Can drug decriminalisation become mainstream?
The Summit of the Americas is taking place this weekend and for the first time, alternatives to drug prohibition will be under discussion. This will give Latin American leaders the opportunity to discuss alternatives to prohibition with President Obama.
Latin Americans can see the damage caused by prohibition first hand. Prohibition related violence has led to the death of over 50,000 people in Mexico since 2006. Similar stories can be found elsewhere; in Guatemala the murder rate is 42 per 100,000 people, one of the highest in the world. Some, such as President Felipe Calderon, have sent in the army to fight the cartels. This has led to a huge loss of life with no end to the violence in sight.
During his election campaign, it appeared as though Perez Molina, the current President of Guatemala, was going to go down this path. Yet once elected, he suddenly argued that the war on drugs has failed and that alternatives such as decriminalisation should be considered: "I think it is important for us to have other alternatives. We have to talk about decriminalization of the production, the transit and, of course, the consumption." – Perez Molina
This is extremely significant because it’s so rare for incumbent leaders to challenge the status quo. Ethan Nadelmann, Executive Director of the Drug Policy Alliance, believes this is part of a growing trend in Latin America: “Arguments that were articulated just five years ago primarily by intellectuals and activists, and three years ago by former presidents, are now being advanced, with growing sophistication and nuance, by current presidents. Columbian president Juan Manuel Santos and the new president of Guatemala, Perez Molina, are taking the lead. There is now, for the first time, a critical mass of support in the Americas that ensures that this burgeoning debate will no longer be suppressed.” – Ethan Nadelmann
Whilst this is indeed an exciting time to be an advocate of drug policy reform, there are still many obstacles up ahead. Vice President Joe Biden stated that there is “no possibility” of the current administration changing its drug policy. Some might be disheartened by this news, but simply being willing to discuss the issue represents a step in the right direction. For Obama to meet with Latin American leaders to discuss decriminalisation gives it a sense of legitimacy. There may be no chance of it changing the policy of the United States in the short-term, but it’s still an opportunity for the likes of Juan Santos and Perez Molina to plant some seeds in the minds of other Latin American leaders. They’ve taken the difficult first steps and it will now be easier for others to follow them. If more do follow, the American government may have to soften their stance on the issue.
Wolfson revisited
In December 2011, the Adam Smith Institute asked one of its Senior Fellows, Miles Saltiel, to form a team to compete for the Wolfson Prize for an essay on the best course for the Eurozone if members decide to drop out. He assembled a crew of City professionals and economists, who pored through the law-books, worked up the sums and took the counsel of an international group of seasoned veterans.
It turns out that our entry took a different approach from the shortlisted five, with a pronounced focus on making existing institutions work. One of the finalists has been generous enough to express his surprise not to find himself up against it.
Please click here to see the entry, setting out our analysis and proposals in full. It is offered as a contribution to the debate promoted by the prize, which we see as playing a positive part in adding to public understanding and the formation of professional opinion. Below the fold, we reproduce the one thousand word non-technical summary:
If Member States leave the Economic and Monetary Union, what is the best way for the economic process to be managed to provide the soundest foundation for the future growth and prosperity of the current membership?
We may not have reached a Berlin Wall moment but, if a Eurozone member secedes, policy-makers will be imprudent to continue to rely on theories of “optimal currency areas”; likewise the econometrics supporting them. Neither would withstand the evidence of policy failure. We take it that there are no magic bullets: Germany will not ride to the rescue, as much for lack of means as lack of will. Future Eurozone membership will be the result of a tussle between leaders’ political will (and capacity) and market judgment (if not sentiment).
To answer the Wolfson questions squarely, we offer serviceable proposals to manage adjustment and minimise turmoil. We take a piecemeal approach, going with the grain unless doing so threatens systemic risk. Our approach to economic welfare is similarly piecemeal: we decline an overarching attempt to theorise or forecast on a continental, let alone global, scale. Rather, we put forth proposals to deal with situations as they might arise, together with illustrative calculations.
