Archive for category: Economy

Information and stories about economy.

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What is Development?

The definition of development has been controversially contested, complex, ambiguous and unstable. The most common theme among the definitions put forth is that development, as a whole, encompasses change of the human condition.

Since the 1990s, development has come to relate to policy objectives and performance indicators. Some examples include social and psychological development as well as more economic-related factors such as per capita income.

Poverty involves a wide range of concerns, all of which cannot be counted for when considering income alone. With regard to a person/family’s quality of life, countries with similar incomes may differ extensively.

Development cannot just be summed up by the prosperity of an economy, brought about by making the people of that economy more fortunate. Development carries a connotation of change that is long-lasting. Instead, development should be looked at as Nobel-prize winning economist Amartya Sen would define it: the capacity of economic, political and social systems to provide the circumstances for well-being on a sustainable, long-term basis.

According to Owen Barder, a global development specialist from the Center for Global Development, “I argue that development is an emergent property of the economic and social system, in much the same way that consciousness is an emergent property of the brain.”

Barder’s argument suggests that development is the result of human interaction within three systems: economic, political and social. If development can provide sustained improvements in all three systems, then systemically, it is a success. Otherwise, it is a failure.

As the accepted definition of development continues to change, it is important to remember that development encompasses the long-term transformation of  societies in addition to those short-term desirable outcomes.

– Ashley Riley

Sources: Sage Pub, Center for Global Development
Photo: Time for People

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The Problem with Poverty in Tokyo

Despite having the third-largest economy in the world, there is a growing issue with poverty in Japan. Of the total population, 15.7 percent of Japanese people live in poverty, a percentage greater than countries with less economic resources.

The country’s overall child poverty rate has also hit a record high of 16.3 percent, prompting questions as to whether the country is trying to fix these issues.

When people think of Tokyo, “poor” is a thought that seldom ever comes to mind. Walking in the streets of the capital, you do not see people begging for money; the homeless are all hiding amongst the shadows.

Yet when the story of the emaciated and hypothermia-struck bodies of an elderly man, his wife and 39-year-old son were found in their home after weeks of no one noticing, one cannot help but question the state of the one in six Japanese citizens living under the poverty line.

Living in a Single-Parent Household

In 2012, The Organization of Economic Cooperation and Development (OECD) reported that “significant poverty among single parents is a factor boosting the child poverty rate to 14 percent.” According to a Library of Congress article, there has been an increase in the number of welfare recipients, especially from single-parent households. In addition, the article states, “It is hard for single mothers to find jobs that pay enough to support a household in Japan.”

Child poverty in working, single-parent households stood at 50 percent, according to a 2014 TokyoWeekender article. The Abe administration is working on poverty alleviation methods, but not enough attention is paid to child poverty.

Due to the stagnant economy, the number of “freeters” is on a rise. “Freeters” refer to young people, who, after deciding to avoid Japanese corporate culture, live a freer lifestyle. But jumping from job to job in modern Japan is too difficult to properly survive on.

More than 1.23 million single mother households exist that earn only 40 percent of the average household income. One out of three unmarried women are considered poor, and many of these women fall into poverty due to divorce, single parenting, debts, domestic violence and family background.

The Elephant in the Room

After the Fukushima nuclear disaster of March 2011, there have been many job losses for middle-aged workers.

At the national level, Japan has gone through three prime ministers since the Fukushima disaster, who ranged from anti-nuclear to cautiously pro-nuclear. Calls for removing nuclear plants completely swarmed the country due to the fact that 20 percent of the world’s earthquakes occur in Japan; danger of a repeat is high.

Only one or two of the 54 nuclear reactors in Japan are now active; the rest are substituted by imported coal and gas, which have caused other detrimental effects on the economy.

When it comes to the question of poverty in Tokyo, many people prefer to hide the truth. On a neighborhood level, people hide that they need two jobs to afford tuition. On the political level, the government hides the true poverty statistics from its international community.

According to an article describing the effects of the Fukushima disaster, the “government was afraid to face reality and did not set the poverty line at an appropriate value.” All of this was done in the effort to endure the misfortune in private.

Poverty is a topic that is emerging from the shadows, and the Japanese government is beginning to acknowledge and address its presence.

– Ashley Riley

Sources: Behind the Grids, Japan Sociology, Tokyo Weekender, Library of Congress, The Economist
Photo: Travel CNN

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Improving Nutrition Improves the Economy

The long-term benefits of improving nutrition around the world are more than just a humanitarian accomplishment. Improving the human condition is undoubtedly vital; economists, investors, governments and researchers all over the world are taking a look at nutrition from another angle with a focus on how minimizing poor nutrition works to maximize the growth potential of the global economy.

