pol sci m167 midterm

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"long live the king"

Becomes state and taxation covet time Getting tax rates right so people want to continue to produce, but state gets as big a cut as possible Incentive to invest in community so it becomes even more productive, increases the governments own cut Then the profits of the state increase as they both tax and invest over time If the state sees its demise approaching, they have the incentive to take everything People should want a state that is going to be in power for a long time, governments time horizons matter a lot, also peoples perceptions of how long they believe the state will be in power for, this helps determine their production rates Helps explain why people support dynasties Very long time horizon of the government- being passed down within family, one group stays in power, helps leader think mo0re about the future and continued stability "Long live the king" People won't invest if they think they'll dire, a state will provide an environment of peace and stability so people feel comfortable making long term developments By keeping taxes low, the state can also further encourage investment in the future by providing protection from bandits and by the state itself (putting limits on own power) to encourage production and investment A combination off peace, protection of property rights, and low taxes to encourage development Goes back o Adam smith Catch 22- state needs to be powerful Political institutions to constrain the state For a revenue-maximizing autocrat to have incentives to invest in increasing the productivity of his subjects, he should preferably have a long time horizon. Secured private property, led to growth, people had more incentive to invest cause of this protection. Longer reign means more stability in institutions rather than constant changes to political system.

culture of retaliation

Before states existed, it was a culture of retaliation (you steal from me, I steal from you). This can result in an equilibrium, but everyone is living on a hair trigger. If everyone is constantly worried about retaliation it creates a ceiling on how much development can occur. Hobbes' Leviathan poses a solution to this problem by introducing a sovereign who will punish those who break the rules and, essentially, take over the responsibility of retaliation so that subjects can focus on economic output. This reduces the chance of initial aggravation as well as it leaves subject fearful to what might happen if they break the rules -See Bates, Chapter 2, for why culture of retaliation is common in pre-state societies

democracy vs. dictatorship and economic growth

Corruption and development: the evidence How bad is corruption fir development The urge to steal everything not bolted to the floor... -reading Sterling Corruption raises the cost of doing business bribes can be equivalent to an added tax to doing businesses in one case tracking bribes for trucking and checkpoints Add an extra 13% to the cost of doing business, less of a profit able to be made, puts a damper on development Inefficiency, lower profits, discourages investment- lessens amount of available capital Creates incentives too channel development intones useful ends Incentive to push investment into big infrastructure projects/construction where someone in power can bribe just one individual/company for a project, discourages investment in hospitals/schools, many more actors involved Reduces effectiveness of public investments Bribes reduce inspections, etc, safety standards decline Loans made by gov officials in exchange for bribes are not made to maximize growth payoff from the loan, but instead to channel money to allies of the leader Hurts the banking sector of the government More corruption= less trade Disappearance of trolls allowed Britain to speed up development Correlation between tolls and trade impediments, drove by corruption, resulted in poor economic outcomes Corruption perceptions index Corruption high basically everywhere except North America, Western Europe, and australia Countries in high income OECD Countries and others Higher income countries found to have lower levels of corruption Higher GDP correlated with lower levels corruption As GDP per capita increases, share of people who feel expected to pay a bribe to a gov official increases Surveys could be biased, based assumption that poorer countries will have more corruption Lobbying in US could be perceived as corruption by other countries Corruption is especially harmful for the poor Places where corruption is high is where the poor are struggling to get out of poverty But corruption is especially good for the rich Much weaker relationship between corruption and level of a country growth rate Lots of variance in the growth rates of poorer countries Decentralized and centralized corruption Decentralized Like the multiple road blocks/ taxes Lots of little attempts to take money Each official is an individual source of corruption Incentive to take as much as possible Centralized When corruption is controlled by a higher official at the top Has incentive to take less, set a bribe rate, m extract but not undermine incentive to produce again in the future Centralized corruption associated with greater amounts of economic growth, like the roving stationary bandit example, people are incentivized limits on the amount of corruption to not curb the incentive too continue production Democratic institutions as a solution A hand that's strong enough to help is also strong enough to grab People want state to have enough power to push the state forward toward economic development, but not devolve into a corrupt state Solutions Get rid of the state, return to kinship Allows people to invest in the future, have trust Works t the small level, but not as effective across an entire society, imposes a ceiling that's hard to overcome Hope that a strong state looks out for public interest, benevolent Strong state with constraints on leaders Most feasible solution James Madison Counteract ambitions and protect citizens In Federalist 51 A state strong enough to do good things is equally capable of bad things A dependence on the people, on democracy is the primary control of the government Placing the power in the people to constrain the leader Allows individuals to be the sentinel over public rights Makes leaders beholden to the people, pushes them to make decisions that favor the people Free press could also help by brining to light the suffering of the poor, causes social pressure Amarya Sen There's no democratic country in the world that has ever experienced a famine Famines are caused by food shortages without government interventions to provide food to the poor and those most in need Free press and political opposition forces governments to provide this is democratic nations by brining attention to issues Free press and elections as tools of democracy to constrain Availability of information and ability to vote leaders out study on corruption and elections Audits taking place before and after elections to show public amount of corruption in a municipality Public learns of corruption before corruption and use this info to influence their voting Reflection rates were higher when public knew results of audit and that leader wasn't very corrupt With increasing corruption, less reelection When public didn't know, election rates don't change very much Holding elections can create incentives for political officials to be less corrupt Thus democratic institutions may constrain leaders and allow them to use their power for good, constraining grabbing hand and promoting economic well being ways democracy may impede growth Wealth redistribution Assumed that democracies involve wealth distribution This can promote growth But at the extreme could inhibit growth Special interests and lobbying Special interest and lobbying groups as pulling the strings behind decision making, powerful actors getting policies passed that benefit them, the rich, and not the public Authoritarian leaders may be less beholden to special interests, in this way authoritarian regime may be less pervereted toward producing growth policies In a democracy, consumption can win out over investment Politically difficult but financially, growth, minded Liberty tradeoff Compromise on liberty/democracy to achieve growth Only by giving the state enough power to suppress conflict and unions (workers who want to get paid more, etc) and prioritize growth/investment policies Relationship between wealth and democracy Democratic countries have been at large very wealthy Relationship between democracy and gdp per capita Most democratic countries are very wealthy Singapore is an outlier and Saudi Arabia and Malaysia Oil for Saudi Arabia Generally positive relationship between GDP per capita and level of democracy, taken over 25 years A few outliers are largely oil producing countries With more development/gdp, we expect more democratic institutions Growth associated with growth/economic wealth and autocracy less so But is democracy promoting economic development or is wealth promoting democracy Democracy and economic growth from 1970-89 Looking at growth rather than level of wealth is still a positive relationship, but less dramatic, much murkier relationship England Glorious revolution: new institution that limited power of king Gave citizens more rights Creation of parliament had power over the king, land protections for citizens encouraged investment, this spurred growth What happens when countries transition from non-democratic to democratic rule Gdp per capita vastly increases after democratization Looking at the countries with the lowest growth rate Almost exclusively dictatorships But dictatorships are also some of the most wealthy Murky relationship for regime type and growth Lots of heterogeneity between autocratic governments and wealth Almost no consensus for the effect of regime type on growth Throughout history, democratic countries have been far more wealthy than non-democratic countries. Democracies have also never experienced a famine. This can in large part be attributed to voting rights of citizens which hold leaders accountable, making them act fast when food is low or else they wont be reelected. This is also true for property rights, public officials must protect the property rights of individuals and, as we know, security in knowing property is protected spurs investment and economic growth. With that said, democracies can also have pitfalls for economic growth: people with average or below average wealth may call for the redistribution of resource which might spurn economic growth or, in our current system, interest groups, which carry significant political clout, can control policy in a way that benefits their business but not the general welfare of the countries. Dictatorships, on the other hand, do not share this same responsibility. The central leader is beholden to no one, not interest groups nor voting citizens. This can cause a great variety in the economic output of dictatorships. If you have an ambitious leader committed to economic growth, a dictatorship can produce economic strides VERY quickly as dictators do not have to go through the same red-tape and bureaucracy that democracy is required to. This is evident in the immediate economic growth of the USSR following Bolshevik revolution or Lee Kwan Yew who bolstered the economy of singapore through autocracy and posed that democracy may not be the best engine for economic growth. With that said, the economic strides of dictatorships are almost entirely dependent on the strength of the leader. If you have a leader that is not invested in long-term economic growth or worse a leader who is very corrupt, dictatorships do not have the checks and balances of democracies leaving them more vulnerable to bad political actors' misdeeds and the consequences of their actions lasting longer.

