Estonia’s Astonishing Development

by Andreas Hoffmann

Intellectual Takeout’s Luis Pablo has published a nice piece on Estonia’s astonishing development. You can find it here. He attributes this development to Estonia’s “market-oriented reforms” during the 1990s. Importantly, Estonia has sticked with the “market-oriented” approach. I suggest that this persistence might help explain why the country has fared better than most other countries following liberalization.

South Africa and Ending Apartheid: W. H. Hutt and the Free Market Road Not Taken

William Hutt (left) with F.A. Hayek.

 

 

 

 

 

 

 

 

 

by Richard M. Ebeling*

The public eulogies marking the passing of Nelson Mandela at the age of 95 on December 5, 2013 have refocused attention on the long struggle in South Africa to bring about an end to racial discrimination and the Apartheid system.

Forgotten or at least certainly downplayed in the international remembrance of Mandela’s nearly three decades of imprisonment and his historical role in becoming the first black president of post-Apartheid South Africa is the fact that through most of the years of his active resistance leading up to his arrest and incarceration he accepted the Marxist interpretation that racism and racial discrimination were part and parcel of the capitalist system.

Mandela was a member of a revolutionary communist cohort who were insistent and convinced that only a socialist reorganization of society could successfully do away with the cruel, humiliating, and exploitive system of racial separateness.

With the fall of communism in Eastern Europe and the Soviet Union in the late 1980s and early 1990s, the communist model of socialist transformation was too tarnished and delegitimized to serve a as a guidebook for post-Apartheid South Africa by the time that Mandela assumed office as the first black president in that country in May 1994.

Instead, Mandela’s government followed the alternative collectivist path of a highly “activist” and aggressive interventionist-welfare state, with its usual special interest politicking, group-favoritism, and its inescapable corruption and abuse of power. Its legacy is the sorry and poverty-stricken state of many of those in the black South African community in whose name the anti-Apartheid revolution was fought.

But this did not have to be the road taken by South Africa. There were other voices that also opposed the racial and Apartheid policies of the white South African government, especially in the decades after the Second World War.

These voices argued that racial policies in that country were not the result of “capitalism,” but instead were precisely the product of anti-capitalist government interventionism to benefit and protect certain whites from the potential competition of black Africans.

One of the most prominent of these voices was economist, William H. Hutt. Hutt had come to South Africa from Great Britain in 1928 and taught at the University of Cape Town until the 1970s, when he moved to the United States where he died in 1988. Born in 1899, he had attended the London School of Economics and studied under Edwin Cannan, the noted historian of economic thought and liberal free trade economist.

Poverty of Ethics without Economics: Bangladesh

by Mario Rizzo

In a world where people’s ethical goals are intrinsic values we could easily argue, as did David Hume, that the values themselves are not subject to scientific analysis.  But, as things turn out, many of what people believe to be intrinsic values, and therefore ultimate goals, are not. They are intermediate ends to which the attainment of some more nearly ultimate goal is imputed. For example, if I believe that my happiness is an intrinsic moral good, and I think that the connection between my happiness and making more money is completely unproblematic, then I may legitimately believe that additional money-making is an ultimate moral goal. (How one intrinsic good should trade off against another is a separate issue.)

Some people think that policies that mandate good wages and safe working conditions are ultimate goals. Or at least they seem to believe that. Much of the discussion about the recent Bangladesh factory fire has this air about it. Much to my disadvantage in polite company, I argued that the advocates of “justice for the poor” were ignoring important factors.

Even if you do believe that better working conditions and higher wages for Bangladeshi garment makers are intrinsic values, what kinds of policies will achieve these values? Does it matter whether the policies will result in some workers improving their wages and working conditions, while other will see a decline in their wages and working conditions?

Bangladeshi Garment Workers and the Perversion of Ethics

by Mario Rizzo

For the last few days the newspapers have been filled with stories about how western garment manufacturers will now insist on greater safety for the workers who make their clothes in Bangladesh. They will pay for renovations and reconstructions of the physical plants. What is more, the government in Bangladesh will raise the minimum wage and make unionization easier.

So now Pope Francis and the relatively rich in the developed world (many of whom were among the 900,000 names on a petition to improve things that has been circulated) will be pleased and the demands of their social conscience will be satisfied.

F.A. Hayek: His 114th Birthday

by Mario Rizzo

Today is Hayek’s birthday. Much has been and will continue to written about him. When I look around at much of what passes for economics today, especially in the prestige circles, I cringe.  But reading his work always comforts me that something better is possible. And, in fact, there are many economists all over the world who take their inspiration from Hayek and his work. This is their day too!

Hayek, of course, was more than economist. He also had profound things to say about the mind, the rule of law, and ethics. Recently, I saw a stark example of the difference in ethical thinking between Hayek and more conventional moralists. This was in the case of the tragic fire in a Bangladeshi factory making clothes for western companies. The new Pope Francis condemned it as an example of corporations only caring about their bottom-line.

