…fascinating experiment with a new Google tool on the frontiers of diseases surveillance and global health trends. Remains to be seen how useful this will be and lots of validation needs to be done, but this is yet another example of people outside of traditional health/public health communities who are on the leading edge of public health innovation.

Anyway, that set me thinking on what else Google is up to. Turns out, its fairly easy to find out. So what I did was aggregate their projects, and analyze the resulting spending. Here’s what I found out.

Spending and Type

Google.org spending, by type

Google.org has provided USD 110,225,998 in grants and investments. This itself is hardly a huge figure, considering the size of Google, and the ambitions of Google.org. What is interesting is that a large part of this (44%) was spent as investments into renewable energy and plugin hybrid projects.

This makes me wonder why Google.org is spend so much on the “low lying” fruit?

Field of Activity

Google.org spending by field of activity

A look at which areas Google.org spends its money is also illuminating. Again, it seems a large part goes to energy related projects. I have classified energy as renewable energy as well as power related (e.g. plugin-hybrid) projects.

Relatively little is spent on “traditional” philanthropy - health, education, or environment. Again, is there a capacity constraint?

One additional remark: it seems Google.org is funding the World Bank as well. The World Bank Development Marketplace business plan competition received USD 500,000 from Google.

Recipient Country

Recipient organization, by country

A look at the distribution of grants, by the country in which organizations are based, is particularly interesting. A few observations:

• It is not surprising that a majority of money goes to US organizations. The US has one of the most developed non-profit and academic sectors. But the scale of that majority is.
• India, curiously, is the second largest recipient of Google.org grants. In hindsight, probably not surprising considering India too has a vibrant civil society and an ambitious social agenda.
• Africa gets the third largest share (USD 7.4 million). Of this, USD 4.2 million goes to East Africa (about 56.7%). It should be noted, though, that a larger amount is probably spent in Africa than in India - because several of the US grants are for projects in Africa.
• Most of the grants to India are in the field of education. Most going to Africa are in the field of health.
• Finally, one thing not evident in these numbers is that Google.org often funds technology related projects. HealthMap, for instance, gets two grants. Other grants also focus on weather monitoring, satellite monitoring, and other climate systems that feed into disease control systems. Clearly, the Flu project isn’t Google.org’s only innovation.

In concluding, I can make two overarching statements.

First, Google.org’s spending suggests there is an absorption capacity constraint within the broader non-profit sector. Could it be that there just aren’t enough good projects for Google to fund?

And second, while a majority of projects benefit the developing world, the US-centric spending pattern suggests Google.org is embracing Jagdish Bhagwati’s idea, that if you cannot spend in Africa, spend for Africa, elsewhere:

My premise is that P4P promises to bypass traditionally inefficient and government controlled food markets, providing farmers the right incentives to improve productivity - with benefits to both consumers and producers. So far so good.

CGDev too agrees, highlighting the three assumptions underlying the program:

that markets don’t work very well;

that establishing an alternative sales mechanism is an effective means of improving markets and producers’ incomes; and

that local purchases will improve producers’ prices, but with a minimal impact on consumers’ prices.

As this illustrates, enthusiasm for P4P is based on a very producer-centric view, and overlooks the very real possiblity - particularly in small African countries where P4P purchases would be a substantial portion of total trade - that P4P’s impact on local consumer prices might not be negligible. In their article on CGDev, Jenny Aker and Rebecca Schutte highlight with the example of Mali:

On the surface, Mali appears to be a perfect pilot country for the P4P Initiative: relatively low yields and unstable production; low and variable producer prices and hence incomes; and extremely vulnerable populations, some of which require food aid. But is the P4P right for Mali? Despite poor quality roads and high transport costs, grain markets are fairly well-integrated and competitive in Mali. The P4P could potentially improve farmers’ incomes and encourage greater trade within Mali. But at the same time:

1. Higher prices paid to farmers via the P4P could undercut traders if they are unable to meet WFP’s prices, displace smaller traders and potentially break traditional relationships between traders and villages, or keep such relationships from developing.
2. Depending upon annual production and the location, amount and prices of the local purchase, such purchases could reduce supply and increase consumer prices locally and in other markets.

The impact of P4P on local consumption is an unintended consequence that I have overlooked. It is what makes the program a “win-maybe” rather than a “win-win” according to the authors.

Yet, I feel this potential obstacle can be overcome if, as I argued previously, the program is not focused on the farmers or the producers - but on the market. Its goal should be the eventual emergence of an efficient market.

