Bretton Woods was an attempt to discipline international monetary policy, keep states from playing shenanigans, mercantilist stuff that hurts the system. Devaluation wars. Bretton Woods seeks a level playing field. Joel's Q: Given Stiglitz' tirade against rich countries' behavior, would he agree that Bretton Woods is really a level playing field? A: only if you were in the club. So fair within the OECD only.

Financial disintermediation. Instead of going through banks, borrowers and lenders go through the debt markets.

One place that globalization has unequivocally happened, almost everywhere, is currency. Most currencies float (more or less). Foreign exchange, capital, and debt markets thus have more power.

Who goes to markets? Governments. Corporations. Corporate raiders. Pension funds. In aggregate, mutual fund investors.

China is allowing mainlanders to invest in the Hong Kong and foreign stock market. This is an attempt to 1) diversify Chinese savings and 2) reduce the overheating pressure from excess savings.

History of rating agencies. Moody's is the first, starting in 1909 with railroad security risk ratings. There are actually over fifty ratings agencies but S&P and Moody's dominate. Joel's Q: Do rating agencies have access to non-public information? Yes. Open books, interviews, etc. You have to pay the rating agencies to be rated. They also rate countries. In the case of countries, they want to know what foreign currency income will be available to repay. Domestic income doesn't count as much. On top of ability to repay, willingness to repay.

Japan has created its own ratings industry in reaction to being judged by American standards (short-term view vs long-term view) and being downgraded (late 1990s? 2002?) by the main ratings agencies.

Q: what about the risk to the agencies of losing reputation? (Joel's notes: and why don't investors try to fix the broken incentive system, either by creating a rating agency that investors instead of lenders pay, or requiring borrowers to be rated by several different agencies so that they can't rating-shop). For the big crises, everybody gets is wrong so no single agency is hurt.

Joel's note: Looking at Moody's SEC filings (Lexis/Nexis is not a happy interface to Edgar Online). $1.2b revenue in 1H2007, vs $560m expenses. That kind of gross margin is software territory. About a third of their revenue comes from outside the US.

Class discussion of alternatives. Government to deal with market failure? Japan is trying that, but nobody uses the Japanese ratings. Hard business to get into because of all of the proprietary knowledge (then why are there over 50? Can't be that hard). Classmate: Agency Reform act of 2006. Joel's Q: Their power must be fragile since it's dependent completely on reputation. A: But they've survived getting the Asian crisis wrong, getting Enron and Worldcom wrong, now getting CDOs wrong. They all get dinged at the same time; and there's a need for the role they play. Classmate: why not government rating of rating agencies? They fight that very hard, but it's been discussed in EU recently and may happen.

Q: classmate question about investing in Bangladesh: Microsoft is there even though Bangladesh doesn't have a rating. A: different issues. The only connection is through PRI: political risk insurance, which is usually the sovereign rating plus a premium. Small market for specific kinds of projects. Note that this is an example of another extension of power of rating agencies: the credit rating (for individuals or companies or countries) are base values for many other factors, such as employability or car insurance or matchmaking).

Side note barely apropos: lots of charts and graphs about housing foreclosures.

Timothy J. Sinclair (1994), "Passing Judgment: Credit Rating Processes as Regulatory Mechanisms of Governance in the Emerging World Order," Review of International Political Economy, 1(1), pp.133-159.

• Bond-rating agencies have power. Horribly formatted file, hard to read.
• Rehash of Rosenau's definition of governance
• Finance has become disintermediates since the 1980s, which has caused information problems for those wishing to lend and borrow, and has disempowered traditional intermediating institutions and empowered credit rating institutions. Why? Bank debt is a hassle and shareholders want to pull strings. But now the lender is at more risk because the bank isn't there to insulate them.
• "bond vigilantes" in the bond market act to keep inflation low to protect their earnings. The size of the US debt gives them power over government.
• p 12: uh-oh, we're quoting Foucault.
• How important are they really? If people believe they are important, they are important. Rating agencies have power over corporations because, if they change the corp. ratings, the corporations' costs to borrow money will increase.
• Structural power because ratings have become part of the normal landscape of finance.
• Yes, there actually is a magazine called Euromoney.
• Short-term emphasis in US investing is because investors have little information to go on other than quarterly earnings reports. Oh really? In other countries there is more "patient" capital because of relationship-based investing.
• Ratings agencies are US-based but internationalizing. May export US economic orthodoxy.

Timothy J. Sinclair (2005), The New Masters of Capital: American Bond Rating Agencies and the Politics of Creditworthiness. Ithaca, NY & London: Cornell University Press, 2005, pp., 50-71.

• Ten years later, his writing is more polished and more painful.

Joesph Stiglitz (2003), "Free to Choose?" in Joesph Stiglitz Globalization and Its Discontents. New York: W.W. Norton, pp.53-88.

• Rich countries and the IMF treat poor countries horribly. Details.
• Here's my 2004 review of Stiglitz' book.

Macroeconomics

Exchange rates. A bit of deja vu since we talked about currency markets in SMIG last week.

When a currency is pegged, you will usually have either excess demand or supply, which necessitates currency control, rationing, central bank buying, etc. Joel's note: what about the black market? Doing some digging to find estimates to see if the black market for currency is big enough to matter for the world as a whole (vs just mattering for specific countries). Hm. Black economies are 10% of the legal economy in the US; up to 30% in Europe; up to 50% in some Asian countries and about 70%! in Thailand, Nigeria, and Egypt.¹ Count this as one more big grain of salt to be consumed along with any GDP-based arguments. Still can't find numbers about black market size for currencies, though.

I did stumble across an article discussing the benefits of hiring undervalued black baseball players in 1947-1956. It finds that "the inclusion of an additional black player on a major leauge team ... resulted in an addition 3.75 wins per year [on average]" in the early 50s.² That's the difference between a utility player and a star, or a star and a super-star.

My question: We are looking at the yen/$ market in terms of supply and demand of dollars. Is this strictly the mirror image of demand and supply for yen (assuming there are only two currencies in the system)? A: yes. The supply of dollars is the same thing as the demand for yen. If I go shopping for yen with a fistful of dollars in hand, then I am by definition increasing the supply of dollars. There are only two parameters in play here, not four.

That C$20 bill I've been carting around in my wallet for a year, leftover from the 2006 Vancouver Folk Music Festival, is turning into a good investment.

Extended discussion of USD value (vs a basket), Nominal exchange rate for Sing$, and Real exchange rate for sing$, since 1980.

More side research on my black market currency question. Some Dutch government bankers noticed that there are a hell of a lot of Fl. 1000 notes in circulation and wonder what they are used for. They note that "direct questioning about possession and usage of Fl. 1,000 notes would, in all probability, have led to a considerable response bias." Hah. They tracked down (statistically speaking) 60% of the big notes; projecting from there, 25% of all Fl. 1000 notes in the Netherlands are used in the drug and gambling economies.³

The IMF now identifies eight different kinds of exchange rate regimes. The basic idea is to get the stability (for your businesses) of a peg without all of the expense.

After re-analyzing exchange rate regimes last century, researchers concluded that the official designations were little better than random.

Microeconomics

Game theory. Mechanism design: creating a system where, if each player pursues self-interest, the overall desired outcome is still reached. Isn't this what the Framers of the US Constitution were trying to do? Was that intentional?

I'm in a dangerous position in the readings for this class. The lectures come from slides prepared by the book author, so they don't just follow the book, they are the book. I read fairly carefully for the first six weeks, and skimmed after that. Classes have fallen well behind the reading (which for me was mostly material I was already familiar with anyway). Today's class is covering material that I think I read about two months ago. The danger is that I'll get too complacent, start treating material I'm familiar with as material that I have mastered, and possibly ignore some specific readings or other tasks.

Prisoner's Dilemma with Nash Equilibrium analysis. Prof's backstory is, "Greg and Susan are alcoholics, they break into a liquor store and get caught ...". I wanted to visualize so I googled "greg and susan" and this was the first good hit.

Discussion of Coke vs Pepsi led me to hunt for pictures of the 7-up guy (the original, not the Up Yours guy), who turns out to be named Geoffrey Holder and to have a whole very interesting life and career.

A cartel coordinating through phases of the moon. Apropos of nothing in class, Etorphine.

Strategic move: an action to influence beliefs or actions of other parties in a favorable way. Example: a lithographer breaks her plates to guarantee that the limited edition stays limited.

History of Sprint. Actually dates back to 1899.

Bibliography

Some of my sources are in JSTOR, which is a closed database. Information wants to be free! because I'd rather link than cite. It's easier.

1. Shadow Economies: Size, Causes, and Consequences, Friedrich Schneider; Dominik H. Enste, Journal of Economic Literature, Vol. 38, No. 1. (Mar., 2000), pp. 77-114.
2. Employer Costs and Discrimination: The Case of Baseball, James Gwartney; Charles Haworth, The Journal of Political Economy, Vol. 82, No. 4. (Jul. - Aug., 1974), pp. 873-881.
3. The Demand for Large Bank Notes, Willem C. Boeschoten; Martin M. G. Fase, Journal of Money, Credit and Banking, Vol. 24, No. 3. (Aug., 1992), pp. 319-337.

