(verzonden vanaf tablet)
Saturday, May 18, 2013
(verzonden vanaf tablet)
Friday, May 17, 2013
By James Kwak
The Federal Reserve is serious—about something.
On May 2, The Wall Street Journal reported that regulators were pushing to require "very large banks to hold higher levels of capital," including minimum levels of unsecured long-term debt, as part of an effort "to force banks to shrink voluntarily by making it expensive and onerous to be big and complex." The article quoted Fed Governor Jeremy Stein, who said, "If after some time it has not delivered much of a change in the size and complexity of the largest of banks, one might conclude that the implicit tax was too small, and should be ratcheted up" (emphasis added).
A few days later, Fed Governor Daniel Tarullo said roughly the same thing (emphasis added):
"'The important question is not whether capital requirements for large banking firms need to be stronger than those included in Basel III and the agreement on capital surcharges, but how to make them so,' said Mr. Tarullo, adding later that even with those measures in place it 'would leave more too-big-to-fail risk than I think is prudent.'"
Tarullo recommended higher capital requirements and long-term debt requirements for systemically risky financial institutions.
Last week, Governor of Governors Ben Bernanke quoted from the same talking points (emphasis added):
"Mr. Bernanke said the Fed could push banks to maintain a higher leverage ratio, hold certain types of debt favored by regulators, or other steps to give the largest firms a 'strong incentive to reduce their size, complexity, interconnectedness.'
"The Fed chairman acknowledged growing concerns that some financial companies remain so big and complex the government would have to step in to prevent their collapse and said more needs to be done to eliminate that risk."
It's important to note exactly what Stein, Tarullo, and Bernanke are all saying.
- Here's what they're not saying: Too-big-to-fail banks enjoy implicit subsidies and impose externalities on the rest of us; therefore those subsidies and externalities should be priced; and then those banks can decide whether they want to absorb those costs or make themselves smaller.
- Here's what they are saying: Too-big-to-fail banks are too big and complex and pose a systemic risk to all of us; therefore they need to become smaller and less complex; and the Fed will tweak the regulations until they become smaller and less complex.
What's remarkable about this? These three men—probably the three most important on the Board of Governors when it comes to systemic risk regulation (as opposed to monetary policy, for example)—all say that they know that the megabanks are too big and complex. They all say that accurate pricing of subsidies and externalities is not an end in itself.* They all say that the goal is smaller, less complex banks.
But here's what baffles me: If the goal is smaller, less complex banks, why not just mandate smaller, less complex banks? Why beat around the bush with capital requirements and minimum long-term debt levels? Those tools might be appropriate if you think huge, complex banks should exist but you want to make them safer. But if you've already concluded that banks need to be smaller and less complex, then they're just a waste of time.
They also betray a frightening naivete regarding corporate governance. The theory is that higher capital requirements, for example, will lower banks' profits, which will upset shareholders, who will eventually force the board of directors to eventually convince the CEO to break up his empire. This scenario, unfortunately, depends on the premise that American corporations are run for the benefit of their shareholders, which is only roughly true, and even that often requires long, expensive, and messy shareholder activist campaigns.
Instead, there's an obvious solution: rules that limit the size and scope of financial institutions. But Bernanke has ruled out "arbitrary" size caps in favor of his cute regulatory dial-tweaking.
Again, Bernanke's position might be defensible if he wasn't already sure that today's banks are too big and complex. Then it might make sense to tweak the incentives and see how the market reacts. But if he knows they are too big and complex, he should eliminate that risk in the simplest, most direct way possible. If he's not sure how much smaller and simpler banks need to be, he can do it in steps: set one set of size and scope limits, see what he thinks about the outcome, and then set another set of limits if he's still unhappy.
To use a crude analogy, let's say we're concerned about guns on airplanes. Ben Bernanke thinks, like I do, that guns on planes present an unacceptable risk to the safety of air travel. But his approach is to charge a $100 fee for anyone who wants to bring a gun onto a plane. If people keep bringing guns on board, he'll raise the fee to $200, then $300, and so on until people stop. The sensible, obvious solution is to just ban guns on planes. But that would be "arbitrary."
* It is theoretically plausible that one should simply price the subsidies and externalities and then let the market determine whether big banks provide enough societal benefit to offset the costs they impose on the rest of us. But that is not what Stein, Tarullo, and Bernanke are saying.
(verzonden vanaf tablet)
Thursday, May 16, 2013
Onze nieuwe minister voor Buitenlandse Handel en Ontwikkelingssamenwerking (Of is het omgekeerd? Eerst ontwikkelingssamenwerking?) maakt een beetje een rare start. Zo stelde zij op de Afrika-dag van de Evert Vermeer Stichting in november dat er een serie vragen was over investeringen en handel die je alleen in samenhang kunt bekijken en zei zij vervolgens: 'Ik ben de eerste minister in de geschiedenis die dat ook echt gaat doen. Jarenlang is erover gesproken, jarenlang had iedereen de mond vol van coherentie, jarenlang gebeurde er te weinig. Dit kabinet durft wel een nieuwe weg in te slaan'.
