Ben Muse

Economics and Alaska

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Do you want that with fries?

John Palmer (the Eccentric Econoclast) points to an example of the substitution North Dakota minimum wage labor (and a little capital) for Oregon minimum wage labor: "Capital-Labour Substitution in Fast Foods"

What does the Director-General of the WTO do?

The World Trade Organization (WTO) is in the process of selecting a Director General (DG) for the next four years. The WTO DG is responsible for running the WTO's 600 person secretariat in Geneva. The DG is not a decision maker with respect to the details of trade agreements; the WTO members take the member-driven nature of the organization seriously. But the DG can play an important role in the negotiations. The size of the role depends on the DG's initiative and character.

During his speech to the World Trade Organization's General Council on January 26, WTO Director-General (DG) candidate Pascal Lamy described how he saw the role of the WTO DG:
    "...I think that the role of the DG is threefold: he is a manager; he is an advocate; and he is a honest-broker...

    Why a manager? Because he is responsible for the activities of the Secretariat, for the conduct of WTO operations, for the management of WTO personnel. He must fix objectives, and evaluate performance. And because he is given this job, he is himself responsible for his own performance before the members who vote the budget. He must manage, and in order to manage, he must motivate, lead, and reform if necessary, notably in the direction of transparency...

    Why an advocate? Because the DG is spokesman for the organization and the goals defined by the members of the organization. In Geneva and in national capitals, where he must be capable of opening doors. In the media. In debate, notably with those who criticise us, sometimes fairly, but also with those who have even more fundamental objections. To do so, the DG must be able to speak several languages. The language of our WTO agreements, in which we are of course all masters of its sometimes obscure (at least for the non-initiated) complexities. But also the simple language of international public opinion. A Director General must convince. And to do that, he must be convinced. For example, on the priority of multilateralism over bilateral agreements, whatever their virtues...

    Why an honest broker? Because the members of the organization have different positions, sometimes conflictual, and these differences are if anything growing as our membership grows. The solution remains in the art of compromise between sovereign nations. The DG must therefore be able to facilitate, he must be considered by the members as an objective interlocutor, an intermediary in whom everybody has confidence, capable of reducing disagreement, mistrust, and prejudice. He must be ready to make a contribution as a catalyst in this peculiar chemistry set of consensus, in full co-operation with those to whom you have conferred responsibilities as chairmen of different councils and committees. He must be both engineer and mechanic, with the WTO agreements as his technical manual. He must be ready to stand aside when necessary. And to be available when necessary.

    The sheer complexity and necessity of this role is not, I fully recognise, precisely defined by the texts which govern this organization. The DG of the WTO has no “powers” of this kind. Because the organization remains member driven, he has no right to such a role, he must earn it. And in what currency is this role earned? In trust. The DG must construct a trust-fund with a revenue stream based on respect for his role. Not to save it. But to spend it, in the service of the organization."

On the Road to Hong Kong

The Trade Ministers of the members of the World Trade Organization (WTO) meet every two years. This "Ministerial Conference" is the highest level decision-making body in the WTO.

They met in 1999 in Seattle, in 2001 in Doha, Qatar, and in 2003 in Cancún, Mexico. Their next meeting will take place this December 13-18 in Hong Kong. There is no chance that they will complete the current Doha Round negotiations at this meeting. Their meeting may propel those negotiations into their final phase, with completion in 2006.

Gustavo Capdevila reports that a meeting of ministers from a number of WTO member nations at Davos, Switzerland last week is expected to give Doha Round negotiations a boost ("Davos meet recharges Doha Round of WTO talks", Asia Times Online 2-1-05).
    "The World Economic Forum's 2005 meeting will be remembered more for having served as the scenario for the reinvigoration of the Doha Round of trade talks than for the statesmen and celebrities who visited this Swiss mountain resort last week...

    Swiss Economy Minister Joseph Deiss, who hosted the ministerial meeting in Davos, said the ministers must go to Hong Kong with "concrete progress" on modalities in agriculture and industrial goods as well as a "critical mass" of progress on services and trade facilitation. The draft agreements, he said, should also include a "proper reflection of the development dimension" - a reference to the assymetries between nations that put developing countries at a disadvantage.

    The key issues in the run-up to Hong Kong will be discussed in a new ministerial meeting to take place in Kenya in early March. The ministers stated that the draft texts of the agreements - the "approximation of the kind of modalities we will like to see", in Supachai's words - should be ready by August. If there is no outline of the modalities by then, it will be very difficult to reach an agreement next December, said Alfredo Chiaradía, Argentina's secretary of foreign trade.

    Deiss said the negotiators must reduce their differences and that only a few major political questions should be left pending by the time the ministers meet in Hong Kong. "
Gary Duncan and Robert Thomson report on current Director-General Supachai's vision of the road to Hong Kong ("WTO chief sees light at the end of trade talks", TimesOnline 2-1-05):
    "In an effort to keep the process on track, Dr Supachai, along with senior negotiators such as Mr Mandelson and his outgoing US counterpart, Robert Zoellick, pinpoint July as a crunch moment. By then, the Director-General wants to ensure that agreement has been reached on details about what will be negotiated at Hong Kong’s ministerial meeting five months later. He wants no repeat of the Cancún fiasco: “That’s why I have been floating the idea that we make use of the July benchmark to do a stock-taking or reality check to see how far we have got and what we have done,” he says. “By July we should have this assessment, and not in October or November — it will be too late. If they (the ministers) want to do it — it’s July.” "
Anti-globalization workshops and demonstrations require advance planning, just as a ministerial meeting does. Alexandra Harney reports that planning for demonstrations at the Hong Kong meetings has already begun: "Protesters meet in HK ahead of WTO gathering".
    "More than 10 months before Hong Kong hosts the World Trade Organisation's next ministerial meeting, non-governmental organisations are planning their own talks to craft a strategy for protests and other activities.

    Hong Kong NGOs, union leaders and other groups have scheduled a meeting for February 26-27 in the former British colony "to map out the plan of action both during and leading up to" the December 13-18 meeting, said Rey Asis, regional secretary of the Asian Students Association, one of the organisers..."

Friends of Anti-dumping Negotiations

One of the groups organized to push a point of view in the current WTO negotiations is the "Friends of Anti-dumping Negotiations."

Firms are said to "dump" goods when they sell them in a foreign country for less than they sell them in their own. The U.S., and increasingly other countries, have "anti-dumping" legislation to prevent this.

Anti-dumping is ripe for abuse. Dan Ikenson of the CATO Institute discussed the U.S. statute, here: "Antidumping: The Unfair, Unfair Trade Law":
    "The antidumping law, perhaps the most arbitrary and disruptive U.S. trade barrier, is defended as a means of ensuring “fair” trade and maintaining a “level playing field” for domestic producers. Tough antidumping rules, its defenders claim, facilitate freer trade by providing assurances that “unfair” trade will be punished and thus deterred.

    But that dubious justification is a smokescreen, pure and simple. The fact is that the antidumping law is protectionist, contradictory and unfair. Its overzealous application routinely punishes U.S. importers and foreign exporters who transact fairly, and ultimately undermines the administration’s broader trade agenda.

    The Import Administration (IA) is part of the U.S. Department of Commerce. According to its Web site, the IA “[e]nforces laws and agreements to prevent unfairly traded imports and to safeguard jobs and the competitive strength of American industry.” It is a classic case of the fox watching over the henhouse. The IA’s concern for American industry extends only to those industries seeking to squelch foreign competition. The consequences for downstream producers and U.S. exporters are systematically ignored.

    The IA’s methods of determining dumping are rigged in favor of protectionist outcomes, but are insulated from popular scrutiny by arcane and highly technical procedures. Indeed, most defenders of the law have no idea how it works in practice, but are simply attracted to its appealing rhetoric of “fair trade” and “level playing fields.” If it sounds good, it must be good.

    Dumping is said to occur when an exporter’s prices in the United States are lower than those it charges for similar merchandise in its home market. Procedures for determining these price differences are not straightforward. They are subject to curious conditions and indefensible calculations, which are strictly the domain of the Import Administration."

For example,
    "In virtually every case, all of the exporter’s U.S. sales are compared to only a higher-priced subset of its home-market sales (sales in its own country). Home-market sales priced below the average cost of production are simply disregarded. If an exporter sells five widgets in both the U.S. and the home-markets at prices of $1, $2, $3, $4, and $5, the average price in both markets is $3. No dumping, right? Wrong! If it costs $2.50 to produce these widgets, the home-market sales at $1 and $2 are dropped, causing the average home-market price to rise to $4 and generating a dumping margin of $1, or 33 percent. A tax of 33 percent would be slapped on future U.S. sales from that exporter. This procedure alone accounts for a significant portion of most dumping margins “calculated” by IA across industries, across countries, and over time. Yet, not a single antidumping defender could reasonably justify this so-called “cost test.”
Ikenson's column links to a more detailed report he co-authored, with Brink Lindsey, on the U.S. anti-dumping law and practice: "Antidumping 101: The Devilish Details of "Unfair Trade" Law". If you really want to get into the weeds, get Lindsey and Ikenson's Antidumping Exposed. The Devilish Details of Unfair Trade Law the book version of "Antidumping 101."

The WTO has rules (the Anti-dumping Agreement") on how countries can respond to instances of dumping. These rules are on the table during the current, Doha, round of negotiations.

The "Friends of Anti-dumping Negotiations" would like to see more controls introduced on anti-dumping legislation. The "Friends" includes Brazil, Canada, Japan, South Korea, Taiwan, Thailand, Singapore, Hong Kong, Mexico, Chile, Costa Rica, Israel, Norway, Switzerland, India and Columbia. (Bridges)

The United States is not one of the "Friends", and "remains in the opposite camp, considering the right to use anti-dumping measures to be a high priority in ongoing talks." (Bridges)

The "Friends" met in Geneva on January 18-20 to think through their negotiating plans for the coming year. The anti-dumping rule negoitiations are taking place within the WTO's "Negotiating Group on Rules". The next meeting of this negotiating group is on February 21-23. (Bridges)

Source: International Centre for Trade and Sustainable Development. " 'Friends' Group Meets on Anti-dumping to Prepare for Rules Talks." Bridges Weekly Trade News Digest January 26, 2005. Pages 10-11.

Wolf on Rich Country Agricultural Subsidies

In a recent issue of the Financial Times, Alan Beattie explains the tradeoff "at the heart" of the current world trade negotiations (in the “Doha Round”):
    "At the heart of any final deal is likely to be a bargain between the rich trading blocs, the European Union, US and Japan, and big emerging market countries such as India, Brazil and South Africa.

    The deal would see the rich nations cut subsidies and tariff protection on agriculture in return for better access for their goods and services exports to those emerging markets."
("Doha round faces long and winding road", Financial Times) . US, EU, and Japanese subsidies to agricultural producers could be an important part of the tradeoff.

Martin Wolf spoke to these subsidies in his recent book, Why Globalization Works. Rich country subsidies to agricultural producers poison the competitive environment for developing countries in an area that might otherwise be a strength for them:
    “…perhaps the greatest of all the scandals [Wolf charges that for various reasons, including the subsidies, rich country treatment of the developing countries is hypocritical – hence the term “scandals” - Ben] remains the treatment of agriculture. In this area, one of comparative advantage for many developing countries, they have hardly managed to raise their share of world exports. This is so even though agriculture is, for the high-income countries, of trivial economic importance in terms of GDP, employment and trade. What stops the developing countries is the staggering scale of rich-country subsidies.
Rich country spending priorities are wrong:
    ”According to the Organization for Economic Co-operation and Development, total assistance to rich country farmers was $311 billion in 2001, six times as much as all development assistance, indeed more than the GDP of sub-Saharan Africans. In 2000, the EU provided $913 for each cow and $8 to each sub-Saharan African. The Japanese, more generous still, though only to cows, provided $2,700 for each one and just $1.47 to each African. Not to be outdone, the $US spent $10.7 million a day on cotton and $3.1 million a day on all aid to sub-Saharan Africa.
The subsidies are counter-productive, even for the rich countries themselves:
    ”The priorities shown here are obscene. In order to justify the grotesquerie of its agricultural policy regime, the common agricultural policy, the EU has started to apply the notion of ‘multi-functionality’. By this it means that agricultural supports are justified by their ability not only to support farm incomes, but to protect the environment, food security and rural life. The EU is right about the multi-functionality of the CAP, just wrong about the functions its policies serve. The CAP is regressive (since it provides 50 per cent of its benefits to the 17 per cent biggest farmers, who need this help least), wasteful (since it still consumes almost half of the EU’s budget), environmentally damaging (since it encourages needless intensification of agricultural production) and harmful to developing countries (since it deprives them of markets and undermines the competitiveness of their farmers with its dumping of subsidized surpluses). This is multi-functionality with a vengeance. The picture is little different in the US: only 16 per cent of the support goes to the 80 per cent of the farmers who operate on a relatively small scale."
These subsidies damage developing countries in a variety of ways:
    "Unfortunately, while the Uruguay round brought a little discipline to this sector, it was grossly inadequate. [Prior to the Uruguay Round of trade negotiations, negotiations to reduce trade barriers had not focused on agriculture. The Uruguay Round, completed in 1994, took first steps to address barriers to agricultural trade. Agriculture is supposed to be a central element of the current “Doha Round” of negotiations - Ben] Agricultural support in the EU and US was higher in the late 1990s, as measured by the OECD’s Producer Support Estimates, than between 1986 and 1988, the base years for the Uruguay Round agreements. Much of the support is still output related. [output related support may encourage additional, hurtful, production - better to "decouple" support from output - Ben] Moreover, many of the subsidies that are supposed not to affect production do so. Because farm supports are anti-cyclical, they increase the instability of residual world markets, with devastating effects on exporters from developing countries. Moreover, subsidized surpluses are still being dumped on world markets. The US and EU account for around half of all world wheat exports, with prices 46 and 34 per cent respectively below the costs of production. In 1998, subsidized exports made up a quarter of global exporters. The EU is the world’s largest exporter of skimmed-milk powder, at half the costs of production. It is also the largest exporter of white sugar, at a quarter of the costs of production. Some argue that such dumping can be beneficial to developing countries that are net food importers. With very few exceptions, this is not so. In most developing countries, farmers are not just the majority of the population, but the overwhelming majority of the poor. Thus the dumped products benefit an urban minority at the expense of the rural majority. Often the subsidized food has turned countries into net importers. Without it, they would both be net exporters and possess far healthier rural economies. While the transition to a world of higher international food prices needs to be handled carefully – and food aid needs to be available to help food importing countries and those vulnerable to harvest failure – it is virtually certain that developing countries would gain hugely from the elimination of current farm policies in the high-income countries. The World Bank has estimated the annual welfare losses to developing countries at $20 billion a year – close to 40 per cent of all development assistance.”
Source: Martin Wolf. Why Globalization Works.. Yale University Press. New Haven: 2004. pages 213-214.

