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Friday, June 24, 2005

James S. Henry and Andrew Hellman

Laun_2The US government, the Palestinians, and indeed most Israelis are delighted that the Sharon Government has finally stood up to some settler extremists, and is still on track to pull out of the Gaza Strip by mid-August.  

However, we should all pay closer attention to the precise way that the Israelis are leaving.  There appear to be several missed opportunities to leave a much healthier economic base for Gaza's 1.4 million Palestinians when the Israelis leave-- a necessary, if not sufficient, condition for eventual peace. 

In particular, Israel is  now on a path to dismantle or destroy over 1500 homes and 1000 acres of greenhouses, which already provide thousands of jobs for Palestinians, and might provide thousands more....


C99dbd547fc6faAt current course and speed, Israel may be missing a huge opportunity to help Gaza become something more than – in the words of Muhammad Dahlan, the Palestinian disengagement coordinator – "a giant prison camp," with 35 percent unemployment, 77 percent poverty, a youthful population whose median age is 16,  no seaport, a unusable airport, and few visible means of support other than foreign aid, rock-throwing, and amateur rocket-building.

Hamas_gaza_celebrate_29j5_khNo wonder that Hamas has been able to recruit a huge base of supporters there. It won seven out of ten local council seats in Gaza's municipal elections last December, and would likely have soundly defeated Mahmoud Abbas' Fatah Party in the Palestinian parliamentary elections that were originally scheduled for July 17th, but were postponed by Abbas indefinitely in June.


One missed opportunity is housing. At a recent press conference, Secretary of State Rice stated that 1,600 Israeli settler’s houses will be destroyed. The official rationale is that such single-family homes are not economically viable for the Palestinians in Gaza.

Houses_b4In reality, however, that rationale was just for public consumption, insisted upon by the Sharon Government for PR purposes.  With more than 1 million Gazans to consider, surely there are of course quite a few elderly couples,  young couples, and smaller families who might have used the houses. They also have other  potential uses -- business and government offices, clinics, even guest houses for visiting tourists, if the area ever stabilized.

90b1d6f6c1ff2dThe truth is that the houses will be destroyed for much less defensible reasons. First, it is widely viewed as one of the easiest ways to insure that the 8,500 Israeli settlers actually leave once and for all.

Only 284 families had signed up for compensation under the Evacuation Compensation Law, and officials are expecting more violence between Israelis and Palestinians as the August 15th disengagement approaches.

ArmedsettlersFrom Israeli's standpoint, the destruction also prevents the politically dangerous image of victorious Palestinians waving Hamas flags on the roofs of former settler's homes, celebrating another Lebanon-like eviction.


Greenhouses could be an even more important missed opportunity. Currently, there are about 1000 acres of Israeli-owned state-of-the-art greenhouses in Gaza. They are worth up to $80 million and employ about 3,500 Palestinians.  The fruits and vegetables that they produce account for 15% of Israel’s agricultural exports, mainly to Europe. According to agricultural experts, they might potentially provide  as many as 7,000 regular jobs, supporting, in turn, up to 30,000, and perhaps stimulating the growth of related industries. 

10153_k13s_1In short, figuring out a way to keep the greenhouses going could provide stable jobs and incomes for tens of thousands of Gazans, continued good business for Israel,  and also offer an opportunity for Israelis and Palestinians to show a little badly-needed cooperative spirit.

However, while the fate of these greenhouses is still being negotiated, and the idea of preserving them has some  advocates,  the outlook for them at this late date is grim.

According to two Israeli sources in a position to know, the most likely scenario is for the greenhouses to be dismantled and relocated elsewhere, or just demolished and replaced with new greenhouses at new settlements in Nitzanim, just 12 miles from Gaza.20050225gushkatif_2

These sources mentioned several key obstacles to a Gaza greenhouse idea.

First, with no seaport and Israel unwilling to permit Gaza to have air rights, and no highway to the West Bank, the perishable goods produced in these greenhouses could not reach the international market unless other transport arrangements are made. 

Second, Israel's settler certainly have no good will toward the Gazans, and Israel's agro-businesses don't  want to, in effect, put the Palestinians into business to compete with them.  A deal would have to be worked out for joint marketing and profit sharing, as well as compensation for the value of the greenhouses. Presumably the World Bank or USAID might be willing to finance such a solution, as they've indicated. Indeed, James Wolfensohn, former World Bank President and  Special Envoy for Gaza Disengagement, has evidently been trying to work out such a solution. The Dutch Government has also offered to buy them for the Palestinians.

P6b_1Third, some have expressed concerns that the Palestinians may not be able to protect the greenhouses from looting by their own people -- though Palestinian sources deny that this is a real concern.

_1502427_mandelaanddeklerk150apMore generally,  there is no question that Israelis and Palestinians have little love lost for each other.  Right now the Israeli Government is focused on leaving as quickly and safely  as possible, and the Palestinians are focused on just having them go. Left to their own devices,  there will be no "win-win" solution.


June 24, 2005 at 06:48 PM | Permalink | Comments (0) | TrackBack

Thursday, June 23, 2005

The Latest Crazy Scheme in the Hapless "War on Drugs"
James S. Henry and Jeremy Bigwood

Drug_war1In the midst of the faltering war in Iraq, the war on terror, and the Bush Adminstration’s war on Social Security, Americans may perhaps be forgiven for having forgotten that their government is still waging a "global war on drugs" that costs at least $30-$40 billion per year, and also causes a great deal of other political, social, and environmental damage at home and abroad.

Indeed, just this week, the UN announced that the latest results in this global drug war have not been encouraging -- with a $320 billion worldwide market, 15 million new drug users, and 200 million  total drug users -- more than ever.

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Cocainepriceschart_3As indicated in the adjacent chart, after more than three decades of this hallowed effort, drug enforcers have failed to produce any increase whatsoever in the real retail street price of illegal drugs.

War20on20drugs2_1Retail cocaine prices, for example, are much lower than when the drug war started. Similar charts could be also drawn for opium, marijuana, and the bevy of other new "designer drugs" that have been introduced in the last decades – a rational economic response to prohibition.

