Land deals and local political economy

An investment fund-backed plantation in northern Mozambique, founded using land acquired from local villagers, learns the hard way what happens when not everyone is happy with the land acquisition:

But about a year after Chikweti’s launch, reports of arson and uprooted saplings began to emerge. Chikweti estimates that between 2007 and 2012, the company lost US$1 million to fires – 60 percent of these fires are thought to have been criminal and the remainder accidental. The highest number of fires to date occurred in 2012.

A September 2012 report by the human rights group FIAN said, “In April 2011, peasants from Licole and Lipende uprooted and cut down some 60,000 pine trees on an area of 12 hectares with machetes and hoes, and destroyed some [company] equipment.” Several people from the local community were subsequently arrested.

The answer? The plantation starts paying for some local public goods, such as schools. For the arson, an incentive scheme:

As part of the fund’s terms, the community receives $5 for each hectare that is not burned or vandalized.

“The fires are not always started by people in the communities where we work; it can be done by neighbouring communities in order to harm people they are upset with or because of jealousy,” Bekker said.

I would be interested in knowing how they settled on $5.

A Cost-Effective New Initiative That Puts Power in Poor People’s Hands

By Daniel Altman

One of the ideas making waves in global development has been that poor people know better than anyone else how to improve their standards of living.  Some experts have recommended replacing conditional cash transfer programs (rewarding poor people for behaviors such as vaccinating their children) with unconditional cash transfer programs (just giving money to the poor).  But to make real change happen, there is a more direct route.

The poor will only be able to raise their own standards of living if they have power.  Giving them a few dollars here and there may help them to invest in small businesses or improve their access to education, but they still won’t become powerful agents of change.  Perhaps not by coincidence, many poor people live in countries where power is centralized amongst a small elite.

Poor people will only be able to change their lives in a long-term, sustainable way if they have real power in their societies.  Clearly, no government or foreign donor is willing to give them enough money, without any conditions, for this to happen.  Yet there is another, comparatively inexpensive way to do it.

A new development initiative would just give guns to the poor.  As evidence from around the world has suggested, guns are a fast track to power.  Several developing countries have conducted randomized controlled trials of this concept by giving guns to poor villagers in a non-systematic way.  In almost every case, villagers with guns have been empowered to change their living standards much more than villagers without guns.

This kind of initiative has shown promise even in wealthy countries such as the United States.  Here, poor people with guns are disproportionately powerful in society, wielding influence at both the local and national levels.  Moreover, many gun owners have come to believe that their living standards are higher than they actually are, adding psychic benefits to the concrete benefits of gun ownership.

With funding for development programs becoming scarcer every day, the emphasis must be on cost-effectiveness and accountability.  Just giving guns to the poor scores highly on both of these criteria.  After all, what better way to guarantee accountability than at the end of the barrel of a gun?

Daniel Altman is founder and president of North Yard Economics, a non-profit consulting firm serving developing countries, and an adjunct associate professor of economics at the Stern School of Business.

In which Malawi’s government decides to ignore the constitution

Update: despite earlier signs that the Government would try and block her constitutionally-mandated succession, Joyce Banda has been sworn in as the new president of Malawi, so crisis averted (well, for now). 

It has been over a day since Bingu wa Mutharika suffered a heart attack, and while the Government has still refused to release official confirmation that he has died, the public instead received a chilling indication that Mutharika’s regime will not go out without a fight.

As Kim Yi Dionne pointed out yesterday Malawi’s constitution clearly specifies that the Vice President is first in line for succession in the event that the president dies or is incapacitated. Malawi’s VP, Joyce Banda fell out of favor with the ruling party DPP some time ago, making the prospect of her assuming power unpalatable for Mutharika and the rest of the president’s Cabinet

For a long time the Government remained silent, both on the state of Bingu’s health (despite an alarming number of reports that he is dead, perhaps even before he made it to the hospital) and on the matter of his succession. This has made everyone uneasy – stalling on the Government’s part suggests that they are planning an strategy to block Banda’s succession. Perhaps to put a little bit of pressure on the Government to behave, both the British and American governments announced that they expected Banda to assume the office ASAP.

That silence was broken today when a subset of the cabinet, led by Information Minister and all-around-nefarious-person Patricia Kaliati, announced that Joyce Banda was ineligible due to her behavior while in office (video here – hat tip to Kim), including starting her own political party (which she did after she was thrown out by Mutharika). While they did not announce who the actual successor would be and would not reveal any information about Bingu wa Mutharika himself, this is a clear indication that the Government plans to circumvent the constitution.

