These three things are certain: death, taxes, and that trade group spokespeople will defend their product in the face of all logic, complain that they are unfairly maligned, and point out the desirability of their product.

"Some people want to blame our industry because they have a vested interest in doing so, either by making a name for themselves or by hampering the adaptability and usefulness of our products for competitive purposes," said Robert G. Pickel, chief executive of the International Swaps and Derivatives Association, a trade group. "We believe that there are good investment decisions and bad investment decisions. We don't decry motor vehicles because some have been involved in accidents." —New York Times

I guess it's not surprising, since it's precisely that behavior, sincere or otherwise, that is their primary professional skill and the point of their jobs. But the precise word choice, at least, can offer some novelty.

Two eight-hour classes, Friday afternoon/evening and all day Saturday. Right in the thick part of the semester when everybody's assignments are piling up, so we are cheerful but stressed. Our special guest is Marie Danziger from KSG.

We have a handout with pages such as How Listeners Think and Advocating a Controversial Position. So I'm trying to figure out which bullet point from which page is correctly modeling the lecture.

Anecdote: in surveys of KSG graduates, writing skills are the #1 most used skill obtained at KSG; public speaking is second. Regression analysis is something like number twenty-seven. Joel's Note: assuming this is typical for most schools, policy or otherwise, does this mean most people are busy trying to persuade other people about positions which they in fact don't know are true?

Describing a public speaking class, in which everybody takes turns speaking in front of class. Sounds practical, like the Negotiation class.

If you want to be successful speaking publicly, visualize yourself stunning your audience (in a good way).

We know from study after study that people don't change their opinions from rational argument alone. There must be some element of emotion. Joel's note: another example of the thesis that our emotional centers play vital roles in our thinking processes?

You must take into account not only your own filters, but your audience's filters.

Student Debates

Three minute speech on each side.

First student reads her 1-minute speech from her notes. Instructor lets her finish, and then asks her to repeat her speech, without notes, while making eye contact with everybody in the room. Hint: divide the room into quadrants. The second student is one of our most verbal. This is getting very interesting, not for the subject matter per se but for getting to watch how the instructor manages the class.

The second pair of students has the topic of legalizing homosexuality. Too much going on to blog, but it's very interesting. Both students do very active, engaging speeches. Also the whole room (about a hundred of us) are brought to howling laughter repeatedly. Some techniques on display: answering a question with a question, citing personal expertise (15 years as a doctor), reframing a legal issue as a health issue, a soundbite: "not legislation but rehabilitation".

A mention of Mario Cuomo. I still remember seeing a Mario Cuomo speech on TV when I was about six or seven ten, it must have been his speech at the 1980 1984 Democratic Convention. It's still the best speech I've ever seen. I don't remember anything he said; I just remember that I was in complete agreement with the absolute rightness of everything he said and everything the party represented and I couldn't understand how anyone could listen to his speech and disagree. I miss that feeling and that certainty.

Debate on the effect of putting your hand in your pocket. Some people are neutral, others are opposed. Nobody is positive.

Side note: here are some tips on preparing for TV appearances, such as "MEN: I SAY AGAIN Wear Makeup. TV lights can penetrate several layers of skin. You can't possibly shave close enough to prevent whiskers from showing without makeup." and "Tip the bows of your eyeglasses up slightly off your ears. This angles the lenses down to reduce glare from lights."

Don't write on your hand.

Analyzing

Hrm. Instructor suggests that, to improve your diction, you should find someone on TV whose diction you like and record it and try to reproduce their pronunciation, emphasis, intonation. But that's not what diction means. Diction is "4. The manner in which anything is expressed in words; choice or selection of words and phrases; wording; verbal style:" Diction is word choice. It seems fairly common to stretch the word to refer to these other factors of verbal performance, and I'm not so ignorant as to remain a prescriptivist in the face of clear, dominant usage change. But it's clear that our language is poorer for the change (just as it is when comprise is used interchangeably with compose; we end up with two words but only one meaning). Pronunciation, emphasis, and intonation are not diction; they are pronunciation, emphasis, and intonation.

Saturday: Press Conferences

In a press conference, you can communicate two to four ideas at most. The rest of the press conference is spent finding new ways to repeat those ideas while answering questions.

What can go wrong? The media may have their own agenda, and their own stories to pursue: they may ask you questions leading you in a direction you don't want to go.

Avoid answering hypothetical statements. Don't argue with your audience.

Tactic: make a list of topics and phrases you don't want to say.

Storytelling

Storytelling: the latest corporate fad

This recent quote seems relevant:

love the fact that Trey and I have gotten awards for being topical and satirical, but at the end of the day, we are just making jokes. If you ask me how to really solve the health-care crisis, I have fuckin' no idea, and I don't want to be a part of it. But I can make a little fat kid yell some emotional truth about it. That's what we've figured out over the years. If you're gonna make it a TV show, you would never do the actual politics of something, but you would do the emotions behind the politics. Who cares if it's a right-or-wrong policy—here's how it makes me feel. —AV Club Interview

Property rights, contracts, transaction costs.

From an economic standpoint, legal systems' functions are to define, transfer, and protect property rights.

The role of the judiciary: they only clarify and define within the bounds of existing law, rather than creating law. Objection: in practice, this distinction is impossible; the act of clarifying often entails creating new law.

Informal enforcement mechanisms:

• Unilateral
• Bilateral
  • self-enforcing contracts
  • vertical relationship
  • hostages/collateral/third party
  • private enforcement ... violence
• Multilateral
  • reputation
  • enforcement by powerful third party (could be collective government)

I had no idea how much reading I wasn't doing for this class this week:

B. Guy Peters, The Politics of Bureaucracy, Ch. 2 “Political Culture and Public Administration”

Florence Heffron, Organization Theory and Public Organizations, Ch. 7 “Organizational Culture”

M. S. Haque, “The Diminishing Publicness of the Public Sector under the Current Mode of Governance”, Public Administration Review, 2001, 61 (1), 65-82

J. S. Jong and H. Muto, “The Hidden Dimension of Japanese Administration: Culture and its Impacts, Public Administration Review, 1995, 55 (2), 125-34.

J. Jabes, N. Jans, J. Frazer‑Jans and D. Zussman Managing in the Canadian and Australian Public Sectors: A Comparative Study of the Vertical Solitude, International Review of Administrative Sciences, Volume 58, Number 1, 1992, pp 5‑21.

J. Jabes and D. Zussman, Organizational Culture in Public Bureaucracies. International Review of Administrative Sciences, 55 (1), 1989, pp 95‑116

Anne M. Khademian, “Is Silly Putty Manageable? Looking for the Links between Culture, Management, and Context”, in J. L. Brudney, L. J. O’toole, Jr., and Hal G. Rainey (Eds.), Advancing Public management: New Developments in Theory, Methods, and Practice, 2000, Washington, D.C: Georgetown University Press, pp 33-48

Hal G. Rainey, “Building an Effective Organizational Culture”, in James L. Perry (Ed.), Handbook of Public Administration, 2nd ed., 1996, San Francisco: Jossey-Bass, pp 151-166

D. Zussman and J. Jabes, The Vertical Solitude: Managing in the Public Sector, Halifax, NS: Institute for Research on Public Policy, 1989

Lecture

Civil society. Since four of my electives have covered this subject to varying degrees, there's nothing new here I have a great opportunity to review and consolidate my learning.

Microcredit is the subject this week.

What is credit? Something you owe someone. That's credit. Are debt and credit the same thing? Lines of credit. "Credit is borrowed money". Grameen is not the first microcredit lender: ACCION and others came first. But Grameen had the best marketing.

Three C's of credit: Character, Capacity, Capital. Other kinds of microcredit: associations, bank guarantees, community banking, cooperatives, credit unions.

Microcredit as the goal: focus on providing credit to poor; the borrowers have to declare what they will do with it. If the borrower cannot look the lender in the face (c.f. cultural rule that women look down while speaking) and explain what the loan is for, the interview is over.

Microcredit plus: provide credit and training. Example: BRAC.

Microcredit as the means: example: Proshika.

As of February 2008, Grameen has 7.45 million borrowers, service in 97% of Bangladeshi villages.

Grameen's key feature: ultra-high level of contact between bank and borrower. Weekly loan repayment; followup in person one day after payment is missed. Borrowers must learn to sign their own names instead of making a thumbprint. Borrowers are required to use a small part of the loan as a group fund, as mandatory weekly saving, and as emergency fund deposits.

The Sixteen decisions, such as "We shall not live in dilapidated houses. We shall repair our houses and work towards constructing new houses at the earliest" and "We shall educate our children and ensure that they can earn to pay for their education."

Ten poverty indicators, such as "each member of the family is able to sleep on bed instead of on the floor" and "Family members have adequate clothing for every day use".

Despite a hands-off approach, the bank must intervene in some cases, for example, if everyone in a region is using their loan to weave baskets and the local demand for baskets is saturated. But Grameen still avoids telling borrowers what to do, in contrast to some other micro-finance institutions (MFIs).

Measuring success of MFI:

• Outreach (number of loans, growth rate of assets, etc)
• self-sustainability. profit, etc
• Subsidy dependency index: how much does the MFI depend on charity?

Joel's note: isn't poverty reduction the ultimate purpose of MFI? Why isn't it on the list?

Four decade history of MFI initiatives in India. Government project: SHG, vs Grameen-model MFIs. State government raided and shut down all MFIs in one district in March 2006

Related services offered via same channel: insurance, pension, etc.

Note to self: Need to grok the difference between Return on Assets and Return on Equity.

Our presentation

My teammate and I are presenting on the last case this week, Microfinance 2.0. We will go without powerpoint slides. But I haven't practiced my own presentation as much as I should have; I've practiced pieces out loud, but not the whole thing with a clock. My feeble excuse is that I will be flexible after hearing what our classmates do in the two preceding presentations. My rough topic outline:

• theory
  • What is poverty/what is money?
  • A working economy is dynamic: everybody has to dance at the same time
  • systems: capitalist/market; socialist
• How does microfinance help?
  • provide liquidity
  • provide motivation
• How should microfinance work?
  • Reach more people
  • make more changes in people being reached
• Should microfinance be capitalist or socialist?
  • Is there a third way?
  • What are examples of organizations that serve millions of people over a period of decades, but are neither governments nor for-profit businesses?
  • Indefinite charity? Mixed model?

Singapore's Minister for Transport & Second Minister for Foreign Affairs

The talk is about five minutes long before we stop for questions: impressive. Also, I think I heard the Minister mention carbon, which would be a rarity in Singapore where the environment rarely gets even lip service.

Q: long-winded question about bicycles. to give you a hint: "... it's a multiple-sector task, but I feel it should be the transport ministry who would lead in facilitating this bicycle commuting into our transport plan ..." Dude. Your question is, "what are you doing about bicycles?" Ask it and shut up. If you have a more targeted question, ask that. A: We've looked at, what are the immediate things we could do, not just recreation but commuting too. Working with NParks to try and close up the gaps in the system. Try to facilitate inter-modal transfer: look at the route you can take and at the MRT station or bus interchange upgrade the bicycle parking facilities. Also an inter-agency process. Some have asked, why can't we integrate cycling into the [whole city]? You have to balance against other transport: it might take space from buses. (Notice that alternative transport is implicitly a zero-sum ghetto: there's no notion of taking space from car lanes.) ... Also pedestrians: adding more shade; soon 86% of all overpasses will be sheltered. (Recall from earlier posts that overpasses are fundamentally pedestrian-hostile in the first place)

The dean just interrupted to say that this discussion will be off the record, and mentioned bloggers specifically. In my opinion this doesn't apply to what I've typed so far (ask Samantha Power), but I'll respect the request and stop blogging at this point. (I did arrive after the Dean's remarks, though, so maybe I missed an earlier announcement.)

I think I have the liberty to put my own questions on the record. My question was "A few comments and then a question: I've bicycled in San Diego, Los Angeles, Seattle, and Copenhagen, and I would be terrified to bicycle in Singapore. Second, [regarding whether bicycles and transport should compete for space while car space remains inviolable]. Both legally and culturally, cars are dominant in Singapore. What will you do about Singapore's increasing adoption of car-dominant culture?" My followup question was, "What about changing the law so that pedestrians have right-of-way in unmarked as well as marked crosswalks?"

Now I just have to work on my tone of voice: I think I get stressed asking questions and have a needlessly confrontational tone. And in my haste to make a point and ask a question while not talking too long, maybe I was too terse. The point I think I didn't make very well was that there is a cultural problem with aggressive driving in Singapore, as exemplified by drivers honking at other drivers who are slowing to turn off an arterial, honking at pedestrians who are in the middle of crossing the street, etc. While it's true that Singapore probably has the best-behaved drivers and most orderly streets in Asia, or maybe tied with Japan, it could do better.

Sunil Sharma from the IMF-Singapore Regional Training Institute (speaking only for himself, not the IMF). Provides training for 1000 to 1500 officials per year from 38 regional countries. Patterned after a similar office in Vienna. About 60 PhDs on staff providing training in macroeconomic and financial management, statistics, and legal issues.

The IFA, the International Financial Architecture.

