmingly high levels.

The report states as reasons for this growing food insecurity: government ineffectiveness, conflict, political instability and high rates of HIV and AIDS, noting that the financial crises adds to the vulnerability of the hungry. The report further argues that reducing gender inequality is an important part of the solution to global hunger.

Rising prices and... rising demand!?

Again...

Will electricity demand keep on increasing while prices are rising? (A few days ago I posted on a study done by the University of Pretoria showing a substantial reduction in electricity demanded when prices double)

Eskom seems to think that they can have both raising prices and raising demand as evident from their Proposed Revenue Application. Quoted from the document (p 30, for simplicity I am only showing the low sales scenario here):

The sales forecast for the next 10 years has some downside risk (i.e., lower sales) based on the

depth and length of the economic slowdown especially for the first 2 years.

Low

(GWh) % Growth

2010/11 220,260 1.0%

2011/12 224,737 2.0%

2012/13 232,388 3.4%

2013/14 239,536 3.1%

2014/15 248,621 3.8%

2015/16 258,921 4.1%

2016/17 265,399 2.5%

2017/18 271,946 2.5%

2018/19 279,163 2.7%

2019/20 286,388 2.6%

Economic theory says that as electricity prices rise the quantity of electricity demanded will fall, holding other factors constant. The percentage change in quantity demanded in relation to the the percentage change in price is called the price elasticity of demand.

Electricity demand traditionally was relatively inelastic to price which basically means that the rate at which demand slowed down was much less then the rate at what prices increased. There are many different price elasticities for different regions and sectors, but it seems that most tend to converge around a range of -0.2 to -0.7. That means that a 1% increase in price would lead to between 0.2 to 0.7% reduction in demand. There are also signs, at least in the US economy, that price elasticity of electricity is increasing.

This raises questions on the assumptions used in the utility's modelling as well as more serious implications of this modelling and the practical need to entrench market power from the utility's perspective. Will customers be freely allowed to respond to raising electricity prices even if it reduces the demand and thus the sales of the utility? Looking at Eskom's modelling assumptions I am not convinced.

(But then, we need to be sure that all substitutes for Eskom electricity are factored in (what substitutes?), and that the powering forces of raising incomes in South Africa will dwarf the increases in price (really?)).

See, I am still not convinced.

Quote of the day

“I am done with great things and big plans, great institutions, and big success. I am for those tiny, invisible, loving forces that work from individual to individual, creeping through the crannies of the world like so many rootlets, or like the capillary oozing of water, which given time will rend the hardest monuments of pride.”

William James, American philosopher

H/T: Business Day

Types of growth and poverty reduction

Only economic growth in certain sectors reduced poverty (at least in China):

"The Pattern of Growth and Poverty Reduction in China"

World Bank Policy Research Working Paper No. 5069

JOSE G. MONTALVO, Universitat Pompeu Fabra
Email: jose.garcia-montalvo@upf.edu
MARTIN RAVALLION, World Bank - Development Research Group (DECRG)
Email: mravallion@worldbank.org

China has seen a huge reduction in the incidence of extreme poverty since the economic reforms that started in the late 1970s. Yet, the growth process has been highly uneven across sectors and regions. The paper tests whether the pattern of China´s growth mattered to poverty reduction using a new provincial panel data set constructed for this purpose. The econometric tests support the view that the primary sector (mainly agriculture) has been the main driving force in poverty reduction over the period since 1980. It was the sectoral unevenness in the growth process, rather than its geographic unevenness, that handicapped poverty reduction. Yes, China has had great success in reducing poverty through economic growth, but this happened despite the unevenness in its sectoral pattern of growth. The idea of a trade-off between these sectors in terms of overall progress against poverty in China turns out to be a moot point, given how little evidence there is of any poverty impact of non-primary sector growth, controlling for primary-sector growth. While the non-primary sectors were key drivers of aggregate growth, it was the primary sector that did the heavy lifting against poverty.

Will rising electricity prices reduce demand?

Analyse both price and quantity effects! Therefore it is quite a relief to see a new research paper attempting to quantify the effects of rising electricity prices on demand.

In the new paper " Aggregate electricity demand in South Africa: Conditional forecasts to 2030", Roula Inglesi at the University of Pretoria argues that electricity demand will drop substantially due to the price policies agreed – until now – by Eskom and the National Energy Regulator South Africa.

This is the full abstract of the paper:

In 2008, South Africa experienced a severe electricity crisis. Domestic and industrial electricity users had to suffer from black outs all over the country. It is argued that partially the reason was the lack of research on energy, locally. However, Eskom argues that the lack of capacity can only be solved by building new power plants.The objective of this study is to specify the variables that explain the electricity demand in South Africa and to forecast electricity demand by creating a model using the Engle–Granger methodology for co-integration and Error Correction models. By producing reliable results, this study will make a significant contribution that will improve the status quo of energy research in South Africa.

The findings indicate that there is a long run relationship between electricity consumption and price as well as economic growth/income. The last few years in South Africa, price elasticity was rarely taken into account because of the low and decreasing prices in the past. The short-run dynamics of the system are affected by population growth, too. After the energy crisis, Eskom, the national electricity supplier, is in search for substantial funding in order to build new power plants that will help with the envisaged lack of capacity that the company experienced. By using two scenarios for the future of growth, this study shows that the electricity demand will drop substantially due to the price policies agreed – until now – by Eskom and the National Energy Regulator South Africa (NERSA) that will affect the demand for some years.

In a summarised discussion in the monthly AfriNem Newsletter the following telling graph on projected electricity demand (assuming a doubling of the price of electricity from 2008-2011) is presented:

Even at relatively high economic growth rates of 4% and 6%, electricity demand is expected to fall around a massive 27% (when 2007 and 2030 values are compared). Good news is that this is expected to reduce CO2 emissions with 24Mt, but at a cost to several economic sectors such as utilities, construction and mining.

If you are relying on income from electricity sales and have not yet taken into account some basic economics yet: take note. There may be less funds than expected.

(partial) Development Indicators

The South African government has released a third edition of the Development Indicators publication. The report does not contain a specific section on the trends in natural and environmental capital, but a few indicators did make it into the report:

- 470 000 'environmental' jobs were created in the expanded public works programme, compared to 980 000 in infrastructure and 200 000 in the social and economic spheres.

- membership of voluntary environmental organisations declined steeply from 7.9% of citizens in 1995 to 3.9% in 2006.

- International tourist arrivals increased sharply from 6.4m in 2002 to 9.6m in 2008.

- Greenhouse gas emissions per GDP is declining from 450MtCO2 eq in 1990 to 400MtCO2eq in 2007.

- Greenhouse gas emissions per capita is increasing from 9.87 tCO2eq per person in 1990 to 10.29 in 2007.

From an earlier blogpost:

The mainstream economic growth model assumes that natural capital and the environment is in abundant supply, or that a combination of technological developments and the price mechanism will take care of natural resource and environmental shocks on the economy. These are very strong assumptions to make and one that needs to evaluated in much more detail in the further discussion of these recommendations.

Clearly the dominant thinking in economic development is still that natural resources are in abundant supply and scarcity (in quality and/or quantity) will have no discernible feedback effects that may threaten the country's development path.

Flowers...

The Western Cape's flowers is always a stunning display. This year is no exception. See these beautiful galleries of Wild Coast flowers.

Flowers are not the only attraction. Time to join the steady flow of tourists up there...

So long!