Does more information for consumers lead to better choices?

Today’s post is contributed by Ewelina MAREK from the OECD Directorate for Science, Technology and Industry.

I was recently thinking of changing my mobile phone plan as my current contract was almost up. I started searching on the Internet and was amazed how many web sites there are to compare offers! Many offers looked much better than what I had been getting from my current provider. But by the time I was looking at a fifth website, I was getting a headache. Some contracts were for only one year and some lasted longer. Others offered more minutes or free Internet or for just a little more per month, I could even get a new phone with Wi-Fi and 60 TV channels. As I was getting lost looking at all these offers and conditions, I decided to pick the first offer on the web site I was looking at right then. Within just a few clicks I was locked into a two-year contract with a provider that ultimately may not have been the best option for me.

Have you ever asked yourself when buying something if you were making the right choice or getting the best offer? The OECD’s Consumer Policy Toolkit can help answer this question.  The OECD not only looks at global trends from a macroeconomic perspective, but also follows developments in our everyday consumer choices. In that regard, the OECD Committee on Consumer Policy has been addressing a number of emerging issues for the past few decades. It also highlights the public debate on how consumers make decisions and how insights from behavioural economics could improve the way they do so.

One rule of thumb in behavioural economics is that consumers do not always make rational decisions, particularly when they are confronted with complex markets or products where it is difficult to make comparisons.  And when I think about how I chose my mobile phone plan, I must say I could have done better. But I was too overwhelmed and impatient to deal with all the information I was seeing. According to the Consumer Policy Toolkit, the way I made my decision was no exception as that is how consumers often make their decisions (which they often regret) when faced with too many offers and too much information.

What does the Toolkit shows us?  Among other things, that we often have difficulty evaluating very sophisticated products and services. And that we should take the time to filter information rather than hurry. Bet that doesn’t surprise many of us.  Yet the world we live in is saturated with tons of information and rarely “enough” time to analyse it to anyone’s satisfaction.  So how can consumers get a better deal? What policy instruments have been useful in helping consumers make good decisions?  Check out the Consumer Policy Toolkit and let us know what you think!

OECD work on other consumer policy issues available at:

End poverty, now?

What’s the best way to fight poverty? Just give money to the poor. That’s the idea – and the title – of a provocative new book on development policy. True, the book isn’t a call to throw money out of helicopters over shantytowns. But it does argue for giving small payments (and other benefits), directly to poor people, and letting them decide how to use them. Think of it as bottom-up, not top-down, development.

Two of the book’s authors, Professors David Hulme and Armando Barrientos, visited the OECD recently to discuss their work. As they explained, such programmes already have an impressive track record of success in a number of developing countries, for example Brazil’s Bolsa Familia and Mexico’s Opportunidades schemes.

The programmes vary greatly: Some countries simply give out allowances and child grants to the poorest families; others attach conditions, such as requiring children to attend school; and others, such as India, require families who receive payments to work on community infrastructure projects. Whatever form they take, schemes like these now reach an estimated 750 million people around the world, say the authors, and – amid growing interest in China – are on course to reach a billion by next year.

The programmes are interesting from a number of perspectives. One is that they come from “the South”. That’s development shorthand for saying they were designed and implemented by developing countries themselves, and not by donor countries or agencies. “The idea of the Millennium Development Goals and much of the discussion of global poverty over the past 10 years has tended to emphasise what rich countries can do for poor countries,” Prof. Hulme said at the OECD. “But when you look at the origins of these programmes, you find they’re very much from the South,” especially countries like Mexico, Brazil, South Africa and India.

Another is that families make good use of the payments and experience real benefits. To give an example, two years after the introduction of a programme in Mexico, children in beneficiary families were a centimetre taller than children in families that received no payments, Prof. Barrientos said. That suggests the beneficiary children were better fed and enjoyed stronger health.

Critics of the schemes argue they can create welfare dependency. But the authors argue that such fears are misplaced, for a number of reasons. Not least is the fact that the sums of money are very small – they often amount to no more than about a fifth of a household’s expenditure. In Bangladesh, the payment to pensioners is equivalent to only about $2 a month. Incidentally, the small size of the payments means the schemes are relatively affordable, even for poor countries.

The researchers also say they’ve found little evidence that the schemes reduce the number of people who are ready and willing to work. Indeed, the opposite may be the case. In South Africa, for instance, research shows that people living with an elderly person who’s receiving a pension go looking for jobs more often than those that don’t. “People say, ‘it’s because we’ve got the money to pay for the bus fare – before, we couldn’t pay the bus fare to go and find a job’,” said Prof. Hulme.

Impressive as these programmes are, they need to be seen in the wider context of development and the provision of adequate systems of education and healthcare. For instance, insisting that children go to school before a family receives its payment makes sense only if there’s a school to go to.

