Putting myself out there

Fieldwork is an isolating experience. Although I am constantly surrounded by others as I seek to interact with and learn from them, I am always aware of my outside status, exaggerated by frequent note-taking which keeps me alert, but somehow separate from the spontaneity of the present.

I am writing often, but only for myself, ideas destined eventually for my supervisors and few others. To start communicating more widely I decided to resuccitate my old blog from travels in China so I can keep in contact with others on the outside and get into the habit of sharing my ideas. 

Economic Theory, Development and Values

Right now I'm in Iringa, Tanzania studying and teaching a module on economic anthropology at Ruaha University College. There are many students here who have come to study business. I hope to learn from them about their own economic values and what they have taken away from studying economics. Does it fit with their existing views? Does it change the way they view economic relationships? I have already seen that while the traditional culture is built on extended family and community, the society seems to be becoming more individualistic. How much of this could be due to the assumptions of neo-classical economics that have been introduced through policies and education? I hope to empower the other students to think critically, question economic theories and consider equally the economic values of their own culture, especially when they graduate and become leaders in the Tanzanian economy.

I'm interested in the studying the social changes that accompany development, not because I think that traditional societies should be preserved in a ‘natural’ state and protected from change, but because in many cases development happens according to policies devised by powerful, industrialized nations that ignore local desires (e.g. World Bank and USAID projects). The word ‘development’ itself includes a value judgement, assuming that we in the industrialized world have ‘made it’ and that all societies must follow the same economic path.

Even if we could prove that the economic system of the industrialized nations was ideal – which is made more questionable given the recent economic stagnation in Europe and the United States – it can be argued that development programs facing countries in Africa and Latin America are based on economic policies that we do not adhere to ourselves. Many, for example Joseph Stiglitz, have criticized the free market policies of the World Bank and IMF because developed countries still practice some aspects of economic protectionism. Others, like Karl Polanyi, pointed out that when developed countries first industrialized there were a number of protective measures in place (that are currently denied to many developing countries).

           

It is also possible to question the soundness of the underlying assumptions that led to theories of market equilibrium and the notion that free markets will result in desirable economic development. While a critique of general equilibrium theory can be made directly through economic analysis, my aim is to question some of these assumptions through the study of economic anthropology. Existing works in economic anthropology already address some assumptions, for example in Stone Age Economics by Marshall Sahlins, it is possible to see that levels of demand are culturally determined and the notion of profit seeking is not innate, but seems to be an aspect of the modern economic system.

There has also been criticism of the current metrics used to measure development, with a focus on overall economic growth as measured by GDP and other similar figures. Even if a free market system is more efficient, as claimed by economic theory, and leads to overall economic growth, there is nothing within economic theory to account for the equity or distribution of that growth. Structural adjustment programs are known to cause hardships for the poorest people, whom development is often supposed to help most. The recent financial problems in the US, for example, have also proved that it is possible to have economic growth without job growth and in fact increase both the wealth gap and poverty.

The financial crisis in the US and the wide-spread economic stagnation that has resulted may also indicate that our economic system is not ideal. If this is the case, then perhaps we can learn from the economic values of people in other societies. And certainly, we should not impose our values on others if they have not proved to be sustainable here. My question for future research is to understand how modern economic theory may actually be performative. That is, in what ways does the study and application of neo-classical economics actually change the way people view and interact with the world around them?

IUC Inauguration - Is big government back?

I had the honor this morning to speak as a student represtentative at this year's academic inauguration ceremony at the IUC. The topic, mentioned above, spurred a lively discussion of the role of the government especially after the crisis last year. Giuliano Amato gave a fascinating speech concluding that we have an imbalance today with not enough regulation in the market. How can we provide umemployment benefits, when we don't provide ex ante policies that protect employment? How can we have competition without enforcing anti-trust laws? In his view, freedom has become power as we no longer care for our community or the future. It was not easy following such a brilliant lecture, but luckily my speech was already written so I didn't have a chance to worry too much. Here is what I had to say on the issue:

Rhetoric and Reality in Big Government

I would like to contribute to the discussion this morning by speaking about the rhetoric and the reality of big government in Europe and the United States. As we have seen big government may be understood as government involvement in the economy, which may be through regulation or through direct control of certain sectors and the supply of public services.


The size of government budgets have actually been growing since the end of the 19th century. This represents spending in areas like education, retirement or healthcare, areas which were previously left to the market. Although there is a notion that government began to get smaller after the 1980's along with privatization and deregulation of some sectors, it was really just a slowing of growth rather than a decline. For example, in the United States the total government budget was less than 10% in 1910, around 25% in 1950, 35% in 1980 and by now it has increased to just over 40% of GDP. In Europe we see a similar trend, with some countries reaching an even higher level of public spending. England, for example is similar to the US. Other countries like France and Germany are even higher, while the Nordic countries represent an opposite extreme of high government spending.

