Tag: political economy (page 2 of 2)

Feminist IR 101, Post #7, Political Economy and Globalization

Why is it that women represent 70% of the world’s people living in poverty? What does it mean to have economic stability? How do international structures interact with local structures to produce or disturb that stability? Is economic stability something people (or states) only gain at the expense of others? Are sex trafficking, migration patterns, home-based work, and base economies, related? If so, what does gender have to do with it? These are some of the questions feminist IR political economists ask.

Women are the majority of people in poverty around the world. The percentage of women living in rural areas who can be classified as impoverished is actually rising, not dropping. Women who work for wages are generally poorly paid, and many women do home, care, and agricultural work that goes unpaid. Women have not been left out of the economic reforms planned by the International Monetary Fund (IMF) and the World Bank, but their gender is often invisible to the planners and implementers of these policies.

Feminist perspectives on global political economy (GPE) are investigating the extent to which these disturbing trends should be blamed on gender discrimination. They are interested in the causes of women’s, and other marginalized groups’, economic insecurities, and potential solutions to these problems. Feminist work in political economy has recognized what scholars have identified as the gendered division of labor in global politics, and analyzed its impacts.

The gendered division of labor in modern times can be traced to the Industrial Revolution in Europe, where definitions of what it means to be a man and what it means to be a woman were shaped around the growing division of work to be done at work (man) and work to be done at home (women). The notion of a “housewife” developed, where women’s work was seen as private, domestic, and the property of the family, and the public world of the market was populated by rational, economically oriented men. Despite the fact that more and more women have come to work outside the home in recent times, the association of women with housework, caregiving, and mothering remains strong.

When women do go into the workforce, they are overrepresented in the caring professions (teaching, nursing, daycare, service industries) and underrepresented in the financial industries and capital trade. To the extent that women choose these professions, they do not choose them on the basis of profit maximization (which is what traditional economic theory assumes), but instead based on social expectations of what women should be and what they should do. Cynthia Enloe once claimed that a “modern” global economy requires “traditional” ideas about women.

Feminists have noted that ideas about gender also often lead to women having double responsibilities. Women who work outside the home continue to do the majority of the care work inside the home, while being paid less than men with comparable qualifications for their workforce duties. Care labor often requires time and energy that would otherwise be spent on paid labor. Women often sacrifice professional opportunities to care for children and elderly relatives.

The narrow definition of “work” as work in the waged economy tends to make it difficult to see many of women’s contributions to the global economy. Feminists have argued that the gendered division of labor cannot be understood without reference to political, economic, and social choices based on assumptions about gender. Feminist work about the global political economy has made a number of observations to highlight the importance of gendered forces.

For example, feminists have highlighted some gendered economic forces, like the global sex trade (see the recent work of Jacqui Berman, Jennifer Lobasz, and Jessica Peet), that are often ignored by political economists. Feminists have studied gender representations in the movie and beauty industries (see the recent work of Angela McCracken and V. Spike Peterson). They have pointed out that the gendered divide between the “public” realm and the “private” realm obscures the work women do. Feminists have also argued that, in addition to neglecting women generally, conventional work in political economy has also underestimated women’s economic agency.

Several feminists have also attempted to understand the gendered nature of globalization. V. Spike Peterson has divided the globalized economy into three sectors. The “productive” sector is the thing we usually think of as the global economy – where goods and services are made and traded. The “virtual” economy is the trade in intangible things, like money and information. The third sector, which Peterson gives equal weight as the other sectors, is the reproductive economy. The reproductive economy includes pregnancy, parenting, household maintenance, elderly care, and socialization. Feminists argue that these three categories taken together are more suited to finding women and gendered structures in the global political economy, and a more accurate reflection of how the world works more generally.

Feminists have therefore asked about how the global political economy would function if we restructured it taking women’s labor and women’s experiences into account.

They have looked in unconventional places, like households, sweatshops, and camptowns, for economic knowledge. These inquiries have led feminist to suggest restructuring the health care industry on the basis of care (see the recent work of Fiona Robinson). Feminists have also argued against the treatment of sexuality as a commodity. They have suggested that women’s unpaid labor be recognized not only intellectually but financially. Feminists have suggested that the gendered structure of the political economy and the gendered distribution of resources in the global economy require attention not only among feminist scholars, but also in IR more generally. Feminists have argued that we cannot understand the global political economy without reference to gender, and feminist political economists have built a research program to explore these questions.

I know the “feminist IR 101” series has been on (incidental but long) hiatus, but, with the end of my blogging career coming soon (July 1), and the series now being very security-biased, I figured I would finish its unfinished business, and hope the last couple of posts (#7 on Political Economy and Globalization, #8 on Human Rights, #9 on Transforming IR, and #10 on Feminist Scholarly Community) will be as useful to the people who have let me know that they are using these posts in their classroom as the others have been. While war/security is the theoretical territory in which I am the most comfortable, I think “Feminist IR 101” sort of thinking – quick discussions for students, crib guides for potential reviewers – is generalizable across (feminist) IR, and want to finish it. That said, since this isn’t my specialty, specialists should feel free to critique and correct.


Worst. Argument. Ever.

Frank Pasquale at Balkinization:

The Dodd-Frank Act also promises to shed some sunlight on ever-rising CEO pay levels. As Sam Pizzigatti explains, “corporations must now also report their overall wage ‘median’ and the ratio between this median and their top pay.” Seizing on some laughable comments on how “unduly burdensome” the law is, “the House Financial Services Committee’s Capital Markets Subcommittee [recently] approved, by a vote of 20 to 12 . . . legislation (H.R. 1062) to repeal the Dodd-Frank pay ratio mandate.”