Still, the programmes give important pointers on how people can be empowered to tackle their own problems. And that’s an idea some developed countries are also picking up on. The Economist reported recently on a pilot scheme in London where homeless people were asked what they needed to change their lives. “One asked for a new pair of trainers and a television; another for a caravan on a travellers’ site in Suffolk, which was duly bought for him. Of the 13 people who engaged with the scheme, 11 have moved off the streets. The outlay averaged £794 ($1,277) per person (on top of the project’s staff costs),” it reported.

“Just Give Money to the Poor: The Development Revolution from the Global South”, by Joseph Hanlon, Armando Barrientos and David Hulme (Kumarian Press).

Useful links

OECD Development Centre

OECD work on poverty reduction

OECD Factblog: Why poverty is declining

Social Assistance in Developing Countries Database  at the Chronic Poverty Research Centre

Growth and development—for whom?

Innovations in measuring poverty and inequality

Today’s post is from Stephen Groff, Deputy Director of the OECD Development Co-operation Directorate.

UNDP’s Human Development Report, launched this morning at OECD headquarters in Paris, stresses that today’s development challenges require a new outlook. There are no silver bullets or magic potions for human development. Rather than trying to replicate past experience, we need to focus on new opportunities. Rather than attempting to apply policy prescriptions, we need to adapt general principles and guidelines to the local context. And we must address major new challenges—in particular, climate change—and build democratically accountable global institutions to deal with them. Our analysis must go deeper, and we must consider carefully the multidimensionality of development objectives.

The Human Development Index was one of the first serious attempts to broaden the debate around just how we measure development. Over time, the development community has moved from an initial, rather simplistic stance of increased GDP as synonymous with development, to an array of indicators for ranking how countries and people are faring. In recent years, the debate has become much more pronounced with the Stiglitz-Sen-Fitoussi commission and the OECD’s work on measuring the progress of societies.

At OECD we recognize how important measurements are; they are, quite simply, our means of defining success. And as such, we feel that it is vital to consider development outcomes in their multiple facets—not just poverty or income growth levels.  Growth is a means to an end, and not an end in itself. The Human Development Report confirms this central truth, and also makes it clear that there is no single pathway to success. Each country must have the ownership, capacity and resources to find their own solutions to their own development challenges.

In this respect, it is very positive to see the G20’s growing focus on development. Having just attended the G20 Summit in Seoul, I was fortunate to witness as global leaders confirmed the challenge of closing development gaps as a core element of their economic o-operation.

This is good news for at least two reasons. First, the G20 countries are the largest global economies and major partners of low-income countries (LICs), and what they do matters a lot for LICs’ growth. Second, G20 countries bring to the development debate new perspectives and fresh ideas—in particular, they bring their own development experiences and skills, enriching the menu of options available to LICs for the design of their development strategies and policies.

In Seoul, the G20 adopted the Seoul Development Consensus for Shared Growth and an action plan comprising nine pillars to promote LICs’ growth. The G20 is uniquely placed to provide leadership in advancing the international development agenda and achieving the MDGs. They can do this by: improving their own policies; sharing their development experiences; providing assistance to build capacity; and offering strategic guidance to international organizations, thereby enhancing the effectiveness of the multilateral system.  It is essential that all these work together toward the ultimate objective of improving the impact of G20 policies on LICs’ growth.

The OECD—like the G20—takes a comprehensive approach to development and to knowledge sharing, cross-fertilisation and policy coherence, placing development at the core of our work and engaging our full range of policy communities. With decades of experience in development, we are pleased to be mandated by the G20 to work closely with the UN, the World Bank and other international organisations to contribute to implementing the action plan. We believe that our contributions will help the G20 to identify what works when promoting growth and poverty reduction, to better assess the impact of G20’s own policies on LIC growth, and to find ways of maximizing positive impacts.

The G20 approach to development is underpinned by a fundamental belief in the core importance of growth.  This is the right perspective as growth is a necessary component of development but it is also important to remember that the rate of poverty reduction depends on the pattern, and not only the pace, of growth.  One of the key messages of the HDR—and one that I know the G20 will heed—is that growth does not automatically equate to other aspects of development.  Nor is there a minimum threshold of growth required for countries to develop.

At OECD, we are keen to share our experience regarding what makes growth benefit the poor—something we have been exploring for years in the DAC and its Network on Poverty Reduction. More generally, we will continue to put a strong emphasis on measuring the progress of societies, because people, as the HDR says, are the real wealth of nations.

Useful links

Human Development Index

OECD work on G20 issues

Business returns

Is the worst economic crisis of modern times really over? Though there are risks to the downside, the latest OECD Economic Outlook points to a recovery taking hold. If growth staggered somewhat in the second half of 2010, it was partly because world trade slowed from exceptionally high growth rates earlier in the year, the upturn in the inventory cycle is easing and many governments began unwinding their fiscal stimulus, and in some cases, cutting spending to control burgeoning deficits. However, private investment looks set to take over, with business investment likely to become more robust.

The trillion dollar grocery bill

Click to see the report

Farming is an industry, but there are limits to how closely you can compare it to other sectors. Livestock production is fairly predictable, but farmers can never be certain of how well their crops will grow. It’s as if you started an auto production line without knowing for sure how many cars would roll off the end, or what size they’d be. And with a fair chance that floods or fire would destroy the whole factory.

