Sunday, October 26, 2014

Brazil's elections: a choice of development models

A short break in the debate about the Beijing Consensus for some breaking news:

Today, Brazil decided to re-elect its President, keeping Dilma Rousseff for another 4 years in power. The margin of victory was really small (51.6%). The wealthy regions (south and southeast) have largely favoured Dilma's opponent, Aecio Neves, while the poorest regions (north and northeast) have strongly supported Dilma.

While the elections clearly show a divided country, those who have followed the debates and scrutinized the policy proposals know that the results reflect more than a division based on income levels. The outcome of this election shows a country divided over two very different development projects. 

Before the Worker's Party (PT) came to power with Lula in 2002, the country was ruled by the Social Democrats for eight years. During this time, the Social Democrats (PSDB) created a much needed stabilization plan to fight inflation (which had reached 1,000% annually in the early 1990s). However, they also adopted a plan to reduce the size of the state through privatization, while at the same time creating strong institutions that could support private investments (such as independent regulatory agencies). According to the social democrats, fiscal responsibility, small state and strong institutions would create the conditions for the private sector to act as engine of growth. In sum, from 1998 to 2002 Brazil has followed an economic agenda very much in tune with the Washington Consensus.

In 2002, the Worker's Party came to power with the intention to keep the strong pillars that secured macroeconomic stability. However, the party also came with a plan to increase redistribution and reduce poverty. The results achieved were so impressive that the ambitious anti-poverty program implemented in Brazil was touted by the World Bank as a model to be followed by other countries. Alongside its redistributive programs, the Worker's party has also strengthened and increased the state's presence in the economy. This has been accompanied by an increased role for the Brazilian development bank, and a number of informal institutional changes that have undermined the institutional make-up of the previous model. The independence of the Central Bank is a topic that gained a surprising and unexpected prominence during the campaign. Along the same lines, the independence of regulatory agencies for infrastructure sectors has also been a concern, but this one has been confined to a more specialized audience.    

The candidates also had opposing views on foreign policy, which were also in line with their views of domestic policies. As one blogger described: "Rousseff’s vision is clearly represented by the BRICS model, which constitutes a multipolar challenge by the some of the world’s biggest economies to the hegemony of the United States." In contrast, according to The Economist: "Mr Neves would seek closer ties with developed countries (a main source of technology and markets for Brazil’s manufactures) without abandoning Asia or Africa. In South America, he’d “de-ideologise” policy, rather than team up with Venezuela, Argentina and Cuba." In sum, not only on the economic policy the candidates were not seeing eye to eye, but their differences in the domestic sphere echoed into their thoughts about how Brazil was supposed to relate to the rest of the world.

Brazilian citizens were utterly divided between these two options and for a good reason. The proposals presented to Brazilians during this electoral process are not only very different but represent models of development grounded on irreconcilable premises. On the one hand, liberal (and neoliberal) economists have developed strong arguments on the importance of institutions and the private sector to promote development (combined with free trade and foreign direct investment). This is the model supported by the Social Democrats. On the other hand, there are those who support greater state intervention and a higher degree of protectionism. Such policies have strong roots in Latin America, dating back to the creation of the ECLAC, which was based on structuralist thinking. Today, such views are articulated and strongly supported by prominent scholars, such as Ha-Joon Chang. The influence of this school of thought over the Worker's Party agenda is undeniable. 

So, Brazilians today were asked to choose between two radically different development models. Considering that this topic has generated fierce debates among development experts for decades, it does not come as a surprise that Brazilians were also divided over the choices. There is no conclusive empirical evidence supporting one model or another. As Brazilian voters had very little information to determine where each of these models would take them, they turned to the past in search for guidance. By and large, the poor have chosen the development model that has mostly favoured them in the last 12 years. The wealthy, in turn, have favored the model that promised higher rates of growth, which is what has benefited them most in the past. While the results may be a victory for lower classes and for those concerned with poverty and inequality, they have not reduced the country's anxieties about its future. The redistributive and interventionist model won in the ballots today, but only time will shows if this was indeed the right path for the country in the long term.

