Sunday, December 28, 2014

Dialogus de Beijing Consensus, Pessimo's Summation and Conclusion: 'Whither Beijing Consensus' -- not where you might think!

The Beijing Consensus, including its various derivatives, is not a model, it is a narrative.  Moreover, as a narrative, it is for the most part not particularly about China, nor is it particularly about development.  Rather, it is -- paradoxically -- a story that is primarily about the United States, and about America's place in human evolutionary history.  But this is not necessarily a bad thing.

* * *

In order to understand how this is so, we have to look a bit more closely about the intellectual history of 'development'.   As is well known, the modern law and development movement first emerged in the 1950s as a product of the Cold War.  The idea of development fit quite neatly into the American way of promoting itself vis-a-vis the Soviet Union.  The story was that economic development -- i.e., the development of standards of living and capacities to project political power characteristic of the advanced industrial democracies of the North Atlantic, and particular of the United States -- was the product of a liberal-democratic constitutional order interacting with a laissez-faire capitalist economic order.  Since both liberal democratic constitutionalism and laissez-faire capitalism were distinctly American attributes, 'development' itself came to be seen by many as proof of the practical and moral superiority of American-ness.

The emotional triumph of the American linkage of development, neo-Madisonian constitutionalism, and laissez-faire capitalism was, of course, the fall of the Berlin Wall.  This was, in the famous terminology of Frances Fukayama, proof that human's had finally reached the 'end of history' -- objective proof of the fact that the 'American'[1] linkage of liberalism and laissez-faire capitalism was indeed the only real path to human thriving, and perhaps by extension, proof that the United States' status as the World's  political, economic and ideological hegemon was in fact the morally deserved.  From a developmental perspective, this linkage came to be embodied what become known as the Washington Consensus, a developmental model that -- consistent with American triumphalism -- saw laissez-faire capitalism as silver bullet for economic development.

Of course, either the United States, nor the West, have ever been completely unified behind the American vision.  There have always been significant pockets of intellectual resistance to and dissent from the othodox American economic ideology, not simply as an international agenda, but particularly with the coming of Reagen-Thatcher 'revolution' as a domestic agenda.  Prior to the 1989, such dissent -- what we might call 'economic humanism' -- relied primarily on various versions of Marxism -- generally utopian Marxism in the United States (see, e.g., the Critical Legal Studies movement); structural Marxism in the case of Europe.  But to many in the West, and especially in the United States, the fall of the Berlin Wall was interpreted as a conclusive proof that Marxism, in all its variants, was simply wrong.  With this, the conceptual / and ideological foundation of economic humanism crumbled, particularly in the United States.  Critics had to search for a different narrative on which to frame their critique.

Despite all this, post-Cold-War American triumphalism was short lived.  Most particularly for our story here was the problem of China.  Even after 1989, China appeared to remain stubbornly non-liberal, both economically and politically, but also appeared to be experiencing significant developmental success.  Through 1997, the American / Western developmental orthodoxy was able to ignore the conceptual threat of China because of evolutionary ambiguities in the Chinese political-economic system.  Sure, the Chinese remained largely non-liberal both politically and economically, but at the same time, if you squinted just right, they could nevertheless be seen as possibly moving, again both economically and politically, in a liberal direction.

The first real challenge to Washington-Consensus triumphalism came from the Asian Financial Crisis ca. 1997-2000.  Efforts by IFI's and the American government to craft / impose a Washington consensus solution to that crisis not only resulted in failure, but in many cases they appeared to exasperate the social effects of that crisis.  This gave economic humanists a new conceptual peg on which to hang their critique. The on-going American (and European) battle between laissez-faire capitalists and economic humanism -- a battle that dates back at least to the 1880s in the United States (see, e.g., the 1896 presidential campaign between William McKinley and William Jennings Bryan) -- now shifted to a new front, that of East-Southeast Asia ('ESE Asia').  And insofar as that larger front was concerned, China would quickly come to represented ground-zero.

