Professional Documents
Culture Documents
By Thomas L. Friedman
Globalization 1.0 (1492-1800) shrank the world from size large to med.
Dynamic force was countries globalizing 4 resources & imperial conquest
Globalization 2.0 (1800-2000) shrank the world frm size med-small
spearheaded by coy globalisaing for mkt and labour
Glob 3.0 (2000- ) shrinking the world from small to tiny & leveling the
playing field.
Countries globalizing coy globindi/small coy glob
Europ/amediverse group
Anyone can reap the benefits of globalization now with internet,
technologies that enable meetings to be held without needing to be physically
together.
How did world become flat? Through 10 events frm 1990s to 2000.
11/9berlin wall came down which allowed us to think of the world as a single
space. 8/9 ; 9 Aug 1995 when Netscape went public, allowed browser to display
images &data stored on websites & stock offering trig dot-com boom which
became a bubble and resulted in assive overinvestment in fiber-optic telecom
cablemin cost of trans voices, data and images to 0affected india a lot
workflow revoutsourcing, offshoring, insourcing, open-sourcing, supplychaining, informingwireless access and VoIP (turbocharge these new forms of
collab so you can do any one of them anywhere with any device. 1990s, ppl of
china, india, Russia, eastern Europe, latin ame and central asia all incr free to
join free market didnt even have to leave home to partake.
10 forces enable connectivity & collaboration at a distance are flattening
the Earth & leveling the field of competitiveness.
No guarantee that ame/western eurp will cont to lead the way.
Flattening of the world means the world is changing in ways that req ame
to step back and re-evaluate how they can make the best use of this situation.
Using tactics which were successful prev might not be successful now.
Building strong statebuilding strong individuals
Solution must be found themselves as ame have basic econ and edu tools
to do that.
Crisis due to 3 gaps: (1)Ambition gap-young energetic Indians&chinese vs
lazy ame (2)Numbers Gap insufficient engineers &scientists (3)Education gapoutsourcing to get better-skilled&more productive ppl than ame workers.
Why the world isnt flat
By Pankaj Ghemawat
Close look at data reveals 90% of all phone calls, web traffic, investment
is local.
Few cities tht dominate inter financial activity Frankfurt, Hong Kong,
London, New York are at the height of modern global interaction, all well
connected to each other.
10% Presumption ave of 9 categories of data in chart about activity level
barriers at borders have declined but not disappeared entirely.
Internet: ppl across the world getting more connected but not with each
other but rather with people within the same country. Even googles operation in
Russia reaches only 28% of pop, 64% for the Russian market leader in search
services Yandex. What is hindering google from expanding into Russian mkts?
Linguistic complexities.
Possible to turn back the clock of globalization esp so since deep
international economic integration may be inherently incompatible with national
sovereignty esp given tendency of voters in many countries to support more
protectionism rather than less
The Myth Of Asias Miracle
By Paul Krugman
Soviet/communist growth depended on ability to amass large inputs
expansion of employment, increases in education levels, investment in physical
capital to produce rapid output growth(1) Baseless to say that western
economies could replicate this system and that communist system was superior
(2) econ analysis of communists countries growth implied future limits to their
industrial expansion.
Econ growth based on increase in inputs, by mobilizing resources rather
than productivity subj to diminishing returns.
Paper argues that Singapore/ Asians growth similar to that of the Soviet
Union and that growth rates are not sustainableevidenced by growth accting
that calculates explicit measures of inputs increases as well as increases in
output per unit of input, which are elements of econ expansion. Growth accting
combines all measurable inputs & to measure rate of growth of national income
relative to tht index-total factor productivity
Japan 2nd industrial power growth in the 1950s and 60s showed both
high rates of input growths and high rates of efficiency growth but slowed down
in 1991 after then econ recession
Chinese growing fast but doubts on numbers presented-corrupt society.
Disagreements of which year to use as a baseline. If 1978 used, theres
improvement in efficiency aft Mao Zedongs reign. If 1964 used, picture
resembles East Asian Tigers
Krugman rebuts the view that (1) major diffusion of world tech in progress
& tht western nations are losing their trad adv there are still tech gaps and
actual capital flows to developing countries in the 1990s have been small having
gone to latin ame instead. (2) worlds econ centre of gravity will shift to the Asian
nations of the western pacific (3) Asian successes demonstrate the superiority of
economies with fewer civil liberties & more planning than the west is willing to
accept
Econ growth is the reward for extraordinary mobilization of resources,
deferred gratification, willingness to sacrifice current satisfaction for future gain.
Systemic Vulnerability & The Origins Of Developmental States: Northeast And
Southeast Asia In Comparative Perspectives
By Richard f.doner, bryan k.ritchie, and dan slater
action COMMITMENTS] (2) heightened need for foreign exchange and war
material induced by national security [SEVERE SECURITY THREATS] (3) hard
budget constraints imposed by scarcity of easy rev sources [SCARCE RESOURCE
ENDOWMENTS] .
(1) + (2) + (3) = systemic vulnerability
Developmental states emerge when political leaders confront constrained
political environment and are not highly autonomous entities
NIC- Singapore, Taiwan, South korea enhanced info flows within & btwn
pte and public sector. Bureaucrats given the political clout to make credible but
conditional commitments & withdraw to support firms that underperf despite w
the help from the state and to give help to firms to compete w global rivals in
more challenging econ activitiesincr info flow and the resolution of
commitment prob help states coordinate multiple actors and pursue LT
objupgrading growth in local innovation capacities, lower-value to higher
value econ activities within the global commodity chainscombination of export
promo&industrial deepening VS ASEAN-4 (Malaysia, Thai, Philippines, Indo)
where intermediate state institutions have been assoc w impressive growth
and econ diversification but little upgrading
Institutional capacity dept variable
Developmental states must have dev because of political reasons
securing power instead of providing collective goods. They do this by setting up
institutions to channel large amounts of money/goods/adv to key constituencies
(econ elites int in easy profits)
Difficult for politicians to preserve power which is why they have to create
such institutions to pacify their clientelist connections to the pte sector alone
Any subset of (1),(2),(3) make it diff 4 politicians to stay in power w/o
improving insti perf.
The more tightly bound political leaders are, the more pressed they would
be to dev developmental states
Treat leadership and agency as out of discussion
Ruling elites political survival = recon of coalitional, geopolitical & fiscal
constraints pursue higher-skilled export trajectory so as not to leave the
coalition members out and to benefit them instead of pursing low-wage based
export growth strategy
Institutional features: recruitment, promotion is based on merit alone with
sanctions for corruption and pay rates are competitive. Links to the private
actors esp biz & ideally labour. They operate on fxnal/industry-wide criteria,
participants tend to be encompassing in the form of official, sectoral/peak
associations & operations tend to be trans tp govt and biz and to proceed
accordin to explicit & consistent rules and norms.
Institutional variation: ASEAN4 VS NIC NIC had meritocratic promotion
and competitive selection, w low corruption levels, powerful lead dev agencies,
high linkage w org pte actors while ASEAN4 public-pte linkages exhibit significant
degrees of clientelism & pte-sector factionalism, serving non-economic ends
Initial conditions-colonisation period, ethic homogeneity, confucian
values, heavy reliance on foreign capital all deemed not to be reasons for the
variations in institutions
Deemed reasons: (1) Broad Coalitions: Waldner argues that narrow rather
than broad coalitions were necessary for formation of institutions. Rebutted by
Campos & Roots who said that broad coalitions were needed instead. But why do
some ruling elites sustain broad coalitions w side pmt tht req so much money
and some increase cost-competitiveness? (2) External Threat: how war makes
states generate revenue (3) Resource Competition: Rasiah argued that naturalresource exports reduced fiscal pressure on the ASEAN-4 to promote
complementary institutional & linkage development but this cant account for inst
diff between countries w similar resource endowments. Have to look at whether
states are rev-maximisers/satisfisers which depend on coalitional & geopolicitcal
context they are forced to operate
Systemic vul: broad coalitions & ext security claims on natural resources
press ruling elites to be rev-maximisersthey have to promote growth, inc living
standards & upgrade local resources. Ruling elites have to set up strong
institutions to deal with these skills upgradation, education, ensure ppty rights,
est macro stability, socializing risks of new investments and these new policies
need to be bought in by numerous parties. Institutions in this case need to come
up with broad dev obj, facil info flows within state agencies & betwn officials and
pte actors regarding mkt req, monitor firm perf and be credible in terms of
commitment to econ policies & willingness to exact reciprocityWeberian
bureaucracies led by pilot agencies embedded in org sets of private interests
Skorea & Taiwan: rural dev & import sub (early to mid 1950s)labourintensive export promotion (late 1950s to early 1960s) industrial deepening &
upgrading (early 1970s). Side pmt took the form of wealth-sharing mechanisms
in rural dev & education I.e. land reforms to get support from peasants.
Productivity improved. Import subs had to happen to finance security. Export
promo happened as import sub became unsustainable esp with rising military
costs & cut in US aidsdeclining BOP of Taiwanstronger institutionalization of
govt-biz cooperationlate 1960s both countries faced more threatening ext
conditions and both responded with efforts at military self-sufficiency at
firstheavy industrailisation proj in stell, metal, chemicals, machine-building,
plastics, shipbuilding, electrongics. Labour intensive X had competitors
(cheaper rivals in the region) and low skilled labour cant compete w more
efficient ones like in Japaninstead of lowering wages, both countries raised the
domestic value added of inc sophisticated exports (incr productivity)promoted
education and human capital investmentrising wages and cheap education
(1)forstall mass op pot large-scale biz subsidies (2)expand HR needed for manu
efficiency and innovation.
Singapore: PAP had to sustain broad coalition w side pmt tht wld not raise
X costs (1)HDB subsidise land, building prices & home financing (2) Prioritise
Education w emphasis on technical training (3) Restored perks & intro aggressive
pay scale 4 civil svc (4) Increase cont to CPF which could be accessed to pay for
housing, education & health needs + workers cld buy discounted shares in govtlinked corp (GLCs) (1) reduce upward pressure on wages (2) High productivity
resulted which helped bureaucracy attract city-states brightest and best. All
these req institutions to facil ongoing laour and biz part w public officials in
policy formulation & implementationEDB coord foreign capital, National Wage
Council peg wages to productivity, Skills Dev Fundmake local & foreignowned firms resp to upgrade workers by giving such firms incentives to do so.
For Thailand: the 3 conditions came at diff times, not all at once and not
of sufficient intensity to create institutional development.
Philippines, Indonesia and Malaysia kept factor costs low and yet
satisfied broad coalitions. Malaysia transferred corp assets from chinese &
foreign corp to govt trusts managed on behalf of malays. Postboom (OPEC oil
boom) in these countries have casued institutions to floundered.
Democracy can help to increase public prov and improve inst perf only if
it is in interests of politicians. Otherwise , politicians can preserve power without
delivering side pmt Philippines.
The Primacy Of Institutions ( And What This Does And Does Not Mean)
By Dani Rodrik & Arvind Subramanian
Paper attempts to explain huge diff in ave income between worlds richest
&poorest nations
3 strands of thought: (1)Geography; det climate & nat resource
endowments, disease burden, trans costs, extent of diffusion of tech from more
adv areasagricutlural productivity and human resources quality (2)
International trade to increase productivity and income integration view (3)
Institutions; role of property rights & rule OF law
Results indicate institutions quality override everything else. Geog has
weak direct effects on incomes altho strong indirect effects through institutions
by influencing their quality. Trade has sig effect on institutional quality but no
direct effect on income.
Geog only 1 treated as exogenous/nt influenced by income. Geog can
affect income directly by det agricultural productivity and indirectly by impacting
mkt integration/quality of institutions but INCOME CANT AFFECT GEOG Trade
integration & income run both waysintegration can raise income but trade can
be result of increased productivity in economy. While better institutions better
protection of ppty rights increase investment & foster tech progress and raise
incomes, better institutions can also be outcome of econ development as
demand for better institutions rise as countries become richer.
Work borrowed from 2001 Acemoglu, Johnson & Robinson, 1999 Jeffrey
Frankel & David Romer to capture variation in the determinant that is exogenous
international trade & institutional quality
Regression analysis showed that insti quality always had +ve & sig effect
on integration ( trade) while integration also has a positive impact on inst
qualitytrade can have indirect effect on income by improving insti quality
Types of instituitons: (1)Market-creating protect ppty rights and contract
enforcements. Without them markets cease to exist/perf poorly (2) Mkt
regulating deal w externalities, EOS, imperfect info e.g.telecom, transport, fin
svcs (3)Mkt stabilizing ensure low inflation, min macroecon volatility, avert fin
crisis e.g. central banks, exchange rate regimes, fiscal/budgetary rules (4)Mkt
legitimizing provide social protection, insurance, redistribution and manage
conflict e.g.pension systems, social funds. (2),(3) &(4) needed to sustain the
growth momentum, build resilience to shocks and facilitate socially acceptable
burden sharing in response to such shocks.
Make institutional choices by id incentive effects of alt arrangements &
relevant tradeoffslarge role for public deliberation and collective choice within
societies. Political democracymetainstitution that help societies make choices
about institutions they want
Sustaining spurts of growth and trans them into consistently higher SOL
seems to be facil by democracy.
