Underdevelopment

(Reading notes. One of the key books is available from Amazon as a Kindle e-book, but this won't help our blind classmate because the Kindle format doesn't seem to be compatible with screen readers. On a side note, I found this very cool Firefox plugin, Fangs to help sighted developers see (rather than hear) what their pages look like to blind people. If you try it, you have to read the FAQ because the installer has bugs.)

"Why are a few countries rich while many are poor?" You can ask William Easterly, Gundar Midal (?) ...

Some common explanations are: under-investment, lack of technological innovation, lack of education, geography, the resource curse, poor macroeconomic policies. Next we'll walk through data contradicting all of these explanations.

Easterly's book is the leading edge of non-institutional explanations. Harrod-Domar model: growth depends on labor and capital. But the data doesn't show a relationship between investment and growth.

The poorest three fifths of countries have had zero growth of income per person since 1980. Nigeria and Hong Kong both increased capital stock by 250% from 1960 to 1985, but Hong Kong is first-world and Nigeria is not. Similarly, Gambia and Japan both grew their capital stock 500%. In both cases only country's output per worker actually grew. My Q: foreign oil companies presumably own all of that Nigerian capital stock, so would it be more helpful to look at growth in domestically owned capital stock? Classmate response: not exactly who owns it, because these statistics may already take that into account, but who has access to it.

Growth in schooling doesn't correlate to GDP growth.

Geographic explanations. But why would Singapore succeed while Malacca or Bintan doesn't?

The prevalence of dangerous diseases. Also the effects of malnutrition, especially malnutrition, in making populations stupid. Australia is reaching water-based population limits, which may be as low as 12 million depending on how much they distort their economy with water-wasteful agricultural subsidies.

Argentina was one of the five richest OECD countries in the 1920s. The Philippines was second only to Japan in GDP growth rates in the 1950s.

Lee Kuan Yew said Singapore grew faster because it couldn't waste any time considering a closed economy, and because it had no wars or serious internal conflicts

Dependency theory: former colonies continue to have disadvantaged economic links with their ex-colonists, and this drags them down generally.

No single factor is a convincing, statistically strong explanation.

institutionalist explanation

Weak, missing, or perverse institutions are at the root of underdevelopment. Many theories of development come and go like fads or fashions: protestant vs catholic work ethic, post-colonialism, etc. The current fashion is institutions.

Joel's note: from the slide: "Which institutions are needed for development?" This relates to Non-State actors class, and the "Neo-Tocquevillean" view that healthy civil society is part of the underpinning of successful governance. Of course, governance != development. But civil society is very close to "social capital", which is a nice box on the current slide, "the Evolution of Development Thought."

Old joke: Suharto visited Marcos in the Philippines. They looked at a bridge, and Suharto said, the bridge isn't finished. It stops near the end. Marcos tapped his chest and said, ten percent. Later, Marcos went to visit Suharto. Suharto showed him a view and said, you see that bridge over there? Marcos said, I don't see any bridge. Suharto tapped his chest and said, one hundred percent. (more like this)

Chicken and egg: are you rich because you have strong institutions, or do you have strong institutions because you are rich? Dani Rodrik tries to address this with econometric analysis.

"In the US the constitution is a living document." Singapore inherited working British institutions, especially compared to Bintan and other potential rival cities, because it was the hub of the British empire in Southeast Asia.

Two kinds of institutions needed for development: First, those that encourage trade by promoting trust and lowering transaction costs. Contracts, enforcement, etc. To do business in Japan, first you socialize. In Chinese, you build guanxi. (Note in both cases the importance of taking drugs together in public as a trust-building exercise.) Second, property rights: separation of powers (which China doesn't have, so how do they protect property rights well enough to have a functioning economy? Note that private ownership of land is still illegal in China, so alternatives have been devised.), keeping the government helping instead of stealing.

Joel's note: side research prompted by discussion during break: I had no idea there were as many as 13 Jewish Senators in the US. Arlen Specter is a Jew? Was I supposed to know that?

Institution explanations for underdevelopment, based on research "not storytelling"

• colonial heritage. Spanish inheritance: a small number of rich families, powerful church. French: rigid bureaucracy. British: capitalism (but c.f. India). Classmate point: Greenspan argues that Fabian socialism influenced the first-generation leaders in India. British brought decentralized government to India. Common law heritage protects property rights and maintains independence better than civil law. What about Japan? It wasn't a colonizer long enough to really change institutions. Classmate: In Bangladesh we say "heritage" for positive things and "legacy" for negative things.
• colonial heritage plus. Colonizers designed institutions to exploit locals. The Eiffel tower was built with African iron. Extractive institutions. Philippines and Latin America: Catholic church historically used to keep the population controlled, not educated. By contrast, Methodist schools in Singapore are a primary source of the educated elite in Singapore. The French didn't have religion—they colonized for wealth, power, etc. Joel's note: that's why everybody colonized; some justified it with religious missions. The global sugar market still reflects colonial heritage. Slavery.
• Political conflict. Not enough political competition, so rulers were able to build institutions to serve selfish interests. Cold war led to support of bad leaders who otherwise might not have prevailed. CIA is associated with coups. Great quote: "The only mistake Solo did was to try and stage a coup while drunk. They started playing reggae on state radio and TV until soldiers loyal to the government regrouped and overran them."
• Beliefs and norms: culture is inhospitable to markets or trust. Rich Middle east countries may seem like a counter-factual, but that could be transient, based on oil money.

These explanations are not sufficient; they aren't adequately supported by data, by econometric experiments.

One school of thought: countries succeed when institutions constrain government to keep it honest. The Suharto myth is developing as, he did good things for Indonesia at first but after he'd been in charge for a while he got too corrupt. That's especially a feedback property of any political system where violence is required to take power: once you have power, you can't retire safely, so you have no incentive do anything but build military power and live it up.

Empirical studies of which institutions matter for development. The following are significant factors in regression studies:

• protection of property rights, contracts
• civil liberties
• political rights and democracy
• political instability
• cooperation-promoting institutions.

How can countries change their institutions?

Changes are usually small and incremental. (Except Thailand, where they do things like this: "young King Ananda Mahidol returned to Thailand for the first time in 7 years. ... A new constitution, Thailand’s most democratic to date, was drafted in his honor.")

Imported institutions often fail.

Institutions are embedded in peoples' minds, and so don't change easily. Forces resist changing institutions. Fundamental institutions are long-lived and path-dependent.

Aid doesn't change norms and beliefs; Aid agencies often promote Western best practices rather than local experimentation and adaption. Short projects, rapid turnover, staff rewarded for work, not outcome.

Aid does cause some changes: privatization, changes to laws and regulations. World Bank cuts and pastes contract and plan text between different projects in different countries.

Joel's note: apparently we won't be talking about the Schmid reading today.

Rodrik, D.2000. Development Lessons for Asia. Asian Development Review. Vol. 23. No. 1 p. 1-15 (PDF) (Browse, get the substance)

Schmid, A. 2004. Conflict and Cooperation: Institutional and Behavioral Economics. MA, Blackwell Publishing. Chap 1-4 and 6-7 (MUST READ)

• p 1: "A constraint on one person is an opportunity for another." Not necessarily. Maybe everybody is constrained.
• p 2: "This book intends to form a new synthesis and assembly of ideas from many writers who do not necessarily consider themselves institutionalists. It is time for institutional economics to emerge from its critical role." That sounds good to me. But I'm disappointed that author even feels the need to mention that he's plucking ideas from people who don't self-identify in a particular -ism.
• p 4: "Chapters 3 and 4 lay a foundation for the analysis rooted in cognitive science. Bounded rationality and the limited information capacity of the human brain are fundamental." Yay! A theory about how large groups of humans interact which uses humans, instead of rational actors, as its foundation.
• p 7: I like the shorter sentence lengths, which make the text less brutal to read than, say Finnemore. But this is a bit too short: "Language is the carrier of formal rights. Sharing a language facilitates the understanding of relative opportunities. The meaning we attach to words is vital."
• p 7: The proclivity to stand patiently in line instead of jumping the queue is a piece of social capital.
• p 12: impact analysis: if the institutional alternative was different, what would be changed in terms of who gets what.
• p 13: change analysis: if the institution was different, .... What's the difference between changing the institution and changing the institutional alternative? Changing the institution seems to mean changing the nature of the institution, not changing to a different institution; perhaps changing the institutional alternative means changing the decision the institution made?
• p 17: "One of the important impacts of institutions is how they affect how the costs and benefits of inevitable surprises are shared." bingo. imagine the institution to be a software development contract, and compare fixed-price to time and materials.

  People have administrative transactions (orders), bargained transactions, customary transactions, and threat transactions.

• p 20: the staccato tumble of sentences that each have a fairly deep meaning but are packed into too few words, and not strung together well or at all, is starting to get to me. "A view of behavioral regularities from behavioral science can be used in both impact and change analysis. Counterfactual assumptions work on as "as if" basis only in limited instances." This is English? This is madnessjargon.
• p 23: "Institutional economics is not concerned with changes at the margin, but rather instances where the change in a variable is large enough to feedback on other variables." 1) most economists seem to worship the very concept of the margin, so somebody is really wrong here. 2) feedback is a noun, not a verb.
• p 25: "It is a tragedy when individuals make their most advantageous choice and wind up where they do not want to be because of the emergent aggregate effect of others doing the same thing. This is not the tragedy of the commons but the tragedy of isolated individualism. " Huh? That's the tragedy of the commons.
• p 61: "The previous chapter focused on how the individual brain works. But, to understand behavior, we must examine systems of brains — the brain in a social setting."

  

• p 68: This guy is getting pretty frustrating, because he's clearly on the right track, but it's maddeningly hard to actually learn from his sequence of little pebbles of ideas. Here is a sample from the conclusion to the chapter about systems of brains:

  People's learning is shaped by institutions, and their learning shapes evolving institutions ... institutions, both informal and formal, are repositories of knowledge.

• p 91: "When most people think of property rights, they are thinking of these incompatible use goods (IUGs)." I suppose those are "rival" goods? Now we have three terrible terms for the same thing, "rival", "incompatible use good", and "IUG".
• p 92: "Pareto-worse changes in rights are essential for some varieties of economic development." Yay! The interests of the people who happen to be rich at this moment are not absolutely inviolate. (somebody tell the RIAA)
• p 92: instead of viewing air pollution as a by-product of steel production, view it as a necessary input. That simultaneously makes a lot of sense and seems silly.
• p 99: Eight ways to unseat the free rider. A few: Rules. Trust (e.g., play more than once and use tit-for-tat). Play tit-for-tat (I just said that!). Create environments in which people learn to care for each other (social capital). Okay, he's going through the two-by-two matrix for public goods. Do I have to read it all to find out if there are any new ideas?
• p 126: "Fundamental uncertainty means 'Choice is in the first place ... the creation of choosables'". That sounds about right. Let me suggest a sibling koan: Making decisions is in the first place recognizing decisions.

p 147: results of economics experiments in the lab. "hard-nosed game theory cannot explain the data. ... It is possible to provide an environment in which at least 90 percent of subjects will become selfish Nash players. It is possible to provide an environment in which at least 90 percent of subjects contribute toward the group interest. Why and how often this all works remains a mystery.

Ostrom, E. (2005). Doing Institutional Analysis: Digging Deeper than Markets and Hierarchies. Chap 30. In Menard and Shirley (Ed). Handbook of Institutional Economics. Netherlands. Springer. (browse, get substance)

A bit of side research triggered by a joke. Bush is somewhere between 5'9" and 5'11".

B. Guy Peters, The Politics of Bureaucracy, Ch. 3, "The Recruitment of Public Administrators"

Florence Heffron, Organization Theory and Public Organizations, Ch. 9 "Motivation"

D. A. Nadler and E. E. Lawler, "Motivation: A Diagnostic Approach", in J. R. Hackman, E. E. Lawler and L. W. Porter (Eds.), Perspectives on Behavior in Organizations, New York: McGraw Hill, 1977

A model of how people are motivated:

• Your perception of how much your effort affects your performance
• Your perception of how much your performance influences the outcome
• Your perception of how much different outcomes are worth to you

Key implications:

• Determine what behavior is desired
• Link desired outcomes to desired performance
• Analyze the total situation for conflicting expectancies

J Jabes and D. Zussman, Motivation, Rewards and Satisfaction in the Canadian Federal Public Service, Canadian Public Administration, Vol. 31, No 2, Summer 1988, pp 204‑224

A survey of Canadian civil service senior management. "We have found work satisfaction to be lower in the senior managers ... compared to their private sector counterparts."

Peter Self, Administrative Theories and Politics, 2nd Ed., London: George Allen and Unwin, 1977, Ch.7, "Administrative Motivation and Performance", pp. 224-246

• p 225: A senior Administrators has very elaborate accountability requirements—to her agency, to her agency's interested public, to other agencies, and to general political organs. She is remote from the final consequences of her decisions. And "political considerations ... inhibit a just evaluation of [senior officials]"
• p 228: the US has an "open" administration system and Europe a "closed" system.
• p 244: "We may be tempted to conclude that any society gets the bureaucracy it deserves, and that the virtues and vices of any system are inextricably mingled. This is too simple. Bureaucratic pathologies are capable of being reduced by corrective action." This seems like all of politics and public administration in a nutshell: yeah, it's pretty messed up, and it kind of has to be, but you can make it a little bit better if you try.

Lecture

Inner disequilibrium leads to goal-directed behavior leads to outcomes. If an outcome is blocked, frustration leads to ??? Traditionally, frustration leads to aggression. (Infants react to frustration with either anger or sadness. In rhesus monkeys, response to frustration depends on social status. I would like to state for the record that I have never thrown poop as a result of frustration.)

Two theories of motivation: need satisfaction, and process theory. Maslow's hierarchy. Alderfer's ERG theory: Existence, relatedness, growth. Herzberg's wwo factors: hygiene (if it's missing, you're unhappy) and motivators (if present, you're happy). McClellan's learned needs: the need to achieve (Protestants are much more achievement-oriented than Catholics), the need for power, the need for affiliation (which negatively correlates with the need for power). The data doesn't support any of these theories. The importance of salary as a motivator especially remains unclear. Self-actualization is hard to define and perhaps useless for our purposes. Artists made great achievements that are self-actualization if anything is, but they were broke and starving.

Joel's Research Side Note: what's the difference between safety and security? OED safety: "exemption from hurt or injury; freedom from danger". From the Latin for "sound" as in unharmed. Security: "being protected from or not exposed to danger". I tend to think of safety as more physical and short-term, and security as more social: I'm safe from a bridge collapse; I'm secure from getting fired. Sense 3 of "secure" seems better: Rightly free from apprehension.

Process theory assumptions. Behavior is a function of forces from both the environment and the person. People make decisions about their own behavior. Different people have different needs, desires, goals. People make decisions based on their perceptions of how their behavior will lead to outcomes.

Joel's research sidebar: I had no idea that Canada's tax rates are lower than the United States (which has a top marginal rate of 35%).

Equity. Rewards relative to other people.

(Reading notes for this week)

The case study

Management consulting approach to case studies.

• Understand the case
• Complications. What are the issues?
• Solution. what solutions are you putting forth?

(Joel's) Summary of the case: before apartheid, NGOs in South Africa had worked out routines for dealing with government abuse. After apartheid ended, NGOs got together to come up with self-governance plans. Meanwhile the new government attempted to rationalize the regulation of NGOs while also announced spending plans that obsoleted most of the NGOs. Their heavy-handed actions and dissociation with existing efforts lead to accusations of political partisanship.

Student Group for case study

Core problem is disagreement over the draft bill. Joel's note: no, the core issue is a lack of communication and trust between government and the NGO community. The fight over the draft bill is the symptom.

"The government needed to control NGOs which had misbehaved."

Stakeholder analysis. Champions of change vs champions of status-quo. So the existing NGOs are the status quo? "The government has a carrot approach, and secondarily a stick approach" That may be true in the context of the proposed law, but this misses the broader context. By announcing billions of spending and a new bill without coordinating with the existing NGOs, the government already wielded not just a stick but a huge club. The contents of the bill aren't the most important thing. Once everybody's pissed off, as they are at the end of the case, any bill will be viewed with extreme suspicion.

Alternatives: redefine the role of the commission. Create an accountability environment. Use a third party to mediate and to monitor.

Prof Q: Who is that third party? International or local, that can be trusted by both. If there's no mediator, there will be a long back and forth between NGOs and government and it will take a long time for the bill to pass. Or the government will pass the bill it wants and further alienate the NGOs. Does that set a good precedence for the government, that they can't deal with NGOs themselves? If funding is international, then it's politically neutral for the government to bring in international mediators/monitors. So you are advocating two sets of laws for disclosure?

Was this case really about the bill, or about how much power the NGOs will have? In many countries, NGOs are destabilizing; maybe the government saw them as a threat. Hmm, perhaps power issues underlie the government's tone-deaf approach. What about the role of the Ford Foundation's local representative, who initiated the NGO review process?

