Brookings: Experts - Raj M. Desai

Can the Poor Be Organized? Evidence from Rural India

Raj M. Desai and Shareen Joshi — Tue, 26 Mar 2013 14:32:00 -0400

INTRODUCTION

There is significant evidence of the role collective action plays in reducing poverty. Effective coordination by the poor has been shown to strengthen property rights (Baland and Platteau 2003; von Braun and Meinzen-Dick 2009), increase bargaining power in labor markets (Bardhan 2005), improve access to fi nancial markets (Karlan 2007) and increase public investments in poor communities (Alesina et al. 1999; Banerjee and Somanathan 2007).

In light of this evidence, governments, aid donors and international NGOs have sought to expand their support to collectives in poorer communities. At the World Bank alone, more than $50 billion has been spent in the past two decades on “community-driven development” projects that expand participation of the poor in the design, implementation and evaluation of development (Mansuri and Rao 2012).

The question of where social capital originates remains poorly understood. Most analyses of how poor communities resolve coordination problems focus on simple, group-devised solutions that restrict access to common resources (Bowles 1998; Ostrom 1998; Henrich et al. 2001; Fehr and Gächter 2000; Ostrom 2000; Ostrom and Ahn 2009). Others examine “socialization” effects for group members in fostering collective action (Miguel and Gugerty 2005). Overall, this research suggests that, in the absence of common preferences, collective action is likely to emerge when individuals have low costs of information, the opportunity to coordinate their actions, the opportunity to engage in repeated interaction and the power to reward contributors and punish free-riders. Given that these constraints are often binding for the poor, it follows that almost everywhere, the poor demonstrate lower levels of organization and collective action (Narayan et al. 2000; Gugerty and Kremer 2008).

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Authors

Raj M. Desai
Shareen Joshi

Image Source: © Mansi Thapliyal / Reuters

India’s Protests as a Social "Stress Test"

Raj M. Desai and Shareen Joshi — Fri, 28 Dec 2012 13:00:00 -0500

2012 has been a rough year for India’s government. It began with a series of protests led by an anti-corruption activist, who went on hunger strikes to protest foot-dragging by the government in passing a new anti-corruption law. Then, as a reminder of one of the worst scandals in recent memory, the Indian Supreme Court revoked all broadband licenses granted through what turned out to be illegal spectrum auctions. On the economic front, India has maintained stubbornly high inflation and the Indian government lowered the economy's growth forecast for the current financial year to 5.7 percent, the lowest in a decade.

As if these events were not bad enough, just in time to ring out the old year, major protests have broken out across the major cities in India over the brutal rape of a 23-year-old medical student in New Delhi. In Delhi’s famous Raisina Hill area where the parliament, presidential palace and several ministries are located, thousands of demonstrators clashed with riot police for several days before the area was barricaded. Those who have witnessed the protests—including the authors of this article—have noticed that the protesters’ anger is directed against the country’s police and politicians as much as it is against the rapists. The crowds also bear more than a passing resemblance to those participating in the Arab Spring protests in early 2011, being composed predominantly of urban youth, mobilized through social media, whose collective anger is being vented at various targets all at once.

In fact, one can think of the protests as motivated by a confluence of three major stresses facing contemporary India: crime, government ineffectiveness and gender inequity.

To begin with, India’s police remain unable to provide basic policing services, even after reforms put in place following the terrorist attacks in Mumbai in 2008. Delhi, for example, is home to one of the largest metropolitan police forces in the world with some 84,000 officers. But only one-third are involved in any kind of actual “policing” at any given time, while the rest provide protection services to various politicians, senior bureaucrats, diplomats and other elites. According to the Times of India there is one officer for every 200 citizens and about 20 officers for every VIP. Many of those who do perform police duties can be found shaking down motorists, participating in protection rackets and simply looking the other way as crimes take place. The victim herself was allegedly being assaulted on a bus traveling along a major thoroughfare that crossed police checkpoints. Many police departments around the country lack basic crime-fighting resources such as forensic facilities or specialized crime units. Police are provided with little training on securing crime scenes, gathering evidence, or conducting criminal investigations. There are no nationwide standards for training, competence or accountability.

And then there is the perception of a corrupt, paternalistic governing class that seems to have been left behind as rapid changes have swept other parts of Indian society. As India’s economy has acquired a global reputation as an IT services hub, government offices are still buried under piles of handwritten records. Even as India’s businesspeople—from its CEOs to its small shopkeepers to its millions of rural and urban micro-entrepreneurs—have innovated and discovered new markets, their government still operates as it has for decades. And when young protesters ask for improvements in policing or changes in government behavior, politicians warn of chaos and disorder, or simply keep silent. It took the prime minister one week to comment on the recent demonstrations. The home minister likened the protesters to the Maoist insurgents that the government is currently fighting. And the Delhi police commissioner, when asked what is being done about improving ties with the public, responded by mentioning “vocational work” for the poor. “Young India, old politicians,” is how author Gurcharan Das once described this gulf between the aspirations of its citizens and the incapacity of its politicians to deliver.

Finally, it is no secret that India remains a difficult country for women despite major advances by women in professional life. Basic indicators—female literacy, female labor force participation, female life expectancy and maternal mortality—are low relative to South Asian neighbors (Bangladesh and Sri Lanka) and even when compared to poorer countries such as Laos, Yemen and many countries in sub-Saharan Africa. The male-female ratio, a statistic that says much about the status of women in a society, remains one of the lowest in the world with only 940 women per thousand men. These “missing women” are largely victims of sex-selective abortion, poor investments in health and education for girls, and their general neglect. Delhi and neighboring Haryana state have sex-ratios below the national average: 866 women and 830 women for every thousand men, respectively. The surplus of single men, the prevalence of widespread youth unemployment and the persistence of traditional marriage practices have combined to produce serious social consequences, including violence against women.

As for the incident that sparked the current protests, the official statistics are even grimmer: almost 25,000 rapes were reported to police in India in 2011, a 25 percent increase over the previous year. According to local reporters, this is a fraction of the over half-million rapes that are actually committed each year—almost one every minute. With less than 7 percent of the police officers being women, the police are widely accused of gender insensitivity and apathy to crimes against women. In 2010, as many as 414 rape cases were reported in Delhi, the highest among 35 major cities in the country. According to the National Crime Records Bureau, the conviction rate in these rape cases was less than 35 percent. An investigative report by NDTV and Tehelka Magazine exposed how male police blame women for violence and harassment against them; remarked a station commander of a Delhi precinct: “if girls don't stay within their boundaries, if they don't wear appropriate clothes, [this] attraction makes men aggressive.” A senior police officer from the same precinct later revealed the identity of a minor who was gang-raped in a moving car, criticizing her “moral character” at a press conference.

The public debate in India continues. Senior members of the Delhi and national governments have broken their silence to acknowledge the magnitude of public discontent. Some short-term measures have been proposed: a new helpline for women, a promise to prosecute rape cases quickly, a strengthening of punishment against rape and other crimes against women, etc. A special session of parliament has been convened to address short- and long-term solutions to these issues. It remains clear however, is that solutions to the protesters’ concerns are neither quick nor simple. An overhaul of law enforcement systems is required, with investments in recruitment, organization, training, and new systems of accountability and oversight. Laws against sexual crimes must be strengthened. And most importantly, greater dialogue about India’s patriarchal norms must continue.