Monday, October 13, 2014

Dialogus de Beijing Consensus -- The Beijing Consensus v.2: Experimentalism

A couple of years after Ramo postulated the notion of a Beijing Consensus, several scholars began advancing another kind of development model deriving, as they saw it, from China's experience.  Different scholars have attached different names to this model, Randal Peerenboom -- following the World Bank -- called it the 'East Asian Model'; Dani  Rodrik has termed it 'New Development Economics'.  What these share in common, however, is a claim that China's development has been driven by a distinct approach that eschews teleological pursuit of some a priori developmental agenda in favor of 'policy experimentation' (to use Sebastian Heilmann's term -- see below).  We might refer to these various models, collectively, as 'experimentalist' models for development.  Does such experimentalism hold meaningful promise as a 'model' for promoting 'development' more generally?


'No, it does not.'

Before explaining why, I need here to tie up a loose end from our discussion of Ramo's Beijing Consensus.  At several points in our previous dialogue, Optimo noted that the simple fact that China might not have actually conformed to the prescriptions advanced by Ramo does not by itself invalidate those prescriptions, just like the fact that fact that there is nothing meaningfully 'Dutch' about a 'Dutch treat' does not invalidate its actual utility in stopping Optimo from always pick up the tab when we have dinner.

I accept that claim with regards to Ramo's model.  But I do not think that it stands with regards to the other variants that we will be exploring -- namely the experimental variant (aka 'Beijing Consensus v.2') and the state-capitalist variant (aka 'Beijing Consensus v.3').  Here, we need to take the 'Beijing' part of the 'Beijing Consensus' at face value, because the point that we are ultimately exploring now is whether there is something distinctive in China's particular developmental experience that can serve as a model for the rest of the developing world.

My argument with regard to experimentalism will be based on two claims.  First, in this post, I will argue that there has been nothing significant that could meaningfully termed 'experimental' in China's developmental project.  After Optimo has had a chance to respond to this, I will then argue that even if there is something that could meaningfully termed 'experimental' in China's approach to development, it does not provide a useful model for the rest of the developing world.

Simply put, having been involved in China studies for over two decades, I simply do not see anything in China's approach to development that can meaningfully be termed experimental.  In order to explain what I mean by this, I need to unpack the notion of 'experimentalism', and in particular to distinguish it both from 'decentralization' and from 'change'.  Change resembles experimentalism in that both describe distinctly dynamic processes.  Decentralization resembles experimentalism in that both eschew monocratic or singular 'best-practices' approaches (what are sometimes called 'one-size-fits-all' approaches).  But in both cases, what distinguishes experimentalism is the post hoc use of what Rodrik calls 'diagnostics and evaluation'.  Put differently, in order for something to be experimental, there must be a process in place that is able to determine whether that experiment as 'failed' insofar a future policymaking is concerned.

Put another way, one essential and inevitable byproduct of experimentation is 'failure'.  But we simply do not see evidence of China's experimentation ever leading to a rejection of some developmental policy alternative. And on the other hand, as Linda Chelan Li has pointed out, nor do we see evidence of some experimental outcome contributing to more global policy formation (see, e.g., here).  In this sense, what others are calling experimentalism is really just simple 'decentralization'.  And as will be discussed further in my next post, simple decentralization -- without anything else -- does not really constitute anything that could be meaningfully called a developmental model.

Another line of support for the claim of experimentalism comes from the work of Sebastian Heilmann, whose article "Policy Experimentation in China's Economic Rise" seems to have been a significant influence on Rodrik in particular.  In that article, Heilmann describes three distinct 'tools of experimentation' in China.  These are 'experimental regulation', 'experimental points', and 'experimental zones'. 

But consistent with my argument above, in fact, none of these are really 'experimental' as we, following Rodrik, have defined that term above.  'Experimental regulation' is simply a statutory designation for executive regulation the authority for which has not been expressly delegated to the executive by the NPC or the constitution, as is otherwise required by the PRC Constitution.  It is probably more realistic to refer to it as 'extra-constitutional legislation.'  Theoretically, such legislation was supposed to be temporary, and needed to be confirmed by parliament in order to become permanent.  But most of the time, it turned out to be perpetual even without parliamentary confirmation.  I know of no example of 'experimental regulation' that was actually treated as an experiment, i.e., that was subject to any meaningful, post hoc diagnosis and evaluation.  I know of no example of experimental regulation that withdrawn or not approved because it did not work out as expected.  What was 'experimental in theory always turned out to be fait accompli in fact.  

