I believe that in more ways than one international integration is a process akin to evolution. As they are faced with a shock, our fragmented political economies must adapt to the changed environment in which they dwell. Of course this does not proceed immediately. Adaptation is an uncomfortable process, that takes time and luck as Jared Diamond so clearly illustrates in Collapse.
Not all crises have known solutions and as such it is impossible to know whether or what reforms will work. The best we can do in such cases is to recognise that the status quo is no longer viable and that we need a change. This, in and of itself is an achievement, and the first necessary condition to move in the right direction.
What that change ends up looking like will be a function of the forces at play (veto players and collective action problems), and success is not guaranteed. Moreover, luck is a factor because we cannot exclude the possibility of making type one or type two errors. Finally, we may not have the luxury of time and slow learners may be penalised.
Monday, 15 November 2010
Wednesday, 10 November 2010
India in the Security Council: better or worst?
To answer the second question of this post, i should consider the purpose if the Security Council. Now I could be wrong, but I believe it is to ensure peace, international stability and the compliance of UN parties to their international commitments and responsibilities.
There are 3 problems from my point of view.
Unanimity
The first is the need for unanimity from the 5 permanent member states. This complicates decisions, due to preference differences.
Intergovernmentalism: The cooperation problem
Secondly, even if it were the case that not a single member state would have a veto (which would be the preferable case) it would still be very difficult to get things done, because this is a purely intergovernmental arrangement. There is no security council secretariat that proposes motions, to my knowledge. The initiative resides completely with the members of the council. If the secretariat was responsible for monitoring security issues in the world and if it's proposals were carried unless there was a blocking minority or no available funds, then the UN would be much more active. As it is, the standard outcome is deadlock and status quo.
Arbitrarity: Why not someone else?
My last concern is that the creation of a permanent seat and veto for India is even more arbitrary than the attribution these properties to the winnersof WWII. At least they won. Why should India get a seat rather than Pakistan or Saudi Arabia, Brazil, Canada.
No veto and no permanent seats: a new formula
My point is that no one should have a permanent seat and no one should have a veto. The security council should have votes attributed as a proportion of income/capita and or as a proportion of population size. There should be elections at the General Assembly level, to select a certain number of members of the security council. Each would then be given a number of votes proportional to the support they received in the general assembly. Thus the votes that the EU would have if it sat on the security council wouldn't be the result of it's size, but of the total size of it's support. 15 representatives should be diverse enough a number. Probably 7 would have been fine but I didn't want to seem cheap.
May be if the aliens invade, after WWIII, if we learn to exploit dark energy or at least nuclear fusion this will be put in place, but I doubt otherwise that the status quo will change.
Anyway giving India a permanent seat in the Security Council seems to only make things worse.
There are 3 problems from my point of view.
Unanimity
The first is the need for unanimity from the 5 permanent member states. This complicates decisions, due to preference differences.
Intergovernmentalism: The cooperation problem
Secondly, even if it were the case that not a single member state would have a veto (which would be the preferable case) it would still be very difficult to get things done, because this is a purely intergovernmental arrangement. There is no security council secretariat that proposes motions, to my knowledge. The initiative resides completely with the members of the council. If the secretariat was responsible for monitoring security issues in the world and if it's proposals were carried unless there was a blocking minority or no available funds, then the UN would be much more active. As it is, the standard outcome is deadlock and status quo.
Arbitrarity: Why not someone else?
My last concern is that the creation of a permanent seat and veto for India is even more arbitrary than the attribution these properties to the winnersof WWII. At least they won. Why should India get a seat rather than Pakistan or Saudi Arabia, Brazil, Canada.
No veto and no permanent seats: a new formula
My point is that no one should have a permanent seat and no one should have a veto. The security council should have votes attributed as a proportion of income/capita and or as a proportion of population size. There should be elections at the General Assembly level, to select a certain number of members of the security council. Each would then be given a number of votes proportional to the support they received in the general assembly. Thus the votes that the EU would have if it sat on the security council wouldn't be the result of it's size, but of the total size of it's support. 15 representatives should be diverse enough a number. Probably 7 would have been fine but I didn't want to seem cheap.
May be if the aliens invade, after WWIII, if we learn to exploit dark energy or at least nuclear fusion this will be put in place, but I doubt otherwise that the status quo will change.
Anyway giving India a permanent seat in the Security Council seems to only make things worse.
Is international aid bad?