Here’s the argument for why this requirement is “unduly burdensome”:

The burden of this median pay calculation requirement is significant. It would require a company to gather and calculate compensation information for each employee as required for senior executives under the SEC disclosure rules, determine the pay of each employee from highest to lowest, and then identify the employee whose pay is at the midpoint between the highest- and lowest-paid employee. No public company currently calculates each employee’s total compensation as it calculates total pay for CEOs on the proxy statement; therefore, companies would be required to invest considerable resources to implement this mandate to produce a meaningless statistic.

And, OMG, many companies have overseas offices with different pay systems on, get this, different computers!!

Do you hear that noise? That, my friends, is the sound of oligarchy.

The process of finding the median (pictured above) was so exhausting that Dan went to sleep immediately after writing this post.

The 1950s are calling — they want their theoretical debates back

Daniel Drezner takes another stab at the Brooks-Krugman-Winecoff-Drezner-Farrell dustup. I merely wish to make a few points:

  • Most voters are information specialists; they do not tend to specialize in the intricacies of policy debates. Thus, they are unlikely to know, for example, the actual distributional implications of the Bush-era tax cuts or understand the details of Iraq.
  • Many of the more engaged voters are partisans; they process information through the cues they receive from party spokespersons. This is why, for example, a conservative health-care plan rapidly morphed into radical socialism over a period of roughly two years.
  • Political elites, opinion leaders, and special interests know both of these facts, and they operate accordingly. Hence, while Dan is correct that TAARP received bipartisan support, he needs to ask why it became politicized along partisan lines. Or why it is that misleading cues predominate in political discourse. 

Dan doesn’t, as far as I can tell, disagree with the larger point that Henry and I make about the absurd character of many taken-for-granted mechanisms and assumptions in International Political Economy (IPE) — as well as significant branches of Security Studies. So I guess the “real world” stakes need to be dragged onto the table: whether or not our system of government is badly compromised by the asymmetric influence of various sectoral and special interests.

I didn’t use to think so, but I’m coming around to the view that it is. A significant chunk of what our political process accomplishes is the enablement of rent-seeking. And that’s all Brooks’ tirade against the influence of the demos amounts to in the end: a pseudo-intellectual justification for the extraction of greater rents by the powerful.


IR Theory and Policy Processes

A running theme around the office lately has been the deeply problematic character of causal mechanisms that international-relations scholars take for granted. For example, apparently simple claims about domestic institutions and credible commitments often require all sorts of heroic assumptions about public attention to policy processes, the degree of actual restraint institutions impose upon executives, and so on. They also have almost nothing to do with the way that policymakers assess the credibility of their counterparts. A related set of issues revolve around embedded neoliberal assumptions in US International Political Economy, particularly involving “free trade,” but I’ll save that for others.

This is all basically wind up for the part of this post where I tell you to go read Henry Farrell’s response to Kindred Winecoff’s critique of Paul Krugman’s rebuttal to David Brooks (don’t you just love the blogging world?).

Like Henry, I really enjoy Kindred’s blogging and think that IPE at UNC is a truly outstanding addition to the academic blogssphere. But, also like Henry, I find his arguments here detached from real political processes in ways that reflect larger problems with contemporary US IPE.


Who Needs Social Scientists When We Have the Onion?

 Many scholars consider “prediction” to be the goal of social science. They deploy fancy statistical techniques to create complex models that, if they’re really good, reach the Olympian heights of 47% accuracy rates.

Then there’s the Onion, who makes all of those technowizards with their “R” and their “LaTeX” look like a bunch of coin flippers.

Consider the its scarily accurate 17 January 2001 headline, “Bush: ‘Our Long National Nightmare Of Peace And Prosperity Is Finally Over'”.

So when I read its 2004 article, “National Museum Of The Middle Class Opens In Schaumburg, IL”, I laugh and I cry, but mostly I just want to drink until I pass out.

“The splendid and intriguing middle class may be gone, but it will never be forgotten,” said Harold Greeley, curator of the exhibit titled “Where The Streets Had Trees’ Names.” “From their weekend barbecues at homes with backyards to their outdated belief in social mobility, the middle class will forever be remembered as an important part of American history.” […]
 “No one predicted the disappearance of the middle class,” said Dr. Bradford Elsby, a history professor at the University of Pennsylvania. “The danger of eliminating workers’ unions, which had protected the middle class from its natural predators for years, was severely underestimated. We believe that removal of the social safety net, combined with rapid political-climate changes, made life very difficult for the middle class, and eventually eradicated it altogether.” 

One of the 15 permanent exhibits, titled “Working For ‘The Weekend,'” examines the routines of middle-class wage-earners, who labored for roughly eight hours a day, five days a week. In return, they were afforded leisure time on Saturdays and Sundays. According to many anthropologists, these “weekends” were often spent taking “day trips,”eating at chain family restaurants, or watching “baseball” with the nuclear family. 

“Unlike members of the lower class, middle-class people earned enough money in five days to take two days off to ‘hang out,'” said Benson Watercross, who took a private jet from his home in Aspen to visit the museum. “Their adequate wages provided a level of comfort and stability, and allowed them to enjoy diversions or purchase goods, thereby briefly escaping the mundanity.”



Austerity, unicorns, and political economy

Mark Blyth waxing enthusiastic about why “austerity” is not commonsensical economic policy at all. Food for thought.

WatsonMedia presents Mark Blyth on Austerity from The Global Conversation on Vimeo.


From QIZ to ROZ

In 2008, after kicking around the idea for a couple of years, the US formally proposed to create Reconstruction Opportunity Zones (ROZs) in remote parts of Pakistan (FATA, NWFP, earthquake affected areas of Kashmir, a part of Balochistan province) and all of Afghanistan. The idea was modeled on the Qualified Industrial Zones (QIZ) preferential free trade agreement set up to help forge a liberal-economic peace between Israel, the Palestinian Territories, and the neighboring Arab states.