The East Asian Financial Crisis (AFC) introduced two subtle but extremely catalytic changes in to Euro-American conceptualizations of the global economic order.  First, the fact that that crisis was largely localized to East and Southeast Asia catalyzed the identification with the countries of ESE Asia of a distinct and structurally and conceptually coherent capitalist structuring, what is often today referred to as 'Asian capitalism'.  (Such an identification can be traced back at least to the 'developmental state' literature of 1980s, but the AFC greatly popularized it.)  That 'Asian capitalism' represented a distinct form of capitalism helped explain why the Asian Economic Crisis was largely localized to ESE Asia.  That Asian capitalism represented a structurally coherent form of capitalism helped explain why that crisis impacted equally an otherwise wide diversity of politically autonomous national systems (from seemingly industrial democracies like South Korea to seemingly autocratic kleptocracies like Indonesia).

As a territory within the ESE region, China was naturally included in this new, Asian-capitalist narrative.  This, in turn, highlighted its 'otherness' -- the degree to which it now appeared to stand as contradiction of (rather than as support for) American triumphalism.  This otherness was further heightened by the fact that not only had China largely escaped the social and economic disruptions of the ARC, but it had -- along with Japan -- sought to provide an alternative form of transnational economic response to that crisis, one that deviated significantly from the Washington Consensus based response offered by the international IFIs,  but was prevented from doing so by political pressure from the United States.

All this made China a very attractive peg on which economic humanists and others could begin to re-frame their ideological objections to American triumphalism.  This was clearly why Joshua Ramo choose to name his humanist alternative to the Washington Consensus the 'Beijing Consensus', despite the fact that it had almost nothing to do with anything that China had actually done, intentionally or unintentionally, in the context of its own post-1980 economic and social evolution.  And the appeal of China-centric adjectives like 'Beijing' and 'Chinese' extended beyond the realm of economic humanism.  The American Cold-War linkage of the economic with the political with the developmental made China-centric adjectives useful in a wide diversity of Western ideological contestations -- not simply economic, but political and cultural as well.

* * *

This helps explain why the 'Beijing Consensus' is a least in part a story about the America.  But couldn't it also at the same time still also be a story about China's actual development? and through that a model for development more generally?

Likely not.  For a number of reasons.

First, I think it highly questionable whether China actually presents us with a show-case example of 'development'.   As least some portion of China's development has been a product of an earlier economic insanity that needlessly devastated China's productive capacity for over two decades.  Much of China's subsequent growth was simply a product of China opening it markets, much like the rest of the world had already done some 200 years earlier.  In other words, China's dramatic economic growth may well be the product of China simply no longer being stupid and not of China being particularly smart.  Is simply not being stupid really that meaningful a developmental model?  Beyond this, Green GDP measures suggest that China's unprecedented environmental degradation is now actually destroyed as much wealth as China's GDP growth is producing.   In other words, China's may have effectively stopped growing altogether once one accounts for environmental degradation.  Related to this, China significantly underperforms its income class in terms of iHDI, environmental sustainability, and subjective well being -- suggesting that even if China is 'growing' economically, it may not be growing into a country in which most people would actually want to live.  All of this gives very good reason to question where China's particular pathway to economic 'growth' is really something we want to other countries replicate. 

Second, implicit in the story above is the observation that what adjectives like Chinese, Beijing and Asian are really doing is appealing to a particular quality of otherness.  They are negative rather than positive definitions -- their principal purpose is to signify what something is not -- that it is not supportive of American triumphalism -- rather than what it is.  But a model, on the other hand, is not about what something it not, it is about what something actually is.  And for this reason, a negative definition can never serve as a meaningful 'model'

We see this most clearly in the legal-developmental 'models' of experimentalism (aka New Development Economics') and the East Asian model.  Experimentalism might represent an affirmative model when we structure it as a controlled experiment, but without control, and Rodrik makes clear that 'control' is not a necessary or even feasible component of the experimentalism of New Development Economics, experimentalism becomes nothing more than simply 'muddling through'.  But 'muddling through' clearly does not describe anything that could meaningfully be called a model, rather it expressly denotes the affirmative absence of a model.    