centralized vs. decentralized corruption

Decentralized Like the multiple road blocks/ taxes Lots of little attempts to take money Each official is an individual source of corruption Incentive to take as much as possible Centralized When corruption is controlled by a higher official at the top Has incentive to take less, set a bribe rate, m extract but not undermine incentive to produce again in the future Centralized corruption associated with greater amounts of economic growth, like the roving stationary bandit example, people are incentivized limits on the amount of corruption to not curb the incentive too continue production Centralized corruption is controlled and monitored by a single authority. It is a coordinated effort in which members of the society are essentially "taxed" at small amounts, never overgrazing, no individual actor taking enough to tank the entire economy. This allows the economy to continue functioning and the central authority to keep skimming a little bit off of the top. Decentralized corruption has no overarching authority controlling it. Each individual is trying to take as much as possible (aka overgrazing) because they are not beholden to a central force. Decentralized corruption can often torpedo economies because so much is taken with each shakedown, businesses do not have the ability to recover and bribe-takers never have the opportunity for a 2nd offense

demographic transition

Demographic transition- family sizes driven by fertility declines as countries get wealthier This is why richer country have crises surrounding the changing demographics of populations- families not having enough children and a labor supply skewed toward an older population, this creates problems for supporting the older population in the future after retirement Even within countries, wealthier women have less children than poorer ones If you combine in poor countries high fertility with lowlife expectancy, a very young society results Comparing population pyramids in the US, the pyramid is roughly a rectangle that narrows at the top- just as many 50 years olds as 0-4 year olds Then Nigeria has a structure heavily skewed towards more young people Poor countries are young Refers to the transition from high birth and death rates to low birth and death rates as a country develops from a pre-industrial to an industrialized economic system. In developed countries this occurred around the 18th century. In lesser developed countries it is still at an early stage. Correlation between high industrialization/economic growth and low population. Family sizes decline as countries get wealthier, not enough children, births per woman decreased. Within countries, wealthier moms are having fewer kids than the poor countries. Combine high fertility, low life expectancy = a young society. Wealthier countries - Labor supply skewed towards old people

natural resources and growth

factor endowments in the West Indies/Brazil and the United States/Canada

Factor Endowments and Economic Growth 3 main facors Land Labor Capital The more a society has of these, the better off it is usually But complicated by Quality of land for agriculture, quality of these natural resources Greenland- lots of land but soils and climate it less productive Some resources promote growth and others slow it down Oils Africa Bountiful minerals Resource abundance has recently been more than a curse rather than blessing for some countries recently, distorts policy making and undermines economic development by creating unique incentives for leaders the have negative effects on economic performance Congo Los of minerals, but the wealth they generate prop of corrupt leaders Resources breed civil wars, which undermine growth Ex: conflict of natural endowment with diamonds Resource abundance is on average a negative Comparing natural resources and growth- generally more resource dependence is associated with poorer economic dependence For labor Differences in education Ecuador and Netherlands ha- more educated and productive, not just about labor but the capital applied to it the distribution labor within a country Countries with low population densities don't have economies of scale Infrastructure with high population density connects market and people In all, low population densities make development harder GDP per capita by Geography GDPs with better geographies are higher Not just number of people or education level but the distribution of people If people living mainly along a coast or a navigable river Countries are wealthier if they have a coastline- Adam smith Key to growth- trade Trade with foreign markets depends on how much it costs to get goods farther away without coastline Cheaper to send things by water than land Majority of Africa, large swaths of South America, Eastern Europe and Asia Only 20% of African pop lives within 100 miles of the coast or a sea-navigable river Counter that have grown the most have done it though trade-based exports- this is facilitated by sea access Most African countries are landlocked Most landlocked countries worldwide are poor Costly to ship grids across borders Pay up to 50% more in shipping costs than countries with sea access If countries have neighbors with sea access, the can help, but a lot is dependent on the infrastructure of that country (Switzerland v Uganda) Shipping costs to a coastal vs landlocked nation- 3-4 times higher Landlockedness drops a countries growth point by half a percent But these factors by themselves do not determine development Can be worked around, rethinking the modes of economic development in ways that are different rom how countries developed in the past But these things cost money and consistent leadership Vicious circle hard to break out of between economic means and lack of factor endowments Indirect Effects of Geography and Factor Endowments Come through the political institutions that emerge in places with certain factor endowments or geographies Institutions matter Private property protections and support for the rule of law- leads to higher investments and more growth Institutions influenced by geography Why have some nations developed institutions that have property rights If nations were colonized by European nations for settlement, the Europeans put in place good political institutions that gave basis for this If they went to places to colonize but not settle, institutions developed that permitted exploitation Europeans settled in places where they weren't wiped out by disease, disease burden was not so high Hostile disease environment leads to no settlement, institution bad for growth and worse economic growth over time And the reverse is true as well Geography has an indirect effect on development through the institutions developed in different places Brazil vs North America Brazil had better coils and climate for products Brazil did not grow as America did though Differences in land and labor led to different institutions When land and labor are abundant, leads to plantation economy and incentive for coercive labor Less abundant land and less available labor led in America to smallholder farms- institutions developed that reflected thus The differential abundance of land and labor explain the ag types that emerge and the institutions that protect these Factor endowments matter for their effects on institutions Factor endowments affecting long term development in the America due to the conditions and institutions that made slavery prosperous Implications of development fro Africa based on slave trade Looking at slave ships, created estimates of bomber of slaves brought o americas from Africa, traced back to the countries they probably came from Found the most came from the Gold Coast Estimated slave exports Countries with more slave exports had lower per capita incomes in 2000 Negative relationship between the intensity of slavery and economic growth Slavery continues to have a long and negative shadow for development today salving may have had something to do with social trust Something often done by community members to one another More slaving= more people habituated to be distrustful of each other Through the effects of social trust that slavery had its long term impacts Just as geography matters so does history and the institutional form adopted in one part of the world, like slavery, can have drastic, far reaching impacts (especially on development) for places across the globe Factor endowments refer to the geographical conditions that led to certain kinds of political economies in each region (e.g., sugarcane plantations in Brazil, for example). Low population density makes development harder -In West Indies/Brazil there is a resource curse in which the countries have an economic dependence on their abundant resources, preventing them from development. -In US/Canada, resources are not as plentiful, which forced them to industrialize in order to have a working economy. Less land, more labor and good soil in west indies/brazil led to more plantation and forced labor. Agricultural Institutions were built where rights were not given since if you wanted slaves, you wouldnt want to give property and human rights. In the US/Canada more land and less people led to small holder farmers which had institutions of property rights for them. -See the Engerman and Sokoloff

