Sticking with the food theme, let me call attention to John Colapinto’s great article on the Michelin Guide in the recent New Yorker food issue.  There’s a lot in this article that should be of interest to org theorists and institutionalists, especially given former guest blogger Michael Sauder’s important work (with Wendy Espeland) on the U.S. News & World Report rankings of law schools.  In the piece, Colapinto gains access to a covert Michelin inspector, a task that fell to him after the famously secretive Michelin dragged its heels on letting another reporter talk with an inspector. In it, he describes a lunch at Jean Georges shared with “Maxime” (the inspector) and Michelin managing director Jean-Luc Naret, which he uses as an entry point for describing the way that Michelin recruits and trains its inspectors, its very French orientation to judging the quality of the cuisine and ambiance of the establishment, and the way that chefs and restaurant owners respond to the rankings.

The piece inherently raises a number of organizational questions, such as:

• How well do the cultural understandings inherent in an institutionalized rating system translate into new environments?  The more populist Zagat guides (or crowd-sourced websites like Yelp.com) seem to be much better suited to the U.S., although they too suffer from worries that interested parties will try to game or cheat the ratings.  On the other hand, the role of the disinterested, anonymous expert Michelin critic seems to encourage a sort of standardization.  A dish is either “right” or “wrong,” in true French form.  Indeed, as Rao has pointed out, French cuisine went through considerable changes associated with the rise of the insurgent nouvelle cuisine form, and in which those chefs who borrowed from a rival form of cuisine in their dishes became significantly more likely to lose a Michelin star as a result.  Consider the following case in which Maxime describes why famed Upper East Side restaurant Daniel scored only two out of three Michelin stars until very recently:

[It lacked] consistency — and accuracy… It’s just technical.  I mean, cooking is a science, and either it’s right or its wrong. And that’s something that’s very objective.  Either a sauce is prepared accurately — or it’s not.  A fish is cooked accurately — or it’s not. There’s the talent, the creativity that has to be applied to get a three-star — he has to be a very talented chef — but there was just a lot of inconsistency.

• Further, consider NYT food critic emeritus Frank Bruni’s thoughts on what gets lost in applying a universal standard:

… I wonder if a certain sort of chromosomal stodginess can ever really be completely leached out of the Michelin guide and the system. [...] The other thing that has always made me wonder about Michelin rankings is that they claim a lot of science to them, but is there a lot of soul to them? When Michelin describes its own system, I think, where is the allowance for just a visceral, emotional response to a restaurant?

• As Surowiecki notes about the worries many have about the impact of health reform, anxieties about losses tend to overpower the pleasures associated with potential gains.  Losing a Michelin star can be catastrophic for a restaurant in a concentrated market, even though being rated at all remains a considerable status marker.  Colapinto recounts the story of former La Côte d’Or chef Bernard Loiseau, who threatened that he would kill himself if he ever lost one of his Michelin stars.  Shortly after losing the star, Loiseau made good on that promise.
• Do the judgments of one rating system tend to spill over to others?  There’s indication in the story that the Michelin Guide has been struggling to build its legitimacy in the U.S. market since its arrival here in 2005, and that its editors feel considerable pressure when its ratings are inconsistent with those of Zagat or the Times.  They may, therefore, be more inclined to give an additional star to a restaurant others have rated quite highly, or to take one away for a negative reputation.

The Nature of Paleolithic Egalitarian Groups

In Part II of my essay, “Evolution of Democracy,” I discussed Dr. Doron Shultziner’s evolutionary thesis regarding the development of modern-day “liberal democracy.”  In this part, I shall look at Shultziner’s conceptualization of the way in which Paleolithic, egalitarian hunter-gatherer groups emerged and maintained their structure and functioning over thousands of years and how the mechanisms that developed were bequeathed to the democracies of the 20th and 21st centuries. 

Human societies in the Paleolithic era were quite small.  According to Shultziner…

The number of people in a foraging band did not usually exceed a few dozen. In these small nomad bands the acquaintance with other people was very close due to group size. Christopher Boehm [citation in original] says that these were “societies of equals, with minimal political centralization and no social classes. Everyone participated in group decisions, and outside the family there were no dominators.” Even after several thousand years of sedentary influence, only very few nonegalitarian foraging societies exist [citation in original].  In fact, social mechanisms that maintain the egalitarian structures are so intricate and culturally sophisticated that Boehm argues that these groups created “reversed hierarchies”, meaning, leaders are actually dominated by the rank and file and not vice versa.  The egalitarian structure was, and still is, accomplished by sophisticated social mechanisms that are known as leveling-down mechanisms.

Such “leveling-down mechanisms” are in Shultziner’s words…

…social practices which are aimed at controlling over-assertive individuals from boasting their success and traits (e.g. in hunting) and at containing leaders from exploiting their position….

Leadership is necessary for…internal conflict resolution, for religious and healing roles, and for decision making in times of war and peace. Leveling-down mechanisms, thus, do not reverse the hierarchy between a leader and his group; the mechanisms simply keep the social structure as close to flattened as possible. Leaders are restricted and checked as not to extend their powers beyond what is necessary by the circumstances [citation in original]….

If a leader or a would-be-chief tries to dominate other group members or misuse his leadership role, group members may tell him that he makes them laugh (ridicule tactic), they may walk away, disobey or simply ignore him. Other tactics are to remove, ostracize or expel an over-assertive individual from the group, and, in extreme cases, execution is also an option (different groups exercise different techniques, see [citations in original])….

…Sometimes, leaders might succeed in exploiting their roles and gain more power. In most cases, though, initial intentions of leaders to overstep their authority are quickly identified and prevented by group members, even before an explicit exclamation needs to be made. Boehm [citation in original] posits that many anthropologists probably were unable to observe the tacit conflict between leaders and group members because hunter-gatherers are very skillful in identifying over-ambitious leaders and keeping them checked and restricted.  Identifying these implicit yet meaningful social subtleties are aided by living in a small group whose members can more easily communicate and contain their leaders.

The benefits of individuals who resist and restrain a dominant leader are clear. Individuals are better off sharing some power than not having any power at all. This ancient type of behavior is already manifested in “chimpanzees’ politics” where lower-ranking males form coalitions in order to dethrone a single alpha male, and then share power together [citation in original].  This ability has probably evolved gradually and become more sophisticated. Each group member benefits from good leadership but not from a despotic one. Not each individual, however, is capable of facing a powerful over-assertive leader alone. Hence, the shared interests of group members, to improve their own positions while upholding their autonomy, are completely consistent with the egalitarian outcome: each individual behaves in a way that maximizes one’s position and the outcome is egalitarian nevertheless.

Changes in Egalitarian Forager Groups in the Neolithic Era

Shultziner painstakingly describes how changes resulting from the invention of agriculture correspondingly changed small, forager societies to larger, tribal communities and subsequently to civilizations and empires.

Before the invention of agriculture and the beginning of the Neolithic era, groups were of a limited size. Groups could not have grown too big mainly because resources were usually scarce or insufficient to maintain a big group of foragers, who seasonally consume the resources in their proximity and move on to a new area, and because bigger groups required harder work to sustain (e.g. for food supply) and entailed more conflicts [citations in original].

