Friday, May 15, 2015

The Economics of Roger Moore

I saw the link to this article ( the internet. And the sucker that I am, of course clicked it, and enjoyed the next few minutes of my life. The quote from his new book " One Lucky Bastard" goes:

"When I started playing Bond it became apparent, in 1977, that I would have to leave the UK if I wasn't to pay ninety-eight per cent tax on my salary: an actor's life in the spotlight is short, so we need to look after our pennies, and that's why I decamped to Switzerland with its lovely snow-capped tax benefits."

The quote above from Roger Moore gives a semblance of how John Galt (of the Atlas Shrugged fame, by Ayn Rand) decided to leave the politicized society and established a separate objectivist society in a faraway hidden valley. Ah. He may not be my favorite James Bond (as I do like the swagger of Pierce Brosnan), but I will definitely hunt for this book.


Establishing a Framework for Rural-Urban Fringe Planning-Part 1

To be able to analyze and assess the effectiveness and appropriateness of the rural-urban fringe plans and management systems, an analytical  framework is necessary. There is a great danger of committing a very subjective  analysis in the absence of an appropriate analytical framework. The framework  should serve as a  rational and objective basis of any judgment that will be drawn in the course of the planning and analysis.

One relevant framework is what is known as Integrated Area Management or IAM. The IAM concept involves the consideration of economic, social and environmental aspects as equally important goals of development. The aim of giving equal importance to economic, social and environmental aspects is similar to what was presented  by Khan (1995) as the Paradigm of Sustainable Development.

Traditionally, capitalist economies were primarily concerned with economic development,  and the basis for almost all economic decisions was  efficiency.  Efficiency in production, distribution and consumption dates back to as far as the late 18th century when  classical economics was  the prevailing body of thought concerning development. It was then the time of economic rationalism or what others has termed as neo-liberalism or Thatcherism (in UK). The free market, by virtue of Adam Smith’s “invisible hand” principle, was considered as an essential ingredient of an efficient economy. The law of supply and demand ruled and most if not all developmental decisions were based on the price mechanism. The value of resources were based primarily on the movement of prices in response to demand and supply conditions (McConnell, 1988). The allocation of resources to their “highest and best use” is one of the most important functions of price (Macmillan et. al., 1987). A piece of land would therefore be used for whichever it is deemed to be of most value.

It was based on the  price mechanism that the location theory (in physical planning) was developed. Location Theory is the area of economics concerned with the factors that determine where people and economic activities choose to locate, and the effects of the “economics of distance” on land-use decisions. The basic points of this theory was professed by Von Thunen in 1826. Consistent with the location theory, it was posed that there is an inverse relationship between land value or its rent-producing capacity and the distance from the market centre (Godall, 1972).  It was an urban-biased point of view but still very much valid if viewed in the context of economic rationalism.

But we have seen in the recent past that developmental decisions based on economic rationality alone do not assure sustainable development, especially because social and environmental goods  such as clean air, safety, and the aesthetic component of nature, are public goods and no markets exist for them. Ergo, they cannot be secured by private action. Non-hedonistic and pro-social behavior which is the underlying concept behind cooperativism may not also be applicable to public or common goods. The market will tend to fail in considering externalities in the use of these goods. Water and air pollution problems created by certain type of land-use is an example of a market failure (Kitamura and Kobayashi, 1993). The intervention of the government is therefore necessary to ensure that social and environmental goods are secured.  The inapplicability of the price mechanism to manage these public goods justifies any action of any government to realign policies and ensure that these goods are accessible to all of those who seek to benefit from them (There, a nice justification for governments to exist).

If rural land-use is controlled by the principle of a market economy, then the order of  its use will by decided by standard economic valuation (e.g., productivity and profitability metrics). But since rural land embodies qualities of a public or common good (Tsuji, 1993), it is a necessity to have a change from the existing method led by  free competition of land use on the basis of market  prices to a new method paying enough attention to land’s attribute as a common good.

As Khan (1995)  explained,  there are contradictions among economic, social and environmental concerns. It was in fact in view of these contradictions that he presented the paradigm that would assist in reconciling the issues at hand.

According to Khan (1995, p.65):

“The main objectives of social sustainability include aspects such as empowerment, equity, accessibility and participation. However, from the point of view of welfare economics, none of these can be achieved without sustained economic growth and development. However, it is also true that growth alone will not guarantee social sustainability. Economic growth without  social equity arrangements often results in social inequality and limits the accessibility benefits to those who own the capital and assets.   At the same time, prolonged inequality itself inhibits economic growth in the long run. Thus the achievement of economic and social sustainability must go hand in hand, and further, it should also be noted that one particular aspect cannot be achieved that one aspect can not be achieved  at the cost of the other”.

Similarly, Khan also posed that it is also not possible to achieve environmental sustainability without achieving social and economic sustainability. Poverty alleviation and sustained economic growth are essential  elements of environmental sustainability and vice versa.  To this, Jacobs’ (1995) notions about sustainability and carrying capacity, may be added.  Jacobs explained that sustainable development does not necessarily mean that economic activity must be controlled. Living within the earth’s carrying capacity means accepting that there are environmental limits which should not be transgressed. A sustainable economy is an environmentally bounded one, which develops within the constraints of maintaining resource stocks, waste assimilation capacities and environmental services that will ensure its continuation into the future. It should be understood that this can not be done by market forces, thus decisions can no longer be done in the context of economic rationalism. Market forces cannot produce sustainability because individual firms and consumers cannot act in the knowledge of what others are doing, and therefore, of what the collective result will be. According to Jacobs (1995), even those who wish to act responsibly for the world face a dilemma. If one decides to behave and the others do not, chaos will still ensue. So why behave? The individual, self-gratifying decisions of millions of firms and consumers in unconstrained market situations add up to arbitrary results at the overall level of the world economy. At the other end of Adam Smith’s invisible hand, according to Jacobs (1995) is an invisible elbow which, through exactly the same processes, yields environmental ruin.