Institutions can change albeit slowly and can have lasting effect on dev
Imf and world bank conditional loans should be over a longer time
period as structural adj programmes are slow otherwise expectations would be
unmet. Also, if institutional quality is the main source of dev, must change
underlying instituions in apt way or policies would be ineffective. Should find the
right institutional preconditions rather than micromanage outcomes which is
what US Millennium Challenge account is doing and IMFs poverty reduction
strategy paper (PRSP)
Institutions Matter, But Not For Everything. The Role Of Geography & Resource
Endowments In Development Shouldnt Be Underestimated
BY Jeffrey D.Sachs
Using institutions as a single reason to explain for income levels is alluring
because (1) Attributes high income levels in USA, Europe, Japan to superior
social institutions (2) Rich has little financial resp for poor because dev failures
are the result of insti failures, not lack of resources.
Institutions matter but not everything. What the poor needs now are
direct interventions, donations, address of disease and geographical isolation
and low tech productivity and resource limitations that trap them in poverty.
Worlds most troubled dev hot spots: sub-saharan Africa and central asia.
according to Adam Smith: these countries cant partake in international trade
because transport costs were too high. w/o international trade, regions
condemned to small internal markets, inefficient labour division, cont poverty.
Africa cut off from global trade & investment by Malaria. Africas climate
aided malaria spreadlowers returns on foreign investments, raises trans costs
of international trade, migration and tourism in malaria regions.
When countries are remote/have few skilled workers, these workers more
likely to emigrate than attract physical capital into country. True even within
countries.
Globalisation have caused countries to be classified into 3 categories:
(1)Countries within countries in which insti, policies and geog are all reasonably
fav coastal regions of east Asia have all become closely integrated w global
production system and benefitted frm large inflows of foreign capital (2)Regions
relatively well endowed geog but have ppor institutions central European
states; institutional reforms impt (3)Impoverished regions w unfav geog subSaharan Africa , central Asia, large parts of Andean region and highlands of
Central America; globalisaion has not succeeded in raising living standards and
may have caused brain drain + capital outflows. Initial low levels of income and
small populations (int mkts), living far frm coasts, burdened by diseasetrapped
in poverty because of inability to attract pte capital
Wrong to say that nth can be done to geog. Special investments needed
to fight malaria, roads, communications, transportation facilities. Need help from
outside world to initiate self-sustaining growth.
3 alternatives : (1)Cont poverty for region (2)Migrtion from interior to
coast (2)Sufficient foreign assistance to build infrastructure needed to link region
to world mkts (4)Regional integration: break down artificial political barriers tht
limit mkt size and comdemn isolated countries to relative poverty but slow to
happen
good test to see if policies are successful : are they successful in
attracting new capital inflows
international community can set actual dev goals for such regions instead
of make do w wtv econ results tht emerge. Best stnd millennium dev goals
free thinking frm 1-factor explanations.
Institutions and investors: The Politics of the Economic Crisis in Southeast Asia
By: Andrew MacIntyre
Politics an important factor as to why investment reversal was greater in
some countries than in others. Specifically, veto authority (rigidity & volatility
extreme ends that are suboptimal during times of crisis) caused govt to
responses to be diff
Govt responses in times of crisis impt for investors
Countries chosen for analysis : Thai, Msia, Indonesia,
Philippinescomparable in structure & dev level, broad orientation of econ
policies & coalitions underlying govt similar at the time, located in same region,
hit by 1st currency collapse in Asia. Initial cond & econ vulnerability not identical
but diff dont correlate w econ outcomes.
Strong differentiation in relation to dept var (investment) & indept var
(institutional framework of politics). Philippines suffered least severe, Malaysia
and thai hit hard and indo suffered most.
3 indicators used : gross domestic investment, capital inflows and rate of
GDP growth
institutional framework policy postureinvestment
The economic consequences of political institutions: (1)Douglass Norths
work on the imptance of stable & secure ppty rights regimes for investment &
growth in econ dev of Europe. Introduction of new political insti was impt to
constrain power of political executive, which prov a more stable and secure
environ where investors less discouraged by risk of capricious policy
actiongreater confidence that political execs would adhere to their proclaimed
policies as there were other poltical insti to check on themcan be seen in
modern day as well whr industrial democracies politicians delegate mgt of a
special area of policy to a credible nonpartisan 3rd party i.e. central bank that
prov additional check on exec actionhelps expl rapid rise of investment &
growth globally. When govt is inst contrained, a more stable & predictable policy
environ exists for investors VS (2)Flexibility in policymaking & economic reform
crucial to make unattractive invesmt environment more attractive & prevent an
attractive one from losing appeal.
Using George Tsebelis veto player framework allows us to compare,
calibrate diverse systems of fovt. It diff political systems by e no.of actors who
can bloc/veto a policy change. A veto player: ind/collective actor whose
agreement is req 4 policy change/legislative change. The higher e no.of veto
players, the further apart their policy preferences, the more diff for policy
changemore stable & predictable policy environ
R/s between no.of veto players & policy risk for investors is a U-shaped
curve tht passes through a min. more than 1 veto player helps reduce policy
volatility but at some pt of inflexion, no additional veto players are welcome as
they serve to increase policy rigidity. Fewer veto playergreater risk to ORs of
policy volatility.
Veto players id by both constitutional structure & party system where
players who are rendered mute/redundant are discounted if their aggregate pref
are subsumed by agg pref of others.
Thailand: 2houses of parliament. Upper house had powers of delay rather
than actual veto, w no scope 4 judicial review. Only house of rep carried veto
power. Thai also had multiple weak parties (10-12) being rep in parliament,
making coalition in govt inevitable (6/more parties)@least 6 veto players as
prime minister (pm)risked coalitional collapse if he attempted to override serious
oppositionfragmented control over policy as each parties wanted to fight for
their own interest/side pmt.
Property mkt boom failing by late 1996 which threatens banks & financial
insti, export growth fell in 1996 (total exports decreased) + much lending funded
through ST foreign borrowing
Dec1996 to nov1997, govt Chavalit Yonchaiyudh: looked impressive &
competent in the beg but was beset by paralysis, corruption. Institutional config
made it diff for any govt to intro major policy change due to dispersed veto
power. Amnuay was installed as finance minister and he aimed to cut govt
spending. However, this created opposition.
Feb 1997: 1st default on foreign loan w announcement tht countrys
largest fin coy merging to avoid collapse. Many went to withdraw their money. 3rd
march, Amnuay & central bank gov Rerngchai Marakanond suspended trading of
fin shares and announced emergency measures to reassure nervous mkts req
tht all banks & fin coys make stronger prov 4 bad debt and 10 of e weakest fin
coys have to raise their capital base within 60days. Did little to reassure mkts.
When trading resumed, fin shares fell. Some members of govt had interests in e
10 insitutions &vetoed actual implementation of tough measurescentral bank
had to pump in new capital to keep these coy afloat in e face of panicked ORS.
Chavalit delayed measures to prevent risking collapse of his govt. central bank
was also spending down reserves to prop up exchange rate. Many people started
to exchange their currency to the dollars (increasing supply of thai baht and
causing it to fall further). Amnuay resigned, taken over by Thanong Bidaya; he
annouched suspension of 16 fin coy while central bank was trying hard to prop
up baht.
Reserves of Central bank exhaustedFall of baht on 2nd july 1997 due to
failure of 1st rnd of crisis mgt tactics
Thanongs policies blocked and resigned 19th oct
ORs confidence fell exchange rate fell, capital flew out of country and
lending dried out due to govts inability to deliver necessary policy adj
Philippines: presidential system of govt w a legislature having 2 chambers
(bicameral) house of reps & the senate have full veto power over legislation.
Multiparty system w about 6 incohesive parties gaining rep in the Congress.
Need for a multiparty coalition in each chamber for president to pass legislation.
Unlike thai, the president is SEPARATELY elected and not beholden (owing a duty
to some1 in return) to the parties for tenure & doesnt req consent of a majority
of each chamber 4 legislation to pass but as long as majority is achieve, precise
size & Party composition dont mater. No stable majority of disciplined
partieseach legislative chamber as a single collective veto player. No. of veto
players3 : president, senate, house of rep w judiciary occasionally serving as a
veto player to overturn actions approved by president & congress. Philippine
presidency has a range of formal & informal discretionary powers and many
legislators migrate to party of new president aft elections.
Intermediate case whr thr were institutional checks against policy
volatility but sufficient scope for flexible executive action on pressing issues
Crisis struck Philippines during final 12 months of Fidel Ramos term as
president. Policy adj (exchange rate & monetary) involved executive
agencies/central banks and not the legislaturepresidentialism meant that exec
decision-making authority conc in president vs in thai where exec authority was
fraught as the executive- the cabinet was made of all the veto players
Economy was experiencing growth
Peso was allowed to dep sharply on 11july aft costly effort to defend
currency and adj Mp, enhanced bank reg, tightened FP (inc tax, decr G spending
to decr AD) and a tolerably timely & coherent outcome was achieved. Central
bank worked w govt to reduce liquidity. Philippines focused on oversight
arrangements for the banking sectors (limit bank exposure to ppty sector & incr
cover against forex volatility), fiscal mgt
2 serious prob for Ramos: (1)income tax laws: central to IMF extended
fund facility (EFF) agreement in 1994; scheduled to expire in june; with upcoming
elections, some legislators champion higher tax-free thresholds. Agreement met
8dec by house, senate finally. Late but not too late oucome for help by IMF. (2)oil
deregulation: feb1997 prev heavily subsidized and reg oil industry but public
opposition arose due to rising oil prices + depre of peso. Several members of
congress challenged the dereg and supreme court overturn law on 5novoil
of some buidings projects and instead of closing banks down, he bailed them
outvolatile policy signals
Initial conditions were similar and Philippines actually fared worst w its
high public debt and rapid credit growth
prod profits for certain privilege parties. George Stigler demon tht us coys
benefitted frm the systematic capture of ind policy by pte coy. Stigler lamented
tht a small & conc group of ind in the US could obtain substantial rents by prov
resources to politicians which enabled these politicians to remain in power and
allowed party workers to gain access to govt jobs. Richard Posner: regulatory
agencies werent mismanaged. They intentionally operated in ways to max
inefficient goals of executive branch. Tech adv in 1980s created new biz
opportunities tht increase econ cost of protecting govt and pte monopolices.
Transformations to be more pro-competition started in UK, US and other
countries incl india. Econ argued against state control in context of a developing
country. ISI has evolved as a regime of controls were govt interfered a lot and
industrialists couldnt make decisions based on profitability. Incentives offered by
insti forced ind to spend resources lobbying 4 production licences to protect their
monopolies, but no incentives to invest in innovation, productivityDWL to econ.
Rent-seeking industrialization emphasized govts failure to allocate resources
efficiently. Import subnot easy to locate ind fit for protection and to define
duration of protection, might spoil these ind. Owners of secure monopolies
became rich due to rs with ruling party rather than ability to compete. Govt
intervention stifled competition in india. Ind give black money to govt officials
in exc 4 rents accuring 2 pte monopolies created by govt control. Investments to
procure licences DWL to econ. ISI dealt a major blow when some East and
Southeast Asian countries grew rapidly in 1980s by promoting their X.
Politics of globalization and deregulation in India: 1980India political
econ locked in a state-driven, import substituting eqm tht resisted
transformation. State- balancer of class interests. India was comfy w rentseeking industrializationlarge dom mkt and monopoly production privileges in
return 4 rents. Pro-biz reforms of the 1980s inc privileges 4 big indian w/o subj
them to competition. Farming community-largest voting block wanted more
subsidies, free power, no taxation. Middle class took privileges frm the state in
the form of subsidized higher education and guaranteed govt jobs. State- actor
tht could bal interests of the classes but not transform them to favour
globalization & dereg. Classes dept reg & comfort of closed econ to secure
privileges. How did transformation occur? States can make a transition bcuz
donors have coercive power 2 direct dev when foreign exch is scarce. Econ
change favouring dereg and globalization w/o support of powerful politicians and
technocrats would not succeed in india. Argues that its not biz associations like
CII-confederation of indian industry tht capture the state & guide it toward econ
reform. Indian state was the pri author of reform stategy. Govt didnt rec support
frm indias other leading industrial lobby. State directed indias ind towards
reform at a time when they indirectly dept on IMF for foreign exch tht wld fin M.
Econ change in india did not occur by stealth.
Stolper-samuelson theorem suggests democracy such as india should
promote free trade. According to theorem, a sector of econ whr production
factors are abundant should demand free trade bcuz px paid to factors would be
low. Labour as an input is priced competitively, countries where labour is
abundant should be globally competitve in labour-intensive forms of production
and should thus demand free trade. Yet no evidence of labour demanding freer
trade regime in india. Imperative for democratic rulers to produce public goods &
legal framework essential for EG. EG and dereg since the 1980s has coincided w
a period of greater political competition and party fragmentation. Charles
R.Hankla: over-reg of econ occurred during period whens ruling congress party
was losing mass bass & resorting to patronage politics. Irfan Nooruddin: coalition
govt bese at making credible comm bcus of checks and bal in place due to
numerous veto players in the governing coalition.
Indias response to BOP shock in 1991 diff frm crisis in 1966 as policy elite
well prep in 1991 to harness the countrys dependence on IMF to initiate
transition to dereg and globalization. Countrys dept on IMF helped indian
industry to accept a more competitive econ order.
