Today’s post is by Helmut Reisen, former Head of Research at the OECD Development Centre and author of the Shifting Wealth blog. Erik Solheim, Chair of the OECD Development Assistance Committee will reply tomorrow.
Mostly thanks to China’s supercharged 2000s growth and the related global development impact, extreme poverty (in its 1.25$ PPP/day/person variety) has dropped as a percentage of a growing world population – from 40 to 20% over the past two decades. Consider this back-of-the-envelope calculation: One percent of GDP growth in China has been associated with 0.34% of GDP growth in countries with an annual Gross National Income (GNI, Atlas method) below 1,035$/year per person that are classified by the World Bank as Low-Income Country (LIC); estimates of poverty elasticity for LICs to growth vary between 1.2 and 3.1 for the 2000s (they are higher than the estimates for the 1990s). Assume a poverty elasticity of 2; then, a percentage point of Chinese growth would lower the LIC poverty headcount by .68%. With roughly 1.1 billion people still in extreme poverty outside China, one percent of China´s growth has translated into 7.7 million poor people less year by year. However, note that while the bottom third of the global income distribution have also made significant income gains, real incomes of the poorest 5% of the world population have remained the same even in the past Golden Age of emerging-country growth.
Millennium Development Goal #1 – to halve extreme poverty by 2015 – was thus reached fairly easily with China as the global poverty reduction machine (and not because leaders signed the Millennium declaration!). A close corollary to developing-country growth performance has been LICs’ eligibility for and graduation from concessional finance. Several countries have graduated from IDA borrowing since 1999, including populous countries such as China, Egypt and Indonesia, with India expected to graduate soon. There are today only 36 LIC countries eligible for concessional finance – grants and soft loans – by the International Development Association (IDA) and the soft windows of the regional development banks. (The Inter-American Development Bank and its soft window, the Fund of Special Operations (FSO), considerably reduced in size). The graduation threshold itself is controversial, however: an outdated LIC/MIC threshold explains that the share of the poor (and, indeed, of the whole population) in LICs has declined over time. With China and India having crossed the threshold, the reduced demand for concessional finance (CF) may partly reflect a statistical artifact.
What arguably accounts better than income levels for CF demand is a country’s domestic capacity of resource mobilization, especially through taxation. Availability of public and private resources for development, coupled with the fall in global poverty, are said to imply that dramatically more funding is potentially available for each poor person. And domestic resources, especially tax receipts, may be mobilized better as result of high raw material income and better tax administrations.
Looking beyond 2015, the target year defined by the Millennium Goals, international organizations and their leaders have increasingly joined a chorus of euphoric We-Can-End-Poverty declarations. OECD boss Angel Gurria proclaimed when the last DAC Report Ending Poverty was presented late 2013 in London: “Ending Poverty Completely and Forever”, seconded by DAC chair Eric Solheim “Eradicating Extreme Poverty Completely – ‘Yes We Can’”. There are today numerous websites devoted to the goal to end extreme poverty, such as www.endpoverty2015.org, www.theendofpoverty.com, www.endpoverty.org, or www.stoppoverty.com, which translates a strong belief in the feasibility of poverty eradication. While macroeconomic observers are now abuzz with secular stagnation, China´s forthcoming crash, or emerging market taperitis, this is not the stuff that most of the ODA crowd is familiar with on a professional level. So the End-of-Poverty banner waving seems quite detached now from what can be expected from future growth and seems to extrapolate a trend of global poverty reduction that may have been special to the past decade.
The End-of-Poverty banner waving seems to be based on two influential studies, from the Center for Global Development (CGD) and Overseas Development Institute (ODI), which projected total population in IDA-eligible countries to decline from 3 bn (2012) to 1 bn by 2025 and the global poverty pool to shrink dramatically by 2025 as a result of high per capita income growth. According to these studies, soft CF windows such as the African Development Fund (AfDF), the Asian Development Fund (ADF), the International Development Association (IDA) and also some International Monetary Fund (IMF) facilities would likely face a wave of country graduations by 2025. These studies also foresee a reduced number of selected low-income, post-conflict and fragile countries, mostly in Africa, re-established as the main location for CF-eligibility. A drastically altered client base will have significant implications for the strategic options as well as operational and financial models of IFIs. The strategic choices facing the IFI shareholders are at the heart of the future of the global concessional finance architecture.
Both studies are penetrated by emerging market optimism that underpins their view that “we” can successfully eliminate poverty without continued access to concessional finance. However, there are important shortcomings to both studies on a closer look at technical detail:
- Both the CGD and ODI studies cited above are start from GDP projections provided by the IMF in its World Economic Outlook (WEO). However, the accuracy of IMF-WEO forecasts is dismal as they have been overly optimistic in the past. Highly optimistic assumptions on the growth of total factor productivity in emerging countries, derived from observations of converging countries in the past decade, have been deployed for projections to 2025. Projecting growth rates over long horizons is hazardous, especially if rates are held constant and do not build in major occasional disruptions to growth, such as from natural disasters and financial crises.
- Mind the gap: GDP is not the appropriate income concept but GNI, especially in poor countries due to inflows of remittances (that could be used to reduce poverty at home). Disruptions to remittances (e.g. when resource-rich countries send immigrant workers home, as happened recently in Saudi Arabia) can lead to important differences in the growth projections in the two national-account concepts.
- The two studies also understate the Balassa-Samuelson effect (or Penn effect) of growth convergence in poor countries: the increase in price levels that have accompanied the last decade of high growth in emerging countries may have given rise to estimates for CF demand that are excessively low (The Economist’s brilliant post “Appreciating the BRICs”shows how actual and projected GDP is lowered by holding prices and currencies constant, by correcting for the Penn effect.). Higher prices for services (such as real estate rents, transport cost, schooling) lower the purchasing power of nominal incomes and may lock in the poor below poverty thresholds. The CGD study, e.g., holds all calculations in constant 2009 dollars with the hidden assumption that price levels stay the same. Over a decade-long projection, this leads to massive distortions.
