Showing posts with label poverty. Show all posts
Showing posts with label poverty. Show all posts
I was really amazed by the cool stuffs in the US electoral news at the CNN, all the graphs and statistics, not to mention all touch screen describing political strategy reviews. And I understand that the electoral projection is as sophisticated as in the news.
I would like to have this cool stuffs and projections in poverty rate and well being level some day, in Indonesia. yeah may be someday, minute to minute headcount poverty rate. Hope someday this kind of data will be profitable enough to cover the maintenance cost. hey, people can always their wildest dream right?
Social capital Inequality
I found an interesting article yesterday, it's about the social capital inequality. Social capital is a productive asset generated from social connection. The theory is that : First, repeated interaction will increase trust among people in the society, higher networking abilities, making them able to get higher information, faster and sometimes better information than others. Second, trust and networks made collective action in establishing public goods is easier. I wrote about it implicitly here other supporters among economist and sociologists are here, opponents are here, as he mentioned the paper of sobel. In the paper sobel, stated that "One can acquire social capital through purposeful actions and can transform social capital into conventional economic gains", I think this is something we overlooked for some times, similar to the opponent above, quoting "trust" could be misleading phenomenon for the rich (he quoted thakshin sinawathra), but in some cases would be useful in acquiring information for the poor (rich people too?). Normally I would agree, as I consider information sharing is the greatest gift to human kind, but as Amartya sen would say, what will matter in the end is the capability of the poor, the freedom to use those information available. Back to the paper, I found that the paper is brilliant as it highlights the impact of inequality to the effectiveness of social capital, then social capital is indeed a source of poverty trap empirically.
how does it work exactly?
the ad-hoc approach of social capital in empirical analysis is trust indicator, and kinship relationships, but rarely significant (as my supervisor constantly reminded me..siggh..), it turns out that these indicators might affect people in both ways positive and negative, this allegedly conditional to the income level.
Poor people tend to be excluded socially and a subject of derogatory discrimination, therefore routinized relations and daily encounters between people generate social norms which shape patterns of inclusion as well exclusion of social activities. In other word, close relationship between people could constrain or enable the social structure of the poor.
Kinship variables, showing close relationship in siblings, or families, often seen as a remedy for risk alleviation for the poor, the poor will always be able to count on their relatives aid in case of unexpected external shock. The problem is, their families them self are poor, relying on them is not sufficient nor sustainable. Neighbor and friends closeness are considered in Putnam's work as a means of maintaining friends, and networks. The problem is the network it self was originally based on unequal status. The relations among people might be maintained just as close as clientage arrangement, as people acquire their resources by borrowing (credit), cheap labor (food exchange) which implies negotiations in their agreed terms, very often that the negotiation is not favorable for the poor. The paper stated "poor people relationships to those nearest to them in blood, marriage, and residence were therefore characterized by continuous supplication and unequal exchange".
In terms of collective action, social capital turns out to be less favorable to the poor, as the poor categorized with severe poor health and lack of food, which eventually lead to lack of productivity, therefore less opportunity to participate in a collective action and thus less money gained for such activity. This is interesting, as this imply to different caste of poor, there are poor people, able to move on, accumulating resources overtime, and less fortunate poor, continuously sank to the bottom of the income distribution.
People should see poor as a singular, not plural word, then we would be able to see clearer, one is transitory, and one is chronic poor. Something failed to consider in ad-hoc static poverty measurement
how does it work exactly?
the ad-hoc approach of social capital in empirical analysis is trust indicator, and kinship relationships, but rarely significant (as my supervisor constantly reminded me..siggh..), it turns out that these indicators might affect people in both ways positive and negative, this allegedly conditional to the income level.
Poor people tend to be excluded socially and a subject of derogatory discrimination, therefore routinized relations and daily encounters between people generate social norms which shape patterns of inclusion as well exclusion of social activities. In other word, close relationship between people could constrain or enable the social structure of the poor.
Kinship variables, showing close relationship in siblings, or families, often seen as a remedy for risk alleviation for the poor, the poor will always be able to count on their relatives aid in case of unexpected external shock. The problem is, their families them self are poor, relying on them is not sufficient nor sustainable. Neighbor and friends closeness are considered in Putnam's work as a means of maintaining friends, and networks. The problem is the network it self was originally based on unequal status. The relations among people might be maintained just as close as clientage arrangement, as people acquire their resources by borrowing (credit), cheap labor (food exchange) which implies negotiations in their agreed terms, very often that the negotiation is not favorable for the poor. The paper stated "poor people relationships to those nearest to them in blood, marriage, and residence were therefore characterized by continuous supplication and unequal exchange".