tropicality

Geography and Economic Growth Highest GDP countries/regions: North America, Australia, Western Europe, South America Countries toward the North and South but not middle appear to have lower GDP Being located in the tropics seems to be correlated with GDP, GDP generally 3 time higher in non-tropical nations than tropical ones Looking at GDP per capita by Latitude As we get further from he equator, per capita incomes increase, happens on both sides of the equator Economic performance and distance from equator as distance from equator grows, so does GDP Singapore as outlier, but generally this pattern holds Even within countries, the relationship between topicality and wealth holds Parts of countries closer to the equator poorer than regions farther away Why does being located in the tropics matter Harder to exert yourself physically, development of air conditioning as helping this, to extend indoor work hours Relationship between temperature and productivity As it gets hotter, productivity declines Comparing policies with climate control/ air conditioning and ones without, places with climate control don't reflect the relationship Living in the tropics can have a direct effect on economic performance as determined by productivity, also makes people less able to harness cognitive abilities The higher disease burden Malaria 670,000 people die a year by malaria, over 2 million affected a year Affects children worse In Africa. 85% of malaria deaths are children Malaria is a tropical disease, mosquitos can't survive in colder temperatures, but in warmer regions can continue breeding and the disease becomes endemic Malaria cases and deaths concentrated in the tropics 90% of Malaria deaths in central Africa Malaria affects development, countries with malaria grow economically 1.3% slower Malaria and development Malaria lowers life expectancy and increases child mortality This affects economic growth as families decide to have more kids to compensate for possible malaria deaths- investment per child goes down, less investment in human capital, sick kids not learning as well Malaria lowers productivity Disability Adjusted Life Years (DALYs) per 1,000 Inhabitants Shows how productivity is undermined by disability coming from disease Places with endemic malaria and tropical disease are where the DALYs are lowest A huge drain of public health resources Money spent on dealing with effects of malaria rather than vaccines and other diseases Other tropical diseases too Intestinal worms affects an estimated 2 billion people worldwide Parasites lead two growth stunts, possible death, and more Can betted by inexpensive medicines, but its still difficult to distribute these Both of these parasite diseases and tropical in nature Tsetse fly Rainfall Inconsistent rainfall has effects in development Variability in temperature and rainfall, with bigger swings for highs and lows have major effects for agriculture Torrential rains in the tropics leach nutrients from soils, make them less productive for agriculture Fertilizer could help this, but can't afford Overall, states between the Tropic of Cancer and Tropic of Capricorn have a much smaller GDP than countries not located in the tropics. This demonstrates that geography matters when thinking about growth. As you move further away from the equator the GDP per capita increases. Reasons: -Hot weather is bad for labor (people get tired/hot easier) so less economic growth - tropical diseases are widespread (malaria, tse tse, and intestinal worms). a. death rates high=less of a workforce b. sick students means missing school so society loses on human capital investment - Torrential rain is bad for soil and crops. Tropicality also relates back to colonialism. When european powers landed in the Tropics many of them died of disease, became overheated, and did not find them suitable places to live. For this reason they did not establish long term institutions as they only planned on exploiting their natural resources not settling long term. This is best understood when put in contrast with North American colonialism in which europeans did find the climate an area more prime for settling. These same europeans needed to establish long term institutions as they planned on inhabiting the area so they did.

import substituting industrialization

Government plays a helping hand. Less extreme than the Command Economy. Strategy is to build domestic industry by protecting it from foreign competitors. These new industries are known as "infant industries." In practice, ISI consists of tariffs and quotas on foreign imports in certain industries. ISI has strong popular appeal as countries are "pulling themselves up by their bootstraps" and rejecting global "fat cats." ISI has mixed reviews, however. Some consider a necessary step for developing countries to compete on the world market while others frown on it as it hurts domestic consumers as theyre forced to purchase a worse product for a higher price. Almost all of the world powers at some point used ISI, including the U.S. The "asian tigers" of South Korea, Japan, Singapore, and Hong Kong successfully utilized ISI. Other countries, specifically those in Latin America like Brazil were less successful. One of the largest issues with ISI is that it is very hard to roll back. Once these policies are in place, domestic producers get comfortable with the distorted market, they fight for the tariff and quotas and consumers are ultimately hurt. Governments like ISI because it gives them control, ability to pick which industries succeed.Import substituting industrialization (ISI) A less extreme version of a helping hand government State still doing more than creating an enabling environment, but not taking wholesale control of the economy, creating policies that encourage growth, not lavishing inputs into economy by protecting them from foreign competition If a nation believes it should adopt an industry that could be profitable, it will take a long time for the industry to grow and become profitable In the mean time, cheaper, better goods from other producing nations would be available to the public Disincentivizes people to buy the newer, more expensive domestic products Shielding domestic producers to provide breathing room for infant industries to grow by protecting them from foreign imports Protect local industries so people will but the local goods over foreign ones, substituting Done through Tariffs and quotas Tariff: a percent tax added to the price of imported goods Makes foreign goods more expensive for domestic customers Tax provides funds for the government Raises market price of the good for all consumers Allows domestic producers to either undercut the price of foreign goods or compete evenly Protects domestic industries by raising price of foreign goods Quota; limit on the amount of a good that can be imported Limiting supply raises demand and market price of the good Does not provide revenue to the gov like a tariff but still protects the domestic industry Both of these protections help domestic goods be substitutes for foreign ones Exchange rates Overvaluing the exchange rate Makes the domestic currency go further for buying foreign goods with overvaluing and exchange rate manipulation, raises the price of the foreign goods for consumers But also raises prices for producers to try to buy the capital goods they need for their industries, becomes much cheaper to import these goods Inputs to growth become cheaper Subsidies Picking winners The state directly subsidizing specific industries Choosing which industries to support as they engines of the economy Giving combine tax breaks, government loans, or buying a share of what they produce Using the power of the state to fund industries make them gain more of a profit Support of firms can extend to the government taking over and nationalizing them Governments are very supportive of this system They collect revenue, especially from tariffs Gives them control The most politically useful thing to leaders By choosing which industries to support, governments can help their supporters and punish others when they want Governments when nationalizing choose the wages of their workers In this way can choose to reward or punish Ray reading ISI policies by overvaluing exchange rates can create a shortage of foreign exchange Instead of buying goods from the country with an overvalued exchange rate, they can choose tetrode with other countries instead Very quickly ISI can undermine itself by limiting the amount of foreign exchange But governments can also control the foreign exchange that is available to people ISI has a strong populist and nationalist appeal A means to profitability and international respectability Self-sustainability and patriotism Governments also like patriotic policies that's serve the government interests Both of these systems were embraced by the developing world, not just in the 20th century but began much earlier as a means to increase growth Politics and policy as a tool to increase local productivity is an old idea

