Friday, March 31, 2006

Bush Administration Economic Policies in Iraq

"Baghdad Year Zero: Pillaging Iraq in pursuit of a neocon utopia", By Naomi Klein.
Originally from Harper's Magazine, September 2004.

"Does the Media Have it Right on the War?" by Michael Schwartz, Mother Jones, March 28, 2006.

Debate on H-1B Visas for Skilled Workers

Read the article, "Most See Visa Program as Severely Flawed" By S. Mitra Kalita. (The Washington Post, March 31, 2006.)

The U.S. Government grants H-1B visas for foreign, skilled workers for jobs such as software engineers and systems analysts. "Unlike seasonal guest workers who stay for about 10 months, H-1B workers stay as long as six years. By then, they must obtain a green card or go back home.......This week, the Senate Judiciary Committee approved legislation that would increase the H-1B cap to 115,000 from 65,000 and allow some foreign students to bypass the program altogether and immediately get sponsored for green cards, which allow immigrants to be permanent residents, free to live and work in the United States."

I quote the article in some length on the controversy over the economics of the program:
Economists seem divided on whether highly skilled immigrants depress wages for U.S. workers. In 2003, a study for the Federal Reserve Bank of Atlanta found no effect on salaries, with an average income for both H-1B and American computer programmers of $55,000.

Still, the study by Madeline Zavodny, now an economics professor at Agnes Scott College in Decatur, Ga., concluded "that unemployment was higher as a result of these H-1B workers."

In a working paper released this week, Harvard University economist George J. Borjas studied the wages of foreigners and native-born Americans with doctorates, concluding that the foreigners lowered the wages of competing workers by 3 to 4 percent. He said he suspected that his conclusion also measured the effects of H-1B visas.

"If there is a demand for engineers and no foreigners to take those jobs, salaries would shoot through the roof and make that very attractive for Americans," Borjas said.

The Institute of Electrical and Electronics Engineers-USA says H-1B salaries are lower. "Those who are here on H-1B visas are being worked as indentured servants. They are being paid $13,000 less in the engineering and science worlds," said Ralph W. Wyndrum Jr., president of the advocacy group for technical professionals, which favors green-card-based immigration, but only for exceptional candidates.

Wyndrum said the current system allows foreign skilled workers to "take jobs away from equally good American engineers and scientists." He based his statements about salary disparities on a December report by John Miano, a software engineer, who favors tighter immigration controls. Miano spoke at the House hearing and cited figures from the Occupational Employment Statistics program that show U.S. computer programmers earn an average $65,000 a year, compared with $52,000 for H-1B programmers.

"Is it really a guest-worker program since most people want to stay here? Miano said in an interview. "There is direct displacement of American workers."
I am not an economist, but some things seem obvious. One is that it is hard to compare the salaries of H-1B workers with those of citizens working in the same fields. Educational experiences are different, and so too, I would guess are worker productivities, and thus it would be hard to tell if there were equal pay for equal work -- that seems to me the real test. It is also the case that representatives of different interest groups will interpret the date in different ways, each seeking to make the case that most benefits the interests they represent.

I wish I knew more about this, but it seems to me that this article misses the point in a number of ways.

In the case of non-tradable services, if you increase the supply and the demand stays the same, then indeed I would expect the remuneration of the service providers to go up. Thus, when the government started to subsidize medical care and the supply of physicians could not increase in step, the remuneration for doctors went up. Thus, at first glance it would seem that increasing the supply of skilled professionals via the H-1B program might tend to increase competition for jobs, and decrease the pay levels for those jobs.

But the world has changed, and engineering and software services are increasingly traded. If we don't bring the Indians and Chinese professionals to the United States to do these jobs, won't the companies just move the jobs to India and China? The Internet and improved telecommunications technology and infrastructure make it possible and easy for them to do so.

Would it not be better for the U.S. economy to have 50,000 high wage engineers and programmers buying houses and cars, food and clothing in Silicon Valley and the 128 corridor, than in Bangalore and Hong Kong?

The assumption that the demand for the services will remain fixed might also be questioned. The more people are innovating, the more goods and services there are to sell. Moreover, high tech products produced by these foreign workers are key exports for the United States, and they represent an important source of our foreign exchange. More to the point, the more these folk produce, the more the U.S. exports, and the more demand there is for the services they provide.

The United States is still a magnate for foreign investment. Our institutions are such that with more skilled professional workers (especially those immigrants who bring entrepreneurial desires and technological innovation skills), we should be able to attract the capital to create new jobs, and increase the demand for professional workers.

We also know that there are significant externalities in the development of the high tech industries. There are economies of scale for the firms, and letting firms grow can make them more efficient. There are also spillovers among firms, and having a critical mass in a cluster of firms produces competitive benefits for the cluster as a whole. Wouldn't U.S. parochial interests be better served if these economies be realized within the United States, rather than in high tech industrial clusters in India and China? Do our legislators really want to foster the outsourcing of these elite jobs in such a way that new high tech clusters will be further promoted for future competition with the United States?

As I understand the economics, the competitiveness of industries depends in large degree on their agility and flexibility, and regulations that reduce this flexibility should be avoided unless they are needed to protect some greater good (e.g. safety, human rights, the environment). Excessive regulation of immigration of workers in categories where binding constraints exist on development would seem to be such a limitation on competitiveness.

And by the way, just whose pay levels are we protecting? Aren't a lot of the high tech workers in these fields foreign born, or (like me) the children of foreign born parents. Just why is it better to protect their high wages (and make U.S. products less competitive on international markets) than to offer economic opportunities to new immigrants?

In a previous comment I suggested that the United States is a big country, with an economy capable of creating a lot of jobs. We should keep to our tradition of welcoming immigrants and offering them economic opportunity. This is especially true for the H-1B visa workers, who offer us so much.

Of course there are limits to how fast the United States can create jobs, and immigration has to be constrained by these limits. Moreover, the education system in the United States is doing a disservice to far too many children, failing to equip them for work in an increasingly globalized, knowledge-based economy. Indeed, there is an underclass, for whom the damage has already been done outside the schools, and American society will have to deal better with their problems. The United States still has a long way to go to attain "The Great Society" of our dreams, but limiting immigration of skilled workers qualifying for H-1B visas doesn't seem a solution to our problems.

Thursday, March 30, 2006

Developing e-Development Projects

Nagy Hanna has been a strong proponent of e-Development projects in the World Bank. Such a project is intended to provide donor agency support for the transition of a developing nation to an information society. To date, support for ICT by donor agencies has largely been parceled out in unrelated pieces, each project seeking to make a local improvement through a specific ICT innovation. Nagy has proposed a more integrated approach, combining a number of synergistic innovations to advance the entire process of institutionalization of ICT in the society. Such an institutionalization might be termed “e-development”. One of these Nagy type projects would therefore be termed an “e-development project”. There is, of course, no cookie-cutter pattern for such a project, and the Bank is exploring approaches to such project development.

A first example of such a project is the e-Sri Lanka project approved in September 2004. This project is still in the relatively early stages of implementation, and it would be premature to consider its overall success. Still, there are indications that the knowledge-based and collaborative process that went into its development has borne fruit. The project has already survived two changes of government, and the agency created by the project has not only survived but been upgraded administratively by the new governments. The project also proved sufficiently flexible to respond specifically to the December 2004 tsunami relief and restoration efforts, and the administration has been able to adapt the design to changing circumstances.

I agree with Nagy that developing nations will benefit more from the revolution in information technology with a holistic approach. To benefit most, a nation ought to simultaneously strengthen ICT infrastructure, build an ICT literate workforce, build an ICT industry and an ICT enabled industry, restructure economic systems to better utilize the potential of ICT, and reengineer organizations for that purpose. An appropriate policy environment and appropriate institutions would be necessary for all these things to happen, and perhaps even more importantly, a coalition of key interest groups must support that policy and its implementation.

However, donor agencies fund “projects”. Thus the e-development project designer is faced with the problem of developing a project that stimulates and fits within a nation-wide, multi-sectoral framework. The e-Sri Lanka project is a leading example of such an effort, and therein lies it importance for the development community. Indeed, the e-Sri Lanka project development process appears to have contributed to the development of institutions, policies and coalitions needed for the broader national effort as well as for the project approval and implementation.

Progress in the Real World

Some enthusiasts portray e-development as sure path to social and economic development. ICT expenditures constitute only a few percent of GDP in even the most advanced nations. Thus it asks a lot for an e-Development strategy to lead overall economic and social development.

