Ramblings about Economic Development

Posted January 14, 2007
Filed under: economics |

G. Pascal Zachary published an interesting article in the New York Times. I’ve always found his work very interesting, whether he was publishing in small leftist publications or in the Wall Street Journal or his fascinating book Vannevar Bush.

January 14, 2007

Out of Africa: Cotton and Cash

http://www.nytimes.com/2007/01/14/business/yourmoney/14duna.html?ref=business

Here he is telling the story of rising cotton prices in Africa, where Dunavant Enterprises is just paying African farmers in cash and allowing them to engage in petty capitalist enterprises or send their children to school.

Another article, published in the San Francisco Chronicle tells the story of tortilla prices rising because corn is being diverted to ethanol.

Mexicans Cope With Rising Tortilla Price

PETER ORSI, Associated Press Writer

Saturday, January 13, 2007

http://sfgate.com/cgi-bin/article.cgi?file=/n/a/2007/01/13/financial/f185223S78.DTL

Here, the tone of the story is very different, emphasizing the hardship for poor people who depend upon tortillas. The story is unclear about the extent to which rising corn prices are because of market manipulation by processors or whether farmers are enjoying higher corn prices.

The juxtaposition of these two articles is interesting because it suggests how difficult it is to expect welfare improvements from market price adjustments, except when powerful forces are manipulating prices to their advantage.

In general, rising prices for raw material producers, excluding food which makes up so much of the budget of the poor, tends to favor less advantaged societies. At the same time, the “curse of oil” when too much income flows into a less-than-democratic society, many negative consequences occur. Venezuela seems to offer a model in which a nation can channel much of its windfall into productive public activities.

In short, generalizing about economic development is a treacherous affair.