Now there are legitimate issues, from the point of view of the individuals working in this and other such factories. Can they rely on the attestations of a certain degree of safety in their working environment? Before people can voluntary assume the risks associated with certain kinds of work they must have at least a pretty good idea of what those risks are.

And yet there is a more fundamental issue.  Workplace safety is a matter of degrees. It is a working condition that is part of the cost of labor. There is an inevitable tradeoff between wages and level of employment, on the one hand, and workplace safety on the other hand. In rich countries workers can afford to sacrifice something for greater workplace safety. This is all part of increasing wealth.

Now major corporations are re-thinking their use of factory labor in Bangladesh.  They don’t want the images of large numbers of dead ruining their reputations. Ostensibly, they will argue that since they cannot trust Bangladeshi authorities to keep the factories safe they will not deal with them. Voila, the moral stance.

Emerging Hope in Greece

 by Chidem Kurdas

The Greek economy continues to shrink. With the wider European debt crisis and slump hampering Greek recovery, the recession may persist through 2013.   Amid the grim news, however, there is a small sign that austerity measures are starting to work.

Dodd-Frank Starves Congo; Advocates Win

by Chidem Kurdas

While I decided the financial regulation act Dodd-Frank is a gigantic dud after scanning its thousands of pages, I missed the bit on Congo that David Aronson brought to light in a NYT op-ed column this Monday.

Activist-lobbyists apparently inserted into the act a requirement that public companies buying minerals from Congo show how they prevent their purchases from benefiting warlords. Predictably, the companies did not want to risk being accused of financing bloodshed and simply switched to alternative mineral sources. Congolese who worked in mining lost that income and are now starting to go hungry.

Too Much Aid Will Hobble Arab Spring

by Mario Rizzo

For those who have access to the Financial Times, a must-read is the opinion piece by Saifedean Ammous. Saif attended our NYU colloquium regularly during his last year as a graduate student at Columbia University. Congratulations.  See the FT online here.

Japan Reveals Regulatory Trap

by Chidem Kurdas

Once upon a time, people tried to explain the post-war “Japanese Miracle” of rapid growth. Then in the current century, the puzzle shifted to Japanese stagnation since 1990. The lesson from these two distinct phases of Japanese history is germane for current American policy.

Chalmers Johnson’s influential book, MITI and the Japanese Miracle (1982), examined how the powerful Ministry of International Trade and Industry had guided and regulated the economy.  MITI implemented industrial policy in what Mr. Johnson called a defining characteristic ofJapan, namely close collaboration between politicians, economic bureaucrats and big business.

MITI’s successor, the Ministry of Economy, Trade and Industry, promoted the use of nuclear power. The ongoing problems at Fukushima Daiichi nuclear plant threw new light on METI. The plant’s operator, Tokyo Electric Power Co., is a monopoly fostered by regulators. The government announced that the Nuclear and Industrial Safety Agency will now be separated from the Ministry, to give it greater independence. 

Medieval Capitalism

by Jerry O’Driscoll  

Randall Collins is a distinguished sociologist and Weber scholar. In Weberian Sociological Theory (Cambridge University Press, 1986), Collins re-examines Weber’s contributions. It is a book favorable to Weber. In chapter 3, “The Weberian revolution of the High Middle Ages,” he employs Weber’s analysis to demonstrate that it was in medieval Europe that capitalism and modernity developed. “…The Middle Ages experienced the key institutional revolution, … the basis of capitalism was laid then rather than later, and that at its heart was the organization of the Catholic Church itself” (45).

Consider my post inspired by Gene Callahan’s earlier one. My interest is not in interpreting Weber, but understanding the history of the market economy. But much of the discussion in the prior post centered on interpreting Weber. Collins is relevant because he establishes the position I argued from a Weberian perspective.

Egypt Best Case Scenario via Korea

By Young Back Choi and Chidem Kurdas

Compared to the turmoil in the Middle East, South Korea appears to be an oasis of calm. But as recently as 20 or so years ago you could  still smell tear gas on the streets of Seoul. Violent demonstrations shook the city for decades—-making it look like Cairo today.

Despite continuing tensions with North Korea, Seoul is now relatively peaceful and the economy is humming along. How did South Korea get out of the cycle of angry protests and government repression? 

China Catch-Up and Two Freedoms

by Chidem Kurdas

China is expected to produce more than Japan this year, thereby becoming the world’s second largest economy after the US.   Chinese annual output is only $5 trillion compared to American $15 trillion and per person income is only a fraction of the US, but it is clear that China is catching up.

