Archive for category: Economy

Information and stories about economy.

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Russia Looks to Weather Economic Sanctions

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The Russian economy is suffering due to sanctions enacted by the United States and the European Union. Inflation has risen dramatically and with the ruble teetering back and forth, the safety of their currency is uncertain.

During the annexation of Crimea and Russian military movement in the Ukraine, the U.S. and E.U. increased trade restrictions on Russia and wealthy businessmen regarded as being close to Vladimir Putin. As the Russian economy shifts focus toward a stronger economic development and trade with the Asian countries, Russia’s reliance on the dollar decreases.

One of the ways in which Russia is attempting to achieve this is by trading in domestic currency rather than relying on the U.S. dollar. Russia’s dependence on Asia in general and China in particular hints at Putin’s larger goal for the Russian economy to be less involved in U.S. and Europe. Among of the most important deals Russia has made is  the Agreement on Cooperation which was signed by Vladimir Putin and Chinese president Xi Jinping. The $25 billion deal will allow Russia and China to trade in domestic currencies rather than the dollar.

Another significant deal is the $400 billion trade deal that will increase oil exports from Russia to China. It includes a proposal for a new pipeline that will send oil directly from Western Siberia to China. Underlying Putin’s unease with the U.S. is the desire to begin limiting U.S. economic hegemony. However, the dollar is so prevalent in the foreign economy it seems unlikely that a dramatic shift will occur in the near future. Russia’s largest market is currently the E.U. and sanctions have reduced the amount Russia is able to export.

Economic sanctions enforced by President Barack Obama seek to undercut Russian oil exports which make up half of Russia’s economic revenue. Putin announced recently at a G-20 Summit that the West needs to lift sanctions. He states, “This is harmful, and of course is doing us some damage, but it’s harmful for them as well because, in essence, it’s undermining the entire system of international economic relations.”

If Russia is less dependent on the U.S. market, sanctions will mean little to Putin and the Russian economy. Eventually there will be little to deter him from further military involvement in the Ukraine or elsewhere. It will be more difficult for the U.S. to influence Putin’s perceived aggression.

Russia is not the only country who wants to decrease dependence on the U.S. market. Other BRICS (Brazil, Russia, India, China and South Africa) countries are looking to do the same. For the meantime, Russia may be forced to cope with the low price of oil. American economists predict that the prices should level out at about $83 a barrel and stay there for a while to come.

– Maxine Gordon

Sources: International Business Times, Reuters, New York Times, The Guardian
Photo: Newsweek

The Fluctuating Latin American Economy

The Latin American economy has experienced a period of great fluctuation since 2010. Whenever there is good news, there seems to be an equal and opposite force of bad news applied. Constant fluctuation has curbed poverty and opened the door to the middle class, only to have that door slam close. There are several key points to consider as to why this is.

In the past decade, nearly 50 percent of those in poverty have risen above the poverty ranking. But many are still struggling to enter the middle class. Around 200 million, or over two-thirds of the population, are at a high risk of falling back into poverty.

To fully understand this, it is necessary to know how economic divisions are classed in Latin America. Twenty-five percent of Latin Americans are earning less than $4 USD per day and this is considered living in poverty.  Some 34 percent  earn between $10 and $50 USD per day and these individuals are judged to be middle class. When someone earns between $4 and $10 USD, they are part of the vulnerable class. This final group accounts for 38 percent of the population.

The UNDP disclosed this information in the 2014 Human Development Report; a report that uses data as recent as August 24 of the same year.

But not all news is bad.

The middle class of the combined Latin America and Caribbean grew from 21 percent to 34 percent equaling 81 million individuals in the time period form 2000-2012. The vulnerable population grew from 35 percent to 38 percent. The UNDP recognized poverty dropping from 42 percent to 25 percent over that same time period as a significant regional achievement.

Now, Jessica Faieta, the UNDP Director for Latin America and the Caribbean, says the good news might be running out unless a change is made.

“It is very clear that using the same policies will not provide the same results,” said Faieta. “More than ever, the region must invest in universal social protection, particularly in the most critical phases of life, as is the case with children, the elderly and youth entering the labor market.”