Research supports the fact that improving nutrition is a fundamental stepping stone for the world to reach global health and development goals.

Adrianna Localbo, Campaign Director of the 1,000 days campaign, explained the urgency of looking at nutrition with a comprehensive perspective. The 1,000 days campaign outlines the need for proper nutrition during the first 1,000 days of a child’s life.

In an interview with Devex Impact, Localbo emphasized that the proper nourishment in that critical time period is necessary for achieving substantial rises in the way of education and economic productivity in developing countries.

Localbo stated that when a child is well-nourished in those critical early stages, they are more likely to go farther in school, have a higher IQ, and possess a greater earning potential.

Good nutrition is critical to boost a child’s immune systems to prevent the devastating effects of diseases like malaria and tuberculosis. A well-nursed child is 13 percent more likely to be in the correct grade of school. On a larger scale, proper nutrition can help a country’s GEP improve by up to 11 percent.

Recently the private sector has become increasingly involved in supporting the fight for improved nutrition. Localbo stated that ninety businesses worldwide have made financial pledges to help reduce poor nutrition.

She noted that the private sector recognizes that the support is an investment to push for the creation of a sustainable, resilient population. The population is, after all, what makes not only the workforce but also the base of consumers.

At the hunger summit in 1996, countries pledged to work to halve hunger by 2015. Heads of states came to an agreement that the cost of hunger greatly hurts the economic growth of countries.

Investing in nutrition is an investment in human and social capital. According to researchers, it is the future of economies.

– Caroline Logan

Sources: FAO, Devex
Photo: Quest Garden

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Rotating Credit and Savings Associations

Seeing as formal financial institutions are hard to come by for the world’s poor, many come together in order to form Rotating Credit and Savings Associations, or ROSCAs. This is an informal group where members implement a group savings system.

While somewhat informal, ROSCA memberships are very popular throughout the developing world. In 1986, estimates were made that ROSCA participation ranged from 50 to 95 percent of the adult population in rural areas in Liberia, Ivory Coast, Togo and Nigeria. Later studies showed no decrease in ROSCA numbers. High ROSCA membership has also been found in Cameroon, Nigeria, Bolivia, Ghana, Taiwan and Argentina.

Members of ROSCA meet up at given intervals, at which time they all give an agreed upon amount of money, with possibly differing amounts per person depending on the group. These meetings can be daily, weekly, monthly or following any set time period the group decides.

During each meeting, one of the members receives a large sum of money. This can be done on a rotating or lottery-type basis. Once each member has had their turn receiving the large sum of money, the ROSCA can disband or begin a new cycle.

Members hold each other accountable, as each payment is made in the presence of the entire group.

After the whole rotation is complete, usually, no member has gained any more money than given in the first place. Why do people decide to form ROSCAs rather than save the money on their own?

ROSCAs provide a savings system in which an individual can have a large sum of money out of their hands to save for a later date, making it easier to have self discipline and not spend the money during less desperate times. Married women have utilized ROSCAs in order to keep money safe from the rest of the household when others want immediate consumption.

When ROSCA participants were asked about their reasons for joining, many stated, “You can’t save alone” and that the system gave them “the strength to save” or a “forced commitment to saving,” which some participants felt they needed.

ROSCAs have also worked as insurance. If a member of a ROSCA goes through an unexpected expense, they may be able to take out the next large sum with the group’s support, making it possible for them to pull themselves back on their feet.

These ROSCAs have shown the power of community bonding and lending, and how even in remote areas of the world, where educational and financial opportunities are rare, people are able to come together and create a financial lending system to raise everyone up.

– Courtney Prentice

Sources: Investopedia, SSCNet, JSTOR, Systems of Exchange
Photo: Keetria

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Chinese Foreign Aid: Setting a Good Example

China is considered a developing country. Interestingly, it also has the second-largest economy in the world. This paradox may seem impossible. In reality, however, this paradox has taught the country’s economic leaders valuable lessons about how to most successfully engage in the global economy. By aiding other developing countries, China’s economic strategy has become one of the most effective in the world.

In 2000, China began a mission lending aid to countries with underdeveloped economies. Chinese government officials recognized their own economic stability and began to implement assistance initiatives in developing countries with which China had connections through trade.  The initiatives, which are still in existence today, improve education, sustainability, medical facilities and other aspects of daily life in these countries.