Accumulating questions:

• Has there ever been a period of time in which we had both a degree of global capital mobility and some economic stability?
• According to the chart (Obstfeld and Taylor 2002), the only events to reduce global capital mobility have been the world wars. Even the Asian financial crisis didn't dent mobility growth. Are we therefore, assuming a new world war doesn't start, safe from drops in mobility?
• Is there a correlation between global capital mobility and greater human welfare? Is there a causal relationship? (A: studies do show that greater mobility does correlate with indirect benefits. Without some minimal institutional competence, you won't benefit from foreign capital.)
• From other classes, we here that institutional capability is the current hot topic in international development. What's going to be the fad after that?

Financial systems have been liberalized only recently. Italy had interest rate limits into the 1980s. Greece has a primitive system into the 1990s. Regulation Q limited interest rates US banks could pay.

Bretton Woods: currencies locked to US dollar, US dollar related (but not locked) to gold. (Joel's note: An interesting bit of trivia is that the US still values its gold deposits at $42.222/ounce. That's a multi-billion (but not multi-tens-of-billions) dollar bit of trivia. Ran across it reading somebody's review of the US FY2009 budget.)

IMF current statistics: 185 member countries, 2600 staff (with 400 to be fired in the next six months (Joel's note: talk about burying the lede; this is a talk about challenges for the IMF and it's now 40 minutes into the talk)), US$338 billion in quotas, which is smaller than Citibank's subprime losses.

Eight countries have direct membership (the UN Security Council permament members plus Germany, Japan, Saudi Arabia) in the Executive Board; the other 177 members are represented by 16 other directors. 30% women, although there is a shortage of female economics PhDs to hire. The biggest concentration of economics PhDs in the world. (I wonder who's in second place?)

The word corruption is no longer taboo. Q: What's still taboo? A: I would not be able to write what I really think about the exchange rate regime of a particular country.

Notional purpose of the IMF is to serve as a revolving pool of money that member countries could borrow from during balance of payment crises and thus avoid destructive trade policies. The IMF is funded by the difference between receipt and payment interest rates.

Top IMF borrowers in last 60 years: Brazil, Turkey, Argentina, Mexico, Korea.

Ten years ago, reserves of a central bank were guarded secret. Now most banks put them on their website.

What's going on now: deeper financial markets in developing countries; relaxation of capital controls; more international financial market integration and private capital flows.

Bankruptcy laws are important because they allow you to clear the decks quickly. The US recovers quickly because of its bankruptcy laws.

If you peg your currency to a foreign currency (e.g. the dollar), you can no longer change your domestic interest rate to meet domestic conditions. For example, Middle Eastern countries peg to the dollar, and now they have interest rates far too low for their domestic economics. Which exchange regime is better is not generally agreed; it depends on local institutions. Fixed but adjustable is bad because the infrequent adjustments are shocks, preceded by tension.

Canada: has floating exchange rate, and retains control of domestic money supply.

Banks: do a "maturity transformation": borrow short-term, lend long-term. By design, they thus have liquidity risk. By design, the banking system is leveraged. The investment banks in the security markets do not do maturity transformation; they manage liquidity. They are not key to the running of the payment system. They are more lightly regulated. But with the changes in the capital market, the investment banks have a more critical role in the monetary system, and should be held more accountable.

Student Presentations

Bangladesh

Unitary system, Westminster government.

Village life model after independence, then administrative state during military rule, then adversarial, village life, and back to administrative state (under current caretaker government).

Singapore

Detailed powerpoint. Not especially relevant to the assignment, which was "Whether the model describes the politico-administrative relations in your country?" I feel inspired to dig out the stopwatch for the next presentation.

China

First, you must understand why China chooses socialism. It was chosen by the people, with the belief that only socialism can liberate China from a semi-feudal role. Only socialism can prosper the new China. (Sound of Joel smacking his forehead into the table. China didn't chose socialism any more than Taiwan chose capitalism. A communist army conquered China.) China has the party first, then the state. (Which is a feature of authoritarian states, not socialist states.)

Five administrative levels. ... As have many others, I've recommended against reading from slides. Well, I've found something worse than reading from slides. Reading the formal constitutional procedure by which China's senior leadership is selected, from slides.

I'm seriously considering walking down to interrupt the current presenter, in front of 20 classmates, and turning off the projectors, taking the notes out of the hand of my classmate (who is a very nice person), physically turning him around to face the crowd instead of the screen, and encouraging him to complete his presentation in five more minutes or less. The presenter is, let me repeat, a nice person whom I like, and I generally try to avoid criticizing classmates on this public blog, but this is just about the worst presentation I've seen here. Not just for the technical issues of posture, but the content: a detailed analysis of the Chinese government as it is claimed to function. What's the point of that? I certainly hope that not a single person in this class, including the presenter, is that naive. On the plus side, a weakness is listed. Perhaps that's on an official list of approved criticisms, part of some anti-corruption campaign? Ah, yes, the presenter just said "corruption".

If it weren't for the extreme rudeness to my classmate, I would replace the first two minutes of my own presentation (were I called upon next) with a discussion of the technical aspects of the last presentation: the poor time management, looking at the screen, back turned from the audience, reading from paper with head tucked down, the obvious lack of practice, reading from slides.

Papua New Guinea

274 local governments. Westminster government. Queen is ceremonial leader, represented by the governor-general. Three levels of government. Strong parliamentary democracy.

Taiwan

Five branches of government, the usual three plus the Examination and Control branches. The control branch is like the GAO in the US. Best fit for politico-administrative relations: functional village life.

Philippines

In addition to the three branches, a Civil Service Commission with non-partisan employees.

UAE

Pakistan

Administrative model under political regimes; functional village model under military regimes.

Myanmar

After all the fuss of last week's guest and then the overloaded Global Issues class yesterday, today's Non-State Actors looms as an anti-climax. Plus it's raining, but more of a sullen wet than an exuberant storm.

Student Presentation

What is social enterprise? Joel's note: One of the key characteristics of private enterprise is the imperative for growth, which is so pervasive and intense that it appears to be reified as an end goal. I wonder whether, as social endeavors and civil society adopt more of the cladding of capitalism, they will also adopt the growth imperative.

Note that the PP5503 Baumgartner reading for this week dovetails nicely with today's class.

Should social enterprises have the same accountability as private actors? As government entities?

Joel's note: the professor is drawing a graph with X = social return and Y = economic return, making the point that there is an inverse relationship, and that it's curved, not linear. The professor, in referring to the graph, just referred to the economic return axis as "growth". hmmm.

Private enterprises which return lower than market rates on their capital are considered to be destroying wealth. Should social enterprises be expected to have higher SROI than government? That may be missing the point for neo-Gramscian-type civil societies, but could it be a good standard for neo-Tocquevillean entities?

Professor Presentation

Social enterprise and social entrepreneurship.

Joel's note: Wikipedia comes to the rescue to clarify the relationship between social enterprise and civil society: the former is a subset of the latter:

Social enterprises are generally held to comprise the more businesslike end of the spectrum of organisations that make up the third sector or social economy). A commonly-cited rule of thumb is that at least half their income is derived from trading rather than from subsidy or donations.

Joel's note: Um, cost of capital is not "the cost it takes to start the business" or "recouping the money that's put in to it". Cost of capital includes risk-adjusted interest rates. Is there an equivalent on the social side? Is there a social capital interest rate? Is that interest rate positive if the world is getting worse and negative if the world is getting better (or vice versa?)?

Sources of capital for social enterprises....

Something like 4 out of 5 businesses fail within 5 years (numbers I just pulled out of my ass. Here's some data: "The NFIB estimates that over the lifetime of a business, 39% are profitable, 30% break even, and 30% lose money, with 1% falling in the "unable to determine" category."). What's the rate for non-profits?

Guest: Albert Teo

Social Entrepreneurs in Singapore.

Next week

I'm presenting one of three cases, Microfinance 2.0 with BJay.

This is one of those classes where everything happens at once. Along with two other classmates I was assigned to do the student presentation for the week; we decided to have all of the other students each do two-minute presentations, followed by two of our own members doing presentations, and then a carbon cap and trade game. Plus the usual break, discussion, and professor announcements. And then we have three guest speakers, two of which are surprise guests. Urp.

Guest speakers

(I didn't catch all the names). Speaker #1, from World Resource Institute:

I apologize for the acronym SD-PAM. It's a mathematical fact that some emerging economies must limit their emissions if the Earth is to mitigate global climate change. Kyoto has a single solution for Annex 1 countries, and insubstantial, qualitative activities for the rest. For an overall solution, some of that distinction must change, and the changes must be acceptable. Maybe not all of these initiatives will be measured in terms of GHG, but they all have to have something concrete, e.g., going to x% of renewable energy.

Many developing countries are taking substantial activities that stack up well to developed country activities. New plans due by 2009, under the Bali framework: new program, which looks very different from Kyoto Protocol. Countries have to figure out how to make credible commitments of their domestic climate change programs.

Q: Will post-Kyoto agreement have sanctions? A: nothing like the sanctions in WTO, which is backed by "mutually assured destruction" concept. There will be some connections between financing and policy (Joel's note: so the enforcement plan consists of getting serious about not bribing countries that don't do what they're supposed to)

Q: Canada has reneged on its commitments. Will Annex I countries use the new framework to renegotiate. A: In Washington, we tell lawmakers about China's progress, and they say, is it legally binding? and we say, well, with Canada as an example, so not so much. The number one priority for the US team at Bali was to eliminate the difference between Annex I and other groups.

It's important to remember with ETS: it's not fundamentally using the market to reduce emissions. Countries agreeing to ETS agree to meet caps, and then use the market to allocate emissions. Emissions trading is not the way to go; it will be a big part of the policy mix. Caps have a political advantage over taxes: Carbon traders are asking for more caps, because that increases the size of the market they can play in. That wouldn't happen with taxes.

Dubach: Actually, there's not much debate with economists. Carbon taxes are better economically.

Are emission trading markets sending the correct signal? Are they sending the signal that it's morally okay to (? to buy the right to pollute?). There are people who believe that carbon trading is unjust. Many Southern civil society groups are very antagonistic to carbon trading. Other issues: getting credit for things that would have happened anyway. Projects financed by emission trading may not be good projects.

Should SD-PAMS get ETS credit? That is, if the Indian government runs a program to distribute efficient lightbulbs, should they get carbon trading credit for the calculated benefit? The challenge is to promote new behavior. If China does fuel efficiency standards, they probably would have done that anyway because of concerns about oil dependency. People are generating a lot of potential credits, but who will buy them? There's no carbon market, only a market for compliance. That market must be generated by a country accepting a tight cap and forcing its companies to buy credits. The Lieberman-Warner bill, the most advanced bill in the US, does not allow purchase of overseas credits. Countries prefer to do expensive things at home instead of cheap things overseas.

Navroz Dubach: CDM is interesting. It's a market, but a market without property rights. It has huge transaction costs and is not easily verified. The Indian government just loves it, it's just a cash cow for Indian industry. There's supposed to be a technology transfer, but most projects are from one Indian company to another. Land-based projects are even more political.

30 years ago, power companies were all owned by governments, except in the US where they were heavily regulated. A large percentage of GHG comes from electricity generation.

Renewable energy does have environmental benefits, but it costs more. Access rates to electricity are as low as 3% in some countries. 50% in India. We've been looking at electricity and regulatory institutions.

These frameworks have to filter down into actual actions. How does that happen? Nominally, governments implement the frameworks they agree to. But that implementation is political, with winners and losers. So the policies are often vague, and the regulator has to balance pressures. Many regulators in developing countries were set up as part of donor-funded adjustment lending programs. So regulators are poorly integrated with governments.

Carbon Trading Game

It needs more work. We got through three years out of the planned 8 (trimmed from 12). Brief notes: We need more training and examples before the game starts. The auction mechanism doesn't work. The market isn't clearing even though the companies are set up to have a market. The printed tokens and housekeeping are a big pain and the whole thing should be electronic.

Student Presentations

My group asked all students, in groups of 2, to prepare four-minute presentations with topics we handed out, all based on the assigned reading. we discouraged Powerpoint and forbade bullet points. We also asked all seven groups to perform their presentations once before class, in full dress rehearsal in a classroom in front of one of us. (Three and half groups actually did.)

Logistics

Ten page double-spaced policy memo. First draft due April 1. Final due date: April 22.

Prime minister's office (that's me—I'm the PMO for China for this class) initial memo: overview of policy. Planning memo and overall negotiating position. Final memo is country's negotiating position. China and India teams are discouraged from presenting solutions including a hard cap, since that's almost completely unrealistic.

Next week: guest speaker from IMF.

Schedule group presentation Monday, April 14.

J. Gregory Dees, Jed Emerson, Peter Economy, Enterprising Nonprofits: A toolkit for Social Entrepreneurs (New York: John Wiley and Sons, 2001) ; Chapters 1, 2, 3

Case: Social Enterprise Spectrum: Philanthropy to Commerce

Case: Social Enterprise: Private Initiatives for the Common Good

Fundamental missions of social enterprises:

• reduce conditions with socially undesirable side effects
• provide goods and services with socially desirable side effects
• create a safety net for the less fortunate
• promote a more just distribution of benefits and burdens
• advance human rights

Nicholls, A; (2006). Social Entrepreneurship: New Models of Sustainable Social Change, Oxford University Press, Chapter 4

J. Emerson, “The Blended Value Map: Tracking the Intersects and Opportunities of Economic, Social and Environmental Value Creation” – Executive Summary

Concludes with nine areas for further research in the field of social entrepreneurship.