After the Neolithic era has begun, small egalitarian forager groups settled down and started cultivating plants and animals for subsistence. Boehm defines these societies as tribesmen and says that “they have continued the political approach of hunter-gatherers under radically different ecological circumstances” [citation in original]. Tribesmen persisted with their denial of strong authoritative leadership and prevented it from developing. As a consequence they were “prone to raiding, feuding, and territorial warfare” and they were pushed into forming intertribal coalitions [citation in original]. The transition from a confederation of tribes to chiefdoms and kingdoms was accelerated by the competition between tribes and confederation of tribes, and this eventually gave rise to a strong and powerful central authority. Indeed, some of these chiefdoms and kingdoms eventually became the kernels of the first civilizations [citation in original].

The transition to sedentary life had a tremendous impact on other factors, such as the growing number of group members, and the ability to have an intimate knowledge of, and communicate with, all group members. The transition from the Paleolithic era to the Neolithic era entailed far reaching changes in environmental conditions: social, institutional, technological and cultural. These changes resulted in a reduced capacity to effectively control and contain leaders and over-assertive individuals. The new environmental conditions impaired the effective and subtle communication of small groups, the usefulness of leveling-down mechanisms, and eventually enabled group leaders to enhance their powers over the group [Emphasis added].

Thus, it is clear that environmental changes that brought about the transition from the Paleolithic Era to the Neolithic Era imposed strong pressures on the social organization of hunter-gatherer groups.  However, the important question is:  Did these changes produce evolutionary changes in the human psyche and its longstanding preference for egalitarian social organization?

Persisting Preference for Egalitarian Social Structure

Shultiziner suggests that the ten millenia that have elapsed since the Neolithic era have not transformed “the innate physiological and psychological sets of human beings, which were shaped when human beings lived in small egalitarian societies.”  He argues that this period is “far too short in evolutionary terms to create any substantial changes.”  He cites the work of  Leda Cosmides and John Tooby [citation in original], two pioneers of evolutionary psychology, in support of his argument.

The environment that humans–and, therefore, human minds–evolved in was very different from our modern environment. Our ancestors spent well over 99% of our species’ evolutionary history living in hunter-gatherer societies. That means that our forebearers lived in small, nomadic bands of a few dozen individuals who got all of their food each day by gathering plants or by hunting animals. Each of our ancestors was, in effect, on a camping trip that lasted an entire lifetime, and this way of life endured for most of the last 10 million years.

Generation after generation, for 10 million years, natural selection slowly sculpted the human brain, favoring circuitry that was good at solving the day-to-day problems of our hunter-gatherer ancestors — problems like finding mates, hunting animals, gathering plant foods, negotiating with friends, defending ourselves against aggression, raising children, choosing a good habitat, and so on. Those whose circuits were better designed for solving these problems left more children, and we are descended from them.

Shultziner goes on to say:

It is necessary to understand these historical conditions in order to appreciate transitions to democracy in the 20th century or earlier. Saying that small egalitarian societies were the optimal and natural form of social structure under which human beings evolved does not suggest that it is the only type of social structure human beings can live under. On the other hand, saying that human beings can live under an array of structural environments does not imply that all institutional arrangements are just as good or apt for human beings to live under. The fact that in some circumstances human beings can adapt to living under totalitarian regimes, does not in any way mean that despotic social structures are as good as egalitarian social structures. Human evolution does not abruptly end with the beginning of the Neolithic era. Indeed, we know that in many cases human beings succeeded in maintaining their egalitarian structures into and far beyond the Neolithic period, and leveling-down mechanisms have not disappeared in tribal societies either.

Most probably, egalitarian structures remain more suitable to humans today just as they predominantly have been until 10,000 years ago. The overall historical pattern towards more egalitarian political institutions and practices is consistent with our evolutionary history. The existence of small egalitarian forager societies in many continents is a further reminder of the aptness and persistence of this social structure to human life despite the pressures of modern environments. States and nations were not part of the Paleolithic era; nevertheless, democratic states are far more compatible with ancient egalitarian societies than with despotic or nondemocratic regimes [Emphasis added].

In Part IV of this essay, I shall discuss Shultziner’s creative synthesis of historical, anthropological, and evolutionary evidence/theory with recent research and theory in social and political psychology regarding the “need for recognition” and its relationship to the social psychological literature on self esteem.  This contribution, I believe, will enable us to move toward a more synergistic democracy (Synocracy), which ultimately must recognize two very strong forces in human behavior and the need for their balancing, not only within the individual, but within the social order.  These two forces were called: (1) the Self-Assertive Tendency and (2) the Integrative (Self-Transcending) Tendency by Arthur Koestler, a journalist, who posssessed a monumental, synthesizing intellect, having been a fellow at the Center for Advanced Study in the Behavioral Sciences at Stanford from 1964-1965.  Each of these tendencies is actually a collection of tendencies.  Koestler used these constructs in formulating his theory of the holon.

No man is an island–he is a holon.  A Janus-faced entity who, looking inward, sees himself as a self-contained unique whole, looking outward as a dependent part. His self-assertive tendency is the dynamic manifestation of his unique wholeness, his autonomy and independence as a holon. Its equally universal antagonist, the integrative tendency, expresses his dependence on the larger whole to which he belongs: his “part-ness.”

In a subsequent part of this essay, I shall consider the nature of the holon in political discourse, particularly as it relates to the new “synergistic democracy” or synocracy, which is the theme of this blog. 

These three posts track some of the things I’ve figured out for myself this year.

‘Parachurch’ refers to ministries that operate alongside conventional, local church structures: things like university ministries, Bible colleges, and overseas mission. Although I already considered myself a parachurch minister, I’ve had a range of questions. Does a parachurch even exist? If so, what is a parachurch minister? How would a parachurch minister relate to the local church? Tamie has already explored some of the workings of parachurch ministry; this is more about its foundation.

Micro-ecclesiology

In the last thirty years, one particular perspective has been especially significant for how Protestants think about parachurch. Ralph Winter argued that there have always been two ‘redemptive structures’ in God’s plan: local church and missions. According to Winter, both of these structures were part of the pattern of New Testament Christianity and both have persisted since then. Given this historical pattern, says Winter, both local church and missions are equally valid and necessary structures, although distinct.

This discussion of missions has frequently revolved around Paul’s missionary teams (Acts 13 onwards) and whether these groups operated under local church oversight or in parallel. Two things are clear from Acts’ presentation of these missionary teams. Firstly, they are not loose cannons. Their goal is always the service of the church, and they seek to cooperate with rather than ignore local churches. Secondly, the missionary teams are not controlled by the church. They operate dynamically, not at the beck and call of a congregation, a council, or the like. The pattern in Acts is that mission groups work dynamically but interdependently with the church.

However, if we start from something like Winter’s approach, we tend to focus on how the church is organised and the question of who should be in charge of missions. Instead, the nature of the church must be the ground for any questions about its organisation. Before we can consider parachurch, what is the capital-C church? I think two aspects are significant. Firstly, the Church is the community of believers created, grown and empowered by God (1 Peter 2:9-10, etc.). The Church is a Body, inherently organic and social. Secondly, this Body is fundamentally local. A local church does not merely represent the whole Body but in some sense is the Body, as indicated in 1 Corinthians 12.

Together, these two aspects of the Church — as a local community — have some important implications, as Howard Snyder explores. While the Church is fundamentally both local and ordered, the Church is not an organisation or institution. This has the striking implication that all man-made structures, including denominations, are ‘parachurch’. Therefore the important distinction is not between the local church and the parachurch, but between the Church and all institutional structures, including denominations (see the diagram below). Because we recognise the localness of the Church, we often end up conflating the institutional church with the Church, which leaves us asking the wrong questions.

