Enterra Insights

Visualizing a Better World

Nowadays an oft-heard complaint is that we are being bombarded with so much data that we are being overloaded. Humankind has always struggled with how to make sense of the world around us. We draw pictures, develop taxonomies, create graphs, generate maps, and so forth. Good visualization of data helps us draw the maximum amount of benefit in the least amount of time from a large amount of data. Often in my business meetings, I use a white board or grab a scrap piece of paper to draw out an idea I'm trying to explain. These doodles often find their way into more formal PowerPoint presentations. Using visualization to enhance understanding is a tried and true method of knowledge transfer. Hence, the old adage, "a picture is worth a thousand words." Geographic Information Systems (GIS) have been particularly useful for visualizing data associated with particular locations. Visualization can be so powerful that The Economist reports "interest groups around the world are using mapping tools and internet-based information sources to campaign for change" ["Mapping a better world," 6 June 2009 print issue].

"Convincing people about the evils of housing segregation can be tough, says Barbara Samuels, a campaigner for fair housing at the American Civil Liberties Union (ACLU) of Maryland. 'People say, "What’s so bad about living in an all-black neighbourhood?"' she explains. But using a map that displays all the vacant houses in a segregated neighbourhood, how few jobs exist there and how little public transport is available, 'you can show graphically how people are segregated from opportunity,' she says. 'Maps help you take complex information and portray it in a clear, intuitive manner. You can show segregation in a way that talking about it doesn’t do.' And compiling such maps is much easier than it used to be, thanks to new mapping tools and sources of information on the internet. Ms Samuels remembers, for example, the tedium of trying to draw basic data on maps by hand in the 1990s. But in 2005 she was able to use maps that displayed 14 indicators of opportunity—created for her by a mapping-technology specialist—to help win a housing-desegregation court case."

The attached map which accompanied the article quickly makes the point. It shows a region of Los Angeles, California, and how the presence of city parks can help reduce child obesity. Areas with fewer parks (lighter rather than darker green) have higher rates of childhood obesity (larger red circles). I'm sure there are other correlations that could be made, income levels, presence of fast food establishments, and so forth; but the bottom line is that the correlation between parks and obesity can be seen immediately. In regions that have been torn by years of conflict, maps have been used to help locate and disarm minefields. Because maps are visual, they are an important tool when trying to educate illiterate populations about the location and dangers of minefields.

Data visualization is becoming an important business area. One of the reasons that my colleague Tom Barnett is a much sought after keynote speaker is that he uses visualization as well as anyone I know to help explain the points he is trying to make. Visualization of ideas also helped former Vice President Al Gore to win a Nobel Peace Prize. BusinessWeek reports that "artists and designers are turning to data visualization to interpret the deluge of information around us, often with unexpected results" ["Data Visualization: Stories for the Information Age," by Maria Popova, 12 August 2009]. Popova writes:

"At the intersection of art and algorithm, data visualization schematically abstracts information to bring about a deeper understanding of the data, wrapping it in an element of awe. While the practice of visually representing information is arguably the foundation of all design, a newfound fascination with data visualization has been emerging. ... For artists and designers, data visualization is a new frontier of self-expression, powered by the proliferation of information and the evolution of available tools. For enterprise, it's a platform for showcasing products and services in the context of the cultural interaction that surrounds them, reflecting consumers' increasing demand for corporate transparency."

Popova insists that data visualization is both art and science. It goes beyond the mere visual presentation of data to express something more.

"Data visualization has nothing to do with pie charts and bar graphs. And it's only marginally related to 'infographics,' information design that tends to be about objectivity and clarification. Such representations simply offer another iteration of the data—restating it visually and making it easier to digest. Data visualization, on the other hand, is an interpretation, a different way to look at and think about data that often exposes complex patterns or correlations. Data visualization is a way to make sense of the ever-increasing stream of information with which we're bombarded and provides a creative antidote to the 'analysis paralysis' that can result from the burden of processing such a large volume of information. 'It's not about clarifying data,' says Koblin. 'It's about contextualizing it.' Today algorithmically inspired artists are re-imagining the art-science continuum through work that frames the left-brain analysis of data in a right-brain creative story. Some use data visualization as a bridge between alienating information and its emotional impact."

Frankly, when you look at some of the stunningly beautiful ways that data is displayed in examples accompanying the article, data visualization appears to be much more about art than science; more about composition than clarity. As a businessman, clarity remains the most important objective when visualizing data. Sometimes art and science do merge to bring vibrant composition together with crystal clarity. One group that does this amazingly well is Gapminder. Gapminder's website trumpets the fact that it brings "the beauty of statistics for a fact based world view" to the public. To get an idea about how powerful visualization of data can be, watch the video 200 years that changed the world.

The video helps explain why I remain optimistic about the future of emerging market countries. It also demonstrates how well visualization can help us better understand the world around us. Visualization is a powerful tool and I'm glad it's finally getting the recognition it deserves.

New Approach to Food Security Applauded

In post entitled Food Crisis and Recession, I discussed the fact that at the last G8 summit leaders of developed countries announced a new approach to global food security by pledging to spend $20 billion over the next three years on seeds, fertilizers, tools and other aid for small farmers so poor nations could feed themselves. "The money would also likely go to building infrastructure such as roads between fields and markets, giving farmers better access to clean water by drilling wells and building pipelines and allowing them to store their products so they don't have to be sold immediately, experts said ["World leaders take fresh approach on global hunger," by Alessandra Rizzo, Kansas City Star, 10 July 2009]. Anyone who has followed my discussions about Enterra Solutions' Development-in-a-Box™ approach understands why I applaud efforts that take a holistic approach to development. Only by examining an economic sector from end-to-end (as well as understanding that sector's relationship with other economic sectors) can the issues involved and the challenged faced be understood and addressed. That is basically the tack being taken by this new approach to food security.

I'm not alone in my praise for this new approach. Norman E. Borlaug, a professor at Texas A&M University who won the 1970 Nobel Peace Prize for his contributions to the world food supply, also believes the new approach is long overdue ["Farmers Can Feed the World," Wall Street Journal, 30 July 2009]. The professor writes:

"For those of us who have spent our lives working in agriculture, focusing on growing food versus giving it away is a giant step forward. Given the right tools, farmers have shown an uncanny ability to feed themselves and others, and to ignite the economic engine that will reverse the cycle of chronic poverty. And the escape from poverty offers a chance for greater political stability in their countries as well."

We often think of societies "progressing" from being hunter gatherers to agrarian communities to industrial powerhouses to top-of-the-heap information age economies. Yet even modern post-industrial countries like the United States have important agricultural sectors. In effect, no society ever really leaves the agrarian age. Borlaug argues that too many people cling to the romantic notion that scientific advances in agriculture are bad and that we need to return to simpler times and more natural approaches. He continues:

"The political landscape heaved in other parts of the world [is also changing], casting unfounded doubts on agricultural tools for farmers made through modern science, such as biotech corn in parts of Europe. Even here at home, some elements of popular culture romanticize older, inefficient production methods and shun fertilizers and pesticides, arguing that the U.S. should revert to producing only local organic food. People should be able to purchase organic food if they have the will and financial means to do so, but not at the expense of the world’s hungry—25,000 of whom die each day from malnutrition. Unfortunately, these distractions keep us from the main goal. Consider that current agricultural productivity took 10,000 years to attain the production of roughly six billion gross tons of food per year. Today, nearly seven billion people consume that stockpile almost in its entirety every year. Factor in growing prosperity and nearly three billion new mouths by 2050, and you quickly see how the crudest calculations suggest that within the next four decades the world’s farmers will have to double production."

Borlaug isn't blind to the damage that humans have to the environment or the fact that the resulting climate change is likely to have a significant impact on our ability to feed ourselves in the future. As he puts it:

"[Farmers] most likely will need to accomplish this feat on a shrinking land base and in the face of environmental demands caused by climate change. Indeed, this month Oxfam released a study concluding that the multiple effects of climate change might 'reverse 50 years of work to end poverty' resulting in 'the defining human tragedy of this century.'"

Proponents of organic farming argue that the use of pesticides and fertilizers are bad for both the environment and the body, but Borlaug believes that used correctly they are the tools that will help prevent the potential catastrophe predicted by Oxfam.

"At this time of critical need, the epicenter of our collective work should focus on driving continued investments from both the public and private sectors in efficient agriculture production technologies. Investments like those announced by the G-8 leaders will most likely help to place current tools—like fertilizer and hybrid seeds that have been used for decades in the developed world—into the hands of small-holder farmers in remote places like Africa with the potential for noted and measured impact."

"Current tools," Borlaug argues, as good as they are, won't be enough to stave off global hunger. Continued research and development are needed to create new tools to make the agricultural sector even more productive.

"[Continued funding for R&D is required] to motivate new and novel discoveries, like drought-tolerant, insect-resistant or higher-yielding seed varieties that advance even faster. To accomplish this, governments must make their decisions about access to new technologies, such as the development of genetically modified organisms—on the basis of science, and not to further political agendas. Open markets will stimulate continued investment, innovation and new developments from public research institutions, private companies and novel public/private partnerships."

In other words, Borlaug believes that logic needs to trump fear. In a post entitled Biotechnology's Third Wave, I wrote that "the agricultural wave of biotech concerned (and still concerns) some people because they aren't sure what kind of unintended consequences the release of genetically-altered crops might have on the environment. The third wave of biotech begins with the assumption that it will make the environment better not worse." Borlaug clearly believes that science will make things better not worse. He continues:

"We already can see the ongoing value of these investments simply by acknowledging the double-digit productivity gains made in corn and soybeans in much of the developed world. In the U.S., corn productivity has grown more than 40% and soybeans by nearly 30% from 1987 to 2007, while wheat has lagged behind, increasing by only 19% during the same period. Lack of significant investment in rice and wheat, two of the most important staple crops needed to feed our growing world, is unfortunate and short-sighted. It has kept productivity in these two staple crops at relatively the same levels seen at the end of the 1960s and the close of the Green Revolution, which helped turn Mexico and India from starving net grain importers to exporters."

Borlaug concludes his op-ed piece by stating the obvious -- we can't live without food.

"Of history, one thing is certain: Civilization as we know it could not have evolved, nor can it survive, without an adequate food supply. Likewise, the civilization that our children, grandchildren and future generations come to know will not evolve without accelerating the pace of investment and innovation in agriculture production."