In terms of collective action, social capital turns out to be less favorable to the poor, as the poor categorized with severe poor health and lack of food, which eventually lead to lack of productivity, therefore less opportunity to participate in a collective action and thus less money gained for such activity. This is interesting, as this imply to different caste of poor, there are poor people, able to move on, accumulating resources overtime, and less fortunate poor, continuously sank to the bottom of the income distribution.
People should see poor as a singular, not plural word, then we would be able to see clearer, one is transitory, and one is chronic poor. Something failed to consider in ad-hoc static poverty measurement
poverty and institutional path dependence
The initial point of causes of multiple equilibria in economic development is the fact that Inefficient equilibria tends to self-reinforce, whenever there is an inefficient equilibrium, there is no reason that convergences should happen, but instead, would stabilize the polarization process, and hence a multiple equilibria.
The main idea of institutional effects on economic development is that individuals are bounded rational; their rationality is embedded by the environment and their subjective experience, inference and individual deduction. As a result, market transactions are not always happen in the most efficient ways since people has limited ability in calculations and output processing, and therefore transactions are costly, institutions are then created to reduce these transaction costs, uncertainties and overcome market failure. Hence institution matters.
Institution have significant contribution to poverty through two channels, first, bad institutions make market can not function appropriately, hence market is unable to resolve the most efficient output for everyone. Second, the institution itself could be the source of inefficiencies. Furthermore, Institution failure ignite poverty trap, because of its durability and path dependency.
First, Institutions were meant to overcome market failure, however, institutions are created and enabled by the current ruling political power, which tends to use the institutional laws to maintain their supreme power. as North (1993, p.3) has emphasized, “institutions are not necessarily or even usually created to be socially efficient; rather they, or at least the formal rules are created to serve the interests of those with the bargaining power to create a new rules “. This might resulted in an inefficient economic activities and rent-seeking behavior. Second, the path dependency of institutions is also because it is inherent in the way that informal norms form the foundation of community, at least for informal institutions which are unlikely to change in short term period. Third, Bounded rationality of the agents is itself a source of self-reinforcing inefficient outcomes independent of institutions the inability to escape from environment effects often trapped individuals in practically herding behaviour. The three Self-reinforcing mechanism potentially cause the Poverty trap
poor farmers and price..
Well this morning, digging up to one of my favorite blog, founding interesting article,Oke then, some questions revealed, whether rising price of rice would hurt the farmers or not?, well that's an old story i have had in the past, and really, till now, i'm still wondering why would that (ever) happened anyway.
The Quarrel between works of economist in development economics, in a certain manner would however change a cross time. My guess is the man, from whom kompas has quoted his words in this article is an old fashioned (-outdated-) one -if I say he to be an economist though.
What he’s arguing is a nowadays still being such a controversy among development economics, is it rising price of rice would make farmers better off?, or weather farmers will increase their production as a result of price effect?, would the income-marshallian effect would eliminate slutsky substitution effect ? Well I would say, that depends, depend on where do you look, what do you seek, and when.
You see, that’s the problem being Political economist, you’ll never be, or consider to be neutral, though I should say Economics were never been neutral anyway, but policy must be neutral, neutral with what you keep in your tiny head, cause your head could not keep up with all complexity in this growing market economies. Neither if you are market fundamentalist, nor I should say Structuralist.
That’s why I’m completely disagree with people consider themselves as an economist, development economist, talking to the news, about policy, without solid facts, they are nothing but politician need some vote for another election campaign success.What these guys were telling the news is that Farmers are often abused by the global market, and therefore we need to accelerate their income by keep the price (of rise) rising, well guys reveillez-vous … have you heard anything with such a complex problem with agricultural households? There is a problem called Separable problem, agricultural household is facing two intertwined problem in the same time, therefore their profit maximizing condition were constrained in a non-recursive way, and instead simultaneity occurred.
Even when price is rising up to the sky, farmers will surprisingly might reduce their production, and therefore cause a higher gap of income, cause the price effect is not only the rice, it multiplies a lot, through the other consumption goods rising as well.
