Wednesday, May 5, 2010

Populism and fiscal policy

Fiscal populism is always dangerous but the populism engaged in by the left is more dangerous than the center-right variety. Typically center-right governments simply bribe the middle class by offering 'free' services, subsidies and other benefits in return for votes. Left-of-center governments tend to bring into play not just greed but envy and resentment, demonizing big business and the rich.

Often they are driven by ideology in this, and are signalling to their core constituencies - radical elements and organized labor - that they have not been forgotten despite the compromises that being in power usually requires.

Recent verbal attacks by the Obama administration and various European governments on banks and bankers are examples of this kind of populism, as are this week's rhetorical assaults on mining companies by Australia's big-spending, left-wing government, and their announcement of a 40% 'resource super-profits tax'. (Already announcements have been made by mining companies that various Australian projects are not to proceed or are being reviewed.)

Does democracy inevitably lead to such populism and ultimately to government indebtedness and lower living standards? Or can voters take the long view?*

It remains to be seen if the tea-party movement and other advocates of smaller government in the US will have any real success. I suspect that the US debt is just too large and the measures required to fix it will be too painful to be carried through. Similarly I suspect that the Conservatives in the UK will provoke huge amounts of public anger if indeed they have the courage to tackle the UK's budget problems. [Added later: I guessed (wrongly) that the Conservatives would get an absolute majority. The hung parliament - and the prospect of another election within a year or two - makes the UK situation even more dire.]

A recent poll in Australia suggests that the fiscally responsible conservative coalition which was in power from 1996 to 2007 has a chance of winning an election to be held later this year, as the current Labor Party government seems to be losing credibility after introducing a string of ill thought-out programs and policies culminating in the new resource rent tax.


*It's worth noting in the current context that many of the European neo-liberals who advocated a return to market principles in the 1930s and again - with rather more success - after World War 2 were decidedly wary about majoritarian democracy, seeing it as posing a very real threat to responsible long-term thinking and decision-making on the part of political leaders.

Sunday, April 25, 2010

The shape of things to come

The world is changing - perhaps more rapidly and dramatically than at any time in recent history. The fiscal problems of a number of Western democracies are hugely significant - Greece is the canary in the coal mine. The shift in economic power towards Asia is likewise a very big deal.

Questions may be raised about whether Western democracies will be able adequately to deal with the current economic, financial and social stresses; whether the polarization of opinion evident in the US and elsewhere is a symptom of deep problems, a sign of things to come.

I will return in future posts to social, ideological and psychological issues. For now I just want to consider some data which indicate big changes in patterns of global prosperity.

Very recent figures have suggested that Asia is recovering well from the global financial crisis, just as Europe faces debt emergencies and the US remains sluggish. The just published IMF World Economic Outlook notes that Asia is staging a vigorous and balanced recovery.

I have been looking at some earlier IMF forecasts for relative GDP growth (but given recent data the predictions for Asian growth are probably understated).

Even before the Greek and other European government debt crises came to the fore, Europe was clearly on the wane. In 1991 it accounted for 29% of global GDP. The IMF prediction for the Euro zone plus the UK for 2014 is just 22%.

US figures are no more reassuring. In 1991 the US share of global GDP was 25%; in 2000, 30%; in 2014, according to the IMF, it will be 23%.

Most of the GDP growth during this period has been/will be occurring in Asia. China will leap from 2% of global GDP in 1991 to 11% in 2014. Add in Hong Kong, Taiwan, India, the main South-East Asian countries, Korea and Japan and that number goes to 27% of global GDP. And this is not counting Australia and the vast, energy-rich regions of North and Central Asia.

I mentioned in my last post that Asian stock markets now account for 32% of global market capitalization, while the US has fallen back to 30% and European markets to 25%.

The trends are clear. With increased economic power, the Asian region will become not only more prosperous but also more politically powerful and culturally influential. Conversely, Europe and the US will see their power and influence and prosperity in decline.

The relative GDP declines for Europe and the US coupled with large budget deficits and unsustainable levels of government debt portend not just a loss of global power and influence, but also increasing domestic social and economic stresses which may lead in some countries to a vicious circle of public anger, polarized opinion, instability and strife.

Monday, April 19, 2010

Time zones and global business: the rise of Asia

Communication technologies have tamed the tyranny of distance. No amount of technological innovation, however, is going to change the fact that everyone needs to sleep. Nor the fact that most people like to party. Nor the fact that the general prejudice is to indulge in these activities at night.

The implications of these facts for global business are profound. Clearly there is an advantage in terms of timely information and communication for anyone whose livelihood involves global markets to live in or near the time zone which is the most significant in the daily global trading process.

The European time zones once saw most of the action. For the last century or so, New York has set the pace for the markets. Only now are the Asian time zones coming into their own, incorporating as they do a disparate range of territories that are either resource rich (like Siberia in the north and Australia in the south) or resource hungry (like China, Japan, India and South-East Asia).

