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 4th (!) 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, Pessimo would never consent to a consensus to which he would 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.

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.

Friday, September 12, 2014

Dialogus de Beijing Consensus -- Optimo on Ramo's idea of a 'Beijing Consensus' (Third theorem)


As promised, I now turn to the third theorem of Ramo, which is the following:

Finally, the Beijing Consensus contains a theory of self-determination, one that stresses using leverage to move big, hegemonic powers that may be tempted to tread on your toes. This new security doctrine is important enough that I treat it later in a separate chapter.

Pessimo had two reactions to this theorem. First, Pessimo seems to agree that self-determination is relevant but disagrees with Ramo’s assumption that such condition can be influenced by domestic policies. In other words, while Ramo perceives this a power struggle, Pessimo is more determinist: “China’s autonomy was and is pure and simply a function of its size”. Second, Pessimo argues that while Ramo is concerned with the “hegemonic powers”, markets and the private actors operating in them offer a bigger threat to a country’s self-determination.

I am guessing that the first reaction of Pessimo comes from his determinist view of development. Indeed, the idea that China’s self-determination comes from its size seems even more drastically deterministic than Pessimo’s argument that a country’s physical and cultural proximity to other countries determines its development’s prospects. As you may remember, Pessimo offered a series of clarifications to my first post, including the following:


Let me preface everything that I will say by indicating that there are very vague terms both in Ramo and in Pessimo’s formulations. Thus, part of my response is based on some speculation about what these terms actually mean.

Let’s assume that a good measure of self-determination is the fact that a country has not been colonized, which lends itself to a series of important consequences, such complexes and often largely domineering post-colonial relationship (with the actual colonizer of with its replacement). China has never been colonized, along with a few other nations: Liberia, Japan, Thailand, Bhutan and Iran. Just by looking at the list of countries, it would be hard to claim that countries are not colonized because of their sizes. Thus, a more complex set of facts needs to be used to explain this. Let’s assume that by size, Pessimo is referring to population and self-determination is still referring to not being colonized. It is true that China has never been a colony, but other countries with similarly large populations, such as India, have been colonized. Perhaps Pessimo is referring to territory, not population.  In this case, there are at least two other countries of comparable territorial size that were colonies: Brazil and Canada (although the colonial territory expanded overtime as opposed to being set out at the outset). In sum, these definitions seem too easily questionable for me to believe that this is what we are talking about.

Let’s assume instead that by self-determination we referring to a country’s ability to determine its domestic policies independently of the influence of other nations. Again, the size of a country seems to be of much less important than its political and economic power and, perhaps most importantly, the governance structure of international institutions. Indeed, the tension between having an international world order and maintaining a country’s ability to define its own domestic policies is beautifully explored in Dani Rodrik’s book the Globalization Paradox. As one review of the book suggests, if there are any lessons that come from Asian countries, including China, is that they have kept their ability to decide their own domestic policies in the face of the Washington Consensus formulas:

“As Rodrik sees it, globalization began to run off the rails when it got hijacked by the notion that any restrictions on the flow of goods or capital across borders would result in great sacrifice to efficiency and economic growth. Not only was this free-market ideology imposed by the United States on developing countries through the interventions of the World Bank and the International Monetary Fund, but it was also imposed on the United States itself through a succession of free-trade treaties, the deregulation of finance and the retreat from any semblance of industrial policy.

The irony, Rodrik notes, is that the countries that experienced the greatest growth during the heyday of the "Washington consensus" were Japan, China, South Korea and India, which never embraced it. For years, they had nurtured, protected and subsidized key industries before subjecting them to foreign competition. They had closely controlled the allocation of capital and the flow of capital across their borders. And they flagrantly manipulated their currency and maintained formal and informal barriers to imports. Does anyone, he asks, really think that these countries would be better off today if they had played the game, instead, by the Washington rules?”

(For the entire review, see here).

In other words, China and other Asian countries do provide a model of self-determination in light of the attempts, such as those influenced by the Washington Consensus, to imposed one single policy (a free market policy) to all countries. The high level of self-determination of these Asian countries has protected them both from the so-called “hegemonic powers” and their pressure in favour of free markets. Incidentally this self-determination also seems to have protected them from “the markets”, which is Pessimo’s second concern. If this is the correct interpretation of what Ramo mean by self-determination, it is very clear from the list of countries listed in above (Japan, China, South Korea and India) that size does not matter.

Pessimo may have still reservations regarding this point. In an excellent response to my comments to the second theorem, 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.