Ho, ho denk ik dan, wat bescheidenheid zou sieren. Met die bescheidenheid hebben wel wat meer politici problemen, maar van een oud-voorzitter van het EVS-bestuur zou je ook wat kennis mogen verwachten. Die zou ertoe kunnen leiden dat ook deze nieuwe minister erkent dat ze voorgangers heeft, onder andere twee partijgenoten, die het coherentie-dossier altijd hoog op hun agenda hebben gehad. Dat dossier omvat eerst en vooral Europese Zaken, zoals het Gemeenschappelijk Landbouw Beleid en het Gemeenschappelijk Visserij Beleid. Het gaat om landbouwsteun en exportsubsidies en om visserijverdragen. Maar ook om immigratieregelingen en bescherming van consumenten op gezondheidsrisico's.
Jan Pronk en Eveline Herfkens, maar zeker ook Agnes van Ardenne, hebben deze onderwerpen in de ministerraad en in Europees verband altijd hoog op hun agenda gehad. Zij werden – en dat heeft deze minister niet – bovendien ondersteund door een uitstekend coherentiebureau, dat hen qua onderzoek en beleid ondersteunde. Ze hadden ook niet die twee hoedjes (bij een minister spreek je immers niet over petten) van deze minister. Deze minister schijnt te denken dat Buitenlandse Handel (lees: exportbevordering) en Ontwikkelingssamenwerking mooi samengaan. Er is echter tenminste twee decennia aan geschiedenis in de jaren zestig tot en met tachtig, waarin die exportbevordering in onze hulp leidde tot heel wat 'witte olifanten' en 'kathedralen in de woestijn', mislukte en verliesgevende projecten die geheel los stonden van hun omgeving. Er zijn ook twee dikke evaluatierapporten van de IOV/IOB, de evaluatiedienst van het ministerie, die aangeven dat hulp en handel in het speciale programma daarvoor niet goed samengaan. Kortom, de minister heeft twee hoedjes op waarvan de kleuren behoorlijk kunnen vloeken.
De vragen die onze nieuwe minister in samenhang verder wilde bekijken gingen onder andere over de inzet van ons leger en de investeringen van het Nederlandse bedrijfsleven. Daar stuit minister Ploumen al op een tweede groot probleem. Afgezien van het feit of we met ons huidige leger nog een behoorlijke inzet kunnen plegen voor internationale veiligheid, is er het gegeven dat er nooit een stevige evaluatie is geweest van bijvoorbeeld de inzet in Uruzgan. Zijn de investeringen daar wel zo efficiënt en effectief geweest? Liep de samenwerking tussen particuliere ontwikkelingsorganisaties, Defensie en Buitenlandse Zaken wel zo geweldig? Het is dramatisch dat bewijzen voor het slagen of niet-slagen daarvan alleen anekdotisch zijn, gebaseerd op losse verhalen, niet op degelijk onderzoek.
Dat geldt nog meer voor de investeringen en de relatie met het bedrijfsleven. NOF, FMO, WHI, POPM, PSOM, PSI – om u maar met wat afkortingen te vermoeien – ze zijn allemaal investeringsinstrumenten die nooit en te nimmer goed en kritisch, op hun impact op werkgelegenheid, sociale omstandigheden en milieu zijn geëvalueerd. De minister mag blij zijn met de vermeende samenhang in haar portefeuille, qua kennis heeft ze geen been om op te staan.
Samenhang, coherentie – Policy Coherence for Development noemen ze dat internationaal – is in de laatste jaren weggezakt in de internationale belangstelling. Bij het Development Assistance Committee van de OESO in Parijs klagen ze dat de mensen die zich met dit onderwerp (moeten) bezighouden steeds jonger worden en steeds sneller rouleren. Ook in Nederland, na het hele goede bureau dat we hadden rond de eeuwwisseling en iets daarna, is het ver weggezakt in de bureaucratie. Het is een vechtonderwerp, want je moet de strijd aangaan intern en met andere ministeries. Dat willen ambtenaren vaak niet, tenzij gesteund door de politieke leiding. Gezien de simplistische opmerkingen van onze nieuwe minister hierover, heb ik nu al het idee dat zij haar voorgangers Jan Pronk, Eveline Herfkens en Agnes van Ardenne niet gaat overtreffen.
(verzonden vanaf tablet)
Wednesday, May 8, 2013
The atrocities in Kenya are the tip of a history of violence that reveals the repackaging of empire for the fantasy it is
Scuttling away from India in 1947, after plunging the jewel in the crown into a catastrophic partition, "the British", the novelist Paul Scott famously wrote, "came to the end of themselves as they were". The legacy of British rule, and the manner of their departures – civil wars and impoverished nation states locked expensively into antagonism, whether in the Middle East, Africa or the Malay Peninsula – was clearer by the time Scott completed his Raj Quartet in the early 1970s. No more, he believed, could the British allow themselves any soothing illusions about the basis and consequences of their power.
Scott had clearly not anticipated the collective need to forget crimes and disasters. The Guardian reports that the British government is paying compensation to the nearly 10,000 Kenyans detained and tortured during the Mau Mau insurgency in the 1950s. In what has been described by the historian Caroline Elkins as Britain's own "Gulag", Africans resisting white settlers were roasted alive in addition to being hanged to death. Barack Obama's own grandfather had pins pushed into his fingers and his testicles squeezed between metal rods.
