Some lessons from Brazil

Jair Bolsonaro has been in government for almost six months now. I believe I can proudly say that I saw this coming before many people: Bolsonaro would be the next president in Brazil. However, he might not be the best person for the job.

In my assessment, Bolsonaro is not the usual politician. As John Mearsheimer brilliantly observed, politicians lie. A lot. It should be a given: dogs bark, cats climb on trees, and politicians lie. Bolsonaro, as far as I can tell, doesn’t. And that might be part of the problem: he always speaks his mind. Nothing is concealed, even when strategy might call for that.

In the past week, Bolsonaro sent an open letter to some of his followers (not written by him) manifesting how hard it is to govern Brazil. The letter sounds like a vent for the president’s frustration: “You Either Die A Hero, Or You Live Long Enough To See Yourself Become The Villain”. But what Bolsonaro means by all that is not clear. For all sorts of reasons, corruption is a living part of Brazilian politics. Actually, of politics in general, just a little more down there. So why the president sounds surprised by that?

Some people in the press speculated that Bolsonaro plans a coup. Call that it is impossible to govern with the current congress and just close it. To be sure, that is not unthinkable, and Brazil has historical precedents for that. But that doesn’t sound like something that Bolsonaro would do. Sounds more like that he is trying to bypass Congress and govern with direct popular support.

Brazilian congress is fabulously corrupt, and Bolsonaro still enjoys great popularity. Maybe he wants to use that to press Congress for the changes Brazil needs. In any case, it is a good opportunity to remember some lessons: power corrupts and absolute power corrupts absolutely. Or, in other words, if men were angels, we wouldn’t need government. And if we were governed by angels, we wouldn’t need checks and balances. But we are not governed by angels. Therefore, checks and balances are necessary. The downside is that this makes the government slow when important changes are necessary. The temptation is to close democratic institutions and just do things the old fashion way: through a dictatorship. I don’t think that is where Brazil is going right now. But it’s important to remember that we need way more than a president. We need people who really understand and appreciate freedom. An uneducated people on these matters will always grow impatient and vote for an easy solution.

Nightcap

  1. The Other Zionism Joel Cabrita, History Today
  2. American Jewry’s Trump Virus Michael Koplow, Ottomans & Zionists
  3. A civil war centuries in the making Asher Orkaby, Origins
  4. Is Mexico a tragedy? Shepard Barbash, City Journal

Three Lessons on Institutions and Incentives (Part 4): Institutions and the Rule of Law

Daron Acemoglu & James Robinson call the set of regulations that obstruct innovation “extractive institutions.” Of course, here again, extractive institutions are less harmful than the total absence of institutions. Not every change in the status quo can be interpreted as “creative destruction” or “entrepreneurship.” As Friedrich Hayek pointed out in Law, Legislation and Freedom, so that the most mutually compatible plans can be carried out, it is necessary that a well-defined set of expectations be systematically frustrated: the usurpations, the frauds, collusions, the paramilitary bands, etc., etc. The main thing is to have institutions that guarantee a minimum of order. Now, many times the institutions manage to be put into effect as a result of having the consensus of a certain number of interests that see in the law an opportunity to extract benefits. It is the distinction between Acemoglu & Robinson between the already mentioned “extractive institutions” and “inclusive institutions.” The latter are constituted by that set of rules that formally are equal for all and that materially protect private property, the value of money, competition understood as freedom of entry to markets, among other values ​​of modern capitalism.

The distinction between extractive and inclusive institutions can find its parallelism in the expressions of “Rule by Law” and “Rule of Law.” The first consists on the accommodation of general and abstract normative statements with a second intention: to benefit a group at the expense of society as a whole. It is common to hear the criticism that the law has a false neutrality and that therefore any defense of the “Rule of Law” must be ideological (in the Marxist sense of the term). However, what distinguishes the concept of “Rule of Law” from “Rule by Law” is that, for the first of the terms, the consequences are unlikely to be predicted in terms of their particular and even more individual, while the second has an intentionality, declared or hidden.

To give an example, the procedural due process has such a degree of abstraction that it can hardly be predicted who will benefit from those proceedings. However, a law that prohibits the importation of a product of domestic manufacture clearly aims to redistribute resources from consumers to the local producers (although this type of regulation usually also generates consequences that are very difficult to foresee and often contrary to its original intentional).

