Democracy Lab

Girl Power and the Fragility Trap

Academic economists usually air their new ideas first in working papers. Here, before the work gets dusty, a quick look at transition policy research in progress.

Eye of the Needle. It's become fashionable to view economic development aid with considerable skepticism. And for good reason: As William Easterly documented a decade ago, the aid going to poor countries (including debt relief) has had little impact on growth. But Noro Aina Andrimihaja (World Bank), Matthias Cinyabuguma (University of Maryland) and Shantayanan Devarajan (World Bank) argue that the case against aid has been oversold.

They claim that aid could help to tip some of Africa's poorest-performing economies out of the "fragility trap" -- the mix of pervasive violence, insecure property rights, and corruption that has prevented 22 out of 48 sub-Saharan countries from busting out of wretched poverty. If enough aid is funneled to the right places (admittedly, a big "if"), the authors claim there is solid evidence that the money can trigger a virtuous cycle in which institutional gains generate growth and growth generates more institutional gains. Avoiding the Fragility Trap in Africa. World Bank Policy Research Working Paper 5884. Download (free) here.

Sauce for the Gander. China has for the most part welcomed foreign direct investment in the form of factories, retail stores, and the like since the economy opened for global business in the 1980s. In the high-stakes scramble to gain access to Chinese consumers, the big multinationals have invested hundreds of billions of dollars there. GM, for example, now sells more cars in the Middle Kingdom than in the United States.  But the flow of direct investment goes both ways. Indeed, China's appetite for companies, joint ventures, and production facilities in countries ranging from the United States to Russia to Algeria is large, and growing rapidly. A big question is why.

Leonard K. Cheng (Hong Kong University of Science and Technology) and Zihui Ma (Renmin University of China) use government data through 2006 (the latest available) to explore the motives of these Chinese corporate investors (virtually all of which have close ties to Beijing). Not surprisingly, acquisition of critical natural resources (think oil and gas) and the opportunity to sample foreign technology rank high on the list. But China is also increasingly interested in using FDI to gain a foothold in the global financial services industry, to diversify its mammoth foreign exchange reserves, and to disarm foreign critics by creating jobs in the advanced industrial economies.  China's Outward Foreign Direct Investment. National Bureau of Economic Research. Download (free) here.

Convergence, By the Numbers. Economists know (though a surprising number seem to have forgotten since 2008) that the whole point of discretionary fiscal policy is to smooth fluctuations in the business cycle. Running surpluses (or at least cutting budget deficits) in boom times dampens inflationary pressures, while running deficits in recessions offsets falling private demand. This explains why most advanced industrial economies practice "countercyclical" policies most of the time.

By contrast, developing countries -- especially those dependent on raw materials exports -- have actually run "procyclical" fiscal policies, and it's not hard to see why. A good chunk of their government revenues come from taxes and royalties on exports. In global booms, commodity prices generally go up. Politicians typically couldn't resist the pressure to spend the money, thereby exacerbating inflation. Meanwhile, in economic downturns, export revenues lag and these governments lacked the credit to borrow in order to sustain demand. So when America or Europe or Japan coughed, the developing world caught cold.

But according to the statistical analysis of Jeff Frankel (Harvard), Carols Vegh (University of Maryland), and Guillermo Vulletin (Colby College), that's changing. The big emerging market countries including China, India, and Brazil (along with many lesser developing economies) weathered the last recession very nicely, in large part because they now have the discipline and the means to use fiscal policy in countercyclical fashion. The explanation, the three economists say, lies in the strengthening of government institutions -- everything from the ability to contain corruption to the capacity to collect taxes. Good news, indeed. On Graduation from Procyclicality. NBER Working Paper 17619. Download ($5 charge) here.

Girl Power. It's obvious that limiting women's access to education and jobs is costly, and almost as obvious that the countries paying highest price for discrimination are among the poorest. But oddly, nobody has done a credible job of quantifying the problem -- or, at least, not until now.

Jad Chaaban (American University of Beirut) and Wendy Cunningham (World Bank) measured the loss in terms of the "opportunity cost" of not allowing girls to finish high school, not allowing them to join the labor force, and inducing them to have children prematurely. This cost varies from country to country, of course, so the authors crunched the numbers for some very big developing countries (including China, India, and Brazil) and some very poor ones (including Malawi, Tanzania, and Burundi).

