Abusers, Victims, and Historical Memory

Writing about web page http://www.bbc.co.uk/radio4/features/desert-island-discs/castaway/93ade3b5#p009mn2c

The late Jimmy Savile's episode of Desert Island Discs went out on BBC Radio 4 on 30 March 1985. Desert Island Discs has been running weekly (with a few breaks) since 1942. The BBC has uploaded recordings of more than 1,450 episodes to its website. Jimmy Savile's was one of these, but no longer. About six weeks ago, the BBC took it down.

This was one of a number of steps taken by the BBC and others to remove Jimmy Savile's name from public prominence since his exposure as a prolific abuser of young women and children. All over the country plaques and memorials have been taken down. Organizations bearing his name have been retitled or disbanded. The BBC will no longer repeat Savile's shows, from Top of the Pops to Jim'll Fix It.

To my surprise I found myself on this morning's BBC Radio 4 Today Programme in a three way conversation with Dr Jennifer Wild of Kings College London and Justin Webb, the presenter. The starting point was the parallel with what once happened to politically disgraced people under communist rule.

First, they were accused and found guilty of monstrous crimes, often on fabricated evidence and forced confessions (confusingly, however, among them were a few real monsters who were as bloodsoaked as their executioners). Then, their names were eliminated from public discourse; they could never be mentioned again, except as hateful enemies. Their pictures were taken down. Photographs of important events that could not be retaken without the offender were doctored (today we'd say they were photoshopped) to replace the offender's image with another person or a neutral background. There are some nice examples here on Wikipedia. Towns or squares named after them were renamed. Their writings were removed from public libraries and confined to the spetskhran, the special storeroom, accessible only to investigators licensed and approved by the ruling party. It became dangerous for private collectors to keep the books the offenders wrote or articles that reported their views; you were supposed to declare your holdings and turn them in to the authorities, risking questions about why you kept them in the first place. They became what George Orwell later called "unpersons": there was no evidence they had ever existed, except when the authorities brought their names up to condemn them further.

The case of Jimmy Savile presents important differences. Savile's reputation was destroyed by the courageous witness of his many victims, not to suit the convenience of a Great Leader. It seems entirely proper that, when someone was honoured and turns out to have been unworthy of it, we should take the honour away. Moreover, we live not under a totalitarian state but in a free society that respects the private realm. If you have the abuser's image on a DVD or an old tape casette at home, it's your property and no one can confiscate it or order you to destroy it.

The reason I was asked onto the Today Programme, I think, was to argue that it is a further step to delete the historical record. The BBC has chosen to archive its sound recordings for the public. To go back and remove an item because we no longer approve of the person it featured is to create a blank page in history. One of the features of the communist police state was to impose unequal access to historical records. Official historians, who had proved their political loyalty, were allowed privileged access to the "special storeroom." The public could not be trusted, and was kept out. It makes me uneasy to see the BBC recreate this in our own country.

Jennifer Wild (whom I accidentally called Joanna: sorry!) made an important counter-argument. She explained how important it is that victims of abuse feel that that the community believes them and acknowledges how they have suffered. Seeing the marks of Savile's honour removed from public display is part of the process that supports them and helps them to recover. That's something that I accept, of course. All I added on the programme is that there is also another principle at stake, and it may not be easy to reconcile it with the needs of Savile's victims. That other principle is free and equal access to the historical record.

For the next seven days you can listen again here. The item begins at 2:24:00.

Here's my conclusion. If you count up all the things that are in our power to do to vindicate and support the abuser's victims, we should unhesitatingly do 99 per cent of them. Nothing should be named after Jimmy Savile. The BBC shouldn't schedule repeats of his shows. But there is a residual 1 per cent where we should stop and think twice. To hold back from deleting the historical record of Desert Island Discs may leave us uncomfortable -- some, I acknowledge, much more than others. But it is required to preserve free and equal access to our own cultural history.

Ironically, the BBC's own policy seems to have left it in the middle. Jimmy Savile's Desert Island Discs recording has gone, but it has been removed without acknowledging the true reasons. The Desert Island Discs website continues to display his image and beside it the programme notes of the time, which speak only of Savile's successes, not of his disgrace.

Consistent with this, the Desert Island Discs FAQs state the perspective of the historian:

Every piece of data is part of the overall Desert Island Disc archive, and much of what was said captures a particular moment in the castaway’s life which puts the interview itself in the context of the time it was recorded.

But if the historian's rule is right, it should also protect the recording.

Mark Harrison : 23 Nov 2012 16:18 |  Tags: BBC Politics |  Comments (0) |  Close comments |  Report a problem

The Value of a Vote and China's Governance Deficit

Writing about web page http://www.bbc.co.uk/news/world-us-canada-20233064

Whatever you think of the outcome this morning, it's clear that American voters placed a high value on their chance to choose the next president. In the East Coast states buffeted by Hurricane Sandy, where many are homeless or without power, turnout was heavy.

That's not how it is in China, where the next leadership will "emerge" in a few days' time from the communist party's eighteenth national congress.

Although not a professional China watcher, a few months ago I began to notice a rash of articles telling us how much better off China is with its supposedly meritocratic leadership selection process. What's more, we are told, it's such a great system that the Chinese people themselves endorse it. China's leadership, although selected in secret by unknown rules, is apparently "legitimate." I saw this first in February in an influential article in the New York Times by the Shanghai "venture capitalist" Eric X. Li on Why China's Political Model is Superior. In August the China-based academic Daniel A. Bell was extolling the merits of China's meritocracy in The Huffington Post. A few days ago the China pundit Martin Jacques repeated the same message in the BBC Magazine.

Some contributions in this vein refer to the empirical research of the Harvard political scientist Tony Saich. Saich has carried out repeated opinion surveys in China. These indicate that Chinese respondents are generally more critical of the lower tiers of government. However, high proportions are "relatively or extremely satisfied" with higher tiers, and their satisfaction rises with distance so that at least 80 percent are satisfied with China's central government. Moreover, satisfaction levels have been rising over time.

An alternative source gives a different picture. The Worldwide Governance Indicators dataset measures perceptions of the quality of government in over 200 countries since 1996 on six dimensions -- Voice and Accountability, Political Stability and Absence of Violence/Terrorism, Government Effectiveness, Regulatory Quality, Rule of Law, and Control of Corruption. Each indicator is based on hundreds of individual underlying variables, taken from a wide variety of data sources. Each indicator is scaled from +2.5 to -2.5, with the global average set to zero. (The dataset is described by Daniel Kaufmann, Aart Kraay, and Massimo Mastruzzi, "The worldwide governance indicators: methodology and analytical issues," Policy Research Working Paper Series 5430, issued by the World Bank in 2010; RePEc handle: http://ideas.repec.org/p/wbk/wbrwps/5430.html).

The advantage of the Worldwide Governance Indicators is that they are worldwide; they allow one country to be measured against others on a uniform methodology. For China I'll give you the 2011 results, but the Worldwide Governance Indicators go back to 1996 and they are fairly stable over time.

In the table below, the first column shows that the data include most countries in the world. The second column shows the percentage of countries that score below China on each of the six dimensions. The third column shows China's score. Since we are also given the standard errors associated with the scores, we can also work out whether China's difference from the world average (zero) is statistically significant. An asterisk indicates that China's score is significantly above or below zero at 5 percent.

Three things stand out:

• China scores below the median country in the world in every dimension except one: effectiveness. China's citizens definitely agree that their government can make decisions and carry them out.
• In two dimensions, effectiveness and regulatory quality, China's score is not signficantly different from the world average. In the other four, it is significantly below.
• In voice and accountability, China is grouped among the worst countries in the world.

How can we reconcile China's deficit in the Worldwide Governance Indicators with praise for the "legitimacy" of the communist one-party state? I'd start from Tony Saich's finding that Chinese people are least critical of the level of the government that is farthest from them. It would seem that in their society there is still a place for the myth of the "just monarch": the benevolent ruler in the faraway capital city.

According to this myth, the just ruler thinks of nothing but the plight of his people. But his will is said to be distorted by ambitious and corrupt intermediaries -- his ministers, the provincial barons and local authorities, who stand between the people and the king. The king relies on the people to tell him of the injustices from which they suffer; supposedly, only he can put them right. If they will reach out to him directly, bypassing those that pervert his intentions, he will answer their prayers and petitions and right their wrongs.

People who believe this can thus reconcile personal experience of oppressive and corrupt rule with the idea of a kindly but distant ruler who will eventually vindicate them.

One reason the myth endures is that it is open to manipulation. A ruler who is not benevolent but self-interested and power-seeking can exploit it to remain in power. From time to time he will give up some local princeling to assuage popular anger and build his own legitimacy. Stalin did this; Mao did it; today's Chinese communist party does it.

But managing the mythology of benevolent dictatorship is like riding a tiger. For the myth of the just monarch does not make the people passive; on the contrary, from time to time they may rise up in the name of the ruler to act directly against those that oppress them. (See for example Daniel Field, Rebels in the name of the tsar, published by Houghton Mifflin in 1976.)