Ideally, e-Development would take place in the context of an overall policy and institutional environment conducive to rapid national economic growth and development and in the context of strong pro-poor policies. Unfortunately, such environments are seldom found in developing nations. (Where they are, of course, a truly holistic e-Development strategy is possible.)

It is possible, however, to produce enclaves of development -- where the resources, policies, and institutions permit –- even in the absence of a policy and institutional environment optimally conducive to overall development. Indeed, there are important cases of economic development in which a set of policies and institutions existed that were barely adequate for the enclave at the beginning of a process, but were improved as the enclave developed.

So too, it is possible to produce e-development enclaves even when lacking an overall environment conducive to growth and poverty reduction. Thus, India has developed a software export industry and ICT enabled service export industry as enclaves, while there remain major development problems in other sectors. Indeed, India’s ICT and ICT-enabled industries appear to be serving as motors of more general development, generating not only investment and employment directly, but with significant spillovers to other sectors.

Similarly, e-government initiatives can be successful even when more extensive reforms of the government are not feasible. ICT innovations in the health and education sectors can yield significant benefits in reduction of aspects of poverty, even when overall improvements in those sectors prove recalcitrant. ICT innovations in rural development or the SME sector can be successful even in the absence of comprehensive strategies for rural or industrial development.

The issue in most countries is then to build a bundle of e-development initiatives sufficiently broad to realize synergies, and sufficiently important economically to contribute to overall growth and poverty reduction, while sufficiently narrow that the necessary resources and support are available for their successful implementation.

The Institutionalization of ICT

There is an extensive literature dealing with the introduction of ICT into large organizations which seems to show that most innovation projects fail. There is also a literature which indicates that ICT has rapidly transformed large organizations and resulted in the restructuring of industries. There is an apparent disconnect, but it can be bridged by understanding that the projects are linked in a process of organizational transformation. Even “failed” projects leave a legacy in a learning organization, and the sequence of projects has a cumulative transformational impact.

One implication of this situation is that it is difficult to do accurate cost-benefit calculations for e-development projects. Projects leave a residue of physical and human capital and of organizational and social capital which are seldom explicitly defined in their objectives, and which are difficult to measure. Because of these externalities cost-benefit estimates and project evaluations tend to significantly underestimate the benefits of ICT projects.

I would suggest that, considering ICT institutionalization as a process, there are important strategic and tactical elements in choosing and sequencing projects. Thus early projects in the transformation of an organization should be selected with high probability of success and high visibility (especially for key stakeholders). It is likely that some early projects will be seen by stakeholders as experiments, and not institutionalized even if technologically successful; this too should be taken into account in managing the institutionalization of ICT. E-development efforts should be planned with this in mind.

So too, the process of e-development is probably more important that the e-development project. The processes of building partnerships and coalitions, and of creating local capacity can leave a lasting legacy that has benefits far beyond the implementation of successful project loan activities.

E-development is a process of creative destruction. The entry point for poor nations into ICT exporting industries and ICT enabled industries has typically been based on factors such as low wages and enabling linkages with foreign centers of excellence and innovation. With successful e-development, however, the initial success factors will tend to diminish in relative importance, and other factors will have to be strengthened to supplant them. Thus organizational capacity, development of clusters of firms with technological spillovers among them, penetration into new markets and an increasingly skilled workforce must be considered. To some degrees the new firms and activities will emerge from the creative destruction of the earlier successes. This creative destruction process seems heavily dependent on the development of an entrepreneurial culture and on a policy environment which encourages innovation and allows failure. E-development efforts should also be planned with this process in mind.

Teleonomic versus Teleologic Projects Processes

The concept of central planning for national economies has been largely discredited in favor of market approaches that depend upon a “hidden hand” and “creative destruction”. The term “teleologic” refers to goal directed activity, and has been extended to mean activity that is planned to reach a goal. The term “teleologic” refers to processes that give the appearance of being goal directed due to feedback and evolution rather than to planning per se. Thus the fall of Communism and the victory of Capitalism has been seen as a triumph of teleonomic approaches over teleologic processes in the management of the economy. Of course, modern economies use planning together with market mechanisms and “creative destruction.

The World Bank, like many other donors, relies heavily on planning. However, I would suggest that e-development projects should use feedback, evolution, and flexibly-managed learning organizations to complement planning! The teleonomic approaches should be explicitly planned into the project design. The project design should be seen as a living thing, with processes included for further elaboration, learning, mid-term corrections, and evolution. The teleonomic processes should be recognised as a design feature rather than, as sometimes occurs, as a design failure.

Thus, e-Sri Lanka complemented the pre-planning in effective ways. It emphasized the use of grants in sub-programs which resulted in evolutionary processes – diversity in ideas were promoted in the grant application process, strong selection was promoted in peer-review of the grant applications, and the process was iterative. So too, it promoted flexible management in learning organizations. It sought strong monitoring and evaluation mechanisms that provided feedback data on project performance, and allowed project corrections.

In Sri Lanka, there were changes that could not be planned for in advance, but they did not derail the project. Moreover, the information revolution is taking us into new territory, and it is not easy to plan for the economic and social transformations it produces. Complementing the teleological planning process with strong teleonomic processes is allowing the project to respond to unforeseen conditions and situations.

Decision Making Versus Consensus Building

E-development is a social and political process involving coalition formation; as such it may be more important to find a process that will achieve a working consensus in a sufficiently powerful coalition of stakeholders than to maximize some kind of theoretical rationality. The World Bank or a government e-development agency may develop a plan analytically with carefully balanced priorities and schedules. However, if that plan can’t muster adequate political support to be approved and implemented, and adequate political support to be maintained in the face of emergencies and changes (that so often take place in developing countries), then the plan won’t be worth much.

Legislative bodies tend to develop initiatives through a process of compromise, in which various parties are willing to give up some of their preferred alternatives to achieve a bundle alternatives that will have sufficient backing to be approved in a vote. The end result may well have earmarks that won’t pass close scrutiny, and to be more like a committee’s wish list than a plan. Still, as Voltaire said, “the ideal is the enemy of the good”. A good law that passes is better than an ideal law that languishes for lack of adequate support.

So too, developing an e-development strategy and a project to implement that strategy should be seen as a political process involving compromises among various interest groups. To be successful, it must be supported sufficiently strongly by a coalition of factions to have a chance of implementation. The e-development project design process must be such as to simultaneously retain enough rigor that the project elements will be likely to achieve the project’s goals, and to satisfice enough of the stakeholder interests to catalyze an adequate coalition of supporters.

This may be more difficult than it sounds. E-development can threaten vested interests such as those of existing telecom agencies and ministries, and raises expectations of grass roots activists that may be hard to satisfy. Workers who will have to learn ICT skills to perform in reengineered organizations may be fearful, and those for whom automation will require job shifts more than fearful. The process of creative destruction involved in moving up the chain in ICT industries will tend to dissatisfy those in the destroyed enterprises. The corrupt will usually not welcome the transparency that e-government activities will seek to foster. Yet experience has shown that it is possible to create sufficient social and political support for e-development to work.

Knowledge Based e-Development Project Planning

In-depth knowledge and understanding of the both the local situation and the process of e-development is a fundamental requirement of e-development project development. For example, developing a coalition of the key stakeholders requires knowing who those stakeholders are, which in turn requires an understanding of the dynamics of change in the national systems involved in e-development. So too, developing a knowledge-based partnerships with key stakeholders effectively requires the outside donor having a considerable base of local as well as e-development knowledge to begin with.

E-development is a process, and it is important that e-development activities be appropriately scheduled. I would suggest, for example, that the initial efforts be pilot projects chosen to have high benefit to cost ratios, of modest proportions, without extreme technical difficulty. They should be visible so that key stakeholders will learn from them. Since such pilots are often not institutionalized, much less scaled up, due to organizational inertia, I would suggest that the initial pilot projects might be chosen not to be too central to organizational success. Funding such quick-results pilots requires knowing which pilots are likely to yield positive results quickly, which are likely to be influential in the minds of the stakeholders they are to influence, and having a knowledge-based strategy for using the pilots in the project and program development process.

Fortunately, the donor agency does not need to possess all the knowledge and understanding described above. It can employ consultants and fund studies to complement its staff’s initial knowledge and understanding. However, more important is for the donor agency to partner with local entities who can complement its knowledge and understanding. Most if not all developing nations now have reached some rung on the e-development ladder, albeit a low rung for the least developed nations, and have ICT leaders who understand the national e-development situation. Partnering with these leaders will help to tap their knowledge and understanding of the situation, and will start to form the coalition that will be required for e-development success. Indeed, the donor agency offering the carrot of external financing and external legitimization may be just the thing to catalyze the formation of such a coalition.

