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Malthus wrong again says OECD

July 11, 2014
by Patrick Love

Agriculture Outlook 2014-2023Even if you know nothing about the French Revolution, you’ve probably heard of Marie-Antoinette’s reaction on being told the people had no bread: “Let them eat cake”. In fact, the infamous catch phrase was probably invented by Jean-Jacques Rousseau, who attributes it to an unnamed princess in his Confessions, written before the 14 year-old Austrian princess even married the future Louis XVI. As far as the course of events went, it doesn’t matter whether she said it or not, since the people believed that it was the kind of thing she would say. The doomed monarchs could have learned a few lessons in the art of good government from the founder of the Bourbon dynasty. One goal of the reforms instigated by Henri IV, King of France from 1589 to 1610, was a chicken in every pot, on a Sunday at least. This slogan was to reappear in the United States in the 20th century, with “a car in every garage” tacked on to some versions.

Food riots are thing of the past in most OECD countries, but in 2007-08, various places around the world would see people taking to the streets as food prices rose suddenly in response to the interactions among a number of factors, including high oil prices forcing up production costs, drought in major producing areas, diversion of land to biofuels, and a very low level of stocks.

The food price crisis in 2008, the renewed price hikes in 2010, and depressingly regular reports since of people facing famine (the latest in South Sudan) have raised questions about whether agri-food markets could be relied on in future to deliver sufficient quantities of food at affordable prices. And not just in sensationalist media with their love of explosions in food prices and population growth. In 2009, Sir John Beddington, the UK’s chief scientist, warned of “Food, energy, water and the climate: a perfect storm of global events?

As we pointed out in this article, there have been predictions that the world will face mass starvation ever since Malthus published his famous essays on demography. As Malthus himself put it in An Essay on the principle of population: “The power of population is so superior to the power of the earth to produce subsistence for man, that premature death must in some shape or other visit the human race.”

And yet it hasn’t happened. The UK’s population for example doubled over 1750-1800 (the year in which Malthus published The present high price of provisions), and tripled over the next century. This demographic surge couldn’t have happened without the interaction of a number of elements. We often talk about the agricultural “revolution”, suggesting sudden overthrow of the old systems. But even in Britain, the initial changes to agricultural techniques and practices such as enclosing common land and introducing crop rotation were spread over centuries, and what accelerated the pace of change was interaction with the industrial revolution. Improved communications and storage and preservation techniques allowed producers to serve markets far from home. A well-functioning financial system provided capital. And a feedback loop was created whereby improved food supplies supported a bigger population that in turn provided labour for emerging industries and markets for farmers.

Likewise, when looking at the prospects for food production and consumption today, we have to look at the whole picture. The OECD-FAO Agricultural Outlook 2014-2023 doesn’t expect a Malthusian crisis to materialise. The report argues that the world’s farmers and fishers will be able to satisfy demand over the next 10 years. Rising incomes, urbanisation and new eating habits will reinforce the transition to diets richer in protein, fats and sugar. . In real terms, prices are expected to fall (slightly) but remain higher than the historical lows seen in the early 2000s.

This year’s report has a special focus on India, the world’s second most populous country with the largest number of farmers and also the largest number of “food-insecure” people. The Outlook proposes a relatively optimistic scenario for India, with the expansion in the production and consumption of food both projected to continue, led in particular by higher value added sectors, even for staples, for instance consumers preferring basmati rice rather than inferior varieties.

At least two major issues still need to be addressed though.

First, any rise in food prices can affect the food security of the poor. An OECD working paper shows that developing countries with very different levels of economic development, population size and geographical location have succeeded in reducing poverty and improving nutrition. Despite the significant differences among them, they share some characteristics. During the period when they had the greatest success in reducing poverty, the macroeconomic context became progressively more favourable. Their own governments were lowering export taxes, reducing overvalued exchange rates and dismantling inefficient state interventions in agricultural markets. Meanwhile, the governments of rich country trading partners were reducing the kinds of support to their farmers that distorted production and trade the most.

Second, as argued by the OECD in Climate Change, Water and Agriculture that we featured last month, climate change poses challenges on a different scale from the variations that can affect crops and livestock during the course of a season or even a year or two. Future changes in the climate could have significant impacts on land use, commodity production, and where different activities are viable; and the implications of expanding food production for the natural resource base and climate change.