Here are my comments on whether aid is bad
Why aid is not bad
This was not something I came up with, but a conversation I stumbled on. The argument that was made against it was that it distorts local economic incentives. It's the same argument as the one made against welfare programmes. If people get stuff for free, they won't need or want to work and thus it'll trap developing countries in a vicious circle of poverty. This seems a bit simplistic.
What aid is bad
A better argument though is not so much to do with aid in general as with the types of aid, and it is one with which I sympathise more. This is because of the aider's inability to monitor some form of aid distribution once it arrives at the destination country. Financial aid, commodities (grain and fuel) and pharmaceutical products would be good examples. Aid programmes and NGOs, if they act only as suppliers, can control the goods distribution. This'll cause warlords or corrupt local officials to take the resources and sell them for their own personal gain. In these cases aid enriches the oppressors at the detriment of the oppressed.
What aid is good
Education aid, where NGOs fund and staff schools and where the funds are tightly kept track of however, do not involve such monitoring problems. First, they are generally smaller in scale, which means is easier to keep track of things. Secondly, they require, at their most basic, very little infrastructural resources (no large trucks of food, or the need to have soldiers around to help fend off eager would-be intellectuals. Thirdly it requires devoted teachers on the ground. Due to the living conditions in these countries, there is a selection bias, in that of those people are there voluntarily, but if they are foreigners, then they are there by choice, and this devotion. If they are natives, the signalling process may be less certain, but the sorting can be dine in a number of ways (think of nuns, and other such groups). Either way, the frugality of the resources which they handle is such that there is very little incentive to steal, so it is fair to assume that the staff in these projects is more reliable. Moreover, and by association they'll also be cheaper to monitor.
Why some aid has to be good
More importantly though, developing countries with low growth have a lot of slack in the economy, I.e.: a lot of unused productive inputs, such as labour and commodities, the latter of which are sold abroad instead of invested at home. Moreover their labour force is fairly unproductive given the low prevailing levels of education in some of these countries.
Thus, much like in an economy in a recession, spending on public good provision may have a large multiplier and is beneficial to the economy. In the worst of developping countries it probably decrease the rate of negative growth. In that context aid could play a relevant role, as long as it's distribution to those who need, rather than those who will sell it, is well monitored.
Aid is for survival not for growth
To argue that aid should not be given because it'll make starving people lazy and decreases economic growth is a tricky point to argue. First off it assumes aid is meant to stimulate economic growth. This might be so, but my impression is that financial (Paris Club debt clearing) and food aid is mostly meant to guarrantee survival and stability, not to stimulate growth.
Efficiency and Equity
Moreover, laziness and growth concerns are efficiency concerns, which have little time for equity considerations. Thus in a sense they require one's willingness to overlook all non efficiency concerns. As such such a perspective would be perfectly satisfied with the situation in Angola where one individual controls the lion share of the economy while many live in poverty and starvation.
Economic efficiency requires political expediency
Such a perspective would also accept enlightenned despotism as a viable SR political arrangement, because the existence of only one veto player would stream line decision making. However such a perspective would also need to provide an appropriate path to finding that leader.
Full, absolute efficiency requires no Market failures
In the absence of such an appropriate process, and in order to make the pure laissez-faireargument, then one would have to be assuming that there are no market failures, and that we don't need government. There is always full information and conplete markets; there are no asymmetries of information that allow insiders to take outsiders for a ride; there are no public goods that would require provision from an inexistent ruler or from one whose arbitrary rule could lead to under provision of such a good; there are no transport, storage or menu costs, as well as no negative externalities; finally, individuals in that market economy have neither behavioural biases nor are they bounded in their ability to collect and process any amount of information at any given speed.
These are more caveats than I can feel comfortable with.
Why aid is not bad
This was not something I came up with, but a conversation I stumbled on. The argument that was made against it was that it distorts local economic incentives. It's the same argument as the one made against welfare programmes. If people get stuff for free, they won't need or want to work and thus it'll trap developing countries in a vicious circle of poverty. This seems a bit simplistic.
What aid is bad
A better argument though is not so much to do with aid in general as with the types of aid, and it is one with which I sympathise more. This is because of the aider's inability to monitor some form of aid distribution once it arrives at the destination country. Financial aid, commodities (grain and fuel) and pharmaceutical products would be good examples. Aid programmes and NGOs, if they act only as suppliers, can control the goods distribution. This'll cause warlords or corrupt local officials to take the resources and sell them for their own personal gain. In these cases aid enriches the oppressors at the detriment of the oppressed.