The British colonial government destroyed the evidence of its crimes. For a long time the Foreign and Commonwealth Office denied the existence of files pertaining to the abuse of tens of thousands of detainees. "It is an enduring feature of our democracy," the FCO now claims, "that we are willing to learn from our history."
But what kind of history? Consider how Niall Ferguson, the Conservative-led government's favourite historian, deals with the Kenyan "emergency" in his book Empire: How Britain Made the Modern World: by suppressing it entirely in favour of a Kenyan idyll of "our bungalow, our maid, our smattering of Swahili – and our sense of unshakeable security."
The British had slaughtered the Kikuyu a few years before. But for Ferguson "it was a magical time, which indelibly impressed on my consciousness the sight of the hunting cheetah, the sound of Kikuyu women singing, the smell of the first rains and the taste of ripe mango".
Clearly awed by this vision of the British empire, the current minister for education asked Ferguson to advise on the history syllabus. Schoolchildren may soon be informed that the British empire, as Dominic Sandbrook wrote in the Daily Mail, "stands out as a beacon of tolerance, decency and the rule of law".
Contrast this with the story of Albert Camus, who was ostracised by his intellectual peers when a sentimental attachment to the Algeria of his childhood turned him into a reluctant defender of French imperialism. Humiliated at Dien Bien Phu, and trapped in a vicious counter-insurgency in Algeria, the French couldn't really set themselves up as a beacon of tolerance and decency. Other French thinkers, from Roland Barthes to Michel Foucault, were already working to uncover the self-deceptions of their imperial culture, and recording the provincialism disguised by their mission civilisatrice. Visiting Japan in the late 1960s, Barthes warned that "someday we must write the history of our own obscurity – manifest the density of our narcissism".
Perhaps narcissism and despair about their creeping obscurity, or just plain madness explains why in the early 21st century many Britons, long after losing their empire, thought they had found a new role: as boosters to their rich English-speaking cousins across the Atlantic.
Astonishingly, British imperialism, seen for decades by western scholars and anticolonial leaders alike as a racist, illegitimate and often predatory despotism, came to be repackaged in our own time as a benediction that, in Ferguson's words, "undeniably pioneered free trade, free capital movements and, with the abolition of slavery, free labour". Andrew Roberts, a leading mid-Atlanticist, also made the British empire seem like an American neocon wet dream in its alleged boosting of "free trade, free mobility of capital … low domestic taxation and spending and 'gentlemanly' capitalism".
Never mind that free trade, introduced to Asia through gunboats, destroyed nascent industry in conquered countries, that "free" capital mostly went to the white settler states of Australia and Canada, that indentured rather than "free" labour replaced slavery, and that laissez faire capitalism, which condemned millions to early death in famines, was anything but gentlemanly.
These fairytales about how Britain made the modern world weren't just aired at some furtive far-right conclave or hedge funders' retreat. The BBC and the broadsheets took the lead in making them seem intellectually respectable to a wide audience. Mainstream politicians as well as broadcasters deferred to their belligerent illogic. Looking for a more authoritative audience, the revanchists then crossed the Atlantic to provide intellectual armature to Americans trying to remake the modern world through military force.
Of course, like Camus – who never gave any speaking parts to Arabs when he deigned to include them in his novels set in Algeria – the new bards of empire almost entirely suppressed Asian and African voices. The omission didn't matter in a world where some crass psychologising about gay men triggers an instant mea culpa (as it did with Ferguson's Keynes apology), but no regret, let alone repentance, is deemed necessary for a counterfeit imperial history and minatory visions of hectically breeding Muslims – both enlisted in large-scale violence against voiceless peoples.
Such retro-style megalomania, however, cannot be sustained in a world where, for better and for worse, cultural as well as economic power is leaking away from the old Anglo-American establishment. An enlarged global public society, with its many dissenting and corrective voices, can quickly call the bluff of lavishly credentialled and smug intellectual elites. Furthermore, neo-imperialist assaults on Iraq and Afghanistan have served to highlight the actual legacy of British imperialism: tribal, ethnic and religious conflicts that stifled new nation states at birth, or doomed them to endless civil war punctuated by ruthless despotisms.
Defeat and humiliation have been compounded by the revelation that those charged with bringing civilisation from the west to the rest have indulged – yet again – in indiscriminate murder and torture. But then as Randolph Bourne pointed out a century ago: "It is only liberal naivete that is shocked at arbitrary coercion and suppression. Willing war means willing all the evils that are organically bound up with it."
This is as true for the Japanese, the self-appointed sentinel of Asia and then its main despoiler during the second world war, as it is for the British. Certainly, imperial power is never peaceably acquired or maintained. The grandson of a Kenyan once tortured by the British knows this too well as: having failed to close down Guantánamo, he resorts to random executions through drone strikes.