Glorious Revolution

Growth associated with growth/economic wealth and autocracy less so But is democracy promoting economic development or is wealth promoting democracy Democracy and economic growth from 1970-89 Looking at growth rather than level of wealth is still a positive relationship, but less dramatic, much murkier relationship England Glorious revolution: new institution that limited power of king Gave citizens more rights Creation of parliament had power over the king, land protections for citizens encouraged investment, this spurred growth Reading: The overthrow of King James II in 17th century England, ending Catholic Monarchy. Glorious revolution brought about the creation of parliament. The institution of parliament protected property rights which allowed people to invest. This newfound ability to invest in industry with the security of property rights brought about the industrial revolution which completely changed the course of human history bringing massive amounts of wealth to England, then Western Europe, its effects spreading around the globe. Institutions can either hurt or help economies; before the revolution, the king acted solely out of self interest. With his power limited and held accountable to the people, there is less uncertainty and more investment, leading to growth -See North and Weingast reading

"safety first" principle

Have the follow the maxim of safety first Protecting safety to stay above subsistence line and death, all about risk reduction Explains seemingly irrational or bizarre practices In poor, rural places, often lack access too the same institutions and resources Insurance against crop failure, flood, home owners insurance, mortgage insurance, These formal finacial instruments are almost always lacking in poorer [arts of th world, leaves farmers to self-insure safety Through the crops they plant Could choose to plant crops with lower yields (like switching from sorghum to maize) Care more about the variance of the yield than the average- care more about avoiding the worst case scenario than pursuing the best Minimize the likelihood of facing disaster rather than maximizing yields They don't care about the average year, but the anomaly year I which the yield fails In the absence of security, there is worry of reaching the reaching critical point of not achieving yields Sorghum and millet almost never fall below the critical point like maize does Don't have the luxury of thinking of the average year Scott reading Came up with the safety first idea His example Have to decide between growing between two varieties of rice New rice in 21/30 years generates more units of grain than the old, but 6/30 years, the farmer falls below the subsistence zone (not enough food for family) whereas this only happens for 1/30 years for he traditional rice Proves that the farmers care more about not reaching this critical point, stay with the traditional rice Why framers plant different types of crops rather than specializing in one No specializing= no economies of scale answer= insurance Crop disease could wipe out all of one crop, planting multiple, diversifying investments is hedging, giving insurance Not worried about average yields, but the worst year Safety first- not all eggs in one basket People are more willing to plant crops to be eaten rather than sold Crops to be sold are often most profitable Gives surplus to buy other things- food and more Eating crops don't depend on market fluctuations If market prices are high, boosts profits, but if the market crashes, then the money sold from selling crops may not be enough for subsistence Market price is out of farmers control Safety first By producing things to eat rather than sell, farmers can exert more control over their futures Scott example Eating rice vs selling rice in Thailand More money to be made by marketing the selling rice, bu the farmers putt more emphasizes on producing the eating rice Route two profit characterized by pitfalls-carts, market prices, "capricious strangers" Cheap and reliable form of food Diversification rather than specialization- involves a weighing of costs Lack of protection means caring more about the But farmers loose the additional income that they could get by changing ways Poverty- being so close to subsistence levels/ critical point- leads to choices and behaviors that mitigate risk rather than getting ahead- leads to a perpetuation of poverty, a poverty trap Reinforcing dynamics that reinforce poverty As people get wealthier and farther from the subsistence line, they can make more money from selling crops But at the danger threshold, the decisions made focus on the immediate crisis- leading to continued place near the critical point Kinship as social insurance Need to protect self from risky environment family structure can be a response to environment of risk and putting safety first Large family size Large families area massive part of the insurance response, diversification of crops requires many family members, some to tend to each location For diversification stagey to work, understanding rooted in culture that the entire family can claim rights to production, common property rights among the entire extended family Only works if all share profits from all areas- everything the family produces is shared within the family Celebrations Funerals, weddings, religious, cultural, etc Rational investments in community-building Crop failures and other calamities make the village as a community an important safety net Due to perceptions of risk, it makes sense that individuals seek to reinforce norms of sharing within the community Going to neighbors for assistance Key to guaranteeing chance of help from neighbor is strong norms of sharing and reciprocity- social insurance Going to events reinforces strong place in community, reinforces safety net As people become wealthier and less dependent on community as a social safety net, there becomes a push back against community actvities, can begin to span across generations and lead to a questioning of norms Strength of adherence to social norms to engage in community is related to the inverse relationship to how many generations removed one is from poverty Doing everything to make sure that you maintain subsistence level, even if you sacrifice potential profits. Playing it safe essentially. build decisions to minimize exposure to risk, safety maximizing, farmer wants to minimize disaster. For example, farmers will not specialize in one crop, they will grow multiple crops in case something goes wrong with that crop and threat to subsistence. This can play into the vicious Cycle because for financial success sometimes you need to take risks in order To gain more in the long run. Poor people do not have the luxury to take these risks So they opt for the "safety first" principle in which maintaining subsistence is above all else Scott week 2 pg 15

epidemiological transition

How wealth and health relate to each other. In poor countries, the most frequent source of death is malaria or tse tse while in rich countries the most frequent source of death is old age. Age is evenly distributed in rich countries. While in poorer countries there is a much larger population of young adults. It matters because a bigger work force is better for development. Also if kids are sick then they cannot get an education and impacts labor force.