Finally, in many peasant societies, as China was until quite recently, this myth has persisted until the illusion is shattered by some collective blow. There will be some setback, some outrage, or some scandal that is too deep for the myth to endure -- at least, until some new ruler emerges who can once more take up the mantle of the true king.

Mark Harrison : 07 Nov 2012 11:05 |  Tags: China Obama Politics |  Comments (0) |  Close comments |  Report a problem

Afghanistan: Tragedy, History, and Foresight

Writing about web page http://www.publications.parliament.uk/pa/cm201213/cmselect/cmintdev/403/40302.htm

The House of Commons International Development Committee has reported this morning that:

The future of Afghanistan is uncertain [...] The UK Government may have to recognise that a viable state may not be achievable in Afghanistan.

Is this depressing judgement realistic? It depends partly what you mean by a viable state. Afghanistan had a monarchy until the king was overthrown by a coup in 1973; this was followed by a communist insurrection in 1978. Although not a clean, non-corrupt democracy, the Afghan state was viable at least until 1973. Although some terrible things have happened between then and now, history suggests that a viable state in Afghanistan is not an impossible aspiration.

What the British government means by a viable state is more ambitious than this, however. It is expressed, for example, in DFID targets for popular approval, electoral turnout, spending capacity, and civil service reform. In other words, our own government's goal for Afghanistan is not just a viable state but a stable, clean, non-corrupt democracy.

A stable, clean, non-corrupt democracy: This is what the parliamentary report says will not happen in Afghanistan. For anyone who knows a little history, it is laying claim to the bleeding obvious.

I don't mean just that it is obvious now, after ten years of blood spilt and treasure lost. It was obvious beforehand. Here are things I wrote in 2001 on December 4, updated in 2002 on January 9, and in 2009 on July 18 and August 30, in 2010 on January 1, and in 2011 on October 27. It may seem like I'm bragging, but I'm not. I'm sure I've been wrong about lots of things. I'm not an expert on counter-insurgency and I've never been to Central Asia. I'm saying that even an idiot like me could work this one out.

Even an idiot is helped by knowing a little history. The history I know tells me three things.

• In the past it took hundreds of years to build and agree the rules of the game that we call democracy. Maybe we can compress that a bit, perhaps to within a generation or two. But we cannot shorten it to less than the lifetime of a Westminster government. Note: I am not giving this as a reason to do nothing. On the contrary, a long time horizon is a reason to start immediately! But it is also a reason to set realistic goals, not goals that are so unrealistic that they destroy our chance of ever meeting them.
• Modern liberal capitalism and competitive democracies did not emerge from nothing, by an act of will. They resulted from a long historical evolution. This evolution was not steady and it was not non-violent. But there were staging posts. Many of those staging posts fell short of what we would today consider to be democracy, but they still offered more rights to the citizens than existed before.
• In the world today some societies are so weakened that they cannot choose democracy over non-democracy or clean government over corruption. The best they can hope for is a fairly corrupt, not-very-democratic government that offers stability and shares some of the spoils through basic public goods such as highways, policing, and education. Of course, many societies should work for more: Russia and China for example. But some societies are in such a bad state to begin with that the only alternative to a fairly corrupt, not-very-democratic government is civil war. It's a matter of judgement which places belong in this category, but Afghanistan is one.

In other words, living under what I once called "the right kind of feudalism" Afghan citizens would have only limited rights but they would still have more rights and make more progress than under any feasible alternative. There would still be a loot chain, but a stable loot chain can be consistent with modest prosperity and confer benefits compared with a perpetual struggle of each against all.

Setting the wrong goals for Western involvement in Afghanistan has left a trail of blood and broken promises. There will be more of this before we're through. But the roots of a viable state for Afghanistan must be found in the history of Afghanistan, and nowhere else.

Mark Harrison : 25 Oct 2012 10:20 |  Tags: Afghanistan Corruption History |  Comments (0) |  Close comments |  Report a problem

Markets versus Government Regulation: What are the Tail Risks?

Writing about web page http://ideas.repec.org/a/aea/jeclit/v45y2007i1p5-38.html

Tail risks are the risks of worst-case scenarios. The risks at the far left tail of the probability distribution are typically small: they are very unlikely, but not impossible, and once or twice a century they will come about. When they do happen, they are disastrous. They are risks we would very much like to avoid.

How can we compare the tail risks of government intervention with the tail risks of leaving things to the market? Put differently, what is the very worst that can happen in either case? Precisely because these worst cases are very infrequent, you have to look to history to find the evidence that answers the question.

To make the case for government intervention as strong as possible, I will focus on markets for long-term assets. Why? Because these are the markets that are most likely to fail disastrously. In 2005 house prices began to collapse across North America and Western Europe, followed in 2007 by a collapse in equity markets. By implication, these markets had got prices wrong; they had become far too high. The correction of this failure, involving large write-downs of important long term assets, led us into the credit crunch and the global recession.

Because financial markets are most likely to fail disastrously, they are also the markets where many people now think someone else is more likely to do a better job.

What's special about finance? Finance looks into the future, and the future is unexplored territory. Only when that future comes about will we know the true value of the long-term investments we are making today in housing, infrastructure, education, and human and social capital. But we actually have no knowledge what the world will be like in forty or even twenty years' time. Instead, we guess. What happens in financial markets is that everyone makes their guess and the market equilibrium comes out of these guesses. But these guesses have the potential to be wildly wrong. So, it is long-term assets that markets are most likely to misprice: houses and equities. When houses and equities are priced very wrongly, chaos results. (And in the chaos, there is much scope for legal and illegal wrongdoing.)

When housing is overvalued, too many houses are built and bought at the high price and households assume too much mortgage debt. When equities are overvalued, companies build too much capacity and borrow too much from lenders. To make things worse, when the correction comes it comes suddenly; markets in long term assets don't do gradual adjustment but go to extremes. In the correction, nearly everyone suffers; the only ones that benefit are the smart lenders that pull out their own money in time and the dishonest borrowers that pull out with other people’s money. It's hard to tell which we resent more.

If markets find it hard to price long term assets correctly, and tend to flip from one extreme to another, a most important question then arises: Who is there that will do a better job?

It's implicit in current criticisms of free-market economics that many people think like this. Financial markets did not do a very good job. It follows, they believe, that someone else could have done better. That being the case, some tend to favour more government regulation to steer investment into favoured sectors. Others prefer more bank regulation to prick asset price bubbles in a boom and underpin prices in a slump. The latter is exactly what the Fed and the Bank of England are doing currently through quantitative easing.

Does this evaluation stand up to an historical perspective?

We’re coming through the worst global financial crisis since 1929. Twice in a century we've seen the worst mess that long-term asset markets can make -- and it's pretty bad. A recent estimate of the cumulative past and future output lost to the U.S. economy from the current recession, by David H. Papell and Ruxandra Prodan of the Boston Fed, is nearly $6 trillion dollars, or two fifths of U.S. output for a year. A global total in dollars would be greater by an order of magnitude. What could be worse?

For the answer, we should ask a parallel question about governments: What is the worst that government regulation of long term investment can do? We'll start with the second worst case in history, which coincided with the last Great Depression.

Beginning in the late 1920s, the Soviet dictator Stalin increasingly overdid long term investment in the industrialization and rearmament of the Soviet Union. Things got so far out of hand that, in Russia, Ukraine, and Kazakhstan in 1932/33, as a direct consequence, 5 to 6 million people lost their lives.

How did Stalin's miscalculation kill people? Stalin began with a model that placed a high value (or “priority”) on building new industrial capacity. Prices are relative, so this implied a low valuation of consumer goods. The market told him he was wrong, but he knew better. He substituted one person’s judgement (his own) for the judgement of the market, where millions of judgements interact. He based his policies on that judgement.

Stalin’s policies poured resources into industrial investment and infrastructure. Stalin intended those resources to come from consumption, which he did not value highly. His agents stripped the countryside of food to feed the growing towns and the new workforce in industry and construction. When the farmers told him they did not have enough to eat, he ridiculed this as disloyal complaining. By the time he understood they were telling the truth, it was too late to prevent millions of people from starving to death.

This case was only the second worst in the last century. The worst episode came about in China in 1958, when Mao Zedong launched the Great Leap Forward. A famine resulted. The causal chain was pretty much the same as in the Soviet Union a quarter century before. Between 1958 and 1962, at least 15 and up to 40 million Chinese people lost their lives. (We don’t know exactly because the underlying data are not that good, and scholars have made varying assumptions about underlying trends; the most difficult thing is always to work out the balance between babies not born and babies that were born and starved.)

This was the worst communist famine but it was not the last. In Ethiopia, a much smaller country, up to a million people died for similar reasons between 1982 and 1985. If you want to read more, the place to start is “Making Famine History” by Cormac Ó Gráda in the Journal of Economic Literature 45/1 (2007), pp. 5-38. The RePEc handle of this paper is http://ideas.repec.org/a/aea/jeclit/v45y2007i1p5-38.html.