The recent financial crisis has had an obvious impact on government spending because of fiscal stimulus packages and increasing demand for social support programs such as unemployment. The US for example awarded 158 billion in 2009 on economic recovery (about 1% of GDP)3 while a total of 700 billion has been reserved for the bank bailout alone. Government debt as a percentage of GDP has also increased throughout the advanced G20 countries as a result of the crisis and is expected to continue growing over the next years. This will put an extra strain on government budgets as they have to repay those debts, possibly even at higher interest rates as the debt grows. Many other areas such as aging populations and increasing health costs will also add to budgetary stress.

Given these facts, what does it mean the when we talk about a re-emergence of big government? I think the real question we are trying to answer is, “What should the role of the state be?” When we pose the question as such, “Is big government back?” as it has been similarly posed in news magazines such as the Economist or Newsweek, we also hint at our political perspective on the issue, though the answer to the question about how large the state should be is not as clear cut as it may seem.

We may start by asking, what caused this increase in government spending in the first place? One economist, who conducted an analysis on the growth of public spending over the last century, concludes that an increase in democratic social voice, paired with prosperity and increasing lifespans resulted in this change. Helping others through social programs and other types of wealth redistribution would seem to be a positive development of the democratic state, but others argue that this increased social spending comes at the expense of overall economic efficiency.

These represent the two opposing views of the political theory of government: one which sees the government as a benevolent institution serving the desires of the public, and the other which sees the government as a Leviathan that uses its strength to extract wealth from the population. If we look back at the theories of public policy, we find that the benevolent dictator view was prevalent until the 1970s to 80s, and it changed around the same time as neoclassical efficient market theories came to be popular in economics.1 Although government budgets have been constantly on the rise, the theoretical change in the 1980s resulted in deregulation and privatization, the end of the traditional mixed economies that had been popular in Europe since the depression.

The Director of IMF's Fiscal Affairs department,Vito Tanzi is one who is opposed to high levels of government spending. He argues that increased public spending leads to increased inefficiency. On the other side of the argument is economist Peter Lindert, who's research into the history of public spending has found that over nine decades of data across countries, there is no evidence that increased government social spending had a negative impact on per capita GDP, but in fact he found that the opposite is true.

It is also possible to study the relative efficiency of government run programs versus privatized versions. Results are mixed, but it is not always true that the government is less efficient. For example, in Canada part of the rail system was privatized and part of the system remained public. Joseph Stiglitz determined that the public and private parts had nearly the same operating costs.

Edmund Phelps, another recipient of the Nobel prize in economics, also noted that “...relatively capitalist countries are not distinguished by high levels of wealth. The somewhat more socialist economies and more corporatist economies of Western Europe reach wealth levels exceeding the levels in the capitalist economies.” Savings and productivity, which create wealth are the same or even higher in countries such as Belgium, France and Germany when compared to the UK, US and Canada.

Further, I think we face an interesting dichotomy when we look at the rhetoric and the reality of government size in the US as compared to Europe. Historically in the US government spending has been lower than in continental Europe, with the result that the US does not perform as well in certain areas where public spending is important. For example the private US health care system is more expensive and has a less favorable outcome. Educational outcomes in the US are also worse (in math, science and functional literacy). US poverty is higher and infrastructure in Europe also tends to be more advanced. If we look at an extreme example the difference is clear. Sweden is a country with unusually high taxes relative to the rest of Europe. The government spends much more to promote better health, unemployment, and retirement benefits than the in US. However it has been found to be just as successful as the US even in terms of innovation.

In the United States it is common to hear arguments against government spending, regulation, and public services. It's criticized as being inefficient and socialist or even “European.” For example, one news article in a popular US business magazine said that President Obama's plans to reform financial regulation and increase social spending are distinctly “French.” Despite this sarcastic attitude toward big government, in recent years the US has increased overall spending dramatically – from 35% in 2006 to nearly 45% projected for this year. Most recently the bank bailout, the planned jobs bill and the health care debate show that government spending and involvement in the economy are in fact growing.

Whereas in the US the crisis has encouraged the government to increase expenditures on social welfare, the crisis may have an opposite effect in Europe. While in Europe there has historically been a more positive attitude toward social welfare spending, this may be changing. And the ability of governments to increase spending, especially at time of crisis, may be limited because of European Union treaty agreements. This seems likely to be the case in Greece, where they need to freeze public sector pay, increase the retirement age and reduce benefits to deal with their budget crisis and keep in line with debt and deficit limits. Direct government involvement in the economy may also be limited by EU competition law. For example in Italy a law was passed last summer to privatize water as part of national legislation to meet the desire of having an open and integrated market.

