News

Home > News

News

Fukuyama's Plan to Fix Congress
On Monday, I posted on the complications underlying the bubbling technocracy versus democracy theme. Today, like an early Thanksgiving treat, Francis Fukuyama in the Financial Times offers up a perfect example of technocratic overreach. Fukuyama, now installed at Stanford's Freeman Spogli Institute, throws his hands up at the inability of Congress to do just about anything on the deficit, and urges the creation of a "democratic dictatorship" -- a fundamental change from Madisonian checks and balances to a British, Westminster model, in which a prime minister normally has a parliamentary majority, allowing him (or her) to do just about what he pleases, as long as he can keep his party with him. "A simple majority plus one in the House of Commons can make or overturn any law of the land, which is why it has sometimes been referred to as a democratic dictatorship." The U.S. system, built into the Constitution (making this a very big change indeed), is just a total mess, according to Fukuyama, and has been more or less, he implies, since the founding. presidents announced "aspirational budgets," and individual members of Congress "use their potential veto power to extract concessions. The budget that eventually emerges after months of interest group lobbying is the product not of a coherent government plan, but of horse-trading among individual legislators, who always find it easier to achieve consensus by exchanging spending increases for tax cuts. Hence the permanent bias toward deficits." Fukuyama calls the American system a "vetocracy." This is a classically technocratic viewpoint. American democracy is paralyzed, it doesn't produce a "coherent" plan, and therefore we must drain away some of the democracy and inject a bit more -- well, quite a bit more -- technocracy. Now no one in their right mind could argue that American politics, notably Congress, isn't a polarized, often-paralyzed, corrupt and craven disaster. On the other hand, this isn't the first time we've experienced that. Moreover, it's also quite clear that Congress' own irresponsibility and greed have erected rules and procedures that make it worse, from the filibuster to the overuse of amendments and holds. Fukuyama is perfectly right to urge that these encrustations be stripped off; and reform of lobbying and campaign finance wouldn't hurt either (though there are deeper problems to be confronted as well: the breakdown of party discipline and the erosion of seniority). Fukuyama does, however, exaggerate the "permanent bias toward deficits" of the Madisonian system. How does he define permanent? Well, he doesn't. Clinton with Congress created a surplus and before Reagan's massive supply-side red ink, administrations back to World War II ran relatively minor occasional Keynesian deficits, usually to spur a slumping economy. Most peacetime administrations and their Congresses have not created deficits: It's really a problem of the last few decades, and it's one anchored not in discretionary spending but entitlement demographics and defense expenditures. Fukuyama is devoted to the Westminister model, which theoretically can produce a coherent plan but which, in the real world, seems to suffer, like any political mechanism, some stubborn problems. The Cameron coalition in the U.K. has forced through a button-poppingly tight austerity budget, but it seems to have spawned (as many predicted) distress and little growth. And in fact British economic growth -- if that's your metric of success -- has been spotty since World War I. Perhaps in the long run Cameron will prove to be right; and any fair-minded person would agree that you can't blame a legislative structure like Westminster on complex political, social and economic realities. Britain is not America, and neither is China or Italy or Japan. Still, what we can say is that a Westminster model allows a set of currently fashionable or popular ideas, whether in economics or in racial policy or immigration or social policies, to win majority support and become law. It is, in that sense, far more "democratic" than Madison's checks and balances, which were designed to slow things down, to allow greater deliberation and to allow crackpot ideas to fade. As Keynes famously said, "Practical men, who believe themselves to be quite free from intellectual influence, are usually the slaves of some defunct economist." Fukuyama has greater faith in technocrats than I (or for that matter Keynes). [View Details]
Food Prices, Financial Crisis and Droughts
