The Chronikler

The wealth of nations revisited

By Robert Adler

Natural wealth is so undervalued that countries believe they are getting richer when, in fact, they are poorer. Can economists see green beyond the greenback?

29 January 2010

If you want to know the current value of the FTSE, the CAC 40 or the Euronext 100, you can find out in seconds. If you want to chart the gross domestic product (GDP) of the UK, France, or the EU over time, a few keystrokes will get you the numbers you need.

But what if you want to know the value of the UK or the EU or the world’s natural resources - non-trivial items, such as forests, watersheds, fisheries, soils, pastures, wetlands and ecosystem services? Not only can’t you find a value, nobody can, because nobody is counting.

At a time when economists track every measure of global, national, and local economies as avidly as the vital signs of a patient in intensive care, it seems a bit strange that something as crucial to the wealth and health of nations as the natural resources and systems on which they rely remain nearly as uncharted as the terra incognita of medieval maps.

Cambridge University professor Partha Dasgupta is one of a handful of economists who see this blank space in economic models as not just strange but, as he puts it, “a gaping hole in how nature is embedded into economics”.

He points out that as long as natural resources and ecosystem services are not measured and valued, they can’t be incorporated into economic models and will be ignored in economic decision-making.

Dasgupta and a few of his colleagues are striving to flesh out adequate measures of what he calls natural capital and get them incorporated into mainstream economics.

Economics has been phenomenally successful in shaping the way decision-makers at all levels think about and evaluate progress, Dasgupta says. In particular, GDP has become the canonical measure of development and the wealth of nations, and guides the economic choices and policies of every country.

The problem with GDP, says Dasgupta, is that it’s both inadequate and misleading.

It’s inadequate in that, although it is used to measure the wealth of nations, it leaves out a vital part of that wealth - natural capital. It’s misleading because nations relying on GDP to measure progress can easily find themselves looking richer on paper, while in fact they are becoming poorer by degrading their natural resources. While conservationists have been warning of this for years, Dasgupta is one of the first economists to have the data to prove it.

In a recent article in Philosophical Transactions of The Royal Society B (doi: 10.1098/rstb.2009.0231), Dasgupta traces the development of five countries - Bangladesh, India, Nepal, Pakistan and China - from 1970 through 2000. All five show seemingly healthy growth as measured by GDP, per-capita GDP, and even HDI (Human Development Index, a composite measure of GDP per person, life expectancy, and education).

The catch is that when Dasgupta includes even a partial evaluation of the wealth lost through depleted natural resources and degraded ecosystem services, the balance sheets of four of those five countries shift into the red. Even as their GDPs and HDIs told these nations that they were getting richer, they were actually getting poorer; their development was unsustainable.

Research in this area has been surprisingly sparse, but consistent in showing that even valuing a small subset of their natural resources reveals that many nations are buying GDP growth at the expense of real wealth. “If I had all the numbers,” Dasgupta says, “it would be even worse.”

Although Dasgupta says that some of his colleagues continue to view nature as if it were an infinite source of resources and an equally infinite sink for waste products, most now accept that, in principal, it’s important to value natural capital. And most economists, he says, now grasp something he proved mathematically a decade ago, that it’s possible to develop a measure of comprehensive wealth that would incorporate nature and reflect human well being better than the GDP or the HDI.

This represents progress, but it seems painfully slow as forests continue to be razed, fisheries depleted, and carbon dioxide pumped into the atmosphere at a record pace. The first substantial study of changes in comprehensive wealth was carried out just 11 years ago, and far too few researchers have followed suit since then. In the meantime, thousands of economists worldwide continue to crank out GDP-based studies, which in turn continue to guide and justify the current pattern of economic decision-making and development.

One ray of hope, says Dasgupta, is that the World Bank and UNEP, the United Nations Environment Programme, are just now starting a project that will produce a world wealth report every two years. Initially, this report will include just a few of the better-measured aspects of natural capital such as fisheries, but it will add other natural resources and ecosystem services over time. “This is the first systematic attempt to value natural capital for the whole world,” says Dasgupta, “It has never been done before.”