The act passed, but was overhauled in 2001. Public Benefit Organization was defined. In 2006 a Parliament bill changed the tax system even more, and formal declaration was made optional. In the end both parties got what they wanted, and mutual understanding was much improved.

Rules in students' countries

Angles I missed in my homework:

• Can donors get tax breaks?
• Are there different rules for foreign contributions?
• provisions to send retirement funds to non-profits

China: registration procedures are quite strict because of the nature of the Chinese regime, especially after the collapse of the socialist countries in Eastern Europe. Any organization must find a government sponsor. In China, they are called "social organizations", not NGOs. You have to submit an annual report and financial statement to your sponsor. You cannot register for some sensitive topics. You cannot operate outside your registered region. Laws are scattered. NGO income is taxed but income from technology transfer is not taxed. If an NGO for your topic in your region already exists, you cannot register. You must register to raise funds; the donations have tax benefits. The regulations are intended to constrain some kinds of NGOs but allow others.

Singapore. Provides constitutional rights. Article 9 allows the government to constrain any right that could affect security or relations with other countries. Public meetings of more than five people must have permits. Singapore wants to be a hub for NGOs in the region, but 80% of locally raised funds must be spent locally. The media is state-controlled— the "fifth Estate" (actually it's the fourth, after the clergy, the French nobility, and the public). Allegedly you can deduct twice your charitable contribution. A 2005 Rutgers poll rated Singapore's media freedom 140 out of 157. Perhaps Singapore wants the non-profit funds, but not the actual NGO activities. Both NGO money and casinos may be examples of Singapore seeking comparative advantage. Voluntary welfare organizations may be a better comparison.

US. Wide-open. Must register to get tax benefits. No tax benefits for political action. It occurs to me that some fraction of the NGO growth (1.6 million in 2006) could merely be tax shelters. I mean, plenty of them have always been motivated by tax savings, but now a lot of them could be private trusts etc which are really paper-thin tax shelters.

Philippines. Vibrant sector, very open, especially after 1987 People Power. Registration is not required, but you have to have a legal entity to open a bank account, etc. Two primary laws: Corporation Code, Tax Code. Do not have to register with the Securities Exchange except to receive funds. The law gives many tax exemptions to NGOs. Bureau of Internal Revenue issued a regulation that microfinance activities will be taxed. They are like any other corporation: can sue, be sued, own property, etc. Have to file an annual financial statement, activity statement, etc, which are public documents. (Somebody paid $200 last year to get what would have been a great answer to our homework. Wow, they're paying $200 per country for detailed research on NGO statistics, especially ICT (Information and Communication Technology?), for 88 countries and counting.) Some efforts to get NGOs to self-regulate. Still have an accountability deficit.

Most dictators tend to suppress civil society. What did Marcos do? Most were underground organizations; in fact, the NGO sector in the Philippines started as human rights organizations.

India. 1.5 to 2 million, possibly only including NGOs, not any kind of civil society.

Japan. Register with the prefecture. Exempt from taxes, but only up to a limited amount of money. Private donors still pay tax unless donating to one of 75 accredited NPOs. In general, NGOs are not promoted in Japan. "The government doesn't know what to do and the public doesn't know what they want."

Cambodia. No regulation or law. Some verbal instructions from the Ministry of Foreign Affairs, such as getting letters from home countries. No formal procedure; it seemed to be easier in 1979 than 2007.

Myanmar. Things are on the difficult side. There are "guidelines for implementing projects". Local NGOs have been operating for decades, doing social work. Government allows some foreign NGOs to import some cars at special rates, import fuel. Three months ago the ministry stopped this, and will look at each organization again to see if they have any political activity. Since them, some have had renewed permits. Geographical access is restricted; some areas still have insurgencies. The Global Fund stopped operation in Myanmar because of these restrictions.

Kazakhstan. Some similarity with China—territorial divisions. High registration fee, US$170, more than US$1000 for international. 2003 law applies to international NGOs. A huge flow of money from NGOs to affect parliamentary elections.

Mexico. Opening up a lot. Trusts regulated by federal law, other things by states.

The readings

What's civil society? Non-state arena of uncoerced collective action. My definition: any social (e.g., more than 1 person) activity that is not government and not for profit. Anglo-American: state, business, civil society (everything else) vs European, anything that's not government. Uncoerced collective action (a very good and terse definition if you take the profit motive as coercion). In pursuit of a legal purpose? That's a normative element.

Formality. Pick-up soccer games. Reading club. Mass march or street process. Alagappa: As a distinct space for non-state, non-market organization. A site for discourse. As a site of governance. Means to influence the state. Is this concept relevant to Asia, to your society? Yes, in every heterogeneous society, to protect identity, to preserve values. In Confucian or Islamic societies, there is no space for civil society, true or false? Certainly club goods. What about public discourse? It's incorporated into the Islamic religion itself. In Western culture, having a nanny state is a bad thing, but in Asia the state is expected to look after the citizens. Is the concept of cradle-to-grave government oversight Western? What about the iron rice bowl? Do people want a civil space only when the government does not provide services? In Singapore, where civil society is restricted, people seek alternate outlets, like the internet. A prof shout-out to David Brin's Earth, a prophetic 1990 novel about the internet and civil society in the face of impending crisis.

Colonialism as a common enemy stimulating civil society. Alagappa says that there is more civil society in weak states, where they fill in gaps, and also more civil society in strong states, where they are part of a healthy society. Unclear what's really cause and effect. Could there be more informal organizations in weak states and more formal ones in strong states? Now I'm wondering what civil society exists in North Korea?

Explanation of Tocquevillean and neo-Gramscianism. Tocqueville sees social society as contributing to a healthy working nation. Gramsci saw oppressed workers being fooled into supporting the system which exploits them, and views civil society as a battleground for defining how society should be.

Wolf R. Meier-Ewert from the WTO:

Disclaimer: Although this is a private setting [Joel's note: it's actually open and free to the public], anything I say is not to be attributed to the WTO or its member states.

630 staff, [US$160m] budget in 2006.

WTO is:

• Set of rules
• forum for negotiations, currently the most prominent function. There are many plurilateral agreements
• forum for monitoring implementation and resolving dispues

The negotiating process goes from a very general target to something more concrete to, ideally, results.

TRIPS: from Rome Convention, Paris Convention, Berne Convention, "Treaty on IP in Respect of Integrated Circuits". Has an enforcement chapter, is subject to WTO dispute settlement.

The Doha Work Programme created new bits of bureaucracy: Negotiating group on Market Access, Negotiating Group on Rules, Special Sessions of the TRIPS Council. Special Session deals solely with GI Register. ("GI protection means that products deriving their names from certain geographical locations, such as Parma ham, could not be produced under the same name by anyone from another location. The GI register has been controversial right from the beginning'"—IP Watch)

Four different TRIPS Articles relate to public health. "There is a whole discussion about 28(3)b and what it means and I don't want to go into that now ... we can go into it in the question and answer."

Joel's note: some side research on WIPO while he talks about the minutiae of Article 31 (which only has to do with poor countries getting affordable drugs). IP watch says that WIPO's boss is resigning a year early, because "WIPO Director General Kamil Idris was under attack from influential member governments seeking his early removal for the fallout of having allowed an incorrect birth date to remain on WIPO records for more than two decades". Oops. Without more information (maybe I'll ask!), it's hard to tell if this should be taken at face value, or if it's a pretense that powerful members used to force him out when he did something they didn't like, and if so, what? Interestingly, one name on the candidate list is Geoffrey Yu from Singapore.

Developing countries, who make up the majority of the WTO, only starting thinking about implementing TRIPS in 2001, because that's when their exemption ran out. ... Transition period was then extended 15 years for pharmaceutical patents, to 2016. (Joel's note: this seminar is hosted by the law department, and is shaped accordingly, as a detailed legal discussion about paragraphs and subsections and the lot.) If a country needs drugs it can't afford, it can license them under paragraph 6. If the country doesn't have the manufacturing capacity to make the drugs, another country can use paragraph 6 to make the drugs for it. However, article 31(f) prohibits "export of a predominant part of production", so if a country like Singapore or Switzerland wanted to make compulsorily licensed drugs for poor counties, they would have to take more drugs than they exported (woohoo!). The best hope may be thus be India, which has both manufacturing capacity and a great internal need for cheap drugs. The "Paragraph 6 decision" sets up conditions to waive 31(f) to solve this problem. Much negotiation: how to keep the cheap drugs from getting sold to people who aren't totally poor? proposal to restrict the exception to only drugs for certain diseases was rejected. Safeguards, such as special markings for these drugs, so they can be easily spotted if diverted. US remained the last objector, insisting on a voluntary opt-out provision before joining. All developed countries had to promise to the US not to use this provision.

Lori Forman, Microsoft PR for the Asian region, came to talk about her career path from the Kennedy School of Government to shilling for a monopolist Community Affairs Regional Director at Microsoft Asia Pacific. I couldn't quite hold back a grin at this line (almost a direct quote but I think I mangled it a bit): "Microsoft has been using its technology for over twenty years to bridge the digital divide."

Hah! Microsoft ignored poor markets until Linux became popular, at which point Microsoft hustled to find something that could compete with free. Attempts to create a Windows for rent have not yet taken off, and US$3/year Windows is the next thing.

She showed a video about Microsoft's efforts to help fight human trafficking. I'm certainly opposed to human trafficking, and I have no reason to doubt that participating Microsoft employees are equally sincere in opposing human trafficking. I think this press release is the same thing: "Microsoft Corp. has awarded over $US 1 million through its Unlimited Potential grants to non-governmental organisations (NGOs) across six Asian countries. The latest round of grants will deliver IT training courses ... in basic computing, office productivity, network administration and hardware repair". Microsoft isn't the default operating system on almost all computers in the world by accident. It takes a lot of hard work to maintain a monopoly.

"Being in a private company, we could put all this together in six weeks. In government it would have taken six years." This is startlingly relevant to the discussion about accountability from the class that ended thirty minutes ago. Nice to see real-world examples. It's certainly possible that the problem is a huge success for all stakeholders, but (aside from the monopoly marketing issue), what was done to ensure the people targetting by the program are getting what they want? What direct voice (not counting sound bites harvested for the corporate video we saw) did they have? What international mechanisms already existed to combat human trafficking? How does Microsoft's work fit into those mechanism?

My question: how do you reconcile social reponsibility with Microsoft's efforts to quash free software, including your CEO calling Linux a cancer? But this is a career advice talk, so maybe I should just keep a lid on it. From the career angle, the big issue with CSR is, given that it's almost certainly (given the imperatives of capitalism, and like most corporate charity) a marketing expense the company engages in to improve its image, how crippling are its constraints? I don't mean to argue that somebody helped by a CSR program wasn't really helped.

IO, IGO: formal, intergovernmental organizations. A subset of non-state actors.

Our nation-state global system is an accident of history, happening only because Europe happened to have nation-states at the moment that it took over the world. The scope of problems that states try to address has expanded tremendously over time. Open question: what should the responsibility of states be?

Many international agreements form simply because the relevant bureaucrats at several different countries get together and make a deal. Question: are these processes democratic? C.f. A New World Order, Ann-Marie Slaughter.

What's going on in Davos? The core membership is the world's largest 1000 corporationns. Invited guests ("faculty") are artists, professors, intellectuals, etc. Actual activity at Davos is lots of business deals. Lots of panel discussions, which all tend to cover the hot issue of the day. "It makes you understand, viscerally, that nobody is in charge."

Clinton Global Initiative: same people as Davos, but you can only go if you pledge millions of dollars to action.

Political theory steals tools from both economics and sociology. Economics has numerical, analytic tools and sociology is more realistic. Joel's notes: What if the real world is so complicated that neither approach is really working?

Principal-agent problem. Are the UN's principals the governments of the member states, or the people of the member states? Accountability chain in the IMF: non-democratic country is represented by (in the case of Africa) one twenty-sixth of the African representative.

Example of a German expert consultant coming to Mongolia and make prescriptions suitable for Mongolia. Joel's note: The problem isn't that the German doesn't know Mongolia, it's that the German only knows Germany. The important thing for the consultant to have experience in more than one environment. As a consultant classmate said, everybody claims their situation is completely unique, and they are usually about half right.

Global Administrative Law Project. Lots of decision-making has moved up to a global level, but the administrative safeguards have lagged behind. Freedom of information, bidding and procurement laws, notice and comment periods for proposed laws, right of judicial recourse, cost-benefit analysis. These rules aren't, and sometimes can't be, translated to a global level—there's not much of a global judiciary and there's no global parliament.

Examples of unappealable, unaccountable global administration: UNHCR has the power to define what "refuge" means. Basel banking capital ratio requirements. Extraordinary rendition.

These include formal international organizations (such as the WTO, the Security Council, World Bank, the Climate Change regime, etc), informal intergovernmental networks of domestic regulatory officials (such as the Basel Committee of national bank regulators), domestic authorities implementing global regulatory law, hybrid public-private and purely private transnational regulatory regimes.—The Emergence of Global Administrative Law

Muthiah Alagappa, Civil Society and Political Change In Asia: Expanding And Contracting Democratic Space, pp. 455-477

Summary: What's up with civil society in Asia? There are a lot more NGOs than before and economic growth brings more every day, but the state still dominates the public space. Many NGOs are rooted in anti-colonialism or in "totalizing" a religion or other vision for the state, but most of those have mellowed. Most states are semi- or non-democratic and lack basic legal guarantees; even the democracies with more hospitable laws are still iffy in practice.

• p 461: China in particular has "GONGOs", government-organized non-governmental organizations, which are fairly bogus.
• p 464 - 467: "An Arena of Power, Struggle, and Cooperation". Buddhist vs Tamil in Sri Lanka; Muslim vs secular in Indonesia; radical, democratic left vs conservative, authoritarian US allies in South Korea; class struggle in the Phillipines. But "zero-sum struggles give way to competition, cooperation, and compromise." Mostly.
• p 468: neo-Tocquevillean and neo-Gramscian frames. Better look those up.
  • "Neo-Tocquevillians such as Robert Putnam (1993a, 1995, 1996) argue that civil society is crucial to 'making democracy work'"
  • "With the Italian Marxist Antonio Gramsci it later became rephrased as a zone of contestation where hegemonic forces (classes) fought out struggles for societal domination including party politics. A neo-Gramscian position popular today sees it as that which is neither state nor market, nor party political ..." That quote comes from an interesting Danish paper¹ about global civil society, which argues that the popular criticisms of the concept are invalid because the critics are still stuck in a state-centric mindset.
• p 470: "Lag in institutionalism". At the performance by the Singapore Complaints Choir, as they explained their problems getting a performance permit, they mentioned in passing having to get the lyrics approved by the Media Development Authority. Yes, that MDA:

  

Case: Role of NGOs in Civil Society: South Africa & the Draft Bill Tempest, International Center for Non-profit Law

Homework: Two-page description of the regulations governing civil society in your country

I almost forgot that I co-founded an NGO. Which is less than it sounds: we filled out some forms and now we have a 501c(3), with which we have done very little in the last two years. Maybe that will help with the homework.

1. I would also like to mention that I continue to take great pleasure in pronouncing Danish names, a skill I credit to the KISS language school in Copenhagen. In this case the street address of the University of Copenhagen, "Ostre Farimagsgade", which I think comes out something like "ohs^(t-gargle) fahmahsgeh^(l). Like yodeling or bagpipes, there's a certain dirty thrill to this kind of sonic vandalism, although you pay immediately with a sore throat.

Expenditure Analysis

Expenditure on final goods and services vs transfer (redistribution). Joel's note: I question the basic premise of today's class. Or I guess I question the implied application. Today's class is about how government spending affects the economy. It uses a strict economic model in which robotic actors maximize utility of available resources. But nations are not bounded by resources, at least not physical resources. Singapore got wealthy without physical resources (it had a good location for shipping services, but it's certainly not the only land near the straits of Malacca. So people as resources are the real limiting factor, in particular their skills and training and motivation and "social capital" (willingness to trust others and do business with them, or even just to not try to kill them). While economics claims to include this within the letter A in economic equations, it's so crude as to be useless in explaining differences in development in China, Singapore, Nigeria, Malaysia, Korea, etc. I agree that we should learn the conventional economic explanation of government expenditures, but it seems like learning Newton's equations to fly to Mercury—if it's all you use, you'll probably miss.

Example from the lecture: building a road increases land prices near the road; this is a distributive effect, because it doesn't add or subtract from the economy. It just moves money to the people who used to live near the road but sold their property, and that money comes from the buyers, who are in the same society, so no net change. But building the road increased the total value of all of the property. Now I've confused myself: the value of the land has increased, but only if people are willing to spend more money for it, and that money has to come from somewhere, so it seems like wealth both was and wasn't created.