B. Guy Peters, The Politics of Bureaucracy, Ch. 5 “Politics and public administration”

F. R. Baumgartner, “Public Interest Groups in France and the United States”, Governance, 9 (1), 1996, pp 1-22

A notion that's been lurking around the edges in several classes is this: Is it a problem for civil society to do functions that arguably the government should do? It got sharper in Corporate Social Responsibility discussion: if CSR is primarily a means to prevent more direct regulation, then wouldn't social purposes be better met with that same government regulation than with self-regulation and regulation by the civil society sector? According to this article, France's answers are pretty clear. The state is the sole source of authority and power for action on behalf of the public, because only the state is fully accountable. Any more narrowly defined group claiming to be acting in the public interest is assumed to be a special interest seeking rent.

This simple purity breaks down in practice, however, because it turns out that the French bureaucracy differentiates between "serious" and other kinds of civil society groups. If it has enough allies in government, a civil society group is considered "serious" and becomes basically an arm of the government. Otherwise, it's a pest. The differentiation between serious and other, which is effectively a determination of what is in the general public interest and what is not, is made within the French good-old-boys club. You won't be surprised to learn that the French military industry is part of the French public interest.

Sheila Coronel, “Recovering the Rage: Media and Public Opinion”, In OECD, No Longer Business as Usual, Paris: OECD, 2000, pp 215-226

Summary: Investigative journalism is a very important element in reducing corruption. In many parts of the world there are few effective legal protections for journalists, leading to a vicious circle because journalistic investigation is a key means of improving institutions like the courts, which could provide better legal protection for journalists. Also a lot of journalists get killed.

OECD, Open Government, Paris: OECD, 2003, pp 9-21

OECD, Citizens as Partners, Paris: OECD, 2001

Nicholson Baker uses a review of a book about Wikipedia to rhapsodize about it and discuss his own role as a defender of articles facing deletion. The discussion of the dynamics of Wikipedia is very interesting. What's even more interesting is that the entire article goes by without a hint that the "2.2 million articles" Baker talks about are only the English-language articles. These make up less than half of the total. Some obvious questions: When there is discussion to delete an article in one language, what does this mean for the versions of the article in other languages? Which leads to, what are the relationships and communications between the Wikipedia communities in different languages? Are most languages just shadows of the English? How many articles have no English version? Most interestingly, I think: do the bodies of contributors in various languages each comprise distinct communities, and if so, how do they differ amongst themselves and what, if anything, do those differences tell us?

This last week felt like the pivot week between the easier part of the semester and the part where you feel behind all of the time. By Thursday I was starting to stress out so I made up a calendar with all of the due dates for the rest of the semester, and it actually isn't that bad, as long as I don't procrastinate myself into hell, like I did the last three weeks of last semester. But on top of that, it was just a very busy week:

Monday morning was the roundtable with Douglass North (plus his lecture Tuesday, and a seat at a fancy dinner with him Tuesday night at the sort of place where when you tell the wait staff that you're vegetarian, they ask for details; and then, as everybody else gets their eight courses, you seamlessly get gourmet vegetarian dishes); I fell behind on the reading and didn't read for two out of five classes this week, and a third was by the skin of my teeth. I'm doing a carbon emission cap and trade game for Global Issues next week and that took hours disproportional to the fraction of the grade it represents, but it's a lot of fun and I weight fun pretty high when it comes to schoolwork.

Wednesday I juggled my schedule because the other Americans volunteered me to present our findings on the political vs administrative dichotomy in the US. After all my bitching about presentations, I knew I would be eviscerated if I didn't practice, so I ended up giving the presentation once in the shower and a second time to Kona during her morning walk. She pooped during the presentation, which I took as a signal that I was going over my time limit. It went well enough in class, but would have been better if I'd practiced it with my team. For next week's Global Issues class (for which most of the content comes from students, one of the few classes where the professor has actually followed through on early-semester promises to not simply lecture straight through all the time (controversial sidebar for another post: many debates about the value of pure lecture vs student discussion)), we've asked all of the students, in pairs, to do four-minute presentations based on elements of the assigned reading. We're discouraging powerpoint and requiring them all to practice once in front of us (the week's discussion leaders) before class.

We did a trial run of the game Friday, using whoever I could beg or bully to join, including an attempted press-ganging in the student lounge. I thought it would be nice to have some law students in the simulation to better represent the more predatory businesses, but none were willing to come. The trial was excellent, which is to say it took five or ten times longer than I hoped and I found lots of things wrong with the game, which is just about exactly the outcome you hope from from a trial run. (If a trial run actually goes well, that just means something is going to blow up badly when you do it for real.) So I'll spend part of the weekend revamping the game and the rest trying to pull ahead on reading.

The US illegal domestic spying story has been going on for a while, and most of the plot twists are ugly. But finally there's a hint of light at the end of the tunnel: The House just now approved a new FISA bill that denies retroactive immunity to lawbreaking telecoms and which refuses to grant most of the new powers for the President to spy on Americans without warrants.

Before the Senate gets around to gutting the bill in conference, let's savor for a minute that a few hundred of our elected officials still think that restraint of government and accountability are worth voting for.

By the way, every single web page request you make in Singapore appears to go through a proxy server. That is to say, the Singaporean government has the means to view and filter everything you do on the web. Every now and then it glitches a bit and some pages don't load properly until you reload a few times. Like this morning. Just an inadvertent, gently reminder that I'm living in a society which has never even had some of the freedoms that Bush, Senate Committee Chairman Rockefeller (D-WV), and the rest are so eager to dismantle.

Update: It took eight reloads to publish this blog entry.

Das-Gupta, Arindam (2005), “Non-Tax Revenues in Indian States: Principles and Case Studies”

Asher, Mukul G. (2005) “Mobilizing non-conventional budgetary resources in Asia in the 21st century”, Journal of Asian Economics, 16, 947-955. Via ScienceDirect

Here's the abstract:

The 21st century will be characterized by the curtailment of tax policy autonomy and high locational elasticities for economic activities. Resource mobilization tasks for Asian governments will therefore be far more complex. With respect to traditional taxes, base broadening and modernization of tax administration will have to be primary instruments of raising additional revenue rather than rate increases.

The paper suggests that Asian countries will need to substantially enhance their capacity to benefit from innovative instruments of resource mobilization. These include public asset restructuring, treasury management, and revenue from creation of property rights, regulatory levies and more effective use of cost recovery and user charges. Resource mobilization and delivery of public services will have to be increasingly linked. An Asia wide tax forum to address common concerns, such as tax avoidance will need to be considered.

Here's my translation:

Attention Asian governments: it's going to get much harder for you to collect taxes. You should try to collect taxes from more people, and do a better job collecting taxes. But you're also going to have to find new ways to get money, like renting out government land, getting more money for your oil, and charging more for government services. And you should start cooperating with each other to catch people trying to hide taxable revenue in each others' countries.

Bailey, Stephen J. (1994) “User-charges for Urban Services” Urban Studies Vol 31, No 4/5, pp 745-765. Via EBSCOHost/Business Sources Premier. (Optional)

• "User-charges increased from about one-quarter to one-third of all own-source revenue in the US during the 1970s and 1980s" What's "own-source" revenue?
• Some services traditionally have user charges: sewers, street maintenance, waste collection. Not fire or police. Libraries avoid heavy user charges. "User charges for [outdoor] sports facilities [in the UK] ... cover less than a quarter of the debt charges and running costs ... Copy-cat charging leads to a broad uniformity of user-charges ..."
• The history of user charges is more complicated than simply substituting user charges for taxes.
• Look, look, actual humility from an economist: "More generally economists' pricing prescriptions lack situational relevance for practitioners, policy-makers and users .... Government and academic economists [tend to] fail to consider implementation theory. Economists are partisan advocates of efficiency with no natural priority over other participants in the public expenditure process."

Lecture

Various points about wages and taxes. The backward-bending supply curve.

Here's an interesting review of a book about the real shape of the supply curve: inverted S.

[Work Behavior of the World's Poor: Theory, Evidence and Policy by Mohammed Sharif] provides a sound theoretical alternative to the conclusion that poor workers are irrational or perverse when they increase labor supply in response to falling wages. Instead, by focusing on how, when wages fall below subsistence, workers are forced into a distress sale of labor in order to survive, the authors may awaken in economists and policy makers greater sensitivity to the plight of poor households.

We're running in circles on the point that "Income tax with FULL LOSS OFFSET encourages risk taking." I'm not really following the specific math, but the underlying point, if it's the same as the reading (page 589 in Stiglitz), is this: If you can get a full tax offset for your losses, then the net effect is a bit asymmetrical, like a bit of a subsidy (not sure why, lost track of the numbers). Also, and I think this is the main point in the reading, if the government provides tax offsets, the government is effectively acting like a partner. The government thus becomes the partner of last resort, and this is probably economically good.

The Economic Theory of Public Enforcement of Law, A. Mitchell Polinsky and Steven Shavelli

• p 3. "we assume for simplicity that public enforcement is the exclusive means of enforcement"
• p 4. "For simplicity, we focus on the assumption that individuals are risk neutral in fines and in imprisonment."
• p 19. "assuming for simplicity that injurers are always found liable"
• p 31. "assume for simplicity that individuals are risk neutral"
• p 35. "assume for simplicity that sanctions do not deter"
• In the discussion forums for my mail program (mutt), I've seen proposals for a feature whereby, if the body of the email includes the word "attachment" or "attached", but you try to send the email without any attachments, the programs asks you if you are sure. I would love that feature. On a related note, I think that all economists should be required to use a word processor which detects the phrase "for simplicity" and forces the author to include a section that addresses the probability that the simplifying assumption is true in the real world and how irrelevant the previous analysis will be if the assumption is not true.

Class discussion

A chart showing a correlation between income levels and less burdensome regulation. But the ability to go into business without any regulation presumably doesn't correlate as well, since then legitimate businesses would be competing with charlatans who are bad for the economy. How would we measure that, and try to correlate it to wealth? That is to say, a lot of legitimate businesses are quite happy to have enforced regulations, so they don't have to compete in a race to the bottom. Who would want to try to make a profit selling widgets if the competition was a steady stream of fly-by-night companies making widgets that break two days after you buy them? You would have to turn into another fly-by-night company yourself. So what is the measurement that would suss this "level and not-ground-level playing field" issue out?

Today's good news:

A Cal State East Bay math teacher and practicing Quaker who was fired for refusing to sign a state-required loyalty oath got her job back this week, with an apology from the university and a clarification that the oath does not require employees to take up arms in violation of their religious beliefs.

Presentation on the case study

World Bank involvement in financing judicial reform in Peru circa 1996-1997. The question is whether Fujimori's government is serious about reform, or just wants World Bank cover for further abuse of the judiciary. Events make it utterly clear that the latter is the case, but is any way left for the Bank to still have a positive impact?

Why Peru? There was an opportunity to help fix a judicial system that had never worked in the history and pre-history of the country. The Bank justified participation under the theory that a corrupt judiciary hurts the economy.

Extended history of the judicial system reforms in Peru 1994 to 1997. There are a bunch of different entities in the system with various constitutional powers, dealing with: how are judges trained, how are they selected, who has authority to remove them, how much are they paid, etc. All of these are intensely political questions, especially who can remove judges, since without judicial independence the judiciary has no foundation and may do more harm than good. The story of judicial reform in Peru appears to be the story of Fujimori attempting to maintain subtle but real control through institutional tools; i.e., having the power to select the people who select the people who can fire judges, things like that. Each time Fujimori or his pawns make a step or delays real reform, the Bank writes a complaint or delays the next step. Eventually a more or less acceptable structure is in place, and the loan gets approved in late 1997, with money to be lent in early 1998.

Then Peru's Congress passed a law gutting judicial independence, and the World Bank's project director put a six-month hold on the loan. The case ends with the director about to respond to a meeting summons from Fujimori.

Q: what's the best outcome the World Bank could have been responsible for? If you assume that Fujimori would not give up control of the judiciary, could the World Bank still have catalyzed a meaningful (and dare I say, sustainable) improvement in Peru's judiciary? After all, the pretense for their participation, was the impact of a corrupt judiciary on the economy. Perhaps Singapore is a model of the best possible outcome as long as the political elites (Fujimori) keep their power monopoly: Singaporean business courts are world-class but the Singapore government has a 100% success record in suing political opponents in Singaporean courts.

Q: In this case, who exactly should have been more transparent, how would it have been in their interests to be transparent, and what would have been different if they had been transparent?

Class Discussion

Goodness and shrewdness. Do you need transparency to have accountability? (I don't think so) Is transparency a precondition for reform? (I don't think so)

What is transparency? There are two problems with defining it in terms of exposure to external scrutiny. The first is that that suggests that some extra effort is taken to be transparent. The second problem is that if such effort is necessary, that effort implies judgment and thus an unavoidable lack of transparency. E.g., GRI requires that an organization take time to write a report. Inevitably, the report authors will be exercising judgment about what is relevant. Or suppose you are releasing documents; even an innocuous decision about whether documents have anything meaningful, or what file names to use, etc, can spin the outcome. Only universal, automatic transparency (all meetings open to the public, all documents and emails and phone calls shared on the internet as they happen, etc) avoids these problems completely, although it introduces other problems. Although this seems fantastical, some open source projects come quite close to this; all members of the project communicate online in archived, public discussion rooms and all work is done in a public repositories, including all historical changes. Wikipedia is another example, at least up to a certain level; above that level, transparency disappears, and lo and behold it's in the un-transparent point that we hear about all the Wales scandals.