Critics of the Rule of Law state that it is not neutral, because it protects exclusively the interests of the proprietors. However, such criticism loses sight of the fact that in the Modernity, any inhabitant, even those who are not citizens, can have access to the right to property, regardless of whether or not they belong to a certain caste, class, or social class. This, unlike the legal and political systems of the so-called Ancien Régime, which limited access to private property in perpetuity and irrevocably to a certain group of people, or even more, to a certain clan or group of families. It does not matter if, in Modernity, a person does not own any particular good, as long as he can count on the expectation of being able to become one at some time. In this sense, private property understood in the modern sense as that right that any inhabitant can enjoy from having stability in their possessions to the point of only being stripped of it by their own consent or by following the procedural due process.

This unlike laws protecting infant industries, professions or trades, or promotion of certain activities that are deemed as socially necessary or valuable, which establish a regime of transfers of resources from one sector of society to another. As the School of Public Choice indicates, such laws encourage “lobbying” and reduce the efficiency in the allocation of resources. In such institutional arrangements, individuals and businesses do not prosper through the discipline of serving the consumer, but through political agreements. Economic agents continue to maximize, but at the expense of regulations that deliberately establish certain winners (the owners of protected activities) and certain losers (consumers and potential producers who are denied access to protected activities). Under these circumstances, the citizenry begins to perceive an arbitrary sense in the norms and have no moral issues with challenging them (any contraband, without commercial purposes, is a clear example of this). Obviously, when non-compliance with standards becomes so extensive, regulations become ineffective. Moreover, as James M. Buchanan put it in his brief essay “A policy in the interests of producers,” the stagnation generated by protectionism means that the winners of such a system – the protected producers – turn out to be less rich than they would be in an open and competitive institutional framework.

Sometimes protectionism seeks its foundation in a mistaken theory of “original accumulation.” (Joseph Schumpeter ruled out the validity of such proposals by pointing out that, although those could have had some basis until the 19th century, the development of capital markets made this theory completely obsolete.)

However, neither Douglass North, nor William Easterly, nor Acemoglu & Robinson, deal with the problem of original accumulation. They prefer to encompass such phenomena within the set of erroneous theories that serve to justify policies arising from political agreements in polarized societies. This means that a certain institutional arrangement, an economic growth policy, a stabilization program, a constitutional reform, foreign policy and so on, in a polarized society is not inspired by abstract and formal principles but in concrete goals that benefit certain sectors of society above others.

The examples of polarized societies, to which Easterly and Acemoglu & Robinson turn, come mostly from African countries since these are mostly created in the process of decolonization and comprise different ethnic groups and languages ​​within themselves, so polarization is much more evident: certain policies benefit a certain ethnic group over another. Easterly specifically cites the case of an African nation in which an ethnic group that represents 10% of the population lives in the region where a certain commodity is produced and whose export generates large revenues and, in the meantime, the government is elected, with some exceptions, by 90% of the remaining population, which imposes export rights on the said commodity, whose collection is destined to industrialization plans that systematically fail.

It is often tempting to explain the failure of such industrialization plans for the corruption evidenced in their execution. In fact, corruption cases are verified, but public policy would also fail even if those involved were incorruptible. Many times bad policies destroy much more wealth than political corruption. Corruption implies a transfer of resources and, therefore, an inefficient allocation of resources, while bad public policies result in the destruction of wealth.

However, examples of polarized societies in African countries can generate confusion around the main message of The Elusive Quest for Growth and Why Nations Fail. The economic performance of nations has nothing to do with geography, culture, or lack of preparation of the ruling elites to draw the plans of government. Easterly holds the main responsibility for the rise and fall of nations in incentives, while Acemoglu & Robinson point to the institutions that establish such incentive schemes. Regarding the opinion of Douglass C. North, although his line of research can lend itself to a “culturalist” interpretation, he himself recognizes the disruptive change of formal institutions as a determining factor of economic performance.

In summary, the three works discussed here have as a common denominator the role of incentives as a determinant of the economic performance of countries, above culture (which North would call “informal institutions”), geography, or the level of education of its elites. However, the case of polarized societies is presented as a critical point of such approaches.