What really prevents some vision of a Beijing Consensus from developing into an affirmative model for development is that at the end of the day, our understanding of development itself is founded upon a series of conceptual categories and distinctions that ultimately emerged to express particular moral-ideological understandings of the Cold War binary.  They simply do not translate into post-Cold War understandings of the human condition.

One the other hand, the last 70 years of human economic history has made increasingly clear that we really still have no hard evidence as to what triggers actually 'development'.  Of course, we have gained considerable knowledge about what doesn't promote or trigger development:  we now know, for example, that Soviet style command economies are often not particularly good at promoting economic development; more recently, we have also found out that implementation of greater laissez-faire capitalism, a'la the Washington Consensus, also does not promote economic development, at least by itself.  But if not socialism or laissez-faire capitalism per se, what does promote development?

To observe that China's political economic system deviates from that promoted by American triumphalism ultimately only tells us what that system is not, not what it is.  Along these lines, it tells us of what is not essential to promoting development, but is much less clear about what it is that does promote development.  Is it sequencing?  is it state capitalism?  is it Confucianism?  Is it all of these, or something different?  Or is it those emergent elements of Western-American capitalism that we saw in China's post-Mao opening but which the discourse of 'Asian capitalism' has tended to invisiblize?  How much of China's economic growth post 1980 is attributable to the fact that prior to 1980 China effectively obliterated industrial economic productivity through 25 years of disastrous economic policymaking, namely the Great Leap Forward and the Cultural Revolution?  (The World Bank, for example, has recently praised China for “lifting 500 million persons out of poverty” without acknowledging the role that China may have played in putting those people in poverty in the first place.)  We might also note even more radically along these lines that some argue, rather convincingly to my mind, that development is actually not primarily the product of institutional or capitalist design at all.  China's development can be explained simply by reference to its particular location in transnational political-economic space (its proximity to Taiwan and Japan, and by its location in the Cold War political contestation between the US and the USSR).   

Much of the problem in this regard is that the very categories we use to conceptualize our possible predicates for economic development are themselves the product of Cold-War mythologizing. The fact is that the American economy never functioned the way that what I have been calling 'the laissez-faire capitalism' model of the Cold War claimed it did.  American capitalism is actually a highly variegated economic system that includes within it a wide diversity of capitalism each serving a distinct social purpose.  And there is no evidence that the particular features that we during the Cold War chose for ideological reasons as signifying the essence of the American economy are actually what drove economic growth, or whether that growth might have been catalyzed to considerable extent by other structural elements that were invisibilized by this myth because they were less effective at politically and ideologically branding the American economic system in distinction from the Soviet economic system (such as state and local social public welfare systems, or the quasi-monopolies that Joseph Schumpeter termed 'core industries' and that tended to populate the pinnacle of the American economic order, or the state-capitalist linkages created by the linkage of private campaign finance and political lobbying).

The same is true with regards to American framing of its political order.  American liberalism -- rights, democracy, rule of law -- has always been much more conditional than our engagement with the transnational world would often lead one to believe.  Human rights are frequently qualified and the will of the demos is frequently subordinated to more sectoral, modernist, or otherwise elite perspectives.  'Rule of law' does not structure American social, political or economic ordering to the degree that that transnational 'rule of law' discourse suggests.  And at the same time, these liberal elements also enjoy at least some degree of qualified respect -- sometime highly qualified to be sure, but some degree of true respect nevertheless -- in most of the world's political orders, including that of China.  The difference is a difference in degree, not a difference in kind.

Once we recognize how much distinctiveness of both the American liberal market economy and its liberal political ordering have been exaggerated, then we see how exceedingly difficult it becomes to identify any set of features of China's political-legal-social-economic system that are really that distinctive to that system.  China's is not a liberal market economy to be sure, but at the same time it to some extent it has within it all the elements of a liberal system.  And its deviations from the ideal of market liberalism can be mapped onto deviations that are also found even in the United States.  The same is true of its political system, and of its social system.  And without being able to actually identity and meaningfully distinctive features of China's system, we can't identify what is actually distinctive about some so-called Chinese 'model'.  Clearly, it is different, but it is also to some extent the same.

