Wednesday, April 1, 2015

Corruption and reform in the US history

In the book edited by Edward L. Glaeser and Claudia Goldin “Corruption and Reform,” the authors and editors  claim to analyze how the USA successfully defeated corruption during the Twentieth Century, as a lesson for developing and transition countries that are now struggling to defeat corruption. However, what more recent evidence (see the movie “Inside Job”) shows is that corruption in the US has mutated into new technologies and forms, but not disappeared. It is true that machine politics, bribing and local patronage are less blatant than one hundred years ago, but today instead we have revolving doors, massive lobbying and campaign finance (not only in the US) through which the minorities try to influence the choice of the majorities (that is, trying to buy policies). However, there is much to learn from the book, with good descriptions of machine politics and phenomena like the “Curley Effect.” Curley was the mayor of Boston from Irish origin that was immortalized in the cinema by Spencer Tracy, who preferred to impoverish the city to get rid of those sections of the electorate that would never vote for him. The book reminds us of Tammany Hall and similar machines devoted to providing private goods (mostly jobs) to mobilized political agents, and it tells us why it was forces like the  Progressive Movement that pushed many times unsuccessfully for reform, which finally mostly came from the New Deal policies of Roosevelt. A very interesting topic in the book is why corruption is compatible with growth. Although without corruption there would probably be more growth, there is little doubt that for many decades massive local corruption was compatible with economic growth and development. Growth attracts agents looking for rents, and rents are more readily available at the peak of political structures. The corrupt rulers are interested in keeping the machine delivering growth, and then extracting a good fraction of it for their own benefit. When growth is unstoppable for exogenous reasons, for example due to a technological or demographic shock, corruption is not strong enough to derail it (this has interesting microeconomic analogies: FIFA with current globalized soccer?).

Sunday, March 29, 2015

The international support for nationalist populism comes from Russia

Secessionists and other populist movements in Western Europe spend a lot of time and resources deploying an international diplomacy trying to find support for their causes. Often these strategies have a lot of posturing and are mainly addressed to a the local clientèle, but of course they wish to find someone relevant in the international arena that become an ally. In this sense, these strategies are in general a big failure: there is little appetite in developed countries for supporting the cause of groups that live in places that enjoy full respect of human rights and democratic freedoms. However, many of them have found one not always welcome support, namely from Russian nationalists. Marine Le Pen does not hide having received a loan from Putin's Russia, and The Economist recently reported on a variety of populist movements in Europe having links of different intensity with the Kremlin. Spanish Podemos has has also received the support of the chavistas in Venezuela, but probably the politically most interesting link of these groups is from the current Russian rulers and their allies. Another most distant but interesting example comes from Texas, where the Texan secessionists (perhaps the most important of secessionist groups in the US), also have links with Russian nationalists, as reported in this piece. Robert Beckhusen says in this post that "of all the strange political relationships, one of the strangest has to be the one between Texan secessionists and right-wing Russian nationalists. On March 23, the pro-Kremlin newspaper Vzglyad interviewed Nathan Smith, the third-in-command and chief of staff of the Texas Nationalist Movement. According to the paper, Smith is in Moscow to meet with the Anti-Globalization Movement of Russia — which supports separatist movements in eastern Ukraine.
Since last spring, Kremlin-backed separatists and Russian troops have fought a war with a pro-European government in Kiev. Smith didn’t take sides in the conflict.
Instead, he told the newspaper that Texas should secede from the United States to preserve its “cowboy” culture and to halt the state’s contributions to an “astronomical military budget.”
“I’m going to meet with a number of public organizations that are close to us in spirit and have common values ​​with us,” Smith told Vzglyad."

Monday, March 23, 2015

The politics of overcoming the infrastructure gap

I spent the last days of last week attending a great conference and meeting in Philadelphia on "Overcoming the infrastructure gap," organized by Vit Henisz from the Wharton School of Business at Penn University. I chaired a session on the "National political challenges" of the issue, with the participation of practitioners with experience and interest in finding formal and informal institutional solutions to the political challenges of public private partnerships (PPPs) in infrastructure.  Most of what I heard from these practitioners and the people who spoke from the audience (most of them American) is very different from the conventional recipes of "strong institutions and depoliticization." In particular, it was said that depoliticization is impossible in democracies (for good reasons), and that what must be done is to engage with stakeholders, anticipate problems and make sure that communities "own" large infrastructure projects from the beginning. I tried to drive the speakers also towards talking about the perception of corruption and towards the need to reform privately owned corporations and not only public bodies, but I found that difficult given the diplomacy of these events. But I belief (before and after this great event that I attended) that many of the doubts that public opinion has with PPPs have to do with the perception of the public that at least in some important cases these projects are associated to the practice of some private operators of at least lobbying governments to achieve private gains that are costly for the public. Efficiencies that can be contributed by private operators are necessary, but public projects in democracies should be "owned" in a general sense by society at large.