Many of these countries export more goods to China than to any other place in the world. Therefore, Chinese consumers are crucial to the growth of the economies of these African and Asian countries. In response, the Chinese government recently has lifted tariffs on some imports from these developing countries.

China’s decisions to help other developing countries are more than acts of goodwill; they are intelligent business initiatives. In providing assistance and allowing developing countries’ markets to flourish, China is building trusting relationships with valuable trade partners.

Establishing trade relationships is vital in the global economy. China and its partners know that they can count on each other for fair trade and support.

China and many other developing countries engage in relationships through the South-South Cooperation. The South-South Cooperation allows developing countries to collaborate to form strong trade relationships and share strategies that may help other countries escape the barriers of poverty. China has been an active member of the cooperation for many years.

By helping to lift developing countries out of poverty, China can expect a great return of help from them in the future. As previously stated, China is a developing country itself. While it provides assistance to many places outside of its borders, poverty still exists within the country.

China’s economic strategy sets a positive example for other global economic leaders. It has used foreign assistance as a successful way to ensure strong trade relationships, return investments and hope for future repayment. China’s economy is proof that foreign assistance offers more help than harm to a country’s own financial status.

– Emily Walthouse

Sources: Global Post, RAND Corporation, United Nations Office for South-South Cooperation
Photo: China Daily Mail

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Hong Kong Citizens Protest Chinese Control

Chinese Control
Thousands of Hong Kong citizens are protesting the ever-tightening grip of Chinese control over the city. While some of the anger stems from China’s influence regarding Hong Kong’s media and politics, the main issue of the demonstration is in regards to the economic changes and the belief that, in the 17 years since Hong Kong was given back to China, wealth inequality and economic opportunity have not improved.

Currently, around two million people live in public housing, which is about 30 percent of Hong Kong’s population, and one-fifth of the population lives below the poverty line. According to Hong Kong’s government, poverty is only getting worse. The poverty gap increased to $28.8 billion in 2012, compared with $25.4 billion in 2009. Worse, its income inequality is the 12th highest in the world.

“It’s not like the 70’s and 80’s where we know our salary is going up next year or we’ll get a promotion,” said Li Kui-Wai, an economics professor at the City University of Hong Kong. “Our economy is not as good as [it] used to be.”

However, economists and Hong Kong’s government do not agree with the notion that China has anything to do with the economic disparity facing Hong Kong. The government believes that the immigration of low-skilled workers into the city along with an aging population are the reasons for economic woe. The government has pointed out that unemployment has remained low, at around 3.1 percent, which is the lowest it’s been since the late 90’s. Additionally, they argue that their trade relationship with China is vital.

Despite assurances from economists and the government, the citizens of Hong Kong believe that China is the influence behind the economic problems. The sight of well-to-do Chinese people entering the city every day to buy luxury items hasn’t helped the government’s case. Additionally, many Chinese give birth to their children in Hong Kong so that they  will be granted Hong Kong citizenship; consequently, this limits the stock of baby formula available.  In addition, a proposal to turn a plot of northern Hong Kong into luxury and retail space, which would remove 6,000 farmers and villagers from their homes, is not easing tensions, either.

Even the wealthy are drawn into the debate, as the wealthiest man in Asia recently stated that the widening income gap and dissolving trust in the government will become the sentiment of the majority.

Over 700,000 people voted in an unofficial referendum to not allow China to continue to control their elections.

“Part of the reason for the activism in the city is the sense that many of the young people feel that the system is unfair, that it is skewed to helping the rich,” said David Zweig, a political science professor at the Hong Kong University of Science and Technology.

Many Hong Kong citizens have joined a group called Occupy Central, their version of Occupy Wall Street, to speak out against the wealth inequality, pay gap and limited job opportunities.

– Monica Newell

Sources: Quartz, Bloomberg
Photo: Fiji One

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Three Influences of Poverty

Poverty has many causes. While some factors exacerbate poverty, there are five predominant causes of poverty: social inequality, conflict and political instabilities, education, debt and environmental conditions. Here is a closer examination of three of these causes.

Social Inequality

The United Nations Social Policy and Development Division reports that “inequalities in income distribution and access to productive resources, basic social services, opportunities, markets, and information have been on the rise worldwide, often causing and exacerbating poverty.” Countries where inequality is rampant display poor social indicators for human development, insecurity and anxiety. Inequality keeps the poor from moving out of their socioeconomic status.