There is a parallel between P4P and the emergence of direct purchase contracts between rural farmers and large retailers in India. Those contracts, like P4P, are driven by the inefficiency of markets and the need (on both sides) for long-term stability in prices. In the short term, these contracts benefit producers and enhance their productivity.

However, to turn those into lasting benefits and provide ALL consumers and producers the same benefits, these contracts need to be merged into a single marketplace. This is where P4P should go. Rather than trying to benefit a certain subset of farmers, the program should become a clearing house for ALL purchases in a given country. By making long-term purchases the norm, it would lead to a “race to the top” - buyers would be forced to match WFP’s terms of long-term prices, and producers would be forced to improve productivity. All consumers would benefit.

Of course, it remains to be decided if the short term negative impact on consumers is outweighed by the long term benefits of a better marketplace. And is an efficient agricultural marketplace really good? When the global price for coffee fell dramatically in the last century, it turned thousands of farmers into poverty. Is such a marketplace possible? And is it desirable?

Read the full post on CGDev for recommended guidelines P4P could use to avoid the pitfalls.

I have maintained in the past that McCain is better for India. And I still maintain that Obama’s economic policies are certainly more irresponsible than McCain’s. The Wall Street Journal - an economically conservative publication - concurs. Yet, the bulk of public opinion is in Obama’s favor. And I am forced to reassess my opposition to a candidate that seems to be all fluff, eloquence, and little substance. Yet, the alternative, as the Economist points out, has been found even more disappointing:

That, however, was Senator McCain; the Candidate McCain of the past six months has too often seemed the victim of political sorcery, his good features magically inverted, his bad ones exaggerated. The fiscal conservative who once tackled Mr Bush over his unaffordable tax cuts now proposes not just to keep the cuts, but to deepen them. The man who denounced the religious right as “agents of intolerance” now embraces theocratic culture warriors. The campaigner against ethanol subsidies (who had a better record on global warming than most Democrats) came out in favour of a petrol-tax holiday. It has not all disappeared: his support for free trade has never wavered. Yet rather than heading towards the centre after he won the nomination, Mr McCain moved to the right.

But Gary Younge of the Guardian carriers a much more emotional argument for Obama.

The day we brought my new-born son home to our Brooklyn apartment, an article in the New York Times pointed out that “a black male who drops out of high school [in the US] is 60 times more likely to find himself in prison than one with a bachelor’s degree”. These are the kind of statistics I often quote in my work. But this time it was personal. Looking down at him as he snoozed in the brand new car seat, I thought: “Those are not great odds. I’d better buy some more children’s books.”

…If there is promise in [in Obama's victory] for my son, it is not so much that he is capable of doing anything he wants - I am his father and it’s my responsibility to teach him that - but that white people won’t necessarily stop him. What that does for his odds of finishing high school or going to jail remains to be seen. In the meantime, I’m off to the bookshop.

If Gary, an Obama cynic too, can claim the symbolism of Obama’s victory to be reason enough for his support - perhaps it is. Perhaps it is more important to get American optimistic again, than it is to maintain a budget surplus. As someone that has lived in America and Europe, I have found the former to be a lot more tolerant, on the surface, of minorities, yet stubbornly resistant to the kind of deep change of attitude that would even the odds for African Americans or Latinos. If Obama can help, that is a good reason for Americans to elect him.

They may still be unpleasantly surprised by what else he and a single party state bring. But the need for self-confidence is a powerful compulsion. The world needs America just as much as America needs the world. As Gary said:

Symbols are too important to be left to the symbol-minded. By that time, my thinking on Obama had evolved. Not so much because of the man, but the moment. The atmosphere during this campaign has been unlike anything I’ve ever seen in a western country. To see so many people - particularly young people - engaged and hopeful about their political future after eight depressing years is inspiring. The last time I saw it was in South Africa’s first democratic elections in 1994.

Walking down Sumter Street during Charleston’s Martin Luther King day parade, watching white volunteers chant: “Obama ‘08! We’re ready. Why wait?” gave political voice to an America I never doubted existed, but had yet to see. Among them was a young man who was “so depressed” after Obama’s New Hampshire defeat that he had dropped everything he had been doing in Guatemala and flown back to help out. Local African Americans lined the sidewalks, cheering encouragement. Obama’s victory in Iowa had proved that a black candidacy was not a pipe dream.