HDI vs. GDP as measures of well-being

Human development Index (HDI) Captures other aspects of well-being not directly measured by our capita income accounting for factors like education A composite of 3 different measures Life expectancy at birth (measure of health) Education of society PPP adjusted per capita income Comparing to PPP index Countries with more socialist policies tending to do better on this scale Many oil countries rank lower on this scale Debate over whether civil and political rights should also be included in this index GDP: total value of goods and services produced in a country divided by the size of the adult population GDP may be a flawed metric depending on your point of view -Expressed in standard currency which is usually USD HDI: Human Development Index (HDI): composite of life expectancy, education attainment, and the PPP adjusted per capita income PRovides more specific measures of well being to compare countries -This is usually low when there is a lot of natural resources -Correlates with lower level of human development Ex: Remember example about oil rich countries may be high GDP but low in social institutions

picking winners

Import substituting industrialization (ISI) A less extreme version of a helping hand government Subsidies Picking winners The state directly subsidizing specific industries Choosing which industries to support as they engines of the economy Giving combine tax breaks, government loans, or buying a share of what they produce Using the power of the state to fund industries make them gain more of a profit Support of firms can extend to the government taking over and nationalizing them Gives them control The most politically useful thing to leaders By choosing which industries to support, governments can help their supporters and punish others when they want Governments when nationalizing choose the wages of their workers In this way can choose to reward or punish Used in the context of industrial policy and refers to how a country's government will subsidize firms that it believes have a strong chance of succeeding in the world market. Example of how the state can play an active role in promoting economic development, rather than just an enabling environment. Some ways the state intervenes is tax breaks, providing cheap loans through government owned banks, and commit to buying large share of goods produced. eg . DU became concerned that Boeing was producing all of the planes, so EU plowed massive subsidies to create Airbus

liberty tradeoff

In a democracy, consumption can win out over investment Politically difficult but financially, growth, minded Liberty tradeoff Compromise on liberty/democracy to achieve growth Only by giving the state enough power to suppress conflict and unions (workers who want to get paid more, etc) and prioritize growth/investment policies Posner's Answer: A term to describe a phenomenon embraced by Lee Kwan Yew to refer to the possibility that economic development might require authoritarian rule. The logic is that economic development requires property rights (which may be undermined in a democracy by a poor majority seeking to seize the wealth of the rich minority), the ability to curb special interests (which is harder in a democracy), and difficult policies (such as forcing people to save rather than consume and/or reducing wages for public sector workers) that can generate short term suffering that is harder to withstand in a democratic setting. Provides students the opportunity to talk about the mixed evidence in terms of democracy and economic growth. Hence, a good answer covers the basics, where relevant gives an example, and excellent answers may provide a sentence or two discussing the implications or greater significance of the term in relation to development Asserts that there tradeoff between liberty and economic growth. Might have to compromise liberty to achieve growth. Sacrifice freedom to live in autocracy. Push policies that are unpopular but necessary.

fixed rent tenancy vs. sharecropping vs. variable rent tenancy

In evaluating tenancy systems, as in what kinds of crops to grow, peasants tend to prefer minimizing risk to maximizing profit. -Fixed rent tenancy: Cultivator assumes risk and profit, landowner's share is fixed and guaranteed -Sharecropping: The cultivator and landowner's return is a fixed shared of crop -Variable rent tenancy: Cultivator's share is fixed and guaranteed, landowner assumes risk and profit. Peasants prefer this.

property rights

Institutions influenced by geography Why have some nations developed institutions that have property rights If nations were colonized by European nations for settlement, the Europeans put in place good political institutions that gave basis for this If they went to places to colonize but not settle, institutions developed that permitted exploitation Europeans settled in places where they weren't wiped out by disease, disease burden was not so high Hostile disease environment leads to no settlement, institution bad for growth and worse economic growth over time And the reverse is true as well Geography has an indirect effect on development through the institutions developed in different places The state as a solution to the problem of property rights reason for differentiating growth rights- the nature of the property rights regime Property rights protections facilitated economic growth in England, in Spain and France no protections= stagnation But can the state play more of an active role in poising forward growth by mobilizing resources help to establish a system in which each person's properties are properly documented. This helps to identify who owns what. There are four different types of property rights: land, personal, intellectual, and communal. -Without property rights, people would not be able to trade for fear of being cheated. Also, they cannot tap into the capital that exists in their property because without Without property rights there is no way to prove who owns what. Property rights are necessary for economic growth. Property rights encourage investment as people with the capital to invest can be sure that their enterprise will not be stolen

kinship as a mechanism for reducing risk

Kinship as social insurance Need to protect self from risky environment family structure can be a response to environment of risk and putting safety first Large family size Large families area massive part of the insurance response, diversification of crops requires many family members, some to tend to each location For diversification stagey to work, understanding rooted in culture that the entire family can claim rights to production, common property rights among the entire extended family Only works if all share profits from all areas- everything the family produces is shared within the family Celebrations Funerals, weddings, religious, cultural, etc Rational investments in community-building Crop failures and other calamities make the village as a community an important safety net Due to perceptions of risk, it makes sense that individuals seek to reinforce norms of sharing within the community Going to neighbors for assistance Key to guaranteeing chance of help from neighbor is strong norms of sharing and reciprocity- social insurance Going to events reinforces strong place in community, reinforces safety net As people become wealthier and less dependent on community as a social safety net, there becomes a push back against community actvities, can begin to span across generations and lead to a questioning of norms Strength of adherence to social norms to engage in community is related to the inverse relationship to how many generations removed one is from poverty Rational explanation for the belief in witchcraft in Tanzania Murder of older women with witchcraft explanations This tended to correspond with moments of esteem drought or flood Logic: with extreme weather events comes drops in incomes and shortages of food, people looking for reasons to drop the amount of mouths to feed, dropping the least productive household members- especially older women and children Thus witchcraft explanation proves an explanation for the suffering and a partial remedy to loos of food source Suggests its not just about finding a scapegoat Disease no associated with increase in witchcraft killings Killing older women does not alleviate disease problem, but does alleviate food shortfalls resulting from floods and droughts kinship as an institution and the cultural baggage that goes with it is a functional, rational response to environmental risk Social organization as a response to risk Thus we would expect to see social organization mirror different environments and risk portfolios More social organization emerges, more sharing of property rights (lineage property rather than personal) with areas of greater risk Accumulate kin rather than wealth Less risky environments give less incentive to share goods/ property, sharing becomes less of a norm Centrality of cultural practices will diminish with lesser risk When younger generations are wealthier, they don't see the importance of maintaining social ties tot the same level Kinship and investment in nth community can also be a mechanism for moving someone up, for capital accumulation rather than just social insurance The Harrod-Domar growth equation Helps explain economic growth Growth is a function of savings and the fate of return on those savings g= s/c g= growth rate s= savings arte c= marginal capital output ratio Growth is about savings and investment In rich countries, more investment opportunities Different ways ion investing in poorer countries Buying cattle, livestock, chickens Investing in children through their educations (jobs and remittances), investing in daughters for a higher price to receive from marriage Repaying the investment later through money sent home Factory work or a job in the civil service pay more than farming and require schooling Second benefit: diversifying the fussily income stream Also shifts the timing of the income stream, provides an income in later years for when older family members have become too old to continue working Investments in children as old age insurance Educational investment in children stops after introduction of pensions Consistent with the argument that investment in children acts as a substitute for a governmental safety net risk can still get in the way if children decide not to give back to parents Parents turn too social institutions and kinship The sense oof community instilled in children continues too bind children obligation to give back to parents and community Kinship ties make it possible to lend money Loans based trust Due to ties within social community Being deeply enmeshed in society gives a social sanction, can cause an individual to behave in more trustworthy ways Very powerful impact of social pressure in places were membership in the community is fundamentally important Thus membership in the community is very functional, allows an individual to be viewed as trustworthy and gain access to loans Power of social ties and trust for engaging in highly profitable economic activities Social ties make trust possible, make loans possible, then make people better off social ties as an important input to prosperity and development Spread out families and properties, with pooled resources ensures they will all be able to eat Types of risk -environmental risk, social risk, drought -Reciprocity with sharing Kinship as social insurance Kinship and their norms of reciprocity is a way to structure life and family in response to "safety first." Large family size Central part of the "insurance" response (diversification across ecosystem requires large families so they can all oversee the production the family unit is undertaking) There has to be an understanding, rooted in culture, that everyone in the family can claim rights to other products made by other family members. This reduces competition since everything is shared and pooled together. This is a cultural manifestation if the safety first principle Investments in cultural practices Funerals, weddings, festivals etc. are very common. They are rational investments in community building. Crops can fail and calamities can happen which means that the community is a safety net so they need to build community. They reinforce belonging in community and sharing with community through these celebrations and traditions. Whereas Americans would go to the insurance company, the farmers here would turn to their neighbors. They see each other as part of a common community with strong norms of sharing.

