Category Archives: Amartya Sen

Protecting the Social Fabric

The International Labor Organization (ILO) has released a report titled Sharing Innovative Experiences. The eighteenth edition of the book gives examples of social protection programs, similar to what Social Security is for the US, that have helped to improve a developing nation’s economy. The focus is on eighteen countries that have implemented policies that created retirement plans, allowed children to go to school, and families to receive adequate health care. With these programs in place, thousands of people in developing countries were able to improve their living situation and lift themselves out of poverty.

As people who read this blog know, I am a fan of Amartya Sen’s Capabilities Theory. In fact, I wrote an entire thesis on it. It has been proven time and time again that raising a country’s Gross Domestic Product (GDP) does not mean the people living in that country will be able to live a better life. But the Capabilities Theory puts the emphasis back on the people and what they need to live. The ILO uses this theory in their research and promotes policies that will increase people’s quality of life, rather than increase a companies profit. The emphasis on Social Protection Programs is a direct result of this theory, and as I will show here, not only helps people live a better life but grows the countries economy as well.

Those living in the developing world (and are lucky enough to have a job) often do not earn enough to pay for themselves and their family’s medical needs. Not to mention the ability to save for retirement or pay for their children to go to school. The ILO looks at social protection programs as a way for governments to invest in their people (sound familiar?). But in the developing world, just 1 in 10 people have some sort of retirement pension, and even less (1 in 20) are enrolled in a health care plan. Social protection programs are needed so families can focus on their current situation, and in some countries have proven to reduce poverty in half. These policies make it easier for families to obtain food, an education, and health care, which not only make it easier for families to live their lives, but builds a stronger labor force for the future.

According to the ILO, over a billion people have been helped from Social Protection programs. It has been “one of the most impacting tools to change quality of life of the poor and vulnerable,” according to Francisco Simplisio head of the Division for Program and Knowledge Management at the United Nations Development Program. In an interview I conducted upon publication of the new update, Simplicio explained, “that’s the key portions of experience in collecting developing countries perspectives implementing it and making it possible for implementation. That’s one of the innovations of this book. And then of course it makes the case it’s possible, which is the second major step.”

The first example in the book comes from Argentina where there is the Universal Child Allowance (AUH). In 2002, 60 percent of Argentina’s children were living in households that were recognized as below the poverty line. This program covers children 0-18 years old where families are given allowances of $46.20 per month and must prove they are in school and registered for health care services. The program is divided by two subsystems called the contributory where all formal sector workers are registered in the system; and the non-contributory subsystem comprised of retirees.

Today, 85 percent of Argentina’s children are covered by AUH. To make sure the money was not being wasted, parents must sign affidavits, and letters must be signed by teachers and doctors affirming the child has been attending school and receiving treatment. Books, which are considered legal documents, are also kept by the government. Since the allowance is distributed through bank accounts, if a large amount of money is taken out at once it would be suspicious and violators risk not receiving allowances in the future and the possible facing prosecution. Nine million children and over two million retirees receive these benefits. With families receiving these allowances, they no longer have to worry about arbitrary policies that can force them to lose their home or job, and now have more certainty going into the future.

But in order to pay for these programs a combination of private and public sector investment is needed. The Director of the ILO’s Economic and Labor Market Analysis Moazam Mahmood told me, “the beginning of the report says demand issues are critical as well. So you need to generate the level of aggregate demand to generate employment.” Greater employment leads to more revenue and enables governments to expand their programs and cover more people. But the state still needs to lay a foundation for companies to invest in their country. “But it also has to come to from the public sector” Mahmood said “and we note the depressing statistics in terms of the production of the role of the public sector and much needed infrastructure because the report also notes the shortage of infrastructure has the potential to reduce GDP growth 2 percent a quarter.”

It is not expensive to implement these policies. Less than 2 percent of global GDP is needed to provide a basic set of social security benefits to the world’s poor. With over a billion people living on $1.25 a day, there is, of course, starvation. But several countries have implemented social programs that that allow families to buy food. The ILO has calculated an investment of 4 percent of the worlds GDP can reduce the food poverty rate in low income countries by 40 percent.

