24 July 2007

Systems or grassroots - which one are you?

5 years ago, I spent the summer in Tanzania working in a children’s home. I played with the kids, taught some basic English and tried to help the founder with her finances and medium-term strategy. The beneficiaries were the 15 children living in the home. We volunteers provided labour, but above all money so that LOHADA (http://www.lohada.org/) was able to move to a bigger home in 2004 and last year opened a primary school for 60 children. Walking to work every day, I breathed the fresh air of the African highlands and admired the sugarcone summit of Mount Kilimanjaro.

This summer, I am in an air conditioned office in Monrovia. I travel to the Ministry of Agriculture every day in the family van. The workers on the picture are the closest I have got to Liberian farmers. The direct beneficiaries of my work are bureaucrats, civil servants, members of the tiny Liberian middle class. So far, so unsatisfying.

I have had ample time this summer to read reports from friends ‘in the field’ – from Colombia to India – and I envy their ability to see the impact of what they do every day. Their stories bring back my Tanzanian experience: the fun, but also the frustration I felt at only being able to help 15 children. Without any relevant education or experience, I felt like a complete amateur, powerless and confused. So one evening I typed “Master’s Degree International Development” into Yahoo (we didn’t use Google back then). The first link took me to the Kennedy School website and the MPAID program. 3 weeks later, back in Europe, I applied. It took a few years to raise the money, but they let me in eventually and I am now half way to becoming a technocrat.

I don’t mean to suggest that working at a systems level and at the grassroots are mutually exclusive: but there seems to be a difference in ethos and lifestyle. In Tanzania, I remember waving at UN officials in white LandCruisers, with 2 little kids on each arm. Now I hurry past the kids, wearing a suit, clutching a PowerPoint deck on “Risk management”. If my project goes well, the Ministry will qualify for more donor funding and spend it wisely. Liberian farmers will be more productive and citydwellers will eat better. It’s just hard to see the connection sometimes.

Maybe I should buy a farm, so I could try out high-yielding cassava varieties and swampland irrigation for myself. Otherwise, I am looking for people and organizations who manage to ‘bridge the gap’: people who start small and go huge, people who change the system so that others can change their lives. Please give me some ideas. Are you bridging the gap?

16 July 2007

It's all about rice

The Law of Demand is one of the most basic rules in economics: when the price of something goes up, demand goes down. Professor Nolan Miller, my tutor in microeconomics at the Kennedy School, has just found the first exception to this rule: rice in China. The paper is at http://ksgnotes1.harvard.edu/Research/wpaper.nsf/rwp/RWP07-030.

It turns out that some people in Hunan, Southern China, spend so much of their limited income on rice that if you raise the price, they consume MORE rice. This is because raising the price of rice, in effect, reduces their income. The only way to avoid the gnawing pain of an empty stomach is to spend less on pork and vegetables, and fill up on rice instead.

Economists call this 'Giffen behaviour', after a Victorian economist called Robert Giffen who asserted that poor people in Britain ate more bread when the price of bread went up. Nobody has ever verified that example, or found any other, until now. Professors Miller and Jensen comment on the irony that economists have spent the best part of a century convincing themselves that Giffen behaviour was a theoretical curiosum, only to find it in the staple crop of the world's most populous nation.

Interestingly, the result only holds for rice, among very poor urban households in southern China. Rural households grow their own rice, so a higher price is good for them. In northern China, a similar relationship holds for wheat, but it is weaker for two reasons. One, wheat can be consumed in different forms: as flour, or processed into buns and noodles. Two, rice is relatively cheaper in northern China than wheat is in the south, so a substitute is more readily available.

My own experience in China makes me think that this phenomenon won't last forever: transport costs are falling all the time, the poor in China are getting richer and regional differences in taste are less pronounced than they used to be. I was able to eat noodles in the south for only 1 or 2 yuan more than they cost in the north.

Sadly, I don't have the data to investigate this relationship for Liberia. Liberia is several decades behind China in development: while even the most isolated Chinese village has a regular bus service, many counties in Liberia are virtually inaccessible at this time of year. Rice production is only half of what it was in 1990, when the war began. Some farmers have switched to growing cassava, others are so hungry that they eat the rice seed the UN donates them instead of planting it. But it is in the city that rice is - pardon the mixed metaphor - a political hot potato.

In 1979, increases in the price of rice (mostly imported from the USA) led to riots in Monrovia. The government tried to put them down, using the army. But a 28-year-old sergeant, Samuel Doe, decided to put the government down instead. His coup ushered in 3 decades of bad government and eventually civil war. Small wonder that the new government has put growing more rice at the top of its agenda. But let the Chinese have the last word:

"If you are planning for a year, sow rice; if you are planning for a decade, plant trees; if you are planning for a lifetime, educate people."

06 July 2007

Why are Liberian farmers so poor?

Working in Africa is a good way to see economics in action. The need to make a living is so urgent, so insistent in a country like Liberia that people are alert to every possible opportunity to make money. If they don't take an opportunity, it's not because they are lacking initiative or entrepreneurial talent: something is stopping them!

These three questions (thank you Drew Kinder!) that cut to the heart of the matter:

If Liberia is so fertile, why can't its farmers even feed themselves?