We’re witnesses to a gigantic experiment in political economy. Here is an authoritarian government that apparently recognizes the superiority of free markets, private property and individual enterprise in organizing an economy. It has lifted the shackles off industry and commerce, to an extent, so as to benefit from these powerful forces. Thus China is growing at phenomenal rates.

But freedom of expression and political dissent remains suppressed even as economic freedom expands. In the ever-resonant words of Milton Friedman, “Economic freedom is an essential requisite for political freedom. By enabling people to cooperate with one another without coercion or central direction, it reduces the area over which political power is exercised.”

The Moral Paralysis of Obamacare

by Mario Rizzo  

The perceptive Alexis de Tocqueville argued that Americans are not as keen on “free speech” as it may first seem. Before an idea or proposal is passed into law they will argue, use invectives, claim that proponents or opponents are bad people, and so forth. But after a law has been passed and the dust settles much becomes unquestionable.  

Virtuous Capitalism

by Jerry O’Driscoll 

Over at the Austrian Economists, Steve Horowitz has posted a challenging statement and asked for reactions: “The great virtue of the free market is that it requires so little virtue to work effectively.”  The thrust of the responses is that defenders of free markets have had little to say about virtue (at least since Adam Smith).  

In a brilliant paper for APEE a few years ago, Liberty Fund’s Doug den Uyl asked whether we need ethics if we have free markets. That is a broader question, but on point.  Do markets discipline transactors to act virtuously and ethically?  Many would be tempted to answer affirmatively, but that would be facile. (Doug is not facile.)  

Economic Development in Honduras

by Jerry O’Driscoll  

The imbroglio in Honduras is political and constitutional, but also economic.  The underlying economic issue is what development model will be followed: that of the caudillo with its populist redistribution, or a free-market model. 

The most solid reporting on the crisis as been done by Wall Street Journal columnist Mary Anastasia O’Grady.  She has clarified that the ouster of former President Zelaya was ordered by the Honduran Supreme Court in response to his attempted coup.  Last week she traveled to Tegucigalpa and interviewed the Cardinal, who was drawn into the controversy.  The Cardinal is a well-known advocate for the poor.  So on what side did he come down?

The High Line Park: Turnstyles Anyone?

by Bill Butos

The recently opened High Line Park in the hip Chelsea area on New York’s West Side is all the rage.  The High Line sits on a stretch of a defunct elevated freight railway along 10^thAvenue from Ganesvoort St. (which is just south of 14^th St.) to 20^th street.  The City plans to extend it to 34^th St.   A green urban advocacy group, Friends of the High Line, has steered this part of the project to completion.  It’s become a tourist destination and a favorite platform for celebs and fashionistas.  And it fits perfectly into the nearby Meatpacking and Chelsea areas with their trendy eateries, late night clubs, and designer clothes shops.  By all accounts it purports to represent the future of urban eco-friendly planning and judging by the number of visitors (about 20,000 per week), it’s a grand success.  (See here and a video appreciation by supporters here.)

After my second walk-through, my appreciation turned slightly positive.  It is fun walking above the streets and catching new perspectives of the City from 30 feet above.  But the empty-lot weeds masquerading as (carefully maintained) indigenous flora still look ugly and many of the views are rather uninspiring.  And I am also a taxpayer.

Neither Charity Nor Truth, Part 3: The Attack on Classical Liberalism

by Mario Rizzo  

In this final installment of my analysis of the papal encyclical letter Caritas in Veritate I turn my attention to Benedict XVI’s positive ideas on globalization.  (I put the encyclical section numbers in parentheses.)  

Do not expect clear-cut statements or precise recommendations for policy. Do not even expect consistency. (There are actually some good parts as in Sections 57 and 58.)  

The encyclical bears the mark of a committee’s work, presumably approved by the pope. There are individual sections that stress different, and contrary, attitudes so it is difficult to come away with a clear picture. Anyone looking for real guidance will have to seek it elsewhere.  

Nevertheless, a certain grand vision is revealed about society. The pope seems to be an enemy of the idea of beneficial spontaneous ordering forces.

Neither Truth Nor Charity, Part 2: Globalization and the Pope’s Discontents

by Mario Rizzo  

Throughout Pope Benedict XVI’s enclyclical (“Caritas in Veritate”) he stresses that scientific knowledge is not enough when trying to determine appropriate government policies or even individual actions. This is quite true.  

He fails, however, to appreciate in many specific instances and arguments the importance of the fact that that moral or ethical knowledge is also insufficient to determine appropriate government policy or individual actions. He pays lip service to this idea (Sec. 9, 30) but it rarely constrains him in practice, as we shall see. 

Now consider a specific issue.  

