Nightcap

Brandon Christensen Links , , ,
  1. Why Hannah Arendt is the philosopher for now Lyndsey Stonebridge, New Statesman
  2. Does IR really have a “culture problem?” Peter Henne, Duck of Minerva
  3. The Kosovo War in retrospect Goldgeier & Grgic, War on the Rocks
  4. The final treasure from the Tolkien hoard? Nick Owchar, Los Angeles Review of Books

Relicts of the past? The current challenges for diplomacy

Alexander Albrecht Comments, Current Events, Liberty , , , , , , , , , , ,

The last few weeks were quite a blast for me: I’ve interned at the German embassy in Rome. A new job in a new city. I thought to process the experiences I made here in one (or a few?) articles.

It’s been quite a rough month for Germany’s Foreign Affairs department. First, Daniel Kriener, the German ambassador in Venezuela, was forced to leave the country after welcoming Interim President Guiadó at the airport of Caracas. Interestingly, although plenty of other diplomats joined him, he was the only one to be declared a “persona non grata” for interfering in Venezuela’s internal affairs. A few weeks later, a deputy speaker of the German Bundestag (who is also a member of the liberal party) demands to expel the US ambassador Grenell for the same offence. Prior, the US diplomat has criticized Germany’s plan to break their promise of contributing more to NATO’s defence budget. Albeit I politically agree with both actions of the diplomats in these cases, they delineate the ongoing structural changes in the diplomacy sector. To illustrate this, I will first provide a theoretical framework to analyze ongoing diplomatic challenges before trying to examine the role of diplomacy in the future.

Principal-Agent Theory and decreasing relevance

I conceive diplomacy as mostly a principal-agent based problem. I believe that many problems in diplomatic negotiations can be traced back to the classic effects of asymmetric information. Since two principals, in this case two states, cannot negotiate with each other directly in most cases, these arbitrations are carried out between various agents. Those agents are of course not always the ambassadors. In a broad meaning, one can apply the principal-agent paradigm to diplomacy by every negotiating process initiated by the state.

Through the lens of the principal-agent paradigm, I perceive the main task of diplomacy to achieve a good negotiating position, for example through an informational advantage. However, due to globalization, state-to-state diplomacy has been drastically weakened. The negotiating game is now mostly carried out within other institutions with lower transactions costs. Two countries want a new trade deal? Just orientate on WTO Rules. Sue another country? Call the International Criminal Court. A few voices made reasonable arguments even for abolishing unnecessary embassies and only keeping the crucial ones. The Trump administration, for example, seems not eagerly committed to fill the around 18 vacant ambassador positions hastily.

Certainly, the globalization combined with the expansion of robust institutions leaves little space for traditional diplomacy as a driving force in interstate relations. This is not necessarily a bad development: As Paul W. Meerts points out, this can be a huge chance for weaker states since negotiating in multilateral rather than bilateral constellations tends to weaken the position of stronger states. Thus, playing out the trump cards in negotiations will be harder for the hegemon. We can currently witness this in the Brexit debate: Even though the strong states, Germany and France, have a vast repertoire of power resources to use as leverage against GB in the negotiations, the can hardly deploy them through EU’s multipolar negotiating structure.

Contrary, there are also recent examples of deploying bilateral traditional diplomacy measures successfully. China’s initiation of Italy’s accession to the Belt Road Initiative (see Tridivesh Singh Maini’s great article here for a quick overview) is a prime example for this. But no other case shows the weaknesses of bilateral diplomacy in a more drastic way: China was able to transpose their tremendous power resources into a deal which heavily favours the Chinese economy. The very ambiguous agreement laid down a strategy of “closer economic collaboration.” The oppositional criticism of the deal coming from the very left and the right is based on economic nationalism and thus misses the important point. Chinese government exerts immense influence on key enterprises like  Tencent, Alibaba, and Badoo: Digital fundamental research topics such as AI were distributed to the firms not through competition but through the state ( I highly recommend Amy Webb’s EconTalk if you want to dig deeper into this.). Once they build sufficient digital infrastructure here in Europe, network effects and technological advantage will come into effect and engender high entry barriers and exit costs. This makes it easy for China to enforce its regulation rather than obeying European ones. Although it is hard to finally determine if multilateral negotiations would have secured a politically better deal, I favour higher short-term transaction cost of multilateral negotiations over the long-term threat showed above.

