economics

East Africa seeks to learn from the Eurozone's mistakes

With a shared currency, entrepreneurs like this Tanzanian vendor won't have to change money when selling their products in other countries. Photo: <a href="http://www.flickr.com/photos/justcrono/4773495951/in/photostream/">justCRONO (flickr)</a>.
With a shared currency, entrepreneurs like this Tanzanian vendor won't have to change money when selling their products in other countries. Photo: justCRONO (flickr).

Has the eurozone crisis made shared currencies passe? East African leaders don’t think so, and they’re looking to Europe for an example of what not to do.

Economic integration isn’t a new idea for the East African Community. Its five member states&mdashUganda, Kenya, Tanzania, Rwanda, and Burundi&mdashalready have free movement of goods and labor, thanks to a customs union and, since last year, a common market (a type of trade bloc). According to EAC Deputy Secretary General Dr. Enos Bukuku, a shared currency would build on this by controlling price instability and exchange rate volatility among the states, writes In2EastAfrica. He says this would encourage businesses to invest and spur development in the region.

An EAC monetary union could face many of the same problems Europe has already experienced. Critics point out that the five EAC states’ economies differ greatly in size and scope. Kenya’s GDP is $31,408,632,915, while Burundi, with a fifth of Kenya’s population, has a GDP of $1,610,544,922, according to the World Bank. This could mirror the dynamic between powerful European states like Germany and the EU’s smaller states like Greece, as Tanzanian IMF head John Wakeman-Linn told The Financial Times. But EAC Secretary-General Dr. Sezibera doesn’t think this will be an issue. “If you look at EAC trade statistics, all the partner states have gained. I do not think Kenya will swallow up the other countries; it will only enrich the economic base of the community,” he said in an interview with The East African.

To the citizens who will be affected by these changes, the European Union’s tribulations are probably either unknown or seemingly distant, but EAC leaders are paying attention and believe that they can avoid Europe’s mistakes. At a round of negotiations in Uganda earlier this month, Bukuku said "For the eurozone ... maybe there wasn't well coordinated fiscal policy management and enforcement. If there are benchmarks that are agreed upon, it would be expected that the community would also agree on sanctions and enforcement mechanisms," reports The Christian Science Monitor. He also cited the issue of fiscal discipline and said that many of Europe’s problems are a result of the eurozone countries not having “lived up to what was in the treaty.”

Economists like the World Bank’s Paul Collier warn that a currency union could hurt East African economies, according to allAfrica.com. Others feel it’s simply inappropriate in the current economic climate; The Financial Times cites shrinking regional growth and depreciating currencies as discouraging indicators. But Wakeman-Linn disagrees, telling the newspaper that even if a common currency isn’t feasible, putting the necessary components in place could help East Africa:

“All the things that they need to do to achieve a common currency – integrate financial markets, trade policy, labour markets, capital markets, statistics databases, develop easy mechanisms for exchanging each others’ currencies – all of these things would be extremely valuable and would help develop the regional economy, and so these are things they should do.”

By revealing the cracks in the world’s financial systems, the global financial crisis has provided developing nations with a handy "What not to do" guide. EAC leaders are strong in their belief that a shared currency is possible, even if there are challenges along the way. “The monetary union is a possibility, not a dream,” Dr. Sezibera told The Financial Times. They originally hoped to implement the currency union by next year, a deadline that has proven to be overly optimistic.

With the lessons they’re learned from the euro’s failures, they hope to avoid some of the bumps along the way.

Margo Conner is a senior at Lewis & Clark College in Portland, Oregon, majoring in international affairs. Read her other contributions to Global Envision.

Rethinking Economics with Riane Eisler

According to Riane Eisler, the work of raising childern is devalued the world over. Photo: <a href="http://www.flickr.com/photos/mishimoto/4056188275/sizes/m/in/photostream/">Mishimoto (flickr)</a>
According to Riane Eisler, the work of raising childern is devalued the world over. Photo: Mishimoto (flickr)

Unlearn economics. Forget GDPs and growth rates. Ignore financial institutions (and their crises). Rethink well-being and worth. What do you care about? What in your life holds the greatest value?

This is a good starting place for a conversation with Riane Eisler, author of the highly successful book "The Real Wealth of Nations," amongst others. She believes it is time for a practical critique of modern economics.