Note that I do not claim these deaths were intentional. They were a by-product of government regulation; no one planned them (although some people do argue this). At best, however, those in charge at the time were guilty of manslaughter on a vast scale. In fact, I sometimes wonder why Chinese people still get so mad at Japan. Japanese policies in China between 1931 and 1945 were certainly atrocious and many of the deaths that resulted were intended. Still, if you were minded to ask who killed more Chinese people in the twentieth century, the Japanese imperialists might well have to cede first place to China's communists. However, I guess there is less national humiliation in it when the killers are your fellow countrymen than when they are foreigners.

To conclude, no one has the secret of correctly valuing long term assets like housing and equities. Markets are not very good at it. Governments are not very good at it either.

But the tail risks of government miscalculation are far worse than those of market errors. In historical worst-case scenarios, market errors have lost us trillions of dollars. Government errors have cost us tens of millions of lives.

The reason for this disparity is very simple. Markets are eventually self-correcting. "Eventually" is a slippery word here. Nonetheless, five years after the credit crunch, worldwide stock prices have fallen, house prices have fallen, hundreds of thousands of bankers have lost their jobs, and democratic governments have changed hands. That's correction.

Governments, in contrast, hate to admit mistakes and will do all in their power to persist in them and then cover up the consequences. The truth about the Soviet and Chinese famines was suppressed for decades. The party responsible for the Soviet famine remained in power for 60 more years. In China the party responsible for the worst famine in history is still in charge. School textbooks are silent about the facts, which live on only in the memories of old people and the libraries of scholars.

Mark Harrison : 15 Oct 2012 12:22 |  Tags: China Economics History Politics Recession Russia Stalin |  Comments (0) |  Close comments |  Report a problem

A Bad Bargain

Writing about web page http://blogs.spectator.co.uk/coffeehouse/2012/09/a-bad-bargain-we-should-give-up-nationwide-pay-bargaining-for-public-employees/

A thought experiment: Imagine what would happen to the Greek economy if a European trade union managed to secure the same salaries for Greece’s public employees as for their German counterparts. If that sounds like a bad idea to you, then consider the fact that in Britain we already have this arrangement across our country's regions.

Nationwide pay bargaining imposes a limited salary range for all public sector jobs of a given type across our country, so that local pay cannot vary to reflect local conditions. Think about the North East. This is our "Greece," a region where house prices and private-sector wages are lower than elsewhere. The national bargain means that in the North East public employees will be relatively overpaid. In contrast, the South East is our "Germany." There, house prices and private-sector wages are relatively high, so the same job for the same nominal pay will be underpaid. It sounds like the effects should balance out across the country as a whole, but the available research shows that they don’t. On balance, we lose.

In the North East the public sector can easily attract employees. At the same time the private sector is blighted: on the evidence of Giulia Faggio and Henry Overman, firms that could sell to the national or international market and would otherwise have the potential to grow are squeezed because they cannot attract workers away from high-wage public employment. On average, Jack Britton, Carol Propper, and John van Reenan have shown, the residents of the North East get good schools and good health care. But the average does not apply to everyone; as Alison Wolf has argued, the gains go primarily to the pockets of affluence; schools and hospitals in particularly deprived areas within the region still struggle to recruit competent staff.

In the South East, the same research shows, hospitals and schools have struggled to recruit because public employees are relatively underpaid. They rely excessively on agency staff and teaching assistants. The education of children and the health of residents have suffered. Within the South East the losses bear more heavily on more deprived communities, because better-off families can turn to private education and health care.

Do the gains balance the losses? No. Carol Propper and her co-authors have shown that the health and educational losses in regions where public employees are relatively underpaid exceed the gains where the converse applies. It doesn’t all balance out. As a result, our country as a whole is left worse off.

Who gains? Apparently, two minorities. One minority is the public employees in the low house-price, low private-wage regions, who gain real income. Another minority is the national trade union officials who have gained status and power from national bargaining. They achieve this by siphoning influence away from their own grass roots – and money out of the Treasury.

National pay bargaining in the public sector is a mechanism that benefits a few and leaves the community worse off. It demands reform. Individual wage bargaining in the public sector would move the public and private sectors towards a level footing in each region. The overwhelming majority of our citizens would gain. Proposals for individual bargaining are sensible, and this is why I support them.

The Evidence

• Britton, Jack, and Carol Propper. 2012. “Centralized Pay Regulation of Teachers and School Performance.” University of Bristol, Imperial College London, and the Centre for Economic Policy Research. Working Paper. Abstract: “Teacher wages are commonly subject to centralised wage bargaining resulting in flat teacher wages across heterogenous labour markets. Consequently teacher wages will be relatively worse in areas where local labour market wages are high. The implications are that teacher output will be lower in high outside wage areas. This paper investigates whether this relationship between local labour market wages and school performance exists. We exploit the centralised wage regulation of teachers in the England and use data on over 3000 schools containing around 200,000 teachers who educate around half a million children per year. We find that regulation decreases educational output. Schools add less value to their pupils in areas where the outside option for teachers is higher and this is not offset by gains in lower outside wage areas.” Available at: http://www.bristol.ac.uk/cmpo/events/2012/doctoralconference/britton.pdf.
• Faggio, Giulia, and Henry G. Overman. 2012. “The Effect of Public Sector Employment on Local Labour Markets.” London School of Economics, Spatial Economics Research Centre Discussion Paper no. 111. Abstract: “This paper considers the impact of public sector employment on local labour markets. Using English data at the Local Authority level for 2003 to 2007 we find that public sector employment has no identifiable effect on total private sector employment. However, public sector employment does affect the sectoral composition of the private sector. Specifically, each additional public sector job creates 0.5 jobs in the nontradable sector (construction and services) while crowding out 0.4 jobs in the tradable sector (manufacturing). When using data for a longer time period (1999 to 2007) we find no multiplier effect for nontradables, stronger crowding out for tradables and, consistent with this, crowding out for total private sector employment.” Available at http://www.spatialeconomics.ac.uk/textonly/serc/publications/download/sercdp0111.pdf.
• Giordano, Raffaela, Domenico Depalo, Manuel Coutinho Pereira, Bruno Eugène, Evangelia Papapetrou, Javier J. Perez, Lukas Reiss, and Mojca Roter. 2011. The Public Sector Pay Gap in a Selection of Euro Area Countries. European Central bank Working Paper no. 1406. Abstract: Abstract: “We investigate the public/private wage differentials in ten euro area countries (Austria, Belgium, France, Germany, Greece, Ireland, Italy, Portugal, Slovenia and Spain). To account for differences in employment characteristics between the two sectors, we focus on micro data taken from EU-SILC. The results point to a conditional pay differential in favour of the public sector that is generally higher for women, at the low tail of the wage distribution, in the Education and the Public administration sectors rather than in the Health sector. Notable differences emerge across countries, with Greece, Ireland, Italy, Portugal and Spain exhibiting higher public sector premia than other countries. Available at http://www.ecb.int/pub/pdf/scpwps/ecbwp1406.pdf.
• Propper, Carol, and John Van Reenan. 2010. “Can Pay Regulation Kill? Panel Data Evidence on the Effect of Labor Markets on Hospital Performance.” Journal of Political Economy 118:2, pp. 222-273. Abstract: “In many sectors, pay is regulated to be equal across heterogeneous geographical labor markets. When the competitive outside wage is higher than the regulated wage, there are likely to be falls in quality. We exploit panel data from the population of English hospitals in which regulated pay for nurses is essentially flat across the country. Higher outside wages significantly worsen hospital quality as measured by hospital deaths for emergency heart attacks. A 10 percent increase in the outside wage is associated with a 7 percent increase in death rates. Furthermore, the regulation increases aggregate death rates in the public health care system.” Repec handle: http://ideas.repec.org/a/ucp/jpolec/v118y2010i2p222-273.html.
• Wolf, Alison. 2010. More than We Bargained For: The Social and Economic Costs of National Wage Bargaining. CentreForum: London. Executive summary: “Britain’s centralised wage bargaining systems are bad for the country and getting more so. They create enormous barriers to the improvement of public services, and to rational decision making at a time of fiscal crisis. They penalise our poorest regions, by distorting their labour markets and standing in the way of economic growth. They do not need to be the way they are; and they do need to be changed. […] Britain needs to rid itself of rigid centralised wage bargaining. These systems are economically harmful, undermine quality in the public services, and perpetuate disadvantage. Swedish experience shows that individual contracts are popular and successful and Britain, too, should make that change.” Available at http://www.centreforum.org/assets/pubs/more-than-we-bargained-for.pdf.

Mark Harrison : 19 Sep 2012 08:40 |  Tags: Economics Greece Politics Trade-Unions |  Comments (0) |  Close comments |  Report a problem

Prince Harry and The Rules

Writing about web page http://www.sps.ru/?id=213821

What happened in Vegas should have stayed there, but somehow it was allowed out and got away.