soft budget constraint

Nationalization of production meant the government always backing up the industries Soft budget constraints If income doesn't exceed expenses, an industry can't profit, without this hard budget constraint and with gov money, no incentive to be profitable Also reinforced corruption A soft budget constraint is a cap on expenditure that is not set in stone. It is malleable. A soft budget constraint exists when business have benefactors or investors that will sponsor their spending and even if they go in the red will bail them. In ISI/centrally planned economy for example, the state will always back up the company and not let it fail.This creates a dependency on the government by the company and causes it to have incompetent business practices (not competitive internationally) which fail without government help. A soft budget constraint can help an "infant industry" get off the ground but ultimately hurts the economy as businesses act without concern for their production output.

purchasing power parity (PPP) adjusted GDP

New measure of GDP: Purchasing Power Parity, PPP Adjusted per capita GDP to reflect purchasing power PPP versus exchange rate measures of GDP He PPP adjustment raises the per capita income of poorer countries and drops the per capita income of rocker countries (reflects how expensive it is to live in a particular place) Big Man Index How expensive the Big Mac is per place, adjust figures for the cost of living Human development Index (HDI) Captures other aspects of well-being not directly measured by our capita income accounting for factors like education A composite of 3 different measures Life expectancy at birth (measure of health) Education of society PPP adjusted per capita income Comparing to PPP index Countries with more socialist policies tending to do better on this scale Many oil countries rank lower on this scale Debate over whether civil and political rights should also be included in this index Stationary vs roving bandits roving Bandits payoffs would peak very high at first, then drop as they steal as much a possible over time Stationary Maintain political order and extract- stable level of profits over time SUSTAINABLE LEVEL OF PREDATION Manner ulcin Bandits stealing from people May become useful for bandits to settle down and become a state, settled form of government Amount of goods to steal runs out Settling down, becoming stationary bandits and reducing amount they steal from communities to encourage continued production of goods A smaller piece of a bigger pie rather than the whole pie at once then never again Purchasing Power Parity is a measurement for adjusting for the cost of goods in different countries and/or markets. PPP Adjusted GDP helps with calculating the standard of living, since the value of a dollar is different in different places. Nominal GDP, however, is a direct calculation based on the exchange rate vs. the US dollar. PPP adjustments tend to narrow the gap between the richest and poorest countries, reflecting the fact that basic goods and services tend to be more expensive in the former than the latter, so the same income goes further in poor nations.

landlockedness/lack of access to sea and economic growth

Not just number of people or education level but the distribution of people If people living mainly along a coast or a navigable river Countries are wealthier if they have a coastline- Adam smith Key to growth- trade Trade with foreign markets depends on how much it costs to get goods farther away without coastline Cheaper to send things by water than land Majority of Africa, large swaths of South America, Eastern Europe and Asia Only 20% of African pop lives within 100 miles of the coast or a sea-navigable river Counter that have grown the most have done it though trade-based exports- this is facilitated by sea access Most African countries are landlocked Most landlocked countries worldwide are poor Costly to ship grids across borders Pay up to 50% more in shipping costs than countries with sea access If countries have neighbors with sea access, the can help, but a lot is dependent on the infrastructure of that country (Switzerland v Uganda) Shipping costs to a coastal vs landlocked nation- 3-4 times higher Landlockedness drops a countries growth point by half a percent There is less economic growth with less access to navigable rivers or sea. Export costs are higher for landlocked countries. Their infrastructure based on neighbors who have access to the sea. The want to invest in air to get past being landlocked. Part of England's great success in the world market can be attributed to their proximity to many lakes, rivers and oceans.

development syndrome

Poorer countries lack resources Electricity Per capita GDP increases as electrification increases Outliers are oil countries still Improved water access Share of population with access to improved water increases w GDP Literacy rates and amount of schooling Literacy rates lowest in the poorest areas of the world, Africa has many nations affected by this Adult literacy closet to 100% in richest countries and 50% or below in poorer countries Calorie intake Wealthier nations consume more calories Per capita income and under 5 stunting When children don't have enough nutrition t a young age, stunting occurs This becomes less frequent as the wealth of countries increases The "development syndrome"- all of these factors are moving at the same time as countries transition from poorer to wealthier All of these metrics track closely together, all show the same underlying phenomenon Clear relationship with increasing levels of "the good stuff" and decreasing levels of "the bad stuff" Some of these metrics hide things A huge number of uncertainties face low income individuals Not only are incomes low but irregular and infrequent Average poor person has an income steam that fluctuates wildly, high variation Due to seasonal variations, unpredictable weather, insecurity of employment The uncertainty omg the income side is mirrored and magnified by the output side Generally do not have formal insurance, consider their finances in a much different manner, less about, more about managing income flows than maximizing returns money is a constant preoccupation of being poor Doesn't leave lots of mental bandwidth for other things, thus can have very negative effects Development syndrome refers to the multiple, roughly simultaneous economic, social and political changes that take place as countries become wealthier: this includes greater urbanization; the movement of workers out of agriculture and into industry and services; increasing life expectancy; reduced infant mortality; reduced fertility; higher literacy; and greater caloric intake. It can be thought of as a syndrome of multiple changes happening together as per capita incomes increase is one of the main reasons why many scholars are comfortable using per capita GDP as a proxy for development more generally.