Inequality limits access to opportunities that can provide the means to escape poverty. In a speech by Dominique Strauss-Kahn, Managing Director of the International Monetary Fund, Kahn explains that Adam Smith, often considered the founder of modern economics, “recognized clearly that a poor distribution of wealth could undermine the free market system.” An example of this is the former apartheid government in South Africa.

Apartheid laws assign rights and space to individuals on the basis of race. In South Africa this meant that while one group was persecuted and forced into poverty, the other group was given access to opportunities that allowed them to advance economically. This increased the gap between economic classes and the amount of people in poverty.

Environmental Conditions

Environmental degradation is the decline in the quality of the natural environment through its atmosphere, land, oceans and lakes. Indigenous groups are among the worsetaffected by such degradation. These groups often depend on the environment to survive and easily fall into poverty when that environment is harmed. A major cause of environmental degradation is climate change.

One of the outcomes of climate change is hunger. The changing climate is responsible for the destruction of harvests and other resources critical to survival. Michael Oppenheimer, professor of geosciences and international affairs at Princeton University explains, “crop yields have detectably changed. As time goes on the poor countries that are in the warmer and drier parts of the planet will feel the crop yield decreases early.” In Oxfam’s report Suffering The Science: Climate Change, People, and Poverty, the organization warns that “Without immediate action 50 years of development gains in poor countries will be permanently lost.”

Recent U.N. reports on climate change noted that “for the first time” that climate change is a threat to human security. The UN notes that the increased migration and the decrease in food are conditions that lead to conflict. The reports warn also that unless the issue is addressed, “nobody would be immune to climate change.” The report reads, “Climate change can indirectly increase risks of violent conflicts in the form of civil war and inter-group violence.” Environmental degradation can not only result in poverty, but can also lead to war.

Lack of Education

Education has lifted people out of poverty and empowered communities to grow economically. A lack of education could maintain or create poverty. Senior Fellow of the Center on Budget and Policy Priorities Jared Bernstein explains, “economists may disagree a lot on policy, but we all agree on the ‘education premium’—the earnings boost associated with more education.”

According to the Network for international policies and cooperation in education and training, a main priority for poverty reduction is primary education. In developed countries almost all children have access to primary education, while in regions such as sub-Saharan Africa approximately 40 percent of children do not attend primary school due to poverty and a lack of access to education. Many people living in poverty in undeveloped countries must give up an education in order to make “a minimal living.” Furthermore, many families cannot afford school fees to send their children to school. This limits skill development and opportunities to escape poverty and create generational poverty.

There are many situations that lead to poverty. As we understand the causes of poverty, we can eradicate it more strategically. These are only three of many causes that must be understood to successfully meet the goal of eradicating extreme poverty by 2030. We created poverty, so we can eliminate it as well.

– Christopher Kolezynski

Sources: Poverty at Large, The Borgen Project, Oxfam, The American Prospect, The Guardian, NORRAG
Photo: The Daily Star

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How Fair is Fair Trade?

fair trade
Fair Trade is a system in which a deal is worked out between artisans or farmers in developing countries and businessmen or a middleman to sell products in more affluent countries for a price in which those producing the items get fair wages for their work.

The goal of these fair trade companies is to replace continual aid (in which the receiving end oftentimes feels helpless,) with a system where the “receiver” is able to create a sustainable lifestyle by utilizing their talents in a business. Over time, Fair Trade companies can build long-lasting relationships with their suppliers.

Paul Rice, CEO of Fair Trade U.S.A., says “The corporate community is increasingly realizing that this model and models like it are a way to align sustainability with profitability, they want a resilient and sustainable supply chain.”

A problem these companies are currently having is that they are not well known among their potential market. Consumer awareness for these products is currently at 55 percent, improving from the 34 percent that it was a few years ago. Consumers are increasingly questioning where their food and products are coming from and becoming thoughtful in their purchases.

Another problem dealing with this issue is the companies themselves. While there are standards for producers, labor, production and the economics behind the transaction, the producers still don’t always seem to receive a sustainable amount.

Ndongo Samba Sylla, a Senegalese development economist, studied common fair trade companies to find that most of the producers are coming from less poor areas rather than the very poor one, crop farmers, and calculated that for each dollar paid by a consumer, only about 3 cents more are given back to producers in fair trade programs than other producers.

Although the percentage comparison is not always favoring the producers in the way we would hope, many companies of this kind do charge more for their products, therefore more money would go to the producer in the end.

