World Economy

Hot off the presses. No idea when I’ll have time to read it, on account of me being so ‘time poor’ that I may as well have a peptic ulcer.

I’m running around all day today, but no time to wait with this post: I want to recommend Lifetime’s Human Trafficking mini-series. It aired last night (in the U.S.), but the first part will be replayed early this evening before the second part is shown.

The NYTimes quotes an immigration and customs official from the movie:

An ounce of cocaine, wholesale: $1,200, but you can only sell it once. A woman or a child, $50 to $1,000, but you can sell them each day, every day, over and over and over again. The markup is immeasurable.

The movie is well done in many ways, I recommend it.

One question I’m left with is the best ways to educate people, and especially children, about all this. A movie like this is helpful, but it’s not clear how a 12-year-old would deal with it. And then there are areas where showing such a movie is not even an option.

The NYTimes piece has a synopsis of the first part in case you can’t spend four hours on this tonight.

I’m just back from Germany where I’ve been to a very interesting interdisciplinary workshop at the University of Bremen ‘s Sonderforschungsbereich Staatlichkeit im Wandel on Trade Governance, Democracy and Inequality. As usual in such cases, the bringing together of philosophers and practitioners was both stimulating and revealing of how little we know about one another. Starting my own, basically normative, paper, I asserted that a central purpose of trade rules should be to promote justice. I was informed that “justice” was one word that would never pass the lips of a WTO negotiator. Which, doesn’t show, of course, either that I’m wrong about what should happen or that concerns about justice aren’t lurking in the shadows somewhere. But it suggests a startling disconnect between the public rhetoric about global inequality and the concerns at the negotiating table.

This morning’s post brought with it a package from Cambridge University Press containing a copy of The Political Philosophy of Cosmopolitanism , co-edited by Crooked Timberite Harry Brighouse (with Gillian Brock) and including papers by both me and Jon Mandle. With such a heavy contribution from this blog, I hardly need point out that it is the duty of all regular readers to buy themselves a copy (as well as supplementary copies for friends and family)!

Alex Tabarrok denounces Paul Krugman as an “illiberal demagogue” who has forgotten his heritage as an economist. The reason: Krugman’s claim that China is a strategic rival, and his recommendation that the Chinese bid for Unocal be blocked. Now I’m far from being an expert on Asian politics, and so won’t pronounce on the substance of whether Krugman is right or wrong on this specific issue. But I do think it’s fair to say that there’s another term than “illiberal demagogue” for someone who believes that strategic concerns trump trade interests when push comes to shove. That term is “mainstream international relations specialist.” The kind of “doux commerce” liberalism that Alex seems to favour has been out of fashion in IR theory since Norman Angell’s (somewhat unfairly) ballyhooed _The Great Illusion_ .

If I understand Alex correctly, he’s telling us that economics, which likes to portray itself as a rationalistic and impartial approach to the understanding of human behaviour, is at its core a set of normative arguments for the increase of trade and commerce, and against the pursuit of a certain kind of ‘irrational’ self-interest. I think that Alex is largely right on this – though many economists wouldn’t admit it (and one is faced with the interesting question of whether scholars like, say, Dani Rodrik, are economists under Alex’s definition of the term). But it leads to the interesting question of when economists’ prescriptions for free trade over strategic manoeuvre are in fact the right prescriptions. On the one hand, posturing and mutual distrust can lead to a downward spiral and thus to war, in circumstances where peaceful commerce might otherwise have been possible. And it may well be, as Alex believes, that you can reconstruct people’s beliefs away from war, and towards peaceful exchange by substituting the voices of liberal economists for those of “mercantilists, imperialists and ‘national greatness’ warriors.”* On the other, if one state _does_ see politics as a zero-sum game and is unlikely to be persuaded otherwise, then it may be a big mistake to concede strategic resources to that state – it may use them against you later. This is of course the reason that international trade in, say, advanced weapons systems, does not resemble a free market (whether control over oil companies is a similarly sensitive strategic asset, I’ll leave to the discussion section). Which means that if Alex wants to make a convincing case that Krugman isn’t just making a claim that runs against the usual normative biases of economists, but is actually wrong on the merits here, he needs to provide more evidence than an argument-by-assertion that China is now “moving” from war to trade. As stated above, I’m not a China expert, but from what I do know, this is very much an open debate.

* interestingly, those in international relations theory who make this sort of claim are usually vehemently opposed to economic reasoning.

David Brooks on the merits of Bush’s Africa policy.

bq. The Bush folks, at least when it comes to Africa policy, have learned from centuries of conservative teaching – from Burke to Oakeshott to Hayek – to be skeptical of Sachsian grand plans. Conservatives emphasize that it is a fatal conceit to think we can understand complex societies, or rescue them from above with technocratic planning. … The Bush folks, like most conservatives, tend to emphasize nonmaterial causes of poverty: corrupt governments, perverse incentives, institutions that crush freedom. Conservatives appreciate the crooked timber of humanity – that human beings are not simply organisms within systems, but have minds and inclinations of their own that usually defy planners. You can give people mosquito nets to prevent malaria, but they might use them instead to catch fish.