So when will farmers will have a greater profit, and becoming rich?, frankly I don’t really know, what the answer for this, anyone has a clue? I’ve been thinking about this since I was studying Introduction to Development Economics, well I suppose that farmers will get better off by increasing their production, not by raising their price, because their welfare is endogen to the price.
Nevertheless some research as Benjamin(1992), Pitt and Rozenweig(1987) has proven that there is no such things like separability condition in Indonesia, well I think they have overrated our country, first of all, their research is only conducted in Java region, could not aggregate their result though, What happen if this separable thing were concentrated in some areas without adequate source of water, with pathetic quality of soil? What if Jakarta is so polluted, then what happened in Jakarta, would be totally different with what happened in Papua for instance. Secondly, their stories were way out of our time, it’s been almost 20 years now, and were facing a lot of up and downs in our economy. Thirdly, these researches were concentrated in labor market imperfect market, in a general term. Off course there should be another way in having another conclusion totally way around.
Another thing to look more precise is that often, the cause of separable is complex, it might comes from any different kind of market imperfection, and even the source might come from one market that is totally perfect ,why? Well because this one single market that is ironically perfect has caused some other market imperfect.-this is inspired by some of easterly critics of multi tasking of MDG-
Looking to the facts on the field, people has a large constrained of collateral, thus access in credit, Farmers have a large barriers of trade because no easy access to the market, then the transport cost is high, people in the mountains were so isolated that their cultivated their land on and on without sufficient fertilizers, there is too many imperfection against the farmers, and I agree that these guys need help. But saying that rising prices of basic needs is a fair deal for consequences of oil price shock, is confusing and misleading.
Instead of using our budget for subsidizing rice, we should increase the ability of trade and access on information, by giving them decent infrastructure, friendly bureaucracy, cutting some hands in the bureaucracy in export and import for example, do you know that rice produced in Thailand is far more “pulen” and More tasty, and it smell so good, that people would prefer buying it than other cheap rice. Here, thousand miles from Thailand, we eat Thailand product, and we pay in euro, and no indo-rice product made it to come here. Anyway how many Indonesian people, having opportunity to go abroad, who consume Indonesian rice, if they already had a chance to have Thailand rice? not many I guess, with a small disparity of price I’d prefer to let go my nationalism in rice, though.
You may argue that they are dumping their products, I would say, if they do that, why don’t we do the same thing? We import rice from Thailand, which is relatively cheaper, and then we export, say to France, all of our commodity, or may be even exported it to Thailand, in the end, the price would converge, and the only thing that that we could use in comparing the two is their quality, that is our base line, and In the end, no one will buy our rice, since we’re consuming the same Thailand rice.
So the bottom line is, the problem is not what Thailand has did with their price, but also why they could make such quality well known to the world. Another example is another close neighbor of ours, Vietnam, they Exported many kinds of things, small agricultural things, like chilies, spinach, etc, noodles, fisheries, fast food-kind of things, that were really fancy in this country. As a result, their price goes up, with a single addition in their package, a usual package of frozen “tongkol” mixed up with ingredients, will change to a well prepared Vietnam gourmand, with a little help of Microwaves, and so is fast food, we could get a tasty Chinese foods by buying all the ingredients available here.
A strange thing here is Indofood, and KOKITA stuff were easily found here, but no Indonesian imported it, it licensed to some Indian company, in contrast, Chinese supermarket “tang frere” were amazingly famous, and we can find all asian taste ingredients there, even Indonesian’s sambel oelek, what I’m going to say about this is that,global market were not so racial to the agricultural goods, the thing is you to improve your quality, your package, your additional values, and yet the most important increase your market potential. That’s where Chinese success came from, they have already ruled the world, even before Chinese open up their market. That’s why we always find Chinese restaurant every where, Chinese banks in every corners of the street of Paris.
What's I’m saying is, if you want your farmers to be rich, stop them of being a farmer and a farmer only, and becoming a farmer and entrepreneur at once, farmers in Indonesia were so characterized with lack of education, and information, they lack of source of money, but they need education and information the most,that is the information to reveal what is the real meaning of globalization, what is to have freedom to choose. And how they could sell their product, off course we have no means to give such policy like the common agricultural policy in Europe, and certainly we could not let the farmers hurt by the prices.
But still do not give up hope, we could make it, as long we stop complaining, and stop listening to politician, pretending as an economist.
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