Although Borlaug doesn't mention it as an exacerbating issue, not only is the global population growing but as it becomes more affluent it eats more ["Green shoots," The Economist, 21 March 2009 print issue]. China is a good example of this phenomenon.

"In the past decade, says Carlo Caiani of Caiani & Company, an investment-advisory firm based in Melbourne, the consumption of milk has grown seven-fold, and that of olive oil six-fold. China is consuming twice as much vegetable oil (instead of less healthy pork fat), 60% more poultry, 30% more beef and 25% more wheat, and these are merely the obvious foods. Scores of niches have expanded dramatically: people are drinking four times as much wine, for example. And yet even with all this growth, people in China still, on average, consume only one-third as much milk and meat as people in wealthy countries such as Australia, America and Britain. The gap is even larger with India, which is also growing fast. Overall, protein intake in Europe and America is unlikely to expand much, but a combination of rising incomes and population in developing countries could increase demand by more than 5% annually for years to come. 'Once people are accustomed to eating more protein, they won’t take it out of their diet,' says Mr Caiani."

Clearly there are issues in the global agricultural sector that need to be addressed. I believe that there will continue to be a robust global agricultural trade, but I also believe that more food needs to be grown locally and regionally. The further food has to be transported the more the cost of that food increases. Borlaug is correct that we need to continue to research and develop tools that will help us to increase world food production. For some this will be a quality of life issue. For others it will not be about quality, but about life itself. I'll write about those subjects next week.

Brazil Sits on the Cusp of Recovery

Recently Japan, France, and Germany reported that their economies had once again started to grow. The growth rates weren't high, but the fact that their economies were no longer shrinking indicated that they were starting to recover from the global recession. A number of analysts believe that Brazil is also poised to make a recovery. They claim, however, that Brazil's recovery will likely be more dramatic than those experienced by developed countries. The Brazilian bandwagon began with an article in The Economist ["Ready to roll again," 13 June 2009 print issue]. The article listed some of the indicators that show Brazil is on the road to recovery.

"On June 10th the [Brazilian] central bank cut its benchmark SELIC rate to 9.25%, the first time the figure has been in single digits since the 1960s. A host of measures, from the value of the stockmarket to the creation of credit, are now nearly back to their level before the collapse of Lehman Brothers in September last year. The economy performed less badly than expected in the first quarter: GDP shrank by only 0.8% compared with the last three months of 2008. Many analysts believe that Brazil is now starting to grow again, and will return to annual growth of 3.5% to 4% next year. If so, that would mean that the country has escaped with only a brief recession."

That is not just good news for Brazilians, but for the rest of the world as well. I have noted in several other posts that global economy is likely to recover on the backs of emerging nations. Brazil is one of the so-called BRIC countries (Brazil, Russia, India, and China) that is predicted to become an economic powerhouse. The article goes on to detail some of the reasons that Brazil may escape from having to suffer through a longer recession.

"The financial system is sound, and domestic demand has remained robust. Brazil’s changing trade patterns have also helped to shield it. This year, for the first time, China overhauled the United States to become Brazil’s single biggest trading partner."

Brazil's relatively strong economy has meant that its currency, the real, has also been strong. While this has helped keep inflation in check, it has also meant that exporters are having more difficulty finding clients for their products. Another worry for economists is that Brazilians may save too much. The reason is the existence of "a popular savings account (called caderneta de poupança), which offers an 8-9% guaranteed interest rate."

"As the Central Bank’s headline rate approaches this level, the government frets about a flood of money into these accounts from investors, draining liquidity from the market for government bonds. It is mulling over whether to limit the number and size of poupança accounts, but tampering with this familiar product is politically difficult. Some opposition parties are stoking fears by unfairly reminding voters about a notorious bank raid by a previous president, Fernando Collor, in 1990 when the nation awoke to find much of its savings frozen."

Despite these concerns, the article notes that Brazilian banks are demonstrating "an uncharacteristic outbreak of long-termism" by offering 30-year mortgages -- "something that would have been unthinkable a short time ago." The article concludes that negative events abroad could have an impact on Brazil's recovery, but that the recovery will nevertheless come. Joining The Economist in predicting a rosy future for Brazil is BusinessWeek ["Brazil's Coming Rebound," by Geri Smith, 17 August 2009 print issue]. Smith begins her report by relating the story of a Brazilian man who is taking advantage of the availability of 30-year mortgages.

"For years, Edilson dos Reis Rodrigues dreamed of owning a home. But the public school teacher and his wife together earn just $710 a month, so he could never set aside a down payment. Now, he's finally getting the chance. Thanks to a new government program called My House, My Life, Rodrigues will soon own a two-bedroom apartment near São Paulo. He'll get a cash grant covering a quarter of the $52,000 price and a discounted 30-year mortgage, so he'll pay just $220 a month—half what a conventional loan would have cost. 'This is an incredible opportunity,' the 31-year-old says, smiling broadly as he hands in paperwork to seal the deal."

Smith also sees Brazil's economy growing "by as much as 4.5% in 2010, helping lift millions of Brazilians out of poverty."

"Veteran Brazil watchers say the country's resilience is due to a combination of abundant natural resources, an embrace of globalization after decades of looking inward, and resilient businesspeople and policymakers who have learned to survive difficult times. So as soon as the economy started to contract last year, Brasilia trimmed income taxes and cut levies on key consumer goods, helping manufacturers boost sales and avoid layoffs. 'Brazil has proved it can govern itself and keep the economy on track in very difficult times,' says Riordan Roett, a professor at Johns Hopkins University's School of Advanced International Studies. Although the economy fell into recession in the first quarter, consumer confidence and spending quickly rebounded owing to the stimulus and sound domestic finances. A comfortable $212 billion cushion of foreign reserves and a decade of budget surpluses have allowed the central bank to slash interest rates to a record low of 8.75% from 13.75% in seven months while pouring liquidity into the market to keep credit flowing. And private banks are well regulated and have healthy balance sheets. 'Brazil's fundamentals are very strong—we don't have any of the problems that created the bubble in the U.S.,' says central bank President Henrique Meirelles. Just as important, though, is Brazil's huge domestic market. While outsiders focus on the country's shipments of iron ore, steel, and soy to China, exports are just 12% of Brazil's $1.5 trillion economy. It's the 190 million people and the fast-growing middle class—now more than half the population—that drive growth. In the past seven years a government program called Bolsa Família has helped nudge 24 million Brazilians above the poverty line. And 8 million jobs have been created since 2003, while the minimum wage has increased 45%."

Brazil could well be the example for other developing nations to use in the years to come. Brazilian leaders, both government and business, understand that a growing and sustainable economy requires a robust middle class. This is a point I make repeatedly in my discussions of Development-in-a-Box™. Although things are going to get better, Smith goes on to point out that not everything is rosy in Brazil. Look around, Smith observes, and it's still easy to find signs that Brazil is a developing country.

"Its highways, railroads, ports, and electric grid are outdated and congested. The government collects 36% of gross domestic product in taxes, similar to Europe, but delivers Third World services. Political corruption and a nightmarish bureaucracy can hobble growth. And government spending is starting to rise in the runup to next year's elections."

It's not what remains the same that enthuses Smith, however, it what is changing in Brazil. She notes that Brazilians have always joked that theirs is a country of the future -- meaning that better times have always been promised but have remained elusively over the horizon. Smith believes, however, that Brazil's better future is now within sight. One of the reasons for this renewed optimism is that Brazil is about to become an oil powerhouse.

"Last year the company discovered vast deepwater reserves that it is developing with a five-year, $174 billion investment program. The goal is to double Brazil's production, to 3.5 million barrels a day, by 2012, making the country a top oil exporter. 'Our deepwater discoveries didn't just fall from the sky. They're the product of a very long-term development program going back 30 years,' says Petrobras CEO José Sergio Gabrielli de Azevedo. 'It's the Brazilian equivalent of sending a man to the moon.' The country's improving prospects create huge opportunities for entrepreneurs small and large."

Long-time readers of this blog know that I believe that countries that foster an environment in which entrepreneurs can flourish are countries that are likely to succeed in achieving sustainable development. If Smith is correct about Brazil's improving prospects and rising opportunities for entrepreneurs, she will also be correct that in predicting that Brazil sits on the cusp of recovery. The recession has given Brazilian leaders plenty of negative examples of how to botch economic growth and they seem to be taking those lessons to heart. One area that does concern analysts, however, is Brazil's oil sector. Although it provides hope for a better future, analysts are worried that it won't be developed optimally because the government is taking a more nationalistic approach to development ["Brazil Seeks More Control of Oil Beneath Its Seas," by Alexei Barrionuevo, New York Times, 18 August 2009]. Barrionuevo reports:

"The Brazilian government is seeking to step back from more than a decade of close cooperation with foreign oil companies and more directly control the extraction itself. The move is part of a nationalistic drive to increase the country’s benefits from its natural resources and cement its position as a global power. But it could significantly slow the development of the oil fields at a time when the world is looking for new sources, energy and risk analysts said. ... The oil lies beneath about 20,000 feet of water, shifting sand, and a thick layer of salt. This so-called pre-salt region, stretching hundreds of miles, is the biggest oil reserve being developed in the world today, especially given the lack of headway in gaining access to Iraq’s extensive deposits, said Daniel Yergin, chairman of IHS Cambridge Energy Research Associates, an energy research consultancy. It is also expected to be among the most complicated sets of projects in the history of the oil industry. 'The timing and scale of the development of the pre-salt will be one of the most significant factors for the global oil balance in the next decade, and even more so after 2020,' when Brazil is expected to ramp up production even further, Mr. Yergin said. 'If it doesn’t happen it will be a big setback for Brazil in terms of revenue, and a significant loss for the world in terms of new oil supplies.' or Brazil, the stakes are high. Many here see the oil as a magic bullet for tackling the country’s biggest social challenges."

Brazilian politicians have gone to great lengths to assure oil companies that it is not on a path similar to that followed by Venezuela. They continue to welcome foreign assistance, but want to make sure that the windfall they expect from oil revenues helps create the conditions necessary to make Brazil a fully functioning member of the world's elite nations. Barrionuevo observes that nationalism is rising in Brazil, but believes it reflects a pride in the country rather than a hatred of foreigners. I share the optimism about Brazil's future reflected in the articles cited above. Brazil will undoubtedly to take its place on the world stage (in something other than soccer) and it seems well-suited for the role.