Eisler’s work in the fields of economics, women’s studies and social science has attracted a lot of attention. Some list her work beside great thinkers like Smith, Marx and Hegel. The book "Great Peacemakers" named her one of 20 subjects along with Gandhi, Martin Luther King Jr., and Mother Theresa. This recognition is largely a result of her work on developing the ideas of a system of "caring economics." We caught up with Eisler this week to discuss just what a caring economy would look like and how it might change the way the world works.

Global Envision: What's wrong with modern economics?

Economics is the study of value, and for decades it has been assumed that value is measured mostly by money. If I value organic vegetables, I will be willing to spend more money for them. It should follow that if the government values organic vegetables, it would support the farmers that grow them. Economists devise ways to assess these values and attach number and formulas to quantify them: net worth, salary, gross domestic product. Flip to any news channel or radio station and you will hear endless debate about these figures as they rise and fall.

Eisler ignores this chatter.

“We have been stuck on a conservation that does not get to the core of the challenges we face,” she says. If economics is to be a measure of what we value and care about, why has it ignored raising infants, supporting families and nursing the elderly or infirmed? The constructs of caring extends beyond human relations and applies to the natural environment. But under both capitalism and communism, land is seen only as a source of profit. “An old stand of trees is only given value when it is chopped down," Eisler says. "And yet we need them standing to breathe.”

Economic measures have become divorced from the real values they were originally intended to quantify, Eisler argues. For her, this is no coincidence. "Economic systems don’t evolve in a vacuum," she says. "They are cultural constructs.” According to Eisler, the current system evolved in an environment where nature was exploited and so-called "women’s work" was devalued. Consider this: a women who stays at home and cooks, cleans, gardens, feeds, washes, and rears her three children for 16 hours a day contributes absolutely nothing to the GDP, a measure of a country's standard of living. Instead, the GDP values only income. This includes the cleanup of environmental disasters, the sale of cancer causing cigarettes, war operations and weapon manufacture.

GE: If GDP is a bad measure of value, what statistics should replace it?

Eisler was ready for this question. In a recent report commissioned by Center for Partnership Studies, Eisler helped to synthesize 14 categories with 79 indicators that more accurately measure well-being, including human rights ratings, the number of premature deaths from pollution, and access to health care, as well as more traditional measures of joblessness rates and average annual earnings.

Eisler also hinted that measuring mechanisms should be secondary to the values behind them.

GE: In past economic transformations, the people with the least have been first to lose their livelihoods.

Eisler assured me this would not be the case. “After all, the majority of poor are women and children and a major reason for this is that care-giving is given no value,” she said. To prove her point, she pointed to societies who have already taken steps to place a greater value on caring. Many Nordic countries, who always seem to score high on human development indices, provide extended paternity leave for both parents, offer universal health care, and support government-funded child support. But can low income countries afford such programs? Eisler acknowledged the challenges they would face but also reminded me of CCTs in Latin America, a government program that financially rewards mothers for taking their children to health checkups and primary school.

GE: With this week's massive spending cuts by an austere U.S. Congress, could the transition to "caring economics" happen here?

Eisler agrees the signs don’t look good but still remains hopeful. The way she sees it, creating an economic system that values the unpaid work of caring is an investment, not just an expenditure. In other words, the money spent now will be returned in future savings and revenues. And she has the scientific research to back her up. In her book, "The Real Wealth of Nations," she cites substantial evidence that private corporations have been able to realize savings and increase profits by taking care of their workers.

GE: It sounds like there's a lot of work to be done. What's the role for those of us without advanced degrees in economic theory?

Eisler's answer was surprising: Everything. She believes that interdisciplinary support outside the field of economics must begin valuing the work of caring. Gender equality, civil rights, environmental responsibility, access to quality education, the right to health care, and supporting families are all areas that work towards the goal of overriding the top-down, masculine-valued economic system currently in place.

“Change doesn’t happen quickly,” Eisler reminded me. “It can, but there are many steps that need to be taken.” Eisler is hoping to create a ground swelling grassroots movement that can champion such a transformation. Her foundation, the Center for Partnership Studies is making progress and inviting others to do the same. For example, the foundation offers an online training program where people from all over the world are able take leadership roles in the economic transformation. The next session begins this fall.

“The response to the online program has been wonderful,” Eisler said. But she also mentioned that with the size of this paradigm shift, “We will need more people.”