Aside from the prices, the standards for this model go beyond economics. The World Fair Trade Organization and the Fair Trade Federation Principles designed regulations for any company that calls themselves fair trade, many of which are not strictly economic.

The standards involve transparency and accountability between the client and the buyer, where the client cannot be taken advantage of. This kind of company must assist the producer, whether it be financial, educational, or market information, in order for the producer to sustain their business. Prompt payment is required, so the producers are able to have consistency, and equal payment between genders for equal work is also a necessity.

Although harder to define, fair trade companies must also be environmentally conscious and respectful of the producer’s culture. The companies are encouraged to use recycled materials (also more economically sustainable,) and companies must respect the manner in which the products are being made by not discouraging indigenous traditions and techniques if the producers do not wish to change them.

Overall, these companies work toward letting producers become sustainable partially through higher wages, but also empowering them through equality and respect they may not be receiving otherwise. Beyond economics, the business practices being upheld by these companies will still benefit the producers and help them succeed.

– Courtney Prentice

Sources: The Economist, The Guardian, Fair Trade, Fair Trade Federation
Photo: Tufts Now

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World’s Students Struggle with Loan Debt

loan debt
Fear not, American undergraduates. While we may have the single most expensive higher educational system in the developed world, students from all over are still accruing debt. You may have heard the statistics, or suffer from them personally: American student loan debt has rocketed to more than $1 trillion, and more than 7 million borrowers are currently in default. Yet, students from all over the world, from Japan to Britain, are also raking up expensive debt to receive an education.

While public university tuition is free in countries like Argentina, Iceland, Norway and Sweden, this does not always mean students finish their education with zero debt. In 2012, approximately 900,000 Swedish students received help from the government, totaling close to 22 billion krona (roughly $3.5 billion). Two-thirds of those funds were loans.

The average student loan debt for the U.K. is between €12,360 and €12,850, where more than 93 percent of students have received some form of financial assistance, accruing debt in the process. The country has even seen a staggering rise in suicide rates as a result of its student debt crisis. Between 2007 and 2011, the number rose to a devastating 50 percent.

In China, average tuition runs at about ¥40,000 annually, though the average family only makes about ¥3,000 per year. Japan, too, is saddled with increasing student loan problems. Between 2001 and 2011, the number of students applying for loans jumped to 70 percent, and 60 percent of its graduating student population since 2009 has been left underemployed or unemployed altogether.

While the United States’ position on student loan debt far surpasses the rest of the world, the global severity of the situation should not be overlooked. In the 21st century, the economy has become global-if one country is hurting, other countries will be affected, too. As student loan debt manages to climb, one can only hope the institutional problem will be fixed sooner, rather than later.

– Nick Magnanti

Sources: Huffington Post, Collegestats.org, Tuition.io
Photo: Boston

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The Effects of Civil War on Education in Tajikistan

After the dissolution of the Soviet Union in 1991, Tajikistan, a small country between Uzbekistan, Afghanistan and China, erupted in a civil war between the Moscow-backed government and Islamists.

The war lasted for five years, greatly hurting the nation’s economy. Around 50,000 people were killed and more than 10 percent of the population fled the country. The war only came to an end in 1997 when the United Nations facilitated a peace agreement.

Since the civil war, the economy of Tajikistan has not recovered and the country is currently Central Asia’s poorest nation. Almost half of the country’s Gross Domestic Product (GDP) is earned by its citizens working out of the country. Meanwhile the nation itself relies on the economies of Russia and China, as well as oil and gas imports.

During the war one in every five schools were destroyed. Since the war, Tajikstan has worked to improve the country’s education.

Tajikistan currently has an enrollment of 97 percent for primary school, 80 percent for secondary school, and 17 percent for tertiary school. Late entry, combined with the early dropout of school aged children, especially girls, lower Tajikistan’s attendance for later schooling.

Although there is a very high rate of literacy, other issues affect its educational system.

Salaries paid to teachers are very low, which leads to low staffing and poorly qualified teachers in schools. This is in part due to the lack of government spending on education. In 1991, 8.9 percent of the GDP was spent on education. In 2005, this figure was down to 3.2 percent.

Due to the negative effects of the civil war on the Tajikstan economy and the immense loss of life, the school systems have been suffering ever since. Although the government has been working to improve access to education, there is still a lot of work that needs to be done.

– Lily Tyson

Sources: BBC, UNICEF, Eurasia
Photo: Asianews