The Changing World of International Relations

In a post written shortly before the Obama administration came to office [Transforming U.S. Foreign Policy], I observed that sweeping changes in the way the U.S conducts its foreign policy seemed to be coming. Those sweeping changes included "a cadre of people more in line with my colleague Tom Barnett's vision of a System Administrator (SysAdmin) force tasked with securing the peace. Such a force is more civilian oriented and less kinetic (it doesn't blow things up). It still relies on the backing a powerful military (peace through strength remains important), but the focus of that military is less on near-peer military engagements and more on asymmetric threats that our forces have faced for the past decade and a half in the area Tom defines as the Gap." In that post, I cited David E. Sanger, of the New York Times, who discussed some of the changes he saw coming ["A Handpicked Obama Team for a Shift in Foreign Policy," by , 30 November 2008]. He wrote:

"The shift would create a greatly expanded corps of diplomats and aid workers that, in the vision of the incoming Obama administration, would be engaged in projects around the world aimed at preventing conflicts and rebuilding failed states."

At the time, I welcomed the changes -- not just as an American, but as someone interested development and in rebuilding failed states. More than half a year down the road, it seems like a good time to take stock of changes that have been made. An op-ed piece by David J. Rothkopf, a visiting scholar at the Carnegie Endowment for International Peace and a former Deputy Undersecretary of Commerce for International Trade during the administration of Bill Clinton, provides an excellent point of departure for such an assessment ["It's 3 a.m. Do You Know Where Hillary Clinton Is?" Washington Post, 23 August 2009]. Rothkopf begins his piece by noting that Secretary Clinton's celebrity sometimes gets in the way and attracts the kinds of attention and catty remarks most often reserved for Hollywood's elite. As a result, Rothkopf states, "When it comes to Hillary Rodham Clinton, we're missing the forest for the pantsuits." He then asks the big question, "Amid all the distractions, what is Clinton actually doing?" From Rothkopf's perspective, Secretary Clinton is "overseeing what may be the most profound changes in U.S. foreign policy in two decades -- a transformation that may render the presidencies of Bill Clinton and George W. Bush mere side notes in a long transition to a meaningful post-Cold War worldview." Rothkopf goes on to detail how he sees the Secretary's role within the Obama administration.

"The secretary has quietly begun rethinking the very nature of diplomacy and translating that vision into a revitalized State Department, one that approaches U.S. allies and rivals in ways that challenge long-held traditions. And despite the pessimists who invoked the 'team of rivals' cliche to predict that President Obama and Clinton would not get along, Hillary has defined a role for herself in the Obamaverse: often bad cop to his good cop, spine stiffener when it comes to tough adversaries and nurturer of new strategies. Recognizing that the 3 a.m. phone calls are going to the White House, she is instead tackling the tough questions that, since the end of the Cold War, have kept America's leaders awake all night."

Rothkopf notes that many members of President Obama's foreign policy team are absorbed with Iraq and Afghanistan. That leaves "Clinton's State Department [to] take on a bigger role in tackling the problems of the future -- in particular, how America will lead the world in the century ahead. This approach is both necessary and canny: It recognizes that U.S. policy must change to fulfill Obama's vision and that many high-profile issues such as those of the Middle East have often swamped the careers and aspirations of secretaries of state past." In looking at the future, Rothkopf notes that there are a number of important questions that must be answered:

"Which nations will be our key partners? What do you do when many vital partners -- China, for example, and Russia -- are rivals as well? How must America's alliances change as NATO is stretched to the limit? How do we engage with rogue states and old enemies in ways that do not strengthen them and preserve our prerogative to challenge threats? How do we move beyond the diplomacy of men in striped pants speaking only for governments and embrace potent nonstate players and once-disenfranchised peoples?"

Secretary Clinton, Rothkopf observes, has started to present some preliminary answers to those questions.

"She outlined her new thinking in a recent speech at the Council on Foreign Relations in New York, where she revealed stark differences between the new administration's worldview and those of its predecessors: The recurring themes include 'partnership' and 'engagement' and 'common interests.' Clearly, Madeleine Albright's 'indispensable nation' has recognized the indispensability of collaborating with others. Who those "others" are is the area in which change has been greatest and most rapid. 'We will put,' Clinton said, 'special emphasis on encouraging major and emerging global powers -- China, India, Russia and Brazil, as well as Turkey, Indonesia and South Africa -- to be full partners in tackling the global agenda.' This is the death knell for the G-8 as the head table of the global community; the administration has an effort underway to determine whether the successor to the G-8 will be the G-20, or perhaps some other grouping."

As a businessman, I live in a world where "partnerships" and "engagements" are a way of life. I understand how important those activities are in running a successful business. I cannot help but believe they are just as important in running a successful country in the age of globalization. I have repeatedly stated that the future of the global economy depends on how successfully the developed world deals with emerging market countries; the Obama administration has apparently made a similar assessment.

"Obama and Clinton have both made engaging with emerging powers a priority. Obama visited Russia earlier this year and will host Indian Prime Minister Manmohan Singh in his first state dinner in November. Clinton has made trips to China and India, and she would have been with Obama in Russia had she not injured her elbow. Both have visited Africa and the Middle East, reaching out to women and the Islamic world. On many critical agenda items -- from a rollback of nuclear weapons to the climate or trade talks -- such emerging powers will be essential to achieving U.S. goals. As a result, we've seen a new American willingness to play down old differences, whether with Russia on a missile shield or, as Clinton showed on her China trip, with Beijing on human rights."

Rothkopf writes about a conversation he had with Anne-Marie Slaughter, a former dean of Princeton's Woodrow Wilson School of Public and International Affairs who now heads policy planning at the State Department. She told him, "We envision getting not just a new group of states around a table, but also building networks, coalitions and partnerships of states and nonstate actors to tackle specific problems." Anyone who has followed my blog knows that I'm a big believer in networks, coalitions, and partnerships. Isolation and lack of communication breed mistrust and can distort reality in harmful ways. I applaud the administration's efforts to make room for more voices at important policy tables. Of course, big changes often require the expenditure of resources to put in place the tools and programs that will make the changes both beneficial and permanent. In a time of recession, finding those resources can be difficult. Rothkopf continues:

"Of course, you need more than new ideas to revitalize the State Department; you need resources, too. The secretary has brought in former Bill Clinton-era budget chief Jack Lew to help her claw back money for statecraft that many in Foggy Bottom feel has been sucked off toward the Pentagon."

One area that deserves more resources and attention is official development aid (more commonly known as foreign aid). The agency charged with overseeing that program is the U.S. Agency for International Development (USAID) and it is now under the aegis of the State Department. People in the development world have lamented the fact that the agency doesn't yet have a permanent director. They fear that the lack of a permanent director reflects the fact that the Obama administration places a low priority on development activities. Even without a permanent director, however, Rothkopf observes that the agency is moving forward.

"[Members of Clinton's inner circle] and the acting head of the U.S. Agency for International Development are leading an effort to rethink foreign aid with the new Quadrennial Diplomacy and Development Review, an initiative modeled on the Pentagon's strategic assessments and designed to review State's priorities. ... Clinton made women's issues a centerpiece of her recent 11-day trip to Africa, where she stressed that 'the social, political and economic marginalization of women across Africa has left a void in this continent that undermines progress and prosperity.' Clinton has also signaled the importance of private-sector experience by naming former Goldman Sachs International vice chairman Robert Hormats, a respected veteran of four administrations, to handle economic issues at the State Department, as well as Judith McHale, former chief executive of Discovery Communications, to run public diplomacy. In the same vein, she has opened up Cuba to American telecommunications companies and reached out to India's private sector on energy cooperation -- showing that this administration will seek to advance national interests by tapping the self-interests of the business community."

In other words, the Obama administration (and especially Clinton's State Department) fully recognize that sustainable development depends more on investment by the private sector than on government assistance. Rothkopf concludes:

"Obama has assumed the role of principal spokesperson on foreign policy, as international audiences welcome his new and improved American brand. Clinton thus far has echoed his points but has also delivered tougher ones. Whether on a missile shield against Iran or North Korean saber-rattling, the continued imprisonment of Aung San Suu Kyi in Burma or rape and corruption in Congo, the secretary of state has spoken bluntly on the world stage -- even if it triggered snide comments from North Korea. It is still early, and a president's foreign policy legacy is often defined less by big principles than by how one reacts to the unexpected, whether missiles in Cuba or terrorism in New York. Promising ideas fail because of limited attention or reluctant bureaucracies, and some rhetoric eventually rings hollow, as the self-congratulatory 'smart power' already does to me. Nevertheless, there is evidence that, seven months into the job, Obama's unlikely secretary of state is supporting and augmenting his agenda effectively."

I agree with Rothkopf that cute, bumper sticker phrases like "smart power" are not nearly as important as actions. I'm hoping that the Obama administration moves forward with a foreign policy that stresses engagement with others, encourages public/private partnerships, and helps establish an environment that permits emerging market countries to make their mark on the global economy. Recovery from the recession -- as well as the long-term health of the global economy -- requires the emergence of large and stable global middle class. The sooner this occurs the better off we all will be.

The Ups and Downs of Microfinance

I first started blogging about microfinance in November 2006 in a post about programs that work in fighting poverty [Programs that Fight Poverty]. In a subsequent post entitled Financing the Poor, I wrote: "Microfinance is an important tool in the development kit. It fits neatly with our Development-in-a-Box™ philosophy because it is standards-based (there are some time proven rules about how and to whom loans are made) and it encourages local participation in communities of practice." Most the "rules" used by microfinance institutions were first developed by Professor Muhammad Yunus and his Grameen Bank. Yunus started his bank as a way of providing credit to the poor in Bangladesh. Since he began lending to the poor back in the 1970s, Yunus' ideas about microfinance have swept the globe -- even landing in the United States ["Grameen America Reaches 1,000 Borrower Milestone; Muhammad Yunus Receives 2009 Presidential Medal of Freedom," Grameen America press release, 12 August 2009].