Robert B. Zoellick pointed out in a recent speech that the Asian stock markets have already overtaken the US - they now account for 32% of global market capitalization, ahead of the US at 30% and Europe at 25%. Also China has overtaken Germany as the world's leading exporter. http://voltairenet.org/article164965.html

How convenient or inconvenient are Asian business hours for inhabitants of the US and Europe? Despite Europe's relative proximity and geographical connectedness to Asia, the time zone situation seems to favor the US (at least the western states) over Europe.

In order to operate during Asian business hours, a Londoner would have to start work just after midnight; someone in Washington State, Oregon or California has the altogether more appealing prospect of starting mid-afternoon - albeit on the previous day!

Monday, April 12, 2010

Mulish economist sticks his neck out

J. Bradford DeLong describes himself on his website as fair, balanced, reality-based and mulish. In a recent post he makes a rather too grand and sweeping claim about the three (!) causes of recent economic progress, but his piece is worth looking at. Needless to say, it prompted a slew of comments (on his blog) from historians and others basically saying, hey, what about the Anabaptists, what about electromagnetism, or whatever their hobbyhorse happened to be. (But some of their suggestions - like electromagnetism - are compatible with his thesis.)

So long as "all goes well in China and India" and "nothing goes catastrophically wrong" in North America and Europe, DeLong claims that "the next generation will reach a milestone."

"For the first time more than half of the world will have enough food not to be hungry, enough shelter not to be wet, enough clothing not to be cold, and enough medical care not to be worried that they and most of their children will die prematurely of micro-parasites."

Of course, they will still have to deal with - or, as he puts it, "dispose of" - "thugs who used to have spears but will now have cruise missiles and H-bombs - that is, the macro-parasites that have infected humanity ever since the first farmers realized that having crops took away the option of running away into the forest."

DeLong tries to figure out why this is happening only now, and concludes that three crucial factors occurring all at the same time, the latter part of the 19th century, created a "critical mass and the chain reaction that has brought us here."

The three elements were the advent of global communication (new ideas could spread quickly round the world); global transportation ("any good idea could be put into practice to produce enormous profits as it was leveraged across the entire globe"); and the rise of inventors and industrial research laboratories (thus creating a class of people whose business it was to sustain "the process of continuous and constant invention...").

Certainly science and technology - and innovation, which is part of the culture of science and technology - lie behind the world-changing events of the last century or so. What remains to be seen is whether systems such as Chinese state capitalism, as it evolves, will allow sufficient individual freedom to encourage the high levels of invention and innovation which have been the hallmark of European and American civilization.

Tuesday, April 6, 2010

Privacy and freedom

There are too many aspects of privacy to capture in a single framework. A few examples will illustrate its multi-dimensional nature.

Human individuals are, first and foremost, interacting and communicating bodies. And the fact that we cover certain parts of our bodies in public, and generally do not perform certain bodily functions in the public gaze is, perhaps, the beginning of privacy. A natural extension of this in most societies is the physical and social privacy afforded by the family (or the individual's) home.

Psychological privacy is a difficult notion to pin down. Some psychologists postulate privacy as a universal need. There are recent claims that when the private realm of a child is not respected non-compliant behavior and even depression ensues.

But there is disagreement about these issues amongst researchers. Alan Kazdin of Yale University (see link above) claims that both children and adults will willingly accept intrusion upon their privacy and autonomy so long as it is done in such a way as to maintain a self-perception of autonomy. In effect, he rejects the need to postulate a protected, private realm in order to explain behavior.

Cultural diversity, which can be extreme in these matters, further complicates the picture. Literacy and other cultural and technological innovations are hugely significant in creating scope for individual activity which does not exist in, for example, traditional hunter-gatherer societies. But even in technologically advanced societies there are marked differences in the degree to which privacy and individual freedom are valued and incorporated into social behavior and thinking.

If the psychological dimensions of privacy are confusing and culturally diverse, there is at least a degree of clarity and consensus on the legal front. Most legal attention is accorded to professional, financial and bureaucratic contexts. Professional confidentiality increasingly merges into the realm of personal data and information which is the subject of extensive privacy legislation in the developed world.

The individual, through his or her multiple connections (as client, patient, member, license-holder, etc.) with multiple professionals, businesses, government departments and associations, is the center of a complex web of (often interconnected) electronically stored information covering identity, medical, legal and financial matters, commercial transactions and a vast array of professional and leisure activities. Clearly, access to and control of this information must be tightly restricted if the law-abiding individual is not to be subject to very serious threats to his or her autonomy and financial well-being. This may be understood in terms of the individual possessing - by virtue of the operation of conventions and laws relating, for example, to privacy and property - certain negative freedoms (freedom from being dispossessed etc.).

It is undeniable that, at a practical level, an individual's freedom and welfare depend upon the protection of certain kinds of information, and, in this sense, privacy may be seen to underlie human freedom.

There is no single right to privacy. Rather, there is range of privacy conventions, implicit rules and laws, many of which imply or confer rights (though generally not absolute rights); and these conventions and laws help to create a space - or rather a series of spaces - for the individual to operate unencumbered.

A mundane view of privacy, a modest view of freedom, but none the worse for that.

Tuesday, March 16, 2010

Nonsense on stilts?