It was a moment. Fleeting and maybe even fatuous. But nonetheless a political moment that produced hopeful human engagement. Within half an hour it had evaporated. The white volunteers went back to the office and black people went back to their homes in the poorest parts of town and waited for change. But that didn’t mean it didn’t happen or that it couldn’t happen again. Nor was there anyone else who could make it happen.

So, perhaps it is the moment that will bring Obama victory. Let us hope that Obama will use it well.

Confusing Correlation and Causation

The most disingenous suggestion of Simon Zadek’s post is that ”responsible behavior” is a factor in determining overall national competitiveness. While he would like to “establish new norms of “responsible competitiveness” in global markets,” Zadek believes that this already happens, if you believe what he says about his Responsible Competitiveness Index (or RCI):

The RCI 2007 therefore provides a means of assessing the extent to which responsible business practices are a factor in determining how any particular nation competes in global markets. So, for example, the fact that Brazil scores better than China indicates that the former’s underlying competitive proposition in global markets is driven more than the latter’s, in aggregate, by responsible business practices.

Comparing these results with well-known national competitiveness indexes provides one cross-check of whether the RCI is aligned with conventional measures of national competitiveness. The World Economic Forum’s annual Global Competitiveness ranking is the best-known of these measures and seeks to factor in measures of market flexibility, technological development, workforce educational standards, and enabling political environment, among others. The World Bank’s annual Doing Business Index provides a different lens by measuring factors that make business easier, such as the ease of border customs regulations and procedures. There is a relatively close fit between these indexes and the RCI (R2=0.85 for the correlation between the RCI and the World Economic Forum’s Growth Competitiveness Index). This correlation indicates that there is a high correspondence between the level of development of responsible business practices and measured national competitiveness across the hundred or so countries common across the indexes.

This makes a mokery of statistics, but I suspect his confusion of correlation and causation is not unintentional. He states that there is a high correlation between responsible competitiveness (as measured by the RCI), and the overall competitiveness of an economy (as measured by the GCI). This is hardly surprising. But he goes further to say that responsible policies actually cause overall competitiveness to increase:

Today’s experimentation provides concrete evidence that responsible competitiveness strategies are the key to creating tomorrow’s sustainable global economy.

This is so self-serving as to be disappointing. What is more likely - that better CSR increases competitiveness, or that the causation goes the other way? Countries that are highly competitive due to high productivity, extensive use of technology, and low levels of unemployment, can afford to implement more “responsible” requirements.

Ignoring Reality to Sell CSR

Zadek’s oversight is unfortunate, because it undermines his otherwise good argument that markets should reward good behavior. But he is focusing on the wrong kind of behavior:

The need for a more responsible basis on which businesses and economies compete in international markets has never been greater. Global corporations with global strategies contribute to rising inequality and falling economic opportunities for lower-income communities across the developed world.

Bollocks! Global corporations, and their supply chains, have pulled hundreds of millions out of poverty in China and India. And the idea that globalization would unleash a “race to the bottom” has also been disproven. What happens in fact when companies go international is that, while they certainly exploit lax regulation where possible, they bring substantially better employee and consumer practices to target countries. The end result is that they raise the general level of corporate practice.

More generally, a clear argument can be made against the ethical uniformity and imperialism that Zadek promotes. The idea that there is one set of ethical guidelines by which all countries, corporations, and individuals should abide is not only a western conception, it is also highly dangerous. In that case, whose ethics are we to apply? CSR, while good in theory, ends up disenfranchising the people of poorer countries and weakens their institutions - an unintended consequence that few CSR proponents acknowledge, or even mention.

What Zadek desires is certainly a desirable goal and one that was also Adam Smith’s intention. But the kind of CSR that Zadek proposes is what I have previously termed “Advocacy in Home Markets” - it aims to boost the prospects of large multinationals in their home countries, and responds to western criticisms rather than local needs.

If Zadek is serious about building markets that reward responsible behavior, it will require more than fudging numbers. He would do better to focus on the business and less on the ethics, for instance by tracking the performance of companies that address local needs, or integrate green products into their offering, compared to those that do not.

True “responsibility” is not in implementing western standards of regulation. It is in embracing consumers that cannot pay for your service at market rates and accepting the occassional loss (what I call “Strategy in Target Markets”). This is already being done by small and medium enterprises and innovative corporations that engage those SMEs to find business opportunity where earlier there was none. Zadek is misleading us, and the HIR is doing a disservice to its readers, by focusing on the wrong idea.