- As poor-country growth over the last decade has been based on expansive monetary policy in OECD countries and on unsustainably high growth in China, a return to normalized rates of global money supply and to sustainable growth in China must receive special attention in growth projections to 2025. (Large emerging countries with high external deficits – Brazil, India, Indonesia, South Africa and Turkey – are supposed to suffer once monetary stimulus is scaled back). Both studies were carried out at a time that many observers consider now the peak of emerging-country euphoria. Emerging-country optimism has rapidly ebbed with two major sources – ultralight monetary policy in the US notably and unsustainable growth in China – running dry.
- Finally, there seems to be excessive optimism around about poor countries’ capacity to mobilize their own resources rather than to depend on aid dollars, via redistribution from the “rich” to the “poor” within developing countries. Evaluating poverty levels using expenditures from the national account data helps downplay the problem of rising inequality in many middle-income countries. Whether middle-income countries will, as projected, manage to solve their enormous distributional challenges is yet to be seen.
Ravaillon shows that there is a positive correlation between domestic capacity for redistribution (as indicated by a low required marginal tax rate to close the poverty gap) and a country’s average per capita income. His measure – marginal tax rates on the “non-poor by US standards” required to cover the poverty gap – finds that for most (but not all) countries with annual consumption per capita under $2,000 the required tax burdens are prohibitive—often calling for marginal tax rates of 100 percent or more. By contrast, the required tax rates are very low (1% on average) among all countries with consumption per capita over $4,000, as well as some poorer countries. The tax ratio calculations thus demonstrate that LICs (and even UMICs) have little or no prospect for increasing domestic resources in the medium term to meet these needs.
So there a mismatch between the loudness of the End-of-Poverty chorus and the empirical solidity of the projections on which the official declarations are pegged.
A fascinating survey just released by Gallup cautions also against excessive post-2015 optimism. Gallup’s self-reported household income data across 131 countries indicate that more than one in five residents (22%) live on $1.25 per day or less. About one in three (34%) live on no more than $2 per day. The World Bank Group recently set a new goal of reducing the worldwide rate of extreme poverty to no more than 3% by 2030, but Gallup’s data suggest meeting that goal will require substantial growth and job creation in many countries. In 86 countries, more than 3% of the population lives on $1.25 per day or less.
Even in the OECD, “Ending Poverty Completely and Forever” has not been achieved, as the Gallup global poverty map makes clear. To be sure, OECD leaders have no core competence in eliminating poverty. They would benefit from more modesty. Despite more extended tax, welfare and transfer systems and per capita income levels much higher than in developing countries, most OECD countries have witnessed a remarkable rise in poverty rates during the past fifteen years. In most OECD member countries, relative poverty – defined as the share of people living in households with less than 50% of median disposable income in their country – affected 11% of OECD population in 2010, after taxes and transfers. This was a marked increase of poverty rates compared to 1995. Source? OECD!
Can we really end poverty? Brian Keeley’s report from a debate in London in December 2013 to launch the Development Cooperation Report
If crowds are not your thing, this is not a good time to be travelling in China. As the new Year of the Horse gallops in, hundreds of millions of people across the country have headed home to spend time with their families. It’s estimated that around 3.6 billion trips will be made on trains, planes, cars, ships and even motorbikes in the 40 days surrounding the annual Spring Festival.
The “Spring Festival rush,” or chunyun, is probably the world’s largest annual migration, and every year it generates some memorable moments. A few years back, one frustrated traveller stripped down to his underpants to protest against not being able to board his train. This year, a young teacher in Beijing has been earning environmental kudos for cycling the 2000 kilometres back to her hometown in Sichuan.
The annual rush on its current scale dates back to the 1980s, when workers from the countryside first began moving to the cities in large numbers. That movement helped drive China’s dramatic economic growth and, as we noted in the previous post, turned China from a country that was overwhelmingly rural to one where just over half the population is now urban.
But it also helped create a range of problems that, even today, are proving hard to resolve. Most notable, perhaps, is the uncertain status of the many rural migrants who have failed to secure an official residence permit, or hukou, for the cities in which they now live. Their number is not insubstantial: It’s estimated that around 260 million Chinese find themselves in this situation.
Systems of family registration go back thousands of years in China, but the modern hukou system dates from the 1950s. The system created a division between rural and urban residents and linked people’s place of registration with access to education, health-care insurance and social housing. Hukou reforms began in the 1980s and have continued since. However, their practical impact has been variable. As a result, the hukou system continues to affect the lives of many migrants who have moved to China’s booming cities.
Take education – an issue that attracted a lot of discussion when the OECD released its most recent PISA results in December, which showed Shanghai as the world’s top-performing education system. Some observers argued that the city’s performance was boosted by children from some poorer migrant families not being included in the assessment. This, they argued, was in large part because the children had to return to their families’ place of registration to complete their education.
In response, the OECD’s Andreas Schleicher argued that critics were ignoring major hukou reforms in Shanghai in recent years. Indeed, as Helen Gao wrote recently in The New York Times, “Shanghai has made remarkable progress in integrating migrants into its education system.” That’s true of many other Chinese cities, too. Nevertheless, as Ms Gao also pointed out, substantial problems remain.
According to a recent OECD paper on urbanisation in China, in the major cities of Shenzhen and Beijing, only 30% of migrant children attend state schools. There is evidence, too, to suggest that migrant children are underrepresented in elite schools. The hukou system also means that young people – not just migrants – with registrations outside Beijing and Shanghai face “severe” obstacles in winning places in those cities’ elite universities, which apply a lower acceptance mark for locally registered students.
