Can Blank Slate Thinking Save the World Bank and IMF?

Top level government ministers, UN agency brass and the requisite number of ‘civil society’ personages will meet Bali Indonesia in mid-October.

Bank-Fund staff represent some of the last dinosaurs to roam the earth. Like their anti-diluvian peers from the Mesozoic Era, they have failed to evolve with the times. Yet, rather than face extinction, these dino-sapiens face only cocktails and econometric regressions.

At the meeting, they will review their work on international economic development. I can save them about $5 million in expenses right now. It is dismal.

A slew of academic evidence has shown that the Bretton Woods institutions’ work has often done more harm than good. Of course, not all development has hurt.

Scholars with cooler heads have rightly pointed out the good work done by governments, some limited interventions, and at limited times. Yet, countries with their own raison d’etat governle the World Bank and International Monetary Fund.

As one student put it, “the Bretton Woods Institutions claim to have embraced development partnerships, but they clearly still seek to control the political environment in the developing world.” They seek control, not for themselves, but for their largest shareholders.

Yet, that has not stopped the industry of other diplomats, pundits and experts who opine on making development institutions like the Bank-Fund work better.

In a recent review of aid effectiveness, most of the experts point to fragile conclusions about the ineffectiveness of aid. Yet, most of these names serve as very high-paid, regular advisors to the organizations they evaluate.

Even aid’s failure has brought about an industry aimed at reforming it. In 2005, the Organization for Economic Cooperation and Development (OECD) spearheaded the Paris Declaration and Accra Agenda for Action. So many others make money giving advice on reforming the Bank and Fund.

The Development Industry works for everyone, except the poor. Yet, two glimmers of hope point to the evolution of the development set.

First, the ever-mandate hungry institutions have taken on some responsibilities that have helped. The World Bank has spear-headed important research on the role of banking in economic growth. They also remain one of the go-to places for data.

The International Monetary Fund’s work on financial crises and surveillance has had some important effects – though not as much as its own evaluation of itself shows.

Second, a veritable Cambrian Explosion of work on alternatives to the Bank-Fund point in promising directions. Proposals for development finance institutions, such as a fully-private development bank, represent one legacy of the post Bretton Woods era.

The UN’s work on tackling corruption and looking at cross-border crime have important roots in early work done by the Bank and Fund.

So how to transform these relics of the post War era into something more modern?

First, changing their governance represents their existential challenge. Countries like Indonesia and China want more say. But I am talking about something bigger. Giving companies and civil society organizations a say.

The World Wildlife Fund, Transparency International and even scholars from Tsinghua make far more policy today than they did in 1945 (when lumbering giant nation-states ruled the global economic-political landscape).

How to give Médicins sans Frontières a role in a World Bank focused a lot more on health policies since a medical doctor took up its reigns. How to make Morgan Stanley a responsible stakeholder in global financial governnace (rather than simply a reactor)?

Second, how to give these institutions authority and effective enforcement powers in the countries where they do their work? Most poverty in Africa, Latin America and South Asia comes from corruption, nepotism and theft. The Bank and Fund can not influence politics in their member states, nor pay the people they hurt.

Yet, organizations like the European Union clearly show how deep, deep, deep integration – along with enforcement powers – helps ensure development goes to the right people. The EU can influence poverty so profoundly in Poland, Romania and Greece (for better and worse it seems) because they have the ability to audit, enforce judgments and impose rules like budget and even criminal rules.  Imagine a dark world where the Bank-Fund had such an ability!

Why not completely go back to the root of the evolutionary tree (as it were)?

Why start over with the Bretton Woods institutions? Literally take a blank page, see what needs doing and then redraw the IMF, World Bank and WTO from scratch. We do not have a gold standard anymore. Or reconstruction lending. And the WTO doesn’t seem to be helping start the Trump trade wars.

Such blank page thinking restored competitiveness to the West’s bloated industries in the 1980s and 1990s. Yet, like the mutant/zombie that refuses to die, the Bank and Fund shift mandate – failing at every turn.

Could Bali be the asteroid that helps wipe out the beasties? Probably not. But they could discuss the institutions of a post Bretton-Woods world (40 years too late is better than never). Their existence crowds-out smaller, smarter and nimbler entities.

Why couldn’t Bali be the Bretton Woods of the 21st century?

Homo sapien sapiens could not flourish until the dinosaurs bought it. Maybe the reptiles of the Bretton Woods need the same treatment so new institutions can thrive in the 21st century.

 

Reprinted from: https://lkyspp.nus.edu.sg/gia/article/extinction-time-for-the-bretton-woods-dinosaurs

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Quantifying the Effect of Political Division on Wealth Management (AUM)

Political institutions can either encourage or discourse polyarchy. Polyarchy refers to the extent to which many groups have a say over financial and other policies. Many point to political capture in Jersey, Hong Kong, and the UAE. But the data show something far more interesting. Democracy and authoritarianism ‘cycle’ – as specialisation helps asset managers, but political openness brings new ideas and rewards patient groups.

Full study: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3156050

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The Middle East’s Glass Revolution

Every couple of years, mostly American journalists and pundits talk about corruption-inspired uprisings. The former Soviet Union had its orange, rose and tulip revolutions for the Ukraine, Georgia and Kyrgyzstan respectively. In the Middle East, the Arab Spring looked like it would bring greater transparency and transparency to at least 8 countries. Many consider the Arab Spring a failure. The publication of – and especially commentary around governance in the Middle East — Transparency International’s (TI) 2017 Corruption Perceptions Index reflects this mood.