As for the other societal strains that moved the protesters, organized collective action will be needed long after the street demonstrations have died down, as will the sustained mobilization of women and young people. Women in India have been slow to organize around crosscutting issues. In the years since independence, the Indian women’s movement has been largely eclipsed by other divisions along the lines of class, caste, tribe, language, religion and political affiliation. And an irony that has not been lost on some commentators is that the crowds protesting in the cities—young, middle- or upper-middle class—are not generally dependable voters in Indian elections.

Perhaps the recent protests are a turning point, a sign of growing awareness that the problems of policing, bad governance and crimes against women have been neglected by the normal political process, and that they have implications for managing social tensions as well as for economic development. Given that two-thirds of India is today below the age of 35, the potential for the voice of the youth to shape national policy is powerful, if still unfulfilled. As the New Year approaches, Indian politicians would be well-advised to remind themselves of the lessons of the Arab Spring: young people may not matter in politics… until they do.

Authors

Raj M. Desai
Shareen Joshi

Image Source: © Adnan Abidi / Reuters

Why the End of British Aid to India Won’t Matter

Raj M. Desai and Natasha Ledlie — Wed, 21 Nov 2012 11:10:00 -0500

The British international development secretary, Justine Greening, recently announced that all assistance from the UK to India will end by 2015. The withdrawal of foreign assistance from India’s largest donor affords an opportunity to reflect on the role British aid (indeed, all foreign assistance) has played in Indian economic development, and on how Indian anti-poverty programs will evolve in the absence of foreign aid.

The Indian beneficiaries of UK aid programs will inevitably feel the loss of the experimentation and risk-taking that characterized UK aid. On the other hand, India has also been moving away from more fragmented anti-poverty programs traditionally supported by donors towards more centralized, universal schemes. But these reforms require increasingly sophisticated management and accountability mechanisms — something donors have had limited success in supporting. While the absence of British aid may leave a small hole, it will not affect India’s anti-poverty efforts.

To put the aid stoppage in context, consider that UK assistance comprises about 15 per cent of all foreign aid received by India. The UK gives slightly less than 10 per cent of its foreign aid to India. This makes India the largest beneficiary of UK aid and the UK the largest donor to India. Given the current state of the British economy, it is only natural the UK would be forced to reconsider its assistance to fast-growing countries such as India. Indeed, other donors may soon follow suit, forced by fiscal constraints. In the U.S. foreign aid may be cut due to “budget sequestration”, under which all government programs will be subject to across-the-board cuts.

More than half of official aid from Britain to India went to programs focused on education, health, nutritional programs, and water and sanitation access. In relative terms, these are not large amounts (the $450 mission in total annual British aid was about 0.04 per cent of India’s GDP). Despite some prevailing views that the Department for International Development was merely a source of British “soft power” or that British aid simply supported British strategic and commercial interests, the evidence suggests that Britain has been one of the better-behaved donors. According to a joint assessment of the Washington-based Brookings Institution and the Centre for Global Development, DFID performs quite well when ranked against other donor agencies on measures of efficiency, institution-building in recipient countries, keeping administrative burdens to a minimum and ensuring transparency.

British aid was also an invaluable source of piloting, access to knowledge and risk-taking. The Business Innovation Facility funded by DFID is a decent example of this—a programme that supported companies as they developed and implemented “inclusive” businesses that expanded opportunities for the poor. This was an example of foreign aid at its best: a gateway to current information, a clearinghouse for insights on good practice, a resource for businesses, and of course, targeted financial support.

On the other hand, British aid—and most foreign aid—has achieved only modest success in helping countries such as India make the transition from a multiplicity of narrowly targeted interventions, transfers and subsidies to a comprehensive welfare system. Both bilateral and multilateral aid to India may be rightly criticized for placing too much faith in these narrower instruments.

Many observers have long pushed for more comprehensive social policies based on universal provision of essential services in India, and for less reliance on narrower social programs. The latter have not served India well. In the past two decades, for example, India has grown much richer than Bangladesh and Nepal. But during the same period, both countries have overtaken India in terms of life expectancy, infant mortality, fertility rates, immunization rates, and female literacy. India’s expansion has been characterized by Jean Dreze and Amartya Sen as “growth without development”. In recent years, the Indian government has moved to consolidate social policy through nationwide multi-sector programs such as NREGA. But the local bodies largely responsible for administering them continue to suffer from capacity weaknesses. It is in governance and institutional capacity-building at the local level that foreign aid has had less impact.

While few in India may shed tears over the end of British official aid in India, the occasion should also provide an opportunity to double efforts to reform the public institutions that govern social policy and poverty alleviation.

Authors

Raj M. Desai
Natasha Ledlie

Publication: The Indian Express

Image Source: © Reuters Photographer / Reuters

The Challenge of a Reform Endowment

Raj M. Desai — Tue, 25 Sep 2012 00:00:00 -0400

Follow @BICampaign2012
Editor's Note: For Campaign 2012, Shadi Hamid wrote a policy brief proposing ideas for the next president on U.S. policy in the Middle East. The following paper is a response to Hamid’s piece from Raj Desai. Tamara Wittes also prepared a response arguing that the next president must remain flexible in response to the political instability throughout the region.

For years, the United States was able to ignore democracy and human rights in the Middle East in favor of supporting autocrats who stabilized oil prices, signed treaties with Israel, repressed Islamist groups and, in the past decade, cooperated in antiterrorist actions. During the Bush administration, aside from Iraq, some Arab states tolerated U.S. democracy-promotion activities as long as they did not threaten incumbent regimes. In 2009 and 2010, funding for such activities in some Middle Eastern states was reduced.

But as Shadi Hamid points out, the Arab Spring has blown the lid off this arrangement. Elections in Tunisia and Egypt have shown that the median Tunisian and Egyptian voter is more anti-U.S., more anti-Israeli, and more pro-Islamist than the United States would like. As a result, the Obama administration has had to confront the reality that voters’ preferences, if translated into policy, might threaten regional peace or stability. It is small wonder that the Obama administration was forced into a complicated dance that required rhetorical support for Tunisian, Egyptian, and Libyan citizens while reassuring dictatorships in Jordan, Saudi Arabia, and even Bahrain of U.S. backing. Hamid also points out that trying to split the difference did Obama no favors—neither with the Arab public nor with Arab rulers.

How, then, should the next presidential administration support reform in the Middle East? Although the objectives of rebuilding American influence and supporting democratic reform in the region are laudable, one of the principal mechanisms Hamid proposes to accomplish this—a “reform endowment”—may not be the best approach. As he envisions it, a multilateral reform fund would be established to “apportion loans and grants to states or substate actors” that agree to undertake certain democracy-promoting reforms. Putting aside the thorny issue of loans (especially to countries like Egypt that may soon face serious debt sustainability problems), such a fund would raise three concerns.