Beyond this, even our understanding of what constitutes -- or what indicates -- development is highly colored by Cold-War ideological concepts that are of questionable application to the real world.  As noted above, the modern idea of development -- the idea that equates development with GDP or GNP growth -- is an invention of the Cold War:  we equated development with GDP growth because GDP growth was something that the West in general, and the United States in particular, has historically been particularly good at.  But there are a number of problems with this.  First, GDP was originally developed to measure industrial productivity in a classically Fordist economy -- that of the United States during the Second World War.  The farther one moves away from that kind of economy, the more problematic that particular measure -- or its derivatives, like GNI -- become.  Lessor developed countries are also lessor industrialized, and even beyond that not particularly Fordist, and this causes significant portions of their economy to elude GDP / GNI capture.  Sometimes, these portions represent pockets of considerable productivity, other times, they can represent pockets of considerable non-productivity.  And since they are by definition invisible, we really can't know which are which.  Further catalyzing this ambiguity is the fact that in developing countries, the economic figures used to construct GDP / GNI measures are invariably provided by governments whose legitimacy and even survival depend upon a positive GDP / GNI assessment of economic growth.

But even beyond this, the actual relationship between GDP / GNI growth and a conception of development that is actually desirable from the point of view of the national populations experiencing it is also quite contentious in the post Cold War world.  China in particular showed us that GDP development can at least in some circumstances be severed from what we regard as political development (such as political liberalization, political or economic equality, 'freedom' or 'capabilities'), and this has lead many to question whether economic growth by itself actually captures anything we would consider desirable, at least in the absence of some corresponding political development.  But of course, as we explored above, our understanding of what actually constitutes 'political development' is invariably itself highly colored by our Cold War narratives as to what constituted the structural 'essence' of the late-industrial American political-legal system.  It is by no means structurally comprehensive, and in some cases is structurally arbitrary.  For this reason, our choice as to what constitutes a meaningful political-social structure that is indicative of 'development' is as conditioned on ideology as our choice as to what constitutes a meaningful economic structure.

All in all, in discussing a possible Chinese model of development, not only are we unable to objectively identify any truly essential structural features of Chinese capitalism, we are also unable even to objectively identify whether China is actually experiencing and meaningful sense of 'development'.   At least for the present, our choice of which particular economic and political-legal structures are meaningful within the context of development continue to be borne primarily out of American efforts to locate itself in the political world created of the Cold War, and through that in human history.  For this reason, our stories about China's 'development' -- both positive and negative -- are ultimately not stories that are ultimately about China.  They remain, for the present at least, stories about what China has to tell us about being American.

* * *

And this is not at all a bad thing.  As Baruch Spinoza so cogently identifies, knowing the world and knowing oneself are symbiotic endeavors.  The more we can learn about who we really are, as distinguished from who we like to think we are, the more we are likely to truly understand and appreciate our place in the world, and through that the world as it actually is.  Speaking now as an American, the problem with the Cold-War ideology along these lines is precisely that it represents a picture of ourselves as we wish we were, but not as we actually are.  Seen in this light, endeavors to identify (and contest) a Beijing Consensus, even though they are really about America, are indeed nevertheless very much worth the effort.  Because in telling us who we really are (as distinguished from who we wish we were), these effort ultimately help us appreciate how the world actually is (as distinguished from how we want it to be).  This we have to do first, before we can knowingly identify any meaningful paths to 'development' -- however conceived -- through law.

Wait . . . did Pessimo just end on a note of optimism?  