Let’s turn to Pessimo’s second point: “the much bigger problem is domination by market”. Pessimo not only argues that markets can offer a bigger threat than hegemonic powers, but he also argues that the solutions available are rather limited:


My first comment is that Prado would be a much more influential scholar if the BRICS Bank had been inspired by some of her ideas, but unfortunately that is not the case. Second, Pessimo here suggests that self-determination would be restricted to “domestic financial autonomy”. As I have argued earlier, I would rather define self-determination as the country’s ability to set up its own policies. The idea of financial autonomy seems a bit vague, not to say utopian. Does domestic financial autonomy means having enough resources in the national economy not to need foreign direct investment or foreign investment of any kind? This seems like a rather tall order. To make matters more complicated, towards the end Pessimo changes the term to “economic autonomy”, which makes the statement even more confusing.What is economic autonomy?

In any event, I think the excerpt cited earlier provides a good illustration of the fact that Asian countries, including China, have managed to protect themselves from such intrusive market forces (and the vulnerability associated with them) by creating protective policies. If this kind of limited vulnerability is what defines "financial or economic autonomy", we are back to my earlier point. such autonomy is derived from a country’s ability to determine its own policies (insulating itself from “markets” as much as it deems appropriate). So, we are back into the idea that self-determination is connected with a country’s capacity to define its own policies. And size (however defined) does not seem to have anything to do with it.

In sum, as they say: “It's not the size of the dog in the fight, it's the size of the fight in the dog.”

Wednesday, September 10, 2014

Dialogus Interlude -- Why not a Kiev Consensus? Introducing the 'Punches Above its Weight' (PAW) Index.

Some of us argue that a country’s capacity to develop GDP per capita is significantly capped by transnational factors that operate outside of the reach of domestic governance institutions.  Like I wrote earlier, I believe that China’s dramatic economic growth can be more-or-less wholly explained by the common-sense removal of a set of highly dysfunctional economic and social policies, combined with China’s close economic and cultural proximity to the world’s most dramatically developing regional geography, that of East and Southeast Asia.  In other words, I would argue China’s domestic economic growth has been driven primarily by the dynamic growth of the larger regional economy of east and southeast Asia of which China is a part, and not by anything special that China has been doing domestically.   Even after some 20 years of searching, no-one has been able to attribute Chinese dramatic economic growth to the presence of any particular domestic institution.

This being the case, it seems misfounded to hold China up as a model simply because of its level or growth of GDP / cpaita.   This is likely to simply be a function of China's fortuitous location in transnational economic space. 

On the other hand, however, it does seem more likely that institutions, including legal institutions, might be able to impact other aspects of development – such as literacy, nutrition, economic stability and security, health, etc.  These non-economic aspect of development are relatively well captured by UNDP’s Human Development Index (HDI).   But as Optimo has noted, a country’s HDI is also significantly affected by its GDP level.  This suggest that in looking for an institutional ‘model’ for development, we need to look at a country’s HDI performance independent of GDI, since that is where that country’s domestic institutions – including legal institutions – are likely to be having impact. 

Along these lines, in looking for possible developmental models, I proposed we might start by looking at what I am calling the PAW ('Punches Above its Weight') Index.  The PAW index measures the difference between a country’s GDP per capita ranking and its HDI ranking – i.e., how much a country’s level of development punches above its GDP weight.  In this way, it looks to measure how well a country has been able to transcend the natural developmental boundaries set by its level of GDP.  The more a country has been able to transcend those boundaries, the more likely it is that we might find institutional models that deserve study.  (Consistent with this, PAW ranking do not seem to show the same kind of core-periphery geographical patterning that GDP and HDI rankings do.)

Seen in this light, China – aka the Beijing Consensus – does not appear to offer a promising site for a developmental 'model'.  China ranks 93rd in GDP per capita and 91st in HDI, giving it a PAW index of +2.  (Country rankings come from Wikipedia -- so sue me.)  Of the other BRICS countries, Russia has a PAW index of +1, but at a much higher overall level of development (58/57).  I had originally hoped that Brazil would give us a more promising model, but unfortunately, its PAW index is 0 (79/79), so there goes my earlier hope for a São Paulo Consensus.   India has a PAW index of -2 (133/135), and South Africa has a PAW index of -34 (84/118).

So, where should we look?  The best PAW index in the world belongs to Jordon of all places, which has a whopping +43 (120/77).  Perhaps just as surprising, Georgia is second with +40 (119/79).  Sri Lanka (112/73) is third with +39.  But I would still suspect that these are not promising locales for models, as they all feature relatively small economies and small population densities (and in the case of Sri Lanka, an island economy). 