poverty and cognitive function

Poverty creates a cognitive burden that undermines an individuals ability to make good decisions ex: sugarcane farmers, Stroop test Income fully dependent on harvest: approaching harvest income extremely low, then income raises post harvest, process restarts, only one source of income per year, live off of this until next cycle how does this contribute to how poverty creates a mental load that affects mental capacity Gave cognitive tests to tether farmers pre and post harvest found that cognitive function is much lower pre harvest than post harvest Conclude that scarcity/poverty captures the attention in the brain that would otherwise be directed towards cognitive tasks The very context of poverty impedes cognitive capacitiy, not inherent The condition of poverty changes the way the brain works and high performing brain responses, this can in turn reinforce poverty Being poor is extremely stressful, with huge risks, living from paycheck to paycheck, barely survivingIndividuals who are in poverty tend to have lower cognitive functions (e.g. IQ and decision making) because of external stresses, such as lack of financial security and risk prevention. This leads to a poverty trap (see below). Vicious cycle Poverty leads to a desire to mitigate risk which leads to choices and behaviors that make it harder to make profit which in turn perpetuates poverty. This is a poverty trap.

ethnic fractionalization

Refers to the the divisions made within a country based on the five census categories (White; Black; American Indian—Eskimo—Aleutian; Asian—Pacific Islander; and Hispanics). Ethnic fractionalization can also refer to individuals within a country belonging to different cultural, linguistic, and/or religious groups. Testing the growth/ development of states with different ethnic groups and mostly the same Ethnic fractionalization Using a formula, hezrfendal index to take account of the relative size of the group, creates a statistic between zero and 1, closer to 1 is more diverse, 0 less so A probability of seeing whether two people picked at random will be from the same or different ethnic community If all the countries in the world were set in order of most to least diverse Ifs e looked at top quartile (top 25%) of most diverse and bottom quartile of least diverse Probability of 2 people speaking different languages in the most diverse nations was around 80% In the most homogenous countries, this was only 5% What about economic growth outcomes (Easterly), looking at stats form 1960-89 Per capita growth for last diverse much higher for les diverse, more schooling, more paved roads lower number of power outages, more telephones per worker Show that less diverse nations do better on development metrics Pretty clear that diversity iscausign these development outcomes instead of the other way around Diversity is not a product of the growth rate Btu countries that grow fast attract migrants, become more diverse because of this Diversity is a fixed product of history

Great Field vs. Thunglor field

Scott Reading p 23-24 Scott cites a study of peasant agriculture in Thailand. Great Field vs Thunglor Field refers to a study of peasant farmers in a northern Thai village. The study is a primary example of the tendency of poor people to prioritize their own subsistence or well being over larger goals of profitability. In the study there were two rice fields the Great Field and Thunglor Field. The Great Field was where subsistence crop was grown exclusively ("eating rice"); Thunglor Field was smaller where villagers grew "selling rice." Study illustrated priority of subsistence cultivation on the Great Field despite the fact that cultivation of "selling rice" more profitable. This is because poorer families/farmers prefer the security and safety of their consumption crops over their crops that produce profit. This study is also crucial to understand why poorer individuals tend to invest less. They are preoccupied with keeping themselves afloat rather than worried about larger gains in the future, even though saving and investing in education/real estate may benefit them more in the long run.

Lee Kwan Yew

Singapore's first prime minister who assumed the position shortly after the end of British colonization and separation from Malaysia. He revolutionized Singapore's economy by transforming it from a relatively underdeveloped British colonial outpost to a "first world" Asian tiger. He pushed for development rather than private benefit, looked after the public and was not corrupt. In this case, autocracy improved development. He is closely related to the idea of liberty tradeoff as he saw democracy as an obstacle to growth as too many voices create chaos.

roving v stationary bandits

Stationary vs roving bandits roving Bandits payoffs would peak very high at first, then drop as they steal as much a possible over time Stationary Maintain political order and extract- stable level of profits over time SUSTAINABLE LEVEL OF PREDATION Manner ulcin Bandits stealing from people May become useful for bandits to settle down and become a state, settled form of government Amount of goods to steal runs out Settling down, becoming stationary bandits and reducing amount they steal from communities to encourage continued production of goods A smaller piece of a bigger pie rather than the whole pie at once then never again Stationary vs roving bandits roving Bandits payoffs would peak very high at first, then drop as they steal as much a possible over time Stationary Maintain political order and extract- stable level of profits over time SUSTAINABLE LEVEL OF PREDATION Becomes state and taxation covet time Refers to corruption? Easier for a bandit to be stationary and keep reaping the benefits year after year than continue searching for a place to steal. Compare to centralized and decentralized corruption Stationary is centralized setting bribe rate; system of bribery that everyone is aware of Roving is decentralized individual police officer taking as much as possible

tariffs

Tariffs/quotas may be used to actually protect infant industries but also these policies may be used to reward monopoly rights to particular firms Also the threat to not provide these protections can be used as a policy tool to bolster power of leaders Something discretionary that leaders can either give or take away, valuable and can thus lead to corruption The person in control of deciding what industries should be protected has lots of power subsidies can be rewarded to supporters Also true for subsidies for food Subsidizing food can make it easier on families by lowering the price of goods But can also be source of corruption, this policy creates scarcity, which creates a black market and the people in control of the distribution of the good An intervention aimed a developmental end can also function to enrich those in power, could be motivated by developmental ends or more corrupt logic Import substituting industrialization (ISI) A less extreme version of a helping hand government Done through Tariffs and quotas Tariff: a percent tax added to the price of imported goods Makes foreign goods more expensive for domestic customers Tax provides funds for the government Raises market price of the good for all consumers Allows domestic producers to either undercut the price of foreign goods or compete evenly Protects domestic industries by raising price of foreign goods Quota; limit on the amount of a good that can be imported Limiting supply raises demand and market price of the good Does not provide revenue to the gov like a tariff but still protects the domestic industry Both of these protections help domestic goods be substitutes for foreign ones Tariffs are a protectionist measure used by a government to increase the costs of imports from foreign countries. Tariffs have played a significant role in the development and dynamics of the economies of many countries around the world. Tariffs are a key component of ISI policies, which are designed to shield domestic industries from competitive foreign businesses. Tariffs also play a role in corruption, where corrupt official may misuse the funds coming from tariffs to fill their own pockets.Taxes on imported goods (tax goes to the government), this is an advantage for domestic goods as they will be able to sell their products at lower prices. Thus protecting it from foreign competition. Domestic consumers will have more incentive to buy domestic growth which will help domestic growth. Ultimately hurts the domestic consumer because they are forced to either pay a higher price for a foreign product or buy their domestically produced shoddy product