The implementation of a project is a far longer and more taxing process than its design and approval. Involving local experts in the design not only improves the knowledge base, but it gives them a stake in project success, and tends to coopt them into long term support for the project.

The analytic effort used in designing the e-Sri Lanka project was more serious than that usually undertaken for a donor project, and followed the precepts described above. It also involved members of the Washington and Colombo team that would implement the project. In doing so, it built the team contacts that would be important over the long run, provided the team with a useful feeling of ownership for the project, and helped those team members absorb and internalize knowledge that would be invaluable over the years in project implementation.

Funding Risky Projects

Developing countries live in precarious situations. Countries have low per capita income and wealth because they have failed to thrive economically consistently over the long term -- gains made in one year are lost in another. Developing nations have little of the complex redundancy and economic cushion that enables rich countries to ride out disasters and crises.

The poorer the country, in general, the less it has adopted ICT, and the less experience it has utilizing ICT to enhance social and economic development. Such lack of experience in the sector increases risks of failure of ICT initiatives.

These factors do not lend confidence that a developing nations will be successful in rapidly adapting to the information revolution.

On the other hand, countries have little option but to try again. Moreover, donor agencies do accept the risks of funding projects in less developed nations. They fund not only humanitarian projects, but development projects. They make the decision that the potential benefits merit acceptance of the risks involved, even when those risks are significant.

Experience over recent decades has demonstrated that there are high rates of return to investments in ICT in many sectors, and that ICT investments can play an important role in reducing many aspects of poverty. Moreover, there are obvious synergies among many ICT initiatives (as well as less obvious ones).

Experience in the United States and other developed nations has demonstrated that holistic e-development is an effective (implicit) strategy for enhancing overall economic growth, and experience in several developing nations has demonstrated that ICT-enclave development can also be an effective growth strategy.

I would suggest that donor agencies should accept the risks involved and fund e-development projects, even when those projects are exploring unknown territory, and even when the national policy and institutional environment is not ideal.

However, the risks can be ameliorated by knowledge-based approaches to e-development project formulation. Partnerships among experts from the international donor community and key stakeholders from the domestic community of the nation involved can provide the needed analytic base. Indeed, the partnership approach should extend to explicit building of the formal and informal coalitions that will be needed for project success. The process should be used to build a team for project implementation, and to coopt key stakeholders for support of the project. Moreover, teleologic approaches should be complemented with unusually strong inbuilt teleonomic approaches to project implementation.

Tuesday, March 28, 2006

The Israel Lobby in the United States

John Mearsheimer, the Wendell Harrison Professor of Political Science at Chicago, and Stephen Walt, the Robert and Renee Belfer Professor of International Affairs at the Kennedy School of Government at Harvard, have published a working paper titled "The Israel Lobby and U.S. Foreign Policy".
Abstract: In this paper, John J. Mearsheimer of the University of Chicago's Department of Political Science and Stephen M.Walt of Harvard University's Kennedy School of Government contend that the centerpiece of U.S. Middle East policy is its intimate relationship with Israel. The authors argue that although often justified as reflecting shared strategic interests or compelling moral imperatives, the U.S. commitment to Israel is due primarily to the activities of the Â?Israel Lobby." This paper goes on to describe the various activities that pro-Israel groups have undertaken in order to shift U.S. foreign policy in a pro-Israel direction.
A shorter version of the paper is published under the title "The Israel Lobby" in the London Review of Books (Vol. 28 No. 6 dated 23 March 2006. Subscription required.)

This is a very controversial article, by two scholars who can be assumed from their academic positions to be worthy of our attention. The Washington Post Sunday published a summary of some of the comments that the work has drawn.

The authors cite the USAID Greenbook which states that U.S. economic and military aid to Israel has amounted to US$146 billion from World War II to 2004. (2004 dollars). (All of this funding appears to be in the form of grants.) I would note that this is probably an underestimate. For example, it leaves out "tax financing". The last time I checked, Israeli organizations received some one billion dollars of donations from U.S. donors per year. Since these donations tend to be taxdeductiblee, the United States government is forgoing the tax that would be paid on the money. Over the sixty years since the end of World War II, the taxes forgone would add up to a significant amount. Moreover, there are cooperative efforts between the U.S government that do not appear in the foreign assistance budget (The Binational Science Foundation, the Binational Agricultural Research and Development Foundation, and the Binational Industrial Research and Development Foundation come to mind.)

I think also that much of the U.S. assistance to other nations in the Middle East has been the result of our policy with respect to Israel. Thus, the Greenbook informs us that U.S. assistance to Egypt amounted to US$89 billion from World War II to 2004 (again, in constant 2004 dollars). A very significant portion of this sum was spent in support of the peace accord between Israel and Egypt.

Israel has a population of just over six million people, so the conservative estimate of 145 billion dollars in aid comes out to about US$25,000 per person. In short, an Israeli family of four has a nestegg of about $100,000 from the U.S. taxpayer. Per capita GDP of Israel was $22,200 in 2005. Thus, by a conservative estimate, we have given a middle income country financial assistance that exceeds its annual gross domestic product. (I doubt that the average U.S. citizen is aware of this fact.)

The authors suggest that the U.S. war with Iraq (and by implication, its aftermath) should be seen in terms of our policy with regard to Israel. In some ways their argument here is obvious. I would guess that it is true that Israel did provide intelligence on Iraq to the United States prior to, during, and since the war. Surely Israelis should feel reassured that Iraq does not have WMDs to use against them.

Certainly the war was the result of historical circumstances in which Israel and U.S. policy toward Israel and its Arab neighbors were important. I would hope that the decision to go to war included many factors, including WMD's and terrorism, but also oil, Israel, Iran, Korea, Pakistan, Turkey, and domestic politics. Since the cost of the war has been estimated by Nobel Prize winning economists from US500 billion to US$2 trillion, even apportioning a part to Israel would seem to add greatly to the total U.S. support for the country.

In addition the United States provides Israel with a military umbrella, trade advantages, diplomatic support, and other forms of aid.

Mearsheimer and Walt have every right to ask why we provide so much support to Israel. We are not nearly as generous with any other people -- not with our American neighbors with whom we share borders, nor with other nations more in need.

Surprisingly, they don't come up with two of what I would have thought were the most likely answers: that this is explained by history, or that it is simply good policy.


United States support for Israel has a long history, going back at least to support for Zionist movements before World War II, and including support for resettlement of European Jews seeking refuge from Europe after the war. That history has its own momentum, in that generations of Americans (and Israelis) have grown up expecting such support and thinking it is right. It also has diplomatic implications. A withdrawal of U.S. support for Israel would be seen by our allies and enemies as historically unprecedented, and of enormous significance.

Good Policy

Mearsheimer and Walt point out that both the Legislative and Executive branches of the government tend to support the pro-Israel policy strongly, as do both the mainstream Republican and Democratic Parties. Moreover, they state that:
Over the past 25 years, pro-Israel forces have established a commanding presence at the American Enterprise Institute, the Brookings Institution, the Center for Security Policy, the Foreign Policy Research Institute, the Heritage Foundation, the Hudson Institute, the Institute for Foreign Policy Analysis and the Jewish Institute for National Security Affairs (JINSA).
It occurs to me that if these folk with very different interests and policy views agree on Israel, there may be merit in their case.

The Israel Lobby

The article instead attributes the policy to the efforts of what it terms the "Israel Lobby". I think the prototypical agency of the Israel Lobby, AIPAC, is indeed an organization of great influence. I attribute that influence both to hard, effective work on the part of AIPAC staff, and to the community on which it draws for support. Moroever, I have been impressed by other organizations that support Israeli organizations and causes, and might be seen as part of a lobby.

But Mearsheimer and Walt use the term Israel Lobby, referring to many different groups, in ways that suggest it is monolithic. These groups include not only AIPAC but U.S. residents of the Jewish faith or ethnicity in general, "Christian Zionists" and the "pro-Israel neo-conservatives". There may be temporary alliances among such groups at specific times for specific issues, but I would think it unproductive to label them in toto as a "lobby".

I wish the article had been better done. Over the years I have wondered why U.S. media focus so much on Israel, while not covering more adequately Africa, Asia and Latin America. My Israeli friends seem to be willing to criticize Israeli policy more than U.S. officials will do in public, and I too feel that there is much to criticize in Israeli government actions over the decades. (I also see considerable to criticise in the actions of the Palestinians, the Arabs, and the U.S. Government, but that is another subject.)