By investing in their people countries have been able to invest in their future. With their basic necessities in place, individuals can focus on obtaining better skills to get a better job. They are also able to work harder because they are well educated, plus physically and emotionally fit. When this is the case, multinational corporations are more willing to invest in a country because it will be easier to make a profit. And they’re right. The more education a population receives the more versatile they become for companies who are willing to pay them more.

I know, all this sounds simplistic, but there is vast amounts of evidence to show these policies work. Social Protection Programs are needed in all societies, and Sharing Innovative Experiences is meant to show developing countries a way to improve their economy while at the same time improving their citizens’ quality of life. There are a lot of lessons we can learn from the recession; one is that the fabric of society is delicate and it is important to protect the people in it. These programs help do that, and need to be promoted throughout the developing world.

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Filed under Amartya Sen, Capabilities Theory, Economics, global development, international development, International Labor Organization, Politics, Social Security

Egypt’s Capability

Friday morning I was completely off the grid. I had a appointment downtown, went on the subway to get back to my place so I wasn’t checking my cell phone, Twitter, or Facebook. It was just the like the 90’s but better because Destiny’s Child wasn’t playing in the background. When I got back to my apartment I checked to see what was going on in the world and saw a peaceful revolution coming to a peaceful end, and a new beginning for the people of Egypt. There are no words that can describe what was being shown on television, but the word that can’t be used enough is incredible.

When the first round of protests started on January 25th, it seemed to catch many people by surprise. Either people at the CIA don’t have Facebook or Twitter accounts, or their efforts were focused on something else. But with all the countries in the middle east, why even worry about Egypt? With Mubarak in charge the country had been stable for 30 years, a peace treaty with Israel that it wasn’t breaking, and it’s GDP was growing at a higher rate than any other nations in Africa, and 25th in the world. So, what do Egyptians have anything to worry about?

The reasons for Egypt’s revolt are complex, there are so many directions a writer can take in describing the events that lead up to January 25th. But what they all have in common is the Egyptians wanted to be free and have a democratic government working for them. I have written in the past about standard economic models and how they are inadequate assessments. The reason: they don’t assess what people need or care about. Economists should look at what happened in Egypt and realize if the measurements they use do not change, the whole practice is in danger of becoming obsolete.

Before the recession in 2008 Egypt’s GDP grew 7.2%, in 2009 it still grew another 4.6% (when most economies shrunk), and in 2010 it contued upward at 5.3%. Part of the growth was drilled from the oil in the country’s vast dessert in the west, but its leading industry is in textiles, which grew at 5.5% just last year. But despite this improvement in production, it did not lead to people’s lives being improved. Unemployment was still at 9.7% and over 14 million people were living below the poverty line.

Nobel laureate Amartya Sen developed the Capabilities Theory, an alternative to standard economic models. Instead of focusing on GDP as the primary factor in development, he argues economists should focus on social programs such as education and health care, which enable people to live their lives to the fullest extent possible. An important part of this theory is strong democratic governance where people can make their grievances known and work to expand their freedom. The theory calls for redistributive policies to be enacted through social programs, similar to Social Security and Medicaid, which give people the resources and skills they need.

If economists are going to solve this problem, they have to understand what’s important to Egyptians, and people living around the world. There have been tons of stories written about the importance of bread, and all the people who have gone hungry (and I make no apologies for saying mine is the best) because they are not able to afford it. What’s also important to the Egyptians is their health. When Mubarak first came into power in the 1980’s he expanded health care by building hospitals and providing beds across the country. But despite the fact all Egyptians are eligible for health insurance, the government was refusing to pay for it (sound familiar?). The Ministry of Health owes $270 million dollars to health care providers across the country. But because they don’t have the money, hospitals have had to delay or refuse people treatment because they can’t afford to take them in.

Much of the talk has been about the smart, young people, who organized the protests through Facebook and Twitter. While this is true, the facts don’t speak well for Egypt’s education system. In the past, Egypt did have a good education system. But in recent years, as the population grew, more students were attending schools but were not receiving a good education. These children became disenfranchised only to drop out. Most of them tried to get the few jobs that were available, or went to a life in crime. This can lead to future economic stagnation because young Egyptians won’t know how, or have the will, to start or run a business. More schools needed to be built and more teachers needed to be hired, both of which would have reduced the unemployment rate and brought brighter prospects for Egypt’s future and the people who started the revolution.