It’s getting late in Denmark, so I’ll just offer a few thoughts before signing off:

Normally, I am wary of donors getting to involved in the decisions of recipient governments which are democratically elected, for fear that donor commitments will crowd out the natural accountability generated at the polls. This is quite different – we have a government which is very clearly going to choose to abandon its democratic principles and the international community might have the ability to make that decision too painful to bear.

Here are some options: donors could immediately and credibly rally behind Joyce Banda, not necessarily because she is the best candidate for president, but because Malawi’s constitution makes it clear that she is is the successor. Credible support can come in the form of donor dollars – no government which does not respect this succession should receive aid – the aim should be to make the decision very, very stark for the DPP. If this was combined with the threat of an odious debt sanction – where no new contracts signed by the Government will be enforced in courts, the squeeze might be even tighter.

What donors should not do is fall back on simple rhetoric about accountability. It has to be a clear choice – money flows if Banda succeeds. Money stops if she doesn’t. For it to be credible, donors need to be prepared to walk away – I fear that they won’t be.

On the death of presidents and ignoring the averages

"Perhaps this is an awkward time to talk about the line of succession"

While it is still unclear exactly what has happened, it is looking more and more likely that Malawi’s president, Bingu wa Mutharika, has either died or been severely incapacitated by heart failure.

As Kim Yi Dionne points out, the constitution clearly identifies the vice president , Joyce Banda, as successor. This is where things get a little awkward, as Kim points out:

Shortly after Mutharika and Banda won office (by large margins), President Mutharika had plans for his brother, Peter Mutharika to succeed him in office. Banda was marginalized and eventually expelled from the ruling party. She was also removed from ministerial posts and government attempted to have her removed from office (which is unconstitutional). Facing antagonism from the government, she later formed a new party, the People’s Party.

Whether or not the top brass at the the DPP (Bingu’s party) decide to swallow this bitter pill and embrace Banda remains to be seen.

An equally interesting question which has been bothering me all morning: why hadn’t anyone considered this in advance? Bingu wa Mutharika was a frail 78 year old whose increasingly autocratic rants were seen by many as a sign of impending dementia. The probability that he would die or become severely disabled during a five year term were significant enough to warrant some extra planning.

This isn’t an infrequent occurrence – looking back ten years reveals a startling number of African presidents falling off their perches: Zambia, Chad, Togo, Guinea, Guinea-Bissau, Gabon and Nigeria all had presidents die of poor health whilst in office, all from heart attacks, strokes or cancer. Most of these led to periods of political uncertainty and instability. Even the near-misses are problematic: Mwai Kibaki’s stroke in 2003 led to a substantial shift in both policy and personality – Michela Wrong suggested it drastically hampered the government’s ability to deal with corruption.

Unless the Government of Malawi soon reveals some cunning plan to prevent Joyce Banda from becoming president, it will be obvious that they never really considered this as a potential outcome. Was this sheer stupidity or hubris? Perhaps presidents can’t imagine their own deaths, so do little to prepare for it. There are a few shining outliers out there that might be biasing the results: both Teodoro Obiang in Equatorial Guinea and Mugabe in Zimbabwe have shown a remarkable ability to endure, despite cancer and general evilness.

Voters often associate old-age with wisdom and power, substantially more so in countries like Malawi. Yet these preferences constantly expose political systems to new risks. During the US elections in 2008, an actuarial firm rightly pointed out that John McCain only had a 75% chance of living through a full 8 year term. Despite these unnerving numbers (especially considering who would have been next in line), very little was made of McCain’s age-related morbidity or mortality.

As a 61-year-old-woman, Joyce Banda’s prospects of reaching the end of the current presidential term without succumbing to illness, senility or death are significantly higher than Bingu’s evidence successor, his 72-year-old brother Peter Mutharika. If the Government does find a way to thwart the constitution, and Bingu’s wishes are granted posthumously – likely guaranteeing his brother two terms in office – Malawi’s chances of suffering yet another presidential death rise substantially.

Kenya, exogenous governance shocks edition

From the BBC:

The Kenyan president said Tullow would drill more wells to establish the commercial viability of the oil.

“It is… the beginning of a long journey to make our country an oil producer, which typically takes in excess of three years. We shall be giving the nation more information as the oil exploration process continues,” he said

Cha-ching. Here we go again.