"Health care is income [in]elastic, so when you get richer you consume more." I really wish I had heard clearly if he said elastic or inelastic. On the one hand, my anecdotal knowledge tells me that rich people spend a lot more and poor people forgo even necessary health care, which sounds like income elasticity. But I also know that people spend what they have to spend in emergencies, and poor people who don't get preventative care end up paying (or at least costing society) more in the long run. A quick search suggests that "the income elasticity of health care [is] 0.817 to 0.844", which makes it a necessity good, not a luxury good. I guess that means it's slightly inelastic? But RAND finds an even less elastic number, 0 to 0.2. That's so different that I have to be suspicious of both numbers.

Paraphrase from lecture: Marx faltered when he treated labor as the only input; that's where Das Capital gets confused. You can't produce without including all of the factors.

Paraphrase from lecture: the Singaporean honors students get worked up when I tell them they are all walking bundles of subsidies. "no, no, Singapore doesn't have subsidies," they say.

It's impossible to subsidize a single good, because if you reduce its relative price, you change the overall balance of how much of that good people buy relative to all other goods. Joel's note: but the psychological effect of subsidizing something is probably also real.

When income tax exemptions are used to incent people, richer people (who pay more taxes) are being subsidized. Joel's note: but not by the poor, who don't pay taxes, right? Though the poor are still paying sales/VAT and presumably other taxes. Taxes in Singapore start at S$22,000 (US$15,460). See also this forum discussion.

The overall point the professor is making, which many students at break hadn't quite caught, is that if taxes are progressive, subsidies on the form of tax rebates are regressive. And we have a fresh example of this at hand.

Once again I am on call to provide facts about the US, and once again I'm close but wrong. I said that the cap for mortgage interest deduction was "in the millions, or maybe there is no limit". The truth is more complicated, which may not surprise you since we are talking about the US tax code. There's no limit for mortgages from before 1987; after 1987 the limit drops to (skipping over some details) $1 million. But there's a limit on how much you can deduct overall, and the Alternative Minimum Tax kicks in at some point. So (and I'm not going to research any further) I think that the tax break for mortgages must trail off after maybe $200,000 in annual income. I also said the top tax bracket was 38%, but it's actually 35%.

A side note: the co-author of some of our textbook readings, Edgar K. Browning, is also the author of Stealing From Each Other: How the Welfare State Robs Americans of Money and Spirit, which argues that

Almost all Americans would be better off if none of the federal welfare-state policies of the last century--including Social Security--had ever been enacted. ... Welfare-state policies have large hidden costs which all told have reduced the average income of Americans by about 25 percent. ... There is much less inequality and poverty than is commonly believed

Perhaps he's intended to balance out our Stiglitz?

Negative income tax. Comprises a flat tax plus a gradual rebate. It has to be a gradual rebate or else there would be no incentive to make money. Three variables: income guarantee, marginal benefit reduction rate, and breakeven income. Suppose the rate is tax rate is 10%, the income guarantee is $5000, and the reduction rate is 50%. If you make zero, you get $5000. If you make $2000 in income, your rebate is reduced by $1000, so you get a $4000 rebate to bring your total income to $6000. Once you are making $10,000, you get no rebate, and any additional income is taxed at 10%.

Here's an interesting argument for income guarantee (as opposed to get-a-job-based solutions). "The 1996 Welfare Reform Act ... says mothers must accept job training as a condition of their eligibility. Why should flipping burgers at McDonald’s be considered more important than raising one’s children?"

Barnett, Michael N., and Martha Finnemore, "The Politics, Power, and Pathologies of International Organizations," International Organization 53, 4 Autumn 1999, p. 699-732.

• p 699 - 702. International Organizations (meaning here inter-governmental, not NGOs) are, in theory, created to solve some economic problems like incomplete information and transaction costs. But to understand how they do and don't work, we have to examine how they actually function, which isn't always pretty. Neo-realists don't believe anything other than states matter, and neo-liberals give IOs a free pass; we'll use constructivism to bypass them both. "We argue that assumptions drawn from economics that undergird neoliberal and neorealist treatments of IOs do not always reflect the empirical situation..."
• p 702: Two theories of institutions: economistic (Coase et al) and sociological.
• p 703: "Environments can 'select' or favor organizations for reasons other than efficient or responsive behavior." Yeah; organizations that are better at fundraising are presumably selected for, regardless of what they actually do. And organizations tend to self-perpetuate.
• p 704 - 706: pointing out the vacuity of purely economic analyses of IOs.
• p 707: two sources of power for IOs: legitimacy derived from rational-legal authority, and control over technical expertise and information. (Joel's note: I guess ICANN has both and abuses both.)
• p 708: paradoxically (not ironically), IO bureaucracies gain political power by claiming to be politically neutral, rational experts.
• p 710: The UNHCR's expertise "has allowed the UNHCR to make life and death decisions about refugees without consulting the refugees, themselves"
• p 710: Three broad types of IO power: "classify the world ..., fix meanings in the social world; and articulate and diffuse new norms, principles, and actors around the globe ...." In other words, they get to make the rules.
• p 711: another example: the World Bank has rules differentiating farmers from peasants. Only farmers are recognized as having relevant knowledge, so peasants by definition don't have a voice."
• p 712: the fixing of meanings. IOs can extend their sphere of legitimacy by redefining meanings. One example (not from the text) is the awarding of a Nobel Peace Prize to global warming activists. "When security meant safety from invading national armies, it privileged state officials and invested power in military establishments. These alternative definitions ... shift attention ... toward the individuals who are frequently threatened by their own government ... a more immediate and daily danger."
• p 713: Norms. During decolonialization, the UN promoted the norm of sovereign territorial integrity, and in doing so helped maintain political boundaries that did not coincide with ethnic nations.
• p 715: some of this IO work happens despite, rather than at the bidding of, the strong states that according to neorealists and neoliberals are the source of power for IOs.
• p 718: "bureaucracies specialize and compartmentalize. They create a division of labor on the logic that ... specialization will allow the organization to emulate a rational decision-making process." Um, what's the difference between an organization emulating a rational decision-making process and an organization actually performing a rational decision-making process? Paging Dr Searle, red herring on line one.
• I'm a bit confused by how the paper lays out the pathologies. There are two lists. First:
  • Internal and material: bureaucratic politics, e.g. turf wars
  • Internal and cultural: bureaucratic culture
  • external and material: IOs are mere pawns in the real struggle between states
  • external and cultural: "world polity model"
  Then there's a second list, "five mechanisms by which bureaucratic culture can breed pathologies in IOs:"
  • the irrationality of rationalization, e.g. crazy red tape
  • universalism, e.g., what worked in Cambodia will work in Yugoslavio
  • normalization of deviance, e.g., SNAFU
  • organizational insulation, e.g., all of our equations are correct so your recession and rioting must mean you did it wrong
  • cultural contestation, e.g., the diplomats want the refugees sent home as soon as possible so the problem goes away, but the refugee workers think the refugees will just get shot if they go home. The great quote: "It is extremely difficult to make war and peace with the same people on the same territory at the same time."

  Ann Florini, The Coming Democracy: New Rules for Running a New World, Chapter 4, Brookings, 2003

  • p 67: There is a "consensus that the state should be a provider of a limited range of collective goods and services for the country and should not meddle in areas that the private sector can handle better."

    

    Well, that's probably true in a global context, when you include the massive transformations in China and India (and the looting of Russia, which isn't exactly the same thing). But I disagree, not only with the pejorative "meddle," but with the implication that it's even clear what the private sector can handle better. I don't have time to fully research the state of the arguments; a brief look into prison privatization finds that the right-wing think tanks Heritage and Reason cite studies finding that prison privatization is, on balance, good. This is consistent with this survey of prison privatization, which doesn't address the pros and cons of privatization, but instead focuses on the inconsistent trend to privatization. It finds that the "only clear explanatory variable for prison privatization was the rather unremarkable observation of the necessary condition of the election of a 'new right' movement—and even then this was not a sufficient condition." As an aside, this very interesting tidbit popped out for me:

    We also concluded that the case of the United States is in some sense unique, dominated as it is by the South, where the major private prison companies are headquartered and where the political and historical setting seems most conducive to the private exploitation of prison populations. Though we would not want to downplay the importance of race in the other cases we have examined, the scale of the incarceration boom and the degree to which it is a racial phenomenon clearly set the American case apart. To explain the concentration of private prisons in the southern US, and to explain their continued popularity, we must look at a regional dynamic that can be found in none of the other four countries we examine—nor indeed in the rest of the United States.

    Coming back to the consensus in the quote, a quick google search finds the assertion that "The privatization movement appears to have lost some momentum in the United States over the 1990s."

  • p 68: will technology make it impossible to tax? eCommerce in the US is generally un-taxed, although if you buy something from a company that does business in your state, you are required and very often do have to pay state tax (Amazon initially set up their warehouses in less populated states to reduce the scope of this issue). But it's untaxed because of political, not technical reasons. "If taxes get higher, capital may simply flow to jurisdictions with lower, or no, taxes." That's certainly an argument that people who were already ideologically opposed to taxes have adopted, but is it backed up by facts? People still buy an awful lot of physical goods and in-person services, and no amount of internet or capital flight will prevent those from being taxed.
  • p 69: Governments have some capacity to constrain levels of encryption technology, at least for a while..." No they don't. The encryption wars are over, and governments lost."Agreement on international regulation of encryption levels is itself a massive global governance problem." That's news to me, and I keep up on cryptography news. It's something that gets appropriate technical oversight from the same kinds of non-state actors we've been talking about, and it gets perhaps a bit more than its share of government attention, but regulation of encryption is not, or perhaps is no longer, a massive global problem. (Except in South Korea, where the government really screwed up regulating crypto.)

  John Ferejohn, "Accountability in a Global Context," International Law and Justice Working Paper 2007/5, Global Administrative Law Series

  • Legal vs political accountability. Global institutions are so haphazard that any accountability is legal even if political accountability would be better.
  • p 2: "what are the possibilities for establishing something like democratic accountability at the global level? My answer will be more or less optimistic: I think there are ways to improve things from a recognizably democratic perspective, even in the nonideal global context."
  • p 7: "impeachment which, it is claimed, subjects officials to a legal rather than political standard". In some cases impeachment appears to function as a legal mechanism, but in many others it's clearly just an exercise of power. If impeachment were a legal question alone, Bush and Cheney would be long gone simply for crimes they've admitted, much less the full litany of potentially legal complaints. (Allow me to plug my t-shirt on the subject.)
  • pp 7-9: By folk democratic theory, the people are the principal and need not give reasons for their actions. Elected officials are agents, and are subject to political accountability. Administrative agencies are second-tier agents, and are subject to both legal and political accountability. "Finally we reach the courts ... courts seem subject to much more strenuous reason giving requirements".
  • p 11: "Folk theory rests on the presumption that citizens are ... authoritative as to their genuine interests ... But is this actually a plausible guide to what democracy requires? Joseph Schumpeter argued some years ago that it was not. He thought the people were very likely to be incompetent in making public policy. Popular incompetence arises mostly from what we would now call collective action problems ..."
  • p 12: "We rarely see people agreeing to cut back on direct democracy once they have achieved it, or relinquishing transparency either." Yes, and it's amazing what can be accomplished with one tragedy, a bit of fearmongering, and a twisted soul.
  • p 14: Strong theories of democracy "see delegated authority as somehow defective in a certain way relative to authority directly exercised by the people ... The alternative approach goes something like this: a polity is democratic insofar as its policies reliably track the common interests of its residents"
  • p 15: Deliberativists " demand not deference to popular will but to the best policy i.e. to that policy which best reflects the real interests of the people." Which, for better or worse, is the next-door neighbor to paternalism. And it's somewhere around here that this whole ediface [sic] of theory founders on the problem that there's no convincing theory describing how to determine what people really want—what they are willing to pay for, what their actions indicate they want, what their future selves can be predicted to have wanted, etc etc.
  • p 18: " The nesting of accountability relations creates new possibilities for agency slack because the agency has the chance to go around its principal (the legislature) to the higher level principal (the electorate). Alternatively, and perhaps more likely, the legislature and the agency can collude against the voters." E.g., the military-industrial complex.
  • p 19: "Folk democrats insist that agencies be directly or indirectly accountable to the people and that this accountability is unconstrained by reason. Deliberative democrats want agencies to respond to reason: to gather, hear and act on the range of relevant reasons for action." I guess I fall on the reason side, but a balanced tension between both forces seems best, since we don't have access to perfect reason.
  • p 20: "From the deliberative viewpoint the progressive era reforms are less comprehensible. ... Was there some magic potion by which they could overcome the collective action barriers ...?"
  • p 22: Did the people who put the European Constitution up to national referendums (where it died) open a new and possibly dysfunctional channel of accountability which cannot easily be closed?
  • p 23: "Globally, because the background political processes are much sparser and more uneven, and are often unattractive, legal accountability floats in a kind of moral vacuum."
  • p 24: I like this paper but he sure takes his time getting to the point. The only practical option for holding global institutions accountable is the deliberative (indirect) mechanisms. But we've lost the ability for the people to arbitrarily intervene, which is bad because "folk democracy is the club behind the door that serves to encourage officials through fear and anxiety to try to pursue good policies and to explain to the people what they are doing.

  Here's some additional writing on the topic of democracy and the consent and will of the governed. "Does the grist choose the mill, the rabbit the hawk, ...? They do not, and neither do the Citizens choose their Leaders. ... Sadly, the man in the street becomes affronted whenever he feels his supposed dignity is being besmirched. Why is this? The man in the street is, for all his puffery, standing there in the God damned street!"

  Assignment due at the beginning of class: a two-page paper on bureaucratic pathologies you have witnessed.

Browning, E.K and Browning, J.M, Public Finance and the Price System, 4th edition, 1994. pp. 100-126.

• Public spending has both allocative and distributive effects. Allocative: how does it change "the pattern of goods and services produced by the economy"? Distributive: how does it move income between people? between classes or groups? For a timely debate on this very subject, see Krugman and Robert Greenstein on the US stimulus package. "... the two most targeted and economically effective measures under consideration — a temporary extension of unemployment benefits and a temporary boost in food stamp benefits — were zeroed out, apparently at the insistence of House Republican leaders." I would like to challenge my classmates to identify similar analysis on current events in other countries.
• Government spending cannot create jobs because it is financed by taking money from the private sector, where it could have been used to create jobs. Uh, yeah, but the point is that it wasn't being used to create jobs
• p 123: we've seen an awful lot of charts and graphs and theories telling us what should happen, but no actual research data.
• p 123: every dollar the government spends costs taxpayers more than one dollar, so there must be justification for the spending: either it solves a market failure (and so returns more than it costs) or it serves the collective will of the people to support the needy: welfare, social security, etc.

Inge Kaul, Isabelle Grunberg and Marc A. Stern (1999), "Global public goods: Concepts, policies and strategies", in Inge Kaul, Isabelle Grunberg and Marc A. Stern (eds), Global Public Goods, New York and Oxford; UNDP and Oxford University Press.