Embassies as service provider

Of course, taking care of a good interstate negotiation position is not the only task of an embassy. A popular counterargument is that the principal-agent perspective neglects the vital daily business of embassies to help their citizens abroad. Speaking of large and prestigious Embassies though, I estimate that their role as service provider for abroad living citizens will further decline. Most of their maintenance work for citizens living abroad will be redundant due to technological process and further institutionalization. Renewing a Passport, issuing visas and transporting back coffins (yep) are a frequent task, but easy to “source out” to private actors in the future.

But what is the role for ambassadors and embassies then?

This question is where it gets interesting in my opinion. Deeply rooted in international conventions and international customary law, discreet and silent work has been prerequisite for an ambassador. Carefully collecting small pieces of information and building bridges to local actors were the key for a good negotiating position. But as elaborated above, international institutions do the job more efficiently. A new role of ambassadors as advocates for concrete policy measures would be diametrically opposed to international conventions. Based upon the “legality creates legitimacy” premises, a further politicization of diplomacy seems not at present having a majority and thus is unlikely to be buttressed by legal means.

However, if we fall back into a narrative of nationalism, bilateral diplomacy will regain relevance. Otherwise, it will continue to slowly lose importance and eventually wane. Hence, the main challenge nowadays is to look for the right niche for traditional diplomacy – and it seems that it has not been found yet.

Three Lessons on Institutions and Incentives (Part 3): Innovation means creative destruction

Federico Sosa Valle Economics , , , , , , , ,

The concept of creative destruction was popularised by Joseph Schumpeter and assumes that the economy is in a equilibrium. The “entrepreneur,” therefore, is an unbalancing factor that, through innovation, displaces the winners of the prevailing situation until then, generating a new equilibrium. This notion was criticized by other economists such as Friedrich Hayek and Israel Kirzner, who saw that the entrepreneur, far from being a disequilibrating factor, obtained its benefits by identifying the points of disequilibrium of a system and arbitrating between them.

The concept of “creative destruction,” on the other hand, focuses on businesses that go to waste from the irruption of the entrepreneur. This emphasis allows us to understand why there will be those who see with fear or disgust the very idea of ​​innovation. In contrast, Hayek and Kirzner emphasize the benefits of the new equilibrium: greater efficiency in the allocation of resources and, consequently, a greater generation of wealth. The notion of Schumpeter allows us to explain why many oppose innovation, that of Hayek and Kirzner gives us reasons to move forward with it. Strictly speaking, in order for innovation not to cause damage at the aggregate level, it must satisfy the Kaldor-Hicks criterion, that is, the gains from innovation must be so high as to allow a hypothetical compensation to the ones who lost the new distribution of resources.

In short, the notion of creative destruction that both William Easterly and Acemoglu & Robinson use, although it might differs from Schumpeter’s, meets the said Kaldor-Hicks criterion. In these cases, innovation does not represent a social disvalue, but on the contrary it generates a benefit for the whole. Therefore, it goes without saying that any brake on an innovation of this nature generates social loss. At this point, if innovation -also called “creative destruction”- is systematically curtailed, in order to seek to protect activities that would otherwise be displaced, society may encounter the following scenarios: a relative delay (regarding its potential) of its development, or a stagnation, or setback. In all three scenarios, inequality in wealth and income increases, or society sees its standard of living delayed or diminished in a homogenous way. In this last case, the protected sectors are also harmed by the brakes imposed on innovation.

[Editor’s note: Here is Part 2; Here is the entire Longform Essay.]

Nightcap

Brandon Christensen Links , , ,
  1. Brexit and the battle for sovereignty Alex Massie, CapX
  2. Japanese media and its foreigners Elanor Sezer, Japan Times
  3. The most original novelist in America Laura Miller, Slate
  4. The Englishman who saved Japan’s cherry blossoms Claire Hazelton, Spectator

Three Lessons on Institutions and Incentives (Part 2); Institutions: definition and subtypes

Federico Sosa Valle Economics , , , , , , , ,

Implicitly, Douglass C. North, William Easterly, and Daron Acemoglu & James A. Robinson share the same notion of “institution.” In this respect, what must be taken into account is not a real definition of the former but its operative concept, that is, what characteristic features relate it to the rest of the concepts of each theoretical body. In this sense, we can affirm that for these authors an institution is a limiting factor for human interaction. More precisely, in terms of D.C. North, institutions can be defined as abstract constraints imposed on human social decisions that structure political, economic, and social interaction. The rational agent finds limited its action and its spectrum of choices by institutions, which can be derived as much from the law as from custom, his habits, or his moral constraints.

