17 June 2008

On Death, Pestilence and War

I picked up my copy of The Economist today and I read an article which made me shiver. It was from the Middle East and Africa section and it was entitled Ethiopia. Will it ever be able to stave off starvation?

The article spoke about famine in that country:

“Life here is still akin to serfdom […]. The government owns the land […]. Yet
labourers get by in Goru Gutu district much as they have always done, tilling
soil by hand, digging ditches, doing whatever it takes to buy a few cups of
grain to keep their families alive. […] As you head deeper into the hills, the
animals get thinner, the children more listless. The food on the market is too
expensive, and there are no informal sales on the road-side No one is eating.”[1]

Food shortages have always been problem in the Horn of Africa, especially in Ethiopia, Africa’s second-most-populous country – we all remember the 1985-1985 famine in Ethiopia where Bob Geldof and Phil Collins others organized Live Aid and Band Aid to help the millions effected by the famine – and they seem to be occurring again.

It’s difficult to say whether or not the current crisis in Ethiopia should be viewed as a consequence of the current global food price crisis – which has already sparked riots in some other African countries – or as an independent case, but what is made clear by the article is that the government of Ethiopia has brought this onto itself to some extent.

“The government is supposed to have 450,000 tonnes in a grain stockpile, with
100,000 tonnes in reserve to keep prices from rising too much. But it has only
65,000 tonnes left.
If Goru Gutu district is an indicator, things will get
far worse; many people will starve to death. Ibsaa Sadiq, a local government
official, reckons that nearly half of the 116,000 people who live here,
especially women and children, need food aid to survive. A feeding centre run by
the government, assisted by Catholic nuns, cares for some 800 of the hungriest
children. They spend days or weeks in a metal shed smelling of diesel and

Of course a major part of this problem is beyond anyone’s control; it has to do with failed harvests, high fuel prices, and lousy weather. But it is without a doubt in my mind that this tragedy is also the fault of the Ethiopian government. This is another clear-cut example of a failed system of state control over the economy. “Aside from coffee, qat (a narcotic leaf chewed by Somalis), horticulture and a little tourism, Ethiopia is one of Africa’s very few countries that still has virtually no serious private business – and thus few jobs – outside the state sector. Almost three-quarters of the population may be under- or unemployed.”[3] It is without surprise that in a country that can almost be described as still rather communistic there be problems with food production. There are few jobs, so there is very little wealth; this means there is little or no savings; people are thus penny-less and at the mercy of the weather when it comes to food.

This article once again confirms my belief that the free market is the best way to create wealth and avoid the tragic human misery that is described. This is especially important in the field of development. For developing countries such as Ethiopia, it is essential that they reform and adopt market-oriented approaches to economic growth. Is it a simple coincidence that the poorest countries in the world also happen to be the least free? Ethiopia is a prime example: it is ruled by an authoritarian strongman, Meles Zenawi, who has done little to reform the country to promote private enterprise, who violently oppresses the opposition, and who even attempts to hide that there is a famine going on by holding back information and banning photographs being taken in affected areas – reminiscent of Stalinism in the USSR. Is it really that surprising then that Ethiopia also ranks amongst the poorest countries in the world? Of course not! There is a connection between the level of economic freedom and the level of development.

Anther important issue the article mentions, but only briefly, is population. The problem with Ethiopia, indeed the problem of Ethiopia, is the population problem. “Ethiopia still has too many people eking out a living on too little land, depending on rains that can never be relied on.”[4] With a population of over 77million there is a major cause for concern. With 85% of the people living off agriculture – a very basic form of agriculture mind you – even under the perfect weather conditions and the most fruitful of harvests, many millions would still be left destitute[5]. This of course immediately reminds us of Thomas Malthus and his Essay on the Principle of Population. In Ethiopia it seems, the Malthusian disaster has occurred, and what’s worse – from a Malthusian perspective – even war, famine and pestilence have not been enough to keep the population in check.

The Economist article ends with a very pessimist look at the chances of Ethiopia’s progress. I personally hate to agree with this pessimism but unless real reforms occur in that country, I’m going to have to. What Ethiopia needs if it wants to avoid periodic famines is a change in leadership; economic reforms (beginning with the introduction of private property); and encourage foreign investment – now I’m not necessarily advocating Jeffery Sachs’ “Shock Therapy”, but some major reforms in the economic system are dreadfully needed. Ethiopia also needs to make some deep-rooted changes in its culture with regards the family; nearly half the population is under 15 years of age. It is with no surprise that under such a situation, you will have a population problem. In order to fix this, major family planning programs need to be implemented; better education and higher availability of contraceptives is needed – perhaps dictator Meles could divert some of the 350million dollars he spends on defense every year[6] and direct some of it towards education and family planning schemes.

[1] The Economist, Ethiopia. Will it ever be able to stave off starvation?. June 14th 2008
[2] Ibid.
[3] Ibid.
[4] Ibid.
[5] http://www.voanews.com/english/archive/2006-03/Ethiopian-Population-Expected-To-Grow-by-More-than-100-Percent.cfm
[6] http://chora.virtualave.net/budget-2002.htm

01 June 2008

An interesting cross-country test for the Ricardian equivalence

Tim Harford comments on the practical impacts of American and British tax plans, and defends that their impact will be the same, despite the different reasoning behind them.

"Here's why: Since neither the U.K. nor U.S. government intends to alter its spending plans, these tax holidays will be funded by government borrowing, borrowing that must eventually be repaid. That will require taxes to go up in the future or not to fall when they otherwise might."
By his concluding remark, Mr. Harford's interest is the political economy of the measure - whether people be fooled by this measure and vote for the wizard politicians. I personally wonder whether consumer behavior will vary between the two sides of the Atlantic. Could British people be more concerned about the well-being of their children than Americans are, or vice versa?

Other references about the tax-rebate: