DevIssues volume 12, number 2, November 2010

Economic Crisis 2 years on

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Also in this issue: Generation Text Local Government and Development

DevISSues DevelopmentISSues

Volume12/Number2/November 2010

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From the Editorial Board The Financial Crisis – 2 Years On It was in the summer of 2008 that the first bank in the US fell, Lehman Brothers. At the time, both the general public and economists thought that it was an entirely American phenomenon. Within a few months, however, the crisis had spread across Europe, with banks falling or being taken over by the state, including devastating bankruptcies of Iceland’s main banks. Yet for most of 2009, the general view was still that the crisis would not hurt the developing world. It was seen as a rich men’s crisis, right at the heart of the financial centres of the world, from New York to London and from Reykjavik to Frankfurt. In her contribution to this special issue, Esther-Mirjam Sent emphasizes the word ‘men’ here, showing that the crisis emerged in a male-dominated financial sector. She argues, on the basis of available research outcomes, that management teams that represent a critical mass of women are better able to cope with risk and lead to better business performance. So, a stronger representation of ‘Lehman’s sisters’ may have prevented the crisis in its current form.

A narrow economic view may hold on to the wishful thinking that the negative effects of a financial crisis in the US would remain limited to the financial sector in the developed world. But those taking a wider economic perspective knew that this was a myth, desperately held on to by those who had no idea how vulnerable financial markets are in today’s financialized and globalized world. Prabirjit Sarkar shows in his contribution that stock markets and other forms of financial market development do not necessarily promote economic growth in developing countries. Rather, the financial sector seems to be a risk for development.

While the financial system in the US and Europe almost collapsed, the wider economic perspective appeared to be the more realistic one. Governments in the developed world stepped in to nationalize banks that were considered too big to fail and thereby interfered heavily in the market. While the real economy – consumption, investment, exports, imports, employment – showed alarmingly sharp declines. Hence, it seems not good for the economy to have the financial market continuously spread.

As the crisis moved into its second year, it became clear that it was spreading to the developing world as well. First to its financial sector, with banks being affected through toxic derivatives they had bought from US and through the drying up of foreign capital inflows, which declined by a third in 2009. The effect of the crisis in the developing world was, however, not limited to the financial sector. It also hit the real economy, in particular through a reduction in exports as well as imports. These effects are described clearly in the paper by Peter van Bergeijk. Hence, there is an important lesson to be learnt about the extent of globalization of the world today: our world is even more strongly globalized than most of us thought. Not only through the spread of ICT and coca cola to every village across the globe, but also through the financial interconnectedness of the world’s banks and financial markets, and the increasing role of trade for a country’s development. Although Africa seems to have become more resilient to fluctuations in its growth over the past decade, the continent is still vulnerable to economic downturns elsewhere in the world, as Jorge Arbache argues in his contribution. Africa’s growth benefits are mainly due to exports of resources, which benefit only a few countries on the continent and still depend heavily on imports by the developed world and China.

This crisis has thus shown the vulnerability of the globalized economy, in which not only good things spread quickly, but also bad things can very easily contaminate every country around the world and, worse still, hit the weakest groups hardest, as Richard King points out in his article. He brings together indicative evidence that poor women are hurt particularly, due to their role as providers for household livelihoods and their communities.

Finally, this issue contains two fine papers by ISS participants that are not part of the theme. The first one, by Sergio Ferragut, applies an innovative local development perspective to the development of an open market in the city of The Hague. The other one, by Marie Angelie Resurreccion, focuses on youth mobilization in the Philippines, referred to as ‘generation text’, through mobile phones and internet. Both give hope for a better world to come after the financial crisis. And perhaps even more so for ideas from the developing world – where alternatives for Western white male financial innovations are more likely to come from – perhaps in text messages.

Irene van Staveren

About the cover The cover this issue is a collage in which we have tried to illustrate various aspects of the current global economic crisis. The background photograph is a Financial Crisis Montage by D.F. Shapinsky (see acknowledgement below) showing just some of the headlines and news reports resulting from the onset of the crisis. But economic crises, however they are started and whoever is to ‘blame’, affect real people: in their jobs, their homes and their lifestyles. The two superimposed photos show just two examples of this. One shows two Vietnamese women making hats for their local community. The younger woman is helping her mother as this is the only way she can make a living. The other photograph is part of a Brazilian bankers’ trade union poster making the point that ‘The gains of the bankers brings results.’ With thanks to Helen Hintjens, Lee Pegler and Karen Shaw.

Background photo Financial Crisis Montage by D.F. Shapinsky, October 2008

ISS is the International Institute of Social Studies of Erasmus University Rotterdam

Contents

Page 4 / The financial crisis, the import collapse and the developing countries

Peter van Bergeijk

Page 6 / How Have Global Economic Crises Affected Africa’s Economic Growth?

Jorge Arbache

Page 9 / Does the Stock Market Promote Growth?

Prabirjit Sarkar

Page 12 / Gender and the Global Economic Crisis

Richard King

Page 15 / The crisis as an opportunity for female leadership

Esther-Mirjam Sent

Page 18 / The Local Government as a Central and Leading Actor of Local Development: The case of the Herman Costerstraat Market in The Hague

Sergio Ferragut

Page 21 / Youth Power 2.0: Harnessing technology for youth mobilization

Marie Angelie Resurrecion

The views expressed in DevISSues are those of the original authors and do not necessarily reflect those of the Institute.

The online versions of all articles with full bibliography can be found at www.iss.nl/devissues

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The financial crisis, the import collapse and the developing countries Peter van Bergeijk Despite green shoots in the OECD and strong growth rates in China and India the world economy is not out of the woods yet. In 2007 the most serious global economic crisis since the 1930s started and many developing and emerging economies (DEEs), that since the mid 1990s had opened up to the world economy, are now experiencing the down side of strategies that - for good reasons - relied heavily on international trade and foreign direct investment to achieve national development.

What was expected When the financial crisis burst out in 2007 the majority of economists was not expecting the DEEs to be hit hard. A first, often-mentioned, reason was that developing countries had not engaged in the kind of financial whiz-kidding that had created the enormous bubble in the OECD. Thus it was assumed by many analysts that the DEEs would not suffer a fall-out from the banking crisis which after all was a problem of the OECD countries. A second reason was the myth of decoupling: the non OECD, in particular the BRIC countries (Brazil, Russia, India and China) were assumed to have reached sustainable momentum in their development trajectory. It was expected that the experience of the dotcom crisis (when the BRICs were able to show continuous growth independently of the weakening OECD business cycle) would be repeated.

Both ideas were dangerous and wrong (and actually not new at all as the belief that the periphery could escape the financial collapse in the centre was also widely shared in the early 1930s when it proved to be erroneous). It is true that some of the BRICs continued to grow considerably but the sustainability of growth in 2010 and beyond is not self-evident because the main driver of

those expansions (monetary and fiscal stimulus) cannot be expected to last forever. More importantly, smaller DEEs probably did not experience this momentum and may have been hit hard.

What is happening We do not yet know what happened in many countries, simply because real time data for a sufficient level of analysis are not available. This means that we have to do some economic detective work and use the method of indirect observation to infer if and how the crisis hits the DEEs. We can, for example, take a look at more aggregate data in order to glean the impact of the crisis on the DEEs. In today’s world many channels exist through which economies are linked. International flows such as remittances, bank lending, migration and development aid are influenced by the downturn in OECD economies.

An example is the amount of Official Development Aid (ODA). Last year the OECD’s Development Co-operation Report 2009 estimated that the underlying trend growth rate of the volume of aid needed to increase to 11 per cent per year in order to achieve the Millennium goals. The results in 2009 were, however, disappointing as the amount of aid increased by 0.7 per cent only. Importantly this is not the result of increased spending but of exchange rate movements that contribute more than 4 percentage points. Actually total ODA in current prices and at current exchange rates decreased from US$122 billion in 2008 to 119 billion in 2008 (actually 12 OECD countries reduced ODA).

Often the measurement of these flows is imprecise and data become available with considerable delay. Better data exist for Foreign Direct Investment (FDI) and especially for international trade

and therefore we will take a closer look at these international flows. After six years of uninterrupted growth, FDI flows to developing and transition economies, according to UNCTAD’s recent Global investment trends monitor, declined in 2009 by 35 per cent and 39 per cent, respectively. Export volumes also showed substantial declines. According to the World trade monitor (compiled by CPB Netherlands Bureau of Economic Policy Analysis) DEEs real exports at the start of 2010 were some 12 per cent below their previous high (the peak of the trade cycle is in 2008). Experiences at the regional level showed a lot of variation. Asia definitely did better, but exports in Latin America had decreased by 19 per cent and the volume of exports in the Middle East and Africa was even 25 per cent below the previous peak level (the trade cycle for the latter region appears to follow a double dip pattern).

Some argued that these developments could be a symptom of a process of deglobalization. Others blamed a collapse of trade finance (which is particularly relevant for DEEs) and an increase in protectionism for the declines. It is, however, important to note that the trade and investment contractions took place in a policy context that by and large appeared to have been withstanding the temptations of protectionism and, moreover, the G20 made additional trade financing of US$250 to US$400 billion available, including instruments to mitigate risks and liquidity support.

The collapse of international exchange, in other words, could have been much larger if inappropriate policy responses had occurred.

Imports provide a good indication of crisis impact Informative as such observations may be, they do not yet provide an indi-

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cation of the actual impact of the crisis in individual countries. If we want to observe the impact of the crisis on a specific country, one of the best methods is to observe the development of the volume of imports. This is so because trade flows, unlike more comprehensive and complex phenomena such as (national) income are observed reasonably accurately and published without much delay. Exports and imports do not, however, provide the same sort of information about the condition of the economy of DEEs. Actually exports often do not provide a meaningful picture of the impact of a crisis. A decline in domestic demand may, for example, induce firms to find new markets abroad and, if policy makers respond with devaluation, one would expect exports to increase in the aftermath of a financial crisis. This is all the more true as policy makers typically opt for an export led growth strategy to get out of a crisis situation.

Resources are thus often re-allocated towards the export sector in order to ensure that hard currency can be earned, for example, in order to be able to meet international debt obligations. Exports thus actually may tend to grow during and after financial crises. From a political economy perspective the perception may be relevant that imports entail an outflow of hard currency. Thus policy makers might not be inclined to come to the aid of importing firms (unless the imports are crucial for the exporting industry). Payment risk is especially relevant for the importer who will experience a rise in transaction costs, for example, because letters of credit or even full payment in advance is required. The reduction in effective demand that is a consequence of a financial crisis directly translates into a reduced import volume.

Finally, in a scenario that involves a depreciation of the currency, the price of imports will rise and thus exert a negative influence on the volume of imports.

All in all the impact of a financial crisis should be expected to be most visible and unambiguous in the development of the volume of imports.

Where does the crisis hit?

Figure 1 analyses the decline in the volume of imports in a cross-country setting for a group of 45 countries over the years 2007 to 2009. This group of countries covers the OECD and the major DEEs (China is not included because the data are insufficiently comparable).

The Figure compares the peak and the trough of the import cycle over this period. The figure first of all illustrates the large variation in country experiences.

The Netherlands registers one of the smallest import contractions (of about -11 per cent); the largest contractions of some - 45 per cent occur in Belarus and Venezuela. Importantly, the figure relates this decline to the level of development (which is approximated by the income per head in US dollars). The dotted regression line indicates that lower income per head is associated with stronger contraction of the volume of imports. The observation that the DEEs (have to) reduce their import expenditures to a much larger extent suggests that they are hit harder by the crisis than the richer countries. Of course this is not a direct observation but the finding that many DEEs are adversely hit by the crisis

positively than the actual ‘underlying’ development of consumption, investment and net government expenditure.

The upshot is that a recovery of GDP may be less sustainable than expected.

All in all, the important conclusion of this article is that the developing and emerging economies particularly have experienced very substantial declines in import volumes. The implication is that these countries must have been hit relatively hard. Importantly, the contraction of imports will limit their prospects over the medium term, because development requires imports of capital goods, raw materials, intermediate goods and essential consumer goods. The contraction of imports may thus act as a future drain on development and the influence of the crisis will go beyond the direct economic impact, for example because

Figure 1 Import reduction (volume change in per cent 2007-2009) and level of development (GDP per capita 2008)

Source: P.A.G. van Bergeijk, On the Brink of Deglobalization Edward Elgar,

Cheltenham 2010, Appendix 7.1 is corroborated by other more advanced techniques such as the World Bank’s applied microsimulation models which also show that these macroeconomic effects trickle down to the (new) poor and especially a middle income group of ‘crisis vulnerable’ with substantial poverty and distributional effects and potentially important effects on long term growth. It is also important to note that imports in the National Accounts are subtracted in order to arrive at Gross Domestic Product. A contraction of imports will thus paradoxically influence GDP upwardly. This may make the National Account figures look more

health care has to be cut down. The World Bank/IMF Global Monitoring Report 2010 The MDGs after the Crisis analyses the impact of decelerating growth on human development indicators finding that life expectancy at birth on average declines by 10 per cent as infant and child mortality increase by 50 to 75 per cent respectively. Against this background the development of ODA is even more disappointing.

Peter A.G. van Bergeijk is Professor of International Economics at ISS and deputy director of CERES, the Dutch Research School for Resource Studies for Development.

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How Have Global Economic Crises Affected Africa’s Economic Growth?

Jorge Arbache How has the global economic crisis affected economic growth in sub-Saharan Africa (Africa)? This is a particularly important question because of the contribution growth can make to achieving the Millennium Development Goals in the continent. Unlike previous international crises, I will argue that this time Africa has done quite well economically, compared with other regions, and has shown some economic resilience.

African countries’ economic growth has been rising in parallel with the rest of the world since the early 2000s; its top performers are doing well compared to fast-growing countries in other regions.

Furthermore, the region quickly resumed growth after last year’s economic shock: overall, African economies are expected to grow 5 per cent this year and 5.9 per cent in 2011, above the world average.

But does this mean that African economies, as a group, have finally turned the corner on the path to sustained growth?

Growth over the past three decades has been low and even negative. Good times were often followed by very bad times and economic growth was rarely sustained (with some notable exceptions like Botswana and Mauritius). In light of this volatile background, in this short piece I see whether growth has really accelerated in recent years.

I also ask about the underpinnings of higher growth rates. And, finally, I ask whether the more recent economic growth is sustainable or not, in relation to the economic crisis. To conduct this exercise, I will employ the methodology of Arbache and Page (2007) to identify growth acceleration and deceleration.

Thereafter I use GDP per capita growth data taken from the World Development Indicators for the years 1980 to 2008.

Over the past thirty years, average annual growth rate across the African continent has been just 1 per cent. This poor performance can be attributed mainly to extremely low and even negative growth in the 1980s and 1990s. This era was marked by severe economic fluctuations, negative growth and conflicts, as well as global and institutional disruption. Growth acceleration - a period characterized by growth rates above the trend for at least five years in a row (see Arbache and Page 2007 for more details) - only occurred in 28 per cent of the years between 1980 and 1999. This figure has increased to 57 per cent for the post-2000 period. This means that the chances for an African country to experience a growth acceleration have improved, more than doubling. Similarly, the probability of a growth deceleration - a period characterized by growth rates below the trend for at least five years reduced dramatically in the region to 10 per cent in the 2000s, from 30 per cent in 1980-1999. Table 1 shows this.

…the region’s recent…rapid growth relies ..on..growth in resource-rich countries.

The region’s growth has not been uniform across countries, with resource-rich countries growing significantly faster in recent years than the average (Table 1).

Resource and mineral-wealthy countries have prospered economically, growing by 5 per cent per annum on average since 2000, which is twice the African region’s mean growth rate for that period.

The resource-rich group of countries also experienced many more periods of growth acceleration (70 per cent compared to 26 per cent before 2000). By comparison, non-resource rich countries have grown on average 1.5 per cent per annum since 2000 and experienced growth accelerations 51 per cent of the time, up from 30 per cent before 2000.

These statistics suggest that the region’s recent more rapid growth relies strongly on the growth performance in resourcerich countries.

What underpins recent growth?

Much of the improvement in economic performance in African economies since the year 2000 can be seen as being caused by a substantial increase in growth accelerations combined with a substantial reduction in the frequency and severity of growth decelerations (Table 1). According to Arbache and Page (2007), among the main factors explaining growth volatility in African economies, certainly during much of the post-independence era, are conflicts, natural disasters, commodity price shocks, terms of trade shocks and poor policies. During the period since 2000, many of these factors have become more favourable: conflicts have gradually declined; there have been fewer natural disasters; commodity prices have been generally quite high and high prices fairly sustained. It can also be argued that macro management has improved. Overall, African countries have benefited a great deal from favourable economic, political and natural conditions. Up to the present, the global crisis has not significantly changed the pattern of commodity prices.

To what extent is this turn-around associated with changes in the ‘growth determinants’ that are linked to long-run growth? I examine growth determinants, such as investment, savings and trade, before and after the 2000s, trying to identify whether they have improved.

Although such an approach does not allow us to identify causal relationships between changes in growth determinants and growth episodes, from the point of view of assessing sustainability,

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this is not necessarily a limitation: we do not need to know whether, say, an increase in the investment rate led to more frequent growth accelerations or more frequent accelerations of growth prompted a rise in investment.

Regardless of the direction of causality, if there is evidence that the structural characteristics of Africa’s economies strengthened during the recent period of more frequent growth acceleration, it increases our expectation that the recent growth acceleration may be sustained.

Table 2 shows the mean value of growth determinants during growth accelerations before and after 2000. The figures indicate that most growth determinants have not changed significantly since 2000: the only investment variable that increased was foreign direct investment. There was a reduction, not an improvement, in investment variables in resource-rich economies during growth accelerations before and after 1999, whereas the values of these variables remained basically the same in nonresource-rich economies. Inflation dropped, mostly due to non-resource rich countries, suggesting an improvement in macroeconomic policies. All other growth determinants examined remained mostly unchanged.

The empirical literature on growth also suggests that political and institutional reforms can lead to accelerated growth, even in circumstances where underlying economic variables remain largely un-

changed. Table 2 shows that measures of Africa’s governance remained mostly unchanged between the two periods for both resource-rich and non-resource rich countries: no improvements in the measures of governance.

…political and institutional reforms can lead to accelerated growth.

How durable is growth in the face of crises?

What does this analysis suggest about the durability of Africa’s recent growth performance? Although a number of other studies have found that growth can occur without corresponding increases in investment rates, the lack of improvement in aggregate and private investment is worrisome. The absence of any significant increase in the investment rate, as a whole, during growth accelerations suggests that much of the growth since 2000 consists mostly of increased use of existing production capacity and of increased productivity.

While such movement is welcome and marks a reversal from past low yields on investment, it does raise concerns regarding the sustainability of growth.

Africa’s aggregate and private investment rates lag behind other regions and, even with an improvement in productivity, the lack of improvement

in investment poses problems from the point of view of the sustainability of further growth. The current financial crisis is not likely to be helpful in this respect.

Although trade has expanded overall since the mid 1990s, it does not appear to be leading growth in the 2000s as it is growing only slowly. Compared to Latin America, the Middle East, North Africa and South Asia, Africa has always had a high share of trade in its national income and a high ratio of exports to GDP. However, African exports are growing relatively slowly and non-traditional exports are a very tiny share of the region’s output. More worrisome is that Africa’s exports remain heavily concentrated in a few traditional commodities.

Again, the current crisis, with its negative effect on world trade, is not likely to be helpful at all.

The evidence on policies and institutions also raises concerns for growth sustainability, as these have not changed, suggesting that economic growth has not been accompanied by improved governance.

There are thus almost no significant changes in growth determinants in Africa. The exception is for those of investment in the resource-rich countries, but these went down, not up, and inflation, which improved. At most, these changes contribute to reducing the frequency and severity of growth declines (Arbache and Page, 2010).

Table 1: GDP per capita growth rate and frequency of growth acceleration and deceleration – Africa

GDP growth (%)

1980-2008

1980-1999

2000-2008

1.01

0.25

2.55

GDP growth (%) - resource rich countries

1.93

1.97

5.01

GDP growth (%) - non-resource rich countries

0.63

0.40

1.53

Frequency of growth acceleration (%) - all countries

39.0

28.4

57.1

Frequency of growth deceleration (%) - all countries

22.4

29.6

10.3

Frequency of growth acceleration (%) - resource rich countries

42.4

25.8

70.4

Frequency of growth acceleration (%) - non-resource rich countries

37.7

29.5

51.5

Growth acceleration and deceleration definitions according with Arbache and Page (2007).

The definition of resource-rich countries is from the Regional Economic Outlook 2010, IMF. Calculations based on 1,189 country-year observations.

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Table 2: Differences of means of economic fundamentals and institutional variables during growth acceleration - Africa Resource-rich countries

All countries Variable

Non-resource rich countries

1980-1999

2000-2008

1980-1999

2000-2008

1980-1999

2000-2008

Investment (% GDP)

24.7

22.6

30.6

22.8

22.9

22.1

Private sector investment (% GDP)

14.6

14.4

21.8

13.9

12.4

14.6

Foreign direct investment net flow (% GDP)

1.73

4.35

2.54

6.73

1.41

3.45

Savings (% GDP)

10.2

11.6

25.8

23.0

5.32

5.65

Trade (% GDP)

73.9

75.8

84.9

85.1

69.9

70.3

CPI (%)

16.2

10.4

24.0

15.2

14.2

7.8

Political stability (-2.5—2.5)

-0.44

-0.59

-0.92

-1.1

-0.30

-0.29

Voice and accountability (-2.5—2.5)

-0.43

-0.49

-1.0

-0.89

-0.25

-0.27

Regulatory quality (-2.5—2.5)

-0.47

-0.56

-0.68

Rule of law (-2.5—2.5)

-0.65

-0.66

-0.97

Government effectiveness (-2.5—2.5)

-0.60

-0.63

-0.86

-0.93

-1.08

-1.02

-0.41

-0.56

-0.52

-0.36 -0.42 -0.42

Institutional variables are from Kaufmann, D., Kraay, A. and Mastruzzi, M. (2009), Governance Matters VIII: Aggregate and Individual Governance Indicators, 1996-2008. World Bank Policy Research Working Paper No. 4978.

Rating scale ranges from -2.5 (weak performance) to 2.5 (very high performance). Calculations based on 1,189 country-year observations.

Conclusions The current global financial crisis has not changed Africa’s recent growth pattern, which has remained strong since the beginning of the decade. Empirical evidence suggests that the improvement in economic performance turns out to be due largely to two factors: a substantial reduction in the frequency and severity of growth declines in all economies and an increase in growth accelerations, especially in mineral-rich economies. There is some evidence

of modest improvements in growth determinants, and an indication that the growth surge was propelled mainly by the rapid growth in demand for natural resources and by improved use of existing production capacity and factors of production. The concentration of growth acceleration in the resourcerich economies raises the possibility that growth is vulnerable to declines in commodity prices and to the natural resource curse. African countries have to take advantage of the good times to

accelerate social progress, to diversify their economies, and, above all, to strengthen their economic fundamentals, as these are the pillars of sustained growth and are less vulnerable to crises.

Jorge Arbache is senior economic advisor at the Brazilian Development Bank (BNDES). He is a former director of the Africa Development Indicators, World Bank (2005-2009). Email: jarbache@gmail. com.

Working Papers

ISS Working Papers can be found on the ISS website at www.iss.nl/ Library/Publications/WorkingPapers. They can also be ordered in hard copy from The Bookshop, PO Box 29776, 2502 LT The Hague, The Netherlands

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Interactions Between States And Markets In A Global Context Of Change: Contribution For Building A Research Agenda On Stakeholders’ Social Responsibility / Patricia Almeida Ashley

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Climate Change And The Language Of Human Security / Des Gasper

504

Socio-Economic Determinants Of Road Traffic Accident Fatalities In Low And Middle Income Countries / Michael Grimm And Carole Treibich

503

Cultivating Humanity? Education And Capabilities For A Global ‘Great Transition’ / Des Gasper And Susan George

502

To What Extent Can Disparities In Compositional And Structural Factors Account For The Gender Gap In Unemployment In The Urban Areas Of Kenya? / Wambui R. Wamuthenya

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Does Inequality In Health Impede Growth? / Michael Grimm

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Economic Crisis And Women’s Employment Rate In A Sub-Saharan African Country: Explaining The Rise In Women’s Employment Rate In The Urban Areas Of Kenya / Rose Wambui Wamuthenya

499

Short And Long Run Macroeconomic Effects Of Trade Policy In The Presence Of Debt Servicing / Syed Mansoob Murshed

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Does the Stock Market Promote Growth?

Prabirjit Sarkar Do stock markets work? Is there any link between stock market development and growth? So-called ‘mainstream’ journals of economics are full of articles providing an affirmative answer to these questions. Moreover, this literature argues that financial markets in general and stock markets in particular work better in an Anglo-Saxon legal environment as this provides better investor and creditor protection. It is further argued that the less developed countries inheriting this legal environment following colonization experience higher financial development: financial institutions and stock markets flourish and the general public participates more in financing company investment projects. As a result, one aspect of the present regime of globalization has been a tendency towards legal globalization. Dancing to the tune of this trend of legal globalization, shareholder and creditor protection law underwent substantial changes in many countries.

This paper questions the conventional wisdom that stock markets encourage growth. The research is based on a panel data analysis of 34 less developed countries over the period 2001-2006.

The Present Study In the stock market, savers provide investible funds to firms. In turn, and if all works well, savers can recoup their investment at any time of their choice.

A highly buoyant stock market provides

Figure 1: Cross-Country Relationship between Stock Market Turnover and Growth Rate for 34 Less Developed Countries (2001-2006 Averages)

the market mechanism for promoting growth and investment as firms can float new shares to raise capital for investment.

Data Source and Methodology The activities of the stock market are measured by stock trading in relation to GDP. In the process, the market value of the firms generally rises, which is captured by real market capitalization (which is the market value of total shares or stocks of all the domestic companies listed in the stock markets of a country divided by the general price index) in relation to GDP. The turnover ratio (TURNOVER) is the ratio between the value of stocks traded and real market capitalization. This ratio is often used to get a rough idea of the buoyancy in the stock market. Another variable to measure the size of the stock market is the number of domestic firms listed on the national stock market. For cross-country comparison it is deflated by the size of population (LISTPOP).

For this study, we obtained the relevant World Bank data for GDP growth (GGDP), TURNOVER and LISTPOP for 34 less developed countries (LDCs)

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for the period 2001-2006. Two scatter diagrams depicting the cross-country average relationship between each stock market development indicator and real GDP growth rate (all averaged over the period) provide a snapshot view of what we found. They show no clear relationship between stock market development and real growth rate.

Figure 2:Cross-Country Relationship between Stock Market Listing of Firms and Growth Rate for 34 Less Developed Countries (2001-2006 Averages)

For a more rigorous investigation, we undertook a regression analysis of the relationship between each of the stock market development indicators and the growth rate. This was based on a full panel dataset of 204 observations (rather than the 34 observations used in the scatter diagrams) and includes a proxy variable for the stage of development, namely the initial (2001) GDP per capita. In addition, we incorporated an index of financial development, domestic credit-GDP ratio.

Our estimates show that the real growth rate has neither a significant relationship with stock market turnover ratio nor with stock market listing. Similarly there is no significant relationship between growth and domestic credit expansion.

To incorporate the Anglo-Saxon legal origin effect (where allegedly financial markets function better), we distinguish these countries from the rest with the help of a dummy variable. This assumes the value of one for the nine countries (Ghana, Hong Kong, India, Malaysia, Nigeria, Pakistan, Singapore, South Africa and Thailand) with an AngloSaxon legal heritage and zero for all other countries. The result contradicts the mainstream literature. It is negative and highly significant, indicating a lower growth rate in the countries with AngloSaxon legal heritage. This may be partly because of higher growth rates in China and other ex-socialist countries having no Anglo-Saxon legal heritage.

The results therefore confirm the insights from the two diagrams: we find no direct and positive relationship between financial and stock market development and real growth rate.

Observations John Maynard Keynes compared stock markets with casinos and discounted the importance of the stock market for capital accumulation and growth.

Nevertheless, in the present era of

financial liberalization under the aegis of the three pillars of the Bretton Woods system, stock market development has been an important part of both internal and external financial liberalization in less developed countries.

John Maynard Keynes compared stock markets with casinos

Yet, our study finds no relationship between stock market development and real growth rate. Furthermore, we find no evidence of a relationship between growth rate and financial development as measured by domestic credit to GDP ratio. A possible explanation for this is that in most cases shares are bought only to sell at a later date to appropriate capital gains. Buying and selling on the stock market is often governed by speculation and/or in cornering the market to make a quick profit. Indeed, these are the dominant activities in the share market influencing share prices, stock market capitalization and so on and are unrelated to long-term capital

formation and growth. This lack of a relationship between growth and stock market development was also noted in an earlier study in the context of India (India Macroeconomic Annual 2008).

Similarly, a 1993 World Bank study showed that stock markets only played a minor role in the post-war industrialization of East Asia. Robert Wade (1990), in his well-known book Governing the Market, discussed in detail the role of the state in the economic development of East Asia, a role which others have also argued is far more important than the role of stock markets. The East Asian crisis of 1997 and the consequent retardation of their growth owed much to their financial openness and the related speculative activities through their stock markets. The crisis of the present-day world economy, on the other hand, was triggered by so-called financial innovations (credit expansion through securitization) by the banks – an over-expansion of credit.

To sum up in the words of Nobel Prize winning economist Robert Lucas: economists ‘badly over-stress’ the role of financial factors in economic growth.

Prabirjit Sarkar is Professor of Economics at Jadavpur University, India. He can be contacted at prabirjit@gmail.com

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ISS News MA Research Papers published online In 2008, ISS started publishing MA Research Papers online.

Due to the success of this, we have decided we’d like to publish as many Research Papers written before 2008 as well.

If you’d like your Research Paper to be available online, let us know by typing the following link into your browser https:// extensionform.dabbledb.com/page/mapapersonline/ZIVXpafj ISS in The Hague ISS is one of the leading global academic centres for Development Studies. It is therefore appropriate that ISS is housed in The Hague: the international City of Peace and Justice.

Within the city, ISS is strategically positioned and has undertaken initiatives and research that support the position of The Hague as an international metropolis of peace, justice and security. ISS has close links, teaching programmes and capacity building projects with many of the international organizations, ministries, embassies and NGOs in and around The Hague.

One of these is the 15th International Metropolis Conference which will took place in October 2010. This prestigious international event dealt with questions of migration, integration and citizenship. ISS was involved in developing the academic content of the event and hosted two of the workshops: Citizenships Initiatives in Social Empowerment - the case of Laak Noord; coordinated by EFSQ Realising human rights: towards cities of safety and sanctuary, coordinated by Helen Hintjens and Rachel Kurian 58th Dies Natalis This years’ Dies Natalis took place on 14 October 2010. Apart from celebrating the ISS’ ‘birth date’, this years’ event also included the Inaugural Lecture of new ISS Rector Professor Leo de Haan. The title of his lecture was Development Studies in Perspective: Sharing the Future at Opening MA programme 2010-2011 The 2010/11 MA programme opened on 9 September. A total of 180 students have enrolled in the MA programme, representing 55 countries. The average age is 31 and 57 per cent are women. India has the highest number of participants this year with 18 students.

ISS and CDS sign Memorandum of Understanding The Centre for Development Studies (Trivandrum, Kerala) and ISS recently signed a new memorandum of understanding (MoU) to consolidate and deepen 30 years of collaborative research and capacity building. It covered population issues under the umbrella of UNFPA global training programme on Population and Development in the 1980s and 1990s and

more recently on the joint diploma in Universalizing Socio-economic Security for the Poor (USS). The main aim of the MoU is to contribute towards knowledge, skills and tools for effective policy analysis of key development issues and institutional capacity building especially in relation to the dimensions of human poverty alleviation through locally and globally sustainable development processes. For further details please get in touch with Dr Mahmood Messkoub messkoub@iss.nl Alumni meetings in 2010 Alumni meeting in Tegucigalpa, Honduras in April 2010.

Six alumni meetings where held around the world this year. From Ethiopia to Germany and from Honduras to Japan, these events brought together ISS staff and former students in an informal setting where news about ISS was exchanged for an update on what ISS alumni have achieved since graduation. More meetings are planned for next year: if you’d like to get involved in organizing a meeting in your area please contact the alumni office at alumni@iss.nl Martin Blok wins Dutchversity prize Martin received his award at the Dutchversity event in Amsterdam in May. ISS Welfare Officer, Martin Blok won the Dutchversity Award which is presented to people who make a positive contribution to diversity. In Martin’s case it was presented for his work at ISS with the Worldschool and other projects involving ISS students, but also for his work outside ISS such as the sports and music projects he organizes for children from different backgrounds in his home city of Rotterdam.

ISS at a glance 2009 What did ISS do in 2009? This question is answered in the ISS annual report ‘ISS at a glance 2009’ It gives a concise overview of ISS’ main activities in 2009 including details of Doctorate defences, ISS teaching and public debates. ISS at a glance 2009 is available from the ISS website.

ISS Tweets

ISS now also tweets! Follow us on http://twitter.com/issnl

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Gender and the Global Economic Crisis Richard King

The banking centres of Europe and North America may first have been shaken by a financial earthquake a little over two years ago, but the global economic crisis has since seismically expanded to the ‘real economies’ of countries across the globe. Each wave of impact has been transmitted along a number of fault lines, each with its own unique rhythm and amplitude. Two years on, some economic plates are already settling, while others are yet to be shaken by fiscal aftershocks.

There is now little question that the crisis has affected many women and men living in poverty. Shocks have been transmitted, impacts have been felt and responses have been borne across all realms of economic activity, from the financial economy to the formal and informal productive economies, through to the unpaid and paid reproductive (or caring) economy where the labour force is nurtured and reproduced, primarily by women. To what extent are these various tremors gendered and how are they destabilizing the lives of women living in poverty?

The crisis has been gendered in two respects.

Numbers First, the numbers of women and men affected by the crisis has varied within and across, each economic sphere. In East Asia, women factory workers have experienced some of the most dramatic effects of the crisis, whereas in Zambia’s copper belt, predominantly male miners have been losing their livelihoods.

Unfortunately our ability to enumerate these effects has been limited. There has been both a paucity of timely sexdisaggregated data on the poverty and employment impacts of the crisis and a lack of economic and labour-force data (whether sex-disaggregated or not) on the informal and reproductive spheres

of the economy (where women’s economic contributions are greatest).

But even complete labour and unemployment data would still paint only a partial picture of the gendered impacts of the crisis; explaining neither the reasons nor the consequential realities behind labour-force changes.

Unemployment hits poor families hard, regardless of whether it is a woman or man who is laid off. But the chances of a family recovering from this setback is shaped by the different levels of bargaining power that women and men have in the labour market and their different responsibilities at home.

Norms Second, then, the social norms that govern the relationships between women, men and the institutions with which they interact have largely determined how individuals have felt the effects of, and responded to, the crisis. These relationships are profoundly different for women and men. In much of the labour market, for example, women are still seen as secondary breadwinners, making them more susceptible to being laid off, with employers in global supply chains often ignoring outstanding pay and evading legal obligations to give notice and pay compensation (Emmett, 2009). In Thailand, despite significant progress in terms of women’s participation in the productive economy, they

remain structurally discriminated against in terms of occupational segregation and prejudice, leading to lower positions and wages (Paitoonpong, et al.

2009). The impact of this on workers and their families may be underestimated if gender norms perpetuate the notion that men are the primary providers of family income while women work to earn small amounts to cover incidental expenses. A household’s heavy dependence on a female wage is usually a sign of greater poverty, fewer choices and less power to survive crisis.

Social norms not only affect labour force-dynamics; they permeate all aspects of society. For example, in the home, the time-consuming and non-remunerative burden of feeding and caring for household tends to fall disproportionately to women.

The preexisting social norms that lead to gender inequalities – including the under-representation of women at all levels of economic decision-making and their over-representation in informal, vulnerable and casual employment – have often had a more significant effect in aggravating the consequences of the crisis on women than the gender inequalities arising specifically from the crisis itself. Similarly, priorities for government economic stimuli have frequently been based on a prior norm that prioritizes subsidises to heavy

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industry rather than textile or retail sectors that employ more women (EWL & Oxfam, 2010).

Yet these underlying inequalities are not static; they have been exacerbated by a complex web of sudden-onset shocks and longer-term traumas on which the economic crisis has been superimposed.

These include food and fuel price shocks, changing climatic conditions and the HIV and AIDS pandemic. Some of these ordeals are interlinked, others are independent of one another; all have added to the marginalization of women living in poverty.

But whilst there are signs that the economic crisis has reinforced many existing gender norms and deepened inequalities, there is also evidence that some of these norms are decomposing and being called into question by the crisis. For example, men who find themselves unemployed as a result of the crisis may temporarily take on roles within the reproductive economy that they are not accustomed to, such as cooking the family meal. Amongst affected shea nut gatherers in Ghana men are newly being asked to contribute towards family food (Dogbe & Marshall, 2009). In Viet Nam, the gender division of labour has been breached among some day labourers since the onset of the economic crisis as women have been forced to accept construction jobs that are usually the preserve of men. Research by Oxfam suggests that, with limited sources of official support, crisis-affected workers in Hanoi’s mobile day-labour market have developed a very strong sense of community and have adopted a range of informal coping strategies. Both women and men often work in a group, receive equal pay and share living expenses by living with fellow migrants from the same villages. Whether any gender norms will be transformed on a permanent basis – with the traditional division of labour, and men’s and women’s overall work burden, being renegotiated within both the reproductive and productive economies – remains to be seen (King and Sweetman, 2010).

of 10 developing countries found that 60 per cent of interviewees believed that the majority of new entrants to their particular informal sector were women.

This is thought to be because women employed in the formal sector hold the most precarious jobs and are most vulnerable to being laid-off during economic contractions (Horn, 2009). Former factory workers in Thailand, for example, have turned to informal home-based work, while elsewhere, laid-off women have begun to cook for a living. Initial analysis suggests that street vendors in several developing countries are suffering from the twin squeezes of increased competition from retrenched workers turning to a livelihood with low barriers to entry and reduced consumer demand

as economies contract. Home-based workers have similarly suffered from a reduction in export demand, a reduction in pay rates for piecework and from being undercut by new migrant entrants to the market (Horn, 2009). Both must also contend with higher business operating costs as well as reduced earnings.

In spite of these difficulties, informal work remains a necessity for many women as they have been left with few other alternatives by their personal, social and economic marginalization. In Pakistan, for example, Inclusive Cities’ home-based interviewees live in an area where women are discouraged from working outside of the home even though many workers posses specialist

Increased informalization For both men and women, the economic crisis has resulted in increased informalization. Research conducted by the Inclusive Cities project on the impacts of the crisis on the informal economies

Sasithorn, 29, former factory worker skips meals so that her children can eat three meals a day. She now baby-sits other workers’ children.

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skills that could increase their incomes (Horn, 2009). But even where women can work informally outside the house, the economic crisis has forced them to work longer hours, giving them less time to fulfil the social reproduction roles they are also committed to.

Resilience and social capital Nonetheless, one of the most striking findings of Oxfam’s research on the economic crisis (across 12 countries on five continents) is the extent to which communities have, thus far, been able to resist or absorb the shocks they’ve faced. In a surprising number of cases, migrants have not returned to their villages; households have been able to feed themselves from their gardens or farms; most people have kept their jobs, albeit with lower wages, fewer hours and worse conditions; and families have managed to keep their children in school. Family and social networks have shared food and lent each other money (Green et al., 2010). In the case of Viet Nam, Hanoi’s day labourers have developed job-sharing arrangements; with fewer opportunities, labourers have been compelled to take whatever job opportunities have been available, yet they have also been willing to share the work as well as information about employment opportunities with others, thereby sacrificing some of their own potential income. Labourers have also borrowed money from each other during idle days. Though these informal coping mechanisms are insufficient to maintain the same levels of income that they previously received, they do at least provide a very basic means of subsistence and ease the lives of poor female and male workers and their dependents (Paitoonpong et al., 2009).

Most people living in poverty have relied, whether through choice or otherwise, on their own networks of friends, family, neighbours, religious bodies, or community institutions to weather this crisis. However, without access to adequate social protection this apparent resilience has its limits. Assets, once depleted, take years to recoup; working extra hours in second or third jobs leaves a legacy of exhaustion; loans taken on to finance consumption accumulate into crushing debt burdens; and meals foregone can affect children for their entire lifetimes.

As women are the primary carers in virtually all societies and are mainly responsible for managing, producing and processing food, they are also expected to find ways of ensuring their household’s survival. Many women are therefore paying a particular price through their additional unpaid work to support their households. For women especially, the twin pressures of productive and reproductive roles can quickly become overwhelming in times of crisis; it does not take much for coping strategies to tip over into a form of self-defeating desperation. Where women are providing safety nets for their families and dependents without adequate state support, their tangible and intangible assets are being depleted and their essential basic needs for food and sleep are being foregone. Where households are forced into distress sales of their reserve assets, women’s are more vulnerable than men’s. Research by the Institute of Development Studies into the ‘food, fuel and financial crises’ has uncovered signs that gender inequities in the distribution of household resources are worsening (IDS, 2009).

…men…may temporarily take on roles within the reproductive economy…

Additionally, women’s stocks of social capital (for example social networks that potentially offer mutual help and support) are eroded during times of economic crisis. Neither women’s nor men’s stocks of social capital are limitless and neither can subsidise the cost of economic impoverishment indefinitely; when assets are fully depleted, social capital dries up. But as women typically have less access to, and control over, financial and physical capital, they tend to rely more heavily on social capital and play a more active role in generating it than do men. When households are pitted against each other in a struggle for survival, and when their time is at such a premium, it is often difficult for women to find the time to nurture these relationships.

future livelihood chances and children’s cognitive development, depends to a large degree on the level of buffering provided by appropriate public expenditure and social protection measures. Worryingly, from this perspective, some of the most severe impacts of the crisis for women may, perhaps, still be emerging.

Worse yet to come?

Budget analysis from 24 poor countries with social spending details available suggests that, in order to rein in their widening fiscal deficits, 18 countries are cutting budget allocations to one or more of the priority social sectors of education, health, agriculture and social protection. Education and social protection are particularly badly affected, with average spending levels in 2010 lower even than those in 2008 (Kyrili and Martin, 2010). Such cuts are likely to disproportionately burden women as females have both primary responsibility for family wellbeing and comprise the majority of public sector employees.

Each successive crisis depletes the coping capacities, both physical and psychological, of people and communities living in poverty. But the depth of resilience and the degree to which it will bolster future development, are to a large extent determined long before each crisis actually strikes. Two years on from the initial financial shock there is an urgent and particular need to topup these sources of resilience and to reorganize so people are able to retain or enhance their ability to deal with the next large shock before it arrives. Policy responses to date have too often failed to adequately consider either the needs of people living in poverty or how they might begin to address the gender inequality in power, workload and opportunities that exacerbate women’s experience of the world’s multiple crises.

Unless policy responses are sufficiently attuned to providing holistic solutions that challenge the gender-biased status quo, rather than simply providing temporary respite from the symptoms of just one crisis, women will be increasingly vulnerable to each successive crisis.

Richard King is a Policy Researcher with Oxfam GB. He can be contacted at rking@oxfam.org.uk

The extent of the apparent resilience that women are displaying, or the degree to which it will actually erode

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The crisis as an opportunity for female leadership The World Economic Forum’s gender report for 2010 showed that in the 20 countries surveyed, only 2 per cent of CEOs in the Financial Services & Insurance industry were female. This compared with 6 per cent over all industries for the same countries

Esther-Mirjam Sent

(Zahidi and Ibarra, 2010).

At the same time, the New York-based consulting firm Catalyst (2008a) found that women held just over 15 per cent of all directorships at Fortune 500 companies. Of these, 66 companies had no women board directors at all, and only 92 companies had three or more women board directors in 2008. Catalyst (2008b) also found that women held just under 16 per cent of corporate officer positions at the Fortune 500 top companies in the same year, compared with just over 6 per cent of top-earning positions in those companies. At the same time, there were 75 Fortune 500 companies with no women corporate officers at all.

The financial world is in crisis. And the effects on the real economy are serious and global. One of the possible explanations for this is that unbridled masculine behaviour has led to business practices that have precipitated collapse. This short article argues for the desirability of a balance between feminine and masculine characteristics in the banking world and suggests that some important lessons can be drawn from the credit crisis in this respect.

Gender diversity as a factor of success There is in all this a pitifully missed opportunity. One does not have to be an ardent feminist to realize that having more women in high ranking positions in business will promote different outcomes. Gender diversity is a proven factor of success in the business world (Joy, Carter, Wagner and Narayanan, 2007; Lückerath-Rovers and Van Zanten,

2008; McKinsey 2008). Psychological tests suggest that a man without stress can assess risk better than a woman without stress, but tests also suggest that in situations of stress – so pervasive in the banking and finance world - the opposite has been found to be the case (van den Bos, Harteveld and Stoop, 2009). What lessons can we draw from all this? It seems that during stable economic periods, typically ‘male’ characteristics may be particularly useful to foster innovation and encourage ‘healthy’ risk-taking which can help to promote overall economic growth.

However, during more uncertain periods

…..women have to first jump off a glass cliff…

of economic instability, more classically ‘female’ inputs such as caution and caring may be even more essential than risk-taking, which can aggravate recessionary responses. A range of economic experiments have suggested that mixed teams of men and women actually perform best across time, and for this kind of reason: such teams are more able to deal and respond to both stable periods and unstable periods of boom and bust (Gratton, 2007; Kamas, Preston and Baum, 2008; Sent, van Staveren and Vyrastekova, 2009). To put it bluntly, we are talking about women being essential to hard economics and not only about

‘soft’ issues of women’s liberation and professional development.

Potential concerns Yet it is British female economist Blythe Masters who is commonly held responsible for creating CDSs (Credit Default Swaps) as well as CDOs (Collateralized Debt Obligations). She thus appears to be one of the culprits, guilty of engineering into place the current credit crisis. Wasn’t it also Dutch female businesswoman, Nina Brink, who had a highly questionable role in the failed initial public flotation of the internet company World Online? Perhaps so, but maybe these women operated in this way because they fitted into a very dominantly male culture, to maintain their positions and to ‘prove themselves’ the equals of their mainly male colleagues. Women need to be present in a critical mass in order for their contribution to become apparent and palpable.

It has even been suggested that women only start to be regarded as individuals in their own right once women make up at least one third of the business team (Chesterman and Ross-Smith, 2006).

In other words, a distinction can be drawn between female and femininity and between male and masculinity.

Place one woman in a Board, and one tends to observe that her behaviour will, through peer pressure, become more masculine than even that of some of her male colleagues. This will be her effort to fit into the new environment.

Place two women in a Board, they will often keep a distance from each other in

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order to avoid the impression that their collaboration is a conspiracy. Only with three or more women in a Board can a culture start to be created in which it is thinkable and doable to display some of the characteristics thought of as ‘typically feminine’. Some of the qualities that women can bring to business environments can then start to assert their positive influence. Perhaps.

a rectangular table and subjects were asked who they thought would be the leader of the group. The majority of the subjects point at the person at the head of the table. However, if the subjects are in a mixed party and a woman sits at the head of the table, most men and women will point at a man who is sitting elsewhere as the potential leader of the group.

Deeply ingrained prejudices

Such deeply ingrained prejudices will persist as long as business is dominated by a male culture and companies will find it hard to identify or attract suitable female candidates for high ranking position. Women who adjust, will continue to be regarded as competent, but

Since diversity is a proven factor of success, why then do more profit-minded companies not hire more top women?

The reasons can be found in deeply ingrained prejudices about women among male executives. This is expressed, for instance, in an experiment in which two anonymous application letters were shown to a group of male subjects (Norton, Vandello and Darley, 2004). One candidate had a better education, the other had more work experience.

The experiment showed that 75 per cent of all subjects chose the candidate with a better education. But when the names of the applicants were presented and the candidate with a better education was a woman, only 44 per cent of all subjects pointed to education as the most relevant factor. Other experiments show that a woman is valued less when there is only one female candidate, but that a job itself is valued less when there are three or more female candidates (Heilman, 2001). Some research also suggests that recommendation letters for women tend to be formulated differently (Trix and Psenka, 2003). For instance, they tend to be shorter and include less repetition of strong words like ‘outstanding,’ ‘excellent,’ and ‘superb’ than the letters written for men. Moreover, whereas men are portrayed more as researchers and professionals, women are generally commended for their teaching and training.

The idea that women are not ‘natural’ leaders is a deeply ingrained prejudice, as show by another experiment (Porter, Lindauer Geis and Jennings, 1983). A group of men or women were put at

unkind. Women who do not adjust, will be regarded as incompetent, but (or because) nice (Heilman, Wallen, Fuchs and Tamkins, 2004).

To break the so-called glass ceiling and reach the top, women have to first jump off a glass cliff, since women will more often than men be put into a highly risky management position, where their chances of succeeding are very slim (Ryan and Haslam, 2005). Experimental research again suggests that in prosperous times, so-called ‘normal’ times, most subjects prefer a male leaders,

but during crisis, most prefer a woman (Ryan and Haslam, 2007). As a result, women are more likely to be put in a difficult management position and can find themselves on the edge of a glass cliff.

The crisis as an opportunity Arguments for increasing the number of women in leadership positions have been around for some time. Yet little has been done to work on those insights. The credit crisis can be a chance to revive those arguments for employing more women in senior management. Since the financial world is completely dominated by men, it is clear that their actions have been the main cause of the credit crisis.

To put it crudely, therefore, the behavioural characteristics that have caused the crisis to spin out of control are typically male characteristics, including exaggerated optimism, over-developed greed, irrational levels of risk-seeking behaviour and a lack of confidence. House owners were overly optimistic about rising house prices and then greedy lenders took enormous risks in issuing mortgages to overconfident potential home owners. Once confidence began to crumble, the financial world was shattered into pieces and lost confidence in previous strategies based on previous calculations of risk, loss and profit.

Research suggests that on the whole, men are more often overly-optimistic, excessively greedy, and risk-seeking, and have less confidence in others, than women (Croson and Gneezy, 2009; Eckel and Grossman, 2008).

Along with some of my colleagues in the Economics Department at Radboud University Nijmegen, I have looked into the risks that men and women take in playing the game show ‘Deal or No Deal’. The show revolves around luck, courage, strategy and the art of stopping at the right time, rather than

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continuing to throw all one’s ‘luck’ away.

The presenter helps candidates to decide whether they will a) risk everything for the first prize of 250,000 Euros, or close a deal with the bank. If they go for the first prize, they also risk having nothing to take home. In our own analysis of 120 episodes, we found that women were more likely to accept a ‘safe bet’ and stop playing the game than men, who tended to continue until they lost.

Accepting the ‘safe bet’ gracefully, meant that on average women contestants won an average of around twice as much as the men contestants For those women who did complete the game, they ended up with a bigger pay-off than men as well (Sent, Groenendijk, Roosendaal, Vyrastekova, 2008).

The crisis as a danger The crisis thus offers some opportunities for women to become more important in leadership positions, especially in the developed world. But at the same time, it poses a danger for many women and girls in developing countries, who are hit especially hard by the crisis. The first job cuts were concentrated in sectors in which millions of young women and girls are employed, especially in export-

related industries, for example in China.

Young women and girls are then forced to remain at home without work and to help in the home. Since the start of the crisis, there is also evidence that the child death rate is increasing, especially among girl children. More girls and women will also be forced to compete in a sex industry also hit by falling demand and falling incomes.

…diversity in gender…is a factor in business success…

This is a serious danger because girls have the future. Educated young women in developing countries can earn more for themselves and their families (an estimated 10 per cent more with each additional year of primary schooling; 25 per cent with each additional year of secondary schooling). Women will also have healthier children the longer they can remain in education, and their girl children will be more likely to go to school themselves. This can help to improve agricultural production and

to decrease malnutrition, since women tend to invest a high proportion – up to 90 per cent – of their income back into the household. Men, by contrast, tend to invest just 30 to 40 per cent of their income directly back into the household (Plan International, 2008). What is more, across developing countries, it has been estimated that if girls had the same educational opportunities as boys, the result could be an increase in economic growth of 92 billion dollars per year (Plan International, 2008).

Conclusion Loesje (a famous Dutch opinion-maker) wisely wrote: ‘Children are the future, as long as their mothers get a future too.’

Since diversity in gender terms has been proven to be a factor in business success, the lack of women in high ranking business positions may be an opportunity which it would be a pity to miss.

The current crisis makes the contrast between these ‘top’ executive women’s choices and the choices of poor women across the world, including in developing countries, all the more painful.

Esther-Miriam Sent is Professor of Economic Theory and Policy at Radboud University Nijmegen.

Staff News 6 new professors at ISS Thanks to the Vereniging Trustfonds of Erasmus University Rotterdam, ISS has been able to appoint six new professors.

One of the aims of the Trustfonds is to advance scientific research and education, in particular by establishing (special) professorial chairs. The ISS now has a total of 18 professorships.

The inaugural lectures have already or will take place this year or early next year.

Wil Hout - Professor of Governance andInternational Political Eeconomy (27 May 2010) Max Spoor - Professor of Development Sudies in Particular Regarding Economies inTransition (30 September 2010) Peter Knorringa - Professor of Private Sector and Development (4 November 2010) Karin Arts - Professor of International Llaw and Development (18 November 2010) Des Gasper - Professor of Human Development, Development Ethics and Public Policy (16 December 2010) Irene van Staveren - Professor of Pluralist Development Economics (20 January 2011)

New and departing staff Jan van Heemst – Senior lecturer in Development Economics, Gerrit Plugge – Head Internal Services and Maureen Koster PhD office have retired after many years at ISS. Other staff leaving are: Kristine Komives - Senior Lecturer in Rural Development, Environment and Population Studies, Frances Morris – Project Officer at ORPAS, Faroel Ibrahim Finance Office.

New members of staff include Paul Huber who has joined ORPAS and Wim Geppaart to the Finance Office. Silke Heumann started work as lecturer in the field of Women Gender and Development. Kristen Cheney is our new senior lecturer Children and Youth Studies.

In November more staff will be joining ISS - Susan Newman as lecturer International Economics/Macroeconomics, Luca Tasciotti, Post-Doctoral Researcher and Diederik Meijering as senior Project Administrator.

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The Local Government as a Central and Leading Actor of Local Development: The case of the Herman Costerstraat Market in The Hague ‘Governments are in a position to make markets and competition work better, by taking the lead in making

Sergio Ferragut

business easier and less expensive and in determining the nature and level of regulation’ (ILO, 2007).

Introduction First there was no market. The Herman Costerstraat Market (HCM) was established more than seventy years ago at the initiative of the Municipality of The Hague (MTH) after lengthy negotiations with vendors. Initially, vendors had been opposed to the idea of moving from their original market place in the very heart of the city to the Herman Costerstraat area (at that time part of the suburbs), fearing the move would

decrease their sales (Vonka, Municipal Archives, 2009). Nowadays, however, the HCM is at the centre of an area that has been transformed from suburbia into a hub of economic and social activity, and with more than 500 stalls it is said to be the largest open street market in Europe.

By providing the leadership and the services that facilitated and supported the rapid growth of the HCM and the

Herman Costerstraat, The Hague; MTH Archives, 1920

development of the area, and by creating a regulatory framework that allowed the different actors to interact with each other, the MTH laid the foundations for a peaceful coexistence that has benefited all actors involved in the process.

The synergies among the different actors present at the HCM are to a large degree the result of a process in which the MTH has lead and accompanied the development of the market vendors, while at the same time attending to the needs and interests of the local community and other businesses in the periphery.

Located strategically between Amsterdam and Rotterdam, The Hague has long been a ‘world city’, a place of cultural and commercial confluence and exchange despite its relatively small size (the population is less than half a million). In order to adapt to these circumstances, the MTH has over time been required to go beyond the provision of public services traditionally associated with local governments to become a central and leading actor in the process of local development. Through an examination of the approach by the MTH to the development and administration of the HCM, the aim of this article is to better understand how local governments can meaningfully contribute to processes of local development.

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The Open Market, The Hague; OASM website, 2009,

The ever-evolving role of local governments As recently sustained by Nel and Binns, ‘local government is expected to maximize social development and economic growth, to help ensure that local economic and social conditions are conducive to the creation of employment opportunities, to take a leadership role, involving citizens and stakeholder groups in the development process and to build social capital and generate a sense of common purpose to find local solutions for sustainability’ (Nel and Binns, 2001: 357).

Local governments are usually responsible for a relatively small geographical area, which allows them to be close in proximity to their constituents. As a result, they are in a privileged position to understand the short term interests and needs of their citizens. Implementing policies aimed at regulating the daily complex relations of multiple actors while achieving an inclusive long term vision for development requires local governments to take a proactive approach beyond the provision of basic services. In order to exploit the synergies and opportunities that result from local initiatives, it is most important that they take a central role in regulating the relations among the actors present.

As Nederveen Pieterse once suggested, ‘agglomeration increases the productivity of a wide-ranging number of econom-

ic activities in urban areas. Essentially, agglomeration allows firms to experience the benefits of both economies of scale and scope’ (Pieterse, 2000: 8). For agglomeration to reap its benefits, strong institutions and the provision of a clear regulatory framework (that is in line with the long term vision for development) must be present.

HCM – local government that went beyond its traditional role…

Running an Open Market Within the MTH, responsibility for the administration and coordination of support to the city’s seven street markets lies with the Office for the Administration of Street Markets (OASM). The services provided to the HCM include cleaning and maintenance of the market, running a well-organized transportation network, providing parking (currently 470 spaces under the HCM), toilets, policing, settling disputes among vendors, customers and residents, and providing access to electricity and running water to all stalls (Interviews with Thelma, Police Officer at the HCM, 2009; Maria, OASM cleaning staff at the HCM, 2009; Marieke, OASM staff, 2009).

Rules and regulations governing street vending have been in place in The Hague since 1856, when first introduced by the MTH. Over time, these have been modified to adapt to the changing nature of business and society, most recently in 2004 (Municipal Archives, 2009).

The rules governing the open markets can only be modified by the MTH, and are administered at the market level by the OASM, thus facilitating the monitoring of activities and ensuring an early response to conflicts.

By coordinating provision of services and creating and administering a clear and transparent regulatory framework, the MTH has lead and facilitated the sustainable development of the HCM and its surrounding area. By being close in proximity to the vendors, the MTH has been able to ensure their needs are attended to while preventing the escalation of conflicts and grievances.

Similarly, by taking responsibility for the daily administration of the market, the MTH has helped vendors keep the market organized and running, thus contributing to the maintenance and creation of employment opportunities The Sellers Approximately 550 vendors held OASMissued permits at the HCM in 2009.

Permits are issued for three years in the first instance, and are either renewed automatically or inherited by family members if the permit holder dies

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(MTH website, 2009). Once a permit is obtained, daily rents are quite low, between 7 and 16 euros per market day. As well as paying rent, vendors pay income taxes based on the kinds of products they sell. In sum, operational costs are low, meaning that vendors can start a business (if they can get a stall) with relatively small amounts of capital.

HCM sellers are represented by two organizations: Central Association for Ambulatory Trade (CVAH), established in 1921 and mainly representing longestablished vendors of Dutch origin, and VETRA, a more recently formed organization that groups mainly nonDutch vendors. Despite the presence of these organizations at the HCM, most vendors are not that eager to take part and voice their opinions as a group. The outcome is a distinct lack of organizational capacity among market traders to make strong, consensual decisions, and a weak basis for collective actions to defend their common interests.

The market space is divided into separate areas in which different types of products are sold. Vendors from similar origins can end up selling similar products and be located in adjacent or nearby stalls. Within each area, stalls are assigned on the basis of how established vendors are, and many stalls are run by members of the same family. This contributes to a relaxed, informal atmosphere where stall holders’ competition can be muted by inter-connections.

Customers and the Local Community The market is a space for economic activity and social interaction and integration. It creates not only jobs and income but also links among people and actors that can lead to increased and ’better’ economic and social development.

Keeping this balance among all the actors present in the HCM and surrounding area is the responsibility of the MTH. Over 150,000 customers from the city and beyond visit the HCM every week (OASM website, 2009). Many customers choose to shop at the market because of the huge variety of products available at prices that are generally very competitive. Migrants especially shop there to find products that relate to their diet and lifestyles. Other customers are in the market simply because they enjoy

the bustle, the experience, the cries of the sellers. Even people not that interested in getting their weekly groceries will come to the market to browse, to go shopping casually, for gifts or extras. Many stalls offer goods for passing customers, including a range of snacks and drinks.

A large number of people come to the HCM, and the OASM tries to minimize negative effects on local residents in the immediate neighbourhood. Sometimes, however, there are complaints from residents and businesses located in the periphery of the market and the OASM is responsible, in the first instance, for receiving such complaints. The most common complaints relate to vendors’ cars and trucks blocking the streets around the market or entrances to private houses. Also, on market days there is an increase in reported petty crime, most of it inside the market area itself (Marieke, OASM staff, 2009). In response, a special unit of ten police officers has been set up to patrol the market floor and surrounding streets on market days (Thelma, Police Officer at the OASM, 2009). Since there is no consumer association and no residents or neighbourhood association around the HCM, by default the MTH is also responsible for ensuring residents’ and customers’ rights are respected.

Businesses in the periphery Commercial activity and social interaction is not limited to the market itself as many shops located in the periphery of the HCM offer products and services to market customers. Some of these shops have been in the neighbourhood for a few years but most have opened recently to serve the huge number of customers visiting the HCM. The contrast between visiting the HCM area when the market is open and closed is significant. When the market is closed, the few shops that remain open are usually run by their owners only, who mostly spend the day reorganizing or cleaning the shop waiting for the next day that the market is open (Hussein, Money Transfer Service, 2009).

(public transportation and security, for example) and the customers visiting the area each week.

Conclusion First there was no market. By taking the lead and becoming a central actor in the process of establishing, regulating and administering the HCM and the relations and interests of the various actors present in the area, the MTH has contributed to the sustainable development of the neighbourhood and the city. In the early 1900s, nothing could have indicated the potential of the Herman Costerstraat area. It was the long-term vision and commitment of the municipality to the development of the area that initially triggered and then carried on the process that resulted in the successful story of the market and the neighbourhood that we witness today.

The case of the HCM is thus an example of local government that went beyond its ‘traditional role’ to become a central and leading actor in the process of local and community development.

As for the limitations of the HCM experience, it is important to highlight the lack of a unified representative body that could effectively guarantee that the voices and interests of all the vendors are included and considered when making decisions and taking positions in negotiations. This lack hampers efforts to achieve common long-term benefits for all vendors. Who should be responsible for taking that initiative, is a question that remains open.

As announced in 2010, the HCM area will soon be completely refurbished as part of the comprehensive urban development plans turning the ‘Line 11’ tram zone into one of ‘world working and living’ (translated from the Dutch).

From the municipality’s perspective, the challenge for the future is once again to understand how it can keep contributing to the further development and improvement of the market, while remaining sensitive to the needs and interests of all actors involved and present in the area.

Sergio Ferragut graduated from ISS in 2009 with

While supporting the growth of the HCM, the MTH has therefore also created the conditions for other businesses in the periphery to flourish, as they directly benefit from the services provided

an MA in deveolopment studies. He specialized in Local and Regional Development.

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Youth Power 2.0: Harnessing technology for youth mobilization

By Marie Angelie Resurreccion

Technology has become closely tied with youth cultures of the present generation. In the case of the Philippines, it has become a means of mobilizing youth during significant national events. This article will look into how communication tools translate the use of social media into social action among techno-savvy urban Filipino youth.

The rise of ‘Generation Text’ In 2001, the Philippines grabbed the world’s attention with an example of People Power which led to the ousting of the country’s leader. More than a million people gathered at the historic EDSA Avenue, site of the first People Power in 1986, to express outrage against what they perceived to be manipulation of the country’s first impeachment trial against a president by his allies in the senate.

The mobile phone served as the megaphone which called people back to EDSA. The appeal to protest spread like wildfire from one cell phone to another.

Non-government organizations, church groups, universities and other institutions converged, with a large number from the youth sector.

Ederic Eder, a youth activist, posted an article on his blog in which he wrote about youth participation in the People Power. In Filipino, he wrote: We are ready to respond to the call of the times. Again and again, we will use our strength and our youth, and our gadgets to ensure the freedom of our Motherland and we are ready to guard our quest for justice. We are on the side of history... we are the youth, the ‘hope of the nation… We are ‘Generation Txt’.

The cell phone was instrumental in mobilizing the people, especially the youth.

Eder acknowledged that young people were fun-loving and tech-savvy but they know when to be politically involved and to stand up and take action.

Where has Generation Text gone?

Yet after the 2001 People Power, the passion of the youth and the Filipino people seemed to dissipate. The promise of a new leadership was deemed a

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failure. The citizenry, once energized by national unity, succumbed to the travails of daily life. Young people are now accused of apathy because mobilization has become difficult despite constant calls to rally against the present government believed to have committed abuse of power, corruption, election fraud and human rights violations.

Pessimists allege that people are suffering from ‘people power fatigue’ and have given up fighting for democracy. It is believed people have chosen to get on with their lives and let national issues take their course.

Where has this generation which proudly brandished their cell phones like swords gone?

They now spend most of their time glued to newer gadgets, especially the internet. Technology has now become more ubiquitous, especially among the present generation of urban youth. The 2006 McCann-Erickson Intergeneration Study, a nationwide survey of urban Filipino youth, revealed a significant increase in computer-related activity between 2000 and 2005. Internet use of three hours or more per day rose from 8 per cent to 25 per cent, while 54 per cent use it for less than three hours.

The 2008 Yahoo-Nielsen Index Study among urban Filipinos revealed internet users are ‘likely to be below 29 years old, single and better-educated’. It claims ‘Filipino internet users are more likely to be opinion leaders’. Those between 10-19 years old followed by those between 20-29 frequently access the internet, with 51 per cent visiting social networking sites.

This could be why the older generation tend to blame internet use for the decrease in youth participation in traditional venues of social and political involvement. However, what goes on in this virtual world bears looking into. The internet has become a valuable space for creative expression and personal development among today’s wired youth.

With more than 70 per cent of the youth spending their time on the internet, popular media has become an extension of youth activities and cultures. The question now is whether the internet and social media can influence social participation and civic involvement among young people the same way the mobile phone was able to in 2001.

From social networking to social mobilization The Typhoon Ketsana disaster last September 2009 once again showed how technology can be harnessed for mobilization. Ketsana, locally known as ‘Ondoy’, dumped an entire month’s worth of rain in less than twelve hours over the Philippine capital, Manila.

Over 80 per cent of the metropolis was submerged under water and more than 500,000 people were displaced.

Social networking…a link between information and action.

People safe from Ketsana’s wrath wondered what they could do given the situation. They decided to tweet and update their Facebook. Initially, it was a response to the lack of updates by television and radio networks. Regular programming went on providing only hourly newsflashes. Civilians hungry for information turned to social media to find the information they wanted and to provide the information they had.

Through mobile Twitter and Facebook, some people stranded by the flood posted updates regarding their safety.

Calls for rescue, donations and volunteers were posted and reposted until they reached whoever could respond.

An anonymous individual created a Google Map of flooded areas and passable roads to facilitate smoother rescue operations. Bloggers gathered data on help lines to call for emergencies as well as institutions receiving donations.

Social media became the people’s news bureau and the people became citizen journalists.

After the floods subsided, social media continued to be the nation’s information desk. This time, status updates and tweets contained tips on how to salvage submerged equipment, homes and cars or how to avoid contracting waterborne diseases. It was hardly necessary to tune in to traditional media or access news

websites because reports were easily available on Facebook and Twitter posts.

Social networking proved to be a vital link between information and action.

People often sought information regarding organizations which they could donate to or volunteer for. Since classes were suspended for a week, a steady stream of young volunteers kept coming to help. They worked throughout the day to prepare care packages to be distributed among the most affected areas of the metro. Some took part in clean-up activities of affected homes.

The energy and passion of the youth was highly infectious which helped uplift the despair into hope. What happened during typhoon Ketsana taught young people an important life lesson on generosity, sacrifice and fellowship. It opened their eyes to the great things the Filipino people are capable of and prioritized national unity.

The 2001 People Power and typhoon Ketsana were entirely different circumstances which required different kinds of youth involvement but both showcased how technology played a role in mobilizing participation among the young.

However, it also shows that the people tend to be most active during urgent situations.

Youth cultures have become closely intertwined with communication technology. To better understand young people, there is also a need to understand what it is about the internet and social media that attracts them. In so little time, it has entrenched itself too deeply in youth activities to be dismissed as a fad. The challenge is how to make the youth realize the world is in need of their passion, energy and idealism on a daily basis.

The challenge is how to harness existing technologies to attract the youth to be more proactive. Answering the challenge will not be easy, but there are enough experiences in history to show it is possible. There are enough experiences in history to provide us clues.

There are enough experiences in history to lead the way.

Angie graduated from the Children and Youth Studies program at the Institute of Social Studies in December 2009. Her research paper was about using popular culture as a democratic space for active citizenship among Filipino youth.

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Development and Change The journal Development and Change is published six times a year by Blackwell Publishers (Oxford, UK) on behalf of the Institute of Social Studies. For more information, see the ISS website or email us at d&c@iss.nl. Available online at http://www.blackwellpublishers.co.uk/online. Special rate available to ISS alumni.

Volume 41 / Number 4 / July 2010

SPECIAL ISSUE

Negotiating Statehood: Dynamics of Power and Domination in Africa

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Negotiating Statehood: Dynamics of Power and

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Domination in Africa

Timothy Raeymaekers

Protection for Sale? War and the Transformation of Regulation on the Congo–Ugandan Border

Lalli Metsola

The Struggle Continues? The Spectre of Liberation, Memory Politics and ‘War Veterans’ in Namibia

Asnake Kefale

Federal Restructuring in Ethiopia: Renegotiating Identity and Borders along the Oromo–Somali Ethnic Frontiers

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Facing Up to the Centre: The Emergence of Regional Elite Associations in Angola’s Political Rebuilding Process

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The People, the Power and the Public Service: Political Identification during Guinea’s General Strikes in 2007

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The Party and the State: Frelimo and Social Stratification in Post-socialist Mozambique

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Maintenant, on sait qui est qui: Statehood and Political Re-configuration in Northern Côte d’Ivoire

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Researching African Statehood Dynamics: Negotiability and its Limits

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Saturnino M. Borras Jr.

The Politics of Transnational Agrarian Movements

Daniela Gabor

The International Monetary Fund and its New Economics

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The Perfect Business’: Human Trafficking and Lao–Thai Cross-border Migration

May Tan-Mullins, Giles Mohan and

Redefining ‘Aid’ in the China–Africa Context

Marcus Power Ward Berenschot

Everyday Mediation: The Politics of Public Service Delivery in Gujarat, India

Naomi Hossain

Rude Accountability: Informal Pressures on Frontline Bureaucrats in Bangladesh

Benjamin Neimark

Subverting Regulatory Protection of ‘Natural Commodities’: Prunus Africana in Madagascar

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Development and Change The journal Development and Change is published six times a year by Blackwell Publishers (Oxford, UK) on behalf of the Institute of Social Studies. For more information, see the ISS website or email us at d&c@iss.nl. Available online at http://www.blackwellpublishers.co.uk/online. Special rate available to ISS alumni.

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The Kilosa Killings: Political Ecology of a Farmer–Herder Conflict in Tanzania

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World Bank Influence and Institutional Reform in Argentina

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World Bank-directed Development? Negotiating Participation in the Nam Theun 2 Hydropower Project in Laos

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Developing Exclusion: The Case of the 1961 Land Reform in Colombia

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Health Care Reforms in Developing Asia: Propositions and Realities

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