We have analysed the legal position, the ambiguity of which presents a seceding State with the opportunity to take a strong line in negotiations. Here also our proposals go with the grain. We adhere to legal precedents wherever possible; we enlist the IMF as lead facilitator, making use of their long- standing expertise in the field and subscribing to their well-established processes; we also enlist the ECB as local facilitator, as the body best qualified to lead the EFSF or its successor, assemble other EU institutions, and act as an interlocutor with members. We invoke a standstill at the moment of redenomination to stabilise the immediate situation. We propose a treaty process as best meeting the need for comprehensive resolution. We suggest the use of proven templates for exchange instruments and introduce specific monetary, fiscal, and regulatory forbearance policies to ease adjustment.
Our proposals break new ground where they decline the Paris Club process, so as to cater for EU decision- making institutions. We envisage the ECB waiving claims for official creditor status, to the extent of a haircut and willingness to accept a lower coupon for exchange instruments. Failing leadership and adequate fiscal and monetary easing by the ECB, we propose the formation of “Resolution Funds”. These intergovernmental groups of European and other states would function as ad hoc bank-like bodies, supporting fiscal and monetary easing, facilitating microeconomic reform, and if economics permit, acting as agent to issue exchange instruments supported by defeasance or collateral. We also envisage regulatory forbearance: from the BIS on recognising exchange instruments at par for tier 1 capital for Basel III requirements; from the IASB on the ECB’s treatment of delinquent assets, should haircuts fail fully to reflect impairment; and from jurisdictions governing bond agreements to suppress premature litigation threatening good order.
Our proposals contemplate arrangements to place assets from a seceding State in trust for collateralising exchange instruments, if third-party underwriting or defeasement fails; to alter IMF quotas to incentivise the participation of global capital-surplus States; and to invoke the seniority of treaty law to legitimate secession and the ensuing settlements, as well as to address obstacles posed by capital market instruments to an orderly resolution.
We do not shirk the calculations which lie at the heart of any solution, while mindful of the defects in our own. In particular, macroeconomic modelling is imperfect, with output only as good as the assumptions going in; and specific defects by way of the risk of roseate outcomes stemming from self-righting algorithms and inattention to the banking sector. In our essay we present:
- Estimates for bank contagion;
- Estimates for fiscal and monetary easing, as well as for burden-sharing for different classes of obligors, together with facilitating microeconomic reform for weak seceding states;
- Illustrative budgets for recovery for weak seceding states and balance sheets for the recovery institutions we propose; and
- Model runs for five economic scenarios: an example of a weak seceding State, Greece; and an example of a strong seceding State, the Netherlands. We then address the Eurozone as a whole, where we consider policy continuation, EMU dissolution, and fiscal union; notably, our runs suggest that the first of these is the worst case.
Our piecemeal solution adds up to a comprehensive answer to the Wolfson Prize questions and a pragmatic solution to secession from the Eurozone. We offer it in a spirit of contributing to a debate between contestants for the Wolfson Prize, which we see as playing a positive part in adding to public understanding and the formation of professional opinion.
In December 2011, the Adam Smith Institute asked one of its Senior Fellows, Miles Saltiel, to form a team to compete for the Wolfson Prize for an essay on the best course for the Eurozone if members decide to drop out. He assembled a crew of City professionals and economists, who pored through the law-books, worked up the sums and took the counsel of an international group of seasoned veterans.
It turns out that our entry took a different approach from the shortlisted five, with a pronounced focus on making existing institutions work. One of the finalists has been generous enough to express his surprise not to find himself up against it.
Please click here to see the entry, setting out our analysis and proposals in full. It is offered as a contribution to the debate promoted by the prize, which we see as playing a positive part in adding to public understanding and the formation of professional opinion. Below the fold, we reproduce the one thousand word non-technical summary.
A businessman's prayer
After my optimistic blog this morning, this photo from India is a slightly less positive spin on how things are going in the developing world. (The image comes from a strike by jewelers over a proposed new tax. If only that was the sort of thing we striked about...)