The Carnegie Endowment for International Peace released a study on how hard it was to start a business in Egypt. This only empowered the rich and leaving behind the rest. While money was being given to the growing industries like textiles, this only enabled the rich and the businesses they own. Money wasn’t being spent on other areas where the majority of the people needed it. Overall investment by the government was only 18% of GDP. This is despite the fact Egypt’s purchasing power grew by $25 billion each year between 2008-2010.

The Capabilities Theory allows economists to focus on the areas of an economy that is most important to people, and their welling being. Providing for areas such as education, health care, housing, and food, provides security and stability allowing people to live their lives and pursue the areas they choose. Egyptians wanted access to better education and health care, among other things, and because they were being ruled instead of governed, they had to take to the streets in order to attain these freedoms.

February 11th 2011 is a day that my generation will ask itself “where were you?” when Egyptians took their country back? Now that it is in their hands, Egyptians will be able to elect officials that can enact policies which will help those desperately in need, and build a better stronger country for future generations.

 

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Filed under Amartya Sen, Capabilities Theory, Economics, Egypt, Mubarak, Political Economy, Politics

>Capability vs. GDP

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Goals are important. They give us something to strive for, get us to make the tough decisions that life requires to accomplish them, and in an ever complicated world, can help keep us focused on what is really important. For public policy purposes though, determining how to assess goals can be controversial. How can you count for hundreds of millions of people, and still implement public policies without interfering on what those same people want to accomplish for themselves?

Coincidently, in a time where many people are saying how economists are failing us, I completed my thesis on how new economic methods need to be used to assess a countries development. What economists are currently accounting for are inputs and outputs, how much it costs to produce the product, and how much money can be made by selling it. I don’t want to say this is a bad thing. There are legitimate arguments out there on why these numbers are important. For businesses to hire people, they need an estimate how much they are going to make, and how much of a loan they need from a bank.

But while the Great Recession has been over for a year, the poverty rate in the United States has dramatically increased. The organization that punched these numbers is highly respected, and all they did was their job. They saw Gross Domestic Product (GDP) went up three quarters in a row and declared everything was fine. Unfortunately, there are millions of people out there who would tell these economists differently.

GDP only accounts for the health of businesses, not the population that keeps them thriving. Instead of assuming that if businesses are prosperous the people are too, economists need to develop new goals that take into account for what people need in order for them to achieve what they are working towards. My thesis focused heavily on the work of Amartya Sen and his Capabilities Theory. This theory focuses on human development, bringing it back to the basics of education, health care, housing, freedom, democracy, and other factors, in order to ensure people are given a chance to accomplish the goals they set for themselves.

In his recent struggles to get the democratic base out to the polls, President Obama stated that during the Bush administration personal family incomes had fallen. But still, most economists thought the economy was good because GDP was going up. The fact is recessions happen, whether in a time of strong regulations or weak ones. You just have to hope they’re not as bad as the one we are in now and they don’t turn into a depression. What is great about the Capabilities Theory is that when recessions do happen, policies are already in place to make sure people are protected. By having economists measure basic goals that all people need, individuals will still have the opportunity to decide what they want to accomplish for themselves because they were given the capability to do so.

Of course, while democracy is a important for the Capabilities Theory, there are numerous examples that can be used to show how politics can be really stupid. Gail Collins had a good piece today on how some of the major races in the coming election have been outright dirty, where the candidates have resorted to political mudslinging. While the politicians and their advisors may see attack ads necessary to get their base out, it turns just as many people off, and doesn’t get any more people to vote for the person who put out the commercial. Even the numbers that economists come out with are at times manipulated to further a public officials agenda. But if new assessments of goals based on the Capabilities Theory were implemented, it would be harder to spin how many people are receiving a strong education, living in a safe neighborhood, and have what they need to support their families.

Elected politicians don’t get reelected on what they say about their opponent, it’s on their own record. By focusing on the people, instead of the corporations, elected officials will know what areas to focus on and try to do something about it. Then, it would be a lot harder for their opponent to come up with legitimate attacks.

This post may seem like a utopia to some people, but I am well aware there will always be socio-economic differences. But when I first learned about the Capabilities Theory, it was one of those things that just made sense, and hopefully after going through this tough time, more people will think it makes sense as well.

 

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Filed under Amartya Sen, Capabilities Theory, Economics, Politics, President Obama, Public Policy