Wednesday, January 23, 2019

Governments of limited vice

When you travel from a less orderly country (which is practically every country in the world save Singapore and Norway) to Switzerland you notice all the usual things associated with Switzerland: order, cleanliness, pervasiveness of rules, trains that run on time etc. This is so well known—and has been known for at least three centuries—that is not worth pointing out. (Even Asterix has a couple of comic books about it.)  

But one should also notice that all the things that are apparently sources of disorder in other countries exist in Switzerland too: people are drinking, drugs are abundant, prostitution is easily noticeable, casinos are practically everywhere, stealing of money (provided it comes from elsewhere) is acceptable. The same is largely true for Nordic countries, and even Singapore.

So what makes these countries successful, despite the presence of all these vices, and others unsuccessful?

I think it is useful to divide governments into three categories: governments of open vice, governments of limited vice, and governments of virtue.

Governments of virtue consider human nature as malleable and fundamentally (given sufficient “massage”) virtuous. They try to impose that virtuous behavior on its citizens, but since they misread human nature, they end up by producing an enormous generalized hypocrisy where everyone claims to behave according to the virtuous principles but in reality does the reverse. These are governments that impose bans of alcohol, pre-marital intercourse, or believe that people should work regardless of material incentives for the benefit of a “community”. Such governments invariably fail. This happened to Savonarola in Florence, Robespierre in France, the prohibition of alcohol in the US, Stakhanovite movement in the USSR, Cultural Revolution in China, 1972 zafra in Cuba, ban on alcohol and open sex in Iran and elsewhere in the Islamic world. Other than fostering  hypocrisy, they manage to create lack of trust among their citizens which makes collaboration needed for development difficult. They fail because their idea of human nature is wrong: we do not want to be ruled by virtue.

At the other extreme are governments of open vice. They accept human nature as it is and impose no, or almost no, constraints on it. They let corruption, drugs, prostitution, stealing flourish. The examples are many and monotonous. Just think of China in the 1930s, Cuba in the 1950s (or today?), Russia in the 1990s, Colombia of the drug lords, or Congo now.

The successful countries have regimes that also start from the premise of true human nature which is not virtuous (or at least is not virtuous all the time). They allow vice to flourish but limit its score,  both physically (areas where it can be exercised) and “ideally” (activities where it can be done). They allow corruption but call it lobbying and ask that you register. They allow gambling but ask that casinos be located in big, imposing buildings, and that everybody be impeccably dressed and sober. They allow prostitution but ask that prostitutes issue bills and pay taxes. They allow stealing so long as it is done discreetly.

But as soon as any one of these vices spills out of its confined area, governments of limited vice crack down on it  with all their might. Vices thus never threaten to overwhelm the body public and to spread beyond acceptable limits. People continue functioning on a daily basis as upstanding members of community. Ostensible virtue is projected far and wide. But their actions at work, in family,  or at night remain limited to those “acceptable” areas of vice and are never mentioned. They are thus not allowed to “contaminate” the rest.

Governments of limited vice do not pretend to impose virtue, except when from time to time, at the occasion of national holidays, they give it a lip service. But since that lip service is not in such a glaring contradiction with reality as it is in the case of governments of virtue, people –themselves beneficiaries of the implicit contract—are willing participate in the pretense.

Such governments are stable. Everybody seems to follow the Way---even if everyone knows that this it is only a partial truth.

Thursday, January 17, 2019

Russia’s circular economic history?

Today I participated in a nice web-based program started by the Central Bank of Russia (it will be posted soon). An economist is being interviewed by another, and then the one who has been interviewed becomes in his/her turn the interviewer of yet a third one. My friend Shlomo Weber, the head of the New School of Economics interviewed me, and then I interviewed Professor Natalya Zubarevich, from the Lomonosov Moscow State University and a noted scholar of Russian regional economics.

Just a couple of days ago Natalia gave a very well-received talk at the Gaidar Forum in Moscow on (what one might call) “unhealthy convergence” of Russian regions. In fact, Natalia shows that most recently regional per capita GDPs have started a mild convergence, but that this is due first to low growth rate of most of them and the economy as a whole, and to the redistribution mechanism (mostly of the oil rent) between the regions. A healthy convergence, Natalia says, would be the one where economic activity, and especially small and medium size private businesses, were much more equally distributed across some ninety subjects of the Russian Federation. She also had very interesting insights into the excessive “verticalization” of economic power and decision-making in Russia, and the economic growth of Moscow (much faster than of any other part of Russia) driven by centralization of that power, and concentration of large state-owned or state-influenced enterprises as well as bureaucracy in Moscow.

What most attracted my attention during Natalia’s presentation at the Gaidar Forum was her description of the current period of low growth rates in Russia as zastoi, or stagnation. Now, zastoi has a very special political meaning in Russian because it was a disparaging term used in the Gorbachev era, and by Gorbachev himself, to define the Brezhnevite period of declining growth rates, lack of development perspectives, unchanging bureaucracy, and general demoralization and malaise.

But I asked Natalia the following question. Looking over the past 150 years of Russian history (and I think it is hard to go further back), were not really the best periods for ordinary people exactly the periods of zastoi: incomes rose by little for sure, but the state repression was weak, there were no wars, and probably if you look at violent deaths per capita per year, the lowest number of people died precisely during the periods of zastoi. So perhaps that zastoi is not so bad.

Natalia said, “I know it: I lived through the Brezhnev period. Many people were demoralized; but I used it to study. I never read so many books and learned so much as then—you could do whatever you wanted because your actual job really did not matter much.” (Even art, as I saw in the Tretyakovska Gallery, although some of these paintings were never exhibited in the official museums, seems to have done well during the Brezhnevite zastoi. And as the recent film, which I have not seen, but read the reviews about, Leto, appears to indirectly argue as well.)

The best growth periods, as Natalia said, and as is generally accepted by economic historians were the 1950s up to about 1963-65, and then the period of the two first Putin’s terms. In both cases, the growth spurs came as a ratchet effect to the previous set of disasters: in the Khrushchev period, to the apocalypse of the Second World War, in the Putin period, as a reaction to the Great Depression under Yeltsin during the early transition.

So this then made us think a bit back into the past (say, going back to 1905) and put forward the following hypothesis: that Russian longer-term economic growth is cyclical. The cycle has three components. First a period of utter turbulence, disorder, war, and huge loss of income (and in many cases of life as well; period A), followed by a decade or so of efflorescence, recovery and growth (period B), and finally by the period of “calcification” of whatever (or whoever) that worked in that second period—thus producing the zastoi or stagnation (period C).
I do not know if this is something specific to the Russian economic history. It made me think of Naipaul’s observation on successful and unsuccessful countries. The history of the former consists of a number of challenges and setbacks indeed, but certain things are solved forever, and then new challenges appear. Take the United States: the Indian challenge and then the independence from Britain were not easy to overcome/acquire, but eventually, they were and they never came back; then the Civil War and the Emancipation; then the Great Society etc. But unsuccessful countries, according to Naipaul (and he had, I think, Argentina in mind) always stay within the circular history. The same or similar events keep on repeating themselves forever without any upward trend—and no single challenge is forever overcome. In each following cycle everything simply repeats itself.

The challenge for Russia today is to break this cycle.