José Luis de Imaz in Los que mandan (The ones who command) had defined politics as the activity consisting of articulating diverse interests according to a coherent plan of government. The definition of Imaz deserves to be put back into use, since it addresses the problem of polarization and also because its double edge allows to tie the loose ends left by the visions that we can group, with greater or lesser precision, under the “neo- institutionalist” (clearly the case of North, although it would be pending to discuss the label for Easterly and Acemoglu & Robinson).

Notwithstanding, that polarization is manifest in tribal or caste societies does not mean that it is not present in other societal forms. In the United States, the north and south; in Europe, the separatist movements; in Argentina, the interior and Buenos Aires. With greater or lesser intensity, manifestly or latently, politics is always structured on a space of tension of interests in competition for resources. Those who frequent the work of Carl Schmitt often claim that trade and law are “civilized” means for the exchange and dispute of such resources, politics and war are on the other side of the same question in terms of intensity of the conflict.

However, the term institutions – which define incentives – does not refer only to deliberate political agreements in pursuit of a specific purpose, such as a given public policy. The concept of institution also concerns a series of abstract and general principles whose final result at a particular level no one can foresee, because their level of abstraction imposes an insurmountable limit for the knowledge of its concrete consequences.

[Editor’s note: Here is Part 3; Here is the entire, Longform Essay]

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

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

  1. The two afflictions that enhance the challenge for returning vets David French, National Review
  2. The varieties of Muslim faith become a vital form of diplomacy Bruce Clark, Erasmus
  3. How the Inkas governed, thrived and fell without alphabetic writing Christopher Given-Wilson, Aeon
  4. Qatar’s progress on its improbable World Cup David Conn, Guardian

How will Imran Khan’s electoral triumph affect Pakistan’s relationship with China?

All eyes are on how Imran Khan will fulfill the ambitious promises which he and his party (Pakistan-Tehreek-i-Insaaf, or PTI) have made for creating a ‘Naya Pakistan’ (New Pakistan). Khan, who will take his oath as Prime Minister on August 11, 2018, needs to hit the ground running given the myriad of economic (Pakistan’s external debt is well over $90 billion, and accounts for over 30 percent of the country’s GDP) and geopolitical challenges. As Pakistani senior officials were drawing up plans to approach the IMF for a loan (estimated at $12 billion), US Secretary of State Mike Pompeo warned the IMF that there is absolutely no justification for ‘IMF Dollars’ to bail out ‘Chinese bond holders’ or China.

Given the high expectations as well as the impatience amongst the youth, Khan is not likely to have a very long honeymoon period.

Pakistan-China relationship under PTI government

It will be interesting to see how the crucial Beijing-Islamabad relationship pans out under Imran Khan. During his first address (after his party’s victory) to the Pakistani nation, he dubbed the Pakistan-China relationship as the most important for Pakistan. Khan also emphasized the point that Pakistan had a lot to learn from China in the context of poverty alleviation, as well as the latter’s anti-corruption campaign.

China’s relationship with Imran Khan

In the past, Khan, while supporting the China-Pakistan Economic Corridor (CPEC) project in principle, had expressed certain apprehensions during his meetings with Chinese diplomats. Khan had also stated that the government of Pakistan needs to be more transparent with regard to the contours of the project, and that each province should get it’s rightful due.

The Chinese in turn were uncomfortable with Khan’s dharna (protests) of 2014 (it was as a consequence of these protests that the inauguration of the CPEC Project had to be delayed). Khan’s 2016 protests against the Nawaz Sharif government (after the names of three of Sharif’s family members, who held offshore accounts, appeared in the Panama leaks) were also watched with skepticism by the Chinese.

It would be pertinent to point out that the PTI manifesto, while praising the project, has pointed to some of CPEC’s short comings, including investments as a consequence of ‘insufficient transfer of knowledge and capabilities, fewer partnerships with local businesses and Pakistan’s high dependence on imports of goods and services from China’.

PTI’s chief rival, the PML-N, often spoke about the need for an independent foreign policy, but never ever alluded to this aspect.