Blogging from a lunch seminar. I would have skipped this one but they invited me to attend a smaller lunch group after the talk, so by the free food principle¹, here I am. Seventeen minutes late, because I screwed up my notes and went to the wrong place, plus this was a rare noon start instead of 12:15. There were no seats left when I got there, and then a handful of classmates (presumably also used to 12:15 start times) filed in, and so a three or four brightly robed Thai (I think) monks got up and left. That's either an excess of humility or an act of self-preservation, since the full title of the event is:

The Bukit Timah Dialogues... on Leadership
by Prof Neo Boon Siong, Director, Asia Competitiveness Institute, Lee Kuan Yew School of Public Policy and author of Dynamic Governance

You could win a game of buzzword bingo from the title alone. We've been reading parts of Dynamic Governance (see my notes) for Theory and Practice, and while it has some interesting details and history of the Singapore government, I found it hard to read given the relentless positive regard for Singapore and excess verbiage.

The lecture doesn't seem to present anything new relative to the book. The book, in turn, basically said "things change and government should change too." It's like watered down Thomas Friedman. The current slide has the following words, in boxes and lines and arrows: "dynamic governance, execution, adaptive policies, change, conceptualize, thinking ahead, insights, fit, future uncertainties".

A slide with the complete Dynamic Governance System framework. This does actually present some specific notions. Same ground as the stuff I looked at for class, so see those notes. It's a collection of good habits for any decision-making system.

Q: Studies show Singaporeans are unhappy, despite relative wealth. So why is the government building a casino, which people indicate they don't want; it's surprising that that's the result of dynamic governance rather than just following the old prescription for economic growth. A: happiness depends on expectations, not reality. How do you overcome the complacency that can set in if you don't have a sense of urgency and potential calamity that can happen any time. Is this adaptive thinking? It is in the sense that you are introducing something to the system that has been constantly rejected. At some point it will probably be not good enough. have we reached that point? Maybe soon.

Questions about how to adapt dynamic governance to India.

Q: Government decided to have casinos despite opposition. Government decided to keep section 377a (banning male gay sex). So who determines the values of a society? A: I was not privy to those discussions, I can't defend them. At the end of the day they pay a political price. (Joel's note: The PAP's been in power since the 1960s. To a first approximation, they've never paid a price. Of course there have presumably been setbacks and limits here and there, but still: if you never lose power, you never really paid a price.)

Update: lunch was good. As if to punish me for my insolence, my vegetarian lunch was placed at Prof. Neo's right hand. There were about 12 people, mostly students, and we had a nice chat; a little about his book, the Singapore government, the experience of returning to your home organization after going away for school (which I suggested might be something like consulting: you are desired for your (expected) special knowledge or skill but resented for being a know-it-all outsider), etc. Prof. Neo's knowledge of the Singapore government is much more engaging at a personal, chatty level than in the context of a textbook

1: That would be, "never turn down free food when you're a grad student."

Ethics.

A great case study this week. A local official in an Indian district tries to stall a corrupt land deal without losing his career. The steps he takes to stall the deal include:

1. ordered that the land be surveyed, but directed the survey to Survey of India, which he knew didn't do land acquisition surveys
2. When the Survey of India said they would need special permission, he applied for it, knowing it would be rejected
3. Under pressure, applied to a different survey body (controlled by corrupt interests)
4. told the new survey team that they would have to wait until his own office was ready to join them on the survey
5. Appealed to another clean officer, who was unable to help
6. The survey came up with a different number of total acres than the original proposal, so he wrote another letter
7. After the acre issue was dismissed, he pointed out that the legal process had not been followed in the proposal.
8. In response, the district secretary sent a letter invoking an emergency power to acquire the land
9. He destroyed the letter and did nothing.
10. The corrupt deal sponsor followed up, and he said he was waiting for the government.
11. The government responded with another letter. He sent it to the office to file under "put it up to me again after I return from leave" and then went on a pre-arranged month vacation
12. When he came back, he had only 2 months to reach a 2-year tenure milestone. He then wrote a letter to the district secretary using the word "scandal" many times.

The corrupt deal ultimately went through five years later.

An Indian classmate assures me that this case is nothing special and says he has personal experiences to match.

Class notes

A classmate relates a story where he was given responsibility to disburse some money; to avoid some corrupt supplicants he was smuggled out of the building in another person's car while a decoy drove his car. An administrator finally caught up with him and threatened punishment, which he escaped through appeal to ethnic ties. Then he had to hurry to spend the money on legitimate programs before it was looted. This event prompted him to leave government service.

Another classmate recounts a story involving land seizure which would displace many people. Forced to arrest many protesters.

Classmate: Einstein: everything is relative; Gandhi: remember the face of the poorest person you are responsible for.

N.B.: My father blogged the trial of Tom Anderson, an Alaska state legislator who was convicted this summer in a corruption case. He is a former student of my father, who taught public administration in Anchorage for most of my life. He was member of the Corrupt Bastards' Club—they had hats and everything. There have been several federal corruption trials in Anchorage this year, and both Senators and the state's sole Representative are all under investigation, though only some of them have been connected to the Corrupt Bastards' Club. Apparently the others were independently corrupt. I have the feeling that ethics was only a small piece of the problem.

Here are some more subtle forms of corruption (from class slides):

• Misrepresenting results of analysis
• Working for a third party/narrow, sectarian interests
• Pursuing short-term agendas with long-term negative consequences
• Shortchanging implementation concerns

How can you judge value conflicts in your professional life?

Note that there is an opportunity cost to fighting corruption; especially if you won't have any real impact, is it a good use of your time as a public servant, compared to other things you could be doing?

The class split into three parallel courtrooms to try the Deputy Commissioner from the case study. In our group, the DC was found not guilty of corruption and ignorance of law, but guilty of negligence. Punishment: 2 years observation and no promotion. Main factor: didn't want to set a precedent of allowing insubordination, even in good faith.

Second group: the judge says, "the defendents came out with very poor support". Guilt on charges but exonerated by judges.

Third group: innocent until proven guilty. Tearing up the letter was illegal but not corrupt. Should be fined. Did not discuss if he should suffer career consequences.

Motives. End and means discussion.

If you say that he's innocent, you might enable other people in the civil service to exercise too much power but for less noble reasons. But if you find him guilty, you may discourage these brave whistle blowers. Can you be more precise in judging his actions?

Exit/Voice/Disloyalty as a Venn diagram. Differs from Hirschman's book (or at least the beginning, which is as far as I got reading it), in that Hirschman's model has only two choices for unhappy workers, exit and voice. This diagram adds disloyalty.

Considerations for whistle blowers:

• Is the conflict legitimate and important?
• Will your response be effective?
• What will your action cost?
• What is the long-term effect on people of conscience in the organization?
• Will you violate professional trust, ethical codes, or contractual or legal obligations?

Here's why you shouldn't be a whistle blower.

David L. Levy and Aseem Prakash (2003), "Bargains Old and New: Multinationals Corporations in Global Governance," Business and Politics, 5(2), pp.131-150.

• I had to share this choice quote with you, the apotheosis of ismism.

  From a rationalist utilitarial perspective, private actors can be involved in strategic bargaining and their impact can be undersood as helping to shape the incentive structures facing governments and nongovernmental actors. From a social constructivist perspective, private actors can be influential in normative deliberations that determine the appropriateness of alternative courses of action, whether these are NGOs and transnational social movements interested in social justice or business groups mobilizing around a hegemonic ideology.

  We can use this as a template to project ismism to other, more familiar domains. Like baseball.

  From a batterist perspective, pitchers can and should be involved in pitching to batters and their impact can be understood as helping to determine what pitches the batters will be facing. From an intangibleist perspective, pitchers can be important in promoting team chemistry and teaching rookies how to be the heart and soul of a team, whether they are left-handed relievers with post-season experience or right-handed veterans looking for World Series rings.

  Coming soon (after as I catch up on my two papers due in two weeks): if International relations theorists were baseball pundits.
• MNCs develop preferences: that implies they have enough power that their preferences matter.
• Regime theory from the MNC perspective.
• three hypothesis: decline of westphalian state, decline of regulatory state, race-to-the-bottom in regulatory standards as MNCs venue-shop
• emergent institutions: this may be the first time the word "emergent" has been used in class, a word I've been keeping an eye out for.

Michael C. Webb (2006), "Shaping International Corporate Taxation," in Christopher May (ed.), Global Corporate Power. Boulder & London: Lynne Rienner, pp.105-126.

• Followup on Transfer Pricing: has a reputation as a means for tax avoidance. I learned about transfer pricing at my first job, Treasury Services Corp, which made analytic software for banks. It's always struck me as as a really sound, if somewhat sophisticated (non entry-level) accounting idea: if one part of an enterprise (a company, a government department, etc) provides a service to another part, the internal customer should have to pay, at least in the accounting, and the service provider should book revenue. Otherwise you will get all kinds of bad planning, such as thinking that work that your in-house staff can do is "free" compared to hiring contractors. But is tax avoidance the only thing people think of when they hear transfer pricing? That would be a shame.

  Aside: I was so young and stupid at that job. It was only years later that I made the connection between the software module we sold called, I think, "Profitability Measurement," and the dehumanizing practice at banks and other places to treat customers differently based on how profitable they are.

  Second aside: if you google for "corporations avoiding taxes", half the links are angry bloggers and the rest are how-to guides.

fx trading is huge and untaxed.

David Bartlett and Anna Seleny (1998), "The Political Enforcement of Liberalism: Bargaining, Institutions, and Auto Multinationals in Hungary," International Studies Quarterly, 42, pp.319-348.