"Since January 2008, Grameen America has lent more than $2.3 million dollars to women at or below the poverty line. Each Grameen America loan allows a low-income entrepreneur in the United States to start or expand a small business. The company helps lift people out of poverty with small, low-interest, collateral-free loans. With the support of their group of five and weekly meetings, borrowers have maintained a high repayment rate and accumulated more than $165,000 in savings accounts in their names. Many borrowers were underserved by commercial banks and lacked savings accounts and ATM cards before joining Grameen America. Based on strong demand for its microcredit services, Grameen America now is expanding nationally to serve new communities. In New York, the organization recently began lending in Brooklyn and Upper Manhattan. The new branch in Nebraska has disbursed more than $90,000 to 65 borrowers. Grameen America aims to provide microcredit to low-income communities across the United States that can benefit from basic, accessible financial services and education. Other states have expressed interest in opening a Grameen America branch. Potential future locations include California, North Carolina, Arkansas, Illinois, New Jersey, Washington D.C., Maryland, and Massachusetts."

In the first post mentioned above, I focused on an article by Tina Rosenberg, a New York Times editorial board member who reviewed eight programs that have been successful in addressing poverty ["How to Fight Poverty: 8 Programs that Work," 16 Nov 2006]. This is what she wrote about Professor Yunus and his program:

"In 1976, a Bangladeshi economist named Muhammad Yunus came upon a group of 42 artisans – but perhaps the more appropriate word is 'slaves.' They made crafts such as chair seats, and used materials lent to them each day at exorbitant rates of interest by the buyer of their work. They were forever in debt, unable to turn enough profit to buy their materials in advance at market prices. Mr. Yunus gave the group a loan from his pocket that averaged 62 cents per person. With that, they bought their freedom. Twenty years later, the Grameen Bank, the organization Mr. Yunus founded, has lent small sums of money to 6.7 million people in Bangladesh, almost all of them women, many of whom had never before touched money. It offers savings, insurance, home mortgages, pension funds, scholarships, credit for families to buy fertilizer, build latrines or dig wells, and a program of no-interest loans for beggars, so they can offer candy or dried chiles for sale as they go house to house. Microcredit now reaches nearly 100 million clients in more than 100 countries. The World Bank has found that microcredit accounted for 40 percent of the entire reduction in moderate poverty in rural Bangladesh—and that it had an even bigger impact on extremely poor borrowers. ... what Mr. Yunus and Grameen did – why they are sharing the 2006 Nobel Prize for Peace -- was show how an idea helping a few hundred people could be expanded to help millions. ... Microcredit started as an antipoverty program, but continues as a business. That is one reason it has grown and grown while other forms of aid fight for governments’ dollars and attention."

While mostly good things have resulted from a growing number of microfinance institutions providing microcredit, sometimes too much of good thing can bring bad results. In one Indian community, for example, too much microcredit has created a "credit bubble" that is a "mini-me" version of credit woes found in America ["A Global Surge in Tiny Loans Spurs Credit Bubble in a Slum,' By Ketaki Gokhale, Wall Street Journal, 13 August 2009]. Gokhale filed the story from Ramanagaram, India, and wrote:

"A credit crisis is brewing in 'microfinance," the business of making the tiniest loans in the world. Microlending fights poverty by helping poor people finance small businesses -- snack stalls, fruit trees, milk-producing buffaloes -- in slums and other places where it's tough to get a normal loan. But what began as a social experiment to aid the world's poorest has also shown it can turn a profit. That has attracted private-equity funds and other foreign investors, who've poured billions of dollars over the past few years into microfinance world-wide. The result: Today in India, some poor neighborhoods are being 'carpet-bombed' with loans."

Just because a loan is small in size doesn't mean that it comes with a small price tag. Interest rates on microloans (which can vary from 24% to 39% annually) are higher than interest rates on traditionally-secured loans because the risks are greater and the overhead for making such loans is the same whether you are borrowing $100 or $10,000. That means the extremely poor run the same risk of getting in over their heads as anyone who secures a loan. As I commented in another blog: "Credit is a double-edged sword. Muhammad Yunus began Grameen Bank because he understood that credit means financial power -- a source of power normally denied to the poor. On the other hand, as the credit crisis in America has demonstrated, extending too much credit can cause an entire economy to falter." Gokhale reports that people in Ramanagaram got caught up in the borrowing binge and began to get loans from new microfinance lenders to pay off loans from previous lenders and each new loan was for a larger amount. It's easy to see how such borrowing can get out of hand. As one source for Gokhale's article notes, this is happening because "too much money is chasing too few good candidates." In Ramanagaram, the situation has become a crisis. People have become so indebted that they can no longer repay their loans and microloan "sharks" are feeding on fears.

"Local mosque leaders have started telling people in the predominantly Muslim community to stop paying their loans. Borrowers have complied en masse. The mosque leaders are also demanding that lenders give them an accounting of their finances. The lenders say they're not about to comply with that. The repayment revolt has spread to other communities, including the nearby city of Channapatna, and could reach further across India, observers say."

If repayment revolts spread globally, it will be tragic -- not for lenders but for the poor. Yunus established his Grameen Bank because he recognized that without access to credit the poor don't have the financial tools they need to grow their small businesses and improve their lives. He was careful to loan only what he felt people could afford and established borrowing groups that could support one another in making repayments. If the microfinance scheme collapses, as a result of an ill-advised repayment revolt created by over-borrowing, one path out of poverty will be closed to millions of people. Unlike the current credit crunch in the United States, the problem in the developing world (as noted above) seems to be that there is too much money chasing too few good loans. The reason there is so much money available is because microfinance has proved profitable. That is because the rules that Yunus established for making loans -- rules that have generally been followed by others in the microcredit sector -- have assured that the repayments rates are very high. As a result, those in the lending business have made excellent returns on investment. Success breeds success and as returns on investment have remained solid more and more money has been attracted to the sector. It's the perfect storm for another credit bubble and that's what's happening in Ramanagaram.

"'We are very worried about this,' says Vijayalakshmi Das of FWWB India, a company that connects microlenders with financing from mainstream banks. 'Risk management is not a strong point for the majority' of local microfinance providers, she adds. 'Microfinance needs to learn a lesson.' Nationwide, average Indian household debt from microfinance lenders almost quintupled between 2004 and 2009, to about $135 from $27 or so, according to a survey by Sa-Dhan, the industry association. These sums are obviously tiny by global standards. But in rural India, the poorest often subsist on just a few dollars a week. Some observers blame a fundamental shift in the microfinance business for feeding the problem. Traditionally, microlenders were nonprofits focused on community service. In recent years, however, many of the larger microlending firms have registered with the Indian central bank as a type of for-profit finance company. That places them under greater regulatory scrutiny, but also gives them wider access to funding. This change opened the door to more private-equity money. Of the 54 private-equity deals (totaling $1.19 billion) in India's banking and finance sector in the past 18 months, microfinance accounted for 16 deals worth at least $245 million, according to Venture Intelligence, a Chennai-based private-equity research service. The influx of private-equity cash is the latest sign of the global rise of microfinance, pioneered by Bangladeshi economist Muhammad Yunus decades ago. ... As of last December, there were over 100 microfinance-investment funds globally with total estimated assets under management of $6.5 billion, according to the Consultative Group to Assist the Poor, or CGAP, a research institute hosted at the World Bank. Over the past year, investors have poured more than $1 billion into the largest microfinance funds managed by companies, a 30% increase. The extra financing will allow the industry to loan out 20% more this year than last, much of it to countries such as the Ukraine, Cambodia and Bosnia, CGAP says."

The inevitable result of too much money chasing too few good loans is that bad loans are going to be made and the astonishingly high repayment rate of microloans is going to take a dramatic dip. Anytime a sector stops using common sense in order to achieve short-term gains it's asking for trouble. It seems almost inconceivable that on the heels of a global recession created by greedy and unscrupulous lenders in the developed world that similar tactics are beginning to create a potential financial crisis among the world's poorest people. Gokhale reports that microfinance institutions are knowingly making "liar loans" to people who claim the loans are to support a business when the money is actually being used for other purposes. Unfortunately, some worthy loan candidates are already being affected by the repayment revolt. Microlenders in Ramanagaram have stopped providing loans to Muslims claiming the risks are just too great. Greedy lenders and unscrupulous borrowers are hurting honest people with legitimate needs. The global community should take stock of what's happening in Ramanagaram and take steps to ensure that it doesn't happen elsewhere.

Shipping Woes

Less than two years ago, analysts were predicting a bright future for maritime shipping. Demand for new ships seemed strong, container throughput at ports was increasing, and the number of Ultra Large Container Ships, that is, those with a capacity of 10,000 containers (TEUs) or greater, was expected to grow from four to 152 ships in four years ["Wang: Container Market Strength to Continue," MarineLink.com, 2 November 2007]. The Economist now reports that "the recession is buffeting the world of shipping—with even rougher waters ahead" ["Sea of troubles," 1 August 2009 print issue]. The article reports:

"From the sheltered waters of Subic Bay in the Philippines to Falmouth on the south coast of England, a vast, swelling armada lies idle. In Asia’s deep-sea havens 750 vessels—container ships, bulk carriers, tankers, car carriers and others—are laid up. A further 280 are sheltering in European waters. According to Lloyd’s Marine Intelligence Unit, nearly 10% of the world’s merchant ships are swaying gently at anchor because of a collapse in global trade. ... World trade in general remains in its worst slump for generations, although it too is no longer falling."

All those new orders for ships mentioned in my opening paragraph could exacerbate the situation. As the article observes:

"Worse, there is a huge supply of new ships on order and due off the slipways over the next four years. For bulk carriers alone, the backlog is equivalent to more than two-thirds of existing capacity. Philippe Louis-Dreyfus, departing president of the European Community Shipowners’ Associations, has called for an industrywide scrappage scheme to shrink the surplus. Warning of a 'bloodbath', he said in June that shipping capacity would exceed the needs of the market by between 50% and 70% in the near future. ... By last year annual completions were up by nearly 60% compared with a decade ago and the ships were 30% bigger. No wonder Lloyd’s List, an industry journal, is full of news of ship seizures and bankruptcies."

The Economist believes that many of the ships on order simply won't built and it calls that otherwise bad news "a ray of sunshine ... breaking through the storm clouds." Not all observers believe that the future of shipping looks bleak, however.

"Analysts at ICAP Shipping Research in London shrug off the idea that there will be a glut, since shipments of cheap Australian coal and iron ore to China have for years been constrained by a lack of big ships. More giant bulk carriers will lower the prices of ores delivered to China and stimulate trade growth, they say."

But bulk carriers represent only a portion of the maritime industry. The outlook for container ships and crude carriers is less clear.