For all debts public and private

"You see, THIS is what happens when we lose our credit line to the Hutts"

Odious debt is a fairly simple legal concept: public debt accrued by illegitimate regimes should not be passed on to successive governments. As described by the folks at the Center for Global Development, one of the best ways to make sure this happens is for the institutions responsible for enforcing international contracts to declare that all future loans to the current regime are unenforceable. Faced with the prospect of a higher chance of default by the current government  (and an automatic default by the next), potential lenders would be dissuaded from doing business, thus preventing excessive debt.

In response to the growing violence in Syria, CGD’s Kim Elliot and Owen Barder have revived the idea (here and here), not just as a method for preventing excessive debt, but as a way of putting more pressure on the current regime – if Assad’s remaining lines of credit are dropped, then we might expect his position to crumble even faster.

Let’s break the idea down a little further. There seems to be an implicit model working in the background here, and I think it looks something like this: a rational investor knows the best deal it can get from the Galactic Empire is a rate of return of r on a loan. Based on this, the investor decides how much to loan, conditional on its outside options. The investor knows that, even if the Empire falls to the Rebel Alliance, it is still guaranteed its return r.

Now, assume that an outside party has declared all future debt incurred by the Empire as unenforceable. If the Rebel Alliance wins (with probability P), then the investor won’t receive any return at all, and now there is also a smaller chance the Empire will pay them back even if it remains in power (this probability of repayment E). The investor’s expected rate of return is now significantly lower [(1-P)Er < r], so it will disinclined to lend as much – and might even choose to disengage completely.

This is all pretty intuitive and sensible – although there a few reasons why it might not be that straight forward. These should be thought more as possible (general) caveats rather than criticisms:

 

  • Expectations over the value of P are important here – we can expect the impact of an odious debt declaration to be stronger as it looks more and more likely the Rebels will win. Fortunately, the Syrian army might already be signalling its views on P.
  • It’s very likely that the probability the Empire stays in power is a function of the amount of money lent to it – that is, potential investors know that they can directly affect P when choosing how much to lend. While most assumptions over the functional form of P would lead us to the same conclusion, I’m still a bit worried that there could be identifiable thresholds here (if we lend them enough for a Death Star, the probability of winning converges to 1). This is why it is really important that odious debt declarations only affect future contracts (as the CGD suggests) – we don’t want investors given the incentive to prop up bad governments so they can avoid sunk costs.
  • Another assumption is that there is symmetry in the way contracts are enforced: in reality, the financial and legal institutions responsible for international; contract enforcement are much more likely to be binding when a legitimate government takes over and wants to rid itself of odious debt, but the same is not necessarily true if the illegitimate government wins. When dodgy governments (or firms) trade with others of the same ilk, different, more informal mechanisms are likely underlying enforcement. These types of governments are inherently riskier anyway, so potential investors might already be relying on these alternative mechanisms. Again, these wouldn’t reverse the expected results, but they might dampen it.
  • Related to this point – we assume that countries that do business with awful regimes are only interested in profit. Once you add in preferences for that regime staying in power (democratic governments don’t usually buy as many weapons + it’s good to have another evil dictator in the neighborhood), the picture gets even murkier.

Caveats aside, I’m excited that this idea is finally getting the attention it deserves.

Never gonna give you up

Liz Alden Wily notes that land grabbing in sub-Saharan African is enabled partly by the lack of formal, private land ownership:

For all the commentary on how the great buy-up of African lands might impact on the rural poor, they are rarely the legal landowners. Their governments are. For a century African land laws have protected private property, but have largely limited this protection to lands with registered titles. Up to 90% of sub-Saharan Africa’s land area is currently untitled. Without legal owners, these lands fall to the state.

A couple thoughts on this – Wily goes on to (correctly) point out that the real problem is with bad governments which hastily sell off land on the cheap for easy revenue today at the expense of the next generation. Still, while transferring de jure ownership to the people through extensive land titling would guarantee that they would at least benefit somewhat from these massive land sales, it wouldn’t necessarily stop the transfer from happening, for a couple of reasons.

For one, while many African governments seem to be willing to part with land for relatively paltry sums, we never witness the counter-factual. Without the rural farmer being the initial holder of that land title, we can’t really infer anything about his minimum price to let go of that land. It could be higher, lower or equal to that of the government – we really don’t know. So while, in an ideal setting, transferring that property right from the government to the population will at least guarantee they benefit from land deals, it won’t necessarily stop them from happening – buying land directly from rural farmers might still be a good deal for foreign investors.

