Dani Rodrik's weblog

"Beggar-thy-neighbor" versus "beggar-thyself" policies

There is an important difference between domestic economic policies that create benefits by imposing costs on other nations ("beggar-thy-neighbor policies") and those whose economic costs are borne primarily at home though they might affect others as well ("beggar-thyself policies").

Beggar-thy-neighbor policies need to be regulated at the international level because a nation, left to its own devices, has the incentive to pursue zero-sum policies at the expense of others. This is the strongest argument for subjecting China’s currency policies or large macroeconomic imbalances like Germany’s trade surplus to greater global discipline than currently exists.

However, “beggar thyself” policies are not the consequence of a failure of international cooperation.  They reflect either a deliberate domestic decision to sacrifice economic efficiency to a competing social value, or, in the worst case, a failure of domestic politics.

Consider, for example, agricultural subsidies, bans on genetically modified organisms, or lax financial regulation. While these policies might impose costs on other countries, they are deployed not to extract advantages from them, but because other domestic-policy motives – such as distributional, administrative, or public-health concerns – prevail over the objective of economic efficiency.

The case for global discipline is in fact quite weak with beggar-thyself policies. After all, it should not be up to the “global community” to tell individual countries how they ought to weight competing goals. Imposing costs on other countries is not, by itself, a cause for global regulation. (Indeed, economists hardly complain when a country’s trade liberalization harms competitors.) Democracies, in particular, ought to be allowed to make their own “mistakes.”

For more, see here.

Gülenists will get you, one way or another

This time the Gülenists were caught red-handed. 

In March 2009, a non-commissioned officer (NCO) serving on an air force base in the central Turkish town of Kayseri confessed to planting forged documents on a military computer, on instructions from his Gülenist mentor.  His detailed account provides a rare glimpse of how Gülenists use their network to infiltrate the military and frame targeted officers with fabricated material.  Equally important, the aftermath of the episode shows how Gülenists are able to manipulate the judiciary to cover up their tracks and turn the tables on those who shed light on their misdeeds.  

The NCO told investigators that he had a long-standing affiliation with the Gülen movement.  As a high school student he had spent time in “Işık Evleri.” Translated as “Light Houses” these are dorms and centers of instruction run by adherents of Fethullah Gülen.  After finishing military school and getting posted to Kayseri, he was contacted by an “older brother” he knew from Işık Evleri and asked to rent a flat with two other NCOs he was introduced to. 

The three soldiers were visited frequently by a succession of “older brothers” from the movement over the years.  They were given books by Fethullah Gülen and instructed about his teachings.

In February 2009, one of these “older brothers” gave the NCO a USB drive that contained two forged Word documents bearing the name of the Kayseri base commander.  One of them was based on a real document, but with key text deleted to make it look like the commander had blacklisted some of the local restaurants.  The second was an entirely fabricated document calling on army personnel to assist an officer jailed on charges of being a member of the so-called “Ergenekon terror organization.”     

Following his Gülenist mentor’s instructions, the NCO entered these files on the computerized document management system in the base, using another soldier’s account name and password.  With the documents in the system and their authenticity thereby established, they could now be leaked to the media and townspeople to wage a campaign against the base commander.

In the long saga of deception, manipulation, framing and other dirty tricks to which Turkish politics has succumbed in recent years, this is merely a minor episode.  But the case is important as it lays bare Gülen adherents’ modus operandi.  It sheds light on how some of the most significant court cases Gülenists have mounted against their opponents – such as Balyoz/Sledgehammer, OdaTV, or “Islak Imza” – could be erected on fake and planted evidence.

What makes the story even more telling, however, is what happened next, following the NCO’s confession. 

Stories began to appear in the Gülenist media that the confession had been extracted under “torture.” Lacking evidence of physical harm, the NCO’s new lawyers argued that the method of torture employed was “hypnosis.”  The military prosecutor who carried out the investigation, Colonel Zeki Üçok, was hounded and became the subject of a growing mountain of allegations – everything from bribery to planning a coup to availing himself of Russian prostitutes.  Details of his life, down to his shopping lists, were leaked to the media.  Colonel Üçok’s assistant and a secretary were compelled to give false testimony saying that Üçok carried out his investigation on his own and in secret, openly contradicting the signatures that verify their presence along all stages of the proceedings.

Üçok has rejected the accusation that hypnosis was used during the questioning.  Not only does the charge seem far-fetched, it also flies in the face of the documented details of the case.  A single medical report, obtained months later, claimed to find evidence of hypnosis – quite a feat of medical forensics given the time that had elapsed in between.  In fact, the NCO had received multiple medical, psychological and pharmacological examinations during the period he was detained and questioned, and none of those tests indicated mistreatment.  Neither had the NCO complained to his lawyers or anyone else about mistreatment, until the torture allegations began to surface in the media.  His statement was taken in the presence of his (first set of) lawyers.  And the specialist who is alleged to have carried out the hypnosis – a retired officer Colonel Üçok invited to Kayseri to help him with the case – was not even present when the NCO gave his first confession (he arrived in town a day later!).       