Other analysts agree with her conclusion. The region lacks critical social protection, a defense that has been pinpointed as crucial to long-term economic growth. Nearly 50 percent of the country lacks access to medical services, a retirement pension or a labor contract. If this is not amended, the region cannot be expected to grow at the same rate indefinitely.

– Andrew Rywak

Sources: UNDP, The Economist, BBC

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Bankers Without Borders

Bankers without Borders started with 100 volunteers but, in the past five years, has grown to include 16,000 business professionals, academics and students coming from over 170 countries, working to increase the impact and sustainability of poverty reduction projects. So far, BwB has used its consulting and coaching to help more than 1,000 projects in 38 countries.

BwB was founded in 2008 by the Grameen Foundation, the original banking organization working through microfinance. Its motive for creating BwB was to expand its services to gain coverage in areas not originally reached by Grameen Bank.

The company reaches out by partnering with other organizations, including nonprofits, Fortune 500 companies or poverty-focused social enterprises. The experts work for free, and the Grameen Foundation likes to refer to them as “Skillanthropists;” rather than donating money, the workers are donating their skills, time and knowledge.

The volunteers’ involvement ranges from sparing a few hours a week at the comfort of their desks at work or home, to living and working in the field for weeks or months at a time. The wide range of skills and commitment BwB requires makes it possible for many people of different skill sets to make an impact through the company.

BwB’s volunteers are involved in a wide variety of fields. These include financial consultants, legal professionals, translators, researchers, a marketing staff and even a Human Resource Reserve Corps to address human capital related issues for nonprofit partners abroad.

From an economic standpoint, BwB continues to prove useful. For every dollar spent creating a BwB project, an average of $10 in skill and time has been donated by its pro bono staff, adding up to over $10 million worth of skilled work.

The volunteers work not to create temporary relief for recipients, but rather to implement a sustainable solution for clients to have successful, profit-making businesses.

BwB has formed many useful partnerships over its five years of operation, notably with J.P. Morgan, Mastercard, Google, Bloomberg, John Hopkins University and the Washington Center. As of August 5, BwB has added Wells Fargo to its arsenal of partnership companies, as well.

From the quickly-expanding volunteer base to the quantitative economic data to the qualitative success stories shared on BwB’s website, it is clear that the Grameen Foundation’s extended project has proven successful.

– Courtney Prentice

Sources: Triple Pundit, Bankers Without Borders, Grameen Foundation, Grameen-Jameel
Photo: HW Production

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Rural Poverty and Urban Poverty

Poverty is not made up of a cut-and-dry set of circumstances. Rural poverty and urban poverty differ on many levels, with distinctive, environment-based issues that characterize quality of life.

There are similarities, of course, that span both rural and urban poverty. The International Monetary Fund (IMF) states that poverty usually entails deprivation, vulnerability and powerlessness. However, these issues are sometimes inflicted on certain individuals or groups more than others. For example, women and children are more likely to experience poverty more intensely than men and minorities tend to suffer more greatly than other groups.

The IMF reports that 63 percent of the world’s impoverished live in rural areas. Education, health care and sanitation are all lacking in rural environments. This causes many of the rural poor to move to cities, which often leads to a rise in urban poverty.

 

Compare and Contrast: Rural Poverty and Urban Poverty

 

The rural poor are divided into further subsets based on profession: typically, cultivators who own land and noncultivators who do not. Cultivators are slightly better off, as they are able to make some money operating farms and charging tenants for using their land. Noncultivators, however, are extremely poor, working as seasonal laborers on farms. Their pay is both low and erratic, as it is based on the schedules of farm owners and the other few employers available. The rural poor often suffer more than the urban poor because public services and charities are not available to them.

Several factors tend to perpetuate rural poverty. For example, political instability and corruption, customs of discrimination, unregulated landlord/tenant arrangements and outdated economic policies often make it impossible for the rural poor to rise above poverty lines.