Of course, hard-core defenders of the anti-drug campaign may argue - just as Prohibitionist moralizers did about booze prices in the 1920s - that retail drug prices would be even lower, except for the war on drugs.

But it seems more likely that supply-side interdiction has failed to have any consistent impact, partly because of improvements in drug dealer productivity – as many economists on all sides of the political specrum have predicted.

4201sa4_3The collapse in retail drug prices is also consistent with the embarrassing fact that opium production has recently exploded in US-occupied Afghanistan.

PabloescobarThe decrease in prices is also exactly what one would expect from a successful "decartelization" program, like the one that the US Government pursued with such fervor against Pablo Escobar, "Gacha" Orejuela-Rodriguez, and Manuel Noriega.

In the 1980s and 1990s that effort employed quite a few "drug busters," and provided endless material for TV and film scripts. But at the end of the day, it basically just helped to increase supply.

PlanesprayingNow, after five years of saturating Colombia with chemical herbicides, the US government and their allies in Colombia have also failed to reduce the number of hectares under coca cultivation.

NewcocaIndeed, the total area under cultivation in Colombia at the end of 2004 was slightly greater than at yearend 2003. Coca cultivation in Peru and Bolivia, have also recently been expanding. All this is consistent with a the "balloon" model, in which destroying coca in one place only increases the incentives to plant elsewhere.

CocagrowingIt also appears likely that – like every other profit-motivated farmer on the planet – coca farmers, as well as cocaine laboratories and distributors, are not sitting still, but are working hard to improve per-hectare productivity.

This means they don’t require nearly as many hectares to produce a given amount of coca as they used to. In calculating its estimates of "potential output," the US DEA assumes a constant 4.26 kilos of potential cocaine output per hectare of coca cultivation; UN "drug experts" assume a constant 3.56.

157kilosEven if we give the DEA the benefit of the doubt, however, it estimates that in 2004, Bolivia, Peru, and Colombia produced enough coca to make more than 640,000 kilos of pure cocaine. While this is 28 percent lower than the average potential output in 1996-2001, it is still enough coca to produce more than 2.5 billion grams per year of retail street-cut cocaine.

Gg052a At today’s New York City street price for an "eight-ball" – $150 for an eighth of an ounce, or $43 a gram – even if just 20 percent of this potential output made it through, that’s a $22 billion annual market. Those who are waiting for supply-side interdiction to "win the war on drugs" will have to wait a long time.

Indeed, if one operative definition of insanity is toShootft "do the same thing over and over again, expecting a different result," by this definition, US drug enforcement policy is barking bonkers, 'round the bloody twist, and bouncing off the walls.


Whatever the "benefits" of this policy, it is clear by now that it has had huge social and political costs, especially for our neighbors south of the border.

Peru12After two decades of "drug wars," Colombia, Peru, and Bolivia, as well as major distribution centers like Mexico and urban Brazil, are rife with violence, civil unrest, and drug-financed corruption.

Colombia, in particular, has the world’s highest homicide rate, and large parts of the country have descended into a drug–fueled civil war -- a significant militarization of the drug wars, courtesy in part of the US Government.  There is also mounting evidence that coca eradication has caused serious environmental damage, displaced poor campesinos and destroyed valuable legal crops.

26fedprisFinally, here at home, punitive drug laws have also been a raging disaster -- except perhaps for the moralizing, knuckle-dragging politicians and religious leaders who support them.  They contribute to a great deal of violence and property crime. They have distracted law enforcement from more important tasks like protecting homeland security. And they’ve created the world’s largest prison population, with more than 2.1 million current US prison inmates, and another 4.8 million prisoners on parole or probation,  fifty-five percent of whom have been convicted on drug charges.

Since a majority of all these past and present convicts are black males, and  many of them  have been stripped of their rights to vote by virtue of felony drug convictions, here at last we may have finally discovered at one "rational reason" for US drug laws -- at least among this plutocracy's "demoratically elected" conservative representatives.


200pxacherontia_atroposThe "theater of the absurd" just described provides a suitable context for the latest half-crazed proposal from drug war enthusiasts.

Desperate to find some magic bullet that will somehow provide a supply-side solution, Colombian authorities have recently proposed the wholesale release of a special breed of moths, Eloria noyesi – known locally as "Malumbia" – that is supposed to feed only on coca leaves.

SilenceThe notion is that if enough of these moths can be distributed widely enough at the larval – caterpillar – stage, they may gorge on enough coca to undermine coca production once and for all.

Other recent press reports by CNN and AP have already called attention to this proposal. But SubmergingMarkets has done more homework. We've determined that this is not the first time that this moth plan has been proposed. We've also determined that it was previously considered and rejected for very good reasons. 

Indeed, during early 1990s, the US Government actually proposed a similar experiment using "biological control agents."

According to a Senior International Coordinator at the USDA Agricultural Research Service, Eric Rosenquist, the program was not implemented because of the potential negative side-effects on local agriculture.

In particular, the "malumbia" moth is a relative of the "gypsy moth," which is a non-specific consumer. There is no guarantee that the moth would only eat the coca plants, and may in fact consume other legal crops.

The other problem with this "bio control agent" is that the increase in the moth population might produce a dramatic increase in the population of the moths’ natural predators – parasitic wasps.

Wasps062701 After eating all of the moths, the wasps might then attack beneficial pollinators like honey bees.

Both scenarios would be unmitigated disasters for local farmers. Not only are bees invaluable for honey production, but they also play a vital role in pollinating valuable crops like flowers and coffee.

Uncle20sams20war20on20drugs_1So, at the end of the day, according to this leading US government expert, increasing the moth population might just destroy several of the most viable – and legal – local alternatives to producing illegal drugs!


P20003378g23001_1The most recent reincarnation of this mad scheme comes from two Colombian scientists. Dr. Alberto Gómez Mejía, is President of the "Network of Botanical Gardens of Colombia," and the "Network of Botanical Gardens of Latin America." His colleague, Dr. Gonzalo Andrade, an entomologist, directs the "Bogotá Institute of Sciences." Their proposal calls for the Colombian Government to fund the gathering, propagation, and distribution of coca-munching moths by way of the Colombian Drug Czar’s office.

In a recent telephone interview, Dr. Gomez provided more details about the idea.