"The outlook for tankers is less clear because of the volatility of crude-oil prices. ... Lower demand will be offset by a scheme to phase out single-hull ships on environmental and safety grounds in European and North Atlantic waters. ... The part of the shipping industry headed for the choppiest waters is the container trade, which had steamed ahead gloriously since the mid-1970s. The forging of global supply chains in the past 20 years, the rise in merchandise trade and the emergence of China as the workshop of the world created growing demand. Vessels became gigantic, with the latest capable of carrying 15,000 standard containers. Now the box trade, as it is called, is in the midst of its first decline. AXS Alphaliner, an information service that tracks the trade, has estimated that some 15% of capacity will be idle by October. Shipping companies that operate the main container services linking Asia, America and Europe will lose about $20 billion this year, after making only $5 billion profit in 2008, according to Drewry."

One sure sign that things are bad is when companies go out of business. And things are bad in the shipbuilding industry. Consider the case of the Odense Steel Shipyard located in Lindo on the Danish island of Funen. The shipyard was founded "in 1918 and moved to its present site in 1956, [and it] has played a key role in the development of the Maersk Group, which operates the world’s largest container-ship and product-tanker fleets as well as substantial numbers of oil and gas tankers" ["Maersk shipyard to end production," by Robert Wright, Financial Times, 11 August 2009]. According the Wright:

"[The yard will] stop making new ships once it has completed the 15 orders it currently held, Maersk said. ... The last order – for three Danish navy frigates – is due to be completed in February 2012. ... As well as ceasing production at Lindo, Maersk will seek to sell Lithuania’s Baltija shipyard and an associated design facility. In recent years, some of the most labour-intensive fabrication work was moved from Lindo to Baltija and an Estonian yard, whose planned sale was announced in May."

If you still have any doubts that things are bleak in the shipping industry, Maersk announced "it could record a full-year loss for the year, for the first time in its 105-year history." Even the Chinese are feeling the pinch. According to a Wall Street Journal article, Cosco Corporation reported that "its second-quarter net profit fell 71% amid lower earnings from the Singapore-listed company's shipbuilding and repair businesses" ["Chinese Shipbuilder Posts Earnings Decline of 71%," by P.R. Venkat, 4 August 2009]. Maritime supply lines have always been an important source of international commerce. They will remain important once the recession ends if developing countries hope to gain from the benefits of globalization. The Economist worries, however, that the maritime industry, especially its container ship segment, might not recover.

"The grim outlook for container shipping is not simply a reflection of the recession. There is a deeper concern. Containerisation helped to promote globalisation by reducing the cost of shipping goods so sharply that manufacturers could afford to search the world for factories where costs were lowest. As a result, the amount of sea transport involved in manufacturing a given product rose. But some analysts worry that this one-off restructuring may be almost complete. So even when the world economy recovers, the rapid expansion of container trade may not resume."

The “gruesome excess of capacity" that is currently plaguing the industry will likely last for a few years. With prices down, developing countries can only hope that their manufactured products find a clientele before shipping costs once again rise. For some developing countries, the downturn in shipping affects their economies in other ways. Some countries, like Liberia, depend on revenues from shipping companies who register their ships under flags of convenience in order to save money. In addition, many of the crew members who man ships are from developing countries. These are jobs that developing countries desperately need. A recovery in the shipping industry is necessary if globalization is going to continue to reach those desperately trapped in poverty's grip.

Zimbabwe Remains a Conundrum

U.S. Secretary of State Hillary Clinton recently made an important tour of seven African nations. One of her stops was in South Africa where, inter alia, she was seeking support for dealing with Zimbabwe ["Hillary Clinton presses for South Africa role in Zimbabwe," by Sebastien Berger, Telegraph (UK), 7 August 2009].

"The United States, troubled by what it sees as an absence of reform in Harare, has no plans either to offer major development aid or to lift sanctions against Robert Mugabe, Zimbabwe's president, and some of his supporters. Washington wants more evidence of political, social and economic reforms by Mr Mugabe and the government he shares with opposition leader Morgan Tsvangirai, Zimbabwe's prime minister."

South Africa is home to some 3 million Zimbabwean refugees who have fled stifling conditions found in their homeland as a result of over 30 years of tyrannical and incompetent leadership by Robert Mugabe. The last presidential elections in Zimbabwe had raised hopes that a new government would be voted into office, but many observers believe that Mugabe stole the election from Tsvangirai. Pressed by the international community, Mugabe eventually agreed to a powersharing arrangement that Tsvangirai's Movement for Democratic Change party claims is routinely breached. Secretary Clinton praised South Africa for working hard to secure the powersharing deal but insisted "that more action should be taken to 'mitigate the negative effects of the continuing presidency of President Mugabe', and that the 'reform movement' in Zimbabwe should be strengthened." According to Berger, "Jacob Zuma, South Africa's new president ... has taken a harder line on Zimbabwe than his predecessor Thabo Mbeki, but the US wants more."

There was one recent sign of hope when Prime Minister Tsvangirai made an appearance at Zimbabwe's Armed Forces Day celebration and was saluted by Zimbabwe's hard-line generals ["Mugabe's generals salute Tsvangirai, at last," Harare Tribune, 11 August 2009].

"Zimbabwean generals known as hard-line supporters of President Robert Mugabe saluted former opposition leader Morgan Tsvangirai, ... a gesture welcomed as a public boost for the country's struggling coalition government. During presidential campaigning last year, generals vowed never to salute Tsvangirai, saying their loyalty was to Mugabe. But they showed Tsvangirai that mark of respect as he attended his first Armed Forces Day ceremony as prime minister."

Although Tsvangirai remains committed to the powersharing arrangement, the international community has seen few changes in how things are governed inside Zimbabwe.

"In July, Human Rights Watch that said Zimbabwean troops had killed more than 200 people at diamond fields in the east, forced children to search for diamonds and beat villagers who got in the way. Zimbabwe's coalition government denied the allegations, saying the military was there to secure the area, about 150 miles (250 kilometers) east of Harare, where mining is managed by the state's Mining Development Corp. Mugabe repeated the denials [at the Armed Forces Day event], saying soldiers 'assisted in eradicating the illegal panning and illicit dealing activities in these precious mineral resource areas. Their work at the mine fields has helped a lot as they now have law and order in the diamond mines with legal miners doing proper mining work.'"

Illegal panning and illicit dealing were probably behind the government's actions. It wants to control the diamond mines because they are enriching corrupt government officials ["Zimbabwe’s Diamond Fields Enrich Ruling Party, Report Says," by Celia W. Dugger, New York Times, 26 June 2009].

"[Mugabe's] party, ZANU-PF, has used the money from diamonds — smuggled out of the country or illegally sold through the Reserve Bank — to reinforce its hold over the security forces, which seemed to be slipping last year as the value of soldiers’ pay collapsed with soaring inflation, Human Rights Watch researchers said. ... Villagers from the area, some of them children, are being forced to work in mines controlled by military syndicates and have complained of being harassed, beaten and arrested, the report says. 'It’s a big cash cow for the military and the police, especially since Zimbabwe is virtually bankrupt,' Dewa Mavhinga, the Zimbabwean lawyer who was the main researcher for the report, said in an interview. ... In December, soldiers rioted in Harare, Zimbabwe’s capital, to protest pay that had become virtually worthless as inflation increased to astronomical levels. Analysts and Western diplomats said at the time that Mr. Mugabe might lose his grip on power if he were unable to sustain the patronage he had deployed for decades."

Unhappy soldiers are not the only troubles facing Zimbabwe. Resident doctors in Zimbabwe went on strike to protest their poor working conditions and low pay ["Patients Stranded in Zimbabwe As Hospital Doctors Continue Strike," by Sandra Nyaira, Voice of America, 12 August 2009].

"Junior doctors want an increase in salaries from US$390 a month to US$3,000 to be in equal shares by the government, hospitals and international donor organizations. ... Dr. Douglas Gwatidzo of the Association of Zimbabwe Doctors for Human Rights said that while the grievances of the hospital residents or junior doctors were legitimate, their demands are unreasonable as the government is strapped and the country is still recovering from a decade of economic decline."

Many of Zimbabwe's students are also unhappy; but their protests have been met by force ["University of Zimbabwe students arrested," Harare Tribune, 12 August 2009]. Adding to country's woes are food shortages ["Zimbabwe Still Facing Significant Food Deficits for 2009-2010 Crop Year," by Patience Rusere, Voice of America, 10 August 2009].

"The United Nations Office for Coordination of Humanitarian Assistance says Zimbabwe's food security outlook remains doubtful with just 45% of humanitarian funding requirements met or some US$315 million of the US$718 million sought in a U.N. coordinated appeal. OCHA said a recent food assessment by Harare and the World Food Organization pointed to a 2009-2010 shortfall of some 900,000 tonnes of cereals, in part because the winter wheat harvest is shaping up to be a poor one."

Although climate conditions have an effect on Zimbabwe's agricultural sector, some of its troubles are self-inflicted. The CIA World Factbook states:

"The government's land reform program, characterized by chaos and violence, has badly damaged the commercial farming sector, the traditional source of exports and foreign exchange and the provider of 400,000 jobs, turning Zimbabwe into a net importer of food products."

Some bright spots can be found in the midst of Zimbabwe's darkness. IT is one of them ["Zimbabwe to deploy fiber-optic cable," by Michael Malakata, IDG News Service, 12 August 2009].

"Zimbabwe has started developing a fiber-optic cable aimed at improving the country's telecommunications in a bid to regain its position as having the second-fastest-growing communications sector in Southern Africa. The Zimbabwe Investment Agency (ZIA), the country's development agency, said a project is under way to develop a fiber-optic telecom link between the country's capital, Harare, and the eastern city of Mutare, which borders Mozambique. This means that Zimbabwe joins other Southern and East African countries including Zambia, Malawi, Rwanda and Uganda in developing fiber-optic cable networks."

