Ibrahim

Filling in the incentive void of democracy

It’s clear that democratization is not the panacea for the problems of developing countries. Elected leaders even lack some of the incentives for good leadership that unelected leaders have, since their terms are limited and their rule is a short saga in the history books. Problems that demand solutions that exceed the term of the elected executive can easily be ignored. Sudanese-born telecommunications billionaire Mo Ibrahim seems to have have a solution to this: his own Mo Ibrahim Prize for Achievement in African Leadership. An African himself, it is easy to see that Ibrahim wants to to see his continent prosper. For maximum impact, he has made a monetary surgical strike: paying the leaders themselves to actually care about their country’s prosperity and future. A generous sum, $5 million US plus a $200,000 US yearly payment, is awarded to leaders of African nations who have recently left office, and who:

  • Have developed their countries, lifted people out of poverty and paved the way for sustainable and equitable prosperity
  • Are exceptional role models for the continent
  • Ensure that Africa continues to benefit from the experience and expertise of exceptional leaders when they leave national office, by enabling them to continue in other public roles on the continent

All of these criteria are apparently geared towards incentivizing leadership that is focused on the good to come after the statesman leaves office. Kicking the can down the road, which is de rigeur for elected officials, is no longer possible with the independent oversight of the Ibrahim Foundation. Politicians normally serve the interests of their parties or themselves. In poor countries governments are at their most predatory, being, as Mark Lutter pointed out, the major culprit behind third world squalor. Spinning, rhetoric, and political grandstanding, which work on the voting public, presumably do not work for the award committee of the Ibrahim Foundation, which is entrusted with handling millions upon millions of dollars.

What exactly is the subtext of this award? It is that political systems, on their own, are not built to act in the interest of the nations that they control. The much vaunted democratic political system has not brought African nations to the promised land. So why does the Foundation require that leaders who receive the award to be democratically elected? To the naive, this might be seen as an encouragement of democratic leadership, which is certainly a better alternative to dictatorship. I would guess that Ibrahim also wants to in fact fix democracy and all its misplaced incentives, having the requirement of a democratic election in order pinpoint these problems, and using his wealth to tip the scales from favoring government to favoring society.

How private cities can help the poor

A piece on private cities I wrote was published today in the Freeman. This sentence captures the idea, perhaps the most unappreciated idea in economics:

Proprietary communities offer a solution to a host of problems commonly assumed to justify government intervention. Private property internalizes externalities. Proprietary communities take advantage of that fact by creating private property over land spaces traditionally thought of as public domain. They work by creating a residual claimant in the provision of public goods. That is, proprietors keep as income the rents collected through leases after costs are deducted.

Here’s another important point:

An additional advantage of private cities is that they incentivize institutional change. Institutional change is rare because of the logic of collective action. While the gains outweigh the costs of protecting private property rights, the gains are dispersed and the costs are concentrated. Those benefiting from such change have an incentive to free-ride, letting others agitate for the change.

Poor countries are poor because their governments are predatory. Proprietary communities concentrate the benefits of economic liberalization, increasing the likelihood of success. Honduras is the closest to achieving private cities. About one year ago, they passed a law allowing for ZEDEs (zonas de empleado y desarollo economico). ZEDEs can opt out of Honduran civil and commercial law, bringing in a legal system of their choosing. In order to internalize the gains from such changes, some companies have expressed interest in creating private cities similar to the ones described in my essay.

Orwell identifies ‘neo-reactionaries’ in 1943

A big h/t to Brad Birzer on Facebook, for pointing out this column Orwell wrote for Tribune in 1943:

Reading Michael Roberts’s book on T. E. Hulme, I was reminded once again of the dangerous mistake that the Socialist movement makes in ignoring what one might call the neo-reactionary school of writers. There is a considerable number of these writers: they are intellectually distinguished, they are influential in a quiet way and their criticisms of the Left are much more damaging than anything that issues from the Individualist League or the Conservative Central Office.

