Sunday, 24 November 2013 13:30

Fool's Gold?

Eating Gold is a time honoured tradition. The Greeks thought that Gold was a high density mixture of water and sunlight, the Romans that it was flakes of skin from the gods that would give them strength. Chinese and Indian cultures consider gold to have medicinal purposes and in Japanese culture it is eaten at new year to bring good luck. Now, not content with eating it you can drink it as well.

Earlier this year, in what some will see as the ultimate in immoral, conspicuous consumption, the drinks giant Diagio released Smirnoff Gold. The clear bottles contain cinnamon flavoured vodka with 23kt gold leaf suspended in it. Is this desire to consume gold simply the pinnacle of western over consumption? Last year, while Diagio were planning the launch their new product, growing grains, malting them, fermenting, distilling and bottling before adding precious metals, an estimated 260,000 people were dying of starvation in Somalia.

The value of Vodka market worldwide has grown about 3% year on throughout the recession and with most countries now showing signed of a more stable recovery they must feel people are ready for some luxury again and are trying to capture the premium end of the market. It is well known that consumers like the feel of exclusivity, appearing to themselves and others to be part of a wealthy elite but with a global market distributing resources to satisfy wants, how is it that western desires to appear affluent are able to trump the need of African consumers to eat in order to survive?

As with so many things, the answer is money. Much as economists may pretend otherwise, the market system does not distribute resources to their most needed/important use. It distributes them to the use that is most willing to pay. In an ideal world where everyone has similar wealth this would be the same thing but this is not an ideal world. Each pound spent is a little like an economic vote. When you buy a coffee, you are voting to use some labour, electricity, raw materials etc. to produce you a coffee. There is an opportunity cost. Those resources are not now being used to produce food or shelter or capital goods. Because wealth is so unevenly distributed, western consumers can signal their sneaking desire for a status enhancing, gold infused drink more strongly to the market than a homeless Somalian family can signal their crushing need for food and shelter. Is there a clearer example of market failure?

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Thursday, 03 October 2013 09:26

Aid - How Much?

The UN target for overseas development aid (ODA) is for countries to give 0.7% of GNI so how well are we doing? 

ODA/GNI of selected countries 2011

Since these figures were released by the OECD last year the UK has increased aid spending to meet the target but still only 6 countries reach it and only 3 exceed it. The average spend on ODA is just 0.3%, less than half of what the UK wants. Click on the image to explore the OECD website.

Even this figure flatters, however. Much of this aid is 'tied aid'. It is only given on certain conditions, for example it may only be given if the money is used to buy the required goods and services from companies based in the donor country. The OECD estimate that tied aid reduces the benefits from the aid money spent by over 20% Many countries make use of tied aid. Again here the UK comes out well with no tied aid at all. The USA is at the other end of the scale. A huge 96% of US aid is tied aid. The UN estimates that 42% of aid in 2009 was tied aid.

Tied Aid by Country

The headline figure of about $2 trillion in ODA over the last 50 years sounds like a lot but with much of it tied aid and US GNI for 2012 standing at $15 trillion, that figure is sounding very small.

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