Reproduced from the Lausanne Committee for World Evangelization, ‘Appendix B: The Church: A community or an institution?’ in Co-operating In World Evangelization: A Handbook on Church/Para-church Relationships (Lausanne Occasional Papers 24, Wheaton: Lausanne Committee for World Evangelization, 1983), 94 & 96.

What does this mean? John Stott makes a caveat for parachurch work: ‘Independence of the church is bad, cooperation with the church is better, service as an arm of the church is best’.* Note, however, that the church in question is not an institutional form but the Church, the Body of Christ in local expression. Given that the Church is non-institutional, there is no basis for privileging denominational structures. This does not diminish the local church or its order and authority, but it does mean that ministry and mission does not need to be dependent on a denomination. However, while mission need not be controlled by the local church, mission must be in the service of the Church (locally expressed). The Church really is all-important — just not in the form we may previously have thought.

Here is the basis for parachurch ministries (in the conventional sense). The Church does mission and mission builds the Church, yet neither local churches nor denominations can control mission. Parachurch operates in the realm of mission unhinged from institutional constraints, geared towards nourishing the Church. Parachurch ministries inevitably develop their own governing structures, yet these can stay on target for mission if they remain dynamic and interdependent rather than static and denominational.

- – - – -

* John Stott provides a comprehensive warning to both denominations and parachurches:

Here then are the two extremes to be avoided. The tendency of the “establishment” to control individual initiatives runs the risk of quenching the Spirit. The tendency of voluntary organizations to insist on their independence runs the risk of ignoring the Body. It is the age-old tension between authority and freedom. To quench the Spirit and to ignore the Body are both serious sins; they grieve the Christ whose Body and Spirit they are. It is, therefore, basic to our evangelical responsibility that in all our labours and relationships we should magnify Christ by seeking simultaneously to give honour to his Body and liberty to his Spirit.

For North history matters not only because we can learn from the past, but also “because the present and the future are connected to the past by the continuity of a society’s institutions.” The book outlines a theory of institutions and institutional change. North’s focus is on the problem of cooperation, which allows economies to capture the benefits of trade identified by Adam Smith and his followers. Institutions can evolve to create a hospitable environment for cooperative solutions, but they may also induce economic stagnation and decline. (p. vii) Institutions can, in other words, be efficient or inefficient, and the divergence between institution can explain the different developmental paths found between societies. (p. 6-7)

John Zysman has noted that “rational choice institutionalists start with individuals and and ask where institutions come from, whereas historical institutionalists start with institutions and ask how they affect individuals’ behaviour.” Kathleen Thelen places North in the rational choice tradition, but argues that he embraces a “non-functionalist, more historical view of institutions.” (Thelen, pp. 379-380) North argues that institutions create increasing returns (p. 95), a finding that had an important contribution to to theories of path dependence. (Pierson, p. 256)

North defines institutions as “the rules of the game in a society or, more formally, are the humanly devised constraints that shape human action.” (p. 1) The first part of the book examines the characteristics of institutions and the impact that institutions have on economic (or societal) performance. The second part proposes a theory of institutional change. The third part seeks to explain the differential performance of economies through time.

There is an extensive literature in game theory about the problem of cooperation. Olson’s free rider dilemma showed how cooperation is difficult to sustain when a game is not repeated. Axelrod’s The Evolution of Cooperation was more optimistic, showing how cooperative solutions could be devised in games with multiple iterations. Game theory shows, through varying payoffs, when cooperation can be expected. However, assumptions made in game theory about wealth maximizing individuals who possess equal skill (and access to relevant information) are problematic. Crucially, game theory fails to provide us with a theory of the underlying costs of transacting (pp. 15-16).

North divides his analysis between informal constraints and formal constraints. Informal constraints come from socially transmitted information, and a are commonly referred to as parts of culture. (p. 37) These “self-imposed codes of behaviour” can constrain maximizing behaviour. (p. 43) Cultural processing of information has an impact on the way institutions evolve, and is therefore a source of path dependence. Informal constraints are not merely the extensions of formal rules, and will not change immediately in response to changes in formal rules. (pp. 44-45)

Formal rules include political (and judicial) rules, economic rules, and contracts. They can modify, revise or replace informal institutions in some circumstances. Rules are often devised with private (rather than social) benefits in mind, so the actual structure of rules will reflect the relative bargaining power of different parties. (p. 47) As a result, inefficient property rights that protect the interests of a small group can emerge. These inefficient institutions will not necessarily be eliminated over time. The efficiency of the political market is key, high transaction costs and the subjective perceptions of actors have resulted in property rights that do not encourage economic growth, and actors may have no incentive to create more productive rules. This inertia may be the result of the high transaction costs associated with political change, or a lack of credible commitment that new institutions will be more efficient. (p. 52)

Enforcement is a transaction cost. With complete information, cooperation can be achieved without enforcement. However, with incomplete information, cooperation will break down unless institutions exist to police deviations. These institutions provide information (a communication mechanism) and enforce punishment (as a public good) when cooperation breaks down. (p. 57) A lack of adequate enforcement mechanisms is the most important source of stagnation and underdevelopment in the Third World. (p. 54)

Organizations were defined in part one as “groups of individuals bound by some common purpose to achieve objectives.” (p. 5) In part two North returns to the relationship between organizations and institutions to explain institutional change. He argues that “[o]rganizations and their entrepreneurs engage in purposive activity and in that role are the agents of, and shape the direction of, institutional change.” (p. 73) Institutions can be understood as the rules of the game (or a social incentive structure), and organizations as the players. Neoclassical economics did not expect that inefficient institutions would survive, but in reality such institutions are common. Why is this the case?

Institutions may not (in the absence of perfect knowledge/certainty) reach a neoclassical allocative efficiency, but instead may settle for an a type of adaptive efficiency which allows for a maximum of choices under uncertainty. (p. 80) This type of institutional arrangement may be stable. North argues that institutional stability is achieved “by a complex set of constraints that include formal rules nested in a hierarchy, where each level is more costly to change that the previous one. They also include informal constraints which are extensions, elaborations, and qualifications of rules…” (p. 83)

Fundamental changes in relative prices are the most important source of institutional change. Sources of change in relative prices include changes in the ratio of factor prices (i.e. ratio of land to labour, labour to capital, or capital to land). Change in prices alter perceived costs and benefits of new bargains and contracts. Changes in bargaining power lead to efforts to restructure contracts. (p. 84)

Most institutional change is incremental. However, war, revolution, conquest, and natural disasters are all causes of discontinuous change. Discontinuous change refers to sudden or violent changes in formal rules. However, there is no corresponding change in informal rules. Over time this leads to a restructuring of overall constrains (in both directions) to produce a less revolutionary equilibrium. (pp. 89-91)

Increasing returns and imperfect markets determine the path of institutional change. North gives the example of the Northwest ordinance as an institution that provided adaptively efficient economic development—a fee-simple ownership of land and clear system of inheritance made land transferable with minimum transaction costs. In contrast, unproductive paths explain the relatively poor economic performance of Latin America. (pp. 95-100)

North begins part three by looking at what changes must be made to neoclassical theory to incorporate it with institutional analysis. Next, it outlines the implication for static analysis of economic performance. Finally, he explores a theory of long-run economic change. (p. 107)

North uses the idea of path dependence introduced in the previous section to compare the divergent performance of England (North America) and Spain (Latin America) in the New World. In North America, an institutional framework evolved that permitted the exchange of complex information in a way that captured potential gains from modern technology. In the latter, development was stunted by an institutional framework that privileges personalistic relationships. (pp. 113-117) North’s comparison between North American and Latin America offers an alternative to teleological modernization theory—rather than assuming a final destination a priori, North is interested in “what kinds of institutions are necessary to enable the cost of transacting and transforming to be at the level that will permit this increasing specialization and division of labour to occur.” (p. 120)

North made a vital contribution to our understanding of how institutions effect development. However, because he privileged institutions, he was particularly critical of dependency theory as an explanation for economic underdevelopment. For North dependency theory “not only rationalizes the structure of Latin American economies, but also contains policy implications that would reinforce the existing institutional framework.” (pp. 99-100) Third World countries are poor, not because of post-colonial dependency on the West, but “becuase the institutional constraints define a set of payoffs to political/economic activity that do not encourage productive activity.” However institutional frameworks are not necessarily incompatible with dependency theory. In an increasingly integrated world, institutions cross national boundaries, a point North’s nation-centred analysis does not acknowledge.