The victims of such everyday violence have always seen through its humanitarian disguises. They have long known western nations, as James Baldwin wrote, to be "caught in a lie, the lie of their pretended humanism". They know, too, how the colonialist habits of ideological deceit trickle down and turn into the mendacities of postcolonial regimes, such as in Zimbabwe and Syria, or of terrorists who kill and maim in the cause of anti-imperialism.
Fantasies of moral superiority and exceptionalism are not only a sign of intellectual vapidity and moral torpor, they are politically, economically and diplomatically damaging. Japan's insistence on glossing over its brutal invasions and occupations in the first half of the 20th century has isolated it within Asia and kept toxic nationalisms on the boil all around it. In contrast, Germany's clear-eyed reckoning and decisive break with its history of violence has helped it become Europe's pre-eminent country.
Britain's extended imperial hangover can only elicit cold indifference from the US, which is undergoing epochal demographic shifts, isolation within Europe, and derision from its former Asian and African subjects. The revelations of atrocities in Kenya are just the tip of an emerging global history of violence, dispossession and resistance. They provide a new opportunity for the British ruling class and intelligentsia to break with threadbare imperial myths – to come to the end of themselves as they were, and remake Britain for the modern world.
(verzonden vanaf tablet)
(verzonden vanaf tablet)
Monday, May 6, 2013
THERE is no shortage of economic growth in Africa. Six of the world's ten fastest growing economies of the past decade are in sub-Saharan Africa. A clutch of countries have enjoyed growth in income per person of more than 5% a year since 2007. Zambia is one of them. Yet a frequent complaint heard in Lusaka, the capital, is that the country's rising GDP has passed much of the population by. The populist appeal of Michael Sata, who became president in 2011, is in part explained by a sense that ordinary Zambians had missed out on the benefits of economic growth.
GDP is not a perfect measure of living standards. A new study from the Boston Consulting Group (BCG) and the Tony Blair Africa Governance Initiative takes a broader look at well-being in Africa. As well as income per person, BCG's gauge of living standards includes jobs, governance, health, and inequality. Measured in this way, well-being in much of sub-Saharan Africa is lower than it ought to be, given rising average incomes per person. Levels of well-being in South Africa are out of whack with its GDP per head. Kenya and Ghana do a much better job of reaping the benefits of a growing economy.
Yet many of the countries whose well-being has improved most in the past five years are in Africa. This list is headed by Angola and includes Congo, Ethiopia, Lesotho, Malawi, Nigeria, Rwanda and Tanzania. All have enjoyed rapid growth in GDP per person. But they have also done well at translating that strong growth into improved well-being: in technical terms, the correlation between GDP per person and well-being above one in these countries (see chart). Income growth per person has been above 5% a year in Ghana, Mozambique and Uganda, too. But increases in well-being have not been quite as rapid as in the best performers.
Zambia is another of Africa's fast growers but it is the worst performer by a distance at turning that GDP growth into greater well-being. It has improved only half as much as it should have, given the growth in GDP per head. So those who feel Zambia has somehow missed out, despite the great strides it has made, have a point.
(verzonden vanaf tablet)
Crushed by my humiliation at the hands of Claire Melamed, it would just make matters worse to come back for another round of post-2015 jousting, so let's move on.
I actually quite like blogging about meetings held under Chatham House rules, as they allow me to write about the discussion without worrying about who said what. And to take the credit for anything clever, of course.
So last week, I found myself in a heated debate on the future of aid, with a bunch of NGOs and aid boffins. The topic was 'is it time for a re-think?' Why? Because the aid world is changing:
- New donors, such as foundations, philanthropists and emerging economies such as China and India are starting their own aid programmes, often outside the traditional donor club of the OECD DAC
- Increasing diversity of sources of 'financing for development', from domestic taxation to remittances to private investment
- Austerity driving many traditional donors to cut aid, either overtly or sneakily, by trying to count lots of non-aid flows as aid, or both (see FT letter here). A reminder that in terms of its increasing aid budget, the UK is really an outlier these days – 'we are talking in the vicarage, here'.
- The post-2015 discussions raising lots of questions about sustainable development goals and collective action on everything from climate change to tax havens, which have been traditionally fenced off from the aid discussion.
Underlying all this was a sense that the definition of aid corresponds to an old order (rich northern countries give cash for big push in the South to get public services functioning and the economy humming). That world has little to do with many of the preoccupations of modern development – fragile states and conflict, climate change, leaky financial systems, migration etc etc.
But does that mean aid needs to be overhauled? All were agreed that the current levels of aid, running globally at around $130bn a year, are a precious achievement, the only flow of resources aimed specifically at helping poor people, with a reasonably tight definition, making it easier to defend from dilution. Lots of talk of not throwing babies out with bathwater. (And tanks on lawns, heads in sand – mixed metaphors threatened to get seriously out of control.)
Which brought us to the political context – the march of the Austerians means that any decision to open up discussions on the definition of aid (which governments such as Netherlands and Germany are already doing) is much more likely to lead to a watering down/dilution of aid, with lots of other stuff being included – I pointed out that, in contrast to Pandora's Box, the nasties will fly in when this one is opened.
Broadly, aid donors will want 'what allows you to reach your aid target without spending any more money', while aid recipients will want to keep everything separate, so additional cash for things like climate finance is not counted as aid. One old hand said 'and the donors will win.'
