Wednesday, January 19, 2011

Lobo's Model Cities

Yesterday Porfirio Lobo Sosa gave a long press conference about model cities and his unqualified support for the idea. From it, it's clear that Honduras will go ahead with the plan, with the National Congress scheduled to hold the first debate on legislation today. It's been fast-tracked, though it will take until 2012 to make all the constitutional changes that are needed to allow model cities. Nonetheless, it's interesting to hear what Lobo Sosa thinks about the idea, and how he conceives of the implementation.

He's thinking of areas of about 33 square kilometers, not the 1000 square kilometers that Romer calls for. He sees nothing wrong with ceding sovereignty over such an area for 80 or more years to either foreign governments or national or international businesses while they go about their business. He said:
"This is nothing for Honduras, above all it will be an unpopulated place not appropriate for agriculture, where now we have nothing and afterwards we will have factories, schools, secondary schools, hospitals, like in the cities of more developed countries."
But El Heraldo reports that Lobo Sosa said that if any campesino or land owner doesn't want to sell his or her land, that
"[they'll] rent their land, that means profits, there's nothing pre-negotiated, first the law, first the rules, and after that, we'll see."

which would indicate these are not unpopulated places. This was clear from another statement of his,
"If there are land holders there, they'll have the option to sell their land, or rent it."

but presumably not withhold it!

The President will have veto power over who administers the model cities.

The rush is to get it approved in this Congressional session, which ends this week, because if not, they won't finish all the approvals until the 2012 session, because of all the constitutional changes that are required. Lobo Sosa wants this done during his administration.

Lobo Sosa indicated the government was looking at Ocotepeque, Trujillo, the Agalta valley, and near the port of Amapala on the Pacific coast, as possible locations for a model city. He projects they will provide up to 3 million new jobs, all of which, Lobo Sosa assures, will go to Hondurans.

Lets see. 33 square km. is about 13 square miles, or smaller than Whittier, California, population 83,000 and exactly the size of the affluent Calabasas, California, population 22,000. Industry, California, is an industrial city of about 12 square miles, with 2500 companies generating about 80,000 jobs but it only has 777 residents.

Hong Kong has a population density of about 6400 people per square km. At that density, a model city of 33 square km. in Honduras would have about 211,000 residents.

Hong Kong is a bad success story for Romer to have chosen. Not only does he ignore the historical contingencies of his example, but he ignores the historically poor distribution of income there as well, the worst in Asia.

Who benefits in Hong Kong? The gini index measures how income is distributed across households from the poorest to the richest. To the extent that that curve differs from a straight line, income distribution is skewed. Values range between 0 and 1. The lower the number, the more evenly income is distributed. The closer the value is to 1, the more income is concentrated into fewer and fewer families.

The gini index of Hong Kong was .53 in 2008, while Honduras had a gini index of .56 in 2010. That means Hong Kong and Honduras already have similar income distributions, with lots of poor people and a few wealthy households. Would you expect something different in a model city? Why?

This income distribution is what you would expect from little regulation of capitalism. Most European countries have values in the range .2 to .3, while the US has a gini index of .45. The rich get richer, the poor stay poor, and the middle class gets poorer as capitalism is regulated less.

So tell me again how model cities will be good for Honduras?

Update: The legislation was indeed fast-tracked, and has passed. Other blogs are now paying some attention as well. This has led to Romer himself correcting Honduran press reports: Lobo Sosa either said or should have said that these would be 33 km on a size, and thus 1000 km. We would note that the decreto that was passed has nothing about proposed size. We stand by our opinion that this is a bad idea that makes no sense and note that using real people's lives as an abstract experiment should be considered unethical.


Unknown said...

There are a few problems with your analysis. First and foremost, Honduras does NOT has "unregulated capitalism". We have min. wage laws, price freezing, burdensome costs of entry for businesses, poor property rights and awful labor regulations which results in most hondurans working on the informal sector.

In respect to the Gini Index, mathematically speaking it is a measure of entropy which may be apply in Economics to measure statistical dispersion which may be wealth, income, etc. Apparently the index figures you mention refers to "family income" distribution. Its a mistake to compare poor and rich countries such as Honduras with USA or Europe using the gini index. If two countries have the same Gini coefficient but one is rich and the other is poor, it can be seen to measure two different things. In a poor country it measures the inequality in material life quality while in a rich country it measures the distribution of luxury beyond the basic necessities. Economies with similar incomes and Gini coefficients can still have very different income distributions because the Lorenz curves can have different shapes and yet still yield the same Gini coefficient. It measures current income rather than lifetime income and similarly it is a point-estimate of equality at a certain time, hence it ignores life-span changes in income which basically means that it doesn't tells us whether we are improving or not or whether young families (often poorer) later becomes richer or not ,be it for better jobs or for simple accumulation of wealth a similar argument can be used in regards to immigration policies where newly arrived immigrants are poorer but may later become richer.

RNS said...

First, I said "little regulated" not unregulated, and I stand by that. Honduras has many laws on the books to regulate business but business is less regulated than in the US. Also there's substantial disparity between what the law calls for in Honduras and what the actual business practices are. Minimum wage is honored by some, ignored by others. The lack of enforcement mitigates any rules governing businesses in Honduras.

With respect to the gini index, we agree it measures the dispersion of incomes across a spectrum. Comparisons between gini indices therefore compare dispersions not absolute values, but are none the less valid. They do not compare the standard of living of the underlying populations. I understand them in the same way you do. However the United Nations does use them for comparison in the same way I did. The implicit goal is to see a lower gini index.