First, it is unlikely that yet another U.S.-dominated, international institution will find a supportive public in the current Arab political climate. Arab citizens have not forgotten that U.S. financial assistance supported the old regimes. Nor have Arab citizens forgotten the U.S. role in the “austerity” era in the 1980s and 1990s when, amid falling oil prices, most Arab states undertook (albeit incompletely) painful structural economic reforms that slashed subsidies, ended long-term employment guarantees for some, and wound down a number public benefits. These popular resentments are unlikely to subside soon.

Second, it is unclear what added value such a fund would provide. Currently, the functions envisioned for the reform endowment are already performed by institutions such as the Millennium Challenge Corporation (MCC) and the Open Government Partnership (OGP). Of course, the MCC is not a multilateral institution as the reform endowment would be, but it operates along the same lines. That is, it provides grants based on whether recipients meet certain good-governance thresholds. Meanwhile the OGP—a multilateral body established at Obama’s suggestion, and in which countries seeking membership are required to meet similar criteria as envisioned in the Hamid proposal—is a purely voluntary organization with no capacity to provide loans or grants for good behavior. It is unlikely that the United States would be able to promote Arab democracy more effectively through a new institution than it would through expanding MCC or OGP programs in the Middle East.

Third, it is also unclear whether democracy-promotion activities undertaken by donors actually work as intended. The evidence of the effect of political conditionality on democratization in recipients of official development assistance is mixed at best. Most analysts find no effect of aid on democracy, with or without political conditionality. In one region where political conditionality imposed by donors seems to have made an impact—Eastern Europe—democratization occurred mainly in those countries offered EU membership. The absence of this kind of external inducement in the Arab world makes a similar impact unlikely.

One must ask—in an environment where the United States and other donors will continue to be fiscally constrained—whether it may be better to focus greater attention on economic reform and development in Arab states. This is not to say that democracy promotion should be excluded altogether. But it is clear that a strong economic rationale is driving Arab citizens to support democracy. In an Arab Barometer survey of Egyptians conducted in the summer of 2011, for example, almost two-thirds of respondents defined the most important characteristic of democracy as either low inequality or better provision of services. By contrast, only 6 percent consider elections to be essential. More than 80 percent say that “the economy” is Egypt’s greatest challenge. If the economies fail to deliver, democracy will fail.

Accordingly, one must ask whether U.S. financial assistance might be put to better use, both for rebuilding American influence and for underwriting democracy. For example, U.S. assistance to create jobs for those aged eighteen to thirty in Egypt, Tunisia, and Libya, through financing for vocational schools and active labor-market programs, would not only help a group that has historically borne disproportionate costs of economic adjustment but could also increase support for U.S. policies and influence among youth. U.S. leadership in reviving an expanded Barcelona Process and Union-for-the-Mediterranean initiative—both designed to build political, economic, and social partnerships between the European Union and its southern Mediterranean neighbors—could focus on behind-the-border trade issues such as logistics as well as provide guarantees for U.S. investors, eliminate investment obstacles, and ease technology flows between the United States, European Union, and North Africa.

The Arab Spring represents the most important set of political--economic transitions since the end of communism in Europe. But as Hamid points out, the United States has not found an effective way to channel its support for the reformers in Arab states into financial resources at a time when its influence in the region has waned. Correcting this state of affairs in the next presidential term is important. The question, and core of the debate that should continue, is how best to accomplish this.

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The Challenge of a Reform Endowment

Authors

Raj M. Desai

Image Source: © Mohamed Abd El Ghany / Reuters

Campaign 2012: Arab Awakening

Tue, 25 Sep 2012 10:00:00 -0400

Event Information

September 25, 2012
10:00 AM - 11:30 AM EDT

Falk Auditorium
Brookings Institution
1775 Massachusetts Avenue NW
Washington, DC 20036

Following the attack on the U.S. consulate in Benghazi and the death of U.S. Ambassador to Libya Chris Stevens, the United States is weighing its position and policies in the post-Arab Spring Middle East. More than a year after the initial Arab uprisings, the United States is questioning the state of its relations with the nascent Arab democracies and the emerging Islamist regimes. As the second anniversary of the Arab revolutions approaches, political and economic instability persists alongside growing anti-American sentiment, forcing the United States to adapt its policies to the evolving landscape in the Middle East. With the U.S. election just over six weeks away, many American voters are questioning the presidential candidates’ foreign policy strategies toward the region and wondering how the volatility in the Middle East and North Africa will affect the United States in the months and years ahead.

On September 25, the Campaign 2012 project at Brookings held a discussion on the Arab Awakening, the tenth in a series of forums that identify and address the 12 most critical issues facing the next president. POLITICO Pro defense reporter Stephanie Gaskell moderated a panel discussion where Brookings experts Tamara Cofman Wittes, Shadi Hamid and Raj Desai presented recommendations to the next president.

Participants can follow the conversation on Twitter using hashtag #BIArabAwakening.

Download papers from the event:

Prioritizing Democracy: How the Next President Should Re-Orient U.S. Policy in the Middle East, by Shadi Hamid
Three Key Challenges in Confronting the Arab Awakening, by Tamara Cofman Wittes
The Challenge of a Reform Endowment, by Raj M. Desai

Campaign 2012: Twelve Independent Ideas for Improving American Public Policy is an indispensable guide to the key questions facing White House hopefuls in 2012.

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Campaign 2012: Arab Awakening

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Uncorrected Transcript (.pdf)

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Scaling Up in Agriculture, Rural Development, and Nutrition

Johannes F. Linn, Laurence Chandy and Raj M. Desai — Wed, 27 Jun 2012 14:06:00 -0400

Editor's Note: The "Scaling up in Agriculture, Rural Development and Nutrition" publication is a series of 20 briefs published by the International Food Policy Research Institute. To read the full publication, click here.

Taking successful development interventions to scale is critical if the world is to achieve the Millennium Development Goals and make essential gains in the fight for improved agricultural productivity, rural incomes, and nutrition. How to support scaling up in these three areas, however, is a major challenge. This collection of policy briefs is designed to contribute to a better understanding of the experience to date and the lessons for the future.

Scaling up means expanding, replicating, adapting, and sustaining successful policies, programs, or projects to reach a greater number of people; it is part of a broader process of innovation and learning. A new idea, model, or approach is typically embodied in a pilot project of limited impact; with monitoring and evaluation, the knowledge acquired from the pilot experience can be used to scale up the model to create larger impacts. The process generally occurs in an iterative and interactive cycle, as the experience from scaling up feeds back into new ideas and learning.

The authors of the 20 policy briefs included here explore the experience of scaling up successful interventions in agriculture, rural development, and nutrition under five broad headings: (1) the role of rural community engagement, (2) the importance of value chains, (3) the intricacies of scaling up nutrition interventions, (4) the lessons learned from institutional approaches, and (5) the experience of international aid donors.

There is no blueprint for when and how to take an intervention to scale, but the examples and experiences described in this series of policy briefs offer important insights into how to address the key global issues of agricultural productivity, food insecurity, and rural poverty.