A second possible criticism is that North’s institutional approach is, in the words of Stefano Fiori (p. 1025), “not utilizable”. North shows how institutions affect economic performance, but with regard to the question of how to increase institutional efficiency, North only offers a few conjectures. However, North’s focus is historical. Utilizable prescriptions for increasing insitutional efficiency will have to be found elsewhere.

Reference:
Kathleen Thelen, ‘Historical Institutionalism in Comparative Politics’, Annual Review of Political Science, 1999, pp. 369-404
Paul Pierson, ‘Increasing Returns, Path Dependence, and the Study of Politics’, The American Political Science Review, Vol. 94, No. 2, 2000, pp. 251-267
Stefano Fiori, ‘Alternative Visions of Change in Douglass North’s New Institutionalism’, Journal of Economic Issues, Vol. 36, No. 4, 2002, pp. 1025-1043

Charles Stross, author of Accelerando and other sci-fi books, wrote a fascinating post two weeks ago (thanks to Ari for linking it). He talked about the challenge of designing society for posterity: how to make a social order that could run a “generation ship” without falling apart.

Generation starships: they’re not fast.

If you can crank yourself up to 1% of light-speed, alpha centauri is more than four and a half centuries away at cruising speed. To put it in perspective, that’s the same span of time that separates us from the Conquistadores and the Reformation; it’s twice the lifespan of the United States of America.

We humans are really bad at designing institutions that outlast the life expectancy of a single human being. The average democratically elected administration lasts 3-8 years; public corporations last 30 years; the Leninist project lasted 70 years (and went off the rails after a decade). The Catholic Church, the Japanese monarchy, and a few other institutions have lasted more than a millennium, but they’re all almost unrecognizably different.

[...]

I’ve been (inconclusively) batting around some ideas with Karl Schroeder — how do you design a society for the really long term? There are a couple of levels to consider: notably, decision-making and economics. And it doesn’t look as if we’ve got any good solutions to either.

You should read the whole post; it’s fascinating stuff. And if you think about it, there’s a hidden question in there. A society that could remain stable aboard a generation ship – an enclosed biosphere hurtling through space – is, of course, a society that could remain stable aboard Spaceship Earth.

Too bad the question itself makes no sense.

Don’t get me wrong: “how do you design a society for the really long term?” makes perfect grammatical sense. You can even start imagining along those lines, as Stross and his friend Schroeder evidently did, for several ‘grafs worth of thought. But if you consider what those actual words mean – specifically, design, society and long term – the question becomes impossible. There is no way to answer it.

Let’s say Stross, or NASA, or even you, come up with a way to answer the question. And let’s say a generation ship – a vessel capable of interstellar travel along a lifespan of hundreds of years – gets built. Here’s what it’ll look like on Day One.

NASA Project Director: Okay, guys, remember what we told you …
Generation Ship Crew: Right, right, we remember.
NASA Project Director: … you’re an oligarchical commune with rotating leadership roles and multiple redundant judiciaries …
Generation Ship Crew: Mm-hmm, got it.
NASA Project Director: … lower the radiation shields every 400 days to prevent genetic drift …
Generation Ship Crew: It’s all in the three-ring binder. We’ve got it.
NASA Project Director: Okay. Just checking. Good luck, people!
(ship door seals; generation ship takes off)
Generation Ship Crew: SPRING BREAK! WHOOOO!

Okay, maybe things won’t fall apart that fast.

But the entire premise of Stross’s question ignores an obvious hurdle: if some social scientist theorizes the Perfect Society for a generation ship, who’s to say anyone inside the generation ship is going to follow it? Especially once they’re light years away from the home world? NASA can tell the crew, “The engineers are in charge; if what they say isn’t law, the ship stops spinning and O2 stops filtering and you all die in six weeks.” But that doesn’t matter, unless every non-engineer aboard the ship also agrees.

To be fair, Stross isn’t suggesting that the Perfect Society be dictated from on high. He closes the post with the question, “What sort of governance and society do you think would be most comfortable, not to mention likely to survive the trip without civil war, famine, and reigns of terror?”

But the question is still irrelevant. Stross can prove, using all the equations social science has to offer, that (say) an anarcho-syndicalist state where the Chief Engineer, the Head Gardener and the Captain of the Dodgeball Team act as a non-legislative judiciary is the only stable state for a closed, high-maintenance biosphere that has to have a population greater than x in 450 years. But that proof is irrelevant to the people inside that biosphere unless they believe it. If I scrub the oxygen filters, I might be convinced after a few years that I’m the most important person aboard the ship. After all, without me, everyone dies.

And even if NASA somehow indoctrinates every member of the first generation of the crew in their Perfect Social Theory, there’s a reason this sci-fi construct is called a generation ship. It will take more than one generation to get where it’s going. Four and a half centuries from here to Alpha Centauri at 0.1c; that’s eighteen generations. Who’s to say your kids will hold to the anarcho-syndicalist ideal with the same fervor you did? Or their kids? It only takes one generation to decide the reactor only needs sixteen control rods instead of twenty for the entire project to fail.

Far more important than the question of what should happen is the question of what will happen.

So let’s say we lock 250,000 engineers, biologists, chemists, physicists and janitors inside an asteroid and slap it toward Alpha Centauri. We tell them, in the strictest language we know, what they have to do in order to stay alive. But once they get airborne, it’s anarchy – not in the “jungle savagery” sense, but in the “no recognized law” sense. What form of social order will evolve?

My guess: the same ones we’ve seen throughout history. The human race evolved in an open biosphere with no set instructions on how best to live. A generation ship changes two of those variables, closing the biosphere off from mutation and leaving a three-ring binder of Best Practices. But otherwise, we’ll probably see what we’ve seen throughout history: warring tribes, dueling factions, a period of disorder that leads to a strong preference for law and a powerful state that arises as a result. A quarter of a million of Earth’s best and brightest go in; forty-five decades later, Augustus Caesar steps out.

# # #

I am going to read a little into Stross’s post now.

I suspect that implicit in the definition of “Perfect Society” is stability. Stross hopes that the Perfect Society will in fact be so utopian that it will not change, because no one will ever have a reason to change it. Not only will it fulfill everyone’s needs, but everyone within it will recognize that it will fulfill everyone’s needs. It’s a perpetual motion machine, requiring only its own input to keep going.