Mearsheimer and Walt would appear to have the credentials and interest to do a sophisticated and useful review of how U.S. policy toward Israel and the Middle East is generated. What is the complex dance of the various factions involved? Why does the media treat the region the way it does, and why do Americans respond to the media coverage as they do? I don't think that they did so in this article.

The Migration Debate

I just wanted to post my support for good Samaritan approaches to the legislation under discussion. The worst part of the House passed Bill is that it makes it illegal to offer help to people in trouble. It should be defeated for that reason alone.

How about a little compassion for these folk, many of whom have been here for years. Many have family members (by birth here, by marriage, or by legal immigration) who are U.S. citizens, and some of the provisions under discussion would break up the families. (The proponents of these provisions are those who stress "family values" most in their campaigns!) Many of these undocumented people came not of their own volition, and many came escaping conditions so bad that we can not imagine them.

Of course, good public policy would suggest that we don't try to immediately turn 12 million people in this country into felons (even more if the House had its way and made it a felony to help any illegal immigrant). In a country with an aging population, and a huge debt and deficit, and Social Security likely to be in trouble in future decades, good public policy would seek ways to attract foreign workers, not to discourage them.

The United States is a big country, with lots of room for more people. We can afford to offer people better lives, as we have done in the past.

Why do some people think that immigration is costing the jobs of U.S. citizens? Our unemployment is low. These immigrants have to live, and they spend money here creating more jobs. Indeed, having the workforce a larger portion of the population improves the economy for all.

Of course, if the Congress passes a new law, it should be enforced. Of course, our borders should be safeguarded against terrorist infiltration. However, the new law should recognize that in the future as in the past, the United States can progress economically while offering people in other countries a chance to come here for a better life.

We should not penalize unfairly those who came here at a time when the laws were so poorly enforced that they became meaningless. Indeed, it will be much better public policy to give the 12 million illegal immigrants an acceptable path toward permanent residence, and a legal status that offers them equitable protection while on that path, than to create an instantaneous huge population of felons seeking to escape the law.

Wednesday, March 22, 2006

King Leopold's Ghost

King LeopoldÂ?s Ghost: A Story of Greed, Terror, and Heroism in Colonial Africa
by Adam Hochschild

I just finished reading this book. It tells the story of the process that reduced the Congo from an African ruled society of 20 million people to a Belgian ruled colony of 10 million people, and of the courageous movement that tried to meliorate European rule (but probably failed to do so). The Europeans killed, tortured, kidnapped, enslaved and terrorized the African populations, extracting great wealth in the process. Since this happened, we have seen the holocaust, Cambodia, Burundi, Rwanda and other atrocities, but the scale of the inhumanity in the Congo in the late 19th and early 20th centuries still has the power to shock.

The book also leaves clues as to why the post-colonial history of the region has taken the form it did. None of this should be news to us today, although the book also emphasizes the huge efforts to cover up the shame, and the process of forgetting that has deleted these events from so much of modern consciousness.

I wonder, however, about the culture of Europe in the time that this happened. How could modern men have thought it was morally acceptable to participate in such things? How could European nations have been partitioned Africa among themselves, and not thought it necessary to involve any Africans in the deliberations? Why would moderns allow a King, indeed one exhibiting sometimes bizarre behavior, to so ruthlessly exploit tens of millions of people for such ignoble ends? Why would the political authorities of the other great powers feel that it was all right to stand silent while all this was happening, simply because it was to their geopolitical interests to do so?

The institutionalization of the kind of colonization that occurred in the Congo begins in the minds of those with the power to colonize. What was it about European culture that allowed these colonial insititutions to develop? How could such institutions coexist with the many admirable institutions of the day? I have no answers! However, I suppose that the traits are still with us. Today we stand by while atrocities are committed on a huge scale in the Sudan, as we have stood by in Rwanda and Kosovo and many other places, and let the horror continue for far too long.

Tuesday, March 21, 2006


Ezra Klein published an interesting article in The American Prospect in December. It described former Vice President and presidential candidate Al Gore's campaign to excise the traditoinal media (newspapers, magazines, television) from the politician-public relationship. The article describes Gore as especially concerned with reporters belief that they should present alternative positions on an issue, no matter how trite or uninformed, rather than seek to evaluate the veracity and credibility of information and sources.

The article is very positive about Gore's keynote speech at the We Media conference last October. (The speech is available in streaming audio on the conference website.)

Gore started Current TV last summer, intending it to further the disintermediation, and to 'democratise' TV; currently viewers contribute about 30% of the station's content. The Current TV website offers instructions on how to create and upload videos. The Current community then watches and rates the pods online, the highest rated ones eventually are broadcast on the channel. The content includs everything from animated political shorts to reports from the Katrina-devastated areas of the United States. Now the channel is extending the concept of user-generated content to the commercials, and it is reported that Sony Electronics, Toyota and L'Oreal Paris have all signed deals with the station to have it enlist viewers to produce their commercials and then air the best of the spots.

Currently he is speaking occassionally via the Democratic website, Each speech under MoveOn’s auspices reaches a guaranteed 3 million MoveOn members, who get the address by email directly and can read it in full.
From there, the speech gets e-mailed around, promoted on the blogs, passed from friend to neighbor via “viral marketing.” MoveOn allows him to speak out on his own terms, and individuals to distribute his speeches on theirs.
This is disintermediation via the new media! Gore reaches directly to an intended audience of huge size, without interference from others who would spin the content, or select and emphasize content outside of his control.

Monday, March 20, 2006

The Economics of the War

In the Becker-Posner Blog, Gary Becker has a nice piece on the economics of the War in Iraq. (March 19th, 2006). Drawing on estimates made by other economists (Steven J. Davis, Kevin M. Murphy and Robert H. Topel and Bilmes and Stiglitz), he suggests that the "cost of the war will amount to somewhere between $500 and $850 billion". He suggests that this is perhaps several hundred billions of US dollars greater than the cost of the alternative of containment of Saddam Hussein. Their estimate does not seem to include costs incurred by other nations in the Coalition. (I am not sure that the estimate counts the psychological cost to our returning soldiers, and we read that fully one-third have alread sought psychological help to deal with the after effects.)

I quote the following paragraph completely:
I have not mentioned anything about the costs or benefits to the Iraqi people. Much property has been destroyed and many Iraqis killed during the insurgency, but can anyone doubt that practically all Kurds and Shiites (about 75 per cent of the total population), and some Sunnis, consider themselves better off now than under the brutal regime of Saddam? This brutality includes not only the enormous devastation to the Iraqi economy, but also the many thousands of deaths that he caused, a number that would be well in the hundreds of thousands if deaths due to the Iran invasion are included. Since Democrats as well as Republicans often mention spreading democracy, I do not see how the effects on Iraqis can be ignored.

Currently, IraqBodyCount lists the number of civilians deaths caused by military intervention in Iraq as between 33679 and 37795. That number includes "civilian deaths caused by coalition military action and by military or paramilitary responses to the coalition presence (e.g. insurgent and terrorist attacks). It also includes excess civilian deaths caused by criminal action resulting from the breakdown in law and order which followed the coalition invasion." However, a paper published in The Lancet in October, 2004 estimated that the excess of deaths in Iraq in the 17.8 months following the invasion was 100,000 as compared with the death rate in the 14.6 months prior to March 2003. (In war conditions, I would expect that a lot of the excess civilian mortality would result from disease and malnutrition, as well as from a deterioration in access to medical attention, rather than as a result of direct violence. I would also expect that these impacts of the disruption in civil society since March 2003 would still be increasing, as the Iraqi economy continues in crisis and as the infrastructure continues to be damaged and inadequate.) The Lancet study did not consider the number of Iraqi soldiers killed.

If indeed more than 100,000 Iraqi's have died as a result of the war, I suggest that, contrary to Becker's assumption, there are a lot of Iraqis (the families and loved ones of the dead) who don't consider themselves better off overall since Saddam was deposed. Moreover, if one applies the US$7 million per military death mentioned by Becker to the 100,000 Iraqi civilians conservatively estimated as having died, you get another US$700 billion in costs of the war. (Do you want to say than an Iraqi child is worth less than an American soldier? I don't!)

One of the problems of cost-benefit analysis is how to account for externalities. In this case, how does one account for the costs of the war not only to the United States, and to Iraqis, but to the rest of the world? We are now 6.5 billion people inhabiting the planet, and I would suggest all are affected by the war. Who is calculating the costs to all these stakeholders?