I had previously argued that this program, that bypasses traditionally inefficient and government controlled food markets, could significantly enhance productivity by providing poor farmers with long-term incentives to do so. This commitment shows how and how not:

The Bill & Melinda Gates Foundation committed US$66 million to fund pilot projects in 10 countries in Africa, and the Howard G. Buffett Foundation committed US$9.1 million to support pilot projects in seven countries. The government of Belgium contributed $750,000 for the project in the Democratic Republic of Congo. Three other countries have not yet been funded.

With the support of the foundations, and in close cooperation with governments, UN agencies, nongovernmental organizations, and private companies, P4P should significantly increase the income of at least 350,000 farmers in the pilot countries alone. The project will also identify and rigorously test practices that can be used to benefit small-scale farmers in other countries. Ultimately, the intention is to not only support farmers to capitalize on the market offered by WFP, but also to connect them to other local and regional food markets.

This illustrates a relative advantage of philanthropic capital - the ability to create parallel structures and modify incentives. But it also shows how the project might not be going far enough, by merely seeking to connect farmers to “local and regional food markets.”

Existing food supply chains in the South are riddled with failures and inefficiencies. One failure, that P4P addresses, is that farmers do not get enough for their produce. But that is a symptom of the inefficient markets that operate in these countries. In turn, these markets provide no incentives for correcting such failures. This is why “connecting to local markets” won’t be enough - because local markets are hardly any use.

P4P helps farmers increase their incomes. But so does another project - the Millenium Villages Project. By providing subsidized inputs the MVP strategy has helped triple corn productivity in Sauri, Kenya. But the MVP provides no direct link to buyers of food, providing no guarantees that the higher production will be sold.

This is where P4P can distinguish itself - it connects sellers to buyers. In other words, P4P can create a market of its own. This, in turn, would provide long-term incentives for farmers to improve productivity. Incomes would rise, but as a byproduct of a better market platform which communicates price and quality signals appropriately.

The true gain of the P4P project in Mozambique will be that 9,500 farmers in a cooperative have now signed a contract which rewards them for producing more and better quality food. If P4P can provide that same incentive in every country all farmers will be clamoring to join, as will buyers. That will be the true success of the project because it can endure even after the Gates Foundation has spent its last dollar.

This is, of course, complete nonsense. The neo-malthusian argument that population growth cannot continue forever has been repeatedly disproved. It is surprising that immigration conservatives are trying to use the environment as their new rallying call. What is worrying, however, is that they are succeeding - and the Christian Science Monitor is asking if “immigration is an ecoissue.” Nor are their efforts new - in 1998 the Sierra Club membership was forced to go to the ballot on the issue; two years ago the CSM reported on a widening (and possibly imaginary) rift amongst environmentalists.

Who is Behind this Argument?

Before addressing the argument, it is interesting to evaluate who is behind this “population-growth” environmentalism. A quick search reveals two organizations that frequently pop up - Population-Environment Balance (or BALANCE) and the even more right-wing Federation for American Immigration Reform (FAIR).

Their agendas are straightforward, alarmist, and (contrary to the name), completely unbalanced. An alarmist article on BALANCE calls for an immigration “moratorium,” claiming that “since 1945 the U.S.’s population growth rate has equaled that of India’s.”

Such statements reveal both the line of attack being deployed by these groups and its weakness. The arguments are targeted at a traditionally liberal group. After all, who would not be concerned about the “War on Poverty,” or on America’s carbon footprint. But they implicitly associate the environmental failures of the US on a single bogeyman - population immigration. Yet, that link between population and environment has been repeatedly disproved.

But first, is immigration event a problem? According to the Pew research center, 82% of US population growth has been due to immigration. But in this era of aging populations and underfunded pension systems in much of Europe, a large and young population is, in fact , an asset. So if America’s population is growing like India’s - American’s should rejoice at their own demographic dividend.

At the micro-level however, BALANCE’s two arguments deserve credible responses.

The Neo-Malthusian Thesis

The first argument is an absolute one - that America cannot afford more people, given the limited natural resources available. It is, in this view, critical to “stabilize” the population to preserve American’s quality of life.

Yet, this argument has been repeatedly debunked. Donald Boudreaux, from George Mason University, did it well in 2006, in his article “Absorption Nation“:

I agree that America’s ability to absorb immigrants has changed: it’s higher today than at any time in history.