• p 450: Three gaps:
  • jurisdictional: global problems but national governments
  • participation: "international cooperation is still primarily intergovernmental". I think that's stated in a way that begs the question. Most international activity, measured by money, is surely happening through supply chains within and between MNCs, and through remittances (which are bigger than global aid payments).
  • incentive: there's no good reason not to screw your neighbors
  These problems are very familiar—it's easy to get this reading confused with the Global Issues class.
• p 453: "Based on the case studies, we now propose a typology of global public goods ..."
  • natural global commons
  • human-made global commons. " scientific and practical knowledge, principles and norms ... the internet. For these global public goods, the main challenge is underuse. ... If we take basic human rights as an example of a universally accepted norm, we see yet another type of underuse: repression." Joel's note: Is it really helpful to frame the problem of political repression in the economic language, underutilization of public goods? Is anybody looking at this poor fellow (warning: graphic violence) and saying, gee, it's too bad he wasn't able to consume more of the global public good of not getting shot and killed by the soldiers of a corrupt military junta? I guess (looking at the charts on pages 454 and 455) that I can see where this is intellectually going: trying to analyze these problems to determine economic reasons for their perpetuation. Okay, let's start down that path. Why does a brutal, repressive regime control Burma? Because its citizens cannot resist without getting massacred. Why not? Because the regime is well-funded and well-equipped and the citizens are not supported by the rest of the world? Why? Because the neighboring countries make deals with the regime for Burma's oil and gas resources and even provide medical treatment to the rulers without any suggestion of criminal charges. Why do Thailand, Singapore, and other countries cooperate with the dictators and not with the people? Because they have incentive to do, and no incentive not to do so. How can we fix that? I don't know. Do the actions of the neighboring countries' governments reflect the will of their people? (Note that Thailand is itself still under military rule, albeit with a thin veneer of civilian rule. How thin? The prime minister is Interim Prime Minister General Surayud Chulanont.) I don't know. At a minimum, criminal charges could presumably be brought against some members of the junta, so that they could not leave the country safely? Is it useful to think of that of increasing supply of the global good called justice?
  • global policy outcomes
• p 456: "several authors found it easier to describe the bad than the good. For example, Charles Wyplosz relies, for his analysis of global financial stability, on a systematic examination of global financial instability. Why? Because the bad is often present, while the good has yet to be realized."
• p 458: "when a public good or bad has nonexcludable or only partly excludable effects, it brings costs or benefits to innocent bystanders. So, nonexcludability is an extreme form of externality. ... transborder pollution ... ethnic strife"
• p 460: "Making a good more private will increase the chance that it will be provided, even in a decentralized setting. Two methods may be used: assigning property rights (Joel's note: c.f. Coase from Institutional Design class) or internalizing externalities."
• p 461: "If the concept of global public goods offers a useful lens for understanding current problems (Joel's note: we'll accept that as true for the purpose of finishing the reading and no further), does it also help point the way to new policy solutions and actions to manage them? Yes." Three important facts:
  • An emerging class of global public goods. freedom on the high seas. "behind-the-border" issues: poverty, health, banking standards. linking global problems to national actions: ozone and CFC reduction.
  • New realities: openness, systemic risk, and power shift from the state (Joel's note: which we debated in States, Markets, and International Governance last semester. Wow, this paper is really trying hard to repeat all of the lessons of all of my other classes, but in a less distinct, useful, or engaging way.)
  • policy deficits. "To turn intentions into policy actions, cooperation seems to move only hesitantly, if at all." Because of uncertainty, to be addressed by "epistemic communities" that provide empirical facts and figures and forward-looking policy research, and the free rider problem. But more fundamentally, the three gaps mentioned before.
• p 465: solutions. Close the three gaps.
• p 466: jurisdictional gap. You could strengthen supranational governance, or trim issues back to the size of nation-states, which could involve rebuilding protectionist barriers (and, presumably, border fences and giant sky domes to block the pollution). "We prefer to follow a third path: creating a jurisdictional loop that runs from the national to the international and back to the national—by way of several intermediate levels, regional and subregional." How? "establishing national externality profiles, internalizing cross-border spillovers, re-engineering national approcahes to international issues, linking national and global policy agendas, strengthening regional cooperation, bringing cooperation gains back to the national level." Joel's note: that doesn't strike me as a list of policy recommendations. It's a list of goals which are probably good, and you could use them to keep score on actual politics and policy, to have a better idea of which actions are better or worse. But you can't go out tomorrow and "link national and global policy agendas." You can only vote for and support candidates who act in that way.
• p 467 to 498. Many, many pages with many, many detailed policy prescriptions. For example, "establishing national externality profiles": For each country, make a list of good and bad things they are doing to their neighbors. Use this to start the bargaining.
• p 472: "But why would countries be willing to accept this principle of internalizing externalities if, as noted before, they are self-interested ...? ... If countries agree to avoid negative cross-border spillovers as much as possible, there is less need for international negotiations and special cooperative efforts that might prove more costly to countries than implementing necessary adjustments voluntarily." Joel's note: I think there was some sleight of hand there. How can we make countries cooperate if they have no incentive to do so? Countries will cooperate by cleaning up their own messes, since that's cheaper than cleaning up messes together, even though there's no reason for them to clean up messes together. Hmm.
• p 475: carrots. In order to join international regimes (WTO, EU) which bring benefits, countries must make internal changes to qualify.
• p 480: "... numerous examples of NGOs being the prime provider of a global public good and of governments joining in the effort only hesitantly."

Okay, there's a whole lot of ideas in there, and that's just the conclusion to a big book. What's missing in my reading is a sense of which ones are really possible, and which ones are stuck (UN Security Council reform is mentioned as if it were an option). But that next level of discussion would be astoundingly long. So I think this article is not as useless as it first seemed, but it's not realistic enough to "[start] tackling the growing agenda of common concerns".

Pictures are posted here.

The Complaint Choir fad has been spreading for a few years—I saw the Helsinki version on the internet last year. Efforts are underway to perform a Singapore version, but Mr Brown reports a rumor that the authorities have intervened. As he puts it,

Eh, you think you are singing it means you can come here and meddle-meddle our politics ah? Cannot unnerstand? Gahmen dun care you say it, write it, or sing it one.

Update: The rumors are true. "While we were given a license, this is a conditional one - no foreigners (i.e. a handful of the participants, the artists themselves and our conductor) are allowed to perform with the Choir". But the show will go on, in "private".

To obtain invites, interested audience members can email ... or call ...Alternatively, if you turn up at the venue prior to the show, please let one of us know ... We will issue private-event invitations for the special performances

I'm definitely going. I want to hear Singlish sung (Sunglish?), and I want to find out what they rhyme with CPF.

Ronald Coase sounds like he may be a big theoretical pillar for this class. Also Elinor Ostrom.

(note to self: look into Kelso.)

I don't know why, but all of my electives have around twenty or fewer people, compared to last semester when they were all thirty or more. This is much better.

Student introductions. My own interest: why people usually fail to function in groups. It's formally called the "collective action problem". Other classmates: what can we do with institutions to fight corruption in the Phillipines? Polish management consultant: Asian institutions. Bangladeshi: how to design more efficient institutions? (response: one idea is to look at multi-nationals doing business in Bangladesh as a source of (better) norms.) Second Bangladeshi: the judiciary has just been separated from the executive branch and so everything is changing. Improvement of institutions to deliver services. Institutions and development.

What is an institution?

6. a. An established law, custom, usage, practice, organization, or other element in the political or social life of a people; a regulative principle or convention subservient to the needs of an organized community or the general ends of civilization. —OED

Joel's note: OED definition 7 is "An establishment, organization, or association, instituted for the promotion of some object, esp. one of public or general utility, religious, charitable, educational" but I think that meaning is secondary for our purposes.

Humanly devised constraints that structure human interaction ...—Douglass North

Transaction costs. Joel's note: "A more recent study in the International Journal of Health Services found that in 2003, administration costs in the US health care system ate up about $400bn, or about 25% of total health care spending. (source)

Examples of institutions as constraints. Omertà. Singapore's official secrets act. Out-of-bounds markers. The Ten Commandments. What makes an institution formal? It's sanctioned by an authority. (Joel's note: and documented? but surely pre-literates could have formal institutions?) Institutions can increase or decrease transaction costs.

Ostrom's definition: "Shared concepts used by humans in repetitive situations ...". Rules: mutually understood and predictably enforced by agents. Norms: shared prescriptions enforced by actors. Strategies: regularized plans that individuals make within the structure of incentives produced by rules, norms, and expectations of others' behavior. Football is an example of a zero-sum game. Joel's note: but professional football (US or world) is actually a positive-sum economic activity; the teams cooperate to build a bigger business. Even in amateur sports, pleasure and safety are often more important than winning. I hope it will always be this easy to turn zero-sum activities into positive-sum.

J. R. Commons: bundles of rights, duties, liberties, and exposures. "...An institution is defined as collective action in control, liberation and expansion of individual action." Joel's note: The slide says 1968, but apparently he died in 1945. Which helps explain why he never won the (Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred) Nobel, which is only awarded to living people and was first awarded in 1969.

Game theory

classmate question: where is legitimacy in these definitions? Why is the context of legitimacy important in defining institutions? It's helpful in analysis, but I don't see that it's needed in the definition.

Driving patterns as national or local institutions.

Game theory: "institutions are equilibria in repeated games." Joel's note: the word "culture" is mentioned for the first time in class.

Sports analogy: institutions are de facto rules of game; law is formal rules backed by sanctions; organizations are players; governance is the actual play; public policies are outcomes. Joel's note: why aren't outcomes outcomes? I guess policies are outcomes, if we mean de facto policies, not nominal policies. Marijuana use in the US is a good example of broad and varied divergence between de jure and de facto policies.

Tragedy of the commons. Joel's note: A very tantalizing note in that paper (which defined the term): "However, given an infinite source of energy, population growth still produces an inescapable problem. The problem of the acquisition of energy is replaced by the problem of its dissipation, as J. H. Fremlin has so wittily shown. [4]" so I'm going to have track down that reference. Fortunately for J. R. Commons, the paper is from 1968, so he narrowly avoided a lifetime of terrible puns.

What is an organization?

• strategy
• structure
• systems
• skills
• style
• staff
• shared values

Joel's note: one of those things is not like the others. Organizations are collections of people. Everything else is dependent on that, different abstract concepts to better understand how these people are behaving.

Shared values: the job of the leader is to define and shape the shared values. All organizations have leaders. "You may call it first among equals but still he's first." Joel's note: how strong is the scientific consensus behind that statement? Do groups of humans inevitably have leaders?

The value of constitutions. Related concept: Stare decisis. A classmate provides an example from Bangladesh, where a general wanted to change the allocation of court benches in different districts, but the Supreme Court was able to prevent this violation of the constitution. Of course there's been a big constitutional crisis in Pakistan recently (though hardly for the first time), and in Turkey.

Informal institutions change more slowly than formal institutions. Examples of enduring informal institutions: suppressed religions, like Catholicism in China. Islamic rules in Saudi Arabia. Some of that has been formalized.

Classmate note: US constitution is stable because it's made very hard to change. Why? One reason could be that any change affects some vested interests. Joel's note: I hadn't thought of it from that angle before; I only thought about majority/minority issues. How does the government constrain itself? Actually, I guess the answer combines both issues: if you want to create a stable institution, design it so that self-interest keeps it stable. And also path-dependence: other countries could have the same rules in their constitution, but the US history has created a large, complex culture which adds its own inertia.

Role of institutions in markets

Example: standards. 16th century rice markets were dominated by big private traders, because only big players could absorb the high risks of shipping in feudal, pre-industrial Japan. New technology in the form of improved transport destabilized the market by allowing small traders to compete. This led to demand for standards, which in turn enabled more trade and new institutions (rice exchange notes, inventory credit, loan collateral, credit). (Joel's research note: Japan's first railroad opened in 1872)

Second example: bankruptcy rules. In the UK, bankruptcy rules evolved out of ad hoc arrangements between borrowers and lenders, leading to formal commercial laws to the point where a couseling company writes, "Bankruptcy in the UK is a humiliating and public experience, it is also a very primitive and grossly unfair means of dealing with a debt situation, it is a no-win situation for all involved. In the US, Congress intervened many times in the development of bankruptcy norms, leading to laws that are more debtor-friendly and have the primary goal of keeping bankrupt companies functioning.

Third example: international accounting rules. Evolved among international companies. Companies in developing countries can follow these rules and get better access to markets. But this can be very expensive, keeping poorer countries shut out of international credit. Chinese companies now have, by legend, four different sets of books: for the government, for the firm, for foreign partners, and actual accounts. (Joel's note: people respond to incentives.)

"What are institutions? What differentiates them from organizations, governance, law, regulations and public policy? Do institutions matter? How and why do they matter?"

World Development report 2002. Institutions and Markets. Chap 1

Summary: good institutions (everything from free press to working bankruptcy courts and easy, low-cost business registration) correlate closely with high GDP.

The four main lessons of this chapter are that for effective institution building policymakers need to complement what exists, innovate to suit local conditions, foster open trade and open information exchange, and foster competition among regions, firms, and individuals.

Douglass C. North (1993), Economic Performance Through Time, Nobel Prize lecture, 12/19/93.

It was a mistake to try reading this in a couch instead of an uncomfortable chair. A few quotes that are pleasing in that they suggest a sane understanding of how things work, and yet are uttered by a prize-winning economist:

It is necessary to dismantle the rationality assumption underlying economic theory in order to approach constructively the nature of human learning...

We cannot account for the rise and decline of the Soviet Union and world communism with the tools of neo-classical analysis, but we should with an institutional/cognitive approach to contemporary problems of development ... It is the admixture of formal rules, informal norms, and enforcement characteristics that shapes economic performance. ...

a. Political institutions will be stable only if undergirded by organizations with a stake in their perpetuation.

b. Both institutions and belief systems must change for successful reform since it is the mental models of the actors that will shape choices.

c. Developing norms of behavior that will support and legitimize new rules is a lengthy process and in the absence of such reinforcing mechanisms polities will tend to be unstable.

Lecture handout

"What causes underdevelopment? Which institutions are needed for development?"

Shirley, M. 2004. Institutions and Development: Presidential Lecture at the 2004 Meeting of the International Society for Institutional Economics

Chang, H. J. 2007. Kicking Away the Ladder. Chapter 3

How institutions matter to development: A stark reality

This is a page about how North Korea is dark at night. More interesting to me (because it relates to something I've talked about earlier, California's energy efficiency) is this slide on a related presentation. If you sketch in some best-fit lines, California is clearly emitting much less light at night than it should. Why? Energy-efficient fixtures that don't shed light into the sky? Do they simply need less lit area because Los Angeles is the densest city in the United States?

A few annoying setbacks this week. On Monday my Brain Bag, with my ThinkPad in its Brain Cell within, fell off the couch. This is about the fifth time I've dropped my laptop in this indirect fashion, so I didn't think anything of it, and proceeded on a mid-afternoon walk to school, during which, while fumbling with the water bottle that was dripping cold condensate on my ass, dropped my iPod shuffle to the cement, killing it. When I got to school, I discoved the backlight on the laptop was dead; the only thing even faintly visible was the ThinkPad logo shown during bootup.

So I'm shopping for Shuffle replacements and it's a sign of our futuristic living that even though I can find a SanDisk competitor product for half the price (US$40), I'm upset that it weighs a full ounce! Meanwhile the laptop will take two days and S$180 to get fixed at Sim Lim, a place I have grown to loath. So I'm computer-less for classes this week. It feels like being marooned in realtime. (Update 2 days later: went to pick it up. Long story short, the backlight works intermittently; no charge. Hopefully it will function well enough in class until the replacement arrives.)

Anyway, on to classes. I intended to go to all of the shopping classes last week whether I was initially interested or not, a plan which limped through Tuesday and finally expired Wednesday, when I set my schedule. Today I realized I had confused the shopping and permanent schedules and signed up for two classes at the same time. This problem was nearly solved when the two professors both showed up in the same classroom, but alas they sorted out the logistics. So I'm dropping Transit Policy, which was a for-fun pick, and adding Institutional Design and Analysis sight unseen, which may actually be the class closest to the problem that inspired me to get an MPA: why does group action so often have such horrible outcomes? Meanwhile I can claim two insights from having done the reading for Transit Policy: 1) pedestrian overpasses are for the benefit of people in cars, not people taking pedestrian overpasses, and 2) the Interstate Highway Act probably made the US and the world a much worse place, by promoting automobiles over all other forms of transportation to such a degree that anything other than single-occupant cars is by definition "alternative".

And with that all that said, here's a workup of my paper notes from Global Issues, minus the doodles.

Overall, this class discussion felt like it went on rails. We went from "do we need global governance" to "how do groups of people get governance" to "identity" to defining yourself against an enemy to the potential role of global warming as that enemy. When I said that the failure of the UN to function seemed like a close parallel to the failure of the early US to function, the prof said she'd been reading a lot on that time period. When I made a note to myself that the science-fiction writers' solution to global governance is usually alien invasion, it wasn't more than 20 minutes before the professor said that the running joke at the UN used to be that only a Martian invasion could get the UN member states to cooperate. Either we students are supremely predictable, the professor is sublimely manipulative, or there is a very obvious, very well-worn path through these ideas.

Side note: I came up with an idea for a game. You need at least four people, in pairs. Each pair has a timer. All timers start at the same time. Either person in a pair can take the timer at any time, at which point it stops counting (and nobody else can take it). At some random interval, anywhere from seconds to minutes, any timers left unclaimed stop and reset to zero. Whoever is holding the highest-valued timer after they all stop, wins. Regular changing of pairs and partners to introduce partnership and betrayal dynamics.

The last opportunity for UN reform was in 2005, with a global summit. Kofi Annan had previously commissioned a report (the second item in the week 2 reading) which came out really well and had very good recommendations. However, the committee that created the report didn't do a good job of selling it politically to their home countries before the summit. Which didn't matter because Bush sent John Bolton to blow up the whole thing. It must be convenient to have the mental flexibility to sabotage attempts to improve something while simultaneously blaming the thing for not working very well. The best concrete thing to result was the "Responsibility to Protect", formally introducing the idea that the UN can, under appropriate conditions, intervene in member states' affairs (see my notes re: the report where I wonder if this is being advocated or not).

Homework: two-page paper applying the contents of the reading to an institution you've been part of with pathologies. (That doesn't make too much sense; I hope it's repeated in the syllabus).