Friday, December 26, 2014

Dialogus de Beijing Consensus, part 3: Pessimo clarifications on the East Asian Model

Some quick responses to Optimo regarding my position on the East Asian Model:

First, one of my arguments against the East Asian Model involves its claim that law and development should focus on promoting economic reform before focusing on promoting political reform.  I counters by arguing that a regime's political evolution simply probably lies beyond the reach of developmental programs.  If the polity is not ready to reform, there's nothing law and development can do about it; and when it is ready to reform, no developmental officer is going to say "not yet, you're not finished with your economic development."  So as a developmental model, sequencing is really a moot point.

Optimo interpreted my argument as being strongly normative -- as arguing that law and development should not engage in efforts to promote political development.  In fact, I did not intend it to be a normative argument.  I meant to advanced it as a simply empirical claim that law and development cannot control for (i.e., promote or retard) political evolution, as advanced by the East Asian Model.  They can try, but they will fail.  Not because they should fail, but simply because that is the way our social universe is put together.

On the other hand, there may be reasons why law and development may sometimes normatively choose to promote political reform even if it knows it is going to fail.  Where and if this is ever the case, my argument would be moot. 

Note, along these lines, that Optimo writes:
However, the normative challenge posed by Pessimo is hard to reconcile with the views of one of the most respected thinkers in the development world today, Amartya Sen. In his book Development as Freedom, Sen argues that democratic regimes are conducive to development in a multitude of ways that ultimately enhance human capabilities. One of the most interesting claims developed by Sen in this regard is the idea that democracies avert famines.
In fact, Sen poses no challenge at all to my argument as I see it.  I will readily admit that democracy may well at least sometimes catalyze development (although I find his demonstration of how democracies prevent famine problematic).  My point is that regardless of such catalytic effects, law and development cannot strategically promote democracy.  I don't think Sen ever addresses how we in the real world might go about strategically promoting 'democratic' reforms of the kind that are likely to catalyze development.

But in any event, even if he does, Sen actually supports my larger argument that the East Asian Model's particular use of sequencing does not provide a meaningful model for development.  As noted, that model argues that economic reform should occur before political reform.  Like me, Sen is actually arguing against such sequencing, albeit from a normative rather than from an empirical position): it's just that Sen is saying that we should not engage in this this kind of sequencing, while I am saying that we simply can not engage in sequencing, period.   

Finally, Optimo defends the East Asian Model's advocacy of gradualism as simply an expression of the tried-and-true developmental formula that Charles Lindblom famously termed 'the science of muddling through.'  In fact, I see the East Asian Model's notion of gradualism in a very different light.  As advanced by the East Asian Model, gradualism is offered as an alternative to the rapid, big-bang approach that 'Western' advisers, most famously Jeffrey Sachs, pushed on the former Soviet bloc nations in the 1990s.  In this sense, it is clear referring to a strategy for capitalist transformation -- for transiting from a command economy to a liberal market economy.  As I note, there are very few developing countries left in the world that still operate a command economy, and for this reason gradualism is really a moot point insofar as a universalizable developmental model is concerned.

Along these lines, I would argue that 'the science of muddling through' is a different kettle of fish.  To say that we are 'muddling through' is not to say that we are being gradualist, it is not to say that we need to avoid moving 'too fast' in promoting development.  Again, my argument is that it simply makes no sense to say that Brazil or Thailand or Romania needs to adopt a gradualist approach to development -- 'gradualist' in what sense? What does 'gradualism' look like in the context of these countries?  I would argue that it doesn't look like anything -- to say that Brazil should adopt a 'gradualist' approach to development is like saying that Optimo's son should adopt a 'gradualist' approach to high school. 
As per Lindbolm, I believe that muddling through has always been our approach to the to development of national economies that are already capitalist.  Even as a positivist developmental strategy, there is nothing distinctly East Asian or Chinese about it.  And again, as with experimentalism, it actually offers very little in the way of a developmental model.  How do you model 'muddling through'?  To muddle is to muddle.  Is Brazil not developing because it is not muddling enough?  Or is it just not muddling the right way?  What distinguishes good muddling from not so good muddling?  It can't be failure, because frequent failure is the distinguishing feature of muddling. 