If all goes well, in a few years we may be able to punch a few keys and retrieve at least some realistic measures of the value of our natural resources and ecosystems. More importantly, decision-makers will have actual data to know if their nation - or the world as a whole - is developing sustainably or urgently needs to change course.

If Dasgupta and his colleagues are right, it’s a vital step that’s being taken not a moment too soon.

Published with the author's permission. ©Robert Adler. All rights reserved.

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Tips for survival

By Osama Diab

For many Egyptians, tip-based and street jobs are their only means of  survival.

21 October 2009

For 12 hours a day, seven days a week, Mohamed Ahmed sits in the bathroom of a Giza shisha bar handing out napkins to patrons. The job pays the teenager about LE900 a month, all of which comes from tips. It’s just enough to support his mother and four siblings. “I don’t like what I do, but I can’t find a job with a salary that pays even half what I make here,” says Ahmed.

Ahmed wasn’t always a bathroom attendant; he used to work in a brokerage office running errands, fixing drinks and cleaning. The job came with perks, like weekends, but he couldn’t feed his family on the LE250 monthly salary.

So he became one of a growing number of Egyptians forsaking the formal sector for better-paying, tip-based jobs, such as bathroom attendants and parking helpers.

While there are no reliable figures on the subject, experts say the numbers appear to be going up. Many blame the exodus on what they call the woefully outdated wage laws that govern Egypt’s formal economy (companies that pay taxes and register their workers in one way or another). Unchanged since 1984, the country’s minimum wage is LE35 a month, a number that has been made irrelevant by inflation. In the government, where employees are paid according to their educational level, the minimum monthly salary for a university graduate is LE108.

Even though no one actually makes that little, the law does not obligate employers to offer a decent wage, say experts. The outdated law and high unemployment — and, therefore, a large supply of eager workers — have conspired to keep wages down.

Official unemployment figures hover around 10% and are on the rise due to the economic downturn. Some academics say that the real unemployment rate could be as high as 40%.

Ahmed el-Sayed el-Naggar, an economist at the al-Ahram Centre for Political and Strategic Studies, thinks the wage system in Egypt is one of the worst in the world. “It forces people to take bribes and steal because it’s impossible to live off one’s income,” he says.

There has been a push over the last two years to have the minimum wage raised. In late 2007, President Hosni Mubarak ordered officials at the National Council of Wages to come up with a new minimum.

el-Naggar, a union consultant at the time, was a central player in that effort — he authored a proposal to raise the minimum wage to between LE600 and LE800. “Even that is very low,” says el-Naggar. “But [workers] could not hope to get all their rights at once.”

The drive unraveled less than a year later. Facing the possibility of nationwide strikes, Mubarak raised wages for government workers by 30%. The government financed the outlay by increasing the price of petrol, which in turn fed inflation across the board.

Public uproar prompted a spooked Finance Ministry to abandon the plan to raise the minimum wage — officials worried it could trigger runaway inflation, says el-Naggar. “The Ministry of Finance decided to fund the 30% increase in wages in the worst possible way,” he says.

On the road

The migration of workers from the formal to the informal sector can been seen all over Cairo’s streets. Alia el-Mahdi, a professor of economics at Cairo University and author of several papers on Egypt’s informal economy, estimates approximately 300,000 vendors try to make a living on the capital’s congested roads.

And then there are ubiquituous sayes, the self-appointed parking attendants who direct drivers into spots around Cairo. They usually operate where parking is tricky — in front of office buildings, restaurants, cinemas and clubs. They often demand between LE2 and LE5, depending on the value of the parking spot. Some even give out tickets to make themselves look official. And their numbers, say drivers, are on the rise.

“They are more distracting than helpful,” says Laila Ashraf, a computer science student. “I give them money because it’s common practice, not because I think they deserve it,” she adds.

