Submerging Markets™ - Recent Posts

IRAQ’S ONLY ELECTION More Lipstick on the Pig?James S. Henry

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On Sunday January 30, at least 8 million Iraqis, or 57 percent of Iraq’s 14 million registered voters, seized the opportunity to participate in a “free election” of sorts. They voted for candidates and parties that most of them had never heard of, marked ballots that a majority of them could not read, walked for miles to secret polling booths under the watchful eyes of a foreign occupation army that had “collaterally” killed, injured or brutalized tens of thousands of their fellow citizens, and defied threats from thousands of other blood-thirsty, anti-democratic insurgents.

About 243,000 of those who voted were located outside the country. But the rest were willing to brave all these difficulties, including more than 260 attacks and 50 fatalities.

Clearly the Iraqi people deserve much credit for this bravery – especially those who tried to vote in more heavily Sunni Arab  districts where the insurgents have been most active.

Indeed, for once, this display of bravery was something about Iraq that mostinternational leaders could agree on.

In President Bush’s words, “The Iraqi people themselves made this election a resounding success.” The UN’s Kofi Annan described the Iraqi people as “courageous.” Britain’s Tony Blair reported that he was “humbled” – no mean accomplishment in itself. Even Iran’s Foreign Minister Kamal Kharrazi, perhaps anticipating a Shiite victory, and hoping that this will accelerate a US withdrawal, pronounced the elections a "success" and a "sign of nobility of the Iraqi people.”

It is clear as well that the long-suffering Iraqi people also deserve our respect for simply having survived more than three decades of costly wars, occupations, international embargoes, and a brutal dictatorship – aided, armed, and abetted by several of the very same foreign powers that are today boasting about being the midwives of Iraq democracy.

Despite all the collateral damage, the security forces -- mainly unknown young Iraqi, American, and British soldiers -- who protected these voters also deserve credit. Without this protection, even with all the Iraqi bravery, there would have been no election. These efforts go a long way toward repaying the moral debt that is owed to the Iraqi people   for the Great Powers’ decades of complicity with authoritarian regimes in Iraq, their failure to reckon with Saddam much earlier, and the fact that the Bush Administration and its friends have otherwise thoroughly botched this latest intervention so thoroughly.

Does anyone else deserve credit for this achievement? Precisely what has been accomplished, at what cost? And when will the Coalition be able to withdraw its troops? Our answers may surprise you.

Maximizing Gross National Happiness Rethinking the Economics of Growth and InequalityJames S. Henry

Each year, by the terms of Jeremy Bentham's 1832 will, his mummified corpse is wheeled out to sit with faculty and students at the University of London.  Apart from this peculiar celebration, however, few people today remember the 18th-century economist and social critic whose life's work consisted of trying to make the British legal system serve "the greatest happiness of the greatest number."

Indeed, most modern economists, under the influence of the Chicago School's homespun version of behaviorism and positivism, have long since abandoned the direct study of "human happiness."

In the economic development arena, this has led many economists to focus on technical policies that are supposed to increase overall efficiency, output, and measured growth, without regard to the distributional consequences.

In this "neoliberal" view, one person's subjective pleasure is another's pain, utility functions are unobservable, so interpersonal comparisons of utility are impossible. Distributional questions are therefore purely matters of "personal preference," to which "positivist economics" has nothing to add.

One suspects that this stance causes poor old Jeremy Benthem, who dedicated his life to identifying social polices that would increase human happiness, to turn somersaults  in his Auto-Icon.

Fortunately, modern psychologists, anthropologists, and public opinion pollsters have recently stepped in where most economists have feared to tread. 

NEO-BENTHAMITE PSYCHOLOGY AND ECONOMICS

Using a combination of survey research techniques and objective measures of individual economic and social status, these social scientists have begun to study the determinants of subjective happiness levels directly -- both within and across countries. 

Among their most important findings:

• Beyond a certain level of per capita measured income -- about $15,000 per year -- reported happiness levels don't improve very much across countries. There is also a great deal of variation in reported subjective happiness levels poorer countries at similar income levels. In other words, making "measured growth" the sine qua non of economic policy makes little sense.
  

• High-income groups report somewhat higher "very happy" levels within countries at any given point in time. But among First World countries,  increases in average real per capita income have not led to increased happiness levels over time.

• Indeed, since the late 1940s, increased real income levels among First World countries have been accompanied by rising levels of alcoholism and drug addiction, depression, and crime  -- an indication of a growing gap between trends in income and happiness.