Eisler will speak on "The Power of Partnership: Towards a Caring Economics and Society" at 2 p.m. on Friday, Aug. 5, at Marylhurst University, just south of Portland, Ore. The event is free and open to the public. Questions above were edited for clarity.

What a Marshall Plan Could Do For Africa

Economist Glenn Hubbard argues that aid targeting local African business development would help the continent more than infrastructure projects like roads. Photo: <a href="http://www.flickr.com/photos/gara/68053063/in/set-1468">Stefan Gara (flickr)</a>
Economist Glenn Hubbard argues that aid targeting local African business development would help the continent more than infrastructure projects like roads. Photo: Stefan Gara (flickr)

Foreign aid has failed to end poverty in Africa because it often funds the wrong kinds of projects, says economist Glenn Hubbard. As he explains in a recent podcast interview with NPR's PlanetMoney, Africa remains just as poor as it was 50 years ago, despite the $1 trillion in foreign aid that developed countries have spent since WWII.

How to fix this? Hubbard argues that funneling aid money directly to local businesses is the most effective way to promote growth and end poverty, an idea he expands on in his book The Aid Trap. He contends in an interview with Columbia University Press that Western governments could model such an initiative on the Marshall Plan, the foreign aid program that the United States used to rebuild Europe after WWII:

Everyone in aid recognizes the Marshall Plan as the most successful aid program in history. What few realize is how the Marshall Plan actually worked. It made loans to Europe’s private businesses, who repaid them to a national fund, which spent the money on commercial infrastructure like ports and roads.

Hubbard believes that this aid model can also be applied to Africa, since small-to-medium sized business are the engines of any economy. "There is a collective amnesia among prosperous countries about how they themselves rose from poverty: their local business sectors," he writes in an article for CNNMoney. By contrast, large multinationals doing business in Africa rarely impact local poverty levels.

"We can do [this plan] without spending new money," Hubbard says to PlanetMoney, explaining that he just wants to restructure how aid is given. He also believes that "we have a moral imperative to act" to end poverty through aid, in contrast to the prominent economist Dambisa Moyo, who argues that Africa would be better off without any aid at all (see Manasi Sharma's "Is Foreign Aid Helping or Hurting Africa?"). Hubbard tells Columbia University Press that not all aid money should go to business either, since humanitarian aid and microfinance programs are both successful and necessary for the poor.

Hubbard admits to the PlanetMoney team that the idea has some risks, such as the possibility that local elites could siphon off many of the benefits without improving the lives of the poor. However, he says that it's even easier for them to do so under the current system. "The traditional aid has definitely strengthened the elites," he explains.

Despite possible drawbacks, as Hubbard points out to PlanetMoney, it's clear that when one aid plan has already failed, we shouldn't try to duplicate it for another sixty years — we should move on to something new. And as he tells Columbia University Press, "It’s not that business hasn’t worked in poor countries, it’s that business never had a chance in poor countries. Let’s provide that chance."

Don't Count Out Economics

Topics: Economic Development
Countries: United States
The July 18 issue of <em>the Economist</em></a>. Photo: <a href="http://www.economist.com"><em>The Economist</em></a>
The July 18 issue of the Economist. Photo: The Economist

During the boom years of the 1990s, economists like Alan Greenspan became celebrities. Their speeches and writings were closely studied by those hoping to know where the market was going next. But thanks to the collective failure of economists to predict the worst economic crisis in decades, those shining reputations are now tarnished.

Now the profession of economics is hurting. The July 18 issue of The Economist cautions against an economist backlash, warning against the logic that "if economists got things wrong, then politicians will do better."

In its crudest form — the idea that economics as a whole is discredited — the current backlash has gone far too far. If ignorance allowed investors and politicians to exaggerate the virtues of economics, it now blinds them to its benefits. Economics is less a slavish creed than a prism through which to understand the world. It is a broad canon, stretching from theories to explain how prices are determined to how economies grow. Much of that body of knowledge has no link to the financial crisis and remains as useful as ever.

Despite the vigorous defense of the discipline, the Economist goes on to note that two sub-fields of economics do require reform. Macro-economists, who study the impact of factors like unemployment and inflation on economic growth, use quantitative models to forecast economic trends. The most common models failed to take into account potential failures of the financial system and therefore failed to predict the scale of the recession. Some economists are using complex computer simulations to test and improve existing models.