I have been puzzling over this since I got here. Sure, during the civil war it was too dangerous to live in the country, so farmers fled to the city and lived on handouts, but now they back on their farms, so what stops them? Do the economic tools I have been imbibing for 10 years yield any answers? I'll try:

  • Technology: most farmers here are using production techniques that went out in Europe sometime between 1200 and 1400, namely, shifting cultivation with hand tools. They are too small and poor to afford to buy better tools, so nobody bothers selling them.
  • Thin markets: the roads are so poor that many crops will rot before they get to market. This is a classic poverty trap, otherwise known as a Catch-22: there are too few markets to make it worth producing a surplus, but because nobody produces a surplus there is nothing to sell on the market.
  • Inputs: there was never a green revolution for Africa. Liberian farmers get about 1 tonne of rice per hectare. Hybrid seeds in India or China yield 7 or 8 times as much. You need to use seeds adapted to local soil conditions, but Liberia (like most of Africa) was too small and poor to ever develop them.
  • Social capital: Most Liberians grow upland rice. They could more than double their yield by growing lowland rice in swamps, using irrigation. But it takes a whole village working for several weeks to prepare a swamp for cultivation. Decades of civil war and long-standing inequalities (especially the role of women) mean that villagers don't trust each other enough to share effort like this.
  • Risk: rice and cassava are low-value crops, but they are low risk. Pineapple and palm nut are high-value, but high risk. Would you rather give your kids one meal a day, or shoot for three and end up with none? With no functioning insurance or credit market, I would go for the safe bet.

I hear Liberia exports a lot of rubber. Can't it just grow more?

Yes, absolutely. Liberian soil and rainfall conditions are perfect for rubber trees and labour is cheaper than Brazil or Malaysia, the main competitors, so rubber should be the perfect cash crop.

Two problems, though: One, it takes at least 5 years for a rubber tree to start producing. We visited the Firestone plantation last weekend. It was the only plantation that kept producing during the war and even there, many trees were damaged and rubber workers shot, beaten up, etc. So while people are busy replanting rubber trees, they will take several years to grow to maturity.

Two, Liberia only exports raw rubber. It gets made into tires when it reaches Ohio. Firestone told us last weekend that this was because the local market for tires was too small. However, the Chinese are calling their bluff: they are building a rubber processing plant about 60km north-east of Monrovia, in the heart of rubber country. This should create some jobs (better than tapping trees) and give Liberia a new export. Funny how it takes the Chinese to teach American capitalists about capitalism . . .

Why do we need to wait for the government? What can private enterprise do?

Dani Rodrik has some interesting things to say on this in his blog. Ironically, the guys in my office (West African farmers, but more economically literate than most PhDs!) just had the same debate: should the government try to intervene? Does it 'crowd out' private enterprise by doing so?

  • Most entrepreneurs in Liberia are micro-scale: literally, women selling peanuts. They are constrained by the same market failures as the farmers.

  • There is a business class in Monrovia: mostly Lebanese. Like Lebanese everywhere, they monopolise trade because they have the capital and international network. We gladly pay them $10 to import a jar of peanut butter. So why should they bother trying to score a few papaya from farmers on the 1% chance that you can get WholeFoods to buy them?

  • Liberia is stable as long as the UN is here, but after that all bets are off - so the supermarket buyers who flock to Kenya and Zambia won't be coming here.

  • As with so many things in Liberia, a lot of hopes rest on the returning Liberian diaspora: the educated exiles who spent the war in the USA and are now coming home in droves to develop their country. Many of them are in the government, but one or two are interested in commercial farming. Let's hope we find a lot more.

Yesterday, our Ministry arranged a 'cassava workshop'. They got an international cassava expert from Nigeria to show us all the delicious things you can make from cassava - which is an even more secure than rice. That is the sort of thing the government can do well: make the connections and set an example with a few smart initiatives. Now let's see if the Chinese can sell those papaya to WholeFoods.

Sheltering from the rain

I'm spending the summer in Liberia, West Africa, working for the government as an intern. The connection is through my university: a number of Liberians have been educated at the Kennedy School of Government, including the new President, Ellen Johnson Sirleaf. Seven of us (me, Molly, Emily, Zach, Yesenia, Yue Man and Jesse) were sufficiently curious to follow her call to do some government work over the summer. We are joining the large Liberian diaspora that has returned to rebuild the country, at the President's personal invitation.

Liberia is the wettest country in Africa and we are here in the rainy season. The capital, Monrovia, gets 4,000mm of rain annually. (London gets about 800mm, Boston 1,500mm and Manchester maybe 2,000mm.) Last weekend I went into town to have lunch with a friend. 5 seconds after getting out of thecar, the heavens opened. Within 30 seconds, the streets had turned into rivers. I had to borrow his umbrella just to cross the road. Where the drains are blocked, vehicles plow through half a foot of muddy water. Poor sanitation and a complete lack of waste disposal have contributed to Liberia's catastrophic public health: 135 children out of every 1,000 do not live to see their 5th birthday.

I'm working in the Ministry of Agriculture. I am not trying to teach Africans how to grow cassava. Instead, I am helping to develop the budget, financial and administrative systems of the ministry sothat they can spend their money wisely and honestly. This is crucial if we ever want to reduce the 2/3 of the population that is malnourished. The Ministry's budget is currently $3m, i.e., about the same as,say, the X-ray department in your local hospital. The government spent $140m last year, or about the same as your local hospital. Income per head is about $150 a year. The UN and NGO expats who took over most government functions earn more than that in a day.

Still, I have come to respect the 15,000 UN troops and 1,000 or so UN/NGO expat workers, because they provide the security that makes reconstruction possible. Professor Paul Collier, a former World Bank official now at the University of Oxford, has worked out that 50% of African civil wars break out again within 5 years of their supposed end. Liberia has had 4 years of peace and every passing year strengthens the capacity of the Liberian government and the resolve of its people not to let the war break out again. As we recoil from the disaster in Iraq, it's worth remembering that foreign military occupation can sometimes be a good thing. Even if the annual bill for the UN peacekeepers is greater than Liberia's GDP.