The 2004 Egyptian-Israeli QIZ agreement, which I researched extensively while I was teaching at the American University in Cairo, did spark some cooperative ventures, particularly in the textile industry. However, the agreement was riddled with problems and often the subject of bitter complaints particularly from Egyptian merchants who felt they were being overcharged for raw materials by their Israeli counterparts. The Egyptian general public was not highly supportive (and in some quarters there was active hostility) of the QIZ agreement; although there were a few protests by workers whose factories were excluded from the agreements to be allowed into the agreement.

The way these preferential free trade agreements (PFTAs) work is that a certain percentage of the specified goods produced in a designated area must include value added by country X and/or country Y before it will be granted duty free access to the United States. These are technically non-reciprocal agreements, so while country X and/or country Y can export duty free to the US, the US may not export items duty free to those countries. (It should be noted though that Congress added provisions to the ROZ bill such that participating countries must be moving toward a market economy, protecting intellectual property, and removing trade barriers against the US as certified by the US President.) Despite the label “preferential free trade agreement,” these are not free trade agreements strictly speaking, in fact they may create perverse and distortionary incentives to use inputs from parties to the agreement rather than searching for the cheapest global supplier of an input.

In the Egyptian-Israeli case, the agreement stipulated that goods needed to contain at least 11.7% Israeli components and 11.7% Egyptian components in order to gain duty free access to the US. A joint commission was set up to monitor compliance. While the QIZs did spark a modest boost in exports and help to partially break the taboo against doing business with Israel, the Egyptian government viewed the agreement primarily through an economic rather than a political lens. Hence, Egypt did not see the agreement as a mechanism to help thaw the Cold Peace as the Americans had hoped. Egypt resisted opportunities to allow the trade agreement to help foster greater social links between its citizens and Israel. And as Israel’s relations with Hamas and Hezbollah worsened, the opportunity for thawing the Cold Peace receded…


Like the QIZ, the ROZ requires that 35% of the value of the final products produced in the ROZ must be from a SAARC (South Asian Association for Regional Cooperation) member country to be eligible for duty-free export status to the United States (until the year 2023). In other words, the ROZ cannot merely be used as a front by non-South Asian countries to pry open US markets. The agreement is mainly designed to assist manufacturers of textiles, leather, carpets, marble, furniture, etc. According to the Congressional Research Service, those manufacturers would see tariffs reduced from an average of 8% to 0%. Apparel manufacturers, who pay an average tariff of 15%, would generally not benefit from this agreement.

Unlike the QIZ agreement, however, there is no joint-production provision. So Pakistani manufacturers are not being asked to work with Afghan suppliers or vice versa.

The official stated aim of the ROZ is to spur economic development and create jobs in areas rife with Taliban insurgents. The logic is that economic opportunities might help to curb some of the financial lure of fighting for the Taliban and thus help the US military to hold territory it has cleared of insurgents. The agreement is feasible because neither Afghanistan nor Pakistan is a significant trade partner for the US (combined exports and imports from each country is less than 1% of US total trade).


Unfortunately for South Asian businessmen, the ROZ idea has been idling in the US Congress for over a year. The House passed a bill which included the ROZs last summer, but the Senate approved an aid bill for Pakistan (S. 1707) that did not include the ROZ language. The Republican party is opposed to the labor protection measures added to the bill by House Democrats. The fear among Republicans is that this piece of legislation may set a precedent for adding similar labor protection provisions in other preferential free trade agreements. Naturally, pro-labor Democrats do not see a reason to allow duty free imports that might compete with products produced by union workers in the US. Beneath the ideological rhetoric, there are also some remaining protectionist concerns for America’s dying textile (and apparel) industry. Although the ROZ concept was part of the Obama’s administration’s Af-Pak policy (March 2009), the White House has not apparently prioritized overcoming this deadlock in the Senate.

Of course, even if the ROZ provisions were passed by the Senate tomorrow, Afghanistan and the relevant parts of Pakistan are still active battlefields with a raging insurgency. Thus, one has to question the actual intention and design of the legislation. The notion that a reconstruction zone must be located in remote parts of Pakistan in order to generate employment within those regions is questionable since labor is mobile and sending home remittance income is a commonplace practice throughout South Asia. One could easily use Pakistan’s existing textile plants and encourage laborers from FATA and NWFP (now called Khyber-Pakhtunkhwa) to migrate to those areas. This would create jobs faster and thus make a greater impact on the lives of people in the border areas.

Locating ROZ’s in remote areas rather than port cities also hinders the ability of the manufacturers to rapidly export to the US market. Some of these problems, particularly for landlocked Afghanistan, may be made easier if the 2010 Afghanistan-Pakistan Tranist Trade Agreement (APTTA – see previous post) is actualized.

The addition of labor protection measures to the ROZ bill may be superfluous. American and European private firms have been quite willing in recent years to conduct their own inspections of labor conditions among contractors in order to avoid embarrassing publicity and activist campaigns. Similarly, the requirement that Afghanistan and Pakistan make good faith efforts to protect US intellectual property rights is a poor misallocation of priorities and resources when one is attempting to spur development in highly impoverished countries.

One must also question the narrow scope of the agreement. If the Congressional Research Service is correct, apparel manufacturers are all generally unlikely to benefit from the ROZ scheme. While the ROZ does extend the Generalized System of Preferences to include textiles, it does not go far enough to encourage some of the types of economic activity which South Asian manufacturers could capitalize upon. During the Cold War, the US prioritized its security over economic self-interest and extended generous access to its markets for allied economies in East Asia (Japan, South Korea, Taiwan). Certainly, if the US is interested in actually spurring economic development as a means to enhance its own national security, then it should be willing to sacrifice some domestic jobs in sunset industries for this purpose.