Transparency and the media: Perception of corruption is very high in the Philippines and very low in Singapore, but how much of that reflects a free press in the Philippines and a captive press in Singapore?

How is it in government or corporate interest to be transparent? So far we've got some indirect benefits of perception and reputation. I think it's in the interest of the governed for the government to be transparent, but maybe not in the interest of the government. What about SWFs as an example of both transparency and North's natural state argument?

Q: Does transparency have to have a moral dimension? Does transparency have to have a positive effect? (If there isn't an ultimate purpose then it's just a mechanism, and mechanisms shouldn't be fetishized.)

Prof-led Discussion

Why are we discussing transparency? We can see why non-state actors would want it; why do companies and governments do it?

Rational explanation: companies benefit because transparency may level the playing field and so reduce transaction costs. (I'm not sure I followed that argument to the conclusion. I can see how transparency could be a competitive advantage in a market: I'd rather go to a transparent money-changer.) Ultimately, for self-interest. Reason two: reputation and trust (in turn leading to the same aggrandizement as self-interest.

Other reasons for companies to be transparent: to solicit feedback; to get first-mover advantage (but what advantage?) As a means for credible commitment, which is useful in various strategies (e.g. chicken). As a means for forestalling government regulation. To solve a tragedy of the commons problem within a business context.

Dutch disease and resource curse. UK and other North Sea countries were not damaged by the discovery of oil because they had transparency and good governance, but oil in African countries has been a net negative for societies. (Joel's note: Since evidence is now surfacing of the extent and breadth of corruption in Alaska, does that suggest that Alaska in the 1970s did not have transparency and good governance?)

Origins of transparency

Open Skies Initiative as an early example of transparency. US and Soviets would be allowed to overfly each others' territories for military verification. Proposed in the 1950s but not ratified until 2002. Nonetheless, reframed concepts of openness and transparency. 1986: Gorbachev takes up the US offer of transparency across the board and furthers the norm of transparency.

US corporate disclosure starting in early 20th century in response to trusts and other bits of capitalism.

Sweden's freedom of information act in 18th century.

What are the supposed benefits of transparency? Anti-corruption, economic growth, political stability, civil freedom. Back to, what kind of accountability is necessary for success? And back to the issue of Singapore as an example of success without accountability.

How would you know if Singapore was not doing okay? You wouldn't, if you only read the Straits Times. (Joel's Note: Not only does the Straits Times filter, but I think it's also important that the bad news that it does print seems calibrated to control the boundaries of thought. That is, it provides a steady stream of things to worry about that are small, that direct public thought in desired directions, and that distract from more fundamental problems)

Transparency as a means to efficiency or transparency as a means to rights.

Joel's note: N.B.: A key issue in US politics the last few months is the degree to which the government and telecom companies will be held accountable and/or subject to transparency for illegal domestic surveillance. The courts have made a beautiful catch-22 ruling about who can claim to be damaged and thus have standing to sue in order to get disclosure. If I remember correctly, you can't sue unless you were harmed, but you can't get access to information that shows you were harmed until after you win a lawsuit. The whole dispute comes into even sharper focus in the context of today's class.

This is the one class where we get in trouble if we don't do the readings, and it's in two hours and I haven't done the readings. Erp.

Florini, The Coming Democracy: New Rules for Running a New World, chapters 2 and 9

Mallen Baker, “The Global Reporting Initiative - Leap forward or last gasp?” Ethical Corporation, p 40, March 9, 2006

"Sustainability reports are even more heavily dependent on the context [compared to financial reports]. And yet all the current models of reporting expect the companies to provide their own narrative – to tell the story complete. But that does not work, because the end user actually does not read the reports, and does not even trust the company to provide its own context."

We talked about that in class, but I think maybe in 5263, not 5262, about the problem that we don't have any real feel for the numbers yet. If a corporation outputs 5,000 tons of CO2 in a year, is that more or less than their fair share?

Virginia Haufler, “Corporate Transparency: International Diffusion of a Policy Idea?” Paper prepared for the IR Field Workshop, University of Maryland, April 17, 2006.

One World Trust Global Accountability Project, 2007 Global Accountability Report

How are 30 top TLAs (including NGOs, IGOs, and MNCs) doing with their accountability reporting? They range from pretty good to pretty bad; the average IGO is must better than the average NGO, which is slightly better than the average MNC. Of four dimensions, transparency is worst. "All assessed TNCs have weak external stakeholder engagement capabilities." TNCs are narrowly in the lead on complaint handling, "partly a result of the Sarbanes-Oxley Act".

Case: Aiding or Abetting? World Bank and the 1997 Judicial Reform Project Transparency International

2007 Global Corruption Report 2007. Executive Summary

Executive executive summary: judicial corruption is really really bad. 26 recommendations for reducing judicial corruption.

I fell behind this week and didn't do the reading before class.

B. Guy Peters, The Politics of Bureaucracy, Ch. 5 “Politics and public administration”

F. R. Baumgartner, “Public Interest Groups in France and the United States”, Governance, 9 (1), 1996, pp 1-22

Sheila Coronel, “Recovering the Rage: Media and Public Opinion”, In OECD, No Longer Business as Usual, Paris: OECD, 2000, pp 215-226

OECD, Open Government, Paris: OECD, 2003, pp 9-21

OECD, Citizens as Partners, Paris: OECD, 2001

Lecture

The core executive. The strength and weakness of the center depends on the personalities of the people. Example: Sarkozy in France.

Accountability. The Al-Mashat Affair.

Who was Bush's eminence grise? Google calls it a tie, 4220 hits for Cheney and 3990 for Rove. Q: Is LKY in this role for Singapore?

Student presentation

International trade and the environment.

Brief description of the WTO.

The case for open trade. Comparative advantage.

Simulation exercise

WTO tries to mediate a dispute between Rich Country and Poor Country. Poor Country is complaining that Rich Country is imposing illegal tariffs on raw cotton. Rich Country says that poor country

Comparative advantage

Assumes that land, labor and capital don't move, and that there are constant returns to scale. These call into question the validity of comparative advantage (the notion that if everybody does what they do best, they all benefit, rich and poor alike) and the fairness of the likely distribution of those benefits.

Trade is mostly between developed countries, which suggests that increasing returns to scale is more realistic than constant return. That is, the rich countries have big factories and trade with each other, and the poor countries don't have anything to contribute.

Covering the Week 7 reading. I'll blog more if anything surprising happens.

Who pays Malaysian taxes on food grown in Malaysia and exported to Singapore? Singaporeans, because Malaysia taxes food at the point of production, and that tax gets passed along the supply chain. (Which is good, I think, because source taxes are the most efficient in internalizing costs. Appropriate source taxes on carbon-based energy would solve the global warming problem.)

The Greek letter η sure gets around; Wikipedia lists 17 uses ranging from "the efficiency of a Carnot heat engine" to "viscosity". I wonder which Greek letter has the most diverse scientific uses? Today in Class notes I investigate ... and the results may surprise you!

Letter	# of uses*
α	14
β	11
γ	17
δ	24
ε	15
ζ	4
η	17
θ	13
ι	3
κ	10
λ	29
μ	18
ν	10
ξ	13
ο	0 (zero)
π	17
ρ	8
σ	19
τ	16
υ	1
φ	21
χ	11
ψ	10
ω	24

* According to Wikipedia, counting only direct uses of the letter symbol in a science (math, etc) context, not the name, and combining upper and lower case.

Liveblogging the IPS roundtable. All text is paraphrase of speakers (plus my errors) unless "quoted" or marked as my own notes. Dr. North will be talking about this paper; see also these notes.

Professor Tommy Koh (chairman of IPS and a famous Singaporean negotiator), in introducing Dr. North, explains that North has sought to integrate various social sciences disciplines. Koh challenges North's thesis as Eurocentric.

North: Various disciplines plus cognition. We have to construct things in our brain to understand. You have to have beliefs because they are the way we think we understand what's going on in the external world. Norms, values, all begin with beliefs. Any discussion in the social sciences should start with how we understand the outside world and how it gets arranged in our brain. Then, how do we order that world to satisfy our beliefs. Institutions: the structure that human beings impose on human interaction in order to order the world in a way that meets their objectives. Not everybody's beliefs count: what counts is the beliefs of the people who happen to be in a position to create the institutions.

You have to understand one factor with is not idea: violence. Humans are violent, and kill each other with great abandon all through history. All societies are structured in ways to handle the perpetual threat of violence and disorder. I call these contexts the social order. Culture is the choices in the past that constrain the choices in the present.

Primitive social order, hunting and gathering. Once you settle down and specialize and get division of labor, including division of social, political, religious labor. Natural state or limited access order you get political, economic, religious elites. These elite groups have to coordinate and cooperate for mutual support so they don't try to kill each other. They protect each others' rents. Example: political elites protect the rents of farmers and in turn the elite farmers support the political elites.

Open access order: the Netherlands was first, then Britain, France. Competition in both political and economic markets. You have to have competition in both; monopoly in either market will lead to monopoly in the other.

Setting aside primitive orders, which are only historical, we have two orders to consider. US, Europe, Japan, and some other places like that, places that are very close to developing open access: Taiwan, Spain, places like that. Is open access stable? So far, we don't see open access states falling back to limited access. The one that comes closes to falling back is Argentina.

Three fundamental pieces to all human interaction. Growth in stock of knowledge, demographic features, institutions.

Transition from limited access. Most growth in the world has been from limited access societies starting to open up and broaden. Mature limited access societies will have some institutions independent from the elites. If you go back to the World Bank's biggest mistake, we try to get the things that work in an open access society: competition, well-defined property rights, and impose those on a limited-access society. But you destroy the stabilizing fabric of the limited access society. Iraq will do just fine as a modern example. The US destroyed a villainous dictator, and destroyed the limited-access society, but didn't replace it with anything, and you get the expected disorder.

Three doorstep conditions (see my reading notes). Most controversially, you must have civilian control of the military.

The transition has to happen via steps which are in the interest of the ruling elite. It happens differently everywhere; we've been looking at Europe and the West, but it's happening in the rest of the world too. But the change has to occur within the framework of the self-interest of the elites, because they are not displaced. You continually extend the rights of citizenship to a wider and wider group of the population. You start with elites, maybe 5 to 10 percent of the population, and in the process of extending rents, you give them social security, workers' compensation, things like that, that give you a stable workforce. Some people think that the non-elite groups take over from the elite groups; we don't think that's historically true. It's got to be in the interest of the elites if it's to evolve to open access.

Q: Tommy Koh: may I begin by challenging the central thesis that a monopoly in politics spills over to a monopoly in economics. This is on the record, but any negative remarks I may make about Asia are off the record—that's a joke (laughter). Look at Hong Kong: it had a non-competitive political market. South Korea developed under one-man rule; Taiwan also. Even Japan has had one-party rule. What about Singapore? One could argue that we have a non-competitive political market, but it has not contaminated the economic market. (Yes it has!). A: Good question. First I want to eliminate Singapore and Hong Kong; city-states are a very unusual kind of feature; I'm not sure it's an exception but I want to put it aside. (Joel's thought: Singapore Inc, Temasek, GIC, control 60% of Singapore's economy. North's thesis stands intact; the real question is how a semi-free market can perform so well.) I advise China and I warned them that, in the long term, they can't have a monopoly on power and keep up this growth forever. The leaders agree, when they are off the record. South Korea and Taiwan are on the doorstep, they are in transition. The conflicts that I see, I'm not an expert, seem to be conflict between protecting rents and growing the economy.

Q: Kishore: Tommy, I have to say I'm more on North's side in this argument. (North: Oh boy!) I agree that all of us have to move in the direction you've spelled out, even the Asian societies. The destination is not in doubt, the question is how and when. One issue is how lobbies create rents. Farm subsidies are a big example. Even in open access societies, plenty of rents are being created. But a more fundamental problem is, you need to carry your analysis to a higher level, from nation-states to global society. The former champions of trade liberalization are increasingly captured by lobbies; Doha is not succeeding because the US and EU cannot overrule their agricultural lobbies. My second question: I like how you said you can't understand things from just one perspective, economics, policy. As dean, I've found it's so hard to create multi-disciplinary education in a school of public policy. The economics professors want to teach economics, the policy professors policy. How do you get a multi-disciplinary approach?

A: You don't eliminate all rent. EU agricultural rents are even more severe than US. Everyone wants to protect their own interests. It's a matter of degree, to what extent an open-access society solves this. But open access societies are much higher income, there's a big gap, putting aside city states and the arab oil countries. Limited access are usually under US$10,000 per capita income, open access start as $20,000 and go up to $40,000. Now about global economy, are we destroying it by limits on competition. We may be. In the book, we don't deal with adequately, where do we go from here?

Ergotic vs non-ergotic theories: The physical sciences have theories explaining the real world. We don't have anything like that in the social sciences; we don't have real fundamentals. We don't have anything like that; the constructs are purely in our head. Meanwhile the world doesn't look anything like it did in 1820, 1830. We need adaptive efficiency, institutions that allow for experimentation in the face of uncertainty. You need institutions that experiment, and eliminate failures—special interest groups may have vested interests in failures. The capital market has changed completely from 50, 30 years ago. You can shift $100 billion from one country to another with one key. All this raises some questions about where we are going, and I don't know where we are going, but with adaptive institutions we have a chance, only a chance.