Back home, the nation is divided. Some think Prince Harry let us down. Others think he was doing what comes naturally to a healthy twenty-something with more money than sense -- and good luck to him.

The first lot apparently includes the senior members of the royal family. A source told a Mirror journalist:

This situation [the prince's partying in a Vegas hotel] has been embarrassing for the royals and particularly disappointing since they had been successfully building Harry’s image as a serious royal and ambassador for the Queen.

Prince Charles probably wishes he could put the same kind of armlock on his younger son that the Soviet state put onto every Soviet citizen that was send abroad. Recently I looked up the rules that were issued to all Soviet tourists before they were allowed to leave the country. These rules were approved from time to time by the communist party leadership.

I've pasted the version approved in August 1979 below (scroll down to the end). These rules were published a few years ago in a book of Soviet-era documents. It's not my translation. I put the Russian text through Google translate and corrected the preamble. The result is a bit rough but the spirit is clear enough.

There were 25 rules. They covered everything from not leaving government documents in your hotel room to what to do if a strange woman entered your sleeping compartment on the night train.

Here is some context that might help:

• No Soviet citizen could travel abroad on their own initiative, whether for tourism or for any other purpose. You had to get permission, which meant entering into a multi-stage process of examination and disclosure of all aspects of your life, thoughts, and habits. This examination took weeks or months; you could fail the inspection at any stage and never know why.
• Only if you passed the process would they trust you with knowledge of the rules. For the rules were a government secret, which you were shown and had to sign for on the eve of departure.
• On successfully obtaining permission, you did not then "go" abroad; the government was "sending" you. As the rules below conclude (this is my translation):

The state, party, and social organizations of the Soviet Union sending Soviet citizens abroad are showing great trust in them. Soviet people are obligated to justify this trust by fulfilling their administrative duties and by irreproachable behaviour. Failure to comply with the rules of conduct abroad should be considered as a breach of public duty and of state discipline.

• If you went, you did not go alone. Every Soviet tourist group and delegation included one or more KGB officers and informers, travelling under cover; their job was to keep an eye on the others.
• If you misbehaved while out of the country, there would be consequences. On your return, you would be reported and interviewed. Most likely, you'd never be allowed out of the country again. There was one escape route: Rule 20 states:

The Soviet citizen who makes an individual mistake in work or conduct must not conceal it and is obligated immediately to report the incident to his supervisor.

In other words, if you made an honest mistake that was not too serious, and you owned up and helped to mitigate its consequences, there was a slim chance you'd be let off the hook.

• One thing not in the rules: if you tried to escape the consequences of breaking the rules by taking refuge in a foreign country, you became a traitor, so your family would become the family of a traitor. They would have to disown you or share the price of your treason. Either way, you lost them forever.

If Prince Harry had known the rules, and been frightened enough to stick to them, nothing would have happened in Vegas. Specifically:

• Harry would have known it was not "his" trip; while travelling, it was his job to promote his country's foreign policy (Rule 1).
• He'd have known that the enemy is always planning to eavesdrop, engage in secret surveillance, and use the results to deceive and discredit (Rule 4).
• He'd have known that you can't trust "guides and interpreters, doctors, teachers, tailors, vendors, taxi drivers, waiters, hairdressers and other service personnel" (including hotel staff) (Rule 4), any of whom are likely to be working for the enemy (the press in this case).
• He'd have known that he should match his expenditure with his means, not incur obligations to others by accepting hospitality or gifts from them (Rule 13), and specifically avoid gambling and casinos (Rule 14).

But the history of Soviet tourism tells us that rules alone are not enough to guarantee good behaviour; fear of consequences was the key. Sometimes even fear was not enough, because Soviet tourists did sometimes give in to temptation.

In this case Prince Harry is third in line to the British throne; can we credibly threaten to consign him to oblivion if he misbehaves? Can we sanction his father or brother if he overstays his leave?

To conclude: you can send people far away and still control their conduct by terrifying them with the consequences of misbehaviour. It's hard to do it any other way. The price of living in a free society is that some young men will go abroad and behave badly.

You can criticise the House of Windsor for its privilege and lack of morals, but it looks like Harry will have fun, fun, fun 'till his Daddy takes the T-bird away.

* * *

Here are the rules that were adopted by the Communist Party of the Soviet Union central committee on August 17, 1979, courtesy of Google translate:

Secret

Appendix to item 3s [secret], draft resolution № 167

BASIC RULES of conduct of Soviet citizens visiting the capitalist and developing countries

Soviet citizens who migrate to capitalist and developing countries should be guided by:

1. Soviet foreign policy aims to create favorable international conditions for the building of communism, to strengthen the unity and cohesion of the socialist countries, to support the people's struggle for national and social liberation and to fully cooperate with the newly independent states, consistently the principles of peaceful coexistence between countries with different social systems, to deliver humanity of global thermonuclear war. Soviet citizens while abroad, must be an active proponent of the foreign policy of the Soviet Union.

Soviet man, remember that high moral and political qualities, great love for the Soviet motherland, faithful to the principles of proletarian internationalism, the constant vigilance during their stay abroad will contribute to the successful implementation of its objectives, to protect it from enemy provocations and intrigues.

2. While abroad in any part of the work entrusted to him, a Soviet citizen must uphold the honor and dignity of citizens of the USSR, in strict moral code of the builder of communism, faithfully perform their duties and assignments to be un-blameworthy in their personal behavior, consistently defend the political, economic and other interests of the Soviet Union, strictly to keep state secrets.

3. During his stay abroad Soviet nationals, using the opportunities and explain the peaceful foreign policy of the Soviet state to the Soviet-achieving people in the development of economy, science, culture and other areas of building communism.

Soviet citizens should actively use their facilities for the study of international experience, and all that could be useful for the development of the economy of the Soviet Union.

4. While abroad, constant political vigilance, remember that the intelligence agencies of the capitalist countries and their agents seeking from Soviet citizens interested in their information, compromise the Soviet man, when it suits them, up to the inducement to treason. For this purpose, intelligence imperialist countries, using modern techniques, methods of eavesdropping, secret surveillance and photography, as well as methods of deception, blackmail, fraud and intimidation. Capitalist intelligence agents are often under the guise of guides and interpreters, doctors, teachers, tailors, vendors, taxi drivers, waiters, hairdressers and other service personnel.

Intelligence agencies in capitalist countries tend to exploit such weaknesses and individuals, as a tendency to alcohol, for easy communication with women, gambling, purchase of various things, and the inability to live within our means, and carelessness, indiscretion, carelessness and negligence in the storage official and personal documents.

To avoid possible provocations in the case of attempts on the part of anyone else to offer information, supposedly of interest to the Soviet Union, or attempting to engage in obtaining such information to exercise due restraint, not to accept any proposals and report to the head of the Soviet establishment.

In order to protect the citizens of the Soviet secret service possible provocations in a number of capitalist countries have sovposolstv Assistant Ambassador for safety. Must promptly inform the Assistant Ambassador on his contacts with foreigners, whose actions are unfriendly toward our country in nature, as well as other facts hostility to the Soviet Union and the case for action to ensure the safety of overseas Soviet people.

Given all this, the Soviet citizens should behave in such a way as not to give occasion to use foreign intelligence itself in its interests. At the same time, Soviet citizens who are abroad, do not have to stay closed and arrogant towards the citizens of the country. Reasonable sociability of the Soviet people, combined with high political vigilance is necessary for the proper conduct of Soviet citizens abroad.

5. Before the departure of the Soviet Union abroad should:

well understand the goals and objectives of the mission and get the necessary instructions to the sending organization on issues of the work;

acquainted with the basic facts about the country: its political and state system, domestic and foreign policy, relations with the Soviet Union;

more familiar with the route to the place of destination;

get a passport, see for yourself, there is sufficient period of validity, whether it entry and transit visas to remember their validity;

receive payment-certificate, permission to currency export and, where necessary medical certification standard pattern stamped on vaccinations.

When going abroad for a period of three months to hand over to the appropriate organization of the Party, Komsomol and trade union fees. Get the adhesive stamps and on arrival in the country to stand up to the party, Komsomol and trade union in the Soviet foreign office records. Not to bring personal documents, except those required to travel to your destination. All private and non-public documents and materials required to work abroad, to surrender to the sending organization to send them to the destination. Unclassified documents, office supplies and other materials needed to work abroad, you can take it only with permission of the sending organization.

Should have with addresses and phone numbers of embassies and consulates of the Soviet Union, along the way, so that, if necessary, you can refer to these institutions for advice, and if necessary - for assistance and adequate protection. If seconded sent to a country where there is no embassy, consulate or other representative of the USSR, he should have the address and phone numbers of the embassy, mission or consulate of a State representing the interests of the Soviet Union in the country.

6. Before traveling abroad should be familiar to the ministry, department or central office, through which the trips abroad, the customs regulations of the USSR, and strictly abide by them.

