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DEVELOPMENT OF ASIA: THE STUNNING TAPESTRY

 

 

 

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The Asia and Pacific is an exciting region of multiculturalism, color, solace and diversity where enduring ancient tradition merges with sophistication and understate simplicity. To understand Asian development is to look first to this stunning tapestry of contrasting countries and acknowledge the specific challenges of this puzzle.  Differently from other compact regions as Africa and Latin America, Asia spreads along a dispersed geography: gigantic continental countries such as China and Russia or India`s immense peninsula; tropical and exotic countries of South East Asia; silk road ancestral heritage of South Asia; spiritual refuges as Butan with its Happiness Index, the eclectic sophistication of Singapore or remote disperse islands of the Pacific all melt into an unique identity. It is this diversity that makes the region so interesting but also multiplies the challenges to development policy makers. The first step is to assure a differentiated approach trickling down region, country and context to allow ownership of policies but also to guarantee results and impact at the local level.

 

Asia, far from dull, is a continent full of intrigue, has witnessed dramatic shifts in economic performance, from the Asian miracle to later financial crisis meltdown,  albeit the cautious optimism prevalent in the region today, Asia remains a dynamic and unpredictable political economic environment. Defined as the world’s most vibrant region, it simultaneously combines rivalries and confrontation with increased economic cooperation and community building.

Asia continues to be the fastest-growing region in the world and the main engine of the world`s economy, contributing more than 60% of the global growth (3/4 come from China and India). Economic prospects remain buoyant sustained by strong external demand and a growth expansion of 6% in 2019 with controlled inflation around 2.9%.

 

 

In terms of Human Development the region`s staggering growth performance and macroeconomic stability of the last two decades has translated into impressive human development and poverty reduction. According to UN ESCAM report between 1990 and 2015 the proportion of the region’s population living on less than $1.25 per day fell from 53 to less than 12 percent. The dramatic income poverty reduction is however accompanied by some multidimensional poverty outcomes. For example access to safe drinking water was guaranteed in halve the proportion of the population in more than two-thirds of countries. Primary school coverage became almost universal and all levels of education benefited from gender parity.

children mal nutrition

However albeit the progress some areas still need attention: the rates of under-five and infant mortality fell short of the required two-thirds reduction;  75 million children have nutritional health issues mainly of stunting and  around 1.2 billion people in rural areas, and 480 million in urban areas, still lacked access to basic sanitation. As the SDGs agenda admits for the first time in history the real possibility of eradicating poverty the analysis shifts now to: extreme and chronic poverty; monitoring of transitory poverty and poor people just below the poverty lines; targeting pocket of poverty in remote areas and issues of discrimination and inclusion of the remaining 570 million people still living on less than $1.25 per day. To fulfill enduring and complete eradication of poverty it is fundamental to build sharp statistical systems that can monitor progress in poverty with more technology based and surgical methods.

However despite the robust forecasts there are some risks as recent trade protectionist measures can undermine the export led model of growth. The risk of retreat from global integration and the jeopardizing of political consensus on market-friendly reforms namely through steps taken by USA in 2018 as the imposition of global safeguards tariffs on imported washing machines and solar cells, the new tariffs on steel and aluminum or the announcement of 301 section on China`s intellectual property that acted as tariffs valued in 50 billion USD with corresponding retaliation from China may have a considerable impact in Asia greatly dependent of trade.In addition the USA to curb fiscal stimulus may need to raise interest rates faster than expected which can lead to capital outflow in most dollarized economies namely of Southeast Asia.  In terms of macroeconomics the region suffers the risks of capital liberalization and integration of exports in  global markets and this is an intrinsic vulnerability of Asian economies that demand sharp policies and close financial supervision.

There are new trends that demand attention. The ongoing structural transformation of most economies will have the impact of new technologies to enhance productivity that will displace jobs and generate new types of better-paid jobs, however this transition demands coordinated actions on training of under-skilled workers and labour protection and regulation. Additionally demographics such as aging population urges for solutions of social protection. On the other side demographic change in Asia and the Pacific is happening at a rate the world has never witnessed before. An explosion in the working age population and a fall in birth rates have happened in only 30 years while it took a century in Europe so there is an opportunity as well as a challenge to absorb this new labour force.

 

 

 

Additionally Asia is also embracing the digitalization revolution that will need new labour strategies including those related to the future of work and declining productivity gains so policies of training and integration of low skilled  labour market will be crucial.

Another crucial trend are the challenges of urbanization as most economies transit from subsistence agriculture, rural-urban migration are massive so there are great pressures to cities in terms of water access, sanitation, energy supply, housing construction and waste management. So making the cities more livable is a crucial priority.