Global food prices remain high and volatile, affecting the poorest countries the most. Global prices might not be at their 2008 record high, but they are still well above their levels a year ago. For millions who are already vulnerable, events like the droughts in the Horn of Africa add to their hardships while continued market turmoil increases uncertainty in the global economy. And yet, for many it would look like the food crisis and the economic woes -- both past and present -- are two different events with little in common. In fact, experts will explain to you that a weak economic recovery would be a good thing for people struggling to put food on the table because lower demand would push food prices down. That's true, but the food price crisis and the financial troubles are not two completely separate things. The food price crisis that began in 2008 and the financial crisis of that year were intimately connected. Therefore, financial reform must include derivatives and other financial instruments related to developing countries and their farming sectors. As Vera Songwe shows in the Economic Premise series note "Food, Financial Crisis, and Complex Derivatives: A Tale of High Stakes Innovation and Diversification" (PDF) "developing countries, particularly food-importing ones, were part of the early wave of the financial crisis via food price increases." Here's the chain of events: The U.S. housing boom was accompanied by a dramatic increase in subprime mortgages and the creation of financial instruments to trade them. At the same time, Africa was experiencing unprecedented economic growth, fueled by a robust global economy driving commodity prices up. Once the U.S. economy overheated and interest rates came up, the housing market suffered a contraction that provoked a slowdown in U.S. growth, then the housing collapse and finally a financial crisis of major proportions in 2008 since America's leading banks faced substantial losses from the mortgage market. And all this at a time when agriculture production in Africa dropped, many countries increased their food imports, and world food stocks had fallen to their lowest levels since the 1980s. "In September 2008," says Songwe, "Wall Street met No Street (rural Africa). Lehman Brothers collapsed, and the once separate food crisis in Africa and mortgage crisis in the U.S. transformed into a global financial crisis." To make matters worse, the frequency of droughts is increasing in the Horn of Africa, affecting over 13.3 million people, often the poorest already. In Kenya, for instance, the seven counties most affected by the drought have an average poverty rate of 73 percent, so any policy response has to include an increase in social protection programs, as Gabriel Demombynes and Jane Kiringai explain in this week's Economic Premise, "The Drought and Food Crisis in the Horn of Africa: Impacts and Proposed Policy Responses for Kenya" (PDF). But whether it is through more robust safety nets to protect vulnerable people from hunger and food price volatility or through increased investments in agriculture, efforts to address the food crisis also have to include financial reform. Food prices and volatility are intimately related to financial instruments, such as derivatives. So any comprehensive financial market regulation package must include commodity markets, financial products, and institutions linked to trade in agriculture commodities and, especially, the strong voice of developing countries struggling to feed their own. As Vera Songwe says, "No country should be too small to fail." [View Details]
Egypt Protests: Thousands Fill Tahrir Square In Cairo For Anti-Military Demonstration
CAIRO — Egypt's military rulers picked a prime minister from ousted leader Hosni Mubarak's era to head the next government in a move quickly rejected by tens of thousands of protesters, while the United States ratcheted up pressure on the generals to quickly transfer power to a civilian leadership. More than 100,000 people packed into Cairo's central Tahrir Square for their biggest demonstration since the current showdown began, with activists accusing the generals of trying to extend the old guard and demanding they step down immediately after failing to stabilize the country, salvage the economy or bring democracy following Mubarak's ouster. Tensions have risen ahead of parliamentary elections, set to begin on Monday. Kamal el-Ganzouri, 78, served as prime minister between 1996 and 1999 and was deputy prime minister and planning minister before that. He also was a provincial governor under the late President Anwar Sadat. In a televised statement, he said the military has given him greater powers than his predecessor and he wouldn't have accepted the job if he believed military ruler Field Marshal Hussein Tantawi had any intention of staying in power. "The powers given to me exceed any similar mandates," he said, looking uncomfortable, grasping for words and repeatedly pausing as he spoke. "I will take full authority so I'm able to serve my country." He also said