What the ROZ program seems to reveal is that American policymakers are mainly interested in creating the appearance of a comprehensive Af-Pak strategy that goes beyond the massive investment in the military occupation and counter-insurgency campaign. However, there is very little political will to make the sacrifices and compromises necessary to actually spur rapid economic development if it comes at the expense of American jobs. This may be an indication that despite the general rhetoric to the contrary, American lawmakers do not believe that an unstable and economically underdeveoped Af-Pak region poses a serious threat to US national security. Either that or they do believe that the region is “the most dangerous place on Earth” but they cannot overcome stale ideological debates and creatively design an ROZ scheme that would bring rapid and tangible economic benefits to Afghanistan and Pakistan.

[Cross-posted from my Afghan Notebook]


The Transit Trade Agreement

Although the story has garnered relatively little attention in the US, the Afghanistan-Pakistan Transit Trade Agreement (APTTA) is probably one of the most important developments impacting the medium-term economic and political health of Afghanistan. As the US State Department correctly noted,

“This agreement is one of the most important, concrete achievements between the two neighbors in 45 years and represents the most significant bilateral economic treaty ever signed between Afghanistan and Pakistan. It will undoubtedly bring great benefit to the people of both countries and is also a major milestone in promoting regional trade.”

The 2010 APTTA, which has been in the works for several years, was pushed through with strong pressure from the US last Sunday. Basically, in exchange for Pakistan’s cooperation, the US has provided Pakistan with…

“… significant investments in health, water, agriculture, government-to-government partnerships, support for the private sector, energy, security, gender equality, and a wide range of programs to help those who have been displaced by the ongoing fighting in Pakistan.”

The 2010 APTTA replaces an “outdated” agreement from 1965. Under international law, states bordering landlocked countries are required to provide transit facilities, however legitimate Pakistani fears of smuggling corroded the 1965 agreement. The new agreement is actually a reciprocal agreement that permits Afghanistan to export products duty-free through Pakistan to India, while allowing Pakistan to conduct transit trade through Afghanistan to states in Central Asia. Pakistan objected to Afghanistan’s request to be allowed to import products overland from India via Pakistan (nominally because India has not extended Pakistan transit rights to landlocked Nepal). Nevertheless, Afghanistan is permitted to import products from India (and any other country) via Pakistani seaports. Of course, India will soon have the ability to transit its exports to Afghanistan via Iran. So Pakistan’s objection to Indian exports to Afghanistan will become largely irrelevant as road (and some rail) links from Iran’s Chabahar port to Delaram are completed.

The new APTTA is carefully designed to limit opportunities for smuggling which corroded the old agreement. In the past, imported duty free goods (e.g. tea, tires) that were supposed to be sold in Afghanistan ended up flooding the Pakistani market. Smuggling of duty free goods resulted in major losses of customs revenue for the Pakistani government. Hence, the new agreement lays down precise measures to counteract those practices. According to the Associated Press of Pakistan,

“… Afghan trucks will be allowed to carry Afghan Transit Export Cargo on designated routes to Pakistani seaports and [one of the only India-Pakistan border crossing points at] Wagah.

The Afghan transport units, on return, will be permitted to carry goods from Pakistan to Afghanistan under the same expeditious procedures and conditions as Pakistani transport units.

It was also decided that all Afghan transit goods will be exported in containers of international specifications. For a period of three years, the cargo will be allowed to be transported in internationally acceptable and verifiable standards of sealable trucks while the oversize and bulk cargo which is not imported in containers – shipload will be transported in open trucks or other transport units. It was also agreed that export of perishable goods in transit will be transported in open trucks or other transport units.

According to the record note signed, the drivers and cleaners will be allowed to enter/exit the two countries on permits, identified by the biometric devices installed at the entry points.

It was also agreed that an arbitrator tribunal will be established bilaterally. In case of failure to agree on a common name of third arbitrator, two names of non-nationals and non- residents will be proposed by each side and the third arbitrator will be selected by drawing lots from the four proposed names.

To tackle the issue of unauthorized trade, it has been agreed that tracking devices on transport units will be installed and a mechanism for custom to custom information sharing (IT data and others) will be established. In this context, it has also been agreed that financial guarantees equal to the amount of import levies of Pakistan have to be deposited by authorized brokers/custom clearing agents to check the unauthorized trade and these deposits will be released after the goods exit the country.

In case, the goods do not exit the country within specified time, the guarantees will be encashed by the custom authorities.”

The agreement is significant for Afghanistan because it provides Afghans with access to a vital emerging market and reduces its economic and hence political dependency on Pakistan. The government of Pakistan’s exercise of hegemony over Afghanistan prior to 2001 and its clear preference for shielding certain Taliban elements even after 2001 provide ample reason for Afghanistan to seek to break free of its dependence on Pakistan.

The government of Pakistan potentially also benefits from the agreement for two reasons. First, the new agreement may reduce some smuggling of duty free goods into Pakistan. Second, Pakistan gains access to the landlocked states and resource rich states of Central Asia via Afghanistan.

Given the massive corruption in both Afghanistan and Pakistan, one must remain skeptical that this new agreement with its high tech tracking and biometric provisions will successfully curb smuggling over the long run. Nevertheless, the agreement can be seen as a medium-term “win-win” for both countries and for South Asia as an artificially divided economic region.

Any long term solution for sustainable transit trade would require building stronger states in South Asia that are less dependent on customs duties for revenue and capable of generating greater revenue from their better-off citizens. Although tax reform initiatives have been seriously debated (for example in India), unifying and widening the tax base to cover the emerging middle class (and thus creating space for lowering customs duties on imports) in South Asia will probably take many years. Faithfully ratifying and implementing the South Asian Free Trade Area (SAFTA) agreement would also be a major prerequisite. At the moment the political will and mutual trust necessary for removing barriers to intra-regional trade are weak, but the APTTA is a step in the right direction.