Which made me line up on the 'conservative' side of the table – the risks are largely downside, so try and resist efforts to redefine aid and defend what you've got. Others felt that the debate was already happening, and we had no option but to engage.
Everyone was for improved data and transparency (who isn't?) on non-aid flows, so that donors, governments and others could see what is already happening before allocating their cash (lots of praise for the new DFI/Oxfam Government Spending Watch database of how much poor countries are spending on the MDGs, with seasoned aid officials saying they had spent years trying to get this data out, without success). Another piece of good news is that Development Initiatives are working on an annual report on Investments to End Poverty, which documents all resources available for poverty eradication – watch out for it in September and see some of the material here.
Lots of discussion on the 0.7 target, with the technocrats seeing it as arbitrary and weird, and the advocates seeing its use in driving government action, even in countries that haven't endorsed it, like the US. Interesting suggestions that 1% of government spending (a penny in the pound) might make a more sensible and communicable target than 0.7% of Gross National Income.
As for the new southern aid donors, the wonks reckoned that they are not interested in targets, but are interested in what counts as aid – one cited Turkey which, when obliged to count it, found it was giving much more aid than it had realised, partly because it had assumed a narrower.
Other interesting discussions on 'fair shares' – how you could modify the 0.7 target to take account of a country's stage of development, perhaps using the UN formula for assessing members' contributions to its budget. Anyone done that?
Overall, I did feel that there is an institutional problem here – at some point the aid discussion needs to be taken out of the OECD, even though it's been doing a pretty good job so far. Otherwise, it risks being seen as a project of the declining North, with minimal buy in from others. But would the UN (the obvious alternative) do a better job?
My conclusion? At this political moment, I think there is a real danger in trying to stretch the debate on aid to include everything that contributes to development (we wonks always like to do this – look at post-2015). Right now the test of any proposal should be 'what is most likely to increase rather than reduce funds going from rich countries to poor countries for good purposes?' For example, stretching 'aid' to include most peacekeeping fails that test badly - irrespective of all the good sense about security and development reinforcing each other. Better to try and keep the aid definition (and debates) tight and work on the rest in other fora – Government Spending Watch, tax havens, climate change etc. We won't win them all – for example there is clearly substantial overlap between climate finance and aid, so insisting on 'additionality' is very unlikely to succeed, but I see little benefit in helping others prize open the Pandora's Box of aid.
(verzonden vanaf tablet)
In its 10-year history, the World Bank's Doing Business Report has achieved enormous influence. The annual study, one of the flagship knowledge products of the World Bank, is the leading tool to judge the business environments of developing countries, generating huge coverage in the media every year. Several countries—such as Rwanda—have used it as a guide to design reform programs. For its part, the Bank has advised over 80 countries on reforms to regulations measured in the DB. Its influence stretches even to academia, with over 1,000 articles being published in peer-reviewed journals using data in the index.
But does it focus on the most important issues for companies in less developed countries?
Overemphasizing the Regulatory Aspects of Business Climates
The Doing Business reports lean heavily on assessments of the regulatory aspects of business climates in making its judgments. Of the 10 indicators that make up its aggregate ranking, at least eight (starting a business, dealing with construction permits, protecting investors, registering property, paying taxes, enforcing contracts, trading across borders, and resolving insolvency)—and conceivably all ten—depend heavily on the nature of the regulatory regime. As the current report states, "A growing body of research has traced out the effects of simpler business regulation on a range of economic outcomes, such as faster job growth and an accelerated pace of new business creation."
This is certainly true. The easier it is to start a company, the more likely people are going to. The easier it is to register property, the more likely it will be, potentially providing a spur to investment in housing, spending on household goods, and capital formation. The easier it is to get a construction permit, the more likely companies will invest in new projects that involve construction.
But there are many more serious obstacles—namely those related to transaction costs—to doing business in less developed countries that are not addressed in these reports. As such, DB's narrow focus and wide influence distort priorities and lead reformers to ignore key problems.
A better approach would be to actually consider the challenges a typical small-to-medium sized enterprise (containing, say, 5 to 50 employees) faces in a less developed country. This is what DB is supposed to be doing, but its focus on the formal procedures of government ignores how most companies operate: if they are large, firms use "work-arounds"; if they are small, firms operate in the informal economy. Its dependence on "local experts, including lawyers, business consultants, accountants, freight forwarders, government officials and other professionals routinely administering or advising on legal and regulatory requirements" mean that results reflect the needs and perspectives of these respondents, not that of a SME owner, especially in less developed countries where these "local experts" rarely work for SMEs. Limiting data collection to the single, largest city—which may contain only a small proportion of a country's businesses—further reduces the usefulness of the data.
Operating in the informal economy, generally avoiding contact with government bodies that are not trusted, confronting myriad infrastructure problems, regularly struggling to get paid for services rendered, SMEs in less developed countries have many more important things to worry about than "resolving insolvency" and "protecting investors," which combine to make up one-fifth of the DB aggregate score. Such issues are more important to foreign investors than local retail stores, trading companies, manufacturing shops, and trucking firms.