When you move the boundaries of foreign countries, as well as in transit through their territory to the destination comply with relevant laws and regulations of the border control, health and customs authorities. At the request of representatives of the border to bring your passport for verification. Before leaving the checkpoint does not forget to get your passport back.

At the request of the representatives of Customs show things, baggage, without giving a reason for the charge of concealing anything in particular to bring foreign currency. If the inspection of luggage will be asked to pay customs duty, it must be paid, and for this currency priotsutstvii take a receipt for the items left in the customs, without entering into a dispute.

In the case of personal search border or customs authorities, without conflict, to declare verbal protest. During the search to make sure that does not have thrown any documents or materials in the provocation. In all cases, the seizure of objects when viewed from demand of act or issue a receipt showing where, when and by whom were made inspection and seizure of objects.

If verification of documents and examination of things and luggage representatives of border and customs authorities will allow offensive, politically hostile attacks and other actions should be required to immediately stop them, drawing attention to the inadmissibility of such behavior by the authorities.

At the first opportunity of the facts the search, seizure of objects, abusive behavior on the part of foreign border and customs authorities should inform the nearest embassy, consulate or the Ministry of Foreign Affairs of the USSR, just stating the time and place of the facts occurred, and, if possible, the names, positions, or what , or other signs of the perpetrators of such acts.

Currency exchanges are made only in Soviet organizations or with the assistance of Soviet foreign institutions in the banking institutions of the host country.

Note. According to paragraph 6 of the rights of Soviet citizens traveling abroad with a diplomatic passport, are guided by specific instructions, the Soviet Foreign Ministry.

7. In route to the destination on the train, by boat or plane with strangers satellites should stay politely and correctly, showing to them the necessary vigilance. If the sleeping compartment (cabin) will be one outside person of the opposite sex, you need to request a transfer to another compartment.

Do not be distracted towards his things and do not rely on strangers satellites. Money, passport and other documents to keep always with you in a safe place. Do not leave your passport and other documents in the hotel rooms, cabins, compartments and other places even for a short time.

Do not give a casual acquaintance of his address, phone number, etc.

For every kind of trip ticket inquiries and seek advice to officials.

In the case of an unexpected delay in the way, resulting in the visa may be overdue, the passport shall be left at the nearest embassy or consulate of the Soviet Union to extend the visa.

In transit through the countries with which the USSR has no diplomatic relations, it is forbidden to go to stop the train, ship or go to the airport.

8. Upon arrival to your destination seconded required to register at the Soviet embassy or consulate, and on leaving the country home - struck off the register. If it is not possible to appear in person at the embassy or consulate, you must inform them of their arrival in the country and out of it over the phone or by letter.

The embassy or consulate should be familiar with the established in this country by the laws and rules governing the rights and duties of foreigners, and strictly comply with them. With respect to the customs and traditions of the peoples of the national of the host country, so as not to give rise to local authorities and hostile to the Soviet Union of the Soviet citizen accused elements in "hostile acts", in the "interference in internal affairs" or "indecent acts" in relation to a given country or its citizens.

It is also necessary to obtain clarification on the situation in the country, the Council on the device in the hotel, on the order of registration of residence in respect of medical care, food and all other emerging issues.

Seconded must keep in mind that staying permit in private homes and take in hiring foreigners for personal services shall be permitted only in exceptional circumstances with the permission of the Embassy or Consulate of the USSR.

9. At a hotel or a private apartment is prohibited:

a) to arrange official meetings on matters not subject to disclosure, and make telephone calls on these issues, discuss the characteristics and behavior of Soviet people. Production meetings should be held at the embassy, consulate or trade mission to other devices for these purposes;

b) maintain official documents or notes;

c) to keep foreign communist literature and newspapers (in those countries where there is no free sale of literature and newspapers).

If the country of residence of Soviet literature and newspapers in the free market are not available, these publications can be sent to local citizens on request only with the permission of the head of the Soviet establishment.

10. All correspondence with the ministries and departments of the USSR, as well as letters to relatives and friends should be sent through the embassy or consulate of the USSR. Since all correspondence is usually seen bodies-eign intelligence and data of these letters can be used to the detriment of our country and the very sender, sending telegrams and letters through the postal agency of the host country is not recommended and can be made only in exceptional cases.

11. Remembering that the intelligence agencies of the capitalist countries often use international conferences and meetings, conferences and scientific symposia, talks on issues of trade, economic, scientific, cultural and other ties to scouting secret information, Soviet citizens should exercise caution and report with the permission of the head of delegation (tour group), only the data that the circumstances of the case or provide guidance.

12. Soviet citizens who are abroad on business, need to continue to work on improving their ideological and political level, and business skills, be aware of the events and the life of our country, to participate actively in the social life of the Soviet team, learn a foreign language. You must also be aware of the internal and foreign policy of the government of the host country and its relations with the Soviet Union.

13. Soviet citizens during the stay abroad must be carefully and continuously monitor their appearance, always be neat and tidy, keep good clean accommodation.

In everyday life, and culturally Soviet citizens abroad must be exemplary and modest. Should strictly match their costs with get paid to avoid debt, not to buy anything on credit or in installments. At the same time, do not be excessive savings worsening living conditions, food, etc.

Should avoid accepting gifts, no matter under what pretext they were presented either. If circumstances force to accept the gift, then report this to his superiors.

14. Soviet citizens abroad categorically prohibits:

to talk on the phone in public places, hotels, places of residence, in cars with other Soviet citizens on the nature of the work, the personnel of the Soviet institutions abroad, departmental affiliation of employees, their personal and professional qualities, the internal order, location and security of missions ;

used cars for trips and other vehicles (except taxis) owned by unfamiliar individuals;

visit night clubs, cinemas, that demonstrate the anti-Soviet or pornographic films, and other places of questionable entertainment, as well as participate in games of chance;

visit areas inhabited by immigrants or other groups hostile to the Soviet Union, cafes or restaurants that are going to members of any immigrant, reactionary and other organizations, and to participate in demonstrations, rallies and meetings, including the [ organized] Communist Party, if it is not the task of travel;

visit areas of the host country, declared closed to foreigners without proper permission from the authorities of that country;

establish and maintain, directly or through other persons due to foreigners, if it is not caused by business need (for each case to establish contacts with foreigners to report the head of the Soviet missions abroad, and if necessary, as provided in paragraph 4 of these rules - even after having on security);

take when returning home parcels and letters from Soviet citizens and foreigners for those living in the USSR;

abuse of alcohol, to appear in public places and on the street drunk;

store their personal cash savings in foreign banks (but not the Soviet citizens who are paid in checks) and to participate in lotteries, collecting donations, and other similar activities;

Soviet money to exchange for foreign currency, unless there is proper authorization;

sell or trade personal items;

acquire and bring to the Soviet Union literature, films, tapes, cards and other printed matter and anti-Soviet pornographic content.

15. In the period of stay abroad is strictly forbidden to enter the oral or written agreements for works or perform any activity, paid or free, and the public to speak at meetings, rallies, radio and television, in the press, cinema, concerts, participate in professional and so on if it is not provided-trip mission. Of all the proposals of this kind, Soviet citizens are obliged to inform their supervisor or the embassy and to act in accordance with their recommendations.

16. Upon returning from trips abroad Soviet citizens must, within two weeks to surrender all they have received at the public expense in foreign government, private and personal files documentaries send them to ministries, departments or agencies that send these materials to the relevant archives. On this kind of material, free or purchased personal funds should inform these ministries, departments or agencies, which, depending on the character and historic value of the materials, decide to transfer them to state custody.

17. All kinds of patrols by the host country on business and personal matters only with the approval of the Embassy or Consulate. Driving a car in the host country can only Soviet people with the appropriate local or international driver's license and permission from the ambassador, consul or manager.

Be careful when photographing, filming amateur, strictly within established rules in the country.

18. Soviet citizens residing abroad must proceed from the fact that the Soviet ambassador to the country is a representative of the Soviet state, and on it the control of the activity of all of the country of residence of Soviet institutions, delegations and officials.

Soviet citizens who are abroad, in their official and social activities, and personal behavior should strictly and unswervingly follow the orders and instructions of the ambassador or a substitute person.

19. In the performance, behavior and relationships with foreign agencies, organizations and their representatives must strictly follow the instructions and guidelines of the leaders of the Soviet establishment.

Soviet citizens who entered the country on temporary assignment in the delegations, art groups, sports teams and other groups, are required in all of its offices and public affairs and personal conduct strictly obey the orders and instructions of the head of delegation, team or group that informs the embassy plans stay in the country and the results of work during trips abroad.

20. In the case of the Soviet people difficult issues at work, at home, in relationships with foreigners, and to call the police or any other foreign institution should immediately report this to your supervisor, the consul or ambassador and act only in accordance with their instructions .

Assuming an error in personal or behavior, the Soviet citizen should not hide it, and shall immediately report the incident to your supervisor.