[Cross-posted from my Afghan Notebook]


Foreign Funders Should Donate More Wisely

James Ron has a guest post at Steve Walt’s blog about the problems of NGO dependence on Western funding. His argument is a logical extension of his earlier work with Alex Cooley on the negative externalities associated with the political economy of the NGO sector, and it also builds on newer scholarship critically assessing the relationship between domestic NGOs, targets of influence, third-party governments and private donors.

Ron offers an answer to the question in the title of his post: no, foreign funders should not stop donating to local human rights NGOs, but they should donate more wisely:

To build a locally sustainable and legitimate NGO sector, Western donors will have to provide smaller grants, and will have to condition their funds, whenever possible, on matching local monies. They will also have to spend money on boosting NGOs’ capacity to raise funds locally, connect with local stakeholders, and adjust their message accordingly.

If donors and NGOs don’t break their unhealthy co-dependence, civil society outside of the West will never be sustainable.

I think it’s an interesting argument. It’s too bad that because he happens to use the current backlash against human rights NGOs in Israel as an example, commenters at Foreign Policy are obscuring his wider point with a lot of partisan accusations about being an “Israel-basher.”

The post isn’t about Israel per se; it’s about human rights advocacy generally. And the point is that NGOs in any country are vulnerable to the claims that they are simply lackeys of outsiders if they secure their funding from foreign donors instead of building strong networks of support within their own societies. As Sally Engle Merry has written, human rights advocacy is often most powerful to the extent that local groups create strong ties within their cultural context, rather than being perceived to import money and ideas from “outsiders.” This is a general finding; why should it constitute “Israel-bashing” if Israeli NGOs turn out to be vulnerable in precisely the same ways as women’s organizations in Afghanistan or religious organizations in Mali?

[Cross-posted at the new Lawyers, Guns and Money. Come check us out!]


Applying Social Science Concepts to Business: E-Book Edition

[Cross-posted at bill | petti]

Sunday’s Wall Street Journal reported that Amazon has stopped selling Kindle versions of all Macmillan titles. John Sargent, Macmillian’s CEO, recently went to Amazon’s headquarters to try and negotiate new terms for the sale of e-books published by his company. In general, the publishing industry has been unhappy with Amazon’s insistence that most books be priced at $9.99. Apparently, the discussions resulted in Amazon pulling all Macmillan e-books from it’s website.

I am a firm believer that the historical knock on the social sciences is unwarranted and that many of the theories, frameworks, and concepts found in the various disciplines are widely applicable in the real world, business in particular. So when I read about the Amazon-Macmillan dispute I was struck at how a number of social science concepts shed quite a bit of light on these developments; namely Albert Hirschman’s concepts of exit, voice, and loyalty as well as signaling and the indirect use of force.

So what do these concepts have to do with e-books? Glad you asked.

In his classic Exit, Voice, and Loyalty, political economist Albert Hirschman provided an elegant framework for analyzing the options available to individuals when they become displeased with actions of an organization. According to Hirschman, individuals have three options: they can be loyal to the organization, they can exercise voice (e.g. protest, negotiation), or they can exit the organization (e.g. join a new group, shop at a new story, etc). The framework is quite elegant and can easily be applied to both explain and predict the behavior of consumers in a market or citizens in a political system.

Since the launch of Amazon’s Kindle, book publishers have tried to exercise their voice vis-a-vis Amazon and their pricing requests, but to little avail. Until now, voice and loyalty seemed the only realistic options. Sure, there are other e-book retailers out there, but success of Amazon’s Kindle and the attractive prices they set for their customers provided the retailer with a huge advantage in terms of a distribution channel. However, with the launch of Apple’s iPad, book publishers now have a more realistic exit option. Not only is Apple a potentially powerful sales channel, but they have agreed to pricing terms that are more favorable to publishers than Amazon (Apple will take 30% of whatever price publishers choose to charge, leaving the price point up to individual publishers).

When individuals have the option of exit, we should see typical market dynamics at work–i.e. customers can shop around to various suppliers to find the products they want at the price they want, with competition among those suppliers driving the quality of products higher and the price for goods lower. This is why we generally abhor monopolies, since by nature they stifle market dynamics and leave customers with only the options of loyalty or voice, meaning they lack much leverage. With the launch of a new and potentially powerful sales channel, publishers now have a more realistic exit option that can be brought to the table in negotiations with Amazon.

However, rather than alter the current pricing terms with Macmillan as a result of this new exit option, Amazon stopped distributing Macmillan’s e-books altogether. The question, of course, is why? I would posit that Amazon was trying to send a signal to dissuade other publishers from also trying to renegotiate terms. Now I have no information as to what Sargent may have proposed and if any ultimatums were given, so what follows is purely an intellectual exercise.

We can view Amazon’s move as a deterrent threat to other publishers who, emboldened by Apple’s entry into the market, may attempt a similar renegotiation. By harshly punishing one actor (i.e. refusing Macmillan access to a valuable and dominant sales channel) that attempted to change the status quo (Amazon’s preferred pricing structure), Amazon hopes to send a signal to other potential actors to not attempt something similar. This is a great example of signaling and the indirect use of force, two related concepts that economists (such as Michael Spence and Thomas Schelling) and political scientists (such as Robert Jervis and James Fearon) have fleshed out over the past 40+ years. Rather than having to expend resources forcing every potential adversary to either change their behavior or maintain the status quo, an actor can choose to send a signal to all potential adversaries by making an example of one of them. Not only can an actor make a threat to punish their adversaries, but they can also demonstrate that they have both the capability and the will to do so by carrying out such a punishment on one adversary.