Newsweek Interviews Pascal Lamy

Newsweek reporter Karen Lowry Miller interviewed Pascal Lamy for the February 7 issue: "There Is No Trade King"

Why does he want to be WTO Director-General?
    "Why do you want to head an institution you once called medieval?

    Twice, in Seattle and in Cancun. I was terribly frustrated at the way ministerial conferences are structured, or unstructured. Only a miracle could have saved Seattle or Cancun. When taking the right decisions depends on a miracle, we are back to the Middle Ages. We need to improve many things, such as the roles of the host minister and the chief of the negotiating council, how do we decide when topics need facilitators, and so on. We need more transparency.

    So what would you do as king of the WTO?

    There is no king. You've got to be recognized as a broker, and you have to earn your respect every day.

    In this climate, doesn't the director-general have to be able to knock heads together?

    There is a leadership challenge now. But the same people who insist on leadership are the same who insist on the fact that we are a member-driven organization. [As the director-general] you don't have any power. You have to build a capital of trust across the board, among all the members, which they accept you might try spending from time to time."

Which Candidate Will the Australian's Choose?

Australians export wheat. Wheat prices are down. The EU has just approved export subsidies for wheat. The Australians are unhappy; they think the EU is going back on subsidy reduction commitments made last summer.

David Uren reports that among other responses, the Australians are reminding the EU that they haven't decided on whether or not to support the EU candidate for Director-General of the WTO ("The Australian: Fury over wheat subsidy about-face" from The Australian):
    "Trade Minister Mark Vaile said yesterday the new European subsidies were contrary to a commitment made last July to eliminate export subsidies from agricultural exports as part of the Doha round of world trade talks...

    The Trade Minister said he would register Australia's serious concern with the new European Union trade commissioner, Peter Mandelson, at the World Economic Forum in Davos later this week. Mr Vaile was known to be sympathetic to the claims of Mr Mandelson's predecessor, Pascal Lamy, to take up the position of WTO director-general, which falls vacant at the end of August.

    Mr Lamy and Mr Vaile have a good personal relationship, and Australia recognised his toughness in persuading the EU to agree last July to abolish agricultural subsidies.

    Mr Lamy's key rival for the job, Uruguay's Carlos Perez del Castillo, also has a strong claim on Australian support, as Uruguay was a foundation member of the Cairns Group of agricultural exporters.""
Pérez del Castillo has already visited Australia looking for support. A post on the earlier visit is here: "What Will Australia Do?".

Doha Round Prospects

Alan Beattie explains the key tradeoff in a Doha Round trade agreement:
    "At the heart of any final deal is likely to be a bargain between the rich trading blocs, the European Union, US and Japan, and big emerging market countries such as India, Brazil and South Africa.

    The deal would see the rich nations cut subsidies and tariff protection on agriculture in return for better access for their goods and services exports to those emerging markets."
("Doha round faces long and winding road", Financial Times)

Beattie points out that there are several external events this year that may create challenges for the negotiators. One is the possibility that the current race for WTO Director-General may get out of hand:
    "The first is the competition to replace Supachai Panitchpakdi as director-general of the WTO when he steps down in August...

    Member countries say they are desperate to avoid a repeat of the bitter stalemate that characterised the previous competition...

    However, with some poor countries affronted that the EU has put forward Pascal Lamy for a post they think should be reserved for a candidate from the developing world, there is potential for a prolonged and debilitating fight that will halt progress on the Doha talks."
Then, there are the increase in Chinese competition in textiles and clothing and the falling U.S. dollar:
    "China is another worry...

    The end of the global textile quotas at the beginning of this year provides a test case for how quickly China can seize market share in an industry in which it indisputably has a strong competitive advantage.

    Textile producers in developing countries that benefited from the quota system, including Mauritius and Bangladesh, as well as the familiar textile lobby in the US and the EU, will be trying to use every conceivable form of safeguard and anti-dumping mechanism to protect themselves from the onslaught of cheap Chinese imports. This does not bode well for enthusiasm for liberalisation...

    The final wild card is the dollar, which has fallen to levels that are causing European exporters to squeal with pain...

    The sight of the dollar bloc gaining competitive advantage while the Bush administration stands by will do little for the rest of the world's affection for free trade and open markets..."

Paul Blustein's new book (on the Argentine crisis)

Paul Blustein, the Washington Post international economics reporter, has a new book coming out on the Argentine financial crisis of 2001: "And The Money Kept Rolling In (And Out)"

Blustein was the author of The Chastening, a history of the East Asian financial crisis. He describes the new book as somewhat different:
    "A previous book, The Chastening, had covered the crashes of economies in Asia, Russia and Brazil in the late 1990s. But this is a different kind of book. Most important, it has what I would call a high indignation quotient. The more I delved into the story, the more people I interviewed, and the more documents I obtained, the more appalled I became about the part the international community had played in pumping up Argentina's economy to dangerously vulnerable levels and then letting the country down badly when the bubble burst. The book reflects my disgust with a system that so woefully fails the people of countries seeking to claw their way into the First World. For people who believe in the power of globalization to raise living standards in the developing world — and I count myself among them — the story of the most spectacular national bust of recent times is a sobering drama of immense significance for us all."
Here are some other articles on Argentina by, or with contributions by, Blustein:

"Argentina Didn't Fall on Its Own. Wall Street Pushed Debt Till the Last ";

"IMF Says Its Policies Crippled Argentina: Internal Audit Finds Warnings Were Ignored";

"A Social Contract Abrogated: Argentina's Economic Crisis".

WTO DG Candidates Address the General Council

The four candidates for Director-General of the WTO addressed the WTO's General Council today, in what is being billed as the start of the campaign. Later in the day, three of them attended a "public hearing" sponsored by NGOs.

Candidates were given a chance to address the General Council and the Council was given a chance to ask them questions. Each had an hour to an hour and a quarter.

The WTO has posted a new web page dealing with the Director-General (DG) selection process. The page has detailed biographies, and copies of the statements the four candidates made to the Council: WTO | Director-General: Selection Process The Bridges Weekly Trade Digest summarized the candidates remarks: "DG Candidates Meet With General Council".

This story by Richard Waddington of Reuters is a good one: "Candidates Make Pitch for Top World Trade Job". Here's where we are:
    "Wednesday's presentation of the candidacies marks the formal launch of campaigning, which will run until the end of March.

    Then the head of the General Council, on which all states sit, will sound out members in a bid to cut the field, first to two and then just to one before the end of May."
The candidates have different strengths and weaknesses:
    "Lamy's greater international renown may have made him an obvious early favorite, but Geneva diplomats warn that he is far from being a shoo-in to a job which carries much prestige but little in the way of real power.

    Perez del Castillo is considered to have been highly effective as council chairman and is well respected in Geneva. Brazil carries much weight in world trade politics, while the Mauritian minister comes with the backing of African states."
This Agence France Presse is also good, providing more information on the arguments the candidates are making: "Four trade diplomats battle to win top job at WTO" (via

The Uruguayan, Mauritian, and Brazilian candidates are pressing the claims of the developing world to a leadership position during the "development round" of trade negotiations:
    "With much at stake, the candidates from Mauritius, Brazil and Uruguay pressed the need for developing countries, which form a majority at the WTO, to have a greater influence on the negotiations.

    "We are in the middle of a development round, developing countries have a major stake in this round, therefore it is advisable in my view ... to have a developing country at the helm," Seixas Correa, Brazil's ambassador to the WTO, told reporters.

    For his part, Cuttaree, who is currently the foreign minister of Mauritius, insisted that poor nations had the know-how to head the organisation.

    "I don't think it would be proper to assume that if you want to have a competent person to run the WTO, that this person necessarily has to come from a developed country," he told a separate news conference."

This AP story ("4 Candidates Compete for WTO Leadership " (via Forbes) reports that, in certain circles, Pérez del Castillo is the current favorite:
    "Ladbrokes, the world's biggest bookmaker, currently has Perez del Castillo as the 5-to-4 favorite. It did not provide odds for the other candidates.

    Perez del Castillo laughed when told by the AP that he was the British firm's top tip.

    "I certainly think I have good chances, otherwise I wouldn't be running," he said. He said he has solid support in Latin America, aside from Brazil. He also is believed so far to have backing from several African and Asian nations."
Frances Williams reports in the Financial Times that France's Lamy and Uruguay's Pérez del Castillo may be the front runners:
    " Still, the consultations aim to test not only the strength of support for each candidate but also its breadth and diversity and the degree of opposition. This, say some trade diplomats, should ensure a strong showing for Mr Lamy who, apart from EU support, is thought likely to receive backing from the US, Japan and a number of African, Caribbean countries with EU ties.

    His main rival is seen as Mr Pérez del Castillo, a respected WTO “insider” whom supporters believe can attract the desired consensus. He claimed yesterday to have the “overwhelming” support of Latin American countries, as well as backing from other regions.

    Trade envoys say Mr Cuttaree, in spite of his formal endorsement by the African Caribbean Pacific group, may be the first to drop out of the race, because he is opposed by countries that fear he would not fight for freer trade. Mr Seixas Corrêa has struggled to make headway both in his own region and elsewhere."
("Race for leadership of WTO heats up".

Later in the day, three of the candidates, Lamy, Seixas Corrêa, and Cuttaree attended a question and answer session sponsored by several NGOs: the Institute for Agriculture and Trade Policy, Oxfam, and "3D: Trade-Human Rights-Equitable Economy". The session was webcast live, and a video of the session has been promised by around January 31: Institute for Agriculture and Trade Policy. The Bridges Weekly Trade Digest reported on the session: "DG Candidates Follow Up GC Hearing With Civil Society Meeting".

Revised January 27

The Budget is Coming

The President's budget is due on February 7. Mark Schmitt (The Decembrist) reprises his post from last year on: "How to Read a Bush Budget -- A Rerun"

Above all else, remember that, "...that presidential budgets are political documents..."

Schmitt reviews the four types of budget cuts. He's written "an inventory of all the basic little dishonesties that go into the president's budget and a skeptical readers' guide to the inevitably gullible press stories about the budget."

Schmitt is a liberal Democrat, but he makes it clear that his analysis applies to all presidential budgets.

This is well worth the time.

Meet the WTO Candidates

Tomorrow (Wednesday, Jan 26) the four WTO Director-General candidates are interviewed by the WTO's General Council.

The meeting starts at 10 AM in Geneva. According to this story in the Bridges Weekly Trade Digest, each candidate will do a 15 minute presentation and then be inverviewed by the Council for an hour. Afterwards each will have a half hour news conference. This AP story says that the Council interview will be "closed-door." (AP via Forbes)

At 1 PM U.S. Eastern Time, three of the candidates will attend a "public hearing" sponsored by several NGOs. This story, at the Trade Observatory, indicates that the hearing will be webcast at the website of the Institute for Agriculture and Trade Policy:
    "The World Trade Organization is currently meeting with candidates for the Director General position. For the first time in the WTO's history, those candidates have agreed to meet with civil society leaders in Geneva to lay out their vision for the WTO. Pascal Lamy of France, Jaya Krishna Cuttaree of Mauritius and Luiz Felipe de Seixas Corrêa of Brazil will respond to five questions put forth by civil society organizations. You can listen to their responses live here at at 1 p.m. Eastern (1800 GMT), Wed., Jan. 26. Check back here next week for a full video of the hearing.

    To listen to the meeting, you must have the RealPlayer available for free at"
The story doesn't list Uruguayan Carlos Pérez del Castillo as a participant in the hearing.

The Associated Press provides short biographies of the four candidates: " Biographies of WTO Leadership Candidates" (via Forbes)

Seixas Corrêa, or Cuttaree?

Who to support for WTO Director-General?

Carli Lourens, of Johannesburg's Business Day, suggests that South Africa is torn between Luiz Felipe de Seixas Corrêa of Brazil and Jaya Krishna Cuttaree of Mauritius:"Four in Line for Top WTO Post, But Who Will Get SA's Vote?"
    "SA is still debating which candidate it will support. The country has strong ties with Brazil, but will have to provide good reasons if it decides to cast its vote in support of a Brazilian candidate instead of a Mauritian.

    Some commentators say that SA's foreign affairs department is increasingly making its presence felt in trade matters the domain of the trade and industry department. With its strong Africa agenda, foreign affairs officials may push for SA to support Mauritius."

