Sunday, November 16, 2014

Dialogus de Beijing Consensus -- The Beijing Consensus reloaded: Optimo on Experimentalism

Optimo:

We turn now to a second version of the argument that the so-called Beijing Consensus potentially represent a development model that contrasts with the Washington Consensus. This second version is based on the idea that this model is primarily based on experimentalism. 

Pessimo's previous post does not address whether there is experimentalism in China or somewhere else. Instead, Pessimo offers a challenge to the idea that experimentalism could potentially serve as a model for development. 

Pessimo's first argument against experimentalism as a model is the fact that it does not help us deal with the normative questions of development. In other words, experimentalism does not help us define the ends of development. Thus, its utility would be limited to situations in which the ends are already defined, which are often not the major problem that developing countries are confronting, according to Pessimo. 

Optimo's first reaction to Pessimo's point is to ask whether it would be even possible to develop a model to define ends. As Pessimo acknowledges, any attempt to define the goals of development and what a society is ultimately aiming at achieving, is highly dependent on the political, cultural and social context. Thus, abandoning the idea that there could or should be a model to define the ends of development may actually be the beginning of a much more promising conversation than the one that the development field has experienced thus far. Indeed, Optimo would argue that the fact that experimentalism seems to have abandoned the intention to define ends, and has focused instead on means, is not only a differentiating feature of this model over the Washington Consensus model, but it may actually be considered a significant upgrade, as development models go. It is a model that is aware of its limits and operates within realistic boundaries.

This is not to say that the search for a way to define and determine the ends of development is futile and should be abandoned. On the contrary, the entire development enterprise operates under the assumption that there is some search for a common goals of some sort, lest the concept of development becoming so diluted as to encompass "anybody's notion of utopia". But it may as well be the case that the model that will help us search for the ends is not and should not be the same as the one that will help us deal with the means. Thus, Optimo would advance the idea that experimentalism can still survive as a model, despite not helping us with the pressing normative questions that Pessimo correctly highlights in the last post. 

The second point raised by Optimo is the incompatibility between development in a national legal system and experimentalism: the former would intrinsically involve a top-down process that is antithetical to the central tenants of experimentalism. Optimo also disagrees with the premise of this statement, as it fails to distinguish between form and substance. One could argue that the substance of experimentalism is indeed context dependent, but the form is not. Thus, there is a dimension of the process that remains top-down, which is the formal dimensions -- i.e. what is the process through which actors may find the appropriate means to achieve predefined ends. The beauty of experimentalism is the fact that we may arrive at different solutions through the same process, thus being able to share lessons while at the same time remaining context-dependent. 

Regarding this last point, there is a recent article by Kevin Davis and Mariana Prado suggesting that experimentalism and other recent theories represent a move away from substantive commonalities, towards meta-principles. Since context-dependency prevents a productive conversation about shared lessons and transplanted solutions, the conversation may be more productive moving from the substance of development policies to its form. The idea of meta-principles captures this move. Acknowledging that, law and development theories are now focusing on the procedural and formal aspects of reforms, rather than the content. This is exactly what experimentalism seems to be doing. So, there is still a role for the "development facilitator located internationally", in the words of Pessimo.

Regarding the national legal system and its compatibility with experimentalism, Pessimo also argues that national policies would not be possible, because experimentalism is intrinsically connected with decentralization. Optimo thinks that the experimentation and decentralization may go together or not. And to make that point with an specific example from China, it is interesting to take a look at the work of Chenggang Xu from the University of Hong Kong. Xu argues that decentralization and experimentation are different features. While both have been present in China, their combination created a particular type of decentralization that is unique to that country (see the published version here and a previous draft that can be read for free here). 

What are the examples of experimentalism? One example was land reform in the late 1970s, which was initially done at the local level. According to Xu, when the local experimentation "was endorsed by the central government, they were implemented by all levels of government nationwide". Contrary to Pessimo, Optimo does not see any problem in calling this experimentalism. To be sure, Xu indicates that such experimentation was more prominent at the earlier stages of reform, and was significantly reduced as higher levels of economic growth were achieved. Still, the fact that such experimentation took place still suggest that there is something that could be potentially called the Beijing Consensus that would be based on experimentation.

In sum, Optimo remains and optimist that Beijing can offer something useful to other developing nations!

Thursday, November 6, 2014

Dialogus de Beijing Consensus -- The Beijing Consensus v.2.1: Pessimo on 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.  One of these is Dani  Rodrik's 'New Development Economics', which -- inspired to considerable extent by Sebastian Heilmann's "Policy Experimentation in China's Economic Rise" -- "calls for an approach that is explicitly experimental, and which is carried out using the tools of diagnostics and evaluation. . . .The proof of the pudding is in the eating: if something works, it is worth doing." [p.2]  Does such experimentalism hold meaningful promise as a 'model' for promoting 'development' more generally?

Pessimo:

'No, it does not.'

Following Optimo's advice regarding Ramo's model, we will leave alone the question as to how China's experience actually supports Rodrik's model.  