As a useful introduction to some of the issues in this module please take a look at an on-line educational video about urban transport problems in Asian cities (there are visuals from various places in the region). It can be viewed at: part 1, part 2, part 3

• part 1, 2:41: "sometimes it feels like the needs of pedestrians are completely ignored." Singapore clearly puts a lot of effort into accommodating pedestrians, and still falls well short. Does this reflect underlying, invisible prejudices, such that even policy-makers who view themselves as progressive and pro-pedestrian approve and implement policies like car-dominated right-of-ways? One example in Singapore: the street in front of LKYSPP campus, Bukit Timah Road, is actually two streets, one in each direction, with a canal in the middle. Pedestrians have to walk to, and then up, across, and down, an overpass; at streetlights, the pedestrian crossings are so poorly timed that it takes two full and lengthy light cycles to cross the road. Second example: crosswalks and right of way in Singapore.
• Many poor people spend hours per day in transportation. Women also face special problems. Disabled people have even fewer transportation choices and can be denied education and employment.
• "In downtown Sacramento, the top view (above-the-canopy) shows that vegetation covers 30% of the area, whereas roofs cover 23% and paved surfaces (roads, parking areas, and sidewalks) 41%" (source)
• part 2, 1:00: Transport Demand Management, TDM.
• part 2, 2:40: "footpaths should be as level as possible, with good ramps, and must avoid forcing pedestrians to go up or down too much ... must be well-maintained and well-lit at night ... shade ... pedestrian bridges are, in fact, not pedestrian-friendly—they are to get pedestrians out of the way so cars can go faster."

Cities on the Move, Executive Summary Page 3 of 5

Selected highlights:

1. Structural change
   1. stop incenting huge cities by providing free roads and undertaxed land
   2. plan within cities better, although planning to provide more road capacity may be self-defeating
   3. plan for a mix of private autos and other road users
2. improve efficiency
   1. better road management with technology
   2. road maintenance
3. non-motorized transport (walking, cycling)
   1. NMT is underrecognized
   2. A comprehensive vision and action plan. Joel's paraphrase/expansion: cyclists need a complete system, which includes a complete route network (it only takes one gap in a bike lane/path/safe-road trip to make a trip too unsafe or unpleasant to ride daily) plus connectivity to other modes, such as bike storage on buses and trains (bicycles are not allowed on Singapore's trains; they are banned during rush hour on LA's trains), and employer facilities. An investment in only a portion of this will be wasted, and will be taken as evidence that there is no demand. But if roads were built in one-mile segments with cliffs at each end, and no cars were seen on the roads, would that be proof that nobody wants to drive on roads?
   3. traffic management should focus on moving people, not vehicles
4. Public passenger transport
   1. Public transport is for all. Joel's note: Even in Los Angeles, I have seen well-dressed people take the freeway commuter bus from Santa Monica to downtown.
   2. most urban public transport is based on roads
   3. Pricing and financing are the key
   4. There are a lot of good pro-poor, pro-growth transit policies to use
   5. competition is pro-poor
   6. Cities should exploit the informal sector
5. Mass transit: rail for very large cities only
6. the private sector
   1. private financing is possible
   2. planning and regulatory arrangements are fundamental to private participation
7. Transport can be part of a social safety net
8. Road accidents are a global pandemic
9. separation of infrastructure from operations
   1. charging for road infrastructure is efficient and effective financing
   2. fuel taxes are a proxy for direct charging
   3. parking charges should be part of infrastructure pricing strategy
   4. direct charging for roads requires political preparation
   5. "However, the value of having an integrated urban transport fund does not depend on any specific tax source being earmarked for transport." Joel's note: the Seattle monorail project failed after its sole funding source, a car tax, underperformed.
10. "Decentralized democratic process must be complemented by high technical competence."

Vuchic, V.R. (1999) Transportation for Livable Cities, New Brunswick: Center for Urban Policy Research. (Chapter 2: The City-Transportation Relationship). pp. 23-39 are most relevant for this section.

Litman, Todd (2003) Measuring Transportation: Traffic, Mobility and Accessibility, ITE Journal, 73, 10, 28-32

Turton, B. and Knowles, R. (1998) Ch. 7. Urban Transport Problems and Solutions, in Hoyle, B. and Knowles, R. (eds.) (1998) Modern Transport Geography. Wiley, Chichester. (pp. 135-148 only)

Vasconcellos, E.A. (2001) Urban Transport, Environment and Equity: The case for developing countries, London and Sterling, VA: Earthscan. (Chapter 9. The Technical Issue: Traditional Transport Planning, pp. 96-110)

S. S. Brehm and S. M. Kassin, "Perceiving Persons" in Barry Staw (Ed.), Psychological Dimensions of Organizational Behavior, New York: Macmillan, 1991, 187-207

• p 188: When someone acts, your mental model (if you behave as Fritz Heider models) is to try to figure out if it actor's motivation was internal or external: did they do the action for reasons that reveal something about them, or did they do the action for reasons that reveal something about the circumstance or context?
• p 190: Harold Kelly's covariation theory. "For something to be the cause of a behavor, it must be present when the behavior occurs and absent when it does not."
• p 193: actor-observer effect. We think that the way we act depends on the situation whereas the way other people act depends on their nature.
• p 195: false consensus effect: "the tendency for people to overestimate the consensus that exists for their own opinions, attributes, and behaviors". I wonder how much this overlaps with projection, believing that other people behave the same way you do—so if you lie a lot, you assume everybody else lies to you frequently. It seems like projection is simply a subset of false consensus effect.
• p 196: belief in a just world. Poor people are socially unattractive because they must have done something bad or been bad to be poor. This explains so much anti-immigrant fervor, including, somewhat, the tendency to focus on South American illegal immigrants and not Canadian or British ones.
• p 197: confirmation bias. One you have a theory, you notice everything that supports your theory and discount everything that contradicts it.
• p 200: self-fulfilling prophecy

A de Carufel and J. Jabes, "Perceptual Errors in Organisations: An Attribution Theory Approach", University of Ottawa Quarterly, Vol. 56, No 4, 1986.

• p 206. Perceivers identify specific acts, which depart from expectations and have "hedonic" (that's one I had to look up, but it's just the adjective for hedonism. Special meaning in psychology: "or involving pleasurable or painful sensations or feelings, considered as affects"—OED) consequences for the perceiver. Perceivers then try to judge the cause(s): disposition, stable elements of the environment, or transient situations. Make conclusions about what was learned about the subject's aspect.
• p 208: if you know all the words on this chart, you can skip to page 214.
• p 215: what can you do to avoid these fallacies? I don't see many concrete suggestions; I think the advice boils down to, be aware of these sources of bias and try not to do them so much. These biases can really screw up communication and trigger or worsen conflicts. "It is likely that both sides will be motivated to see the other as the aggressor and justify their own actions accordingly."

J. Jabes, Causal Attributions and Sex‑role Stereotypes in the Perceptions of Women Managers, Canadian Journal of Behavioural Science, 1980, 12, pp 52‑63

Abstract: 144 female 22-61 yr old managers were asked to make causal attributions and give their impressions of a manager whose bogus personnel file they had read. The sex, occupation, and age of the file manager were systematically varied. Results from ANOVAs yielded only sex main effects. Bogus female managers were perceived to be more successful than males, and [subjects] attributed greater ability to them. Easier job demands and luck attributions were significantly more often used for male managers. [Subjects'] impressions of female managers were also more positive than males. Results do not support the existence of sex-role prejudices on the part of women against women.

Did you notice the abrupt and unjustified leap of logic in the last sentence? No? Try again with my paraphrasing:

We made some fake personnel files and asked 144 female managers what they thought of the people in the files. The only thing that biased their answers turned out to be sex, not age or occupation. They thought better of the women in the files. Therefore, women do not face prejudice from other women in the workplace.

Did that make it more clear? The leap, it seems to me, is to fail to imagine (or learn of) any ways in which women might feel positively towards other women in the abstract while still contributing to a sexist culture that is biased against providing women equal access.

Florini, The Coming Democracy: New Rules for Running a New World, chapter 1.

The nice thing about taking two classes from the same professor is that some of the reading overlaps.

Jan Aart Scholte, Globalization: A Critical Introduction, Second Edition, chapter. 1.

Yale H. Ferguson and Richard W. Mansbach, Polities: Authority, Identities, and Change, Part III, "The Past as Prelude"

Consumer behavior theory:

• consumer preferences
• budget constraints

Here's another theory: neuroeconomics. Actually, I suppose it's another way to determine consumer preferences rather than a completely new theory. What I find surprising is degree to which economists apparently resist the notion that emotions, rather than cold logic, control economic decision-making:

But a clever economist can always come up with a rational (time-consistent) model to explain what appears to be irrational hyperbolic discounting. Laibson, however, uses fMRI scans to show that different parts of the brain are activated when making decisions at different time-scales. As Andrew notes, the isolation of the different decisions to different parts of the brain gives Laibson's argument significant credibility against more standard neo-classical explanations for the same phenomena. —Alex Tabarrok

So they are holding out for brain scans before they believe that people don't actually perform calculus in their heads when spending money.

Thus, dealing with probabilities also relates to the issue of understanding the psychology of how we make rational decisions. According to decision theory, rational decisions are made according to the so-called expected utility calculus, or some variant thereof. In economics, for instance, the idea is that if you make an important decision — whom to marry or what stock to buy, for example — you look at all the consequences of each decision, attach a probability to these consequences, attach a value, and sum them up, choosing the optimal, highest expected value or expected utility. This theory, which is very widespread, maintains that people behave in this way when they make their decisions. The problem is that we know from experimental studies that people don't behave this way.
There is a nice story that illustrates the whole conflict: A famous decision theorist who once taught at Columbia got an offer from a rival university and was struggling with the question of whether to stay where he was or accept the new post. His friend, a philosopher, took him aside and said, "What's the problem? Just do what you write about and what you teach your students. Maximize your expected utility." The decision theorist, exasperated, responded, "Come on, get serious!" —Gerd Gigernezer

The actual fMRI study being discussed:

The subjects were told they were tasting five different cabernet sauvignons sold at different prices. However, there were actually only three wines sampled, two being offered twice, marked with different prices. ... The testers' brains showed more pleasure at the higher price than the lower one, even for the same wine. —AP

Meanwhile, back in class, we are discussing the equation of a straight line on a graph:

Y = mX + b

If m is positive, the line slopes up, and if negative, negative. And there are actually questions. Let this moment stand as a rebuttal to the notion that US math education is lacking. I'm going back to my morning blog reading.

... where I find this:

This kind of flow -- at least in my view -- has an impact on the global markets. It is simply too big not to matter. With annualized reserve growth coming in above $1.2 trillion and the US external deficit a mere $800b, it is reasonably to think emerging economies dollar reserve growth came very close to financing the entire US deficit. Let's assume that the BRICs end up adding $800b to their reserves this year. ..." —Brad Setser, 10 July 2007

which provides context for this:

China’s government added $430b to its foreign exchange reserves.

Russia’s government added $150b to its foreign exchange reserves.

...Brazil’s government added a bit over $90b to its reserves. Brazil’s Treasury holdings are up close to $70b for through November, in another kind of reverse bailout.

...

Counting the state banks and the CIC, the total is more like $900b. I was conservative back in July. ...

It is likely that the world’s central banks added close to $1,200b to their assets in 2007, China’s state banks chipped in another $150b or so, and various sovereign funds – including Norway’s funds – combined for about $150b. Those sums are so large that they are almost impossible to fathom, let alone believe.

... And for all the attention that sovereign funds have received ... the overwhelming majority of the increase in sovereign assets still came from central banks.

China ... spent far, far more buying Agencies and (yes) Treasuries ... than buying Blackstone, Morgan Stanley, Barclays and South Africa’s Standard bank. The big shift has yet to come. Blackstone and Morgan Stanley represent less than a week of China’s foreign asset accumulation.

... Sovereign funds may be managed commercially, but in ways that do not reflect the wishes of their populations. It isn’t at all clear that China’s residents would rather lose money ... investing on commercial terms abroad rather than investing more at home on non-commercial terms. ... The CIC has done better financially on its investment in the China railway group than on its investment in Blackstone.

... Imagine the outcry i[f] sovereign funds – not private hedge funds and private banks – had shorted the Thai baht (a very good commercial decision) back in 1997, helping to trigger the broader Asian crisis....

... The positive case is that this shift will end some of the distortions associated with excessive official demand for bonds, distortions that indirectly helped to encourage over-investment in residential real estate, excessive home price appreciation and the subprime crisis. The negative case is that this shift will introduce new distortions to new markets. ...

... to date, most attention has focused on how sovereign funds manage their money, rather than why sovereign funds have so much money in the first place....

[China is] accumulating assets to avoid a faster pace of exchange rate adjustment. ...

[The oil exporting economies's] sovereign funds have so much money because their governments have made a policy decision to save the majority of the countries oil wealth centrally rather than find ways to distribute more of the revenue to the broad population. This is fundamentally a political choice, one that has had the effect of strengthening the power of many less-than-fully democratic states. ...

... Yet absent adjustment ... the US will necessarily be selling large quantities of itself to emerging market governments for a long time.

—Brad Setser, 18 Jan 2008

This strikes me as very convincing, making it all the more informative that last Thursday's seminar by a well-connected former US official, despite speaking (he said) in a non-official capacity, scrupulously ignored the why question and its political answers.

Speaking of two-variable utility curves, I wonder if we could integrate this list into the discussion.

A lecture by Professor Alan Altshuler. This is somehow connected with the Ministry of Development, and it's in the big lecture hall and the Dean's giving the introduction. I haven't figured out the calculus determining the status and popularity of each speaker. Highlight from the Dean's intro: "I hope someday we'll be able to have someone from Singapore stand up here and give a lecture on things not to learn from Singapore."

Googling Altshuler reveals that he was in a fight with his faculty a few years ago:

[supporters of the dean said that] Altshuler has vocal enemies for a number of reasons: he was appointed by Summers, who is seen as hostile to contemporary architecture; he is an urban policy specialist rather than an architect or designer; and he has tried to address troubles in the school, including a budget deficit and professors who were not teaching as much as they should.

Following is a paraphrase of the speaker unless otherwise noted.

US cities are at one end of the spectrum: low density, dominated by automobiles, capitalist model, local government fragmentation. No presidential candidates have mentioned urban development policy. US cities use six times more energy, and emit six times more greenhouse gases, per capita than the global average.

The poor mega-cities have 10,000 or more people per square kilometer; usually without high-rise buildings; just incredible crowding. Asian cities are next. Los Angeles is the densest American metropolis, with 2,400 people/km², more dense than greater New York (dragged down by its huge, low-density suburbs). Singagore has 8,350/km². European cities are dense but low-rise. Paris is 50% more dense than LA. Joel's note: He uses aerial photos to illustrate, but a good sampling from Google StreetView would help a lot.

The US, Western Europe, and High-Income Asia all have almost identical GDP per capita, but the US has three times more passenger travel per capita than Western Europe, almost six times more than High-Income Asia, thirty times more than China. 89% of urban transport in the US is by private vehicle. The US has roughly ten times more land per person than the UK or Japan, and about four times more land per person than the EU. Most US urban development has occurred in the automobile age, powered by mortgage insurance and federal highway subsidies. Joel's note: So far, the lecture is just a more detailed version of, When everybody in China tries to live like an American it's going to be a horrible disaster.

There are 87,500 local governments in the US, competing for investment (and tax base). W. Europe and High-Income Asia have always imported oil and had limited land; heavy gov't investment in dense housing and mass transit. Japan is an anomaly: huge auto industry and mass auto ownership but modest auto use and compact development. Urban redevelopment in the US tended to be run by former bankers, who applied the redlining techniques they had learned in the private sector.

Why doesn't the US adapt? Strong patterns established while US was self-sufficient in oil and the leading auto producer. Carter's first legislative proposal was an energy independence bill, which died instantly. Change will require both a great social movement and an electoral upheaval. "not impossible" (Joel's note: I think voluntary change on this issue is impossible in the US; only change in response to inexorable exterior pressure.) The US has "veto group" politics; small interested parties can control issues in the face of popular opposition.

Automobile ownership levels in China and India are comparable to US levels circa 1915. Will they follow the High-Income Asia model or the US model? Can a world system be organized to strongly incent them to do so?

Q: long rambling rant which, when pushed, produced this question: "would you invite me to go to Kennedy [School of Government] to give a talk on how Oriental wisdom can solve Western stupidity?" A: The issue of using agricultural products for power is controversial. Even if we don't, we still have an energy problem. The ethanol/corn lobby likes the fact that corn prices are going up.

Q: What about fixed-guideway transit? A: the problem is it's less flexible when we need more flexible.

Q: Are there any realized solutions, even on a small scale, in the US? A: Portland enacted an urban growth area which has survived constant referendums. Even so, the density of Portland is still less than Los Angeles. ... You have to look outside the US for good examples.

Q: What about Frank Lloyd Wright's proposals? A: He was a visionary ... of the automobile city.

Q: what is your reaction to this Straits Times article about green policies in the US? A: The US is a vast country, and all of these things in the aggregate are not having any impact on consumption. But there is some ferment in the absence of federal leadership.

Q: Regarding Silicon Valley. I went the normal way on one trip, and then took the Greyhound bus on my second trip. The poverty level, the undeveloped situation, I think it's very fearful to stay and to live. What can we learn from the success and failure of Silicon Valley and ?? Coast. [some ramble]. A: How can you replicate Silicon Valley? I read that the first computer entrepreneur moved there to be near his mother. It wasn't planned. ... Note that Silicon Valley continues to succeed economically even though it's incredibly congested with expensive land. Boston tried and failed to have its own version.