21. In the case of the detention and the police drive the Soviet people, avoiding confusion, should require a call representative of the Soviet embassy or consulate. Without a representative of the Soviet embassy or consulate not to answer questions, not to sign any papers and reports, not to succumb to threats and intimidation.

In case of accident, which occurred outside the apartment or the Soviet office space, resulting in a board-sky people admitted to hospital, he shall as soon as possible by any means to inform the Embassy or Consulate of the USSR.

22. Of all the facts attacks and insults directed against the Soviet Union or the Soviet institutions, regardless of where it occurred (in the street, in shops, theater, cinema or other places), should be reported immediately to the manager or senior to the Soviet embassy (consulate). If such attacks and insults will be permitted with the direct address to the Soviet citizen, he should, avoiding temper, take them, and if necessary, to protest and also to inform the senior manager or to the Soviet embassy (consulate).

23. In the Soviet citizens abroad must always remember that they are under the protection of the Soviet state. If, due to unforeseen circumstances prevailing Soviet citizen would be in a difficult situation for him and promptly declare it to representatives of Soviet power, he will always find help and support from the institutions representing our country abroad.

24. Living abroad, the Soviet citizen must not only personally to comply strictly with all the requirements of these rules and guidance of leaders but also alert and keep your family from misconduct abroad.

25. Soviet citizens who migrate to capitalist and developing countries as members of the family (wife, parents, adult children) are also required to comply strictly with the relevant paragraphs of the rules and keep in mind the following:

at home to behave modestly, not to be curious for their working relatives in the family circle to avoid quarrels and family domestic turmoil. Modest, polite and dignified behavior among foreigners, particularly when visiting the shops and stores, markets and other public places, do not go for casual dating, no exercise of gab, having in mind that among the foreigners around the Soviet people in public places may always be people who know Russian, and other languages of the Soviet Union.

***

State, party and social organizations of the Soviet Union, directing Soviet citizens abroad and provide them with great confidence. This trust is the Soviet people must live exemplary performance and the impeccable behavior.

Failure to comply with the Rules of Conduct abroad should be considered a breach of duty and discipline of the state.

TsKhSD, f. 89, op. 31, 7, ll. 9-22. [This is the archival reference of the document.]

Mark Harrison : 27 Aug 2012 16:41 |  Tags: Monarchy Russia |  Comments (1) |  Close comments |  Report a problem

The China Deal: Why China's economic success is fragile

Writing about web page http://ideas.repec.org/p/cge/warwcg/91.html

Why has China succeeded where Russia failed?

The explanation that is most widely shared is that the Chinese rulers kept political control and used it to reform the economy gradually. They pursued Deng Xiaoping's "four modernizations" (of agriculture, industry, defence, and science and technology) but rejected calls for the so-called "fifth modernization" (democracy). In the Soviet Union at the same time, in contrast, Mikhail Gorbachev abandoned the levers of totalitarian control. He allowed the Berlin Wall to be pushed over. The Soviet communist party imploded; insiders "stole the state." The Soviet Union collapsed and Russia entered a decade of near anarchy.

This explanation has obvious appeal but is incomplete on closer inspection. It is widely believed that the Soviet leaders did not try the China solution of gradual economic reform without political reform. The historical record shows, however, that this is untrue. Over a period of many years, while their system of one-party rule was completely intact, the Soviet leaders tried all the reforms that the Chinese communists followed to revitalize their economy. This included several experiments with a household responsibility system, the so-called zveno, in agriculture (1933, 1947, and 1966); a regional decentralization (from 1957 to 1965); and several rounds of public sector reform (beginning in 1965), culminating in new laws to reduce the compulsory obligations on state-owned enterprises, allowing them to supply the market directly at higher prices (1987), and to permit private enterprise (1988).

In other words, rash political reforms are not the factor that decided why communism failed in Russia. The collapse of Soviet rule came only after the gradual economic reform initiatives that worked in China failed in Russia.

We must look somewhere else, therefore, to explain China's success. In a survey of Communism and Modernization, I suggest that the answer must begin with China's capacity for continuous policy reform. To break out of relative poverty and catch up with the world technological leader, an economy must undergo continuous reform of its policies and instutions. Continuous policy reform is fragile. The reason for its fragility is that, as the economy undergoes successive stages of modernization, policy reform at each stage must infringe upon the vested interests formed in the previous stage. Where continuous reform becomes blocked (as in Italy, for example), the economy will lag and fall behind. From the 1970s, the Chinese economy institutionalized a capacity for continuous policy reform. This is what has enabled China's spectacular rise.

Continuous policy reform was a by-product of China's system of "regionally decentralized authoritarianism" (described by Xu 2011). This system set China's 31 provincial leaders to compete with each other economically and also gave them considerable freedom to choose how to do so. Those leaders who could make their provincial economy grow faster, if necessary by attracting labour from neighbouring provinces, would rise politically; the laggards would fall. Such incentives were very strong.

Deng Xiaoping allowed the provincial bosses to strike a "China deal" that created new space for private business to come out of the cold and thrive within market socialism. This opening of markets to private entrepreneurs, modest at first, became much more radical than the limited "deals" struck in the Soviet Union and Eastern Europe. Economic reforms under European communism gave legitimacy, at most, to low-powered, short-term profit-based incentives, insider lobbies, and shady sideline trading networks.

In China the main limit that was placed on market access was political: China's new business class must continuously demonstrate its loyalty to the one-party state. The best way to prove loyalty was through political and family connections to the regime. This raised the danger of the new business class exploiting their personal links to power to grow rich without economic effort. One answer, but an imperfect one as we see today, was to expose them to foreign competition. In fact, there was more product market competition in export markets than across China's internal provincial borders.

A crucial and completely accidental advantage on China's side was its size. The Chinese population was so large that its 31 provinces each formed an economic region with tens of millions of people -- the size of a large Western European country. In contrast, the Soviet Union decentralized economic management across a much larger number of much smaller provinces, averaging little more than a million people each. Unlike a Chinese province, the typical Soviet province was highly dependent on its neighbours. The danger was that a Soviet provincial boss could gain more by sabotaging his neighbours than by honest effort within his own limited sphere. In the Soviet Union regional rivalry turned out to carry high costs and few if any benefits.

If regional rivalry was not productive within the Soviet Union, why did it not work across Eastern Europe as a whole? After all, each East European country had considerable freedom to experiment with national economic models, and was more like a Chinese province in size and diversity than a Soviet province. Nonetheless, international competition did not work any better than interprovincial rivalry. Most likely, East European communist leaders had too much job security and tenure, did not depend on doing better than their neighbours to keep their jobs, could not be promoted to Moscow, and, even if they succeeded economically, could not build on success to attract labour from their neighbours because international borders, even within the communist brotherhood of nations, were rigidly sealed.

It may also have been a factor that East European and Soviet leaders just did not "get" continuous policy reform. They thought catching-up growth could be achieved by one-off reforms or interventions. It is also a good question whether Chinese leaders "got" continuous policy reform, or whether they stumbled across a design for it by accident.

Either way, the result was this: The recipe that happened to make communism work in China was tried and did not work in Europe. That raises a question of vast proportions: Will the same recipe continue to work in China's future?

Here we come back to the fragility of continuous policy reform. China's level of output per head has multiplied several times over the level of the 1970s. It must multiply several more times before China can approach the level of the world's richest countries. This is a very long haul. For China to maintain the continuity of policy reform over the distance is beyond unlikely. At some point, some coalition of interests is bound to form that will be strong enough to block it, at least for a time. At that time China's oligarchy must be willing to intervene on the side of movement, not stability. If not, the China deal will come unstuck.

References:

Harrison, Mark. 2012. Communism and Economic Modernization. CAGE Working Papers no. 92. University of Warwick. Repec handle http://ideas.repec.org/p/cge/warwcg/91.html.

Xu, Chenggang. 2011. The Fundamental Institutions of China's Reforms and Development. Journal of Economic Literature 49:4, pp. 1076-1151. Repec handle http://ideas.repec.org/a/aea/jeclit/v49y2011i4p1076-1151.html.

Mark Harrison : 29 Jul 2012 15:23 |  Tags: China Economics History Politics Russia |  Comments (0) |  Close comments |  Report a problem

Passing the Parcel: Who Will End Up Holding Europe's Democratic Deficit?

Writing about web page http://www2.warwick.ac.uk/knowledge/business/eurodead

It is widely thought that Europe has a democratic deficit (Follesdal and Hix 2006; The Economist 2012). This means that the European Commission and European Parliament exercise powers in the name of a European community and identity that do not really exist. In reality, these bodies are accountable only to national electorates. There are no true European parties, and national electorates make their choices on national, not European calculations. As a result, European institutions hold powers that are neither accountable nor legitimate. This is one source of the current crisis.

Since the Euro is unworkable in its current form, it must change. An interesting question is what will happen then to the existing democratic deficit. Whatever changes, the democratic deficit will not go away. Instead, it will be redistributed across the terrain of the Eurozone. Different upheavals will pass it around in different ways. Two scenarios illustrate the point.