First off, I want to clarify what I see as the attributes of a 'model'.  A 'model' is by its very definition a universal template -- a developmental model is a template for development that can be effectively applied independently from context (unless some prerequisite context is specified in the model itself, which is not the case with 'new experimental economics'). Also, to the extent that 'law and development' models seem ultimately to be devoted to promoting development assistance, a developmental model also needs to provide direction for how such assistance should be constructed.  A developmental model that provides no significant guidance to the entity promoting development is not the kind of 'model' that serves the (traditional) 'law and development' agenda.

Following this, I would argue that Rodrik's model does not provide any meaningful guidance for developmental assistance, because it ultimately provide no universalizable template for developmental assistance -- at least in the area of law and development.

First, Rodrik’s experimental approach only really works when the developmental ends are agreed upon.  New Development Economics is a process by which we can identify different means that better serve some given ends.  But for many aspects of law and development, the means are the ends.  With regards to China, for example, the issues is often not ‘how best to promote rule of law’, but whether ‘rule of law’ should receive priority over other possibly competing goals – like ‘modernization’ or ‘economic growth’.  When the developmental issue is normative rather than practical, New Development Economics does not provide a model for promoting development.

Note that with regards to law, this problem can even infect aspects of legal development in which there appears to be consensus as to the developmental end.  For example, both the Chinese side and the development organization may agree that China needs to develop stronger ‘judicial independence’.  But for the most part judicial independence is as social construct -- it can mean very different things, both in terms of institutional structure and in terms of its contribution to the legal system, to different people.  One study suggests, for example, that donors are more likely to conceptualize judicial independence as means for promoting procedural justice, whereas Chinese are more likely to conceptualize judicial independence as a means of promoting substantive justice or factual accuracy in decisionmaking.  Again, experimentalism does not provide a model for addressing these kinds of developmental issues.

(One might respond that we could still use experimentalism to find ways of reaching and convincing the Chinese that judicial independence is indeed really about procedural justice rather than substantive justice.  But that gets us into question of moral imperialism, which Pessimo will leave for another time.)

I would suggest that a good many ‘law and development’ issues in China are of this sort.  There is in fact much disagreement between China – or at least China’s political leadership – and the law and developmental community as to what goals law and development should be striving to promote.  This is true not simply insofar as what following Randall Peerenboom we might call ‘thick’ notions of law and development is concerned, i.e., notions that see developmental as necessarily including promoting human and political rights, and various (liberal) conceptualizations of ‘justice’.  But it is also likely to be true with regards to more economically oriented developmental projects.  China and ‘the West’ often have significantly different understandings as to the role that market capitalism should play in society.  China’s understanding is much more akin to what is sometimes termed ‘economic nationalism’, while ‘the West’s’ understanding is much more politically neutral and cosmopolitan.  For this reason, even many economic legal reforms projects – such as reforms to corporate governance of capital markets – are ultimately thwarted by disagreement over ends, not by ignorance with regards to means.  Here, too, experimentalism does not help.

Another area in which experimentalism seems to have little utility is in that of national legal development.  As described by Rodrik, experimentalism is a very contextualized developmental process.  A national legal system, by context, is by its very nature a-contextual, it is almost by definition a ‘one-size-fits-all’ phenomenon insofar as the social space of the nation is concerned.  Here, a developmental model that focuses on responding to minute nuance of local context again is of little utility.  At most, experimentalism would counsel the developmental agent to promote decentralization, local experimentation, and perhaps data gathering.  But what would this accomplish?  Any local success or local failure could well hinge on contexts that are unique to the locale.  For this reason, local successes or failures are unlikely to be able to serve as positive or negative models for elsewhere, even after they have been ‘evaluated’ by central entities.  At best, decentralization and experimentalism might promote local legal development, but not national legal development.

This suggests that if there is a legal-developmental model in New Development Economics, it is a model that counsels the developmental agency to focus on local legal development rather than national legal development.  But there are problems with this as well.  One of the major value-added's provided by international legal developmental aid lies precisely in its greater familiarity with more global experiences with law and development.  The more localized and locally contextualized problems to be addressed through development, the less a developmental facilitator who is located internationally is able to bring to the table in the form of useable knowledge.  'Legal development' becomes reduced primarily to simply being a source of funds for local projects developed by local actors.  


Whether simply being a content-less source of funds this is sufficient to constitution a developmental model is an open question.  But whether this is a feasible model of development is another issue.  Such a model would be particularly costly to implement.  Development of local legal institutions costs about the same as development of national legal institutions.  But they benefit far, far fewer people.  Costs would be even further increased by the experimental nature of the development project, because it would involve funders paying for a lot of failures in addition to the occasional localized success.  Given its extremely high cost-to-benefits ratio, it seem very unlikely that many funders would embrace such a model.

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.

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

Pessimo:

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.


Country
IHDI/HDI
PAW
Moldova
18
22
Uzbekistan
17
19
Kyrgyzstan
17
21
Mongolia
15
18
Ukraine
14
34
Vietnam
14
13
Armenia
13
31
Azerbaijan
11
11
Belarus
10
11
Czech Republic
9
11
Serbia
9
9
Sri Lanka
9
39
Gabon
8
-60
Indonesia
8
17
Tajikistan
8
17
Jordan
5
43
Georgia
2
30


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.