Similarly, what Heilmann calls 'experimental points' seem really to be just simply sites of decentralization, they are not experimental in the sense of involving post hoc evaluation.  Lack of strong, centralized policymaking authority in China has always resulted in much local autonomy in setting and pursuing developmental goals.  This was more or less a spontaneous phenomenon prior to 1988.  I would argue that the Bureau for Comprehensive Planning and Experimental Points was in fact an effort not to promote experimentation, as Heilmann suggests, but to cabin and  control such deviations from national policy -- it was in effect anti-experimental rather than pro experimental in its intent.  And as Heilmann reports, even in that it failed, and -- reflecting the reality of unconstrained decentralization -- responsibility for 'experimentation' was formally passed off to regional governments in 1998, albeit subject to central guidelines.  But even at this provincial level, Heilmann's account gives no any evidence of post hoc diagnosis and evaluation of these experimental points resulting in policy change.  These experimental points are simply more localized cites of what is still top-down policy imposition.  

The same observation attaches to 'experimental zones'.  As Heilmann notes, the paradigmatic example of these are the Special Economic Zones.  But as with 'experimental point', these seem to have been intended primarily as places to cabin and control economic opening, not as sites for finding the best way to expand that opening to other locales.  I know of no central policy innovation to emerge from these zones.  It is true that Heilmann cites in particular the 'new socialist countryside' campaign, an example of such zones producing "major policy changes regarding the and the introduction of central government co-funding of rural health services."  He also writes that "[e]xperimental policy tools continue to be used for pioneering reforms that belong to the top of the policy agenda".  But it's hard to evaluate these claims since he does not give any specific examples.  And his claims are contradicted by numerous field studies.  For example, here is how one local rural governmental official -- a director of the Department of Finance of Mizhi county in Shaanxi -- described that campaign, as recounted in a recent article by Anna L. Ahlers and Gunter Schubert:
     The meaning of XNCJS ['new socialist countryside'] is very complex. Basically, you have to distinguish between a narrow (xiayi) and a broad (guangyi) conception of the term. In the narrow sense, XNCJS means nothing more than our government departments’ daily work, such as the construction and maintenance of retaining dams, the provision of sanitary services, etc.  In the broader sense of the term, XNCJS does not necessarily refer to the formulation and implementation of specific projects. It means much more the comprehensive development of a new rural society, including education, public sanitation, social welfare and measures to increase the rural income, that is, a complex setting which must be negotiated between the relevant departments. This comprehensive approach is the “New” in the term “Constructing a New Countryside”.
      The most important manifestations of XNCJS are (1) the concretization of policies passed down from above in order to facilitate local implementation, (2) an increase in the absolute and relative volume of central government subsidies (butie) for rural development, and (3) the strong emphasis in our work on rural construction.
Similarly, in her study of the New Countryside Campaign, and specifically of its success in "[abolishing] entire categories of rural taxes and levies", Linda Li (also mentioned above) found that:
Drawing from fieldwork and archival research, the paper describes dimensions of reform processes from both the top and bottom ends of the state hierarchy and argues that the reform outcomes—reduced burden levels and increased central-provincial inputs to rural services—emerged unintentionally out of strategic interactions between central and local state actors, each embedded in considerations more mundane than caring for the peasants.
Again, this is decentralization, but is not experimentation.  Policy is still being centrally dictated a priori---albeit vaguely.  Moreover, while there is some degree of post hoc monitoring, it is telling that it focus solely on assessing compliance with centralized performance goals.  There is no evidence of using these decentralized experiences to identify / benchmark new and innovative solutions to difficult developmental problems.  Again to quote from Ahlers and Schubert:
Interestingly, the cadres in Mizhi had a hard time explaining to us how these villages could best be emulated by others, given the differences in natural conditions, historical trajectories and the degree of economic development. It was quite obvious that model villages served as showcases for successful policy implementation to boost the cadres’ legitimacy. As many of our respondents confirmed, funding decisions also depend in part on the degree of “peaceful” cooperation within a village (between the village and party committees), which ensures smooth project implementation on the ground, and on the quality of communication between the cadre bureaucracies at the village, township and county levels, which translates into a clear advantage for villages and townships that have established a good working relationship with the county bureaus and the county lingdao banzi.
To be sure, there are some examples of local 'experimentation' that have blossomed into policy evolution.  Perhaps the most famous of these have been the Township-Village Enterprises.  My former co-editor Stephanie Balme has documented how local redress of what are called 'married-out women' cases resulted in centralized policy evolutions as to how to handle such cases.  But both of these examples were ad hoc and largely accidental or spontaneous.  They were not the product of any systematic 'experimentalism' of the kind advance by Rodrik.  And as will be discussed in my next post, their accidental and ad hoc character prevents them from being able to be constituent of a development 'model'.