 

 

 

Additionally Asia is the most hit region by disasters putting the climate change mitigation strategies at the top of the agenda along with sustainable and green solutions that will be overarching priorities in the development agenda.

 

 

 

The ambitious sustainable development agenda setting new SDGs with 169 targets have simultaneously exposed aid financial vulnerabilities, for example in the context of the Financing for Development it was estimated that the region has a financial gap in infrastructure of around  1,7 trillion USD annually and of 250 trillion up to 2030 so business as usual will not be possible and the development agenda has to be more dynamic finding innovative ways of catalyzing and mobilizing funds to achieve the SDGs agenda.

Most of the investment priorities for the future will be based on improved connectivity and transportation to allow the circulation of people and goods, access to markets but also rural-urban migration, so most of the solutions for diversity may well be in Regional Integration such as Economic Zones and Corridors but also on knowledge and best practices from South-South Cooperation as the region comprises three BRICs: Russia, India and China.

Slowly from the dawn of new millennium the new gravitational centre has gradually shifted to Asia a continent full of adventure, tradition and economic dynamism that has the potential to build leadership and provide local based development experiences in several strategic areas: resilience strategies in climate change and disaster prevention; on transitioning economies and structural economic transformation and diversification; on green growth and sustainable solutions but also on the impact of technologies, digitalization and robotic on economic structures.

The Asian continent, this stunting tapestry of exotic countries, enigmatic traditions and cultures, dramatic landscapes and exciting history is a dragon that will never be tamed, but now as the circular spiral centers gravity in this amazing continent, let`s see how it will be managed.

 

 

 

 

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FINANCING FOR DEVELOPMENT

 

 

We the peoples are the first words of the UN Charter, stating that the post-war development agenda is above all serving the peoples of the world. After the appalling atrocities of the Second World War the international agenda was based on the self-reinforcing effects of three pillars peace, human rights and development. Today it still seeks universal peace in larger freedom but the MDGs made the agenda measurable and focused on developmental goals for the first time guiding and systematizing development policies and national plans worldwide. After the joint debate on the beyond 2015 agenda that evaluated the impact of MDGs, we now live under the UN 169 commandments, mostly know by the Sustainable Development Goals. The new 17 SDGs (and 169 targets) of the development agenda has evolved to be not only a plan of action for people, but also planet and prosperity. It recognizes that eradicating poverty in all its forms and dimensions including extreme poverty is the greatest global challenge and indispensable requirement for sustainable development. It is a universal agenda based on the idea of inclusion where no one will be left behind. But it is more ambitious than ever because it adds simultaneously the mission to heal and secure our planet.

I have been actively following the beyond 2015 agenda through consultancies, forums and conferences and now the ongoing practical challenge of the SDGs is how do we support the implementation of the 2030 Agenda for Sustainable Development or in other words how do we finance sustainable development. During my networking trip to the World Bank in DC I had the opportunity to participate on a Financing for Development course and decided to share the main conclusions.

 

One of the major contributions to this issue has been the Addis Ababa Action Agenda (AAAA) adopted in July 2015 at the Third International Conference on Financing for Development that provided a comprehensive and integrated framework for financing sustainable development and support the implementation of the 2030 Agenda for Sustainable Development comprising several hundred concrete actions that member states pledged to undertake.

First the AAAA intends to be a response to the current context of the aid system: the SDGs have an ambitious magnitude that however exceeds the financing available. Official Development Aid ODA alone will not allow us to achieve these goals. Looking at numbers ODA comprises 135 billion USD annually; the WBG and 5 regional MDBs together committed 400 billion USD for the next 3 years. With the budget constraints triggered by the 2008 crisis the annual demand for infrastructure alone will be quite larger than all aid available through traditional channels. So the challenge is to find innovative sources of funding and unlock investment opportunities.

So for this end, the main outcomes of Addis Ababa are: 1) it recognizes the critical role of the private sector in achieving the SDGs that may find innovative solution and apply new approaches to finance. 2) The focus is now not the amount of ODA, but its use in a catalytic way crowding in additional sources of finance. 3) The role of MDBs has to be bold and innovative with a crucial role on mediating Public Private Partnerships and Solutions in order to mobilize finance. 4) It urges on the unprecedented need of cooperation and partnerships of MDBs with UN, Academic Organizations and Think Tanks, as no organization alone has the resources or the capacity to tackle these large challenges.

It is also the right time for new types of capital mobilization due to certain specific financing conditions. There is a combination of surplus of savings and low private investment in developed countries along with challenges in long term financing with low or negative yields. This absence of meaningful investment opportunities has created low confidence and depressed economic activity and interest rates. In contrast potentially high-productivity investment opportunities in developing countries with young populations are craving for sufficient financing to be channeled to developing countries. So there is a great opportunity of bridging this gap by unlocking these opportunities in developing countries. It could generate welfare gains to both advanced and developing nations. This is a win-win solution that transfers surplus savings in advanced economies with an aging population to long-term investment opportunities in developing countries in need. So it is possible to create well-structured infrastructure projects that can help reduce the current imbalance between savings and investment.

Additionally the 2030 Agenda for Sustainable Development is also an incentive to shift international investments towards climate change financing. The lack of long-term capital is pushing countries and cities towards dirty solutions (based in coal and gas) that require less upfront investment. Thus as it becomes urgent to reduce carbon relying investments there are opportunities to shift idle long-term private savings in advanced economies to green technologies in developing countries to reduce carbon footprint. It has the potential to create new meaningful income streams to global investors enhancing macroeconomic stability and supporting climate resilience. The role of MDBs is to bridge this gap and promote coordination with MDBs, governments and private sector to match the supply and demand of new innovative financing frameworks unlocking investment opportunities.

IDA has also complied to the AAAA agenda and has contributed to leverage and mobilize capital. It is the oldest and one of the largest sources of development assistance and finance for the world`s 75 poorest countries. The 18th replenishment IDA based on a coalition of over 60 donors agreed to the most radical transformation in IDA`s 56 years. For the first time IDA will leverage its equity by blending donor contributions with funds raised through debt markets. By blending concessional resources with capital markets debt IDA has expanded its fight against poverty to a record 75  billion USD. It offers expectional value for money with every one dollar generating 3 USD in spending. This leveraging effect is one of the most concrete and significant actions today on the AAAA that will be critical to achieve the SDGs.

 

 

There are also simultaneous strategic areas that should accompany these efforts to deepen its effects. Domestic mobilization through revenue mobilization and public expenditure efficiency, the improvement of business environment, promotion of transparency and control over illicit financial flows are all contributing factors to promote financing for development.

This is an exciting time for development that will require human ingenuity and creativity. Let`s hope the international community will manage to fulfil its mission and serve the Peoples of the world, our most important resource.

HOW TO CHANGE THE WORLD? Reflections from Estoril Conferences 2017

 

 

 

When the year starts and there is a reflection on past accomplishments and future trends for 2018, I remembered how an event I attended:  Conferencias do Estoril could help me in this quest. Estoril Conferences  is an unique event, an international conference held in Portugal (in Estoril more precisely), with the intention of providing a global forum where the world’s most pressing problems are debated.

 

It gathers a prestigious and eclectic group of panelists around the world providing an exciting and refreshing discussion pool in an informal tone and out of the box mood. Differently from traditional conferences that I have attended that usually have a main core subject with an homogeneous group of experts in one specific subject or area EC presents instead an eclectic and multidisciplinary environment with a diverse panoply of panelists, which makes it an extraordinary and unique event, that definitely exceed all my expectations.

 

Panelists have multiple backgrounds, work in diverse areas and have different styles and personalities. From university researchers; worldwide economists as Joseph Stiglitz; impressive writers as Kenan Malik; Mr. Rajendra Pachauri, Mentor of POP Movement, Protect Our Planet;  the remarkable justice-makers, judge Carlos Alexandre and Sergio Moro; Passionate activist of Human Rights as Jody Williams, National Geographic officers with prospects on the health of the planet; the emotional statements of the atrocities of DAESH victim Fareeda Khalaf, the moving story of Maria Conceição that was adopted age two by a poor African women that had already 6 children and named her NGO Maria Cristina in homage to her adoptive mother;

 

to the impressive and sometimes terrifying pictures of global migration of the remarkable war photographer Yannis Behrakis; or the prophetic and inspiring speech of the eloquent Madeleine Albright evoking the great responsibility of youth in this uncertain future; or the direct phone call with the controversial Edward Swowden! EC is above all a very stimulating event that provides not only precious data and trends of our global society but is also a great show-hall of human emotions and its stories.

Now what does EC contributed on my quest to understand how to change the world? First by the nature of the event itself it shows that informal dialogue and out of the box exchange of ideas is the way to curb confrontation and the current polarization of society around the world. Another lesson from EC  that I usually insist in my work is the multidisciplinary approach to find solutions, nothing is more scary than when a group of technical experts hold the monopoly of knowledge. The great enterprises and organisations, like let’s say NASA, or the UN or Google all have a great diversity of technical experts and are successful exactly because of that. My field of expertise for example, development economics,  is very appealing because it always demands multiple expertise of different areas, from economy, to archeology, to diplomacy, engineering, human rights or social science, all always come engaged to find a joint solution.