• Hungarian state stood up to auto manufacturers and created a generally fair, successful situation instead of a private playground for manufacturers. For example, Suzuki set up in Hungary in order to provide locally built cars that would be cheaper than imported, taxed cars. But then Hungary set car import tariff at only 8% instead of 25%.
• commodities traders as a face of private sector instead of MNEs
• regulatory capture costs about US$200,000. (Myanmar?)
• can't you get well-behaving (for society) corporations through transparency and regulation?
• Corporations are a flawed design for civilization. (I think that's my phrasing but inspired by a classmate comment.)
• classmate protest: if it's really that bad, the state will take the power back (example: firefighters)
• Parallel between Nazi germany corporatization and the corporations in the Phillipines during Marcos, or the corporations in Myanmar now with the junta.
• natural monopolies: do technologies create new natural monopolies? gas, power, communication, could not be monopolies 200 years ago because of localism.
• green investors, "triple bottom line accounting"
• Blurring the lines between states and private sector. military-industrial complex, Carlyle group. halliburton. mercenaries.
• incursion of private sector into activities traditionally reserved for the state. military, education, ...? (what are the classic five again? Military, education, courts, police. ...?

Susan K. Sell (1999), "Multinational Corporations as Agents of Change: The Globalization of Intellectual Property Rights," in A. Claire Cutler, Virginia Haufler and Tony Porter (eds.), Private Authority and International Affairs. Albany, New York. State University of New York Press, pp.169-198.

Describes the sequence of events by which twelve corporations, over a decade and more, got nations to create and enforce new international and national laws to protect their intellectual property interests. Hints that this may be a bad thing. Doesn't mention Disney, which may have missed the original wave of corporate machinations but has been a big player for at least the last ten years.

Debora L. Spar (1999), "Lost in (Cyber)space: The Private Rules of Online Commerce," in A. Claire Cutler, Virginia Haufler and Tony Porter (eds.), Private Authority and International Affairs. Albany, New York. State University of New York Press, pp.31-51.

A mixture of straightforward analysis and questionable predictions. The author seems to assert that "e-cash" must be developed and widely accepted before e-commerce can take off. Another good one is that organizations like BSA and SPA "seem likely, before long, to develop effective means for creating and even policing intellectual property rights." BSA and SPA are fronts that the big players (Microsoft) use to legitimate their shakedowns. Although I guess that does constitute of form of policing intellectual property rights, in its own special way.

Susan Strange (2000), The Retreat of the State: The Diffusion of Power in the World Economy. Cambridge, Cambridge University Press, pp.44-65 & 91-99.

• p 44: Biggest change in politics and individual lives: the change in the production structure of the world economy. The increase in market sizes has made TNCs (the latest TLA for MNC, MNE, etc; oddly enough there's a useful-looking chart of the differences buried in this article).
• p 45-6: more about how TNCs have been delegated power by states, states aren't going away, etc
• Three trends in international production.
  • p 49: states used to see TNCs as problems and nationalized some companies. Now the trend is reversed.
  • p 50: really international, not just US
  • p 51: shift from manufacturing to services
• p 51: Drucker suggests (1990) that 1/3 of total extra wealth in the last 50 years has gone to extra material goods; 1/3 to more leisure for 1st world; 1/3 into improved education and health care.
• p 53: power is the ability to influence outcomes. Politics is "all activities by which others are persuaded or coerced to collaborate in the achievement of aims designated and desired by another". I like the substance of that definition but wonder if it could be more pithy. (consider "the continuation of war by other means" pre-emptively rejected). If you look beyond international security outcomes, TNCs clearly have real power.
• p 54: four hypotheses: TNCs have taken market power from states; TNCs have done more than aid organizations in the last decade to redistribute wealth. TNCs have taken some labor-market power from states. TNCs have started escaping state taxes on profits.
• p 91: non-state power.
• p 93: different kinds of authority.
• p 94: uncritical approval of any kind of international cooperation, regardless of its final impact on the public, is a bad habit of liberalism
• p 95: lists of different kinds of authority the author is not qualified to discuss. Religious. Transnational sports authorities (WADA anyone?). "in baseball, US authorities dominate others but have to cope with players' organisations that are effectively a labor union." Um, 'effectively'? Guess what the first word is in the Major League Baseball Players Association History page? "Unionization". MLBPA isn't just 'effectively' a union, it is in legal fact a union. I guess Strange is just proving her point about her qualifications.

A professor told me last week that he thought Chopra (our administrator, Colonel Chopra) would have been hurt to read himself described as scary. I don't spend much time blogging about blogging, but I thought this might be a good time to talk a bit about why and how I blog.

I blog because it satisfies me to think that I am helping, informing, amusing, or at least providing warning by example. A number of factors constrain what I say. I don't blog about my private life, which you might think would be a tautology until you read what people put out there. Sometimes a tension forms between one's own privacy, other peoples' privacy, the dramatic needs of a story, one's debt of integrity to readers and one's self. This I handle as best I can. The inflamatory power of decontextualized text is a real problem; I try to blog only what I would be willing to say to somebody's face. Blogging at school made me work out new guidelines: I don't mention classmates by name to protect their privacy.

I don't mention professors by name either, not because I want to protect their anonymity but because doing so would probably put my rough, frequently misleading or incorrect class notes in their googleographies, which would put a standard of accuracy and care on me that I don't want to meet. (I would, however, like to mention again that Yeow Tat Trading Enterprises, #B1-K2 Lucky Plaza on Orchard Road, cheated me by S$20 on an M1 SIM card.) I blog most classes, because taking notes helps keep me focused, and taking notes that I'll make public helps make me work harder, and because Google is the easiest way to search my own notes. If I feel that anything in a lecture or guest lecture may not be intended for a broader audience, I tend to ask before posting, both out of respect for privacy and because I'm a self-interested student before I'm a quasi-journalist (though I like to think of myself as an ethical person first and foremost, and those other roles as secondary). Seminars advertised to the public I generally assume are fair game. I try to clearly differentiate my own thoughts and commentary from the speaker's text.

I do have concerns about sharing things (political opinions, personal anecdotes, etc) that may affect me professionally, but I believe that transparency and openness are usually worth more than polish, reflexive discretion, or maintaining the illusion that everything is okay. That tradeoff is not universally true, and I probably get it wrong some times, but that's my bias.

Despite what I said above, internet blog posts cannot be the same as talking to somebody, because of the decontexutalization and removal of non-verbal markers. So if the Colonel reads my description of our base tour, I hope and expect he will appreciate that he was scary—and a classmate who attended the tour and reads my blog concurred with that adjective—in the sense of a heretofore quiet presence suddenly revealing the full authority of command earned in a long career, especially vivid and unexpected against the cheesiness of the phrase "blazing sword" and the literal background of a powerpoint slide labeled "Operationalising Fleet Tansformation - moving forward together".

The dean is a big fan of Thomas Friedman. Dean, if you are reading this, may I direct you to this summary of your most interesting lecture to our negotiation class?

So. Everybody else may want to check out this article, The peculiar genius of Thomas L. Friedman by Matt Taibbi. Taibbi's argument in a nutshell is that Friedman writes terribly because he has nothing substantive to say. But Taibbi's details make his argument sing:

It's not that he occasionally screws up and fails to make his metaphors and images agree. It's that he always screws it up. He has an anti-ear, and it's absolutely infallible; he is a Joyce or a Flaubert in reverse, incapable of rendering even the smallest details without genius. The difference between Friedman and an ordinary bad writer is that an ordinary bad writer will, say, call some businessman a shark and have him say some tired, uninspired piece of dialogue: Friedman will have him spout it. And that's guaranteed, every single time. He never misses.
[...]

According to the mathematics of the book, if you add an IPac to your offshoring, you go from running to sprinting with gazelles and from eating with lions to devouring with them. Although these 10 flatteners existed already by the time Friedman wrote The Lexus and the Olive Tree—a period of time referred to in the book as Globalization 2.0, with Globalization 1.0 beginning with Columbus—they did not come together to bring about Globalization 3.0, the flat world, until the 10 flatteners had, with the help of the steroids, gone through their "Triple Convergence." The first convergence is the merging of software and hardware to the degree that makes, say, the Konica Minolta Bizhub (the product featured in Friedman's favorite television commercial) possible. The second convergence came when new technologies combined with new ways of doing business. The third convergence came when the people of certain low-wage industrial countries—India, Russia, China, among others—walked onto the playing field. Thanks to steroids, incidentally, they occasionally are "not just walking" but "jogging and even sprinting" onto the playing field.

Now let's say that the steroids speed things up by a factor of two. It could be any number, but let's be conservative and say two. The whole point of the book is to describe the journey from Globalization 2.0 (Friedman's first bestselling book) to Globalization 3.0 (his current bestselling book). To get from 2.0 to 3.0, you take 10 flatteners, and you have them converge—let's say this means squaring them, because that seems to be the idea—three times. By now, the flattening factor is about a thousand. Add a few steroids in there, and we're dealing with a flattening factor somewhere in the several thousands at any given page of the book. We're talking about a metaphor that mathematically adds up to a four-digit number. If you're like me, you're already lost by the time Friedman starts adding to this numerical jumble his very special qualitative descriptive imagery. For instance:

And now the icing on the cake, the ubersteroid that makes it all mobile: wireless. Wireless is what allows you to take everything that has been digitized, made virtual and personal, and do it from anywhere.