Indias fact sheet
Gained independence in 1947 aft 2cent of British colonial rule. Democracy
since independence.
Prime minister is e leader of the govt, req support of a majority in
parliament. President is the head of state, limited in executive power but can
influence formation of govt at both state & national levels when no party gained
outright majority. Judiciary is formally indept & incr assertive
Fairly insulated frm 09 global recession, but a bout of populist spending
beg 08 wasted public spending
Top rate of both personal & corp tax for indian = 30%. Exemptions reduce
effective tax rate for indian firms to less than 20%. All coy pay 10% tax on dist
profits. Corp tax rate for foreign firms 40%.
Trade deficit narrowed from 12-13 due to declining M due to stringent
controls on gold M, expanding X with weaker rupee
Major X-engin goods, petroleum. Major M-petroleum pdt, gold&silver
Leading mkts 13: US, UAE. Leading Supplier 13: China, Saudi Arabia
A Guide To The Constitutional Structures & Electoral Systems Of East, South And
SEA
By Allen Hicken, Yuko Kasuya
Describes the consti structures and electoral system of the 17 asian-pac
countries since 1945
Recognition that e consti structure & electoral system a country adopts
can have impt implications for democratic stability, econ growth & social welfare
Following convention used by Jones (95) , powell (82) and others, only
systems tht were indpt & had elected govt 4 a min of 5 yrs are included. Include
any regime tht had held reg elections 4 at least 5yrs, in which opposition parties
were allowed to participate. Exclude regimes tht held elections for a minority of
legislative seats. Years 1945-2000. Countries are divided into multiple time
periods to reflect sig changes in the variables listed.
3 Different ways to classify constitutional structures across Asia.
1st way: Presidential systems: an executive (1) is elected by a popular
vote (b) holds office 4a fixed term; not dept on parliamentary confidence (c)
selects & directs the cabinet (d) has some legislative authority. Parliamentary
systems: executive is (a) selected by e legislature (b) dept on legislatures
confidence.
Of 17 countries, 15 had a parliamentary system at one time/another w
majority of these being former British colonies Bangladesh, Burma, India,
Malaysia, Pakistan, Papua New Guinea, Singapore, Srik Lanka. Bangladesh,
Burma, india, indo1, Pakistan, Singapore 1, SK3, Sri Lanka 2 each have
presidents as head of state but not classified as presidential systems since these
presidents are not pop elected/do not have a cabinet/legislative authority. 5
countries blangadesh (1), Philippines (1,3) and SK (1,3), Taiwan (1), South
Vietnam(1) have had a presidential regime which meets 4 criteria listed above. 7
countries used the hybrid systems tht dont fit well into either category.
Singapore (2) directly elected President has some legislative autho & can
appt/remove the PM. However, the PM & cabinet are also subject to
parliamentary confidence.
Prime Minister: Head of an elected govt. President: Head of a republican.
2nd way: legislative structureunicameral/bicameralupper house can be
elected/appted
3rd way: structure of central-local govt relationsextent e national govt
formally shares power w sub-national govt. Federal systems: formal division of
power between central/national govt and sub-national govt; formal div of
legislative authority. Such a formal division dont exist in unitary states.
Election of president & presidential vetoes: voters can elect president
directly/choose rep who then elect the president. Plurality voting (relative
majority) VS pref voting rank candidates in order of preference(Sri Lanka)
Presidential term limit non-existent in Bangladesh, indo (1), Philippines
(2), Singapore and South Korea (2,3), ban on re-election in SK (45) while
Philippines (3), SL, Taiwan, SK(1), Indo (2) and Philippines (1) places a 2-term
limit on presidents.
SK (3) and Indonesian presidents are the most powerful in terms of veto
powers. Their vetoes cant be overridden. Taiwans president has no veto power
indpt of the exec yuan. SL president lacks veto power over legislation but
approval is req before results of a referendum becomes law. SK (1,2,4,5) and
Philippines presidents have package vetoes tht take a supermajority to overturn.
Bangladeshi & Pakistani presidents can veto non-money bills but veto can be
overturned by simple majority. Singapore president cant veto most legislation.
Created in 1991 via a consti amendment. Can veto certain govt apptmt as well
as bills tht affect the CPF. President must approve budgets of certain govt
agencies & can veto bills relating to foreign borrowing. His veto can be
overridden by a 2/3rd vote of legislature
Parliamentary system & heads of state: duties of the head of govt ( PM)
separated frm tht of the head of state (President/monarch). Normally, head of
states powers are ceremonial but some enjoy additional powers refuse to sign
bills passed by the legislature/veto power. Veto power normally limited to nonmonetary bills & vetoes can be overridden by majority vote of 1/both legislative
chambers Bangladesh, India, Malaysia & Nepal. Thai king enjoys greater power
than most ceremonial heads of state. He can withhold his consent on any bill &
send the bill back to parliament for redeliberation. Override of kings veto req a
2/3rd vote of both houses.
Selection of the legislature: Electoral formulas for the legislature: plurality
formula& proportional representative to allocate legislative seats. Mixed-member
system employ a combi of these formulas. Plurality formula: member with the
highest no of votes in a given district is elected; usually in single-seat districts
but sometimes in multi-seat districts like Thais lower chamber, the Philippine
senate, provincial seats in indos electoral collegevoters have as many votes
as there are seats to be filled & the highest polling candidates fill the avail seats.
Singapores system aft 1987 combines a handful of single-seat districts with
group representative constituencies (GRC), each w 3-6 seats. GRC can be
contested only by teams of candidates frm the same party (allied indpt) &
@least one member from each team must be frm the malay, indian/ minority
community. Voters cast a single vote for a team and team with a plurality of the
votes win all the seats in that GRC. A few countries give voters a single non-trans
vote (SNTV) rather than multiple votes. Under SNTV there are multiple seats in
each district and each voter has one vote. Seats awarded based on plurality
basis election of SKS Nat Assembly frm 1972-1980 & Japanese lower chamber
elections until 1994. PR: seats are allocated to parties in proportion to votes
obtainedclosed list PR, Flexible list PR & SNTV. Closed listpresent a list of
candidates to e electorate w voters selecting a party rather than candidate.
Parties rec seats in proportion to their overall share of votes. Candidates
awarded seats based on their position on the list, voters cant det position on list.
Flexible list voters cast one vote for a party list but can also vote for an indi
candidate on the list. Parties awarded seats on a PR basis & candidate vote totals
used to det candidates place on the party list. Candidates in Indo (1) had to rec
@least 300k votes to win a seat. Nepal, Pakistan, SL use STV systems to elect
their lower chambervoters can rank as many candidates as they wish both
within and across diff parties in order of pref. any candidaes who reach a certain
quota of 1st choice votes are deemed elected. The surplus votes of the justelected candidate trans to the 2nd choice candidates as marked out by the
ballots. Once vote trans are complete, individuals who reached the quota are
declared winners. Process cont until all seats are filled. In indo, certain threshold
must be reached for parties to win any seats.
Mixed member/two-tiered systems: 1 tier is allocated nominally while the
other tier is allocated on the basis of party lists. Nominal tier: candidates
allocated based on votes cast 4 candidates by name; plurality formula. In south
korea and Taiwan, voters cast a single fused vote for a candidate in a nominal
tier district which also counts as a vote for that candidates party 4 purposes of
the list tier. Others cast votes separately for both nominal and list tiers. Votes are
linked when there is a trans of votes from one tier to another. Seat allocation can
be indpt or linked to the nominal and list tiers as well. SL use a mod form of PR w
preferential voting in its 1st tier. Each voter chooses a specific party list and up tp
3 of that lists candidates. The party w highest votres in district rec one bonus
seat awarded to candidate w highest vote total. Remaining seats in the district
awarded to parties/groups in proportion to votes received. Seats in 2nd tier
allocated in a proportional manner based on national party vote shares
We in the United States are very used to our single-member district, winner-take-all style of
elections. We've all grown up with a system where we elect members of our legislatures
one at a time in small districts, with the winner being the candidate with the most votes.
This system seems so "natural" that proportional representation (PR) elections may at first
appear a bit strange to us. Adding to the potential confusion is the fact that there are
several different kinds of PR systems in use around the world. But in reality, the principles
underlying proportional representation systems are very straightforward and all of the
systems are easy to use.
The Basic Principles of PR
The basic principles underlying proportional representation elections are that all voters deserve
representation and that all political groups in society deserve to be represented in our
legislatures in proportion to their strength in the electorate. In other words, everyone should
have the right to fair representation.
In order to achieve this fair representation, all PR systems have certain basic
characteristics -- characteristics that set them apart from our current election system. First,
they all use multi-member districts. Instead of electing one person in each district, as we do
here in the U.S., several people are elected. These multi-member districts may be relatively
small, with only three or four members, or they may be larger, with ten or more members.
(The figures below illustrate districting maps for a hypothetical 50-person state senate.
Figure 1 shows 50 single-seat districts, as is common with plurality-majority systems.
Figure 2 depicts 10 five-seat PR districts, and Figure 3 shows 5 ten-seat PR districts.)
Figure 1
Figure 2
Figure 3
The second characteristic of all PR systems is that they divide up the seats in these multimember districts according to the proportion of votes received by the various parties or
groups running candidates. Thus if the candidates of a party win 40% of the vote in a 10
member district, they receive four of the ten seats -- or 40% of the seats. If another party
wins 20% of the vote, they get two seats, and so on.
That, in a nutshell, is how proportional representation works. But while all PR systems have
the same goals of ensuring that all voters receive some representation and that all groups
are represented fairly, various systems do have different ways of achieving these goals. So
it is helpful to see how different kinds of PR systems work in practice.
Types of PR Systems
Party List Voting
Party list voting systems are by far the most common form of proportional representation.
Over 80% of the PR systems used worldwide are some form of party list voting. It remains
the system used in most European democracies and in many newly democratized
countries, including South Africa.
How It Works. Legislators are elected in large, multi-member districts. Each party puts up
a list or slate of candidates equal to the number of seats in the district. Independent
candidates may also run, and they are listed separately on the ballot as if they were their
own party (see below). On the ballot, voters indicate their preference for a particular party
and the parties then receive seats in proportion to their share of the vote. So in a fivemember district, if the Democrats win 40% of the vote, they would win two of the five seats.
The two winning Democratic candidates would be chosen according to their position on the
list.
There are two broad types of list systems: closed list and open list. In a closed list system-the original form of party list voting--the party fixes the order in which the candidates are
listed and elected, and the voter simply casts a vote for the party as a whole. This is shown
in the first ballot below, which illustrates an election for the House of Representatives in a
five-seat district. Voters are not able to indicate their preference for any candidates on the
list, but must accept the list in the order presented by the party. Winning candidates are
selected in the exact order they appear on the original list. So in the example here, if the
Democrats won two seats, the first two candidates on the pre-ordered list--Foster and
Rosen-Amy--would be elected.
Closed Party List Ballot
Most European democracies now use the open list form of party list voting. This approach
allows voters to express a preference for particular candidates, not just parties. It is
designed to give voters some say over the order of the list and thus which candidates get
elected. One version of this is illustrated in the ballot below. Voters are presented with
unordered or random lists of candidates chosen in party primaries. Voters cannot vote for a
party directly, but must cast a vote for an individual candidate. This vote counts for the
specific candidate as well as for the party. So the order of the final list completely depends
on the number of votes won by each candidate on the list. The most popular candidates
rise to the top of the list and have a better chance of being elected. In our example, if the
Democrats won 2 seats, and Volz and Gentzler received the highest and next highest
number of individual votes, they would rise to the top of the list and be elected. This
example is similar to the system used in Finland and widely considered to be the most open
version of list voting.
A variety of different formulas exist for accomplishing the actual allocation of seats to the
parties. One of the simplest seat allocation formulas is the called the "largest remainder
formula." In this approach, the first step is to calculate a quota, which is determined by
taking the total number of valid votes in the district and dividing this by the number of seats.
In the example in the table below, 100,000 votes were cast and ten seats are to be filled.
100,000/10 = 10,000 which is the quota. The quota is then divided into the vote that each
party receives and the party wins one seat for each whole number produced. So the
Republican party received 38,000 votes, which is divided by 10,000 to produce three seats
with a remainder of 8,000. After this first allocation of seats is complete than the
remainder numbers for the parties are compared and the parties with the largest
remainders are allocated the remaining seats. In our example, two seats remain to be
allocated and the Republicans and Moll, the independent candidate, have the largest
remainders, so they get the seats. Ultimately all the parties end up with the number of seats
that as closely as possible approximates their percentage of the vote.
Largest Remainder Approach to Seat Allocation
members so that each party has its appropriate share of seats in the legislature.
Proponents claim that mixed-member proportional voting (MMP) is the best of both worlds:
providing the geographical representation and close constituency ties of single-member
plurality voting along with the fairness and diversity of representation that comes with PR
voting.
This system was originally invented in West Germany right after World War Two, though
since then it has also been adopted in several other countries, including Bolivia and
Venezuela. It is still one of the least used PR systems, but in recent years it has begun to
garner a great deal of attention. In fact, it is now one of the "hottest" systems being
considered by those involved in electoral design. In part this growing attention is a result of
MMPs unique claim to be a "compromise" between the two main rival systems. In the
1990s New Zealand abandoned its traditional single-member plurality system for MMP.