This dynamic is accentuated in systems where one actor faces challenges from many potential actors versus just one. Barbara Walter has looked at why some states decided to deal with separatist groups and factions in a violent manner versus through negotiations. The key variable: the number of potential separatist groups that may also seek self-determination. As the number of potential adversaries increases the probability of solving these disputes through negotiation decreases. When faced will many potential challengers, governments will choose to demonstrate their willingness and ability to put down rebellions in order to deter other separatists groups from similar challenges. In other words, having reputation for resolve when dealing with adversaries becomes more important when you face many potential threats than just one.

In the case of Amazon, it could be that seeing the potential for many actors to attempt to renegotiate the current pricing structure it was decided that they should send a signal to the rest of the publishing world that attempts to change the status quo would not only fail, but would result in sever punishment (i.e. the loss of a popular sales and marketing channel). My guess is that this likely won’t work for two reasons: 1) as mentioned earlier, the publishers actually have someplace else to go–they can exit the current relationship and cast their lot with Apple; and 2) Amazon is heavily reliant on the book publishers. Without their titles the allure of a Kindle decreases. The threat may not be credible, or at least sustainable for long.



Can recession cause regime change?

Joshua Kurlantzick recently argued that the global economic downturn might spell doom for a number of autocratic governments around the world. Most, he argues, have staked their legitimacy on economic performance. Dramaticaly reduced world demand for consumer goods and energy threatens states like China, Russia, and Venezuela (and perhaps also Iran and other OPEC states):

Modern autocracies are very different from those of the past. Rather than ruling by strict ideology, ruthless internal police, and tight control of information, authoritarian regimes like Beijing and Moscow have remained in power primarily by making an implicit bargain with their most critical middle-class citizens — you might not have freedom, but you will have money. As long as the broad middle class, which is where the most dangerous dissent would take hold, is gaining ground economically, the regime is safe.

So while in the West, leaders worry that the global economy faces a second Great Depression, such an economic crisis poses a major threat to some of the world’s most resilient autocracies. A strong economy was their only backstop. Now, starved of the growth that keeps them in power and unable to repress their people as old-fashioned dictators did, these autocracies may have nothing left to fall back on.

He concluded with even stronger language:

The Great Depression fed dangerous new autocratic ideologies like fascism and communism; a second Great Depression could destroy them. While the economic crisis will cause untold human suffering in these and other countries, it is quite possible that, on the other side of it, we will see the end of that distinctive phenomenon of the late 1990s and early 21st century: the growth autocracy. And that, at least, would bring some light to a financial dark age.

That sounds almost hopeful, doesn’t it?

However, at least for China, James Fallows rejects this analysis in the April Atlantic:

Why do I think the Chinese have good reasons for hope?

One answer lies in the realm of straight economics. Some of the lost demand is sure to be picked up within China itself, thanks to a stimulus plan that, at some 4 trillion RMB (about $600 billion), is proportionately much larger than the one proposed by the Obama administration, because the Chinese economy is so much smaller than America’s.

Fallows then proceeds to explain the superior position of Chinese banks — they can (and will) lend money to prime the economy. Other sectors of the economy also have lots of tools and resources, he argues.

Fallows continues by rejecting the sociology and politics undergirding Kurlantzick’s thesis:

Beyond straight economics, the “China is over” hypothesis seems to miss important cultural and political realities. Its unspoken premise is that average Chinese people just barely tolerate the social bargain the government now offers—limited freedom, potentially unlimited wealth. So if the regime ever falls short on its material promises, the deal will be off and people will rebel.

This does not square with what I have seen. I have often wondered why so many people in different roles and regions in China seem vivid. The answer has to be more than contrast with my own blandness. I think it is because being in China today is like being in Western Europe in the 1950s. No one’s family story is dull or uneventful. People doing routine jobs have been through great hardships and dramatic swings of fate.

He then regales readers with stories of ordinary peoples’ prior reactions to the Cultural revolution, natural disasters, and other serious hardships in China. The people will tolerate the economic downturn and the government will survive. Indeed, the final section of his article explains how the recent downturn actually creates new opportunities for future Chinese successes.

He concludes with an interesting thought: is the U.S. similarly taking advantage of opportunities presented by the current downturn?

FYI: Over at my personal blog, I’ve posted (and critiqued) a couple of other pieces on the potential “upside of the downturn.” And like Fallows, I worry that some opportunities will be lost. For instance, though reduced energy consumption means less greenhouse gas emissions globally, it might also mean less government spending on alternative energy and attention directed away from environmental problems.


Tim Burke responds to Jake DeSantis

Tim Burke expresses his outrage at the oversized sense of entitlement reflected in Jake DeSantis’ letter of resignation from AIG. Next, two commentators show up and demonstrate not only a sense of entitlement, but a total disconnect from the way the economy works for most Americans, that makes DeSantis look like Francis of Assisi.

All worth reading, except for my own comment. Tim wrote a better one, apparently at the same exact time I crafted mine.


Corporate realpolitik

What should we call this?

FedEx in January announced it had renegotiated a deal to buy 777 Freighters from Boeing over the next decade. The company increased its order to 30 planes from 15 and agreed on an option for another 15 planes.

The labor-related cancellation provision came to light in FedEx’s filing on third quarter earnings. “Our obligation to purchase these additional aircraft is conditioned upon there being no event that causes FedEx or its employees not to be covered by the Railway Labor Act.”

The overwhelming number of commentators on the article see FedEx’s move as a blow on behalf of economic freedom; a kind of first-shot in the revolution against the liberals.

So what is the connection between this battle and ditching Boeing for Airbus? None, really. Airbus is pretty unionized, and few would argue that European labor laws are more pro-corporation than US labor laws

In truth, this is simply corporate extortion. A All FedEx cares about is continuing an unfair advantage over UPS. Because FedEx was founded as an airline, its truck drivers are covered by the Railway Labor Act. UPS is subject to no such quirk. So how to maintain this exemption? Threaten American jobs at another corporation–and unionized ones at that.