How to eat out

Tyler Cowen's advice on eating out: "My Ethnic Dining Guide, revised"

Cowen links to the 17th edition (January 2005) of his guide to ethnic dining in the Washington D.C. area.

Corruption as an obstacle to investment in Kenya

The Global Growth Blog reports on a study by a Kenyan think tank and the World Bank warning "that Kenya is losing out on Foreign Direct Investment due to endemic corruption and bureaucracy": "Kenyan Think-Tank Warns Corruption Harms Investment"
    "...The survey found out that over 50% of Kenyan firms and a considerably higher proportion of foreign firms operating in the country consider the economic and regulatory framework as unstable and highly uncertain. "... It emphasises the fact that policy instability and uncertainty arising from political and economic conditions limit investments because of the extra risk premium required... "Political instability has also adversely affected the business climate," says the report. "The corrupt practices of business people, politicians or Government bureaucrats are costly because there are real prices to be paid for the economic inefficiencies and the misallocation of scarce resources, which arise from corruption," the Kippra report says. It goes on to argue that corruption stifles the entrepreneurial spirit, undermines local and international confidence and scares off investment.

    The findings say firms that receive Government contracts in Kenya pay on average 7.5% of the total contract value as kickbacks. Sector averages vary from 4% in the machinery sub-sector, to 11.5% in the paper, printing and publishing sector. In 2002, the report says that manufacturing firms in Kenya spent more than 4% of their total sales on bribery.

    On average, firms paid Sh221 million in 2002 as unofficial payment in respect of utilities such as water, electricity and telephone. The sectors were most affected however, were textiles, garment and leather. Unofficial payments in respect of licenses were lower than those of utilities, and ranged from Sh272 for bakeries to Sh35,000 for textile, garments and leather firms," the Kippra reveals the report. In terms of location, the research found out that firms in Nairobi bear the brunt of corruption as they make the highest amount of unofficial payments on most account. The level of corruption varies with the size of the firms, with the small and medium-sized firms paying the highest percentage of annual revenue and value of Government contracts."

The Making of the WTO Director-General, 2005

This post collects links to my other posts on the WTO Director-General (DG) selection process. I'll update this post later. The headings below represent boxes I'd like to fill in. Unless otherwise noted, the post titles below are titles I've given different posts; many of the posts below are based on columns, posts and news stories by others with different titles.

How are Directors-General chosen?

This post links to the WTO DG selection rules, and to a newspaper article providing a summary description of the process: "The Rules for Choosing a Director-General of the WTO".

Early Maneuvering

Nominations had to be made by December 31. But the race began before then. Who might have been in? Why did some drop out while other stayed in?

A lot of people thought about running for DG: "People who might have run for WTO Director-General, but did not". In October Brazilian and Uruguayan representatives met in Montevideo, without reaching joint agreement on a Latin American candidate: "Why are there two Latin Americans in the WTO race?". In December, Kenyan Trade Minister Mukhisa Kituyi almost entered the race: "There was another candidate".

And then there were four

When the sun came up on January 1, there were four candidates. Felipe Seixas Correa of Brazil, Carlos Pérez del Castillo of Uruguay, Pascal Lamy of France, and Jaya Krishna Cuttaree of Mauritius. Who are these men? What strengths and weaknesses do they bring to this office?

This Jan 2 survey post linked to pages with biographical information on each candidate: "Race for WTO Director-General". The Economist also surveyed the four candidates on January 7: "The Race for WTO Director-General".

Here is a report of an interview with Mauritius Foreign Minister Jayakrishna Cuttaree: "Jayakrishna Cuttaree". Here is a post on a Financial Times column that discussed Pascal Lamy: "The pros and cons of Pascal Lamy".

Alan Oxley, former Australian Ambassador to the GATT explains: "What's Wrong With Pascal Lamy". Peter Gallagher, an Australian trade consultant, discussed Pérez del Castillo and Lamy: "Advice on who to pick as the next WTO Director-General". Both Oxley's column and Gallagher's post offer much more.

The race itself

How do you campaign to be Director-General of the WTO? Mike Moore, a former Prime Minister of New Zealand, was DG from 1999 to 2002. He described his race for DG in his 2003 book on the WTO, A World Without Walls. This post has an extract from the book, describing the race: "What's it like to run for WTO Director-General".

Mauritius sought support among the Indian diaspora for its candidate: "Cuttaree plays the ethnic card". Uruguayan Pérez del Castillo traveled to Australia to meet with the trade minister there: "What will Australia do?”. Brazilian Felipe Seixas Correa traveled to South Africa – another G-20 member: "The Brazilian visits South Africa".

The selection rules call for the presentation of the candidates to the General Council soon after the nominations end. In 2005, this presentation takes place on Wednesday, January 26: "This Wednesday’s WTO General Council meeting" and "The next step in the WTO race". A group of NGOs is taking advantage of the General Council meeting to schedule its own "public hearing" with the candidates on the evening of January 26: "Public Hearing for WTO Candidates".

The Choice

How was the selection ultimately made?

The Transition

What is involved in settling in to the office?

Last updated January 24, 2005

Cuttaree plays the ethnic card

On January 7, the Indo-Asian News Service reported on Mauritian efforts to obtain "the support of the 25-million strong Indian diaspora spread over 110 countries for its candidate of Indian origin for the top post at World Trade Organization": Mauritius seeks diaspora support for top WTO post

Incentives and risk-taking behavior

Michael Munger describes an effective way to make a point in class, over at Division of Labour: "Tullockania"

What's it like to run for WTO Director-General?

Mike Moore, a former Labour Prime Minister of New Zealand, was the Director-General of the World Trade Organization (WTO) from 1999 to 2002. Following his term, he wrote about how he came to be Director-General:
    "I had been approached several times over the years to consider being nominated as Director-General, even before there was a WTO. Back in the old days of the GATT I'd always refused, suggesting better people. I saw my own future in New Zealand politics. The people thought otherwise and although I'd come to within a few hundred votes and a handful of seats of winning the 1993 election, there's only one winner in first-past-the-post politics. I was replaced as Labour Leader and returned, grumpy, to the parliamentary back benches, but determined to do my duty.

    A suggestion that I consider standing as a candidate to head the WTO came again in 1999, led by Ambassador Carlos de Perez del Castillo of Uruguay. I had strong support from Latin America and agricultural developing countries, so this time I expressed interest...

    ...The New Zealand Conservative National Party Prime Minister Jenny Shipley was very supportive, as was Trade Minister Lockwood Smith and retired Trade Minister Philip Burdon.

    I left home on a two-week trip to see where my support lay, which turned into a three-month odyssey. The toughest part physically? A non-stop series of flights from The Hague to London, Singapore, Sydney, Canberra, Sydney, Los Angeles, Miami, Buenos Aires and Montevideo in Uruguay, without stopping to sleep, meeting ministers in most cities.

    The WTO's General Council, mainly ambassadors, had decided the selection would be based on three general criteria: volume of support (codeword for numbers); depth of support (codeword for trade weight); distribution of support (codeword for general geographic distribution of support). The process was overseen by two previous Chairmen of the Council, one from a developing country and one from a developed, Tanzania's Ali Said Mchumo and Switzerland's William Rossier.

    The campaign turned very ugly as other nominees - good candidates all of them - fell out through lack of support. The choice finally came down to Dr. Supachai Panitchpakdi of Thailand and myself. Supachai was an old colleague, but sometimes it's over-enthusiastic supporters in campaigns who take the battle to extremes. I could only laugh when a television personality in Thailand called on viewers to write my name on a piece of paper and pound it with a stone, the better to advance the prospects of their favorite son. Much more damaging, though, was learning from the Thai media - much to my surprise - not only that I had a brain tumour, but that I was a Labour union leader. Although both accusations were false, the latter was infinitely more dangerous, given the sensitivity of labour issues in the WTO. When protestors marched on the US embassy in Bangkok, it became very ugly.

    The USA, Sweden, France, Germany and evenutally most of the Europeans, Africans, South Americans, Economies in Transition and small island states in the Caribbean and Pacific indicated support. Some Asians privately supported me. The British, Dutch, Japanese and ASEAN were Supachai's main supporters. I was tarred as the American candidate, bringing my impartiality into question.

    I was very happy to get support from Bill Clinton's Democratic administration. Originally they were divided, with the Treasury supporting Supachai, and the US Trade Representative (USTR) and then the State Department backing me. Several Republican USTRs from earlier administrations also voiced direct and unpublicised support to those who matter. WTO Ambassador Rita Hayes from South Carolina, a skilful politician and diplomat, with strong contacts in the Senate and White House, became very supportive and a good friend. I believe I would not have gained either full US backing or the job without her.

    However, I had been branded. I was never a Labour union leader. Rather I was a corporal in the movement who wished he had been a union leader, but my political life took a different road. I'm still described as a Union, US nominee. While that is literally true, I was never described as a Lesotho, Gabon, Mongolian, Papua New Guinea, French, Swedish, German, or Uruguayan candidtate, which was of course equally the case. Such is politics. But it didn't get my term off to a good start.

    When the final decision was to be made, I found I'd won on all three criteria. I was never sure of the numbers, but knew I had the weight of support from the major trading nations and enjoyed better geographic support than Supachai. Had I lost, I'd have been on an economy flight home that night. My wife Yvonne and I had spent our modest savings. Then, to my surprise, WTO rules being what they are in what is, above all, a Member-driven institution, the minority vetoed the majority. If the campaign had not become so personal, I would not have been so determiend to win. I guess that's the Irish in me. The atmosphere in Geneva was poisonous. This deadlock could have enabled a new compromise candidate, several of who were waiting in the wings, to enter the ring.

    I've been a politician since first getting elected to Parliament at the age of twenty-three. I have been deeply committed to the ideals of the multilateral trading regime for decades. Rather than having my opportunity to contribute, at a pivotal moment in the evolution of the global trading environment, written off completely, I cheerfully agreed to a slightly sordid deal to split the term with Supachai. Each of us agreed to take three years each."
Source: Mike Moore. A World Without Walls. Freedom, Development, Free Trade and Global Governance. Cambridge University Press. 2003. Pages 93-95.

The Rules for Choosing a Director-General of the WTO

The 1999 contest for Director-General (DG) was contentious. In December 2002 the WTO adopted new rules governing the selection of a DG. These rules are here: "Procedures for the Appointment of Directors-General".

Here is a news story from Bahrain's Gulf Daily News outlining the selection rules: "Four join fray for top WTO posting ".

The selection process begins nine months before the term is to begin. The current DG's term ends at the end of August, and the new term begins at the start of September 2005, so the selection process began at the start of December 2004.

Candidates are to be nominated by member nations within a month of the start of the process. When January began, four candidates had been nominated.

Shortly after the nominations, the WTO General Council is to meet to hear presentations by the candidates. That takes place this Wednesday (January 26) in Geneva. Candidates have a total of three months from the close of nominations to make their case.

The following two months are a period of winnowing out. Voting is a last resort in all this - the goal obtain a concensus for one candidate. The rules say:
    "16. In arriving at its choice, the General Council shall aim to reach a decision by consensus.

    17. The Chair, with the assistance of the facilitators, shall consult all Members, including non-resident Members, in order to assess their preferences and the breadth of support for each candidate. The ultimate aim of the consultation process shall be to identify the candidate around whom consensus can be built. In order to do this, it may be necessary to conduct successive consultations to identify the candidate or candidates least likely to attract such a consensus.

    18. The outcome of the consultations shall be reported to the membership at each stage. It is understood that the candidate or candidates least likely to attract consensus shall withdraw. The number of candidates expected to withdraw at each stage shall be determined according to the initial number of candidates, and made known in advance. This process shall be repeated in successive stages on the basis of a revised slate of candidates each time, with the aim of establishing consensus around one candidate.

    19. At the end of the final stage of the consultative process, the Chair, with the support of the facilitators, shall submit the name of the candidate most likely to attract consensus and recommend his or her appointment by the General Council."
This process of finding a consensus candidate is to occupy the last two months of the selection process (in this case April and May, 2005). There is a General Council meeting currently set for May 26-27.

What does the Mafia charge small businesses in Sicily?

The UK's Independent had a Peter Popham story this week on Mafia account books that have fallen into the hands of the Sicilian police. The books provide a mass of data on Mafia collections from small businesses.

Rafe Champion at Catallaxy has a post on the story, here: "The economics of crime and crime prevention" .

This Wednesday's WTO General Council meeting

The next big event in the race for Director-General of the World Trade Organization (WTO) takes place this Wednesday (Jan 26) in Geneva.

The WTO's General Council meets Wednesday, starting at 10 AM, and each of the four candidates will be given 75 minutes to make their case. Here is an Agence France Presse report (via Campaign for new WTO head heats up

The WTO's General Council
    " the WTO’s highest-level decision-making body in Geneva, meeting regularly to carry out the functions of the WTO. It has representatives (usually ambassadors or equivalent) from all member governments and has the authority to act on behalf of the ministerial conference which only meets about every two years. The current chairperson is Ambassador Shotaro Oshima (Japan)."
Also scheduled for Wednesday evening - a public hearing for the four candidates conducted by a group of NGOs: "Public Hearing for WTO Candidates".

Will Tsunami Donations Reduce Other Charitable Donations?

Daniel Drezer links to articles by Virginia Postrel and Daniel Gross:"The opportunity costs of tsunami aid"

Public Hearing for WTO Candidates

The Trade Observatory reports that a group of NGOs will be holding a "public hearing" for the four World Trade Organization (WTO) Director-General candidates:

    "Question time! Ask the New WTO Director-General

    The WTO is preparing to appoint a new Director-General. There are four candidates for the post of Director-General:

    Carlos Pérez del Castillo of Uruguay
    Jaya Krishna Cuttaree of Mauritius
    Luiz Felipe de Seixas Corrêa of Brazil
    Pascal Lamy of France

    A group of NGOs based in Switzerland have invited the four candidates to attend a public hearing. This is an opportunity to ask each candidate about their vision for the WTO, in particular their views on sustainable development, the Doha negotiations, WTO reform, and external transparency.