Of cheetahs and good coffee
It's often striking how dim a view of humanity people on the left tend to take. Nowhere is this clearer than when it comes to international development. Poor countries are suffering from a "poverty gap", many claim, which they cannot cross without the West's help. Funnily, the West did not need this kind of help when it grew rich, nor did a decent number of now-rich countries in East Asia. But Africa, we're told, cannot do this.
I was reminded of this wrong idea while reading the story of Andrew Rugasira, a Ugandan entrepreneur whose company, Good African Coffee, has flourished and now supplies supermarkets like Tesco, Sainsbury's and Waitrose. Rugasira set up the first coffee roasting factory in Africa, and business is booming. Though his company has taken some money from USAID (probably inevitable, given the crowding-out effects that this sort of government money has on marginal investment), Rugasira is adamant that trade is Africa's only hope:
“Every society that has prospered has done it through trade and not aid,” Rugasira told Fine when they met in London. Rugasira touched on Asia in recent decades. “Africa will be no different. Charity doesn’t incentivize. It stifles innovation. It causes chronic dependency. Africa’s contribution to global trade is 1 percent. If that were just 2 percent, the increase would bring far more annual revenue to the continent than all the aid Africa receives in a year.”
Indeed. The Ghanaian economist George Ayittey talks about the "cheetahs" of Africa: the new generation of entrepreneurs who are agile, connected to the global economy, and hungry for profit. These are the people using mobile phones to revolutionize finance and other parts of African economies, and side-step the dead-hand states that have held back African development for decades.
The idea of "races in their nonage" needing Western help was used to justify 19th Century colonialism; it has survived, in a slightly different form, in the world of development aid advocacy. This idea was and is utterly wrong. The promise of this generation of "cheetahs" is that the increasingly globalized marketplace may mean that bad governments are no longer a complete road-block to growth: if they "only" severly inhibit it, there is a lot of potential in many parts of Africa.
We should be electrified by these entrepreneurs. They're proving, again, that people don't need government to lift them out of poverty, they just need to be allowed to do the lifting themselves. That's the view of humanity I'm happy to take: that people, above all, are the most valuable and productive things on earth.
Getting better all the time
"Ours is the most dynamic era in human history. The benefits of four centuries of technological and organizational change are at last reaching a previously excluded global majority. This transformation will create large-scale opportunities in richer counties like the United States just as it has in poorer countries now in the ascent.
"Overcome outdated narratives of fear and grasp the powerful momentum of progress in our lifetimes. The prevailing world depression, the enormous anomaly of unemployment in a world full of wants, the disastrous mistakes we have made, blind us to what is going on under the surface—to the true interpretation of the trend of things."
— John Maynard Keynes, The Economic Possibilities of our Grandchildren (Quoted in Philip Auerswald's The Coming Prosperity)
Every little helps
David Henderson quotes Robert Guest's new book Borderless Economics:
When people try to think of ways to ease global poverty, they seldom mention migration. They tend to instead think of things like microcredit. There is nothing wrong with microcredit (the lending of small sums of money to poor entrepreneurs). It has lifted many people out of poverty, which is why Mohammed Yunus, whose Grameen Bank pioneered this approach in Bangladesh, won the Nobel Peace Prize in 2006. Yet, as Mr. Pritchett points out, the average gain from a lifetime of microcredit in Bangladesh is about the same as the gain from eight weeks working in the United States. After doing a quick calculation of the total benefit that Grameen Bank confers on its clients, he asks, mischievously: “If I get 3,000 Bangladeshi workers into the US, do I get the Nobel Peace Prize?
Indeed. I give to Kiva.org regularly and I'm very happy to support the good work they do. Nevertheless, information like this makes me think about how much more effective my money might be. That, and how much richer the world would be if we were more open to foreign people working in our countries.
So: what charity can I give to that smuggles poor people into rich countries?
Blame socialism for conditions in Apple's Chinese factories
There have been some grim stories from Apple’s factories in China, of a spate of fatal accidents and worker suicides at Foxconn plants, which make parts for iPhones and iPads. The news has caused many to accuse Apple of exploiting Foxconn workers. Some say it’s capitalism in action. This is understandable, but wrong.