Authors

Publication: International Food Policy Research Institute

Image Source: Michael Buholzer / Reuters

Can Producer Associations Make Agriculture Sustainable? Evidence from Farmer Development Centers in India

Raj M. Desai and Shareen Joshi — Wed, 11 Jan 2012 12:58:00 -0500

INTRODUCTION

The problems in farming in developing countries are numerous and well-known: drought vulnerability, soil degeneration, a lack of financial instruments (credit and insurance), high transaction costs imposed by intermediaries, the inaccessibility of reliable inputs, and a lack of market opportunities. Over the past decade, agriculture in India has undergone what one state-level commission terms a period of “generalized rural distress,” producing high levels of rural unemployment, forced migration, and declines in per capita calorie consumption among the poor. Indian agriculture— characterized historically by much greater volatility than the general economy—has also been adversely affected in recent years by declining productivity, greater import competition, and rising prices for fertilizer, seed, and pesticides. Although the percent of agricultural employment in the labor force has been declining, most of that decline has been due to the loss of cultivators.

Adjustment costs in the Indian rural economy have fallen disproportionately on tenant farmers and rural day or “casual” laborers, and in particular, on female farmers. Women constitute only one-third of the Indian workforce, but three-quarters of these economically active women are engaged in agriculture (compared to 53 percent of men), as either workers in household farms owned or tenanted by their families, or as wage earners, and almost all of these agricultural workers are the informal sector. Moreover, Indian women face a range of disadvantages that are exacerbated by the pressures of rising input costs, cuts in agricultural subsidies and risks of weather shocks. First, they encounter steeper entry barriers than men in agriculture. Patriarchal inheritance codes restrict women’s property rights over agricultural land, particularly in North India (Agarwal 1994b; Dyson and Moore 1983). Barriers to access in land translate into barriers to accessing credit, since most formal sector loans require land titles. Female farmers also face other impediments such as cultural indifference, regulatory barriers, as well as higher bribe taxes from officials than their male counterparts (World Bank 2001). As a result, most women’s agricultural work is informal, done under conditions of high insecurity in relation to a lack of contract and benefits, and the availability of a large supply of surplus labor (Unni and Rani 2003).

Second, most government investments in agricultural- support programs—such as agricultural extension— have typically excluded women and have almost exclusively been targeted at men (Danida 2002; Raabe 2008). Third, the lack of collective-action mechanisms available to women in rural areas relative to men has limited female access and representation in local decision-making, and has contributed to the self-exclusion of women from a variety of participatory schemes and other community-based development programs that might mitigate the results of rural gender bias.

In recent years, several non-governmental organizations have attempted to address these issues and provide support to female farmers. “Membership-based organizations” have emerged to provide women with organizational resources that increase coordination, improve their capacity for management of collective goods (e.g., property, irrigation schemes), and support their participation in village affairs and local politics. In rural communities, producer associations have mobilized and organized female farmers, provided them with diverse services that include access to information and training, assistance in organizing inputs, marketing support, provision of credits, as well as in enhancing the bargaining power of farmers for securing better contracts and prices. The general basis for the proliferation of producer associations is the view that local farmers’ possess informational advantages regarding their own farming needs and placing them at the center of decision-making leads to greater efficiency, greater equity and lower transactions costs (Bank 2008; Chen et al. 2007).

Governments and multilateral development institutions have increasingly promoted producer associations. It is expected that collective action by farmers increases participation, improves agricultural productivity, establishes better connectivity with markets, and increases their bargaining power in securing inputs and selling outputs. In the long run, this contributes to both growth and poverty alleviation. Recent research however, demonstrates that this approach has its challenges. Evidence from Sub-Saharan Africa and South Asia suggests that local producer associations’ informational advantages may be nullified by problems ranging from local elite capture, exclusion of the poorest groups from decision-making, and the lack of information about the external environment and market conditions. These issues can prevent producer associations from translating their informational advantages into either agricultural productivity growth or poverty alleviation (Bernard and Spielman 2009).

Empirical assessments of the impact of producer associations are thus quite important. This evaluation focuses on a program in the Indian state of Gujarat that combines social empowerment with agricultural extension. The program, known as the “Women Farmers with Global Potential” (WFGP) initiative, focuses exclusively on rural women and draws on producer associations as the primary channel for delivering the intervention. The effort was coordinated by the Self-Employed Women’s Association (SEWA), a non-governmental organization that has acquired significant experience in the development of producer associations and other membership-based organizations for the rural poor in India.

We aim to evaluate the impact of the WFGP program at the individual level, considering both economic and non-economic outcomes. We examine results of SEWA membership on income, employment, empowerment, consumption, income, and assets of women in these communities. We draw on a survey of approximately 1,500 women in 42 villages in five rural districts in Gujarat conducted in 2010 over several months following the monsoon, divided between members of SEWA and non-members. Although villages were selected randomly for SEWA treatment, individual women were not. To control for problems of individual selection, then, we rely on propensity score matching on observables to ensure balance between SEWA members and non-members.

Our results illustrate that SEWA membership had some important effects: it raised awareness of available opportunities among its participants, and linked women to the financial sector, and to diversified employment opportunities, including non-farm work. SEWA members are less likely to work as unpaid workers, are more likely to have better knowledge of loan products available, more likely to have obtained those loans, and more likely to have superior information about market prices than non-members. SEWA women were also more likely to sell outside the established state-procurement system than non-members.

We also find considerable evidence of the heterogeneity of impact. SEWA membership benefitted the poorest women (as measured by residence in temporary or “kutcha” housing) as well as those who had faced previous income shocks. Relative to other women, these women experience higher farm and non-farm income, greater food consumption, improved household and farm productivity, more self-employment opportunities, a greater likelihood of opening a bank account, higher crop harvests, having access to adequate food for the family.

The remainder of this paper is organized as follows. The next section reviews agricultural extension programs in India, and describes SEWA’s intervention in detail. The section after that examines household impacts of the WFGP initiative. The final section discusses the prospects of scaling up the program in India as well as in other developing countries. The final section concludes and offers some implications for agricultural policy in India and globally.

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Authors

Raj M. Desai
Shareen Joshi

Image Source: Kim

Václav Havel’s Economic Legacy

Raj M. Desai — Mon, 19 Dec 2011 15:47:00 -0500

Václav Havel, the dramatist and reluctant politician who led Czechoslovakia (and later the Czech Republic) as president following the collapse of the communist in regime in 1989 during the Velvet Revolution, passed away on Sunday, December 18. Since his death, he has rightly been eulogized for his words and deeds on behalf of democracy and human rights, which reached far beyond the borders of the former East Bloc nations. Havel’s ideals were not merely abstractions; they were personal. The price for being the most visible anti-communist dissident in the Czechoslovak Socialist Republic was repeated incarceration. Upon assuming the presidency, he opposed efforts to strip former communist officials of their civil rights, or to engage in other punitive actions since, as he famously claimed, all citizens were “co-creators” of the totalitarian machine.

