Quick Hits

Haiti wants to join the African Union 

Partisan stats: Of red-state moochers and blue state makers 

Romney’s elusive tax plan (funny)

Zuma’s failed presidency and South Africa’s labor unrest

Mo Ibrahim Prize goes unclaimed, again

Kenya might be seeing the origins of insurgency (More details on this soon)

Foreign Aid for Institutional Development?

In a speech at the Clinton Global Initiative, U.S. Republican presidential candidate Mitt Romney urged that more of U.S. foreign assistance should have strings attached. Mr. Romney said that:

“Working with the private sector, the program will identify the barriers to investment and trade and entrepreneurialism in developing nations…………. In exchange for removing those barriers and opening their markets to U.S. investment and trade, developing nations will receive U.S. assistance packages focused on developing the institutions of liberty, the rule of law, and property rights.”

Romney also added that:

“The aim of a much larger share of our aid must be the promotion of work and the fostering of free enterprise. Nothing we can do as a nation will change lives and nations more effectively and permanently than sharing the insight that lies at the foundation of America’s own economy — and that is that free people pursuing happiness in their own ways build a strong and prosperous nation.”

I am of the opinion that an approach to foreign assistance embodying the spirit of the latter quote is more likely to succeed than the former.

The thing with institutions is that they often reflect already existing social equilibria. The courts, the police, the military, the legislature, the stock exchange, etc, all reflect established norms and moral claims that individual stakeholders have on the system and on each other. When Westerners foreigners come in (many of whom often have very little understanding of the social basis of the existing equilibria) they often tend to work at cross-purposes with the existing social compacts (a good example here is the phenomenon of mono-issue activism – think of Human Rights Watch fighting the World Bank at the expense of locals).

Granted in some parts of the world these very social compacts need to be changed (e.g. misogynous social systems). But even in such cases the changes have to be grounded in local political arrangements that are self-enforcing. Media pronouncements from Western ambassadors are not enough.

Many development academics and practitioners alike often neglect the fact that in European history (contemporary Western experience informs a lot of institutional proselytizing) political development (i.e. the creation of responsive and impartial bureaucratic institutions to manage the affairs of the state) was preceded by modernization and general economic development. In most of the developing world this relationship is reversed. Political development has become the independent variable charged with driving the process of modernization and economic growth and development.

As a result, the mantra seems to be that if only everyone could get governance right then everything would fall in place and we’d all be on the road to becoming Denmark.

May be this can be achieved. I remain skeptical.

Persistence of Culture (and Institutions)

“How persistent are cultural traits? Using data on anti-Semitism in Germany, we find local continuity over 600 years. Jews were often blamed when the Black Death killed at least a third of Europe’s population during 1348–50. We use plague-era pogroms as an indicator for medieval anti-Semitism. They reliably predict violence against Jews in the 1920s, votes for the Nazi Party, deportations after 1933, attacks on synagogues, and letters to Der Sturmer. We also identify areas where persistence was lower: cities withhigh levels of trade or immigration. Finally, we show that our results are not driven by political extremism or by different attitudes toward violence.”

That is Voigtlander and Voth writing in the Quarterly Journal of Economics.

Their paper speaks to my previous post on the challenges of institutional engineering given the stickiness of institutions (and by extension the cultures that create and then reinforce them). Of course culture is a dicey subject that is often misused to explain economic and social outcomes. Instead of using the amorphous term “culture” I prefer to hear more about the reward systems that make it beneficial for individuals and communities to engage in certain cultural practices.

On a more positive note, the paper provides some evidence of the power of economic opportunities to dis-incentivize engagement in hateful cultural practices:

“Instead of reinforcing persistence, we argue that economic factors had the potential to undermine it…… Our results also lend qualified support to Montesquieu’s famous dictum that trade encourages ‘‘civility.’’

A trillion is 1,000 billion.

“A global super-rich elite had at least $21 trillion (£13tn) hidden in secret tax havens by the end of 2010, according to a major study.

The figure is equivalent to the size of the US and Japanese economies combined.”

More on this here.

In which Mitt Romney channels Downs (1957)

Sometimes politicians get out of character and reveal the naked truth about the strategic logic of hunting for votes in a two-party electoral system.

Briefly stated, the median voter rules (also check this out).

For more on this check out the piece on the Times website.

Why go into investment banking (as opposed to grad school)?

Davos envy and Romney’s income in the last two years (and tax rate) have got quite a few people thinking and talking about the morality and usefulness of the financial sector. The odd thing, however, is that ever more brilliant college leavers (including from my alma mater) continue to be attracted to the financial sector and not the real economy (there was a brief decline after the 2008 recession but it appears that the trend is picking up again?

So why do college graduates want to be on the street or racking up lifetime miles in consulting? The simple answer is that returns are great, as shown in this illustration from theiBanker.

HT FTAlphaville.