Like sweatshop workers in China and elsewhere, Foxconn employees endure long hours, low pay and dangerous working environments, but do so because there is no better alternative. In fact, jobs in sweatshops (and Foxconn factories) tend to be massively in demand, because the alternative is worse. It’s not uncommon for a new employee’s first action being to sign up their relatives to the waiting list for new job openings.
It’s easy to recoil from seen evils, while ignoring unseen alternatives that are even worse. No one in the West will ever have to put up with such bad conditions.
If wages and conditions in Apple’s hometown of Cupertino, CA, were as bad, nobody would work there. That people do so in China is because they have no better alternative. China’s economy is growing quickly, but much of it is still grindingly poor, and difficult to do business in. It’s poverty that makes China’s factories such unpleasant places to work in.
Tom Palmer spoke at the ASI on Tuesday, and made the point that poverty doesn’t have to have a “cause” – it’s simply the absence of wealth. This is quite true, but it’s still fair to ask why some places are poor and others are not. I’ve been reading Frank Dikkoter’s superb book Mao’s Great Famine lately. Dikkoter describes in chilling detail how Chinese communism murdered at least forty million people and utterly ruined the country’s economy.
It’s no surprise that China is still very poor compared to neighbouring countries like Japan, South Korea, Taiwan and Singapore. Forty years of brutal socialism under Mao’s Communist state halted China’s development, and decimated institutions crucial for wealth creation, like strong civil society and the rule of law.
The exception, of course, is Hong Kong, where conditions and wages are much better than on mainland China – not because of a bigger government, but because of greater wealth caused by freer markets.
I don’t think Apple should be blamed for the conditions in their factories, exactly, but that doesn’t mean that consumers are powerless to improve them. Apple has already brought in the Fair Labour Association, an independent body that certifies that working conditions meet a certain standard in a workplace. This will impose a premium onto the cost of Apple products, but as long as people are willing to pay it, it’s a good way of circumventing the slow climb out of poverty.
In other words, the problems with Foxconn and other Chinese factories are problems with poverty itself. In the long run, investment by firms like Apple in poor countries will raise the quality of life in those places, but market mechanisms like Fair Labour Association ratings can reduce some of the worst bits of poverty. But Foxconn-like conditions will only be history when the rest of the world is as rich as we are. It’s markets that will do that.
Kony2012 and the dangers of Youtube fauxtivism
By now you’ll probably have heard of #Kony2012, a social media campaign that exploded on Facebook, Twitter and Youtube yesterday. The campaign centres on a video documenting the crimes of Joseph Kony, a Ugandan warlord who heads the Lords Resistance Army and is said to have overseen the abduction and press-ganging of over 60,000 children into his militia.
The campaign has been remarkably successful – the Youtube video now has over twenty-five million views after two days, an astonishing feat for any 30-minute long video, let along one about a central African civil war. However, as is so often the case with this sort of pop activism, not all is as it seems.
This blogpost has been circulated around the internet, highlighting some of the biggest problems with the the group behind the video, Invisible Children. Invisible Children has come under fire again and again for its finances. Redditor mariod505 has already pointed out some serious problems with Invisible Children's accounts. Of its 2010/2011 total expenditure of $8.9m, only $2.8m (or 31%) actually went to their charity programme. Other expenditures include a whopping $1.1m in travel expenses and $1.7m on US employee salaries. The three co-founders of Invisible Children were paid a total of $262,287 in 2010/2011 (or around 3% of IC’s entire budget).
More concerning still are Invisible Children’s overall message and goals. Their website says that they want to “use the systems, influence, and resources of the United States to expedite an end to the conflict”. What does this mean, exactly? In a blogpost that Invisible Children deleted yesterday after it was pointed out, they say:
“However, when speaking of pure pacifism, we disagree. Invisible Children believes in the usefulness of strategic intervention in humanitarian crises. To ignore this is to allow another Rwanda. “If you are neutral in situations of injustice, you have chosen the side of the oppressor.””