Only by naively supposing that a country’s ability to absorb immigrants is determined chiefly by the availability of unsettled land do people conclude that America today is less able to absorb immigrants. It’s true that more land was available for settlement in the 19^th century. That land, however, was never much of an attraction to immigrants. Historically, most immigrants settled in cities — think, for example, of Manhattan’s Little Italy and San Francisco’s Chinatown.

Also, of course, we’re better able to feed ourselves today, even though the amount of land used for growing crops and pasturing animals is no larger now than in 1900. Higher agricultural productivity enables farmers and ranchers to produce more output on the same amount of land.

What about workers? A measure of ability to absorb workers is capital invested per worker. Today, the amount of capital invested per worker is nine times greater than it was just after World War I. Because a worker’s productivity rises when he has more capital to work with, and because his pay is tied closely to his productivity, workers today produce and earn more than workers did during the open-borders era.

If there is no particular “absorption limit,” there is also no correlation between population density and environmental degradation:

Holland, for example, is one of the most densely populated countries in the world, with 4,500 people per 1,000 hectares. It is also one of the most ecologically strong, devoting 10% of its land to ecological protection. Compare this to Brazil with only 170 people per 1,000 hectares and an unprecedented rate of rainforest destruction and it becomes clear that corporate and government policy, not population density, accounts for environmental degradation.

Clearly, the ability to absorb immigrations has little to do with natural resources. Land is abundant - only 3% of America’s landmass is urban; agriculture is flourishing; and quality of life keeps rising. Immigration does not pose a threat to the sustainability of American’s quality of life.

The Impact of Immigrants in America

There is a second argument. Since Americans consume more than others, a lower population is desirable by itself in order to keep overall consumption low. And, since immigrants use more resources in America than they would in their home country, less immigration implies a better planet. A Carry Capacity Network article states:

As an example consider the impact of a typical family of seven, immigrating from a country where their owning a car was highly unlikely. When they come to America they are likely to acquire cars (0.76 cars per family member). For every mile they drive, they pollute and deplete resources that could have been relatively unaffected had they continued their prior lifestyle. The act of border crossing enables them to make lifestyle changes that adversely affect the environment; by becoming Americans they adopt the consumption and pollution patterns of the world’s most environmentally destructive lifestyle.

In evaluating this argument, it is useful to view environmental impact as a combination of three variables - population, consumption, and technology. America has higher consumption - thus it should have a lower population.

First, this argument is egregiously elitist, for it condemns immigrants - who have the natural right to seek a better life - to misery and poverty. Indeed, the natural extension of this argument would be to force people outside America to live in utter deprivation, so that American’s can continue their polluting ways.

This argument is misguided, overlooking the actual problem - the high consumption lifestyle of Americans. Real environmentalists would convince Americans to consume less.

Finally, this argument focuses attention on the least important of the three solution variables - technology. It is technology that helped humanity avoid a malthusian famine by increasing food and worker productivity. It also offers solutions to problems such as energy, waste generation, and water conservation. True environmentalists would recognize both the true problem (consumption), and the potential solution (technology), and focus efforts there.

The Ugly Truth

The population-growth environmentalist’s arguments hold no water. Yes, America’s population is increasing and “far from stabilized.” Yes, this is largely due to immigration:

[Hispanics] are 14.3 percent of the overall population, but between July 2004 and July 2005, they accounted for 49 percent of US population growth. Of the increase of 1.3 million Hispanics, the Census Bureau reported, 800,000 was because of natural increase (births minus deaths), and 500,000 was due to immigration.

“The Hispanic population in 2005 was much younger, with a median age of 27.2 years compared to the population as a whole at 36.2 years. About a third of the Hispanic population was under 18, compared with one-fourth of the total population,” according to the Census Bureau report.

In view of humanity’s ability to adapt and develop new technologies, there is no known limit on the Earth’s “carrying capacity.” And while environmental degredation is a phenomena, it is occuring not because of large populations or higher density, but because of overconsumption in America, by native-born Americans. Ironically, it is these immigrants which will pay the pensions of the population-growth environmentalists that oppose them.

These pseudo-environmentalists would do well to reveal their true agenda of preventing immigration. This love for environmentalism is old wine in a new bottle - and the environment has nothing to do with it.

The author, Swagato Ganguly, provides one major argument in support of his assertion: that McCain, whose hero is Ronald Reagan, would offer a dangerous continuation of Bush’s neoconservatism. In this view, “an Obama administration would be preferable to the heavy-breathing belligerence of a John McCain.”