    Submit your questions for a public hearing on 26 January, Maison des Associations, Geneva.

    Please send your questions for to Carin Smaller before noon on Monday 24th January, by email: or by fax: +41 (0)22 789 0733

    The hearing is public, and will be held on Wednesday 26 January, from 6.45 – 8.15 p.m., in the Maison des Associations, 15 rue des Savoises, in Geneva. The hearing will be in English.

    As space is limited, we ask that those wishing to participate in the hearing reserve their place in advance, by contacting Carin Smaller, email:, phone: +41 (0)22 789 0724"

Advice on who to pick as the next WTO Director-General

Peter Gallagher offers some advice on who to pick as next Director-General of the World Trade Organization (WTO):"The next Director General of WTO"

Uruguayan Carlos Perez del Castillo has a lot to offer:
    "Judged on technical ability and experience, Carlos Perez del Castillo, the former Uruguayan Ambassador to WTO, probably has the edge over the others.

    He has direct, inside, experience of the management of WTO negotiations at the top level over a long period. He is an economist—who trained in the Australia Bureau of Agricultural Economics at the start of his career—with an excellent reputation as a recent Chairman of the WTO’s General Council. He also has a keen sense of how to manage an issue in the WTO (in 1986 he established a coalition of countries including Australia that later became the Cairns Group) and the administrative experience necessary to run the Secretariat."
The EU candidate, Frenchman Pascal Lamy, raises some red flags:
    "...As a European socialist Pascal Lamy values the order of regulation and the protection of inchoate ‘community values’ above the ‘disruption’ of market mechanisms and ‘individualism’. When Lamy speaks from the heart... he advocates a new class of exceptions to WTO rules to safeguard ‘social choices’...

    His recommendations for “imposing limits on international integration to defend the legitimacy and diversity of social choices” were delivered in a measured way. But they are only a more sophisticated version of an argument against global market integration promoted by anti-trade and anti-globalist NGOs. It’s a policy fraught with ‘moral danger’ since there are no limits in principle to the ‘social choices’ that such a new class of legitimized barriers would protect and every protectionist in the world could be expected to claim its shelter.

    There are already ‘exceptional’ provisions built into the WTO that acknowledge the right of governments to take non-compliant action, when necessary, to secure objectives such preserving scarce resources or national security or even ‘public morals’..."
Read the rest - its well worth the time.

The next step in the WTO race

The lastest issue of the Bridges Weekly Trade New Digest (issued by the International Centre for Trade and Sustainable Development (ICTSD) ) reports on the next step in the race for Director-General of the World Trade Organization (WTO):

    The four candidates to succeed Supachai Panitchpakdi as Director-General of
    the World Trade Organization will address an extraordinary meeting of the
    WTO General Council on 26 January.

    Nominations for the position closed on 31 December 2004. The candidates to
    replace Supachai when his term ends on 31 August 2005 are: former EU Trade
    Commissioner Pascal Lamy, former Uruguayan WTO Ambassador Carlos Perez del
    Castillo, Brazilian WTO Ambassador Luiz Felipe de Seixas Correa, and
    Mauritian Foreign Affairs and Trade Minister Jayakrishna Cuttaree.

    According to procedures agreed by Members on 13 January, each candidate will
    face the General Council for 75 minutes -- a 15-minute introductory speech
    followed by an hour of questions from Member delegations. Each candidate
    will hold a 30-minute press conference immediately after his session with
    the General Council.

    Members are aiming to finish the selection process by May so as to not
    interfere with preparatory work for December's WTO Ministerial Conference in
    Hong Kong.

    ICTSD reporting. "WTO Members to Interview Candidates To Replace Supachai as
    Director-General," INTERNATIONAL TRADE DAILY, 18 January 2005."
Source: Bridges Weekly Trade News Digest. 9(1). January 19, 2005.

Why are there two Latin Americans in the WTO race?

Two of the four candidates running for Director-General of the WTO are Latin Americans: Brazilian Ambassador Luiz Felipe de Seixas Correa and Uruguayan Ambassador Carlos Perez del Castillo.

Southern South America's MercoPress news agency carried a story on a mid-October 2004 meeting between representatives of Brazil and Uruguay in Montevideo to discuss a potential Latin American candidate: "Uruguay and Brazil clash over WTO candidates".
    "Last week Mr. Amorim reportedly underlined that Ambassador Perez del Castillo attitude during the WTO September 2003 conference in Cancun, Mexico, which finally drafed a “non-favourable” document, “did not satisfy several developing countries governments”...

    Mr. Amorim recalled that it can’t be forgotten that Mr. Perez del Castillo opposed the G-20 request to include in the document that for an effective advancement in trade liberalization, “developed countries must first put an end to agriculture government subsidies”.

    The Group of 20 headed by Brazil, India and China, and to which Uruguay does not belong, insisted in Cancun that negotiations for further world trade liberalization were conditioned to the subsidies clause which apparently Mr. Perez del Castillo, then president of the WTO General Council ignored.

    Brazil therefore is sponsoring its own candidate, Brazilian Ambassador Luiz Felipe Sixas Correa."

People who might have run for WTO Director-General, but did not

Since the end of December, there have been four candidates for the World Trade Organization (WTO) Director-General. Prior to December the situation was more fluid.

In late November, ("a portal on Souther civil societies") looked at the range of potential candidates: Choike - Race for new WTO DG gains momentum listed the current four candidates. In addition, it carried speculation about others who might enter the race:

    Canada’s former Trade Minister and WTO Ambassador Sergio Marchi, a developed-country contender, was in the running for the top job, but has since pulled out – as of October 10. Had he remained in the race, though, his bid would have been at a disadvantage as fellow Canadian, Don Johnston, currently serves as Secretary-General of another European-based inter-governmental organization, the Organisation for Economic Cooperation and Development (OECD).


    ...Outside of any possible run by Lamy
    [Lamy, of course, did enter the race - Ben], however, informed sources have suggested that most likely a candidate could emerge from the EU.

    Other Potential Candidates

    Other potential African candidates may yet surface. For example, press reports indicate that Hon. Alan Kyerematen, the Ghanaian Trade Minister, is viewed as a possible candidate. His candidacy has yet to be publicly confirmed.

    Former South African Trade and Industry Minister Alec Erwin - now the Minister of Public Enterprises - has confirmed that he was never in the running for the position, despite rumours to the contrary. “Erwin never offered himself for the candidacy of the Director General of the WTO,” this according to Tshediso Matona, the Deputy Director General of International Trade at the South African Department of Trade and Industry.

    On a more speculative note, Shotaro Oshima and New Zealand’s Tim Groser, WTO Agriculture Chair, have also surfaced in trade circles as likely candidates."
The only person I know of who considered a run, but is not listed in the article, was the Kenyan Trade Minister Mukhisa Kituyi.

Jayakrishna Cuttaree

Mauritius Foreign Minister Jayakrishna Cuttaree is one of the candidates for Director-General of the World Trade Organization (WTO).

Here is a report of an interview with him: "AFP Interview: WTO candidate criticises EU for nominating rival" . He makes the following points:
  • The main goal of the WTO must be development.
  • He is the candidate of the "south."
  • Currently WTO negotiations are a "battle of the haves and have-nots." The developed countries are trying to get developing countries to lower their trade barriers "but refusing to drop massive subsidies of their own." "We have a big problem with the perception of the WTO: that it is the rich countries against the poor. People must feel their concerns are being taken into account," he said.
  • The Europeans shouldn't have put Pascal Lamy forward as a candidate. " "The director of the World Bank is reserved for the Americans, the head of the International Monetary Fund is reserved for the Europeans, and now the EU also wants the WTO," he told AFP in an interview..."
  • It's too early to open African agricultural markets. "Today if you open agricultural markets, that will be to the advantage of developed countries. The Africans don't have roads, they can't respond to the health regulations required," he said..."We must open markets, but there must be a coherence between commerce and development if we want to avoid a situation whereby only developed nations profit."
The ACP is a grouping of African-Caribbean-Pacific countries with preferential trading arrangements with the EU. Mauritius is an island of 1.2 million people in the Indian Ocean - east of Madagascar. The CIA factbook Mauritius page: Mauritius The website of the foreign ministry:Ministry of Foreign Affairs, International Trade, and Regional Cooperation

What's wrong with Pascal Lamy?

Alan Oxley, former Australian Ambassador to the General Agreement on Tariffs and Trade (GATT - the precedessor to the World Trade Organization - WTO) doesn't think Pascal Lamy would be a good choice for head of the WTO: "Who Will Lead WTO?".
    "It is also being put around that a Frenchman in charge of the WTO would be devilishly clever... In the "set a thief to catch a thief" vein, the argument is that a former French senior official will know best how to deal with the French. The Doha Round is running behind time and agreement is needed on the issue the Europeans have most trouble moving on - agricultural protection...

    The whole idea is just too clever by half, just too European. The first flaw is that the French have not been the main problem in Europe on agricultural reform for at least a decade. Chirac always makes the biggest political play against trade liberalization (it always earns votes at home), but it is Germany that is the problem. Germany has many more small and inefficient farmers than France. Furthermore Lamy's background is in trade, not agricultural policy. In Europe, agricultural ministries call the policy shots.

    But there is a bigger and much more serious problem. Lamy is a French socialist. Putting him in charge of the WTO would be like putting the fox in charge of the fowl house. Lamy did a dutiful job arguing in Europe the importance of the multilateral trading system, but you will not find one speech where he extols the virtue and wonder of free trade. All gut free traders do this. They are believers. Lamy is first and foremost a Eurocrat.

    Instead he has made horrible speeches (they are all on his website) about how the multilateral trading system needs to be adjusted so it can advance ideas and values that are fundamentally inimical to the free market - creating the right to use the system to advance command and control environmental policies and to lever access to markets to require countries to adopt labor standards...

    In Lamy's final year as commissioner he issued an astonishing post modernist tract arguing that at times, each member of the WTO needed the "room" to reflect "collective preference" in society to ignore basic WTO trade rules (by blocking imports Greens did not like and ignoring basic rules like treating every trading partner on equal terms). "
Of the others, Oxley says that only Carlos Perez del Castillo of Uruguay is a free trader.

Peter Gallagher reviewed a key Lamy speech this past fall: "Using trade barriers to safeguard 'values' ".

The World Bank, the IMF, and the Asian financial crisis

Kenneth Rogoff reports that James Wolfensohn's World Bank wasn't helpful when the IMF was trying to put East Asia back together during the financial crisis of 1997-98:

    "Another controversial move was Wolfensohn's decision during the 1990s Asian crisis to declare war by proxy on the bank's sister institution, the International Monetary Fund. The bank was understandably peeved at the U.S. Treasury for forcing it to commit a huge share of its antipoverty funds to bailing out middle-income countries like Korea. Unable or unwilling to attack the bank's major shareholder (America) directly, Wolfensohn tacitly launched his troops in a series of wild-swinging attacks on the fund.

    Having the bank slam the IMF was carrying the two sister agencies' usual good-cop-bad-cop, routine too far. The bank not only succeeded in deflecting the ire of anti-globalization protesters onto the fund, it poured gasoline on the flames and caused real damage. This tactic surely did little to advance the cause of poverty relief, as the fund is an institution that overall has done far more good than harm in developing countries. Fortunately, the IMF has finally started to rebuild its image over the past few years, thanks in part to (so far) very successful bailouts of Brazil and Turkey."

Sebastian Mallaby spends a few pages on the Bank's involvement in the Asian financial crisis in his new book on James Wolfensohn's presidency, The World's Banker. Summarizing :

The IMF plays a more important role in addressing financial crises than the World Bank. It has financial expertise that the Bank does not, and it has an organizational culture that allows it to respond much more quickly than the Bank. "But when it came to financial turmoil, the IMF remained the expert. It could parachute into a country and come up with a prescription in a week or two; the Bank took months mulling over its analysis." (187)

Moreover, the Bank's ability to respond in Asia was hurt by Wolfensohn's management style, which led to considerable upper-level turnover. Bank efforts to put together a fast reaction "swat" team were a failure. (190, 192-193)

During the crisis, the IMF took control of relief efforts, shunting the Bank aside. This rankled the Bank. Bank staff felt their expertise was ignored. (187)

Wolfensohn was especially annoyed. The Bank's performance in the Asian crisis contrasted with a Bank triumph early in his tenure: its ability to move quickly to support the peace process in the Balkans. This had impressed the Bank's "principal stockholder," the U.S., represented by the Clinton Administration. The Bank did not look as good in Asia. (191)

Moreover, the Bank was expected to provide a lot of funding for the relief efforts organized by the IMF, without being given much input, or choice. Bank failure to put up the money when requested would have appeared to make it responsible for the failure of a plan to save a country in distress. This really bugged Wolfensohn. (192)

The result was, that the Wolfensohn sought to distance the Bank from the crisis (193-195).