However, the particular limitations that a particular person experiences are not relevant, but those that are incorporated into the behavior of a large number of human beings that interact with each other, which allows them to recognize a structural pattern of human social action. In this way, although an institution limits human action, because it is widespread throughout the social fabric, building it, it allows each individual inserted in such a set of interactions to represent expectations about the behavior of their fellow human beings that have a high probability of being true (something similar to what Friedrich A. Hayek had previously enunciated in his concept of “spontaneous order”). These expectations allow each individual to make plans with a high degree of probability of accomplishment, or at least to identify those actions that could be ruinous. In this sense, an institution is not only a limitation of human action, but, correlatively, a motivator for it, i. e. an incentive. The structure of human interactions that institutions project in the political, economic, and social fields helps the rational agent to make more efficient decisions, since they have a lower margin of risk. Of course, not all the incentives generate the same economic performance.

It is true that any pattern of human interactions that constrains the scope of choices of the agent (i.e., institutions), however inefficient they might be, represent an advantage over the total absence of it, since it works as a hedge against the arbitrary power and violence from third parties. Thus, the main distinction to be drawn is between anomie and institutionalization.

This latter opinion is expressly stated in Why Nations Fail: the extractive institutions -the ones that establish rules that favor a group at the expense of the whole-, both politically and economically, although they are harmful, are less so than civil war, polarization, factions, or anarchy. Acemoglu & Robinson argue that a country that does not have “inclusive” institutions, but at least have extractive institutions, might experience a rapid development obtained from the importation of discoveries from better organized countries – the phenomenon of “catch up.” However, after reaching a certain maturity, if the country in question does not advance towards political and economic opening, stagnation and subsequent implosion will be difficult to avoid.

Here is where the book of Acemoglu & Robinson finds its point of greatest affinity with the work of William Easterly: to continue on a path of growth and development, countries and their ruling classes must be willing to admit that progress only comes through innovation and that all innovation is accompanied by a process of “creative destruction.”

[Editor’s note: You can find Part 1 here. You can find the entire Longform Essay here.]

Nightcap

Brandon Christensen Links , , ,
  1. James Buchanan calling the kettle black David Glasner, Uneasy Money
  2. The war that never ended Patrick Hagopian, History Today
  3. ‘The Mind of Pope Francis’ J Matthew Ashley, Commonweal
  4. Mueller’s done. What now? Samuelsohn & Gerstein, Politico

Three Lessons on Institutions and Incentives (Part 1): Introduction

Federico Sosa Valle Books, History , , , , , , ,

There are books that are aimed at a spectrum of readers that are counted within the “well-informed public.” They are not books confined to academic circles, they are not for mass consumption, but they do concern problems that involve entire countries and are written in a register that involves certain intellectual training. In this genre, there are three works that have much to say about the relationship between institutions and incentives. The first of them dates from 1990 and was published by a Nobel Prize winner in Economics, Douglass C. North: Institutions, Institutional Change and Economic Performance, which elaborates the distinction between formal and informal institutions and incremental and disruptive institutional change, ending with a historical analysis that seeks to explain the differences in economic performance between the United States and Latin America. It is an academic book that can be approached by the said well-informed public.

Eleven years later, in 2001, William Easterly published The Elusive Quest for Growth: Economists’ Adventures and Misadventures in the Tropics. It is proposed as a political essay in which an economist interprets his own professional experience as a member of international teams for the development of Third World countries. To do this, drawing on the theoretical notions of other leading economists, such as Paul Romer (who later, in 2018, received the Nobel Prize in Economics), he makes an assessment on the development plans for the Third World that were implemented since the end of World War II. The central thesis of Easterly stresses that, in order to have an empirical relevance, every theory of development -or of the absence of it- must carry the following behavioral postulate: “people respond to incentives.” If this reality is not taken into account, there is no public policy that can be successful. The main lessons that can be drawn come from the theoretical instruments deployed to explain the political dynamics of most of these countries, particularly in regard to the phenomenon of polarized societies.