These obstacles matter not just for the migrant and rural families, but also for China’s capacity to invest in people’s skills and education. Indeed, hukou reforms are seen as essential if China’s cities are to develop their role as engines of growth. “Land and hukou reform is the cornerstone for future economic growth and political-system reform,” according to Yuan Xucheng of the China Society of Economic Reform. So, if full hukou reform is so important, why hasn’t it happened yet?
For one thing, local governments in Chinese cities are reluctant to take on the cost of providing education and health care to migrants. According to some Chinese estimates, the cost of settling a single rural migrant in a city is about 100,000 RMB (about $16,500). “Behind household registration reform is money,” Ma Li, an official with the State Council, or cabinet, told Caixin.
Reform is also intimately tied up with the tricky issue of land reform. Migrants can gain much by getting an urban hukou but, by leaving their rural registration behind, they risk losing their rights to use residential and agricultural land in the countryside. Many appear unwilling to make that sacrifice.
Policies for Inclusive Urbanisation in China (2013, OECD Economics Dept.)
网站 (中文) (The OECD’s Chinese-language site)
A friend in Kunming laughed when we told her our travel plans: “Chenggong? But there’s nothing there!” More accurate, perhaps, if she’d said there’s no one there.
Under construction since 2003, Chenggong is a satellite city of Kunming, capital of mountainous Yunnan province in southwest China. Such projects are not rare in China, and they tend to follow a familiar pattern: Universities and government offices are relocated, students and officials move in and, eventually, so do other people.
Chenggong is different: Yes it has students and, as far as we know, bureaucrats but – so far at least – pretty much no one else. Its wide-open highways and empty estates have won it plenty of attention in the blogosphere and earned it a reputation as one of Asia’s biggest “ghost cities”.
In truth, the place is not as quiet as all that. Around the spacious university campuses there’s a noticeable buzz. A few small streets are filled with shops selling student necessities – cheap grub and trendy clothes. On one campus, an English-language student, Tina, showed us around and enthused about the quality of the facilities. When we asked her if she liked Chenggong, she nodded enthusiastically: “Oh yes, the air is so clean.” That, too, is often a novelty in China.
But, elsewhere, it’s hard to escape the feeling that Chenggong lacks people. Cars bowl along six-lane highways at speeds unthinkable in most of China’s congested cities, while passengers seem sparse on the light railway that will eventually link the city to the provincial capital. Driving back to Kunming in the evening, we passed housing estates where not a single light seemed to be shining. According to the World Bank’s Holly Krambeck, Chenggong has over 100,000 empty apartments.
Regardless of how many people Chenggong eventually manages to attract, the city is part of one of the most remarkable human transformations in history. In just a little over three decades, China has gone from being a country that was overwhelmingly rural to one where just over half the population now lives in urban areas.
That might sound high but, by international standards, and for a country at its level of development, China still has a relatively small urban population. That wasn’t always the case. As a fascinating recent OECD paper by Vincent Koen, Richard Herd, Xiao Wang and Thomas Chalaux notes, China was once one of the most urbanised places in the world, admittedly in an era when globally around 90% of people lived in the countryside. By around 700 C.E., the city of Chang’an – now known as Xi’an, home of the terracotta warriors – is believed to have had around a million inhabitants, levels that London and Paris would only reach in the 1800s.
By the dawn of the 20th century, however, the proportion of Chinese living in cities hadn’t changed much in 400 years and, throughout that troubled century, it grew only very slowly. By 1949, urban dwellers accounted for just 12% of the population, around a third of levels then typical in the world.
Today, China is playing catch-up. In the last decade, the urban population rose by about 20 million a year; by 2020 the government expects around three out of five people to be living in urban areas. And by 2040, it’s estimated that around one billion Chinese will be living in cities.
China’s government believes cities are essential to building a modern economy. For one thing, cities make it easier for companies to do business, making them hubs for growth. For another, city dwellers tend to spend more than their country cousins, which should help China meet its goal of relying less on exports and more on domestic demand. So, cities will be key to China’s economic and social future. But planning them will require careful thinking about their “hardware” and “software”, to borrow a metaphor.
For an example of the hardware, take transport. By international standards, Chinese cities have relatively low levels of public transportation. That’s evident even in a new town like Chenggong, where, as urban planner Luis Balula notes, “the wide streets and superblocks […] continue conveying the image of a car-oriented urban environment waiting to be populated by cars.”
According to the OECD paper, China would need to invest the equivalent of around 11% of its GDP just to bring transport provision in its ten biggest cities up to international standards.
As for the software, think of that as the people who will live in China’s cities. Many will be rural migrants and, so far at least, the legal situation in China’s cities hasn’t worked in their favour. And that’s a topic we’ll return to soon.
Policies for Inclusive Urbanisation in China (2013, OECD Economics Dept.)
网站 (中文) (The OECD’s Chinese-language site)
According to the CIA World Factbook, political parties are prohibited in Bahrain, but don’t despair, freedom lovers, the “constitutional monarchy” formerly known as an emirate is the 13th freest country in the world according to the 2014 Index of Economic Freedom. Economic freedom? According to the Heritage Foundation, co-publisher of the Index with the Wall Street Journal, that’s “… the fundamental right of every human to control his or her own labor and property”, plus aspects such as “the ability of individuals and businesses to enforce contracts”. The CIA, always looking for something to moan about, claims that “Bahrain is a destination country for men and women subjected to forced labor and sex trafficking; […] domestic workers are particularly vulnerable to forced labor and sexual exploitation because they are not protected under labor laws; […] the government has made few discernible efforts to investigate, prosecute, and convict trafficking offenses; […] most victims have not filed lawsuits against employers because of a distrust of the legal system or a fear of reprisals.”
If it’s like that in one of the freest countries in the world, you can imagine what it’s like in hell-holes such as Norway, 20 places down the list from Bahrain. And what about those poor souls living in Italy, the least free OECD country? Italy ranks 70 places lower than Bahrain, just behind Kyrgyzstan (where’s the CIA’s continuing concerns include: “the trajectory of democratization, endemic corruption, poor interethnic relations, and terrorism.”).
Still, the Index’s “two decades of advancement in economic freedom, prosperity, and opportunity” haven’t been wasted on everybody. Oxfam says that 210 people have been lifted out of poverty in the past year, helping bring the world’s total number of billionaires to 1426, with a combined net worth of $5.4 trillion. And as you’d expect, some billionaires have more billions than others: the world’s 85 richest individuals own as much wealth as the poorest 3 billion people.
That’s worrying the World Economic Forum, finishing in Davos today. The WEF’s annual Global Risks Report ranks “severe income disparity” at number 4 in a list of ten global risks of highest concern. (The top three are fiscal crises, unemployment, and water crises.) The WEF doesn’t go into detail, but it does point out that beyond the immediate impacts, income inequality interacts with and reinforces other socioeconomic and political trends.
Oxfam provides many concrete illustrations of what that means. For instance, their poll of low-wage earners in the US showed that two-thirds of them believe that Congress passes laws that predominately benefit the wealthy. And that was before last week’s news that most members of Congress are now millionaires (and to think, some people accuse the OECD of being a rich man’s club!). In another Oxfam survey in Spain, Brazil, India, South Africa, the UK and the US, a majority of people (8 out of 10 in Spain) believe that laws are skewed in favour of the rich. Similarly, the majority agreed that “The rich have too much influence over where this country is headed”.
You would have to be particularly naïve to imagine that the rich and powerful don’t use their wealth and power to influence governments, whatever the consequences for the rest of us. An IMF working paper concluded that “prevention of future crises might require weakening political influence of the financial industry and closer monitoring of lobbying activities to understand the incentives better”. The financial industry spent over $1 billion lobbying against regulation in the US after the crisis, but, please don’t tell anybody. In an OECD survey, only around 5% of lobbyists thought that “overall lobbyist expenditure” should be disclosed.
A crisis can have an immediate, long-lasting impact in terms of people losing their jobs and houses, but income inequality can cause less spectacular, but no less damaging, losses too. Oxfam quote an OECD report on Mexican telecoms on the consequences for the country of the monopoly position of América Móvil, owned by the world’s richest man, Carlos Slim. “Mexico, with the lowest GDP per capita in the OECD, a high inequality of income distribution, and a relatively high rural population, needs the socio-economic boost provided by greater access to more services, in particular high speed broadband. The welfare loss attributed to the dysfunctional Mexican telecommunication sector is estimated at USD 129.2 billion (2005-2009) or 1.8% GDP per annum.”
What can be done about all this? The OECD’s answer is “inclusive growth”. Have a look at last year’s OECD Forum to find out more about what that is. Or consider this to find out what it isn’t: the richest 1% increased their share of income over 1980-2012 in 24 out of 26 countries for which data are available. Calculations using figures from the Paris School of Economics’ World Top Incomes database suggest that if income shares had stayed the same over this period, the 99% would have an extra $6000 each in the USA today.
Our leaders must get to grips with the huge risk that carbon dioxide emissions pose to the economy and the environment. As we know, carbon dioxide is a long-lived gas. It hangs around. Of every tonne of CO2 emitted this year, some will still be around thousands of years from now. Even small ongoing emissions will continue to add to the atmospheric concentration.
This is already having a serious environmental impact.
The Intergovernmental Panel on Climate Change’s 2013 report finds it extremely likely that human influence has been the dominant cause of global warming since the mid-20th century. Many countries are taking these findings seriously. However, mounting evidence suggests that a stronger approach is needed.
At the 16th session of the Conference of the Parties (COP 16) to the United Nations Framework Convention on Climate Change in Cancun, Mexico, countries agreed to limit the increase in global average temperature to below 2°C above pre-industrial levels. However, UNEP estimates that country pledges to reduce emissions by 2020 get us only between a quarter and half way to our goal of maintaining a two degree ceiling on the global average temperature increase.
This is why I am making a strong call for governments to put us on a pathway to achieve zero net emissions from the combustion of fossil fuels in the second half of this century. Unlike the financial crisis, we do not have a “climate bailout” option up our sleeve. Nothing short of a transformation of the energy economy will suffice. But we face significant obstacles towards meeting this goal.
Ending our reliance on fossil fuels was never going to be easy. Two-thirds of electricity generation and nearly 95% of the energy consumed by the world’s transport systems relies on fossil fuels.
Several factors compound the challenge of weaning ourselves off this energy source. First, we have recently moved from a world of threatened scarcity to one of potential abundance, due to the exploitation of unconventional fossil fuel deposits such as shale gas in the United States. Second, investments in carbon intensive technologies remain more profitable and attractive than those in low-carbon technologies, in many cases. Third, oil and gas rents account for a considerable share of total government revenue in many countries. Given this “carbon entanglement”, it is not surprising that cash-strapped governments worldwide are hoping to find and exploit new reserves of oil and gas.
There is currently a credibility gap between what governments are saying about climate change and the policies they have in place. Most businesses do not take governments seriously when it comes to climate, primarily because many governments have inconsistent and incoherent policies and then often keep changing them, sometimes retroactively. This makes businesses reluctant to invest in greener technologies.
I propose the following action agenda to reverse this trend.
Action 1: Put a price on carbon. This can be done through a carbon tax or an emissions trading system (ETS). Here, governments have made important progress, with more than 40 countries having implemented some form of carbon tax or emission trading scheme. The “flexibility” of ETS’s makes them politically attractive, although their design and implementation can be improved. However, not all governments have shied away from explicit carbon taxes. There are some strong success stories of introducing carbon taxes smoothly and incrementally over time.
Action 2: Reform fossil fuel subsidies. We have to reconsider our approach to subsidies. The OECD recently inventoried support to fossil fuel consumption and production in our Member Countries. The support we uncovered is in the range of US$ 55-90 billion per year. This is in addition to the US$ 544 billion provided as subsidies to fossil fuel consumers in developing and emerging economies estimated by the IEA. Urgent reform is needed in all countries to phase out fossil fuel subsidies that encourage carbon emissions. While the subsidies are often used to fight poverty, their poor targeting makes them an inefficient way of achieving this goal. Fossil fuel already has a huge advantage as the energy resource of choice. It doesn’t need more help.
Action 3: Address incoherent and inconsistent policies. Governments need to stand back and consider the entire range of signals they are sending to consumers, producers and investors. A key question is whether non-fossil energy investments can currently compete with fossil fuels in terms of their risk-return profile with the policy settings in place domestically and internationally. To help get a consistent picture and to compare country’ performances, carbon pricing and climate policies will soon be a key element of our OECD Economic Surveys. Thus, by mid-2015 we will have a good idea of the progress and remaining challenges in both OECD countries and key emerging economy partners.
The actions outlined above will help to create a clear, long-term signal that the price of emissions will only go one way – up – and put us on a trajectory towards zero emissions. The transition to a zero emissions economy will not be costless, and governments must be frank about the cost of the transformation. But building a post-carbon world will offer some incredibly exciting economic opportunities.
At the same time, inaction also entails huge consequences. For instance, Hurricane Sandy cost the US about 0.5% of the country’s GDP. Recent analysis suggests that the annual costs to deal with flood exposure in coastal cities may increase to over US$ 50 billion by 2050. Typhoon Haiyan, which hit the Philippines, was a stark reminder that developing countries are most vulnerable to the impacts of climate change.
We are on a collision course with nature. Now is the time for us to take bold decisions. Cherry-picking a few easy measures will not do the trick. There has to be progress on every front, particularly with respect to carbon pricing. I feel confident that leaders will rise to this challenge with a stronger commitment to tackle climate change and seize the economic opportunities that a post-carbon world has to offer.
The climate challenge: Achieving zero emissions Full text of the OECD Secretary-General’s speech at an event in London in October 2013, co-organised with the London School of Economics and the Climate Markets & Investors Association (CMIA),
Today’s post is from Rudolf Van der Berg of the OECD’s Science, Technology and Industry Directorate.
Thirty years ago last week, a US Supreme Court decision in the “Betamax case” clarified that even though a video cassette recorder (VCR) could be used for copyright infringement, the manufacturer was not liable for infringement by the purchasers. The decision was by the narrowest of margins – 5-4 – but it stands to this day. Nonetheless, despite widespread take-up of VCR’s in all OECD countries, their legal status often remained unclear. The copyright law of Australia, for example, deemed recordings of broadcasted content for personal use to be illegal until 2006, when the law was amended to reflect common use over many years.
Today, many similar cases are making their way through courts in OECD economies. A new report “Connected televisions: convergence and emerging business models” describes some of the debates taking place regarding new equipment and services that change how television is delivered. The report describes the influence of connected television on the telecommunication market and the interaction between various stakeholders, including actions taken by governments.
Today, anything connected to a screen can serve as a television and it is a network connection that makes it connected. The report looks into the impact these new devices and services have on telecommunications networks. For example, some have expressed the opinion that online television and video-on-demand (VOD) services are either challenging for network management or that telecommunications networks are not fairly compensated for carrying this traffic.
Digital Video Recorders
Digital Video Recorders (DVRs), sometimes integrated in digital television set-top boxes have added the ability to pause content while watching and fast-forwarding later on through parts of the broadcast. The DVR is currently facing challenges in and outside courts across the OECD.
In Belgium, public and commercial broadcasters requested compensation from cable and IPTV companies for the use of DVRs. The reasons given were that the new technologies enabled users to skip commercials and that pay-per-view catch-up television services saw less than expected take-up from consumers.
In the United States, Dish Networks, introduced two features that are currently being challenged in courts. PrimeTime Anytime would automatically record the four major broadcast channels during primetime hours, store eight days of recordings, and hop over advertising in content recorded on previous days. The other feature was to enable its DVR users access via the Internet to content received over their home satellite dish and on their DVR.
Also in the United States, Cablevision introduced a cloud DVR for its customers. Instead of requiring a DVR in the home, the recording was done in a datacentre. This was challenged in the courts, but after an initial defeat, was upheld to be legal, because it was under the control of the user.
In Australia, in a similar case, a cloud DVR service offered by Optus was ruled against by the court. The outcome also led to the closure of similar over-the-top cloud services in Australia, such as MyTVR and Beem.tv.
French television service providers cannot introduce a cloud DVR service, unless with prior authorisation of the copyright holders.
There are also less contentious services, such as the ability to Tweet screenshots of viewed content via Numericable’s DVR in France, access to catch-up television such as BBC iPlayer, and the ability to download apps and games to the set-top box.
Live television online
A number of services have sprung up that allow consumers to access live television via the Internet. One of the best known examples is Aereo in the United States. It gives each individual user an antenna and then streams the content via the Internet. It has been challenged in court, by broadcasters and cable companies, such as Cablevision. However the earlier Cablevision cloud DVR ruling was significant for Aero, with two courts ruling it was not in violation of the law. FilmOn offers a similar service to Aereo from Switzerland for European channels. They take the position that under Swiss law reception and distribution of any receivable free-to-air signal is allowed. Magine, a Swedish company, offers licensed live online television and cloud DVR services in Sweden, Germany and Spain. It therefore resembles more traditional cable television. One of its distinguishing features is that it allows users to go to the start a programme when they switch channels and a programme has already started.
Implications for telecommunication networks.
Catch-up television, such as BBC iPlayer has proven to be very popular with viewers. Viewing is happening increasingly through non-traditional devices, such as mobile phones and tablets.
The report finds that all broadband networks in principle support connected television and online television services. The effect of increasing video traffic over networks has been described by the terms “data tsunami” and “exaflood”. The terms suggest that networks will succumb in a dramatic manner to the amount of data sent. There are, however, few independent sources for data on traffic growth over networks. Those sources that are available show robust growth but offer data that enable a more considered view of network capabilities and traffic growth. Data from European Internet exchanges and Cisco’s Visual Networking Index show a year on year reduction in the pace of growth for Internet traffic. For example where Cisco saw an eight fold growth in traffic from 2007-2012, it only expects a threefold growth between 2012 and 2017 (see also the OECD Communications Outlook 2013).
ISP’s have different views on connected television and the potential effects on their networks and business models. Some networks such as Swisscom openly welcome online television services and increased use of video services. It has stated that it will stimulate consumers to use the higher-speed access services that the company sells. Many ISPs, however, have flagged and adopted a range of different strategies to deal with traffic increases in an endeavour to strengthen revenue:
Differentiating on quality of service: Some ISPs have proposed to differentiate between classes of Internet traffic (gold, silver bronze) or by dedicating broadband for certain applications. So far networks appear to have been mostly unsuccessful in selling such services. Some reasons put forward by content providers for not purchasing these services is, that their impact is mostly unknown as the ISP controls only part of the network. Furthermore in a competitive market content providers may judge that ISPs will upgrade their networks when quality degrades to remain competitive with other ISPs.
Internet traffic exchange: In Korea, Samsung introduced a VOD-service integrated into its television sets, that made use of the consumer’s broadband connection. For a short period access to this service was blocked by Korea Telecom in a dispute over interconnection. In Norway, Nextgentel, the largest ISP, decided to significantly reduce capacity to the national public broadcaster NRK. The broadcaster had reportedly declined to pay for the additional capacity needed. Capacity was later reinstated. The report contains submissions from both countries on the background of these cases and how it was dealt with. It further explains how Internet traffic exchange, also known as peering and transit, functions and how large content providers such as Netflix implement peering. In addition it describes some notable peering disputes in Australia, France and New Zealand. (See also this OECD report on Internet traffic exchange)
The use of CDN’s and caches. Content Delivery Networks (CDN) and caches reduce the costs of traffic for both content providers as well as ISPs, while at the same time increasing quality. Though Akamai is perhaps the best known, serving up to 9 Terabit/s in 2011, there are a great number of competing services, including those offered by ISPs. This has created a very dynamic market. Content providers may use multiple CDNs at the same time, choosing the best one for a customer based on costs and performance. Some large content providers such as Google and Netflix however have opted to deploy their own CDNs also known as caches instead of purchasing from ISPs or third-party CDN providers, because for them this is the most cost effective and efficient solution.
Download limits: Until recently, the use of download limits (data caps) on fixed networks was decreasing in the OECD area due to competitive pressure. There has been a slight uptake, however, in some countries, whereas other countries have witnessed an increase in caps. Some state that caps allow the network to be shared more equally amongst users. Others, such as the president of the United States National Cable and Telecommunication Association have stated that limits are not about network capacity but that discriminatory rates provide a way of meeting costs of broadband roll-out. Critics of limits note that at peak times, those that go over caps, are not using the network significantly more than other users in a way that incurs costs to the network. Those that exceed their cap use the network more during off-peak hours. Content providers have reacted by offering customers to choose lower quality video streams that use less of the available download limit.
OECD Policy Roundtable: Competition Issues in Television and Broadcasting 2013
Today’s post is from Andrew Wyckoff, head of the Directorate for Science, Technology and Industry (STI) at the OECD. It follows the post by the World Bank’s Gerardo Corrochano about the Innovation Policy Platform on Friday, and is co-published here by the World Bank.
Do you know what FedEx, the well-known overnight shipping company, and Dell Computers, a multinational technology company, have in common? Both firms’ core business ideas were developed by young student entrepreneurs. There are many other stories out there illustrating that universities and other public research institutions (PRIs) are a major source of innovations.
In searching for new routes to growth policy makers around the globe invest high hopes in public research. A premium is being placed on the contributions of public research to the creation of new knowledge capital. The way universities and PRIs operate is also changing including notably the mechanisms and terms on which universities and PRIs are engaging with business and society. We also see that innovation is becoming more open and collaborative and that knowledge circulates more quickly and freely than ever. This inevitably has impacts on the commercialisation of public research.
Recent work we conducted at the OECD on this topic demonstrates the importance of channels other than patents for the commercialisation of public research. The idea that research results reach the private sector in the form of patents, licenses and spin-offs based on patents no longer corresponds to reality. The commercialisation of public research through these channels has shown a general slowdown since the late 2000s. While patenting remains important, universities and PRIs are emphasizing other ways to commercialise their research, notably collaborative research, student entrepreneurship and faculty mobility, contract research and consulting.
Policy makers need to respond to the latest trends with new ways to support public-private knowledge exchange. Facilitating greater access to publicly funded research and data is critical. Moreover, new strategies to link teaching, research and commercialisation, such as student mentoring, can provide the new generation of students with the necessary skills to take their knowledge to markets.
Most importantly, policy makers have to take a strategic view of the intellectual assets generated by public research and demonstrate how these can contribute best to their national innovation system. The Innovation Policy Platform is a valuable tool to help policy makers reach this objective. The Platform helps policy learn how innovation systems operate, identify good practices, and apply effective solutions. The technology transfer and commercialisation, the universities and public research institutes and the intellectual property rights modules of the IPP discuss the critical factors that arise in debates about the commercialisation of public research. The platform also provides information on different countries’ policies in this domain. This information is based on the OECD Science, Technology and Industry Outlook questionnaire.
The IPP is a joint OECD-World Bank initiative, and as such seeks to facilitate knowledge exchange and collaboration across countries and regions on innovation policy. The current site is still a beta version. We plan to introduce collaborative features to more actively support the design and implementation of policies.
For the IPP to reach its potential, we rely on your experiences and feedback. I join Gerardo Corrochano by saying that we look forward to developing the IPP with you.
Today’s post is by Gerardo Corrochano, Director of the Innovation and Entrepreneurship Global Practice, and Director for Financial and Private Sector Development (FPD) for the Europe and Central Asia (ECA) Region of the World Bank. It is co-published by the World Bank.
We are surrounded by innovations – the outcome of innovative activities. Some affect us more than others. Some are more visible than others. In reading this blog post on a computer or a portable device, you can see how this innovation has made your personal and professional life more productive (although not necessarily easier).
You might not have heard, however, about other kinds of innovations – like the eco-friendly and affordable cooking stoves that reduce exposure to toxic gases for people in Mongolia, substantially increasing their health and lowering costs. All kinds of innovations improve people’s lives from Ulaanbaatar to Washington, increasing social well-being and driving economic growth.
Governments can support innovation through the effective use of public policy. Innovation has steadily climbed its way to the top of policymakers’ agendas in recent years, in developed and developing countries alike. This is illustrated by the importance given to innovation in such strategies as the European Commission’s “Europe 2020” growth strategy, China’s 12th Five-Year Plan (2011 -2015), or Colombia’s National Development Plan (2010-2014). Yet despite the growing consensus around innovation as a driver of sustainable growth, governments face considerable difficulties in identifying, designing and implementing the best-suited policy instruments and approaches to support innovation.
Defining good policies is a walk on a tightrope. Much like the barriers that constrain innovators inside an economy, policymakers face high costs of retaining and retrieving valuable information and best practices to help define their policies. To address this issue, the World Bank – in collaboration with the Organisation for Economic Cooperation and Development (OECD) – has developed a new tool destined to enhance the capacity of policy practitioners around the world to support innovation through better policies.
The Innovation Policy Platform (IPP) is a one-of-a-kind web-based interactive space that provides easy access to open data, learning resources and opportunities for collective learning on the design, implementation, monitoring and evaluation of locally appropriate innovation policies. The IPP contains a wealth of practical information on a wide array of innovation-related topics, such as financing innovation, technology transfer and commercialization, and innovative entrepreneurship. The IPP is intended to enable North-South and South-South policy learning and dialogue through a wide array of case studies, policy briefs and collaborative working tools. The IPP aims to create a dynamic community of practice. It is now available to the public and can be accessed at www.innovationpolicyplatform.org.
Moreover, the World Bank is piloting new approaches to innovation policy that directly target the poorest of the poor. In Vietnam, we have launched an inclusive innovation project, which will provide pro-poor technologies in traditional herbal medicine, information and communication technology, and agriculture and aquaculture.
As these examples show, the World Bank is interested in innovation in a broad sense, aiming to advance our twin goals of eliminating extreme poverty and building shared prosperity. Our support to client countries ranges across policy for innovation systems, technology transfer and diffusion, financing and linkages, and inclusive innovation. Looking ahead at the next decade, the Bank’s engagement in the field of innovation will continue to respond to the ever-increasing needs of our client countries. We are now seeing just the early stages of the trend toward building stronger innovation-driven economies, and this trend is sure to gain momentum. The IPP will be a vital asset in helping reduce information costs, facilitating the spread of practical expertise to help policymakers draft smart innovation policies.
Today’s post is by Dr Lorna Gold, Head of Policy and Advocacy, Trócaire, the Irish Catholic Agency for World Development and the Irish member of CIDSE and Caritas Internationalis. It is followed by a reply from Erik Solheim, Chair of the OECD Development Assistance Committee, the body that oversees ODA.
Official Development Assistance (ODA) as we know it would appear to be rapidly going out of fashion. Just over ten years ago there was a massive push on to deliver the MDGs and to increase aid levels dramatically to meet those goals. Only three years ago donors gave $136.7 billion in ODA, amounting to 0.32% of their collective Gross National Income. Just three years later, as discussions around the Post-2105 development framework are progressing, aid is falling and many major donors and institutions are now talking as if ODA is history – the future is now to be found in other types of finance.
The complex challenges the world is now facing, it is argued, require a radically different financing model – one which requires a comprehensive approach to financing, embracing all sources of public and private finance available to developing countries. ODA represents a very small percentage of overall financial resources available, amounting to a mere 2.7% of all public and private financial resources available to developing countries in 2010.
The merits of this comprehensive financing discussion are obvious. Civil society has been at the forefront of such a debate for more than a decade through calls for debt cancellation, fair trade and tax justice. It provides a space to discuss the unfair nature of the global financial system and the need to stem illicit flows through money laundering, tax evasion, reforming institutional mechanisms to bring forth information, recovery of stolen assets and so on. As the focus shifts to the domestic tax base, moreover, such a debate means that the inter-connected nature of global investment finance incentivises rich countries to address commensurate measures. For example, a large part of the agenda around domestic resource mobilisation requires the EU to put in place full country-by-country reporting requirements on public record along the lines of the requirements for the banking industry and beyond those for extractive and timber companies.
