The Family Tangential [May 29]

Singer asserts that we, the wealthy, the comfortable citizens of the developed world, have taken it for granted for too long that national boundaries carry moral weight, and goes on to develop this argument through a utilitarian discussion of morality that analyzes the belief that we owe care to our countrymen, not to other nations. The argument takes place in two levels, as he says: the intuitive level and the critical level.

On the intuitive level are the instinctive moral behaviors we generally see as being “right” and “wrong,” especially considering immediate duties of obligation and of gratitude. These are usually expressed first towards those with whom we have partial relationships—our relatives, our friends, those with whom we do business or who have done us favors, acquaintances, fellow citizen.

The critical level is the internal dialogue that analyzes whether or not what we have done is actually moral—and in effect how moral we are or are not in our actions and thoughts.

The first level is important, but to paraphrase, it’s in essence a thought too short. In day to day interactions, it’s fine—more than fine. In your relations with family and friends, you expect to be partial—not even that. It’s a reality that one is partial to her intimates, and it’s rarely spoken of except when taken to extremes (nepotism, Wolfowitz).

But the extreme case presents a good example: society in general expects a distinct level of partiality regarding friends and relatives, after which point any more special consideration is considered immoral, unfair, and generally incites jealousy and unrest. This is one of the reasons why members of the armed services can’t have relationships with people higher or lower in their chain of command (and ideally don’t have relationships with equals in that same chain of command), why promoting a relative or close friend in a corporation is frowned upon by others, and why companies who throw public contests/sweepstakes don’t allow employees or their relatives to participate.

In the same way, promoting (or favoring) professionally individuals mainly or only of one’s own race or gender has become, when not flat out illegal, a passe practice. Why hasn’t favoring people of our own nationality gone out the same way (and will it)?

This summer, I went on a conference known as JASC. For the most part (with a bare handful of exceptions), half of the 72 students there were American, and the other half were Japanese. Unsurprisingly, during the month of the conference, there were disgruntled murmurs about social cliques forming based mainly on regionality (a few representatives of other Asian nations were also a part of the conference). More powerful was the lack of “professional” favoritism between us and the level of cooperation and support as we worked and traveled across the U.S. As individuals, we were all young students, and we all stood to gain immeasurably by mingling and cooperating. In groups, we were representatives of our cultures and the collective understanding those cultures created.

To some extent, a certain clannishness among people of the same nation is inevitable not necessarily because of “race” or a feeling of extended kinship, but because of the ease of communication—shared culture, shared language/dialect, shared history. In essence, cultural shorthand that makes efficient communication between members of the same nation whereas communication between citizens of two different countries that speak (nominally) the same language (re: German language nations) is awkward in comparison. It’s easier to feel compassion for someone you understand. This principle can be applied to smaller groups just as easily.

But the walls are falling, as Singer notes—nearly all of us have friends here who are international students. That’s just the first step. Many of us will be working for MNCs and multinational NGOs and government organizations requiring international collaboration. The scale of such interaction is growing—the existence of UNICEF proves that, even if the fundraising they do to prevent daily horrors falls behind the cash poured into the Red Cross for the victims of one incident.

Double-0 Economists [May 22]*

The first section of North's article on institutions and economies (transaction costs) had some interesting concepts I hadn't had a formal introduction to, so I took some time to reason this argument out. As I understand it, transaction costs include time, effort, and resources invested in research (availability of a good, reliable sellers, lowest prices, quality levels), bargaining (contracts, haggling, acceptable goods for barter), and enforcement costs (privately or via public institutions).