Multi-disciplinary. I don't have a good answer to that question. The same thing is true, the interplay between economics and sociology. We know very little about, for example, how we create different cultural heritages. This book is really an agenda for research, a different kind of agenda. All of the interesting questions are on the borderline between economics and politics, economics and sociology, economics and culture.

Q: Vikram Khanna. I want to take you up on your point about the inadvisability of imposing alien institutions on countries. I see many places around the world with alien institutions, doing quite well. Judiciaries, regulatory frameworks. You could even argue that Japan's Meiji Restoration adopted alien institutions. The interesting question is why they work in some places but not others. Why don't they work in Africa? Iraq is an outlier example, but I'm not so sure about your point that it's always inadvisable to impose alien institutions on a society. A: I don't think you've disagreed with me. The degree of flexibility in a limited access social order; some are clearly acceptable and some are not. I argue that alien institutions are unacceptable if they will undermine the stability of the existing elites, and will not be accepted. A lot of my advice gets rejected: "if I did that, I'll be killed or overthrown the next day".

Take Haiti or sub-Saharan Africa. You can't impose the things that work in the West, but you can in South Korea or Taiwan or the Baltic states. I don't think we're disagreeing. I'm making a distinction between the things that do not undermine the source of order and can evolve within the social order.

Q: Koh: Perhaps you and Vikram disagree about how culture fits. Your view of culture was as a constraint, very negative. Are there views of culture that could strengthen our prospects for success. Lee Kuan Yew in a famous interview with Foreign Affair said that one of the reasons East Asian countries have grown so much is they share cultural values of hard work, saving for the future, sacrifice. You economists just can't handle culture. A recent study showed that rule of law is the differentiating factor between successful and unsuccessful countries.

Q: (another econ professor, missed the name) My findings clearly indicate not only a relationship between political system and ethnic conflicts. The possibility of ethnic conflict is high in limited democracies and low in non-democracies and established democracies. ... Imposing partial democracies is ruinous for these countries. A: Great point. I've got too much to say in response. One of the things I'd like to learn more about is ethnic conflict. We don't know how to get society to allow for greater ethnic diversity. Singapore seems to have done a great job with that. (Impromptu student research: There are about 30 people at the table. A max of three or four have Malay roots, more likely one or zero. Four or five are Indian. The rest are Chinese (plus three white Americans, one Filipino). We students aren't sitting at the table, but include two white, one Filipino, two Bangladeshi. Oops, I lost track of the discussion while conducting this research. Update: I saw a definite Malay. He was bringing a cup of water to the guest speaker, and then left.)

Q: [...] in some cases, unbridled competition leads to suboptimal outcomes. Could it be that you need balance between OAO and LAO? Second question, is the role of access in competition overstated? Maybe access is not a condition of competition but a reaction to it. Perhaps contestability, not actual competition, is the most important thing. [...]

A: Let me look at the competition issue. We economists never did our homework on it; we say that competition is good but we don't mean it in an unbridled state. I've been to Russia before and after the Soviet Union. After 1991, I said to a banker friend, things are great, they're going to improve, and he said, we're going to have competition. We bankers are going to kill each other. He was serious. I like contestability; it fits what I mean better than competition. You want productive competition, and that doesn't happen automatically. Adam Smith just assumed competition creates welfare but that's not true unless it's constrained. (I still haven't read more than a chapter of Smith but I understand him to have understood the need for restraints on competition.)

Q: Neo Boon Siong: The ability to organize to influence economics and politics ... I have two comments. I was fascinated by your term "natural state", which seems to suggest that open order access may not be natural, may not be stable. (That's what I thought, too). [...] Secondly, in society organizing to compete and make organizations real. How organizations can become adaptable and dynamic. We've looked at regional institutions and FDI (Foreign Direct Investment); there are more commonalities than differences. Everybody has an export board, etc. Yet the degree of effectiveness varies tremendously. Not just adaptive efficiency but actual adaptability.

A: Capturing rents, which you talked about. I'm interested in a dynamic force that induces innovative change. That doesn't mean you completely eliminate rents, but you have a Schumpeterian process going on. In our writing in more detail we try to look at the interplay between institutions and organizations. The important distinction is that, in a limited access society, the innovations must be compatible with the interests of the ruling elite, but in an open access society you don't have that constraint.

Q: (heavy paraphrase): people may prefer to live in limited access. Many singaporeans will tell you they are happy to leave the decisions to the government. A: another ten-hour answer. Something else I didn't mention, but it's in the book, is transaction costs. Costs are low because you have trust. ...

Q: Ann Florini: perhaps the economic costs of maintaining trust in a small state are different; Singapore may be such an exception to your theory. My question is about the world going forward. I can see the contest playing out in two ways. One is globalization creates new opportunities for cross-border rent seeking. (Wonder what she means. IP law? Agriculture) But also, some aspects of globalization challenge the rent-seeking elites. On contestability and accountability, I'm researching new modes of government in Asia. Instruments other than standard Western tools such as elections to bring contestability. You may be seeing real contestability, or you may just be seeing a smokescreen to hide rent-seeking.

A: On the last point, yes, I agree. On the other points, I've been asked many times here how Singapore fits. I don't know where it fits, but the points you made about more low-cost information in a small space has something to do with it. The globalization question. ... Is an open-access state stable? I'm not sure it is. My colleagues and I have considering exploring that.

Q: Choo Wai Hong: I'm not an economist, I'm a lawyer by training but a keen observer of world events. In your model, it seems like all countries need to progress to open access. I don't think it's a linear progression. From an Asian perspective, I see it as a war between the West and the rest of the world. The imposition of these ideas seems like another colonial war. I see globalization as a philosophical war by the west against the rest of the world. The real beneficiaries are the corporations in these open access societies. I don't think transition to open access is inevitable.

Koh: I disagree with that; data shows that highly globalized countries, including developing countries, are better off than less globalized countries. This is even causing some people in the West to question globalization. North: I think the biggest beneficiaries in the long run will be China and other non-West countries. You are right in that corporations have a very narrow objective, to make profits at the expense of everybody else. But if you have effective contestability, then in spite of their best efforts they're going to produce something they didn't anticipate.

Joel's note: I want to ask my question about GPA, Malaysia, and market-dominant minorities, which would have fit well with Ms Choo's question, but I'm literally not sitting at the table.

Q: What explains the great transitions between the social orders? in the Marxist theory, there is a dialectic at work. it does seem to me that for any theory that purports to explain social change, you must understand the fundamental dynamics behind change. I haven't read your book but there must be some fundamental dialectic at work. A second point: property right seems to be a universal method for regulating violence but the historical record says otherwise. In China, Confucian culture prevented violence for centuries without any notion of property rights. ... trust, and no need for legal systems.

A: I was a Marxist for many many years, and it had an enormous influence on the way my thinking evolved. I though he asked good questions but didn't get good answers. I don't think there is a source of change. My colleagues and I have had big arguments about the degree to which belief changes are the result of immediate issues confronting organizations, or independent of a particular context, the development of beliefs as simply new ideas. I have argued that the decline of slavery was something you can't make sense of in a self-interest model; it became such an issue after the reformation and beginning in the 18th century, the view that it was immoral. Why that didn't play a big part earlier is a good question. Beliefs also evolve independently of specific things. How those two join together is a big issue.

Q: Arun Mahizhnan: the thesis you have built is based on the European experience, but until a few hundred years ago, India and China had the strongest economies. The emperor was probably the greatest rent-seeker in the Chinese system, but he had to be a just emperor. A: that's a good point, and I thought that was part of my framework. A belief system that sustains stability is much more elaborate than I can explain [in this talk]. I don't think I'm confined to just a western viewpoint.

(I missed the question, something about a 1990 book). A: From property rights, I got into belief systems, and informal norms and where they come from, and trust, and all these things are on the agenda for things we have half-baked knowledge of. but it's moved me in the direction, looking more at how beliefs get formed and how they affect institutions.

Living for two years along the flight pattern of San Diego's N.S. Lindbergh Airport^*, I turned into a little bit of a plane-spotter. For no particular reason, I decided to put this chart together this weekend. It should help anyone with a casual interest in planes identify any of the common commercial jet airliners (except the Russian ones).

There is also a PDF version. Both the graphic (all sizes) and PDF are licensed under a Creative Commons Attribution 3.0 United States License. Please attribute Joel Aufrecht and link to this page.

* N.S. Lindbergh being an abbreviation for Nazi Sympathizer Lindbergh. This is not part of the formal name of the airport, which is simply San Diego International Airport, but as long as they have artifacts memorializing him and a big mural of him by the road, I think it's only appropriate to keep N.S. in the name.

Christopher McCrudden and Stuart G. Gross, “WTO Government Procurement Rules and the Local Dynamics of Procurement Policies: A Malaysian Case Study,” The European Journal of International Law 17, 1 (2006), pp. 151-185

I continue to be amazed, this semester, at how well all of my classes fit together. This article, about the status of "global administrative law" in procurement, brings together a lot of threads. You might think that "WTO Government Procurement Rules and the Local Dynamics of Procurement Policies" would be fairly boring, but in fact, if Douglass North and his co-authors are correct, these are exactly the kinds of things that make the difference between this:

and this:

North argues that the transition from "limited access order" to "open access order" is the key to being a rich country. In limited access orders, the ruling elite use their monopoly on power to monopolize economic opportunity, and use the profit to sustain the monopoly on power. The path to national prosperity, therefore, lies in breaking open the monopolies on both political and economic power. Global procurement rules, in negotiation as part of GATT and then WTO, aim to do precisely that for government spending, which can be easily amount to half of all spending. Obviously, enshrining open access in procurement laws and practices would go a long way towards an open access order, on both political and economic fronts.

The paper is specifically a case study in Malaysia, which has several interesting dynamics going on. The first is a "market-dominant minority", as defined in Amy Chua's "World on Fire", a book which I bought and skimmed a few years ago but regret never getting around to reading through. But I think I got at least the thesis: that a common pattern in economies is for an ethnic/racial/religious minority to have a wildly disproportionate role in the economy. (Which leads to a good question for Douglass North: what does his theory have to say about market-dominant minorities, which on the surface seem to violate one of his premises.) In Malaysia, the Chinese are "a quarter of the population but hold 40% of the economy", while Malays are "60% of the population" but "own just 19% of the economy". The Malaysian state after independence was founded on "the Compromise", which was essentially that the Chinese and Indian minorities would accept second-class status in exchange for not being ethnically cleansed right out of the country. But after decades, the Malay majority remains at an economic disadvantage, and over time a number of government policies have formally enshrined discrimination in favor of Malays. These policies are at odds with emerging international norms of open procurement.

Note that the United States also opposes complete open procurement access, because US government procurement uses discrimination to support minority and woman-owned businesses. Only a small fraction of WTO members are part of General Procurement Agreement (GPA); the US is a member but has negotiated big exceptions.

We can also tie in a bit of current news:

The controversy over the Pentagon decision to award a $35bn refuelling tanker contract to EADS ... Nancy Pelosi, the Democratic House speaker, said Boeing had been on course to supply the US Air Force with tankers until Mr McCain "intervened". "Senator McCain intervened, and now we have a situation where the contract may be - this work may be outsourced." ...

The air force originally chose Boeing to supply it with 100 tankers. But Congress canceled the deal after it emerged that Darleen Druyun, a former top air force acquisitions official, had held illegal job discussions with Boeing while still negotiating the deal. ... The tanker scandal claimed the career of former Boeing chief executive Phil Condit. Ms Druyun and Mike Sears, Boeing's former chief financial officer, were sent to jail.

I'm not a reporter so I'm not going to do the work, but surely there must be quotes in which Pelosi and others who have complained about the EADS award are, in turn, complaining that US companies are denied access to foreign markets because of preferential treatment of foreign domestic companies?

The article goes on to describe negotiations in the last few decades to bring Malaysia and other developing countries into the GPA subset of WTO, negotiations which have to date failed. North would argue that the developing countries are shooting themselves in the foot; they are refusing membership in a group which would help them move to open access orders. I think this has be understood in the context of what I'll call the "Washington Consensus Debate", which is roughly this: Developed countries: "If you agree to play by all of these rules which work well for rich countries, you'll be rich." Developing countries circa 1980s: "Okay" Time passes. Developing countries do not become rich. Developing countries: "Hey, wait a minute! These rules just let you keep exploiting us. You yourselves didn't follow these rules to get rich."

The actual, original Washington Consensus rules are probably not to blame; most of them should help everybody. But the other cruft and ideology that accumulated around the term probably does include a lot of rules with very unequal results, not the least of which TRIPS. (The article quotes a paper alleging that some developing countries have had to spend an entire year's development budget to set up the regulations TRIPS requires, regulations which protect the creators of intellectual property, not the consumers. Guess how many developing countries are major creators of intellectual property (pharmaceuticals and software each bring in hundreds of billions of dollars per year globally; movies bring in far less, and music less still)? Guess who benefits.) So the big question is, are open procurement rules and other steps to reach an open access order really different from exploitative "Washington Consensus" prescriptions like open capital flows (which some economists now view with much skepticism)?