Experts say the trend speaks to a much larger problem in the Egyptian economy: the gulf between the rich and the poor.

Egypt’s economic reform plan, which really kicked off in 1994 with the formation of a new cabinet, does not seem to have done much to help the millions of unskilled workers here.

Between 2006 and 2008, the country’s GDP grew at least 7% annually, and despite the recent global economic crisis, growth figures remain positive. But that wealth remained in the hands of Egypt’s wealthiest, failing to trickle down to most people. In fact, a landmark study recently revealed that 90% of the country’s people were left out of the boom. Most tellingly, according to the UN Human Development Report 2007/2008, 43.9% of Egypt’s population still lives below the income poverty line (an outdated figure that puts poverty at less than $2 a day). In 1991, the figures were around 20%.

“The growth was more in the financial economy than the real productive economy,” explains El-Naggar. “The other thing is that growth is not real unless accompanied by social policies that improve the distribution of wealth through a fair waging system, a fair taxation system, and a fair subsidy system.”

el-Naggar says the minimum government wage for a university graduate of LE108 is only enough to buy 2.5 kilograms of meat. In contrast, in 1979, a graduates’ minimum wage was LE28, which would buy 35 kilograms of meat at the time.

“So even if we have growth, the upper class is in total control of the newly obtained wealth,” says el-Naggar, who believes there is room to raise the minimum wage. He thinks the government could fund the increase by raising the tax rate for the country’s higher income brackets.

In Egypt, there are only three tax brackets, with the highest starting at LE40,000 a year (LE 3,333 a month). In other words, citizens making LE40,000 pay the same rate as those who make hundreds of millions. According to el-Naggar, the fewer tax brackets, the more unequal the system is. Imposing higher rates on society’s richest is a conventional way to redistribute wealth, he says.

People in the highest income tax bands in the United States, China, the Netherlands and France pay 35%, 45%, 52% and 48% of their incomes, respectively. Meanwhile, in Egypt Law no. 91 of 2005 reduced the highest income tax band to only 20% from 42% as part of the government’s tax reform plan.

Sawy Culturewheel’s latest campaign 'La Faqr' (No Poverty) asks people not to give money on the street, the idea being to redirect those funds to fight poverty in more effective ways. Mohamed el-Sawy, the founder of Sawy Culturewheel, includes street vendors in his formula. “I can’t say begging is bad but selling is okay, because then they will pretend to sell anything while what they do is actually begging.”

Advocates for the poor say it is time for Egypt to re-examine an increase to the minimum wage law and move away from band-aid solutions to poverty. “We keep complaining that there are hundreds of thousands of beggars, but we are the ones who created them,” says el-Sawy. “I am convinced that Egypt is a rich nation that would be capable of taking care of its poor people.”

This article first appeared in the October 2009 issue of Business Today. Republished here with the author's permission. ©Osama Diab. All rights reserved.

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Revenge of the ‘baby doomers’

By Christian Nielsen

Could the disgruntled ‘baby doom’ generation turn on Europe’s baby boomers?

16 July 2009

“As the recession tightens across Europe, the young are hurting disproportionately,” Time magazine reported last week in its piece The broken hopes of a generation. Unemployment in Spain is around 17% – already high – but one in three of these are under 25.

Bankers have been blamed for the global recession, but in Spain blame is starting to fall on successive governments seduced by the boom times, and a seeping suspicion that joining the euro has lined the pockets of businesses and left young people – even very well educated ones – scraping for entry-level employment opportunities.

“The lack of decently paying jobs for young Europeans is one the continent’s great failings,” writes Time. In France, they have a term for this which translates literally as ‘young graduates’ (jeunes diplômés) but means so much more. It speaks of a generation of young people who, perhaps for the first time since World War II, may be worse off than their parents. It speaks of a generation that will have to live longer with their parents. Without jobs and with dwindling prospects of getting one, as employers increasingly look for proven track records, this generation is even unattractive to a contrite financial sector.