See also Dial "M" for Moustache. Making Light has more commentary, including a pointer to a resonant critique of James Fenimore Cooper's writing. David Sirota argues that Friedman's ignorance stems from his class: "Far from the objective, regular-guy interpreter of globalization that the D.C. media portrays him to be, Friedman is a member of the elite of the economic elite on the planet Earth. In fact, he's married into such a giant fortune, it's probably more relevant to refer to him as Billionaire Scion Tom Friedman than columnist Tom Friedman, both because that's more descriptive of what he represents, and more important for readers of his work to know so that they know a bit about where he's coming from."

Here's my own review of the Lexus and the Olive Tree from 2002; my executive summary at the time was "Friedman is a tool".

Michael O'Hare.

1970s energy crisis. Is there an elasticity of demand for energy? Nobody knew since supply had never varied. turns out there is. (See the third bullet point here).

Texaco pitch in 1970s. Important never to regulate energy or else demand will outstrip supply. But what would it actually be like in that case? Would the gas pump suck gas out of your car?

New version: we have to use less gasoline and protect the environment, as long as our economy isn't affected and the price of gas doesn't rise.

I got back into energy policy because a few years ago I called Dean Kamen (?) to ask a question about ethanol and got sucked into an ethanol project. Biofuels is a small slice of the solution to the problem. What has to happen? various changes, including (J: most interestingly to me) reallocation of wealth and change in status indicators. "NOT a reduction in GNP or economic growth; prices/tastes must change.

I was surprised by everybody wearing suit jackets at the conference here (in tropical Singapore); last time I was here we didn't wear suits. I hear the middle class of China, and of Bangkok, think you really need to drive around (or be seen stuck in traffic in) a big car. But the new norms needed be that bad. Societies in cars have a hard time building social capital, they don't meet each other. Malls have only people like you. People start wanting to live in gated communities. If we handle things right, we'll consume the same value but in a different basket of goods. For example, digital music distribution versus driving to concerts.

How? Make, buy, inform, implore, tax, subsidize, oblige, prohibit. (Lots of apparent obligations are just prohibitions.) Used to be the norm in the US for guests to smoke in people's houses. Now people don't just light up in other people's houses.

Prohibitions can lead to suppliers leaving the market.

I'm less of a fan of carbon taxes than I used to be, though we should certainly have it, charge the correct Pigovian tax. But the market won't magically fix everything once the tax is in place. California's cap and trade system for emissions.

Complements of efficiency (public). Two-seat car doesn't help if I have four people in my family. If I want to ride my bicycle, I can buy a bicyle but I can't buy a bike path. That's an inseparable complement. I can't buy one ride worth of a mass transit system that doesn't exist.

In the US, there is a pervasive misunderstanding/mendacity about this. What does the first ride on a train cost? 2 billion dollars. What does the second one cost? a few cents. what's the correct cost? Marginal cost. Almost nothing. No private actor will go into this market. In the US politicians say the bus should be run like a business, should meet its costs. But there are goods like this that have to be provided by public subsidy if you're going to have them at all. (Joel's Note: and the road network is one such good, I believe.) This is not political, this is technical economics.

CARB, created in response to smog. Insulated from politics by politicians who appoint good people to the board.

How could it make sense for any entity smaller than the whole world to cut down GHG? A lower-carbon Earth atmosphere is a non-excludable public good. Governments say, we have to do this, even if we're the only ones and we feel like chumps.

Even Obama's energy policy is bad, because he's from a coal and corn state.

Low Carbon Fuel Standard. Measured in grams of CO₂ emitted per megaJoule. Includes total lifecycle emissions, such as carbon emitted while extracting the fuel. Using Default and opt-in approach. CA will assign fairly high values to gasoline from various sources, light crude, tar sands (bad), coal (really bad), Midwest corn, Brazilian sugarcane, but suppliers can do their own work to prove lower values of carbon, either by measuring more accurately or by paying attention to carbon and through that finding improvements in processes.

Policy challenges: Diesel. Cutting diesel prices in the long term will promote efficiency; in the short term will hand a windfall to trucking. Will help some refineries and hurt others. Is a company a person, do they deserve fairness? If we help the ones who guessed wrong, we provide a very bad incentive. Importing low-carbon fuel to CA, exporting Californian high-carbon fuel; same fuel burned but with extra cost of transportation.

A really good battery, which has been just around the corner for 30 years (more), will completely change the economics of the fuel business. In 1900, 25% of US agricultural land was devoted to biofuel: oats for horses. Assessing the greenness of biofuels is much harder than we thought. Badly made ethanol is worse than gasoline. Even good ethanol may not be so good.

"Ethanol curse"; societies based on extractive wealth haven't turned out that well. Argentina was the richest country in 1920; society hinged on living well, not adding value.

Biomass depends on some new enzymes; more likely than better batteries. Miscanthus as the new magic solution. Huge fields of monoculture with low labor input; what impact will that have on economy and culture?

Biofuel thinking caters to the existing oil economy, liquid fuels. What about hydrogen? I'm skeptical about hydrogen (which is a battery, not an energy source) because of its low density and other issues.

My personal recipe is carbon tax, funds spent on sequestration, and big public investment in alternative transportation.

How focused is the field on US-centric needs? The technology is general. Consumpton patterns is the big issue. What plans are afoot in Asia to host 100 million Bangladeshi refugees-to-be that all live 2 feet above sea level?

Q: As a lay person, biofuel is a dirty word because in the newspaper it's linked to food shortage. A: Corn to ethanol is terrible in every way, and we need to get away from it.

When I was a kid I was confident the grown-ups would take care of everything. But it may not work out that way.

Guest speaker in class today, Andrew Moravcsik.

Normally I take a dim view of people surfing, playing solitare while I'm talking but since it's game one of the world series ... what's that, three to zero Sox? Great.

Politicians often say one thing and mean something else. Particularly large distance between what people say and what they do in Europe. You have to be able to read that. Three examples.

The rhetoric about "Europe", even in Europe, is very negative. I'm living in Shanghai this year and they tend to focus on the Taiwan Straights. But Europe is actually the most successful and most ambitious new political form in a century. Multilateral governance, with EU as best example, is the first successful innovation since the rise of the social democratic welfare state. Has is stagnated recently? No, it's grown. Is it a foreign policy failure, unable to project power? No, it's succeeded in projecting soft power. EU enlargement is a very cost-effective way of spreading peace and security. For example, Montenegro, Macedonia, Morocco, Libya, not members but turned around through EU efforts.

EU policy for Iran is coherent, coordinated. Nobody's policy works well in Iran. EU Ukraine policy was more effective than US. Gives 70% of global foreign aid. EU model will stay more attractive than US model. My new article in Newsweek.

So EU is very successful but the noise is negative. Why? Only the extremists have loud voices; europhiles are disappointed that EU has not fulfilled their expectations; euroskeptics oppose it all. But policy is set by pragmatic centrists. So what is the reality? A plateau, a "constitutional settlement". Defines what issues it deals with, what norms it has.

Three elements of the constitutional settlement, a substantive element, (an administrative?) element, and an ideological/normative element.

20% of European legislation goes through EU. Almost anything involving spending money remains national. There's a specific way that the EU gets involved in issues: countries face domestic policy failure in issue linked to interdependence. Started with industrial trade in 1950s. (J: ECSC) Agriculture: French grain surplus. All economies in post-WW2 era are subsidized, but surpluses are a problem. Joel's note: not sure I understood the reason why. I thought it was because, as long as domestic market buys all grain, the subsidy stays in the economy, but I don't think that's what he actually said.

"tion: EU is legalistic, Asians are schmoozers, form networks instead of surrending sovereignty. But my view is that politicians are politicians, and don't like international organizations telling them to do difficult things.

EU institutions are quite limited in scope, and informal institutions further constrain them. Odd that critics of EU tend to be small-government conservatives, because EU is epitome of Madisonian small government with checks and balances. Need unanimity to change constitution. Just to pass normal legislation, 27 heads of state must agree on guidance. The Commission, a technocratic body, make a proposal, which can be ignored or discussed. In theory 70% majority is required, but in practice they never vote because that would embarrass the losers. Instead they arrange consensus or consensus minus one or two (depending on the perceived legitimacy of the objectors). Then European Parliament discusses and passes by majority. Implementation is national, overseen by national courts. Everybody gets a bite at the legislative apple; very consensual and no radical changes.

As long as EU doesn't have real tax power, administrative capacity, police, military, it will stay very limited in scope of governance.

The referendum voting, France and Netherlands. Most voters were motivated by non-EU issues (Chirac, globalization); none of the votes were anything to do with the actual constitution that they were voting on. Why? The issues the EU actually deals with are not high priorities for voters. All voters in European elections are casting protest votes on other, non-EU issues. People don't care about their MEPs.

If you are planning a career in a multilateral institution, which is not directly democratic, remember that there is no correlation between how much they like and trust an institution and whether or not it's democratically chosen. What institutions are most trusted by polled Europeans? ICC? Court of justice is 7th. Oxfam? NGOs are 15th. UN is 3rd. What are the two most popular institutions in Europe, both national? Oxford, Cambridge? Universities aren't on the list. #1, the army. #2, the police. #3, the UN. #4, European Parliament. Through the top 20, no real correlation between ranking and democracy of institution. Joel's note: I wonder if this is the wrong model of how people think about democracy. Maybe the psychological motivation is to have a general sense of voice and freedom, and as long as that's satisfied by the basic environment and norms, individual institutions aren't judged the same way?

How applicable is this to Asia? (e.g., what is the prospect for Asia to have an EU-like thing?) Strongest reforms in areas with demonstrated policy failure, like finance. The level of interdependence in Europe was very high and very symmetrical; that may not be true in Asia. Harmonizing telecommunications or automobiles in Europe had widely spread winners and losers. Other key: national enforcement. A German company has to be (and is) able to go to a French court and win a case. Do Asian countries have credible legal systems? Maybe not.