Furthermore, while we might still believe that land titles convey some sort of protection from the government, remember that governments themselves are the ones that create, issue and enforce property rights. Truly awful governments will not be interested in effectively expanding these rights in the first place, so pointing out how useful they are doesn’t always get us very far.

One example from Tanzania: following legislation which paved the way for private land rights, the government set out to pilot titling programs in several districts. After demarcation and registration had finished in one of these districts, land officials quickly realized they had made a mistake – the titles they issued comprised every inch of land in, with nothing left that the government could use. The government learned its lesson: since then, any major demarcation efforts are preceded by a `scheme of regularization’, a plan which lays out all the space the state might want to use (usually for infrastructure improvements).

So the government can essentially thwart any large-scale attempt to solidify property rights by grabbing what it deems is necessary. Of course, this doesn’t mean land titling is useless (if I thought it was, I might as well give up now on my research work) – but these programs are probably not going to act as immediate solutions to land grabs.

 

Malawi’s president and the art of diplomacy

From the BBC:

Mr Mutharika said he has intelligence reports that some Western donor nations were working with local non-governmental groups (NGOs) to hold street demonstrations and vigils against his rule.

“I will not accept this nonsense any more,” Mr Mutharika said as he opened a road in his home tea-growing district of Thyolo in southern Malawi.

“If donors say this is not democracy, to hell with you… yes, I’m using that word, tell them to go to hell,” he said on Sunday.

In all seriousness, the media and donors often fail to acknowledge that local NGOs are often headed by members of the opposition or those with close ties to it. While Mutharika’s response is absurdly vitriolic, if outside forces are supporting these NGOs then his concerns aren’t entirely unfounded.

We’re all the 1%, but we’re no Scott Bakula

Did anyone ever notice that Sam Beckett avoiding leaping into African people?

Writing in Foreign Policy, Charles Kenny points out that, when you consider the global income distribution, middle-class Americans are actually part of the global 1%.

So by global standards, America’s middle class is also really, really rich. To make it into the richest 1 percent globally, all you need is an income of around $34,000, according to World Bank economist Branko Milanovic. The average family in the United States has more than three times the income of those living in poverty in America, and nearly 50 times that of the world’s poorest. Many of America’s 99 percenters, and the West’s, are really 1 percenters on a global level.

His point is sound – it’s one that has been made repeatedly by development gurus in response to the Occupy Wall Street protests. He goes on to make the case that we not only need more redistribution from the middle-class within countries, but across them as well. I’m sympathetic to this argument – `local’ inequality surely pales in comparison to the injustice of global inequality, the latter being associated with millions of people still stuck in absolute poverty.

Yet it’s clear from his writing in general that, when considering public policy, Kenny gives the welfare of people within and outside of the US equal weight. This is typical of those involved in international development – we wouldn’t be in this field if we cared only for our own (although maybe that statement is a little self-serving).

These preferences are consistent with John Rawls’s veil of ignorance (discussed earlier here), the argument that policy should be set before we know what position in society we will assume, a bit like Scott Bakula/Sam Beckett in Quantum Leap. For example, we might feel differently about US immigration policy if we thought there was a chance we might be born in Haiti. Kenny touches upon this briefly while discussing Herbert Simon:

Nor did the Western 99 percent “earn” most of their wealth, any more than the top 1 percent “earned” theirs. It’s the luck of where you’re born, according to the late Nobel Prize-winning economist Herbert Simon, who estimated that the benefits of living in a well-functioning economy probably account for 90 percent of individual income.

While I completely agree with this line of thinking – welfare weights shouldn’t be nation-specific, I think it’s a problematic way to convince others to embrace policies which are already unpopular, like taxing the middle class or easing restrictions on immigration.

Why? I think that most people just don’t feel the same way:  average levels of altruism for foreigners are certain to be lower than for other citizens, so we should be wary of making arguments which are too dependent on non-discrimination. People still see citizenship as part of a social contract – we’re all in this boat together, even if we were randomly assigned to it. Those that ended up in leaky boats are not our immediate concern (again, not the way I feel).

There are no simple solutions to the challenge of getting people to broaden their concept of the `boat’ to include other nationals, although one could argue that the international Occupy protests, for all their faults, have actually helped in this regard.