Spain has dubbed this disappointed generation the mileuristas apparently because they scrape by on a thousand euros a month. They have been chewed up and spat out by companies looking to avoid the country’s onerous employment laws, with few benefits and little protection now that the axe is falling.

In Greece, a similar phenomenon is called the “Generation 600” which, according to the The Wall Street Journal (In Greece, protests echo European students' ire) refers to the country’s national minimum wage of €600 a month. Germany calls them “Generation intern” because of the long spells of no- or low-paid jobs they are forced to take.

Turning on the baby boomers

Greece’s violent riots in December last year and Italian student protests – at their government’s unfavourable schools overhaul – are a palpable sign of things to come elsewhere where younger generations are starting to question a system set up by their ‘baby boomer’ parents who (they may well conclude) have sucked the planet dry for 50 years. Economic growth, asset creation, feathering nests… however you want to put it.

And don’t even get the youth started on the environment and how their erstwhile parents and grandparents have sat on their growing wealth (and hands) while the planet got sicker and sicker but the oldies’ bank accounts got healthier and healthier. At least the stock market (and pension fund) crash of 2008 set some of that straight, the young people may well conclude.

Don’t forget, it’s the same baby boomers who invented the pill and decided to breed by choice – fewer children means fewer future workers, which means less tax revenue, less money to pay for future pension schemes... The same baby boomers who are also hell-bent on living longer than ever – through medicine, genetic manipulation, what ever it takes – and the health and welfare systems of socialist countries in Europe will pay for it! (Read Promises of immortality.)

“ No problem, say the baby boomers, our health systems are strong enough for this right now and our nest eggs survived  the crash.”

But the deck is stacked... in their favour.

No problem for them. It’s the 40 year-olds and down – generation ‘baby doomers’ – who will have to pay tax for their parents’ comfortable (cruising the Caribbean) retirement, and stump up at the same time for their own superannuation in the expectation that most government pension schemes will probably be scrapped within 30 years anyway. And with financial markets faltering and crashing, private schemes are not a safe bet either.

The Economist had a great idea a few years ago to deal with this dearth of money and burdened pension schemes: it suggested granting baby boomers income tax-free status on everything they earned beyond the legal retirement age. Good idea, yes. But again the sliver set score big at the fruit machine.

Who knows, may be this problem will solve itself, as it looks like governments will expect baby doomers to work till 70, 80 or till they drop! Or perhaps growing automation will make most work redundant in the coming decades.

So, how is generation doom supposed to do all this, and be all things to everyone (model employees, positive parents) if their parents hold onto the jobs?

How is this generation to strive for better things, to put its all into an economic and social model created by their elders when the model now seems to be a one-size-fits-me (the parents)?

How can they trust that any decisions made on their behalf today will be any better suited to their needs in 30 or 40 years’ time?

They can’t. And when the penny drops, just watch it roll.

This article is published with the author's permission. © Copyright - Christian Nielsen. All rights reserved.

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All tied up in knots

By Khaled Diab

In Egypt, getting married has young people all tied up in knots.

December 2008

Egyptian crooner Hisham Abbas entertains wedding guests

No matter how grand or modest, the vast majority of Egyptian weddings have a number of things in common: the bride and groom are the constant centre of attention, and the music is invariably so loud that it could make your ears bleed.

And my brother’s wedding, which I attended in Cairo recently, was no exception to this time-honoured tradition. From the moment his bride, trailed by a lacy white dress, and he, decked out in a black suit and bowtie, entered the ballroom preceded by a loud fanfare of drummers and dancers, to the end of the party in the wee hours, the happy couple did not get a moment’s rest. They had to have the first dance, and then dance until they were quite literally about to drop.

When they weren’t strutting their stuff, they had to sit on two raised throne-like seats where everyone could see them, and eat first while everyone watched them. And it is the glare of this constant spotlight that I regard as the most horrifying aspect of Egyptian weddings.