    "The first weapon in this distancing strategy came in the form of Joe Stiglitz, the brilliant and mischievous future Nobel laureate who had joined the Bank as chief economist at the start of 1997...When the Asian crisis got under way, there was a lot of tumbling. The IMF, which had always annoyed Stiglitz by failing to incorporate his economic theory into its models, made a series of errors in the design of its bailouts....Stiglitz could not contain his glee. He lambasted the IMF, focusing particularly on two errors...Stiglitz talked as though the IMF was run by idiots. Wolfensohn allowed him to sound off to the press, blackening the IMF's name just when its crisis-fighting reputation was most precious. From time to time Wolfensohn would rein him in, but then Stiglitz would charge off again, and it was hard to avoid the conclusion that Wolfensohn was quite pleased about his pugilistic rudeness. The boss couldn't say those things himself, of course; and he found it upsetting when his underling got more media attention than he did; but he privately relished the humiliation of the Bank's humiliators..."
Wolfensohn also sought to distance the Bank from the IMF, by publically distinguishing between an IMF function of dealing with the financial crisis, and a Bank function of addressing the poverty incidental to the IMF's efforts (195):
    "...the Bank's billions, he proclaimed, would not be used merely to prop up Indonesia's currency; they would be used to fight the jump in poverty that accompanied the crisis. There was not much substance to this rhetoric, since all money flowing to the Indonesian government would help to prop up the exchange rate, and all money (even money from the cold-eyed IMF) would mitigate cuts in social spending. But as public-relations strategy the Bank's poverty-fighting line sounded just right..."
Sources: Ken Rogoff, "A Final Grade for Wolfensohn." Newsweek, January 17, 2005. Accessed at on January 17, 2005;

Sebastian Mallaby. The World's Banker. A Story of Failed States, Financial Crises, and the Wealth and Poverty of Nations. Penguin Press. 2004. The Asian financial crisis is discussed on pages 183-196.

Mallaby's colleague at the Washington Post, Paul Blustein, also talks about Bank-IMF relations in his book on the crisis, The Chastening. My favorite anecdote from Blustein: even the choice of word processor divided the Bank from the IMF. The Bank used WordPerfect and the IMF used Word; they couldn't exchange files easily.

Mallaby paints a lively, but not highly nuanced, picture of Stiglitz. Blustein is probably better, but not as much fun. Stiglitz makes his own case in Globalization and its Discontents. The Asian crisis is covered in Chapter 4.

Kenneth Rogoff, chief economist of the IMF, responded to Stiglitz's charges in this unusual open letter. Here is an article on the debate from the Financial Times:"The Odd Couple of Global Finance".

How Well Did James Wolfensohn Do At the World Bank?

James Wolfensohn will be stepping down as President of the World Bank in June.

Ken Rogoff, former chief economist of the International Monetary Fund (IMF), the World Bank's sister institution, evaluates Wolfensohn's tenure: "A Final Grade For Wolfensohn"
  • Wolfensohn made the bank much more sensitive to corruption in third world countries.
  • The bank has become less insistent on making loans contingent on good policies in recipient countries.
  • Bank became too prone to follow development "fads."
  • Bank adopted the view that governments in developing countries are in the best position to understand their development needs - but this doesn't take account of poor governance in many developing countries.
  • Wolfensohn was not sufficiently cooperative (waged war "by proxy" on, launched his troops in a series of wild-swinging attacks on") the IMF during the Asian financial crisis.
  • Failed to solve fundamental funding problems faced by the bank.
  • Left the bank a stronger institution than the one he found.
I learned about this from Mahalanobis.

The campaign to replace Wolfensohn is on, and may be followed here: "World Bank President".

1-17-05: minor change in title.

My Grandfather's Racial Views, and How They Changed

My grandfather, Ben Muse, was born in North Carolina and lived in Virginia after 1934. In the 1950s and early 1960s, he worked for desegregation and civil rights. But, he started in 1898 in Durham, North Carolina, with attitudes that were typical of that time and place, and only gradually worked his way to a point where he actively opposed segregation.

Towards the end of his life, he remembered early 20th Century Durham as a city with relatively moderate racial views for the south. The white citizens believed in segregation; they were disturbed by the lynchings from the deeper south. Moreover:

    "The accomplishments of Durham Negroes had attracted some national attention and were a source of pride to Durham whites. The North Carolina Mutual Life Insurance Company of Durham was, as it remains today, one of the largest and most successful black business enterprises in the nation. Yet racial segregation was scrupulously observed. In spite of the presence of distinguished blacks in the town, I often heard it said Negroes were like children, to be treated kindly but "kept in their place."
Matthew Lassiter explains how he moved beyond this point:
    "...Like numerous other white southerners who came to oppose segregation, Muse's intellectual odyssey toward an increasingly liberal and outspoken racial stance involved highly personal experiences and time spent outside the South. In the mid-1950s, as the Brown decision changed the parameters of political discourse in Virginia and the rest of the South, Muse wrote an autobiographical manuscript (which has never been published) detailing the evolution of his own racial views. In this revealing retrospective he vividly portrayed his youthful beliefs in black inferiority and the importance of blacks remaining in "their place." His early view of history, largely influenced by D.W. Griffith's film Birth of a Nation, recognized the evils of slavery while viewing Reconstruction as a tragic era of northern and black aggression justly ended by noble southerners such as the Klu Klux Klan. Muse described how his questioning of these traditional beliefs began during the years he spent abroad in the diplomatic corps, which included cultural interaction with diplomats from African nations. When he was in Paris, he noted, "race prejudice seemed provincial and unsophisticated."

    Muse wrote that by the time he returned to Virginia in 1934, his racial attitudes had changed substantially, but he felt no pressing obligation to challenge the status quo. He employed black laborers on his farm in Southside Virginia during his brief stint in the state legislature, and he recalled that segregation seemed at the time to be "silly...but not outrageous or oppressive." After moving to the northern Virginia town of Manassas in the mid-1940s, Muse interacted with African Americans more frequently and on a more equal basis. Perhaps the most crucial step involved his friendship with Stephen Lewis, a local black dentist with whom he discussed political and racial issues. In hindsight, Muse concluded: "perhaps the best antidote for race predjudice, the clearest X-ray through which a white man can see the foolishness and wickedness of it, is a Negro friend."
Source: Lassiter, Matthew D. "A 'Fighting Moderate': Benjamin Muse's Search for the Submerged South." In The Moderates' Dilemma. Massive Resistance to School Desegregation in Virginia edited by Matthew D. Lassiter and Andrew B. Lewis. University Press of Virginia. 2002. Pages 170-171.; Benjamin Muse. The Twentieth Century As I Saw It. Carlton Press. New York. 1982. Page 15.

Dr. Lewis

After the Second World War my grandfather, Ben Muse, moved to Manassas Virginia and opened up a printing plant.

In Manassas he met and became friends with an African-American dentist, Dr. Lewis. Later he wrote about Lewis:
    "A Manassas experience which had a profound influence upon my thinking and my life was my friendship with Dr. Stephen J. Lewis, a Negro dentist. This was from nine to four years before the Brown decision, another decade before the breakthrough in race relations of the 1960s; and Manassas, though only thirty miles from Washington, was thoroughly southern in its racial attitudes. Dr. Lewis was a highly trained dentist with the best equipped laboratory in town. More than half of his patients were white, but they tried to avoid the embarrassment of being seen talking with him on the street! Intellectually, he was superior to any of the Manassas whites that I met, but a black intellectual was a phenomenon which made whites uncomfortable, and "Doc" Lewis was still a Negro; so they shunned him as far as conveniently possible. The Negro dentist was never seen in a white home and he could not eat in any restaurant in town; he could not have a Coke at any soda fountain.

    Yet Dr. Lewis longed to play a part in public affairs. He accepted the humiliation of sitting on a special bench for "colored" to attend meetings of the county governing board, and at times when there was a pause in the discussion he would rise to express his opinion on some question. Few had a better grasp of the county's financial problems than he, and when he spoke the county fathers listened. Dr. Lewis was courteous and unobtrusive, but he never cringed. A naturally proud man, stockily built and well-dressed, smoking cigars incessantly, except for his color, one would have taken him for a leading citizen. But he suffered more poignantly than Manassas whites imagined.

    In addition to his local practice Dr. Lewis was active in the National Dental Association (the organization of Negro dentists), and editor of its monthly magazine, which was formerly printed in Chicago. When he saw that we were setting up a substantial plant, he brought the Bulletin of the National Dental Association to us for printing. He spent many hours in my office, and there, as our friendship developed, he was intimate and uninhibited. Sometimes he was almost in tears, but basically he was optimistic, confident that before many years passed the American Negro would be recognized as an equal citizen. We talked about many things, including politics, but most of all the slow-moving trend toward enlightenment and justice in race relations. A voracious reader of newspapers, he watched pathetically for any rift in the cloud of prejudice. When he read of the ending of separation of the races in some railway passenger station, or of an attack upon race discrimination by some national figure, he would come to me jubilantly with the news.

    Dr. Lewis died in 1950. When I visited him in the hospital in Washington during his final illness, he was effusively grateful and affectionate. Still dreamng of a Promised Land of human dignity, he last words to me were: "I'll not see it, but it's coming. It's coming - when we'll all be just people."
The initiative in this story belongs to Lewis; he approached Muse, bringing the printing business. It would have been more convenient for him, as editor, to deal with a Manassas printer rather than a printer in Chicago. Maybe he also saw the potential for building a personal relationship on top of the commercial relationship.

Source: Muse, Benjamin. The Twentieth Century as I Saw It. Carlton Press. New York. 1982. Pages 239-241.

Good news from the Taiwan Strait

The Washington Post reports that "China, Taiwan Agree to Direct Flights"

The latest Economist has a survey on Taiwan and notes that Taiwan and China already have extensive business connections.

There is a lot of Taiwanese direct investment in China; the Economist has a figure reporting between two and three billion a year back to 1996.

Moreover, "...Some 300,000 Taiwanese businessmen and their dependants live in the greater Shanghai area...more than 70,000 Taiwanese firms have set up on the mainland..."
    "The capital flow from Taiwan to China is turning the mainland into a global leader in information-technology (IT) equipment, albeit one that still relies mainly on imports for the more advanced components. In 2002, China overtook Japan and Taiwan to become the world's second-largest IT hardware producer after America. The steep upward curve of China's IT exports is almost exactly matched by its imports of IT components from Taiwan. China is now the world's biggest IT hardware exporter to America. Yet more than 60% of these exports are made in China by Taiwanese companies.

    China's latest list of its top 200 export companies is headed by subsidiaries of Taiwanese IT firms: Hon Hai Precision Industry (whose exports from China in 2003 were worth $6.4 billion), Quanta ($5.3 billion) and Asustek ($3.2 billion). Altogether Taiwan has 28 entries on the list, all of them high-tech companies. Far from being undermined by competition from China, Taiwanese IT businesses are benefiting from their production on the mainland, increasing their global market share across a broad range of products, says Nicholas Lardy of the Institute for International Economics in Washington."
Sources: Philip P. Pan and Tim Culpan. "China, Taiwan Agree to Direct Flights. Deal for Lunar New Year Holidays Allows Nonstop Travel for First Time Since 1949." Washington Post 1-16-05. Page A21.; James Miles. "Onshoring." Economist 1-13-05. Accessed at on 1-15-05 (premium content, registration required).

Who will be the next USTR?

The United States Trade Representative (USTR) is the chief U.S. trade negotiator. The USTR is a cabinet level position.

The current USTR, Robert Zoellick, will be moving to the State Department to take the number two job there - Deputy Secretary of State.

Today's Wall Street Journal carried a short squib on potential candidates for the newly-opened USTR position:
    "Gary Edson emerges as contender for trade representative. The former White House economic advisor faces cmpetition from Commerce official Grant Aldonas, a Capitol Hill favorite..."
This Business Week piece has a longer list of potential candidates: "Zoellick Successor Would Face Big Trade Challenges"

Economics Student Jacqueline Passey sees her future

"What economists do all day" Not only do we all do the same thing, we all look pretty much alike.

The Evolution of Australian trade diplomacy

Peter Gallagher had a nice post in September on the evolution of Australian trade diplomacy: "Ideas in Australian trade policy" The ideas that matter differ from country to country. The ideas that matter in Australia:
    "What ideas matter to Australian trade policy? Two of the most influential sources have been: the economic analysis of trade and the Australian experience of multilateral diplomacy."
Towards the end, Gallagher describes the origins of the Cairns Group (of developing and developed agricultural exporters) and the G-20 (developing countries with agricultural concerns):
    "A combination of experience ‘working the room’ in GATT—developing alliances with other small economies—and access to new ideas and data about global impact of inappropriate supply and protection policies in Europe, Japan and North America gave rise to and sustained Australian efforts to create global coalitions of governments from the ‘rest of the world’.

    The Cairns Group of agricultural exporters, created in 1986 with help from some Latin American economists/officials who trained in Australia has been by far the most successful of these. It has inspired some Australian-led spin-offs such as the Global Dairy Alliance and the Global Sugar Alliance driving force behind a groundbreaking and apparently victorious WTO dispute).

    Both the leadership (Brazil, Argentina, South Africa) and strategies of the G-20 have themselves spun-off the Australian-led Cairns Group. Australia’s multilateral trade policy successes of the past two decades—in the Uruguay Round of WTO negotiations and beyond—have faded. The G-20, which emerged in the Cancún Conference, has overshadowed it’s Cairns Group origins and the increasing economic power of giant developing economies (Brazil, India) has secured the new group a role that could well endure longer than the diplomatic ploys of the Cairns Group, provided that it finds a basis for coherence other than opposition to the EU and USA."

Any publicity is good publicity

Craig Depkin has found some interesting data pertaining to Janet Jackson's wardrobe malfunction: "Think Janet Jackson's Wardrobe Malfunction was a Mistake"

Lesotho tossed around by tariff preferences, end of textile quotas

Peter Gallagher reports on the African country of Lesotho, to which a textile industry migrated to take advantage of U.S. tariff preferences, and from which it migrated with the end of the textile quota regime: "Lesotho textile industry shuts down".