"This is an old idea that was first proposed by Professors at the National University fifteen or more years ago. We revisited this idea to provide an alternative to the present push by the Government to fumigate our national parks with chemical herbicides. You capture the original breeding moths in coca fields – both males and females. They’re placed in a cage and fed on coca. As soon as the first moth’s eggs hatch, we drop these small caterpillars, or the pupae (chrysalises) that they produce, over target coca fields."

48ab1d0cd3a20eAsked if the proposal might actually require the government to cultivate some coca to raise enough moths, he admitted that it might. Depending on the number of moths raised and their per-capital coca consumption, therefore, this could put Dr. Gomez & Co. into a big-time coca growing business – strictly for moth breeding, of course.

Dr. Ricardo Vargas, Director of Andean Action, a local NGO that monitors the drug war, is much less sanguine about the moth concept. He says that while the "Malumbia" moths may be native, there's nothing at all natural about releasing them by the millions in concentrated areas. Despite assurances that the moths will only attack coca, he wonders what they will eat next.

As he says, the moth idea is "just another silver bullet approach." And that "with a plan like this, the chance for ecological mischief is very high."

BiowarfareDr. Gomez, disagrees with the notion that the moths could be dangerous – much less the very latest innovation in bio-warfare.

This moth scheme is hardly the most adventurous kind of biological drug warfare ever proposed. In 2000, the US government terminated a plan to use a killer fungus, Fusarium oxysporum, to eradicate coca. The Andean Community of Nations feared that the fungus might mutatate and have unpredictable side-effects.

Plancolombia This historical record suggests that the moth initiative may be motivated by more than just selfless science. With US agencies under increasing pressure to show results – any results! – from Plan Colombia, and coca farmers showing their innovation and resilience, scientists are taking advantage of this desperation in an attempt to win grant money.

Meanwhile, the guerilla war between the Revolutionary Armed Forces of Colombia (FARC) and the Colombian government continues, with the US spending more than $3 billion since 2000 in military aid, including training up to 13,000 Colombian Army troops.

In their time, of course, Colombians entrepreneurs have had a long, successful history of successfully breeding coffee, cattle, bananas, flowers, rice, cotton, sugar, and cacao, as well as coca, opium, and marijuana. It is only fair that they be given a shot at breeding world-class coca-munching moths!

On the other hand, this being Colombia, we should not ignore the possibility that some savvy coca growers and their wealthy supporters in the downstream sectors of the drug trade might respond by funding bio-terror experiments of their own – perhaps of the moth-munching wasp variety.

Down that path, we fear, lies a bee-less, flowerless world filled with coked-up moths, overstuffed wasps, guerilla entomologists, and drug gangs that have long since moved on to focus on even more addictive man-made illegal substances - ones that, like Ecstasy and Crystal Meth, can be produced in basement labs and have no natural predators.

72dpiwarondrugscannonBut hey! At least we will still be fighting "the drug war!"

(c) SubmergingMarkets.Com, 2005

June 23, 2005 at 01:05 PM | Permalink | Comments (0) | TrackBack

Friday, June 17, 2005

One Week in Iraq's Worth, No Less!
James S. Henry and Andrew D. Hellman

Aj2John_snow_1You know that it is high time to read the fine print and sharpen the pencil when Treasury Secretary John Snow, Angelina Jolie, Al Franken, Bono,  Bob Geldof, the World Bank's Paul Wolfowitz,  and the UK's Gordon Brown all line up on the same side of the field to cheer some change or other in First World policies with respect to the developing world. 

This was indeed a "feel good" week for First World development buffs,  as a group of G-8 Finance Ministers, warming up for next month's giant confab in Gleneagles,  Scotland, announced that they had finally agreed on "$40 billion of debt relief" for 18 poor, heavily-indebted countries in Latin America and Africa.

1083100230gordon_brown_apb_3In his typically understated fashion,  the UK's Gordon Brown, Chancellor of the Exchequer and heir-apparent to Tony Blair, called the measure an "historic breakthrough," the "most comprehensive statement that finance ministers have ever made on issues of debt, development, health, and poverty" -- even if he did say so himself!

Perhaps so. Of course any amount of debt relief, no matter how picayune, is to be welcomed, especially by the 282 million impoverished inhabitants of these 18 benighted countries, whose median per capita income is $1153 per year ($PPP). Indeed,  at least  75 percent of  these poor folk somehow manage to survive on less than $2 per day, with an average daily income of  just US$.98. Fully half  of these countries boast life-expectancies at birth of less than 50 years.     

Bonooneill_2At the risk of appearing to beFeatureimgafrhope2_2 slightly cynical, however,  we may wish to pause for a few seconds before  popping the champagne bottles, tapping the kegs,  and inviting our starving Third World brethren over  for a few brewskis, a jol,  and a brai to celebrate the "end of poverty" in our time.

As discussed below, in the words of one famous aging rocker, when it comes to debt relief, "We still haven't found what we're looking for."

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Bg2_1In the first place, the 18 particular countries selected for this dose of debt relief were not chosen at random, or on the basis of need alone. They are a subset of 69 countries that are regarded by the World Bank and the UN as "heavily" or "severely" indebted.

The select 18 are the ones that, for a variety of serendipitous reasons,  just happen to have enrolled in and survived the arduous "HIPC" process that was established by the World Bank/IMF in 1996, supposedly to help poor countries sharply reduce their debt burdens.

Unfortunately, the huge World Bank and IMF bureaucracies  have proved to be much better at carefully rationing  debt relief than at  making sure that such impoverished countries did not get up to their eyeballs in debt in the first place.

Since 1996, the multilaterals'  armies of ex-pat peu tyrants  have conditioned debt relief on all the usual "structural adjustment" strictures -- repackaged, without much  empirical justification,  as "poverty reduction."

(Aside to Jeffrey Sachs: "dollar a day world poverty," as defined by the World Bank, only declined from 1981 to 2001 because of a 500-million+  decline in the number of poor in non-neoliberal China -- most of which occurred in the early 1980s because of a massive redistribution of land to peasants! )

HipcThe 18 favored few include Benin, Bolivia, Burkina Faso, Ethiopia, Ghana, Guyana, Honduras, Madagascar, Mali, Mauritania, Mozambique, Nicaragua, Niger, Rwanda, Senegal, Tanzania, Uganda, and Zambia. Each one has taken significant steps to alleviate  debt burdens under the so-called "Enhanced"  Heavily Indebted Poor Country Initiative (HIPC).