Finally, as it turns out, the fat guy on my roof was not Santa.  It was my next door neighbor.  She thought getting some horses on my roof this time of year would be a pretty neat practical joke.  She was right.  And after she came to after being hit by a baseball bat, we shared some eggnog and discussed Judith Butler.  So while it is indeed sad that Pessimo is innately pessimistic about Santa, at least he is not pessimistic about a neighbor who somehow managed to get a couple of Shetland Ponies onto his roof on Xmas eve, and who then shared some eggnog and discussed Judith Butler with him even after he knocked her upside the head with a vintage George Brett Louisville Slugger.

Which would you rather believe in?

Thursday, December 25, 2014

Dialogus de Beijing Consensus, part 3: Optimo on the 'East Asian Model'


Pessimo's last post suggests that gradualism does not offer a model for development, but instead it is simply a model to manage economic transition. Pessimo also considers the possibility of such gradualism to be useful perhaps as a model for political transition, but then Pessimo dismisses this idea: 

"Regime liberalization and democratization are themselves rarely the product of developmental projects, they occur spontaneously, out of political and social forces that operate outside the reach of strategic developmental planning."

While development programs often engage with such endeavours, Pessimo seems to be presenting a strong normative stance here: development programs should not engage with this kind of transformation. Optimo will try to respond to both points, in turn.

First, while Pessimo is absolutely right in distinguishing a program of economic or political transition from a program to promote development, both can be conceived as programs that try to promote institutional change. Thus, while the end goal may not be the same (i.e. transitioning to a market economy, or promoting democracy may not aim at promoting economic growth), the strategies and tools of one process could potentially be useful to the other. For instance, the dual track strategy to allow state-owned corporations in China to gradually transition from a command economy to a market economy is sometimes used to reform inefficient bureaucracies. 

While this point assumes that functional institutions are conducive to economic growth (and therefore institutional reform would be the central goal of a development program), there are scholars who do not subscribe to this hypothesis. Even if Pessimo share such skepticism, Optimo still believes that Pessimo should have reasons to subscribe to gradualism as a model for development. The gradual implementation of policy change seems to be a general principle that is widely accepted among management scholars. Perhaps the most famous and one of the earliest piece supporting this idea is "The Science of Muddling Through" by Charles Lindblom, written in 1959. So, even if one is not trying to promote development through institutional change, but would be instead advocating for policy changes, the gradualism should still serve as a guiding principle. In this context, perhaps the East Asian model is the best example of such principle being applied in large scale.

Second, Pessimo is skeptical of the possibility of promoting any kind of political liberalization intentionally. It is not hard to side with Pessimo if one thinks of George W. Bush trying to bring democracy to the four corners of the world, and invading Iraq under this motto. However, the normative challenge posed by Pessimo is hard to reconcile with the views of one of the most respected thinkers in the development world today, Amartya Sen. In his book Development as Freedom, Sen argues that democratic regimes are conducive to development in a multitude of ways that ultimately enhance human capabilities. One of the most interesting claims developed by Sen in this regard is the idea that democracies avert famines. In other words, democracies avert exactly the kind of individual pain and suffering that Pessimo seems to have identified earlier on as a problem that does deserve our attention and concern, as development scholars. Thus, from a normative standpoint, there seems to be strong reasons to be pursuing political liberalization and promoting democratization in a developmental context. And maybe gradualism may be the way to get there, for the reasons presented earlier. 

Last but not least, Optimo is hoping (in its endless optimism) that Pessimo has not encountered a drunk with horses in the roof, but has instead had a lovely encounter with Santa Claus and is happily sitting by the tree opening presents at this moment. And since these are not mutually exclusive hypotheses (maybe it was indeed Santa and maybe he was drunk), Optimo hopes that Pessimo has had a chance to share a glass and have a toast with the good old man!

Wednesday, December 24, 2014

Dialogus de Beijing Consensus, part 3: The 'East Asian Model'

Yet another developmental model that has been drawn from China's experience is what Randall Peerenboom termed the "East Asian Model".  The East Asian Model is characterized by a gradualist approach to development, in contrast to the 'big bang' approach that was used to facilitate economic transition in the states of the former Soviet Unions and Eastern Bloc, and by a developmental sequencing that focuses first on economic reforms and only later on political liberalization. 