Hungary also adopted this approach. Most recently, the newly formed parliaments of
Scotland and Wales used this system for their first elections.
How It Works. People cast votes on a double ballot--see the ballot below. First, on the left
part of the ballot, they vote for a district representative. This part of the ballot is a singlemember district plurality contest to see which person will represent the district in the
legislature. The person with the most votes wins. Typically half of the seats in the legislature
are filled in this way. So in a hypothetical 100-member state legislature, the winners of
these district contests would occupy 50 of the seats.
On the right part of the ballot--the party list portion--voters indicate their choice among the
parties, and the other half of the seats in the legislature are filled from regional lists of
candidates chosen by these parties. The party lists are closed in the German version.
These party list votes are counted on a national basis to determine the total portion of the
100-seat legislature that each party deserves. Candidates from each partys lists are then
added to its district winners until that party achieves its appropriate share of seats. The
following table illustrates how this process works for our hypothetical election. The
Democrats won 40% of the party list votes in the 100-member state legislature, so they
would be entitled to a total of 40 of the 100 seats. Since they already elected 28 of their
candidates in district elections, they would then add 12 more from their regional party lists
to come up to their quota of 40 seats.
Allocation of Seats in MMP
In the German version two electoral thresholds are used, either of which a party must
overcome to be allotted seats in the legislature. A party must either get 5% of the
nationwide party list vote or win at least three district races in order for it to gain any seats
in the legislature. In our hypothetical case, the New Party did not win any district seats, but
they did win over 5% of the nationwide vote, so they deserve their share of legislative
seats--which in this case would be six seats, all of which would be filled from the regional
party lists.
Single Transferable Vote Or Choice Voting
This system of proportional representation is known by several names. Political scientists
call it "the single transferable vote." It is called the "Hare-Clark system" in Australia. In the
United States, electoral reform activists have taken to calling it "choice voting." Currently
this system is used to elect parliaments in Ireland and Malta. In Australia it is used to elect
the federal Senate, as well as the legislatures in several states there. It is also the PR
system that was used in a number of cities in the United States during the twentieth
century, including New York, Cincinnati, Cleveland, Toledo, and Boulder. It continues to be
used today in Cambridge, Massachusetts for elections to their city council and school
board.
How It Works. The voting process is illustrated by ballot below. All candidates are listed in
the same place on the ballot. Instead of voting for one person, voters rank each candidate
in their order of choice. So if you like Campbell best, you would mark the "1" after his name.
If you liked Gomez second best, you would mark "2" by his name, and so on. You can rank
as few or as many as you want. This ballot illustrates the use of the AccuVote system used
in Cambridge, Massachusetts to elect its city council and school board. Voters fill in the
ranking numbers as they would for standardized tests taken in school, which allows for
computerized vote counting and ballot transfers.
Choice Voting Ballot
As the name "single transferable vote" implies, this systems involves a process of
transferring votes. To understand how the transfer process works, it may be best to start out
with a simple analogy. Imagine a school where a class is trying to elect a committee. Any
student who wishes to run stands at the front of the class and the other students vote for
their favorite candidates by standing beside them. Students standing almost alone next to
their candidate will soon discover that this person has no chance of being elected and
move to another candidate of their choice to help him or her get elected. Some of the
students standing next to a very popular candidate may realize that this person has more
than enough support to win, and decide to go stand next to another student that they would
also like to see on the committee. In the end, after all of this shuffling around, most students
would be standing next to candidates that will be elected, which is the ultimate point of this
process.
In the single transferable vote, votes are transferred around just as the students moved
from candidate to candidate in the analogy. The exact order of the transfer process is
illustrated in figure below. An example of how the votes are actually transferred is shown in
the table that follows. For the sake of simplicity, assume that there is a three-seat district in
which six people are running for office. The first step in the process is to establish the
threshold: the minimum number of votes necessary to win a seat. The threshold usually
consists of the total number of valid votes divided by one plus the number of seats to be
filled, plus one vote. The formula looks like this: Threshold = (valid votes/1+seats) +1 vote.
So in our three-seat districts with 10,000 voters, a candidate would need 10,000/1+3 (which
is 2,500) plus one more vote, for 2,501.
Diagram of Ballot Transfer Process
The second step is to count all the number one choices to see if any candidates have
reached the threshold of 2,501. As shown on the table below, the Democrat Gomez has
2,900 voters and he is declared elected. But Gomez actually has 399 more votes than he
needs to win. These votes are considered wasted if they stay with Gomez, so they are
transferred to the second choices on the ballot. (There are several ways to do this, but we
neednt get into those details here.) In the second count, we see the effect of this transfer.
The other Democratic candidate, Campbell, gets 300 of those second choice votes, and the
independent candidate, Daniels, gets the other 99. The vote totals are now recalculated to
see if anyone is now over the threshold. No one is, so the next transfer takes place. The
candidate with the least chance to win is eliminated and his or her votes are transferred to
their second choices. This candidate is Higgins, the Republican, and 500 of his votes are
transferred to the other Republican candidate, Dains; and the other 100 votes are given to
Daniels. Again the votes are recounted to see if anyone has reached the threshold. Dains
has reached it with 2,800 votes and so she is declared elected. Once again her excess
votes are redistributed to their second choices--200 to Graybeal, and 99 to Daniels. But still
no one has reached the threshold, so again the lowest candidate is eliminated and those
votes transferred. That candidate is Campbell, the Democrat, and 100 of his votes go to
Graybeal, and 600 go to Daniels. This puts Daniels, the independent candidate, over the
threshold with 2,698 votes, and she is the last one elected.
This transfer process is a bit complicated, so why does it exist? The transfer process was
invented primarily to reduce the problem of wasted votes -- votes that are cast but do not
actually elect anyone. Plurality-majority systems routinely waste large numbers of votes
and this is why they are prone to such problems as party misrepresentation, and the
underrepresentation of political minorities, racial minorities, and women. The transfer
process in STV is designed to ensure that the fewest votes are wasted and that the
maximum number of people gets to elect a representative to office. It acknowledges that
there are two kinds of wasted votes: votes for candidates that stand little chance of winning,
and votes in excess of what a winning candidate needs. Transferring these votes to their
next ranked choice makes it more likely that they will actually contribute to the election of a
candidate.
Party Fabrication: Constitutional Reform And The Rise Of Thai Rak Thai
By Allen Hicken
Describe, analyse success of Thaksin Shinawatra & his Thai Rak Thai party,
arguing tt neither personal assets/effects of the crisis enough to explain the rise
and success. It was instead the 1997 constitutional reforms tht altered thais
political-institutional landscape that created new opportunites, incentives 4
political actors tht thanksin and his party took adv of. The reforms helped reduce
no of political parties and increased the power of PM relative to coalition partners
and intraparty fraction
Sale of Shin Corp (founded by Thaksin and owned by his famiy) to a sg firm
for a subs, tax free profit in jan06seen as thaksin using his authority for his own
personal adv. Protests of the sale led thaksin to call new elections and step down
as PM.
A draft constitution was produced in aug1997: reforms aimed to reduce
influence of provincial politicians, increase accountability of both elected officials
and government bureaucrats, promote stronger, more nationally oriented political
parties.
Elections & parties: previously, Thai House of rep used the bloc vote (BV)
electoral system tht combines multiseat constituencies w multiple votes & the
plurality rule. 76 provinces divided into 142-156 electoral constituencies, each
containing 2/3 seats. Voters in each constituency could cast as many sep votes as
there were seats. Voters cast their votes for ind candidates and allowed to split
their votes/partially abstain. Prohibited frm cumulating multiple votes on a single
candidiate. Political parties wishing to contest were req 2 field a full team of
candidates and law req parties to run a min no of candidates nationwide.
Candidates req to belong to a political party to stand 4 election. 1997
constitutionBV system replaced by a mixed-member/2tier system. House has
400 seats elected frm single-seat cons via the plurality rule & 100 seats from a
single nationwide consti via PR. 4 nation list tier, each party must submit a list of
candidates 4 voters to consider. Voters then cast 2 sep votes 1 for candidate for
single-seat const and 1 for party for the national list tier. Not linked. Candidates
must choose between running on the party list/in the constituency-cant do both.
Parties with <5% of the party list voters rec no list tier seats. New restrictions of
party switchingcandidates must be members of parties for @least 90 days prior
election to be eligible to runto reduce last-min party switching. Members of
parliament who wisht o serve in the cabinet must surrender their seats in the
House. Introduction of a FULLY elected senate. Prev, senators appted by PM and
came from ranks of bureaucracy, armed forces, biz. Now, elected body depts. On
SNTV electoral system to fill the Senates 200 seats Japan, SK, Taiwan. Each
province is an electoral constituency w 1-18 seats, based on population. Each
voter casts a single vote 4 candidate and seats awarded accord to plurality rule.
Senate candidates are however prohinited frm belonging to political parties
campaigning 4 office. Lesser individuals having too much power by having more
than one authoritarian position.
New constitution allowed voters to directly place laws on the legislative
agenda. 50k voters can petition the Nat Assem to consider a piece of
legislation/req senate to pass a resolution removing office snr officials suspected
of wrongdoing. Several superintendent institutions semiautonomous bodies
were also create to monitor govt and hold officials actable.
Local govt be filled via electionsdecentralisation
The draft was met with opposition from parties whose interests are
threatened but the july1997 asian fin crisis tht hit thai started to show some of
thais shortcomings in its political system. The constitutional draft then became a
symbol of govts commitment to difficult but needed political & econ reforms.
Consti reform and broader reform became linked. 11oct, king affixed his signature
on the doc for reform.
Critics fo the old thai party system: (1) Too many parties reduced
effective governance, cont to unstable, short-lived govt (2) Not cohesive shortlived alliances of convenience (3) Political parties tended to focus interest of a
relatively narrow grps of supporters and directed govt resources to them (vote
buying)
1 argument is that large no of parties in pre-reform due to different parties
that ran for elections frm constituency to consti, from province to province, region
to region. Parties able to dominate elections in their particular regions but very
little coordination across regions. Pre-1997 parties tended to be based in a
particular region and drew much of their support from that region. But coord
within regions is v poorcleavages based on regional diff cnnot explain
comparative lack of cross constituency coord in thai. Another argument: greater
the concen of power the stronger the incentives 4 candidates to coorp in order to
capture the prize. In prereform thai, power was in the Senate that rep powerful
military /bureaucrats + other Thai parties.
New constitution incr power of the PM relative to factions within his own
party. (1)Cabinet members are req 2 give up seats in parliament if they want to
join the cabinetstakes w breaking w PM higher. Restrictions on party switching
PM can credibly threaten to call new elections if party factions try to bolt, keep
factions loyal to the PMincr cross consti coord incentiveslower effective no of
nat parties (2) Fully elected Senateelimination of appted check on politicians
power, the coord incentives stronger. (3) New constitution awards electoral bonus
to parties tht mge to coord & run a competitive national campaign in the form of
100 party list tier seats.
No of parties proportional to size of constituency. Better coord was a bigger
factor in reducing no of parties nationally than decline in no of parties at the
consti level.
Fewer parties in govt + PM greater leverage over members of coalition =
more stable govt
Pre-reform: BV allowed intraparty competitioncandidates/voters cannot
rely on party label to help differentiate between candidates frm the same party.
Instead, they worked to dev a personal reputation & personal network of support
Move to single-seat const brought an end to intraparty competition. New
restrictions on party-switching encourage party-building. National list tier
encourage voters & candidates to place party before person. To win the national
party listsupplement local public gds w national ones- 30 baht healthcare
scheme
TRT promised protection & political power to domestic biz interests which
were in dire straits aft the crisis, with a populist campaign that promised tht the
govt would now take an active role in eliminating poverty and increasing social
welfare. Govt implemented policies like the million-baht village fund, 30 baht
health care schame, debt moratorium for farmersTRT took adv of new insti
environ and chose a national programmatic appeal.
Democratization And Electoral Reform In The Asia-Pacific Region. Is There An
Asian Model Of Democracy?
By Benjamin Reilly
Trend toward democracy being accepted means for choosing & changing
a countrys political leadership. E.g. uprising against the Marcos regime in the
Philippines in 1986, negotiated transitions frm military-backed, single party govts
in Korea & Taiwan in 1987, resumption of civilian govt in thai in 1992, uN
intervention in Cambodia in 1993, fall of indos Suharto regime in 1998,
international rehab of East Timor ended 2001.
5. Dictatorship: authoritarian form of govt. Norm main ind ruling the country. Not
restricted by constitutions/ parliaments. Military dictatorship: military exerts a
great deal of pressure on the govt, running the country de facto. Authoritarian
forms of govt has the adv of quick decisions being made.
Why Isnt The Whole World Developed? Lessons From The Cotton Mills
By Gregory Clark
1910, New England cotton textile workers performed better than others.
Local culture seems to det workers perf. Such differences can help explain inter
variation in wages. They also help in making us und labor migration, choice of
technique & sources of EG.
Examine underdev thrugh detailed study of the cotton textiles industry in
the early 20th cent as factory prod of textiles was a 1st step on the path to
industrailisation. Failure of poor countries to dominate textile prod in the way their
labour cost adv wld sugest is the result of inefficient labout rather than failure of
import tech/mgt skills/failure of local capital/imput mkt/scale scon within textile
factories. Thus, reasons 4 inefficiency of low-wage labour must be focus of
explanation of underdev of these countries.