Wednesday, October 1, 2014

No São Paulo Consensus or Happiness for Pessimo

 Pessimo brought a measure of well-being to suggest that São Paulo would be probably be a good place to be. I suggest instead that we adopt a development-related concept, which is the World Happiness Index. As Michael Trebilcock and Mariana Mota Prado describe in their new book, Advanced Introduction to Law and Development:

"A movement to redefine development based on well-being supported the development of the Gross National Happiness (GNH) Index. Spearheaded by the King of Bhutan, the index includes nine domains: psychological wellbeing, health, education, time use, cultural diversity and resilience, good governance, community vitality, ecological diversity and resilience, and living standards. These domains are considered conditions of a ‘good life’ and are measured by 33 indicators. While initially supported only by a few academics and the government of Bhutan, the concept has gained international attention recently. In 2011, the United Nations approved a resolution entitled "Happiness: Towards a Holistic Approach to Development". (...) This resolution was followed by two World Happiness Reports, published in 2012 and 2013, which measure the overall happiness in different countries and rank them against each other. Alongside its recognition at the UN, in 2013 the OECD issued guidelines for an international standard for the measurement of well-being, largely subscribing to the concerns that have driven to the creation of the happiness index."

So, how happy was Optimo in Brazil? Not very happy. According to the 2013 report, Brazil ranks 24th. This is not the worse place to be, but it is still not at the top of the ranking as Pessimo suggested in his previous post. It is certainly a better place to be than Singapore (30th), but not better than Canada (6th). Therefore, we would not be on solid grounds to propose a São Paulo consensus on this basis. Moreover, we need to consider that Germany was two positions in the ranking below Brazil in 2013. This may have changed since the World Cup. 

If we focus the analysis in São Paulo, the city is going through one of the worse droughts in its history, which is threating water supply. While this may be a temporary problem, the UN indicated that São Paulo is the city with the highest level of mental disorders associated with urbanization among 23 cities analyzed. So, let me assure Pessimo that levels of well being are not particularly high down there. 

Considering the Index, and the fact that Optimo is now (happily!) back to higher levels of happiness Canada, I am looking forward to continuing the conversation about the Beijing Consensus.

Post scriptum: Would Portugal have been able to produce the most melancholic music in the World (fado) if they were not occupying the last position in the ranking?  

Sunday, September 21, 2014

Optimo in Sao Paulo -- another shot at a Sao Paulo consensus


Optimo and I are taking a break from our Beijing Consensus dialogue because Optimo decided to go to Sao Paulo.

As you may recall, I've been trying to find a meaningful Sao Paulo Consensus, but so far have been 'disappointed' (as I like to be).  Brazil does not do particularly well in my PAW index; its HDI/IHDI differential is negative.  It is, in this sense, perfect for Pessimo's pessimistic view of 'development'.  So, one wonders, why would someone named Optimo seek out such a disappointing place?

Because, as it turns out, Brazil is an incredibly optimistic place!  According to the most recent  Gallup-Healthways Well-Being Index, Brazilians ranked tied for 5th (!) in the world in feeling of subjective well being.  No wonder Optimo would want to go there!  Despite all their developmental disappointments, Brazil nevertheless seems to be relatively full of people who ultimately see the world the way that Optimo sees it.

And maybe, that's the best consensus we could ultimately hope to find.  After all (and with apologies to Groucho Marx), Pessimo would never consent to a consensus to which he would actually consent.