But his legacy is not only the rebuilding of the “human, moral and spiritual potential, and the civic culture that slumbered in our society” that he noted in one of his first speeches to post-communist Czechoslovakia. More than many other technocrats who ultimately managed the economic transformation in Eastern Europe, Havel understood that the post-communist “transition” would be a Janus-faced creature—capable of both sowing deep nostalgia for authoritarianism, and also creating a stable, democratic nation. The difference, according to Havel, would hinge on the resilience of civic and political institutions, which would be needed to force mid-term corrections in economic policy, to support competition, to police the common market, and to protect consumers, investors, taxpayers, and entrepreneurs.

Havel’s economic positions have often be juxtaposed to those of his political rival, Václav Klaus, who served as his prime minister between 1993 and 1997, and who replaced Havel as president in 2003. Klaus famously argued “civil society” did not exist and that it was merely a leftover, albeit useful, fiction employed by former dissidents to fight the communist regime; Havel believed the absence of civil society in economic reform would inevitably produce economic crime. Klaus barely concealed his distaste for (and continues to criticize) the European Union; Havel recognized the power of an external anchor to convince Czech citizens that their destinies were tied to “the West,” and to create incentives for companies and banks to adopt EU practices in business matters. Klaus intended to irreversibly remove the government from economic activity; Havel saw the need to maintain credible governmental institutions in economic activities.

An instructive contrast between the “Two Václavs” can be seen in how privatization—one of the cornerstones of the post-communist transition—was conducted before and after Klaus came to power. Before Klaus launched the voucher-based privatization program for which the Czech Republic became famous (if not infamous), the Czechoslovak automobile company Škoda was sold to Volkswagen in late 1990, requiring lengthy negotiations between government officials and Volkswagen. Meanwhile, a similar trade sale of Zetor (a tractor company) was halted in favor of distributing shares as vouchers, which drastically limited the government’s role, and became the main privatization policy during the early Klaus years. Škoda’s global presence grew dramatically, while Zetor ended in bankruptcy and floundered for over a decade before staging a recovery. Notably, the Klaus government failed to privatize banks, contributing to the rapid accrual of bad debt, and a currency crisis in the mid-1990s. Havel found little consolation in the fact that Klaus's neglect of institutional matters led to a financial scandal in the governing party, which caused the collapse of Klaus’s government.

Nor is Havel’s economic legacy merely an historical curiosity—a long-forgotten debate between “big-bang” reform advocates and their opponents. One year after the beginning of the Arab Spring, it is central on Egypt and Tunisia’s agenda. Reformers struggle to navigate between the imperatives of economic opportunity and the demands of the population for human dignity, knowing that extremism or dictatorial backlash may be the consequence of reform failures.

As protests emerge in response to rigged elections in Russia and Kazakhstan, the limits of imitation democracy—even for regimes that deliver economic prosperity—are becoming apparent. As Havel noted in his essay The Power of the Powerless, “The original and most important sphere of activity . . . is simply an attempt to create and support the independent life of society as an articulated expression of living within the truth.” In the “year of the protester,” Havel’s life and work should serve as a reminder to all citizens of the importance of civic virtue in underpinning both political and economic liberty.

Authors

Raj M. Desai

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The Economic Imperatives of the Arab Spring

Wed, 26 Oct 2011 00:00:00 -0400

Publication: The G-20 Cannes Summit 2011: Is the Global Recovery Now in Danger?

The Costs of Political Influence: Firm-Level Evidence From Developing Countries

Raj M. Desai and Anders Olofsgård — Thu, 06 Oct 2011 17:07:00 -0400

ABSTRACT—

Arrangements by which politically connected firms receive economic favors are a common feature around the world, but little is known of the form or effects of influence in business–government relationships. We present a simple model in which influence requires firms to provide goods of political value in exchange for economic privileges. We argue that political influence improves the business environment for selected firms, but restricts their ability to fire workers. Under these conditions, if political influence primarily lowers fixed costs over variable costs, then favored firms will be less likely to invest and their productivity will suffer, even if they earn higher profits than non-influential firms. We rely on the World Bank’s Enterprise Surveys of approximately 8000 firms in 40 developing countries, and control for a number of biases present in the data. We find that influential firms benefit from lower administrative and regulatory barriers (including bribe taxes), greater pricing power, and easier access to credit. But these firms also provide politically valuable benefits to incumbents through bloated payrolls and greater tax payments. Finally, these firms are worse-performing than their non-influential counterparts. Our results highlight a potential channel by which cronyism leads to persistent underdevelopment.

The Cost of Political Influence

Arrangements by which firms with close ties to incumbent political authorities receive favors that have economic value are a pervasive feature of business– government relationships in countries around the world. Despite the prevalence of these arrangements, however, relatively little is known about the precise form firm-level political influence takes, or its consequences. What characterizes the bargain between influential firms and governments? How do influential firms compensate governments, if at all, for any benefits they receive? Recent firm-level analyses have examined various determinants of political influence, and how these connections affect market valuation. Others have detailed the channels through which the benefits accrue. Still others, finally, have explained how ‘‘systems’’ of influence come into being, and why they survive. Much less is known, however, of how these political connections affect decisions within firms or of the strings that may come attached to political influence.

We investigate both the characteristics that define political influence among firms in developing countries as well as the effects of that influence on company behavior and performance. We argue that political influence improves the business environment for selected firms through industrial or quasi-industrial policies, but restricts their ability to fire workers. Influential firms thus relinquish a portion of their control rights — particularly over employment decisions — in order to provide benefits of political value to public officials. If influence lowers fixed operating costs for privileged firms, they may earn higher profits than non-influential firms but they will be less likely to invest or innovate, and their productivity will suffer. Firm-level political influence, therefore, can undermine the performance of politically powerful firms.

We draw on firm-level surveys in approximately 40 developing countries, consisting of over 8000 enterprises. We find that politically influential firms do indeed face a more favorable business environment than their noninfluential counterparts across several dimensions. However, influential firms also tend to carry bloated payrolls and report more (hide less?) of their sales to tax authorities, suggesting two mechanisms by which they offer political compensation: employment levels and tax revenues. Influential firms are also less likely to open new product lines or production facilities, or to close obsolete ones; they also report lower real growth in sales, shorter investment horizons, and lower productivity levels than non-influential firms. These results are robust to adjustments for a number of biases in the survey data. Taken together, our results imply that firm-specific industrial policy will be more prone to cronyism than policies that do not target individual firms. Our results can also explain why crony capitalism persists in countries despite its adverse effects on long-term economic performance. Finally, our findings offer some confirmation for the view that politically-devised restrictions that block access to technologies and preserve rents for elites are at the heart of prolonged economic under-development.

Citation:

Raj M. Desai and Anders Olofsgård (2011) "The Costs of Political Influence: Firm-Level Evidence From Developing Countries", Quarterly Journal of Political Science: Vol. 6: No 2, pp 137-178. http://dx.doi.org/10.1561/100.00010094

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Authors

Raj M. Desai
Anders Olofsgård

Publication: Quarterly Journal of Political Science

Turmoil in the Middle East: A Live Web Chat with Raj Desai

Wed, 23 Feb 2011 12:30:00 -0500

Event Information

February 23, 2011
12:30 PM - 1:00 PM EST

Online Only
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

As the unrest in the Middle East and northern Africa spreads to countries beyond Tunisia and Egypt—including Bahrain, Yemen, Libya and Iran—Raj Desai explains the underlying causes of the expanding defiance, and the collapse of the "authoritarian bargain" in the region. On February 23, Desai took questions on the origins of the turmoil and the challenge it poses to the United States in a live web chat with POLITICO.