Most have long considered Transparency International’s Corruption Perceptions Index (or CPI) a bell-weather for moods and attitudes about the country itself, rather than specific policies, laws, administrative decisions and law enforcement actions undertaken in any particular place. The index uses unscientific surveys and probably reflects national income more than anything else. Yet, like the World Bank’s Doing Business survey, boiling down countries’ policies, and performance on those policies, to just one number, offers a yardstick and product too irresistible to pass up. The results represent the ultimate simulacrum of reality – both reflecting corruption levels and actually making them.

How can TI actually contribute to corruption in the Middle East? Everyone knows that, in the words of Transparency International analyst Kinda Hattar, “in order for Arab countries to improve, they must ensure effective transparent systems that allow for accountability are in place.” Governments from Rabat to Tehran must, “put an end to political corruption in all its forms… protect freedom of expression and stop persecuting anti-corruption activists, whistleblowers, and civil society organisations.” Everyone supposedly knows they don’t ensure transparency and accountability. They don’t end political corruption or protect freedom of expression. They don’t stop persecuting anti-corruption activists. We expect it. So they can…even though they shouldn’t.

Qatar provides a simple example from the region, showing how these abstract generalisations and platitudes reflect the usual colour revolution/Arab Springers’ disappointment with political reform, rather than a cold calculus of (anti)-corruption.

Perceptions about corruption in Qatar in 2017, as the jurisdiction holding a FIFA event, have been overly tied to a contract/event sponsored by the International Federation of Association Football (FIFA). Corruption in the FIFA is well-known and has been reported about at length. Perceptions obviously wrongly conflate corruption in football and Qatar’s political and administrative institutions. Okay, Qatari officials did engage in bribery. But the FIFA resides in Switzerland. Why didn’t Switzerland’s ranking suffer similarly? Most professional/academic rankings of corruption would “control for” these kinds of one-off events. Yet, the TI CPI does not use – and has never used — any statistical methods of removing such noise.

Noise affects such measurements far less than their excessive volatility. Volatility refers to the natural tendency for any ranking to wag wildly from one period to the next. Middle Eastern countries’ CPI rankings depend on what happens in other countries. In Qatar’s case, modest improvements in very corrupt places could – in certain circumstances- cause their rank to rise quickly. However, in situations like this, improvements in these corrupt jurisdictions do not mean Qatar got worse. Qatar ranks very well in the Index — making its fall far more likely a statistical artifice. Far from being a region in decline (as Transparency International’s analysis suggests under the title “Middle East and North Africa: A very drastic decline”), the dynamics of improvement can make some places like Qatar look worse. Of course, we don’t see TI scores wildly swinging around. But, given my own experience with other types of indices, human intervention and excess aggregation tend to dampen down these changes in most places – making a few observations very subject to larger jumps.

What would a more objective analysis look like?

For a starter, the perceptions index could ditch perceptions altogether. We now have access to “crime incidence” data (namely the percent of any population reporting the payment of objective bribes) by households and businesses. The discrepancies between the CPI and these reliable indicators have been commented on so often in the literature, that I do not even need to repeat this here. The CPI is a survey of surveys. The underlying surveys rely on scores from “experts” using consisting of political scientists, pundits, and surveys of supposedly “informed persons”. Why not rely on more real experts – with investigator experience, legal experience, or experience living in corrupt jurisdictions? And especially experience in the countries they score?

Behind the noise generated by the ups and downs of countries like Qatar lies a revolution by evolution. Countries like Qatar have put in place new laws and regulations containing corruption. Such a “glass” revolution – or an abrupt change brought on, in part, by Transparency International’s Corruption Perceptions Index – has changed the way these public administrations deal with citizens and the way they hand out information. The glass revolution has come from automating border crossing and customs clearance procedures in some places. Most of these countries have local media and watchdog group interest that did not exist a decade ago. Qatar – to continue with my example country – has an Administrative Control and Transparency Authority. Who would have thought of that a decade ago?

Corruption undermines governance in most of the Middle East and heavily taxes places like Qatar. I do not deny this. Yet, quantifying and then debating our personal and collective opinions about bribery in places like Qatar serves us in the US and Europe poorly – and those in the Middle East worse. Labelling countries as chronically corrupt “reifies” such corruption… as everyone from investors to their own civil servants expect such corruption supposedly identified by these numbers. A glass revolution – fomented by organisations like Transparency International – has succeeded where all the Arab Springs in the world have failed. One person’s decline represents another’s advance. All we need now are objective measures which record that fact.

Bryane Michael

 

 

Gephi 0.9.1 Won’t Work Unless You Specific a Java Folder

Do you love network analyses — but can’t get the new Gephi to work on Windows? Are you a social scientist — and so scared of all the programming stuff you see in every “fix”? Here is the fix, explained for normal people.

1. Open the Gephi folder in your Program Files directory (you can also see this file on the Start Tab),

2. Open the config file using WORDPAD (just treat this file like any old text document you might see in Word…but wrtitten in a foreign language),

3. Find the part at the end that says ” #jdkhome=”/path/to/jdk” (they never intended for this part to work — they assumed you would go in and fix this yourself)

4. Replace this with the path to your Java folder (in my case, it was at “C:\Program Files\Java”)

5. Save this CONFIG file (just save, thats all).

Once you get your head around the fact that Gephi’s designers never intended it work directly as downloaded, you will be fine.

Just click on Gephi now — and it will work.

Thanks to massoud — without whom I would never have gotten this to work…. http://forum-gephi.org/viewtopic.php?f=3&t=3580

For more advice, see: http://web.hku.hk/~bmichael/

Happy networking!

Redesigning the Qianhai Special Economic Zone

The Chinese government wants to create a global financial centre from scratch. The centre — Qianhai — will sit in Shenzhen and attract firms from high-tech, logistics and financial companies. Local laws currently give the development the status of a large-scale real estate project. Yet, with significant legal changes, Qianhai can increase profits in the region by 4 to 10 fold.

For the full study, see: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2907608

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