Useful links

OECD work on agriculture and fisheries

 

Depressing depression: mental illness and work

July 10, 2014
by Justin Dupre-Harbord

Making mental health countFormer US President, Harry Truman, once said: “It’s a recession when your neighbour loses his job; it’s a depression when you lose yours.” This rings particularly true right now, when in some countries it might not just be your neighbour but your whole street, you included, that has lost their job. In fact, being unemployed has a large negative effect on your physical and mental health, as well as on how happy you are with your life.

There have been many indications that rates of anxiety and depression have been rising since the economic crisis. Europeans reported feeling “more negative” in 2010 than in 2005-06, and one study even linked the rise in suicides to the 2008 downturn, with nearly 5000 suicides above the expected level in the following year. This has severe consequences on the population’s well-being, with mental health being a key determinant of how healthy people are and how satisfied they are with their life. For instance, over the four years to 2012, average life satisfaction declined by more than 20% in Greece and by around 12% in Italy and 10% in Spain, all countries that experienced big rises in unemployment. Looking at the OECD Better Life Index, we see that these three countries now all do poorly in life satisfaction, with Greece coming last.

The OECD’s Making Mental Health Count tells us that mental health has a huge impact on economic productivity. Not only are people with severe mental illness more likely to die younger (up to 20 years), but they are more likely to be unemployed and poor. This translates into very high costs for countries, with the total costs – direct and indirect – of mental ill-health reaching an estimated $2493 billion in 2010. In England, the overall lost earnings due to depression were estimated at £5.8 billion in 2007, and is projected to rise to £6.3 billion by 2026. Being mentally healthy is defined by the World Health Organization (WHO) as “a state of well-being in which the individual realises his or her abilities, can cope with the normal stresses of life, can work productively and fruitfully, and is able to make a contribution to his or her community.” But if you don’t have a job and you’ve more chance of being depressed, and if you are depressed you probably don’t have job. So what’s the solution?

Unfortunately, despite the enormous health, social and economic costs created by mental illness, mental health care is still not a priority in most countries. Although there has been an initiative by many countries to move people out of mental hospitals towards care in the community, which is better, there is still plenty of room for improvement. The amount of money spent on mental health care is very small. For example, mental illness is responsible for 23% of England’s total burden of disease, but only receives 13% of National Health Service health expenditures. This low spending is mainly due to lack of information on the amount of care provided and the outcomes care produces. This is because mental health problems are completely different from physical problems, and much harder to understand and measure.

This is a big issue for the well-being of countries, as around 20% of the working-age population suffers from a mental disorder. Being mentally unwell has a major impact on your quality of life, and your ability to be productive at work. Conversely, work organisation and workplace relationships can have a profound effect on your well-being and mental health. So much so, that one of Britain’s leading doctors, John Ashton, has called for the country to switch to a four-day week to reduce high levels of work-related stress, let people spend more time with their families or exercising, and reduce unemployment.

Fortunately, there are initiatives which are trying to shine a light on this hidden issue and improve the services provided in the workplace for mental health problems. One example is the prevention and reintegration services offered by Helsana, the largest private health insurer in Switzerland. They offer companies support to develop a healthy work environment through the assessments of risk factors (including factors that can generate mental health problems) and the development of a prevention plan, as well as helping sick employees return to work. However, despite these initiatives, much more must be done.

In the meantime, if this article has made you depressed, try taking a leaf out of Edgar Allan Poe’s book, when he says: “I do not suffer from insanity, I enjoy every minute of it”.

Useful links

How’s life? 2013 – Measuring well-being

Mental health and work This series of country reports offers both a general overview of the main challenges and barriers to better integrating people with mental illness in the world of work, as well as a close look at the situation in specific OECD countries.

OECD work on health

 

Money matters: PISA tests financial literacy

July 9, 2014
by Patrick Love

PISA financial literacyYou’d expect stakeholders in a highly-competitive, high-profit, high-risk, globalised industry to have a clear financial vision, but when the heroes of Irving Welsh’s Trainspotting are discussing what they’d do with the expected profits from a drug deal, only Spud seems to have thought it through. But although “Buy somethin’ for my Ma ” is a lovely reply, it suggests that young Murphy lacks the Financial Literacy Skills for the 21st Century.

If you think you’re smarter than the average 15 year-old, try the test they sat as part of the latest PISA round. Nearly 30,000 students in 18 OECD and other countries took the test, representing around nine million 15-year-olds. The survey was carried out because “Shrinking welfare systems, shifting demographics, and the increased sophistication and expansion of financial services have all contributed to a greater awareness of the importance of ensuring that citizens and consumers of all ages are financially literate.”