Joel's note: what about the two other examples of where EU politicans say something very different from reality?

Q: what next in Europe? A: no radical changes. Note that the constitution is very minimal, could/should have been done under the radar as treaty amendments. EU politicians lost their nerve/Joschka Fischer wanted to grandstand; this galvanized oppositon. En-bloc negotiation with Russia would be good but Putin can always divide and conquer. Negotiating gas pipelines: did the US come in and sort things out for the dithering Europeans, or did it just take a disinterested third party? Best policy to Iran would be to embargo their oil, not to bomb them. But American domestic politics doesn't permit this.

How many of you can explain, in greater detail than 4 sentences, how an occupational health and safety regulation is made in your country? A: (My answer) companies write the rules and hand them to legislators to pass into law. "Cynic!" A: in the Philippines there's a forgettable agency. There's sort of a standard, they conduct evaluations and assessments.

So even at the LKY school there's only a limited knowledge of this thing that we agree is important. Outside of here nobody will have a clue. People have extremely naive views about how democratic processes work. You must have very strong things to structure debate, such as issues people care about. I fault the people studying the EU, who think anybody else really cares. All international institutions are boring. Once you understand that you can use it to your advantage. Joel's note: isn't that a justification for elitism? Just because nobody really cares about the process doesn't justify ending efforts to modify the process to get greater public participation/legitimacy. Who is responsible for improving our political systems, if not policymakers and politicians?

Q: your presentation seems to confirm that there's a democratic deficit in the EU commission. What do the countries with little economic advantage bring and what voice do they have? A: Two reasons I'm unconcerned with the democratic deficit. One is that I don't think it's an important criterion. The other is that the commission is losing power anyway. Increasing power of Council of Ministers and European Parliament. This is discussed in FT in code: 'we don't have the visionaries we used to have' but it's really just a transfer of power from Commission (since member states aren't giving up any real power). Joel's note: is power a fixed sum? I guess it ultimately must be because it's the ability to control what other people do, and so it's limited by the number of people doing things.. Smaller states are fairly well represented in the EU systems. It's important to remember that Western European legal systems are independent of their governments. You can use the French legal system against the French government. This is how the international enforcement bodies have real power.

I think the 80/20 split (limits of scope of multilateral government) is good. People have a democratic right to debate things like social welfare reform. But the problem is people stuck in the old mindset of "ever-closer union".

Q: (missed it). A: where does the rhetoric of the democratic deficit come from? Part of the story is that many far left have moved to the far right. How to compete for those voters? I was one of several people early on who said the EU push for national approval of the constitution was a bad idea. An unstructured electorate is chaotic. EU decision-makers tried to make it "more democratic" without understanding how that would play out.

Q: I see the EU as leading global efforts to address some environment issues. I'm struck by your statement that environmental issues got into the EU agenda only because MNCs wanted consistent regulations. In your opinion, how do you think MNCs, through the EU, influence environmental governance in Asia? A: well, history of EU environmentalism is a bit more complicated. Some quirky rules from the 1970s. Every politician in Europe listens to business interests. Not as overt as in the US, but you just have to get to people's datebooks to find out who they are talking to, having dinner with. No significant job loss ever allowed. National positions can be predicted by national economic interests and environmental norms.

Class Discussion

Anybody offended that his theory rules non-Western countries out of effective multilateral institutions because Asian countries have weak national institutions.

Joel's note: One of his assumptions is implicit in the term "multilateral". Multi-lateral means between states, so global institutions that aren't state institutions aren't even worth talking about.

It's misleading to think that Europe has good institutions and Asia bad ones. It's an unspoken agreement in Europe that some countries have better institutions than others and will go on their own pace. Why couldn't that apply in Asia?

I agree that it can be hard to explain things. But in this way we legitimize a lack of democracy. (Classmates (including European students) uncomfortable with his direct confrontational style when we asked questions.)

Even the boring, complex stuff can become big political issues; EU prevents them from being politicized.

Classmate asked me at break how the US saw the EU: most don't really care, I thought, see it as some weird European thing. So what about Australia? Prof: we hate it. Great fear in 1970s that Britain joining the EU would cut Australia adrift.

Moving on to readings. Credit markets: newly international. Secondary markets are the most interesting part. Biggest market in the world is the currency market ($3 trillion/day. Derivatives are $2t/day). Maturation period for physical foreign investment is years, maybe 7 years to plan and build a factory and get it going. Exchange rates fluctuate on a half-second basis. Joel's note: so there's an absolutely enormous amount of churn and fuss that's almost wholly unconnected to the physical world. Which I guess is not news. Why do states care? Markets, instead of central banks, now determine exchange rates. (Control interest rates, control exchange rates, have a free market. You can have any two of the three. Trying to dig up the name of this theory; ran across it during econ class last week. Ah, The Trilemma. Guan identifies it as "Obstfeld and Taylor" Trilemma.) The autonomy of states is now constrained by market expectations. So we've circled back to Clinton's quote about his administration's success depending on the bond markets.

Thailand. Early act of the new junta was to moot a change in tax law, increasing taxes on short-term money to 30%; had to drop it in the face of opposition from the capital market. No country, not the Chinese with 1.3 trillion reserve, not the US, has pockets deep enough to fight the market. Massive revaluations are very bad for economies. Not international regulation of currency markets. Yes, but this week's reading also says norms have effects, public sphere is trying to control this. But that will just get us back to where we used to be. Russian ruble crisis 1998. LTCM. Two classic quotes here: "the market can stay irrational longer than you can stay solvent", and LTCM's strategy was like "picking up pennies in front of a steamroller".

States give up much regulatory control, can't (don't want to) get it back now because too much of the economy is now based on these markets ("FIRE" economy) and regulation would kill the markets.

It seems like this article, in which a Christian writer explains why J.K. Rowling is wrong when she says that one of the characters in the series of books she wrote is gay, goes nicely with this article.

Macro

What one thing is most important in a one (half) semester macroeconomics class for public policy students: trade is good.

• specialization according to comparative advantage (Ricardo). This is a static gain because ... of reasons I didn't hear
• competitive pressure/flow of technology. Dynamic because a constant stream of signals and information.
• East Asia as an example of how trade helps. J: well, is that mostly trade or is that mostly exports?
• Why is free trade hard? Stolper-Samuelson. There are losers: adjustment costs, international labor market issues, competition.
• The world did China a big favor by dragging them through the necessary steps for WTO entry. Now the world needs to do the same favor to the US, and force the US to end agricultural subsidies.

Presentations

Import/export and trade

• Vietnam. Trade opens big with Clinton visit in 1994. Rapid growth in imports and exports from 1996 to 2006; top rice and coffee exporter. Sustained trade deficit
• United Arab Emirates. Big trade surplus most years. Eight-fold increase in exports from 1994 to 2006. fivefold increase in imports. Trade a percentage of GDP stable until about 2003, then jumps up as oil prices rise. UAE is not only oil. Oil was 24% in 2000, up to 38% in 2006 but only because of rise in price of oil. Hydrocarbons are around half of exports. Free zones in ports.
• Australia Always a net importer, back to 1982. Huge growth in imports/exports starting in 2003, because of new free trade agreements. Access to protected US markets. Floated Australian dollar in 1983. Transparent in policy regime. Australia has about 80% of all the mineral resources in the world. (J: Really? 8 percent sounds more realistic.)
• Thailand. Results closely linked to plan. Five plans in place 1961 to 2005. Low, flat trade through 1986, steady growth from 1987 until the crisis. Very strong effect from crisis; export growth stops growing for three years, even dips a bit, before resuming rapid growth in 2002. Imports drop by over a third, take seven years to recover to 1997 level, then zoom up.
• Bangladesh Slow but increasing trade growth through 1999, then an election, Y2K, and huge flood put a kink in trade growth. New import/export policy in 2003 helps with recovery.

Singapore's imports and exports are greater than Australia's. Trade is 450% of annual GDP in Singapore.

Micro

Economies and diseconomies of scope and scale. Ghana has a Ministry of Education, Science, and Sport. Then it's the ministry of Education and Sport. Then Science comes back in. Etc.

Network effects. IE has 95% share and so is primary target for virus writers. J: Actually that's a controversial assertion; IE is also a primary target because its security design is deeply flawed. Also its share has dropped below 95% but that's a nit. Also, this might be a good place to name-drop "first mover advantage", which is certainly believed to be true by many, whether or not it actually is as a rule. No time for that at the pace of this class.

I thought I heard the prof say "kohseh", referring to Ronald Coase. Sources have it as a one-syllable name, kohs or 'kOz. An example of assigning property rights to enable economic efficiency, using a polluting factory vs the fisherman as the example. Enabling tort lawsuits promotes economic efficiency.

A Canadian classmate relates that Canada was ready to declare war on Spain over fishing rights in 1995

Public and private goods, excludability, rival(ness?). Intellectual property. Prof is critical of patents (J: nice!). Seems like an appropriate time to mention IBM's attempt to patent the process of making money from patents. Prof's response: Great! Then only they could enforce patents, and one company, even IBM, can't possibly do as much damage as everybody else together.

Majority rule is economically inefficient because it measures each citizen's preference equally. J: I agree that simply majority rule can be improved by more sophisticated voting methods that allow voters to express more information (approval voting, Borda count, etc), but ultimately democracy may be about something other than efficiency.