The results are sobering -- and in some cases startling. For example, allowing the current cohort of girls to complete the next level of education in Burundi would add the equivalent of 68 percent of one year's GDP to their lifetime earnings. Delaying first pregnancy for the current 15-19 year olds in Uganda until they are no longer teenagers would add 30 percent of one year's output to the country's GDP.  And none of this, mind you, includes what may be the largest cost of discrimination against women: the retardation of institutional development ranging from the suppression of corruption to respect for property rights. Measuring the Economic Gain of Investing in Girls. World Bank Policy Research Working Paper 5753. Download (free) here.

IMF Knows Best? Governments across Latin America -- notably Argentina, Venezuela and Bolivia -- moved left in the last two decades. Subsequently, income inequality declined, suggesting that left-wing governments did deliver on their promises to share the wealth. But Darryl McCloud (Fordham) and Nora Lustig (Tulane) make what they believe is a key distinction between the social democratic left (winners in Chile and Brazil) and the populist left (who govern in Venezuela, Bolivia, and Argentina). The social democrats more or less followed the so-called Washington Consensus formula, honoring foreign financial commitments and managing fiscal and monetary policy conservatively. The populists -- notably in Argentina -- did not. Indeed, the Argentine experience with default has been held up as evidence that "no pain, no gain" prescriptions are obsolete.

McCloud and Lustig find, however, that isolating the impact of factors for which current governments deserve little credit -- for example, improvements in the terms of trade due to the global commodity boom -- radically changes the picture. Social democrats, they argue, were actually more effective in reducing poverty than their populist counterparts. Inequality and Poverty under Latin America's New Left Regimes. Tulane Economics Working Paper 1117. Download (free) here.



Is al Qaeda Still Relevant?

As another 9/11 anniversary approaches, a new film looks backward at the rise of al Qaeda -- and one man's struggle to understand it.

Nearly nine years after the attacks of September 11, 2001, the United States still has 100,000 troops fighting and dying in Afghanistan, and another 50,000 holding down the fort in Iraq. One hundred seventy-six inmates remain at the U.S. prison in Guantánamo Bay, Cuba. A number of disturbing near-misses -- the attempted Christmas Day bombing of Northwest Airlines Flight 253, the Times Square fizzle, and various other plots -- have put the threat of terrorism back in the news. In a Gallup poll conducted in late August, 47 percent of Americans surveyed said that terrorism would be "extremely important" to their vote for Congress this year, with another 28 percent rating the issue "very important."

Yet there's also a sense that terrorism has faded as a political issue as the economy and general dissatisfaction with Washington have crowded out all other concerns. The intense debates on the op-ed pages and in the blogosphere of the war on terror's go-go years have quieted. The military tribunals in Guantánamo have evoked little public interest. Anti-Islam fervor may be rising, but terrorism just doesn't seem to elicit the passions it once did. Indeed, it would be hard to imagine outgoing Newsweek columnist Fareed Zakaria, always a reliable barometer of conventional wisdom, writing this sentence in, say, 2008 -- "Nine years after 9/11, can anyone doubt that Al Qaeda is simply not that deadly a threat?" -- and barely making a splash.

Enter My Trip to al-Qaeda, a new documentary by filmmaker Alex Gibney, who won an Oscar in 2008 for Taxi to the Dark Side. Gibney's latest film, which premiers Sept. 7 on HBO, is an adaptation of a one-man play by Larry Wright, the New Yorker writer and author of the Pulitzer Prize-winning book The Looming Tower, which remains the definitive account of 9/11, the events leading up to it, and the cast of heroes who tried in vain to stop it. In My Trip to al-Qaeda, Wright has become the protagonist, telling the story of his quest to understand what motivates Islamist radicals to take up arms.

Wright initially hoped to change subjects after finishing The Looming Tower. "I was so sick of terrorism; I just wanted to write a musical comedy," he told me in an interview. But when he pitched André Bishop, the artistic director at Lincoln Center Theater, on the musical idea, Bishop just "rolled his eyes," Wright says. So, remembering a solo staging of Stations of the Cross that he admired, Wright switched gears and sold Bishop on a one-man play about al Qaeda. An hour later, he had signed up Rhonda Sherman, the New Yorker's director of special projects, as a producer, and Greg Mosher as the play's director. (Wright is now working on another one-man show based on his Nov. 9, 2009, New Yorker article on the Gaza war. "I've gotten typecast as the Grim Reaper," he jokes glumly.)

My Trip to al-Qaeda is centered on a live performance of the play, with Wright standing on a sparsely furnished set meant to evoke his home office in New York, with its old-fashioned boxes filled with index cards. Gibney made a few adjustments for the film, such as making the screen behind Wright somewhat bigger than the original stage set and transforming it into a jumping-off point for further exploration. And so we see incantatory clips from al Qaeda martyrdom videos, footage from one of Wright's trips to Cairo, and rare photographs of the most intimate rituals of the hajj in Mecca.