Transaction costs between individuals (personal exchange) involve a long term investment in research and bargaining that pay off through repeated exchanges; in this sytem, reliability is incredibly important, as is personal reputation. Between individuals, goodwill and trust in trade is of utmost importance. In North's simple personal exchange example, he claims that formal contracting doesn't exist, and there are few formal, specific rules, and by default of the personal scale, cheating is low. This means enforcement costs by public institutions are low, and enforcement privately likely equally so (ignoring hiring third parties to shake down the cheater) and publicly equal zero. Personal exchange is basically the immediate trade of goods for goods or goods for currency in this sense. I don't know that I would say overall transaction costs are low; engaging in trade with individuals does require a great deal of personal knowledge as he says, which means information costs--usually time. As we all know, time is money. A good professional or personal relationship with an individual producer is what encourages repeat transactions (that or scarcity of what the individual produces--in which case, cheating might actually be very profitable. North seems to assume that scarcity plays no role in personal transactions where division of labor plays little to no role; I disagree with that assessment).

Interdependent transaction has high transaction costs, but with public enforcement, those costs are spread to the government (legislative, judicial, and executive bodies responsible for regulating transactions, property, and bargains) and therefore the public through taxation. The individual to individual transaction doesn't spread the cost of transaction to the public, but keeps these transaction costs limited to those engaging in trade.

Stiglitz and Squire's article is more positive about globalization than I'd come to expect from Stiglitz's Making Globalization Work. On 386, I was rather disappointed to see that the authors didn't explain the statement "highly centralized state planning has failed as a development strategy." Are states featuring highly centralized economic planning necessarily unstable, uncredible (is that even a word?), and unfocused? I'll stay away from the uncompetitive--the answer is obvious, at least via the ideological practices highly centralized states have pursued in the past.

Why is privately directed investment better than state-directed investment? Diversification of portfolios. Even a virtuous state-directed investment mechanism would be limited in its ability to minimize maximum losses because of political games and staffing limitations. On the other hand, the number of potential private investors is practically limitless, and with each making individual decisions, it's likely that the country's overall risks will be diversified away. Of course, that's not really a perfect system either, but the disasterous aspects can be forestalled by mature policy, as pointed out to us time and again.

A note on natural monopolies that keeps popping up... Economists tend to agree that overall, competition is good. Great, even; we should as a matter of course try to prevent anything that weakens competition. However, natural monopolies contradict that all competition is all good. Here's that market failure thing. There are some natural monopolies, though, that may be made competitive after the heavy initial investments into infrastructure are made and have provided returns--telecommunications, railways, and utilities, all systems requiring lots of physical inputs and labor--can be broken down into smaller, discrete units of ownership eventually, much like what happened with Ma Bell. On the other hand, places where this can't be done--health, education, and the like--do require the state to step in, but only if the population believes that the individual has a right to those things.

The emphasis on the environment in this article and in "The Market Is Not Enough" sidesteps the general agreement that people in general become concerned with environmental safety when their basic needs are met and they have profited enough to gain time and energy to consider the issues. Environmental justice isn't something the truly poor think about--it requires a majority, or at least a very vocal and powerful minority, to speak up and push any sort of "progressive" agenda on environmental rights. Areas experiencing a surge of interest in environmental health are areas that have had enough growth to make the interest feasible. They may have suffered from environmental damage, but they most assuredly profited off of it in a wide scale, too. Additionally, the dichotomy of environmental health versus economic growth is a false one. Even if entrepreneurs within the country do not have the capital to invest or a labor supply with the required skillset to employ, the government can always do the dirty incentive tango to draw companies dealing in the environmental industry, which provides employment.

Murdoch and the Dow Jones (Plus the Wall Street Journal)

I've been hearing about this for weeks now, and I find it both terrifying and intriguing.

Rupert Murdoch, owner of News Corp. (which is nearly everything news related), put out a $5 billion dollar bid for Dow Jones. That means The Wall Street Journal. That's a lot of news in the hands of one man. So far the family that owns the WSJ has held out against the buyout, with 52 percent of their shares in opposition to Murdoch's offer.

Here's the Times on it, as well as the WSJ itself.