• Changes in real income may lead to short-time increases in subjective happiness at the individual level.  But people become "habituated" to new levels of material income quickly -- in less than a year. Since they also tend to underestimate such "habituation" effects, they probably also spend too much time on the job, and too little time with their families.
  

• Measured income has much less impact on subjective happiness than many other determinants of happiness --  especially employment, job security, family status,  and health. The country of Bhutan has reportedly already recognized this fact by declaring that its national goal is to maximize "Gross National Happiness" rather than GDP per capita.
  

• Relative incomes and "rivalry" are other important determinants of subjective happiness. This depends on one's reference group. For example, reported happiness levels among residents of East Germany plummeted after 1990, when they went from having the highest incomes among Soviet-type economies to the lowest incomes in Germany.

• While genetic factors may help to explain differences among individuals in subjective happiness within any country, differences among neighboring countries -- say, within Europe -- are far too substantial and persistent to account for on the basis of such factors.

POLICY IMPLICATIONS

From the standpoint of Bentham's original goal of designing social institutions to maximize human happiness, the implications are many.

They include new justifications for: 

(1) Progressive income and wealth taxation;

(2) Polices that help to provide job security, social security, and health insurance;

(3) Using non-material incentives to reward people for doing a good job;

(4) Encouraging people to spend more time with their families; and

(5) Paying more attention to "non-material" development goals like democracy, family values, work force participation, and human rights -- in striking contrast to the materialist path that now seems to unite both China and the World Bank/IMF on the goal of blindly maximizing measured GDP per capita.

In other words, all this adds up to a pretty interesting justification for -- in effect -- Europe's "high tax/social insurance/long vacation" welfare state version of capitalism. 

From a competitive standpoint, however, since the US, China, and other ruthless global competitors are unlikely to adopt such a model any time soon -- and, indeed, moving in precisely the opposite direction, the question is whether any of these Neo-Benthamite policy implications stand a snowball's chance in hell. They may, but only if those of us who are located in neoliberal vanguard countries are able to push social policies in a more progressive -- and happier! -- direction.

(For a concise summary of the literature, see the following three lectures by LSE's Professor Richard Layard:) 

• Download  Lectur 1

• Download Lecture 2

• Download Lecture 3

***

© James S. Henry, SubmergingMarkets™, 2005

 

SO-CALLED “NATURAL” DISASTERS III. The Aftershocks to Our Religious Beliefs James S. Henry

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Unhappy mortals! Dark and mourning earth!

Affrighted gathering of human kind!

Eternal lingering of useless pain!

-- Voltaire, Poem on the Lisbon Disaster, 1755

(T)housands of pilgrims to a Marian shrine (on India's coast) were washed away as they attended mass….(A) divinity student.. said she watched one man shout: ‘There is nothing! There is nothing! Where is God? What is God?’

-- Chicago Tribune, 12/31/04

The powerful Sumatra quake and tsunami not only moved whole islands, caused the Earth to wobble, and took more than 160,000 lives.

They also shook our world views to the core, and placed a tremendous PR burden on the more than 100 competing members of the global “non-profit” religion industry.

This is partly because of the sheer scale of the disaster. But it is also because this was surely one of the most ecumenical "natural" catastrophes in history.

While at least half the victims are Muslim, there are also substantial numbers from most of the world's other major religions, including Hindus, Buddhists, Christians, Jews, Jains, and Sikhs, as well as many non-believers.

This has posed an interesting explanatory challenge to all these different religious perspectives at once, and has allowed us to compare their responses. When we do so, as discussed below, we find that many of them have been unhelpful, anti-humanitarian, and even downright loony.

Indeed, the aftershocks that the tsunami has caused to religious mythology, especially to the curious views held by true believers, fundamentalists and extremists of all persuasions, may be among its few benefits.

Meanwhile, of course, the crisis has also permitted those of us who are perhaps a little less certain about Divine Will to join together in what has become an unprecedented, salutary transnational effort to help some of the world's least well off.

We truly hope that the Gods are watching -- They may learn something.