Whilst this debate is welcome, we cannot afford to lose sight of the ongoing importance of ODA as a key means of addressing extreme poverty. ODA may well represent a very small proportion of overall financial resources available to developing countries, but it still accounts for the largest proportion of public international finance available (58%). Moreover, ODA remains a critical source of funding for the Low Income Countries, many of which are fragile states, amounting to 10% of their GDP. It is a critical financial flow for the most vulnerable countries which are unable to readily generate alternative financial flows.
The timing of the emerging discussions around the redefinition of ODA within the OECD-DAC is particularly concerning. Whilst there are certainly technical merits to tidying up the concept and modernising it, one needs to step back and ask whom the move to change the definition is designed to benefit and what the risks are of opening such a debate up at this global juncture?
The main beneficiaries, so far as I can see, are the growing number of OECD donors who are failing to meet their 0.7% commitment to ODA through enabling them to save face. It may come as a surprise that the vast majority of EU citizens actually want their governments to meet their ODA commitments! Despite austerity measures which have led to severe cut backs on domestic public spending, support for ODA on the whole has remained consistently high between 2007 and 2012, with 83% in favour. The same governments, however, are facing massive fiscal problems and very unlikely to keep their promise on reaching the UN target without significant sacrifices. There is potentially a political prize to be gained by widening the DAC criteria on technical grounds. It would enable donors to meet the 0.7% target with virtually zero additional finance.
Opening the debate around the definition of ODA, however, entails a number of serious risks at this political juncture. First and foremost, the move to change criteria amongst donor countries will do nothing to engender trust in already fractious multi-lateral processes. On the contrary, it will only serve to undermine them further. The repeated failure to honour promises on ODA in the context of the Financing for Development process – but now trying to change the goalposts behind closed doors – will be seen as a cynical move on the part of the OECD donors. A debate about redefining criteria is inappropriate until all donors are meeting their current commitment to 0.7% as currently defined.
Secondly, opening the discussion at this point, where vested interests are so dominant, risks undermining the integrity of ODA as a set of financial instruments which have poverty eradication as their primary objective. Certainly ODA is not perfect, but it has specific characteristics which reflect its principal goal in addressing poverty through durable development impacts which go beyond financial transfers. The most disadvantaged LICs who rely on ODA and have limited access to other funding streams would be most at risk of any change.
Thirdly, the broadening of the DAC criteria could significantly undermine public support for development cooperation within OECD countries. ODA is by and large regarded as something which has credibility. In Ireland, this has been a hard won fight which risks being undermined if the criteria are changed to allow for the inclusion of non-poverty related expenditure.
Finally, and perhaps most importantly, engaging in a divisive debate about criteria is a distraction. It diverts energy from the real issues of finding additional sources of finance, potentially creating a false illusion that more is being done on the basis of creative accounting.
There are valid arguments for discussing all the elements of international finance which need to be harnessed in the context of a comprehensive financing framework to meet the post-2015 framework. The imperative to find new sources of finance and address systemic issues, however, should not be used as a means for OECD donors to shirk their responsibility to their ODA commitments. The attempts to change the definition of ODA must be avoided if the critical multilateral processes over the next two years are to have a future.
REPLY FROM ERIK SOLHEIM
Lorna, I could not agree with you more! Development assistance has been a great historical success. It has contributed to the fantastic development success of the last decades, bringing 1 % of humanity out of extreme poverty every year since 1990.
ODA works well and there is no point trying to fix what is not broken. We need more ODA, not less. We should promote the examples of nations who are in the lead. UK reaching 0,7 % this year. Sweden stable at 1 % over many years. Turkey with the biggest increase in development spending in the OECD.
The most important thing is that ODA promotes poverty reduction in the countries that need it the most, and reflect the spirit of the 0.7% target made by donor countries. It may very well be that the definition needs a tidying up.
In this spirit a debate is not dangerous, it is necessary. We may possibly decide to set stricter targets for ODA reaching the least developed countries. We may be better in using ODA catalytically in increasing other sources of development resources. Domestic resource mobilization through taxes can be helped by initiatives like Tax for development.
More importantly, we are working on modernising the way in which we measure and monitor wider development flows than ODA. Everyone acknowledge the importance of private sector flows as well as peace keeping. All development efforts should somehow be accounted for, acknowledged and encouraged. They should be added to ODA, not replace ODA.
We know that designing development programmes to fit the ODA definition can lead to poor outcomes, particularly when it comes to maximising the flow of finance. We must have a system that allows for innovation and the maximisation of funds and that does much better at leveraging additional money out of the private sector. One way to do this is to have broader, transparent measures of development finance from the perspectives of both what effort the donor is making and what the benefit is to the recipient. These would be new measures, separate to ODA.
The DAC will be working on these through 2014 and once we have a more substantive idea of what they look like, we can have a look at whether we need to tidy up ODA.
The rise of the south is probably the most important development in the world over the last couple of decades. It has transformed the power, the politics, the economics, the development. One result is an increase in south-South cooperation which has changed the world of development finance. We have to have open doors and consult with all relevant partners. We are working with the UN to produce measures that are not just for DAC donors, but that can support the post-2015 targets.
My view is that the OECD has an a lot to offer in terms of providing robust statistical systems and has an obligation to support the wider international community by making them available. Beyond this, I and many members of the DAC and its Secretariat are out on the road talking with providers of South-South cooperation, China, the Arab donor community, partner countries, civil society and private sector about this project.
We’re also heavily involved in the Global Partnership for Effective Development Co-operation. This forum and the high level meeting in Mexico will be crucial in making the international development system more effective. We’re also working with an Expert Reference Group and sharing our work and many papers on line. Nothing will be behind closed doors!
I will be happy to continue the dialogue – in Dublin or in Paris. Thanks again for your blog!