Since the theoretical shift in the 1980's that led to deregulation and privatization we have come to a time where markets are increasingly strong and governments are relatively week. When states have high levels of debt their actions are limited and when strategic sectors are privatized governments have less direct control over the economy. But is this a trend that should continue?

I think that as we all deal with the aftermath of the crisis we're likely to see a moderate increase in government size (in terms of both spending and economic intervention), but it seems likely that our political ideologies will keep big government at bay. That is unless we find ourselves in the face of another shift in political theory, as is bound to happen from time to time.

Thank you.

So maybe we can't change the world

This week I had a really inspiring and humbling meeting with Ugo Mattei, the founder of the IUC and a renowned critic of modern theories of law and economics.

I met with Mattei to ask about his vision for making the world more fair and to find out what he thinks we can do to help. We had watched a movie about the impact of privatization in Argentina and Mattei spoke about how the law needs to be changed from having economics at the center, with profit growth as the ultimate achievement, to a new system that is more sustainable in the long term. I asked, but how can we change the laws when the people who make law are those that profit from them? He responded that what we really need is social change, not a quick fix as so many Americans are used to expect.

As we talked I went on about how I wanted to make a difference and what I thought I should study and then paused to wonder whether I really could have any impact anyway. He stopped me there and made a point that has both lifted a sense of burden and encouraged me to continue on in my quest. He said, but we can't walk down this path only with the intention to make a difference. We have to just focus on doing our own work well and then perhaps one day if a change comes we will be ready to take advantage of it.

My mom summarized this idea well, using a Buddhist philosophy. We have to live our lives taking responsibility for our actions, all the while letting go of the results. We can't be attached to the end product because then we may be disappointed or we may become lost along the way because our focus is distracted.

So now I feel somehow confident in my plans to continue studying globalization. I no longer feel like I need to know how I will make a difference, but by simply keeping my eyes and ears open I will be ready when my chance arrives.

Socialism vs. Capitalism: Does the system itself really matter?

I've been spending a lot of time lately thinking about what is wrong with our economic structure and how the policies of market liberalization and privatization have led to increasing inequality throughout the world. It seems that the belief in market efficiency that has led to this policy serves only to concentrate wealth in the hands of few who are already wealthy enough to afford to purchase these valuable resources once they are made available on the market. This belief that an efficient market will create wealth and spread welfare is flawed, I believe, primarily because the incentives for any single firm do not correspond with the incentives for the overall economy of a nation or the world as a whole. If a single firm chooses profit maximization as its main priority, as is encouraged by corporate governance laws on directors duties to shareholders, then they are likely to reduce wages and labor supply if possible and purchase goods from other countries where they are less expensive. However the impact on the local economy or even national economy can be negative because of the impact of job loss and/or wage reduction on overall demand.

I was fortunate to learn about these economic theories in class with Professor Joseph Halevi so at the end of the course I asked him if he had any ideas of how we may be able to regulate or influence the incentives of single firms to make them compatible with an economic ideal of full employment and growth for the whole economy. His reply, though not exactly an answer to my question, sums up the issue very well: the economic policy that is put in place reflects the current political mood and beliefs of the time, so even if it would be possible to change the incentives it is unlikely without an overall change in our political culture.

And actually, perhaps in that case we wouldn't need regulations at all! It seems that we are stuck in a catch 22: regulation is necessary because the current system is unfair, however regulation is not possible because it goes against the current belief system which is again the result of our current system. It also reflects the age-old problem of the chicken and the egg. Is the economic situation unfair because the system itself is flawed, or is the system unfair because our society simply does not believe in fair distribution of wealth?

I was inspired by this short clip of an interview with the Dalai Lama:

Dalai Lama - Capitalism, Socialism and Income Inequality

He also agrees that the system itself is not as much an issue as the society and motivation of individual actors. Perhaps we all need to take a moment to consider our own objectives. Are we greedy? Do we think we are better or more deserving than others? If we do believe that everyone is equal and has a right to a fair share of global wealth, then what can we do to spread this belief? Let's see what we can do to change the system from within by first taking a close look at our own desires and changing them for the better.

Is Profit Moral?

I recently saw this question posed and I've been mulling over it for the past week or so.  The problem is, I do think that a certain level of profit is immoral or at least becomes exploitative, but where do you draw the line?  How can anyone make a judgment on when profit is too much without being discredited as a crazy left-wing socialist?

The issue popped into my head again this evening while I was reading this article by Maureen Dowd: "Virtuous Bankers? Really!?!" (http://www.nytimes.com/2009/11/11/opinion/11dowd.html?em). She points out that while the banks believe they are providing a virtuous service - providing capital to spur economic growth - in fact the banks are growing and profiting while the real economy itself is faltering, with rising unemployment and underemployment. 