Financial economists, those that examine the prices of financial instruments like stocks and bonds, need to focus on how risk impacts the financial system, according to another Economist article. The increasing use of psychology in economics provides one opportunity for these economists to better understand risk.

From the Archives

Brazil's Energy Windfall

Topics: Energy and Oil
Countries: Brazil
Previously filed under: South America, Global Economy
Brazil recently discovered billions of barrels of oil off its shores - and immediately started reorganizing its trade policy on the world market.

The Implication of Economic Indoctrination

Topics: Education
Countries: Germany, France

Children learn based on their teachers-- and often national policy regarding education. This month's issue of Foreign Policy explores how the way Germany and France teach economics may spell a dismal economic future.

Millions of children are being raised on prejudice and disinformation. Educated in schools that teach a skewed ideology, they are exposed to a dogma that runs counter to core beliefs shared by many other Western countries. They study from textbooks filled with a doctrine of dissent, which they learn to recite as they prepare to attend many of the better universities in the world. Extracting these children from the jaws of bias could mean the difference between world prosperity and menacing global rifts. And doing so will not be easy. But not because these children are found in the madrasas of Pakistan or the state-controlled schools of Saudi Arabia. They are not. Rather, they live in two of the world’s great democracies—France and Germany.

From the Archives

The Bottom Line for Microfinance

Topics: Microfinance
Previously filed under: Asia, Microfinance
A close look at microfinance institutions reveals an important key to success - efficiency.

From the Archives

Understanding the Falling Dollar

Previously filed under: North America, Interviews
Brad Setser of the Council on Foreign Relations talks about the U.S. dollar, foreign exchange markets, and how governments control currency.

From the Archives

Global Oil Trends

Previously filed under: Global Economy
Dwindling oil reserves and shaky relations between producers and consumers has made oil the central concern in today's global marketplace.

From the Archives

FORGE - The Wage Dilemma

Previously filed under: Africa, Field Diaries
Kjerstin Erickson, founder of FORGE, discusses the emotional task of deciding how much to pay local staff in underdeveloped, war-torn economies.

From the Archives

More than Micro

Previously filed under: Opinions and Editorials
Ritu Sharma of the Women's Edge Coalition argues for the economic empowerment of women worldwide.

From the Archives

Why "Fair Trade" Could Backfire for the United States

Previously filed under: North America, Trade
Many economists believe that the current approach to manufacturing employment in the United States will do little if anything to solve the current crisis.

From the Archives

Has Neo-Liberalism Failed Mexico?

Countries: Mexico
Previously filed under: North America, General Globalization
An advocate of free markets analyzes the effects of North American Free Trade Agreement (NAFTA) and questions why neo-liberal policies have failed Mexico.

From the Archives

Questioning Milton Friedman's Free Market and Freedom

Previously filed under: Global Economy
Milton Friedman's experience in Chile illustrates that political freedoms may not flow naturally from economic freedoms.

From the Archives

Global Warming Insurance is a Bad Buy

Previously filed under: Environment
A new report by the British Treasury argues that we must invest now in order to avoid a near-future crippling of the global economy.

Stories We're Watching

As Growth Slows, India Awakens to Need for Foreign Investment

International Herald Tribune - Wed, 02/08/2012 - 08:26
India’s central bank and economic analysts predict that growth will fall sharply to 7 percent this fiscal year and remain sluggish.

Social responsibility and a new world order

Washington Post - Innovations - Tue, 02/07/2012 - 07:56
Just before the New Year, the London-based Center for Economics and Business Research announced that Brazil had overtaken the United Kingdom as the world’s sixth largest economy. Furthermore, it predicted that by 2020, India and Russia will also have overtaken all the European economic powers.

Aid for trade policy rears its ugly head

The Guardian's Poverty Matters - Mon, 02/06/2012 - 01:41
The UK government's dismay at not being granted the contract for Typhoon fighter jets in India is an indication that its controversial aid for trade policy is still very much alive.

Liberia's battle to put the lights back on

The Guardian's Poverty Matters - Sun, 02/05/2012 - 23:00
Ellen Johnson Sirleaf has set ambitious targets to restore the country's electricity supply. But will it meet them by 2015?

As Africa's consumers rise, so does inequality

Yale Global Online - Fri, 02/03/2012 - 10:17
Kenya struggles to spread the wealth from rapid growth.

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