Wednesday, September 17, 2014

Dialogus de Beijing Consensus -- Pessimo response regarding Ramo's Third theorem

I don't think that Optimo and I are in much disagreement regarding Ramo's 3rd theorem.  First, to clearify, I don't think that Ramo meant "self-determination' to refer to post-colonial status (since China per se was never a colony -- although parts of it were (e.g., Manchuria, Qingdao, Shanghai and of course Hong Kong).  My own understanding is like that of Optimo -- that by self-determination, Ramo is referring to autonomy with regards to policymaking, and I suspect even more particularly with regards to monatary policy, since Beijing's refusal to float the RMB is probably the most well known and oft-referred to example of Beijing's autonomy from global (American) economic orthodoxy.

Optimo is also probably right in suggesting that I placed too much weight on economic size in setting out a country's capacity to achieve policy self-determination.  However, I do think that is the case with regards to China.  Contrary to Rodrik's suggestion, Japan and South Korea are not good counter-examples, both developed their economies well before the onset of the Washington Consensus hegemony in the mid 1990s, and both were given economic carte-blanc by the US during the 1950s through 1980s primarily due to their front-line status during the Cold War.  I remember hearing a Washington DC policymaker or think-tank type saying during the early 1990s that Washington had "learned its lesson" from Japan, and "would not make the same mistake again", meaning that Washington was not about to let other government -- I recall he was referring specifically to Taiwan and the Mainland -- get away with the disregard for the global neoliberalism, particularly insofar as trade and IPR were concerned.  How autonomous India's economic policymaking is is an open question, India's efforts to defend its economic policies with regards to compulsory licensing of medicines has met with limited success, and according to some appear likely to fail in the long run (see, e.g., Christopher Arup, “The Transfer of Pharmaceutical Patent Laws: The Case of India’s Paragraph 3(d),” in Law and Development and the Global Discourses of Legal Transfers (John Gillespie and Pip Nicholson, eds., Cambridge University Press, 2013), pp. 121-142).  More recently, it's ability to set policy with regards to foreign investment has been dealt a significant blow when a ruling by an international investment effectively required Indian law to give foreign investors greater protections than they give their own domestic firms (see the White Industries v India case).

But that having been said, there are indeed examples of smaller economies that have resisted transnational neoliberal hegemony.  The best example of this is probably found in Malaysia's decision to impose capital controls on its currency, against the strong opposition of both the IMF and Wall Street, during the Asian Economic Crisis of the late 1990s.

But at the end of the day, Optimo gets me right when he or she suggested:
Pessimo raises an important question about what defines a model, arguing that it needs to provide guidance for action. If this is the case, Pessimo may have the same reservations to the third theorem that he has regarding the second theorem, i.e. the theorem does not seem to present any guidance to action. Indeed, if anything, the theorem seems to say “do what you think is best”. I would claim instead that it says "do not listen to the World Bank and the IMF", which can be interpreted as a negative guidance for action. If Pessimo wants positive guidance, this may fall a bit short. But I will leave this for Pessimo to confirm (or not) and then I may come back to this in a future post.
Yes, I do think that ultimately, that is my position.   And it lead us directly to the second version of the Beijing Consensus as outlined in the prologue, the 'experimentalist' version set out independently by Randy Peerenboom in his book on the 'East Asian Model' and Dani Rodrik in his article on 'new development economics'.  It is to this I now propose we turn.

Sunday, September 14, 2014

More on the proposed PAW ('Punching above [GDP] Weight') index: On the relationship between HDI, IHDI, and PAW