The third book to consider is also the more recent publication. Why Nations Fail, by Daron Acemoglu & James A. Robinson, was published in 2012 and reached the global debate on the realm of the well-informed public. The proportions achieved by the population of academics and professionals, in addition to the extension of the internet, allowed the aforementioned book to generate varied opinions along both traditional and digital media throughout the world. Acemoglu & Robinson dedicate their pages to those countries that were successful, as well as those that were not, but also here, in the case of this book, the most juicy lessons truly comes from the conceptual structure that articulates the whole book. Among such notions, we find those of inclusive and extractive institutions, which in turn are divided into political and economic institutions. The worst of the institutions are preferable to the total lack of institutions. Thus, a country organized around a closed political and economic system will be preferable to a failed state. However, once a certain degree of centralization and institutionality has been achieved, it is preferable to move towards a pluralist democracy and a competitive economy. The challenge is how to accomplish such transitions.

Since there are still four years left until the year 2023 – following the periodicity of the selected works – we are still in time to make a brief synthesis of the ideas that can be applied to the analysis of the impact of the institutions on economic and political incentives.

[Editor’s note: this is the first part of a rich series on institutions and incentives. You can find the full, Longform Essay here.]

Nightcap

Brandon Christensen Links , , ,
  1. The strange relationship between virtue and violence Barbara King, Times Literary Supplement
  2. Nixon’s path to peace included bombing Cambodia Rick Brownell, Medium
  3. The suboptimality of the nation-state Branko Milanovic, globalinequality
  4. The threshold of land invasion Nick Nielsen, Grand Strategy Annex

Michel Temer, Brazil’s former president, sent to jail

Bruno Gonçalves Rosi Current Events, Politics , , , , ,

Maybe Brazil is trying to set a record. With Luis Inacio Lula da Silva already sentenced, Michel Temer was sent to jail this Thursday. Temer was Dilma Rousseff’s vice-president and came to power with her impeachment in 2016. Temer is now also one of the prisoners made by Operation Car-Wash, formerly lead by judge Sergio Moro, currently president Jair Bolsonaro’s minister of justice.

Temer’s party, the MDB (until recently PMDB), is known for being a centrist party with little to none ideological leanings. In many ways, it is similar to Mexico’s Institutional Revolutionary Party. In his time in power, however, Temer made a fairly good job. Although not an enthusiast of free markets, he made some reforms that Brazil desperately needs, showing that only really radical people on the left deny that free markets are the way to prosperity. The problem is that Temer’s party is too deeply entangled in private interests (as his prison shows) to go deeper into the reforms the country needs.

The left’s standard narrative is that Temer made a coup in Dilma’s impeachment. Of course, nothing could be further from the truth. Brazil leftists are more and more like members of  Flat Earth Society. Temer was Dilma’s vice-president, and this alone shows that he could not be too far from corruption.

Overall, Operation Car Wash is already one of the greatest blows against corruption in Brazilian history. To have two former presidents in jail might be bad for other countries. But in Brazil, it is a reason to celebrate. The law finally applies to everyone and anyone.

Nightcap

Brandon Christensen Links , , ,
  1. What are the real fault lines diving Americans? George Hawley, Law & Liberty
  2. Beliefs and interests Chris Dillow, Stumbling & Mumbling
  3. Can we trust deliberation priests? Robin Hanson, Overcoming Bias
  4. R. Kelly and mob justice Irfan Khawaja, Policy of Truth

The Institutional Foundations of Antisemitism

Mark Koyama Culture, History , , , , , , , , , ,

Antisemitism has returned to mainstream politics in Europe and America. One fundamental misconception about antisemitism is that it is simply another form of racism. Thus Jeremy Corbyn responds to charges of antisemitism with “ ‘I’ve spent my whole life exposing racism in any form”. But of course, Corbyn is, at the very least, an enabler of antisemitism (and there is evidence he holds antisemitic prejudices himself — see here).

Why is antisemitism different from other forms of racism? And what makes antisemitism unique. When Noel Johnson and I began writing Persecution & Toleration, we didn’t envision antisemitism returning to prominence, but I believe our analysis sheds important insight on the institutional foundations of antisemitism.

Continue reading →

Nightcap

Brandon Christensen Liberty , , ,
  1. How the poor became blessed Pieter van der Horst, Aeon
  2. Learn to love trade with China Deirdre McCloskey, Reason
  3. “Degrowth” in a poor and unequal world Branko Milanovic, globalinequality
  4. Answers from the Sahel Quentin Lopinot, War on the Rocks

Nightcap

Brandon Christensen Links , , ,
  1. Søren Kierkegaard: The blessing of despair Clare Carlisle, Footnotes to Plato
  2. Another Liberty Canon: Kierkegaard Barry Stocker, NOL
  3. The existentialist origins of postmodernism Bruno Gonçalves Rosi, NOL
  4. Another Liberty Canon: Nietzsche Barry Stocker, NOL

The Nonsensical Meaning of Sustainability

Joakim Book Economics , , , , , ,

Along with ‘Inequality’ and ‘Democratic socialism’, ‘Sustainability‘ is one of the words that captures the essence of my generation. A sustainable project, event or business is met with “wow”s and “oooh!”s, an indicator of its owner’s moral righteousness and altogether praiseworthy character.