This unpredictability is one of the reasons food commodity prices have been so volatile over the past year. For instance, the latest FAO Food Outlook expects world cereal production to contract by 2% although only a few months ago the FAO predicted a 1.2% increase.

As a result, world cereals stocks are expected to shrink by 7%, with barley plunging 35%, maize 12% and wheat 10%. Prices will rise, with the global bill for food imports topping a trillion dollars, a level not seen since prices peaked in 2008.

That may be good news for producers, but food import bills for the world’s poorest countries are predicted to rise by 11% in 2010 and by 20% percent for low-income countries with food deficits.   

The weather is partly to blame, with droughts and fires hitting Russia and other important growing zones this year, but there are other reasons too. An OECD contribution to last month’s meeting of the Committee on World Food Security looks at a number of factors affecting food price spikes.

This year, export restrictions and exchange rate fluctuations had a big impact. This kind of influence can be reversed quickly, but increased use of agricultural feedstocks for biofuels and the growing demand for food and animal feed from emerging economies put more permanent pressure on prices.

The impacts of other factors are uncertain, for instance climate change or water scarcity. Declining investment in research could prove costly too. Moreover, lack of infrastructure means that a lot of food is destroyed before it can be eaten, as Indians discovered during last summer’s monsoons, with CNN reporting that a third of the country’s reserves were rotting in the open.

The most controversial issue is speculation. An OECD working paper rules out financial market speculation as the cause of the price bubble in agricultural futures markets in 2007-08. However, at the meeting of agriculture ministers at the OECD earlier this year, different views were expressed about the role of speculation.

At the end of this month, the OECD Global Forum on Agriculture will bring together government representatives, along with agricultural experts from intergovernmental organisations, NGOs, producer groups and agribusiness, as well as researchers toidentify ways governments can accelerate agricultural development and tackle the twin problems of poverty and food insecurity.

Useful links

OECD work on agriculture

FAO Initiative on Soaring Food Prices

OECD Economic Outlook: Recovery hopes rise

Click to find out more from the Outlook

Hints of cautious optimism in the latest OECD assessment of the state of the global economy. The organisation expects economic activity in OECD countries to gradually pick up over the coming two years. However, the pace of recovery won’t be the same everywhere, and unemployment will remain high.

Overall, GDP in OECD countries is projected to rise by 2.3% next year and 2.8% in 2012. With an expansion of 2.2% in 2011, growth is forecast to be faster in the United States than in either the Euro area or Japan, which are both tipped for growth of 1.7%. Looking a little further ahead, the US expansion is forecast to rise to 3.1% in 2012, against 2% in the Euro area and 1.3% in Japan.

Despite the relatively upbeat message, the OECD is still strongly concerned about a number of factors that threaten the recovery. Among the most significant are a widening in global imbalances, which helped fuel the crisis in the first place. These could be exacerbated by uneven growth in the OECD area, as well as between the OECD and emerging economies, which are expected to perform even more strongly than the developed OECD countries.

Other potential problems include the possibility of further falls in house prices, especially in the US and the UK, high sovereign debt in some countries and possible abrupt reversals in government bond yields.

Click here  for lots more coverage of the latest OECD Economic Outlook, including a webcast of the launch (starting 10am GMT, Thursday 18 November).

Useful links

OECD work on economics

OECD Insights: From Crisis to Recovery

Learning and Leadership: Two Main Ingredients for Africa’s Development

Click to go to conference website

Government, civil society and international organisations met in Tunis this month to discuss the priorities for aid and development effectiveness ahead of the High Level Forum on Aid Effectiveness in Busan, Korea in November 2011. Misaki Kruger of the OECD Development Co-operation Directorate reports.

What Africa needs is not only cash, but practical and innovative ideas to “put Africa to work”. Kenyan Minister of State for Public Service, Dalmas Anyango Otieno, set the tone of the meeting – looking for ways to build capable and effective states that can maximise all resources and knowledge.

So what are the main ingredients needed to make this happen?

Aid, currently at $120 billion per year globally will continue to be an important source of finance for African countries. However, as African Development Bank  (ADB) President Kaberuka says, “aid is only part of the solution for Africa’s problem”.

The priority ahead of Busan coming out of this meeting is to see how aid can be leveraged to build good financial governance, credible public services and generate internal resources through tax and investments. It is about using aid as a catalyst to build capable states and reduce aid dependency.

This also applies to the increasing engagement of the so-called BRICS countries. With China in mind, Aloysium Ordu from ADB argued that the so-called “Beijing Consensus” is an opportunity for Africa and also complementary to traditional donors, both in terms of increased resources as well as lessons, for example on speed of delivery and flexibility.

One might question the developmental relevance of building “friendship stadiums” or the often cited “no-strings-attached” approach. But participants agreed that the responsibility to manage Africa’s development lies squarely with Africans themselves.  (more…)