• Scenario 1

If current proposals for a fiscal union across the present Eurozone are adopted, member states will lose much of their already limited sovereignty over public spending and taxes. Their remaining sovereignty will be pooled in Brussels and Strasbourg. Thus, the democratic deficit will continue to be Europe-wide.

Many citizens will get the feeling that the democratic deficit has widened, but this will be more apparent than real. The democratic deficit will be felt more, because its true scale will have been formalized in new unaccountable powers, whereas in the past the deficit was merely implicit in powers that were often deployed ineffectively. This feeling, however, will be particularly acute in the two poles of the Eurozone, Germany and Greece. This is because German voters will contribute most to the new fiscal transfers against their will, and because Greek voters will lose most sovereignty to new fiscal controls.

• Scenario 2

Suppose instead that one or more Club Med countries are ejected from the Eurozone, as may still happen. Provided the Euro itself survives, in the Eurozone core the democratic deficit should then shrink for two reasons. First, the required severity of new fiscal controls and the scale of new fiscal transfers within the Eurozone will be less, so Brussels and Strasbourg will acquire fewer new powers. Second, the sense of a shared European identity among the core countries may well be greater than at present, because the national electorates that remain will be those that feel more affinity with Germany.

Under this scenario the democratic deficit may shrink in the core of the Eurozone but expand in the countries that exit. Again there are several reasons. In theory, the exiting countries will regain sovereignty over their own affairs. In practice they will have less sovereignty even than now, because their financial systems and their international credit will have been wrecked in the process. As a result, their voters will face few, if any, good choices. In the face of national humiliation, the voters may well turn to anti-system, anti-democratic parties that will steal power first from the discredited democratic leaders, and then from the voters themselves.

In short, there do not seem to be any easy ways to make good the democratic deficit that has been built into European institutions. At best, all we can do is pass it round.

References

Economist, The. 2012. The Euro Crisis: An Ever Deeper Democratic Deficit. The Economist, May 26. Weblink: http://www.economist.com/node/21555927.

Follesdal, Andreas, and Simon Hix. 2006. Why There is a Democratic Deficit in the EU: A Response to Majone and Moravcsik. Journal of Common Market Studies 44:3. pp. 533-562. Repec handle: http://ideas.repec.org/p/erp/eurogo/p0002.html.

Mark Harrison : 29 Jun 2012 08:28 |  Tags: Economics Euro Greece Politics |  Comments (2) |  Close comments |  Report a problem

Seventy Years Ago: The Week the Tide Began to Turn

Writing about web page http://www.history.navy.mil/photos/events/wwii-pac/midway/midway.htm

Seventy years ago this week, the world looked unspeakably grim.

By the end of May 1942, Germany had occupied France, Belgium, Netherlands, and Luxemburg; all of Eastern Europe not already under control of its allies Bulgaria, Hungary, and Romania, including the Baltic, the Ukraine, and a large chunk of Russia; Greece and Yugoslavia; and the former Italian colonies of North Africa. Italy wasn't helping much, but in the Far East Japan had occupied much of China, all of Indochina, Indonesia, Malaya (including Singapore), the Philippines, and part of Burma. German bombers were battering Britain's cities; German submarines were sinking Allied shipping at half a million tons a month. In Russia and Ukraine the German Army was launchng new offensives; at Khar'kov, in a battle that ended seventy years ago today, the Red Army lost a quarter of a million men. Across Europe and East Asia, millions of non-combatants were being machine-gunned, gassed, starved, and worked to death.

At this very moment, beneath the surface of these terrible events, the tide of the war was beginning to turn. Up to that time, Axis forces were advancing on all fronts. Within a few months they were in retreat everywhere.

In 1942 the war was fought in three main theatres: the Pacific, the Mediterrean, and the Eastern front. In each theatre the turning point of the war was marked by a decisive battle. These were the Battles of Midway (June 4 to 7), the seventieth anniversary of which we are about to mark; El Alamein (July 1 to 30 and October 23 to November 4); and Stalingrad (September 13 to February 2, 1943).

In obvious ways these battles could not have been more different: Midway in the remote northern Pacific, Alamein in the desert sands of Egypt, and Stalingrad in the smoking ruins of a great city on the Volga river. These battles differed also in the orders of magnitude of the forces involved. Japanese losses in four days at Midway were five ships, 250 aircraft, and 3,000 men. German losses in two weeks at the second battle of Alamein were 800 tanks and guns and 30,000 men, and in five months at Stalingrad 7,500 tanks and guns and three quarters of a million men killed or missing. Red Army losses at Stalingrad alone were half a million; do not forget these figures if you want to understand how powerfully the war continues to stir national feeling in Russia.

In other respects, these battles had important common features. Each began with an enemy offensive. The Japanese planned to use Midway Island as a launching pad from which to invade Hawaii. The Germans planned to drive the British out of North Africa; if the Mediterranean could not be an Italian lake, then let it be a German one. From Stalingrad the Germans planned to seal off the Caucasian oilfields and turn north to take Moscow from the rear.

After the offensive came the counter-offensive, which in each case took the enemy by surprise. After the successful surprise attack on the U.S. Pacific fleet at Pearl Harbor in December 1941, the Japanese believed they had finished American naval power. Just six months later, in the summer of 1942, the U.S. Navy was already three times the size of the previous year. Such was the speed of mobilization of America's industrial power, and the resilience of American national feeling, both of which had been entirely discounted in Tokyo and Berlin. The same underestimation of Allied reserves was present in the calculations of the Axis commanders at Alamein and Stalingrad.

The Allied victories of 1942/43 were no accident. Underlying them was the translation of Allied economic power into fighting power. In 1941 the Axis Powers were poised for victory. But victory would be theirs only if they exploited the advantage of the aggressor to the full. With a potential coalition of economically more powerful enemies ranged against them, they had to win every campaign quickly and avoid a stalemate at all costs. Had they done so, the war would have been over and they would have won.

Economic mobilization, the translation of economic power into fighting power, takes time. The Allies bought this time with "blood and treasure." First came the British refusal to surrender in the summer of 1940, followed by the Battle of Britain. Next came the U.S. Lend Lease Act of March 1941 which offered American aid to the British (and a few months later to the Soviet Union). The third thing was the unexpected -- in German eyes, often senseless -- resistance of the Red Army in the summer and autumn 1941, which led through appalling losses to the failure of the German invaders to take Leningrad and Moscow before the end of the year.

Source: Harrison (1998, pp. 15-16).

Having bought time, the Allies used it to mobilize their economies. The chart shows the production of combat aircraft by the main powers year by year through the war. It illustrates how, during 1942, Allied -- and especially American -- mobilization rapidly tilted the military-economic balance against the Axis. The Allies began to outproduce Germany and Japan in aircraft, and also in munitions generally, by a substantial multiple. This advantage persisted through the end of the war, despite belated mobilization of the German and Japanese war economies. In 1942, however, the grit and bloody determination of Allied soldiers, sailors, and airmen was still required to turn material predominance into victory on the battlefield. Midway, Alamein, and Stalingrad were the signals that this had been achieved.

Why was the struggle so much, much more intense on the Eastern front? From mid-1941 through mid-1944 this was where 90 percent of German fighting power was focused. To occupy the territory of Ukraine and European Russia, kill the Jews, decimate the Slavic population, and resettle this vast landmass as a German colony, was Hitler's prime objective. The Soviet economy, although large, remained poor and industrially less developed, so that it was on the Eastern front that German resources were most evenly matched. The Allies' material advantages were much greater elsewhere. If the Axis could not win in Russia, it would not win anywhere else. On the Eastern front a war of mutual annihilation developed, in which both sides threw everything they had and more into the scales. As I discussed in a paper entitled "Why Didn't the Soviet Economy Collapse in 1942?" (Harrison 2005), Hitler had every right to expect final victory. The Soviet Union only just managed to retain a critical advantage over Germany, based on mass production, colossal sacrifice, and utter ruthlessness.

Up to the summer of 1942, the forces of the Axis were advancing everywhere; from the beginning of 1943 they retreated on all fronts. After this it was no longer possible for the Axis powers to win the war against the economically more developed, more mobilized, and more powerful Allies. One of the most horrifying faces of the war is seen in the fact that, despite this, years of intense fighting still lay ahead. Through 1943, 1944, and into 1945 the German and Japanese Armies and Navies retreated continuously, killing and being killed every day and every inch of the way, maintaining discipline and cohesion, not giving up until the last possible moment. Every day of those years their governments persisted in genocidal policies that destroyed millions of lives through famine, overwork, and systematic mass killing.

Without Midway, Alamein, and Stalingrad our world today would be far different from the one we know. The Axis powers might have ended the war victoriously, with consequences that we can only guess at. Alternatively, the war would have been dragged out in some other way, but there would have been no Allied victory in 1945. Or perhaps there could still have been victory in 1945, but the evolution of events would have been entirely different. Regardless of events on the battlefield, by the summer of 1945 the Americans would have had the atomic bomb. If the war still raged in Europe, the first victims of atomic warfare would more likely have been German than Japanese.