Why the Critic Is (a bit) Wrong [May 15]*

I found the latest chapter of Wolf’s Why Globalization Works to be pretty interesting reading. I’ve read two of Naomi Klein’s books, including No Logo, and been curious about what critics say. Now I know, at least, what Wolf thinks.

I agree that much of the “common knowledge” research reported on MNCs is pretty bogus, including the top 100 economies business. On the other hand, I think Wolf plays a little game with the rhetorical trap of reductionist argumentation as he goes into the second part of his argument, analyzing claims of brand tyrrany.

Yes, we all have a choice. That’s the fun part about shopping for clothes. But think of it this way: as a child, you have a choice between the in-group and the out-group. More than likely, especially in grade school, you badly want into the former, and would very much like to avoid the latter. The way into the first? Dress right. By “dress right,” it’s meant that your style match the in-group’s. What are they wearing? Well, at least for a while, it was Hilfigger or whatever derivative mess. So, you can choose. In-group, or something else – different brand, no brand, whatever. Yes, there is a choice. On the other hand, the brand name choice doesn’t always boil down to what product you’re buying, but the lifestyle you want to present yourself as having, and the social options that opens (or closes) to you.

That doesn’t mean you’re buying things you actually loathe and somehow you’ve blinded yourself to that—though I have met people who buy these brand names for the above reasons but privately confess to not really giving two cents either way. There is to a small extent some mutual coercion going on, or companies wouldn’t hire individuals to trawl forums and post up supportive messages, nor would they hire advertisement agencies who use “viral marketing techniques” to disseminate favorable information on products along formerly trusted person to person channels. That doesn’t mean people still don’t have the power of choice, but one should be honest about the real choices being made. Brands don’t give companies control over consumers; companies could only wish for such influence. Brands do, however, exert a powerful image, for the better or worse when it comes to the company’s bottom line.

As an aside, I’d be curious to read what Wolf keeps sourcing when he talks about the Brent Spar platform. I’d like to know if it really would have been safer over all to let the whole thing molder away in the ocean.

Wolf’s talk on FDIs “exploiting” small governments makes me think of what I mentioned in class last Thursdays. No matter what Wolf says about the power countries have versus the power companies have, it’s indisputable that companies do have a lot of political power. Otherwise the pharma lobby and the agricultural lobby in the US wouldn’t have such sway, and it would be highly unlikely that a policy like TRIPS would be holding less developed countries back from making much-needed medicines (plus, generic brands here would pop up much sooner, too, for those among us suffering the high cost of living while sick). Yes, many of these negative outcomes, including narrow EPZs, are the acts of government, but they’re the acts of government responding to what seems to attract companies to plop down much-needed factories. Are these governments necessarily the most stable in the world? No. But nor are they always the most egregiously unstable. Many of the complaints critics make might be better aimed at the governments making the poor choices contributing to some of the conditions they rail against; I think it’s those conditions, which Wolf admits, that really need to be considered—but the fact that much of the issues stem from (I hesitate to write it, but…) poor government decision making rather than direct corporate action doesn’t mean critics’ claims are as simple to dismiss as Wolf keeps making them out to be. The aim is crooked, but the thoughts aren’t all totally bent.

Usually I agree with the idea behind “Don’t let perfect be the enemy of good.” However, I’m not at all convinced by Wolf’s argument about working conditions. Okay, so these foreign investors treat their workers slightly better than domestic companies. That’s nice. That’s not good enough. I won’t trifle with the wage argument; I don’t really have a quarrel with what people are being paid. What ethical treatment concerning workers consists of doesn’t change from country to country based on working conditions. That’s a relativist argument where there should be none. In Country A, you work your 12 hours a day in a factory, have lunch in the middle, get a pat on the back and a check at the end. In Country B, you work your 8 hours a day in a factory, maybe allowed to bring food in with you to eat as you work at midday, are forced to work overtime for pay or not, get a punch in the stomach and a check at the end. In Country C, you work your 12 hours a day in a factory, may or may not get a lunch break in the middle, and get a slap in the face and a check at the end. (If you can’t tell, these are totally fabricated examples.) Most people would seriously consider A the best of all worlds here, but if you had the choice between B and C, you’d definitely work C and call that the better job. No one would disagree, really. That doesn’t change the fact that the slap is wrong. Foreign direct investor companies should be held to the same labor treatment practices everywhere (and I’m still not talking about wages, that’s a whole ‘nother kettle of fish).