Ann Florini, The Coming Democracy: New Rules for Running a New World, Chapter 7, Brookings, 2003

The Wonderful Wizard of Oz was an allegory about the gold standard? Well. Who knows about that, but any piece of art which supports interpretations and reinterpretations as diverse as the movies The Wizard of Oz and The Wiz, the book Wicked, and the musical Wicked, the Dark Side of the Moon soundtrack, and the possibility of being an allegory for bimetallic fiscal policy is something special, verging on Shakespeare territory as an ur-text. None of which has anything to do with the chapter, which is about global economics.

The global poverty level is US$1/day. Out of curiosity, if you had to survive in the US on $1/day, you would do well to buy M&M jumbo packs, apparently, at 36 calories per penny. Probably all of the best buys will be in candy, since it's almost purely reprocessed, heavily subsidized corn. You could afford 3600 calories, which is roughly double the daily calories you need. Of course the malnutrition would probably cripple or kill you, and you wouldn't have anywhere to live or clothes to wear or medical care, and we're ignoring food kitchens and govenment programs etc etc. But still, Bulk M&Ms, and probably clip some coupons. Food economics is always fascinating; see here.

A Conceptual Framework for Interpreting Recorded Human History Douglass C North, John Joseph Wallis, and Barry R. Weingast. NBER Working Paper No. 12795, December 2006

Thesis: The main social order for the last 10,000 years has been limited access order. These systems limit economic participation in order to create rents, and then using the rents to stabilize the political system and limit violence. Remember that rent in a technical economics term meaning, loosely, the excess profit you can get out of something when you don't have real competition. E.g, monopoly profits. So the paper is saying, essentially, that the ruling elites have always monopolized the economy to cheat people and then used that ill-gotten wealth to stay in power.

The rest of the thesis is that some countries have, over the last 300 years, started switching to open access order, with real competition, and that this provides a different basis for social and political stability.

Update:The paper defines three orders, primitive, limited access, and open access. I got about 30 pages in and was eagerly looking for the difference between the primitive and the limited access when I suddenly realized that, when the authors started using the term "the natural state", which I assumed was another way to say "the primitive state", they might actually mean something different, such as lumping both the primitive and limited access states together as "the natural state". Or something. Whatever "natural state" means, it's a bad term: it's ambiguous and overloaded with meaning from other disciplines. Nor is "natural" the defining characteristic of a natural state in the way that "limited access" defines, well, limited access orders. I'm still reading, but with much dismay as part of the foundation of the understanding I thought I was building is undermined.

Update 2: A classmate takes pity on my poor reading comprehension and points out where in the paper North defines "natural" as another term for "limited access". I continue to believe the paper would be better if the term "natural" was removed.

• p 5:

  Social orders are composed of constituent systems, such as the economic, political, military, and religious systems. ... Our framework acknowledges that political and economic systems are organically related, as they are both parts of the same social order.

• p 6: political and economic systems are interdependent. So "development economics and the international donor community" both keep failing to promote development because they can't or don't change both systems simultaneously.
• p 10: "every society has to develop mechanisms to ensure or restore order. The benefits of even moderate limits on violence are large enough to gain support from most non-elites as well as elites." I've thought about this in the context of China previously, but I suspect that this is the single strongest explanatory factor for popular acquiescence to dictatorship and authoritarian regimes. Note that mortality from violence is sharply up in Iraq from pre-2003 levels.
• p 11: an economic explanation of how two neighboring warlords might reach peace: the economic advantage of peace is incentive to make "credible commitment" to peace and set up a social order. Note that this mechanism only provides incentives to limit violence, not to renounce it. They're still warlords, maintaining both their internal political power and the state of peace through the credible threat of violence.
• p 12: "modeling the state as a single actor is inherently flawed. Unless we understand the dynamics of relationships within the organization of the state, we can never understand the interrelationship of politics and economics." Yay!
• p 14: "Recognizing and supporting elite organizational forms, that is by providing the institutional framework within which elites (and no one else) can form organizations, is one of the most valuable privilege that elites possess." A very formal way to say that The Man stays on top.
• p 25: "the clean break in the conceptual framework between the three orders is not matched by a neatly observable clean break in the historical record." Things are not very binary (recursion intended).
• p 26: transition from limited to open social order historically takes about 50 years or less.
• p 27: "Dictatorships, strong men, juntas, aristocracies, monarchies (hereditary and not), single party regimes, and representative assemblies (of the elites not the masses) all seem to represent viable internal structures for a natural state in some historical circumstances. ... internal revolutions ... change the faces of the leading elements in the dominant coalition without changing the nature of the social order." Q: Which order best describes Singapore? "... the same institution will operate differently in an open access order than in a limited access order. ... Elections, for example, work differently ..."
• p 30: typo: "If the coalition becomes to large,"
• p 32: the difference between the natural state and limited access orders. Er, maybe not. See my update at the top. I think they are saying that the difference between "primitive" and "limited access" is that limited access is a more impersonal, scalable version of "primitive."
• p 36. "Neo-classical economists believe that prices always work to allocate resources and have done so throughout all of human history." But this is probably wrong (paraphrasing) because elites often have monopolies but don't charge monopoly prices, as a bribe to other elites to maintain loyalty. So price-based signaling has probably been broken for much of human history.
• p 39. Broken sentence: "The ability of entrepreneurs to perceive new opportunities to capture rents and to form organizations to capture those benefits."
• p 39. The authors weigh in on the "democracy leads to economic growth" argument, by taking up the inverse position: "Sustaining competitive democracy is possible only in the presence of economic competition and the emergence of sophisticated economic organizations."
• p 39: "... the open access state suppresses alternative sources of violence. Open access orders that fail [to do so] typically fail to remain open access orders. ... Further, the illegitimate use of violence by the state can be identified and policed by sanctions against members of the government. [Footnote:] The rules about legitimate use of power must be clear, typically through constitutional “bright lines” that make it clear when those in power have violated the rule." Which would lead me to two conclusions regarding the US: first, the erosion of the rule that only the Congress can declare war is threatening our capitalism and our democracy. Second, impeaching any of the recent presidents who waged war without a declaration of war would help restore our capitalism and our democracy.
• p 43: Agreement with the "neo-Tocquevillean" view of civil society, though not using that term.
• p 45: typo: " A key way to limit the stakes of power at issue in political competition is to specifying a range of rights, including economic rights, that the government must not transgression."
• p 50: The explanation for transition must include only changes which are, at the time of adoption, in the interest of the dominant coalition. (The same principle is found in biological evolution.) So I guess radical change that ultimately harms the dominant coalition is possible only through unintended consequences, external forces, or ... what? Revolution?
• p 51: "The central feature of the transition is the development of impersonal exchange among elites." Huh. That sounds right, but is bemusing because another point that I'd been thinking about before coming to school, and which has been reinforced in classes, is the importance of interpersonal relations in successful projects and organizations. I guess that's not exactly the same scale or locus (whatever locus means) that the article is talking about, but still. Certainly my willingness to buy things over the internet, perhaps the most impersonal transaction possible, helps the economy, but I don't see that as an exchange among elites.
• p 52: the doorstep conditions: rule of law among elites, perpetual forms of organization for elites, political control of military. Perpetuality depends on the ability of office holders to bind their successors. (And hence, the Roberts Court's attack on stare decisis threatens our social order. Boy, there's a lot of strong conclusions just one step away from the text.)
• p 53: typo: "The doorstep conditions fosters impersonal elite exchange "
• p 64: typo? "When elites see this extension to their advantage, access natural states have an incentive to increase access." Another: "Moreover, having created the institutional mechanisms for maintain rule of law among elites"
• p 64: Transition mechanisms. First, fiscal mechanisms. Example: "banking. In the 1810's Massachusetts set up a system of taxing bank capital. The intent of the tax was to limit entry! But the state soon realized it obtained more revenue from the tax on bank capital than from dividends on bank stock in the banks the state was trying to protect. The state decided to sell its bank stock, and proceeded to allow open entry into banking. ... open access incorporation in banking, what is called “free banking” in the United States, began spreading widely in the 1840s."
• p 65: second mechanism: the institutions surrounding representation. Third mechanism: international competition.
• p 68: "Early corporations were created explicitly to generate rents by giving one group privileged access to an organizational form ... Once the corporation had been accepted as a legitimate organizational form, however, it was actually relatively easy to make minor changes in the institution itself that had dramatic effects on the polity and economy."
• p 69: "As a result, important pieces of the transition may occur without obvious or overt institutional change."
• p 70: "We have termed the political and economic structure of the limited access order the natural state for a reason: it is the natural form of human society." So the primitive order comes before the limited access order, and the limited access order is also called the natural state? Huh? Confuse much? And now we are changing to an "unnatural" state with liberal capitalist democracies? I think it's better just to not use the term natural state.
• p 71: "Natural states are not failed states, they are typically not produced by evil men with evil intentions, and they are not the result of pathologies in the structure of these societies. Nothing is unnatural about natural states. And because natural states are not sick, policy medicine will not cure them." But they are the result of pathologies in the structure of these societies. Just like the tragedy of the commons, individual people act rationally but the society is irrational. Q: What is that if not a pathology? Perhaps they mean that the culture, rather than the society, is not pathological?
• p 73: "only eight countries have made this transformation [to an open order society] since WWII. [footnote:] Moreover, none of these countries were the focus of international donor agencies." Q: Which eight? Korea, Taiwan? Some in Europe?

Last July, when our class was welcomed by the dean, we were all asked to stand up by country. This produced an ugly moment when one of the Chinese students obsequiously invited the Taiwanese student to stand with them, since Taiwan is a part of China. He demurred.

Last night this tedious controversy resurfaced in the context of an invitation to class party. I don't mean that the issue of Taiwan is tedious; it's very interesting and raises issues about self-determination and national sovereignty that question the fundamentals of our modern global political system. I mean that the mechanical repetition of the Chinese party line like a Pavlovian response is tedious. All eight Chinese classmates are perfectly nice, smart people whom I like and who are very courteous when I speak my few words of Chinese. But when the propaganda takes over, they're as much victims of uncritical thought as the Americans who parrot lines about "fighting them over there so we don't fight them over here." Please, give it a rest. You aren't winning any friends when you talk like this. The problem isn't the political dispute, it's the insulting vapidity of reflexive stridency: "I strongly protest .... According to the international conventions, Taiwan should be named as Chinese Taipei."

Oh please.

The other interesting question is why all eight Chinese students acted in concert. I hadn't thought all eight to be so doctrinaire or nationalist. Perhaps some of them know or suspect that some of the others are reporting to the Party.

What are the fundamental problems of political institutions?

• How does government control the governed, and how does it control itself?
• How do we reveal and aggregate preferences?
• How can we provide public goods?
• who will guard the guardians
• Joel's note: how about, how to guarantee the rights of the minority?

Federalism and compound republics

• Individuals, not the state or the collective or the church, are the basic unit of design and analysis. C.f. China or Singapore: the interest of the state trumps the interest of individuals
• government's purpose is to use individual interests to constrain and order individual behavior. "that the private interest of every individual may be a sentinel over the public rights." (Federalist) C.f. Marxist theory, that "class consciousness" will motivate people. Joel's note: I guess, putting it that way, that both are right. People do act out of individual interest, but that interest is determined in a cultural context in which class is very important
• When individual, rational pursuit of self-interest results in an emergent irrational result, we have a collective action problem. Republics solve this by providing a mechanism to reveal and pursue a more rational collective outcome.
• Individuals can learn, to institutional design is always experimental.
• covenant approach: do unto others what you would have done to you.
• Government institutions are pluralistic. There are 89,527 units of government in the US. (About 3000 counties, 36,000 cities and towns, and 50,000 special districts, half of which are school districts.) C.f. Indonesia or the Philippines, where most provinces have only limited authority to create governments (although there are autonomous exceptions: Aceh, Kashmir, etc).
• The constitution provides the basic rules for everything else, including rule-making.
• Perpetual contestation is built into the system. Conflict elucidates information, clarifies alternatives, stimulates innovation, helps achieve complementarity of interests. Stalemates are better than a dominant center.

Besides executive, legislative, and judicial, what other institutions often serve as branches of government? The military, media, civil society, the monarchy (yes, in some countries the monarchy still plays a meaningful role), the church.

Discussion: When you have a democracy, it's unlikely to go back to authoritarianism. But Pakistan has had a real democracy but had the legitimate president suspend the elected national government twice and local government once. Both the president and the government were elected; who should trump whom?

Ulysses as an example of the credible commitment problem. In order to prove his promise, he ties himself up. Joel's note: bad example: Ulysses ties himself up because he needs to be able to hear the sirens without acting under their control. He needs to be able to hear them so that his crew, all wearing earplugs, know when it's safe to take out their earplugs. Which raises the question of why the sirens didn't force Ulysses to prematurely signal the end of danger. I guess their control wasn't that granular. But either way, Ulysses and the sirens was just a tactical problem, not a classic commitment problem.

Which elements of federalism preserve markets in the US?

• Single-party system provides a credible promise that government policy will not change over the near or medium term.
• Hierarchy. At least two autonomous levels controlling the same territory.
• Trade is protected as the federal level (an example of both the minority (free traders) having protected rights over the majority (people who would gain from parochial barriers), and of the collective action problem being solved by ceding local power to an aggregated authority).
• Hard budget constraints on lower levels. Only the national government has any legitimate reason to run deficits.
• Restrictions on federal government plus competition between lower levels limit the growth of economic regulation.