Britain launched the modern factory system in textile prod in late 18th
cent and technologies soon spread to North Ame & Europ. Other countries soon
follow suit. Britain est 1st spinning factory in 1771. US, French, Ruhr, Prussia
followed.
Despite great labour cost adv of the continental (Mainland Europe) &
Asian countries, few could compete w the british ouside their domestic mkt before
WW2. British still actted 4 81% of net X of cotton yarn & cloth in international
trade, faced little competition in unprotected mkt since besides low labour costs in
Asian countries, manu costs in all the low-wage countries were still higher in
Briain, making tariff protection necessary.
Decline of british textile ind from 1920s onwards attributed to managerial
failures but this seems misguided to Clark. (1) Given low labour cost of other
countries, how did Britain managed to thrive in the ind for so long. (2) Specific
failures attributed to mgrs. Has lil impact on total costs & shld be completely
swamped by labour cost effects. How could an industry burdened by high costs for
its major input remain so long successful, when competing with others with lower
wages?
True that other costs offset labour cost adv in low-wage countries ( had to
M machinery/personnel from Britain, had to pay transport fees+import duties)
England had better working hours, wages and lower dollars per
plant/machinery
If according to the profit rate/rate of return, the adv of low wages in china
and india would allow production to expand rapidly. However, this did not happen.
Why then did Lancashire (country in UK) experience such an expansion?
Also, given the same production rate and taking costs of nonlabour input
into acct, the Chinese could have paid higher wages. Cost disadv of low-wage
countries in other inputs explain little of their low wages.
The British = England remained competitive despite high labour costs as
worker efficiency corresponded closely w real wages. Worker efficiency can be
shown by looking at how many machines each worker tended. Index of the no of
spindles & looms per worker. Loom given a wgt of 1, ring spindles wgt of 0.011
and mule spindles wgt of 0.008. Index adj to a per shift basis. The higher the
index the better.
few simple ops repeatedly, strength didnt mattersmall size didnt matter. If
small size did matter, factories cld simply feed the workers and gain enormous o/p
gains. Whatever created the inefficiency didnt seem to be inherent since eg New
Eng employed most efficient op but these workers came from countries whose
own textile ind had v inefficient EEs
Another: Local: Clark thinks that the efficiency of workers is limited due to
the local environmentaffect ind choices, which correlated to local real
wage.Mexico conservative, didnt want to accept automatic looms.
Major cause of underdev in poor countries was inefficiency of labour
rather than inability to absorb modern ind tech.
Labour constrained by local environment. Productivity increase with
labour intensification.
No such things as universal mgt theories. Mgt theories are human; their
ideas cannot help but reflect constraints of their environ.
Mgt:process. Managers: a class of ppl (1) does not own a biz but sells
skills 2 act on behalf of owners (2) does not prod personally but is indispensable 4
making others prod thru motivation. In the US, manager is a cultural hero
Germany: mgr not a cultural hero. Engineer fills the hero role. Effective
apprenticeship system exists both on the shop floor & in the office, which
alternates prac work & classroom courses. Worker rec cert at end of
apprenticeship the Facharbeiterbrief. Highly skilled & responsible German
workers do not need a manager, Ame-style to motivate them. They expect their
boss/Meister to assign their tasks and be the expert in resolving technical
problems. Highest rate of personnel in productive roles and lowest in leadership &
staff roles. Biz schs unknown in Germany. German economy has performed in a
superior fashion to the US in virtually all respects so a strong concept of mgt
might have been a liability rather than an asset
Japan: Ame type of mgr missing in Japan. In us, core of enterprise is the
managerial class while in Japan, core is the perm worker grp: workers who are
tenured & aspire life-long employment. Japan grads join perm worker grp & fill
various positions, moving frm line to staff as need occurs and paid according to
seniority rather than position. They partake in Japanese-style grp consultation
sessions 4 impt decisions which extend decision-making period but guarantee fast
implementation aftwards. Japanese are to a large extent controlled by their peer
grp rather than by manager. Own PM theory of leadership. P = perf M =
maintenance. Workers > mgr in Japan.
France: manager, us style absent. USA: fair contract btwn EEs and ORs
which give mgr certain prerogatives but within limits. But in france, honor of each
class in society in which superiors behave as superior beings & subordinates
accept & expect this, conscious of their own lower lvl in the national hierarchy but
also honor of their own class. They think not in terms of mgr vs non-mgr but
cadres vs non-cadres. One becomes a cadre by attending proper schs and
remains in it forever, regardless of actual task. Cadres have privileges of a higher
social class & rare for a non-cade to cross the ranks. Matrix org never not tht
popular
Holland: need 4 consensus among all parties, neither predet by
contractual r/s/class distinctions but based on open-ended exch of views &
balancing of interests. Leadership presupposes modesty as opposed to
assertiveness as in US. Time-consuming ritual consultations to maintain
apparence of modesty and consensus.
The overseas chinese: Taiwan, hong kong, sg. Enterprises tend to be small
org through networks based on personal relations. They are family-owned w/p
separation btwn ownership & mgmt. Focus on 1 prdt/mkt w growth by
opportunistic diversification. Decision-making centralized in hands of one
dominant family member, low profile, extremely cost-conscious, apply Confucian
values of thrift and persistence. Size kept small by assumed lack of loyalty of nonfam EEs. Prefer econ activities in which great gains can be gained w lil manpower.
Employ few prof mgrs. These system has its roots in history, where there were no
formal laws, only formal networks of powerful ppl guided by general principles of
Confucian virtue. Works for chinese well.
General lack of success in econ dev of other countries sufficient argument
to doubt validity of western
mgt theories in non-western environ
diff nat values have corp culture tht keeps thaem tog. (3) Stress On Mgrs Rather
Than Worker: Mgrs more involved in maintaining networks. If anyth, it is the rank
& file worker who can really make decisions on his/her own altho on a simple lvl.
All great ideas have travelled frm one country to another, enriched by
foreign influences.
World Value Survey (WVS) worldwide network of social scientists studying changing
values & their impact on social & political life. Rep surveys in 97 societies containing
almost 90% of worlds population. Surveys show changes in what ppl want out of
their life and what they believe. Provide valuable info abt social change: values,
beliefs & motivations of ord citizens. Anlalyse impact of global cultural change on
econ dev, creativity, quality of life & democracy.
Many basic values are closely correlated & can be depicted in 2 major
dimensions of cross-cultural variation: (1) Traditional/secular-rational helps
contrast btwn societies in which religion is impt & those whr its not. Nearer to
trad pole emphasise e imptance of parent-child ties, deference (polite submission)
to authority, trad fam values, rejction of divoirce, abortion, euthanasia, suicide,
have high levels of nat pride & a nationalistic outlook. (2) Survival/self-expression
valuetrans frm industrial to knowledge society linked w shift frm survival values
toward self-expression values. In knowledge societies, many grow up taking
survival 4 granted. Priorities shift ffrm emphasis on econ & physical security to
subj well-being, self-exp & quality of life. Self-exp: high priority 2 environ
protection, tolerance of foreigners, gays, les & gender equality & rising demands
4 participation in deicison-making in econ & political life. Shift in child-rearing
values from emphasis on hard-work to on imagination & tolerance as impt values
to inculcate in a child. Ppl place high value on ind freedom &self-exp, have
activitst political orientationssame attributes defined as crucial 4 democracy.
occupations tht req indpt thinking, making them more articulate & better
equipped to partake in politics. Human development: Econ devinc
resourcesself-exp valueseffective democratic institutions.
Rising insecurity & values: est stable demo under severe exisitential
insecurity extremely difficult. Stable, effective demo generally emerges through a
process of human dev tht starts w econ dev & leads to a culture of tolerance, trust
& emphasis on human autonomy. Socioeconomic dev brings shift frm xenophobic
& authoritarian outlook linked w survival values towards inc tolerant& democratic
outlook linked w self-exp.
2. HR Consideration: due to (1), grps able to make life in backward areas more
palatable for skilled EEs & can rotate skilled workers thru facilities in less-dev
areason ST assignments.
3. Supply of inputs: insufficient demand to have ancilliary svcs. Grp firms alr hve
well-est supplier networks, able to coord delivery of materials thru a corp headq
4. Financing: indpt firms in less dev regions diff to obtain financing as most of
Indias fin institutions are in e major urban centres. A grp likely to hvr a head
office in a major city tht handle financing on behalf of its rural sub. Many grps use
internal capital mkts.
5. Risk & Diversification: grps have greater size and diversificatn to bear risk.
6. Land Intensive Projects grps& govt bureaucracy: large grps able to expedite
rezoning process due to superior political contacts. Usu pref to locate proj w sig
land req in less dev regions, where ppty costs are cheaper.
7. Accting Profits: 5yr tax holiday.
Using accting profits, govt firms not doing v well, not as efficient to bring
industry to underdev compared to grp firms. Foreign firms have diff enforcing
contracts and pref to locate firms in dev regions. Being the 1st to locate in less dev
region diff due to absence of infra & ancilliary svcs but a firm of sufficient scale
will spur dev of these svcs which make the area more attractive as a site 4 other
industries.
Problems in trying to value political connectedness: (1) Where decisionmaking is decen, analyzing firms political associations req info on its rs w
numerious govt decision-making bodies & hve to come up w a way to aggregate
these connections (2) How to est VALUE of these connections (3) Unobservables
like biz acumen can be correlated w ability to est political connections. In
Indonesia, these prob overcome. Indo is highly centralized and have a stable
political structure till end of Suhartos regime & thus can construct a credible
index of political connectedness. To infer a measure of value of connections, id a
no of episodes when there were adverse rumours abt state of Suhartos health
during his final yrs in office and compare returns of firms w differing deg of
political exposure.
In every case, returns of shares of politically dept firms were lower than
tht of less-dept firms. Magnitude of differential effect iis highly correlated w net
return on Jakarta Stock Exchange Composite Index bcus return on index is a
measure of severity of rumours perc by ORs. Regression run 4 interaction btwn
political dept & event severity. Coeff on this interaction term is positive &
statistically sig, implying tht well-connected firms suffer more in rxn to a more
serious rumor, suggesting tht a large % of well-connected firms value derived frm
political connections.
Data: (1) Stock mkt & accting data 4 coys traded on JSX (2) Grp Affiliation:
inferred by looking at firms major SHR & examine composition of board + mgt (3)
Political Connectedness: Suharto dependency index based on subj assessments of
a no of top consultants @ Castle Group. Consists of a numerical rating of deg to
which each of the 25 largest ind grps is dept on political connections 4
profitability. Ratings range frm 1 (least dept) to 5. All coys affiliated w Suhartos
children & those owned by LT Suharto allies rec a 5. (4) Info on Suhartos death:
ascertain date rumors 1st hit JSX. Each episode assumed to come to an end when
it was put to rest by revelation of new info or it was reported tht analysts had
factored new info about Suhartos health into pxing of securities.
Results: politically dept firms on ave lost more value during these
episodes than less dept firms.
Insert formula
Events described above cant be used to infer full value of connections
bcuz assoc rumours only increased the prob tht Suharto wld leave office. To est
full value of connections req event involving Suhartos sudden & unexp removal
from office.
Robustness of study:
1. Thiny traded firms: if coy not traded on tht day, reg no px change even if It
suffered decline in underlying value. If unconnected firms more likely to have 0
trading value, what is interpreted as effect of connectedness may be
manifestation of general mkt decline. A smaller decline in unconnected firms bcus
they arent being traded.
Perceived corruption is a reasonable proxy 4 prevalence of political rents,
political connections may play an impt role in many of the worlds largest and
most impt econ.
Post-war econ miracle ended in late 1980s when a huge asset-px bubble
burst, leading to countrys lost decade of fin distress and econ stagnation in the
1990s. EG resumed in e 2000s but hit hard by 08/09 global fin crisis & 11
earthquake + tsunami.
Stnd nat corp tax rate = 34.6%. Top effective personal Y tax rate, incl
local taxes is 50%. Consumption tax rate 8% planned to incr to 10%.
Ames policy towards Japan is special because for the past 2 decades it
has 2 opposite paradigms Revisionism & Traditionalism BUT neither could
predict/explain in hindsight how e greatest econ miracle of post-war era stopped
dead in its tracks suddenly. Neither offers reliable guidance on how to respond to
Japans current payalysis.
special measures needed bcuz japan followed same free mkt & free trade patterns
like in US.
Japans past econ success based on high savings, tech, hard work and
fierce competition as individuals & enterprises responded to tht opportunities
provided in quite free mkts for commodities & labour.
Neither revisionists/trad can suggest good way for US to get Japan to stop
wasting time/reliably indicate what is (not) achievable.
Need a new paradigm to guide policy and in katz opinion, such a
paradigm wld include these elements:
1. A system that soured economic model: Japanese econ model was a good
mechanism for turning a poor country into an industrial powerhouse in record
time, but became counterproductive once japan achieved econ maturity.
2. Governance by negotiation political model: japans political system allow all
the special interest Lilliputians to secure the nat int in millions of tiny threads;
helped to ensure tht rapidly growing econ pie shared by all. But it has left govt
unable to shift gears even when vital nat int demand tht it overrides all special int.
Unable to end its obsolete industrial policy regime in the 1970s, has trouble
introducing mkt economics & competitive politics today.
