The Region

"Ranking the Opportunities"

Nancy L. Stokey - Consultant

Published December 1, 2004  |  December 2004 issue

Communicable diseases
... The HIV/AIDS initiative seems most important for several reasons: the scale of the problem, the large public good aspect and the urgency of quick intervention. Several countries in SSA [sub-Saharan Africa] have very high infection rates already, and disaster seems imminent in these countries if something is not done soon. The proposal for malaria control also offers benefits that are very large relative to the costs, and the proposed interventions have good track records.

Subsidies and trade barriers
Liberalising international trade and reducing developed country subsidies to agriculture would yield huge economic benefits (the estimate in [the Challenge paper] is about $45 trillion) around the world. The (direct) costs are negligible by comparison: the main obstacles are political. Developing countries would enjoy special benefits, since the inflow of new technologies and new ideas that accompany free trade would boost their growth rates.

Establishing free trade areas is much less useful. ...
These proposals were not ranked.

Malnutrition and hunger
... Reducing micronutrient deficiencies produces very large improvements in health and productivity, at a modest cost. Investing in developing better crop varieties should also be a high priority. ...

Reducing low birth weight pregnancies and improving child nutrition are also worthwhile, but more expensive.

Sanitation and access to clean water
All three of the opportunities in this area are excellent projects. ...

Treadle pumps and other technologies that allow individual farmers to control irrigation of their crops are extremely effective in raising rural incomes. ...

Clean drinking water and better sanitation are extremely effective in reducing water-borne diseases, especially diarrhoea. ... Willingness-to-pay is high for the former, since water is a private good, and much lower for the latter, since sanitation is a public good. But both must be financed in a self-sustaining way for communities to enjoy the health benefits.

... Substantial benefits clearly accrue to the migrants themselves, and there are few direct costs associated with lowering barriers to mobility. The question, then, is whether there are additional benefits or (indirect) costs to other individuals in the receiving and sending countries. ...

The U.S. economy is well equipped to absorb new workers and the social costs would probably be modest. The situation in Europe is quite different. European labour market policies make their economies much less flexible, ethnic groups are not as quickly assimilated, and immigration has already produced a strong political backlash.

Governance and corruption
... What aspects of governance are important for economic development? Stability is crucial. Civil liberties are desirable, but evidently not critical for growth. Democracy is neither necessary nor sufficient for economic growth. ... Corruption is deplorable, but historical evidence suggest that moderate corruption does not hinder growth. ...

The ideas in [the Challenge paper] are good ones, but the best ways to implement them will vary from place to place. In this sense they are not specific enough to suggest particular action. ... The exception is the proposal to lower state-imposed costs of establishing a new business. Encouraging entrepreneurial activity should be a high priority for any government interested in stimulating economic progress.

Climate change
[The Challenge paper] presents an alarmist view about the costs of global warming. ... All three of the opportunities entail high costs and few benefits over the next hundred years, and (relatively) lower costs and higher benefits over the subsequent two centuries. Using a shorter horizon (100 years) and a more standard discount rate (5 percent), all of the proposals produce benefit/cost ratios well below unity.

Does this mean that the issue is unimportant and should be ignored? No. There is evidence that global warming is real and that eventually it will become an important problem.

Access to education
... The only serious proposal presented in [the Challenge paper] is for 'systemic reform.' But little is known about what specific types of institutional (systemic) reforms improve school quality, and without such detail the proposal is not very useful.

Three good ideas did emerge. The first is the use of achievement tests to measure school performance. ... The second is using financial incentives to encourage school attendance. ... The third is an idea that would increase our information about the effectiveness of specific programmes in raising student achievement.

Financial instability
[The Challenge paper] identifies two sources of financial instability. The first is macroeconomic mismanagement: unsustainable fiscal deficits, a weak financial system and so on. ... The second consists of exogenous shocks, such as business cycles and commodity market fluctuations. ...

[The paper] offers four proposals: re-regulating domestic financial markets, re-imposing capital controls, adopting a common currency and pursuing an initiative to create markets for debt denominated in LDC [least developed countries] currencies. The first three are straw men: the first two are patently bad ideas and the third is infeasible, at least at present. The fourth is the author's own recent, novel idea. It is a serious proposal, but I have serious reservations as well.

Conflicts and arms proliferation
[The Challenge paper] does a good job quantifying the costs of civil conflicts, and they are enormous—especially when the numbers are revised (upward) to reflect the Panel's valuation ($100,000) for a life saved. The proposals to reduce the number of conflicts were less convincing, however. ...

One proposal did seem worthwhile: using peace-keeping troops from LDCs when hostilities cease, to reduce the probability that conflict resumes.

It is important to remember that the Expert panel ranked solutions, not problems. Poor governance, financial instability and civil war are important problems, but at present there are few clear, concrete, convincing suggestions for how to deal with them.

SSA stands out as a region facing problems on many fronts: hunger, disease, war and poor government. Does this suggest a different approach for intervention in this region? The final priorities reflect very basic desires: life, health and the ability to be productive.

*Reprinted with the permission of Cambridge University Press from Global Crises, Global Solutions, edited by Bjorn Lomborg, 2004.

For more on the Consensus:
Copenhagen Consensus



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