T. E. Hulme was killed in the last war and left little completed work behind him, but the ideas that he had roughly formulated had great influence, especially on the numerous writers who were grouped round the Criterion in the twenties and thirties. Wyndham Lewis, T. S. Eliot, Aldous Huxley, Malcolm Muggeridge, Evelyn Waugh and Graham Greene all probably owe something to him. But more important than the extent of his personal influence is the general intellectual movement to which he belonged, a movement which could fairly be described as the revival of pessimism. Perhaps its best-known living exponent is Marshal Pétain. But the new pessimism has queerer affiliations than that. It links up not only with Catholicism, Conservatism and Fascism, but also with Pacifism (California brand especially), and Anarchism. It is worth noting that T. E. Hulme, the upper-middle-class English Conservative in a bowler hat, was an admirer and to some extent a follower of the Anarcho-Syndicalist, Georges Sorel.

The thing that is common to all these people, whether it is Pétain mournfully preaching ‘the discipline of defeat’, or Sorel denouncing liberalism, or Berdyaev shaking his head over the Russian Revolution, or ‘Beachcomber’ delivering side-kicks at Beveridge in the Express, or Huxley advocating non-resistance behind the guns of the American Fleet, is their refusal to believe that human society can be fundamentally improved. Man is non-perfectible, merely political changes can effect nothing, progress is an illusion. The connexion between this belief and political reaction is, of course, obvious. Other-worldliness is the best alibi a rich man can have. ‘Men cannot be made better by act of Parliament; therefore I may as well go on drawing my dividends.’ No one puts it quite so coarsely as that, but the thought of all these people is along those lines: even of those who, like Michael Roberts and Hulme himself, admit that a little, just a little, improvement in earthly society may be thinkable.

The danger of ignoring the neo-pessimists lies in the fact that up to a point they are right.

Birzer has written a fair bit about Hulme.

Entrepreneurs and the informal economy

Here is a very interesting new paper on the informal economy by Andrei Shleifer and Rafeal la Porta. It is great to see two prominent economists write on the subject. The abstract gives an overview of the first half of the paper:

We establish five facts about the informal economy in developing countries. First, it is huge, reaching about half of the total in the poorest countries. Second, it has extremely low productivity compared to the formal economy: informal firms are typically small, inefficient,  and run by poorly educated entrepreneurs. Third, although avoidance of taxes and regulations is an important reason for informality, the productivity of informal firms is too low for them to thrive in the formal sector. Lowering registration costs neither brings many informal firms into the formal sector, nor unleashes economic growth. Fourth, the informal economy is largely disconnected from the formal economy. Informal firms rarely transition to formality, and continue their existence, often for years or even decades, without much growth or improvement. Fifth, as countries grow and develop, the informal economy eventually shrinks, and the formal economy comes to dominate economic life.

I found the second half more interesting. They critique Hernando de Soto, who argues informal economies are an untapped reservoir of potential constrained by regulations. Because of the need for business permits and government recognition of property they are unable to enter the formal economy. Shleifer and la Porta find that most informal businesses are constrained by finance, not regulation, and fail to enter the formal economy. This suggests the problem is not regulation. Instead, they conclude:

The evidence suggests that an important bottleneck to economic growth is not the supply of  better educated workers; indeed, at least on many observable characteristics the workers are rather  similar in informal and formal firms. Rather, the bottleneck is the supply of educated entrepreneurs –  people who can run productive businesses. These entrepreneurs create and expand modern businesses  with which informal firms, despite all their benefits of avoiding taxes and regulations, simply cannot compete.

This is largely consistent with my experience during the last week in Honduras. I was interviewing with a firm run by an Italian. In his words, the firm imports business models from middle income countries, Mexico and Argentina, to low income countries, Honduras, Guatemala, and Nicaragua. His success, without substantial changes in economic freedom, suggests the problem is not institutional, but entrepreneurial. I very much look forward to more research along these lines.