RAJ said...

Xma'Kal actually is directly copying from Wikipedia in his comment that

If two countries have the same Gini coefficient but one is rich and the other is poor, it can be seen to measure two different things. In a poor country it measures the inequality in material life quality while in a rich country it measures the distribution of luxury beyond the basic necessities.

While it is good to see that he has a source (albeit uncredited) for his claims, he inadvertently illustrates the problem with relying on Wikipedia for an understanding of social scientific concepts. One would gather from the word mash he has created by copy and paste that GINI is seriously flawed, but that would ignore the arguments for it-- also contained in the source he plagiarized, although conveniently left out in his comment.

As RNS says, the GINI is used routinely to compare countries, as we have done here. In addition to being used precisely this way by the UN, the CIA Factbooks use GINI coefficients to compare these distributions.

Had Xma'kal read more of the Wikipedia article he plagiarized, he would have noted that, unlike the criticism he reproduced-- which has no cited source-- the Wikipedia entry cites a standard text by Debraj Ray, Development Economics, published in 1998 by Princeton University Press for the fact that the GINI is useful because "it does not matter who the high and low earners are"; it "does not consider the size of the economy, the way it is measured, or whether it is a rich or poor country on average" and "it does not matter how large the population of the country is".

In other words, our (quite standard) use of this index, shared by institutions as diverse as the UN and the CIA, is founded on documented strengths based in research. Xma'Kal's argument is based on plagiarizing unsourced comments of questionable validity from Wikipedia. We prefer research.

Unknown said...

RNS: regarding regulation we still disagree, I do not see Honduras as being "little regulated" but highly regulated. You do make a valid point saying that "there's substantial disparity between what the law calls for in Honduras and what the actual business practices are" but therein lies the heart of the problem with ALL regulations everywhere. With little effort you will find USA americans and Europeans making the same claim. That is because in theory regulations protect the average citizen against "evil" businessed but in practice they're simply used as a ways to favor some political ally against common businessmen.

With respect to the gini index we agree, my intention was to point out some of the index' shortcomings and why we should be careful in the way we use them. In fact I agree with most of what you say though I don't find it particularly relevant whether a given area will be unpopulated or not (technically you can even say that a place with 50 persons is unpopulated, compared to some other average), on the contrary I think such areas will be populated for sure, I expect the owners to be Lobo or some political ally of his or his government this way they can make a fortune by doing nothing (another example of using laws to favor your allies).

My complaint about the gini index is that you shouldn't simply state "Hong Kong is 53 while Honduras is 56, therefore Hong Kong is a poor example" because that doesn't tell the whole story. There are many reasons why Hong Kong is a good example for Honduras if you look at how Hong Kong has been improving in the last years so there must surely be lessons to learn there.

Finally, though its true that the UN uses the gini index, they don't use them in the same way as you did here, aggregate measures (such as the gini index) are helpful sometimes but they never tell the whole story and your conclusion is, in my opinion, a bit careless. The above criticisms do not mean in any way that I disagree with your general point or that I don't appreciate your analysis, I do.

Unknown said...

RAJ: I did copy-pasted some points from wikipedia, if someone has already expressed the same idea I have in better words than I can, why shouldn't I? However, I do not rely "on Wikipedia for an understanding of social scientific concepts" I simply saved time by copying their arguments since, after some thought, I decided they expressed my arguments in a easy to understand way.

Now, I do take the time to cite my sources if I'm writing for academia or any other formal media but please do note that you don't "plagiarize" wikipedia since its content is freely distributable and reproducible! Moreover, no serious institution does in fact accept Wikipedia as a valid source so citing it is optional and its use discouraged.

As I explained in my previous comment: the UN and the CIA Factbooks do in fact use GINI coefficients to compare these distributions, but my criticisms stand nevertheless. Show where the UN or CIA say "CountryA has an index of X while CountryB has a similar index Y, therefore CountryB should ignore all CountryA's policies". Using the gini index (or any other agregate measure) in this way is bad social science and since you claim knowledge (or at least familiarity) with such then you should already know it.

RAJ said...

Let's start with plagiarism, which is copying someone else's words without attribution. No scholar, no researcher, no one who knows anything about scholarship, accepts the argument that "if someone has already expressed the same idea I have in better words than I can, why shouldn't I?"

You shouldn't because it is wrong. Copying other people's words is theft.

To then argue that you can plagiarize wikipedia because it is not an acceptable scholarly source is not only a contradiction, it underlines what is wrong with your comment. It is not based in research. It is based on your opinion, substantiated by wikipedia, which you admit is not a scholarly accepted source, so you just plagiarize it.

You have no authority as a social scientist, and I find laughable your claim that you write for academic audiences. And your opinion is that of a plagiarist relying on sources with no credibility.

So it is your opinion. And I reject it and continue to rely on the scholarly community, which I belong to.

RNS said...

You are entitled to your own opinions, but not your own facts.

The UN publishes tables of gini indices which ARE meant to let you compare countries. The linked example is about (in their words) "economy and inequality", so I think the UN disagrees with you about comparing the gini indices. The CIA world fact book uses them in the same way. These are professional economists who are interested in equality/inequality in income distributions.

We'll have to agree to disagree on business regulation.

I stand by my conclusion.