The idea was to assess “knowledge and understanding of financial concepts and risks, and the skills, motivation and confidence to apply such knowledge and understanding in order to make effective decisions across a range of financial contexts, to improve the financial well-being of individuals and society, and to enable participation in economic life”.

Of course the 15 year-olds taking the tests are already participating in economic life as consumers and (in far smaller numbers) as savers. Many of them already have a bank card, and some cards are aimed at children as young as 8. This Indian bank shows a complex mixture of nationalism, naivety and opportunism on its website, claiming that: “We strongly believe that Indian kids are the smartest in the world and will use their hard earned savings in the best possible manner.”

Indian students took part in the PISA 2012 tests, but not on financial literacy, which may help explain why the top performers in the results published today are from China. Students from Shanghai score the highest in financial literacy, on average, with a mean score of 603 points, 103 points above the OECD average. There are wide differences in average performance between the highest- and lowest-performing countries and economies: more than 75 points (a full PISA proficiency level) among OECD countries and economies, and more than 225 points across all participants.

Only one in ten students in the OECD area scores at the highest financial literacy proficiency level – Level 5. That means they can solve non-routine financial problems such as calculating the balance on a bank statement, taking into account such factors as transfer fees, and understand the wider financial landscape, including the implications of income-tax brackets.

At the other end of the scale, 15% of students, on average, score below the baseline level of performance. In describing these results, the report makes what looks like one of the most radical claims you’ll ever see in an OECD publication: “At best, these students can recognise the difference between needs and wants.” In my opinion, if we could all do that, whole sections of the economy would collapse. In fact some companies have business models based on trying to convince people with thinking difficulties that there’s no difference between the two.

What Financial Literacy Skills means though is that these students can “make simple decisions about everyday spending, recognise the purpose of common financial documents, such as an invoice, and apply single and basic numerical operations (addition, subtraction or multiplication) in contexts that they are likely to have encountered personally.”

Given that being able to count and read is important for understanding bank statements, bills and so on, it may come as a surprise that high proficiency in mathematics and reading does not necessarily signal high performance in financial literacy. Students in some countries score higher in financial literacy than their performance in mathematics and reading would predict, while students in other countries perform worse in financial literacy than you’d predict from their performance in mathematics and reading.

And while PISA has consistently shown a gender gap in mathematics and reading performance, no such difference is observed between boys’ and girls’ average scores in financial literacy in 17 out of the 18 countries and economies that took part in the survey.

Family background is important though. A “more socio-economically advantaged” student scores 41 points higher in financial literacy – the equivalent of more than half a proficiency level – than a less-advantaged student. In Shanghai, family wealth is more strongly associated with financial literacy than with mathematics performance. In Israel, New Zealand, Shanghai and Spain, family wealth is more strongly related to financial literacy than to reading performance.

You can find full details here about PISA Volume VI and the other V volumes (Fibonacci may have introduced Hindu-Arabic numerals to facilitate double-entry bookkeeping at the start of the 13th century, but we’ll stick to Roman for financial literacy in the 21st).

Useful links

What do teens know about money? By Andreas Schleicher, Director for Education and Skills on the educationtoday blog

Managing expectations in fisheries

July 4, 2014
by Guest author

Fisheries handbookToday’s post is from Roger Martini of the OECD Fisheries Division

When I tell people I work in fisheries, the first question they ask is: “What fish can I eat?” Concern about the sustainability of fish stocks is widespread, and many people want to be sure they are making responsible choices when they buy fish. Given that most fisheries, especially in OECD countries, are managed by governments committed to their sustainable exploitation, this demonstrates a stunning lack of confidence in current approaches to fisheries management.

They are right to be concerned. It is estimated that about 30% of world fisheries are currently overexploited, with many depleted or recovering from depletion – and this is not specific to any region. Despite their best intentions, fisheries managers often struggle to effectively restrict harvest to sustainable limits. Fishers are often accused of being part of the problem by rushing to catch as many fish as they can, but this is unfair. They respond to the incentives that governments give them as the regulator of the fishery. Some rules encourage responsible behaviour, while others promote getting as much as you can today.

There are many reasons why fisheries become overexploited, but it usually comes down to asking fisheries to be and do too many things. Fisheries are often depended on to provide jobs and support rural communities, notably in developing countries where the sector acts as a buffer of last resort for marginalized populations. Communities seek to preserve fishing’s traditional role, and consumers are reluctant to find alternatives to culturally-important fish. Fisheries often have multiple objectives, not all of which are explicit, feasible or compatible. Something has to give, and usually it is the fish stock that suffers.

