Development Roast Giving international development a proper roasting
La Paz is one of the slowest growing cities in Bolivia, in terms of population. Every year, twice as many people move away from the city than move into it from other regions (1). Between 1992 and 2001, the city’s population grew a modest 11%, compared to the 60% growth of El Alto and Santa Cruz de la Sierra, and the 40% growth of the total urban population (see Table 1).
Inequality in Bolivia: Second Opinion
One of the newsletters last month (How unequal is Bolivia really?) argued that it is better to measure inequality on consumption than on income, as income is very imperfectly measured, especially in poor countries with a large share of self-employment. The newsletter also suggested that when measuring inequality on consumption, United States is probably more unequal than Bolivia. The latter appears to be incorrect, as one careful reader kindly pointed out.
The study by Krueger & Perri (2006) investigates the relationship between income inequality and consumption inequality in United States and find that the consumption based GINI coefficient is about 11 percentage points lower than the income based GINI coefficient (1), which would bring consumption inequality in the US much below consumption inequality in Bolivia.
How Productive is the Informal Sector?
“In Bolivia there are informals and there are idiots”
Luis Alberto Quiroga
The informal sector is often perceived as a sector for excluded, un-educated, low productivity workers who cannot get a “real” job. According to last week’s seminar on Informality in Bolivia organized by the Superintendencia de Empresas and CAF, this perception is quite misleading.
If I were the mayor….
“Putting off an easy thing makes it hard.
Putting off a hard thing makes it impossible.”
George Claude Lorimer
If I were the mayor of almost any growing town or city in Bolivia, I would engage in land speculation with the municipality’s resources. I would buy up cheap land in strategic places and build streets, install water, sewage, electricity, and in general prepare for ordered urbanization. Then I would sell the plots for about 10-20 times what it cost me to prepare them.
How unequal is Bolivia really?
It is difficult to imagine a country more unequal than Bolivia. Some people live in simple one-room dwellings without electricity, piped water, bathroom, or any other basic conveniences, and only get to spend a dollar on special days. Other people live in big mansions with home cinema, swimming pool, fitness room, and plenty of servants.
You don’t need to calculate Gini coefficients to see that Bolivia is clearly more unequal than Denmark. But to assess more subtle differences, it is necessary to rely on more than casual observation.
How to aid? – Guidelines for the generous
“Sometimes when we are generous in small, barely detectable
ways it can change someone else’s life forever.”
Margaret Cho
Generosity is a very admirable trait, but sometimes generosity backfires. The most horrific example I can think of, is poor parents chopping off the hands of their children in order to make them more effective beggars.
Each individual donation is rarely harmful, and probably much needed, but when millions of such donations are made every day over decades, it can change incentives in undesirable ways, as in the example above. Read More »
2008 Year of Languages
United Nations has named 2008 the International Year of Languages, recognizing that genuine multilingualism promotes unity in diversity and international understanding.
While the first-best solution in terms of international understanding and efficiency would be to have just one universal language, there is so much nostalgia and nationalism in the World that this is not realistic in the near future. The second-best solution for individuals living in the present multi-lingual world is therefore to acquire fluency in several main languages.
The Dynamics Behind Income Inequality
By international comparisons, income inequality in Latin America is extremely high. Most Latin American countries have Gini coefficients in the 0.45 – 0.65 range, while most European countries fall in the 0.20 – 0.40 range together with China and India. United States fall in between the two groups with a Gini coefficient of 0.40 – 0.45, depending on the year (1).
However, inequality measures by themselves say little about fairness. Inequality could be perfectly fair if the rich were rich because they had studied diligently, worked hard, invested wisely and provided valuable services to their community, while the poor were poor because they were lazy, selfish or dishonest.
Migration and the 80/20 rule
The Italian economist Vilfredo Pareto (1848-1923) observed, in 1906, that twenty percent of the Italian people owned eighty percent of their country’s accumulated wealth. This 20/80 ratio has since been observed in a large variety of situations, and the general idea of the “Pareto Principle” or the “80/20 rule” is that roughly 80% of “outputs” or “consequences” is typically caused by 20% of the “inputs” or “causes”. For example: 20% of motorists cause 80% of all accidents; 20% of criminals commit 80% of crimes; 20% of beer drinkers drink 80% of all beer; and 20% of clients account for 80% of sales.
Governments Giving Gifts – Populations Acquiring Rights
Recently, the Bolivian government has made a generous change to the universal pension payment scheme (formerly BONOSOL, now Renta Dignidad) lowering the pension reception age from 65 to 60 years, and increasing the annual payment from Bs. 1.800 to Bs. 2.400. This means an immediate doubling of universal pension payments. However, due to the rapidly increasing population aged 60+, already by 2025 this implies a pledge of 3.5 times the current universal pension payments.