The Genuine Needs of SMEs
Focusing on the genuine needs of local SMEs would lead to a much stronger emphasis on transaction costs, which weigh heavily on companies in ways that are not reflected in these reports. In many cases, the problems are so severe that small firms cannot do business with strangers or across distance simply because they have few mechanisms—no matter how good or bad regulation is—to ensure that these transactions will work out satisfactorily.
Issues that drive up transaction costs include:
- The high cost and lack of reliability in moving or procuring goods across distance (because of poor infrastructure, petty corruption, and the lack of efficient logistics/distribution systems, etc.)
- No reliable way to enforce contracts, especially with strangers with which business owners have no common social ties (few small companies would even consider going to the court system)
- No place to store savings, transfer money across distance, or reliably offer credit
- No independent way to judge the reliability of potential business partners
- Few ways to penalize anyone who steals goods
- No easy or safe way to store goods—especially of quantity—for any length of time
Some of these issues are the direct product of the large number of market failures and institutional voids that predominate in less developed countries. Even if the regulations are right, countries may offer no way to check the credit histories of companies and families, have overly expensive inputs for certain important products (such as fertilizer for farm goods), have courts too distant and unreliable to be used by most firms, and lack financial institutions that serve smaller companies, especially outside the capital.
Others are the product of social divisions, which drive up the cost to do business. In environments with weak social cohesion and weak government institutions, companies may only be able to do business with firms owned by people from the same identity group or with which they have a long-standing relationship. Working with anyone else is much riskier because of the inability to enforce contracts with strangers. (Such conditions partly explain why disapora communities, such as the Lebanese in West Africa, have great advantages over local populations.)
Some are the product of how governments operate. But they are less due to faulty regulation—though more rules can make the problems worse—than to the incompetence and petty corruption that infests government bodies. Repeated stoppages on major roads, for instance, are usually not due to bad regulation but to how officials make use of existing regulation to serve their own interests. As long as governments are not robust enough to implement their own rules effectively, the rules aren't the most important problem.
Of course there are a number of other issues that matter greatly to SMEs that are not addressed by the DB, such as political stability, security, regulatory predictability, financial inclusion, and access to important social networks. Larger companies can compensate for most if not all of these issues in ways that SMEs cannot.
Precluding A Deeper Understanding
By missing a lot of valuable information, the DB rankings fail to portray an accurate reading of business climates. China, for instance, ranks a somewhat mediocre 91st in the recent report, below the Kyrgyz Republic (70th), Romania (72nd), Moldova (83rd), Albania (85th), and Jamaica (90th), none of which are known for the same dynamism. Indonesia, one of the developing world's most promising emerging markets, is ranked 128th, right ahead of Bangladesh, India, and Nigeria, all known for their rather difficult business environments. Both Ethiopia (ranked 127th) and Cambodia (ranked 133rd) rank even further down the list even though they have been among the fastest growing countries in the world over the past decade.
These reports do have value, as the issues they address are important and generally should be targets of reform. But the DB's very success has in some ways precluded a deeper understanding of why many states fail to advance. Economists, free market proponents, and people whose main experience is in multinational companies or in developed countries may see that relaxing regulation is the most important way to improve the performance of less developed economies, but the average micro entrepreneur or ambitious small business owner in places such as Afghanistan, Nigeria, and Pakistan would focus elsewhere.
(verzonden vanaf tablet)
From managing expectations to setting up child protection policies and supporting local NGOs, our expert panel recommend how to get the best out of volunteer programmes
Katie Turner, global research and advocacy advisor, volunteering for development, Voluntary Service Overseas (VSO), London, UK
Learning should be reciprocal between volunteers and the communities they work in: Volunteers must develop a strong knowledge of the context within which they are placed. Some of this learning can be supported by the volunteer organisation through language training and briefing on the in-country context before the volunteer starts their placement. However, the onus also has to be on the volunteer to think about their placement in its broader context.
As development evolves, so should volunteering: If volunteering in development is truly driven by the needs and proposed solutions of communities then we should be constantly coming up with innovative and effective solutions to meet these needs. Along with the broader development agenda, volunteerism must continue to evolve and innovate in order to bring about sustainable change.
Katherine Tubb, founder, 2Way Development, London, UK
The length of the programme is a good indicator of who benefits: Highly skilled volunteers can have a positive impact on communities in about three months, but six months is seen as a good average placement length, where volunteers can actually add value to the work of an NGO. Any less and I would argue that the benefits are more on the side of the volunteer.
Ethical tourism group, Tourism Concern, has been working on an international volunteering standards group code of best practice for some years. This is a useful resource for those setting up volunteering initiatives.
Hayford Siaw, executive director, Volunteer Partnerships for West Africa (VPWA), Accra, Ghana
Support volunteering in local NGOs: It is worrying to see foreign volunteer organisations mobilising people to go to Africa for placements with no structures in place to receive them. The best way to volunteer is to provide direct institutional support to grassroots NGOs that understand their community needs. They can be harder to find, as the biggest NGOs dominate on search engines such as Google, but websites such as the online volunteering portal are useful.