The international community is mostly standing on the sidelines watching Zimbabwe and waiting for things to change. Some of the old political guard there is starting to die off, like the late Vice President Joseph Wilfred Msika, who died in early August, but waiting for the Mugabe generation to die off doesn't seem like a sound plan to Greg Mills, director of the Brenthurst Foundation (a research organization in Johannesburg that promotes economic growth in Africa), and Jeffrey Herbst, the provost of Miami University of Ohio ["Bring Zimbabwe In From the Cold," New York Times, 27 May 2009]. They write:

"Western governments have been standoffish even though the unity government has taken important steps, notably lowering Zimbabwe’s 231 million percent inflation by abandoning the Zimbabwean dollar in favor of the American dollar and other foreign currencies. ... Secretary of State Hillary Clinton said that the United States wasn’t ready to resume aid to Zimbabwe and urged the ouster of Mr. Mugabe, while other Western donors have said they will not provide significant development assistance until there is firm evidence that the power-sharing agreement is working. Human Rights Watch has gone further by arguing that development aid should not be released until there are 'irreversible changes on human rights, the rule of law and accountability.' The reluctance of Western governments and human rights groups to embrace the current Zimbabwean government is understandable. There is, in particular, no real reason to believe that Mr. Mugabe, after decades of dictatorial rule and abuse, has suddenly embraced multiparty democracy. If he had, after all, he would not be president now. But Zimbabwe may well be a case where the best is the enemy of the good. Mr. Tsvangirai’s party, the Movement for Democratic Change, went into the unity government with its eyes open. 'We had won the election but we did not have the support of the military,' Mr. Tsvangirai told us this month in Harare, Zimbabwe’s capital. 'We did not want to be the authors of chaos. Instead we need to soft-land the crisis, stabilize the situation through peace and stability and democratic consolidation.' Accordingly, he views Mr. Mugabe as 'both part of the problem and part of the solution: we cannot untangle the tentacles of the state without him.' Mr. Tsvangirai has set himself the difficult task of trying to dislodge Mr. Mugabe’s ousted party from the state apparatus that it has controlled for more than a quarter-century. In many countries that process would require extensive violence against the regime. The 'soft landing' that the Movement for Democratic Change has chosen is a difficult path but one which it has firm strategic reasons to opt for, reasons that deserve more careful consideration from international donors."

Mr. Tsvangirai is correct in viewing Mugabe as both part of the problem and part of the solution. When he finally leaves power (probably by dying of natural causes), there will be a significant (and probably violent) power struggle within the country. President Mugabe could change that by stepping down in favor of Mr. Tsvangirai at some future time. A peaceful transition of power would help Zimbabwe to be embraced by the international community and open it up to the development assistance it so desperately needs. Mills and Herbst detail some of those needs.

"The United Nations calculates that just 6 percent of the work force is formally employed. More than 65 percent of the population urgently needs food assistance. Nearly 100,000 people have been struck by cholera in the last six months. While it used to be called the breadbasket of southern Africa, Zimbabwe now produces only about one-third of the grain it needs; tobacco, once its main export crop, has fallen to around one-sixth of the 2000 peak, the effect of the seizure of white-owned farms begun in earnest this decade. Revealing as they are, these figures do not tell the full story. Take the University of Zimbabwe. Once a prestigious southern African institution, today it is without functioning sewers or running water. Many of its 12,000 students have left, its two teaching hospitals close intermittently, and departments like geology and surveying are shuttered. Lacking chemicals and equipment, the chemistry department stopped all experiments in 2007."

Mills and Herbst believe that Zimbabwe can't wait until Mugabe dies for help to arrive. They urge international donors to start supporting Tsvangirai's transition now by establishing a single entry point for development aid "in the prime minister’s office, instead of allowing aid to go directly to ministries that may be run by Mugabe partisans. Donors should support this effort as a way to strengthen Mr. Tsvangirai. ... Instead of standing back and waiting, donors should do their part to help bring Zimbabwe back from the brink." The way forward in Zimbabwe is not clear cut -- that's why the country remains a conundrum. If the Prime Minister can work his magic with military leaders and manages to keep the support of the people, efforts to strengthen his position could provide long-term benefits. If the ruling party manages to co-opt international aid as a way of staying in power, then development efforts will have set the country back. Whatever way forward is selected, the international community should choose its steps carefully.

The Trouble with Trash

In a post entitled Of Diamonds and Dumps, I discussed the issue of trash disposal and the need for better recycling. I had previously discussed this topic in a post entitled Pollution in Asia. One of the articles cited in the latter blog reported that "Japan burns more garbage in the heart of its big cities than any developed country" ["Japan's Trash Technology Helps Deodorize Dumps in Tokyo," by Blaine Harden, Washington Post, 18 November 2008]. Harden was reporting on disposal facilities like Tokyo's Toshima Incineration Plant. He observed:

"It doesn't smell like a dump. If it did, there are a quarter-million neighbors to complain about Tokyo's Toshima Incineration Plant, which devours 300 tons of garbage a day, turning it into electricity, hot water and a kind of recyclable sand. ... The Toshima plant is one of 21 factory-size incinerators that operate around the clock amid Tokyo's 12 million densely packed residents. Remarkably, this does not create a big stink, literally or politically."

As I commented in that post, "One of the benefits of Enterra Solutions' Development-in-a-Box™ approach is that it can be used to demonstrate to emerging market countries that adopting best practices and international standards is in its best interests both short- and long-term. ... Development-in-a-Box was built on the premise that making avoidable mistakes is both foolish and costly. And there is no more foolish path than trading the long-term health of a nation for short-term economic gains when better alternatives exist." Japan has proven that there are better ways to dispose of trash than methods more widely used around the world, but countries like China aren't benefitting from those lessons ["China’s Incinerators Loom as a Global Hazard," by Keith Bradsher, New York Times, 11 August 2009]. Bradsher begins his report in Shenzhen, China.

"In this sprawling metropolis in southeastern China stand two hulking brown buildings erected by a private company, the Longgang trash incinerators. They can be smelled a mile away and pour out so much dark smoke and hazardous chemicals that hundreds of local residents recently staged an all-day sit-in, demanding that the incinerators be cleaner and that a planned third incinerator not be built nearby. After surpassing the United States as the world’s largest producer of household garbage, China has embarked on a vast program to build incinerators as landfills run out of space. But these incinerators have become a growing source of toxic emissions, from dioxin to mercury, that can damage the body’s nervous system. And these pollutants, particularly long-lasting substances like dioxin and mercury, are dangerous not only in China, a growing body of atmospheric research based on satellite observations suggests. They float on air currents across the Pacific to American shores."

The Japanese have demonstrated that incinerator plants need not be toxic. In fact, nearly 200,000 people annually visit the Toshima Incineration Plant. Harden reports that most of the visitors live in the plant's neighborhood and come to swim and exercise in its handsome and affordable fitness center. Bradsher observes that China can do better and has demonstrated that it knows how.

"At the other end of Shenzhen from Longgang, no smoke is visible from the towering smokestack of the Baoan incinerator, built by a company owned by the municipal government. Government tests show that it emits virtually no dioxin and other pollutants."

The question is: Why do the Chinese continue to build plants like the Longgang incinerator when they have the know-how to build plants like the Baoan incinerator? You have probably already guessed the answer -- money. "The Baoan incinerator cost 10 times as much as the Longgang incinerators, per ton of trash-burning capacity." Of course, those costs don't include costs to the environment and long-term health costs. The policy of building incinerators that pollute is both short-sighted and wrong-headed. But even in parts of the country where policies are more enlightened, decades of poor governance and lack of transparency have jaded peoples' views of political promises.

"For years Chinese government regulators have discussed the need to impose tighter limits on emissions. But they have done nothing because of a bureaucratic turf war, a Chinese government official and Chinese incineration experts said. The Chinese government is struggling to cope with the rapidly rising mountains of trash generated as the world’s most populated country has raced from poverty to rampant consumerism. Beijing officials warned in June that all of the city’s landfills would run out of space within five years. The governments of several cities with especially affluent, well-educated citizens, including Beijing and Shanghai, are setting pollution standards as strict as Europe’s. Despite those standards, protests against planned incinerators broke out this spring in Beijing and Shanghai as well as Shenzhen. Increasingly outspoken residents in big cities are deeply distrustful that incinerators will be built and operated to international standards."

The Japanese were smart when they built their incinerators in Tokyo by including facilities that neighborhoods needed like fitness centers and swimming pools. The Tokyo complex also has a health clinic for the elderly. Sweetening the facility to include needed or desired facilities followed the old adage that "a spoonful of sugar helps the medicine go down." The Japanese facilities were costly, but the people there believe the costs were worth it. The Baoan incinerator did come with one sweetener; it "generates enough power to light 40,000 households." Chinese citizens have a right to be skeptical of their government because further inland (away from the educated masses who might protest) the government, according to Bradsher, continues to build "far dirtier incinerators." Such actions imply that government policies are made for expediency rather than out of self-enlightenment. Of course, it's not just Chinese citizens who are negatively affected by poorly constructed and operated incinerators. Everyone downwind from the incinerators (which means everyone eastward of China) is also affected.

"Incinerators play the most important role in emissions of dioxin. Little research has been done on dioxin crossing the Pacific. But analyses of similar chemicals have shown that they can travel very long distances. A 2005 report from the World Bank warned that if China built incinerators rapidly and did not limit their emissions, worldwide atmospheric levels of dioxin could double. China has since slowed its construction of incinerators and limited their emissions somewhat, but the World Bank has yet to do a follow-up report. Airborne dioxin is not the only problem from incinerators. The ash left over after combustion is laced with dioxin and other pollutants. Zhong Rigang, the chief engineer at the Baoan incinerator here, said that his operation sent its ash to a special landfill designed to cope with toxic waste. But an academic paper last year by Nie Yongfeng, a Tsinghua University professor and government adviser who sees a need for more incinerators, said that most municipal landfills for toxic waste lacked room for the ash, so the ash was dumped."

Incinerators, even dirty ones, are attractive to governments because most places are running out of space for landfills -- and landfills have there own problems.

"Decay in landfills ... releases large quantities of methane, a powerful global warming gas, said Robert McIlvaine, president of McIlvaine Company, an energy consulting firm that calculates the relative costs of addressing disparate environmental hazards. Methane from landfills is a far bigger problem in China than toxic pollutants from incinerators, particularly modern incinerators like those in Baoan, he said."