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Moderator

Seung Min Kim

Assistant Editor
POLITICO

Panelists

Web Chat: Turmoil in the Middle East

Raj M. Desai — Wed, 23 Feb 2011 00:00:00 -0500

On Feburary 23, Raj Desai took your questions about the underlying causes of the expanding defiance in the Middle East and the collapse of the "authoritarian bargain" in the region during a live web chat moderated by POLITICO.

Seung Min Kim: Hello, everyone. Brookings expert Raj Desai is here today to talk about the underlying causes of the unrest in the Middle East and northern Africa and the implications for the U.S. Thanks for joining us, Raj.

12:30 [Comment From Marcus J.: ] What do you mean by the collapse of the "authoritarian bargain"?

12:33 Raj Desai: Usually, the term "authoritarian bargain" refers to the social contract between dictators and citizens, in which citizens give up some political rights in exchange for economic security. The reason that this bargain is collapsing in the Middle East and North Africa (MENA) is that the failure of countries to reform economically in the past has meant that they have not been able to remain competitive, or create jobs. With the large-scale entrance of youth into the labor force, unemployment and underemployment has risen quickly in recent years, the bargain is collapsing because some MENA dictators have been unable to fulfill the economic side of the "bargain."

12:38 [Comment From Peter: ] Can you comment on the relationship between civil unrest in north Africa and the Middle East and food shortages arguably being driven by climate change? In a larger sense, how is a changing climate affecting instability throughout the world?

12:38 Raj Desai: Food shortages and rising food prices have, historically, caused plenty of (mostly urban) unrest--going back to the French Revolution and the "Springtime of Nations" in 1848. Food shortages--as well as shortages in general--obviously played a major role in growing discontent with central planning in Eastern Europe and in the USSR in the 1980s. In the Middle East (and elsewhere) food price hikes seem to have fed into a wider set of growing frustrations against long-tenured governments, and may have been one of the proximate causes of the protests.

12:41 [Comment From Mark, Greenbelt: ] Did this all start in Tunisia? Was there a single, triggering event?

12:41 Raj Desai: Actually, it may have started in Iran in 2009. There, of course, a youth-led uprising was brutally suppressed. But it showed many nations the potential power of youth in numbers, as well as the usefulness of internet-networking platforms. And in Iran, young people faced many of the same problems that young people faced in Tunisia: long wait-lists for public-sector jobs (that were once guaranteed), long periods of unemployment, etc.

12:43 [Comment From Guest: ] so you don't think it's about the demand for political rights in the first place or the desire to recover human dignity as citizens?

12:43 Raj Desai: I don't think one can look at demands for political rights in a vacuum. It is an integral part of the Arab social contract, however. And we have seen that, in the past when Arab economies were suffering from austerity or economic problems, rulers have released the political "pressure valve" by allowing more political freedoms. But during better times, these rights have inevitably been taken away.

12:46 [Comment From Karin: ] Does the collapse of an authoritarian bargain apply to Iran, where surely there is a failure to provide economic security to all citizens?

12:46 Raj Desai: I think there is little question that the authoritarian bargain is under severe strains in Iran, and may in fact be collapsing. But note that some regimes--especially the more "totalitarian" states like Iran (and perhaps Libya)--can survive a long time through a combination of repression, limited political reforms, and wily leadership that capitalizes on factionalism, sectarianism, tribalism, etc.

12:53 [Comment From Caitlin Dearing: ] If the primary reasons for this turmoil are jobs, corruption and accountability, what kinds of US policies can be used to address these issues in the short-term?

12:53 Raj Desai: U.S. economic policies--including trade and investment--have been geared towards natural resource sectors, while foreign aid has been used as an extension of U.S. foreign policy in the region. All of this is understandable given security/energy needs of the U.S., and the vital role that regional allies have played. This is not to say that the U.S. has perpetuated authoritarianism in the region, but certainly U.S. assistance was one of the factors that enabled leaders like Mubarak to survive as long as he did in office without undertaking serious economic or political reforms. Your question about what the U.S. can do NOW, however, is vital. As the U.S. (and the EU) did in Eastern Europe and in the former USSR following the collapse of central planning, it is imperative to provide both economic assistance contingent on reforms that (1) diversify the economies of these countries and (2) promote competitiveness and innovation (and job creation), as well as institution building. This is not a simple task, and there may be many disappointments (and reversals) in the road ahead. But it is important to create incentives for governments to sustain needed reforms.

12:56 [Comment From Benjamin Green: ] Did the authoritarian bargain start during the colonial era in these countries? or does it pre-date colonial rule?

12:56 Raj Desai: The authoritarian bargain is really a post-colonial phenomenon. Following decolonization, countries such as Egypt, Syria, Iraq, Libya,Tunisia, etc., adopted an "interventionist" approach to economic development and planning--some have called it "Nasserism" but it has much in common with national economic planning in many other developing nations. In the Middle East, this also involved significant redistribution of wealth--via job guarantees and subsidies. So the "bargain" was really created as a result of the developmental model adopted in the 1960s.

12:58 [Comment From John Hogarth: ] Everyone is talking about restoring human rights and building democracies, but is there any real experience of either in the region? Isn't it more likely that new strongmen will arise to take control, as in the past?

12:58 Raj Desai: That is certainly a possibility, but there is plenty of historical experience of countries that had poor human rights or democratic records (e.g., Romania, Indonesia, etc.) adopting reforms that made major steps. A "break with the past" is certainly necessary.

1:02 [Comment From Chavdar: ] What are the chances of the Saudi monarchy to have serious problems with youth-propelled protests?

1:02 Raj Desai: Several questions have been asked about Saudi Arabia, and the implications of these Arab uprisings for Saudi citizens. Saudi Arabia (and some of the other monarchies) seems to be one of the countries in which the degree of wealth redistribution remains high enough to satisfy most of the population. That is not to say that there are not plenty of economic grievances. But the subsidies, grants, job guarantees, etc. seem to be in place in Saudi Arabia. In addition, the political power of a dominant religious group means that any threats to the monarchy may be perceived as threats to the religious identity of the Saudi state. Having said that, it is likely that King Abdullah, witnessing what has been going on around him, will engage in limited political liberalization so long that it does not threaten the regime.

1:03 Raj Desai: Thanks to all for such great (if very complicated) questions.

1:03 Seung Min Kim: And thank you as well. Have a nice week, everyone.

Authors

Raj M. Desai

@ Brookings Podcast: Unrest Spreads in the Middle East

Raj M. Desai — Fri, 18 Feb 2011 14:43:00 -0500

Protests that ousted leaders in Tunisia and Egypt are spreading to other nations in the Middle East – including Bahrain, Yemen, Iran and Libya. Expert Raj Desai examines the underlying causes that have resulted in calls for reform, threatening autocratic regimes and breaking down the “authoritarian bargain” that sustains them.