3. A Road Map To The Political Dynamics Of The Future: powerful int forces seeking
major renovations in both economics & politics, incl more mkt-opening to e
outside world.
4. A Guide To Policy
The govt help create a fav supportive biz climate tht did not exist in most
countries and this was taken for granted (1) banking credit backed by govt made
heavy capital investment possible (2) govt was deeply involved in planning tht
they targeted growth industries, set production goals and est foreign mkts.
Growth rewarded w high dep, cheap loans, subsidies, light taxes (3) Infant
industries protected.
In the high growth era, major decisions regarding what industries existed,
what coys entered those industries, whr investment lvls & pxs shld be and how to
save jobs in declining sectors shaped by negotiations + lobbying rather than
mkt/bureaucratic effect.
Both schools of thought assumed tht the political process in Japan auto
allows the country to shift gears in accordance w changes in the national
interests. Revisionist: bureaucracy und nat int imposes itself on a Confucian
society which willingly submits to rule by the madarins. Trad: survival of the fittest
scene. In reality, japan politics is complex; governed by negotiation, which
combines heavy govt intrusion w powerful societal pressures on the govt and
consensus politics tht virtually force Tokyo to accommodate all special int.
Currency rationing: to produce industrial o/p, need to have foreign tech &
thus need foreign currency for royalty pmt. Until system ended in 1964, power to
allocate/deny foreign exchange was the power to det which industries/coys got off
the ground. MITI usually tries to limit entry to a new ind but political lobbying
made such fine-tuning impossible. Once MITI designated an industry as strategic,
major firms had a virtual guarantee against bankruptcy and thus such industries
attracted far too many entrants to maintain EOS. MITI oft unable to resist when
each powerful keiretsu lobbied for its own contender. If growth & inc in efficiency
fast enough, as s the case in the catch-up era, policy worked out. In other cases, it
led to costly white elephants. Govt authorized firms to form cartels to avoid
bankruptcy during periodic downturns/bouts of excess capacity. Rationale was to
reduce risk, inducing firms to invest in higher rates. Cartels fixed pxs and imposed
limits on capacity and o/p. however, during slumps, production quotas assigned
pro rata based on mkt share and everytime industry recovered, firms raced to
build new capacity so as to enlarge their shareanother cycle of overcapacity and
need for another cartel industries such as shipbuilding, cement, chemicals,
steel, textiles, machinery, electronics. Cartels limited px competition & helped
incumbents keep out newcomers. Overtime economy became incr cartelized, esp
among least competitive sectors mkt det px didnt prevail.
Ability to finance a proj decided by politics, not CF proj.
Governance by negotiation: Strategy vs Competition: small biz were one
of the losers to be compensated. LDP dist billions of $ disguised as no-collateral
govt loans to > hald of the nations small biz. Fin Ministry overlooked large-scale
tax evasion by small biz as much as 40% of income. Large-scale retail store law
enacted, allowing small retailers to obstruct expansion of department stores,
enabling them to raise px. LDP bought votes w subsidies by e 1980s, more than
75% of all farm income come frm subsidies & px support prog. Tokyos pro-growth
policies gave aid to key X industries while its anti-growth policies handed out
heavy subsidies and abundant govt loans to preserve employment in flagging
sectors. Balanced shifted frm former to latter overtime.
Need compromisecomplianceconsensus
Why the system soured: as long as strat & compensation remained in
balance, system worked but in the 1970s, demands for compensation rose beyond
ability of econ to meet them. As japan econ matured, no more infant industries.
Japan refused to let go of the ind policy model. Tactics of protection were now
used to shield losers frm competition at home & abroad. Japan became a
deformed dual econ: fxnal hybrid of super-strong Xing ind & super-weak domestic
sectors. Many of japans efficient exporters fled offshore.
Coys still rake in cash and pile up biz savings but they have fewer outlets
for profitable investments within japn.
Rise of Tanaka: Compensation Seizes The Throne: workers cried out for
relief and it was given as in the 1970s, LDP was also facing a political crisis. LDP
found a way to appeal to rising new demographic grps fromed by urban whitecollar salary men + bue-collar workers hit hard by the 1970s downturn but at a
huge econ costs- solution was the corrupt money politics of Kakuei Tanaka. In
1972, over big biz obj, LDP made Tanaka PM. By elevating e Tanaka faction,
japans leaders greatly exacerbated ability of small int grps to hold entre nation in
thrall. Up until e 1994 electoral reform, LDP cld remain in power bcuz of japans
unique electoral system. Each district in Japan elected 3-5 members of the Diet, w
every voter getting one vote. A diet member can win election w only 15-20 % of
votes vs 51% in most countries. This system the opposition. However, this system
promotes parochial thinking and vested int. the key to winning is by assembling
org of personal support grps Koenkai instead of focusing on national issues. Ind
diet members secure re-electio by mediating w the ministries to secure goodies
for their koenkai. With arrival of Tanaka, Koenkai moved up. Political compensation
became the focus trad govt loans to small biz, farm px supports, construction
proj, expensive prog intro to satisfy demands of urban middle class like health
insurance, social security, education, parks, anti-pollution measures. Tanaka
pressured BOJ to print more money 30% inflation1st bubblebudget became a
deficit. Another method to support the koenkai was to charge high px in the pte
mkt, allowing Japans inefficient sectors to charge monopolistic px& maintain
employment.
Following elements are part of the rd map the new paradigm gives us:
(1) Japan cannot rec econ w/p major structural overhaul tht goes far beyond dereg
(2) Political obstacles to reform are so great tht thorough reform will take years:
obstacles crowd of special interests
(3) Japans present political leadership is incapable of instituting needed reform
and instead tries to muddle through.
(4) Muddling through is untenable (Unable to be maintained), it just sends Japan
lurching from crisis to crisis
(5) Cracks in the web of mutual support are widening
(6) Ultimately to solve the prob, thorough political & econ reform will need to
happen.
(7) Most likely supporters of reform are those forces rep efficient part of dual
economy, like Xers, urban middle class, enlightened bureaucrats, academics.
(8) None of this implies tht Japan is abt to embrace the Ame model
What can US do? They hve to recog that Japan will be adrift 4 yrs to come
but tasks of helping Asia should not be avoided/delayed just bcuz japan is
paralysed. Recog Japan is gridlocked doesnt mean accepting itseek enggment
by Japan. LT reforms in financial sector and retail sector. Money show flow on the
basis of real return rather than outdated keiretsu ties. Us can help shorten yrs of
reform. Us needs to find & focus on items whr its own desire 4 mkt access
coincides w reform agenda of powerful forces within japan & whr such changes
create powerful systematic ripple effect.
Strong govt: prov effective & fair admin through clean, motivated &
competent administrators who can deliver good govt
Strong govt need to be peopled by those who can prov public goods- req
expertise, motivation + integrity. BUT gd govt need to run in the RIGHT direction
(e.g. hitler didnt run in the right direction). Thus, need both rule of law & demo
acct to keep strong govt on e right path. Rule of law needed 2 prevent tyranny
(cruel + oppressive govt/rule) of majority tht can arise in a democracy + ensure
basic rules of the game preserved over time so tht environ is prectitable no
matter which govt vomes to power. Ensure all citizens have inalienable (not subj
to being taken away) rights and protections constrain e majoritys behavior
towards minorities. Ensuring predictable environ ensures biz can invest securely
today 4 e future. Rule of law alone would not be enough to accommodate e
aspirations of new emerging grps/ consequences of new idea or tech. Demo
actability ensures govt responds to wishes of the mass citizen, allowing emerging
grps 2 gain influence thru political nego & competition w others.
political freedom, need to cont to nurture the broadly equitable dist of econ
capabilities among ppl quality education, nutrition, healthcare, fin, mkts.
China Fact Sheet, 2013 data
Stnd tax rate+25%, prog Y tax system. Rife tax evasion. Trade surplus
Beijing will be able to meet countrys ills w dynamism & resilience due to
ccps adaptability, system of meritocracy, legitimacy w the chinese ppl.
On the job learning: since found in 1949, peoples republic has pursued a
broad range of econ policies. Early 1950s, ccp intro radical land
collectivizationlate 1950s, great leap forward (econ & social campaign by the
ccp led by mao Zedong, aimed to rapidly transform country frm agrarian economy
into a socialist society through rapid industrialization & collectivization.
Introduction of agricultural collectivization whr pte farming was prohibited & those
engaged in it were labeled counter-revoluntionaries and persecuted. Years of the
great leap forward saw econ regression w many ppl killed. Mao insisted tht
communes must prod more grain 4 the cities & earn foreign exch frm exports.
Land was redist frm rich to poor and agricultural sectors w crops like opium was
destroyed & replaced w crops like rice)late 1960s to mid 1970s, cultural
revolution (led by Ma, meant to preserve true communist ideology in the country
by purging remnants of capitalist/trad elements frm chinese society & reimpose
maoist thought as the dom ideology within party. The revolution marked return of
Mao to a position of power aft great leap forward but movement paralysed china
politically & sig affected country econ & socially)quasi-pte farmland in early
1960s1970s, mkt reforms by deng Xiaoping (de-collectivisation of agriculture,
opening up of country to foreign investment, permission for entre to start biz +
privatization and contracting out of much STO, lift price controls & protectionist
policiespte sector grew)1990s, jiang zemins opening up of the ccps
membership to pte biz ppl. Goal has always been econ health and when great
leap forward & cultural rev didnt work, ccp found sth else tht did, Dengs reforms,
which helped chinas econ grew to be the 2nd largest globally. CCP didnt shield
away frm insti reforms. Intro term limits 4 most political positions & age limits.
Before, leaders cld use positions 2 accumlate power & cont their rules Mao.
Upward mobility within party incr. ccp has been 1 of the most self-reforming
polticial orgxis ccp will be able to adapt to & meet whatever new challenges
Making the grade: the party itself weeds out corruption according to the
author. Of 25 members of the pre-18th congress politburo, only 5 came frm
privileged backgrnds. Majority worked & competed their way through e ranks to
the top. China ensures meritocracy by the org dept of ccp. This org has an elab
process of beauratic selection, evaluation & promotion. Govt & affiliated org
recruit uni grads into entry-lvl positions annually into 1 of e 3 state-controlled
systems (civil svc, SOE, govt-affiliated social org-uni/community prog). Org dept
review perf ( quantitative perf records review + peer interview+vet personal
conduct) & promote through 4 incr elite mgerial ranks starting ke yuan. Fu
kekefu chuchu. EEs paths diverge aft chu and can be rotated through and
out of all 3 tracks/ be sent abroad to learn best prac arnd the world). Most
successful are promo again to fu ju and ju lvls assignment wld be to mge
districts w huge pop/coy. Aft ju, v talented few move up and make it to partys
central comm.
Innovate/stagnate: conduct top-down experience in select locales &
expand successful ones nationwide. Dengs creation of special econ zones in
1980s Shenzhen was to operate under mkt principles rather than dictates and
the success of this encouraged same implementation in other districts. Policy exp
also rise up frm local level qiu he carried out risky experiments: 1997 mandatory
municipal bond purchase prog to fund infrastructure w quotas to govt officials to
attract commercial investments, offered fav tax rates & cheap land concessions to
biz. Biz emerged which transformed cent planned rural comm into a vibrant mkt
econ. Qiu also made selection of officials more open & competitive by posting
upcoming official apptment in adv of final decisions 2 allow a public comment
period + two-tier voting system to vote candidates 4 certain positions.
By popular demand: chinese nationalism + moral legitimacy (Monument
to the Peoples Heroes at Tiananmen sq) + perf legitimacy. Ccps role in saving +
modernizing china>econ perf legitimacy. Repression not sustainable but seek to
employ small containment (of ppl w political agenda)
Enter the dragon: urbanization + entrepreneurship. Entrepreneurship will
help overcome threats to Chinas X-fuelled econ model. Adaptablethey move
inland as labor costs have risen in coastal manu regions which prod incr highervalue gds. Measures to encourage econ liberalization likely to be picked up +
social policy to make party more inclusive and outsource certain social welfare
fxns. 3-pronged approach to corruption: ccps central comm 4 discipline
inspection can detain & interrogate party members suspected of corruption w/o
legal limits + relying on media outlets to expose official corruption but ensuring
tht stories are not fabricated and are credible + incr competition within own ranks
tht will air dirty laundry and discourage unseemly behaviors.
Historys restart: chinas political model cant be exported. Success shows
tht systems of political govt ( not only electoral democracy) can work as long as
they are congruent w countrys culture and history. China doesnt prov world w alt
but show tht alt do exist.
Why Democracy Still Wins: A Critique Of Eric X. Lis A Tale Of Two Political Systems
By Yasheng Huang
Of 25 countries w higher gdp per capita than china tht are not
free/partially free, 21 are sustained by natural resources proves the 1st pt.
Li cites transparency international index (TI) to support his view tht demo
are more corrupt. Huang however, thinks tht IT is a product of demo, which
underscores tht we know more abt corruption in demo than in authoritarian
countries bcuz demo are by definition, more transparent & they have
transparency data. Li pts out tht Argentina & Philippines are both demo & corrupt
but he failed to pt out ttht in 2013 they were democracies but they have been
ruled by ruthless military dictators 4 decades b4 the transition. The autocracy of
these countries bred corruption. Legit to criticize new demo 4 not rooting out
corruption timely but not legit to confuse it w demo being e cause of corruption.