What aid is good
Education aid, where NGOs fund and staff schools and where the funds are tightly kept track of however, do not involve such monitoring problems. First, they are generally smaller in scale, which means is easier to keep track of things. Secondly, they require, at their most basic, very little infrastructural resources (no large trucks of food, or the need to have soldiers around to help fend off eager would-be intellectuals. Thirdly it requires devoted teachers on the ground. Due to the living conditions in these countries, there is a selection bias, in that of those people are there voluntarily, but if they are foreigners, then they are there by choice, and this devotion. If they are natives, the signalling process may be less certain, but the sorting can be dine in a number of ways (think of nuns, and other such groups). Either way, the frugality of the resources which they handle is such that there is very little incentive to steal, so it is fair to assume that the staff in these projects is more reliable. Moreover, and by association they'll also be cheaper to monitor.
Why some aid has to be good
More importantly though, developing countries with low growth have a lot of slack in the economy, I.e.: a lot of unused productive inputs, such as labour and commodities, the latter of which are sold abroad instead of invested at home. Moreover their labour force is fairly unproductive given the low prevailing levels of education in some of these countries.
Thus, much like in an economy in a recession, spending on public good provision may have a large multiplier and is beneficial to the economy. In the worst of developping countries it probably decrease the rate of negative growth. In that context aid could play a relevant role, as long as it's distribution to those who need, rather than those who will sell it, is well monitored.
Aid is for survival not for growth
To argue that aid should not be given because it'll make starving people lazy and decreases economic growth is a tricky point to argue. First off it assumes aid is meant to stimulate economic growth. This might be so, but my impression is that financial (Paris Club debt clearing) and food aid is mostly meant to guarrantee survival and stability, not to stimulate growth.
Efficiency and Equity
Moreover, laziness and growth concerns are efficiency concerns, which have little time for equity considerations. Thus in a sense they require one's willingness to overlook all non efficiency concerns. As such such a perspective would be perfectly satisfied with the situation in Angola where one individual controls the lion share of the economy while many live in poverty and starvation.
Economic efficiency requires political expediency
Such a perspective would also accept enlightenned despotism as a viable SR political arrangement, because the existence of only one veto player would stream line decision making. However such a perspective would also need to provide an appropriate path to finding that leader.
Full, absolute efficiency requires no Market failures
In the absence of such an appropriate process, and in order to make the pure laissez-faireargument, then one would have to be assuming that there are no market failures, and that we don't need government. There is always full information and conplete markets; there are no asymmetries of information that allow insiders to take outsiders for a ride; there are no public goods that would require provision from an inexistent ruler or from one whose arbitrary rule could lead to under provision of such a good; there are no transport, storage or menu costs, as well as no negative externalities; finally, individuals in that market economy have neither behavioural biases nor are they bounded in their ability to collect and process any amount of information at any given speed.
These are more caveats than I can feel comfortable with.
No more EU musings
I have recently realised that my posts have become overwhelmingly EU oriented. Although an obvious function of my interests this is a pity, as it has effectively led me astray from the stated intent of this blog. As such, and in order to bring this blog back to its original scope, I have decided to move all of my exclusively EU and € musings to a new blog.
Place du Luxembourg, will be exclusively focused on European affairs, mostly on the politics and economics, but also, on occasion, on foreign relations and defence. I've decided to call it that, in honour of the square in front of the European Parliament Building in Brussels famous as an after work hang out for EU civil servants. Please drop by if you want to continue following as I cover the most recent developments.
Anyway, hopefully this will herald a golden era of appropriate contribution to this blog!
Place du Luxembourg, will be exclusively focused on European affairs, mostly on the politics and economics, but also, on occasion, on foreign relations and defence. I've decided to call it that, in honour of the square in front of the European Parliament Building in Brussels famous as an after work hang out for EU civil servants. Please drop by if you want to continue following as I cover the most recent developments.
Anyway, hopefully this will herald a golden era of appropriate contribution to this blog!
Aid and India in the Security Council
Though I'll be posting less frequently, I will continue to post, here. Hopefully this move will help me refocus this blog, and my messy ideas.
So, and as a starter here are two questions that popped to mind:
1) Is international aid worst to the benefitting country than no aid?
2) Would giving India a permanent seat in the UN's security Council actually help that organisation?