Bradsher concludes, "Critics and admirers of incinerators alike call for more recycling and reduced use of packaging as ways to reduce the daily volume of municipal garbage." In China and elsewhere in the developing world, however, people have shown little interest in recycling. As a result mountains of trash continue to pile up. Take, for example, a country like Senegal ["In a Senegal Slum, a Building Material Both Plentiful and Perilous," by Adam Nossiter, New York Times, 2 May 2009]. Senegal, of course, has significantly fewer resources than China to apply against the challenge of its mounting trash. The affects of exposure to toxic substances coming from trash heaps, however, are just as tragic on Senegalese citizens as they are on Chinese citizens. Nossiter begins his report by relating the story of a 7-year-old boy who drowned while playing on what he thought was solid ground in Guédiawaye, Senegal. The "ground" turned out to be several feet of trash floating on water through which the young boy fell. He continues:

"Garbage might have seemed safe to the boy because it is everywhere in this forlorn, dun-colored slum abutting Dakar, the capital. Delivered on order for a few pennies a load by rickety horse-drawn carts speeding through the dirt streets of the Médina Gounass neighborhood of Guédiawaye, it is as pervasive as the hot midday sun in which it bakes. The people use it to shore up their flood-prone houses and streets in this low-lying area near the Atlantic coast; they have no choice. Garbage, packed down tight and then covered with a thin layer of sand, is used to raise the floors of houses that flood regularly in the brief but intense summer rainy season, and it is packed into the dusty streets that otherwise become canals. The water lingers for months in the low-lying terrain of this bone-dry country. Garbage is a surrogate building material, a critical filler to deal with the stagnant water — cheap, instantly accessible and never diminishing. The plastic-laden spillover from these foul-smelling deliveries pokes up through the sandy lots, covers the ground between the crumbling cinder-block houses, becomes grazing ground for goats, playground for barefoot, runny-nosed children and breeding ground for swarms of flies. Disease flourishes here, aid groups say: cholera, malaria, yellow fever and tuberculosis."

Clearly building expensive, non-polluting incinerators in an impoverished country like Senegal is a dream beyond reach. Recycling, too, would appear to be a process that has little hope of catching on because in Senegal "garbage is sought for and dumped among homes" to be used as building material. However, there are processes that can turn garbage into building materials ["Plant turns rubbish into building materials," by Katherine Andraneda, The Philippine Star, 26 July 2009]. Andraneda reports that a hazardous waste treatment facility in Manila "is not only reducing garbage volume, it is also transforming some of the rubbish into concrete-based materials that can be used for construction and other applications."

"Gennix-Pathogenesis, a division of Pathogenesis Inc., treats and processes commercial and industrial waste into hollow blocks, roof tiles, wall panels, paving slabs, road dividers, curbstones, as well as artificial reef blocks that are as strong as the same items manufactured and sold commercially."

Interestingly, Gennix-Pathogenesis indicates that the process is not yet commercially viable, so the company gives its products to charity so that they can build structures like schools. In a place like Senegal, it would probably take a public/private partnership to deal with the enormous trash problem. The benefits of turning trash into building material, of course, would be enormous. People would get the building resources they desperately need, the environment would be cleaned up, and the fatalism that now grips the people could be replaced with hope. Gennix-Pathogenesis is not the only company that hopes to turn trash into building material. For example, TerraCycle, a New Jersey-based "upcycling" company, plans "to create building materials made out of trashed bags" from companies like Frito-Lay ["TerraCycle Wants Frito-Lay's Trash," by Jonathan Bardelline, GreenerBuildings, 12 May 2009].

"Early next year TerraCycle plans to take a leap into the building materials market with a few new processing techniques it's developed, one of which fuses together shreds of bags, wrappers and pouches, turning them into a thick slab that can be used as tile, insulation or other study material."

In the meantime, "TerraCycle hopes to collect 5 million Lay's, Doritos, Tostitos, Cheetos and Fritos snack bags over the next year, and will turn them into tote bags, purses and pencil cases for sale later this year at retailers like Walmart. Frito-Lay is funding the collection and reuse of its bags, donating 2 cents per bag to charities chosen by the snack bag collection brigades." Such efforts create win-win scenarios. One of the things I like most about TerraCycle's planned process is that it may be able to use household rubbish, not just commercial waste, to create building material. The developing world, as well as the developed world, needs better and cheaper ways of disposing of waste. Recycling, of course, is one of the best ways.

The Diversity of Humankind

We've all heard the statistic that humans are genetically 99.9% the same. Yet we marvel at how diverse we look and act. A new study confirms that there is little genomic variation between most of us ["Among Many Peoples, Little Genomic Variety," by David Brown, Washington Post, 22 June 2009].

"There is a simplicity and all-inclusiveness to the number three -- the triangle, the Holy Trinity, three peas in a pod. So it's perhaps not surprising that the Family of Man is divided that way, too. All of Earth's people, according to a new analysis of the genomes of 53 populations, fall into just three genetic groups. They are the products of the first and most important journey our species made -- the walk out of Africa about 70,000 years ago by a small fraction of ancestral Homo sapiens. One group is the African. It contains the descendants of the original humans who emerged in East Africa about 200,000 years ago. The second is the Eurasian, encompassing the natives of Europe, the Middle East and Southwest Asia (east to about Pakistan). The third is the East Asian, the inhabitants of Asia, Japan and Southeast Asia, and -- thanks to the Bering Land Bridge and island-hopping in the South Pacific -- of the Americas and Oceania as well. The existence of this ancient divergence has long been known."

With over 6 billion of us on the planet, one would surmise that we have survived because of our diversity not in spite of it. In fact, that is exactly what the study concludes.

"People adapted to what they encountered the way all living organisms do: through natural selection. A small fraction of the mutations constantly creeping into our genes happened by chance to prove beneficial in the new circumstances outside the African homeland. Those included differences in climate, altitude, latitude, food availability, parasites, infectious diseases and lots of other things. A person who carried, by chance, a helpful mutation was more likely to survive and procreate than someone without it. The person's offspring would then probably be endowed with the same beneficial mutation. Over thousands of generations, the new variant (what geneticists call the "derived allele") could go from being rare to being common as its carriers fared better than their brethren and contributed more descendants to the population."

The most obvious changes were to skin tone. I recall reading an earlier study that correlated varied skin tones with latitude. The reason skin tones changed was that lighter skin tones were needed in northern latitudes to absorb sufficient vitamin D from limited sunlight to remain healthy. Near the equator, where there is lots of sun available year around, vitamin D deficiency is not a problem but exposure to UV rays is. Hence, people with darker skin tones are found near the equator. Brown mentions this particular variation later in his article. So even though we are mostly alike, the differences in our details make a big difference -- even if those differences are surprisingly small.

"Population geneticists expected to find dramatic differences as they got a look at the full genomes -- about 25,000 genes -- of people of widely varying ethnic and geographic backgrounds. Specifically, they expected to find that many ethnic groups would have derived alleles that their members shared but that were uncommon or nonexistent in other groups. Each regional, ethnic group or latitude was thought to have a genomic 'signature' -- the record of its recent evolution through natural selection. But as analyses of genomes from dozens of distinct populations have rolled in -- French, Bantu, Palestinian, Yakut, Japanese -- that's not what scientists have found. Dramatic genome variation among populations turns out to be extremely rare. Instead, it is 'random genetic drift' that appears to be more important in sculpting our genes. Drift describes the chance loss of genetic variation that occurred not only in the out-of-Africa migration, but through all of human history as famine, climate change or war caused populations to crash and then recover. Despite those calamities, it appears that all contemporary populations ended up largely the same, or only crudely distinguishable from one another, on the genome level."

In addition to differences in skin tones mentioned above, Brown talks about other genomic signatures that have proved valuable.

"Among West Africans, a chance mutation in the blood protein hemoglobin turned out to partially protect against malaria. It rapidly became common in places where malaria was a huge threat to survival. Similarly, a mutation allowing adults to digest milk became valuable when Middle Easterners and Europeans domesticated cattle. About 90 percent of Scandinavians now carry it."

Brown reports that researchers were surprised that such clear ethnic advantages are the exception rather than the rule. The reason they were surprised is because genetic studies using fruit flies result in widespread genetic mutations become pervasive in just a few generations when the flies are exposed to extreme conditions.

"Not so for people, it appears. ... In human beings, natural selection appears to work most of the time on dozens of genes in small and hard-to-detect ways. In contrast to fruit flies in the lab, useful traits involving body size, immunity, metabolism and behavior do not come about because one or two genes become ascendant. The short stature of rain-forest dwellers such as the pygmies of central Africa, for example, appears not to be the product of a single derived allele for shortness carried by virtually everyone in the population. Instead, dozens of gene variants that slightly decrease height have each become slightly more common, and it is their total effect that results in the group's dramatically shorter stature."

Brown concludes by noting that when our first ancestors walked off the African continent they brought with them only a portion of the genetic diversity found there. As the expatriates went east and west, each group diluted that diversity even more. The logical conclusion is that there should be more genetic diversity found in Africa than anywhere else on earth -- and there is ["Africans Have World's Highest Genetic Diversity, Study Finds," by Joel Achenbach, Washington Post, 1 May 2009].

"Africans are more genetically diverse than the inhabitants of the rest of the world combined, according to a sweeping study that carried researchers into remote regions to sample the bloodlines of more than 100 distinct populations. ... Although the study's main focus was on Africa, [Sarah Tishkoff, a University of Pennsylvania geneticist who led the international research team,] and her colleagues studied DNA markers from around the planet, identifying 14 'ancestral clusters' for all of humanity. Nine of those clusters are in Africa."

Alison Brooks, a professor of anthropology and international affairs at George Washington University, concluded, "The study shows that single sources of data, whether from archaeology, oral history, genetics or linguistic similarity, are not sufficient to understand the complex history of an African region -- one can be transmitted without the others, and each has a different story to tell about the past." The same can be said of any ethnic group. No single source of data ever tells the full story. As I travel around the world on business, I continue to be impressed with the cultures of many lands. The mystery and majesty of humankind are reflected in the fact that we have been able to survive (and often thrive) in every kind of condition. We have created rich cultures that have satisfied our most basic needs and we have created art, music, religions, literature, and science that have satisfied even deeper longings to understand the world around us. The challenge for everyone in the development sector is to help connect diverse populations together in a growing and vibrant economy while managing to preserve the uniqueness that makes us human. When I discuss Development-in-a-Box™, I stress the importance of economic diversity; but we shouldn't forget the importance of cultural diversity as well.

Are Demographics Beginning to Change?