How does federalism interact with markets in China?

• Hierarchy. Because of the multi-level hierarchy, there is a series of principal-agent problems.
• sub-national governments have regulatory control
• Dependence on foreign direct investment
• Hard budget constraints on lower levels.
• Corporations are the main contributors for local government revenues.
• State-owned enterprises pay the government, which redistributes back to local governments. Local governments provide most of the social goods.

  Discussion: 18 million people in Shanghai. Medical care comes from employers; unemployed people do not have substantial safety nets. Gamesmanship between provinces and central government. 75% of Chinese are farmers, and when they are cut off from their land, they go through the cracks. New initiatives to organize groups of farmers into shared medical and pension funds.

• Individuals pay income tax to the provincial government, which forwards it to the central government, which redistributes among provinces.
• Provinces compete for big projects funded by the central government.

Problems with decentralization

• Diffusion of authority, leading to bargaining between central and local governments
• Unequal distribution between local units
• If local governments can borrow, the total government borrowing at all levels could be excessive and come at the expense of private investment. Happening now in the Philippines.

The case of Singapore

The framers of the US constitution did not trust single parties; Singapore's philosophy is that the single party is suited to run the country, and depends on internal controls for checks and balances. In China, smart people join the party to get ahead. Singapore recruits the smart people. In Bangladesh you join the army to get ahead and later go to politics. In other countries families determine opportunity and succession.

Side discussion, eventually reaching the point of emigration. Here's the punchline:

Consider this: every year, 6,000 to 7,000 Singaporeans leave to settle down overseas, including many professionals. This is 15% of today's annual births, probably the highest proportion in the world.

One website survey, which is unverified, has put Singapore's average outflow at 26.11 migrants per 1,000 citizens, the second highest in the world - next only to East Timor (51.07).

Mechanisms for preference revelation

• direct democracy
• representation

LKY prefers a trustee model to a representative model; if politicians represent narrow constituencies, they will promote factions and racial disharmony.

Arrow's theorem: it's impossible to have voting which is both fair and consistent. Joel's note: yes, but only if there are more than two choices. Bottom line: those who control the agenda can manipulate social choice.

Direct democracy problems: tyranny of the majority. Bundling problem: candidates come with an array of positions, and you may agree only with some of them but you're stuck with all of them.

Other mechanisms: Singapore. Government determines preferences from feedback units, meet the people sessions, people's associations, appointed opposition. Narrow interest groups can dominate diffuse public interest.

Principal-agent problem where representatives spend public resources to win elections.

How political contestation affects the economy

Proportional rule leads to more parties than majority rule; more parties leads to more pandering and higher budget deficits. Example: Indonesia vs UK. Also fiscal reform is harder.

Problems with representative government

• provide an avenue for special interests and geographic constituencies to take from the whole
• electoral cycles and the need to address constituents distort policy

Discussion: it doesn't seem like the representative system, and the US constitution, really address the economic issues. It was designed for political reasons, not economic considerations.

Joel's Q: Modern political discussion, especially since WWII and even more especially since 1989, is completely dominated by economics and, in particular, with growth and "developed vs developing". What was it like hundreds of years ago?

Modern institutional design in liberal democracies includes divesting some fiscal powers to an independent or semi-independent entity.

Christine Loh, et al., “Climate Change Negotiations: An Asian Stir Fry of Options,” Civic Exchange and Singapore Institute of International Affairs

Wikileaks.org is once again directly accessible. I checked it out and noticed that in late 2007 someone leaked "the names, group structure and equipment registers of all units in Iraq with US army equipment". Various grains of salt to be taken with this information, not least of which the suspect quality of the material even if it is all completely authentic.

My highlights of the highlights include:

• At least 2,386 backpack tear gas sprayers. "The use of chemical weapons such as CS gas for military operations is illegal," so these are either being used for war crimes or domestic policing by US troops.
• 39 automatic cash counting machines
• 5 "portable mobile chemical and biological stations". This brings to mind the old joke, how do we know Hussein has weapons of mass destruction? We have the receipts from when we sold them to him.
• Almost half of the 950,000 individual items in the spreadsheets are pieces of body armor.
• The most common items after body armor are radios and electronic counter-measures (presumably radio-bomb jammers)

For the first two cents, see here.

Here are a few more beliefs to provide context for what I want to say today.

• The media is, on average, terrible. Certainly the English-language media I have ready access to, probably all of the rest of it. Nor was it likely much better in the past. Nor should this be surprising; we depend for basic information about reality on an institution whose primary mission is profit, not education. Public media are somewhat better, but have plenty of other problems. I hope nothing in this paragraph is in way news to you.
• The blogosphere is amazing but not a panacea. Many blogs repackage commercial reporting. The term blog is misleading; it might be better to call it "the public". It's pretty amazing that technology has given the public a voice^*; from blogs I get reporting both large-scale and small, commentary, and analysis, and most importantly I get a much wider variety of biases. Blogs plus mass-market media together are imperfect but much better than either alone. Losing blogs and going back to only newspaper and magazines, I would feel blind and ignorant. (Going back to TV only I would feel blind, ignorant, and neurologically impaired.)
• Media coverage of the 2008 US presidential election is awful.

That said, the specific analysis I would like to see, and have provided to my fellow American citizens in the channels they frequent, would be a more realistic analysis of the types of political/personal compromises the candidates have made. For a specific example, consider the Obama/Pritzker issue. Obama's "Finance Chair, Penny Pritzker, owned a failed Chicago thrift that helped pioneer sub-prime financial instruments and faced accusations of abuse."

What I want is realistic perspective. Any politician at any level of success will have made some compromises that make them, and their supporters, uncomfortable—I don't think it's possible for a democracy to function without this happening. But how big of a deal is this? Presumably if Obama's team presented him with two choices for Finance Chair, both of equal stature and capability and rolodex size etc etc, he probably would have picked the one without the sub-prime skeletons. But things probably didn't happen like that. I don't have any more information on this issue, nor the inclination to see it as significant enough to dig deeper. Should I? Just as the candidate probably had to make a snap decision to offer someone with a fat stack of checks in hand his Finance Chair, so we have to look at all of these things and decide what might be more or less important than it seems and how much, if any, research we're going to do.

I happen to believe that most very wealthy people probably got that way by taking advantage of other people to some extent or another. I haven't seen anything in life to suggest that having a really good idea or being a really good person (either good as in nice or good as in capable) is exceptionally lucrative in and of itself. So the odds are that any candidate for Finance Chair is going to have some bloody dirt under their fingernails, while the US political system simply requires candidates to spend hundreds of millions of dollars. In the grand scheme of things, this is less troubling than the fact that McCain is running on a "pure from lobbyists" platform while his chief political advisor is a major lobbyist who has admitted to making lobbying phone calls from McCain's campaign bus. Or that Obama's chief economic advisor, a position for which Obama probably had the pick of the litter, comes with baggage and probably screwed up big-time with the Canada/NAFTA thing.

My point is that, if I could suggest a single, modest, plausible change in mass-market media reporting on the campaign, I'd like each potentially scandalous gotcha to come with context, and I'd like to see the reporter's professional opinion on if the gotcha is the real deal, or something everybody does that inevitably comes with the territory and ought to be ignored, or something that everybody does that inevitably comes with the territory with none-the-less ought to be exposed and shunned every single time it happens. I'm sure all three types abound.

And when I read something, I want to know which type it probably is so I can decide how much I care.

Addendum: It's true that taller candidates tend to win more often, though apparently not to the extreme that urban legend suggests. Still. Let me tell you a story. Two days ago, Kona and I were jumped by a feral kitten, which I fought off while Kona ran away screaming. This morning, Kona was running ahead of me and looking over her shoulder when she took a spectacular header into a drainage hole. Between the two of us, we accumulated six bloody scrapes in two days. All of these inquiries occurred at roughly the same distance from the ground. However, for one of us the cuts are distributed around the shins and ankles; for the other, around the face. Obviously, there is a substantial advantage to height, and we should not be so quick to dismiss the evolutionary benefits of this bias in presidential selection.

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* if you are literate in one of the global languages and have internet access, and some level of freedom or bravery, and the wealth (or gender) to have spare time

Conflict

Evolution of thinking from avoiding conflict to managing conflict. Task-related conflict is more productive than socio-emotional conflict, which leads to escalation.

• Task independence
  • Pooled interdependence: units can function independently but are part of the same organization. Minimal task conflict.
  • Sequential interdependence.
  • Reciprocal interdependence.
• Goal incompatibility
• Scarce resources
• Differentiation
• Ambiguity
• Communication problems
• Reward structures

Joel's note: A classmate and I have been talking about conflict in terms of fundamental versus superficial causes, more or less agreeing that either or both can cause or resolve conflicts (sort of like how good pitching beats good hitting, but good hitting beats good pitching). And these causes fall variously into either category. Which reminds me that there's a third category: the conflict behavior programs that have evolved in our brains. Both superficial (communication problems) and fundamental (goal incompatibility) problems can serve as triggers for socio-economic conflict and escalation. And the next step of that argument is, are those emotional responses detrimental or, perhaps, an alternate form of intelligence?

Robbers Cave experiment, yet more data that could not be acquired since the rise of cursed Human Subjects Committees. Psychologists posing as camp counselors got two sets of kids to form in-groups, then compete with each other, then cooperate with each other.

Joel's note: If we wanted to generalize from this single data point, we would note that the Summary has direct implications for Global Issues class:

we discarded certain procedures in [the cooperation] stage, such as introducing a "common enemy" ... [cooperation between previously hostile groups was obtained through introduction of a series of superordinate goals which had compelling appeal value for both groups but which could not be achieved by the efforts and resources of one group alone. When a state of interdependence between groups was produced for the attainment of superordinate goals, the groups realistically faced common problems. They took them up as common problems, jointly moving toward their solution, preceding to plan and to execute the plans which they had jointly envisaged.

Once again I'm the designated resource for Americana, and once again I get it almost right. "Winning's not the best thing, it's the only thing." Bzzzt!

A major change in anglo-saxon culture: people now say "I work with" when referring to their boss, rather than "I work for".

Organizational Politics

A basic taxonomy:

• Attacking or blaming others
• Selectively distributing information
• Controlling information channels
• Forming coalitions
• cultivating networks
• creating obligations
• managing impressions

Note: Chinese has an idiom, "the 36 strategies"

Presentation on Case Study

Slum Rehabilitation in Mumbai. A case study of one project in which several NGOs collaborated with Citigroup to fund a mixed market-rate and free housing project in Dharavi, a slum neighborhood in Mumbai. Complications included disagreements about the viability of the project and the amount of financial risk the various actors should take. Joel's note: You can take a tour of Dharavi. And I just learned that Dhoby Ghaut, a subway station here in Singapore, is actually a term for Indian laundries.

A music video about Dharavi. One million people in 535 acres, with 150 toilets. More pictures.

The actors:

• SPARC
• NSDF
• Homeless International
• Slum Rehabilitation Authority
• Citicorp, Citigroup, Citibank
• ?? The presentation identifies one with a picture but no name
• Rajiv-Indira Cooperative

Why is there an alliance between NSDF, SPARC, and MM? SPARC started the alliance to find financing for people to build houses.

SPARC and Citibank reached the first or second stage in Austin's model of NGO/business relationships. More than just money for reputation.

To analyze: where is the money from? Who carries out the construction? SPARC persuaded Citibank to give loans to the project; Homeless International provided loan guarantees. (But Citibank didn't actually provide money in early stages; SPARC provided the initial funding, not Citibank.)

Complications:

• market drops reduced demand for the TDRs, transferable development rights (to build higher than local limits), that the free housing would generate
• New Coastal Regulation Zone II rule also threatened the TDRs.
• Citibank made new analyses suggested that nobody who could afford the market-price apartments would want to live near the slum, or vice versa. But the local activists believed that there would be plenty of non-impoverished people living in the slum, for example those owning some of the 15,000 single-room factories within the slum.

Original financing: US$750,000. By 2001, Citibank's actual input was $190,000, and SPARC and NSDF contributed $435,000. Final cost was $1.5 million (but whose money was that?).

Very limited government involvement. Maharashtra Slum Areas Act.

Classmate note: The NGO participation in building housing in Dharavi incented local slum dwellers to stay put instead of participate in government programs to move them to more distributed housing.

More recent news: a $2.3 billion project to bulldoze the whole slum and put up free housing for the poor, though "outraged local activists say the plan will benefit wealthy developers instead of the poor, leaving many with no place to go." The plan "calls for apartments to be built for the 57,000 families the government says live there." Yeah, if there are really a million people there, then that's not going to turn out well. The government plan would provide 225 square feet for each family.

Class discussion

My turn, with a classmate, to lead discussion this week.

Second case study discussion

Identifying the key points from case (not the Mumbai case, the other case; Steamburgh, in "Midstate" USA):

• 40% poverty rate, high unemployement
• tax base comprises property taxes only
• revenue shortfalls
• Growing private sector, 40% services, financial sector with $75B assets under management.
• Robindale industries, $5B in assets, international sales, cyclical employment. Their foundation supports education and art; they have renovated 2 city blocks of retail space.
• Robindale calls the mayor to invite him to a business group dinner, where they will probably ask for support to build a new stadium.