The East Asian Model does not actually provide much guidance for promoting development in today's world.  China's gradualist approach is an approach to economic transition, not to economic development.  Gradualism makes very little sense in the context of development per se:  what does gradualism significant in the context of today's India or today's Brazil?  What exactly should these countries be 'gradual' about in pursuing economic development?

Perhaps the idea is that they should be gradualist about pursuing political reforms.  One of the arguments underlying the East Asian Monday is that particularly for the more lesser developed countries, 'development' invariably involves significant social disruption, and its is easier for more authoritarian regimes to weather such disruption than for more liberal, democratic regimes.   Whether or not this is actually the case (Pessimo is skeptical) is an open question, but even if it is, it is simply outside the reach of developmental projects.  Regime liberalization and democratization are themselves rarely the product of developmental projects, they occur spontaneously, out of political and social forces that operate outside the reach of strategic developmental planning.  It is as hard to imaging an international developmental agent strategically halting political liberalization once demand for such liberalization has taken off as it is imagining an international developmental agent promoting effective political liberalization as part of her develomental agenda.  Political evolution is something that a developmental agent simply has to live with, it is not something she can effect (and it is probably something she should not try to effect even if she could).

I will revisit and expand on these arguments in my concluding comments.  For that reason, my response to this variant of the Beijing Consensus is somewhat brief.  In addition, some drunk seems to be traipsing around on my roof -- sounds like he somehow even got some horses up there.  Luckily, Pessimo is still quite good with a baseball bat . . . .

Monday, December 22, 2014

Dialogus de Beijing Consensus -- Optimo on the Ends and Means of Experimentalism


In the last post, Pessimo provided some illuminating comments about what is often portrayed as an example of experimentalism: land reform in China. Pessimo challenges the widespread idea that there was much experimentation in this process, and I wonder if these have been developed in an academic paper somewhere. If not, they should be!

More important than challenging the concrete example of China as a development model (which is beyond the scope of our debate, as we indicated earlier), Pessimo also raises an important question about whether experimentalism can serve as a model for development. Pessimo's argues that experimentalism cannot bracket the normative issues, which are currently the most pressing issues in the field. 

In the words of Pessimo:

Law is a strongly normative phenomenon, and even the most hard-core positivists (like Pessimo) seem to have great difficultly separating the normative from the positive / procedural.  Almost all of the law and development projects that I am aware of have ultimately been informed strong normative understandings.  I would therefore at least hypothesize that experimentalism distinct difficulty with the normative may be a significantly more problematic feature in the context of law and development than it is in other areas of development. 

I just want to clarify that I am not diminishing the importance of addressing normative issues. The sheer fact that I am proposing experimentalism as model for development has already a normative undertone. The issue is whether we can separate the discussion of ends and means when contemplating a model for development. Pessimo's post seems to suggest that this separation is not feasible (and perhaps not desirable). Optimo, in contrast, is suggesting the opposite. 

So, let me try to illustrate how such separation would operate with a concrete example. The discussion about Rule of Law (ROL) in development circles has provided us with a myriad of definitions of ROL. Some authors have usefully distinguished between thick and thin definitions of ROL. Thin definitions are primarily procedural, e.g. if rules are applied impartially and equally to all parties involved, one could claim that there is ROL, regardless of the content of these rules. The criticism to thin definitions is that abusive and dictatorial regimes can easily meet these criteria. To address this criticism, thick definitions incorporate not only procedural features, but also substantive ones. Thick definitions are then criticized for searching to something akin to a universal concept of justice, and reducing the possibility of context dependent solutions.  

While Pessimo seems to be asking for a thick concept of experimentalism -- i.e. a type of experimentalism that would help us define means and ends, or procedure and substance -- I am proposing that we can use a thin one, i.e. a procedural form of experimentalism. Thus, the ends of the experiment would be defined somewhere else, and this process does not need to be an experimental one. In sum, according to this thin concept of experimentalism, once the ends have been defined, an experimental process should be used to try to achieve these ends. 