(The first question – if you discover this perfectly stable social order, why do you even have to leave Earth? – might merit another post)

This implicit premise – if I’m right in ascribing it to Stross – highlights a regrettable belief in technocracy. Technocracy is the belief that if we only put the right experts or the right rules in place, the social order will run itself. Our current problems, like poverty, corruption, ignorance and violence, do not well up from human nature. They’re artifacts of an outdated culture. If we pass the right laws, we can get rid of anything we don’t like.

Both conservatives and liberals are guilty of this.

Conservatives follow it in the form of “legislating morality.” Outlawing abortion springs to mind. “If abortions are outlawed, then no one will have any abortions!”, conservatives believe, contra all sense and experience. In reality, outlawing abortions means that women will terminate their pregnancies in dangerous, illegal ways. You cannot change the desire of a woman to own her own body by passing a law.

Liberals follow it in the form of “managerial liberalism.” A recent example: the stimulus package! The federal government passes a $787,000,000,000 “recovery package” to distribute money to local agencies and companies. Shockingly, some of this money has gone to waste. The most recent example: four Congressional districts in Hawaii that don’t exist received over $40,000,000 in stimulus money. Similar bookkeeping problems exist in Arizona, where the fictitious 86th Congressional District has already received $34,000,000. “That’s not what we intended to happen,” say liberal economists like Paul Krugman (who argue that there wasn’t enough stimulus) and Dean Baker. Of course it isn’t. But your intentions are irrelevant. You cannot change the desire of people to scheme for a little extra once the money faucet gets turned on.

Whether on the Left or the Right, technocracy supposes that human nature and cultural trends can be changed by top-down legislation. Draft the right rules, put the right people in charge, and the generation ship that is our world can sail on, untouched and unchanging, until we all turn into Star Children and join the galactic Overmind. In the real world, though, unintended consequences always crop up.

We’re all trapped in this biosphere together, hurtling through the galaxy far below the speed of light. And if we don’t learn a willingness to rule ourselves, throw out the systems that don’t work and take responsibility for our own screw-ups, we’re not going to reach Alpha Centauri alive.

The well-known international charity Save the Children has done its own research in Central and Eastern Europe, Indonesia, and Africa and has concluded that four out of five “orphans” have, in fact, one living parent, usually living in the same community as the orphanage.

According to Voice of America,

In a new report, the charity describes how children are treated as commodities in an industry that recruits children in order to profit from international adoption and child trafficking.

Louise Melville from Save the Children says in some countries running an orphanage is lucrative because, she says, governments and well-intentioned donors invest heavily in orphan care.

“Orphanages tend to attract a lot of donations from well meaning individuals, churches and other organizations,” she said. “And I think a lot of people don’t realize that the vast majority of children in those orphanages have one or both parents living in the same community as their child.”

Had a hard time locating the actual name of this report but I finally found it in this press release from Save the Children Canada. The report is called Keeping Children Out of Harmful Institutions. I have yet to find a link to the report itself, but the Canadian press release contains more information about the publication and the findings than the Voice of America article. Example, from the Canadian newswire:

In Central and Eastern Europe almost every child in an institution – 98% – has at least one living parent. In Indonesia that figure is at 94% and in Ghana 90%.

It’s time for everyone to retire the 143 million figure when talking about adoption.

It’s not often that I’m so genuinely surprised by a journal article that I jump out of my seat and nearly knock my computer screen over. Yet this is what happened to me yesterday morning. And what, you may ask, caused my outburst? Well, I noticed an article in the most recent issue of Organization Studies about the cognitive dimensions of organizational life that was written by Nicolai Foss and Mark Lorenzen. Yes, that Nicolai Foss – the guy who writes at our evil twin blog has published a paper about cognition. Don’t spill anything, it’s a very interesting article.

Foss and Lorenzen think about how coordination problems are resolved through the evolution of shared cognitive categories. One of the central problems underlying coordination, they argue, is that in any given situation people have heterogeneous beliefs regarding their potential interaction. These differences in beliefs inhibit meaningful debate and create friction when trying to align incentives. Thus, individuals with differing beliefs may never be able to agree about what’s important, what should be done, etc., which leads to a failure of collective action.

In a certain sense, the cognitive coordination problems caused by differing beliefs are more fundamental than the coordination problems related to incentive conflicts, because they need to be solved before the latter category of coordination problems can be addressed. Thus, understanding how situations become cognitively well defined — that is, the process of achieving cognitive coordination — should be a central analytical task for economists (1202).

In classic game theory, they maintain, theorists assume that people will reason away those differences; however, this reasoning process is not very well explained by the theory (perhaps because most game theorists choose to ignore cognition). Foss and Lorenzen tackle it head on. They argue that people reason with analogies, anchoring on past events or ways of doing things to guide future interaction. Rather than argue that there are a few simple analogies on which people converge in their interactions, their theory makes room for local specificity. In a real constructivist sense (or at least that’s how I’d label it), analogies emerge from interaction and become precedents for guiding future interaction. Empirically the paper focuses on a Danish furniture district and looks at the ways that producers resolve coordination problems among themselves, such as price-setting.

Once you get into the details of the paper, you realize that this is not at all an atypical Foss paper. It’s written with clarity, it seeks an elegant solution to a common empirical problem, and the paper is very interesting. While it was surprising to me to see that Nicolai is now writing about cognition, the link to his research agenda is pretty clear. Shared cognition enables tacit coordination over prices, reduces transaction costs, and facilitates ongoing market interaction. Prices, it could be argued, reflect not just preferences but also convey information about market players’ shared beliefs.  Imperfectly rational actors use analogies to help resolve tensions that inhibit coordination, but given their sticky nature, analogies may turn into institutions that provide long-term solutions to the coordination problem. By linking insights from psychology, organizational theory, and Hayekian economics, Foss and Lorenzen have written a nice bridging paper.

| Peter Klein |

Speaking of banks, here’s a very good survey of the entrepreneurship literature on financing constraints by William Kerr and  Ramana Nanda, just out from NBER. From the introduction:

The first research stream considers the impact of financial market development on entrepreneurship. These papers usually employ variations across regions to examine how differences in observable characteristics of financial sectors (e.g., the level of competition among banks, the depth of credit markets) relate to entrepreneurs’ access to finance and realized rates of firm formation. The second stream employs variations across individuals to examine how propensities to start new businesses relate to personal wealth or recent changes therein. The notion behind this second line of research is that an association of individual wealth and propensity for self-employment or firm creation should be observed only if financial constraints for entrepreneurship exist.

These two streams of research have remained mostly separate literatures within economics, driven in large part by the different levels of analysis. Historically their general results have been mostly complementary. More recently, however, empirical research using individual-level variation has questioned the extent to which financing constraints are important for entrepreneurship in advanced economies. This new work argues that the strong associations between the financial resources of individuals and entrepreneurship observed in previous studies are driven to large extents by unobserved heterogeneity rather than substantive financing constraints. These contrarian studies have led to renewed interest and debate in how financing environments impact entrepreneurship in product markets.

Before Chavez there was Bolivar, before Bolivar there was Miranda, who is now known as El Precursor. Interestingly, the link is to the entry in the Encyclopedia Britannica, not Wikipedia (it is both jarringly strange and wonderful to me that Wikipedia has made the Encyclopedia Britannica irrelevant to me). This selection is from the excellent A Way In The World, a selection of autobiographical personal narrative by the Nobel Laureate V. S. Naipaul:

…Venezuela is a colony in the New World, with slave plantations, and it has all the divisions of that kind of place: Spaniards from Spain, who are the officials; a creole Spanish aristocracy; creole Spaniards who are not aristocracy; mulattos; the Negros of the plantations; the aboriginal Indians. This kind of place is held together only by a strong external authority. When that external authority goes, people can begin to feel they are sinking. Freedom for one group can mean slavery or oppression for another group.