While generally considered less severe, urban poverty provides the poor with a host of separate issues. The World Bank found that urban populations in developing countries are growing rapidly, at a rate of 70 million new city-dwellers per year. Former residents of rural areas are typically drawn to the city for the perceived wealth of economic opportunities, but often, those dreams fall short.

Compared to rural villages, there are indeed more job opportunities in urban areas. However, many migrants lack the skillset to take on many jobs, and positions for unskilled laborers fill up quickly. This shortage of jobs leaves new residents without a steady income, which creates a series of new problems in the city.

Without an income, the urban poor often find themselves in inadequate housing with poor safety and sanitation. Additionally, health and education packages are limited. Crime and violence are also much more rampant in urban settings than in rural ones, threatening the authority of law enforcement and the peace of mind of city dwellers.

Health is quite variable throughout rural and urban settings. While the rural poor lack access to urban health care programs, they sometimes benefit from the distance between the country and the city. In the close quarters that characterize city living, it is easy for disease to spread.

Additionally, communal resources in cities can actually lead to health problems. According to The Guardian, families usually have their own personal latrine, so if a health problem starts among the family, the latrine can be closed off and the health risk minimized. However, in cities where many people on a daily basis use public restrooms, disease can spread rapidly and tracking down the source can be nearly impossible.

Though rural poverty is currently higher than urban poverty, research shows that soon, urban areas will become home to the majority of impoverished people. The perception of greater opportunity leads the rural poor away from the countryside and into the cities, where they often end up in even further poverty. An overhaul of urban development programs is necessary to combat the issues with sanitation, safety and hunger that propagate urban poverty.

– Bridget Tobin

Sources: World Bank, The Guardian, International Monetary Fund
Photo: Brommel

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Migrant Workers in Shanghai

Standing on a bustling street in Shanghai, it is hard to ignore the feeling of constant movement and intensity. The mantra seems to be: keep moving and keep progressing. And at both the individual and state level there is an insatiable desire to be the best.

But at what price? The pace of development in China is incredibly impressive and yet, despite the new and efficient subways, trains, and buildings, a contrast of wealth still exists.

As a whole, China has been on the forefront of poverty reduction in the last couple of decades, raising nearly 300 million people out of poverty. However, it is not hard to find the instances of impoverishment that still exist even in some of the most developed cities, like Shanghai.

The population of Shanghai in 2013 was 23.9 million, making it the largest and most populous city proper in the entire world.  Furthermore, it has experienced double digit growth nearly every year since 1992, falling below double digits only temporarily during the 2008-2009 recession.

According to the 2010 census, more than 39 percent of Shanghai’s residents are migrant workers who have flocked to the city from the nearby provinces of Anhui, Jiangsu, Sichuan, and Henan seeking better economic opportunities. These migrant workers in Shanghai, who have made up the largest percentage of the city’s growth in the past few years, often live in the poorest conditions.

As development has increased in China, upwards of 250 million people have left the countryside for the east coast in the hopes of finding more lucrative work. Migrant laborers often work in labor, construction, factories as well as the service sector. Their wages tend to be lower than those of Shanghai residents and their living conditions incredibly poor. Just down the street from the newest high apartments and office buildings, it is not unusual to see old neighborhoods crowded with huts full of migrant laborers.

It’s important to note that poverty for migrant laborers is relative. In China, poverty and inequality differ dramatically in different parts of the country. Many laborers, who migrate to Shanghai for work, come from even poorer rural villages. While their wages are low, the income is often still better than what could be made back home.

Despite this, without a Shanghai hukou, a registration card that is used to classify where individuals are from, migrants are unable to live in subsidized housing, access basic health care and unemployment benefits, or enroll their children in local schools.

Marginalized and discriminated against, the poorest of Shanghai struggle to find social acceptance as well as economic security in their new lives. Yet, these migrant workers are the drivers of China’s tremendous economic growth. If this growth continues, the people of Shanghai will have to find a way to better accommodate their ever-evolving workforce. One of the biggest obstacles Shanghai faces is housing. Real estate prices are extremely high, leaving many people with low wages unable to purchase or rent homes.