 Also specific messages were systematically reinforced during the conference that I think will be future trends. I strongly believe in one: the glocal concept, global challenges demand local solutions. Indeed one idea that I strongly endorse is that globalisation without the trickle-down effect of local solutions creates alienation and confusion.  This is a crucial issue because what is in stake is how do we assure that a consensual worldwide idea is implemented nationally and then locally. This is one of the most difficult issues to solve for decades. International relations usually use the power of UN and specifically treaties to assure compliance of internationally binding principles and ideas, but we all know in the daily news how difficult sometimes that is to become reality. In economics the same perplexity is illustrated through what is called the macro-micro paradox, that shows how it is difficult to implement a good well designed macroeconomic policy effectively and assure the desired effect on households or other microeconomic agents. So this GLOCAL concept is the key to success of most international policies. A theme that is challenging this implementation and even international binding principles is Migration, one of the subjects in focus in EC.  This great exodus, equivalent to a massive war migration and indeed the largest since Second World War, is shaking the structures of international relations that cannot tackle these movements with treaties and if they do they use protectionism; challenging European universal principles that sometimes see these movements as threats and exposing an appalling human drama that all get moved about, but very few find solutions to.

EC showing a proactive intervention, goes beyond its dialogue mission but also wants to materialize concrete tools to the international community, so proposed to the UN Secretary General the passport of Global Security after the Pope Francisco pledged for the recognition of migrants to fundamental rights.

I am not a migration expert, so I foresee no straightforward solutions to such sophisticated problem, but for me it is obvious that the Migration we are witnessing is an unique and very complex phenomenon because it engulfs  simultaneously a panoply of diverse features of: typical war, prosecution and human rights violations, religious fundamentalism and human trafficking, so no wonder it is difficult to tackle it! It will also be a great challenge for international organizations that need to find diplomatic solutions and make government follow th rules. I could also suggest that national governments need to invest in borders administrative and pedagogic capacity to promote not only efficiency and transparency but also a dignifying human reception of migrants. But my largest contribution to this subject is as a poverty specialist. In this discuss many immediate issues are presented, but normally it is missing in the study the underlying conditions of migrants that commonly live in disadvantageous and precarious situations in their countries which lead them to forced migration. In my view migration is ultimately a poverty outcome that needs to be addressed with inclusive and pro-poor policies in developing countries. Development in a country is a way of retaining their population and the mission to protect and provide a good and prosperous life is the best way to avoid migration. To invest in the development of poor and vulnerable countries and economies has been and it is the most enduring solution and prevention for migration. Otherwise we can only concentrate on the recent great mediatic slogans that time usually dilutes fast and feel amazed as well as powerless. Failure to look deeper into this subject, can leads us to an approach in which we focus or blame the egg, but completely forget the chicken and that is not only superficial but also will not provide enduring solutions to the sophisticated problem of migration.

So as we can see nothing is more difficult than to change the world, but if we want to take some lessons on it, I guess that we need dialogue to promote consensus, we need to be GLOCAL and focus on tools and implementing practices, we need multidisciplinary joint solutions, we need to dig deeper and look to underlying conditions as poverty and then finally I guess we have to trust in the wisdom and kindness of the human spirit.

WORLD WITHOUT POVERTY. WHAT BRAZIL CAN TEACH US ABOUT POVERTY?

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The mere thought of Brazil invades us with a sense of exotic and colorful imaginary. My visit to Brazil has triggered a great curiosity in studying this beautiful country with a monstrous scale and exciting diversity. As a BRIC and MIC country Brazil has the potential to produce innovative solutions to poverty reduction of great interest to the development agenda. Indeed Brazil has attracted the attention of the international community with several unique initiatives that have proven to be of great success.  The Bolsa Família (Family Grant) conditional cash transfer program launched in recent years had a great contribution to poverty reduction in the country. The Cadastro Único registering mechanism was also a major step forward because it has compiled in an unique registering process all programs associated to each beneficiary, reducing duplication and administrative costs and improving considerably the efficiency of social programs targeting. This was a very important administrative breakthrough in terms of data collection. Cash transfer programs were not new in the country, initially idealized by the sociologist and human rights activist Herbert José de Sousa, also named o Betinho, the pioneer idea of cash transfers was first materialized as a project of direct support called Projecto de Ajuda Direta, so rather than brand new ideas it was an ongoing improved package which main added value (namely of Cadastro Único) was undoubtedly the integrating effect of all programs in a unique registering card.