References

• Harrison, Mark. 1998. Economic Mobilization for World War II: an Overview. In The Economics of World War II: Six Great Powers in International Comparison, pp. 1-42. Edited by Mark Harrison. Cambridge: Cambridge University Press.
• Harrison, Mark. 2005. Why Didn't the Soviet Economy Collapse in 1942? In A World at Total War: Global Conflict and the Politics of Destruction, 1939-1945, pp. 137-156. Edited by Roger Chickering, Stig Förster, and Bernd Greiner. Cambridge: Cambridge University Press. RePEc handle: http://ideas.repec.org/p/wrk/warwec/603.html

Mark Harrison : 28 May 2012 14:00 |  Tags: Economics History War |  Comments (0) |  Close comments |  Report a problem

Greece: Can’t Pay/Won’t Pay?

Writing about web page http://www.erim.eur.nl/ERIM/Research/Centres/Business_History/News/News_Detail?p_item_id=7362016&p_pg_id=

How much can one country squeeze out of another? I was prompted to think about this on Monday, when I spoke in Rotterdam at the launch of a major new book: Occupied Economies: An Economic History of Nazi-Occupied Europe, 1939-1945, by Hein Klemann (a Dutch historian) and Sergei Kudryashov (a Russian historian).

The main story of the book is how Germany extracted resources from occupied Europe that paid for one third of its war costs – and the consequences for the countries that paid. When you read history, it’s natural also to think about the present: what has changed, and what is the same. So, I thought about Greece.

Seventy years ago, Greece was under German occupation. Between 1942 and 1944, according to Klemann and Kudryashov, Germany took from Greece goods and services worth 3.5 billion Reichsmarks. Per head of the Greek population, this was between RM500 and RM600 per head, which was about the average for Germany’s occupied territories.

That sounds like a lot, but what did it mean to Greece? The back of my envelope shows the following calculation. In 1942, Germany imported external resources worth about 15 per cent of its national income. Klemann and Kudryashov show that Greeks were average contributors. Before the war, Greece’s national income per head of its population was about half Germany’s. So, a sum that in wartime was worth 15 per cent to Germans was worth at least 30 per cent to Greeks. Given Germany's wartime economic expansion, and the likely economic decline of Greece, I guess the upper limit could easily have been half of Greece’s national income in 1942 and 1943.

The point is that Germany’s wartime exploitation of occupied Europe was a very big deal, and Greece was no exception.

Now roll the clock forward seven decades. Look how the scenery has changed. The world is relatively peaceful and world markets are open for business. In Greece, average real incomes are six times the level of 1938. But Greeks are smarting under the national humiliation of being expected to pay for their public debt. Eighty per cent of that debt is held abroad, a large share of it by Germany. But the debt is an obligation that Greece assumed completely voluntarily. The Greeks are not under duress of any kind; the creditors have placed no landing craft on Greek beaches; in Kefalonia, no villagers are held hostage, and no Athenian commuters must show their papers at military checkpoints.

Still, the Greek sense of victimhood is so strong that they are not actually repaying anything at all. Instead, their government is continuing to borrow on the basis of being granted partial forgiveness. The fact that eighty per cent of Greek debt is held abroad implies that Greece should be exporting more than it imports if it wants just to cover the interest on the debt that remains. This year Greece's current account deficit is expected to be 5 per cent of its GDP, so that Greek foreign liabilities are rising, not falling. Meanwhile there is a political stalemate, and the anti-bailout parties (which together form a majority) argue they can slow or reverse the fiscal consolidation required to reduce the rate of new borrowing while keeping the creditors and the European Commission on board and disagreeing with each other about everything else.

Economic history suggests that it is exceptionally difficult to persuade a country to hand over a significant fraction of its national income to foreigners over any sustained period of time. Naked force will do the trick, but nothing less will do.

Today Germany is Europe's creditor. Writing in the Financial Times, my Warwick colleagues Marcus Miller and Robert Skidelsky recently (2012) drew a parallel with Germany's own experience after the 1919 Treaty of Versailles. Victorious in the Great War, the Allies imposed a large war indemnity upon Germany. This was mainly counterproductive, arousing German national feeling and resistance to the peace with regrettable consequences.

How much did the Allies actually extract from the German economy under the reparations imposed at Versailles? The accounting comes from a classic paper by Sally Marks (1978). The treaty’s headline figure was 132 billion gold marks, around two and a half times Germany's prewar national income. Of the 132 billion total the Allies themselves never expected to get more than 50 billion (the so-called A and B bonds). Germany paid a first instalment right away by handing over state properties valued at 8 billion; today's analogue might be the transfer of a few Greek islands. Germany paid the next billion in 1921 to get the Allies out of customs posts and an area around Dusseldorf that they continued to occupy. Then, the repayments stopped. In response the French occupied the Ruhr valley in 1923, netting another billion in compulsory deliveries of coal and other stocks. When the French moved out, payments fell away again and were repeatedly rescheduled. At their termination by the Lausanne Convention in 1932, Germany had paid barely 20 billion marks in total. In practice, most of that sum was borrowed from the United States, creating new debts on which Hitler later defaulted. Marks concluded:

The tangled history of reparations remains to confound the historian and also to demonstrate the futility of imposing large payments on nations which are either destitute or resentful and sufficiently powerful to translate that resentment into effective resistance.

Note the terminology, which we'll come back to. "Destitute" = "Can't pay." "Resentful and ... powerful" = "Won't pay."

By modern standards, the Allied occupation of Germany's revenue offices and valuable territories after the Great War looks like an intolerable infringement of national sovereignty. In fact there were many precedents for this, which the Allies merely followed. A recent paper by Kris Mitchener and Marc Weidenmier (2010) analyses 43 such cases from the nineteenth century. Today Greek opinion is inflamed by the idea of a European Commission representative in its budget office; Athens last came under foreign financial supervision in 1898, having defaulted on an indemnity arising from war with Turkey the previous year.

Based on this and other cases, Mitchener and Weidenmeier show that "supersanctions," when the creditor countries applied direct military pressure or directly supervised the debtor's fiscal offices, generally sufficed to restore the debtor's credit by enough to reduce bond yields and allow access to fresh borrowing.

What creates the power of sovereigns to resist their creditors, if direct force is not applied? Writing during the last major international debt crisis, Simon Bulow and Ken Rogoff (1989) argued that sovereign debtors are able to play on their creditors' impatience and desire to rescue something from the situation; faced with the threat of complete default and the need to apply draconian penalties, the creditors will be satisfied with partial compliance. The debtors will pay just enough to keep open their access to fresh borrowing.

The result is the phenomenon of continual rescheduling clearly visible in recent renegotiation of the Greek debt. Indeed it would seem that no one has read Bulow and Rogoff more carefully than Alexis Tsipras, leader of Greece's largest anti-bailout faction, the left-wing Syriza Party.

Despite partial default and bailout, Greece remains insolvent. Strictly interpreted, insolvency means that the debtor cannot pay. But the history of sovereign debt and default tells us that “Won’t pay” and “Can’t pay” are hard to tell apart, and it is in the debtor’s interest to make them look the same.

Allied failure to predict and manage this after World War I helped to poison Germany’s international relations and domestic politics in the 1920s. Miller and Skidelsky argue that Germany, which suffered so much after 1919, should not do the same to Greece today. I agree. But a far sighted reconciliation does not look likely, and might not even by welcomed by those Greek politicians who are now happily reinventing the tradition of Greece as a victim of foreign exploiters.

References

• Bulow, Jeremy and Kenneth Rogoff. 1989. A Constant Recontracting Model of Sovereign Debt. Journal of Political Economy 97:1, pp 155-178. RePEc handle: http://ideas.repec.org/a/ucp/jpolec/v97y1989i1p155-78.html
• Klemann, Hein, and Sergei Kudryashov. 2012. Occupied Economies: An Economic History of Nazi-Occupied Europe, 1939-1945. London: Berg. Weblink: http://www.bergpublishers.com/?TabId=15036
• Marks, Sally. 1978. The Myths of Reparations. Central European History 11:3, pp. 231-255.
• Miller, Marcus, and Robert Skidelsky. 2012. How Keynes Would Solve the Eurozone Crisis. The Financial Times, May 15. Weblink: http://www.ft.com/cms/s/2/55d094cc-9e74-11e1-a24e-00144feabdc0.html#axzz1vF2uhjh4
• Mitchener, Kris, and Marc Weidenmier. 2010. Supersanctions and Sovereign Debt Repayment. Journal of International Money and Finance 29:1, pp. 19-36. RePEc handle: http://ideas.repec.org/a/eee/jimfin/v29y2010i1p19-36.html

Mark Harrison : 23 May 2012 17:54 |  Tags: Economics Greece War |  Comments (3) |  Close comments |  Report a problem