The crucial – and rather disingenuous – qualifier is “at least when it comes to Africa policy.” Even Brooks doesn’t have the chutzpah to defend Bush’s overall foreign policy approach as an exemplar of Burkean prudence and appreciation for the complexity of other societies. On which, see further a rather interesting article by leftwing rabblerouser John Hulsman and Anatol Lieven forthcoming in the Summer 2005 issue of _The National Interest_. But even on Brooks’ chosen turf – the Bush administration’s Africa policy and the Millenium Challenge Account initiative – there’s little positive to be said from a principled conservative stance. Burke, Oakeshott and other traditional conservatives are notoriously hostile to grand abstractions and keen on practical results. Over the last four years, the Millennium Challenge Account has yielded plenty of airy rhetoric, but no practical results worth talking about. This is for the simple reason that it still scarcely exists. The problems of implementation that Brooks, in fairness, acknowledges in passing, stem from the fact that the Bush administration has obligated only 2% of the Millennium Challenge funds. Nor has the administration requested the $5 billion that Bush promised in any of the four budgets submitted to Congress after the initiative was announced. As of April 29 not one dollar of Millennium Challenge Account money had reached a developing nation. While an appreciation that complex societies can’t be “rescued from above by technocratic planning” is a fine and wonderful place to begin thinking about how to improve development aid, it can also be a highly convenient excuse for doing nothing. For all the bluster about Burke, Hayek and Oakeshott, the development-aid-as-vaporware approach seems at the moment to be well explained by a simpler theory of conservatism as moral philosophy ; that its primary characteristic is “the search for a superior moral justification for selfishness.”

(hat tip – p o'neill )

Around a million dollars donated in the wake of the Tsunami is being stolen by the government of Sri Lanka , reports the BBC:

bq. British charity Oxfam has had to pay the Sri Lankan government $1m in import duty for vehicles used in tsunami reconstruction work.

bq. Paperwork had kept the 25 four-wheel drive vehicles idle in the capital, Colombo, for a month.

bq. The Sri Lankan government told the BBC News website the aid had been duty-free until the end of April but was now needed to prevent “market distortions”.

In the discussion below about charitable giving, foreign aid and so on, I mentioned the figure of 1 per cent of GDP or of first-world person’s income as being enough to make a real difference to third-world poverty. I got that figure from a footnote referencing the Liam Murphy paper, somewhere in Thomas Pogge’s excellent World Poverty and Human Rights . Whether that’s actually the right figure I don’t know. But anyway, today I came across the new Pledgebank site. As Chris Lightfoot writes:

bq. PledgeBank is designed to solve what I’m told are called `collective action problems’ — things that you want to do, but can only get done if enough other people will help. Why go out on a limb and say you’ll do something difficult or expensive or embarrassing if you don’t know whether enough other people will turn up to make it worthwhile? Anyway, PledgeBank is designed to help you get around that problem by letting people sign up to say they’ll take part, and telling you when enough people have done so for your plan to succeed.

One of the pledges is from Nicola and it has this content:

bq. I will give 1% of my gross annual salary to charity but only if 400 other people will too.

To make the link to third-world poverty, the charity would have to be an appropriate one (such as Oxfam, perhaps), but that’s up to individual pledgers.

At Samizdata the other day, Natalie Solent wrote :

bq. In Milton and Rose Friedman’s Free to Choose it says:

bq.

Of course, an egalitarian may protest that he is but a drop in the ocean, that he would be willing to redistribute the excess of his income over his concept of an equal income if everyone else were compelled to do the same. On one level this contention that compulsion would change matters is wrong – even if everyone else did the same, his specific contribution to the income of others would still be a drop in the ocean. His individual contribution would be just as large if he were the only contributor as if he were one of many. Indeed, it would be more valuable because he could target his contribution to go to the very worst off among those he regards as appropriate recipients.

bq. I have a question for all the protestors planning to give up their time and money by going to Edinburgh for the G8 summit. Why is what you are doing better than just giving your spare money to the poor?

Later in comments to the same post she adds:

bq. They could do both: go to Edinburgh and give their spare money away. That’s all their money above what is required for subsistence, of course, because by their own account the Third World is poor because they are rich and money transfer is the way to correct that situation.

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The _Economist_ does its little bit to try to shut down the “Capitalism debate” that’s starting to happen in Germany. Franz Müntefering, who’s chairman of the German Social Democratic Party, has compared certain financial firms to ““swarms of locusts that fall on companies, stripping them bare before moving on,” and the _Economist_ plays the Nazi card.