Along with these specific mechanisms we also witness a flourishing production of best practices in Brasil compiled in the Learning Initiative for a World without Poverty (WWP) a partnership among the United Nations, the World Bank, and the Brazilian government to promote knowledge exchange about social protection policies and initiatives to fight poverty This platform has been crucial to monitor and evaluate social programs and has contributed with innovative solutions on best practices disseminated in various languages, it also serves as an archive of documented programs and in country tested solutions that are expected to influence the social protection policies around the world.

 

Interesting to take a look for more info on:

https://www.youtube.com/channel/UC8E3PzT143gAvoQtcVk17og,

The implementation of these initiatives has resulted in a staggering decline in the number of Brazilians living below the national poverty line (of R$170 in 2016). According to the World Bank, between 2003 and 2014, more than 29 million people were dragged out of poverty. Inequality also dropped significantly, around 6.6 % as the Gini Coeficient fell from 58.1 down to 51.1. The income level of the poorest 40% of the population has also rose, on average, 7.1% (in real terms) between 2003 and 2014, much higher than the 4.4% income growth for the whole population, reinforcing the inequality decrease in the country.

However despite these remarkable results part of Brazil`s fascination is how erratically unpredictable it can become. Indeed since 2015 the rate of reduction of poverty and inequality appears to have stagnated. The country is now going through a deep recession as the country`s growth rate has decelerated continuously from an average annual growth of 4,5% between 2006 and 2010 to 2,1% between 2011 and 2014. Following the same trend the GDP contracted by 3,8% in 2005 and is expected to fall at least 3% in the future. The economic crisis was triggered by the fall in commodity of prices but also caused by the continuous political instability that ultimately led to President`s Dilam Roussef impeachment on the 31st of August 2016. It was alleged that albeit the so satisfying poverty reduction outcomes it was done at the cost of fiscal imbalances so when the former Vice President Michel Temer took office as the new President of Brazil his main priority was to  proceed with several fiscal consolidation measures and a reform agenda to re-establish confidence and restore a favorable investment environment. However Mr. Temer`s mission is a difficult one. Fiscal adjustments are undermined by constitutional budget rigidities as less than 15% of expenditure in Brazil is discretionary, in other words, cannot legally be reduced. Simultaneously we have seen in 2016 and 2017 the unpopular measures of fiscal consolidation of freezing of public service salaries and reduction of social benefits has triggered an ongoing wave of violent social unrest in Brazilia, Rio de Janeiro and São Paulo. Simultaneously the zero corruption campaign led by Sergio Moro based on delação premiada confronts the Brazilian society with an endemic corruption that systematically compromises confidence of consumers and investors, dampens government credibility and creates an explosive environment as fiscal adjustments sacrifice a still emerging and struggling middle while the scandalous corruption cases, such as the  one of Petrobras are ongoing. In Conferências do Estoril 2017 I could witness personally the inspiring courage and determination of Sergio Moro that is trying to promote one of the most challenging structural reforms to put in place: curb corruption.

 

If adventure is what Mr. Temer was casting about he will not be disappointed. While people protest in the streets he also faces strong opposition in Congress undermining even more the implementation of the reform program. However he has successfully accomplished some reform achievements. In July 2017, despite his own corruption charges he was able to pass a reform a labour law that was long hampering growth. He is also trying to simplify the tax code to reduce the 2,038 staff-hours a year that companies take to compliance. But the great hope of robust recovery lies in the reduction of public spending. He persuaded congress to agree to a 20-year real-terms spending freeze, but he will have to reform pensions that allows Brazilians to retire at 58 years. Pensions cost 13% of GDP and if not come to an halt can reach 25% of GDP. Mr Temer hopes pension reform may help salvage his reputation and known to be a deal-maker markets hope that he will gather support for his fiscal reform program. It is also good news that the Congress is attempting to reform campaign-finance laws.

 

Economically, In 20015 inflation got to a peak of 10,7% far exceeding the upper limit of government`s target band (4,5+/- 2%) caused by realignment of regulated prices and transmission effect of exchange rate depreciation and despite a tight monetary policy and high interest rates. The crisis also led to the current account deficit to drop 1.6% of GDP mainly due to the contraction of the GDP and moderate devaluation in the real exchange rate. Foreign direct investment accounted for 4.2% of the GDP 2015, financing 132% of the current account deficit. Brazil had an ample level of reserves of US$ 358 billion – or 18 months of imports – at the end of 2015.