No matter. The NCO recanted, and he was subsequently cleared of any wrongdoing and returned to his military post.  Colonel Üçok, meanwhile, was thrown in jail, where he remains to this day, forced to defend himself against a series of charges one more absurd than the other.

So next time you hear Gülen sympathizers wax eloquent about dialogue, peace, moderation, democracy and justice, think of what happened in Kayseri and to Colonel Üçok.

UPDATE AND CORRECTION: The NCO confessed to planting only one of the two documents mentioned above (the one with the fictitious instruction asking military personnel to provide assistance to an Ergenekon defendant).  The second (altered) document was circulated separately.

An article in Dutch

This is an article in Dutch about the Globalization Paradox and my views on the eurozone crisis. The picture is horrible, but I am told the writeup is pretty good.

Oh, where have all the competent forgers gone?

Pity the mafia that is staging what is probably the most significant political trial in modern Turkey’s history – a show trial in which more than three hundred Turkish military officers stand accused of plotting a military coup back in 2003.  Since early 2010, the mafia has produced three different batches of evidence to put the defendants behind bars.  Alas, each batch contains such obvious signs of forgery that they seem rather the handiwork of a bunch of crooked Keystone Kops.  Naturally the only thing that keeps the trial going is the heavy support of the AKP government and its Gulenist allies. 

First, there was a trunk full of documents delivered to a newspaper reporter.  The documents, digital Word files on CDs, described in gory detail preparations for a military coup.  Within days, it became clear that these files had just a small problem: even though they were made to look like they dated from 2003, they referred to future events or entities that did not yet exist. By now, hundreds of such anachronisms and other inconsistencies have been identified in this first batch, leaving no doubt that the documents are the product of a much later hand.

Then, with great fanfare a second batch of digital documents was unearthed from a naval base.  One might have thought the forgers would have become better at their craft with experience.  Apparently not.  The new documents not only repeated the initial mistakes, they compounded them.  Officers were shown on a ship not yet commissioned, on duty in an outfit not yet created, or in meetings they supposedly attended while hundreds of miles away.    

So when a third find was reported, this one a flash disk supposedly found in a retired air force officer’s home, I thought for sure that it wouldn’t contain such inconsistencies and anachronisms .  Indeed, this time forgers tried to be smart and cover for their earlier blunders.  They inserted in the new documents statements to the effect that the coup plotters had made conscious mistakes in their documents to cover their tracks.  (Of course, it was left unclear how such “mistakes” could account for 2009 information finding its way into a 2003 document – but no matter.)   

But incredibly they again slipped up.  In fact, this third find contains some of the worst howlers to date.  One document in which plotters allegedly lay out their desired changes in legislation contains an annex in which the future amended form of the law is cited, down to its precise number and date of adoption two years later! A document supposedly prepared in 2007 contains the scan of a newspaper article from 2009.    

Is it so difficult to find competent forgers?

This would all be funny if hundreds of people were not in jail on the basis of such documents, and if another indictment had not just been accepted by a Turkish court – based on the third batch of fabricated evidence. 

What is equally scandalous is the almost complete lack of coverage in the Turkish media of the facts of this case.  “Independent” media, intimidated by the government, shies away from discussing the problems with the evidence and the evident manipulation by the police and prosecutors.  Pro-government media, including most notably the Gulenist media, act as the propaganda arm of the prosecutors and systematically distort the facts.

And what do the supporters of the prosecution say when confronted with the evidence of fabrication? A common response is that the anachronisms are due to the “updating” by the coup plotters of the original documents.  The trouble with this argument is that the documents show no sign of updating – except for the occasional anachronism.  The names on them belong to officers on duty back in 2003, long since retired.  The dates – both on the files themselves and in the metadata – are also from the earlier years.  It is evident that the true authors of these documents altered the system clock of the computers on which they worked to make it look like they were prepared and last saved in 2003.

At this point, the defenders of the case lose any pretence of coherence.  They say it is up to the defendants to explain why such inconsistencies and anachronisms exist.  I am not kidding.  Here is Bülent Keneş, the editor the Gulenist daily Today’s Zaman.  So if the prosecutors cannot prove their case, the defendants must to do it for them.

Did you say Kafka?  No, this is all too absurd even by that standard.

Europe's next nightmare

As if the economic ramifications of a full-blown Greek default were not terrifying enough, the political consequences could be far worse. A chaotic eurozone breakup would cause irreparable damage to the European integration project, the central pillar of Europe’s political stability since World War II. It would destabilize not only the highly-indebted European periphery, but also core countries like France and Germany, which have been the architects of that project.

Read the rest here.

Why is the bankruptcy of the Greek government different from the bankruptcy of California?