Of the more typical countries,  that which suggests the most promising site for a developmental model would be the Ukraine, which ranks 107th in GDP / capita and 83rd in HDI, giving it a PAW index of +24.  Perhaps even more promisingly, the Ukraine does not feature the geographical attributes associated with superior economic performance:  unlike China, it is neither culturally nor geographically (transportationally) proximate to core regions of economic development; and it is relatively landlocked.  So there, it is indeed more likely to be institutions that are doing the heavy developmental lifting.  Therefore, instead of exploring for a Beijing Consensus (or even a São Paulo Consensus), what we really should be exploring is a Kiev Consensus. 

Some other interesting observations:
  • Of the developed countries, that with the highest PAW is New Zealand at +23 (30/7).
  • Many African countries have quite good PAW ratings (PAW indexes of +10 or more), perhaps reflecting the difficulties that GDP measures have in capturing the actual economic performance in that region.
  • Although landlocked countries generally do poorly with regards to GDP (as shown in the work of Jeffrey Sachs and others), they seem to do surprising well with regards to PAW.  In addition to Georgia, high PAW landlocked (or at least relatively landlocked) countries include Armenia at +31 (118/87); Kyrgystan at +21 (146-125); Uzbekistan at +19 (135//116); and Nepal at +18 (167/145).  As noted above, given limited navigational and trade utility of the Black Sea, one might argue that even the Ukraine is a relatively landlocked country, at least functionally.
  • Botswana, which was frequently hailed as a developmental paradigm in the early 2000s, has a PAW of -47 (62/109).
  • On the other hand, some seemingly dysfunctional political systems exhibit surprising strong PAW performance, including Libya at +27 (82/55); Zimbabwe at +16 (182/156); and Burma at +11 (161/150).

Monday, September 8, 2014

Dialogus de Beijing Consensus -- Pessimo Clarification and Response to Optimo re: Ramo's Second Theorem

Pessimo:

Optimo was right to question my circularity argument.  That was not a strong thesis, and it detracted from my argument.  Optimo is also correct to note that the mere fact that mainland China has not actually conformed to the Beijing consensus does not by itself refute the power of that so-called 'consensus' as a developmental model (like I noted earlier, it probably would have been more effectively presented if it had been termed the 'Taipei Consensus').  However, I would assert that the fact that China has not conformed is significant in that it suggests that we actually have real evidence that the 'Consensus' actually works as a developmental model.

The principle focus of my critique is indeed with regards to the sustainability of the second theorem, and consistent with Optimo's observation, by sustainability I mean policy sustainability.  Simply put, I would argue that developing countries do not have the wealth necessary to sustain the kinds of regulatory technologies that Ramo advances in the first theorem.  And this makes the Beijing Consensus unsustainable as a developmental model.

And while I do indeed agree with Ramo's focus on quality of life rather than simply on GDP, I don't believe that that by itself a model makes.  As I will elaborate more later, to me a model is more than just an abstract goal, it is a guide to action.  I don't see anything in this second theorem that suggest a guide to action.  Chaos management, crisis management, and sociology at best simply address some of the problems of development, but they are ancillary to the ultimate project of development.  Ramo's second theorem is like Gertrude Stein's Oakland -- there is no 'there' there.

Finally, in response to Optimo's query to me:
China seems to be a great example of a country in which millions of people have been lifted out of poverty and have had their lives improved in the last decades. If nothing else, we could perhaps say that at the very least the country has effectively adopt strategies to reduce "the brutality of material poverty", to use Pessimo's expression. So, if we do not want to ask China to behave like a developed countries before becoming one, isn’t this enough to show that they have some sort of promising strategy in place? 
 Yes, China has lifted millions of people out of poverty.  But that by itself does not necessarily make it a 'great example'.'.  One could argue that China's developmental strategy, at least to date, has consisted simply of a gradualist removal of a set of failed command-and-control and isolationists policies that had drastically suppressed China's wealth generation for over a generation -- policies that we have already long known to be dysfunctional.  In other words, the real lesson of China's growth might ultimately be trivial -- command economies don't work and it is good to have your economy open to international trade.  There may be a good lesson in all this insofar as North Korea is concerned, but its not really of much relevance to the rest of the developing world.  

In other words, China's is simply the success of simple common sense, its is not that of some great advance in developmental thinking.  Along these lines, one might also note that despite its rapid development, China's level of development (measured either by GDP standards or HDI standards) is still only generally the same as that of Indonesia and the Philippines, and is significantly less than that of Vietnam or Brazil.  So here is my question to Optimo: Given that Brazil has even significantly less poverty per capita than China, shouldn't we be exploring instead for a São Paulo Consensus?  

N.B.  Actually, we will be -- in November.