But its meaning is far from clear from all but its most fervent supporters. Dealing with the extraction of resources, the use of ecological reserves or harvesting of crops, a process is allegedly ‘sustainable’ if the naturally occurring regeneration exceeds the current levels of extraction. Simply put, don’t use more than what is (annually?) renewed. Moreover, a process branded as sustainable usually involve a mix of some other virtue signalling activities of our time: carbon emission neutrality or offsetting; at least a superficial concern for one’s environmental impact; energy produced in ‘renewable’ ways (read: nothing but solar, wind or hydro); or the use of recycled materials.

If this sounds unobjectionable and self-evident to you, this piece is for you. Despite the fancy branding, the SDGs, the fervor of self-proclaimed do-gooders, is the ‘sustainability’ of an activity really what we care about?

There are at least two major confusions with the assessment of activities as sustainable or its despised opposite: unsustainable. First, and most frequently occurring, is the belief that we aim to pursue our current endeavor in the same way for all eternity. If you think about it, the indignant objection of unsustainability is often quite meaningless, worthy of nothing but a ‘so what?’ response; everything we do at any given moment is in a sense “unsustainable”:

  • if I keep typing on my computer I will eventually starve;
  • if I keep lifting weights or endlessly running on that treadmill, I will collapse;
  • if I keep eating this chocolate cake of mine, I will be sick.

So? Everyone who has ever engaged in those activities understand that there are ends to them, that we’re only doing them for a particular purpose for a certain period of time, and that extrapolating snapshots of reality is quite silly; I do not intend to continue this activity until the brink of whatever physical boundary there might – or might not – be. Until I approach some “safe” distance to that brink, I’ll happily indulge in my chocolate cake, lift my weights or type away at my keyboard. In economic speak we are trading off one resource for another, until saturation or the fulfillment of some other aim becomes more important (prime example is Environmental Kuznets Curves).

The other confusion is to believe that economic systems cannot change and that humans cannot adapt. It is emphatically irrelevant that there is a physically limited amount of oil in the ground, since price systems and their incentives effectively ration oil use according to urgently-induced needs and encourage substitutes when those are needed. More importantly, the price system for raw materials incorporate and incentivize technological improvements that 1) through discovering new deposits literally expands “the” amount of resources,  2) shape cost-effective processes to hard-to-access deposits we couldn’t profitably exploit before, 3) improve the bang for our buck, i.e. how much output we can squeeze out of a given quantity of material. Thus, there might ultimately be a physical limit, but not an economic limit.

Let me give an iconic example: chopping down trees quicker than the forest grows. Such an activity seem pretty ‘unsustainable’ since the declining size of the forest implies that one day there will no longer be a forest. So what? There might be urgent present reasons for doing that (say, for instance, no other source of heat/fuel for cooking or no other source of income) that are very likely to change in a fairly short time frame (ie, before complete deforestation has occurred); the current prices of pulp or firewood may be meaningfully higher than their anticipated future prices (‘selling’ off some capital assets would therefore be fairly prudent); there might be future technological innovations that a) (re-)grows forests quicker, b) offers a better substitute to the current use of wood, c) allows us to cheaply make use of more from what we chop down.

Almost any practice taken as a snap-shot in time is literally ‘unsustainable’. Naively believing that they will mindlessly continue linearly into the future is quite silly; hailing processes that don’t as righteous and ‘sustainable’ is similarly silly. Human societies and their economic process are dynamic systems capable of (read: constantly) change.

By saying that something is unsustainable, my generation wants to convey the idea that these activities are immoral and that they shouldn’t continue. It’s a naive and erroneously nonsensical conviction.

Nightcap

Brandon Christensen Links , , ,
  1. That time Russians explored the world via flotilla Yelena Furman, Los Angeles Review of Books
  2. The origins of globalisation can be found in the deep past Daniel Lord Smail, History Today
  3. What it’s like to be a lawyer for the New York Times Preet Bharara, New York Times
  4. Capitalists, not socialists, pose the greatest threat to capitalism Randall Holcombe, the Hill