SO-CALLED “NATURAL” DISASTERS Part II. The Need for a Global Natural-Disaster AgencyJames S. Henry

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The Boxing Day 2004 Sumatra tsunami is by no means the most destructive earthquake-related disaster in history – at least so far.  For example, the 1976 earthquake that leveled Tangshan, China, took at least 244,000 lives, and the 1556 earthquake in China’s Shanxi province is reported to have claimed 830,000.  For the investors, bankers, and insurers in the audience, the purely economic impact of the Sumatran tsunami is also expected to be relatively slight, since most of its victims were indigenous poor people in remote areas, and the region's tourist industry will quickly recover. Japan’s 1995 Kobe earthquake, in contrast,  caused more than $100 billion of property damage. 

However, as discussed below, this tsunami certainly has attracted a record level of foreign aid. This is partly because many of the countries affected are strategically important. But it is also because, at least in terms of lives affected and damage caused beyond the boundaries of the country where the earthquake originated, the Sumatra tsunami was a record-setter.

At last count, in addition to 94,081 confirmed dead in Indonesia, there have been nearly 9000 dead or missing in Thailand, 15160 in India, (andup to 20,000 more in the Andaman and Nicobar Islands), 44,000 in Sri Lanka, and 396 in Tanzania, Somalia, the Seychelles, Madagascar, the Maldives, Burma, Malaysia, and Bangladesh.

In addition, there are more than half a million injured, and millions more whose lives have been changed forever. All this is much more significant than the destruction of over-valued Japanese high-rises.

While other tsunamis have taken many lives outside their countries of origin, this one’s long-distance effects have already claimed more lives in more countries than all the other tsunamis around the world since 1800. In other words, this is one of the most profound transnational disasters ever.

It is therefore not surprising that this tragedy should have commanded an overwhelming global response. At least for the moment, the developing world has finally succeeded in capturing our attention, if by nothing more than the sheer power of its own suffering. Perhaps we will finally now come to understand that both the relief and the prevention of such disasters are appropriate global responsibilities.

SO-CALLED “NATURAL” DISASTERS Part I. OverviewJames S. Henry

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For the second year in a row, December comes to a close with a dramatic reminder of the precariousness of daily life in the developing world -- and the continuing failure of the international community to provide adequate early warning systems, pre-crisis funding,  and rapid, effective global relief for the victims of so-called “natural disasters”  -- most of which are actually quite predictable, at least in the aggregate.

This year, on December 26, 2004, it was the 9.0_Rs earthquake off the western coast of northern Sumatra, Indonesia’s second largest island, the fifth largest earthquake recorded since 1900.

One year ago to the day, on December 26, 2003, the disaster in question was the 6.6_Rs earthquake that devastated the city of Bam in southeast Iran, at a cost of  26,500 lives, 25,000 injured and 80,000 homeless.

The death toll from this year's Sumatra quake is likely to exceed 150,000, with thousands of people still missing, several hundred thousand who have been seriously injured,  and more than five million -- most of whom were impoverished to begin with -- suffering from thirst, hunger, homelessness, lost employment,  and the threat of mass epidemics.

Furthermore, as we were also reminded in Bam, among the worst consequences of such catastrophic events are the longer-term traumas associated with disease, losing friends,  family, fellow citizens, livelihoods, communities, and whole ways of life. 

As usual -- and as was true in the case of 9/11, for example --   much of the initial media coverage of this Sumatra tsunami has focused on body counts, other dire visible consequences, and the massive relief effort that has followed.

That is to be expected. But before our attention span drifts too far off in the direction of some other new Third World calamity, it may be helpful to step back and examine some of the systematic factors that contribute to the high costs of such mishaps over and over again, and the extraordinary costs of this "natural" tsunami disaster in particular. 

Our overall theme is that there is really no such thing as a “natural disaster” per se. This is not to say that man-made forces were responsible for Saturday’s tsunami.  But, as discussed below, the degree to which any such event results in a social and economic “disaster” is often to a great extent under our control. 

In the case of this particular tsunami,  its high costs:

1. Were entirely foreseeable, at least in a “sometime soon” sense, based on both long-term and recent experience with tsunamis in the Indonesian arena;

2. Were actually foreseen by several geological experts, some of whom have been advocating (unsuccessfully) an Indian Ocean tsunami early warning system for years;

3. Could have been substantially mitigated if US, Japanese, and other scientists around the globe who monitor elaborate earthquake- and tsunami-warning systems, and had ample warning of this event, had simply shown a reasonable degree of human concern, imagination,  and non-bureaucratic initiative;

4. Might have been avoided entirely with a relatively modest investment in tsunami “early warning systems” for Indonesia and the Indian Ocean.