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Exit and ideology

Exit, the ability to leave, has been gaining traction as an institutional arrangement. If exit costs are sufficiently low, people can choose the ideal community for their preferences. Further, the low exit costs force competition between institutional regimes to satisfy client preferences.

Though best enunciated by a liberal economist, Albert Hirschman, exit has largely been associated with the right. In America, secession, the ultimate form of exit, has forever been tainted by racism due to our own War of Secession. However, exit was once a celebrated value of the left. The Guardian, hardly a bastion of conservatism, offered mild support for the south during the American Civil War:

The great stumbling-block issue for the Guardian and many other liberals was the right to self-determination. The paper believed that the south had the right to secede and to establish an independent state.

Of course, if exit is to be a primary political value, the right to exit must extend to all persons, something the south did not do. While intellectually exit has been associated with the right, politically some the distinction is less clear. American states decriminalizing marijuana and legalizing gay marriage in contravention of federal laws has been a milder form of exit, in pursuit of leftist values.

In a very interesting piece Scott Alexander tries to reclaim exit as a liberal (in the modern American sense) value. He envisions competing communities:

Usually the communities are based on a charter, which expresses some founding ideals and asks only the people who agree with those ideals to enter. The charter also specifies a system of government. It could be an absolute monarch, charged with enforcing those ideals upon a population too stupid to know what’s good for them. Or it could be a direct democracy of people who all agree on some basic principles but want to work out for themselves what direction the principles take them.

While he desires a world government to prevent war and ensure the protection of children, he acknowledges that his ideas are largely analogous to Nozick and Moldbug, the advocates of libertarian exit and conservative exit respectively.

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What we talk about when we talk about vaccines

Recently, the CDC posted new, sobering numbers on the recent outbreaks of measles, a disease previously thought eradicated by mass inoculation efforts over the course of decades.  Like the spots found in the mouth of a patient, it’s not pretty:

Two hundred and eighty-eight cases of measles were reported to the Centers for Disease Control and Prevention (CDC) in the United States between Jan. 1 and May 23, 2014. This is the largest number of measles cases in the United States reported in the first five months of a year since 1994.

The cause is equally disgusting:

“The current increase in measles cases is being driven by unvaccinated people, primarily U.S. residents, who got measles in other countries, brought the virus back to the United States and spread to others in communities where many people are not vaccinated,” said Dr. Anne Schuchat, assistant surgeon general and director of CDC’s National Center for Immunizations and Respiratory Diseases.

Keep these thoughts in mind. I’m going to tell you a little story.

As some of you are aware, polio, the debilitating disease that renders a person physically disabled for the rest of their life, still continues to persist in parts of the Middle East, especially the northern provinces of Pakistan. This is mainly due to efforts by the Taliban and related organizations, as well as tribal leaders, to prevent vaccine distribution. Now, from an untrained standpoint, some would suspect the motives of the Taliban’s anti-vaccine efforts have at least some backing in Islamic thought. But that is not really the case: Inoculation has long been used in the Middle East and the Indian subcontinent, predating Western introduction of the practice. While there were previous concerns surrounding the religious validity of modern vaccines, the use of Muslim medical workers alleviated this problem. There is not much religious justification going on against the vaccines themselves.

Rather, the problem is not so much the vaccines as it is the source:

Anxieties and distrust about the polio vaccine and its western providers were rampant in some communities, and suspicions about CIA links with the polio vaccination campaigns, and rumours they were a front for the sterilising of Muslims, had been around for a decade after 9/11.

Given all the attention Pakistan got after 9/11, that the CIA would be rumored to have some sinister involvement in polio eradication did not seem far-fetched for the average Pakistani. Then came the revelation that a Pakistani doctor led a fake vaccination drive as a CIA cover operation to confirm Osama Bin Laden’s hideout in Abottabad in 2011, which caused the whole thing to fall apart. Two years after the fact, the region remains the largest endemic source of polio and continues to grow.

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