The European Union, and the Eurozone in particular, has impressive institutional achievements to its name.  We have a European Parliament, European Commission, European Court of Justice, a set of common regulations that exceeded 100,000 last time I checked (acquis communautaire), and of course the European Central Bank.  These institutions are meant to underpin its unified market. 

Yet we have now become all too aware of how incomplete these institutional arrangements are.  To see the point, it is instructive to compare what is going on with Greece today with how a truly unified nation, such as the United States, deals with crisis in one of its constituent units, say California. 

California shares a common currency with the rest of the U.S., just as Greece (or Ireland or Spain) does with the Eurozone.  But when the state government in California goes bust:

• Californians automatically get welfare checks and other transfer payments from Washington.
• Californian borrowers do not get shut out of credit markets and those with healthy balance sheets can borrow from the rest of the nation.  This is because there is no “California risk” the way there is Greek sovereign risk; borrowers in California operate under a federal legal regime and the state of California cannot force them to hold California paper or prevent them from repaying their debts to non-Californians. 
• The Federal Reserve stands ready to act as a lender of last resort to any Californian bank.  (Why? Well, because it is one country after all…)
• California has representatives and senators in Washington, D.C., who can push for remedies for California’s economic troubles through political channels (e.g., fiscal spending, federal assistance, debt relief)
• Californians can easily move and seek jobs elsewhere in the U.S.

The flip side of these benefits is that there is no expectation that Washington, DC must bail the state government.   

A subtle point here is that Washington’s “no bail out” commitment is rendered credible by the direct support residents of California get from Washington, DC.  This support limits the economic/political fallout in California.  By contrast, the bankruptcy of the Greek government condemns the entire Greek financial system and sends the entire Greek economy down the drain.     

In other words, because the state of California has no “sovereign powers,” it is effectively just like any other moderately large borrower.  The consequences of its bankruptcy are no more or less serious. 

The political quid pro quo in the U.S. is this.  California has given up its sovereignty and has accepted the reach of federal laws and regulations.  In return, Californians are part of the governance structure in Washington.  Neither of these is true to quite the same extent in the Eurozone. 

Consequently, a crisis within the Eurozone is more costly both in economic and political terms.  We get ad hoc arrangements to extend credit (rather than automaticity), protracted financial crises and deeper economic recession, and mutual resentment on both sides.  Greeks complain about “German selfishness” while Germans resent the creeping “transfer union.”  Ultimately, the survival of the Eurozone itself is threatened.

In short, the euro’s institutional incompleteness has left the Eurozone badly exposed to the crisis.  Euro-skeptics say “we told you so.”  Others, like me, will argue that it was the EU’s misfortune to have been caught halfway in its institutional integration process by a financial crisis that was not its own doing.

But that is all water under the bridge now.  The main lesson from the debacle is that economic union requires political union.  The EU needs either more political union if it wants to keep its single market, or less economic union if it is unable to achieve political integration. 

At this stage, the former path looks by far the less likely.  If it has to come to it, the more orderly and premeditated the coming break-up of the Eurozone, the better it will be.

Milton Friedman’s Mixed Legacy

The image most people will retain of Friedman is the smiling, diminutive, unassuming professor holding up a pencil in front of the cameras in “Free to Choose” to illustrate the power of markets. It took thousands of people all over the world to make this pencil, Friedman said – to mine the graphite, cut the wood, assemble the components, and market the final product. No single central authority coordinated their actions; that feat was accomplished by the magic of free markets and the price system.

More than 30 years later, there is an interesting coda to the pencil story (which in fact was based on an article by the economist Leonard E. Read). Today, most of the world’s pencils are produced in China – an economy that is a peculiar mix of private entrepreneurship and state direction.

What would Friedman think of the turn that the global division of labor has taken? 

Read the full column here.

The Globalization Paradox in South Sudan

A student send me this picture, taken in South Sudan:

The view from the windshield nicely illustrates the subject matter of the book...

A couple of videos

The International Food Policy Research Institute has posted videos of the presentations from a conference in Ghana a few months back.  My presentation on the paper Globalization, Structural Change, and Productivity Growth is here.  My discussion of the policy implications in the second-best policy environments of the developing countries is here.

Unconditional convergence

I have a new paper out by this title, which you can download here. It shows that unconditional convergence is alive and well, but that we need to look for it within manufacturing industries rather than the economy as a whole. Industries that start at lower levels of labor productivity grow faster, regardless of the quality of policies or institutions in their home economies.

Here are four illustrative cases:

The initial level of labor productivity is on the horizontal axis, while subsequent growth rates (net of a constant term) are shown on the vertical axis.

Similar scatter plots never show convergence at the aggregate (country) level. Hence what seems to matter for growth is the ability to pull resources into the economies' "convergence industries," manufacturing in particular. What high-growth countries have in common is their ability to deploy policies that compensate for the market and government failures that block such structural transformation. Countries that manage to affect the requisite structural change grow rapidly while those that fail don't