Robert Lieberman from Columbia.

Almost every class at SIPA is multinational. Breadth vs depth. Often the depth of experience comes from a single country, usually the US. Not an issue teaching American politics classes to mostly American undergraduates. But in policy school, tension between specificity and breadth. Also a tension between cases and theory. Different educational backgrounds. On the other hand, the US is very important in the world and students should learn something about it.

Prof Scott. LKY is very diverse. Are we an Asian public policy school or a public policy school in Asia? (Joel's note: I'm more interested in the latter.) We by and large concluded the second—there's no Asia-specific kind of public policy. We don't have a default context to fall back on.

The question is, what goes into defining the public interest. In North American context, that's grounded in democracy. There is no single normative framework that is easily presentable as a default mode for our student mix. Who gets to define normal?

We teach very little of the Singaporean context; reverse of the US problem of too much local content.

Different levels of English ability. Workload is too great to be easily digested. What is the right balance? Should we replicate the Harvard PhD experience?

Not all students from different countries come with the same willingness to subject their own countries to critical inspection.

A sectoral issue: from pre-career that may go public or private, to mid-career.

A few issues to start the discussion: what is the mix of national backgrounds in your classrooms? Do you even think that national background is the most important kind of diversity?

Berlin. 30 students, mostly European. It doesn't make so much sense for non-Europeans to study European Union policy-making. Starting using student experience last year (all students are mid-career).

The value of regional specialization raises the issue of the universality of public policy. Berlin: Our dean says we are an international school with a European perspective, but that he doesn't know what that means.

An 80-student masters class is a classroom management problem to get information from students.

Another school in Singapore. Wholly international class, development, not policy. Don't use cases students are familiar with. Used a US case with a Singapore Ministry (US intervention in Bosnia). Singapore policy solutions in response to the case were completely different from US, in part because Singaporeans didn't have all of the historical context necessary to understand why the US didn't just go and bomb Bosnia, which is what the Ministry students wanted to do. (laughter).

LKY PhD student: we do a lot of simulations, assign roles.

Columbia: Many students come from lecture cultures, get into discussion classes, complain that they came to hear the (distinguish) prof, not the other students. ... Simulations are good to put students into each others shoes. We made an Armenian and Azeri switch roles in a simulation, very usefull.

We write lots of policy memos. Most useful ones come when students have to put themselves in opposite mindsets, support policy goals you disagree with. We make students write memos for Bush.

LKYSPP: would be best if professor was 20% and each student 5%. But we get blocs from China and India wanting to talk about their issues. Also I'm afraid LKY will become the Singapore Public Service training school.

Diversity of faculty. For us the challenge is making sure the Singaporean aspect gets reflected enough; many students come expecting to learn more about Singapore than they actually do because our classes are so international. (Joel's note: or US-centric, especially economics).

Diversity of student academic background: philosophers, scientists, etc.

We had students from Cambodia: how do you assess their academic background? What minimum background is necessary to allow students to function, as a practical constraint? Berlin: Take students from any background; of course there must be basic understanding of policy, newspaper knowledge, etc. Crash courses on statistics, etc, so people can ask smart questions of economists. Students help each other.

Joel's note: 14 in the audience and 2 on stage. Total of 2 in audience are female, of which 1 spoke.

Incompatible backgrounds for professors. All from US, UK, Australia, problem is US vs UK experience, different concepts of what a PhD program looks like, what is adequate scholarship? LKYSPP: same issue setting up PhD here. North Americans were baffled by how quickly school decided to adopt PhD program, others saw it as more of an apprenticeship, bare bones courses plus advisor. (Joel's Note: my understanding is that US PhD's are the most rigorous, 5-7 years in many subjects, vs as few as 3 in Europe.)

Courses shaped largely by individual professors, can move from original core topics. Especially in politics courses.

Joel's Note: should I ask a question? They are talking about high-level issues but what about the ability of students to understand English?

A classmate asks the question/makes the point I just thought of. Points out that many Chinese students in particular have more trouble, can't read as fast. Prof Scott's point: they learn the most, coming up to speed.

It's not just the words but the concepts. What does "accountability" mean in different cultures?

Students from China, Indonesia, Thailand, complained to me that they face a lot of problems with schoolwork because of their command of English. They just want to pass, go home with an MBA, get a promotion. They may not plan to ever speak English again once they go home. What about executive programs, translators? MM used to say we needed to learn Mandarin to do business in China, but now he says just get a translator, since you'll have to go to Russia next, etc.

Only some public policy schools are international. National schools in national languages still exist, but even they will have to internationalize their curriculum. Even if a student doesn't go back to using English in their daily life, I don't think it's a wasted chance for them to become more fluent, since they'll then be able to draw from other resources.

One problem in Berlin: students felt uncomfortable because of cultural differences. Talkative Americans vs listening Chinese. Student blamed cultural differences, but another student from that culture says, "no, he's just annoying". But profs want to be sensitive to this.

Public Policy programs and employment. Low turnout—I thought this one was fully booked.

Executive summary: Each country is different; many have entrance exams or other standard tracks for civil service.

In France, there are comprehensive examinations for public jobs. The MPA program doesn't prepare students for these exams, so there is no domestic job market for French MPAs. There is a Master of Public Affairs taught in French. The French students take a concurrent course to prepare for exams. Some graduates simply go back where they came from, such as the Chinese students. We must understand ourselves as programs that train for the public and private sector alike.

Should we train students for the public sector exclusively or give them options?

It's not so much a problem for our graduates to find jobs. The problem is how to get them into national service.

In Malaysia, we do have an institute to train our government officials, after they join.

In China, Peking University is very influential in providing eventual high officials. The new lineup of the Politburo, the new heir apparent went to Peking University, but the law faculty. If you look at the history of the PRC or the Communist party, or Peking University as a whole, has much in the process of shaping public officials. ... We offer weekend classes for working students. Satellite programs.

Singapore. No school-specific hiring requirements, though of course relevant training is required. Competitive examinations happen earlier, after high school (A-levels). Top students then get scholarships to go to college in Singapore or the rest of the world (and are bonded to work for the government for a number of years).

Sciences Po student from Peru. The public sector is not very structured; a variety of backgrounds. It's more prestigious and useful to have a private sector background and international experience. Perhaps we (you the schools) should be looking for, where do we go later, after 5 or 6 years. People in their 30s, probably they are not going right back to the public sector with an MPA, but eventually they will.

So in your country it's easy to go from the private sector to government 5 or 6 years after?
- Yes.
- It's not like that in other places.
- In Latin America that's how it works. It's much easier to go from the private sector to the public sector than the other way.
- (US) Same for us.

In our (US) school, half go public and half private. Private sector are hiring them for their quantitative skills, not their policy skills. The CEO of United Airlines said that they take business skills as a baseline, and are now looking for policy skills. Perhaps the MPA will eventually compete with the MBA? Perhaps employers want the skills our students have but the employers don't know it.

(France) The private sector doesn't recruit the students we train. ... The Anglo-saxon profit preference is gaining ground. But we're thinking of private companies run on a more enlightened basis.

There's a huge demand for policy-setting skills in Asia. I mean all the way from the Middle East to Japan. Need to sell to CEOs, to have fundamental planning. Asia is growing so fast, if you make a mistake in one area you can just shift to another. Need to convince CEOs you need a strategic policy plan.

China: in the short term, we look at executive training, not degrees. Senior officials, about 45, relatively young, can have an impact on policy-making in China.

France: divide between business and public administration schools. Strengthens the public/private divide we are trying to bridge. Have you tried to bring together public and private in China?

Conceptually yes, but slowly in practice. Executive training includes managers in the corporate world. Would make sense to train officials in state-owned enterprises. To recruit students from there, we have to coordinate with the Party.

Watch it live

The heads of Sciences Po, LKY School, London School of Economics and Political Science, and SIPA at Columbia (from where somebody subbed for the head) spoke for a few minutes. Some interesting points:

• LSE director. After being intimidated by a bunch of French administrators, "énarques" who seemed to know what they were doing, he went looking for his own public policy education. Got a Stanford MBA with as many policy classes as possible.
• Some dissing of ENA. France is back in globalization because the influence of the National School of Administration is diminished, and the Master of Public Affairs degree is more international, Sciences Po offers double degrees with schools in GPPN and has more international students.
• Kishore referred to a joke about men in dark suits and red ties running the world, drawing attention to the red ties and dark suits on display on stage.
• Kishore talked about how public policy teaching materials are focused on North America, not very resonant with Asian students.

Ann-Marie Slaughter

How to get good people in public service. Singapore does it by paying very high wages, but that will never fly in the US.

More liveblogging. You can watch the live webcast here. There is also an official weblog, which is more conscientious and thorough than mine.

Panel on Energy and the Environment, hosted by Ann Florini

First speaker.

I'm going to assume everyone has seen Al Gore and agrees there is a problem. Let's talk about who's going to do it, and how they're going to do it. The second pillar is what to do about oil. The third element is economic.

Here in Singapore, what is our position on this triangle. We want to keep growing, but what is our very-long-term outlook?

First Evil: (missed the details, something about bad or unrealistic policy in the face of climate change)

Second Evil: unsafe nuclear energy

Third Evil: "brown" biofuel. Biofuels that are not actually good overall, such as palm oil.