World league of e more egregious corruption offenders belong to autocrats
Suharto, Marcos, Mobutu.
Li states tht chinese system enjoys support among pop by citing high %
of ppl optimistic for future. But in a country w/o free speech, survey answers are
biased. There are political pressures tht tend 2 channel ans in a particular
direction.
Li states tht ccp self-corrects itself but almost every single policy change
Li id in his talk was made by the successor 2 e person who initiated e policy tht
got corrected. Self-correction implies a deg of voluntariness on part of the person
making the correction, not lackof alt other than making the correction, as in
China.
E only authoritarian regimes tht go w/o suffering an explicit fin crisis are
centrally planned econ i.e Romania & East Germany bcus they failed 2 meet a min
cond for a fin crisis have a fin system.
2 academics david lake & matthew baum show tht democracies are
superior in prov public svcs.
Li blames low growth in Eur and US on demo but demo countries are
richer, much harder to grow at the same rate as the poor.
Chinese have accepted many foreign concepts/prac alr.
There is nth fundamentally incompatible betwn chinese culture
&democracy. HK, has press freedom & rule of law tho w/o electoral demo system,
no evidence place has fallen into chaos.
Li objects to many mechanics of demo. He objectst to voting when it is a
way to implement the prac of democracy but he endorses in-tra party democracy
BUT how to w/o voting?
Democracy can tame violence as well. Democracy has many probs but
the insurance fuxn makes it superior.
4 the financial system. 2nd strand of literature is of the view tht dev of a fin system
tht incl a stock mkt & intermediation contributes to a countrys overall econ
growth. 3rd strand: prov evidence for the link & causality among law, finance & EG
at country, industry & firm level.
Examine 3 sectors of chinese econ: state all coy tht govt has ultimate
control (SOE), listed listed on an exch & publicly traded, pte sector other firms
w various types of pte & local govt ownership.
Chinas law & institutions, incl OR protection systems, corp govt, accting
stnds & quality of govt sig less dev than most countries in the LLSV. Chinas fin
system dominated by large but underdev banking system mainly controlled by 4
largest state-owned banks.
State sector shrinking due to ongoing privatisation process, which incl
firms gg public. Results: equity ownership is conc within the state for firms
converted frm the state sector & founders familites for the nonstate firms. Corp
govt are weak in listed sector. Dividend ratio & firm value of Chinese are low
compared to similar firms operating in countries w stronger OR protection,
consistent w LLSV predictions.
Results: on a survey of 17 entrepreneurs & exec, 2 most impt financing
channels for pte firms during their start-up and subsequent periods are financing
intermediaries, incl state-owned banks & pte credit agencies,, founders friends +
families. Most loans frm fin intermediaries secure by fixed assets/ 3rd party
guarantees. During firms growth period, funds frm ethnic chinese and trade
credits impt. Going public has benefits of incr reputation and access to large scale
funding but risk disclosing info to competitors/outsiders and incur large amt of
fees. Alternative mechanisms, due to absence of formal govt mechanisms have
been effective in pte sector. Role of reputation & r/s. most impt force shaping
chinas social values and insti related to Confucius define family, social order &
trust. Another mechanism tht drives good mgt & corp gov is competition. Firms
have strong incentive to gain comparative adv given low surivival rates during
early stages of dev. 3rd impt mechanism: role of local govt support & partake in
growth of pte sector firms.
Differences among 3 sectors challenge law-and-fin view tht it is the legal
origin tht cause the diff in fin systems and the fin-and-growth view tht it is the dev
of stock mkts/banking system tht cause diff in growth of firms/econ and challenge
the view tht ppty rights and lack of govt corruption are crucial in det fin & econ
outcomes.
Evidence on chinas legal & financial systems and growth in the 3 sectors:
majority of LLSV countries have better sh & creditor protection than in china but a
more impt measure 4 china wld be law enforcement rule of law & govt
corruption chinas measures sig below LLSV countriessuggest that scores of
creditor and SH protection of china unreliable. Chinas legal system isnt ahead of
any other major emergin econ & is dominated by those tht have eng common-law
origin. China ranks poorly in terms of polticial freedom + ppty protection rights
and thrs a positive correlation betwn political freedom & measures of econ
freedom. Judicial indpt acct 4 positive effect of common-law legal origin on econ
freedom. But fact tht china scores poorly but still grow fast cast doubt on impt of
political freedom + econ freedom in LLPS. China lack indpt, prof auditors
embezzlement of coy assets/fraud may occur more freq under IAS-based stnd
compared to alt system w much simpler set of accting stnd. Size of countrys
equity mkt & banks relative to gdp: china has smaller compared to other countries
but its total bank credit to gdp was higher. When consider bank credit to pte
sector only, ratio drop, suggesting most bank credit is issued to coy in state/listed
sectors. China has dominance by banks over mkts stronger than llsv countries.
Chinas stock mkt are relatively more efficient thank banks as well due to high
overhead costs of chinas banking system. Chinas fin system is smaller and less
efficient. Scale and relative impt of chinas ext mkt not sig. Underdev legal
systemsmall ext mkt. LLS result on the negative relation btwn govt ownership of
banks & growth of a countrys econ seem to apply to chinas state sector; this has
not slowed down growth of pte sector. Prob for state-owned banks are NPL made
to SOE, due to political/nonecon reasons. Chinese govt take active measures to
rectify issue: 4 state-owned AMcoy formed to assume NPLs and liquidate them,
improved loan structure by incr loans made to indi lenders while being more
active in risk mgt and monitoring of loans made to SOE, growth of non-state finan
intermediaries.
Pte sector dominate the state/listed in terms of size & o/p & growth
trendpte sector more productive. Pte sector impt source of employment oppor
Chinas 4 most impt financing sources for all firms in China, in terms of
fixed asset investments: bank loans, firms self-fundraising, state budget, FDI. Pte
sector relies more on self-fundraising less strict legal & financial mechanisms.
Dev of chinas ext mkts relative to its overall EG is not dramatically diff frm other
emerging countries. Common pattern is tht dev of ext mkts trails growth of overall
economy, given tht deve of these mkts req a min efficiency for a countrys
institutions inclu legal system, accting stnds, dev of associated professionals.
Early stages of growth in contrast, need only alt insti and mechanisms to support
growth of firms and and overall econ.
Corp gov is extremely weak for listed sector. 2-tier board structure: bod
and board of supervisors ranking above directors, usually officials chosen frm govt
branches/exec frm the parent coys while bod controlled by firms parent coys.
Incentive pay rarely explicitly specified. Cross-holdings of shares among listed
insti make hostile takeover impossible. Ineffective bankruptcy implementation.
Govt plays dual roles of regulator + blockholder of many listed firms. Doubtful tht
top officials elected by govt pursue their fiduciary role as sh.
Firms w poorer protection of outside sh/agency prob like in china have
lower div ratio and lower tobins q ( mkt-to-bk asset ratios) for listed sectorLLSV
predictions work well for listed sector.
Pte sector: (1) Wenzhoustart as fam-run biz in townships w a similar pdt
emphasis to have easy access to needed tech, human capital and potential
cliemts/partnersspecialisation by regioncompetitive. Certain developed areas
shifted pdt emphasis frm labor-intensive to high-tech pdt. Failure rate for start-ups
high. New pdt strat oft start w mimicking successful/pop pdts. Patent laws diff to
implement and disputes settled among themselves. Some entrepreneurs
overcome this prob by spending more effort money to ensure key parts of their
new pdts diff to disassemble and copy. Another prdt strat is to export their pdts to
other regions. (2) Kunshanattract FDI w special dev zones and fav land and tax
policies. Centre in a special zone est by local govt for liaison bwn local govt, entre,
foreign ORs, regulators, svc providers. During early stage of special zones, ORs
frm Taiwan willing to commit their capital & refin them when needed due to many
Kunshan citizens having relatives in Taiwan. Taiwanese und tht altho there are
almost no formal OR protections, local govt officials have incentive to coop w dev
of special zone & 2 try to create an econ boom in local econ as it will enhance
chances for promotion, and increases profits in profits-sharing. In the start-up
stage, funds frm founders and friends re an impt source of financing. Funds frm
friends in the form of pte loans& equity are also impt in subsequent growth
period. In some cases, there are no formal written contracts between friends/ORS
and entre reputation & r/s based implicit contractual agreements worked
effectively. Internal financing (Retained earnings) also impt. Financial
intermediaries also impt source of funds but not clear tht state-owned banks bt
not clear if state-owned banks prov cheapest start-up financing channel since all
surveyed firms tht rec start-up fin frm state-owned banks alr est close r/s w those
banks b4 inception. Financing frm pte credit agencies (PCAs) most imt channel
during growth period. Fixed assets most pop form of collateral followed by 3rd
party guarantees.
Success of pte sector dept on support from the govt as govt widely
regarded as corrupt/disrespectful of ppty rights.
If coorp among diff supplier of inputs needed and all suppliers benefit frm
the firm doing well, a gd equilibrium w no ext govt is possible as internal, mutual
monitoring can ensure optimal outcome. Family-run firms emerge as dominant
form of ownership structure in countries w weak minority SH protection. While
professionally managed firms must be optimal form in countries w strong OR
protection. Common goal of sharing high prospective profits align interests of local
& foreign ORsimplicit contractual agreements + reputation act as enforcement
mechanisms to ensure all parties fufil their roles to make firm more successful. In
china, belief tht change shld be gradual and implemented when proven to be
correct. China adopts a gradual dual track path whr cont enforcement of existing
planning system goes with fast-paced dev of financial markets. Govt supportive in
china to promote growth of pte sector, diff from grabbing hands in other
countries due to : mandatory retirement age for all bureaucrats which made
officials younger and more familiar w capitalist ideas, TVEs township village
enterprises where local govt are partial owners prov most impt source of growth in
pte sector, profit-sharing w firms in multiperiod setting makes it incentive
compatible for officials to support growth of firms.
Changes To The Ownership & Control Of East Asian Corporations Between 1996 Ans
2008: The Primacy Of Politics
By Richard W. Carney And Travers Barclay Child
Collect data on 9 countries largest publicly traded coy HK, indo, japan,
SK, msia, Philippines, sg, Taiwan, Thailand. Study proves tht major political
transformations best acct 4 changes.
East asia useful region to study changes to corp ownership across time
bcus large data set tht exists b4 asian fin crisis + insti changes tht subsequently
happened. 08 is a useful pt to examine whether changes has occurred bcus
sufficient time has elapsed since crisis 4 new arrangements to consol their
positions.
Find tht family control remains most dominant form of ownership across
east asia, though widely held ownership dom in japan, Taiwan & substantial in
korea, thai. Philippines largest inc in family-controlled firms while Taiwan largest
decline. State control become part impt to sea countries in 08, incl hk, sg, msia,
indo, exhibiting largest incr. Foreign state ownership become evident for firms in
nearly every country. Separation of ownership & control undergone lil change 4
region & remain highest among family-contr firms.
Control thru pyramid structures fallen while among firms w a dominant
owner,increase in no controlled by a single SH. Separation of mgt frm ownership
contr remains rare. Top mgt of abt 71% of firms not widely held in 08 is related to
fam of controlling SH, abt the same in 1996. Among firms w a dominant fam
owner, ave no of firms belonging to a single family/ top families remained
relatively stable overtime. Political links of firms declined in general while the no
of firms aged 25 & above (proportion of all fam-owned firms w heirs @ helm)
increased generally. Firm age corresponds to a greater likelihood tht an heir likely
to take over frm the founder.
Construction of data: take largest 200 publicly traded firms ( in terms of
mkt cap) frm each countries respective stock exch end 08. Include data for 200
largest firms 4 each country listed in CDL set. Gather ownership data.
Intermediate non-publicly traded firms present are either state-owned, familyowned, EE-owned/ subsi of public/ other non public corp. to resolve ownership
structreannual reports of downstream publicly traded firm whose ownership
trying to reveal, website, stock exch filings indicating transfer of share ownership
to id ultimate owners, biz reports/ newspaper articles. Data for 1386 firms
collected using 20% share threshold to define coy ownership. 10% threshold
reduced firms to 1296. All sh can be traced abt a given ownership threshold (5%).
Include some firms tht are exceptions: (1)If owner whose id cant be traced but
detailed info on a larger owner who claims more than 50% of coys stock. (2)If
there exists share blocks whose owners cannot be traced due to their share being
held via a nominee/trust acct but whose total sum < proportion of shares held by
a revealed owner whose id we are able to trace all these cases we are still able
to id largest SH. Eg of exception (1): mandom Indonesia tbk pt; coy owned by
mandom corp japan; able to trace stake of 11.31% held by pt asia jaya paramita.