Furthermore, the global response to this horrific disaster has been long on the size of aid pledges, dignitary press conferences, and “oh – the horror” press coverage. 

It has been conspicuously short on actual aid getting through to the front lines. Today, almost a week after the disaster, aid efforts are well-funded, but they remain sluggish, disorganized, and ineffective, with at least as many additional lives in jeopardy right now for want of aid as perished in the original waves.

This is partly explained by the sheer difficulty of getting aid through to remote regions like northern Sumatra.  But, as explained below, it is also due to political factors, and the fact that the world community still runs its humanitarian relief efforts like a “pick-up” softball game. 

Fortunately, this particular crisis seems to have captured the attention of the world's donor community. At this point, with more than $1.5 billion in aid pledged by governments, multilateral institutions, and more than 50 private relief organizations,  the real problem is not money, but organization.

But we may want to demand that the UN, the US Government, the EU, and all these relief organizations get their acts together, and establish a permanent, well-run, well-funded global relief organization that can move more quickly the next time around. Along the way, they should also pay far more attention to preventive systems that can help save the future victims of such disasters, before all the relief becomes necessary.

                            © James S. Henry, Submerging Markets™, January 05

THE HORROR OF CHRISTMAS II The Social Pathologies of Our Grandest "Holiday"James S. Henry**

"Christmas has us all by the throats..." -- Noel Coward

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When I was a kid in Minnesota, my family had a huge Scandinavian feast every Christmas Eve, complete with more than two dozen relatives, three feet of snow, a mountainous evergreen that was trimmed to the top with popcorn balls, candy canes, tinsel, and hundreds of precious once-a-year decorations, a six-course dinner with lutefisk, ham, turkey and eight or ten pies, long-winded after-dinner stories about baseball, the space race, and World War II, and, of course, lots of brightly-wrapped presents.

It has taken more than three decades of rigorous training in economics and law and life on the East Coast for me to shake off the nostalgia of those warm, festive occasions.  But I am now willing to say out loud what I expect many Americans are muttering all across the country at this time of year: Christmas is a real net loser as a socio-economic institution.

Although for decades the observance of Christmas has been justified on the grounds that it is “merry,” rigorous quantitative analysis proves that precisely the opposite is the case. Despite numerous claims by its proponents that this holiday promotes a desirable “spirit,” and makes people “jolly,” the hard data clearly demonstrate that the yuletide period is marked by environmental degradation, a sharp increase in unfortunate encounters with hazardous products, massive congestion,  tedious, time-consuming travel,  and the abuse and inefficient use of vast numbers of animals, birds, trees, and many other valuable resources.

Moreover, the number of people who are rendered truly “joyous” by Christmas is almost certainly exceeded by the number who are made to feel rather blue. Nor does Christmas truly fulfill its purported distributional objective: the transfer of gifts to those who really need them.

Finally, it turns out that this so-called “holiday” may make a significant contribution to America’s dwindling savings rate, unsustainable trade deficit,  declining competitiveness, and the movitation for a great many property crimes – not to mention our appalling appetite for elevator music from the likes of Bing Crosby, Michael Bolton, and Kathy Lee.

In short, although Christmas may be an important source of religious inspiration for some, and a genuine source of wintertime fun for others -- mainly children, who would probably be having fun anyway -- it fails the test of social cost effectiveness.  It is high time for those of us who are serious adults to take a good long holiday from this overblown annual ritual.

(Some) Justice Finally Comes to Chile -Is More on the Way?

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After decades of inaction, Chile's own judicial system is finally beginning to hold leading members of the Pinochet dictatorship directly responsible for the brutal reign of terror that it inflicted on Chile  from September 11, 1973 to March 11, 1990.

The most recent piece of good news was this week's indictment of 89-year old former Chilean dictator General Augusto Pinochet Ugarte on charges stemming from the disappearance and murder of several individual activists.

In July 2002, another serious human rights case against General Pinochet had been dismissed in Chile on grounds that he was mentally incompetent to stand trial. That case echoed the controversial March 2000 decision by UK authorities to permit him to return home rather than extradite him to Spain, France, Switzerland, or Belgium, after he’d spent more than 17 months under house arrest in London.

As noted below, this week's indictment is just the latest in a series of recent efforts by Chile's judicial system to provide justice for more than 3,200  civilians who were murdered by the regime, more than 28,000 others who recently stepped forward to bare witness about being illegally jailed and tortured, and tens of thousands more who had similar experiences, but have so far kept silent. 