Gosplan

The Gosplan: Rested ion faith on central planning Growth could be engineered to maximize the growth potential of the economy Aggressive targets to wring as much productivity aspkossible from ag sectors, factories, etc Use planning to optimize tase and channel resources to Surplus of industry recycled back into system Micromanagement Ideological anti-capitalist sentiments Soviet Union emerging following the collapse of capitalism in Russia System also embraced Marxist ideas Workers put at the center of the system No room for private ownership of land, tech Prices were regulated Seen as a rational way to further economic development Gov planning could optimize productivity through controlling all factors of production Mobilization of capital and labor Labor Soviet planners moved millions of workers from farms to cities to further production Brought women into the workforce en mass the labor force grew by 4-4.5% every year in the 1960s To jumpstart development, mobilized capital and labor Central planning agency of the USSR. Designed a command economy completely controlled and regulated by the government in order to bolster industrial development to compete with foreign powers. Revolves around the idea that economic growth can be engineered, rather than a market determining it. 2 aspects of the Gosplan - mobilization of capital in order to develop the heavy industry; mobilization of the labor force -See Ray reading

tragedy of the commons

The macro story (focused on policy) The state is not a single actor but is composed of many actors with varied interests Presence groups pushing for policies that profit themselves but not the country at large House under oil Individual will act to preserve oil for themselves in the long run If oil is under 2 houses a scramble will ensue for each actor to get as much as he can before the other takes it Depletes the source quickly The tragedy of the common Applies to pasture lands, fisheries, and any common resource shared between individuals Arises not because people are greedy but due to a lack of trust and fear of getting shorted Both actors incentivized to act in ways that make them worse off in the long run Also applies to government budget With different groups, worse management of shared resources Bargaining over usher with different ethnic groups Spending on what they're about, depleting budget quickly instead of preserving budget for later Ends up in overspending, even though everyone could see a budget crisis emerging, no one is willing to back down for their interests Leads to policies and outcomes that undermine economic performance If ethnic groups are just groups with different interests bargaining to not get the short end of the stick themself, we reach bad economic outcomes This does not occur because of animosity between groups but conflicting interests, more diversity/competing interests= more growth undermining outcomes economic problem where people will overuse a common good/resource. People will act in their own self interest and keep overusing the good. The demand will then surpass the supply. Government policy can help regulate or ensure the good is efficiently distributed. This is true for common resources that are open to everyone. For example, lets say four sheep herders all graze a four acre farm. It would be in everyones best interest for each sheep herder to graze only one acre that way no land is overgrazed and everyone gets a fair share. However, without fences or property restrictions each individual will act in their own best interest and graze beyond their 1 acre plot. This results in over grazing and all four sheep herders are hurt by it. This is why it is important for the government to regulate common resources so that the tragedy of the commons does not occur

crops with high average yields vs. crops with low variance in yields

Yield refers to the amount of produce that a farmer grows each year. Crops with high average yield produce a great yield most of the time but, on a really terrible year, could not be enough to meet the subsistence level of a family in poverty. Crops with low variance might not have as high of an average yield, but their yield doesn't vary all that much so their lowest yield possible for their crops is high enough to keep a family alive, which makes them a more viable option to grow in developing countries. -This is described in Scott, p. 17 In poor, rural places, often lack access too the same institutions and resources Insurance against crop failure, flood, home owners insurance, mortgage insurance, These formal finacial instruments are almost always lacking in poorer [arts of th world, leaves farmers to self-insure safety Through the crops they plant Could choose to plant crops with lower yields (like switching from sorghum to maize) Care more about the variance of the yield than the average- care more about avoiding the worst case scenario than pursuing the best Minimize the likelihood of facing disaster rather than maximizing yields They don't care about the average year, but the anomaly year I which the yield fails In the absence of security, there is worry of reaching the reaching critical point of not achieving yields Sorghum and millet almost never fall below the critical point like maize does Don't have the luxury of thinking of the average year Scott reading Came up with the safety first idea His example Have to decide between growing between two varieties of rice New rice in 21/30 years generates more units of grain than the old, but 6/30 years, the farmer falls below the subsistence zone (not enough food for family) whereas this only happens for 1/30 years for he traditional rice Proves that the farmers care more about not reaching this critical point, stay with the traditional rice Why framers plant different types of crops rather than specializing in one No specializing= no economies of scale answer= insurance Crop disease could wipe out all of one crop, planting multiple, diversifying investments is hedging, giving insurance Not worried about average yields, but the worst year Safety first- not all eggs in one basket People are more willing to plant crops to be eaten rather than sold Crops to be sold are often most profitable Gives surplus to buy other things- food and more Eating crops don't depend on market fluctuations If market prices are high, boosts profits, but if the market crashes, then the money sold from selling crops may not be enough for subsistence Market price is out of farmers control Safety first By producing things to eat rather than sell, farmers can exert more control over their futures Scott example Eating rice vs selling rice in Thailand More money to be made by marketing the selling rice, bu the farmers putt more emphasizes on producing the eating rice Route two profit characterized by pitfalls-carts, market prices, "capricious strangers" Cheap and reliable form of food Diversification rather than specialization- involves a weighing of costs Lack of protection means caring more about the But farmers loose the additional income that they could get by changing ways Poverty- being so close to subsistence levels/ critical point- leads to choices and behaviors that mitigate risk rather than getting ahead- leads to a perpetuation of poverty, a poverty trap Reinforcing dynamics that reinforce poverty As people get wealthier and farther from the subsistence line, they can make more money from selling crops But at the danger threshold, the decisions made focus on the immediate crisis- leading to continued place near the critical point

Great Leap Forward

the great leap forward in China Wanted to get even or surpass US steel production in 15 years Steel industry as a heavy industry, a target for industrialization and development To transfer China from an agrarian economy to an industrial one Encouraged furnaces to be built in backyards Take scrap and melt it down Set rigorous production goals Some farmers melted their farming gear when they were unable to reach production goals Abolition of private property, government inc control of marketing and distribution Mao's efforts were supported through propaganda campaigns The most extreme version of helping hand production and a commas economy Total control of the economy and political life, the state isn't just creating an enabling environment for growth, but playing an active, aggressive role to push labor and capital into the economy to foster growth china and Russia's massive state-led campaigns to sponsor economic development were deeply flawed Famine in china following the great leap forward killed 30-35 million Follows after Soviet union discontinues support of China's development. Mao Zedong decides to completely industrialize China creating a command economy. First. Property rights were stripped and the state took control of all grain distribution. Zedong collectivized agriculture workers putting them in communes. Another key aspect of the Great Leap Forward was to transform China from an agricultural producers to an industrial producer of iron and steel like its foreign competitors. This caused resources to leave the agricultural space and be funneled into other industries. Backyard blast furnaces built - take scrap and melt it down. Farmers took metal scraps and melted them down; when they ran out of metal scraps, they still had to meet the production level. In order to do so, they melted down their own farming equipment (destroying the tools of their subsistence) in order to fulfill their production goal. Their decreased tools caused them to produce less agriculture. Food dwindled but even still the Chinese gov. wanted to look strong to foreign adversaries so they continued selling grain abroad even when their people were starving. This shows failure of helping hand.

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