Bilahari Kausikan, Second Permanent Secretary of the Ministry of Foreign Affairs, Singapore

What is East Asia? The definition has changed over time; it's a political as much as geographic definition, and now comprises countries with great economic growth. The region is being stitched together by trade, etc. But interdependence doesn't necessarily lead to harmony.

What does all this mean? Not too long ago you could sketch things out just by looking at US-China-Japan relations. Now it's a more complex mix. Example: China and India. They fought a war, but then tried to ignore each other.

A need for some kind of mechanism to improve stability. Experiments such as ASEAN plus 3. Three theoretical scenarios for ASEAN as China and India grow, with ASEAN as the land between. ASEAN could get torn in half. Or it could be squashed flat as they take up all the political/economic space. Or it could draw together.

Q: You mentioned Japan-India, which I've never seen discussed.

Q: China-India relations are discussed much more outside of India than inside.

A: Nobody has a plan in these relationships. They are moving forward one step at a time.

A: I don't believe your ethnic origins give you an advantage in foreign affairs. Maybe if you speak the language. But I'm half Indian, half Chinese, and I don't know anything about either.

A: Even the smartest idea of a small country can be ignored, but even the stupidest idea of a big country must be attended.

Q: What about Brazil? A: The distance, and not only geographic, between South America and East Asia is very great.

Joel's note: The question I'm not going to bother asking: What would it take for Singapore to stop collaborating with the generals in Myanmar?

Q: What's the relationship between Singapore and Africa? A: Superficial.

Q: What are the things ASEAN can do about Myanmar and North Korea? A: Very little. What can we do? Are we going to get together a multinational coaliting, invade, and institute regime change? How could sanctions work on a country that has little engagement with the world? Countries in South Asia can't afford to take a moral stand because of strategic interests: stability in the region. It's a buffer between China and India.

Joel's note: If I get a chance, I may ask my question after all. Here's an interesting rebuttal to his point:

an e-mail attributed to [the son of Myanmar arms dealer Tay Za] and reviewed by Asia Times Online announced, "US bans us, we're still fucking cool in Singapore. We're sitting on the whole Burma GDP. We've got timber, gems and gas to be sold to other countries like Singapore, China, India and Russia."

He reminds me of LKY. Very smart, very glib, seemingly very frank; if you listen critically you'll notice some very repugnant justifications. He does giggle a lot more than I've heard LKY.

A: Myanmar's neighbors will not join a sanction unless there is a UN Security Council resolution, which China will veto. They want their buffer. Singapore has become more vocal, criticizing Myanmar, but we still have to work within the ASEAN structure.

Brad Smith, Microsoft's general counsel.

Starting in the late 19th century in the US, companies started having their own lawyers.

International law in the 1970s was a very specialized practice, but now international law is virtually a part of all law, because business and technology go around the world. This is especially true of intellectual property law. Back in the 1980s, it was possible to get through law school without taking a class in IP law, which was considered a bit of a backwater.

This is because so much of the value being created today consists of intellectual property, not real property. Microsoft would not be among the world's biggest companies if it only made hardware. It's very costly to create software but very easy to copy and distribute it. Is this the recipe for economic failure? You would think it would be very difficult to create a business like that. But many companies do this, create lots of jobs, employ lots of lawyers. It is the copyright law, and only the copyright law, that stops people from engaging in that massive theft, if you will.

What is the fundamental ingredient of your economic value? For many companies, research and development. This is true for IT, pharmaceuticals, films, books, music. A lot of what we value in the 21st century is fundamentally about the creation and protection of intellectual value. So globalization is very important to a company grounded in intellectual property. Lawyers at these companies play an especially interesting and important role. Lawyers are important anywhere, but at an IP-based company they are critical. (Joel's note: see the "strategic contingency model" in this week's PP5503 reading. In particular, this seems like a pertinent quote about the consequences of the model: "But there are two complications: the job to be done tends to grow itself. ... Second, power institutionalizes and lingers beyond its justification.")

The way people have changed the way they think about intellectual property will continue affecting you [the young lawyers in the audience]. In the past, just by copying things on disks and walking around with disks, people could disseminate software around the world in a month. But now computers are all connected to each other immediately.

A big reason security has been such an issue for our software this decade has been that we created our software with the assumption that it would not be connected to other computers. Well, we also had to rethink how we deal with intellectual property. Lawyers are trained to advise clients about how a court in the future is going to decide a case based on looking at the past. And yet [in IP law for global companies] now we are trying to make predictions when the future is murky, with many many governments reaching different or even opposing conclusions.

Meanwhile two other things are going on in the world. First, more companies are doing business in places that don't have many lawyers. While there may be too many lawyers in the US, there are many countries that may not have enough lawyers to have adequate rule of law. Cambodia has four times as many people as Singapore but has fewer than 300 lawyers. (a bit more data on lawyered up countries)

We were talking at Microsoft about how to reduce piracy in a certain region, but someone said, there are no lawyers. When I say there are 187 lawyers in Mozambique, that includes all the judges, all the government staff with law degrees. We've tried to support through our philanthropy more lawyers in the world.

People have come to expect and demand more from companies than in the past; some of this may be the fault of the companies themselves; for example, Enron. Sometimes, now, lawyers have ended up being the conscience of the company. People look at scandals and ask, what where those people thinking, and were the lawyers awake? You realize that lawyers have a special responsibility. (Joel's note: Brad Smith is also the chief compliance officer for Microsoft). People trained in the law are trained very broadly, and can give advice that starts with, is it legal, and ends with, is it right?

The world isn't really flat; I went to bed here in Singapore at 1 am and got a call at 3 am. But the person at the other end often has an interesting question.

Questions

Q: You said there are some countries where Microsoft doesn't wish to pursue patent rights. Why? A: If it costs nothing to apply for patent rights, every company would everywhere. But it can be very expensive. Microsoft spent US$135 million on patents last year (I think he said); to patent everything in every country would have cost us closer to $350m. (long-winded answer trimmed). I really think it shows that we need to reform the patent system around the world. It's much too expensive and too complicated ; if it's so bad for Microsoft, think how hard it must be for smaller companies. There's been cooperation between the EU, Japanese, and US patent offices. I will be very surprised if the patent world doesn't look very different before the end of our careers. I think it will be possible to start a company in Singapore and patent something around the world without filing 187 different applications.

Q: Can you give an example of a recent social responsibility issue Microsoft has had to deal with? A: The article by Michael Porter and someone else last year in the Harvard Business Review was very useful. Three kinds of CSR: what you do locally? What do you do globally? If we create software that isn't secure, we create problems for other people. Parental controls for software. The third area, the most interesting: think about steps that will make society better and help you grow. For example: one of the most important things for people (for example: kids, unemployed people, people outside their home countries) to have is not just access to computers but knowledge of how to use a computer. So we've asked ourselves, we had a meeting just two hours ago (I guess that's why he was 30 minutes late), what can we be doing to give people access to these skills?

Q: for a period of time, Microsoft and EU has been having discussions, of great financial impact. I'm trying to put this in context of what we've been discussion. ... It's a business, so cost is very paramount. So in this discussion, which is the dominant factor, is it cost, or is the alternative even more costly? Was that why Microsoft took that choice? Could it have been prevented? Was it an issue of intellectual property? Perhaps Microsoft looks at it as IP and the EU as antitrust? A: It's many things. it's a good example of the law changing over time. The law is always changing, and with new technology the law is changing in ways that no-one can predict. An example from the state of New York, the most important US state in terms of commercial law. If someone designs a product, do they owe a legal duty to someone who uses it? In 1871, the court of appeals ruled that the answer is no, there is no duty beyond a direct contractual relationship. In 1916 the same court again ruled on the same question, again unanimously, but in the opposite direction. In 1871 it concerned the building of scaffolding around a house. In 1916 it concerned Buick automobiles. The automobile changed every aspect of the United States: mobility, banking, the law. If you change the world, you change the law, but not necessarily in ways that are easy to predict. In the 1970s and 1980s there were many cases in the US concerning IBM. Could IBM add new features to its products? IBM was sued by a company that made a utility for IBM software, and the courts said that was not a violation of antitrust. IBM settled with the European Commission in 1984. But in this decade, the law has changed in both the US and EU. Microsoft, we're not going to treat you the same way we treated IBM; that is not the legal standard any longer. Even though we said in the 1980s that IBM does not have to open its standards, you do have to. I'm not going to argue the law; we did that and we lost. It's important to step back and say is this good or bad? It's less focused on encouraging innovation and more focused on a level playing field. The question is now, where do governments in Asia want to place their priorities?

We have a student presentation on the readings. This week the overlap between my two classes from this professor is large and disorienting. In 5263, this Tuesday afternoon class, we read a lot about corporations and climate change, and had homework on what corporations in our own countries are doing about climate change. In 5262, Wednesday afternoons, we read a lot about public-private partnerships and NGO/corporation partnerships. I ended up handing in my 5263 homework in the right place at the right time but with 5262 in the heading.

Presentation

Corporate participation: too little too late. Joel's note: Was Y2K an example of too much too late? I wonder if there's an authoritative analysis of the Y2K effort which answers the question of, was it mostly a bunch of wasted effort or was a big disaster really averted?

Class activity: simulation of WBCSD meeting.

Joel's note: if you would like to bend your mind, read this article. It's in CRO magazine (yes, there's a title Corporate Responsibility Officer, and yes, there's a magazine for that). It's about giving awards to the best PR firms in Corporate Responsibility. 'nuff said.

The Wikipedia page on the WBCSD provides another good laugh. Remember that this is an industry group built on the ashes of the GCC, a greenwashing group whose swan song ended with "Carbon dioxide: they call it pollution; we call it life.". Here's what Wikipedia says about the new group:

Membership of the WBCSD is by invitation of the Executive Committee to companies committed to sustainable development. Among its members[9] are well-known companies such as General Motors, DuPont, 3M, Deutsche Bank, Coca-Cola, Sony, Oracle Corporation, BP and Royal Dutch Shell.

The student presentation has included BP, Ford, Toyoto, and now Sinopec presentations. These faithful presentations include some of the same inadvertant self-parody as the GCC ad. Joel's side research: Japan's fuel efficiency standards for cars will rise to 40 mpg in 2015. Given all the complexities and tricks in efficiency standards, you probably can't take that number at face value; however, Japan also plans to extend fuel standards to trucks, which is unprecedented.

Sinopec has dramatically improved its efficiency per RMB of income over the last five years; e.g., much less water consumed, CO₂ emitted, etc. This is good, of course, but should probably be interpreted as an indication of how staggeringly inefficient and destructive Chinese industry has been, just as China's enormous growth numbers reflect in part just how devastated China's economy was under Mao.

Tata. Exxon: the student who was supposed to role-play an Exxon flack at the WBCSD refuses even to pretend to work for Exxon.

Joel's side research: here's a tidbit I wish I'd included in my homework:

The legislation [passed in 2007] thus effectively bars Washington [state] utilities from entering into long term financial commitments for any pulverized coal-fired generation unless they use some form of carbon sequestration.

And lest you think, as I did, that my casual browsing was wandering totally off-topic from the presentation, our presenters just said that two governors in the US have committed to greenhouse emission limits.

Analysis of 2207 UK newspaper stories published over a two-week period revealed that 60% came from press releases. Only 12% were clearly fully reporter-generated.

This is further confirmation of the notion that "press hit" is coming to dominate journalism. If you read newspapers and don't examine every story with the question, how did this story come to be?, you are being fooled.

I think we are covering the material from week 4's reading. Market power, monopolies, and regulation. Did I mention that Brad Smith will be talking at the NUS Law department tomorrow afternoon? The topic is "Globalization: The Changing Role of Lawyers In A Flat World". My dismay about the further propagation of a classic Friedman malapropism aside, I think it should be interesting. We'll see what he has to say about Microsoft's steady accumulation of billion dollar fines from the EU; it must be frustrating to buy off one government only to have another shake you down for more petty cash.

Detailed explanation via supply and demand curve (as our management professor says, economists have only one trick, that of drawing diagrams with crossing lines) of how a monopoly imposes a net social cost. That is, not only does a monopoly transfer more than a "fair share" of wealth from buyers to it, but an market with a monopoly has lower total productivity than a market with competition. Joel's note: A classmate previously opined that the key to making serious money is to make some kind of monopoly, c.f. Bill Gates and Carlos Slim. (But what is Buffett's monopoly in?). So the real meat in economics, especially in terms of public policy, is probably in figuring out how organizations make monopoly spaces in which they can rake in the rent while, presumably, hurting society.

If you regulate a monopoly by allowing them to earn a certain rate of return, they are incented to over-invest.

A legal cartel: OPEC. Joel's note: OPEC is only legal because there is no international antitrust law. I guess a libertarian would say that anything that isn't outlawed is legal, but I wonder about that from a linguistic standpoint. If there is no relevant law one way or the other, it seems neither legal nor illegal.

No mention of AT&T and monopolies should go without this picture.

Joel's note: if we are talking about monopolies in the context of Public Administration, especially in Asia, shouldn't we be talking about how many governments depend on telecommunications monopolies for tax revenue?

If a monopolist can perform complete price discrimination, it will operate with no deadweight losses, which is good for society.