Several other cases that have been brought against Pinochet in Chile have recently been allowed to proceed, especially after Pinochet gave a lucid, self-serving interview to Channel 22, a Spanish language TV station in Miami,  in November 2003. This incredible act of hubris may have finally brought Pinochet to ground.

While this latest ruling will no doubt be appealed to Chile’s Supreme Court, it is at least another step in the right direction.

In addition to providing justice, such efforts also provide a measure of vindication for those who have long maintained that the Pinochet dictatorship was an unwarranted, illegal, and counterproductive intrusion on Chile's long-standing traditions of democracy and respect for human rights.

However, the disgrace now is that while Spain, France, Belgium, Switzerland, Argentina, and Chile itself have brought serious criminal charges against Pinochet or his key associates, the US Government has never done so.

This is despite the fact that several US citizens were also murdered by the regime, not only in Chile but also in the US itself.   

Furthermore, as examined below,  many of the Chilean junta's most important confederates and accomplices -- including leading bankers, economists, lawyers, media magnates, convicted professional terrorists, and several senior government officials -- continue to enjoy sanctuary abroad -- especially in the US, the purported champion of the “post-September 11^th” global anti-terrorist campaign.

Many Americans may not recall that there was another September 11^th, even more bloody and terror-stricken than their own. Indeed, this “other September 11^th” was one that their own government helped to create.

To do so, the US worked closely with an incredible bevy of transnational terrorists and tin-horn "generals," like Pinochet (Chile), and later, Videla (Argentina), Banzer (Bolivia), Stroessner (Paraguay), and Rios Montt (Guatemala). These valorous "generals" specialized in the use of terror against defenseless civilians.

It is time for Americans who really care about human rights to demand that the US Government follow the courageous lead that Chile has taken, and  help bring these uniformed savages, terrorists, and their foreign and domestic collaborators to justice. 

Global Growth, Poverty, and Inequality - Part I. A Little Christmas Cheer?James S. Henry and Andrew Hellman

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Christmas season is a very special time of year, when Americans, in particular,  engage in a veritable month-long orgy of holiday revels and festivities, including eggnog sipping, Santa sitting, package wrapping, neighborhood caroling, tree decorating, menorah lighting, turkey stuffing, and generally speaking, spending, getting, and giving as much as possible, at least with respect to their immediate friends and family.

We certainly don’t wish to question the legitimacy of all these festivities. After all, as this November’s Presidential election has reminded us, ours is surely one of the most powerful, vehement, unapologetic Judeo-Christian empires in world history.  Like all other such empires, it has every right to celebrate its triumph while it lasts.   

According to the latest opinion surveys, this is indeed an incredibly religious nation, at least if we take Americans at their word.  More than 85% of Americans adults consider themselves “Christians,” another 1.5% consider themselves “Jews," 84% pray every week, 81% believe in life after death, 60% believe the Bible is “totally accurate in all its teachings,” 59% support teaching creationism in public schools,  and fully 32% -- 70 million people, including 66% of all evangelicals --  would even support a Constitutional Amendment to make Christianity the official US national religion. 

In light of all this apparent religious fervor, it is disturbing to read several recent analyses by OXFAM and the UN of certain persistent, grim social realities around the world – and the paltry efforts of the New American “Judeo-Christian Empire" to redress them. Is the intensity of our religious rhetoric and this season's celebrations just a way of escaping these unpleasant realities? 

”WHERE’S WARREN?” Bhopal’s 20th Anniversary

Today marks the twentieth anniversary of the deadly December 3, 1984, chemical gas leak at an Indian pesticide plant in the very  center of Bhopal, a city of 90,000 – just a little larger than Danbury, Connecticut -- in the state of Madhya Pradesh, in central India.  At the time the plant was owned by Union Carbide India, Ltd. (UCIL), an Indian company whose majority (50.9%) shareholder was Danbury-based Union Carbide Corporation (UCC) which was acquired by Dow Chemical in 2001.

This anniversary provides us with an opportunity to reflect on “lessons learned” from this disaster – including the need to make sure that the globalization of trade and investment is also accompanied by the globalization of justice for the victims of transnational corporate misbehavior.

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REPORT FROM KIEV - A DEMOCRATIC REVOLUTION?Monday Nov. 22, 2004Matthew Maly