This is a costly process that has forced such countries to jump through elaborate hoops with respect budget deficits, monetary policy,  privatization, and other favorite, unproven neoliberal nostrums.  Most of these countries started this process in 2000, and have been waiting for debt relief ever since. 

The result  was that, as of early 2004, after a decade of HIPC's tender mercies, the "select 18's"  external debt had been reduced by a grand total of $2.9 billion,  from $83.3 billion to $80.4  billion -- about  3 percent.  True, several did garner some interest rate reductions along the way,  but these 18 countries -- among the world's poorest -- have  continued to pay more than $3 billion of debt service per year to their creditors.  

Since 2004, with HIPC's mandate set to expire at the end of 2006, and debtor countries becoming more and more desperate for relief,  the pace has picked up. But before the  G-8 Finance Ministers weighed in this month, the 18's total external  debt still stood at $61.6 billion.Timer

This included the $38.2 billion of nominal (face value) debt and capitalized interest from the World Bank, the IMF, and the African Development Bank that has just been forgiven, and another $23.5 billion of debt from "bilateral" government loans (mainly the infamous ECAs) and some private, government-guaranteed debt.

As of this year, after a decade of HIPC, servicing this debt was still costing these 18 countries almost $2.2 billion a year in debt service. 

This may look like a modest sum to many First World residents who are used to seeing much larger sums spent on agricultural subsidies, submarines, highway programs, and invasions of distant countries. 

But it is a very large share of the $2.9 billion that all 18 of these countries spend each year on education, and the $2.4 billion they spend on public health.


Second, the actual cash value of the debt relief granted by the G-8  is far less than the widely-touted "$40 billion."  And the "100 percent debt reduction" proclaimed by the mass media actually amounts to just  62 percent.   

The total face value of the debt canceled by the World Bank ($31 billion), IMF ($4.2 billion), and African Development Bank ($3.0) adds up to $38.2 billion.  But in cash terms, since the average interest rate on the debt is only 3.5 percent, its cancellation amounts to an annual saving of just $1.34 billion a year.

RepossThis saving is certainly nothing to scoff at. But from the standpoint of the developing world as a whole, it compares rather unfavorably with, say, the proposed  doubling of First World foreign aid levels to genuinely-poor developing countries. Recently proposed by Tony Blair's Commission for Africa,  among others, this would increase current First World aid from roughly $25 billion (counting only the aid to genuinely poor countries) to at least $50 billion a year by 2010. 

From this standpoint, this month's  G-8 debt cancellation only gets us about 6 percent of the way home toward Blair's incremental $25-$30 billion a year of increased aid.   

The annual $1.3 billion saving also compares rather unfavorably with the $1.3  billion per week that the Iraq War now costs, according to the latest figures available from the US Congressional Research Services. Apparently it is much more expensive to kill people than it is to keep them alive.

As for the "100 percent debt reduction," the G-8 decision still leaves the 18 "favored few" with $23.5 billion of bilateral government debt and private debt -- and about $800 million a year of debt service.

Furthermore, there will be no relief of any kind until the G-8's proposals are ratified at the World Bank/ IMF Annual Meetings in September. C608

Finally, assuming - optimistically - that these countries would otherwise continue to pay the $1.3 billion per year to the multilateral institutions for the next 20 years without default, and that the multilaterals' lending cost is less than or equal to their cost of funds, the "net present value" of the debt cancellation is not $40 billion, but at most $16 billion. 

Indeed, from the standpoint of World Bank and African Development Bank bondholders, if the G-8's taxpayers can be persuaded  "take them out" of these "dog countries" and their risky future payments in exchange for, say,  $16 billion in cold cash for the multilaterals,  that would be a very profitable deal indeed  -- since the World Bank's cost of funds, for example,  is not the 3.5 % average debt service ratio now paid by these countries, but at least 4.7 %.

At that discount rate, the PV of the 18's expected future debt service is worth no more than $14.8 billion.  So if they could $16 billion from First World taxpayers to divide amongst themselves, that would leave the multilaterals with a tidy $1 billion+ gain -- compared with having to  continue to play  bill collector with dirt-poor debtors, and administer the thankless HIPC program. 

And I bet you thought it was all about generosity!!!

200,000 LAWYERS

Third, from the standpoint of "ending poverty in our time," this debt cancellation is like 200,000 lawyers at the bottom of the ocean -- at best, a good start.

Ate0054lThe 41 other "severely or heavily indebted" countries, with 900 million residents,  have at least  $1.02 trillion in debt outstanding. By HIPC standards, their debt burdens are even heavier than for the semi-fortunate 18 -- for example, on average, debt service for the other 41 is 6 percent of national income, compared with just 2 percent for the 18, and 13.3  percent of exports,  compared with 11 percent for the 18. 

At least 20 of these other  heavily-indebted countries that are either waiting to be accepted into the HIPC program (n=11), or are caught  in the lengthy "interim period" phase (n=9).

Mobutusesezeko_josephThe apparent inconsistencies are glaring.  For example, Benin, one of the fortunate 18, only has a $ .8 billion foreign debt,  a 1.74%  debt service to income ratio,  and a $1110 ($PPP) per capita income. Burkina Faso, another one of the 18, has a $.661 billion debt, a 1.25 % debt service to income ratio, and an $1170 ($PPP) per capita income.  Malawi, one of the less favored 41, has  a $2 billion debt, a 2.1 percent debt service to national income ratio, and a $590 $PPP income per capital. It has been waiting for debt relief from HIPC since 2000. The DR Congo -- formerly the notorious dictator Mobutu's personal fiefdom,  Zaire --  with 53 million people, a $660 $PPP per capita income, a $7.6 billion debt, a 2.7% debt/GNI ratio, and a 45 year life expectancy, has also been hanging fire since 2003, waiting for some relief. It fails to qualify for a mixture of technical and political reasons -- including the fact that it remains a war zone.