Brazil’s medium-term outlook will depend on the capacity to endure  current adjustments and to promote growth-enhancing reforms. Raising productivity and competitiveness are the main priority and challenge for the country to achieve higher growth in the medium-term. While growth drivers of the past decade were credit-fueled consumption, labor expansion and the commodity boom growth will now need to be based on higher investment and productivity gains.

Despite the poverty achievements of the last decade, reducing inequality remains the key to reduce the strong social disparity that characterizes this country. Universal coverage in primary education was already accomplished, the challenge is now the quality and outcomes of the educational system.

 What about Tomorrow? What the Museum tells us.

 

A journey to Brazil, is to face contradiction, contrast and unexpected surprise. One of these moments happened when I visited the Museum of Tomorrow, Museu of Amanhã. After passing through the Rio`s city centre in a taxi, we have the experience of a multi-screen voyage of multiple distinct landscapes:  there are glorious buildings, followed by squalid spots, colonial libraries, dodgy corners, fancy bistros, and picturesque botiquim. After this carousel of distinct impressions I finally arrive to the Museu do Amanhã, transported back again to the sophistication of the first world, the Museum is a futuristic architecture building launched from land into the ocean that demonstrates  the creative energy of this country.

 

At the Museum of Tomorrow not only we witness to one of the largest capital of this country: its creativity, but also the great role it has in the leadership in the climate change agenda, conservation and ecosystem preservation. Indeed  Brazil played a key role in formulating the climate framework for the 2015 COP 21 and has ratified the Paris Agreement. The country has reiterated its leadership role in international negotiations on climate change, by giving significant contributions to climate change mitigation within its borders. Brazil has voluntarily committed to reducing its greenhouse gas emissions between 36.1% and 38.9% by 2020 – and it will likely reach that objective sooner. Great progress has also been achieved in reducing deforestation in the rainforest and other sensitive biomes. However, the country still faces major development challenges – especially in finding ways to combine the benefits of agricultural growth, environmental protection and sustainable development.

While I was in the Museu do Amanhã I thought what would be the amanhã of this giant country. No one knows what the future holds, some once said that Brazil was unmanageable by nature, I sincerely hope that this extraordinary country also “bonito por natureza” as the samba sings, will serve the expectations of all its population and continue to find new ways to promote welfare to all.

 

ON THE PATH OF HOPE: TOWARDS PROSPERITY

road-to-prosperity

After our own genetic evolution nothing is more fascinating in human civilization than the path towards prosperity. Progress is ultimately driven by this intrinsic human urge to succeed that seems to be encoded in our DNA since the day we were born. Indeed for centuries generations of human beings have gathered their efforts to improve their lives and systematically have tried to do better than their parents and generally to have a better life than their ancestors. This need of surpassing and overcoming our expectations from one generation to another is what has led to an extraordinary process of improvement of living standards throughout the years.

In history we have found several moments where progress was remarkable. During the XV century navigation around the World has created progress in countries such as Holland, Portugal and England and spread technological innovation into colonies. One of the most life-changing periods was surely the Industrial Revolution in Great Britain during the XVIII century. It has dragged out of deprivation an unprecedented and gigantic amount of people putting the western world into a new trajectory through what was called the Great Divergence. It has definitely shaped the world relations with the UK, Western Europe and USA leading the way in a divergent path from the rest of the world. Other decisive events such as inventions and technologies, for example the discovery in 1900 that germs kill along with vaccines and antibiotic have determined global human mortality making people live not only better but also longer lives.

escada-riqueza

In these waves of progress one result is for sure not all people escapes poverty at the same time, so progress is always associated with some kind of inequality. For centuries aristocratic societies were structured by a group of rich and poor people but what progress has done throughout years was to democratize prosperity by building a ladder that poor people could progressively climb to evade from poverty and have better living conditions. What we have witness in the XX century was precisely the creation of what was called the middle class that illustrates this powerful ongoing social and economic transition. However this evasion out of poverty was never easy, in fact it is one of the most hazardous journeys in human lives. It is jeopardized by conflict, disasters, accompanied sometimes by social unrest, or blocked by institutions, infrastructure, and culture or even by their counterparts that have just climbed the ladder but assure that no one else does!

But let`s stay positive: we have witnessed a staggering progress in poverty reduction in recent decades. The post-war growth has promoted a significant poverty reduction based on the optimistic feel of development sharing with the underdeveloped regions. This modernisation theory based on a western vision of development would prevail up to the 70`s with the USA at the center as the model of modern economy. But the greatest evasion out of poverty since the 80`s was driven by China and India dragging a billion people out of poverty. The Millennium consensus endorsed by the international community through the MDGs has also contributed to a staggering progress in poverty reduction never witnessed before in human history. The proportion of people living in extreme poverty has been halved at the global level with this indicator being achieved five years before deadline.