The war in Iraq and Afghanistan have had other repercussions for the United States that are I think impossible to quantify.
* Has it made security from attack with WMDs from Iran and North Korea worse, and/or diminshed U.S. ability to counter such threats? How are we to put value on such changes?
* Has it increased or decreased the threats of violence between Israel and its Arab neighbors, or among Pakistan, India and China? How can we even identify the stakeholders affected by such theats, much less quantify their cost and probability?
* Has the war directly or indirectly reduced action for the amelioration of global environmental problems? How should we evaluate such problems, or their changing likelihood.

When preparations for the war were under way in 2003, the White House reacted vigorously to deny the estimate made by White House Economic Advisor Larry Lindsey that it might cost US$200 billion, saying that that number was a gross overestimate. Bilnes and Stiglitz make the point that we now know that Lindsey's estimate was a gross underestimate. The cost estimates have certainly shown that in this, as in so many ways related to the war, the information given out by the Bush Administration was false, and was thought to be false by key officials of the government.

But I would add that in decisions of the complexity and gravity as that of going to war, the costs to all stakeholders should be considered. The government considering war or its moral counterpart should open international discussions to allow other stakeholders to participate in the decisions that affect them so deeply. The unquantifiable is not imponderable. The best way to take into account the costs to be borne by others is probably through dialog among the stakeholders.

Sunday, March 19, 2006

A comment on a comment

In "America at the Crossroads," Mr. Fukuyama questions the assertion made by the prominent neoconservatives Mr. Kristol and Robert Kagan in their 2000 book "Present Dangers: Crisis and Opportunity in American Foreign and Defense Policy" that other nations "find they have less to fear" from the daunting power of the United States because "American foreign policy is infused with an unusually high degree of morality." The problem with this doctrine of "benevolent hegemony," Mr. Fukuyama points out, is that "it is not sufficient that Americans believe in their own good intentions; non-Americans must be convinced of them as well." (MICHIKO KAKUTANI The New York Times, March 14, 2006).

Actually there are other, bigger problems with this doctrine:
* What our political leaders say is our policy and the rationale for that policy is not always an accurate description of the policy and its rationale. Policies described in moral terms for domestic and international consumption may actually be quite cynical.

* Really bad policies are often thought by their proponents to be especially moral. Remember that slavery was defended as the only way to civilize Africans, and Hitler was no doubt convinced of the moral correctness of the holocaust. The policies proposed by American leaders in the past have not always appeared as morally correct in retrospect as their proponents believed at the time of their promulgation.

* The unintended consequences of policies are often more severe than the policy makers intend, especially if those policy makers are naive. And I read history to tell us that American policy makers very often have been naive in the past. I see no historical reason to believe that they will be notably less naive in our day.
Perhaps even more seriously in error is the assumption implicit in the argument that America's actions are simply explainable in terms of the policy objectives of our political leaders. The United States, with a population of some 300 million people and a huge government, is a very complex society. The behavior of the nation in the global arena is the result of very complex processes. President Eisenhower noted in his farewell address to the nation in 1961
In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist.
I would suggest that the patterns of influence in our society may be as important in determining U.S. foreign policy as the international intentions and motives of our elected leaders. The major consequences of our policies may often better be seen as unintended outcomes of complex social, economic and politica processes, rather than as the direct intended outcomes of the more or less benevolent intentions of a few leaders.

Friday, March 17, 2006

About Slavery: Thoughts on St. Patrick's Day

Saint Patrick's Day is not only a day for celebration of things Irish, but a day to remember the Saint himself. In the 5th century, Patrick was abducted and sold into slavery in Ireland. He escaped after six years (during which time he learned Celtic), returned to Britain, studied for the ministry, and eventually returned to Ireland to convert its people to Christianity. It has been suggested that because of their devotion to St. Patrick, the Irish have been especially opposed to slavery.

I suggest that there is no better way to commemorate Saint Patrick, than to work against slavery in his honor!

I suspect Irish antipathy to slavery is most directly a result of the centuries in which Ireland was ruled by the English, during which time the majority of the population was often forced into involuntary servitude. Irish history tells Ireland's people what slavery really feals like. I have read that there was a close relationship between Irish indentured servants on Caribbean islands and black slaves, perhaps a sign of this understanding. Moreover, I have read that there were riots in the United States as immigrant Irish after the Potato Famine of the 1840's fought for survival. The Irish were of so little value that they were given jobs too dangerous to give to slaves, who after all were worth money on the market. The Irish rioted for a chance at the good jobs held by the slaves!

I have been reading King Leopold's Ghost by Adam Hochschild. It tells the story of the enslavement of millions of Africans in what came to be known as the Belgian Congo. The degredation and cruelty described are almost unimaginable. The book also tells the story of Roger Casement, an Irishman who exposed the involuntary servitude of the Congolese in a major report, who fought against slavery in the Congo and in the Putomayo for decades, and who became an Irish revolutionary. He saw the parallel between involuntary servitude in Africa and lack of self determination and freedom in Ireland. Ultimately, he was executed by the English as a rebel.

The Washington Post reports that:
The U.N. General Assembly voted overwhelmingly Wednesday to create a human rights agency to monitor and expose abuses by governments, replacing a discredited body despite objections by the United States that nations with a history of human rights violations could still join the new panel.

The assembly's action will effectively abolish the United Nations' main human rights body, which has been derided in recent years for allowing some of the world's worst rights abusers to participate. It will be replaced in June by a new Human Rights Council, which advocates and most nations hope will exclude brutal dictatorships and do a better job of confronting governments that abuse their own people.
The United States opposed the action, stating that is wanted a still more dramatic organizational reform, that would further enhance the role of the United Nations in protecting human rights. Still Reuters informs that the United States' government "has vowed to work with the new council despite its vote against Wednesday's resolution". Let us hope that the United Nations will in fact, some 1,600 years after Saint Patrick, help to finally end slavery. And let us hope that the United States will in fact contribute substantially to that effort!

I just posted a message (UNESCO News: Education and Culture) on the role of UNESCO in promoting the international understanding of slavery, and in conserving the awareness of slavery in all men.

In the meantime, I hope that people will support efforts of Civil Society organizations such as Ashoka Changemakers to End Human Trafficking.

Happy Saint Patrick's Day to my readers, and may those now in involuntary servitude see happier days in the future.

Tuesday, March 14, 2006

From the Economist's Economics Focus Columns

This week The Economist in its Economics Focus column focuses on the Entrepreneur, suggesting that entrepreneurship has been inadequately discussed in the modern economic literature, and distinguishing between the inventor-entrepreneur and the non-inventing entrepreneur.

It quotes Thomas Astebro's article, "The Return to Independent Invention: Evidence of Unrealistic Optimism, Risk Seeking or Skewness Loving?"
Abstract: Examining a sample of 1,091 inventions I investigate the magnitude and distribution of the pretax internal rate of return (IRR) to inventive activity. The average IRR on a portfolio investment in these inventions is 11.4%. This is higher than the risk–free rate but lower than the long–run return on high–risk securities and the long–run return on early–stage venture capital funds. The portfolio IRR is significantly higher, for some ex ante identifiable classes of inventions. The distribution of return is skew: only between 7–9% reach the market. Of the 75 inventions that did, six realised returns above 1400%, 60% obtained negative returns and the median was negative.

It also cites sessions held at the Annual Meeting of the Allied Social Science Associations in Boston on January 7, 2006

William Baumol Special Sessions on Entrepreneurship, Innovation and Growth

The session included the following papers that are online:
WILLIAM BAUMOL, New York University—Entrepreneurship and Invention: Toward Their Microeconomic Value Theory

EDWARD LAZEAR, Stanford University—Leadership and Entrepreneurs: Where They Produce the Most Value

EDMUND PHELPS, Columbia University—Further Steps to a Theory of Innovation and Growth—On the Path Begun by Knight, Hayek and Polanyí

CARL SCHRAMM, Kauffman Foundation—Entrepreneurial Capitalism and the End of Bureaucracy: Reforming the Mutual Dialogue of Risk Aversion

DAVID AUDRETSCH and MAX KEILBACH, Max Planck Institute of Economics—Entrepreneurship Capital -- Determinants and Impact on Regional Economic Performance

YING LOWREY, U.S. Small Business Administration—An Examination of Entrepreneurial Effort

STEVEN KAPLAN, BERK SENSOY, and PER STROMBERG, University of Chicago—What Are Firms? Evolution from Birth to Public Companies

PAUL GOMERS, ANNA KOVNER, JOSHUA LERNER, and DAVID SCHARFSTEIN, Harvard University—Venture Capital Investment Cycles: The Impact of Public Markets
Last week the column focused on investment in intangibles, and the effect on measurement of economic growth of alternative ways of estimating such investment.