So the Venezuelan revolution, as it progresses, deepens every racial and caste division in the country, encourages every kind of fear and jealousy; and the revolution begins to fail. The ordinary people of the country begin to go over to the other side, the side of old authority, and the reverences and law and religion they know.

Miranda appeals to the slaves to join him. They don’t listen; in fact, the slaves of Barlovento rebel, and there is a moment when it seems they might capture the capital, Caracas. And now, to buy peace, or at any rate to buy time, some of the very men who had called Miranda out from London, to lead their revolution, decide to hand him to the Spaniards. They wake him up one night and march him to the dungeon of a coastal fort.

There is some very interesting material here and many things to note. One is the sheer impact of Spanish colonialism, which as part of its economic and territorial imperialism has reshaped the human map of Venezuela in very vicious ways. I am curious about the evolutionary path of these kinds of coalitions and the strategic games they play and why particularly these coalitions aren’t able to mutually coordinate a revolution or (later stable non-authoritarian government).

The line of thought also plays out some interesting questions. It seems to me that bad governance is path-dependent and part of the story is that turmoil itself retards the formation and optimal evolution of institutions that make civil governance possible. If you have any thoughts of readings to point me further along this path please post them in the comments.

Length: 19:51

Liberal Party of Canada website

Related: Political Party; Ideology; NDP Federal Leadership Race (2003)

| Craig Pirrong |

My previous post on the Acharya et al (AEFLS) assertion of the purported externality in bilateral OTC markets focused on whether there was actually an unpriced “bad.” I judged otherwise based on the fact that credit and counterparty risks are repriced repeatedly (and ruthlessly).

There is another reason to reject their analysis. It should be incumbent on one who justifies the existence of an externality to justify a particular policy to (a) identify the transactions costs that preclude internalization of this externality, and (b) demonstrate that their policy would create a net benefit, by, for instance, reducing transactions costs. AEFLS don’t even try to do this (another symptom of the Nirvana fallacy). And when one examines the particulars, it is highly doubtful that the costs of the purported externality are as large as AEFLS insinuate that they are.

The AEFLS story is that contracts between two counterparties to an OTC derivatives deal impose costs on other market participants, notably, the firms’ other counterparties to earlier derivatives deals, and the counterparties’ counterparties, and on and on. OTC market participants don’t take these costs into account, trade too much, and create too much risk.

Which raises the Coase Question: if these costs are so large, why don’t the affected parties craft a solution that mitigates them? If, as AEFLS argue, a central counterparty would reduce these costs, why don’t the affected parties create one to internalize the externality and enhance their welfare?

In some cases, e.g., the classical one of a factory that spews pollution that harms myriad individuals, it is plausible that coordination costs (arising from, inter alia, free rider problems) preclude private collective action, and that legislation/regulation mitigates these costs. But that hardly seems the case here. The very fact — often cited by the advocates of new, invasive financial regulations–that there are a relatively small number of large institutions that dominate this market means that large numbers-driven coordination problems preclude effective collective action. Indeed, the institutions that account for virtually all of the activity in the OTC market are already members of a formal organization, the International Swaps and Derivatives Association (ISDA). ISDA has long served as a mechanism for coordination among, and providing collective goods to, its members. For instance, ISDA facilitated the standardization of the terms of OTC deals through its standard master agreement.

In brief, the parties that bear the primary burden of this putative externality are relatively small in number; know who each other are; regularly cooperate on a variety of issues of common interest; anticipate interacting with one another well into the future; and have a formal organization to facilitate this coordination. These conditions would tend to favor private collective action to internalize an externality, especially one allegedly as costly as the one asserted by AEFLS.

But they haven’t done so. This is like the dog that didn’t bark.  If the danger was there it would have barked.  It didn’t, so . . .

Could there be transactions costs that prevent cooperation? Just because the canonical sources of such costs appear absent in this instance doesn’t mean they are altogether absent. One possibility is the kind of problem that Libecap and Wiggins identified in their work on oil field unitization (and that Libecap addressed more generally in his Contracting for Property Rights). Specifically, that it can be prohibitively costly to negotiate agreements that would (but for these transactions costs) enhance wealth when said agreements have profound distributive effects, and there is private information about these effects.

The complete alteration of risk sharing arrangements would certainly have distributive effects (as I’ve noted in work dating back to the ’90s), especially when the affected parties are heterogeneous (as was almost certainly the case before the crisis, and likely even more so today). Consequently, one can’t rule out this possibility.

However, it is also plausibly the case that the adoption of clearing would be wealth reducing. In some sense, then, the heterogeneity-driven coordination cost externality story and the no externality story are observationally equivalent: both predict that market participants would not voluntarily cooperate to create a central counterparty.

To try to untangle the correct explanation of an incontestable fact — that clearing was not adopted voluntarily for the bulk of OTC derivatives transactions — it is necessary to undertake a fact- and context-intensive analysis, rather than play the superficial Pigouvian “I spy an externality” game and stop there, as AEFLS do. And sad to say, by even getting to this point they are miles ahead of most of the advocates of a radical reshaping of financial market institutions, most notably those in the administration and Congress.

Length: 3:48

NDP website

Related: Political Party; Ideology; Liberal Party of Canada Leadership Race (2006)

It’s the end of the month, but there will be no paycheck for another week.

As though being late wasn’t bad enough, to top it off, you are made to feel as though the money you’ve worked for isn’t your right, and they are doing you a favor by paying you anything at all. This Islamic Organization is simply out of money at the time, and you have to wait until they get some. It coincidentally comes to your attention that some employees in higher positions had their checks issued on time and without any delay.

An Islamic school wanted you to teach 2 subjects and pay you as a quarter-time employee. Apparently if you don’t teach 4 subjects to the entire school then you will not be considered a full-time teacher (that isn’t a sarcastic remark). In addition, you were told that your pay was based on 1/4 of the full-time teacher’s pay. When you find out what that rate is, you know that it is much lower than what an actual 1/4 is. They are trying to take advantage of the fact that you are new there and don’t know anyone, or how much they make. Sadly, you do know another teacher, and you realize their dishonesty. As a result, you quit.

Another school refused to pay you your last paycheck after they were informed that the you wouldn’t be returning next year. They claimed that withholding the pay was their right since you breached your contract. When in fact you had signed no contract in the first place. Now you have to take legal action in order to get your money. Contracts are made on a yearly basis, so the option to leave at the end of the year is simply a choice not to renew a contract. There should be no conditions on getting the pay for work that was already done. That same school was telling you and all of  its employees to report lower income than they were actually getting, in order for the school to be eligible for a tax break.

A Muslim-owned business approaches you and requests a redesign for their website. When you gave them your price, they said it was too high. So you agreed to do it at a lower price, and explained your terms for design work (limiting the number of revisions to the design once you finalize it, requiring 50% pay upfront, and overtime will be charged at an hourly rate). In response you get a horrible attitude, and they requested your references, and more samples of your work and said they might consider hiring you. When they had approached you in the first place and offered you the work, based on a design you did, that they saw, and liked. Other Non-Muslim Businesses you work with have gladly paid you the 50% and agreed to abide by these same terms.