Yet, this argument is flawed. First, it equates McCain’s policies to Bush’s. Yet, while Bush’s first term did project neoconservative thought into American foreign policy, in recent years his actions have been tempered by the limits of unilateral action. Today, almost every major international initiative - on North Korea, Iran, or the Middle East - involves other countries.

Second, McCain might hold Reagan in high regard but Reagan was a realist, not a neocon. It is unclear if McCain is either, as he is being courted by both the liberal and conservative movements of the Republican party. But, if anything, the return of realism to international politics would be a welcome change, adding a level of predictability that has been missing for the last several years.

The biggest mistake of the article, however, is to equate the interests of the world with those of India. Yes, an administration more committed to multilateralism might be better for the world order - but not for an India that explicitly seeks to change that world order.

Yes, McCain might be more inclined to attack Iran. By the same measure, he would also be more inclined to pressure Pakistan to act on terror by providing a stick as well as a carrot. On the economy, Republican presidents have historically been far more supportive of higher work permit quotas for Indian workers, and push more for free trade.

McCain’s preference for unilateralism would also work in India’s favor. Regardless of whether one is in favor of the Indo-US nuclear deal, one must admit that Obama would never change global rules as Bush did for the Indo-US nuclear deal. And while the League of Democracies proposed by McCain might bypass the UN to validate military action, it would certainly place India at the head table - something India cannot hope for at the UN Security Council.

History shows that Republican presidents have been more beneficial for India. Jimmy Carter vehemently opposses the Indo-US nuclear deal and wants to treat India and Pakistan equally; Bill Clinton applied sanctions to India in 1998. Kissinger, in contrast, might have called Indira Gandhi a “bitch,” but he was also a pragmatist and has supported India’s rise, saying as early as 1998 that “major sanctions are probably a mistake.”

Editorials are, of course, meant to express opinions. But it is disappointing that the Times of India carries opinions so biased as to have no link to objectivity. A preference for Obama is based on a worldview of a multilateral world in which several equal powers work cooperatively. Yet, that is not the reality yet. Till that happens, India will benefit more from a relationship with the US “dehyphenated” from Pakistan, predictability in the world order, the ability to create new rules, and a US administration committed to economic liberalism. Contrary to Swagato’s opinion, Obama is unlikely to offer any of this.

Of course, the Doha Round has collapsed repeatedly in the past, only to be resurrected by countries eager for a multilateral agreement. However, that they have collapsed on a point so seemingly trivial suggests this must really be the endgame. The USA, China, and India may simply be positioning for a better outcome when they return to the negotiating table.

But this latest failure also puts into immediate perspective the choice most developing countries face when negotiating with “the West.” Immediately following the collapse of the talks, the EU reneged on a deal with Latin American exporters of bananas that, the EU says, was effectively tied to the Doha round. As this illustrates, most developing countries are better off negotiating as a group.

That said, some countries are more equal than others. India and China fall into that category, and must ask themselves two questions. First, if this failure is simply a negotiating tactic, will the rest of the developing world hold the line? Not likely. Instead, this failure is likely to give a fillip to bilateral trade agreements that have ballooned recently (see chart) with the US in the lead. Such a spaghetti bowl of agreements may be great for trade lawyers, but will do less to serve the people in the developing world.

More important, are farm subsidies or safeguards really the key issue that Indian and Chinese diplomats should be worried about? In a world where food prices are rising and expected to stay high, and where more and more European and American consumers are turning to locally grown organic food, India and China seem to be fighting yesterday’s battle. Are there not other issues on which the two can stake their negotiating position? Some obvious candidates spring to mind to tackle critical, and future, public good challenges: a food security fund; a technology transfer agreement for cheap renewable energy; a climate change adaptation fund; a medical research or procurement fund for tropical diseases?

No doubt India and China have earned the right to be bull-headed about the current round of trade talks. Previous rounds have come and gone and much has been given away by these countries. At the same time the American farm lobby is as important for American politicians, as the Indian farm lobby is for Indian politicians. Netherless this stalemate is unfortunate at best. There are more important issues out there that deserve at least as much attention.

How is one to reconcile these contradictions? And, to answer Natasha’s question - what can the World Food Programme do about it?