Now the global goal is to eradicate poverty. With the impressive poverty reduction of recent decades the mantra is now to reach the extreme poor that were not yet capable to evade from the dark reality of deprivation. But how can we do this? We will need to be more precise than ever, be bolder and try something new. What if we push the existing debate into a new perspective and instead of looking at the poverty condition we focus now on the transformative change from poverty to prosperity? We now know everything about poor and we are now able to describe poverty better than ever, but most methodologies tend to be absent about the path out of poverty. The necessity to identify the poor along with the technical difficulties to monitor it made us all treat poverty mostly as a status or a condition, but less as the enduring small changes that take them out of poverty. Addressing poverty as a combination of specific functionings and dysfunctional deprivations with multiple dimensions is a considerable change of approach, it means that we are changing the focus on poverty and instead see it as a special case or dysfunction that blocks the path out of poverty.

In order to understand the transformative change towards prosperity we need to analyse how poor people think or choose, providing a poverty diagnosis with specific data on how poor functions, what they use and what is blocking the take-off towards prosperity. In other words we will be at the starting point of the transformative path towards prosperity where poverty can be addressed as the root level or the foundations of transformative change.

How can this help us understand better poverty? The first obvious contribution is the change of approach and mindset. Most poverty methodologies are as trapped in poverty as poor themselves because their focus is to obsessively describe poverty instead of tackling what goes going beyond poverty or ultimately what it takes to become prosperous. Additionally by drawing this path we are identifying the sequencing which provides the fundamental line or rational from one metamorphosis to another. This is crucial for policy targeting because it provides a guide that allow us to understand in what stage a poor is and what we should promote to trigger the next metamorphosis. But it also provides something more subtle but with great proportions which is to suggest what drives a transformational change. This is a very complex question that has been avoided for decades, but no matter how daring we need to answer it if our goal is to eradicate poverty globally.

The objective is to considerably add texture to poverty analysis by including motivational frameworks that will help understand how poor behave and make choices but also infer if what is blocking prosperity is personal attitude or behaviour or instead constrains such as the system or culture. It also complements the study of poverty as a function providing insights on what lies behind most actions of poor and showing how different dimensions are functionally integrated. This also has conceptual consequences as we treat poverty as a Functional Integration of internal and external components. In terms of poverty diagnosis these have serious policy implications as it allows to decode poor`s motivations and guide them into more successful choices out of poverty.

road

This evasion out of poverty is probably the most successful self-fulfilling journey that humans pursuit since ancestral times. For those that are fascinated to this tricky path towards prosperity (as it is my case) the proof that this is a serious business is that for poor this is ultimately a path of hope that we should not dare to disappoint.

 

 

IS POVERTY IN OUR MINDS?

Poverty Mind

We know everything about poor, who they are, where they live what they eat, but honestly do we understand poor people? Poverty has been tackled based on three main foundational blocks: one is knowledge that includes literature, economic approaches and ideology that created guiding narratives to explain poverty, second are the soft and hard structures: the soft being the policies, programs, reports and the hard ones the investments let`s say in houses, sanitation, schools or roads; third are Techniques which include monitoring tools, econometric packages or mathematical approaches. But truth is that we know very little about how poor people think and that`s why we struggle to understand how they make sometimes such bizarre choices. Furthermore as the challenge now is to address extreme and chronic poverty it is mandatory to have a more assertive and chirurgical touch and look at poor through an expanded understanding of human behavior. One of the trends will be to go a bit deeper and ask a revolutionary question: Is poverty a mind-set or a mind-trap? A fundamental element of mainstream development policy is the idea of rational decision making. But a new branch called behaviour economics claims that psychological factors end up determining more choices than pure rationality. People thoughts are based on dual thinking. People tend to think automatically, not deliberately and make decisions based on what comes into our mind quickly. On a second level there is deliberative thinking performed to do complex calculations, reflections or self-control tasks that are instead effortful. How can this help us understand the poor? It may give us answers to very interesting questions: Why 30% of poor`s income still starving goes to alcohol, radios or cigarettes? Why poor people normally have a big TV and DVD before becoming food secure? Why income increase leads to more bad-nutrition as it happened in India in recent years? Why poor spend astronomic amounts of money in marriages, funeral or parties? The answer is simply: because they are just like any one of us. We tend to fall on this mis-conceived idea of poor as suffering beggars but while they are poor they are just like any humans that need entertainment, social gatherings or pleasure. They try to compensate things and reallocate some income to some activities that give them immediate pleasure and that is an important coping strategy to deal with their chronicle deprivation. Looking now at Carnival in Rio, no matter how poor Brazilians are they just won´t miss the festivities and save all year for that. Is that irrational? It may seem it is but the reason behind is that they do not share this believe that our magnificent plans will radical change their lives. Most frequently they behave skeptically thinking that any significant change will just not worth the sacrifice or just will take too long. They center in the here and now, instead of dwelling in the past or worrying with the future, a premise that westerns struggling with depression are taught to be one of the sources of happiness. So just as any common person they try to be happy under the constraint of poverty doing short-term automatic decisions.