It all amounts to a pretty stark demonstration of the stakes of the current battle over the economic policies of the country, and of the correctness of underlying rationale for a new progressive agenda.

(H/t Josh Marshall)


The end of the era of central bankers?

If I were to speculate on what circumstances might lead to a significant curtailment of central bank autonomy in the United States, I imagine I would come up with a scenario that looks something like this one. If Josh Marshall’s informant is right, it might be pitchfork time for the Federal Reserve:

Josh, your reporting on the AIG credit default swap/counterparties issue has been spot-on. But to understand what happened there, you have to understand the Fed’s “Maiden Lane” vehicles and how it’s used them to avoid what Congress intended with TARP, which was the real story that came out of Dodd’s hearing on the AIG mess today. And the roots of it go back to the Bear Stearns rescue last year.

Image source: https://www.finestprospect.org.uk/Mediaeval/Med.htm


The foolishness of crowds

John Dickerson asks “Is it Obama’s Fault the Dow Is Tanking?” and provides “yes” and “no” talking points. Josh Marshall thinks the answer is no:

I was just watching Chris Matthews explaining how the Dow is President Obama’s “scoreboard” and how people are going to start getting angry at him soon if he’s not able to get the Dow to stabilized and start going up soon… There does seem to be a certain lack of comprehension of the fact that there are economic realities, actual losses, underlying the steep stock market decline.

I don’t watch much any cable news these days, yet I can guess that some number of talking heads are nattering on about how “the market” is passing judgment on Obama’s plans, and finding them wanting.

What I want to know is: why we should care? Of course I don’t like seeing my last ten years of savings getting hammered; I’d be rather pleased, in fact, if the stock market rallied for a very long time. But shouldn’t it be pretty obvious by now that the collective judgment of “the market” isn’t worth sh*t?

I’d hoped that at least one positive externality of the implosion of our financial system would be an end to all the blather about how we should look to Wall Street’s group mind for useful assessments of just about anything, let alone the best way to clean up the mess it made for us. After all, these are the same people who watch CNBC and think “moral hazard” means spending money on people making less than $250K a year.


Foundations, Foreign Policy and NGOs

This issue of International Studies Quarterly contains an interesting article about the effect of donors on both the agenda and strategies of human rights NGOs. Here’s the abstract:

“Focusing on the flow of funding to human rights non-governmental organizations (NGOs), we begin in this article to broach one of the least studied issues pertaining to transnational regimes—namely, their material underpinnings. Through an analysis of the patterns of donor funding to human rights NGOs, we underscore the triangulation between states, donors, and rights NGOs, whereby states have an impact on donor preferences, which, in turn, influences the agenda of human rights NGOs and their modes of operation, and these, in their turn, help shape the kind of NGO criticism voiced against the state. By emphasizing the important and frequently missing link of donors, we thus complicate the discussion concerning the impact human rights networks have on state policies and practices, showing how rights NGOs simultaneously weaken and strengthen the state. Accordingly, our examination of the political economy of human rights adds a new dimension to the literature analyzing how the state both reconfigures and is reconfigured by transnational regimes.

Reading the article made me happy because I now have a good, current overview to assign to my students next time I teach the “Global Agenda-Setting” class. This semester we focused on NGOs, the UN, the media, celebrities and network politics, but we ran out of time to dig more deeply into other impacts on the agenda-setting process, such as epistemic communities and private donors. Then, when my students briefed an NGO in Washington this past weekend on what they had learned and how it could help the practiotioners’ work, it became clear to me that I had not prepared them to answer a question that was of utmost concern to this organization: how to pitch its issue in such a way as to attract funding (rather than to attract members of a coalition).

So as I read, I was wondering what insights my students might have incorporated into their strategy document had we studied the political economy of NGO fundng more closely this semester. At least one insight stands out: even private donors seem constrained by the socio-political climate within their particular country. If a campaign is aligned with US foreign policy discourse, it will be more successful at securing funding from American foundations (as well as from US government donor agencies) than if it is pursuing goals at odds with US foreign policy. It might therefore logically follow that if a campaign is focused on changing or challenging US practice, it’s a good idea to seek funding from entities outside the US.

Since the authors’ analysis focuses just on funding to Israeli human rights organizations, though, it leaves this question open in my mind. They support this general claim both with their own data (US donors tend to support organizations that protect Israeli citizens, while European donors support NGOs who protected Palestinians) and by citing literature showing that both the US government and private US donors like Ford Foundation privilege civil and political rights over social and economic rights. But does this mean that US-based donors never support campaigns that challenge the US more directly? I don’t actually know what the answer is, but I would want to see a wider range of evidence across many thematic cases. I think that evidence to disconfirm this notion would be US-based private donor funding for campaigns that the US opposed, like for the International Criminal Court or the cluster munitions treaty. I wonder if readers of this blog are familiar with the political economy of these campaigns and have answers, or other thoughts about how to study this question more closely.


Scribbles in My Notebook on AIG

One of my favorite Cleveland sports columnists often does a column of brief observations and insights after a game or big event. I don’t scribble, and I lack a notebook, but watching the AIG bailout has me thinking about a few things:

Wow, that’s a lot of money. To put this in perspective, recall the 2004 Presidential Election, when Kerry was rolled for being for the $87 billion before he was against it. That was a yearly supplemental appropriation to fund the war in Iraq and Afghanistan. Paulson spent about the same to bail out AIG in one day.

This may have avoided an imminent financial crisis, but (and I’m not the first to say this, but its so important as to bear repeating) this 1) did nothing to address the roots of this crisis that got us to this point in the first place and 2) did nothing to address the fact that another shoe dropping seems imminent. Shouldn’t there be hearings on emergency financial sector reform or something?