Addressing this issue, as well as reforming the hukou system to allow for migrant workers to access health, education and other public services, will help further reduce the poverty and inequality that persists in Shanghai and China as a whole. It is easy to let the gleaming towers and trendy streets distract from the reality that most of Shanghai’s current population is still very much struggling to move beyond impoverishment.

– Andrea Blinkhorn

Sources: Poverties, China Perspectives, World Population Review, Nyuzai Shanghai, WSWS
Photo: The Globe and Mail

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Economic Growth: Will a Rising Tide Lift All Boats?

Developing countries around the world face the tremendous challenge of promoting sustainable growth while also reducing poverty and increasing the living standards of their populations.

Around the world, conventional wisdom holds that by focusing development policy on economic growth, inequality will be reduced and incomes of every segment of society will increase–a rising tide lifts all boats.

While poverty has been reduced dramatically all around the world (700 million fewer people live in conditions of extreme poverty in 2010 than in 1990), big challenges still exist to further reducing this number. One of these challenges is rising inequality within and between nations.

Listed below are three reasons why income inequality must be addressed in both the developed and developing world in order to ensure long-term economic growth benefits for everyone and not just a select few.

1. Economic growth is not always equal

China, one of the countries where poverty reduction has been dramatic, is astoundingly tolerant of large gaps in inequality in exchange for growth. Deng Xiaoping, a top Communist Party leader from 1978 to 1992 who initiated economic reforms, is thought to have acknowledged, “It is good for some people to get rich first.”

While this may be true in some cases or at the beginning of market reforms, recent studies undertaken in Indonesia, South Africa, India and China reveal an increase in the gap between the rich and poor. This gap in income inequality can not only prevent further reduction in poverty, but it also has long term implications in the ability of large parts of the population of each country to be able to contribute to the country’s economy and growth.

2. Education, health, and job creation policies must be pursued simultaneously with growth policies

In order for a country’s population to contribute to and participate in the country’s economy, individuals must have the skills. Pursuing policies only focused on increasing GDP may improve growth outlook in the short run. However, in the long run, without education initiatives to match, a large segment of the population will remain poor.

In the 1990s, Brazil pursued a pro-equity growth policy in which it provided grants to help boost education. Average years of school for the poor shot up and when growth hit; they too were able to take advantage of the better jobs.

Just as an overall boost in education and health is important, so is robust job creation. People must have the opportunity to input the skills they have learned back into the economy.

For this reason, inequality cannot be solved without government involvement. The market left as is does not ensure that growth is shared equally. A combination of strong government programs and a strong private sector ensures better opportunities for more people.

3. Positive GDP growth can hide underlying inequality

The main measure of inequality within a given country is through the gini coefficient. The gini coefficient is a variable that measures how equal a country’s income is with zero representing an instance where everyone’s income is exactly equal, and one representing an instance in which one person has all of the income and the rest have none.

In South Africa, while the government is vocally committed to fighting poverty and inequality, between 2003 and 2008 overall income inequality increased. During this period, South Africa’s gini coefficient rose from an already high .66 to .70 – one of the highest in the world. So despite an average GDP growth rate of 3.2 percent (1994-2012), steps still need to be taken to ensure that the bottom segment of society is able to contribute and benefit from that growth.

Today, nearly 80 percent of humanity lives on less than $10 per day and over 3 billion live on less than $2.50. High levels of inequality exacerbate problems of poverty and reduce opportunities for the poor to move beyond their circumstances. Fewer opportunities for children to rise up economically means that inequality becomes more exaggerated over time and can affect the social structure of a country – leading to unrest, crime and violence.

Developed and developing countries alike all face the challenge of reducing their gini coefficient while also promoting growth. While each country faces unique challenges, this is one problem that can benefit from collaboration at the international level. From the information above, it becomes clear that poverty cannot be fully eliminated without measures in place that simultaneously address income inequality.

– Andrea Blinkhorn

Sources: Science Mag, Global Issues, Global Issues 2, Politics of Poverty, United Nations, South Africa, Hvistendahl, M. (2014). While emerging economies boom, equality goes bust. Science,344(6186), 832-835.
Photo: PBS

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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