I'm not taking many notes because I'm not hearing anything really substantive, specific, or novel

Second Speaker

Asia is not doing well in energy intensity, perhaps twice as much as other regions. There's a great potential to do better because a lot of the economy is not yet built, so it could be built more efficient. But if we do business as usual, we will risk changing the average temperature five to six degrees (C).

Each year, two billion square meters (of floorspace) are built in China. Depending on what materials China uses, that will make a great difference.

Joel's note: It seems like the basic environmental problem is that most aspects of our current technology, economy, and usage pattern of natural resources are utterly unsustainable and will require, if not returning to adobe huts, at least relatively radical changes. I happen to believe, without necessarily a lot of detailed analysis or data beyond back-of-the-envelope amateur scribbling, that we could probably solve these problems without having a terrible drop in our (US) standard of living; but we would have to restructure our lives to some extent, with a lot more urban living, public transportation, buying products and buildings that cost 5 or 10 or even 20 percent more because they contain sustainable design and ingredients, etc; those changes plus real regulation of the energy industry and a Manhattan Project or two for new technology ought to do it. But even these changes are clearly politically utterly impossible for the foreseeable future, and that's only considering the US, which is not the worst per-capita polluter. Any discussion of how to fix the problem that isn't radical is probably a waste of time.

Ann: I agree with both speakers and that leaves me very depressed. I hear that the third-world stance is, it's all the rich countries' fault and we'll wait until they take the lead.

Thank goodness, the dean just left. Now I can go home and walk my dog before returning to catch the shuttle to the President (of Singapore)'s dinner.

More liveblogging.

• Mario Monti, President of Bocconi University
  • Globalization is exploding by Asianizing. But it's going to implode unless it gets somewhat Europeanized. It's not irreversible; it was present in the past, maybe more even than today. In 1914 the world was more globalized in many ways, but it collapsed.
  • We need more governance of globalization. Europe can offer software: integration of market and integration of policies.
  • Last Friday's new EU rules are an improvement. EU will stop having a rotating 6-month president, will have a foreign minister (but not with that title). This will create more effective EU foreign policy. Only three areas where EU can speak unanimously. Trade policy, monetary policy, competition policy. You might recall that Kissenger complained about a lack of a telephone number to call. But now there is only one number in Europe for competition policy, in Brussels, but two in Washington, the Justice Department and Federal Trace Commission. The Microsoft case was a rare example of divergence between EU and US competition policy. Japan and South Korea have been going down the same path as the EU re: Microsoft.
  • ICN, international competition network. Exactly the kind of network Ann-Marie was suggesting.
• Arvind Panagariya, Columbia Professor
  • Moderation interjection about Gordon Brown's nightmare: Sarkozy talking to Blair about making Blair president of the EU, so don't assume the new EU improvements are a done deal.
  • News is generally good about world trade and WTO. Structure is flexible and able to accommodate the changes going on, perhaps because it's a young institution. Well run, one member one vote.Architecture of IMF, world bank.
  • New Quad: US, EU, India, Brazil. China is there but has chosen to hold back, be part of the G20—this is a different G20 than the one we were speaking about this morning (sic; that's the speaker talking about different groups, not me). Developing countries are able to exercise their weight and power.
  • Challenges to trade: bilaterals are fragmenting trade. The spaghetti bowl. Rising protectionism in the United States and other rich countries. All US candidates are running as protectionism. Hillary Clinton has said the US should review all trade agreements every five years and leave them if they aren't serving the US' interests.
  • China has less IMF voting power than Belgium plus (? missed the other country).
  • I take a pessimistic view of governance handling crises; countries are taking individual responsibility by accumulating reserves. That marginalizes the IMF. In India IMF maintains an office but I don't think anybody consults them. On the World Bank, I think it's gigantic, ten thousand employees and thousands of consultants, compared to three hundred for the WTO and a few thousand for the IMF. What are they doing? Are they needed?
• Andrew Sheng, China Banking Regulatory Commission
  • Introduced as "a personification of the changes in China in the last 50 years". Family fled to Malaysia, he later went back to Hong Kong and now works for Chinese banking regulators.
  • Asia is basically punching below its weight. 55% of world's population, 1/5 to 1/4 of world trade, 1/4 of world GDP. Not more than 15% of world stock market capitalization.
  • The most difficult part is not growing out of poverty, it's moving from poverty to middle income where the issues are much more complex.
  • We've gone market, but market doesn't solve all the problems. Using up all natural resources. During Asian crisis Asia destroyed something like 4 to 5 trillion dollars of wealth. (Joel's note: These big number claims always interest me. Some are clearly false: assertions that pirating steals many billions of dollars are grossly exaggerated. When a few people buy a stock which has a million shares at a higher price, so that the last 10,000 shares traded at, say, $40 instead of $39, did that really create a million dollars of wealth? Did the Asian crisis lead to abandoned construction projects, people wasting years of education, etc, totalling 4 trillion dollars, or PPP dollars?)
  • Foreign policy is domestic policy spoken to foreigners.
  • Did Marco Polo bring spaghetti to Asia or from Asia? Who cares? Tuscany, ramen, chinese ravioli, laksa, it's all over. As long as we all enjoy globalization, let's not try to say that mine is better than yours.
  • As I was surfing during the speech, I ran across an interesting comment. The blog post is about the silliness of the norm that Kansas farmers are "Middle Americans" when more people play World of Warcraft than live in Kansas. The relevant comment is,

    farmers' politics are about as radical as those at Burning Man, but in the opposite direction ... What got me were the "Get the US out of the UN" billboards. In areas where you would have to drive for a solid hour to get to the nearest stop light. I mean, if that's middle America, at least we're more globally conscious than the "ugly American" stereotype would have one believe.

Moderator question: Arvind, you talked about the quad in WTO. Do you mean that the Chinese are taking a back seat and being represented by India? A: Essentially yes.

Q: Do you agree that Europe offers good models for Asia? A from Andrew Sheng: Europe offers ideas. The largest economy in Europe is 13% of total, but the largest in Asia (Japan) is half, and owns two thirds. We won't be able to use this European system to use an economic policy, single currency, to achieve political ends. Harmonization, or mutual recognition as the British like to call it. I see some optimism in the spaghetti bowl of bilateralism, because it leads to multilateralism.

Q: EU is about regulation, but Asia is deregulating. If we take a two-millenia persective, isn't Europe likely to return to its role as a promontory of Asia? A: that's very challenging. You're right that much of Europe's market has been built up by regulation. But each EU regulation has disposed of 12 or 15 or 27 national regulations. Joel's note: and remember the point from SMIG reading, I think, that regulations can enable new markets (e.g., standardization). In your second question, two millenia is medium term.

Q from Ann Florini: Recap what speakers said: Asia cannot develop the same path as the West because there are not enough resources. $20 trillion, the amount that the International Energy Commission says must be invested in new energy by 2020. Zoellick's desire to refocus the World Bank on environment/energy is good because there's no other international institution which can deal with this. If not the World Bank, who? A: if you keep giving this to the World Bank, alternatives will never emerge. But they exist: IPCC, McKinsey, KPMG. (Joel's comment: Seriously? The issue is not where the thinkers come from, it's where the funding and legitimacy and governance come from. IPCC is a great success but doesn't provide governance. Nor can McKinsey or KPMG, or at least not any better than Blackwater can provide soldiers.)

Q: There's a shared and merited euphoria about growth and lifting people from poverty and the role markets played in that. But there is also rising inequality, from the usual forces, winners and losers from technological change and from the financial architecture of the world. How do you think about the possible negative political consequences that might be building? Protectionist pressures from the United States (see the blog comment quoted above—see, my surfing is on topic and even leading the discussion), European rejection of the constitution, etc?

Q: How much Asian wealth is financed by US trade deficit? Is that unsustainable and dangerous?

A from Andrew: I don't want to comment on the exchange rate question. I think current account deficits are structural in nature, and so demographic. Asia has a savings glut. This is partially related to the Asian crisis. After austerity problems, we woke up one morning and said, the pollution is so bad, we have to do something about it. But which country has re-structured its civil service to handle the economy. In the past 50 years Asia was a price-taken, but has not been a price-giver. (Joel's comment: I suspect/hope he has a complete, coherent, deep answer that integrates several issues, but his mouth can't keep up with his brain and it's hard to tell what the hell he's actually trying to say) You need to focus on net, not gross. Even with the large increase on gross assets, China's net balance sheet number is not out of whack. The dollar is the world's biggest commercial banker and investment banker. The US plays the biggest role in recycling world saving. So far Asia hasn't shown the ability to recycle its own savings. How are we going to restructure our savings to invest in the environment and our childrens' health? We're in the global common and we need to work together.

A from Arvind: negotiating capacity. Many developing countries don't have it; NGOs have filled the gap in some cases, sometimes with very bad advice, such as convincing countries globalization is bad for them. In India in the last five years globalization has done wonders in bringing poverty down. ... No matter how you cut the numbers, you don't get a lot of jobs lost to outsourcing, maybe 200,000/year at most, and the US economy creates and destroys 50 million jobs per month. But the perception is much greater.

A from Mario: I don't share the euphoria. Globalization is good but there are huge inequalities, and I said I don't consider it an irreversible phenomenon. We should fix the financial architecture but that won't fix inequality. The thing that will fix inequality is coordination in taxation but that's politically impossible. Governments do try to help the temporary losers of globalization. There is an erosion of the tax basis.