My thought on them in upcoming posts
So, and as a starter here are two questions that popped to mind:
1) Is international aid worst to the benefitting country than no aid?
2) Would giving India a permanent seat in the UN's security Council actually help that organisation?
My thought on them in upcoming posts
Thursday, 28 October 2010
Is the Deauville Agreement half dead? Hopefully!
So our enlightened leaders have met in Brussels to discuss a number of issues, first among which, economic governance and I must say that the result is looking mighty good, and very much along the lines of what I had hoped for.
Everyone was reporting with various levels of detail on what seemsto have been a Council meeting dominated by discussions of the Deauville Agreement. This was a joint call by France and Germany to introduce two EU treaty changes.
First, one empowering a majority of the council to withdraw votes from member states not complying with the SGP3 (opinions the SGP3 here).
The second change was proposed to facilitate the establishment of an alternative mechanism to the EFSF in order to deal with sovereign debt crises. This is because Germany fears that its Constitutional Court may consider any permanent version of the EFSF to be unconstitutional in the absence of a EU treaty revision. It is also motivated by the fear of a German negative public opinion who bears a large part of the weight of the bail out fund.
However, the shape of this mechanism was not very clear. It could have involve d the creation of a permanent fund and the creation of a proces for orderly debt restructure; or only the latter. Fortunately, the comments to the press from the President of the Council of the EU confirm that it is both.
It seems that the main points of contention were the appropriateness of withdrawing voting rights and whether there is an actual need for treaty change.
To be quite fair the first proposal faced overwhelming opposition in the media(Der Spiegel, the FT. ) from the Commission (Barroso and Reding, but not Oli Rehn) the European liberal and leftist leaders
On this issue I must admit that I am impressed at the strength with which the Commission opposed those two countries. Barroso's words could not have been clearer. Moreover,centre-left governments are also in opposition, as are some liberals and most likely the UK's Cameron and Sweden's Reinfeldt.
This means that it was possible to focus more attention on the second issue, of appropriate mechanisms for dealing with sovereign debt crises. Apparently the Finns had a neat little idea, where
Thus the conclusion is that the biggest losers so far are France and Germany. They postured before and came out half empty. It was still better than the rest. At least they got to shape the agenda. France however seems like the biggest loser. It flip-flopped on an extremely unpopular measure only to see it being opposed by all of it's EU partners. Moreover, Sarkozy's reaction to Vivianne Reding's comment made him look even more petty. You don't hear this kind of comments from Merkel...
France has known better EU days.
Everyone was reporting with various levels of detail on what seemsto have been a Council meeting dominated by discussions of the Deauville Agreement. This was a joint call by France and Germany to introduce two EU treaty changes.
First, one empowering a majority of the council to withdraw votes from member states not complying with the SGP3 (opinions the SGP3 here).
The second change was proposed to facilitate the establishment of an alternative mechanism to the EFSF in order to deal with sovereign debt crises. This is because Germany fears that its Constitutional Court may consider any permanent version of the EFSF to be unconstitutional in the absence of a EU treaty revision. It is also motivated by the fear of a German negative public opinion who bears a large part of the weight of the bail out fund.
However, the shape of this mechanism was not very clear. It could have involve d the creation of a permanent fund and the creation of a proces for orderly debt restructure; or only the latter. Fortunately, the comments to the press from the President of the Council of the EU confirm that it is both.
It seems that the main points of contention were the appropriateness of withdrawing voting rights and whether there is an actual need for treaty change.
To be quite fair the first proposal faced overwhelming opposition in the media(Der Spiegel, the FT. ) from the Commission (Barroso and Reding, but not Oli Rehn) the European liberal and leftist leaders
On this issue I must admit that I am impressed at the strength with which the Commission opposed those two countries. Barroso's words could not have been clearer. Moreover,centre-left governments are also in opposition, as are some liberals and most likely the UK's Cameron and Sweden's Reinfeldt.
This means that it was possible to focus more attention on the second issue, of appropriate mechanisms for dealing with sovereign debt crises. Apparently the Finns had a neat little idea, where
Thus the conclusion is that the biggest losers so far are France and Germany. They postured before and came out half empty. It was still better than the rest. At least they got to shape the agenda. France however seems like the biggest loser. It flip-flopped on an extremely unpopular measure only to see it being opposed by all of it's EU partners. Moreover, Sarkozy's reaction to Vivianne Reding's comment made him look even more petty. You don't hear this kind of comments from Merkel...