Wednesday, March 18, 2015

Israel: the defeat of the second best

I had hopes that Herzog might win the election in Israel. After a long decline of the Labour Party, in the last weeks polls suggested that he might become prime minister. I wanted to compare the Labour Party in Israel to the resurrection of the federalist liberals in Quebec some months ago. Although Labour obtained a good result, it will not be enough to oust Netanyahu from office. And that is even though the Labour Party mutated into a candidacy with nationalist resonances supporting a two state solution, which in my view is far from the first best: a one state solution, as it was supported in the past by intellectuals of the calibre of Tony Judt. But in the last decade it has become conventional wisdom that the best that can be achieved is the peaceful coexistence of two small neighbouring states, one mostly for the Arabs and one mostly for the Jews. The failure of civilization that this ethnic split implies has not stopped many civilized people from supporting it as the least bad solution for a land dominated by nationalism and violence. The decline of the Labour Party, which was a key element in the formation and the egalitarian dreams of the initial Israel state, has coincided in the recent past with an incredible increase of inequality, hand in hand with a radicalization of the nationalist right, leaded by Netanyahu. Similarly to Ireland, independence and nationalism have downsized the left and the centre left to a very tiny movement. I guess any attempt to overcome the current situation will have to use second best politics. But this time at least, not even that.

Sunday, March 15, 2015

Moral hazard and commitment

There is a common thread behind many microeconomic problems (with macro implications) in modern economies: moral hazard when threats or explicit contracts are not credible. That was supposed to be a problem of planning economies where firms where under the grip of the public sector. It was called the "soft budget constraint:" managers knew that they would be bailed out and behaved correspondingly in a not responsible way. With the hegemony of capitalism this was supposed to be a problem of the past. However, we have seen that “too big to fail” was a big problem in the last financial crisis. Banks’ managers probably anticipated that they would be bailed out and they relaxed their credit standards. But the same moral hazard is seen in PPP contracts, whereby private contracts may anticipate in some countries that they will be bailed out if there is insufficient demand for their services or if the costs turn out to be higher than expected (these are liabilities that lie off public budget when they should be in). The same happens in soccer or other sports clubs or events that expect that the public purse will be there if things become financially strained. The term moral hazard is the same used to analyze the problem in insurance whereby insured agents may relax their behaviour to try to prevent adverse outcomes that will be covered by the insurance company. And it is of course the same concept as the one used in agency theory (principal-agent problems) where unless there are high powered incentives (that is, some risk), agents will not work with a high effort. The are all hidden action problems, as opposed to hidden information ones. The orthodox solution to these problems is to commit to not to prevent bad consequences for agents when they do not achieve outcomes that are satisfactory enough. That is, the solution is to commit to extrinsic incentives, and also to resort to bureaucratic mechanisms that make sure on a day to day basis that the agents will not slack. A similar problem shows in the literature on federalism. The best federal systems are those where the federal level is able to commit not to bail out the federated units, so that these behave with discipline (and also, the federal level commits not to trespass the competences of the federated units). Perhaps a common perspective could help better analyze all these problems.

Thursday, March 12, 2015

Corruption at centralized and decentralized levels

Yesterday I attended at IESE the presentation of the paper on centralization and government accountability by Giacomo Ponzetto from Universitat Pompeu Fabra. The article, co-authored by Piolatto and Boffa, presents a model where less informed regions import institutional quality from more informed regions in a centralized system. They test their main prediction with data about the Clean Air Act in the US, where regions with less newspaper circulation saw larger reductions in pollution than other regions. The literature surveyed by the paper is very interesting, and I touched on similar issues in the past working both on federalism and on capture or corruption. Although the main mechanisms identified by the article are plausible, I have doubts that the model can be used to make a generic statement that corruption is higher at decentralized levels, as the anecdotal evidence presented seems to indicate. There is old work by economists Bardhan and Mookerjee, also both theoretical and empirical, showing that it is not possible to say whether capture or corruption are higher or lower at different governing levels. It depends on the type of corruption, and on the details of the media and political markets. I sympathize with the idea that countries like Spain import institutional quality when they are integrated in a larger Europe, and it is true that New Deal politics and other centralizing reforms eroded practices like machine politics and patronage in US local politics. But centralization replaces some corrupt practices by others, like massive legal or  illegal party financing or revolving doors. If Europe, as is desirable, keeps making progress towards a true federal state, it will have to be careful not to create newly adapted forms of capture.

Sunday, March 8, 2015

What the best college teachers do

Here's a book that all teachers at University should read. It is written by Ken Bain, an American history professor and expert in fostering teaching quality. It is the result of serious studies on the quality of teaching in US universities, using evidence from faculty members from many disciplines. It is a very well written book, far away from the bureaucratic style that sometimes affects the crusaders of new pedagogical styles. Its message is simple but at the same time not trivial. Good teachers do not believe that their teaching is about transmitting knowledge, but about collectively promoting a learning experience. Each of us should question his or her teaching habits and see how much they depart from the habits and ideas of the best teachers. In my case, I find comfort in finding myself in agreement with many of the ideas, mainly in treating students with respect and trying to promote participation and dialogue in and out of class. But of course I am far away from the best in that many times I still do too much "transmission" instead of collective learning. The book is not a list of recipes or techniques that will easily make us achieve better results in students' surveys. It is much more than that: it is a guide to help us think how can we be more effective at helping our students and ourselves to learn. As an endorsement says this book is "an inspirational summary of what teachers do that truly makes a difference in students' lives, and what any teacher can do to improve".