Despite myself, I have to agree on a certain level with the CEO of Goldman Sachs, that banks provide an important service for the creation of wealth and along with it jobs, though in this case that hasn't been happening.  We are back to the issue of how much profit is too much?  When do the banks stop providing a valuable service and become just plain greedy?

In the end I think that profit and morality are actually unrelated.  I don't believe that you can say profit in itself is immoral.  Without profits there would be nothing to invest back into the economy and create growth to improve living standards or grow society.  Perhaps the problem arises when people who already have enough, more than they need, continue to accumulate wealth for themselves, rather than sharing it with the broader community. 

In conclusion, some words on greed from a wise man: "But if they perished, in his possession, without their due use; if the fruits rotted, or the venision putrified, before he could spend it, he offended against the common law of nature, and was liable to be punished..." - John Locke, Second Treatise of Government (1690)

New Journey, New Questions

My newest adventure officially began about one month ago when I arrived in Turin, Italy for a 2 year master program in comparative law, economics and finance.  But the story really began 6 years ago in New Zealand when I took an anthropology class on the legacies of colonialism.  It was the first time that I could see for my own eyes and start to understand the negative side of globalization.  Although it is often portrayed as a neutral process, it is largely the result of political and economic policies that are intended to benefit the countries that have enacted them (i.e. the wealthy nations on the West). 

My application to the program at IUC Torino was largely based on this experience:

"We learned about how the structures set up by colonial governments continue to control local people through IMF and World Bank loans among other means.  And the impact goes beyond financial or governmental control as many people willingly adopt Western culture.  At times this new global culture of materialism seems inevitable. It seems that some people are destined to poverty while others can have it all.  However I believe that it could be possible through regulatory action to slow down the procession of money and resources into the hands of the rich.

"Many would argue that capitalism does not need to be regulated because the system is self-regulating, but the system as it is does not seem to be working.  Although some externalities, such as pollution may be taken into account to shift supply and demand, the welfare of individuals is not as easy to quantify and not generally considered as an externality.  In addition, there are actually many regulations in place that prevent the system from working fairly.  An example close to home is the impact of US farm subsidies, which prevent other countries from being able to produce goods at a competitive price for export.  It is clear that the odds are stacked against small players.

"I think that a large barrier facing anyone who wants to challenge the current system of global capitalism is a general lack of understanding.  I was struck by a particular phrase when reading the introduction to Plunder, specifically that most Western intellectuals do not recognize that underdevelopment in some parts of the world is directly linked to the rapid development in the West.  After an undergraduate course on the legacy of colonialism, it seemed all too apparent.  I have to wonder then, why is it that most intellectuals fail to make this connection?  I think there are a number of reasons, the first of which must be that many are happy not to question a system that works in their own favour.  In addition, there are many mechanisms by which research may be prevented or discredited.

"I have known two professors who conducted research on how governmental or economic policies impacted local people.  Both were denied visas to return for further study.  Another professor, who taught one of the most popular classes at Dartmouth, was denied a renewal of his contract because, by his estimation, his theories were too ‘liberal’.  His course on American foreign relations from 1945 was very enlightening and the first time I learned about the military industrial complex in any detail. An overarching theme of the course was the use of American military power, whether or not it was legal and how it was justified.  There are many examples of questionable application of international law, for example carpet bombing in Laos during the Vietnam War.  And although America is portrayed as a force for good, we have to question the true goals of American foreign policy.  I can understand that we want to encourage a world where America can be prosperous, but then the question becomes who exactly is it in America that prospers?  What I took away from that course is that the corporations at the heart of the military industrial complex have much more to gain from recent foreign policy than your average American.  I do not know why Dartmouth decided not to renew his contract, but I could imagine that such a topic is politically unpopular.

"In order for change to occur there needs to be a broad understanding of how the current system of global capitalism works.  I think that the current economic crisis provides the perfect backdrop to bring this issue to the forefront.  Many people who were previously happy not to question the status quo may be asking themselves if there isn’t a better way of doing things.  I would like to take advantage of this opportunity to learn as much as I can about the means available to fix what has gone wrong and then share this information with others."


My courses this semester on the Patterns of Imperialism, the Legal and Economic Institutions of Capitalism and Financial Market Regulation are all giving me the opportunity to understand the global financial system better, which is exactly what I was hoping for.  But I am also finding many more questions than answers. 

I wrote at the end of my essay that my intention is not to argue against capitalism.  However at this point I'm not entirely convinced that capitalism can be regulated in such a way as to make it fair.  If the system needs to be regulated in order to be fair, then there must be something else that would work better.  As one visiting professor said recently, I don't know what that is, but I would welcome your suggestions!

Many more questions to be answered, but I will keep exploring and searching for the truth...