Q: Because of America's past success and natural resources, there will be no change for the next hundred years. A: I think there's a lot to what you say. ... It's true the US has less imperative to change.

Q: US intellectuals promote a dollar per gallon tax, but politicians won't. Why not? A: Politicians want to be elected. Their job is to do what the people want. Bertolt Brecht said, "the government needs a new people" (almost). Note: current US gas tax is about fifty cents per gallon. "Americans are extraordinarily sensitive to their own health." (Joel's note: that's not quite true: Americans are sensitive to their perception their health, but that perception often varies widely from reality.)

Joel's Research sidebar: Here's a rant against the cost of LA's mass transit which, by including amortized capital costs, shows that mass transit in LA costs more. But it only shows it costs more than zero; it doesn't cite the capital cost and maintenance cost of the alternatives, like freeways and cars. What does it cost to build and maintain a freeway and the cars and gas stations and parking necessary to transport people by car?

James Boughton and Colin Bradford, "Global Governance: New Players, New Rules, Why the 20th-century Model Needs a Makeover," Finance and Development December 2007

Highlights:

[Global governance should be] inclusive, dynamic, and able to span national and sectoral boundaries and interests. It should operate through soft rather than hard power. It should be more democratic than authoritarian, more openly political than bureaucratic, and more integrated than specialized.

... what we have today is a multiplicity of independent actors, both public and private, each pursuing its own objectives and priorities, with its own clientele and constituency, with its own technical language and organizational culture, with its own mandate and specialized focus. ...

The problems and the challenges of the 21st century—absorbing demographic change, reducing poverty, expanding the provision of safe and clean energy without aggravating climate change, alleviating health risks, and many others—require far more coordination than is possible within such a system. ...

The vacuum represented by the lack of a comprehensive system of oversight has been filled in part by a succession of ad hoc groups of states purporting to act as a steering committee for the world economy ... In addition, nongovernmental organizations have proliferated to represent the interests of civil society, business, labor, and religions ... history is replete with episodes in which international commerce and finance have flourished and generated bursts of economic growth and development, only to be reversed because of popular backlash. ...

See my comments below on modern protesters; there's got to be a reason for that "popular backlash", right?

It is no longer possible to argue that the current oversight of international relations is adequate ...

The first and most important front is to reform the process by which national political leaders come together at the summit or ministerial level to discuss common concerns. [emphasis sic] ...

The second front is to update the system of multilateral institutions ...

The third front is to generate a new mandate for relating the panoply of international institutions to global challenges. Generating this new mandate should be a priority task for a new global steering committee of heads of state. ...

Okay, I was with you for the first two fronts but now you are starting to lose me. The key to actually accomplishing the first two fronts is generating broad political will. The only tectonic shift in popular political opinion since 1989 has been the abruptly achieved consensus that global warming is a real problem. That movement took decades to brew and required massive doses of reality, the broad and deep agreement of the entire relevant scientific establishment, and the catalyzing effect of dedicated public speakers. And with all that, there's still only global will to acknowledge the problem, not to take serious action to address it. So forgive me if I'm skeptical of any proposals that require motivating the public and propose "a global steering committee of heads of state" as the mechanism.

A More Secure World: Our Shared Responsibility, Report of the Secretary General’s High Level Panel on Threats, Challenges, and Change.

99 pages, excuse me for skimming .... Some highlights:

• development [is] the indispensable foundation of a new collective security. Extreme poverty and infectious diseases are threats in themselves, but they also create environments which make more likely the emergence of other threats, including civil conflict. If we are to succeed in better protecting the security of our citizens, it is essential that due attention and necessary resources be devoted to achieving the Millennium Development Goals.

  One of the obstacles [to UN-based counter-terrorism] has been the inability of the membership to agree on a definition of terrorism. The report offers a definition...

  offers two formulas for expansion of the Council. I hope that these will facilitate discussion and help the membership to reach decisions in 2005

  Well, that didn't happen. UN Secretary-General has got to be the most frustrating job in the world, because of the enormous gap between the vision of good a fully capable UN could achieve and the reality that very little is ever actually accomplished.
• Nice chart on page 20: the chance of civil war plummets from 12% to 4% as GDP per capita rises from nearly zero to $2000.
• One big question: the UN was founded on the notion of respecting Westphalian national borders. But it's become clear that civil wars and domestic issues are huge (see the graph on page 17 showing the quadrupling of civil wars since 1945, although I wish it were weighted by affected population, not number of countries). What does this report say about getting the UN a mandate to intervene in domestic issues? p 22: "history teaches us all too clearly that it cannot be assumed that every State will always be able ... to meet its responsibilities. ... the principles of collective security mean that some portion of those responsibilities should be taken up by the international community, acting in accordance with the Charter of the United Nations and the Universal Declaration of Human Rights, to help build the necessary capacity or supply the necessary protection ..." What the heck does that actually mean? Should UN operations be able to exercise force in uncooperative host countries? Can the UN invade a country? Ann Florini talks about "black helicopter" paranoia, but I think this very blunt formulation is the key issue. In practical terms there won't be black helicopters over Washington anytime soon, but should the majority of the world be able to authorize military-backed interventions in, for example, the Eritrea/Ethiopia border, or Chechnya, even if those countries don't agree? Just skimming, I can't find a direct answer, but page 80, "Conflict between and within States", doesn't say yes.
• "the International Atomic Energy Agency (IAEA) — with its regular budget of less than $275 million — stands out as an extraordinary bargain. ... But more collective security instruments have been inefficient. Post-conflict operations, for example, have too often been characterized by countless ill-coordinated and overlapping bilateral and United Nations programmes, with inter-agency competition preventing the best use of scarce resources."
• "we have been struck once again by the glacial speed at which our institutions have responded to massive human rights violations in Darfur, Sudan. When the institutions of collective security respond in an ineffective and inequitable manner, they reveal a much deeper truth about which threats matter."
• "Since 1992, civil wars have declined steadily, and by 2003 had dropped by roughly 40 per cent to less than 30 wars. In the last 15 years, more civil wars were ended through negotiation than in the previous two centuries — in large part because the United Nations provided leadership, opportunities for negotiation, strategic coordination, and the resources needed for implementation. Hundreds of thousands of lives were saved ...." Which suggests that much of the death toll for civil wars 1948-1991 should be attributed to the Cold Warriors.
• p "Mediation produced settlement in only about 25 per cent of civil wars and only some of those attracted the political and material resources necessary ... As a result, many implementation efforts failed ... If ... the 1991 Bicesse Agreement for Angola and the 1993 Arusha Accords for Rwanda, had been successfully implemented, deaths attributable to war in the 1990s would have been reduced by several million. If the Security Council had been seriously committed to consolidating peace in Afghanistan in the early 1990s, more lives could have been saved, the Taliban might never have come to power and Al Qaida could have been deprived of its most important sanctuary." (Did I mention that Brent Scowcroft was on the panel? By the way, check out this looking glass version of the 41 vs 43 rivalry.
• The proposed new definition of terrorism, with my edits for brevity: " any action ... that is intended to cause death or serious bodily harm to civilians or non-combatants, when the purpose of such an act ... is to intimidate a population, or to compel a Government"

Ann Florini, The Coming Democracy: New Rules for Running a New World, Chapter 1, Brookings, 2003

• p 11: "... a world government wherein the United Nations and other international institutions are built up to the point that they take on the whole range of functions currently served by modern national governments. This is a truly bad idea.... highly centralized, top-down systems of governance are economic and political nightmares." The big question is, the whole range, or a whole range? It seems like the direction we should be going, and that some parts of the world are going, is that different levels of governance handle different things. The US started as a collection of states, and many real powers are still reserved to states, but it's hard to argue that, in many areas (federal tax collection, the military, foreign policy, Social Security/Medicaid/Medicare, etc), the US has highly centralized, top-down systems of governance. Transnational issues should be addressed by transnational bodies, and those bodies should have real power.
• p 14: "providing for the collective good at the global level will require something more imaginative than the extension or replication of national government power at the global level..." To what extent does the EU qualify as "more imaginative"? It seems to mostly be functioning well at a transnational, if not truly global, level.
• p 15: "There is now a clear global consensus on the desirability of democratic rules of governance, in principle if not always in practice..." Is that really true? It seems like one of the big ideas that China's emergence has brought with it is a rebuttal to the notion that democracy and economic success are necessarily intertwined. The success of Singapore, which has a real election apparatus but which the ruling party dominates so effectively that they have to appoint their own opposition, furthers this rebuttal. Globally, Freedom House says "results for 2007 marked the second consecutive year in which the survey registered a decline in freedom, representing the first two-year setback in the past 15 years".
• p 17: "Partly thanks to new communications and information technologies and partly as a result of deliberate government and corporate decisions, barriers to the flow of goods, services, and money have fallen dramatically." There's one thing missing from this sentence: container shipping
• p 17: "The massive protests now surrounding virtually every economics-related meeting of international organizations and governments reflect a broad sense that there is something fundamentally unfair at work in the global economy." There are many different factors motivating protesters. If there's one common thread I've noticed, it's probably the issue of powerlessness, the perception (which I think is accurate) that the elites, as they always have, exercise their power by and for their own benefit.
  This notion of elitism shouldn't be taken as a shocking, revolutionary, Marxist idea. It's just an emergent property of any political system: everybody exercises their power for their own benefit, and elites, by definition, have more power and so benefit more. It's true in prison camps and it's true in global economies. The radical notion is that any other arrangement could be stable. I guess we'll see in Chapter 9.
  One more thing to think about is the extent to which "political" and "economic" elite may have diverged in the last few hundred years. Anyone who can afford to fly somewhere to protest is already quite materially elite, so it's very interesting that so many materially wealthy could still feel completely powerless. I very much wonder, and don't really have a clue how to find out, if the effect of technology has been to make it possible, for the first time, for anybody other than the political elite to be materially wealthy. The historical stereotype of the wealthy but low-class merchant is fairly new, isn't it? To what extent is real political power still concentrated proportionally, with most legislators and government staff and such filling the role of courtier rather than sharing real power?

The United Nations at a Glance

Here's the beef.

Musgrave, R.A. and Musgrave, P.B. (1984), Public Finance in Theory and Practice, McGraw Hill, 5th edition, Chapter 31: pp 532-537.

• p 532: "for income to be at its equilibrium level, saving must be equal to the planned level of investment."
• p 533: "the role of saving ... differs as we consider an economy which automatically operates at full employment, i.e., where private investment always adjusts to the full-employment level of saving as previously defined." I know that I missed the first 531 pages, but is there any reason to believe such an economy actually exists? If not, what is the value in studying this theoretical beast? What is going to be illuminated? "... whereas the assumption of automatic adjustment to full employment is unrealistic in the short run, this assumption is usually made when it comes to consider the longer-run effects ..." Uh-huhhh.
• p 534: the point: "tax finance is thus more favorable to economic growth that is loan finance." In Australia, just to pick a country that isn't the US, the current figures are a budget surplus of A$10.6 billion, a debt of -A$12 billion, and tax revenue of about A$230 billion. If I read the charts right, a negative net debt means savings; Australia's government has been out of debt since 2005. I guess they read the textbook, because they have all tax finance and no loan finance.
• p 535. The estimated capital budget for guess which country? That's right, the US, apparently the only country in the world to publish public finance textbooks. The point of the chart is to show that you get different figures if you count 1987 defense spending as investment or as consumption. That, in turn, is probably a political decision: does $10 billion worth of bombs sitting in bunkers comprise waste or a wise investment in our security against the threat of a Cuban invasion?
• p 536: the key here is to be thinking about the government budget in terms of what it does for the country, not what it does for the government. "As distinct from the balance sheet of a private firm, the purpose of the public capital budget is not to test the financial soundness of the government ... but to measure the government's contribution to the economy's capital stock." Remember, it's a capitalist democracy.

The point of this section seems to be that government spending often causes things to be built, that this can help the economy, and whether those things are paid for by taxes or by loans makes a difference, with taxes being better for the economy but loans possibly more fair to the present generation.

Shah, Anwar, editor (2006), Budgeting and Budgetary Institutions, Washington DC: The World Bank, Chapters 1 and 2.

• p 2:

  The core of public finances is that some people spend other people's money. In democracies, voters delegate the power over public spending and taxes to elected politicians. In chapter 1, Jürgen von Hagen argues that two aspects of this delegation arrangement are particularly important for the conduct of fiscal policy. The first is the principal-agent relationship between voters (the principals) and politicians (the agents): elected politicians can extract rents from being in office and spend public moneys on projects other than those that the voters desire. The second is the common pool problem of public finances: governments spend money drawn from a general tax fund on public policies targeted at individual groups in society. As a result, the net benefits for the targeted groups typically exceed the net benefits for society as a whole, and this situation leads to excessive levels of public spending and deficits. The adverse consequences of the principal-agent problem and the common pool problem can be mitigated by appropriately designing the institutions governing the budgeting process.

• p 3:

  Chapter 2 ... The fundamental requirement of fiscal management is that the executive branch of government can take no moneys from the public ... except with explicit approval of the legislature ... Consequently, the budget should be the financial mirror of society’s economic and social choices ... The unity of the budget is therefore a basic principle [but] Extrabudgetary funds (EBFs) are government operations set up outside the annual budget process and thus not subject to the same legislative approval procedure as the budget.

• p 6:

  Incremental line-item budgeting practices offer well-established methods for satisficing within a time-delimited budget process. In such a traditional system ... the base of spending is taken almost as a given for each agency, and the focus of the budget process is on marginal changes to this base. Once programs are judged to be satisfactory, they become part of the budgeting base ... and are rarely challenged. Line-item incremental budget systems include an array of institutionalized behaviors that detract from good budget outcomes. ... Spending agencies pad budgets ... deep and often arbitrary expenditure cuts ... [deliberate] underestimating ...

• p 5:

  [some countries] have moved or are moving to accrual accounting and budgeting and therefore observe the distinction between operational and investment budgets. Australia, Chile, and New Zealand are in this group; ... The second category of countries includes those that show current and capital transactions in their accounts, which are now based on an accrual system. The budget itself, however, makes no such distinction, although, for analytical purposes, extensive data are presented on capital formation. The United States belongs to this category. The third category includes ... modified accrual system. The fourth category comprises most industrial countries (including some of the former centrally planned economies ...) Countries in this category show expenditures in terms of those incurred on physical and financial assets and those transfer payments that are of a capital nature. ... Countries in the fifth group had capital budgets, but they have moved to an investment budget. Denmark is one such country; it now maintains an investment budget that can be spent beyond the fiscal year. The sixth group includes those countries that have equivalents of capital budgets. Japan, the Republic of Korea, and Southeast Asian countries ... In many developing countries, governments have developmental budgets of a hybrid character. ... The last category includes countries, such as India, that have a capital budget but do not maintain depreciation allowances.

• p 28: references to actual research! yay!

  This tendency toward excessive spending, deficits, and debt increases with the number of politicians who have access to the same general tax fund, a point empirically confirmed by Kontopoulos and Perotti (1999). In soci- eties divided along ideological, ethnic, language, and religious lines, there can be an increased tendency of people in one group to neglect or ignore the tax burden falling on other groups, making the common pool problem more severe. Empirical studies showing that such schisms result in higher spending levels, deficits, and debt confirm the importance of the common pool problem (Alesina, Baqir, and Easterly 1997; Alesina and Perotti 1996; Annett 2000; Roubini and Sachs 1989).