Perhaps the most surprising aspect of a wedding in Egypt for Europeans is that Egyptians overcome their inhibitions and go wild without the need for alcoholic lubrication. Hakim, one of the country’s favourite singers who mixes modern pop rhythms with traditional working-class shaabi music, whipped the guests – women and men, young and old – up into a frenzied storm of pulsating hips, trembling bellies and shuddering shoulders and chests.

As a gift from my brother’s father-in-law, this wedding did not cause the happy couple undue financial pain. Whether they can afford it or not, most Egyptians drag themselves over hot coals in order to put on the grandest wedding they can. After all, getting married is a life-defining moment, so the justification goes. But why should people spend a big chunk of their lives paying for the excesses of that one night?

Marriage is popularly believed to be the better half of faith and a rite of passage into the world. But as the prerequisites for tying the knot and the cost of living keep on rising, and people stay longer in education and work on building careers before marriage, many young couples find themselves in danger of losing the other half of their faith and are stuck for years in limbo between the two worlds.

My sister’s approach of getting married without a large wedding raises eyebrows in Egypt. My own approach of living together unmarried in a furnished apartment, and then building a life together from the bottom up while moving gradually towards marriage, is out of the question for most Egyptians. That said, there has been a massive trend in recent years in which unmarried couples have been living together under the guise of so-called urfi marriages, which are unregistered, informal contracts they enter into for the sake of social decorum.

Recent research by the Brookings Institution reveals that the Middle East has the lowest rate of marriage in the developing world, because a large percentage of people don’t take the leap until their early 30s. While settling down late is not seen as a major issue in the west, the key difference is that most unmarried Arabs are in that situation involuntarily and sex out of wedlock, while quite common, remains frowned upon.

In Egypt, economic challenges and the housing shortage make up part of the equation. But another significant factor is the inflexibility of familial demands. Few families are willing to allow a marriage to commence without a fully furnished flat in an appropriate neighbourhood being ready, not to mention the additional expense of a glittering jewellery set and a large wedding.

Needless to say, given the massive extent of the marriage crisis, it is a popular topic for the media, dramatists and comedians. Films, TV soap operas, newspaper caricatures and popular jokes delve into the various aspects of this phenomenon.

For instance, a short story by the satirist Ahmed Ragab, who is a national institution in Egypt, explores both the housing and the marriage crisis. It features a young couple who have had a “stay of execution” imposed on their marriage because they cannot find a flat and are each still living with their parents.

In a desperate bid to consummate their marriage and start their new life together, they agree to take part in a shrewd developer’s “affordable housing” scheme in which would-be residents have to work on the construction site of their future apartments. The extended families of the DIY residents pitch in to help out in this collective barn-raising effort. They endure sweltering heat, hard labour and humiliation, only to discover that the developer has gone and sold the tiny apartments in which baths are installed vertically to other buyers.

An increasing number of young people are beginning to challenge these dated and rigid attitudes to marriage, in which what should be an emotional alliance is often more akin to a business partnership. A nascent singles pride movement is growing and women are trying to purge the Arabic word ‘Aanes’ (which means spinster, but applies to both genders in Arabic) of its negative connotations.

Abeer Soliman writes a blog called The Diary of a Spinster. “My aim is not to lament my lot as an unmarried woman but to open a window on to my generation (both women and men) so that society can gain insight into our situation and stop labelling us ‘aanes’,” she writes in her Facebook group.

Another popular blog on the subject by Ghada Abdel-Aal, an Egyptian pharmacist, has, with its blend of humour, honesty and insight become a best-selling book. “The problem with Egyptian men is that half of them are like molasses, all gooey, and the other half are hard taskmasters. I suppose the best thing to do would be to put them all in a blender,” she jokes.

This column appeared in The Guardian Unlimited’s Comment is Free section on 13 December 2008. Read the related discussion.

This is an archive piece that was migrated to this website from Diabolic Digest

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