Simona Costanzo Sow, project manager, post-2015, United Nations volunteers programme, Bonn, Germany
Longer placements aren't necessarily better: Short term programmes can be very effective when they are part of a longer term local community effort, especially when engaging young people. The key is that the volunteers, hosts and sending organisations are clear about the objective of the programme. The volunteer should be there to share something with his or her peers in the country, not to teach anything. Bringing a different perspective and developing new solutions along with local youth can be very inspiring.
Ben Wilson, project assistant, Challenges Worldwide, Edinburgh, UK
Don't be patronising in your messaging: The way volunteer groups communicate their ideals through social media and events like Comic Relief can be patronising and harmful to communities in the south. Having met with school groups who have 'partnerships' with schools in developing countries, I've found that most of the children only know the global south through the dominant media expositions of it. The regulation of developing country imagery is essential to dispel misinformation.
Adam McGuigan, co-founder and artistic director, Barefeet, Lusaka, Zambia
Be targeted: Designing well thought out placements that match community needs with appropriate volunteer skills is not rocket science, but many agencies rush this process and get it wrong. Accounting for International Development (AfiD) is a good example of an organisation that provides targeted, effective and sustainable short-term volunteer programmes.
Nichole Georgeou, lecturer, international development studies, Australian Catholic University, Sydney, Australia
True partnerships are difficult to form: When western volunteers arrive into developing country contexts, they enter into existing hierarchies that they usually do not recognise or understand. These hierarchies have been shaped by histories of colonialism and development. In this context, true partnership is difficult to achieve as asymmetries of power are present in the relationship from the start.
Liz Wilson, director, Supporting Kids In Poverty (Skip), Trujillo, Peru
Child protection is crucial: Any organisation working with children must give consideration to child protection. I attended an NGO conference last year and was surprised to find that none of the grassroots organisations had a child protection policy. Many did not do background checks on their volunteers, and had no child protection procedure. To me these things are absolutely fundamental if you are going to work with children.
Tearfund has published a basic step-by-step guide to writing a child protection policy for international NGOs.
Apeksha Sumaria, head of programmes, Accounting for International Development (AfID), London, UK
Manage expectations: It's very important to ensure that volunteer aspirations (about what they are able to achieve) are the same as partner expectations (about what volunteers are able to help them with). Then come the practicalities: ensuring that the volunteer is experienced enough to support the partner, that there is a partner and staff for the volunteer to work with and that the project objectives are clearly set out.
(verzonden vanaf tablet)
Sunday, April 28, 2013
The "Excel Spreadsheet Error" In Context
You've heard that an incredibly influential economic paper by Reinhart and Rogoff (RR) – widely used to justify austerity – has been "busted" for "excel spreadsheet errors" and other flaws.
As Google Trends shows, there is a raging debate over the errors in RR's report:
Even Colbert is making fun of them.
Liberal economists argue that the "debunking" of RR proves that debt doesn't matter, and that conservative economists who say it does are liars and scoundrels.
Conservative economists argue that the Habsburg, British and French empires crumbled under the weight of high debt, and that many other economists – including Niall Ferguson, the IMF and others – agree that high debt destroys economies.
RR attempted to defend their work yesterday:
Researchers at the Bank of International Settlements and the International Monetary Fund have weighed in with their own independent work. The World Economic Outlook published last October by the International Monetary Fund devoted an entire chapter to debt and growth. The most recent update to that outlook, released in April, states: "Much of the empirical work on debt overhangs seeks to identify the 'overhang threshold' beyond which the correlation between debt and growth becomes negative. The results are broadly similar: above a threshold of about 95 percent of G.D.P., a 10 percent increase in the ratio of debt to G.D.P. is identified with a decline in annual growth of about 0.15 to 0.20 percent per year."
This view generally reflects the state of the art in economic research
Back in 2010, we were still sorting inconsistencies in Spanish G.D.P. data from the 1960s from three different sources. Our primary source for real G.D.P. growth was the work of the economic historian Angus Madison. But we also checked his data and, where inconsistencies appeared, refrained from using it. Other sources, including the I.M.F. and Spain's monumental and scholarly historical statistics, had very different numbers. In our 2010 paper, we omitted Spain for the 1960s entirely. Had we included these observations, it would have strengthened our results, since Spain had very low public debt in the 1960s (under 30 percent of G.D.P.), and yet enjoyed very fast average G.D.P. growth (over 6 percent) over that period.
We have never advised Mr. Ryan, nor have we worked for President Obama, whose Council of Economic Advisers drew heavily on our work in a chapter of the 2012 Economic Report of the President, recreating and extending the results.
In the campaign, we received great heat from the right for allowing our work to be used by others as a rationalization for the country's slow recovery from the financial crisis. Now we are being attacked by the left — primarily by those who have a view that the risks of higher public debt should not be part of the policy conversation.
But whether you believe that the errors in the RR study are fatal or minor, there is a bigger picture that everyone is ignoring.
Initially, RR never pushed an austerity-only prescription. As they wrote yesterday:
The only way to break this feedback loop is to have dramatic write-downs of debt.
Early on in the financial crisis, in a February 2009 Op-Ed, we concluded that "authorities should be prepared to allow financial institutions to be restructured through accelerated bankruptcy, if necessary placing them under temporary receivership."