Al Hubbard at the Competitiveness Council

President Bush has proposed businessman Al Hubbard as director of the National Economic Council (NEC). The NEC coordinates administration economic policy making and implementation.

Liberal blogger David, at FUGOP doesn't think this is a good idea: "Al Hubbard". The post focuses on Hubbard's activities as director of the Competitiveness Council in the first Bush Administration.

How to help the tsunami victims

Boris Johnson, Conservative MP for Henley in the UK, says "Sri Lanka deserves more than silence - cut tariffs on its bras". Johnson is impatient with three EU minutes of silence for the tsunami victims:
    "...there is one thing the EU can do to help the people of the Indian Ocean that is more important - in the long-term - than aid, and certainly more useful than holding three minutes' silence, and that is to address the continuing injustice to Sri Lankan bras.

    If you are an Englishwoman, the chances are that you wear a bra, and if you wear a bra, there is a very high probability that you bought that garment at Marks & Spencer, and if you bought your bra at M & S it is a racing certainty that your bra was made in Sri Lanka; and if we really mean to do anything about the noble feelings that filled our hearts yesterday, and if we want to save jobs in that disaster-hit country, 54 per cent of whose exports are textiles, then we should lift the tariffs on brassieres, or soutien-gorges, as they are known in Brussels.

    It would be fair to say that the bra tax, or tariff, is not in itself the worst of the evils of the world trade system, but it will do as a symbol of a huge and chronic injustice, which affects Sri Lanka and most of the poorest countries on earth. It is a system by which the West dumps subsidised agricultural produce - sugar is a good example - on third world markets, and so destroys the livelihoods of local farmers."
Read the rest. I learned about Johnson's column from the Global Growth blog. This blog is an outreach service of "Global Growth Org."
    "GGO is a UK based non-governmental organisation (NGO) promoting free trade to raise living standards and reduce poverty worldwide. We focus on the advocacy of lasting solutions to the structural economic, political and cultural causes of poverty."
The GGO's home page is here: Global Growth Org.

Sports Economist gets even better

I enjoy the blog Sports Economist run by Skip Sauer of Clemson University.

Now he's picking up two collaborators, John Palmer of the University of Western Ontario and The Econoclast, and Phil Miller, of Minnesota State University and Market Power. Sauer has chosen well, and a good thing is going to get even better. But I hope both Palmer and Miller will also be able to continue their own, separate, blogs.

How many contributors are optimal in a blog? In general I tend to read blogs with a small number of contributors.

Additional contributors add value for readers by increasing variety and limiting the potential for long gaps in posting. Co-contributors also reduce the burden on individual bloggers.

I find, as a reader, that there are limits to the benefits from more contributors. I tend to value the personality of the bloggers, expressed through the organization and layout of the blog, the choice of topics, and references in passing to the blogger's activities and interests. I tend to lose track of the personalities in blogs with more than two or three contributors. As a result, I find that I don't spend as much time with them as I do on the ones with fewer contributors.

Textile quotas and the furniture industry

Virginia Postrel has been poring through the trade magazines, and she's found an article on the problems caused for the U.S. furniture industry as the textile quotas ended: "Textile Industry vs. Furniture Industry"

The Oklahoma coffin cartel

Oklahoma restricts competition in the market for caskets by prohibiting sales of caskets by anyone but a licensed funeral director, even if the seller doesn't provide funeral services.

The Institute for Justice has challenged this legislation in federal courts. Their web page on the law and the litigation is here: "Oklahoma Caskets". From the Institute's web page:

    "Like nine other states, Oklahoma forbids anyone who is not a licensed funeral director from selling caskets directly to the public. The law creates a cartel in the casket market for the benefit of licensed funeral directors. As members and beneficiaries of that cartel, funeral directors receive an extraordinarily lucrative state-created lock on the retail casket market. Oklahoma’s casket sales laws deliberately shut out potential competitors... who have neither the desire nor the intention of providing any funeral directing services, and instead simply wish to sell quality merchandise at affordable prices to customers who have enough troubles without having to endure the high prices of a government-created cartel when they buy caskets for their loved ones."
    I learned about this from Eugene Volokh, who reports on the litigation:"Economic Liberty" .

    The district court and the 10th Circuit Court of Appeals have upheld Oklahoma's law. An appeal has been filed with the Supreme Court, which has not yet decided to take it up.

    The Brazilian visits South Africa

    Carli Lourens reports from Johannesburg that Brazil's candidate for Director-General of the WTO will visit fellow G-20 member South Africa next week to drum up support for his candidacy: WTO Hopeful to Seek Support in SA"
      "SeixasCorrea is scheduled to meet with Trade and Industry Minister Mandisi Mpahlwa and SA's chief trade negotiator, Xavier Carim, along with other officials early this week.

      SA and Brazil have solid political relations, and both countries are recognised as leaders in advancing the cause of developing countries in international trade talks.

      Both countries were founder members of the Group of 20 an alliance formed to strengthen the position of developing countries on agriculture issues in world trade talks under the Doha development round banner.

      SA has also just concluded a trade agreement with Mercosur, the Latin American trade bloc, giving exporters from both preferential access to each other's markets."
    Source: Lourens, Carli. "WTO Hopeful to Seek Support in SA." Business Day January 10, 2005. accessed at at on 1-11-05. ; G-20 website at accessed on 1-11-05.

    The pros and cons of Pascal Lamy

    The Financial Times surveys the this spring's three competitions to head international agencies: (1) the race to replace James Wolfenshon as President of the World Bank, (2) the race for Director-General of the World Trade Organization (WTO), and (3) the race for Secretary-General of the Organizatoin for Economic Cooperation and Development: "The wrong kind of executive search"

    The next head of the WTO faces a tough challenge:
      "The new director-general of the WTO faces a far more daunting challenge shepherding the Doha round to conclusion. The DG cannot act as a chief executive. Yet greater direction may be needed to prevent gridlock."
    Pascal Lamy has a lot to offer:
      "Pascal Lamy is clearly the frontrunner. The former EU trade commissioner has the political clout, negotiating skill and technical knowledge required to secure trade deals."
    But he has drawbacks:
      "It is unfortunate that Mr Lamy is European (the ideal DG would be a first rate developing world candidate such as South Africa's Alec Erwin) and only recently left his previous post."
    This is what he has to do to win:
      "This is not an insuperable barrier. But Mr Lamy must firmly distance himself from positions associated with him as EU representative, including excessive enthusiasm for expanding the WTO's role in "behind the border" issues such as competition policy."

    Bush picks head for National Economic Council

    The National Economic Council (NEC) was set up by Clinton to provide coordination for economic policy-making and implementation.

    The current director, Stephen Friedman, has resigned. Jonathan Weisman reports in the Washington Post that the Bush Administration has picked his successor: "Bush Picks Supporter as Economic Council Chief"
      "President Bush yesterday selected Indiana businessman Allan B. Hubbard to head his National Economic Council, bringing an old friend and fundraiser to the White House to help guide the administration's economic agenda.

      Hubbard, who raised more than $300,000 for Bush's presidential campaigns, will take over as NEC director and assistant to the president for economic policy from Stephen Friedman, a Wall Street investment banker who resigned from the post late last year. Like the president's first NEC director, Lawrence B. Lindsey, Hubbard was intimately involved in Bush's 2000 presidential run, holding policy tutorials for the candidate and recruiting other policy advisers for the campaign.

      Hubbard could not be reached for comment. But friends and supporters said that, with a president who values loyalty and friendship, Hubbard is likely to be more influential than either Lindsey or Friedman. Hubbard went to Harvard Business School with Bush, and the two have maintained close personal contact for decades..."
    Nouriel Roubini doesn't like the pick at all: "Bush Names Major Fundraiser as Economic Adviser. Can we sink any lower?".

    Should I own, or rent, my kitchen knives?

    If you run a restaurant, says Lynne Kiesling at the Knowledge Problem, you may want to rent them: "Markets for Everything and the "Make or Buy" Decision: The Professional Kitchen" .

    Kiesling's post goes " the heart of one of the core theoretical questions in new institutional economics – the relationship between asset specificity, the boundary of the firm, and vertical integration/contracting out make-or-buy questions..."

    A great post.

    There was another candidate

    There was another candidate for WTO Director-General, Kenyan Trade Minister Mukhisa Kituyi.

    The Foreign and Trade Minister or Mauritius, Jaya Krishna Cuttaree, was already in the race and working for the endorsement of the African-Caribbean-Pacific (ACP) countries, when Kenya surprised the ACP countries with its intention to nominate Kituyi. The Bridges Weekly Trade News Digest reported on December 8:

      "Kenya unexpectedly announced its intention to nominate Kituyi at the end of an African, Caribbean, and Pacific (ACP) group of countries ministerial in Brussels on 29 November - 3 December. Annoyed Mauritian officials insisted that the ACP group was "overwhelmingly behind" Cuttaree's candidacy. However, the nomination of the Kenyan could split the ACP countries. An announcement regarding Kituyi's candidacy is expected by 10 December."
    By the end of the month Kituyi had withdrawn. As Nita Bhalla reported for Reuters on December 21:

      "Poor countries are expected to endorse Mauritius Trade Minister Jaya Krishna Cuttaree this week as their candidate to head the World Trade Organization (WTO), after Kenya pulled a rival candidate, a senior diplomat said on Tuesday.

      African, Caribbean and Pacific (ACP) countries have postponed their endorsement of a candidate for the top trade job for the last three weeks, after Kenya surprised them by saying it would also offer a candidate.

      ACP states had previously agreed that only one candidate would be presented from the 79-nation group, in a strategy designed to win the post when Thai WTO chief Supachai Panitchpakdi finishes his term in August 2005.

      "We have been informed that Kenya's ambassador to the WTO in Geneva and Kenya's ambassador to Brussels have informed both the African group in Geneva and the ACP that they will not present their trade minister Mukhisa Kituyi as a candidate," Ambassador Vijay Makhan, the Mauritian foreign affairs secretary, told Reuters.

      Repeated attempts to contact Kituyi were unsuccessful.

      "We expect the ACP to endorse Minister Cuttaree before the end of this week as their official candidate for the post of the WTO head," he added."
    Cuttaree did get the nod.

    Sources: From the Bridges Weekly Trade News Digest for December 8: "WTO DG RACE HEATING UP: LAMY ANNOUNCES CANDIDACY; KENYAN MAY THROW HAT INTO RING"; Nina Bhalla, Reuters (in the San Diego Union Tribune): "Poor nations to back Mauritius for top WTO job"

    Note: An earlier version of this post referred to the position as "Secretary-General." It is actually the "Director-General." Additional minor revisions 1-12-05.

    Be careful what you test for, you might get it.

    The Battle of Jutland, between the British and the Germans in June 1916, was punctuated by exploding British battle cruisers. Three of them blew up and disappeared, suddenly. In each case almost the entire crew, in each case over 1,000 men, were lost.

    The Indefatigable, last in a line of battle cruisers, was first to blow up. Robert Massie tells what happened:

    "In New Zealand just ahead, the navigating officer looked back at Indefatigable.

      We were altering course to port at the time and it seemed as if her steering was damaged as she did not follow around in our wake but held on until she was about five hundred yards on our starboard quarter. While we were still looking at her, she was hit again by two shells, one on the forecastle and one on the fore turret. Both shells appeared to explode on impact. There was an interval of about thirty seconds and then the ship completely blew up. The main explosion started with sheets of flame, followed immediately by a dense dark smoke cloud which obscured the ship from view. All sorts of stuff was blown into the air, a fifty foot packet boat being blown up about two hundred feet, apparently intact though upside down.
    Stricken, with smoke pouring from her shattered hull, Indefatigable rolled slowly onto her side, all the while driving through the water. Then the huge vessel turned completely over and plunged, taking with her 1,017 officers and men. Only two seamen survived..."

    The British ships blew up because crews had modified safety devices meant to keep fire from hits on turrets from exploding the powder magazines. Devices that might have protected the magazines had been removed to allow ships to fire faster and win gunnery competitions. Massie explains:
      "...There is no evidence that Indefatigable, Queen Mary, and Invincible blew up because German 11-inch or 12-inch shells penetrated their armored hulls and burst inside their magazines. Rather, the almost certain cause of these cataclysmic explosions was that the turret systems of British battle cruisers lacked adequate flashtight arrangements and that, in each of these ships, a shell bursting inside the upper turret had ignited powder waiting to be loaded into the guns, sending a bolt of flame flashing unimpeded down the sixty-foot hoist into the powder magazines. Assuming this to be true, blame lay not with the design of British ships but with the deliberate decision by captains and gunnery officers to discard the flashproof scuttles originally built into British dreadnaughts. The Royal Navy made a cult of gunnery. To win peacetime gunnery competitions, gun crews were encouraged to fire as rapidly as possible. Quick loading and firing required a constant supply of ammunition at the breech of the gun, and thus a continuous flow of powder bags moving out of the magazines and up the hoists to the guns. Safety became secondary; gunnery officers began leaving magazine doors and scuttles open to facilitate movement; eventually, in some ships, these cumbersome barriers were removed. But for this weakness none of the three battle cruisers might have been lost."
    Source: Robert K. Massie. Castles of Steel. Britain, Germany, and the Winning of the Great War at Sea. Random House. 2003. The destruction of Indefatigable is described on page 593. The importance of gunnery competition and the modifications made to the turret structures is described on page 667.

    We think duct tape is good up here in Alaska, too

    You can use different combinations of labor and capital to smooth out the ice on skating rinks: "Home-made Zamboni for the Backyard Skating Rink"

    I got this one from the Econoclast .

    What will Australia do?

    Katherine Murphy reports on the WTO Director-General race in the The Australian : "Canberra may defy ally over WTO job".