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Is the Arab Authoritarian Bargain Collapsing?

Raj M. Desai, Anders Olofsgård and Tarik Yousef — Wed, 09 Feb 2011 16:56:00 -0500

Last week, we saw several Arab rulers embark on limited political reforms in order to “preserve and not to overthrow” their rule. After days of protests, Egypt’s Hosni Mubarak announced he would step down at the end of his term, as did Ali Saleh of Yemen. In Jordan, King Abdullah fired his cabinet and appointed a new prime minister. Even Syria’s Bashar al-Assad agreed to allow local elections in order to pre-empt similar events.

However, dictators cannot stay in power by repression alone. In the Middle East and North Africa, governments have relied on an “authoritarian bargain”—an implicit contract between ruling elites and citizens whereby citizens relinquished political influence in exchange for economic benefits. But, this contract has been under stress for over two decades and is now collapsing.

Middle Eastern economies have historically allowed rulers to secure the loyalty of their subjects because of two reasons: government jobs and a generous welfare state. In return for these things, Arab citizens were willing to tolerate political restrictions on civic associations, access and representation in government, and the ability to participate in democratic life.

In times of distress and inability to fulfill the economic side of the bargain, Middle Eastern rulers have occasionally turned to partial political liberalization. Facing falling oil prices in the 1990s, for example, several countries permitted greater freedom in electioneering, and took steps to allow opposition figures to campaign freely, as long as they did not threaten the regime itself. At the same time, they attempted to increase salaries or subsidies for key constituencies, like the military.

For decades, citizens willingly accepted this bargain. It is hard to imagine now, but in the 1960s and 1970s Middle East economies were among the fastest growing in the world—alongside the East Asian “tigers.” Unemployment was low and household incomes were expanding rapidly. Middle Easterners easily found high-wage work, both at home and especially in the booming Gulf oil fields. University-educated citizens were guaranteed jobs in the public sector.

Oil revenues played a pivotal role in sustaining the social contract in the Arab states. For oil-producing countries, oil revenues permitted the creation of vast welfare states. For non-oil producers, remittances boosted household consumption, especially in rural areas. Loans and other forms of assistance from oil-producing states to non-oil producers boosted government revenues and sustained redistributive commitments. At the peak of the oil boom in the early 1980s, some 3.5 million Arab migrant workers were employed in Saudi Arabia and the Gulf states. Job opportunities grew so fast that Egypt, Tunisia and Algeria were reporting labor shortages. However, today in these same countries jobs have disappeared, particularly for young people. These economies now suffer some of the highest unemployment rates in the world and standards of living are now declining and in some cases stagnant.

How did the Arab economies fall so far? First, Middle Eastern governments failed to reform their economies after oil prices fell in the 1980s. Declining oil prices forced drastic reductions in welfare, while many of these governments accumulated debt in order to meet their public wage bills. At the same time—particularly in North Africa—business environments influenced by Arab-socialist policies discouraged private investment, reduced opportunities for trade and impeded the development of competitive industry. While most governments launched some form of economic adjustment program in response, these reforms tended to be tentative, incomplete or uneven.

Second, failure to reform after the oil bust left the region ill-equipped to deal with the large-scale entrance of youth into the job market in the 2000s. Rapid fertility increases between the 1960s and 1990s, combined with plummeting mortality rates, left the countries with some of the highest percentages of youth populations in the world. While earlier generations of youth benefited from free education, job guarantees and other entitlements, those born after 1980 were no longer guaranteed these same institutions and high living standards. As a result, frustrations from the new generation of Middle East youth have been building for over a decade. Images of well-educated but unemployed youth have defined the Middle East and North Africa for many years now. The 5 percent growth rates that some economies, such as Egypt and Tunisia, have been posting cannot absorb all the young people entering the workplace. In fact, Gallup has reported that feelings of “well-being” in the Middle East have been plummeting even as GDP has been rising.

Arab leaders now face more difficult choices. They must revive their countries’ non-oil private sectors, which have been paralyzed by trade barriers, red tape, bribes and nepotism. Arab states need to reform their educational systems to emphasize greater decentralization, expanded access, higher achievement, and the development of skills to be a globally competitive. Finally, Arab states must restructure the top-down, rigid and centralized institutions of their governments. These countries remain saddled with institutions designed to support interventionist policies and face enormous difficulties in adapting to new tasks, policy demands and regulatory environments. Such instruments are necessary to promote socially equitable, market-oriented job growth.

In the past, when economic pressures mounted, Middle Eastern regimes have opened some limited political “breathing room” to buy time. But the scenes from Tunis to Cairo to Sana’a suggest that the strategies used by Arab leaders to maintain power may have run their course. Partial political liberalization may not be enough at this point to make up for the current inability to deliver economic security and prosperity, spelling the final demise of Arab authoritarian bargain.

Authors

Raj M. Desai
Anders Olofsgård
Tarik Yousef

An Immediate Exit for Mubarak?

Raj M. Desai — Fri, 04 Feb 2011 16:53:00 -0500

If Mubarak decides to resign, it will be due to a range of factors outside the immediate control of the White House—e.g., whether Mubarak’s inner circle abandons him, or whether the military somehow manages to convince him to leave (perhaps even by force), etc. Phone calls from an ally alone (as important as that may be) are not going to get him to leave, if they have not already done so. The $1.3 billion aid figure mentioned is military assistance. Now is not the time to slash military aid which, however one thinks of the strategic value of funding the Egyptian army, police and paramilitaries in light of what we have been witnessing in Tahrir Square, has provided benefits in the form of counter-terrorism support and Gaza border control.

The same, apparently, cannot be said for the approximately $6 billion that Egypt has received in U.S. economic aid over the last 10 years—mostly in the form of budget support, and without very strict conditions. It is possible that tightening economic aid may be a more viable response. But note that many aid commitments to Egypt were probably made in previous years so we are really talking about suspending disbursements of already-committed funds.

So let’s be clear what this means: it means that fewer classrooms will be added, fewer hospitals renovated, fewer infrastructure and utility services expanded, fewer loans made to small and medium-sized enterprises, and all the things that rely on U.S. aid will be similarly affected. It does suggest, however, that U.S. foreign assistance (and, for that matter, aid from other donors)—whether to the Middle East or other countries—should be granted in ways that create strong incentives for recipients to make progress on curbing corruption and improving governance, rather than simply to allow regimes to give out public goodies so they can remain in power.

Finally, “faulty intelligence” cannot be blamed for this. In Egypt, at least, the warning signs that Mubarak was coming to the end of his tenure—whether voluntarily or involuntarily—have been there for some time. If anything is to be faulted, it is that we did not prepare adequately for this eventuality by, e.g., reaching out to a wide range of opposition figures, encouraging and supporting organizational efforts of these groups, and in initiating the dialogue concerning “peaceful transitions” with Mubarak long ago.