• p 30: many ways in which politicians subvert budgeting (remember, politicians are responsive to their constituents; people want services and don't want to pay taxes, so the enemy is us. How do we set up systems to tie our own hands sufficiently to have prudent fiscal policy (whatever that may be) but still be able to response to surprises, which are constant):
  1. off-budget funds
  2. making non-decisions, such as indexing spending and open-ended spending appropriations.
  3. Failing to differentiate between non-financial and financial laws.
  4. Contingent liabilities such as guaranteeing other entities.
• p 35: most entities, from balanced-budget US states to European countries, tend to work around borrowing limits
• p 35: Belgium has something called a "golden hamster" principle controlling unexpected budget surpluses. That reminds me, did Belgium ever get around to forming a new government or did they split up or what?
• p 36: "office if they run undesirably large deficits. Skilling and Zeckhauser’s empirical work confirms that the competitiveness of electoral systems reduces deficits and public spending." So is the US deficit due to the powers of incumbency?
• p 39: different ways to do delegation-based budgeting: "In the French model, the finance minister and the prime minister together determine the overall allocations of the spending departments. These limits are considered binding ... The U.K. model, in contrast, evolves as a series of bilateral negotiations between the spending departments and the finance minister, who derives bargaining power from superior information, seniority, and political backup from the prime minister. In the German model, the finance minister has weak agenda-setting power but strong veto power in the cabinet ... In a number of African countries, ... finance ministers systematically withhold information about government revenues and the cost of public policies from the members of parliament in an effort to prevent parliament from enacting budget bills with excessive spending and deficits. [But] hiding important information from the legislature shifts the relevant decisions outside the budgeting process. The result is that spending and deficits are still excessive. The better solution is to strengthen the agenda-setting powers of the executive..."
• p 53: I'm definitely convinced, though I guess I wasn't unconvinced before, how important budgets are in realizing policy.
• p 54: Four pillars of good governance: accountability, transparency, predictability, participation. Do we have enough information about the US presidential candidates to judge their potential administrations by these pillars? The Bush administration fails on all four. Rudy fails on transparency, certainly. I don't know enough about the rest on these terms, but Romney and Huckabee were both governors and should have track records as executives.
• p 57: "There is no such thing as a multiyear budget anywhere in the developing world." Annual budgets are so common that it's hard to think through alternatives. Longer budget periods seem problematic because too much changes. Shorter ones and you spend all of your time budgeting. Hmm. Well, what if budgeting was a continues instead of periodic function, and people rotated through the budgeting function? Or, what if budgeting could be streamlined so that it could be done every six months or three months?
• p 63: "... the standard advice of international organizations to developing countries has been to avoid creating EBFs and to eliminate them as quickly as possible when they do exist." We've had some controversy about an EBF in the US.
• p 80: a tax expenditure is expected tax revenue foregone because of preferential tax laws (exemptions, deductions, credits, etc).
• Budgeting laws should be graduated—the most fundamental parts enshrined in the constitution, and then more volatile parts in "organic tax law" and other easier-to-change parts.

Polackova, Hana Brixi, "Addressing Contingent Liabilities and Fiscal Risk", Chapter 7, Anwar Shah, Editor, Fiscal Management, Washington DC: The World Bank, 2005.

There were three optional readings this week; I chose to read only the most exciting-looking one.

• p 163: governments, especially those with emerging-market economies, have a lot of fiscal risk that could go boom. Four reasons: the government underwrites economic transition schemes, the government provides guarantees support in order to privatize (which you would think would call into question the wisdom of privatizing everything: if you have to keep the risk in order to get somebody else to run it, you're steering right back to the private profit/public risk scenario that is all too common in public/private partnerships), off-budget shenanigans, and supporting local governments.
• p 167: therefore, you can't get happily low budget deficit reports at face value.
• p 176: a figure showing the level of telecommunication competition per country. Amusingly, the US is shown with Full Competition. Not sure what this has to do with fiscal risk and contingent liabilities.
• p 182: international organizations should reward governments that disclose their risks accurately and fully. But the Czech Republic was punished for doing so in 1997.

A seminar by Edwin Truman, who worked at the Federal Reserve for decades, among other institutions. Following is the speaker unless otherwise noted:

Singapore is home to two of the largest SWFs. I speak only for myself, not the (US) government. When I started working on SWFs two years ago, I didn't anticipate they'd be a big topic now. The subprime crisis, instead of distracting from SWFs, has increased attention because of the bailouts.

Recent dramatic transfer of relative wealth from industrial countries to emerging and natural-resource economies. Much of this wealth is now in SWFs in countries which are new players on the international finance scene. At least 6-12%, of all cross-border assets are owned by states.

Total known/estimated SWF is US$4.7T:

• US$975 Japan
• 724 UAE
• 357 Norway
• 323, Singapore
• 299, US (mostly CALPERS; Alaska Permanent Fund is ~30B)

Combining reserves with SWF, the top five are Japan (US$1.9T), China, UAE, Singapore, and Norway.

Origins of SWF: global integration, aging populations, expansion of pension funds, diversification, sustained growth in emerging market economies, etc.

Five issues with SWF: home governments could mess up their investments, damaging the global economy in the process; home governments could pursue political power with their investments; financial protectionism; market turmoil; conflicts of interests. Only the first issue has really happened so far.

It's hard to use the international assets to promote domestic objectives without messing up fiscal, monetary, or exchange rate policies. (Joel's note: in other words, you can buy Manhattan but you can't take it home with you.)

Few funds follow investmest strategies. Host countries could always nationalize or otherwise devalue international assets, so funds behave well.

[...] Financial institutions are special, because of things like deposit insurance and other privileges; should foreign investors benefit from these privileges?

Because SWFs concentrate money, they are vulnerable to corruption.

How to make the world safer for SWFs (Joel's note: For? what about from?)? Increase their accountability to all interested parties via codes of conduct, standards, etc, covering structure, governance, transparency, and behavior. Publish scorecards. Under Peterson Institute scorecard, New Zealand, Norway, CALPERS, Timor-Leste, and Canada are the top five; the Alaska Permanent Fund is a close sixth. Singapore's Temasek scores above average; Singapore's GIC and UAE are the bottom.

Now what? IMF is talking to SWFs to get them to all agree on a standard. Will the standard be good, will they all adopt it, will they comply?

Other controls that have been proposed: reciprocity, limits/prohibitions on ivestments. To what extent should SWFs get access to a level playing field?

Q: Why is your estimate of US$4.7B twice as big as others? Is it because you include domestic assets? A: Yes, excluding domestic assets and pension funds you get down to $2.5 billion, which is the conventional number.

Q: What about the real concerns of SWFs and host countries? The US is concerned with large (>10%) foreign investment in sensitive sectors. Will your scorecard address this? A: The real issue is control, for which 10% ownership is a proxy. 10% triggers an investigation. We will start asking funds whether they intend to limit their holdings.

Q: what are you looking for specifically wrt governance? Is it conditioned by your concern about accountability? Why is GIC so poorly rated? A: We want to know how the funds will be used? Will SWFs be used as part of reserves? What is the relationship between the government and management? We couldn't find some data for GIC, and that hurt their score. I'm sure they know what they're doing, the low score doesn't mean they're a morass. (Joel's note: implied: it means that they are secretive).

Q: What if a standard is agreed but the home government still treats the SWF poorly? A: The answer didn't register with me.

Q: Why doesn't India have an SWF? Is it because India has a bad financial market? A: SWFs aren't really affected by the domestic financial situation. Some Indian officials have told me India doesn't have any sovereign wealth. But India has enough foreign reserve, at least, to justify a fund. They are debating what do do with those funds. But they are still off-shore assets, and so cannot easily be turned into investments in India.

Q: I think it's much ado about nothing. I think it's a distraction from fixing problems in global capital markets to avoid a crisis every five years or so. A There may be bigger problems in the world, but admitting that is not the same as saying this is a non-problem. In Washington, and especially in Europe, it is not perceived as a non-problem, and they may over-regulate and roll back 30 years of progress in opening up capital markets. Some people think that wasn't progress, but I think it was on balance.

Q I wonder if you are discounting the flow problem, that funds emerge in part because of fundamental disequilibriums. A: This was a lecture on SWF; invite me back tomorrow and I'll give you another lecture on global finance.

Q Are the best practices you suggest those of the top countries, Norway and NZ, or will you compromise and set standards in the middle? A You've been in too many negotiations. The standards should be those from the top.

Q: Is there a role for antitrust law in controlling SWFs? A: Most SWFs don't have many, or any, controlling stakes. Most countries do have competition laws. For example, the US protects US airlines from foreign acquisition.

Q: ?? A: I don't think SWFs will be a political issue in the US election.

PP5262: Non-State Actors in Governance

Professor: Working around the UN, I heard many times that the problem was "a failure of political will." Who, then, could provide the political will?

Second professor: I'm a believer in the private sector doing good, social enterprise.

Course aims: understand role of non-state actors, learn new approaches to provide public goods and solve public policy problems

The actors providing social goods: government, civil society, social enterprise, corporations (via CSR). What is a civil society?

(Joel's sidebar research: Wikipedia definition:

... the totality of voluntary civic and social organizations and institutions that form the basis of a functioning society as opposed to the force-backed structures of a state ... and commercial institutions.

and a a school definition:

a concept located strategically at the cross-section of important strands of intellectual developments in the social sciences

And here's an excerpt an Amazon review of one of the textbooks:

The author is at the forefront among those who understand that governments are either broken or partisan, and that only new combinations of government, business, and civil society can devise new means of governance.
The two most important words in this book are governance, and transparency.

)

More course outline: how can corporations be forced to deal with their external negative impacts? The private provision of public goods. Corporations serving the bottom of the pyramid.

What about social service agencies which are not accountable to the people they are trying to help? Any time non-state actors are present accountability is an issue.

Last two weeks of class: applied work.

The introductory class begins with a plea for people to move to the evening class (most full-time students are in the morning class; a quarter of full-time students, plus the part-time students, are in the evening class). Then we take attendance, which is quite protracted because many students are either still in their home countries (Nigeria, Indonesia, Taiwan, Philippines, Thailand) or in the process of negotiating exchanges with night-class students.

The professor taught business at the U of Ottowa for 20 years, then worked at the OECD, then the Asia Development Bank.

Case Study

Ordering Floppy Disks in Poland. The case describes the process, including four people and five steps, needed to order floppy disks in a government office in Poland in 1992.

Joel's thoughts on the case:

• the many different levels of approval have a few likely sources
• the need for many offices to stay busy?
• is there a specific angle or relation from communism or authoritarianism?
• departments conserving power

Class thoughts:

• bureaucratic processes, red tape
• too much centralization of powers
• inefficiency
• (lack of?) separation of doing and approving
• lack of trust
• micromanagement—worrying about small things
• lack of empowerment
• penny wise and pound foolish
• old procedures, time to change

Class response to my question about communist roots: no, there's nothing specific about communism behind this process. If you didn't know it was Poland, "communist country" wouldn't be obvious. Rebuttal: in classmate's experience in the US gov't, it was very flat, in fact maybe too flat. (Side note: flat is not always good.) Singaporeans: it's not necessarily true that Singapore works smoothly.

What kind of inferences can you make about this organization? Classmates: It's static. Static organizations are bound by rules and procedures. Rebuttal: rules and procedures are present in any organization, including dynamic ones. So it's overly bound by rules etc. In a static organization the culture resists changes. One of the most dynamic organization I worked with was the most strict with certain rules.

Does this case say anything about trust? Yes. At two levels: one is the prevailing culture that says not to talk to outsiders, and the other implicit in the procurement process.

Perhaps efficiency versus accountability may be a more useful dichotomy than static/dynamic. Some agencies are willing to live with a certain level of dishonesty because it's not worth the cost to get accountability in small things. Joel's note: I wonder if the Broken Windows advocates would argue that applies within organizations: letting people steal office supplies leads to embezzling?). In the Maldives, we have the same kind of process (now with CDs or USB) but we have ways of working around; the stock guy can work around for small things.

Classmates: many places have a threshold below which purchases don't need much approval. Joel's note: that seems to be the "best practice" for purchases: a gradient between efficiency and accountability, realized with different purchasing price limits for different people.. ... Micromanagement is a work that may not be very useful; it's emotional and vague. ... The complex, multi-step process may work fine if it's computerized and fast ... or it may not —example of going around in person to tell people that a computerized request has been sent.

Classmates: who is accountable and who has the power to make changes? ... Sometimes the procedures are part of a legal requirement. Our investigation showed it cost the organization 50 pesos of work for each signature, but it takes Congress to change the law requiring the signatures. Joel's note: what about forgiveness over permission: post-facto auditing instead of permission gates, especially for cheaper things? It seems like the rule of thumb for solving this problem could be formulated: if it's not too big, leave it wide open but audited; if it's getting big, require approval.

Lecture

Quasi-government agencies are sprouting up and challenging our notions of accountability. Economic growth often does lead to growth of the public sector. The public sector is labor-intensive. The goal of this class is to familiarize you with the theories, the applications, the methods, of contemporary management thought, with an emphasis on public sector.

Solutions have structural, human, and technology elements, all of which react to each other and to the problem, all happening within an environment.

Conflicts between employees and organizations. Employees respond to conflict situation: withdraw, work for promotion, lose interest, strikes, etc. Joel's note: good thing I brought my Edgar Schein books; this is clearly the class for them. I wish I'd read, instead of just skimmed, Exit, Voice, and Loyalty; the library has it but on reserve. I do wonder how much more you can get out of the book if you just read the Wikipedia article. Hmm, this book looks interesting. I love intra-library loan.

Why study public management? To better predict and control, in order to influence organizational events. (Prof also says, in order to adopt better theories of reality, but why? Presumably better theories are just, unless you are a seeker of knowledge for its own sake, a means to better predict and control.)

Why do people conform? The value of empirical evidence via experiments. The Asch experiments. A classmate says there's a Youtube video of Asch experiments. Discussion of concrete and controlled studies; correlation vs causation. One of the most important differentiators between experiments and correlation studies is the role of experimenters in assigning subjects to categories.

I'm exciting about this course because, according to the syllabus, it "has a behavioral science bias for two reasons: first, most students in public administration are discovering that a firm grounding in behavioral sciences is indispensable for the diagnosis, understanding and prediction of events in public sector settings; second, my personal training and bias is heavily grounded in behavioral sciences." I think that understanding how people behave in groups is far more important to practical success than trying to "understand and manage the processes that create strategic value."

Although this is one of the core classes and I wanted to get ahead on the reading over break, the syllabus didn't go up until four days ago, and I didn't notice until my roommate asked if I had bought the books for tomorrow morning's class. Oops. I did pick up the substantial binder of class readings. Let's see what I can manage:

Robert D. Behn, "The Big Questions of Public Management", Public Administration Review, July/August 1995, 313-324

• p 315: Here are a few of those big questions:
  • How can public managers break the micromanagement cycle?
  • How can public managers motivate people ...?
  • How can public managers measure the achievments of their agencies ...
• p 316: "Scholars, journalists public managers, and public commisions have identified micromanagement as a major problem in the public sector. "Congress is commonly criticized for 'micromanaging' government agencies'" writes James Q. Wilson; "it does, and always has." Surprise! Another US-centric public administration text!

Jay W. Lorsch, "Making Behavioral Science More Useful", Harvard Business Review, March-April 1979, 171-181

The subtitle seems to summarize the article well: "situational theories of behavior are harder to apply than universal ones, but they work more often." Since a few million billion mainstream books on management have come out since 1979, and since a good fraction of those probably take behavioral science approaches, the details of this article seem pretty obsolete, if not the premise.

B. Guy Peters, The Politics of Bureaucracy, Ch. 1 "The persistence, growth and change of government and administration"

I bet this is in the textbook I forgot to buy today.

Florence Heffron, Organization Theory and Public Organizations, "Introduction"

This is also in a textbook I forgot to buy.

Herbert Simon, "The Proverbs of Administration", Public Administration Quarterly, Winter 1946, 6, 53-67

"For almost every [proposition of administrative theory] one can find an equally plausible and acceptable contradictory principle. ... It is the purpose of this paper to substantiate this sweeping criticism of administrative theory, and to present some suggestions...." This is something I noticed perhaps five years into my career as a project manager: there is an infinite supply of pithy, convincingly good advice, and the real work of management is recognizing situations and realizing which pithy maxim is appropriate. In situations that are even remotely quantifiable, this means getting a blank envelope (to write on the back of) and working out, as best you can, exactly how many stitches now will save exactly how many stitches later, and what the current discount rate on stitches is.

Here's a little information on Simon's article in the context of the field:

In 1946, Herbert Simon helped launch the behavioral revolution by denouncing the theories of administration as mere proverbs, as folk wisdom with the same value to the science of administration that old wives tales have to modern medicine. In 1991, Christopher Hood and Michael Jackson accepted Simon's critique but reached the opposite conclusion: Their book, Administrative Argument, asserts that we should take the proverbs of administration seriously, not as prescientific statements to be discarded by careful research but as the appropriate subject of research.
In Simon's positivist view, the abundant contradictions and inconsistencies of the proverbs of administration undercut, if not eliminated, their value as a basis for theory and practice. Hood and Jackson, heralding a postpositive view, revel in these same inconsistencies, arguing, in effect, that Simon missed the point and by implication led a generation of public administration scholars on a false quest for an illusive eldorado of logical coherence and testable hypotheses. Hood and Jackson agree with Lindblom and Cohen (1979) that theories of administration are, and should remain, a form of ordinary knowledge, and that there is no basis for definitive arguments that would prove one concept superior to others, as would be required of a science of administration.
... their core insight that we need to view the principles of administration as arguments to be judged on their persuasiveness and acceptance, not as hypotheses to be evaluation by evidence, is an important corrective in public administration theory.
—Steven Maynard-Moody, Journal of Public Administration Research and Theory: J-PART, Vol. 5, No. 3. (Jul., 1995), pp. 377-379.

D. A. Nadler and M. T. Tushman, "A Model for Diagnosing Organizational Behavior", Organizational Dynamics, Autumn 1980, 35-51

I went looking for this in J-STOR so I could read the electronic version, and while waiting for J-STOR to complete a search got distracted by the latest Posner-Becker blog post, about The Candidates' Health Care Reform Plans. Posner starts by summarizing the issue very well, with such rational tidbits as, "Some of the proposals for reducing aggregate costs are ... fluff, like reining in jury awards in medical malpractice cases (those awards are a tiny fraction of total health costs, and already are being reined in by judges and by tort-reform measures adopted by state legislatures)."