That column also linked to two papers that I thought interesting:
* “Intangible Capital and Economic Growth”, By Carol A. Corrado, Charles R. Hulten and Daniel E. Sichel, NBER working paper no 11948, January 2006.
ABSTRACT: Published macroeconomic data traditionally exclude most intangible investment from measured GDP. This situation is beginning to change, but our estimates suggest that as much as $800 billion is still excluded from U.S. published data (as of 2003), and that this leads to the exclusion of more than $3 trillion of business intangible capital stock. To assess the importance of this omission, we add capital to the standard sources-of-growth framework used by the BLS, and find that the inclusion of our list of intangible assets makes a significant difference in the observed patterns of U.S. economic growth. The rate of change of output per worker increases more rapidly when intangibles are counted as capital, and capital deepening becomes the unambiguously dominant source of growth in labor productivity. The role of multifactor productivity is correspondingly diminished, and labor's income share is found to have decreased significantly over the last 50 years.
* “Measuring Capital and Technology: An Expanded Framework”, by Carol Corrado, Charles Hulten, and Daniel Sichel, Federal Reserve, August 2004:
ABSTRACT: Business outlays on intangible assets are usually expensed in economic and financial accounts. Following Hulten (1979), this paper develops an intertemporal framework for measuring capital in which consumer utility maximization governs the expenditures that are current consumption versus those that are capital investment. This framework suggests that any business outlay that is intended to increase future rather than current consumption should be treated as capital investment. Applying this principle to newly developed estimates of business spending on intangibles, we find that, by about the mid-1990s, business investment in intangible capital was as large as business investment in traditional, tangible capital. Relative to official measures, our framework portrays the U.S. economy as having had higher gross private saving and, under plausible assumptions, fractionally higher average annual rates of change in real output and labor productivity from 1995 to 2002.
As countries mover from industrial to knowledge economies, both entrepreneurship (especially inventive entrepreneurship) and investment in intangibles assume greater importance. Without the economists inputs, represented by reports such as those linked above, policy makers will be hard pressed to develop appropriate policies to promote the knowledge society.

Monday, March 13, 2006

Ideas and Growth: Some interesting economists

Some economists, starting decades ago, have studied the benefits of technological change for economic growth. In recent years, with the increase in interest in "the knowledge society" and "the information society" some economists have updated studies to consider the impact of "ideas" on growth. I have identified a few of these economists below, with one or more publications for each (to illustrate the work that is being done).


A standard economic growth model includes three factors: capital, labor and productivity. One can add another factor -- knowledge. Knowledge can be embodied in labor, in the form of a better educated and trained workforce. It can be embodied in capital, as in the form of robotics.

Ideas are nonrivsalous. One person having an idea does not restrict other people from having the idea. On the other hand, if you train a person to operate a machine, it is assumed that he can only operate one machine at a time. Thus it takes an investment to train a person, and the human capital so developed can be rivalous. (On the other hand, if you write a program for a robot to carry out a specific assembly, then presumably all other robots of the same design can use the same program to carry out the same assembly without other major investment.)

The stock of knowledge can be seen to depreciate. Thus knowledge that people once held may be lost (e.g. how to chip stone tools). Similarly, knowledge capital can lose its value: thus technology that once had value may lose its ability to generate income as the knowledge of how to manufacture buggy wips lost value with the introduction of the automobile.

What are our indicators?
* Expenditures on research and development: and we can assume that R&D increases the stock of a certain kind of knowledge.
* Funadmental Research: this is presumably R&D that increases the stock of ideas, and to publications, but does not lead directly to commercial processes and products.
* Applied Research and Development: this is presumably information that is likely to lead to commercial advantage, and thus to patents or trade secrets.
* Process Patents: these seem to be related to the knowledge available to be embodied in plant and equipment, and thus related to capital in the normal definition of the term;
* Product Patents: These are ideas for new products, and it is the patent protection that turns them into intellectual property, and thus a kind of capital good.
Scientific and Technological Publications: These form a stock of ideas in the public domain.

Some knowledge with significant value for economic growth, I suggest, is not produced by research and development funding. Technology deepening illustrates such knowledge. When workers on the factory floor improve their mastery of an acquired technology through practice and analysis of its operation, the investment is not captured in R&D accounts. Similarly, when firms are reorganized to improve productivity, or markets and industries are restructured for the same purpose, knowledge is surely involved but the investment is not captured in R&D accounts.

While much thought has gone into figuring out where knowledge appears in the production function, and how the different aspects of knowledge can be measured, I suggest that there is likely to remain a residual improvement in productivity that will be attributed to unmeasured knowledge inputs.

The Economists

I attended a seminar recently by Roberto Samaniego (of the Department of Economics at George Washington University) in which he described a model that sought to explain the effect of research and development expenditures on economic growth. The talk was based on his working paper, "R&D and Growth: The Missing Link?".
Abstract: The presumption that R&D is a key driver of economic growth is difficult to reconcile with the empirical evidence. For example, in most studies, which identify technical change with total factor productivity (TFP), the link between TFP and measures of knowledge is found to be weak.

This paper shows that a reconciliation may be possible in a model where R&D contributes to growth through investment-specific technical change. Such a model predicts that the empirical link between knowledge and productivity would be weak even when the generation of knowledge is the predominant factor of economic growth. The paper also shows that estimates of the production function for knowledge using patent data may be biased.

Charles I. Jones is at the Department of Economic of the University of California at Berkeley. Read his working paper, "The Value of Information in Growth and Development" (November 2005).
Abstract: This paper explores the role of information in the theory of economic growth and development. They way it is used here, ?information? refers to every feature of an economy, including not only the economic environment, but also the institutions like markets and government policies that affect the allocation of resources. The first half of the paper considers a model where consumers are faced with an enormous range of possible goods they can purchase, so many that they do not know exactly how much utility they would get from consuming each good. Improvements in this information possessed by consumers increases welfare by making the allocation of resources more efficient, and these effects may be large in some cases. The second half extends these ideas to the production side of the economy and argues that a model where different kinds of information are crucial to successful production can lead to an information-based theory of TFP. In the theory outlined here, large differences in incomes can be explained by small differences in the ease with which people in a given country can acquire four different kinds of complementary knowledge.
Jones' "Growth and Ideas" in the Handbook of Economic Growth (Chapter 10, September 2004) is especially interesting:
Abstract: Ideas are different from nearly all other economic goods in that they are nonrivalrous. This nonrivalry implies that production possibilities are likely to be characterized by increasing returns to scale, an insight that has profound implications for economic growth. The purpose of this chapter is to explore these implications.

Philippe Aghion
at the Department of Economics at Harvard University and Peter Howitt of the Department of Economics at Brown University, and their paper "Appropriate Growth Policy: A Unifying Framework" (August, 2005):
From the Introduction: In this Schumpeter lecture, we shall argue that growth theory is in fact useful to think about growth policy, provided one uses the adequate growth paradigm. We posit that Schumpeterian theory in which growth results from quality-improving innovations, provides such a paradigm and can be developed into a theory of the policy of growth. Unlike the other endogenous growth models, namely the AK model and Romer’s product variety model, the Schumpeterian paradigm provides a way to “systematize” the case-bycase approach advocated by Rodrik, by pointing at key economic variables such as the country’s distance to the technological frontier or its degree of financial development, that should affect the design of structural and macroeconomic policies aimed at fostering growth.

The lecture is organized as follows. Section 2 briefly reviews the three main endogenous growth paradigms: AK, the Schumpeterian framework, and the product variety model. The next sections discusses three areas in which good policy can make a difference for growth, and in particular help overcome current European stagnation. Section 3 focuses on competition and entry, and in particular explains why Europe would benefit from a competition and labor market policy that does not only emphasize competition among incumbent firms, but also stresses the importance of entry, exit and mobility. Section 4 analyzes education, and argues that growth in Europe would benefit from devoting more resources to higher education. Section 5 discusses the role and design of countercyclical budgetary policies. Finally Section 6 concludes the lecture by revisiting the role of savings in the growth process, in a way that questions the neo-classical and AK models at their very heart and also suggests new policy avenues.

Danny Quah at the Department of Economics of the London School of Economics, and his paper "Fostering innovation for productivity – the challenges for managing intellectual property":
Excerpt: The commodity on which the world is running excess supply? Knowledge.