Beijing’s preference for PML-N

It would also be pertinent to point out that while Beijing has had problems with Pakistan, it has had a close relationship with the Pakistan Muslim League (Nawaz), or PML-N. Beijing, which has maintained robust relations with the army, also shared cordial relations with Shehbaz Sharif, the President of PML-N and former Chief Minister of Punjab. China has praised Shehbaz Sharif for his efficiency more than one occasion, even referring to his style of working as ‘Shehbaz Speed’ and Punjab speed. When Shehbaz was appointed President of the PML-N, he received a congratulatory message from senior members of the Chinese Communist Party.

The PML-N also sought to take credit for the CPEC project on more than one occasion. In August 2016, while addressing a meeting of his party’s parliamentary committee, then-Prime Minister Nawaz Sharif stated:

He [Xi Jinping] said this is a gift to you from China. They were also waiting for the time when our government would be in power so that they could make this investment.

Chinese Media’s comments on Imran Khan and CPEC

Post the election results, Chinese media has sought to be positive, and has been confident that the CPEC project will go ahead as planned. One op-ed published in the Global Times (‘Will Imran Khan pivot Pakistan from US to China’) referred to how the West was creating unnecessary paranoia with regard to the economic ramifications of the CPEC project. The op-ed also said that Imran Khan may take Pakistan further into the ‘Chinese orbit’ and that he had no problem with the CPEC project. The article cites the PTI manifesto to bolster its argument (saying that PTI has dubbed the project as a ‘game changer’). Other sections of the Chinese media have also welcomed Imran Khan’s election. Only one analyst, Tom Hussain, has categorically made the point that PTI had strained ties with China in the past. Said Hussain:

the PTI has been working overtime to repair its relations with the Beijing, which had been damaged by its disparaging remarks and allegations of corruption about CPEC projects in the past.

Likely developments in the short run

Imran Khan doesn’t have too many options, but there could be some re-examination of some of the CPEC projects. While Pakistan is now dependent upon China given Islamabad’s rock bottom ties with the US, the question on many people’s minds is if Khan can do a Mahathir (Malaysia’s Prime Minister), where maintaining good ties with China does not mean shying away from questioning the financial feasibility of certain projects within CPEC.

In the short run, this is impossible, and many would argue that even in the long run this may seem like nothing but a pipe dream. Yet, if Imran Khan can harness relations more effectively with neighbors (as he emphasized in his speech) and build a robust economic relationship with India (something which the Chinese may not mind), we could witness a course correction. One of the reasons why Nawaz Sharif advocated good ties with India was so that Pakistan could develop an independent foreign policy and end its dependence upon the US. One of Sharif’s slogans in 2013 was ‘Trade not Aid’. While Imran himself has spoken about trade ties with India, will the establishment allow him to go ahead.

Changing geopolitical dynamics in South Asia

If one were to look beyond economics, even in the context of Afghanistan, one of the significant developments in South Asia has been a decision by India and China to work jointly in Afghanistan. It remains to be seen how Imran Khan’s government perceives this. India and Pakistan are also likely to participate jointly in anti-terror drills in Russia, in August 2018, under the umbrella of the Shanghai Cooperation Organisation (SCO).

Conclusion

It is very tough to predict how Imran Khan handles ties with China, but one thing is for sure: Beijing may publicly be welcoming Khan’s election but from the opinion pieces in the Global Times, there is a worry deep down concerning his maverick nature. Imran, unlike the Sharif’s (who were businessmen), may not be as transactional in the economic sphere. His economic ideology is left-of-center (with a strong thrust on welfare). While he needs foreign direct investment, he is not as obsessive about mega projects as the Sharif’s.

Imran on his part will have numerous challenges to contend with, and needs to strike a fine balance. A less hostile relationship with the neighbors will benefit him, and a slightly less hostile relationship with the US would give him space. Given the plethora of challenges he is likely to face, no real changes should be expected in the context of Pakistan-China ties, though over a period of time, recalibration of policies should not be ruled out.

Nightcap

  1. Afghanistan, corruption, and the CIA Edward Luttwak, Times Literary Supplement
  2. Ten years after the financial crisis John Lanchester, London Review of Books
  3. Aztec moral philosophy Sebastian Purcell, Aeon
  4. Balthus, eroticism, and censorship Lev Mendes, New York Review of Books