"I wanted it to be a kind of magic portal," Gibney says, using not only real-life imagery of al Qaeda and the Middle East, but also first-person material on Wright's life. "To understand it, you had to know a little bit about Larry. ... Yes, he's a journalist; yes, he's an experienced writer; but he's also a citizen trying to come to grips with these things. He's not a stentorian expert trying to lecture you from on high."

Wright's drive to comprehend 9/11 led him to conduct hundreds of interviews, all meticulously documented on those index cards, and took him on several trips to Egypt and Saudi Arabia, the two countries that birthed al Qaeda. As Wright puts it, the group is "really an Egyptian organization with a Saudi head on it" -- Osama bin Laden.

Wright had spent time in Egypt as a young man, teaching English at the American University in Cairo (AUC). A conscientious objector during the Vietnam War, he wasn't interested in changing bedpans, as many dissenters seeking alternative service were obligated to do. He first tried to get a job at the United Nations, where a helpful official instead gave him a list of American institutions abroad. AUC's New York office was right across the street, and 30 minutes later, they asked if he could leave that evening. "No," Wright said, "but I can leave tomorrow."

"I called my parents the next day and told them I was going to Cairo for two years," Wright says. He taught his first class the following morning at 9 a.m.

That was 1969, not long after President Gamal Abdel Nasser's dreams of pan-Arab socialism were discredited by his failure in the 1967 Six Day War with Israel, and before thousands of Egyptians went to work in the booming Persian Gulf oil fields, while absorbing that region's more conservative brand of Islam. It was also before Nasser's policies left a legacy of stagnant economic growth, choking congestion, and political repression that still haunts the country today.

When Wright returned to Egypt 33 years later to conduct interviews for The Looming Tower, he found the country profoundly changed. One could still watch black-and-white films from the liberal pre-Nasser era on television and find ancient taxi drivers nostalgically crooning songs by Umm Kulthum or Abdel Halim Hafez. But it was a much darker, angrier place than he remembered -- especially as the second Palestinian Intifada roiled the streets. By the end, "I had had so many Islamists waving their finger in front of my nose that I thought I was going to snap it off," he says. "It was hard to keep my composure."

But the heart of Wright's experiences came in Saudi Arabia, where in 2003 he landed a position with the Saudi Gazette in Jeddah, mentoring the paper's young journalists for three months while working on his book. "I had all these young reporters teaching me more about their country than I could ever have learned as a reporter," he says. It was an amazing stroke of luck -- one that allowed him to fly under the radar of the Saudi security services and interview a wide circle of family members and friends of the 9/11 attackers. "Instead of 'journalist' I was 'expat worker,'" he explains, "and because of that I was largely overlooked."

One of the film's most memorable moments is Wright's comparison of Saudi Arabia to a hypnotized chicken -- an analogy that apparently offended Saudi diplomats. Like the chickens he used to torment growing up in rural Oklahoma, spinning them around and then setting them on the roof of the barn, where they froze in abject terror, "Saudi Arabia is in a kind of social coma," Wright says; Saudis remain traumatized by the changes that they've seen happening around them and by the violence of their own history. "I'm not making fun of Saudi Arabia," he insists. "I'm trying to express this sense of paralysis that is characteristic of that society."

Although it airs the week of Sept. 11, My Trip to al-Qaeda, coming more than four years after The Looming Tower was published, nonetheless seems oddly timed. Al Qaeda's top leaders are holed up somewhere along the Afghanistan-Pakistan border, apparently too harried to issue more than the occasional online missive. Their Iraq branch was largely defanged by the Sunni Awakening. The jihad has moved to new battlegrounds, such as Yemen and Somalia, but the group and its regional affiliates seem incapable of mounting spectacular, mass-casualty attacks. A new U.S. administration has largely continued what worked -- quiet counterterrorism operations, intelligence sharing, and pinpoint drone strikes -- and moved away from what didn't: military invasion and occupation, over-the-top rhetoric, and "enhanced interrogation techniques."

That shouldn't inspire complacency, cautions Gibney, but it ought to allow the United States to put more sustainable policies in place. "The problem is that terror is not going to go away," he says. "The war on terror was a phrase that suggested that this would end, that there'd be a final battle and democracy would win and terror would lose."

"I think that al Qaeda will end eventually," Wright muses. "Eventually it's going to die out because it has no successes and it has nothing to offer. It will fade, but I think the template of what it's created will be with us forever."