This is more than a rhetorical question because the World Food Programme matters to a lot of people. It is the frontline agency feeding the world’s hungry and in 2004 delivered almost 50% of global food aid (7.2 million tons valued at USD 3.2 billion). With prices up to 40% higher, the WFP is reporting that it will be forced to cut back on the number of people it feeds. According to Josette Sheeran, Director of the WFP, this “silent tsunami” threatens up to 100 million people unless the agency receives an additional USD 700 million.

So, what is the WFP to do?

Greater funding of the WFP is not a solution. Though grain prices have fallen recently (wheat is 40% below its February peak), the spectre of sustained high prices suggests the WFP and national governments will have to seriously reconsider their long-term strategy for ensuring food security. But any strategy or solution will have to account for two factors.

First, that volatility is up. The sudden spikes and falls in food prices suggest we are far from an equilibrium. Data from the Chicago Board of Trade (CBOT) indicates that volatility in wheat prices, for instance, has risen (see chart). This suggests that long-term consumers of grains would do well to heed the call of Goldman Sachs’ oil analyst Murthi who suggests only buying long-term crude oil.

Second, the problem has many reasons. On the demand side greater demand and changing consumption patterns in China and India; on the supply side a shift of agricultural land towards biofuels and urban expansion and lack of research since the last green revolution. Agricultural commodities have also become an investment class contributing to higher volatility. There is no one culprit. Rather, the entire value chain of food markets is riddled with government intervention and inefficiency.

These problems will remain for the forseeable future therefore any solution will have to account for the fact that it cannot change the system. International grain prices will always be subject to domestic politics, such as the US farm subsidy bill; faced with high gas prices rich countries will still promote ethanol; urban expansion will continue; and climate change in the north will receive more funding than agricultural research in the south. The WFP cannot address the problem by throwing more money at it - even the entire USD 1.2 billion it was criticised for possessing.

Purchase for Progress

The good news is that, as one of the largest global consumers of food, the WFP is in a position to bypass the system. The Purchase for Progress program of the WFP does just that. It aims to increase farmer productivity in the developing world by creating market linkages, acting as a guaranteed buyer, and providing futures contracts to farmers to encourage long-term investments.

The concept is intriguing. Not because it is new but because it mirrors a similar move in India by retail giants such as Reliance and Walmart. As they execute plans to open hundreds of stores to serve millions of middle-class consumers in India, they are bypassing local agricultural markets, choosing instead to buy directly from the farmer.

Thinking Bigger: Building Markets

In the long-term, then, the WFP has a shot at putting in place long-term purchase contracts that help WFP as well as local farmers. And by buying locally, the WFP can reduce its dependence on national contracts - always a risk when governments can renege on export contracts as they did in this current crises.

But why stop there? Indeed, if the WFP can show that efficient markets are in the farmer’s and consumer’s best interests, it provides a strong incentive for local governments to dismantle the controls that hold back global grain trade (e.g. less than 8% of the global crop of rice is traded internationally). Done right, the Purchase for Progress concept could - and possibly should - be expanded into an Alternative Investment Market for agriculture - a global market for small-holder farmers.

With that in mind here is a more ambitious Purchase for Progress (P4P) 2.0.

• Create an internal marketplace: The whole point of purchasing locally should be to turn food scare areas into food exporting areas. While the FAO and IFAD, amongst other agencies, try to increase productivity, the WFP is in the priveliged position of having the money to put where its mouth is. As local production increases beyond local needs, create an internal marketplace that trades the suplus to other parts of the world. Grow in Africa, send to Burma - and vice versa when disaster strikes Africa.
• Become a clearing house: While I do not know the details, in its current avatar the P4P program partners with several organizations. However, it can go further offering for instance to be a local clearing house for retail giants such as Reliance. As the retail business in India is currently structured, farmers transact with multiple companies bilaterally. While this works for now, the scenario needs an intermediary market in the long term. The WFP can be that market, at least in some places. Not only would it offer its logistics experience, it could benefit by buying any surplus or at least having a better insight into supply and demand.
• Use that investment fund: That USD 1.2 billion fund, for which the organization was criticized, can be put to good use. By all means, keep the reserve. In fact, create a long-term endowment because the world’s hungry are not going away anytime soon. But use part of the money to invest in agricultural SME funds such as Aventura or to provide loan guarantees to businesses that are needed to boost agricultural productivity. Why keep all that money in cash and cash reserves?

The high food prices have illustrated much about our inability to feed a substantial portion of the world’s population. However, this problem is not one of supply. Rather, it shows deep rooted problems in an international system of distribution. When such a system does not serve one’s ends, it is often easier to bypass it rather than fix it.