Jeremy Bentham dismissed the 18th century equivalent of our notion of human rights as 'nonsense upon stilts'. That judgement may be a little harsh, but the notion of rights certainly is in trouble.

For a start there is the problem of 'rights inflation' whereby more and more supposed rights are added to the list, undermining the credibility of the concept.

Then there is the tendency to ascribe rights to people who can't understand the notion (e.g. infants, or the severely mentally disabled), and even to animals. It is at least questionable to speak of a being having a right who cannot understand that he or she has it and to whom it would be absurd to ascribe obligations. The case of infants and children deserves special treatment - they at least will in time assume understanding and obligations.

There is always the option of reverting to traditional ways of speaking, of course, and, for example, simply proscribing cruelty. We can be perfectly humane without rights talk!

Another problem with the rights notion is that it arose in a world with different belief-structures. Rights were seen to derive either from God (God-given rights) or from a metaphysical notion of Natural Law, which is not the same as the 'laws' of science but a transcendent moral system. For those who believe in God and/or something like a transcendent and morally-based Natural Law, the notion of universal human rights makes some sense - but there still remains the problem of knowing exactly what these rights are.

For those who don't believe in such a spiritual realm, human rights are even more problematic. What is their source?

One could say they arose historically and are a product of civilization, but the very fact that the notion has been debased by rights inflation etc. is an indication that other ways of talking about the issues in question are called for.

Rights talk, however, still has a place, but perhaps a less exalted one than has been fashionable. I suggest that it arises naturally from the implicit rules which govern human interaction. Queuing is a typical example. One has the right to be dealt with before someone who arrives later; they have no right to push in.

In the same way that rights arise from implicit rules of behavior, so, of course, they arise from explicit laws, regulations and legally-enforceable charters or bills of rights. The extent to which rights-specifying laws are well-grounded and respected are important issues, as is the possibility of unintended consequences, such as the rights assigned to one group infringing on the rights of another, or, in the case of bills of rights, the possibility that they may undermine rights that existed under the pre-existing legal status quo.

In general, negative rights (rights not to be interfered with) are less controversial than positive or benefit rights (rights to some good, e.g. food or education). The burdens on other members of the community are less onerous in the former case, though someone's right always entails someone else's obligation, as well as, arguably, (future) obligations on the holder of the right.

One (negative) right which is particularly interesting is the (multi-dimensional) right to privacy. Though culturally relative - there are huge differences in notions of privacy in different human societies - it is one right that is clearly applicable only to self-aware beings. Nobody advocates granting this right - so far as I know - to animals, and it applies only in a tenuous sense to human infants.

Thursday, March 4, 2010

Remnants of ethics

For some, moral or ethical considerations are paramount; for others such notions are problematic hangovers from a more religious age and not really relevant to their lives. In the context of business there is a lot of talk about ethics and social responsibility but much of it can be seen as window-dressing. Are ethics and morality ultimately empty concepts?

The concept of law is sustained by a powerful set of very visible institutions: legislatures, law courts, prisons and police. By contrast the concept of morality might look a little questionable (at least to those who don't believe in supernatural rules and judgements). I think part of the problem is that the terms 'ethics' and 'morality' have been asked to bear more weight than they can in fact sustain in a secular age.

If they are taken in a pragmatic sense, however, they can still be useful and meaningful. To this end why not see morality as just (part of) the set of implicit rules of behavior which exists in any society, specifically the subset relating to not harming others, and helping others in certain circumstances? This informal system will of its very nature be difficult precisely to define and delineate - with culture-specific systems nested within other culture-specific systems and all within a broader system defined in terms of our shared genetic inheritance - but few would deny that social life is characterized by particular habits, customs, expectations, etc., some more or less universal, others very localized; and also that these behaviors may be conceptualized as implicit rules.

It is an advantage of an implicitly rule-based understanding of morality that it naturally gives rise to a viable notion of rights, in which rights go hand in hand with reciprocal obligations. Such an approach avoids the 'rights inflation' and empty rhetoric evident in much contemporary discourse.

Seeing ethical systems as rule-based may, however, strike many as somewhat heartless and cold. Is it not important to empathize with others? Is this not indeed the living core of ethics and morality?

Empathy is of course essential, and it is built into the 'rules of the game'. People who lack empathetic feelings - like those with autism spectrum disorders - are clearly handicapped in their ability to understand the rules and to participate fully in social life.

But the ambitious and demanding empathy-based ethics characteristic of religion and left-wing politics is something else again, and it raises certain problems. For example, an individual who embraces such an approach and identifies with the poor, the suffering and the oppressed might be constantly weighed down by the cares of others. Given the vast amount of human misery, this burden can easily become unbearable.

In the traditional Christian context the burden is eased somewhat by a belief in the efficacy of prayer and in divine providence; in the context of radical politics, ideology and political action may serve to fill the vacuum left by the loss of the spiritual dimension.

These are deep and difficult issues which individuals must face in the light of their own priorities and judgements. My contribution is merely to suggest that a more modest view of morality as a component of the complex and nuanced systems that create and sustain the social order may work for those whose worldview precludes belief in divine providence or a future proletarian paradise.