Today, just as the world's knowledge stock is climbing ever higher peaks, the fraction of knowledge being used productively is plumbing ever lower depths. Since knowledge can't be added up the same way that, say, apples and bananas can, we can only tell if knowledge is under-used by comparing its social benefits with its social costs. If, at the margin, benefits exceed costs then productive usage is too low - life would be sweeter on net were society to deploy more of that particular item of knowledge; we would say knowledge is under-used.
Check out his website on "The Weightless Economy".

Sunday, March 12, 2006

The MacBride Commission and its Findings

A major reason that the United States withdrew from UNESCO in the 1980's was the anger generated by UNESCO's discussions of a New World Information and Communications Order.

A major contribution to that discussion was a UNESCO publication, "Many Voices, One World". This was the report of UNESCO's International Commission for the Study of Communication Problems. The Commission is ofter known as the MacBride Commission, after its chair, Sean MacBride.

As a result of the report, UNESCO is described by Sourcewatch as having launched the International Program for the Development of Communication. (The United States is now a donor to this program.) The Program web site states that it "exists to strengthen the means of mass communication in developing countries, by increasing technical and human resources for the media, by developing community media and by modernising news agencies and broadcasting organizations."

MacBride was an interesting character (see a brief bio). An Irish statesman, he was born in Paris, and his father was executed for his part in the 1916 Easter Rising. His mother was Maud Gonne MacBride, a beauty and one of the strongest advocates of Irish Nationalism. Together with William Butler Yeats, Maude Gonne helped establish the Abbey Theatre in Dublin. (Yeats fell in love with her and his feelings for her inspired a large number of poems. In 1902 Gonne played the leading role in his play, Kathleen Ni Houlihan.)

McBride was Irish Minister for External Affairs when the Council of Europe was drafting the European Convention on Human Rights and is credited with being a key force in securing the acceptance of this convention. He was President of the International Board of Amnesty International for 14 years, and Secretary-General of the International Commission of Jurists for seven. He was also elected Chair (1968-1974) and later President(1974-1985) of the International Peace Bureau. In 1973 he was elected by the General Assembly of the United Nations to the post of UN Commissioner for Namibia with the rank of Assistant Secretary-General of the United Nations. He was awarded the Nobel Peace Prize for his life's work in 1974. He died in 1988.

The MacBride principles, named after Sean McBride, were adopted as US law in 1998 creating a fair employment code for U.S. companies in Northern Ireland, and contributing to the peace in Ireland.

The MacBride Round Table on Communication is a communications rights advocacy group created in 1989 to stimulate discussion of issues embodied in the 1980 UNESCO MacBride Report.

The reassessment of the McBride Report continues. For example, Andrew Calabrese has written a paper, "The MacBride Report: Its Value to a New Generation". Similarly, Stewart M. Hoover, has written a paper citing the report, titled "All Power to the Conglomerate: If Information Is a Commodity, What Price Is International Understanding?".

Saturday, March 11, 2006

Transformational Diplomacy

Read Secretary of State Condoleezza Rice's January 16th address at Georgetown University.

The United States Department of State is in the process of redefining its mission, and has coined the term "transformational diplomacy" to indicate the new directions. Some excepts from Secretary Rice's January speech suggest the tone of the reform:
We are living in an extraordinary time, one in which centuries of international precedent are being overturned. The prospect of violent conflict among great powers is more remote than ever. States are increasingly competing and cooperating in peace, not preparing for war. Peoples in China and India, in South Africa and Indonesia and Brazil are lifting their countries into new prominence. Reform -- democratic reform -- has begun and is spreading in the Middle East. And the United States is working with our many partners, particularly our partners who share our values in Europe and in Asia and in other parts of the world to build a true form of global stability, a balance of power that favors freedom.

At the same time, other challenges have assumed a new urgency. Since its creation more than 350 years ago, the modern state system has rested on the concept of sovereignty. It was always assumed that every state could control and direct the threats emerging from its territory. It was also assumed that weak and poorly governed states were merely a burden to their people, or at most, an international humanitarian concern but never a true security threat.

Today, however, these old assumptions no longer hold. Technology is collapsing the distance that once clearly separated right here from over there. And the greatest threats now emerge more within states than between them. The fundamental character of regimes now matters more than the international distribution of power. In this world it is impossible to draw neat, clear lines between our security interests, our development efforts and our democratic ideals. American diplomacy must integrate and advance all of these goals together.

So, I would define the objective of transformational diplomacy this way: to work with our many partners around the world, to build and sustain democratic, well-governed states that will respond to the needs of their people and conduct themselves responsibly in the international system........

In the 21st century, emerging nations like India and China and Brazil and Egypt and Indonesia and South Africa are increasingly shaping the course of history. At the same time, the new front lines of our diplomacy are appearing more clearly, in transitional countries of Africa and of Latin America and of the Middle East.......

Building regional partnerships is one foundation today of our counterterrorism strategy. We are empowering countries that have the will to fight terror but need help with the means. And we are joining with key regional countries like Indonesia and Nigeria and Morocco and Pakistan, working together not only to take the fight to the enemy but also to combat the ideology of hatred that uses terror as a weapon.

We will use a regional approach to tackle disease as well. Rather than station many experts in every embassy, we will now deploy small, agile transnational networks of our diplomats. These rapid response teams will monitor and combat the spread of pandemics across entire continents. We are adopting a more regional strategy in our public diplomacy as well.......

Transformational diplomacy requires us to move our diplomatic presence out of foreign capitals and to spread it more widely across countries. We must work on the front lines of domestic reform as well as in the back rooms of foreign ministries. There are nearly 200 cities worldwide with over one million people in which the United States has no formal diplomatic presence. This is where the action is today and this is where we must be. To reach citizens in bustling new population centers, we cannot always build new consulates beyond a nation's capital.

A newer, more economical idea is what we call an American Presence Post. This idea is simple. One of our best diplomats moves outside the embassy to live and work and represent America in an emerging community of change. We currently operate American Presence Posts in places like Egypt and Indonesia and we are eager to expand both the size and the scope of this new approach.

Perhaps the newest and most cost effective way to adopt a more local posture is through a Virtual Presence Post. Here one or more of our young officers creates and manages an internet site that is focused on key population centers. This digital meeting room enables foreign citizens, young people most of all, to engage online with American diplomats who could be hundreds of miles away......

These experiences have shown us the need to enhance our ability to work more effectively at the critical intersections of diplomacy, democracy promotion, economic reconstruction and military security. That is why President Bush created within the State Department the Office of Reconstruction and Stabilization. Recently, President Bush broadened the authority and mandate for this office and Congress authorized the Pentagon to transfer up to $100 million to State in the event of a post-conflict operation, funds that would empower our reconstruction and stabilization efforts.

Thursday, March 09, 2006

The United Nations System is the World's First Defense Against Avian Influenza

Today, the United Nations formally launched a landmark $500-million fund – with over half that amount already pledged – to jump-start relief operations in future natural and man-made disasters and save thousands of lives that would otherwise be lost to delay under the current under-funded mechanism. This mechanism is part of the reform and reorganization of the United Nations, and no doubt is to some degree a response to the 2004 tsunami and the Pakistan earthquake last year. While it is not intended specifically to respond to the avian flu, it is a mechanism that could be brought to bear. Recall that the 1918 influenza epidemic was so severe in places that they might well have qualified for such emergency assistance, had it existed.

Check out the Central Emergency Response Fund (CERF) website.

There is some discussion, apparently, as to whether the influenza epidemic in birds is being spread primarily by wild birds or by poultry. In either case, the U.N. system is the first line of protection.

In November the United Nations Environmental Program (UNEP) announced at an international wildlife conference in Nairobi, Kenya that
An avian flu early warning system, able to alert countries and communities to the arrival of potentially infected wild birds, is to be developed by an alliance of organizations led by the United Nations.

The system will be designed to alert authorities on different continents that migratory water birds are on their way.
The warning system is to be developed by the Convention on Migratory Species (CMS) with support and funding from the UNEP.

The Organization for Animal Health (OiE, for the French version of its original title) keeps track of wildlife as well as on domestic animal diseases and zoonosis. It also provides expertise and encourages international solidarity in the control of animal diseases, and seeks to safeguard world trade by publishing health standards for international trade in animals and animal products.

The Food and Agriculture Organization of the United Nations (FAO) has a vigorous program against bird flu. The program website provides information on the progression of the disease in poultry. In conjunction with the World Health Organization (WHO), FAO has created a Global Strategy for the Progressive Control of Highly Pathogenic Avian Influenza (HPAI).

Of course,WHO represents the first line of global defense against an avian flu epidemic or pandemic in humans. WHO's Avian Influenza website is perhaps the best source for information on human cases of A/H5N1 influenza, and the potential for an epidemic.