Subhan Allah. All of these are real stories.

You start to wonder if these organizations  had planned to abuse you from the get-go?

But, you haven’t done anything wrong to them, so why would they bother, then you remember Allah SWT’s Words from Surat Al-Hujuraat, “O ye who believe! Avoid suspicion as much (as possible): for suspicion in some cases is a sin.”

Is it because you are working with Muslim organizations, then your work is “Fe Sabeel Illah” – for the sake of Allah – that people pushing the boundaries shouldn’t bother you?

The short answer is, No. Because if it was, we would all be willing to sacrifice to help get things done, and more importantly to help each other. That executive would give up part of his salary to help you pay your rent on time.

Is it because this is my Muslim brother or sister I should let them fall behind on the payments?

It can’t be, because they are the ones that want you to be there on-time, every time, to work for them. They want flawless work, in a hurry, with an impossible deadline and an insane volume of work to be completed by then. This is a paid position, you were promised a paycheck in exchange for specific tasks and duties, and it is an agreement between you and your employer.

Allah SWT requires us to respect these agreements, as stated in Surat Al-Israa, “…and fulfill (every) engagement, for (every) engagement will be inquired into (on the Day of Reckoning).”

Are all employees doing right by their employers, and inherently the victims?

Of course not. Obviously both cases exist, but, unprofessionalism just breeds more unprofessionalism. The employee that slacks should be fired. The employer that mistreats their worker should loose that employee to a more deserving firm.

Woe to those that deal in fraud, – Those who, when they have to receive by measure from men, exact full measure, – But when they have to give by measure or weight to men, give less than due. – Do they not think that they will be called to account? - On a Mighty Day, A Day when (all) mankind will stand before the Lord of the Worlds?” Al Mutaffifeen (1 – 6)

Allah SWT warns us specifically about this type of behavior in the Holy Quran. Yet it seems as though Muslims are failing (repeatedly) to recognize this as the case, or abide by this obligation.

In Project Management there are three main areas that need to be in balance in order to successfully complete a project.

1. The Budget, or how much money is allocated to completing the project.
2. The Schedule, which breaks the project into smaller tasks and their respective deadlines.
3. The Scope of work, which are the things that need to be completed and delivered by the due date.

Whenever any of these three factors are changed, the entire project will be thrown off.

How is that?

Here’s the situation (Bear with my poor example):

You gave me a 20 and asked me to go to Giant and get some items on a list. The list costs exactly $20 including tax. So I have 45 minutes to go and bring the groceries home. The project here is getting the groceries. If you were to call me on the phone, and tell me you need some meat from the Halal shop as well, that would throw me off. Mainly because of the money, I am now over my budget, also it will increase the time I’ll need, and I won’t be able to deliver on schedule.

You see?

So changing any of the three factors in any project will change the other two. If you push these limits then either the project will fail or it will be completed with poor quality.

Bottom line: When the balance is lost, the project suffers.

I believe that to be the exact case with these Muslim businesses and institutions. They are attempting to ‘milk’ employees for work they aren’t willing (or able) to pay them for. They have expectations which exceed their ability or willingness to fairly compensate for. Employees come in with higher than usual expectations from a Muslim employer and expect über-ethical and fair treatment. Employees’ morale and trust in their employer drops, as a result the quality of their work suffers.

Expectations have to be made clear, and fulfilled by both sides. If we all know Allah SWT is watching us, then we should act like it. Muslim businesses and Islamic Organizations are the pillars of our community, when we build our Ummah on broken principles it can fall apart overnight.

Anyone reading this knows that sadly, this is the situation in general. I am sure there are exceptions to the rule, but I have traveled, searched and am yet to find a case where this doesn’t stand true in some way or another.

We have reached rock bottom when Muslims sincerely warn other Muslims against getting jobs with Muslim companies or Islamic Organizations, because of the suffering. Why should it be that in exchange for being in a so-called Islamic Environment you will face all sorts of head and eventually heartache?

I’m not writing this with the intention to bash other Muslims or talk smack about the Ummah. On the contrary, I want to point this out and have it addressed and remedied, so that it is no longer the case. I make dua’a that Allah SWT guides us all to the best of manners and etiquette, and that we are among those that take heed of good advice and follow the best of it.

Unused exhibition poster design for A Lifetime of Connoisseurship: Graham Pollard and the Study of the Medal

My Department have just recently opened a new exhibition commemorating the boss-before-the-boss-before-my-boss, Graham Pollard, who was a connoisseur of and expert in medallic art of the Renaissance. He sadly died two years ago, and his medal collection subsequently came to the Fitzwilliam Museum to join the hundreds of pieces he’d acquired for the museum while he was in charge there. He had started as a Gallery Assistant aged 17 and worked up to become a Keeper, so his really was a museum life and we were all very sad when he died. This has given us an excellent excuse to put out some of the most beautiful things that we hold on display, and if you happen to be in our neighbourhood it’s well worth a look. I’m afraid there’s no online component, nor are most of the pieces in question on our online catalogue as yet, though I hope this will come in due course. But Graham was a really lovely guy and I wish he’d been able to see this; the next best thing would be that lots of other people do.

Après l’annonce en juillet dernier d’un partenariat pour développer la qualité de l’information santé sur wikipedia, les National Institutes of Health poursuivent leur engagement dans le web 2.0 en allouant 27 millions de dollars à deux universités pour développer des outils communautaires au service de la recherche en santé.

L’Université de Floride va ainsi développer un réseau social tandis que l’Ecole de médecine d’Harvard aura la charge d’un espace de partage de ressources scientifiques.

Cette subvention distribuée par les NIH provient du plan de relance du gouvernement, dont les NIH bénéficie au total à hauteur de 5 milliards de dollars. Elle doit contribuer à renforcer les liens entre chercheurs sur le territoire US, faciliter et accélérer la recherche, mais aussi, relance oblige, créer de nouveaux emplois.

Extrait de l’annonce des NIH :

The same principles and technology that enable teenagers to instantly share updates and pictures with their friends also can help researchers connect, collaborate and share resources better and faster on scientific advances.

MIT’s Daren Acemoglu has a short piece out in Esquire about the relation between democratic institutions and national prosperity. I’ve read a little of Acemoglu’s stuff before- mostly in a class on colonialism, conflict and democracy- and have a lot of respect for him as an economist; at the very least, I think he has a better grasp on the issues of path-dependency and economic development than most. Furthermore, the argument that institutions- and the incentives that they engender- are deeply tied to economic prosperity is persuasive…that having been said, I have a few concerns about the points raised by Acemoglu.

First, the mechanism identified by Acemoglu operates squarely through incentives:

People need incentives to invest and prosper; they need to know that if they work hard, they can make money and actually keep that money. And the key to ensuring those incentives is sound institutions — the rule of law and security and a governing system that offers opportunities to achieve and innovate. That’s what determines the haves from the have-nots — not geography or weather or technology or disease or ethnicity.Put simply: Fix incentives and you will fix poverty. And if you wish to fix institutions, you have to fix governments.