In a commentary response to my earlier posting on the possible utility of an index comparing GDP to HDI ranking, which I called the PAW ('Punches above its Weight') index, Mariana Prado suggested that the PAW index might be improved if one were to use inequality-adjusted HDI (IHDI) rather than raw HDI:
 The HDI includes a measure of wealth (until recently they used GDP per capita, and now they use GNI per capita). As a consequence, the rank of a particular country in the HDI may reflect a high level of income, and relatively low levels of education and health. Therefore, my suggestion is to calculate the PAW as the difference between a country's rank in GDP (or GNI) per capita) minus its rank the HDI health and education indexes. If this is too complicated, perhaps an easy improvement would be to use inequality-adjusted HDI (IHDI) instead. The advantage of IHDI is that it reflects more accurately the percentage of the population that is actually benefiting from the existing levels of income, health and education in the country.
Actually, exploring the relationship between IHDI, HDI, and PAW revealed something very interesting:  namely, that the relationship between a country’s IHDI and HDI rankings seems to correlate significantly with that country's PAW index.  In other words, the greater the positive difference between a country’s IHDI and HDI rankings, the more likely that country will also have a high PAW (i.e., high positive difference between its HDI and GDP rankings).  Below are the top 15 countries listed in order of difference between IHDI rankings and HDI rankings (IHDI/HDI), followed by their PAW.

Czech Republic
Sri Lanka

This leads me to suspect that what IHDI is adding to HDI may be similar to what PAW is adding to GDP.  This makes sense, conceptually.  The lower HDI conditions of the poorer and more impoverished part of a country's population are the low-hanging fruit of HDI development:  the relatively low level of HDI resources available to this population means that it is likely to be the easiest and most cost effective part of the HDI spectrum to improve.  All in all, it suggests that the way that a country punches above its GDP weight is by effecting a progressive (re)distribution of HDI resources to poorer populations. 

There are a number of significant implications stemming from this.  First, the PAW index probably should not use iHDI rather than HDI, because that would lead to double counting -- if PAW is ultimately measuring inequality in HDI resource distribution, and IHDI is also measuring inequality in resource distribution, than using IHDI rather than HDI in calculating PAW would be counting resource inequality twice.

Second, it would seem to confirm my hypothesis that insofar as development is concerned, strategic institutional design -- aka 'law and development' -- should properly focus on issues of resource (re)distribution and not on growth, as that is the part of the HDI basket that is most likely to be susceptible to institutional architecture.

This leads to a third implication, which has significant and very ambiguous implication for the law and development project.  Because it is unclear to my mind how much legal-institution reform can actually effectuate progressive redistribution of HDI resources.  I will address this in a separate post.

Saturday, September 13, 2014

Engelmann on International Capital and Legal Space in Brazil

Fabiano Engelmann has just circulated an important article in Portuguese on International Capital and Legal Space in Brazil "O Espaco Juridico Brasileira e as Condicoes de Uso do Capital Internacional"

Engelmann follows Dezalay and Garth in his analysis of the impact of Rule of Law reforms in Brazil and the impact of global legal ideas on Brazil's "juridical space". He describes how FGV has played a role in building up the role of "corporate lawyer" and USP has spearheaded diffusion of Law and Economics.

He charts the rise of elite corporate law firms that present themselves as representatives of foreign corporations and which, due to their "size, insertion in the world of business, and lawyering methods distance themselves from traditional lawyer's offices and operate like large corporations" (my translation). The paper includes data on the 10 largest elite firms including areas of specialization and examples of cases handled as well as data on the history of the firm, size, and international connections of principal partners.

Engelmann observes:

         "This sketch of a preliminary map of the space for legitimation of "corporate lawyers"  in the academic and professional spheres, along with the construction of legal institutions with affinity to the market, allows us to affirm that this sector grew significantly since 1995. We can point to the initiatives of FGV and the law and economic movement as evidence of the import of techniques of corporate lawyering and the embedding of legal institutions supportive of business practice." (my translation).

While the corporate law sector and the norms it favors have had significant impact on juridical space, there are counter tendencies and resistances. The paper describes a number of intellectual and advocacy movements largely based on interpretation of the 1988 Constitution that tend to affirm more state-centric approaches and resist market norms. He mentions judicial decisions and post-graduate courses in law both which have reinforced public law doctrines and collective rights.

    "The combination of judicial decisions and intellectual production in the academic field has strengthened the recognition of collective rights and buttressed public policies aimed at reducing inequality in contrast with efforts to use judicial space to guaranty individual rights, contract and property" (my translation).

The article ends by suggesting that the future will see a continued struggle between efforts to legitimate a market legal culture based on models exported by the World Bank and  favorable to international business on the one hand, and alternatives visions supported by interpreters of the Constitutions largely positioned in careers in the State.