France has known better EU days.
Tuesday, 26 October 2010
Wednesday, 20 October 2010
3 Comments on the SGP3
I would like to contribute three comments regarding the recent Franco-German agreement arrived at recently. This post is a poor contribution to more enlightened commentators’ criticisms of the proposed SGP3.
The first, is a criticism to the article from Charlemagne, which completely fails to mention what I think is probably the most important part of the agreement. The last four paragraphs describe the issues both countries want to see changed that require treaty changes. It fascinates me how the Economist would fail to mention that apparently France has come on board with Germany in terms of cancelling council voting rights. This isn't the most intelligent proposal that's ever come out of a Franco-German agreement, and is offensive to the intellect of anyone reading it and makes a mockery of European solidarity and democracy. It's an insult to the intellect, because anyone who expects every single country in the Euro-zone (much less in the EU) to approve a treaty change denying any given Member state of the EU the right to representation is either disconnected from reality or seriously thinks the rulers of small countries are stupid and their citizens inert.
If we have learned anything since the creation of the Eurozone and the misfit application of the SGP, is that indeed we are not at all equal. Several countries have failed their SGP obligations. Portugal in 2002, Germany and France in 2003, Italy and the Netherlands in 2004 and finally Greece in 2005 all failed to live up to the SGP. The only country that ever came close to being punished was Greece. When the problem hurt France and Germany they decided to change the rules. That's why we are now talking of the SGP3 rather than SGP2. As Caballero, Cababllero and Losada 2006 and Chang 2005 describe, Germany and France are clearly more equal than the rest of the Member states. Call them primus inter pares. As Thornhallson 2006 explains this is understandable. However, it is morally highly objectionable. It should be clear to anyone dedicating even a minute of their time to the ongoing debate about the reform of the SGP, that although France is endorsing a German proposal to withdraw votes from countries not fulfilling their obligations under the SGP, neither France nor Germany will ever let other countries do that to themselves. This is a policy for others and shamefully so.
SGP3: Opinions from VoxEU
So the proposals of the European Commission for reforming the SGP have provoked s number of reactions from the good people at VoxEu.org. There seems to be an agreement as to the vagueness of the extra indicators, and their difficult enforcement. The SGP remains a legalistic punishment mechanism rather than a tool incentivising good counter-cyclical fiscal policy. Finally there seems to be dome disagreement about the appropriateness of the debt requiremen, while consensus is still that more can be done to increase ex post credibility of the pact.
Wyplosz' "Not yet fiscal discipline, but a good start" : First, he identifies the two prevailing and competing opinions about the failures of the SGP. The "Germans" argue the penalties aren't tough enough, while the "institutionalists" argue that it is the objectives and the framework itself that isn't good enough. Apparently the EC focuses enough on the one but not enough on the second. This might be aided by the creation of a permanent EFSF. He does not consider the debt criterion appropriate but maintains that the way the commission found around the 60% limit is clever.
Manasse's view, expressed in his contribution "SGP: Counterproductive Proposals" is much more negative. He criticises the SGP's continued obsession with ex-post punishments as an incentive for good behaviour in food times. He rightly argues that this fixation painfully continues to leave the cyclicality of fiscal positions out of any meaningful discussion.
He also finds it difficult to formally impose new limits on debt, which would expose every country to penalties and on the loosely defined "macroeconomic imbalances" causing fragilities.
Nonetheless, he praises the introduction of medium-term fiscal plans and the implementation of best practices for fiscal policy across the eurozone.
Giavazzi and Spaventa, call the proposals for the SGP empty and useless. For them, the indicators added by the Commission's to help identify unsustainable policy courses are vague, and corrections to them are difficult to enforce. They also criticise the commission for focusing too much on ex post punitive actions against the states, rather than ex-ante preventive steps. Finally they maintain that the biggest problem has been private debt and as such praise the creation of the ESRB.
SGP 3 Update: The Franco-German Compromise
France and Germany seem to have reached a compromise over the SGP3. As Charlemagne describes it, the Germans seem to have dropped their "hawkish" demands about the semi-automaticity of fines at the preventive stage and in return got the French to accept supporting the German ideas of creating a debt restructuring mechanism for the Euro-zone and extending the EFSF forever. According to the communiqué, only the later of these proposals would require a treaty change. This was all agreed over the week end and came to light in the last day or so. The German press was not amused, and I am certainly not impressed. However, I leave more comments for later.
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