Incentives are no doubt important, but I wonder if the factors contributing towards skewed incentives separately affect the incidence of poverty. In other words, does Acemoglu’s analysis suffer from some sort of omitted variable bias: if flawed institutions result in two independent variables- incentives and said omitted variable- poverty (the dependent variable) might be largely an outcome of the omitted variable and not incentives. This may sound like vague speculation, but it seems to make intuitive sense. For instance, it is plausible that flawed institutions result in a poor education structure, lack of adequate healthcare and poor inter-sector resource flows. Lagging education fosters a poor entrepreneurial base and inadequate healthcare affects the quality of the workforce further. The issue here is not that workers lack the incentives to perform- they lack the resources. If a worker isn’t given the education to affect substantial change, the incentives will matter little. While the aforementioned story told by Acemoglu is logical enough, a more compelling story would be that workers are not put in a position where they can even conduct a cost-benefit analysis based on incentives. This isn’t to say that poor incentives exist- rather, citizens of these countries are rarely in a position to even consider the impact of said incentives.

My own research indicates that there is substantial correlation between inadequate provision of basic resources (education, healthcare for example), more advanced capital flow conditions and the incentives identified by Acemoglu. The causal story here seems moot…I have no doubt that Acemoglu’s forthcoming book will illuminate much of this debate. (As an aside, note that my conception of resources here is intentionally broad, emphasizing human capital; interestingly, the graphic provided with the Esquire article focuses on GDP as the poverty measure of choice.

That is an academic debate that, while serious, does not worry me as much as the following from Acemoglu:

If we know why nations are poor, the resulting question is what can we do to help them. Our ability to impose institutions from the outside is limited, as the recent U. S. experiences in Afghanistan and Iraq demonstrate. But we are not helpless, and in many instances, there is a lot to be done. Even the most repressed citizens of the world will stand up to tyrants when given the opportunity. We saw this recently in Iran and a few years ago in Ukraine during the Orange Revolution.

The U. S. must not take a passive role in encouraging these types of movements. Our foreign policy should encourage them by punishing repressive regimes through trade embargoes and diplomacy.

Notice that Acemoglu merely says that the Iraq and Afghan examples indicate limitations on the US’ ability to impose institutions, which obscures the far more important question: should the US be trying to impose said institutions on those countries? Are the institutions of the liberal West necessarily the cookie cutter solution everywhere? Surely this is a reductive way of thinking about the way forward. Furthermore, if one were to assume that institutions do need to be imposed (highly moot, in my view), there arise further methodological issues: how do we go about doing so? In Acemoglu’s defense, he does point to diplomacy and trade embargoes as his methods of choice, but if eight years of the Bush Administration have taught us anything, it is that a few trigger-happy loonies can twist Acemoglu’s reasoning to justify military intervention. While this isn’t a problem with Acemoglu’s suggestions in and of themselves, it should give us significant pause for thought, particularly when advocating such subtle interventionist ideas. The last thing we want to do is to encourage neoconservatism. My post on the Responsibility to Protect debate discussed this in greater detail (see Mike’s comments at the bottom for some excellent points that are relevant to this discussion in particular).

While Acemoglu’s general point on kleptocracies and other exploitative regimes is well taken (it isn’t too difficult to identify Kim Jong Il in this category, for instance), I think Mike’s point on implementation is worth thinking about. Specifically, if institutional deficits are indeed the problem, there are problems aplenty with moving towards more conducive conditions- are we going to stick with a Western, liberal conception of what effective institutions constitute? When do we move from encouraging indigenous, organic revolutions to imposing change externally? There are problems aplenty, which are again, not necessarily inherent to Acemoglu’s approach- they just need to be kept in mind as we move forward. I look forward to reading his book, in which these ideas will no doubt be explicated further.

The European Union’s first president has been appointed. Mr Herman Van Rompuy, the Belgian prime minister, was elected last night after Britain backed down on their assertion that Tony Blair should become the union’s president.

It took Britain a good while to break the deadlock however and it was blatantly obvious that their only motivation for keeping their position was arrogance, perhaps even ignorance. Whatever your views on Tony Blair are, if the majority of Europe doesn’t want him there then he shouldn’t be there.

I have a lot of respect for Tony Blair but, he isn’t the right man for the job.

One point of this event that strikes me as being very important is that nobody has ever even heard of Herman Van Rompuy. And while that may raise doubts about his abilities (which I don’t think it should) it also holds a lot of benefits.

Most people – world leaders and laymen alike – should have no preconceptions about this man. He has a clean slate and a fresh start in a new seat. It is up to him, with the aid of his foreign affairs chief, Catherine Ashton, to build relationships and partnerships between the the member states of the European Union, and also to work on companionships with other nations around the world.

The way states like America, Russia and China view and work with the EU is hugely important. We need their support and we need to stay on their good side. The key to economic success (which is what the EU is all about) is in peace, intelligence and competence.

The Americans might have been annoyed by Tony Blair; the Chinese mightn’t have taken him seriously enough; and the Russians may not have cared about his interests or opinions. I’m being crude, I know, but the preconceptions people have about someone or what they represent can have dire consequences. A slurred insult or an undertone jibe that’s picked up will most certainly be splashed across the global media web and will be blown up to be worse than it is.

This may be farfetched and I may be over thinking this but it is important. This man holds a governing position over our sovereign states. It’s an interesting concept that may develop into a good story. We’ll see what he does for us on the international scale, and more important if this has any effect on us in Ireland. Good news wouldn’t go amiss for a few people, I imagine.

the institution will always be dissed.

and no matter how much we try to change that, to make government policies appealing, nobody will be fully satisfied, or not everyone will be satisfied.

maybe we should see Institutions as those things that are big enough to inflict change on microscopic levels, and Important enough for everyone to want to have a say.

Institutions set up standards- and as long as you have standards, people will want to knock them down. Human nature, or institution’s fault?

(Writing my essay on Local Planning Regulations now, eg. STB and URA Policies & Recalling my Year One Architecture tutor’s comment:

Linda the photocopy lady- she’s an Institution.

She’s been here ever since i studied here, and will be here long after we’re gone.

hehe.

by Jerry O’Driscoll

I have been active in criticizing recent Fed policy, but avoided the controversy over Fed governance (“Audit the Fed”).  I worked for the Dallas Fed for 12 years and believed then, and continue to believe, that there is a legitimate private banking function that the Fed performs.  It was born as a bankers’ bank, a successor to the private clearinghouses.  As explained by Richard Timberlake, legal ambiguity surrounded some of the activities of the private clearinghouses (e.g., provision of reserves in times of distress). The Fed was the compromise.

 The courts have consistently upheld that the 12 Reserve Banks are not part of the government. The presidents are selected by a board of directors, and not subject to Senate confirmation.Their employees are not U.S. officials, not subject to civil service protection, and are private by a variety of legal tests. 

The Board of Governors of the Federal Reserve System are an entirely different matter. They are nominated by the President and appointed by the Senate. The Board’s employees are constructively government employees.  

So the Federal Reserve system is a complicated private/public entitiy. Bureaucrats being bureaucrats and lawyers being lawyers, the Fed has tried to have its cake and eat it: public when it suits it; and private when it suits it. The rubber hits the road over its “independence.”  Indepedent of what? 

The Fed is a creature of Congress and subject to whatever oversight that Congress deems appropriate.  The current debate is over whether the Fed’s monetary operations should be audited. The Fed claims that would interfere with its operational independence.  Yet every private entity is audited without interfering with its ability to operate. This is a sham argument.  

I’m not normally a fan of op-eds by politicians. But Cong. Ron Paul and Sen Jim DeMint have a singularly intelligent piece in the Wall Street Journal on the issue.  I don’t support every single thing they say, but I find them saying sensible things. Decide for yourself.

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