Significant debt restructurings and write-downs have always been at the core of our proposal for the periphery European Union countries, where it seems to us unlikely that a mix of structural reform and austerity will work.
Additionally, economist Steve Keen has shown that "a sustainable level of bank profits appears to be about 1% of GDP", and that higher bank profits leads to a ponzi economy and a depression. Unless we shrink the financial sector, we will continue to have economic instability.
Leading economists also say that failing to prosecute the fraud of the big banks is dooming our economy. Prosecution of Wall Street fraud is at a historic low, and so the wheels are coming off the economy.
Moreover, quantitative studies provide evidence that private debt levels matter much more than public debt. But mainstream economists on both the right and the left wholly ignore private debt in their models.
Finally, the austerity-verus-stimulus debate cannot be taken in a vacuum, given that the Wall Street giants have gotten the stimulus and the little guy has borne the brunt of austerity.
Steve Keen showed that giving money directly to the people would stimulate much better than giving it to the big banks.
If we stopped throwing money at corporate welfare queens, military and security boondoggles and pork, harmful quantitative easing, unnecessary nuclear subsidies, the failed war on drugs, and other wasted and counter-productive expenses, we wouldn't need to impose austerity on the people.
And it is important to remember that neither stimulus nor austerity can ever work … unless and until the basic problems with the economy are fixed.
Indeed, stimulus and austerity are not only insufficient on their own … they are actually 2 sides of the same coin.
Specifically, the central banks' central bank warned in 2008 that bailouts of the big banks would create sovereign debt crises. That is exactly what has happened.
A study of 124 banking crises by the International Monetary Fund found that propping up banks which are only pretending to be solvent often leads to austerity:
Existing empirical research has shown that providing assistance to banks and their borrowers can be counterproductive, resulting in increased losses to banks, which often abuse forbearance to take unproductive risks at government expense. The typical result of forbearance is a deeper hole in the net worth of banks, crippling tax burdens to finance bank bailouts, and even more severe credit supply contraction and economic decline than would have occurred in the absence of forbearance.
Cross-country analysis to date also shows that accommodative policy measures (such as substantial liquidity support, explicit government guarantee on financial institutions' liabilities and forbearance from prudential regulations) tend to be fiscally costly and that these particular policies do not necessarily accelerate the speed of economic recovery.
All too often, central banks privilege stability over cost in the heat of the containment phase: if so, they may too liberally extend loans to an illiquid bank which is almost certain to prove insolvent anyway. Also, closure of a nonviable bank is often delayed for too long, even when there are clear signs of insolvency (Lindgren, 2003). Since bank closures face many obstacles, there is a tendency to rely instead on blanket government guarantees which, if the government's fiscal and political position makes them credible, can work albeit at the cost of placing the burden on the budget, typically squeezing future provision of needed public services.
In other words, the "stimulus" to the banks blows up the budget, "squeezing" public services through austerity.
Instead of throwing trillions at the big banks, we could provide stimulus to Main Street. It would work much better at stimulating the economy.
And instead of imposing draconian austerity, we could stop handouts to the big banks, stop getting into imperial military adventures and stop incurring unnecessary interest costs (and see this). This would be better for the economy as well.
Why aren't we doing this?
Profits are being privatized and losses are being socialized. So the big banks get to keep the mana from heaven being poured out of the stimulus firehose, while austerity is forced on the public who has to bear the brunt of Wall Street's bad bets.
The big banks went bust, and so did the debtors. But the government chose to save the big banks instead of the little guy, thus allowing the banks to continue to try to wring every penny of debt out of debtors. An analogy might be a huge boxer and a smaller boxer who butt heads and are both rendered unconscious … just lying on the mat. But the referee gives smelling salts to the big guy and doesn't help the little guy, so the big guy wakes up and pummels the little guy to a pulp.
A substantial portion of the profits of the largest banks is essentially a redistribution from taxpayers to the banks, rather than the outcome of market transactions.
(Obama's policies are even worse than Bush's in terms of redistributing wealth to the very richest. Indeed, government policy is ensuring high unemployment levels, and Obama – despite his words – actually doesn't mind high unemployment. Virtually all of the government largesse has gone to Wall Street instead of Main Street or the average American. And "jobless recovery" is just another phrase for a redistribution of wealth from the little guy to the big boys.)
We noted in 2011:
All of the monetary and economic policy of the last 3 years has helped the wealthiest and penalized everyone else.
Economist Steve Keen says:
"This is the biggest transfer of wealth in history", as the giant banks have handed their toxic debts from fraudulent activities to the countries and their people.
Nobel economist Joseph Stiglitz said in 2009 that Geithner's toxic asset plan "amounts to robbery of the American people".
And economist Dean Baker said in 2009 that the true purpose of the bank rescue plans is "a massive redistribution of wealth to the bank shareholders and their top executives".
The money of individuals, businesses, cities, states and entire nations are disappearing into the abyss …
… and ending up in the pockets of the fatcats.
In other words – underneath the easing-versus-tightening debate – this is not a financial crisis … it's a bank robbery.
(verzonden vanaf tablet)