(2): sg technologies engineering ltd; sg govt holds 49.32% of outstanding shares
in coy. 3 other share blocks tog acct 4 32.66% held by nominee acct. Eg of coy
excl frm sample due to them not being exception 1: Citiseconline.com of the
Philippines (2) Thai chemical public company ltd. Bias likely intro by excl firms
whose largest owners hold shares thru nominee acccts/ holding coys whose
ownership structure not being discerned. Aggregate measure offers most useful
comparison of sh transparency across countries as it captures use of both holding
coys & nominee/trust accts as opaque ownership vehicles. Sg and Philippines rank
lowest 4 transparency measured this way. In 1996 also, bias is against uncovering
family ownership. Same conclusion for 08 as most the time AR/ Stock exch filings
show tht most nominee acct holders have been found to be an ind/family. Families
& ind have largest incentive to hide control of coy through use of trusts/nominee
accts/shell holding coys. Another bias: reported incidence of widely held corp
likely overstated w incidence of fam-owned coy understated. Gather info on top
exec of firms in data set to check if they are affiliated w firms ultimate owner and
build fam trees 4 major bi grps. To examine changes of crony capitalism: gather
data on political ties of firms tht are predom family-owned, supplement data w
names of bod of fam-owned firms and politicians in both exec and legislative
branches of govt. investigate m&a, take historical data to track emergence of corp
in data set. Variables: focus is on ownership type based on control rights. To
enable comparison w 96 data, grp ultimate owners into- ind, fam/domestic govt,
widely held fin insti, widely held govt, foreign govt. one of the above grp deem to
own a firm if prop of outstanding shares exceed working threshold of 10/20%. If 2
such ultimate owners, report subj firms to be half owned by each. Control rights
=prop of outstanding shares through which voting power can be exer
directly/indirectly by ult owners. Report level of control exer through a given
ownership channel to be lowest shareholding denomination across tht chain of
ownership. Cal largest owners cf rights which differ frm control rights in tht they
reflect level of fin stake in corp. CF rights of owners are considerably diluted due
to multiple intermediate SH firms along the line of ownership. Study of pyramidsvalue of 1 if there exists @least 1 publicly traded corp within chain of ownership &
0 otherwise. If largest sh hold any portion of it share through an intermediate
publicly traded firm=pyramid. Cross-holdings also captured-firm holds a stake in
one of its shdecreased frm 96 to 08. Last measure: if top member of corps exec
board is affiliated w ult owner perf 4 firms tht are held by fam, widely held fin ins&
corp .affiliation value = 1 if top exec related by blood/marriage & 0 otherwise. If
top exec has been in his immed preceding employment been employed by
controlling firm = 1. Changes stem within many prev listed corp incl in 96 and frm
emergence of new corp over this time period. Reasons given 4 firms tht were in
96 data set but not in 08 data set: not top 200, firms gone bankrupt/delisted 4 fin
reasons/govt or fam buyout/firms bought out & delisted by a publicly traded corp.
Firms are considered to be politically connected if one of the coys large sh is a
govt agency/ministry/@least one of coys directors is a member of
parliament/minister/head of state/close relation spouse, child, sibling, parent,
close friend. Include foreign politicians & ppl assoc w a political party/govt official.
Changes to control of largest publicly traded coy in east asia: @10&
curoff, fam ownership dom type for both yrs but in 1996 widely held ownership
dom in japan, sig in korea, state ownership impt in sg, msia, indo. In 08, widely
held ownership cont dom in japan, sub in jorea but become most impt for Taiwan,
incr markedly in thai. State ownership inc in msia, hk. Foreign ownership: thai &
indo had highest level. 20%: fam ownership dom across both time periods,
moreso in sea than nea. Prop of widely held firms higher in nea 4 btoh time period
and higher modestly in sea. Hk largest inc for state onwed. Family ownership decr
modestly aggregate while state ownership increased. Widely held ownership incr
while whide held financial & corp ownership declined. Ownership changes cld be
due to : (1)Ownership characteristics of firms in 96 changed or (2)New firms in 08
sample displaced some firms in 96 sample. Incr imptance of state is due to
relatively large no of fam dom firms tht become statw owned and large no of
newly listed state owned firms. Data 4 indo reveals relatively large no of fam
dominated firms came under control of foreign state/delisted due to fin. (former
complsed of major indo banks taken over by govt following fin crisis in 1997
where 6 banks underwent merger). Ownership structure in japan stable. Korea:
large no of widely held firms become dom by fam ownership and large no of fam
dom firms in 96 underwent m&a. msia: change of ownership of 10 firms frm fam
to state owned in 08. Philippines: none of fam-dom firms delisted, many widely
held firms become fam dom as of 08. Sg: large no of m&a of state dom firms, fam
& state dom constituted largest share of newly listed firms. Taiwan: move away
frm fam dom, towards widely held ownership. Thai, many firms delisted, move to
widely hekd ownership, sg govt held sub ownership stke in 10 firms while msia
pting them instead towards opportunistic & unrelated expansions of op scope into
non-core, low-handing fruit biz activitiesleads soes into activities that lack
competitive adv & govt capabilities & which are mostly speculative & rent-seeking
in nature (banking, insurance, stock exc activities, real estate)biz activities of
state corp & econ grps in Vietnam more diversified than other countries. Corp
govt of firms in which state owns a stake greatly complicated by large no of govt
institutions involved & limited transparency in relation to the public and betwn
institutions. Many ministries maintain dual resp for managing & regulating
SOEsconflict of interest where ministries hope to maintain control through
ownership due to greater access to rev & greater use of regulating tht both result
fr direct ownershipno one govt agency resp for cleaning up mess of inefficient
operations & NPLimpt for Vietnam to streamline corp gov approach to manage
remaining soes. Another area tht needs improvement is the transparency of SOEs.
Not even the ministry of planning & investment has full access to fin reports of
soes. Scic can play a role in both areas. 2 rec to improve trans: (1)Simplify &
invigorate disclosure req on soes, incl req 4 disclosure to public (2)Punish noncompliance, reward compliance. Increasing trans will increase efficiency in these
firms.
Failure to attract strat ORs in recent IPOs as they are still not comfortable
w current soe reform context. Soes have huge debt prob, transparency prob, how
much control they will be able to exer w minor shares, unclear future prospects for
incr shares once they get their foot inbroader reforms like raising upper limit on
foreign holdings in Vietnamese coy will help resolve this. Vietnams govt also
suffers frm credibility gap on the soe reform issue.
Change is needed. Need willingness by state to more fully transition frm a
system of control through direct ownership to one of governing mkt through trans
rules & institutions. Soe shld be made to fit within vietnams key policy obj rather
than countrys policies being contorted to needs of soesneed to explicitly state
cond under which state sees a net adv for society to maintain state ownership. If
such an adv not seen soes should be privatized quickly, orderly & transparently.
Scic can facil this process. Have to change the idea tht soes deserve special
treatment, to be served as a govt tool for social policy & mgt of econ. No of soes
needs to be reduced to those govt has det a clear & socially beneficial rationale
for state ownership. Needs to encourage state competition w a fair playing field
while trans & corp govt enforced to ensure Vietnamese coys, stateowned/otherwise can better integrate w global mkt.
The Mirage Of Marketing To The Bottom Of The Pyramid: How The Private Sector Can
Help Alleviate Poverty
By Aneel Karnani
Prahalad argues tht selling 2e por is both profitable & eradicates poverty.
This paper argues against prahalad proposition: lil fortune @ bop &
argues bop proposition is logically flawed, inconsistent w evidence. Study propses
alt perspective on how pte sector can help alleviate povertyview poor as
1. Casas Bahia:
- Large retailer in brazil selling top-quality brands like Sony, Toshiba
- Argued tht poor ppl do desire quality pdts BUT cant afford them
- Ave income of consumers abt x2 min wage, so NOT really BOP consumers as it is
well above $2/day poverty line.
- Thus, highly profitable coy has lil to do w bop proposition.
2. Iodized Salt:
- Effective/inexp way to prevent iodine deficiency. Some iodine in salt lost in
storage, transportation & cooking processes. HLL (Hindustan Level Ltd), indian
informed, bop initiative might even lower welfare of poor. Poor might end up
purchasing lower priority pdtsprahalad dismisses such argument as patronizing
and arrogant: how can anyone else but the poor decide whats best for them?
(poor have rights to judge for themselves how they, as value-conscious
consumers want to spend their money to maximize their utility). HOWEVER, poor
are vulnerable due to lack of education, info & econ, cultural, social deprivations.
A persons pref is malleable & shaped by backgrnd + experience. Need to look
beyond expressed pref & focus on ppls capabilities to choose the lives they have
reason to value. Banerjee & duflo show, in a survey, ppl cld save more w/o getting
less nutrition by spending less on alcohol, tobacco, food items like sugar, spcie &
teadata suggest poor, just like the rest lack self control, yield to tempt & spend
to keep up w neighbours just tht the consequence for them are more severe. More
often than not, poor make choices which are not in their own best int.
Poverty & alcohol: poorer ppl spend a greater fraction of income on
alcohol than less poor. Alcohol has high direct fin costs, econ & social costs (dim
work productivity, health, accidents, dom violence, child neglect). Alcohol
exacerbates poverty. Poor cant make decisions to for their best interests.
Whitening cream: racist & sexist prejudices lead women to use skinlightening pdts tht sometimes have negative health side effects. Hammond &
prahalad argues tht poor women have a choice & feel empowered bcus of an
affordable consumer pdt formulated for her needs but THIS is an illusion. It serves
to entrench disempowerment. The way to empower a woman is to make her fin
indpt & better educated need social + cultural changes tht eliminate prejudices.
Shld impose some constraints in terms of truth in advert + full disclosure of
ingredients used in pdts + negative side effectsmore so 4 ppor who lack info &
education needed to make well-informed choices.
Lower prices/ Raise income: only way to help eradicate poverty is to raise
real income by either lowering prices of gds consumers buy or raise their income
earned. Px reductions must be over 90% to have sig impact on purchasing
behavior of the poor. 3 ways to reduce px reductions- reduce profits, reduce costs
w/o reducing quality, reducing costs w reducing quality. Bop does not consider e
3rd alt. Biz process redesign will not reduce cost by over 50% w/o reducing quality.
A sig improvements in tech could reduce costs bt this is found only in areas of
computers, telecomm, electronic prdts, which are a small proportion of the poors
income. Bop exaggerates px reductions achieved by inapt comparisions: aravind
eye care system with usa. But this exclude the fact tht aravinds costs shld be
converted at ppp not fin exch rate and tht usa healthcare costs high due to high
labour costs, admin costs and malpractice insurance. Shld compare aravind to a
hospital in india. Prices charged in pte hospitals and aravind abt the same.
Aravind sub patients due to highly dedicated staff willing to work long hours for
pay same as govt hospitals. Retention is a prob.
Cost-quality trade-offs: contrary to bop prop, oft needed to reduce quality
to reduce costs but need to do oit in a way cost-quality trade-off acceptable to the
poor. Good eg: Nirma in india which prod cheap but low quality detergent tht
could even cause blisters. Contrary to bop prop, poor like inexp, low quality pdts
not bcus they do not want good quality but bcus they cant afford same quality
pdts so they have a diff price-quality trade-off frm the rich. Dont need extensive
technology. Nirma gd eg of win-win situation whr coy created a large mkt w sig
profits while poor are better off as they get affordable detergent. Imposing out pxquality trade-off on the poor is disrespectful of their pref. Quality is a relative
concept.
contracted 3rd party w experience in manu stoves, bp prov a ready mkt and tech
assistance while investment in plant to manu stove made by partner.
BOP Innovations: generalizable lessons: systems from the west wont
work in bop mkts. Firms have to learn to bal global stnd & local responsiveness.
Generalisations:
1. BOP mkts diff frm developed country mkts. BOP not monolith. Wide variations
exist without universal bop solution. Solutions are specific to an industry & to a
particular target within bop.
2. BOP challenges our thinking by focusing on 4AS
3. Innovation must start w deep immersion on consumers lives to get insights
which allows us to dev system of constraints within which we have to innovate,
resulting in the innovation sandbox.
4. Innovation is not just a pdt. It is dev an appropriate ecosystem tht allows a new
biz system to fxn.
Ecosystem allows specialization working tog, where affordable pxing focused on
volume & scale. Focus is on reducing capital intensity to a pt where capital req
fixed assets +working cap needs are spread over ecosystem and not borne by any
one firm. Workflow is e baiss for picking partners to coop & building ecosystems.
Dev bop mkt to serve existing mkt more efficienty & create a new mkt, sub an
existing approach to fulfill well-recog fxnality. Create awareness + build
ecosystems for acq new customers.
The innovation flow: shift in emphasis to move from pdt-centric innovation
to focus on biz-model innovation of which pdt is a subset. Systems thinking is a
prereq 4 success in bop mkts. Bop mkt req renewed emphasis on building
ecosystem as an integral part of innovation. Bop can be a source of new
developments. Potential for bop mkt is huge: (1) Recog bop, 4bn unserved
customers as a legit mkt consisting of microconsumer/producer/investors,
innovators (2) Accept constraints & work within it, building innovation sandbox.
bOP forces a value eqn and supports new applications which put pressure of trad
definitions of mkts of the rich and poor as well as trad cost structures of global
firms. Major move towards middle class.
Conclusion: bop mkt impt for sustained & profitable growth. Can leverage
on breakthrough innovations tht allow global firms to participate in bop markets to
sell in developed markers as well. Qualities learnt in bop mkt change in value
eqn, use of hybrid tech, coop w ngo & public sector, deskilling of work, lean mgt,
mkt dev, dist & logistics in hostile conditions would serve them well in becoming
globally competitive.
Need to situate globalization within context of state-TNC r/s & explain r/s
of globalizing processes to specific places @ diff geog scales & how these scales
interrelate.