Authors

Raj M. Desai

Publication: POLITICO

Authoritarian Bargain Collapses in Middle East

Raj M. Desai — Wed, 02 Feb 2011 09:38:00 -0500

Egyptian complaints are not specific to Egypt, but symptomatic of problems affecting most of the non-oil exporting states in the Middle East and North Africa (MENA), which are the most vulnerable to Tunisia - and Egypt-style events.

What has happened in Tunisia and now Egypt is that the classic Arab authoritarian bargain has collapsed. For several decades now, Arab rulers have remained in power by giving citizens a generous set of social benefits (free education, government jobs, subsidies, and other entitlements), and in return, the public accepted severe restrictions on political life.

But since the mid-1980s two “shocks” undid that bargain. First, economic recession in the 1980s and early 1990s harshly affected MENA states which found that they could no longer afford to give everyone employment guarantees and other entitlements without accumulating large amounts of debt. Many economies in the region were forced to undergo some form of structural adjustment (as did many economies in Latin America, Asia, Africa, and Eastern Europe at the time), but in the MENA region these reforms tended to be incomplete. As a result, most MENA countries were not able to expand their private sectors, and were not able to benefit from globalization the way many Asian and Latin American economies, for example, managed to do.

This left these countries unprepared for the second shock: the large-scale entrance of youth into the workplace. Because of rising fertility rates and falling mortality rates in previous decades, a large cohort of youth began to seek jobs in the late 1990s and 2000s. Their parents would have been given places in universities, government jobs, and a generous set of benefits. But the new generation received none of that, and as a result, their frustrations with the system have been building for over a decade.

Now many of the governments in the region, watching what is happening in Tunisia and Egypt, are trying to tinker with the old authoritarian bargain - ce King Abdullah of Jordan’s effort to open some political space by sacking his cabinet, President Saleh of Yemen’s efforts to increase public sector salaries and allow for more opposition activity, and of course, Mubarak’s own announcement that he will not seek re-election.

But it is too late for Mubarak, and possibly for the others.

Authors

Raj M. Desai

Publication: POLITICO

A Suggestion for the IMF: Embrace Regionalism

Raj M. Desai and James Raymond Vreeland — Mon, 08 Nov 2010 11:24:00 -0500

Editor’s Note: This chapter is from Regional and Global Liquidity Arrangements, published by the German Development Institute and edited by Ulrich Volz and Aldo Caliari.

It is no secret that the governance of the International Monetary Fund (IMF) does not match economic reality and that the vote shares of emerging market countries do not reflect their economic strength. If the IMF does not make its governance more inclusive, it will (continue to) lose the support of emerging market countries. But if the power of the United States and Western Europe is diluted, they may be less inclined to support the IMF with additional funding in the future. Perhaps this is the signature of a multipolar world, where no one is strong enough to dominate at the international level – and regional hegemons emerge. If this is so, one potential solution for the Fund is to recognise the growing strength of regional organisations and find ways to engage and work with them.

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Authors

Raj M. Desai
James Raymond Vreeland

Publication: The German Development Institute

Predictable Aid from G-20 Countries Can Reduce Conflict in the Developing World

Tue, 02 Nov 2010 00:00:00 -0400

Raj Desai, Anirban Ghosh and Homi Kharas look into the G-20 agenda of development at the upcoming Summit. They examine how fragility and conflict in many developing countries continue to hinder development and economic growth, and state that the G-20 Summit in Seoul is an excellent opportunity for leaders to address this issue.

Publication: The G-20 Seoul 2010 Summit: Strengthening the Global Recovery

Financial Regionalism: Lessons and Next Steps

Wed, 13 Oct 2010 14:00:00 -0400

Event Information

October 13-14, 2010

Saul and Zilkha Rooms
The Brookings Institution
1775 Massachusetts Ave., NW
Washington, DC

On October 13 and 14, the Brookings Institution and the Asian Development Bank Institute (ADBI) co-hosted a high-level international workshop on “Financial Regionalism: Lessons and Next Steps.” The workshop served as a forum for discussion on the prospect of a regional financial architecture following the recent establishment of the European Financial Stability Facility (EFSF), the multilateralization of the Chiang Mai Initiative (CMIM), the founding of an independent regional surveillance unit in Asia, as well as recent proposals about global financial safety nets. Strategically scheduled between the International Monetary Fund (IMF) and World Bank Annual Meetings and the Seoul G-20 Summit, the workshop promoted the exchange of ideas by about 40 senior experts, academics, U.S. policymakers and civil society representatives.

Dissatisfaction with the global financial architecture has encouraged the temptation to address financial issues at the regional level. Europe, with the establishment of the EFSF, and Asia, with the CMIM, demonstrated that regional financial arrangements (RFAs) have become a reality. Yet, it is unclear whether RFAs should complement, or serve as an alternative to, global monetary institutions. A key question is whether RFAs can evolve towards a form of “open” or “closed” regionalism. The Brookings and ADBI workshop provided a sounding board for participants to debate and discuss issues related to RFAs and their relationship with the IMF.

Generally, the participants focused on four broad issues that help set the preconditions for a harmonious coexistence and cooperation between regional and global financial institutions: first, the merits of “linking” with and complementing vs. “delinking” from and substituting the IMF and its lending programs; the issue of the IMF’s neutrality as a global actor in terms of governance, Asian representation in, and ownership of, the IMF; and, finally, the role RFAs may play in the surveillance of the global economy, as a complement to the IMF, because of their proximity to the “action.”

Specifically, the agenda set the discussion around the following five sub-themes:

(1) Financial Regionalism and Monetary Union in Europe. Key topics included: The adequacy of the European regional response to the Greek crisis and the euro area turmoil; the main requirements to ensure sustainability of a monetary union; the merits of establishing a full-fledged European Monetary Fund; and the regional integration of banks and the relationship between Europe and the IMF.

(2) Bilateral and Plurilateral Swap Lines, and the Chiang Mai Initiative. Key topics included: Why the CMI/CMIM was not activated during the recent international financial crisis; whether or not the increased reliance on bilateral currency swaps with central banks erodes the function that the IMF’s global membership has formulated for it; the role of the IMF and systemically-important central banks in response to future systemic events; and whether the relationship between CMIM and the IMF should be a form of “closed regionalism” or “open regionalism.”

(3) Economic and Financial Integration in Asia. Key topics included: The next steps in Asian regional integration; what forms of monetary cooperation are envisaged for Asia in the near future; and which countries may be leading the process.

(4) Financial Regionalism and the IMF. Key topics included: What standards should be employed to assess the consistency of regional arrangements with the broader multilateral architecture; what amendments to the IMF charter, policies and programs can be envisaged to make the Fund an effective and responsive interlocutor of regional financial arrangements; the argument for, and the potential effectiveness of, a global financial safety net.

(5) Financial Regionalism from the U.S. perspective. Key topics included: The prevailing views in the U.S. with regard to financial regionalism; how can the U.S. ensure that regional financial arrangements, while fully-owned by their members, are consistent with the global financial architecture; and the problem of inherent competition between institutions in lending standards.

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View the related Issues Paper » (pdf)