The WFP is in the ideal position to do just that. It has the purchasing power to be a market shaper with enough resources to push through changes further down the value chain (much like Nike does with its suppliers). It also has a special legal status that can allow it to bypass national laws - such as those banning independent agricultural markets or futures. And finally, it is not so big that anyone would actually notice a disruption in the overall market.

Indeed, that a substantial portion of WFP’s donations are tied is a good thing (Canada required 50% of wheat be bought from Canada, and the US generally provides in-kind donations). Not only is that food subsidized, but so long as the WFP meets those commitments both national governments and international commodity businesses (such as Cargill) will allow the WFP to build its own parallel system. Such a system can, one day, rival any national or international trading platform. It is in the benefit of WFP, but also in the interests of shifting agricultural trade in favor of poor developing countries.

The current issue of the Harvard International Review looks closely at Sweden to offer some hints on how this may be possible. Sweden, along with Switzerland, Norway, and Finland, is amongst the most globally competitive, yet has an extensive welfware system for its citizens. To explain how this works the article compares Sweden with another welfare state - France:

The key difference between the leaking private sectors plaguing other European nations with the welfare model in Sweden is the way in which the government injects value into the economy. Because of the structure of Swedish welfare, the private sector doesn’t suffer. Swedish socialism is designed to protect the people, not just jobs themselves.

The reason for this apparent contradiction lies in the agent of action in Sweden’s social calculus. While French corporations are required by law to provide benefits, the Swedish government shoulders these costs. In addition, unions in Sweden have a different perspective than do their French counterparts. Much like the system as a whole, the goal of unions is not just to protect jobs, but to protect people by winning benefits for those who go off the employment rolls. In France, a worker represents costs to the company during and even after their employment, but in Sweden, the government takes over for the welfare of laid-off workers.

Clearly, by placing the burden of welfare and job protection on the government, the system retains companies’ focus on efficiency, hiring, and firing.

There is an additional consideration that allows this system to work - and explains why Swedes tolerate such high taxes. The country’s homogeniety makes such collective transfer payments acceptable - something that may not work in a more diverse country where group membership is restrictive (India), or where there is a traditional mistrust of the government (USA).

A final contrast between the Nordic country and its southern counterparts is national unity. With a largely homogenous population, Sweden’s view of community is unique. Unlike France, which is a nation historically marked by prejudice and racial conflict, Swedes are more willing to submit to the large tax rates that support the large government payroll and expenditures.

Of course, government is no paragon of efficiency, and Sweden is no exception. Indeed, the government’s overwhelming presence in society, together with the twisted incentives and changing social mores, are identified as threats to the system:

Because employee benefits are so generous, many abuse the system by faking illnesses and escaping work. Absenteeism is the largest unaccounted-for contributor to the discrepancy between government data and actual statistics.

A new issue altogether is increased apathy toward the Swedish government. Decreasing voter turnout reflects a populace that cares less for its government. There are two possible explanations for this drop. First, the Swedish people could be disillusioned with the government and its policies, possibly heralding a fledgling discontentment that has in the past resulted in troubles for other welfare states. Once a country’s citizens are unhappy with governmental policy, they are much less likely to be pleased with paying for it. This could prove to be a disrupting factor in the seemingly well-run model.

An alternative explanation lies in the changes and modernization taking place throughout the country. The Sweden of today features an increasingly diverse population. This results in less emotional and cultural investment in the nation as a whole, as well as less willingness to shoulder the burden of welfare for one’s fellow Swede. The homogeneity that differentiates this Nordic nation from other European welfare states is starting to dissipate, and with it possibly the security of the model’s success.

This is an article worth reading in its entirety for it offers two important lessons.

First, a welfare state is not necessarily contradictory to a free-market one. If the latter is necessary to lift people out of poverty, the former is necessary to keep them out of it. The hope offered by Sweden is that it may be possible, in certain conditions, to marry the two.

Second, just as a free-market system needs government regulation, a welfare state also needs regulation to minimize beauracracy. But who will regulate government? Some self-regulation occurs in times of economic distress, as demonstrated by economic restructuring during the Asian and Latin American financial crises and India’s own balance of payments crisis. But when no external triggers exist the only true regulator is a well-informed citizenry, vigilant and wary of excessive government.

Ironically, then, the countries best placed to establish sustainable but extensive welfare systems might be the countries most skeptical of them.