(Nota bene: Iraq also remains a war zone, but the international community has worked overtime to give its 25 million people tens of billions in debt relief.)

There are at least a few dew drops of social justice in the G-8's  discriminations,  however.  Bolivia, lately in the news because it is on the verge of descending into armed conflict between the indigenous majority and its  blancos/ "gente decente"  elite,  undoubtedly deserves special consideration,  after a decade of neoliberal policies that basically succeeded in increasing poverty, inequality, and social tensions to the breaking point --  as the IMF itself has admitted in a recent report.

Nicaragua, another long-suffering satellite of American foreign policy that had the temerity to toss out a US-backed dictator -- sort of a Mobutu with maracas -- and ended up the world's most heavily-indebted country in the 1990s, relative to its size, has also qualified for $265 million in additional debt relief. At the moment, like Bolivia,  the country is in a state of emergency -- another good example of  neoliberalism's pronounced tendency to overplay its hand.


Elsewhere, we've expressed grave doubts about the "more sand,  same  rat-holes" approach to increasing foreign aid, wiping out debt, and "ending poverty."

Fighting poverty, after  all, is not just about malaria nets and drinking water. Ultimately it is about deep-rooted, long-term structural change, political mobiliization, the redistribution of power, land, education, and technology, entrepreneurship, and the overthrow of established orders. These are concepts that  World Bank bureaucrats, let alone "development economists,"  may never understand.

At this point, however,  it remains true that the poor in many debt-ridden countries are in dire need of short-term relief. 

In that spirit, it would be great  to see the G-8, the World Bank, the IMF, and other so-called "development banks" work even harder to finally deliver on their long-standing commitments to debt reduction  for  quite a few more of the poorest of the poor.

    (c) SubmergingMarkets.Com, 2005.   








June 17, 2005 at 04:38 PM | Permalink | Comments (0) | TrackBack

Monday, June 13, 2005

"Earth to Ms. Clinton - There's A War On!"
...And Most Americans Want An Exit Plan!

Splashtop(Note to readers:  The US anti-war movement is picking up steam. This week, four US Congressman -- two Democrats and two Republicans -- introduced the first resolution demanding a definite time for a withdrawal, and the UK announced that it will begin transferring  its 9000 troops in Iraq to Afghanistan over the next 18 months, following in Italy's footsteps.  As discussed below, recent opinion polls shows that sixty percent of Americans want at least some troops withdrawn now. 

Meanwhile, diehard supporters of the War,   like
the New York Times' Thomas Friedman, are getting nervous and somewhat desperate. This week, in the face of the opinion polls and the UK withdraw,  Friedman proposed  doublling the number of US troops in Vietnam...oops, Iraq. Many of us still recall Friedman's candid April 2003 interview with the leading Israeli newspaper Ha'aretz:

"This  is not a war that the masses wanted. This is a war of an elite,  I could give you the names of 25 people, all of whom sit without a 5-block radius of my Washington, D.C. office, who, if you had exiled them to a desert island a year and a half ago, the Iraq War would not have happened." (T.Friedman, interview,  Ha'aretz, April 5, 2003).  

This time around we will listen to this special-interest driven "elite" no more.

Late last month we received a curious fund-raising letter from a New York-based organization called "the Friends of Hillary," disguised as an opinion poll. We're not registered Democrats or Republicans, and often receive and discard similar solicitations from both parties, marveling at their persistence. But this one struck us as especially odd and ineffectual,  even if it had given a jot about the recipient's actual opinion, which is doubtful.

It started off by asking us to "rank the following issues in order of their importance,"  and then gave the following closed-ended list:

"Economy/Jobs," "Environment," "Social Security/Medicare," "Education," "Homeland Security," "Health Care," "Tax Cuts," "Reproductive Rights," "Separation of Church and State."

Now of course all these are more or less important,  but they are at best topics,  not "issues."  One hopes that this confusion does not reflect some deeper unreadiness on the part of Hillary and her friends to articulate specific policy alternatives.

Most of them are also so-called "bread and butter issues," a Democratic mainstay.  This is as if Hilary & Co. have learned nothing from the last two elections:  millions of middle-class Americans have in fact  been willing to support candidates who are diametrically opposed to their own "bread and butter" interests,  on matters like tax cuts, health care, and Social Security -- so long as they perceive that these candidates take a principled stand on something they do care about. 

091604allaskThat's not what really bothered us about Hillary's pseudo-poll, however.   After all, Senator Clinton is a lifelong "policy wonk," who could probably wax eloquent for hours on any one of these policy arenas, unscripted....whoohhhhh! 

Rather, the really annoying, patronizing thing about Hillary's poll was the fact that one of the most important current issues of all, the fiasco in Iraq and what to do about it,  did not even reach the start gate.

That is especially puzzling,  because the latest US public opinion polls show not only that President Bush's popularity is on the ropes,  but also that American support for the Iraq War is falling like a rock -- virtually to European levels.

According to the latest Gallup Poll, for  example, almost six in ten Americans now say the  US should withdraw some or all of its troops;  58 percent say the war "wasn't worth it;" 31  percent want some troops withdrawn now; 28 percent want all troops withdrawn immediately; and only 36 percent support maintaining or increasing US forces in Iraq.

What's most interesting about this poll is that while opposition to the war has commanded a majority for some time, genuine support for it has stayed in the "upper 40s" range -- but now it is collapsing.  That indicates the even some Bush loyalists must be taking another look.

Furthermore, a closer look at the 42 percent who still believe that the war was somehow  "worth it" reveals that this poll was really a kind of intelligence test -- since over half of these folks still believe that the War had  something to do with September 11th (9/42)  protecting the US,  showing that the world "cannot mess with the US," or finding WMDs (!) 

Fewer than 20 out of every 100 Americans buy the frayed Administration line that our presence in Iraq is about "exporting democracy to the Middle  East" -- at least with respect to that justification, most Americans now recognize a used car salesman when they see one.