    Our story thus far: The current Director-General's term ends August 31. The member nations of the WTO will decide on a replacement by the end of May. When the nominations closed at the end of December 2004, there were four candidates in the race. These are briefly described here: "The race for WTO Secretary-General".

    Murphy reports that Australia is torn between supporting Pascal Lamy, the former EU representative to the WTO, and Carlos Perez del Castillo, the Uruguayan candidate. Perez del Castillo has a special claim on Australia since Uruguay is a fellow member of the influential Cairns Group of agricultural exporters.
      "Cabinet [the Australian candidate - Ben] will consider a formal recommendation from Mr Vaile [the Australian trade minister - Ben] on an Australian-backed candidate late this month or in early February.

      Mr Lamy and Mr Vaile have a good personal relationship built up over several years in their respective portfolios. The Government is understood to have been deeply impressed by the European's pro-reform record on vexed issues such as agricultural subsidies. Mr Lamy is also seen as having the necessary political skills to breathe life into the Doha round of trade talks.

      But if the Government backs Mr Lamy, the move has the potential to cause a serious split in the Cairns Group of agricultural exporters, of which Australia is the leader. Uruguay is a key Cairns Group member, and Mr del Castillo is an important ally of Australia in global trade.

      The leadership of the Cairns Group has already been threatened by the emergence of a new trading bloc, the so-called G20 alliance, formed before the WTO ministerial meeting in Cancun in 2003.

      Australia is concerned not to cause any further rifts within the Cairns Group, with unity essential to achieving genuine reform in farm trade through the multilateral framework.
      Mr del Castillo is also thought to be well regarded by the US. He has considerable diplomatic and bureaucratic skills and experience in global trade.

      The Brazilian candidate is expected to achieve backing from the G20 group as the race for the leadership intensifies in coming weeks.

      Brazil, South Africa, India and China have provided the leadership for the G20 group, which is advocating the farm trade interests of developing economies against the interests of the US and European Union."
    Murphy's story does suggest that Mauritius Foreign Minister Cuttaree has dropped out of the race, but I haven't seen that report elsewhere yet.

    In fact, the Indo-Asian News Service reports on the efforts of the Vice-President of Mauritius to drum up support for Cuttaree at events celebrating Pravasi Bharatiya Divas, or commemoration of Indian Diaspora Day - the commemorations apparently ended Sunday Jan 8 - ("India sought the diaspora's knowledge, not just dollars") :
      "...Similar sentiments [the previous speaker quoted had talked about the potential for citizens of other countries who were of Indian origin to speak up for Indian interests - Ben] were echoed by Vice President Abdool Raouf Bundhun of Mauritius, who said it was a matter of pride that a member of the Indian diaspora was a strong contender for the top World Trade Organisation (WTO) post.

      He sought the support of the Indian diaspora for Jaya Krishna Cuttaree, foreign affairs and international trade minister of Mauritius with roots in India, for the post of director general of the WTO..."
    Note: The race is for the position of "Director-General." An earlier version of this post referred wrongly to the "Secretary-General." Link to Cairns Group added 1-11-05.

    The race for WTO Director-General

    The Economist has a story (dated 1-7-05) on the race for Director-General of the World Trade Organization (WTO): "World trade"

    Here's their comparison of the candidates (remember, these are Pascal Lamy of France, Jaya Krishna Cuttaree of Mauritius, Carlos Pérez del Castillo of Uruguay and Luiz Felipe de Seixas Corrêa of Brazil):
      "...Mr Cuttaree is the foreign and trade minister of Mauritius, a small island off the coast of southern Africa. Mauritius is many economists’ favourite example of how a poor country, with few natural advantages, can make globalisation work to its advantage. Since 1970, when it established an export-processing zone, its foreign sales of textiles and sugar have boomed and its per capita income is now the second highest in Africa.

      But the island’s success is based, in part, on the preferential treatment its exports receive in EU and American markets. If the Doha round ever succeeds, it might erode those privileges by extending them more widely. Mr Cuttaree is thus the favoured candidate of the 56 African, Caribbean and Pacific Island members of the WTO who fear what he has called “the onslaught of unbridled liberalisation”.

      Brazil’s candidate, Mr de Seixas Corrêa, represents one of the new key players in global trade talks. As one of the leading lights of the G20 group of developing nations, Brazil has muscled in on the cosy tête-à-tête the EU and the United States used to enjoy. As a major agricultural exporter, Brazil is also one of the nations with most to gain from an ambitious round that really opens up farm trade. But Latin American support in the WTO will be split between Mr de Seixas Corrêa and his respected Uruguayan rival, Mr Pérez del Castillo, who has already made a name for himself as the author of one of many draft frameworks for the agriculture negotiations.

      That leaves Mr Lamy as the front-runner. As the EU’s chief negotiator, he has often defended the indefensible. The Union’s common agricultural policy remains one of the main obstacles to a successful Doha round. But Mr Lamy will at least have inside knowledge of how far the EU can be pushed. And having devoted so many long nights of negotiation to the round, he must want to see it brought to a successful conclusion."
    Note: The race is for the post of "Director-General." An earlier version of this post referred to the position as "Secretary-General."

    A Weblog on the World Bank race

    Here is a weblog devoted to following the current race for World Bank president: World Bank President.
      " is about… the World Bank President.

      Well, not this World Bank President - James Wolfensohn – who will retire at the end of May 2005. But the next one - the tenth man or first woman to hold the post.

      If normal protocol is followed, the new President will be chosen by George W. Bush as part of a wave of appointments for his second term in office.

      Over the coming weeks and months, we’ll shine a spotlight on the intrigues surrounding the selection process and examine the likely candidates and their track records.

      After the preferred candidate is announced, we’ll be tracking global reaction and following the transition process as he or she moves into office.

      Throughout, we’ll act as a clearing house for all the news as reported by the world’s press.

      We’ll also be passing on as much speculation and gossip as we can get our hands on, while publishing a selection of your thoughts and reaction as events unfold.

      Find out more about who we are and how you can help us make a success…"
    I learned about this from Adam Smithee.

    Toll roads

    Alex Tabarrok reports on road pricing projects in Germany and Texas:"Toll Collect" "In other tolling news, Texas is considering a massive superhighway project that would be privately built, operated, and tolled."

    Comet Machholz

    If you have a clear sky tonight, or the next few nights, don't forget to take your binoculars outside and look for Comet Machholz. It's easy to find. The next few nights it will be a smudge of light, right next to the Pleides.

    If its cloudy, let Kent Budge tell you about life at Palomar Observatory in the late 1980s: "Large gadgets, part II".

    Zoellick on the move

    The New York Times ("Bush to Name Zoellick as Rice's Deputy") and the Washington Post ("Rice Plans to Tap Zoellick as Deputy") report that United States Trade Representative Robert Zoellick is going to the State Department as Deputy Secretary, the number two slot.

    The United States Trade Representative (USTR) "... is responsible for developing and coordinating U.S. international trade, commodity, and direct investment policy, and overseeing negotiations with other countries." The USTR is a member of the cabinet, and "serves as the president’s principal trade advisor, negotiator, and spokesperson on trade issues."

    The Post reports that,
      "Among the people being suggested to replace Zoellick are Josette Shiner, Zoellick's deputy; Gary Edson, former deputy national security adviser responsible for international economic affairs; Rep. Jim Kolbe (R-Ariz.); Grant Aldonas, undersecretary of commerce for international trade; and Robert M. Kimmitt, a former colleague of Zoellick's at the State and Treasury departments and a former ambassador to Germany. "
    How will the turnover in the USTR position affect U.S. participation in the ongoing Doha round trade negotiations?
      "Zoellick has played a major role in jump-starting stalled World Trade Organization talks to remove barriers to the free trade of goods, services and investment. But he has been criticized for focusing much of his energy on concluding relatively modest bilateral pacts with individual countries such as Morocco, Australia, Bahrain, Singapore and Central American nations."
    Sources: Wright, Robin, "Rice Plans to Tap Zoellick as Deputy". Washington Post January 7, 2005. Page A05.; USTR website Accessed 1-6-05.

    Presentations from Hell

    Rafe Champion at Catallaxy reflects on horrible seminar presentations:"Upgrading the efficiency of information transfer at the human to human interface"

    You don't need PowerPoint to do a bad presentation:
      "Everyone has their favorite horror stories of presentations, apart from the above-mentioned conference my other one was the Popper session at the 1989 Christchurch Monty Pelerin Meeting. Three people wrote papers for the session and they were truly excellent papers, even the one prepared at short notice to fill a gap created by the non-attendance of Bill Bartley, who died a couple of months later. The texts of all the papers were distributed to the conference attendees on the first day of the meeting which ran for most of a week. It should have been anticipated that the Popper papers might not have great prima facie interest for the Mont Pelerin people who in their libertarian moods are suspicious or downright hostile to some of Popper’s best known views on social and political issues.

      In the event the speakers made no concessions to the audience, nor to the fact that the session was held after a generous lunch with a long wall of windows down the sunny western side of the room. They were long papers, longer than most people deliver at conferences these days, and the three speakers each stepped up to the lectern, presented the tops of their heads to the audience and read the paper (which everyone was holding in their hands) from beginning to end.

      Suffice to say that elderly libertarians on the western side of the room dropped off to sleep in droves. Surely the appropriate mode of presentation in this situation was to speak off the cuff to the key points in the paper, showing how they related to other papers or other themes on display during the week."

    How to price software

    Joel Spolsky explains how to price software: "Camels and Rubber Duckies". It's not all that simple.

    Via "Newmark's Door".

    The little country that couldn't be bought

    Let's assume you're not a good person. You want to control a small country. You have money and you want to decide how to spend it. How much should go to bribe legislators, how much to judges, how much to newspapers, to TV stations, and so on. How should you allocate your scarce resources?

    Alberto Fujimori was President of Peru from 1990 to 2000. Early in his administration he energized the economy and beat back a terrorist guerilla movement. But he also, early on, began to corrupt its institutions and assert himself as strongman. One of his key allies was Vladimiro Montesinos Torres, the head of his secret intelligence services (the Servicio de Intelligencia Nacional or "SIN").

    We know a lot about how Montesinos worked, because he kept voluminous records, and many of these have become available since Fujimori's regime fell. John McMillan and Pablo Zoido have exploited these records to look at the economics of Montesino's operation. They've published their results in an article in the most recent Journal of Economic Perspectives.

    SIN had its own secret budget. After agency administrative costs were taken care of, Montesinos had about US$1.1 million for other expenditures. SIN also received secret funding from the Ministry of the Interior and the Ministry of Defense. This funding apparently ranged between US$7.1 million and US$9.1 million per year, between 1993 and 2000. He misappropriated other government funds and received money from illegal actvities. McMillan and Zoido also mention CIA payments. One estimate is that, towards the end, SIN had about US$8 million to US$9 million in monthly income.

    With his budget, Montesinos had to run intelligence gathering activities, blackmail operations, and death squads, and pay bribes.

    Montesinos ran a murderous operation, but he didn't murder members of Peru's elite. "...the death squads targeted mostly peasants and students, and perhaps he calculated that using violence against prominent people could backfire."

    Bribes were expensive. McMillan and Zoido estimate that it cost about US$300,000/month to bribe a majority of congressmen, about $250,000 a month to bribe the judges, and about US$3 million a month for six out of the seven available television channels.

    Montesinos kept careful records. Partly because he had to track a lot of transactions, partly because they gave him leverage over the people he bribed. He made over a thousand video records of people accepting bribes, apparently often with the knowledge of the person accepting the bribe. He got receipts for the money. In some cases Montesinos and the persons he bribed signed written contracts (for example Channel 2 signed a contract with Montesinos to give him control over its news broadcasts for US$500,000/month).

    Not all the bribes were paid monthly, but a large proportion were. McMillan and Zoido speculate that the ongoing monthly payments were meant to reduce the potential for cheating on the deal by the person bribed. This would be greater if the person bribed received a single large payment up front.

    Politician's bribes were generally between $5,000 and $20,000 a month (compared to a congressman's offical monthly pay and expenses of about $9,000). Montesinos bribed two more congressmen than he needed for a majority - this reduced the bargaining power of those bribed. There was always someone to take their place if they tried to defect.

    Data on judicial bribes are not as complete as the data for political bribes. "The judges' bribes tend to be lower than the politicians'. The bribe price for Supreme Court and Superior Court judges is mostly US$5,000 to US$10,000 per month, two or three times their official salaries."

    Montesinos spent more each month to bribe newspapers than politicians, and even more to bribe the TV stations (McMillan and Zoido don't discuss radio). Not all newspapers and TV stations received bribes. McMillan and Zoido suggest that Montesinos was particularly concerned about media with large circulation among the masses. Moreover, some outlets may have refused to accept the bribes.

    But if Montesinos was spending about US$3 million a month to bribe TV stations, he was spending about a third of his overall budget (which could have been about US$9 million a month in 2000) on TV. Why so much? McMillan and Zoido have three suggestions:
    • Media owners were richer than politicians and judges. It took more to bribe them.
    • "... the supply of corruptible politicians and judges exceeded Montesinos' limited demand...the politicans and judges had little bargaining power, so their price, as the data show, was relatively low." Individual politicians and judges did not have "hold up" power. But there were only seven TV channels. Each potentially had "hold up" power. The only channel he didn't bribe was a cable channel with a limited subscriber base.
    • Mass media are a crucial part of the national system of "checks and balances." The ultimate check is the people themselves, but the only way they can act together is if they all share the same body of information. The media are essential if this common body of information is to be created.
      "The difference between the news media and the other checks and balances, then, is that the media, informing the citizenry, can help bring forth the ultimate sanction of citizen reactions. There would be little to prevent the government from buying off politicians and judges in the absence of the citizens' oversight. Opposition politics and the judiciary rely on the news media, therefore, whereas the media can be effective even if the other checks and balances have broken down."
    Ultimately, honest opposition politicians got a copy of one of Montesino's bribe videotapes (from his bookkeeper/mistress) and played it at a press conference. The unbribed TV station began to broadcast it, followed by the other stations. The publicity triggered the fall of the Fujimori government. Fujimori fled to Japan where he was given asylum. Montesinos fled to Venezuela but was returned to Peru to face charges.