This week LKYSPP hosts the Second Global Public Policy Network Conference. Our Monday and Tuesday classes are cancelled. I'm sitting in the big auditorium waiting for the "Opening Remarks" by George Yeo, Singapore's Foreign Minister. GPPN members include the LKY school, London School of Economics, the Paris Institute of Political Studies (called Sciences Po), and Columbia University. While I wait I'm checking the Red Sox score, as is the distinguished gentleman to my left. (Who now tells me that I'm not old enough to be a Dodger fan, since the Dodgers haven't existed since 1957. An event he is old enough to remember.)

Dean's remarks.

• I will touch on three areas. Why is a Global public policy conference necessary. Globalization in Asia. Introducing the Foreign Minister. All in 10 minutes
• Public Policy education is less mature than business schools. 2/3 of Harvard Political Science department opposed the Kennedy school of government. Economics department believed anything important to be known about economics and government was already known and being taught in the econ department.
• Globalization is the biggest force affecting our lives on this planet. My personal prediction is the Asianization of Globalization. So LKY and GPPN are part of two sunrise enterprises (policy schools and Asian globalization).
• Double-degree from Cambridge. MBA from Harvard. Armed forces Brigadier General. (this is related to the CEP/Scholar issue; if you are a top student in Singapore, you have a predetermined path through the military and then a guaranteed high government job. My friend Guan reports from Harvard that Singaporeans there confirm funny business in the Singaporean Scholarship system and offers this article about accusations of racism in scholarships).
• Anecdote about George Yoo giving history lessons about Yugoslavia to their Yugoslav cab driver

Minister's remarks

• Did my first tour of the Pearl River Delta since 1992, a few years after Deng's famous Southern Tour.
• Shenzhen is maturing past growth stage. Good environmental stewardship of wetlands
• Macau: already bigger gambling revenues than Las Vegas
• Yangtze delta development will be even bigger than Pearl delta
• Within a few years, India will also break into a development trot. Already growing 8 or 9 percent even with many obstacles still in place.
• Gulf states are flush with oil and gas money. Development projects under a billion dollars are "small beer".
• Increasing development of the mainland is key to Taiwanese integration
• ASEAN is important. etc etc.
• What is Europe's role? That's up to Europe.

Panel discussion:

• Dean pitches his next book and introduces the panel.
• First speaker: Surin Pitsuwan. Thai. Secretary-General Designate of ASEAN.
• Asia's economic impact on the world has been much less than Asia's political impact
• We found 10 years ago that the world financial architecture of the world was not sufficient. IMF, etc, forced to reform. G20, emerging financial/economic powers, many Asian
• An APEC meeting where somebody (Zhiang Zhemin? missed the name) threatened to walk out if East Timor was raised as an issue? But now we have ASEAN, ASEAN plus three (China, Japan, South Korea).
• Jealousy and fear of outsiders. Regionalism. Could become a neo-containment policy approach; we will take care of our own problems and outsiders please don't interfere.
• Professor Bhagwati talks about spaghetti bowl relations—lots and lots of bilateral agreements. Asia is probably creating a meatball plate. We'll solve problems with less outside involvement.
• Some countries in the region don't want to open up the issue (of Myanmar) and it must ultimately be handled by the regional powers.
• I think this approach of small scale, local solutions must be accepted by the outside world for a few years to come. Joel's note: It's not clear if he's approving of this quasi-isolationalism but I think maybe he is.
• Anne-Marie Slaughter. Dean of Woodrow Wilson School. "A very strong rumor that if the Democrats come into power, don't be surprised if she ends up with a big position in the next administration. But that's a rumor"
• Asia is driving globalization. My book in 1997 was "The New World Order", though I changed it later to "A New World Order". Should build networks of peers (environment ministers, health ministers, etc).
• Asia was pioneering this kind of model in a much more diverse environment; many kinds of conferences where ministers, not heads of state, attend. Joel's Note: Condoleeza Rice hurt the US reputation when she skipped an ASEAN meeting and sent a minion instead
• I just heard Surin talk for 20 minutes without mentioning the United States. We have to get used to that. I'm half-Belgian, a Europeanist, living in Shanghai with my husband and kids this year. I wouldn't count out the US yet (humor); I think we have 10 or 20 years left. Kishore's last book points out things the United States did before Bush to hurt our reputation. He says the US needs to recommit itself to the (good) international regime it created as well as put its own house in order. This sounds like the platform of every Democratic platform, or from Romney. Joel's Note: Hah! Romney got applause for wanting to double Guantanamo.
• US continues to have a role. Stabilizes China/Taiwan relationship. Moderates Europe/Russia energy issues. we have not exactly been a peacemaker in the middle east, we have been a warmaker. But US understands that peacemaking is important, and if the United States doesn't do it, who will? Joel's note: pretty sure there's a logical fallacy there: the need for peacemaking doesn't imply the US will do peacemaking
• Pratap Bhanu Mehta. "We first met in Harvard many years ago"
• Will all of the current power brokering lead to new or improved institutions? It may help some stability but will not lead to a just global governance architecture. What characteristics do the powers bring to their brokering (US, China, India, Russia)? All of them have a great sense of entitlement in their role; believe in great power exceptionalism. Used to be a saying, Think globally, act locally, but great powers seem to believe, act globally but think locally. So we may get peace but not a just system.
• I'm skeptical of the term Asia. Is it just a geographical reference? Surin talked about regionalism. But major powers (China, India, Japan) are deeply divided by history, even though they've found sophisticated ways to tolerate each other.
• The big question in Asia is thus, what will we bring to the table that will be different from great powers in the past, or will it just be more exceptionalism, etc? If so, prospects of global governance are dim.
• India's inhibition in Myanmar is an example of how domestic politics in developing countries constrain their international boldness
• There is a real danger of an arms race escalating. You can see a circle of economic integration rising, and diplomacy. But we are going to see perhaps the biggest military expansion that Asia's seen in a while—arms race, search for bases, etc. We hope that that could stay just a sideshow, but that's just a hope.

An hour for questions

• Slaughter: there's been consensus for a long time that accommodating the rise of China and India is the main issue for the US. The record of great powers accommodating other, new great powers is not good. One way of reading the difference between the Democrats and Republicans is that the Republican platform is much more about maintaining primacy, hegemony. Democrats are about recognizing a multi-polar world. This doesn't go over well in speeches.
• Audience member: let me challenge the consensus that the US in dealing with Asia. It seems to me that the US is basically disengaged with Asia. Particularly the current administration (J: See my previous note about Rice and ASEAN). Slaughter: It's a tough question, what's the right balance for the US? Jim Baker position: you (Asia) can't meet without us (US).
• Pratap: It's probably a good thing that Asian discussion is mostly technical because at the more abstract levels there is much less agreement (nuclear power, human rights, etc). Surin: After the Asian Crisis (1997) Europe went away for a while, now coming back.
• Dean: if you want to see whose mental maps are aligned with the new world order ... in America there's a much greater appreciation for the rise of Asia than in Europe.
• Question from Shanghai U: I see China's economic rise: what are the principles of China's growth? Is it something unique about China, or adoption of standard market principles? Pratap: the reason we tend to talk about Asian globalization as something different from just the market is that ... (didn't hear a clear reason). Pratap: China is not just following the existing norms (UN, etc) but playing with them. Slaughter: US has binary view, that EU is either the United States of Europe or nothing important. This is false; EU is a new kind of system. The question is, will Asia pioneer yet another new kind of entity?
• How do you deal with the fact that, after 10 years of engagement with Burma, they have in the words of minister Yeo (who left after his speech) switched to reverse gear. Pratap: If New York consensus is that issue is domestic, not regional or international ... Look at how we tried to solve the Korean Peninsula; we solved East Timor, or the first part of it; we solved Aceh; it's largely regional solutions. In the beginning if you open it up too far, too big, it's going to be too complicated
• Hong Kong question: In times of crisis you need US dollars to fix your economy. So how can you really have a regional solution if US dollars are still key in a crisis? And in Europe, there's a common currency. But there's no move to a common currency in Asia. Didn't hear direct answers. The Asian crisis triggered closer community, like ASEAN+3.
• Audience: I'm surprise that there's been no mention of democracy in the debate. A: we could have a long discussion about that. Slaughter: Democracy is an international norm. Hu Jintao mentions it almost as much as George Bush. Joel's note: and they are equally sincere about it.
• Slaughter: think about China and the West, instead of US vs China. Regional framework can dissolve great power rivalries (France/Germany). My Sox-watching neighbor notes that France/Germany war was unthinkable in 1905 as well.

• If you wish you had been at the dean's speech about globalization the other week, you can catch it December 1 at Function Room Ocean 6, Level 2, Pan Pacific Singapore; I guess we were the out-of-town audience.
• Monetary policy's purpose is price stability. The US central bank buys or sells bonds to affect interest rates. The Fed charges banks at the Primary Discount Rate to borrow directly from the Fed.
  
  
  
  Changes to the Discount Rate are usually mirrored in the prime rate (banks to good customers) and the Fed Funds target rate (banks to banks).
  
• My Q: Is the US Fed unique or do most other countries have central banks that serve similar functions? (I know a lot of countries have central banks; how many of them do what the US does; how many of them are as successful/unsuccessful?) A: see this chart from the IMF. For example, Singapore uses the exchange rate to control prices. Hm, does that mean they buy and sell currency the same way the Fed buys and sells bonds?
• Here's a detailed description of a Federal Open Markets Committee meeting.

Time for presentations. This week's chart topic is fiscal balance and GDP growth rate.

• Bahrain. Includes price of oil as a bonus data series, but it doesn't seem to be adjusted for inflation. Oh, wait, it matches