Invisible Children spends over half a million dollars on DC lobbying, including calls for military intervention in the region. It overtly supports the Ugandan army, which the UN accuses of committing serious war crimes in the Democratic Republic of Congo. Uganda itself is an effective dictatorship under the corrupt Yoweri Museveni. Kony is undoubtedly an evil man, but he is not the lynchpin of Central Africa’s troubles. If he died tomorrow, very little would change – making him the focus oversimplifies to the point of confusion.
The photo at the top of this post is of IC’s three CEOs in 2008, posing with members of the Sudan People’s Liberation Army (source). At the time, the SPLA itself used child soldiers and it is known for its practice of using rape as a weapon to subdue local populations.
As is so often the case when Westerners try to fix places they know little about, it looks very much like Invisible Children’s CEOs have attached themselves to one group of brutal thugs so that they can feel good about opposing another group of brutal thugs.
That Invisible Children is a shady group seems, to me, indisputable. Some argue that this isn’t relevant, that “raising awareness” of Kony is a good enough end in itself. If it means people "liking" a Facebook status and moving on, fine, although it won't do anything. But if it means more money for Invisible Children’s lobbying, and results in a hubristic military intervention in Uganda (and, indeed, there is already a government e-petition calling for interventions in four African countries), this campaign will have done a lot more harm than good.
How the EU really sees the world
Above is an advert released by the EU today, making the case for more EU enlargement. It was pulled almost immediately, and you can see why. The advert inadvertantly exposes the worldview at the heart of many EU types: one that wants a Fortress Europe, closed off from nasty foreigners in Asia, Africa and the Americas. It's hard to see how any internationalist could defend the EU.
Critics of the EU are often accused of being "Little Englanders". In the light of rhetoric like this from the EU it's clear that the mindset behind the EU itself is little more than Little Englanderism writ large across the continent — still preoccupied with keeping out scary foreigners and closing Europe off from alien cultures. If the EU is offering an insular Europe that demonizes and builds walls against foreigners, I would turn it down. There's a whole world out there to trade and engage with.
A private schools revolution in Bihar, India
Recent research carried out by the India Institute and Newcastle University's E.G. West Centre in the Indian city of Patna has produced some remarkable findings. The report, The Private School Revolution In Bihar, India, launched this week in New Delhi, and shows that government statistics are currently excluding three quarters of the schools in the city and 68% of school children. This means that 238,767 school children out of a total of 333,776 were missing from the official data.
Instead of the official 350 schools, the research located a total of 1,574 schools with 78% identified as private unaided, 21% government and 1% private aided. Therefore, approximately 65% of school children in Patna were attending private unaided schools, with just 34% attending government schools. According to Professor Tooley, "when plotting the location of 1,182 private schools and 111 government schools using GIS technology, we found that there existed hardly a road or a street in Patna without a private school”.
Based on the monthly fees being charged at each private school, the research also found that 69% of private unaided schools were low cost, 22% were affordable and only 9% higher cost. In other words, the vast majority of private unaided schools found in the city of Patna were low cost, charging fees of less £4 per month.
These findings have two important implications. First, if these findings reflect the real state of education across India and developing world, then the so called ‘global education crisis’ is much less of a crisis than previously thought. Instead, the widespread under-reporting of the number of children in school may now be a deliberate policy of developing country governments to help attract more international aid.
Second, Article 18 of the 2009 Right to Education Act in India requires that all unrecognised schools in the country be closed down within three years of the Act coming into force. For the city of Patna this would involve forcing two thirds of the city’s children out of school and onto the street – all because of government legislation which is supposed to be increasing school enrolments and not dramatically reducing it.
Thankfully, it would appear that the Bihar Education Minister P.K. Shahi has already read the report. Last Saturday he declared that “I can assure that the government will not implement the Right to Education Act in Bihar and will not force private schools to follow rules under it.” I suppose the people of Bihar should be grateful to their Education Minister for not shutting down the majority of their schools. However, this does make me wonder – do politicians around the world have any kind of positive impact on the education which children receive, or are they all bent on disrupting and distorting its natural growth and development?