    There is a tempation to treat this humorously (although McMillan and Zoido are not exploiting this for humor). But the article focuses on Montesinos' subversion of Peruvian elites; he bought them, he didn't tend to kill them. There are numerous funny quotes. There is the bookkeeper/mistress who betrayed Montesinos, Matilde Pinchi Pinchi. There is the stream of bribe videotapes on TV, embarrassing to high and mighty. Always a source of humor. But it is clear from the article that Montesinos ran a murderous organization. He dealt in drugs and guns. He would destroy people if he had to and could. It must have taken considerable moral courage to refuse his bribes, and to work to restore revitalize Peru's democracy.

    Source: McMillan, John, and Pablo Zoido. "How to Subvert Democracy: Montesinos in Peru." Journal of Economic Perspectives. 18(4): 69-92. Fall, 2004. Well worth reading in full.

    "Does it matter that global trade reform erodes tariff preferences?"

    Maybe not, says Kym Anderson.

    Sometimes a developed country, which imposes tariffs on imports, will grant a developing country special exemptions from some or all of the tariffs. The country that gets this special tariff preference enjoys a competitive advantage. The purpose of a tariff barrier is to drive up prices in the country that imposes it. The country with the special tariff preference gets to share these higher prices.

    A key goal of the Doha Round of trade negotiations is to change trade rules to encourage growth and reduce poverty in developing countries. But lower developed country trade barriers reduce the benefits developing countries get from their tariff preferences. The preference has no value if there's no tariff. Isn't this counter- productive?

    Here are Anderson's five reasons why it may not be counter-productive.

    Tariff preferences are often given to some developing countries, but not others. Developing countries that don't get them lose a competitive advantage to those that do get them. Anderson points to a study of European Union banana tariffs and tariff preferences. Countries with EU preferences were gainers. But for each dollar of benefit received by a developing country with an EU banana preference, there was a loss of about a dollar by another developing country that didn't have a preference.

    [By the way, economist Brent Borrell found that the preferences cost EU citizens something over $13 for each $1 of benefit received by the countries with preferences. The implication is that the EU citizens could have given the countries with preferences a grant equal to 13 times the benefit conveyed by the preferences, without themselves being worse off...and without hurting other developing countries.

    Martin Wolf tells the story in this 1999 column: "Going bananas". Wolf notes that "There are only three possible explanations for the regime [the banana regime - Ben]: it is an honest, but foolish, attempt to help the poor; a dishonest, but clever, attempt to help the rich; or a mixture of the two."]

    Point two: The industries that develop in the countries with the preferences have an artificial quality. They require the tariff-preference life support to maintain themselves. They might not be sustainable if developed country priorities change and the preferences go away, even in the absence of tariff reductions. The countries with the preferences aren't exploiting their comparative advantage.

    Point three: Preferences are a one-way gift from one country to another. They don't involve the negotiated mutual trade barrier reductions that are a feature of multi-country negotiations, like the Doha Round. They don't require developing countries to reduce their own trade barriers. Vested interests in the developing countries are protected, but the trade barriers that are retained continue to impose costs on the rest of developing country citizens.

    Point four: Developed country protection may depress world prices for the good in question. If the developing country with the preference only sends part of its exports to the country granting the preference, it may be getting a lower price on its exports elsewhere. It's possible that the "weighted average price for its exports is lower than what it would be under free trade, notwithstanding the benefit of preferential access for some of its exports."

    Point five - "perhaps most importantly": preferences create divisions among developing countries in trade negotiations. Now, not all developing countries will be interesting in seeing developed countries reduce their trade barriers.

    Source: Anderson, Kym. "Agricultural trade reform and poverty reduction in developing countries." World Bank Policy Research Working Paper 3396. September 2004. Accessed 1-4-05. pages 11-13.

    Emerging shape of administration Social Security proposal?

    Jonathan Weisman and Mike Allen report the evidence for the likely shape of the adminsration's upcoming social security proposal: "Social Security Formula Weighed"

    Weisman and Allen expect the proposal to be formally floated in late February or early March. They expect a combination of a shift in the way initial benefits are indexed and the personal investment accounts. This is Model 2 of the Administration's Commission on Social Security Reform. Here is the December 2001 report of the commission: "Strengthening Social Security and Creating Personal Wealth for All Americans". The Congressional Budget Office (CBO) has its July 2004 evaluation of Model 2 here: "Long-Term Analysis of Plan 2 of the President's Commission to Strengthen Social Security".

    Although most attention so far has been directed at the personal accounts, the "technical" indexing proposal plays a crucial role in restoring the fiscal integrity of the Social Security program under Model 2. Robert Greenstein of the liberal Center for Budget and Policy Priorities explains the technical details of the indexing proposal pretty clearly here: "So-Called “Price Indexing” Proposal Would Result In Deep Reductions Over Time In Social Security Benefits". "Adam O'Neill" over at The Lowest Deep also describes the implications of the indexing changes here: "Index Social Security to Wages or the CPI?".

    Is there a Social Security crisis?

    Paul Krugman says no. Here is the short version: "Stopping the Bum's Rush". Here is the longer, but still not too long, version: "Confusions about Social Security" . From the short version (in today's New York Times:

      "That claim [the claim that Social Security faces an imminent crisis - Ben] is simply false. Yet much of the press has reported the falsehood as a fact. For example, The Washington Post recently described 2018, when benefit payments are projected to exceed payroll tax revenues, as a "day of reckoning."

      Here's the truth: by law, Social Security has a budget independent of the rest of the U.S. government. That budget is currently running a surplus, thanks to an increase in the payroll tax two decades ago. As a result, Social Security has a large and growing trust fund.

      When benefit payments start to exceed payroll tax revenues, Social Security will be able to draw on that trust fund. And the trust fund will last for a long time: until 2042, says the Social Security Administration; until 2052, says the Congressional Budget Office; quite possibly forever, say many economists, who point out that these projections assume that the economy will grow much more slowly in the future than it has in the past.

      So where's the imminent crisis? Privatizers say the trust fund doesn't count because it's invested in U.S. government bonds, which are "meaningless i.o.u.'s." ...

      ... the bonds in the Social Security trust fund are obligations of the federal government's general fund, the budget outside Social Security. They have the same status as U.S. bonds owned by Japanese pension funds and the government of China. The general fund is legally obliged to pay the interest and principal on those bonds, and Social Security is legally obliged to pay full benefits as long as there is money in the trust fund.

      There are only two things that could endanger Social Security's ability to pay benefits before the trust fund runs out. One would be a fiscal crisis that led the U.S. to default on all its debts. The other would be legislation specifically repudiating the general fund's debts to retirees.

      That is, we can't have a Social Security crisis without a general fiscal crisis - unless Congress declares that debts to foreign bondholders must be honored, but that promises to older Americans, who have spent most of their working lives paying extra payroll taxes to build up the trust fund, don't count."
    The long version comes from a new issue of The Economists' Voice. This is the first article of a promised issue on Social Security.

    This post from Max Zawicky is worth reading: "That Day Of Reckoning". Zawicky provides a useful figure showing, for the period through 2080, what part of Social Security benefits, measured as a percent of GDP, are covered by payroll taxes, what part are covered by drawing down the Social Security trust fund, and what part are not currently covered at all.

    Zawicky makes that point that the trust fund will be drawn down, and used to fund part of program benefits, by using income taxes to redeem the Social Security trust fund assets.

    Well before the trust fund is exhausted, annual Social Security benefit expenditures will have leveled off. Once the trust fund is exhausted, in 2042, a gap or deficit opens up between currently promised benefits, and the Social Security taxes used to pay them (at current rates).

    We could reduce this deficit by reducing benefits, by increasing social security taxes, or by continuing to use the same income tax revenues we were using to redeem the trust fund assets (or some combination of all of these)

    The different options would have distributional implications depending on who is particularly vulnerable to each tax. But the tax and benefit situation after the trust fund is exhausted could look a lot like the situation before it is exhausted.

    For Zawicky, if there is a problem, it is a problem with the overall federal deficit, that makes it harder to come up with revenues to redeem the trust fund assets and/or fund the gap after the fund is exhausted in 2042 (or later).

    Race for WTO Director-General

    Richard Waddington of Rueters reports on the competition to succeed current WTO Director-General Supachai Panitchpakdi: "Race for World Trade Job Seen Close"

    Panitchpakdi's term ends at the end of August 2005. December 31, 2004, was the deadline for entering the race. The winning candidate will be selected by the WTO General Council at the end of May, and should be ready to take up his duties in early September.

    A smooth transition between Panitchpakdi and his successor should improve the odds for the Doha Round of trade negotiations. These are ongoing, with a ministerial conference in Hong Kong next December.

    The WTO Director-General has little executive authority compared to the leaders of the World Bank or the International Monetary Fund (IMF). The job "...calls more for behind-the-scenes cajoling than decision-making."

    Waddington reports that four candidates are in the running:
    • Felipe Seixas Correa, Brazil's WTO ambassador. "Seixas Correa was spokesman for the Brazilian-led G20 group of developing countries, which also includes India and China...Diplomats speculate that the United States...might be unwilling to see a WTO chief from Brazil, a country with which it has rowed fiercely over farm subsidies."
    • Carlos Perez del Castillo (free registration required), "former Uruguayan trade envoy..former General Council chairman", Perez del Castillo is not tied to "major negotiating blocs within the" WTO, which Waddington suggests may be an advantage.
    • Pascal Lamy, the European Union's representative to the WTO until this fall ("energetic, confessed workaholic".
    • Jaya Krishna Cuttaree, Foreign Minister of Mauritius. "...has the support of more than 50 states from the poor-nation African, Pacific and Caribbean (ACP) group, another bloc within the WTO."
    Note: This post originally referred to the "Secretary-General" rather than "Director-General". fixed on 1-22-05.

    Wolfensohn doesn't expect reappointment to World Bank

    Paul Blustein reports in the Washington Post: "World Bank Chief to Step Down in '05. With Bush's Backing Unlikely, Wolfensohn Plans to Leave Post After Term Expires".

    Wolfenshon, a larger than life character, was appointed by Bill Clinton, and has held the postion for two five year terms. He's the subject of a recent biography by Washington Post columnist Sebatian Mallaby: "The World's Banker: A Story of Failed States, Financial Crises, and The Wealth and Poverty of Nations".

    The head of the World Bank is normally an American, while the head International Monetary Fund (IMF) is normally a European. The second place at the IMF is normally held by an American.

    Blustein reports:
      "The administration is still in the early stages of sifting names of potential replacements for Wolfensohn, but administration sources have said that Washington plans to consult with other member nations and conduct a more "transparent" selection process than in the past, when the decision was made by a handful of top U.S. officials.

      Prominently mentioned as a candidate for the job is Robert B. Zoellick, the U.S. Trade Representative. Other possibilities include John B. Taylor, the undersecretary of the treasury for international affairs; Randall L. Tobias, the administration's global AIDS coordinator; Christine Todd Whitman, the former director of the Environmental Protection Agency; and Carla A. Hills, Zoellick's predecessor during the administration of President Bush's father..."
    My last post on this was "Who will be the next president of the World Bank".

    Open access and common property in curbside parking

    In many Chicago neighborhoods, the city clears the streets, often leaving the cars parked along the curbs covered with snow. If you clear the snow from a curbside parking space - you acquire a property right to it. This system of property rights operates informally and, apparently, effectively. Residents mark their spots with garbage cans, outdoor furniture, traffic cones, etc.

    Fred McChesney describes the Chicago system here: "Snow Jobs". McChesney notes that no property rights are needed in the summer, when there is plenty of parking space, and the parking regime is one of open access. The property rights system emerges during the winter, when curbside parking becomes scarcer. Rights to a cleared space exist "until the snow melts along the curb." The system provides an incentive for private snow removal efforts.

    Neighbors back each other up, taking steps to discourage people from using spaces cleared by others ("Others in the neighborhood—who have undertaken similar excavations and staked out their own spaces—will protect the space for its absent owner. Broken windows, scratched paint, deflated tires and other punishments often follow parking in a space designated by whatever debris marks the excavator's property.").

    The Chicago system is apparently common in many other urban areas. The New York Times carries a story on attempts by Boston's mayor to limit a similar practice :"Boston Mayor Wants Vehicles, Not Cans, in Parking Spaces" :
      "Mayor Thomas M. Menino is giving residents 48 hours after a snow emergency ends to remove their placeholders. After that, sanitation workers are supposed to haul them away...
    The article suggests that Menino objects to the private enforcement effort:
      "It is the second straight year that the mayor has taken on the practice. Mr. Menino calls it an issue of safety and civility, citing disputes that have erupted into violence and property damage, like tire slashing."
    I learned about the Chicago system from Russell Roberts at CafeHayek: "No Free Parking".

    Red, blue, and green/yellow states

    County by county, what do you say when you want a soft drink?

    The survey methodology used here is weak. The map is based on a non-random internet survey conducted at this page: "The Great Pop vs. Soda Controversy". Respondents are shown the map first.

    Thanks to Craig Depkin for the pointer.