Therefore, the paradigm of sustainable development, which seeks to pursue growth and equity within the context of inter-generational resource stability, sees development as achieving the total marriage of objectives of social, economic and environmental sustainability both in the short  and long term. The imperatives of such  integrative and interlinking objectives are manifold  (Khan, 1995):

·         There will be  a need for the development of appropriate methodological tools to appraise projects and assist investment planning decisions by weighing equally the requirements of social, economic and environmental sustainability.

·         To do the above, new accounting methods costing nature will have to be evolved.  An appropriate sustainable development index will also need to be developed to measure development in the context of an integrative framework of social, environmental and economic sustainability rather than doing so through the conventional method of measuring growth by way of GDP.

The Economic Problem of Rural Towns

The  main pressure on rural lands emanates from   urban  en­croachment.  Changing  needs  and trends encourage  urban dwellers to move outward to rural towns, carrying with  them their urban lifestyles and tendencies. Businesses follow  when critical  mass is reached to sustain high levels  of demand  for products and services. The rural towns, somewhere  along the  process, lose their character and slowly  become  urba­nised. Since, urban-related land uses can offer returns  way above what  can be realise if lands are  used  in  farming, farmlands are indeed susceptible to the pressure. Moreover, the  changing  policies as regards land-use  creates  and/or reinforces what planners call  the  "impermanence  syn­drome",  which  causes farmers to resort  to  low-input  farm practices and to ultimately give up farming.

Non-sustainable  land  uses can  likewise  exert  additional pressure to rural lands. Extractive industries for  instance can  realise massive profits compared to other  more  tradi­tional uses. These pressures are actually external to the farm. A  number of economic factors, which  internally affect farm  opera­tions, may be the real culprits that exacerbate the susceptibility of these farms. 

The economics of time, for instance, may assist in weakening the  intent of farmers to continue with production.  Invest­ments  in  primary  production  are  long-term  investments (Cook, 1994). Realization  of  returns can take a long  time  compared  to secondary  sectors  like manufacturing and processing.  For instance, investments in backyard piggeries can take  some years  to  break even and fully recoup the  initial  capital investments.  Given this fact,  and while at the same time,  the farmers do not feel secure about the land-use policies which define  the security of tenure of farming in a  given  area, the tendency to give up the farm is strengthened.

Changes in the national economy can also affect the viabili­ty of farms (Cook, 1994). As the economy expands, it is often accompanied by  increases  in real wage rates, which  means  that  labor becomes more expensive to employ in farming. Moreover,  real prices  may  also  increase  such that  the  price of  farm products sometimes can not keep pace with the rise in  costs of  farm  inputs thus there is a net decrease in  real  farm incomes.  

A natural fall in the inherent productivity of  bio-physical resources  can  also occur as a result of  intense  use  and degradation (Cook, 1994).  The  usual tendency of farmers is to  turn  to better  technology which more often would entail  additional capital  outlays.  Health risks and  negative  environmental effects  may  also be faced if farmers decide  to  intensify their usage of farm chemicals to boost productivity.

Cyclical and random changes in the prices of goods and input costs are also factors which can adversely affect the finan­cial  standing of farms (Cook, 1994). Changes in prices of goods  may  be caused by many factors. Financial  deregulation could increase volatility of  inter­est  rates and currency exchange rates, which in  turn,  in­creased  the  fluctuations   in the prices  of  farm  goods. The restructuring of former East  Bloc  countries from 1992 following the fall of communism in Europe  changed demand  patterns  for several farm  commodities in Asia and Australia. Trade and protectionist policies of major  economies could also inhibit  some farm products to enter  those markets.  

Lastly,  natural  calamities and changes in weather patters as what is happening now can spell disastrous effects to the farms' finances performance.

The interplay of these factors complicates the farming predicament.  It may be noted that except for natural events,  all others  of the above-cited  factors are economic  in nature.  They have a singular effect on the  farming  opera­tions  and  that  is the weakening of  the  farm's  economic viability  and financial standing. The financial  difficulty faced by farmers make them very prone to the external pres­sures e.g. the monetary benefits that developers and  specu­lators can offer in exchange for their lands.

There  are  only  two options for farmers  to  choose  from. Either  they cling to their farms amidst economic  difficul­ties  or  simply sell out. Farmers tend to  cling  to  their farms  for  a number of reasons, among others,  because  the farm is synonymous to home, due to peer pressure, the  availability of off-farm income which enable them to cross-subsidise farm losses,  and  the notion that to leave the farm is  to  fall into the poverty trap, that is, they have no better place to go  and therefore they will have to continue farming by  all means.  When they decide to continue with farming,  farmers may  need  to resort to  cost-cutting,  diversification  and partial sale of other assets. Those who are eligible turn to government for assistance.

(from R. Azanza's academic paper)