Pr050613i_3Most of these results echo a ABC/Washington Post poll last week, which found that 65 percent of Americans thought the US was "bogged down" in Iraq, while 73 percent thought that US casualty levels -- now more than 1703 dead and 12855 wounded and counting -- are "unacceptable;" 52 percent thought that the War has not contributed to US security

Two out of three Americans correctly preceive that President Bush does not have a clear plan for ending the war, while 45 percent fear that we are "heading for the same kind of involvement in Iraq as in Vietnam. " Just 41 percent approve of the way President Bush has been handling Iraq -- presumably the same crowd that still thinks the invasion was about 9/11.   

Several other recent opinion polls have also found very similar trends.

In the wake of all this mounting evidence for the War's unpopularity,  as well as rising US and Coalition casualty levels and all the other recent setbacks on the ground in Iraq, even some Republican Congressmen have called for  President Bush to set a firm timetable for the withdrawal of US troops.

IraqusgoneSo far, however,  no leading Democrats have followed suit. Indeed, the hapless Democratic Party, riven by special interests and virtually devoid of courageous, thoughtful leadership,  has so far not been able to profit one iota from President Bush's shrinking popularity. Its own popularity also tied an historic low in the latest ABC/Washington Post poll. 

Perhaps this should not surprise us. After all, almost all Congressional Democrats, including Hillary, took the "safe" road politically and naively followed President Bush into Iraq, voting for all his proposals on the War.

Most likely  they are now trying to take the safe road again, waiting for this  lame duck President to do the right thing and change course.  Of course that kind of midcourse correction has never been his style -- he is nothing if not "linear."      

Meanwhile, deserted by their mainstream political leaders, ordinary Americans have been  left to "vote with their feet" -- another striking resemblance to the Vietnam War era.

1 Despite offering record incentives, US Army recruiters have now missed their goals for four months in a row, and are accepting record levels of sub-high school graduate recruits to make up the difference.

If that particular trend continues,  the Iraq War could soon come to resemble Vietnam in even more unpleasant ways.

If this leadership void continues, and no top Democrat or Republican emerges to take a principled stand against the war,  we should be prepared  to take it to the streets one more time -- and show our support for the troops by demanding their return home from this senseless, costly, bloodthirsty, interminable conflict. 

(c) SubmergingMarkets.Com, 2005.



June 13, 2005 at 09:29 PM | Permalink | Comments (1) | TrackBack

Saturday, June 04, 2005

Confronting Venezuela
Jeremy Bigwood and James S. Henry

Download venezuela_article.pdf 

Chavez4fIn recent months there have been mounting tensions between the Bush Administration and Venezuela’s popularly-elected, if left-leaning, President, Hugo Chavez -- culminating in a series of heated confrontations over the past two weeks, and Condi Rice's interventionist rhetoric at the OAS summit in Miami this weekend. 

If this were the mid-20th century, Latin America watchers might fear that they were witnessing the early stages of yet another US-backed coup, like those that ousted other popularly-elected, if left-leaning, governments in Guatemala (1954, 1963), Argentina (1962, 1976), Brazil (1964), the Dominican Republic (1965), Bolivia (1971), Chile (1973), and indeed Venezuela itself (1948).

Today, 15 years into the “post-dictatorship” era, Latin America is still struggling to recover from  the disastrous long-term effects of these US-backed regime changes.

AngrycondiThese efforts may or may not have warded off socialist revolutions, but they undoubtedly produced a hit parade of corrupt, repressive dictatorships. They also persuaded a whole generation of progressive young Latin Americans that the only route to social justice was by way of violent revolution, and contributed mightily to the entire region’s excessive debts and economic regression -- and a surfeit of hostility  toward the US. 

Fortunately, those Cold War days are long gone – or are they?


The latest developments in the Bush-Chavez joropo came this week, with the release of a strongly-worded protest letter from PROVEA, an otherwise highly-regarded Venezuelan human rights organization that has often criticized President Hugo Chavez.

Usbrownfield_1Addressed to US Ambassador William Brownfield in Caracas, PROVEA’s letter expresses grave concern about a steady stream of increasingly menacing statements that have been emanating from senior members of the Bush Administration. PROVEA believes that, taken together, these statements are creating a climate of fear, and threatening Venezuela’s sovereignty and self-determination:

“We wish to express to you and your government our concern about the tone, the frequency and the possible implications of the declarations of high-level officials of the present U.S. administration regarding Venezuela.”

PROVEA’s letter singles out recent statements by US Secretary of State Condoleeza Rice, Roger Noriega, the Assistant Secretary of State for Western Hemisphere Affairs, and several right-wing members of Congress. It also takes note of a fiction-filled white paper on Venezuela by the Center for Security Policy, an obscure right-wing think tank that apparently just cannot get its fill of aggressive US foreign policy.

According to PROVEA, these aggressive statements have grossly misrepresented Venezuela’s situation by using terms like “dictatorship” to describe the Chavez government, and by implying that he is on the verge of establishing some kind ofCondoleezarice05 refuge for FARC rebels and al-Qaeda terrorists just across the Caribbean from us – worst of all, paid for by our own oil purchases.

PROVEA has also reminded US Ambassador Brownfield that, for what it is worth, the US and Venezuela have both signed the Articles of the Organization of American States (OAS) Charter, which is supposed to its member countries' rights of self-determination. Of course in this Boltonian Era, with an international treaty and a few bolivars you can buy a café Negro.

Nacional_noriegaThe comments by PROVEA (the Venezuelan Program for Education and Action in Human Rights) are interesting because this organization is no mere Chavez mouthpiece. It is a 17-year old NGO funded mainly by Protestant and Catholic churches, whose work has often been cited by international human rights monitoring organizations like Human Rights Watch and Amnesty International. Indeed, the US State Department has often relied on PROVEA’s assessments in its annual “Country Reports of Human Rights Practices,” and has described the organization as “a highly respected human rights NGO.”

PROVEA's comments also reflect a growing concern among independent observers that Washington and Caracas may be on the road to an even sharper confrontation. Several other recent events have also contributed to this perception.


To begin with, there is the recent dispute over the fate of the 77-year old Cuban-Venezuelan terror suspect Luis Posada Carriles. In late May, he was arrested by the Department of Homeland Security in Miami. He’d sought refuge there after winning an early release from a Panamanian prison, where he had served 3 years for allegedly plotting to kill Cuba’s President Fidel Castro.