If one adopts the thin concept of experimentalism that I am proposing here as a model for development, it is possible to address two criticisms raised by Pessimo. 

First, in the context of the Chinese reform, Pessimo says that that fact that the reforms were not new is antithetical to the raison d'etre of experimentalism. I do not think that this is the case. The substance of the reforms does not need to be new. What is required is a spirit of experimentation, i.e. the idea that reforms will be reverted and revised, if they do not work. 

Second, Pessimo claims that the fact that the end of the reform was predetermined (i.e. there would be free market in China) defeats that purpose of experimentation. As I argued here, this is only a problem if one subscribes to a thick concept of experimentation, i.e. means and ends need to be defined through experimentation. According to the thin concept of experimentation, however, the ends can be defined according to other processes, and these may even be political processes. Experimentation comes only as the procedure according to which one will find the means to achieve these ends.

In sum, despite Pessimo's pessimism, Optimo remains optimist that we can use experimentalism as a model for development!  

Friday, November 28, 2014

Dialogus de Beijing Consensus -- Pessimo Response to Optimo on Experimentalism

Some responses to Optimo:

I think the problem of identifying ends is much more critical in the context of experiementalism than it is in the context of best practices (e.g., the Washington Consensus), because of the former's critical reliance on ex post evaluation.  If we can't agree on the ends, then we really can't do that evaluation, and experimentalism becomes reduces to simple decentralization.

Optimo appears to acknowledges the special difficulties that such normative questions pose for experimentalism, but suggests that that model can still survive.  In this, I question whether Optimo underestimates how domineering normative issues are in the context of law and development (as contrasted again, for example, developmental economics).  Law is a strongly normative phenomenon, and even the most hard-core positivists (like Pessimo) seem to have great difficultly separating the normative from the positive / procedural.  Almost all of the law and development projects that I am aware of have ultimately been informed strong normative understandings.  I would therefore at least hypothesize that experimentalism distinct difficulty with the normative may be a significantly more problematic feature in the context of law and development than it is in other areas of development. 

But then again, Optimo always has been more optimistic than Pessimo!

In responding to my skepticism regarding the suitability of experimentalism to national-level law and development projects, Optimo suggests "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."  I assume this is related to Pessimo's subsequent discussion of meta-principles (attributing this, as Optimo likes to do, to that fictitious literary alter-ego of hers whom she calls 'Mariana Prado'.)  I'm not completely clear how these might work, but I do not see anything occurring in or coming out of China that fits this particular description -- certainly they have not been identified in the experimentalist literature referencing China.  Of course, this is ultimately an empirical question, and therefore beyond the terms of our dialogue (which are primarily conceptual). 

But then, Optimo does herself raise this empirical issue when she discusses the work of Chenggang Xu, who-- like many --identify Chinese experimentalism with numerous, spontaneous local rural land reform initiatives that took place in the 1970s.  As noted above, this is a commonly heard trope -- but there are a number of major problems with it.  First, this wasn't really experimentalism, it was reversion.  China had a regime of private agrarian land use rights in the 1950s, these so-called 'experiments' really simply reintroduced that regime.  It did not really develop anything new, which seems to be the raison d'etre of experimentalism as a modelRelatedly, one could also argue that these reforms were primarily an expression simply of gradualism rather than experimentalism.  There was never any question but that Deng was going to bring to China the 'free' market structure it had enjoyed in the early 1950s and found in most capitalist countries.  Again, this is not a question of experimentalism -- there was already much experience with these reforms, there really wasn't that much variation from locale to locale, and they were known commodities.  In fact, spiritually, these local experiments had much more in common with the Washington Consensus than they did with experimentalism.  Moreover, China's gradualism was ultimately dictated by political concerns rather than developmental concerns, and for this reason too would not seem to represent a developmental model. 

Sunday, November 16, 2014

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


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?


'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


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.