Try to picture yourself: in hazardous or remote areas with no cinema, concerts or other distraction, as poor stated a TV may be as important of even more than food. When poor`s income increases they do not start including more nutritional foods but instead tend to consume more tasteful food such as fast food or even more sophisticated life style food rather than using higher nutritional standards. This has been leading to diabetes and obesity for example in India. Furthermore parties, social events or even funerals reflect their sense of honour, belonging or even dignity that is also important for poor albeit their status. This shows that poor`s decisions are influenced by expectations of their own life and perceptions of those around them that are guided by different context factors and cultural values that usually challenge pure rationality.

In addition, the constraints of poverty such as time pressure (seasonal, harvests) and financial stress cause cognitive strain making more difficult to activate the deliberative system associated to conscious reasoning making instead quick decisions that rely more on the automatic choice. The constant, day-to-day hard choices associated with poverty erode individual’s psychological and social resources for economic decisions that by chronically trapping poor in a short-term vision perpetuate poverty. In this sense poverty is not simply a shortfall of money, but a condition that blocks the potential and capacity to make good decisions. In the future we can use cognitive and non-cognitive psychological variables to decode poor`s motivations and guide them into more successful choices out of poverty. Thus minor low cost policies may have a great impact on achievements of development goals just by focusing on how to present the program or initiative. Making the crucial aspects of the choice salient and making it cognitively less costly to arrive at the right decision by using techniques such as good Framing (when people may give greater weight than they should to information that has limited, if any, relevance) or Anchoring that uses an aspect of the environment that has no direct relevance to a decision but that nonetheless affects judgments or other techniques such as simplification, reminders and commitments devices can be employed  by policy makers to help people decide better and reduce poverty.

The imagination is the limit of our creativity and as our imagination is infinite so is our capacity to formulate new ideas. One thing is for sure in the future development will be less a formula and less a narrative or ideology. Development will provide more specific “à la minute solution”, but the leading mantra will be to ultimately understand what drives change.

BRICS: WHAT DOES IT MEAN TO DEVELOPMENT?

brics

In recent years development has been shaped by new actors. BRICS have emerged as major world players, with China leading the way. The aid landscape is always shaped by the newfound importance of countries, in this case the BRICS that tend to express their power through the rise of foreign assistance programmes. The BRICS entered in the aid framework as a block of emerging countries with fast growing economies that gained influence and shaped development with more flexible and creative programs. Their entrance increased the basket of aid but its main contribution goes beyond quantity. They brought a new refreshing perspective of aid as well as well as innovation, investment but most of all their domestic experience. Most of the BRICS are still developing countries in the traditional sense, which means that they are combating extreme poverty, hunger and disease at home as well as in their aid programmes. This is the main characteristic that sets them apart from traditional donors and philanthropic mega-foundations.

But although they are commonly treated as a block if we look at aid numbers from the specific countries they show very disparate behaviours. China increased exponentially its foreign assistance reaching around $4bn in 2010. But if South Africa has slightly increased aid (to around $143m) mainly to the African continent, instead Russia is a strange anomaly acting more as a former superpower than an aid provider with a relatively small aid budget of the size of Greece. On the other hand India`s spectacular growth prospects for 2016 will surely increase its influence pushing it´s small aid budget of the size of Portugal’s into a larger one. There is great expectation in 2016 from India`s contribution to development as it leads the way in developing world health responses. With a $1bn research and development programme and its huge generic drugs industry it has self-declared as the “pharmacy of the world’s poor”, already satisfying 70% of domestic demand and manufacturing 80% of all donor-funded HIV therapies sent to developing countries as well as 60%-80% of vaccines procured by UN agencies. Brazil emerged growing its research and development budget by 13.5% year on year, that still minor by western standards has great potential particularly on social interventions that are designed for developing country situations and therefore more easily transferable to other developing countries. Brazil may also lead health policies due to it´s in-country experiences facing challenging contagious diseases such as malaria, dengue and now zika.