At first the Bush Adminstration claimed that it couldn’t find Posada Carriles, but after he turned up on a Miami TV station, a former FBI agent tracked him down and elided that excuse. Needless to say, the fact that a notorious, convicted international terrorist was able to enter the US at will and then disappear into hiding hasn’t done much for Homeland Security’s image. The fact that he also apparently  still had a US passport  in his own name was also something of a puzzle. Cuba2

As international terrorists go, Sr. Posada Carriles certainly is a poster boy. Venezuela has requested his extradition to try him again for his alleged role in the 1976 bombing of a Cuban airplane that killed 73 people, including several Venezuelan citizens. The Bush Administration is jumping through hoops trying to dodge this request, which appears to be perfectly normal under international law – it is, in fact, a right that the US itself exercises frequently. At last glance, an El Salvador judge had suddenly expressed interest in extradicting Posada Carriles for unspecified charges in that country, where he reportedly worked with the CIA during the contra wars and hid out in the 1990s.

Separately, Castro would also like to try Posada Carriles  for his alleged role in a Havana bombing that killed an Italian tourist, plus several others assination attempts.  Sr. Posada Carriles, who has a long history of involvement with both the CIA and anti-Castro Miami exiles, claims that he is innocent. So far the U.S. government has refused to hand him over, asserting that the Venezuelan extradition request is not detailed enough. Both the Castro and Chavez governments have organized massive street protests over this episode, and Venezuela has threatened to sever diplomatic ties.
President Bush has resisted the temptation to invite Posada Carriles to the White House and award him the Medal of Freedom. But just last week, Bush did meet another indicted Venezuelan for 15 minutes in the White House -- María Corina Machado, an elitista opposition leader who is facing charges of “conspiracy” to overthrow Chavez. Her organization, Súmate, has received grants from the US Government to help organize the 2004 anti-Chavez recall referendum – which he won handily anyway. Sumate has also received donations from wealthy Venezuelans and Cuban-Americans who are opposed to Chavez. Ms. Corina Machado's head must be spinning with all the attention suddenly lavished upon her -- Condi Rice is also expected to meet with her in Miami. this week.

Since the Chavez Government has often been accused – to date, at least, without proof – of harboring international terrorists from groups like Spain’s ETA, Colombia’s FARC, and even some leading members of al-Qaeda, this is an especially interesting development. Interestingly, Spain, which also has a huge stake in fighting these groups,  maintains warm relations with Hugo. Machadobush1

From Chavez’ standpoint, if there are any terrorists who just happen to have been hiding out in Venezuela’s vast reaches, this would be a perfect time to do the right thing and make the trade -- by turning them over to  the International Criminal Court, for example.


As the guerilla war in neighboring Colombia has escalated, with US military aid to the Colombian government approaching $3 billion, there have also been several incidents that have convinced the US,  at least, that Chavez is aiding Colombia's left-wing guerillas. This issue was highlighted in December 2004, when Rodrigo Granda, a senior spokesman for the FARC, was seized while attending a conference in Caracas.  Two years earlier,  Caracas had also played host to former Peruvian spymaster  and arms dealer Vladimiro Montesinos -- though it is  still not clear  _931067_montesinos100_1precisely who was protecting him there. Rodrigo_granda


With left-leaning, democratically-elected governments now in place all over Latin America, and Hugo’s position at home more secure than ever, he has seized the opportunity to barnstorm across the continent to support increased Latin American integration, and – to Washington’s immense displeasure – to oppose one of the Bush Administration favorite neoliberal proposals, the “Free Trade Zone of the Americas.” Chavez alone is not responsible for stalling the treaty – Brazil’s Lula has also said that it is off the agenda for now. But Hugo’s vocal opposition has not earned him any reward miles in Washington.


Venezuela_oilWith  oil prices at record levels, and the US relying on Venezuela for supplying more than 1.2 million barrels per day of oil, up to 15 percent of all US oil imports, Venezuela has been feeling its oats. The surge in oil revenues has permitted Chavez to increase domestic spending, shore up his political base, and “strut his stuff” all over the continent. The US still accounts for more than 60 percent of Venezuela’s oil exports. To reduce this dependency, Chavez has started to negotiate new long-term contracts with other hungry markets, especially China. This has also not been popular with the Bush Administration, whose own popularity has been hurt at least as much as Hugo’s has been helped by soaring energy prices.


Chavez_castroChavez’s close relationship with Cuba in general and Fidel in particular is another thumb-in-the-eye for US policymakers. Chavez has agreed to provide the island with oil at subsidized prices – partly in exchange for several thousand Cuban doctors. Meanwhile, he is also upgrading Venezuela’s ill-equipped military, ordering 100,000 AK-103s and 10 helicopters from Russia to replace his army’s 50-year old FAL rifles.

Meanwhile, Colombia, one of the few remaining US allies in the region, makes all the Galils that it wants under license from Israel, without any protests from Washington.

It is not as if Chavez has only been dealing with Russia and Cuba. Spain is also selling him fast boats for drug control, and Brazil is selling him Super Tucano airplanes for border patrol. The US DEA is privately delighted with these acquisitions, and with Hugo’s cooperation on the anti-drug front in general, but it is unlikely to come to his defense in public.

Rumsfeld_1At a news conference in Brazil last March, Donald Rumsfeld, the peripatetic US Secretary of Defense, commented that “I can’t imagine why Venezuela needs 100,000 AK-47s.’ Perhaps Rumsfeld should get a briefing on the difference between AK-103s and AK-47s. He should also read the PROVEA letter.


The stark reality is that, despite its vaunted “superpower” status, the US really doesn’t have much leverage with Venezuela -- unless Chavez does something incredibly stupid, a possibility that we cannot entirely rule out if tensions continue to escalate. 

Apart from that possibility, it appears that Venezuela is the true “superpower” in this situation. With oil markets tight, the US economy slowing, and the Chinese market waiting in the wings, this is hardly the time to mess with a major oil supplier.

Chavez’ popularity has also increased sharply since last year’s referendum, and this is not just because of the surge in petrodollars. After fumbling the April 2002 coup and punting last year’s referendum, the hapless Venezuelan opposition has demonstrated conclusively that it is far better at schmoozing in Miami, Houston, and Washington than at organizing an effective grassroots political movement. It should return home, end its  financial ties to gringos and right-wing Cuban exiles, and work harder.