A recent article in The Economist declared that "demography means virtually all of us will have to work longer ["The end of retirement," 27 June 2009 print issue]. It went on to say that all of us working longer "need not be a bad thing." As a businessman, I view demographics in a number of ways. Demographics tell me something about the pool of workers from which I can draw employees. They inform me about the location, make-up, and changing tastes of potential clients. Demographics can also help me see trends that might affect the future business environment throughout the world. The article's conclusion that we will all have to work longer is based on decades of data that shows birth rates in developed countries have been dropping. Some countries, like Japan and Russia, have actually begun to depopulate. The article continues:

"Although the idea that 'we are all getting older' is a truism, few governments, employers or individuals have yet come to terms with where longer retirement is heading. ... This imminent greying of society is compounded by two other demographic shifts. First, in most rich countries women no longer have enough babies to keep up the numbers (a prospect that may please a lot of greens but not many governments); and the huge baby-boom generation, born after the second world war, has begun to retire. In 1950 the OECD countries had seven people aged 20-64 for every one of 65 and over. Now it is four to one—and on course to be two to one by 2050. That will ruin the pay-as-you-go state pension schemes that provide the bulk of retirement income in rich countries. It is tempting to think that some of the gaps in the rich countries’ labour forces could be filled by immigrants from poorer countries. They already account for much of what little population growth there is in the developed world. But once ageing gets properly under way, the shortfalls will become so large that the flow of immigrants would have to increase to many times what it is now. Given the political resistance to even today’s levels of immigration (as shown up in the recent elections to the European Parliament), that, alas, looks unlikely. So individuals, companies and governments in rich countries will have to adapt."

Japan, which has been faced with a rapidly aging population for years, has hoped that robots could replace retiring workers (see my post Demographics and Robots). The article believes that the most important adjustment that can be made is keeping people in the workforce longer.

"As for the older workers themselves, many of them seem keen enough to carry on beyond retirement. A recent Financial Times/Harris poll showed most Americans, Britons and Italians would work for longer in return for a larger pension (though Germans were much less enthusiastic). This surely makes sense: as long as the job is not too onerous, many people benefit in mind and body from having something to get them out of the house. Many baby-boomers say they never want to bow out altogether, though they would often prefer to put in shorter hours. If they want to go on working, they will have to accept that pay can go down as well as up. ... Many [government policies] that make sense anyway, such as making benefits more portable, encouraging immigration, promoting private saving or reforming health care, make even more sense now. Banning mandatory retirement ages in the private sector (as America has done) looks sensible, as does creating conditions in which people can retire more gradually."

All of this worry about decreasing birth rates may seem counterintuitive considering that the world's population is anticipated to grow by another 3 billion people between now and 2050. The issue is that most of that growth is going to come in countries that can least afford to deal with the increase. The resulting "youth bulge" in developing countries is likely to keep many regions unstable for the foreseeable future. The only way to mitigate potential acts of instability generated by restless youth without jobs is to create jobs for them. That, however, is a daunting challenge. As I noted in a recent post, the Arab world alone must create 50m new jobs by 2020 to accommodate a growing, youthful workforce.

America is the one developed country that has bucked the demographic trend and has continued to grow(it has now been joined by Britain and France). According to the New York Times, "In 2007, the number of births in the United States broke a 50-year-old record high, set during the baby boom." America's relatively high birth rate was expected to continue but the 2008 recession caused a decline ["Birth Rate Is Said to Fall as a Result of Recession," by Sam Roberts, New York Times, 6 August 2009]. Some analysts expect the birthrate to climb once the recession is over. The same is not true for many other countries ["Suffer the little children," The Economist, 27 June 2009 print edition].

"As almost everybody lives ever longer, a reasonable supply of young people is needed to counterbalance—and fund the pensions of—a growing number of older folk. In fact, fertility rates have dropped steeply in all OECD countries in the past few decades, from an average of 3.2 children per woman in 1960 to 1.6 now. The rate needed to keep the population stable (assuming unchanged mortality rates and no net immigration) is 2.1. According to the UN’s latest population estimates, fertility is currently below replacement level in over 70 countries, which account for nearly half the world’s population. But even in the remaining, poorer, half of the world, fertility rates have come down spectacularly, from 5.2 in 1970-75 to 2.6 now. This has been the most important factor by far in the ageing of populations around the world."

Like most articles about demographics, this one singles out Japan as country with significant challenges.

"Japan has seen especially rapid greying. Immediately after the second world war it was one of the world’s youngest developed countries, with a median age of 22. But because so few people were having babies, the median age has doubled since then and is still rising fast. The population, currently about 127m, has already started to decline. It will drop below 100m by 2046 and continue downwards rapidly thereafter, according to a white paper prepared for the Cabinet Office—unless the birth rate can be nudged up (or the Japanese can overcome their dislike of immigration). A special unit in the Cabinet Office is now working on measures to persuade young Japanese families to do their bit. It is considering things like bigger family allowances, more favourable tax treatment of families and many more nursery places to shorten the long waiting lists. To put more steam behind such initiatives, the government in 2005 appointed a minister for gender equality and social affairs, Kuniko Inoguchi. She has been a tireless campaigner for Japanese women, though her job soon fell victim to a change of government."

Earlier this year, the Japanese government added $1.5 Billion to its budget to help working mothers with child-care spending ["For Japan's Young Families, a Little Good News," by Blaine Harden, Washington Post, 18 April 2009]. Desired objectives from the child-care program are two-fold: first, keep women in the work force, and, second, encourage women to have children. Most analysts believe that it is too little too late.

"The number of children here has fallen for 28 consecutive years. Japan has the world's lowest proportion of children younger than 15 and the highest proportion of people older than 65. Population loss will strip away 70 percent of the workforce by 2050, according to a recent forecast. Japan desperately needs its young women to marry, have children and remain in the workforce. But women are postponing marriage and delaying childbirth as never before. After they become mothers, only about a third of Japanese women return to work, compared with about two-thirds of American women. The squeeze on working women with children is quickly becoming a vise on corporate profits and a dire threat to Japan's social well-being, according to Japan's largest business federation, the traditionally conservative Nippon Keidanren. In an eyebrow-raising report this year, the federation implored the government to use the economic crisis as an opportunity to invest $10 billion to build day-care centers for 1 million children who need placement in them."

In the midst of all this gloomy demographic news in developed countries, a ray of light has broken through ["In Reversal, Highly Developed Nations See Rise in Fertility," by Rob Stein, Washington Post, 10 August 2009]. He writes:

"For decades, the rate at which women were having babies in many of the world's most highly developed countries slowly declined. While the trend cheered some environmentalists worried about overpopulation, it stoked increasing concern among policymakers, demographers and social scientists about the long-term impact on societies as their populations aged and sometimes began to shrink. Now, however, new research has produced the first glimmer of hope that economic prosperity may not be linked to an inexorable decline in fertility. The new analysis has found that in many countries, once a nation achieves an especially high level of development, women appear to start having more babies again."

For years demographers have noted that birth rates fall as incomes rise. As The Economist puts it:

"One of the paradoxes of human biology is that the rich world has fewer children than the poor world. In most species, improved circumstances are expected to increase reproductive effort, not reduce it, yet as economic development gets going, country after country has experienced what is known as the demographic transition: fertility (defined as the number of children borne by a woman over her lifetime) drops from around eight to near one and a half. That number is so small that even with the reduced child mortality which usually accompanies development it cannot possibly sustain the population." ["The best of all possible worlds," 8 August 2009 print issue].

Normally reduced birth rates are seen as a good thing because women having fewer children means that those children are healthier and better educated. Taken to the extreme, however, a situation develops like the one being faced in Japan. That is why the new study is receiving a lot of attention. Stein continues:

"To explore whether economic development is necessarily linked to falling fertility, Kohler and his colleagues examined fertility trends between 1975 and 2005 in 37 of the most developed countries. They used a measure developed by the United Nations known as the human development index (HDI), which combines income data with other measures of advancement, such as longevity and education levels. Fertility rates did tend to decline as a nation's HDI rose, the analysis showed. But for 18 of 26 countries that crossed a certain threshold of development -- an HDI of at least .9 -- their fertility rates began to rise again. ... The timing of the turnaround varied from country to country. In the United States, for example, the turnaround occurred in the mid 1970s. In Norway, it happened in the early 1980s. In Italy, it was in the early 1990s. The cause remains unclear. But Kohler speculated that once countries reach a certain level of development, they can afford changes that enable women both to work and have children. Many Scandinavian countries, for example, created generous welfare systems that include free day care. In the United States, women's salaries rose enough to make paying for child care more affordable. Although the analysis did not specifically examine the impact of immigration on fertility rates, Kohler said other studies indicate that while immigration may play some role in the increases in fertility in countries that reach a high level of development, it would not explain all of it."

Japan is one of the outliers in this trend, but Hans-Peter Kohler, a professor of sociology at the University of Pennsylvania who helped conduct the research, "speculated that stubborn gender inequalities in Japan may create roadblocks to women working and having children." Another surprising outlier is Canada, with no obvious reason why. Kohler admits the study doesn't answer the question of why birth rates rise after countries reach a high level on the HDI scale, but he believes it's a good sign.

"Whatever the reason, the trend appears to be working for many countries. The United States recently achieved replacement-rate fertility and some countries, such as Norway and France, are now approaching a replacement rate again. Many countries, such as Italy and Spain, continue to have very low fertility rates. But at least they are headed in the right direction, Kohler said. 'This shows that having families is something that continues to be highly valued in advanced societies. As we become affluent and developed, children are likely to remain an essential part of an individual's life. The family is not necessarily on its way out.'"

The notion that families are good for society has long been considered a quaint religious notion. But as James Surowiecki noted a number of years ago, there is a growing belief that children should be seen as a "public good" ["Leave No Parent Behind," The New Yorker, 18 August 2003].

"In a sense, children are what economists like to call a 'public good,' like national defense or scientific research. The essential characteristic of a public good is that everyone benefits from it even if not everyone pays for it. Government usually plays a valuable role in making sure that a public good is paid for. This doesn’t mean that the state has to take over driving the kids to soccer practice—or, God forbid, require each couple to have 3.2 'Heroes for the Homeland'—but it should certainly help spread the financial burden of raising a family. There may be some sense after all in having those taxpayers who don’t have children subsidize those who do, and there’s little sense in cutting back on programs like Head Start. All of us, it turns out, have an interest in improving public schools. It may not take a village to raise a child, but these days it seems to take a village to pay for one."

In discussions about Development-in-a-Box™, I often stress the importance of investing in human capital. There is no more important human capital than our children. Children need to be educated and raised in a safe, healthy environment. Adequate job availability helps make an environment safe in developing countries. In developed countries, good child care is as important as jobs. Demographic trends will certainly be something to watch over the next few years as the economy tries to get back on its feet.