THE metaphor of the swarm of locusts devouring all in its path is as old as the Bible. But when politicians, particularly German ones, use it today to attack groups whose behaviour they don’t like, it is hard not to be reminded of Nazi propaganda against “social parasites” and “blowflies”. Such comparisons, even though they are by no means signs of anti-Semitic thinking, are especially regrettable when uttered so close to the anniversary of the end of the second world war.

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Joseph Braude suggests (free registration or bugmenot required) that the Bush administration should support trade unions in the Arab world, as an intermediate step towards democratization.

In light of the fact that 15 of the 19 hijackers on September 11 were Saudis, it’s hard to fathom why the United States would even consider ignoring a secular movement in the Gulf with reasonable goals and thousands of members. … The Gulf unions, by contrast, according to the American labor official, desire logistical support and training from the United States–a sentiment you don’t hear very often from the traditional Arab labor headquarters in Damascus. To be sure, the Bahraini unions are–and the Kuwaiti unions are about to become–members of the Damascus-based establishment. All the same, their eagerness for American partnership is an opportunity to plant the seeds of meaningful political change. … What can the United States do for these unions in practical terms? In countries where there are no unions, the U.S. government should demand to know why–well before a free trade agreement is signed. Laws restricting public assembly–which exist in many Gulf states–ought to be eased in any country wishing to sign a free-trade agreement with the United States. But the right to assemble is only the first step in a long road that should lead to the rights to strike and collectively bargain–which either don’t exist or are severely constrained in all Gulf states. And it’s not just the U.S. government that has a role to play. In countries where unions are already active and feisty, like Bahrain and Kuwait, American labor unions should lend support to their counterparts by offering advice and tactical training.

Sounds like a good idea – but one which I suspect this administration won’t pursue (I’d be very happy to be proved wrong on this).

And this 2002 article by Richard Freeman and Joel Rogers fits very nicely with the Nathan Newman post on minority union representation that I blogged about last week.

The FT has a long investigative article, suggesting that schemes in which Western firms monitor their Chinese subcontractors to see whether they conform to labour standards aren’t working. The subcontractors are getting increasingly adept at cooking the books.

Factory managers in China are becoming increasingly sophisticated at falsifying worker time cards and payroll documents to disguise irregularities including underpayment, excessive hours and inadequate health and safety provision. Auditors estimate that more than half of factories they see in China are forging some of their records – meaning that many of the international companies that source from China are learning less about the actual working conditions in the factories they use, even as they step up efforts to monitor them.

But if Chinese suppliers are only pretending to comply with these standards, the auditors hired by Western companies are often only pretending to check up on them properly.

As the social compliance auditing industry has grown in response to increased demand it has left many auditors with less time to spend at each factory. “I tell auditors that I cannot tell them the truth in relation to some of their questions. They smile and move on to something else,” a manager at one large garment factory in Dongguan told CSR Asia, a Hong Kong-based research group. “They are complicit in the deception.”

Update: Thanks to Stephen Frost at CSR Asia for pointing to a no-sub-required version of the story, and to the CSR-Asia report quoted in the FT story

I don’t feel rich. In fact, I know a lot of people who are richer than I am. Many of them live in my street; some of them work in my department. But when I take the GlobalRichList test I come out well into the the top 1 per cent of earners in the world. That’s right, well over 99 per cent of the world’s population earn less than I do. Matthew Yglesias wrote the other day about income distribution in the US and the psychological mechanisms that mean that people misperceive their own place in that distribution:

bq. This extreme inequality at the top does a lot to explain, I think, why you see a lot of people who make more than 85-90 percent of the population refusing to think of themselves as rich. Once you enter into the Rich Zone, you start coming into contact with people who are way, way, way, way richer than you are. If you run into somebody who has twice — to say nothing of 10 or 100 — times your earnings, it’s hard to think of yourself as rich. After all, you’re closer to making $0 and being out on the streets than you are to making what he makes.

And this is all the more true for the global distribution of income, where our place in the local distribution makes us radically misperceive our position in relation to the vast majority of humanity (my ex ante guess would have put me in the top 5 or 10 per cent — but the top 1 per cent!). My guess is that most active bloggers and journalists (in the developed world) are in that top 1 per cent also. One effect of this is that the blogosphere casually trades in assumptions about what is normal, where those assumptions are just a projection of what is normal for that top 1 per cent.

Via Max, this gem from Doug Henwood’s Left Business Observer, deconstructing claims that the Heritage Foundation and Wall Street Journal’s “Index of Economic Freedom” tells us anything meaningful about economic growth. If you look at countries’ scores on the index in 1996, and graph it against their subsequent per capita GDP growth, there isn’t any meaningful correlation. If (as the Index’s authors do), you look at the relationship with aggregate GDP, you get a smallish correlation, which is very likely spurious. Short version: the Index is probably garbage – it doesn’t tell us about anything save for the ideological predilections of its authors. But take a look at the graph below and read Doug’s article, so you can judge for yourself.