I think Sebastian Mallaby made a good point in the Post yesterday:

If Paulson’s gamble pays off, it could affect the character of globalization. For the past two decades or so, international finance has developed largely on U.S. terms and in the U.S. image. The Federal Reserve has stood behind the dollar, which is the world’s dominant reserve currency, and the world’s faith in the dollar has allowed the Fed to cut interest rates in response to global shocks such as Russia’s default in 1998 without risking a run on the currency. Meanwhile, U.S. banks have dreamed up funky new financial instruments that have been marketed all over the world. To a considerable extent, the globalization of finance has meant its Americanization.

The first 12 months of this crisis scrambled that equation. The Fed cut interest rates, as it often does in response to trouble. But this time the world lost confidence in the dollar, which failed to play its traditional role as a safe store of value in tough times and instead seesawed wildly. The innovative U.S. banks lost billions of dollars and were forced to turn for help to the new masters of finance — foreign sovereign wealth funds. And U.S.-style financial innovation suffered a massive reputational blow. No less a commentator than Paul Volcker, the former Fed chairman, has emerged to denounce it.

The longer the financial turbulence goes on, the greater the likely backlash against U.S.-style financial globalization. But Paulson’s gamble — if it succeeds — could limit the damage. By refusing to use the Fed’s balance sheet to bail out Lehman, he may have saved the Fed from becoming further bogged down in its crisis-management role, freeing it to focus more on preserving the value of the dollar. And by repealing the too-entangled doctrine, Paulson may have strengthened market penalties for banks that mismanage modern financial instruments — thereby increasing the chances that sophisticated, market-based finance can flourish safely.

I don’ think folks yet understand how profound this crisis might become. The Dollar as Global Reserve currency allows the US to do all kinds of things that no other country can get away with. The US budget looks more like Argentina in a bad year than the IMF recommended Washington Consensus, but the US can get away with it and Argentina can’t because the US can always sell debt, and there remains a market for dollar-denominated debt. If the dollar loses this preeminent position, the US is in for major major economic turbulence.

In less than a week, the Dow lost nearly 1000 points reacting to the AIG bailout. But, this is a highly skewed indicator, because AID is one of the 30 stocks that make up the Dow. AIG’s loss in value has a direct impact on the Dow–the decline is not a great indicator of the degree of investor mood. Better would be the Dow without AIG or some other indicator. But, the Dow, S&P 500, and NASDAQ are all down about 4-5% today (AIG is part of the S&P also).

Lots of people are making a comparison to the bailout of Chrysler back in the early 80’s. I wonder if the bailout of Mexico in 1994 might be more appropriate–the Treasury and Fed acting on their own to bail out a bad and highly interconnected position in the global economy.

One really hopes that Krugman is right about this: Bernanke is a leading expert on the Great Depression, so he might be able to keep it from happening again.


Make that “be very, very, very afraid.”

If you’re on the internets right now, you know that the US government has just effectively nationalized AIG. It seems that the risk of a total meltdown of the global economy outweighed concerns about moral hazard.

Correspondents say AIG’s demise would have a far greater impact on the world’s financial markets than Lehman’s.

Many banks and investment funds in the US and around the world would lose their insurance cover at a time when defaults on payments are likely to rise.

Treasury Secretary Henry Paulson and Ben Bernanke, the chairman of the central bank, the Federal Reserve, met senior members of Congress late on Tuesday to brief them on the bailout.

The plan calls for the government to seize up to 80% of AIG and remove its management, similar to the way it took control of mortgage giants Fannie Mae and Freddie Mac.

US President George W Bush welcomed the package, and the White House said the deal was made “in the interest of promoting stability in financial markets and limiting damage to the broader economy”.

As the New York Times notes:

The Fed said the loan would allow A.I.G. to sell “certain of its businesses in an orderly manner, with the least possible disruption to the overall economy.”

Without help from the Fed, A.I.G. might have been forced to liquidate real estate and other assets at fire sale prices — a move that could drive property prices lower and force countless other companies to mark down the value of their own holdings.

I’m neither an economist nor a political economist, and I don’t play one on this blog. But I will say a few things:

1. This is truly incredible. There’s no silver lining in sight. We will be very lucky to muddle through the current crisis.

2. I am very pleased that all of my investments are long-term in character.

3. Every right-wing blogger and commentator just got their license to call Obama a “socialist” revoked.

4. It would have been nice if the Federal Government hadn’t passed the last eight years spending money like a drunken sailor and cutting taxes like Freddie Krueger hopped up on crystal meth. If the United States was a medieval kingdom, we’d have replaced all the silver in our coins with painted wood shavings by now.

Image source: here


Be very, very afraid

After the start of the Great Depression, the US government adopted a number of regulations, institutions, and safety-net policies designed to prevent a recurrence of an event that nearly destroyed capitalism and liberal democracy.

In the 1980s and 1990s, many of those regulations, institutions, and safety-net policies were eliminated or curtailed. Some call this the triumph of capitalism and freedom over excessive government regulations, others call it “the great risk shift.”

Now, I’m not saying any of this is directly responsible for the fact that our financial system is teetering on the edge of total collapse at the same time that an enormous number of people are one paycheck away from poverty.

But it certainly is food for thought.

Oh, wait. Look! Over there! A pig with lipstick is attacking some lobbyists!

… What was I talking about, anyway?

PS: Oh, yeah. The financial crisis. My wife made an interesting point last night: “The government’s basically said that Lehman Brothers is below the threshold for being ‘too big and important to fail.’ So if you were a stockholder or creditor at an investment bank–or any other financial institution–that was smaller than Lehman, and you got a hint that it was in trouble, what would you do?'”

Image source: Encyclopedia Britannica.

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