Tuesday, December 8, 2015
This is obviously important for those of us who work in Departments of International Development and have been brought on the belief that there were structural differences between various types of societies. Yet as soon as one walks in the streets of Mexico DC or any Brazilian city, the problematic nature of the categories becomes clear. Despite all its problems, Mexico and Brazil have high quality infrastructure, a strong middle class and high consumption patterns. They have GDP per capita that are closer to Spain than to some low income countries.
The "DFID solution" (influenced by prominent economists like Paul Collier) is to leave the term "developing country" only for very poor countries in post-conflict situations. Development is about fragile states and the bottom billion. Yet this seems totally unsatisfactory for many reasons: most poor people are in middle income countries and in many emerging economies, institutions are weak; the middle class is still small and much of the territory away from big cities suffers from poor infrastructures and the absence of the state (and well functioning markets).
But we are still left with the question of what separates developing countries and developed ones or, in terms of specific examples, what distinguishes, say, Mexico from Greece. There are many potential answers, but let me emphasise a few:
a. The concept of vulnerability at the household and country level is particularly important. When there is a crisis in a developed country, the middle class may suffer but has some insurance mechanisms. As a result, most of the middle class maintains its living standards. When the same happens in a developing country, much of the middle class ends up among the poor and have difficulties to rebuild their lives. This also happens at the country level: any shock has more negative implications in a developing country.
b. The sustainability of the growth patterns: it is not only about how fast you grow but about how sustainable those growth patterns are. c. At the same time, however, it is more important than ever to compare different groups among various countries to understand better what a "poor" and a "middle class" person means in different contexts.
Other factors I am forgetting?
Monday, November 23, 2015
Ken: When I was in Brazil I was talking with someone about the "problem" of wealthy people leaving the SUS [the public health system] for private options and then coming back to the state system for expensive treatments. It got me thinking.... Why not put a special sales tax on private health care plans (like a higher VAT or something like that), and earmark the money for public health system. After all, if the rich people are leaving public sector for basic stuff, that actually could be good as it allows public resources to be used on smaller number of people, and the point that the rich people come back to public sector for expensive stuff is sort of irrelevant, because they'd be covered in the public sector anyway if they didn't leave. So those who want to go can go, but at a higher price, so there are not just fewer people left to treat in the pub sector but there's more money to treat the with too.
Diego: I think you are totally right and it is something that can be expanded to education. Expanding taxes on the private option is a way to expand revenues (although we had not thought about earmarking and I think it is a great idea) and reduce demand. However, this is much easier to do if the only ones leaving are the top 10% (or 15%) than if large parts of the middle class (say the top 40% of the population) are both in the private and public sector. In those cases, a tax on the outside option will be rather unpopular and very difficult to implement. At the end that is why confronting the outside option requires a commitment of the middle class to public services, which also require that those services are of relatively high quality.
Ken: I understand what you write, but if the top 40% of the population is leaving that suggests that the pub sector needs to be improved, which only makes a tax to acquire the revenues that much more important. I’m less sure about this line of reasoning for education, because the effects of segregation on those left behind less clear in education. The poor people in the public health system may benefit from the rich people not being there consuming doctors’ and nurses’ time and resources, and, provided the resources are available, the poor people left can be treated well. In contrast, the poor people in the public education system do benefit from having the richer people in their classroom, and the quality of education being delivered in a public education system that is almost all poorer kids will be worse. So here I think everything is different. To put it simply, I don’t think exit from the public system has to damage the system in health, but I do think it does so in education.
Diego: I agree that in terms of the delivery, the exit from the middle class is worse in education than health. Yet it is also quite problematic in health for two reasons: (a) The creation of tax specifically for these services will become politically challenging. The middle class will argue that "not only the public health is weak but we also need to pay for our private insurance! It is double payment!" If this tax affects the middle class, then it may be impossible to implement it. (b) Much of the argument about involving the middle class in public services is about voice: if public health care is poor, they are more likely to protest individually and collectively than the poor. This is why letting the middle class simply leave is quite problematic (the very rich are likely to leave almost by definition in much of Latin America).
Tuesday, October 20, 2015
The pension system can ease extreme poverty. For instance, rural workers can retire five years before others even if they have never contributed to the public pension system, receiving a monthly payment equal to the minimum wage, about $210 a month.The growth of the minimum wage has made these advances even more significant. Yet, at the same time, there are huge problems with inequality in the system--something that Hunter and Sugiyama explained well years ago. See this extreme case
In 2000, for instance, officials did away with rules allowing the daughters of military officials to receive the pensions of their fathers after they died. But the shift applied only to new entrants into the armed forces, so more than 185,000 women still draw military survivors’ pensions, often amounting to the full salary of their fathers upon retirement. Spending on such pensions is forecast to last through the end of this century, economists say.There is little doubt that advances towards a more universal, redistributive system require a reduction of some of these benefits and an increase in other transfers and services. Yet this will be difficult as the upper middle class uses anti-austerity rhetoric to prevent reform. Here you have a former leader of the shopkeepers' associations:
Making retirees pay the price is just not fair,” said João Pimenta, 63, a former director of a shopkeepers’ association who retired at age 49 and regularly leads protests against pension cuts in Brazil’s capital, Brasília. “Why isn’t the economic elite being called upon to sacrifice? I’m sick of hearing that normal people need to pay the price with their pensions.”How can we promote anti-austerity and, at the same time, reduce segmentation in social policy is one of the main challenges of Latin America in the post-commodity boom era.