Our understanding has advanced greatly about how to manage a fishery sustainably and profitably. For example, we know that fishers are willing to take a long-term view of the fishery if they know they can benefit, even if it involves short-term sacrifices. Establishing individual or community rights to the fishery does this by giving fishers a stake in the health of the stock. Allowing fishers to trade these rights among themselves promotes more efficient fishers and reduces overcapacity and the pressure it places on management.

Half a century ago, the main interest that governments had in fisheries was how to expand them. That seems like a long time ago, but many of the policies developed back then are still around in one form or another. Subsidies for building vessels, or for their modernisation and improvement, once a way to bring economic development to coastal regions, now mainly aggravate problems of fleet overcapacity. Given that governments also spend considerable sums on decommissioning vessels – removing them from the fishing fleet – it seems strange that such policies could continue. But beneficiaries of existing programs can always be expected to resist change. The trick is to show them that the alternatives are even better.

The OECD Handbook for Fisheries Managers describes how to do just that. It demonstrates the importance of putting stock management first, having a sound objective-setting and policy-making process, and making practical changes that encourage progress. The advice put forward in the Handbook can help put fisheries on a sound footing such that one day when my friends see fish in the store they can buy it with confidence, knowing that the fishery it comes from is sustainable and responsible. And that’s what really matters.

Useful links

Fisheries: While stocks last?

OECD work on aquaculture

OECD work on the impact of climate change on fisheries

OECD work on the impact of globalisation on fisheries

OECD work on aquaculture certification schemes

OECD work on responsible fisheries policies

How’s life in old age?

July 3, 2014
by Justin Dupre-Harbord

BLIFor many young people there is no time like the present when thinking about their life. When we are young we tend to think about how happy we are now and not ponder too much on what our quality of life will be like later. Most people using the OECD Better Life Index are below 65 years-old, and people of working age (20-64 year-olds) make up the largest part of the population, outnumbering the elderly (65+ years) four to one.

But a look into the future gives a very different picture. Life expectancy at birth is already approximately 80 years among OECD countries, a gain of more than 10 years since 1960, and the average fertility rate of 1.74 is below the replacement rate. This means that the population is getting older and it is projected that by 2060 there will be fewer than two people of working age for every one of pension age. So instead of just thinking about how our life is now, we should start thinking about how it will be in the future.

A look at how life is for the elderly of today gives us a mixed picture. OECD Pensions at a Glance 2013 identifies income as a crucial factor in determining how life is going to be in our twilight years. Recently, OECD countries have had some success in this domain, with the average poverty rate among the elderly falling from 15.1% in 2007 to 12.8% in 2010, in spite of increasing poverty rates suffered by the rest of the population due to the crisis. Incomes of people aged 65 years and older in OECD countries reach about 86% of the level of disposable income of the total population. But just as for other issues, there is a gender gap among the elderly. As women live longer, they are more likely to end up living alone on a low income in their old age, and are therefore more at risk of poverty.

Our health and social support networks (friends and family) are other important measures that affect our well-being later on in life. Not surprisingly, the elderly are among the least satisfied with their health. But they are also the least likely hang out with friends, with 20% of people aged 65 and over reporting no contact with friends. Access to public services is particularly important for our older people, as they need more care than the rest of the population.

With spending on long-term care sometimes exceeding 60% of disposable income, we have to find new ways to sustain ourselves in old age. In some cases this has led to some rather drastic solutions. In Switzerland, the prices for care are so high (between USD 5 000 and USD 10 000 a month), some families have resorted to the rather controversial solution of exporting Grandma and Grandpa abroad to more affordable retirement homes as far away as Thailand. Coincidentally, Switzerland also has one of the highest old-age income poverty rates (22%) in the OECD. In Korea, where the population is ageing rapidly, families have come up with a less extreme alternative. They have managed to work around the strains of taking care of their older relatives by using the new Ubiquitous Health House system (uHouse) that relies on Internet technology to monitor their loved one’s health. This allows families and the elderly to maintain privacy and independence while facilitating family care, and is designed to substitute for hospital service.

So as an ageing population and the effects of the crisis continue to put pressure on pensions and the quality of life of the elderly, we should all be asking ourselves, how life will be when we are older?

 

Useful links

Pensions at a Glance 2013: OECD and G20 Indicators

How’s Life? 2013: Measuring Well-being

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