These organizations are at the apex of a system of regional and national veterinary and human health organizations, helping to coordinate the direct responses to outbreaks, and to coordinate a global response to the threat.

I wish that more Americans understood how this complex system of United Nations and other multinational organizations functions to protect their health and welfare. This system has its origins in the early 20th century, and was solidified and strengthened after World War II. Thus, it represents the culmination of a century's effort to create institutions strong enough and agile enough to protect the world's population from communicable disease. We are fortunate to have this system in place now, and we should be very careful about any changes that might weaken it.

Wednesday, March 08, 2006

"Rethinking the Gains from Immigration: Theory and Evidence from the U.S."

Read the full paper by Gianmarco I.P. Ottaviano and Giovanni Peri. (January 2006.)
One realizes that foreign-born workers are "complements" of U.S.-born workers in two ways. First, foreign-born residents are relatively abundant in the educational groups in which natives are scarce. Second, their choice of occupations for given education and experience attainments is quite different from that of natives. This implies that U.S.- and foreign-born workers with similar education and experience levels are imperfectly substitutable. Accounting carefully for these complementarities and for the adjustment of physical capital induced by immigration, the conventional finding of immigration’s impact on native wages is turned on its head: overall immigration over the 1980-2000 period significantly increased the average wages of U.S.-born workers (by around 2%). Considering its distribution across workers, such an effect was positive for the wage of all native workers with at least a high school degree (88% of the labor force in year 2000), while it was null to moderately negative for the wages of natives without a high school degree.

Tuesday, March 07, 2006


I have been thinking about England from the time of Alfred the Great to that of William the Conqueror, or from the second half of the 9th century to the early part of the 12th. I just finished reading Bloodfeud by Richard Fletcher. About a year ago I read The Year 1000 : What Life Was Like at the Turn of the First Millennium by Danny Danziger and Robert Lacey. I am in the middle of Richard Cornwell’s Alfred novels (The Last Kingdom and The Pale Horseman).

The setting

It was relatively warm in Europe from 650 AD to 1100 AD (explaining some of the ease with which the Vikings prospered in Iceland and traveled to so many faraway places). (It was cold again from 1150 AD to 1300 AD.) The population was much less than that of today. (The population of the United Kingdom is about 60 million, while that of the British Isles a thousand years ago may have been one million.) It was the period before the First Crusade (1095) and before the Black Death hit Europe (1347).

This was a time of agricultural societies, with few towns of any size. There were, or course, no potatoes, corn, squash nor others of the new world crops. Nor was there refrigeration, nor the availability of spices and sugar. It was before coffee or tea, but it was a time some wine could be produced in the British Isles. There were wheat, barley, some vegetables, and some familiar fruits. There were cattle, pigs and horses, but meat would not keep and had to be eaten fresh. The aristocrats hunted, and I suppose the odd rabbit or fish might have found its way to the pot of a poor family, Diet would have been pretty uninteresting and pretty dreadful by modern American standards. People in the British Isles would have spent a lot of time gathering wood and drawing water. Travel was easiest by boat, even if the boat was propelled by oars and human muscle.

The Romans left Britain in the 5th century, and Germanic tribes including the Angles and the Saxons had invaded and established kingdoms in much of what is now England, driving Celts, Britons and others into corners of the islands. But Scandinavian peoples were in a centuries long process of replacing the Anglo-Saxons. Indeed, as these peoples successfully conquered and settled parts of Ireland and France (Normandy) the incursions into what is now England continued incorporating their new bases. For the period from the 9th to the 12th century, Britain would have hosted a multi-ethnic, multi-lingual society.

There is very little written record from this period – the Anglo-Saxon chronicles and the Doomsday books from the time of William the Conqueror are the best sources. Consequently, good historians can’t say much with certainty. I found Fletcher’s book hard to read, but a useful reminder of how painful it must be to tease out information on the period from the available sources, and how untrustworthy those sources seem to be.

Institutional Change

Bloodfeud was an institutionalized process. The bloodfeud that is the centerpiece of the Fletcher book went on for decades and generations, killing after killing. Bloodfeud is an institution that has been found in several cultures, and paralleled wergild, the payment of financial reparations for injuring or killing someone. Under bloodfeud, retribution killing of one who killed a relative was socially acceptable in the upper classes, indeed admirable. It was not until after William the Conqueror and his followers extended regal power geographically and institutionally that the courts represented an alternative institution for the settlement of wrongful death. I think this substitution of one institution for another is very interesting during this period, and is perhaps the main story told in Fletcher’s book.

This was a time when Christianity was transforming British life. Priests were frequently married (but did not regularly officiate at the marriages of others) at the beginning of the period, but celibacy was increasingly imposed. Abbeys were created (and destroyed in Viking raids). So too was a system of nunneries, and churches were built across the country. The authority of Rome would have been extending to this outer fringe of Christianity, as the richest people started making the occasional pilgrimage. The other side of the coin is that the earlier religions were going out of fashion.

Families were apparently important. Fletcher comments that (for the upper classes) betrothal was a more important event than marriage, as betrothal established the link between families and set the economic terms of the bargain. On the one hand, there would not have been enough money for individuals to live alone; on the other hand, the extended family would have been limited due to the high death rates.

The sense of community would have been expanding. People tied to the land, too poor to own a horse, in areas poorly served by roads would not have moved around a lot. On the other hand, the Norse, Danes and others would have traveled internationally. We read of the royal families and high aristocracy moving from court to court, and theirs would have been quite a different sense of community. But one assumes that the common folk would have identified with a village, and perhaps a local squire. But power was extending, and people with time might well have identified with a county, and indeed a country.

Economic institutions were changing. More coins were going into circulation, suggesting that a money economy was being substituted for a barter economy. Towns and trade were growing, suggesting that markets were expanding and trade was being institutionalized. Slavery existed, free persons could fall into slavery through economic misfortune, and slaves could be manumitted by their owners.

Still, there would have been very little economic specialization, and few of the institutions we depend upon to articulate and coordinate the diverse productive activities of our society. In the farmstead, built by the family and neighbors, the women would have spun and woven, cooked, and cared for infants and young children. Farmers would farmed, carrying out all the tasks from planting to harvest, from breeding livestock to slaughtering animals and curing the meat.

From the point of view of modern society, one of the oddest features of the time was the institutionalized system by which bands raided or invaded into the British Isles. Kings were expected to and sought to protect their subjects from outside raids, but were faced by insurrections, and were apparently frequently unable to offer effective protection. And eventually the Anglo-Saxon aristocracy was almost totally replaced by Scandinavian and ultimately Norman aristocracy. The winners took all!

It must have been a terrible time for the vast majority of the people. They could have their property stolen by Vikings, or taken in taxes by aristocrats paying for their warfare. They could be killed in the fighting. If the crops were bad, they died of hunger; if an epidemic occurred they died of disease; and there was very little they could do about it.

What were people like?

The books don’t tell you much about the “normal folk”. They were not the subject of the records left from that time, and they are not the people we enjoy as protagonists in our fiction. They would have been unschooled and illiterate (only the priests and a few of the aristocrats would have learned to read and write). They would probably have been small, in a society with not much food to give to the kids. They would have a lot of residual disability, having lived a hard life without medical services. They would be dirty, lacking the sanitary facilities necessary for what we take to be decent hygiene, and having a culture in which such hygiene had not yet been given value.

Children would often have died in infancy or childhood, mothers in childbirth. Indeed, there would have been very few old people. As a result, their attitudes toward death and age would have been very different than ours. They would probably seem insensitive to a modern American, and would have accorded respect due to age to people we might consider quite young.

I suppose that folk were more verbal than we are. The way to get new information would be to have someone tell it to you. The way to remember something would be to go over it again and again. (Conversation would have probably been pretty dull to us, with people talking interminably about crops and pests, animals and family histories.) I bet music was important, and that people sang; what else would there have been to do for entertainment?

So why is this essay in this blog?

It occurs to me that the experience with poor people in developing nations might be better preparation for understanding the normal folk of 1,000 years ago than any experience in a rich country or any reading we could do.

Looking at the evolution of a European society over centuries gives some perspective to our view of international development. The institutions change radically over such a period. The Europeans of a thousand years ago, my direct ancestors, were probably more different to me culturally than people in other countries are today.

We live much better and longer today than did my ancestors, and that is due to an accumulation of capital, which in turn is due largely to the accumulation of knowledge. But it is the political, social, economic and cultural advances made by those ancestors that created the conditions under which knowledge and capital could accumulate.