As for US military options,  so long as Chavez keeps his own Army happy,  observes international law, and also maintains popular support, there aren’t any. Cold War triumphaliists and national security experts who think otherwise are advised to take a crash course in Caribbean tanker routes, US refinery economics, and the capabilities of the latest generation of Russian anti-ship missiles.20000425_xnsof_navy_3m82

More fundamentally, the real reason that a self-educated populist blowhard like Chavez has managed to win at least four nationwide electoral contests since 1998 is neither because he is a ruthless thug or a brilliant demagogue.

Rather, it is because the avaricious, short-sighted Venezuelan elite that dominated the country’s economy, executive branch, legislature, judiciary, military, press, and church for four decades, with close support from the USG and Wall Street, left the country a debt-laden, corruption-ridden mess. (See The Blood Bankers for all the gory details.)

Every time the US government lectures Hugo, muscles him, or tries to artificially inseminate its friends and hirelings in the “Venezuelan opposition” into Venezuelan history, it merely reminds people of this unfortunate fact.

(C) SubmergingMarkets.Com, 2005

June 4, 2005 at 05:09 PM | Permalink | Comments (1) | TrackBack

Wednesday, June 01, 2005

"Why Can't the World Bank Be More Like a Bank?"
Background to WSJ Op Ed Piece, June 1, 2005
James S. Henry and Laurence J. Kotlikoff

Wolfowitz With Dr. Paul Wolfowitz's ascension to the World Bank's Presidency this month, we've continued the proud tradition of having the Bank run by white male Americans whose primary careers and reputations have had virtually nothing to do with economic development, certainly not in poor countries.

Previous World Bank presidents have included a long line of successful Wall Street investment bankers (James Wolfensohn (Salomon), George D. Woods (First Boston)), commercial bankers (A.W. Clausen (B of A), Lewis T. Preston (Morgan), Eugene R. Black (Chase), car company executives/ Defense Secretaries (Robert S. McNamara), newspaper publishers (Eugene Meyer (Wash Post)), Wall Street lawyer-bankers (John J. McCloy (Chase)), and long-time US Congressmen (Barber B. Conable).

Globe2_1Such backgrounds may have honed their management skills -- although commercial banks, newpapers, car companies, and the US Congress have never been noted for managerial excellence. But all of these gentlemen certainly needed a great deal of on-the-job learning with respect to all other aspects of the World Bank job. As a group, they were also rather more sensitive to the concerns of Wall Street than of Poor Street.Mcnamarajohnsonwolfensohn

In Dr. Wolfowitz's case, there has at least been,  thanks be, no Wall Street in-breeding.  He also has a strong background in international relations, not only as Deputy Secretary of Defense and Dean of the John Hopkins School of International Relations,  but also as Assistant Secretary of State and Ambassador to Indonesia back in the 1980s.

He may have been a bit palsie-walsie with former dicators like Indonesia's Suharto and the Lee family dynasty that still runs Singapore. But that is hardly unique among World Bank Presidents. And we also know that, in the best neo-Straussian tradition, he is also capable of being a radical Wilsonian democrat when it suits him -- at  least in the case of Iraq and several other carefully-selected Middle Eastern countries.  

Finally, regardless of what we may think of Wolfowitz' naivete' about Iraq, the fellow is clearly a quick study, and is evidently not shy about rethinking conventional strategies and shaking up entrenched bureaucracies. These attributes, rather than specific experience, may be precisely what the World Bank needs most at this point.Bonooneill

They may also be precisely what the G-8 needs, as it meets in July in Scotland to consider some  rather fuzzy-headed  proposals to sharply expand the First World's commitment to development aid.

Of course "ending poverty" is a noble, apple-pie objective that is as good as any other at getting former Deputy Defense Secretaries, Treasury Secretaries, economists, and rock stars alike to wander through African backstreets and huddle down around the camp fire, singing "Cum By Ya."   

But the point is that unless we deal with the structural reasons that poverty exists in the first place, some of which -- like First World agricultural subsidies,  lousy lending, and "pirate banking's" role in Third World tax evasion  -- are not very pretty, and will not be solved just by increasing aid budgets -- we won't "end" poverty.  We will simply pour more money down the same "development industry" rat holes that now consume more than half of every "phantom aid" dollar

Indeed, in the long run, we may even risk expanding poverty, because handing out doles to a perpetual underclass is a recipe, not for ending poverty, but for eventually ending aid.

In the spirit of welcoming Dr. Wolfowitz to his new position, BU's  Professor Larry Kotlikoff and I have suspended disbelief, and have produced the following semi-Swiftian proposal for "Making the World Bank a Real Bank."  Download WSJArticle.pdf

Of course our proposal needs refinement. It is intended in part just to stimulate debate.  However, it is not as if the existing international systems for financing development and distributing aid to the world's poor, much less marshalling their life savings and helping to transmit their remittances back home are perfect. If they were, there would be no need for this discussion in the first place.

                                    (c) SubmergingMarkets.Com 2005



June 1, 2005 at 06:23 PM | Permalink | Comments (0) | TrackBack

Maximizing Gross National Happiness
Rethinking the Economics of Growth and Inequality
James 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 their distributional consequences.

Happiness3_1In this "neoliberal" view, one person's subjective pleasure is another's pain, and 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.

Perhaps not surprisingly, several studies of ethical behavior  among graduate students have even found that those who study economics are more prone to "free-riding" and less ethical than others.

One suspects that this narrow-minded, intrinsically conservative approach 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 neoliberal economists have feared to tread. 


Using a combination of survey research techniques, "objective" indicators of economic and social status, and biometrics,  these social scientists have begun to study the determinants of subjective happiness levels directly -- both within and among 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.
  • 5cHigh-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.
  • Happiness54Relative 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.


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, the US, China, and other ruthless global competitors are unlikely to adopt such a model any time soon. Indeed, they have been moving in precisely the opposite direction. So the real 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 the 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:) 


© James S. Henry, SubmergingMarkets™, 2005


June 1, 2005 at 06:25 AM | Permalink | Comments (1) | TrackBack