The pope is worried about the effect of globalization on the traditional welfare state. (Sec. 25)

Neither Truth Nor Charity: The Destructive Influence of a Papal Encyclical

by Mario Rizzo  

Recently Pope Benedict XVI issued a papal letter (“encyclical”) called “Caritas in Veritate” [CV] or “Charity in Truth” which is largely about economic issues relating to globalization. While there have been some commentaries on it, two prominent ones (here and here) in the Wall Street Journal do not reveal how truly bad it is. It may be that the pressures of journalism are such that people read such documents too quickly. I am being charitable.  

Two interesting models of urban redevelopment

by Sandy Ikeda

From the New York Times, “An Effort to Save Flint, Mich., by Shrinking It”:

Instead of waiting for houses to become abandoned and then pulling them down, local leaders are talking about demolishing entire blocks and even whole neighborhoods. The population would be condensed into a few viable areas. So would stores and services. A city built to manufacture cars would be returned in large measure to the forest primeval.

After Katrina, some urbanists urged New Orleans authorities to adopt something like this policy of “planed shrinkage,” but largely for political reasons it was summarily rejected.

Given New Orleans’s cultural heritage, perhaps they might also find Cleveland’s approach useful, as reported in The Wall Street Journal, “Artists v. Blight”:

The mirage of the efficient city

by Sandy Ikeda

I’m honored to be contributing a short essay to a Festschrift for Jane Jacobs.  Recently, the editor asked me to write an abstract.  The following is the result, which I would like to share with you:

A city is not a man-made thing.  Rather, it emerges from the actions of its inhabitants, who interact in unpredictable yet orderly ways.  Under the right conditions – the right “rules of the game” – what arises is vital, creative, radically unpredictable, and profitable:  the living city.

Infrastructure: How the seen crowds out the unseen

by Sandy Ikeda

So far I’ve come across no discussion of the consequences that the massive infrastructure spending touted in Stimulus Package I (there will of course be others) will have on what Nathan Glazer called “the fine structure of society” in the local communities it will impact.

A new freeway, for example, might make it possible to get from point A to point B faster, but it can also reduce the local economies of A and B, as well as those in between, to barren border vacuums. Note that this is apart from whether they will be built in a timely manner or if the measured economic benefits they generate somehow cover their construction costs.

Because nearly all of the debate has taken place within a macroeconomic framework, most public intellectuals seem to have neglected how such a massive and rapid increase in physical-infrastructure might undermine this fine structure. Some have mentioned the “bridge to nowhere” syndrome or questioned whether the stimulus spending will actually stimulate quickly enough. And a few, like my colleague Mario Rizzo, have brought up the important resource-allocation effects. But I’m talking about something different here.

Zimbabwe’s About Turn

By Chidem Kurdas

In developed counties free markets are widely blamed for economic ills as governments take over banks and pundits favor nationalization. By a sad irony, the situation in Zimbabwe is so dire that even President Robert Mugabe appears to be making a concession toward the only way out—reestablishing free markets.

New York, the unfinished city

by Sandy Ikeda

A friend from France, who is both an artist and an economist, on a visit to New York last year said she loves this place so much because every time she comes here she always finds it new and interesting. Well, couldn’t you say that about any great city? Apparently not.

Thomas Bender’s The Unfinished City: New York and the Metropolitan Idea observes:

Those who have Paris or Vienna or Budapest or Mexico City or Buenos Aires (or one of many other cities) in their minds as proper metropolitan centers will be disappointed by New York. From such a point of view New York has not yet completed its progress to full metropolitan status. But that perspective radically mistakes the case. New York’s character is to be unfinished. It is not a failed or incomplete example of something else; it is sui generis…It’s very essence is to be continually in the making, to never be completely resolved.

Max Page describes this process in terms of the dialectic between economic development and city planning, in his interesting and informative book, The Creative Destruction of Manhattan, where he quotes O. Henry’s famous quip: “It’ll be a great place if they ever finish it.”

Poverty has no causes

by Sandy Ikeda

There are a couple of discussions of poverty going on right now, here and on the “Austrianecon” list-serve, which gives me a convenient opening for the following.

I’ve been re-reading Jane Jacobs’s second book, The Economy of Cities (1969), while working on a short piece for a Festschrift in her honor.  FYI I’m writing about the virtue of inefficient cities, paying close attention to the chapter 3, “The valuable inefficiencies and impracticalities of cities.”  Although less known and influential than her first book, The Death and Life of Great American Cities (1961), EC is devoted to developing her economic ideas and is full of great insights, such as the following from that chapter:

To seek ‘causes’ of poverty…is an intellectual dead end because poverty has no causes.  Only prosperity has causes.  Analogically, heat is a result of active processes; it has causes.  But cold is not the result of any process; it is only the absence of heat.  Just so, the great cold of poverty and economic stagnation is merely the absence of economic development.  It can be overcome only if the relevant economic processes are in motion.

What Jacobs has in mind here is the underlying condition of poverty, not temporary impoverishment that’s due to episodes of unemployment, which may indeed be traced to particular causes.