Then he criticizes universal health care: "the social cost (that is, the consumption of scarce resources by the program) would be the cost of administering the subsidy program and the misallocative effects that a tax increase would create. The larger social cost would be the additional health care resulting from the expansion of coverage." What about the probability that routine health insurance for uninsured will have huge social benefits because previously uninsured people will be able to get more routine, preventative care?

Might there be a compensating offset because with greater medical care the people who now are uninsured would be healthier and live longer, and thus cost less in subsidized medical care in the long run? Not necessarily, since the longer a person lives, the greater his average medical expenses because average annual such expenses grow with age. Living a healthier and longer life is of course a benefit to a person; my point is only that it need not reduce his average annual health costs.

Huh? If a bunch of people benefit, and society is the aggregate of people, then isn't this a social benefit, even if the direct cash cost increases? (And that's leaving aside the economic benefits of healthier working citizens; Posner says the uninsured tend to be younger, so they should mostly be in the workforce.)

After the promising start and bewildering economic analysis, Posner concludes, "Maybe a little patchwork here and there is the most that is both economically desirable and politically feasible by way of reform of American health care." Maybe I blinked a few too many times, but I missed the part where he substantively analyzed the candidates' proposal, Democratic or Republican.

Oh, hey, the J-STOR search results are back, not that J-STOR search is slow or anything. And J-STOR doesn't have the article; perhaps they don't include "Organizational Dynamics". Expanded Academic ASAP claims to go back to 1980, and has Winter and Spring 1980, but somehow not Autumn 1980. Nuts.

Barry Staw, "The Experimenting Organization: Problems and Prospects", Organizational Dynamics, Summer 1977, 3-18

PP 5263: Global Issues and Institutions

Classroom is packed for shopping week. Ca 100 prospective students.

Taught by a visiting professor from the Brookings Institute. "This is not a course which simply conveys a body of information from me to you." Rethinking global governance; the Western-originated ideas don't work any more.

"I assume you are all here at a school of public policy because you all want to make a difference. This class will show you how."

Using only a few topics for focus: climate change, sustainable development. Approaches to dealing with problems. Global approaches instead of national or local. How to devise new solutions.

Joel's note: Once again, we are talking about climate change while sitting in a classroom at the equator, air-conditioned to 22C, with the shades drawn against the daylight and the overhead lights shining brightly.

The class will conclude with a simulated climate change negotiation. When you finish this course, you will have as much experience in climate change governance as anybody else.

Class size should be twenty or a bit bigger. (Joel's note: that was my cue to go and register. Let's hope that everybody whose phone or computer has beeped, or who is reading a paperback novel during the lecture like the woman to my left, is only here out of curiosity.)

Background: what is the state of the world? The state of the world is dominated by the fact of enormous, unprecedented population increase.

How many countries were there in 1950? About 50, since the original UN membership included almost all of the extant countries. (Research sidebar: Only four out of fifty-three African countries - Egypt, Liberia, Ethopia, and South Africa were independent countries in 1950. "By Queen Victoria's Diamond Jubilee ceremony in 1897—held just after the curtain went down on the monarchies of Hawaii, Tonga, Madagascar, Aceh, and Sulu—there were about 56 independent countries worldwide, which is probably an all-time low." Imperialism in the Modern World Map,1900)

Some say the course is depressing. But there are many people working on solutions. I'm teaching the course because not enough of these people are coming out of Asia.

UN Millenium Goals, the closest we have to a global agenda. One goal is the reduction of utter poverty (US$1/day) by a certain amount—this will happen, but only because of China. And Chinese statistics are suspect: China's economy is 40% smaller than previously believed.

PP5230 Strategic Management in Public Organisations

Joel's note: The professor is another (relatively speaking) rock star; after the switch there are twenty people standing at the back.

Nine months ago optimism about the world economy was at its peak. Now the situation is changed; we are facing problems nobody could have predicted six or nine months ago. (Joel's note: I hope he's not trying to say that nobody could have predicted the subprime crisis or rising oil prices.)

This professor generates a lot of great sentences for buzzword bingo: "We have to understand and manage the processes that create strategic value." (See also here.) So much so that I've never been able to discern the quality and depth of his knowledge. There's reason, not least of which his reputation/fame, to think he has a lot to offer. But statements like, "the actions you take hopefully prepare you to take the next set of actions. In real time. Not just from a plan" don't communicate much.

A great list of case studies, from Port of Singapore and Jurong Island to Southwest Airlines. If the professor has personal experience with any of these cases or their constituent companies, I would expect much of the value of the course to be in the insight and perspective he provides in smaller sessions, when there are concrete details instead of vague generalizations.

Reacting to something on a slide, I went googling for "how to create innovation" and found this gem: How to Create a Culture of Innovation in Your Church

The professor just said the class will have three or four chapters of reading per week, perhaps 100 pages, plus three or four articles, and the room gasped (and a low murmur emerged that persists minutes later while he keeps talking). I'm very happy that this school is in my native language and that I love to read.

PP5312: Public Financial Management

Joel's note: The crowd thins for this one. I'm not planning to take it—it's specialized in an area outside my interests—but the prof, who taught the micro tranche of our core economics module last semester, identified PFM as his main interest so I wanted to see a bit more of what it's about.

To understand what the class is about, let's look at some job descriptions for Public Financial Management. "... budget formulation and medium-term expenditure frameworks, budget classifications and chart of accounts, accounting, financial management ..."

"The budget should be a financial mirror of society's economic and social choices." (Managing Government Expenditure, Salvatore Schiavo-Campo and Daniel Tommasi) Micro analysis of costs and projects. Macro resource management: budget principles, cash management, etc.

The official name of this semester is apparently S2 AY2007-08, or "Semester 2, Academic Year 2007-2008"; I guess equatorial nation-states don't have enough seasonality to use "Winter" or "Summer".

PP5504: Public Finance and Budgeting

The reading list is enormous; some students have assembled bound printouts of the readings. The week 2 lecture readings are over an inch thick, double-sided. The sight of the binders prompted a disclaimer from the professor that most of the readings are optional.

Instructor's disclaimers: there is nothing more practical than a good theory.

Economics talks about first-best optimizations, Pareto-optimal. In public policy, the word optimal is sub-optimal. Public policies come with a lot of tradeoffs. All we are trying to do in public policy is make the tradeoffs better than they were. We are in the Nth-best world, and the first-best theories don't apply. (Joel's note: Dani Rodrik calls them second-best institutions).

The analytics must be combined with a good database. Reasoning and the causal linkages have also become more complex.

"The state and the market are two social institutions, and therefore both are imperfect." nation-states are four centuries old; the market is about two centuries old. (Joel's note: For comparison, the Catholic church took nineteen centuries to become perfect.) Complementarity, public-private partnership. (Joel's note: I would like to hear about new institutions other than nation-states and capitalism.) Wealth is not capital.

"Think society, not economy." For example, one person one vote is a more important principle than free markets that allow vote selling.

"Need to recognize the importance of sound budgeting..." (Joel's note: I don't think the problem is generally that sound budgets are considered unimportant. I think the problem is that politicians face powerful incentives to use unsound budgeting practices—the most recent example being Schwarzenegger's short-term patches in the 2003/04 California budget crisis, which have made things worse.)

The Bill and Melinda Gates Foundation spends US$3 billion per year, which is so much that any health ministry official in the world should be aware of the Gates Foundation plans as part of their job. Similarly, ranking—IMF, transparency, Doing Business index, World Competitiveness index—agencies and governments need to take these into consideration.

Traditional case for public sector: to prevent market failure, enforce contracts, manage macroeconomy. Discussion of public and private goods, rival and non-rival, excludable and non-excludable, in order to define the public sector.

What's an externality? An effect external to the supply and demand functions. We should be concerned because externalities drag us below the Pareto-efficient curve. Eliminating all externalities is not usually efficient because marginal cost usually starts to overwhelm marginal benefit (e.g., cleaning the last drop of pollution costs far more than it's worth). Market incentives fail at the extremes—low-probability, high-impact risks like shipping toxic wastes through cities are better regulated or banned than disincented. Turning former wastes back into private goods improves efficiency.

If you believe the government should incent people to save, what single ratio is most important to know? Interest elasticity of savings.

"Research suggests that governments has [sic] little ability to impact underlying distribution of income/wealth ... but can improve the status of the poor..." (Joel's note: quick search comes up with this, which seems related but not a direct support or rebuttal. No time to read, but I would like to see this research. I remember Krugman recently posting some correlation between the Bush tax cuts and an extreme surge in wealth inequality in the US, but that may be an anecdote rather than data. Here's something: "The results show that progressivity and overall tax burden appear to be negatively correlated with income inequality and with poverty.") Long-term planning, representing future generations, paternalistic functions.

The five minimal public goods: defense, law and order, property rights, macroeconomic management, public health.

Government provision: financed by government. Production: produced by government-owned entity. US Air Force F-16s are government-provided but privately produced. (Temasek-owned) Singapore Airlines produces airline service, but is financed by customers.

Definition of tax: involuntary transfer of funds from private to public sector.

Joel's Note: Correction to my contribution to class discussion: Boeing is actually only the second-largest defense contractor. I regret the error.

One of the biggest problems in public policy is, how do you define success? It is often not asked, and often not measured after the policy is implemented. "Many countries use this data like a drunk uses a lamppost, for support, not illumination. They reveal data in dribs and drabs when it supports them ...." (Joel's note: That sounds familiar). Example: taxing cosmetics may be regressive: even though they are "luxury" goods, poorer women who deal with the public (receptionists, etc) spend a much larger percentage of their income on cosmetics than do wealthy women. "The biggest way to get my blood pressure rising is to get me to read an economic law. And the second biggest is to read the implementing regulations." People who write the details have no concept of what is a big number, a small number, what is the incentive structure, .... Many of the laws are badly written; the same guys are drafting constitution law, and the next day they are drafting international income tax regulations.

Modern economies depend on both income and sales (VAT, etc) tax.

A repeat of this equation from prof's class last semester. Since the equation was developed, remittances from foreign workers have grown to exceed many other foreign sources of income.

The first week of each semester at LKY school is shopping week: all classes are offered in one-hour increments so that students can attend everything and decide what classes to take for the semester.

I'm also skimming the other NUS grad school class lists. If I had unlimited time, I think I'd want to take a few business classes, including marketing, general management, and IT from a non-technical manager perspective. I didn't look closely at the medical school classes. All of these are at the other campus, which is a pain to get to. The other school at our campus is the law school.

PP5253: International Financial Policy & Issues

This professor is very well regarded, and the one time I spoke to him last semester he doubled my insight into the interpretation of Vietnam's savings and investment (Gross Domestic Capital Formation) over the last twenty years. This class is a lot more detail on stuff we covered from several angles last week: balance of payments, debt, currency volatility, and "the possible forms and rationales for the ongoing efforts to strengthen financial and monetary cooperation in Asia." I want to take a class with this professor, but I'm not sure I want to spend a slot on this topic. His other class this semester is Central Banks and Economic Management.

Upcoming events at the school: Ted Truman will be giving a seminar Thursday on Sovereign Wealth Funds. There will also be a conference on the IMF in Asia on Friday.

Sample issues in class ... the role the region (Asia) plays in supporting global current account deficits ... when should regions form common currency areas? ... . Some of the sexier terms in the syllabus: "Chiang Mai Swaps", "Singapore-Brunei Currency Arrangement", SWFs (Sovereign Wealth Funds)

PP5220: National Science and Technology Policy Analysis

Sample issues: pros and cons of replacing agricultural draft animals with machines in ... providing clean water ... global life expectancy in 1800: around 26. (I guessed 40).

This class has a lot of interesting topics, and the subject is consistent with my professional interest (promoting free/open-source software and/or e-government at a policy level), but I wonder if it will get specific enough in that area to offer anything practically useful for me, or if it would just be intellectually interesting.

Economics of the Public Sector, Joseph E. Stiglitz, chapters 1-3

• p 3: The first lines of text in chapter 1: "From birth to death, our lives are affected in countless ways by the activities of government. We are born in hospitals that are publicly subsidized ... Our arrival is then publicly recorded (on our birth certificate), entitling us to a set of privileges and obligations as American citizens." Oh look, yet another economics textbooks that ignores the other 95% of the world.
• p 6: "Today, the countries of the former Soviet Union and the Eastern bloc are in the midst of a monumental transition to market systems." The question this brings to mind is, if the book was published in 2000, and this text was written in, perhaps 1998, was that really too early to notice China, already in the midst of a transition much more monumental than the former SU/Eastern bloc?
• p 16: "The complexity of the [US] government's operations is so great that it is difficult to assess what its total expenditures are and what they go for." True, but this helps.
• p 17: "Understanding and, insofar as possible, anticipating the full consequences of these government activities ... the consequences of government policies are often too complicated to predict accurately ..." strikes me as understatement. Some things, like the correlation between tax policy and wealth stratification, seem pretty clear, but so many others seem bewilderingly convoluted. One of the most horrifying unintended consequences could be that German tax policies have unleashed the movies of Uwe Boll on the world
• p 19: "positive economics" and "normative economics": yet another set of words for descriptive and prescriptive.
• p 28: "Economists and philosophers often try to imagine what life would be like in the complete absence of government." So too do science fiction writers, often much more convincingly. Or you could just read the news coverage of New Orleans after the flood.
• p 30: Interesting. The size of US government as percentage of employed has been consistently around 18% since 1930s, dropping slowly from a peak (excluding WWII) around 1970.
• p 31: "The size of agricultural subsidies has fallen since 1987 ... under the new farm bill passed in 1996, these subsidies are scheduled to decline over the coming years." I wonder what actually happened? The USDA doesn't seem to use the word "subsidy" prominently in its data sets, so it will take some digging to find out. This seems to be a key page: "Government Payments and the Farm Sector: Who Benefits and How Much?". Apparently direct payments soared from US$8 billion in each of 1996 and 1997 to over US$20 billion in 2000, and have since fluctuated in the US$B teens. But "the direct government costs of commodity support do not include the costs to consumers of programs that restrict supplies and raise food costs, such as the sugar and dairy programs. Also excluded are USDA, Natural Resource Conservation Service conservation payments that are not paid through USDA, Commodity Credit Corporation." That seems to capture some of that, but since it's labeled "directpay.gif" it's hard so if it's supposed to be the total cost of subsidies or not.
• p 59-60, Pareto efficiency. Stiglitz mentions that Pareto efficiency is indifferent to fairness, but doesn't really critique it effectively. Pareto improvement means somebody benefits and nobody loses. One big problem with using Pareto efficiency to measure "better" economic outcomes is that, of course, fairness is important. Governments shouldn't pass policies that benefit only one person, even if they don't harm anybody else. The other big problem is that it ignores net benefit: if 100 million people benefit but one person suffers, the change is Pareto-inefficient. A realistic example would be steel tariffs, where a big chunk of the US economy (and the world) suffers to protect a few steel jobs, resulting in a big net loss for the economy; i.e., for us the people. This point shows up in the summary but not very well in the text.
• p 64: The utility possibilities curves are interesting but, I think deceptive. They show these nice arcs that, if taken to be true, suggest that maximum (Pareto) welfare occurs when both parties share equally. Is there any factual basis for believing that shape is realistic?

I've complained before about the infrequency of events at the Singapore chapter of the Project Management Institute. This not only makes it harder to collect continuing education credits for PMP certification, it also takes away opportunities to meet people, make connections, and generally feel like part of a professional community. So I was excited to get an invitation, albeit on only a week's notice, to the SPMI 8th Anniversary Dinner. Until, a millisecond later, I saw the guest speaker: Geomancer, Master Augustine Tay. And lest you think he's there for entertainment purposes, like a stage magician or hypnotist, the agenda is:

• Hear what is in store for you in 2008!!
• Global predictions
• Is it a good year for Singapore?"

Oh dear. Having fortune tellers as guest speakers isn't the kind of professionalism I want to be part of. You can make your own jokes about the relationships between superstition, make-believe predictions, and project schedules running late—I can't give you a better target than this.

Kona and I went to Bishan Park to watch the 1st USDAA International Dog Agility Sanctioned Trials 2008. We had to take a cab, since dogs aren't allowed on public transportation in Singapore. It was raining, and the first three available cabs didn't stop for us, but the fourth was happy to take us. The downpour delayed the start of the trials and we were the only spectators for a while, but after forty-five minutes the trials started and they were a blast. The photo album starts here (use "next photo" to flip through).

We also tried the mini-test they had set up for spectator dogs. It took some urging and several tries, but Kona went through all of the types of equipment successfully, without any food bribes. We got completely muddy and had a blast. Some nice people with a corgi who live near us even gave us a ride home.