And that’s all I have to say about that tonight.

The Dollar

Something that came to mind while thinking about the global reserve system's effect on the dollar (and visa versa). I read Eric Schlosser's Reefer Madness this summer during my tour of the US for the JASC conference. An interesting point it brought up was the possible effect of the 500-euro note in the unofficial economy--the ever-popular $100 bill we see in neat stacks in the briefcases of movie criminals may soon be replaced with that 500 note, which is a tidy store of value. The excerpt can be read here.

Meanwhile, the ever-present talk of airlines and Boeing make me want to watch Casino Royale again.

Venezuela and others [May 10].

So, of course we've already talked about Venezuela's pending withdrawal from the World Bank and the IMF, but the Stiglitz reading really makes it relevant. Venezuelan Finance Minister Rodrigo Cabezas that there is absolutely no question that Venezuela will honor its debts, and of course bondholders will not rashly pull out as soon as the country breaks away from its international lenders. Well, Venezuela did pay its debt back early in 2006, so it seems like there's a good case to believe them here. On the other hand, they've also negotiated to reduce repayment before using the spectre of default, and this time, again, around $21 billion is at stake because of President Chavez's announcement, a not at all insignificant amount of money.

I always get the giggles when I find online articles from the 90s; here's one on the bailout situation in South Korea in 1997. The article details the strict policies IMF forces on borrowers, including the old-school classical practices of reduced government spending and higher taxes. Something interesting to note is that at the time, unemployment was only 2.5%, a figure we could only dream of--and the IMF's policies threatened to drive it up to 7% (that's only a little less than half the unemployment that led to the premise of Koushun Tamaki's 1999 novel, Battle Royale. How much effect did the economic crisis have on the creation of that work?).

Another point mentioned in Stiglitz: debt relief for Iraq. Interestingly, Saudi Arabia has written off around 80% of the $15 billion Iraq owes them; now we're in the symbolic paper-signing stages of additional debt relief, as well as whatever concessions anyone can ring out of the country. One individual from the omniscient Rand Corporation is quoted as saying that this agreement doesn't matter, as Iraq isn't currently paying back debts anyway--unsurprising, considering it's still an occupied nation with all sorts of violence still happening on its soil. Perhaps when it can manage a stable flow of crude oil out, it will be able to take advantage of some of that debt relief (though relying solely on oil could probably prove calamitous for them, what with the ever-shifting value of it).

An article from Reuters on Stiglitz offers his criticisms of the IMF and the World Bank in a nutshell; Europe needs to stop appointing the head of the IMF, and the US needs to stop appointing the head of the World Bank. The Wolfowitz debacle, according to him, is just one more log on the fire.

Yesterday, the Prime Minister of Macedonia announced that his country will be paying back its debts to the IMF early, which could save it up to $9.4 million this year alone, according to the article. It's interesting that the IMF, whose nominal goal is to help countries develop with repayable loans manages to lend in such a manner that debt accrues through that compound interest. Of course, on a scale of hundreds of millions to billions of dollars, such a burden metastasizes rapidly, and is only worsened by any whiff of crisis that causes all the fluid capital to flow out as through a bottomless bucket.

Another comment on service industry and technology.

I'm sure Mr. Ramirez can work from home by playing baseball online with the X-Box. Which begs the question: why not just hire a thumb-jockey in India to play baseball for your team instead? He won't ask you what the A button does.

Pray this doesn't become the cinematic manual your employers follow when they want to make sure they have a lean, mean workforce.