he won't be able to form a government before parliamentary elections start on Monday. The Obama administration, meanwhile, appeared to bring its position on the crisis in Egypt closer to the protesters' demands, urging the generals to fully empower the next interim civilian government. "We believe that Egypt's transition to democracy must continue, with elections proceeding expeditiously, and all necessary measures taken to ensure security and prevent intimidation," The White House said in a statement. "Most importantly, we believe that the full transfer of power to a civilian government must take place in a just and inclusive manner that responds to the legitimate aspirations of the Egyptian people, as soon as possible." El-Ganzouri's appointment was announced by state TV following a meeting late Thursday between el-him and Tantawi. Tantawi was Mubarak's defense minister of 20 years and served in el-Ganzouri's earlier government. It was the latest in a series of efforts by the military to appease protesters without meeting their main demand of stepping down immediately. The generals also apologized Thursday for the killing of nearly 40 protesters in five days of deadly clashes, mostly centered around the square. This was the longest spate of uninterrupted violence since the 18-day uprising that toppled Mubarak on Feb. 11. The streets were relatively calm on Friday as a truce negotiated Thursday in Cairo continued to hold. But the choice of el-Ganzouri only deepened the anger of the protesters, already seething over the military's perceived reluctance to dismantle the legacy of Mubarak's 29-year rule. "Illegitimate, illegitimate!" the crowds in the downtown square chanted on hearing the news. "Not only was he prime minister under Mubarak, but also part of the old regime for a total of 18 years," said protester Mohammed el-Fayoumi, 29. "Why did we have a revolution then?" El-Ganzouri replaces Essam Sharaf, who resigned this week after nearly nine months in office amid deadly clashes between police and protesters calling for the military to immediately step down. Sharaf was criticized for being weak and beholden to the generals. The military has said parliamentary elections, the first since Mubarak's ouster, will be held on schedule despite the unrest in Cairo and a string of other cities to the north and south of the capital. Voting starts Monday and concludes in March, meaning that el-Ganzouri could be prime minister only until a new government is formed following the seating of a new legislature. "El-Ganzouri is a new Sharaf. He's old regime," said Nayer Mustafa, 62. "The revolution was hijacked once. We won't let it happen again." Friday's protest in Tahrir was dubbed by organizers as "The Last Chance Million-Man Protest." Swelling crowds chanted, "leave, leave" and "the people want to bring down the field marshal", in reference to Tantawi, who took over the reins of power from Mubarak. Pro-reform leader and Nobel peace laureate Mohamed ElBaradei was mobbed by hundreds of supporters as he arrived in the square and took part in Friday prayers, leaving shortly afterward. "He is here to support the revolutionaries," said protester Ahmed Awad, 35. "He came to see for himself the tragedy caused by the military." The demonstrators have vowed not to leave the sprawling plaza until the generals step down in favor of a civilian presidential council. Their show of resolve resembles that of the rallies which forced Mubarak to give up power. About 5,000 supporters of the military staged their own demonstration several miles (kilometers) north of Tahrir in the district of Abbassiyah, not far from the Defense Ministry. Thousands of pro-democracy protesters also took to the streets in other cities, including at least 10,000 in the Mediterranean port city of Alexandria and smaller crowds in Luxor and Assiut in southern Egypt. The military has rejected calls to immediately step down, saying its claim to power is supported by the warm welcome given to troops who took over the streets from the discredited police early in the anti-Mubarak uprising as well as an overwhelming endorsement for constitutional amendments they proposed in a March referendum. Tantawi has offered another referendum on whether his military council should step down immediately. Such a vote, activists say, would divide the nation and likely open the door for a deal between the military and political groups, particularly the Muslim Brotherhood. Egypt's largest and best organized group, the Brotherhood is notorious for its opportunism and thirst for power. It was empowered after the fall of Mubarak, regaining legitimacy after spending nearly 60 years as an outlawed group. [View Details]
China SMEs face failure as profit margins shrink
China SMEs face failure as profit margins shrink [View Details]